City Bank has flat 1st quarter

Tuesday April 15, 2008 

My favorite City Bank (CTBK: 9.21 +0.13 +1.43%) is the regional bank located in Washington state. Yesterday they released their results for the 1st quarter of 2008 and results were mixed. The major financial media laser-focused on the fact that net earnings fell about 6% but I hope to give a little more in-depth analysis here. First an outline of some of the results compared to Q1, 2007.

  • Net income: $9.69 million, -6.7%
  • Net interest income: $18.26 million, -8.4%
  • Total loan: $1.213 billion, +16.7%
  • Non-performing assets: $56.6 million, 4.6% of total loans, up from $2.7 million
  • Net interest margin: 6.09% down from 7.52%

The press release from City Bank noted the financial slow down is having an effect on the bank in the form of a higher amount of non-performing assets and tighter net interest margin. They also noted that assets continued to grow in the 1st quarter, up 5.65% from 12/31/2007.

I believe small, well run regional banks can be tremendous cash and profit generators. City Bank management has proven itself to do a fine job in the past and I think they will weather this current economic slowdown in fine shape. They are continuing to grow assets during these tough times and profits will follow as the economy improves. the 3% dividend is covered 4x by projected earnings. Here are a couple of banking related ratio that show how City Bank stacks up against the average of comparable banks. Source

  • Return on Average Assets (ROA): 3.11% vs. 1.06% (higher is better)
  • Return on Average Equity (ROE): 18.09% vs. 10.8%
  • Efficiency Ratio: 22% vs. 59% (lower is better, below 50% considered excellent)

At this point the stock trades at 7.5 times 2007 and projected 2008 earnings. Over the last few years the company has paid at least a $1.00 special dividend at the end of the year, pushing the possible yield to 8%. With the start of an economic recovery this could be a $30 stock again. I am not expecting higher stock values soon for CTBK so I am going to switch it from my Growth Portfolio to the Income Portfolio.

Note: I currently have a long position in CTBK.

Filed Under Income, Small Cap

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