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
March 31, 1995 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 May 5, 1995:
Common Stock, $2.50 Par Value -- 3,777,933 shares
THIS REPORT CONTAINS 26 PAGES.
EXHIBIT INDEX IS LOCATED ON PAGE 25 .
<PAGE>
Index
City Holding Company and Subsidiaries
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated balance sheets -- March 31, 1995 (unaudited) and
December 31, 1994
Consolidated Statements of Income (unaudited) -- Three months
ended March 31, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) -- Three months ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows (unaudited) --Three
months ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements (unaudited) --
March 31, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
Item I. MARCH 31 DECEMBER 31
1995 1994
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,036,000 $ 27,591,000
Securities available for sale, at fair value 68,134,000 67,920,000
Investment securities (approximate market values:
March 31, 1995--$120,552,000; December 31, 1994--$123,995,000) 122,579,000 128,457,000
Loans
Gross loans 537,147,000 504,956,000
Unearned income (9,076,000) (9,544,000)
Allowance for possible loan losses (6,040,000) (6,017,000)
NET LOANS 522,031,000 489,395,000
Loans held for sale 44,833,000 30,227,000
Bank premises and equipment 18,432,000 17,678,000
Accrued interest receivable 5,643,000 5,922,000
Other assets 12,949,000 13,336,000
TOTAL ASSETS $ 815,637,000 $ 780,526,000
LIABILITIES
Deposits:
Noninterest-bearing $ 81,424,000 $ 80,694,000
Interest-bearing 574,542,000 570,570,000
TOTAL DEPOSITS 655,966,000 651,264,000
Short-term borrowings 88,796,000 57,483,000
Long-term debt 4,825,000 6,875,000
Other liabilities 7,069,000 8,035,000
TOTAL LIABILITIES 756,656,000 723,657,000
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
3,779,818 shares as of March 31, 1995 and
December 31, 1994, including 1,885 shares in
treasury at March 31, 1995. 9,451,000 9,451,000
Capital Surplus 18,887,000 18,887,000
Retained Earnings 31,750,000 30,605,000
Cost of common stock in treasury (53,000) NONE
Net unrealized loss on securities available for sale,
net of deferred income taxes (1,054,000) (2,074,000)
TOTAL STOCKHOLDERS' EQUITY 58,981,000 56,869,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 815,637,000 $ 780,526,000
</TABLE>
See notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTH PERIOD ENDED
March 31
1995 1994
INTEREST INCOME
Interest and fees on loans $ 11,726,000 $ 8,985,000
Interest and dividends on securities:
Taxable 2,639,000 3,135,000
Tax-exempt 420,000 447,000
Other interest income 0 98,000
TOTAL INTEREST INCOME 14,785,000 12,665,000
INTEREST EXPENSE
Interest on deposits 5,369,000 4,889,000
Interest on short-term borrowings 799,000 109,000
Interest on long-term debt 130,000 97,000
TOTAL INTEREST EXPENSE 6,298,000 5,095,000
NET INTEREST INCOME 8,487,000 7,570,000
PROVISION FOR POSSIBLE LOAN LOSSES 183,000 201,000
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 8,304,000 7,369,000
OTHER INCOME
Securities gains(losses) 3,000 69,000
Service charges 620,000 498,000
Other 472,000 318,000
TOTAL OTHER INCOME 1,095,000 885,000
OTHER EXPENSES
Salaries and employee benefits 3,565,000 3,024,000
Net occupancy expense 1,093,000 969,000
Other 2,184,000 1,837,000
TOTAL OTHER EXPENSES 6,842,000 5,830,000
INCOME BEFORE INCOME TAXES 2,557,000 2,424,000
INCOME TAXES 813,000 766,000
NET INCOME $ 1,744,000 $ 1,658,000
Net income per common share $ .46 $ .44
Average common shares outstanding 3,778,965 3,772,006
See notes to consolidated financial statements
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
Three months Ended March 31, 1995
<CAPTION>
NET
UNREALIZED
GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balances
at December 31, 1994 $9,451,000 $18,887,000 $30,605,000 ($2,074,000) 0 $56,869,000
Net income 1,744,000 1,744,000
Cash dividends
declared ($.16/share) (599,000) (599,000)
Change in unrealized gain/(loss)
net of income taxes of $719,000 1,020,000 1,020,000
Cost of 2,313 shares of
common stock acquired
for treasury (65,000) (65,000)
Issuance of 428 shares
of treasury stock 12,000 12,000
Balances
at March 31, 1995 $9,451,000 $18,887,000 $31,750,000 $(1,054,000) ($53,000) $58,981,000
Three months Ended March 31, 1994
<CAPTION>
NET
UNREALIZED
GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balances
at December 31, 1993 $8,846,000 $13,999,000 $35,222,000 ($23,000) ($2,210,000) $55,834,000
Net income 1,658,000 1,658,000
Cash dividends
declared ($.15/share) (476,000) (476,000)
Adjustment to beginning balance
of unrealized gain on securities
for change in accounting method,
net of income taxes of $704,000 1,055,000 1,055,000
Changes in net unrealized
gain/(loss), net of income
taxes of $597,000 (905,000) (905,000)
Issuance of 1,053 shares of
treasury stock 5,000 25,000 30,000
Balances
at March 31, 1994 $8,846,000 $14,004,000 $36,404,000 $ 127,000 ($2,185,000) $57,196,000
</TABLE>
See notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $1,744,000 $1,658,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization 236,000 237,000
Provision for depreciation 534,000 389,000
Provision for loan losses 183,000 201,000
Realized securities gains (3,000) (69,000)
Loan originated for sale (9,114,000) (2,418,000)
Purchases of loans held for sale (43,448,000) (15,861,000)
Proceeds from loans sold 37,998,000 0
Realized gains on loans sold (42,000) 0
Minority interest in income of subsidiary 0 17,000
Decrease (increase) in accrued interest receivable 279,000 (85,000)
Increase in other assets (444,000) (1,233,000)
Decrease (increase) in other liabilities (966,000) 425,000
NET CASH USED IN OPERATING ACTIVITIES (13,043,000) (16,739,000)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 10,533,000 3,305,000
Proceeds from maturities of securities available for sale 2,325,000 10,656,000
Purchases of securities available for sale (11,273,000) (9,074,000)
Proceeds from sales of securities 3,000,000 0
Proceeds from maturities of securities 3,697,000 56,722,000
Purchases of securities (1,000,000) (48,330,000)
Net increase in loans (32,819,000) (4,953,000)
Purchases of premises and equipment (1,288,000) (541,000)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (26,825,000) 7,785,000
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits 730,000 2,027,000
Net increase in interest-bearing deposits 3,972,000 13,519,000
Net increase (decrease) in short-term borrowings 31,313,000 (5,089,000)
Proceeds from long-term-debt 2,150,000 0
Repayment of long-term debt (4,200,000) 0
Purchases of treasury stock (65,000) 0
Proceeds from sales of treasury stock 12,000 30,000
Cash dividends paid (599,000) (476,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,313,000 10,011,000
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,555,000) 1,057,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,591,000 27,436,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,036,000 $28,493,000
</TABLE>
See notes to consolidated financial statement
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1995
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 three months ended March 31, 1995, are not necessarily indicative of the
results of operations that can be expected for the year ending December 31,
1995. 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. 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, 1994.
NOTE B - INCOME TAXES
The consolidated provision for income taxes is based upon
financial statement earnings. The effective tax rate for the three months
ended March 31, 1995, of 31.80% 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 C - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various
commitments and contingent liabilities, such as commitments to extend credit
and standby letters of credit, that are not included in the consolidated
financial statements. These commitments approximate $49,248,000 at March 31,
1995. 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
$3,662,000, have historically expired unfunded.
NOTE D - STOCKHOLDERS' EQUITY
In April 1994, the Company announced the implementation of an
Open Market Stock Purchase Plan (the Plan). The Board of Directors allocated
$5 million to be used over the next two years to purchase shares of the
Company's common stock. The Plan was authorized to commence May 1, 1994.
The Plan as of March 31, 1995 has not reacquired a material number of shares.
NOTE E - ACCOUNTING PRONOUNCEMENT WITH DELAYED EFFECTIVE DATE
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 114, "Accounting by Creditors for Impairment
of a Loan", which requires that impaired loans be identified and measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate on the fair value of the collateral if the
loan is collateral dependent. FAS No. 114 did not have a material impact on
the Company's financial position or results of operations.
NOTE F - PENDING MERGER
In March 1995, the Company signed a definitive agreement to
acquire First Merchants Bancorp, Montgomery, West Virginia (Merchants). At
March 31, 1995, Merchants reported total assets of approximately $108
million. Under the definitive agreement signed by the parties, Merchants
shareholders will receive 1.60 shares of the Company's common stock for each
share of Merchants' 576,000 outstanding shares. 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 third
quarter of 1995. The following condensed unaudited proforma financial
information presents selected balance sheet amounts and operating results of
the Company and Merchants as though they had been combined during all periods
indicated below.
(In thousands, except per share data)
December 31 March 31 March 31
1994 1995 1994
AT PERIOD END
Net loans $547,809 $573,225 $469,860
Total deposits 746,805 751,005 728,676
Total assets 895,817 923,783 830,187
SUMMARY OF OPERATIONS Year Ended Three months
December 31 March 31
1994 1995 1994
Net interest income $ 37,594 $ 9,707 $ 8,685
Net income 8,142 2,040 1,906
Net income per common share 1.74 .43 .41
NOTE G - LONG-TERM BORROWINGS
Long-term debt consists of a $10,000,000 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
(8.00% at March 31, 1995) due on June 30, 1995. The lender has the option to
extend the maturity date for an additional twelve months. As of March 31,
1995, the outstanding balance was equal to $4,825,000. Interest on this
obligation is payable quarterly, and the Parent Company has pledged the
common stock of The City National Bank of Charleston and the Peoples Bank of
Point Pleasant as security for the loan. Management intends to refinance
this loan according to the provisions provided in the agreement.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENT
On March 14, 1995, the Company agreed to acquire First Merchants
Bancorp ("Merchants"), the parent company of First Merchants National Bank
("First Merchants"). At March 31, 1995, Merchants operated five branches in
West Virginia and had total assets of approximately $108 million, total
deposits of $95 million and stockholders' equity of approximately $10
million. For additional information with respect to the acquisition,
including summary pro forma financial information, see Note F, Pending
Merger, to the Company's financial statements included herein.
With the acquisition of Merchants and First Merchants, the Company
continues to implement its strategy of building shareholder value by
combining with healthy institutions in attractive markets.
HIGHLIGHTS
FINANCIAL POSITION
Total assets increased $35.1 million or approximately 4.5% during
the first three months of 1995. Net loans increased $32.6 million or 6.7%.
Loans held for sale, consisting primarily of loans received through the
Company's participation in a short-term whole loan bulk purchasing program,
increased $14.6 million or 48%. As of March 31, 1995, program loans owned by
the Company had an outstanding principal balance of approximately $34.6
million. See LOAN PORTFOLIO. The Company earned interest income of
approximately $394,000 on program loans during the first quarter of 1995.
See NET INTEREST INCOME. The increases in net loans and loans held for sale
were funded by an increase in short-term borrowings of $31.3 million Net
stockholders' equity increased $2.1 million during the first three months of
1995 representing the Company's retained net profits, plus the $1 million
change in the net unrealized loss on securities available for sale.
QUARTER ENDED MARCH 31, 1995, COMPARED TO QUARTER ENDED MARCH 31, 1994.
The Company reported net income of $1,744,000 for the three months
ended March 31, 1995 compared to net income of $1,658,000 for the quarter
ended March 31, 1994. This increase of $86,000, or 5.19%, was primarily due
to an increase of $916,000 in the Company's net interest income during the
first quarter of 1995 as compared to the same period of 1994. However, the
increase in net interest income did not translate into a corresponding
increase in net income because of the level of non-interest expense
associated with Company expansion, which increased $1,012,000 or 17% during
the first quarter of 1995 as compared to the same period of 1994. See NET
INTEREST INCOME for further discussion. Earnings per share were $.46 and
$.44 for the first quarter of 1995 and 1994, respectively.
Total other income, excluding securities transactions, increased
$276,000 or 34% primarily due to fees generated from increased loan volume
and return item fees on deposits collected through the ordinary course of
business.
SELECTED RATIOS
The return on average assets (ROA) for the first quarter of 1995 was
.89% compared to .93% in the first quarter of 1994. The return on average
shareholder's equity (ROE) for the first quarter of 1995 was 12.33% compared
to 11.59% ROE for the first quarter of 1994.
The dividend payout ratio of 34.78% for the quarter ended March 31,
1995 represents a slight increase of 2.02% from the quarter ended March 31,
1994. 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)
March 31 December 31
1995 1994
Commercial, financial and
agricultural $160,587 $137,425
Real Estate-Mortgage 230,545 223,113
Real Estate-Construction 17,123 15,118
Installment and other 128,892 129,300
Unearned Income (9,076) (9,544)
TOTAL $528,071 $495,412
Loans Held for Sale
Program loans $ 34,554 $ 22,379
Loans Originated for Sale 10,279 7,848
TOTAL $ 44,833 $ 30,227
The Company grants loans to customers generally within the
market areas of its subsidiaries. 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. 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.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the Company's risk elements for
the periods ending March 31, 1995 and December 31, 1994. The Company's
coverage ratio of nonperforming assets and potential problem loans continues
to be strong, at 135% as of March 31, 1995.
Management is of the opinion that the allowance for loan
losses is adequate to provide for probable future losses inherent in the
portfolio.
<PAGE>
RISK ELEMENTS
(in thousands)
Three months
Ended Year Ended
March 31 December 31
1995 1994
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $6,017 $ 5,764
Charge-offs (272) (1,093)
Recoveries 112 393
Net charge-offs (160) (700)
Provision for loan possible losses 183 953
Balance at end of period $6,040 $6,017
AS A PERCENT OF AVERAGE TOTAL LOANS
Net charge-offs 0.03% 0.16%
Provision for possible loan losses 0.04% 0.21%
Allowance for loan losses 1.19% 1.34%
March 31 December 31
1995 1994
NON -PERFORMING ASSETS
Other real estate owned $867 $679
Non-accrual loans 1,811 2,600
Accruing loans past due 90 days
or more 1,028 1,218
Restructured loans 260 472
Total Non-performing Assets $3,966 $4,969
POTENTIAL PROBLEM LOANS $521 $529
AS A PERCENT OF NON-PERFORMING ASSETS
AND POTENTIAL PROBLEM LOANS
Allowance for loan losses 134.61% 109.44%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AS A PERCENT OF AVERAGE TOTAL LOANS 0.20% 0.27%
<PAGE>
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 purchase of
loans held for sale. Net cash was used in investing activities during the
first quarter of 1995 funding the Company's loan growth. Net cash was
provided by investing activities during the first quarter of 1994 due to
maturing investment securities. The net cash provided by financing
activities in the respective periods is a result of an increase in interest-
bearing deposits and 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 March 31,
1995, the one year period shows a negative gap (liability sensitive) of $318
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 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 $134 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
1995. 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. In any event, the Company is working to increase the repricing
frequency of interest-earning assets, particularly through variable-rate loan
products, to achieve a less volatile gap position.
There are no known trends, demands, commitments or
uncertainties that have resulted or are reasonably likely to result in
material changes in liquidity.
<PAGE>
INTEREST RATE SENSITIVITY GAPS
(in thousands)
<TABLE>
1 to 3 3 to 12 1 to 5 Over 5
Months Months Years Years Total
<S> <C> <C> <C> <C> <C>
ASSETS
Gross loans $127,426 $59,731 $262,274 $85,905 $535,336
Loans held for sale 44,833 0 0 0 44,833
Securities 17,739 17,328 100,945 54,701 190,713
Total Interest earning assets 189,998 77,059 363,219 140,606 770,882
LIABILITIES
Savings and NOW Accounts 294,495 0 0 0 294,495
All other interest bearing deposits 72,460 124,058 81,817 1,712 280,047
Short term and other borrowings 88,796 0 0 0 88,796
Long term borrowings 4,825 0 0 0 4,825
Total interest bearing liabilities $460,576 $124,058 $ 81,817 $ 1,712 $668,163
Interest sensitivity gap ($270,578) ($46,999) $281,402 $138,894 $102,719
Cumulative sensitivity gap ($270,578) ($317,577) ($36,175) $102,719
Management adjustments $254,114 ($70,831) ($173,330) ($9,953)
Cumulative management adjusted gap ($ 16,464) ($134,294) ($26,222) $102,719
</TABLE>
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>
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
March 31, 1995, 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:
Dollars in Thousands
March 31 December 31
1995 1994
Capital Components
Tier 1 risk-based capital $53,753 $52,408
Total risk-based capital 59,793 58,425
Capital Ratios
Tier 1 risk-based 10.16% 10.65%
Total risk-based 11.30 11.88
Leverage 6.94 6.65
Regulatory Minimum
Tier 1 risk-based (dollar/ratio) $21,161/4.00% $19,677/4.00%
Total risk-based (dollar/ratio) 42,323/8.00 39,354/8.00
Leverage (dollar/ratio) 23,222/3.00 23,628/3.00
The capital position of the Company is indicative of
management's emphasis on asset quality and a history of retaining between 60%
and 70% of annual 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 1995. Earnings from subsidiary bank operations are expected
to remain adequate to fund payment of stockholders' dividends and internal
growth. In management's opinion, subsidiary banks have the capability to
upstream sufficient dividends to meet the cash requirements of the Company.
NET INTEREST INCOME
Net interest income, on a fully federal tax-equivalent basis,
improved from the first quarter of 1994 to the first quarter of 1995 by
approximately $902,000 due to an increase in net earning assets. Net yield
on earning assets increased between periods from 4.69% to 4.79%, as earning
asset yields increased 49 basis points (100 basis points equal one percent)
to 8.25%, and the cost of interest-bearing liabilities increased 45 basis
points to 3.97%. The $170,000 increase in net interest income due to rate,
as shown in the following table, was coupled with a $732,000 increase in net
interest income due to volume. The major component of this favorable volume
change was increased average loans.
A significant part of the increase in net earning assets for
the first quarter of 1995 is attributable to the Company's participation in
a short-term, whole-loan bulk purchasing program. Under the program, the
Company purchases from a third party whole loans secured by residential
mortgages and insured by an agency of the United States government. 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-performing loans. The loans are
generally repurchased from the Company within 30 to 90 days. Although the
loans usually are located outside the Company's primary market areas,
management believes that these loans pose no greater risk than similar
inmarket loans because of the Company's review of the loans, the credit
support associated with the loans, the short duration of the Company's
investment and the other terms of the program. The loans are serviced by
third parties and the Company earns a fixed rate of return on the loans. The
Company earned approximately $394,000 in interest income on program loans
for the quarter ended March 31, 1995. These loans are being funded through
short-term borrowings which consist primarily of securities sold under
agreement to repurchase.
<PAGE>
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1995 1994
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans (1)
Commercial and industrial $ 150,422 $3,360 8.93% $ 126,838 $2,541 8.01%
Real estate 240,651 4,945 8.22 187,675 3,870 8.25
Consumer obligations 117,484 2,848 9.70 101,446 2,518 9.93
Total loans 508,557 11,153 8.77 415,959 8,929 8.59
Loans held for sale 25,894 573 8.85 3,455 56 6.48
Securities
Taxable 162,414 2,639 6.50 202,634 3,135 6.19
Tax-exempt (2) 30,205 637 8.44 30,652 679 8.86
Total securities 192,619 3,276 6.80 233,286 3,814 6.54
Federal funds sold 12,146 98 3.23
Total earning assets 727,070 15,002 8.25 664,846 12,897 7.76
Cash and due from banks 21,494 21,271
Bank premises and equipment 18,220 15,354
Other assets 19,229 14,584
Less: allowance for possible
loan losses (5,955) (5,851)
Total assets $780,058 $710,204
INTEREST BEARING LIABILITIES
Demand deposits $ 91,618 $ 686 3.00% $ 89,732$ 603 2.69%
Savings deposits 207,657 1,563 3.01 218,228 1,702 3.12
Time deposits 270,943 3,120 4.61 247,415 2,584 4.18
Short-term borrowings 57,707 799 5.54 17,313 109 2.52
Long-term debt 7,201 130 7.22 5,875 97 6.60
Total interest-bearing liabilities 635,126 6,298 3.97 578,563 5,095 3.52
Demand deposits 80,728 67,747
Other liabilities 7,613 6,574
Stockholders' equity 56,591 57,320
Total liabilities and
stockholders' equity $780,058 $710,204
Net interest income $8,704 $7,802
Net yield on earning assets 4.79% 4.69%
</TABLE>
(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>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
Quarter Ended
March 31
1995 VS. 1994
Increase (Decrease)
Due to Change In:
INTEREST INCOME FROM: Volume Rate Net
Loans
Commercial and industrial $ 506 $ 313 $ 819
Real estate 1,169 (94) 1,075
Consumer obligations 697 (367) 330
Total loans 2,372 (148) 2,224
Loans held for sale 489 28 517
Securities
Taxable (1,401) 905 (496)
Tax-exempt (1) (10) (32) (42)
Total Securities (1,411) 873 (538)
Federal funds sold (49) (49) (98)
Total interest-earning assets $ 1,401 $ 704 $ 2,105
INTEREST EXPENSE ON:
Demand deposits 13 70 83
Savings deposits (81) (58) (139)
Time deposits 258 278 536
Short-term borrowings 456 234 690
Long-term debt 23 10 33
Total interest-bearing liabilities $669 $ 534 $ 1,203
NET INTEREST INCOME $ 732 $ 170 $ 902
(1) Fully federal taxable equivalent using a tax rate of 34% in all years.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Seller Securities - Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K -
(a) Exhibits
10.1 Agreement and Plan of Reorganization, dated as
of March 14, 1995, among City Holding Company,
First Merchants Bancorp, Inc. and Merchants
National Bank (attached as Annex I to the
Proxy Statement/Prospectus filed by the
Company with the Commission on April 14, 1995,
in connection with the Company's Registration
Statement on Form S-4 (file no. 33-58647) and
incorporated by reference herein).
27 Financial Data Schedule for the quarter ending
March 31, 1995.
(b) Reports on Form 8-K filed during the three months ended March
31, 1995.
1. The Company filed Form 8-Ka on February 21,
1995, reporting Pro Forma Consolidated
Financial Information relating to the Hinton
Acquisition.
<PAGE>
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
May 12, 1995 By /s/Dawn Woolsey
Dawn Woolsey,
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Index
27 Financial Data Schedule for the quarter ending March 31, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 21,036
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,134
<INVESTMENTS-CARRYING> 122,579
<INVESTMENTS-MARKET> 120,552
<LOANS> 528,071
<ALLOWANCE> 6,040
<TOTAL-ASSETS> 815,637
<DEPOSITS> 655,966
<SHORT-TERM> 88,796
<LIABILITIES-OTHER> 7,069
<LONG-TERM> 4,825
<COMMON> 9,451
0
0
<OTHER-SE> 49,530
<TOTAL-LIABILITIES-AND-EQUITY> 815,637
<INTEREST-LOAN> 11,726
<INTEREST-INVEST> 3,059
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,785
<INTEREST-DEPOSIT> 5,369
<INTEREST-EXPENSE> 6,298
<INTEREST-INCOME-NET> 8,487
<LOAN-LOSSES> 183
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 6,842
<INCOME-PRETAX> 2,557
<INCOME-PRE-EXTRAORDINARY> 1,744
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,744
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
<YIELD-ACTUAL> 4.79
<LOANS-NON> 1,811
<LOANS-PAST> 1,028
<LOANS-TROUBLED> 260
<LOANS-PROBLEM> 521
<ALLOWANCE-OPEN> 6,017
<CHARGE-OFFS> 272
<RECOVERIES> 112
<ALLOWANCE-CLOSE> 6,040
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
