City Holding Company Announces Quarterly Results

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 $21.3 million and diluted earnings of $1.41 per share for the quarter ended March 31, 2022.

Net Interest Income

The Company’s net interest income decreased $2.7 million, or 6.7%, from $40.6 million during the fourth quarter of 2021 to $37.9 million during the first quarter of 2022. The Company’s tax equivalent net interest income decreased $2.7 million, or 6.6%, from $41.0 million for the fourth quarter of 2021 to $38.2 million for the first quarter of 2022. Lower commercial loan yields (44 basis points) decreased interest income by $2.3 million as compared to the quarter ended December 31, 2021. The fourth quarter of 2021 was boosted by an interest recovery of $2.1 million from a loan that had previously been classified as a nonperforming loan. In addition, loan fees decreased $0.8 million due to a decrease in PPP loan fees recognized as PPP loan balances declined to below $1 million at March 31, 2022. These decreases were partially offset by higher investment interest income ($0.5 million) due to both higher yields (14 basis points) and higher average balances ($29 million) during the quarter ended March 31, 2022. The Company’s reported net interest margin decreased from 2.94% for the fourth quarter of 2021 to 2.82% for the first quarter of 2022.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned decreased modestly from 0.21%, or $7.6 million, at December 31, 2021 to 0.18%, or $6.3 million, at March 31, 2022. Total past due loans decreased slightly from $6.8 million, or 0.19% of total loans outstanding, at December 31, 2021 to $6.7 million, or 0.19% of total loans outstanding, at March 31, 2022.

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 $0.8 million in the first quarter of 2022, compared to a recovery of credit losses of $0.4 million for the comparable period in 2021, and did not record a provision for credit losses for the fourth quarter of 2021. The recovery of credit losses recorded in the first quarter of 2022 largely reflects the repayment of a loan from a previous acquisition and release of the associated credit mark. Because of continued improvements in economic conditions in the Company’s footprint, net charge-offs for the quarter ended March 31, 2022 were insignificant.

Non-interest Income

Non-interest income was $17.4 million during the quarter ended March 31, 2022, as compared to $16.6 million during the quarter ended March 31, 2021. During the first quarter of 2022, the Company reported $0.7 million of unrealized fair value losses on the Company’s equity securities compared to $0.2 million of realized and unrealized fair value gains on the Company’s equity securities during the first quarter of 2021. Exclusive of these items, non-interest income increased $1.8 million, or 10.8%, from $16.4 million for the first quarter of 2021 to $18.2 million for the first quarter of 2022. This increase was largely attributable to an increase of $0.8 million, or 14.4%, in service charges and an increase of $0.6 million in bank owned life insurance due to higher death benefit proceeds. In addition, bankcard revenue increased $0.2 million from the quarter ended March 31, 2021, to $6.4 million.

Non-interest Expenses

Non-interest expenses decreased $0.3 million, or 0.9%, from $29.8 million in the first quarter of 2021 to $29.5 million in the first quarter of 2022. This decrease was primarily due to a decrease in other expenses of $0.2 million from the quarter ended March 31, 2021. During the first quarter of 2022, most of the Company’s expenses did not significantly fluctuate from the first quarter of 2021; although we do anticipate salaries and employee benefits will increase in subsequent quarters.

Balance Sheet Trends

Loans increased $16.1 million (0.5%) from December 31, 2021 to $3.56 billion at March 31, 2022. PPP loans decreased $6.0 million from $6.6 million at December 31, 2021 to $0.6 million at March 31, 2022. Excluding outstanding PPP loans (included in the commercial and industrial loan category), total loans increased $22.1 million, (0.6%), from December 31, 2021 to $3.56 billion at March 31, 2022. Residential real estate loans increased $39.9 million (2.6%). This increase was partially offset by lower commercial real estate loans ($9.0 million, or 0.6%); lower DDA overdrafts ($4.0 million, or 62.1%); and lower commercial and industrial loans ($2.8 million, or 0.8%) (excluding PPP loans).

Total average depository balances increased $39.3 million, or 0.8%, from the quarter ended December 31, 2021 to the quarter ended March 31, 2022. Average savings deposit balances increased $45.7 million, average interest-bearing demand deposit balances increased $28.6 million, and noninterest-bearing demand deposit balances increased $4.1 million. These increases were partially offset by a decrease in time deposit balances of $39.1 million.

Income Tax Expense

The Company’s effective income tax rate for the first quarter of 2022 was 19.7% compared to 20.8% for the year ended December 31, 2021, and 20.1% for the quarter ended March 31, 2021.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 71.2% and the loan to asset ratio was 59.2% at March 31, 2022. The Company maintained investment securities totaling 23.9% of assets as of the same date. The Company’s deposit mix is weighted heavily toward checking and saving accounts, which fund 66.1% of assets at March 31, 2022. Time deposits fund 17.0% of assets at March 31, 2022, 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 $516 million at March 31, 2022. Due primarily to unrealized security losses during the quarter ended March 31, 2022, the Company’s tangible equity ratio decreased from 9.6% at December 31, 2021 to 8.8% at March 31, 2022. At March 31, 2022, City National Bank’s Leverage Ratio was 8.80%, its Common Equity Tier I ratio was 14.82%, its Tier I Capital ratio was 14.82%, and its Total Risk-Based Capital ratio was 15.24%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On March 30, 2022, the Board of Directors of the Company approved a quarterly cash dividend of $0.60 per share payable April 29, 2022, to shareholders of record as of April 15, 2022. During the quarter ended March 31, 2022, the Company repurchased 38,000 common shares at a weighted average price of $78.09 per share as part of a one million share repurchase plan authorized by the Board of Directors in March 2021. As of March 31, 2022, the Company could repurchase 277,000 additional shares under the current program.

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, 2021 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 loan 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 March 31, 2022 Form 10-Q. The Company will continue to evaluate the impact of any subsequent events on the preliminary March 31, 2022 results and will adjust the amounts if necessary.