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 .
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PAGE 1 OF 37
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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
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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
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<TABLE>
PART I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
<CAPTION>
<S> <C>
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
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CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
<CAPTION>
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
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CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
<CAPTION>
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
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STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
Nine Months Ended September 30, 1997
<CAPTION>
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
<CAPTION>
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
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CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
<CAPTION>
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
</TABLE>
PAGE 8 OF 37
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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
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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
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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
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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
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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
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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
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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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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 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
<PAGE>
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
<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.
<TABLE>
INTEREST RATE SENSITIVITY GAPS
(in thousands)
<CAPTION>
1 to 3 3 to 12 1 to 5 Over 5
Months Months Years Years Total
-------- -------- -------- -------- ----------
<S> <C>
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
======== ======== ======== ========
</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 24 OF 37
<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 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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<CAPTION>
<S> <C>
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
<PAGE>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<CAPTION>
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
<PAGE>
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
<PAGE>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<CAPTION>
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.
</TABLE>
PAGE 31 OF 37
<PAGE>
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
<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
November 7, 1997 By /s/ Dawn Woolsey,
--------------------------------
Dawn Woolsey,
Chief Accounting Officer
(Principal Accounting Officer)
PAGE 33 OF 37
<PAGE>
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
<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
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
--- --- ---- ----
</TABLE>
PAGE 35 OF 37
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 51,582
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 74
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 186,614
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 772,337
<ALLOWANCE> 8,246
<TOTAL-ASSETS> 1,335,063
<DEPOSITS> 910,346
<SHORT-TERM> 250,018
<LIABILITIES-OTHER> 19,907
<LONG-TERM> 64,400
<COMMON> 15,207
0
0
<OTHER-SE> 75,185
<TOTAL-LIABILITIES-AND-EQUITY> 1,335,063
<INTEREST-LOAN> 62,572
<INTEREST-INVEST> 8,240
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 70,875
<INTEREST-DEPOSIT> 24,324
<INTEREST-EXPENSE> 32,084
<INTEREST-INCOME-NET> 38,791
<LOAN-LOSSES> 1,861
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 39,348
<INCOME-PRETAX> 14,611
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,489
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 4.79
<LOANS-NON> 2,059
<LOANS-PAST> 4,952
<LOANS-TROUBLED> 306
<LOANS-PROBLEM> 213
<ALLOWANCE-OPEN> 7,281
<CHARGE-OFFS> 1,406
<RECOVERIES> 300
<ALLOWANCE-CLOSE> 8,246
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
