CHARLESTON, W.Va., July 24 /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 second quarter of $13.8 million, or diluted earnings per share
of $0.77 compared to $12.3 million, or $0.71 per diluted share in
the second quarter of 2005, an 8.5% increase. For the second
quarter of 2006, the Company achieved a return on assets of 2.17%,
a return on equity of 18.8%, a net interest margin of 4.58%, and an
efficiency ratio of 44.1%. Key components of the increase in net
income were increases in net interest income of $2.3 million and
non-interest income (principally service charge revenue) of $1.4
million. These increases were partially offset by the provision for
loan losses of $0.7 million in the second quarter of 2006, as
compared to no provision for loan losses in the second quarter of
2005 and increased non-interest expenses of $0.8 million
(principally salaries and benefits). The Company completed the
acquisition of Classic Bancshares, Inc. on May 20, 2005. Charles
Hageboeck, Chief Executive Officer and President, stated, "I am
very pleased with City's continuing success during the second
quarter of 2006. The Company achieved a significant increase in its
earnings per share despite the impact of the provision for loan
losses in the second quarter of 2006 (as compared to no such
provision in the second quarter of 2005) and a decrease of over
$300,000 in interest income associated with previously securitized
loans (whose balances decreased 45%). As compared to the prior year
ended June 30, 2005, our net interest margin was higher, efficiency
ratio better, and profitability as measured by our return on assets
was higher. Loans and deposits both grew meaningfully in an
economic environment that has been somewhat challenging for banks.
Asset quality, as measured by non-performing assets, remained
stable and at very desirable levels as compared to many of our
peers and our level of net charge-offs was well within acceptable
limits. The bank is extremely well capitalized and highly liquid.
In summary, the Company is performing well against all measures.
The Company used some of its profits to repurchase approximately
271,000 shares of common stock during the second quarter. Based on
our continued success in the second quarter of 2006, we believe
that the Company remains well positioned to maintain our solid
performance on behalf of our shareholders throughout the remainder
of the year." For the six months ended June 30, 2006, City's net
income grew 10.8% to $26.6 million compared to $24.0 million in the
first half of 2005. Diluted earnings per share grew 6.4% to $1.49
per share for the six months ended June 30, 2006 as compared to
$1.40 per share for the six months ended June 30, 2005. Net
Interest Income The Company's tax equivalent net interest income
increased $2.3 million, or 9.7%, from $23.9 million during the
second quarter of 2005 to $26.2 million during the second quarter
of 2006. This increase was primarily attributable to a widening of
the Company's net interest margin from increasing rates, which
increased net interest income by $2.1 million from the second
quarter of 2005. The increase was due primarily to an increase of
89 basis points in the Company's traditional loan portfolio
(residential real estate, home equity, commercial, and installment
loans). As a result, interest income from the Company's traditional
loan portfolio increased $3.7 million from the second quarter of
2005. Also contributing to increased interest income was growth in
the Company's traditional loan portfolio due to internal growth and
the acquisition of Classic Bancshares, Inc. during the second
quarter of 2005. As a result of this growth of $185 million, or
12.89%, in the average balances of traditional loan products,
interest income from these loans increased $2.7 million. These
increases were partially offset by increased interest expense
associated with higher rates paid on deposits and increased
balances of deposits. Interest expense increased $2.7 million due
to a 75 basis point increase in the rate paid on interest bearing
deposits from the second quarter of 2005. Meanwhile, increased
average balances of deposits of $190 million, or 13.2%, from the
second quarter of 2005 was due to internal growth and the
acquisition of Classic during the second quarter of 2005. Growth in
average balances of deposits increased interest expense by $1.2
million. Interest income from previously securitized loans
decreased $0.3 million from the second quarter of 2005. This
decrease was related to a decrease in the average balance of the
loans from $45.6 million for the quarter ended June 30, 2005, to
$24.0 million for the quarter ended June 30, 2006. However, this
reduction was partially mitigated as the yield on these loans rose
from 25.0% from the second quarter of 2005 to 41.9% for the second
quarter of 2006 (see Previously Securitized Loans section for
further discussion). Credit Quality At June 30, 2006, the Allowance
for Loan Losses ("ALLL") was $16.6 million or 1.00% of total loans
outstanding and 445% of non-performing loans compared to $18.3
million or 1.14% of loans outstanding and 464% of non-performing
loans at June 30, 2005, and $16.8 million or 1.04% of loans
outstanding and 402% of non-performing loans at December 31, 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 $0.7
million in the second quarter of 2006 and no provision in the
second quarter of 2005. The provision for loan losses also
decreased slightly from $1.0 million in the first quarter of 2006
primarily due to recent improvements within the Company's home
equity and consumer portfolios. Changes in the amount of the
provision and related allowance are based upon City's detailed
methodology and are directionally consistent with changes in
quality of the Company's loan portfolio. The Company had net
charge-offs of $0.9 million for the second quarter of 2006, with
depository accounts representing $0.6 million of this total. While
charge-offs on depository accounts are appropriately taken against
the ALLL, the revenue associated with depository accounts is
reflected in service charges and has been steadily growing as the
core base of checking accounts has grown. Net charge-offs on real
estate loans and installment loans were $0.2 million and $0.1
million, respectively, while commercial loans experienced no net
charge-offs for the quarter ended June 30, 2006. Due to a number of
strategic initiatives to strengthen the loan portfolio implemented
by management in recent years, 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, the quality of the
Company's loan portfolio remains solid. At June 30, 2006,
non-performing assets as a percentage of loans and other real
estate owned were 0.25%. Average non-performing assets as a
percentage of loans and other real estate owned for the Company's
peer group (bank holding companies with total assets between $1 and
$5 billion) for the most recently reported quarter ended March 31,
2006, were 0.71%. 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 more
heavily toward residential mortgage loans and less toward non-real
estate secured commercial loans than its peers. As a result, the
Company's ALLL as a percentage of loans outstanding is 1.00% at
June 30, 2006, compared to the average of the Company's peer group
of 1.20% for the most recently reported quarter. 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 $1.4 million, or 11.4%, to $13.5
million in the second quarter of 2006 as compared to $12.1 million
in the second quarter of 2005. The largest source of non-interest
income is service charges from depository accounts, which increased
$1.2 million, or 12.6%, from $9.7 million during the second quarter
of 2005 to $10.9 million during the second quarter of 2006. This
increase is due to an increase in the utilization of services by
the Company's expanding customer base. On a year-to-date basis,
non-interest income increased $2.3 million, or 9.8%, exclusive of
security gains primarily due to increases in service charges.
Non-interest Expenses Non-interest expenses increased $0.8 million
from $16.8 million in the second quarter of 2005 to $17.6 million
in the second quarter of 2006. The increase in non-interest
expenses for the quarter and year to date was primarily
attributable to increased compensation expenses and other
miscellaneous non-interest expenses related to the Company's
acquisition of Classic Bancshares, Inc. during the second quarter
of 2005. The Company's efficiency ratio improved from 46.9% for the
quarter ended June 30, 2005 to 44.1% for the quarter ended June 30,
2006, 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 ended March 31,
2006, was 61.1%. For the six months ended June 30, 2006, the
efficiency ratio improved to 44.69% from 47.12% for the six months
ended June 30, 2005. Balance Sheet Trends As compared to December
31, 2005, loans have increased $46.1 million at June 30, 2006. The
primary reasons for this growth are increases in targeted areas of
commercial loans of $38.9 million, home equity loans of $11.6
million and residential real estate loans of $8.6 million. These
increases were partially offset by decreases in previously
securitized loans of $8.0 million (see discussion below) and
installment loans of $5.0 million. The Company was successful in
increasing residential real estate loans and home equity loans
despite continued difficulties imposed by the flat yield curve that
has resulted in borrowers refinancing into fixed rate mortgages.
Total average depository balances increased $63.0 million, or 13.3%
on an annualized basis, from the quarter ended December 31, 2005 to
the quarter ended June 30, 2006. This growth was primarily in time
deposits, which have increased $56.1 million from the quarter ended
December 31, 2005. 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 June 30, 2006, the
Company reported "Previously Securitized Loans" of $22.3 million
compared to $41.7 million and $30.3 million at June 30, 2005 and
December 31, 2005, respectively, representing a decrease of 46.6%
and 26.5%, respectively. 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 June 30, 2006, the contractual outstanding balances of
the mortgages securitized were $40.0 million while the carrying
value of these assets was $22.3 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 and related
interest income to decrease as shown below: 12/31 Balance
Annualized Interest Effective (in millions)* Income (in Annualized
Yield* millions)* 2005 $ 30.3 $ 11.4 27 % 2006 18.4 9.5 42 % 2007
13.7 6.8 42 % 2008 10.4 5.1 42 % 2009 7.9 3.9 42 % * - 2005 amounts
are based on actual results. 2006 amounts are based on actual
results through 6/30/06 and estimated amounts for the remainder of
the year. 2007, 2008 and 2009 amounts are based on estimated
amounts. Note: The amounts reflected in the table above require
management to make significant assumptions based on estimated
future default, prepayment, and discount rates. Actual performance
could be different from that assumed, which could result in the
actual results being materially different from the amounts
estimated above. The yield on the previously securitized loans was
41.9% for the quarter ended June 30, 2006, compared to 39.1% for
the quarter ended March 31, 2006, and 25.0% for the quarter ended
June 30, 2005. The yield on the previously securitized loans has
increased due to improved cash flows from net default rates being
less than previously estimated. The lower net default rates
resulted from the Company's assumption of the servicing of all of
the pool balances during the second quarter of 2005. This favorably
impacted the yield realized on the previously securitized loans by
eliminating the servicing fees previously being paid to the
external servicing agent and increased internal collection efforts
that have resulted in enhanced levels of recoveries on previously
charged-off loans. Subsequent to our assumption of the servicing of
these loans, the Company has averaged net recoveries of
approximately $485,000 per month. The Company does not believe that
continued net recoveries at this rate can be sustained
indefinitely. As a result of these net recoveries which are
accreted into income over the remaining expected life of the loans,
together with the improvements associated with lower servicing
costs, the Company now projects that the yield on these loans will
be in the range of 41-43%. 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 84.1% and the
loan to asset ratio was 65.8% at June 30, 2006. The Company
maintained investment securities totaling 22.5% of assets as of
this date. Further, the Company's deposit mix is weighted heavily
toward checking and saving accounts that fund 43.3% of assets at
June 30, 2006. Time deposits fund 34.9% of assets at June 30, 2006,
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 11.5% for the quarter ended June 30, 2006 as a result of the
Company's strong earnings. With respect to regulatory capital, at
June 30, 2006, the Company's Leverage Ratio is 10.34%, the Tier I
Capital ratio is 14.58%, and the Total Risk-Based Capital ratio is
15.53%. These regulatory capital ratios are significantly above
levels required to be considered "well capitalized," which is the
highest possible regulatory designation. The Company's tangible
equity ratio was 9.1% at June 30, 2006 compared with a tangible
equity ratio of 8.9% at June 30, 2005. During the second quarter of
2006, the Company repurchased 271,481 common shares at a weighted
average price of $35.72 as part of a 1 million share repurchase
plan authorized by the Board of Directors in June 2005. Between
December 31, 2005 and June 30, 2006, the Company repurchased a
total of 572,053 shares representing 3.2% of total shares
outstanding. Due to the Company's strong earnings, the Company was
able to both repurchase these shares and increase its tangible
equity ratio. As a result of repurchases completed in the second
quarter of 2006, the Company's average outstanding shares decreased
109,000 shares during the quarter, providing the Company's
shareholders increased earnings capacity as shares repurchased
improve earnings per share on the remaining shares outstanding. The
Company has 222,847 shares remaining under the plan approved by the
Board of Directors in June 2005. 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 June 30 June 30 Percent 2006 2005 Change Earnings ($000s,
except per share data): Net Interest Income (FTE) $26,171 $23,863
9.67% Net Income 13,761 12,349 11.43% Earnings per Basic Share 0.78
0.72 8.33% Earnings per Diluted Share 0.77 0.71 8.45% Key Ratios
(percent): Return on Average Assets 2.17% 2.09% 3.77% Return on
Average Equity 18.83% 19.76% (4.74)% Net Interest Margin 4.58%
4.42% 3.56% Efficiency Ratio 44.11% 46.90% (5.95)% Average
Shareholders' Equity to Average Assets 11.51% 10.57% 8.93%
Risk-Based Capital Ratios (a): Tier I 14.57% 14.38% 1.32% Total
15.52% 15.43% 0.58% Average Tangible Equity to Average Tangible
Assets 9.13% 8.91% 2.50% Common Stock Data: Cash Dividends Declared
per Share $0.28 $0.25 12.00% Book Value per Share 16.17 15.56 3.95%
Tangible Book Value per Share 12.80 12.13 5.53% Market Value per
Share: High 37.31 37.00 0.84% Low 34.53 27.57 25.24% End of Period
36.14 36.52 (1.04)% Price/Earnings Ratio (b) 11.58 12.68 (8.65)%
Six Months Ended June 30 June 30 Percent 2006 2005 Change Earnings
($000s, except per share data): Net Interest Income (FTE) $52,276
$46,360 12.76% Net Income 26,627 24,027 10.82% Earnings per Basic
Share 1.49 1.42 4.93% Earnings per Diluted Share 1.49 1.40 6.43%
Key Ratios (percent): Return on Average Assets 2.12% 2.10% 0.80%
Return on Average Equity 18.10% 20.30% (10.88)% Net Interest Margin
4.64% 4.44% 4.60% Efficiency Ratio 44.69% 47.12% (5.17)% Average
Shareholders' Equity to Average Assets 11.69% 10.33% 13.11% Common
Stock Data: Cash Dividends Declared per Share $0.56 $0.50 12.00%
Market Value per Share: High 37.64 37.00 1.73% Low 34.53 27.57
25.24% (a) June 30, 2006 risk-based capital ratios are estimated.
(b) June 30, 2006 price/earnings ratio computed based on annualized
second quarter 2006 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 Mar.
June Sept. Dec. 31 30 30 31 Low High 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 2006 16.17 16.17 34.53 37.64 Earnings per Basic Share Quarter
Ended Mar. June Sept. Dec. Year- 31 30 30 31 to-Date 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 2006 0.71 0.78
1.49 Earnings per Diluted Share Quarter Ended Mar. June Sept. Dec.
Year- 31 30 30 31 to-Date 2002 $0.38 $0.45 $0.52 $0.55 $1.90 2003
0.55 0.72 0.68 0.63 2.58 2004 0.65 0.79 0.65 0.66 2.75 2005 0.69
0.71 0.72 0.72 2.84 2006 0.71 0.77 1.49 CITY HOLDING COMPANY AND
SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in
000s, except per share data) Three Months Ended June 30, 2006 2005
Interest Income Interest and fees on loans $30,651 $24,523 Interest
on investment securities: Taxable 7,489 7,682 Tax-exempt 455 447
Interest on deposits in depository institutions 415 24 Total
Interest Income 39,010 32,676 Interest Expense Interest on deposits
10,520 6,605 Interest on short-term borrowings 1,326 787 Interest
on long-term debt 1,239 1,662 Total Interest Expense 13,085 9,054
Net Interest Income 25,925 23,622 Provision for loan losses 675 -
Net Interest Income After Provision for Loan Losses 25,250 23,622
Non-Interest Income Investment securities gains - 18 Service
charges 10,903 9,685 Insurance commissions 521 545 Trust and
investment management fee income 504 462 Bank owned life insurance
678 545 Other income 857 843 Total Non-Interest Income 13,463
12,098 Non-Interest Expense Salaries and employee benefits 8,764
8,404 Occupancy and equipment 1,624 1,564 Depreciation 1,071 994
Professional fees and litigation expense 571 514 Postage, delivery,
and statement mailings 689 615 Advertising 755 762
Telecommunications 525 513 Bankcard expenses 458 560 Insurance and
regulatory 381 365 Office supplies 372 275 Repossessed asset
(gains) losses, net of expenses (129) (16) Other expenses 2,474
2,289 Total Non-Interest Expense 17,555 16,839 Income Before Income
Taxes 21,158 18,881 Income tax expense 7,397 6,532 Net Income
$13,761 $12,349 Basic earnings per share $0.78 $0.72 Diluted
earnings per share $0.77 $0.71 Average Common Shares Outstanding:
Basic 17,719 17,268 Diluted 17,772 17,477 CITY HOLDING COMPANY AND
SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in
000s, except per share data) Six Months Ended June 30, 2006 2005
Interest Income Interest and fees on loans $60,214 $46,713 Interest
on investment securities: Taxable 14,748 15,328 Tax-exempt 922 882
Interest on deposits in depository institutions 566 42 Interest on
federal funds sold - 4 Total Interest Income 76,450 62,969 Interest
Expense Interest on deposits 19,721 12,473 Interest on short-term
borrowings 2,452 1,364 Interest on long-term debt 2,499 3,247 Total
Interest Expense 24,672 17,084 Net Interest Income 51,778 45,885
Provision for loan losses 1,675 - Net Interest Income After
Provision for Loan Losses 50,103 45,885 Non-Interest Income
Investment securities gains - 21 Service charges 20,764 18,128
Insurance commissions 1,135 1,137 Trust and investment management
fee income 1,070 1,053 Bank owned life insurance 1,215 1,536 Other
income 1,667 1,667 Total Non-Interest Income 25,851 23,542
Non-Interest Expense Salaries and employee benefits 17,396 16,324
Occupancy and equipment 3,223 3,039 Depreciation 2,121 1,938
Professional fees and litigation expense 966 1,079 Postage,
delivery, and statement mailings 1,333 1,268 Advertising 1,529
1,467 Telecommunications 1,001 986 Bankcard expenses 1,001 1,085
Insurance and regulatory 769 731 Office supplies 754 478
Repossessed asset (gains) losses, net of expenses (125) (15) Loss
on early extinguishment of debt 282 - Other expenses 4,802 4,472
Total Non-Interest Expense 35,052 32,852 Income Before Income Taxes
40,902 36,575 Income tax expense 14,275 12,548 Net Income $26,627
$24,027 Basic earnings per share $1.49 $1.42 Diluted earnings per
share $1.49 $1.40 Average Common Shares Outstanding: Basic 17,860
16,938 Diluted 17,917 17,146 CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited) ($ in 000s) Three Months Ended June 30, 2006 June 30,
2005 Balance at April 1 $288,376 $219,302 Net income 13,761 12,349
Other comprehensive income: Change in unrealized gain on securities
available-for-sale (2,994) 2,660 Change in derivative instruments
(503) (104) Cash dividends declared ($0.28/share) (4,919) - Cash
dividends declared ($0.25/share) - (4,497) Issuance of 1,580,034
shares for acquisition of Classic Bancshares, net 108,173 owned and
transferred to treasury - 54,339 Issuance of stock award shares,
net 20 - Exercise of 5,132 stock options 68 - Exercise of 15,018
stock options - 200 Excess tax benefits on stock compensation 22 -
Purchase of 271,481 common shares of treasury (9,711) - Purchase of
139,776 common shares of treasury - (4,625) Balance at June 30
$284,120 $279,624 Six Months Ended June 30, 2006 June 30, 2005
Balance at January 1 $292,141 $216,080 Net income 26,627 24,027
Other comprehensive income: Change in unrealized gain on securities
available-for-sale (3,911) (2,086) Change in derivative instruments
(1,012) (104) Cash dividends declared ($0.56/share) (9,907) - Cash
dividends declared ($0.50/share) - (8,651) Issuance of 1,580,034
shares for acquisition of Classic Bancshares, net 108,173 owned and
transferred to treasury - 54,339 Issuance of stock award shares,
net 187 - Issuance of 4,800 stock award shares - 147 Exercise of
32,007 stock options 425 - Exercise of 38,368 stock options - 497
Excess tax benefits on stock compensation 195 - Purchase of 572,053
common shares of treasury (20,625) - Purchase of 139,776 common
shares of treasury - (4,625) Balance at June 30 $284,120 $279,624
CITY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated
Quarterly Statements of Income (Unaudited) ($ in 000s, except per
share data) Quarter Ended June 30 March 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005 Interest income $39,010 $37,441 $36,639
$35,910 $32,676 Taxable equivalent adjustment 246 252 269 273 241
Interest income (FTE) 39,256 37,693 36,908 36,183 32,917 Interest
expense 13,085 11,588 11,064 10,290 9,054 Net interest income
26,171 26,105 25,844 25,893 23,863 Provision for loan losses 675
1,000 800 600 - Net interest income after provision for loan losses
25,496 25,105 25,044 25,293 23,863 Noninterest income 13,463 12,389
13,537 13,012 12,098 Noninterest expense 17,555 17,497 18,339
17,922 16,839 Income before income taxes 21,404 19,997 20,242
20,383 19,122 Income tax expense 7,397 6,879 6,884 6,938 6,532
Taxable equivalent adjustment 246 252 269 273 241 Net income
$13,761 $12,866 $13,089 $13,172 $12,349 Basic earnings per share
$0.78 $0.71 $0.72 $0.73 $0.72 Diluted earnings per share 0.77 0.71
0.72 0.72 0.71 Cash dividends declared per share 0.28 0.28 0.25
0.25 0.25 Average Common Share (000s): Outstanding 17,719 18,006
18,127 18,052 17,268 Diluted 17,772 18,067 18,211 18,238 17,477 Net
Interest Margin 4.58% 4.71% 4.55% 4.51% 4.42% CITY HOLDING COMPANY
AND SUBSIDIARIES Non-Interest Income and Non-Interest Expense
(Unaudited) ($ in 000s) Quarter Ended June 30 March 31 Dec. 31
Sept. 30 June 30 2006 2006 2005 2005 2005 Non-Interest Income:
Service charges $10,903 $9,862 $10,530 $10,433 $9,685 Insurance
commissions 521 614 620 595 545 Trust and investment management fee
income 504 566 504 468 462 Bank owned life insurance 678 537 691
552 545 Other income 857 810 1,067 959 843 Subtotal 13,463 12,389
13,412 13,007 12,080 Investment security gains - - 125 5 18 Total
Non-Interest Income $13,463 $12,389 $13,537 $13,012 $12,098
Non-Interest Expense: Salaries and employee benefits $8,764 $8,632
$8,416 $8,739 $8,404 Occupancy and equipment 1,624 1,599 1,569
1,687 1,564 Depreciation 1,071 1,050 1,062 1,096 994 Professional
fees and litigation expense 571 395 486 456 514 Postage, delivery,
and statement mailings 689 644 728 670 615 Advertising 755 774 710
764 762 Telecommunications 525 476 560 702 513 Bankcard expenses
458 543 540 512 560 Insurance and regulatory 381 388 380 385 365
Office supplies 372 383 388 327 275 Repossessed asset (gains)
losses, net of expenses (129) 4 (28) (35) (16) Loss on early
extinguishment of debt - 282 - - - Other expenses 2,474 2,327 3,528
2,619 2,289 Total Non-Interest Expense $17,555 $17,497 $18,339
$17,922 $16,839 Employees (Full Time Equivalent) 779 764 770 768
767 Branch Locations 67 66 67 67 67 CITY HOLDING COMPANY AND
SUBSIDIARIES Consolidated Balance Sheets ($ in 000s) June 30
December 31 2006 2005 (Unaudited) Assets Cash and due from banks
$59,282 $81,822 Interest-bearing deposits in depository
institutions 35,388 4,451 Cash and cash equivalents 94,670 86,273
Investment securities available-for- sale, at fair value 512,474
549,966 Investment securities held-to- maturity, at amortized cost
54,372 55,397 Total investment securities 566,846 605,363 Gross
Loans 1,658,919 1,612,827 Allowance for loan losses (16,636)
(16,790) Net loans 1,642,283 1,596,037 Bank owned life insurance
54,058 52,969 Premises and equipment 43,094 42,542 Accrued interest
receivable 11,271 13,134 Net deferred tax assets 30,095 27,929
Intangible assets 59,219 59,559 Other assets 20,485 18,791 Total
Assets $2,522,021 $2,502,597 Liabilities Deposits:
Noninterest-bearing $345,207 $376,076 Interest-bearing: Demand
deposits 427,813 437,639 Savings deposits 319,189 302,571 Time
deposits 880,261 812,134 Total deposits 1,972,470 1,928,420
Short-term borrowings 142,156 152,255 Long-term debt 90,854 98,425
Other liabilities 32,421 31,356 Total Liabilities 2,237,901
2,210,456 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
shares issued at June 30, 2006 and December 31, 2005 less 928,811
and 395,465 shares in treasury, respectively 46,249 46,249 Capital
surplus 103,825 104,435 Retained earnings 177,467 160,747 Cost of
common stock in treasury (30,486) (11,278) Accumulated other
comprehensive (loss) income: Unrealized loss on securities
available-for-sale (8,750) (4,839) Unrealized loss on derivative
instruments (1,012) - Underfunded pension liability (3,173) (3,173)
Total Accumulated Other Comprehensive (Loss) Income (12,935)
(8,012) Total Stockholders' Equity 284,120 292,141 Total
Liabilities and Stockholders' Equity $2,522,021 $2,502,597 CITY
HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in
000s) June 30 March 31 Dec. 31 2006 2006 2005 Residential real
estate $601,097 $595,093 $592,521 Home equity 313,301 304,559
301,728 Commercial, financial, and agriculture 668,581 643,269
629,670 Installment loans to individuals 53,687 54,287 58,652
Previously securitized loans 22,253 25,918 30,256 Gross Loans
$1,658,919 $1,623,126 $1,612,827 CITY HOLDING COMPANY AND
SUBSIDIARIES Loan Portfolio (Unaudited) ($ in 000s) Sept. 30 June
30 2005 2005 Residential real estate $596,184 $596,893 Home equity
306,448 307,354 Commercial, financial, and agriculture 621,345
584,164 Installment loans to individuals 63,134 70,904 Previously
securitized loans 35,599 41,670 Gross Loans $1,622,710 $1,600,985
CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance
Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months
Ended June 30, 2006 Average Yield/ Balance Interest Rate Assets:
Loan portfolio: Residential real estate $596,758 $8,484 5.70% Home
equity 309,270 5,962 7.73% Commercial, financial, and agriculture
651,501 12,092 7.44% Installment loans to individuals 55,280 1,600
11.61% Previously securitized loans 24,045 2,513 41.92% Total loans
1,636,854 30,651 7.51% Securities: Taxable 579,058 7,489 5.19%
Tax-exempt 43,388 700 6.47% Total securities 622,446 8,189 5.28%
Deposits in depository institutions 33,986 416 4.91% Total
interest-earning assets 2,293,286 39,256 6.87% Cash and due from
banks 50,217 Bank premises and equipment 42,621 Other assets
170,271 Less: Allowance for loan losses (16,911) Total assets
$2,539,484 Liabilities: Interest-bearing demand deposits 438,851
1,329 1.21% Savings deposits 318,702 926 1.17% Time deposits
865,554 8,265 3.83% Short-term borrowings 161,082 1,326 3.30%
Long-term debt 92,267 1,239 5.39% Total interest-bearing
liabilities 1,876,456 13,085 2.80% Noninterest-bearing demand
deposits 342,115 Other liabilities 28,527 Stockholders' equity
292,389 Total liabilities and stockholders' equity $2,539,487 Net
interest income $26,171 Net yield on earning assets 4.58% CITY
HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance
Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months
Ended June 30, 2005 Average Yield/ Balance Interest Rate Assets:
Loan portfolio: Residential real estate $523,607 $7,290 5.58% Home
equity 304,475 4,602 6.06% Commercial, financial, and agriculture
545,511 8,258 6.07% Installment loans to individuals 54,704 1,537
11.27% Previously securitized loans 45,583 2,836 24.95% Total loans
1,473,880 24,523 6.67% Securities: Taxable 645,375 7,682 4.77%
Tax-exempt 41,209 688 6.70% Total securities 686,584 8,370 4.89%
Deposits in depository institutions 5,061 24 1.90% Total
interest-earning assets 2,165,525 32,917 6.10% Cash and due from
banks 38,292 Bank premises and equipment 38,104 Other assets
140,301 Less: Allowance for loan losses (17,489) Total assets
$2,364,733 Liabilities: Interest-bearing demand deposits 428,700
845 0.79% Savings deposits 291,368 468 0.64% Time deposits 713,383
5,292 2.98% Short-term borrowings 158,170 787 2.00% Long-term debt
154,723 1,662 4.31% Total interest-bearing liabilities 1,746,344
9,054 2.08% Noninterest-bearing demand deposits 340,340 Other
liabilities 28,098 Stockholders' equity 249,951 Total liabilities
and stockholders' equity $2,364,733 Net interest income $23,863 Net
yield on earning assets 4.42% CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Average Balance Sheets, Yields, and Rates (Unaudited)
($ in 000s) Six Months Ended June 30, 2006 Average Yield/ Balance
Interest Rate Assets: Loan portfolio: Residential real estate
$594,954 $16,864 5.72% Home equity 305,787 11,556 7.62% Commercial,
financial, and agriculture 643,420 23,385 7.33% Installment loans
to individuals 55,909 3,193 11.52% Previously securitized loans
26,037 5,217 40.41% Total loans 1,626,107 60,215 7.47% Securities:
Taxable 576,640 14,748 5.16% Tax-exempt 43,843 1,418 6.52% Total
securities 620,483 16,166 5.25% Deposits in depository institutions
24,490 566 4.66% Federal funds sold - - - Total interest-earning
assets 2,271,080 76,947 6.83% Cash and due from banks 51,726 Bank
premises and equipment 42,575 Other assets 169,159 Less: Allowance
for loan losses (16,881) Total assets $2,517,659 Liabilities:
Interest-bearing demand deposits 441,474 2,588 1.18% Savings
deposits 312,542 1,658 1.07% Time deposits 848,306 15,474 3.68%
Short-term borrowings 156,431 2,452 3.16% Long-term debt 93,773
2,499 5.37% Total interest-bearing liabilities 1,852,526 24,671
2.69% Noninterest-bearing demand deposits 342,298 Other liabilities
28,546 Stockholders' equity 294,294 Total liabilities and
stockholders' equity $2,517,664 Net interest income $52,276 Net
yield on earning assets 4.64% CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Average Balance Sheets, Yields, and Rates (Unaudited)
($ in 000s) Six Months Ended June 30, 2005 Average Yield/ Balance
Interest Rate Assets: Loan portfolio: Residential real estate
$494,968 $13,809 5.63% Home equity 305,410 8,876 5.86% Commercial,
financial, and agriculture 511,674 15,241 6.01% Installment loans
to individuals 49,249 2,870 11.75% Previously securitized loans
50,230 5,917 23.75% Total loans 1,411,531 46,713 6.67% Securities:
Taxable 651,275 15,328 4.75% Tax-exempt 39,269 1,357 6.97% Total
securities 690,544 16,685 4.87% Deposits in depository institutions
4,391 42 1.93% Federal funds sold 290 4 2.78% Total
interest-earning assets 2,106,756 63,444 6.07% Cash and due from
banks 41,063 Bank premises and equipment 36,229 Other assets
123,538 Less: Allowance for loan losses (17,485) Total assets
$2,290,101 Liabilities: Interest-bearing demand deposits 421,005
1,561 0.75% Savings deposits 284,281 823 0.58% Time deposits
685,619 10,089 2.97% Short-term borrowings 151,158 1,364 1.82%
Long-term debt 151,796 3,247 4.31% Total interest-bearing
liabilities 1,693,859 17,084 2.03% Noninterest-bearing demand
deposits 331,046 Other liabilities 28,522 Stockholders' equity
236,674 Total liabilities and stockholders' equity $2,290,101 Net
interest income $46,360 Net yield on earning assets 4.44% CITY
HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital
(Unaudited) ($ in 000s) June 30 March 31 Dec. 31 Sept. 30 June 30
2006 (a) 2006 2005 2005 2005 Tier I Capital: Stockholders' equity
$284,120 $288,376 $292,141 $290,432 $279,624 Goodwill and other
intangibles (59,219) (59,378) (59,559) (59,742) (61,578)
Accumulated other comprehensive income 9,762 6,265 8,012 4,106
3,334 Qualifying trust preferred stock 25,500 25,500 28,000 28,000
28,000 Excess deferred tax assets (4,079) (2,254) (1,071) - - Total
tier I capital $256,084 $258,509 $267,523 $262,796 $249,380 Total
Risk-Based Capital: Tier I capital $256,084 $258,509 $267,523
$262,796 $249,380 Qualifying allowance for loan losses 16,636
16,818 16,790 17,768 18,298 Total risk-based capital $272,720
$275,327 $284,313 $280,564 $267,678 Net risk-weighted assets
$1,757,720 $1,742,943 $1,735,538 $1,758,566 $1,734,653 Ratios:
Average stockholders' equity to average assets 11.51% 11.87% 11.87%
11.47% 10.57% Tangible capital ratio 9.13% 9.24% 9.52% 9.32% 8.91%
Risk-based capital ratios: Tier I capital 14.57% 14.83% 15.41%
14.94% 14.38% Total risk-based capital 15.52% 15.80% 16.38% 15.95%
15.43% Leverage capital 10.34% 10.62% 10.97% 10.68% 10.83% (a) June
30, 2006 risk-based capital ratios are estimated. CITY HOLDING
COMPANY AND SUBSIDIARIES Intangibles (Unaudited) ($ in 000s) As of
and for the Quarter Ended June 30 March 31 Dec 31. Sept. 30 June 30
2006 2006 2005 2005 2005 Intangibles, net $59,219 $59,378 $59,559
$59,742 $61,578 Intangibles amortization expense 181 181 183 183 95
CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan Loss
Experience (Unaudited) ($ in 000s) Quarter Ended June 30 March 31
Dec. 31 2006 2006 2005 Balance at beginning of period $16,818
$16,790 $17,768 Allowance acquired through acquisition - - -
Charge-offs: Commercial, financial, and agricultural 43 185 527
Real estate-mortgage 232 296 302 Installment loans to individuals
239 368 664 Overdraft deposit accounts 955 958 996 Total
charge-offs 1,469 1,807 2,489 Recoveries: Commercial, financial,
and agricultural 33 32 30 Real estate-mortgage 56 105 188
Installment loans to individuals 151 198 163 Overdraft deposit
accounts 372 500 330 Total recoveries 612 835 711 Net charge-offs
857 972 1,778 Provision for loan losses 675 1,000 800 Balance at
end of period $16,636 $16,818 $16,790 Loans outstanding $1,658,919
$1,623,126 $1,612,827 Average loans outstanding 1,636,854 1,615,242
1,618,711 Allowance as a percent of loans outstanding 1.00% 1.04%
1.04% Allowance as a percent of non- performing loans 445% 504%
402% Net charge-offs (annualized) as a percent of average loans
outstanding 0.21% 0.24% 0.44% Net charge-offs, excluding overdraft
deposit accounts, (annualized) as a percent of average loans
outstanding 0.07% 0.13% 0.27% CITY HOLDING COMPANY AND SUBSIDIARIES
Summary of Loan Loss Experience (Unaudited) ($ in 000s) Quarter
Ended Sept. 30 June 30 2005 2005 Balance at beginning of period
$18,298 $16,325 Allowance acquired through acquisition - 3,265
Charge-offs: Commercial, financial, and agricultural 54 663 Real
estate-mortgage 208 323 Installment loans to individuals 476 263
Overdraft deposit accounts 1,012 832 Total charge-offs 1,750 2,081
Recoveries: Commercial, financial, and agricultural 135 345 Real
estate-mortgage 53 25 Installment loans to individuals 136 175
Overdraft deposit accounts 296 244 Total recoveries 620 789 Net
charge-offs 1,130 1,292 Provision for loan losses 600 - Balance at
end of period $17,768 $18,298 Loans outstanding $1,622,710
$1,600,985 Average loans outstanding 1,612,344 1,473,880 Allowance
as a percent of loans outstanding 1.09% 1.14% Allowance as a
percent of non- performing loans 487% 464% Net charge-offs
(annualized) as a percent of average loans outstanding 0.28% 0.35%
Net charge-offs, excluding overdraft deposit accounts, (annualized)
as a percent of average loans outstanding 0.10% 0.19% CITY HOLDING
COMPANY AND SUBSIDIARIES Summary of Non-Performing Assets
(Unaudited) ($ in 000s) June 30 March 31 Dec. 31 Sept.30 June 30
2006 2006 2005 2005 2005 Nonaccrual loans $3,046 $2,743 $2,785
$2,468 $2,709 Accruing loans past due 90 days or more 573 512 1,124
1,003 936 Previously securitized loans past due 90 days or more 123
85 268 174 299 Total non-performing loans 3,742 3,340 4,177 3,645
3,944 Other real estate owned, excluding property associated with
previously securitized loans 294 403 135 117 471 Other real estate
owned associated with previously securitized loans 92 306 - - - 386
709 135 117 471 Total non-performing assets $4,128 $4,049 $4,312
$3,762 $4,415 Non-performing assets as a percent of loans and other
real estate owned 0.25% 0.25% 0.27% 0.23% 0.28% DATASOURCE: City
Holding Company CONTACT: David L. Bumgarner, Chief Financial
Officer of City Holding Company, +1-304-769-1169 Web site:
http://www.cityholding.com/
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