City Bank (NASDAQ:CTBK) today announced a net loss of $38.26
million for the quarter ended December 31, 2009, or $2.43 per
diluted share, compared to a reported net loss of $64.88 million,
or $4.12 per diluted share for the same quarter in the prior year.
The Bank also announced a net loss of $104.61 million or $6.64 per
share for the twelve months ended December 31, 2009 compared to a
net loss of $60.84 million or $3.86 per share for the same period
in 2008.
Martin Heimbigner, President and CEO, commented, “The Bank’s
losses for the quarter and the twelve months were significantly
impacted by declining values in the market for the bulk sale of
residential building lots. Due to the distressed pricing, it is not
City Bank’s strategy to sell bulk lots. City Bank has implemented a
strategy to develop the lots and sell the properties with completed
houses at that time. However, in accordance with accounting
requirements, we are required to carry residential building lots at
distressed market prices until we sell the completed houses. Real
estate investors are buying land at these prices because they
appear to believe the profit opportunities in the next few years
are substantial. As reflected later in this press release, once we
have been able to complete finished houses on building lots our
realization on the original loan amount has been approximately 90
percent.”
The primary causes for the net loss for the three months ended
December 31, 2009 were a non-cash provision for loan losses of
$46.50 million, a non-cash valuation adjustment for foreclosed real
estate of $21.99 million, and a reduction in interest income of
$5.83 million. The non-cash charges, totaling $68.49 million,
represent the Bank’s estimate of changes in the appraised value of
loan collateral and foreclosed real estate due to the ongoing
disruption in residential land markets. For the twelve months ended
December 31, 2009 net loss was $38.26 million, which was impacted
by a non-cash provision for loan losses of $88.80 million for the
twelve months ended December 31, 2009 compared to $119.05 million
for the same period of 2008. Also contributing to the net loss is
the $58.12 million reduction in interest income due to the level of
non-performing loans. The non-performing assets expense for the
twelve months ended December 31, 2009 was $44.88 million, of which
$29.97 million was attributable to non-cash valuation adjustment
for foreclosed real estate, compared to $16.27 million for the same
period in the prior year of 2008.
Mr. Heimbigner added, “The non-cash losses recorded in the
fourth quarter reduced the net book value of the Bank’s
non-performing assets to approximately 63 percent of the original
loan amount. Due to the distressed values we have recorded for our
building lots, we expect a percentage of the non-cash loss
provisions attributable to the write down of lot prices may be
recovered in future quarters when we sell completed houses on those
lots.”
Balance Sheet Summary (Amounts
in Thousands)
December 31, September 30,
December 31, 2009
2009 2008 Total Assets $
1,129,154 $ 1,219,356 $ 1,325,541 Total Loans,
Excluding Mortgage Loans Held For Sale $ 590,419 $
820,526 $ 1,064,080 Total Cash and Cash Equivalents $
277,182 $ 274,706 $ 111,632 Non-Performing Assets,
Net of Charge-offs and Valuation Adjustments $ 425,378
$ 586,559 $ 601,192
Three Months Summary (In
thousands, except ratios)
December 31, December 31,
2009 2008 Net Income (Loss) $ (38,264)
$ (64,884) Net Interest Margin .02%
1.87% Non-Cash Loan Loss Provisions $ 46,500 $
85,951 Non-Cash Valuation Adjustments to Other Real Estate Owned
$ 21,987 $ 15,883 Average Equity to Average Assets
5.67% 15.63%
The net loss for the quarter ended December 31, 2009 was $38.26
million, or $2.43 per diluted share compared to a net loss of
$64.88 million or $4.12 in the comparable period in 2008. The
primary cause for the net loss was:
- A non-cash provision for loan
losses of $46.50 million for the three months ended December 31,
2009 compared to $85.95 million for the same quarter of 2008.
- The non-performing assets
expense for the quarter ended December 31, 2009 was $26.66 million,
of which $21.99 million was attributable to non-cash valuation
adjustment for foreclosed real estate, compared to $15.88 million
for the same quarter in the prior year of 2008.
- Also contributing to the net
loss is the $5.83 million reduction in interest income due to the
level of non-performing loans.
Net interest loss after provision for credit losses was a loss
of $46.45 million for the three months ended December 31, 2009
compared to net interest loss of $80.07 million for the same period
in 2008.
Twelve Months Summary (In
thousands, except ratios)
December 31, December 31,
2009 2008 Net Income (Loss)
$ (104,607) $ (60,843) Net Interest Margin
.35% 4.52% Non-Cash Loan Loss Provisions
$ 88,799 $ 119,051 Non-Cash Valuation Adjustments to
Other Real Estate Owned $ 29,972 $ 16,275 Average
Equity to Average Assets 8.60% 16.76%
The net loss for the twelve months ended December 31, 2009 was
$104.61 million, or $6.64 per diluted share compared to a net loss
of $60.84 million or $3.86 per diluted share in the comparable
period in 2008. The primary cause for the net loss was:
- A non-cash provision for loan
losses of $88.80 million for the twelve months ended December 31,
2009 compared to $119.05 million for the same period of 2008.
- Also contributing to the net
loss is the $58.12 million reduction in interest income due to the
level of non-performing loans.
- The non-performing assets
expense for the twelve months ended December 31, 2009 was $44.88
million, of which $29.97 million was attributable to non-cash
valuation adjustment for foreclosed real estate, compared to $16.27
million for the same period in the prior year of 2008.
Net interest loss after provision for credit losses was a loss
of $84.62 million for the twelve months ended December 31, 2009
compared to net interest loss of $62.48 million for the same period
in 2008.
Capital Ratios
As noted above the quarterly and annual losses have reduced the
Bank’s capital due to the depressed values for residential building
lots. The following table represents the Bank’s Regulatory Capital
and Ratios as of the indicated dates:
(Amounts in Thousands)
Leverage Capital Tier
1 (Core) Capital Tier 2 (Total) Capital
Amount
Ratio
Amount Ratio Amount
Ratio
Actual at December 31, 2009 $ 36,403 3.04 % $ 36,403 4.13 %
$ 47,435 5.38 % Actual at September 30, 2009 $ 74,665 6.19 % $
74,665 7.64 % $ 87,489 8.95 % Actual at June 30, 2009 $ 110,209
8.67 % $ 110,209 10.10 % $ 124,262 11.39 % Actual at March 31, 2009
$ 132,978 10.36 % $ 132,978 11.13 % $ 148,222 12.41 % Actual at
December 31, 2008 $ 141,000 10.72 % $ 141,000 11.61 % $ 156,424
12.88 %
The Bank has engaged an investment banking firm and is
continuing its efforts to raise additional capital during the first
quarter of 2010.
Mr. Heimbigner commented, “We believe that the worst part of the
recession is past and that our management team and dedicated
employees have demonstrated that our strategy of selling finished
homes is working to reduce our non-performing assets. We have
written down the carrying value of our real estate assets to a
level that real estate investors would like to buy our assets
directly. As such, we believe that we have an opportunity to raise
capital based on the quality of the Bank’s real estate assets and
our approach to generating higher economic value than bulk sales of
assets.”
Home Sales Including Pending Sales in Excess of $360 Million
for the Year Ended December 31, 2009
Mr. Heimbigner said, “In the past year, City Bank and our
borrowers have been leaders in selling residential real estate in
the Puget Sound region. We have sold 1,235 houses and lots totaling
more than $360 million in construction loans for the year ended
December 31, 2009.”
The average realized loss on these 1,235 transactions is 9.94%
of the original loan principal. The average realized losses on the
transactions that were short sales are 16.22% of the original loan
principal. Mr. Heimbigner commented, “These lower losses combined
with some recoveries are illustrative of the substantial benefits
that can be obtained from selling completed houses rather than bulk
selling residential building lots in this distressed market.”
Q1 Actual Q2 Actual Q3
Actual Q4 Actual Pending
TOTAL Houses Sold 287 373 274 246 55
1,235
Average Construction Loan Balance $ 279,888 $ 311,441 $ 306,724 $
253,982 $ 310,723
$ 291,585 Original Construction
Loan Balance All Sales ($ in Millions) $ 80.33 $ 116.17 $ 84.04 $
62.48 $ 17.09
$ 360.11 Original Construction Loan
Balance Short Sales ($ in Millions)
$ 220.84 Total
Loss of Loan Principal ($ in Millions)
$ 32.73
Average Realized Loss on All Sales
9.94% Average
Realized Loss on Short Sales
16.22%
Liquidity and Cash Flow
At December 31, 2009 the Bank had a high level of liquidity (in
the form of Cash, Cash in Banks, Interest-Bearing Accounts in Banks
and Federal Funds Sold) totaling $277.18 million compared to
$111.63 million at December 31, 2008. The following table
summarizes the Bank’s liquid assets, which are approximately
$372.43 million that can be realized in 90 days or less:
Liquid Assets: Amount (In Millions)
Cash and Cash Equivalents $ 277.18 Mortgage Loans Held For Sale $
5.89 Available For Sale Securities $ 12.85 Federal Income Tax
Receivable $ 59.42 Pending Home Sales (estimated net cash proceeds)
$ 17.09 Total $
372.43
The following table is a summary of the Bank’s Quarterly Cash
Flow for the year ended December 31, 2009:
Twelve Months
($ in Thousands)
Q1 Actual Q2 Actual Q3 Actual
Q4 Actual Actual Cash provided by (used
in) operations $ (13,873 ) $ (2,993 ) $ 25,898 $ (7,553 ) $ 1,479
Cash provided by investing activities $ 34,627 $ 82,274 $
77,730 $ 58,330 $ 252,961 Cash provided by (used in)
financing activities $ 52,730 $ (57,882 ) $ (35,437 ) $ (48,301 ) $
(88,890 )
Net increase in cash and fed funds sold $
73,484 $ 21,399
$ 68,191 $ 2,476
$ 165,550 Cash and fed funds
sold at beginning of period $ 111,632 $
185,116 $ 206,515 $ 274,706
$ 111,632
Cash and fed funds sold at end of
period $ 185,116 $
206,515 $ 274,706
$ 277,182 $ 277,182
Summary for the three and twelve months ended December 31,
2009:
- Net cash provided by (used in)
operating activities was ($7.55) million and $1.48 million,
respectively. This includes the impact of tax refunds totaling
$30.06 million for the year ended December 31, 2009.
- Net cash provided by investing
activities was $58.33 million and $252.96 million, respectively.
This is primarily the cash proceeds from the sale of loan
collateral and foreclosed real estate, net of construction loan
disbursements to complete houses for sale.
- Net cash (used in) financing
activities was ($48.30) million and ($88.89) million, respectively.
This includes the repayment of brokered deposits of $372.43
million, $67.14 million of public deposits and $20.00 million of
FHLB advance totaling $459.57 million during the twelve month
period.
Result of Operations
Interest income for the three and twelve months ended December
31, 2009 decreased $8.03 million or 49.92% and $58.12 million or
59.10% from the comparable periods in 2008. As a result of the
weakening residential real estate market, the Bank’s non-performing
assets increased from $199.19 million at September 30, 2008, to
$601.19 million at December 31, 2008 and decreased to $425.38
million at December 31, 2009. Accrued interest of $3.92 million was
reversed from income for the twelve months ended December 31, 2009
due to the transfer of loans to non-accrual status. The primary
reason for the decrease in interest income was a result of the
level of non-performing loans. Also contributing to the decrease in
interest income was the decline in short term interest rates during
the latter part of 2008 (the majority of the Bank’s
interest-earning assets are variable rate with floors) as evidenced
by the decline in the yield on the interest earning assets year
over year. The average yield on loans for the three and twelve
months ended December 31, 2009 were 4.10% and 4.20%, down from
5.31% and 8.09% for the same periods in 2008. Net interest margin
for the three and twelve months ended December 31, 2009 decreased
to .02% and .35% compared to 1.87% and 4.52% in the same periods in
the prior year.
Interest expense for the three and twelve months ended December
31, 2009 decreased to $8.01 million and $36.05 million compared to
$10.21 million and $41.78 million, respectively, recorded in the
comparable periods in 2008. The average cost of deposits and
borrowed funds for the three and twelve months ended December 31,
2009 decreased to 2.95% and 3.21% compared to 3.75% and 4.04% for
the same periods in 2008, reflecting a lower interest rate
environment in addition to the substantial pay down of brokered
deposits. Average interest bearing deposits and borrowed funds for
the twelve months ended December 31, 2009 were $1.12 billion, an
8.40% increase over the $1.03 billion average for the comparable
period in 2008.
Non-interest income for the three and twelve months ended
December 31, 2009 reflects a net decrease of $206 thousand and
$1.81 million compared to the same periods in 2008. The majority of
the decline was due to a non-recurring pre-tax gain of $1.22
million on the partial redemption of the Bank’s equity interest in
VISA Inc. (NYSE: V) in the first quarter of 2008. The Bank
continues to hold 45,000 shares of VISA Class B stock that are
carried on the books at zero, but are estimated to have a fair
market value in excess of $3.50 million. Non-interest income
excluding VISA, Inc. reflected a net decrease of $592 thousand.
Accounting for the net reduction in non-interest income of $592
thousand is the decrease in the net gain on sales of loans of $1.62
million and an increase in the net gains from sale of foreclosed
real estate for $734 thousand.
Non-interest expense for the three and twelve months ended
December 31, 2009 was $29.35 million and $65.45 million compared to
$20.47 million and $35.69 million for the same periods in 2008. The
majority of the increase relates to losses and expenses on
non-performing loans and foreclosed real estate, which increased by
$25.17 million for the twelve months ended December 31, 2009
compared to the same period in 2008. For the twelve months ended
December 31, 2009, audit expense increased by $1.38 million due to
the increased review of non-performing assets. FDIC insurance
expense increased by $4.17 million for the twelve months ended
December 31, 2009, compared to the same period in 2008, which is a
function of the Bank’s increased level of deposits, higher
non-performing assets and the higher rate of assessment applied to
all banks as a result of the national banking crisis. Offsetting
the increases was a decrease in salary and employee benefits
expense by $1.69 million for the twelve months ended December 31,
2009 compared to the same period in 2008, due to the reduction in
the level of incentive compensation.
The Bank’s effective income tax benefit rate for the three and
twelve months ended December 31, 2009 was 49.17% and 28.96%, due to
a deferred tax valuation allowance of $9.21 million established in
2009. During the fourth quarter of 2009, the Federal income tax law
was changed to extend the net operating loss (NOL) carryback period
from two years to five years for losses incurred in 2008 or 2009.
This resulted in the 49.17% effective tax benefit rate for the
fourth quarter. At December 31, 2009 the Bank reported a federal
income tax receivable of $59.42 million, which is expected to be
received the first quarter of 2010.
At December 31, 2009, total assets were $1.29 billion, a
decrease of 14.82% over December 31, 2008 primarily due to the
sales of non-performing assets of $343 million. Offsetting the
decrease is an increase in the on balance sheet liquidity of
$277.18 million due to the Bank’s strong liquidity position. Total
loans decreased by 44.51% to $590.42 million at December 31, 2009
compared to $1.06 billion at December 31, 2008. At December 31,
2009, deposits decreased 6.21% to $1.02 billion compared to $1.09
billion at December 31, 2008 primarily due to brokered deposits pay
down of $372.00 million.
The ratios of average equity to average assets (Tier 1 Capital)
for the three and twelve months ended December 31, 2009 were 5.67%
and 8.60% compared to 15.63% and 16.76% for the same periods in
2008.
Forward-Looking Statements
The previous discussion contains a review of City Bank’s
operating results and financial condition for the three and twelve
months ended December 31, 2009 and December 31, 2008. 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, 2008. 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.
Selected Financial Highlights (unaudited)
(In thousands, except per share data)
Three months ended
December
Twelve months ended
December
Income Statement Data
2009 2008
% Change 2009
2008 % Change Interest
income $ 8,059 $ 16,093 -49.92 % $ 40,230 $ 98,353 -59.10 %
Interest expense 8,005 10,207 -21.57 % 36,052 41,781 -13.71 % Net
interest income 54 5,886 -99.08 % 4,178 56,572 -92.61 % Provision
for credit losses 46,500 85,951 -45.90 % 88,799 119,051 -25.41 %
Net interest income (loss) after provision for credit losses
(46,446 ) (80,065 ) -41.99 % (84,621 ) (62,479 ) 35.44 % Other
noninterest income 524 730 -28.22 % 2,811 4,621 -39.17 % Cash
expense related to nonperforming assets 4,677 1,810 158.40 % 14,903
3,435 333.86 % Valuation Adjustment related to nonperforming assets
21,987 15,883 38.43 % 29,972 16,275 84.16 % Other noninterest
expense 2,690 2,776 -3.10 % 20,572 15,981 28.73 %
Income (Loss)
before income taxes (75,276 ) (99,804 ) -24.58 % (147,257 )
(93,549 ) 57.41 % Provision (benefit) for income taxes (37,012 )
(34,920 ) 5.99 % (42,650 ) (32,706 ) 30.40 %
Net Income
(Loss) $ (38,264 ) $ (64,884
) -41.03 % $ (104,607 )
$ (60,843 ) 71.93 %
Share Data Actual shares outstanding 15,764 15,764 0.00 %
Earnings Per Share: Basic earnings per common share ($2.43 )
($4.12 ) -41.02 % ($6.64 ) ($3.86 ) 72.02 % Diluted earnings per
common share ($2.43 ) ($4.12 ) -41.02 % ($6.64 ) ($3.86 ) 72.02 %
Book value per common share $ 2.31 $ 8.95 -74.14 % Basic average
shares outstanding 15,764 15,764 0.00 % 15,764 15,761 0.02 % Fully
diluted average shares outstanding 15,764 15,764 0.00 % 15,764
15,772 -0.05 % Dividends paid per share $ 0.00 $ 0.06 -100.00 % $
0.00 $ 0.51 -100.00 %
Balance Sheet Data (at period
end) Fed Funds Sold and Cash and Due From Bank $ 277,182
$ 111,632 148.30 % Investment securities 12,849 14,483 -11.28 %
Loans held for sale 5,887 7,190 -18.12 %
Total on balance sheet
liquidity $ 295,918 $ 133,305 121.99 % Loans, net of unearned
income 590,419 1,064,080 -44.51 % Allowance for credit losses
11,481 34,990 -67.19 % Total assets 1,129,154 1,325,541 -14.82 %
Total deposits 1,020,494 1,088,091 -6.21 % Total Shareholders'
Equity 36,483 141,157 -74.15 %
Three months ended
December
Twelve months ended December Cash Flow Statement Data
2009 2008
% Change
2009 2008
% Change
Net cash provided by (used in) operating activities (7,553 )
3,205 -335.66 % 1,479 23,572 -93.73 % Net cash provided by (used
in) investing activities 58,330 (7,549 ) -872.69 % 252,961 (116,952
) -316.29 % Net cash provided by (used in) financing activities
(48,301
)
69,570
-169.43 %
(88,890
)
153,428
-157.94 % Net increase (decrease) in cash and federal funds sold
2,476 65,226 -96.20 % 165,550 60,048 175.70 % Cash and
federal funds sold at beginning of period 274,706
46,406 491.96 % 111,632
51,584 116.41 %
Cash and federal funds sold at end
of period 277,182
111,632 148.30 %
277,182
111,632 148.30 %
Three months ended
December
Twelve months ended
December
Income Statement Data
2009
2008
% Change
2009
2008
% Change
Selected Ratios
Return on average shareholders' equity -221.64 % -125.30 % 76.88 %
-95.37 % -28.15 % 238.82 % Average shareholders' equity to average
assets 5.67 % 15.63 % -63.73 % 8.60 % 16.76 % -48.68 % Return on
average total assets -12.56 % -19.58 % -35.85 % -16.41 % -4.72 %
247.78 % Net interest spread -0.02 % 1.37 % -101.46 % 0.17 % 3.82 %
-95.55 % Net interest margin 0.02 % 1.87 % -98.93 % 0.35 % 4.52 %
-92.26 % Effective tax expense (benefit) rate -49.17 % -34.99 %
40.53 % -28.96 % 34.96 % -182.84 %
Asset Quality Ratios
Allowance for credit losses $ 11,481 $ 34,990 -67.19 % Allowance to
ending total loans 1.94 % 3.29 % -40.86 %
Non-performing
assets: Non-accrual $ 200,312 $ 416,189 -51.87 % 90 days past
due and still accruing $ - $ 313 -100.00 % Impaired loans still
accruing $ 44,465 $ 84,732 -47.52 % Foreclosed real estate $
180,601 $ 99,958 80.68 %
Total Non-performing assets
$ 425,378 $ 601,192 -29.24
% Non-performing assets to total assets 37.67 % 45.35 %
-16.94 % Net (charge-offs) recoveries $ (112,308 ) $ (95,331 )
17.81 % Net loan charge-offs (annualized) to average loans 11.99 %
7.95 % 50.80 %
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