CHARLESTON, W. Va.--(BUSINESS WIRE)--City Holding Company (NASDAQ:CHCO), a $4.2 billion bank holding company headquartered in Charleston, West Virginia, today announced quarterly net income of $17.6 million and diluted earnings of $1.13 per share for the quarter ended March 31, 2018.

Highlights of the Company’s first quarter performance and results include the following:

• Return on assets and return on tangible equity of 1.69% and 16.7%, respectively.
• Reported net interest income increased $2.2 million (7.2%) from the quarter ended March 31, 2017, while net interest income exclusive of accretion from fair value adjustments from acquisitions increased $2.1 million (6.9%) from the quarter ended March 31, 2017.
• Repurchased 204,000 shares of common stock at a weighted average price of $68.50 per share.
• Average total deposit balances grew $100.7 million, or 3.1%, from the quarter ended December 31, 2017 to the quarter ended March 31, 2018.

Net Interest Income

The Company’s net interest income increased from $32.4 million during the fourth quarter of 2017 to $32.6 million during the first quarter of 2018. During the first quarter of 2018, the Company’s tax equivalent net interest income increased $0.1 million, or 0.2%, from $32.7 million for the fourth quarter of 2017 to $32.8 million for the first quarter of 2018. Higher average loan balances ($23.7 million) increased net interest income by $0.3 million while higher loan yields (0.11%) increased net interest income by $0.1 million. These increases were partially offset by increased interest expense on interest bearing liabilities ($0.3 million). The Company’s reported net interest margin increased from 3.46% for the fourth quarter of 2017 to 3.51% for the first quarter of 2018. Excluding the favorable impact of the accretion from fair value adjustments, the net interest margin would have been 3.48% for the quarter ended March 31, 2018 and 3.39% for the quarter ended December 31, 2017.

Credit Quality

The Company’s ratio of nonperforming assets to total loans and other real estate owned improved from 0.45% at December 31, 2017 to 0.43% at March 31, 2018. Total nonperforming assets decreased from $14.1 million at December 31, 2017 to $13.6 million at March 31, 2018. Excluded from this ratio are purchased credit-impaired loans for which the Company estimated cash flows and estimated a credit mark. Such loans would be considered nonperforming loans if the loan’s performance deteriorates below the initial expectations. Total past due loans decreased from $11.0 million, or 0.35% of total loans outstanding, at December 31, 2017 to $8.3 million, or 0.26% of total loans outstanding, at March 31, 2018.

As a result of the Company’s quarterly analysis of the adequacy of the allowance for loan losses (“ALLL”), the Company recorded a provision for loan losses of $0.2 million in the first quarter of 2018, compared to $0.7 million for the comparable period in 2017 and $0.4 million for the fourth quarter of 2017. The provision for loan losses recorded in the first quarter of 2018 reflects changes in the quality of the portfolio and general improvement in the Company’s historical loss rates used to compute the allowance not specifically allocated to individual credits. Changes in the amount of the provision and related allowance are based on the Company’s detailed systematic methodology and are directionally consistent with changes in the composition and quality of the Company’s loan portfolio. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision and allowance for loan losses that is directionally consistent with changes in asset quality and loss experience.

Non-interest Income

Non-interest income was $14.5 million for the first quarter of 2018 as compared to $18.5 million for the first quarter of 2017. During the first quarter of 2017, the Company realized $4.3 million of investment gains that represented partial recoveries of impairment charges previously recognized on pooled trust preferred securities. Exclusive of this gain, non-interest income increased from $14.2 million for the first quarter of 2017 to $14.5 million for the first quarter of 2018. This increase was attributable to an increase of $0.2 million, or 4.7%, in bankcard revenues; an increase of $0.2 million, or 13.1%, in trust and wealth management fee income; an increase of $0.2 in other income; and $0.1 million, or 2.0%, in service charges. These increases were partially offset by a decrease of $0.4 million in bank owned life insurance revenues due to death benefit proceeds received in the first quarter of 2017.

Non-interest Expenses

Non-interest expenses increased $0.3 million (1.4% increase), from $24.6 million in the first quarter of 2017 to $24.9 million in the first quarter of 2018. This increase was primarily due to an increase in salaries and employee benefits of $0.2 million due largely to salary increases. During the first quarter of 2018, the Company completed a review of salaries for non-exempt personnel and, as a result, made adjustments to wages for approximately 50% of its employees late in the first quarter to make salaries more competitive in today’s employment environment. As a result of these adjustments, the expected impact on an annual basis is estimated at approximately $0.5 million.

Balance Sheet Trends

Loans increased $10.3 million (0.3%) from December 31, 2017 to $3.14 billion at March 31, 2018. Commercial real estate loans increased $18.7 million (1.5%) during the first quarter of 2018. This increase was partially offset by decreases in commercial and industrial loans ($3.9 million), residential real estate loans ($3.1 million) and home equity junior lien loans ($1.0 million).

Total average depository balances increased $100.7 million, or 3.1%, from the quarter ended December 31, 2017 to the quarter ended March 31, 2018. The Company experienced increases in interest-bearing deposits ($79.9 million), time deposits ($17.0 million) and savings deposits ($4.2 million).

Income Tax Expense

The Company’s effective income tax rate for the first quarter of 2018 was 20.0% compared to 40.2% for the year ended December 31, 2017, and 32.3% for the quarter ended March 31, 2017. On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“TCJA”) into law. Among other things, the TCJA reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this decrease in the corporate income tax rate, the Company reassessed its deferred tax assets and liabilities, which resulted in a charge to earnings in the fourth quarter of 2017 of $7.1 million. Exclusive of this item, the Company’s tax rate from operations was 32.7% for the year ended December 31, 2017.

Capitalization and Liquidity

The Company’s loan to deposit ratio was 91.0% and the loan to asset ratio was 74.7% at March 31, 2018. The Company maintained investment securities totaling 15.0% of assets as of the same date. Further, the Company’s deposit mix is weighted heavily toward checking and saving accounts that fund 55.6% of assets at March 31, 2018. Time deposits fund 26.4% of assets at March 31, 2018, but very few of these deposits are in accounts that have balances of more than $250,000, reflecting the core retail orientation of the Company.

The Company is also strongly capitalized. The Company’s tangible equity ratio decreased from 10.5% at December 31, 2017 to 10.0% at March 31, 2018. At March 31, 2018, City National Bank’s Leverage Ratio was 8.81%, its Common Equity Tier I ratio was 12.59%, its Tier I Capital ratio was 12.59%, and its Total Risk-Based Capital ratio was 13.25%. These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.

On March 28, 2018, the Board approved a quarterly cash dividend of $0.46 per share payable April 30, 2018, to shareholders of record as of April 13, 2018. During the quarter ended March 31, 2018, the Company repurchased 204,000 common shares at a weighted average price of $68.50 per share as part of a one million share repurchase plan authorized by the Board of Directors in September 2014. As of March 31, 2018, the Company could repurchase approximately 198,000 shares under the current plan.

City Holding Company is the parent company of City National Bank of West Virginia. City National Bank operates 86 branches across West Virginia, Virginia, Kentucky and Ohio.

On October 16, 2017, the Company announced it will break ground in early 2018 on its new branch office located in Morgantown, West Virginia.