City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $6.0 billion bank holding company headquartered in Charleston, West Virginia, today announced quarterly net income of $22.7 million and diluted earnings of $1.47 per share for the quarter ended September 30, 2021. For the third quarter of 2021, the Company achieved a return on assets of 1.53% and a return on tangible equity of 15.7%. For the nine months ended September 30, 2021, City reported net income of $64.7 million, or diluted earnings per share of $4.13.

Charles R. (“Skip”) Hageboeck, the President and Chief Executive Officer of City Holding Company, commented: “While our financial performance is not quite back to pre-COVID levels, City’s financial performance continued on an upward swing in the third quarter of 2021. Net interest income, largely on the strength of fee income related to Government sponsored Paycheck Protection Program (“PPP”) loans, increased $1.6 million from the quarter ended June 30, 2021 and noninterest income, exclusive of security items, was up $1.3 million from the quarter ended September 30, 2020.”

“Asset quality continues to be a hallmark for City with nonperforming assets dropping to below $10 million ($9.0 million or just 0.26% of total loans and other real estate owned). Past due loans and troubled debt restructurings also declined during the quarter ended September 30, 2021. Deferrals on commercial loans have also declined significantly during the quarter to just $15 million and are solely related to hotel and lodging customers.”

“While consumer related lending continues to be challenging with the current interest rate environment, commercial loans grew $36 million, or 2% (8.1% annualized), during the quarter ended September 30, 2021, exclusive of PPP balances. As of September 30, 2021, our PPP balances have declined to $26 million with less than $1 million remaining outstanding from PPP loans originated in 2020 and approximately 45% of loans originated in 2021 already forgiven.”

Net Interest Income

The Company’s net interest income increased from $37.9 million during the second quarter of 2021 to $39.5 million during the third quarter of 2021. The Company’s tax equivalent net interest income increased from $38.3 million for the second quarter of 2021 to $39.8 million for the third quarter of 2021. An increase in loan fees related to PPP loan forgiveness increased net interest income by $0.6 million. In addition, a modest increase in loan yields, due to interest recoveries on previously charged-off loans, increased net interest income by $0.6 million and lower rates paid on time deposits (16 basis points) increased net interest income by $0.4 million. The Company’s reported net interest margin increased from 2.81% for the second quarter of 2021 to 2.89% for the third quarter of 2021. Excluding the favorable impact of the accretion from fair value adjustments, the net interest margin would have been 2.86% for the quarter ended September 30, 2021 and 2.76% for the quarter ended June 30, 2021.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned decreased from 0.32% at June 30, 2021 to 0.26% at September 30, 2021. Total nonperforming assets decreased from $11.4 million at June 30, 2021 to $9.0 million at September 30, 2021. Total past due loans decreased slightly from $7.6 million, or 0.22% of total loans outstanding, at June 30, 2021 to $7.3 million, or 0.21% of total loans outstanding, at September 30, 2021.

As a result of the Company’s quarterly analysis of the adequacy of the allowance for credit losses (“ACL”), the Company recorded a recovery of credit losses of $0.7 million in the third quarter of 2021, compared to a provision for credit losses of $1.0 million for the comparable period in 2020 and a recovery of credit losses of $2.0 million for the second quarter of 2021. Due to adjustments to other qualitative and other factors, the Company partially recovered a portion of the provision for credit losses incurred in the quarter ended March 31, 2020.

Non-interest Income

Non-interest income was $17.9 million for the third quarter of 2021 as compared to $17.0 million for the third quarter of 2020. During the third quarter of 2021, the Company reported $0.1 million of unrealized fair value gains on the Company’s equity securities compared to $0.5 million of unrealized fair value gains on the Company’s equity securities in the third quarter of 2020. Exclusive of these gains, non-interest income increased from $16.5 million for the third quarter of 2020 to $17.8 million for the third quarter of 2021. This increase was largely attributable to higher bankcard revenues ($0.7 million, or 12.0%) and service charges ($0.4 million, or 6.5%). In addition, trust and investment management fee income increased $0.3 million and other income increased $0.2 million from the quarter ended September 30, 2020. These increases were partially offset by a decrease in bank owned life insurance revenues due to lower death benefit proceeds ($0.3 million).

Non-interest Expenses

Non-interest expenses increased $0.5 million (1.6%), from $28.7 million in the third quarter of 2020 to $29.2 million in the third quarter of 2021. This increase was primarily due to an increase in advertising expenses of $0.3 million and telecommunication expenses of $0.2 million.

Balance Sheet Trends

Loans decreased $7.5 million from June 30, 2021 to September 30, 2021, to $3.52 billion. PPP loans decreased $23.5 million from $49.8 million at June 30, 2021 to $26.3 million at September 30, 2021. Excluding outstanding PPP loans (included in the commercial and industrial loan category), total loans increased $16.0 million, (0.5%), from June 30, 2021 to $3.50 billion at September 30, 2021. Commercial real estate loans increased $18.2 million (1.2%) and commercial and industrial loans increased $18.0 million (5.8%) (excluding PPP loans). These increases were partially offset by decreases in residential real estate loans ($14.5 million or 1.0%); home equity loans ($2.8 million or 2.2%); and consumer loans ($1.9 million or 4.2%).

Total average depository balances increased $40.8 million, or 0.8%, from the quarter ended June 30, 2021 to the quarter ended September 30, 2021. Average noninterest-bearing demand deposit balances increased $45.4 million, average savings deposit balances increased $27.5 million, and average interest-bearing demand deposit balances increased $23.3 million. These increases were partially offset by a decrease in time deposit balances of $55.4 million.

Income Tax Expense

The Company’s effective income tax rate for the third quarter of 2021 was 21.6% compared to 19.5% for the year ended December 31, 2020, and 20.2% for the quarter ended September 30, 2020.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 72.1% and the loan to asset ratio was 59.2% at September 30, 2021. The Company maintained investment securities totaling 23.5% of assets as of the same date. The Company’s deposit mix is weighted heavily toward checking and saving accounts, which fund 63.6% of assets at September 30, 2021. Time deposits fund 18.5% of assets at September 30, 2021, 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 continues to be strongly capitalized with tangible equity of $560 million at September 30, 2021. Due primarily to the influx of deposits and share repurchases during the nine months ended September 30, 2021, the Company’s tangible equity ratio decreased from 10.3% at December 31, 2020 to 9.6% at September 30, 2021. At September 30, 2021, City National Bank’s Leverage Ratio was 8.73%, its Common Equity Tier I ratio was 14.61%, its Tier I Capital ratio was 14.61%, and its Total Risk-Based Capital ratio was 15.06%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On September 29, 2021, the Board of Directors of the Company approved a quarterly cash dividend of $0.58 per share payable October 29, 2021, to shareholders of record as of October 15, 2021. During the quarter ended September 30, 2021, the Company repurchased 337,000 common shares at a weighted average price of $75.65 as part of a one million share repurchase plan authorized by the Board of Directors in March 2021. As of September 30, 2021, the Company could repurchase approximately 446,000 additional shares under the plan.

City Holding Company is the parent company of City National Bank of West Virginia. City National Bank operates 94 branches across West Virginia, Kentucky, Virginia, and Ohio.

Forward-Looking Information

• This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, 2020 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) the uncertainties on the Company’s business, results of operations and financial condition, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its continued influence on financial markets, the effectiveness of the Company’s work from home arrangements and staffing levels in operational facilities, the impact of market participants on which the Company relies and actions taken by governmental authorities and other third parties in response to the pandemic; (3) 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; (4) changes in the real estate market, including the value of collateral securing portions of our loan portfolio; (5) changes in the interest rate environment; (6) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; (7) changes in technology and increased competition, including competition from non-bank financial institutions; (8) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers’ performance and creditworthiness; (9) difficulty growing loan and deposit balances; (10) our ability to effectively execute our business plan, including with respect to future acquisitions; (11) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their subsidiaries; (12) 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; (13) regulatory enforcement actions and adverse legal actions; (14) difficulty attracting and retaining key employees; (15) 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, 2021 Form 10-Q. The Company will continue to evaluate the impact of any subsequent events on the preliminary September 30, 2021 results and will adjust the amounts if necessary.