EX-13 2 exhibit1312-31x15.htm EXHIBIT 13 Exhibit
Selected Financial Data                                     Exhibit 13
Table One
Five-Year Financial Summary
(in thousands, except per share data)
 
2015 (3)
2014
2013 (2)
2012 (1)
2011
Summary of Operations
 
 
 
 
 
Total interest income
$
127,074

$
129,566

$
138,539

$
112,212

$
112,888

Total interest expense
11,830

11,960

13,301

14,450

20,758

Net interest income
115,244

117,606

125,238

97,762

92,130

Provision for loan losses
6,988

4,054

6,848

6,375

4,600

Total non-interest income
67,206

58,722

58,006

55,257

54,860

Total non-interest expenses
92,951

95,041

102,906

87,401

81,141

Income before income taxes
82,511

77,233

73,490

59,243

61,249

Income tax expense
28,414

24,271

25,275

20,298

20,571

Net income available to common  shareholders
54,097

52,962

48,215

38,945

40,678

 
 
 
 
 
 
Per Share Data
 
 
 
 
 
Net income basic
$
3.54

$
3.40

$
3.07

$
2.63

$
2.68

Net income diluted
3.53

3.38

3.04

2.61

2.67

Cash dividends declared
1.68

1.60

1.48

1.40

1.37

Book value per share
27.62

25.79

24.61

22.47

21.05

 
 
 
 
 
 
Selected Average Balances
 
 
 
 
 
Total loans
$
2,691,304

$
2,593,597

$
2,523,755

$
2,041,876

$
1,899,388

Securities
383,685

365,904

360,860

409,431

454,513

Interest-earning assets
3,084,722

2,968,706

2,905,783

2,489,072

2,391,484

Deposits
2,947,543

2,824,985

2,821,573

2,338,891

2,221,414

Long-term debt
16,495

16,495

16,495

16,495

16,495

Total shareholders’ equity
415,051

395,940

373,102

325,073

316,161

Total assets
3,564,730

3,404,818

3,378,351

2,837,234

2,701,720

 
 
 
 
 
 
Selected Year-End Balances
 
 
 
 
 
Net loans
$
2,843,283

$
2,631,916

$
2,585,622

$
2,127,560

$
1,953,694

Securities
471,318

354,686

370,120

402,039

396,175

Interest-earning assets
3,345,929

3,016,477

2,986.194

2,574,684

2,374,804

Deposits
3,083,975

2,872,787

2,785,133

2,409,316

2,221,268

Long-term debt
16,495

16,495

16,495

16,495

16,495

Total shareholders’ equity
419,272

390,853

387,623

333,274

311,134

Total assets
3,714,059

3,461,633

3,368,238

2,917,466

2,777,109

 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
Return on average assets
1.52
%
1.56
%
1.43
%
1.37
%
1.51
%
Return on average equity
13.0

13.4

12.9

12.0

12.9

Return on average tangible common equity
15.8

16.5

16.2

14.7

15.7

Net interest margin
3.76

3.98

4.33

3.96

3.89

Efficiency ratio
53.7

53.7

55.8

57.2

55.9

Dividend payout ratio
47.5

47.1

48.2

53.2

51.1

 
 
 
 
 
 
Asset Quality
 
 
 
 
 
Net charge-offs to average loans
0.26
%
0.17
%
0.20
%
0.34
%
0.18
%
Provision for loan losses to average loans
0.26

0.16

0.27

0.31

0.24


1


 
Allowance for loan losses to nonperforming loans
114.91

128.11

90.25

96.59

87.76

 
Allowance for loan losses to total loans
0.70

0.76

0.79

0.88

0.98

 
 
 
 
 
 
 
 
Consolidated Capital Ratios
 
 
 
 
 
 
CET 1 Capital
13.7
%
*
*
*
*
 
Tier 1 Capital
14.3

13.4

13.0

13.0

13.1

 
Total Capital
15.1

14.2

13.8

13.9

14.1

 
Tier 1 Leverage
10.2

9.9

9.8

9.8

10.2

 
Average equity to average assets
11.7

11.6

11.0

11.5

11.7

 
Tangible equity to tangible assets (end of period)
9.3

9.3

9.5

9.4

9.4

 
 
 
 
 
 
 
 
Full-time equivalent employees
853

889

923

843

795

 
 
 
 
 
 
 
 
*Basel III CET 1 ratio requirements were effective beginning January 1, 2015 and were not required for prior periods.
 
 
 
 
 
 
 
 
(1) - In May 2012, the Company acquired Virginia Savings Bancorp, Inc. and its wholly owned subsidiary, Virginia Savings Bank.
 
(2) - In January 2013, the Company acquired Community Financial Corporation and its wholly owned subsidiary, Community Bank.
 
(3) - In January 2015, the Company sold its insurance operations, CityInsurance. In November 2015, the Company acquired three branches in Lexington, Kentucky.
 


2


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
CITY HOLDING COMPANY
 
City Holding Company (the “Company”), a West Virginia corporation headquartered in Charleston, West Virginia, is a registered financial holding company under the Bank Holding Company Act and conducts its principal activities through its wholly owned subsidiary, City National Bank of West Virginia ("City National"). City National is a retail and consumer-oriented community bank with 85 banking offices in West Virginia (57), Virginia (14), Kentucky (11) and Ohio (3). City National provides credit, deposit, and trust and investment management services to its customers. In addition to its branch network, City National's delivery channels include ATMs, mobile banking, debit cards, interactive voice response systems, and Internet technology. The Company’s business activities are currently limited to one reportable business segment, which is community banking. City National has approximately 11% of the deposit market share in the counties of West Virginia it serves. In the Company’s key markets, the Company’s primary subsidiary, City National, generally ranks in the top three relative to deposit market share and the top two relative to branch share.

In January 2015 the Company sold its insurance operations, CityInsurance, to The Hilb Group effective January 1, 2015. As a result of this sale, the Company recognized a one-time after tax gain of $5.8 million in the first quarter of 2015.

On November 6, 2015, the Company consummated the acquisition of three branch locations from American Founders Bank, Inc. (“AFB”) located in Lexington, Kentucky. The Company acquired approximately $119 million in performing loans and assumed deposit liabilities of approximately $145 million. The Company paid AFB a deposit premium of 5.5% on non-time deposits, and 1.0% on premium loan balances acquired.
 
CRITICAL ACCOUNTING POLICIES
 
The accounting policies of the Company conform to U.S. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. These estimates and assumptions are based on information available to management as of the date of the financial statements. Actual results could differ significantly from management’s estimates. As this information changes, management’s estimates and assumptions used to prepare the Company’s financial statements and related disclosures may also change. The most significant accounting policies followed by the Company are presented in Note One of the Notes to Consolidated Financial Statements included herein. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, income taxes and purchased credit-impaired loans to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new information becomes available.

The Allowance and Provision for Loan Losses section of this Annual Report to Shareholders provides management’s analysis of the Company’s allowance for loan losses and related provision. The allowance for loan losses is maintained at a level that represents management’s best estimate of probable losses in the loan portfolio. Management’s determination of the appropriateness of the allowance for loan losses is based upon an evaluation of individual credits in the loan portfolio, historical loan loss experience, current economic conditions, and other relevant factors. This determination is inherently subjective, as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The allowance for loan losses related to loans considered to be impaired is generally evaluated based on the discounted cash flows using the impaired loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. 

The Income Taxes section of this Annual Report to Shareholders provides management’s analysis of the Company’s income taxes.  The Company is subject to federal and state income taxes in the jurisdictions in which it conducts business.  In computing the provision for income taxes, management must make judgments regarding interpretation of laws in those jurisdictions.  Because the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities.  On a quarterly basis, the Company estimates its annual effective tax rate for the year and uses that rate to provide for income taxes on a year-to-date basis.  The Company's unrecognized tax benefits could change over the next twelve months as a result of various factors.    The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and state taxing authorities for the years ended December 31, 2012 through 2014. 

The Company values purchased credit-impaired loans at fair value in accordance with Accounting Standards Codification ("ASC") Topic 310-30. In determining the estimated fair value, management considers several factors, such as

3


estimated future credit losses, estimated prepayments, remaining lives of the acquired loans and the estimated value of the underlying collateral in determining the present value of the cash flows expected to be received. For these loans, the expected cash flows that exceed the fair value of the loan represent the accretable yield, which is recognized as interest income on a level-yield basis over the expected cash flow periods of the loans. The non-accretable difference represents the difference between the contractually required principal and interest payments and the cash flows expected to be collected based upon management's estimation. Subsequent decreases in the expected cash flows will require the Company to evaluate the need for additions to the Company's allowance for loan losses. Subsequent increases in the expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges with a corresponding adjustment to the accretable yield, which will result in the recognition of additional interest income over the remaining lives of the loans. 

FAIR VALUE MEASUREMENTS
 
The Company determines the fair value of its financial instruments based on the fair value hierarchy established in ASC Topic 820, whereby the fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The hierarchy classification is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). Assets and liabilities that are actively traded and have quoted prices or observable market data require a minimal amount of subjectivity concerning fair value. Management’s judgment is necessary to estimate fair value when quoted prices or observable market data are not available.

            At December 31, 2015, approximately 10% of total assets, or $380 million, consisted of financial instruments recorded at fair value. Of this total, approximately 99% or $378 million of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately 1% or $2 million of these financial instruments were valued using unobservable market information or Level 3 measurements. The financial instruments valued using unobservable market information were pooled trust preferred investment securities classified as available-for-sale. At December 31, 2015, approximately $11 million of derivative liabilities were recorded at fair value using methodologies involving observable market data. The Company does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on the Company’s results of operations, liquidity, or capital resources. See Note Twenty of the Notes to Consolidated Financial Statements for additional information regarding ASC Topic 820 and its impact on the Company’s financial statements.


FINANCIAL SUMMARY
 
The Company’s financial performance over the previous three years is summarized in the following table:
 
2015
2014
2013
 
 
 
 
Net income available to common shareholders (in thousands)
$
54,097

$
52,962

$
48,215

Earnings per common share, basic
$
3.54

$
3.40

$
3.07

Earnings per common share, diluted
$
3.53

$
3.38

$
3.04

ROA*
1.52
%
1.56
%
1.43
%
ROE*
13.0
%
13.4
%
12.9
%
ROATCE*
15.8
%
16.5
%
16.2
%

*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders’ investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders’ equity less intangible assets.

            The Company’s tax equivalent net interest income decreased $2.4 million, or 2.0%, from $118.2 million in 2014 to $115.9 million in 2015.  This decrease is due primarily to a decrease of 25 basis points in the yield on interest-earning assets from 4.39% in 2014 to 4.14% in 2015. During 2015, the Company continued to originate a significant portion of its commercial loans based on WSJ Prime or LIBOR and elected to maintain fixed rate investment security balances below 15% of total assets. The Company believes that these measures will position its balance sheet to benefit from an increasing rate environment. The Company’s reported net interest margin decreased from 3.98% for the year ended December 31, 2014 to 3.76% for the year ended

4


December 31, 2015 (see Net Interest Income).  The Company’s provision for loan losses increased $2.9 million from $4.1 million in 2014 to $7.0 million in 2015 (see Allowance and Provision for Loan Losses).
        
Offsetting the aforementioned decrease in net interest income after provision for loan losses were an increase in non-interest income and a decrease in non-interest expense. Non-interest income increased primarily due to a pre-tax gain of $11.1 million recognized from the sale of the Company's insurance operations, "CityInsurance" in January 2015. Non-interest expense decreased primarily due the decrease in salaries and employee benefits, largely as a result of the sale of CityInsurance and an overall reduction in retail branch staff (see Non-Interest Income and Expense for more analysis of these fluctuations).

As a result, the Company's net income increased $1.1 million from 2014 to $54.1 million and the Company achieved a return on assets of 1.52%, a return on tangible equity of 15.8% and an efficiency ratio of 53.7%.

BALANCE SHEET ANALYSIS
 
Selected balance sheet fluctuations are summarized in the following table (in millions):
 
December 31,
 
 
 
2015
2014
$ Change
% Change
 
 
 
 
 
Gross loans
$
2,863.3

$
2,652.1

$
211.2

8.0
 %
Investment securities
471.3

354.7

116.6

32.9

Premises and equipment, net
77.3

78.0

(0.7
)
(0.9
)
Goodwill and other intangible assets, net
79.8

74.2

5.6

7.5

 
 
 
 
 
Total deposits
3,084.0

2,872.8

211.2

7.4

Short-term borrowings
154.9

134.9

20.0

14.8

Long-term debt
16.5

16.5



Shareholders' equity
419.3

390.9

28.4

7.3


Gross loans increased $211 million, or 8.0%, from December 31, 2014 to $2.86 billion at December 31, 2015, primarily due to the acquisition of three branches from AFB ($119 million). Excluding the acquisition of the three branches from AFB, loans increased $97 million or 3.7%. (see Loans).

Investment securities increased $117 million, or 32.9%, from $355 million at December 31, 2014, to $471 million at December 31, 2015. This increase was primarily due to the Company investing excess cash on hand (cash and due from banks decreased approximately $78 million during the same time period), as well as investing the cash received during the acquisition of three branches from AFB.

Premises and equipment, net decreased $1 million, or 0.9%, from $78 million at December 31, 2014 to $77 million at December 31, 2015.

Goodwill and other intangible assets, net increased $6 million, primarily as a result of the acquisition of three branches from AFB, largely offset by a $3 million reduction of goodwill in conjunction with the sale of CityInsurance.

Total deposits increased $211 million, or 7.4%, from $2.87 billion at December 31, 2014 to $3.08 billion at December 31, 2015, largely as a result of the acquisition of approximately $145 million in deposits associated with the three branches from AFB.

Short-term borrowings increased $20 million, or 14.8%, from December 31, 2014 to December 31, 2015, primarily due to an increase in short-term FHLB advances. Long-term debt balances remained flat at $16.5 million

Shareholders' equity increased $28.4 million from December 31, 2014 to December 31, 2015 (see Capital Resources). 



TABLE TWO
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME
(In thousands)
 
 
2015
 
2014
 
2013
 
Average Balance
Interest
Yield/
Rate
 
Average Balance
Interest
Yield/
Rate
 
Average Balance
Interest
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
Loan portfolio(1):
 
 
 
 
 
 
 
 
 
 
 
Residential real estate(2),(3)
$
1,474,631

$
57,692

3.91
%
 
$
1,384,677

$
55,627

4.02
%
 
$
1,308,303

$
55,078

4.21
%
Commercial, financial, and agriculture(3),(4)
1,175,707

51,660

4.39

 
1,163,449

54,288

4.67

 
1,158,790

62,735

5.41

Installment loans to individuals(3),(5)
40,966

3,959

9.66

 
45,471

4,556

10.02

 
56,662

6,250

11.03

Previously securitized loans(6)

1,796


 

2,187


 

2,531


     Total loans
2,691,304

115,107

4.28

 
2,593,597

116,658

4.50

 
2,523,755

126,594

5.02

Securities:
 
 
 
 
 
 
 
 
 
 
 
   Taxable
352,296

10,830

3.07

 
337,440

11,766

3.49

 
330,225

10,697

3.24

   Tax-exempt(7)
31,389

1,749

5.57

 
28,464

1,757

6.17

 
30,635

1,885

6.15

     Total securities
383,685

12,579

3.28

 
365,904

13,523

3.70

 
360,860

12,582

3.49

Deposits in depository institutions
9,733



 
9,205



 
8,116



Federal funds sold



 



 
13,052

22

0.17

     Total interest-earning assets
3,084,722

127,686

4.14

 
2,968,706

130,181

4.39

 
2,905,783

139,198

4.79

Cash and due from banks
180,965

 
 
 
130,183

 
 
 
154,983

 
 
Bank premises and equipment
76,136

 
 
 
80,459

 
 
 
82,168

 
 
Other assets
243,902

 
 
 
246,618

 
 
 
255,544

 
 
   Less: allowance for loan losses
(20,995
)
 
 
 
(21,148
)
 
 
 
(20,127
)
 
 
Total assets
$
3,564,730

 
 
 
$
3,404,818

 
 
 
$
3,378,351

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
644,961

505

0.08
%
 
$
614,489

615

0.10
%
 
$
603,844

712

0.12
%
   Savings deposits
706,926

712

0.10

 
632,510

784

0.12

 
599,574

864

0.14

   Time deposits(3)
1,005,232

9,669

0.96

 
1,046,925

9,613

0.92

 
1,103,945

10,782

0.98

   Short-term borrowings
145,199

327

0.23

 
133,769

342

0.26

 
127,679

325

0.25

   Long-term debt
16,495

617

3.74

 
16,495

606

3.67

 
16,495

618

3.75

     Total interest-bearing liabilities
2,518,813

11,830

0.47

 
2,444,188

11,960

0.49

 
2,451,537

13,301

0.54

Noninterest-bearing demand deposits
590,424

 
 
 
531,061

 
 
 
514,210

 
 
Other liabilities
40,442

 
 
 
33,629

 
 
 
39,502

 
 
Total shareholders’ equity
415,051

 
 
 
395,940

 
 
 
373,102

 
 
Total liabilities and shareholders’ equity
$
3,564,730

 
 
 
$
3,404,818

 
 
 
$
3,378,351

 
 
Net interest income
 
$
115,856

 
 
 
$
118,221

 
 
 
$
125,897

 
Net yield on earning assets
 
 
3.76
%
 
 
 
3.98
%
 
 
 
4.33
%
 
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.Includes the Company's residential real estate and home equity loan categories.
3.
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, Community and AFB:


6


 
2015
 
2014
 
2013
 
Virginia Savings
Community
AFB
Total
 
Virginia Savings
Community
Total
 
Virginia Savings
Community
Total
Residential real estate
$
324

$
560

$
9

$
893

 
$
427

$
457

$
884

 
$
970

$
805

$
1,775

Commercial, financial, and agriculture
273

4,540

17

4,830

 
504

3,900

4,404

 
2,397

7,861

10,258

Installment loans to individuals
98

175

2

275

 
154

561

715

 
145

1,241

1,386

Time deposits
516

160

11

687

 
535

250

785

 
542

682

1,224

     Total
$
1,211

$
5,435

$
39

$
6,685

 
$
1,620

$
5,168

$
6,788

 
$
4,054

$
10,589

$
14,643


4.Includes the Company’s commercial and industrial and commercial real estate loan categories.
5.Includes the Company’s consumer and DDA overdrafts loan categories.
6.Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.
7.Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 35%.

NET INTEREST INCOME
2015 vs. 2014

The Company’s tax equivalent net interest income decreased $2.4 million, or 2.0%, from $118.2 million in 2014 to $115.9 million in 2015. This decrease is due primarily to a decrease of 25 basis points in the yield on interest-earning assets from 4.39% in 2014 to 4.14% in 2015. During 2015, the Company continued to originate a significant portion of its commercial loans based on WSJ Prime or LIBOR and has elected to maintain fixed rate investment security balances below 15% of total assets. The Company believes that these measures will position its balance sheet to benefit from an increasing rate environment. The Company’s reported net interest margin decreased from 3.98% for the year ended December 31, 2014 to 3.76% for the year ended December 31, 2015. Excluding the favorable impact of the accretion from fair value adjustments on recent acquisitions, the net interest margin would have been 3.54% for the year ended December 31, 2015 and 3.75% for the year ended December 31, 2014. This decrease was primarily caused by loan yields compressing from 4.27% for the year ended December 31, 2014 to 4.05% for the year ended December 31, 2015.

Average interest-earning assets increased $116 million from 2014 to 2015, as increases attributable to residential real estate ($90 million), investment securities ($18 million) and deposits with depository institutions ($1 million) were partially offset by decreases in installment loans to individuals ($5 million).   Average interest-bearing liabilities increased $75 million from 2014 due to increases in savings deposits ($74 million), interest-bearing demand deposits ($30 million) and short-term borrowings ($11 million), partially offset by a decrease in time deposits ($42 million).

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 Community Bank, Virginia Savings Bank and AFB acquisitions (in thousands).  The amounts in the table below 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 than those estimated below.

 
Virginia Savings
Community
AFB
 
 
Year Ended
Loan
Accretion
Certificates of Deposit
Loan
Accretion
Certificates of Deposit
Loan
Accretion
Certificates of Deposit
Total
 
 
 
 
 
 
 
 
Actual
 
 
 
 
 
 
 
2013
$
3,512

$
542

$
9,907

$
682

$

$

$
14,643

2014
1,085

535

4,918

250



6,788

2015
695

516

5,275

160

28

11

6,685

 
 
 
 
 
 
 
 
Forecasted
 
 
 
 
 
 
 
2016
299

497

1,183

43

286

52

2,360

2017
161


939

4

256

11

1,371

2018
99


712


234


1,045

 


7




2014 vs. 2013
 
The Company’s tax equivalent net interest income decreased $7.7 million, or 6.1%, from $125.9 million in 2013 to $118.2 million in 2014. This decrease was due primarily to an expected decrease in accretion from the fair value adjustments related to the acquisitions of Virginia Savings Bank and Community Bank ($6.8 million for the year ended December 31, 2014 as compared to $14.6 million for the year ended December 31, 2013). The Company’s reported net interest margin decreased from 4.33% for the year ended December 31, 2013 to 3.98% for the year ended December 31, 2014. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 3.75% for the year ended December 31, 2014 and 3.83% for the year ended December 31, 2013. This decrease was primarily caused by loan yields compressing from 4.48% for the year ended December 31, 2013 to 4.27% for the year ended December 31, 2014.
    
Average interest-earning assets increased $63 million from 2013 to 2014, as increases attributable to residential real estate ($81 million), investment securities ($5 million) and deposits with depository institutions ($1 million) were partially offset by decreases in installment loans to individuals ($11 million), and federal funds sold ($13 million). Average interest-bearing liabilities decreased $7 million from 2013 due to a decrease in time deposits ($57 million), that was partially offset by increases in savings deposits ($33 million), interest-bearing demand deposits ($11 million) and short-term borrowings ($6 million).

TABLE THREE
RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In thousands)
 
2015 vs. 2014
Increase (Decrease)
Due to Change In:
2014 vs. 2013
Increase (Decrease)
Due to Change In:
 
Volume
Rate
Net
Volume
Rate
Net
Interest-earning assets:
 
 
 
 
 
 
Loan portfolio
 
 
 
 
 
 
   Residential real estate
$
3,614

$
(1,549
)
$
2,065

$
3,219

$
(2,670
)
$
549

   Commercial, financial, and agriculture
572

(3,200
)
(2,628
)
215

(8,662
)
(8,447
)
   Installment loans to individuals
(451
)
(146
)
(597
)
(1,169
)
(525
)
(1,694
)
   Previously securitized loans

(391
)
(391
)

(344
)
(344
)
     Total loans
3,735

(5,286
)
(1,551
)
2,265

(12,201
)
(9,936
)
Securities:
 
 
 
 
 
 
   Taxable
518

(1,454
)
(936
)
234

835

1,069

   Tax-exempt(1)
181

(189
)
(8
)
(134
)
6

(128
)
     Total securities
699

(1,643
)
(944
)
100

841

941

Federal funds sold



(22
)

(22
)
Total interest-earning assets
$
4,434

$
(6,929
)
$
(2,495
)
$
2,343

$
(11,360
)
$
(9,017
)
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
Interest-bearing demand deposits
$
30

$
(140
)
$
(110
)
$
13

$
(110
)
$
(97
)
   Savings deposits
92

(164
)
(72
)
48

(130
)
(82
)
   Time deposits
(383
)
439

56

(557
)
(612
)
(1,169
)
   Short-term borrowings
29

(44
)
(15
)
16

1

17

   Long-term debt

11

11


(12
)
(12
)
     Total interest-bearing liabilities
$
(232
)
$
102

$
(130
)
$
(480
)
$
(863
)
$
(1,343
)
Net Interest Income
$
4,666

$
(7,031
)
$
(2,365
)
$
2,823

$
(10,497
)
$
(7,674
)

1.
Fully federal taxable equivalent using a tax rate of approximately 35%.




8



NON-INTEREST INCOME AND NON-INTEREST EXPENSE
2015 vs. 2014

Selected income statement fluctuations are summarized in the following table (dollars in millions):

 
For the year ended December 31,
 
 
 
2015
2014
$ Change
% Change
Net investment security gains
$
2.1

$
1.2

$
0.9

75.0
 %
Non-interest income, excluding net investment securities gains
65.1

57.6

$
7.5

13.0

Non-interest expense
93.0

95.0

$
(2.0
)
(2.1
)

During the year ended December 31, 2015, the Company realized investment gains of $2.1 million from the call of trust preferred securities which represented a partial recovery of impairment charges previously recognized.

Exclusive of this gain, non-interest income excluding net investment securities gains increased $7.5 million to 65.1 million for the year ended December 31, 2015 as compared to $57.6 million for the year ended December 31, 2014. This increase was primarily attributable to the pre-tax gain of $11.1 million recognized as a result of the sale of CityInsurance, as well as increases in (i) other income of $1.0 million, primarily due to mortgage banking activities, (ii) bankcard revenue of $0.8 million, or 5.5%, to $15.9 million and (iii) trust revenues of $0.5 million, or 11.1%, to $5.1 million. Partially offsetting these increases were decreases in insurance commission revenues of $6.0 million, due to the sale of CityInsurance and service charges of $0.3 million, or 1.0%, from $26.6 million in 2014 to $26.3 million in 2015.

During 2015, the Company recognized $0.6 million of acquisition and integration expenses associated with the completed acquisition of AFB. Excluding these expenses, non-interest expenses decreased $2.6 million from $95.0 million for the year ended December 31, 2014 to $92.4 million for the year ended December 31, 2015. Salaries and employee benefits decreased $3.9 million from 2014 largely as a result of the sale of CityInsurance and an overall reduction of retail branch staff. Additionally, advertising expenses decreased $0.8 million from 2014. These decreases were partially offset by increases in other expenses of $1.3 million and repossessed asset losses of $0.7 million. Other expenses increased primarily as a result of the write down of a partnership investment of $1.45 million in 2015.
 
2014 vs. 2013

Selected income statement fluctuations are summarized in the following table (dollars in millions):
 
For the year ended December 31,
 
 
 
2014
2013
$ Change
% Change
Net investment security gains
$
1.2

$
0.8

$
0.4

50.0
 %
Non-interest income, excluding net investment securities gains
57.6

57.2

0.4

0.7

Non-interest expense
95.0

102.9

(7.9
)
(7.7
)

During the year ended December 31, 2014, the Company realized investment gains of $1.2 million from the sale of certain equity positions related to community banks and bank holding companies.

Exclusive of net investment securities gains, non-interest income increased $0.4 million to $57.6 million for the year ended December 31, 2014 as compared to $57.2 million for the year ended December 31, 2013. Bankcard revenues increased $1.5 million, or 11.4%, to $15.1 million and trust and investment management fee income increased $0.6 million, or 15.8%, to $4.6 million. These increases were partially offset by lower service charges on deposit accounts of $1.0 million, or 3.7%, and other income of $0.7 million, primarily due to lower demand for fixed rate mortgage products.

During 2013, the Company recognized $5.5 million of acquisition and integration expenses associated with the completed acquisition of Community. Excluding these expenses, non-interest expenses decreased $2.4 million from $97.4 million for the year ended December 31, 2013 to $95.0 million for the year ended December 31, 2014. This decrease was largely attributable to a decline in other expense of $2.4 million due to a decrease in non-income based taxes as a result of the recognition of previously unrecognized tax position resulting from the close of the statute of limitations for previous tax years that was

9


discrete to 2014. In addition, legal and professional fees also decreased $1.0 million from 2013 primarily due to lower legal settlements. Partially offsetting these decreases were increases in advertising expense ($0.6 million) and bankcard expense ($0.5 million).
 
INCOME TAXES
 
The Company recorded income tax expense of $28.4 million, $24.3 million and $25.3 million in 2015, 2014 and 2013, respectively. The Company’s effective tax rates for 2015, 2014 and 2013 were 34.4%, 31.4% and 34.4%, respectively. A reconciliation of the effective tax rate to the statutory rate is included in Note Fourteen of the Notes to Consolidated Financial Statements. During the years ended December 31, 2015 and December 31, 2014, the Company reduced income tax expense by $0.6 million and $1.8 million, respectively due to the recognition of previously unrecognized tax positions resulting from the close of the statute of limitations for previous tax years. In addition, as a result of differences between the book and tax basis of the assets that were sold in conjunction with the sale of CityInsurance, the Company’s income tax expense increased by $1.1 million. Exclusive of these items, the Company’s tax rate from operations was 33.6% and 33.8% for the year ended December 31, 2015 and December 31, 2014, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s net deferred tax assets decreased from $36.8 million at December 31, 2014 to $30.0 million at December 31, 2015. The components of the Company’s net deferred tax assets are disclosed in Note Fourteen of the Notes to Consolidated Financial Statements. Realization of the most significant net deferred tax assets is primarily dependent on future events taking place that will reverse the current deferred tax assets. For example, realization of the deferred tax asset attributable to other-than-temporary impairment losses on securities, which have already been recognized in the Company’s financial statements, would be realized if the impaired securities were deemed to be “worthless” by the Internal Revenue Service ("IRS") or when the securities were sold and recognized for tax purposes.  The deferred tax asset and/or liability associated with unrealized securities losses is the tax impact of the unrealized gains and/or losses on the Company’s available for sale security portfolio.  At December 31, 2015 and December 31, 2014 the Company had a deferred tax liability of $0.6 million and $0.7 million, respectively, associated with unrealized securities gains.  The impact of the Company’s unrealized gains is noted in the Company’s Consolidated Statements of Changes in Shareholders’ Equity as an adjustment to Accumulated Other Comprehensive Income (Loss). The deferred tax liability at December 31, 2015 would be realized if the unrealized gains on the Company’s securities were realized from sales or maturities of the related securities.  At December 31, 2015 and 2014, the Company had a deferred tax asset of $6.7 million and $8.4 million, respectively, associated with other-than-temporarily impaired securities.  The deferred tax asset at December 31, 2015 would be realized if the Company’s other-than-temporarily impaired securities were sold, or were deemed by the IRS to be “worthless.”  The deferred tax asset associated with the allowance for loan losses remained constant at $7.4 million at December 31, 2015 and 2014. The deferred tax asset associated with the allowance for loan losses is expected to be realized as additional loan charge-offs, which have already been provided for within the Company’s financial statements, are recognized for tax purposes.  The deferred tax asset associated with the Company’s previously securitized loans is expected to be realized as the Company recognizes income for financial statement purposes from these loans in future periods. The deferred tax asset associated with these loans decreased from $4.7 million at December 31, 2014 to $4.3 million at December 31, 2015.  The deferred tax asset associated with the Company's intangible assets decreased to $2.2 million at December 31, 2015. The Company believes that it is more likely than not that each of the net deferred tax assets will be realized and that no valuation allowance is necessary as of December 31, 2015 or 2014.
 
RISK MANAGEMENT

Market risk is the risk of loss due to adverse changes in current and future cash flows, fair values, earnings or capital due to adverse movements in interest rates and other factors, including foreign exchange rates, underlying credit risk and commodity prices. Because the Company has no significant foreign exchange activities and holds no commodities, interest rate risk represents the primary risk factor affecting the Company’s balance sheet and net interest margin. Significant changes in interest rates by the Federal Reserve could result in similar changes in LIBOR interest rates, prime rates, and other benchmark interest rates that could affect the estimated fair value of the Company’s investment securities portfolio, interest paid on the Company’s short-term and long-term borrowings, interest earned on the Company’s loan portfolio and interest paid on its deposit accounts.

 The Company’s Asset and Liability Committee (“ALCO”) has been delegated the responsibility of managing the Company’s interest-sensitive balance sheet accounts to maximize earnings while managing interest rate risk. ALCO, comprised of various members of executive and senior management, is also responsible for establishing policies to monitor and limit the Company’s exposure to interest rate risk and to manage the Company’s liquidity position. ALCO satisfies its responsibilities through quarterly meetings during which product pricing issues, liquidity measures, and interest sensitivity positions are monitored.

10



In order to measure and manage its interest rate risk, the Company uses an asset/liability management and simulation software model to periodically update the interest sensitivity position of the Company’s balance sheet. The model is also used to perform analyses that measure the impact on net interest income and capital as a result of various changes in the interest rate environment. Such analyses quantify the effects of various interest rate scenarios on projected net interest income.

The Company’s policy objective is to avoid negative fluctuations in net income or the economic value of equity of more than 15% within a 12-month period, assuming an immediate parallel increase or decrease of 400 basis points. The Company measures the long-term risk associated with sustained increases and decreases in rates through analysis of the impact to changes in rates on the economic value of equity.  Due to the current Federal Funds target rate of 50 basis points, the Company has chosen not to reflect a decrease of 50 basis points from current rates in its analysis.

The following table summarizes the sensitivity of the Company’s net income to various interest rate scenarios. The results of the sensitivity analyses presented below differ from the results used internally by ALCO in that, in the analyses below, interest rates are assumed to have an immediate and sustained parallel shock. The Company recognizes that rates are volatile, but rarely move with immediate and parallel effects. Internally, the Company considers a variety of interest rate scenarios that are deemed to be possible while considering the level of risk it is willing to assume in “worst-case” scenarios such as shown by the following:
Immediate Basis Point Change in Interest Rates
Implied Federal Funds Rate Associated with Change in Interest Rates
Estimated Increase (Decrease) in Net Income Over 12 Months
December 31, 2015
 
 
+400
4.50
%
+6.0
%
+300
3.50

+7.5

+200
2.50

+6.8

+100
1.50

+3.3

 
 
 
December 31, 2014
 
 
+400
4.25
%
+2.8
%
+300
3.25

+4.9

+200
2.25

+5.0

+100
1.25

+1.9


These estimates are highly dependent upon assumptions made by management, including, but not limited to, assumptions regarding the manner in which interest-bearing demand deposit and savings deposit accounts reprice in different interest rate scenarios, changes in the composition of deposit balances, pricing behavior of competitors, prepayments of loans and deposits under alternative rate environments, and new business volumes and pricing. As a result, there can be no assurance that the estimates above will be achieved in the event that interest rates increase during 2016 and beyond.  The estimates above do not necessarily imply that the Company will experience increases in net income if market interest rates rise.  The table above indicates how the Company’s net income and the economic value of equity behave relative to an increase or decrease in rates compared to what would otherwise occur if rates remain stable.

Based upon the estimates above, the Company believes that its net income is positively correlated with increasing rates as compared to the level of net income the Company would expect if interest rates remain flat.
 
LIQUIDITY

The Company evaluates the adequacy of liquidity at both the Parent Company level and at the banking subsidiary level. At the Parent Company level, the principal source of cash is dividends from its banking subsidiary, City National. Dividends paid by City National to the Parent Company are subject to certain legal and regulatory limitations. Generally, any dividends in amounts that exceed the earnings retained by City National in the current year plus retained net profits for the preceding two years must be approved by regulatory authorities. At December 31, 2015, City National could pay dividends up to $18.2 million without prior regulatory permission.

During 2015, the Parent Company used cash obtained from the dividends received primarily to: (1) pay common dividends to shareholders and (2) remit interest payments on the Company’s junior subordinated debentures and (3) fund repurchases of the Company's common shares.  Additional information concerning sources and uses of cash by the Parent Company is reflected in Note Twenty One of the Notes to Consolidated Financial Statements.

11



Over the next 12 months, the Parent Company has an obligation to remit interest payments approximating $0.6 million on the junior subordinated debentures held by City Holding Capital Trust III. Additionally, the Parent Company anticipates continuing the payment of dividends, which are expected to approximate $25.5 million on an annualized basis for 2016 based on common shareholders of record at December 31, 2015 at a dividend rate of $1.68 for 2016.  However, interest payments on the debentures can be deferred for up to five years under certain circumstances and dividends to shareholders can, if necessary, be suspended. In addition to these anticipated cash needs, the Parent Company has operating expenses and other contractual obligations, which are estimated to require $1.0 million of additional cash over the next 12 months. As of December 31, 2015, the Parent Company reported a cash balance of $46.7 million and management believes that the Parent Company’s available cash balance, together with cash dividends from City National, will be adequate to satisfy its funding and cash needs over the next twelve months.

Excluding the interest and dividend payments discussed above, the Parent Company has no significant commitments or obligations in years after 2016 other than the repayment of its $16.5 million obligation under the debentures held by City Holding Capital Trust III. However, this obligation does not mature until June 2038, or earlier at the option of the Parent Company. It is expected that the Parent Company will be able to obtain the necessary cash, either through dividends obtained from City National or the issuance of other debt, to fully repay the debentures at their maturity.

City National manages its liquidity position in an effort to effectively and economically satisfy the funding needs of its customers and to accommodate the scheduled repayment of borrowings. Funds are available to City National from a number of sources, including depository relationships, sales and maturities within the investment securities portfolio, and borrowings from the FHLB and other financial institutions. As of December 31, 2015, City National’s assets are significantly funded by deposits and capital. City National maintains borrowing facilities with the FHLB and other financial institutions that can be accessed as necessary to fund operations and to provide contingency funding mechanisms. As of December 31, 2015, City National had the capacity to borrow an additional $1.6 billion from the FHLB and other financial institutions under existing borrowing facilities. City National maintains a contingency funding plan, incorporating these borrowing facilities, to address liquidity needs in the event of an institution-specific or systemic financial industry crisis. Also, although it has no current intention to do so, City National could liquidate its unpledged securities, if necessary, to provide an additional funding source.  City National also segregates certain mortgage loans, mortgage-backed securities, and other investment securities in a separate subsidiary so that it can separately monitor the asset quality of these primarily mortgage-related assets, which could be used to raise cash through securitization transactions or obtain additional equity or debt financing if necessary.

 The Company manages its asset and liability mix to balance its desire to maximize net interest income against its desire to minimize risks associated with capitalization, interest rate volatility, and liquidity. With respect to liquidity, the Company has chosen a conservative posture and believes that its liquidity position is strong. As illustrated in the Consolidated Statements of Cash Flows, the Company generated $47.9 million of cash from operating activities during 2015, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings.

The Company has obligations to extend credit, but these obligations are primarily associated with existing home equity loans that have predictable borrowing patterns across the portfolio. The Company has investment security balances with carrying values that totaled $471.3 million at December 31, 2015, and that greatly exceeded the Company’s non-deposit sources of borrowing which totaled $171.4 million.

The Company’s net loan to asset ratio is 76.6% as of December 31, 2015 and deposit balances fund 83.0% of total assets as compared to 66.8% for its peers (Bank Holding Company Peer Group with assets ranging from $3 billion to $10 billion). Further, the Company’s deposit mix has a very high proportion of transaction and savings accounts that fund 55.6% of the Company’s total assets and the Company uses time deposits over $250,000 to fund 10.5% of total assets compared to its peers, which fund 9.3% of total assets with such deposits.
 
INVESTMENTS
 
The Company’s investment portfolio increased from $355 million at December 31, 2014 to $471 million at December 31, 2015. This increase was primarily due to the Company investing excess cash on hand (cash and due from banks decreased approximately $78 million during the same time period), as well as investing the additional cash received during the acquisition of three branches from AFB.

The investment portfolio is structured to provide flexibility in managing liquidity needs and interest rate risk, while providing acceptable rates of return.


12


The majority of the Company’s investment securities continue to be mortgage-backed securities. The mortgage-backed securities in which the Company has invested are predominantly underwritten to the standards of, and guaranteed by government-sponsored agencies such as FNMA and FHLMC.

The Company's municipal bond portfolio of $50.7 million as of December 31, 2015 has an average tax equivalent yield of 5.11% with an average maturity of 9.6 years. The average dollar amount invested in each security is $0.4 million. The portfolio has 47% rated "A" or better and the remaining portfolio is unrated, as the issuances represented small issuances of revenue bonds. Additional credit support has been purchased for 31% of the portfolio, while 69% has no additional credit support. Management does underwrite 100% of the portfolio on an annual basis, using the same guidelines that are used to underwrite its commercial loans. Revenue bonds were 96% of the portfolio, while the remaining 4% were general obligation bonds. Geographically, the portfolio supports the Company's footprint, with 91% of the portfolio being from municipalities throughout West Virginia, and the remainder from communities in Ohio, Indiana and Kentucky.

TABLE FOUR
INVESTMENT PORTFOLIO

The carrying value of the Company's securities are presented in the following table (in thousands):

 
Carrying Values as of December 31,
 
2015
2014
2013
Securities available-for-sale:
 
 
 
    Obligations of states and political subdivisions
$
50,697

$
42,096

$
41,548

    U.S. Treasuries and U.S. government agencies
5

1,827

2,365

Mortgage-backed securities:
 
 
 
     U.S. government agencies
288,197

187,328

278,108

     Private label
1,231

1,704

2,197

Trust preferred securities
5,858

9,036

13,156

Corporate securities
18,693

7,317

9,128

     Total Debt Securities available-for-sale
364,681

249,308

346,502

Marketable equity  securities
3,273

3,213

4,673

Investment funds
1,512

1,522

1,485

      Total Securities Available-for-Sale
369,466

254,043

352,660

Securities held-to-maturity:
 
 
 
    Mortgage backed securities
84,937

86,742


    Trust preferred securities
4,000

4,044

4,117

      Total Securities Held-to-Maturity
88,937

90,786

4,117

Other investment securities:
 
 
 
   Non-marketable equity securities
12,915

9,857

13,343

       Total Other Investment Securities
12,915

9,857

13,343

 
 
 
 
Total Securities
$
471,318

$
354,686

$
370,120


During the year ended December 31, 2014, the Company transferred certain securities from available-for-sale to held-to-maturity. The non-cash transfers of securities into the held-to-maturity categories from available-for-sale were made at fair value, which was $83.4 million on the date of the transfer.

Included in non-marketable equity securities in the table above at December 31, 2015 are $4.7 million of Federal Home Loan Bank stock and $8.2 million of Federal Reserve Bank stock. At December 31, 2015, there were no securities of any non-governmental issuers whose aggregate carrying or estimated fair value exceeded 10% of shareholders’ equity.

    




13


    



The weighted average yield of the Company's investment portfolio is presented in the following table (dollars in thousands):
 
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
Securities available-for-sale:
 
 
 
 
 
 
 
 
    Obligations of states and political subdivisions
$
2,731

2.06
%
$
10,435

3.47
%
$
15,547

3.56
%
$
21,984

4.05
%
    U.S. Treasuries and U.S. government agencies


5

1.26





Mortgage-backed securities:
 
 
 
 
 
 
 
 
     U.S. government agencies
9

2.63

3,457

4.32

13,187

3.12

271,544

2.62

     Private label


230

4.50



1,001

2.70

Trust preferred securities






5,858

2.53

Corporate securities


2,140

6.25

13,303

8.80

3,250

6.09

     Total Debt Securities available-for-sale
2,740

2.06

16,267

4.03

42,037

5.08

303,637

2.76

Securities held-to-maturity:
 
 
 
 
 
 
 
 
  U.S. government agencies






84,937

2.88

Trust preferred securities






4,000

9.30

      Total Securities Held-to-Maturity






88,937

3.17

 
 
 
 
 
 
 
 
 
      Total  debt securities
$
2,740

2.06
%
$
16,267

4.03
%
$
42,037

5.08
%
$
392,574

2.85
%
  
Weighted-average yields on tax-exempt obligations of states and political subdivisions have been computed on a taxable-equivalent basis using the federal statutory tax rate of 35%.  Average yields on investments available-for-sale are computed based on amortized cost. Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.
 
LOANS
TABLE FIVE
LOAN PORTFOLIO

The composition of the Company’s loan portfolio as of the dates indicated follows (in thousands):
 
2015
2014
2013
2012
2011
 
 
 
 
 
 
Residential real estate
$
1,383,133

$
1,294,576

$
1,204,450

$
1,031,435

$
929,788

Home equity
147,036

145,604

146,090

143,110

141,797

Commercial and industrial
165,887

140,548

156,777

116,645

130,899

Commercial real estate
1,127,827

1,028,831

1,048,573

814,064

732,146

Consumer
36,083

39,705

46,402

36,564

35,845

DDA overdrafts
3,361

2,802

3,905

4,551

2,628

Gross loans
$
2,863,327

$
2,652,066

$
2,606,197

$
2,146,369

$
1,973,103


Loan balances increased $211 million from December 31, 2014 to December 31, 2015. with the acquisition of AFB contributing $114 million.

Residential real estate loans increased $89 million from December 31, 2014. Excluding the AFB acquisition, residential real estate loans increased $81 million, or 6.3%, from $1.29 billion at December 31, 2014 to $1.38 billion at December 31, 2015.

14


Residential real estate loans represent loans to consumers that are secured by a first lien on residential property.  Residential real estate loans provide for the purchase or refinance of a residence and first-lien home equity loans that allow consumers to borrower against the equity in their home.  These loans primarily consist of single family 3 and 5 year adjustable rate mortgages with terms that amortize up to 30 years. The Company also offers fixed-rate residential real estate loans that are sold in the secondary market that are not included on the Company's balance sheet and the Company does not retain the servicing rights to these loans.  Residential mortgage loans are generally underwritten to comply with Fannie Mae guidelines, while the home equity loans are underwritten with typically less documentation, but with lower loan-to-value ratios and shorter maturities. At December 31, 2015, $13 million of the residential real estate loans were for properties under construction.

Home equity loans increased $1 million from December 31, 2014. Excluding the AFB acquisition, home equity loans decreased $5 million to $141 million at December 31, 2015. The Company's home equity loans represent loans to consumers that are secured by a second (or junior) lien on a residential property.  Home equity loans allow consumers to borrower against the equity in their home without paying off an existing first lien.  These loans consist of home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments.  Home equity loans are underwritten with less documentation, lower loan-to-value ratios and for shorter terms.  The amount of credit extended is directly related to the value of the real estate at the time the loan is made. 

The commercial and industrial ("C&I") loan portfolio consists of loans to corporate borrowers primarily in small to mid-size industrial and commercial companies. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans are considered to contain a higher level of risk than other loan types, although care is taken to minimize these risks. Numerous risk factors impact this portfolio, including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. C&I loans increased $25 million from December 31, 2014. Excluding the AFB acquisition, C&I loans decreased $24 million, or 16.9%, from $141 million at December 31, 2014 to $117 million at December 31, 2015. The decrease was largely attributable to a more competitive lending environment, a C&I customer that sold its business and repaid its $8 million loan, and to various lines of credit that experienced balance reductions.

Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties, including hotel/motel and apartment lending. Commercial real estate loans are to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans increased $99 million from December 31, 2014. Excluding the AFB acquisition, commercial real estate loans increased $48 million, or 4.7%, from $1.03 billion at December 31, 2014 to $1.08 billion at December 31, 2015.   At December 31, 2015, $13 million of the commercial real estate loans were for commercial properties under construction. 

The Company categorizes commercial loans by industry according to the North American Industry Classification System (NAICS) to monitor the portfolio for possible concentrations in one or more industries. As of December 31, 2015, the Company did not have an industry classification that exceeded 10% of total loans; however, approximately 20% of the Company's commercial loans are within the Lessors of Residential Buildings and Dwellings and Lessors of Nonresidential Buildings classifications.

Consumer loans may be secured by automobiles, boats, recreational vehicles and other personal property. The Company monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Consumer loans decreased $4 million during 2015.  


15


The following table shows the scheduled maturity of loans outstanding as of December 31, 2015 (in thousands):
 
Within One Year
After One But Within Five Years
After Five Years
Total
 
 
 
 
 
Residential real estate
$
169,199

$
531,130

$
682,804

$
1,383,133

Home equity
21,797

56,024

69,215

147,036

Commercial and industrial
77,992

72,987

14,908

165,887

Commercial real estate
294,274

509,965

323,588

1,127,827

Consumer
18,714

20,059

671

39,444

Total loans
$
581,976

$
1,190,165

$
1,091,186

$
2,863,327

 
 
 
 
 
 
 
 
 
 
Loans maturing after one year with interest rates that are:
 
 
 
 
Fixed until maturity
$
407,968

 
 
 
Variable or adjustable
1,873,383

 
 
 
Total
$
2,281,351


 
 




ALLOWANCE AND PROVISION FOR LOAN LOSSES

Management systematically monitors the loan portfolio and the appropriateness of the allowance for loan losses (“ALLL”) on a quarterly basis to provide for probable losses incurred in the portfolio. Management assesses the risk in each loan type based on historical delinquency and loss trends, the general economic environment of its local markets, individual loan performance, and other relevant factors. Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance. Due to the nature of commercial lending, evaluation of the appropriateness of the allowance as it relates to these loan types is often based more upon specific credit review, with consideration given to the potential impairment of certain credits and historical loss rates, adjusted for general economic conditions and other inherent risk factors. Conversely, due to the homogeneous nature of the real estate and installment portfolios, the portions of the allowance allocated to those portfolios are primarily based on prior loss history of each portfolio, adjusted for general economic conditions and other inherent risk factors. Risk factors considered by the Company in completing this analysis include: (1) unemployment and economic trends in the Company’s markets, (2) concentrations of credit, if any, among any industries, (3) trends in loan growth, loan mix, delinquencies, losses or credit impairment, (4) adherence to lending policies and others. Each risk factor is designated as low, moderate/increasing, or high based on the Company’s assessment of the risk to loss associated with each factor. Each risk factor is then weighted to consider probability of occurrence.

The allowance not specifically allocated to individual credits is generally determined by analyzing potential exposure and other qualitative factors that could negatively impact the overall credit risk of the loan portfolio.  Loans not individually evaluated for impairment are grouped by pools with similar risk characteristics and the related historical loss rates are adjusted to reflect current inherent risk factors, such as unemployment, overall economic conditions, concentrations of credit, loan growth, classified and impaired loan trends, staffing, adherence to lending policies, and loss trends.

Determination of the allowance for loan losses is subjective in nature and requires management to periodically reassess the validity of its assumptions. Differences between actual losses and estimated losses are assessed such that management can timely modify its evaluation model to ensure that adequate provision has been made for risk in the total loan portfolio.

As a result of the Company’s quarterly analysis of the appropriateness of the ALLL, the Company recorded a provision for loan losses of $7.0 million, $4.1 million and $6.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
 
The provision for loan losses recorded in 2015 reflects the impact of several factors, including difficulties encountered by a certain commercial borrower of the Company engaged in the mining and energy sectors (per the North American Industry Classification System (NAICS)) which filed for bankruptcy during 2015, the modest growth in the loan portfolio, and changes in the quality of the portfolio. Changes in the amount of the provision and related allowance are based

16


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.

The Company had net charge-offs of $7.1 million for the year ended December 31, 2015 compared to $4.5 million for the year ended December 31, 2014.  Net charge-offs in 2015 consisted primarily of net charge-offs on commercial and industrial loans of $5.0 million (which primarily pertains to the commercial borrower discussed above) , residential real estate loans of $0.9 million and DDA overdraft loans of $0.6 million for the year ended December 31, 2015.  

The Company’s ratio of non-performing assets to total loans and other real estate owned decreased from 0.90% at December 31, 2014 to 0.83% at December 31, 2015.  Excluded from these ratios and balances are purchased credit-impaired loans which continue to perform in accordance with the estimated expectations. Such loans would be considered nonperforming loans if any such loan’s performance deteriorates below the initial expectations. Total past due loans decreased from $10.7 million, or 0.40% of total loans outstanding, at December 31, 2014 to $9.2 million, or 0.32% of total loans outstanding, at December 31, 2015. Acquired past due loans represent approximately 18% of total past due loans and have declined $14.8 million, or 90%, since March 31, 2013.

The allowance allocated to the commercial real estate loan portfolio decreased $1.1 million, or 12.8%, from $8.9 million at December 31, 2014 to $7.8 million at December 31, 2015. This decrease is primarily attributable to improvements in the historical loss rates in the portfolio.

The allowance allocated to the commercial and industrial loan portfolio increased $1.7 million from $1.6 million at December 31, 2014 to $3.3 million at December 31, 2015. The increase is primarily attributable to an increase in the amount of loans classified as substandard in this portfolio.

The allowance allocated to the residential real estate portfolio decreased $0.4 million from $7.2 million at December 31, 2014 to $6.8 million at December 31, 2015. The decrease is primarily attributable to improvements in the historical loss rates in the portfolio.

The allowance allocated to the home equity remained flat at $1.5 million at December 31, 2015. Consumer and overdraft loan portfolios at December 31, 2015 did not significantly change from December 31, 2014.

Based on the Company’s analysis of the appropriateness of the allowance for loan losses and in consideration of the known factors utilized in computing the allowance, management believes that the allowance for loan losses as of December 31, 2015, is adequate to provide for probable losses inherent in the Company’s loan portfolio. Future provisions for loan losses will be dependent upon trends in loan balances including the composition of the loan portfolio, changes in loan quality and loss experience trends, and recoveries of previously charged-off loans, among other factors.



17


TABLE SIX

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
    
An analysis of changes in the Company's allowance for loan losses follows (dollars in thousands):

 
2015
2014
2013
2012
2011
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
20,150

$
20,575

$
18,809

$
19,409

$
18,224

 
 
 
 
 
 
Charge-offs:
 
 
 
 
 
Commercial and industrial
(5,051
)
(323
)
(1,040
)
(226
)
(522
)
Commercial real estate
(580
)
(1,925
)
(2,187
)
(4,604
)
(1,989
)
Residential real estate
(1,144
)
(1,762
)
(2,181
)
(1,030
)
(1,367
)
Home equity
(312
)
(309
)
(295
)
(1,355
)
(1,089
)
Consumer
(210
)
(188
)
(454
)
(190
)
(164
)
DDA overdrafts
(1,414
)
(1,415
)
(1,483
)
(1,522
)
(1,712
)
Total charge-offs
(8,711
)
(5,922
)
(7,640
)
(8,927
)
(6,843
)
 
 
 
 
 
 
Recoveries:
 
 
 
 
 
Commercial and industrial
74

89

84

32

23

Commercial real estate
366

113

785

289

1,981

Residential real estate
199

187

234

22

29

Home equity



18

7

Consumer
186

204

327

135

136

DDA overdrafts
792

850

1,128

1,456

1,252

Total recoveries
1,617

1,443

2,558

1,952

3,428

Net charge-offs
(7,094
)
(4,479
)
(5,082
)
(6,975
)
(3,415
)
Provision for loan losses
6,435

3,771

6,251

6,375

4,600

Provision for acquired loans
553

283

597



Balance at end of period
$
20,044

$
20,150

$
20,575

$
18,809

$
19,409

 
 
 
 
 
 
As a Percent of Average Total Loans:
 
 
 
 
 
Net charge-offs
0.26
%
0.17
%
0.20
%
0.34
%
0.18
%
Provision for loan losses
0.26
%
0.16
%
0.27
%
0.31
%
0.24
%
As a Percent of Non-Performing Loans:
 
 
 
 
 
Allowance for loan losses
114.91
%
128.11
%
90.25
%
96.59
%
87.76
%

TABLE SEVEN
NON-ACCRUAL, PAST-DUE AND RESTRUCTURED LOANS

The Company's nonperforming assets at December 31 were as follows (in thousands):

 
2015
2014
2013
2012
2011
Non-accrual loans
$
16,948

$
15,306

$
22,361

$
19,194

$
21,951

Accruing loans past due 90 days or more
495

423

436

280

166

Total non-performing loans
$
17,443

$
15,729

$
22,797

$
19,474

$
22,117

 

18


If the Company's non-accrual and impaired loans had been current in accordance with their original terms, approximately $0.8 million, $0.5 million, and $0.6 million of interest income would have been recognized during 2015, 2014 and 2013, respectively.  There were no commitments to provide additional funds on non-accrual, impaired, or other potential problem loans at December 31, 2015 and 2014.  

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.
 
Information pertaining to the Company's impaired loans is included in the following table (in thousands):

 
2015
2014
Impaired loans with a valuation allowance
$

$
1,392

Impaired loans with no valuation allowance
8,482

5,377

Total impaired loans
$
8,482

$
6,769

 
 
 
Allowance for loan losses allocated to impaired loans
$

$
252


The impaired loans with a valuation allowance at the end of 2014 were comprised of two commercial borrowing relationships that were evaluated during that year and determined that an allowance was necessary. During 2015, one of those borrowers reduced their loan balance and therefore a reserve was not necessary and the other borrower paid off their loan in January 2016.

Regulatory guidance requires loans to be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt.  The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of the debt by the bankruptcy court is deemed to be a concession granted to the borrower.

The Company's troubled debt restructurings ("TDRs") related to its borrowers who had filed for Chapter 7 bankruptcy protection make up 92% of the Company's total TDRs as of December 31, 2015. The average age of these TDRs was 11.5 years; the average current balance as a percentage of the original balance was 67.7%; and the average loan-to-value ratio was 65.1% as of December 31, 2015. Of the total 488 Chapter 7 related TDRs, 39 had an estimated loss exposure based on the current balance and appraised value at December 31, 2015.

The following table sets forth the Company’s troubled debt restructurings ("TDRs") at December 31, 2015 and 2014 (in thousands):


19


 
Accruing
Non-Accruing
Total
December 31, 2015
 
 
 
Commercial and industrial
$
58

$

$
58

Commercial real estate
1,746


1,746

Residential real estate
17,796

191

17,987

Home equity
2,659

34

2,693

Consumer



 
$
22,259

$
225

$
22,484

 
 
 
 
December 31, 2014
 
 
 
Commercial and industrial
$
73

$

$
73

Commercial real estate
2,263


2,263

Residential real estate
17,946

545

18,491

Home equity
2,673

15

2,688

Consumer



 
$
22,955

$
560

$
23,515








TABLE EIGHT
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The allocation of the allowance for loan losses and the percent of loans in each category to total loans is shown in the table below (dollars in thousands):
 
2015
2014
2013
2012
2011
 
Amount
Percent of Loans in Each Category to Total Loans
Amount
Percent of Loans in Each Category to Total Loans
Amount
Percent of Loans in Each Category to Total Loans
Amount
Percent of Loans in Each Category to Total Loans
Amount
Percent of Loans in Each Category to Total Loans
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
3,271

6
%
$
1,582

5
%
$
1,139

6
%
$
498

5
%
$
590

7
%
Commercial real estate
7,778

39
%
8,921

39
%
10,775

40
%
10,440

38
%
11,666

37
%
Residential real estate
6,778

48
%
7,208

49
%
6,057

46
%
5,229

48
%
4,839

47
%
Home equity
1,463

5
%
1,495

5
%
1,672

6
%
1,699

7
%
1,525

7
%
Consumer
97

2
%
85

2
%
77

2
%
81

2
%
88

2
%
DDA overdrafts
657

%
859

%
855

%
862

%
701

%
Allowance for Loan Losses
$
20,044

100
%
$
20,150

100
%
$
20,575

100
%
$
18,809

100
%
$
19,409

100
%

PREVIOUSLY SECURITIZED LOANS

As of December 31, 2015 and 2014, the carrying value of the remaining previously securitized loans was zero, while the actual contractual balances of these loans were $3.9 million and $4.9 million, respectively. During the years ended December 31, 2015, 2014 and 2013, the Company recognized $1.8 million, $2.2 million and $2.5 million, respectively, of interest income on its previously securitized loans.
  
GOODWILL
 

20


The Company evaluates the recoverability of goodwill and indefinite lived intangible assets annually as of November 30th, or more frequently if events or changes in circumstances warrant, such as a material adverse change in the business. Goodwill is considered to be impaired when the carrying value of a reporting unit exceeds its estimated fair value. Indefinite-lived intangible assets are considered impaired if their carrying value exceeds their estimated fair value. As described in Note One of the Notes to Consolidated Financial Statements, the Company conducts its business activities through one reportable business segment – community banking. Fair values are estimated by reviewing the Company’s stock price as it compares to book value and the Company’s reported earnings.  In addition, the impact of future earnings and activities are considered in the Company’s analysis.  The Company had $76.3 million and $71.4 million of goodwill at December 31, 2015 and 2014, respectively, and no impairment was required to be recognized in 2015 or 2014, as the fair value of the Company has continued to exceed its book value.
 
CERTIFICATES OF DEPOSIT
 
Scheduled maturities of time certificates of deposit of $250,000 or more outstanding at December 31, 2015, are summarized in Table Nine (in thousands). The Company has time certificates of deposit of $250,000 or more totaling $86.3 million (approximately 8% of total time deposits).  

TABLE NINE
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT OF $250,000 OR MORE
 
Amounts
Percentage
 
 
 
Three months or less
$
5,352

6
%
Over three months through six months
9,569

11
%
Over six months through twelve months
20,239

23
%
Over twelve months
51,139

60
%
Total
$
86,299

100
%

CONTRACTUAL OBLIGATIONS
 
The Company has various financial obligations that may require future cash payments according to the terms of the obligations. Demand, both noninterest- and interest-bearing, and savings deposits are, generally, payable immediately upon demand at the request of the customer. Therefore, the contractual maturity of these obligations is presented in the following table as “less than one year.” Time deposits, typically certificates of deposit, are customer deposits that are evidenced by an agreement between the Company and the customer that specify stated maturity dates and early withdrawals by the customer are subject to penalties assessed by the Company. Short-term borrowings and long-term debt represent borrowings of the Company and have stated maturity dates. The Company was not a party to any material capital or operating leases as of December 31, 2015.

TABLE TEN
CONTRACTUAL OBLIGATIONS

The composition of the Company's contractual obligations as of December 31, 2015 is presented in the following table (in thousands):




 
Contractual Maturity in
 
Less than One Year
Between One and Three Years
Between Three and Five Years
Greater than Five Years
Total
 
 
 
 
 
 
Noninterest-bearing demand deposits
$
621,073

$

$

$

$
621,073

Interest-bearing demand deposits(1)
680,264




680,264

Savings deposits(1)
766,459




766,459

Time deposits(1)
447,553

413,553

177,103

19

1,038,228

Short-term borrowings(1)
190,951




190,951

Long-term debt(1)
662

1,324

1,324

13,256

16,566

Total Contractual Obligations
$
2,706,962

$
414,877

$
178,427

$
13,275

$
3,313,541

 
(1)
Includes interest on both fixed- and variable-rate obligations. The interest associated with variable-rate obligations is based upon interest rates in effect at December 31, 2015. The contractual amounts to be paid on variable-rate obligations are affected by market interest rates that could materially affect the contractual amounts to be paid.

The Company’s liability for uncertain tax positions at December 31, 2015 was $2.2 million pursuant to ASC Topic 740.  This liability represents an estimate of tax positions that the Company has taken in its tax returns that may ultimately not be sustained upon examination by tax authorities.  As the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable reliability, this estimated liability has been excluded from the contractual obligations table.
 

OFF–BALANCE SHEET ARRANGEMENTS
 
As disclosed in Note Seventeen of the Notes to Consolidated Financial Statements, the Company has also entered into agreements with its customers to extend credit or to provide conditional commitments to provide payment on drafts presented in accordance with the terms of the underlying credit documents (including standby and commercial letters of credit). The Company also provides overdraft protection to certain demand deposit customers that represent an unfunded commitment. As a result of the Company’s off-balance sheet arrangements for 2015 and 2014, no material revenue, expenses, or cash flows were recognized.  In addition, the Company had no other indebtedness or retained interests nor entered into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit.
 
CAPITAL RESOURCES
 
During 2015, Shareholders’ Equity increased $28 million, or 7.3%, from $391 million at December 31, 2014 to $419 million at December 31, 2015.  This increase was primarily due to net income of $54 million and equity award vesting and exercises of $5 million, partially offset by cash dividends declared of $26 million and common stock repurchases for treasury of $7 million.

During the year ended December 31, 2015, the Company repurchased approximately 150,000 common shares at a weighted average price of $46.91. On September 24, 2014, the Company announced that the Board of Directors authorized the Company to buy back up to 1,000,000 shares of its common shares (approximately 7% of outstanding shares) in open market transactions at prices that are accretive to the earnings per share of continuing shareholders. No time limit was placed on the duration of the share repurchase program. At December 31, 2015, the Company could repurchase approximately 633,000 shares under the current plan.

In July 2013, the Federal Reserve published the final rules that established a new comprehensive capital framework for banking organizations, commonly referred to as Basel III. These final rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions. The final rule became effective January 1, 2015 for smaller, non-complex banking organizations with full implementation by January 1, 2019.

Regulatory guidelines require the Company to maintain a minimum common equity tier 1 ("CET 1") capital ratio of 4.5% and a total capital to risk-adjusted assets ratio of 8.0%, with at least one-half of capital consisting of tangible common stockholders’ equity and a minimum Tier 1 leverage ratio of 6.0%. Similarly, City National is also required to maintain minimum capital levels as set forth by various regulatory agencies. Under capital adequacy guidelines, City National is required to maintain minimum CET 1, total capital, Tier 1 capital, and leverage ratios of 4.5%, 8.0%, 6.0%, and 4.0%, respectively. To be classified



as “well capitalized,” City National must maintain CET 1, total capital, Tier 1 capital, and leverage ratios of 6.5%, 10.0%, 8.0%, and 5.0%, respectively.

When fully phased in on January 1, 2019, the Basel III Capital Rules will require City Holding and City National to maintain (i) a minimum ratio of CET 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" (which is added to the 4.5% CET 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets (as compared to a current minimum leverage ratio of 3.0% for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority's risk-adjusted measure for market risk).

The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to City Holding Company or City National Bank.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and executive compensation based on the amount of the shortfall.



The Company’s regulatory capital ratios for both City Holding and City National are illustrated in the following table:
December 31, 2015
Actual
 
Minimum Required - Basel III Phase-In Schedule
 
Minimum Required - Basel III Fully Phased-In (*)
 
Required to be Considered Well Capitalized
Capital Amount
 
Ratio
 
Capital Amount
 
Ratio
 
Capital Amount
 
Ratio
 
Capital Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CET 1 Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     City Holding Company
$
345,620

 
13.7
%
 
$
113,919

 
4.5
%
 
$
177,207

 
7.0
%
 
$
164,549

 
6.5
%
     City National Bank
264,812

 
10.5
%
 
113,209

 
4.5
%
 
176,103

 
7.0
%
 
163,524

 
6.5
%
Tier 1 Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     City Holding Company
361,620

 
14.3
%
 
151,891

 
6.0
%
 
215,180

 
8.5
%
 
202,522

 
8.0
%
     City National Bank
288,752

 
11.5
%
 
150,945

 
6.0
%
 
213,839

 
8.5
%
 
201,260

 
8.0
%
Total Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     City Holding Company
382,180

 
15.1
%
 
202,522

 
8.0
%
 
265,810

 
10.5
%
 
253,152

 
10.0
%
     City National Bank
308,804

 
12.3
%
 
201,260

 
8.0
%
 
264,154

 
10.5
%
 
251,575

 
10.0
%
Tier 1 Leverage Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     City Holding Company
361,620

 
10.2
%
 
142,521

 
4.0
%
 
142,521

 
4.0
%
 
178,151

 
5.0
%
     City National Bank
288,752