City Bank (Nasdaq:CTBK) today announced record earnings of $17.42 million for the six months ended June 30, 2006, reflecting an increase of 79.65% over the $9.70 million for the same period in 2005. All prior period results have been reclassified to show the operating results of Diligenz and Merchant Cards as discontinued operations with no effect on net income or shareholders' equity. Consolidated net income for the quarter ended June 30, 2006 was $9.21 million, an increase of $4.53 million or 96.81% compared to $4.68 million for the second quarter of 2005. The Bank's diluted net income per share from continuing operations reflects an increase of 100.00% from $.44 to $.88 compared to second quarter in the prior year.

Consolidated net income for the six months ended June 30, 2006 was $17.42 million compared to $9.70 million in the prior year, reflecting an increase of $7.72 million. On a diluted per share basis, net income was up 74.59% to $1.66 from $.95 in the comparable period in 2005. Income from continuing operations increased from $9.34 million to $17.42 million, an increase of 86.60% for the six months ended June 2006 compared to the prior year. Net interest income after provision for credit losses was $34.07 million for the six months ended June 30, 2006 compared to $20.53 million for the same period in 2005, reflecting an increase of 65.91%. The increased net interest income was primarily due to continued growth in average loans outstanding from $641.57 million to $826.32 million and a higher interest rate environment. In addition, the Bank has reduced nonperforming loans to .25% of assets and has experienced very low credit losses in 2006 and 2005 -0- *T Six Months Highlights (In thousands, except per share data) June 30 June 30 2006 2005 ---------------------------------------------------------------------- Total Assets $ 944,028 $ 754,662 ---------------------------------------------------------------------- Total Loans $ 861,628 $ 666,086 ---------------------------------------------------------------------- Net Income $ 17,421 $ 9,697 ---------------------------------------------------------------------- Income from Continuing Operations $ 17,421 $ 9,336 ---------------------------------------------------------------------- Income from Discontinued Operations $ -0- $ 361 ---------------------------------------------------------------------- Nonperforming Assets $ 2,351 $ 5,078 ---------------------------------------------------------------------- Provision for Credit Losses $ -0- $ 200 ---------------------------------------------------------------------- Net Interest Margin 7.81% 6.11% ---------------------------------------------------------------------- Return on Average Assets (ROA) 3.92% 2.76% ---------------------------------------------------------------------- Return on Average Equity (ROE) 18.87% 12.08% ---------------------------------------------------------------------- Average Equity to Average Assets 20.76% 22.10% ---------------------------------------------------------------------- Efficiency Ratio-Continuing Operations 25.94% 36.76% ---------------------------------------------------------------------- Total Shareholders' Equity $ 191,319 $ 165,341 ---------------------------------------------------------------------- *T

Income (from continuing operations) increased to $9.21 million from $4.68 million, an increase of 96.81% for the quarter ended June 30, 2006 compared to the same quarter in 2005. The Bank's diluted net income per share from continuing operations reflects an increase of 100.00% from $.44 to $.88 compared to second quarter in the prior year. Net interest income after provision for credit losses was $17.88 million for the second quarter of 2006 compared to $10.62 million for the prior period in 2005, reflecting an increase of 68.45%. The increased net interest income was primarily due to continued growth in average loan volume from $655.26 million to $845.31 million. Asset growth, primarily in loans, along with prime rate increases, were the major factors that contributed to the Bank's strong record earnings for the three months ended June 30, 2006. -0- *T Second Quarter Highlights (In thousands, except per share data) June 30 June 30 2006 2005 ---------------------------------------------------------------------- Net Income $ 9,207 $ 4,678 ---------------------------------------------------------------------- Income from Continuing Operations $ 9,207 $ 4,527 ---------------------------------------------------------------------- Income from Discontinued Operations $ -0- $ 151 ---------------------------------------------------------------------- Net Interest Margin 7.99% 6.14% ---------------------------------------------------------------------- Provision for Credit Losses $ -0- $ 100 ---------------------------------------------------------------------- Return on Average Assets (ROA) 4.04% 2.59% ---------------------------------------------------------------------- Return on Average Equity (ROE) 19.56% 11.48% ---------------------------------------------------------------------- Average Equity to Average Assets 20.64% 22.53% ---------------------------------------------------------------------- Efficiency Ratio-Continuing Operations 25.54% 40.00% ---------------------------------------------------------------------- *T

Result of Operations

Interest income for the second quarter ended June 30, 2006 was up 72.68% from the comparable period in 2005 due to strong loan volume and an increasing rate environment. The increase of $190.05 million or 29.00% in average outstanding loans contributed the majority of this increase. The Bank also benefited from twelve prime rate increases since February 2, 2005, totaling 300 basis points, causing the Bank's variable rate loan portfolio to reprice. A higher interest rate environment allowed the average yield on the Bank's loan portfolio (approximately 96.24% of the portfolio are variable rate loans), to increase faster than average cost of funds. The average yield on loans for the second quarter ended June 30, 2006 was 10.90%, up from 8.20% during second quarter of 2005 and the net interest margin increased to 7.99% from 6.14%. Management expects continued growth in loan volume for at least the near term. At the same time, nonperforming assets at June 30, 2006 have been reduced from $5.08 million to $2.35 million, a reduction of 53.70% from June 30, 2005. The ratio of nonperforming assets to total assets at June 30, 2006 decreased to .25% from .67% at June 30, 2005.

Interest expense for the second quarter ended June 30, 2006 was up 91.41% from the comparable period in 2005. Average cost of deposits for the second quarter ended June 30, 2006 increased to 3.65%, up from 2.21% for the second quarter of 2005, reflecting rising interest rates. Average deposits for the second quarter ended June 30, 2006 were $630.55 million resulting in a 38.40% increase over the comparable quarter in 2005 of $455.61 million. Management expects to see an increase in interest expense during the coming year due in part to a rising interest rate environment, and increasing deposits at a higher rate to fund loan growth.

Noninterest income of $1.15 million reflects a net decrease of $279 thousand or 19.48% during the second quarter ended June 30, 2006 from the second quarter 2005. Net gain on sale of foreclosed real estate decreased $224 thousand compared to the second quarter 2005. Net gains from sale of loans increased $57 thousand compared to the second quarter 2005. Brokered loan fees decreased $74 thousand compared to the second quarter of 2005. Income from investment products also decreased by $30 thousand compared to the second quarter of 2005.

Noninterest expense of $4.86 million increased .06% or $3 thousand compared to the second quarter of 2005. Salary and benefit expenses, net of amounts deferred, during the second quarter ended June 30, 2006 increased $572 thousand compared to the same period in 2005, reflecting the Bank's increased level of gross profit. The increase was due in part to higher benefit accruals for bonus and profit sharing compared to the same period in 2005. As of June 30, 2006 compared to June 30, 2005, foreclosed real estate expense decreased $23 thousand or 48.94% due to the sales of foreclosed property.

Consolidated net income of $17.42 million for the six months ended June 30, 2006 reflected an increase of 79.65% compared to the $9.70 million for the same period in 2005. Consolidated diluted earnings per share increased 74.59% from $.95 to $1.66. Asset growth, primarily in loans, along with prime rate increases, contributed to the Bank's record earnings for the six months ended June 30, 2006.

At June 30, 2006, total assets were $944.03 million, up 25.09% over June 30, 2005. Total assets growth since year-end 2005 was $111.99 million or 13.46%. Loans grew 29.36% to $861.63 million compared to $666.09 million at June 30, 2005. Loan growth since year-end 2005 was $114.96 million or 15.40%. Residential construction loans have accounted for the majority of the increased loan volume. At June 30, 2006, deposits increased 37.17% to $652.20 million compared to $475.47 million at June 30, 2005 and 27.67% since year-end 2005.

City Bank's return on average assets (continuing operations) for the three and six months ended June 30, 2006 was 4.04% and 3.92% compared to 2.50% and 2.66% for the same periods in 2005. Return on average equity (continuing operations) was 19.56% and 18.87% for the three and six months period, compared to 11.11% and 11.63% for the same periods in 2005. The ratio of average equity to average assets (Tier 1 Capital) for the three and six months ended June 30, 2006 were 20.64% and 20.76% compared to 22.53% and 22.10% for the same periods in 2005. The Tier 1 Capital Ratio has decreased slightly due to the significant increase in the Bank's total assets for the period ended June 30, 2006.

Forward-Looking Statements

The previous discussion contains a review of City Bank's operating results and financial condition for the three and six months ended June 30, 2006 and 2005. 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 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, 2005. 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. -0- *T Selected Consolidated Financial Highlights(unaudited) (In thousands, except per share data) Three months Income Statement Data - Continuing ended June Operations 2006 2005 % Change -------------------------- Interest income $ 24,234 $14,034 72.68% Interest expense 6,351 3,318 91.41% Net interest income 17,883 10,716 66.88% Provision for credit losses - 100 -100.00% Net interest income after provision for credit losses 17,883 10,616 68.45% Other noninterest income 1,153 1,432 -19.48% Other noninterest expense 4,863 4,860 0.06% Income from continuing operations before income taxes 14,173 7,188 97.18% Provision for income taxes 4,966 2,661 86.62% Income from continuing operations $ 9,207 $ 4,527 103.38% Income from discontinued operations - 286 -100.00% Provision for income taxes - 135 -100.00% Income from discontinued operations - 151 -100.00% Net Income $ 9,207 $ 4,678 96.81% Share Data Actual shares outstanding Earnings Per Share: Basic earnings per common share $ 0.89 $ 0.47 89.36% Diluted earnings per common share $ 0.88 $ 0.46 91.30% Earnings Per Share From Continuing Operations: Basic earnings per common share $ 0.89 $ 0.45 97.78% Diluted earnings per common share $ 0.88 $ 0.44 100.00% Book value per common share Basic average shares outstanding 10,406 10,087 3.16% Fully diluted average shares outstanding 10,520 10,187 3.27% Dividends paid per share $ 0.20 $ 0.20 0.00% Balance Sheet Data (at period end) Investment securities Loans held for sale Loans, net of unearned income Assets related to discontinued operations Allowance for credit losses Total assets Total deposits Liabilities related to discontinued operations Total Shareholders' Equity Selected Ratios Return on average shareholders' equity 19.56% 11.48% 70.38% Return on average shareholders' equity - continuing operations. 19.56% 11.11% 76.07% Average shareholders' equity to average assets 20.64% 22.53% -8.36% Return on average total assets 4.04% 2.59% 56.13% Return on average total assets - continuing operations 4.04% 2.50% 61.34% Net interest spread 6.84% 5.30% 29.06% Net interest margin 7.99% 6.14% 30.13% Efficiency ratio - continuing operations 25.54% 40.00% -36.14% Asset Quality Ratios Allowance for credit losses Allowance to ending total loans Non-performing assets: Non-accrual 90 days past due and still accruing Foreclosed real estate Non-performing assets to total assets Net (charge-offs) recoveries Net loan charge-offs (annualized) to average loans Six months Income Statement Data - Continuing ended June Operations 2006 2005 % Change -------------------------- Interest income $ 45,957 $ 26,731 71.92% Interest expense 11,890 5,997 98.27% Net interest income 34,067 20,734 64.31% Provision for credit losses - 200 -100.00% Net interest income after provision for credit losses 34,067 20,534 65.91% Other noninterest income 2,154 2,736 -21.27% Other noninterest expense 9,398 8,630 8.90% Income from continuing operations before income taxes 26,823 14,640 83.22% Provision for income taxes 9,402 5,304 77.26% Income from continuing operations $ 17,421 $ 9,336 86.60% Income from discontinued operations - 608 -100.00% Provision for income taxes - 247 -100.00% Income from discontinued operations - 361 -100.00% Net Income $ 17,421 $ 9,697 79.65% Share Data Actual shares outstanding 10,409 10,149 2.56% Earnings Per Share: Basic earnings per common share $ 1.68 $ 0.97 72.74% Diluted earnings per common share $ 1.66 $ 0.95 74.59% Earnings Per Share From Continuing Operations: Basic earnings per common share $ 1.68 $ 0.93 80.17% Diluted earnings per common share $ 1.66 $ 0.92 80.28% Book value per common share $ 18.38 $ 16.30 12.77% Basic average shares outstanding 10,397 10,043 3.52% Fully diluted average shares outstanding 10,503 10,184 3.13% Dividends paid per share $ 0.40 $ 0.40 0.00% Balance Sheet Data (at period end) Investment securities $ 14,233 $ 10,236 39.05% Loans held for sale 5,971 8,128 -26.54% Loans, net of unearned income 861,628 666,086 29.36% Assets related to discontinued operations 2 9,202 -99.98% Allowance for credit losses 10,374 10,468 -0.90% Total assets 944,028 754,662 25.09% Total deposits 652,197 475,465 37.17% Liabilities related to discontinued operations 1,177 1,290 -8.76% Total Shareholders' Equity 191,319 165,341 15.71% Selected Ratios Return on average shareholders' equity 18.87% 12.08% 56.29% Return on average shareholders' equity - continuing operations. 18.87% 11.63% 62.34% Average shareholders' equity to average assets 20.76% 22.10% -6.07% Return on average total assets 3.92% 2.76% 42.05% Return on average total assets - continuing operations 3.92% 2.66% 47.54% Net interest spread 6.69% 5.31% 25.99% Net interest margin 7.81% 6.11% 27.82% Efficiency ratio - continuing operations 25.94% 36.76% -29.43% Asset Quality Ratios Allowance for credit losses $ 10,374 $ 10,468 -0.90% Allowance to ending total loans 1.20% 1.57% -5.44% Non-performing assets: Non-accrual $ 777 $ 3,371 -76.95% 90 days past due and still accruing $ - $ 30 -100.00% Foreclosed real estate $ 1,574 $ 1,677 -6.14% Non-performing assets to total assets 0.25% 0.67% -62.99% Net (charge-offs) recoveries $ (41)$ (78) -47.44% Net loan charge-offs (annualized) to average loans 0.01% 0.02% -59.19% *T