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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
For Annual and Transition Reports Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2001.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period __________ to __________.
Commission File Number 0-11733
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)
West Virginia 55-0619957
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
25 Gatewater Road
Charleston, West Virginia 25313
(Address of principal offices)
Registrant's telephone number,
including area code: (304) 769-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered:
None. None.
- ------------------------------ -----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$2.50 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 8, 2002 was $240,135,579. As of March 8, 2002, there
were 16,887,934 shares of the Company's common stock outstanding. (Registrant
has assumed that all of its executive officers and directors are affiliates.
Such assumption shall not be deemed to be conclusive for any other purpose.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to security holders for the fiscal year ended
December 31, 2001 are incorporated by reference into Parts I and II. Portions
of the proxy statement for the 2002 annual shareholders' meeting are
incorporated by reference into Part III.
1
FORM 10-K INDEX
---------------
PART I Page
----
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes In and Disagreements with Accountants 12
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial 12
Owners and Management
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and 13
Reports on Form 8-K
Signatures 14-15
Exhibit Index 16-18
2
PART I
ITEM 1 BUSINESS
- ------------------
City Holding Company ("the Company"), a West Virginia corporation
headquartered in Charleston, West Virginia, is a bank holding company that
provides diversified financial products and services to consumers and local
businesses. Through its network of 55 banking offices in West Virginia (53
offices) and Ohio (2 offices), the Company provides credit, deposit, trust, and
insurance products and services to its customers. In addition to its branch
network, the Company's delivery channels include ATMs, check cards,
telemarketing, direct mail solicitation, interactive voice response systems,
and internet technology. The Company has approximately 8% of the deposit market
share in West Virginia and is the third largest bank holding company
headquartered in West Virginia based on deposit size. In the Company's key
markets, it maintains the first, second, or third largest percentage of deposit
market share.
The Company historically has operated three business segments (community
banking, mortgage banking, and other financial services) that were primarily
identified by the products or services offered and the delivery channels
through which the products or services were delivered. The Company also
maintained a general corporate business segment that included the operations of
the Parent Company, which typically provided operational and managerial support
to the three operating business segments. During 2001, however, the Company
completed a comprehensive reorganization that dramatically changed the
Company's business model and refocused attention and resources on the Company's
core West Virginia community banking franchise. As further outlined below, the
operations that historically comprised the non-community banking operations of
the Company were either sold or closed during 2001. As of December 31, 2001,
the Company's sole operating subsidiary is City National Bank of West Virginia
("City National").
COMMUNITY-BANKING
In November 2001, the Company completed the sale of Del Amo Savings Bank,
FSB and Frontier Bancorp, which comprised the Company's California banking
operations. Combined, the California banking operations represented less than
10% of the total assets of the community banking segment.
City National, headquartered in Charleston, West Virginia, operates 53
offices in West Virginia and 2 offices in Ohio. City National provides
traditional banking products and services, including credit, deposit, trust,
insurance, and other related services. No portion of City National's deposits
are derived from a single person or persons, the loss of which could have a
material adverse effect on liquidity, capital, or other elements of financial
performance. Although no portion of City National's loan portfolio is
concentrated within a single industry or group of related industries, it
historically has held residential mortgage loans as a significant portion of its
loan portfolio. At December 31, 2001, 52% of the Company's loan portfolio was
categorized as residential mortgage loans. However, due to the fractionated
nature of residential mortgage lending, there is no concentration of credits
that would be considered detrimental to the Company's financial position or
operating results.
MORTGAGE BANKING
The mortgage banking segment generally included the Company's operations
that were devoted to the origination, acquisition, servicing, and sale of
mortgage loan products. In December 2000, the Company sold its mortgage
servicing rights associated with $1.10 billion, or 91.67%, of the Company's
specialty finance loan servicing portfolio. During 2001, the Company completed
the transfer of the sold servicing portfolio. However, due, in part, to the
complexity of the underlying servicing agreements, the Company retained
approximately 8.33% of its December 31, 2000 servicing portfolio. The Company
continues to pursue alternatives to dispose of the remaining loan servicing
portfolio, which had a balance of approximately $66.69 million as of December
31, 2001. There are no mortgage servicing rights associated with the loans
serviced for others and the loans are not included in the Company's
Consolidated Balance
3
Sheets. During the second quarter of 2001, the Company closed its two remaining
loan production offices in Maryland and Georgia, completing the Company's exit
from mortgage banking activities.
OTHER FINANCIAL SERVICES
During 2001, the Company sold its internet service and direct mail
divisions and substantially completed the sale of its investment brokerage
accounts. These operations, plus the operations of City National's insurance
division, historically comprised the other financial services business segment.
In conjunction with the Company's reorganization during 2001, the Company has
aligned the operations of its insurance division with the traditional products
and services offered by City National.
GENERAL CORPORATE SERVICES
In addition to the Company's community banking, mortgage banking, and
other financial services business segments, the Company's general corporate
business segment, which primarily included the Parent Company, historically
provided operational and managerial support to the other business segments.
The results of operations of each of the Company's business lines for
2001, 2000, and 1999 are included in their respective business segments as
defined above and as historically reported. However, having completed its
comprehensive reorganization during 2001, these individual business segments
will cease to exist beginning January 1, 2002. The following tables summarize
selected segment information for each of the last three years:
Other
(in thousands) Community Mortgage Financial General
Banking Banking Services Corporate Eliminations Consolidated
----------------------------------------------------------------------------------
2001
- ----
Net interest income (expense) $ 99,683 $ (6,774) $ (60) $ (1,784) $ - $ 91,065
Provision for loan losses 32,178 - - - - 32,178
---------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses 67,505 (6,774) (60) (1,784) - 58,887
Other income 28,398 2,528 7,935 7,294 (3,303) 42,852
Other expenses 97,170 7,181 7,142 6,215 (3,303) 114,405
---------------------------------------------------------------------------------
(Loss) Income before income taxes
and cumulative effect of accounting
change (1,267) (11,427) 733 (705) - (12,666)
Income tax (benefit) expense (231) (4,836) 555 (139) - (4,651)
Cumulative effect of accounting change,
net of tax - (17,985) - - - (17,985)
---------------------------------------------------------------------------------
Net (loss) income $ (1,036) $(24,576) $ 178 $ (566) $ - $ (26,000)
=================================================================================
Average assets $2,430,768 $105,813 $ 6,518 $ 7,837 $(118,587) $2,432,349
=================================================================================
2000
- ----
Net interest income (expense) $ 102,916 $(11,302) $ (289) $ (2,169) $ - $ 89,156
Provision for loan losses 25,480 - - - - 25,480
---------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses 77,436 (11,302) (289) (2,169) - 63,676
Other income 12,421 13,729 12,921 3,629 (8,136) 34,564
Other expenses 91,369 40,668 19,536 8,906 (8,136) 152,343
---------------------------------------------------------------------------------
Loss before income taxes (1,512) (38,241) (6,904) (7,446) - (54,103)
Income tax expense (benefit) 1,643 (15,283) (285) (1,806) - (15,730)
---------------------------------------------------------------------------------
Net loss $ (3,155) $(22,958) $ (6,619) $ (5,640) $ - $ (38,373)
=================================================================================
Average assets $2,732,085 $176,111 $ 13,085 $ 9,583 $(153,845) $2,777,019
=================================================================================
4
Other
(in thousands) Community Mortgage Financial General
Banking Banking Services Corporate Eliminations Consolidated
-------------------------------------------------------------------------------------
1999
- ----
Net interest income (expense) $ 105,381 $ (5,273) $ (171) $ (1,517) $ - $ 98,420
Provision for loan losses 19,286 - - - - 19,286
-------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses 86,095 (5,273) (171) (1,517) 79,134
Other income 29,850 22,523 12,495 64 (5,397) 59,535
Other expenses 80,387 33,528 14,792 7,304 (5,397) 130,614
-------------------------------------------------------------------------------------
Income (loss) before income taxes 35,558 (16,278) (2,468) (8,757) - 8,055
Income tax expense (benefit) 12,920 (5,995) (808) (4,275) - 1,842
-------------------------------------------------------------------------------------
Net income (loss) $ 22,638 $ (10,283) $ (1,660) $ (4,482) $ - $ 6,213
=====================================================================================
Average assets $ 2,572,162 $ 306,819 $ 13,381 $ 12,697 $(186,327) $2,718,732
=====================================================================================
Internal warehouse funding between the community banking segment and the
mortgage banking and other financial services segments is eliminated in
the Consolidated Balance Sheets. Services provided to the banking segments
by the direct mail, insurance, and internet service provider divisions are
eliminated in the Consolidated Statements of Income.
OTHER BUSINESS MATTERS
The Company's business is not seasonal and has no foreign sources or
applications of funds. There are no anticipated material capital expenditures,
or any expected material effects on earnings or the Company's competitive
position as a result of compliance with federal, state and local provisions
enacted or adopted relating to environmental protection.
COMPETITION
As noted previously, the Company's principal markets are located in West
Virginia. The majority of the Company's banking offices are located in the
higher-populated areas of Charleston, Huntington, Beckley and Martinsburg where
there is a significant presence of other financial service providers. In its
markets, the Company competes with national, regional, and local community
banks for deposit, credit, trust, and insurance customers. In addition to
traditional banking organizations, the Company competes with credit unions,
finance companies, insurance companies and other financial service providers
who are able to provide specialty financial services to targeted customer
groups. As further discussed below, changes in laws and regulations enacted in
recent years have increased the competitive environment the Company faces to
retain and attract customers.
REGULATION AND SUPERVISION
Overview: The Company, as a registered bank holding company, and City
National, as an insured depository institution, operate in a highly regulated
environment and are regularly examined by federal and state regulators. The
following description briefly discusses certain provisions of federal and state
laws and certain regulations and the potential impact of such provisions to
which the Company and its subsidiaries are subject. These federal and state
laws and regulations are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the Federal Deposit Insurance
Corporation's insurance fund and are not intended to protect the Company's
security holders. Proposals to change the laws and regulations governing the
banking industry are frequently raised in Congress, in state legislatures, and
before the various bank regulatory agencies. The likelihood and timing of any
changes and the impact such changes might have on the Company are impossible to
determine with any certainty. A change in applicable laws or regulations, or a
change in the way such laws or regulations are interpreted by regulatory
agencies or courts, may have a material impact on the business, operations and
earnings of the Company.
5
To the extent that the following information describes statutory or regulatory
provisions, it is qualified entirely by reference to the particular statutory
or regulatory provision.
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended (the "BHCA"), the Company is subject to regulation by the
Federal Reserve Board. Federal banking laws require bank holding companies to
serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so otherwise. Additionally, the Federal
Reserve Board has jurisdiction under the BHCA to approve any bank or nonbank
acquisition, merger or consolidation proposed by a bank holding company. The
BHCA generally limits the activities of a bank holding company and its
subsidiaries to that of banking, managing or controlling banks, or any other
activity that is so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. The BHCA also prohibits a bank
holding company, with certain exceptions, from acquiring more than 5% of the
voting shares of any company and from engaging in any business other than
banking or managing or controlling banks. The Federal Reserve Board has by
regulation determined that certain activities are closely related to banking
within the meaning of the BHCA. These activities include: operating a mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing investment and financial advice;
and acting as an insurance agent for certain types of credit-related insurance.
Recent Changes in Regulations: The Gramm-Leach-Bliley Act (" Gramm-Leach")
became law in November 1999. Gramm-Leach established a comprehensive framework
to permit affiliations among commercial banks, investment banks, insurance
companies, securities firms, and other financial service providers. Gramm-Leach
permits qualifying bank holding companies to register with the Federal Reserve
Board as "financial holding companies" and allows such companies to engage in a
significantly broader range of financial activities than were historically
permissible for bank holding companies. Although the Federal Reserve Board
provides the principal regulatory supervision of financial services permitted
under Gramm-Leach, the Securities and Exchange Commission and state regulators
also provide substantial supervisory oversight. In addition to broadening the
range of financial services a bank holding company may provide, Gramm-Leach
also addressed customer privacy and information sharing issues and set forth
certain customer disclosure requirements. Given the Company's formal agreement
with the OCC, as discussed below, the Company has no current plans to petition
the Federal Reserve Board for consideration as a financial holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") permits bank holding companies to acquire banks located in any
state. Riegle-Neal also allows national banks and state banks with different
home states to merge across state lines and allows branch banking across state
lines, unless specifically prohibited by state laws.
Capital Adequacy: Federal banking regulations set forth capital adequacy
guidelines, which are used by regulatory authorities to assess the adequacy of
capital in examining and supervising a bank holding company and its insured
depository institutions. The capital adequacy guidelines generally require bank
holding companies to maintain total capital equal to at least 8% of total
risk-adjusted assets, with at least one-half of total capital consisting of
core capital (i.e. Tier I capital) and the remaining amount consisting of
"other" capital-eligible items (i.e. Tier II capital), such as perpetual
preferred stock, certain subordinated debt, and, subject to limitations, the
allowance for loan losses. Tier I capital generally includes common
stockholders' equity plus, within certain limitations, perpetual preferred
stock and trust preferred securities. For purposes of computing risk-based
capital ratios, bank holding companies must meet specific capital guidelines
that involve quantitative measures of assets, liabilities and certain
off-balance sheet items, calculated under regulatory accounting practices. The
Company's and City National's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
In addition to total and Tier I capital requirements, regulatory
authorities also require bank holding companies and insured depository
institutions to maintain a minimum leverage capital ratio of 3%. The leverage
ratio is determined as the ratio of Tier I capital to total average assets,
where average assets
6
exclude goodwill, other intangibles, and other specifically excluded assets.
Regulatory authorities have stated that minimum capital ratios are adequate for
those institutions that are operationally and financially sound, experiencing
solid earnings, have high levels of asset quality and are not experiencing
significant growth. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels. In those instances where these criteria are not evident, regulatory
authorities expect, and may require, bank holding companies and insured
depository institutions to maintain higher than minimum capital levels.
Additionally, federal banking laws require regulatory authorities to take
"prompt corrective action" with respect to depository institutions that do not
satisfy minimum capital requirements. The extent of these powers depends upon
whether the institutions in question are "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" or
"critically undercapitalized", as such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies. As an example, a depository institution that is not well capitalized
is generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. Additionally,
a depository institution is generally prohibited from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company, may be subject to asset growth limitations and may be
required to submit capital restoration plans if the depository institution is
considered undercapitalized.
At December 31, 2001, the Company's total capital, Tier I capital, and
leverage ratios were 13.10%, 9.38%, and 6.92%, respectively. Similarly, City
National's total capital, Tier I capital, and leverage ratios were 13.71%,
12.44%, and 9.76%. Despite these relatively strong capital ratios, City
National cannot be categorized as "well capitalized" under its formal agreement
with the OCC discussed below. Any bank that has entered into a formal agreement
with the OCC is precluded from being categorized as "well capitalized",
regardless of its capital ratios.
In November 2001, regulatory agencies issued new guidelines changing
regulatory capital standards to address the treatment of, among other things,
retained interests for purposes of computing regulatory capital ratios. In
general, the new guidelines require an increased allocation of regulatory
capital to assets such as retained interests in securitized mortgage loans and
the new rules limit the amount of retained interests financial institutions may
include in regulatory capital. Although the new rule becomes effective January
1, 2002, institutions that completed transactions impacted by the new rule
before December 31, 2001 may delay application of the new standard until
December 31, 2002. Had the Company been required to comply with the new rule as
of December 31, 2001, the Company estimates that its total capital, Tier I
capital and leverage ratios would have approximated 11.43%, 7.65%, and 5.84%,
respectively. Similarly, City National estimates that its total capital, Tier
I capital, and leverage ratios would have been 12.31%, 10.87%, and 9.13%,
respectively as of December 31, 2001, which are in excess of the aforementioned
"well capitalized" ratios.
Dividends and Other Payments: The Company is a legal entity separate and
distinct from City National. Dividends from City National are essentially the
sole source of cash for the Company. The right of the Company, and shareholders
of the Company, to participate in any distribution of the assets or earnings of
City National through the payment of such dividends or otherwise is necessarily
subject to the prior claims of creditors of City National, except to the extent
that claims of the Company in its capacity as a creditor may be recognized.
Moreover, there are various legal limitations applicable to the payment of
dividends to the Company as well as the payment of dividends by the Company to
its shareholders. Under federal law, City National may not, subject to certain
limited expectations, make loans or extensions of credit to, or invest in the
securities of, or take securities of the Company as collateral for loans to any
borrower. City National is also subject to collateral security requirements for
any loans or extensions of credit permitted by such exceptions.
City National is subject to various statutory restrictions on its ability
to pay dividends to the Company. Specifically, the approval of the OCC is
required prior to the payment of dividends by City National in
7
excess of its earnings retained in the current year plus retained net profits
for the preceding two years. The payment of dividends by the Company and City
National may also be limited by other factors, such as requirements to maintain
adequate capital above regulatory guidelines. The OCC has the authority to
prohibit any bank under its jurisdiction from engaging in an unsafe and unsound
practice in conducting its business. Depending upon the financial condition of
City National, the payment of dividends could be deemed to constitute such an
unsafe or unsound practice. The Federal Reserve Board and the OCC have
indicated their view that it generally would be an unsafe and unsound practice
to pay dividends except out of current operating earnings. The Federal Reserve
Board has stated that, as a matter of prudent banking, a bank or bank holding
company should not maintain its existing rate of cash dividends on common stock
unless (1) the organization's net income available to common shareholders over
the past year has been sufficient to fund fully the dividends and (2) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
Moreover, the Federal Reserve Board has indicated that bank holding companies
should serve as a source of managerial and financial strength to their
subsidiary banks. Accordingly, the Federal Reserve Board has stated that a bank
holding company should not maintain a level of cash dividends to its
shareholders that places undue pressure on the capital of bank subsidiaries, or
that can be funded only through additional borrowings or other arrangements
that may undermine the bank holding company's ability to serve as a source of
strength.
As a result of the net losses reported at both the consolidated and bank
levels in 2001 and 2000, neither the Company nor City National is permitted to
pay dividends without obtaining prior regulatory approval. Therefore, the
Company has suspended the payment of dividends to its common shareholders and
has deferred the payment of interest on its trust preferred securities. In
accordance with the terms of the trust preferred securities, the Company may
elect to defer interest payments for up to five years so long as there has been
no event of default, which includes bankruptcy, failure to pay principal
payments when due, and other events as defined in the documents governing the
issuances of the trust preferred securities. Distributions on the trust
preferred securities are cumulative and accrue interest at interest rates
equivalent to the stated interest rates for each issue.
Formal Agreement: On July 12, 2000, the Company announced that City
National had entered into a formal agreement with the OCC. The agreement
required City National to adopt a three-year comprehensive strategic plan,
improve its loan portfolio management, and develop and adhere to a written plan
for liquidity, including a formal asset and liability management policy. City
National also agreed to incorporate liquidity planning in its financial
management process, implement a satisfactory program to manage interest rates,
and ensure full compliance of its securitization program with recent OCC
regulations. Additionally, City National agreed to develop a plan to dispose
of loans held for sale that are held in excess of 90 days, develop a three-year
capital plan, strengthen internal controls and its audit committee, and
establish a program to maintain an adequate allowance for loan and lease
losses. Additionally, as a consequence of entering into this agreement, City
National became subject to certain FDIC restrictions regarding the issuance of
brokered deposits. City National also agreed to maintain its regulatory total
capital ratio above 10.00% and to establish a committee of its Board of
Directors to oversee compliance with the agreement.
Subsequent to the date of the agreement, City National established a
compliance oversight committee, which meets regularly to determine the status
of compliance with the agreement. City National and the Company also adopted a
three-year comprehensive strategic plan; formalized its policies and procedures
related to asset and liability management, including liquidity and interest
rate risk issues; formalized policies and procedures associated with its
securitization program to ensure compliance with OCC regulations; disposed of
substantially all of its loans held for sale that had been held in excess of 90
days and transferred the unsold loans to the permanent portfolio at estimated
fair market value; and developed a three-year capital plan.
In September 2001, City National entered into a new, less comprehensive,
formal agreement with the OCC that replaced the July 12, 2000 formal agreement.
The revised agreement, which was developed based on the results of the April
2001 regulatory examination of City National, primarily focuses on lending
policies and procedures and on certain aspects of City National's methodology
for assessing the adequacy of its
8
allowance for loan losses. Management continues to devote considerable time and
resources toward complying with the requirements of the revised formal
agreement.
GOVERNMENTAL POLICIES
The Federal Reserve Board regulates money and credit and interest rates in
order to influence general economic conditions. These policies have a
significant influence on overall growth and distribution of bank loans,
investments and deposits and affect interest rates charged on loans or paid for
time and savings deposits. Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
Various other legislation, including proposals to overhaul the banking
regulatory system and to limit the investments that a depository institution
may make with insured funds are from time to time introduced in Congress. The
Company cannot determine the ultimate effect that such potential legislation,
if enacted, would have upon its financial condition or operations.
EMPLOYEES
As of December 31, 2001, City Holding Company employed 840 associates.
Employee relations within the Company are considered to be satisfactory.
9
STATISTICAL INFORMATION
The information noted below is provided pursuant to Guide 3 -- Statistical
Disclosure by Bank Holding Companies. Page references are to the Annual Report
to Shareholders for the year ended December 31, 2001 and such pages have been
filed as an exhibit to this Form 10-K and are incorporated herein by reference.
Page
Description of Information Reference
- -------------------------- ---------
1. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential
a. Average Balance Sheets 5
b. Analysis of Net Interest Earnings 6
c. Rate Volume Analysis of Changes in 7
Interest Income and Expense
2. Investment Portfolio
a. Book Value of Investments 13
b. Maturity Schedule of Investments 13
c. Securities of Issuers Exceeding 10% of 13
Stockholders' Equity
3. Loan Portfolio
a. Types of Loans 13
b. Maturities and Sensitivity to Changes in Interest Rates 14
c. Risk Elements 17
d. Other Interest Bearing Assets N/A
4. Summary of Loan Loss Experience 16
5. Deposits
a. Breakdown of Deposits by Categories, Average Balance 5
and Average Rate Paid
b. Maturity Schedule of Time Certificates of Deposit 19
and Other Time Deposits of $100,000 or More
6. Return on Equity and Assets 2-3
10
ITEM 2 PROPERTIES
- -------------------
City National owns the Company's executive offices, located at 25
Gatewater Road, Charleston, West Virginia. City National operates 55 branch
offices, with 53 locations in West Virginia and two offices in southeastern
Ohio. The West Virginia locations are primarily centered in the Charleston,
Huntington, Beckley, and Martinsburg markets. City National owns thirty-eight
locations and leases seventeen locations, pursuant to operating leases. All of
the properties are suitable and adequate for their current operations and are
generally being fully utilized.
As of December 31, 2001, City National also maintained office space in
Costa Mesa, California and Roanoke, Texas, pursuant to lease agreements that
expire in May 2003 and March 2002, respectively. Both locations had
historically housed mortgage banking operations of City National. With the
Company's exit from its mortgage banking activities, it exited these locations
and entered into agreements to sublease the office space to other companies.
As part of the Company's restructuring during 2001, it closed certain
branch locations and operational facilities. The carrying value of the land,
buildings, and related capital improvements on the dates the facilities were
closed approximated $4.04 million. The Company estimated the fair value, less
cost to sell, of these properties at $2.35 million and recorded a $1.69 million
loss in 2001 within the Non-Interest Expense section of its Consolidated
Statements of Income. One of the properties was sold prior to December 31, 2001
and the Company is actively marketing the remaining properties, with an
expectation of selling the remaining properties during 2002. As of December 31,
2001, the carrying amount of the properties not sold approximated $2.02 million.
ITEM 3 LEGAL PROCEEDINGS
- --------------------------
On December 28, 2001, the Company, its previous management team, and
members of the Board of Directors of both the Company and City National were
named in a derivative action filed by a shareholder seeking to recover damages
on behalf of the Company. The Company, members of its previous management team
and the Directors of both the Company and City National have retained counsel,
but the case is in the early stages and it would be premature to forecast the
outcome. However, the defendants intend to defend the action vigorously.
The Company recorded a $3.00 million charge against earnings during the
third quarter of 2001 to accrue costs associated with litigation involving
operations the Company has either sold or closed. In addition, the Company is
engaged in various legal actions that it deems to be in the ordinary course of
business. The Company believes that it has adequately provided for the
potential costs of current litigation. Nevertheless, there can be no assurance
that current actions will have immaterial results or that no material actions
may be presented in the future.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Pages 2 and 39 of the Annual Report to Shareholders of City Holding
Company for the year ended December 31, 2001, included in this report as
Exhibit 13, are incorporated herein by reference.
11
ITEM 6 SELECTED FINANCIAL DATA
- -----------------------------------
Selected Financial Data on page 1 of the Annual Report to Shareholders of
City Holding Company for the year ended December 31, 2001, included in this
report as Exhibit 13, is incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 2 through 21 of the Annual Report to Shareholders of City
Holding Company for the year ended December 31, 2001, included in this report
as Exhibit 13, is incorporated herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Information appearing under the caption "Market Risk Management" appearing
on pages 10 and 11 of the Annual Report to Shareholders of City Holding Company
for the year ended December 31, 2001, included in this report as Exhibit 13, is
incorporated herein by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The report of independent auditors and consolidated financial statements,
included on pages 22 through 45 of the Annual Report to Shareholders of City
Holding Company for the year ended December 31, 2001, included in this report
as Exhibit 13, are incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
- --------------------------------------------------------
The information required by Item 10 of FORM 10-K appears in the Company's
2002 Proxy Statement, to be filed within 120 days of fiscal year end, under the
captions "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF CITY HOLDING
COMPANY".
ITEM 11 EXECUTIVE COMPENSATION
- --------------------------------
The information required by Item 11 of FORM 10-K appears in the Company's
2002 Proxy Statement, to be filed within 120 days of fiscal year end, under the
caption "EXECUTIVE COMPENSATION".
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by Item 12 of FORM 10-K appears in the Company's
2002 Proxy Statement, to be filed within 120 days of fiscal year end, under the
caption "STOCK OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND NAMED
EXECUTIVE OFFICERS".
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by Item 13 of FORM 10-K appears in the Company's
2002 Proxy Statement, to be filed within 120 days of fiscal year end, under the
caption "CERTAIN TRANSACTIONS INVOLVING DIRECTORS AND EXECUTIVE OFFICERS".
12
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------------
(a) Financial Statements Filed; Financial Statement Schedules
-------------------------- -----------------------------
The following consolidated financial statements of City Holding
Company and subsidiaries, included in the Company's Annual Report
to Shareholders for the year ended December 31, 2001, are
incorporated by reference in Item 8:
Page Number
-----------
Report of Independent Auditors 22
Consolidated Balance Sheets - December 31, 2001 and 2000 23
Consolidated Statements of Income - Years Ended
December 31, 2001, 2000, and 1999 24-25
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 2001, 2000 and 1999 26
Consolidated Statements of Cash Flows -
Years Ended December 31, 2001, 2000 and 1999 27
Notes to Consolidated Financial Statements -
December 31, 2001 28-45
(b) Reports on Form 8-K:
--------------------
On October 12, 2001, the Company filed a Current Report on Form
8-K, announcing that its principal subsidiary, City National Bank of
West Virginia, had entered into a revised formal agreement with the
Office of the Comptroller of the Currency undertaking to implement
remedial action in a number of areas. The new agreement recognizes
areas of compliance under the formal agreement signed in July 2000,
and replaces that agreement.
On December 11, 2001, the Company filed a Current Report
on Form 8-K, announcing that it had entered into an agreement with
Ferris, Baker Watts to provide investment services, including mutual
funds and brokerage services to its customers. Ferris, Baker Watts
will acquire all of the broker dealer accounts of City Financial
Corporation, the investment services arm of the Company, under a
revenue sharing arrangement. The Company also announced that the sale
of its California subsidiaries, Del Amo Savings Bank and Frontier
Bancorp (parent of Frontier State Bank) to First Federal Bank of
California had been completed. Additionally, the Company announced
that dividend payments on the City Holding Company Trust I Preferred
Stock scheduled for April 1, 2002 would be deferred. Dividend
payments on the City Holding Company Trust Preferred II Stock
scheduled for April 30, 2002 will also be deferred.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index included herein are
filed herewith or incorporated by reference from previous filings.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
City Holding Company
-------------------------------------
(Registrant)
/s/ Gerald R. Francis
-------------------------------------
Gerald R. Francis
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Charles R. Hageboeck
-------------------------------------
Charles R. Hageboeck
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ Michael D. Dean
-------------------------------------
Michael D. Dean
Senior Vice President - Finance
and Chief Accounting Officer
(Principal Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of
1934, this report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated
on March 13, 2002. Each of the directors and/or officers of City
Holding Company whose signature appears below hereby appoints Gerald
R. Francis and/or Charles R. Hageboeck, as his attorney-in-fact to
sign in his name and behalf, in any and all capacities stated below
and to file with the Commission, any and all amendments to this
report on Form 10-K, making such changes in this report on Form 10-K
as appropriate, and generally to do all such things in their behalf
in their capacities as officers and directors to enable City Holding
Company to comply with the provisions of the Securities Exchange Act
of 1934, and all requirements of the Securities and Exchange
Commission.
/s/ Philip L. McLaughlin /s/ David E. Haden
- ----------------------------------- -----------------------------
Philip L. McLaughlin David E. Haden
Chairman Director
/s/ Samuel M. Bowling /s/ David W. Hambrick
- ----------------------------------- ------------------------------
Samuel M. Bowling David W. Hambrick
Vice Chairman Director
-14-
/s/ Gerald R. Francis /s/ Tracy W. Hylton, II
- ---------------------------------- -----------------------------
Gerald R. Francis Tracy W. Hylton, II
President, Chief Executive Officer Director
and Director
/s/ Hugh R. Clonch /s/R. T. Rogers
- ---------------------------------- -----------------------------
Hugh R. Clonch R. T. Rogers
Director Director
/s/James L.Rossi
- ---------------------------------- -----------------------------
Oshel B.Craigo James L.Rossi
Director Director
/s/William H. File, III /s/Sharon H. Rowe
- ---------------------------------- -----------------------------
William H. File, III Sharon H. Rowe
Director Director
/s/ Robert D. Fisher /s/ James E. Songer, II
- ---------------------------------- -----------------------------
Robert D.Fisher James E. Songer, II
Director Director
/s/Jay C. Goldman /s/ Albert M. Tieche, Jr.
- ---------------------------------- -----------------------------
Jay C. Goldman Albert M. Tieche, Jr.
Director Director
/s/Robert E. Grist /s/ Mary H. Williams
- ---------------------------------- -----------------------------
Robert E. Grist Mary H. Williams
Director Director
/s/Frank S. Harkins, Jr. /s/ C. Dallas Kayser
- ---------------------------------- -----------------------------
Frank S. Harkins, Jr. C. Dallas Kayser
Director Director
/s/ E.M. Payne III
- ----------------------------------
E.M. Payne, III
Director
-15-
EXHIBIT INDEX
The following exhibits are filed herewith or are incorporated herein
by reference.
Exhibit Description
- ------- -----------
3(a) Articles of Incorporation of City Holding Company (attached to, and
incorporated by reference from Amendment No. 1 to City Holding
Company's Registration Statement on Form S-4, Registration No.
2-86250, filed November 4, 1983 with the Securities and Exchange
Commission).
3(b) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated March 6, 1984 (attached to, and incorporated
by reference from City Holding Company's Form 8-K Report dated
March 7, 1984, and filed with the Securities and Exchange
Commission on March 22, 1984).
3(c) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated March 4, 1986 (attached to, and incorporated
by reference from City Holding Company's Form 10-K Annual Report
for the year ended December 31, 1986, filed March 31, 1987 with the
Securities and Exchange Commission).
3(d) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated September 29, 1987 (attached to and
incorporated by reference from City Holding Company's Registration
Statement on Form S-4, Registration No. 33-23295, filed with the
Securities and Exchange Commission on August 3, 1988).
3(e) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated May 6, 1991 (attached to, and incorporated
by reference from City Holding Company's Form 10-K Annual Report
for the year ended December 31, 1991, filed March 17, 1992 with the
Securities and Exchange Commission).
3(f) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated May 7, 1991 (attached to, and incorporated
by reference from City Holding Company's Form 10-K Annual Report
for the year ended December 31, 1991, filed March 17, 1992 with the
Securities and Exchange Commission).
3(g) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated August 1, 1994 (attached to, and
incorporated by reference from City Holding Company's Form 10-Q
Quarterly Report for the quarter ended September 30, 1994, filed
November 14, 1994 with the Securities and Exchange Commission).
3(h) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated December 9, 1998 (attached to, and
incorporated by reference from, City Holding Company's Form 10-K
Annual Report for the year ended December 31, 1998, filed March 31,
1999 with the Securities and Exchange Commission).
3(i) Amended and Restated Bylaws of City Holding Company (attached to,
and incorporated by reference from City Holding Company's Form 10-K
Annual Report for the year ended December 31, 2000, filed March 30,
2001 with the Securities and Exchange Commission).
3(j) Articles of Amendment to the Articles of Incorporation of City
Holding Company, dated June 13, 2001 (attached to, and incorporated
by reference from, City Holding Company's Registration Statement on
Form 8-A, filed June 22, 2001 with the Securities and Exchange
Commission).
-16-
4(a) Rights Agreement, dated as of June 13, 2001, between City Holding
Company and SunTrust Bank, as Rights Agent (attached to, and
incorporated by reference from City Holding Company's Registration
Statement on Form 8-A, filed June 22, 2001 with the Securities and
Exchange Commission).
10(a) Form of Employment Agreement, dated as of December 31, 1998, by and
between City Holding Company and Philip L. McLaughlin (attached to,
and incorporated by reference from, City Holding Company's
Registration Statement on Form S-4, Registration No. 333-64205,
filed with the Securities and Exchange Commission on September 24,
1998).
10(b) Form of Employment and Consulting Agreement, dated as of December
31, 1998, by and between City Holding Company and Frank S. Harkins,
Jr. (attached to, and incorporated by reference from, City Holding
Company's Registration Statement on Form S-4, Registration No.
333-64205, filed with the Securities and Exchange Commission on
September 24, 1998).
10(c) Junior Subordinated Indenture, dated as of March 31, 1998, between
City Holding Company and The Chase Manhattan Bank, as Trustee
(attached to, and incorporated by reference from, City Holding
Company's Registration Statement on Form S-4, Registration No.
333-62419, filed with the Securities and Exchange Commission on
August 28, 1998).
10(d) Form of City Holding Company's 9.15% Debenture due April 1, 2028
(attached to, and incorporated by reference from, City Holding
Company's Registration Statement on Form S-4, Registration No.
333-62419, filed with the Securities and Exchange Commission on
August 28, 1998).
10(e) Form of City Holding Company's 9.125% Debenture due October 31,
2028 (attached to, and incorporated by reference from, the
Pre-Effective Amendment No. 1 to City Holding Company's
Registration Statement on Form S-3, Registration No. 333-64809,
filed with the Securities and Exchange Commission on October 21,
1998).
10(f) City Holding Company's 1993 Stock Incentive Plan (attached to, and
incorporated by reference from, Exhibit 4.1 to City Holding
Company's Registration Statement on Form S-8, Registration No.
333-87667, filed with the Securities and Exchange Commission on
September 23, 1999).
10(g) Amendment No. 1 to City Holding Company's 1993 Stock Incentive Plan
(attached to, and incorporated by reference from, Exhibit 4.2 to
City Holding Company's Registration Statement on Form S-8,
Registration No. 333-87667, filed with the Securities and Exchange
Commission on September 23, 1999).
10(h) Form of Employment Agreement, dated as of January 31, 2001, by and
between City Holding Company and Gerald R. Francis (attached to,
and incorporated by reference from, City Holding Company's Form
10-K Annual Report for the year ended December 31, 2000, filed
March 30, 2001 with the Securities and Exchange Commission).
10(i) Form of Employment Agreement, dated as of April 12, 2001, by and
between City Holding Company and William L. Butcher (attached to,
and incorporated by reference from, City Holding Company's Form
10-Q Quarterly Report for the quarter ended September 30, 2001,
filed November 14, 2001 with the Securities and Exchange
Commission).
10(j) Form of Employment Agreement, dated as of May 15, 2001, by and
between City Holding Company and Craig Stilwell (attached to, and
incorporated by reference from, City Holding Company's Form 10-Q
Quarterly Report for the quarter ended September 30, 2001, filed
November 14, 2001 with the Securities and Exchange Commission).
-17-
10(k) Form of Employment Agreement, dated as of May 16, 2001, by and
between City Holding Company and John S. Loeber (attached to, and
incorporated by reference from, City Holding Company's Form 10-Q
Quarterly Report for the quarter ended September 30, 2001, filed
November 14, 2001 with the Securities and Exchange Commission).
10(l) Form of Employment Agreement, dated as of June 11, 2001, by and
between City Holding Company and Charles R. Hageboeck (attached to,
and incorporated by reference from, City Holding Company's Form
10-Q Quarterly Report for the quarter ended September 30, 2001,
filed November 14, 2001 with the Securities and Exchange
Commission).
11 The information required by Item 14, Exhibit 11 of Form 10-K
appears on page 45 of the Annual Report to Shareholders of City
Holding Company for the year ended December 31, 2001, included in
this report as Exhibit 13 and incorporated herein by reference.
13 Portions of City Holding Company Annual Report to Shareholders for
Year Ended December 31, 2001.
21 Subsidiaries of City Holding Company
23 Consent of Ernst & Young LLP
24 Power of Attorney (included on the signature page hereof)
-18-