-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PmKTNs6rCcNET0VzyfxMGT07oTeu5JzDEO4ruMfCl9lIHgNCiqQki19Ti4h3Twhj 46MDoq6uGtS2vS9IAqCFag== 0000916641-96-000665.txt : 19960814 0000916641-96-000665.hdr.sgml : 19960814 ACCESSION NUMBER: 0000916641-96-000665 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITY HOLDING CO CENTRAL INDEX KEY: 0000726854 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 550619957 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11733 FILM NUMBER: 96610656 BUSINESS ADDRESS: STREET 1: 3601 MACCORKLE AVE SE CITY: CHARLESTON STATE: WV ZIP: 25304 BUSINESS PHONE: 3049256611 MAIL ADDRESS: STREET 1: 3601 MACCORKLE AVE SE CITY: CHARLESTON STATE: WV ZIP: 25301 10-Q 1 CITY HOLDINGS COMPANY 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File Number June 30, 1996 0-11733 CITY HOLDING COMPANY (Exact name of registrant as specified in its charter) West Virginia 55-0619957 (State of other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3601 MacCorkle Avenue, Southeast Charleston, West Virginia 25304 (Address of principal offices) Registrant's telephone number, including area code: (304) 925-6611 Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes xx No The number of shares outstanding of the issuer's common stock as of August 13, 1996: Common Stock, $2.50 Par Value -- 5,078,194 shares THIS REPORT CONTAINS 32 PAGES. EXHIBIT INDEX IS LOCATED ON PAGE 31 . PAGE 1 OF 32 Index City Holding Company and Subsidiaries PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets -- June 30, 1996 (unaudited) and December 31, 1995 Consolidated Statements of Income (unaudited) -- Six months ended June 30, 1996 and 1995 and the three months ended June 30, 1996 and 1995 Consolidated Statements of Changes in Stockholders' Equity (unaudited) -- Six months ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows (unaudited) --Six months ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements (unaudited) -- June 30, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures PAGE 2 OF 32 PART I. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CITY HOLDING COMPANY AND SUBSIDIARIES Item I.
JUNE 30 DECEMBER 31 1996 1995 ------------ -------- ASSETS (unaudited) Cash and due from banks $ 39,102,000 $ 28,460,000 Securities available for sale, at fair value 116,595,000 143,649,000 Investment securities (approximate market values: June 30, 1996--$43,422,000; December 31, 1995--$52,183,000) 43,146,000 50,719,000 Loans: Gross loans 673,907,000 664,886,000 Unearned income (7,208,000) (8,125,000) Allowance for possible loan losses (6,773,000) (6,566,000) --------- ---------- NET LOANS 659,926,000 650,195,000 Loans held for sale 163,250,000 122,222,000 Bank premises and equipment 29,273,000 23,651,000 Accrued interest receivable 8,459,000 8,031,000 Other assets 14,971,000 14,042,000 ------------ ----------- TOTAL ASSETS $ 1,074,722,000 $ 1,040,969,000 ============= ============= LIABILITIES Deposits: Noninterest-bearing $ 115,517,000 $ 116,992,000 Interest-bearing 700,994,000 680,423,000 ----------- ----------- TOTAL DEPOSITS 816,511,000 797,415,000 Short-term borrowings 148,399,000 141,309,000 Long-term debt 24,200,000 20,000,000 Other liabilities 10,305,000 9,106,000 ------------- ------------ TOTAL LIABILITIES 999,415,000 967,830,000 STOCKHOLDERS' EQUITY Preferred stock, par value $25 a share: Authorized-500,000 shares; none issued Common stock, par value $2.50 a share: authorized 20,000,000 shares; issued and outstanding 5,092,046 shares as of June 30, 1996 and December 31, 1995, respectively, including 13,852 and 13,640 shares in treasury at June 30, 1996 and December 31, 1995, respectively. 12,730,000 12,730,000 Capital surplus 25,942,000 25,942,000 Retained earnings 37,732,000 34,432,000 Cost of common stock in treasury (360,000) (360,000) Net unrealized (loss) gain on securities available for sale, net of deferred income taxes (737,000) 395,000 -------------- -------------- TOTAL STOCKHOLDERS' EQUITY 75,307,000 73,139,000 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,074,722,000 $ 1,040,969,000 ============== ==============
See notes to consolidated financial statements PAGE 3 OF 32 CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES
SIX MONTH PERIOD ENDED June 30 1996 1995 ---------- ------- INTEREST INCOME Interest and fees on loans $ 37,318,000 $ 27,620,000 Interest and dividends on securities: Taxable 4,227,000 6,203,000 Tax-exempt 1,032,000 1,156,000 Other interest income 19,000 35,000 --------------- ----------- TOTAL INTEREST INCOME 42,596,000 35,014,000 INTEREST EXPENSE Interest on deposits 14,587,000 12,753,000 Interest on short-term borrowings 3,749,000 2,265,000 Interest on long-term debt 782,000 228,000 ------------ ------------ TOTAL INTEREST EXPENSE 19,118,000 15,246,000 NET INTEREST INCOME 23,478,000 19,768,000 PROVISION FOR POSSIBLE LOAN LOSSES 561,000 409,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 22,917,000 19,359,000 OTHER INCOME Securities gains 63,000 2,000 Service charges 1,784,000 1,499,000 Other 2,174,000 1,420,000 ----------- ----------- TOTAL OTHER INCOME 4,021,000 2,921,000 OTHER EXPENSES Salaries and employee benefits 10,456,000 8,417,000 Net occupancy expense 2,876,000 2,537,000 Other 6,053,000 5,289,000 ----------- ----------- TOTAL OTHER EXPENSES 19,385,000 16,243,000 INCOME BEFORE INCOME TAXES 7,553,000 6,037,000 INCOME TAXES 2,526,000 1,872,000 ----------- ----------- NET INCOME $ 5,027,000 $ 4,165,000 =========== =========== Net income per common share $ .99 $ .81 =========== =========== Average common shares outstanding 5,078,336 5,166,494 =========== ===========
See notes to consolidated financial statements PAGE 4 OF 32 CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTH PERIOD ENDED June 30 1996 1995 ---------- ------- INTEREST INCOME Interest and fees on loans $ 19,015,000 $ 14,638,000 Interest and dividends on securities: Taxable 1,974,000 2,998,000 Tax-exempt 500,000 567,000 Other interest income 14,000 24,000 --------------- ----------- TOTAL INTEREST INCOME 21,503,000 18,227,000 INTEREST EXPENSE Interest on deposits 7,354,000 6,659,000 Interest on short-term borrowings 1,670,000 1,409,000 Interest on long-term debt 411,000 98,000 ------------ ------------ TOTAL INTEREST EXPENSE 9,435,000 8,166,000 NET INTEREST INCOME 12,068,000 10,061,000 PROVISION FOR POSSIBLE LOAN LOSSES 290,000 208,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 11,778,000 9,853,000 OTHER INCOME Securities gains(losses) 2,000 (1,000) Service charges 945,000 791,000 Other 1,161,000 882,000 ----------- ----------- TOTAL OTHER INCOME 2,108,000 1,672,000 OTHER EXPENSES Salaries and employee benefits 5,202,000 4,381,000 Net occupancy expense 1,506,000 1,292,000 Other 3,164,000 2,768,000 ----------- ----------- TOTAL OTHER EXPENSES 9,872,000 8,441,000 INCOME BEFORE INCOME TAXES 4,014,000 3,084,000 INCOME TAXES 1,448,000 959,000 ----------- ----------- NET INCOME $ 2,566,000 $ 2,125,000 =========== =========== Net income per common share $ .51 $ .41 =========== =========== Average common shares outstanding 5,078,266 5,165,930 =========== ===========
See notes to consolidated financial statements PAGE 5 OF 32 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY CITY HOLDING COMPANY AND SUBSIDIARIES Six Months Ended June 30, 1996
NET UNREALIZED GAIN/(LOSS) SECURITIES TOTAL COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS' STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY Balances at December 31, 1995 $12,730,000 $25,942,000 $34,432,000 $395,000 ($360,000) $73,139,000 Net income 5,027,000 5,027,000 Cash dividends declared ($.34/share) (1,727,000) (1,727,000) Change in unrealized gain/(loss), net of income taxes of $755,000 (1,132,000) (1,132,000) ---------- ----------- ----------- ----------- ---------- ----------- Balances at June 30, 1996 $12,730,000 $25,942,000 $37,732,000 ($737,000) ($360,000) $75,307,000 ---------- ----------- ----------- ----------- ---------- ----------- NET UNREALIZED Six Months Ended June 30, 1995 GAIN/(LOSS) SECURITIES TOTAL COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS' STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY Balances at December 31, 1994 $11,753,000 $18,366,000 $39,075,000 ($2,863,000) ($ 32,000) $66,299,000 Net income 4,165,000 4,165,000 Cash dividends declared ($.29/share) (1,203,000) (1,203,000) Cash dividends of acquired subsidiary (150,000) (150,000) Changes in net unrealized gain/(loss), net of income taxes of $1,820,000 2,730,000 2,730,000 Cost of 2,313 shares of common stock acquired for treasury (65,000) (65,000) Issuance of 428 shares of treasury stock 12,000 12,000 ------------- ------------------------------------------------------- ----------- Balances at June 30, 1995 $11,753,000 $18,366,000 $41,887,000 $(133,000) $ (85,000) $71,788,000 ----------- ----------- ----------- ---------- ----------- -----------
See notes to consolidated financial statements PAGE 6 OF 32 CONSOLIDATED STATEMENTS OF CASH FLOWS CITY HOLDING COMPANY AND SUBSIDIARIES
SIX MONTH PERIOD ENDED JUNE 30 1996 1995 ---- ---- OPERATING ACTIVITIES Net Income $5,027,000 $4,165,000 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization 430,000 480,000 Provision for depreciation 1,613,000 1,198,000 Provision for loan losses 561,000 409,000 Realized securities gains (63,000) (2,000) Loans originated for sale (59,563,000) (26,665,000) Purchases of loans held for sale (541,519,000) (231,972,000) Proceeds from loans sold 560,532,000 211,722,000 Realized gains on loans sold (478,000) (56,000) Gain on sale of premises and equipment 0 (7,000) (Increase) decrease in accrued interest receivable (428,000) 122,000 Increase in other assets (681,000) (1,230,000) Increase (decrease) in other liabilities 1,199,000 (1,002,000) ------------ -------------- NET CASH USED IN OPERATING ACTIVITIES (33,370,000) (42,838,000) INVESTING ACTIVITIES Proceeds from sales of securities available for sale 33,825,000 10,744,000 Proceeds from maturities of securities available for sale 24,236,000 19,637,000 Purchases of securities available for sale (32,554,000) (25,165,000) Proceeds from maturities of securities 130,352,000 16,662,000 Purchases of securities (122,979,000) (3,238,000) Net increase in loans (10,292,000) (60,030,000) Sale of foreclosed properties 0 10,000 Purchases of premises and equipment (7,235,000) (2,627,000) ------------- -------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 15,353,000 (44,007,000) FINANCING ACTIVITIES Net (decrease) increase in noninterest bearing deposits (1,475,000) 5,617,000 Net increase in interest-bearing deposits 20,571,000 15,199,000 Net increase in short-term borrowings 7,090,000 64,905,000 Proceeds from long-term-debt 4,200,000 2,850,000 Repayment of long-term debt 0 (4,400,000) Purchases of treasury stock 0 (65,000) Proceeds from sales of treasury stock 0 12,000 Cash dividends paid (1,727,000) (1,451,000) ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 28,659,000 82,667,000 ------------ ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,642,000 (4,178,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,460,000 34,284,000 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,102,000 $30,106,000 ============ ===========
See notes to consolidated financial statements PAGE 7 OF 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1996 NOTE A - BASIS OF PRESENTATION The accompanying consolidated financial statements, which are unaudited, include all the accounts of City Holding Company (the Parent Company) and its wholly owned subsidiaries (collectively, the Company). All material intercompany transactions have been eliminated. The consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition for each of the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 1996, are not necessarily indicative of the results of operations that can be expected for the year ending December 31, 1996. The Company's accounting and reporting policies conform with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such policies require management to make estimates and develop assumptions that affect the amounts reported in the consolidated financial statements and related footnotes. Actual results could differ from management's estimates. For further information, refer to the consolidated financial statements and footnotes thereto included in the City Holding Company annual report on Form 10-K for the year ended December 31, 1995. NOTE B - INCOME TAXES The consolidated provision for income taxes is based upon financial statement earnings. The effective tax rate for the six months ended June 30, 1996, of 33.44% varied from the statutory federal income tax rate primarily due to state income taxes and the tax effects of nontaxable interest income and the amortization of goodwill. PAGE 8 OF 32 NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, there are various commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, that are not included in the consolidated financial statements. These commitments approximate $70,814,000 at June 30, 1996. These arrangements, consisting principally of unused lines of credit issued in the normal course of business, have credit risks essentially the same as that involved in extending loans to customers and are subject to the Company's standard credit policies. Standby letters of credit, which total $4,368,000, have historically expired unfunded. NOTE D - STOCKHOLDERS' EQUITY The Company maintained an Open Market Stock Purchase Plan (the Plan) whereby the Board of Directors allocated $5 million to be used to purchase shares of the Company's common stock through May 1996. During the plan's two year duration, the Company reacquired approximately 87,000 shares at market prices ranging from $23.30 to $24.08 per share for total purchases of approximately $2,286,000. NOTE E - ACCOUNTING FOR MORTGAGE SERVICING RIGHTS On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights," which requires that entities recognize rights to service mortgage loans for others as separate assets, whether those rights are acquired through loan origination or purchase activities. Additionally, management must periodically assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The adoption of SFAS No. 122 did not have a material impact on the Company's financial position or results of operations. PAGE 9 OF 32 NOTE F - LONG-TERM BORROWINGS Long-term debt includes a $23,000,000 revolving line of credit of the Parent Company with a variable rate based on the lesser of the adjusted LIBOR rate plus 1.875% per annum or the lender's base rate less .25% per annum (7.3125% at June 30, 1996) due on July 31, 1997. As of June 30, 1996, the outstanding balance was equal to $19,200,000. Interest on this obligation is payable quarterly, and the Parent Company has pledged the common stock of The City National Bank of Charleston, The Peoples Bank of Point Pleasant, First State Bank and Trust, Merchants National Bank and The Home National Bank of Sutton as security for the loan. Management intends to refinance this loan according to the provisions provided in the agreement. Additionally, a subsidiary maintains long-term financing with the Federal Home Loan Bank (FHLB) in the form of a Long-Term LIBOR Floater with maximum available credit of $5 million. At June 30, 1996, $5 million was outstanding with an interest rate of 5.71156%. The agreement matures in December, 1998. PAGE 10 OF 32 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HIGHLIGHTS RECENT DEVELOPMENT In May 1996, the Company signed a letter of intent to acquire The Old National Bank of Huntington, Huntington, West Virginia ("Old National"). Under the letter of intent signed by the parties, the Company will exchange approximately 5.7 shares of its common stock, approximately 418,000 shares in total, for each of the outstanding shares of Old National. It is anticipated that the transaction will be accounted for under the pooling of interests method of accounting. It is expected that the merger will be consummated in the fourth quarter of 1996. The acquisition will bring assets of $45.2 million and deposits of $40.4 million to the Company, giving the Company total assets of $1.1 billion and total deposits of $856.9 million, as of June 30, 1996. FINANCIAL POSITION Total assets increased $33.8 million or approximately 3.2% during the first six months of 1996. Net loans increased $9.7 million or 1.5%. Loans held for sale, consisting primarily of loans received through the Company's participation in a whole loan bulk purchasing program, increased $41.0 million or 33.6%. As of June 30, 1996, program loans owned by the Company had an outstanding principal balance of approximately $125.3 million. See LOAN PORTFOLIO. The Company earned interest income of approximately $6,536,000 on program loans during the six months ended June 30, 1996. See NET INTEREST INCOME. The increases in net loans held for sale were funded primarily by an increase in deposits and short-term borrowings of $19.1 million and $7.1 million, respectively. Net stockholders' equity PAGE 11 OF 32 increased $2.2 million during the first six months of 1996 representing the Company's retained net profits. QUARTER ENDED JUNE 30, 1996, COMPARED TO QUARTER ENDED JUNE 30, 1995. The Company reported net income of $2,566,000 for the three months ended June 30, 1996 compared to net income of $2,125,000 for the quarter ended June 30, 1995. This increase of $441,000, or 20.75%, was primarily due to an increase of $2,007,000 in the Company's net interest income during the second quarter of 1996 as compared to the same period of 1995. See NET INTEREST INCOME. Non-interest expenses increased $1,431,000 or 17% during the second quarter of 1996 as compared to the same period of 1995, primarily due to the Company's continued expansion of its Operations Center. Earnings per share were $.51 and $.41 for the second quarter of 1996 and 1995, respectively. Total other income, excluding securities transactions, increased $433,000 or 25.9% primarily due to fees generated from the increased volume of loans originated and held for sale and return item fees on deposits collected through the ordinary course of business. SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 The Company reported net income of $5,027,000 for the six months ended June 30, 1996 compared to net income of $4,165,000 for the six months ended June 30, 1995. This increase of $862,000 or 20.70%, was primarily due to an increase in the Company's net interest income earned during the first six months of 1996 as compared to the same period of 1995 as discussed above. Total non-interest expense increased $3,142,000 of 19.34% during the first PAGE 12 OF 32 six months of 1996 as compared to the same period of 1995, due to increases in salaries and employee benefits related to the Company's growth as well as the expansion of its Operation Center. Earnings per share were $.99 and $.81 for the six months ended June 30, 1996 and 1995, respectively. SELECTED RATIOS The return on average assets (ROA) for the first quarter of 1996 was .96% compared to .91% in the second quarter of 1995. The return on average shareholder's equity (ROE) for the first quarter of 1996 was 13.61% compared to 12.03% ROE for the second quarter of 1995. For the six months of 1996, ROA was .95% compared to .91% for the six months ended 1995. ROE was 13.44% and 12.34% for the first six months of 1996 and 1995, respectively. The dividend payout ratio of 33.33% for the quarter ended June 30, 1996 represents a decrease of 5.77% from the dividend payout ratio of 35.37% for the quarter ended June 30, 1995. The dividend payout ratio was 34.34% and 35.80% for the six months ended June 30, 1996 and 1995, respectively. Since 1988, the Company has paid dividends on a quarterly basis, and expects to continue to do so in the future. PAGE 13 OF 32 LOAN PORTFOLIO The composition of the Company's loan portfolio is presented in the following table: LOAN PORTFOLIO BY TYPE (Dollars in Thousands) June 30 December 31 1996 1995 Commercial, financial and agricultural $217,329 $214,304 Real Estate-Mortgage 290,392 277,608 Real Estate-Construction 24,775 27,240 Installment and other 141,411 145,734 Unearned Income (7,208) (8,125) -------- -------- TOTAL $666,699 $656,761 ======== ======== Loans Held for Sale Program loans $ 125,296 $101,843 Loans Originated for Sale 37,954 20,379 -------- -------- TOTAL $ 163,250 $ 122,222 ======== ======== The Company grants loans to customers generally within the market areas of its subsidiaries. While loans have been trending up significantly over the past two years primarily due to the Company's more active solicitation of commercial business, introduction of new loan products, and continued expansion, a downward trend in the installment loan portfolio is representative of the increased level of mortgage refinancing during the first six months of 1996 that historically is not typical. The rate environment during this period was conducive to consumers refinancing their total indebtedness to a fixed rate secondary market product through our mortgage company. There have been no significant changes in the Company's loan policy or credit standards. The Company continues to shift its marketing efforts more towards direct loan business. There are no significant concentrations of credit and speculative or highly leveraged transactions are insignificant. Also, in order to increase the repricing frequency of the loan portfolio, the Company has significantly increased its portfolio of variable rate PAGE 14 OF 32 commercial and residential mortgage loans. ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES The following table summarizes the Company's risk elements for the periods ending June 30, 1996 and December 31, 1995. The Company's coverage ratio of nonperforming assets and potential problem loans continues to be strong at 101% as of June 30, 1996. Management is of the opinion that the allowance for loan losses is adequate to provide for probable future losses inherent in the portfolio. PAGE 15 OF 32 RISK ELEMENTS (in thousands)
Six Months Ended Year Ended June 30 December 31 1996 1995 ---- ---- ALLOWANCE FOR LOAN LOSSES Balance at beginning of period $6,566 $ 6,477 Charge-offs (534) (1,331) Recoveries 180 316 ------ ------- Net charge-offs (354) (1,015) Provision for loan possible losses 561 1,104 ------ ------ Balance at end of period $6,773 $6,566 ===== ===== AS A PERCENT OF AVERAGE TOTAL LOANS Net charge-offs 0.05% 0.17% Provision for possible loan losses 0.09% 0.18% Allowance for loan losses 1.04% 1.08% June 30 December 31 1996 1995 NON-PERFORMING ASSETS Other real estate owned $1,559 $1,027 Non-accrual loans 1,982 2,525 Accruing loans past due 90 days or more 2,696 1,421 Restructured loans 250 141 ------ ------ Total Non-performing Assets $6,487 $5,114 POTENTIAL PROBLEM LOANS $250 $266 AS A PERCENT OF NON-PERFORMING ASSETS AND POTENTIAL PROBLEM LOANS Allowance for loan losses 100.53% 122.04% ACCRUING LOANS PAST DUE 90 DAYS OR MORE AS A PERCENT OF AVERAGE TOTAL LOANS 0.41% 0.23%
PAGE 16 OF 32 LIQUIDITY AND INTEREST RATE SENSITIVITY The Company's cash and cash equivalents, represented by cash and due from banks and overnight federal funds sold, is a product of its operating, investing and financing activities. These activities are set forth in the City Holding Company Consolidated Statements of Cash Flows included elsewhere herein. Cash was used in operating activities in each period presented, primarily from loans originated for sale and purchases of loans held for sale. Net cash was used in investing activities during the second quarter of 1995 funding the Company's loan growth. Net cash was provided by investing activities during the second quarter of 1996 due primarily to maturing investment securities. The net cash provided by financing activities in the respective periods is a result of an increase in interest-bearing deposits. In 1995, financing activities provided cash due to the increase in short-term borrowings. The Company seeks to maintain a strong liquidity position to reduce interest rate risk, which is the susceptibility of assets and liabilities to decline in value as a result of changes in general market interest rates. The Company minimizes this risk through asset and liability management, where the goal is to optimize earnings while managing interest rate risk. The Company measures this interest rate risk through interest sensitivity gap analysis as illustrated in the following table. At June 30, 1996, the one year period shows a negative gap (liability sensitive) of $296 million. This analysis is a "static gap" presentation and movements in deposit rates offered by the Company's subsidiary banks lag behind movements in the prime rate. Such time lags affect the repricing frequency of many items on the Company's balance sheet. Accordingly, the sensitivity of deposits to changes in market rates may differ significantly from the related contractual terms. The table is first presented without adjustment for expected repricing behavior. Then, as presented in the "management adjustment" line, these balances PAGE 17 OF 32 have been notionally distributed over the first three periods to reflect those portions of such accounts that are expected to reprice fully with market rates over the respective periods. The distribution of the balances over the repricing periods represents an aggregation of such allocations by each of the affiliate banks, and is based upon historical experience with their individual markets and customers. Management expects to continue the same pricing methodology in response to future market rate changes; however, management adjustments may change as customer preferences, competitive market conditions, liquidity, and loan growth change. Also presented in the management adjustment line are loan prepayment assumptions which may differ from the related contractual term of the loans. These balances have been distributed over the four periods to reflect those loans that are expected to be repaid in full prior to their maturity date over the respected periods. After management adjustments, the table shows a negative gap in the one year period of $85 million. A negative gap position is advantageous when interest rates are falling because interest-bearing liabilities are being repriced at lower rates and in greater volume, which has a positive effect on net interest income. Consequently, the Company has experienced a decline in its net interest margin during the past year and is somewhat vulnerable to a rapid rise in interest rates during 1996. These declines in net interest margin did not translate into declines in net interest income because of increases in the volume of interest-earning assets. There are no known trends, demands, commitments or uncertainties that have resulted or are reasonably likely to result in material changes in liquidity. PAGE 18 OF 32 INTEREST RATE SENSITIVITY GAPS (in thousands)
1 to 3 3 to 12 1 to 5 Over 5 Months Months Years Years Total ASSETS Gross loans $156,138 $ 95,747 $328,445 $ 91,595 $671,925 Loans held for sale 163,250 0 0 0 163,250 Securities 27,166 20,744 79,797 32,034 159,741 -------- --------- ---------- --------- -------- Total interest earning assets 346,554 116,491 408,242 123,629 994,916 ------- --------- ---------- ------- ------- LIABILITIES Savings and NOW Accounts 336,814 0 0 0 336,814 All other interest bearing deposits 93,106 156,363 114,285 426 364,180 Short term and other borrowings 148,399 0 0 0 148,399 Long term borrowings 24,200 0 0 0 24,200 -------- ----------- ----------- ---------- -------- Total interest bearing liabilities $602,519 $ 156,363 $114,285 $ 426 $ 873,593 ------- -------- ------- --------- ------- Interest sensitivity gap ($255,965) ($ 39,872) $293,957 $123,203 $121,323 ------- -------- ------- ------- ------- Cumulative sensitivity gap ($255,965) ($295,837) ($ 1,880) $121,323 ======= ======= ======== ======= Management adjustments $305,668 ($ 95,240) ($199,876) ($ 10,552) ------- ------- ------- ------- Cumulative management adjusted gap $ 49,703 ($ 85,409) $ 8,672 $121,323 ======== ======= ======== =======
The table above includes various assumptions and estimates by management as to maturity and repricing patterns. Future interest margins will be impacted by balances and rates which are subject to change periodically throughout the year. PAGE 19 OF 32 CAPITAL RESOURCES As a bank holding company, City Holding Company is subject to regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956. In January 1989, the Federal Reserve published risk-based capital guidelines in final form which are applicable to bank holding companies. Such guidelines define items in the calculation of risk-weighted assets. At June 30, 1996, the regulatory minimum ratio of qualified total capital to riskweighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8 percent. At least half of the total capital is to be comprised of "Tier 1 capital", or the Company's common stockholders' equity, and minority interest in consolidated subsidiary, net of intangibles. The remainder ("Tier 2 capital") may consist of certain other prescribed instruments and a limited amount of loan loss reserves. In addition, the Federal Reserve Board has established minimum leverage ratio (Tier 1 capital to quarterly average tangible assets) guidelines for bank holding companies. These guidelines provide for a minimum ratio of 3 percent for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies will be required to maintain a leverage ratio of 3 percent plus an additional cushion of a least 100 to 200 basis points. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. The following table presents comparative capital ratios and related dollar amounts of capital for the Company: PAGE 20 OF 32 Dollars in Thousands June 30 December 31 1996 1995 ---- ---- Capital Components Tier 1 risk-based capital $70,598 $66,260 Total risk-based capital 77,371 72,826 Capital Ratios Tier 1 risk-based 9.29% 8.87% Total risk-based 10.18 9.75 Leverage 6.67 6.45 Regulatory Minimum Tier 1 risk-based (dollar/ratio) $30,412/4.00% $29,888/4.00% Total risk-based (dollar/ratio) 60,826/8.00 59,776/8.00 Leverage (dollar/ratio) 31,735/3.00 30,801/3.00 The strong capital position of the Company is indicative of management's emphasis on asset quality and a history of retained net income. The ratios enable the Company to continually pursue acquisitions and other growth opportunities. Improvements in operating results and a consistent dividend program, coupled with an effective management of credit risk, have been, and will be, the key elements in maintaining the Company's present capital position. The Company does not anticipate any material capital expenditures in 1996. The continued expansion of the Company's Operations Center will be funded by the Company's long-term debt. SEE NOTE F. Earnings from subsidiary bank operations are expected to remain adequate to fund payment of stockholders' dividends and normal internal growth. In management's opinion, subsidiary banks have the capability to upstream sufficient dividends to meet the normal cash requirements of the Company. PAGE 21 OF 32 NET INTEREST INCOME Net interest income, on a fully federal tax-equivalent basis, improved from the second quarter of 1995 to the second quarter of 1996 by approximately $1,972,000 due to an increase in net earning assets. Net yield on earning assets increased between the respective periods from 4.72% to 4.98%, as earning asset yields increased 33 basis points (100 basis points equal one percent) to 8.78%, and the cost of interest-bearing liabilities increased 6 basis points to 4.36%. The $971,000 increase in net interest income due to rate, as shown in the following table, was coupled with a $1,001,000 increase in net interest income due to volume. The major component of this favorable volume change was increased average loans and average loans held for sale. Net interest income, on a fully federal tax-equivalent basis, improved from the six months ended June 30, 1995 to the six months ended June 30, 1996 by approximately $3,646,000 million due to an increase in net earning assets. Net yield on earning assets increased between periods from 4.78% to 4.84%, as earning asset yields increased 34 basis points to 8.70%, and the cost of interest bearing liabilities increased 30 basis points to 4.42%. The $116,000 increase in net interest income due to rate, as shown in the following table, was coupled with a $3,530,000 increase in net interest income due to volume. The major component of this favorable volume change was increased average loans held for sale. A significant part of the increase in net earning assets for the second quarter of 1996 and the six months ended June 30, 1996, is attributable to the Company's participation in a whole-loan bulk purchasing program. Under the program, the Company purchases from a third party whole loans secured by residential mortgages and partially insured by the Federal Housing Association. The loans typically have balances of less than $25,000 and are not concentrated geographically. Additionally, the program permits the Company to require the PAGE 22 OF 32 seller to repurchase or replace certain non-conforming loans. The loans are generally repurchased from the Company within 30 to 90 days. Although the loans usually are located outside the Company's primary market areas, management believes that these loans pose no greater risk than similar "in-market" loans because of the Company's review of the loans, the insurance reserve associated with the loans and the other terms of the program. The loans are generally serviced by third parties and the Company earns a fixed rate of return on the loans. The Company earned approximately $3,318,000 in interest income on program loans for the quarter ended June 30, 1996 on an average balance of approximately $145.8 million compared to $857,000 in interest income for the same period in 1995. The Company earned approximately $6,536,000 million in interest income on an average balance of approximately $143.6 million for the six months ended June 30, 1996 compared to $1,252,000 in interest income for the same period in 1995. These loans are being funded through short-term secured and unsecured borrowings. PAGE 23 OF 32 EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands)
Quarter Ended June 30 1996 1995 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate --------------------------------------------------------------------- EARNING ASSETS: Loans (1) Commercial and industrial $ 210,465 $4,793 9.11% $ 181,911 $4,255 9.36% Real estate 308,576 6,727 8.72 276,768 5,854 8.46 Consumer obligations 133,966 3,308 9.88 138,249 3,436 9.94 --------------------------------------------------------------------- Total loans 653,007 14,828 9.08 596,928 13,545 9.08 Loans held for sale 173,821 4,187 9.64 48,830 1,093 8.95 Securities Taxable 127,543 1,974 6.19 188,180 2,998 6.37 Tax-exempt (2) 35,617 758 8.51 41,268 859 8.33 -------------------------------------------------------------------- Total securities 163,160 2,732 6.70 229,448 3,857 6.72 Federal funds sold 971 14 5.77 1,556 24 6.17 ---------------------------------------------------------------------- Total earning assets 990,959 21,761 8.78 876,762 18,519 8.45 Cash and due from bank 29,992 24,696 Bank premises and equipment 26,979 22,227 Other assets 22,551 21,491 Less: allowance for possible loan losses (6,685) (6,465) ------------------------------------------------------------------------ Total assets $1,063,796 $938,711 ======================================================================== INTEREST BEARING LIABILITIES Demand deposits $ 108,365 $ 783 2.89% $ 94,887 $ 597 2.52% Savings deposits 226,770 1,802 3.18 237,301 1,893 3.19 Time deposits 365,531 4,769 5.22 327,355 4,169 5.09 Short-term borrowings 142,560 1,670 4.69 95,050 1,409 5.93 Long-term debt 23,011 411 7.14 4,831 98 8.11 ------------------------------------------------------------------------ Total interest-bearing liabilities 866,437 9,435 4.36 759,424 8,166 4.30 Demand deposits 111,648 100,110 Other liabilities 10,501 8,471 Stockholders' equity 75,410 70,706 ------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,063,796 $938,711 ======================================================================== Net interest income $12,326 $10,353 ======================================================================== Net yield on earning assets 4.98% 4.72% ========================================================================
(1) For purposes of this table, nonaccruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income. (2) Computed on a fully federal tax-equivalent basis assuming a tax rate of 34% in all years. PAGE 24 OF 32 RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands)
Quarter Ended June 30 1996 VS. 1995 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net Loans Commercial and industrial $ 1,229 $ (691) $ 538 Real estate 689 184 873 Consumer obligations (106) (22) (128) ------------------------------------------- Total loans 1,812 (529) 1,283 Loans held for sale 3,005 89 3,094 Securities Taxable (941) (83) (1,024) Tax-exempt (1) (219) 118 (101) ------------------------------------------ Total Securities (1,160) 35 (1,125) Federal funds sold (9) (1) (10) ------------------------------------------ Total interest-earning assets $ 3,648 $(406) $ 3,242 INTEREST EXPENSE ON: Demand deposits 91 95 186 Savings deposits (84) (7) (91) Time deposits 496 104 600 Short-term borrowings 1,849 (1,588) 261 Long-term debt 394 (81) 313 ------------------------------------------- Total interest-bearing liabilities $ 2,746 $(1,477) $ 1,269 ------------------------------------------ NET INTEREST INCOME $ 972 $ 1,071 $ 1,973 ==========================================
(1) Fully federal taxable equivalent using a tax rate of 34% in all years. PAGE 25 OF 32 EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands)
Six Months Ended June 30 1996 1995 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate EARNING ASSETS: Loans (1) Commercial and industrial $ 210,181 $9,646 9.18% $ 176,666 $8,087 9.16% Real estate 306,561 13,250 8.64 269,296 11,261 8.36 Consumer obligations 134,429 6,612 9.84 133,900 6,607 9.87 --------------------------------------------------------------------- Total loans 651,171 29,508 9.06 579,862 25,955 8.95 Loans held for sale 167,581 7,810 9.32 37,426 1,665 8.90 Securities Taxable 135,421 4,227 6.24 191,692 6,203 6.47 Tax-exempt (2) 36,816 1,564 8.50 41,844 1,752 8.37 -------------------------------------------------------------------- Total securities 172,237 5,791 6.72 233,536 7,955 6.81 Federal funds sold 708 19 5.37 1,207 35 5.80 ---------------------------------------------------------------------- Total earning assets 991,697 43,128 8.70 852,031 35,610 8.36 Cash and due from bank 29,192 25,181 Bank premises and equipment 25,401 21,884 Other assets 22,662 21,834 Less: allowance for possible loan losses (6,646) (6,438) ------------------------------------------------------------------------- Total assets $1,062,306 $914,492 ======================================================================= INTEREST BEARING LIABILITIES Demand deposits $ 102,775 $ 1,543 3.00% $ 95,343 $ 1,371 2.88% Savings deposits 224,286 3,499 3.12 242,671 3,689 3.04 Time deposits 364,181 9,545 5.24 317,265 7,693 4.85 Short-term borrowings 151,045 3,749 4.96 78,804 2,265 5.75 Long-term debt 22,042 782 7.10 6,817 228 6.69 ------------------------------------------------------------------------ Total interest-bearing liabilities 864,289 19,118 4.42 740,900 15,246 4.12 Demand deposits 114,802 97,147 Other liabilities 8,349 8,934 Stockholders' equity 74,826 67,511 ------------------------------------------------------------------------- Total liabilities and826 stockholders' equity $1,062,306 $914,492 ======================================================================== Net interest income $24,010 $20,364 ============================================================================ Net yield on earning assets 4.84% 4.78% =============================================================================
(1) For purposes of this table, nonaccruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income. (2) Computed on a fully federal tax-equivalent basis assuming a tax rate of 34% in all years. PAGE 26 OF 32 RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands)
Six Months Ended June 30 1996 VS. 1995 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net Loans Commercial and industrial $ 1,538 $ 21 $ 1,559 Real estate 1,600 389 1,989 Consumer obligations 49 (44) 5 ------------------------------------------- Total loans 3,187 366 3,553 Loans held for sale 6,062 83 6,145 Securities Taxable (1,763) (213) (1,976) Tax-exempt (1) (259) 71 (188) ------------------------------------------ Total Securities (2,022) (142) (2,164) Federal funds sold (14) (2) (16) ------------------------------------------- Total interest-earning assets $ 7,213 $ 305 $ 7,518 INTEREST EXPENSE ON: Demand deposits 110 62 172 Savings deposits (429) 239 (190) Time deposits 1,197 655 1,852 Short-term borrowings 2,368 (884) 1,484 Long-term debt 539 15 554 ------------------------------------------- Total interest-bearing liabilities $ 3,785 $ 87 $ 3,872 ------------------------------------------ NET INTEREST INCOME $ 3,428 $ 218 $ 3,646 ===========================================
(1) Fully federal taxable equivalent using a tax rate of 34% in all years. PAGE 27 OF 32 PART II OTHER INFORMATION Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities - Not Applicable Item 3. Defaults Upon Seller Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on 8-K - Not Applicable The Company did not file any reports on Form 8-K during the three months ended June 30, 1996. PAGE 28 OF 32 S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITY HOLDING COMPANY August 13, 1996 By /s/ Dawn Woolsey Dawn Woolsey, Chief Accounting Officer (Principal Accounting Officer) PAGE 29 OF 32 EXHIBIT INDEX Exhibit Page Number Index 27 Financial Data Schedule for the six months ending June 30, 1996 31 PAGE 30 OF 32 EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITY HOLDING COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1996, AND THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 39,102 0 0 0 116,595 43,146 43,422 666,699 6,773 1,074,722 816,511 148,399 10,305 24,200 12,730 0 0 62,577 1,074,722 37,318 5,259 19 42,596 14,587 19,118 23,478 561 63 19,385 7,553 0 0 0 5,027 .99 .99 4.84 1,982 2,696 250 250 6,566 (534) 180 6,773 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----