City Bank (NASDAQ:CTBK) today announced earnings of $15.00 million
for the six months ended June 30, 2008, reflecting a decrease of
28.32% from $20.93 million for the same period in 2007. The Bank�s
diluted net income per share reflects a decrease of 28.03% to $.95
from $1.32 for the same period in 2007. City Bank�s President and
CEO Conrad Hanson noted, �The banking industry as a whole is in a
period of extreme financial stress that may be the worst period in
my 34 years of banking. City Bank, despite being impacted by these
industry wide problems, is well positioned with one of the highest
levels of capital for a bank our size. We are a bank that has
focused on the residential real estate construction lending market
for our entire history, and believe that we do a better job of
underwriting loans and managing the risk during periods like this
where certain of our borrowers are unable to perform under the
terms of their loans.� Net interest income after provision for
credit losses was $30.42 million for the six months of 2008
compared to $40.65 million for the prior period in 2007, reflecting
a decrease of 25.17%. Continued weakness in the housing markets,
combined with a general slowdown in the local economy, has resulted
in the decline in City Bank�s 2008 earnings. The Bank has
experienced increases in nonperforming loans, charge-offs and loan
loss provision. Contributing to the decline in net interest income
was the increase in loans being placed on non-accrual status for
which interest accrued in the amount of $1.84 million had been
reversed from income. During the first six months of 2008, the Bank
recorded a provision for credit losses of $5.10 million as compared
to $150 thousand for the same period in the prior year. The
increase in the allowance for credit losses was in response to
specific real estate construction loans that were placed on
non-accrual status, as well as declines in the quality of the
Bank�s overall portfolio. The Bank�s net charge-offs for the six
months ended June 30, 2008 were $1.84 million compared to $157
thousand in the prior year. In spite of the difficult market
conditions, the Bank maintains an outstanding efficiency ratio of
26.33%. Conrad Hanson also commented on the banks credit quality,
�Over the five year period from 2003 to 2007, City Bank has managed
its loan portfolio with only $2.82 million of actual net
charge-offs or a loss ratio of .08% while the industry incurred a
loss ratio of .62%. We expect that our net charge-offs coming from
the current problems will be significantly higher than we have
experienced in the past, but will continue to be at levels that are
below the industry averages. This is the City Bank difference that
we have demonstrated for 34 years.� Year-to-Date Highlights (In
thousands, except ratios) � � June 30, 2008 � March 31, 2008 � June
30, 2007 Total Assets � $ 1,291,975 � $ 1,309,029 � $ 1,142,300
Total Loans � $ 1,173,911 � $ 1,213,422 � $ 1,059,129 Net Income �
$ 15,004 � $ 9,685 � $ 20,931 Non-Performing Assets � � 103,360 � $
56,589 � $ 2,019 Net Interest Margin � � 5.67% � � 6.09% � � 7.50%
Return on Average Assets (ROA) � � 2.37% � � 3.11% � � 3.81% Return
on Average Equity (ROE) � � 13.79% � � 18.09% � � 20.76% Average
Equity to Average Assets � � 17.15% � � 17.21% � � 18.34%
Efficiency Ratio � � 26.33% � � 24.98% � � 22.83% Total
Shareholders� Equity � $ 220,256 � $ 217,393 � $ 209,258 � � � Net
income for the three months ended June 30, 2008 was $5.32 million
compared to $10.56 million in the prior year, reflecting a decrease
of $5.24 million primarily due to a higher provision for loan
losses of $4.60 million compared to $150 thousand for the same
quarter of 2007. On a diluted per share basis, net income was down
49.25% to $.34 from $.67 in the comparable period in 2007. Net
interest income after provision for credit losses was $12.16
million for the three months ended June 30, 2008 compared to $20.71
million for the same period in 2007, reflecting a decrease of
41.30%. During this housing downturn, the Bank is experiencing loan
quality issues that are contributing to the declines in earnings
for this quarter as evidenced by the increase in its non-performing
loans. The Bank is working diligently with its borrowers to
collectively address any loan issues and in some cases foreclosure
(or a deed in lieu of foreclosure) is the ultimate course of
action. Despite deterioration in the loan portfolio, which is not
expected to improve in the near term, profitability is expected to
continue albeit at a lower level than the last several years. In
addition, the Bank�s unusually high level of capital provides
strong support and flexibility in working through this economic
downturn. Quarter-to-Date Highlights (In thousands, except ratios)
� � June 30, 2008 � March 31, 2008 � June 30, 2007 Total Assets � $
1,291,975 � $ 1,309,029 � $ 1,142,300 Total Loans � $ 1,173,911 � $
1,213,422 � $ 1,059,129 Net Income � $ 5,319 � $ 9,685 � $ 10,555
Non-Performing Assets � $ 103,360 � $ 56,589 � $ 2,019 Net Interest
Margin � � 5.25% � � 6.09% � � 7.49% Return on Average Assets (ROA)
� � 1.65% � � 3.11% � � 3.75% Return on Average Equity (ROE) � �
9.63% � � 18.09% � � 20.50% Average Equity to Average Assets � �
17.09% � � 17.21% � � 18.30% � � � Result of Operations Interest
income for the first six months of 2008 was down 4.43% from the
comparable period in 2007. As a result of the weakening residential
real estate market, the Bank�s nonperforming assets increased from
$2.02 million at June 30, 2007, to $33.77 million at December 31,
2007, $56.59 million at March 31, 2008 and $103.36 million at June
30, 2008. Also contributing to the decrease in interest income was
the decline in short term interest rates during the latter part of
2007 (on which the majority of the Bank�s interest-earning assets
are priced) as evidenced by the decline in the yield on the
interest earning assets year over year. The average yield on loans
for the six months ended June 30, 2008 was 9.34%, down 194 basis
points from 11.28% for the prior period in 2007, and net interest
margin decreased to 5.67% compared to 7.50% in the same period in
the prior year. The slowdown in the housing market will prove to
remain particularly challenging, and the Bank expects higher loan
delinquencies, non-accruals and potential charge-offs to continue
for the remainder of the year. However, given the Bank�s loan loss
reserve, strong capital position and its seasoned management team,
the Bank is well positioned to work through problem credits and to
minimize losses. Interest expense for the six months ended June 30,
2008 was up 14.00% from the comparable period in 2007. Contributing
to the increase were higher total deposits to fund loan growth and
a significant increase in competition for deposits among banks,
despite the rapid drop in the short term interest rates in the
latter part of 2007. The average cost of deposits and borrowed
funds for the six months ended June 30, 2008 decreased to 4.27%,
down 16 basis points from 4.43% for the same period in 2007,
reflecting a lower rate environment. Average time deposits and
borrowed funds for the six months ended June 30, 2008 were $1.01
billion, an 18.27% increase from the $852.29 million average for
the comparable period in 2007. Non-interest income of $2.75 million
reflects a net increase of $1.18 million or 75.80% for the six
months ended June 30, 2008 over the six months ended June 30, 2007.
The majority of this increase was due to a pre-tax gain of $1.22
million on the partial redemption of the Bank�s equity interest in
VISA Inc. (NYSE: V). This redemption reflects 38.66% of the Bank�s
ownership position in VISA. In addition, the Bank also reversed
$120 thousand of previously recorded indemnification liabilities
related to VISA litigation during first quarter of 2008. Net gains
from sale of loans increased $321 thousand compared to the same
period of 2007. SBA loan servicing income decreased by $41 thousand
compared to the prior period in 2007. There was also a decrease in
non-interest income of $154 thousand due to the discontinuation of
the Bank�s Investment Services department. Non-interest expense of
$10.08 million in the six months of 2008 reflects a net increase of
4.15% or $401 thousand compared to the same period of 2007. The
majority of the increase relates FDIC insurance expense, which
increased by $215 thousand as compared to the same period in 2007.
The Bank also recorded a net loss on sale of foreclosed real estate
of $189 thousand for the six months ended June 30, 2008. Foreclosed
real estate expense increased by $156 thousand compared to the same
period in 2007. Occupancy expense also increased by $109 thousand
compared to the same period in 2007. Offsetting the increase was a
decrease in state and local tax expense of $349 thousand. At June
30, 2008, total assets were $1.29 billion, up 13.10% over June 30,
2007. Asset growth since December 31, 2007 was $52.94 million or
4.27%. Loans grew 11.32% to $1.18 billion at June 30, 2008 compared
to $1.06 billion at June 30, 2007. Loan growth since December 31,
2007 was $18.53 million or 1.59%. At June 30, 2008, deposits
increased 17.93% to $955.18 million compared to $809.98 million at
June 30, 2007 and 10.49% since December 31, 2007. City Bank�s
return on average assets for the six months ended June 30, 2008 was
2.37% compared to 3.81% for the same period in 2007. Return on
average equity was 13.79% for the six months ended June 30, 2008,
compared to 20.76% for the same period in 2007. The ratio of
average equity to average assets (Tier 1 Capital) for the six
months ended June 30, 2008 was 17.15% compared to 18.34% for the
same period in 2007. The Tier 1 Capital Ratio decreased slightly
due to the increase in the Bank�s total assets for the period ended
June 30, 2008. The Bank also declared a regular quarterly cash
dividend of $.15 per share during second quarter of 2008.
Forward-Looking Statements The previous discussion contains a
review of City Bank�s operating results and financial condition for
the three and six months ended June 30, 2008 and 2007. The
discussion may contain certain forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those stated, including, but not
limited to, the Bank�s inability to generate increased earning
assets, sustain credit losses, maintain adequate net interest
margin, control fluctuations in operating results, maintain
liquidity to fund assets, retain key personnel, and other risks
detailed from time to time in the Bank�s filings with the Federal
Deposit Insurance Corporation, including our Annual Report on Form
10-K�for the period ended December 31, 2007. Readers are cautioned
not to place undue reliance on these forward-looking statements.
City Bank is a state-chartered commercial bank founded in 1974 and
headquartered in Lynnwood, Washington. The bank is publicly traded
(NASDAQ: CTBK) and many of the stockholders are local individuals.
Eight banking offices serve both Snohomish and North King counties.
Three mortgage loan offices serve Snohomish, King, Pierce and Clark
counties. City Bank provides a wide range of banking services for
business and individuals, including loans for residential
construction, land development, mortgage, commercial, Small
Business Administration, consumer, and all types of deposits as
well as other general banking services. City Bank has been
consistently recognized as one of the top performing banks in
Washington State as well as nationally. City Bank � Selected
Financial Highlights (unaudited) (In thousands, except per share
data) � � Three months ended June � Six months ended June Income
Statement Data � 2008 � � 2007 � % Change � � 2008 � � 2007 � %
Change Interest income $ 27,318 � $ 30,702 � -11.02% $ 57,024 � $
59,665 � -4.43% Interest expense 10,560 9,839 7.33% 21,505 18,864
14.00% Net interest income 16,758 20,863 -19.68% 35,519 40,801
-12.95% Provision for credit losses 4,600 150 2966.67% 5,100 150
3300.00% Net interest income after provision for credit losses
12,158 20,713 -41.30% 30,419 40,651 -25.17% Other noninterest
income 934 741 26.05% 2,746 1,562 75.80% Other noninterest expense
5,128 5,048 1.58% 10,075 9,674 4.15% Income before income taxes
7,964 16,406 -51.46% 23,090 32,539 -29.04% Provision for income
taxes 2,645 5,851 -54.79% 8,086 11,608 -30.34% Net Income $ 5,319 $
10,555 -49.61% $ 15,004 $ 20,931 -28.32% � Share Data Actual shares
outstanding 15,764 15,721 0.27% Earnings Per Share: Basic earnings
per common share $ 0.34 $ 0.67 -49.25% $ 0.95 $ 1.33 -28.57%
Diluted earnings per common share $ 0.34 $ 0.67 -49.25% $ 0.95 $
1.32 -28.03% Book value per common share $ 13.97 $ 13.31 4.97%
Basic average shares outstanding 15,764 15,715 0.31% 15,759 15,699
0.38% Fully diluted average shares outstanding 15,770 15,864 -0.59%
15,780 15,855 -0.47% Dividends paid per share $ 0.15 $ 0.15 0.00% $
0.30 $ 0.30 0.00% � Balance Sheet Data (at period end) Investment
securities $ 14,391 $ 15,377 -6.41% Loans held for sale 6,373 4,296
48.35% Loans, net of unearned income 1,173,911 1,059,129 10.84%
Allowance for credit losses 14,530 10,279 41.36% Total assets
1,291,975 1,142,300 13.10% Total deposits 955,179 809,984 17.93%
Liabilities related to discontinued operations 833 1,333 -37.51%
Total Shareholders' Equity 220,256 209,258 5.26% � Selected Ratios
Return on average shareholders' equity 9.63% 20.50% -53.03% 13.79%
20.76% -33.55% Average shareholders' equity to average assets
17.09% 18.30% -6.60% 17.15% 18.34% -6.50% Return on average total
assets 1.65% 3.75% -56.13% 2.37% 3.81% -37.87% Net interest spread
4.46% 6.52% -31.60% 4.83% 6.55% -26.26% Net interest margin 5.25%
7.49% -29.91% 5.67% 7.50% -24.40% Efficiency ratio 28.62% 23.36%
22.50% 26.33% 22.83% 15.33% � Asset Quality Ratios Allowance for
credit losses $ 14,530 $ 10,279 41.36% Allowance to ending total
loans 1.24% 0.97% 27.53% Non-performing assets: Non-accrual $
63,178 $ 1,970 3107.01% 90 days past due and still accruing $ 11 $
49 -77.55% Foreclosed real estate $ 40,171 $ - 100.00%
Non-performing assets to total assets 8.00% 0.18% 4426.29% Net
(charge-offs) recoveries $ (1,839) $ (157) 1071.34% Net loan
charge-offs (annualized) to average loans 0.31% 0.03% 906.66% �
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