sambordulac

It's Not Citi, But City Bank Not Pretty Either

Thank you for the update, Mr. Plaehn.

On the last item of your highlight, my understanding is that the percentage took in both the non-performing assets as well as assets foreclosed (asset owned)--roughly $100 million vs $1,250 million in asset, or 8%.

True, by your projected earnings, the shares are cheap. With business in distress, the central theme may have shifted to whether non-performing loan would continue to eat into capital. CTBK is trading at roughly 75% of its book value. There is no justification unless we can envision that the business would be seriously impaired or that it'll lose some money during this down turn. On the later, I am not all that confident. The NPL+asset owned was less than 1.0% at year end, 4.5% at March quarter and now at 8%. The trajectory suggests that more are to come. Recovery rate can be as low as 60% on uncompleted projects or land. I feel the reserve (1.5%) may not be adequate to cover the 8% reported dead money.

So, I think the market may be right in assigning a value below book. However, I don't see the company go under unless the Puget Sound area RE market experience long and deep decline. 17% in tier-1 capital probably would make it the last bank standing.

I am interested in purchasing additional shares. I'd be interested to hear what you think.

Regards, Sam

The Long Case for City Bank

Very good summary, Tim.

You have provided an excellent snap shot of the bank.
Just wonder how the bank were able to charge more for the loans and maintained double-the-industry interest rate spread, and for so long. One possibility is the concentration in project loans. maybe? If so, the risk maybe much higher during this down turn.

The bank maintained exceptional financial leverage. Even with higher risk per loan value, I'd guess that the equity would not erode nearly as much as average banks. For its existence to be threatened, most banks would be wiped out already, a scenario I do not envision.

The efficiency ration being about 25%--about half of that of industry--is direct result of of that fat interest rate spread. While that is great, it doesn't add to how defensive this business is.
We all knows far less about the Seattle market. While employment has held up really well, export market too, just don't know how it'll affect the portfolio of loans. That jumped about 2.5% on total loan outstanding in just the past quarter, even without general weakness of the local economy. What if it does weaken? There seems to be more unpleasant news ahead.

That said, I am a shareholder. What do I know?

Best, Sam