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, 1997 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, 1997:
Common Stock, $2.50 Par Value -- 6,068,608 shares
THIS REPORT CONTAINS 31 PAGES.
EXHIBIT INDEX IS LOCATED ON PAGE 29.
<PAGE>
Index
City Holding Company and Subsidiaries
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1997
(unaudited) and December 31, 1996
Consolidated Statements of Income (unaudited) --
Three months ended March 31, 1997 and 1996
Consolidated Statements of Changes in Stockholders'
Equity (unaudited) -- Three months ended March 31,
1997 and 1996
Consolidated Statements of Cash Flows (unaudited)
--Three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements
(unaudited) -- March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PAGE 2 OF 31
<PAGE>
PART I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Item I. MARCH 31 DECEMBER
1997 1996
-------------- --------------
<S> <C>
ASSETS (unaudited)
Cash and due from banks $ 43,069,000 $ 47,351,000
Federal funds sold 616,000 413,000
Securities available for sale, at fair value 132,121,000 122,944,000
Investment securities (approximate market values:
March 31, 1997-$47,442,000; December 31, 1996-$41,826,000) 46,946,000 40,978,000
Loans:
Gross loans 743,959,000 704,775,000
Unearned income (8,315,000) (6,793,000)
Allowance for possible loan losses (7,629,000) (7,281,000)
-------------- --------------
NET LOANS 728,015,000 690,701,000
Loans held for sale 150,127,000 92,472,000
Bank premises and equipment 30,886,000 30,025,000
Accrued interest receivable 8,852,000 7,510,000
Other assets 17,662,000 16,216,000
-------------- --------------
TOTAL ASSETS $ 1,158,294,000 $ 1,048,810,000
============== ==============
LIABILITIES
Deposits:
Noninterest-bearing $ 136,946,000 $ 118,976,000
Interest-bearing 755,310,000 709,694,000
-------------- --------------
TOTAL DEPOSITS 892,256,000 828,670,000
Short-term borrowings 126,912,000 90,298,000
Long-term debt 36,900,000 34,250,000
Other liabilities 17,900,000 16,219,000
-------------- --------------
TOTAL LIABILITIES 1,073,968,000 969,437,000
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 and outstanding
6,079,829 and 5,598,912 shares as of March 31, 1997 and
December 31, 1996, respectively, including 11,341 shares in
treasury at March 31, 1997 and December 31, 1996. 15,200,000 13,998,000
Capital surplus 35,724,000 35,426,000
Retained earnings 34,133,000 30,246,000
Cost of common stock in treasury (300,000) (300,000)
Net unrealized (loss) gain on securities available for sale,
net of deferred income taxes (431,000) 3,000
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 84,326,000 79,373,000
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,158,294,000 $ 1,048,810,000
============== ==============
See notes to consolidated financial statements
PAGE 3 OF 31
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTH PERIOD ENDED
March 31
1997 1996
---------- ----------
INTEREST INCOME
Interest and fees on loans $ 18,656,000 $ 18,303,000
Interest and dividends on securities:
Taxable 2,167,000 2,253,000
Tax-exempt 486,000 532,000
Other interest income 56,000 5,000
----------- -----------
TOTAL INTEREST INCOME 21,365,000 21,093,000
INTEREST EXPENSE
Interest on deposits 7,704,000 7,233,000
Interest on short-term borrowings 1,262,000 2,153,000
Interest on long-term debt 592,000 297,000
----------- -----------
TOTAL INTEREST EXPENSE 9,558,000 9,683,000
NET INTEREST INCOME 11,807,000 11,410,000
PROVISION FOR POSSIBLE LOAN LOSSES 388,000 271,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 11,419,000 11,139,000
OTHER INCOME
Securities gains 28,000 61,000
Service charges 948,000 839,000
Other 4,181,000 1,013,000
----------- -----------
TOTAL OTHER INCOME 5,157,000 1,913,000
OTHER EXPENSES
Salaries and employee benefits 6,667,000 5,254,000
Net occupancy expense 1,968,000 1,370,000
Other 3,478,000 2,887,000
----------- -----------
TOTAL OTHER EXPENSES 12,113,000 9,511,000
INCOME BEFORE INCOME TAXES 4,463,000 3,541,000
INCOME TAXES 1,634,000 1,080,000
----------- -----------
NET INCOME $ 2,829,000 $ 2,461,000
=========== ===========
Net income per common share $ .47 $ .44
=========== ===========
Average common shares outstanding 6,068,488 5,586,247
=========== ===========
</TABLE>
See notes to consolidated financial statements
PAGE 4 OF 31
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
----- ------- -------- -------- ----- ------
<S> <C>
Balances
at December 31, 1996 $13,998,000 $35,426,000 $30,246,000 $3,000 ($300,000) $79,373,000
Net income 2,829,000 2,829,000
Cash dividends
declared ($.18/share) (1,092,000) (1,092,000)
Change in unrealized gain/(loss),
net of income taxes of $302,000 (453,000) (453,000)
Acquisition of subsidiary 1,202,000 298,000 2,150,000 19,000 3,669,000
----------- ----------- ----------- ---------- ---------- -----------
Balances
at March 31, 1997 $15,200,000 $35,724,000 $34,133,000 ($431,000) ($300,000) $84,326,000
----------- ----------- ----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
UNREALIZED
GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
----- ------- -------- -------- ----- ------
<S> <C>
Balances
at December 31, 1995 $12,730,000 $25,942,000 $34,432,000 $395,000 ($360,000) $73,139,000
Net income 2,461,000 2,461,000
Cash dividends
declared ($.155/share) (862,000) (862,000)
Changes in unrealized
gain/(loss), net of income
taxes of $311,000 (466,000) (466,000)
----------- ----------- ----------- --------- ----------- -----------
Balances
at March 31, 1996 $12,730,000 $25,942,000 $36,031,000 $(71,000) ($ 360,000) $74,272,000
----------- ----------- ----------- --------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
PAGE 5 OF 31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31
1997 1996
---- ----
<S> <C>
OPERATING ACTIVITIES
Net Income $2,829,000 $2,461,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization 237,000 220,000
Provision for depreciation 1,123,000 743,000
Provision for loan losses 388,000 271,000
Realized securities gains (28,000) (61,000)
Loan originated for sale (23,149,000) (25,708,000)
Purchases of loans held for sale (135,753,000) (219,599,000)
Proceeds from loans sold 101,543,000 202,535,000
Realized gains on loans sold (296,000) (268,000)
Increase in accrued interest receivable (1,052,000) (436,000)
Increase in other assets (1,048,000) (482,000)
Increase in other liabilities 1,442,000 1,196,000
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (53,764,000) (39,128,000)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 9,254,000 17,859,000
Proceeds from maturities of securities available for sale 10,209,000 20,270,000
Purchases of securities available for sale (24,566,000) (16,581,000)
Proceeds from maturities of securities 1,438,000 9,608,000
Net (increase) decrease in loans (11,628,000) 2,591,000
Net cash acquired in acquisition 9,126,000 0
Purchases of premises and equipment (840,000) (2,997,000)
-------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (7,007,000) 30,750,000
FINANCING ACTIVITIES
Net increase in non-interest bearing deposits 3,258,000 5,204,000
Net increase in interest-bearing deposits 15,703,000 10,178,000
Net increase (decrease) in short-term borrowings 36,173,000 (6,869,000)
Proceeds from long-term debt 2,650,000 3,200,000
Cash dividends paid (1,092,000) (862,000)
----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 56,692,000 10,851,000
---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,079,000) 2,473,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47,764,000 28,460,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $43,685,000 $30,933,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
PAGE 6 OF 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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 three months ended March 31,
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. 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 7 OF 31
<PAGE>
NOTE B - ACQUISITIONS
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.
On December 31, 1996, the Company acquired certain assets and
assumed certain liabilities of Prime Financial Corporation, a mortgage loan
servicing company located in Costa Mesa, California. This transaction, accounted
for under the purchase method of accounting, increased the Company's mortgage
loan servicing portfolio by $600 million. As a result of a servicing agreement
entered into by the Company, the loan servicing income and expenses of the
acquiree have been included in the Company's financial statements since
November, 1996. With this acquisition, City Mortgage Services, a mortgage loan
servicing division created during 1996, has loan servicing facilities located in
West Virginia and California.
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 and services to select corporate and
individual clients. It is anticipated that the transaction will be accounted for
under the purchase method of accounting in the third quarter of 1997. The
acquisition, subject to the negotiation of a definitive acquisition agreement,
would have less than
PAGE 8 OF 31
<PAGE>
a 1% impact on total assets and net income reported in the Company's first
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 three months ended
March 31, 1997, of 36.61% varied from the statutory federal income tax rate
primarily due to state income taxes and the tax effects of nontaxable interest
income and the amortization of goodwill.
NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various
commitments and contingent liabilities, such as commitments to extend credit and
standby letters of credit, that are not included in the consolidated financial
statements. These commitments approximate $85,928,000 at March 31, 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 $2,833,000,
have historically expired unfunded.
PAGE 9 OF 31
<PAGE>
NOTE F - 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
entities 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 is not expected to 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. SFAS No. 128 is not expected to have a material impact on
the Company's consolidated financial statements.
NOTE G - LONG-TERM BORROWINGS
Long-term debt consists of a $28,000,000 revolving line of
credit of the Parent Company with a variable rate based on the lesser of the
adjusted LIBOR rate plus 1.875% per annum or the lender's base rate less .25%
per annum (7.3125% at March 31, 1997) due on July 31, 1997. As of March 31,
1997, the outstanding balance was equal to $26,900,000. 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.
PAGE 10 OF 31
<PAGE>
Additionally, two subsidiaries maintain long-term financing from the
Federal Home Loan Bank (FHLB) in the form of Long-Term LIBOR Floaters as
follows:
Amount Amount Interest Maturity
Available Outstanding Rate Date
$5,000,000 $5,000,000 5.29% December 2002
5,000,000 5,000,000 5.29% December 2002
- ----------------------------------------------------------
PAGE 11 OF 31
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HIGHLIGHTS
FINANCIAL POSITION
Total assets increased $109 million or approximately 10.4%
during the first three months of 1997. Net loans increased $37.3 million or
5.4%. Loans held for sale, consisting primarily of loans received through the
Company's participation in a whole loan purchasing program, increased $57.7
million or 62.3%. As of March 31, 1997, program loans owned by the Company had
an outstanding principal balance of approximately $107.5 million. See LOAN
PORTFOLIO. The Company earned interest income of approximately $1,959,000 on
program loans during the first quarter of 1997. See NET INTEREST INCOME. The
increase in loans held for sale was funded primarily by the increase in deposits
of $63.6 million, plus the $36.6 million increase in short-term borrowings. Net
stockholders' equity increased $5.0 million during the first three months of
1997 representing the Company's $3.7 million acquisition of Old National and
retained net profits.
QUARTER ENDED MARCH 31, 1997, COMPARED TO QUARTER ENDED MARCH 31,
1996.
The Company reported net income of $2,829,000 for the three
months ended March 31, 1997 compared to net income of $2,461,000 for the quarter
ended March 31, 1996. This increase of $368,000, or 14.95%, was primarily due to
an increase of $3,277,000 in the
PAGE 12 OF 31
<PAGE>
Company's total other income (excluding securities transactions) during the
first quarter of 1997 as compared to the same period of 1996. This increase is
attributable to fees generated from the increase in mortgage loan servicing and
the originated mortgage servicing rights recorded in the first quarter of 1997.
Non-interest expenses increased $2,602,000 or 27.4% during the
first 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 and $146,000 in expenses related to equipment. In addition,
non-interest expenses include $328,000 in expenses incurred by Old National with
no expenses for this new subsidiary included in the 1996 results.
Net income for the first quarter also benefitted from an
increase of $397,000 in the Company's net interest income during the first
quarter of 1997 as compared to the same period of 1996. See NET INTEREST INCOME
for further discussion. Earnings per share were $.47 and $.44 for the first
quarter of 1997 and 1996, respectively.
SELECTED RATIOS
The return on average assets (ROA) for the first quarter of
1997 was 1.02% compared to 0.93% in the first quarter of 1996. The return on
average shareholder's equity (ROE) for the first quarter of 1997 was 13.39%
compared to 13.24% ROE for the first quarter of 1996.
The dividend payout ratio of 38.30% for the quarter ended
March 31, 1997 represents an increase of 8.10% from the dividend payout ratio of
35.42% for the quarter ended March 31, 1996. Since 1988, the Company has paid
dividends on a quarterly basis, and expects to continue to do so in the future.
PAGE 13 OF 31
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PAGE 14 OF 31
<PAGE>
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
1997 1996
-------- -----------
Commercial, financial and
agricultural $243,647 $224,267
Real Estate-Mortgage 319,307 312,421
Real Estate-Construction 26,814 25,964
Installment and other 154,191 142,123
Unearned Income (8,315) (6,793)
------- -------
TOTAL $735,644 $697,982
======= =======
Loans Held for Sale
Program loans $107,512 $ 37,043
Loans Originated for Sale 42,615 55,429
------- -------
TOTAL $150,127 $ 92,472
======= =======
The Company grants loans to customers generally within the
market areas of its subsidiaries. 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.
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 12.23% at
PAGE 15 OF 31
<PAGE>
March 31, 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.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the Company's risk elements for
the periods ending March 31, 1997 and December 31, 1996. The Company's coverage
ratio of non-performing assets and potential problem loans continues to be
strong, at 131% as of March 31, 1997.
As a result of the increased return on the Company's
investment in the whole loan purchasing program, 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.
Management is of the opinion that the allowance for loan
losses is adequate to provide for probable future losses inherent in the
portfolio.
PAGE 16 OF 31
<PAGE>
RISK ELEMENTS
(in thousands)
Three Months
Ended Year Ended
March 31 December 31
1997 1996
---- ----
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $7,281 $6,566
Charge-offs (410) (1,375)
Recoveries 160 412
---- ---
Net charge-offs (250) (963)
Provision for loan possible losses 388 1,678
Balance of acquired subsidiary 210 0
----- -----
Balance at end of period $7,629 $7,281
===== =====
AS A PERCENT OF AVERAGE TOTAL LOANS
Net charge-offs 0.03% 0.14%
Provision for possible loan losses 0.05% 0.25%
Allowance for loan losses 1.04% 1.09%
March 31 December 31
1997 1996
---- ----
NON -PERFORMING ASSETS
Other real estate owned $1,104 $1,054
Non-accrual loans 2,240 1,734
Accruing loans past due 90 days
or more 2,004 2,674
Restructured loans 234 235
------ ------
Total Non-performing Assets $5,582 $5,697
POTENTIAL PROBLEM LOANS $229 $235
AS A PERCENT OF NON-PERFORMING ASSETS
AND POTENTIAL PROBLEM LOANS
Allowance for loan losses 131.29% 122.74%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AS A PERCENT OF AVERAGE TOTAL LOANS 0.27% 0.40%
PAGE 17 OF 31
<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 purchases of loans held
for sale. Net cash was used in investing activities during the first quarter of
1997 funding the Company's loan growth. Net cash was provided by investing
activities during the first quarter of 1996 due primarily to maturing investment
securities. The net cash provided by financing activities in the respective
periods is a result of an increase in interest-bearing deposits. In 1997,
financing activities also provided cash due to the increase in short-term
borrowings.
The Company is satisfied with its liquidity position as it
relates to 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 seeks to reduce this risk through asset and
liability management, where the goal is to optimize the balance between earnings
and interest rate risk. The Company measures this interest rate risk through
interest sensitivity gap analysis as illustrated in the following table. At
March 31, 1997, the one year period shows a negative gap (liability sensitive)
of $321 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
PAGE 18 OF 31
<PAGE>
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 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 $103 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 19 OF 31
<PAGE>
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.
PAGE 20 OF 31
<PAGE>
INTEREST RATE SENSITIVITY GAPS
(in thousands)
<TABLE>
<CAPTION>
1 to 3 3 to 12 1 to 5 Over 5
Months Months Years Years Total
------ ------ ----- ----- -----
<S> <C>
ASSETS
Gross loans $165,662 $106,368 $374,072 $95,617 $741,719
Loans held for sale 150,127 0 0 0 150,127
Securities 23,788 26,500 98,395 30,384 179,067
Federal funds sold 616 0 0 0 616
-------- -------- -------- ------- ---------
Total interest earning assets 340,193 132,868 472,467 126,001 1,071,529
LIABILITIES
Savings and NOW Accounts 346,834 0 0 0 346,834
All other interest bearing deposits 100,012 182,978 125,091 395 408,476
Short term and other borrowings 126,912 0 0 0 126,912
Long term borrowings 36,900 0 0 0 36,900
-------- --------- --------- --------- ---------
Total interest bearing liabilities $610,658 $182,978 $125,091 $395 $919,122
-------- -------- -------- --------- --------
Interest sensitivity gap ($270,465) ($50,110) $347,376 $125,606 $152,407
--------- --------- --------- --------- --------
Cumulative sensitivity gap ($270,465) ($320,575) $26,801 $152,407
========= ========= ========= =========
Management adjustments $310,239 ($92,889) ($206,031) ($11,319)
--------- --------- --------- ---------
Cumulative management adjusted gap $ 39,774 ($103,225) $38,120 $152,407
========= ========= ========= =========
</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 21 OF 31
<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,
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 4
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 4 percent plus an
additional cushion of at 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.
PAGE 22 OF 31
<PAGE>
The following table presents comparative capital ratios and
related dollar amounts of capital for the Company:
Dollars in Thousands
March 31 December 31
1997 1996
---- ----
Capital Components
Tier 1 risk-based capital $77,195 $72,157
Total risk-based capital 84,823 79,439
Capital Ratios
Tier 1 risk-based 9.55% 10.20%
Total risk-based 10.50% 11.23%
Leverage 7.02% 6.58%
Regulatory Minimum
Tier 1 risk-based (dollar/ratio) $32,328/4.00% $28,290/4.00%
Total risk-based (dollar/ratio) 64,656/8.00 56,579/8.00
Leverage (dollar/ratio) 43,994/4.00 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.
The Company does not anticipate any material capital
expenditures in 1997. 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.
PAGE 23 OF 31
<PAGE>
NET INTEREST INCOME
Net interest income, on a fully federal tax-equivalent basis,
improved from the first quarter of 1996 to the first quarter of 1997 by
approximately $373,000 due to an increase in net earning assets. Net yield on
earning assets decreased between periods from 4.70% to 4.69%, as earning asset
yields decreased 18 basis points (100 basis points equal one percent) to 8.41%,
and the cost of interest-bearing liabilities decreased 22 basis points to 4.27%.
The $211,000 increase in net interest income due to rate, as shown in the
following table, was coupled with a $162,000 increase in net interest income due
to volume. The major component of this favorable volume change was increased
average loans.
PAGE 24 OF 31
<PAGE>
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1997 1996
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------------------
<S> <C>
EARNING ASSETS:
Loans (1)
Commercial and industrial $ 243,748 $5,117 8.40% $ 210,023 $4,853 9.24%
Real estate 341,740 7,332 8.58 304,736 6,523 8.56
Consumer obligations 144,986 3,536 9.76 134,888 3,304 9.80
----------------------------------------------------------------------------------
Total loans 730,474 15,985 8.75 649,647 14,680 9.04
Loans held for sale 114,006 2,671 9.37 161,246 3,623 8.89
Securities
Taxable 141,388 2,167 6.13 145,355 2,253 6.20
Tax-exempt (2) 35,837 736 8.21 37,975 806 8.49
----------------------------------------------------------------------------------
Total securities 177,225 2,903 6.55 183,330 3,059 6.67
Federal funds sold 6,861 56 3.26 396 5 5.05
----------------------------------------------------------------------------------
Total earning assets 1,028,566 21,615 8.41 994,619 21,367 8.59
Cash and due from banks 37,933 29,147
Bank premises and equipment 30,847 23,880
Other assets 17,133 22,770
Less: allowance for possible
loan losses (7,574) (6,610)
----------------------------------------------------------------------------------
Total assets $1,106,905 $1,063,806
==================================================================================
INTEREST BEARING LIABILITIES
Demand deposits $ 117,948 $ 897 3.04% $110,568 $ 760 2.75%
Savings deposits 221,511 1,627 2.94 208,634 1,697 3.25
Time deposits 405,148 5,180 5.11 362,832 4,776 5.27
Short-term borrowings 112,500 1,262 4.49 159,436 2,153 5.40
Long-term debt 38,108 592 6.21 21,042 297 5.65
----------------------------------------------------------------------------------
Total interest-bearing liabilities 895,215 9,558 4.27 862,512 9,683 4.49
Demand deposits 117,389 117,968
Other liabilities 9,795 8,988
Stockholders' equity 84,506 74,338
----------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,106,905 $1,063,806
==================================================================================
Net interest income $12,057 $11,684
==================================================================================
Net yield on earning assets 4.69% 4.70%
==================================================================================
</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 25 OF 31
<PAGE>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
Quarter Ended
March 31
1997 VS. 1996
Increase (Decrease)
Due to Change In:
INTEREST INCOME FROM: Volume Rate Net
Loans
Commercial and industrial $2,431 $(2,167) $264
Real estate 794 15 809
Consumer obligations 327 (95) 232
-----------------------------
Total loans 3,552 (2,247) 1,305
Loans held for sale (1,911) 959 (952)
Securities
Taxable (61) (25) (86)
Tax-exempt (1) (44) (26) (70)
Total Securities (105) (51) (156)
Federal funds sold 64 (13) 51
-----------------------------
Total interest-earning assets $1,600 $(1,352) $248
INTEREST EXPENSE ON:
Demand deposits $53 $84 $137
Savings deposits 485 (555) (70)
Time deposits 1,204 (800) 404
Short-term borrowings (566) (325) (891)
Long-term debt 262 33 295
-----------------------------
Total interest-bearing liabilities $1,438 $(1,563) $(125)
-----------------------------
NET INTEREST INCOME $162 $211 $373
=============================
(1) Fully federal taxable equivalent using a tax rate of 34% in all years.
PAGE 26 OF 31
<PAGE>
Item 3. Quantitative and Qualitative - Not Applicable
Disclosures about Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - (c) On January 21, 1997,
the Company contributed
approximately $1,567,000
to its Employees' Stock
Ownership Plan. These
funds were used to
purchase 36,974 shares of
Common Stock on the open
market which were then
credited to the accounts
of Plan participants in
transactions exempt from
registration pursuant to
Section 3(a)(2) of the
Securities Act of 1933,
as amended, and by virtue
of the fact that no
"sale" was involved in
the transaction.
Item 3. Defaults Upon Seller Securities Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K - Not Applicable
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1997.
PAGE 27 OF 31
<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 7, 1997 By
------------------------
Dawn Woolsey,
Chief Accounting Officer
(Principal Accounting Officer)
PAGE 28 OF 31
<PAGE>
EXHIBIT INDEX
Exhibit Page Number
Index -----------
- -----
27 Financial Data Schedule for the quarter ending March 31, 1997 30
PAGE 29 OF 31
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 43,069
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 616
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,121
<INVESTMENTS-CARRYING> 46,946
<INVESTMENTS-MARKET> 47,442
<LOANS> 735,644
<ALLOWANCE> 7,629
<TOTAL-ASSETS> 1,158,294
<DEPOSITS> 892,256
<SHORT-TERM> 126,912
<LIABILITIES-OTHER> 17,900
<LONG-TERM> 36,900
0
0
<COMMON> 15,200
<OTHER-SE> 69,126
<TOTAL-LIABILITIES-AND-EQUITY> 1,158,294
<INTEREST-LOAN> 18,656
<INTEREST-INVEST> 2,653
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 21,365
<INTEREST-DEPOSIT> 7,704
<INTEREST-EXPENSE> 9,558
<INTEREST-INCOME-NET> 11,807
<LOAN-LOSSES> 388
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 12,113
<INCOME-PRETAX> 4,463
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,829
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.69
<LOANS-NON> 2,240
<LOANS-PAST> 2,004
<LOANS-TROUBLED> 234
<LOANS-PROBLEM> 229
<ALLOWANCE-OPEN> 7,281
<CHARGE-OFFS> 410
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 7,629
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
