City Holding Company — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023 where applicable. City Holding is a bank holding company whose principal subsidiary operates a community bank with 97 offices across West Virginia, Kentucky, Virginia, and southeastern Ohio. Community banking is its sole reportable segment.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net income available to common shareholders | $29.5 million | $24.3 million in Q1 2023 |
| Basic / diluted EPS | $1.98 / $1.97 | $1.63 / $1.63 in Q1 2023 |
| Net interest income | $54.4 million | $53.5 million in Q1 2023 |
| Net interest margin | 3.95% | 4.05% in Q1 2023 |
| Non-interest income / expense | $17.9 million / $35.9 million | $18.7 million / $38.6 million in Q1 2023 |
| Provision (recovery) for credit losses | $(0.2) million recovery | $2.9 million provision in Q1 2023 |
| Operating cash flow | $32.2 million | $39.9 million in Q1 2023 |
| Total assets / shareholders’ equity | $6.31 billion / $682.2 million | Assets were $6.17 billion and equity $677.1 million at December 31, 2023 |
| Gross loans / deposits | $4.09 billion / $5.06 billion | Loans down 0.8% and deposits up 2.5% from year-end 2023 |
| Cash and cash equivalents | $318.7 million | Up $162.4 million from year-end 2023 |
| Borrowings | $304.9 million in repurchase agreements and $150.0 million in FHLB advances | FHLB advances increased $50.0 million during the quarter |
Return measures improved year over year: ROA was 1.92% versus 1.63%, ROE 17.3% versus 15.8%, and return on tangible common equity 22.7% versus 19.9%. The effective tax rate was 19.5%, compared with 20.5%.
Material changes and management commentary
- Net income rose to $29.5 million, reflecting modestly higher net interest income, a credit-loss recovery rather than a provision, and lower reported expenses. Q1 2023 expenses included $5.6 million of Citizens acquisition and integration costs; excluding those costs, expenses increased $2.9 million year over year, mainly from compensation, bankcard costs, other expenses, and FDIC insurance.
- Interest income benefited from higher loan yields and average loan balances, Citizens acquisition contributions, and increased accretion of acquired fair-value adjustments. Higher funding costs offset much of that benefit: the cost of interest-bearing liabilities increased 117 basis points, and reported net interest margin declined.
- Gross loans fell $34.1 million from year-end, including declines in commercial and industrial and commercial real estate loans. Deposits increased $121.5 million, led by time and interest-bearing demand deposits.
- Allowance for credit losses was $22.3 million, down from $22.7 million at year-end. Management attributed the quarterly recovery primarily to lower loan balances and a reduced loss rate for residential real estate loans, partly offset by net charge-offs. Management considers the allowance adequate.
- Available-for-sale securities had a $157.5 million gross unrealized loss at quarter-end, compared with $144.3 million at year-end; accumulated after-tax unrealized securities losses were $119.0 million. Management attributed losses primarily to interest rates and market conditions, said it did not intend to sell impaired securities, and recognized no securities credit-loss allowance.
Liquidity, capital, outlook, and risks
- Management describes liquidity as strong. Deposits funded 80.1% of assets; estimated uninsured deposits were 14% of total deposits. City National had $150 million of outstanding facility borrowings and reported capacity to borrow an additional $1.5 billion. Approximately $0.7 billion of securities were unpledged.
- At March 31, City Holding and City National were above minimum capital requirements and classified by management as well capitalized. CET1 ratios were 16.2% and 14.6%, respectively; total capital ratios were 16.7% and 15.1%.
- No quantitative earnings or margin guidance was provided. Management expects to continue common dividends, estimated at approximately $42.7 million annualized based on quarter-end shares, but notes dividends may be suspended if necessary. The board authorized repurchases of up to 1 million shares; 36,438 shares were repurchased in Q1 for $3.7 million.
- Management’s interest-rate sensitivity model estimated that an immediate, sustained 300-basis-point increase would reduce net income over 12 months by 3.2%; a 300-basis-point decrease would reduce it by 14.3%. The filing cautions that these estimates depend on assumptions about deposit repricing, customer behavior, prepayments, and new business.
- Risks highlighted include credit quality and loan concentrations, commercial real estate and collateral values, interest-rate and funding pressures, deposit mix, economic conditions, cybersecurity and operational events, competition, regulatory changes, and legal actions. The company reported ordinary-course litigation and said outcomes could affect results; it provided no clear estimate of possible exposure. It does not anticipate material losses from approximately $665 million of off-balance-sheet credit commitments and letters of credit.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize enough to support net interest margin after its year-over-year decline.
- Trends in commercial real estate and hotel exposure, criticized or classified loans, delinquencies, charge-offs, and allowance adequacy.
- Whether deposit growth persists, including the cost and mix of time deposits, and how uninsured deposits change.
- The liquidity and capital impact of FHLB borrowing, dividends, and the newly authorized share-repurchase program.
- Potential effects of continued unrealized securities losses, interest-rate changes, and any developments in ordinary-course litigation.