Are Diversified Financials the Way to Go?
Let's not mince words, the economy is crap right now. The financial services industry might be the single industry that is heavily tied to economic malaise, and as such, is performing poorly as well. However, investors still seek to maintain diverse portfolios, which includes finding impressive companies in the financial services. However, are there any that are able to withstand poor economic conditions?
City Holding Company (NASDAQ: CHCP) is a bank holding company that operates banks in West Virginia, Kentucky, and Ohio. It is a diversified financial services company that maintains normal commercial banking activities along with lending activities, specifically for commercial, retail, and home equity lines of credit.
City Holding has been able to maintain steady revenue along with costs. While financial institutions operate differently than most other companies, City Holding's interest expenses, non interest derived revenues like lending fees and sales commissions have also been stable. Despite being derailed due to 2008 ad 2009, the company has been able to maintain its client base throughout 2011. Many bank holding companies, including Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) cannot say this. Overall, net income estimates have been growing consistently. The firm's EPS has been growing accordingly.
Banks are heavily dependent on cash flows to sustain their businesses. Not to say regular businesses need cash, but financial services companies are especially sensitive to their cash situations. In 2011, the firm's operating cash dropped suddenly from $63 million to $16 million. The primary culprit, apart from net income fluctuations is a result of working capital as well as depreciation and amortization. It has also been ramping up capital expenditures, which may be a sign of increased attempts to expand in the operating regions. It has also been seeing positive inflows of cash in financing activities due to increased deposits. This indicates that its customers trust it to keep their money. This is extremely important for banks, especially in times when liquidity requirements are becoming tighter.
City Holdings' assets have been increasing steadily, as cash and deposits have increased. Other assets like federal funds sold, securities, and net loans have increased as well, meaning that business is booming for the company, relative to its recent history. As expected, liabilities also widened, but negative factors like long-term debt and payables stayed the same. Only deposits increased. Ultimately, shareholders' equity has been able to increase, adding value to all who own City Holdings.
Investors may want to consider City Holdings for an investment in diversified financials. It appears to be going strong despite an uncertain economy, and is free from dangerous exposure to European debt problems - one of the preeminent issues of the global economy. Investors considering this company should look deeper into its product offerings and its relative performance compared to direct competitors.
City Holding Company is currently trading at $32.25, down 12.2% for the year.
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