City Holding Company (“Company” or “City”) (NASDAQ:CHCO), a $6.0 billion bank holding company headquartered in Charleston, West Virginia, today announced net income of $88.1 million and record diluted earnings of $5.66 per share for the year ended December 31, 2021.

Net Interest Income

The Company’s net interest income increased from $154.6 million for the year ended December 31, 2020 to $155.6 million for the year ended December 31, 2021. The Company’s tax equivalent net interest income increased $1.2 million, or 0.8%, from $155.7 million for the year ended December 31, 2020 to $156.9 million for the year ended December 31, 2021. The Company recognized $4.0 million of loan fees associated with PPP loans during 2021 as compared to $1.6 million during 2020. However, lower loan yields (which fell 29 basis points) decreased net interest income by $10.0 million. Additionally, lower average loan balances ($95.6 million) lowered net interest income by $4.2 million and a decrease in accretion from fair value adjustments decreased interest income by $1.7 million. Higher investment balances (which increased $262.2 million) increased net interest income by $7.2 million, while investment yields (which decreased by 45 basis points) decreased net interest income by $6.0 million. Lower rates paid on interest bearing liabilities (40 basis points) and lower average time deposit balances (down $172.3 million) increased net interest income by $11.7 million and $2.6 million, respectively. The Company’s reported net interest margin declined from 3.16% for the year ended December 31, 2020 to 2.89% for the year ended December 31, 2021. Excluding the favorable impact of the accretion from the fair value adjustments, the net interest margin would have been 2.85% for the year ended December 31, 2021 and 3.08% for the year ended December 31, 2020.

The Company’s net interest income increased from $39.5 million during the third quarter of 2021 to $40.6 million during the fourth quarter of 2021. During the fourth quarter of 2021, the Company’s tax equivalent net interest income increased $1.1 million, or 2.8%, to $40.9 million from $39.8 million during the third quarter of 2021. An increase in loan yields (which increased 16 basis points), largely due to interest recoveries on a loan that previously had been classified as a nonperforming loan, increased net interest income by $1.4 million, and lower rates paid on time deposits (which decreased 7 basis points) increased overall net interest income by $0.2 million. These increases were partially offset by lower investment yields (17 basis points) which lowered net interest income by $0.6 million. The Company’s reported net interest margin increased from 2.89% for the third quarter of 2021 to 2.94% for the fourth quarter of 2021. Excluding the favorable impact of the accretion from fair value adjustments, the net interest margin would have been 2.91% for the quarter ended December 31, 2021 and 2.86% for the quarter ended September 30, 2021.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned decreased from 0.38% at December 31, 2020 to 0.21% at December 31, 2021. Total nonperforming assets decreased from $13.9 million at December 31, 2020 to $7.6 million at December 31, 2021. Total past due loans decreased from $8.9 million, or 0.25% of total loans outstanding, at December 31, 2020 to $6.8 million, or 0.19% of total loans outstanding, at December 31, 2021.

As a result of the Company’s quarterly analysis of the adequacy of the ACL, the Company did not record a provision for credit losses in the fourth quarter of 2021 and a recovery of credit losses of $3.2 million for the year ended December 31, 2021, compared to a provision for credit losses of $0.5 million and $10.7 million for the comparable periods in 2020. The determination of the Company’s allowance for credit losses is largely dependent on expected unemployment ranges. Due to improvements in the outlook for unemployment ranges utilized by the Company and adjustments to other qualitative and other factors, during 2021 the Company partially recovered a portion of the provision for credit losses incurred in the quarter ended March 31, 2020 related to the COVID-19 pandemic.

Non-interest Income

Non-interest income was $69.6 million for 2021 as compared to $82.7 million for 2020. During 2020, the Company sold the entirety of its Visa Inc. Class B common shares (86,605 shares) in a cash transaction that resulted in a pre-tax gain of $17.8 million, or $0.84 diluted per share on an after-tax basis. Additionally, the Company reported $0.3 million of realized security gains on the sale of investment securities and $0.5 million of unrealized fair value gains on the Company’s equity securities during 2021 compared to $0.9 million of unrealized fair value losses on the Company’s equity securities during 2020. Exclusive of these items, non-interest income increased from $65.6 million for the year ended December 31, 2020 to $68.8 million for the year ended December 31, 2021. This increase was largely attributable to an increase of $3.9 million, or 17.0%, in bankcard revenues and a $0.7 million, or 8.8%, increase in trust and investment management fee income. These increases were partially offset by a decrease of $0.7 million, or 15.0%, in other income and a decrease of $0.5 million in bank owned life insurance due to lower death benefit proceeds received during 2021 compared to 2020.

Non-interest income was $17.6 million during the quarter ended December 31, 2021 as compared to $17.7 million during the quarter ended December 31, 2020. During the fourth quarter of 2021, the Company reported $0.1 million of unrealized fair value gains on the Company’s equity securities compared to $0.8 million of unrealized fair value gains on the Company’s equity securities during the fourth quarter of 2020. Exclusive of these unrealized fair value gains, non-interest income increased from $16.9 million for the fourth quarter of 2020 to $17.6 million for the fourth quarter of 2021. This increase was largely attributable to higher bankcard revenues ($0.8 million, or 12.9%) and service charges ($0.3 million, or 4.2%). These increases were partially offset by a decrease in other income ($0.3 million).

Non-interest Expenses

Non-interest expenses increased from $115.3 million for 2020 to $117.2 million for 2021. This increase was primarily due to an increase in telecommunication expenses ($0.7 million), FDIC insurance expense ($0.7 million), bankcard expenses ($0.6 million), occupancy related expenses ($0.3 million), advertising expenses ($0.3 million), and equipment and software related expense ($0.3 million). These increases were partially offset by a decrease in other expenses ($0.6 million) and repossessed asset gains ($0.3 million).

Non-interest expenses remained level at $28.6 million for both the quarter ended December 31, 2020 and the quarter ended December 31, 2021. A decrease in salaries and employee benefits expense of $0.7 million was essentially offset by increases in other expenses ($0.2 million), telecommunication expense ($0.2 million), and bankcard expenses ($0.1 million).

Balance Sheet Trends

Loans decreased $78.3 million (2.2%) from December 31, 2020 to $3.54 billion at December 31, 2021. PPP loans decreased $48.9 million from $55.4 million at December 31, 2020 to $6.6 million at December 31, 2021. Excluding outstanding PPP loans (included in the commercial and industrial loan category), total loans decreased $29.4 million, (0.8%), from December 31, 2020 to $3.54 billion at December 31, 2021. Residential real estate loans decreased $38.7 million (2.4%); home equity loans decreased $14.1 million (10.4%); and consumer loans decreased $6.8 million (14.2%). These decreases were partially offset by increases in commercial and industrial loans ($22.1 million, or 7.5%) (excluding PPP loans).

Total average depository balances for the year ended December 31, 2021 increased $486.5 million, or 11.2%, as compared to the year ended December 31, 2020. Average noninterest bearing demand deposits increased $280.0 million, average savings deposits increased $219.5 million, and average interest bearing demand deposits increased $159.3 million. These increases were partially offset by a decrease in average time deposits of $172.3 million. From December 31, 2020, to December 31, 2021, total demand deposit account households increased 2.6% and total demand deposit accounts increased 2.5%.

Income Tax Expense

The Company’s effective income tax rate for the quarter and year ended December 31, 2021 was 21.1% and 20.8%, respectively, compared to 17.0% and 19.5% for the comparable periods in 2020.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 72.0% and the loan to asset ratio was 59.0% at December 31, 2021. The Company maintained investment securities totaling 23.9% of assets as of the same date. Because interest rates remain extremely low, at December 31, 2021 the company maintained significant cash and cash equivalent assets which totaled 10.5% of assets. The Company’s deposit mix is weighted toward checking and saving accounts that fund 64.2% of assets at December 31, 2021. Time deposits fund 17.8% of assets at December 31, 2021, but very few of these deposits are in accounts that have balances of more than $250,000.

The Company continues to be strongly capitalized with tangible equity of $564 million at December 31, 2021. Due to the continued influx of deposits during 2021, the Company’s tangible equity ratio decreased from 10.3% at December 31, 2020 to 9.6% at December 31, 2021. At December 31, 2021, City National Bank’s Leverage Ratio was 8.45%, its Common Equity Tier I ratio was 14.35%, its Tier I Capital ratio was 14.35%, and its Total Risk-Based Capital ratio was 14.78%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On November 19, 2021, the Board approved a quarterly cash dividend of $0.60 cents per share payable January 31, 2022, to shareholders of record as of January 14, 2022. This represents a 3.45% increase from the $0.58 per share dividend paid on October 29, 2021. During the year ended December 31, 2021, the Company repurchased 760,000 common shares at a weighted average price of $77.21 per share as part of a one million share repurchase plan authorized by the Board of Directors in March 2021. As of December 31, 2021, the Company could repurchase approximately 315,000 shares under the current plan.

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, 2020 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 credit 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 December 31, 2021 Form 10-K. The Company will continue to evaluate the impact of any subsequent events on the preliminary December 31, 2021 results and will adjust the amounts if necessary.