FINANCIAL REPORT
7 SELECTED FINANCIAL DATA
8 TWO YEAR SUMMARY OF COMMON STOCK
PRICES AND DIVIDENDS
8-20 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
21 REPORT OF INDEPENDENT AUDITORS
22-25 CONSOLIDATED FINANCIAL STATEMENTS
26-39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40 BANK DIRECTORS
41 HOLDING COMPANY DIRECTORS/
AFFILIATE PRESIDENTS &
HOLDING COMPANY MANAGEMENT
42 MAP OF SUBSIDIARY LOCATIONS
SELECTED FINANCIAL DATA
TABLE ONE
FINANCIAL SUMMARY
(in thousands, except per share data)
FIVE YEAR SUMMARY
1994 1993 1992 1991 1990
SUMMARY OF OPERATIONS
TOTAL INTEREST INCOME $ 55,148 $ 48,216 $ 43,527 $ 42,870 $ 41,110
TOTAL INTEREST EXPENSE 22,242 19,547 18,878 21,927 23,682
NET INTEREST INCOME 32,906 28,669 24,649 20,943 17,428
PROVISION FOR LOAN LOSSES 953 1,341 2,222 1,272 898
TOTAL OTHER INCOME 4,647 3,004 1,897 1,797 1,789
TOTAL OTHER EXPENSES 26,448 20,951 15,909 14,957 12,477
INCOME BEFORE INCOME TAXES 10,152 9,381 8,415 6,511 5,842
NET INCOME 6,959 6,432 5,904 4,373 4,173
PER SHARE DATA (1)
NET INCOME $ 1.85 $ 1.71 $ 1.56 $ 1.16 $ 1.11
CASH DIVIDENDS DECLARED (2) .59 .56 .49 .42 .35
BOOK VALUE PER SHARE 15.05 14.80 13.88 12.82 11.98
AVERAGE BALANCE SHEET SUMMARY
TOTAL LOANS $ 448,924 $ 362,313 $ 274,455 $ 239,305 $ 206,552
SECURITIES 222,466 221,463 193,626 181,415 186,488
DEPOSITS 640,900 554,035 446,429 406,055 377,012
LONG-TERM DEBT 6,252 4,387 508 373 1,817
STOCKHOLDERS' EQUITY 57,925 54,459 50,458 46,771 43,669
TOTAL ASSETS 754,409 636,842 514,206 467,242 444,735
AT YEAR END
NET LOANS $ 489,395 $ 407,990 $ 324,078 $ 252,072 $ 223,277
SECURITIES 196,377 241,637 208,075 189,508 184,137
DEPOSITS 651,264 617,333 526,315 418,888 395,340
LONG-TERM DEBT 6,875 5,875 4,000 NONE 1,725
STOCKHOLDERS' EQUITY 56,869 55,834 52,317 48,200 45,185
TOTAL ASSETS 780,526 707,078 597,370 480,921 462,613
SELECTED RATIOS
RETURN ON AVERAGE ASSETS .92% 1.01% 1.15% .94% .94%
RETURN ON AVERAGE EQUITY 12.01 11.81 11.70 9.35 9.56
AVERAGE EQUITY TO AVERAGE ASSETS 7.68 8.55 9.81 10.01 9.82
DIVIDEND PAYOUT RATIO (2) 27.06 33.33 31.97 33.37 30.15
(1) ALL PER SHARE DATA HAVE BEEN RESTATED TO REFLECT A 10% STOCK
DIVIDEND EFFECTIVE JANUARY, 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. As more fully
discussed in NOTE THREE of the audited Consolidated Financial
Statements, 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.
7
TWO YEAR SUMMARY OF
COMMON STOCK PRICES AND DIVIDENDS
MARKET PRICE RANGE*
CASH
DIVIDENDS
PER SHARE* LOW HIGH
1994
FOURTH QUARTER $ .15 $ 27.00 $35.00
THIRD QUARTER .15 28.18 31.82
SECOND QUARTER .15 23.64 31.82
FIRST QUARTER .15 24.55 31.82
1993
FOURTH QUARTER $ .15 $ 25.91 $30.45
THIRD QUARTER .15 23.18 30.45
SECOND QUARTER .14 20.00 26.82
FIRST QUARTER .14 18.64 21.59
*ALL PER SHARE DATA HAVE BEEN RESTATED TO REFLECT A 10% STOCK DIVIDEND
EFFECTIVE JANUARY, 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,
1994, THERE WERE 1,771 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 eight banking subsidiaries, and three non-banking
subsidiaries. All of the subsidiaries are wholly-owned. 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. At
December 31, 1994, the Company had total assets of $781 million, total
deposits of $651 million and total stockholders' equity of $57 million.
The Company's principal subsidiary bank is The City National Bank of
Charleston (City National), which was organized in 1957 and had $272
million in total assets at December 31, 1994. Through its main office,
City National serves the Kanawha City section of Charleston and
municipalities and rural areas east of the city. City National also
operates full service branch banks in downtown Charleston, western
Charleston, the South Hills district of Charleston, St. Albans and Cross
Lanes.
The Charleston metropolitan area served by City National is the
largest in West Virginia, with a population of approximately 270,000.
The state's capital city, Charleston, is served by three interstate
highways and the area's economy is diverse and strong in relation to the
economy of the state as a whole. A service center, Charleston provides
governmental, medical, financial and other services for the entire
state. Major chemical companies and educational institutions also
contribute to the local economy.
The Company completed its acquisition of The Peoples Bank of Point
Pleasant (Point Pleasant) in June 1987. Point Pleasant, a
state-chartered bank organized in 1965, conducts a general banking
business through its main office and two branch offices located in Mason
County, West Virginia, which has a population of approximately 27,000.
The Mason County economy primarily consists of dairy and crop farming
industries. Point Pleasant had total assets of $103 million at December
31, 1994.
In September 1988, the Company acquired First State Bank & Trust of
Rainelle, West Virginia (Rainelle). Rainelle, a state-chartered bank
incorporated in 1973, operates a full-service bank and two branch
offices in Greenbrier County, West Virginia. In 1994, the Company
acquired the remaining 33% of the First National Bank-Beckley which was
subsequently merged into Rainelle. This merger expanded Rainelle into
Beckley (Raleigh County), West Virginia by adding two additional
branches. The Greenbrier County economy is primarily supported by the
mining, timber and farming industries. Raleigh County is primarily
supported by the mining, retail and government industries. Rainelle had
total assets of $74 million at December 31, 1994.
8
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CITY HOLDING COMPANY (CONTINUED)
In October 1988, the Company acquired Bank of Ripley (Ripley). Ripley,
a state-chartered institution organized in 1891, is located in Jackson
County, West Virginia. Ripley operates a full-service bank with an
emphasis on retail or consumer banking. The Jackson County economy is
primarily supported by the farming and timber industries. Ripley had $64
million in total assets at December 31, 1994.
The Company acquired Home National Bank of Sutton, West Virginia (Home
National) in May 1992. Home National, organized in 1909, operates a
full service bank and one branch office in Braxton County, West
Virginia. The Braxton County economy is primarily supported by the
mining, timber, and farming industries. Home National had total assets
of $63 million at December 31, 1994.
In August 1992, the Company began operations of Blue Ridge Bank (Blue
Ridge), a de novo institution chartered as a state nonmember bank. Blue
Ridge, a full service bank, is located in Martinsburg, West Virginia.
In October 1993, Blue Ridge assumed the insured deposits and purchased
certain facilities and an insignificant amount of performing loans of
the former Shenandoah Federal Savings Association in a cash transaction
with the Resolution Trust Corporation. This acquisition, which added
approximately $40 million in deposits, expanded Blue Ridge from two
offices to seven, located in Berkeley, Jefferson, Morgan and Grant
counties. The economy of Martinsburg and surrounding communities is
primarily supported by the wholesale and retail trade, service and
government industries. Blue Ridge had total assets of $100 million at
December 31, 1994.
The Company acquired The Buffalo Bank of Eleanor (Buffalo) in December
1992. Buffalo, a state-chartered bank organized in 1919, operates a full
service bank and a branch office in Putnam County, West Virginia. The
Putnam County economy consists of agriculture, retail and governmental
industries. Buffalo had total assets of $59 million at December 31,
1994. In January, 1995, the Company renamed Buffalo as Peoples State
Bank (Peoples Bank) and a new location was opened in Clarksburg,
Harrison County, West Virginia.
The Company acquired Hinton Financial Corporation and its subsidiary,
The First National Bank of Hinton, West Virginia (Hinton) in December
1994. Hinton, organized in 1974, operates a full service bank in
Summers County, West Virginia. Summers County is primarily supported by
the railroad and government industries. Hinton had total assets of $67
million at December 31, 1994.
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 primary office located in City National's main location. Both of
these companies were formed primarily 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 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.
9
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 .92% in 1994. Return on average equity (ROE), which
measures the return on stockholders' investment, was 12.01% in 1994. The
Company's ROA and ROE were 1.01% and 11.81%, respectively, in 1993.
Earnings per share for 1994 were $1.85, an increase of approximately
8.2% from the $1.71 per share reported in 1993. 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 $781 million at December 31,
1994 and achieved $7.0 million in net income for the year then ended.
Total assets increased 10.5% over the 1993 total of $707 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 $6.4 million and $5.9 million reported for 1993 and 1992,
respectively.
The acquisition of Hinton 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 Hinton as though it were
acquired at the beginning of the earliest period presented. For further
information concerning the 1994 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 $108.6 million from 1993 to
1994 and $113.8 million from 1992 to 1993. 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 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 insured by an Agency of the United States
government. 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 serviced by third parties and the
Company earns a fixed rate of return on the loans. The Company earned
approximately $1.9 million during 1994 on an average balance of
approximately $21.2 million. These loans are being funded through
short-term borrowings which consist primarily of securities sold under
agreement to repurchase.
Average short-term borrowings increased $24.9 million from 1993 to
1994. The average rate paid by the Company for short-term borrowings
increased 156 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. While all subsidiaries have experienced loan
growth, Rainelle and Blue Ridge have generated the most loan volume in
1994, with increases of 43% and 198%, respectively.
In response to the significant growth in loans, average investment
securities had a slight increase of $1.0 million during 1994. The
overall yield on investments has decreased from 1993 as a result of a
more liquid portfolio and the reinvestment in 1994 of proceeds from
matured or called securities during a period of declining market
interest rates.
Average investment securities increased $27.8 million during 1993
principally because of the increase in deposits and short-term
borrowings as well as a reduction in federal funds sold for the same
period.
Long-term debt, representing obligations of the Parent Company,
consists of amounts borrowed to fund the purchase of Buffalo common
stock and the related recapitalization of Buffalo, and to provide Blue
Ridge with additional capital in connection with its 1993 acquisition of
certain assets and deposits of the former Shenandoah Federal Savings
Association. For further details with respect to long-term debt, see
NOTE EIGHT of the audited Consolidated Financial Statements.
10
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE TWO
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
1994 1993 1992
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
EARNING ASSETS:
LOANS (1)
COMMERCIAL AND
INDUSTRIAL $ 128,777 $ 10,912 8.47% $ 101,187 $ 8,687 8.59% $ 66,703 $ 5,972 8.95%
REAL ESTATE 211,463 17,301 8.18 158,554 14,183 8.95 108,343 11,067 10.21
CONSUMER
OBLIGATIONS 108,684 10,579 9.73 102,572 10,381 10.12 99,409 11,183 11.25
TOTAL LOANS 448,924 38,792 8.64 362,313 33,251 9.18 274,455 28,222 10.28
LOANS HELD
FOR SALE 27,655 2,375 8.59
SECURITIES
TAXABLE 192,288 12,071 6.28 192,143 12,650 6.58 166,451 12,895 7.75
TAX-EXEMPT (2) 30,178 2,600 8.62 29,320 2,786 9.50 27,175 2,848 10.48
TOTAL
SECURITIES 222,466 14,671 6.59 221,463 15,436 6.97 193,626 15,743 8.13
FEDERAL FUNDS SOLD 6,930 194 2.80 13,632 476 3.49 15,566 530 3.40
TOTAL EARNING
ASSETS 705,975 56,032 7.94 597,408 49,163 8.23 483,647 44,495 9.20
CASH AND DUE
FROM BANKS 21,397 19,292 14,047
BANK PREMISES
AND EQUIPMENT 16,323 13,140 9,403
OTHER ASSETS 16,630 12,366 10,089
LESS: ALLOWANCE
FOR POSSIBLE
LOAN LOSSES (5,916) (5,364) (2,980)
TOTAL ASSETS $ 754,409 $ 636,842 $ 514,206
INTEREST-BEARING
LIABILITIES:
DEMAND DEPOSITS $ 83,587 $ 2,641 3.16% $ 73,965 $ 2,293 3.10% $ 65,136 $ 2,666 4.09%
SAVINGS DEPOSITS 221,305 6,861 3.10 189,328 6,338 3.35 125,554 5,217 4.16
TIME DEPOSITS 250,090 10,608 4.24 227,342 10,218 4.49 204,158 10,631 5.21
SHORT-TERM BORROWINGS 42,559 1,687 3.96 17,641 424 2.40 10,605 329 3.10
LONG-TERM DEBT 6,252 445 7.12 4,387 274 6.25 508 35 6.89
TOTAL INTEREST-
BEARING
LIABILITIES 603,793 22,242 3.68 512,663 19,547 3.81 405,961 18,878 4.65
DEMAND DEPOSITS 85,918 63,400 51,581
OTHER LIABILITIES 6,773 6,320 6,206
STOCKHOLDERS' EQUITY 57,925 54,459 50,458
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $ 754,409 $ 636,842 $ 514,206
NET INTEREST
INCOME $ 33,790 $ 29,616 $ 25,617
NET YIELD ON
EARNING ASSETS 4.79% 4.96% 5.30%
(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.
11
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 $4.2 million during 1994. The average yield on earning assets
decreased from 8.23% in 1993 to 7.94% in 1994, while the average cost of
interest-bearing liabilities decreased from 3.81% to 3.68% over this
same period. This had the effect of decreasing the net yield on earning
assets from 4.96% in 1993 to 4.79% in 1994.
The $2.1 million decrease in net interest income due to rate, as shown
in Table Three which follows, was coupled with a $6.3 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 $4.0 million in 1993. The $5.8 million increase caused by
changes in volume was offset by a $1.8 million decrease in net interest
income due to rate.
TABLE THREE
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
1994 VS. 1993 1993 VS. 1992
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: DUE TO CHANGE IN:
VOLUME RATE NET VOLUME RATE NET
INTEREST INCOME FROM:
LOANS
COMMERCIAL AND INDUSTRIAL $ 2,339 $ (114) $ 2,225 $ 2,970 $ (255) $ 2,715
REAL ESTATE 4,411 (1,293) 3,118 4,626 (1,510) 3,116
CONSUMER OBLIGATIONS 604 (406) 198 347 (1,149) (802)
TOTAL 7,354 (1,813) 5,541 7,943 (2,914) 5,029
LOANS HELD FOR SALE 2,375 2,375
INVESTMENT SECURITIES
TAXABLE 10 (589) (579) 1,839 (2,084) (245)
TAX-EXEMPT (1) 80 (266) (186) 215 (277) (62)
TOTAL 90 (855) (765) 2,054 (2,361) (307)
FEDERAL FUNDS SOLD (201) (81) (282) (67) 13 (54)
TOTAL INTEREST-EARNING ASSETS $ 9,618 $ (2,749) $ 6,869 $ 9,930 $ (5,262) $ 4,668
INTEREST EXPENSE ON:
DEMAND DEPOSITS $ 303 $ 45 $ 348 $ 330 $ (703) $ (373)
SAVINGS DEPOSITS 1,015 (492) 523 2,277 (1,156) 1,121
TIME DEPOSITS 986 (596) 390 1,132 (1,545) (413)
SHORT-TERM BORROWINGS 865 398 1,263 182 (87) 95
LONG-TERM DEBT 129 42 171 243 (4) 239
TOTAL INTEREST-BEARING LIABILITIES $ 3,298 $ (603) $ 2,695 $ 4,164 $ (3,495) $ 669
NET INTEREST INCOME $ 6,320 $ (2,146) $ 4,174 $ 5,766 $ (1,767) $ 3,999
(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.
12
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 1994. There are no known trends, demands,
commitments or uncertainties that have resulted or are reasonably likely
to result in material changes in liquidity.
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, 1994, the one year period shows a negative gap
(liability sensitive) of $328 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
respected period. After management adjustments, Table Four shows a
negative gap in the one year period of $137 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 affect 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 1995. 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. In
any event, the Company intends to increase the repricing frequency of
interest-earning assets, particularly through variable-rate loan
products, to achieve a less volatile gap position.
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, 1994, the Parent Company had $6,875,000 in long-term
debt outstanding. These funds were used primarily to provide Blue Ridge
with additional capital in connection with its 1993 acquisition of the
former Shenandoah Federal. Total debt service for the Parent Company in
1995 will approximate $560,000 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 $6.2 million available for
transfer from its subsidiary banks as of January 1, 1995. Subsidiary
bank earnings in 1995 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, is 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 1994 due to the
purchases of loans held for sale and was generated from operating
activities in 1993 and 1992. 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. 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 interest-bearing deposits.
13
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE FOUR
INTEREST RATE SENSITIVITY GAPS
(in thousands)
1 TO 3 MO. 3 TO 12 MO. 1 TO 5 YRS. OVER 5 YRS. TOTAL
ASSETS
GROSS LOANS $ 105,619 $ 59,186 $ 249,727 $ 87,824 $ 502,356
LOANS HELD FOR SALE 30,227 0 0 0 30,227
SECURITIES 16,014 19,887 98,799 61,677 196,377
TOTAL INTEREST-EARNING ASSETS 151,860 79,073 348,526 149,501 728,960
LIABILITIES
SAVINGS AND NOW ACCOUNTS 308,100 0 0 0 308,100
ALL OTHER INTEREST-BEARING DEPOSITS 76,619 110,180 72,917 2,754 262,470
SHORT-TERM BORROWINGS 57,483 0 0 0 57,483
LONG-TERM BORROWINGS 6,875 0 0 0 6,875
TOTAL INTEREST-BEARING LIABILITIES 449,077 110,180 72,917 2,754 634,928
INTEREST SENSITIVITY GAP $ (297,217) $ (31,107) $ 275,609 $ 146,747 $ (94,032)
CUMULATIVE SENSITIVITY GAP $ (297,217) $ (328,324) $ (52,715) $ 94,032
MANAGEMENT ADJUSTMENTS $ 262,434 $ (71,241) $ (181,057) $ (10,136)
CUMULATIVE MANAGEMENT ADJUSTED GAP $ (34,783) $ (137,131) $ (42,579) $ 94,032
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)
HELD TO AVAILABLE FOR BOOK VALUES AS OF
MATURITY SALE DECEMBER 31
1994 1994 1993 1992
U.S. TREASURY AND OTHER U .S. GOVERNMENT
CORPORATIONS AND AGENCIES $ 92,372 $ 56,751 $ 193,284 $ 168,821
STATES AND POLITICAL SUBDIVISIONS 32,056 790 33,984 31,769
OTHER 3,669 10,379 14,353 7,467
TOTAL $ 128,457 $ 67,920 $ 241,621 $ 208,057
MATURING
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
U.S. TREASURY AND
OTHER U.S. GOVERNMENT
CORPORATIONS AND AGENCIES $ 24,744 6.83% $ 83,565 6.71% $ 39,119 6.47% $ 2,055 6.15%
STATE AND POLITICAL SUBDIVISIONS 2,422 11.19 11,586 8.93 16,018 8.10 2,820 8.86
OTHER 8,735 6.11 3,648 7.46 1,665 7.70 0 0.00
TOTAL $ 35,901 6.95% $ 98,799 6.98% $ 56,802 6.97% $ 4,875 7.72%
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%.
14
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE SIX
LOAN PORTFOLIO
(in thousands)
DECEMBER 31
1994 1993 1992 1991 1990
COMMERCIAL, FINANCIAL
AND AGRICULTURAL $ 137,425 $ 125,568 $ 80,806 $ 76,179 $ 58,180
REAL ESTATE-MORTGAGE 238,231 184,602 141,079 92,539 85,241
INSTALLMENT LOANS TO INDIVIDUALS 129,300 114,110 120,324 97,768 95,434
TOTAL LOANS $ 504,956 $ 424,280 $ 342,209 $ 266,486 $ 238,855
THE COMPANY HAD $15.3 MILLION AND $15.1 MILLION OUTSTANDING IN REAL
ESTATE CONSTRUCTION LOANS AT DECEMBER 31, 1994 AND 1993, 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, 1994.
MATURING
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
COMMERCIAL, FINANCIAL
AND AGRICULTURAL $ 29,233 $ 59,614 $ 47,065 $ 135,912
REAL ESTATE-MORTGAGE 41,122 60,060 141,535 242,717
INSTALLMENT LOANS TO INDIVIDUALS 18,468 92,446 15,413 126,327
TOTAL LOANS $ 88,823 $ 212,120 $ 204,013 $ 504,956
LOANS MATURING AFTER ONE YEAR WITH:
FIXED INTEREST RATES $ 273,961
VARIABLE INTEREST RATES 142,172
TOTAL $ 416,133
TABLE SEVEN
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS IN AMOUNTS OF
$100,000 OR MORE
(dollars in thousands)
MATURITIES OF TIME CERTIFICATES OF DEPOSITS OF $100,000 OR MORE
OUTSTANDING AT DECEMBER 31, 1994, ARE SUMMARIZED AS FOLLOWS:
AMOUNTS PERCENTAGE
THREE MONTHS OR LESS $ 11,195 32%
OVER THREE MONTHS THROUGH SIX MONTHS 5,727 16
OVER SIX MONTHS THROUGH TWELVE MONTHS 7,540 22
OVER TWELVE MONTHS 10,585 30
TOTAL $ 35,047 100%
15
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LOAN LOSS ANALYSIS
During 1994, the Company charged-off $1,093,000 of loans that were
doubtful as to collection and had recoveries of $393,000. The resulting
net charge-offs of $700,000 decreased 34% from that reported in 1993.
Net charge- offs increased approximately 15%, or $138,000 in 1993 versus
1992. 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 decreased 13 basis points when comparing 1994 to
1993. 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 $953,000 in
1994 represents .21% of average loans as compared to a $1,341,000 or
.37% provision in 1993. The decreased provision for 1994 is primarily
due to lower net charge-offs as discussed above. 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.
See NOTE FIVE to the audited Consolidated Financial Statements for a
discussion of concentrations of credit risk.
The allowance for loan losses was $6,017,000 or 1.23% of net loans, as
of December 31, 1994, compared to $5,764,000 or 1.41% of net loans in
1993. In management's opinion, the consolidated allowance for loan
losses is adequate to provide for any potential losses on existing
loans.
Nonperforming loans, consisting of nonaccrual, past-due and
restructured credits, increased approximately $914,000 in 1994. 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, 1994, loans
aggregating $529,000 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 131% at December 31, 1994, as compared to 125% and 102% at December
31, 1993 and 1992.
Tables Eight, Nine and Ten detail loan performance and analyze the
allowance for loan losses.
16
MANAGEMENT'S DISCUSSION &ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE EIGHT
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)
DECEMBER 31
1994 1993 1992 1991 1990
BALANCE AT BEGINNING OF PERIOD $ 5,764 $ 5,380 $ 2,401 $ 1,929 $ 1,721
CHARGE-OFFS:
COMMERCIAL, FINANCIAL AND AGRICULTURAL (300) (684) (244) (302) (270)
REAL ESTATE-MORTGAGE (151) (239) (292) (247) (186)
INSTALLMENTS LOANS TO INDIVIDUALS (642) (614) (627) (452) (463)
TOTALS (1,093) (1,537) (1,163) (1,001) (919)
RECOVERIES:
COMMERCIAL, FINANCIAL AND AGRICULTURAL 110 58 20 49 77
REAL ESTATE-MORTGAGE 11 218 65 26 50
INSTALLMENT LOANS TO INDIVIDUALS 272 200 155 126 102
TOTALS 393 476 240 201 229
NET CHARGE-OFFS (700) (1,061) (923) (800) (690)
PROVISION FOR POSSIBLE LOAN LOSSES 953 1,341 2,222 1,272 898
BALANCE OF ACQUIRED SUBSIDIARY 104 1,680
BALANCE AT END OF PERIOD $ 6,017 $ 5,764 $ 5,380 $ 2,401 $ 1,929
AS A PERCENT OF AVERAGE TOTAL LOANS
NET CHARGE-OFFS .16% .29% .34% .33% .33%
PROVISION FOR POSSIBLE LOAN LOSSES .21 .37 .81 .53 .43
AS A PERCENT OF NONPERFORMING AND
POTENTIAL PROBLEM LOANS
ALLOWANCE FOR LOAN LOSSES 130.55% 125.06% 102.34% 65.37% 70.89%
TABLE NINE
NONACCRUAL, PAST-DUE AND RESTRUCTURED LOANS
(in thousands)
DECEMBER 31
1994 1993 1992 1991 1990
NONACCRUAL LOANS $ 2,600 $ 1,524 $ 1,473 $ 1,367 $ 874
ACCRUING LOANS PAST DUE 90 DAYS OR MORE 1,218 643 1,293 1,780 1,446
RESTRUCTURED LOANS 262 999 1,475 526 401
DURING 1994, THE COMPANY RECOGNIZED APPROXIMATELY $119,000 OF INTEREST
INCOME RECEIVED IN CASH ON NONACCRUAL AND RESTRUCTURED LOANS.
APPROXIMATELY $229,000 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, 1994.
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.
17
DECEMBER 31
1994 1993 1992 1991 1990
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
COMMERCIAL, FINANCIAL
AND AGRICULTURAL $1,816 27% $ 1,943 30% $ 1,959 24% $ 1,020 28% $ 709 24%
REAL ESTATE-MORTGAGE 2,600 47 2,131 43 1,745 41 494 35 457 36
INSTALLMENT LOANS
TO INDIVIDUALS 1,601 26 1,690 27 1,676 35 887 37 763 40
$6,017 100% $ 5,764 100% $ 5,380 100% $ 2,401 100% $1,929 100%
THE PORTION OF THE ALLOWANCE FOR LOAN LOSSES THAT IS NOT SPECIFICALLY
ALLOCATED TO INDIVIDUAL CREDITS HAS BEEN APPORTIONED AMONG THE SEPARATE
LOAN PORTFOLIOS BASED ON THE RISK OF EACH PORTFOLIO. OTHER INCOME AND
EXPENSES
Other income continues to be an area of management emphasis.
Recognizing the importance of non-interest income to future operating
performance, the Company is aggressively pursuing additional service
opportunities by offering a variety of services and products to its
customers which include trust, brokerage, mortgage banking and related
services.
The loan and deposit growth at the Company's subsidiary banks, which
includes a greater mix of commercial relationships than certain prior
years, has positioned the Company to increase other income in areas such
as service charges. Service charge income increased approximately
$503,000 or 27% when comparing 1994 to 1993. Approximately half of this
increase is attributable to fees charged in the normal course of
business on the additional $40 million in deposits acquired by Blue
Ridge from the former Shenandoah Federal Savings Association in late
1993.
Other income increased $2.3 million during 1994. This increase was
related to an insurance recovery of $1.4 million at one of the Company's
subsidiary banks. An additional $280,000 in fees was generated from
services provided by City Financial and City Mortgage during their first
year of operations and approximately $360,000 in fees were generated
from overall loan growth during 1994.
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 1993 or 1992. 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 investment 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 $5.5 million, or 26.2%, 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 $2.5 million is attributable to
the Company's overall growth during 1994, which produced higher
personnel costs throughout the organization. Total other expenses
increased $5.0 million, or 31.7%, during 1993 due primarily to $1.9
million in expenses incurred by Buffalo and Beckley with no expenses for
these purchased subsidiaries included in the 1992 results. In addition,
Blue Ridge had $157,000 in other expenses in 1992 for the first four
months of operation compared to $1.2 million in 1993 for a full year.
The additional increase of $2.1 million in 1993 is attributable to the
Company's overall growth during that year.
18
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, 1994, 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
1994 1993
CAPITAL COMPONENTS
TIER 1 RISK-BASED CAPITAL $ 52,408 $ 50,821
TOTAL RISK-BASED CAPITAL 58,425 55,832
CAPITAL RATIOS
TIER 1 RISK-BASED 10.65% 12.70%
TOTAL RISK-BASED 11.88 13.95
LEVERAGE 6.65 7.31
REGULATORY MINIMUM
TIER 1 RISK-BASED (DOLLAR/RATIO) $ 19,677/4.00% $ 16,036/4.00%
TOTAL RISK-BASED (DOLLAR/RATIO) 39,354/8.00 32,072/8.00
LEVERAGE (DOLLAR/RATIO) 23,628/3.00 20,862/3.00
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
1995. 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.
19
MANAGEMENT'S DISCUSSION &ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INCOME TAXES
Income tax expense was $3,193,000 in 1994, resulting in an effective
tax rate of 31.5% for the year. Such rates were 31.4% and 29.8% in 1993
and 1992, respectively. The effective tax rate from 1993 to 1994
remained relatively unchanged. The increase in the effective tax rate
from 1992 to 1993 is principally the result of a decreased mix of
tax-exempt income relative to total earnings.
As more fully discussed in NOTE TEN to the audited Consolidated
Financial Statements, the Company prospectively adopted the liability
method of accounting for income taxes during 1992, without material
effect. At December 31, 1994, gross deferred tax assets total
approximately $5.0 million. Such assets are primarily attributable to
the allowance for loan losses ($2 million), acquired (NOL) carryforwards
($777,000), certain nonqualified deferred compensation arrangements
sponsored by subsidiary banks ($436,000) and securities available for
sale ($1.4 million). Pursuant to management's evaluation for the
quarter ended December 31, 1994, 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, 1994, 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.
20
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, 1994 and 1993, 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, 1994. 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, 1993 or 1992 consolidated financial statements of Hinton Financial
Corporation and subsidiary which statements reflect total revenues
constituting 8%, 10% and 12% of the 1994, 1993 and 1992 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, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in NOTE FOUR to the consolidated financial statements,
City Holding Company changed its method of accounting for certain debt
and equity securities as of January 1, 1994.
/s/ Ernst & Young, LLP
Charleston, West Virginia
January 20, 1995
21
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
DECEMBER 31
1994 1993
ASSETS
CASH AND DUE FROM BANKS $ 27,591,000 $ 23,966,000
FEDERAL FUNDS SOLD 3,470,000
SECURITIES AVAILABLE FOR SALE, AT FAIR VALUE 67,920,000
SECURITIES AVAILABLE FOR SALE (APPROXIMATE MARKET
VALUES AT DECEMBER 31, 1993, $77,286,000) 75,527,000
INVESTMENT SECURITIES (APPROXIMATE MARKET VALUES:
1994-$123,995,000; 1993-$170,745,000) 128,457,000 166,110,000
LOANS:
GROSS LOANS 504,956,000 424,280,000
UNEARNED INCOME (9,544,000) (10,526,000)
ALLOWANCE FOR POSSIBLE LOAN LOSSES (6,017,000) (5,764,000)
NET LOANS 489,395,000 407,990,000
LOANS HELD FOR SALE 30,227,000
BANK PREMISES AND EQUIPMENT 17,678,000 15,426,000
ACCRUED INTEREST RECEIVABLE 5,922,000 5,292,000
OTHER ASSETS 13,336,000 9,297,000
TOTAL ASSETS $ 780,526,000 $ 707,078,000
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING $ 80,694,000 $ 67,633,000
INTEREST-BEARING 570,570,000 549,700,000
TOTAL DEPOSITS 651,264,000 617,333,000
SHORT-TERM BORROWINGS 57,483,000 21,669,000
LONG-TERM DEBT 6,875,000 5,875,000
OTHER LIABILITIES 8,035,000 5,863,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 504,000
TOTAL LIABILITIES 723,657,000 651,244,000
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: 1994 -
3,780,477 SHARES; 1993 - 3,538,671 SHARES
INCLUDING
109,761 SHARES IN TREASURY AT DECEMBER 31, 1993 9,451,000 8,846,000
CAPITAL SURPLUS 18,887,000 13,999,000
RETAINED EARNINGS 30,605,000 35,222,000
NET UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE,
NET OF DEFERRED INCOME TAXES (2,074,000) (23,000)
56,869,000 58,044,000
COST OF COMMON STOCK IN TREASURY (2,210,000)
TOTAL STOCKHOLDERS' EQUITY 56,869,000 55,834,000
COMMITMENTS AND CONTINGENT LIABILITIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 780,526,000 $ 707,078,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
1994 1993 1992
INTEREST INCOME
INTEREST AND FEES ON LOANS $ 41,167,000 $ 33,251,000 $ 28,222,000
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 12,071,000 12,650,000 12,895,000
TAX-EXEMPT 1,716,000 1,839,000 1,880,000
OTHER INTEREST INCOME 194,000 476,000 530,000
TOTAL INTEREST INCOME 55,148,000 48,216,000 43,527,000
INTEREST EXPENSE
INTEREST ON DEPOSITS 20,110,000 18,849,000 18,514,000
INTEREST ON SHORT-TERM BORROWINGS 1,687,000 424,000 329,000
INTEREST ON LONG-TERM DEBT 445,000 274,000 35,000
TOTAL INTEREST EXPENSE 22,242,000 19,547,000 18,878,000
NET INTEREST INCOME 32,906,000 28,669,000 24,649,000
PROVISION FOR POSSIBLE LOAN LOSSES 953,000 1,341,000 2,222,000
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN
LOSSES 31,953,000 27,328,000 22,427,000
OTHER INCOME
INVESTMENT SECURITIES (LOSSES) GAINS (803,000) 322,000 9,000
SERVICE CHARGES 2,396,000 1,893,000 1,362,000
OTHER INCOME 3,054,000 789,000 526,000
TOTAL OTHER INCOME 4,647,000 3,004,000 1,897,000
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 13,122,000 10,172,000 7,695,000
OCCUPANCY, EXCLUDING DEPRECIATION 2,452,000 1,486,000 1,360,000
DEPRECIATION 1,829,000 1,386,000 988,000
OTHER EXPENSES 9,045,000 7,907,000 5,866,000
TOTAL OTHER EXPENSES 26,448,000 20,951,000 15,909,000
INCOME BEFORE INCOME TAXES 10,152,000 9,381,000 8,415,000
INCOME TAXES 3,193,000 2,949,000 2,511,000
NET INCOME $ 6,959,000 $ 6,432,000 $ 5,904,000
NET INCOME PER COMMON SHARE $ 1.85 $ 1.71 $ 1.56
A VERA G E COMMON SHARES OUTSTANDING 3,772,638 3,762,783 3,779,502
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES
UNREALIZED LOSS
COMMON ON SECURITIES TOTAL
STOCK CAPITAL RETAINED AVAILABLE TREASURY STOCKHOLDERS'
(PAR VALUE) SURPLUS EARNINGS FOR SALE STOCK EQUITY
BALANCES AT JANUARY 1, 1992 $ 7,978,000 $ 8,913,000 $ 31,649,000 $ (25,000) $ (330,000) $ 48,185,000
NET INCOME 5,904,000 5,904,000
COST OF 31,422 SHARES OF
COMMON STOCK
ACQUIRED FOR TREASURY (548,000) (548,000)
SALE OF 38,107 SHARES
OF TREASURY STOCK 287,000 378,000 665,000
CHANGE IN NET UNREALIZED LOSS
ON MARKETABLE EQUITY
SECURITIES (70,000) (70,000)
ISSUANCE OF 10% STOCK DIVIDEND 681,000 4,098,000 (4,779,000)
CASH DIVIDENDS--$.49 A SHARE (1,522,000) (1,522,000)
CASH DIVIDENDS OF ACQUIRED
SUBSIDIARIES (299,000) (299,000)
BALANCES AT DECEMBER 31, 1992 8,659,000 13,298,000 30,953,000 (95,000) (500,000) 52,315,000
NET INCOME 6,432,000 6,432,000
CASH DIVIDENDS--$.56 A SHARE (1,833,000) (1,833,000)
CASH DIVIDENDS OF ACQUIRED
SUBSIDIARY (330,000) (330,000)
COMMON STOCK ISSUED IN
ACQUISITION 187,000 644,000 831,000
CHANGE IN NET UNREALIZED LOSS
ON MARKETABLE EQUITY SECURITIES 72,000 72,000
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 8,846,000 13,999,000 35,222,000 (23,000) (2,210,000) 55,834,000
NET INCOME 6,959,000 6,959,000
CASH DIVIDENDS
DECLARED-- $.59 A SHARE (1,930,000) (1,930,000)
CASH DIVIDENDS OF
ACQUIRED SUBSIDIARY (366,000) (366,000)
ADJUSTMENT TO BEGINNING BALANCE
FOR CHANGE IN ACCOUNTING
METHOD, NET OF INCOME
TAXES OF $704,000 1,055,000 1,055,000
CHANGE IN UNREALIZED GAIN/(LOSS)
NET OF INCOME TAXES OF $1,761,000 (3,106,000) (3,106,000)
REDEMPTION OF FRACTIONAL AND
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 $ 9,451,000 $ 18,887,000 $ 30,605,000 $ (2,074,000) $ 0 $ 56,869,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
1994 1993 1992
OPERATING ACTIVITIES
NET INCOME $ 6,959,000 $ 6,432,000 $ 5,904,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
NET AMORTIZATION 960,000 725,000 306,000
PROVISION FOR DEPRECIATION 1,829,000 1,386,000 988,000
PROVISION FOR POSSIBLE LOAN LOSSES 953,000 1,341,000 2,222,000
DEFERRED INCOME TAX BENEFIT (303,000) (153,000) (402,000)
MINORITY INTEREST IN INCOME OF SUBSIDIARY 10,000
LOANS ORIGINATED FOR SALE (24,729,000)
PURCHASES OF LOANS HELD FOR SALE (189,719,000)
PROCEEDS FROM LOANS SOLD 184,221,000
REALIZED INVESTMENT SECURITIES LOSSES (GAINS) 803,000 (322,000) (9,000)
LOSS ON SALE OF FORECLOSED PROPERTIES 22,000
(INCREASE) DECREASE IN ACCRUED INTEREST
RECEIVABLE (630,000) (132,000) 165,000
(INCREASE) DECREASE IN OTHER ASSETS (2,961,000) 721,000 (212,000)
INCREASE (DECREASE) IN OTHER LIABILITIES 2,172,000 157,000 (651,000)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (20,445,000) 10,165,000 8,333,000
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF INVESTMENT SECURITIES 9,218,000 5,304,000
PROCEEDS FROM MATURITIES AND CALLS OF INVESTMENT
SECURITIES 75,181,000 142,801,000 119,936,000
PURCHASES OF INVESTMENT SECURITIES (52,758,000) (184,643,000) (131,466,000)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 33,946,000
PROCEEDS FROM MATURITIES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 13,093,000 5,539,000
PURCHASES OF SECURITIES AVAILABLE FOR SALE (28,791,000)
NET INCREASE IN LOANS (82,358,000) (77,007,000) (43,989,000)
NET CASH (PAID) ACQUIRED IN ACQUISITIONS (504,000) 41,454,000 2,564,000
SALE OF FORECLOSED PROPERTIES 10,000 125,000
PURCHASES OF PREMISES AND EQUIPMENT (4,081,000) (5,166,000) (2,299,000)
NET CASH USED IN INVESTING ACTIVITIES (46,272,000) (67,794,000) (49,825,000)
FINANCING ACTIVITIES
NET INCREASE IN NONINTEREST-BEARING DEPOSITS 13,061,000 2,456,000 18,509,000
NET INCREASE IN INTEREST-BEARING DEPOSITS 20,870,000 30,091,000 40,607,000
NET INCREASE IN SHORT-TERM BORROWINGS 35,814,000 12,175,000 1,110,000
PROCEEDS FROM LONG-TERM DEBT 6,875,000 5,225,000 4,000,000
REPAYMENT OF LONG-TERM DEBT (5,875,000) (3,350,000)
PURCHASES OF TREASURY STOCK (193,000) (2,218,000) (548,000)
PROCEEDS FROM SALES OF TREASURY STOCK 459,000 565,000 665,000
REDEMPTION OF DISSENTER AND FRACTIONAL SHARES (1,843,000)
CASH DIVIDENDS PAID (2,296,000) (2,163,000) (1,821,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,872,000 42,781,000 62,522,000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 155,000 (14,848,000) 21,030,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,436,000 42,284,000 21,254,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,591,000 $ 27,436,000 $ 42,284,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
DECEMBER 31, 1994
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. 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.
CASH AND CASH EQUIVALENTS: 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, 1994 and 1993, 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. At December 31, 1994, 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.
At December 31, 1993, equity securities were stated at the lower of
cost or market value, while debt securities were carried at amortized
cost. Gains and losses on the sale of securities are computed by the
specific identification method and are reported separately in the
consolidated statements of income.
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.
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 cost or estimated
fair value.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE ONE
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
INTANGIBLES: Intangible assets, which are included in other assets in
the consolidated balance sheets, are comprised of goodwill and core
deposits which are amortized using straight-line (15 year life) and
accelerated methods (10 year life), respectively, over their estimated
useful lives.
During 1994, the Company purchased mortgage loan servicing rights
totaling $1,200,000 which are also included in other assets in the
consolidated balance sheets. The servicing rights are being 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 (included in
other assets) 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.
NET INCOME PER COMMON SHARE: Net income per common share is based on
the weighted average common shares outstanding during each year. 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, and all stock related data in the
consolidated financial statements reflects the stock dividend.A 10%
stock dividend was also declared in 1992. 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 $21,998,000, $19,693,000 and $19,996,000 in 1994, 1993, and
1992, respectively. Cash paid for income taxes was $3,219,000,
$2,877,000, and $2,957,000 in 1994, 1993, and 1992, respectively. 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, 1994, was approximately
$4,366,000.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE THREE
ACQUISITIONS
On December 5, 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 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 Hinton. Previously reported results
of the Company have been restated as follows:
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
NET INTEREST INCOME AS PREVIOUSLY
REPORTED BY THE COMPANY $ 22,235,000 $ 25,813,000 $ 21,761,000
HINTON'S PREVIOUSLY REPORTED RESULTS 2,048,000 2,856,000 2,888,000
RESTATED NET INTEREST INCOME $ 24,283,000 $ 28,669,000 $ 24,649,000
NET INCOME AS PREVIOUSLY REPORTED
BY THE COMPANY $ 4,431,000 $ 5,503,000 $ 5,039,000
HINTON'S PREVIOUSLY REPORTED RESULTS 596,000 929,000 865,000
RESTATED NET INCOME $ 5,027,000 $ 6,432,000 $ 5,904,000
NET INCOME PER COMMON SHARE AS
PREVIOUSLY REPORTED BY THE COMPANY
AS ADJUSTED FOR THE 10% STOCK
DIVIDEND IN 1995 $ 1.34 $ 1.69 $ 1.53
EFFECT OF HINTON RESTATEMENT (.01) .02 .03
RESTATED NET INCOME PER COMMON SHARE $ 1.33 $ 1.71 $ 1.56
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. Minority interest, representing
the equity interest in FNB owned by stockholders other than the Company,
appears in the 1993 balance sheet as a liability.
On October 15, 1993, Blue Ridge Bank, a wholly-owned subsidiary of the
Company, was declared the successful bidder for the purchase of certain
assets and the assumption of the insured deposits and certain other
liabilities of a failed thrift which had been in conservatorship with
the Resolution Trust Corporation (RTC). Blue Ridge Bank assumed insured
deposits of approximately $43 million in exchange for assets
(principally cash and cash equivalents) of approximately $40 million
from the RTC.
The FNB and RTC transactions were accounted for under the purchase
method of accounting. Accordingly, the results of operations
attributable to such acquisitions have been included in the consolidated
totals from the respective dates of acquisition. Due to the
immateriality of the transactions and the significant assets retained by
the RTC with respect to the failed thrift, proforma financial
information has not been presented herein.
Intangible assets arising from prior year purchase business
combinations consist of core deposits and goodwill which have an
aggregate unamortized balance at December 31, 1994 and 1993, of
$4,978,000 and $5,538,000, respectively.
28
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. In accordance with SFAS No.
115, prior years' financial statements have not been restated to reflect
the change in accounting method and there was no cumulative effect of
adopting the Statement. Under SFAS No. 115, investment securities are
carried at amortized cost and securities available for sale are carried
at fair value with the after-tax net unrealized gain or loss recorded in
stockholders' equity. The adoption of SFAS No. 115 resulted in an
increase in stockholders' equity of $1,055,000.
The aggregate carrying and approximate market values of securities
follow. Fair values are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1994
U.S. TREASURY SECURITIES AND OBLIGATIONS
OF U.S. GOVERNMENT CORPORATIONS AND AGENCIES $ 47,900,000 $ 9,000 $ 2,735,000 $ 45,174,000
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 790,000 1,000 1,000 790,000
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 61,528,000 111,000 3,134,000 58,505,000
EQUITY SECURITIES 9,828,000 18,000 431,000 9,415,000
$ 71,356,000 $ 129,000 $ 3,565,000 $ 67,920,000
HELD-TO-MATURITY SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1994
U.S. TREASURY SECURITIES AND OBLIGATIONS
OF U.S. GOVERNMENT CORPORATIONS AND AGENCIES $ 87,836,000 $ 13,000 $ 3,461,000 $ 84,388,000
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 32,056,000 355,000 883,000 31,528,000
MORTGAGE-BACKED SECURITIES 4,896,000 414,000 4,482,000
OTHER DEBT SECURITIES 3,669,000 23,000 95,000 3,597,000
$ 128,457,000 $ 391,000 $ 4,853,000 $ 123,995,000
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE FOUR
INVESTMENTS (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1993
U .S. TREASURY SECURITIES AND OBLIGATIONS
OF U.S. GOVERNMENT CORPORATIONS AND AGENCIES $ 45,280,000 $ 859,000 $ 58,000 $ 46,081,000
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 95,000 1,000 94,000
MORTGAGE-BACKED SECURITIES 20,492,000 981,000 101,000 21,372,000
OTHER DEBT SECURITIES 1,809,000 50,000 1,859,000
TOTAL DEBT SECURITIES 67,676,000 1,890,000 160,000 69,406,000
EQUITY SECURITIES 7,851,000 29,000 0 7,880,000
$ 75,527,000 $ 1,919,000 $ 160,000 $ 77,286,000
HELD-TO-MATURITY SECURITIES
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1993
U.S. TREASURY SECURITIES AND OBLIGATIONS OF U.S.
GOVERNMENT CORPORATIONS AND AGENCIES $ 127,512,000 $ 2,588,000 $ 158,000 $ 129,942,000
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS 33,889,000 1,969,000 26,000 35,832,000
OTHER DEBT SECURITIES 4,709,000 262,000 4,971,000
$ 166,110,000 $ 4,819,000 $ 184,000 $ 170,745,000
The amortized cost and estimated fair value of debt securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without
prepayment penalties.
ESTIMATED
COST FAIR VALUE
AVAILABLE-FOR-SALE
DUE IN ONE YEAR OR LESS $ 6,047,000 $ 5,851,000
DUE AFTER ONE YEAR THROUGH FIVE YEARS 22,093,000 21,056,000
DUE AFTER FIVE YEARS THROUGH TEN YEARS 20,848,000 19,404,000
DUE AFTER TEN YEARS 705,000 617,000
49,693,000 46,928,000
MORTGAGE-BACKED SECURITIES 11,835,000 11,577,000
$ 61,528,000 $ 58,505,000
HELD-TO-MATURITY
DUE IN ONE YEAR OR LESS $ 18,010,000 $ 17,813,000
DUE AFTER ONE YEAR THROUGH FIVE YEARS 69,920,000 67,668,000
DUE AFTER FIVE YEARS THROUGH TEN YEARS 32,993,000 31,521,000
DUE AFTER TEN YEARS 2,638,000 2,511,000
123,561,000 119,513,000
MORTGAGE-BACKED SECURITIES 4,896,000 4,482,000
$ 128,457,000 $ 123,995,000
Gross gains of $100,000 and gross losses of $903,000 were realized on
sales and calls of securities during 1994. During 1993 and 1992,
respectively, gross gains of $390,000 and $72,000 and gross losses of
$68,000 and $63,000 were realized on sales of securities. The book value
of securities pledged to secure public deposits and for other purposes
as required or permitted by law approximated $70,318,000 and $51,146,000
at December 31, 1994 and 1993, respectively.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE FIVE
LOANS
DECEMBER 31
1994 1993
COMMERCIAL, FINANCIAL AND AGRICULTURAL $ 137,425,000 $ 125,568,000
RESIDENTIAL REAL ESTATE 238,231,000 184,602,000
INSTALLMENT LOANS TO INDIVIDUALS 129,300,000 114,110,000
$ 504,956,000 $ 424,280,000
The Company grants loans to customers generally within the market
areas of its subsidiary banks. There is no significant concentration of
credit risk by industry or by related borrowers. There are no foreign
loans outstanding and highly leveraged loan transactions are
insignificant. The effects on income of nonaccrual loans, as well as
their outstanding balances, were not material.
During 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.
Additionally, the Company began originating residential mortgage loans
to be sold on the secondary market. Due to the short-term nature of
these loans, the recorded value approximates fair value. At December
31, 1994, the Company's investment in loans held for sale approximated
$30,227,000. A summary of changes in the allowance for possible loan
losses follows:
1994 1993 1992
BALANCE AT BEGINNING OF YEAR $ 5,764,000 $ 5,380,000 $ 2,401,000
PROVISION FOR POSSIBLE LOAN LOSSES 953,000 1,341,000 2,222,000
CHARGE-OFFS (1,093,000) (1,537,000) (1,163,000)
RECOVERIES 393,000 476,000 240,000
ALLOWANCE OF PURCHASED SUBSIDIARY 0 104,000 1,680,000
BALANCE AT END OF YEAR $ 6,017,000 $ 5,764,000 $ 5,380,000
The Financial Accounting Standards Board (FASB) has issued SFAS No.
114, "Accounting By Creditors for Impairment of a Loan," which was
amended by SFAS No. 118. The provisions of SFAS No. 114 and SFAS No. 118
are effective for fiscal years beginning after December 15, 1994. SFAS
No. 114 requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. The Company will adopt this Statement on January 1, 1995 and
it will not have a material effect on the Company's financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE SIX
BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment follows:
DECEMBER 31
1994 1993
BANK PREMISES $ 17,865,000 $ 14,325,000
FURNITURE, FIXTURES, AND EQUIPMENT 11,009,000 9,806,000
28,874,000 24,131,000
LESS ALLOWANCE FOR DEPRECIATION 11,196,000 8,705,000
$ 17,678,000 $ 15,426,000
NOTE SEVEN
SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of advances from the Federal
Home Loan Bank of Pittsburgh (the FHLB) and securities sold under
agreement to repurchase. A summary of the Company's short-term
borrowings is set forth below:
1994:
AVERAGE AMOUNT OUTSTANDING DURING THE YEAR $ 42,559,000
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH END 78,263,000
WEIGHTED AVERAGE INTEREST RATE:
DURING THE YEAR 3.96%
END OF THE YEAR 5.50%
1993:
A VERA G E AMOUNT OUTSTANDING DURING THE Y EAR $ 17,641,000
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH END 24,539,000
WEIGHTED A VERA G E INTEREST RATE:
DURING THE YEAR 2.40%
END OF THE YEAR 2.65%
1992:
A VERA G E AMOUNT OUTSTANDING DURING THE Y EAR $ 10,605,000
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH END 16,272,000
WEIGHTED A VERA G E INTEREST RATE:
DURING THE YEAR 3.10%
END OF THE YEAR 2.18%
NOTE EIGHT
LONG-TERM DEBT AND UNUSED LINES OF CREDIT
Long-term debt, which represents an obligation of the Parent Company,
consists of a $10,000,000 revolving credit loan with an unrelated party.
The loan has a variable rate (7.9375% at December 31, 1994) with
interest payments due quarterly and principal due at maturity in June
1995. 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) and
The Peoples Bank of Point Pleasant, as collateral for the revolving
credit loan.
During 1994, five of the Company's subsidiaries were approved for
membership, joining City National who was approved in 1993, in the FHLB.
On a consolidated basis, the Company has purchased 44,000 shares of the
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, 1994, the subsidiaries have been issued one
year flexline commitments of $61,725,000, at prevailing interest rates,
from the FHLB with maturities ranging from June to December 1995. Such
commitments are subject to satisfying the Capital Stock Requirement
provisions, as defined, in the agreement with the FHLB. As of December
31, 1994, amounts outstanding pursuant to the agreements totaled
$12,707,000.
32
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 1995, the subsidiary banks
can, without prior regulatory approval, declare dividends of
approximately $6,214,000 to the Parent Company, plus retained net
profits for the interim period through the date of such dividend
declaration.
NOTE TEN
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
DECEMBER 31
1994 1993
DEFERRED TAX ASSETS:
ALLOWANCE FOR LOAN LOSSES $ 2,208,000 $ 2,168,000
ACQUIRED NET OPERATING LOSS CARRY FORWARD 777,000 885,000
DEFERRED COMPENSATION PAYABLE 436,000 435,000
SECURITIES AVAILABLE FOR SALE 1,356,000 0
OTHER 200,000 155,000
TOTAL DEFERRED TAX ASSETS 4,977,000 3,643,000
DEFERRED TAX LIABILITIES:
FEDERAL INCOME TAX ALLOWANCE FOR LOAN LOSSES 630,000 861,000
PREMISES AND EQUIPMENT 746,000 734,000
CORE DEPOSIT INTANGIBLE 482,000 544,000
INVESTMENTS 139,000 172,000
LOANS 272,000 278,000
PREPAIDS 111,000 111,000
OTHER 8,000 13,000
TOTAL DEFERRED TAX LIABILITIES 2,388,000 2,713,000
NET DEFERRED TAX ASSETS $ 2,589,000 $ 930,000
SIGNIFICANT COMPONENTS OF THE PROVISION FOR INCOME TAXES ARE AS FOLLOWS:
LIABILITY METHOD
1994 1993 1992
FEDERAL:
CURRENT $ 2,876,000 $ 2,667,000 $ 2,469,000
DEFERRED (303,000) (153,000) (402,000)
2,573,000 2,514,000 2,067,000
STATE 620,000 435,000 444,000
TOTAL $ 3,193,000 $ 2,949,000 $ 2,511,000
Current income tax expense (benefit) attributable to investment
securities transactions approximated $(321,000), $129,000, and $4,000 in
1994, 1993, and 1992, respectively. As of December 31, 1994, the Company
has approximately $ 1.7 million and $2.3 million, respectively, of
federal and state income tax credit carryforwards which expire in 2006.
33
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:
LIABILITY METHOD
1994 1993 1992
COMPUTED FEDERAL TAXES AND STATUTORY RATE $ 3,997,000 $ 2,764,000 $ 2,861,000
STATE INCOME TAXES, NET OF FEDERAL TAX BENEFIT 340,000 314,000 320,000
TAX EFFECTS OF:
NONTAXABLE INTEREST INCOME (611,000) (593,000) (606,000)
OTHER ITEMS, NET (33,000) 39,000 (64,000)
$ 3,193,000 $ 2,949,000 $ 2,511,000
NOTE ELEVEN
RETIREMENT PLAN
The City Holding Company Profit Sharing and 401(k) Plan (the Plan) is
a deferred compensation plan under section 401(k) of the Internal
Revenue Code. All employees who complete one year of service are
eligible to participate in the Plan. Participants may contribute from
1% to 15% of pre-tax earnings to their respective accounts. These
contributions may be invested in any of four investment options selected
by the employee, one of which is City Holding Company common stock. The
Company matches 50% of the first 6% of compensation deferred by the
participant with City Holding Company common stock. Profit sharing
contributions are discretionary, as determined annually by the Company's
Board of Directors. The Company's total expense associated with the
Plan approximated $881,000, $562,000, and $403,000 in 1994, 1993, and
1992, respectively. The total number of shares of the Company's common
stock held by the Plan is 120,492. Other than the Plan, the Company
offers no postretirement benefits.
In May 1993, the Company formed 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.
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, 1994 and 1993, attributable directly and indirectly to
these parties, was approximately $20,089,000 and $18,898,000,
respectively. During 1994, $6,693,000 of new loans were made and
repayments totaled $5,502,000.
A director of one of the Company's subsidiaries is the President of a
non-affiliated financial institution that participates in the whole-loan
bulk purchasing program (See NOTE FIVE).
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE THIRTEEN
INCOME
Included in other income in 1994 is $1,400,000 related to an insurance
recovery at one of the Company's subsidiary banks. Additionally, in
1994 the Company became involved in the secondary market for mortgage
loans which generated fee income of $317,000.
NOTE FOURTEEN
EXPENSES
The following items of other expenses exceeded one percent of total
revenue for the respective years:
1994 1993 1992
INSURANCE, INCLUDING FDIC PREMIUMS $ 1,545,000 $ 1,324,000 $ 1,068,000
ADVERTISING 868,000 606,000 419,000
BANK SUPPLIES 887,000 783,000 573,000
LEGAL AND ACCOUNTING FEES 952,000 475,000 335,000
NOTE FIFTEEN
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, certain financial products are
offered by the Company to accommodate the financial needs of its
customers. Loan commitments (lines of credit) represent the principal
off-balance-sheet financial product offered by the Company. At December
31, 1994 and 1993, commitments outstanding to extend credit totaled
approximately $45,776,000 and $25,252,000, 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 $3,161,000 and $780,000 as of December
31, 1994 and 1993, 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, 1994, 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.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE SEVENTEEN
FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following table represents the estimates of fair value of financial
instruments:
FAIR VALUE OF FINANCIAL INSTRUMENTS
1994 1993
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 27,591,000 $ 27,591,000 $ 27,436,000 $ 27,436,000
LOANS HELD FOR SALE 30,227,000 30,227,000
SECURITIES 199,813,000 191,915,000 241,637,000 248,031,000
NET LOANS 489,395,000 478,324,000 407,990,000 412,587,000
LIABILITIES
DEMAND DEPOSITS 388,794,000 388,794,000 400,099,000 400,099,000
TIME DEPOSITS 262,470,000 255,190,000 217,234,000 249,526,000
SHORT-TERM BORROWINGS 57,483,000 57,483,000 21,669,000 21,669,000
LONG-TERM DEBT 6,875,000 6,875,000 5,875,000 5,875,000
OFF-BALANCE SHEET
COMMITMENTS TO EXTEND CREDIT 45,776,000 45,776,000 25,252,000 25,252,000
LETTERS OF CREDIT 3,161,000 3,161,000 780,000 780,000
The following methods and assumptions were used in estimating fair
value amounts for financial instruments:
The fair values for the loan portfolio are estimated using discounted
cash flow analyses at interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The carrying
values of accrued interest approximate fair value.
The fair values of demand deposits (i.e interest and
noninterest-bearing checking, regular savings, and other types of money
market demand accounts) are, by definition, equal to their carrying
amounts. Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregate expected
monthly maturities of time deposits.
Securities sold under agreements to repurchase represent borrowings
with original maturities of less than 90 days. The carrying amounts of
short-term borrowings approximate their fair values.
The fair values of long-term borrowings are estimated using
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The fair values of commitments are estimated based on fees currently
charged to enter into similar agreements, taking into consideration the
remaining terms of the agreements and the counterparties' credit
standing.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE EIGHTEEN
CITY HOLDING COMPANY (PARENT COMPANY ONLY)FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
DECEMBER 31
1994 1993
ASSETS
CASH $ 77,000 $ 188,000
SECURITIES AVAILABLE-FOR-SALE 1,726,000 1,603,000
INVESTMENT IN SUBSIDIARIES 67,009,000 60,630,000
FIXED ASSETS 1,745,000 1,768,000
OTHER ASSETS 1,262,000 490,000
TOTAL ASSETS $ 71,819,000 $ 64,679,000
LIABILITIES
LONG-TERM DEBT $ 6,875,000 $ 5,875,000
ADVANCES FROM AFFILIATES 5,807,000 2,234,000
OTHER LIABILITIES 2,268,000 736,000
TOTAL LIABILITIES 14,950,000 8,845,000
STOCKHOLDERS' EQUITY 56,869,000 55,834,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,819,000 $ 64,679,000
Advances from affiliates, which eliminate for purposes of the
Company's consolidated financial statements, represent amounts borrowed
from banking subsidiaries to fund the purchase of certain bank premises
and to meet other cash needs of the parent. Such debt is collateralized
by the securities and fixed assets of the Parent Company. Interest is
due quarterly at prime with principal due at maturity in 1997. The
maximum available credit under the advance is subject to the
subsidiaries' legal lending limit which approximated $6,356,000 at year
end.
CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1994 1993 1992
INCOME
DIVIDENDS FROM BANK SUBSIDIARIES $ 5,231,000 $ 10,906,000 $ 4,476,000
INTEREST AND DIVIDENDS ON SECURITIES 111,000 117,000 12,000
OTHER INCOME 1,604,000 146,000 -
6,946,000 11,169,000 4,488,000
EXPENSES
INTEREST EXPENSE 735,000 349,000 5,000
OTHER EXPENSES 3,159,000 2,505,000 1,508,000
3,894,000 2,854,000 1,513,000
INCOME BEFORE INCOME TAX
BENEFIT AND EQUITY IN UNDISTRIBUTED NET INCOME
(EXCESS DIVIDENDS) OF SUBSIDIARIES 3,052,000 8,315,000 2,975,000
INCOME TAX BENEFIT (1,344,000) (991,000) (605,000)
INCOME BEFORE EQUITY
IN UNDISTRIBUTED NET INCOME (EXCESS DIVIDENDS)
OF SUBSIDIARIES 4,396,000 9,306,000 3,580,000
EQUITY IN UNDISTRIBUTED NET INCOME
(EXCESS DIVIDENDS) OF SUBSIDIARIES 2,563,000 (2,874,000) 2,324,000
NET INCOME $ 6,959,000 $ 6,432,000 $ 5,904,000
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES
NOTE EIGHTEEN
CITY HOLDING COMPANY (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1994 1993 1992
OPERATING ACTIVITIES
NET INCOME $ 6,959,000 $ 6,432,000 $ 5,904,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 149,000
DECREASE (INCREASE) IN OTHER ASSETS 44,000 (128,000) 190,000
INCREASE (DECREASE) IN OTHER LIABILITIES 1,532,000 430,000 (98,000)
(EQUITY IN UNDISTRIBUTED NET INCOME) EXCESS DIVIDENDS
OF SUBSIDIARIES (2,563,000) 2,874,000 (2,324,000)
OTHER 99,000 32,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,121,000 9,707,000 3,704,000
INVESTING ACTIVITIES
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 6,551,000 250,000
PROCEEDS FROM SALES OF SECURITIES 250,000
PURCHASES OF INVESTMENT SECURITIES (148,000) (6,407,000) (2,246,000)
PURCHASES OF MORTGAGE LOANS (808,000)
CASH PAID FOR ACQUIRED SUBSIDIARY (532,000) (193,000) (2,250,000)
CASH INVESTED IN SUBSIDIARIES (5,318,000) (8,767,000) (2,000,000)
PURCHASES OF PREMISES AND EQUIPMENT (126,000) (1,706,000)
NET CASH USED IN INVESTING ACTIVITIES (6,932,000) (10,272,000) (6,246,000)
FINANCING ACTIVITIES
PROCEEDS FROM LONG-TERM DEBT 6,875,000 5,225,000 4,000,000
PRINCIPAL REPAYMENTS ON LONG-TERM DEBT (5,875,000) (3,350,000)
ADVANCES FROM BANK SUBSIDIARIES, NET 3,573,000 2,234,000
CASH DIVIDENDS PAID (2,298,000) (1,833,000) (1,611,000)
PURCHASES OF TREASURY STOCK (193,000) (2,218,000) (548,000)
PROCEEDS FROM SALES OF TREASURY STOCK 461,000 565,000 665,000
REDEMPTION OF DISSENTER AND FRACTIONAL SHARES (1,843,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 700,000 623,000 2,506,000
(DECREASE) INCREASE IN CASH (111,000) 58,000 (36,000)
CASH AT BEGINNING OF YEAR 188,000 130,000 166,000
CASH AT END OF YEAR $ 77,000 $ 188,000 $ 130,000
38
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 1994 and
1993 follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994
INTEREST INCOME $ 12,665,000 $ 13,359,000 $ 14,295,000 $ 14,829,000
INTEREST EXPENSE 5,095,000 5,259,000 5,682,000 6,206,000
NET INTEREST INCOME 7,570,000 8,100,000 8,613,000 8,623,000
PROVISION FOR POSSIBLE LOAN LOSSES 201,000 215,000 215,000 322,000
INVESTMENT SECURITIES GAINS (LOSSES) 69,000 3,000 (20,000) (855,000)
NET INCOME 1,658,000 1,644,000 1,725,000 1,932,000
NET INCOME PER COMMON SHARE 0.44 0.44 0.45 0.52
1993
INTEREST INCOME $ 11,760,000 $ 11,877,000 $ 11,891,000 $ 12,688,000
INTEREST EXPENSE 4,774,000 4,781,000 4,761,000 5,231,000
NET INTEREST INCOME 6,986,000 7,096,000 7,130,000 7,457,000
PROVISION FOR POSSIBLE LOAN LOSSES 343,000 320,000 295,000 383,000
INVESTMENT SECURITIES GAINS 87,000 99,000 84,000 52,000
NET INCOME 1,661,000 1,646,000 1,678,000 1,447,000
NET INCOME PER COMMON SHARE 0.44 0.44 0.45 0.38
NOTE TWENTY
PENDING MERGER
In March 1995, the Company signed a definitive agreement to acquire
First Merchants Bancorp in Montgomery, West Virginia (Merchants). At
December 31, 1994, Merchants reported total assets of approximately $115
million. The merger, which is expected to be consummated in the third
quarter of 1995, involves the exchange of approximately 920,000 shares
of Company common stock for all of Merchants' outstanding shares. It is
anticipated that the transaction will be accounted for under the pooling
of interests method of accounting. The following condensed unaudited
proforma financial information presents selected balance sheet amounts
and operating results of the Company and Merchants as though they had
been combined during all periods indicated below.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993 1992
AT YEAR END
NET LOANS $ 547,809 $ 462,424 $ 376,206
TOTAL DEPOSITS 746,805 709,958 605,398
TOTAL ASSETS 895,817 816,225 701,862
SUMMARY OF OPERATIONS
NET INTEREST INCOME $ 37,594 $ 32,876 $ 28,696
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 8,142 7,762 6,972
NET INCOME 8,142 7,645 6,972
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE PER SHARE 1.73 1.63 1.48
NET INCOME PER COMMON SHARE 1.73 1.63 1.48
39