Exhibit 99.1For Immediate Release
July 27, 2009
For Further Information Contact:
Charles R. Hageboeck, Chief Executive Officer and President
(304) 769-1102
City Holding Company Announces Second Quarter Results
Charleston, West Virginia – City Holding Company, “the Company” (NASDAQ:CHCO), a $2.6 billion bank holding company headquartered in Charleston, today announced net income per diluted share for the second quarter of $0.64 compared to $0.83 per diluted share in the second quarter of 2008. Net income for the second quarter of 2009 was $10.1 million compared to $13.4 million in the second quarter of 2008. For the second quarter of 2009, the Company achieved a return on assets of 1.55%, a return on tangible equity of 17.6%, a net interest margin of 4.12%, and an efficiency ratio of 53.1%. Net income for the first six months of 2009 was $21.1 million compared to $26.4 million in the first six months of 2008. For the first six months of 2009, the Company achieved a return on assets of 1.63%, a return on tangible equity of 18.4%, a net interest margin of 4.29%, and an efficiency ratio of 50.4%.
City’s CEO Charles Hageboeck stated that, “Due to the recession that the U.S. economy is experiencing, City’s earnings are lower than historical levels, but continue to hold up relatively well as compared to many of our peers in the banking industry. In particular, our earnings were down significantly in the 2nd quarter due to the costs of a special assessment from the FDIC – a cost borne by City, but created by losses at other banking institutions. Additionally, historically low interest rates are squeezing City’s net interest income – as they have most retail-deposit focused banking franchises. Nevertheless, City remains one of the most profitable, most liquid, and best capitalized publicly traded banks in the U.S. While our asset quality is stronger than many banks in other parts of the country, we have not been entirely unscathed, as non-performing assets increased slightly during the second quarter of 2009 as compared to the first quarter of 2009. City’s most significant asset quality problems continue to be non-owner occupied residential construction at the Greenbrier Resort in White Sulphur Springs, West Virginia. These properties accounted for approximately half of City’s net charge-offs in the second quarter of 2009. City also experienced increases in its non-performing residential real estate properties during the second quarter of 2009. However, past-due loans were down as compared to the first quarter. Charge-offs were elevated, as we charged off loans that had been previously provided for through our loan loss provision.”
Net Interest Income
The Company’s tax equivalent net interest income decreased $2.0 million, or 7.9%, from $25.7 million during the second quarter of 2008 to $23.7 million during the second quarter of 2009, as interest income from loans and investments decreased more quickly than interest expense on deposits and other interest bearing liabilities. Due to a decrease in the Company’s yield on loans of 106 basis points from the second quarter of 2008, interest income related to loans declined $4.0 million. In addition, interest income declined $0.8 million from the second quarter of 2008 due to a decline in the yield on investments. Deposit growth also increased interest expense by $1.1 million. Partially offsetting these decreases in net interest income was a decline in interest expense on deposits of $2.5 million due to a decline of 49 basis points on interest bearing deposits. In addition, higher average balances of loans and investments increased interest income by $0.9 million. The Company’s reported net interest margin decreased from 4.65% for the quarter ended June 30, 2008 to 4.12% for the quarter ended June 30, 2009.
Compared to the first quarter of 2009, the Company’s tax equivalent net interest income declined $1.3 million. This decrease was primarily driven by lower interest income from loans ($1.0 million) and investments ($1.0 million) due to lower yields. Loan yields were down by 30 basis points as compared to the first quarter of 2009 due to the repricing of prime-based loans during the first quarter of 2009 and increases in non-performing assets, while investment yields decreased due to lower rates on short-term money-market investments. Partially offsetting these decreases was lower interest expense on interest bearing liabilities due to lower rates as the cost of interest bearing liabilities declined by 11 basis points from the first quarter of 2009. While loan balances were down on average by $4 million, time deposit balances were up by $35 million. Although this improved the Company’s liquidity position, the rate paid on time deposits exceeded the rate earned on the funds, which were predominantly employed in short-term money market investments. As a result of these factors, the Company’s reported net interest margin decreased from 4.46% for the first quarter of 2009 to 4.12% for the second quarter of 2009.
During the third and fourth quarters of 2008, the Company sold $450 million of interest rate floors. The gain from sales of these interest rate floors of $16.7 million will be recognized over the remaining lives of the various hedged loans – predominantly prime-based commercial and home equity loans. During the second quarter of 2009, the Company recognized $2.7 million of interest income compared to $2.9 million and $2.3 million of interest income recognized in the first quarter of 2009 and the second quarter of 2008, respectively, from the interest rate floors.
Credit Quality
At June 30, 2009, the Allowance for Loan Losses (“ALLL”) was $21.0 million or 1.17% of total loans outstanding and 97% of non-performing loans compared to $18.0 million or 1.03% of loans outstanding and 123% of non-performing loans at June 30, 2008, and $22.3 million or 1.23% of loans outstanding and 86% of non-performing loans at December 31, 2008.
As a result of the Company’s quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $2.15 million in the second quarter of 2009 compared to $0.85 million for the comparable period in 2008. The provision for loan losses recorded during the second quarter of 2009 reflects the difficulties of certain commercial borrowers of the Company during the quarter, the downgrade of their related credits, and management’s assessment of the impact of these difficulties on the ultimate collectability of the loans. Additionally, the Company’s nonperforming residential real estate loans increased during the second quarter of 2009. This increase was not restricted to a particular geographical market that the Company serves; rather this deterioration appears to be associated with the overall downturn in the economy. Changes in the amount of the provision and related allowance are based on the Company’s detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company’s loan portfolio. 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.
The Company’s ratio of non-performing assets to total loans and other real estate owned increased from 1.53% at March 31, 2008 to 1.76% at June 30, 2009, and compares to 1.64% at December 31, 2008. The Company’s ratio of non-performing assets to total loans and other real estate owned compares very favorably to peers. The Company’s non-performing asset ratio of 1.76% at June 30, 2009 is only 43% of the 4.06% non-performing asset ratio reported by the Company’s peer group (bank holding companies with total assets between $1 and $5 billion) as of the most recently reported quarter ended March 31, 2009. The Company’s non-performing assets are disproportionately tied to two sub-sectors within the loan portfolio, as discussed below.
Approximately 45% of the Company’s non-performing assets at June 30, 2009 were associated with a $14.3 million portfolio of loans to builders of speculative homes at the Greenbrier Resort in White Sulphur Springs, West Virginia. These loans are considered to be commercial loans due to the dollar amount of the borrowings, although the loans were used to purchase lots and to construct upper-scale single-family residences at the Greenbrier Resort. Construction loan terms were originally interest-only for 12 months. All loans are collateralized by completed homes and eight residential lots. The original loan balances associated with these credits totaled $18.6 million. At June 30, 2009 the book balance of loans not charged-off totaled $7.6 million with $6.7 million recorded in the Company’s Other Real Estate Owned category. The Company has specifically reserved $2.2 million of the ALLL against the outstanding loan balances of $7.6 million. During May 2009, the Justice Family Group purchased the financially troubled Greenbrier Resort from CSX Corporation. While this announcement sheds some light on the future of the Greenbrier, the Company has considered the uncertainty of the situation at the Greenbrier Resort and believes that based on our analysis, the specific allowance allocated to the non-performing and substandard loans, after considering the value of the collateral securing such loans, is adequate to cover losses that may result from these loans as of June 30, 2009.
24% of the Company’s non-performing assets are associated with real estate in what is known as the “Eastern Panhandle” of West Virginia – inclusive of Jefferson, Berkeley, and Morgan counties. These three counties are distant suburbs of the Washington D.C. MSA and have experienced explosive growth in the last 10 years. While this is a relatively
small part of the Company’s entire franchise, the downturn that has gripped the nation’s mortgage and construction industry has had disproportionately more impact upon the Company’s asset quality and provision in this region than in the remainder of the Company. Exclusive of loans to speculative builders at the Greenbrier or loans in the Eastern Panhandle, other loans throughout the Company account for 31% of the Company’s non-performing assets.
Past due loans declined slightly from the first quarter of 2009 to $10.3 million or 0.58% of total loans outstanding. Home equity past dues increased by $0.6 million, or 38.9%, however this increase was primarily related to one large loan that was between 30 and 60 days past due, but believed to be well secured.
The Company had net charge-offs of $3.2 million for the second quarter of 2009. Net charge-offs on commercial and residential loans were $2.2 and $0.5 million, respectively, for the second quarter. Charge-offs for commercial loans were primarily related to three specific credits that had been appropriately considered in establishing the allowance for loans losses in prior periods, including specific charge-offs of $1.6 million related to a Greenbrier loan. In addition, net charge-offs for depository accounts were $0.4 million for the second quarter of 2009. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is reflected in service charges.
Investment Securities
Based on management’s assessment of the securities the Company owns, the seniority position of the securities within the pools, the level of defaults and deferred payments within the pools, and a review of the financial strength of the banks within the respective pools, management concluded that no impairment charges on investment securities were necessary for the quarter ended June 30, 2009.
Non-interest Income
Exclusive of investment losses, non-interest income increased $0.4 million to $14.6 million in the second quarter of 2009 as compared to $14.2 million in the second quarter of 2008. Bank owned life insurance revenues increased $0.2 million as the result of proceeds from a death benefit while insurance commission revenues increased $0.2 million on the strength of new business. Despite a general nationwide decline in consumer spending, service charges from depository accounts remained flat as compared to the second quarter of 2008.
Non-interest Expenses
Non-interest expenses increased $1.6 million from $18.7 million in the second quarter of 2008 to $20.3 million in the second quarter of 2009. Insurance and regulatory expenses increased $1.2 million from the second quarter of 2008 due to a special assessment levied by the Federal Deposit Insurance Corporation (“FDIC”) to rebuild the Deposit Insurance Fund and to help maintain public confidence in the banking system. The special assessment was primarily based on the asset size of the Company’s federally insured depository institution. The Company historically expenses approximately $0.1 million per quarter in association with FDIC insurance premiums. Advertising expenses rose $0.3 million from the second quarter of 2008 as the Company refocused its attention on gathering core deposits. In addition, salaries and employee benefits increased $0.3 million, or 2.9%, from the second quarter of 2008 while occupancy and equipment expenses increased $0.2 million from the second quarter of 2008. Partially offsetting these increases was a decline in other expenses of $0.6 million due primarily to increased special charitable contributions during the second quarter of 2008.
Balance Sheet Trends
As compared to December 31, 2008, loans have decreased $26.0 million (1.4%) at June 30, 2009 due to decreases in commercial loans of $20.4 million (2.7%) and residential real estate loans of $15.0 million (2.5%). The Company has experienced growth in commercial lending activity as it has added new customers and new loans with existing customers. However, as the economy has slowed, various lines of credit to commercial customers have had balance reductions totaling $11 million. Additionally, a total of $11 million in commercial loans have been transferred to OREO since December 31, 2008. These decreases were partially offset by an increase in home equity loans of $8.4 million (2.2%).
Total average depository balances increased $71.8 million, or 3.4%, from the quarter ended March 31, 2009 to the quarter ended June 30, 2009. This growth was attributable to increases in time deposits ($35.0 million), savings deposits ($13.6 million), interest bearing demand deposits ($12.7 million) and noninterest bearing demand deposits ($10.4 million).
Income Tax Expense
The Company’s effective income tax rate for the second quarter of 2009 was 33.4% compared to 25.2% for the year ended December 31, 2008, and 33.3% for the quarter ended June 30, 2008. The effective rate is based upon the Company’s expected tax rate for the year ending December 31, 2009.
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 83.3% and the loan to asset ratio was 68.0% at June 30, 2009. The Company maintained investment securities totaling 20.2% of assets as of this date. Further, the Company’s deposit mix is weighted heavily toward checking and saving accounts that fund 42.8% of assets at June 30, 2009. Time deposits fund 38.8% of assets at June 30, 2009, 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, 2009, the Company’s Leverage Ratio is 9.47%, the Tier I Capital ratio is 12.63%, and the Total Risk-Based Capital ratio is 13.73%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.
On June 24, 2009, the Board approved a quarterly cash dividend to 34 cents per share payable July 31, 2009, to shareholders of record as of July 15, 2009. The Company’s tangible equity ratio was 9.1% at June 30, 2009 compared with a tangible equity ratio of 8.8% at December 31, 2008.
City Holding Company is the parent company of City National Bank of West Virginia. City National operates 69 branches across West Virginia, Eastern Kentucky and Southern 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 on previously securitized loans that would result in impairment losses or lower the yield on such loans; (4) the Company may not 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; (12) the Company may experience
difficulties growing loan and deposit balances; (13) the current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations; (14) continued deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments; and (15) the United States government’s plan to purchase large amounts of illiquid, mortgage-backed and other securities from financial institutions may not be effective and/or it may not be available to us. 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 | |
| | | 2009 | | | 2008 | | | Change | |
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| Earnings ($000s, except per share data): | | | | | | | | | |
| Net Interest Income (FTE) | | $ | 23,656 | | | $ | 25,678 | | | | (7.87 | )% |
| Net Income | | | 10,146 | | | | 13,379 | | | | (24.16 | )% |
| Earnings per Basic Share | | | 0.64 | | | | 0.83 | | | | (22.89 | )% |
| Earnings per Diluted Share | | | 0.64 | | | | 0.83 | | | | (22.89 | )% |
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| Key Ratios (percent): | | | | | | | | | | | | |
| Return on Average Assets | | | 1.55 | % | | | 2.14 | % | | | (27.24 | )% |
| Return on Average Tangible Equity | | | 17.63 | % | | | 21.03 | % | | | (16.15 | )% |
| Net Interest Margin | | | 4.12 | % | | | 4.65 | % | | | (11.45 | )% |
| Efficiency Ratio | | | 53.13 | % | | | 46.86 | % | | | 13.38 | % |
| Average Shareholders' Equity to Average Assets | | | 11.00 | % | | | 12.46 | % | | | (11.72 | )% |
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| Consolidated Risk Based Capital Ratios (a): | | | | | | | | | | | | |
| Tier I | | | 12.63 | % | | | 14.18 | % | | | (10.93 | )% |
| Total | | | 13.73 | % | | | 15.15 | % | | | (9.37 | )% |
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| Tangible Equity to Tangible Assets | | | 9.11 | % | | | 10.02 | % | | | (9.12 | )% |
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| Common Stock Data: | | | | | | | | | | | | |
| Cash Dividends Declared per Share | | $ | 0.34 | | | $ | 0.34 | | | | 0.00 | % |
| Book Value per Share | | | 18.24 | | | | 18.72 | | | | (2.57 | )% |
| Tangible Book Value per Share | | | 14.66 | | | | 15.13 | | | | (3.16 | )% |
| Market Value per Share: | | | | | | | | | | | | |
| High | | | 33.78 | | | | 44.15 | | | | (23.49 | )% |
| Low | | | 27.02 | | | | 37.29 | | | | (27.54 | )% |
| End of Period | | | 30.88 | | | | 40.77 | | | | (24.26 | )% |
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| | | Six Months Ended June 30, | | | Percent | |
| | | 2009 | | | 2008 | | | Change | |
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| Earnings ($000s, except per share data): | | | | | | | | | | | | |
| Net Interest Income (FTE) | | $ | 48,629 | | | $ | 49,814 | | | | (2.38 | )% |
| Net Income | | | 21,070 | | | | 26,417 | | | | (20.24 | )% |
| Earnings per Basic Share | | | 1.32 | | | | 1.64 | | | | (19.51 | )% |
| Earnings per Diluted Share | | | 1.32 | | | | 1.63 | | | | (19.02 | )% |
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| Key Ratios (percent): | | | | | | | | | | | | |
| Return on Average Assets | | | 1.63 | % | | | 2.11 | % | | | (23.07 | )% |
| Return on Average Tangible Equity | | | 18.36 | % | | | 21.28 | % | | | (13.73 | )% |
| Net Interest Margin | | | 4.29 | % | | | 4.53 | % | | | (5.28 | )% |
| Efficiency Ratio | | | 50.36 | % | | | 47.57 | % | | | 5.85 | % |
| Average Shareholders' Equity to Average Assets | | | 11.06 | % | | | 12.25 | % | | | (9.66 | )% |
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| Common Stock Data: | | | | | | | | | | | | |
| Cash Dividends Declared per Share | | $ | 0.68 | | | $ | 0.68 | | | | 0.00 | % |
| Market Value per Share: | | | | | | | | | | | | |
| High | | | 33.78 | | | | 44.15 | | | | (23.49 | )% |
| Low | | | 20.88 | | | | 32.51 | | | | (35.77 | )% |
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| Price/Earnings Ratio (b) | | | 11.70 | | | | 12.43 | | | | (5.90 | )% |
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| (a) June 30, 2009 risk-based capital ratios are estimated | | | | | | | | | |
| (b) June 30, 2009 price/earnings ratio computed based on annualized second quarter 2009 earnings | | | | | |
