CHARLESTON, W. Va.--(BUSINESS WIRE)--City Holding Company (NASDAQ: CHCO):

Filed by City Holding Company
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Poage Bankshares, Inc.
Commission File No.: 001-35295

City Holding Company (“Company” or “City”) (NASDAQ: CHCO), a $4.4 billion bank holding company headquartered in Charleston, today announced record quarterly net income of $21.0 million and diluted earnings of $1.35 per share.

Highlights of the Company’s second quarter performance and results included the following:

• Return on assets and return on tangible equity of 2.00% and 19.9%, respectively.
• Reported net interest income increased $2.3 million from the quarter ended June 30, 2017, while net interest income exclusive of accretion from fair value adjustments increased $2.6 million from the quarter ended June 30, 2017.
• Reported a recovery of loan loss provision of $2.1 million.
• Received the highest ranking in customer satisfaction in the north central region in J.D. Power’s 2018 U.S. Retail Banking Satisfaction Study.

Net Interest Income

The Company’s net interest income increased from $32.6 million during the first quarter of 2018 to $33.6 million during the second quarter of 2018. The Company’s tax equivalent net interest income increased $0.9 million, or 2.8%, from $32.8 million during the first quarter of 2018 to $33.7 million during the second quarter of 2018. Higher yields on commercial and residential real estate loans increased net interest income $1.3 million from the quarter ended March 31, 2018. This increase was partially offset by increased interest expense as a result of higher interest rates on interest bearing liabilities of $0.5 million. The Company’s reported net interest margin improved from 3.51% for the first quarter of 2018 to 3.56% for the second quarter of 2018. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 3.48% for the quarter ended March 31, 2018 and 3.52% for the quarter ended June 30, 2018.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned increased from 0.43% at March 31, 2018 to 0.53% at June 30, 2018. Total nonperforming assets increased from $13.6 million at March 31, 2018 to $16.9 million at June 30, 2018. Nonperforming assets increased during the second quarter of 2018 as a direct result of two specific credits that are each secured by high value residential real estate properties. We anticipate no losses on these two credits. Total past due loans remained flat at $8.2 million, or 0.26% of total loans outstanding, at June 30, 2018.

As a result of the Company’s quarterly analysis of the adequacy of the Allowance for Loan Losses (“ALLL”), the Company recorded a recovery of loan losses of $2.1 million in the second quarter of 2018, compared to a provision for loan losses of $0.5 million for the comparable period in 2017 and a provision for loan losses of $0.2 million for the first quarter of 2018. During the second quarter of 2018, City National Bank of WV (“City National”), a subsidiary of the Company, liquidated repossessed assets associated with the Kentucky Fuels Corporation credit. As a result of the proceeds from this liquidation, City National recovered $1.3 million related to this credit. As of June 30, 2018, Kentucky Fuels Corporation’s remaining contractual balance with City National Bank is $1.3 million, but there is no recorded book balance associated with this loan. Additionally, as a result of this recovery, the historical loss rate used to compute the allowance not specifically allocated to individual credits in the Company’s commercial and industrial mining and energy sector (per North American Industry Classification System (NAICS)) improved and an additional release of reserve of $1.7 million was recognized in the second quarter of 2018. Exclusive of these events, the Company recorded a provision for loan losses of $0.9 million in the second quarter of 2018 which reflects changes in the quality of the portfolio. Changes in the amount of the provision and related allowance are based on the Company’s detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company’s loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.

Non-interest Income

Non-interest income increased from $14.9 million for the second quarter of 2017 to $15.6 million for the second quarter of 2018. This increase was mainly due to an increase in other income of $0.5 million due to unrealized fair market value gains in equity securities, increased service charges of $0.2 million, or 3.5%, and an increase in bankcard revenues of $0.2 million, or 3.7%. These increases were partially offset by a decrease in bank owned life insurance of $0.2 million.

Non-interest Expenses

Non-interest expenses increased $0.7 million, from $24.2 million in the second quarter of 2017 to $24.9 million in the second quarter of 2018. This increase was primarily due to an increase in salaries and employee benefits of $0.8 million which was largely due to annual salary adjustments, including an adjustment to wages for approximately 50% of the Company’s employees late in the first quarter of 2018 to make salaries more competitive in today’s employment environment. This increase was partially offset by a decrease in occupancy expense of $0.1 million and equipment and software related expenses of $0.1 million.

Balance Sheet Trends

Loan balances have increased $28.1 million (0.9%) from December 31, 2017 to $3.16 billion at June 30, 2018. Commercial real estate loans increased $16.9 million (1.3%), commercial and industrial loans increased $5.2 million (2.5%) and residential real estate loans increased $4.6 million (0.3%).

Total average depository balances increased $71.2 million, or 2.1%, from the quarter ended March 31, 2018 to the quarter ended June 30, 2018. The Company experienced increases in time deposits ($27.1 million), noninterest-bearing demand deposits ($23.4 million), savings deposits ($15.7 million), and interest-bearing deposits ($5.1 million).

Income Tax Expense

The Company’s effective income tax rate for the second quarter of 2018 was 20.3% compared to 40.2% for the year ended December 31, 2017, and 31.7% for the quarter ended June 30, 2017. On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“TCJA”) into law. Among other things, the TCJA reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this decrease in the corporate income tax rate, the Company reassessed its deferred tax assets and liabilities, which resulted in a charge to earnings in the fourth quarter of 2017 of $7.1 million. Exclusive of this item, the Company’s tax rate from operations was 32.7% for the year ended December 31, 2017. The effective rate for the second quarter of 2018 is based upon the Company’s expected tax rate for the year ended December 31, 2018.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 92.2% and the loan to asset ratio was 72.1% at June 30, 2018. The Company maintained investment securities totaling 14.7% of assets as of the same date. The Company’s deposit mix is weighted toward checking and saving accounts that fund 52.3% of assets at June 30, 2018. Time deposits fund 25.9% of assets at June 30, 2018, but very few of these deposits are in accounts that have balances of more than $250,000, reflecting the core retail orientation of the Company.

The Company is also strongly capitalized. The Company’s tangible equity ratio decreased from 10.5% at December 31, 2017 to 9.9% at June 30, 2018. At June 30, 2018, City National Bank’s Leverage Ratio was 9.24%, its Common Equity Tier I ratio was 13.26%, its Tier I Capital ratio was 13.26%, and its Total Risk-Based Capital ratio was 13.87%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On June 27, 2018, the Board approved a quarterly cash dividend of $0.46 cents per share payable July 31, 2018, to shareholders of record as of July 13, 2018. During the quarter ended June 30, 2018, the Company repurchased 10,000 common shares at a weighted average price of $69.26 per share as part of a one million share repurchase plan authorized by the Board of Directors in September 2014. As of June 30, 2018, the Company could repurchase approximately 188,000 shares under the current plan.

City Holding Company is the parent company of City National Bank of West Virginia. City National Bank operates 86 branches across West Virginia, Virginia, Kentucky and Ohio.

On July 11, 2018 the Company announced that it had concurrently executed two separate definitive agreements to acquire Poage Bankshares, Inc., (“Poage”), of Ashland, Kentucky and its principal banking subsidiary, Towne Square Bank and Farmers Deposit Bancorp, Inc., (“Farmers Deposit”), of Cynthiana, Kentucky and its principal banking subsidiary, Farmers Deposit Bank. The proposed mergers are expected to close in the fourth quarter of 2018 and the core data system conversions are also targeted to occur in the fourth quarter of 2018. Consummation of the respective mergers is subject to receipt of required regulatory approvals, the approval by the shareholders of Poage and Farmers Deposit, and the completion of other customary closing conditions. Merger expenses are estimated at $18 million (pre-tax) for the Poage transaction and a $6 million (pre-tax) for the Farmers Deposit transaction, while core deposit intangibles are estimated at $4 million for Poage and $1.5 million for Farmers Deposit. Each of the Poage and Farmers Deposit transactions are not conditional upon each other.

During the second quarter of 2018, City National Bank received the highest ranking in customer satisfaction in the north central region in J.D. Power’s 2018 U.S. Retail Banking Satisfaction Study. City National Bank outscored all banks in the north central region, which includes West Virginia, Kentucky, Ohio, Indiana, and Michigan.