CHCO 10-Q Quarterly Report Sept. 30, 2024

CITY HOLDING CO

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chco-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 0-11733

CITY HOLDING COMPANY

(Exact name of registrant as specified in its charter)


West Virginia			55-0619957
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

25 Gatewater Road,	Charleston,	West Virginia	25313
(Address of Principal Executive Offices)			(Zip Code)

( 304 ) 769-1100

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $2.50 par value	CHCO	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	x	Accelerated filer	o
Non accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 14,702,125 shares of common stock as of November 1, 2024 .

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements express only management's beliefs regarding future results or events and are subject to inherent uncertainty, risks, and changes in circumstances, many of which are outside of management's control. Uncertainty, risks, changes in circumstances and other factors could cause the Company's (as hereinafter defined) actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, but are not limited to, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 under “ITEM 1A Risk Factors” and the following: (1) general economic conditions, especially in the communities and markets in which we conduct our business ; (2) credit risk, including risk that negative credit quality trends may lead to a deterioration of asset quality, risk that our allowance for credit losses may not be sufficient to absorb actual losses in our loan portfolio, and risk from concentrations in our loan portfolio; (3) changes in the real estate market, including the value of collateral securing portions of our loan portfolio; (4) changes in the interest rate environment; (5) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; (6) changes in technology and increased competition, including competition from non-bank financial institutions; (7) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers' performance and creditworthiness; (8) difficulty growing loan and deposit balances; (9) our ability to effectively execute our business plan, including with respect to future acquisitions; (10) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their subsidiaries, including changes in deposit insurance premium levels; (11) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions; (12) regulatory enforcement actions and adverse legal actions; (13) difficulty attracting and retaining key employees; and (14) other economic, competitive, technological, operational, governmental, regulatory, geopolitical, and market factors affecting our operations. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made.

Table of Contents

Index

City Holding Company and Subsidiaries


PART I	Financial Information	Pages

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	57

PART II	Other Information

Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	59

Signatures		60

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Table of Contents

Consolidated Balance Sheets

City Holding Company and Subsidiaries

(in thousands, except share amounts)


	(Unaudited)
	September 30, 2024		December 31, 2023
Assets
Cash and due from banks	$	161,333	$	123,033
Interest-bearing deposits in depository institutions	132,616		33,243
Cash and Cash Equivalents	293,949		156,276

Investment securities available for sale, at fair value (amortized cost $ 1,573,131 and $ 1,479,545 , net of allowance for credit losses of $ 0 at September 30, 2024 and December 31, 2023, respectively)	1,462,795		1,338,137
Other securities	30,859		30,966
Total Investment Securities	1,493,654		1,369,103

Gross loans	4,157,830		4,125,923
Allowance for credit losses	( 21,832 )		( 22,745 )
Net Loans	4,135,998		4,103,178

Bank owned life insurance	120,061		118,122
Premises and equipment, net	70,651		72,146
Accrued interest receivable	21,785		20,290
Deferred tax assets, net	33,497		42,216
Goodwill and other intangible assets, net	160,640		162,568
Other assets	104,079		124,153
Total Assets	$	6,434,314	$	6,168,052

Liabilities
Deposits:
Noninterest-bearing	$	1,339,538	$	1,342,804
Interest-bearing:
Demand deposits	1,351,239		1,291,011
Savings deposits	1,208,828		1,259,457
Time deposits	1,203,046		1,040,990
Total Deposits	5,102,651		4,934,262

Short-term borrowings:
FHLB short-term advances	—		25,000
Securities sold under agreements to repurchase	339,153		309,856
FHLB long-term advances	150,000		100,000
Other liabilities	101,211		121,868
Total Liabilities	5,693,015		5,490,986

Commitments and contingencies - see Note I

Shareholders’ Equity
Preferred stock, par value $ 25 per share: 500,000 shares authorized; none issued	—		—
Common stock, par value $ 2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at September 30, 2024 and December 31, 2023, less 4,345,423 and 4,215,731 shares in treasury, respectively	47,619		47,619
Capital surplus	175,602		177,424
Retained earnings	835,778		780,299
Treasury Stock	( 230,836 )		( 217,737 )
Accumulated other comprehensive loss:
Unrealized loss on securities available-for-sale	( 84,283 )		( 107,958 )
Underfunded pension liability	( 2,581 )		( 2,581 )
Total Accumulated Other Comprehensive Loss	( 86,864 )		( 110,539 )
Total Shareholders’ Equity	741,299		677,066
Total Liabilities and Shareholders’ Equity	$	6,434,314	$	6,168,052

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

Table of Contents

Consolidated Statements of Income (Unaudited)

City Holding Company and Subsidiaries

(in thousands, except earnings per share data)


Interest Income	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023

Interest and fees on loans	$	61,407	$	55,582	$	179,820	$	154,939
Interest and dividends on investment securities:
Taxable	14,403		12,432		40,390		35,999
Tax-exempt	824		910		2,492		3,022
Interest on deposits in depository institutions	1,417		1,265		4,907		5,440
Total Interest Income	78,051		70,189		227,609		199,400

Interest Expense
Interest on deposits	17,072		10,551		47,066		24,808
Interest on short-term borrowings	3,788		2,990		11,309		8,334
Interest on FHLB long-term advances	1,586		1,034		4,577		1,683
Total Interest Expense	22,446		14,575		62,952		34,825
Net Interest Income	55,605		55,614		164,657		164,575
Provision for credit losses	1,200		200		1,520		3,543
Net Interest Income After Provision for Credit Losses	54,405		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, net	353		—		565		67
Service charges	7,531		7,124		21,546		20,593
Bankcard revenue	7,346		7,058		21,391		20,851
Trust and investment management fee income	2,923		2,409		8,308		7,000
Bank owned life insurance	1,435		807		3,137		4,819
Other income	772		742		2,273		3,020
Total Non-Interest Income	20,348		17,410		57,207		56,393

Non-Interest Expense
Salaries and employee benefits	19,245		18,289		56,874		54,391
Occupancy related expense	2,774		2,950		8,470		8,401
Equipment and software related expense	3,431		2,830		9,490		8,805
FDIC insurance expense	734		919		2,163		2,054
Advertising	1,081		790		2,920		2,524
Bankcard expenses	2,271		2,188		6,600		5,433
Postage, delivery, and statement mailings	666		668		2,046		1,911
Office supplies	480		457		1,365		1,468
Legal and professional fees	500		529		1,533		1,557
Telecommunications	578		568		1,802		1,797
Repossessed asset losses, net of expenses	21		40		256		78
Merger related expenses	—		2		—		5,647
Other expenses	5,857		4,798		16,791		14,346
Total Non-Interest Expense	37,638		35,028		110,310		108,412
Income Before Income Taxes	37,115		37,796		110,034		109,013

Table of Contents


Income tax expense	7,306		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.

Table of Contents

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

City Holding Company and Subsidiaries

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

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 period	46,460		( 48,273 )		31,023		( 46,132 )
Reclassification adjustment for net losses (gains)	12		730		13		( 43 )
Other comprehensive income (loss) before income taxes	46,472		( 47,543 )		31,036		( 46,175 )
Tax effect	( 11,018 )		11,398		( 7,361 )		11,070
Other comprehensive income (loss), net of tax	35,454		( 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.

Table of Contents

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 Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated 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 Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated 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.

Table of Contents

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 Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated 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, 2023	47,619		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 Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated 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.

Table of Contents

Consolidated Statements of Cash Flows (Unaudited)

City Holding Company and Subsidiaries

(in thousands)


	Nine months ended September 30,
	2024		2023
Net income	$	88,447	$	86,913
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization, net	5,709		6,496
Provision for credit losses	1,520		3,543
Depreciation of premises and equipment	3,153		3,452
Deferred income tax expense (benefit)	536		( 1,491 )
Net periodic employee benefit cost	46		39
Unrealized and realized investment securities gains, net	( 552 )		( 110 )
Stock-compensation expense	2,683		2,407
Excess tax expense from stock-compensation	298		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 sale	8,452		9,713
Gain on sale of loans	( 69 )		( 122 )
Change in accrued interest receivable	( 1,495 )		( 69 )
Change in other assets	4,914		12,068
Change in other liabilities	( 3,935 )		( 4,588 )
Net Cash Provided by Operating Activities	98,136		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 calls	100,415		93,927
Other investments
Purchases	( 242 )		( 5,970 )
Proceeds from sales	903		77
Proceeds from maturities and calls	—		747
Purchases of premises and equipment	( 1,750 )		( 2,392 )
Proceeds from the disposals of premises and equipment	92		283
Proceeds from bank-owned life insurance policies	1,248		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 deposits	171,753		( 145,344 )
Net increase (decrease) in short-term borrowings	4,297		( 18,793 )
Proceeds from long-term debt	50,000		100,000
Purchases of treasury stock	( 17,896 )		( 53,827 )
Proceeds from exercise of stock options	292		—
Lease payments	( 599 )		( 609 )
Dividends paid	( 31,866 )		( 29,361 )
Net Cash Provided by (Used in) Financing Activities	172,715		( 226,170 )
Increase (decrease) in Cash and Cash Equivalents	137,673		( 89,284 )
Cash and cash equivalents at beginning of period	156,276		200,000
Cash and Cash Equivalents at End of Period	$	293,949	$	110,716

Table of Contents


Supplemental Cash Flow Information:
Cash paid for interest	60,631		32,525
Cash paid for income taxes	21,740		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.

Table of Contents

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
Cash	13
	61,583

Identifiable assets:
Cash and cash equivalents	14,041
Investment securities	41,008
FHLB stock	620
Loans	251,406
Fixed assets	3,237
Bank owned life insurance	2,966
Deferred tax assets, net	1,623
Other assets	5,198
Total identifiable assets	320,099

Identifiable liabilities:
Deposits	299,251
Short-term borrowings	6,500
Other liabilities	1,864
Total identifiable liabilities	307,615

Net identifiable assets (liabilities)	12,484
Goodwill	40,821
Core deposit intangible	8,278
	$	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, 2024								December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated 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 agencies	1,310,067		5,111		101,113		1,214,065		1,211,484		2,362		125,753		1,088,093
Private label	6,405		—		109		6,296		6,997		—		293		6,704
Trust preferred securities	4,604		—		89		4,515		4,599		—		321		4,278
Corporate securities	26,900		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 Co mpany'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 Months				Twelve Months or Greater				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized 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 label	1,294		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 Months				Twelve Months or Greater				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized 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 agencies	2,046		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 a pproach 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 Cost		Estimated Fair Value
Available-for-Sale Debt Securities
Due in one year or less	$	2,401	$	2,388
Due after one year through five years	143,021		138,928
Due after five years through ten years	360,136		344,318
Due after ten years	1,067,573		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, 2024		December 31, 2023
Commercial and industrial	$	424,414	$	426,951

1-4 Family	194,670		206,237
Hotels	383,232		357,142
Multi-family	193,875		189,165
Non Residential Non-Owner Occupied	665,210		680,590
Non Residential Owner Occupied	236,826		240,328
Commercial real estate	1,673,813		1,673,462

Residential real estate	1,806,578		1,788,149
Home equity	190,149		167,201
Consumer	58,710		65,246
Demand deposit account (DDA) overdrafts	4,166		4,914
Gross loans	4,157,830		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 estate	7,604		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 Balance		Charge-offs		Recoveries		Provision for (recovery of) credit losses		Ending Balance
Nine months ended September 30, 2024
Commercial and industrial	$	4,474	$	( 573 )	$	87	$	532	$	4,520

1-4 Family	1,402		( 177 )		202		( 193 )		1,234
Hotels	2,211		—		—		29		2,240
Multi-family	1,002		—		—		( 5 )		997
Non Residential Non-Owner Occupied	4,077		( 3 )		6		( 1,043 )		3,037
Non Residential Owner Occupied	2,453		( 1,800 )		161		1,316		2,130
Commercial real estate	11,145		( 1,980 )		369		104		9,638

Residential real estate	5,398		( 348 )		255		586		5,891
Home equity	490		( 205 )		60		279		624
Consumer	269		( 159 )		147		69		326
DDA overdrafts	969		( 1,165 )		1,079		( 50 )		833
	$	22,745	$	( 4,430 )	$	1,997	$	1,520	$	21,832

	Beginning Balance		Impact of Adopting ASU 2022-02		PCD Loan Reserves		Charge-offs		Recoveries		Provision for (recovery of) credit losses		Ending Balance
Nine months ended September 30, 2023
Commercial and industrial	$	3,568	$	12	$	—	$	( 69 )	$	766	$	371	$	4,648

1-4 Family	566		( 1 )		—		( 335 )		42		390		662
Hotels	2,332		—		—		( 40 )		—		( 72 )		2,220
Multi-family	380		—		500		—		—		135		1,015
Non Residential Non-Owner Occupied	2,019		—		1,536		—		162		1,081		4,798
Non Residential Owner Occupied	1,315		—		775		—		56		318		2,464
Commercial real estate	6,612		( 1 )		2,811		( 375 )		260		1,852		11,159

Residential real estate	5,427		( 138 )		—		( 141 )		43		200		5,391
Home equity	290		( 46 )		—		( 379 )		34		533		432
Consumer	110		( 2 )		—		( 181 )		78		320		325
DDA Overdrafts	1,101		—		—		( 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 Balance		Charge-offs		Recoveries		Provision for (recovery of) credit losses		Ending Balance
Three months ended September 30, 2024
Commercial and industrial	$	4,232	$	( 206 )	$	24	$	470	$	4,520

1-4 Family	1,362		( 109 )		179		( 198 )		1,234
Hotels	2,428		—		—		( 188 )		2,240
Multi-family	991		—		—		6		997
Non Residential Non-Owner Occupied	3,794		—		3		( 760 )		3,037
Non Residential Owner Occupied	2,397		( 1,800 )		11		1,522		2,130
Commercial real estate	10,972		( 1,909 )		193		382		9,638

Residential real estate	5,721		( 43 )		27		186		5,891
Home equity	570		( 57 )		13		98		624
Consumer	377		( 24 )		25		( 52 )		326
DDA overdrafts	816		( 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 Family	598		( 255 )		12		307		662
Hotels	2,133		—		—		87		2,220
Multi-family	1,009		—		—		6		1,015
Non Residential Non-Owner Occupied	4,786		—		6		6		4,798
Non Residential Owner Occupied	2,378		—		56		30		2,464
Commercial real estate	10,904		( 255 )		74		436		11,159

Residential real estate	5,573		( 89 )		28		( 121 )		5,391
Home equity	408		( 112 )		18		118		432
Consumer	334		( 10 )		27		( 26 )		325
DDA Overdrafts	1,202		( 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 historica l 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 No		Non-accrual With		Loans Past Due
	Allowance for		Allowance for		Over 90 Days
	Credit Losses		Credit Losses		Still Accruing
Commercial & Industrial	$	614	$	3,017	$	—

1-4 Family	—		271		—
Hotels	—		—		—
Multi-family	—		—		—
Non Residential Non-Owner Occupied	—		380		—
Non Residential Owner Occupied	6,105		2,275		—
Commercial Real Estate	6,105		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 No		Non-accrual With		Loans Past Due
	Allowance for		Allowance for		Over 90 Days
	Credit Losses		Credit Losses		Still 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
	30-59		60-89		90+		Total		Current		Non-		Total
	Past Due		Past Due		Past Due		Past Due		Loans		accrual		Loans
Commercial and industrial	$	57	$	—	$	—	$	57	$	420,726	$	3,631	$	424,414

1-4 Family	992		—		—		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 estate	992		—		—		992		1,663,790		9,031		1,673,813

Residential real estate	7,540		646		19		8,205		1,795,777		2,596		1,806,578
Home Equity	1,436		98		37		1,571		188,469		109		190,149
Consumer	96		19		46		161		58,549		—		58,710
Overdrafts	327		6		—		333		3,833		—		4,166
Total	$	10,448	$	769	$	102	$	11,319	$	4,131,144	$	15,367	$	4,157,830


	December 31, 2023
	30-59		60-89		90+		Total		Current		Non-		Total
	Past Due		Past Due		Past Due		Past Due		Loans		accrual		Loans
Commercial and industrial	$	185	$	250	$	—	$	435	$	424,305	$	2,211	$	426,951

1-4 Family	67		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 Occupied	623		—		—		623		238,285		1,420		240,328
Commercial real estate	690		25		—		715		1,670,360		2,387		1,673,462

Residential real estate	7,034		811		214		8,059		1,777,241		2,849		1,788,149
Home Equity	1,020		159		56		1,235		165,855		111		167,201
Consumer	129		—		—		129		65,117		—		65,246
Overdrafts	355		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 Rating			Description
Pass Ratings:
(a) Exceptional			Loans 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) Good			Loans 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) Acceptable			Loans 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/watch			Loans 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 mention			Loans 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.
Substandard			Loans 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.
Doubtful			Loans 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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
Commercial and industrial
Pass	$	56,281	$	66,407	$	28,116	$	65,707	$	38,036	$	24,463	$	110,509	$	389,519
Special mention	60		—		—		—		—		—		—		60
Substandard	967		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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
Substandard	379		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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

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													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
1-4 Family
Pass	$	38,143	$	53,907	$	32,058	$	21,363	$	12,073	$	29,846	$	13,967	$	201,357
Special mention	565		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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

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													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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
Substandard	75		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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
Substandard	3,957		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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
Substandard	75		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Total
Pass	$	251,802	$	311,129	$	235,298	$	164,514	$	194,569	$	370,704	$	53,522	$	1,581,538
Special mention	565		451		266		1,898		3,045		25,909		438		32,572
Substandard	3,957		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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
September 30, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		Total
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 Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
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, 2024				December 31, 2023
	Notional Amount		Fair Value		Notional Amount		Fair 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 - liabilities	529,727		35,282		555,693		46,402

Non-hedging interest rate derivatives:
Financial institution counterparties:
Loan interest rate swap - assets	547,727		36,176		573,693		47,555
Loan interest rate swap - liabilities	112,554		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,
	2024		2023		2024		2023
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 liabilities	16,556		( 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, 2024		December 31, 2023
Investment securities available for sale, at fair value	$	( 5,511 )	$	( 10,075 )
Other assets	5,543		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 tot al 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 loans	12

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,
	2024			2023
	Restricted Awards	Average Market Price at Grant		Restricted Awards	Average Market Price at Grant
Outstanding at January 1	135,558	$	79.19	140,606	$	73.87
Granted	46,550	98.20		43,819	90.56
Vested/Forfeited	( 44,409 )	76.69		( 44,317 )	72.84
Outstanding at September 30	137,699	$	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,
	2024		2023		2024		2023
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 recognized					3.11

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,
	2024		2023		2024		2023
Components of net periodic cost:
Interest cost	$	129	$	137	$	388	$	412
Expected return on plan assets	( 207 )		( 210 )		( 621 )		( 630 )
Net amortization and deferral	93		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, 2024		December 31, 2023
Commitments to extend credit:
Home equity lines	$	246,135	$	243,893
Commercial real estate	96,114		52,002
Other commitments	350,928		316,200
Standby letters of credit	3,005		4,916
Commercial letters of credit	9,567		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,

	Defined						Defined
	Benefit		Securities				Benefit		Securities
	Pension		Available-				Pension		Available-
	Plan		-for-Sale		Total		Plan		-for-Sale		Total
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 ended				Nine months ended				Affected line item
	September 30,				September 30,				in the Consolidated Statements
	2024		2023		2024		2023		of 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 expense	2		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,
	2024		2023		2024		2023
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 stock	18,025		19,004		55,291		56,356
Net earnings allocated to common shareholders	$	29,531	$	29,558	$	87,624	$	86,100

Average shares outstanding	14,633		14,922		14,691		14,906
Effect of dilutive securities:
Employee stock awards	21		23		20		22
Shares for diluted earnings per share	14,654		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):


	Total		Level 1		Level 2		Level 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 agencies	1,214,065		—		1,214,065		—
Private label	6,296		—		5,002		1,294
Trust preferred securities	4,515		—		4,515		—
Corporate securities	25,974		—		25,974		—
Marketable equity securities	7,225		2,356		4,869		—
Derivative assets	44,826		—		44,826		—
Financial Liabilities
Derivative liabilities	38,452		—		38,452		—

Nonrecurring fair value measurements
Non-Financial Assets
Other real estate owned	729		—		—		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 agencies	1,088,093		—		1,088,093		—
Private label	6,704		—		4,833		1,871
Trust preferred securities	4,278		—		4,278		—
Corporate securities	26,324		—		26,324		—
Marketable equity securities	7,538		3,093		4,445		—
Certificates of deposit held for investment	—		—		—		—
Derivative assets	60,527		—		60,527		—
Financial Liabilities
Derivative liabilities	48,578		—		48,578		—

Nonrecurring fair value measurements
Non-Financial Assets
Other real estate owned	731		—		—		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, 2024		December 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 Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2024
Assets:
Cash and cash equivalents	$	293,949	$	293,949	$	293,949	$	—	$	—
Securities available-for-sale	1,462,795		1,462,795		—		1,461,501		1,294
Marketable equity securities	7,225		7,225		2,356		4,869		—
Net loans	4,135,998		3,954,014		—		—		3,954,014
Accrued interest receivable	21,785		21,785		—		21,785		—
Derivative assets	44,826		44,826		—		44,826		—

Liabilities:
Deposits	5,102,651		4,958,096		3,763,113		1,194,983		—
Short-term debt	339,153		339,153		—		339,153		—
FHLB long-term advances	150,000		152,530		—		152,530		—
Accrued interest payable	6,720		6,720		—		6,720		—
Derivative liabilities	38,452		38,452		—		38,452		—

December 31, 2023
Assets:
Cash and cash equivalents	$	156,276	$	156,276	$	156,276	$	—	$	—
Securities available-for-sale	1,338,137		1,338,137		—		1,336,266		1,871
Marketable equity securities	7,538		7,538		3,093		4,445		—
Net loans	4,103,178		3,922,638		—		—		3,922,638
Accrued interest receivable	20,290		20,290		—		20,290		—
Derivative assets	60,527		60,527		—		60,527		—

Liabilities:
Deposits	4,934,262		4,617,487		3,591,458		1,026,029		—
Short-term debt	334,856		334,856		—		334,856		—
FHLB long-term advances	100,000		99,928		—		99,928		—
Accrued interest payable	4,301		4,301		—		4,301		—
Derivative liabilities	48,578		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 Segment			Measurement Method
Commercial and industrial			Migration
Commercial real estate:
1-4 family			Migration
Hotels			Migration
Multi-family			Migration
Non Residential Non-Owner Occupied			Migration
Non Residential Owner Occupied			Migration
Residential real estate			Vintage
Home equity			Vintage
Consumer			Vintage

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 a re 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,
	2024			2023

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 ratio	37.3		%	34.9		%
ROA*	1.88		%	1.91		%
ROE*	16.9		%	18.2		%
ROATCE*	21.9		%	23.9		%
Average equity to average assets ratio	11.1		%	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,
	2024			2023

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 ratio	39.1		%	36.1		%
ROA*	1.87		%	1.94		%
ROE*	16.3		%	18.1		%
ROATCE*	20.9		%	24.1		%
Average equity to average assets ratio	11.4		%	10.7		%

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,
	2024		2023		$ Change		% Change

Cash and cash equivalents	$	293.9	$	156.3	$	137.6	88.0	%
Total investment securities	1,493.7		1,369.1		124.6		9.1	%
Gross loans	4,157.8		4,125.9		31.9		0.8	%

Total deposits	5,102.7		4,934.3		168.4		3.4
FHLB long-term advances	150.0		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)


Assets	Nine months ended September 30,
	2024						2023
	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 loans	4,106,271		179,819		5.85		3,852,057		154,939		5.38
Securities:
Taxable	1,282,167		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 securities	1,441,821		43,544		4.03		1,483,231		39,825		3.59
Deposits in depository institutions	119,649		4,907		5.48		166,116		5,440		4.38
Total interest-earning assets	5,667,741		228,270		5.38		5,501,404		200,204		4.87
Cash and due from banks	104,269						69,998
Bank premises and equipment	71,479						72,631
Goodwill and intangible assets	161,622						150,808
Other assets	305,113						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 deposits	1,240,788		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 agreements	324,631		11,309		4.65		282,857		8,334		3.94
FHLB long-term advances	145,620		4,577		4.20		55,678		1,683		4.04
Total interest-bearing liabilities	4,144,113		62,952		2.03		3,929,203		34,825		1.18
Noninterest-bearing demand deposits	1,332,988						1,407,922
Other liabilities	109,194						122,854
Stockholders’ equity	700,915						637,918
Total liabilities and stockholders’ equity	$	6,287,210					$	6,097,897
Net interest income			$	165,318					$	165,379
Net yield on earning assets					3.90	%					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:

		2024		2023
	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:

		2024		2023
	Residential real estate	$	145	$	165
	Commercial, financial and agriculture	2,499		1,575
	Installment loans to individuals	17		15
	Time deposits	98		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:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	2,945	$	7,211	$	10,156
Commercial, financial, and agriculture	7,677		6,789		14,466
Installment loans to individuals	77		181		258

Total loans	10,699		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 deposits	2,129		15,232		17,361
Customer repurchase agreements	1,232		1,743		2,975
FHLB long-term advances	2,721		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)


Assets	Three months ended September 30,
	2024						2023
	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 loans	4,133,520		61,407		5.91		3,956,871		55,583		5.57
Securities:
Taxable	1,343,323		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 securities	1,502,548		15,445		4.09		1,448,071		13,584		3.72
Deposits in depository institutions	103,322		1,417		5.46		90,684		1,265		5.52
Total interest-earning assets	5,739,390		78,269		5.43		5,495,626		70,432		5.08
Cash and due from banks	110,765						69,658
Bank premises and equipment	70,998						73,004
Goodwill and intangible assets	161,009						163,602
Other assets	292,758						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 deposits	1,220,009		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 agreements	323,844		3,788		4.65		272,558		2,990		4.35
FHLB long-term advances	150,000		1,586		4.21		100,000		1,035		4.11
Total interest-bearing liabilities	4,189,992		22,446		2.13		3,973,016		14,575		1.46
Noninterest-bearing demand deposits	1,334,762						1,359,268
Other liabilities	99,797						123,137
Shareholders’ equity	727,164						655,462
Total liabilities and shareholders’ equity	$	6,351,715					$	6,110,883
Net interest income			$	55,823					$	55,857
Net yield on earning assets					3.87	%					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:

		2024		2023
	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:

		2024		2023
	Residential real estate	$	27	$	47
	Commercial, financial and agriculture	752		720
	Installment loans to individuals	5		4
	Time deposits	14		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:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	872	$	2,080	$	2,952
Commercial, financial, and agriculture	1,721		1,244		2,965
Installment loans to individuals	(71)		(22)		(93)
Total loans	2,522		3,302		5,824
Securities:
Taxable	641		1,329		1,970
Tax-exempt (1)	(78)		(31)		(109)
Total securities	563		1,298		1,861
Deposits in depository institutions	176		(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 deposits	989		4,620		5,609
Customer repurchase agreements	561		237		798
FHLB long-term advances	516		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,
	2024			2023			2024		2023

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 assets	9.26		%	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, 2024		December 31, 2023		September 30, 2023
Commercial and industrial	$	424,414	$	426,951	$	424,647

1-4 Family	194,670		206,237		197,081
Hotels	383,232		357,142		321,236
Multi-family	193,875		189,165		192,329
Non Residential Non-Owner Occupied	665,210		680,590		651,498
Non Residential Owner Occupied	236,826		240,328		222,544
Commercial real estate	1,673,813		1,673,462		1,584,688

Residential real estate	1,806,578		1,788,149		1,768,358
Home equity	190,149		167,201		159,630
Consumer	58,710		65,246		65,586
DDA overdrafts	4,166		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. Num erous 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 b e 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,
	2024		2023		2023
Commercial and industrial	$	4,520	$	4,648	$	4,474

1-4 Family	1,234		662		1,402
Hotels	2,240		2,220		2,211
Multi-family	997		1,015		1,002
Non Residential Non-Owner Occupied	3,037		4,798		4,077
Non Residential Owner Occupied	2,130		2,464		2,453
Commercial real estate	9,638		11,159		11,145
Residential real estate	5,891		5,391		5,398
Home equity	624		432		490
Consumer	326		325		269
DDA overdrafts	833		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,
	2024		2023		$ 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 expenses	110.3		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,
	2024		2023	$ Change		% Change
Net investment securities gains (losses)	$	0.3	(0.7)	$	1.0	142.9	%
Non-interest income, excluding net investment securities gains	20.0		18.1	1.9		10.5
Non-interest expense, less merger-related expenses	37.6		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 Rates	Implied Federal Funds Rate Associated with Change in Interest Rates		Estimated Increase or Decrease in Net Income Over 12 Months
September 30, 2024
+300	8.00	%	-1.0	%
+200	7.00		+0.8
+100	6.00		+2.4
-100	4.00		-4.6
-200	3.00		-10.5
-300	2.00		-17.6

December 31, 2023
+300	8.50	%	-4.5	%
+200	7.50		-2.4
+100	6.50		-1.6
-100	4.50		-7.2
-200	3.50		-8.3
-300	2.50		-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, 2024		December 31, 2023
Noninterest-Bearing Demand Deposits	18	%	16	%

Interest-Bearing Deposits
Demand Deposits	16	%	7	%
Savings Deposits	12	%	11	%
Time Deposits	16	%	13	%
Total Deposits	15	%	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 f or 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, 2024	Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital
City Holding Company	$	669,862	16.6	%	$	281,728	7.0	%	$	261,605	6.5	%
City National Bank	641,794		16.0		280,789		7.0		260,733		6.5
Tier I Capital
City Holding Company	669,862		16.6		342,098		8.5		321,975		8.0
City National Bank	641,794		16.0		340,958		8.5		320,902		8.0
Total Capital
City Holding Company	690,857		17.2		422,592		10.5		402,469		10.0
City National Bank	662,789		16.5		421,184		10.5		401,127		10.0
Tier I Leverage Ratio
City Holding Company	669,862		10.6		253,131		4.0		316,413		5.0
City National Bank	641,794		10.2		252,304		4.0		315,379		5.0


December 31, 2023	Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital
City Holding Company	$	627,579	15.7	%	$	279,768	7.0	%	$	259,875	6.5	%
City National Bank	549,031		13.8		278,692		7.0		258,785		6.5
Tier I Capital
City Holding Company	627,579		15.7		339,718		8.5		319,735		8.0
City National Bank	549,031		13.8		338,412		8.5		318,505		8.0
Total Capital
City Holding Company	648,646		16.2		419,652		10.5		399,669		10.0
City National Bank	570,099		14.3		418,038		10.5		398,131		10.0
Tier I Leverage Ratio
City Holding Company	627,579		10.2		245,468		4.0		306,835		5.0
City National Bank	549,031		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.


			2(a)			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).
			2(b)			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).
			2(c)			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).
			3(a)			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).
			3(b)			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).
			4(a)			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).
			4(b)			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).
			10(a)			Change in Control Agreement for David L. Bumgarner, effective as of May 4, 2022.
			10(b)			Change in Control Agreement for Jeffrey D. Legge, effective as of May 4, 2022.
			10(c)			Change in Control Agreement for Michael T. Quinlan, Jr., effective as of May 4, 2022.
			31(a)			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck.
			31(b)			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner.
			32(a)			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.
			32(b)			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.
			101			Interactive 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.SCH			XBRL Taxonomy Extension Schema*
			101.CAL			XBRL Taxonomy Extension Calculation Linkbase*
			101.DEF			XBRL Taxonomy Extension Definition Linkbase*
			101.LAB			XBRL Taxonomy Extension Label Linkbase*
			101.PRE			XBRL Taxonomy Extension Presentation Linkbase*
			104			Cover 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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Part I -Item 1 - Financial Statements Item 2 - Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Item 4 - Controls and Procedures Part II - Other Information Part II -Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

CHCO 10-Q Quarter ended Sept. 30, 2024

Exhibits