-----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, J9H34tbTw1uT7HKU3QeTukPGPlHyO0MAKWab900xPTetYH1DGPa2Hdz9/vNzpf2r 9zUERDgz8XzP4N+grg+lKQ== 0000916641-97-001077.txt : 19971113 0000916641-97-001077.hdr.sgml : 19971113 ACCESSION NUMBER: 0000916641-97-001077 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-11733 FILM NUMBER: 97716420 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 THIRD 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, 1997 0-1173 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 7, 1997: Common Stock, $2.50 Par Value -- 6,371,327 shares - ------------------------------------------------- THIS REPORT CONTAINS 37 PAGES. -------- EXHIBIT INDEX IS LOCATED ON PAGE 34 . ----- PAGE 1 OF 37 Index City Holding Company and Subsidiaries This form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are identified by phrases such as the Company "expects" or "anticipates" and words of similar effect. The Company's actual results may differ materially from those projected. Factors that could cause such a difference include, among others: changes in interest rates and economic and other market conditions generally and in the Company's principal markets; competition for origination and servicing of mortgage loans, particularly the types of loans purchased by the Company through its whole loan purchasing program or retail originations; disruption of the Company's participation in its whole loan purchasing program or retail originations; and changes in regulations and government policies affecting banks and their subsidiaries, including changes in monetary policies. PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets -- September 30, 1997 (unaudited) and December 31, 1996 Consolidated Statements of Income (unaudited) -- Nine months ended September 30, 1997 and 1996 and the three months ended September 30, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Equity (unaudited) -- Nine months ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows (unaudited) --Nine months ended September 30, 1997 and 1996 Notes to Consolidated Financial Statements (unaudited) -- September 30, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk PAGE 2 OF 37 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 3 OF 37 PART I. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CITY HOLDING COMPANY AND SUBSIDIARIES
Item I. SEPTEMBER 30 DECEMBER 31 1997 1996 ------------- ------------ ASSETS (unaudited) Cash and due from banks $ 51,582,000 $ 47,351,000 Federal funds sold 74,000 413,000 Securities available for sale, at fair value 186,614,000 122,944,000 Investment securities (approximate market value at December 31, 1996--$41,826,000) -0- 40,978,000 Loans: Gross loans 780,168,000 704,775,000 Unearned income (7,831,000) (6,793,000) Allowance for possible loan losses (8,246,000) (7,281,000) ------------- ----------- NET LOANS 764,091,000 690,701,000 Loans held for sale 270,912,000 92,472,000 Bank premises and equipment 31,581,000 30,025,000 Accrued interest receivable 10,813,000 7,510,000 Other assets 19,396,000 16,416,000 ------------- ----------- TOTAL ASSETS $ 1,335,063,000 $ 1,048,810,000 ============= ============= LIABILITIES Deposits: Noninterest-bearing $ 127,308,000 $ 118,976,000 Interest-bearing 783,038,000 709,694,000 ------------- ----------- TOTAL DEPOSITS 910,346,000 828,670,000 Short-term borrowings 250,018,000 90,298,000 Long-term debt 64,400,000 34,250,000 Other liabilities 19,907,000 16,219,000 ------------- ----------- TOTAL LIABILITIES 1,244,671,000 969,437,000 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 6,082,457 shares as of September 30, 1997 and 5,598,912 shares as of December 31, 1996, including 11,130 and 11,341 shares in treasury at September 30, 1997 and December 31, 1996, respectively. 15,207,000 13,998,000 Capital surplus 35,795,000 35,426,000 Retained earnings 38,607,000 30,246,000 Cost of common stock in treasury (310,000) (300,000) Net unrealized gain on securities available for sale, net of deferred income taxes 1,093,000 3,000 ------------- ----------- TOTAL STOCKHOLDERS' EQUITY 90,392,000 79,373,000 ------------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,335,063,000 $ 1,048,810,000 ============== ============== See notes to consolidated financial statements PAGE 4 OF 37 CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES NINE MONTH PERIOD ENDED SEPTEMBER 30 1997 1996 ------------ ------------ INTEREST INCOME Interest and fees on loans $ 62,572,000 $ 56,347,000 Interest and dividends on securities: Taxable 6,798,000 6,181,000 Tax-exempt 1,442,000 1,527,000 Other interest income 63,000 26,000 ------------ ------------ TOTAL INTEREST INCOME 70,875,000 64,081,000 INTEREST EXPENSE Interest on deposits 24,324,000 21,880,000 Interest on short-term borrowings 5,720,000 5,944,000 Interest on long-term debt 2,040,000 1,217,000 ------------ ------------ TOTAL INTEREST EXPENSE 32,084,000 29,041,000 NET INTEREST INCOME 38,791,000 35,040,000 PROVISION FOR POSSIBLE LOAN LOSSES 1,861,000 943,000 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 36,930,000 34,097,000 OTHER INCOME Net securities gains 15,000 68,000 Service charges 3,163,000 2,692,000 Mortgage loan servicing fees 8,417,000 1,034,000 Other 5,434,000 2,792,000 ------------ ------------ TOTAL OTHER INCOME 17,029,000 6,586,000 OTHER EXPENSES Salaries and employee benefits 21,118,000 15,440,000 Net occupancy expense 6,188,000 4,448,000 Other 12,042,000 9,415,000 ------------ ------------ TOTAL OTHER EXPENSES 39,348,000 29,303,000 INCOME BEFORE INCOME TAXES 14,611,000 11,380,000 INCOME TAXES 5,122,000 3,810,000 ------------ ------------ NET INCOME $ 9,489,000 $ 7,570,000 =========== =========== Net income per common share $ 1.56 $ 1.36 =========== =========== Average common shares outstanding 6,069,669 5,586,163 =========== =========== See notes to consolidated financial statements PAGE 5 OF 37 CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES THREE MONTH PERIOD ENDED SEPTEMBER 30 1997 1996 ------------- ----------- INTEREST INCOME Interest and fees on loans $ 22,009,000 $ 19,029,000 Interest and dividends on securities: Taxable 2,342,000 1,954,000 Tax-exempt 468,000 495,000 Other interest income 4,000 7,000 ------------- ----------- TOTAL INTEREST INCOME 24,823,000 21,485,000 INTEREST EXPENSE Interest on deposits 8,473,000 7,293,000 Interest on short-term borrowings 2,241,000 2,195,000 Interest on long-term debt 788,000 435,000 ------------- ----------- TOTAL INTEREST EXPENSE 11,502,000 9,923,000 NET INTEREST INCOME 13,321,000 11,562,000 PROVISION FOR POSSIBLE LOAN LOSSES 923,000 382,000 ------------- ----------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 12,398,000 11,180,000 OTHER INCOME Net securities gains 4,000 5,000 Service charges 1,077,000 908,000 Mortgage loan servicing fees 3,065,000 514,000 Other 2,874,000 1,138,000 ------------- ----------- TOTAL OTHER INCOME 7,020,000 2,565,000 OTHER EXPENSES Salaries and employee benefits 7,127,000 4,984,000 Net occupancy expense 2,182,000 1,572,000 Other 4,847,000 3,362,000 ------------- ----------- TOTAL OTHER EXPENSES 14,156,000 9,918,000 INCOME BEFORE INCOME TAXES 5,262,000 3,827,000 INCOME TAXES 1,777,000 1,284,000 ------------- ----------- NET INCOME $ 3,485,000 $ 2,543,000 =========== =========== Net income per common share $ .57 $ .46 =========== =========== Average common shares outstanding 6,071,327 5,586,148 =========== =========== See notes to consolidated financial statements PAGE 6 OF 37 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY CITY HOLDING COMPANY AND SUBSIDIARIES Nine Months Ended September 30, 1997 UNREALIZED GAIN/(LOSS) SECURITIES TOTAL COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS' STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY ----- ------- -------- -------- ----- ------ Balances at December 31, 1996 $13,998,000 $35,426,000 $30,246,000 $ 3,000 ($300,000) $79,373,000 Net income 9,489,000 9,489,000 Cash dividends declared ($.54/share) (3,278,000) (3,278,000) Change in unrealized gain/(loss), net of income taxes of $714,000 1,071,000 1,071,000 Exercise of 2,627 stock options 7,000 58,000 65,000 Sale of 2,511 shares of treasury stock 13,000 67,000 80,000 Purchase of 2,300 shares of treasury stock (77,000) (77,000) Acquisition of subsidiary 1,202,000 298,000 2,150,000 19,000 3,669,000 ----------- ----------- ----------- ---------- ---------- ----------- Balances at September 30, 1997 $15,207,000 $35,795,000 $38,607,000 $1,093,000 ($310,000) $90,392,000 ----------- ----------- ----------- ---------- --------- ----------- Nine Months Ended September 30, 1996 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 ----------- ----------- ----------- ---------- --------- ----------- See notes to consolidated financial statements PAGE 7 OF 37 CONSOLIDATED STATEMENTS OF CASH FLOWS CITY HOLDING COMPANY AND SUBSIDIARIES NINE MONTH PERIOD ENDED SEPTEMBER 30 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net Income $9,489,000 $7,570,000 Adjustments to reconcile net income to net cash used in operating activities: Net amortization 761,000 749,000 Provision for depreciation 3,553,000 2,494,000 Provision for loan losses 1,861,000 943,000 Realized securities gains (15,000) (68,000) Loans originated for sale (81,385,000) (91,749,000) Purchases of loans held for sale (550,125,000) (834,664,000) Proceeds from loans sold 454,838,000 884,715,000 Realized gains on loans sold (1,768,000) (688,000) (Increase) decrease in accrued interest receivable (3,013,000) 583,000 Increase in other assets (4,279,000) (1,085,000) Increase in other liabilities 3,449,000 1,668,000 ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (166,634,000) (29,532,000) INVESTING ACTIVITIES Proceeds from sales of securities available for sale 21,963,000 30,522,000 Proceeds from maturities of securities available for sale 34,672,000 41,207,000 Purchases of securities available for sale (67,226,000) (44,496,000) Proceeds from maturities of securities 1,863,000 131,026,000 Purchases of securities 0 (124,979,000) Net increase in loans (49,177,000) (25,800,000) Net cash acquired in acquisitions 9,126,000 0 Purchases of premises and equipment (3,965,000) (8,110,000) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (52,744,000) (630,000) FINANCING ACTIVITIES Net (decrease) increase in noninterest-bearing deposits (6,380,000) 3,376,000 Net increase in interest-bearing deposits 43,431,000 24,783,000 Net increase in short-term borrowings 159,279,000 4,508,000 Proceeds from long-term-debt 30,150,000 5,750,000 Exercise of stock options 65,000 0 Purchases of treasury stock (77,000) 0 Proceeds from sales of treasury stock 80,000 54,000 Cash dividends paid (3,278,000) (2,590,000) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 223,270,000 35,881,000 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 3,892,000 5,719,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47,764,000 28,460,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $51,656,000 $34,179,000 ============ =========== See notes to consolidated financial statements
PAGE 8 OF 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 1997 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, 1997, are not necessarily indicative of the results of operations that can be expected for the year ending December 31, 1997. 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. Certain amounts in the unaudited consolidated financial statements have been reclassified. Such reclassifications had no effect on operating results in any period presented. 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, 1996. PAGE 9 OF 37 NOTE B - ACQUISITIONS On October 9, 1997, City National Bank, a wholly-owned subsidiary, acquired First Allegiance Financial Corporation (First Allegiance), a mortgage loan origination company headquartered in Irvine, California. The merger involved an initial purchase price of approximately $15 million, comprising a combination of 300,000 shares of City Holding Company common stock and cash, in exchange for substantially all of the assets and liabilities of First Allegiance. Additional consideration is contingent upon the First Allegiance division satisfying certain pre-established loan production levels subsequent to the acquisition. The maximum purchase price equals approximately 23% of First Allegiance's annualized third quarter of 1997 loan volume. The acquisition will be accounted for as a purchase and is expected to be accretive to earnings per share within 12 months. The first securitization of First Allegiance's production is expected within the last quarter of 1997 or first quarter of 1998. Due to the immateriality of the impact of this transaction to the Company's consolidated financial statements, pro-forma financial statements have not been presented. On January 24, 1997, the Company consummated its acquisition of the Old National Bank of Huntington in Huntington, West Virginia (Old National). The merger involved the exchange of 480,917 shares of the Company's common stock for all of the outstanding shares of Old National. This transaction was accounted for under the pooling of interests method of accounting. However, due to the immateriality of the impact of this transaction to the Company's consolidated financial statements, prior period financial statements have not been restated. NOTE C - PENDING ACQUISITION On January 8, 1997, City National Bank, a wholly-owned subsidiary, signed a Letter of Intent to acquire RMI, Ltd., an insurance agency designed to market insurance products PAGE 10 OF 37 and services to select corporate and individual clients. It is anticipated that the transaction will be accounted for under the purchase method of accounting and will be consummated in the fourth quarter of 1997. The acquisition, subject to the negotiation of a definitive acquisition agreement, would have less than a 1% impact on the total assets or net income reported in the Company's third quarter 1997 financial statements. As a result, proforma information has not been included for the information provided herein. A director of one of the Company's subsidiaries is the President and current owner of RMI, Ltd. 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, 1997, of 35.06% 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. The effective tax rate has increased between the two nine month periods ended September 30, 1997 and 1996 due to the continued increase in taxable income combined with the decline in tax-exempt interest income. NOTE E - INVESTMENT RECLASSIFICATION In June 1997, the Company reclassified its entire held-to-maturity securities portfolio to the available-for-sale classification. The securities transferred consisted of investment securities with approximate amortized cost and market value of $46,520,000 and $46,781,000, respectively. This action was taken by the Company to provide management more flexibility in managing the Company's liquidity and interest rate risk. NOTE F - 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 PAGE 11 OF 37 in the consolidated financial statements. These commitments approximated $89,672,000 at September 30, 1997. 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 $2,887,000, have historically expired unfunded. NOTE G - NEW ACCOUNTING PRONOUNCEMENTS On January 1, 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", which requires that an entity recognize the financial and servicing assets it controls and the liabilities it has incurred and derecognize financial assets when control has been surrendered in accordance with the criteria provided in the Statement. The adoption of SFAS No. 125 did not have a material impact on the Company's financial position or results of operations during 1997. The company is further evaluating the impact it will have in 1998. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," (SFAS No. 128) which establishes new standards for computing and presenting earnings per share. SFAS No. 128 is effective for all financial statements issued subsequent to December 15, 1997. The basic and diluted earnings per share computed under SFAS No. 128 are not anticipated to be materially different from earnings per common share presented herein. Also, during 1997, the Financial Accounting Standards Board issued several other new accounting pronouncements which will become effective in 1998. These pronouncements include SFAS No. 129, "Disclosure of Information about Capital Structure"; SFAS No. 130, "Reporting Comprehensive Income"; and SFAS No. 131, "Disclosures about Segments of an PAGE 12 OF 37 Enterprise and Related Information". The Company is in the process of fully evaluating these new pronouncements and expects to adopt them in 1998 in accordance with the requirements. Such adoption is not expected to have a significant impact on the financial position or results of operations of the Company. NOTE H - LONG-TERM BORROWINGS Long-term debt consists of a $35,000,000 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 (7.5313% at September 30, 1997) due on December 31, 1997. As of September 30, 1997, the outstanding balance was equal to $29,400,000. Interest on this obligation is payable quarterly, and the Parent Company has pledged the common stock of each of its wholly-owned banking subsidiaries as collateral for the revolving credit loan. Management intends to refinance this loan according to the provisions provided in the agreement. Additionally, one banking subsidiary maintains long-term financing from the Federal Home Loan Bank (FHLB) in the form of Long-Term LIBOR Floaters as follows: Amount Interest Maturity Outstanding Rate Date ----------------------------------------------------------------- $ 10,000,000 5.60% July 2002 $ 25,000,000 5.4188% July 2002 As of September 30, 1997, the banking subsidiary has maximum available credit of approximately $103 million, which is collateralized by a blanket lien on all residential and multi-family mortgage loans, and eligible government and agency securities. PAGE 13 OF 37 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HIGHLIGHTS FINANCIAL POSITION Total assets increased $286.3 million or approximately 27.29% during the first nine months of 1997. Net loans increased $73.4 million or 10.63%. Loans held for sale, consisting primarily of loans received through the Company's participation in a whole loan purchasing program, increased $178.4 million or 193.0%. As of September 30, 1997, the whole loan purchasing program loans owned by the Company had an outstanding principal balance of approximately $240.9 million. See LOAN PORTFOLIO for further discussion. In addition, the Company earned interest income of approximately $10,249,000 on the whole loan purchasing program loans during the nine months ended September 30, 1997. See NET INTEREST INCOME for further discussion. The increase in net loans and loans held for sale was funded primarily by an increase in deposits and short-term borrowings of $81.7 million and $159.7 million, respectively. Total stockholders' equity increased $11.0 million during the first nine months of 1997 primarily due to the net income recorded during the period of $9.5 million less dividends of $3.3 million and the Company's $3.7 million acquisition of Old National. PAGE 14 OF 37 QUARTER ENDED SEPTEMBER 30, 1997, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996. The Company reported net income of $3,485,000 for the three months ended September 30, 1997 compared to net income of $2,543,000 for the quarter ended September 30, 1996. This increase of $942,000, or 37.04%, was primarily due to an increase of $4,456,000 in the Company's total other income (excluding securities transactions) during the third quarter of 1997 as compared to the same period of 1996. This increase is attributable to an additional $2.6 million in mortgage loan servicing fees and $288,000 of gain on sales of originated mortgage loans generated by the Company's mortgage servicing division, City Mortgage Services. See LOAN SERVICING. In addition, the Company recognized a $1 million gain on loan sales under the whole loan purchasing program and a $550,000 gain on the sale of City Mortgage Corporation. Non-interest expenses increased $4,238,000 or 42.73% during the third quarter of 1997 as compared to the same period of 1996, primarily due to the Company's expansion of its mortgage servicing division. City Mortgage Services incurred $2.0 million in expenses, which includes $1.2 million in personnel costs, in comparison to $364,000 in expenses for the same period of 1996. In addition, 1997 non-interest expenses include $441,000 in expenses incurred by Old National. Because prior periods were not restated for this acquisition, no expenses for this new subsidiary are included in the 1996 results. With the overall growth of the Company, total personnel and occupancy expenses have continued to increase approximately $1,016,000 and $140,000, respectively, excluding the impact of City Mortgage Services and Old National as previously discussed. Net income for the third quarter also benefited from an increase of $1,759,000 in the Company's net interest income during the second quarter of 1997 as compared to the same PAGE 15 OF 37 period of 1996. See NET INTEREST INCOME for further discussion. Earnings per share were $.57 and $.46 for the third quarter of 1997 and 1996, respectively. NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996. The Company reported net income of $9,489,000 for the nine months ended September 30, 1997 compared to net income of $7,570,000 for the nine months ended September 30, 1996. This increase of $1,919,000 or 25.35%, was primarily due to an increase of $10,496,000 in the Company's total other income (excluding securities transactions) during the first nine months of 1997 as compared to the same period of 1996. This increase is attributable to an additional $7.4 million in mortgage loan servicing fees and $845,000 of gain on sales of originated mortgage loans. In addition, the Company recognized a $1 million gain on the sale of Title I loans and a $550,000 gain on the sale of City Mortgage Corporation. The Company also generated increased service charges and credit card fees of $471,000 and $211,000, respectively. Non-interest expenses increased $10,045,000 or 34.28% during the first nine months of 1997 as compared to the same period of 1996, primarily due to the Company's expansion of its mortgage servicing division. City Mortgage Services incurred $5.7 million in expenses in comparison to $364,000 in expenses for the same period of 1996. In addition, non-interest expenses include $1,124,000 in expenses incurred by Old National with no expenses for this new subsidiary included in the 1996 results. Due to the overall growth of the Company, personnel costs increased $5.7 million, which includes $3.4 million for City Mortgage Services and $521,000 for Old National. Additionally, occupancy expenses increased $1,740,000 between PAGE 16 OF 37 the two periods, which includes $799,000 for City Mortgage Services and $307,000 for Old National Bank. Net income for the first nine months also benefitted from an increase of $3,751,000 in the Company's net interest income during the first nine months of 1997 as compared to the same period of 1996. Earnings per share were $1.56 and $1.36 for the nine months ended September 30, 1997 and 1996, respectively. SELECTED RATIOS The return on average assets (ROA) for the third quarter of 1997 was 1.15% compared to .94% in the third quarter of 1996. The return on average shareholder's equity (ROE) for the third quarter of 1997 was 15.46% compared to 13.13% ROE for the third quarter of 1996. For the nine months of 1997, ROA was 1.08% compared to .94% for the nine months ended 1996. ROE was 14.49% and 13.32% for the first nine months of 1997 and 1996, respectively. The dividend payout ratio of 31.58% for the quarter ended September 30, 1997 represents a decrease of 6.29% from the dividend payout ratio of 33.70% for the quarter ended September 30, 1996. The dividend payout ratio was 34.62% and 34.19% for the nine months ended September 30, 1997 and 1996, respectively. Since 1988, the Company has paid dividends on a quarterly basis, and expects to continue to do so in the future. PAGE 17 OF 37 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 1997 1996 --------- -------- Commercial, financial and agricultural $ 242,368 $ 224,267 Real Estate-Mortgage 354,728 312,421 Real Estate-Construction 28,032 25,964 Installment and other 155,040 142,123 Unearned Income (7,831) (6,793) --------- -------- TOTAL $772,337 $697,982 --------- -------- Loans Held for Sale Program Loans $ 240,869 $ 37,043 Loans Originated for Sale 30,043 55,429 --------- -------- TOTAL $ 270,912 $ 92,472 ========= ======== The Company continues to grant loans to customers generally within the market areas of its subsidiaries. However, with the acquisition of First Allegiance in the fourth quarter of 1997, the Company will begin to originate junior lien mortgage loans on a nationwide level. Currently, First Allegiance is conducting business in 30 states across the country. First Allegiance will generally originate higher loan-to-value debt consolidation loans and other junior lien mortgage loans. Similarly, the Company's banking subsidiaries will also begin to offer such products in their respective markets. These loans are expected to either be securitized by the Company or sold within 90-180 days to independent third parties. In November 1996, the Company restructured its whole loan purchasing program and began purchasing the loans directly from loan originators. As a result of this restructuring, the Company currently earns the stated note rate of the loans (a weighted average of 13.07% at PAGE 18 OF 37 September 30, 1997) during the 30 to 90 days that the loans typically are held by the Company. Prior to restructuring, the Company received interest income on the loans pursuant to established loan purchasing agreements with rate sharing provisions. LOAN SERVICING Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. They consist primarily of FHA Title I home improvement loans and debt consolidation loans secured by second lien mortgages. The unpaid principal balances of mortgage loans serviced for others was $919,501,000 and $911,775,000 at September 30, 1997 and December 31, 1996, respectively. The unpaid principal balances of intercompany mortgage loans serviced was $207,513,000 at September 30, 1997. Mortgage loan servicing rights of $1,634,000 and $1,019,000 at September 30, 1997 and December 31, 1996, respectively, are included in other assets in the accompanying balance sheets. Amortization of mortgage loan servicing rights approximated $246,000 and $210,000 during the nine months ended September 30, 1997 and September 30, 1996, respectively. ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES The following table summarizes the Company's risk elements for the periods ending September 30, 1997 and December 31, 1996. The Company's coverage ratio of nonperforming assets and potential problem loans continues to be strong at 95% as of September 30, 1997. With the increased return on investment earned under the restructured whole loan purchasing program, there is also an increase in the risk of loss due to delinquencies and PAGE 19 OF 37 uncollectibility. As a result, management has increased its 1997 provision for possible loan losses to provide for potentially uncollectible loans inherent in the pools of loans acquired in this program. As of September 30, 1997, accruing loans past due 90 days or more increased $2.3 million since the period ended December 31, 1996 primarily due to the increase of $203.8 million in loans purchased under the whole loan purchasing program. The decrease in the coverage ratio of nonperforming assets and potential problem loans decreased due to the significant increase in purchases. Under the whole loan purchasing program, FHA Title I loans are insured up to 90% subject to the availability of FHA reserves. Upon claim payment under the FHA Title I program of such loans, in addition to the insured principal payment, accrued interest is paid for the period between default date and claim file date at the note rate for the first 30 days and 7% thereafter, up to a maximum of 270 days. Management is of the opinion that the allowance for loan losses is adequate to provide for probable future losses inherent in the portfolio. PAGE 20 OF 37 RISK ELEMENTS (in thousands) Nine Months Ended Year Ended September 30 December 31 1997 1996 ----- ----- ALLOWANCE FOR LOAN LOSSES Balance at beginning of period $7,281 $6,566 Charge-offs (1,406) (1,375) Recoveries 300 412 ----- ----- Net charge-offs (1,106) (963) Provision for loan possible losses 1,861 1,678 Balance of acquired subsidiary 210 0 ----- ----- Balance at end of period $8,246 $7,281 ====== ====== AS A PERCENT OF AVERAGE TOTAL LOANS Net charge-offs 0.15% 0.14% Provision for possible loan losses 0.25% 0.25% Allowance for loan losses 1.10% 1.09% September 30 December 31 1997 1996 ----- ----- NON -PERFORMING ASSETS Other real estate owned $1,189 $1,054 Non-accrual loans 2,059 1,734 Accruing loans past due 90 days or more 4,952 2,674 Restructured loans 306 235 ----- ----- Total Non-performing Assets $8,506 $5,697 POTENTIAL PROBLEM LOANS $213 $235 AS A PERCENT OF NON-PERFORMING ASSETS AND POTENTIAL PROBLEM LOANS Allowance for loan losses 94.58% 122.74% ACCRUING LOANS PAST DUE 90 DAYS OR MORE AS A PERCENT OF AVERAGE TOTAL LOANS 0.66% 0.40% PAGE 21 OF 37 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 for loans originated for sale and purchases of loans held for sale. Net cash was used in investing activities during the third quarter of 1997 due primarily to funding the Company's loan growth and the purchase of securities. Net cash was 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. In the third quarter of 1997, financing activities also provided cash due to the increase in short-term borrowings to fund the loan growth. 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, 1997, the one year period shows a negative gap (liability sensitive) of $362 million. This analysis is a "static gap" presentation and movements in deposit rates offered by the Company's subsidiary banks lag behind movements in market rates. 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 PAGE 22 OF 37 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 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 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. After management adjustments, the table shows a negative gap in the one year period of $135 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 1997. 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. The Company's net interest margin is effected by a number of factors, including economic conditions generally, the level of the Company's participation in its whole loan purchasing program, Federal Reserve Board economic policies, demand for loans and deposits, PAGE 23 OF 37 and competition with other financial institutions. Changes in any of these factors could reduce the Company's net interest margin. There are no known trends, demands, commitments or uncertainties that have resulted or are reasonably likely to result in material changes in liquidity. 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 $170,526 $113,661 $396,820 $ 97,102 $778,109 Loans held for sale 270,912 0 0 0 270,912 Securities 31,605 24,787 99,619 30,603 186,614 Federal funds sold 74 0 0 0 74 -------- -------- -------- -------- ---------- Total interest earning assets $473,117 $138,448 $496,439 $127,705 $1,235,709 -------- -------- -------- -------- ---------- LIABILITIES Savings and NOW Accounts 361,468 0 0 0 361,468 All other interest bearing deposits 103,339 194,559 123,085 587 421,570 Short term and other borrowings 250,018 0 0 0 250,018 Long term borrowings 64,400 0 0 0 64,400 -------- -------- -------- -------- ---------- Total interest bearing liabilities $779,225 $194,559 $123,085 $ 587 $1,097,456 -------- -------- -------- -------- ---------- Interest sensitivity gap ($306,108) ($ 56,111) $373,354 $127,118 $138,253 -------- -------- -------- -------- ---------- Cumulative sensitivity gap ($306,108) ($362,219) $ 11,135 $138,253 ======== ======== ======== ======== Management adjustments $346,655 ($119,867) ($215,213) ($ 11,575) -------- -------- -------- -------- Cumulative management adjusted gap $ 40,547 ($135,431) $ 22,710 $ 138,253 ======== ======== ======== ========
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 24 OF 37 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, 1997, the regulatory minimum ratio of qualified total capital to risk-weighted 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 25 OF 37 Dollars in Thousands September 30 December 31 1997 1996 ---- ---- Capital Components Tier 1 risk-based capital $83,530 $72,157 Total risk-based capital 91,776 79,439 Capital Ratios Tier 1 risk-based 8.67% 10.20% Total risk-based 9.52% 11.23% Leverage 6.93% 6.58% Regulatory Minimum Tier 1 risk-based (dollar/ratio) $38,542/4.00% $28,290/4.00% Total risk-based (dollar/ratio) 77,084/8.00 56,579/8.00 Leverage (dollar/ratio) 48,238/4.00 43,872/4.00 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. As of September 30, 1997, the ratios reflect the effect of the Company's increased participation in the whole loan purchasing program. The balance of the whole loan purchasing program loans (which are 100% risk-weighted) were $240,869,000 and $37,043,000 at September 30, 1997 and December 31, 1996, respectively. See LOAN PORTFOLIO. The Company does not anticipate any material capital expenditures in 1997. The continued expansion of the Company's Operations Center and mortgage loan servicing division will be funded by the Company's long-term debt. See NOTE H for further discussion. Earnings from subsidiary bank operations are expected to remain adequate to fund payment of stockholders' PAGE 26 OF 37 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. NET INTEREST INCOME Net interest income, on a fully federal tax-equivalent basis, improved from the third quarter of 1996 to the third quarter of 1997 by approximately $1,745,000 due to an increase in net earning assets. Net yield on earning assets increased between the respective periods from 4.69% to 4.79%. Earning asset yields increased 23 basis points (100 basis points equal one percent) to 8.85%, and the cost of interest-bearing liabilities increased 18 basis points to 4.68%. The $2,716,000 decrease in net interest income due to a change in the rate, as shown in the following table, was coupled with a $4,461,000 increase in net interest income due to a change in the volume. The major component of this favorable volume change was increased average loans. Net interest income, on a fully federal tax-equivalent basis, improved from the nine months ended September 30, 1996 to the nine months ended September 30, 1997 by approximately $3,707,000 due to an increase in net earning assets. Net yield on earning assets increased between periods from 4.79% to 4.83%, as earning asset yields increased 8 basis points to 8.75%, and the cost of interest bearing liabilities increased 8 basis points to 4.53%. The $192,000 increase in net interest income due to a change in the rate, as shown in the following table, was coupled with a $3,515,000 increase in net interest income due to a change in the volume. The major component of this favorable volume change was increased average loans. PAGE 27 OF 37 EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands)
Quarter Ended September 30 1997 1996 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------------------------------- EARNING ASSETS: Loans (1) Commercial and industrial $ 245,294 $5,606 9.14% $ 212,285 $4,905 9.24% Real estate 372,348 8,074 8.67 321,733 7,846 9.75 Consumer obligations 147,204 3,671 9.98 134,717 3,279 9.74 ---------------------------------------------------------------------------------------- Total loans 764,846 17,351 9.07 668,735 16,030 9.59 Loans held for sale 184,687 4,658 10.09 179,620 2,999 6.68 Securities Taxable 148,154 2,342 6.32 123,956 1,954 6.31 Tax-exempt (2) 34,668 709 8.18 35,595 750 8.43 ---------------------------------------------------------------------------------------- Total securities 182,822 3,051 6.68 159,551 2,704 6.78 Federal funds sold 262 4 6.11 591 7 4.74 ---------------------------------------------------------------------------------------- Total earning assets 1,132,617 25,064 8.85 1,008,497 21,740 8.62 Cash and due from banks 35,406 32,301 Bank premises and equipment 30,967 29,351 Other assets 20,285 22,740 Less: allowance for possible loan losses (7,915) (6,755) ---------------------------------------------------------------------------------------- Total assets $1,211,360 $1,086,134 ======================================================================================== INTEREST BEARING LIABILITIES Demand deposits $ 134,145 $ 1,107 3.30% $111,797 $ 766 2.74% Savings deposits 222,642 1,657 2.98 222,251 1,589 2.86 Time deposits 418,092 5,709 5.46 366,876 4,938 5.38 Short-term borrowings 162,977 2,241 5.50 156,015 2,195 5.63 Long-term debt 44,452 788 7.09 24,217 435 7.19 ---------------------------------------------------------------------------------------- Total interest-bearing liabilities 982,308 11,502 4.68 881,156 9,923 4.50 Demand deposits 126,862 115,863 Other liabilities 12,025 11,656 Stockholders' equity 90,165 77,459 ---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,211,360 $1,086,134 ======================================================================================== Net interest income $13,562 $11,817 ======================================================================================== Net yield on earning assets 4.79% 4.69% ======================================================================================== (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 28 OF 37 RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands) Quarter Ended September 30 1997 vs. 1996 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net Loans Commercial and industrial $ 1,054 $ (353) $ 701 Real estate 4,215 (3,987) 228 Consumer obligations 310 82 392 --------------------------------------------------- Total loans 5,579 (4,258) 1,321 Loans held for sale 87 1,572 1,659 Securities Taxable 383 5 388 Tax-exempt (1) (19) (22) (41) --------------------------------------------------- Total Securities 364 (17) 347 Federal funds sold (13) 10 (3) --------------------------------------------------- Total interest-earning assets $ 6,017 $ (2,693) 3,324 INTEREST EXPENSE ON: Demand deposits 169 172 341 Savings deposits 3 65 68 Time deposits 698 73 771 Short-term borrowings 294 (248) 46 Long-term debt 392 (39) 353 --------------------------------------------------- Total interest-bearing liabilities $ 1,556 $ 23 $ 1,579 --------------------------------------------------- NET INTEREST INCOME $ 4,461 $ (2,716) $ 1,745 =================================================== (1) Fully federal taxable equivalent using a tax rate of 34% in all years. PAGE 29 OF 37 EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands) Nine Months Ended September 30 1997 1996 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate EARNING ASSETS: Loans (1) Commercial and industrial $ 245,876 $16,060 8.71% $ 211,156 $14,551 9.19% Real estate 355,642 23,239 8.71 311,752 21,096 9.02 Consumer obligations 146,439 10,870 9.90 134,304 9,891 9.82 ---------------------------------------------------------------------------------------- Total loans 747,957 50,169 8.94 657,212 45,538 9.24 Loans held for sale 160,832 12,403 10.28 171,546 10,809 8.40 Securities Taxable 145,348 6,798 6.24 130,805 6,181 6.30 Tax-exempt (2) 35,236 2,185 8.27 37,808 2,314 8.16 ---------------------------------------------------------------------------------------- Total securities 180,584 8,983 6.63 168,613 8,495 6.72 Federal funds sold 1,952 63 4.30 669 26 5.18 ---------------------------------------------------------------------------------------- Total earning assets 1,091,325 71,618 8.75 998,040 64,868 8.67 Cash and due from banks 36,004 30,292 Bank premises and equipment 31,170 26,685 Other assets 19,147 22,694 Less: allowance for possible loan losses (7,719) (6,684) ---------------------------------------------------------------------------------------- Total assets $1,169,927 $1,071,027 ======================================================================================== INTEREST BEARING LIABILITIES Demand deposits $ 125,417 $ 2,824 3.00% $101,706 $ 2,309 3.03% Savings deposits 222,050 5,135 3.08 227,800 5,088 2.98 Time deposits 411,200 16,365 5.31 365,088 14,483 5.29 Short-term borrowings 146,513 5,720 5.21 152,649 5,944 5.19 Long-term debt 39,845 2,040 6.83 22,650 1,217 7.16 ---------------------------------------------------------------------------------------- Total interest-bearing liabilities 945,025 32,084 4.53 869,893 29,041 4.45 Demand deposits 126,425 115,121 Other liabilities 11,135 10,242 Stockholders' equity 87,342 75,771 ---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,169,927 $1,071,027 ======================================================================================== Net interest income $39,534 $35,827 ======================================================================================== Net yield on earning assets 4.83% 4.79% ======================================================================================== (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 30 OF 37 RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands) Nine Months Ended September 30 1997 vs. 1996 Increase (Decrease) Due to Change In: INTEREST INCOME FROM: Volume Rate Net --------------------------------------------------- Loans Commercial and industrial $ 2,682 $ (1,173) $ 1,509 Real estate 3,276 (1,133) 2,143 Consumer obligations 900 79 979 --------------------------------------------------- Total loans 6,858 (2,227) 4,631 Loans held for sale (1,060) 2,654 1,594 Securities Taxable 719 (102) 617 Tax-exempt (1) (176) 47 (129) --------------------------------------------------- Total Securities 543 (55) 488 Federal funds sold 45 (8) 37 --------------------------------------------------- Total interest-earning assets $ 6,386 364 $ 6,750 INTEREST EXPENSE ON: Demand deposits 546 (31) 515 Savings deposits (180) 227 47 Time deposits 1,835 47 1,882 Short-term borrowings (249) 25 (224) Long-term debt 919 (96) 823 --------------------------------------------------- Total interest-bearing liabilities $ 2,871 $ 172 $ 3,043 --------------------------------------------------- NET INTEREST INCOME $ 3,515 $ 192 $ 3,707 ================================================= (1) Fully federal taxable equivalent using a tax rate of 34% in all years.
PAGE 31 OF 37 Item 3. Quantitative and Qualitative - Not Applicable Disclosures and Market Risk PART II OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults Upon Seller Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on 8-K - (a) Exhibits The exhibits listed in the Exhibit Index on page 34 of this Form 10Q are filed herewith. (b) On October 10, 1997, the Company filed a form 8-K, Commission File No. 0-11733, which announced the Company's acquisition of First Allegiance Financial Corporation. PAGE 32 OF 37 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 7, 1997 By /s/ Dawn Woolsey, -------------------------------- Dawn Woolsey, Chief Accounting Officer (Principal Accounting Officer) PAGE 33 OF 37 EXHIBIT INDEX Exhibit Page Number ----------- Index - ----- 11 Computation of Earnings per Share 35 27 Financial Data Schedule for the nine months ending September 30, 1997 36 - 37 PAGE 34 OF 37 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
For the Three Months For the Nine Months Ended September 30 Ended September 30 1997 1996 1997 1996 ---- ---- ---- ---- PRIMARY: Average Shares Outstanding $ 6,071,327 $ 5,586,148 $ 6,069,669 $ 5,586,163 Net effect of the assumed exercise of stock options 18,661 0 16,691 0 ----------- ----------- ----------- ----------- TOTAL $ 6,089,988 $ 5,586,148 $ 6,086,360 $ 5,586,163 ----------- ----------- ----------- ----------- Net Income (in thousands) $ 3,485 $ 2,543 $ 9,489 $ 7,570 Per Share Amount $ .57 $ .46 $ 1.56 $ 1.36 --- --- ---- ---- FULLY DILUTED: Average Shares Outstanding $ 6,071,327 $ 5,586,148 $ 6,069,669 $ 5,586,163 Net effect of the assumed exercise of stock options 21,538 0 22,814 0 ----------- ----------- ----------- ----------- TOTAL $ 6,092,865 $ 5,586,148 $ 6,092,483 $ 5,586,163 ----------- ----------- ----------- ----------- Net Income (in thousands) $ 3,485 $ 2,543 $ 9,489 $ 7,570 Per Share Amount $ .57 $ .46 $ 1.56 $ 1.36 --- --- ---- ----
PAGE 35 OF 37 EX-27 3 ARTICLE 9 FDS FOR 10-Q
9 1,000 9-MOS DEC-31-1997 SEP-30-1997 51,582 0 74 0 186,614 0 0 772,337 8,246 1,335,063 910,346 250,018 19,907 64,400 15,207 0 0 75,185 1,335,063 62,572 8,240 63 70,875 24,324 32,084 38,791 1,861 15 39,348 14,611 0 0 0 9,489 1.56 1.56 4.79 2,059 4,952 306 213 7,281 1,406 300 8,246 0 0 0
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