SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number
March 31, 1996 0-11733
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)
West Virginia 55-0619957
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3601 MacCorkle Avenue, Southeast
Charleston, West Virginia 25304
(Address of principal offices)
Registrant's telephone number, including area code: (304) 925-6611
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes xx No
The number of shares outstanding of the issuer's common stock as of May 5, 1996:
Common Stock, $2.50 Par Value -- 5,078,406 shares
THIS REPORT CONTAINS 111 PAGES.
EXHIBIT INDEX IS LOCATED ON PAGE 25 .
PAGE 1 OF 111
Index
City Holding Company and Subsidiaries
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1996 (unaudited)
and December 31, 1995
Consolidated Statements of Income (unaudited) --
Three months ended March 31, 1996 and 1995
Consolidated Statements of Changes in Stockholders'
Equity (unaudited) -- Three months ended March 31,
1996 and 1995
Consolidated Statements of Cash Flows (unaudited)
--Three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements (unaudited)
-- March 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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. xhibits and Reports on Form 8-K
Signatures
PAGE 2 OF 111
PART I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
Item I. MARCH 31 DECEMBER 31
1996 1995
------------ -------------
ASSETS (unaudited)
Cash and due from banks $ 30,933,000 $ 28,460,000
Securities available for sale, at fair value 121,475,000 143,649,000
Investment securities (approximate market values:
March 31, 1996--$41,911,000; December 31, 1995--$52,183,000) 40,964,000 50,719,000
Loans:
Gross loans 661,542,000 664,886,000
Unearned income (7,576,000) (8,125,000)
Allowance for possible loan losses (6,633,000) (6,566,000)
--------- ---------
NET LOANS 647,333,000 650,195,000
Loans held for sale 165,262,000 122,222,000
Bank premises and equipment 25,905,000 23,651,000
Accrued interest receivable 8,467,000 8,031,000
Other assets 14,672,000 14,042,000
------------ -----------
TOTAL ASSETS $ 1,055,011,000 $ 1,040,969,000
============= =============
LIABILITIES
Deposits:
Noninterest-bearing $ 122,196,000 $ 116,992,000
Interest-bearing 690,601,000 680,423,000
----------- -----------
TOTAL DEPOSITS 812,797,000 797,415,000
Short-term borrowings 134,440,000 141,309,000
Long-term debt 23,200,000 20,000,000
Other liabilities 10,302,000 9,106,000
------------- ------------
TOTAL LIABILITIES 980,739,000 967,830,000
STOCKHOLDERS' EQUITY Preferred stock, par value $25 a share:
Authorized-500,000 shares; none issued
Common stock, par value $2.50 a share: authorized
20,000,000 shares; issued and outstanding 5,092,046 shares as of March 31,
1996 and December 31, 1995, including 13,640 shares in
treasury at March 31, 1996 and December 31, 1995. 12,730,000 12,730,000
Capital surplus 25,942,000 25,942,000
Retained earnings 36,031,000 34,432,000
Cost of common stock in treasury (360,000) (360,000)
Net unrealized (loss) gain on securities available for sale,
net of deferred income taxes (71,000) 395,000
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 74,272,000 73,139,000
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,055,011,000 $ 1,040,969,000
============== ==============
See notes to consolidated financial statements
PAGE 3 OF 111
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTH PERIOD ENDED
March 31
1996 1995
---------- ----------
INTEREST INCOME
Interest and fees on loans $ 18,303,000 $ 12,981,000
Interest and dividends on securities:
Taxable 2,253,000 3,206,000
Tax-exempt 532,000 589,000
Other interest income 5,000 11,000
------------ -----------
TOTAL INTEREST INCOME 21,093,000 16,787,000
INTEREST EXPENSE
Interest on deposits 7,233,000 6,094,000
Interest on short-term borrowings 2,153,000 856,000
Interest on long-term debt 297,000 130,000
------------ -----------
TOTAL INTEREST EXPENSE 9,683,000 7,080,000
NET INTEREST INCOME 11,410,000 9,707,000
PROVISION FOR POSSIBLE LOAN LOSSES 271,000 201,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 11,139,000 9,506,000
OTHER INCOME
Securities gains(losses) 61,000 3,000
Service charges 839,000 708,000
Other 1,013,000 538,000
----------- ----------
TOTAL OTHER INCOME 1,913,000 1,249,000
OTHER EXPENSES
Salaries and employee benefits 5,254,000 4,036,000
Net occupancy expense 1,370,000 1,245,000
Other 2,887,000 2,521,000
----------- -----------
TOTAL OTHER EXPENSES 9,511,000 7,802,000
INCOME BEFORE INCOME TAXES 3,541,000 2,953,000
INCOME TAXES 1,080,000 913,000
----------- -----------
NET INCOME $ 2,461,000 $ 2,040,000
=========== ===========
Net income per common share $ .48 $ .40
=========== ===========
Average common shares outstanding 5,078,406 5,167,065
=========== ===========
See notes to consolidated financial statements
PAGE 4 OF 111
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
Three Months Ended March 31, 1996
NET
UNREALIZED
GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
------ ------- -------- -------- ------ ------
Balances
at December 31, 1995 $12,730,000 $25,942,000 $34,432,000 $395,000 (360,000) $73,139,000
Net income 2,461,000 2,461,000
Cash dividends
declared ($.17/share) (862,000) (862,000)
Change in unrealized gain/(loss),
net of income taxes of $311,000 (466,000) (466,000)
Balances
at March 31, 1996 $12,730,000 $25,942,000 $36,031,000 ($ 71,000) ($360,000) $74,272,000
---------- ----------- ----------- ----------- ---------- -----------
NET
UNREALIZED
Three Months Ended March 31, 1995 GAIN/(LOSS)
SECURITIES TOTAL
COMMON CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
------ ------- -------- -------- ------ ------
Balances
at December 31, 1994 $11,753,000 $18,366,000 $39,075,000 ($2,863,000) ($ 32,000) $66,299,000
Net income 2,040,000 2,040,000
Cash dividends
declared ($.145/share) (599,000) (599,000)
Cash dividends of acquired
subsidiary (75,000) (75,000)
Changes in net unrealized
gain/(loss), net of income
taxes of $878,000 1,317,000 1,317,000
Cost of 2,313 shares of common
stock acquired for treasury (65,000) (65,000)
Issuance of 428 shares of
treasury stock 12,000 12,000
----------- ----------- ------------ ------------ ----------- -----------
Balances
at March 31, 1995 $11,753,000 $18,366,000 $40,441,000 $(1,546,000) ($ 85,000) $68,929,000
----------- ----------- ----------- ------------ ----------- -----------
See notes to consolidated financial statements
PAGE 5 OF 111
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
THREE MONTH PERIOD ENDED
MARCH 31
1996 1995
---- ----
OPERATING ACTIVITIES
Net Income $2,461,000 $2,040,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization 220,000 224,000
Provision for depreciation 743,000 584,000
Provision for loan losses 271,000 201,000
Realized securities gains (61,000) (3,000)
Loan originated for sale (25,708,000) (9,114,000)
Purchases of loans held for sale (219,599,000) (43,448,000)
Proceeds from loans sold 202,535,000 37,998,000
Realized gains on loans sold (268,000) (42,000)
Minority interest in income of subsidiary 0 0
(Increase) decrease in accrued interest receivable (436,000) 261,000
Increase in other assets (482,000) (612,000)
Increase (decrease) in other liabilities 1,196,000 (857,000)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (39,128,000) (12,768,000)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 17,859,000 10,533,000
Proceeds from maturities of securities available for sale 20,270,000 2,325,000
Purchases of securities available for sale (16,581,000) (11,292,000)
Proceeds from sales of securities 0 3,000,000
Proceeds from maturities of securities 9,608,000 5,024,000
Purchases of securities 0 (3,239,000)
Net decrease (increase) in loans 2,591,000 (25,633,000)
Sale of foreclosed properties 0 7,000
Purchases of premises and equipment (2,997,000) (1,458,000)
------------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 30,750,000 (20,733,000)
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits 5,204,000 1,057,000
Net increase in interest-bearing deposits 10,178,000 3,143,000
Net (decrease) increase in short-term borrowings (6,869,000) 24,141,000
Proceeds from long-term-debt 3,200,000 2,150,000
Repayment of long-term debt 0 (4,200,000)
Purchases of treasury stock 0 (65,000)
Proceeds from sales of treasury stock 0 12,000
Cash dividends paid (862,000) (772,000)
------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,851,000 25,466,000
------------ -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,473,000 (8,035,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,460,000 34,284,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,933,000 $26,249,000
============ ===========
See notes to consolidated financial statements
PAGE 6 OF 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements, which are
unaudited, include all the accounts of City Holding Company (the Parent Company)
and its wholly owned subsidiaries (collectively, the Company). All material
intercompany transactions have been eliminated. The consolidated financial
statements include all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of operations and financial
condition for each of the periods presented. Such adjustments are of a normal
recurring nature. The results of operations for the three months ended March 31,
1996, are not necessarily indicative of the results of operations that can be
expected for the year ending December 31, 1996. 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 financial statements
and related footnotes. Actual results could differ from management's estimates.
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, 1995.
NOTE B - INCOME TAXES
The consolidated provision for income taxes is based upon
financial statement earnings. The effective tax rate for the three months ended
March 31, 1996, of 30.50% varied from the statutory federal income tax rate
primarily due to state income taxes and the tax effects of nontaxable interest
income and the amortization of goodwill.
PAGE 7 OF 111
NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various
commitments and contingent liabilities, such as commitments to extend credit and
standby letters of credit, that are not included in the consolidated financial
statements. These commitments approximate $68,029,000 at March 31, 1996. These
arrangements, consisting principally of unused lines of credit issued in the
normal course of business, have credit risks essentially the same as that
involved in extending loans to customers and are subject to the Company's
standard credit policies. Standby letters of credit, which total $3,567,000,
have historically expired unfunded.
NOTE D - STOCKHOLDERS' EQUITY
The Company maintains an Open Market Stock Purchase Plan (the
Plan) whereby the Board of Directors have allocated $5 million to be used to
purchase shares of the Company's common stock through May 1996. The Plan as of
March 31, 1996 has reacquired approximately 87,000 shares at market prices
ranging from $23.30 to $24.08 per share for total purchases of approximately
$2,286,000.
NOTE E - ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights,"
which requires that entities recognize rights to service mortgage loans for
others as separate assets, whether those rights are acquired through loan
origination or purchase activities. Additionally, management must periodically
assess its capitalized mortgage servicing rights for impairment based on the
fair value of those rights. The adoption of SFAS No. 122 did not have a material
impact on the Company's financial position or results of operations.
PAGE 8 OF 111
NOTE F - LONG-TERM BORROWINGS
Long-term debt consists of a $20,000,000 revolving line of credit of
the Parent Company with a variable rate based on the lesser of the adjusted
LIBOR rate plus 1.875% per annum or the lender's base rate less .25% per annum
(7.1875% at March 31, 1996) due on June 30, 1996. As of March 31, 1996, the
outstanding balance was equal to $18,200,000. Interest on this obligation is
payable quarterly, and the Parent Company has pledged the common stock of The
City National Bank of Charleston, The Peoples Bank of Point Pleasant, First
State Bank and Trust, Merchants National Bank and The Home National Bank of
Sutton as security for the loan. Management intends to refinance this loan
according to the provisions provided in the agreement.
During 1995, a subsidiary obtained long-term financing from the Federal
Home Loan Bank (FHLB) in the form of a Long-Term LIBOR Floater with maximum
available credit of $5 million. At March 31, 1996, $5 million was outstanding
with an interest rate of 5.4185%. The agreement matures in December, 1998.
PAGE 9 OF 111
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HIGHLIGHTS
FINANCIAL POSITION
Total assets increased $14.0 million or approximately 1.3%
during the first three months of 1996. Net loans decreased $2.9 million or 0.4%.
Loans held for sale, consisting primarily of loans received through the
Company's participation in a short-term whole loan bulk purchasing program,
increased $43 million or 35.2%. As of March 31, 1996, program loans owned by the
Company had an outstanding principal balance of approximately $139.8 million.
See LOAN PORTFOLIO. The Company earned interest income of approximately
$3,230,000 on program loans during the first quarter of 1996. See NET INTEREST
INCOME. The increase in loans held for sale was funded primarily by the various
securities sales, calls and maturities of $47.7 million, plus the $15.4 million
increase in deposits. Net stockholders' equity increased $1.1 million during the
first three months of 1996 representing the Company's retained net profits.
QUARTER ENDED MARCH 31, 1996, COMPARED TO QUARTER ENDED MARCH 31, 1995.
The Company reported net income of $2,461,000 for the three
months ended March 31, 1996 compared to net income of $2,040,000 for the quarter
ended March 31, 1995. This increase of $421,000, or 20.6%, was primarily due to
an increase of $1,703,000 in the Company's net interest income during the first
quarter of 1996 as compared to the same period of 1995. However, the increase in
net interest income did not translate into a corresponding
PAGE 10 OF 111
increase in net income because of the level of non-interest expense associated
with the Company's expansion of its Operations Center, which increased
$1,709,000 or 21.9% during the first quarter of 1996 as compared to the same
period of 1995. See NET INTEREST INCOME. Earnings per share were $.48 and $.40
for the first quarter of 1996 and 1995, respectively.
Total other income, excluding securities transactions,
increased $606,000 or 48.6% primarily due to fees generated from increased loans
held for sale volume and return item fees on deposits collected through the
ordinary course of business.
SELECTED RATIOS
The return on average assets (ROA) for the first quarter of
1996 was .93% compared to .92% in the first quarter of 1995. The return on
average shareholder's equity (ROE) for the first quarter of 1996 was 13.24%
compared to 12.38% ROE for the first quarter of 1995.
The dividend payout ratio of 35.42% for the quarter ended
March 31, 1996 represents a decrease of 2.29% from the dividend payout ratio of
36.25% for the quarter ended March 31, 1995. Since 1988, the Company has paid
dividends on a quarterly basis, and expects to continue to do so in the future.
PAGE 11 OF 111
LOAN PORTFOLIO
The composition of the Company's loan portfolio is presented
in the following table:
LOAN PORTFOLIO BY TYPE
(Dollars in Thousands)
March 31 December 31
1996 1995
-------- -------
Commercial, financial and
agricultural $ 215,540 $ 214,304
Real Estate-Mortgage 277,702 277,608
Real Estate-Construction 26,175 27,240
Installment and other 142,125 145,734
Unearned Income (7,576) (8,125)
--------- ---------
TOTAL $ 653,966 $ 656,761
========= =========
Loans Held for Sale
Program loans $ 139,799 $ 101,843
Loans Originated for Sale 25,463 20,379
--------- ---------
TOTAL $ 165,262 $ 122,222
========= =========
The Company grants loans to customers generally within the
market areas of its subsidiaries. Loans have been trending up significantly over
the past two years primarily due to the Company's more active solicitation of
commercial business, introduction of new loan products, and continued expansion.
There have been no significant changes in the Company's loan policy or credit
standards. The Company continues to shift its marketing efforts more towards
direct loan business. There are no significant concentrations of credit and
speculative or highly leveraged transactions are insignificant. Also, in order
to increase the repricing frequency of the loan portfolio, the Company has
significantly increased its portfolio of variable rate commercial and
residential mortgage loans.
PAGE 12 OF 111
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the Company's risk elements for
the periods ending March 31, 1996 and December 31, 1995. The Company's coverage
ratio of nonperforming assets and potential problem loans continues to be
strong, at 119% as of March 31, 1996.
Management is of the opinion that the allowance for loan
losses is adequate to provide for probable future losses inherent in the
portfolio.
PAGE 13 OF 111
RISK ELEMENTS
(in thousands)
Three Months
Ended Year Ended
March 31 December 31
1996 1995
---- ----
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $6,566 $ 6,477
Charge-offs (260) (1,331)
Recoveries 56 316
------ -------
Net charge-offs (204) (1,015)
Provision for loan possible losses 271 1,104
------ ------
Balance at end of period $6,633 $6,566
====== ======
AS A PERCENT OF AVERAGE TOTAL LOANS
Net charge-offs 0.03% 0.17%
Provision for possible loan losses 0.04% 0.18%
Allowance for loan losses 1.02% 1.08%
March 31 December 31
1996 1995
---- ----
NON -PERFORMING ASSETS
Other real estate owned $1,038 $1,027
Non-accrual loans 2,703 2,525
Accruing loans past due 90 days
or more 1,448 1,421
Restructured loans 139 141
------ ------
Total Non-performing Assets $5,328 $5,114
POTENTIAL PROBLEM LOANS $264 $266
AS A PERCENT OF NON-PERFORMING ASSETS
AND POTENTIAL PROBLEM LOANS
Allowance for loan losses 118.62% 122.04%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AS A PERCENT OF AVERAGE TOTAL LOANS 0.22% 0.23%
PAGE 14 OF 111
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's cash and cash equivalents, represented by cash
and due from banks and overnight federal funds sold, is a product of its
operating, investing and financing activities. These activities are set forth in
the City Holding Company Consolidated Statements of Cash Flows included
elsewhere herein. Cash was used in operating activities in each period
presented, primarily from loans originated for sale and purchase of loans held
for sale. Net cash was used in investing activities during the first quarter of
1995 funding the Company's loan growth. Net cash was provided by investing
activities during the first quarter of 1996 due primarily to maturing investment
securities. The net cash provided by financing activities in the respective
periods is a result of an increase in interest-bearing deposits. In 1995,
financing activities provided cash due to the increase in short-term borrowings.
The Company seeks to maintain a strong liquidity position to
reduce interest rate risk, which is the susceptibility of assets and liabilities
to decline in value as a result of changes in general market interest rates. The
Company minimizes this risk through asset and liability management, where the
goal is to optimize earnings while managing interest rate risk. The Company
measures this interest rate risk through interest sensitivity gap analysis as
illustrated in the following table. At March 31, 1996, the one year period shows
a negative gap (liability sensitive) of $254 million. This analysis is a "static
gap" presentation and movements in deposit rates offered by the Company's
subsidiary banks lag behind movements in the prime rate. Such time lags affect
the repricing frequency of many items on the Company's balance sheet.
Accordingly, the sensitivity of deposits to changes in market rates may differ
significantly from the related contractual terms. The table is first presented
without adjustment for expected repricing behavior. Then, as presented in the
"management adjustment" line, these balances
PAGE 15 OF 111
have been notionally distributed over the first three periods to reflect those
portions of such accounts that are expected to reprice fully with market rates
over the respective periods. The distribution of the balances over the repricing
periods represents an aggregation of such allocations by each of the affiliate
banks, and is based upon historical experience with their individual markets and
customers. Management expects to continue the same pricing methodology in
response to future market rate changes; however, management adjustments may
change as customer preferences, competitive market conditions, liquidity, and
loan growth change. Also presented in the management adjustment line are loan
prepayment assumptions which may differ from the related contractual term of the
loans. These balances have been distributed over the four periods to reflect
those loans that are expected to be repaid in full prior to their maturity date
over the respected periods. After management adjustments, the table shows a
negative gap in the one year period of $51 million. A negative gap position is
advantageous when interest rates are falling because interest-bearing
liabilities are being repriced at lower rates and in greater volume, which has a
positive effect on net interest income. Consequently, the Company has
experienced a decline in its net interest margin during the past year and is
somewhat vulnerable to a rapid rise in interest rates during 1996. These
declines in net interest margin did not translate into declines in net interest
income because of increases in the volume of interest-earning assets.
There are no known trends, demands, commitments or
uncertainties that have resulted or are reasonably likely to result in material
changes in liquidity.
PAGE 16 OF 111
INTEREST RATE SENSITIVITY GAPS
(in thousands)
1 to 3 3 to 12 1 to 5 Over 5
Months Months Years Years Total
------ ------ ----- ----- -----
ASSETS
Gross loans $167,189 $89,692 $316,357 $85,601 $658,839
Loans held for sale 165,262 0 0 0 165,262
Securities 33,380 19,604 71,607 37,848 162,439
-------- --------- --------- --------- --------
Total interest earning assets 365,831 109,296 387,964 123,449 986,540
-------- --------- --------- --------- --------
LIABILITIES
Savings and NOW Accounts 324,472 0 0 0 324,472
All other interest bearing deposits 96,767 150,446 118,416 500 366,129
Short term and other borrowings 134,440 0 0 0 134,440
Long term borrowings 23,000 0 0 0 23,200
--------- --------- --------- ---------- --------
Total interest bearing liabilities $578,879 $ 150,446 $118,416 $ 500 $848,241
--------- --------- --------- --------- --------
Interest sensitivity gap ($213,048) ($ 41,150) $269,548 $122,949 $138,299
--------- --------- --------- --------- --------
Cumulative sensitivity gap ($213,048) ($254,198) $ 15,350 $138,299
======== ======== ======= =======
Management adjustments $292,505 ($ 89,796) ($192,380) ($10,329)
------- ------- ------- ------
Cumulative management adjusted gap $ 79,457 ($ 51,489) $ 25,679 $138,299
======== ======= ======= =======
The table above includes various assumptions and estimates by management as to
maturity and repricing patterns. Future interest margins will be impacted by
balances and rates which are subject to change periodically throughout the year.
PAGE 17 OF 111
CAPITAL RESOURCES
As a bank holding company, City Holding Company is subject to
regulation by the Federal Reserve Board under the Bank Holding Company Act of
1956. In January 1989, the Federal Reserve published risk-based capital
guidelines in final form which are applicable to bank holding companies. Such
guidelines define items in the calculation of risk-weighted assets. At March 31,
1996, the regulatory minimum ratio of qualified total capital to riskweighted
assets (including certain off-balance-sheet items, such as standby letters of
credit) is 8 percent. At least half of the total capital is to be comprised of
"Tier 1 capital", or the Company's common stockholders' equity, and minority
interest in consolidated subsidiary, net of intangibles. The remainder ("Tier 2
capital") may consist of certain other prescribed instruments and a limited
amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum
leverage ratio (Tier 1 capital to quarterly average tangible assets) guidelines
for bank holding companies. These guidelines provide for a minimum ratio of 3
percent for bank holding companies that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies will be required to maintain a leverage ratio of 3 percent plus an
additional cushion of a least 100 to 200 basis points. The guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
The following table presents comparative capital ratios and
related dollar amounts of capital for the Company:
PAGE 18 OF 111
Dollars in Thousands
March 31 December 31
1996 1995
---- ----
Capital Components
Tier 1 risk-based capital $67,907 $66,260
Total risk-based capital 74,540 72,826
Capital Ratios
Tier 1 risk-based 8.78% 8.87%
Total risk-based 9.63 9.75
Leverage 6.42 6.45
Regulatory Minimum
Tier 1 risk-based (dollar/ratio) $30,949/4.00% $29,888/4.00%
Total risk-based (dollar/ratio) 61,898/8.00 59,776/8.00
Leverage (dollar/ratio) 31,734/3.00 30,801/3.00
The strong capital position of the Company is indicative of
management's emphasis on asset quality and a history of retained net income. The
ratios enable the Company to continually pursue acquisitions and other growth
opportunities. Improvements in operating results and a consistent dividend
program, coupled with an effective management of credit risk, have been, and
will be, the key elements in maintaining the Company's present capital position.
The Company does not anticipate any material capital
expenditures in 1996. Earnings from subsidiary bank operations are expected to
remain adequate to fund payment of stockholders' dividends and internal growth.
In management's opinion, subsidiary banks have the capability to upstream
sufficient dividends to meet the cash requirements of the Company.
NET INTEREST INCOME
Net interest income, on a fully federal tax-equivalent basis,
improved from the first quarter of 1995 to the first quarter of 1996 by
approximately $1,674,000 due to an increase in net earning assets. Net yield on
earning assets decreased between periods from 4.84% to
PAGE 19 OF 111
4.70%, as earning asset yields increased 32 basis points (100 basis points equal
one percent) to 8.59%, and the cost of interest-bearing liabilities increased 56
basis points to 4.49%. The $530,000 decrease in net interest income due to rate,
as shown in the following table, was coupled with a $2,204 000 increase in net
interest income due to volume. The major component of this favorable volume
change was increased average loans and average loans held for sale.
A significant part of the increase in net earning assets for
the first quarter of 1996 is attributable to the Company's participation in a
short-term, whole-loan bulk purchasing program. Under the program, the Company
purchases from a third party whole loans secured by residential mortgages and
partially insured by the Federal Housing Association. The loans typically have
balances of less than $25,000 and are not concentrated geographically.
Additionally, the program permits the Company to require the seller to
repurchase or replace certain non-performing loans. The loans are generally
repurchased from the Company within 30 to 90 days. Although the loans usually
are located outside the Company's primary market areas, management believes that
these loans pose no greater risk than similar "in-market" loans because of the
Company's review of the loans, the credit support associated with the loans, the
short duration of the Company's investment and the other terms of the program.
The loans are generally serviced by third parties and the Company earns a fixed
rate of return on the loans. The Company earned approximately $3,230,000 in
interest income on program loans for the quarter ended March 31, 1996 compared
to $395,000 in interest income for the same period in 1995. These loans are
being funded through short-term borrowings which consist primarily of securities
sold under agreement to repurchase.
PAGE 20 OF 111
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
Quarter Ended
March 31
1996 1995
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
EARNING ASSETS:
Loans (1)
Commercial and industrial $ 210,023 $4,853 9.24% $ 171,329 $3,832 8.95%
Real estate 304,736 6,523 8.56 261,630 5,407 8.27
Consumer obligations 134,888 3,304 9.80 129,547 3,170 9.79
-----------------------------------------------------------------------------------
Total loans 649,647 14,680 9.04 562,506 12,409 8.82
Loans held for sale 161,246 3,623 8.99 25,894 572 8.84
Securities
Taxable 145,355 2,253 6.20 195,128 3,206 6.57
Tax-exempt (2) 37,975 806 8.49 42,424 892 8.41
----------------------------------------------------------------------------------
Total securities 183,330 3,059 6.67 237,552 4,098 6.90
Federal funds sold 396 5 5.05 810 11 5.43
------------------------------------------------------------------------------------
Total earning assets 994,619 21,367 8.59 826,762 17,090 8.27
Cash and due from banks 29,147 25,016
Bank premises and equipment 23,880 21,540
Other assets 22,770 22,196
Less: allowance for possible
loan losses (6,610) (6,417)
--------------------------------------------------------------
Total assets $1,063,806 $889,097
=============================================================
INTEREST BEARING LIABILITIES
Demand deposits $ 110,568 $ 760 2.75% $104,453 $ 774 2.96%
Savings deposits 208,634 1,697 3.25 239,148 1,796 3.00
Time deposits 362,832 4,776 5.27 307,048 3,524 4.59
Short-term borrowings 159,436 2,153 5.40 62,263 856 5.50
Long-term debt 21,042 297 5.65 7,201 130 7.22
--------------------------------------------------------------------------------------
Total interest-bearing liabilities 862,512 9,683 4.49 720,113 7,080 3.93
Demand deposits 117,968 94,401
Other liabilities 8,988 8,650
Stockholders' equity 74,338 65,933
-------------------------------------------------------------
Total liabilities and
stockholders' equity $1,063,806 $889,097
=============================================================
Net interest income $11,684 $10,010
============================================================================
Net yield on earning assets 4.70% 4.84%
========================================================================================
(1) For purposes of this table, nonaccruing loans have been included in average
balances and loan fees, which are immaterial, have been included in interest
income. (2) Computed on a fully federal tax-equivalent basis assuming a tax rate
of 34% in all years.
PAGE 21 OF 111
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
Quarter Ended
March 31
1996 VS. 1995
Increase (Decrease)
Due to Change In:
INTEREST INCOME FROM: Volume Rate Net
-------------------------------------------------
Loans
Commercial and industrial $ 890 $ 131 $ 1,021
Real estate 917 199 1,116
Consumer obligations 131 3 134
-------------------------------------------------
Total loans 1,938 333 2,271
Loans held for sale 3,041 9 3,050
Securities
Taxable (780) (172) (952)
Tax-exempt (1) (138) 52 (86)
--------------------------------------------------
Total Securities (918) (120) (1,038)
Federal funds sold (5) (1) (6)
--------------------------------------------------
Total interest-earning assets $ 4,056 $ 221 $ 4,277
INTEREST EXPENSE ON:
Demand deposits 194 (208) (14)
Savings deposits (783) 684 (99)
Time deposits 692 560 1,252
Short-term borrowings 1,403 (106) 1,297
Long-term debt 354 (187) 167
---------------------------------------------------
Total interest-bearing liabilities $ 1,860 $ 743 $ 2,603
--------------------------------------------------
NET INTEREST INCOME $ 2,196 $ (522) $ 1,674
==================================================
(1) Fully federal taxable equivalent using a tax rate of 34% in all years.
PAGE 22 OF 111
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Seller Securities - Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - Not Applicable
Item 5. Other Information - On April 8, 1996, the Company
adopted an Employee Stock
Ownership Plan effective January 1,
1996. This plan modified the
Company's Money Purchase Plan
which was originally effective
January 1, 1995.
Item 6. Exhibits and Reports on 8-K - Not Applicable
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1996.
PAGE 23 OF 111
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITY HOLDING COMPANY
May 7, 1996 By /s/ Dawn Woolsey
Dawn Woolsey,
Chief Accounting Officer
(Principal Accounting Officer)
PAGE 24 OF 111
EXHIBIT INDEX
Exhibit Page Number
Index
10 City Holding Company Employee's Stock Ownership Plan dated
April 8, 1996 26
27 Financial Data Schedule for the quarter ending March 31, 1996 110
PAGE 25 OF 111