City Holding Company Announces First Quarter Results

CHARLESTON, W. Va.–(BUSINESS WIRE)–City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $4.9 billion
bank holding company headquartered in Charleston, West Virginia, today
announced quarterly net income of $21.6 million and diluted earnings of
$1.30 per share for the quarter ended March 31, 2019. For the first
quarter of 2019, the Company achieved a return on assets of 1.76% and a
return on tangible equity of 17.7%. In addition, reported net interest
income increased $7.4 million (22.7%) from the quarter ended March 31,
2018, while net interest income exclusive of accretion from fair value
adjustments from acquisitions increased $7.2 million (22.2%) from the
quarter ended March 31, 2018.

Net Interest Income

The Company’s net interest income increased from $36.4 million during
the fourth quarter of 2018 to $40.1 million during the first quarter of
2019. During the first quarter of 2019, the Company’s tax equivalent net
interest income increased $3.6 million, or 10.0%, from $36.6 million for
the fourth quarter of 2018 to $40.3 million for the first quarter of
2019. The acquisitions of Poage and Farmers Deposit accounted for $3.0
million of this increase. In addition, higher loan yields (22 basis
points) increased net interest income by $1.1 million while higher
average loan balances ($59.1 million) increased net interest income by
$0.6 million. These increases were partially offset by an increase in
rates paid on deposits ($0.5 million) and decreased income from deposits
in depository institutions ($0.4 million). The Company’s reported net
interest margin increased from 3.55% for the fourth quarter of 2018 to
3.66% for the first quarter of 2019. Excluding the favorable impact of
the accretion from fair value adjustments, the net interest margin would
have been 3.61% for the quarter ended March 31, 2019 and 3.50% for the
quarter ended December 31, 2018.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other
real estate owned improved from 0.54% at December 31, 2018 to 0.43% at
March 31, 2019. Total nonperforming assets decreased from $19.4 million
at December 31, 2018 to $15.4 million at March 31, 2019. Excluded from
this ratio are purchased credit-impaired loans for which the Company
estimated cash flows and estimated a credit mark. Such loans would be
considered nonperforming loans if the loan’s performance deteriorates
below the Company’s initial expectations. Total past due loans decreased
from $13.1 million, or 0.37% of total loans outstanding, at December 31,
2018 to $11.0 million, or 0.31% of total loans outstanding, at March 31,
2019.

As a result of the Company’s quarterly analysis of the adequacy of the
allowance for loan losses (“ALLL”), the Company recorded a recovery of
loan loss provision of $0.8 million in the first quarter of 2019,
compared to a provision for loan loss provision of $0.2 million for the
comparable period in 2018 and a recovery of loan loss provision of $0.4
million for the fourth quarter of 2018. The recovery of loan loss
provision recorded in the first quarter of 2019 reflects a general
improvement in the Company’s historical loss rates used to compute the
allowance not specifically allocated to individual credits and a modest
decline in loans outstanding from December 31, 2018. 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.

Non-interest Income

Non-interest income was $15.9 million for the first quarter of 2019 as
compared to $14.5 million for the first quarter of 2018. During the
first quarter of 2019, the Company realized a security gain of $0.1
million due to the call of a security and $0.1 million of unrealized
fair value gains on the Company’s equity securities compared to $0.3
million of unrealized fair value gains on the Company’s equity
securities in the first quarter of 2018. The Company’s portfolio of
equity securities is comprised primarily of equity investments in
community bank holding companies and perpetual preferred securities of
national bank holding companies. As of April 17, 2019, the Company’s
portfolio of community bank holding company equities consists primarily
of the following: First National Corporation (FXNC) (4.0% ownership);
Eagle Financial Services, Inc. (EFSI) (1.5% ownership); Summit Financial
Corporation (SMMF) (<1% ownership); Potomac Bancshares, Inc. (PTBS) (<1% ownership). Exclusive of these gains, non-interest income increased from $14.2 million for the first quarter of 2018 to $15.8 million for the first quarter of 2019. This increase was largely attributable to an increase of $0.6 million, or 14.7%, in bankcard revenues and an increase of $0.5 million, or 6.7%, in service charges, with $0.4 million and $0.3 million, respectively, attributable to the acquisitions of Poage and Farmers Deposit. In addition, bank owned life insurance revenues increased $0.2 million due to death benefit proceeds received in the first quarter of 2019 and other income increased $0.2 million.

Non-interest Expenses

During the quarter ended March 31, 2019, the Company incurred an
additional $0.3 million of acquisition and integration expenses
associated with the acquisitions of Poage and Farmers Deposit. Excluding
this expense, non-interest expenses increased $4.2 million (16.9%
increase), from $24.9 million in the first quarter of 2018 to $29.2
million in the first quarter of 2019. This increase was primarily due to
an increase in salaries and employee benefits of $2.0 million due
primarily to the acquisitions of Poage and Farmers Deposit ($0.9
million) and annual salary adjustments ($0.7 million). In addition,
other expenses increased $1.1 million, equipment and software related
expenses increased $0.4 million and occupancy related expenses increased
$0.3 million. These increases were primarily attributable to the
acquisitions of Poage and Farmers Deposit.

Balance Sheet Trends

Loans decreased $28.3 million (0.8%) from December 31, 2018 to $3.56
billion at March 31, 2019. Commercial real estate loans decreased $18.8
million (1.3%), residential real estate loans decreased $9.7 million
(0.6%), and home equity loans decreased $1.2 million (0.8%). These
decreases were partially offset by an increase in commercial and
industrial loans of $3.0 million (1.1%).

Total average depository balances increased $380.0 million, or 10.5%,
from the quarter ended December 31, 2018 to the quarter ended March 31,
2019. This growth was primarily attributable to deposits acquired from
Poage and Farmers Deposit ($472.0 million) that were outstanding for the
entire quarter ended March 31, 2019, as compared to less than one month
during the quarter ended December 31, 2018. Exclusive of this
contribution, average time deposit balances increased $28.5 million, and
average savings deposit balances increased $15.1 million. These
increases were partially offset by lower noninterest-bearing demand
deposit balances of $12.6 million.

Income Tax Expense

The Company’s effective income tax rate for the first quarter of 2019
was 21.2% compared to 20.5% for the year ended December 31, 2018, and
20.0% for the quarter ended March 31, 2018.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 88.0% and the loan to asset
ratio was 72.4% at March 31, 2019. The Company maintained investment
securities totaling 17.0% of assets as of the same date. The Company’s
deposit mix is weighted heavily toward checking and saving accounts,
which fund 54.1% of assets at March 31, 2019. Time deposits fund 28.1%
of assets at March 31, 2019, but very few of these deposits are in
accounts that have balances of more than $250,000, reflecting the core
retail orientation of the Company.

The Company is also strongly capitalized. The Company’s tangible equity
ratio increased from 10.0% at December 31, 2018 to 10.4% at March 31,
2019. At March 31, 2019, City National Bank’s Leverage Ratio was 9.45%,
its Common Equity Tier I ratio was 13.89%, its Tier I Capital ratio was
13.89%, and its Total Risk-Based Capital ratio was 14.36%. These
regulatory capital ratios are significantly above levels required to be
considered “well capitalized,” which is the highest possible regulatory
designation.

On March 27, 2019, the Board of Directors of the Company approved a
quarterly cash dividend of $0.53 per share payable April 30, 2019, to
shareholders of record as of April 15, 2019. On February 27, 2019, the
Company announced that the Board of Directors authorized the Company to
buy back up to 1,000,000 shares of its common stock (approximately 6% of
outstanding shares) in open market transactions at prices that are
accretive to the earnings per share of continuing shareholders. No time
limit was placed on the duration of the share repurchase program. As
part of this authorization, the Company terminated its previous
repurchase program that was approved in September 2014. The Company had
repurchased 888,243 shares under the 2014 program. During the quarter
ended March 31, 2019, the Company repurchased 55,000 common shares at a
weighted average price of $74.69. As of March 31, 2019, the Company
could repurchase approximately 945,000 additional shares under the
current program.

City Holding Company is the parent company of City National Bank of West
Virginia. City National Bank operates 97 branches across West Virginia,
Kentucky, Virginia, and 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.
Forward-looking
statements express only management’s beliefs regarding future results or
events and are subject to inherent uncertainty, risks, and changes in
circumstances, many of which are outside of management’s control.
Uncertainty,
risks, changes in circumstances and other factors could cause the
Company’s actual results to differ materially from those projected in
the forward-looking statements. Factors that could cause actual results
to differ from those discussed in such forward-looking statements
include, but are not limited to those set forth in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018 under
“ITEM 1A Risk Factors” and the following: (1) general economic
conditions, especially in the communities and markets in which we
conduct our business; (2) credit risk, including risk that negative
credit quality trends may lead to a deterioration of asset quality, risk
that our allowance for loan losses may not be sufficient to absorb
actual losses in our loan portfolio, and risk from concentrations in our
loan portfolio; (3) changes in the real estate market, including the
value of collateral securing portions of our loan portfolio; (4) changes
in the interest rate environment; (5) operational risk, including
cybersecurity risk and risk of fraud, data processing system failures,
and network breaches; (6) changes in technology and increased
competition, including competition from non-bank financial institutions;
(7) changes in consumer preferences, spending and borrowing habits,
demand for our products and services, and customers’ performance and
creditworthiness; (8) difficulty growing loan and deposit balances; (9)
our ability to effectively execute our business plan, including with
respect to future acquisitions; (10) changes in regulations, laws,
taxes, government policies, monetary policies and accounting policies
affecting bank holding companies and their subsidiaries; (11)
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; (12) regulatory enforcement
actions and adverse legal actions; (13) difficulty attracting and
retaining key employees; (14) the expected cost savings and any revenue
synergies from the merger of City Holding Company, City National Bank of
West Virginia, Poage Bankshares, Inc., Town Square Bank, Farmers Deposit
Bancorp, Inc. and Farmers Deposit Bank may not be fully realized within
the expected time frames; (15) the disruption from the merger of City
Holding Company, City National Bank of West Virginia, Poage Bankshares,
Inc., Town Square Bank, Farmers Deposit Bancorp, Inc. and Farmers
Deposit Bank may make it more difficult to maintain relationships with
clients, associates, or suppliers; and (16) other economic, competitive,
technological, operational, governmental, regulatory, and market factors
affecting our operations.
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.
Further, the Company is required to evaluate
subsequent events through the filing of its March 31, 2019 Form 10-Q.

The Company will continue to evaluate the impact of any subsequent
events on the preliminary March 31, 2019 results and will adjust the
amounts if necessary
.

 
CITY HOLDING COMPANY AND SUBSIDIARIES
Financial Highlights
(Unaudited)
         
Three Months Ended
March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
 
Earnings
Net Interest Income (fully taxable equivalent) $ 40,274 $ 36,625 $ 35,745 $ 33,760 $ 32,834
Net Income available to common shareholders 21,619 10,713 20,692 20,979 17,616
 
Per Share Data
Earnings per share available to common shareholders:
Basic $ 1.31 $ 0.68 $ 1.34 $ 1.36 $ 1.13
Diluted 1.30 0.68 1.33 1.35 1.13
Weighted average number of shares (in thousands):
Basic 16,411 15,603 15,340 15,326 15,414
Diluted 16,429 15,618 15,358 15,345 15,436
Period-end number of shares (in thousands) 16,484 16,555 15,449 15,452 15,439
Cash dividends declared $ 0.53 $ 0.53 $ 0.53 $ 0.46 $ 0.46
Book value per share (period-end) $ 37.57 $ 36.29 $ 33.14 $ 32.60 $ 31.86
Tangible book value per share (period-end) 30.18 28.87 28.08 27.53 26.78
Market data:
High closing price $ 80.21 $ 77.94 $ 82.79 $ 78.44 $ 72.87
Low closing price 67.58 66.36 75.54 67.95 65.03
Period-end closing price 76.19 67.59 76.80 75.23 68.56
Average daily volume (in thousands) 54 66 54 60 56
Treasury share activity:
Treasury shares repurchased (in thousands) 55 69 7 10 204
Average treasury share repurchase price $ 74.69 $ 72.89 $ 77.18 $ 69.26 $ 68.50
 
Key Ratios (percent)
Return on average assets 1.76 % 0.96 % 1.90 % 2.00 % 1.69 %
Return on average tangible equity 17.7 % 9.6 % 18.9 % 19.9 % 16.7 %
Yield on interest earning assets 4.46 % 4.32 % 4.25 % 4.15 % 4.05 %
Cost of interest bearing liabilities 1.04 % 1.00 % 0.92 % 0.76 % 0.69 %
Net Interest Margin 3.66 % 3.55 % 3.54 % 3.52 % 3.51 %
Non-interest income as a percent of total revenue 28.3 % 28.8 % 30.7 % 31.7 % 30.7 %
Efficiency Ratio

51.2

%

47.6

%

48.3

%

50.7

%

52.7

%

Price/Earnings Ratio (a)

14.58 24.82 14.37 13.88 15.17
 
Capital (period-end)
Average Shareholders’ Equity to Average Assets 12.49 % 12.05 % 11.81 % 11.88 % 12.05 %
Tangible equity to tangible assets 10.37 % 10.01 % 9.99 % 9.90 % 10.03 %

Consolidated City Holding Company risk based capital ratios (b):

CET I 15.55 % 15.07 % 15.94 % 15.49 % 15.08 %
Tier I 15.67 % 15.20 % 16.49 % 16.05 % 15.64 %
Total 16.13 % 15.69 % 17.08 % 16.65 % 16.31 %
Leverage 10.62 % 11.36 % 11.01 % 11.13 % 10.90 %

City National Bank risk based capital ratios (b):

CET I 13.89 % 13.05 % 14.00 % 13.26 % 12.59 %
Tier I 13.89 % 13.05 % 14.00 % 13.26 % 12.59 %
Total 14.36 % 13.55 % 14.59 % 13.87 % 13.25 %
Leverage 9.45 % 9.81 % 9.39 % 9.24 % 8.81 %
 
Other (period-end)
Branches 97 100 87 86 86
FTE 927 939 846 849 832
 
Assets per FTE (in thousands) $ 5,305 $ 5,498 $ 5,226 $ 5,152 $ 5,048
Deposits per FTE (in thousands) 4,361 4,462 4,070 4,030 4,143
 
 

(a) The price/earnings ratio is computed based on annualized
quarterly earnings.

(b) March 31, 2019 risk-based capital ratios are estimated.

 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited) ($ in 000s, except per share data)
         
Three Months Ended
March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
 
Interest Income
Interest and fees on loans $ 42,279 $ 37,973 $ 36,872 $ 34,292 $ 32,918
Interest on investment securities:
Taxable 5,689 5,023 4,216 4,117 3,981
Tax-exempt 779 729 701 710 703
Interest on deposits in depository institutions   186       623       940       61       42
Total Interest Income 48,933 44,348 42,729 39,180 37,644
 
Interest Expense
Interest on deposits 7,767 6,656 5,497 4,918 4,326
Interest on short-term borrowings 1,052 1,061 1,435 459 460
Interest on long-term debt   48       200       239       230       211
Total Interest Expense   8,867       7,917       7,171       5,607       4,997
Net Interest Income 40,066 36,431 35,558 33,573 32,647
(Recovery of) provision for loan losses   (849 )     (400 )     (27 )     (2,064 )     181
Net Interest Income After (Recovery of) Provision for Loan Losses 40,915 36,831 35,585 35,637 32,466
 
Non-Interest Income
Net gains on sale of investment securities 88
Unrealized gains (losses) recognized on securities still held 75 (1,246 ) 384 492 280
Service charges 7,321 7,921 7,598 7,323 6,862
Bankcard revenue 4,969 4,826 4,677 4,532 4,334
Trust and investment management fee income 1,642 1,737 1,579 1,645 1,568
Bank owned life insurance 1,016 734 813 722 821
Other income   814       734       702       897       627
Total Non-Interest Income 15,925 14,706 15,753 15,611 14,492
 
Non-Interest Expense
Salaries and employee benefits 15,243 14,017 13,576 13,551 13,241
Occupancy related expense 2,732 2,250 2,323 2,346 2,404
Equipment and software related expense 2,191 2,038 1,965 1,895 1,831
FDIC insurance expense 291 308 315 313 315
Advertising 869 530 808 849 787
Bankcard expenses 1,182 1,229 1,134 1,064 1,076
Postage, delivery, and statement mailings 624 527 537 515 578
Office supplies 386 313 364 329 313
Legal and professional fees 521 469 453 475 450
Telecommunications 726 401 408 441 500
Repossessed asset losses, net of expenses 216 207 156 112 370
Merger related expenses 250 13,015 242
Other expenses   4,180       2,874       2,759       3,021       3,072
Total Non-Interest Expense   29,411       38,178       25,040       24,911       24,937
Income Before Income Taxes 27,429 13,359 26,298 26,337 22,021
Income tax expense   5,810       2,646       5,606       5,358       4,405
Net Income Available to Common Shareholders $ 21,619     $ 10,713     $ 20,692     $ 20,979     $ 17,616
 
Distributed earnings allocated to common shareholders $ 8,661 $ 8,695 $ 8,109 $ 7,039 $ 7,023
Undistributed earnings allocated to common shareholders   12,772       1,928       12,382       13,729       10,398
Net earnings allocated to common shareholders $ 21,433     $ 10,623     $ 20,491     $ 20,768     $ 17,421
 
Average common shares outstanding 16,411 15,603 15,340 15,326 15,414
Shares for diluted earnings per share 16,429 15,618 15,358 15,345 15,436
 
Basic earnings per common share $ 1.31 $ 0.68 $ 1.34 $ 1.36 $ 1.13
Diluted earnings per common share $ 1.30 $ 0.68 $ 1.33 $ 1.35 $ 1.13
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000s)
 
  (Unaudited)     (Unaudited)   (Unaudited)   (Unaudited)
March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
 
Assets
Cash and due from banks $ 50,522 $ 55,016 $ 49,806 $ 43,466 $ 39,340
Interest-bearing deposits in depository institutions   93,328       67,975       256,104       222,058       84,438  
Cash and cash equivalents 143,850 122,991 305,910 265,524 123,778
 
Investment securities available-for-sale, at fair value 755,081 723,254 563,003 552,603 545,628
Investment securities held-to-maturity, at amortized cost 55,326 60,827 57,812 60,030 62,277
Other securities   26,182       28,810       28,875       28,920       22,165  
Total investment securities 836,589 812,891 649,690 641,553 630,070
 
Gross loans 3,559,322 3,587,608 3,146,697 3,155,468 3,137,681
Allowance for loan losses   (14,646 )     (15,966 )     (16,311 )     (16,876 )     (18,381 )
Net loans 3,544,676 3,571,642 3,130,386 3,138,592 3,119,300
 
Bank owned life insurance 114,256 113,544 105,372 104,773 104,052
Premises and equipment, net 78,747 78,383 72,484 72,482 72,920
Accrued interest receivable 13,657 12,424 11,449 9,348 9,528
Net deferred tax assets 12,734 17,338 15,653 14,528 14,467
Intangible assets 121,790 122,848 78,215 78,342 78,468
Other assets   51,309       46,951       51,643       49,241       47,432  
Total Assets $ 4,917,608     $ 4,899,012     $ 4,420,802     $ 4,374,383     $ 4,200,015  
 
Liabilities
Deposits:
Noninterest-bearing $ 793,633 $ 789,119 $ 672,042 $ 684,614 $ 703,209
Interest-bearing:
Demand deposits 879,279 899,568 802,490 785,933 816,976
Savings deposits 988,182 934,218 821,390 817,547 816,245
Time deposits   1,381,913       1,352,654       1,147,709       1,133,684       1,110,532  
Total deposits 4,043,007 3,975,559 3,443,631 3,421,778 3,446,962
Short-term borrowings
Federal Funds purchased 40,000 170,000 181,375
Customer repurchase agreements 194,683 221,911 220,124 196,635 195,375
Long-term debt 4,053 4,053 16,495 16,495 16,495
Other liabilities   56,624       56,725       58,526       54,346       49,306  
Total Liabilities 4,298,367 4,298,248 3,908,776 3,870,629 3,708,138
 
Stockholders’ Equity
Preferred stock
Common stock 47,619 47,619 47,619 47,619 47,619
Capital surplus 170,215 169,555 140,450 140,091 140,547
Retained earnings 498,847 485,967 484,017 471,515 457,650
Cost of common stock in treasury (91,589 ) (87,895 ) (136,783 ) (136,520 ) (137,420 )
Accumulated other comprehensive loss:
Unrealized gain (loss) on securities available-for-sale 20 (8,611 ) (18,244 ) (13,918 ) (11,486 )
Underfunded pension liability   (5,871 )     (5,871 )     (5,033 )     (5,033 )     (5,033 )
Total Accumulated Other Comprehensive Loss   (5,851 )     (14,482 )     (23,277 )     (18,951 )     (16,519 )
Total Stockholders’ Equity   619,241       600,764       512,026       503,754       491,877  
Total Liabilities and Stockholders’ Equity $ 4,917,608     $ 4,899,012     $ 4,420,802     $ 4,374,383     $ 4,200,015  
 
Regulatory Capital
Total CET 1 capital $ 504,148 $ 492,526 $ 457,580 $ 444,869 $ 430,044
Total tier 1 capital 508,148 496,526 473,580 460,869 446,044
Total risk-based capital 523,053 512,801 490,307 478,255 464,936
Total risk-weighted assets 3,241,989 3,267,357 2,871,241 2,871,561 2,851,330
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Loan Portfolio
(Unaudited) ($ in 000s)
         
 
March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
 
Residential real estate (1) $ 1,625,647 $ 1,635,338 $ 1,485,823 $ 1,472,916 $ 1,465,215
Home equity – junior liens 152,251 153,496 143,540 139,245 138,477
Commercial and industrial 289,327 286,314 213,815 213,687 204,592
Commercial real estate (2) 1,436,190 1,454,942 1,268,052 1,294,489 1,296,304
Consumer 52,483 51,190 31,869 31,137 29,570
DDA overdrafts   3,424     6,328     3,598     3,994     3,523
Gross Loans $ 3,559,322   $ 3,587,608   $ 3,146,697   $ 3,155,468   $ 3,137,681
 
Construction loans included in:
(1) – Residential real estate loans $ 22,635 $ 21,834 $ 17,628 $ 21,662 $ 26,610
(2) – Commercial real estate loans 56,282 37,869 24,110 28,567 30,857
 

Contacts

Charles R. Hageboeck, Chief Executive Officer and President
(304)
769-1102

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