<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED September 30, 2000
OR
[ ] TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________to_____________.
Commission File number 0-1173
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)
West Virginia 55-0619957
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
25 Gatewater Road
Charleston, West Virginia, 25313
(Address of principal executive officers)
(304) 769-1100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes [ ]No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $2.50 Par Value - 16,887,934 shares as of November 10, 2000.
1
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FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Form 10-Q Quarterly Report, including statements in Management's Discussion and
Analysis of Financial Condition and Result of Operations are, or may be deemed
to be, forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Such
information involves risks and uncertainties that could result in the Company's
actual results differing from those projected in the forward-looking
information. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include: (1)
the Company's plans for divesting unprofitable businesses may not have the
positive effect on financial results that is anticipated; (2) the Company's
formal agreement with the Comptroller of the Currency may have effects on the
Company's business that are not currently anticipated, including effects on
operating results; (3) the planned relocation of the origination operations may
not have the long-term positive impact on the Company's operating results
currently anticipated; (4) other plans initiated by the Company to improve its
long-term profitability may not be completed timely or may not have the
anticipated impact on the Company's operating results; (5) current earnings from
the Company's subsidiaries may not be sufficient to fund the cash needs of the
Parent Company, including the payment of stockholders' dividends; (6) regulatory
rulings affecting, among other things, the Company's and its banking
subsidiaries' regulatory capital may change, resulting in the need for increased
capital levels with a resulting adverse effect on expected earnings and dividend
capability; (7) changes in the interest rate environment may have results on the
Company's operating results materially different from those anticipated by the
Company's market risk management functions; (8) changes in general economic
conditions and increased competition could adversely affect the Company's
operating results; and (9) changes in other regulations and government policies
affecting bank holding companies and their subsidiaries, including changes in
monetary policies, could negatively impact the Company's operating results.
Forward-looking statements made herein reflect management's expectations as of
the date such statements are made. Such information is provided to assist
stockholders and potential investors in understanding current and anticipated
financial operations of the Company and are included pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances that arise after the date such statements are made.
2
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Index
City Holding Company and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 and December
31, 1999 Consolidated Statements of Income - Nine months
ended September 30, 2000 and 1999 and Three months ended
September 30, 2000 and 1999
Consolidated Statements of Changes in Stockholders'
Equity - Nine months ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999
Notes to Consolidated Financial Statements - September 30, 2000
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
Signature
3
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
---------------------------------------------
<S> <C> <C>
(Unaudited)
Assets
Cash and due from banks $ 76,890 $ 120,122
Federal funds sold 3,136 1,990
---------------------------------------------
Cash and Cash Equivalents 80,026 122,112
Securities available for sale, at fair value 375,879 381,112
Loans:
Gross loans 2,025,676 1,886,114
Allowance for loan losses (27,219) (27,113)
---------------------------------------------
Net Loans 1,998,457 1,859,001
Loans held for sale 14,184 118,025
Retained interests 76,946 76,963
Premises and equipment 67,266 66,119
Accrued interest receivable 19,284 18,149
Other assets 141,454 151,009
---------------------------------------------
Total Assets $2,773,496 $2,792,490
=============================================
Liabilities
Deposits:
Noninterest-bearing $ 251,279 $ 246,555
Interest-bearing 1,848,591 1,709,215
---------------------------------------------
Total Deposits 2,099,870 1,955,770
Short-term borrowings 304,801 386,719
Long-term debt 40,000 116,000
Corporation-obligated mandatorily redeemable capital securities of
subsidiary trusts holding solely subordinated debentures of City
Holding Company 87,500 87,500
Other liabilities 43,420 47,959
---------------------------------------------
Total Liabilities 2,575,591 2,593,948
Stockholders' Equity
Preferred stock, par value $25 per share: authorized - 500,000
shares: none issued
Common stock, par value $2.50 per share: 50,000,000 shares
authorized; 16,892,913 and 16,879,815 shares issued and
outstanding at September 30, 2000 and December 31, 1999, including
4,979 and 9,646 shares, respectively, in treasury 42,232 42,199
Capital surplus 59,174 59,164
Retained earnings 110,269 112,951
Cost of common stock in treasury (136) (285)
Accumulated other comprehensive loss (13,634) (15,487)
---------------------------------------------
Total Stockholders' Equity 197,905 198,542
---------------------------------------------
Total Liabilities and Stockholders' Equity $2,773,496 $2,792,490
=============================================
</TABLE>
See notes to consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands, except earnings per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30
2000 1999
-----------------------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $136,521 $126,121
Interest on investment securities:
Taxable 12,789 12,835
Tax-exempt 3,504 3,785
Other interest income 305 3,795
-----------------------------------------
Total Interest Income 153,119 146,536
Interest Expense
Interest on deposits 60,590 54,142
Interest on short-term borrowings 14,298 7,278
Interest on long-term debt 3,700 4,470
Interest on trust preferred securities 6,013 6,010
-----------------------------------------
Total Interest Expense 84,601 71,900
-----------------------------------------
Net Interest Income 68,518 74,636
Provision for loan losses 8,450 7,327
-----------------------------------------
Net Interest Income After Provision for Loan Losses 60,068 67,309
Other Income
Investment securities gains 2 52
Service charges 7,900 7,301
Mortgage loan servicing fees 14,294 17,013
Net origination fees on junior-lien mortgages 2,211 4,493
(Loss) gain on sale of loans (2,309) 5,805
Other income 12,103 20,934
-----------------------------------------
Total Other Income 34,201 55,598
Other Expenses
Salaries and employee benefits 37,827 42,793
Occupancy, excluding depreciation 5,564 8,428
Depreciation 9,008 8,578
Advertising 3,280 10,939
Other expenses 33,652 29,150
-----------------------------------------
Total Other Expenses 89,331 99,888
-----------------------------------------
Income Before Income Taxes 4,938 23,019
Income tax expense 1,545 8,462
-----------------------------------------
Net Income $ 3,393 $ 14,557
=========================================
Basic earnings per common share $ 0.20 $ 0.86
=========================================
Diluted earnings per common share $ 0.20 $ 0.86
=========================================
Average common shares outstanding:
Basic 16,880 16,833
=========================================
Diluted 16,880 16,833
=========================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands, except earnings per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30
2000 1999
-----------------------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $46,021 $41,317
Interest on investment securities:
Taxable 4,284 4,305
Tax-exempt 1,145 1,234
Other interest income 106 1,012
-----------------------------------------
Total Interest Income 51,556 47,868
Interest Expense
Interest on deposits 22,350 17,772
Interest on short-term borrowings 4,662 2,729
Interest on long-term debt 507 1,471
Interest on trust preferred securities 2,005 2,014
-----------------------------------------
Total Interest Expense 29,524 23,986
-----------------------------------------
Net Interest Income 22,032 23,882
Provision for loan losses 4,280 2,684
-----------------------------------------
Net Interest Income After Provision for Loan Losses 17,752 21,198
Other Income
Investment securities gains - 4
Service charges 2,805 2,794
Mortgage loan servicing fees 4,539 5,711
Net origination fees on junior-lien mortgages 590 462
(Loss) gain on sale of loans (3,302) 216
Other income 3,932 4,281
-----------------------------------------
Total Other Income 8,564 13,468
Other Expenses
Salaries and employee benefits 10,698 13,802
Occupancy, excluding depreciation 1,783 1,777
Depreciation 2,977 2,959
Advertising 637 1,586
Other expenses 11,554 11,010
-----------------------------------------
Total Other Expenses 27,649 31,134
-----------------------------------------
(Loss) Income Before Income Taxes (1,333) 3,532
Income tax (benefit) expense (412) 1,214
-----------------------------------------
Net (Loss) Income $ (921) $ 2,318
=========================================
Basic earnings per common share $ (0.05) $ 0.14
=========================================
Diluted earnings per common share $ (0.05) $ 0.14
=========================================
Average common shares outstanding:
Basic 16,888 16,857
=========================================
Diluted 16,888 16,857
=========================================
</TABLE>
See notes to consolidated financial statements.
6
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Comprehensive Stockholders'
Stock Surplus Earnings Stock Loss Equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 $ 42,199 $ 59,164 $112,951 $ (285) $(15,487) $198,542
Comprehensive income:
Net income 3,393 3,393
Other comprehensive income:
Unrealized gain on securities of $1,854,
net of reclassification adjustment for gains
included in net income of $1 1,853 1,853
----------------
Total comprehensive income 5,246
Cash dividends declared ($.36/share) (6,075) (6,075)
Issuance of contingently-issuable shares of
common stock 33 10 149 192
----------------------------------------------------------------------------------
Balances at September 30, 2000 $ 42,232 $ 59,174 $110,269 $ (136) $(13,634) $197,905
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Comprehensive Stockholders'
Stock Surplus Earnings Stock Loss Equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $ 42,051 $ 58,365 $120,209 $ (274) $ (292) $220,059
Comprehensive income:
Net income 14,557 14,557
Other comprehensive income:
Unrealized loss on securities of $9,553,
net of reclassification adjustment for gains
included in net income of $33 (9,520) (9,520)
----------------
Total comprehensive income 5,037
Cash dividends declared ($.60/share) (10,098) (10,098)
Exercise of 24,240 stock options 82 311 49 442
Purchase of 11,999 shares of treasury stock (398) (398)
Issuance of contingently-issuable shares of
common stock 66 615 132 813
----------------------------------------------------------------------------------
Balances at September 30, 1999 $ 42,199 $ 59,291 $124,668 $ (491) $ (9,812) $215,855
==================================================================================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
None Months Ended September 30
2000 1999
------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 3,393 $ 14,557
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization 4,718 4,607
Provision for depreciation 9,008 8,578
Provision for loan losses 8,450 7,327
Loans originated for sale (193,098) (291,284)
Purchases of loans held for sale (16,065) (167,762)
Proceeds from loans sold 300,707 597,696
Realized (losses) gains on loans sold 2,309 (5,805)
Realized investment securities gains (2) (52)
Decrease (increase) in retained interests 17 (26,622)
Decrease (increase) in accrued interest receivable (1,135) (2,677)
Increase in other assets (6,359) (40,061)
(Decrease) increase in other liabilities (4,539) 5,309
-----------------------------------------
Net Cash Provided by Operating Activities 107,404 103,811
Investing Activities
Proceeds from maturities and calls of securities held to maturity - 27
Proceeds from sales of securities available for sale 22,764 17,330
Proceeds from maturities and calls of securities available for sale 38,366 64,650
Purchases of securities available for sale (50,458) (81,780)
Net increase in loans (137,918) (104,402)
Net cash paid in branch sales - (52,094)
Realized gain on branch sales - (8,681)
Net cash acquired in acquisitions - 7,409
Purchases of premises and equipment (2,351) (7,497)
-----------------------------------------
Net Cash Used in Investing Activities (129,597) (165,038)
Financing Activities
Net increase (decrease) in noninterest-bearing deposits 4,724 (20,517)
Net increase (decrease) in interest-bearing deposits 139,376 (20,383)
Net (decrease) increase in short-term borrowings (97,918) 105,345
Proceeds from long-term debt - 8,000
Repayment of long-term debt (60,000) (19,219)
Purchases of treasury stock - (398)
Exercise of stock options - 442
Cash dividends paid (6,075) (10,098)
-----------------------------------------
Net Cash (Used in) Provided by Financing Activities (19,893) 43,172
-----------------------------------------
Decrease in Cash and Cash Equivalents (42,086) (18,055)
Cash and Cash Equivalents at beginning of period 122,112 119,777
-----------------------------------------
Cash and Cash Equivalents at end of period $ 80,026 $ 101,722
=========================================
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2000
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 that, 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, 2000, are not necessarily indicative of the results of operations that can
be expected for the year ending December 31, 2000. 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 impact on net
income or stockholders' equity in any period presented. For further information,
refer to the consolidated financial statements and footnotes thereto
incorporated by reference in the City Holding Company Annual Report on Form 10-K
for the year ended December 31, 1999.
NOTE B - SECURITIZATIONS and RETAINED INTERESTS
During the first nine months of 1999, the Company sold $261.51 million
of junior lien mortgage loans in one securitization transaction. Cash proceeds
from the securitization totaled $238.16 million and the Company recognized a
pre-tax gain of approximately $3.88 million. Subsequent to the May 1999
securitization, the Company terminated its loan securitization program.
As of September 30, 2000 and 1999, the Company reported retained interests
in its securitizations of approximately $76.95 million and $92.25 million,
respectively. The value of the retained interests is determined using cash flow
modeling techniques that incorporate key assumptions related to default,
prepayment, and discount rates. During 1999, negative fair value adjustments
approximating $21.57 million, pre-tax, were recorded to account for declines in
the estimated fair value of the Company's retained interests. Such fair value
declines, deemed to be temporary, were recorded through the Other Comprehensive
Income section within Stockholders' Equity. Adjustments to the estimated fair
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value of retained interests are primarily the result of the actual performance
of the underlying collateral pools and changes in the expected future
performance of those loans. Additionally, the actual performance of the
underlying collateral loans has resulted in the delay in the expected timing of
the receipt of future cash flows by the Company as a result of increased
overcollateralization requirements. During 2000, no fair value adjustments have
been recorded as there has not been a significant change in the performance of
the underlying loans or the expected timing of the receipt of cash flows.
Recently, the Emerging Issues Task Force released EITF Issue No. 99-20
("EITF 99-20") which provides accounting guidance for the recognition of
interest income and impairment on purchased and retained beneficial interests in
securitized financial assets. EITF 99-20 requires that the holder of such
instruments recognize the excess of all cash flows attributable to the
beneficial interest using the effective yield method. In addition, EITF 99-20
provides a change in the determination of impairment, whereby if the fair value
of the beneficial interest has declined below its carrying value, then an
impairment analysis should be performed. If there has been an adverse change in
the estimated cash flows from the previous cash flows projected (e.g. previous
reporting quarter when the valuation was performed), then the condition for an
other-than-temporary impairment has been met and the beneficial interest should
be written down to the calculated fair value. EITF 99-20 is effective for the
first quarter of 2001. The Company is currently evaluating the impact to its
financial statements of adoption of EITF 99-20.
Key assumptions used in estimating the fair value of the Company's
retained interests as of September 30, 2000 and 1999 were as follows:
September 30
2000 1999
---------------------------
Prepayment speed (CPR) 15-21% 17-21%
Weighted average cumulative defaults 13.80% 10.79%
Weighted average discount rate 14.00% 12.87%
10
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At September 30, 2000, the sensitivity of the current estimated fair
value of retained interests to immediate ten percent and twenty percent changes
in assumptions were as follows:
Book value at September 30, 2000 $ 76,946
Prepayment curve:
Impact on fair value of 10% increase in the prepayment curve 4,663
Impact on fair value of 20% increase in the prepayment curve 5,611
Default curve:
Impact on fair value of 10% increase in the default curve (6,610)
Impact on fair value of 20% increase in the default curve (12,556)
Discount rate:
Impact on fair value of 10% increase in the discount rate (2,316)
Impact on fair value of 20% increase in the discount rate (7,701)
These sensitivity analyses are hypothetical. As these figures indicate, any
change in estimated fair value based on a ten percent variation in assumptions
cannot be extrapolated because the relationship of the change in assumption to
the change in fair value is not linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the retained interests
is calculated independent from any change in another assumption; in reality,
changes in one factor may result in changes in another, which may magnify or
counteract the sensitivities.
NOTE C - SHORT-TERM BORROWINGS
Effective June 21, 2000, the Parent Company's Term Loan agreement with
an unrelated third party was amended to provide for revised terms and
conditions, including modifying the maturity date of the Term Loan from October
1, 2009, to March 31, 2001. As required by the terms of the loan agreement, the
Company remitted a $1.60 million principal payment, plus interest, on September
30, 2000. The $14.40 million remaining principal balance outstanding is included
in Short-term borrowings in the Consolidated Balance Sheets as of September 30,
2000. The Term Loan has a variable rate (8.12875% at September 30, 2000) with
interest payments due quarterly. Additionally, $12.13 million outstanding
pursuant to the terms of the Parent Company's $15.00 million Line of Credit with
an unrelated party is included in Short-term borrowings. The Line of Credit has
a variable rate (8.12875% at September 30, 2000) with interest payments due
quarterly and principal due at maturity, March 31, 2001.
Both the Term Loan and the Line of Credit contain certain restrictive
provisions applicable to the Parent Company and its lead bank, City National
Bank of West Virginia. Such provisions include requirements for City Holding
Company to maintain specified tangible capital levels, loan loss reserve
coverages, and net worth requirements. Additionally, City National must maintain
its designation of "well-capitalized" as determined by its primary regulatory
authorities.
11
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Short-term borrowings also include advances from the Federal Home Loan
Bank (FHLB) and securities sold under agreement to repurchase. The underlying
securities included in repurchase agreements remain under the Company's control
during the effective period of the agreements.
NOTE D - LONG TERM DEBT
The Company, through its banking subsidiaries, maintains long-term
financing from the Federal Home Loan Bank ("FHLB") as follows:
<TABLE>
<CAPTION>
Amount Available Amount Outstanding Interest Rate Maturity Date
-------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
$ 5,000 $ 5,000 5.48% February 2008
10,000 10,000 4.86 October 2008
25,000 25,000 5.52 October 2009
--------------
$40,000
==============
</TABLE>
In addition to the financing discussed above, the Company's subsidiaries
have $179.76 million of available borrowings from the FHLB as of September 30,
2000.
NOTE E - TRUST PREFERRED SECURITIES
On October 27, 1998, City Holding Capital Trust II (Capital Trust II), a
special-purpose statutory trust subsidiary of the Company sold via public
offering $57.5 million of 9.125% trust preferred capital securities (the Capital
Securities II) and issued $1.8 million of common securities to the Company.
Distributions on the Capital Securities II are payable quarterly and each
Capital Security II has a stated liquidation value of $25. To fund Capital Trust
II, the Company sold to Capital Trust II $59.3 million in 9.125% Junior
Subordinated Debentures (the Debentures II) with a stated maturity date of
October 31, 2028. The sole assets of Capital Trust II are the Debentures II.
Cash distributions on the Capital Securities II in Capital Trust II are made to
the extent interest on the Debentures II is received by Capital Trust II. The
Company, through various agreements, has irrevocably and unconditionally
guaranteed all of Capital Trust II's obligations under the Capital Securities II
regarding payment of distributions and payment on liquidation or redemption of
the Capital Securities II, but only to the extent of funds held by Capital Trust
II. The Capital Securities II are subject to mandatory redemption (i) in whole,
but not in part, at the Stated Maturity upon repayment of the Debentures II,
(ii) prior to October 31, 2003, in whole, but not in part, contemporaneously
with the optional redemption at any time by the Company of the Debentures II at
any time within 90 days following an event of certain changes or amendments to
regulatory requirements or federal income tax rules and (iii) in whole or in
part, at any time on or after October 31, 2003, contemporaneously with the
optional redemption by the Company of the Debentures II at a redemption price
equal to the aggregate liquidation amount of the Capital Securities II, plus
12
<PAGE>
accumulated but unpaid distributions thereon. After deducting expenses incurred
in the issuance, the Company received proceeds of $55.34 million from the
Capital Securities II offering.
On March 31, 1998, City Holding Capital Trust (the Trust), a special-
purpose statutory trust subsidiary of the Company, issued $30 million in 9.15%
trust preferred capital securities (the Capital Securities) to certain qualified
institutional investors and $928,000 of common securities (the Common
Securities) to the Company. Distributions on the Capital Securities are payable
semi-annually, and each Capital Security has a stated liquidation amount of
$1,000. To fund the Trust, the Company sold to the Trust $30.9 million in 9.15%
Junior Subordinated Debentures (the Debentures) with a stated maturity date of
April 1, 2028. The sole assets of the Trust are the Debentures. Cash
distributions on the Capital Securities are made to the extent interest on the
Debentures is received by the Trust. The Company, through various agreements,
has irrevocably and unconditionally guaranteed all of the Trust's obligations
under the Capital Securities regarding payment of distributions and payment on
liquidation or redemption of the Capital Securities, but only to the extent of
funds held by the Trust. In the event of certain changes or amendments to
regulatory requirements or federal income tax rules, the Capital Securities are
redeemable in whole at par or, if greater, a make-whole amount. Otherwise, the
Capital Securities are generally redeemable in whole or in part on or after
April 1, 2008, at a declining redemption price ranging from 104.58% to 100% of
the liquidation amount. On or after April 1, 2018, the Capital Securities may be
redeemed at 100% of the liquidation amount. After deducting expenses incurred in
the issuance, the Company received proceeds of $29.2 million from the Capital
Securities offering.
The obligations outstanding under Capital Trust II and the Capital Trust
are classified as "Corporation-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior subordinated debentures of
City Holding Company" in the liabilities section of the consolidated balance
sheets. Distributions on the Capital Securities and Capital Securities II are
recorded in the consolidated statements of income as interest expense. The
Company's interest payments on the Debentures and the Debentures II are fully
tax deductible.
NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, certain financial products are offered by
the Company to accommodate the financial needs of its customers. Loan
commitments (lines of credit) represent the principal off-balance sheet
financial product offered by the Company. At September 30, 2000, commitments
outstanding to extend credit totaled approximately $251.21 million. To a much
lesser extent, the Company offers standby letters of credit, which require
payments to be made on behalf of customers when certain specified future events
occur. Amounts outstanding pursuant to such standby letters of credit were
$35.03 million as of September 30, 2000. Substantially all standby letters of
credit have historically expired unfunded.
13
<PAGE>
Both of the above arrangements have credit risks essentially the same as
that involved in extending loans to customers and are subject to the Company's
standard credit policies. Collateral is obtained based on management's credit
assessment of the customer. Management does not anticipate any material losses
as a result of these commitments.
NOTE G - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The provisions of this statement require
that derivative instruments be carried at fair value on the balance sheet and
allows hedge accounting when specific criteria are met. The provisions of this
statement, as amended, become effective for quarterly and annual reporting
beginning January 1, 2001. The impact of adopting the provisions of this
statement on the Company's financial position or results of operations
subsequent to the effective date is not currently estimable and will depend on
the financial position of the Company and the nature and purpose of the
derivative instruments in use by management at that time.
NOTE H - SEGMENT INFORMATION
The Company operates the following business segments: community banking,
mortgage banking, and other financial services. These business segments are
primarily identified by the products or services offered and the channels
through which the product or service is offered. The community banking
operations consists of various community banks that offer customers traditional
banking products and services through various delivery channels. The mortgage
banking operations include the origination, acquisition, servicing, and sale of
mortgage loans. The other financial services business segment consists of
nontraditional services offered to customers, such as investment advisory,
insurance, and internet technology products. Another defined business segment of
the Company is corporate support, which includes the parent company and other
support needs.
To more effectively evaluate and manage the operating performance of each
of the Company's business lines, effective April 1, 1999 internal warehouse
funding was established for each division within the mortgage-banking and other
financial services segments. Prior to April 1, 1999, the community-banking
segment provided necessary funding to the divisions within the mortgage-banking
and other financial services segments with no associated interest charged to
those divisions. Beginning April 1, 1999, any division that has obtained
financing from the community-banking segment is charged a cost of funds, at
market interest rates, on the amount of funds borrowed from the community-
banking segment. Management has determined that the internal warehouse funding
14
<PAGE>
policy provides a "fully-costed" assessment of the operating performance of each
division and that instituting such policy provides a more accurate analysis of
the performance of each division and business segment. Financial information
presented in the following tables has been presented reflecting the actual
internal policy in place during each respective period.
The accounting policies for each of the business segments are the same as
those of the Company. Services provided to the banking segments by the divisions
within the other financial services segment are eliminated in consolidation.
Selected segment information is included in the following tables:
<TABLE>
<CAPTION>
Other
Community Mortgage Financial General
(in thousands) Banking Banking Services Corporate Eliminations Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the nine months ended September 30, 2000
Net interest income (expense) $ 78,063 $ (7,710) $ (229) $(1,606) $ - $ 68,518
Provision for loan losses 8,450 - - - - 8,450
----------------------------------------------------------------------------
Net interest income after provision -
for loan losses 69,613 (7,710) (229) (1,606) 60,068
Other income 13,810 14,069 10,339 2,353 (6,370) 34,201
Other expenses 58,172 20,138 10,752 6,639 (6,370) 89,331
----------------------------------------------------------------------------
Income before income taxes 25,251 (13,779) (642) (5,892) - 4,938
Income tax expense (benefit) 8,913 (5,368) (194) (1,806) - 1,545
----------------------------------------------------------------------------
Net Income (loss) $ 16,338 $ (8,411) $ (448) $(4,086) $ - $ 3,393
============================================================================
Average assets $2,758,942 $172,609 $13,270 $10,881 $ (163,655) $ 2,792,048
============================================================================
For the nine months ended September 30, 1999
Net interest income (expense) $ 78,056 $ (2,286) $ (98) $(1,036) $ - $ 74,636
Provision for loan losses 7,327 - - - - 7,327
----------------------------------------------------------------------------
Net interest income after provision
for loan losses 70,729 (2,286) (98) (1,036) - 67,309
Other income 24,117 26,396 9,316 63 (4,294) 55,598
Other expenses 59,797 27,779 11,456 5,150 (4,294) 99,888
----------------------------------------------------------------------------
Income before income taxes 35,049 (3,669) (2,238) (6,123) - 23,019
Income tax expense (benefit) 12,922 (1,350) (737) (2,373) - 8,462
----------------------------------------------------------------------------
Net Income (loss) $ 22,127 $ (2,319) $(1,501) $(3,750) $ - $ 14,557
============================================================================
Average assets $2,600,565 $214,326 $12,989 $11,924 $(122,029) $2,717,775
============================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Other
Community Mortgage Financial General
(in thousands) Banking Banking Services Corporate Eliminations Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the three months ended September 30, 2000
Net interest income (expense) $ 25,322 $ (2,602) $ (93) $ (595) $ - $ 22,032
Provision for loan losses 4,280 - - - - 4,280
----------------------------------------------------------------------------
Net interest income after provision -
for loan losses 21,042 (2,602) (93) (595) 17,752
Other income 4,597 1,765 3,101 1,208 (2,107) 8,564
Other expenses 19,464 5,527 3,193 1,572 (2,107) 27,649
----------------------------------------------------------------------------
Income before income taxes 6,175 (6,364) (185) (959) - (1,333)
Income tax expense (benefit) 2,301 (2,421) (53) (239) - (412)
----------------------------------------------------------------------------
Net Income (loss) $ 3,874 $ (3,943) $ (132) $ (720) $ - $ (921)
============================================================================
Average assets $2,766,037 $144,504 $13,200 $ 8,190 $ (130,380) $2,801,551
============================================================================
For the three months ended September 30, 1999
Net interest income (expense) $ 26,007 $ (1,799) $ 102 $ (428) $ - $ 23,882
Provision for loan losses 2,684 - - - - 2,684
----------------------------------------------------------------------------
Net interest income after provision -
for loan losses 23,323 (1,799) 102 (428) 21,198
Other income 5,535 6,105 2,374 61 (607) 13,468
Other expenses 19,281 7,529 3,191 1,740 (607) 31,134
----------------------------------------------------------------------------
Income before income taxes 9,577 (3,223) (715) (2,107) - 3,532
Income tax expense (benefit) 3,472 (1,209) (244) (805) - 1,214
----------------------------------------------------------------------------
Net Income (loss) $ 6,105 $ (2,014) $ (471) $(1,302) $ - $ 2,318
============================================================================
Average assets $2,715,081 $193,391 $13,437 $12,317 $ (188,218) $2,746,008
============================================================================
</TABLE>
NOTE I - REGULATORY MATTERS
On July 12, 2000, the Company announced that its principal bank subsidiary,
City National Bank of West Virginia, had entered into a formal agreement with
the Comptroller of the Currency. The agreement requires City National to adopt a
three-year comprehensive strategic plan, improve its loan portfolio management,
and develop and adhere to a written plan for liquidity, asset and liability
management policy. City National also must incorporate liquidity planning in its
financial management process, implement a satisfactory program to manage
interest rates, and ensure full compliance of its securitization program with
recent OCC regulations. Additionally, City National must develop a plan to
dispose of loans held for sale that are held in excess of 90 days, develop a
three-year capital plan, strengthen internal controls and its audit committee,
and establish a program to maintain an adequate allowance for loan and lease
losses. Additionally, as a consequence of entering into this agreement, City
National must adhere to certain FDIC restrictions regarding the issuance of
brokered deposits. City National is also required to maintain its current
capital ratios and to establish a committee of its Board of Directors to oversee
its compliance with the agreement. During the third quarter of 2000, the Company
continued to work on compliance with the formal agreement. The Company
16
<PAGE>
established a compliance oversight committee, which meets periodically to
determine the status of compliance with the agreement. In addition, the Company
is currently working to complete its strategic plan and working to address the
other aforementioned items (e.g. improving its loan portfolio management,
developing its liquidity and asset and liability management plans, strengthening
internal controls, and managing its allowance for loan losses). Also during the
third quarter and as more fully discussed in Management's Discussion and
Analysis, the Company disposed of substantially all of its loans held for sale
in excess of 90 days.
17
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Nine Months Ended September 30, 2000 vs. 1999
Consolidated net income for the nine months ended September 30, 2000 was
$3.39 million or $0.20 per common share, compared to $14.56 million or $0.86 per
common share for the nine months ended September 30, 1999. Return on average
assets ("ROA") was 0.16% and return on average equity ("ROE") was 2.26% for the
nine months ended September 30, 2000. ROA and ROE were 0.71% and 8.81%,
respectively, for the same period in 1999. The $11.16 million, or 76.69%,
decline in net income for the first nine months of 2000 was due to a $6.12
million decline in net interest income and a $21.40 million decline in non-
interest income. The decline in non-interest income during the period was
partially offset by a $10.56 million decline in non-interest expense, from
$99.89 million for the nine months ended September 30, 1999, to $89.33 million
for the same period of 2000.
As more fully discussed under the caption Net Interest Income, significant
increases in the Company's funding costs and declines in the average balance of
the higher-yielding loans held for sale portfolio have adversely affected the
Company's net interest margin during 2000, resulting in a $6.12 million, or
8.20%, decline in net interest income from 1999 to 2000. Within non-interest
income, income generated by the mortgage banking segment (primarily loan sale
gains, loan origination fees, and loan servicing fees) declined from $27.31
million for the nine months ended September 30, 1999, to $14.20 million for the
same period of 2000. In addition to declines in loan servicing and loan
origination fees, the Company has recorded losses of $2.31 million on the sale
of loans during the first nine months of 2000, compared to gains of $5.81
million recorded during 1999. Activity affecting the mortgage banking segment is
more fully discussed under the captions Loans Held for Sale and Other Income and
Expenses. In addition to declines in mortgage banking revenues, the period-to-
period comparison of non-interest income is also affected by an $8.68 million
pre-tax gain recognized on the sale of branch locations during 1999.
Three Months Ended September 30, 2000 vs. 1999
The Company reported a net loss of $921,000, or $(0.05) per common share,
for the three months ended September 30, 2000, compared to net income of $2.32
million, or $0.14 per common share for the three months ended September 30,
1999. ROA was (0.13%) and ROE was (1.84%) for the quarter ended September 30,
2000. ROA and ROE were 0.34% and 4.27%, respectively, for the same period in
1999.
18
<PAGE>
As more fully discussed under the captions Loans Held for Sale and Other
Income and Expenses, the Company recorded a $1.83 million, or $0.11 per share,
after-tax charge against third quarter 2000 earnings associated with a negative
market value adjustment to its remaining junior lien mortgage loan pools that
were not committed for future sales as of September 30, 2000. Additionally, the
Company recorded a charge against third quarter 2000 earnings of $670,000, or
$0.04 per share, after taxes, associated with the sale of $9.49 million of
junior lien mortgage loans. As discussed under the caption Loan Portfolio, the
Company also recorded a $4.28 million, pre-tax, provision for loan losses during
the third quarter of 2000. This represented an increase of $1.60 million, or
59.46%, in the provision for loan losses as compared to the $2.68 million
provision recorded during the third quarter of 1999.
The Company also experienced a $1.85 million, or 7.75%, decline in net
interest income from $23.88 million for the three months ended September 30,
1999, to $22.03 million for the quarter ended September 30, 2000. This decline
is further addressed under the caption Net Interest Income. The declines in net
interest income and non-interest income during the quarter were partially offset
by a $3.49 million, or 11.19%, decline in non-interest expense, primarily due to
declines in compensation costs as discussed under the caption Other Income and
Expenses.
NET INTEREST INCOME
Nine Months Ended September 30, 2000 vs. 1999
On a tax equivalent basis, net interest income declined $6.27 million, or
8.18%, from $76.67 million for the nine months ended September 30, 1999, to
$70.41 million for the same period of 2000. This decline was primarily
attributable to increases in the Company's funding costs, as evidenced by a 48
basis point increase in the Company's cost of funds from 4.46% in 1999 to 4.94%
in 2000. The increased cost of funds was partially offset by a 13 basis point
increase in the yield earned on the Company's interest-earning assets.
Although interest income earned on the Company's core loan portfolio
increased $15.41 million, or 13.73%, during the first nine months of 2000,
interest earned on the Company's loans held for sale portfolio declined $5.01
million, or 36.25%, during the same period, as compared to 1999. The decline in
interest earned on the loans held for sale portfolio was due to the $96.75
million, or 48.25%, decline in the average balance of the portfolio. These
declines reflect the results of the Company's reduced participation in the
Specialty Finance sector. Additionally, management suspended the accrual of
interest income on the Company's retained interests due to the decline in fair
value during 1999. As a result, interest income derived from retained interests
declined $3.45 million, or 96.18%, from $3.58 million for the first nine months
of 1999, to $137,000 for the first nine months of 2000. Interest income
recognized during 2000 represents interest earned, and cash received, resulting
from funds invested during the interim period between the receipt of cash from
borrowers and the subsequent payment of cash to noteholders.
19
<PAGE>
Total funding costs increased $12.70 million, or 17.66%, from $71.90
million for the first nine months of 1999, to $84.60 million for the first nine
months of 2000. This increase was primarily due to a $7.02 million, or 96.46%,
increase in interest expense incurred on the Company's short-term borrowings
during the first nine months of 2000, as compared to 1999. A $109.73 million
increase in the average balance of short-term borrowings, coupled with a 133
basis point increase in the average cost of short-term borrowings resulted in
this increased interest expense. General economic conditions throughout the
country have resulted in a series of interest rate increases over the last
several months by the Federal Reserve. Such increases have resulted in an
increased funding cost incurred by the Company. Additionally, the Company has
experienced significant loan growth and moderate declines in the average balance
of its deposit balances since March 1999, resulting in an increased reliance on
short-term funding. During 1999, the Company sold certain branch facilities,
including approximately $121.48 million of deposits, as required by regulatory
authorities for approval of the Company's merger of Horizon Bancorp. The decline
in the average balance of the Company's deposits is primarily due to the
aforementioned branch sales. In addition to an increased use of short-term
borrowings, and as more fully discussed under the caption Market Risk
Management, the Company has increased its reliance on the issuance of brokered
deposits. Generally, brokered deposits represent a higher cost of funding than
core deposits obtained through the Company's branch market areas. Increases in
the volume of brokered deposits have added to the Company's overall higher
funding costs. See Market Risk Management, herein, for a further discussion of
the Company's liquidity position.
Three Months Ended September 30, 2000 vs. 1999
Primarily as a result of higher overall funding costs, net interest income
on a tax equivalent basis declined $1.90 million, or 7.73%, from $24.55 million
for the three months ended September 30, 1999 to $22.55 million for the quarter
ended September 30, 2000. Although total interest income increased $3.64
million, or 7.50%, (quarter-to-quarter), funding costs increased $5.54 million,
or 23.09%, over the same period. The increase in interest income was primarily
due to a $156.60 million increase in the average balance of the Company's core
loan portfolio, coupled with a 48 basis point increase in yield. However, an
increased reliance on short-term borrowings and brokered deposits as an
additional source of funding resulted in a 75 basis point increase in funding
costs. As previously discussed, recent increases in interest rates by the
Federal Reserve have resulted in a 115 basis point increase in the cost of
short-term borrowings and brokered deposits generally have a higher interest
cost than traditional core deposits. As noted previously, the Company has
increased its use of short-term borrowings and brokered deposits to fund loan
growth and to replace moderate declines in core deposits.
20
<PAGE>
AVERAGE BALANCE SHEETS and NET INTEREST INCOME
(in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loan portfolio (1) $1,960,584 $127,702 8.68% $1,767,447 $112,288 8.47%
Loans held for sale 103,750 8,819 11.33 200,498 13,833 9.20
Securities:
Taxable 264,589 12,789 6.44 284,846 12,835 6.01
Tax-exempt (2) 99,558 5,391 7.22 104,450 5,823 7.43
-----------------------------------------------------------------------------------
Total securities 364,147 18,180 6.66 389,296 18,658 6.39
Retained interest in securitized loans 76,955 137 0.24 78,999 3,583 6.05
Federal funds sold 3,805 168 5.89 5,956 212 4.75
-----------------------------------------------------------------------------------
Total earning assets 2,509,241 $155,006 8.24% 2,442,196 $148,574 8.11%
Cash and due from banks 74,000 90,207
Bank premises and equipment 63,501 70,139
Other assets 172,687 133,928
Less: allowance for possible
loan losses (27,381) (18,695)
-----------------------------------------------------------------------------------
Total assets $2,792,048 $2,717,775
===================================================================================
Liabilities
Demand deposits $ 410,867 $ 9,376 3.04% $ 383,645 $ 8,572 2.98%
Savings deposits 319,698 8,158 3.40 327,120 8,020 3.27
Time deposits 1,068,635 43,056 5.37 1,038,359 37,550 4.82
Short-term borrowings 314,792 14,298 6.06 205,060 7,278 4.73
Long-term debt 83,834 3,700 5.88 106,238 4,470 5.61
Trust preferred securities 87,500 6,013 9.16 87,500 6,010 9.16
-----------------------------------------------------------------------------------
Total interest-bearing liabilities 2,285,326 84,601 4.94 2,147,922 71,900 4.46
Demand deposits 247,554 294,968
Other liabilities 59,398 54,659
Stockholders' equity 199,770 220,226
-----------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,792,048 $2,717,775
===================================================================================
Net interest income $ 70,405 $ 76,674
===================================================================================
Net yield on earning assets 3.74% 4.19%
===================================================================================
</TABLE>
(1) For purposes of this table, non-accruing 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
approximately 35%.
21
<PAGE>
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 vs. 1999
Increase (Decrease)
Due to Change In:
Volume Rate Net
--------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Loan portfolio $12,522 $ 2,892 $15,414
Loans held for sale (9,166) 4,152 (5,014)
Securities:
Taxable (1,253) 1,207 (46)
Tax-exempt (1) (268) (164) (432)
--------------------------------------------
Total securities 1,521 1,043 (478)
Retained interest in securitized loans (90) (3,356) (3,446)
Federal funds sold (108) 64 (44)
--------------------------------------------
Total interest-earning assets $ 1,637 $ 4,795 $ 6,432
============================================
Interest-bearing liabilities:
Demand deposits $ 618 $ 186 $ 804
Savings deposits (263) 401 138
Time deposits 1,120 4,386 5,506
Short-term borrowings 4,610 2,410 7,020
Long-term debt (1,098) 328 (770)
Trust preferred securities - 3 3
--------------------------------------------
Total interest-bearing liabilities $ 4,987 $ 7,714 $12,701
============================================
Net Interest Income $(3,350) $(2,919) $(6,269)
============================================
</TABLE>
(1) Fully federal taxable equivalent using a tax rate of 35%.
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
22
<PAGE>
AVERAGE BALANCE SHEETS and NET INTEREST INCOME
(in thousands)
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loan portfolio (1) $1,998,037 $43,834 8.78% $1,841,436 $38,225 8.30%
Loans held for sale 75,934 2,187 11.52 110,385 3,092 11.20
Securities:
Taxable 266,070 4,284 6.44 282,046 4,305 6.11
Tax-exempt (2) 99,461 1,762 7.09 103,424 1,898 7.34
-----------------------------------------------------------------------------------
Total securities 365,531 6,046 6.62 385,470 6,203 6.44
Retained interest in securitized loans 76,949 50 0.26 91,956 910 3.96
Federal funds sold 4,855 56 4.61 7,977 102 5.11
-----------------------------------------------------------------------------------
Total earning assets 2,521,306 $52,173 8.28% 2,437,224 $48,532 7.97%
Cash and due from banks 71,398 101,033
Bank premises and equipment 61,154 70,691
Other assets 175,167 156,989
Less: allowance for possible
loan losses (27,474) (19,929)
-----------------------------------------------------------------------------------
Total assets $2,801,551 $2,746,008
===================================================================================
Liabilities
Demand deposits $ 401,097 $ 3,103 3.09% $ 420,232 $ 3,061 2.91%
Savings deposits 306,915 2,685 3.50 319,338 3,009 3.77
Time deposits 1,161,935 16,562 5.70 1,031,722 11,702 4.54
Short-term borrowings 286,506 4,662 6.51 203,728 2,729 5.36
Long-term debt 41,087 507 4.94 106,447 1,471 5.53
Trust preferred securities 87,500 2,005 9.17 87,500 2,014 9.21
-----------------------------------------------------------------------------------
Total interest-bearing liabilities 2,285,040 29,524 5.17 2,168,967 23,986 4.42
Demand deposits 254,243 298,877
Other liabilities 61,668 61,266
Stockholders' equity 200,600 216,898
-----------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,801,551 $2,746,008
===================================================================================
Net interest income $22,649 $24,546
===================================================================================
Net yield on earning assets 3.59% 4.03%
===================================================================================
</TABLE>
(1) For purposes of this table, non-accruing 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
approximately 35%.
23
<PAGE>
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Three months ended September 30,
2000 vs. 1999
Increase (Decrease)
Due to Change In:
Volume Rate Net
--------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Loan portfolio $ 3,362 $ 2,247 $ 5,609
Loans held for sale (1,470) 565 (905)
Securities:
Taxable (971) 950 (21)
Tax-exempt (1) (71) (65) (136)
--------------------------------------------
Total securities (1,042) 885 (157)
Retained interest in securitized loans (128) (732) (860)
Federal funds sold (37) (9) (46)
--------------------------------------------
Total interest-earning assets $ 685 $ 2,956 $ 3,641
============================================
Interest-bearing liabilities:
Demand deposits $ (625) $ 667 $ 42
Savings deposits (114) (210) (324)
Time deposits 1,602 3,258 4,860
Short-term borrowings 1,265 668 1,933
Long-term debt (821) (143) (964)
Trust preferred securities - (9) (9)
--------------------------------------------
Total interest-bearing liabilities $ 1,307 $ 4,231 $ 5,538
============================================
Net Interest Income $ (622) $(1,275) $(1,897)
============================================
</TABLE>
(1) Fully federal taxable equivalent using a tax rate of 35%.
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
24
<PAGE>
LOAN PORTFOLIO
The composition of the Company's loan portfolio as of September 30, 2000
and December 31, 1999, is presented in the following table:
September 30, 2000 December 31, 1999
---------------------------------------
Commercial, financial and agricultural $ 571,643 $ 589,116
Real estate-mortgage 1,199,029 949,830
Installment loans to individuals 435,004 347,168
---------------------------------------
Total loans $2,025,676 $1,886,114
=======================================
Allowance and Provision for Loan Losses
Management systematically monitors the loan portfolio and the adequacy of the
allowance for loan losses on a monthly basis to provide for losses in the
portfolio. Through the Company's internal loan review department, management
assesses the risk in each loan type based on historical trends, the general
economic environment of its local markets, individual loan performance and other
relevant factors. Individual credits are selected throughout the year for detail
loan reviews, which are utilized by management to assess the risk in the
portfolio and the adequacy of the allowance. Due to the nature of commercial
lending, evaluation of the adequacy of the allowance as it relates to these loan
types is often based more upon specific credit review, with consideration given
to historical charge-off percentages and general economic conditions.
Conversely, due to the homogeneous nature of the real estate and installment
portfolios, the portions of the allowance allocated to those portfolios are
primarily based on prior charge-off history and general economic conditions,
with less emphasis placed on specifically reviewing individual credits, unless
circumstances suggest that specific reviews are necessary. In these categories,
specific loan reviews would be conducted on higher balance and higher risk
loans. In evaluating the adequacy of the allowance, management considers both
quantitative and qualitative factors. Quantitative factors include actual
repayment characteristics and loan performance, cash flow analyses, and
estimated fair values of underlying collateral. Qualitative factors generally
include overall trends within the portfolio, composition of the portfolio,
changes in pricing or underwriting, seasoning of the portfolio, and general
economic conditions. Reserves not specifically allocated to individual credits
are generally determined by analyzing potential exposure and other qualitative
factors that could negatively impact the adequacy of the allowance.
Determination of such reserves is subjective in nature and requires management
to periodically reassess the validity of its assumptions. Differences between
net charge-offs and estimated losses are assessed such that management can
timely modify its evaluation model to ensure that adequate provision has been
made for risk in the total loan portfolio.
25
<PAGE>
The Company continues to restructure its credit administration functions
and has modified its methodology for assessing the overall risk within its loan
portfolio. While implementation of these changes to the Company's credit
environment is on-going, the modifications made to-date have resulted in more
stringent risk classification for its loan portfolio. As a result of the
identification of certain credit concerns within the portfolio and in
consideration of a $3.16 million increase in non-performing loans during the
third quarter of 2000, the Company increased its provision for loan losses from
$2.68 million for the three months ended September 30, 1999, to $4.28 million
for the quarter ended September 30, 2000. Additionally, the Company experienced
a significant increase in net charge offs during the third quarter of 2000. Net
charge offs for the three months ended September 30, 2000 were approximately
$4.93 million, compared to $1.55 million during the second quarter of 2000. The
increased level of net charge offs during the period also influenced the
decision for an increase in the loan loss provision for the third quarter.
As of September 30, 2000, the allowance for loan losses was $27.22 million
or 1.34% of total period-end loans, compared to $27.11 million or 1.44% as of
December 31, 1999. For the nine months ended September 30, 2000, the provision
for loan losses was $8.45 million, compared to $7.33 million for the first nine
months of 1999. Management is of the opinion that the consolidated allowance for
loan losses is adequate to provide for losses on existing loans within the
portfolio as of September 30, 2000. For further information regarding the
Company's allowance for loan losses, 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, 1999.
26
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
Allowance for Loan Losses 2000 1999
----------------------------------------
<S> <C> <C>
Balance at beginning of year $ 27,113 $ 17,610
Charge-offs:
Commercial, financial and agricultural (2,886) (3,925)
Real estate-mortgage (1,435) (1,142)
Installment loans to individuals (5,736) (7,185)
----------------------------------------
Totals (10,058) (12,252)
Recoveries:
Commercial, financial and agricultural 370 81
Real estate-mortgage 136 301
Installment loans to individuals 1,207 1,349
----------------------------------------
Totals 1,714 1,731
----------------------------------------
Net charge-offs (8,344) (10,521)
Provision for loan losses 8,450 19,286
Balance of acquired institution -- 738
----------------------------------------
Balance at end of period $ 27,219 $ 27,113
========================================
As a Percent of Average Total Loans:
Net charge-offs 0.57% 0.59%
Provision for loan losses 0.57 1.08
As a Percent of Non-performing Loans:
Allowance for loan losses 155.40% 168.55%
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000 December 31, 2000
-------------------------------------------------
<S> <C>
Summary of Non-performing Assets
Non-accrual loans $13,704 $ 8,844
Accruing loans past due 90 days or more 3,128 5,126
Restructured loans 683 879
-------------------------------------------------
Total non-performing loans 17,515 14,849
Other real estate owned 4,456 2,626
-------------------------------------------------
Total non-performing assets $21,971 $17,475
=================================================
</TABLE>
LOANS HELD FOR SALE
Loans held for sale represent mortgage loans the Company has either
purchased or originated with the intent to sell and includes traditional fixed-
rate and junior lien mortgage loans. Certain traditional fixed-rate mortgages
are originated by the Company, with the intent to sell, servicing released, in
the secondary market. This product line enables the Company to provide
conventional, fixed-rate mortgage products to its customers, but minimize the
interest-rate risk associated with fixed-rate loans. At September 30, 2000,
conventional mortgage loans represented $10.96 million or 77.25% of the reported
balance of loans held for sale.
27
<PAGE>
Since 1999, the Company has taken a series of actions to restructure
its mortgage-banking segment, in general, and its Specialty Finance division
specifically. Following actions taken during 1999 to restructure and downsize
its California Specialty Finance loan origination operations, the Company
effectively closed these locations during the second quarter of 2000 and
transferred the remaining platform to its Reston, Virginia loan production
offices. Such actions also included the termination of the Company's loan
securitization program and the restructuring of its specialty finance loan
origination policies. While the Company continues to originate the junior lien
mortgage product, the volume of such originations has been significantly reduced
and all current production is originated under purchase commitments from
independent third parties. The reduced volume of originations, coupled with the
commitment from third parties to purchase these loans upon funding, is expected
to reduce the Company's exposure to credit, market, and interest rate risks
associated with this product line. The Company also expects that such actions
will shorten the length of time these loans are held by the Company, thus
reducing the average balance of the loans held-for-sale portfolio. Reduced
average balances are expected to also reduce the interest income derived from
this product, with an offsetting decline in the Company's external funding
costs.
The Company has also opened additional loan production offices in the
high-growth areas of Crofton, Maryland and Atlanta, Georgia. The office in
Crofton focuses on the origination of traditional, first lien mortgage loan
products, while the Atlanta office specializes in junior lien mortgage loans. As
noted previously, loans produced at these locations are originated under pre-
established purchase commitments from independent third parties. Once funded by
the Company, these loans are expected to be sold to end-investors within 60-90
days.
As part of the restructuring of the Specialty Finance division, the
Company sold $9.49 million of junior lien mortgage loans previously produced by
its California operations during the third quarter of 2000. Substantially all
junior lien loans that were 90 days past due or greater at the time of the sales
were included in these transactions. As a result of these loan sales, the
Company recorded a charge against earnings of approximately $670,000 or $0.04
per share, after taxes. Additionally, the Company recorded a $1.83 million, or
$0.11 per share, after tax charge against third quarter earnings associated with
a negative market value adjustment to all of its remaining, California-
originated junior lien mortgage loans. As part of this market value adjustment,
the Company fully reserved substantially all junior lien mortgage loans that
were 60 days past due or greater as of September 30, 2000, and recorded partial
reserves against all remaining junior lien loans that were not already committed
for future sales. As of September 30, 2000, these loans were transferred from
the held-for-sale classification to the permanent loan portfolio at their
reduced carrying values.
28
<PAGE>
Due to the aforementioned actions, the average balance of loans held
for sale declined from $200.50 million for the first nine months of 1999, to
$103.75 million for the same period of 2000. Similarly, the average balance,
quarter-to-quarter, of loans held for sale declined $34.45 million from $110.39
million for the three months ended September 30, 2000, to $75.93 million for the
third quarter of 2000. During the first nine months of months of 2000, the
Company originated $193.10 and purchased $16.07 in loans held for sale and sold
$300.71 during the same period. This compares to originations of $291.28
million, purchases of $167.76 million, and sales of $591.89 million during the
first nine months of 1999.
LOAN SECURITIZATIONS
From December 1997 through May 1999, the Company completed six
securitizations of junior lien mortgage loans. Subsequent to the May 1999
securitization, the Company terminated its securitization program. The
securitization program was initiated by the Company as a means to mitigate the
risk of originating and acquiring this loan product and to continue the growth
of the Company's loan servicing portfolio. Each of the securitized pools is
serviced by the Company's mortgage loan servicing division. By securitizing
originated and purchased junior lien mortgage loans, the Company effectively
removed these loans from its balance sheet by creating an investment security or
securities, supported by the cash flows generated by these loans, and selling
the resulting investment security or securities to independent third parties. As
part of this process, the Company provided credit enhancement, in the form of
overcollateralization, with respect to the investment security created. As a
result, the Company maintains a certain level of credit, prepayment and interest
rate risk related to these loans. The risk maintained by the Company, however,
is less than that which would be maintained had the Company held these loans on
its balance sheet until the loans matured.
In return for this risk exposure, the Company expects to receive future
income from each securitization that is determined as a function of the "excess
spread" derived from the securitized loans. The "excess spread", generally, is
calculated as the difference between (A) the interest at the stated rate paid by
borrowers and (B) the sum of pass-through interest paid to third-party investors
and various fees, including trustee, insurance, servicing, and other similar
costs. The "excess spread" represents income to be recognized by the Company
over the life of the securitized loan pool.
As of September 30, 2000 and 1999, the Company reported retained
interests in these securitized loan pools of approximately $76.95 million and
$92.25 million, respectively, including accrued interest. Assumptions used to
estimate the retained interest at September 30, 2000 include weighted average
cumulative defaults approximating 13.80%, prepayment rates of 15-21% CPR, and a
weighted-average discount rate of 14.00%. Management monitors the actual default
and prepayment rates of each securitized pool on a monthly basis, in addition to
the outstanding pool balance, to ensure the rates used to estimate the retained
29
<PAGE>
interest are still reasonable. Management re-forecasts expected cash flows for
each securitization quarterly, updating significant assumptions as necessary. As
of December 31, 1999, negative fair value adjustments approximating $21.57
million, pre-tax, were recorded. Such fair value declines, deemed to be
temporary, were recorded through the Other Comprehensive Income section with
Stockholders' Equity during 1999. Adjustments to the estimated fair value of the
retained interests are the result of both actual performance of the underlying
collateral pools and revised expected timing of the receipt of cash flows by the
Company. During 2000, no fair value adjustments have been recorded as there has
not been a significant change in the performance of the underlying loans or the
expected timing of the receipt of future cash flows. Although a fair value
reduction has been recorded, re-forecasted cash flows as of September 30, 2000
project undiscounted cash flows to be received by the Company are 2.26 times the
total retained interest values, before fair value adjustments.
LOAN SERVICING
At September 30, 2000 and 1999, the Company maintained a servicing
portfolio of $1.53 billion and $1.85 billion, respectively. Of the total
servicing portfolio, $1.39 billion and $1.74 billion represented loans serviced
for others at September 30, 2000 and 1999, respectively. Loans serviced for
others are not included in the Consolidated Balance Sheets of the Company. Loans
that are serviced for others pursuant to mortgage-backed securities agreements
are subject to on-going performance analyses by, among others, entities that
provide credit insurance to the holders of the mortgage-backed securities.
Insurance providers have the ability to require the loan servicer to transfer
its servicing responsibilities to other loan servicers when certain loan
performance thresholds are not met. At the direction of one such insurance
provider, on November 1, 2000, the Company transferred to an independent third
party the right to service approximately $229.74 million of loans previously
serviced for others by the Company's loan servicing division. As a result of
this transfer, the Company expects its gross loan servicing revenues to decline
by approximately $183,000 (before taxes) per month for the remainder of 2000,
with a corresponding reduction in expenses associated with servicing these loan
pools.
The Company has recorded mortgage loan servicing rights of $7.60
million and $10.58 million at September 30, 2000 and 1999, respectively,
associated with the right to service mortgage loans for others. Included in
Other Assets in the Consolidated Balance Sheets, the recorded value of mortgage
servicing rights is assessed quarterly to determine if the value of those rights
has become impaired during the period. In doing so, management estimates the
present value of future net cash flows to be derived from its servicing
activities. Factors included in the impairment analysis are anticipated
servicing income, costs associated with servicing the portfolio, discount rates,
and loan prepayment and default rates. As of September 30, 2000, management has
determined, based on this analysis, that the recorded value of its servicing
rights is fairly stated and there is no impairment in that value.
OTHER INCOME AND EXPENSES
Nine Months Ended September 30, 2000 vs. 1999
Total Other Income declined $21.40 million, or 38.49%, from $55.60
million during the first nine months of 1999, to $34.20 million during the same
period of 2000. Due to the sale of six branch locations during the second
quarter of 1999, a pre-tax gain of approximately $8.68 million was recorded and
included in Other Income. Additionally, with the downsizing of the Company's
30
<PAGE>
California Specialty Finance loan origination operations throughout 1999 and
into 2000, loan volume has significantly reduced. Corresponding to the reduced
loan volume, net origination fee income declined $2.28 million, or 50.79%, from
$4.49 million during the first nine months of 1999, to $2.21 million in 2000.
Similarly, the decline in the loan servicing portfolio resulted in a $2.72
million, or 15.98%, decline in loan servicing fees from 1999 to 2000. As
previously discussed under the caption Loans Held for Sale, the Company recorded
a $1.83 million ($2.72 million, pre-tax) charge against third quarter earnings
associated with a negative market value adjustment to the carrying value of its
junior lien mortgage loans that were not committed for future sales as of
September 30, 2000. Additionally, the Company recorded a $670,000 ($1.03
million, pre-tax) charge against third quarter earnings associated with the sale
of $9.49 million of junior lien mortgage loans. As previously reported, during
the second quarter of 2000 the Company recognized a pre-tax loss of $716,000 on
the sale of approximately $27.12 million of junior lien mortgage loans. The loss
on the sale of these loan pools and the negative market value adjustment offset
gains recognized from recurring loan sale activity and is included in the $2.31
million loss on sale of loans reported in the Consolidated Statements of Income
for the nine months ended September 30, 2000.
Total Other Expenses declined $10.56 million, or 10.57%, from $99.89
million during the first nine months of 1999, to $89.33 million in 2000. This
decline was primarily due to a $7.66 million, or 70.02%, decline in advertising
expenses. The decline in advertising costs was largely due to the contraction of
the Company's Specialty Finance operations. With the downsizing of those
operations, the Company significantly reduced the volume of its nationwide
direct mail solicitation of potential borrowers. Occupancy expense declined
$2.86 million, or 33.98%, from $8.43 million during the first nine months of
1999 to $5.56 million in 2000. This decline was primarily due to the reduced
number of branch locations of City National and the contraction of the Company's
Specialty Finance operations. Excluding non-recurring 2000 charges associated
with the termination and non-competition agreements signed with certain former
officers of the Company and charges for severance-related expenses, salaries and
employee benefits expense declined $7.47 million, or 17.46%, from $42.79 million
in 1999 to $35.32 million in 2000. The decline in compensation costs corresponds
to a 11.69% decline in the number of full-time equivalents (FTEs) employed by
the Company during these periods. As of September 30, 2000, the Company employed
1,383 FTEs, as compared to 1,566 FTEs as of September 30, 1999. These declines
reflect the impact of the Company's downsizing of its California Specialty
Finance operations and the reorganization within its community banking segment.
31
<PAGE>
Other expenses increased $4.50 million, or 15.44%, from $29.15 million during
the first nine months of 1999, to $33.65 million in 2000. This increase was
primarily attributable to the expenses associated with the Reston, Virginia loan
production office, which was opened in the fourth quarter of 1999.
Three Months Ended September 30, 2000 vs. 1999
Total Other Income decreased $4.90 million, or 36.41%, from $13.47
million during the third quarter of 1999, to $8.56 million in 2000. As noted
previously, the Company recorded charges against third quarter earnings of $2.72
million (pre-tax) and $1.03 million (pre-tax) associated with a market value
adjustment of its junior lien mortgage loan portfolio and the sale of junior
lien mortgage loans, respectively. The combined effect of these third quarter
2000 events represented a pre-tax charge against earnings of $3.75 million,
which is included in the $3.30 million net loss on the sale of loans reported
for the three months ended September 30, 2000. Additionally, the decline in the
loan servicing portfolio resulted in a $1.17 million, or 20.52%, decline in loan
servicing fees from 1999 to 2000.
Total Other Expenses declined $3.49 million, or 11.19%, from $31.13
million during the third quarter of 1999 to $27.65 million in 2000. This decline
was primarily due to a $3.10 million, or 22.49%, decline in compensation costs
as discussed above.
MARKET RISK MANAGEMENT
Market risk is the risk of loss due to adverse changes in current and
future cash flows, fair values, earnings or capital due to adverse movements in
interest rates and other market factors, including foreign exchange rates and
commodity prices. Because the Company has no significant foreign exchange
activities and holds no commodities, interest rate risk represents the primary
risk factor affecting the Company's balance sheet. The Company seeks to reduce
interest rate risk through asset and liability management, where the goal is to
optimize the balance between earnings and interest rate risk. The Company's
asset and liability management function is responsible for reviewing the
interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to such risks.
Liquidity management is a significant factor in monitoring and managing
the Company's exposure to market risk. The Company manages its liquidity
position to provide necessary funding for asset growth and to ensure that the
funding needs of its customers can be satisfied promptly. Growth within the
Company's loan portfolio coupled with declines in deposit balances since March
1999 has resulted in the Company's need for increased short-term funding.
Increased reliance on short-term funding facilities has increased the Company's
exposure to interest rate risk and has resulted in an overall increase in
funding costs. Such changes have had an adverse affect on the Company's net
interest margin and overall profitability during the first nine months of 2000.
32
<PAGE>
As disclosed in the Form 10-Q for the first and second quarters of
2000, the Company instituted procedures to slow loan growth in an effort to
reduce its reliance on higher costing external funding sources. Implementation
of these procedures has had a positive effect on the liquidity position of City
National during the third quarter of 2000. When combined with the additional
liquidity provided by the loan sales transacted during the second and third
quarters of 2000, the effects of reduced levels of loan growth have enabled the
Company to allow previously issued brokered deposits to mature without the need
to issue additional brokered deposits. As a result, the outstanding balance of
brokered deposits has declined from $212.31 million at July 31, 2000 to $182.12
million as of September 30, 2000. The outstanding balance further declined in
October to $146.00 million as of October 31, 2000. The weighted average maturity
of outstanding brokered deposits is less than six months and the weighted
average rate to be paid by the Company is approximately 6.60%.
Effective June 21, 2000, the Parent Company's Term Loan agreement was
amended to provide for revised terms and conditions, including modifying the
maturity date of the Term Loan from October 1, 2009, to March 31, 2001. As
required by the terms of the loan agreement, the Company remitted a $1.60
million principal payment, plus interest, on September 30, 2000. The $14.40
million remaining principal balance outstanding is included in Short-term
borrowings in the Consolidated Balance Sheets as of September 30, 2000. As of
September 30, 2000, the Parent Company also has $12.13 million outstanding
pursuant to the terms of a $15.00 million Line of Credit with an unrelated third
party. This balance is also included in Short-term borrowings in the
Consolidated Balance Sheets.
CAPITAL RESOURCES
Consolidated stockholders' equity declined $637,000, or 0.32%, from
$198.54 million at December 31, 1999 to $197.90 million at September 30, 2000.
For the nine months ended September 30, 2000, the Company reported net income of
$3.39 million and paid dividends to its common shareholders of $6.08 million,
thus reducing consolidated stockholders' equity by approximately $2.68 million.
This decline, however, was partially offset by an increase in the estimated fair
value of the Company's securities available-for-sale portfolio, which resulted
in a $1.85 million increase in consolidated equity during the nine months ended
September 30, 2000.
Regulatory guidelines require the Company to maintain a minimum total
capital to risk-adjusted assets ratio of 8 percent (Total capital ratio), with
at least one-half of capital consisting of tangible common stockholders' equity
(Tier I capital ratio) and a minimum Tier I leverage ratio of 4 percent
(Leverage ratio). At September 30, 2000, the Company's total capital to risk-
adjusted assets ratio was 11.23%, its Tier I capital ratio was 9.48%, and its
leverage ratio was 8.65%. Similarly, the Company's banking subsidiaries are also
33
<PAGE>
required to maintain minimum capital levels as set forth by various regulatory
agencies. Under capital adequacy guidelines, the banking subsidiaries are
required to maintain minimum total capital, Tier I capital, and leverage ratios
of 8.00%, 4.00%, and 4.00%, respectively. To be classified as "well
capitalized," the banking subsidiaries must maintain total capital, Tier I
capital, and leverage ratios of 10.00%, 6.00%, and 5.00%, respectively. As
disclosed in Note I - Regulatory Matters, pursuant to the terms of the formal
agreement entered into with the Comptroller of the Currency, City National is
required to maintain certain capital ratios. Specifically, City National is
required to maintain a total risk based capital ratio at least equal to 10.00%.
As of September 30, 2000, City National, reported total capital, Tier I capital,
and leverage ratios of 12.22%, 11.15%, and 10.29%, respectively.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information called for by this item is provided under the caption
"Market Risk Management" under Item 2--Management Discussion and Analysis of
Financial Condition and Results of Operations.
34
<PAGE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
<S> <C> <C>
The Company is party to various legal actions that are
incidental to its business. While the outcome of legal
actions cannot be predicted with certainty, the Company
believes that the outcome of any of these proceedings, or
all of them combined, will not have a material adverse
effect on its consolidated financial position, results of
operations, or cash flows. See Note I - "Regulatory
Matters" for a description of City National Bank of West
Virginia's formal agreement with the Comptroller of the
Currency.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior 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 Form 8-K:
Exhibits
Exhibit 11 - Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule for the nine months
ended September 30, 2000
Reports on Form 8-K
On July 27, 2000, the Company filed a Current Report on
Form 8-K, attaching a news release issued on July 12,
2000, announcing that its principal bank subsidiary, City
National Bank of West Virginia, had entered into a formal
agreement with the Comptroller of the Currency.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities and 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
Date: November 14, 2000
By: /s/ Michael D. Dean
-----------------------------
Michael D. Dean
Senior Vice President - Finance,
Chief Accounting Officer and
Duly Authorized Officer
35
