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River City Bank Announces First Profitable Quarter

29th July, 2006

River City Bank (Nasdaq: RCBK), a Virginia state-chartered bank headquartered in Mechanicsville, VA, today reported quarterly and year-to-date financial progress for the period ended June 30, 2006.

William D. Stegeman, President & CEO, reported June 30, 2006 operating results, stating that the Bank experienced strong balance sheet growth while recording its first quarterly operating profit, excluding net unrealized losses on securities available-for-sale, for the second quarter of 2006.

From a review of the Bank's unaudited quarterly financial statements, total assets of the Bank at June 30, 2006 amounted to $74,883,561, compared with $37,887,467 at June 30, 2005, representing an increase of 97.7%. Asset growth was concentrated primarily in net loans originated, securities available-for-sale, and federal funds sold to correspondent banks. As of June 30, 2006, net loans outstanding amounted to $46,508,040 compared to $24,597,935 as of June 30, 2005, an increase of 89.1%. Net securities available-for-sale and federal funds sold increased to $22,254,732 as of June 30, 2006 compared to $8,716,202 as of June 30, 2005, an increase of 155.3%. The Bank carried no loans classified as available-for-sale for either reporting periods. Loans held-for-investment as a percentage of assets and deposits were 62.0% and 78.8% respectively as of June 30, 2006 compared to 64.9% and 84.8% as of June 30, 2005.

The Bank recorded total deposits at June 30, 2006 of $58,991,322 compared to total deposits of $29,012,296 at June 30, 2005, an increase of 103.3%. Growth was realized across all categories of deposit products and can be attributed primarily to the Bank's effective focus on consumer and commercial non-interest bearing deposits, as well as the use of aggressive interest rates paid on time certificate of deposits. At June 30, 2006, non-interest bearing deposits and fixed-term certificates represented 12.6% and 53.9% respectively of total deposits managed.

For the six months ended June 30, 2006, the Bank recorded a comprehensive net operating loss of $(287,416), compared to $(430,986) for the six months ended June 30, 2005. Excluding net unrealized losses of $(243,333) for securities available-for-sale, the Bank recorded a year-to-date net operating loss of $(44,083) for the period ended June 30, 2006, compared to a six month net operating loss $(433,021) for the period ended June 30, 2005. The noted 2005 six month net operating loss excludes unrealized gains for securities available-for-sale of $2,035. For the second quarter ended June 30, 2006, excluding unrealized losses on securities available-for-sale of $(170,198), the Bank recorded its first net operating profit of $16,031. This compares favorably to a six month net operating loss of $(198,471), exclusive of net unrealized gains from securities available-for-sale that amounted to $57,832 for the quarter ended June 30, 2005. At June 30, 2006, the Bank's quarterly and year-to-date basic and diluted loss per share of common stock outstanding amounted to $(.09) and $(.16) respectively, compared to $(.16) and $(.46) respectively at June 30, 2005.

On July 5, 2005, the Bank issued 869,180 shares of its common stock, par value $5.00 per share ("Common Stock"). Of that amount, 767,318 shares of Common Stock were issued in a public offering at $10.50 per share, and 101,862 shares of Common Stock were issued in a rights offering to shareholders at $10.50 per share. Proceeds from the offering amounted to $9,126,390. After deducting expenses related to the offering of $608,003, the Bank increased stockholders' equity by $8,518,387 in the third quarter of 2005. At June 30, 2006, the Bank's total stockholders' equity amounted to $15,574,930 compared to $7,682,177 at June 30, 2005, an increase of 102.7%.

For the six months ended June 30, 2006, net interest income increased to $1,319,900 from $586,046 for the comparable period in 2005, an increase of 125.2%. On a comparative quarterly basis, net interest income amounted to $706,876 at June 30, 2006 compared to $350,060 at June 30, 2005, an increase of 101.9%. The significant growth in quarterly and year-to-date net interest income was due to an increase in average earning assets, which resulted from growth in the Bank's loan portfolio, investment securities, and federal funds sold to correspondent banks. These were effectively funded by a strong increase in deposits and additional equity capital raised in mid-2005.

Total non-interest income for the six month period ended June 30, 2006 amounted to $127,260, compared to $42,278 for the same period in 2005, an increase of 201.0%. For the quarter ended June 30, 2006, non-interest income amounted to $74,923 compared to $8,561 for the quarter ended June 30, 2005, an increase of 775.2%. The noted quarterly and year-to-date increase in non- interest income resulted primarily from a strong boost in residential mortgage origination fees and deposit transaction activity fees realized from increased transaction deposits managed. Total non-interest expense for the six month period ended June 30, 2006 amounted to $1,416,243 compared to $991,345 in 2005, an increase of 42.9%. For the quarter ended June 30, 2006, non-interest expense amounted to $745,768 compared to $517,092 for the second quarter of 2005, an increase of 44.2%. It should be noted that the Bank opened its second and third branch offices in August 2005 and June 2006 respectively that materially increased non-interest expense in 2006 from 2005.

Mr. Stegeman commented:

"We are pleased to report that River City Bank continues to experience strong growth in loans and deposits under management, and has significantly reduced year-to-date net operating losses from 2005. Excluding unrealized losses from securities available-for-sale, Bank management is very enthused to report its first quarterly operating profit realized after only twenty-four months in operation. We continue to experience a strong net interest margin and spread, with quarterly and year-to-date net interest income increasing by nearly 102% and 125% respectively from the prior year. The Bank has continued to generate a strong increase in non-interest income, while effectively managing growth of the Bank's overhead. Furthermore, the Bank continues to prudently grow its allowance for loan loss, and has yet to realize a loss from lending activities since the Bank began operations on July 1, 2004. While the opening of our third branch office late in the second quarter of 2006 will slightly impede our advancement to sustained quarterly and annual profitability, we believe that growing our retail branch footprint will only enhance the value of our institution for both our customers and shareholders."

This press release contains forward-looking statements as defined by federal securities laws. These statements may address certain results that are expected or anticipated to occur or otherwise state the company's predictions for the future. These particular forward-looking statements and all other statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Such factors include but are not limited to: general economic conditions; significant fluctuations in interest rates that could reduce the net interest margin; difficulties in executing integration plans; reduction of fee income from existing products due to market conditions; and the amount of growth in the company's general administrative expenses. Consequently, these cautionary statements qualify all forward-looking statements made herein.

Release link:  http://www.rivercitybank.org


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