City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $6.1 billion bank holding company headquartered in Charleston, West Virginia, today announced quarterly net income of $29.9 million and diluted earnings of $1.98 per share for the quarter ended September 30, 2023. For the third quarter of 2023, the Company achieved a return on assets of 1.94% and a return on tangible equity of 24.1%.

Net Interest Income

The Company’s net interest income increased approximately $0.1 million, or 0.2%, from $55.5 million during the second quarter of 2023 to $55.6 million during the third quarter of 2023. The Company’s tax equivalent net interest income increased $0.1 million, or 0.2%, from $55.8 million for the second quarter of 2023 to $55.9 million for the third quarter of 2023. Due to recent increases in the Federal Funds rate, net interest income increased by $2.6 million due to an increase in loan yields (net of loan fees and accretion) of 22 basis points and by $0.8 million due to an increase in the yield on investment securities of 19 basis points. In addition, net interest income increased $0.8 million due to an increase in balances of loans of $60.6 million from the quarter ended June 30, 2023. These increases were partially offset by an increase in the cost of interest bearing liabilities (26 basis points) which decreased net interest income by $2.4 million and lower balances of deposits in depository institutions of $133.1 million that lowered net interest income by $1.6 million. The Company’s reported net interest margin increased from 4.00% for the second quarter of 2023 to 4.03% for the third quarter of 2023.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned declined slightly from 0.17%, or $6.5 million, at June 30, 2023 to 0.15%, or $6.0 million, at September 30, 2023. Total past due loans increased from $7.4 million, or 0.19% of total loans outstanding, at June 30, 2023, to $10.1 million, or 0.25% of total loans outstanding at September 30, 2023.

As a result of the Company’s quarterly analysis of the adequacy of the allowance for credit losses, the Company recorded a provision for credit losses of $0.2 million in the third quarter of 2023, compared to a provision for credit losses of $0.7 million for the comparable period in 2022, and a provision for credit losses of $0.4 million for the second quarter of 2023. The provision for credit losses in the third quarter was primarily the result of the downgrade of a commercial loan and loan growth partially offset by net recoveries during the quarter.

Non-interest Income

Non-interest income was $17.4 million during the quarter ended September 30, 2023, as compared to $18.2 million during the quarter ended September 30, 2022. During the third quarter of 2023, the Company reported $0.7 million of realized security losses.

Exclusive of the realized security loss, non-interest income decreased $0.1 million, or 0.6%, from $18.2 million for the third quarter of 2022 to $18.1 million for the third quarter of 2023. This decrease was largely attributable to a decrease of $0.4 million, or 4.8%, in service fees that was partially offset by an increase of $0.3 million, or 11.6%, in trust and investment management fee income.

Non-interest Expenses

Non-interest expenses increased $3.5 million, or 11.2%, from $31.5 million in the third quarter of 2022 to $35.0 million in the third quarter of 2023. This increase was largely due to an increase in other expenses of $1.2 million and an increase in salaries and employee benefits of $0.9 million due to the acquisition of Citizens ($0.5 million) and salary adjustments. In addition, bankcard expenses increased $0.8 million and FDIC insurance expenses increased $0.5 million.

Balance Sheet Trends

Gross loans increased $85.3 million (2.2%) from June 30, 2023 to $4.01 billion at September 30, 2023. Commercial real estate loans increased $48.0 million (3.1%) and residential real estate loans increased $21.7 million (1.2%) during the quarter ended September 30, 2023. In addition, home equity loans increased $8.6 million (5.7%) and commercial and industrial loans increased $6.8 million (1.6%).

Period-end deposit balances decreased $69.9 million from June 30, 2023, to September 30, 2023. Total average depository balances decreased $116.8 million, or 2.3%, from the quarter ended June 30, 2023 to the quarter ended September 30, 2023. Average noninterest-bearing demand deposit balances decreased $60.5 million, average savings deposit balances decreased $51.4 million, and interest-bearing demand deposit balances decreased $27.6 million. These decreases were partially offset by an increase in average time balances of $22.7 million.

Income Tax Expense

The Company’s effective income tax rate for the third quarter of 2023 was 21.1% compared to 19.8% for the year ended December 31, 2022 and 21.3% for the quarter ended September 30, 2022.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 81.0% and its loan to asset ratio was 66.0% at September 30, 2023. The Company maintained investment securities totaling 22.8% of assets as of the same date. The Company’s deposit mix is weighted heavily toward checking and saving accounts, which fund 64.8% of assets at September 30, 2023. Time deposits fund 16.6% of assets at September 30, 2023, with only 11.7% of time deposits having balances of more than $250,000, reflecting the core retail orientation of the Company.

City Holding Company is the parent company of City National Bank of West Virginia (“City National”). City National has borrowing facilities with the Federal Reserve Bank and the Federal Home Loan Bank that can be accessed as necessary to fund operations and to provide contingency funding. As of September 30, 2023, City National had the capacity to borrow an additional $1.8 billion from these existing borrowing facilities. In addition, $764.7 million of City National’s investment securities were unpledged at September 30, 2023.

The Company continues to be strongly capitalized with tangible equity of $447 million at September 30, 2023. The Company’s tangible equity ratio decreased slightly from 8.0% at December 31, 2022 to 7.6% at September 30, 2023. At September 30, 2023, City National’s Leverage Ratio was 9.6%, its Common Equity Tier I ratio was 14.7%, its Tier I Capital ratio was 14.7%, and its Total Risk-Based Capital ratio was 15.3%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On September 27, 2023, the Board of Directors of the Company approved a quarterly cash dividend of $0.715 per share payable October 31, 2023, to shareholders of record as of October 13, 2023. This represents a 10.0% increase from the $0.65 per share dividend paid on July 31, 2023. During the quarter ended September 30, 2023, the Company repurchased 109,000 common shares at a weighted average price of $89.33 per share as part of a one million share repurchase plan authorized by the Board of Directors in May 2022. As of September 30, 2023, the Company could repurchase 220,000 additional shares under the current program.

City National operates 99 branches across West Virginia, Kentucky, Virginia, and Ohio. On October 20, 2023, City National closed one of the two branches located in Nicholasville, Kentucky due to the proximity (less than one mile) from an existing City National branch.

Forward-Looking Information

This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements express only management’s beliefs regarding future results or events and are subject to inherent uncertainty, risks, and changes in circumstances, many of which are outside of management’s control. Uncertainty, risks, changes in circumstances and other factors could cause the Company’s actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, but are not limited to those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 under “ITEM 1A Risk Factors” and the following: (1) general economic conditions, especially in the communities and markets in which we conduct our business; (2) credit risk, including risk that negative credit quality trends may lead to a deterioration of asset quality, risk that our allowance for credit losses may not be sufficient to absorb actual losses in our loan portfolio, and risk from concentrations in our loan portfolio; (3) changes in the real estate market, including the value of collateral securing portions of our loan portfolio; (4) changes in the interest rate environment; (5) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; (6) changes in technology and increased competition, including competition from non-bank financial institutions; (7) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers’ performance and creditworthiness; (8) difficulty growing loan and deposit balances; (9) our ability to effectively execute our business plan, including with respect to future acquisitions; (10) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their subsidiaries, including changes in deposit insurance premiums; (11) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions; (12) regulatory enforcement actions and adverse legal actions; (13) difficulty attracting and retaining key employees; and (14) other economic, competitive, technological, operational, governmental, regulatory, and market factors affecting our operations. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made. Further, the Company is required to evaluate subsequent events through the filing of its September 30, 2023 Form 10-Q. The Company will continue to evaluate the impact of any subsequent events on the preliminary September 30, 2023 results and will adjust the amounts if necessary.