-----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, RWq5mBMaQJunDnKU0xco8X7eT0i8XXdYtbHiv8eAW2kHAR4lmiCh2D1Iy0CKUuK1 3ULQwdK1WsU02gGM0aEG1A== 0000916641-96-000979.txt : 19961118 0000916641-96-000979.hdr.sgml : 19961118 ACCESSION NUMBER: 0000916641-96-000979 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96663800 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 3RD QUARTER REPORT 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 September 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 November 12, 1996: Common Stock, $2.50 Par Value -- 5,588,487 shares THIS REPORT CONTAINS 29 PAGES. EXHIBIT INDEX IS LOCATED ON PAGE 28 . PAGE 1 OF 29 Index City Holding Company and Subsidiaries PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets -- September 30, 1996 (unaudited) and December 31, 1995 Consolidated Statements of Income (unaudited) -- Nine months ended September 30, 1996 and 1995 and the three months ended September 30, 1996 and 1995 Consolidated Statements of Changes in Stockholders' Equity (unaudited) -- Nine months ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows (unaudited) --Nine months ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements (unaudited) -- September 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 Signature Exhibit Index PAGE 2 OF 29 PART I. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CITY HOLDING COMPANY AND SUBSIDIARIES
Item I. SEPTEMBER 30 DECEMBER 31 1996 1995 ------------ ----------- ASSETS (unaudited) Cash and due from banks $ 34,118,000 $ 28,460,000 Federal funds sold 61,000 0 Securities available for sale, at fair value 115,101,000 143,649,000 Investment securities (approximate market values: September 30, 1996--$45,010,000; December 31, 1995--$52,183,000) 44,506,000 50,719,000 Loans: Gross loans 689,108,000 664,886,000 Unearned income (7,220,000) (8,125,000) Allowance for possible loan losses (6,836,000) (6,566,000) ------------ ----------- NET LOANS 675,052,000 650,195,000 Loans held for sale 164,608,000 122,222,000 Bank premises and equipment 29,267,000 23,651,000 Accrued interest receivable 7,448,000 8,031,000 Other assets 15,054,000 14,042,000 ------------ ----------- TOTAL ASSETS $ 1,085,215,000 $ 1,040,969,000 ============= ============= LIABILITIES Deposits: Noninterest-bearing $ 120,368,000 $ 116,992,000 Interest-bearing 705,206,000 680,423,000 ------------ ----------- TOTAL DEPOSITS 825,574,000 797,415,000 Short-term borrowings 145,817,000 141,309,000 Long-term debt 25,750,000 20,000,000 Other liabilities 10,774,000 9,106,000 ------------- ----------- TOTAL LIABILITIES 1,007,915,000 967,830,000 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 5,600,090 shares as of September 30, 1996 and 5,092,046 shares as of December 31, 1995, including 11,603 and 13,640 shares in treasury at September 30, 1996 and December 31, 1995, respectively. 14,000,000 12,730,000 Capital surplus 36,357,000 25,942,000 Retained earnings 27,727,000 34,432,000 Cost of common stock in treasury (306,000) (360,000) Net unrealized (loss) gain on securities available for sale, net of deferred income taxes (478,000) 395,000 ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 77,300,000 73,139,000 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,085,215,000 $ 1,040,969,000 ============== ============== See notes to consolidated financial statements
PAGE 3 OF 29
CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES NINE MONTH PERIOD ENDED SEPTEMBER 30 1996 1995 ------------ ----------- INTEREST INCOME Interest and fees on loans $ 56,347,000 $ 43,447,000 Interest and dividends on securities: Taxable 6,181,000 9,002,000 Tax-exempt 1,527,000 1,751,000 Other interest income 26,000 70,000 ------------ ----------- TOTAL INTEREST INCOME 64,081,000 54,270,000 INTEREST EXPENSE Interest on deposits 21,880,000 19,818,000 Interest on short-term borrowings 5,944,000 3,811,000 Interest on long-term debt 1,217,000 459,000 ------------ ------------ TOTAL INTEREST EXPENSE 29,041,000 24,088,000 NET INTEREST INCOME 35,040,000 30,182,000 PROVISION FOR POSSIBLE LOAN LOSSES 943,000 711,000 ------------ ----------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 34,097,000 29,471,000 OTHER INCOME Securities gains 68,000 9,000 Service charges 2,692,000 2,444,000 Other 3,826,000 2,182,000 ------------ ----------- TOTAL OTHER INCOME 6,586,000 4,635,000 OTHER EXPENSES Salaries and employee benefits 15,440,000 12,958,000 Net occupancy expense 4,448,000 3,754,000 Other 9,415,000 8,175,000 ------------ ----------- TOTAL OTHER EXPENSES 29,303,000 24,887,000 INCOME BEFORE INCOME TAXES 11,380,000 9,219,000 INCOME TAXES 3,810,000 2,911,000 ----------- ----------- NET INCOME $ 7,570,000 $ 6,308,000 ========== ========== Net income per common share $ 1.36 $ 1.11 ========== ========== Average common shares outstanding 5,586,163 5,672,134 ========== ==========
See notes to consolidated financial statements PAGE 4 OF 29
CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES THREE MONTH PERIOD ENDED SEPTEMBER 30 1996 1995 ------------ ----------- INTEREST INCOME Interest and fees on loans $ 19,029,000 $ 15,827,000 Interest and dividends on securities: Taxable 1,954,000 2,829,000 Tax-exempt 495,000 595,000 Other interest income 7,000 5,000 ------------ ----------- TOTAL INTEREST INCOME 21,485,000 19,256,000 INTEREST EXPENSE Interest on deposits 7,293,000 7,065,000 Interest on short-term borrowings 2,195,000 1,546,000 Interest on long-term debt 435,000 231,000 ------------ ------------ TOTAL INTEREST EXPENSE 9,923,000 8,842,000 NET INTEREST INCOME 11,562,000 10,414,000 PROVISION FOR POSSIBLE LOAN LOSSES 382,000 302,000 ------------ ----------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 11,180,000 10,112,000 OTHER INCOME Securities gains 5,000 7,000 Service charges 908,000 945,000 Other 1,652,000 762,000 ------------ ----------- TOTAL OTHER INCOME 2,565,000 1,714,000 OTHER EXPENSES Salaries and employee benefits 4,984,000 4,541,000 Net occupancy expense 1,572,000 1,217,000 Other 3,362,000 2,885,000 ------------ ----------- TOTAL OTHER EXPENSES 9,918,000 8,643,000 INCOME BEFORE INCOME TAXES 3,827,000 3,183,000 INCOME TAXES 1,284,000 1,040,000 ------------ ----------- NET INCOME $ 2,543,000 $ 2,143,000 ============ ============ Net income per common share $ .46 $ .38 ============ ============ Average common shares outstanding 5,586,148 5,650,758 ============ ============
See notes to consolidated financial statements PAGE 5 OF 29
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY CITY HOLDING COMPANY AND SUBSIDIARIES Nine Months Ended September 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) $73,139,000 Net income 7,570,000 7,570,000 Cash dividends declared ($.46/share) (2,590,000) (2,590,000) Change in unrealized gain/(loss), net of income taxes of $582,000 (873,000) (873,000) Issuance of 2,251 shares of treasury stock 54,000 54,000 Issuance of 10% stock dividend 1,270,000 10,415,000 (11,685,000) ---------- ----------- ----------- ----------- ---------- ----------- Balances at September 30, 1996 $14,000,000 $36,357,000 $27,727,000 ($478,000) ($306,000) $77,300,000 ---------- ----------- ----------- ----------- ---------- ----------- NET UNREALIZED Nine Months Ended September 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) $66,299,000 Net income 6,308,000 6,308,000 Cash dividends declared ($.40/share) (1,990,000) (1,990,000) Cash dividends of acquired subsidiary (150,000) (150,000) Changes in net unrealized gain/(loss), net of income taxes of $1,719,000 2,548,000 2,548,000 Cost of 86,665 shares of common stock acquired for treasury (2,286,000) (2,286,000) Issuance of 233 shares of treasury stock 7,000 7,000 Retirement of 66,539 shares of common stock held in treasury (174,000) (1,612,000) 1,786,000 0 Issuance of 10% stock dividend 1,151,000 9,208,000 (10,359,000) ---------- ----------- ----------- ----------- ---------- ----------- Balances at September 30, 1995 $12,730,000 $25,962,000 $32,884,000 $(315,000) $ (525,000) $70,736,000 ----------- ----------- ----------- ------------ ------------ ----------- See notes to consolidated financial statements PAGE 6 OF 29
CONSOLIDATED STATEMENTS OF CASH FLOWS CITY HOLDING COMPANY AND SUBSIDIARIES NINE MONTH PERIOD ENDED SEPTEMBER 30 1996 1995 ------------ ------------ OPERATING ACTIVITIES Net Income $7,570,000 $6,308,000 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization 749,000 828,000 Provision for depreciation 2,494,000 1,823,000 Provision for loan losses 943,000 711,000 Realized securities gains (68,000) (9,000) Loans originated for sale (91,749,000) (50,104,000) Purchases of loans held for sale (834,664,000) (386,586,000) Proceeds from loans sold 884,715,000 365,111,000 Realized gains on loans sold (688,000) (165,000) Decrease (increase) in accrued interest receivable 583,000 (842,000) Decrease in other assets (1,085,000) (2,135,000) Increase (decrease) in other liabilities 1,668,000 (629,000) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (29,532,000) (65,689,000) INVESTING ACTIVITIES Proceeds from sales of securities available for sale 30,522,000 8,047,000 Proceeds from maturities of securities available for sale 41,207,000 36,272,000 Purchases of securities available for sale (44,496,000) (34,637,000) Proceeds from maturities of securities 131,026,000 26,687,000 Purchases of securities (124,979,000) (3,238,000) Net increase in loans (25,800,000) (92,782,000) Purchases of premises and equipment (8,110,000) (2,854,000) ------------ ------------ NET CASH PROVIDED BY USED IN INVESTING ACTIVITIES (630,000) (62,505,000) FINANCING ACTIVITIES Net increase in noninterest bearing deposits 3,376,000 22,761,000 Net increase in interest-bearing deposits 24,783,000 24,781,000 Net increase in short-term borrowings 4,508,000 70,557,000 Proceeds from long-term-debt 5,750,000 12,525,000 Repayment of long-term debt 0 (4,400,000) Purchases of treasury stock 0 (2,318,000) Proceeds from sales of treasury stock 54,000 7,000 Cash dividends paid (2,590,000) (2,140,000) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 35,881,000 121,773,000 ------------ ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,719,000 (6,421,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,460,000 34,284,000 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,179,000 $27,863,000 ============ =========== See notes to consolidated financial statements
PAGE 7 OF 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 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 nine months ended September 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 - PENDING MERGER In August 1996, the Company signed a definitive agreement to acquire The Old National Bank of Huntington, Huntington, West Virginia ("Old National"). Under the agreement 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 first quarter of 1997. 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, on a proforma basis as of September 30, 1996. PAGE 8 OF 29 NOTE C - PER SHARE INFORMATION On October 21, 1996, the Company declared a special 10% stock dividend payable on November 30, 1996, to shareholders of record as of November 1, 1996. All per share information for the current quarter and prior periods has been adjusted accordingly to reflect this stock dividend. An amount equal to the fair value of the additional shares issued was transferred from retained earnings to the common stock and capital accounts. NOTE D - INCOME TAXES The consolidated provision for income taxes is based upon financial statement earnings. The effective tax rate for the nine months ended September 30, 1996, of 33.48% 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. NOTE E - 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 $70,089,000 at September 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 $4,031,000, have historically expired unfunded. NOTE F - NEW ACCOUNTING PRONOUNCEMENTS 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. As of September 30, 1996, the Company had recorded $221,000 in originated mortgage servicing rights. PAGE 9 OF 29 In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 125 "Accounting for Transfers and Servicing of Assets and Extinguishment of Liabilities," which is effective for years after December 31, 1996. The Company has not yet completed the complex analysis required to estimate the impact of this new rule and does not expect the implementation to have a material impact on the Company's financial results. NOTE G - 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 September 30, 1996) due on July 31, 1997. As of September 30, 1996, the outstanding balance was equal to $20,750,000. 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. 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 September 30, 1996, $5 million was outstanding with an interest rate of 5.71156%. The agreement matures in December, 1998. PAGE 10 OF 29 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HIGHLIGHTS FINANCIAL POSITION Total assets increased $44.2 million or approximately 4.25% during the first nine months of 1996. Total securities have decreased $34.8 million due primarily to maturities and/or calls. Proceeds from called or matured securities were used primarily to fund the increase in loans. Net loans increased $24.9 million or 3.8%. Loans held for sale, consisting primarily of loans received through the Company's participation in a whole loan bulk purchasing program, increased $42.4 million or 34.7%. As of September 30, 1996, program loans owned by the Company had an outstanding principal balance of approximately $114.4 million. See LOAN PORTFOLIO. The Company earned interest income of approximately $9,730,000 on program loans during the nine months ended September 30, 1996. See NET INTEREST INCOME. The increases in net loans held for sale were also funded by an increase in deposits and short-term borrowings of $28.2 million and $4.5 million, respectively. Net stockholders' equity increased $4.2 million during the first nine months of 1996 representing the Company's retained net profits. QUARTER ENDED SEPTEMBER 30, 1996, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995. The Company reported net income of $2,543,000 for the three months ended September 30, 1996 compared to net income of $2,143,000 for the quarter ended September 30, 1995. This increase of $400,000, or 18.67%, was primarily due to an increase of $853,000 in the Company's total other income (excluding securities transactions) during the third quarter of 1996 as compared to the same period of 1995. This increase is attributable to fees generated from the increase in mortgage loan servicing and the originated mortgage servicing rights recorded in the third quarter of 1996. Non-interest expenses increased $1,275,000 or 15% during the third quarter of 1996 as compared to the same period of 1995, primarily due to the Company's expansion of its Operations Center to facilitate the growth of mortgage servicing. In addition, the Company accrued a one-time pre-tax charge of $250,000 for the contribution to the recapitalization of the Savings Association Insurance Fund ("SAIF"). On September 30, 1996, legislation became effective requiring an assessment of 65.7 cents per $100 in domestic SAIF-insured deposits held as of March 31, 1995. At that date the Company held $49.1 million in SAIF-insured deposits. The assessment is payable December 1, 1996. The legislation also reduced the deposit insurance premium for SAIF-insurance deposits to 6.44 cents per $100. Net income for the third quarter also benefitted from an increase of $1,148,000 in the Company's net interest income during the third quarter of 1996 as compared to the same PAGE 11 OF 29 period of 1995. See NET INTEREST INCOME for further discussion. Earnings per share were $.46 and $.38 for the third quarter of 1996 and 1995, respectively. NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 The Company reported net income of $7,570,000 for the nine months ended September 30, 1996 compared to net income of $6,308,000 for the nine months ended September 30, 1995. This increase of $1,262,000 or 20%, was primarily due to an increase in the Company's net interest income earned during the first nine months of 1996 as compared to the same period of 1995. See NET INTEREST INCOME. Total non-interest expense increased $4,416,000 of 17.74% during the first nine 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 as discussed above. Earnings per share were $1.36 and $1.11 for the nine months ended September 30, 1996 and 1995, respectively. SELECTED RATIOS The return on average assets (ROA) for the third quarter of 1996 was .94% compared to .88% in the third quarter of 1995. The return on average shareholder's equity (ROE) for the third quarter of 1996 was 13.13% compared to 12.02% ROE for the third quarter of 1995. For the first nine months of 1996, ROA was .94% compared to .90% for the nine months ended September 30, 1995. ROE was 13.32% and 12.18% for the first nine months of 1996 and 1995, respectively. The dividend payout ratio of 33.59% for the quarter ended September 30, 1996 represents a decrease of 10.39% from the dividend payout ratio of 37.08% for the quarter ended PAGE 12 OF 29 September 30, 1995. The dividend payout ratio was 34.09% and 36.45% for the nine months ended September 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. LOAN PORTFOLIO The composition of the Company's loan portfolio is presented in the following table: LOAN PORTFOLIO BY TYPE (Dollars in Thousands) September 30 December 31 1996 1995 -------- -------- Commercial, financial and agricultural $217,898 $214,304 Real Estate-Mortgage 302,407 277,608 Real Estate-Construction 25,979 27,240 Installment and other 142,824 145,734 Unearned Income (7,220) (8,125) -------- -------- TOTAL $681,888 $656,761 ======== ======== Loans Held for Sale Program loans $ 114,421 $101,843 Loans Originated for Sale 50,187 20,379 -------- -------- TOTAL $ 164,608 $ 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 nine months of 1996 that historically is not typical. The rate environment during this period was conducive to consumers refinancing their total indebtedness with 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 commercial and residential mortgage loans. PAGE 13 OF 29 ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES The following table summarizes the Company's risk elements for the periods ending September 30, 1996 and December 31, 1995. The Company's coverage ratio of nonperforming assets and potential problem loans continues to be strong at 120% as of September 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.
RISK ELEMENTS (in thousands) Nine Months Ended Year Ended September 30 December 31 1996 1995 ---- ---- ALLOWANCE FOR LOAN LOSSES Balance at beginning of period $6,566 $ 6,477 Charge-offs (920) (1,331) Recoveries 247 316 ------ ------- Net charge-offs (673) (1,015) Provision for loan possible losses 943 1,104 ------ ------ Balance at end of period $6,836 $6,566 ===== ===== AS A PERCENT OF AVERAGE TOTAL LOANS Net charge-offs 0.10% 0.17% Provision for possible loan losses 0.14% 0.18% Allowance for loan losses 1.04% 1.08% September 30 December 31 1996 1995 ---- ---- NON -PERFORMING ASSETS Other real estate owned $1,212 $1,027 Non-accrual loans 1,811 2,525 Accruing loans past due 90 days or more 2,191 1,421 Restructured loans 249 141 ------ ------ Total Non-performing Assets $5,463 $5,114 POTENTIAL PROBLEM LOANS $243 $266 AS A PERCENT OF NON-PERFORMING ASSETS AND POTENTIAL PROBLEM LOANS Allowance for loan losses 119.80% 122.04% ACCRUING LOANS PAST DUE 90 DAYS OR MORE AS A PERCENT OF AVERAGE TOTAL LOANS 0.33% 0.23%
PAGE 14 OF 29 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 third quarter of 1995 funding the Company's loan growth. Net cash was also used in investing activities during the third quarter of 1996 due primarily to the purchase of securities. The net cash provided by financing activities in the respective periods is a result of an increase in interest-bearing deposits. For the first nine months of 1995, financing activities also 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 September 30, 1996, the one year period shows a negative gap (liability sensitive) of $294 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 have been notionally distributed over the first three periods to reflect those portions of such PAGE 15 OF 29 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 $84 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 an increase in its net interest margin during the past year and is somewhat vulnerable to a rapid rise in interest rates during 1996. This increase in net interest margin did not translate into a decline 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 16 OF 29
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 $155,718 $ 106,264 $334,081 $ 91,234 $687,297 Loans held for sale 164,608 0 0 0 164,608 Securities 23,030 20,166 85,093 31,318 159,607 Federal funds sold 61 0 0 0 61 ------- --------- --------- ------- --------- Total interest earning assets 343,417 126,430 419,174 122,552 1,011,573 ------- --------- --------- ------- --------- LIABILITIES Savings and NOW Accounts 335,779 0 0 0 335,779 All other interest bearing deposits 85,933 170,536 112,508 451 369,428 Short term and other borrowings 145,817 0 0 0 145,817 Long term borrowings 25,750 0 0 0 25,750 ------- --------- --------- ------- --------- Total interest bearing liabilities $593,279 $ 170,536 $112,508 $ 451 $ 876,774 ------- --------- --------- ------- --------- Interest sensitivity gap ($249,862) ($ 44,106) $306,666 $122,101 $134,799 ------- --------- --------- ------- --------- Cumulative sensitivity gap ($249,862) ($293,968) ($ 12,698) $134,799 ======= ======= ======== ======= Management adjustments $298,450 ($ 88,489) ($199,080) ($ 10,881) ------- ------- ------- ------- Cumulative management adjusted gap $ 48,588 ($ 84,007) $ 23,579 $134,799 ======== ======= ======== =======
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 17 OF 29 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 September 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 18 OF 29 Dollars in Thousands September 30 December 31 1996 1995 ---- ---- Capital Components Tier 1 risk-based capital $71,420 $66,260 Total risk-based capital 78,256 72,826 Capital Ratios Tier 1 risk-based 9.32% 8.87% Total risk-based 10.21 9.75 Leverage 6.61 6.45 Regulatory Minimum Tier 1 risk-based (dollar/ratio) $30,649/4.00% $29,888/4.00% Total risk-based (dollar/ratio) 61,297/8.00 59,776/8.00 Leverage (dollar/ratio) 32,407/3.00 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 E. 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 19 OF 29 NET INTEREST INCOME Net interest income, on a fully federal tax-equivalent basis, improved from the third quarter of 1995 to the third quarter of 1996 by approximately $1,096,000 due to an increase in net earning assets. Net yield on earning assets decreased between the respective periods from 4.72% to 4.69%, as earning asset yields remained consistent at 8.62% and the cost of interest-bearing liabilities increased 3 basis points to 4.50%. The $1,638,000 decrease in net interest income due to rate, as shown in the following table, was coupled with a $2,734,000 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 nine months ended September 30, 1995 to the nine months ended September 30, 1996 by approximately $4,743,000 million due to an increase in net earning assets. Net yield on earning assets increased between periods from 4.76% to 4.79%, as earning asset yields increased 23 basis points to 8.67%, and the cost of interest bearing liabilities increased 20 basis points to 4.45%. The $447,000 increase in net interest income due to rate, as shown in the following table, was coupled with a $4,296,000 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 third quarter of 1996 and the nine months ended September 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 seller to repurchase or replace certain non-conforming loans. The loans are generally PAGE 20 OF 29 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 $3,194,000 in interest income on program loans for the quarter ended September 30, 1996 on an average balance of approximately $138.9 million compared to $1.2 million in interest income for the same period in 1995. The Company earned approximately $9,730,000 in interest income on an average balance of approximately $142.0 million for the nine months ended September 30, 1996 compared to $2.46 million in interest income for the same period in 1995. These loans are being funded through short-term secured and unsecured borrowings. PAGE 20 OF 29
EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands) Quarter Ended September 30 1996 1995 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ----------------------------------------------------------------------------------- EARNING ASSETS: Loans (1) Commercial and industrial $ 212,285 $4,905 9.24% $ 192,114 $4,527 9.43% Real estate 321,733 7,846 9.75 291,554 6,269 8.60 Consumer obligations 134,717 3,279 9.74 141,666 3,539 9.99 ----------------------------------------------------------------------------------- Total loans 668,735 16,030 9.59 625,334 14,335 9.17 Loans held for sale 179,620 2,999 6.68 66,402 1,492 8.99 Securities Taxable 123,956 1,954 6.31 179,530 2,829 6.30 Tax-exempt (2) 35,595 750 8.43 36,345 902 9.93 ---------------------------------------------------------------------------------- Total securities 159,551 2,704 6.78 215,875 3,731 6.91 Federal funds sold 591 7 4.74 333 5 6.01 ------------------------------------------------------------------------------------ Total earning assets 1,008,497 21,740 8.62 907,944 19,563 8.62 Cash and due from banks 32,301 25,800 Bank premises and equipment 29,351 22,129 Other assets 22,740 21,101 Less: allowance for possible loan losses (6,755) (6,461) -------------------------------------------------------------------------------------- Total assets $1,086,134 $970,513 ====================================================================================== INTEREST BEARING LIABILITIES Demand deposits $ 111,797 $ 766 2.74% $104,572 $ 754 2.88% Savings deposits 222,251 1,589 2.86 222,036 1,709 3.08 Time deposits 366,876 4,938 5.38 346,805 4,602 5.31 Short-term borrowings 156,015 2,195 5.63 106,546 1,546 5.80 Long-term debt 24,217 435 7.19 11,587 231 7.97 -------------------------------------------------------------------------------------- Total interest-bearing liabilities 881,156 9,923 4.50 791,546 8,842 4.47 Demand deposits 115,863 102,673 Other liabilities 11,656 5,005 Stockholders' equity 77,459 71,289 -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,086,134 $970,513 ====================================================================================== Net interest income $11,817 $10,721 ====================================================================================== Net yield on earning assets 4.69% 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 22 OF 29
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands) Quarter Ended September 30 1996 VS. 1995 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net Loans Commercial and industrial $ 913 $ (535) $ 378 Real estate 687 890 1,577 Consumer obligations (171) (89) (260) -------------------------------------------------- Total loans 1,429 266 1,695 Loans held for sale 3,975 (2,468) 1,507 Securities Taxable (882) 7 (875) Tax-exempt (1) ( 18) (134) (152) -------------------------------------------------- Total Securities (900) (127) (1,027) Federal funds sold 8 (6) 2 -------------------------------------------------- Total interest-earning assets $ 4,512 $(2,335) $ 2,177 INTEREST EXPENSE ON: Demand deposits 181 (169) 12 Savings deposits 11 (131) (120) Time deposits 269 67 336 Short-term borrowings 962 (313) 649 Long-term debt 355 (151) 204 -------------------------------------------------- Total interest-bearing liabilities $ 1,778 $ (697) $ 1,081 -------------------------------------------------- NET INTEREST INCOME $ 2,734 $(1,638) $ 1,096 ==================================================
(1) Fully federal taxable equivalent using a tax rate of 34% in all years. PAGE 23 OF 29
EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands) Nine Months Ended September 30 1996 1995 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ----------------------------------------------------------------------------------- EARNING ASSETS: Loans (1) Commercial and industrial $ 211,156 $14,551 9.19% $ 181,771 $12,614 9.25% Real estate 311,752 21,096 9.02 276,723 17,529 8.45 Consumer obligations 134,304 9,891 9.82 136,529 10,147 9.91 ----------------------------------------------------------------------------------- Total loans 657,212 45,538 9.24 595,023 40,290 9.03 Loans held for sale 171,546 10,809 8.40 46,988 3,157 8.96 Securities Taxable 130,805 6,181 6.30 187,981 9,002 6.39 Tax-exempt (2) 37,808 2,314 8.16 40,029 2,653 8.84 ---------------------------------------------------------------------------------- Total securities 168,613 8,495 6.72 228,010 11,655 6.82 Federal funds sold 669 26 5.18 1,593 70 5.86 ------------------------------------------------------------------------------------ Total earning assets 998,040 64,868 8.67 871,614 55,172 8.44 Cash and due from banks 30,292 25,302 Bank premises and equipment 26,685 22,013 Other assets 22,694 21,054 Less: allowance for possible loan losses (6,684) (6,446) -------------------------------------------------------------------------------------- Total assets $1,071,027 $933,537 ========================================================================================= INTEREST BEARING LIABILITIES Demand deposits $ 101,706 $ 2,309 3.03% $105,454 $ 2,266 2.87% Savings deposits 227,800 5,088 2.98 228,719 5,256 3.06 Time deposits 365,088 14,483 5.29 327,124 12,296 5.01 Short-term borrowings 152,649 5,944 5.19 87,568 3,811 5.80 Long-term debt 22,650 1,217 7.16 7,095 459 8.63 -------------------------------------------------------------------------------------- Total interest-bearing liabilities 869,893 29,041 4.45 755,960 24,088 4.25 Demand deposits 115,121 99,386 Other liabilities 10,242 9,160 Stockholders' equity 75,771 69,031 -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,071,027 $933,537 ========================================================================================= Net interest income $35,827 $31,084 ========================================================================================= Net yield on earning assets 4.79% 4.76% =========================================================================================
(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 29 RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands) Nine Months Ended September 30 1996 VS. 1995 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net --------------------------------------- Loans Commercial and industrial $ 2,082 $ (145) $ 1,937 Real estate 2,317 1,250 3,567 Consumer obligations (164) (92) (256) --------------------------------------- Total loans 4,235 1,013 5,248 Loans held for sale 7,988 (336) 7,652 Securities Taxable (2,703) (118) (2,821) Tax-exempt (1) (142) (197) (339) --------------------------------------- Total Securities (2,845) (315) (3,160) Federal funds sold (37) (7) (44) --------------------------------------- Total interest-earning assets $ 9,341 $ 355 $ 9,696 INTEREST EXPENSE ON: Demand deposits (115) 158 43 Savings deposits (21) (147) (168) Time deposits 1,480 707 2,187 Short-term borrowings 2,805 (672) 2,133 Long-term debt 896 (138) 758 --------------------------------------- Total interest-bearing liabilities $ 5,045 $ (92) $ 4,953 --------------------------------------- NET INTEREST INCOME $ 4,296 $ 447 $ 4,743 ======================================= (1) Fully federal taxable equivalent using a tax rate of 34% in all years. PAGE 25 OF 29 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 - On June 27, 1996, the Cmnpany held its Annual Meeting of Shareholders. Two matters were submitted to the shareholders for consideration: 1. Election of five Class I directors; and 2. Ratification of the Board of Directors' appointment of Ernst & Young LLP as auditors for the Company for 1995. The vote tabulation for each matter was as follows: 1. Election of five Class I directors: Authority Directors For Withheld Abstain - --------- --- -------- ------- Samuel M. Bowling 3,603,006 4,078 0 Steven J. Day 3.604,569 2,515 0 Jack E. Fruth 3,604,568 2,516 0 Otis L. O'Connor 3,604,569 2,515 0 Bob F. Richmond 3,604,569 2,515 0 Continuing directors whose terms did not expire at the annual meeting were: J. Goldman, C. Dallas Keyser, Robert D. Fisher, George F. Davis, C. Scott Briers, Carlin K. Harmon, Dale Nibert, Mark Schaul and Van R. Thorn. 2. Ratification of Appointment of Ernst & Young LLP: For Against Abstain --- ------- ------- 3,569,364 6,728 30,992 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 September 30, 1996. PAGE 26 OF 29 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 November 13, 1996 By /s/ Dawn Woolsey -------------------------------- Dawn Woolsey, Chief Accounting Officer (Principal Accounting Officer) PAGE 27 OF 29 EXHIBIT INDEX Exhibit Index 27 Financial Data Schedule for the nine months ending September 30, 1996 PAGE 28 OF 29 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 SEPTEMBER 30, 1996, AND THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 34,118 0 61 0 115,101 44,506 45,010 681,888 6,836 1,085,215 825,574 145,817 10,774 25,750 0 0 14,000 77,300 1,085,215 56,347 7,708 26 64,081 21,880 29,041 35,040 943 68 29,303 11,380 0 0 0 7,570 1.36 1.36 4.79 1,811 2,191 249 243 6,566 (920) 247 6,836 0 0 0
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