CityBank Announces Earnings for First Quarter 2005

    Business Editors

    LYNNWOOD, Wash.--(BUSINESS WIRE)--April 12, 2005--CityBank (Nasdaq:CTBK) today announced consolidated net income of $5.0 million for the quarter ended March 31, 2005, reflecting an increase of 12.6% over the $4.5 million for the same period in 2004. On a diluted per share basis, net income was $.49 for the quarter, compared with $.44 last year, an increase of 11.4%. The increase in net income was primarily attributable to substantial growth in loan volume and a higher interest rate environment that increased the average yield on the Bank's loan portfolio.
    Interest income for the first quarter of 2005 was up 23.8% from the comparable period in 2004. An increase of $84.6 million or 15.6% in average outstanding loans contributed to this increase, as well as seven prime rate increases totaling 175 basis points. The average yield on loans for first quarter 2005 was 7.98%, up from 7.44% during first quarter 2004, and net interest margin increased to 6.16% from 5.74%. Management expects continued growth in loan volume and additional increases in interest income because of the overall increase in interest rates. Nonperforming assets at March 31, 2005, were $9,657 million, down 48.1% from $18,614 million at March 31, 2004. The ratio of nonperforming assets to total assets at March 31, 2005, decreased to 1.37% from 2.64% at March 31, 2004.
    Interest expense for the first quarter of 2005 was up 37.2% from the comparable period in 2004. Average cost of deposits for the first quarter of 2005 increased to 1.69% over the 1.34% for the first quarter of 2004, reflecting rising interest rates. Average deposits for the first quarter 2005 of $433.2 reflected a 12.4% increase over the comparable quarter in 2004 of $385.5 million. Management expects to see rising interest expense during the remainder of 2005 due to a rising interest rate environment coupled with increased deposit levels. Management anticipates retaining the current level of borrowings from the Federal Home Loan Bank.
    Noninterest income of $7.2 million reflected a .8% net increase during first quarter 2005 from first quarter 2004. Sales revenue at Diligenz increased $687 thousand or 16.2%. Diligenz is the Bank's majority owned subsidiary which provides online documentation search and retrieval services to a nation-wide customer base. Offsetting that increase was a decrease of $890 thousand or 60.2% in gains on sales of loans. Mortgage loans sold during first quarter 2005 were $23.4 million, versus $48.5 million during first quarter 2004, due in part to a less active refinance market and a reduction in the average production per employee in the Bank's mortgage banking operation. Other operating income increased $349 thousand over first quarter 2004 due to a decrease in net losses on foreclosed real estate.
    Noninterest expense of $9.3 million reflected an 11.7% net decrease compared to first quarter of 2004. Salary and benefit expense reflected a net increase of $1.2 million or 52.4%. Salaries at Diligenz, Inc. increased $495 thousand due to an increased employee base and salaries at CityBank decreased a net of $80 thousand including a decrease in mortgage loan commissions of $343 thousand. An effective increase to salary expense of $326 thousand was the result of a decrease in employee loan production costs being recovered from loan origination fees prior to their deferral, primarily in the mix of construction loans originated during the quarter ending March 31, 2005, compared to the same period in 2004. Expense for profit sharing and bonus at March 31, 2005, increased $400 thousand at CityBank over March 31, 2004. At March 31, 2005, compared to March 31, 2004, foreclosed real estate expense reflected a decrease of $159 thousand or 76.1%, merchant credit card processing expense reflected a decrease of $79 thousand or 8.3% and activity of Diligenz, Inc. accounted for increased cost of sales of $291 thousand or 15.0%.
    CityBank's return on average assets and return on average equity for the three months ended March 31, 2005, was 2.94% and 12.69%, respectively, compared to 2.90% and 11.55%, respectively, for first quarter 2004. The ratio of average equity to average assets for the three months ended March 31, 2005, was 23.17%, compared to 25.09% for the same period in 2004.
    At March 31, 2005, total assets were $704,913, up 12.5% from March 31, 2004, and up 5.6% since year-end 2004. Loans reflected an increase of 14.8% to $628.2 million compared to $547.0 million at March 31, 2004. Loan growth since year-end 2004 was 5.2%. At March 31, 2005, deposits had increased 13.2% to $445.5 million compared to $393.5 million at March 31, 2004, and 6.0% since year-end 2004.

    Forward-Looking Statements

    The previous discussion contains a review of CityBank's operating results and financial condition for the three months ended March 31, 2004. 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. Readers are cautioned not to place undue reliance on these forward-looking statements.

    CityBank 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. CityBank provides a wide range of banking services for business and individuals, including loans for residential construction, commercial, Small Business Administration, mortgage and consumer, and all types of deposits as well as other general banking services. CityBank has been consistently recognized as one of the top performing banks in Washington State as well as nationally.
    Diligenz, Inc. is an Internet-based nationwide due diligence and document retrieval service provider. Diligenz, Inc. offers the industry's most complete and accurate UCC searching, filing and due diligence services, including corporate good standing searches, right from the client's desktop.

CITYBANK Selected Consolidated Financial Highlights (unaudited) (In thousands, except per share data)

Three months ended March Income Statement Data 2005 2004 % Change -------------------------

Interest income $12,697 $10,255 23.81% Interest expense 2,679 1,952 37.24% Net interest income 10,018 8,303 20.66% Provision for credit losses 100 150 -33.33% Net interest income after provision for credit losses 9,918 8,153 21.65% Diligenz Inc. transaction fee income 4,920 4,233 16.23% Other noninterest income 2,293 2,923 -21.55% Diligenz UCC data and search expense 2,232 1,941 14.99% Other noninterest expense 7,069 6,383 10.75% Income before income taxes 7,830 6,985 12.10% Income Taxes 2,780 2,468 12.64% Income before minority interest 5,050 4,517 11.80% Minority interest in income of consolidated subsidiary (31) (61) -49.18% Net income 5,019 4,456 12.63%

Share Data

Actual shares outstanding 10,027 9,857 1.72% Basic earnings per common share $0.50 $0.45 11.11% Diluted earnings per common share $0.49 $0.44 11.36% Book value per common share $15.92 $15.75 1.04% Basic Average shares outstanding 9,998 9,837 1.64% Fully Diluted average shares outstanding 10,179 10,094 0.84% Dividends paid per share $0.20 $0.20 0.00%

Balance Sheet Data (at period end)

Investment securities 9,648 6,402 50.70% Loans held for sale 2,035 10,688 -80.96% Loans, net of unearned income 628,162 547,036 14.83% Allowance for credit losses 10,413 10,338 0.73% Total assets 704,913 626,500 12.52% Total deposits 445,517 393,477 13.23% Total Shareholders' equity 159,595 155,268 2.79%

Selected Ratios

Return on average shareholders' equity 12.69% 11.55% 9.82% Average shareholders' equity to average assets 23.17% 25.09% -7.65% Return on average total assets 2.94% 2.90% 1.42% Net interest spread 5.40% 5.10% 5.88% Net interest margin 6.16% 5.74% 7.32% Efficiency ratio -- Bank only 37.63% 41.21% -8.69% Efficiency ratio -- Consolidated 53.97% 53.84% 0.24%

Asset Quality Ratios

Allowance for credit losses 10,413 10,338 0.73% Allowance to ending total Loans 1.65% 1.85% -10.86% Non-performing Assets Non-Accrual 4,746 5,470 -13.24% 90 days past due and still accruing 0 110 -100.00% Foreclosed real estate 4,911 13,034 -62.32% Non-performing Assets to Total Assets 1.37% 2.64% -48.12% Net loan chargeoffs (33) (115) -71.30% Net loan charge-offs to average loans 0.02% 0.08% -75.00% -------------------------

--30--SAM/se*

CONTACT: CityBank, Lynnwood Conrad Hanson, President, 425-745-5933 Judy Muench, CFO, 425-787-5576 www.citybank.com

KEYWORD: WASHINGTON INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: CityBank

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