-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SLyTNpg9Y3VQMzddNrTPQLF5a8lGCxKM2yOJhU8UB6nTMzcnSF16o01Q+2KiXTpb iUYhZwzXP2RofUlUQu+koA== 0000916641-96-000210.txt : 19960401 0000916641-96-000210.hdr.sgml : 19960401 ACCESSION NUMBER: 0000916641-96-000210 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITY HOLDING CO CENTRAL INDEX KEY: 0000726854 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 550619957 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11733 FILM NUMBER: 96541799 BUSINESS ADDRESS: STREET 1: 3601 MACCORKLE AVE SE CITY: CHARLESTON STATE: WV ZIP: 25304 BUSINESS PHONE: 3049256611 MAIL ADDRESS: STREET 1: 3601 MACCORKLE AVE SE CITY: CHARLESTON STATE: WV ZIP: 25301 10-K405 1 CITY HOLDINGS COMPANY SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File Number December 31, 1995 0-11733 CITY HOLDING COMPANY (Exact name of registrant as specified in its charter) West Virginia 55-0619957 (State of other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3601 MacCorkle Avenue, Southeast Charleston, West Virginia 25304 (Address of principal offices) Registrant's telephone number, including area code: (304) 925-6611 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $2.50 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting stock held by nonaffiliates of the registrant based on the closing price as of March 27, 1996 (Registrant has assumed that all of its executive officers and directors are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose): Aggregate Market Value -- $108,503,799 The number of shares outstanding of the issuer's common stock as of March 27, 1996: Common Stock, $2.50 Par Value -- 5,078,406 shares The total number of pages are 59 . EXHIBIT INDEX is located on page 16 . ----- ----- Page 1 of 59 DOCUMENTS INCORPORATED BY REFERENCE Documents Part of Form 10-K into which Document is incorporated Portions of the Annual Part I, Item 1; Part Report to Shareholders II, Items 5, 6, 7, of City Holding Company and 8; Part III, Item for the year ended 13; Part IV, Item 14. December 31, 1995. Portions of City Holding Part III, Items 10, Company's Proxy statement 11, 12 and 13. for the 1996 Annual Meeting of Shareholders. 2 FORM 10-K INDEX PART I Page Item 1. Business..................................................... 4 Item 2. Properties................................................... 9 Item 3. Legal Proceedings............................................ 9 Item 4. Submission of Matters to a Vote of Security Holders........................................... 9 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters................................ 10 Item 6. Selected Financial Data...................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 10 Item 8. Financial Statements and Supplementary Data.................. 10 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure..................... 10 PART III Item 10. Directors and Executive Officers of Registrant................................................. 11 Item 11. Executive Compensation....................................... 11 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 11 Item 13. Certain Relationships and Related Transactions............................................... 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................ 12 Signatures................................................... 15 Exhibit Index................................................ 16 3 PART I ITEM 1 BUSINESS (a) General Development of Business The Registrant, City Holding Company, is a West Virginia corporation chartered as of March 12, 1982. City Holding Company is a duly qualified bank holding company under the Bank Holding Company Act of 1956, as amended. City Holding Company currently has nine banking subsidiaries and three nonbanking subsidiaries (collectively, the "Subsidiaries"). All of the subsidiaries are wholly-owned. The Company acquired First Merchants Bancorp, Inc. and its subsidiary, Merchants National Bank, West Virginia in August 1995. Certain assets and liabilities of The Buffalo Bank of Eleanor (now Peoples State Bank) were purchased by City National in July 1995. In December 1994, the Company acquired Hinton Financial Corporation and its subsidiary, The First National Bank of Hinton, West Virginia. Also in 1994, the Company acquired the remaining 33% of the First National Bank - Beckley which was subsequently merged into First State Bank and Trust. During 1993, the Company formed two non-banking subsidiaries, City Mortgage Corporation, a full service mortgage banking company whose principal place of business is in Pittsburgh, Pennsylvania and City Financial Corporation, a full service securities brokerage and investment advisory company, whose principal place of business is in City National's main location. City Holding Company's third non-banking subsidiary is Hinton Financial Corporation, which owns all of the capital stock of The First National Bank of Hinton and does not conduct any additional business. (b) General Description of Business The banking Subsidiaries are engaged in the business of banking in West Virginia by receiving and paying deposits; by negotiating promissory notes, drafts, bills of exchange and other evidence of debt; by buying and selling exchange; by loaning money secured by personal or real property, or both; by dealing in securities and stocks without recourse solely upon order, and for the account of customers, except for purchases of investment securities for its account under limitations and restrictions imposed by regulations of the Comptroller of the Currency; by providing trust services; by supplying credit card services as a licensee of Visa and MasterCard; by providing safe deposit box facilities and miscellaneous other services rendered by a full service bank. In addition, the Company engages in a full-service securities brokerage and investment advisory business through City Financial Corporation and a full service mortgage banking company through City Mortgage Corporation. The City National Bank of Charleston is a community bank serving the Kanawha City section of Charleston and municipalities and rural areas to the east. The Bank operates eleven branches serving Kanawha and Putnam counties. The Peoples Bank of Point Pleasant, a state-chartered bank located in Point Pleasant, West Virginia, serves the western portion of Mason County. Point Pleasant's two branch banks located in Mason and New Haven serve the northern portion of Mason County. First State Bank & Trust, a state-chartered bank located in Rainelle, West Virginia, serves Greenbrier and Raleigh counties. First State Bank operates seven offices located in Rainelle (two offices), Rupert, Sophia, and Beckley (two offices), West Virginia. Bank of Ripley, a state-chartered bank, has two locations in Ripley, West Virginia, and serves Jackson County. Home National Bank of Sutton, operates a national bank located in Sutton, West Virginia and a branch located in Gassaway, West Virginia. 4 Blue Ridge Bank (Blue Ridge), a de novo institution chartered as a state-nonmember bank in 1992 is located in Martinsburg, West Virginia. Blue Ridge operates five offices located in Berkeley, Jefferson, and Morgan counties. Peoples State Bank, a state bank, has locations in Clarksburg and Bridgeport, West Virginia, serving Harrison County. The First National Bank of Hinton (Hinton), operates a national bank in Summers County. Merchants National Bank operates a national bank in Montgomery, West Virginia and two branches located in Gauley and Glasgow, West Virginia. City Holding Company's nine banking subsidiaries are consumer-oriented banks and it is anticipated they will continue to be operated as such. No material portion of the Subsidiaries' deposits are derived from a single person or a few persons, the loss of any one or more of which could have a material adverse effect on liquidity, capital, or other elements of financial performance. No material portion of the Subsidiaries' loans are concentrated within a single industry or group of related industries. City Holding Company operates as a multi-bank holding company and has no operations of its own. Consequently, it is dependent upon the Subsidiaries for cash necessary to pay expenses, dividends to its stockholders, and to meet debt service requirements. City Holding Company's business is not seasonal and has no foreign sources or applications of funds. There are no anticipated material capital expenditures, or any expected material effects on earnings or the Company's competitive position as a result of compliance with Federal, State and local provisions enacted or adopted relating to environmental protection. (c) Supervision and Regulation The following generally describes the regulation to which the Company and its banking Subsidiaries are subject. Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulations may have a material effect on the business and prospects of the Company and its banking subsidiaries. BANK HOLDING COMPANIES The Company is registered as a "bank holding company" under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Bank holding companies are subject to regulation by the Federal Reserve Board. Among other things, the BHCA imposes limitations on the acquisition of direct or indirect ownership or control of interests in banks and bank holding companies and, with certain exceptions, any company that is not a bank and prohibits a bank holding company from engaging in any business other than banking (as defined by the Federal Reserve Board to include certain businesses closely related to banking) or managing or controlling banks. BANKS City National Bank of Charleston, The Home National Bank of Sutton, The First National Bank of Hinton and Merchants National Bank are national banking associations, and are subject to supervision and regulation by the OCC, the Federal Reserve Board and the FDIC. The Peoples Bank of Point Pleasant, First State Bank and Trust, The Bank of Ripley, Peoples State Bank and Blue Ridge Bank are supervised and regulated by the West Virginia Board of Banking and Financial Institutions, the FDIC and the Federal Reserve Board. The various laws and regulations administered by the regulatory agencies affect corporate practices, 5 such as payment of dividends, incurring debt and acquisition of financial institutions and other companies, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices. LIMITS ON DIVIDENDS AND OTHER PAYMENTS. The Company is a legal entity separate and distinct from its Subsidiaries. Most of the Company's revenues result from dividends paid to the Company by those Subsidiaries. The right of the Company and shareholders of the Company, to participate in any distribution of the assets or earnings of any Subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of such Subsidiary, except to the extent that claims of the Company in its capacity as a creditor may be recognized. Moreover, there are various legal limitations applicable to the payment of dividends by the Company to its shareholders. Under federal law, the Company's Subsidiaries may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, or take securities of the Company as collateral for loans to any borrower. The Company's Subsidiaries are also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. The banking Subsidiaries are subject to various statutory restrictions on their ability to pay dividends to the Company. Under applicable regulations, at December 31, 1995, the banking subsidiaries could have paid aggregate dividends to the Company of $10.9 million without obtaining prior approval of their respective regulators. The payment of dividends by the Company and its banking Subsidiaries may also be limited by other factors, such as requirements to maintain adequate capital above regulatory guidelines and general prohibitions against "unsafe and unsound" practices. The ability of the Company's Subsidiaries to pay dividends in the future is, and is expected to continue to be, influenced by regulatory policies and by capital guidelines. The bank regulatory agencies have broad discretion in developing and applying policies and guidelines, in monitoring compliance with existing policies and guidelines, and in determining whether to modify such policies and guidelines. CROSS-GUARANTEE. Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989, in connection with (i) the default of a commonly controlled FDIC insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC insured depository institution in danger of default. Liability of any bank Subsidiary of the Company under this "cross-guarantee" position could have a material adverse effect on the financial condition of any other bank Subsidiary and the Company. FDICIA; CAPITAL REQUIREMENTS; DEPOSIT INSURANCE. In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became effective. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and revised several other federal banking statutes. Among other things, FDICIA requires the federal banking regulators to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Pursuant to regulations adopted by bank regulators, as of December 31, 1995, each of the Company's bank Subsidiaries that are not classified as at least 6 "adequately capitalized" are subject to restrictions on their ability to make subject to growth limitations and may be required to submit capital restoration plans. For purposes of assessing deposit insurance premiums, banks are assigned to one of the following three capital groups based on their capital levels: "well-capitalized", "adequately capitalized" and "undercapitalized". Banks in each of these three groups are further classified into three subgroups based upon the level of supervisory concern with respect to each bank. The resulting matrix creates nine assessment risk classifications to which are assigned deposit insurance premiums ranging from .04% from the best capitalized, healthiest institutions, to .27% for undercapitalized institutions with substantial supervisory concern. The banking Subsidiaries of City Holding Company have been informed that the premium for the first semiannual assessment period beginning January 1, 1996, will be .04% of insured deposits or $1,000, whichever is greater. This assessment will not materially affect the Subsidiary banks' earnings. Capital guidelines applicable to the Company are discussed in further detail under the caption "Managements' Discussion and Analysis of Financial Condition and Results of Operations -- Capital Resources," at page 12 of the Company's 1995 Annual Report to Shareholders, which discussion is incorporated by reference herein. INTERSTATE BANKING Pursuant to federal legislation, as of September 1995, restrictions on interstate acquisitions were abolished, permitting bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including nationwide and state-imposed concentration limits. Banks will also be permitted to branch across state lines by merger, acquisition or de novo, effective June 1, 1997 (unless earlier permitted by state law), provided that certain conditions are met, including that applicable state law must expressly permit such interstate branching. The Company is unable to predict how this legislation will affect it or its banking Subsidiaries. MONETARY POLICY, GOVERNMENT REGULATION City Holding Company and Subsidiaries are affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of City Holding Company and its subsidiaries. Other legislative and regulatory proposals regarding changes in banking, and the regulation of banks, thrifts and other financial institutions, are being considered by the executive branch of the Federal government and Congress. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. It cannot be predicted whether any of these proposals will be adopted or, if adopted, how these proposals will affect the Company. (d) Employees As of December 31, 1995, City Holding Company and Subsidiaries employed 578 associates. Employee relations within the Subsidiaries are considered to be satisfactory. One officer-director of The City National Bank of Charleston serves as an officer of City Holding Company, but receives no remuneration therefor. 7 (e) Statistical Information The information noted below is provided pursuant to Guide 3 -- Statistical Disclosure by Bank Holding Companies. Page references are to the Annual Report to Shareholders for the year ended December 31, 1995 and such pages are incorporated herein by reference. Page Description of Information Reference 1. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL a. Average Balance Sheets 4 b. Analysis of Net Interest Earnings 5 c. Rate Volume Analysis of Changes in Interest Income and Expense 5 2. INVESTMENT PORTFOLIO a. Book Value of Investments 7 b. Maturity Schedule of Investments 7 c. Securities of Issuers Exceeding 10% of Stockholders' Equity 7 3. LOAN PORTFOLIO a. Types of Loans 8 b. Maturities and Sensitivity to Changes in Interest Rates 8 c. Risk Elements 9, 10 d. Other Interest Bearing Assets N/A 4. SUMMARY OF LOAN LOSS EXPERIENCE 10, 11 5. DEPOSITS a. Breakdown of Deposits by Categories, Average Balance and Average Rate Paid 4 b. Maturity Schedule of Time Certificates of Deposit and Other Time Deposits of $100,000 or More 8 6. RETURN ON EQUITY AND ASSETS 1 8 ITEM 2 PROPERTIES City Holding Company and its subsidiaries own the facilities maintained as the Company's headquarters and generally own all of the facilities maintained as operating facilities by the subsidiaries. Those facilities not owned by the Company are maintained under long term lease agreements. The properties owned or leased by the Company consist generally of the main offices, and twenty seven (27) branch locations. All of the properties are suitable and adequate for their current operations and are generally being fully utilized. ITEM 3 LEGAL PROCEEDINGS There are various legal proceedings pending to which City Holding Company and/or its subsidiaries are parties. These proceedings are incidental to the business of City Holding Company and its subsidiaries and, after reviewing the matters and consulting with counsel, management is of the opinion that the ultimate resolution of such matters will not materially affect the consolidated financial statements. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 9 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Page 2 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1995, included in this report as Exhibit 13, is incorporated herein by reference. ITEM 6 SELECTED FINANCIAL DATA Selected Financial Data on page 1 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1995, included in this report as Exhibit 13, is incorporated herein by reference. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 2 through 13 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1995, included in this report as Exhibit 13, is incorporated herein by reference. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements, included on pages 14 through 32 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1995, included in this report as Exhibit 13, are incorporated herein by reference. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 10 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required by Item 10 of FORM 10-K appears in the Company's 1996 Proxy Statement to be filed within 120 days of fiscal year end under the captions "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS". ITEM 11 EXECUTIVE COMPENSATION The information required by Item 11 of FORM 10-K appears in the Company's 1996 Proxy Statement under the caption "EXECUTIVE COMPENSATION". ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of FORM 10-K appears in 2 of the Company's 1996 Proxy Statement under the caption "OWNERSHIP OF EQUITY SECURITIES". ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of FORM 10-K appears in the Company's 1996 Proxy Statement under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and in NOTE TWELVE of Notes to Consolidated Financial Statements appearing at page 27 of the Company's Annual Report to Shareholders for the year ended December 31, 1995, included in this report as Exhibit 13, and incorporated herein by reference. 11 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements Filed; Financial Statement Schedules The following consolidated financial statements of City Holding Company and subsidiaries, included in the Company's Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8: Exhibit 13 Page Number Report of Independent Auditors 14 Consolidated Balance Sheets - December 31, 1995 and 1994 15 Consolidated Statements of Income - years ended December 31, 1995, 1994 and 1993 16 Consolidated Statements of Changes in Stockholders' Equity - years ended December 31, 1995, 1994 and 1993 17 Consolidated Statements of Cash Flows - years ended December 31, 1995, 1994 and 1993 18 Notes to Consolidated Financial Statements - December 31, 1995 19 - 32 On the following page appears the independent auditors report of Persinger & Company, LLC on the Consolidated Financial Statements of Hinton Financial Corporation and Subsidiary for the years December 31, 1994, 1993 and 1992. 12 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Hinton Financial Corporation Hinton, West Virginia We have audited the accompanying consolidated balance sheets of Hinton Financial Corporation and Subsidiary as of December 31, 1994, and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, (not presented separately, herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hinton Financial Corporation and Subsidiary as of December 31, 1994, and 1993, and the results of their operations and their cash flow for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ PERSINGER & COMPANY, LLC Beckley, West Virginia January 6, 1995 13 FINANCIAL SCHEDULES I AND II UNDER ARTICLE 9 OF REGULATION S-X ARE NOT APPLICABLE. (b) Reports on Form 8-K None (c) Exhibits The exhibits listed in the EXHIBIT INDEX on pages 16 through 18 of this FORM 10-K are filed herewith or incorporated by reference from previous filings. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CITY HOLDING COMPANY (Registrant) /s/STEVEN J. DAY Steven J. Day, President/Director (Principal Executive Officer) /s/ROBERT A. HENSON Robert A. Henson, Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Act of 1934, this registration statement has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 11, 1996. /s/SAMUEL M. BOWLING /s/C. SCOTT BRIERS Samuel M. Bowling, C. Scott Briers, Director Director /s/DR. D.K. CALES /s/STEVEN J. DAY Dr. D. K. Cales, Steven J. Day, Director Director/President /s/ROBERT D. FISHER /s/JACK E. FRUTH Robert D. Fisher, Jack E. Fruth, Director Director /s/JAY GOLDMAN /s/CARLIN K. HARMON Jay Goldman, Carlin K. Harmon, Director Director/Executive Vice President /s/DALE NIBERT C. Dallas Kayser, Dale Nibert, Director Director /s/OTIS L. O'CONNOR /s/BOB F. RICHMOND Otis L. O'Connor, Bob F. Richmond, Director Director /s/MARK H. SCHAUL /s/VAN R. THORN Mark H. Schaul, Van R. Thorn, Director Director /s/GEORGE F. DAVIS /s/HUGH R. CLONCH George F. Davis, Hugh R. Clonch, Director/Executive Vice President Director 15 EXHIBIT INDEX The following exhibits are filed herewith or are incorporated herein by reference. Prior Filing Exhibit Reference or Page Number Description Number Herein 3(a) Articles of Incorporation of I City Holding Company 3(b) Articles of Amendment to the II Articles of Incorporation of City Holding Company, dated March 6, 1984 3(c) Articles of Amendment to the III Articles of Incorporation of City Holding Company, dated March 4, 1986 3(d) Articles of Amendment to the IV Articles of Incorporation of City Holding Company, dated September 29, 1987 3(e) Articles of Amendment to the Articles of Incorporation of City Holding Company, dated May 6, 1991 V 3(f) Articles of Amendment to the Articles of Incorporation of City Holding Company, dated May 7, 1991 V 3(g) By-laws of City Holding Company I 3(h) Amendment to the By-laws of III City Holding Company, dated February 14, 1985 3(i) Amendment to the By-laws of III City Holding Company, dated March 4, 1986 3(j) Amendment to the By-laws of III City Holding Company, dated May 1, 1986 16 3(k) Amendment to the By-laws of III City Holding Company, dated February 5, 1987 3(l) Amendment to the By-laws of VI City Holding Company, dated November 3, 1988 3(m) Articles of Amendment to the Articles of Incorporation of City Holding Company, dated August 1, 1994 VIII 4 Amendment and Restated Rights Agreement, dated as of May 7, 1991, between the Company and Sovran Bank, N.A. (predecessor to Nations Bank, N.A.), as Rights Agent VII 10 Agreement dated June 5, 1986, by III and between Steven J. Day and City Holding Company 11 Statement Re: Computation of Per Share Earnings 19 13 City Holding Company Annual Report to Shareholders for Year Ended December 31, 1995 20 22 Subsidiaries of City Holding Company 55 24(a) Consent of Ernst & Young LLP 56 24(b) Consent of Persinger & Company, LLC 57 27 Financial Data Schedule for the year ending December 31, 1995 58 I Attached to, and incorporated by reference from Amendment No. 1 to City Holding Company's Registration Statement on Form S-4, Registration No. 2-86250, filed November 4, 1983, with the Securities and Exchange Commission. 17 II Attached to, and incorporated by reference from City Holding Company's Form 8-K Report dated March 7, 1984, and filed with the Securities and Exchange Commission on March 22, 1984. III Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1986, and filed March 31, 1987, with the Securities and Exchange Commission. IV Attached to and incorporated by reference from City Holding Company's Registration Statement on Form S-4, Registration No. 33-23295, filed with the Securities and Exchange Commission on August 3, 1988. Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1991, and filed March 17, 1992, with the Securities and Exchange Commission. V Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1991, and filed March 17, 1992, with the Securities and Exchange Commission. VI Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1988, and filed March 30, 1989, with the Securities and Exchange Commission. VII Attached to, and incorporated by reference from City Holding Company's Form 8-K Current Report dated May 7, 1991, and filed May 14, 1991, with the Securities and Exchange Commission. VIII Attached to, and incorporated by reference from City Holding Company's Form 10-Q Quarterly Report dated September 30, 1994 and filed November 14, 1994, with the Securities and Exchange Commission. 18 EX-11 2 EXHIBIT 11 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE The following formula was used to calculate the earnings per share in Exhibit 13, page 16, Consolidated Statements of Income of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1995, included in this report. Ratio Calculation Earnings Per Share Net Income Weighted Average Shares of Common Stock Outstanding for the period YEAR ENDED DECEMBER 31 1995 1994 1993 ---- ---- ---- Weighted Average Shares Outstanding 5,129,260 5,160,105 5,149,265 Net Income (in thousands) $ 8,718 $ 8,141 $ 7,645 Per Share Amount $ 1.70 $ 1.58 $ 1.48 No Common Stock equivalents exist and therefore primary and fully-diluted earnings per share are the same. 19 EX-13 3 EXHIBIT 13 SELECTED FINANCIAL DATA TABLE ONE FINANCIAL SUMMARY (in thousands, except per share data)
FIVE YEAR SUMMARY 1995 1994 1993 1992 1991 SUMMARY OF OPERATIONS Total interest income $ 75,125 $ 62,762 $ 55,301 $ 50,880 $ 50,973 Total interest expense 33,580 25,168 22,425 22,184 26,422 Net interest income 41,545 37,594 32,876 28,696 24,551 Provision for loan losses 1,104 1,040 1,434 2,325 1,345 Total other income 6,346 5,249 3,862 2,328 2,294 Total other expenses 33,887 30,116 24,292 18,889 17,854 Income before income taxes 12,900 11,687 11,012 9,810 7,646 Net income 8,718 8,141 7,645 6,972 5,203 PER SHARE DATA (1) Net income $ 1.70 $ 1.58 $ 1.48 $ 1.35 $ 1.01 Cash dividends declared (2) .62 .54 .51 .45 .38 Book value per share 14.40 12.83 12.72 11.80 10.84 AVERAGE BALANCE SHEET SUMMARY Total loans $ 608,551 $ 504,795 $ 413,645 $ 322,464 $ 285,643 Securities 221,743 264,976 262,742 232,930 219,564 Deposits 771,303 736,115 639,480 523,488 479,984 Long-term debt 8,204 6,252 4,387 508 373 Stockholders' equity 69,463 67,652 63,511 58,606 54,051 Total assets 957,048 864,690 739,804 610,707 561,341 AT YEAR END Net loans $ 650,195 $ 547,809 $ 462,424 $ 376,206 $ 298,378 Securities 194,368 239,882 283,833 248,740 228,701 Deposits 797,415 746,805 709,958 605,398 493,937 Long-term debt 20,000 6,875 5,875 4,000 NONE Stockholders' equity 73,139 66,299 65,605 60,858 55,760 Total assets 1,040,969 895,785 816,225 701,862 575,559 SELECTED RATIOS Return on average assets .91% .94% 1.03% 1.14% .93% Return on average equity 12.55 12.03 12.04 11.90 9.63 Average equity to average assets 7.26 7.82 8.58 9.60 9.63 Dividend payout ratio (2) 36.47 33.91 34.36 33.11 37.84
(1) All per share data have been restated to reflect 10% stock dividends effective January and November, 1995 and August, 1992. (2) Cash dividends and the related payout ratio are based on historical results of the Company and do not include cash dividends of acquired subsidiaries prior to the dates of consummation. The Company acquired 100% of the Common Stock of The Buffalo Bank of Eleanor (Buffalo) in December 1992 for cash. In 1993, certain other purchase acquisitions were consummated by City Holding. These acquisitions were accounted for using the purchase method of accounting. Accordingly, the results of operations of the purchased subsidiaries are included in the information presented above from the date of acquisition forward, and prior year balance sheets have not been restated for such transactions. The acquisitions of Home Bancorp, Inc. (1992), Hinton Financial Corporation and subsidiary (1994) and First Merchants Bancorp, Inc. and subsidiary (1995) were accounted for as poolings of interests and, accordingly, the financial data of these subsidiaries are included in all five years presented above, as if the acquisitions had occurred as of the beginning of the earliest period presented. TWO YEAR SUMMARY OF COMMON STOCK PRICES AND DIVIDENDS MARKET PRICE RANGE* ----------------------- CASH DIVIDENDS PER SHARE* LOW HIGH ------------------------------------- 1995 FOURTH QUARTER $ .170 $ 22.50 $25.00 THIRD QUARTER .155 22.73 25.45 SECOND QUARTER .145 23.64 26.36 FIRST QUARTER .145 23.64 27.27 1994 Fourth Quarter $ .140 $ 24.55 $28.93 Third Quarter .132 25.62 28.93 Second Quarter .132 21.49 28.93 First Quarter .132 22.31 28.93 *All per share data have been restated to reflect 10% stock dividends effective January and November, 1995. Cash dividends represent amounts declared by the Company and do not include cash dividends of acquired subsidiaries prior to the dates of acquisition. The Company's Common Stock is included on the Nasdaq National Market System under the symbol CHCO. The table sets forth the cash dividends paid per share and information regarding the market prices per share of the Company's Common Stock for the period indicated. The price ranges are based on transactions as reported on the Nasdaq National Market System. At December 31, 1995, there were 2,041 stockholders of record. See NOTE NINE of the audited Consolidated Financial Statements for a discussion of restrictions on subsidiary dividends. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CITY HOLDING COMPANY City Holding Company (the Company), a West Virginia corporation headquartered in Charleston, commenced operations in November 1983. The Company currently has nine banking subsidiaries, and three non-banking subsidiaries. All of the subsidiaries are wholly-owned. At December 31, 1995, the Company had total assets of $1 billion, total deposits of $797 million and total stockholders' equity of $73 million. The banking subsidiaries include The City National Bank of Charleston (City National, principal subsidiary bank), The Peoples Bank of Point Pleasant, First State Bank & Trust, The Bank of Ripley, Home National Bank of Sutton (Home National), Blue Ridge Bank, Peoples State Bank, The First National Bank of Hinton (Hinton) and Merchants National Bank (Merchants), which currently operate 36 banking offices in the state of West Virginia. Certain assets and liabilities of The Buffalo Bank of Eleanor (now Peoples State Bank) were purchased by City National in 1995. This transaction had no impact on the consolidated results of the Company. In addition to the Company's periodic filings with the SEC, each of its subsidiary banks are subject to certain regulatory guidelines at the applicable federal and state level. As such, the banks are routinely examined by these regulatory bodies and certain information is required to be submitted to them each quarter. The Company operates retail and consumer-oriented community banks that emphasize personal service. During 1993, the Company formed two non-banking subsidiaries. City Mortgage Corporation was approved by the Federal Reserve Bank of Richmond to operate as a full service mortgage banking company in December 1993. Headquartered in a suburb of Pittsburgh, Pennsylvania, this company originates, services and sells long-term fixed-rate mortgage loans. City Financial Corporation was approved by the Federal Reserve Bank of Richmond in November 1993 and by the National Association of Securities Dealers in February 1994, to serve as a full service securities brokerage and investment advisory company. City Financial Corporation is headquartered in Charleston, West Virginia with its office located in City National's main location. Both of these companies were formed under a strategy to generate fee income in order to lessen the Company's reliance on net interest margin and to enable the Company to offer a full array of financial services to its customers. Hinton Financial Corporation, the Company's third non-banking subsidiary, owns all of the capital stock of Hinton and does not conduct any other business activities. The Company continually seeks strategic acquisition opportunities for small to medium-sized banks. The Company's latest acquisitions include Hinton Financial Corporation and subsidiary, acquired in late 1994, followed by First Merchants Bancorp, Inc. and subsidiary in mid 1995. The Company's acquisition policy has permitted subsidiary banks to operate as separate entities with their historical names and boards of directors. The Company believes that this policy maintains community loyalty to the subsidiary banks and improves operating performance while providing the services and efficiencies of a larger holding company. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HIGHLIGHTS AND SUMMARY Return on average assets (ROA), a measure of the effectiveness of asset utilization, was .91% in 1995. Return on average equity (ROE), which measures the return on stockholders' investment, was 12.55% in 1995. The Company's ROA and ROE were .94% and 12.03%, respectively, in 1994. Earnings per share for 1995 were $1.70, an increase of approximately 7.6% from the $1.58 per share in 1994. The main reason for the increase in earnings per share is increased net interest income, which is principally the result of increased loan volume and continued growth of the Company. The Company reported total assets of $1 billion at December 31, 1995 and achieved $8.7 million in net income for the year then ended. Total assets increased 16.2% over the 1994 total of $896 million, roughly half of which increase was the result of the Company's loan growth, as more fully discussed in the Interest-Earning Assets and Interest-Bearing Liabilities section. Net income was up significantly over the $8.1 million and $7.6 million reported for 1994 and 1993, respectively. The acquisition of Merchants was accounted for using the pooling of interests method of accounting. Accordingly, the Company's consolidated financial statements and related notes, as well as the information presented herein, have been restated to include Merchants as though it were acquired at the beginning of the earliest period presented. For further information concerning the 1995 acquisition, see NOTE THREE of the audited Consolidated Financial Statements. This section of the annual report to stockholders discusses and analyzes the consolidated financial condition of the Company, the related consolidated results of its operations, and its cash flows. Table One is a five year summary of selected financial data of the Company. The following sections discuss in more detail information summarized in Table One. INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES Average interest-earning assets increased $87.5 million from 1994 to 1995 and $114.2 million from 1993 to 1994. These increases are attributable to the loan volume generated by the Company's subsidiary banks, which was accompanied by a comparable increase in deposits and short-term borrowings. A significant part of the increase in net earning assets for 1995 and 1994 is attributable to the Company's participation in a short-term, whole loan bulk purchasing program. Under the program, the Company purchases from a third party whole loans secured by residential mortgages and partially insured by the Federal Housing Administration. The loans typically have balances of less than $25,000 and are not concentrated geographically. Additionally, the program permits the Company to require the seller to repurchase or replace certain non-performing loans. The loans are generally repurchased from the Company within 30 to 90 days. Although the loans usually are located outside the Company's primary market areas, management believes that these loans pose no greater risk than similar "in-market" loans because of the Company's review of the loans, the credit support associated with the loans, the short duration of the Company's investment and the other terms of the program. The loans are generally serviced by third parties and the Company earns a fixed rate of return on the loans. The Company earned approximately $4.6 and $1.9 million during 1995 and 1994, on average balances of approximately $49.1 and $21.2 million, respectively. These loans are being funded through short-term borrowings which consist primarily of securities sold under agreement to repurchase. Average short-term borrowings increased $52.2 million from 1994 to 1995 and $21.8 million from 1993 to 1994. The average rate paid by the Company for short-term borrowings increased 179 basis points in 1995 and 139 basis points in 1994 due to general increases in market interest rates. Most of the internal growth in deposits has been in response to the Company's service-oriented philosophy and its active involvement in the local communities it serves. The Company also continues to establish additional commercial relationships, with an emphasis on "in-market" lending to businesses owned and operated by established customers. The Company believes its decentralized management style appeals to retail consumers and small businesses. These lending arrangements are in furtherance of the Company's mission of being a high quality service provider retaining strong ties to the local communities in which its subsidiary banks operate. In 1995, the Company's subsidiaries had an aggregate increase in loans of approximately $100.9 million or 18%. City National and Home National generated the most loan volume in 1995 with increases of 22% and 20%, respectively. In response to the significant growth in loans, average investment securities decreased $43.2 million from $265 million in 1994 to $222 million in 1995. The overall yield on investments has increased from 1994 as a result of slightly higher rates. Average investment securities increased $2.2 million from $263 million in 1993 to $265 million in 1994. Long-term debt includes $15 million in obligations of the Parent Company and $5 million in FHLB obligations of City National. For further details with respect to long-term debt see NOTE EIGHT of the audited Consolidated Financial Statements. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE TWO EARNING ASSETS AND INTEREST-BEARING LIABILITIES (in thousands)
1995 1994 1993 ------------------------------------------------------------------------------------- AVERAGE YIELD/ Average Yield/ Average Yield/ BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate ------------------------------------------------------------------------------------- EARNING ASSETS: Loans (1) Commercial and industrial $188,122 $18,014 9.58% $153,952 $ 12,829 8.33% $125,487 $10,243 8.16% Real estate 283,752 24,149 8.51 231,755 19,178 8.28 176,365 15,926 9.03 Consumer obligations 136,677 13,270 9.71 119,088 11,685 9.81 111,793 11,431 10.23 ------------------------------------------------------------------------------------- Total loans 608,551 55,433 9.11 504,795 43,692 8.66 413,645 37,600 9.09 Loans held for sale 62,408 5,691 9.12 27,655 2,375 8.59 0 0 0.00 Securities Taxable 181,140 11,612 6.41 222,304 13,897 6.25 220,360 14,493 6.58 Tax-exempt (2) 40,603 3,485 8.58 42,672 3,753 8.79 42,382 4,009 9.46 ------------------------------------------------------------------------------------- Total securities 221,743 15,097 6.81 264,976 17,650 6.66 262,742 18,502 7.04 Federal funds sold 1,473 89 6.04 9,253 321 3.47 16,130 562 3.48 ------------------------------------------------------------------------------------- Total earning assets 894,175 76,310 8.53 806,679 64,038 7.94 692,517 56,664 8.18 Cash and due from banks 25,392 25,063 22,594 Bank premises and equipment 22,178 19,807 15,906 Other assets 21,761 19,514 14,537 Less: allowance for possible loan losses (6,458) (6,373) (5,750) -------------------------------------------------------------------------------------- Total assets $957,048 $864,690 $739,804 -------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Demand deposits $106,590 $ 3,059 2.87% $ 96,870 $ 3,006 3.10% $ 86,085 $ 2,656 3.09% Savings deposits 227,217 6,990 3.08 255,634 7,890 3.09 221,354 7,434 3.36 Time deposits 335,011 17,100 5.10 284,807 11,981 4.21 257,363 11,423 4.44 Short-term borrowings 98,973 5,675 5.73 46,822 1,846 3.94 24,987 638 2.55 Long-term debt 8,204 756 9.22 6,252 445 7.12 4,387 274 6.25 -------------------------------------------------------------------------------------- Total interest-bearing liabilities 775,995 33,580 4.33 690,385 25,168 3.65 594,176 22,425 3.77 Demand deposits 102,485 98,804 74,678 Other liabilities 9,105 7,849 7,439 Stockholders' equity 69,463 67,652 63,511 -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $957,048 $864,690 $739,804 -------------------------------------------------------------------------------------- Net interest income $42,730 $ 38,870 $34,239 -------------------------------------------------------------------------------------- Net yield on earning assets 4.78% 4.82% 4.95% --------------------------------------------------------------------------------------
(1) For purposes of this table, nonaccruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income. (2) Computed on a fully federal tax-equivalent basis assuming a tax rate of 34% in all years. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income, on a fully federal tax-equivalent basis, increased $3.9 million during 1995. The average yield on earning assets increased from 7.94% in 1994 to 8.53% in 1995, and the average cost of interest-bearing liabilities increased from 3.65% to 4.33% over this same period. This had the effect of slightly decreasing the net yield on earning assets from 4.82% in 1994 to 4.78% in 1995. The $724,000 decrease in net interest income due to rate, as shown in Table Three which follows, was coupled with a $4.6 million increase in net interest income due to volume. The major components of this favorable volume change were increased average loans as more fully discussed in the Interest-Earning Assets and Interest-Bearing Liabilities section. Net interest income, on a fully federal tax-equivalent basis, increased $4.6 million in 1994. The $6.6 million increase caused by changes in volume was offset by a $2.0 million decrease in net interest income due to rate. TABLE THREE RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (in thousands)
1995 VS. 1994 1994 VS. 1993 INCREASE (DECREASE) Increase (Decrease) DUE TO CHANGE IN: Due to Change In: -------------------------------------------------------------------------- VOLUME RATE NET Volume Rate Net INTEREST INCOME FROM: Loans Commercial and industrial $ 3,101 $ 2,084 $ 5,185 $ 2,368 $ 218 $ 2,586 Real estate 4,411 560 4,971 4,672 (1,420) 3,252 Consumer obligations 1,709 (124) 1,585 727 (473) 254 -------------------------------------------------------------------------- Total 9,221 2,520 11,741 7,767 (1,675) 6,092 Loans held for sale 3,160 156 3,316 2,375 0 2,375 Investment securities Taxable (2,631) 346 (2,285) 127 (723) (596) Tax-exempt (1) (179) (89) (268) 27 (283) (256) -------------------------------------------------------------------------- Total (2,810) 257 (2,553) 154 (1,006) (852) Federal funds sold (376) 144 (232) (239) (2) (241) -------------------------------------------------------------------------- Total interest-earning assets $ 9,195 $ 3,077 $ 12,272 $ 10,057 $ (2,683) $ 7,374 -------------------------------------------------------------------------- INTEREST EXPENSE ON: Demand deposits $ 289 $ (236) $ 53 $ 335 $ 15 $ 350 Savings deposits (874) (26) (900) 1,090 (634) 456 Time deposits 2,316 2,803 5,119 1,175 (617) 558 Short-term borrowings 2,720 1,109 3,829 744 464 1,208 Long-term debt 160 151 311 129 42 171 -------------------------------------------------------------------------- Total interest-bearing liabilities $ 4,611 $ 3,801 $ 8,412 $ 3,473 $ (730) $ 2,743 -------------------------------------------------------------------------- NET INTEREST INCOME $ 4,584 $ (724) $ 3,860 $ 6,584 $ (1,953) $ 4,631 --------------------------------------------------------------------------
(1) Fully federal taxable equivalent using a tax rate of 34% in all years. The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND INTEREST RATE SENSITIVITY The Company has a strong liquidity position and does not anticipate any material adverse changes in 1996. There are no known trends, demands, commitments or uncertainties that have resulted or are reasonably likely to result in material changes in liquidity. INTEREST RATE SENSITIVITY: The Company seeks to maintain a strong liquidity position to reduce interest rate risk, which is the susceptibility of assets and liabilities to declines in value as a result of changes in general market interest rates. The Company minimizes this risk through asset and liability management, where the goal is to optimize earnings while managing interest rate risk. The Company measures this interest rate risk through interest sensitivity gap analysis as illustrated in Table Four. At December 31, 1995, the one year period shows a negative gap (liability sensitive) of $291 million. This analysis is a "static gap" presentation and movements in deposit rates offered by the Company's subsidiary banks lag behind movements in the prime rate. Such time lags affect the repricing frequency of many items on the Company's balance sheet. Accordingly, the sensitivity of deposits to changes in market rates may differ significantly from the related contractual terms. Table Four is first presented without adjustment for expected repricing behavior. Then, as presented in the "management adjustment" line, these balances have been notionally distributed over the first three periods to reflect those portions of such accounts that are expected to reprice fully with market rates over the respective periods. The distribution of the balances over the repricing periods represents an aggregation of such allocations by each of the affiliate banks, and is based upon historical experience with their individual markets and customers. Management expects to continue the same pricing methodology in response to the future market rate changes; however, management adjustments may change as customer preferences, competitive market conditions, liquidity, and loan growth change. Also presented in the management adjustment line are loan prepayment assumptions which may differ from the related contractual term of the loans. These balances have been distributed over the four periods to reflect those loans that are expected to be repaid in full prior to their maturity date over the respective period. After management adjustments, Table Four shows a negative gap in the one year period of $91 million. A negative gap position is advantageous when interest rates are falling because interest-bearing liabilities are being repriced at lower rates and in greater volume, which has a positive effect on net interest income. However, when interest rates are rising, this position produces the converse effect. Consequently, the Company has experienced a decline in its net interest margin during the past two years and is somewhat vulnerable to a rapid rise in interest rates in 1996. These declines in net interest margin did not translate into declines in net interest income because of increases in the volume of interest-earning assets. LIQUIDITY: The Company also seeks to maintain adequate liquidity in order to generate sufficient cash flows to fund operations on a timely basis. The Company manages its liquidity position to provide for asset growth and to ensure that the funding needs of depositors and borrowers can be met promptly. The Company does not have a high concentration of volatile funds, and all such funds are invested in assets of comparable maturity to mitigate liquidity concerns. At December 31, 1995, the Parent Company had $15,000,000 in long-term debt outstanding against a $20,000,000 revolving loan agreement. These funds were used to provide subsidiaries with additional capital and to fund certain acquisitions in 1993 and 1994. Total debt service for the Parent Company in 1996 will approximate $1.0 million at current interest rates. Other than long-term debt, the cash needs of the Parent Company consist of routine payroll and benefit expenses of Parent Company personnel, expenses for certain professional services, debt service on affiliate advances and dividends to shareholders. The Parent Company has approximately $11.0 million available for transfer from its subsidiary banks as of January 1, 1996. Subsidiary bank earnings in 1996 through the date of dividend declaration are also available for transfer upstream. Such subsidiary bank dividends are the Parent Company's primary source of cash. Management anticipates that the cash flow requirements of the Parent Company will be adequately met in the normal course of business. For more specific information regarding restrictions on subsidiary dividends, see NOTE NINE to the audited Consolidated Financial Statements. The Company's cash and cash equivalents, represented by cash, due from banks and federal funds sold, are a product of its operating, investing and financing activities. These activities are set forth in the Company's Consolidated Statements of Cash Flows included elsewhere herein. Cash was used in operating activities during 1995 and 1994 due to the purchases of loans held for sale and was generated from operating activities in 1993. Net cash was used in investing activities for each year presented which is indicative of the Company's loan volume over this period and net increases in the investment portfolio in 1993. The majority of this loan growth and investment activity was funded by the net cash provided by financing activities, principally in the form of increased short-term borrowings and deposit growth. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE FOUR INTEREST RATE SENSITIVITY GAPS (in thousands)
1 TO 3 MO. 3 TO 12 MO. 1 TO 5 YRS. OVER 5 YRS. TOTAL --------------------------------------------------------------- ASSETS Gross loans $166,864 $ 95,700 $ 314,207 $ 85,590 $662,361 Loans held for sale 122,222 0 0 0 122,222 Securities 28,653 20,106 96,429 49,180 194,368 --------------------------------------------------------------- Total interest-earning assets 317,739 115,806 410,636 134,770 978,951 --------------------------------------------------------------- LIABILITIES Savings and NOW accounts 321,087 0 0 0 321,087 All other interest-bearing deposits 102,234 140,395 115,493 1,214 359,336 Short-term borrowings 141,309 0 0 0 141,309 Long-term borrowings 0 20,000 0 0 20,000 --------------------------------------------------------------- Total interest-bearing liabilities 564,630 160,395 115,493 1,214 841,732 --------------------------------------------------------------- Interest sensitivity gap $(246,891) $ (44,589) $ 295,143 $133,556 $137,219 --------------------------------------------------------------- Cumulative sensitivity gap $(246,891) $(291,480) $ 3,663 $137,219 --------------------------------------------------------------- Management adjustments $ 293,468 $ (92,792) $(186,806) $(13,870) --------------------------------------------------------------- Cumulative management adjusted gap $ 46,577 $ (90,804) $ 17,533 $137,219 ---------------------------------------------------------------
The table above includes various assumptions and estimates by management as to maturity and repricing patterns. Future interest margins will be impacted by balances and rates which are subject to change periodically throughout the year. TABLE FIVE INVESTMENT PORTFOLIO (dollars in thousands)
BOOK VALUES AS OF DECEMBER 31 1995 1994 1993 ------------------------------------- U.S. Treasury and other U.S. government corporations and agencies $ 132,007 $ 179,061 $ 194,859 States and political subdivisions 40,635 45,041 48,503 Other 21,726 15,780 40,471 ------------------------------------- Total $194,368 $ 239,882 $ 283,833 -------------------------------------
At December 31, 1995, there were no securities of any issuers whose aggregate carrying or market value exceeded 10% of stockholders' equity.
MATURING ---------------------------------------------------------------------------- Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years ---------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield ---------------------------------------------------------------------------- U.S. Treasury and other U.S. government corporations and agencies $ 25,121 6.90% $ 80,150 5.63% $ 23,929 7.15% $ 2,807 6.49% State and political subdivisions 4,755 6.63 14,847 5.79 18,965 5.70 2,068 5.97 Other 18,883 6.56 1,432 7.74 1,411 8.01 0 0.00 ----------------------------------------------------------------------------- Total $ 48,759 6.74% $ 96,429 5.69% $ 44,305 6.55% $ 4,875 6.27% -----------------------------------------------------------------------------
Weighted average yields on tax-exempt obligations of states and political subdivisions have been computed on a fully federal tax-equivalent basis using a tax rate of 34%. The Company had $11.8 million in structured notes as of December 31, 1995. All structured notes are federal agency securities that are classified as available-for-sale. They have a weighted average coupon of 5.29% and a weighted average maturity of approximately three years. Approximately 67% of these securities were obtained through the Company's acquisitions and management has no plans to purchase any additional structured notes in the future. The impact of holding these securities on the results of operations was immaterial as of December 31, 1995. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE SIX LOAN PORTFOLIO (in thousands)
DECEMBER 31 1995 1994 1993 1992 1991 ---------------------------------------------------------------------- Commercial, financial and agricultural $ 214,304 $ 164,366 $149,112 $ 108,127 $ 98,885 Real estate-mortgage 304,848 258,910 205,745 157,562 107,910 Installment loans to individuals 145,734 140,695 124,490 129,017 106,396 ---------------------------------------------------------------------- Total loans $ 664,886 $ 563,971 $479,347 $ 394,706 $ 313,191 ----------------------------------------------------------------------
The Company had $27.2 million and $15.3 million outstanding in real estate construction loans at December 31, 1995 and 1994, respectively, the majority of which related to one-to-four-family residential properties. Real estate construction loans were not material in all other periods presented. The following table shows the maturity of loans outstanding as of December 31, 1995.
MATURING -------------------------------------------------------- After One Within But Within After One Year Five Years Five Years Total -------------------------------------------------------- Commercial, financial and agricultural $ 71,408 $ 73,820 $ 69,076 $ 214,304 Real estate-mortgage 59,484 85,679 159,685 304,848 Installment loans to individuals 26,893 101,470 17,371 145,734 -------------------------------------------------------- Total loans $ 157,785 $260,969 $ 246,132 $ 664,886 -------------------------------------------------------- Loans maturing after one year with: Fixed interest rates $312,320 Variable interest rates 194,781 -------- Total $507,101 --------
TABLE SEVEN MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS IN AMOUNTS OF $100,000 OR MORE (in thousands) Maturities of time certificates of deposits of $100,000 or more outstanding at December 31, 1995, are summarized as follows:
Amounts Percentage ------------------------------- Three months or less $ 14,373 28% Over three months through six months 8,558 17 Over six months through twelve months 10,097 20 Over twelve months 18,284 35 ------------------------------- Total $ 51,312 100% -------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LOAN LOSS ANALYSIS During 1995, the Company charged-off $1,331,000 of loans that were doubtful as to collection and had recoveries of $316,000. The resulting net charge-offs of $1,015,000 represent an increase of 31% from that reported in 1994. Net charge-offs decreased approximately 31%, or $348,000 in 1994 versus 1993. Approximately half of the 1993 net charge-offs was related to pre-acquisition loans at Buffalo. Net charge-offs as a percent of average total loans increased 13.3% or 2 basis points when comparing 1995 to 1994. The Company's asset quality continues to compare favorably with that of peer banks. The provision for possible loan losses charged to operations each year is dependent upon many factors, including loan growth, historical charge-off experience, size and composition of the loan portfolio, delinquencies and general economic trends. The provision of $1,104,000 in 1995 represents .18% of average loans as compared to a $1,040,000 or .21% provision in 1994. The increased provision for 1995 is primarily due to higher net charge-offs as discussed above and higher loan volume. Loan volume has continued to increase in recent years as a result of the Company's more active solicitation of commercial loan business as well as general volume increases applicable to the traditional borrowing segment from which the Company has generated loans in the past. The Company has successfully attracted more commercial customers, while continuing to obtain noncommercial, lower risk collateral such as residential properties. The Company's collateral position with respect to real estate loans has typically been less volatile than its peers, particularly banks located outside of its region where dramatic escalations in real estate values took place in certain prior years. The allowance for loan losses was $6,566,000 or 1.01% of net loans, as of December 31, 1995, compared to $6,477,000 or 1.18% of net loans in 1994. As detailed in Table Ten, as of December 31, 1995, the allowance for loan losses is allocated 31% to commercial, financial and agricultural loans, 48% to real estate-mortgage loans and 21% to installment loans to individuals. These amounts reflect management's assessment of the risk in each specific portfolio in relation to the total. These percentages compare to 30%, 44% and 26%, respectively, as of December 31, 1994. The portion of the allowance related to commercial credits is based primarily upon specific credit review with minor weighting being given to past charge-off history. Conversely, due to the homogenous nature of the portfolios and consistency in underwriting standards, the portions of the allowance allocated to the real estate-mortgages and installment loans to individuals are based primarily upon prior charge-off history with minor weighting being given to specific credit reviews. Management has, however, increased the portion of the allowance allocated to real estate-mortgages above the trend in net charge-off history for that portfolio. This increase is primarily due to management's concern that rapid increases in real estate lending within the Company over the past several years have led to a portfolio that may not be seasoned enough for past net charge-offs to represent current risk. In addition, the Company's adjustable rate mortgages have grown from $65.3 million at December 31, 1993 to $121.6 million at December 31, 1995, an increase of 86% in three years. In management's opinion, the consolidated allowance for loan losses is adequate to provide for any potential losses on existing loans. See NOTE FIVE to the audited Consolidated Financial Statements for a discussion of concentrations of credit risks. Nonperforming loans, consisting of nonaccrual, past-due and restructured credits, decreased approximately $209,000 in 1995. While the general economy remains soft in certain of the subsidiary banks' market areas, management does not anticipate material loan losses since loan to collateral ratios remain favorable. At December 31, 1995, loans aggregating $266,000 are considered by management to represent possible future credit problems. These loans are generally contractually current, but information is available to management which indicates that serious doubt may exist as to the ability of such borrowers to comply with the present loan repayment terms. The ratio of the allowance for loan losses to nonperforming loans, including potential problem loans, was 151% at December 31, 1995, as compared to 134% and 130% at December 31, 1994 and 1993. Tables Eight, Nine and Ten detail loan performance and analyze the allowance for loan losses. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE EIGHT ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (in thousands)
DECEMBER 31 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Balance at beginning of period $ 6,477 $ 6,209 $ 5,730 $ 2,761 $ 2,284 Charge-offs: Commercial, financial and agricultural (174) (327) (693) (255) (306) Real estate-mortgage (278) (160) (258) (325) (251) Installment loans to individuals (879) (693) (664) (711) (518) ----------------------------------------------------------------------- Totals (1,331) (1,180) (1,615) (1,291) (1,075) ----------------------------------------------------------------------- Recoveries: Commercial, financial and agricultural 56 111 58 22 49 Real estate-mortgage 22 11 220 65 26 Installment loans to individuals 238 286 217 168 132 ----------------------------------------------------------------------- Totals 316 408 495 255 207 ----------------------------------------------------------------------- Net charge-offs (1,015) (772) (1,120) (1,036) (868) Provision for possible loan losses 1,104 1,040 1,434 2,325 1,345 Balance of acquired subsidiary 165 1,680 ----------------------------------------------------------------------- Balance at end of period $ 6,566 $ 6,477 $ 6,209 $ 5,730 $ 2,761 ----------------------------------------------------------------------- AS A PERCENT OF AVERAGE TOTAL LOANS Net charge-offs .17% .15% .27% .32% .30% Provision for possible loan losses .18 .21 .35 .72 .47 AS A PERCENT OF NONPERFORMING AND POTENTIAL PROBLEM LOANS Allowance for loan losses 150.84% 134.24% 129.68% 102.71% 69.16%
TABLE NINE NONACCRUAL, PAST-DUE AND RESTRUCTURED LOANS (in thousands)
DECEMBER 31 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Nonaccrual loans $ 2,525 $ 2,614 $ 1,559 $ 1,517 $ 1,457 Accruing loans past due 90 days or more 1,421 1,420 708 1,487 1,925 Restructured loans 141 262 1,078 1,559 610 ----------------------------------------------------------------------- $ 4,087 $ 4,296 $ 3,345 $ 4,563 $ 3,992 -----------------------------------------------------------------------
During 1995, the Company recognized approximately $258,000 of interest income received in cash on nonaccrual and restructured loans. Approximately $328,000 of interest income would have been recognized during the year if such loans had been current in accordance with their original terms. There were no commitments to provide additional funds on nonaccrual, restructured, or other potential problem loans at December 31, 1995. Interest on loans is accrued and credited to operations based upon the principal amount outstanding. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest unless the loan is well collateralized and in the process of collection. When interest accruals are discontinued, interest credited to income in the current year that is unpaid and deemed uncollectible is charged to operations. Prior year interest accruals that are unpaid and deemed uncollectible are charged to the allowance for loan losses, provided that such amounts were specifically reserved. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE TEN ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (in thousands)
DECEMBER 31 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------------------- PERCENT Percent Percent Percent Percent OF LOANS Of Loans Of Loans Of Loans Of Loans IN EACH In Each In Each In Each In Each CATEGORY Category Category Category Category TO TOTAL To Total To Total To Total To Total AMOUNT LOANS Amount Loans Amount Loans Amount Loans Amount Loans ----------------------------------------------------------------------------------------- Commercial, financial and agricultural $2,053 32% $1,919 29% $2,100 31% $ 2,107 27% $1,227 32% Real estate-mortgage 3,125 46 2,848 46 2,325 43 1,804 40 538 34 Installment loans to individuals 1,388 22 1,710 25 1,784 26 1,819 33 996 34 ----------------------------------------------------------------------------------------- $6,566 100% $6,477 100% $6,209 100% $ 5,730 100% $2,761 100% -----------------------------------------------------------------------------------------
The portion of the allowance for loan losses that is not specifically allocated to individual credits has been apportioned among the separate loan portfolios based on the risk of each portfolio. OTHER INCOME AND EXPENSES Other income continues to be an area of management emphasis. Recognizing the importance of non-interest income to future operating performance, the Company is aggressively pursuing additional service opportunities by offering a variety of services and products to its customers which include trust, brokerage, mortgage banking and related services. The loan and deposit growth at the Company's subsidiary banks, which includes a greater mix of commercial relationships than certain prior years, has positioned the Company to increase other income in areas such as service charges. Service charge income increased approximately $624,000 or 23% when comparing 1995 to 1994. This increase is attributable to fees charged in the normal course of business on deposits, which increased $50.6 million during 1995. Other income included secondary market mortgage fee income approximating $913,000 and $317,000 in 1995 and 1994, respectively. Additionally, in 1994, the Company included in other income $1.4 million related to an insurance recovery at one of the subsidiary banks. During the fourth quarter of 1994, the Company took the opportunity to restructure its available-for-sale investment portfolio that resulted in an $885,000 securities loss. Gains/(losses) from securities transactions were not significant in 1995 or 1993. As more fully described in the Company's securities policy in NOTE ONE to the audited Consolidated Financial Statements, management determines the appropriate classification of securities at the time of purchase. Historically, sales of securities have been infrequent. See NOTE FOUR to the audited Consolidated Financial Statements for a discussion of securities available-for-sale. Total other expenses increased $3.8 million, or 12.5%, during 1995 due primarily to the Company's overall growth during 1995, which produced higher personnel costs throughout the organization. Salaries and employee benefits increased $2.9 million between 1995 and 1994. Total other expenses increased $5.8 million, or 24.0%, during 1994 due primarily to $1.1 million in expenses incurred by City Financial and City Mortgage with no expenses for these new subsidiaries included in the 1993 results. In addition, Blue Ridge had an increase of approximately $1.9 million in non-interest expense associated with growth and the 1993 acquisition of Shenandoah Federal Savings Association. The additional increase of $2.8 million in 1994 is attributable to the Company's overall growth during that year, which provided higher personnel costs throughout the organization. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES As a bank holding company, City Holding Company is subject to regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956. At December 31, 1995, the Federal Reserve Board's minimum ratio of qualified total capital to risk-weighted assets is 8 percent. At least half of the total capital is required to be comprised of Tier 1 capital, or the Company's common stockholders' equity less intangibles. The remainder ("Tier 2 capital") may consist of certain other prescribed instruments and a limited amount of loan loss reserves. In addition, the Federal Reserve Board has established minimum leverage ratio (Tier 1 capital to quarterly average tangible assets) guidelines for bank holding companies. These guidelines provide for a minimum ratio of 3 percent for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3 percent plus an additional cushion of at least 100 to 200 basis points. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. The following table presents comparative capital ratios and related dollar amounts of capital for the Company: DOLLARS IN THOUSANDS 1995 1994 - -------------------------------------------------------------------------------- CAPITAL COMPONENTS Tier 1 risk-based capital $ 66,260 $ 61,431 Total risk-based capital 72,826 67,908 CAPITAL RATIOS Tier 1 risk-based 8.87% 11.03% Total risk-based 9.75 12.19 Leverage 6.45 6.83 REGULATORY MINIMUM Tier 1 risk-based (dollar/ratio) $ 29,888/4.00% $ 22,282/4.00% Total risk-based (dollar/ratio) 59,776/8.00 44,565/8.00 Leverage (dollar/ratio) 30,801/3.00 26,989/3.00 The strong capital position of the Company is indicative of management's emphasis on asset quality and a history of retained net income. The ratios enable the Company to continually pursue acquisitions and other growth opportunities. Improvements in operating results and a consistent dividend program, coupled with an effective management of credit risk, have been, and will be, the key elements in maintaining the Company's present capital position. The Company does not anticipate any material capital expenditures in 1996. Earnings from subsidiary bank operations are expected to remain adequate to fund payment of stockholders' dividends and internal growth. In management's opinion, subsidiary banks have the capability to upstream sufficient dividends to meet the cash requirements of the Parent Company. INFLATION Since the assets and liabilities of the subsidiary banks are primarily monetary in nature (payable in fixed, determinable amounts), the performance of banks is affected more by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same. While the effect of inflation on banks is normally not as significant as its influence on those businesses which have large investments in plant and inventories, it does have an effect. During periods of high inflation, there are normally corresponding increases in the money supply, and banks will normally experience above-average growth in assets, loans and deposits. Also, general increases in the price of goods and services will result in increased operating expenses. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME TAXES Income tax expense was $4,182,000 in 1995, resulting in an effective tax rate of 32.42% for the year. Such rates were 30.3% and 30.6% in 1994 and 1993, respectively. The effective tax rate from 1994 to 1995 increased due primarily to a decrease in tax-exempt interest income. The effective tax rate from 1993 to 1994 remained relatively unchanged. At December 31, 1995, gross deferred tax assets total approximately $3.9 million. Such assets are primarily attributable to the allowance for loan losses ($2 million), acquired net operating loss (NOL) carryforwards ($748,000) and certain nonqualified deferred compensation arrangements sponsored by subsidiary banks ($411,000). Pursuant to management's evaluation for the quarter ended December 31, 1995, no valuation allowance has been allocated to the deferred tax assets. The quarterly evaluation process employed by management is based upon the expected reversal period of the assets, in consideration of taxes paid by the Company in the carryback years, expected reversals of existing taxable temporary differences, and historical trends in taxable income. Those assets for which realization is expected to be dependent on future events are subjected to further evaluation. Management's analysis has shown that realization of certain deferred tax assets, principally the acquired NOL, will be dependent on future events. After considering such factors as the magnitude of the asset relative to historical levels of financial reporting income and taxable income, the period over which future taxable income would have to be earned to realize the asset, and budgeted future results of operations, management has concluded that it is more likely than not that all deferred tax assets existing at December 31, 1995, will be realized. At present, management does not expect that implementation of tax planning strategies will be necessary to ensure realization. The need for a valuation allowance will continue to be addressed by management each quarter and any changes in the valuation allowance will be reported contemporaneously therewith in the Company's quarterly results of operations. REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS AND STOCKHOLDERS CITY HOLDING COMPANY We have audited the accompanying consolidated balance sheets of City Holding Company and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1994 or 1993 consolidated financial statements of Hinton Financial Corporation and subsidiary which statements reflect total revenues constituting 7% and 8% of the 1994 and 1993 consolidated totals, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Hinton Financial Corporation and subsidiary, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of City Holding Company and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Charleston, West Virginia January 26, 1996 CONSOLIDATED BALANCE SHEETS CITY HOLDING COMPANY AND SUBSIDIARIES
DECEMBER 31 1995 1994 --------------------------------- ASSETS Cash and due from banks $ 28,460,000 $ 34,284,000 Securities available for sale, at fair value 143,649,000 82,777,000 Investment securities (approximate market values: 1995-$52,183,000; 1994-$152,299,000) 50,719,000 157,105,000 Loans: Gross loans 664,886,000 563,971,000 Unearned income (8,125,000) (9,685,000) Allowance for possible loan losses (6,566,000) (6,477,000) --------------------------------- NET LOANS 650,195,000 547,809,000 Loans held for sale 122,222,000 30,227,000 Bank premises and equipment 23,651,000 21,130,000 Accrued interest receivable 8,031,000 6,903,000 Other assets 14,042,000 15,550,000 -------------------------------- TOTAL ASSETS $1,040,969,000 $895,785,000 --------------------------------- LIABILITIES Deposits: Noninterest-bearing $116,992,000 $ 94,368,000 Interest-bearing 680,423,000 652,437,000 --------------------------------- TOTAL DEPOSITS 797,415,000 746,805,000 Short-term borrowings 141,309,000 66,627,000 Long-term debt 20,000,000 6,875,000 Other liabilities 9,106,000 9,179,000 --------------------------------- TOTAL LIABILITIES 967,830,000 829,486,000 STOCKHOLDERS' EQUITY Preferred stock, par value $25 a share: authorized - 500,000 shares; none issued Common stock, par value $2.50 a share: authorized - 20,000,000 shares; issued and outstanding: 1995 - 5,092,046 shares; 1994-4,698,177 shares including 13,640 and 3,200 shares in treasury at December 31, 1995 and 1994 12,730,000 11,753,000 Capital surplus 25,942,000 18,366,000 Retained earnings 34,432,000 39,075,000 Net unrealized gain(loss) on securities available for sale, net of deferred income taxes 395,000 (2,863,000) --------------------------------- 73,499,000 66,331,000 Cost of common stock in treasury (360,000) (32,000) --------------------------------- TOTAL STOCKHOLDERS' EQUITY 73,139,000 66,299,000 COMMITMENTS AND CONTINGENT LIABILITIES --------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,040,969,000 $895,785,000 ---------------------------------
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME CITY HOLDING COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 1995 1994 1993 -------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 61,124,000 $ 46,067,000 $ 37,600,000 Interest on investment securities: Taxable 11,612,000 13,897,000 14,493,000 Tax-exempt 2,300,000 2,477,000 2,646,000 Other interest income 89,000 321,000 562,000 -------------------------------------------------- TOTAL INTEREST INCOME 75,125,000 62,762,000 55,301,000 INTEREST EXPENSE Interest on deposits 27,149,000 22,877,000 21,513,000 Interest on short-term borrowings 5,675,000 1,846,000 638,000 Interest on long-term debt 756,000 445,000 274,000 -------------------------------------------------- TOTAL INTEREST EXPENSE 33,580,000 25,168,000 22,425,000 -------------------------------------------------- NET INTEREST INCOME 41,545,000 37,594,000 32,876,000 PROVISION FOR POSSIBLE LOAN LOSSES 1,104,000 1,040,000 1,434,000 -------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 40,441,000 36,554,000 31,442,000 OTHER INCOME Investment securities gains (losses) 2,000 (729,000) 673,000 Service charges 3,347,000 2,723,000 2,200,000 Other income 2,997,000 3,255,000 989,000 -------------------------------------------------- TOTAL OTHER INCOME 6,346,000 5,249,000 3,862,000 OTHER EXPENSES Salaries and employee benefits 17,815,000 14,874,000 11,745,000 Occupancy, excluding depreciation 2,555,000 2,838,000 1,787,000 Depreciation 2,534,000 2,033,000 1,606,000 Other expenses 10,983,000 10,371,000 9,154,000 -------------------------------------------------- TOTAL OTHER EXPENSES 33,887,000 30,116,000 24,292,000 -------------------------------------------------- INCOME BEFORE INCOME TAXES 12,900,000 11,687,000 11,012,000 INCOME TAXES 4,182,000 3,546,000 3,367,000 -------------------------------------------------- NET INCOME $ 8,718,000 $ 8,141,000 $ 7,645,000 -------------------------------------------------- Net income per common share $ 1.70 $ 1.58 $ 1.48 -------------------------------------------------- Average common shares outstanding 5,129,260 5,160,105 5,149,265 --------------------------------------------------
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY CITY HOLDING COMPANY AND SUBSIDIARIES
UNREALIZED GAIN (LOSS) COMMON ON SECURITIES TOTAL STOCK CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS' (PAR VALUE) SURPLUS EARNINGS FOR SALE STOCK EQUITY ------------------------------------------------------------------------------------------- Balances at January 1, 1993 $ 10,961,000 $ 12,777,000 $ 37,799,000 $ (182,000) $ (532,000) $60,823,000 Net income 7,645,000 7,645,000 Cash dividends--$.51 a share (1,833,000) (1,833,000) Cash dividends of acquired subsidiaries (704,000) (704,000) Adjustments to beginning balance for change in accounting method by acquired subsidiary; net of income taxes of $203,000 402,000 402,000 Common stock issued in acquisition 187,000 644,000 831,000 Change in net unrealized loss on marketable equity securities 62,000 62,000 Cost of 96,072 shares of common stock acquired for treasury (2,218,000) (2,218,000) Sale of 22,801 shares of treasury stock 57,000 508,000 565,000 ------------------------------------------------------------------------------------------- Balances at December 31, 1993 11,148,000 13,478,000 42,907,000 282,000 (2,242,000) 65,573,000 Net income 8,141,000 8,141,000 Cash dividends--$.54 a share (1,930,000) (1,930,000) Cash dividends of acquired subsidiary (763,000) (763,000) Adjustment to beginning balance for change in accounting method, net of income taxes of $704,000 1,055,000 1,055,000 Change in net unrealized gain (loss) net of income taxes of $2,790,000 (4,200,000) (4,200,000) Redemption of fractional dissenter shares (1,843,000) (1,843,000) Cost of 7,002 shares of common stock acquired for treasury (193,000) (193,000) Sale of 14,898 shares of treasury stock 131,000 328,000 459,000 Retirement of 101,865 shares of common stock held in treasury (255,000) (1,820,000) 2,075,000 Issuance of 10% stock dividend 860,000 8,420,000 (9,280,000) --------------------------------------------------------------------------------------------- Balances at December 31, 1994 11,753,000 18,366,000 39,075,000 (2,863,000) (32,000) 66,299,000 Net income 8,718,000 8,718,000 Cash dividends declared--$.62 a share (2,852,000) (2,852,000) Cash dividends of acquired subsidiary (150,000) (150,000) Change in unrealized gain (loss) net of income taxes of $2,154,000 3,258,000 3,258,000 Cost of 86,665 shares of common stock acquired for treasury (2,286,000) (2,286,000) Sale of 6,486 shares of treasury stock (20,000) 172,000 152,000 Retirement of 69,739 shares of common stock held in treasury (174,000) (1,612,000) 1,786,000 Issuance of 10% stock dividend 1,151,000 9,208,000 (10,359,000) -------------------------------------------------------------------------------------------- Balances at December 31, 1995 $ 12,730,000 $ 25,942,000 $ 34,432,000 $ 395,000 $ (360,000) $73,139,000 --------------------------------------------------------------------------------------------
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS CITY HOLDING COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 1995 1994 1993 --------------------------------------------- OPERATING ACTIVITIES Net income $ 8,718,000 $ 8,141,000 $7,645,000 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization 1,003,000 951,000 723,000 Provision for depreciation 2,534,000 2,033,000 1,606,000 Provision for possible loan losses 1,104,000 1,040,000 1,434,000 Deferred income tax benefit (439,000) (309,000) (140,000) Minority interest in income of subsidiary 10,000 Loans originated for sale (74,242,000) (24,729,000) Purchases of loans held for sale (639,331,000) (189,719,000) Proceeds from loans sold 621,578,000 184,221,000 Realized investment securities (gains) losses (2,000) 729,000 (673,000) Increase in accrued interest receivable (1,128,000) (630,000) (132,000) (Increase) decrease in other assets (1,027,000) (2,800,000) 840,000 (Decrease) increase in other liabilities (73,000) 2,110,000 (56,000) ------------------------------------------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (81,305,000) (18,962,000) 11,257,000 INVESTING ACTIVITIES Proceeds from sales of investment securities 9,218,000 Proceeds from maturities and calls of investment securities 40,084,000 79,281,000 149,301,000 Purchases of investment securities (3,238,000) (64,346,000) (199,620,000) Proceeds from sales of securities available for sale 55,185,000 40,307,000 6,303,000 Proceeds from maturities and calls of securities available for sale 11,331,000 13,093,000 7,131,000 Purchases of securities available for sale (52,617,000) (30,747,000) Net increase in loans (103,490,000) (86,499,000) (72,189,000) Net cash (paid) acquired in acquisitions (504,000) 47,298,000 Sale of foreclosed properties 51,000 Purchases of premises and equipment (5,055,000) (4,129,000) (5,376,000) ------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (57,800,000) (53,544,000) (57,883,000) ------------------------------------------- FINANCING ACTIVITIES Net increase in noninterest-bearing deposits 22,624,000 15,853,000 3,111,000 Net increase in interest-bearing deposits 27,986,000 20,994,000 28,212,000 Net increase in short-term borrowings 74,682,000 39,415,000 1,939,000 Proceeds from long-term debt 17,525,000 6,875,000 5,225,000 Repayment of long-term debt (4,400,000) (5,875,000) (3,350,000) Purchases of treasury stock (2,286,000) (193,000) (2,218,000) Proceeds from sales of treasury stock 152,000 459,000 565,000 Redemption of dissenter and fractional shares (1,843,000) Cash dividends paid (3,002,000) (2,693,000) (2,583,000) ------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 133,281,000 72,992,000 30,901,000 ------------------------------------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,824,000) 486,000 (15,725,000) ------------------------------------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34,284,000 33,798,000 49,523,000 ------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $28,460,000 $34,284,000 $33,798,000 ===========================================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES DECEMBER 31, 1995 NOTE ONE SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: The accounting and reporting policies of City Holding Company and its subsidiaries (the Company) conform with generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. Actual results could differ from management's estimates. The following is a summary of the more significant policies. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of City Holding Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. NATURE OF OPERATIONS: The Company is a multi-bank holding company headquartered in Charleston, West Virginia. The Company's banking subsidiaries are comprised of retail and consumer oriented community banks with offices throughout West Virginia. The non-banking subsidiaries are comprised of a full service mortgage banking company located in Pittsburgh, Pennsylvania, and a full service securities brokerage and investment advisory company located in Charleston. CASH AND DUE FROM BANKS: The Company considers cash and due from banks and federal funds sold as cash and cash equivalents. The carrying amounts reported in the December 31, 1995 and 1994, consolidated balance sheets for cash and cash equivalents approximate those assets' fair values. SECURITIES: Management determines the appropriate classification of securities at the time of purchases. If management has the intent and the Company has the ability at the time of purchase to hold debt securities to maturity, they are classified as investments and are stated at cost, adjusted for amortization of premiums and accretion of discounts. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale along with the Company's investment in equity securities. Securities available for sale are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. Securities classified as available for sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk, and other factors. The specific identification method is used to determine the cost basis of securities sold. LOANS: Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods which generally result in level rates of return. The accrual of interest income generally is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in process of collection. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. LOANS HELD FOR SALE: Loans held for sale represent mortgage loans the Company has either purchased or originated with the intent to sell on the secondary market and are carried at the lower of aggregate cost or estimated fair value. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE ONE SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (continued) ALLOWANCE FOR LOAN LOSSES: The provision for possible loan losses included in the consolidated statements of income is based upon management's evaluation of individual credits in the loan portfolio, historical loan loss experience, current and expected future economic conditions, and other relevant factors. These provisions, less net charge-offs, comprise the allowance for loan losses. In management's judgment, the allowance for loan losses is maintained at a level adequate to provide for probable losses on existing loans. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets. INTANGIBLES: Intangible assets, which are included in other assets in the consolidated balance sheets, are comprised of goodwill, core deposits, and purchased mortgage loan servicing rights. The goodwill and core deposits are amortized using straight-line (15 year life) and accelerated methods (10 year life), respectively, over their estimated useful lives. The servicing rights are amortized using an accelerated method over the period of estimated net servicing income. INCOME TAXES: The consolidated provision for income taxes is based upon reported income and expense. Deferred income taxes are provided for temporary differences between financial reporting and tax bases of assets and liabilities. The Company files a consolidated income tax return. The respective subsidiaries generally provide for income taxes on a separate return basis and remit amounts determined to be currently payable to the Parent Company. STOCK-BASED COMPENSATION: In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation", which provides an alternative to APB Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting for stock-based compensation issued to employees. The Statement allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under Opinion No. 25, Statement No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995, or upon initial adoption of the statement, if earlier. The Company continues to evaluate the provisions of Statement No. 123 and has not determined whether it will adopt the recognition and measurement provisions of that Statement. However, as discussed in NOTE ELEVEN, no stock options or awards have been granted under the Company's incentive plan. NET INCOME PER COMMON SHARE: Net income per common share is based on the weighted average common shares outstanding during each year. On September 11, 1995, a 10% stock dividend was declared by the Board of Directors for shareholders of record on November 1, 1995. The stock dividend was paid on November 30, 1995 and all stock related data in the consolidated financial statements reflects the stock dividend. On December 12, 1994, a 10% stock dividend was declared by the Board of Directors for shareholders of record on January 2, 1995. The stock dividend was paid on January 15, 1995. For each declaration an amount equal to the fair value of the additional shares issued was transferred from retained earnings to the common stock and capital surplus accounts. LOAN FEES AND COST: Loan origination and commitment fees and direct loan origination costs are principally being recognized as collected and incurred. The use of this method of recognition does not produce results that are materially different from results which would have been produced if such costs and fees were deferred and amortized as an adjustment of loan yield over the life of the related loan. STATEMENTS OF CASH FLOWS: Cash paid for interest, including long-term debt, was $32,755,000, $24,886,000 and $22,579,000 in 1995, 1994, and 1993, respectively. Cash paid for income taxes was $4,055,000, $3,567,000, and $3,406,000 in 1995, 1994, and 1993, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE TWO RESTRICTIONS ON CASH AND DUE FROM BANKS Certain of the subsidiary banks are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those balances for the year ended December 31, 1995, was approximately $7,594,000. NOTE THREE ACQUISITIONS On August 30, 1995, the Company acquired 100% of the common stock of First Merchants Bancorp, Inc., and subsidiary (Merchants) in exchange for 921,600 shares of the Company's common stock. The transaction has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for all periods presented have been restated to include the accounts of Merchants. Previously reported results of the Company have been restated as follows:
Six Months Ended Year Ended Year Ended June 30, 1995 December 31, 1994 December 31, 1993 --------------------------------------------------------------- Net interest income as previously reported by the Company $ 17,297,000 $ 32,906,000 $ 28,669,000 Merchants' previously reported results 2,471,000 4,688,000 4,207,000 ------------------------------------------------------------ Restated net interest income $ 19,768,000 $ 37,594,000 $ 32,876,000 ------------------------------------------------------------ Net income as previously reported by the Company $ 3,554,000 6,959,000 $ 6,432,000 Merchants' previously reported results 611,000 1,182,000 1,213,000 ------------------------------------------------------------ Restated net income $ 4,165,000 $ 8,141,000 $ 7,645,000 ------------------------------------------------------------ Net income per common share as previously reported by the Company as adjusted for the 10% stock dividends in 1995 $ .85 $ 1.68 $ 1.55 Effect of Merchants' restatement (.04) (.10) (.07) ------------------------------------------------------------ Restated net income per common share $ .81 $ 1.58 $ 1.48 ------------------------------------------------------------
In December 1994, the Company acquired 100% of the common stock of Hinton Financial Corporation and subsidiary (Hinton) in exchange for 460,047 shares of the Company's common stock. The transaction was accounted for as a pooling of interests. In June 1994, the Company acquired the remaining 33% interest in the common stock of First National Bank-Beckley, West Virginia (FNB) for which consideration included $530,000. As a result, FNB became a wholly-owned subsidiary of the Company. This transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations attributable to the acquisition have been included in the consolidated totals from the date of acquisition. Intangible assets arising from prior year purchase business combinations consist primarily of core deposits and goodwill which have an aggregate unamortized balance at December 31, 1995 and 1994, of $5,962,000 and $5,154,000, respectively. The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE FOUR INVESTMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. The adoption of SFAS No. 115 resulted in an increase in stockholders' equity of $1,055,000 and a transfer of approximately $15 million from investment securities to securities available for sale, as of January 1, 1994. On November 15, 1995, the Financial Accounting Standards Board (FASB) staff issued a Special Report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. In accordance with provisions in that Special Report, the Company chose to reclassify certain securities from held-to-maturity to available-for-sale. At the date of transfer the amortized cost of those securities was $69,389,000 and the unrealized gain on those securities was $242,000, which was included in stockholders' equity. Included in the Company's investment portfolio are structured notes with an estimated fair value of $11.8 million and $14.5 million at December 31, 1995 and 1994, respectively. Such investments are used by management to enhance yields, diversify the investment portfolio, and manage the Company's exposure to interest rate fluctuations. These securities consist of federal agency securities with an average maturity of less than three years. Management, periodically, performs sensitivity analyses to determine the Company's exposure to fluctuation in interest rates of 3% and had determined that the structured notes meet regulatory price sensitivity guidelines. The aggregate carrying and approximate market values of securities follow. Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
AVAILABLE-FOR-SALE SECURITIES GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------------------- DECEMBER 31, 1995 U.S. TREASURY SECURITIES AND OBLIGATIONS OF U.S. GOVERNMENT CORPORATIONS AND AGENCIES $ 92,793,000 $ 469,000 $ 562,000 $ 92,700,000 OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 12,885,000 474,000 10,000 13,349,000 MORTGAGE-BACKED SECURITIES 15,486,000 455,000 67,000 15,874,000 OTHER DEBT SECURITIES 4,347,000 63,000 19,000 4,391,000 ------------------------------------------------------------------- TOTAL DEBT SECURITIES 125,511,000 1,461,000 658,000 126,314,000 EQUITY SECURITIES 17,479,000 162,000 306,000 17,335,000 ------------------------------------------------------------------- $142,990,000 $ 1,623,000 $ 964,000 $ 143,649,000 -------------------------------------------------------------------
HELD-TO-MATURITY SECURITIES GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------------------------------------------------------------------- DECEMBER 31, 1995 U.S. TREASURY SECURITIES AND OBLIGATIONS OF U.S. GOVERNMENT CORPORATIONS AND AGENCIES $22,971,000 $ 167,000 $ 64,000 $ 23,074,000 OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 27,286,000 1,419,000 46,000 28,659,000 MORTGAGE-BACKED SECURITIES 462,000 12,000 450,000 ---------------------------------------------------------------------- $50,719,000 $ 1,586,000 $ 122,000 $ 52,183,000 ----------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE FOUR INVESTMENTS (continued)
Available-for-Sale Securities Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ------------------------------------------------------------------ DECEMBER 31, 1994 U.S. Treasury securities and obligations of U.S. government corporations and agencies $61,053,000 $ 16,000 $ 3,777,000 $ 57,292,000 Obligations of states and political subdivisions 2,098,000 6,000 47,000 2,057,000 Mortgage-backed securities 11,835,000 101,000 359,000 11,577,000 Other debt securities 1,003,000 39,000 964,000 ------------------------------------------------------------------ Total debt securities 75,989,000 123,000 4,222,000 71,890,000 Equity securities 11,540,000 18,000 671,000 10,887,000 ------------------------------------------------------------------ $87,529,000 $141,000 $ 4,893,000 $ 82,777,000 ------------------------------------------------------------------
Held-to-Maturity Securities Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ------------------------------------------------------------------- DECEMBER 31, 1994 U.S. Treasury securities and obligations of U.S. government corporations and agencies $102,895,000 $ 22,000 $ 3,794,000 $ 99,123,000 Obligations of states and political subdivisions 42,984,000 617,000 1,043,000 42,558,000 Mortgage-backed securities 7,297,000 527,000 6,770,000 Other debt securites 3,929,000 23,000 104,000 3,848,000 ------------------------------------------------------------------ $157,105,000 $ 662,000 $ 5,468,000 $ 152,299,000 ------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
ESTIMATED COST FAIR VALUE ------------------------------------------ AVAILABLE-FOR-SALE Due in one year or less $ 16,805,000 $ 16,838,000 Due after one year through five years 70,381,000 70,410,000 Due after five years through ten years 21,806,000 22,077,000 Due after ten years 1,033,000 1,115,000 ------------------------------------------ 110,025,000 110,440,000 Mortgage-backed securities 15,486,000 15,874,000 ------------------------------------------ $ 125,511,000 $ 126,314,000 ------------------------------------------ HELD-TO-MATURITY Due in one year or less $ 3,799,000 $ 3,816,000 Due after one year through five years 25,127,000 25,479,000 Due after five years through ten years 20,296,000 21,325,000 Due after ten years 1,035,000 1,113,000 ------------------------------------------ 50,257,000 51,733,000 Mortgage-backed securities 462,000 450,000 ------------------------------------------ $ 50,719,000 $ 52,183,000 ------------------------------------------
Gross gains of $103,000, $234,000 and $743,000, respectively, and gross losses of $101,000, $999,000 and $80,000, respectively, were realized on sales and calls of securities during 1995, 1994 and 1993, respectively. The book value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated $104,289,000 and $81,404,000 at December 31, 1995 and 1994, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE FIVE LOANS The loan portfolio is summarized as follows:
DECEMBER 31 1995 1994 ---------------------------------------- Commercial, financial and agricultural $ 214,304,000 $164,366,000 Residential real estate 304,848,000 258,910,000 Installment loans to individuals 145,734,000 140,695,000 ---------------------------------------- $ 664,886,000 $563,971,000 ----------------------------------------
The Company grants loans to customers generally within the market areas of its subsidiary banks. There is no significant concentration of credit risk by industry or by related borrowers. There are no foreign loans outstanding and highly leveraged loan transactions are insignificant. The Company originates and sells fixed rate mortgage loans on a servicing released basis. At December 31, 1995, the Company held for sale approximately $13 million of originated loans. In 1994, the Company began participation in a short-term, whole-loan bulk purchasing program whereby the Company purchases from a third party whole loans secured by residential mortgages. The loans, generally, are repurchased from the Company within 90 days. The Company earns a fixed rate of return on loans purchased under the program. During 1995 and 1994, the annualized rate was 9% and aggregate income from loans purchased under the program was approximately $4.6 million and $1.9 million, respectively, which is reflected in interest income. At December 31, 1995 and 1994, the Company's investment in these loans approximated $102 million and $22 million, respectively. Due to the short-term nature of these loans, the recorded value approximates fair value. A summary of changes in the allowance for possible loan losses follows:
1995 1994 1993 -------------------------------------------------------- Balance at beginning of year $ 6,477,000 $ 6,209,000 $ 5,730,000 Provision for possible loan losses 1,104,000 1,040,000 1,434,000 Charge-offs (1,331,000) (1,180,000) (1,615,000) Recoveries 316,000 408,000 495,000 Allowance of purchased subsidiaries 165,000 --------------------------------------------------------- BALANCE AT END OF YEAR $ 6,566,000 $ 6,477,000 $ 6,209,000 ---------------------------------------------------------
Beginning in 1995, the Company adopted FASB Statement No. 114. "Accounting by Creditors for Impairment of a Loan." Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. On December 31, 1995, the recorded investment in loans that are considered to be impaired under Statement No. 114 was $4,087,000 (of which $2,525,000 were on a nonaccrual basis). Included in this amount is $1,630,000 of impaired loans for which the related allowance for loan losses is $404,000. The average recorded investment in impaired loans during the year ended December 31, 1995, was approximately $3,423,000. The FASB has issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which is effective for fiscal years beginning after December 31, 1995. The Statement requires that mortgage servicing rights be capitalized, regardless of how they are obtained. The Company will adopt this Statement on January 1, 1996, and it is not expected to have a material effect on the Company's financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE SIX BANK PREMISES AND EQUIPMENT A summary of bank premises and equipment follows:
DECEMBER 31 1995 1994 ---------------------------------------------- Bank premises $ 24,477,000 $ 21,950,000 Furniture, fixtures, and equipment 15,470,000 13,153,000 ---------------------------------------------- 39,947,000 35,103,000 Less allowance for depreciation 16,296,000 13,973,000 ---------------------------------------------- $ 23,651,000 $ 21,130,000 ----------------------------------------------
NOTE SEVEN SHORT-TERM BORROWINGS Short-term borrowings consist primarily of advances from the Federal Home Loan Bank of Pittsburgh (the FHLB) and securities sold under agreement to repurchase. A summary of the Company's short-term borrowings is set forth below: 1995: AVERAGE AMOUNT OUTSTANDING DURING THE YEAR $ 97,357,000 MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH END 190,862,000 WEIGHTED AVERAGE INTEREST RATE: DURING THE YEAR 5.23% END OF THE YEAR 5.51% 1994: Average amount outstanding during the year $ 46,484,000 Maximum amount outstanding at any month end 86,897,000 Weighted average interest rate: During the year 3.95% End of the year 5.43% 1993: Average amount outstanding during the year $ 24,556,000 Maximum amount outstanding at any month end 39,025,000 Weighted average interest rate: During the year 2.56% End of the year 2.65% NOTE EIGHT LONG-TERM DEBT AND UNUSED LINES OF CREDIT Long-term debt includes an obligation of the Parent Company consisting of a $20,000,000 revolving credit loan facility with an unrelated party. At December 31, 1995, $15 million was outstanding. The loan has a variable rate (7.8125% at December 31, 1995) with interest payments due quarterly and principal due at maturity in June 1996. Management intends to refinance the loan according to provisions provided in the agreement. The loan agreement contains certain restrictive provisions applicable to the Parent Company including limitations on additional long-term debt. The parent company has pledged the common stock of its wholly-owned subsidiaries, The City National Bank (City National), The Peoples Bank of Point Pleasant, First State Bank and Trust, Merchants National Bank, and Home National Bank as collateral for the revolving credit loan. During 1995, City National obtained long-term financing from the Federal Home Loan Bank (FHLB) in the form of a Long-Term LIBOR Floater with maximum available credit of $5 million. At December 31, 1995, $5 million was outstanding with an interest rate of 5.9186%. The agreement matures in December 1998. The Company has purchased, through its subsidiaries, approximately 111,000 shares of FHLB stock at par value. Such purchases entitle the Company to dividends declared by the FHLB and provide an additional source of short-term and long-term funding, in the form of collateralized advances. At December 31, 1995, the subsidiaries have been issued one year flexline commitments of $81,467,000, at prevailing interest rates, from the FHLB with maturities ranging from July to December 1996. Such commitments are subject to satisfying the Capital Stock Requirement provisions, as defined, in the agreement with the FHLB. As of December 31, 1995, there were no amounts outstanding pursuant to the agreements. Financing obtained from the FHLB, including the LIBOR Floater, is based in part on the amount of qualifying collateral available, specifically U.S. Treasury and agency securities, mortgage backed securities and residential real estate loans. At December 31, 1995, collateral pledged to the FHLB included approximately $11.1 million in FHLB capital stock. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE NINE RESTRICTIONS ON SUBSIDIARY DIVIDENDS Certain restrictions exist regarding the ability of the subsidiary banks to transfer funds to the Parent Company in the form of cash dividends. The approval of the bank's applicable primary regulator is required prior to the payment of dividends by a subsidiary bank in excess of its earnings retained in the current year plus retained net profits for the preceding two years. During 1996, the subsidiary banks can, without prior regulatory approval, declare dividends of approximately $10,965,000 to the Parent Company, plus retained net profits for the interim period through the date of such dividend declaration. NOTE TEN INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31 1995 1994 ----------------------------------------- Deferred tax assets: Allowance for loan losses $ 2,397,000 $ 2,388,000 Acquired net operating loss carryforward 748,000 777,000 Deferred compensation payable 411,000 436,000 Securities available for sale 1,890,000 Other 346,000 334,000 ----------------------------------------- TOTAL DEFERRED TAX ASSETS 3,902,000 5,825,000 ----------------------------------------- Deferred tax liabilities: Federal income tax allowance for loan losses 546,000 796,000 Premises and equipment 785,000 925,000 Core deposit intangible 461,000 482,000 Investments 128,000 139,000 Loans 233,000 272,000 Securities available for sale 264,000 Other 150,000 161,000 ----------------------------------------- TOTAL DEFERRED TAX LIABILITIES 2,567,000 2,775,000 ----------------------------------------- NET DEFERRED TAX ASSETS $ 1,335,000 $ 3,050,000 - --------------------------------------------------------------------------------------------------------
Significant components of the provision for income taxes are as follows:
1995 1994 1993 -------------------------------------------------------- Federal: Current $ 3,930,000 $ 3,152,000 $ 2,973,000 Deferred (439,000) (309,000) (140,000) --------------------------------------------------------- 3,491,000 2,843,000 2,833,000 State 691,000 703,000 534,000 --------------------------------------------------------- TOTAL $ 4,182,000 $ 3,546,000 $ 3,367,000 ---------------------------------------------------------
Current income tax expense (benefit) attributable to investment securities transactions approximated $1,000, $(292,000), and $270,000 in 1995, 1994, and 1993, respectively. As of December 31, 1995, the Company has approximately $1.7 million and $1.9 million, respectively, of federal and state net operating loss carryforwards which expire in 2006. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE TEN INCOME TAXES (continued) A reconciliation between income taxes as reported and the amount computed by applying the statutory federal income tax rate to income before income taxes follows:
1995 1994 1993 --------------------------------------------------------- Computed federal taxes and statutory rate $ 4,515,000 $ 4,019,000 $ 3,783,000 State income taxes, net of federal tax benefit 335,000 394,000 378,000 Tax effects of: Nontaxable interest income (805,000) (850,000) (846,000) Other items, net 137,000 (17,000) 52,000 ------------------------------------------------------- $ 4,182,000 $ 3,546,000 $ 3,367,000 -------------------------------------------------------
NOTE ELEVEN RETIREMENT PLAN The City Holding Company Profit Sharing and 401(k) Plan (the Plan) is a deferred compensation plan under section 401(k) of the Internal Revenue Code. All employees who complete one year of service are eligible to participate in the Plan. Participants may contribute from 1% to 15% of pre-tax earnings to their respective accounts. These contributions may be invested in any of four investment options selected by the employee, one of which is City Holding Company common stock. The Company matches 50% of the first 6% of compensation deferred by the participant with City Holding Company common stock. Profit sharing contributions are discretionary, as determined annually by the Company's Board of Directors. The Company's total expense associated with the Plan approximated $1,400,000, $854,000, and $553,000 in 1995, 1994, and 1993, respectively. The total number of shares of the Company's common stock held by the Plan is 118,939. The Company maintains the 1993 Stock Incentive Plan (Incentive Plan) applicable to key employees. Under the Incentive Plan, stock options are granted at an amount no less than the fair value of the Company's common stock on the date of the grant. Participants in the Incentive Plan may also be granted stock appreciation rights and stock awards, at the discretion of the Company's Compensation Committee of the Board of Directors. A maximum of 300,000 shares of the Company's common stock may be issued pursuant to the provisions of the Incentive Plan. Since its inception, no awards have been made under the Incentive Plan. One of the Company's recently acquired subsidiaries, Merchants, had participated in a non-contributory defined benefit retirement plan which covered its eligible, full-time employees prior to being acquired by the Company in August 1995. Management of the Company has frozen those employees' participation in that plan as of December 31, 1995 and has declared the participants from that plan eligible to participate in the Company's Plan. Merchants had also sponsored contributory defined health care and life insurance plans that provided postretirement medical and life insurance benefits to qualifying retirees. The Company will provide for the benefits of the individuals who qualified for those benefits at the date of acquisition by purchasing insurance contracts. Having provided for those benefits, the Company has terminated these plans effective December 31, 1995. NOTE TWELVE TRANSACTIONS WITH DIRECTORS AND OFFICERS Subsidiaries of the Company have granted loans to the officers and directors of the Company and its subsidiaries, and to their associates. The loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The aggregate amount of loans outstanding as of December 31, 1995 and 1994, attributable directly and indirectly to these parties, was approximately $27,950,000 and $23,738,000, respectively. During 1995, $17,192,000 of new loans were made and repayments totaled $9,980,000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE THIRTEEN INCOME Significant components of other income included secondary market mortgage loan fee income approximating $913,000 and $317,000 in 1995 and 1994, respectively. Additionally, in 1994, the Company included in other income $1,400,000 related to an insurance recovery at one of the Company's subsidiary banks. NOTE FOURTEEN EXPENSES The following items of other expenses exceeded one percent of total revenue for the respective years:
1995 1994 1993 -------------------------------------------------- Insurance, including FDIC premiums $ 1,139,000 $ 1,817,000 $ 1,562,000 Advertising 889,000 964,000 693,000 Bank supplies 1,236,000 1,016,000 899,000 Legal and accounting fees 571,000 1,032,000 542,000
NOTE FIFTEEN COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, certain financial products are offered by the Company to accommodate the financial needs of its customers. Loan commitments (lines of credit) represent the principal off-balance-sheet financial product offered by the Company. At December 31, 1995 and 1994, commitments outstanding to extend credit totaled approximately $67,357,000 and $48,409,000, respectively. To a much lesser extent, the Company offers standby letters of credit which require payments to be made on behalf of customers when certain specified future events occur. Amounts outstanding pursuant to such standby letters of credit were $3,313,000 and $3,549,000 as of December 31, 1995 and 1994, respectively. Historically, substantially all standby letters of credit have expired unfunded. Both of the above arrangements have credit risks essentially the same as that involved in extending loans to customers and are subject to the Company's standard credit policies. Collateral is obtained based on management's credit assessment of the customer. Management does not anticipate any material losses as a result of these commitments. NOTE SIXTEEN PREFERRED STOCK AND SHAREHOLDER RIGHTS PLAN The Company's Board of Directors has the authority to issue preferred stock, and to fix the designation, preferences, rights, dividends and all other attributes of such preferred stock, without any vote or action by the shareholders. As of December 31, 1995, there are no such shares outstanding, nor are any expected to be issued, except as might occur pursuant to the Stock Rights Plan discussed below. The Company's Stock Rights Plan provides that each share of common stock carries with it one right. The rights would be exercisable only if a person or group, as defined, acquired 10% or more of the Company's common stock, or announces a tender offer for such stock. Under conditions described in the Stock Rights Plan, holders of rights could acquire shares of preferred stock or additional shares of the Company's common stock, or in the event of a 50% or more change-in-control, shares of common stock of the acquiror. The value of shares acquired under the plan would equal twice the exercise price. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE SEVENTEEN FAIR VALUES OF FINANCIAL INSTRUMENTS FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following table represents the estimates of fair value of financial instruments:
FAIR VALUE OF FINANCIAL INSTRUMENTS 1995 1994 ------------------------------------------------------------------- CARRYING FAIR Carrying Fair AMOUNT VALUE Amount Value ------------------------------------------------------------------- Assets Cash and due from banks $ 28,460,000 $ 28,460,000 $ 34,284,000 $ 34,284,000 Loans held for sale 122,222,000 122,222,000 30,227,000 30,227,000 Securities 194,368,000 195,832,000 239,882,000 235,076,000 Net loans 650,195,000 660,208,000 547,809,000 555,330,000 Liabilities Demand deposits 425,050,000 425,050,000 398,073,000 398,073,000 Time deposits 372,365,000 371,439,000 348,732,000 350,684,000 Short-term borrowings 141,309,000 141,309,000 66,627,000 66,627,000 Long-term debt 20,000,000 19,593,000 6,875,000 6,875,000
The following methods and assumptions were used in estimating fair value amounts for financial instruments: The fair values for the loan portfolio are estimated using discounted cash flow analyses at interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying values of accrued interest approximate fair value. The fair values of demand deposits (i.e. interest and noninterest-bearing checking, regular savings, and other types of money market demand accounts) are, by definition, equal to their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities of time deposits. Securities sold under agreements to repurchase represent borrowings with original maturities of less than 90 days. The carrying amounts of short-term borrowings approximate their fair values. The fair values of long-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair values of commitments are estimated based on fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the counterparties' credit standing. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle them or otherwise settle the obligations with the counterparties at the reporting date. The fair values approximated the carrying values of these commitments and letters of credit as of December 31, 1995 and 1994, and were not material. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE EIGHTEEN CITY HOLDING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION CONDENSED BALANCE SHEETS
DECEMBER 31 1995 1994 ------------------------------------- ASSETS Cash $ 1,226,000 $ 77,000 Securities available-for-sale 1,237,000 1,694,000 Investment in subsidiaries 83,380,000 76,471,000 Fixed assets 3,006,000 1,745,000 Other assets 2,192,000 1,262,000 ------------------------------------- TOTAL ASSETS $ 91,041,000 $81,249,000 ------------------------------------- LIABILITIES Long-term debt $ 15,000,000 $ 6,875,000 Advances from affiliates 934,000 5,807,000 Other liabilities 1,968,000 2,268,000 ------------------------------------- TOTAL LIABILITIES 17,902,000 14,950,000 STOCKHOLDERS' EQUITY 73,139,000 66,299,000 ------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 91,041,000 $81,249,000 -------------------------------------
Advances from affiliates, which eliminate for purposes of the Company's consolidated financial statements, represent amounts borrowed from banking subsidiaries to fund the purchase of certain bank premises and to meet other cash needs of the parent. Such debt is collateralized by the securities and fixed assets of the Parent Company. Interest is due quarterly at prime with principal due at maturity in 1997.
CONDENSED STATEMENTS OF INCOME DECEMBER 31 1995 1994 1993 -------------------------------------------------- INCOME Dividends from bank subsidiaries $13,465,000 $ 5,626,000 $11,610,000 Interest and dividends on securities 85,000 111,000 117,000 Other income 555,000 1,604,000 146,000 -------------------------------------------------- 14,105,000 7,341,000 11,873,000 EXPENSES Interest expense 1,144,000 735,000 349,000 Other expenses 4,206,000 3,159,000 2,505,000 -------------------------------------------------- 5,350,000 3,894,000 2,854,000 -------------------------------------------------- INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN UNDISTRIBUTED NET INCOME (EXCESS DIVIDENDS) OF SUBSIDIARIES 8,755,000 3,447,000 9,019,000 Income tax benefit (2,127,000) (1,344,000) (991,000) -------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME (EXCESS DIVIDENDS) OF SUBSIDIARIES 10,882,000 4,791,000 10,010,000 EQUITY IN UNDISTRIBUTED NET INCOME (EXCESS DIVIDENDS) OF SUBSIDIARIES (2,164,000) 3,350,000 (2,365,000) -------------------------------------------------- NET INCOME $ 8,718,000 $ 8,141,000 $ 7,645,000 --------------------------------------------------
NOTES TO COSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE EIGHTEEN CITY HOLDING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION (continued) CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 1995 1994 1993 -------------------------------------------- OPERATING ACTIVITIES Net income $ 8,718,000 $ 8,141,000 $7,645,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation 272,000 149,000 (Increase) decrease in other assets (882,000) 44,000 (128,000) (Decrease) increase in other liabilities (300,000) 1,532,000 430,000 Excess dividends (equity in undistributed net income) of subsidiaries 2,164,000 (3,350,000) 2,365,000 Other 99,000 ------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 9,972,000 6,516,000 10,411,000 INVESTING ACTIVITIES Proceeds from maturities of investment securities 836,000 6,551,000 Proceeds from sales of securities (160,000) 250,000 Purchases of investment securities (148,000) (6,407,000) Purchases of mortgage loans (808,000) Cash paid for acquired subsidiary (532,000) (193,000) Cash invested in subsidiaries (6,082,000) (5,318,000) (8,767,000) Purchases of premises and equipment (1,533,000) (126,000) (1,706,000) ------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (6,939,000) (6,932,000) (10,272,000) FINANCING ACTIVITIES Proceeds from long-term debt 12,525,000 6,875,000 5,225,000 Principal repayments on long-term debt (4,400,000) (5,875,000) (3,350,000) Repayments to bank subsidiaries, net (4,873,000) 3,573,000 2,234,000 Cash dividends paid (3,002,000) (2,693,000) (2,537,000) Purchases of treasury stock (2,286,000) (193,000) (2,218,000) Proceeds from sales of treasury stock 152,000 461,000 565,000 Redemption of dissenter and fractional shares (1,843,000) ------------------------------------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,884,000) 305,000 (81,000) ------------------------------------------ INCREASE (DECREASE) IN CASH 1,149,000 (111,000) 58,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 77,000 188,000 130,000 ------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,226,000 $ 77,000 $ 188,000 ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CITY HOLDING COMPANY AND SUBSIDIARIES NOTE NINETEEN SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) A summary of selected quarterly financial information for 1995 and 1994 follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------------------------------------------------------------- 1995 INTEREST INCOME $16,787,000 $ 18,227,000 $19,256,000 $20,855,000 INTEREST EXPENSE 7,080,000 8,166,000 8,842,000 9,492,000 NET INTEREST INCOME 9,707,000 10,061,000 10,414,000 11,363,000 PROVISION FOR POSSIBLE LOAN LOSSES 201,000 208,000 302,000 393,000 INVESTMENT SECURITIES GAINS (LOSSES) 3,000 (1,000) 7,000 (7,000) NET INCOME 2,040,000 2,125,000 2,143,000 2,410,000 NET INCOME PER COMMON SHARE 0.40 0.41 0.42 0.47 1994 Interest income $14,485,000 $ 15,213,000 $16,212,000 $16,852,000 Interest expense 5,800,000 5,964,000 6,407,000 6,997,000 Net interest income 8,685,000 9,249,000 9,805,000 9,855,000 Provision for possible loan losses 226,000 241,000 230,000 343,000 Investment securities gains (losses) 77,000 3,000 (1,000) (808,000) Net income 1,906,000 1,902,000 2,023,000 2,310,000 Net income per common share 0.37 0.37 0.39 0.45
AFFILIATE BANKS THE CITY NATIONAL BANK OF CHARLESTON 3601 MacCorkle Avenue, S.E. Charleston, West Virginia 25304 304/925-6611 Affiliated March 1984 SAMUEL M. BOWLING, Chairman of the Board STEVEN J. DAY, President & CEO NET LOANS $323,403,000 DEPOSITS 304,003,000 TOTAL ASSETS 423,783,000 BANK OF RIPLEY 108 North Church Street Ripley, West Virginia 25271 304/372-2281 Affiliated October 1988 JAMES J. ROBINSON, Chairman of the Board WILLIAM E. CASTO, President & CEO NET LOANS $56,801,000 DEPOSITS 60,662,000 TOTAL ASSETS 76,965,000 PEOPLES STATE BANK 300 West Main Street Clarksburg, West Virginia 26301 304/624-0181 Affiliated December 1992 DAVID E. BROCK, Chairman of the Board, President and Chief Executive Officer NET LOANS $ 8,688,000 DEPOSITS 3,310,000 TOTAL ASSETS 10,262,000 THE PEOPLES BANK OF POINT PLEASANT 2212 Jackson Avenue Point Pleasant, West Virginia 25550 304/675-1121 Affiliated December 1986 JACK E. FRUTH, Chairman of the Board JOE L. ELLISON, President & CEO NET LOANS $ 89,389,000 DEPOSITS 102,542,000 TOTAL ASSETS 113,277,000 BLUE RIDGE BANK 420 South Raleigh Street Martinsburg, West Virginia 25401 304/264-4500 Affiliated August 1992 JACK C. ALLEN, Chairman of the Board VICTOR A. ROBERTS, JR., President NET LOANS $55,787,000 DEPOSITS 65,391,000 TOTAL ASSETS 80,817,000 THE FIRST NATIONAL BANK OF HINTON 321 Temple Street Hinton, West Virginia 25951 304/466-2311 Affiliated December 1994 C. SCOTT BRIERS, President of the Board BOB F. RICHMOND, Executive Vice President & Cashier NET LOANS $54,936,000 DEPOSITS 55,119,000 TOTAL ASSETS 83,456,000 FIRST STATE BANK & TRUST 1218 Main Street Rainelle, West Virginia 25962 304/438-6144 Affiliated September 1988 DR. D. K. CALES, Chairman of the Board CARLIN K. HARMON, President & CEO NET LOANS $62,041,000 DEPOSITS 70,015,000 TOTAL ASSETS 84,322,000 THE HOME NATIONAL BANK OF SUTTON 101 Second Street Sutton, West Virginia 26601 304/765-7333 Affiliated May 1992 RALPH J. PLETCHER, Chairman of the Board VAN R. THORN, Chief Executive Officer NET LOANS $47,496,000 DEPOSITS 58,146,000 TOTAL ASSETS 68,169,000 MERCHANTS NATIONAL BANK 4th Avenue & Washington Street Montgomery, West Virginia 25136 304/442-2475 Affiliated August 1995 GEORGE F. DAVIS, Chairman of the Board, President & CEO NET LOANS $ 74,610,000 DEPOSITS 85,868,000 TOTAL ASSETS 120,048,000 ADDITIONAL INFORMATION STOCK INFORMATION The Company's Common Stock is included on the Nasdaq National Market System under the symbol "CHCO." Nasdaq market makers in City Holding Company include: Advest, Inc. Ferris Baker Watts, Inc. Herzog, Heine, Geduld, Inc. Legg, Mason, Wood, Walker, Inc. Robinson Humphrey Co., Inc. Scott & Stringfellow, Inc. Sherwood Securities Corporation Wheat, First Securities, Inc. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN City Holding Company offers to holders of its Common Stock the opportunity to purchase, through reinvestment of dividends or by additional cash payments, additional shares of its Common Stock. Please address inquiries regarding the plan to: City Holding Company Dividend Reinvestment and Stock Purchase Plan 3601 MacCorkle Avenue, SE Charleston, WV 25304 Attn: Stock Transfer Agent ABOUT FORM 10-K A copy of the Company's annual report on Form 10-K, as filed with the Securities and Exchange Commission, will be forwarded without charge to any stockholder upon written request to: Robert A. Henson, Chief Financial Officer City Holding Company 3601 MacCorkle Avenue, S.E. Charleston, West Virginia 25304 BANK DIRECTORS THE CITY NATIONAL BANK OF CHARLESTON SAMUEL M. BOWLING Chairman of the Board, The City National Bank of Charleston President, Dougherty Co., Inc. WILLIAM D. CHAMBERS Managing Partner, Chambers, Paterno & Associates WILLIE H. CHILDRESS Optometrist GEORGE J. DAVIS Public Accountant STEVEN J. DAY President & Chief Executive Officer, The City National Bank of Charleston JERRY L. GOLDBERG President, Dunbar Building Products, Inc. JAY GOLDMAN President, Goldman Associates DICKINSON M. GOULD, JR. President, Buzz Products, Inc. and Haddy's Prime Beef WILLIAM T. HACKWORTH President, Dunbar Printing Company DAVID E. HADEN President, RMI Ltd. J.C. JEFFERDS, III Vice President & Treasurer, Jefferds Corporation OTIS L. O'CONNER Partner, Steptoe & Johnson HAROLD R. PAYNE Vice President, Payne & Donahoe Insurance Agency, Inc. BETTY T. RISK Retailing Consultant MARK H. SCHAUL President, Charmar Realty Company JON W. WATKINS President, Natures Furniture, Inc. HARLAN WILSON, JR. President, Wilson Funeral Home, Inc. DIRECTORS EMERITUS W.S. ENDRES ROGER D. GRIFFITH RICHARD J. HOYLMAN J. RICHARD MCCORMICK ROBERT L. PEDEN THE HOME NATIONAL BANK OF SUTTON ROY W. CUTLIP President, The Home National Bank of Sutton M. SCOTT GIBSON Vice-Chairman of the Board, The Home National Bank of Sutton Director, Stockert-Gibson Funeral Home LORAN KNICELEY Owner, Kniceley Insurance Agency SUE NUZUM President, Braxton Motor, Inc. RALPH J. PLETCHER Chairman of the Board, The Home National Bank of Sutton, President, Pletcher Pontiac VAN R. THORN Chief Executive Officer, The Home National Bank of Sutton THE PEOPLES BANK OF POINT PLEASANT YOUNG I. CHOI, M.D. Physician JOE L. ELLISON President & Chief Executive Officer, The Peoples Bank of Point Pleasant CYNTHIA S. EPLING Secretary/Treasurer, Smith Buick, Inc. JOHN FELKER, II Owner, Point Distributing Company JACK E. FRUTH Chairman of the Board, The Peoples Bank of Point Pleasant, Principal Owner, Fruth Pharmacies VANCE JOHNSON President, Johnson's Supermarket, Inc. DALLAS KAYSER Attorney MICHAEL R. LIEVING Executive Vice President, The Peoples Bank of Point Pleasant SAMUEL P. MCNEILL, M.D. Physician GEORGE E. MILLER Assistant Superintendent & Treasurer, Mason County School System DALE NIBERT Dairy Farmer MICHAEL G. SELLARDS Executive Director and Chief Executive Officer, Pleasant Valley Hospital MARK E. SHEETS Partner, Halliday, Sheets & Saunders CECIL WILLIAMS President, Flair Furniture Company ROBERT WINGETT Publisher, Point Pleasant Register, Gallipolis Tribune and Daily Sentinel DIRECTORS EMERITUS VITUS HARTLEY, JR. JAMES LEWIS VAUGHT SMITH BLUE RIDGE BANK JACK C. ALLEN Chairman of the Board, Blue Ridge Bank, State Farm Insurance Agent CAROL F. KABLE Realtor GEORGE KAROS President & Owner, Patterson's Drug Store PETER L. MULFORD Administrator City Hospital VICTOR A. ROBERTS, JR. President, Blue Ridge Bank FIRST STATE BANK & TRUST DAN AKERS President, Appalachian Heating JAMES A. ALVIS President, Rupert Oil Company, Inc. K.O. BOLEY Retired Businessman JOHN BUCKLAND Executive Vice President, First State Bank & Trust DR. D.K. CALES Chairman of the Board, First State Bank & Trust Dentist J.H. CROOKSHANKS Owner, Crookshanks Builders Supply L.A. GATES President & CEO L.A. Gates Company PHILIP J. GWINN President, P.J. Gwinn Construction Co., Inc. CARLIN K. HARMON President & Chief Executive Officer, First State Bank & Trust ALAN LARRICK Attorney at Law, Larrick Law Offices CURTIS E. MCCALL President, Showcase Cinemas F. EUGENE NELSON Independent Insurance Agent MAX PRIDDY President, Priddy's Lumber PAT REED Broker/Owner, Reed-Patton Assoc., Inc. Better Homes and Gardens ROBERT C. RIPLEY, SR. Retired Sales Manager, Dodson-Hager Ford RALPH D. WILLIAMS Former State Senator and Area Representative, State Farm Insurance DIRECTOR EMERITUS RYAN THOMPSON PEOPLES STATE BANK JOHN P. AMAN Vice President, Peoples State Bank DAVID E. BROCK Chairman of the Board President & Chief Executive Officer, Peoples State Bank TIMOTHY J. MANCHIN Partner, Manchin, Aloi & Carrick MARK F. OLIVERIO Vice President, Oliverio Italian Style Peppers, Inc. MARK B. OWEN President, Tmaro Corporation FRANK E. SIMMERMAN, JR. Partner, Johnson, Simmerman & Broughton, L.C. ROBERT W. RIGGS President, Robard, Inc. BANK OF RIPLEY WILLIAM E. CASTO President & Chief Executive Officer, Bank of Ripley R. FRED CLARK Executive Vice President, Bank of Ripley ROBERT D. FISHER Partner, Adams, Fisher & Evans MICHAEL F. HALL Executive Vice President & Cashier, Bank of Ripley ROBERT C. LESTER Retired Pharmacist HARRY H. PARSONS Retired Merchant GARY W. ROARK Owner, G.W. Roark & Associates JAMES J. ROBINSON Chairman of the Board, Bank of Ripley G. LEE WILSON Owner, Ponderosa and Char House Restaurants FIRST NATIONAL BANK OF HINTON C. SCOTT BRIERS President of the Board, The First National Bank of Hinton President, Briers Inc. JAMES V. COSTE Retired President, Hinton TV Corporation JAMES S. KERR Realtor WILLIAM G. MEADOR Retired Insurance Agent DAVID L. PARMER Attorney at Law BOB F. RICHMOND Executive Vice President and Cashier, First National Bank of Hinton J.D. WOODRUM Physican PAUL L. WYKLE Retired Former Owner, Twin State Barber and Beauty Supply EX-22 4 EXHIBIT 22 EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT The City National Bank of Charleston, Charleston, West Virginia, Home National Bank of Sutton, Sutton, West Virginia, and Merchants National Bank, Montgomery, West Virginia are national banking associations conducting business in West Virginia and are 100% owned by City Holding Company. The Peoples Bank of Point Pleasant, Point Pleasant, West Virginia; First State Bank & Trust, Rainelle, West Virginia; Bank of Ripley, Ripley, West Virginia; Blue Ridge Bank, Martinsburg, West Virginia; and Peoples State Bank, Clarksburg, West Virginia; are state-chartered banking institutions conducting business in West Virginia and are 100% owned by City Holding Company. Hinton Financial Corporation, a single bank holding company, and its subsidiary The First National Bank of Hinton, a national banking association, are located in Hinton, West Virginia and are 100% owned by City Holding Company. City Mortgage Corporation, Pittsburgh, Pennsylvania, is a full service mortgage banking company business in Pennsylvania, and City Financial Corporation, Charleston, West Virginia, is a full service securities brokerage and investment advisory company conducting business in West Virginia. Both are 100% owned by City Holding Company. EX-24 5 EXHIBIT 24(A) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of City Holding Company of our report dated January 26, 1996, included in the 1995 Annual Report to Shareholders of City Holding Company. We also consent to the incorporation by reference in the Registration Statements (Form S-3, Number 33-38391, Form S-8, Number 33-38269, and Form S-8, Number 33-62738) pertaining to the Dividend Reinvestment and Stock Purchase Plan, the Profit-Sharing and 401(k) Plan, and the 1993 Stock Incentive Plan, respectively, of City Holding Company and in the related Prospectuses of our report dated January 26, 1996, with respect to the consolidated financial statements of City Holding Company incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ERNST & YOUNG LLP Charleston, West Virginia March 28, 1996 EX-24 6 EXHIBIT 24(B) CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated January 6, 1995, with respect to the consolidated financial statements of Hinton Financial Corporation, included in this Annual Report (Form 10-K) of City Holding Company. We also consent to the incorporation by reference in the Registration Statements (Form S-3, Number 33-38391, Form S-8, Number 33-38269, and Form S-8, Number 33-62738), pertaining to the Dividend Reinvestment and Stock Purchase Plan, the Profit-Sharing and 401(k) Plan, and the 1993 Stock Incentive Plan, respectively, of City Holding Company and in the related Prospectus of our report dated January 6, 1995, with respect to the consolidated financial statements of Hinton Financial Corporation, included in this Annual Report (Form 10-K) for City Holding Company for the year ended December 31, 1995. /s/PERSINGER & COMPANY, LLC Beckley, West Virginia March 28, 1996 EX-27 7 ARTICLE 9 FDS FOR 10-K
9 1,000 Year Dec-31-1995 Dec-31-1995 28,460 0 0 0 143,649 50,719 52,183 656,761 6,566 1,040,969 797,415 141,309 9,106 20,000 0 0 12,730 60,409 1,040,969 61,124 13,912 89 75,125 27,149 33,580 41,545 1,104 2 33,887 12,900 8,718 0 0 8,718 1.70 1.70 4.78 2,525 1,421 141 266 6,477 1,331 316 6,566 0 0 0
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