8-K: City Holding Company Announces Record Annual Earnings for 2023

City Holding Company reports record net income and diluted earnings per share for the year ended December 31, 2023, despite a challenging year for the banking industry.

Summary

• City Holding Company announced record net income of $114.4 million and record diluted earnings of $7.61 per share for the year ended December 31, 2023.
• The company achieved a return on assets of 1.87% and a return on tangible equity of 23.8% for the year.
• City completed the acquisition of Citizens Commerce Bancshares, Inc. in 2023, enhancing its market position in central Kentucky.
• Loans grew over 6% in 2023, net of loans acquired from Citizens, and asset quality remained strong.
• Checking accounts grew approximately 2% in 2023.
• The cost of deposits rose by 60 basis points, while interest earning asset yields rose by 145 basis points during the year.
• Average deposits in the fourth quarter of 2023 declined 5.5% from the fourth quarter of 2022, but only 0.5% from the third quarter of 2023.
• Net interest income increased from $180.0 million in 2022 to $219.2 million in 2023.
• The net interest margin increased from 3.33% in 2022 to 4.01% in 2023.
• Non-interest expenses increased by $19.2 million, or 15.5%, from 2022 to 2023, primarily due to acquisition and integration expenses and increased salaries and benefits.
• Loans increased by $479.7 million (13.2%) from December 31, 2022, to $4.13 billion at December 31, 2023.
• The company repurchased 667,000 common shares during 2023 at a weighted average price of $90.21 per share.
• The tangible equity ratio increased from 8.0% at December 31, 2022, to over 8.6% at December 31, 2023.

Sentiment

Score: 9

Explanation: The document conveys a very positive sentiment due to record earnings, strong growth metrics, and a solid capital position. While there are some challenges noted, the overall tone is optimistic and confident.

Positives

• The company achieved record annual earnings and diluted earnings per share.
• The return on assets and return on tangible equity were strong.
• The acquisition of Citizens Commerce Bancshares enhanced the company's market position.
• Loan growth was solid, and asset quality remained strong.
• Net interest income and net interest margin increased significantly.
• The company successfully repurchased a large number of shares.
• The company's capital position is strong with a tangible equity ratio over 8.6%.

Negatives

• Non-interest expenses increased significantly due to acquisition costs and higher employee expenses.
• Average deposits declined in the fourth quarter of 2023 compared to the same period in 2022.
• Net interest income decreased slightly in the fourth quarter of 2023 compared to the third quarter of 2023.
• The ratio of nonperforming assets to total loans increased slightly from 0.17% to 0.21%.

Risks

• The company faces risks related to general economic conditions, credit quality, and changes in the real estate market.
• Changes in interest rates and increased competition could impact the company's performance.
• Operational risks, including cybersecurity threats and data breaches, are a concern.
• The company's ability to execute its business plan, including future acquisitions, is subject to uncertainty.
• Regulatory changes and adverse legal actions could pose challenges.

Future Outlook

The company is exceptionally positioned for 2024 with a strong customer base, team, cost of funds, and asset quality. The company will continue to evaluate the impact of any subsequent events on the preliminary December 31, 2023 results and will adjust the amounts if necessary.

Management Comments

• 2023 was a challenging year for the banking industry, but a great year for City, said Citys President and CEO Charles Hageboeck.
• City's strong performance during the year highlights the value of the Company's deep customer base and conservative operating principles.
• We believe this growth resulted from a combination excellent service, strong products and technology, coupled with less competition than may be present in more urban markets.

Industry Context

The banking industry faced challenges in 2023, including rising interest rates and economic uncertainty. City Holding Company's strong performance indicates its resilience and ability to navigate these challenges, potentially outperforming some of its peers.

Comparison to Industry Standards

• City Holding Company's return on tangible equity of 23.8% is significantly higher than the average for US banks, which typically range from 8% to 15%.
• The net interest margin of 4.01% is also above the industry average, which has been under pressure due to rising deposit costs.
• Compared to regional banks like Truist Financial (TFC) and Fifth Third Bancorp (FITB), City's loan growth of over 6% (excluding acquisitions) is competitive.
• The company's efficiency ratio of 46.0% is better than many larger banks, indicating good cost management.
• The tangible equity ratio of over 8.6% is also strong compared to the regulatory minimums and many peers.

Stakeholder Impact

• Shareholders will benefit from the record earnings and dividend payments.
• Employees may see benefits from salary adjustments and increased health insurance.
• Customers will continue to receive services from a financially strong institution.
• The company's strong performance may positively impact suppliers and creditors.

Next Steps

• The company will continue to evaluate the impact of any subsequent events on the preliminary December 31, 2023 results.
• The company will pay a quarterly cash dividend of $0.715 per share on January 31, 2024.
• The company will close its Nichols Park branch in Lexington, Kentucky on February 9, 2024.

Key Dates

Keywords

earnings, net income, bank, financial results, loan growth, acquisition, interest income, deposits, capital, share repurchase