3 Reasons Why City National Corp Is a Strong Buy

City National  (NYSE: CYN  )   is the parent company of City National Bank, which offers banking, trust, and asset management services to local customers. City National earned its solid record in deposit and loan growth during the financial crises. It has an established business model, is strongly ingrained in its communities, and faces attractive growth prospects resulting from its Private Wealth practice. 

Source: Company.

Though larger capitalization bank holding companies are still attractive businesses to invest in, it never hurts to take a close look at the second and third rank of domestic banks.

While big banks usually get the newspaper and magazine headlines because of their size and their systemic importance, investors who try to sniff out value in the second and third league banks occasionally find a true gem.

City National is such a gem. The bank has a market cap of $4 billion and has low market visibility. However, City National is an interesting investment for those who want to venture out of the large-cap banking sector and gain exposure to a well-run bank with nice growth potential.

Background
City National has 77 offices in highly vibrant metropolitan areas including New York City, Southern California, the San Francisco Bay area, Atlanta, and Nashville. At the end of the first quarter, City National reported total assets of $29.7 billion and a total loan portfolio worth $17.8 billion.

City National was founded in 1954 and has what most community banks pride themselves on: A strong local branch footprint and deep relationships to customers. And that customer-centric approach to retail and commercial banking has paid off big time.

Strong deposit growth underscores resilient business model
Community banks seem to have a better grip on their business and they also appear to have managed the financial crisis better. While big banks consolidated their banking operations, divested branches, and deleveraged their balance sheets in order to improve their capital ratios, community banks have been grinding onward.

City National, for instance, really stepped it up during the financial crisis. Its deposit base has consistently grown from $14.4 billion in 2009 to $25.4 billion in the first quarter of 2014: A solid increase of 76%. In other words, City National did not appear to have any trouble attracting customers and deposits in a tough banking environment, which is a strong indicator of a healthy business.

Source: City National Corporation, Morgan Stanley Financials Conference June 10, 2014.

Growing loan portfolio
Loan origination is another core banking function in which City National has excelled. Average loans have increased a whopping 17% since the first quarter of 2013 and have grown gradually in City National's core segments Commercial and Residential Mortgage.

Source: City National Corporation, Morgan Stanley Financials Conference June 10, 2014.

Growth
In order to drive growth, City National expands its branch count and conducts opportunistic acquisitions. In 2011, City National expanded into other promising regions outside its core markets in California and New York by opening branches in Nashville and Atlanta.

In 2012, City National acquired First American Equipment Finance and Rochdale Investment Management in order to drive market penetration in New York. In addition, City National's Private Wealth Management business has been growing strongly, thanks to its solid presence in New York. Assets under management have increased from $32.5 billion in the first quarter of 2012 to $46.4 billion in the first quarter of 2014. That's a growth rate of 43% in just two years.

The Foolish bottom line
Big banks downsized their businesses by divesting branches and taking on less risk. City National has taken full advantage of this deleveraging and has consistently increased its footprint in the most vibrant economic centers in the country. With an improving U.S. economy, City National's expansion should pay off for shareholders in the coming years.

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