(Bloomberg) -- City National Bank grew at a rapid pace under Royal Bank of Canada’s ownership, and that’s what led to the regional lender’s profitability and operational headaches, according to the head of its parent company.

“I think our growth outstripped our operational capability,” Dave McKay, chief executive officer of Toronto-based Royal Bank, said Wednesday on a conference call with analysts to discuss his company’s fiscal first-quarter results. “We emphasized maybe growth over the profitability of the growth a little too strongly.”

City National’s loans and deposits have both increased by about two and half times since 2016, Royal Bank said Wednesday.

The Los Angeles-based bank has faced an array of challenges over the past year, including a surge in funding costs amid deposit outflows, which prompted a balance-sheet bailout by its parent, and a regulatory probe into its risk controls by the Office of the Comptroller of the Currency.

Read More: Bank to the Stars Becomes $10 Billion Headache for Owner RBC

Royal Bank, which acquired City National Bank in 2015 for $5 billion, put a new executive team in place at its US subsidiary last year and recently agreed to pay $65 million to settle the OCC’s investigation. The bank sad at the time that the probe didn’t relate to actual money laundering.

Read More: LA’s Bank to the Stars Fined $65 Million for Risk Failures

Royal Bank also slashed jobs at City National even as it recruited more staff to work on risk management, compliance and internal audit controls. It more than doubled the number of full-time employees in those roles since 2022, to more than 800, Royal Bank said Wednesday.

The lender reported a net loss of $22 million at City National in the first quarter, its third straight quarterly loss, but noted that the results included a special assessment of $117 million before taxes by the US Federal Deposit Insurance Corp. related to bank failures. Royal Bank is now seeing a lower cost of funding at the division, as well as higher net interest margins — the difference between what banks pay on deposits and what they earn on loans.

“It was a tough year last year, I admit,” McKay said Wednesday, adding that he’s optimistic about a return to profitability for City National. “We feel confident of generating strong returns out of this business again in 2025.”

Read More: RBC Tops Estimates as Capital Markets Beat Expectations

©2024 Bloomberg L.P.