This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

August 28, 2008 - CityBank (CTBK-NASDAQ) provides commercial and retail banking services in the United States.The bank provides loan and deposit services to its customers. Its loan services comprise lending to small and medium-sized businesses; construction lending for single family residences; and mortgage lending. The company offers regular and interest bearing checkingaccounts, savings accounts, certificates of deposit, individual retirement accounts, and safe deposit services. It also provides online banking, automated teller machines, and consumer and business related services.

This stock traded at $36 last year. Now it's at $12.20 with a Book Value of $13.32. Earnings have increased for the last 3 years, but that's about to change. In 2005, they were $1.51 a share, followed by $2.34, then $2.62. This year, analysts see $1.65 and next year, $1.76. So it's still profitable but not nearly what it has been.

Earnings for the first six months were released on July 18. They were $15 million, down 28.32% from the $20.93 million in the same period for 2007. Per share numbers were 95 cents a share vs $1.32 last year. Here's what the President and CEO had to say about the current business enviornment: "The banking industry as a whole is in a period of extreme financial stress that may be the worst period in my 34 years of banking. City Bank, despite being impacted by these industry wide problems, is well positioned with one of the highest levels of capital for a bank our size. We are a bank that has focused on the residential real estate construction lending market for our entire history, and believe that we do a better job of underwriting loans and managing the risk during periods like this where certain of our borrowers are unable to perform under the terms of their loans."

To demonstrate the conservative approach the bank takes, it recorded a provision for loan losses of $5.10 million in the first six months of this year. That compares to $150 thousand in the same period for 2007. Actual charge-offs at the bank for the first six months were $1.84 million vs $157 thousand last year.

The CEO commented on the credit quality of the bank: "Over the five year period from 2003 to 2007, City Bank has managed its loan portfolio with only $2.82 million of actual net charge-offs or a loss ratio of .08% while the industry incurred a loss ratio of .62%. We expect that our net charge-offs coming from the current problems will be significantly higher than we have experienced in the past, but will continue to be at levels that are below the industry averages. This is the City Bank difference that we have demonstrated for 34 years."

What makes this bank most interesting is its efficiency ratio. Even with the charge-offs, it's at 26.33%. The efficiency ratio is a barometer for cost controls at a bank. The lower the number, the more efficient the bank is at delivering its services and products. Many banks run at 50% or higher.

More numbers: The dividend is 60 cents a year for a yield of 5%. The regular dividend was declared last week for shareholders of record as of September 5 and payable on September 19. Price to Sales ratio is 2.59 with a Price to Book of .87. There are 15.76 million shares outstanding. Of those, 16.23% are held by insiders (officers and directors). Institutions own 36.6% of the stock. At the end of July, 3.06 million shares were short which would take 14 days of trading to cover. In the previous month, 2.83 million shares were short.

CityBank is a small, well run bank that is dealing with the same problems all banks are that make mortgages. With the economy hurting, many mortgages aren't performing. Some properties are being turned over to the bank. CityBank has jumped its reserves for loan losses considerably, hoping it will be enough to cover any more bad loans. No one can guess if there's enough in the loan loss reserve to cover bad debt. But the large increase (over 30 times) from last year, suggests management is erring on the side of worst case.

With more digging, aggressive investors may find this to be one of the banks that pays a decent dividend while it works its way back to earnings growth. In the interim, it's still profitable.

Company Web site: www.citybank.com

- Ted Allrich