City Holding Company Announces Third Quarter Results

Oct 25, 2010, 14:00 ET from City Holding Company

CHARLESTON, W.Va. Oct. 25 /PRNewswire-FirstCall/ -- City Holding Company, "the Company" (Nasdaq: CHCO), a $2.6 billion bank holding company headquartered in Charleston, today reported financial results for the third quarter ended September 30, 2010.  The Company's earnings remained strong, with a $28.4 million (1.6%) increase in the Company's loan portfolio and a $42.5 million (2.0 %) increase in its average depository base from the quarter ended September 30, 2009.  This growth, bolstered by a continuation of solid credit quality trends, helped offset the impact of lower service fee income and other-than-temporary losses in the Company's investment portfolio.

The Company reported net income per diluted share for the third quarter of $0.58 compared to $0.66 per diluted share in the third quarter of 2009.  Net income for the third quarter of 2010 was $9.0 million compared to $10.5 million in the third quarter of 2009.  For the third quarter of 2010, the Company achieved a return on assets of 1.36%, a return on tangible equity of 13.9%, a net interest margin of 3.94%, and an efficiency ratio of 54.2%.  For the first nine months of 2010, the Company achieved a return on assets of 1.46%, a return on tangible equity of 15.0%, a net interest margin of 4.10%, and an efficiency ratio of 53.7%.

Commenting on the Company's results, Charles Hageboeck, Chief Executive Officer said, "Our financial performance, while down slightly from the year-earlier quarter, remains at a strong level compared to our peers and despite the ongoing challenges facing financial institutions in the form of an uncertain economy, additional regulations and ongoing pressures from the sustained low interest rate environment.  City's asset quality remains strong and stable with past dues and non-performing assets down from December 31, 2009.  Net charge-offs for the nine months ended September 30, 2010 are approximately 60% of net charge-offs for the nine months ended September 30, 2009.  During the fourth quarter of 2010, two Greenbrier properties held in Other Real Estate Owned sold at values that approximated the Company's recorded values in such properties.  These sales reduced the Company's remaining Greenbrier related loan balances to $8.1 million, with $7.1 million recorded in the Company's Other Real Estate Owned category.  Our net interest income, exclusive of the impact of our interest rate floors, increased $0.7 million from the quarter ended September 30, 2009.  We saw loans grow during the quarter and we continued to carefully control our expenses.  

"During the quarter, we faced two significant headwinds – additional regulations impacting our service fee revenues and further credit-related net investment impairment losses.  As anticipated, our service fee revenues were impacted by changes during the quarter in the Electronic Funds Transfer Act ("Regulation E").  The reaction from our customers to this choice essentially met our expectations – the majority of customers who utilize these services elected to 'opt in' and the majority of those who have not used these services did not.  As a result of these changes, our service fee revenues declined $0.75 million (7.1%) from the quarter ended June 30, 2010 and $2.0 million from the quarter ended September 30, 2009.  In addition, the Company experienced further credit-related net investment impairment losses of $2.9 million during the quarter, primarily in our portfolio of community bank and bank holding company equity positions.

"Despite these headwinds, City's continued trend of solid earnings has allowed the Company to maintain our quarterly dividend of 34 cents per share during a time period in which many banks have eliminated or significantly reduced dividends to shareholders.  Our healthy capital levels, strong liquidity, and stable core-deposits enable City to consider the opportunities of growing our company through acquisitions.  City continues to be one of the most profitable and best capitalized publicly traded banks in the U.S. and we believe we can maintain solid, industry-leading performance as we move forward," Hageboeck concluded.

Net Interest Income

The Company's tax equivalent net interest income decreased $0.5 million, or 2.0%, from $23.9 million during the third quarter of 2009 to $23.4 million during the third quarter of 2010.    This decline is due to a decrease in interest income associated with the gain from the sale of interest rate floors.   During the third and fourth quarters of 2008, the Company sold $450 million of interest rate floors.  The $16.7 million gain from sales of these interest rate floors is being recognized over the remaining lives of the various hedged loans – primarily prime-based commercial and home equity loans.  During the third quarter of 2010, the Company recognized $0.9 million of interest income compared to $2.2 million of interest income recognized in the third quarter of 2009 from the interest rate floors.  This decline was partially offset by the decrease in interest expense exceeding the decline in interest income from the third quarter of 2009 resulting in an increase in tax equivalent net interest income of approximately $0.8 million.  The Company's reported net interest margin decreased from 4.09% for the quarter ended September 30, 2009 to 3.94% for the quarter ended September 30, 2010.

Credit Quality

Past due loans decreased from $11.7 million at June 30, 2010 to $7.9 million or 0.43% of total loans outstanding at September 30, 2010 due primarily to a $2.0 million commercial real estate loan in the Eastern Panhandle of West Virginia returning to current status.  Past due commercial, financial, and agriculture loans were $0.3 million or 0.03% of loans outstanding at September 30, 2010; past due residential real estate loans were $3.8 million or 0.63% of loans outstanding at September 30, 2010; and past due home equity loans were $2.9 million or 0.70% of loans outstanding at September 30, 2010.

The Company had net charge-offs of $2.9 million for the third quarter of 2010. Net charge-offs on commercial and residential loans were $2.0 and $0.6 million, respectively, for the third quarter.  Charge-offs for commercial loans were primarily related to a specific impaired credit that had been appropriately considered in establishing the allowance for loans losses in prior periods. In addition, net charge-offs for depository accounts were $0.3 million for the third quarter of 2010.  While charge-offs on depository accounts are appropriately taken against the Allowance for Loan Losses ("ALLL"), the revenue associated with depository accounts is reflected in service charges.

At September 30, 2010, the ALLL was $18.4 million or 1.01% of total loans outstanding and 160% of non-performing loans compared to $19.6 million or 1.09% of loans outstanding and 119% of non-performing loans at September 30, 2009, and $18.5 million or 1.03% of loans outstanding and 131% of non-performing loans at December 31, 2009.  

As a result of the Company's quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $1.85 million in the third quarter of 2010 compared to $1.7 million for the comparable period in 2009.  The ALLL recorded as of September 30, 2010 reflects financial difficulties of certain commercial borrowers of the Company that occurred during the quarter, the downgrade of their related credits, and management's assessment of the impact of these difficulties on the ultimate collectability of the loans.  Changes in the amount of the ALLL and related provision for loan losses are based on the Company's detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company's loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.  

Impairment Losses

During the third quarter of 2010, the Company recorded $2.9 million of credit-related net investment impairment losses.  The charges deemed to be other than temporary were related to pooled bank trust preferreds ($0.7 million credit-related net impairment losses) with a remaining book value of $6.5 million at September 30, 2010 and community bank and bank holding company equity positions ($2.2 million credit-related net impairment losses) with remaining book value of $5.1 million at September 30, 2010.  The credit-related net impairment charges related to the pooled bank trust preferred securities was based on the Company's quarterly reviews of its investment securities for indications of losses considered to be other than temporary.  Based on management's assessment of the securities the Company owns, the seniority position of the securities within the pools, the level of defaults and deferred payments within the pools, and a review of the financial strength of the banks within the respective pools, management concluded that credit-related net impairment charges of $0.7 million on the pooled bank trust preferred securities was appropriate for the quarter ended September 30, 2010.  The credit-related net impairment charges of $2.2 million related to the Company's equity position in First United Corporation of Oakland, Maryland.  The Company determined that this security was other-than-temporary impaired due to the recent announcement by First United Corporation of another quarterly loss, which continued a trend of poor performance over the past several quarters. As a result, management determined that the length of time and extent to which the market value of this security has been below the Company's cost basis is not expected to recover in the near term.  These losses were partially offset by realized investment gains of $1.3 million as the Company sold certain single issuer trust preferred securities with a remaining book value of $75.4 million during the quarter ended September 30, 2010.  

Non-interest Income

Exclusive of net other-than-temporary investment impairment losses, non-interest income decreased $1.5 million to $13.2 million in the third quarter of 2010 from $14.7 million in the third quarter of 2009.  Service charges from depository accounts decreased $2.0 million, or 17.0%, to $9.7 million in the third quarter of 2010.  This decline is primarily attributable to the Company's compliance with new federal rules under the Electronic Funds Transfer Act, also known as Regulation E.  The changes to this regulation affect how banks can offer certain overdraft services, and were effective July 1, 2010 for new customers and August 15, 2010 for existing accounts.  The decrease in service charges from depository accounts was partially offset by an increase in bank owned life insurance revenues of $0.3 million due to death benefit proceeds and an increase in insurance commission revenues of $0.1 million, or 11.4%, from $1.2 million during the third quarter of 2009 to $1.3 million during the third quarter of 2010.

Non-interest Expenses

Non-interest expenses increased $1.0 million from $18.8 million in the third quarter of 2009 to $19.8 million in the third quarter of 2010.  Insurance and regulatory expense increased $0.8 million, or 202.7%, from the quarter ended September 30, 2009 primarily due to the impact of the Company fully utilizing its FDIC credits during 2009 and increases in the assessment rates during 2010, which increased our FDIC insurance expense from $0.1 million for the quarter ended September 30, 2009 to $1.0 million for the quarter ended September 30, 2010.  In addition, salaries and employee benefits increased $0.2 million, or 2.0%, from the quarter ended September 30, 2009 to $9.8 million.    

Income Tax Expense

The Company's effective income tax rate for the third quarter of 2010 was 31.4% compared to 32.5% for the year ended December 31, 2009, and 32.4% for the quarter ended September 30, 2009.  The effective rate is based upon the Company's expected tax rate for the year ending December 31, 2010.  During the quarter ended September 30, 2010, the Company realized $0.1 million of previously unrecognized tax positions compared to $0.2 million during the quarter ended September 30, 2009.

Balance Sheet Trends

As compared to December 31, 2009, loans have increased $33.4 million (1.9%) at September 30, 2010 due to increases in commercial loans of $13.3 million (1.7%), home equity loans of $12.7 million (3.2%), and residential real estate loans of $9.7 million (1.6%).  As compared to September 30, 2009, loans have increased $28.5 million (1.6%) at September 30, 2010 as home equity loans increased $14.8 million (3.7%), residential real estate loans increased $14.7 million (2.5%), and commercial loans have increased $3.1 million (0.4%).  

Total average depository balances decreased $16.6 million, or 0.8%, from the quarter ended June 30, 2010 to the quarter ended September 30, 2010.  This decline was primarily in time deposits and noninterest-bearing deposits, which have decreased $9.0 million and $5.8 million, respectively.  As compared to the quarter ended September 30, 2009, total average depository balances have increased $42.4 million, or 2.0%, for the quarter ended September 30, 2010.  This increase was due to increased noninterest bearing deposits ($30.8 million), interest bearing deposits ($30.6 million), and savings deposits ($11.9 million) that were partially offset by a decrease in time deposits ($30.7 million).

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 84.6% and the loan to asset ratio was 69.5% at September 30, 2010.  The Company maintained investment securities totaling 17.2% of assets as of this date.  Further, the Company's deposit mix is weighted heavily toward checking and saving accounts that fund 45.1% of assets at September 30, 2010.  Time deposits fund 37.0% of assets at September 30, 2010, 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. The Company's tangible equity ratio was 10.0% at September 30, 2010 and 9.8% at December 31, 2009.  At September 30, 2010, City National Bank's leverage ratio is 9.12%, its Tier I capital ratio is 12.17%, and its total Risk-Based capital ratio is 13.13%.  These regulatory capital ratios are significantly above levels required to be considered "well capitalized," which is the highest possible regulatory designation.

On September 29, 2010, the Board approved a quarterly cash dividend to 34 cents per share payable October 31, 2010, to shareholders of record as of October 15, 2010.  During the quarter ended September 30, 2010, the Company repurchased 111,136 common shares at a weighted average price of $28.72 as part of a one million share repurchase plan authorized by the Board of Directors in October 2009.  

City Holding Company is the parent company of City National Bank of West Virginia.  City National operates 68 branches across West Virginia, Eastern Kentucky and Southern Ohio.

Forward-Looking Information

This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such information involves risks and uncertainties that could result in the Company's actual results differing from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, (1) the Company may incur additional loan loss provision due to negative credit quality trends in the future that may lead to a deterioration of asset quality; (2) the Company may incur increased charge-offs in the future; (3) the Company may experience increases in the default rates on previously securitized loans that would result in impairment losses or lower the yield on such loans; (4) the Company may not continue to benefit from strong recovery efforts on previously securitized loans resulting in improved yields on these assets; (5)  the Company could have adverse legal actions of a material nature; (6) the Company may face competitive loss of customers; (7) the Company may be unable to manage its expense levels; (8) the Company may have difficulty retaining key employees; (9) changes in the interest rate environment may have results on the Company's operations materially different from those anticipated by the Company's market risk management functions; (10) changes in general economic conditions and increased competition could adversely affect the Company's operating results; (11) changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact the Company's operating results; (12) the Company may experience difficulties growing loan and deposit balances; (13) the current economic environment poses significant challenges for us and could adversely affect our  financial condition and results of operations; (14) continued deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments; and (15) the effects of the Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") recently adopted by the United States Congress.  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 September 30,

Percent

2010

2009

Change

Earnings ($000s, except per share data):

Net Interest Income (FTE)

$ 23,404

$ 23,891

(2.04)%

Net Income available to common shareholders

9,023

10,497

(14.04)%

Earnings per Basic Share

0.58

0.66

(12.34)%

Earnings per Diluted Share

0.58

0.66

(12.34)%

Key Ratios (percent):

Return on Average Assets

1.36%

1.60%

(15.18)%

Return on Average Tangible Equity

13.90%

17.49%

(20.49)%

Net Interest Margin

3.94%

4.09%

(3.57)%

Efficiency Ratio

54.15%

48.75%

11.08%

Average Shareholders' Equity to Average Assets

11.90%

11.33%

5.00%

Consolidated Risk Based Capital Ratios (a):

Tier I

13.73%

13.04%

5.29%

Total

14.68%

14.06%

4.41%

Tangible Equity to Tangible Assets

10.04%

9.77%

2.82%

Common Stock Data:

Cash Dividends Declared per Share

$     0.34

$     0.34

-

Book Value per Share

20.31

19.18

5.92%

Tangible Book Value per Share

16.66

15.59

6.86%

Market Value per Share:

High

31.15

34.34

(9.29)%

Low

26.87

28.65

(6.21)%

End of Period

30.67

31.17

(1.60)%

Price/Earnings Ratio (b)

13.25

11.80

12.25%

Nine Months Ended September 30,

Percent

2010

2009

Change

Earnings ($000s, except per share data):

Net Interest Income (FTE)

$ 72,075

$ 72,520

(0.61)%

Net Income available to common shareholders

29,051

31,567

(7.97)%

Earnings per Basic Share

1.85

1.99

(7.03)%

Earnings per Diluted Share

1.84

1.98

(7.09)%

Key Ratios (percent):

Return on Average Assets

1.46%

1.62%

(9.76)%

Return on Average Tangible Equity

15.04%

18.05%

(16.71)%

Net Interest Margin

4.10%

4.22%

(2.78)%

Efficiency Ratio

53.66%

49.79%

7.76%

Average Shareholders' Equity to Average Assets

11.84%

11.15%

6.17%

Common Stock Data:

Cash Dividends Declared per Share

$     1.02

$     1.02

-

Market Value per Share:

High

37.28

34.34

8.56%

Low

26.87

20.88

28.69%

Price/Earnings Ratio (b)

12.46

11.78

5.84%

(a) September 30, 2010 risk-based capital ratios are estimated

(b) September 30, 2010 price/earnings ratio computed based on annualized third quarter 2010 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

2006

$    16.17

$ 16.17

$             16.99

$           17.46

$          34.53

$ 41.87

2007

17.62

17.40

17.68

18.14

31.16

41.54

2008

18.92

18.72

17.61

17.58

29.08

42.88

2009

17.69

18.24

18.95

19.37

20.88

34.34

2010

19.71

19.95

20.31

26.87

37.28

Earnings per Basic Share

Quarter Ended

March 31

June 30

September 30

December 31

Year-to-Date

2006

$      0.71

$   0.78

$               0.78

$             0.74

$            3.00

2007

0.76

0.72

0.76

0.78

3.02

2008

0.81

0.83

(0.16)

0.26

1.74

2009

0.69

0.64

0.66

0.70

2.69

2010

0.59

0.68

0.58

1.85

Earnings per Diluted Share

Quarter Ended

March 31

June 30

September 30

December 31

Year-to-Date

2006

$      0.71

$   0.77

$               0.77

$             0.74

$            2.99

2007

0.76

0.72

0.76

0.78

3.01

2008

0.80

0.83

(0.16)

0.26

1.74

2009

0.69

0.64

0.66

0.70

2.68

2010

0.58

0.68

0.58

1.84

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited) ($ in 000s, except per share data)

Three Months Ended September 30,

2010

2009

Interest Income

Interest and fees on loans

$   24,487

$   26,392

Interest on investment securities:

Taxable

5,019

5,820

Tax-exempt

452

437

Interest on deposits in depository institutions

-

2

Interest on federal funds sold

12

-

Total Interest Income

29,970

32,651

Interest Expense

Interest on deposits

6,551

8,673

Interest on short-term borrowings

86

131

Interest on long-term debt

173

191

Total Interest Expense

6,810

8,995

Net Interest Income

23,160

23,656

Provision for loan losses

1,847

1,681

Net Interest Income After Provision for Loan Losses

21,313

21,975

Non-Interest Income

Total investment securities impairment losses

(3,028)

(2,306)

Noncredit impairment losses recognized in other comprehensive income

127

-

Net investment securities impairment losses

(2,901)

(2,306)

Gain (loss) on sale of investment securities

1,335

(14)

Service charges

9,702

11,689

Insurance commissions

1,346

1,208

Trust and investment management fee income

618

590

Bank owned life insurance

1,104

794

Other income

439

379

Total Non-Interest Income

11,643

12,340

Non-Interest Expense

Salaries and employee benefits

9,817

9,623

Occupancy and equipment

1,917

1,953

Depreciation

1,145

1,171

Professional fees

414

216

Postage, delivery, and statement mailings

599

611

Advertising

891

883

Telecommunications

413

476

Bankcard expenses

481

695

Insurance and regulatory

1,244

411

Office supplies

497

520

Repossessed asset losses, net of expenses

234

136

Other expenses

2,152

2,101

Total Non-Interest Expense

19,804

18,796

Income Before Income Taxes

13,152

15,519

Income tax expense

4,129

5,022

Net Income Available to Common Shareholders

$ 9,023

$   10,497

Distributed earnings allocated to common shareholders

$ 5,237

$ 5,380

Undistributed earnings allocated to common shareholders

3,733

5,116

Net earnings allocated to common shareholders

$     8,970

$   10,496

Average common shares outstanding

15,496

15,893

Effect of dilutive securities:

Employee stock options

56

59

Shares for diluted earnings per share

15,552

15,952

Basic earnings per common share

$       0.58

$       0.66

Diluted earnings per common share

$       0.58

$       0.66

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited) ($ in 000s, except per share data)

Nine months ended September 30,

2010

2009

Interest Income

Interest and fees on loans

$     75,332

$     81,396

Interest on investment securities:

Taxable

15,947

17,494

Tax-exempt

1,383

1,249

Interest on deposits in depository institutions

-

10

Interest on federal funds sold

13

-

Total Interest Income

92,675

100,149

Interest Expense

Interest on deposits

20,566

27,230

Interest on short-term borrowings

284

395

Interest on long-term debt

496

676

Total Interest Expense

21,346

28,301

Net Interest Income

71,329

71,848

Provision for loan losses

4,750

5,519

Net Interest Income After Provision for Loan Losses

66,579

66,329

Non-Interest Income

Total investment securities impairment losses

(7,468)

(4,463)

Noncredit impairment losses recognized in other comprehensive income

2,623

-

Net investment securities impairment losses

(4,845)

(4,463)

Gain (loss) on sale of investment securities

1,397

(264)

Service charges

30,378

33,385

Insurance commissions

3,987

4,466

Trust and investment management fee income

2,047

1,794

Bank owned life insurance

2,645

2,518

Other income

1,424

1,624

Total Non-Interest Income

37,033

39,060

Non-Interest Expense

Salaries and employee benefits

29,311

29,003

Occupancy and equipment

5,836

5,742

Depreciation

3,537

3,566

Professional fees

1,175

1,066

Postage, delivery, and statement mailings

1,823

2,027

Advertising

3,045

2,673

Telecommunications

1,304

1,410

Bankcard expenses

1,405

2,029

Insurance and regulatory

3,631

2,365

Office supplies

1,474

1,521

Repossessed asset losses, net of expenses

1,258

351

Other expenses

6,521

6,175

Total Non-Interest Expense

60,320

57,928

Income Before Income Taxes

43,292

47,461

Income tax expense

14,241

15,894

Net Income Available to Common Shareholders

$     29,051

$     31,567

Distributed earnings allocated to common shareholders

$ 15,711

$ 16,139

Undistributed earnings allocated to common shareholders

13,164

15,403

Net earnings allocated to common shareholders

$     28,875

$     31,542

Average common shares outstanding

15,646

15,889

Effect of dilutive securities:

Employee stock options

64

55

Shares for diluted earnings per share

15,710

15,944

Basic earnings per common share

$         1.85

$         1.99

Diluted earnings per common share

$         1.84

$         1.98

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

(Unaudited) ($ in 000s)

Three Months Ended

September 30, 2010

September 30, 2009

Balance at July 31

$                   312,575

$                   295,751

Net income

9,023

10,497

Other comprehensive income:

Change in unrealized gain on securities available-for-sale

2,087

7,421

Change in unrealized (loss) on interest rate floors

(539)

(1,413)

Cash dividends declared ($0.34/share)

(5,267)

(5,415)

Issuance of stock award shares, net

154

80

Exercise of 750 stock options

-

22

Purchase of 111,136 common shares of treasury

(3,192)

-

Purchase of 56,323 common shares of treasury

-

(1,803)

Balance at September 30

$                   314,841

$                   305,140

Nine Months Ended

September 30, 2010

September 30, 2009

Balance at January 1

$                   308,902

$                   284,296

Net income

29,051

31,567

Other comprehensive income:

Change in unrealized gain on securities available-for-sale

7,329

11,909

Change in unrealized (loss) on interest rate floors

(2,277)

(4,982)

Cash dividends declared ($1.02/share)

(15,952)

(16,251)

Issuance of stock award shares, net

644

1,621

Exercise of 1,700 stock options

46

-

Exercise of 1,050 stock options

-

25

Purchase of 408,151 common shares of treasury

(12,902)

-

Purchase of 105,686 common shares of treasury

-

(3,045)

Balance at September 30

$                   314,841

$                   305,140

CITY HOLDING COMPANY AND SUBSIDIARIES

Condensed Consolidated Quarterly Statements of Income

(Unaudited) ($ in 000s, except per share data)

Quarter Ended

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Interest income

$           29,970

$ 31,770

$  30,935

$         31,887

$           32,651

Taxable equivalent adjustment

244

246

255

234

236

Interest income (FTE)

30,214

32,016

31,190

32,121

32,887

Interest expense

6,810

7,092

7,444

8,302

8,995

Net interest income

23,404

24,924

23,746

23,819

23,892

Provision for loan losses

1,847

1,823

1,080

1,475

1,681

Net interest income after provision

for loan losses

21,557

23,101

22,666

22,344

22,211

Noninterest income

11,643

13,278

12,112

12,923

12,340

Noninterest expense

19,804

19,965

20,551

19,316

18,796

Income before income taxes

13,396

16,414

14,227

15,951

15,755

Income tax expense

4,129

5,453

4,659

4,639

5,022

Taxable equivalent adjustment

244

246

255

234

236

Net income available to common shareholders

$             9,023

$ 10,715

$    9,313

$         11,078

$           10,497

Distributed earnings allocated to common shareholders

$             5,237

$   5,274

$    5,345

$           5,370

$             5,380

Undistributed earnings allocated to common shareholders

3,733

5,373

3,918

5,697

5,116

Net earnings allocated to common shareholders

$             8,970

$ 10,648

$    9,263

$         11,067

$           10,496

Average common shares outstanding

15,496

15,656

15,793

15,838

15,893

Effect of dilutive securities:

Employee stock options

56

65

58

53

59

Shares for diluted earnings per share

15,552

15,721

15,851

15,891

15,952

Basic earnings per common share

$               0.58

$     0.68

$      0.59

$             0.70

$               0.66

Diluted earnings per common share

0.58

0.68

0.58

0.70

0.66

Cash dividends declared per share

0.34

0.34

0.34

0.34

0.34

Average Common Share (000s):

Outstanding

15,496

15,656

15,793

15,838

15,893

Diluted

15,552

15,721

15,851

15,897

15,952

Net Interest Margin

3.94%

4.22%

4.14%

4.07%

4.09%

CITY HOLDING COMPANY AND SUBSIDIARIES

Non-Interest Income and Non-Interest Expense

(Unaudited) ($ in 000s)

Quarter Ended

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Non-Interest Income:

Service charges

$             9,702

$ 10,448

$  10,228

$         11,628

$           11,689

Insurance commissions

1,346

1,244

1,397

1,110

1,208

Trust and investment management fee income

618

567

862

549

590

Bank owned life insurance

1,104

813

728

753

794

Other income

439

437

548

320

379

Subtotal

13,209

13,509

13,763

14,360

14,660

Total investment securities impairment losses

(3,028)

(1,237)

(3,203)

(861)

(2,306)

Noncredit impairment losses recognized in other

comprehensive income

127

944

1,552

-

-

Net investment securities impairment losses

(2,901)

(293)

(1,651)

(861)

(2,306)

Gain (loss) on sale of investment securities

1,335

62

-

(576)

(14)

Total Non-Interest Income

$           11,643

$ 13,278

$  12,112

$         12,923

$           12,340

Non-Interest Expense:

Salaries and employee benefits

$             9,817

$   9,745

$    9,749

$           8,523

$             9,623

Occupancy and equipment

1,917

1,874

2,045

1,947

1,953

Depreciation

1,145

1,174

1,218

1,180

1,171

Professional fees

414

398

363

439

216

Postage, delivery, and statement mailings

599

615

609

573

611

Advertising

891

1,241

913

830

883

Telecommunications

413

440

451

455

476

Bankcard expenses

481

448

476

570

695

Insurance and regulatory

1,244

1,200

1,187

1,014

411

Office supplies

497

484

493

484

520

Repossessed asset losses, net of expenses

234

78

946

321

136

Other expenses

2,152

2,268

2,101

2,880

2,107

Total Non-Interest Expense

$           19,804

$ 19,965

$  20,551

$         19,216

$           18,802

Employees (Full Time Equivalent)

801

812

815

809

814

Branch Locations

68

67

67

67

68

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

($ in 000s)

September 30

December 31

2010

2009

(Unaudited)

Assets

Cash and due from banks

$           44,746

$         59,116

Interest-bearing deposits in depository institutions

3,924

3,519

Federal funds sold

34,100

-

Cash and cash equivalents

82,770

62,635

Investment securities available-for-sale, at fair value

427,190

485,767

Investment securities held-to-maturity, at amortized cost

24,381

28,164

Total investment securities

451,571

513,931

Gross loans

1,825,838

1,792,434

Allowance for loan losses

(18,364)

(18,541)

Net loans

1,807,474

1,773,893

Bank owned life insurance

75,479

73,388

Premises and equipment

64,991

64,193

Accrued interest receivable

8,298

7,969

Net deferred tax assets

25,774

29,480

Intangible assets

56,682

57,010

Other assets

54,094

40,121

Total Assets

$      2,627,133

$    2,622,620

Liabilities

Deposits:

Noninterest-bearing

$         317,221

$       328,440

Interest-bearing:

Demand deposits

478,947

457,293

Savings deposits

389,497

379,893

Time deposits

973,085

998,096

Total deposits

2,158,750

2,163,722

Short-term borrowings

110,634

118,329

Long-term debt

16,892

16,959

Other liabilities

26,016

14,708

Total Liabilities

2,312,292

2,313,718

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 September 30, 2010 and December 31, 2009

   less 3,001,063 and 2,616,161 shares in treasury, respectively

46,249

46,249

Capital surplus

102,867

102,917

Retained earnings

266,266

253,167

Cost of common stock in treasury

(103,039)

(90,877)

Accumulated other comprehensive income (loss):

Unrealized gain/(loss) on securities available-for-sale

5,449

(1,880)

Unrealized gain on derivative instruments

786

3,063

Underfunded pension liability

(3,737)

(3,737)

Total Accumulated Other Comprehensive Income (Loss)

2,498

(2,554)

Total Stockholders' Equity

314,841

308,902

Total Liabilities and Stockholders' Equity

$      2,627,133

$    2,622,620

CITY HOLDING COMPANY AND SUBSIDIARIES

Investment Portfolio

(Unaudited) ($ in 000s)

Original Cost

Credit-Related Net Investment Impairment Losses through September 30, 2010

Unrealized Gains (Losses)

Carrying Value

Mortgage Backed Securities

269,847

-

11,574

281,421

Municipal Bonds

52,509

-

1,065

53,574

Pooled Bank Trust Preferreds

27,088

(19,177)

(1,435)

6,476

Single Issuer Bank Trust Preferreds,

Subdebt of Financial Institutions, and

Bank Holding Company Preferred Stocks

93,223

(1,653)

(1,080)

90,490

Money Markets and Mutual Funds

1,630

-

28

1,657

Federal Reserve Bank and FHLB stock

12,899

-

-

12,899

Community Bank Equity Positions

10,332

(3,973)

(1,305)

5,054

Total Investments

$       467,528

$                 (24,803)

$                  8,846

$          451,571

CITY HOLDING COMPANY AND SUBSIDIARIES

Loan Portfolio

(Unaudited) ($ in 000s)

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Residential real estate

$         605,351

$       605,026

$    597,429

$       595,678

$         590,653

Home equity

411,481

404,789

398,443

398,752

396,648

Commercial, financial, and agriculture

765,331

778,114

761,223

752,052

762,194

Installment loans to individuals

42,407

43,859

43,597

44,239

45,309

Previously securitized loans

1,268

1,784

1,148

1,713

2,580

Gross Loans

$      1,825,838

$    1,833,572

$ 1,801,840

$    1,792,434

$      1,797,384

CITY HOLDING COMPANY AND SUBSIDIARIES

Previously Securitized Loans

(Unaudited) ($ in millions)

Annualized

Effective

December 31

Interest

Annualized

Year Ended:

Balance (a)

Income (a)

Yield (a)

2009

$               1.7

$            5.6

108%

2010

1.2

3.9

265%

2011

1.0

2.0

184%

2012

0.8

1.7

184%

2013

0.6

1.3

184%

a - 2009 amounts are based on actual results.  2010 amounts are based on actual results through September 30, 2010 and estimated amounts for the remainder of the year.  2011, 2012, and 2013 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 significantly different from that assumed, which could result in the actual results being materially different from the amounts estimated above.

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Average Balance Sheets, Yields, and Rates

(Unaudited) ($ in 000s)

Three Months Ended September 30,

2010

2009

Average

Yield/

Average

Yield/

Balance

Interest

Rate

Balance

Interest

Rate

Assets:

Loan portfolio:

Residential real estate

$    602,382

$   7,815

5.15%

$    590,108

$   8,170

5.49%

Home equity

408,685

5,333

5.18%

394,069

5,972

6.01%

Commercial, financial, and agriculture

768,393

9,656

4.99%

765,689

10,334

5.35%

Installment loans to individuals

48,172

902

7.43%

50,935

975

7.59%

Previously securitized loans

1,487

781

208.37%

2,810

942

133.00%

Total loans

1,829,119

24,487

5.31%

1,803,611

26,393

5.81%

Securities:

Taxable

447,445

5,019

4.45%

463,703

5,820

4.98%

Tax-exempt

48,352

696

5.71%

43,682

672

6.10%

Total securities

495,797

5,715

4.57%

507,385

6,492

5.08%

Deposits in depository institutions

4,977

-

-

5,753

2

0.14%

Federal funds sold

24,062

12

-

489

-

-

Total interest-earning assets

2,353,955

30,214

5.09%

2,317,238

32,887

5.63%

Cash and due from banks

51,056

50,496

Bank premises and equipment

65,044

63,709

Other assets

208,311

212,925

Less:  Allowance for loan losses

(19,751)

(20,828)

      Total assets

$ 2,658,615

$ 2,623,540

Liabilities:

Interest-bearing demand deposits

462,200

308

0.26%

431,676

418

0.38%

Savings deposits

391,655

252

0.26%

379,793

417

0.44%

Time deposits

982,877

5,992

2.42%

1,013,610

7,838

3.07%

Short-term borrowings

112,128

85

0.30%

134,323

131

0.39%

Long-term debt

16,900

173

4.06%

17,988

192

4.23%

  Total interest-bearing liabilities

1,965,760

6,810

1.37%

1,977,390

8,996

1.80%

Noninterest-bearing demand deposits

356,590

325,821

Other liabilities

19,973

23,065

Stockholders' equity

316,292

297,264

Total liabilities and

stockholders' equity

$ 2,658,615

$ 2,623,540

Net interest income

$ 23,404

$ 23,891

Net yield on earning assets

3.94%

4.09%

CITY HOLDING COMPANY AND SUBSIDIARIES

Consolidated Average Balance Sheets, Yields, and Rates

(Unaudited) ($ in 000s)

Nine Months Ended September 30,

2010

2009

Average

Yield/

Average

Yield/

Balance

Interest

Rate

Balance

Interest

Rate

Assets:

Loan portfolio:

Residential real estate

$    597,298

$ 23,595

5.28%

$    597,282

$ 25,495

5.71%

Home equity

402,751

16,007

5.31%

390,388

18,165

6.22%

Commercial, financial, and agriculture

764,446

29,583

5.17%

758,050

31,519

5.56%

Installment loans to individuals

49,047

2,830

7.71%

49,498

3,150

8.51%

Previously securitized loans

1,281

3,317

346.20%

3,364

3,067

121.90%

Total loans

1,814,823

75,332

5.55%

1,798,582

81,396

6.05%

Securities:

Taxable

470,783

15,947

4.53%

453,713

17,494

5.16%

Tax-exempt

49,158

2,128

5.79%

39,829

1,921

6.45%

Total securities

519,941

18,075

4.65%

493,542

19,415

5.26%

Deposits in depository institutions

5,288

-

-

5,271

10

0.25%

Federal funds sold

8,590

13

-

165

-

-

Total interest-earning assets

2,348,642

93,420

5.32%

2,297,560

100,821

5.87%

Cash and due from banks

53,070

51,553

Bank premises and equipment

64,552

62,443

Other assets

207,648

213,285

Less:  Allowance for loan losses

(19,462)

(21,867)

      Total assets

$ 2,654,450

$ 2,602,974

Liabilities:

Interest-bearing demand deposits

461,178

999

0.29%

425,972

1,327

0.42%

Savings deposits

388,356

792

0.27%

371,706

1,386

0.50%

Time deposits

991,419

18,774

2.53%

1,004,959

24,517

3.26%

Short-term borrowings

111,089

284

0.34%

135,708

395

0.39%

Long-term debt

16,923

496

3.92%

18,669

676

4.84%

  Total interest-bearing liabilities

1,968,965

21,345

1.45%

1,957,014

28,301

1.93%

Noninterest-bearing demand deposits

353,418

328,302

Other liabilities

17,726

27,335

Stockholders' equity

314,341

290,323

Total liabilities and

stockholders' equity

$ 2,654,450

$ 2,602,974

Net interest income

$ 72,075

$ 72,520

Net yield on earning assets

4.10%

4.22%

CITY HOLDING COMPANY AND SUBSIDIARIES

Analysis of Risk-Based Capital

(Unaudited) ($ in 000s)

September 30

June 30

March 31

December 31

September 30

2010 (a)

2010

2010

2009

2009

Tier I Capital:

Stockholders' equity

$         314,841

$    312,575

$    312,835

$       308,902

$         305,140

Goodwill and other intangibles

(56,487)

(56,596)

(56,705)

(56,810)

(56,928)

Accumulated other comprehensive (income) loss

(2,498)

(950)

330

2,554

(330)

Qualifying trust preferred stock

16,000

16,000

16,000

16,000

16,000

Unrealized Loss on AFS securities

(1,277)

(3,668)

(2,950)

(3,531)

(2,355)

Excess deferred tax assets

(2,916)

(3,530)

(3,827)

(3,412)

(10,105)

Total tier I capital

$         267,664

$    262,664

$    264,516

$       262,536

$         250,255

Total Risk-Based Capital:

Tier I capital

$         267,664

$    262,664

$    264,516

$       262,536

$         250,255

Qualifying allowance for loan losses

18,364

19,456

18,982

18,687

19,655

Total risk-based capital

$         286,028

$    282,120

$    283,498

$       281,223

$         269,910

Net risk-weighted assets

$      1,949,080

$ 1,952,076

$ 1,935,071

$    1,926,824

$      1,919,093

Ratios:

Average stockholders' equity to average assets

11.90%

11.76%

11.87%

11.70%

11.33%

Tangible capital ratio

10.04%

9.86%

9.79%

9.77%

9.62%

Risk-based capital ratios:

Tier I capital

13.73%

13.46%

13.67%

13.63%

13.04%

Total risk-based capital

14.68%

14.45%

14.65%

14.60%

14.06%

Leverage capital

10.30%

10.06%

10.28%

10.23%

9.79%

(a) September 30, 2010 risk-based capital ratios are estimated

CITY HOLDING COMPANY AND SUBSIDIARIES

Intangibles

(Unaudited) ($ in 000s)

As of and for the Quarter Ended

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Intangibles, net

$           56,682

$      56,791

$      56,900

$         57,010

$           57,127

Intangibles amortization expense

109

109

110

117

117

CITY HOLDING COMPANY AND SUBSIDIARIES

Summary of Loan Loss Experience

(Unaudited) ($ in 000s)

Quarter Ended

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Balance at beginning of period

$           19,456

$      18,836

$      18,541

$         19,609

$           20,923

Charge-offs:

Commercial, financial, and agricultural

2,046

796

361

1,821

2,117

Real estate-mortgage

654

637

423

448

567

Installment loans to individuals

43

20

26

87

36

Overdraft deposit accounts

615

565

550

737

795

Total charge-offs

3,358

2,018

1,360

3,093

3,515

Recoveries:

Commercial, financial, and agricultural

28

378

9

88

27

Real estate-mortgage

12

38

23

31

19

Installment loans to individuals

29

53

50

37

95

Overdraft deposit accounts

350

346

493

394

379

Total recoveries

419

815

575

550

520

Net charge-offs

2,939

1,203

785

2,543

2,995

Provision for loan losses

1,847

1,823

1,080

1,475

1,681

Balance at end of period

$           18,364

$      19,456

$      18,836

$         18,541

$           19,609

Loans outstanding

$      1,825,838

$ 1,833,572

$ 1,801,840

$    1,792,434

$      1,797,384

Average loans outstanding

1,829,119

1,821,822

1,793,134

1,792,759

1,803,611

Allowance as a percent of loans outstanding

1.01%

1.06%

1.05%

1.03%

1.09%

Allowance as a percent of non-performing loans

160.40%

177.78%

131.60%

132.02%

118.61%

Net charge-offs (annualized) as a

percent of average loans outstanding

0.64%

0.26%

0.18%

0.57%

0.66%

Net charge-offs, excluding overdraft deposit

accounts, (annualized) as a percent of average loans outstanding

0.58%

0.22%

0.16%

0.49%

0.57%

CITY HOLDING COMPANY AND SUBSIDIARIES

Summary of Non-Performing Assets

(Unaudited) ($ in 000s)

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Nonaccrual loans

$           11,220

$ 10,246

$  14,008

$         13,583

$           16,423

Accruing loans past due 90 days or more

195

698

305

382

98

Previously securitized loans past due 90 days or more

34

-

-

79

12

Total non-performing loans

11,449

10,944

14,313

14,044

16,533

Other real estate owned, excluding property associated

with previously securitized loans

12,636

12,722

10,800

11,729

12,323

Other real estate owned associated with previously

securitized loans

-

-

-

-

-

Other real estate owned

12,636

12,722

10,800

11,729

12,323

Total non-performing assets

$           24,085

$ 23,666

$  25,113

$         25,773

$           28,856

Non-performing assets as a percent of loans and

other real estate owned

1.31%

1.28%

1.39%

1.43%

1.59%

CITY HOLDING COMPANY AND SUBSIDIARIES

Summary of Total Past Due Loans

(Unaudited) ($ in 000s)

September 30

June 30

March 31

December 31

September 30

2010

2010

2010

2009

2009

Residential real estate

$             3,815

$   5,298

$    3,850

$           3,830

$             3,167

Home equity

2,863

1,763

1,818

2,396

1,718

Commercial, financial, and agriculture

262

3,680

498

601

545

Installment loans to individuals

106

168

133

172

185

Previously securitized loans

518

394

539

1,023

1,054

Overdraft deposit accounts

337

399

326

461

510

Total past due loans

$             7,901

$ 11,702

$    7,164

$           8,483

$             7,179

SOURCE City Holding Company



RELATED LINKS

http://www.cityholding.com