January 19, 2017 - 7:30 AM EST
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City Holding Company Announces Annual Earnings

City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $4.0 billion bank holding company headquartered in Charleston, West Virginia, today announced net income of $52.1 million and diluted earnings of $3.45 per share for the year ended December 31, 2016.

Highlights of the Company’s performance and results for the year ended December 31, 2016 include the following:

  • Return on assets and return on tangible equity of 1.36% and 14.8%, respectively.
  • Reported net interest income increased $4.0 million (3.4%) from the year ended December 31, 2015, while net interest income exclusive of accretion from fair value adjustments increased $7.7 million (7.1%) from the year ended December 31, 2015.
  • Total loan growth of $183.7 million (6.4%) from December 31, 2015 to December 31, 2016.
  • Asset quality continues to remain strong with nonperforming assets declining from $24.0 million, or 0.84% of total loans and other real estate owned at December 31, 2015 to $18.7 million, or 0.61%, at December 31, 2016. Past due loans declined from 0.32% of total loans outstanding at December 31, 2015 to 0.28% at December 31, 2016.

Highlights of the Company’s fourth quarter performance include the following:

  • Return on assets and return on tangible equity of 1.49% and 16.1%, respectively.
  • Reported net interest income increased $0.6 million (2.1%) from the quarter ended September 30, 2016, while net interest income exclusive of accretion from fair value adjustments increased $0.8 million (2.8%) from the quarter ended September 30, 2016.
  • Total loan growth of $88.3 million (3.0%) from September 30, 2016 to December 31, 2016.

Net Interest Income

The Company’s tax equivalent net interest income increased $4.0 million, or 3.4%, from $115.8 million in 2015 to $119.8 million in 2016. This increase was due primarily to an increase in average loan balances from organic growth ($127.1 million) and from loans associated with the acquisition of three branches in the Lexington, Kentucky market in November 2015 (approximately $102.4 million in loans) contributing additional net interest income of $9.0 million in 2016. In addition, higher average investment balances ($111.5 million) increased net interest income by $3.9 million. During 2016 in conjunction with its interest rate risk management strategy, the Company elected to grow investment balances and reduce cash balances to enhance net interest income. As part of this strategy, the Company purchased tax-exempt municipal securities to improve its earnings by lowering its effective income tax rate. As a result of this strategy, the Company’s overnight borrowings increased during 2016 and the Company anticipates growing time deposit balances in 2017 to reduce overnight borrowings. These increases in net interest income were partially offset by lower accretion from fair value adjustments on recent acquisitions that decreased net interest income $3.8 million ($6.7 million in 2015 compared to $2.9 million in 2016) and margin compression which lowered net interest income $3.9 million. The Company’s reported net interest margin decreased from 3.76% for the year ended December 31, 2015 to 3.50% for the year ended December 31, 2016. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 3.54% for the year ended December 31, 2015 and 3.41% for the year ended December 31, 2016. This decrease was primarily caused by the yield on loans (excluding accretion) compressing slightly from 4.05% for the year ended December 31, 2015 to 3.96% for the year ended December 31, 2016 and by the yield on investment securities decreasing from 3.28% to 3.01% for the same period.

During the fourth quarter of 2016, the Company’s tax equivalent net interest income increased $0.6 million, or 2.1%, to $30.6 million from $30.0 million during the third quarter of 2016. This increase was largely due to higher average commercial and residential real estate loan balances (up $87.3 million from the third quarter of 2016) that increased net interest income by $0.8 million and higher average investment securities balances (up $39.3 million from the third quarter of 2016) that increased net interest income by $0.2 million. The Company’s reported net interest margin decreased from 3.48% for the third quarter of 2016 to 3.42% for the fourth quarter of 2016. Excluding the favorable impact of the accretion from the fair value adjustments ($0.5 million for the quarter ended December 31, 2016 and $0.6 million for the quarter ended September 30, 2016), the net interest margin would have been 3.37% for the quarter ended December 31, 2016 and 3.40% for the quarter ended September 30, 2016. The decrease in the net interest margin from the third quarter of 2016 is attributable to the yield on investment securities compressing 8 basis points and a slightly higher cost of funds. The Company’s yield on loans (excluding accretion) remained stable at 3.94% for both the quarter ended September 30, 2016 and the quarter ended December 31, 2016. The majority of the Company’s commercial loans originated in 2016 have variable interest rates and the Company believes that it remains well positioned to benefit from rising interest rates.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned improved from 0.84% at December 31, 2015 to 0.61% at December 31, 2016. Total nonperforming assets decreased from $24.0 million at December 31, 2015 to $18.7 million at December 31, 2016. Excluded from this ratio are purchased credit-impaired loans in which the Company estimated cash flows and estimated a credit mark. Such loans would be considered nonperforming loans if the loan’s performance deteriorates below the initial expectations. Total past due loans decreased from $9.2 million, or 0.32% of total loans outstanding, at December 31, 2015 to $8.6 million, or 0.28% of total loans outstanding, at December 31, 2016.

As a result of the Company’s quarterly analysis of the adequacy of the Allowance for Loan Losses (“ALLL”), the Company recorded a provision for loan losses of $1.3 million in the fourth quarter of 2016 and $4.4 million for the year ended December 31, 2016, compared to $2.8 million and $7.0 million for the comparable periods in 2015. The provision for loan losses recorded in 2016 reflects the impact of several factors, including the growth in the loan portfolio and changes in the quality of the portfolio. Additionally, during the fourth quarter of 2016, a commercial customer of the Company with a hotel/motel related credit whose business is located in North Central West Virginia experienced a downfall in occupancy rates as a result of a slowdown in the oil and gas industry. As a result, the Company increased the allowance for loan losses in the fourth quarter in relation to this loan. Beyond this particular loan, the Company has very limited exposure to the oil and gas industry and does not have any direct loans to any oil and gas operations. Changes in the amount of the allowance and related provision are based on the Company’s detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company’s loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.

Non-interest Income

During 2016, the Company realized $3.5 million of investment gains compared to $2.1 million during 2015. These gains represented partial recoveries of impairment charges previously recognized on pools of trust preferred securities. In addition, during 2015 the Company sold its insurance operation which resulted in the recognition of a pre-tax gain of $11.1 million in 2015. Exclusive of these gains, non-interest income increased from $54.0 million for the year ended December 31, 2015 to $55.3 million for the year ended December 31, 2016. This increase was primarily attributable to an increase of $0.6 million, or 3.9%, in bankcard revenues; an increase of $0.4 million, or 8.8%, in trust and investment management fee income; and an increase of $0.4 million, or 1.5%, in service charges.

Non-interest income increased from $14.1 million for the fourth quarter of 2015 to $14.4 million for the fourth quarter of 2016. This increase was mainly due to an increase in bankcard revenues of $0.2 million, or 5.6%, from the fourth quarter of 2015.

Non-interest Expenses

Non-interest expenses increased $3.2 million from the year ended December 31, 2015 to the year ended December 31, 2016. During 2015, the Company recognized $0.6 million of acquisition and integration expenses associated with the acquisition of three branches in Lexington, Kentucky. Excluding acquisition related expenses, non-interest expenses increased $3.8 million from $92.4 million for the year ended December 31, 2015 to $96.2 million for the year ended December 31, 2016. This increase was largely due to an increase in salaries and employee benefits ($2.1 million) due to salary adjustments and increased health insurance costs. In addition non-interest expenses increased $1.7 million due to the annual operating costs of the three branches acquired in November 2015 and from an increase of $0.5 million in bankcard expenses due to increased transaction volumes.

Non-interest expenses increased $1.3 million from the quarter ended December 31, 2015 to the quarter ended December 31, 2016. Exclusive of acquisition related expenses of $0.3 million, total non-interest expenses increased $1.6 million from $20.9 million in the fourth quarter of 2015 to $22.5 million in the fourth quarter of 2016. This increase was due to an increase in salaries and employee benefits of $1.0 million caused by salary adjustments and increased health insurance costs, an increase in other expenses of $0.2 million, advertising expenses of $0.2 million, and the operating costs associated with the acquisition of three branches of $0.2 million. These increases were partially offset by lower FDIC insurance expenses ($0.3 million).

Balance Sheet Trends

For the year ending December 31, 2016, period end loan balances increased $183.7 million (6.4%) to $3.05 billion. Commercial loans increased $122.3 million (9.4%) and residential real estate loans increased $68.3 million (4.9%) from December 31, 2015 to December 31, 2016. A significant portion of the increase in commercial loans during 2016 were in the Columbus, Ohio and Charlotte, North Carolina markets and were diversified across a broad base of industry types, such as multi-family housing, properties leased to the government, nursing homes, grocery and retail stores, and other commercial and industrial loans. These increases were slightly offset by decreases in home equity junior lien loans ($5.1 million) and consumer loans ($3.5 million).

Total average depository balances increased $219.3 million, or 7.4%, from the year ended December 31, 2015 to the year ended December 31, 2016. This growth was partially attributable to deposits acquired in 2015 via acquisition in Lexington, Kentucky ($126.6 million). Exclusive of these acquired deposits, noninterest deposits increased $64.2 million (10.9%), interest bearing deposits increased $27.4 million (4.3%) and savings deposits increased $21.1 million (3.0%). These increases were partially offset by a decrease in time deposits ($20.0 million).

Income Tax Expense

The Company’s effective income tax rate for the year ended December 31, 2016 was 32.5% compared to 34.4% for the year ended December 31, 2015. During the years ended December 31, 2016 and December 31, 2015, the Company reduced income tax expense by $0.5 million and $0.6 million, respectively, due to the recognition of previously unrecognized tax positions subsequent to the close of the statute of limitations for previous tax years. In addition, as previously noted, the Company sold its insurance agency, CityInsurance, in the first quarter of 2015. As a result of differences between the book and tax basis of the assets that were sold, the Company’s income tax expense increased by $1.1 million. Exclusive of these items, the Company’s tax rate from operations was 33.2% and 33.6% for the year ended December 31, 2016 and December 31, 2015, respectively.

The Company’s effective income tax rate for the quarter ended December 31, 2016 was 30.2% compared to 30.0% for the quarter ended December 31, 2015. During the quarters ended December 31, 2016, and December 31, 2015, the Company reduced income tax expense by $0.5 million and $0.6 million, respectively, due to the recognition of previously unrecognized tax positions resulting from the close of the statute of limitations for previous tax years. Exclusive of these items, the Company’s tax rate from operations was 32.8% and 33.1% for the quarters ended December 31, 2016 and December 31, 2015, respectively.

Capitalization and Liquidity

At December 31, 2016, the Company’s loan to deposit ratio was 94.3% and the loan to asset ratio was 76.7%. The Company maintained investment securities totaling 13.6% of assets as of the same date. Further, the Company’s deposit mix is weighted heavily toward checking and saving accounts that fund 55.2% of assets at December 31, 2016. Time deposits fund 26.2% of assets at December 31, 2016, but very few of these deposits are in accounts that have balances of more than $250,000, reflecting the core retail orientation of the Company.

The Company is strongly capitalized. The Company’s tangible equity ratio was 9.3% at both December 31, 2016 and December 31, 2015. At December 31, 2016, City National Bank’s Leverage Ratio of 8.33%, Common Equity Tier I ratio of 11.29%, Tier I Capital ratio of 11.58%, and Total Risk-Based Capital ratio of 12.30%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On December 14, 2016, the Board approved a quarterly cash dividend of $0.43 cents per share payable January 31, 2017, to shareholders of record as of January 13, 2017.

On December 19, 2016, the Company announced that it had filed a prospectus supplement to its existing shelf registration statement on Form S-3 for the sale of its common stock having an aggregate value of up to $55 million through an “at-the-market” equity offering program. The Company intends to use the net proceeds from the offering to support loan growth, bolster regulatory capital, and provide cash for possible future acquisitions. Pending this use, the proceeds will be invested by the Company in various investment securities. During the quarter ended December 31, 2016, the Company sold approximately 108,000 common shares at a weighted average price of $66.21, net of broker fees. Through January 17, 2017, the Company has sold approximately 145,000 common shares at a weighted average price of $66.02, net of broker fees.

City Holding Company is the parent company of City National Bank of West Virginia. City National Bank operates 85 branches across West Virginia, Virginia, Kentucky and Ohio.

Forward-Looking Information

This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information involves risks and uncertainties that could result in the Company's actual results differing materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, (1) the Company may incur additional loan loss provision due to negative credit quality trends in the future that may lead to a deterioration of asset quality; (2) the Company may incur increased charge-offs in the future; (3) the Company could have adverse legal actions of a material nature; (4) the Company may face competitive loss of customers; (5) the Company may be unable to manage its expense levels; (6) the Company may have difficulty retaining key employees; (7) changes in the interest rate environment may have results on the Company’s operations materially different from those anticipated by the Company’s market risk management functions; (8) changes in general economic conditions and increased competition could adversely affect the Company’s operating results; (9) changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact the Company’s operating results; (10) the Company may experience difficulties growing loan and deposit balances; (11) the current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations; (12) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments; (13) the effects of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the regulations promulgated and to be promulgated thereunder, which may subject the Company and its subsidiaries to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses; (14) the impact of new minimum capital thresholds established as a part of the implementation of Basel III; and (15) other risk factors relating to the banking industry or the Company as detailed from time to time in the Company’s reports filed with the Securities and Exchange Commission, including those risk factors included in the disclosures under the heading “ITEM 1A Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made. Further, the Company is required to evaluate subsequent events through the filing of its Form 10-K for the fiscal year ended December 31, 2016. The Company will continue to evaluate the impact of any subsequent events on the preliminary December 31, 2016 results and will adjust the amounts if necessary.

 
CITY HOLDING COMPANY AND SUBSIDIARIES
Financial Highlights              
(Unaudited)
 
Three Months Ended Twelve Months Ended
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015 December 31, 2016   December 31, 2015
 
Earnings
Net Interest Income (FTE) $ 30,638 $ 30,002 $ 29,863 $ 29,312 $ 29,391 $ 119,817 $ 115,856
Net Income available to common shareholders 14,656 13,232 12,541 11,702 13,515 52,128 54,097
 
Per Share Data
Earnings per share available to common shareholders:
Basic $ 0.97 $ 0.88 $ 0.83 $ 0.78 $ 0.88 $ 3.46 $ 3.54
Diluted 0.97 0.88 0.83 0.78 0.88 3.45 3.53
Weighted average number of shares (in thousands):
Basic 14,894 14,899 14,889 14,916 15,158 14,900 15,123
Diluted 14,914 14,909 14,902 14,927 15,174 14,913 15,170
Period-end number of shares (in thousands) 15,128 15,007 15,005 14,971 15,180 15,128 15,180
Cash dividends declared $ 0.43 $ 0.43 $ 0.43 $ 0.43 $ 0.42 $ 1.72 $ 1.68
Book value per share (period-end) 29.25 28.97 28.60 27.93 27.62 29.25 27.62
Tangible book value per share (period-end) 24.02 23.69 23.30 22.61 22.36 24.02 22.36
Market data:
High closing price $ 68.29 $ 50.60 $ 50.14 $ 47.78 $ 51.12 $ 68.29 $ 51.73
Low closing price 48.49 44.53 43.06 40.82 43.85 40.82 41.76
Period-end closing price 67.60 50.29 45.47 47.78 45.64 67.60 45.64
Average daily volume (in thousands) 57 61 63 71 55 63 53
Treasury share activity:
Treasury shares repurchased (in thousands) - - 2 229 150 231 150
Average treasury share repurchase price $ - $ - $ 46.65 $ 43.31 $ 46.91 $ 43.34 $ 46.91
Common share issuance:
Common shares issued (in thousands) 108 - - - - 108 -
Average common share issue price (a) $ 66.21 $ - $ - $ - $ - $ 66.21 $ -
 
Key Ratios (percent)
Return on average assets 1.49 % 1.38 % 1.31 % 1.25 % 1.48 % 1.36 % 1.52 %
Return on average tangible equity 16.1 % 14.9 % 14.5 % 13.8 % 15.5 % 14.8 % 15.8 %
Yield on interest earning assets 3.81 % 3.85 % 3.95 % 3.91 % 3.99 % 3.88 % 4.14 %
Cost of interest bearing liabilities 0.50 % 0.49 % 0.49 % 0.48 % 0.46 % 0.49 % 0.47 %
Net Interest Margin 3.42 % 3.48 % 3.56 % 3.53 % 3.62 % 3.50 % 3.76 %
Non-interest income as a percent of total revenue 32.1 % 32.1 % 31.6 % 31.1 % 32.5 % 31.7 % 36.1 %
Efficiency Ratio 48.9 % 56.3 % 55.6 % 56.8 % 48.5 % 54.8 % 53.7 %
Price/Earnings Ratio (b) 17.38 14.33 13.66 15.40 12.94 19.56 12.91
 
Capital (period-end)
Average Shareholders' Equity to Average Assets 11.25 % 11.35 % 11.13 % 11.23 % 11.65 %
Tangible equity to tangible assets 9.34 % 9.39 % 9.38 % 9.03 % 9.34 %
Consolidated risk based capital ratios (c):
CET I 13.41 % 13.00 % 13.21 % 13.38 % 13.65 %
Tier I 13.98 % 13.59 % 13.82 % 14.00 % 14.28 %
Total 14.73 % 14.33 % 14.57 % 14.78 % 15.10 %
Leverage 10.08 % 9.92 % 9.74 % 9.78 % 10.15 %
 
Other
Branches 85 85 85 85 85
FTE 847 834 852 854 853
 
Assets per FTE (in thousands) $ 4,687 $ 4,636 $ 4,468 $ 4,484 $ 4,354
Deposits per FTE (in thousands) 3,815 3,812 3,688 3,732 3,615
 
 
(a) The common share issue price is presented net of commissions and excludes one-time offering costs of approximately $265,000.
(b) The price/earnings ratio is computed based on annualized quarterly earnings.
(c) December 31, 2016 risk-based capital ratios are estimated.
 
           
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Income  
(Unaudited) ($ in 000s, except per share data)
 
Three Months Ended Twelve Months Ended
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015 December 31, 2016   December 31, 2015
 
Interest Income
Interest and fees on loans $ 30,126 $ 29,444 $ 29,640 $ 28,927 $ 29,032 $ 118,138 $ 115,107
Interest on investment securities:
Taxable 3,277 3,183 2,927 3,005 2,856 12,392 10,830
Tax-exempt   481     419     365     357     334   1,622     1,137
Total Interest Income 33,884 33,046 32,932 32,289 32,222 132,152 127,074
 
Interest Expense
Interest on deposits 3,137 3,006 3,011 2,898 2,760 12,052 10,886
Interest on short-term borrowings 188 90 86 107 91 472 327
Interest on long-term debt   179     172     167     164     159   683     617
Total Interest Expense   3,504     3,268     3,264     3,169     3,010   13,207     11,830
Net Interest Income 30,380 29,778 29,668 29,120 29,212 118,945 115,244
Provision for loan losses   1,301     1,432     1,122     539     2,813   4,395     6,988
Net Interest Income After Provision for Loan Losses 29,079 28,346 28,546 28,581 26,399 114,550 108,256
 
Non-Interest Income
Net gains on sale of investment securities - 2,668 845 - - 3,513 2,130
Service charges 6,995 6,842 6,564 6,303 6,893 26,703 26,316
Bankcard revenue 4,142 4,216 4,190 3,967 3,923 16,515 15,894
Trust and investment management fee income 1,597 1,329 1,371 1,276 1,547 5,573 5,124
Bank owned life insurance 952 846 768 760 898 3,326 3,374
Gain on sale of insurance division - - - - - - 11,084
Other income   685     846     843     821     813   3,195     3,284
Total Non-Interest Income 14,371 16,747 14,581 13,127 14,074 58,825 67,206
 
Non-Interest Expense
Salaries and employee benefits 12,427 12,993 12,790 12,673 11,296 50,883 47,847
Occupancy and equipment 2,792 2,759 2,708 2,836 2,583 11,095 10,277
Depreciation 1,516 1,585 1,567 1,567 1,539 6,235 6,088
FDIC insurance expense 137 508 512 465 443 1,622 1,794
Advertising 445 667 778 716 264 2,606 2,446
Bankcard expenses 1,011 1,188 1,016 938 918 4,154 3,690
Postage, delivery, and statement mailings 492 517 506 565 532 2,080 2,123
Office supplies 320 325 366 353 273 1,364 1,350
Legal and professional fees 515 869 437 366 522 2,186 1,963
Telecommunications 494 459 431 428 409 1,813 1,765
Repossessed asset losses, net of expenses 244 305 53 288 217 890 1,264
Merger related expenses - - - - 315 - 598
Other expenses   2,063     3,109     3,119     2,945     1,854   11,236     11,746
Total Non-Interest Expense   22,456     25,284     24,283     24,140     21,165   96,164     92,951
Income Before Income Taxes 20,994 19,809 18,844 17,568 19,308 77,211 82,511
Income tax expense   6,338     6,577     6,303     5,866     5,793   25,083     28,414
Net Income Available to Common Shareholders $ 14,656   $ 13,232   $ 12,541   $ 11,702   $ 13,515 $ 52,128   $ 54,097
 
Distributed earnings allocated to common shareholders $ 6,428 $ 6,376 $ 6,375 $ 6,365 $ 6,303 $ 25,710 $ 25,212
Undistributed earnings allocated to common shareholders   8,051     6,699     6,016     5,206     7,059   25,795     28,272
Net earnings allocated to common shareholders $ 14,479   $ 13,075   $ 12,391   $ 11,571   $ 13,362 $ 51,505   $ 53,484
 
Average common shares outstanding 14,894 14,899 14,889 14,916 15,158 14,900 15,123
Shares for diluted earnings per share 14,914 14,909 14,902 14,927 15,175 14,913 15,170
 
 
Basic earnings per common share $ 0.97 $ 0.88 $ 0.83 $ 0.78 $ 0.88 $ 3.46 $ 3.54
Diluted earnings per common share $ 0.97 $ 0.88 $ 0.83 $ 0.78 $ 0.88 $ 3.45 $ 3.53
 
       
CITY HOLDING COMPANY AND SUBSIDIARIES
Loan Portfolio  
(Unaudited) ($ in 000s)
 
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
 
Residential real estate (1) $ 1,451,462 $ 1,445,242 $ 1,417,137 $ 1,395,670 $ 1,383,133
Home equity - junior liens 141,965 141,616 142,827 142,694 147,036
Commercial and industrial 185,667 176,387 171,362 165,549 165,340
Commercial real estate (2) 1,229,516 1,158,088 1,135,493 1,135,625 1,127,581
Consumer 32,545 33,614 33,799 34,754 36,083
DDA overdrafts   5,071     2,965     2,780     2,825     3,361
Gross Loans $ 3,046,226   $ 2,957,912   $ 2,903,398   $ 2,877,117   $ 2,862,534
 
Construction loans included in:
(1) - Residential real estate loans $ 14,182 $ 12,284 $ 12,344 $ 13,966 $ 13,135
(2) - Commercial real estate loans 12,840 7,309 2,237 15,172 12,599
 
 
Secondary Mortgage Loan Activity
Mortgage loans originated $ 6,444 $ 5,624 $ 3,103 $ 2,809 $ 3,855
Mortgage loans sold 4,936 5,836 3,183 3,107 4,135
Mortgage loans gain on loans sold 107 129 80 58 88
 
         
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000s)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
 
Assets
Cash and due from banks $ 62,263 $ 57,233 $ 69,933 $ 165,134 $ 58,829
Interest-bearing deposits in depository institutions   25,876       7,576       8,643       10,031       11,284  
Cash and cash equivalents 88,139 64,809 78,576 175,165 70,113
 
Investment securities available-for-sale, at fair value 450,083 434,717 409,039 362,282 369,466
Investment securities held-to-maturity, at amortized cost 75,169 79,499 83,208 86,518 88,937
Other securities   14,352       11,895       10,203       9,960       12,915  
Total investment securities 539,604 526,111 502,450 458,760 471,318
 
Gross loans 3,046,226 2,957,912 2,903,398 2,877,117 2,862,534
Allowance for loan losses   (19,730 )     (19,550 )     (19,139 )     (19,315 )     (19,251 )
Net loans 3,026,496 2,938,362 2,884,259 2,857,802 2,843,283
 
Bank owned life insurance 100,732 100,293 99,446 98,679 97,919
Premises and equipment, net 75,165 75,589 75,040 75,965 77,271
Accrued interest receivable 8,408 7,986 8,428 8,517 7,432
Net deferred tax assets 28,012 23,179 23,995 27,541 29,974
Intangible assets 79,135 79,284 79,433 79,581 79,792
Other assets   23,957       50,748       55,234       47,656       36,957  
Total Assets $ 3,969,648     $ 3,866,361     $ 3,806,861     $ 3,829,666     $ 3,714,059  
 
Liabilities
Deposits:
Noninterest-bearing $ 672,286 $ 669,865 $ 651,867 $ 666,523 $ 621,073
Interest-bearing:
Demand deposits 695,891 713,642 701,248 711,366 679,735
Savings deposits 822,057 765,195 758,323 780,982 765,611
Time deposits   1,041,419       1,030,584       1,030,841       1,028,400       1,017,556  
Total deposits 3,231,653 3,179,286 3,142,279 3,187,271 3,083,975
Short-term borrowings
Federal Funds purchased 64,100 6,000 - - 13,000
Customer repurchase agreements 184,205 173,384 153,674 156,714 141,869
Long-term debt 16,495 16,495 16,495 16,495 16,495
Other liabilities   30,702       56,412       66,054       51,068       39,448  
Total Liabilities 3,527,155 3,431,577 3,378,502 3,411,548 3,294,787
 
Stockholders' Equity
Preferred stock - - - - -
Common stock 46,518 46,249 46,249 46,249 46,249
Capital surplus 112,873 105,996 105,648 106,137 106,269
Retained earnings 417,017 408,823 402,044 395,963 390,690
Cost of common stock in treasury (126,958 ) (127,538 ) (127,619 ) (129,142 ) (120,104 )
Accumulated other comprehensive loss:
Unrealized gain (loss) on securities available-for-sale (2,352 ) 6,013 6,796 3,670 927
Underfunded pension liability   (4,605 )     (4,759 )     (4,759 )     (4,759 )     (4,759 )
Total Accumulated Other Comprehensive Loss   (6,957 )     1,254       2,037       (1,089 )     (3,832 )
Total Stockholders' Equity   442,493       434,784       428,359       418,118       419,272  
Total Liabilities and Stockholders' Equity $ 3,969,648     $ 3,866,361     $ 3,806,861     $ 3,829,666     $ 3,714,059  
 
Regulatory Capital
Total CET 1 capital $ 371,677 $ 355,934 $ 349,100 $ 341,165 $ 345,620
Total tier 1 capital 387,677 371,934 365,100 357,165 361,620
Total risk-based capital 408,406 392,258 384,855 377,003 382,180
Total risk-weighted assets 2,772,456 2,737,721 2,642,040 2,550,739 2,531,525
 
           
CITY HOLDING COMPANY AND SUBSIDIARIES
Asset Quality Information  
(Unaudited) ($ in 000s)
 
Three Months Ended Twelve Months Ended
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015 December 31, 2016   December 31, 2015
Allowance for Loan Losses
Balance at beginning of period $ 19,550 $ 19,139 $ 19,315 $ 19,251 $ 20,148 $ 19,251 $ 20,074
 
Charge-offs:
Commercial and industrial - (103 ) (44 ) (1 ) (3,148 ) (148 ) (5,768 )
Commercial real estate (463 ) (142 ) (769 ) (302 ) (303 ) (1,676 ) (580 )
Residential real estate (453 ) (539 ) (337 ) (405 ) (386 ) (1,734 ) (1,144 )
Home equity (90 ) (125 ) (69 ) (106 ) (76 ) (390 ) (312 )
Consumer (24 ) (20 ) (44 ) (38 ) (39 ) (126 ) (210 )
DDA overdrafts   (395 )     (378 )     (321 )     (318 )     (376 )   (1,412 )     (1,414 )
Total charge-offs (1,425 ) (1,307 ) (1,584 ) (1,170 ) (4,328 ) (5,486 ) (9,428 )
 
Recoveries:
Commercial and industrial 1 9 3 1 2 14 74
Commercial real estate 40 43 20 384 317 487 366
Residential real estate 74 23 51 39 69 187 199
Home equity - - - - - - -
Consumer 9 28 52 29 32 118 186
DDA overdrafts   180       183       160       242       198     764       792  
Total recoveries 304 286 286 695 618 1,570 1,617
                       
Net charge-offs (1,121 ) (1,021 ) (1,298 ) (475 ) (3,710 ) (3,916 ) (7,811 )
Provision for (recovery of) acquired loans (1 ) (4 ) 128 40 32 163 553
Provision for loan losses   1,302       1,436       994       499       2,781     4,232       6,435  
Balance at end of period $ 19,730     $ 19,550     $ 19,139     $ 19,315     $ 19,251   $ 19,730     $ 19,251  
 
Loans outstanding $ 3,046,226 $ 2,957,912 $ 2,903,398 $ 2,877,117 $ 2,862,534
Allowance as a percent of loans outstanding 0.65 % 0.66 % 0.66 % 0.67 % 0.67 %
Allowance as a percent of non-performing loans 140.1 % 129.0 % 124.0 % 120.4 % 110.4 %
 
Average loans outstanding $ 3,006,426 $ 2,919,756 $ 2,891,292 $ 2,864,943 $ 2,789,354 $ 2,920,837 $ 2,691,304
Net charge-offs (annualized) as a percent of average loans outstanding 0.15 % 0.14 % 0.18 % 0.07 % 0.53 % 0.13 % 0.29 %
 
       
CITY HOLDING COMPANY AND SUBSIDIARIES
Asset Quality Information, continued  
(Unaudited) ($ in 000s)
 
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
Nonaccrual Loans
Residential real estate $ 4,302 $ 3,919 $ 2,531 $ 2,977 $ 2,918
Home equity 100 154 165 152 136
Commercial and industrial 1,958 2,441 2,724 2,967 2,745
Commercial real estate 7,341 8,077 9,779 9,718 11,149
Consumer   -       -       -       -       -  
Total nonaccrual loans 13,701 14,591 15,199 15,814 16,948
Accruing loans past due 90 days or more   382       569       241       225       495  
Total non-performing loans 14,083 15,160 15,440 16,039 17,443
Other real estate owned   4,588       5,435       5,868       6,054       6,519  
Total non-performing assets $ 18,671     $ 20,595     $ 21,308     $ 22,093     $ 23,962  
 
Non-performing assets as a percent of loans and other real estate owned 0.61 % 0.69 % 0.73 % 0.77 % 0.84 %
 
Past Due Loans
Residential real estate $ 6,074 $ 5,713 $ 5,490 $ 5,045 $ 6,610
Home equity 673 925 595 595 406
Commercial and industrial 94 399 304 343 159
Commercial real estate 1,115 1,275 1,746 2,138 1,480
Consumer 39 104 150 82 196
DDA overdrafts   599       554       290       514       313  
Total past due loans $ 8,594     $ 8,970     $ 8,575     $ 8,717     $ 9,164  
 
Total past due loans as a percent of loans outstanding 0.28 % 0.30 % 0.30 % 0.30 % 0.32 %
 
Troubled Debt Restructurings ("TDRs")
Accruing:
Residential real estate $ 20,643 $ 19,944 $ 19,685 $ 18,306 $ 17,796
Home equity 3,105 3,159 2,873 2,878 2,659
Commercial and industrial 42 46 50 54 58
Commercial real estate   5,525       2,718       2,743       523       1,746  
Total accruing TDRs $ 29,315     $ 25,867     $ 25,351     $ 21,761     $ 22,259  
 
Non-Accruing
Residential real estate $ 172 $ 452 $ 390 $ 36 $ 191
Home equity 30 85 44 - 34
Commercial and industrial - - - - -
Commercial real estate - - - - -
Consumer   -       -       -       -       -  
Total non-accruing TDRs $ 202     $ 537     $ 434     $ 36     $ 225  
 
Total TDRs $ 29,517     $ 26,404     $ 25,785     $ 21,797     $ 22,484  
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Average Balance Sheets, Yields, and Rates
(Unaudited) ($ in 000s)
                 
Three Months Ended
December 31, 2016 September 30, 2016 December 31, 2015
Average Yield/ Average Yield/ Average Yield/
Balance   Interest   Rate   Balance   Interest   Rate   Balance   Interest   Rate
 
Assets:
Loan portfolio (1):
Residential real estate (2) $ 1,597,711 $ 15,469 3.85 % $ 1,570,787 $ 15,310 3.88 % $ 1,518,581 $ 14,763 3.86 %
Commercial, financial, and agriculture (2) 1,372,197 13,518 3.92 % 1,311,819 13,066 3.96 % 1,230,907 13,034 4.20 %
Installment loans to individuals (2), (3) 36,518 696 7.59 % 37,150 690 7.39 % 39,865 750 7.47 %
Previously securitized loans (4) ***     443   ***   ***     378   ***   ***     485   ***
Total loans 3,006,426 30,126 3.99 % 2,919,756 29,444 4.01 % 2,789,353 29,032 4.13 %
Securities:
Taxable 479,272 3,277 2.72 % 449,977 3,183 2.81 % 387,048 2,856 2.93 %
Tax-exempt (5)   64,351       739   4.57 %     54,317       644   4.72 %     37,818       513   5.38 %
Total securities 543,623 4,016 2.94 % 504,294 3,827 3.02 % 424,866 3,369 3.15 %
Deposits in depository institutions   11,117       -   -       9,623       -   -       9,562       -   -  
Total interest-earning assets 3,561,166 34,142 3.81 % 3,433,673 33,271 3.85 % 3,223,781 32,401 3.99 %
Cash and due from banks 68,514 87,219 117,290
Premises and equipment, net 75,744 75,743 75,729
Other assets 249,270 263,258 248,694
Less: Allowance for loan losses   (20,024 )             (19,517 )             (21,101 )        
Total assets $ 3,934,670             $ 3,840,376             $ 3,644,393          
 
Liabilities:
Interest-bearing demand deposits $ 689,784 $ 157 0.09 % $ 687,487 $ 138 0.08 % $ 650,523 $ 126 0.08 %
Savings deposits 793,362 276 0.14 % 761,734 234 0.12 % 732,129 192 0.10 %
Time deposits (2) 1,036,103 2,704 1.04 % 1,030,731 2,634 1.02 % 1,004,296 2,442 0.96 %
Short-term borrowings 233,192 188 0.32 % 154,585 90 0.23 % 165,996 91 0.22 %
Long-term debt   16,495       179   4.32 %     16,495       172   4.15 %     16,495       159   3.82 %
Total interest-bearing liabilities 2,768,936 3,504 0.50 % 2,651,032 3,268 0.49 % 2,569,439 3,010 0.46 %
Noninterest-bearing demand deposits 680,604 700,932 609,350
Other liabilities 42,353 52,641 41,151
Stockholders' equity   442,777               435,771               424,453          

Total liabilities and stockholders' equity

$ 3,934,670             $ 3,840,376             $ 3,644,393          
Net interest income     $ 30,638           $ 30,003           $ 29,391    
Net yield on earning assets         3.42 %           3.48 %           3.62 %
 
(1) For purposes of this table, non-accruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income.
(2) Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the acquisitions of Virginia Savings Bancorp ("Virginia Savings"), Community Financial Corporation ("Community") and American Founders Banks, Inc. ("AFB"):
 
 
Residential real estate $ 160 $ 166 $ 196
Commercial, financial, and agriculture 145 311 1,146
Installment loans to individuals 13 16 50
Time deposits   148   148   180
$ 466 $ 641 $ 1,572
 
(3) Includes the Company’s consumer and DDA overdrafts loan categories.
(4) Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.
(5) Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 35%.
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Average Balance Sheets, Yields, and Rates
(Unaudited) ($ in 000s)
           
Twelve Months Ended
December 31, 2016 December 31, 2015
Average Yield/ Average Yield/
Balance   Interest   Rate   Balance   Interest   Rate
 
Assets:
Loan portfolio (1):
Residential real estate (2) $ 1,565,079 $ 60,736 3.88 % $ 1,474,631 $ 57,692 3.91 %
Commercial, financial, and agriculture (2) 1,318,094 52,812 4.01 % 1,175,707 52,177 4.44 %
Installment loans to individuals (2), (3) 37,664 2,917 7.75 % 40,966 3,442 8.40 %
Previously securitized loans (4) ***     1,673   ***   ***     1,796   ***
Total loans 2,920,837 118,138 4.04 % 2,691,304 115,107 4.28 %
Securities:
Taxable 444,110 12,392 2.79 % 352,296 10,830 3.07 %
Tax-exempt (5)   51,096       2,494   4.88 %     31,389       1,749   5.57 %
Total securities 495,206 14,886 3.01 % 383,685 12,579 3.28 %
Deposits in depository institutions   10,115       -   -       9,733       -   -  
Total interest-earning assets 3,426,158 133,024 3.88 % 3,084,722 127,686 4.14 %
Cash and due from banks 95,295 180,965
Premises and equipment, net 76,056 76,136
Other assets 257,525 243,902
Less: Allowance for loan losses   (19,953 )             (20,995 )        
Total assets $ 3,835,081             $ 3,564,730          
 
Liabilities:
Interest-bearing demand deposits $ 685,399 $ 615 0.09 % $ 644,961 $ 505 0.08 %
Savings deposits 772,296 975 0.13 % 706,926 712 0.10 %
Time deposits (2) 1,029,172 10,462 1.02 % 1,005,232 9,669 0.96 %
Short-term borrowings 176,065 472 0.27 % 145,199 327 0.23 %
Long-term debt   16,495       683   4.14 %     16,495       617   3.74 %
Total interest-bearing liabilities 2,679,427 13,207 0.49 % 2,518,813 11,830 0.47 %
Noninterest-bearing demand deposits 679,950 590,424
Other liabilities 44,673 40,442
Stockholders' equity   431,031               415,051          

Total liabilities and stockholders' equity

$ 3,835,081             $ 3,564,730          
Net interest income     $ 119,817           $ 115,856    
Net yield on earning assets         3.50 %           3.76 %
 

(1) For purposes of this table, non-accruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income.

(2) Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the acquisitions of Virginia Savings Bancorp ("Virginia Savings"), Community Financial Corporation ("Community") and American Founders Banks, Inc. ("AFB"):
 
 
 
Residential real estate $ 698 $ 893
Commercial, financial, and agriculture 1,505 4,830
Installment loans to individuals 112 275
Time deposits   592   687
$ 2,907 $ 6,685
 
(3) Includes the Company’s consumer and DDA overdrafts loan categories.
(4) Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.
(5) Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 35%.
 
       
CITY HOLDING COMPANY AND SUBSIDIARIES
Acquisition Activity  
(Unaudited) ($ in 000s)
 
Three Months Ended
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015
Purchased Credit Impaired Loans
Virginia Savings Acquisition
Contractual required principal and interest $ 1,895 $ 1,908 $ 1,924 $ 1,942 $ 1,965
Carrying value 1,700 1,707 1,714 1,715 1,707
 
Community Acquisition
Contractual required principal and interest $ 11,157 $ 12,091 $ 14,042 $ 14,415 $ 16,362
Carrying value 8,857 9,712 11,160 11,219 12,899
 
Accretion
The following table presents the actual and forecasted accretion related to the fair value adjustments on net interest income recorded as a result of the Virginia Savings Bancorp ("Virginia Savings"), Community Financial Corporation ("Community") and American Founders Bank, Inc. ("AFB") acquisitions.
 
 

Virginia Savings Acquisition

Loans $ 48 $ 65 $ 67 $ 104 $ 138
Certificates of deposit   124       124     124     124     129
$ 172     $ 189   $ 191   $ 228   $ 267
 
Community Acquisition
Loans $ 286 $ 261 $ 699 $ 408 $ 1,226
Certificates of deposit   11       11     11     11     40
$ 297     $ 272   $ 710   $ 419   $ 1,266
 
AFB Acquisition
Loans $ (16 ) $ 167 $ 109 $ 117 $ 28
Certificates of deposit   13       13     13     13     11
$ (3 )   $ 180   $ 122   $ 130   $ 39
 
All Acquisitions
Loans $ 318 $ 493 $ 875 $ 629 $ 1,392
Certificates of deposit   148       148     148     148     180
$ 466     $ 641   $ 1,023   $ 777   $ 1,572
 
Accretion Forecast
Year Ended December 31, 2017 $ 1,273
Year Ended December 31, 2018 981
Year Ended December 31, 2019 868
 
Note: The amounts reflected above require management to make significant assumptions based on estimated future default, prepayment and discount rates. Actual performance could be significantly different from that assumed, which could result in the actual results being materially different from the amounts estimated above.
 
             
CITY HOLDING COMPANY AND SUBSIDIARIES
Non-GAAP Reconciliations
(Unaudited) ($ in 000s, except per share data)
 
Three Months Ended Twelve Months Ended
December 31, 2016   September 30, 2016   June 30, 2016   March 31, 2016   December 31, 2015 December 31, 2016   December 31, 2015
Net Interest Income/Margin
 
Net interest income, fully taxable equivalent $ 30,638 $ 30,002 $ 29,863 $ 29,312 $ 29,391 $ 119,814 $ 115,856
Taxable equivalent adjustment   (258 )     (224 )     (195 )     (192 )     (179 )   (869 )     (612 )
Net interest income ("GAAP") $ 30,380     $ 29,778     $ 29,668     $ 29,120     $ 29,212   $ 118,945     $ 115,244  
 
Average interest earning assets 3,561,166 3,433,673 3,369,565 3,338,659 3,223,782 3,426,158 3,084,722
Net Interest Margin 3.42 % 3.48 % 3.56 % 3.53 % 3.62 % 3.50 % 3.76 %
 
Net interest income, fully taxable equivalent, excluding accretion $ 30,172 $ 29,361 $ 28,840 $ 28,535 $ 27,819 $ 116,907 $ 109,171
Taxable equivalent adjustment (258 ) (224 ) (195 ) (192 ) (179 ) (869 ) (612 )
Accretion related to fair value adjustments   466       641       1,023       777       1,572     2,907       6,685  
Net interest income ("GAAP") $ 30,380     $ 29,778     $ 29,668     $ 29,120     $ 29,212   $ 118,945     $ 115,244  
 
Average interest earning assets $ 3,561,166 $ 3,433,673 $ 3,369,565 $ 3,338,659 $ 3,223,782 $ 3,426,158 $ 3,084,722
Net Interest Margin (excluding accretion) 3.37 % 3.40 % 3.44 % 3.44 % 3.42 % 3.41 % 3.54 %
 
Tangible Equity Ratio (period end)
Tangible common equity to tangible assets 9.34 % 9.39 % 9.38 % 9.03 % 9.34 %
Effect of goodwill and other intangibles, net   1.81 %     1.86 %     1.89 %     1.89 %     1.95 %
Equity to assets ("GAAP")   11.15 %     11.25 %     11.27 %     10.92 %     11.29 %
 

Income tax expense, excluding FIN 48 and Sale of insurance operations

$ 6,338 $ 6,577 $ 6,303 $ 5,866 $ 5,793 $ 25,083 $ 28,414
FIN 48 554 - - - 592 554 592

Sale of insurance operations

  -       -       -       -       -     -       (1,282 )
Income tax expense ("GAAP") $ 6,892     $ 6,577     $ 6,303     $ 5,866     $ 6,385   $ 25,637     $ 27,724  
 
Income before income taxes 20,994 19,809 18,844 17,568 19,308 77,211 82,511
 

Effective tax rate, excluding FIN 48 and Sale of insurance operations

30.2 % 33.2 % 33.4 % 33.4 % 30.0 % 32.5 % 34.4 %
Effective tax rate ("GAAP") 32.8 % 33.2 % 33.4 % 33.4 % 33.1 % 33.2 % 33.6 %

City Holding Company
Charles R. Hageboeck, 304-769-1102
Chief Executive Officer and President


Source: Business Wire (January 19, 2017 - 7:30 AM EST)

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