City Holding Company — 2022 Form 10-K Summary
Business context and reporting period
City Holding Company is a West Virginia financial holding company operating primarily through City National Bank of West Virginia. Its sole reportable segment is community banking, with 94 branches across West Virginia, Kentucky, Virginia and southeastern Ohio. This filing covers the fiscal year ended December 31, 2022; fourth-quarter figures are unaudited.
Financial performance and position
Amounts are in U.S. dollars; financial statement figures are in millions except per-share data and ratios.
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $180.0 | $155.6 |
| Net interest margin | 3.33% | 2.89% |
| Net income available to common shareholders | $102.1 | $88.1 |
| Diluted earnings per share | $6.80 | $5.66 |
| Return on average assets / equity | 1.71% / 16.5% | 1.49% / 12.7% |
| Non-interest income / expense | $72.1 / $124.3 | $69.6 / $117.2 |
| Operating cash flow | $115.8 | $102.3 |
| Gross loans / deposits at year-end | $3,646.3 / $4,869.9 | $3,543.8 / $4,925.3 |
| Total assets / shareholders’ equity at year-end | $5,878.1 / $577.9 | $6,003.7 / $681.1 |
- Fourth-quarter 2022 net interest income was $52.4 million; net income was $30.7 million and diluted EPS was $2.05.
- Net interest income on a fully taxable-equivalent basis was $181.3 million, up 15.6%. The reported net interest margin excludes the taxable-equivalent adjustment.
- Cash and cash equivalents fell to $200.0 million from $634.6 million, mainly as excess funds were invested in loans and securities and deposits declined. Investment securities totaled $1,529.3 million, up $95.6 million.
- Deposits declined $55.4 million. Short-term borrowings were $291.0 million, primarily repurchase agreements; the filing reports no long-term debt at year-end.
- Net charge-offs were 0.04% of average loans; the allowance for credit losses was $17.1 million, or 0.47% of loans. Nonperforming assets were 0.17% of loans and other real estate owned.
- Operating results were positive, but other comprehensive loss of $145.7 million—principally from available-for-sale securities valuation changes—contributed to a 15.2% decline in shareholders’ equity. Tangible common equity to tangible assets was 8.02%, down from 9.58%.
- Regulatory capital ratios remained above “well-capitalized” thresholds: City Holding’s CET1 ratio was 16.2% and City National’s was 13.9%. Management described liquidity as strong; the bank reported $2.0 billion of additional borrowing capacity under existing facilities.
Material changes versus the prior comparable period
- Net income increased 15.9% and diluted EPS rose from $5.66 to $6.80. Higher asset yields—following 2022 Federal Reserve rate increases—were the principal driver of stronger net interest income and margin.
- Non-interest expense increased 6.1%, including higher compensation and technology costs and $0.3 million of merger-related expense. The efficiency ratio improved to 48.2% from 51.3%.
- Loans grew 2.9% while deposits declined 1.1%. Residential real estate loans increased $144.6 million; commercial real estate loans decreased $86.6 million.
- The allowance declined from $18.2 million to $17.1 million. The company recorded a $0.5 million provision in 2022, compared with a $3.2 million recovery in 2021.
- Unrealized losses on available-for-sale securities rose substantially: gross losses were $169.0 million at year-end 2022 versus $5.4 million in 2021. Management attributed the losses primarily to interest-rate and market movements, stated it did not intend to sell the securities, and recorded no credit-loss allowance for them.
Outlook, commentary, risks and unusual items
- Management anticipated a 2023 common dividend rate of $2.60 per share, equivalent to approximately $38.4 million annualized based on year-end shareholders. Payment remains subject to board discretion and the bank’s ability to upstream dividends.
- City Holding agreed to acquire Citizens Commerce Bancshares in an all-stock transaction at an exchange ratio of 0.1666 City shares per Citizens share, with cash for fractional shares and unexercised options. The filing expected closing in the first quarter of 2023, subject to regulatory and shareholder approvals.
- Interest-rate sensitivity modeling showed estimated 12-month net income decreases of 1.2% for an immediate +100-basis-point shock and 4.5% for +300 basis points; decreases of 14.4% and 19.3% for -200 and -300 basis points, respectively. Management cautioned that results depend on assumptions and are not forecasts.
- Key risks include regional economic conditions, real-estate and hotel-credit exposure, rising funding costs and interest-rate sensitivity, securities valuation and liquidity risks, cybersecurity and third-party service disruptions, competition, regulatory change, and execution of acquisitions. Residential mortgage and home-equity loans made up about half of the loan portfolio; “Lessors of Nonresidential Buildings” represented 14% of total loans.
- The company was transitioning remaining LIBOR-linked loans to SOFR or another index by June 30, 2023; management said the ultimate market-risk impact was not yet clear. Ordinary-course legal proceedings were disclosed, with outcomes uncertain. No goodwill impairment was recorded in 2022.
- The independent auditor issued an unqualified opinion on the financial statements and internal control. The audit identified the subjective qualitative adjustments in the allowance for credit losses as a critical audit matter.
Important facts for investors to verify
- Track deposit balances, mix, pricing and liquidity as cash balances declined and 2022 deposit outflows were reported; assess reliance on secured borrowing capacity.
- Review securities duration, unrealized losses, collateral pledging and the potential effects of any need to sell securities or further rate movements.
- Monitor commercial real-estate and hotel credit quality, criticized loans, delinquencies, charge-offs and allowance assumptions as economic conditions change.
- Confirm completion and integration outcomes of the Citizens Commerce acquisition, including share issuance, costs and realized benefits.
- Check the actual 2023 dividend decisions and capital position, including the subsidiary bank’s regulatory capacity to pay dividends to the parent.
- Reconcile the filing’s disclosure that $271.5 million of time certificates met or exceeded the FDIC insurance limit with its separate $109.5 million maturity schedule for uninsured time certificates.