City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $6.4 billion bank holding company headquartered in Charleston, West Virginia, today announced quarterly net income of $29.8 million and diluted earnings of $2.02 per share for the quarter ended September 30, 2024. In the third quarter of 2024, the Company achieved a return on assets of 1.87% and a return on tangible equity of 20.9%.

Net Interest Income

The Company’s net interest income increased approximately $1.0 million, or 1.8%, from $54.6 million during the second quarter of 2024 to $55.6 million during the third quarter of 2024. The Company’s tax equivalent net interest income increased $1.0 million, or 1.8%, from $54.8 million for the second quarter of 2024 to $55.8 million for the third quarter of 2024. Due to an increase in the yield on loans (7 basis points) and an increase in average loans outstanding ($41.1 million), net interest income increased $1.4 million and $0.6 million, respectively. In addition, net interest income increased $0.4 million due to an increase in the average investment balances ($41.5 million). These increases were partially offset by an increase in the cost of interest bearing liabilities (7 basis points) which decreased net interest income by $0.8 million, and lower average deposits in depository institutions balances ($36.5 million) that lowered net interest income by $0.5 million. The Company’s reported net interest margin remained steady at 3.87% for both the second and third quarters of 2024.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned increased from 0.25%, or $10.2 million, at June 30, 2024 to 0.39%, or $16.2 million, at September 30, 2024. Total past due loans increased slightly from $10.9 million, or 0.26% of total loans outstanding, at June 30, 2024, to $11.3 million, or 0.27% of total loans outstanding at September 30, 2024.

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 $1.2 million in the third quarter of 2024, compared to a provision for credit losses of $0.2 million for the comparable period in 2023, and a provision for credit losses of $0.5 million for the second quarter of 2024. The provision for credit losses in the third quarter was primarily related to a commercial loan for a movie theater that had been originated in September 2014. The loan had paid according to terms but cash flows began deteriorating during the COVID-19 crisis which began in 2020. Due to further operating weaknesses during 2024, the loan was transferred to nonaccrual status and a $2.0 million charge-off was recorded in the quarter ending September 30, 2024, leaving an outstanding balance of approximately $6.7 million. The Company has only one other loan to a movie theater and the outstanding balance of that performing loan is under $5.0 million. This charge-off was partially offset by a $0.75 million reversal of a reserve on a purchase credit deteriorated loan that was paid-off in full during the quarter ended September 30, 2024.

Non-interest Income

Non-interest income was $20.3 million during the quarter ended September 30, 2024, as compared to $17.4 million during the quarter ended September 30, 2023. During the third quarter of 2024, the Company reported $0.4 million of unrealized fair value gains on the Company’s equity securities, as compared to $0.7 million of realized security losses during the third quarter of 2023.

Exclusive of these items, non-interest income increased $1.9 million, or 10.3%, from $18.1 million for the third quarter of 2023 to $20.0 million for the third quarter of 2024. This increase was attributable to an increase of $0.6 million (77.8%) in bank owned life insurance (due to death benefit proceeds), an increase of $0.5 million (21.3%) in trust and investment management fee income, an increase of $0.4 million (5.7%) in service fees, and an increase of $0.3 million (4.1%) in bankcard revenues.

Non-interest Expenses

Non-interest expenses increased $2.6 million, or 7.5%, from $35.0 million in the third quarter of 2023 to $37.6 million in the third quarter of 2024. This increase was largely due to an increase in other expenses of $1.1 million and an increase in salaries and employee benefits of $1.0 million. In addition, equipment and software related expenses increased $0.6 million and advertising expenses increased $0.3 million.

Balance Sheet Trends

Gross loans increased $45.0 million (1.1%) from June 30, 2024 to $4.16 billion at September 30, 2024. Commercial and industrial loans increased $16.1 million (3.9%), commercial real estate loans increased $12.2 million (0.7%), home equity loans increased $10.5 million (5.9%), and residential real estate loans increased $9.3 million (0.5%) during the quarter ended September 30, 2024.

Period-end deposit balances increased $35.4 million, 0.7% from June 30, 2024, to September 30, 2024. Total average depository balances increased $15.5 million, or 0.3%, from the quarter ended June 30, 2024 to the quarter ended September 30, 2024. Average time deposit balances increased $49.2 million and were partially offset by decreases in average savings deposit balances of $28.3 million and decreases in average noninterest-bearing demand deposit balances of $6.9 million.

Income Tax Expense

The Company’s effective income tax rate for the third quarter of 2024 was 19.7% compared to 20.1% for the year ended December 31, 2023 and 21.1% for the quarter ended September 30, 2023.

Capitalization and Liquidity

The Company’s gross loan to deposit ratio was 81.5% and its gross loan to asset ratio was 64.6% at September 30, 2024. The Company maintained investment securities totaling 23.2% of assets as of the same date. The Company’s deposit mix is weighted heavily toward checking and saving accounts, which fund 60.6% of assets at September 30, 2024. Time deposits fund 18.7% of assets at September 30, 2024, with only 14.4% 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. These borrowing facilities are collateralized by various loans held on City National’s balance sheet. As of September 30, 2024, City National had the capacity to borrow an additional $1.6 billion from these existing borrowing facilities. In addition, approximately $765 million of City National’s investment securities were pledged to collateralize customer repurchase agreements and various deposit accounts, leaving approximately $730 million of City National’s investment securities unpledged at September 30, 2024.

The Company continues to be strongly capitalized with tangible equity of $581 million at September 30, 2024. The Company’s tangible equity ratio increased from 8.6% at December 31, 2023 to 9.3% at September 30, 2024. At September 30, 2024, City National’s Leverage Ratio was 10.2%, its Common Equity Tier I ratio was 16.0%, its Tier I Capital ratio was 16.0%, and its Total Risk-Based Capital ratio was 16.5%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On September 25, 2024, the Board of Directors of the Company approved a quarterly cash dividend of $0.79 per share payable October 31, 2024, to shareholders of record as of October 15, 2023. This represents a 10.0% increase from the $0.715 per share dividend paid on July 31, 2024.

City National operates 97 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, 2023 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, 2024 Form 10-Q. The Company will continue to evaluate the impact of any subsequent events on the preliminary September 30, 2024 results and will adjust the amounts if necessary.