City Bank (MM) (NASDAQ:CTBK)
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City Bank (NASDAQ:CTBK) today announced earnings of $9.69 million for
the quarter ended March 31, 2008, reflecting a slight decrease of 6.66%
from $10.38 million for the same period in 2007, as a result of the
general economic slowdown impacting financial institutions. The Bank’s
diluted net income per share reflects a decrease of 6.15% to $.61 from
$.65 in the first quarter of the prior year. Net interest income after
provision for credit losses was $18.26 million for the first quarter of
2008 compared to $19.94 million for the prior period in 2007, reflecting
a decrease of 8.41%. Included in 2008 net income was a non-recurring
after-tax gain of approximately $791 thousand on the partial redemption
of our equity interest in VISA, Inc., (NYSE: V), upon their successful
initial public offering. The decrease in net interest income was
primarily due to the increase in loans being placed on non-accrual
status for which interest accrued in the amount of $780 thousand had
been reversed from income. Decreasing interest rates also reduced
interest income but was mitigated to some extent with the use of floor
rates. The Bank also made a provision for credit losses of $500 thousand
during the quarter as compared to no provision for the same period in
the prior year. These first quarter results were accomplished despite
the significant slowdown in the housing market. The Bank’s
first quarter net charge-offs were $125 thousand compared to net
recoveries of $81 thousand in the prior year. In comparison to other
financial institutions within our peer group, the Bank maintains an
outstanding efficiency ratio of 24.98%. With historically disciplined
credit underwriting standards, the Bank continued to grow its loan
portfolio by $173,512 or 16.69% over the same period of 2007.
Three Months Highlights (In thousands, except ratios)
March 31 2008
March 31 2007
Total Assets
$
1,309,029
$
1,116,060
Total Loans
$
1,213,422
$
1,039,910
Net Income
$
9,685
$
10,376
Non-Performing Assets
$
56,589
$
2,674
Net Interest Margin
6.09
%
7.52
%
Return on Average Assets (ROA)
3.11
%
3.87
%
Return on Average Equity (ROE)
18.09
%
21.03
%
Average Equity to Average Assets
17.21
%
18.39
%
Results of Operations
Interest income for the first quarter of 2008 was up 2.57% from the
comparable period in 2007 due to loan growth, which compensated for the
decline in average yield. The increase of $179.48 million or 17.85% in
average outstanding loan balances contributed to this increase. The
average yield on loans for the first quarter of 2008 was 9.89%, down
from 11.25% during first quarter 2007 and net interest margin decreased
to 6.09% compared to 7.52% in the same period in the prior year. As a
result of the weakening residential real estate market, the Bank’s
nonperforming assets increased substantially from $2.67 million at March
31, 2007 and $33.77 million at December 31, 2007 to $56.59 million at
March 31, 2008. The slowdown in the housing market will remain
particularly challenging and the Bank expects higher loan delinquencies,
nonaccruals and potential charge-offs to continue for the remainder of
this year. However, given the Bank’s adequate
loan loss reserve, strong capital position and our seasoned Management
team, the Bank is well positioned to work through any problem credits
and minimize any potential losses.
Interest expense for the first quarter of 2008 was up 21.27% from the
comparable period in 2007 due to an increase in deposits to fund loan
growth. The average cost of deposits and borrowed funds for the first
quarter of 2008 increased to 4.44%, up 10 basis points from 4.34% for
the first quarter of 2007, reflecting a tightening liquidity environment
and greater competition among local peer banks for retail deposits.
Average time deposits for the first quarter of 2008 were $719.81
million, for a 27.04% increase over the $566.59 million average for the
comparable quarter of 2007.
Non-interest income of $1.90 million reflects a net increase of $1.08
million or 132.52% for the first quarter of 2008 from the first quarter
of 2007. The majority of this increase was due to a pre-tax cash gain of
$1.22 million on the partial redemption of the Bank’s
equity interest in VISA. 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. Net gains from sale of loans decreased $23 thousand
compared to the first quarter 2007. The Bank also recorded a net gain on
sale of foreclosed real estate of $90 thousand for the quarter ended
March 31, 2008. SBA loan servicing income also decreased by $21 thousand
compared to the first quarter of 2007.
Non-interest expense of $5.04 million in the first quarter of 2008
reflects a net increase of 8.96% or $414 thousand compared to the first
quarter of 2007. The majority of the increase relates to salary and
benefit expenses during the first quarter 2008, which increased by $166
thousand as compared to the same period in 2007. FDIC insurance expense
and occupancy expense also increased $120 and $82 thousand respectively.
At March 31, 2008, total assets were $1.31 billion, up 17.29% over March
31, 2007. Asset growth since December 31, 2007 was $70.00 million or
5.65%. Loans grew 16.69% to $1.21 billion compared to $1.04 billion at
March 31, 2007. Loan growth since December 31, 2007 was $54.94 million
or 4.74%. Residential construction loan activity has accounted for the
majority of this increase. At March 31, 2008, deposits increased 19.65%
to $954.62 million compared to $797.83 million at March 31, 2007 and
10.43% since December 31, 2007.
City Bank’s return on average assets for the
three months ended March 31, 2008 was 3.11% compared to 3.87% for the
same period in 2007. Return on average equity was 18.09% for the three
month period ended March 31, 2008, compared to 21.03% for the same
period in 2007. The ratio of average equity to average assets (Tier 1
Capital) for the three months ended March 31, 2008 was 17.21% compared
to 18.39% 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 March 31, 2008. The Bank also declared
a regular quarterly cash dividend of $ .15 per share during first
quarter of 2008.
Forward-Looking Statements
The previous discussion contains a review of City Bank’s
operating results and financial condition for the three months ended
March 31, 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 continued decline in the housing market and
related increase in nonperforming assets, 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. Two
mortgage loan offices serve Snohomish, King and Pierce 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.
Selected Financial Highlights (unaudited)
(In thousands, except per share data)
Three months ended March
Income Statement Data
2008
2007
% Change
Interest income
$29,706
$28,963
2.57%
Interest expense
10,945
9,025
21.27%
Net interest income
18,761
19,938
-5.90%
Provision for credit losses
500
-
0.00%
Net interest income after provision for credit losses
18,261
19,938
-8.41%
Other noninterest income
1,902
818
132.52%
Other noninterest expense
5,037
4,623
8.96%
Income before income taxes
15,126
16,133
-6.24%
Provision for income taxes
5,441
5,757
-5.49%
Net Income
$9,685
$10,376
-6.66%
Share Data
Actual shares outstanding
15,762
15,711
0.32%
Earnings Per Share:
Basic earnings per common share
$0.61
$0.66
-7.58%
Diluted earnings per common share
$0.61
$0.65
-6.15%
Book value per common share
$13.79
$12.79
7.85%
Basic average shares outstanding
15,754
15,684
0.45%
Fully diluted average shares outstanding
15,790
15,846
-0.35%
Dividends paid per share
$0.15
$0.15
0.00%
Balance Sheet Data (at period end)
Investment securities
$14,597
$15,384
-5.12%
Loans held for sale
5,410
2,219
143.80%
Loans, net of unearned income
1,213,422
1,039,910
16.69%
Allowance for credit losses
11,644
10,367
12.32%
Total assets
1,309,029
1,116,060
17.29%
Total deposits
954,616
797,829
19.65%
Liabilities related to discontinued operations
826
1,254
-34.13%
Total Shareholders' Equity
217,393
200,918
8.20%
Selected Ratios
Return on average shareholders' equity
18.09%
21.03%
-13.98%
Average shareholders' equity to average assets
17.21%
18.39%
-6.40%
Return on average total assets
3.11%
3.87%
-19.49%
Net interest spread
5.21%
6.58%
-20.82%
Net interest margin
6.09%
7.52%
-19.02%
Efficiency ratio
24.98%
22.27%
12.15%
Asset Quality Ratios
Allowance for credit losses
$11,644
$10,367
12.32%
Allowance to ending total loans
0.96%
0.99%
-5.44%
Non-performing assets
Non-accrual and impaired
$51,571
$1,054
4792.88%
90 days past due and still accruing
$0
$1,620
-100.00%
Foreclosed real estate
$5,018
$0
100.00%
Non-performing assets to total assets
4.32%
0.24%
1704.30%
Net (charge-offs) recoveries
($125)
$81
-254.72%
Net loan (charge-offs) recoveries (annualized) to average loans
-0.01%
0.01%
-231.28%