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美國
證券交易委員會
華盛頓特區20549
表格 10-Q
（標記一）
☒
根據1934年證券交易法第13或15(d)節的季度報告
截至季度結束日期的財務報告2024年9月30日

或者
☐
根據1934年證券交易法第13或15(d)節的轉型報告書
過渡期從__________到_____________

委員會檔案編號 0-11733
chcologoa02a15.jpg

城市控股公司
(根據其章程規定的註冊人準確名稱)
西弗吉尼亞州
55-0619957
（設立或組織的其他管轄區域）
（納稅人識別號碼）
25 Gatewater Road,
Charleston,
西弗吉尼亞州
25313
(主要領導機構的地址)
(郵政編碼)
(304) 769-1100
公司電話號碼，包括區號


（前名稱、地址及財政年度，如果自上次報告以來有更改）


根據法案第12（b）條註冊的證券：
每一類的名稱交易標誌在其上註冊的交易所的名稱
普通股，每股面值2.50美元CHCO納斯達克全球精選市場

請勾選以下選項確認您的申報情況：（1）在過去12個月（或爲期更短的申報期），根據證券交易法第13或15(d)條款，申報人已提交所有所需申報；（2）申報人在過去90天內遵守了上述申報要求。Yes  x    否  o 

請勾選以下選項確認您是否已在過去12個月（或爲期更短的申報期），根據規則405所述的《S-T條例》（本章第232.405條）提交了所有電子數據文件。Yes  x否o 



請勾選以下選項，以表明註冊公司是否爲大型快速報告公司、加速報告公司、非加速報告公司或小型報告公司。請參閱《交易所法案》第12b-2條中「大型快速彙報公司」、「加速彙報公司」和「小型報告公司」的定義。(選擇一個):
大型加速存取器
x
加速文件提交人
  o
非加速歸檔人
o
較小的報告公司
☐
新興成長公司
☐

如果是新興成長公司，請通過複選標記表明註冊申報人已選擇不使用符合任何新的或修訂的財務會計準則的擴展過渡期 依據《證券交易所法》第13(a)條規定提供的任何新的或修訂的財務會計準則，指示標記是否已選用。
o

請在法案規則 Rule 12b-2 下選擇是否爲殼制公司。    是  ☐     沒有☒

截至2024年5月31日，該註冊商的B類普通股發行量爲3,566,441股，其中155,333股14,702,125 截至2024年11月1日，普通股股份.


前瞻性聲明

本季度的10-Q表格中包含某些前瞻性聲明，這些聲明是根據1995年《私人證券訴訟改革法》的安全港規定而包含的。前瞻性聲明僅表達管理層對未來業績或事件的信念，並受到固有不確定性、風險和環境變化的影響，其中許多是管理層無法控制的。不確定性、風險、環境變化和其他因素可能導致公司（下文定義）的實際結果與前瞻性聲明中所預測的結果存在實質差異。可能導致實際結果與前瞻性聲明中討論的結果不符的因素包括但不限於公司截至2023年12月31日的年度10-K表格中所述的「ITEm 1A風險因素」以及以下內容：（1）一般經濟狀況，特別是我們開展業務的社區和市場的經濟狀況; (2) 信用風險，包括負面信用質量趨勢可能導致資產質量惡化的風險，我們的信貸損失準備可能不足以吸收貸款組合中的實際損失的風險，以及貸款組合集中風險；（3）房地產市場變化，包括擔保我們貸款組合部分價值的押押物價值；（4）利率環境變化；（5）運營風險，包括網絡安全風險和欺詐風險、數據處理系統故障和網絡入侵風險；（6）技術變化和競爭加劇，包括來自非銀行金融機構的競爭；（7）消費者偏好、消費和借貸習慣變化，對我們產品和服務的需求，以及客戶績效和信用狀況；（8）貸款和存款餘額增長困難；（9）我們有效執行業務計劃的能力，包括未來收購方面；（10）法規、法律、稅收、政府政策、貨幣政策和影響銀行控股公司及其子公司的會計政策的變化，包括存款保險費率水平的變化；（11）美國銀行系統財務狀況惡化可能影響公司對其他金融機構證券的投資估值；（12）監管執行措施和不利法律訴訟；（13）難以吸引和留住關鍵員工；以及（14）其他經濟、競爭、技術、運營、政府、監管、地緣政治和市場因素影響我們運營。此處所作的前瞻性聲明反映了管理層在作出此類聲明時的期望。提供此類信息是爲了幫助股東和潛在投資者了解公司當前和預期的財務運營情況，並根據1995年《私人證券訴訟改良法》中的安全港規定而包括其中。公司不承擔更新任何前瞻性聲明以反映作出此類聲明後出現的事件或情況的義務。





目錄
指數
城市控股公司及其附屬公司
頁數
   
第 1 項。
 
 
 
 
 
第 2 項。
第 3 項。
第 4 項。
  
  
第 1 項。
第 1A 項。
第 2 項。
第 3 項。
第 4 項。
第 5 項。
第 6 項。
  
 


目錄
第一部分 - 財務信息

基本報表

1
目錄
合併資產負債表
城市控股公司及其附屬公司
（以千爲單位，除股份數量外）
（未經審計）
2024年9月30日2023年12月31日
資產
現金和存放在銀行的款項$161,333 $123,033 
存款機構中的利息存款132,616 33,243 
現金及現金等價物293,949 156,276 
可供出售的投資證券，公允價值計量（已攤銷成本 $1,573,131 和 $1,479,545，減免信貸虧損準備 $0 分別爲2024年9月30日和2023年12月31日）
1,462,795 1,338,137 
其他證券30,859 30,966 
總投資證券1,493,654 1,369,103 
總貸款4,157,830 4,125,923 
信貸損失準備金(21,832)(22,745)
淨貸款4,135,998 4,103,178 
銀行擁有的人壽保險120,061 118,122 
資產和設備淨值70,651 72,146 
應計利息應收款21,785 20,290 
33,497 42,216 
商譽和其他無形資產，淨額160,640 162,568 
其他104,079 124,153 
總資產$6,434,314 $6,168,052 
負債  
存款：  
非計息帳戶$1,339,538 $1,342,804 
人形機器人-軸承:  
活期存款1,351,239 1,291,011 
儲蓄存款1,208,828 1,259,457 
定期存款1,203,046 1,040,990 
存款總額5,102,651 4,934,262 
短期借款：
FHLb短期預付款— 25,000 
協議回購出售的證券339,153 309,856 
FHLb長期預付款150,000 100,000 
其他負債101,211 121,868 
總負債5,693,015 5,490,986 
承諾和 contingencies - 請參閱備註I
股東權益  
優先股，面值$25，500,000 無已發行股數
— — 
普通股，每股面值 $，授權股數：百萬股；發行股數：分別爲2024年6月30日和2023年12月31日：百萬股；流通股數：分別爲2024年6月30日和2023年12月31日：百萬股2.50，50,000,000 19,047,548 2024年9月30日和2023年12月31日發行的股份，減去 4,345,423 和 4,215,731 分別爲庫藏股
47,619 47,619 
資本剩餘175,602 177,424 
保留盈餘835,778 780,299 
庫存股(230,836)(217,737)
其他全部權益方法積累的損失：  
未實現的可供出售證券損失(84,283)(107,958)
養老金責任資金不足(2,581)(2,581)
全部綜合收益累計損失總額(86,864)(110,539)
股東權益合計741,299 677,066 
負債合計和股東權益總計$6,434,314 $6,168,052 
To be read with the attached notes to consolidated financial statements.
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Consolidated Statements of Income (Unaudited)
City Holding Company and Subsidiaries
(in thousands, except earnings per share data)
Interest IncomeThree months ended September 30,Nine months ended September 30,
2024202320242023
  
Interest and fees on loans$61,407 $55,582 $179,820 $154,939 
Interest and dividends on investment securities:  
Taxable14,403 12,432 40,390 35,999 
Tax-exempt824 910 2,492 3,022 
Interest on deposits in depository institutions1,417 1,265 4,907 5,440 
Total Interest Income78,051 70,189 227,609 199,400 
Interest Expense  
Interest on deposits17,072 10,551 47,066 24,808 
Interest on short-term borrowings3,788 2,990 11,309 8,334 
Interest on FHLB long-term advances1,586 1,034 4,577 1,683 
Total Interest Expense22,446 14,575 62,952 34,825 
Net Interest Income55,605 55,614 164,657 164,575 
Provision for credit losses1,200 200 1,520 3,543 
Net Interest Income After Provision for Credit Losses54,405 55,414 163,137 161,032 
Non-Interest Income  
(Losses) gains on sale of investment securities, net(12)(730)(13)43 
Unrealized gains recognized on equity securities still held, net353 — 565 67 
Service charges7,531 7,124 21,546 20,593 
Bankcard revenue7,346 7,058 21,391 20,851 
Trust and investment management fee income2,923 2,409 8,308 7,000 
Bank owned  life insurance1,435 807 3,137 4,819 
Other income772 742 2,273 3,020 
Total Non-Interest Income20,348 17,410 57,207 56,393 
Non-Interest Expense  
Salaries and employee benefits19,245 18,289 56,874 54,391 
Occupancy related expense2,774 2,950 8,470 8,401 
Equipment and software related expense3,431 2,830 9,490 8,805 
FDIC insurance expense734 919 2,163 2,054 
Advertising1,081 790 2,920 2,524 
Bankcard expenses2,271 2,188 6,600 5,433 
Postage, delivery, and statement mailings666 668 2,046 1,911 
Office supplies480 457 1,365 1,468 
Legal and professional fees500 529 1,533 1,557 
Telecommunications578 568 1,802 1,797 
Repossessed asset losses, net of expenses21 40 256 78 
Merger related expenses— 2 — 5,647 
Other expenses5,857 4,798 16,791 14,346 
Total Non-Interest Expense37,638 35,028 110,310 108,412 
Income Before Income Taxes37,115 37,796 110,034 109,013 
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Income tax expense7,306 7,957 21,587 22,100 
Net Income Available to Common Shareholders$29,809 $29,839 $88,447 $86,913 
Basic earnings per common share$2.02 $1.98 $5.96 $5.78 
Diluted earnings per common share$2.02 $1.98 $5.96 $5.77 
    

To be read with the attached notes to consolidated financial statements.

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
City Holding Company and Subsidiaries
(in thousands)
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Net income available to common shareholders$29,809 $29,839 $88,447 $86,913 
Available-for-Sale Securities
Unrealized gains (losses) on available-for-sale securities arising during the period46,460 (48,273)31,023 (46,132)
Reclassification adjustment for net losses (gains) 12 730 13 (43)
   Other comprehensive income (loss) before income taxes46,472 (47,543)31,036 (46,175)
Tax effect(11,018)11,398 (7,361)11,070 
   Other comprehensive income (loss), net of tax35,454 (36,145)23,675 (35,105)
    Comprehensive Income (Loss), Net of Tax$65,263 $(6,306)$112,122 $51,808 

To be read with the attached notes to consolidated financial statements.
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Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
City Holding Company and Subsidiaries
Three Months Ended September 30, 2024 and 2023
(in thousands, except share amounts)


 Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)Total Shareholders’ Equity
Balance at June 30, 2023
$47,619 $176,746 $744,248 $(201,973)$(130,448)$636,192 
Net income— — 29,839 — — 29,839 
Other comprehensive loss, net of tax— — — — (36,145)(36,145)
Cash dividends declared ($0.72 per share)
— — (10,662)— — (10,662)
Stock-based compensation expense— 681 — — — 681 
Restricted awards granted— (314)— 314 — — 
Purchase of 109,382 treasury shares
— — — (9,771)— (9,771)
Balance at September 30, 2023
$47,619 $177,113 $763,425 $(211,430)$(166,593)$610,134 
 Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)Total Shareholders’ Equity
Balance at June 30, 2024
$47,619 $174,834 $817,549 $(230,944)$(122,318)$686,740 
Net income— — 29,809 — — 29,809 
Other comprehensive income, net of tax— — — — 35,454 35,454 
Cash dividends declared ($0.79 per share)
— — (11,580)— — (11,580)
Stock-based compensation expense— 3,585 — (2,709)— 876 
Restricted awards granted— (2,817)— 2,817 — — 
Balance at September 30, 2024
$47,619 $175,602 $835,778 $(230,836)$(86,864)$741,299 

To be read with the attached notes to consolidated financial statements.
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Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
City Holding Company and Subsidiaries
Nine Months Ended September 30, 2024 and 2023
(in thousands, except share amounts)


 Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)Total Shareholders’ Equity
Balance at December 31, 2022$47,619 $170,980 $706,696 $(215,955)$(131,488)577,852 
Adoption of ASU No. 2022-02— — 175 — — 175 
Balances at January 1, 202347,619 170,980 706,871 (215,955)(131,488)578,027 
Net income— — 86,913 — — 86,913 
Other comprehensive loss, net of tax— — — — (35,105)(35,105)
Cash dividends declared ($2.02 per share)
— — (30,359)— — (30,359)
Stock-based compensation expense— 2,407 — — — 2,407 
Restricted awards granted— (3,848)— 3,848 — — 
Purchase of 596,969 treasury shares
— — — (53,827)— (53,827)
Acquisition of Citizens Commerce Bancshares, Inc.— 7,574 — 54,504 — 62,078 
Balance at September 30, 2023
$47,619 $177,113 $763,425 $(211,430)$(166,593)$610,134 
 Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)Total Shareholders’ Equity
Balance at December 31, 2023$47,619 $177,424 $780,299 $(217,737)$(110,539)$677,066 
Net income— — 88,447 — — 88,447 
Other comprehensive income, net of tax— — — — 23,675 23,675 
Cash dividends declared ($2.22 per share)
— — (32,968)— — (32,968)
Stock-based compensation expense— 2,683 — — — 2,683 
Restricted awards granted— (4,312)— 4,312 — — 
Exercise of 5,009 stock options
— (193)— 485 — 292 
Purchase of 178,529 treasury shares
— — — (17,896)— (17,896)
Balance at September 30, 2024
$47,619 $175,602 $835,778 $(230,836)$(86,864)$741,299 

To be read with the attached notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (Unaudited)
City Holding Company and Subsidiaries
(in thousands)
 Nine months ended September 30,
20242023
Net income$88,447 $86,913 
Adjustments to reconcile net income to net cash provided by operating activities:  
Amortization, net5,709 6,496 
Provision for credit losses1,520 3,543 
Depreciation of premises and equipment3,153 3,452 
Deferred income tax expense (benefit)536 (1,491)
Net periodic employee benefit cost46 39 
Unrealized and realized investment securities gains, net(552)(110)
Stock-compensation expense2,683 2,407 
Excess tax expense from stock-compensation298 203 
Increase in value of bank-owned life insurance(3,188)(4,819)
Loans held for sale
   Loans originated for sale(8,383)(9,591)
   Proceeds from the sale of loans originated for sale8,452 9,713 
   Gain on sale of loans(69)(122)
Change in accrued interest receivable(1,495)(69)
Change in other assets4,914 12,068 
Change in other liabilities(3,935)(4,588)
Net Cash Provided by Operating Activities98,136 104,044 
Net decrease (increase) in loans(30,911)(107,988)
Securities available-for-sale
     Purchases(192,555)(56,734)
     Proceeds from sales of securities available-for-sale— 103,249 
     Proceeds from maturities and calls100,415 93,927 
Other investments
     Purchases(242)(5,970)
     Proceeds from sales903 77 
     Proceeds from maturities and calls— 747 
Purchases of premises and equipment(1,750)(2,392)
Proceeds from the disposals of premises and equipment92 283 
Proceeds from bank-owned life insurance policies1,248 207 
Payments for low income housing tax credits(10,378)(6,577)
Acquisition of Citizens Commerce Bancshares, Inc.— 14,013 
Net Cash (Used in) Provided by Investing Activities(133,178)32,842 
Net decrease in non-interest-bearing deposits(3,266)(78,236)
Net increase (decrease) in interest-bearing deposits171,753 (145,344)
Net increase (decrease) in short-term borrowings4,297 (18,793)
Proceeds from long-term debt50,000 100,000 
Purchases of treasury stock(17,896)(53,827)
Proceeds from exercise of stock options292 — 
Lease payments(599)(609)
Dividends paid(31,866)(29,361)
Net Cash Provided by (Used in) Financing Activities172,715 (226,170)
Increase (decrease) in Cash and Cash Equivalents137,673 (89,284)
Cash and cash equivalents at beginning of period156,276 200,000 
Cash and Cash Equivalents at End of Period$293,949 $110,716 

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Supplemental Cash Flow Information:
Cash paid for interest60,631 32,525 
Cash paid for income taxes21,740 26,162 
Acquisition
Identifiable assets acquired (net of purchase consideration)$— $319,738 
Liabilities assumed— 307,113 
Goodwill— 41,175 
Core deposit intangible— 8,278 
To be read with the attached notes to consolidated financial statements.
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Notes to Consolidated Financial Statements (Unaudited)
September 30, 2024

Note A -        Background and Basis of Presentation

City Holding Company ("City Holding"), a West Virginia corporation headquartered in Charleston, West Virginia, is a registered financial holding company under the Bank Holding Company Act and conducts its principal activities through its wholly-owned subsidiary, City National Bank of West Virginia ("City National"). City National is a retail and consumer-oriented community bank with 97 banking offices in West Virginia (58), Kentucky (22), Virginia (13) and southeastern Ohio (4). City National provides credit, deposit, and trust and investment management services to its customers in a broad geographical area that includes many rural and small community markets in addition to larger cities including Charleston (WV), Huntington (WV), Martinsburg (WV), Ashland (KY), Lexington (KY), Winchester (VA) and Staunton (VA). In addition to its branch network, City National's delivery channels include automated-teller-machines ("ATMs"), interactive-teller machines ("ITMs"), mobile banking, debit cards, interactive voice response systems, and Internet technology. The Company’s business activities are currently limited to one reportable business segment, which is community banking.

On March 10, 2023, the Company acquired 100% of the outstanding common shares of Citizens Commerce Bancshares, Inc. ("Citizens") and its principal banking subsidiary, Citizens Commerce Bank. See Note C for additional information on the acquisition.

The accompanying consolidated financial statements, which are unaudited, include all of the accounts of City Holding and its wholly-owned subsidiaries (collectively, the "Company"). All material intercompany transactions have been eliminated. The consolidated financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition for each of the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results of operations that can be expected for the year ending December 31, 2024. The Company’s accounting and reporting policies conform with generally accepted accounting principles for interim financial information, with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such policies require management to make estimates and develop assumptions that affect the amounts reported in the consolidated financial statements and related footnotes. Actual results could differ from management’s estimates.

The consolidated balance sheet as of December 31, 2023 has been derived from audited financial statements included in the Company’s 2023 Annual Report to Shareholders.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2023 Annual Report of the Company.

Note B -        Recent Accounting Pronouncements    

Recently Adopted

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." The FASB issued this ASU to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this ASU also require the following disclosures for equity securities subject to contractual sale restrictions: (1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet; (2) the nature and remaining duration of the restriction(s); and (3) the circumstances that could cause a lapse in the restriction(s). This ASU became effective for the Company on March 31, 2024. The adoption of ASU No. 2022-03 did not have a material impact to the Company's financial statements.

In March 2023, the FASB issued ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method." The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This ASU
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became effective for the Company on January 1, 2024. The Company did not elect to account for their tax equity investments using the proportional amortization method and as such, ASU No. 2023-02 did not have an impact on the Company's financial statements.

Pending Adoption
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". The amendment requires companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker. This ASU will become effective for the Company on December 31, 2024. The Company has one reportable segment and as such, adoption of ASU No. 2023-07 is not expected to have a material impact on the Company's financial statements.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The amendment requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. The adoption of ASU No. 2023-09 is not expected to have a material impact on the Company's financial statements, but will impact our income tax disclosures.


Note C -        Acquisition and Purchase Price Allocation

On March 10, 2023, the Company acquired 100% of the outstanding common shares of Citizens, and its principal banking subsidiary, Citizens Commerce Bank, in order to strengthen the Company's market presence in the Lexington, Kentucky area. The acquisition of Citizens was structured as a stock transaction in which the Company issued approximately 0.7 million shares, valued at approximately $61.6 million.


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The following table summarizes the consideration paid for Citizens and the amounts of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Consideration:
Common stock$61,570 
Cash13 
61,583 
Identifiable assets:
  Cash and cash equivalents14,041
  Investment securities41,008
  FHLB stock620
  Loans251,406
  Fixed assets3,237
  Bank owned life insurance2,966
  Deferred tax assets, net1,623
  Other assets5,198
Total identifiable assets320,099
Identifiable liabilities:
  Deposits299,251
  Short-term borrowings6,500
  Other liabilities1,864
Total identifiable liabilities307,615
Net identifiable assets (liabilities)12,484
Goodwill40,821
Core deposit intangible8,278
$61,583 

Investment Securities

Citizen's entire investment portfolio of $41 million was sold shortly after the acquisition date and resulted in a $0.7 million realized gain during the quarter ended March 31, 2023.

Acquired Loans

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that there was not deterioration of credit at the date of acquisition. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit deteriorated loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans with a fair value of $246.4 million on the date of acquisition.

In connection with the completion of the acquisition of Citizens during the year ended December 31, 2023, the Company recorded $2.0 million of credit loss expense associated with loans acquired from Citizens in its total provision for credit losses.

The fair value of purchased financial assets with credit deterioration ("PCD") was $4.9 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial asset with credit deterioration was
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$8.5 million. The Company estimates, on the date of acquisition, that $3.6 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

Acquired Deposits

The fair values of non-time deposits approximated their carrying value at the acquisition date. For time deposits, the fair values were estimated based on discounted cash flows, using interest rates that were being offered at the time of acquisition compared to the contractual interest rates. Based on this analysis, management recorded a premium on time deposits acquired of $0.6 million which is being amortized over 5 years.

Core Deposit Intangible

The Company believes that the customer relationships with the deposits acquired have an intangible value. In connection with the acquisition, the Company recorded a core deposit intangible asset of $8.3 million. The core deposit intangible asset represents the value that the acquiree had with their deposit customers. The fair value was estimated based on a discounted cash flow methodology that considered the type of deposit, deposit retention and the cost of the deposit base. The core deposit intangible is being amortized over 10 years.

Goodwill

Under GAAP, management has up to twelve months following the date of the acquisition to finalize the fair value of acquired assets and liabilities. The measurement period ends as soon as the Company receives information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Any subsequent adjustments to the fair value of the acquired assets and liabilities, intangible assets or other purchase accounting adjustments will result in adjustments to the goodwill recorded. As of September 30, 2024, over twelve months have occurred since the date of acquisition on March 10, 2023, and the measurement period is now complete. The following table summarizes adjustments to goodwill subsequent to December 31, 2023 and prior to end of measurement period (in thousands):

Goodwill
Balance at December 31, 2023$149,902 
Adjustment to goodwill acquired in conjunction with the acquisition of Citizens(140)
Balance at September 30, 2024$149,762 


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Note D -     Investments

The aggregate carrying and approximate fair values of investment securities follow (in thousands).  Fair values are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable financial instruments.

September 30, 2024December 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Securities available-for-sale:        
Obligations of states and     
political subdivisions$225,155 $595 $13,805 $211,945 $228,456 $371 $16,089 $212,738 
Mortgage-backed securities:     
U.S. government agencies1,310,067 5,111 101,113 1,214,065 1,211,484 2,362 125,753 1,088,093 
Private label6,405 — 109 6,296 6,997 — 293 6,704 
Trust preferred securities4,604 — 89 4,515 4,599 — 321 4,278 
Corporate securities26,900 46 972 25,974 28,009 137 1,822 26,324 
Total Securities Available-for-Sale$1,573,131 $5,752 $116,088 $1,462,795 $1,479,545 $2,870 $144,278 $1,338,137 

The Company's other investment securities include marketable equity securities and non-marketable equity securities held for investment. At September 30, 2024 and December 31, 2023, the Company held $7.2 million and $7.5 million, respectively, in marketable equity securities. Changes in the fair value of the marketable equity securities are recorded in "unrealized gains recognized on equity securities still held" in the consolidated statements of income. The Company's non-marketable securities consist of securities with limited marketability, such as stock in the Federal Reserve Bank ("FRB") or the Federal Home Loan Bank ("FHLB"). At September 30, 2024 and December 31, 2023, the Company held $23.6 million and $23.5 million, respectively, in non-marketable equity securities. These securities are carried at cost due to the restrictions placed on their transferability. The Company held no certificates of deposits for investment at September 30, 2024 and at December 31, 2023.

The majority of the Company's investment securities are mortgage-backed. These securities are collateralized by both residential and commercial properties. The mortgage-backed securities in which the Company has invested are predominantly issued by government-sponsored agencies such as Fannie Mae, Freddie Mac, and Ginnie Mae. At September 30, 2024 and December 31, 2023 there were no securities of any non-governmental issuer whose aggregate carrying value or estimated fair value exceeded 10% of shareholders' equity.

Certain investment securities owned by the Company were in an unrealized loss position (i.e., amortized cost basis exceeded the estimated fair value of the securities) as of September 30, 2024 and December 31, 2023.  The following table shows the gross unrealized losses and fair value of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
September 30, 2024
Less Than Twelve MonthsTwelve Months or GreaterTotal
Estimated Fair ValueUnrealized LossEstimated Fair ValueUnrealized LossEstimated Fair ValueUnrealized Loss
Securities available-for-sale:      
Obligations of states and political subdivisions$4,683 $33 $178,275 $13,772 $182,958 $13,805 
Mortgage-backed securities:  
U.S. Government agencies— — 766,660 101,113 766,660 101,113 
     Private label1,294 12 5,002 97 6,296 109 
Trust preferred securities — — 4,515 89 4,515 89 
Corporate securities— — 24,322 972 24,322 972 
Total available-for-sale$5,977 $45 $978,774 $116,043 $984,751 $116,088 
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December 31, 2023
Less Than Twelve MonthsTwelve Months or GreaterTotal
Estimated Fair ValueUnrealized LossEstimated Fair ValueUnrealized LossEstimated Fair ValueUnrealized Loss
Securities available-for-sale:      
Obligations of states and political subdivisions$7,591 $66 $180,560 $16,023 $188,151 $16,089 
Mortgage-backed securities:  
U.S. Government agencies2,046 10,271 740,914 115,482 742,960 125,753 
Private label— — 4,835 293 4,835 293 
Trust preferred securities— — 4,278 321 4,278 321 
Corporate securities— — 24,609 1,822 24,609 1,822 
Total available-for-sale$9,637 $10,337 $955,196 $133,941 $964,833 $144,278 

As of September 30, 2024, management does not intend to sell any impaired security and it is not more than likely that it will be required to sell any impaired security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage-related securities, general financial market uncertainty and market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date. Due to the previously mentioned factors, as of September 30, 2024, management believes the unrealized losses detailed in the table above are temporary and therefore no allowance for credit losses has been recognized on the Company’s securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss will be recognized in net income in the period the other-than-temporary impairment is identified, while any noncredit loss will be recognized in other comprehensive income. During the three and nine months ended September 30, 2024 and 2023, the Company had no credit-related net investment impairment losses.

The amortized cost and estimated fair value of debt securities at September 30, 2024, by contractual maturity, is shown in the following table (in thousands).  Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.  Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.
Amortized CostEstimated Fair Value
Available-for-Sale Debt Securities  
Due in one year or less$2,401 $2,388 
Due after one year through five years143,021 138,928 
Due after five years through ten years360,136 344,318 
Due after ten years1,067,573 977,161 
Total$1,573,131 $1,462,795 


Proceeds from sales, gross gains and gross losses recognized by the Company from investment security transactions are summarized in the table below (in thousands):
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Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Proceeds on sales of available for sale securities$— $17,690 $— $103,249 
Gross realized gains on available for sale securities sold$— $— $— $975 
Gross realized losses on available for sale securities sold— (730)— (932)
Net realized available for sale securities (losses) gains $— $(730)$— $43 
Gross unrealized gains recognized on equity securities still held$406 $929 $964 $679 
Gross unrealized losses recognized on equity securities still held(53)(929)(399)(612)
Net unrealized (losses) gains recognized on equity securities still held$353 $— $565 $67 

The carrying value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated $760 million and $709 million at September 30, 2024 and December 31, 2023, respectively.

Note E -        Loans

The following table summarizes the Company’s major classifications for loans (in thousands):
September 30, 2024December 31, 2023
Commercial and industrial$424,414 $426,951 
  1-4 Family194,670 206,237 
  Hotels383,232 357,142 
  Multi-family193,875 189,165 
  Non Residential Non-Owner Occupied665,210 680,590 
  Non Residential Owner Occupied236,826 240,328 
Commercial real estate1,673,813 1,673,462 
Residential real estate1,806,578 1,788,149 
Home equity190,149 167,201 
Consumer58,710 65,246 
Demand deposit account (DDA) overdrafts4,166 4,914 
Gross loans4,157,830 4,125,923 
Allowance for credit losses(21,832)(22,745)
Net loans$4,135,998 $4,103,178 
Construction loans included in:
  Commercial real estate$2,736 $2,459 
  Residential real estate7,604 23,066 

The Company’s commercial and residential real estate construction loans are primarily secured by real estate within the Company’s principal markets.  These loans were originated under the Company’s loan policies, which are focused on the risk characteristics of the loan portfolio, including construction loans. In the judgment of the Company's management, adequate consideration has been given to these loans in establishing the Company's allowance for credit losses (see Note F for additional information).




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Note F -      Allowance for Credit Losses
 
The following tables summarize the activity in the allowance for credit losses, by portfolio loan classification, for the three and nine months ended September 30, 2024 and 2023 (in thousands).  The allocation of a portion of the allowance in one portfolio segment does not preclude its availability to absorb losses in other portfolio segments.
Beginning BalanceCharge-offsRecoveriesProvision for (recovery of) credit lossesEnding Balance
Nine months ended September 30, 2024
Commercial and industrial$4,474 $(573)$87 $532 $4,520 
   1-4 Family1,402 (177)202 (193)1,234 
   Hotels2,211 — — 29 2,240 
   Multi-family1,002 — — (5)997 
   Non Residential Non-Owner Occupied4,077 (3)6 (1,043)3,037 
   Non Residential Owner Occupied2,453 (1,800)161 1,316 2,130 
Commercial real estate11,145 (1,980)369 104 9,638 
Residential real estate5,398 (348)255 586 5,891 
Home equity490 (205)60 279 624 
Consumer269 (159)147 69 326 
DDA overdrafts969 (1,165)1,079 (50)833 
$22,745 $(4,430)$1,997 $1,520 $21,832 
Beginning BalanceImpact of Adopting ASU 2022-02PCD Loan ReservesCharge-offsRecoveriesProvision for (recovery of) credit lossesEnding Balance
Nine months ended September 30, 2023
Commercial and industrial$3,568 $12 $— $(69)$766 $371 $4,648 
  1-4 Family566 (1)— (335)42 390 662 
  Hotels2,332 — — (40)— (72)2,220 
  Multi-family380 — 500 — — 135 1,015 
  Non Residential Non-Owner Occupied2,019 — 1,536 — 162 1,081 4,798 
  Non Residential Owner Occupied1,315 — 775 — 56 318 2,464 
Commercial real estate6,612 (1)2,811 (375)260 1,852 11,159 
Residential real estate5,427 (138)— (141)43 200 5,391 
Home equity290 (46)— (379)34 533 432 
Consumer110 (2)— (181)78 320 325 
DDA Overdrafts1,101 — — (1,229)1,034 267 1,173 
$17,108 $(175)$2,811 $(2,374)$2,215 $3,543 $23,128 
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Beginning BalanceCharge-offsRecoveriesProvision for (recovery of) credit lossesEnding Balance
Three months ended September 30, 2024
Commercial and industrial$4,232 $(206)$24 $470 $4,520 
   1-4 Family1,362 (109)179 (198)1,234 
   Hotels2,428 — — (188)2,240 
   Multi-family991 — — 6 997 
   Non Residential Non-Owner Occupied3,794 — 3 (760)3,037 
   Non Residential Owner Occupied2,397 (1,800)11 1,522 2,130 
Commercial real estate10,972 (1,909)193 382 9,638 
Residential real estate5,721 (43)27 186 5,891 
Home equity570 (57)13 98 624 
Consumer377 (24)25 (52)326 
DDA overdrafts816 (436)337 116 833 
$22,688 $(2,675)$619 $1,200 $21,832 
Three months ended September 30, 2023
Commercial and industrial$4,330 $— $597 $(279)$4,648 
  1-4 Family598 (255)12 307 662 
  Hotels2,133 — — 87 2,220 
  Multi-family1,009 — — 6 1,015 
  Non Residential Non-Owner Occupied4,786 — 6 6 4,798 
  Non Residential Owner Occupied2,378 — 56 30 2,464 
Commercial real estate10,904 (255)74 436 11,159 
Residential real estate5,573 (89)28 (121)5,391 
Home equity408 (112)18 118 432 
Consumer334 (10)27 (26)325 
DDA Overdrafts1,202 (422)321 72 1,173 
$22,751 $(888)$1,065 $200 $23,128 

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.

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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.

Non-Performing Loans

Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods that generally result in level rates of return.  Loan origination fees, and certain direct costs, are deferred and amortized as an adjustment to the yield over the term of the loan.  The accrual of interest generally is discontinued when a loan becomes 90 days past due as to principal or interest for all loan types.  However, any loan may be placed on non-accrual status if the Company receives information that indicates a borrower is unable to meet the contractual terms of its respective loan agreement. Other indicators considered for placing a loan on non-accrual status include the borrower’s involvement in bankruptcies, foreclosures, repossessions, litigation and any other situation resulting in doubt as to whether full collection of contractual principal and interest is attainable.  When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for credit losses.  Management may elect to continue the accrual of interest when the net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in the process of collection.

Generally for all loan classes, interest income during the period the loan is non-performing is recorded on a cash basis after recovery of principal is reasonably assured.  Cash payments received on nonperforming loans are typically applied directly against the outstanding principal balance until the loan is fully repaid.  Generally, loans are restored to accrual status when the obligation is brought current, the borrower has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of September 30, 2024 (in thousands):
Non-accrual With NoNon-accrual WithLoans Past Due
Allowance forAllowance forOver 90 Days
Credit LossesCredit LossesStill Accruing
Commercial & Industrial$614 $3,017 $— 
   1-4 Family— 271 — 
   Hotels— — — 
   Multi-family— — — 
   Non Residential Non-Owner Occupied— 380 — 
   Non Residential Owner Occupied6,105 2,275 — 
Commercial Real Estate6,105 2,926 — 
Residential Real Estate— 2,596 19 
Home Equity— 109 37 
Consumer— — 46 
Total$6,719 $8,648 $102 




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The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of December 31, 2023 (in thousands):

Non-accrual With NoNon-accrual WithLoans Past Due
Allowance forAllowance forOver 90 Days
Credit LossesCredit LossesStill Accruing
Commercial & Industrial$1,000 $1,211 $— 
   1-4 Family— 521 — 
   Hotels— — — 
   Multi-family— — — 
   Non Residential Non-Owner Occupied— 446 — 
   Non Residential Owner Occupied— 1,420 — 
Commercial Real Estate— 2,387 — 
Residential Real Estate— 2,849 214 
Home Equity— 111 56 
Consumer— — — 
Total$1,000 $6,558 $270 

The Company recognized no interest income on non-accrual loans during each of the three and nine months ended September 30, 2024 and 2023.


As of September 30, 2024, the company had one commercial and industrial loan and three owner occupied commercial real estate loans that were considered individually evaluated collateral-dependent loans totaling $6.72 million. The company had one commercial and industrial individually evaluated collateral dependent loan recorded at $1.0 million as of December 31, 2023. Changes in the fair value of the collateral for collateral-dependent loans are reported as a provision for credit loss or a recovery of credit loss in the period of change.

Generally, all loan types are considered past due when the contractual terms of a loan are not met and the borrower is 30 days or more past due on a payment.  Furthermore, residential and home equity loans are generally subject to charge-off when the loan becomes 120 days past due, depending on the estimated fair value of the collateral less cost to dispose, versus the outstanding loan balance.  Commercial loans are generally charged off when the loan becomes 120 days past due.  Open-end consumer loans are generally charged off when the loan becomes 180 days past due.
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The following tables present the aging of the amortized cost basis in past-due loans as of September 30, 2024 and December 31, 2023 by class of loan (in thousands):
September 30, 2024
30-5960-8990+TotalCurrentNon-Total
Past DuePast DuePast DuePast DueLoansaccrualLoans
Commercial and industrial$57 $— $— $57 $420,726 $3,631 $424,414 
   1-4 Family992 — — 992 193,407 271 194,670 
   Hotels— — — — 383,232 — 383,232 
   Multi-family— — — — 193,875 — 193,875 
   Non Residential Non-Owner Occupied— — — — 664,830 380 665,210 
   Non Residential Owner Occupied— — — — 228,446 8,380 236,826 
Commercial real estate992 — — 992 1,663,790 9,031 1,673,813 
Residential real estate7,540 646 19 8,205 1,795,777 2,596 1,806,578 
Home Equity1,436 98 37 1,571 188,469 109 190,149 
Consumer96 19 46 161 58,549 — 58,710 
Overdrafts327 6 — 333 3,833 — 4,166 
Total$10,448 $769 $102 $11,319 $4,131,144 $15,367 $4,157,830 

December 31, 2023
30-5960-8990+TotalCurrentNon-Total
Past DuePast DuePast DuePast DueLoansaccrualLoans
Commercial and industrial$185 $250 $— $435 $424,305 $2,211 $426,951 
   1-4 Family67 25 — 92 205,624 521 206,237 
   Hotels— — — — 357,142 — 357,142 
   Multi-family— — — — 189,165 — 189,165 
   Non Residential Non-Owner Occupied— — — — 680,144 446 680,590 
   Non Residential Owner Occupied623 — — 623 238,285 1,420 240,328 
Commercial real estate690 25 — 715 1,670,360 2,387 1,673,462 
Residential real estate7,034 811 214 8,059 1,777,241 2,849 1,788,149 
Home Equity1,020 159 56 1,235 165,855 111 167,201 
Consumer129 — — 129 65,117 — 65,246 
Overdrafts355 9 — 364 4,550 — 4,914 
Total$9,413 $1,254 $270 $10,937 $4,107,428 $7,558 $4,125,923 

Loan Restructurings

The Company evaluates all loan restructurings in accordance with ASU No. 2022-02 for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows. During the three and nine months ended September 30, 2024, the company had
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one loan considered to be a restructured loan with a total balance of $0.2 million. The Company had no loan modifications that were considered restructured loans during the three and nine months ended September 30, 2023.

A loan that is considered a restructured loan may be subject to the individually evaluated loan analysis, otherwise, the restructured loan will remain in the appropriate segment in the Allowance for Credit Losses model and associated reserves will be adjusted based on changes in the discounted cash flows resulting from the modification of the restructured loan.

Credit Quality Indicators
 
All commercial loans within the portfolio are subject to internal risk rating.  All non-commercial loans are evaluated based on payment history.  The Company’s internal risk ratings for commercial loans are:  Exceptional, Good, Acceptable, Pass/Watch, Special Mention, Substandard and Doubtful.  Each internal risk rating is defined in the loan policy using the following criteria:  balance sheet yields; ratios and leverage; cash flow spread and coverage; prior history; capability of management; market position/industry; potential impact of changing economic, legal, regulatory or environmental conditions; purpose; structure; collateral support; and guarantor support.  Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process.  Based on an individual loan’s risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of expected loss.
 
The Company categorizes loans into risk categories based on relevant information regarding the customer’s debt service ability, capacity and overall collateral position, along with other economic trends and historical payment performance.  The risk rating for each credit is updated when the Company receives current financial information, the loan is reviewed by the Company’s internal loan review and credit administration departments, or the loan becomes delinquent or impaired.  The risk grades are updated a minimum of annually for loans rated Exceptional, Good, Acceptable, or Pass/Watch.  Loans rated Special Mention, Substandard or Doubtful are reviewed at least quarterly.  The Company uses the following definitions for its risk ratings:

Risk RatingDescription
Pass Ratings:
(a) ExceptionalLoans classified as exceptional are secured with liquid collateral conforming to the internal loan policy.  Loans rated within this category pose minimal risk of loss to the bank.
(b) GoodLoans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans in this category generally have a low chance of loss to the bank.
(c) AcceptableLoans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles.  Loans within this category generally have a low risk of loss to the bank.
(d) Pass/watchLoans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk.  A borrower in this category poses a low to moderate risk of loss to the bank.
Special mentionLoans classified as special mention have a potential weakness(es) that deserves management’s close attention.  The potential weakness could result in deterioration of the loan repayment or the bank’s credit position at some future date.  A loan rated in this category poses a moderate loss risk to the bank.
SubstandardLoans classified as substandard reflect a customer with a well-defined weakness that jeopardizes the liquidation of the debt.  Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank’s collateral value is weakened by the financial deterioration of the borrower.
DoubtfulLoans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable.  Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position.

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Based on the most recent analysis performed, the risk category of loans by class of loans at September 30, 2024 and December 31, 2023 is as follows (in thousands), with the loans acquired from Citizens categorized by their origination date:

Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial and industrial
Pass$56,281 $66,407 $28,116 $65,707 $38,036 $24,463 $110,509 $389,519 
Special mention60 — — — — — — 60 
Substandard967 492 2,382 600 2,620 2,089 25,685 34,835 
Total$57,308 $66,899 $30,498 $66,307 $40,656 $26,552 $136,194 $424,414 
YTD Gross Charge-offs$— $6 $— $69 $— $248 $250 $573 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial and industrial
Pass$70,494 $47,473 $76,605 $47,688 $21,820 $18,328 $111,546 $393,954 
Special mention— 33 — 2,600 22 — 70 2,725 
Substandard379 2,748 854 775 923 1,538 23,055 30,272 
Total$70,873 $50,254 $77,459 $51,063 $22,765 $19,866 $134,671 $426,951 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
1-4 Family
Pass$27,206 $31,363 $41,961 $29,178 $18,817 $33,885 $8,664 $191,074 
Special mention— 442 183 — 900 629 250 2,404 
Substandard— — 100 — 240 852 — 1,192 
Total$27,206 $31,805 $42,244 $29,178 $19,957 $35,366 $8,914 $194,670 
YTD Gross Charge-offs$— $— $— $— $— $177 $— $177 











23
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Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
1-4 Family
Pass$38,143 $53,907 $32,058 $21,363 $12,073 $29,846 $13,967 $201,357 
Special mention565 451 — 1,167 — 730 250 3,163 
Substandard— 77 — 250 131 1,259 — 1,717 
Total$38,708 $54,435 $32,058 $22,780 $12,204 $31,835 $14,217 $206,237 

Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
Hotels
Pass$37,281 $47,588 $79,172 $31,767 $6,896 $154,958 $293 $357,955 
Special mention— — — — — — — — 
Substandard— — — — — 25,277 — 25,277 
Total$37,281 $47,588 $79,172 $31,767 $6,896 $180,235 $293 $383,232 
YTD Gross Charge-offs$— $— $— $— $— $— $— $— 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
Hotels
Pass$47,739 $82,200 $33,560 $3,327 $58,384 $101,740 $305 $327,255 
Special mention— — — — — — — — 
Substandard— — — 4,020 23,604 2,263 — 29,887 
Total$47,739 $82,200 $33,560 $7,347 $81,988 $104,003 $305 $357,142 

24
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Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
Multi-family
Pass$14,909 $6,888 $27,946 $20,741 $57,060 $65,118 $1,213 $193,875 
Special mention— — — — — — — — 
Substandard— — — — — — — — 
Total$14,909 $6,888 $27,946 $20,741 $57,060 $65,118 $1,213 $193,875 
YTD Gross Charge-offs$— $— $— $— $— $— $— $— 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
Multi-family
Pass$6,925 $21,320 $28,268 $63,750 $38,007 $29,814 $1,081 $189,165 
Special mention— — — — — — — — 
Substandard— — — — — — — — 
Total$6,925 $21,320 $28,268 $63,750 $38,007 $29,814 $1,081 $189,165 

Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
Non Residential Non-Owner Occupied
Pass$23,257 $111,608 $117,333 $94,144 $55,148 $219,487 $15,993 $636,970 
Special mention— — — 94 492 24,359 — 24,945 
Substandard75 23 — 141 — 3,056 — 3,295 
Total$23,332 $111,631 $117,333 $94,379 $55,640 $246,902 $15,993 $665,210 
YTD Gross Charge-offs$— $— $— $— $— $3 $— $3 
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Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
Non Residential Non-Owner Occupied
Pass$117,515 $119,382 $99,210 $59,083 $64,332 $156,941 $32,111 $648,574 
Special mention— — 102 731 165 24,747 — 25,745 
Substandard— — 145 2,395 79 3,652 — 6,271 
Total$117,515 $119,382 $99,457 $62,209 $64,576 $185,340 $32,111 $680,590 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
Non Residential Owner Occupied
Pass$14,220 $46,192 $29,270 $39,095 $15,433 $67,994 $3,299 $215,503 
Special mention— — — — — 2,798 — 2,798 
Substandard— 3,789 858 1,948 1,168 10,398 364 18,525 
Total$14,220 $49,981 $30,128 $41,043 $16,601 $81,190 $3,663 $236,826 
YTD Gross Charge-offs$— $— $— $— $— $1,800 $— $1,800 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
Non Residential Owner Occupied
Pass$41,481 $34,320 $42,203 $16,990 $21,772 $52,363 $6,060 $215,189 
Special mention— — 164 — 2,880 431 188 3,663 
Substandard3,957 909 2,010 1,212 1,335 11,792 261 21,476 
Total$45,438 $35,229 $44,377 $18,202 $25,987 $64,586 $6,509 $240,328 
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Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Commercial real estate -
Total
Pass$116,872 $243,639 $295,683 $214,926 $153,355 $541,441 $29,461 $1,595,377 
Special mention— 442 183 94 1,393 27,786 250 30,148 
Substandard75 3,811 958 2,089 1,408 39,583 364 48,288 
Total$116,947 $247,892 $296,824 $217,109 $156,156 $608,810 $30,075 $1,673,813 
YTD Gross Charge-offs$— $— $— $— $— $1,980 $— $1,980 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Commercial real estate -
Total
Pass$251,802 $311,129 $235,298 $164,514 $194,569 $370,704 $53,522 $1,581,538 
Special mention565 451 266 1,898 3,045 25,909 438 32,572 
Substandard3,957 986 2,155 7,877 25,148 18,968 261 59,352 
Total$256,324 $312,566 $237,719 $174,289 $222,762 $415,581 $54,221 $1,673,462 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Residential real estate
Performing$163,811 $215,041 $364,725 $291,741 $228,626 $469,765 $70,273 $1,803,982 
Non-performing— — 156 194 56 1,980 210 2,596 
Total$163,811 $215,041 $364,881 $291,935 $228,682 $471,745 $70,483 $1,806,578 
YTD Gross Charge-offs$— $— $74 $— $— $164 $110 $348 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Residential real estate
Performing$234,802 $392,865 $314,617 $250,030 $109,736 $410,925 $72,324 $1,785,299 
Non-performing$161 $119 $183 $26 $713 $1,349 $299 $2,850 
Total$234,963 $392,984 $314,800 $250,056 $110,449 $412,274 $72,623 $1,788,149 
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Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Home equity
Performing$25,137 $26,137 $11,733 $5,421 $2,952 $6,488 $112,172 $190,040 
Non-performing— — — — 14 — 95 109 
Total$25,137 $26,137 $11,733 $5,421 $2,966 $6,488 $112,267 $190,149 
YTD Gross Charge-offs$— $— $— $— $13 $162 $30 $205 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Home equity
Performing$29,611 $13,921 $6,218 $3,826 $2,510 $5,108 $105,896 $167,090 
Non-performing— — — 14 — — 97 111 
Total$29,611 $13,921 $6,218 $3,840 $2,510 $5,108 $105,993 $167,201 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
September 30, 2024
20242023202220212020PriorCost BasisTotal
Consumer
Performing$13,685 $23,658 $12,993 $2,765 $1,798 $1,830 $1,981 $58,710 
Non-performing— — — — — — — — 
Total$13,685 $23,658 $12,993 $2,765 $1,798 $1,830 $1,981 $58,710 
YTD Gross Charge-offs$4 $30 $32 $4 $10 $78 $1 $159 
Revolving
Term LoansLoans
Amortized Cost Basis by Origination Year and Risk LevelAmortized
December 31, 2023
20232022202120202019PriorCost BasisTotal
Consumer
Performing$33,700 $18,293 $4,531 $3,148 $2,120 $1,645 $1,809 $65,246 
Non-performing— — — — — — — — 
Total$33,700 $18,293 $4,531 $3,148 $2,120 $1,645 $1,809 $65,246 
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Note G -    Derivative Instruments

The Company has exposure to certain risks arising from both its business operations and economic conditions including interest rate risk which are managed through use of derivative instruments. The Company's maintains non-hedging interest swap derivatives with customer counterparties. Additionally, the Company has fair value hedge derivative relationships on certain available-for-sale securities and loan relationships.

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company's derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association ("ISDA") master agreements which include "right of setoff" provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes.

Pursuant to the Company's agreements with certain of its derivative financial institution counterparties, the Company may receive collateral or post collateral, generally in the form of securities, based upon mark-to-mark positions. The Company received collateral with a value of $35.4 million and $55.6 million as of September 30, 2024 and December 31, 2023, respectively.

Non-hedging interest rate derivatives

As of September 30, 2024 and December 31, 2023, the Company primarily utilizes non-hedging derivative financial instruments with commercial banking customers to facilitate their interest rate management strategies. For these instruments, the Company acts as an intermediary for its customers and has offsetting contracts with financial institution counterparties. Changes in the fair value of these underlying derivative contracts generally offset each other and do not significantly impact the Company's results of operations.

The following table summarizes the notional and fair value of these derivative instruments (in thousands):
September 30, 2024December 31, 2023
Notional AmountFair ValueNotional AmountFair Value
Non-hedging interest rate derivatives:
Customer counterparties:
Loan interest rate swap - assets$112,554 $3,100 $61,242 $2,176 
Loan interest rate swap - liabilities529,727 35,282 555,693 46,402 
Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan interest rate swap - assets547,727 36,176 573,693 47,555 
Loan interest rate swap - liabilities112,554 3,100 61,242 2,176 

The following table summarizes the change in fair value of these derivative instruments (in thousands):
 Three months ended September 30,Nine months ended September 30,
2024202320242023
Change in Fair Value Non-Hedging Interest Rate Derivatives:  
Other (expense) income - derivative assets$(16,556)$13,565 $(10,057)$8,088 
Other income (expense) - derivative liabilities16,556 (13,565)10,057 (8,088)
Other (expense) income - derivative liabilities(342)132 (258)65 

Loans associated with a customer counterparty loan interest rate swap agreement may be subject to a make whole penalty upon termination of the agreement. The dollar amount of the make whole penalty varies based on the remaining term of the agreement and market rates at that time. The make whole penalty is secured by equity in the specific collateral securing the loan. The Company estimates the make whole penalty when determining if there is sufficient collateral to pay off both the potential make whole penalty and the outstanding loan balance at the origination of the loan. In the event of a customer default,
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the make whole penalty is capitalized into the existing loan balance; however, no guarantees can be made that the collateral will be sufficient to cover both the make whole provision and the outstanding loan balance at the time of foreclosure.

Fair Value Hedges

During the year ended December 31, 2020, the Company entered into a series of fair value hedge agreements to reduce the interest rate risk associated with the change in fair value of certain securities. The total notional amount of these agreements was $150 million and the amortized cost of the hedged assets was $289.0 million and $303.7 million as of September 30, 2024 and December 31, 2023, respectively. During the three and nine months ended September 30, 2024 and 2023, the fair value hedge agreements were effective. The gains or losses on these hedges are recognized in current earnings as fair value changes.

The following table summarizes the financial statement impact of these derivative instruments (in thousands):

September 30, 2024December 31, 2023
Investment securities available for sale, at fair value$(5,511)$(10,075)
Other assets5,543 10,095 
Cumulative adjustment to Interest and dividends on investment securities(32)(20)


In addition to the agreements entered into in the year ended December 31, 2020, the Company has less than $0.1 million of other fair value hedges to reduce the interest rate risk associated with the change in fair value of certain securities as of September 30, 2024 and December 31, 2023.

During the year ended December 31, 2023, the Company entered into a fair value hedge agreement to reduce the interest rate risk associated with the change in fair value of certain loans. The total notional amount of these agreements was $100 million. During the three and nine months ended September 30, 2024, the fair value hedge agreements were effective. The gains or losses on these hedges are recognized in current earnings as fair value changes.

The following table summarizes the financial statement impact of these derivative instruments (in thousands):

September 30, 2024
Gross loans$58 
Other liabilities(70)
Cumulative adjustment to Interest and fees on loans12 


Note H -     Employee Benefit Plans

Restricted Shares, Restricted Stock Units ("RSUs"), Performance Share Units ("PSUs")

The Company records compensation expense with respect to restricted shares, RSUs and PSUs (collectively, the "restricted shares") in an amount equal to the fair value of the common stock covered by each award on the date of grant. These restricted shares become fully vested after various periods of continued employment from the respective dates of grant. The Company is entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Compensation is being charged to expense over the respective vesting periods.

Restricted shares are forfeited if the awarded officer or employee terminates his employment with the Company prior to the lapsing of restrictions. The Company records forfeitures of restricted stock as treasury share repurchases and any compensation cost previously recognized is reversed in the period of forfeiture.  Recipients of restricted shares do not pay any cash consideration to the Company for the shares, and, except for restricted stock units and performance share units, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested.  For restricted shares that have performance-based criteria, management has evaluated those criteria and has determined that, as of September 30, 2024, the criteria were probable of being met.

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A summary of the Company’s restricted shares activity and related information is presented below:
Nine months ended September 30,
 20242023
Restricted AwardsAverage Market Price at GrantRestricted AwardsAverage Market Price at Grant
Outstanding at January 1135,558 $79.19 140,606 $73.87 
Granted46,550 98.20 43,819 90.56 
Vested/Forfeited(44,409)76.69 (44,317)72.84 
Outstanding at September 30137,699 $84.88 140,108 $78.62 

Information regarding stock-based compensation associated with restricted shares is provided in the following table (in thousands):
Three months ended September 30,Nine months ended September 30,
2024202320242023
Stock-based compensation expense associated with restricted shares$876 $681 $2,331 $2,022 
At period-end:September 30, 2024
Unrecognized stock-based compensation expense associated with restricted shares$6,334 
Weighted average period (in years) in which the above amount is expected to be recognized3.11

Shares issued in conjunction with restricted stock awards are issued from available treasury shares. If no treasury shares are available, new shares would be issued from available authorized shares. During the nine months ended September 30, 2024 and 2023, all shares issued in connection with restricted stock awards were issued from available treasury stock.

Benefit Plans
 
The Company provides retirement benefits to its employees through the City Holding Company 401(k) Plan and Trust (the “401(k) Plan”), which is intended to be compliant with Employee Retirement Income Security Act (ERISA) section 404(c). The Company also maintains a frozen defined benefit pension plan (the “Defined Benefit Plan”), which was inherited from the Company's acquisition of the plan sponsor (Horizon Bancorp, Inc.). The Defined Benefit Plan was frozen in 1999 and maintains a December 31st year-end for purposes of computing its benefit obligations.

The following table presents the components of the Company's net periodic benefit cost, which is included in the line item "other expenses" in the consolidated statements of income (in thousands):
Three months ended September 30,Nine months ended September 30,
2024202320242023
Components of net periodic cost:  
Interest cost$129 $137 $388 $412 
Expected return on plan assets(207)(210)(621)(630)
Net amortization and deferral93 86 279 257 
Net Periodic Pension Cost$15 $13 $46 $39 
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Note I -         Commitments and Contingencies

Credit-Related Financial Instruments

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  The Company has entered into agreements with certain customers to extend credit or provide a conditional commitment to provide payment on drafts presented in accordance with the terms of the underlying credit documents. The Company also provides overdraft protection to certain demand deposit customers that represent an unfunded commitment.  Overdraft protection commitments, which are included with other commitments below, are uncollateralized and are paid at the Company’s discretion.  Conditional commitments generally include standby and commercial letters of credit. Standby letters of credit represent an obligation of the Company to a designated third party contingent upon the failure of a customer of the Company to perform under the terms of the underlying contract between the customer and the third party. Commercial letters of credit are issued specifically to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated, as intended, between the customer and a third party. The majority of the Company's commitments have variable interest rates. The funded portion of these financial instruments is reflected in the Company’s balance sheet, while the unfunded portion of these commitments is not reflected in the balance sheet.  

The table below presents a summary of the contractual obligations of the Company resulting from significant commitments (in thousands):
September 30, 2024December 31, 2023
Commitments to extend credit:  
Home equity lines$246,135 $243,893 
Commercial real estate96,114 52,002 
Other commitments350,928 316,200 
Standby letters of credit3,005 4,916 
Commercial letters of credit9,567 6,117 
 
Loan commitments and standby and commercial letters of credit have credit risks essentially the same as those involved in extending loans to customers and are subject to the Company’s standard credit policies. Collateral is obtained based on management’s credit assessment of the customer. Management does not anticipate any material losses as a result of these commitments.

Litigation

In addition, 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 legal actions will have an immaterial impact on financial results, either positive or negative, or that no material legal actions may be presented in the future.
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Note J -         Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss is presented in the tables below (in thousands). All amounts are shown net of tax, which is calculated using a combined federal and state income tax rate approximating 24%.

Three months ended September 30,Nine months ended September 30,
DefinedDefined
BenefitSecuritiesBenefitSecurities
PensionAvailable-PensionAvailable-
Plan-for-SaleTotalPlan-for-SaleTotal
2024
Beginning Balance$(2,581)$(119,737)$(122,318)$(2,581)$(107,958)$(110,539)
   Other comprehensive income before reclassifications— 35,444 35,444 — 23,664 23,664 
   Amounts reclassified from other comprehensive income— 10 10 — 11 11 
— 35,454 35,454 — 23,675 23,675 
Ending Balance$(2,581)$(84,283)$(86,864)$(2,581)$(84,283)$(86,864)
2023
Beginning Balance$(3,422)$(127,026)$(130,448)$(3,422)$(128,066)$(131,488)
   Other comprehensive (loss) before classifications— (36,700)(36,700)— (35,072)(35,072)
   Amounts reclassified from other comprehensive income— 555 555 — (33)(33)
— (36,145)(36,145)— (35,105)(35,105)
Ending Balance$(3,422)$(163,171)$(166,593)$(3,422)$(163,171)$(166,593)
Amounts reclassified from Other Comprehensive (Loss) Income
Three months endedNine months endedAffected line item
September 30,September 30,in the Consolidated Statements
2024202320242023of Income
Securities available-for-sale:
Net securities (losses) gains reclassified into earnings$(12)$(730)$(13)$43 (Losses) gains on sale of investment securities, net
Related income tax expense2 175 2 (10)Income tax expense (benefit)
Net effect on accumulated other comprehensive loss$(10)$(555)$(11)$33 
 

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Note K - Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share using the two class method (in thousands, except per share data): 
Three months ended September 30,Nine months ended September 30,
2024202320242023
Net income available to common shareholders$29,809 $29,839 $88,447 $86,913 
Less: earnings allocated to participating securities(278)(281)(823)(813)
Net earnings allocated to common shareholders$29,531 $29,558 $87,624 $86,100 
Distributed earnings allocated to common stock$11,506 $10,554 $32,333 $29,744 
Undistributed earnings allocated to common stock18,025 19,004 55,291 56,356 
Net earnings allocated to common shareholders$29,531 $29,558 $87,624 $86,100 
Average shares outstanding14,633 14,922 14,691 14,906 
Effect of dilutive securities:  
Employee stock awards21 23 20 22 
Shares for diluted earnings per share14,654 14,945 14,711 14,928 
Basic earnings per share$2.02 $1.98 $5.96 $5.78 
Diluted earnings per share$2.02 $1.98 $5.96 $5.77 

Anti-dilutive options are not included in the computation of diluted earnings per share because the options’ exercise price are greater than the average market price of the common shares and therefore, the effect is anti-dilutive. The Company had no anti-dilutive options for any of the periods shown above.

Note L -     Fair Value Measurements

Fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company bases fair value of assets and liabilities on quoted market prices, prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.  If such information is not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty creditworthiness, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.  A more detailed description of the valuation methodologies used for assets and liabilities
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measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Financial Assets and Liabilities

The Company used the following methods and significant assumptions to estimate fair value for financial assets and liabilities measured on a recurring basis.

Securities Available for Sale.  Securities available for sale are reported at fair value utilizing Level 1, Level 2, and Level 3 inputs.  The fair value of securities available for sale is determined by utilizing a market approach by obtaining quoted prices on nationally recognized securities exchanges (other than forced or distressed transactions) that occur in sufficient volume or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.  If such measurements are unavailable, the security is classified as Level 3.  Significant judgment is required to make this determination.

The Company utilizes a third party pricing service provider to value its Level 1 and Level 2 investment securities.  Annually, the Company obtains an independent auditor’s report from its third party pricing service provider regarding its controls over investment securities. On a quarterly basis, the Company reprices its debt securities with a third party that is independent of the primary pricing service provider to verify the reasonableness of the fair values.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs.  The Company utilizes a market approach by obtaining dealer quotations to value its customer interest rate swaps.  The Company’s derivatives are included within "other assets" and "other liabilities" in the accompanying consolidated balance sheets. Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured by the Company pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Company considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Company's Asset and Liability Committee ("ALCO") are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, if necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Company to estimate its own credit risk in derivative liability positions. To date, no material losses have been incurred due to a counterparty's inability to pay any undercollateralized position. There was no significant change in the value of derivative assets and liabilities attributed to credit risk that would have resulted in a derivative credit risk valuation adjustment at September 30, 2024.

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The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis.  Financial assets measured at fair value on a nonrecurring basis include individually evaluated loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based on observable market data for both real estate collateral and non-real estate collateral.  The following table presents assets and liabilities measured at fair value (in thousands):
TotalLevel 1Level 2Level 3
September 30, 2024    
Recurring fair value measurements    
Financial Assets    
Obligations of states and political subdivisions$211,945 $— $211,945 $— 
Mortgage-backed securities: 
U.S. Government agencies1,214,065 — 1,214,065 — 
Private label6,296 — 5,002 1,294 
Trust preferred securities4,515 — 4,515 — 
Corporate securities25,974 — 25,974 — 
Marketable equity securities7,225 2,356 4,869 — 
Derivative assets44,826 — 44,826 — 
Financial Liabilities    
Derivative liabilities38,452 — 38,452 — 
Nonrecurring fair value measurements    
Non-Financial Assets
     Other real estate owned729 — — 729 
December 31, 2023    
Recurring fair value measurements    
Financial Assets    
Obligations of states and political subdivisions$212,738 $— $212,738 $— 
Mortgage-backed securities: 
U.S. Government agencies1,088,093 — 1,088,093 — 
Private label6,704 — 4,833 1,871 
Trust preferred securities4,278 — 4,278 — 
Corporate securities26,324 — 26,324 — 
Marketable equity securities7,538 3,093 4,445 — 
Certificates of deposit held for investment— — — — 
Derivative assets60,527 — 60,527 — 
Financial Liabilities 
Derivative liabilities48,578 — 48,578 — 
Nonrecurring fair value measurements    
Non-Financial Assets
Other real estate owned731 — — 731 

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Changes in Level 3 Fair Value Measurements

The following table presents the changes in Level 3 assets recorded at fair value on a recurring basis during the periods indicated (in thousands):
    
September 30, 2024December 31, 2023
Beginning balance$1,871 $2,459 
Changes in fair value(13)95 
Changes due to principal reduction(564)(683)
Ending balance$1,294 $1,871 

No transfers into or out of Level 3 of the fair value hierarchy occurred during the three and nine months ended September 30, 2024 or year ended December 31, 2023.

The Company's financial assets and liabilities measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3) include individually evaluated loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for credit losses based upon the fair value of the underlying collateral (in thousands).  The fair value of individually evaluated loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows.  The significant unobservable inputs used in the fair value measurement of collateral for collateral-dependent individually evaluated loans primarily relate to discounts applied to the customers’ reported amount of collateral.  The amount of collateral discount depends upon the marketability of the underlying collateral.  Generally, the Company has applied collateral discounts, ranging from 10% to 30%. As of September 30, 2024, the company had one commercial and industrial loan and three owner occupied commercial real estate loans that were considered individually evaluated collateral-dependent loans totaling $6.72 million. The Company had one commercial and industrial individually evaluated collateral dependent loan recorded at $1.0 million as of December 31, 2023. The Company had no Level 2 financial assets and liabilities that were measured on a nonrecurring basis as of September 30, 2024 or as of December 31, 2023.

Non-Financial Assets and Liabilities

The Company has no non-financial assets or liabilities measured at fair value on a recurring basis.  Certain non-financial assets measured at fair value on a non-recurring basis include other real estate owned (“OREO”), which is measured at the lower of cost or fair value.

Fair Value of Financial Instruments

ASC Topic 825 “Financial Instruments,” as amended, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including discount rates and estimate of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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The following table represents the estimates of fair value of financial instruments (in thousands). For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest-bearing demand, interest-bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.
Carrying AmountFair ValueLevel 1Level 2Level 3
September 30, 2024     
Assets:
   Cash and cash equivalents$293,949 $293,949 $293,949 $— $— 
   Securities available-for-sale1,462,795 1,462,795 — 1,461,501 1,294 
   Marketable equity securities7,225 7,225 2,356 4,869 — 
   Net loans4,135,998 3,954,014 — — 3,954,014 
   Accrued interest receivable21,785 21,785 — 21,785 — 
   Derivative assets44,826 44,826 — 44,826 — 
Liabilities:
   Deposits5,102,651 4,958,096 3,763,113 1,194,983 — 
Short-term debt339,153 339,153 — 339,153 — 
   FHLB long-term advances150,000 152,530 — 152,530 — 
   Accrued interest payable6,720 6,720 — 6,720 — 
   Derivative liabilities38,452 38,452 — 38,452 — 
December 31, 2023     
Assets:     
   Cash and cash equivalents$156,276 $156,276 $156,276 $— $— 
   Securities available-for-sale1,338,137 1,338,137 — 1,336,266 1,871 
   Marketable equity securities7,538 7,538 3,093 4,445 — 
   Net loans4,103,178 3,922,638 — — 3,922,638 
   Accrued interest receivable20,290 20,290 — 20,290 — 
   Derivative assets60,527 60,527 — 60,527 — 
Liabilities:
   Deposits4,934,262 4,617,487 3,591,458 1,026,029 — 
Short-term debt334,856 334,856 — 334,856 — 
FHLB long-term advances100,000 99,928 — 99,928 — 
   Accrued interest payable4,301 4,301 — 4,301 — 
   Derivative liabilities48,578 48,578 — 48,578 — 

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates
 
The accounting policies of the Company conform with U.S. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. These estimates and assumptions are based on information available to management as of the date of the financial statements. Actual results could differ significantly from management’s estimates. As this information changes, management’s estimates and assumptions used to prepare the Company’s financial statements and related disclosures may also change. The most significant accounting policies followed by the Company are presented in Note One to the audited financial statements included in the Company’s 2023 Annual Report to Shareholders. The information included in this Quarterly Report on Form 10-Q, including the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the financial statements and notes thereto included in the 2023 Annual Report of the Company.  Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified: (i) the determination of the allowance for credit losses (ii) income taxes and (iii) acquisition and preliminary purchase price accounting to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new information becomes available.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off in the future. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These evaluations are conducted at least quarterly and more frequently if deemed necessary. Additionally, all commercial loans within the portfolio are subject to internal risk grading. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process.

In evaluating the appropriateness of its allowance for credit losses, the Company stratifies the loan portfolio into six major groupings. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
Portfolio SegmentMeasurement Method
Commercial and industrialMigration
Commercial real estate:
   1-4 familyMigration
   HotelsMigration
   Multi-familyMigration
   Non Residential Non-Owner OccupiedMigration
   Non Residential Owner OccupiedMigration
Residential real estateVintage
Home equityVintage
ConsumerVintage

Migration is an analysis that tracks a closed pool of loans for a configurable period of time and calculates a loss ratio on only those loans in the pool at the start date based on outstanding balance. Vintage is a predictive loss model that includes a reasonable approximation of probable and estimable future losses by tracking each loan's net losses over the life of the loan as compared to its original balance. For demand deposit overdrafts, the allowance for credit losses is measured using the historical loss rate. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not
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included in the collective evaluation. When management determines that foreclosure is probable, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructured loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The Company uses a number of economic variables in its scenarios to estimate the Allowance for credit losses (ACL), with the most significant drivers being an unemployment rate forecast and qualitative adjustments. In the September 30, 2024 estimate, the Company assumed a 2-year unemployment forecast range of 4.3% to 4.9%, changed from 4.0% to 4.7% for the June 30, 2024 estimate. Historical loss rates from periods where the average unemployment rate matches the forecast range are considered when calculating the forecast period loss rate. In total, the changes in loss rates increased the reserve $0.2 million for the quarter.

Based on sensitivity analysis of all portfolios, a 0.0050% change (slight improvement or decline on bank's scale) in all 11 qualitative risk factors (where assigned) would have a $2.2 million impact on the reserve allocation. Changing each factor by 0.01% (moderate improvement or decline) would have a $4.3 million, impact. Management recognizes that these are extreme scenarios and it is very unlikely that all risk factors would change by 0.005% or 0.01% simultaneously. For the September 30, 2024 estimate, no changes were made to the qualitative factors utilized in the previous quarter.

Income Taxes

The Company is subject to federal and state income taxes in the jurisdictions in which it conducts business.  In computing the provision for income taxes, management must make judgments regarding interpretation of laws in those jurisdictions.  Because the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities.  On a quarterly basis, the Company estimates its annual effective tax rate for the year and uses that rate to provide for income taxes on a year-to-date basis.  The amount of unrecognized tax benefits could change over the next twelve months as a result of various factors.  However, management cannot currently estimate the range of possible change.  The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state taxing authorities for the years ended December 31, 2021 and forward.

The effective tax rate is calculated by taking the statutory rate and adjusting for permanent and discrete items. The discrete items can vary between periods but historically have remained consistent.

Acquisition and Preliminary Purchase Price Allocation

The calculation of the Company's acquisition and preliminary purchase price allocation is considered a critical accounting estimate as it involves a significant level of estimation and uncertainty, particularly in relation to the fair value and goodwill calculations. Under GAAP, management has up to twelve months following the date of the acquisition to finalize the fair value of acquired assets and liabilities. The measurement period ends as soon as the Company receives information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Any subsequent adjustments to the fair value of the acquired assets and liabilities, intangible assets or other purchase accounting adjustments will result in adjustments to the goodwill recorded. As of September 30, 2024, over twelve months have occurred since the date of acquisition on March 10, 2023, and the measurement period is now complete.
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Financial Summary

Nine months ended September 30, 2024 vs. 2023

The Company's financial performance is summarized in the following table:
Nine months ended September 30,
20242023
Net income available to common shareholders (in thousands)
$88,447 $86,913 
Earnings per common share, basic$5.96 $5.78 
Earnings per common share, diluted$5.96 $5.77 
Dividend payout ratio37.3 %34.9 %
ROA*1.88 %1.91 %
ROE*16.9 %18.2 %
ROATCE*21.9 %23.9 %
Average equity to average assets ratio11.1 %10.5 %
*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.

The Company's net interest income for the nine months ended September 30, 2024 increased $0.1 million compared to the nine months ended September 30, 2023 (see Net Interest Income). The Company recorded a provision for credit losses of $1.5 million for the nine months ended September 30, 2024 compared to a provision of credit losses of $3.5 million for the nine months ended September 30, 2023 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-interest income increased $0.8 million and non-interest expense increased $1.9 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

Financial Summary

Three months ended September 30, 2024 vs. 2023

The Company's financial performance is summarized in the following table:
Three months ended September 30,
20242023
Net income available to common shareholders (in thousands)
$29,809 $29,839 
Earnings per common share, basic$2.02 $1.98 
Earnings per common share, diluted$2.02 $1.98 
Dividend payout ratio39.1 %36.1 %
ROA*1.87 %1.94 %
ROE*16.3 %18.1 %
ROATCE*20.9 %24.1 %
Average equity to average assets ratio11.4 %10.7 %
*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.

The Company's net interest income was $55.6 million for the three months ended September 30, 2024 and September 30, 2023, respectively (see Net Interest Income). The Company recorded a $1.2 million provision for credit losses for the three months ended September 30, 2024 compared to a $0.2 million provision for credit losses for the three months ended September 30, 2023 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and
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Non-Interest Expense, non-interest income increased $2.9 million and non-interest expense increased $2.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Balance Sheet Analysis

Selected balance sheet fluctuations from the year ended December 31, 2023 are summarized in the following table (in millions, except percentages):
September 30,December 31,
20242023$ Change% Change
Cash and cash equivalents$293.9 $156.3 $137.6 88.0 %
Total investment securities1,493.7 1,369.1 124.6 9.1 %
Gross loans4,157.8 4,125.9 31.9 0.8 %
Total deposits5,102.7 4,934.3 168.4 3.4 
FHLB long-term advances150.0 100.0 50.0 50.0 

Cash and cash equivalents increased $137.6 million (88.0%) from December 31, 2023 to $293.9 million at September 30, 2024, primarily due to an increase in deposit balances and an increase in FHLB long-term advances. These increasing impacts were partially offset by an increase in investment securities.

Total investment securities increased $124.6 million (9.1%) from December 31, 2023 to $1.49 billion at September 30, 2024, primarily due to security purchases that were partially offset by maturities and calls.

Gross loans increased $31.9 million (0.8%) from December 31, 2023 to $4.16 billion at September 30, 2024. Home equity loans increased $22.9 million (13.7%) and residential real estate loans increased $18.4 million (1.0%) during the first nine months of 2024. These increases were partially offset by a decrease in consumer loans of $6.5 million (10.0%) and a decrease in commercial and industrial loans of $2.5 million (0.6%).

Total deposits increased $168.4 million (3.4%) from December 31, 2023 to $5.1 billion at September 30, 2024. Time deposit balances increased $162.1 million and interest-bearing demand deposit balances increased $60.2 million. These increases were partially offset by a decrease in savings deposit balances of $50.6 million and a decrease in noninterest-bearing demand deposit balances of $3.3 million.

FHLB long-term advances increased $50.0 million from December 31, 2023 to September 30, 2024. During the first nine months of 2024, the Company borrowed an additional $50.0 million from the Federal Home Loan Bank at a rate of 4.39%.

Net Interest Income

Nine months ended September 30, 2024 vs. 2023

The Company’s net interest income increased from $164.6 million for the nine months ended September 30, 2023 to $164.7 million for the nine months ended September 30, 2024. The Company’s tax equivalent net interest income decreased $0.1 million to $165.3 million for the nine months ended September 30, 2024 from $165.4 the nine months ended September 30, 2023. The decrease in net interest income was due to an increase in the cost of interest bearing liabilities (91 basis points) and increase in average balance of interest bearing liabilities ($34.7 million), which decreased net interest income by $22.9 million and $4.5 million, respectively. Additionally, a decrease in the average balance of deposits in depository institutions ($46.5 million) decreased interest income by $1.5 million.

These decreases were essentially offset by increases in the Federal Funds rate since the nine months ended September 30, 2023, which increased net interest income by $18.3 million due to an increase in loan yields (net of loan fees and accretion) of 62 basis points. Net interest income increased $4.7 million due to an increase in investment yields of 44 basis points and an increase in average loans ($92.0 million) which increased interest income by $3.3 million. In addition, an increase of 110 basis points in the yield on deposits in depository institutions increased net interest income by $1.0 million. The Company’s reported net interest margin decreased from 4.02% for the nine months ended September 30, 2023 to 3.90% for the nine months ended September 30, 2024.
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Table One
Average Balance Sheets and Net Interest Income
(in thousands, except percentages)
AssetsNine months ended September 30,
20242023
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
      
Loan portfolio(1):
Residential real estate(2)
$1,968,377 $74,566 5.06 %$1,882,397 $64,410 4.57 %
Commercial, financial, and agriculture(2)
2,070,431 102,211 6.59 1,904,001 87,745 6.16 
   Installment loans to individuals(2),(3)
67,463 3,042 6.02 65,659 2,784 5.67 
Total loans4,106,271 179,819 5.85 3,852,057 154,939 5.38 
Securities:
Taxable1,282,167 40,390 4.21 1,300,373 35,999 3.70 
   Tax-exempt(4)
159,654 3,154 2.64 182,858 3,826 2.80 
Total securities1,441,821 43,544 4.03 1,483,231 39,825 3.59 
Deposits in depository institutions119,649 4,907 5.48 166,116 5,440 4.38 
Total interest-earning assets5,667,741 228,270 5.38 5,501,404 200,204 4.87 
Cash and due from banks104,269 69,998 
Bank premises and equipment71,479 72,631 
Goodwill and intangible assets161,622 150,808 
Other assets305,113 324,658 
Less: allowance for credit losses(23,014)(21,602)
Total assets$6,287,210 $6,097,897 
Liabilities
   Interest-bearing demand deposits$1,308,779 $11,384 1.16 %$1,288,387 $7,582 0.79 %
Savings deposits1,240,788 6,705 0.72 1,352,005 5,610 0.55 
Time deposits(2)
1,124,295 28,977 3.44 950,276 11,616 1.63 
Customer repurchase agreements324,631 11,309 4.65 282,857 8,334 3.94 
FHLB long-term advances145,620 4,577 4.20 55,678 1,683 4.04 
Total interest-bearing liabilities4,144,113 62,952 2.03 3,929,203 34,825 1.18 
Noninterest-bearing demand deposits1,332,988 1,407,922 
Other liabilities109,194 122,854 
Stockholders’ equity700,915 637,918 
Total liabilities and stockholders’ equity$6,287,210 $6,097,897 
Net interest income$165,318 $165,379 
Net yield on earning assets3.90 %4.02 %
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(1)For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:
20242023
Loan fees, net$320 $1,165 
(2)Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:
20242023
Residential real estate$145 $165 
Commercial, financial and agriculture2,499 1,575 
Installment loans to individuals17 15 
Time deposits98 403 
$2,759 $2,158 
(3)Includes the Company’s consumer and DDA overdrafts loan categories.
(4)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Table Two
Rate/Volume Analysis of Changes in Interest Income and Interest Expense
(in thousands)
Nine months ended September 30, 2024 vs. 2023
Interest-earning assets:
Increase (Decrease)
Due to Change In:
VolumeRateNet
   
Loan portfolio
Residential real estate$2,945 $7,211 $10,156 
Commercial, financial, and agriculture7,677 6,789 14,466 
Installment loans to individuals77 181 258 
Total loans10,699 14,181 24,880 
Securities:   
Taxable(504)4,895 4,391 
   Tax-exempt(1)
(486)(186)(672)
Total securities(990)4,709 3,719 
Deposits in depository institutions(1,523)990 (533)
Total interest-earning assets$8,186 $19,880 $28,066 
Interest-bearing liabilities:   
   Interest-bearing demand deposits$120 $3,682 $3,802 
Savings deposits(462)1,557 1,095 
Time deposits2,129 15,232 17,361 
Customer repurchase agreements1,232 1,743 2,975 
FHLB long-term advances2,721 173 2,894 
Total interest-bearing liabilities$5,740 $22,387 $28,127 
Net Interest Income$2,446 $(2,507)$(61)
(1)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.




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Net Interest Income

Three months ended September 30, 2024 vs. 2023

The Company’s net interest income was $55.6 million for both the three months ended September 30, 2023 and the three months ended September 30, 2024. The Company’s tax equivalent net interest income decreased approximately $0.1 million, from $55.9 million for the third quarter of 2023 to $55.8 million for the third quarter of 2024. The Company's net interest income declined by $5.7 million due to an increase in the cost of interest bearing liabilities of 65 basis points and by $2.0 million due to an increase in the average balance of interest bearing liabilities ($217.0 million).

These decreases in net interest income were essentially offset by an increase in loan yields (35 basis points) and an increase in average loan balances ($176.6 million), which increased net interest income $3.4 million and $2.5 million, respectively. In addition, an increase of 37 basis points in the yield on investment securities increased net interest income by $1.3 million. The Company’s reported net interest margin decreased from 4.03% for the third quarter of 2023 to 3.87% for the third quarter of 2024.



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Table One
Average Balance Sheets and Net Interest Income
(in thousands, except percentages)
AssetsThree months ended September 30,
20242023
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
      
Loan portfolio(1):
Residential real estate(2)
$1,984,502 $25,654 5.14 %$1,910,876 $22,702 4.71 %
Commercial, financial, and agriculture(2)
2,082,888 34,708 6.63 1,975,463 31,743 6.38 
   Installment loans to individuals(2),(3)
66,130 1,045 6.29 70,532 1,138 6.40 
Total loans4,133,520 61,407 5.91 3,956,871 55,583 5.57 
Securities:
Taxable1,343,323 14,402 4.27 1,277,265 12,432 3.86 
   Tax-exempt(4)
159,225 1,043 2.61 170,806 1,152 2.68 
Total securities1,502,548 15,445 4.09 1,448,071 13,584 3.72 
Deposits in depository institutions103,322 1,417 5.46 90,684 1,265 5.52 
Total interest-earning assets5,739,390 78,269 5.43 5,495,626 70,432 5.08 
Cash and due from banks110,765 69,658 
Bank premises and equipment70,998 73,004 
Goodwill and intangible assets161,009 163,602 
Other assets292,758 332,551 
Less: allowance for credit losses(23,205)(23,558)
Total assets$6,351,715 $6,110,883 
Liabilities
   Interest-bearing demand deposits$1,321,922 $4,100 1.23 %$1,300,936 $3,068 0.94 %
Savings deposits1,220,009 2,200 0.72 1,314,484 2,319 0.70 
Time deposits(2)
1,174,217 10,772 3.65 985,038 5,163 2.08 
Customer repurchase agreements323,844 3,788 4.65 272,558 2,990 4.35 
FHLB long-term advances150,000 1,586 4.21 100,000 1,035 4.11 
Total interest-bearing liabilities4,189,992 22,446 2.13 3,973,016 14,575 1.46 
Noninterest-bearing demand deposits1,334,762 1,359,268 
Other liabilities99,797 123,137 
Shareholders’ equity727,164 655,462 
Total liabilities and shareholders’ equity$6,351,715 $6,110,883 
Net interest income$55,823 $55,857 
Net yield on earning assets3.87 %4.03 %
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(1)For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:
20242023
Loan fees, net$127 $254 
(2)Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:
20242023
Residential real estate$27 $47 
Commercial, financial and agriculture752 720 
Installment loans to individuals5 4 
Time deposits14 240 
$798 $1,011 
(3)Includes the Company’s consumer and DDA overdrafts loan categories.
(4)Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.

Table Two
Rate/Volume Analysis of Changes in Interest Income and Interest Expense
(in thousands)
Three months ended September 30, 2024 vs. 2023
Interest-earning assets:
Increase (Decrease)
Due to Change In:
VolumeRateNet
   
Loan portfolio
Residential real estate$872 $2,080 $2,952 
Commercial, financial, and agriculture1,721 1,244 2,965 
Installment loans to individuals(71)(22)(93)
Total loans2,522 3,302 5,824 
Securities:
Taxable641 1,329 1,970 
   Tax-exempt(1)
(78)(31)(109)
Total securities563 1,298 1,861 
Deposits in depository institutions176 (24)152 
Total interest-earning assets$3,261 $4,576 $7,837 
Interest-bearing liabilities:   
   Interest-bearing demand deposits$49 $983 $1,032 
Savings deposits(166)47 (119)
Time deposits989 4,620 5,609 
Customer repurchase agreements561 237 798 
FHLB long-term advances516 35 551 
Total interest-bearing liabilities$1,949 $5,922 $7,871 
Net Interest Income$1,312 $(1,346)$(34)
(1) Computed on a fully federal taxable equivalent using a tax rate of 21%.
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Non-GAAP Financial Measures

Management of the Company uses measures in its analysis of the Company's performance other than those in accordance with generally accepted accounting principles in the United States of America ("GAAP"). These measures are useful when evaluating the underlying performance of the Company's operations. The Company's management believes that these non-GAAP measures enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company's management believes that investors may use these non-GAAP financial measures to evaluate the Company's financial performance without the impact of those items that may obscure trends in the Company's performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they comparable to non-GAAP financial measures that may be presented by other companies. The following table reconciles fully taxable equivalent net interest income with net interest income as derived from the Company's financial statements, as well as other non-GAAP measures (dollars in thousands):
Three months ended September 30,Nine months ended September 30,
2024202320242023
Net interest income ("GAAP")$55,605 $55,614 $164,657 $164,575 
Taxable equivalent adjustment$218 $243 $661 $804 
Net interest income, fully taxable equivalent$55,823 $55,857 $165,318 $165,379 
Equity to assets ("GAAP")11.52 %10.04 %
Effect of goodwill and other intangibles, net(2.26)(2.49)
Tangible common equity to tangible assets9.26 %7.55 %

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Loans

Table Three
Loan Portfolio

The composition of the Company's loan portfolio as of the dates indicated follows (in thousands):
September 30, 2024December 31, 2023September 30, 2023
Commercial and industrial$424,414 $426,951 $424,647 
  1-4 Family194,670 206,237 197,081 
  Hotels383,232 357,142 321,236 
  Multi-family193,875 189,165 192,329 
  Non Residential Non-Owner Occupied665,210 680,590 651,498 
  Non Residential Owner Occupied236,826 240,328 222,544 
Commercial real estate1,673,813 1,673,462 1,584,688 
Residential real estate1,806,578 1,788,149 1,768,358 
Home equity190,149 167,201 159,630 
Consumer58,710 65,246 65,586 
DDA overdrafts4,166 4,914 4,573 
Total loans$4,157,830 $4,125,923 $4,007,482 

Loan balances increased $31.9 million from December 31, 2023 to September 30, 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 $2.5 million from December 31, 2023 to September 30, 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 made to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans increased $0.4 million from December 31, 2023 to September 30, 2024. At September 30, 2024, $2.7 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 $11.6 million from December 31, 2023 to September 30, 2024. Commercial 1-4 Family loans consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled $194.7 million as of September 30, 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 increased $26.1 million from December 31, 2023 to September 30, 2024. The Hotel portfolio is comprised of all lodging establishments and totaled $383.2 million as of September 30, 2024. Risk characteristics relate to the demand for travel.
◦Multi-family loans increased $4.7 million from December 31, 2023 to September 30, 2024. Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled $193.9 million as of September 30, 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 $665.2 million at September 30, 2024 and decreased $15.4 million from December 31, 2023 to September 30,
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2024. Nonresidential owner-occupied commercial real estate totaled $236.8 million at September 30, 2024 and decreased $3.5 million from December 31, 2023. Risk characteristics relate to levels of consumer spending and overall economic conditions.

Residential real estate loans increased $18.4 million from December 31, 2023 to September 30, 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 generally 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 September 30, 2024, $7.6 million of the residential real estate loans were for properties under construction.

Home equity loans increased $22.9 million during the first nine 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 by $6.5 million during the first nine 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 $1.2 million provision for credit losses in the third quarter of 2024 and recorded a provision for credit losses of $0.2 million in the third 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 September 30, 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.







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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 September 30,As of December 31,
202420232023
Commercial and industrial$4,520 $4,648 $4,474 
1-4 Family1,234 662 1,402 
Hotels2,240 2,220 2,211 
Multi-family997 1,015 1,002 
Non Residential Non-Owner Occupied3,037 4,798 4,077 
Non Residential Owner Occupied2,130 2,464 2,453 
Commercial real estate9,638 11,159 11,145 
Residential real estate5,891 5,391 5,398 
Home equity624 432 490 
Consumer326 325 269 
DDA overdrafts833 1,173 969 
Allowance for Credit Losses$21,832 $23,128 $22,745 

The Allowance for Credit Losses decreased slightly from $22.7 million at December 31, 2023 to $21.8 million at September 30, 2024. The Company recorded a provision for credit losses of $1.2 million in the third quarter of 2024, compared to a provision for credit losses of $0.2 million for the comparable period in 2023, and a provision for credit losses of $0.5 million for the second quarter of 2024. The provision for credit losses in the third quarter was primarily related to a commercial loan for a movie theater that had been originated in September 2014. The loan had paid according to terms but cash flows began deteriorating during the COVID-19 crisis which began in 2020. Due to further operating weaknesses during 2024, the loan was transferred to nonaccrual status and a $2.0 million charge-off was recorded in the quarter ending September 30, 2024, leaving an outstanding balance of approximately $6.7 million. The Company has only one other loan to a movie theater and the outstanding balance of that performing loan is under $5.0 million. This charge-off was partially offset by a $0.75 million reversal of a reserve on a purchase credit deteriorated loan that was paid-off in full during the quarter ended September 30, 2024.

Non-Interest Income and Non-Interest Expense

Nine months ended September 30, 2024 vs. 2023
(in millions, except percentages)
Nine months ended September 30,
20242023$ Change% Change
Net investment securities gains$0.6 $0.1 $0.5 500.0 %
Non-interest income, excluding net investment securities gains 56.7 56.3 0.4 0.7 
Non-interest expense, less merger-related expenses110.3 102.8 7.5 7.3 

Non-Interest Income: Non-interest income was $57.2 million for the nine months ended September 30, 2024, as compared to $56.4 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2024, the Company reported $0.6 million of unrealized fair value gains on the Company's equity securities compared to $0.1 million of unrealized fair value gains during the nine months ended September 30, 2023.

Excluding net investment securities gains, non-interest income increased from $56.3 million for the nine months ended September 30, 2023 to $56.7 million for the nine months ended September 30, 2024. The increase was largely attributable to an increase in trust and investment management fee income of $1.3 million (18.7%), an increase in service charges of
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$1.0 million (4.6%), and an increase in bankcard revenue of $0.5 million (2.6%). These increases were partially offset by a decrease in bank owned life insurance of $1.7 million (34.9%) and a decrease in other income of $0.7 million (24.7%).

Non-Interest Expense: Non-interest expenses, less merger related expenses, increased $7.5 million (7.3%), from $102.8 million in the first nine months of 2023 to $110.3 million in the first nine months of 2024 primarily due to an increase in salaries and employee benefits ($2.5 million), other expenses ($2.4 million), bankcard expenses ($1.2 million), equipment and software related expense ($0.7 million), and advertising expense ($0.4 million).

Income Tax Expense: The Company’s effective income tax rate for the nine months ended September 30, 2024 was 19.6% compared to 20.3% for the nine months ended September 30, 2023.

Non-Interest Income and Non-Interest Expense

Three months ended September 30, 2024 vs. 2023
(in millions, except percentages)
Three months ended September 30,
20242023$ Change% Change
Net investment securities gains (losses)$0.3 (0.7)$1.0 142.9 %
Non-interest income, excluding net investment securities gains20.0 18.1 1.9 10.5 
Non-interest expense, less merger-related expenses37.6 35.0 2.6 7.4 

Non-Interest Income: Non-interest income was $20.3 million during the quarter ended September 30, 2024, as compared to $17.4 million during the quarter ended September 30, 2023. During the third quarter of 2024, the Company reported $0.4 million of unrealized fair value gains on the Company’s equity securities, as compared to $0.7 million of realized security losses during the third quarter of 2023.

Exclusive of these items, non-interest income increased $1.9 million, or 10.5%, from $18.1 million for the third quarter of 2023 to $20.0 million for the third quarter of 2024. This increase was attributable to an increase of $0.6 million (77.8%) in bank owned life insurance (due to death benefit proceeds), an increase of $0.5 million (21.3%) in trust and investment management fee income, an increase of $0.4 million (5.7%) in service fees, and an increase of $0.3 million (4.1%) in bankcard revenues.

Non-Interest Expense: Non-interest expenses increased $2.6 million, or 7.4%, from $35.0 million in the third quarter of 2023 to $37.6 million in the third quarter of 2024. This increase was largely due to an increase in other expenses of $1.1 million and an increase in salaries and employee benefits of $1.0 million. In addition, equipment and software related expenses increased $0.6 million and advertising expenses increased $0.3 million.

Income Tax Expense: The Company's effective income tax rate for the three months ended September 30, 2024 and September 30, 2023 was 19.7%, and 21.1%, 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.
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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 RatesImplied Federal Funds Rate Associated with Change in Interest RatesEstimated Increase or Decrease in Net Income Over 12 Months
September 30, 2024  
+300 8.00 %-1.0 %
+200 7.00 +0.8 
+1006.00 +2.4 
-1004.00 -4.6 
-2003.00 -10.5 
-3002.00 -17.6 
December 31, 2023  
+300 8.50 %-4.5 %
+200 7.50 -2.4 
+100 6.50 -1.6 
-1004.50 -7.2 
-2003.50 -8.3 
-3002.50 -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 September 30, 2024, City National could pay dividends up to $128.2 million plus net profits for the remainder of 2024, as defined by statute, up to the dividend declaration date without prior regulatory permission.

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Additionally, City Holding anticipates continuing the payment of dividends on its common stock, which are expected to approximate $43.5 million on an annualized basis over the next 12 months based on common shares outstanding at September 30, 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 $1.8 million of additional cash over the next 12 months. As of September 30, 2024, City Holding reported a cash balance of $19.2 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 $98.1 million of cash from operating activities during the first nine months of 2024, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings.  The Company used $133.2 million of cash in investing activities during the first nine months of 2024, primarily due to purchases of available-for-sale securities of $192.6 million, an increase in loans of $30.9 million, payments for low income housing credits of $10.4 million, and purchases of premises and equipment of $1.8 million. These increases were partially offset by proceeds from maturities and calls of $100.4 million and proceeds from the bank-owned life insurance policies of $1.2 million. The Company generated $172.7 million of cash in financing activities during the first nine months of 2024, principally as a result of an increase in interest-bearing deposits of $171.8 million, proceeds from long-term debt of $50.0 million, and an increase in short-term borrowings of $4.3 million. These increases were partially offset by a decrease in dividends paid of $31.9 million, purchases of treasury stock of $17.9 million, and a decrease in non-interest-bearing deposits of $3.3 million.

City National has borrowing facilities with the Federal Reserve Bank and the Federal Home Loan Bank that can be accessed as necessary to fund operations and to provide contingency funding. These borrowing facilities are collateralized by various loans held on City National’s balance sheet. As of September 30, 2024, City National had the capacity to borrow an additional $1.6 billion from these existing borrowing facilities. In addition, approximately $765 million of City National’s investment securities were pledged to collateralize customer repurchase agreements and various deposit accounts, leaving approximately $730 million of City National’s investment securities unpledged at September 30, 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. Historically, the Company has utilized derivative instruments, when appropriate, to assist this goal. During the year ending December 31, 2020, the Company entered into three $50 million swap agreements that hedged interest rate risk on certain pools of the Company’s investment securities. These agreements require the Company to pay rates ranging from 0.20% to 0.24%, while receiving the federal funds effective rate in return. Interest income and changes in market valuations from these swap agreements are recognized as investment income in the accompanying statements of income. These agreements mature in October ($50 million) and November ($100 million) of 2025. During the year ending December 31, 2023, the Company entered into a $100 million swap agreement that hedged interest rate risk on certain loans of the Company. This agreement requires the Company to pay 3.60%, while receiving SOFR in return. Interest income and changes in market valuations from this swap agreement are recognized as loan interest income in the accompanying statements of income. This agreement matures in March 2026.

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 64.3% as of September 30, 2024 and deposit balances fund 79.3% 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 $1.5 billion at September 30, 2024, and that exceeded the Company’s non-deposit sources of borrowing, which totaled $489.2 million.  Further, the Company’s deposit mix has a high proportion of transaction and savings accounts that fund 60.6% 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, approximately 15% (estimated) of the Company's deposits were uninsured (either with balances above $250,000 or not collateralized by investment securities) as of September 30, 2024.

Estimated Uninsured Deposits by Deposit Type
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September 30, 2024December 31, 2023
Noninterest-Bearing Demand Deposits18 %16 %
Interest-Bearing Deposits
   Demand Deposits16 %7 %
   Savings Deposits12 %11 %
   Time Deposits16 %13 %
Total Deposits15 %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 $64.2 million for the nine months ended September 30, 2024, primarily due to net income of $88.4 million and other comprehensive income of $23.7 million. This increase was partially offset by cash dividends declared of $33.0 million, and the repurchase of 178,529 common shares at a weighted average price of $100.24 per share ($17.9 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 the Company.
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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, except percentages):
September 30, 2024ActualMinimum Required - Basel IIIRequired to be Considered Well Capitalized
Capital AmountRatioCapital AmountRatioCapital AmountRatio
 
CET I Capital
     City Holding Company$669,862 16.6 %$281,728 7.0 %$261,605 6.5 %
     City National Bank641,794 16.0 280,789 7.0 260,733 6.5 
Tier I Capital
     City Holding Company669,862 16.6 342,098 8.5 321,975 8.0 
     City National Bank641,794 16.0 340,958 8.5 320,902 8.0 
Total Capital
     City Holding Company690,857 17.2 422,592 10.5 402,469 10.0 
     City National Bank662,789 16.5 421,184 10.5 401,127 10.0 
Tier I Leverage Ratio
     City Holding Company669,862 10.6 253,131 4.0 316,413 5.0 
     City National Bank641,794 10.2 252,304 4.0 315,379 5.0 
December 31, 2023ActualMinimum Required - Basel IIIRequired to be Considered Well Capitalized
Capital AmountRatioCapital AmountRatioCapital AmountRatio
 
CET I Capital
     City Holding Company$627,579 15.7 %$279,768 7.0 %$259,875 6.5 %
     City National Bank549,031 13.8 278,692 7.0 258,785 6.5 
Tier I Capital
     City Holding Company627,579 15.7 339,718 8.5 319,735 8.0 
     City National Bank549,031 13.8 338,412 8.5 318,505 8.0 
Total Capital
     City Holding Company648,646 16.2 419,652 10.5 399,669 10.0 
     City National Bank570,099 14.3 418,038 10.5 398,131 10.0 
Tier I Leverage Ratio
     City Holding Company627,579 10.2 245,468 4.0 306,835 5.0 
     City National Bank549,031 8.9 245,587 4.0 306,984 5.0 

As of September 30, 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 September 30, 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
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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 September 30, 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. There were no common stock repurchases during the quarter ended September 30, 2024.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information


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During the three months ended September 30, 2024, none of our directors or officers informed us of the adoption, modification or termination 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.



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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.
101Interactive 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.SCHXBRL Taxonomy Extension Schema*
101.CALXBRL Taxonomy Extension Calculation Linkbase*
101.DEFXBRL Taxonomy Extension Definition Linkbase*
101.LABXBRL Taxonomy Extension Label Linkbase*
101.PREXBRL Taxonomy Extension Presentation Linkbase*
104Cover 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.
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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: November 6, 2024
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