City Bank: Sticking close to home

Citibank has 1,268 branch offices across the country and more than a trillion dollars in assets, and it made a net profit of $9.3 billion last year. City Bank — the one based in Lynnwood, that is — has eight branches in Snohomish and King counties and a loan office in Pierce County, $1.1 billion in assets and made all of $37 million last year.

But Conrad Hanson, City Bank's CEO and largest single shareholder, says the bank has prospered by staying close to home.

"There are enough people out there in the state in our industry who know us," Hanson said. "We let the numbers do the talking."

One number in particular: As Hanson proudly notes, an investor who bought the bank's first stock issue in 1974 would have received a 21.1 percent average annual return, assuming reinvestment of cash dividends.

Most community banks in the Seattle area have positioned themselves to serve the small- and midsize businesses that might feel overlooked by the Citibanks of the world. City Bank's twist has been to focus its lending on real estate, especially homebuilders. At the end of 2006, two-thirds of its total outstanding loans were to home-construction companies; an additional 14 percent were in the hotel/motel industry.

In 2005, City Bank sold two noncore businesses. Diligenz, a company that allowed businesses to search legal and financial records online, was sold for $71.4 million, resulting in a net gain of $28.3 million after taxes. The bank also sold its merchant debit/credit-card-processing business for a $390,000 after-tax gain.

With the local housing market slowing, that level of concentration might give investors the willies. Veteran banking analyst Jim Bradshaw, of D.A. Davidson, in a recent note to clients, noted that City Bank's "quirky business model" has contributed to its shares trading at a discount to its peers.

"The market expresses some concern about the construction-loan concentration at the company," Bradshaw wrote. "However, over time the bank has proven that its model drives long-term success."