<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 March 31, 2000
--------------
OR
[_] TRANSITION REPORT PURSUANT 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 report(s), 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 - 16,874,836 shares as of May 12, 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 sale of the specialty finance servicing and origination divisions, if
completed, or the planned relocation of the origination operations may not have
the long-term positive impact on the Company's operating results currently
anticipated; (2) 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; (3) 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; (4) as critical dates approach
during 2000, the Company's technology systems may experience Year 2000-related
disruptions; (5) 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; (6) 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; (7) changes
in general economic conditions and increased competition could adversely affect
the Company's operating results; and (8) 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 (Unaudited)
Consolidated Balance Sheets - March 31, 2000 and December 31,
1999
Consolidated Statements of Income - Three months ended March
31, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity -
Three months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows - Three months ended
March 31, 2000 and 1999
Notes to Consolidated Financial Statements - March 31, 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>
March 31 December 31
2000 1999
---------------------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 74,375 $ 120,122
Federal funds sold 3,944 1,990
---------------------------------
Cash and Cash Equivalents 78,319 122,112
Securities available for sale, at fair value 363,620 381,112
Loans:
Gross loans 1,942,285 1,886,114
Allowance for loan losses (27,334) (27,113)
---------------------------------
Net Loans 1,914,951 1,859,001
Loans held for sale 116,468 118,025
Retained interests 76,957 76,963
Premises and equipment 64,603 66,119
Accrued interest receivable 17,759 18,149
Other assets 159,694 151,009
---------------------------------
Total Assets $2,792,371 $2,792,490
=================================
Liabilities
Deposits:
Noninterest-bearing $ 232,309 $ 246,555
Interest-bearing 1,737,953 1,709,215
---------------------------------
Total Deposits 1,970,262 1,955,770
Short-term borrowings 366,838 386,719
Long-term debt 116,000 116,000
Corporation-obligated mandatorily redeemable capital securities of
subsidiary trusts holding solely subordinated debentures of City
Holding Company 87,500 87,500
Other liabilities 53,237 47,959
---------------------------------
Total Liabilities 2,593,837 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; 16,879,815 shares issued and outstanding at March 31,
2000 and December 31, 1999, including 4,979 and 9,646 shares,
respectively, in treasury 42,199 42,199
Capital surplus 59,081 59,164
Retained earnings 113,596 112,951
Cost of common stock in treasury (136) (285)
Accumulated other comprehensive loss (16,206) (15,487)
---------------------------------
Total Stockholders' Equity 198,534 198,542
---------------------------------
Total Liabilities and Stockholders' Equity $2,792,371 $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>
Three Months Ended March 31
2000 1999
----------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $43,750 $43,708
Interest on investment securities:
Taxable 4,280 4,274
Tax-exempt 1,188 1,288
Other interest income 99 1,325
----------------------------
Total Interest Income 49,317 50,595
Interest Expense
Interest on deposits 18,021 18,597
Interest on short-term borrowings 4,667 1,958
Interest on long-term debt 1,589 1,643
Interest on trust preferred securities 2,004 1,998
----------------------------
Total Interest Expense 26,281 24,196
----------------------------
Net Interest Income 23,036 26,399
Provision for loan losses 2,085 2,414
----------------------------
Net Interest Income After Provision for Loan Losses 20,951 23,985
Other Income
Investment securities gains - 42
Service charges 2,404 2,185
Mortgage loan servicing fees 4,854 5,685
Net origination fees on junior-lien mortgages 902 193
Gain on sale of loans 1,028 725
Other income 4,460 5,589
----------------------------
Total Other Income 13,648 14,419
Other Expenses
Salaries and employee benefits 12,421 15,212
Occupancy, excluding depreciation 1,847 3,344
Depreciation 3,018 2,628
Advertising 1,611 1,120
Other expenses 9,877 8,315
----------------------------
Total Other Expenses 28,774 30,619
----------------------------
Income Before Income Taxes 5,825 7,785
Income taxes 1,806 2,540
----------------------------
Net Income $ 4,019 $ 5,245
============================
Basic earnings per common share $0.24 $0.31
============================
Diluted earnings per common share $0.24 $0.31
============================
Average common shares outstanding:
Basic 16,875 16,820
============================
Diluted 16,875 16,820
============================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 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 4,019 4,019
Other comprehensive income, net of deferred
income taxes of $404:
Unrealized loss on securities (719) (719)
-------------
Total comprehensive income 3,300
Cash dividends declared ($0.20/share) (3,374) (3,374)
Issuance of contingently-issuable common stock (83) 149 66
-----------------------------------------------------------------------------
Balances at March 31, 2000 $42,199 $59,081 $113,596 $(136) $(16,206) $198,534
=============================================================================
</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 5,245 5,245
Other comprehensive income, net of deferred
income taxes of $1,337:
Unrealized loss on securities and retained
interests of $1,981, net of reclassification
adjustment for gains included in net income
of $25 (2,006) (2,006)
------------
Total comprehensive income 3,239
Cash dividends declared ($0.20/share) (3,362) (3,362)
Purchase of 11,999 shares of treasury stock (398) (398)
Issuance of contingently issuable common stock (17) 132 115
-----------------------------------------------------------------------------
Balances at March 31, 1999 $42,051 $58,348 $122,092 $(540) $ (2,298) $219,653
=============================================================================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 1999
-------------------------------
<S> <C> <C>
Operating Activities
Net income $ 4,019 $ 5,245
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net amortization 1,579 1,267
Provision for depreciation 3,018 2,628
Provision for possible loan losses 2,085 2,414
Loans originated for sale (96,080) (110,593)
Purchases of loans held for sale (8,958) (60,225)
Proceeds from loans sold 107,623 127,161
Realized gains on loans sold (1,028) (725)
Decrease (increase) in retained interests 6 (90)
Realized investment securities gains - (42)
Decrease (increase) in accrued interest receivable 390 (3,018)
Increase in other assets (9,662) (12,672)
Increase in other liabilities 5,278 7,645
------------------------------
Net Cash Provided by (Used in) Operating Activities 8,270 (41,005)
Investing Activities
Proceeds from maturities and calls of securities held to maturity - 27
Proceeds from sales of securities available for sale 22,034 5,607
Proceeds from maturities and calls of securities available for sale 9,800 26,020
Purchases of securities available for sale (15,597) (24,012)
Net increase in loans (58,035) (34,204)
Purchases of premises and equipment (1,502) (2,213)
------------------------------
Net Cash Used in Investing Activities (43,300) (28,775)
Financing Activities
Net decrease in noninterest-bearing deposits (14,246) (12,336)
Net increase in interest-bearing deposits 28,738 28,374
Net (decrease) increase in short-term borrowings (19,881) 24,995
Proceeds from long-term debt - 8,000
Repayment of long-term debt - (117)
Purchases of treasury stock - (398)
Cash dividends paid (3,374) (3,362)
------------------------------
Net Cash (Used in) Provided by Financing Activities (8,763) 45,156
------------------------------
Decrease in Cash and Cash Equivalents (43,793) (24,624)
Cash and cash equivalents at beginning of period 122,112 119,777
------------------------------
Cash and Cash Equivalents at End of Period $ 78,319 $ 95,153
==============================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 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 three months ended March 31,
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 included in
the City Holding Company annual report on Form 10-K for the year ended December
31, 1999.
NOTE B - SECURITIZATIONS AND RETAINED INTERESTS
The Company did not transact a securitization during the first quarter of
1999 and terminated its securitization program subsequent to the May 1999
securitization. As of March 31, 2000 and 1999, the Company reported retained
interests in its securitizations of approximately $76.96 million and $65.71
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. To date, negative fair value
adjustments approximating $21.57 million, pre-tax, have been recorded. Such fair
value declines, deemed to be temporary, have been recorded through the Other
Comprehensive Income section with Stockholders' Equity. Adjustments to the
estimated fair value of retained interests are primarily the result
8
<PAGE>
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.
Key assumptions used in estimating the fair value of the Company's retained
interests as of March 31, 2000 and 1999 were as follows:
March 31
2000 1999
--------------------------------
Prepayment speed (CPR) 15-21% 17-21%
Weighted average cumulative defaults 13.39% 10.00%
Weighted average discount rate 14.00% 12.23%
At March 31, 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 March 31, 2000 $ 76,957
Prepayment curve:
Impact on fair value of 10% increase in the prepayment curve 1,379
Impact on fair value of 20% increase in the prepayment curve 2,032
Default curve:
Impact on fair value of 10% increase in the default curve (10,673)
Impact on fair value of 20% increase in the default curve (17,997)
Discount rate:
Impact on fair value of 10% increase in the discount rate (5,431)
Impact on fair value of 20% increase in the discount rate (10,603)
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 - LONG TERM DEBT
Long-term debt includes an obligation of the Parent Company consisting of a
$16.00 million term loan with an unrelated party. At March 31, 2000, $16.00
million was outstanding. The loan agreement,
9
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which matures on October 1, 2009, requires ten equal, annual principal payments
of $1.60 million, with interest payments due quarterly. The loan has a variable
rate (6.82625% at March 31, 2000). The loan agreement was amended effective May
1, 2000, to provide for revised terms and conditions. At March 31, 2000, the
Company was in violation of a loan covenant under this agreement relating to
required return on average assets ratios. Under the revised terms of the
agreement, the Company is now in compliance with all loan covenants. Similar to
the initial loan agreement, the amended agreement contains 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, loan loss reserve coverage, and
net worth levels. Additionally, City National must maintain its "well-
capitalized" classification. The Company has pledged the common stock of City
National, Del Amo Savings Bank and Frontier State Bank as collateral.
The Company, through its banking subsidiaries, maintains long-term
financing from the FHLB as follows:
Amount Available Amount Outstanding Interest Rate Maturity Date
- --------------------------------------------------------------------------------
(in thousands)
$10,000 $ 10,000 5.60% July 2002
25,000 25,000 5.47 September 2002
25,000 25,000 5.45 October 2006
5,000 5,000 5.48 February 2008
10,000 10,000 4.86 October 2008
25,000 25,000 5.52 October 2009
--------------
$100,000
--------------
In addition to the financing discussed above, the Company's subsidiaries
have $216.73 million of available borrowings from the Federal Home Loan Bank as
of March 31, 2000.
NOTE D - 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 in a 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 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
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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 accumulated but unpaid distributions thereon.
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.
11
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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 E - 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 March 31, 2000, commitments
outstanding to extend credit totaled approximately $275.34 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
$34.69 million as of March 31, 2000. Substantially all standby letters of credit
have historically expired unfunded.
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 F - 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 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.
12
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NOTE G - SEGMENT INFORMATION
The Company operates three 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 cost.
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 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. Selected segment information is included in
the following table:
13
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<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 March 31, 2000
Net interest income (expense) $ 26,438 $ (2,844) $ (72) $ (486) $ - $ 23,036
Provision for loan losses 2,085 - - - - 2,085
--------------------------------------------------------------------------
Net interest income after provision
for loan losses 24,353 (2,844) (72) (486) - 20,951
Other income 4,606 6,978 3,390 5 (1,331) 13,648
Other expenses 17,444 7,464 3,449 1,748 (1,331) 28,774
--------------------------------------------------------------------------
Income before income taxes 11,515 (3,330) (131) (2,229) - 5,825
Income tax expense (benefit) 3,907 (527) (39) (1,535) - 1,806
--------------------------------------------------------------------------
Net Income $ 7,608 $ (2,803) $ (92) $ (694) $ - $ 4,019
==========================================================================
Average assets $2,730,872 $176,514 $13,324 $12,959 $ (183,927) $2,749,742
==========================================================================
For the three months ended March 31, 1999
Net interest income (expense) $ 24,487 $ 2,240 $ 13 $ (341) $ - $ 26,399
Provision for loan losses 2,414 - - - - 2,414
--------------------------------------------------------------------------
Net interest income after provision
for loan losses 22,073 2,240 13 (341) - 23,985
Other income 6,089 6,671 4,563 57 (2,961) 14,419
Other expenses 19,335 7,157 4,557 2,531 (2,961) 30,619
--------------------------------------------------------------------------
Income before income taxes 8,827 1,754 19 (2,815) - 7,785
Income tax expense (benefit) 2,905 697 6 (1,068) - 2,540
Net Income $ 5,922 $ 1,057 $ 13 $(1,747) $ - $ 5,245
==========================================================================
Average assets $2,312,983 $356,593 $15,972 $10,735 $ - $2,696,283
==========================================================================
</TABLE>
Internal warehouse funding between the community banking segment and the
mortgage banking and other financial services segments is eliminated in the
Consolidated Balance Sheets. Services provided to the banking segments by the
direct mail, insurance, and internet service provider divisions are eliminated
in the Consolidated Statements of Income.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Consolidated net income for the three months ended March 31, 2000 was $4.02
million or $0.24 per diluted common share, compared to $5.25 million or $0.31
per diluted common share for the three months ended March 31, 1999. Return on
average assets (ROA) was 0.58% and return on average equity (ROE) was 8.08% for
the three months ended March 31, 2000. ROA and ROE were 0.78% and 9.54%,
respectively, for the same period in 1999.
14
<PAGE>
As further discussed under the caption Net Interest Income, the $3.36
million, or 12.74%, decline in net interest income in the first quarter of 2000,
compared to the first quarter of 1999, was the primary reason for the overall
decline in net income, ROA, and ROE. Partially offsetting the decline in net
interest income was a $329,000, or 13.63%, decline in the provision for loan
losses (see Loan Portfolio) on a quarter-to-quarter basis, and a $1.85 million,
or 6.03%, decline in Other Expenses (see Other Income and Expenses), from $30.62
million for the first three months of 1999 to $28.77 million for the first three
months of 2000.
NET INTEREST INCOME
Primarily as a result of significant declines in interest income within the
mortgage banking segment and higher overall funding costs, net interest income
(tax equivalent basis) declined $3.42 million, or 12.61%, in the first quarter
of 2000, compared to the first quarter of 1999. With the Company's reduced
participation in the specialty finance sector, the average balance of loans held
for sale declined 54.71% on a quarter-to-quarter basis, resulting in a reduction
in interest income of $3.36 million. Additionally, management has suspended the
accrual of interest income on the Company's retained interests due to the actual
performance of the underlying collateral loans and revised forecasts associated
with the expected timing of the receipt of cash flows by the Company. As a
result, interest income derived from the retained interests declined from $1.24
million during the first three months of 1999 to $41,000 during the same period
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.
Although interest paid to depositors remained relatively unchanged from
quarter-to-quarter, interest expense associated with short term borrowings
increased $2.71 million, from $1.96 million during the first quarter of 1999 to
$4.67 million during the same period of 2000. This increase was due to the
combined effect of rising interest rates and higher volume of such borrowings.
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 interest rate increases have adversely affected the Company's borrowing
rates, as evidenced by the significant increase in the cost of short term
borrowings. In addition to rate increases, the Company has experienced
significant loan growth and sizeable declines in its deposit
15
<PAGE>
balances since March 1999, resulting in an increased need for 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. This change within the
Company's balance sheet has resulted in an increase in the average balance of
short-term funding from $181.11 million during the first three months of 1999 to
$331.31 million during the same period of 2000. See Market Risk Management
herein for a further discussion of the Company's liquidity position.
AVERAGE BALANCE SHEETS and NET INTEREST INCOME
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loan portfolio (1): $1,905,127 $40,545 8.51% $1,726,645 $37,145 8.61%
Loans held for sale 117,651 3,205 10.90 259,758 6,562 10.10
Securities:
Taxable 268,792 4,280 6.37 286,238 4,274 5.97
Tax-exempt (2) 95,969 1,828 7.62 104,961 1,982 7.55
-----------------------------------------------------------------------------------
Total securities 364,761 6,108 6.70 391,199 6,256 6.40
Retained interest in securitized loans 76,959 41 0.21 66,240 1,244 7.51
Federal funds sold 3,636 58 6.38 8,349 81 3.88
-----------------------------------------------------------------------------------
Total interest-earning assets 2,468,134 49,957 8.10 2,452,191 51,288 8.37
Cash and due from banks 74,600 82,467
Bank premises and equipment 65,440 70,015
Other assets 168,710 109,435
Less: allowance for loan losses (27,142) (17,825)
-----------------------------------------------------------------------------------
Total assets $2,749,742 $2,696,283
===================================================================================
Liabilities
Demand deposits $ 420,121 $ 3,164 3.01% $ 346,249 $ 2,553 2.95%
Savings deposits 329,361 2,756 3.35 391,541 2,550 2.61
Time deposits 967,654 12,101 5.00 1,031,357 13,494 5.23
Short-term borrowings 331,306 4,667 5.63 181,111 1,958 4.32
Long-term debt 116,000 1,589 5.48 104,845 1,643 6.27
Trust preferred securities 87,500 2,004 9.16 87,500 1,998 9.13
-----------------------------------------------------------------------------------
Total interest-bearing liabilities 2,251,942 26,281 4.67 2,142,603 24,196 4.52
Demand deposits 240,736 286,708
Other liabilities 58,161 47,126
Stockholders' equity 198,903 219,846
-----------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,749,742 $2,696,283
===================================================================================
Net interest income $23,676 $27,092
===================================================================================
Net yield on earning assets 3.84% 4.42%
====================================================================================
</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%.
16
<PAGE>
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 vs. 1999
Increase (Decrease)
Due to Change In:
Volume Rate Net
--------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Loan portfolio $ 6,228 $(2,888) $ 3,340
Loans held for sale (7,178) 3,881 (3,297)
Securities:
Taxable (1,084) 1,090 6
Tax-exempt (1) (265) 111 (154)
--------------------------------------------
Total securities (1,349) 1,201 (148)
Retained interest in securitized loans 1,209 (2,412) (1,203)
Federal funds sold (206) 183 (23)
--------------------------------------------
Total interest-earning assets $(1,296) $ (35) $(1,331)
============================================
Interest-bearing liabilities:
Demand deposits $ 555 $ 56 $ 611
Savings deposits (2,006) 2,212 206
Time deposits (812) (581) (1,393)
Short-term borrowings 1,984 725 2,709
Long-term debt 733 (787) (54)
Trust preferred securities - 6 6
--------------------------------------------
Total interest-bearing liabilities $ 454 $ 1,631 $ 2,085
============================================
Net Interest Income $(1,750) $(1,666) $(3,416)
============================================
</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.
LOAN PORTFOLIO
The composition of the Company's loan portfolio as of March 31, 2000, is
presented in the following table:
Commercial, financial and agricultural $ 642,689
Real estate-mortgage 933,133
Installment loans to individuals 366,463
--------------
Total loans $1,942,285
==============
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 inherent
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
17
<PAGE>
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. At March 31, 2000, the allowance for loan losses was $27.33 million
or 1.41% of total period-end loans compared to $27.11 million or 1.44% as of
December 31, 1999. For further information regarding the Company's allowance
for loan losses at December 31, 1999, 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. As of March 31, 2000,
management is of the opinion that the consolidated allowance for loan losses is
adequate to provide for losses on existing loans within the portfolio.
18
<PAGE>
The first quarter 2000 provision for loan losses of $2.09 million represents
a decline of $329,000 or 13.63% from the $2.41 million provision for loan losses
reported for the first quarter of 1999. This decline corresponds to a minimal
decline in net charge-offs for the first quarter of 2000, as compared to the
first three months of 1999, and a $2.42 million or 13.42% decline in non-
performing loans from March 31, 1999 to March 31, 2000.
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
Allowance for Loan Losses 2000 1999
-------------------------------------------
<S> <C> <C>
Balance at beginning of period $27,113 $ 17,610
Charge-offs:
Commercial, financial and agricultural (143) (3,925)
Real estate-mortgage (257) (1,142)
Installment loans to individuals (2,130) (7,185)
-------------------------------------------
Totals (2,530) (12,252)
Recoveries:
Commercial, financial and agricultural 135 81
Real estate-mortgage 77 301
Installment loans to individuals 454 1,349
-------------------------------------------
Totals 666 1,731
-------------------------------------------
Net charge-offs (1,864) (10,521)
Provision for loan losses 2,085 19,286
Balance of acquired institution - 738
-------------------------------------------
Balance at end of period $27,334 $ 27,113
===========================================
As a Percent of Average Total Loans:
Net charge-offs .39% .59%
Provision for loan losses .44 1.08
As a Percent of Non-Performing Loans:
Allowance for loan losses 175.13% 168.55%
Summary of Non-performing Assets
Non-accrual loans $12,313 $ 9,553
Accruing loans past due 90 days or more 2,600 5,830
Restructured loans 695 703
-----------------------------------------
Total non-performing loans 15,608 16,086
Other real estate owned 4,376 3,496
-----------------------------------------
Total non-performing assets $19,984 $19,582
=========================================
</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-
19
<PAGE>
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 March 31,
2000, conventional mortgage loans represented $34.94 million or 30.00% of the
reported balance of loans held for sale.
During 1999, the Company merged its correspondent lending division into its
broker division and consolidated its separate loan origination platforms into
one retail operation. These divisions, respectively, purchase and originate
junior lien and similar mortgage loans for sale. Generally, these loans are used
by the borrower to finance property improvements or to consolidate personal
debt. With the restructuring of these divisions during 1999, the Company
significantly reduced the volume of origination and acquisition of this loan
product and terminated its loan securitization program.
Through formal underwriting guidelines and quality control procedures, the
Company has implemented policies and procedures to mitigate the risks associated
with the junior lien mortgage product, including concentration risk, credit
risk, and interest rate risk. Such policies and procedures addressed lending
issues related to the creditworthiness of the borrower, credit scores, debt-to-
income ratios, borrower credit histories, and other pertinent factors. Due to
the nature of the junior lien mortgage loan, less emphasis is placed on the
value of the underlying collateral, although property appraisals may be required
for certain loans.
During the first quarter of 2000, the Company originated $96.08 million and
purchased $8.96 million in loans held for sale and sold $107.62 million during
the same period. This compares to originations of $110.59 million, purchases of
$60.23 million and sales of $127.16 million during the first quarter 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
20
<PAGE>
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 March 31, 2000 and 1999, the Company reported retained interests in
these securitized loan pools of approximately $76.96 million and $65.71 million,
respectively, including accrued interest. Assumptions used to estimate the
retained interest at March 31, 2000, include weighted average cumulative
defaults approximating 13.39%, 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
interest are still reasonable. Quarterly, management re-forecasts expected cash
flows for each securitization, updating significant assumptions as necessary. To
date, negative fair value adjustments approximating $21.57 million, pre-tax,
have been recorded. Such fair value declines, deemed to be temporary, have been
recorded through the Other Comprehensive Income section with Stockholders'
Equity. 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. Although a
fair value reduction has been recorded, re-forecasted cash flows as of March 31,
21
<PAGE>
2000 project undiscounted cash flows to be received by the Company are 2.16
times the total retained interest values, before fair value adjustments.
LOAN SERVICING
At March 31, 2000 and 1999, the Company maintained a servicing portfolio of
$1.71 billion and $1.96 billion, respectively. Of the total servicing portfolio,
$1.63 billion and $1.66 billion represented loans serviced for others at March
31, 2000 and 1999, respectively. Loans serviced for others are not included in
the Consolidated Balance Sheets of the Company.
The Company has recorded mortgage loan servicing rights of $9.09 million
and $8.33 million at March 31, 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 include anticipated servicing income, costs associated
with servicing the portfolio, discount rates, and loan prepayment and default
rates. As of March 31, 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
Total Other Income declined $771,000 or 5.35% from $14.42 million for the
first three months of 1999 to $13.65 million for the first three months of 2000.
The overall decline in Other Income is due to a number of factors, including the
contraction of the Company's specialty finance operations with a corresponding
negative impact to fee income derived from mortgage loan servicing operations.
Although net origination fees realized from the origination of junior lien
mortgage loans increased from period-to-period, during the first quarter of
1999, the Company deferred certain origination fees and associated costs. Such
fees and costs were realized during the second quarter of 1999 upon the
completion of the Company's May 1999 securitization transaction. Additionally,
the sale of certain branch facilities and associated deposit relationships
during 1999 resulted in a decline in Other Income reported during the first
quarter of 2000.
22
<PAGE>
Within Other Expenses, salaries and employee benefits declined $2.79
million or 18.35% from $15.21 million during the first quarter of 1999 to $12.42
million during the first quarter of 2000. The decline in compensation costs
incurred by the Company corresponds to a 15.00% decline in the number of full-
time equivalents (FTEs) employed by the Company during these time periods. As of
March 31, 2000, the Company employed 1,503 FTEs compared to 1,768 FTEs employed
at March 31, 1999. These declines reflect the impact of the Company's
contraction of its specialty finance operations and the reorganization within
its community banking segment. Occupancy expense declined $1.50 million or
44.77% from $3.34 million for the first quarter of 1999 to $1.85 million for the
first quarter of 2000. This decline is primarily due to the reduced number of
branch locations of City National resulting from the sale of certain branch
facilities during 1999 and the contraction of the Company's specialty finance
operations. Other expenses increased $1.56 million or 18.79% from $8.32 million
for the first quarter of 1999 to $9.88 million for the first quarter of 2000,
primarily attributable to a loan production office of City National opened at
the beginning of the fourth quarter of 1999 in Reston, Virginia.
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
23
<PAGE>
costs. Such changes have had an adverse affect on the Company's net interest
margin and overall profitability during the first quarter of 2000.
In recent months, the Company has instituted procedures to slow loan growth
and to attract new deposit balances in an effort to reduce its reliance on
external funding sources. Additionally, during the first quarter of 2000, the
Company issued an additional $30.00 million in brokered certificates of deposit
through existing agreements maintained with three investment banking firms. As
of March 31, 2000, the outstanding balance of brokered certificates of deposit
approximated $52.67 million, compared to $28.04 million at December 31, 1999. As
of March 31, 2000, the weighted average maturity of brokered certificates of
deposit was less than one year and the weighted average interest rate to be paid
by the Company approximated 6.18%. Through additional issues sold subsequent to
March 31, 2000, the outstanding balance of brokered certificates of deposit has
increased to $119.98 million as of April 30, 2000. The additional issues have
similar terms as those previously disclosed.
Effective May 1, 2000, the terms and conditions of the Parent Company's
long term debt and line of credit borrowing facilities were amended. Included in
these amendments, the Parent Company's borrowing capacity under its line of
credit was reduced from $24.00 million to $15.00 million. As of March 31, 2000,
$12.13 million was outstanding pursuant to the terms of the line of credit
agreement, which matures on March 31, 2001.
CAPITAL RESOURCES
During the first quarter of 2000, the Company reported net income of $4.02
million and paid dividends to its shareholders of $3.38 million. Offsetting this
increase in equity, the Company reported a $719,000 increase in Other
Comprehensive Losses as a result of declines in the fair market value of the
Company's available-for-sale securities portfolio. As a result, total equity
capital was relatively unchanged during the first three months of 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 March 31, 2000, the Company's total capital to risk-
adjusted assets ratio was 10.97%, its Tier I capital ratio was 9.30%, and its
leverage ratio was 8.91%. Similarly, the Company's banking subsidiaries are
24
<PAGE>
also 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 of
March 31, 2000, the Company's lead bank, City National, reported total capital,
Tier I capital, and leverage ratios of 11.84%, 10.79%, and 9.96%, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
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
Exhibit 11 - Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule for the three
months ended March 31, 2000
Reports on Form 8-K None
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
By: /s/ Michael D. Dean
----------------------------
Michael D. Dean
Senior Vice President - Finance,
Chief Accounting Officer and
Duly Authorized Officer
25
<PAGE>
EXHIBIT 11 - STATEMENT Re: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-----------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Basic:
Net income $ 4,019 $ 5,245
Average shares outstanding 16,875 16,820
Basic EPS $ 0.24 $ 0.31
===============================================
Diluted:
Net income $ 4,019 $ 5,245
Average shares outstanding 16,875 16,820
Effect of dilutive securities:
Contingently issuable stock - 5
-----------------------------------------------
Totals 16,875 16,825
Diluted EPS $ 0.24 $ 0.31
===============================================
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 74,375
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,944
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 363,620
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,942,285
<ALLOWANCE> 27,334
<TOTAL-ASSETS> 2,792,371
<DEPOSITS> 1,970,262
<SHORT-TERM> 366,838
<LIABILITIES-OTHER> 53,237
<LONG-TERM> 203,500
0
0
<COMMON> 42,199
<OTHER-SE> 156,335
<TOTAL-LIABILITIES-AND-EQUITY> 2,792,371
<INTEREST-LOAN> 43,750
<INTEREST-INVEST> 5,468
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 49,317
<INTEREST-DEPOSIT> 18,021
<INTEREST-EXPENSE> 26,281
<INTEREST-INCOME-NET> 23,036
<LOAN-LOSSES> 2,085
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 28,774
<INCOME-PRETAX> 5,825
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,019
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 3.84
<LOANS-NON> 12,313
<LOANS-PAST> 2,600
<LOANS-TROUBLED> 695
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 27,113
<CHARGE-OFFS> 2,530
<RECOVERIES> 1,864
<ALLOWANCE-CLOSE> 27,334
<ALLOWANCE-DOMESTIC> 27,334
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
