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Big charge offs at City Bank
City Bank (CTBK: 10.10 -0.32 -3.07%) of Lynnwood, WA released their 2nd quarter earnings today, and they were not pretty. They took a large charge off and a significant portion of their loan portfolio is nonperforming. Here are a few of the pertinent figures compared to the 2nd quarter of 2007. insert.a.chart.CTBK City Bank’s main business is residential construction loans and it is obvious the company has a lot (8%!!) of assets in that area that are in trouble. The slowdown in residential housing construction definitely hits this bank where it hurts the most. On the positive side, the City Bank predicts it will remain profitable, though reduced from previous years. The 15¢ per quarter dividend should be safe. Loan loss reserves now total about $15 million, which appears adequate and their Tier 1 capital ratio of 17% is well above the 4% minimum. At this point the question for me is how long will it take the bank to work out it’s problem loans? If earnings are another 60¢ per share for the remaining half of the year the PE and yield are still around 6 at a $10 share price. Not bad valuations if this is the worst, however at this time I think it will take several quarters to work out the problems. I believe that City Bank has excellent management, but current economic conditions are working against a speedy recovery. On Monday I plan to reduce my holdings in CTBK by about 2/3. by Tim Plaehn (Investing Thoughts) Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital. |
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