City National Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.23.14 | About: City National (CYN)

City National (NYSE:CYN)

Q4 2013 Earnings Call

January 23, 2014 5:00 pm ET

Executives

Cary Walker - Senior Vice President of Investor Relations

Russell D. Goldsmith - Chief Executive Officer, President, Director, Member of Special Matters Committee, Chairman of City National Bank and Chief Executive Officer of City National Bank

Christopher J. Carey - Chief Financial Officer, Executive Vice President, Chief Financial Officer of City National Bank and Executive Vice President of City National Bank

Analysts

David Rochester - Deutsche Bank AG, Research Division

Joe Morford - RBC Capital Markets, LLC, Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Herman Chan - Wells Fargo Securities, LLC, Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Gaston F. Ceron - Morningstar Inc., Research Division

Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division

Operator

Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's fourth quarter and year-end 2013 financial results. My name is Victoria, and I will be your coordinator for today. [Operator Instructions] This call is being recorded, and will be available shortly after it is completed on City National's website at cnb.com. Now I will turn this call over to Cary Walker, Senior Vice President and Manager of Corporate Communications for City National. Please proceed.

Cary Walker

Thank you and good afternoon. Here to discuss City National's fourth quarter and year-end 2013 results are Chairman and Chief Executive Officer, Russell Goldsmith; and our Chief Financial Officer, Chris Carey. This call will include comments and forward-looking statements based on current plans, expectations, events, and financial industry trends that may affect the company's future operating results and financial position. These statements involve risks and uncertainties, and future activities and results may differ materially from expectations. Speakers on this call claim the protection of the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from expected results, see the company's annual report on Form 10-K for the year ended December 31, 2012. This afternoon, City National released its financial results for the fourth quarter 2013. To get a copy of our news release, please visit our website at cnb.com. After comments by management today, we'll open up this call to your questions. Now I'll turn it over to our CEO, Russell Goldsmith.

Russell D. Goldsmith

Good afternoon, and thank you all for joining us again. As you know, City National just announced its financial results for the fourth quarter and the full year of 2013. I'm very pleased to report to you that City National had another very good year in 2013, earning $230 million, which is up 11% year-over-year on revenue of $1.2 billion. For the fourth quarter, net income grew 17% from the fourth quarter of 2012. In 2013, assets, loans, deposits and investment assets under management all grew to record levels. And for the first time in 2013, City National's market cap exceeded $4 billion. City National has now been profitable for 83 consecutive quarters, which is almost 21 years in a row.

The company also announced today that it will increase its quarterly common stock dividend from $0.25 to $0.33 per share. Now when you factor in the $0.25 special dividend City National paid in December 2012, this increase will actually maintain our payout in the middle of City National's long-standing practice in the range of between 30% and 35% of prior year earnings for the payment of dividends to shareholders.

Before I turn the call over to our CFO, Mr. Carey, let me review a few of the highlights from last year, starting with very strong loan growth. In 2013, City National's loan portfolio grew 16% or nearly $2.4 billion. C&I lending accounted for just over half of that growth. Another quarter of it came from residential mortgage lending to our private clients. Commercial real estate was largely responsible for the remainder. City National's momentum remains strong in the fourth quarter as the company added over $600 million in new loans, and it really is across the board and in virtually all of our geographies.

No discussion of City National's solid performance last year would be complete without a few words about the company's very strong credit quality. Nonaccruals came in lower and so did loans past due. City National completed its second straight year of net loan recoveries, and that enabled us to both add $25 million to our credit allowance and at the same time, we made no loan loss releases to contribute to our net income. In fact, we haven't ever done that.

Turning to deposits, which also grew substantially, City National also added $2.2 billion in deposits last year, bringing our total to $25.7 billion, which is another new record for City National. And as you know, a remarkable 98% of these deposits are core deposits. It was also good to see fourth quarter deposit growth like the loan growth came from across all of the divisions in the bank. It was led by entertainment and by commercial banking, and about 1/4 of the overall deposit growth in deposits came from new clients.

In the Wealth Management space, City National's deposit base continues to grow even as more funds flow into the stock market and into our investment area. Trust and investment, brokerage and mutual fund fees grew significantly last year, thanks in part to market appreciation, thanks in part to the successful integration of City National Asset Management and Rochdale Investment and thanks in part to the very strong investment performance turned in by our managers at City National Rochdale. The company now has $22 billion in assets under its management, which is up about $4 billion from when we closed the acquisition of Rochdale just over 1 year ago. And that's against about $64.5 billion in total assets under management or administration in our entire group of Wealth Management companies.

City National managed in 2013 to grow its earnings 11% despite very low interest rates, margin pressure and the continuing and expected runoff of covered assets from our FDIC bank acquisition some years ago. City National grew even while adding new offices and enhancing the company's capabilities with additional investments and new people, products and technology. The company opened 3 new branches: 2 in New York City, our first 2 branches there, and 1 additional office in the San Francisco Bay Area, but at the same time, we consolidated 3 other branches in 3 other parts of California. Today, City National has 77 offices in 5 states. Actually, it was -- 1 was in Nevada, I think, that we consolidated of those 3. Nonetheless, in spite of our physical expansion, City National continued its long-standing practice of investing considerably more in technology and new products than in its premises, enhancing our online and mobile banking capabilities meaningfully, including in 2013 the successful launch of City National Online, our state-of-the-art personal portal.

As we start 2014, City National, today has more talent, technology, resources and capabilities than at any time in its now 60-year history. And combined, they give us a considerable ability to build going forward. That brings me to our outlook briefly for 2014. Economic conditions, we believe, are still improving. California, where, of course, City National is mostly located, continues to grow faster than the nation as a whole, and that's especially true of the large urban coastal counties that we serve predominantly. The San Francisco Bay Area and even downtown Los Angeles are experiencing very dynamic economic activity. California as a whole in the last 12 months has created more than 200,000 jobs, and most economists we talked to expect the unemployment rate in California to continue falling this year. Consumer spending is strong, tourism and trade are up and exports of key commodities are rising. Nearly all of the key industries that City National focuses on, such as technology, entertainment, real estate, professional services, agriculture, trade, quick-serve restaurants, health care and others are doing reasonably well. By and large the same can be said in New York, and even Nevada's economy is showing some modest signs of improvement.

In 2014 city National's performance -- we expect City National's performance to, for the most part, mirror what we saw in 2013. We're projecting City National's net income to grow modestly in light of the continued low interest rate environment that we expect. Loans and deposits should increase solidly, but we don't think they're likely to be growing at quite the levels we achieved in 2013. We do expect credit quality to remain strong and stable although given the amount of loan growth that we have put on and the amount of loan growth we anticipate, we think we will probably finally need some amount of additional provisioning, which would actually be the first time in over 2 years. With its asset-sensitive loan portfolio, low-cost deposit base, shorter-duration securities portfolio and a growing client and colleague base, City National really is well positioned for improving economic conditions and the higher interest rates that we are getting closer to. So all in all, we are pleased with our performance in '13 and reasonably optimistic about 2014.

Now, let's drill into the earnings report in more detail, and for that, let me turn to Chris Carey.

Christopher J. Carey

Thank you, Russell. Good afternoon all. Well, before we take your questions, I'll add a few words about revenue, expenses and the balance sheet.

First, revenue. Net interest income held up reasonably well in 2013 despite pressure from lower rates, industry-wide pricing pressure and the gradual runoffs of high-yielding FDIC-covered assets. Fourth quarter margin compression was due primarily to covered loan prepayments and portfolio runoffs. Together, they accounted for 25 basis points of the linked quarter margin decline. The remaining 8 basis points came primarily from lower loan yields and the seasonal runoff deposit balances that were invested in very short-term securities. Noninterest income varies from quarter to quarter primarily because of the FDIC loss-sharing and securities. But the core of noninterest income fee, income tied to Wealth Management, cash management and international services continue to grow in the fourth quarter. For the most part, as Russell said earlier, that reflects market appreciation and the strong performance of City National Rochdale and all of our investment sites [ph]. Together, they now oversee close to $65 billion in assets, and that doesn't include the $26 billion of assets held by Matthews International, in which City National holds a 20% minority interest.

Let's move to the expense line. Expenses for the year were well contained. They grew only 3% in 2012, and fourth quarter cost actually fell slightly from 1 year ago. Excluding our acquisition of First American Equipment Finance and Rochdale Investment Management, 2013 noninterest expense actually was down from the year ago. However, the larger increase in the third quarter of 2013 was primarily due to higher legal and professional fees for matters that came to a conclusion at the end of the year. Part of that is related to the high levels of recoveries that we've had. It also reflected higher compensation expense for performance incentives as well as some other seasonal year-end accruals. Probably $3 million or so is not what you'd really call part of our true run rate. Expense management is something we pay close attention to. Every year the company identifies new cost savings opportunities, and that will continue in 2014. As we anticipate expense growth to be very much in line with what it was for the full year of 2013.

Now let me say a couple of words about the balance sheet. As you could see, the company continue to shorten the duration of its available-for-sale securities portfolio. In the fourth quarter, we transferred $1 billion of longer-duration securities from available-for-sale to held-to-maturity. This transfer, along with reinvestment cash flow in the shorter-duration securities, helped reduce the available-for-sale duration from 2.9 at September 30 to 2.4 at December 31. In November, we also issued $100 million of preferred stock in plan to use proceeds from that to pay off some higher-cost subdebt that would become callable at the start of the third quarter of 2014. This will further solidify our balance sheet addition of Tier 1 capital. Nearly all of you on this call have followed City National for quite some time, so you know that we're committed to remaining well capitalized. All of our company's estimated pro forma capital ratios already are comfortably above the Basel III rules that we have fully implemented in 2019. So all in all, we feel very good about 2013 and are confident as we look ahead. The company's balance sheet is strong. Our business is performing well across the board. Many of the investments we made over the past several years are producing results, and the economy appears to be gaining momentum. So Russell and I are now happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Dave Rochester with Deutsche Bank.

David Rochester - Deutsche Bank AG, Research Division

You mentioned the onetime expenses this quarter. I thought I caught a $3 million amount. Was that the entire amount in the legal and professional side?

Christopher J. Carey

Well, I think of this -- I look at it as more of a net number. Most that comes from there because we actually had some expenses that were lower, but we usually have a little bit more activity in the run-up in marketing at the end in the fourth quarter too, so you had marketing and legal that were the 2 biggest drivers of it.

David Rochester - Deutsche Bank AG, Research Division

Got you. And you also talked about performance incentive accruals in the release, how much of the expense base was that this quarter?

Christopher J. Carey

Probably about -- probably $1 million or so in there that I'd say is probably not recurring. It was a little lower last quarter because we have accruals [ph] of some benefit expenses in the third quarter. So most of it is still going to be in our run rate.

David Rochester - Deutsche Bank AG, Research Division

Got you. And in your outlook, you talked about maybe a little bit slower loan and deposit growth this year. Was just wondering, is that a function of the competitive environment or you're just trying to maybe take a more conservative approach here?

Russell D. Goldsmith

I don't think we're taking a more conservative approach. I think we have a very measured credit standards, and we don't see those changing in 2014. I think it's really just a reflection of our outlook for the economy, the general level of loan demand. We had, I think, very strong growth this year and attracted a strong group of new clients. We think we will have another very solid year of growth in 2014. But at this point, we're not projecting quite as robust a level of growth, just given the general economic conditions and low levels of loan demand.

David Rochester - Deutsche Bank AG, Research Division

Got you. And just one last one. You talked that the loan yields coming down earlier. It looked like that was especially true for C&I and CRE. But given where those book yields are now, it seems like they must not be too far above production rates at this point. So I'm just wondering if you could just give us some color on where that overall pricing is for those 2 buckets, if you could?

Christopher J. Carey

Yes, I think you're right. I think it's getting pretty close to the bottom. I think you might have noticed residential barely went down and that's probably bottomed out. So we're getting pretty close there. Probably the closest one next would be real estate and then -- and C&I. Probably still has the biggest risk for a little bit more decline.

Russell D. Goldsmith

And you can see it in what Chris says about the margin. The bulk of the contraction was caused by the covered loans, and that's an ongoing and positive story for us, but it does tend to pop up in a variety of ways. And when you take that out, the shrinkage is relatively modest.

Operator

The next question comes from the line of Joe Morford with RBC Capital Markets.

Joe Morford - RBC Capital Markets, LLC, Research Division

I guess just a follow-up on Dave's question on the loan growth. Do you -- as you look out this year, do you expect the mix to be very different at all in terms of growth? It seemed like as you pointed out about half of it came from C&I, should be kind of similar in the coming year?

Christopher J. Carey

Yes. I think that's right. I mean, as you know, in the residential mortgage space, we're predominantly on the purchase side. It's possible that you could see that coming down a little bit, and you could see commercial real estate picking up a little bit. But I think in general, that's about the right mix.

Joe Morford - RBC Capital Markets, LLC, Research Division

Okay. And then for the increase in the brokerage and investment fees this quarter, how much of that kind of came from the annual performance fees versus just kind of ongoing growth and assets under management and market appreciation?

Christopher J. Carey

A little over $1 million came from the annual performance fee.

Operator

Your next question comes from John Pancari with Evercore.

John G. Pancari - Evercore Partners Inc., Research Division

Can you give us a little bit of additional color on the addition to the securities portfolio during the quarter? What type of securities are you investing in and what duration and what rate?

Christopher J. Carey

Well, we -- the biggest focus is on what we call our core portfolio, which is the available-for-sale. And we still have a little room to increase our held-to-maturity. And if we're investing in that end, we're investing in 5 to 7 kind of duration. But in the core portfolio, where the duration is 2 to 4, we're really looking to shrink it further frankly, not aggressively but the general trend would be -- I mean, we're still keeping an eye on rates, rates that are now backed up a lot, but it ranges from -- we invest anywhere from a duration of 1 or even lower up to -- in that portfolio to 4 typically, and the yields are all the lot. They're going to range from 50 basis points to 300 basis points. And mostly, agency is what we're doing, but agency MBS and CMOs are probably the 2 bigger categories, and agency debt, so it's nothing. Similar to what we've doing all along.

John G. Pancari - Evercore Partners Inc., Research Division

Okay. All right, that's helpful. And then on the margin, can you give us a little bit of color on the expectation for how the margin should trend overall in the coming quarters, fair to assume some incremental compression first? And then also, could the compression, excluding any FDIC noise, be similar to the high single-digit pace that you saw this quarter excluding FDIC?

Christopher J. Carey

Yes, you kind of have to exclude the FDIC because we had prepays very low this quarter, lowest in a couple of years. And while eventually we expect that to happen, I don't know that the next quarter it could pop back up. But I mean, my general comment, if you just want to think about more the core margins, would probably be some still some continued slight compression. But I think we're probably through the worst of it now. If we had really significant deposit growth, for example, beyond what we thought that would be net good, but that could compress the margin a little bit more. It would help net interest income. So some of it depends on what really happens with loan and deposit volumes. But sort of a business as usual. We'll see some slight compression.

Operator

Your next question is from Steven Alexopoulos with JP Morgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Chris, I just first to wanted to follow up on your comment on the expense growth being in line with 2013. Are you looking at total because I've total up around 7% and core up 4%. So excluding -- including or excluding the deal noise, I'm just wondering if you'll be a little more senior [ph] in terms of growth?

Christopher J. Carey

So the total expense is up 3%, actual reported numbers. Okay? So I'm not sure -- I mean that's what we're reporting.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

And that's what you're talking about?

Christopher J. Carey

Yes, that's with the deal noise in there. So what we're saying is we are expecting -- we had 3% growth in 2013. And obviously, if you took out the deal noise, it went down. We're looking at reported, about 3%, and that's in line with what we'd expect to see for expense growth in 2014.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. That's helpful.

Russell D. Goldsmith

And I would just add that as I try to make clear that what that masks a little bit is that the company really focuses very carefully on expenses, but at the same time, we're expecting to open a couple more offices and add a meaningful number of people to the organization. So that's built into that 3% number.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Russell, that was actually my follow-up. Can you talk about that, number of branches you plan to open for 2014?

Russell D. Goldsmith

Yes. Actually, the plan is well underway. We're opening next week a South of Market office in San Francisco, which we're very enthused about. We just relocated and expanded our Palo Alto office a couple of weeks ago. We'll be moving and improving our Burlingame and Long Beach offices later in the year. And that's really the plan for this year. Beyond that, we have significant commitments to build out our business portal and other things in the digital and online space. So it's been a very active period for us in the last kind of 18 months counting this year. And that's the plan and premises at this point.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

So no branches planned for New York City this year?

Russell D. Goldsmith

Well, since we opened our first 2 in the last 6 months, we're going to kind of let that settle and then figure out how we want to expand that further. But no, we're not going to open any additional branches in Manhattan this year.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And just a final one, on the qualified mortgage rules now in effect, any anticipated impact for the mortgage business the way you run it? And I know it's early, but are you seeing any change at all in competitor behavior?

Russell D. Goldsmith

Well, we think that we're going to continue essentially business as usual in the mortgage business. As you know, we hold about $4.7 billion in mortgages and some home equity lines, but we do it with our existing and growing client base and either comply with the rules for QM or we'll underwrite them outside of QM. But we generally, almost without exception, the mortgages that we do, we hold on our balance sheet. We're not selling them, and we have a remarkably good track record of quality and performance. So we think where the CFPB has come out with these rules makes a lot of sense and won't negatively impact our business.

Operator

Your next question comes from Ken Zerbe with Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

I just want to make sure I understand the guidance in all of its different pieces because it seems like you're saying the expense go up a little bit, which is fine. You have modest core NIM compression, fine. I would've expected, I guess, the very, very strong growth you're having on the earning asset side to have driven more improvements in your net income guidance. I mean, is there any pieces that we're missing there or is it just that the growth in earning assets is largely being offset by the NIM compression such that it doesn't really fall materially to the bottom line? Hence the modest growth in net income or am I missing something?

Christopher J. Carey

The one thing you might not be factoring in, in terms of the modest growth, we're really referring to net income available to comment, so we also have the new preferred issuance, which I mean, you don't get much of an investment return on that so that's a little bit of a negative drag on our operating earnings. So I would say that would be the other thing, and we'll probably have a slightly higher tax rate as earnings go up also.

Russell D. Goldsmith

So as I think you know, we got the covered assets still declining and those interest rates are roughly double what we put on new loans. And then as I try to indicate, we think that we will have to add to our loan loss provisions, which are very robust now, and we intend to keep them at very solid levels. So that's a -- those are 2 elements that we're swimming against in order to grow net income. And even though expense growth is modest, we are adding a lot of people. You don't see us closing hundreds of branches and doing some of the other things you see in the industry.

Operator

Your next question is from Herman Chan with Wells Fargo.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Circling back with the provision expense guidance for 2014, I want to get your sense of how you expect that to play out relative to the potential credit recoveries that you're seeing over the past several quarters?

Russell D. Goldsmith

Well, we think the recoveries have been very strong as we referenced in the release, and that we anticipate recoveries will be at lower levels in '14. And we expect loan growth to still be significant. So at some point, those vectors cross, and we need to add modestly to our loan loss provision.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Understood. And a question on New York, those branches are up and running now. I wanted to get your take on potentially expanding some of your capabilities in the area. There are some banks in the New York market that have been successful and middle-market, commercial, CRE, multifamily. Is there an interest for the bank to bulk up there?

Russell D. Goldsmith

Well, we're very enthused about our presence in New York as you referenced. We have added 2 branches. Even though we've been in New York for over 11 years, it's the first time we've had ground floor branches, and they're off to a very nice start and not only are attracting clients and enabling us to serve our clients, but also giving us more visibility and brand awareness in New York. We've been on a kind of steady progression in New York starting with entertainment and private client, Wealth Management, specialty banking, technology banking. Now with the branches, we've got small business banking and our preferred banking, kind of our entry point to private banking. And I think you see will us move to expand the commercial banking that we do in New York in the course of this year.

Operator

Your next question comes from the line of Brett Rabatin with Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

I wanted to ask the guidance question maybe a little different way. Just kind of given the strong deposit flows you have had the past year, and I know a lot of banks are keeping excess liquidity on the balance sheet, and that's somewhat of a drag to margin/NII. Is the guidance essentially implying that liquidity will probably stay high through 2014 as you kind of keep some level of cash for potential deposit outflows and rates to go higher?

Christopher J. Carey

Yes, we are not predicting short-term rates are going to increase in 2014. So without short-term rates increasing, our best guess is likely that our liquidity is still going to stay high. I hope I'm wrong, and I hope they increase.

Operator

Your next question comes from the line of Bob Ramsey with FBR Capital.

Bob Ramsey - FBR Capital Markets & Co., Research Division

I was curious, I know you all talk about the provision gradually creeping in, in 2014. Is that happening in the first half of the year or do you think that, that ends up being more of a second half of the year event?

Christopher J. Carey

We try to shy away a little from the quarterly guidance. We're not quite that precise in our forecasting, so it's hard to say whether -- how that -- it usually can be a little lumpy will be the best way to answer.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Fair enough. And then you might have covered this in the prepared remarks, I might have missed it, but you obviously did add a fair amount to the held-to-maturity securities book, and I'm just curious what the reason was for the increase in those longer-duration assets this quarter.

Christopher J. Carey

It was an overall looking at all of our liquidity, and you obviously don't have to mark those through equity if you put it there. So it was a way to add some longer-term assets, that we have so much liquidity that you would not get impact the OCI [ph].

Russell D. Goldsmith

Well, I was just going to add to that last question. We did not increase our longer-duration securities.

Christopher J. Carey

We just moved it.

Russell D. Goldsmith

Exactly. Operator, do you have another question?

Operator

Yes. Your next question is from Gaston Ceron with Morningstar Equity.

Gaston F. Ceron - Morningstar Inc., Research Division

I just wanted to ask a quick question about the management segment. Obviously, you saw nice growth in the AUM there during the year. Obviously, market depreciation is a factor as with all companies. I'm just curious if you can give us a feel -- if you have any feeling for what you're kind of normalized outlook would be for organic AUM growth going forward. I mean what -- I'm trying to just get a feeling of what the market opportunity might be now that it's been a while since Rochdale was fully integrated and whatnot?

Russell D. Goldsmith

Well, so -- I mean, we think even without a market change, we will have healthy organic growth. I wouldn't put a number on it, but I would just say we're looking at -- we had very good sales volume and inflows last year, and the market certainly was a help, and about half of our portfolio was fixed income, so it didn't help that. But we think overall, excluding market, we'll have a good growth story here.

Operator

[Operator Instructions] Your next question is from Brian Klock with Keefe, Bruyette, Woods.

Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division

But just real quick. I know that you guys talked about loan growth. Still pretty strong loan growth in the quarter, and next year the expectation is going to be lighter than the strong growth in 2013. Realizing that your Basel III pro forma Tier 1 common is 8.5, so strong there. The tangible common equity is just above 6%. Your leverage is just about -- just above 7%. So even though Tier 1 common is just above 7%. So even Tier 1 common is pretty high, is there any worry about those other capital levels or leverage or TCE ratios being low and being something that would either hinder growth or require some sort of capital action if you had a chance to grow faster next year?

Christopher J. Carey

Well, if we have the problem that we are going to grow faster than we planned, we'll be happy to deal with it. Maybe the economy was better than we think. But if we stick to our current plan, we don't have concerns about the capital levels. We have actually more capital at the bank, which is another factor. So I think we feel pretty good about where we are. I mean, obviously, our overall risk profile and I think our credit performance is demonstrating that. It's a lot lower than a lot of our peers too. So I think we feel pretty good where we are.

Russell D. Goldsmith

And as you know, Brian, we obviously issued $100 million of preferred stock in November, which added to our Tier 1 capital. So the way we looked at it, that kind of would position us for the kind of growth that we expect in '14. And we continue at these levels to be retaining significant levels of earnings, which obviously helps build capital as well. So we think, given the positive path forward that we see, we have more than enough capital.

Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And I guess just last question, the C&I growth and CRE growth is really solid here on an end-of-period basis in the fourth quarter. Have you seen that kind of trend continue so far into January, or is there still some good demand in the commercial book?

Russell D. Goldsmith

I think that there are a variety of factors that are making us optimistic about continued loan growth. You have to set aside a certain amount of seasonality that occurs this time of the year. But I think there's a tone of additional optimism in the real estate space and in the commercial space. And our pipelines are actually looking pretty good across the company. So the kind of outlook that we're giving you does reflect the sense that loan demand is going to continue on the trend that we saw in the second half of the year.

Operator

At this time, there are no more questions in the audio queue. Also, I would like to turn the call back over to Mr. Goldsmith.

Russell D. Goldsmith

I want to thank everybody who participated in the call for joining us today and especially thank those who stepped up and asked some questions. We always appreciate your interest in City National and look forward to talking to you again at the end of the first quarter. Meanwhile, of course, as always, feel free to call Chris or me if any other key questions occur to you. Thanks again. Goodbye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.

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