CHARLESTON, W.Va., Jan. 23 /PRNewswire-FirstCall/ -- City Holding
Company, "the Company" (NASDAQ:CHCO), a $2.5 billion bank holding
company headquartered in Charleston, today announced net income for
the fourth quarter of $13.1 million, or diluted earnings per share
of $0.72 compared to $11.1 million, or $0.66 per diluted share in
the fourth quarter of 2004, a 9.1% increase. For the fourth quarter
of 2005, the Company achieved a return on assets of 2.10%, a return
on equity of 17.66%, a net interest margin of 4.55%, and an
efficiency ratio of 46.6%. For the full year of 2005, the Company
reported net income of $50.3 million, or diluted earnings per share
of $2.84 compared to $46.3 million, or diluted earnings per share
of $2.75 during 2004. The results for 2004 included income of $3.2
million net of associated expenses and taxes, or $0.19 per diluted
share, recognized in connection with the settlement of a derivative
action brought against certain current and former directors and
former executive officers of City Holding Company and City National
Bank seeking to recover alleged damages on behalf of City Holding
Company and City National Bank. Also, the Company recorded a
provision for loan losses of $1.4 million in 2005 as compared to no
provision for loan losses during 2004. Return on assets for the
full year was 2.09%, return on equity was 18.98%, the net interest
margin was 4.49%, and the efficiency ratio was 46.7%. Charles R.
"Skip" Hageboeck, Chief Executive Officer and President, commented,
"I am proud of management and staff efforts that produced record
earnings during 2005. The Company experienced success not only by
maintaining extraordinary financial performance, but also by
positioning the Company for growth in its core markets. This
occurred despite the revenues associated with the legal settlement
during 2004 and recording a provision for loan loss expense during
the last two quarters in 2005 for the first time since the second
quarter of 2002. City's net interest income increased despite a
substantial decline in balances of high yielding previously
securitized loans, and our net margin improved 20 basis points from
2004's net interest margin. Fee income grew by 12% after adjusting
for the proceeds of the 2004 legal settlement. Expenses, as
evidenced by the efficiency ratio, were managed tightly, and the
bank's asset quality improved. Additionally, we successfully
integrated Classic Bancshares, Inc. ("Classic") into the City
franchise. This acquisition added total assets of $338 million, net
loans of $254 million, and deposits of $252 million to the Company.
Finally, we accomplished all of this while successfully
transitioning to a new management team. Based on the success the
Company enjoyed in 2005, I am confident we are positioned to
continue our performance on behalf of our shareholders during
2006." Net Interest Income The Company's tax equivalent net
interest income increased $4.0 million, or 18.2%, from $21.9
million during the fourth quarter of 2004 to $25.8 million during
the fourth quarter of 2005. The increase was primarily attributable
to the acquisition of Classic ($2.8 million) as well as increased
net interest income as a result of a widening of the net interest
margin and growth in the Company's traditional loan portfolio.
Exclusive of the Classic acquisition, net interest income increased
$1.2 million, or 5.6%, from the fourth quarter of 2004 to the
fourth quarter of 2005. This increase was due primarily to an
increase of $74.5 million, or 5.8%, in the average balances of
traditional loans outstanding and a 78 basis points increase in the
yield on such loans. These increases were partially offset by
increased interest expense. The net interest margin for the fourth
quarter of 2005 of 4.55% represented a 30 basis point increase from
the fourth quarter of 2004 net interest margin of 4.25% and
represented a 4 basis point increase from the net interest margin
of 4.51% for the linked quarter ended September 30, 2005. For the
full year, the Company's tax equivalent net interest income
increased $10.1 million, or 11.5%, from $88.0 million in 2004 to
$98.1 million in 2005. The acquisition of Classic, along with an
increased interest rate environment and growth in the Company's
traditional loan portfolio, were largely responsible for this
increase. The Classic acquisition contributed $7.5 million of net
interest income during 2005. Interest income from previously
securitized loans and retained interests decreased between 2004 and
2005. The average balances of previously securitized loans and
retained interests decreased from $83.4 million for the year ended
December 31, 2004 to $42.9 million for the year ended December 31,
2005. This decrease was partially mitigated as the yield on
previously securitized loans rose from 17.11% for the year ended
December 31, 2004 to 26.60% for the year ended December 31, 2005
(see Previously Securitized Loans). The net result of the decreases
in balances of 48.6% and the increased yield was a decrease in
interest income from previously securitized loans and retained
interests of $3.1 million from 2004 to 2005. Therefore, net
interest income, exclusive of the Classic acquisition and interest
income from previously securitized loans and retained interests,
increased $5.7 million, or 6.5%. This increase was primarily
attributable to increases in average balances of traditional loan
products of $66.7 million, or 5.3%. The yield on these loans
increased 49 basis points due to increases by the Federal Reserve
in the Federal Funds rate and the Company's positioning of its
balance sheet to benefit from such rising rates. The increases in
loan balances and loan yields more than offset the corresponding
increase in rates paid on depository balances. The net interest
margin for the year ended December 31, 2005 of 4.49% represented a
20 basis point increase from the year ended December 31, 2004's net
interest margin of 4.29%. To offset the effects of decreasing
balances of high yielding previously securitized loans, the Company
positioned its balance sheet to benefit from rising interest rates.
Since December 2004, the Federal Funds rate has increased 200 basis
points from 2.25% to 4.25% in December 2005. To manage its interest
rate risk, the Company has focused on the origination of variable
rate products in its traditional lending areas of commercial real
estate and residential real estate loans. Credit Quality At
December 31, 2005, the Allowance for Loan Losses ("ALLL") was $16.8
million or 1.04% of total loans outstanding and 402% of
non-performing loans compared to $17.8 million or 1.31% of loans
outstanding and 487% of non- performing loans at December 31, 2004,
and $17.8 million or 1.09% of loans outstanding and 487% of
non-performing loans at September 30, 2005. As a result of the
Company's quarterly analysis of the adequacy of the ALLL, the
Company recorded a provision for loan losses of $800,000 in the
fourth quarter of 2005. During the past three years, management has
implemented a number of strategic initiatives to strengthen the
loan portfolio including tightening credit standards, changing the
overall mix of the portfolio to include a higher proportion of real
estate secured loans, and identifying and charging off or resolving
problem loans. As a result of these initiatives, the quality of the
Company's loan portfolio has been solid over the past three years
as evidenced by the stability of its ratio of non-performing assets
to total loans and other real estate owned which was 0.28% on
December 31, 2005. As the Company's asset quality has consistently
improved, the required level of the ALLL has decreased. The
provision for loan losses recorded during the third and fourth
quarters of 2005 was the result of an increase in loss trends for
overdraft deposit accounts and credit card loans, and growth in the
outstanding balances of commercial real estate loans during the
quarters. The Company has continued to experience growth in
commercial real estate loans, with average balances increasing by
$106 million from the fourth quarter of 2004 to fourth quarter of
2005. While these trends have required the Company to increase the
provision from the third quarter to the fourth quarter, the amount
of provision recorded was favorably impacted by continued
improvement in the quality of the loan portfolio. Specifically, two
problem credits for which the Company had previously allocated
$800,000 in reserves were refinanced by other banks during the
fourth quarter. As a result, the reserves allocated to these
credits were no longer required, favorably impacting the provision
required by $800,000 for the fourth quarter. The Company had net
charge-offs of $1.8 million for the fourth quarter of 2005, with
depository accounts representing $0.7 million of this total. While
charge-offs on depository accounts were appropriately taken against
the ALLL, the revenue associated with depository accounts was
reflected in service charges and has been steadily growing as the
core base of checking accounts has grown. Net charge-offs on
installment loans were $0.5 million for the quarter ended December
31, 2005, which equaled the net charge-offs for consumer loans for
the first three quarters of 2005 combined. This increase was
attributable to increased bankruptcy notices received in
conjunction with new bankruptcy legislation that took effect in the
fourth quarter and is consistent with banking trends nationally.
Net charge-offs for commercial real estate loans were $0.5 million
for the quarter ended December 31, 2005. This increase primarily
relates to two credits that had been previously identified with
appropriate amounts of reserve allocated for each credit. The ALLL
as a percentage of loans outstanding is 1.04% at December 31, 2005,
compared to the average of the Company's peer group of 1.25% for
the most recently reported quarter. The Company's strong asset
quality is the primary reason for this difference. At December 31,
2005, non-performing assets as a percentage of loans and other real
estate owned were 0.27%. Average non-performing assets as a
percentage of loans and other real estate owned for the Company's
peer group for the most recently reported quarter was 0.67%.
Another contributing factor that has enabled the Company to
maintain its allowance at lower levels than peers is the
composition of the Company's loan portfolio, which is weighted
toward more residential mortgage loans and fewer non-real estate
secured commercial loans than its peers. 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 for loan losses that is directionally
consistent with changes in asset quality and loss experience.
Non-interest Income Net of investment securities gains,
non-interest income increased $1.6 million, or 13.3%, to $13.4
million in the fourth quarter of 2005 as compared to $11.8 million
in the fourth quarter of 2004. The largest source of non-interest
income is service charges from depository accounts, which increased
$1.8 million, or 21.3%, from $8.7 million during the fourth quarter
of 2004 to $10.5 million during the fourth quarter of 2005. This
increase was partially due to the Classic acquisition, which
accounted for $0.8 million, as well as an increase in the
utilization of services by the Company's expanding customer base.
For the full year, net of investment securities gains and legal
settlements, non-interest income increased $6.5 million, or 15.0%,
from $43.4 million in 2004 to $49.9 million in 2005. Service
charges increased 19.9% from $32.6 million in 2004 to $39.1 million
in 2005. The acquisition of Classic accounted for $2.0 million of
this increase, with the remainder of $4.5 million being
attributable to increased services utilized by customers.
Non-interest Expenses Non-interest expenses increased $1.2 million
from $17.1 million in the fourth quarter of 2004 to $18.3 million
in the fourth quarter of 2005. The Classic acquisition increased
non-interest expenses by $1.4 million during the fourth quarter of
2005. Non-interest expenses for the fourth quarter of 2005 also
included a loss on interest rate floors of approximately $1.4
million, with $0.9 million ($0.5 million after tax) relating to
changes in market value in the second and third quarters that had
previously been included in other comprehensive income. During the
second, third, and fourth quarters of 2005, the Company entered
into interest rate floor arrangements to protect the future income
stream from certain variable rate loans should interest rates
decline below certain specified levels. During the fourth quarter
of 2005 management reviewed the Company's hedging documentation and
accounting treatment of the interest rate floors and determined
that the changes in the market value of the floors should be
charged to operations. Offsetting increased expenses associated
with the Classic acquisition and hedge accounting, the Company
experienced a decrease of $1.9 million in salary expense, related
to an obligation to five executive officers for severance payments
as provided under their respective employment agreements, which had
been recorded in the fourth quarter of 2004. Excluding the impact
of the Classic acquisition, hedge accounting, and executive
severance obligations, non-interest expenses increased by $0.2
million in the fourth quarter of 2005 as compared to the fourth
quarter of 2004. For the full year, non-interest expenses increased
$2.8 million, or 4.2%, from $66.3 million in 2004 to $69.1 million
in 2005. Non-interest expenses increased $3.4 million due to the
Classic acquisition, and $1.4 million was related to the fair value
adjustment associated with the interest rate floors. Compensation
expense decreased $2.4 million primarily due to costs incurred in
2004 in regard to executive severance obligations as previously
discussed. Exclusive of the Classic acquisition, hedge accounting,
and executive severance obligations, non-interest expenses
increased by $0.4 million between 2004 and 2005. Specifically,
professional fees and litigation expense decreased $1.2 million
from 2004 to 2005 due to costs incurred during 2004 associated with
the derivative action previously discussed. Other expenses
increased $1.0 million due to increased customer usage of
electronic banking services and increased franchise taxes. Finally,
advertising expenses increased $0.6 million from 2004 to 2005 due
to an expanded territory resulting from the Classic acquisition and
the Company's focused efforts to attract and grow customer
relationships. Overall, the Company's efficiency ratio improved
from 48.5% for the year ended December 31, 2004 to 46.7% for the
year ended December 31, 2005, reflecting ongoing strength in
managing expenses while increasing revenues. The average efficiency
ratio for the Company's peer group for the most recently reported
quarter was 57.4%. Previously Securitized Loans Between 1997 and
1999, the Company originated and securitized $760 million in 125%
loan to value junior-lien underlying mortgages in six separate
pools. The Company had a retained interest in the residual cash
flows associated with these underlying mortgages after satisfying
priority claims. Principal amounts owed to investors in the
securitizations were evidenced by notes that were subject to
redemption under certain circumstances. When the notes were
redeemed during 2003 and 2004, the Company became the beneficial
owner of the mortgage loans and recorded the loans as "Previously
Securitized Loans" within the loan portfolio. At December 31, 2005,
the Company reported "Previously Securitized Loans" of $30.3
million compared to $58.4 million at December 31, 2004, a decrease
of 48.2%. As a result of this decrease, interest income associated
with previously securitized loans and retained interests decreased
by $3.1 million to $11.4 million for the year ended December 31,
2005 compared to $14.5 million for the year ended December 31,
2004. This decrease in interest income was offset by targeted loan
growth in the commercial real estate and residential real estate
loan portfolios and by an increase in the net interest margin yield
due to the Company's positioning of its balance sheet to benefit
from rising interest rates. Because the carrying value of the
previously securitized loans incorporates discounts for expected
prepayment and default rates, the carrying value of the loans is
generally less than the contractual outstanding balance of the
loans. As of December 31, 2005, the contractual outstanding
balances of the mortgages securitized were $48.1 million while the
carrying value of these assets was $30.3 million. The difference
between the carrying value and the contractual outstanding balance
of previously securitized loans is accreted into interest income
over the life of the loans. An impairment charge on previously
securitized loans would be provided through the Company's provision
and allowance for loan losses if the discounted present value of
estimated future cash flows declines below the recorded value of
previously securitized loans. The Company estimates the net
carrying value of previously securitized loan balances to decrease
as shown below: December 31, 2006 $21 million December 31, 2007 $15
million December 31, 2008 $11 million December 31, 2009 $8 million
The yield on the previously securitized loans was 31.03% for the
quarter ended December 31, 2005, compared to 30.14% for the quarter
ended September 30, 2005, and 16.70% for the quarter ended December
31, 2004. For the year ended December 31, 2005, the yield on the
previously securitized loans was 26.60% compared to 17.11% for the
year ended December 31, 2004. The yield on the previously
securitized loans has increased due to default rates being less
than previously estimated and balances prepaying faster than
previously estimated. In addition, the Company assumed the
servicing of all of the pool balances during the second quarter of
2005. This also favorably impacted the yield realized on the
previously securitized loans due to the elimination of the
servicing fees previously being paid to the external servicing
agent and increased internal collection efforts resulting in
enhanced levels of recoveries on previously charged-off loans. All
of these factors have increased the projected cash flows from the
previously securitized loans and the Company now estimates that the
yield on these loans will be in the range of 34% to 36% in the
future. 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 83.6% and the loan to asset ratio was 64.4% at
December 31, 2005. The Company maintained investment securities
totaling 24.2% of assets as of this date. Further, the Company's
deposit mix is weighted heavily toward checking and saving accounts
that fund 44.6% of assets at December 31, 2005. Time deposits fund
32.5% of assets at December 31, 2005, 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. Capitalization (as measured by
average equity to average assets) was 11.03% for the year ended
December 31, 2005 as a result of the Company's strong earnings. The
Company's tangible equity ratio was 9.5% at December 31, 2005
compared with a tangible equity ratio of 9.5% at December 31, 2004.
Due to its continued strong earnings performance, the Company was
able to maintain this ratio despite the completion of an
acquisition during the second quarter of 2005 that was funded by
cash of approximately 25% and the repurchase of 342,576 common
shares of Company stock during 2005. With respect to regulatory
capital, at December 31, 2005, the Company's Leverage Ratio is
10.97%, the Tier I Capital ratio is 15.41%, and the Total
Risk-Based Capital ratio is 16.38%. These regulatory capital ratios
are significantly above levels required to be considered "well
capitalized," which is the highest possible regulatory designation.
Other Events of Interest On December 21, 2005, the Board approved a
quarterly cash dividend of 25 cents per share payable January 31,
2006 to shareholders of record as of January 15, 2006. On December
21, 2005, the Company accelerated the vesting schedule with regard
to 20,000 value-vested options previously granted pursuant to the
Company's 2003 Incentive Plan. Based upon approximately 86,000
unvested options outstanding at December 31, 2005, the Company
anticipates it will incur $0.2 million of expense in connection
with the adoption of SFAS No. 123R, "Share Based Payment", which
will be effective January 1, 2006, for the Company. On January 11,
2006, the Company announced plans to improve its presence in
downtown Charleston, WV, by leasing a new location and purchasing
an adjacent drive-through facility it had previously leased. By
moving its downtown office to a larger space at One Bridge Place,
City will offer an upgraded and more accessible banking center that
will also become a base for commercial lending, trust, and private
banking services. The new downtown facility is expected to open in
the first quarter of 2006. City Holding Company is the parent
company of City National Bank of West Virginia. City National
operates 67 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 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. CITY HOLDING COMPANY
AND SUBSIDIARIES Financial Highlights (Unaudited) Three Months
Ended December 31 December 31 Percent 2005 2004 Change Earnings
($000s, except per share data): Net Interest Income (FTE) $25,844
$21,870 18.17% Net Income 13,089 11,087 18.06% Earnings per Basic
Share 0.72 0.67 7.46% Earnings per Diluted Share 0.72 0.66 9.09%
Key Ratios (percent): Return on Average Assets 2.10% 2.01% 4.22%
Return on Average Equity 17.66% 20.50% (13.86)% Net Interest Margin
4.55% 4.25% 7.10% Efficiency Ratio 46.57% 51.03% (8.74)% Average
Shareholders' Equity to Average Assets 11.87% 9.81% 21.00%
Risk-Based Capital Ratios (a): Tier I 15.41% 15.47% (0.39)% Total
16.38% 16.64% (1.56)% Common Stock Data: Cash Dividends Declared
per Share $ 0.25 $ 0.22 13.64% Book Value per Share 16.14 13.03
23.87% Market Value per Share: High 37.62 37.58 0.11% Low 32.68
31.85 2.61% End of Period 35.95 36.24 (0.80)% Price/Earnings Ratio
(b) 12.48 13.52 (7.69)% Twelve Months Ended December 31 December 31
Percent 2005 2004 Change Earnings ($000s, except per share data):
Net Interest Income (FTE) $98,097 $87,985 11.49% Net Income 50,288
46,344 8.51% Earnings per Basic Share 2.87 2.79 2.87% Earnings per
Diluted Share 2.84 2.75 3.27% Key Ratios (percent): Return on
Average Assets 2.09% 2.10% (0.08)% Return on Average Equity 18.98%
22.43% (15.40)% Net Interest Margin 4.49% 4.29% 4.61% Efficiency
Ratio 46.66% 48.49% (3.77)% Average Shareholders' Equity to Average
Assets 11.03% 9.34% 18.10% Common Stock Data: Cash Dividends
Declared per Share $ 1.00 $ 0.88 13.64% Market Value per Share:
High 39.21 37.58 4.34% Low 27.57 27.30 0.99% (a) December 31, 2005
risk-based capital ratios are estimated. (b) December 31, 2005
price/earnings ratio computed based on annualized fourth quarter
2005 earnings. CITY HOLDING COMPANY AND SUBSIDIARIES Financial
Highlights (Unaudited) Book Value and Market Price Range per Share
Market Price Book Value per Share Range per Share March 31 June 30
September 30 December 31 Low High 2001 $ 8.82 $ 8.70 $ 8.37 $ 8.67
$ 5.13 $13.94 2002 8.92 9.40 9.64 9.93 12.04 30.20 2003 10.10 10.74
11.03 11.46 25.50 37.15 2004 12.09 11.89 12.70 13.03 27.30 37.58
2005 13.20 15.56 15.99 16.14 27.57 39.21 Earnings per Basic Share
Quarter Ended March 31 June 30 September 30 December 31
Year-to-Date 2001 $(0.34) $(1.19) $(0.46) $0.45 $(1.54) 2002 0.38
0.45 0.53 0.56 1.92 2003 0.56 0.73 0.69 0.64 2.62 2004 0.66 0.80
0.66 0.67 2.79 2005 0.70 0.72 0.73 0.72 2.87 Earnings per Diluted
Share Quarter Ended March 31 June 30 September 30 December 31
Year-to-Date 2001 $(0.34) $(1.19) $(0.46) $0.45 $(1.54) 2002 0.38
0.45 0.52 0.55 1.90 2003 0.55 0.72 0.68 0.63 2.58 2004 0.65 0.79
0.65 0.66 2.75 2005 0.69 0.71 0.72 0.72 2.84 CITY HOLDING COMPANY
AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($
in 000s, except per share data) Three Months Ended December 31,
2005 2004 Interest Income Interest and fees on loans $28,918
$21,511 Interest on investment securities: Taxable 7,188 7,779
Tax-exempt 497 437 Interest on deposits in depository institutions
36 16 Interest on federal funds sold - 3 Total Interest Income
36,639 29,746 Interest Expense Interest on deposits 8,569 5,932
Interest on short-term borrowings 1,049 424 Interest on long-term
debt 1,446 1,756 Total Interest Expense 11,064 8,112 Net Interest
Income 25,575 21,634 Provision for loan losses 800 - Net Interest
Income After Provision for Loan Losses 24,775 21,634 Non-Interest
Income Investment securities gains 125 32 Service charges 10,530
8,678 Insurance commissions 620 754 Trust fee income 504 466 Bank
owned life insurance 691 1,184 Mortgage banking income 228 70 Other
income 839 685 Total Non-Interest Income 13,537 11,869 Non-Interest
Expense Salaries and employee benefits 8,416 9,578 Occupancy and
equipment 1,569 1,560 Depreciation 1,062 981 Professional fees and
litigation expense 486 571 Postage, delivery, and statement
mailings 728 589 Advertising 710 600 Telecommunications 560 403
Insurance and regulatory 380 330 Office supplies 388 210
Repossessed asset (gains) losses, net of expenses (28) (31) Other
expenses 4,068 2,340 Total Non-Interest Expense 18,339 17,131
Income Before Income Taxes 19,973 16,372 Income tax expense 6,884
5,285 Net Income $13,089 $11,087 Basic earnings per share $ 0.72 $
0.67 Diluted earnings per share $ 0.72 $ 0.66 Average Common Shares
Outstanding: Basic 18,127 16,572 Diluted 18,211 16,810 CITY HOLDING
COMPANY AND SUBSIDIARIES Consolidated Statements of Income
(Unaudited) ($ in 000s, except per share data) Twelve Months Ended
December 31, 2005 2004 Interest Income Interest and fees on loans
$103,714 $ 86,099 Interest on investment securities: Taxable 29,804
30,110 Tax-exempt 1,887 1,809 Interest on retained interests - 808
Interest on deposits in depository institutions 109 52 Interest on
federal funds sold 4 3 Total Interest Income 135,518 118,881
Interest Expense Interest on deposits 28,805 23,207 Interest on
short-term borrowings 3,369 1,082 Interest on long-term debt 6,264
7,582 Total Interest Expense 38,438 31,871 Net Interest Income
97,080 87,010 Provision for loan losses 1,400 - Net Interest Income
After Provision for Loan Losses 95,680 87,010 Non-Interest Income
Investment securities gains 151 1,173 Service charges 39,091 32,609
Insurance commissions 2,352 2,733 Trust fee income 2,025 2,026 Bank
owned life insurance 2,779 2,931 Mortgage banking income 643 282
Legal settlement - 5,453 Other income 3,050 2,829 Total
Non-Interest Income 50,091 50,036 Non-Interest Expense Salaries and
employee benefits 33,479 34,245 Occupancy and equipment 6,295 5,984
Depreciation 4,096 3,932 Professional fees and litigation expense
2,021 3,265 Postage, delivery, and statement mailings 2,666 2,474
Advertising 2,941 2,366 Telecommunications 2,248 1,820 Insurance
and regulatory 1,496 1,323 Office supplies 1,193 1,048 Repossessed
asset (gains) losses, net of expenses (78) (77) Loss on early
extinguishment of debt - 263 Other expenses 12,756 9,690 Total
Non-Interest Expense 69,113 66,333 Income Before Income Taxes
76,658 70,713 Income tax expense 26,370 24,369 Net Income $ 50,288
$ 46,344 Basic earnings per share $ 2.87 $ 2.79 Diluted earnings
per share $ 2.84 $ 2.75 Average Common Shares Outstanding: Basic
17,519 16,632 Diluted 17,690 16,882 CITY HOLDING COMPANY AND
SUBSIDIARIES Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) ($ in 000s) Three Months Ended December 31, 2005
December 31, 2004 Balance at September 1 $290,432 $210,285 Net
income 13,089 11,087 Other comprehensive income: Change in
unrealized gain on securities available-for-sale (3,701) (2,255)
Change in underfunded pension liability (748) (35) Reclassification
of unrealized derivative losses 543 - Cash dividends declared
($0.25/share) (4,522) - Cash dividends declared ($0.22/share) -
(3,650) Exercise of 104,966 stock options 3,128 - Exercise of
26,327 stock options - 648 Purchase of 171,000 common shares of
treasury (6,080) - Balance at December 31 $292,141 $216,080 Twelve
Months Ended December 31, 2005 December 31, 2004 Balance at January
1 $216,080 $190,690 Net income 50,288 46,344 Other comprehensive
income: Change in unrealized gain on securities available-for-sale
(6,120) (2,481) Change in underfunded pension liability (748) (35)
Cash dividends declared ($1.00/share) (17,716) - Cash dividends
declared ($0.88/share) - (14,629) Issuance of 1,580,034 shares for
acquisition of Classic Bancshares, net 108,173 owned and
transferred to treasury 54,339 - Issuance of 18,800 stock award
shares 147 - Exercise of 367,675 stock options 7,783 - Exercise of
140,730 stock options - 2,048 Purchase of 342,576 common shares for
treasury (11,912) - Purchase of 197,040 common shares for treasury
- (5,857) Balance at December 31 $292,141 $216,080 CITY HOLDING
COMPANY AND SUBSIDIARIES Condensed Consolidated Quarterly
Statements of Income (Unaudited) ($ in 000s, except per share data)
Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2005 2005
2005 2005 2004 Interest income $36,639 $35,910 $32,676 $30,293
$29,746 Taxable equivalent adjustment 269 273 241 233 236 Interest
income (FTE) 36,908 36,183 32,917 30,526 29,982 Interest expense
11,064 10,290 9,054 8,030 8,112 Net interest income 25,844 25,893
23,863 22,496 21,870 Provision for loan losses 800 600 - - - Net
interest income after provision for loan losses 25,044 25,293
23,863 22,496 21,870 Noninterest income 13,537 13,012 12,098 11,444
11,869 Noninterest expense 18,339 17,922 16,839 16,013 17,131
Income before income taxes 20,242 20,383 19,122 17,927 16,608
Income tax expense 6,884 6,938 6,532 6,016 5,285 Taxable equivalent
adjustment 269 273 241 233 236 Net income $13,089 $13,172 $12,349
$11,678 $11,087 Basic earnings per share $ 0.72 $ 0.73 $ 0.72 $
0.70 $ 0.67 Diluted earnings per share 0.72 0.72 0.71 0.69 0.66
Cash dividends declared per share 0.25 0.25 0.25 0.25 0.22 Average
Common Share (000s): Outstanding 18,127 18,052 17,268 16,605 16,572
Diluted 18,211 18,238 17,477 16,812 16,810 Net Interest Margin
4.55% 4.51% 4.42% 4.40% 4.25% CITY HOLDING COMPANY AND SUBSIDIARIES
Non-Interest Income and Non-Interest Expense (Unaudited) ($ in
000s) Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2005
2005 2005 2005 2004 Non-Interest Income: Service charges $10,530
$10,433 $9,685 $8,443 $8,678 Insurance commissions 620 595 545 592
754 Trust fee income 504 468 462 591 466 Bank owned life insurance
691 552 545 991 1,184 Mortgage banking income 228 191 106 118 70
Other income 839 768 737 706 685 Subtotal 13,412 13,007 12,080
11,441 11,837 Investment security gains 125 5 18 3 32 Total
Non-Interest Income $13,537 $13,012 $12,098 $11,444 $11,869
Non-Interest Expense: Salaries and employee benefits $ 8,416 $
8,739 $ 8,404 $ 7,920 $ 9,578 Occupancy and equipment 1,569 1,687
1,564 1,475 1,560 Depreciation 1,062 1,096 994 944 981 Professional
fees and litigation expense 486 456 514 565 571 Postage, delivery,
and statement mailings 728 670 615 653 589 Advertising 710 764 762
705 600 Telecommunications 560 702 513 473 403 Insurance and
regulatory 380 385 365 366 330 Office supplies 388 327 275 203 210
Repossessed asset (gains) losses, net of expenses (28) (35) (16) 1
(31) Other expenses 4,068 3,131 2,849 2,708 2,340 Total
Non-Interest Expense $18,339 $17,922 $16,839 $16,013 $17,131
Employees (Full Time Equivalent) 770 768 767 689 691 Branch
Locations 67 67 67 56 56 CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets ($ in 000s) December 31 December 31
2005 2004 (Unaudited) Assets Cash and due from banks $ 81,822 $
52,854 Interest-bearing deposits in depository institutions 4,451
3,230 Cash and cash equivalents 86,273 56,084 Investment securities
available-for-sale, at fair value 549,966 620,034 Investment
securities held-to-maturity, at amortized cost 55,397 59,740 Total
investment securities 605,363 679,774 Loans: Residential real
estate 592,521 469,458 Home equity 301,728 308,173 Commercial real
estate 499,748 400,801 Other commercial 129,922 71,311 Installment
40,000 18,145 Indirect 3,580 10,324 Credit card 15,072 18,126
Previously securitized loans 30,256 58,436 Gross Loans 1,612,827
1,354,774 Allowance for loan losses (16,790) (17,815) Net loans
1,596,037 1,336,959 Bank owned life insurance 52,969 50,845
Premises and equipment 42,542 34,607 Accrued interest receivable
13,134 9,868 Net deferred tax assets 27,929 27,025 Intangible
assets 59,559 6,255 Other assets 18,791 11,813 Total Assets
$2,502,597 $2,213,230 Liabilities Deposits: Noninterest-bearing $
376,076 $ 319,425 Interest-bearing: Demand deposits 437,639 411,127
Savings deposits 302,571 281,466 Time deposits 812,134 660,705
Total deposits 1,928,420 1,672,723 Short-term borrowings 152,255
145,183 Long-term debt 98,425 148,836 Other liabilities 31,356
30,408 Total Liabilities 2,210,456 1,997,150 Stockholders' Equity
Preferred stock, par value $25 per share: 500,000 shares
authorized; none issued - - Common stock, par value $2.50 per
share: 50,000,000 shares authorized; 18,499,282 and 16,919,248
shares issued at December 31, 2005 and December 31, 2004 less
395,465 and 331,191 shares in treasury, respectively 46,249 42,298
Capital surplus 104,435 55,512 Retained earnings 160,747 128,175
Cost of common stock in treasury (11,278) (8,761) Accumulated other
comprehensive (loss) income: Unrealized (loss) gain on securities
available-for-sale (4,839) 1,281 Underfunded pension liability
(3,173) (2,425) Total Accumulated Other Comprehensive (Loss) Income
(8,012) (1,144) Total Stockholders' Equity 292,141 216,080 Total
Liabilities and Stockholders' Equity $2,502,597 $2,213,230 CITY
HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in
000s) Dec. 31 Sept. 30 June 30 2005 2005 2005 Residential real
estate $ 592,521 $ 596,184 $ 596,893 Home equity 301,728 306,448
307,354 Commercial real estate 499,748 483,334 445,241 Other
commercial 129,922 138,011 138,923 Loans to depository institutions
- - - Installment 40,000 42,844 48,668 Indirect 3,580 4,658 6,048
Credit card 15,072 15,632 16,188 Previously securitized loans
30,256 35,599 41,670 Gross Loans $1,612,827 $1,622,710 $1,600,985
CITY HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($
in 000s) March 31 Dec. 31 2005 2004 Residential real estate $
463,869 $ 469,458 Home equity 302,262 308,173 Commercial real
estate 409,064 400,801 Other commercial 66,485 71,311 Loans to
depository institutions 10,000 - Installment 16,065 18,145 Indirect
7,960 10,324 Credit card 16,954 18,126 Previously securitized loans
50,588 58,436 Gross Loans $1,343,247 $1,354,774 CITY HOLDING
COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets,
Yields, and Rates (Unaudited) ($ in 000s) Three Months Ended
December 31, 2005 Average Yield/ Balance Interest Rate Assets: Loan
portfolio: Residential real estate $ 595,309 $ 8,365 5.57% Home
equity 303,977 5,318 6.94% Commercial real estate 492,478 8,502
6.85% Other commercial 133,863 2,426 7.19% Installment 40,843 1,138
11.05% Indirect 4,112 118 11.39% Credit card 15,278 482 12.52%
Previously securitized loans 32,851 2,569 31.03% Total loans
1,618,711 28,918 7.09% Securities: Taxable 580,845 7,188 4.91%
Tax-exempt 47,675 766 6.37% Total securities 628,520 7,954 5.02%
Deposits in depository institutions 5,188 36 2.75% Federal funds
sold - - - Total interest-earning assets 2,252,419 36,908 6.50%
Cash and due from banks 52,828 Bank premises and equipment 42,432
Other assets 168,395 Less: Allowance for loan losses (17,272) Total
assets $2,498,802 Liabilities: Interest-bearing demand deposits
442,130 1,207 1.08% Savings deposits 302,904 684 0.90% Time
deposits 809,433 6,678 3.27% Short-term borrowings 159,185 1,049
2.61% Long-term debt 114,590 1,446 5.01% Total interest-bearing
liabilities 1,828,242 11,064 2.40% Noninterest-bearing demand
deposits 347,777 Other liabilities 26,287 Stockholders' equity
296,496 Total liabilities and stockholders' equity $2,498,802 Net
interest income $25,844 Net yield on earning assets 4.55% Three
Months Ended December 31, 2004 Average Yield/ Balance Interest Rate
Assets: Loan portfolio: Residential real estate $ 468,362 $ 6,646
5.65% Home equity 307,712 3,966 5.13% Commercial real estate
386,592 5,641 5.80% Other commercial 68,816 1,015 5.87% Installment
20,168 604 11.91% Indirect 11,584 321 11.02% Credit card 17,756 534
11.96% Previously securitized loans 66,307 2,784 16.70% Total loans
1,347,297 21,511 6.35% Securities: Taxable 656,511 7,779 4.71%
Tax-exempt 37,573 673 7.13% Total securities 694,084 8,452 4.84%
Deposits in depository institutions 4,753 16 1.34% Federal funds
sold 766 3 1.56% Total interest-earning assets 2,046,900 29,982
5.83% Cash and due from banks 42,920 Bank premises and equipment
34,859 Other assets 99,641 Less: Allowance for loan losses (18,332)
Total assets $2,205,988 Liabilities: Interest-bearing demand
deposits 408,038 675 0.66% Savings deposits 275,776 361 0.52% Time
deposits 661,131 4,896 2.95% Short-term borrowings 131,202 424
1.29% Long-term debt 174,923 1,756 3.99% Total interest-bearing
liabilities 1,651,070 8,112 1.95% Noninterest-bearing demand
deposits 315,759 Other liabilities 22,829 Stockholders' equity
216,330 Total liabilities and stockholders' equity $2,205,988 Net
interest income $21,870 Net yield on earning assets 4.25% CITY
HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance
Sheets, Yields, and Rates (Unaudited) ($ in 000s) Twelve Months
Ended December 31, 2005 Average Yield/ Balance Interest Rate
Assets: Loan portfolio: Residential real estate $ 545,280 $30,570
5.61% Home equity 305,525 19,088 6.25% Commercial real estate
447,243 28,756 6.43% Other commercial 109,950 7,318 6.66% Loans to
depository institutions 7,419 213 2.87% Installment 33,327 3,592
10.78% Indirect 6,347 718 11.31% Credit card 16,417 2,058 12.54%
Previously securitized loans 42,859 11,401 26.60% Total loans
1,514,367 103,714 6.85% Securities: Taxable 623,155 29,804 4.78%
Tax-exempt 43,767 2,904 6.64% Total securities 666,922 32,708 4.90%
Retained interest in securitized loans - - - Deposits in depository
institutions 4,609 109 2.36% Federal funds sold 105 4 3.81% Total
interest-earning assets 2,186,003 136,535 6.25% Cash and due from
banks 48,562 Bank premises and equipment 39,109 Other assets
145,899 Less: Allowance for loan losses (17,515) Total assets
$2,402,058 Liabilities: Interest-bearing demand deposits 433,831
3,866 0.89% Savings deposits 295,045 2,070 0.70% Time deposits
743,725 22,869 3.07% Short-term borrowings 157,264 3,369 2.14%
Long-term debt 137,340 6,264 4.56% Total interest-bearing
liabilities 1,767,205 38,438 2.18% Noninterest-bearing demand
deposits 341,873 Other liabilities 28,026 Stockholders' equity
264,954 Total liabilities and stockholders' equity $2,402,058 Net
interest income $98,097 Net yield on earning assets 4.49% Twelve
Months Ended December 31, 2004 Average Yield/ Balance Interest Rate
Assets: Loan portfolio: Residential real estate $ 454,890 $26,869
5.91% Home equity 298,703 14,004 4.69% Commercial real estate
367,599 20,684 5.63% Other commercial 72,825 3,913 5.37% Loans to
depository institutions 3,060 35 1.14% Installment 25,343 2,895
11.42% Indirect 16,599 1,823 10.98% Credit card 18,002 2,164 12.02%
Previously securitized loans 80,151 13,712 17.11% Total loans
1,337,172 86,099 6.44% Securities: Taxable 666,863 30,110 4.52%
Tax-exempt 38,169 2,784 7.29% Total securities 705,032 32,894 4.67%
Retained interest in securitized loans 3,300 808 24.48% Deposits in
depository institutions 5,347 52 0.97% Federal funds sold 193 3
1.55% Total interest-earning assets 2,051,044 119,856 5.84% Cash
and due from banks 43,616 Bank premises and equipment 34,804 Other
assets 102,179 Less: Allowance for loan losses (19,790) Total
assets $2,211,853 Liabilities: Interest-bearing demand deposits
405,865 2,599 0.64% Savings deposits 279,174 1,456 0.52% Time
deposits 662,068 19,152 2.89% Short-term borrowings 120,849 1,082
0.90% Long-term debt 201,218 7,582 3.77% Total interest-bearing
liabilities 1,669,174 31,871 1.91% Noninterest-bearing demand
deposits 312,036 Other liabilities 24,072 Stockholders' equity
206,571 Total liabilities and stockholders' equity $2,211,853 Net
interest income $87,985 Net yield on earning assets 4.29% CITY
HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital
(Unaudited) ($ in 000s) Dec. 31 Sept. 30 June 30 2005 (a) 2005 2005
Tier I Capital: Stockholders' equity $ 292,141 $ 290,432 $ 279,624
Goodwill and other intangibles (59,559) (59,742) (61,578)
Accumulated other comprehensive income 8,012 4,106 3,334 Qualifying
trust preferred stock 28,000 28,000 28,000 Excess deferred tax
assets (1,071) - - Total tier I capital $ 267,523 $ 262,796 $
249,380 Total Risk-Based Capital: Tier I capital $ 267,523 $
262,796 $ 249,380 Qualifying allowance for loan losses 16,790
17,768 18,298 Total risk-based capital $ 284,313 $ 280,564 $
267,678 Net risk-weighted assets $1,735,538 $1,758,566 $1,734,653
Ratios: Average stockholders' equity to average assets 11.87%
11.47% 10.57% Tangible capital ratio 9.52% 9.32% 8.91% Risk-based
capital ratios: Tier I capital 15.41% 14.94% 14.38% Total
risk-based capital 16.38% 15.95% 15.43% Leverage capital 10.97%
10.68% 10.83% March 31 Dec. 31 2005 2004 Tier I Capital:
Stockholders' equity $ 219,302 $ 216,080 Goodwill and other
intangibles (6,204) (6,255) Accumulated other comprehensive income
5,890 1,144 Qualifying trust preferred stock 28,000 28,000 Excess
deferred tax assets (4,524) (3,129) Total tier I capital $ 242,464
$ 235,840 Total Risk-Based Capital: Tier I capital $ 242,464 $
235,840 Qualifying allowance for loan losses 16,325 17,815 Total
risk-based capital $ 258,789 $ 253,655 Net risk-weighted assets
$1,522,881 $1,524,581 Ratios: Average stockholders' equity to
average assets 10.08% 9.81% Tangible capital ratio 9.52% 9.51%
Risk-based capital ratios: Tier I capital 15.92% 15.47% Total
risk-based capital 16.99% 16.64% Leverage capital 11.00% 10.74% (a)
December 31, 2005 risk-based capital ratios are estimated. CITY
HOLDING COMPANY AND SUBSIDIARIES Intangibles (Unaudited) ($ in
000s) As of and for the Quarter Ended Dec 31. Sept. 30 June 30
March 31 Dec. 31 2005 2005 2005 2005 2004 Intangibles, net $59,559
$59,742 $61,578 $6,204 $6,255 Intangibles amortization expense 183
183 95 51 51 CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan
Loss Experience (Unaudited) ($ in 000s) Quarter Ended Dec. 31 Sept.
30 June 30 2005 2005 2005 Balance at beginning of period $ 17,768 $
18,298 $ 16,325 Allowance acquired through acquisition - - 3,265
Charge-offs: Residential real estate 188 74 97 Home equity 114 134
226 Commercial real estate 505 52 653 Other commercial 22 2 10
Installment 664 476 263 Overdraft deposit accounts 996 1,012 832
Total charge-offs 2,489 1,750 2,081 Recoveries: Residential real
estate 183 46 16 Home equity 5 7 9 Commercial real estate 13 24 311
Other commercial 17 111 34 Installment 163 136 175 Overdraft
deposit accounts 330 296 244 Total recoveries 711 620 789 Net
charge-offs 1,778 1,130 1,292 Provision for loan losses 800 600 -
Balance at end of period $ 16,790 $ 17,768 $ 18,298 Loans
outstanding $1,612,827 $1,622,710 $1,600,985 Average loans
outstanding 1,618,711 1,612,344 1,473,880 Allowance as a percent of
loans outstanding 1.04% 1.09% 1.14% Allowance as a percent of
non-performing loans 402% 487% 464% Net charge-offs (annualized) as
a percent of average loans outstanding 0.44% 0.28% 0.35% Quarter
Ended March 31 Dec. 31 2005 2004 Balance at beginning of period $
17,815 $ 18,537 Allowance acquired through acquisition - -
Charge-offs: Residential real estate 237 166 Home equity 421 5
Commercial real estate 393 105 Other commercial 36 14 Installment
308 458 Overdraft deposit accounts 744 586 Total charge-offs 2,139
1,334 Recoveries: Residential real estate 37 137 Home equity - -
Commercial real estate 50 10 Other commercial 45 80 Installment 205
147 Overdraft deposit accounts 312 238 Total recoveries 649 612 Net
charge-offs 1,490 722 Provision for loan losses - - Balance at end
of period $ 16,325 $ 17,815 Loans outstanding $1,343,247 $1,354,774
Average loans outstanding 1,348,489 1,347,297 Allowance as a
percent of loans outstanding 1.22% 1.31% Allowance as a percent of
non-performing loans 490% 487% Net charge-offs (annualized) as a
percent of average loans outstanding 0.44% 0.21% CITY HOLDING
COMPANY AND SUBSIDIARIES Summary of Non-Performing Assets
(Unaudited) ($ in 000s) Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2005 2005 2005 2005 2004 Nonaccrual loans $2,785 $2,468 $2,709
$2,641 $2,147 Accruing loans past due 90 days or more 1,124 1,003
936 322 677 Previously securitized loans past due 90 days or more
268 174 299 372 832 Total non-performing loans 4,177 3,645 3,944
3,335 3,656 Other real estate owned 135 117 471 463 247 Total
non-performing assets $4,312 $3,762 $4,415 $3,798 $3,903
Non-performing assets as a percent of loans and other real estate
owned 0.27% 0.23% 0.28% 0.28% 0.29% First Call Analyst: FCMN
Contact: DATASOURCE: City Holding Company CONTACT: Charles R.
Hageboeck, Chief Executive Officer and President of City Holding
Company, +1-304-769-1102 Web site: http://www.cityholding.com/
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