Exhibit 99.1
NEWS RELEASE
For Immediate Release
July 23, 2007
For Further Information Contact:
Charles R. Hageboeck, Chief Executive Officer and President
(304) 769-1102
City Holding Company Announces Second Quarter Earnings
Charleston, West Virginia – City Holding Company, “the Company” (NASDAQ:CHCO), a $2.5 billion bank holding company headquartered in Charleston, today announced net income for the second quarter of $12.3 million or $0.72 per diluted share compared to $13.8 million or $0.77 per diluted share in the second quarter of 2006. For the second quarter of 2007, the Company achieved a return on assets of 1.94%, a return on equity of 16.1%, a net interest margin of 4.32%, and an efficiency ratio of 45.7%. This compares with a return on assets of 2.17%, a return on equity of 18.8%, a net interest margin of 4.58%, and an efficiency ratio of 44.1% for the comparable period of 2006.
Charles Hageboeck, Chief Executive Officer and President, noted, “The Company’s earnings for the second quarter of 2007 decreased by $1.4 million. Decreases of $0.7 million in interest income associated with previously securitized loans (the average balances of which decreased 53%), and $0.6 million in lower credit card fee income as a result of the sales of our retail portfolio and merchant credit card processing agreements were previously anticipated. Additionally, the Company recorded an increase of $0.9 million to our provision for loan losses due to difficulties encountered by a single borrower during the quarter. As a result, the provision recorded during the second quarter was $1.6 million and nonaccrual loans increased by $5.0 million. Despite this increase in non-performing assets, the Company’s asset quality remains strong and comparable to our peer group (bank holding companies with total assets between $1 and $5 billion). Although the Company has incurred higher provision for loan losses than it has since the fourth quarter of 2001, the Company remains one of the most profitable banks in the industry with return on assets of 1.94%. We continue to focus on maintaining City’s status as one of the most profitable banks in the industry while focusing on achieving reasonable growth given the markets in which we operate. To that end, we opened a new branch in Ripley, WV and relocated our Company’s eastern panhandle headquarters into a new 7,500 square foot office in Martinsburg, WV during the second quarter. We also broke ground for our new branch location in Princeton, WV during the second quarter and expect this branch to open in November 2007. Additionally we are pleased to announce plans to open a new branch in Hurricane, WV during the first quarter of 2008.
The two largest sources of non-interest income – branch service charges and insurance revenues, both showed solid growth in the second quarter, and the Company has continued to recruit additional talent to strengthen our ability to compete effectively in our markets. During the quarter, the Company was able to repurchase 305,900 shares of its common stock and maintain its strong tangible equity to tangible assets ratio of 9.6% at June 30, 2007. We look forward to continuing our solid performance for our shareholders despite the many challenges currently facing financial services institutions.”
Balance Sheet Trends
As compared to December 31, 2006, loans have increased $52.9 million (3.2%) at June 30, 2007 with increases in loans to depository institutions of $35.0 million, (140.0%), home equity loans of $8.5 million (2.6%), commercial loans of $7.7 million (1.1%), installment loans of $4.5 million (10.4%), and residential real estate loans of $2.5 million (0.4%). These increases were partially offset by decreases in previously securitized loans of $5.3 million (see Previously Securitized Loans).
Total average depository balances increased $32.2 million, or 1.6%, from the quarter ended December 31, 2006 to the quarter ended June 30, 2007. This growth was primarily in savings and time deposits, which have increased $27.5 million and $7.9 million, respectively.
Net Interest Income
The Company’s tax equivalent net interest income decreased $1.6 million, or 6.1%, from $26.2 million during the second quarter of 2006 to $24.6 million during the second quarter of 2007. This decrease is attributable to two factors. First, the Company experienced a decrease of $0.7 million in interest income from previously securitized loans in the second quarter of 2007 as compared to the second quarter of 2006 as the average balance of these loans decreased 53.4%. The decrease in average balances was partially mitigated by an increase in the yield on these loans from 41.9% for the second quarter of 2006 to 66.4% for the second quarter of 2007 (see Previously Securitized Loans). Secondly, during the third quarter of 2006, the Company sold its retail credit card portfolio. Average credit card loans outstanding were $13.1 million in the second quarter of 2006. This resulted in a decrease in interest income of $0.5 million from the second quarter of 2006. An increase of $2.6 million in interest income from all other loans (commercial, residential, home equity, and consumer) was offset by an increase of $2.6 million in interest expense on deposits.
The Company’s net interest margin was 4.32% in the second quarter of 2007 as compared to 4.58% in the second quarter of 2006. The decline in the net interest margin can be partially attributed to lower interest income from previously securitized loans and the loss of interest income due to the sale of the retail credit card portfolio. Excluding these assets, the Company’s net interest margin decreased 15 basis points from 4.20% during the second quarter of 2006 to 4.05% for the second quarter of 2007. This compression is due to an increase in the rate paid on total interest-bearing liabilities, and reflects an increase in the cost of time deposits.
Credit Quality
At June 30, 2007, the Allowance for Loan Losses (“ALLL”) was $16.6 million or 0.96% of total loans outstanding and 145% of non-performing loans compared to $16.1 million or 0.95% of loans outstanding and 236% of non-performing loans at March 31, 2007, and $15.4 million or 0.92% of loans outstanding and 385% of non-performing loans at December 31, 2006.
As a result of the Company’s quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $1.6 million in the second quarter of 2007 compared to $0.7 million for the comparable period in 2006. The Company’s provision reflects the difficulties encountered by one of the Company’s borrowers (which has been engaged in residential construction of several properties) and the downgrade of five related credits. While the downgrade of this credit relationship unfavorably impacted the provision and resulted in an increase in nonaccrual loans of $5.0 million, the quality of the Company’s loan portfolio (exclusive of the aforementioned credits) continues to improve. Total past due loans have declined 15% from $9.9 million at December 31, 2006 to $8.3 million at June 30, 2007. This improvement has been primarily associated with residential real estate loans (down 1.2 million or 26%) from December 31, 2006. Changes in the amount of the provision and related allowance are based on the Company’s detailed methodology and are directionally consistent with changes in credit quality and growth and changes in the composition and quality of the Company’s loan portfolio.
The Company had net charge-offs of $1.1 million for the second quarter of 2007, with depository accounts representing $0.6 million (or approximately 55%) of this total. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is reflected in service charges and has been steadily growing as the core base of checking accounts has grown. Net charge-offs on residential and commercial loans were $0.4 million and $0.1 million, respectively, while installments loans experienced no net charge-offs for the quarter ended June 30, 2007. The increase in residential loans was primarily related to four credits that had been appropriately considered in establishing the allowance for loan losses in prior periods. The Company has experience annualized net charge-offs related to loans (excluding overdrafts) of 0.13% for 2007 year to date compared with 0.11% for 2006 and 0.22% for 2005. The trend in net charge-offs is attributable to declines in balances of loans originated prior to 2002 (including loans acquired as part of the Classic Bancshares acquisition). At June 30, 2007, balances of loans written subsequent to 2002 comprise approximately 75% of total loan balances.
The Company’s ratio of non-performing assets to total loans and other real estate owned increased from 0.44% at March 31, 2007 to 0.71% at June 30, 2007 as a result of the downgrade of the credit relationship discussed earlier. Our ratio of non-performing assets to total loans continues to compare favorably to that of our peer group (bank holding companies with total assets between $1 and $5 billion), which reported average non-performing assets as a percentage of loans and other real estate owned of 0.80% for the most recently reported quarter ended March 31, 2007. The composition of the Company’s loan portfolio, which is weighted more heavily toward residential mortgage loans and less towards non-real estate secured commercial
loans than that of our peers, has allowed us to maintain a lower allowance in comparison to peers. In addition, the sale of the Company’s credit card portfolio resulted in a reduction of the allowance of $1.4 million during 2006. As a result, the Company’s ALLL as a percentage of loans outstanding is 0.96% at June 30, 2007. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.
Non-interest Income
Net of investment security gains, non-interest income increased $0.2 million to $13.6 million in the second quarter of 2007 as compared to $13.4 million in the second quarter of 2006. The largest source of non-interest income is service charges from depository accounts, which increased $0.5 million, or 4.8%, from $10.9 million during the second quarter of 2006 to $11.4 million during the second quarter of 2007. Insurance commission revenues increased $0.3 million, or 59.7% due to the hiring of additional staff by City Insurance to provide worker’s compensation insurance to West Virginia businesses and to bolster the Company’s team of insurance agents focused on selling directly to retail customers. Partially off-setting these increases was a decrease in other income of $0.5 million due to lower credit card fee income as a result of the sale of the retail credit card portfolio during the third quarter of 2006 and the sale of the merchant credit card processing agreements during the first quarter of 2007.
Non-interest Expenses
Non-interest expenses remained flat at $17.5 million for both the second quarter of 2006 and the second quarter of 2007. Salaries and employee benefits increased $0.2 million, or 1.7%, from the second quarter of 2006 due to additional staffing while bankcard expenses increased $0.1 million, or 30.3%, due to increased usage by customers. These increases were essentially offset by decreases in other expenses of $0.2 million, or 8.9% due to the sales of the retail and merchant credit card portfolios and a decrease of $0.2 million, or 32.6%, in professional fees that was attributable to lower legal and consulting expenses.
The Company’s efficiency ratio declined modestly from 44.1% for the quarter ended June 30, 2006 to 45.7% for the quarter ended June 30, 2007. This decline is directly attributable to a decrease in the Company’s net interest income, as non-interest expenses remained stable from the second quarter of 2006 to the second quarter of 2007. The average efficiency ratio for the Company’s peer group for the most recently reported quarter was 59.0%.
Previously Securitized Loans
At June 30, 2007, the Company reported “Previously Securitized Loans” of $10.3 million compared to $12.7 million at March 31, 2007, $15.6 million at December 31, 2006, and $22.3 million at June 30, 2006, respectively. The balance of previously securitized loans has decreased 19.0%, 33.8%, and 53.6% from March 31, 2007, December 31, 2006, and June 30, 2006, respectively. The yield on the previously securitized loans was 66.4% for the quarter ended June 30, 2007, compared to 49.5% for the quarter ended March 31, 2007, 46.6% for the quarter ended
December 31, 2006, and 41.9% for the quarter ended June 30, 2006. The yield on the previously securitized loans has increased due to improved cash flows as net default rates have been less than previously estimated and increased prepayment rates that have continued to exceed our previous estimates. The default rates have decreased as a result of the Company’s assumption of the servicing of all of the pool balances during the second quarter of 2005. Subsequent to our assumption of the servicing of these loans, the Company has averaged net recoveries but does not believe that the trend of net recoveries can be sustained indefinitely.
Capitalization and Liquidity
One of the Company’s strengths is that it is highly profitable while maintaining strong liquidity and capital. With respect to liquidity, the Company’s loan to deposit ratio was 85.9% and the loan to asset ratio was 68.5% at June 30, 2007. The Company maintained investment securities totaling 19.6% of assets as of June 30, 2007. Further, the Company’s deposit mix is weighted heavily toward checking and saving accounts that fund 43.3% of assets at June 30, 2007. Time deposits fund 36.5% of assets at June 30, 2007, but very few of these deposits are in accounts that have balances of more than $150,000, reflecting the core retail orientation of the Company.
The Company is also strongly capitalized. With respect to regulatory capital, at June 30, 2007, the Company’s Leverage Ratio is 10.52%, the Tier I Capital ratio is 15.15 %, and the Total Risk-Based Capital ratio is 16.12%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.
During the quarter ended June 30, 2007, the Company repurchased 305,900 common shares at a weighted average price of $38.53 as part of a one million share repurchase plan authorized by the Board of Directors in December 2006. The Company’s tangible equity ratio was 9.6% at June 30, 2007 compared with a tangible equity ratio of 10.0% at December 31, 2006.
City Holding Company is the parent company of City National Bank of West Virginia. City National operates 68 branches across West Virginia, Eastern Kentucky and Southeastern Ohio.
Forward-Looking Information
This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information involves risks and uncertainties that could result in the Company's actual results differing from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, (1) the Company may incur additional loan loss provision due to negative credit quality trends in the future that may lead to a deterioration of asset quality; (2) the Company may incur increased charge-offs in the future; (3) the Company may experience increases in the default rates or decreased prepayments on previously securitized loans that would result in impairment losses or lower the yield on such loans; (4) the Company may continue to benefit from strong recovery efforts on previously securitized loans resulting in improved yields on these assets; (5) the Company could have adverse legal actions of a material
nature; (6) the Company may face competitive loss of customers; (7) the Company may be unable to manage its expense levels; (8) the Company may have difficulty retaining key employees; (9) changes in the interest rate environment may have results on the Company’s operations materially different from those anticipated by the Company’s market risk management functions; (10) changes in general economic conditions and increased competition could adversely affect the Company’s operating results; (11) 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; and (12) the Company may experience difficulties growing loan and deposit balances. 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 is 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.
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Financial Highlights | | | | | | | | | |
(Unaudited) | | | | | | | | | |
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| | | Three Months Ended June 30, | | | Percent | |
| | | 2007 | | | 2006 | | | Change | |
| | | | | | | | | | |
| Earnings ($000s, except per share data): | | | | | | | | | |
| Net Interest Income (FTE) | | $ | 24,566 | | | $ | 26,171 | | | | (6.13 | )% |
| Net Income | | | 12,322 | | | | 13,761 | | | | (10.46 | )% |
| Earnings per Basic Share | | | 0.72 | | | | 0.78 | | | | (7.69 | )% |
| Earnings per Diluted Share | | | 0.72 | | | | 0.77 | | | | (6.49 | )% |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Key Ratios (percent): | | | | | | | | | | | | |
| Return on Average Assets | | | 1.94 | % | | | 2.17 | % | | | (10.30 | )% |
| Return on Average Equity | | | 16.06 | % | | | 18.83 | % | | | (14.70 | )% |
| Net Interest Margin | | | 4.32 | % | | | 4.58 | % | | | (5.72 | )% |
| Efficiency Ratio | | | 45.68 | % | | | 44.11 | % | | | 3.56 | % |
| Average Shareholders' Equity to Average Assets | | | 12.11 | % | | | 11.51 | % | | | 5.19 | % |
| | | | | | | | | | | | | |
| Consolidated Risk Based Capital Ratios (a): | | | | | | | | | | | | |
| Tier I | | | 15.15 | % | | | 14.57 | % | | | 3.98 | % |
| Total | | | 16.12 | % | | | 15.44 | % | | | 4.40 | % |
| | | | | | | | | | | | | |
| Average Tangible Equity to Average Tangible Assets | | | 9.58 | % | | | 9.13 | % | | | 4.87 | % |
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| Common Stock Data: | | | | | | | | | | | | |
| Cash Dividends Declared per Share | | $ | 0.31 | | | $ | 0.28 | | | | 10.71 | % |
| Book Value per Share | | | 17.40 | | | | 16.24 | | | | 7.14 | % |
| Tangible Book Value per Share | | | 13.95 | | | | 12.86 | | | | 8.49 | % |
| Market Value per Share: | | | | | | | | | | | | |
| High | | | 40.93 | | | | 37.31 | | | | 9.70 | % |
| Low | | | 37.67 | | | | 34.53 | | | | 9.09 | % |
| End of Period | | | 38.33 | | | | 36.14 | | | | 6.06 | % |
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| Price/Earnings Ratio (b) | | | 13.31 | | | | 11.58 | | | | 14.90 | % |
| | | Six Months Ended | | | | | |
| | | Six Months Ended June 30, | | | Percent | |
| | | 2007 | | | 2006 | | | Change | |
| | | | | | | | | | | | | |
| Earnings ($000s, except per share data): | | | | | | | | | | | | |
| Net Interest Income (FTE) | | $ | 49,236 | | | $ | 52,276 | | | | (5.82 | )% |
| Net Income | | | 25,553 | | | | 26,627 | | | | (4.03 | )% |
| Earnings per Basic Share | | | 1.48 | | | | 1.49 | | | | (0.67 | )% |
| Earnings per Diluted Share | | | 1.48 | | | | 1.49 | | | | (0.67 | )% |
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| Key Ratios (percent): | | | | | | | | | | | | |
| Return on Average Assets | | | 2.02 | % | | | 2.12 | % | | | (4.37 | )% |
| Return on Average Equity | | | 16.59 | % | | | 18.10 | % | | | (8.29 | )% |
| Net Interest Margin | | | 4.36 | % | | | 4.64 | % | | | (6.04 | )% |
| Efficiency Ratio | | | 45.29 | % | | | 44.69 | % | | | 1.34 | % |
| Average Shareholders' Equity to Average Assets | | | 12.19 | % | | | 11.69 | % | | | 4.28 | % |
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| Common Stock Data: | | | | | | | | | | | | |
| Cash Dividends Declared per Share | | $ | 0.62 | | | $ | 0.56 | | | | 10.71 | % |
| Market Value per Share: | | | | | | | | | | | | |
| High | | | 41.54 | | | | 37.64 | | | | 10.36 | % |
| Low | | | 37.67 | | | | 34.53 | | | | 9.09 | % |
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| (a) June 30, 2007 risk-based capital ratios are estimated | | | | | | | | | |
| (b) June 30, 2007 price/earnings ratio computed based on annualized second quarter 2007 earnings | | | | | |
