City Holding Company Announces Annual Earnings

CHARLESTON, W. Va.--()--City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $4.1 billion bank holding company headquartered in Charleston, West Virginia, today announced net income of $54.3 million and diluted earnings of $3.48 per share for the year ended December 31, 2017. The results for the year ended December 31, 2017 include a charge of $7.1 million, or $0.46 per diluted share, to revalue the Company’s net deferred tax assets as a result of the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017.

Highlights of the Company’s performance and results for the year ended December 31, 2017 include the following:

  • Return on assets and return on tangible equity of 1.33% and 13.1%, respectively. Excluding the impact of the revaluation of the Company’s net deferred tax assets, return on assets and return on tangible equity would have been 1.50% and 14.8%, respectively.
  • Reported net interest income increased $7.2 million (6.0%) from the year ended December 31, 2016, while net interest income exclusive of accretion from fair value adjustments on recent acquisitions increased $8.7 million (7.5%) from the year ended December 31, 2016.
  • Realized $4.5 million of investment gains from the sales of pooled trust preferred securities during the year ended December 31, 2017.
  • Total loan growth of $81.2 million (2.7%) from December 31, 2016 to December 31, 2017.
  • During 2017, the Company sold 441,000 common shares at a weighted average price of $64.48 per share, net of broker fees, pursuant to an at-the-market common stock offering.
  • Asset quality continues to remain strong with nonperforming assets declining from $18.7 million, or 0.61% of total loans and other real estate owned at December 31, 2016 to $14.1 million, or 0.45%, at December 31, 2017.

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

  • Return on assets and return on tangible equity of 0.94% and 9.0%, respectively. Excluding the impact of the revaluation of the Company’s net deferred tax assets, return on assets and return on tangible equity would have been 1.62% and 15.6%, respectively.
  • Reported net interest income increased $0.4 million from the quarter ended September 30, 2017, while net interest income exclusive of accretion from fair value adjustments increased $0.1 million from the quarter ended September 30, 2017.
  • Total loan growth of $21.5 million (2.8% annualized) from September 30, 2017 to December 31, 2017.

Net Interest Income

The Company’s net interest income increased from $118.9 million for the year ended December 31, 2016 to $126.1 million for the year ended December 31, 2017. The Company’s tax equivalent net interest income increased $7.8 million, or 6.5%, from $119.8 million for the year ended December 31, 2016 to $127.6 million for the year ended December 31, 2017. This increase was due primarily to higher average balances on commercial loans ($132.0 million) which increased interest income by $5.1 million, and residential real estate loans ($33.5 million) which increased interest income by $1.3 million as compared to the year ended December 31, 2016. Increased interest yields on residential real estate loans also increased net interest income by $1.8 million compared to the year ended December 31, 2016. In addition, higher average investment balances ($86.9 million) increased investment income by $3.2 million. These increases were partially offset by increased interest expense on interest bearing deposits ($3.0 million), primarily due to an increase in the cost of funds, and lower accretion from fair value adjustments on recent acquisitions ($1.0 million). The Company’s reported net interest margin decreased from 3.50% for the year ended December 31, 2016 to 3.46% for the year ended December 31, 2017. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 3.41% for the year ended December 31, 2016 and 3.40% for the year ended December 31, 2017.

The Company’s net interest income increased from $32.0 million during the third quarter of 2017 to $32.4 million during the fourth quarter of 2017. During the fourth quarter of 2017, the Company’s tax equivalent net interest income increased $0.4 million, or 1.2%, to $32.8 million from $32.4 million during the third quarter of 2017. Higher accretion from fair value adjustments from recent acquisitions increased net interest income $0.2 million from the quarter ended September 30, 2017. In addition, higher average loan balances ($20.3 million) and higher average investment balances ($20.1 million) increased net interest income by $0.2 million and $0.1 million, respectively. These increases were partially offset by increased interest expense of $0.2 million as a result of higher interest rates on interest bearing liabilities. The Company’s reported net interest margin increased modestly from 3.45% for the third quarter of 2017 to 3.46% for the fourth quarter of 2017. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 3.39% for the quarter ended December 31, 2017 and 3.42% for the quarter ended September 30, 2017.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned improved from 0.61% at December 31, 2016 to 0.45% at December 31, 2017. Total nonperforming assets decreased from $18.7 million at December 31, 2016 to $14.1 million at December 31, 2017. 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 increased from $8.6 million, or 0.28% of total loans outstanding, at December 31, 2016 to $11.0 million, or 0.35% of total loans outstanding, at December 31, 2017.

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 $0.4 million in the fourth quarter of 2017 and $3.0 million for the year ended December 31, 2017, compared to $1.3 million and $4.4 million for the comparable periods in 2016. The provision for loan losses recorded in 2017 reflects revisions to the regulatory rating of a shared national credit (“SNC”) in which the Company is a participant, changes in the quality of the portfolio and general improvement in the Company’s historical loss rates used to compute the allowance not specifically allocated to individual credits. SNCs are credit facilities greater than $20 million that are shared by three or more federally supervised financial institutions and are reviewed annually by regulatory authorities at the agent bank level. The SNC that the Company is a participant is for a local customer that outgrew the lending limit of the Company and involves three local banks. The reserve recorded in 2017 of $1.1 million related to this SNC reflects the loss factors associated with the rating assigned to this SNC as a result of the current year review by the Office of the Comptroller of the Currency (“OCC”). The Company’s balance outstanding at December 31, 2017 associated with this SNC is $27.7 million, with an additional commitment of $6.2 million related to a line of credit to the borrower. As of December 31, 2017, the SNC is performing in accordance with terms and debt service coverage ratios are acceptable. 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

Non-interest income was $63.6 million for 2017 as compared to $58.8 million for 2016. During 2017, the Company realized $4.5 million of investment gains compared to $3.5 million during 2016. These gains represented partial recoveries of impairment charges previously recognized on pools of trust preferred securities. Exclusive of these gains, non-interest income increased from $55.3 million for the year ended December 31, 2016 to $59.1 million for the year ended December 31, 2017. This increase was primarily attributable to an increase of $1.9 million, or 7.0%, in service charges; an increase of $0.9 million, or 26.6%, in bank owned life insurance revenues due to death benefit proceeds; an increase of $0.7 million, or 12.5%, in trust and investment management fee income; and an increase of $0.6 million, or 3.7%, in bankcard revenues.

Non-interest income was $15.6 million during the quarter ended December 31, 2017. During the fourth quarter of 2017, the Company realized $0.2 million of investment gains. These gains represented partial recoveries of impairment charges previously recognized on pools of trust preferred securities. Exclusive of this gain, non-interest income increased from $14.4 million for the fourth quarter of 2016 to $15.4 million for the fourth quarter of 2017. This increase was mainly due to an increase of $0.4 million, or 5.1%, in service charges; an increase of $0.3 million, or 30.4%, in bank owned life insurance revenues due to death benefit proceeds; an increase of $0.2 million, or 12.7%, in trust and investment management fee income; and an increase of $0.2 million, or 4.2%, in bankcard revenues from the fourth quarter of 2016.

Non-interest Expenses

Non-interest expenses remained stable from 2016 to 2017 at $96.1 million and $96.0 million, respectively. The Company experienced decreases in bankcard expenses of $0.5 million, depreciation expense of $0.4 million, and FDIC insurance expenses of $0.3 million. However, these decreases were essentially offset by increases in occupancy and equipment expenses of $0.3 million, advertising expenses of $0.3 million, salaries and employee benefits of $0.2 million, telecommunication expenses of $0.2 million and repossessed asset losses, net of expenses, of $0.2 million.

Non-interest expenses increased $0.4 million from $22.5 million in the quarter ended December 31, 2016 to $22.9 million in the quarter ended December 31, 2017. This increase was due to an increase in other expenses of $0.5 million, advertising expenses of $0.3 million, and FDIC insurance expense of $0.2 million. These increases were partially offset by a decrease in salaries and employee benefits of $0.3 million due primarily to lower health insurance expenses, depreciation expense of $0.1 million, and occupancy and equipment expenses of $0.1 million.

Balance Sheet Trends

For the year ending December 31, 2017, period end loan balances increased $81.2 million (2.7%) to $3.13 billion. Commercial loans increased $70.9 million (5.0%) and residential real estate loans increased $16.8 million (1.2%) from December 31, 2016 to December 31, 2017.

Total average depository balances increased $131.6 million, or 4.2%, from the year ended December 31, 2016 to the year ended December 31, 2017. The Company had increases in savings deposits ($60.2 million), time deposits ($38.0 million), interest bearing deposits ($20.0 million) and noninterest deposits ($13.3 million).

Income Tax Expense

The Company’s effective income tax rate for the quarter and year ended December 31, 2017 was 60.8% and 40.2%, respectively, compared to 30.2% and 32.5% for the comparable periods in 2016. On December 22, 2017, the President signed the TCJA into law. Among other things, the TCJA reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this decrease in the corporate income tax rate, the Company reassessed its deferred tax assets and liabilities, which resulted in a charge to earnings in the fourth quarter of 2017 of $7.1 million. In addition, during the years ended December 31, 2017 and December 31, 2016, the Company reduced income tax expense by $0.3 million and $0.5 million, respectively, due to the recognition of previously unrecognized tax positions subsequent to the close of the statute of limitations for previous tax years. Exclusive of these items, the Company’s tax rate from operations was 33.4% and 32.7% for the quarter and year ended December 31, 2017, respectively, compared to 32.8% and 33.2% for the comparable periods in 2016.

The TCJA also revamps the tax code to expand Section 162(m) limits to other proxy officers, reduces the dividends received deduction (“DRD”) from 70% to 50%, eliminates the deduction of entertainment expenses and various other changes. The Company does not anticipate any of these changes will significantly impact its 2018 and subsequent years’ tax provisions. Overall, the Company anticipates that the effects of the TCJA will be favorable in 2018 due to a reduction in the corporation federal income tax rate from 35% to 21%.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 94.3% and the loan to asset ratio was 75.7% at December 31, 2017. The Company maintained investment securities totaling 15.2% of assets as of the same date. The Company’s deposit mix is weighted toward checking and saving accounts that fund 54.0% of assets at December 31, 2017. Time deposits fund 26.2% of assets at December 31, 2017, with time deposits of more than $250,000 funding only 2.8% of assets, reflecting the core retail orientation of the Company.

The Company is also strongly capitalized. The Company’s tangible equity ratio increased from 9.3% at December 31, 2016 to 10.5% at December 31, 2017. In 2017, the Company sold 441,000 common shares at a weighted average price of $64.48 per share, net of broker fees, pursuant to an at-the-market common stock offering. At December 31, 2017, City National Bank’s Leverage Ratio was 8.43%, its Common Equity Tier I ratio was 11.93%, its Tier I Capital ratio was 11.93%, and its Total Risk-Based Capital ratio was 12.61%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On December 13, 2017, the Board approved a quarterly cash dividend of $0.46 cents per share payable January 31, 2018, to shareholders of record as of January 15, 2018. This increase represented a 4.5% increase from the $0.46 cents per share dividend paid in the third quarter of 2017.

City Holding Company is the parent company of City National Bank of West Virginia. City National Bank operates 86 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) 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; (12) 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; (13) the impact of new minimum capital thresholds established as a part of the implementation of Basel III; and (14) 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, 2016. 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, 2017. The Company will continue to evaluate the impact of any subsequent events on the preliminary December 31, 2017 results and will adjust the amounts if necessary.

 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Financial Highlights
(Unaudited)
                               
Three Months Ended Twelve Months Ended

December 31,

2017

   

September 30,

2017

   

June 30,

2017

   

March 31,

2017

   

December 31,

2016

December 31,

2017

   

December 31,

2016

 
Earnings
Net Interest Income (FTE) $ 32,760 $ 32,384 $ 31,632 $ 30,804 $ 30,638 $ 127,582 $ 119,817
Net Income available to common shareholders 9,669 13,932 14,688 16,026 14,656 54,310 52,128
 
Per Share Data
Earnings per share available to common shareholders:
Basic $ 0.62 $ 0.89 $ 0.94 $ 1.04 $ 0.97 $ 3.49 $ 3.46
Diluted 0.62 0.89 0.94 1.04 0.97 3.48 3.45
Weighted average number of shares (in thousands):
Basic 15,472 15,485 15,462 15,252 14,894 15,412 14,900
Diluted 15,497 15,505 15,487 15,277 14,914 15,436 14,913
Period-end number of shares (in thousands) 15,618 15,618 15,617 15,586 15,128 15,618 15,128
Cash dividends declared $ 0.46 $ 0.44 $ 0.44 $ 0.44 $ 0.43 $ 1.78 $ 1.72
Book value per share (period-end) $ 32.17 $ 32.03 $ 31.54 $ 30.90 $ 29.25 $ 32.17 $ 29.25
Tangible book value per share (period-end) 27.14 26.99 26.49 25.83 24.01 27.14 24.01
Market data:
High closing price $ 73.98 $ 71.91 $ 72.78 $ 67.93 $ 68.29 $ 73.98 $ 68.29
Low closing price 65.50 59.94 61.34 60.86 48.49 59.94 40.82
Period-end closing price 67.47 71.91 65.87 64.48 67.60 67.47 67.60
Average daily volume (in thousands) 66 54 56 57 57 58 63
Treasury share activity:
Treasury shares repurchased (in thousands) - - - - - - 231
Average treasury share repurchase price $ - $ - $ - $ - $ - $ - $ 43.34
Common share issuance:
Common shares issued (in thousands) - - - 441 108 441 108
Average common share issue price (a) $ - $ - $ - $ 64.48 $ 66.21 $ 64.48 $ 66.21
 
Key Ratios (percent)
Return on average assets 0.94 % 1.37 % 1.43 % 1.60 % 1.49 % 1.33 % 1.36 %
Return on average tangible equity 9.0 % 13.2 % 14.2 % 16.5 % 16.1 % 13.1 % 14.8 %
Yield on interest earning assets 3.95 % 3.92 % 3.90 % 3.88 % 3.81 % 3.91 % 3.88 %
Cost of interest bearing liabilities 0.64 % 0.61 % 0.56 % 0.54 % 0.50 % 0.59 % 0.49 %
Net Interest Margin 3.46 % 3.45 % 3.46 % 3.45 % 3.42 % 3.46 % 3.50 %
Non-interest income as a percent of total revenue 32.2 % 31.3 % 32.3 % 31.9 % 32.1 % 31.9 % 31.7 %
Efficiency Ratio 47.7 % 51.8 % 52.0 % 53.8 % 48.9 % 51.5 % 54.8 %
Price/Earnings Ratio (b) 27.30 20.20 17.52 15.51 17.38 19.36 19.56
 
Capital (period-end)
Average Shareholders' Equity to Average Assets 12.34 % 12.29 % 11.99 % 11.66 % 11.25 %
Tangible equity to tangible assets 10.45 % 10.49 % 10.40 % 9.95 % 9.30 %
Consolidated City Holding Company risk based capital ratios (c):
CET I 15.10 % 15.08 % 14.88 % 14.61 % 13.41 %
Tier I 15.66 % 15.65 % 15.45 % 15.18 % 13.98 %
Total 16.34 % 16.40 % 16.17 % 15.91 % 14.73 %
Leverage 11.00 % 11.05 % 10.79 % 10.83 % 10.08 %
City National Bank risk based capital ratios (c):
CET I 11.93 % 12.74 % 12.27 % 11.74 % 11.23 %
Tier I 11.93 % 12.74 % 12.27 % 11.74 % 11.52 %
Total 12.61 % 13.44 % 12.96 % 12.44 % 12.24 %
Leverage 8.43 % 9.04 % 8.62 % 8.40 % 8.33 %
 
Other
Branches 86 86 85 85 85
FTE 839 835 839 833 847
 
Assets per FTE (in thousands) $ 4,925 $ 4,910 $ 4,836 $ 4,951 $ 4,704
Deposits per FTE (in thousands) 3,952 3,900 3,907 4,073 3,815
 
 
(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, 2017 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,

2017

   

September 30,

2017

   

June 30,

2017

   

March 31,

2017

   

December 31,

2016

December 31,

2017

   

December 31,

2016

 
Interest Income
Interest and fees on loans $ 32,529 $ 32,004 $ 31,115 $ 30,104 $ 30,126 $ 125,752 $ 118,138
Interest on investment securities:
Taxable 3,797 3,666 3,480 3,444 3,277 14,387 12,392
Tax-exempt 692 665 686 663 481 2,706 1,622
Interest on deposits in depository institutions   35       31       17       3       -   85       -
Total Interest Income 37,053 36,366 35,298 34,214 33,884 142,930 132,152
 
Interest Expense
Interest on deposits 3,941 3,796 3,660 3,429 3,137 14,826 12,052
Interest on short-term borrowings 522 349 187 157 188 1,214 472
Interest on long-term debt   201       195       189       181       179   765       683
Total Interest Expense   4,664       4,340       4,036       3,767       3,504   16,805       13,207
Net Interest Income 32,389 32,026 31,262 30,447 30,380 126,125 118,945
Provision for loan losses   422       1,393       510       681       1,301   3,006       4,395
Net Interest Income After Provision for Loan Losses 31,967 30,633 30,752 29,766 29,079 123,119 114,550
 
Non-Interest Income
Net gains on sale of investment securities 200 - - 4,276 - 4,476 3,513
Service charges 7,355 7,415 7,074 6,730 6,995 28,574 26,703
Bankcard revenue 4,316 4,291 4,372 4,140 4,142 17,120 16,515
Trust and investment management fee income 1,800 1,471 1,612 1,386 1,597 6,269 5,573
Bank owned life insurance 1,241 774 968 1,229 952 4,212 3,326
Other income   655       660       895       746       685   2,956       3,195
Total Non-Interest Income 15,567 14,611 14,921 18,507 14,371 63,607 58,825
 
Non-Interest Expense
Salaries and employee benefits 12,158 12,876 12,945 13,078 12,427 51,057 50,883
Occupancy and equipment 2,695 2,916 2,956 2,838 2,792 11,405 11,095
Depreciation 1,397 1,450 1,510 1,525 1,516 5,884 6,235
FDIC insurance expense 318 328 328 375 137 1,348 1,622
Advertising 711 689 781 733 445 2,914 2,606
Bankcard expenses 960 1,051 970 943 1,011 3,924 4,458
Postage, delivery, and statement mailings 518 517 504 555 492 2,094 2,080
Office supplies 355 377 345 361 320 1,437 1,364
Legal and professional fees 563 504 440 449 515 1,956 1,882
Telecommunications 517 494 492 484 494 1,988 1,813
Repossessed asset losses, net of expenses 145 107 147 336 244 735 890
Other expenses   2,556       3,000       2,755       2,923       2,063   11,239       11,236
Total Non-Interest Expense   22,893       24,309       24,173       24,600       22,456   95,981       96,164
Income Before Income Taxes 24,641 20,935 21,500 23,673 20,994 90,745 77,211
Income tax expense   14,972       7,003       6,812       7,647       6,338   36,435       25,083
Net Income Available to Common Shareholders $ 9,669     $ 13,932     $ 14,688     $ 16,026     $ 14,656 $ 54,310     $ 52,128
 
Distributed earnings allocated to common shareholders $ 7,106 $ 6,797 $ 6,797 $ 6,782 $ 6,428 $ 27,497 $ 25,710
Undistributed earnings allocated to common shareholders   2,454       6,981       7,733       9,067       8,051   26,222       25,795
Net earnings allocated to common shareholders $ 9,560     $ 13,778     $ 14,530     $ 15,849     $ 14,479 $ 53,719     $ 51,505
 
Average common shares outstanding 15,472 15,485 15,462 15,252 14,894 15,412 14,900
Shares for diluted earnings per share 15,497 15,505 15,487 15,277 14,914 15,436 14,913
 
Basic earnings per common share $ 0.62 $ 0.89 $ 0.94 $ 1.04 $ 0.97 $ 3.49 $ 3.46
Diluted earnings per common share $ 0.62 $ 0.89 $ 0.94 $ 1.04 $ 0.97 $ 3.48 $ 3.45
 
 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000s)
 
      (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)    

December 31,

2017

   

September 30,

2017

   

June 30,

2017

   

March 31,

2017

   

December 31,

2016

 
Assets
Cash and due from banks $ 54,450 $ 54,281 $ 54,577 $ 164,887 $ 62,263
Interest-bearing deposits in depository institutions   28,058         28,884         27,783         25,925         25,876  
Cash and cash equivalents 82,508 83,165 82,360 190,812 88,139
 
Investment securities available-for-sale, at fair value 550,389 525,633 504,660 470,098 450,083
Investment securities held-to-maturity, at amortized cost 64,449 66,989 69,798 72,308 75,169
Other securities   14,147         15,988         16,039         10,240         14,352  
Total investment securities 628,985 608,610 590,497 552,646 539,604
 
Gross loans 3,127,410 3,105,912 3,083,767 3,074,173 3,046,226
Allowance for loan losses   (18,836 )       (19,554 )       (19,063 )       (19,209 )       (19,730 )
Net loans 3,108,574 3,086,358 3,064,704 3,054,964 3,026,496
 
Bank owned life insurance 103,440 102,706 101,960 101,481 100,732
Premises and equipment, net 72,682 72,334 72,809 73,805 75,165
Accrued interest receivable 9,223 9,236 8,122 8,644 8,408
Net deferred tax assets 11,981 22,355 22,944 24,606 28,043
Intangible assets 78,595 78,730 78,865 79,000 79,135
Other assets   36,361         36,060         35,138         38,029         38,681  
Total Assets $ 4,132,349       $ 4,099,554       $ 4,057,399       $ 4,123,987       $ 3,984,403  
 
Liabilities
Deposits:
Noninterest-bearing $ 666,639 $ 669,876 $ 688,223 $ 714,791 $ 672,286
Interest-bearing:
Demand deposits 769,245 711,121 722,440 743,246 695,891
Savings deposits 796,275 799,592 797,552 874,031 822,057
Time deposits   1,083,475         1,075,945         1,069,932         1,060,690         1,041,419  
Total deposits 3,315,634 3,256,534 3,278,147 3,392,758 3,231,653
Short-term borrowings
Federal Funds purchased 54,000 79,800 46,400 - 64,100
Customer repurchase agreements 198,219 201,664 177,904 186,686 184,205
Long-term debt 16,495 16,495 16,495 16,495 16,495
Other liabilities   45,610         44,746         45,946         46,402         45,512  
Total Liabilities 3,629,958 3,599,239 3,564,892 3,642,341 3,541,965
 
Stockholders' Equity
Preferred stock - - - - -
Common stock 47,619 47,619 47,619 47,619 46,518
Capital surplus 140,960 140,381 139,972 140,305 112,873
Retained earnings 443,482 441,001 433,944 426,126 417,017
Cost of common stock in treasury (124,909 ) (124,909 ) (124,943 ) (126,265 ) (126,958 )
Accumulated other comprehensive loss:
Unrealized gain (loss) on securities available-for-sale (513 ) 883 575 (1,479 ) (2,352 )
Underfunded pension liability   (4,248 )       (4,660 )       (4,660 )       (4,660 )       (4,660 )
Total Accumulated Other Comprehensive Loss   (4,761 )       (3,777 )       (4,085 )       (6,139 )       (7,012 )
Total Stockholders' Equity   502,391         500,315         492,507         481,646         442,438  
Total Liabilities and Stockholders' Equity $ 4,132,349       $ 4,099,554       $ 4,057,399       $ 4,123,987       $ 3,984,403  
 
Regulatory Capital
Total CET 1 capital $ 429,155 $ 426,057 $ 418,449 $ 409,533 $ 371,677
Total tier 1 capital 445,155 442,057 434,449 425,533 387,677
Total risk-based capital 464,293 463,198 454,832 445,938 408,406
Total risk-weighted assets 2,841,969 2,824,751 2,812,443 2,807,347 2,772,456
 
 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Loan Portfolio
(Unaudited) ($ in 000s)
                     
December 31, 2017     September 30, 2017     June 30, 2017     March 31, 2017     December 31, 2016
 
Residential real estate (1) $ 1,468,278 $ 1,465,942 $ 1,455,578 $ 1,444,795 $ 1,451,462
Home equity - junior liens 139,499 139,702 139,534 139,165 141,965
Commercial and industrial 208,484 204,722 197,429 205,011 185,667
Commercial real estate (2) 1,277,576 1,260,906 1,256,736 1,250,106 1,229,516
Consumer 29,162 30,323 30,860 32,043 32,545
DDA overdrafts   4,411       4,317       3,630       3,053       5,071
Gross Loans $ 3,127,410     $ 3,105,912     $ 3,083,767     $ 3,074,173     $ 3,046,226
 
Construction loans included in:
(1) - Residential real estate loans $ 25,270 $ 19,849 $ 12,056 $ 9,777 $ 14,182
(2) - Commercial real estate loans 28,871 24,318 20,204 18,499 12,840
 
 
Secondary Mortgage Loan Activity
Mortgage loans originated $ 2,593 $ 4,474 $ 5,433 $ 3,951 $ 6,444
Mortgage loans sold 2,975 4,732 5,465 6,118 4,936
Mortgage loans gain on loans sold 79 128 142 167 107
 
 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Asset Quality Information
(Unaudited) ($ in 000s)
                               
Three Months Ended Twelve Months Ended

December 31,

2017

   

September 30,

2017

   

June 30,

2017

   

March 31,

2017

   

December 31,

2016

     

December 31,

2017

   

December 31,

2016

Allowance for Loan Losses
Balance at beginning of period $ 19,554 $ 19,063 $ 19,209 $ 19,730 $ 19,550 $ 19,730 $ 19,251
 
Charge-offs:
Commercial and industrial (250 ) (40 ) (57 ) (53 ) - (400 ) (148 )
Commercial real estate (156 ) (282 ) (102 ) (180 ) (463 ) (720 ) (1,676 )
Residential real estate (342 ) (411 ) (258 ) (626 ) (453 ) (1,637 ) (1,734 )
Home equity (147 ) (17 ) (118 ) (121 ) (90 ) (403 ) (390 )
Consumer (13 ) (18 ) (23 ) (6 ) (24 ) (60 ) (126 )
DDA overdrafts   (725 )       (718 )       (635 )       (636 )       (395 )         (2,714 )       (1,412 )
Total charge-offs (1,633 ) (1,486 ) (1,193 ) (1,622 ) (1,425 ) (5,934 ) (5,486 )
 
Recoveries:
Commercial and industrial 1 2 53 2 1 58 14
Commercial real estate 20 60 21 11 40 112 487
Residential real estate 8 130 131 25 74 294 187
Home equity - 45 - - - 45 -
Consumer 17 21 14 11 9 63 118
DDA overdrafts   447         326         319         371         180           1,463         764  
Total recoveries 493 584 538 420 304 2,035 1,570
                                       
Net charge-offs (1,140 ) (903 ) (655 ) (1,202 ) (1,121 ) (3,900 ) (3,916 )
Provision for (recovery of) acquired loans 122 - 58 (19 ) (1 ) 161 163
Provision for loan losses   300         1,393         451         700         1,302           2,845         4,232  
Balance at end of period $ 18,836       $ 19,554       $ 19,063       $ 19,209       $ 19,730         $ 18,836       $ 19,730  
 
Loans outstanding $ 3,127,410 $ 3,105,912 $ 3,083,767 $ 3,074,173 $ 3,046,226
Allowance as a percent of loans outstanding 0.60 % 0.63 % 0.62 % 0.62 % 0.65 %
Allowance as a percent of non-performing loans 178.4 % 182.8 % 177.6 % 167.7 % 140.1 %
 
Average loans outstanding $ 3,110,084 $ 3,089,793 $ 3,073,255 $ 3,055,979 $ 3,006,426 $ 3,082,448 $ 2,920,837
Net charge-offs (annualized) as a percent of average loans outstanding 0.15 % 0.12 % 0.09 % 0.16 % 0.15 % 0.13 % 0.13 %
 
 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Asset Quality Information, continued
(Unaudited) ($ in 000s)
                     
December 31, 2017     September 30, 2017     June 30, 2017     March 31, 2017     December 31, 2016
Nonaccrual Loans
Residential real estate $ 2,814 $ 2,556 $ 1,608 $ 2,810 $ 4,302
Home equity 168 92 153 114 100
Commercial and industrial 1,345 1,325 1,571 1,353 1,958
Commercial real estate 5,970 6,700 7,250 7,141 7,341
Consumer -     -     -     -     -
Total nonaccrual loans 10,297 10,673 10,582 11,418 13,701
Accruing loans past due 90 days or more 262     22     150     35     382
Total non-performing loans 10,559 10,695 10,732 11,453 14,083
Other real estate owned 3,585     3,995     4,204     4,405     4,588
Total non-performing assets $ 14,144     $ 14,690     $ 14,936     $ 15,858     $ 18,671
 
Non-performing assets as a percent of loans and other real estate owned 0.45% 0.47% 0.48% 0.52% 0.61%
 
Past Due Loans
Residential real estate $ 6,718 $ 5,295 $ 5,648 $ 3,876 $ 6,074
Home equity 851 873 628 301 673
Commercial and industrial 692 304 259 611 94
Commercial real estate 2,086 520 819 1,014 1,115
Consumer 42 26 70 38 39
DDA overdrafts 575     551     527     330     599
Total past due loans $ 10,964     $ 7,569     $ 7,951     $ 6,170     $ 8,594
 
Total past due loans as a percent of loans outstanding 0.35% 0.24% 0.26% 0.20% 0.28%
 
Troubled Debt Restructurings ("TDRs")
Accruing:
Residential real estate $ 21,005 $ 20,741 $ 20,647 $ 20,294 $ 20,643
Home equity 3,047 2,947 3,146 3,104 3,105
Commercial and industrial 135 31 35 38 42
Commercial real estate 8,381 8,427 8,483 8,513 5,525
Consumer -     -     -     -     -
Total accruing TDRs $ 32,568     $ 32,146     $ 32,311     $ 31,949     $ 29,315
 
Non-Accruing
Residential real estate $ 84 $ 47 $ 154 $ 100 $ 172
Home equity 50 - - 30 30
Commercial and industrial - - - - -
Commercial real estate - - - - -
Consumer -     -     -     -     -
Total non-accruing TDRs $ 134     $ 47     $ 154     $ 130     $ 202
 
Total TDRs $ 32,702     $ 32,193     $ 32,465     $ 32,079     $ 29,517
 
 
 
 
 
 
CITY HOLDING COMPANY AND SUBSIDIARIES
Consolidated Average Balance Sheets, Yields, and Rates
(Unaudited) ($ in 000s)
                                     
Three Months Ended

 

December 31, 2017 September 30, 2017 December 31, 2016
Average Yield/ Average Yield/ Average Yield/
Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate
 
Assets:
Loan portfolio (1):
Residential real estate (2) $ 1,608,509 $ 16,321 4.03% $ 1,598,037 $ 16,117 4.00% $ 1,597,711 $ 15,469 3.85%
Commercial, financial, and agriculture (2) 1,468,701 15,269 4.12% 1,457,821 14,903 4.06% 1,372,197 13,518 3.92%
Installment loans to individuals (2), (3) 32,874 679 8.19% 33,935 630 7.37% 36,518 696 7.59%
Previously securitized loans (4) ***     260     ***     ***     353     ***     ***     443     ***
Total loans 3,110,084 32,529 4.15% 3,089,793 32,003 4.11% 3,006,426 30,126 3.99%
Securities:
Taxable 526,645 3,797 2.86% 507,106 3,666 2.87% 479,272 3,277 2.72%
Tax-exempt (5) 91,886     1,064     4.59%     91,276     1,024     4.45%     64,351     739     4.57%
Total securities 618,531 4,861 3.12% 598,382 4,690 3.11% 543,623 4,016 2.94%
Deposits in depository institutions 31,060     35     0.45%     31,517     31     0.39%     11,117     -     -
Total interest-earning assets 3,759,675 37,425 3.95% 3,719,692 36,724 3.92% 3,561,166 34,142 3.81%
Cash and due from banks 65,636 62,723 68,514
Premises and equipment, net 73,109 72,756 75,744
Other assets 247,688 247,076 249,271
Less: Allowance for loan losses (20,981)                 (20,038)                 (20,024)            
Total assets $ 4,125,127                 $ 4,082,209                 $ 3,934,671            
 
Liabilities:
Interest-bearing demand deposits $ 702,614 $ 167 0.09% $ 700,625 $ 159 0.09% $ 689,784 $ 157 0.09%
Savings deposits 797,311 313 0.16% 821,949 321 0.15% 793,362 276 0.14%
Time deposits (2) 1,079,179 3,462 1.27% 1,070,941 3,316 1.23% 1,036,103 2,704 1.04%
Short-term borrowings 296,139 522 0.70% 230,030 349 0.60% 233,192 188 0.32%
Long-term debt 16,495     201     4.83%     16,495     195     4.69%     16,495     179     4.32%
Total interest-bearing liabilities 2,891,738 4,665 0.64% 2,840,040 4,340 0.61% 2,768,936 3,504 0.50%
Noninterest-bearing demand deposits 681,554 698,106 680,604
Other liabilities 42,899 42,202 42,354
Stockholders' equity 508,936                 501,861                 442,777            

Total liabilities and stockholders' equity

$ 4,125,127                 $ 4,082,209                 $ 3,934,671            
Net interest income       $ 32,760                 $ 32,384                 $ 30,638      
Net yield on earning assets             3.46%                 3.45%                 3.42%
 

(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 $ 126 $ 122 $ 160
Commercial, financial, and agriculture 438 235 145
Installment loans to individuals 27 3 13
Time deposits - - 148
$ 591 $ 360 $ 466
 
(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, 2017 December 31, 2016
Average Yield/ Average Yield/
Balance       Interest     Rate       Balance       Interest     Rate  
 
Assets:
Loan portfolio (1):
Residential real estate (2) $ 1,598,579 $ 63,649 3.98 % $ 1,565,079 $ 60,736 3.88 %
Commercial, financial, and agriculture (2) 1,450,144 58,243 4.02 % 1,318,094 52,812 4.01 %
Installment loans to individuals (2), (3) 33,725 2,514 7.45 % 37,664 2,917 7.75 %
Previously securitized loans (4) ***         1,346     ***       ***         1,673     ***  
Total loans 3,082,448 125,752 4.08 % 2,920,837 118,138 4.04 %
Securities:
Taxable 492,783 14,387 2.92 % 444,110 12,392 2.79 %
Tax-exempt (5)   89,341         4,163     4.66 %       51,096         2,494     4.88 %
Total securities 582,124 18,550 3.19 % 495,206 14,886 3.01 %
Deposits in depository institutions   27,142         85     0.31 %       10,115         -     -  
Total interest-earning assets 3,691,714 144,387 3.91 % 3,426,158 133,024 3.88 %
Cash and due from banks 85,473 95,295
Premises and equipment, net 73,540 76,056
Other assets 249,193 257,525
Less: Allowance for loan losses   (20,246 )                     (19,953 )              
Total assets $ 4,079,674                     $ 3,835,081                
 
Liabilities:
Interest-bearing demand deposits $ 705,412 $ 643 0.09 % $ 685,399 $ 615 0.09 %
Savings deposits 832,512 1,311 0.16 % 772,296 975 0.13 %
Time deposits (2) 1,067,181 12,872 1.21 % 1,029,172 10,462 1.02 %
Short-term borrowings 230,529 1,214 0.53 % 176,065 472 0.27 %
Long-term debt   16,495         765     4.64 %       16,495         683     4.14 %
Total interest-bearing liabilities 2,852,129 16,805 0.59 % 2,679,427 13,207 0.49 %
Noninterest-bearing demand deposits 693,280 679,950
Other liabilities 41,597 44,673
Stockholders' equity   492,668                       431,031                

Total liabilities and stockholders' equity

$ 4,079,674                     $ 3,835,081                
Net interest income         $ 127,582                     $ 119,817        
Net yield on earning assets               3.46 %                   3.50 %
 

(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 $ 530 $ 698
Commercial, financial, and agriculture 1,345 1,505
Installment loans to individuals 44 112
Time deposits   16   592
$ 1,935 $ 2,907
 
(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
Non-GAAP Reconciliations
(Unaudited) ($ in 000s, except per share data)
                               
Three Months Ended Twelve Months Ended

December 31,

2017

   

September 30,

2017

   

June 30,

2017

   

March 31,

2017

   

December 31,

2016

December 31,

2017

   

December 31,

2016

Net Interest Income/Margin
 
Net interest income ("GAAP") $ 32,389 $ 32,026 $ 31,262 $ 30,447 $ 30,380 $ 126,125 $ 118,945
Taxable equivalent adjustment   371         358         370         357         258     1,456         869  
Net interest income, fully taxable equivalent $ 32,760       $ 32,384       $ 31,632       $ 30,804       $ 30,638   $ 127,581       $ 119,814  
 
Average interest earning assets $ 3,759,675 $ 3,719,692 $ 3,669,715 $ 3,615,884 $ 3,561,166 $ 3,691,714 $ 3,426,158
Net Interest Margin 3.46 % 3.45 % 3.46 % 3.45 % 3.42 % 3.46 % 3.50 %
 
Net interest income ("GAAP") $ 32,389 $ 32,026 $ 31,262 $ 30,447 $ 30,380 $ 126,125 $ 118,945
Taxable equivalent adjustment 371 358 370 357 258 1,456 869
Accretion related to fair value adjustments   (591 )       (360 )       (646 )       (338 )       (466 )   (1,935 )       (2,907 )
Net interest income, fully taxable equivalent, excluding accretion $ 32,169       $ 32,024       $ 30,986       $ 30,466       $ 30,172   $ 125,646       $ 116,907  
 
Net Interest Margin (excluding accretion) 3.39 % 3.42 % 3.42 % 3.42 % 3.37 % 3.40 % 3.41 %
 
Tangible Equity Ratio (period end)
Tangible common equity to tangible assets 10.45 % 10.49 % 10.40 % 9.95 % 9.30 %
Effect of goodwill and other intangibles, net   1.70 %       1.72 %       1.74 %       1.72 %       1.80 %
Equity to assets ("GAAP")   12.16 %       12.20 %       12.14 %       11.68 %       11.10 %
 

Return on tangible equity ("GAAP")

10.45 % 13.17 % 14.22 % 16.52 % 16.13 % 13.13 % 14.83 %
Impact of effective tax rate decrease on deferred taxes   5.11 %       0.00 %       0.00 %       0.00 %       0.00 %   1.63 %       0.00 %

Return on tangible equity, excluding Impact of effective tax rate decrease on deferred taxes

  15.56 %       13.17 %       14.22 %       16.52 %       16.13 %   14.75 %       14.83 %
 
Return on assets ("GAAP") 0.94 % 1.37 % 1.43 % 1.60 % 1.49 % 1.33 % 1.36 %
Impact of effective tax rate decrease on deferred taxes   0.68 %       0.00 %       0.00 %       0.00 %       0.00 %   0.17 %       0.00 %
Return on Assets, excluding Impact of effective tax rate decrease on deferred taxes   1.62 %       1.37 %       1.43 %       1.60 %       1.49 %   1.50 %       1.36 %
 
Income tax expense ("GAAP") $ 14,972 $ 7,003 $ 6,812 $ 7,647 $ 6,338 $ 36,435 $ 25,083
FIN 48 331 - - - 554 331 554
Impact of effective tax rate decrease on deferred taxes   (7,069 )       -         -         -         -     (7,069 )       -  
Income tax expense, excluding FIN 48 and impact of effective tax rate decrease on deferred taxes $ 8,234       $ 7,003       $ 6,812       $ 7,647       $ 6,892   $ 29,697       $ 25,637  
 
Income before income taxes $ 24,641 $ 20,935 $ 21,500 $ 23,673 $ 20,994 $ 90,745 $ 77,211
 
Effective tax rate ("GAAP") 60.8 % 33.5 % 31.7 % 32.3 % 30.2 % 40.2 % 32.5 %
Effective tax rate, excluding FIN 48 and impact of effective tax rate decrease on deferred taxes 33.4 % 33.5 % 31.7 % 32.3 % 32.8 % 32.7 % 33.2 %
 
 
 
 

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

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