City Holding Company Announces Second Quarter Results

Monday, July 27, 2009 7:51 AM

(Source: PRNewswire-FirstCall) tracking

CHARLESTON, W.Va., July 27 /PRNewswire-FirstCall/ -- City Holding Company, "the Company" , a $2.6 billion bank holding company headquartered in Charleston, today announced net income per diluted share for the second quarter of $0.64 compared to $0.83 per diluted share in the second quarter of 2008. Net income for the second quarter of 2009 was $10.1 million compared to $13.4 million in the second quarter of 2008. For the second quarter of 2009, the Company achieved a return on assets of 1.55%, a return on tangible equity of 17.6%, a net interest margin of 4.12%, and an efficiency ratio of 53.1%. Net income for the first six months of 2009 was $21.1 million compared to $26.4 million in the first six months of 2008. For the first six months of 2009, the Company achieved a return on assets of 1.63%, a return on tangible equity of 18.4%, a net interest margin of 4.29%, and an efficiency ratio of 50.4%.

City's CEO Charles Hageboeck stated that, "Due to the recession that the U.S. economy is experiencing, City's earnings are lower than historical levels, but continue to hold up relatively well as compared to many of our peers in the banking industry. In particular, our earnings were down significantly in the 2nd quarter due to the costs of a special assessment from the FDIC - a cost borne by City, but created by losses at other banking institutions. Additionally, historically low interest rates are squeezing City's net interest income - as they have most retail-deposit focused banking franchises. Nevertheless, City remains one of the most profitable, most liquid, and best capitalized publicly traded banks in the U.S. While our asset quality is stronger than many banks in other parts of the country, we have not been entirely unscathed, as non-performing assets increased slightly during the second quarter of 2009 as compared to the first quarter of 2009. City's most significant asset quality problems continue to be non-owner occupied residential construction at the Greenbrier Resort in White Sulphur Springs, West Virginia. These properties accounted for approximately half of City's net charge-offs in the second quarter of 2009. City also experienced increases in its non-performing residential real estate properties during the second quarter of 2009. However, past-due loans were down as compared to the first quarter. Charge-offs were elevated, as we charged off loans that had been previously provided for through our loan loss provision."

Net Interest Income

The Company's tax equivalent net interest income decreased $2.0 million, or 7.9%, from $25.7 million during the second quarter of 2008 to $23.7 million during the second quarter of 2009, as interest income from loans and investments decreased more quickly than interest expense on deposits and other interest bearing liabilities. Due to a decrease in the Company's yield on loans of 106 basis points from the second quarter of 2008, interest income related to loans declined $4.0 million. In addition, interest income declined $0.8 million from the second quarter of 2008 due to a decline in the yield on investments. Deposit growth also increased interest expense by $1.1 million. Partially offsetting these decreases in net interest income was a decline in interest expense on deposits of $2.5 million due to a decline of 49 basis points on interest bearing deposits. In addition, higher average balances of loans and investments increased interest income by $0.9 million. The Company's reported net interest margin decreased from 4.65% for the quarter ended June 30, 2008 to 4.12% for the quarter ended June 30, 2009.

Compared to the first quarter of 2009, the Company's tax equivalent net interest income declined $1.3 million. This decrease was primarily driven by lower interest income from loans ($1.0 million) and investments ($1.0 million) due to lower yields. Loan yields were down by 30 basis points as compared to the first quarter of 2009 due to the repricing of prime-based loans during the first quarter of 2009 and increases in non-performing assets, while investment yields decreased due to lower rates on short-term money-market investments. Partially offsetting these decreases was lower interest expense on interest bearing liabilities due to lower rates as the cost of interest bearing liabilities declined by 11 basis points from the first quarter of 2009. While loan balances were down on average by $4 million, time deposit balances were up by $35 million. Although this improved the Company's liquidity position, the rate paid on time deposits exceeded the rate earned on the funds, which were predominantly employed in short-term money market investments. As a result of these factors, the Company's reported net interest margin decreased from 4.46% for the first quarter of 2009 to 4.12% for the second quarter of 2009.

During the third and fourth quarters of 2008, the Company sold $450 million of interest rate floors. The gain from sales of these interest rate floors of $16.7 million will be recognized over the remaining lives of the various hedged loans - predominantly prime-based commercial and home equity loans. During the second quarter of 2009, the Company recognized $2.7 million of interest income compared to $2.9 million and $2.3 million of interest income recognized in the first quarter of 2009 and the second quarter of 2008, respectively, from the interest rate floors.

Credit Quality

At June 30, 2009, the Allowance for Loan Losses ("ALLL") was $21.0 million or 1.17% of total loans outstanding and 97% of non-performing loans compared to $18.0 million or 1.03% of loans outstanding and 123% of non-performing loans at June 30, 2008, and $22.3 million or 1.23% of loans outstanding and 86% of non-performing loans at December 31, 2008.

As a result of the Company's quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $2.15 million in the second quarter of 2009 compared to $0.85 million for the comparable period in 2008. The provision for loan losses recorded during the second quarter of 2009 reflects the difficulties of certain commercial borrowers of the Company during the quarter, the downgrade of their related credits, and management's assessment of the impact of these difficulties on the ultimate collectability of the loans. Additionally, the Company's nonperforming residential real estate loans increased during the second quarter of 2009. This increase was not restricted to a particular geographical market that the Company serves; rather this deterioration appears to be associated with the overall downturn in the economy. Changes in the amount of the provision and related allowance are based on the Company's detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company's loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.

The Company's ratio of non-performing assets to total loans and other real estate owned increased from 1.53% at March 31, 2008 to 1.76% at June 30, 2009, and compares to 1.64% at December 31, 2008. The Company's ratio of non-performing assets to total loans and other real estate owned compares very favorably to peers. The Company's non-performing asset ratio of 1.76% at June 30, 2009 is only 43% of the 4.06% non-performing asset ratio reported by the Company's peer group (bank holding companies with total assets between $1 and $5 billion) as of the most recently reported quarter ended March 31, 2009. The Company's non-performing assets are disproportionately tied to two sub-sectors within the loan portfolio, as discussed below.

Approximately 45% of the Company's non-performing assets at June 30, 2009 were associated with a $14.3 million portfolio of loans to builders of speculative homes at the Greenbrier Resort in White Sulphur Springs, West Virginia. These loans are considered to be commercial loans due to the dollar amount of the borrowings, although the loans were used to purchase lots and to construct upper-scale single-family residences at the Greenbrier Resort. Construction loan terms were originally interest-only for 12 months. All loans are collateralized by completed homes and eight residential lots. The original loan balances associated with these credits totaled $18.6 million. At June 30, 2009 the book balance of loans not charged-off totaled $7.6 million with $6.7 million recorded in the Company's Other Real Estate Owned category. The Company has specifically reserved $2.2 million of the ALLL against the outstanding loan balances of $7.6 million. During May 2009, the Justice Family Group purchased the financially troubled Greenbrier Resort from CSX Corporation. While this announcement sheds some light on the future of the Greenbrier, the Company has considered the uncertainty of the situation at the Greenbrier Resort and believes that based on our analysis, the specific allowance allocated to the non-performing and substandard loans, after considering the value of the collateral securing such loans, is adequate to cover losses that may result from these loans as of June 30, 2009.

24% of the Company's non-performing assets are associated with real estate in what is known as the "Eastern Panhandle" of West Virginia - inclusive of Jefferson, Berkeley, and Morgan counties. These three counties are distant suburbs of the Washington D.C. MSA and have experienced explosive growth in the last 10 years. While this is a relatively small part of the Company's entire franchise, the downturn that has gripped the nation's mortgage and construction industry has had disproportionately more impact upon the Company's asset quality and provision in this region than in the remainder of the Company. Exclusive of loans to speculative builders at the Greenbrier or loans in the Eastern Panhandle, other loans throughout the Company account for 31% of the Company's non-performing assets.

Past due loans declined slightly from the first quarter of 2009 to $10.3 million or 0.58% of total loans outstanding. Home equity past dues increased by $0.6 million, or 38.9%, however this increase was primarily related to one large loan that was between 30 and 60 days past due, but believed to be well secured.

The Company had net charge-offs of $3.2 million for the second quarter of 2009. Net charge-offs on commercial and residential loans were $2.2 and $0.5 million, respectively, for the second quarter. Charge-offs for commercial loans were primarily related to three specific credits that had been appropriately considered in establishing the allowance for loans losses in prior periods, including specific charge-offs of $1.6 million related to a Greenbrier loan. In addition, net charge-offs for depository accounts were $0.4 million for the second quarter of 2009. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is reflected in service charges.

Investment Securities

Based on management's assessment of the securities the Company owns, the seniority position of the securities within the pools, the level of defaults and deferred payments within the pools, and a review of the financial strength of the banks within the respective pools, management concluded that no impairment charges on investment securities were necessary for the quarter ended June 30, 2009.

Non-interest Income

Exclusive of investment losses, non-interest income increased $0.4 million to $14.6 million in the second quarter of 2009 as compared to $14.2 million in the second quarter of 2008. Bank owned life insurance revenues increased $0.2 million as the result of proceeds from a death benefit while insurance commission revenues increased $0.2 million on the strength of new business. Despite a general nationwide decline in consumer spending, service charges from depository accounts remained flat as compared to the second quarter of 2008.

Non-interest Expenses

Non-interest expenses increased $1.6 million from $18.7 million in the second quarter of 2008 to $20.3 million in the second quarter of 2009. Insurance and regulatory expenses increased $1.2 million from the second quarter of 2008 due to a special assessment levied by the Federal Deposit Insurance Corporation ("FDIC") to rebuild the Deposit Insurance Fund and to help maintain public confidence in the banking system. The special assessment was primarily based on the asset size of the Company's federally insured depository institution. The Company historically expenses approximately $0.1 million per quarter in association with FDIC insurance premiums. Advertising expenses rose $0.3 million from the second quarter of 2008 as the Company refocused its attention on gathering core deposits. In addition, salaries and employee benefits increased $0.3 million, or 2.9%, from the second quarter of 2008 while occupancy and equipment expenses increased $0.2 million from the second quarter of 2008. Partially offsetting these increases was a decline in other expenses of $0.6 million due primarily to increased special charitable contributions during the second quarter of 2008.

Balance Sheet Trends

As compared to December 31, 2008, loans have decreased $26.0 million (1.4%) at June 30, 2009 due to decreases in commercial loans of $20.4 million (2.7%) and residential real estate loans of $15.0 million (2.5%). The Company has experienced growth in commercial lending activity as it has added new customers and new loans with existing customers. However, as the economy has slowed, various lines of credit to commercial customers have had balance reductions totaling $11 million. Additionally, a total of $11 million in commercial loans have been transferred to OREO since December 31, 2008. These decreases were partially offset by an increase in home equity loans of $8.4 million (2.2%).

Total average depository balances increased $71.8 million, or 3.4%, from the quarter ended March 31, 2009 to the quarter ended June 30, 2009. This growth was attributable to increases in time deposits ($35.0 million), savings deposits ($13.6 million), interest bearing demand deposits ($12.7 million) and noninterest bearing demand deposits ($10.4 million).

Income Tax Expense

The Company's effective income tax rate for the second quarter of 2009 was 33.4% compared to 25.2% for the year ended December 31, 2008, and 33.3% for the quarter ended June 30, 2008. The effective rate is based upon the Company's expected tax rate for the year ending December 31, 2009.

Capitalization and Liquidity

One of the Company's strengths is that it is highly profitable while maintaining strong liquidity and capital. With respect to liquidity, the Company's loan to deposit ratio was 83.3% and the loan to asset ratio was 68.0% at June 30, 2009. The Company maintained investment securities totaling 20.2% of assets as of this date. Further, the Company's deposit mix is weighted heavily toward checking and saving accounts that fund 42.8% of assets at June 30, 2009. Time deposits fund 38.8% of assets at June 30, 2009, but very few of these deposits are in accounts that have balances of more than $150,000, reflecting the core retail orientation of the Company.

The Company is also strongly capitalized. With respect to regulatory capital, at June 30, 2009, the Company's Leverage Ratio is 9.47%, the Tier I Capital ratio is 12.63%, and the Total Risk-Based Capital ratio is 13.73%. These regulatory capital ratios are significantly above levels required to be considered "well capitalized," which is the highest possible regulatory designation.

On June 24, 2009, the Board approved a quarterly cash dividend to 34 cents per share payable July 31, 2009, to shareholders of record as of July 15, 2009. The Company's tangible equity ratio was 9.1% at June 30, 2009 compared with a tangible equity ratio of 8.8% at December 31, 2008.

City Holding Company is the parent company of City National Bank of West Virginia. City National operates 69 branches across West Virginia, Eastern Kentucky and Southern Ohio.

Forward-Looking Information

This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information involves risks and uncertainties that could result in the Company's actual results differing from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, (1) the Company may incur additional loan loss provision due to negative credit quality trends in the future that may lead to a deterioration of asset quality; (2) the Company may incur increased charge-offs in the future; (3) the Company may experience increases in the default rates on previously securitized loans that would result in impairment losses or lower the yield on such loans; (4) the Company may not continue to benefit from strong recovery efforts on previously securitized loans resulting in improved yields on these assets; (5) the Company could have adverse legal actions of a material nature; (6) the Company may face competitive loss of customers; (7) the Company may be unable to manage its expense levels; (8) the Company may have difficulty retaining key employees; (9) changes in the interest rate environment may have results on the Company's operations materially different from those anticipated by the Company's market risk management functions; (10) changes in general economic conditions and increased competition could adversely affect the Company's operating results; (11) changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact the Company's operating results; (12) the Company may experience difficulties growing loan and deposit balances; (13) the current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations; (14) continued deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments; and (15) the United States government's plan to purchase large amounts of illiquid, mortgage-backed and other securities from financial institutions may not be effective and/or it may not be available to us. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made.

CITY HOLDING COMPANY AND SUBSIDIARIES Financial Highlights (Unaudited) Three Months Ended June 30, Percent 2009 2008 Change ---- ---- ------ Earnings ($000s, except per share data): Net Interest Income (FTE) $23,656 $25,678 (7.87)% Net Income 10,146 13,379 (24.16)% Earnings per Basic Share 0.64 0.83 (22.89)% Earnings per Diluted Share 0.64 0.83 (22.89)% Key Ratios (percent): Return on Average Assets 1.55% 2.14% (27.24)% Return on Average Tangible Equity 17.63% 21.03% (16.15)% Net Interest Margin 4.12% 4.65% (11.45)% Efficiency Ratio 53.13% 46.86% 13.38% Average Shareholders' Equity to Average Assets 11.00% 12.46% (11.72)% Consolidated Risk Based Capital Ratios (a): Tier I 12.58% 14.18% (10.93)% Total 13.67% 15.15% (9.37)% Tangible Equity to Tangible Assets 9.11% 10.02% (9.12)% Common Stock Data: Cash Dividends Declared per Share $0.34 $0.34 0.00% Book Value per Share 18.24 18.72 (2.57)% Tangible Book Value per Share 14.66 15.13 (3.16)% Market Value per Share: High 33.78 44.15 (23.49)% Low 27.02 37.29 (27.54)% End of Period 30.88 40.77 (24.26)% Six Months Ended June 30, Percent 2009 2008 Change ---- ---- ------ Earnings ($000s, except per share data): Net Interest Income (FTE) $48,629 $49,814 (2.38)% Net Income 21,070 26,417 (20.24)% Earnings per Basic Share 1.32 1.64 (19.51)% Earnings per Diluted Share 1.32 1.63 (19.02)% Key Ratios (percent): Return on Average Assets 1.63% 2.11% (23.07)% Return on Average Tangible Equity 18.36% 21.28% (13.73)% Net Interest Margin 4.29% 4.53% (5.28)% Efficiency Ratio 50.36% 47.57% 5.85% Average Shareholders' Equity to Average Assets 11.06% 12.25% (9.66)% Common Stock Data: Cash Dividends Declared per Share $0.68 $0.68 0.00% Market Value per Share: High 33.78 44.15 (23.49)% Low 20.88 32.51 (35.77)% Price/Earnings Ratio (b) 11.70 12.43 (5.90)% (a) June 30, 2009 risk-based capital ratios are estimated (b) June 30, 2009 price/earnings ratio computed based on annualized second quarter 2009 earnings 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 -------- ------- ------------ ----------- --- ---- 2005 $13.20 $15.56 $15.99 $16.14 $27.57 $39.21 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 27.02 33.78 Earnings per Basic Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date -------- ------- ------------ ----------- ------------ 2005 $0.70 $0.72 $0.73 $0.72 $2.87 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 1.32 Earnings per Diluted Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date -------- ------- ------------ ----------- ------------ 2005 $0.69 $0.71 $0.72 $0.72 $2.84 2006 0.71 0.77 0.77 0.74 2.99 2007 0.76 0.72 0.76 0.78 3.01 2008 0.80 0.83 (0.16) 0.26 1.74 2009 0.69 0.64 1.32 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Three Months Ended June 30, 2009 2008 ---- ---- Interest Income Interest and fees on loans $26,946 $30,416 Interest on investment securities: Taxable 5,612 6,120 Tax-exempt 403 381 Interest on deposits in depository institutions 3 51 Total Interest Income 32,964 36,968 Interest Expense Interest on deposits 9,184 10,519 Interest on short-term borrowings 111 663 Interest on long-term debt 231 312 --- --- Total Interest Expense 9,526 11,494 ----- ------ Net Interest Income 23,438 25,474 Provision for loan losses 2,150 850 ----- --- Net Interest Income After Provision for Loan Losses 21,288 24,624 Non-Interest Income Investment securities (losses) (332) - Service charges 11,261 11,269 Insurance commissions 1,325 1,168 Trust and investment management fee income 497 449 Bank owned life insurance 992 750 Other income 544 559 --- --- Total Non-Interest Income 14,287 14,195 Non-Interest Expense Salaries and employee benefits 9,797 9,517 Occupancy and equipment 1,880 1,701 Depreciation 1,184 1,087 Professional fees 397 427 Postage, delivery, and statement mailings 698 618 Advertising 927 643 Telecommunications 514 440 Bankcard expenses 686 640 Insurance and regulatory 1,578 333 Office supplies 470 504 Repossessed asset losses, net of expenses 86 91 Other expenses 2,119 2,760 ----- ----- Total Non-Interest Expense 20,336 18,761 ------ ------ Income Before Income Taxes 15,239 20,058 Income tax expense 5,093 6,679 ----- ----- Net Income $10,146 $13,379 ======= ======= Basic earnings per share $0.64 $0.83 Diluted earnings per share $0.64 $0.83 Average Common Shares Outstanding: Basic 15,908 16,103 Diluted 15,949 16,167 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Six months ended June 30, 2009 2008 ---- ---- Interest Income Interest and fees on loans $55,004 $61,408 Interest on investment securities: Taxable 11,674 12,184 Tax-exempt 812 780 Interest on deposits in depository institutions 8 116 --- --- Total Interest Income 67,498 74,488 Interest Expense Interest on deposits 18,557 22,534 Interest on short-term borrowings 264 1,808 Interest on long-term debt 485 753 --- --- Total Interest Expense 19,306 25,095 ------ ------ Net Interest Income 48,192 49,393 Provision for loan losses 3,800 2,733 ----- ----- Net Interest Income After Provision for Loan Losses 44,392 46,660 Non-Interest Income Investment securities (losses) gains (2,407) 2 Service charges 21,696 22,543 Insurance commissions 3,258 2,206 Trust and investment management fee income 1,204 1,081 Bank owned life insurance 1,724 1,426 VISA IPO Gain - 3,289 Other income 1,245 966 ----- --- Total Non-Interest Income 26,720 31,513 Non-Interest Expense Salaries and employee benefits 19,380 18,880 Occupancy and equipment 3,789 3,298 Depreciation 2,395 2,220 Professional fees 850 794 Postage, delivery, and statement mailings 1,416 1,272 Advertising 1,790 1,260 Telecommunications 934 858 Bankcard expenses 1,334 1,261 Insurance and regulatory 1,954 671 Office supplies 1,001 961 Repossessed asset losses, net of expenses 215 123 Loss on early extinguishment of debt - 1,208 Other expenses 4,112 5,854 ----- ----- Total Non-Interest Expense 39,170 38,660 ------ ------ Income Before Income Taxes 31,942 39,513 Income tax expense 10,872 13,096 ------ ------ Net Income $21,070 $26,417 ======= ======= Basic earnings per share $1.32 $1.64 Diluted earnings per share $1.32 $1.63 Average Common Shares Outstanding: Basic 15,903 16,124 Diluted 15,941 16,186 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited) ($ in 000s) Three Months Ended June 30, 2009 June 30, 2008 ------------- ------------- Balance at April 1 $281,505 $304,841 Net income 10,146 13,379 Other comprehensive income: Change in unrealized gain (loss) on securities available-for-sale 6,641 (6,914) Change in unrealized (loss) on interest rate floors (1,783) (4,084) Cash dividends declared ($0.34/share) (5,426) (5,489) Issuance of stock award shares, net 99 67 Exercise of 12,375 stock options - 239 Excess tax benefits on stock compensation - 17 Balance at June 30 $291,182 $302,056 ======== ======== Six Months Ended June 30, 2009 June 30, 2008 ------------- ------------- Balance at January 1 $280,429 $293,994 Net income 21,070 26,417 Other comprehensive income: Change in unrealized gain (loss) on securities available-for-sale 4,953 (5,166) Change in unrealized (loss) gain on interest rate floors (3,569) 815 Cash dividends declared ($0.68/share) (10,836) - Cash dividends declared ($0.68/share) - (10,965) Issuance of stock award shares, net 374 340 Exercise of 300 stock options 3 - Exercise of 18,075 stock options - 315 Excess tax benefits on stock compensation - 23 Purchase of 49,363 common shares of treasury (1,242) - Purchase of 104,960 common shares of treasury - (3,717) - ------ Balance at June 30 $291,182 $302,056 ======== ======== CITY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Quarterly Statements of Income (Unaudited) ($ in 000s, except per share data) Quarter Ended June 30 March 31 December 31 September 30 June 30 2009 2009 2008 2008 2008 ---- ---- ---- ---- ---- Interest income $32,964 $34,534 $36,663 $36,522 $36,968 Taxable equivalent adjustment 219 220 200 200 204 --- --- --- --- --- Interest income (FTE) 33,183 34,754 36,863 36,722 37,172 Interest expense 9,526 9,780 10,582 10,241 11,494 ----- ----- ------ ------ ------ Net interest income 23,657 24,974 26,281 26,481 25,678 Provision for loan losses 2,150 1,650 5,340 2,350 850 ----- ----- ----- ----- --- Net interest income after provision for loan losses 21,507 23,324 20,941 24,131 24,828 Noninterest income 14,287 12,433 3,181 (12,758) 14,195 Noninterest expense 20,336 18,834 17,766 19,246 18,761 ------ ------ ------ ------ ------ Income (Loss) before income taxes 15,458 16,923 6,356 (7,873) 20,262 Income tax expense (benefit) 5,093 5,779 1,907 (5,516) 6,679 Taxable equivalent adjustment 219 220 200 200 204 --- --- --- --- --- Net income (loss) $10,146 $10,924 $4,249 $(2,557) $13,379 ======= ======= ====== ======= ======= Basic earnings (loss) per share $0.64 $0.69 $0.26 $(0.16) $0.83 Diluted earnings (loss) per share 0.64 0.69 0.26 (0.16) 0.83 Cash dividends declared per share 0.34 0.34 0.34 0.34 0.34 Average Common Share (000s): Outstanding 15,908 15,921 16,078 16,142 16,103 Diluted 15,949 15,933 16,100 16,195 16,167 Net Interest Margin 4.12% 4.46% 4.73% 4.78% 4.65% CITY HOLDING COMPANY AND SUBSIDIARIES Non-Interest Income and Non-Interest Expense (Unaudited) ($ in 000s) Quarter Ended June 30 March 31 December 31 September 30 June 30 2009 2009 2008 2008 2008 ---- ---- ---- ---- ---- Non-Interest Income: Service charges $11,261 $10,435 $11,459 $11,993 $11,269 Insurance commissions 1,325 1,933 981 1,025 1,168 Trust and investment management fee income 497 707 518 640 449 Bank owned life insurance 992 732 739 767 750 Other income 544 701 284 284 559 --- --- --- --- --- Subtotal 14,619 14,508 13,981 14,709 14,195 Investment securities (losses) (332) (2,075) (10,800) (27,467) - Total Non-Interest Income $14,287 $12,433 $3,181 $(12,758) $14,195 ======= ======= ====== ======== ======= Non-Interest Expense: Salaries and employee benefits $9,797 $9,583 $8,845 $9,538 $9,517 Occupancy and equipment 1,880 1,909 1,773 1,800 1,701 Depreciation 1,184 1,211 1,193 1,110 1,087 Professional fees 397 453 451 435 427 Postage, delivery, and statement mailings 698 718 641 636 618 Advertising 927 863 818 821 643 Telecommunications 514 420 562 496 440 Bankcard expenses 686 648 711 717 640 Insurance and regulatory 1,578 376 363 354 333 Office supplies 470 531 533 527 504 Repossessed asset losses, net of expenses 86 129 87 314 91 Other expenses 2,119 1,993 1,789 2,498 2,760 ----- ----- ----- ----- ----- Total Non-Interest Expense $20,336 $18,834 $17,766 $19,246 $18,761 ======= ======= ======= ======= ======= Employees (Full Time Equivalent) 831 830 827 812 817 Branch Locations 69 69 69 69 68 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000s) June 30 December 31 2009 2008 ---- ---- (Unaudited) Assets Cash and due from banks $48,058 $55,511 Interest-bearing deposits in depository institutions 4,912 4,118 Cash and cash equivalents 52,970 59,629 Investment securities available-for-sale, at fair value 502,286 424,214 Investment securities held- to-maturity, at amortized cost 29,029 29,067 ------ ------ Total investment securities 531,315 453,281 Gross loans 1,786,335 1,812,344 Allowance for loan losses (20,975) (22,254) ------- ------- Net loans 1,765,360 1,790,090 Bank owned life insurance 71,874 70,400 Premises and equipment 63,425 60,138 Accrued interest receivable 8,936 9,024 Net deferred tax assets 45,694 48,462 Intangible assets 57,244 57,479 Other assets 29,499 33,943 ------ ------ Total Assets $2,626,317 $2,582,446 ========== ========== Liabilities Deposits: Noninterest-bearing $315,278 $298,530 Interest-bearing: Demand deposits 430,113 420,554 Savings deposits 379,848 354,956 Time deposits 1,018,594 967,090 --------- ------- Total deposits 2,143,833 2,041,130 Short-term borrowings 136,421 194,463 Long-term debt 18,002 19,047 Other liabilities 36,879 47,377 ------ ------ Total Liabilities 2,335,135 2,302,017 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, 2009 and December 31, 2008 less 2,536,563 and 2,548,538 shares in treasury, respectively 46,249 46,249 Capital surplus 101,658 102,895 Retained earnings 240,847 230,613 Cost of common stock in treasury (88,357) (88,729) Accumulated other comprehensive (loss): Unrealized loss on securities available-for-sale (10,676) (15,628) Unrealized gain on Derivative instruments 5,719 9,287 Underfunded pension liability (4,258) (4,258) ------ ------ Total Accumulated Other Comprehensive (Loss) (9,215) (10,599) ------ ------- Total Stockholders' Equity 291,182 280,429 ------- ------- Total Liabilities and Stockholders' Equity $2,626,317 $2,582,446 ========== ========== CITY HOLDING COMPANY AND SUBSIDIARIES Investment Portfolio (Unaudited) ($ in 000s) Other Than Temporary Impairment Charges Unrealized Original through June Gains Carrying Cost 30, 2009 (Losses) Value -------- ------------- ---------- -------- FNMA & FHLMC Preferred Stock $22,679 $(21,089) $(986) $604 Mortgage Backed Securities 292,808 - 6,215 299,023 Municipal Bonds 49,257 - (440) 48,817 Pooled Bank Trust Preferreds 27,088 (18,337) (5,351) 3,400 Single Issuer Bank Trust Preferreds, Subdebt of Financial Institutions, and Bank Holding Company Preferred Stocks 110,804 (1,000) (14,030) 95,774 Money Markets and Mutual Funds 64,797 - (24) 64,773 Federal Reserve Bank and FHLB stock 13,036 - - 13,036 Community Bank Equity Positions 8,866 - (2,978) 5,888 ----- --- ------ ----- Total Investments $589,335 $(40,426) $(17,594) $531,315 ======== ======== ======== ======== CITY HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in 000s) June 30 March 31 December 31 September 30 June 30 2009 2009 2008 2008 2008 ---- ---- ---- ---- ---- Residential real estate $596,925 $599,692 $611,962 $620,951 $612,676 Home equity 392,751 389,453 384,320 377,919 371,537 Commercial, financial, and agriculture 747,886 753,234 768,255 729,613 715,196 Installment loans to individuals 45,550 45,175 43,585 44,728 45,385 Previously securitized loans 3,223 3,754 4,222 4,520 5,253 ----- ----- ----- ----- ----- Gross Loans $1,786,335 $1,791,308 $1,812,344 $1,777,731 $1,750,047 ========== ========== ========== ========== ========== CITY HOLDING COMPANY AND SUBSIDIARIES Previously Securitized Loans (Unaudited) ($ in millions) Annualized Effective December 31 Interest Annualized Year Ended: Balance (a) Income (a) Yield (a) ----------- ---------- --------- 2008 $4.2 $5.6 108% 2009 3.6 4.0 118% 2010 3.2 3.3 118% 2011 2.8 2.9 118% 2012 2.4 2.5 118% (a) 2008 amounts are based on actual results. 2009 amounts are based on actual results through June 30, 2009 and estimated amounts for the remainder of the year. 2010, 2011, and 2012 amounts are based on estimated amounts. Note: The amounts reflected in the table above require management to make significant assumptions based on estimated future default, prepayment, and discount rates. Actual performance could be significantly different from that assumed, which could result in the actual results being materially different from the amounts estimated above. CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months Ended June 30, 2009 Average Yield/ Balance Interest Rate ------- -------- ---- Assets: Loan portfolio: Residential real estate $598,122 $8,545 5.73% Home equity 390,361 6,050 6.22% Commercial, financial, and agriculture 752,157 10,311 5.50% Installment loans to individuals 49,956 1,057 8.49% Previously securitized loans 3,426 984 115.20% ----- --- ------ Total loans 1,794,022 26,947 6.02% Securities: Taxable 466,341 5,612 4.83% Tax-exempt 38,179 621 6.52% ------ --- ---- Total securities 504,520 6,233 4.96% Deposits in depository institutions 5,224 3 0.23% Total interest-earning assets 2,303,766 33,183 5.78% Cash and due from banks 51,774 Bank premises and equipment 62,775 Other assets 215,907 Less: Allowance for loan losses (22,229) ------- Total assets $2,611,993 ========== Liabilities: Interest-bearing demand deposits 429,381 446 0.42% Savings deposits 374,375 463 0.50% Time deposits 1,017,984 8,276 3.26% Short-term borrowings 125,436 111 0.35% Long-term debt 18,998 231 4.88% ------ --- ---- Total interest-bearing liabilities 1,966,174 9,527 1.94% Noninterest-bearing demand deposits 334,735 Other liabilities 23,680 Stockholders' equity 287,404 ------- Total liabilities and stockholders' equity $2,611,993 ========== Net interest income $23,656 ======= Net yield on earning assets 4.12% ==== Three Months Ended June 30, 2008 Average Yield/ Balance Interest Rate ------- -------- ---- Assets: Loan portfolio: Residential real estate $598,924 $9,348 6.28% Home equity 360,041 6,493 7.25% Commercial, financial, and agriculture 708,607 11,707 6.64% Installment loans to individuals 55,667 1,398 10.10% Previously securitized loans 5,370 1,471 110.17% ----- ----- ------ Total loans 1,728,609 30,417 7.08% Securities: Taxable 446,625 6,120 5.51% Tax-exempt 35,994 585 6.54% ------ --- ---- Total securities 482,619 6,705 5.59% Deposits in depository institutions 9,266 50 2.17% Total interest-earning assets 2,220,494 37,172 6.73% Cash and due from banks 54,906 Bank premises and equipment 56,002 Other assets 193,346 Less: Allowance for loan losses (18,726) ------- Total assets $2,506,022 ========== Liabilities: Interest-bearing demand deposits 413,467 613 0.60% Savings deposits 361,244 831 0.93% Time deposits 909,421 9,075 4.01% Short-term borrowings 139,787 663 1.91% Long-term debt 21,401 312 5.86% ------ --- ---- Total interest-bearing liabilities 1,845,320 11,494 2.51% Noninterest-bearing demand deposits 323,123 Other liabilities 25,214 Stockholders' equity 312,365 ------- Total liabilities and stockholders' equity $2,506,022 ========== Net interest income $25,678 ======= Net yield on earning assets 4.65% ==== CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Six Months Ended June 30, 2009 Average Yield/ Balance Interest Rate ------- -------- ---- Assets: Loan portfolio: Residential real estate $600,929 $17,325 5.81% Home equity 388,517 12,193 6.33% Commercial, financial, and agriculture 754,168 21,186 5.66% Loans to depository institutions - - 0.00% Installment loans to individuals 48,768 2,175 8.99% Previously securitized loans 3,645 2,125 117.56% ----- ----- ------ Total loans 1,796,027 55,004 6.18% Securities: Taxable 448,636 11,674 5.25% Tax-exempt 37,871 1,249 6.65% ------ ----- ---- Total securities 486,507 12,923 5.36% Deposits in depository institutions 5,026 8 0.32% Total interest-earning assets 2,287,560 67,935 5.99% Cash and due from banks 52,090 Bank premises and equipment 61,800 Other assets 213,467 Less: Allowance for loan losses (22,395) ------- Total assets $2,592,522 ========== Liabilities: Interest-bearing demand deposits 423,073 909 0.43% Savings deposits 367,595 969 0.53% Time deposits 1,000,562 16,679 3.36% Short-term borrowings 136,412 264 0.39% Long-term debt 19,015 485 5.14% ------ --- ---- Total interest-bearing liabilities 1,946,657 19,306 2.00% Noninterest-bearing demand deposits 329,563 Other liabilities 29,506 Stockholders' equity 286,796 ------- Total liabilities and stockholders' equity $2,592,522 ========== Net interest income $48,629 ======= Net yield on earning assets 4.29% ==== Six Months Ended June 30, 2008 Average Yield/ Balance Interest Rate ------- -------- ---- Assets: Loan portfolio: Residential real estate $600,262 $18,763 6.29% Home equity 351,850 12,876 7.36% Commercial, financial, and agriculture 704,381 23,941 6.84% Loans to depository institutions 2,335 35 3.01% Installment loans to individuals 51,648 2,743 10.68% Previously securitized loans 5,895 3,050 104.05% ----- ----- ------ Total loans 1,716,371 61,408 7.19% Securities: Taxable 451,137 12,184 5.43% Tax-exempt 36,865 1,200 6.55% ------ ----- ---- Total securities 488,002 13,384 5.52% Deposits in depository institutions 8,982 116 2.60% ---- Total interest-earning assets 2,213,355 74,908 6.81% Cash and due from banks 60,174 Bank premises and equipment 55,355 Other assets 189,810 Less: Allowance for loan losses (18,282) ------- Total assets $2,500,412 ========== Liabilities: Interest-bearing demand deposits 411,606 1,325 0.65% Savings deposits 360,916 1,934 1.08% Time deposits 921,462 19,274 4.21% Short-term borrowings 133,790 1,808 2.72% Long-term debt 21,953 753 6.90% ------ --- ---- Total interest-bearing liabilities 1,849,727 25,094 2.73% Noninterest-bearing demand deposits 317,504 Other liabilities 26,991 Stockholders' equity 306,190 ------- Total liabilities and stockholders' equity $2,500,412 ========== Net interest income $49,814 ======= Net yield on earning assets 4.53% ==== CITY HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital (Unaudited) ($ in 000s) June 30 March 31 2009 (a) 2009 -------- ---- Tier I Capital: Stockholders' equity $291,182 $281,505 Goodwill and other intangibles (57,046) (57,165) Accumulated other comprehensive loss 9,215 14,073 Qualifying trust preferred stock 16,000 16,000 Unrealized Loss on AFS securities (3,988) (4,401) Excess deferred tax assets (14,804) (15,796) ------- ------- Total tier I capital $240,559 $234,215 ======== ======== Total Risk-Based Capital: Tier I capital $240,559 $234,215 Qualifying allowance for loan losses 20,975 21,980 ------ ------ Total risk-based capital $261,534 $256,195 ======== ======== Net risk-weighted assets $1,912,937 $1,901,377 Ratios: Average stockholders' equity to average assets 11.00% 11.12% Tangible capital ratio 9.11% 8.87% Risk-based capital ratios: Tier I capital 12.58% 12.32% Total risk-based capital 13.67% 13.47% Leverage capital 9.47% 9.37% December 31 September 30 June 30 2008 2008 2008 ---- ---- ---- Tier I Capital: Stockholders' equity $280,429 $284,912 $302,056 Goodwill and other intangibles (57,479) (57,600) (57,893) Accumulated other comprehensive loss 10,599 14,477 3,718 Qualifying trust preferred stock 16,000 16,000 16,000 Unrealized Loss on AFS securities (3,342) (761) (712) Excess deferred tax assets (23,841) (15,470) - ------- ------- --- Total tier I capital $222,366 $241,558 $263,169 ======== ======== ======== Total Risk-Based Capital: Tier I capital $222,366 $241,558 $263,169 Qualifying allowance for loan losses 22,254 18,879 17,959 ------ ------ ------ Total risk-based capital $244,620 $260,437 $281,128 ======== ======== ======== Net risk-weighted assets $1,875,934 $1,842,684 $1,855,401 Ratios: Average stockholders' equity to average assets 11.53% 12.45% 12.46% Tangible capital ratio 8.83% 9.44% 10.02% Risk-based capital ratios: Tier I capital 11.85% 13.11% 14.18% Total risk-based capital 13.04% 14.13% 15.15% Leverage capital 9.14% 9.97% 10.75% (a) June 30, 2009 risk-based capital ratios are estimated CITY HOLDING COMPANY AND SUBSIDIARIES Intangibles (Unaudited) ($ in 000s)

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