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
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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.
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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
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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.
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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,
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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
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"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.
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(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
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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.
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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
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
SELECTED FINANCIAL DATA
TABLE ONE
FINANCIAL SUMMARY
(in thousands, except per share data)
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE TWO
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
--------------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
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)
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) Increase (Decrease)
DUE TO CHANGE IN: Due to Change In:
--------------------------------------------------------------------------
VOLUME RATE NET Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
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
--------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE FOUR
INTEREST RATE SENSITIVITY GAPS
(in thousands)
<TABLE>
<CAPTION>
1 TO 3 MO. 3 TO 12 MO. 1 TO 5 YRS. OVER 5 YRS. TOTAL
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------
</TABLE>
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)
<TABLE>
<CAPTION>
BOOK VALUES AS OF
DECEMBER 31
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
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
-------------------------------------
</TABLE>
At December 31, 1995, there were no securities of any issuers whose aggregate
carrying or market value exceeded 10% of stockholders' equity.
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
-----------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE SIX
LOAN PORTFOLIO
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993 1992 1991
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
----------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
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>
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:
<TABLE>
<CAPTION>
Amounts Percentage
-------------------------------
<S> <C> <C>
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%
-------------------------------
</TABLE>
<PAGE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE EIGHT
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993 1992 1991
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
TABLE NINE
NONACCRUAL, PAST-DUE AND RESTRUCTURED LOANS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993 1992 1991
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
-----------------------------------------------------------------------
</TABLE>
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.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE TEN
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)
<TABLE>
<CAPTION>
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
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
-----------------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------------
<S> <C> <C>
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
---------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
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
--------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS)
COMMON ON SECURITIES TOTAL
STOCK CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
(PAR VALUE) SURPLUS EARNINGS FOR SALE STOCK EQUITY
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
--------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
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
===========================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended Year Ended
June 30, 1995 December 31, 1994 December 31, 1993
---------------------------------------------------------------
<S> <C> <C> <C>
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
------------------------------------------------------------
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
----------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE FOUR
INVESTMENTS (continued)
<TABLE>
<CAPTION>
Available-for-Sale Securities
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Securities
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------------------------------------
<S> <C> <C>
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
------------------------------------------
</TABLE>
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE FIVE
LOANS
The loan portfolio is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------------------------
<S> <C> <C>
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
----------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
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
---------------------------------------------------------
</TABLE>
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE SIX
BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------------------------------
<S> <C> <C>
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
----------------------------------------------
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------------------------------
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
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
---------------------------------------------------------
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
FAIR VALUE OF FINANCIAL INSTRUMENTS
1995 1994
-------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE EIGHTEEN
CITY HOLDING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
<S> <C> <C>
-------------------------------------
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
-------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
DECEMBER 31
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
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
--------------------------------------------------
</TABLE>
<PAGE>
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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
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
------------------------------------------
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
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
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
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