CTBK City Bank (MM)

City Bank (NASDAQ:CTBK) announced today that it has received a Corrective Action Directive from the Federal Deposit Insurance Corporation (FDIC) giving it until April 10 to raise additional capital through the sale of shares or obligations so that it will be "adequately capitalized." If that is not possible, the FDIC directed City Bank to accept an offer to be acquired by another depository institution.

The order also repeated restrictions already in place on accepting or renewing brokered deposits, increasing its average total assets, making dividend payments or opening new branches. City Bank has been under a Consent Agreement with the FDIC since June 2009 under which it agreed to a number of limitations. It has taken a number of actions to reduce its non-performing loans, pay down the level of brokered deposits and raise capital. The Bank is continuing to aggressively reduce non-performing assets and as of February 28, 2010, the Bank has additional signed purchase and sales agreements representing 180 houses totaling approximately $48 million in construction loans. The Bank has repaid $52 million of brokered deposits and public deposits in January and February, and will repay another $50 million in March. As of February 26, 2010, the Bank has $247 million of cash and cash equivalents and a $63 million federal income tax refund receivable, which totals $310 million of 90-day liquidity.

President and CEO Martin Heimbigner, who assumed his position in January when founder and CEO Conrad Hanson retired, said City Bank continues to look for ways to bolster its capital levels, aggressively sell non-performing assets and pay down debt. "We are continuing to talk and meet with investors across the country to discuss a number of financing options.”

The following table summarizes the Bank’s restated capital position as of December 31, 2009:

                  Amounts in $000's

Actual as ofDecember 31,2009

Ratio

RatioRequired forCapitalAdequacy

CapitalDeficiency atDecember 31,2009

Tier 1 leverage capital to total assets $ 21,590 1.80 %

4%

 

$ (26,293 ) Tier 1 capital to risk weighted assets $ 21,590 2.32 %

4%

 

$ (15,554 ) Tier 2 total capital to risk weighted assets $ 33,160 3.57 %

8%

 

$ (41,129 )   Risk weighted average assets $ 928,612 $ 800,000

*

 

Total average assets $ 1,197,084 $ 1,050,000

*

 

 

*The Bank is expecting to reduce assets by $100 million as of March 31, 2010, as noted above

due to the repayment of brokered deposits in the first quarter.  

Restatement of 2009 Results

City Bank also announced amendments to its previously released unaudited results for the fourth quarter of 2009 and the year ended December 31, 2009. The revised net loss for 2009 totaled $119.50 million, an increase in the loss of $14.89 million from the $104.61 million originally reported on January 29, 2010.

The reasons for the revised net loss were an increase in the provision for loan losses of $16.80 million and an increase in the OREO valuation adjustment charged to expense of $2.33 million. The provision for loan losses increased due to accounting rules that apply when material subsequent events take place before the publication of audited financial statements. These events include the FDIC’s recently completed examination and receipt of updated appraisals on loans and foreclosed real estate which reflected lower collateral values. Income tax benefits were also adjusted to reflect the effect of the revised pre-tax loss. See the Exhibit of Selected Financial Information below for further detail on these restatements.

Martin Heimbigner, President and CEO, commented, “The distressed residential housing market continues to impact the bulk sale discounted value reflected in the land appraisals that are required to be used under regulatory accounting rules. Due to the distressed values we have recorded for our building lots as required by GAAP, we believe the intrinsic value of the Bank’s land is understated compared to the value of the land with a completed house sold at retail home prices.”

The Bank’s Capital Plan

The Bank has engaged an investment banking firm and is continuing its efforts to raise additional capital. Our efforts include a strategy to bulk sell assets to real estate investors with a contemporaneous, linked investment in City Bank common stock to recapitalize the Bank. Mr. Heimbigner commented, “We have written down the carrying value of our real estate assets to a level at which real estate investors may want 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 the intrinsic value of the building lots when a completed house is constructed.”

Mr. Heimbigner commented, “We think the Pacific Northwest is going to remain a popular place to live and do business, so we believe the bulk sale of assets to investors with a linked investment in City Bank may have appeal in the longer run," he said. Heimbigner indicated that City Bank’s Tier 1 capital level was 1.8 percent as of December 31. To fully comply with the FDIC Corrective Action Directive, the Tier 1 leverage capital level would need to increase by a minimum of $30 million, based on the planned reduction in the Bank’s asset size to $1 billion by March 31. Further repayments of brokered deposits are planned to reduce the asset size of the Bank to $900 million by June 30 and to $800 million by December 31.

“While these are challenging times, our employees have remained fully engaged and our customers have also been supportive,” Heimbigner said. “Depositors who have their money in FDIC insured accounts remain fully protected.”

 

Selected Financial Information for the Quarter Ended December 31, 2009

(Restated and Unaudited Condensed Financial Information)

          Income Statement Data (In thousands, except per share data) As reported

2009

Revised

2009

Change

  Interest income $ 8,059 $ 7,765 (294 ) Interest expense 8,005 8,005 - Net interest income(loss) 54 (240 ) (294 ) Provision for credit losses 46,500 63,299 16,799   Net interest income (loss) after provision for credit losses (46,446 ) (63,539 ) (17,093 ) Other non-interest income 524 525 1 Cash expense related to nonperforming assets 4,677 4,677 - Valuation Adjustment related to nonperforming assets 21,987 24,316 2,329 Other non-interest expense 2,690 2,690 - Income (Loss) before income taxes (75,276 ) (94,697 ) (19,421 ) Provision (benefit) for income taxes (37,012 ) (41,540 ) (4,528 )  

Net Loss

$ (38,264 ) $ (53,157 ) (14,893 )   Share Data Basic (loss) per common share ($2.43 ) ($3.37 ) (0.94 ) Fully diluted average shares outstanding 15,764 15,764 -    

Selected Financial Information for the Year Ended December 31, 2009

(Restated and Unaudited Condensed Financial Information)

         

 Twelve Months Ended December 31

  Income Statement Data (In thousands, except per share data) As Reported

2009

Revised

2009

Change

  Interest income $ 40,230 $ 39,936 (294 ) Interest expense 36,052 36,052 - Net interest income $ 4,178 $ 3,884 (294 ) Provision for credit losses 88,799 105,598 16,799   Net interest income (loss) after provision for credit losses (84,621 ) (101,714 ) (17,093 ) Other non-interest income 2,811 2,812 1 Cash expense related to nonperforming assets 14,903 14,903 - Valuation Adjustment related to nonperforming assets 29,972 32,301 2,329 Other non-interest expense 20,572 20,572 - Income (Loss) before income taxes (147,257 ) (166,678 ) (19,421 ) Provision (benefit) for income taxes   (42,650 )   (47,178 ) (4,528 )   Net Loss ($104,607 ) ($119,500 ) (14,893 )   Share Data Actual shares outstanding 15,764 15,764 - Basic (loss) per common share ($6.64 ) ($7.58 ) (0.94 )   Book value per common share $ 2.31 $ 1.37 (0.94 ) Fully diluted average shares outstanding 15,764 15,764 -   Balance Sheet Data (at period end)   Fed Funds Sold and Cash and Due From Bank $ 277,182 $ 176,982 (100,200 ) Investment securities Available for Sale 12,849 113,049 100,200 Loans held for sale   5,887     5,887   - Total on balance sheet liquidity $ 295,918 $ 295,918 -  

Loans, net of unearned income

590,419 577,846 (12,573 ) Allowance for credit losses 11,481 15,671 4,190 Total assets 1,129,154 1,111,261 (17,893 ) Total deposits 1,020,494 1,020,494 - Total Shareholders' Equity 36,483 21,590 (14,893 ) Tier 1 Leverage Capital Ratio 3.04 % 1.80 % -1.24 % Total Risk-Based Capital Ratio 5.08 % 3.57 % -1.51 % Allowance to ending total loans 1.94 % 2.71 % 0.77 %   Non-performing assets: Non-accrual loans $ 200,312 $ 190,926 (9,386 ) Impaired loans still accruing 44,465 23,724 (20,741 ) Other real estate owned $ 180,601   $ 178,272   (2,329 ) Total Non-performing assets $ 425,378 $ 392,922 (32,456 )  

Non-performing assets to total assets

37.67 % 35.36 % -2.31 % Net (charge-offs) recoveries $ (112,308 ) $ (124,917 ) (12,608 )