CHARLESTON, W.Va., Jan. 27 /PRNewswire-FirstCall/ -- City Holding Company, "the Company" , a $2.5 billion bank holding company headquartered in Charleston, today announced net income of $4.2 million or $0.26 per diluted share for the fourth quarter of 2008 and $28.1 million or $1.74 per diluted share for the full year. Charles Hageboeck, Chief Executive Officer and President stated "Against the backdrop of one of the most significant economic downturns in decades, City's underlying fundamentals are solid. Excluding short-term loans to other banks, loans grew 6.2% during the year ended December 31, 2008. Average checking and saving deposits for the year were up 1.9% in 2008 as compared to 2007. The net interest margin for 2008 averaged 4.64%, up from 4.34% for 2007, and was 4.73% during the fourth quarter of 2008. Branch Service Charges increased 3.6%, trust and investment management fees increased 9.7%, and insurance revenues increased 3.0% in 2008. City's non-interest expenses increased 3.6% after considering the impact of the expenses associated with the early redemption of our 9.15% trust preferred securities and a special program to establish funds in City's name in community foundations in many of City's primary markets. City's tangible common equity ratio is 8.8% which is strong compared to other banks of City's size. The strength of our capital position provided us the option not to participate in the government assistance made available to banks in the fourth quarter of 2008 (the "Trouble Asset Relief Program"). With strong core earnings, strong capital, and with a low ratio of loans to deposits in comparison to our peer group (bank holding companies with total assets between $1 and $5 billion), City expects to be able to continue to lend within its communities and to continue to grow its franchise.
"Despite the challenges that are facing City, our industry, and indeed our entire nation, City remains strong, operating in some of the most stable markets in the U.S. For example, West Virginia's unemployment rate in November 2008 was 4.6% as compared to the U.S. unemployment rate of 6.8% for the same period. The rate of foreclosures on residential mortgages in West Virginia has been reported to be one of the lowest in the U.S. and home prices are generally believed to have remained relatively stable through the last 18 months as prices in many markets have fallen precipitously.
"The economic recession being experienced throughout the U.S. and the world has also been felt at City Holding Company and City National Bank. During the third quarter of 2008, we experienced a significant loss on investments in Fannie Mae and Freddie Mac, two of our nation's largest Companies, which were placed into conservatorship by our government. As the recession has deepened during the fourth quarter of 2008, City's investments in pools of debt issued by banks throughout the U.S. also deteriorated in value on fears that some of the banks that have issued debt into these pools will not survive. As a result, we took charges of $10.8 million in the fourth quarter and $38.3 million during the year for other than temporary impairments of investments, including our investment in preferred stock in Fannie Mae and Freddie Mac. We have experienced some increase in losses on loans, although not to the extent experienced in most other markets throughout the U.S. As a result, our provision for loan losses was $5.3 million for the fourth quarter of 2008 and $10.4 million for the year. Despite these setbacks, City still achieved a return on assets of 1.12% for the full year of 2008 - better than most in our peer group (bank holding companies with total assets between $1 and $5 billion).
"As the economic recession, and the political response to it continues to unfold, it is possible that City, as well as our entire industry, will continue to experience higher than normal losses within our loan portfolio. We may also experience further deterioration of investments made by City in debt or preferred stock of some of our competitors. Regulatory changes that may accompany a new regime in Washington may have adverse consequences for all banks. However, we believe that City's strong earnings, capital and liquidity will allow City to outperform our industry. Many of our peers are reducing, or in some cases eliminating, their dividends. City's dividend has increased by approximately 10% or more each of the last five years. We are proud of the results that we have achieved for our shareholders. Our Board will determine in March 2009 whether to increase our dividend above the current $0.34 rate based upon our estimates of both the U.S. economy, and our own financial condition, at that time."
Net Interest Income
The Company's tax equivalent net interest income increased $4.6 million, or 4.7%, from $97.9 million in 2007 to $102.6 million in 2008, as interest expense on deposits and other interest bearing liabilities decreased more quickly than interest income from loans and investments. The Company's reported net interest margin expanded to 4.64% for the year ended December 31, 2008 as compared to 4.34% for the year ended December 31, 2007.
The Company benefited from a portfolio of interest rate floors with a total notional value of $500 million which minimized the impact of falling rates on the Company's interest income from variable rate loans during 2008. During the fourth quarter of 2008, an interest rate floor with a notional value of $50 million matured and the Company sold the remaining interest rate floors with notional amounts totaling $350 million. The gain of $12.5 million from the sale of these interest rate floors will be recognized over the remaining lives of the various hedged loans. Partially offsetting the reduction in interest expense from falling market rates was a decrease of $1.6 million in interest income from Previously Securitized Loans from the year ended December 31, 2007 as the average balances of these loans have decreased 50.6%. The decrease in average balances of Previously Securitized Loans was partially mitigated by an increase in the yield on these loans from 69.1% for the year ended December 31, 2007 to 108.1% for the year ended December 31, 2008.
The Company's tax equivalent net interest income increased $2.0 million, or 8.3%, from $24.3 million during the fourth quarter of 2007 to $26.3 million during the fourth quarter of 2008, as interest expense on deposits and other interest bearing liabilities decreased more quickly than interest income from loans and investments. As previously discussed, the Company's interest rate floors diminished the impact of falling rates on the Company's interest income from variable rate loans.
Credit Quality
At December 31, 2008, the Allowance for Loan Losses ("ALLL") was $22.3 million or 1.23% of total loans outstanding and 86% of non-performing loans compared to $17.6 million or 1.00% of loans outstanding and 103% of non-performing loans at December 31, 2007, and $18.9 million or 1.06% of loans outstanding and 136% of non-performing loans at September 30, 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 $5.3 million in the fourth quarter of 2008 and $10.4 million for the year ended December 31, 2008 compared to $1.7 million and $5.4 million for the comparable periods in 2007. The provision for loan losses recorded during 2008 reflects difficulties encountered by certain commercial borrowers of the Company during the year, 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 provision reflects changes in the economic conditions in the Company's geographic market and the United States in general and an increase in the balance of commercial loans during the year. 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 1.20% at December 31, 2007 to 1.64% at December 31, 2008. This increase is attributable primarily to the difficulties encountered by certain commercial customers during 2008 and their related borrowings have been classified as substandard.
Approximately 48% of the Company's nonperforming loans at December 31, 2008, or approximately $12 million, were associated with a $17 million portfolio of loans to builders of speculative homes at the Greenbrier Resort in White Sulphur Springs, West Virginia. Through December 31, 2008, the Company has specifically reserved $3.6 million of the allowance for loan losses (ALLL) associated with this portfolio of speculative properties. The Greenbrier Resort has a long history and tradition as a top resort destination and is owned by CSX Corporation. However, the current economic scenario has been challenging for the Greenbrier, which lost $35 million in 2008 according to CSX Corporation. Additionally, the CSX Corporation has reported hiring Goldman Sachs to apprise them of their strategic options regarding the Greenbrier. The Company has considered the uncertainty of the situation at the Greenbrier, arising in the fourth quarter, and has increased the provision for loan losses relative to this portfolio of speculative builders by $1.15 million. Based on our analysis, the Company believes that the allowance allocated to the nonperforming and substandard loans, after considering the value of the collateral securing such loans, is adequate to cover losses that may result from these loans at December 31, 2008. While the Company's non-performing assets have increased, our ratio of non-performing assets to total loans and other real estate owned is 136 basis points lower than that of our peer group (bank holding companies with total assets between $1 and $5 billion), which reported average non-performing assets as a percentage of loans and other real estate owned of 3.00% for the most recently reported quarter ended September 30, 2008. The Company's non-performing assets are disproportionately tied to two sub-sectors within the loan portfolio.
In addition to the 48% of the Company's non-performing loans associated with speculative builders at the Greenbrier, slightly more than 25% of the Company's non-performing assets are associated with real estate in what is known as the "Eastern Panhandle" of West Virginia - the counties of Jefferson, Berkeley, and Morgan. These three counties are all considered 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 only 27% of the Company's non-performing loans.
The Company had net charge-offs of $2.0 million in the fourth quarter of 2008. Net charge-offs on commercial and residential loans were $1.1 million and $0.5 million, respectively, for the fourth quarter, while installment loans experienced no net charge-offs during the quarter. The increase in charge-offs on commercial loans was primarily related to one credit that had been appropriately considered in establishing the allowance for loan losses in prior periods. In addition, net charge-offs for depository accounts were $0.4 million for the fourth quarter of 2008 and $1.4 million for the year ended December 31, 2008. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is reflected in service charges. Charge-offs for the full year 2008 totaled $5.75 million. Of these, $1.2 million are associated with speculative loans at the Greenbrier and $1.2 million are associated with loans in the Eastern Panhandle of West Virginia.
Impairment Losses
During 2008, the Company recorded $38.3 million of investment impairment losses, including $10.8 million in the fourth quarter. The charges deemed to be other than temporary were related to agency preferreds ($21.1 million impairment taken in the third quarter) with remaining book value of $1.6 million at December 31, 2008; pooled bank trust preferreds (a $9.9 million impairment in the fourth quarter and a $14.2 million impairment for the full year) with remaining book value of $10.9 million at December 31, 2008; income notes (a $0.9 million impairment in the fourth quarter and $2.0 million for the full year) with no remaining book value at December 31, 2008; and corporate debt securities (a $1.0 million impairment taken in the third quarter) with remaining book value of $24.6 million at December 31, 2008. The impairment charges for the agency preferred securities were due to the actions of the federal government to place Freddie Mac and Fannie Mae into conservatorship and the suspension of dividends on such preferred securities. The impairment charges related to the pooled bank trust preferred securities and income notes were 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 impairment charges of $15.5 million and $2.0 million on the pooled bank trust preferred securities and the income notes, respectively, were necessary for the year ended December 31, 2008. The $1.0 million impairment charge for corporate debt securities was due to Lehman Brothers Holdings bankruptcy filing. The Company had acquired this security as the result of an acquisition of a bank in 2005.
Visa Gain
In addition, the Company recognized a $3.3 million gain in connection with Visa's successful initial public offering ("IPO") completed in March 2008. The Company received approximately $2.3 million on the partial redemption of its equity interest in Visa. The Company's remaining Class B shares will be converted to Class A shares on the third anniversary of Visa's IPO or upon Visa's settlement of certain litigation matters, whichever is later. The unconverted Class B shares are not reflected in the Company's balance sheet at December 31, 2008 as the Company has no historical basis in these shares. Visa also escrowed a portion of the proceeds from the IPO to satisfy approximately $1.0 million of liabilities that represented the Company's proportionate share of legal judgments and settlements related to Visa litigation with American Express and Discover Financial Services.
Non-interest Expenses
During 2008, the Company fully redeemed $16.0 million of 9.15% trust preferred securities that had been issued in 1998. As a result of this redemption, the Company incurred charges of $1.2 million to fully amortize issuance costs incurred in 1998 and for the early redemption premium. Excluding the loss on the early redemption of the trust preferred securities, non-interest expenses increased $3.5 million from $71.0 million in 2007 to $74.5 million in 2008. Salaries and employee benefits increased $1.2 million, or 3.3%, from $36.0 million in 2007 to $37.2 million in 2008 due in part to additional staffing for new retail locations. Other expenses also include increased charitable contributions of $0.75 million during 2008.
Non-interest expenses decreased $0.1 million from $17.9 million in the fourth quarter of 2007 to $17.8 million in the fourth quarter of 2008. Other expenses decreased $1.1 million from 2007 as a charge related to the Company's proportionate share of certain losses incurred by Visa U.S.A. Inc. (see Visa U.S.A. Inc.) was recorded in the fourth quarter of 2007. This decrease was partially offset by increases in advertising of $0.2 million, occupancy and equipment of $0.2 million, and repossessed asset losses of $0.2 million.
Income Tax Expense
The Company's effective income tax rate for the quarter and year ended December 31, 2008 was 31.0% and 25.2% compared to 32.2% and 33.6% for the year ended December 31, 2007, respectively. The lower effective tax rate is largely attributable to the reduction in pre-tax income from the higher loan loss provision and other than temporary impairment losses on investments without a corresponding decrease in income from tax-exempt sources.
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 December 31, Percent 2008 2007 Change ---- ---- ------ Earnings ($000s, except per share data): Net Interest Income (FTE) $26,280 $24,264 8.31% Net Income 4,249 12,758 (66.70)% Earnings per Basic Share 0.26 0.78 (66.67)% Earnings per Diluted Share 0.26 0.78 (66.67)% Key Ratios (percent): Return on Average Assets 0.68% 2.05% (66.98)% Return on Average Tangible Equity 7.32% 21.56% (66.08)% Net Interest Margin 4.73% 4.32% 9.68% Efficiency Ratio 44.04% 46.15% (4.56)% Average Shareholders' Equity to Average Assets 11.53% 11.84% (2.62)% Consolidated Risk Based Capital Ratios (a): Tier I 11.91% 14.12% (15.65)% Total 13.09% 15.11% (13.37)% Tangible Equity to Tangible Assets 8.83% 9.72% (9.19)% Common Stock Data: Cash Dividends Declared per Share $0.34 $0.31 9.68% Book Value per Share 17.62 18.14 (2.86)% Tangible Book Value per Share 14.02 14.55 (3.63)% Market Value per Share: High 42.88 39.15 9.53% Low 29.08 33.41 (12.96)% End of Period 36.42 33.84 7.62% Twelve Months Ended December 31 Percent 2008 2007 Change ---- ---- ------ Earnings ($000s, except per share data): Net Interest Income (FTE) $102,575 $97,949 4.72% Net Income 28,109 51,026 (44.91)% Earnings per Basic Share 1.74 3.02 (42.38)% Earnings per Diluted Share 1.74 3.01 (41.19)% Key Ratios (percent): Return on Average Assets 1.12% 2.03% (44.70)% Return on Average Tangible Equity 11.44% 20.99% (45.48)% Net Interest Margin 4.64% 4.34% 6.96% Efficiency Ratio 46.33% 45.91% 0.91% Average Shareholders' Equity to Average Assets 12.12% 12.01% 0.90% Common Stock Data: Cash Dividends Declared per Share $1.36 $1.24 9.68% Market Value per Share: High 47.28 41.54 13.82% Low 29.08 31.16 (6.68)% Price/Earnings Ratio (b) 20.93 11.21 86.80% (a) December 31, 2008 risk-based capital ratios are estimated (b) December 31, 2008 price/earnings ratio computed based on 2008 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 -------- ------- ------------ ----------- --- ---- 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 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 Earnings per Basic Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date -------- ------- ------------ ----------- ------------ 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 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 Earnings per Diluted Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date -------- ------- ------------ ----------- ------------ 2004 $0.65 $0.79 $0.65 $0.66 $2.75 2005 0.69 0.71 0.72 0.72 2.84 2006 0.71 0.77 0.77 0.74 2.99 2007 0.76 0.72 0.76 0.78 3.01 2008 0.80 0.83 (0.16) 0.26 1.74 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Three Months Ended December 31, 2008 2007 ---- ---- Interest Income Interest and fees on loans $30,465 $32,477 Interest on investment securities: Taxable 5,818 5,968 Tax-exempt 372 420 Interest on deposits in depository institutions 8 119 Interest on federal funds sold - 5 - - Total Interest Income 36,663 38,989 Interest Expense Interest on deposits 9,926 12,847 Interest on short-term borrowings 343 1,677 Interest on long-term debt 313 426 --- --- Total Interest Expense 10,582 14,950 ------ ------ Net Interest Income 26,081 24,039 Provision for loan losses 5,340 1,650 ----- ----- Net Interest Income After Provision for Loan Losses 20,741 22,389 Non-Interest Income Investment securities (losses) gains (10,800) 1 Service charges 11,459 11,735 Insurance commissions 981 1,119 Trust and investment management fee income 518 514 Bank owned life insurance 739 600 Other income 284 312 --- --- Total Non-Interest Income 3,181 14,281 Non-Interest Expense Salaries and employee benefits 8,845 8,759 Occupancy and equipment 1,773 1,604 Depreciation 1,193 1,133 Professional fees 451 424 Postage, delivery, and statement mailings 641 601 Advertising 818 590 Telecommunications 562 456 Bankcard expenses 711 617 Insurance and regulatory 363 422 Office supplies 533 469 Repossessed asset losses (gains), net of expenses 87 (105) Other expenses 1,789 2,891 ----- ----- Total Non-Interest Expense 17,766 17,861 ------ ------ Income Before Income Taxes 6,156 18,809 Income tax expense 1,907 6,051 ----- ----- Net Income $4,249 $12,758 ====== ======= Basic earnings per share $0.26 $0.78 Diluted earnings per share $0.26 $0.78 Average Common Shares Outstanding: Basic 16,078 16,359 Diluted 16,100 16,414 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Twelve months ended December 31 2008 2007 ---- ---- Interest Income Interest and fees on loans $122,127 $128,609 Interest on investment securities: Taxable 23,852 25,677 Tax-exempt 1,523 1,689 Interest on deposits in depository institutions 171 521 Interest on federal funds sold - 819 - --- Total Interest Income 147,673 157,315 Interest Expense Interest on deposits 41,906 51,826 Interest on short-term borrowings 2,629 6,642 Interest on long-term debt 1,383 1,808 ----- ----- Total Interest Expense 45,918 60,276 ------ ------ Net Interest Income 101,755 97,039 Provision for loan losses 10,423 5,350 ------ ----- Net Interest Income After Provision for Loan Losses 91,332 91,689 Non-Interest Income Investment securities (losses) gains (38,265) 45 Service charges 45,995 44,416 Insurance commissions 4,212 4,090 Trust and investment management fee income 2,239 2,042 Bank owned life insurance 2,932 2,477 Gain on sale of credit card merchant agreements - 1,500 VISA IPO Gain 3,289 - Other income 1,534 1,566 ----- ----- Total Non-Interest Income 21,936 56,136 Non-Interest Expense Salaries and employee benefits 37,263 36,034 Occupancy and equipment 6,871 6,366 Depreciation 4,523 4,472 Professional fees 1,680 1,628 Postage, delivery, and statement mailings 2,549 2,588 Advertising 2,899 3,123 Telecommunications 1,916 1,809 Bankcard expenses 2,689 2,354 Insurance and regulatory 1,388 1,555 Office supplies 2,021 1,838 Repossessed asset losses (gains), net of expenses 524 (157) Loss on early extinguishment of debt 1,208 - Other expenses 10,141 9,403 ------ ----- Total Non-Interest Expense 75,672 71,013 ------ ------ Income Before Income Taxes 37,596 76,812 Income tax expense 9,487 25,786 ----- ------ Net Income $28,109 $51,026 ======= ======= Basic earnings per share $1.74 $3.02 Diluted earnings per share $1.74 $3.01 Average Common Shares Outstanding: Basic 16,118 16,877 Diluted 16,167 16,935 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited) ($ in 000s) Three Months Ended December 31, 2008 December 31, 2007 ----------------- ----------------- Balance at October 1 $284,912 $291,720 Net income 4,249 12,758 Other comprehensive income: Change in unrealized gain on securities available-for-sale 5,003 783 Change in underfunded pension liability (2,284) 696 Change in unrealized gain on interest rate floors 1,159 3,550 Cash dividends declared ($0.34/share) (5,425) - Cash dividends declared ($0.31/share) - (5,025) Issuance of stock award shares, net 69 56 Exercise of 200 stock options 3 - Purchase of 232,100 common shares of treasury (7,257) - Purchase of 300,112 common shares of treasury - (10,544) - ------- Balance at December 31 $280,429 $293,994 ======== ======== Twelve Months Ended December 31, 2008 December 31, 2007 ----------------- ----------------- Balance at January 1 $293,994 $305,307 Cumulative effect of adopting FIN 48 - (125) Net income 28,109 51,026 Other comprehensive income: Change in unrealized (loss) gain on securities available-for-sale (13,845) 866 Change in unrealized gain on interest rate floors 4,897 4,600 Change in underfunded pension liability (2,284) 696 Cash dividends declared ($1.36/share) (21,882) - Cash dividends declared ($1.24/share) - (20,728) Issuance of stock award shares, net 479 427 Exercise of 66,454 stock options 1,669 - Exercise of 7,300 stock options - 154 Excess tax benefits on stock compensation 266 3 Purchase of 337,060 common shares of treasury (10,974) - Purchase of 1,314,112 common shares of treasury - (48,232) - ------- Balance at December 31 $280,429 $293,994 ======== ======== CITY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Quarterly Statements of Income (Unaudited) ($ in 000s, except per share data) Quarter Ended December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Interest income $36,663 $36,522 $36,968 $37,520 $38,989 Taxable equivalent adjustment 200 200 204 214 226 --- --- --- --- --- Interest income (FTE) 36,863 36,722 37,172 37,734 39,215 Interest expense 10,582 10,241 11,494 13,601 14,950 ------ ------ ------ ------ ------ Net interest income 26,281 26,481 25,678 24,133 24,265 Provision for loan losses 5,340 2,350 850 1,883 1,650 ----- ----- --- ----- ----- Net interest income after provision for loan losses 20,941 24,131 24,828 22,250 22,615 Noninterest income 3,181 (12,758) 14,195 17,318 14,281 Noninterest expense 17,766 19,246 18,761 19,899 17,861 ------ ------ ------ ------ ------ Income (Loss) before income taxes 6,356 (7,873) 20,262 19,669 19,035 Income tax expense (benefit) 1,907 (5,516) 6,679 6,417 6,051 Taxable equivalent adjustment 200 200 204 214 226 --- --- --- --- --- Net income (loss) $4,249 $(2,557) $13,379 $13,038 $12,758 ====== ======= ======= ======= ======= Basic earnings (loss) per share $0.26 $(0.16) $0.83 $0.81 $0.78 Diluted earnings (loss) per share 0.26 (0.16) 0.83 0.80 0.78 Cash dividends declared per share 0.34 0.34 0.34 0.34 0.31 Average Common Share (000s): Outstanding 16,078 16,142 16,103 16,147 16,359 Diluted 16,100 16,195 16,167 16,205 16,414 Net Interest Margin 4.73% 4.78% 4.65% 4.40% 4.32% CITY HOLDING COMPANY AND SUBSIDIARIES Non-Interest Income and Non-Interest Expense (Unaudited) ($ in 000s) Quarter Ended December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Non-Interest Income: Service charges $11,459 $11,993 $11,269 $11,274 $11,735 Insurance commissions 981 1,025 1,168 1,038 1,119 Trust and investment management fee income 518 640 449 632 514 Bank owned life insurance 739 767 750 676 600 Other income 284 284 559 407 312 --- --- --- --- --- Subtotal 13,981 14,709 14,195 14,027 14,280 Investment securities (losses) gains (10,800) (27,467) - 2 1 VISA IPO Gain - - - 3,289 - - - - ----- - Total Non-Interest Income $3,181 $(12,758) $14,195 $17,318 $14,281 ====== ======== ======= ======= ======= Non-Interest Expense: Salaries and employee benefits $8,845 $9,538 $9,517 $9,363 $8,759 Occupancy and equipment 1,773 1,800 1,701 1,597 1,604 Depreciation 1,193 1,110 1,087 1,133 1,133 Professional fees 451 435 427 367 424 Postage, delivery, and statement mailings 641 636 618 654 601 Advertising 818 821 643 617 590 Telecommunications 562 496 440 418 456 Bankcard expenses 711 717 640 621 617 Insurance and regulatory 363 354 333 338 422 Office supplies 533 527 504 457 469 Repossessed asset losses (gains), net of expenses 87 314 91 32 (105) Loss on early extinguishment of debt - - - 1,208 - Other expenses 1,789 2,498 2,760 3,094 2,891 ----- ----- ----- ----- ----- Total Non-Interest Expense $17,766 $19,246 $18,761 $19,899 $17,861 ======= ======= ======= ======= ======= Employees (Full Time Equivalent) 827 812 817 821 811 Branch Locations 69 69 68 69 69 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000s) December 31 December 31 2008 2007 ---- ---- (Unaudited) Assets Cash and due from banks $55,511 $64,726 Interest-bearing deposits in depository institutions 4,118 9,792 Cash and cash equivalents 59,629 74,518 Investment securities available-for-sale, at fair value 424,214 382,098 Investment securities held- to-maturity, at amortized cost 29,067 34,918 ------ ------ Total investment securities 453,281 417,016 Gross loans 1,812,344 1,767,021 Allowance for loan losses (22,254) (17,581) ------- ------- Net loans 1,790,090 1,749,440 Bank owned life insurance 70,400 64,467 Premises and equipment 60,138 54,635 Accrued interest receivable 9,024 11,254 Net deferred tax assets 48,462 20,633 Intangible assets 57,479 58,238 Other assets 33,943 32,566 ------ ------ Total Assets $2,582,446 $2,482,767 ========== ========== Liabilities Deposits: Noninterest-bearing $298,530 $314,231 Interest-bearing: Demand deposits 420,554 397,510 Savings deposits 354,956 350,607 Time deposits 967,090 927,733 ------- ------- Total deposits 2,041,130 1,990,081 Short-term borrowings 194,463 161,916 Long-term debt 19,047 4,973 Other liabilities 47,376 31,803 ------ ------ Total Liabilities 2,302,016 2,188,773 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 December 31, 2008 and December 31, 2007 less 2,548,538 and 2,292,357 shares in treasury, respectively 46,249 46,249 Capital surplus 102,895 103,390 Retained earnings 230,613 224,386 Cost of common stock in treasury (88,729) (80,664) Accumulated other comprehensive (loss) income: Unrealized loss on securities available-for-sale (15,628) (1,783) Unrealized gain on derivative instruments 9,287 4,390 Underfunded pension liability (4,258) (1,974) ------ ------ Total Accumulated Other Comprehensive (Loss) Income (10,599) 633 ------- --- Total Stockholders' Equity 280,429 293,994 ------- ------- Total Liabilities and Stockholders' Equity $2,582,446 $2,482,767 ========== ========== CITY HOLDING COMPANY AND SUBSIDIARIES Investment Portfolio (Unaudited) ($ in 000s) Other Than Temporary Impairment Unrealized Original Charges thru Gains Carrying Cost 12/31/08 (Losses) Value --------- ------------- ----------- --------- FNMA & FHLMC Preferred Stock $22,680 $(21,089) $(1,115) $475 Mortgage Backed Securities 284,647 - 3,686 288,333 Municipal Bonds 44,794 - (539) 44,255 Pooled Bank Trust Preferreds 29,692 (16,180) (10,098) 3,414 Single Issuer Bank Trust Preferreds, Subdebt of Financial Institutions, And Bank Holding Company Preferred Stocks 112,723 (1,000) (15,269) 96,454 Money Markets and Mutual Funds 1,859 - (35) 1,824 Federal Reserve Bank and FHLB stock 13,037 - - 13,037 Community Bank Equity Positions 7,887 - (2,398) 5,489 ----- - ------ ----- Total Investments $517,319 $(38,270) $(25,768) $453,281 ======== ======== ======== ======== CITY HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in 000s) December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Residential real estate $611,962 $620,951 $612,676 $605,579 $602,057 Home equity 384,320 377,919 371,537 347,986 341,818 Commercial, financial, and agriculture 768,255 729,613 715,196 699,653 707,987 Loans to depository institutions - - - - 60,000 Installment loans to individuals 43,585 44,728 45,385 45,557 48,267 Previously securitized loans 4,222 4,520 5,253 6,025 6,892 ----- ----- ----- ----- ----- Gross Loans $1,812,344 $1,777,731 $1,750,047 $1,704,800 $1,767,021 ========== ========== ========== ========== ========== CITY HOLDING COMPANY AND SUBSIDIARIES Previously Securitized Loans (Unaudited) ($ in millions) Annualized Effective December 31 Interest Annualized Year Ended: Balance (a) Income (a) Yield (a) ----------- ---------- --------- 2007 $6.9 $7.3 69% 2008 4.2 5.6 108% 2009 3.7 4.1 108% 2010 3.1 3.4 108% 2011 2.6 2.9 108% a - 2007 and 2008 amounts are based on actual results. 2009, 2010, and 2011 amounts are based on estimated amounts. Note: The amounts reflected in the table above require management to make significant assumptions based on estimated future default, prepayment, and discount rates. Actual performance could be significantly different from that assumed, which could result in the actual results being materially different from the amounts estimated above. CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months Ended December 31, 2008 2007 Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- Assets: Loan portfolio: Residential real estate $616,944 $9,308 6.00% $599,087 $9,429 6.24% Home equity 379,884 6,746 7.06% 339,783 6,432 7.51% Commercial, financial, and agriculture 737,454 11,882 6.41% 685,292 12,652 7.32% Loans to depository institutions - - - 60,000 777 5.14% Installment loans to individuals 49,335 1,250 10.08% 47,645 1,459 12.15% Previously securitized loans 4,244 1,279 119.89% 7,359 1,728 93.16% ----- ----- ------ ----- ----- ----- Total loans 1,787,861 30,465 6.78% 1,739,166 32,477 7.41% Securities: Taxable 381,810 5,817 6.06% 442,627 5,968 5.35% Tax-exempt 34,202 573 6.66% 39,133 645 6.54% ------ --- ---- ------ --- ---- Total securities 416,012 6,390 6.11% 481,760 6,613 5.45% Deposits in depository institutions 4,855 8 0.66% 9,322 120 5.11% Federal funds sold - - - 435 5 4.56% - - - --- - ---- Total interest- earning assets 2,208,728 36,863 6.64% 2,230,683 39,215 6.97% Cash and due from banks 55,633 50,695 Bank premises and equipment 60,058 53,006 Other assets 208,321 174,938 Less: Allowance for loan losses (19,082) (17,273) ------- ------- Total assets $2,513,658 $2,492,049 ========== ========== Liabilities: Interest- bearing demand deposits 402,000 596 0.59% 404,613 989 0.97% Savings deposits 354,661 843 0.95% 346,955 1,446 1.65% Time deposits 957,064 8,487 3.53% 922,671 10,413 4.48% Short-term borrowings 137,533 343 0.99% 166,535 1,677 4.00% Long-term debt 21,037 314 5.94% 21,828 426 7.74% ------ --- ---- ------ --- ---- Total interest- bearing liabilities 1,872,295 10,583 2.25% 1,862,602 14,951 3.18% Noninterest- bearing demand deposits 327,145 306,108 Other liabilities 24,465 28,350 Stockholders' equity 289,755 294,989 ------- ------- Total liabilities and stockholders' equity $2,513,660 $2,492,049 ========== ======= ========== ======= Net interest income $26,280 $24,264 ======= ==== ======= ==== Net yield on earning assets 4.73% 4.32% ==== ==== CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Twelve Months Ended December 31, 2008 2007 Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- Assets: Loan portfolio: Residential real estate $607,851 $37,495 6.17% $597,216 $36,574 6.12% Home equity 364,325 26,266 7.21% 330,997 25,524 7.71% Commercial, financial, and agriculture 713,767 47,445 6.65% 675,598 50,771 7.51% Loans to depository institutions 1,161 35 3.01% 57,315 3,048 5.32% Installment loans to individuals 51,542 5,264 10.21% 46,112 5,426 11.77% Previously securitized loans 5,200 5,622 108.12% 10,518 7,266 69.08% ----- ----- ------ ------ ----- ----- Total loans 1,743,846 122,127 7.00% 1,717,756 128,609 7.49% Securities: Taxable 422,708 23,852 5.64% 472,438 25,677 5.43% Tax-exempt 35,738 2,344 6.56% 39,623 2,599 6.56% ------ ----- ---- ------ ----- ---- Total Securities 458,446 26,196 5.71% 512,061 28,276 5.52% Deposits in depository institutions 7,944 171 2.15% 11,940 521 4.36% Federal funds sold - - - 15,690 819 5.22% - - - ------ --- ---- Total interest- earning assets 2,210,236 148,494 6.72% 2,257,447 158,225 7.01% Cash and due from banks 57,624 50,675 Bank premises and equipment 57,183 48,929 Other assets 195,822 171,347 Less: Allowance for loan losses (18,452) (16,406) ------- ------- Total Assets $2,502,413 $2,511,992 ========== ========== Liabilities: Interest-bearing demand deposits 409,799 2,576 0.63% 418,532 4,766 1.14% Savings deposits 359,754 3,640 1.01% 342,119 5,705 1.67% Time deposits 921,971 35,691 3.87% 922,886 41,355 4.48% Short-term borrowings 136,867 2,629 1.92% 160,338 6,642 4.14% Long-term debt 21,506 1,383 6.43% 24,476 1,808 7.39% ------ ----- ---- ------ ----- ---- Total interest- bearing liabilities 1,849,897 45,919 2.48% 1,868,351 60,276 3.23% Noninterest- bearing demand deposits 323,551 312,567 Other liabilities 25,775 29,435 Stockholders' equity 303,191 301,639 ------- ------- Total liabilities and stockholders' equity $2,502,414 $2,511,992 ========== ========== Net interest income $102,575 $97,949 ======== ======= Net yield on earning assets 4.64% 4.34% ==== ==== CITY HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital (Unaudited) ($ in 000s) December 31 September 30 June 30 March 31 Dec. 31 2008 (a) 2008 2008 2008 2007 -------- ---- ---- ---- ---- Tier I Capital: Stockholders' equity $280,429 $284,912 $302,056 $304,841 $293,994 Goodwill and other intangibles (57,479) (57,600) (57,893) (58,065) (58,238) Accumulated other comprehensive loss (income) 10,599 14,477 3,718 (7,280) (633) Qualifying trust preferred stock 16,000 16,000 16,000 16,000 16,000 Unrealized Loss on AFS securities (3,342) (761) (712) (275) (247) Excess deferred tax assets (23,841) (15,470) - - - ------- ------- - - - Total tier I capital $222,366 $241,558 $263,169 $255,221 $250,876 ======== ======== ======== ======== ======== Total Risk- Based Capital: Tier I capital $222,366 $241,558 $263,169 $255,221 $250,876 Qualifying allowance for loan losses 22,254 18,879 17,959 18,567 17,581 ------ ------ ------ ------ ------ Total risk- based capital $244,620 $260,437 $281,128 $273,788 $268,457 ======== ======== ======== ======== ======== Net risk- weighted assets $1,875,934 $1,842,684 $1,855,401 $1,828,559 $1,776,158 Ratios: Average stockholders' equity to average assets 11.53% 12.45% 12.46% 12.03% 11.84% Tangible capital ratio 8.83% 9.44% 10.02% 10.00% 9.72% Risk-based capital ratios: Tier I capital 11.85% 13.11% 14.18% 13.96% 14.12% Total risk- based capital 13.04% 14.13% 15.15% 14.97% 15.11% Leverage capital 9.14% 9.97% 10.75% 10.47% 10.31% (a) December 31, 2008 risk-based capital ratios are estimated CITY HOLDING COMPANY AND SUBSIDIARIES Intangibles (Unaudited) ($ in 000s) As of and for the Quarter Ended December 31 September 30 June 30 March 31 Dec 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Intangibles, net $57,479 $57,600 $57,893 $58,065 $58,238 Intangibles amortization expense 121 173 172 173 177 CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan Loss Experience (Unaudited) ($ in 000s) Quarter Ended December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Balance at beginning of period $18,879 $17,959 $18,567 $17,581 $16,980 Charge-offs: Commercial, financial, and agricultural 1,073 563 1,022 406 359 Real estate- mortgage 603 523 190 274 203 Installment loans to individuals 29 62 77 75 108 Overdraft deposit accounts 779 783 604 985 938 --- --- --- --- --- Total charge-offs 2,484 1,931 1,893 1,740 1,608 Recoveries: Commercial, financial, and agricultural 14 (30) 41 13 23 Real estate- mortgage 79 69 48 27 36 Installment loans to individuals 45 71 72 108 97 Overdraft deposit accounts 381 391 274 695 405 --- --- --- --- --- Total recoveries 519 501 435 843 561 Net charge-offs 1,965 1,430 1,458 897 1,047 Provision for loan losses 5,340 2,350 850 1,883 1,650 ----- ----- --- ----- ----- Balance at end of period $22,254 $18,879 $17,959 $18,567 $17,583 ======= ======= ======= ======= ======= Loans outstanding $1,812,344 $1,777,731 $1,750,047 $1,704,800 $1,767,021 ---------- ---------- ---------- ---------- ---------- Average loans outstanding 1,787,861 1,754,183 1,728,609 1,704,133 1,739,166 --------- --------- --------- --------- --------- Allowance as a percent of loans outstanding 1.23% 1.06% 1.03% 1.09% 1.00% ---- ---- ---- ---- ---- Allowance as a percent of non- performing loans 86.07% 135.92% 122.89% 113.55% 103.28% ----- ------ ------ ------ ------ Net charge-offs (annualized) as a percent of average loans outstanding 0.44% 0.33% 0.34% 0.21% 0.24% ---- ---- ---- ---- ---- Net charge-offs, excluding overdraft deposit accounts, (annualized) as a percent of average loans outstanding 0.35% 0.24% 0.26% 0.14% 0.12% ---- ---- ---- ---- ---- CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Non-Performing Assets (Unaudited) ($ in 000s) December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Nonaccrual loans $25,224 $13,709 $14,018 $15,840 $16,437 Accruing loans past due 90 days or more 623 141 431 257 314 Previously securitized loans past due 90 days or more 10 40 165 255 76 -- -- --- --- -- Total non-performing loans 25,857 13,890 14,614 16,352 16,827 Other real estate owned, excluding property associated with previously securitized loans 3,469 3,332 6,164 4,192 4,163 Other real estate owned associated with previously securitized loans 400 417 321 148 - --- --- --- --- - Other real estate owned 3,869 3,749 6,485 4,340 4,163 ----- ----- ----- ----- ----- Total non-performing assets $29,726 $17,639 $21,099 $20,692 $20,990 ======= ======= ======= ======= ======= Non-performing assets as a percent of loans and other real estate owned 1.64% 0.99% 1.20% 1.21% 1.20% CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Total Past Due Loans (Unaudited) ($ in 000s) December 31 September 30 June 30 March 31 Dec. 31 2008 2008 2008 2008 2007 ---- ---- ---- ---- ---- Residential real estate $6,179 $3,636 $5,487 $3,763 $5,480 Home equity 1,243 1,400 1,316 1,344 2,141 Commercial, financial, and agriculture 1,679 1,741 1,166 806 1,506 Loans to depository institutions - - - - - Installment loans to individuals 241 216 290 360 385 Previously securitized loans 999 598 632 897 1,099 Overdraft deposit accounts 592 491 485 568 612 --- --- --- --- --- Total past due loans $10,933 $8,082 $9,376 $7,738 $11,223 ======= ====== ====== ====== =======
