When does anemic EPS growth lead to an analyst upgrade, mounting trading volume, and upward pressure on the stock price? No. 1, when it was expected, and No. 2, when the underlying fundamentals are positive. Both were the case with Beverly Hills-based City National Corporation (NYSE:CYN), which reported EPS of $1.15 in 2007's first quarter, up from $1.12 per share in the year-ago quarter.

So what was positive? Earning asset growth was strong, led by average loans, which increased 10% over the past year. That went a long way toward offsetting margin pressures. Contrast that with Wells Fargo (NYSE:WFC), which actually experienced higher margins, but average loans that were up less than 1%. Between margin and earning asset growth, I'd rather have the earning asset growth, in part based on the fees that sometimes come from the earning asset growth.

Even though loan growth was strong, don't assume lending standards have been compromised. In fact, asset quality was boringly great. I say "boring" because nonperforming assets have been so low for so long that City National hasn't had to record a provision for loan losses in 15 consecutive quarters. Need more evidence? In its roughly 53-year history, this bank has never had to foreclose on a single-family mortgage loan. Trust me: This is no Capital One Financial (NYSE:COF), which regularly chokes on charge-offs of about 2% of loans per quarter.

Not having to establish a provision for loan losses obviously helped City National's profitability ratios, as did keeping expenses down. Noninterest expense increased 7% relative to the year-ago level, but was only up 2% excluding the recently acquired operations of Business Bank of Nevada and Independence Investments, LLC. As a result, ROA was 1.55% in 2007's first quarter, while ROE was 15.1%. As a frame of reference, the ROA and ROE of BB&T (NYSE:BBT) were 1.42% and 14.9%, respectively, in the first quarter of 2007.

So, given that EPS growth was modest and is only expected to be about 3% to 5% in 2007, why the mounting volume and analyst upgrade? Because it's got a great niche (private banking, business banking, and wealth management), is in great markets (California and Nevada), and has a reasonable valuation (roughly 16 times trailing 12-month earnings). Don't worry about the multiple of book value being roughly 2.3 times. Given the ROE, it is justified.

While I wouldn't expect a huge run-up in the stock near term, this is an appealing stock to own over the long term, especially given the expectation for improving earnings momentum. The Street estimates are for EPS growth to increase to 8% in 2008 and 12% in 2009.

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Fool contributor Buddy Howard, CFA, lives in Raleigh, North Carolina, and does not own shares of any company mentioned. BB&T is an Income Investor recommendation. Fool rules are here.