|
Loans
Table Three
Loan Portfolio
The composition of the Company's loan portfolio as of the dates indicated follows (in thousands): | | | | | | | | | | | |
| March 31, 2024 | December 31, 2023 | March 31, 2023 |
| Commercial and industrial | $ | 407,770 | | $ | 426,951 | | $ | 390,861 | |
| | | |
| 1-4 Family | 202,378 | | 206,237 | | 181,442 | |
| Hotels | 354,929 | | 357,142 | | 327,554 | |
| Multi-family | 186,555 | | 189,165 | | 195,042 | |
| Non Residential Non-Owner Occupied | 682,609 | | 680,590 | | 617,357 | |
| Non Residential Owner Occupied | 232,440 | | 240,328 | | 223,096 | |
| Commercial real estate | 1,658,911 | | 1,673,462 | | 1,544,491 | |
| | | |
| Residential real estate | 1,786,764 | | 1,788,149 | | 1,737,604 | |
| Home equity | 171,292 | | 167,201 | | 151,341 | |
| Consumer | 63,556 | | 65,246 | | 66,994 | |
| DDA overdrafts | 3,495 | | 4,914 | | 3,395 | |
| Total loans | $ | 4,091,788 | | $ | 4,125,923 | | $ | 3,894,686 | |
Loan balances decreased $34.1 million from December 31, 2023 to March 31, 2024.
The commercial and industrial ("C&I") loan portfolio consists of loans to corporate borrowers that are primarily in small to mid-size industrial and commercial companies. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans are considered to contain a higher level of risk than other loan types, although care is taken to minimize these risks. Numerous risk factors impact this portfolio, including industry specific risks such as the economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. C&I loans decreased $19.2 million from December 31, 2023 to March 31, 2024.
Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties, including hotel/motel and apartment lending. Commercial real estate loans are to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans decreased $14.6 million from December 31, 2023 to March 31, 2024. At March 31, 2024, $6.7 million of the commercial real estate loans were for commercial properties under construction.
In order to group loans with similar risk characteristics, the portfolio is further segmented by product types:
◦Commercial 1-4 Family loans decreased $3.9 million from December 31, 2023 to March 31, 2024. Commercial 1-4 Family loans consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled $202.4 million as of March 31, 2024. Risk characteristics are driven by rental housing demand as well as economic and employment conditions. These properties exhibit greater risk than multi-family properties due to fewer income sources.
◦Hotel loans decreased $2.2 million from December 31, 2023 to March 31, 2024. The Hotel portfolio is comprised of all lodging establishments and totaled $354.9 million as of March 31, 2024. Risk characteristics relate to the demand for travel.
◦Multi-family loans decreased $2.6 million from December 31, 2023 to March 31, 2024. Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled $186.6 million as of March 31, 2024. Risk characteristics are driven by rental housing demand as well as economic and employment conditions.
◦Non-residential commercial real estate includes properties such as retail, office, warehouse, storage, healthcare, entertainment, religious, and other nonresidential commercial properties. The non-residential product type is further segmented into owner- and non-owner occupied properties. Nonresidential non-owner occupied commercial real estate totaled $682.6 million at March 31, 2024 and increased $2.0 million from December 31, 2023 to March 31, 2024.
Nonresidential owner-occupied commercial real estate totaled $232.4 million at March 31, 2024 and decreased $7.9 million from December 31, 2023. Risk characteristics relate to levels of consumer spending and overall economic conditions.
Residential real estate loans decreased $1.4 million from December 31, 2023 to March 31, 2024. Residential real estate loans represent loans to consumers that are secured by a first lien on residential property. Residential real estate loans provide for the purchase or refinance of a residence and first-lien home equity loans allow consumers to borrow against the equity in their home. These loans primarily consist of single family 3, 5 and 7 year adjustable rate mortgages with terms that amortize up to 30 years. The Company also offers fixed-rate residential real estate loans that are sold in the secondary market that are not included on the Company's balance sheet; the Company does not retain the servicing rights to these loans. Residential mortgage loans are generally underwritten to comply with Fannie Mae guidelines, while the home equity loans are underwritten with typically less documentation, but with lower loan-to-value ratios and shorter maturities. At March 31, 2024, $19.7 million of the residential real estate loans were for properties under construction.
Home equity loans increased $4.1 million during the first three months of 2024. The Company's home equity loans represent loans to consumers that are secured by a second (or junior) lien on a residential property. Home equity loans allow consumers to borrow against the equity in their home without paying off an existing first lien. These loans consist of home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments. Home equity loans are underwritten with less documentation, lower loan-to-value ratios and for shorter terms than residential mortgage loans. The amount of credit extended is directly related to the value of the real estate at the time the loan is made.
Consumer loans may be secured by automobiles, boats, recreational vehicles and other personal property or they may be unsecured. The Company monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Consumer loans decreased $1.7 million during the first three months of 2024.
Allowance for Credit Losses
Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. Management assesses the risk in each loan type based on historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of the Company’s quarterly analysis of the adequacy of the Allowance for Credit Losses, the Company recorded a $0.2 million recovery of credit losses in the first quarter of 2024. The company recorded a provision for credit losses of $2.9 million in the first quarter of 2023.
Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance.
Determination of the Allowance for Credit Losses is subjective in nature and requires management to periodically reassess the validity of its assumptions. Differences between actual losses and estimated losses are assessed such that management can timely modify its evaluation model to ensure that adequate provision has been made for risk in the total loan portfolio.
Based on the Company’s analysis of the adequacy of the allowance for credit losses and in consideration of the known factors utilized in computing the allowance, management believes that the allowance for credit losses as of March 31, 2024 is adequate to provide for expected losses inherent in the Company’s loan portfolio. Future provisions for credit losses will be dependent upon trends in loan balances including the composition of the loan portfolio, changes in loan quality and loss experience trends, and recoveries of previously charged-off loans, among other factors.
Table Four
Allocation of the Allowance for Credit Losses
The allocation of the allowance for credit losses is shown in the table below (in thousands). The allocation of a portion of the allowance in one portfolio loan classification does not preclude its availability to absorb losses in other portfolio
segments. | | | | | | | | | | | |
| | As of March 31, | As of December 31, |
| 2024 | 2023 | 2023 |
| Commercial and industrial | $ | 4,275 | | $ | 4,286 | | $ | 4,474 | |
| | | |
| 1-4 Family | 1,394 | | 613 | | 1,402 | |
| Hotels | 2,257 | | 2,184 | | 2,211 | |
| Multi-family | 999 | | 1,027 | | 1,002 | |
| Non Residential Non-Owner Occupied | 4,012 | | 4,924 | | 4,077 | |
| Non Residential Owner Occupied | 2,421 | | 2,437 | | 2,453 | |
| Commercial real estate | 11,083 | | 11,185 | | 11,145 | |
| Residential real estate | 5,137 | | 5,484 | | 5,398 | |
| Home equity | 507 | | 400 | | 490 | |
| Consumer | 426 | | 371 | | 269 | |
| DDA overdrafts | 882 | | 998 | | 969 | |
| Allowance for Credit Losses | $ | 22,310 | | $ | 22,724 | | $ | 22,745 | |
The Allowance for Credit Losses decreased from $22.7 million at December 31, 2023 to $22.3 million at March 31, 2024. The Company recorded a recovery of credit losses of $0.2 million in the first quarter of 2024, compared to a provision for credit losses of $2.9 million for the comparable period in 2023, and a recovery of credit losses of $0.3 million for the fourth quarter of 2023. The recovery of credit losses was primarily related to a decline in loan balances from the fourth quarter of 2023 and a reduction in the loss rate of residential real estate loans that were partially offset by net charge-offs during the first quarter of 2024.
Non-Interest Income and Non-Interest Expense
Three months ended March 31, 2024 vs. 2023
(in millions)
| | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | 2023 | $ Change | % Change |
| Net investment securities (losses) gains | $ | (0.2) | | $ | 1.2 | | $ | (1.4) | | (116.7) | |
| Non-interest income, excluding net investment securities gains (losses) | 18.1 | | 17.5 | | 0.6 | | 3.4 | |
| Non-interest expense, less merger-related expenses | 35.9 | | 33.0 | | 2.9 | | 8.8 | |
Non-Interest Income: Non-interest income was $17.9 million during the quarter ended March 31, 2024, as compared to $18.7 million during the quarter ended March 31, 2023. During the first quarter of 2024, the Company reported $0.2 million of unrealized fair value losses on the Company’s equity securities compared to $0.8 million of realized gains from the sale of investment securities and $0.4 million of unrealized fair value gains on the Company’s equity securities during the first quarter of 2023.
Exclusive of these items, non-interest income increased $0.6 million, or 2.9%, from $17.5 million for the first quarter of 2023 to $18.1 million for the first quarter of 2024. This increase was largely attributable to an increase of $0.5 million, or 7.2%, in service charges, an increase of $0.4 million, or 16.4%, in trust and investment management fee income, and a $0.2 million, or 3.0%, increase in bankcard revenues. These increases were partially offset by a decrease in other income of $0.6 million.
Non-Interest Expense: Non-interest expenses decreased $2.7 million, or 7.1%, from $38.6 million in the first quarter of 2023 to $35.9 million in the first quarter of 2024. During the quarter ended March 31, 2023, the Company recognized $5.6 million of acquisition and integration expenses (included in other expenses) associated with the completed acquisition of Citizens Commerce Bancshares, Inc. (“Citizens”) and its principal banking subsidiary, Citizens Commerce Bank, on March 10, 2023. Excluding these expenses, non-interest expenses increased $2.9 million from $33.0 million in the quarter ended March 31, 2023 to $35.9 million in the quarter ended March 31, 2024. This increase was largely due to an increase in salaries and employee benefits of $1.2 million due to salary adjustments and increased health insurance costs. In addition, bankcard expenses increased $0.5 million, other expenses increased $0.5 million, and FDIC insurance expense increased $0.3 million. .
Income Tax Expense: The Company's effective income tax rate for the three months ended March 31, 2024 and March 31, 2023 was 19.5%, and 20.5%, respectively.
Risk Management
Market risk is the risk of loss due to adverse changes in current and future cash flows, fair values, earnings or capital due to adverse movements in interest rates and other factors, including foreign exchange rates, underlying credit risk and commodity prices. Because the Company has no significant foreign exchange activities and holds no commodities, interest rate risk represents the primary market risk factor affecting the Company’s balance sheet and net interest margin. Significant changes in interest rates by the Federal Reserve could result in similar changes in SOFR interest rates, prime rates, and other benchmark interest rates that could affect the estimated fair value of the Company’s investment securities portfolio, interest paid on the Company’s short-term and long-term borrowings, interest earned on the Company’s loan portfolio and interest paid on its deposit accounts. The Company utilizes derivative instruments, primarily in the form of interest rate swaps, to help manage its interest rate risk on commercial loans.
The Company’s ALCO has been delegated the responsibility of managing the Company’s interest-sensitive balance sheet accounts to maximize earnings while managing interest rate risk. ALCO, comprised of various members of executive and senior management, is also responsible for establishing policies to monitor and limit the Company’s exposure to interest rate risk and to manage the Company’s liquidity position. ALCO satisfies its responsibilities through at least quarterly meetings during which product pricing issues, liquidity measures, and interest sensitivity positions are monitored.
In order to measure and manage its interest rate risk, the Company uses an asset/liability management and simulation software model to periodically update the interest sensitivity position of the Company’s balance sheet. The model is also used to perform analyses that measure the impact on net interest income and capital as a result of various changes in the interest rate environment. Such analyses quantify the effects of various interest rate scenarios on projected net interest income.
The Company’s policy objective is to avoid negative fluctuations in net income or the economic value of equity of more than 15% within a 12-month period, assuming an immediate parallel increase or decrease of 100 to 300 basis points. The Company measures the long-term risk associated with sustained increases and decreases in rates through analysis of the impact to changes in rates on the economic value of equity.
The following table summarizes the sensitivity of the Company’s net income to various interest rate scenarios. The results of the sensitivity analyses presented below differ from the results used internally by ALCO in that, in the analyses below, interest rates are assumed to have an immediate and sustained parallel shock. The Company recognizes that rates are volatile, but rarely move with immediate and parallel effects. Internally, the Company considers a variety of interest rate scenarios that are deemed possible while considering the level of risk it is willing to assume in “worst-case” scenarios such as shown by the following:
| | | | | | | | |
| Immediate Basis Point Change in Interest Rates | Implied Federal Funds Rate Associated with Change in Interest Rates | Estimated Increase or Decrease in Net Income Over 12 Months |
| March 31, 2024 | | |
| +300 | | 8.50 | % | -3.2 | % |
| +200 | | 7.50 | | -2.0 | |
| +100 | 6.50 | | -0.7 | |
| -100 | 4.50 | | -6.4 | |
| -200 | 3.50 | | -9.9 | |
| -300 | 2.50 | | -14.3 | |
| | |
| December 31, 2023 | | |
| +300 | | 8.50 | % | -4.5 | % |
| +200 | | 7.50 | | -2.4 | |
| +100 | | 6.50 | | -1.6 | |
| -100 | 4.50 | | -7.2 | |
| -200 | 3.50 | | -8.3 | |
| -300 | 2.50 | | -13.9 | |
These estimates are highly dependent upon assumptions made by management, including, but not limited to, assumptions regarding the manner in which interest-bearing demand deposit and savings deposit accounts reprice in different interest rate scenarios, changes in the composition of deposit balances, pricing behavior of competitors, prepayments of loans and deposits under alternative rate environments, and new business volumes and pricing. As a result, there can be no assurance that the estimates above will be achieved in the event that interest rates increase or decrease during the remainder of 2024 and beyond. The estimates above do not necessarily imply that the Company will experience increases in net income if market interest rates rise. The table above indicates how the Company’s net income behaves relative to an increase in rates compared to what would otherwise occur if rates remain stable.
Liquidity and Capital Resources
Liquidity
The Company evaluates the adequacy of liquidity at both the City Holding level and at the City National level. At the City Holding level, the principal source of cash is dividends from City National. Dividends paid by City National to City Holding are subject to certain legal and regulatory limitations. Generally, any dividends in amounts that exceed the earnings retained by City National in the current year plus retained net profits for the preceding two years must be approved by regulatory authorities. At March 31, 2024, City National could pay dividends up to $69.3 million plus net profits for the remainder of 2024, as defined by statute, up to the dividend declaration date without prior regulatory permission.
Additionally, City Holding anticipates continuing the payment of dividends on its common stock, which are expected to approximate $42.7 million on an annualized basis over the next 12 months based on common shares outstanding at March 31, 2024. However, dividends to shareholders can, if necessary, be suspended. In addition to these anticipated cash needs, City Holding has operating expenses and other contractual obligations, which are estimated to require $1.6 million of additional cash over the next 12 months. As of March 31, 2024, City Holding reported a cash balance of $50.0 million and management believes that City Holding’s available cash balance, together with cash dividends from City National, will be adequate to satisfy its funding and cash needs over the next 12 months.
As illustrated in the consolidated statements of cash flows, the Company generated $32.2 million of cash from operating activities during the first three months of 2024, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings. The Company generated $3.0 million of cash in investing activities during the first three months of 2024, primarily due to a decrease in loans of $34.0 million and proceeds from maturities and calls of $24.2 million. These increases were partially offset by purchases of available-for-sale securities of $49.3 million and payments for low income housing credits of $5.8 million. The Company generated $127.3 million of cash in financing activities during the first three months of 2024, principally as a result of an increase in interest-bearing deposits of $105.3 million, proceeds from long-term debt of $50.0 million, and an increase in non-interest-bearing deposits of $16.3 million. These increases were partially offset by a decrease in short-term borrowings of $29.9 million and dividends paid of $10.6 million.
City National manages its liquidity position in an effort to effectively and economically satisfy the funding needs of its customers and to accommodate the scheduled repayment of borrowings. Funds are available to City National from a number of sources, including depository relationships, sales and maturities within the investment securities portfolio, and borrowings from the Federal Reserve Bank and the FHLB. As of March 31, 2024, City National’s assets are significantly funded by deposits and capital. Additionally, City National maintains borrowing facilities with the Federal Reserve Bank and the FHLB that are accessed as necessary to fund operations and to provide contingency funding mechanisms. As of March 31, 2024, City National had outstanding borrowings totaling $150 million from these facilities and had the capacity to borrow an additional $1.5 billion from these existing borrowing facilities. Also, although it has no current intention to do so, City National could liquidate its unpledged securities, if necessary, to provide an additional funding source. Approximately $0.7 billion of City National’s investment securities were unpledged at March 31, 2024. City National also segregates certain mortgage loans, mortgage-backed securities, and other investment securities in a separate subsidiary so that it can separately monitor the asset quality of these primarily mortgage-related assets, which could be used to raise cash through securitization transactions or obtain additional equity or debt financing if necessary.
The Company manages its asset and liability mix to balance its desire to maximize net interest income against its desire to minimize risks associated with capitalization, interest rate volatility, and liquidity. With respect to liquidity, the Company has chosen a conservative posture and believes that its liquidity position is strong. The Company’s net loan to asset ratio is 64.4% as of March 31, 2024 and deposit balances fund 80.1% of total assets. The Company has obligations to extend credit, but these obligations are primarily associated with existing home equity loans that have predictable borrowing patterns across the portfolio. The Company has investment security balances with carrying values that totaled $1.4 billion at March 31, 2024, and that exceeded the Company’s non-deposit sources of borrowing, which totaled $454.9 million. Further, the Company’s deposit mix has a high proportion of transaction and savings accounts that fund 62.6% of the Company’s total assets. As interest rates increase, deposit balances may decline or the composition of the deposit portfolio may shift to higher yielding deposit products, such as money market accounts or time deposits.
As the following table reflects, less than 15% (estimated) of the Company's deposits were uninsured (either with balances above $250,000 or not collateralized by investment securities) as of March 31, 2024.
Estimated Uninsured Deposits by Deposit Type
| | | | | | | | |
| March 31, 2024 | December 31, 2023 |
| Noninterest-Bearing Demand Deposits | 16 | % | 16 | % |
| | |
| Interest-Bearing Deposits | | |
| Demand Deposits | 12 | % | 7 | % |
| Savings Deposits | 12 | % | 11 | % |
| Time Deposits | 15 | % | 13 | % |
| Total Deposits | 14 | % | 12 | % |
The amounts listed above represent management's best estimate as of the respective period shown of uninsured deposits (either with balances above $250,000 or not collateralized by investment securities).
Capital Resources
Shareholders' equity increased $5.2 million for the three months ended March 31, 2024, primarily due to net income of $29.5 million and stock based compensation expense of $1.1 million. These increases were partially offset by other comprehensive loss $11.1 million, cash dividends declared of $10.6 million and the repurchase of 36,438 common shares at a weighted average price of $100.24 per share ($3.7 million) as part of a one million share repurchase plan authorized by the Board of Directors in January 2024.
The Basel III Capital Rules require City Holding and City National to maintain minimum CET 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios (which are shown in the table below). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital
Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to City Holding Company or City National Bank.
The Company’s regulatory capital ratios for both City Holding and City National include the 2.5% capital conservation buffer are illustrated in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | Actual | Minimum Required - Basel III | Required to be Considered Well Capitalized |
| Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio |
| | | | | | |
| CET I Capital | | | | | | |
| City Holding Company | $ | 644,235 | | 16.2 | % | $ | 279,242 | | 7.0 | % | $ | 259,296 | | 6.5 | % |
| City National Bank | 580,069 | | 14.6 | | 278,196 | | 7.0 | | 258,325 | | 6.5 | |
| Tier I Capital | | | | | | |
| City Holding Company | 644,235 | | 16.2 | | 339,079 | | 8.5 | | 319,134 | | 8.0 | |
| City National Bank | 580,069 | | 14.6 | | 337,809 | | 8.5 | | 317,938 | | 8.0 | |
| Total Capital | | | | | | |
| City Holding Company | 665,707 | | 16.7 | | 418,863 | | 10.5 | | 398,917 | | 10.0 | |
| City National Bank | 601,542 | | 15.1 | | 417,293 | | 10.5 | | 397,422 | | 10.0 | |
| Tier I Leverage Ratio | | | | | | |
| City Holding Company | 644,235 | | 10.5 | | 246,667 | | 4.0 | | 308,333 | | 5.0 | |
| City National Bank | 580,069 | | 9.4 | | 246,423 | | 4.0 | | 308,029 | | 5.0 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | Actual | Minimum Required - Basel III | Required to be Considered Well Capitalized |
| Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio |
| | | | | | |
| CET I Capital | | | | | | |
| City Holding Company | $ | 627,579 | | 15.7 | % | $ | 279,768 | | 7.0 | % | $ | 259,875 | | 6.5 | % |
| City National Bank | 549,031 | | 13.8 | | 278,692 | | 7.0 | | 258,785 | | 6.5 | |
| Tier I Capital | | | | | | |
| City Holding Company | 627,579 | | 15.7 | | 339,718 | | 8.5 | | 319,735 | | 8.0 | |
| City National Bank | 549,031 | | 13.8 | | 338,412 | | 8.5 | | 318,505 | | 8.0 | |
| Total Capital | | | | | | |
| City Holding Company | 648,646 | | 16.2 | | 419,652 | | 10.5 | | 399,669 | | 10.0 | |
| City National Bank | 570,099 | | 14.3 | | 418,038 | | 10.5 | | 398,131 | | 10.0 | |
| Tier I Leverage Ratio | | | | | | |
| City Holding Company | 627,579 | | 10.2 | | 245,468 | | 4.0 | | 306,835 | | 5.0 | |
| City National Bank | 549,031 | | 8.9 | | 245,587 | | 4.0 | | 306,984 | | 5.0 | |
| | | | | | |
As of March 31, 2024, management believes that City Holding Company and its banking subsidiary, City National, were “well capitalized.” City Holding is subject to regulatory capital requirements administered by the Federal Reserve, while City National is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”). Regulatory agencies can initiate certain mandatory actions if either City Holding or City National fails to meet the minimum capital requirements, as shown above. As of March 31, 2024, management believes that City Holding and City National have met all capital adequacy requirements.
Depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off–balance–sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated
assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk–based and leverage capital requirements under the Basel III Rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules. The Company and its subsidiary bank do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption “Risk Management” under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 4 - Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1.Legal Proceedings
The Company is engaged in various legal actions that it deems to be in the ordinary course of business. As these legal actions are resolved, the Company could realize positive and/or negative impact to its financial performance in the period in which these legal actions are ultimately resolved. There can be no assurance that current actions will have immaterial results, either positive or negative, or that no material actions may be presented in the future.
Item 1A. Risk Factors
Readers should carefully consider the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
On January 31, 2024, the Board of Directors of the Company authorized the Company to buy back up to 1,000,000 shares of its common stock (approximately 7% of outstanding shares) in open market transactions at prices that are accretive to the earnings per share of continuing shareholders. No time limit was placed on the duration of the share repurchase program. As part of this authorization, the Company terminated its previous repurchase program that was approved in May 2022. The following table sets forth information regarding the Company's common stock repurchases transacted during the quarter ended March 31, 2024:
| | | | | | | | | | | | | | |
| | | Total Number | Maximum Number |
| | | of Shares Purchased | of Shares that May |
| | | as Part of Publicly | Yet Be Purchased |
| Total Number of | Average Price | Announced Plans | Under the Plans |
| Period | Shares Purchased | Paid per Share | or Programs | or Programs |
| February 1, 2024 - February 29, 2024* | 18,138 | 100.66 | | 18,138 | 981,862 |
| March 1, 2024 - March 31, 2024 | 18,300 | 99.82 | | 36,438 | 963,562 |
*There were no common stock repurchases in January 2024.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
None.
Item 5.Other Information
During the three months ended March 31, 2024, none of our directors or officers informed us of the , modification or of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
Item 6.Exhibits
The exhibits required to be filed or furnished with this Form 10-Q are attached hereto or incorporated herein by reference as shown in the following "Exhibit Index."
Exhibit Index
The following exhibits are filed herewith or are incorporated herein by reference.
| | | | | | | | | | | |
| | Agreement and Plan of Merger, dated October 18, 2022, by and among City Holding Company and Citizens Commerce Bancshares, Inc. (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated October 18, 2022, and filed with the Securities and Exchange Commission on October 18, 2022). | |
| | Agreement and Plan of Merger, dated July 11, 2018, by and among Poage Bankshares, Inc., Town Square Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018). | |
| | Agreement and Plan of Merger, dated July 11, 2018, by and among Farmers Deposit Bancorp, Inc., Farmers Deposit Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018). | |
| | Amended and Restated Articles of Incorporation of City Holding Company (attached to, and incorporated by reference from City Holding Company's Form 10-Q Quarterly Report for the quarter ending September 30, 2021, filed November 4, 2021 with the Securities Exchange Commission). | |
| | Amended and Restated Bylaws of City Holding Company, revised December 18, 2019 (attached to, and incorporated by reference from, City Holding Company’s Current Report on Form 8-K filed December 20, 2019 with the Securities and Exchange Commission). | |
| | Rights Agreement dated as of June 13, 2001 (attached to, and incorporated by reference from, City Holding Company's Form 8–A, filed June 22, 2001, with the Securities and Exchange Commission). | |
| | Amendment No. 1 to the Rights Agreement dated as of November 30, 2005 (attached to, and incorporated by reference from, City Holding Company’s Amendment No. 1 on Form 8-A, filed December 21, 2005, with the Securities and Exchange Commission). | |
| | Change in Control Agreement for David L. Bumgarner, effective as of May 4, 2022. | |
| | Change in Control Agreement for Jeffrey D. Legge, effective as of May 4, 2022. | |
| | Change in Control Agreement for Michael T. Quinlan, Jr., effective as of May 4, 2022. | |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck. | |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner. | |
| | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck. | |
| | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner. | |
| 101 | Interactive Data File - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
| 101.SCH | XBRL Taxonomy Extension Schema* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase* | |
| 104 | Cover Page Interactive Data file (formatted as inline XBRL and contained in Exhibit 101). | |
| * Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| City Holding Company | |
| (Registrant) |
| |
| /s/ Charles R. Hageboeck | |
| Charles R. Hageboeck |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
| /s/ David L. Bumgarner | |
| David L. Bumgarner |
| Executive Vice President, Chief Financial Officer and Principal Accounting Officer |
| (Principal Financial Officer) |
Date: May 8, 2024
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