City Bank Announces 1st Quarter 2009 Results and Home Sales Through April 30, 2009

City Bank (NASDAQ:CTBK) today announced a net loss of $8.02 million for the quarter ended March 31, 2009, or $.51 per diluted share. The primary causes for the net loss were the reduced interest income related to nonperforming assets, a provision for loan losses of $5.63 million, and expenses of $5.00 million relating to these assets in the first quarter of 2009. This compared to a reported net income of $9.69 million, or $.61 per diluted share for the same quarter in the prior year. This also compares to a loss of $64.88 million, or $4.12 per diluted share reported in the fourth quarter of 2008.

During the last two quarters of 2008 and the first quarter of 2009, the Bank experienced a significant increase in nonperforming assets primarily as a result of the reduced ability of home builders to sell inventory in this period of declining demand. City Bank defines nonperforming assets to include "accruing loans past due ninety days or more, non-accrual loans, including loans where the borrower is making cash payments of interest that we apply to principal in accordance with GAAP, loans which have been restructured to provide a reduction in or deferral of interest or floor rates or principal for reasons related to the debtors financial difficulties, potential problem loans and loan concentrations of related borrowers, and foreclosed real estate.” During the 4^th quarter of 2008 and the 1^st quarter of 2009 there was a significant downturn in local economic conditions due to the national recession and the banking crisis. These forces coupled with the Bank’s focus on residential real estate construction lending have led to significant increases in nonperforming loans and a higher provision for loan losses of $5.63 million for the quarter ended March 31, 2009, compared to $85.95 million for the fourth quarter in 2008 and $500 thousand for the first quarter of 2008. As of March 31, 2009, nonperforming assets totaled $607.17 million, which represented 44.30% of total assets. The total nonperforming assets reflects partial charge-offs to adjust loan balances to collateral value. For the quarter ended March 31, 2009, the allowance for loan losses was $40.56 million, which represents 3.88% of total loans compared to .96% in the prior quarter of 2008.

Conrad Hanson, President and CEO, commented, "We are encouraged by sales of homes, both unit and Dollar volumes during the first four months of 2009.” As the tables above indicate that the Bank has been conducting an orderly and aggressive effort to dispose of residential properties securing the Bank’s loans, which is already showing positive results. Since the beginning of January up through April 30, 2009, over 399 homes representing over $116.00 million have been sold and paid-off and over 171 properties have pending sales (signed agreements with earnest money deposits) totaling $53.31 million for closing dates primarily in May and June. These 570 transactions totaled $169.30 million – averaging approximately $42.33 million per month in closed or pending agreements.

City Bank, despite being impacted by these industry wide problems, has always expressly provided for the possibility of such an economic downturn by historically maintaining capital at significantly higher than the average levels. The following table summarizes the Bank’s Shareholders’ Equity and Allowance for Credit Losses, as reported on a GAAP basis:

The above table indicates that during 2009, the Bank’s Shareholders’ Equity was reduced by the impact of the net loss in the first quarter of 2009 and an unprecedented loan loss provision of $119.05 million in 2008. However, at the same time, the Bank built up the allowance for credit losses to $40.56 million from $11.64 million for the same period in 2008. The combined total of Shareholders’ Equity and the Allowance for Credit Losses for first quarter of 2009, December 31, 2008 and March 31, 2008 are $173.69 million, $176.15 million and $229.04 million, respectively. During the first quarter of 2009, the Bank recorded net loan charge-offs of $56 thousand compared to $125 thousand for the same quarter in 2008.

The following is the Bank’s Regulatory Capital and Ratios as of March 31, 2009, December 31, 2008 and March 31, 2008:

At March 31, 2009 the Bank had Cash Equivalents (in the form of Cash, Cash in Banks, Interest Bearing Accounts in Banks and Federal Funds Sold) which totaled $185.12 million compared to $111.63 million at December 31, 2008 and $59.46 million at March 31, 2008. As of April 30, 2009, the Bank has further increased liquidity in the form of Cash Equivalents to $214 million, which represents approximately 16% of total assets.

Result of Operations

Interest income for the quarter ended March 31, 2009 was down 55.13% from the comparable period in 2008. As a result of the weakening residential real estate market, the Bank’s nonperforming assets increased from $59.31 million at March 31, 2008, to $ 601.19 million at December 31, 2008 and $607.17 million at March 31, 2009. Accrued interest of $603 thousand was reversed from income for the quarter ended March 31, 2009 due to the transfer of nonperforming loans to non-accrual status. Also contributing to the decrease in interest income was the decline in short term interest rates during the latter part of 2008 (on which the majority of the Bank’s interest-earning assets are priced) as evidenced by the decline in the yield on the interest earning assets year over year. The average yield on loans for the three months ended March 31, 2009 was 4.85%, down from 9.89% for the same period in 2008, and net interest margin decreased to 1.08% compared to 6.09% in the same quarter in the prior year.

Interest expense for the quarter ended March 31, 2009 decreased 9.12% to $9.95 million compared to $10.95 million recorded in the comparable period in 2008. The average cost of deposits and borrowed funds for the quarter ended March 31, 2009 decreased to 3.33%, down 111 basis points from 4.44% for the same period in 2008, reflecting a lower rate environment. Average interest bearing deposits and borrowed funds for the quarter ended March 31, 2009 were $1.20 billion, a 21.29% increase over the $986.60 million average for the comparable period in 2008.

Non-interest income of $1.07 million reflects a net decrease of $1.04 million or 49.34% for the quarter ended March 31, 2009 over the quarter ended March 31, 2008. The majority of this decrease was due to a non recurring pre-tax gain of $1.22 million on the partial redemption of the Bank’s equity interest in VISA Inc. (NYSE: V) in the first quarter of 2008. Non-interest income excluding VISA reflected a net gain of $148 thousand primarily due to the net gains from sale of loans.

Non-interest expense of $11.00 million for the quarter ended March 31, 2009 reflects a net increase of 109.81% or $5.76 million over the same period in 2008. The majority of the increase relates to losses and expenses on nonperforming loans and foreclosed real estate, which increased by $5.00 million over the same time frame in 2008. Audit Expense increased by $707 thousand due to increased review of nonperforming assets. FDIC insurance expense increased by $469 thousand compared to the same period in 2008, which is a function of the Bank’s increased level of deposits and the higher rate of assessment applied to all banks as a result of the national banking crisis. Offsetting the increases was a decrease in salary and employee benefits expense by $1.25 million compared to the same period in 2008, due to the reduction in the level of incentive compensation.

At March 31, 2009, total assets were $1.37 billion, up 4.92% over March 31, 2008. Total loans decreased by 15.12% to $1.03 billion at March 31, 2009 compared to $1.21 billion at March 31, 2008. At March 31, 2009, deposits increased 19.62% to $1.14 billion compared to $954.62 million at March 31, 2008.

City Bank’s return on average assets for quarter ended March 31, 2009 was negative -2.41% compared to 3.11% for the same period in 2008. Return on average equity was negative -22.82% for the quarter ended March 31, 2009, compared to 18.09% for the same period in 2008. The ratio of average equity to average assets (Tier 1 Capital) for the quarter ended March 31, 2009 was 10.58% compared to 17.21% for the same period in 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, 2009 and twelve months ended December 31, 2008. 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, 2008. 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. Three mortgage loan offices serve Snohomish, King, Pierce and Clark 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.