City Bank (NASDAQ:CTBK) today announced strong earnings of $10.38 million for the quarter ended March 31, 2007, reflecting an increase of 26.32% over $8.21 million for the same period in 2006. All prior period results have been restated for the 3-for-2 stock split on December 22, 2006, with no effect on net income or shareholders' equity. The Bank's diluted net income per share reflects an increase of 24.49% to $.65 from $.52 in the first quarter of the prior year. Net interest income was $19.94 million for the first quarter of 2007 compared to $16.18 million for the prior period in 2006, reflecting an increase of 23.20%. The increased net interest income was primarily due to continued growth in average loan balances from $807.11 million to $1.01 billion. Loan growth was the major factor that resulted in the Bank's strong record earnings for the three months ended March 31, 2007.

Three Months Highlights (In thousands, except ratios)

 
March 31 2007 March 31 2006
Total Assets $ 1,116,060  $ 900,558 
Total Loans $ 1,039,910  $ 807,236 
Net Income $ 10,367  $ 8,214 
Non-Performing Assets $ 2,674  $ 4,095 
Net Interest Margin 7.52% 7.61%
Return on Average Assets (ROA) 3.87% 3.79%
Return on Average Equity (ROE) 21.03% 18.16%
Average Equity to Average Assets 18.39% 20.88%

Result of Operations

Interest income for the first quarter of 2007 was up 33.33% from the comparable period in 2006 due to strong loan volume. The increase of $197.98 million or 24.53% in average outstanding loans contributed to the majority of this increase. The average yield on loans for the first quarter of 2007 was 11.25%, up from 10.57% during first quarter 2006 and the net interest margin reflects a slight decrease of 1.18% to 7.52% from 7.61%. Nonperforming assets at March 31, 2007 have been reduced from $4.10 million to $2.68 million, a reduction of 34.63% from March 31, 2006. The ratio of nonperforming assets to total assets at March 31, 2007 decreased to .24% from .45% at March 31, 2006.

Interest expense for the first quarter of 2007 was up 62.94% from the comparable period in 2006. Average cost of deposits for the first quarter of 2007 increased to 4.23%, up from 3.21% for the first quarter of 2006, reflecting a higher interest rate environment. Average time deposits for the first quarter of 2007 were $566.59 million, resulting in a 57.40% increase over the comparable quarter in 2006 of $359.97 million.

Noninterest income of $818 thousand reflects a net decrease of $183 thousand or 18.28% for the first quarter of 2007 from the first quarter of 2006. The majority of this decrease was due to a decrease of $153 thousand in net gains from sale of loans compared to the first quarter 2006. SBA loan servicing income also decreased by $19 thousand compared to the first quarter of 2006.

Noninterest expense of $4.62 million in the first quarter of 2007 reflects a net increase of 1.94% or $88 thousand compared to the first quarter of 2006. The majority of the increase relates to salary and benefit expenses during the first quarter 2007, which increased by $83 thousand as compared to the same period in 2006.

At March 31, 2007, total assets were $1.12 billion, up 23.93% over March 31, 2006. Asset growth since December 31, 2006 was $38.37 million or 3.56%. Loans grew 28.82% to $1.04 billion compared to $807.24 million at March 31, 2006. Loan growth since December 31, 2006 was $74.24 million or 7.69%. Residential construction loan activity has accounted for the majority of this increase. At March 31, 2007, deposits increased 28.68% to $797.83 million compared to $620.01 million at March 31, 2006 and 4.50% since December 31, 2006.

City Bank's return on average assets for the three months ended March 31, 2007 was 3.87% compared to 3.79% for the same period in 2006. Return on average equity was 21.03% for the three month period, compared to 18.16% for the same period in 2006. The ratio of average equity to average assets (Tier 1 Capital) for the three months ended March 31, 2007 was 18.39% compared to 20.88% for the same period in 2006. The Tier 1 Capital Ratio decreased slightly due to the significant increase in the Bank's total assets for the period ended March 31, 2007.

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, 2007 and 2006. 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, 2006. 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   2007    2006  % Change 
Interest income $ 28,963  $ 21,723  33.33%
Interest expense 9,025  5,539  62.94%
Net interest income 19,938  16,184  23.20%
Provision for credit losses -  -  0.00%
Net interest income after provision for credit losses 19,938  16,184  23.20%
Other noninterest income 818  1,001  -18.28%
Other noninterest expense 4,623  4,535  1.94%
Income before income taxes 16,133  12,650  27.53%
Provision for income taxes 5,757  4,436  29.78%
Net Income $ 10,376  $ 8,214  26.32%
 
 
Share Data
Actual shares outstanding 15,711  15,604  0.69%
Earnings Per Share:
Basic earnings per common share $ 0.66  $ 0.53  25.21%
Diluted earnings per common share $ 0.65  $ 0.52  24.49%
Book value per common share $ 12.79  $ 11.79  8.45%
Basic average shares outstanding 15,684  15,582  0.65%
Fully diluted average shares outstanding 15,846  15,731  0.73%
Dividends paid per share $ 0.15  $ 0.13  12.78%
 
Balance Sheet Data (at period end)
Investment securities 15,384  14,189  8.42%
Loans held for sale 2,219  5,725  -61.24%
Loans, net of unearned income 1,039,910  807,236  28.82%
Assets related to discontinued operations 0  127  -100.00%
Allowance for credit losses 10,367  10,409  -0.40%
Total assets 1,116,060  900,558  23.93%
Total deposits 797,829  620,010  28.68%
Liabilities related to discontinued operations 1,254  1,174  6.81%
Total Shareholders' Equity 200,918  183,996  9.20%
 
Selected Ratios
Return on average shareholders' equity 21.03% 18.16% 15.81%
Average shareholders' equity to average assets 18.39% 20.88% -11.90%
Return on average total assets 3.87% 3.79% 2.03%
Net interest spread 6.58% 6.76% -2.66%
Net interest margin 7.52% 7.61% -1.18%
Efficiency ratio 22.27% 26.39% -15.61%
 
Asset Quality Ratios
Allowance for credit losses $ 10,367  $ 10,409  -0.40%
Allowance to ending total loans 0.99% 1.28% -5.44%
Non-performing assets
Non-accrual $ 1,054  $ 867  21.57%
90 days past due and still accruing $ 1,620  $ 341 
Foreclosed real estate $ 0  $ 2,887  -100.00%
Non-performing assets to total assets 0.24% 0.45% -47.31%
Net (charge-offs) recoveries $ 81  ($6) -1450.00%
Net loan (charge-offs) recoveries (annualized) to average loans 0.01% 0.00% -1184.08%