Reacting to City Bank's First-Ever Loss

City Bank (CTBK) of Lynnwood, WA has reported its first quarter loss in 34 years of business. The bank recorded a loss of $10.96 million after increasing loan loss reserves by $28 million during the quarter. The loss works out to a negative 69¢ per share.

At the end of September, non-performing assets had increased to $199 million out of a total loan portfolio of almost $1.2 billion. Actual charge offs for the quarter were $6.09 million. The bank’s large percentage of construction related loans were hit hard by the ongoing credit crisis. As buyers are unable to obtain mortgages, home builders are unable to sell homes and pay their construction loans. The Seattle area where City Bank does business has had a fairly stable real estate market but it is apparent the credit squeeze is having a significant effect there also.

City Bank remains strong with a Tier 1 Capital Ratio of 16.28%, well above the 6% minimum and almost double the requirement for “well capitalized”. The banks total assets and total loans continued to grow in the 3rd quarter.

In the press release the bank’s management acknowledged its reliance on construction loans and expect the “high loan delinquencies, nonperforming loans and potential charge-offs to continue for the remainder of the year and likely into next year.”

CTBK is a component of my Income Portfolio. I reduced the holding by about half last month when the price rallied to over $14. I will be dropping the rest of the holding from the portfolio over the next couple of days. I have noticed that share prices can drop hard on the day bad news hits the market then recover some of the loss. I think strong indications of a recovery in the new home housing market are necessary before City Bank becomes an attractive investment again.

Disclosure: CTBK is a component of my Income Portfolio.

Comments

[biomedlives:]

It's sobering to see such a high level of non-performing assets at a bank in an area where the real estate market apparently never became overheated. The Texas ratio for CTBK is now over 80%.

2008 Oct 30 08:59 AM