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City National Bank (NYSE:CYN)

Q3 2011 Earnings Call

October 20, 2011 5:00 p.m. EDT

Executives

Cary Walker – SVP, Manager of Corporation Communications

Russell Goldsmith – President and CEO

Chris Carey – CFO

Analysts

Steven Alexopoulos – JPMorgan

John Pancari – Evercore Partners

Joe Morford – RBC Capital

Erika Penala – Bank of America-Merrill Lynch

Brian Klock – KBW

Aaron Deer – Sandler O'Neill & Partners

Jeff Davis – Guggenheim Partners

Operator

Good afternoon. I would like to welcome everyone to this discussion of City National Corporation's third quarter 2011 financial results.

My name is [Misty] and I will be your coordinator for today.

At this time, all participants are in listen-only mode. After the speakers' remarks, there will be a question-and-answer period for analysts and investors. If at any time during this call you require assistance, please press the star key followed by the 0, and a coordinator will assist you.

This call is being recorded and will be available shortly after it is completed on City National's website at cnb.com.

Now I'd like to turn the call over to Cary Walker, Senior Vice President and Manager of Corporation Communications for City National. Please proceed, sir.

Cary Walker

Good afternoon. Here to discuss City National's third quarter 2011 highlights are Russell Goldsmith, our President and Chief Executive Officer, and Chris Carey, our Chief Financial Officer.

This call will include comments and forward-looking statements based on current plans, expectations, commitments 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 those expectations. The speakers on this call claim the protection of the Safe Harbor Provisions contained in 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, 2010.

This afternoon, City National issued a news released outlining its third quarter 2011 financial results. To get a copy, 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 the call over to our CEO, Russell Goldsmith.

Russell Goldsmith

Thank you. Good afternoon and thank you all for joining our third quarter earnings update. If there are any Ranger or Cardinal fans who are listening instead of watching the game, a special thank you for tuning in to our call.

Today, City National announced its third quarter net income of $41.4 million, up 20% from a year ago. Year to date, our earnings totaled $129 million, up 41% from the first three quarters of last year. City National is well on its way to its 19th consecutive year of profitability.

The company's positive third quarter performance reflects six key factors in particular which I think are quite encouraging. First, for the second quarter in a row, loan production was strong with new loan originations of $685 million.

Second, and I think this is quite interesting, in this quarter we had more net loan growth than in any single quarter in the company's history. And we think this was due in part to substantially fewer loan pay-downs than we've seen in sometime because our new loan originations in the third quarter were just somewhat above a strong number in the second quarter.

Third, City National continued to add new clients. Fourth, core deposits again grew at a remarkable pace. Fifth, credit quality remains strong. And sixth, we managed expenses while still investing selectively in the company.

It's also worth noting that in the third quarter the company both increased its solid capital base and at the same time repaid $150 million of sub-debt and $25 million of REIT-preferred stock.

Between June 30 and the end of September, loan balances grew 4%, adding more than $500 million net to a loan portfolio that now exceeds $12 billion. Much of this growth, almost $750 million, came from C&I loans, and fully half of that came from new clients. Average commercial loan balances increased 15% from the third quarter of last year. Our corporate banking and franchise finance business in particular performed well.

The rest of our third quarter loan growth came primarily from commercial real estate lending for finished properties, not construction, as well as residential mortgage loans in our private bank.

Overall, the quality of our loan portfolio continued to perform well. Our modest loan provision in this quarter is actually the first loan provision we've recorded for the entire year-to-date, and it in part reflects a positive fact that the company is showing solid loan growth, as well as our continuing commitment to having substantial loan reserves.

Charge-offs and non-accruals did go up slightly, and Chris will talk a bit more about that in a few minutes. But the increases stem largely from two credits. These are things to be expected in a $12 billion portfolio, and for the most part, our underlying credit trends are good and our credit outlook remains positive.

As you can see in the numbers, deposits continue to grow at a truly remarkable pace. In the third quarter alone, City National added another nearly $1 billion in non-interest-bearing deposit balances. Over the past three years, the company has added more than $8 billion in core deposits, essentially non-interest-bearing deposits. That's a remarkable 77% increase in just three years. And in total, our core deposits are about 96% of our total deposit balances.

While they might not be generating as much value for us right now, eventually, as the economy recovers, and someday interest rates will rise, these additional deposits will enable City National to substantially grow its revenue, its profitability, and add assets. When that will happen brings me to a brief set of comments about the economy.

There's no question in my mind that business and investor confidence in the third quarter was affected in part by fears and uncertainties created during the summer and continuing to some extent now due to the lingering debt issues in Europe, the partisan gridlock that we see in Washington, and especially in midsummer, the serious concerns created in Congress for the very first time that the US might default on its debts. All of these factors are reflected in the volatility and some of the decline in the financial markets, which in turn have their own negative impact.

Underneath those attention-getting headlines, as we all know, there remains some major problems that continue to weigh on the American economy, including high unemployment, the still soft housing markets, with more foreclosures looming and heavy inventories still out there in many areas, and the fact that so many investors, but not all, but so many investors and businesses are sitting on the sidelines with their cash because they don't see sufficient opportunities that warrant investment or hiring or expansion.

In City National's geographies by and large, the economy held up reasonably well early in the quarter, but then, consistent with the trend I outlined, slowed down through August, but seems to be showing a few signs of picking up a bit in September. Even the Philly Fed Index numbers today I thought were an encouraging sign.

How much the economy will continue to grow during the next several quarters is still very much an open question. But fortunately, City National is positioned well for this tepid economic environment. By virtually any measure, from credit reserves and capital ratios, to the composition of its loan portfolio and its remarkable deposit balances, City National is quite strong.

In addition, the most publicized issues weighing on some financial institutions really are not problems for City National. We don't depend on trading revenue or investment banking for our income, we don't have exposure to Europe, and we aren't embroiled in a multitude of lawsuits over foreclosures and mortgage-backed securities.

Turning more specifically to the economies where we are based, here in California, the technology and entertainment industries still are reasonably strong, as I've reported before. Tourism, agriculture and commercial real estate are holding up. Agriculture in particular seeing some signs of strength. And international trade is expected to grow over 6% this year. Overall, California's unemployment rate is still much too high at 12%, but it varies by geography and the unemployment rates are significantly better in most of the areas where we are located, like Orange and San Diego counties, and the San Francisco Bay area.

Generally speaking, as we talk to our clients, I think they are almost without exception doing somewhere between okay and good. They may not be growing, but for the most part, they appear to have come through the recession and reached a positive profitable equilibrium that works in this economy. And then of course, some of our clients are doing quite well and are growing, borrowing, investing and expanding.

In New York where our bank's two offices continue to grow nicely, the economy is pretty stable and quite healthy. Nevada of course is still fighting an uphill battle, but we're seeing tourism in Las Vegas picking up somewhat.

So, in general, we believe economic conditions are challenging and are likely to remain that way for sometime. Certainly that's the framework that we have set for ourselves as we focus on how we'll perform and operate both through the remainder of 2011 and into 2012.

As I've said, fortunately, City National is well-positioned for this tepid economy with its strong balance sheet, a diversified client base, an exceptional low-cost deposit base, a remarkable team of people who deliver an exceptional private and business banking everyday, outstanding products, we generate a lot of new products and services, and state-of-the-art technology, and capabilities, and solid capital levels, all of which support our profitability and our growth.

City National also benefits from a very effective, focused and consistent value proposition and reputation that is helping us to retain and grow our client base. The investments we've made over the past three years in particular and that we continue to make selectively and strategically in people, products, technology, new offices and marketing have enhanced our ability to perform well.

In this economic environment, we have more opportunities than challenges, and we will continue to invest, expand and hire selectively, even as we deliver greater productivity and profitability, efficiency and effectiveness.

Now, to get into some of the more exciting details about the third quarter, let me turn the call over to our dynamic CFO, Chris Carey.

Chris Carey

Thank you, Russell. Good afternoon all. Before we go to your questions, I'd like to have a few words about credit quality, non-interest margin, covered assets, and expense.

Let's begin with credit quality, in the third quarter, as Russell said, we recorded a provision of $7.5 million excluding covered loans. And clearly, one reason was loan growth. We added about $500 million to our balance sheet during the quarter. Another reason was the uptick in charge-offs and non-accruals caused principally by two loans. One was a commercial loan, the other was a construction credit in a market that was hit especially hard by falling land values, by writing down a significant portion of the original loan, adding the rest to non-accruals, we have substantially lowered our land exposure there. In fact, we now have very little left in that market.

We believe that neither of these two loans signals any kind of trend at work in our loan portfolio. In fact, the credit picture in general still looks very good. Non-performing assets at quarter-end totaled 156 basis points of total loans. Loans that are 90 days or more past due on accrual status, excluding covered loans, amount to virtually nothing, 30 to 89-day past due credits fell sharply. And just -- might be more important than any of those indicators, criticized and classified loans continued in their steady decline.

The financial crisis a couple of years ago put City National's loan portfolio to the test and we came through it in good shape. The company's C&I book is well-diversified. Our portfolio loans for finished properties has outperformed peers. Construction exposure continues to decline; it now represents less than 3% of total loans; and our high-quality book of single-family mortgage loans to private client borrowers is still performing incredibly well. The company is well-reserved and its capital ratio is strong, especially in light of what we believe is a very conservative risk profile.

Now, a few words about the margin. The bottom line is that deposit gains are still outpacing loan growth, and so we continue to invest most of the new funds in lower-yielding short-term securities which puts pressure on the margin but adds to net interest income. In addition, you can see third quarter loan yields declined across the board, and even though prepayments of covered assets helped our margin, the benefit was partly offset by declining balances and portfolio yields over 6%. We expect continuing pressure on the margin for the next several quarters, but certainly in the near term expect to grow in non-interest income.

Now, a few words about covered assets; obviously, a lot of moving parts in this portfolio. And as you can see, we've added, as you will see if you look in the press release, we added an entire page of information in the financial tables, page 14, that accompanies our news release. It's slightly standard from what we had been giving you in the 10-Q.

Third quarter non-interest income and expense on covered assets and the income on (inaudible) covered loans again netted out to a small amount, excluding the $5.9 million net impairment that we recognized.

Now, taking a look at the rest of non-interest income. Trust and investment fee revenue grew 8% over that same period a year ago, was down slightly from the second quarter partly to declines in the equity markets. Meanwhile, low interest rates continue to put pressure on brokerage and mutual fund fees.

We were very pleased to see the third quarter fee income from foreign exchange services and letter of credits grew 31% from the third quarter of last year to more than $10 million, thanks to higher foreign exchange volume. About a year ago we added people to our international department. Today they're hitting their stride and we're starting to see the results.

Finally, a word about expenses, non-interest expense was down 7% in the second quarter due primarily to lower REO cost, FDIC assessments and marketing expense. For the first time in several quarters, our headcount declined slightly. This was partly due to the completed integration of an FDIC acquisition, but also reflects the continuous focus on expenses and its current economic conditions.

So, overall, we're pleased with the company's performance. Although earnings per share were off from the previous quarter, I would remind you all that the second quarter result included an $8 million pretax gain, $0.09 a share on an FDIC acquisition, and also there was no loan loss provision in the second quarter.

Despite a slowing economy and the challenges that present in today's very low interest rate environment, City National posted another solidly profitable quarter. Core deposits continue to grow at double-digit rates. We reached out and made loans to credit-worthy borrowers. Asset quality remains very strong. We continue to invest in the company's future, ability to deliver long-term value to the shareholders.

Now, Russell and I will be happy to take your questions.

Q&A Session

Operator

At this time, I would like to invite questions from analysts and investors. If you wish to ask a question, please press star followed by 1 on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press the pound key. Questions will be taken in the order they are received. Please press star 1 to begin.

Your first question comes from the line of Steven Alexopoulos with JPMorgan.

Steven Alexopoulos – JPMorgan

Hey, guys.

Russell Goldsmith

Hi, Steve.

Chris Carey

Steve, hi.

Steven Alexopoulos – JPMorgan

Hi. My first question is actually for your dynamic CFO. Chris, I was hoping you could help me, I'm looking at this $14.2 million of the FDIC, with that expense this quarter, and the breakdown is helpful, but where in the P&L are the offsets for that? Can you walk us through this?

Chris Carey

Sure. I mean, a big component of that is the offset of the $18 million in prepay interest. And then another big chunk of that -- the two biggest pieces of that, and then there's another -- that's about $10 million, I think there's $4 million related to the negative amortization on indem assets.

Steven Alexopoulos – JPMorgan

So it would -- that would be in the margin, the first portion of that?

Chris Carey

First 18 is in the margin, yeah.

Steven Alexopoulos – JPMorgan

Okay. Now, is some of this in essence a reversal of gains that you had taken in the past?

Chris Carey

No. No. The big piece -- when loans pay off early, we get a big benefit, and our portfolio is generally paying off earlier and the credit is coming in generally better. It's still going to have a relatively long tail to it, but it's kind of paying off around 5% a quarter, and that's faster than we estimated. And then we look out to the end of the portfolio's life, the balances are lower than we estimated, particularly ICB. So, overall though, from a credit standpoint, it's still the most critical thing, it's behaving better than expected, but it's front-loading some of the income.

Steven Alexopoulos – JPMorgan

And then on securities book, looking at the $800 million increase this quarter, what was the yield that you invested that new cash, and what types of securities were you buying?

Chris Carey

Well, it's a combination of things, and I think you know this, but we sort of have a short-term portfolio and our longer-term portfolio. So, in the short-term portfolio, we're buying two-year agency debt, short sequential [agency MOs], and we're just going out longer in the longer-term portfolio. But most of it is in agencies, treasuries. We are focused as much as we can be, and we're adding some muni bonds, and seems to be more opportunities, but -- than there were in the past, so we're trying to do everything we can. But we kind of have our long-term portfolio duration of three and our short-term portfolio at a little over one.

Steven Alexopoulos – JPMorgan

Right. And is this where you'd expect the margin pressure to come from in quarters going forward?

Chris Carey

Well, it's really hard to predict what's going to happen with deposits. We keep on having this kind of deposit growth, it puts pressure on the margin percentage, but we'll be able to grow net interest income.

I continue to think we won't have it, but I've been continuously wrong, and we had a record quarter and it was very broad-based across our business lines. We're pleased about it. But we think it will slow down again, but I mean, you can read the newspapers, corporate America is hoarding cash. And high net worth clients, I can tell you, are hoarding cash, and that's going into --

Steven Alexopoulos – JPMorgan

Yeah. Thanks for taking my questions.

Chris Carey

Okay.

Operator

Your next question comes from the line of John Pancari with Evercore Partners.

John Pancari – Evercore Partners

Good afternoon.

Russell Goldsmith

Hi, John.

Chris Carey

Good afternoon, John.

John Pancari – Evercore Partners

Along the lines of Steve's questions, can you help -- Chris, can you quantify the margin pressure that you expect here in the near term? Is it -- could it be to the degree that we saw this quarter? And also, I know you mentioned that the excess liquidity from deposits should weigh on the margin, but should we also see some continued pressure from the declining loan yields, or do you think most of it will be from the liquidity?

Chris Carey

I think it's a little bit of both, but I wouldn't try to quantify. But could it be in the range of this quarter? Certainly, yes. I mean, there's just really frankly too many moving parts, and we try not to give blind-item forecast to begin with. But I mean, this quarter we were down about 5 basis points or so, and you could have that. But if we don't have deposits growth like this, it could be less.

John Pancari – Evercore Partners

Okay. All right. And then in terms of loan growth, can you just give us a little bit of color on the growth you put up this quarter? I mean, it was very, very solid, particularly in C&I and CRE. So, can you talk a little bit about what you really saw and maybe characterize the demand that you see here going forward, your pipeline and your commitments?

Russell Goldsmith

I think we would say that you're right that it was strong across the board, and we saw that in residential mortgage, we saw that in C&I, we saw some in commercial real estate, as I mentioned in my remarks. A significant amount of it is coming from clients who are new to City National, and a piece of it, about 20%, is coming from Shared National Credits through our corporate group.

So I think that it's encouraging but it's not so dynamic that you could build a trend that there's a heightened level of loan demand out there. I think we've said in the past, you tend to see in this environment bigger companies showing more confidence and more willingness and ability to borrow, so that in the Shared National Credits, some of the larger companies that lend to, you're seeing more loan demand. We continue to see strength through the private bank and our entertainment division with the mortgages among our private banking clients.

Also our specialty groups, like franchise finance, our reputation in that sector, one of the many things that we do here is have very specialized units like entertainment, like franchise finance, that have strong reputations and skills and products that fit with the particular industry. And so you're seeing that attract new clients. So, two quarters in a row we've had really strong originations, but I think it's also against the backdrop of an economy that is along the lines that I described.

John Pancari – Evercore Partners

Great. Thank you.

Operator

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

Joe Morford – RBC Capital

Hi, Russell and Chris.

Russell Goldsmith

Hey, Joe.

Chris Carey

Hi, Joe.

Joe Morford – RBC Capital

I guess just following up on John's questions a little bit more too, is, any reason do you think what drove kind of the slower pay-down activity in the period, and along those lines, did you see any uptick in line utilization?

Russell Goldsmith

We've actually broken through those numbers and I think that if you took the client base, say, that was here 90 or 180 days ago, you're not seeing a material change in line utilization. You're seeing it more from new clients and new loans, in some cases, from existing clients that wouldn't have been in the commitment outstanding ratios that we've given in the past. So I think that you can't really see a -- I think what you're looking for, Joe, which is, are we seeing some robust jump in the outstandings relative to commitments. I think the answer to that would be no.

But I do think it's interesting, which is why we highlighted it, that pay-downs dropped materially this quarter. And I think it's too early to declare that that's a trend, but having two quarters of strong loan growth and now one quarter where it matches up with very low pay-downs, we felt was worth noting and highlighting and we'll be monitoring closely. Certainly it would seem to suggest some positive things, and we'll keep an eye on it.

Joe Morford – RBC Capital

Sure. And then the follow-up is just the -- you saw more commercial real estate growth this quarter than you have in a long time. Is that a more concerted focus on your part to go after that business either because you feel better about the risk-adjusted pricing or it was just relationships that came through at the time? I don’t know, what's -- any particular reason why it was all of a sudden more growth in CRE?

Russell Goldsmith

I think it's a combination of things. As you know, having followed the company for many years, we have a very strong real estate division and a very strong client base. So we're seeing activity in real estate, some acquisitions of real estate, as well as refinancing or repositioning. These were all finished properties, a lot of multifamily in the mix and older user in the mix. And we felt sufficiently encouraged about the marketplace and where our portfolios are at this point with real estate that we also decided strategically that we could ramp up our lending in a careful way on what we think are conservative terms with the properties that are finished in many cases by (inaudible).

Joe Morford – RBC Capital

All right. Okay. That's helpful. Thanks, Russell.

Russell Goldsmith

Thanks. Sorry about those Giants.

Joe Morford – RBC Capital

I know. It's a little quieter this October, but at least there's still college football.

Russell Goldsmith

And the 49ers are --

Joe Morford – RBC Capital

And we have the Niners, exactly.

Russell Goldsmith

Imagine. Yeah, whereas we just have the Trojans down here.

Joe Morford – RBC Capital

Yup.

Operator

Your next question comes from the line of Erika Penala with Bank of America-Merrill Lynch.

Erika Penala – Bank of America-Merrill Lynch

Good afternoon.

Russell Goldsmith

Good afternoon.

Chris Carey

Hi.

Erika Penala – Bank of America-Merrill Lynch

I guess, while it seems like we're going to be in this sub-optimal interest rate environment for a bit, and could you talk to us -- could you tell us about the opportunity that could potentially have, you know, now we're hearing that banks over $50 billion in assets have to participate in a formal [Cicar], could you talk about what your potential flexibility is in terms of not necessarily being part of that, and if you could plan for perhaps accelerated capital return while we wait for interest rates to eventually go up?

Russell Goldsmith

Well, I would say our view on capital might not mirror up with everyone. We have a particularly conservative [build-out] and there's a lot of uncertainty. And on top of that, we think, and we've said this pretty regularly, the longer we're in this weak environment, well, it's very bad for us because of our business model and how low rates aren't good for it. We think there's going to be more and more opportunities for us to deploy capital to buy things at good price.

So we're not at all rushing to worry about buying stock back. We still think capital is king and we're going to be conservative there. And we think that (inaudible) it looks like it might right now, but it'll be just more opportunities to build out our franchise both organically and with acquisitions.

Erika Penala – Bank of America-Merrill Lynch

Okay. And given what you're seeing currently in your origination pipeline and just sort of where spreads are trending, do you expect C&I and commercial mortgage yields to come in, in a similar magnitude in the fourth quarter?

Russell Goldsmith

I think that's hard to predict. It depends on so many variables, the competition, the demand for loans, particular types of loans. So I think it would be hard to predict. I think that, you know, we've been saying for sometime that pricing and rates and lending are very competitive. Contrary to what you might hear in the media, banks in general are eager to lend to credit-worthy borrowers, and that gets reflected in the competitive pricing structure. But I don’t see any particular reason sitting here today why it would change materially in the fourth quarter.

Erika Penala – Bank of America-Merrill Lynch

Okay.

Russell Goldsmith

Rates are already quite low.

Erika Penala – Bank of America-Merrill Lynch

And one last question, on the FDIC income puts and takes. If I'm understanding it correctly, so if the cash flow is better than expected, then you receive the benefit on the net interest income side, but because of the agreement with the FDIC, you give it back by taking down the indemnification asset and running that through the expense line?

Chris Carey

It goes through non-interest income --

Erika Penala – Bank of America-Merrill Lynch

Non-interest income, sorry.

Chris Carey

Yeah. But yeah, that's correct. We don't give it all back, but we give much of it back.

Erika Penala – Bank of America-Merrill Lynch

Got it. Okay. Thanks for taking my questions.

Chris Carey

You're welcome.

Operator

Your next question comes from the line of Brian Klock with KBW.

Brian Klock – KBW

Hi, good afternoon, guys.

Russell Goldsmith

Hey, Brian.

Chris Carey

Hi, Brian.

Brian Klock – KBW

So, really, just one follow-up with that too, so, Chris, thank you for putting all that information in the press release on the FDIC stuff, it's helpful. If I net all that down, you get a net negative pretax hit of about almost $7 million, right, $6.6 million?

Chris Carey

Right.

Brian Klock – KBW

Right? Okay. I guess thinking about everything else, just following up again on another question from Erica, the capital plan, and usually about this time in the year you guys are into your planning process for next year. And last year, in the first quarter, actually the first quarter of this year, was, in connection with your fourth quarter results, you guys increased your dividend. It seems like you always sort of have the payout plan of about a third of your trailing earnings. So it seems like you'd be in a position to increase your dividend. Does that sound reasonable that that's what we should expect going into your fourth quarter results in January?

Russell Goldsmith

Well, you're right that we've traditionally looked at somewhere between 30% and 35% of the prior year's earnings, and that's the traditional guidelines that the board has used. And we'll sit down as we always do with the board in January. But at that point, we'll not only have the fourth quarter results but we really will have a finished budget and projections for the year.

So, I don’t think it's unreasonable for you to assume that we would stick with our traditional metrics, but at the same time, given the state of the economy, we want to take a careful look at what we do in light of what will be our final budget for 2012.

Brian Klock – KBW

Okay. That's fair. That's fair.

Chris, a follow-up question on the NIM. I mean, if I take out the accelerated [accretible] yield from the third and the second quarter, I'm coming up to somewhere around 3.45 for the NIM for the third, which is down about 18 basis points sequentially. Do you think that that's the worst of the margin compression we might have? I guess knowing from what's happened with long bond rates, and forgetting about competitive pressure, or do you think there's more to come here into the fourth quarter from there?

Chris Carey

Well, I think through the banking industry and for us, you have to assume there's going to be some more general margin compression.

Brian Klock – KBW

Okay. And last question, I don’t know if you guys have as big an issue from a pension plan or pension expense. We've heard some others remind us about the slow interest rate environment, what that means to your return on [planned assets that started], do you guys think that there would be any impact to your pension expense for next year?

Russell Goldsmith

We don't have a defined pension plan, so there's no impact at all.

Brian Klock – KBW

Got it. Okay, great. Thanks for taking my questions.

Operator

Again, if you wish to ask a question, please press star followed by 1 on your touchtone phone.

Your next question comes from the line of Aaron Deer with Sandler O'Neill & Partners.

Aaron Deer – Sandler O'Neill & Partners

Hey, good afternoon, guys.

Chris Carey

Hi.

Russell Goldsmith

Hi, Aaron.

Aaron Deer – Sandler O'Neill & Partners

I think most of my questions have been addressed. But maybe just one, just going back on the capital question and tying that in with expectations for maybe some M&A. It seems like any sort of bank deals are maybe not coming anytime soon. But what about in the wealth management side, has there been any discussions? And has the kind of volatility we've had in the markets for the past couple of months changed people's ideas about that business, and what are your thoughts there?

Russell Goldsmith

Well, we still like the wealth management business very much, and have been saying for sometime that we look for opportunities primarily to bolt-on individuals or teams, as well as maybe the occasional company that would fit in with the existing entities that we have, most particularly Lee Munder which we launched just about two years ago, and Convergent Wealth Advisers.

So I think that you might see us do something. We continue to be open to that. But there's nothing pending at the moment.

Aaron Deer – Sandler O'Neill & Partners

Okay. I guess I was -- just on your commitment to it, it was more along the lines of, have potential sellers been maybe more willing to look at teaming up with you? But it doesn’t sound like there's anything in the works that way.

Russell Goldsmith

No, I think at any time, I mean -- I know we've been -- we see some opportunities, I don’t know that this is a particularly more or less opportune time.

Aaron Deer – Sandler O'Neill & Partners

Okay. All right. Thank you.

Russell Goldsmith

Thanks.

Operator

Your next question comes from the line of Jeff Davis with Guggenheim Partners.

Jeff Davis – Guggenheim Partners

Hey, good afternoon.

Russell Goldsmith

Hey, Jeff.

Chris Carey

Hi, Jeff.

Jeff Davis – Guggenheim Partners

Follow-up to Aaron's question as it relates to wealth management and then more generally on acquisitions, are you seeing much from the European banks looking to unload assets, whether it's wealth management or blocks of loans that might be available or of interest to you guys?

Russell Goldsmith

Well, Jeff, as you know, and it was good to see you recently, we did that deal in the previous quarter where we picked up asset-based loans and we announced that, and we --

Jeff Davis – Guggenheim Partners

Right.

Russell Goldsmith

-- to look for opportunities like that that are going to meet our traditional kind of fit, focused-in-price criteria. I don’t think we've seen anything in particular lately, notwithstanding all the headlines and noise out of Europe, but I think, like most people, we assume there will be opportunities as some of the European banks have to confront further their need to shrink their balance sheets and generate capital.

Whether that will create opportunities that work for us remains to be seen, but we're certainly vigilant and looking out there hoping that there will be a few things we can bottom-fish.

Jeff Davis – Guggenheim Partners

Okay. And you may have addressed it in your opening comments and I just -- it didn't register with me, but to the extent the loan growth you had last quarter, was, how much was attributable to the asset-based lending group you just referenced, if any?

Chris Carey

Small amount.

Jeff Davis – Guggenheim Partners

Okay. Great.

Russell Goldsmith

Yeah. The portfolio that we purchased was really picked up in the second quarter.

Chris Carey

Yeah, not -- I mean, they [registered], some -- I think one or two loans in this quarter, but in terms of our growth in this quarter, that was only a small component of our production.

Jeff Davis – Guggenheim Partners

Okay. Thank you.

Russell Goldsmith

Thanks. Good to hear from you, Jeff.

Operator

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

Russell Goldsmith

Great. Thank you all for joining us on our call today and taking the time to understand City National and its performance much better. We always appreciate your interest and look forward to talking with you again in 2012 when we report our earnings for the year. Thank you very much.

If you have any questions, of course, give Chris or me a call.

Thank you, operator.

Operator

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

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