CTBK City Bank (MM)

City Bank (NASDAQ:CTBK) today announced earnings of $9.69 million for the quarter ended March 31, 2008, reflecting a slight decrease of 6.66% from $10.38 million for the same period in 2007, as a result of the general economic slowdown impacting financial institutions. The Bank�s diluted net income per share reflects a decrease of 6.15% to $.61 from $.65 in the first quarter of the prior year. Net interest income after provision for credit losses was $18.26 million for the first quarter of 2008 compared to $19.94 million for the prior period in 2007, reflecting a decrease of 8.41%. Included in 2008 net income was a non-recurring after-tax gain of approximately $791 thousand on the partial redemption of our equity interest in VISA, Inc., (NYSE: V), upon their successful initial public offering. The decrease in net interest income was primarily due to the increase in loans being placed on non-accrual status for which interest accrued in the amount of $780 thousand had been reversed from income. Decreasing interest rates also reduced interest income but was mitigated to some extent with the use of floor rates. The Bank also made a provision for credit losses of $500 thousand during the quarter as compared to no provision for the same period in the prior year. These first quarter results were accomplished despite the significant slowdown in the housing market. The Bank�s first quarter net charge-offs were $125 thousand compared to net recoveries of $81 thousand in the prior year. In comparison to other financial institutions within our peer group, the Bank maintains an outstanding efficiency ratio of 24.98%. With historically disciplined credit underwriting standards, the Bank continued to grow its loan portfolio by $173,512 or 16.69% over the same period of 2007. � Three Months Highlights (In thousands, except ratios) � � March 31 2008 � March 31 2007 Total Assets $ 1,309,029 � � $ 1,116,060 � Total Loans $ 1,213,422 � � $ 1,039,910 � Net Income $ 9,685 � � $ 10,376 � Non-Performing Assets $ 56,589 � � $ 2,674 � Net Interest Margin � 6.09 % � � 7.52 % Return on Average Assets (ROA) � 3.11 % � � 3.87 % Return on Average Equity (ROE) � 18.09 % � � 21.03 % Average Equity to Average Assets � 17.21 % � � 18.39 % Results of Operations Interest income for the first quarter of 2008 was up 2.57% from the comparable period in 2007 due to loan growth, which compensated for the decline in average yield. The increase of $179.48 million or 17.85% in average outstanding loan balances contributed to this increase. The average yield on loans for the first quarter of 2008 was 9.89%, down from 11.25% during first quarter 2007 and net interest margin decreased to 6.09% compared to 7.52% in the same period in the prior year. As a result of the weakening residential real estate market, the Bank�s nonperforming assets increased substantially from $2.67 million at March 31, 2007 and $33.77 million at December 31, 2007 to $56.59 million at March 31, 2008. The slowdown in the housing market will remain particularly challenging and the Bank expects higher loan delinquencies, nonaccruals and potential charge-offs to continue for the remainder of this year. However, given the Bank�s adequate loan loss reserve, strong capital position and our seasoned Management team, the Bank is well positioned to work through any problem credits and minimize any potential losses. Interest expense for the first quarter of 2008 was up 21.27% from the comparable period in 2007 due to an increase in deposits to fund loan growth. The average cost of deposits and borrowed funds for the first quarter of 2008 increased to 4.44%, up 10 basis points from 4.34% for the first quarter of 2007, reflecting a tightening liquidity environment and greater competition among local peer banks for retail deposits. Average time deposits for the first quarter of 2008 were $719.81 million, for a 27.04% increase over the $566.59 million average for the comparable quarter of 2007. Non-interest income of $1.90 million reflects a net increase of $1.08 million or 132.52% for the first quarter of 2008 from the first quarter of 2007. The majority of this increase was due to a pre-tax cash gain of $1.22 million on the partial redemption of the Bank�s equity interest in VISA. This redemption reflects 38.66% of the Bank�s ownership position in VISA. In addition, the Bank also reversed $120 thousand of previously recorded indemnification liabilities related to VISA litigation. Net gains from sale of loans decreased $23 thousand compared to the first quarter 2007. The Bank also recorded a net gain on sale of foreclosed real estate of $90 thousand for the quarter ended March 31, 2008. SBA loan servicing income also decreased by $21 thousand compared to the first quarter of 2007. Non-interest expense of $5.04 million in the first quarter of 2008 reflects a net increase of 8.96% or $414 thousand compared to the first quarter of 2007. The majority of the increase relates to salary and benefit expenses during the first quarter 2008, which increased by $166 thousand as compared to the same period in 2007. FDIC insurance expense and occupancy expense also increased $120 and $82 thousand respectively. At March 31, 2008, total assets were $1.31 billion, up 17.29% over March 31, 2007. Asset growth since December 31, 2007 was $70.00 million or 5.65%. Loans grew 16.69% to $1.21 billion compared to $1.04 billion at March 31, 2007. Loan growth since December 31, 2007 was $54.94 million or 4.74%. Residential construction loan activity has accounted for the majority of this increase. At March 31, 2008, deposits increased 19.65% to $954.62 million compared to $797.83 million at March 31, 2007 and 10.43% since December 31, 2007. City Bank�s return on average assets for the three months ended March 31, 2008 was 3.11% compared to 3.87% for the same period in 2007. Return on average equity was 18.09% for the three month period ended March 31, 2008, compared to 21.03% for the same period in 2007. The ratio of average equity to average assets (Tier 1 Capital) for the three months ended March 31, 2008 was 17.21% compared to 18.39% for the same period in 2007. The Tier 1 Capital Ratio decreased slightly due to the increase in the Bank�s total assets for the period ended March 31, 2008. The Bank also declared a regular quarterly cash dividend of $ .15 per share during first quarter of 2008. Forward-Looking Statements The previous discussion contains a review of City Bank�s operating results and financial condition for the three months ended March 31, 2008 and 2007. 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 continued decline in the housing market and related increase in nonperforming assets, 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, 2007. 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. Two mortgage loan offices serve Snohomish, King and Pierce 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. City Bank has been consistently recognized as one of the top performing banks in Washington State as well as nationally. Selected Financial Highlights (unaudited) (In thousands, except per share data) � � Three months ended March � � Income Statement Data 2008 � 2007 � % Change Interest income $29,706 $28,963 2.57% Interest expense 10,945 9,025 21.27% Net interest income 18,761 19,938 -5.90% Provision for credit losses 500 - 0.00% Net interest income after provision for credit losses 18,261 19,938 -8.41% Other noninterest income 1,902 818 132.52% Other noninterest expense 5,037 4,623 8.96% Income before income taxes 15,126 16,133 -6.24% Provision for income taxes 5,441 5,757 -5.49% Net Income $9,685 $10,376 -6.66% � � Share Data Actual shares outstanding 15,762 15,711 0.32% Earnings Per Share: Basic earnings per common share $0.61 $0.66 -7.58% Diluted earnings per common share $0.61 $0.65 -6.15% Book value per common share $13.79 $12.79 7.85% Basic average shares outstanding 15,754 15,684 0.45% Fully diluted average shares outstanding 15,790 15,846 -0.35% Dividends paid per share $0.15 $0.15 0.00% � Balance Sheet Data (at period end) Investment securities $14,597 $15,384 -5.12% Loans held for sale 5,410 2,219 143.80% Loans, net of unearned income 1,213,422 1,039,910 16.69% Allowance for credit losses 11,644 10,367 12.32% Total assets 1,309,029 1,116,060 17.29% Total deposits 954,616 797,829 19.65% Liabilities related to discontinued operations 826 1,254 -34.13% Total Shareholders' Equity 217,393 200,918 8.20% � Selected Ratios Return on average shareholders' equity 18.09% 21.03% -13.98% Average shareholders' equity to average assets 17.21% 18.39% -6.40% Return on average total assets 3.11% 3.87% -19.49% Net interest spread 5.21% 6.58% -20.82% Net interest margin 6.09% 7.52% -19.02% Efficiency ratio 24.98% 22.27% 12.15% � Asset Quality Ratios Allowance for credit losses $11,644 $10,367 12.32% Allowance to ending total loans 0.96% 0.99% -5.44% Non-performing assets Non-accrual and impaired $51,571 $1,054 4792.88% 90 days past due and still accruing $0 $1,620 -100.00% Foreclosed real estate $5,018 $0 100.00% Non-performing assets to total assets 4.32% 0.24% 1704.30% Net (charge-offs) recoveries ($125) $81 -254.72% Net loan (charge-offs) recoveries (annualized) to average loans -0.01% 0.01% -231.28%