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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.05pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.08pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.02pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
default+2
displacement+1
Positive rising
greater+1
advances+1
Risk Factors (Item 1A)
7,854 words
Item 1A. Risk Factors
An investment in the Company’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also the Company’s business operations. You should carefully consider the risks described below, as well as the other information included or incorporated by reference in this Annual Report on Form 10-K, before making an investment in the Company’s common stock. If any of the following risks occur, the Company’s financial condition and results of operations could be materially and affected, and you could all or part of your investment. In this section, the term "Company" includes City National unless the circumstances dictate otherwise.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
criticized+1
downgraded+1
Positive rising
improvement+1
attaining+1
improved+1
MD&A (Item 7)
9,929 words
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Economic Conditions in the Company's Market Areas Could Negatively Impact the Company's Business and Financial Condition.
The Company’s business is concentrated in West Virginia, Kentucky, Virginia and southeastern Ohio. As a result, the Company’s results of operation, cash flows and financial condition are affected by local and regional economic conditions. A downturn in the economies within the Company’s market areas, or in any one of them, could negatively impact the Company’s results of operation and financial condition. Some examples of economic deterioration include declines in economic growth, declines in consumer and business confidence, prolonged increases in inflation, increases in the cost of capital and credit, and limitations in the availability of credit. Trade policies and tariffs could also lead to an uncertain economic environment and increase inflation, reduce consumer spending, or raise the cost of borrowing. The Company’s financial performance generally, and the ability of its customers to pay interest on and repay principal of outstanding loans to City National, is highly dependent on the strength of the economic and business environment in the market areas where the Company operates and in the United States as a whole. Additionally, the value of collateral securing loans made and held by City National is impacted by the strength of the economy. Deteriorating economic conditions in the Company’s market areas could cause declines in the overall quality of the loan portfolio requiring charge-off of a greater percentage of loans and/or an increase in the allowance for credit losses, which could negatively impact the Company’s results of operations and financial condition.
While the economic and business environments in West Virginia, Kentucky, Virginia and southeastern Ohio have shown resilience, there can be no assurance that such resilience and improvement will continue or that the economies in the Company’s market areas, or the United States as a whole, will not slip into a recession. A lack of continued economic improvement or economic recession could adversely affect the Company’s results of operation and financial condition. An economic slowdown, or an increase in joblessness, whether caused by general economic conditions or the rise of alternative technologies replacing members of the workforce, could have the following consequences:
• Loan delinquencies may increase;
• Problem assets and foreclosures may increase;
• Demand for City National's products and services may decline; and
• Collateral (including real estate) that secures loans made by City National may decline in value, in turn reducing customers’ borrowing power and making existing loans less secure.
The oil, natural gas and coal industries, and businesses ancillary thereto, play an important role in the economies of West Virginia, Kentucky, Virginia and southeastern Ohio. Historic, and ongoing, volatility in oil and gas prices has negatively impacted oil and gas and other businesses in the Company’s market areas. Additionally, the coal industry has historically been in decline as a result of increased environmental and safety regulatory burden, increased competition from alternative energy sources and a decline in demand for coal. The Company has limited direct exposure to coal industry specific loans. Prolonged low oil and gas prices, and continued decline in the coal industry, could result in downward pressure on businesses in the Company’s market area which could negatively affect City National’s customers (both individuals and businesses). As a result, the Company’s operating results and financial condition could be negatively impacted.
Credit and Interest Rate Risks
The Value of Real Estate Collateral May Fluctuate Significantly Resulting in an Under-Collateralized Loan Portfolio.
The market value of real estate, particularly real estate held for investment, can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for the Company's loan portfolio were to decline materially, a significant part of the Company's loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then, in the event of foreclosure, we may not be able to realize the amount of collateral that we anticipated at the time of originating the loan. This could have a material adverse effect on the Company's provision for credit losses and the Company's operating results and financial condition.
The Company Is Subject to Lending Risk, and the Impacts of Interest Rate Changes Could Adversely Impact the Company.
There are inherent risks associated with the Company’s lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. The Company is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Company to regulatory enforcement action that could result in restrictions of the Company's activities or the assessment of significant civil money penaltiesagainst the Company.
A substantial portion of the Company's loan portfolio is comprised of residential and commercial real estate loans. The Company's concentration of real estate loans may subject the Company to additional risk, such as fluctuations in market value of collateral, environmental liability associated with hazardous or toxic substances found on, in or around the collateral, and difficulty monitoring income-producing property serving as a source of repayment and collateral. Any of these or other risks relating to real estate loans could adversely affect the collection by the Company of the outstanding loan balances.
Default on the Repayment of Loans May Impact Operating Expenses and Earnings.
The Company’s customers may default on the repayment of loans, which may negatively impact the Company’s earnings due to loss of principal and interest income. Increased operating expenses may result from management's allocation of time and resources to the collection and work-out of the loan. Collection efforts may or may not be successful causing the Company to write off the loan or repossess the collateral securing the loan, which may or may not exceed the balance of the loan. The Company may experience fluctuations in its default rate driven by general economic conditions, or by increases in technology that lead to cross-industry, widespread job displacement. To the extent the Company’s customers are impacted by these conditions, the default rate could accelerate.
Remediation Costs for Real Property Could Impact the Financial Outcomes of the Company.
A significant portion of the Company’s loan portfolio is secured by real property. In the ordinary course of the Company's business, it sometimes takes title to real property collateral through foreclosure after a borrower defaults on the loan for which the real property is collateral. There is a risk that hazardous or toxic substances could be present on properties that the Company acquires by way of foreclosure. Though the Company conducts regular remediation evaluations in the ordinary course of business, the Company may be liable for remediation costs, as well as for personal injury and property damage relating to any hazardous or toxic substances present on the properties it acquires in foreclosure. Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. Furthermore, remediation costs and financial and other liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.
Changes to Interest Rates Could Impact the Financial Outcomes of the Company.
Changes in monetary policy, including changes in interest rates, could influence not only the interest income the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the Company’s ability to originate loans and obtain deposits, (ii) the fair value of the Company’s financial assets and liabilities, and (iii) the average duration of the Company’s mortgage-backed securities portfolio. The Company’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds.
Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System. The existing Chair of the Federal Reserve’s term ends on May 15, 2026. There is increased uncertainty in what approach to interest rates the Board of Governors will take while led by a new Chair later in 2026.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore its earnings and net profit, could be adversely affected. Earnings also could be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Changes in interest rates may also negatively affect the ability of the Company's borrowers to repay their loans, particularly as interest rates rise and adjustable-rate loans become more expensive.
Although management believes it has implemented effective asset and liability management strategies, including the use of derivatives as hedging instruments, to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations. See the section in Item 7A. Quantitative and Qualitative Disclosures About Market Risk located elsewhere in this report for further discussion related to the Company’s management of interest rate risk.
The Company’s Allowance for Credit Losses May Not be Sufficient.
The Company maintains an allowance for credit losses, which 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. 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.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for credit losses. In addition, bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs based on judgments different than those of management. Any increases in the allowance for credit losses will result in a decrease in net income and capital, and may have a material adverse effect on the Company’s financial condition and results of operations.
See the section captioned "Allowance for Credit Losses" in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for credit losses.
Risks Related to an Investment in the Company's Securities
The Value of the Company’s Common Stock Fluctuates.
The market for the Company’s common stock may experience significant price and volume fluctuations in response to a number of factors including actual or anticipated variations in operating results, changes in expectations of future financial performance, changes in estimates by securities analysts, governmental regulatory action, banking industry reform measures, customer relationship developments and other factors, many of which are beyond the Company’s control.
Furthermore, the stock market in general, and the market for financial institutions in particular, have experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of the Company’s common stock, regardless of actual operating performance.
The Trading Volume in the Company’s Common Stock Is Less Than That of Other Larger Financial Services Companies.
Although the Company’s common stock is listed for trading on the NASDAQ Global Select Market, the trading volume in its common stock is less than that of some other financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales, could cause the Company’s stock price to fall.
Future Sales or the Issuance of Shares of the Company’s Common Stock Could Negatively Affect its Market Price.
Future sales of substantial amounts of the Company’s common stock, agreements for the issuance of additional shares of the Company’s common stock (such as the issuance of shares as consideration in connection with the Merger), or the perception that such sales could occur, could adversely affect the market price of the Company’s common stock in the open market. We make no prediction as to the effect, if any, that future sales of shares, the issuance of shares as consideration in the Merger, or the availability of shares for future sale, will have on the market price of the Company’s common stock.
Shares of the Company’s Common Stock Are Not FDIC Insured.
Neither the FDIC nor any other governmental agency insures the shares of the Company’s common stock. Therefore, the value of common stock of the Company will be based on market value and may fluctuate.
Strategic Risks
Due to Increased Competition, the Company May Not be Able to Attract and Retain Banking Customers.
The Company faces substantial and intense competition in all areas of its operation, including interest rates and other terms for loans and deposits and the range and quality of services provided. Competition comes from a variety of different competitors, many of which have competitive advantages over the Company. The Company faces competition from:
• local, regional and national banks;
• savings and loans associations;
• internet banks;
• credit unions;
• mutual funds;
• mortgage banking firms;
• finance companies;
• financial technology ("fin-tech") companies;
• brokerage firms;
• investment advisory and wealth management firms;
• investment banking firms; and
• other entities.
In particular, many of City National’s competitors are larger banks and financial institutions whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, the Company’s competitors may have products and services not offered by the Company, which may cause current and potential customers to choose those institutions over the Company. The financial services industry could become even more competitive as a result of legislative, regulatory, and technological changes and the continued consolidation within the banking industry. Consumer preferences and expectations continue to evolve, and technology and regulatory changes have lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the internet and for non-banks to offer products and services typically provided by banks. Many of our non-bank competitors have fewer regulatory constraints and expenses associated with regulatory compliance and may have lower cost structures, such as credit unions that are not subject to federal income tax.
The Company’s ability to compete successfully depends on a number of factors, including our ability to develop, maintain, and build long-term customer relationships; our ability to expand our market area and range of services and products offered; our ability to keep up-to-date with technological advancements, both with respect to new and existing products and with respect to cybersecurity; customer satisfaction with our products and services; and general industry and
economic trends. Failure to perform successfully in any of these areas could significantly weaken our competitive position. If the Company is unable to attract new customers and retain current customers, loan and deposit growth could decrease, causing the Company’s results of operations and financial condition to be negatively impacted.
New Lines of Business or New Products and Services May Subject the Company to Additional Risks.
From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or products and services, the Company may invest significant time and resources. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. If we are unable to successfully manage these risks in the development and implementation of new lines of business or new products or services, it could have a material adverse effect on the Company’s business, financial condition and result of operations.
The Company Faces Technological Change and the Emergence of Nonbank Alternatives to the Financial System.
Consumers may decide not to use banks to complete their financial transactions or invest or deposit their funds. Technology and other changes, including the emergence of fin-tech companies are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can pay bills and transfer funds directly without the assistance of banks. In addition, the emergence, adoption, and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in automation, artificial intelligence, and robotics, could significantly affect the competition for financial services. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Furthermore, some of the Company's non-bank competitors are not subject to the same regulations that the Company is and, therefore, may have greater flexibility in competing for business.
The banking and financial services industry continually undergoes technological change, with frequent introductions of new technology-driven products and services. The Company’s future success depends on its ability to address the needs and preferences of its customers by using technology to provide products and services that enhance customer convenience and that create additional efficiencies in the Company’s operations. Many of the Company’s competitors have greater resources to invest in technological improvements, and the Company may not be able to implement new technology-driven products and services as quickly and effectively as its competitors. In addition, the necessary process of updating technology can itself lead to disruptions in the availability or function of systems. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on the Company’s business and results of operations.
The Value of the Company's Investments Could Decline.
The Company holds available-for-sale investment securities, which are carried at fair value. The determination of fair value for certain of these securities requires significant judgment of the Company’s management. Therefore, the market price the Company receives for its investment securities could be less than the carrying value for such securities. Further, the value of the Company’s investment portfolio could decline for numerous reasons, many of which are outside the Company’s control, including general market conditions, volatility in the securities market, and inflation rates or expectations of inflation. A portion of the Company’s investment portfolio consists of municipal securities. The value of these securities is subject to additional factors, including the financial condition of the government issuer and general demand for municipal securities.
The Company May Be Required to Write Down Goodwill and Other Intangible Assets, Causing Its Financial Condition and Results to Be Negatively Affected.
When the Company acquires a business, a portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. At December 31, 2025, the Company’s goodwill and other identifiable intangible assets were approximately $158 million. Under current accounting standards, if the Company determines goodwill or intangible assets are impaired, it would be required to write down the value of these assets. The Company conducts an annual review to determine whether goodwill and other identifiable intangible assets are impaired. The Company recently completed such an impairment analysis and concluded that no impairment charge was necessary for the year ended December 31, 2025. The Company cannot provide
assurance whether it will be required to take an impairment charge in the future. Any impairment charge would have a negative effect on its shareholders’ equity and financial results and may cause a decline in the Company's stock price.
The Company May Require Additional Capital in the Future, But That Capital May Not Be Available or May Be Dilutive.
The Company faces liquidity risk, which is the possibility that the Company may not be able to meet its obligations as they come due, both to creditors and customers, or capitalize on growth opportunities because of a lack of liquidity. Lack of liquidity can be caused by an inability to liquidate assets or obtain adequate financing on a timely basis, at a reasonable cost and on other reasonable terms, and within acceptable risk tolerances. The Company is also required by its regulators to maintain specified levels of capital to maintain its operations. The Company’s business needs and future growth, including future acquisitions or organic growth into new markets and business lines, may require it to raise additional capital.
One of the Company’s main sources for liquidity is customer deposits. Increased competition and the availability of alternative products may reduce the Company’s ability to attract and retain core deposits. If customers move money out of bank deposits into other investments, we could lose a relatively low cost source of funds.
The Company’s ability to raise additional capital, whether in the form of debt or equity, is dependent on several factors, including the condition of capital markets, investment demand, and the Company’s financial condition and performance. We cannot assure that we will be able to raise additional capital in the future on terms that are favorable or acceptable to us, or at all.
The issuance of debt may increase our capital costs and reduce our liquidity. The issuance of equity securities, including common stock or one or more series of preferred stock, of the Company may reduce the value of our common stock and have a dilutive effect on holders of our common stock. The Company may issue debt or equity securities that are senior in priority to our common stock as to distributions and liquidation, which could negatively affect the value of our common stock.
Acquisition and Other Growth Opportunities May Present Challenges.
Any future acquisitions may result in unforeseendifficulties, which could require significant time and attention from the Company’s management that would otherwise be directed at developing its existing business and managing expenses. In addition, the Company could discover undisclosed liabilities resulting from any acquisitions for which it may become responsible. Further, the benefits that the Company anticipates from these acquisitions may not develop. We may experience difficulty integrating businesses acquired through mergers and acquisitions and may fail to realize the expected revenue increases, cost savings, increases in market presence, and other projected benefits from acquisition activity. Acquisitions utilizing the Company’s common stock as consideration may dilute the value of the Company’s common stock, which dilution may not be recouped or recovered for a significant amount of time after the acquisition, if ever.
Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval and other closing conditions. We may expend significant time and resources pursing potential acquisitions that are never consummated due to lack of regulatory approval or other issues. Competition for acquisition candidates in the banking industry is intense. We may expend significant time and resources evaluating acquisition candidates and conducting due diligence that does not lead to an acquisition opportunity.
The Company may implement new lines of business, enter new market areas, or offer new products and services from time to time. There can be substantial risks and uncertainties associated with these efforts. The Company may invest significant time and resources in developing and marketing new lines of business, but the benefits that the Company anticipates from these activities may not develop as expected. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences may impact the Company’s ability to successfully implement organic growth strategies. Failure to successfully manage these risks could have a material adverse effect on the Company’s financial condition and results of operations.
Operational Risks
The Company May be Adversely Affected by the Soundness of Third Parties, Including Other Financial Institutions.
The Company's business is highly dependent on third-party vendors, especially with respect to information technology and telecommunication systems, payment processing system, and mobile and online banking systems. Our operations rely heavily on the secure processing, storage, transmission, and monitoring of information and transactions, and
many of these services are outsourced to third-party vendors. The failure of these systems or the inability of a third party vendor to continue providing these services on a reliable basis could adversely affect our operations. In addition, the failure of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of any of these third parties, could disrupt our operations and adversely affect our reputation. It may be difficult for us to replace some of our critical third-party vendors, particularly vendors providing our core banking, debit card services and information services, in a timely manner and on terms that are favorable or acceptable to us. Any of these events could increase our expenses and have a material adverse effect on our business, financial condition, and results of operations.
Financial services institutions are interrelated with one another as a result of trading, clearing, counterparty, and other relationships. The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Company. Any such losses could have a material adverse effect on the Company’s business, financial condition and results of operations. Further, as a result of financial entities and technology systems becoming more interdependent and complex, a cybersecurity incident, information breach or loss, or technology failure that comprises the systems or data of one financial entity could have a material impact on counterparties or other market participants, including the Company.
The Company Depends on the Accuracy and Completeness of Information About Our Customers and Counterparties.
The Company relies on information provided to us by or on behalf of customers and other third parties, including financial statements, credit reports, and other financial information, in deciding whether to extend credit or enter into other transactions and in evaluating and monitoring our loan portfolio. The Company also relies on representations from our customers, counterparties, and other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate, incomplete, fraudulent or misleading financial or business information could result in credit losses, reputational damage, or other effects that could have a material adverse effect on our financial condition and results of operation.
The Company's Risk Management Practices May Prove to be Inadequate or Not Fully Effective.
The Company's risk management framework seeks to mitigate risk and appropriately balance risk and return. The Company has established policies and procedures intended to identify, monitor and manage the types of risk which it is subject to, including credit risk, market risk, liquidity risk, operational risk and reputational risk. Although the Company has devoted significant resources to develop its risk management policies and procedures and expects to continue to do so in the future, these policies and procedures, as well as its risk management techniques, may not be fully effective. In addition, as regulations and markets in which the Company operates continue to evolve, its risk management framework may not always keep sufficient pace with those changes. If the Company's risk management framework does not effectively identify or mitigate its risks, the Company could sufferunexpectedlosses and could be materially adversely affected. Management of the Company's risks in some cases depends upon the use of analytical and/or forecasting models. If the models the Company uses to mitigate these risks are inadequate, it may incur increased losses. In addition, there may be risks that exist, or that develop in the future, that the Company has not appropriately anticipated, identified or mitigated.
The Company May Not Be Able to Attract and Retain Skilled Key Employees.
The Company’s success depends, in large part, on its ability to attract, retain, motivate and develop key employees. Competition for key employees is ongoing and the Company may not be able to attract, retain or hire the key employees who are wanted or needed, which may also negatively impact the Company’s ability to execute identified business strategies. Because the Company operates primarily in specific geographic markets, its hiring pool is also limited by those markets. Competition for key employees may require the Company to offer higher compensation to attract or retain key employees, which may adversely affect the salaries and employee benefit costs of the Company.
Various restrictions on the compensation which may be paid to certain executive officers were imposed under the Dodd-Frank Act and other legislation and regulations. In addition, the Company’s incentive compensation structure is subject to review by regulators, who may identify deficiencies in the structure or issue additional guidance on the Company’s compensation practices, causing the Company to make changes that may affect its ability to offer competitive compensation to these individuals or that place it at a disadvantage to non-financial service competitors. The Company’s ability to attract and retain talented employees may be affected by these restrictions, or any new executive compensation limits or regulations.
Risks Related to Legal, Reputational and Compliance Matters
Certain Banking Laws May Have an Anti–Takeover Effect.
Application of certain federal banking laws and regulations applicable to the Company and City National, including regulatory approval requirements for change in control, merger or other business combination transactions, could make it more difficult for a third party to acquire the Company or City National, even if doing so would be perceived to be beneficial to the Company's shareholders. These laws and regulations effectively inhibit a non–negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Company's common stock.
The Company’s Ability to Pay Dividends Is Limited.
Although the Board of Directors has declared cash dividends in the past, the Company's current ability to pay dividends is largely dependent upon the receipt of dividends from City National. Federal laws impose restrictions on the ability of City National to pay dividends. Holders of shares of the Company’s common stock are entitled to dividends if, and when, they are declared by the Company’s Board of Directors out of funds legally available for that purpose. Additional restrictions are placed upon the Company by the policies of federal regulators, including the Federal Reserve Board’s November 14, 1985 policy statement, which provides that bank holding companies should pay dividends only out of the past year’s net income, and then only if their prospective rate of earnings retention appears consistent with their capital needs, asset quality, and overall financial condition. In general, future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including the Company’s and City National’s future earnings, capital requirements, regulatory constraints and financial condition. There can be no assurance that the Company will continue to pay dividends to its shareholders in the future.
The Company and City National Are Extensively Regulated.
The Company operates in a highly regulated environment and is subject to supervision and regulation by a number of governmental regulatory agencies, including the Federal Reserve Board, the OCC and the FDIC. Regulations adopted by these agencies, which are generally intended to provide protection for depositors and customers rather than for the benefit of shareholders, govern a comprehensive range of matters including but not limited to (i) ownership and control of the Company's equity, (ii) acquisition of other companies and businesses, (iii) permissible activities and investments, (iv) maintenance of adequate capital levels and (v) other operational aspects. Compliance with banking regulations is costly and restricts certain of our activities, including the payment of dividends, mergers and acquisitions, investments, loan amounts and concentrations, interest rates, opening and closing branch locations, and other activities. The bank regulatory agencies also possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. These agencies have significant discretion in their ability to enforce penalties and further limit the Company's activities if the Company fails to comply with applicable regulations.
Changes and additions to statutes, regulations or regulatory policies, including changes in interpretation, enforcement or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to reduced revenues, additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. The burden and expenses associated with regulatory compliance have been increasing and may continue to increase. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company's business, financial condition and results of operations.
Proposals to change the laws and regulations governing financial institutions are frequently raised in Congress and before bank regulatory authorities. Changes in applicable laws or regulations could materially affect the Company’s business, and the likelihood of any major changes in the future and their effects are impossible to determine. Moreover, it is impossible to predict the ultimate form any proposed legislation might take or how it might affect the Company.
The Company’s Controls and Procedures May Fail or Be Circumvented.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition. Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, no matter how well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
The Company Faces Reputational Risk.
The Company faces threats to its reputation from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver expected standards of service or quality, regulatory compliance deficiencies, and questionable or fraudulent activities of the Company’s employees and customers. Negative publicity may arise regarding the Company’s business, employees, or customers, with or without merit, and could result in the loss of customers, investors and employees, costlylitigation, a decline in revenue, and increased regulatory oversight.
The Company Is Subject to Possible Claims and Litigation Relating to Fiduciary Activities.
A significant portion of the business conducted in the Company's wealth and investment management division involves the Company assuming the special role of a fiduciary to its customers and to the beneficiaries of its customers' assets. Customers or beneficiaries could make claims and take legal action relating to the Company’s fiduciary activities. Whether such claims and legal action related to the Company's performance of its fiduciary responsibilities are founded or unfounded, if such matters are not resolved in a manner favorable to the Company, they may result in significant financial liability. Furthermore, the mere existence of a claim or legal action related to the Company’s fiduciary activities could adversely affect the Company’s reputation among customers and prospective customers. Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations.
Significant Legal Actions Could Result in Substantial Liabilities.
From time to time, the Company is subject to claims related to its operations. These claims and legal actions, including supervisory actions by its regulators, could involve large monetary claims and cause the Company to incur significant defense expenses. As a result, the Company may be exposed to substantial liabilities, which could negatively affect its shareholders’ equity and financial results.
Changes in Tax Law and Accounting Standards Could Materially Affect the Company's Operations.
Changes in tax laws, or changes in the interpretation of existing tax laws, could materially adversely affect the Company’s operations. Similarly, new accounting standards, changes to existing accounting standards, and changes to the methods of preparing financial statements could impact the Company’s reported financial condition and results of operations. These factors are outside the Company’s control and it is impossible to predict changes that may occur and the effect of such changes.
Risks Related to Privacy and Technology
System Failure, Cybersecurity Breaches, Fraud and Employee Misconduct Could Subject the Company to Increased Operating Costs, as Well as Litigation and Other Potential Losses.
The computer systems and network infrastructure that the Company uses could be vulnerable to unforeseen hardware and cybersecurity issues, including "hacking" and "identity theft." The Company’s operations are dependent upon its ability to protect its computer equipment againstdamage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in the Company’s operations could have an adverse effect on its financial condition and results of operations. In addition, the Company’s operations are dependent upon its ability to protect the computer systems and network infrastructure utilized by the Company, including its mobile and internet banking activities, againstdamage from physical break-ins, cybersecurity breaches, acts of vandalism, computer viruses, theft of information, misplaced or lost data, programming and/or human errors, and other disruptiveproblems. The Company is further exposed to the risk that its third-party service providers may be unable to fulfill their contractual obligations with respect to managing the Company’s information and systems. Any cybersecurity breach or other disruptions, whether by the Company or its third-party vendors, would jeopardize the security of information stored in and transmitted through the Company’s computer systems and network infrastructure, which may result in significant liability to the Company, damage to its reputation and inhibit current and potential customers from its using internet banking services. The Company could incur substantial costs and suffer other negative consequences, including: remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers in an effort to maintain relationships after an attack; increased cybersecurity protection costs, such as organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; and damage to the Company's competitiveness, stock price, and long-term shareholder values.
Despite efforts to ensure the integrity of the Company's systems, the Company will not be able to anticipate all security breaches of these types, nor will it be able to implement guaranteed preventive measures against such security breaches. Persistent attackers may succeed in penetrating defenses given enough resources, time and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. These risks may increase in the future as the Company continues to increase its mobile payment and other internet-based product offerings and expand its internal usage of web-based products and applications.
A successful attack to the Company's system security or the system security of one of its critical third-party vendors could cause it seriousnegative consequences, including significant disruption of operations, misappropriation of confidential information, and/or damage to its computers or systems or those of its customers and counterparties. A successful security breach could result in violations of applicable privacy and other laws, financial loss to the Company or to its customers, loss of confidence in its security measures, significant litigation exposure, and harm to its reputation, all of which could have a material adverse effect on the Company.
Criminals are committing fraud at an increasing rate and are using more sophisticated techniques, including the use of artificial intelligence technologies. The Company faces risk of fraudulent activity in many forms, including online payment transfer fraud, debit card fraud, check fraud, mechanical devices attached to ATMs or ITMs, phishing attacks to obtain personal information, email-related frauds and the impersonation of Company executives or vendors, and impersonation of clients through the use of falsified or stolen credentials. The Company may sufferlosses as a result of fraudulent activity committed against it, its customers, and other counterparties.
The Company could be adversely affected if one of its employees causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulentlymanipulates the Company’s operations or systems. Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of customers or improper use of confidential information. Employee errors or misconduct could subject the Company to regulatory enforcement action, legal action, reputational damage, and other losses. For more information on how the Company manages cybersecurity risk, please refer to Item 1C. Cybersecurity .
General Risk Factors
The Company Relies Heavily on Its Management Team, and the UnexpectedLoss of Key Management May Adversely Affect Its Operations.
The Company's success to date has been strongly influenced by its ability to attract and to retain senior management personnel experienced in banking in the markets it serves. Competition for key personnel is intense. The Company's ability to retain executive officers and the current management teams will continue to be important to the successful implementation of its strategies. The Company has employment agreements with these key employees in the event of a change of control, as well as confidentiality, non-solicitation and non-competition agreements related to its stock awards. The unexpectedloss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on the Company's business and financial results.
Severe Weather, Natural Disasters, Acts of War or Terrorism, Political Instability, and Other External Events Could Significantly Impact the Company's Business.
Severe weather, natural disasters, health emergencies, acts of war or terrorism, political instability, and other adverse external events, especially those that directly affect the Company’s market areas, could have a significant impact on the Company’s ability to conduct business. These events could adversely affect the ability of borrowers to repay outstanding loans, decrease the value of collateral securing loans, cause significant property and infrastructure damage, and affect the stability of the Company’s deposit base. The Company may experience decreased revenue, increased charge-offs, and other expenses.
Climate Change Could Materially Impact the Company’s Underlying Customers or the General Economic Conditions, Resulting in Impacts on the Company.
The Company’s business, as well as the operations and activities of its customers, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Company and its customers, and these risks are expected to increase over time. Climate change presents multi-faceted risks, including: operational risk from the physical effects of climate events on the Company and its customers’ facilities and other assets; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less carbon-dependent economy;
and reputational risk from stakeholder concerns about the Company’s practices related to climate change, the Company’s carbon footprint, and the Company’s business relationships with clients who operate in carbon-intensive industries. The Company’s success depends on its relationships with customers and general economic conditions. Because the Company’s customer base is geographically concentrated in West Virginia, Kentucky, Virginia, and southeastern Ohio, if the customers in those geographies are physically impacted by climate change, the Company may be financially impacted as well. In addition, an economic transition to mitigate climate change on a broader scale could have a negative or destabilizing impact on the general economic conditions of the country, which could also have a negative impact on the financial outcomes of the Company.
The information noted below is provided pursuant to Guide 3 - Statistical Disclosure by Bank Holding Companies and 17 CFR § 229.1400.
Description of Information
Page
Reference
Item I.
Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential
Average Balance Sheets
Analysis of Net Interest Earnings
Rate Volume Analysis of Changes in Interest Income and Expense
Investment Portfolio
Maturity Schedule of Investments
III.
Loan Portfolio
Types of Loans
Maturities and Sensitivity to Changes in Interest Rates
Other Interest Bearing Assets
None
Risk Elements
Deposits
Breakdown of Deposits by Categories, Average Balance and Average Rate Paid
Maturity Schedule of Uninsured Time Certificates of Deposit
Return on Equity and Assets
VII.
Short-term Borrowings
CITY HOLDING COMPANY
City Holding Company (the "Company"), 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 96 bank branches in West Virginia (58), Kentucky (22), Virginia (13) and southeastern Ohio (3). City National provides credit, deposit, and wealth 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 the Company's key markets, the Company's primary subsidiary, City National, often ranks in the top three relative to deposit market share and the top two relative to branch share (Charleston/Huntington MSA, Beckley/Lewisburg counties, Staunton MSA and Winchester, VA/WV Eastern Panhandle counties). 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. See Note Three for additional information on the Company's reportable business segment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting policies of the Company conform to 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 of the Notes to Consolidated Financial Statements included herein. Based on the valuation techniques used and 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 and (ii) income taxes 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 section of this Annual Report on Form 10-K provides management’s analysis of the Company’s allowance for credit losses and related provision. 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. 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 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 troubled-debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The Company uses a number of economic variables in its scenarios to estimate the allowance for credit losses, with the most significant drivers being an unemployment rate forecast and qualitative adjustments. In the December 31, 2025 estimate, the Company assumed a 2-year unemployment forecast range of 4.2% to 4.6%, compared to a range of 4.2% to 4.8% utilized in the December 31, 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. Based on sensitivity of the portfolio, the change had a less than $0.5 million impact on the reserve.
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 $2.4 million impact on the reserve allocation. Changing each factor by 0.01% (moderate improvement or decline) would have a $4.7 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 December 31, 2025 estimate, management assigned a slight improvement (0.005% decrease) to the Criticized/Classified loan trends factor in each commercial pool which decreased the reserve $0.1 million.
Income Taxes
The Income Taxes section of this Annual Report on Form 10-K provides management’s analysis of the Company’s 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 Company's unrecognized tax benefits could change over the next twelve months as a result of various factors. 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, 2022 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.
FINANCIAL SUMMARY
The Company’s financial performance over the previous three years is summarized in the following table:
Net income available to common shareholders (in thousands)
Earnings per common share, basic
Earnings per common share, diluted
Cash dividends declared
Book value per share
Dividend payout ratio
ROA*
ROE*
ROATCE*
*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.
BALANCE SHEET ANALYSIS
Select balance sheet fluctuations and ratios are summarized in the following table (in millions):
December 31,
$ Change
% Change
Cash and cash equivalents
Investment securities
Gross loans
Total deposits
Cash and cash equivalents decreased $33.5 million (14.9%) from $225.4 million at December 31, 2024, to $191.9 million at December 31, 2025, primarily due to an increase in gross loans, increase in investment balances, and treasury share repurchases that were partially offset by an increase in deposit balances and net income retained.
Investment securities increased $81.7 million (5.6%) from $1.45 billion at December 31, 2024, to $1.53 billion at December 31, 2025, due to purchases of investment securities.
Gross loans increased $232.2 million (5.4%) from December 31, 2024 to $4.51 billion at December 31, 2025. Commercial real estate loans increased $98.6 million (5.6%), residential real estate loans increased $86.5 million (4.7%), commercial and industrial loans increased $34.1 million (8.1%), and home equity loans increased $25.5 million (12.8%) for the year ended December 31, 2025. These increases were partially offset by a decrease in consumer loans of $10.5 million (18.1%).
Total deposits increased $156.8 million (3.0%) from December 31, 2024 to $5.3 billion at December 31, 2025. Noninterest-bearing demand deposit balances increased $69.2 million, time deposit balances increased $54.2 million, savings deposit balances increased $29.2 million, and interest-bearing demand deposit balances increased $4.2 million.
TABLE ONE
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME
(In thousands)
Average Balance (6)
Interest
Yield/
Rate
Average Balance (6)
Interest
Yield/
Rate
Average Balance (6)
Interest
Yield/
Rate
Assets
Loan portfolio (1) :
Residential real estate (2),(3)
Commercial, financial, and agriculture (3)
Installment loans to individuals (3),(4)
Total loans
Securities:
Taxable
Tax-exempt (5)
Total securities
Deposits in depository institutions
Total interest-earning assets
Cash and due from banks
Bank premises and equipment
Goodwill and intangible assets
Other assets
Less: Allowance for credit losses
Total assets
Liabilities
Interest-bearing demand deposits
Savings deposits
Time deposits (3)
Customer repurchase agreements
FHLB long-term advances
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income
Net yield on earning assets
1. For purposes of this table, non-accruing loans have been included in average balances and the following net loan fees (in thousands) have been included in interest income:
Loan fees, net
2. Includes the Company's residential real estate and home equity loan categories.
3. 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:
Residential real estate
Commercial, financial, and agriculture
Installment loans to individuals
Time deposits
Total
4. Includes the Company’s consumer and DDA overdrafts loan categories.
5. Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.
6. Computed based on daily averages
TABLE TWO
RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In thousands)
Increase (Decrease)
Due to Change In:
Increase (Decrease)
Due to Change In:
Volume
Rate
Net
Volume
Rate
Net
Interest-earning assets:
Loan portfolio
Residential real estate
Commercial, financial, and agriculture
Installment loans to individuals
Total loans
Securities:
Taxable
Tax-exempt (1)
Total securities
Deposits in depository institutions
Total interest-earning assets
Interest-bearing liabilities:
Interest-bearing demand deposits
Savings deposits
Time deposits
Customer repurchase agreements
FHLB long-term advances
Total interest-bearing liabilities
Net Interest Income
1. Fully federal taxable equivalent using a tax rate of approximately 21%.
NET INTEREST INCOME
Total interest income
Total interest expense
Net interest income
The Company’s net interest income increased from $220.2 million for the year ended December 31, 2024 to $236.4 million for the year ended December 31, 2025. The Company’s tax equivalent net interest income increased $16.1 million, or 7.3%, from $221.1 million for the year ended December 31, 2024 to $237.2 million for the year ended December 31, 2025. Due to an increase in average loan balances ($220.9 million), net interest income increased by $12.8 million. Additionally, net interest income increased by $7.5 million due to a decrease in the cost of interest bearing liabilities of 12 basis points, by $3.5 million due to an increase in the average balance of investments ($75.7 million), and by $2.1 million due to an increase in the yield on investment securities of 17 basis points.
These increases were partially offset by an increase in the average balances of interest bearing liabilities ($184.3 million) which decreased net interest income by $6.1 million. Decreases in the yield on deposits in depository institutions (87 basis points) and loans (1 basis point) also decreased net interest income by $1.1 million and $0.8 million, respectively. The Company’s reported net interest margin increased from 3.86% for the year ended December 31, 2024 to 3.94% for the year ended December 31, 2025.
The Company’s net interest income increased from $219.2 million for the year ended December 31, 2023 to $220.2 million for the year ended December 31, 2024. The Company’s tax equivalent net interest income increased $0.8 million, or 0.4%, from $220.3 million for the year ended December 31, 2023 to $221.1 million for the year ended December 31, 2024. Due to increases in loan yields (net of loan fees and accretion) of 40 basis points and an increase in average loan balances ($185.5 million), net interest income increased $15.2 million and $10.3 million, respectively. Additionally, an increase in the yield on investment securities of 34 basis points increased net interest income by $4.7 million and a 72 basis point increase on deposits in depository institutions increased net interest income by $1.0 million. The acquisition of Citizens Commerce Bancshares, Inc., and its subsidiary, Citizens Commerce Bank (“Citizens”) of Versailles, Kentucky, during the first quarter of 2023 added $2.8 million of net interest income during the year ended December 31, 2024.
These increases were partially offset by an increase in the cost of interest bearing liabilities (78 basis points) which decreased net interest income by $25.5 million and higher balances of interest bearing liabilities ($193.8 million) that lowered net interest income by $7.9 million. The Company’s reported net interest margin decreased from 4.01% for the year ended December 31, 2023 to 3.86% for the year ended December 31, 2024.
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):
TABLE THREE
NON-GAAP FINANCIAL MEASURES
(dollars in thousands)
Net interest income ("GAAP")
Taxable equivalent adjustment
Net interest income, fully taxable equivalent
Equity to assets ("GAAP")
Effect of goodwill and other intangibles, net
Tangible common equity to tangible assets
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Selected income statement fluctuations and ratios are summarized in the following table (dollars in millions):
For the year ended December 31,
$ Change
% Change
Net investment security losses
Non-interest income, excluding net investment securities losses
Non-interest expense
Non-interest income was $77.8 million for the year ended December 31, 2025, as compared to $73.3 million for the year ended December 31, 2024. In 2025, the Company reported $0.2 million of realized security gains and $0.6 million of unrealized security losses on the Company’s equity securities as compared to $2.8 million realized security losses and $0.2 million of unrealized security gains on the Company’s equity securities in 2024.
Exclusive of these realized and unrealized gains and losses, non-interest income increased $2.2 million, or 2.9%, from $76.0 million for 2024 to $78.2 million for 2025. This increase was largely attributable to an increase of $1.1 million, or 9.7%, in wealth and investment management fee income and an increase of $0.8 million, or 2.6%, from service charges. Additionally, other income increased $0.3 million, or 9.8%, from the year ended December 31, 2024.
Non-interest expenses increased $6.9 million, or 4.7%, from $147.2 million for 2024 to $154.1 million for 2025. This increase was primarily due to an increase in salaries and employee benefit expenses ($2.8 million due to salary adjustments and increased health insurance costs); other tax-related matters ($1.3 million); and equipment and software related expense ($1.3 million). In addition, other expenses increased $1.0 million and bankcard expense increased $0.5 million. These expenses were partially offset by lower advertising expenses of $0.7 million.
Selected income statement fluctuations are summarized in the following table (dollars in millions):
For the year ended December 31,
$ Change
% Change
Net investment security losses
Non-interest income, excluding net investment securities losses
Non-interest income was $73.3 million for the year ended December 31, 2024, as compared to $70.6 million for the year ended December 31, 2023. In 2024, the Company reported $2.8 million of realized security losses and $0.2 million of unrealized security gains on the Company’s equity securities as compared to $4.9 million realized security losses and $0.4 million of unrealized security gains on the Company’s equity securities in 2023. The realized security losses during both 2024 and 2023, which lowered diluted earnings per share by $0.15 and $0.25, respectively, were executed to reposition a portion of our investment securities.
Exclusive of these realized and unrealized gains and losses, non-interest income increased $0.9 million, or 1.2%, from $75.1 million for 2023 to $76.0 million for 2024. This increase was largely attributable to an increase of $1.7 million, or 17.7%, in wealth and investment management fee income and an increase of $1.5 million, or 5.3%, from service charges. Additionally, bankcard revenues increased $0.5 million, or 1.9%, from the year ended December 31, 2023. These increases were partially offset by a decrease of $2.0 million from bank owned life insurance (lower death benefits) and $0.8 million in other income.
Non-interest expenses increased $3.7 million, or 2.6%, from $143.5 million for 2023 to $147.2 million for 2024. This increase was primarily due to an increase in salaries and employee benefit expenses ($3.2 million due to salary adjustments (4.1%) and increased health insurance (5.0%)) and equipment and software related expense ($1.5 million). In addition, bankcard expense increased $1.1 million and advertising expenses increased $0.7 million. These expenses were partially offset by lower other expenses of $2.9 million that were primarily related to acquisition and integration expenses associated with the Citizens acquisition completed in 2023 ($5.2 million).
INCOME TAXES
Selected information regarding the Company's income taxes is presented in the table below (dollars in millions):
For the year ended December 31,
Income tax expense
Effective tax rate
A reconciliation of the effective tax rate to the statutory rate is included in Note Twelve of the Notes to Consolidated Financial Statements.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company was in a net deferred tax asset position ($30.0 million) at December 31, 2025 and a net deferred tax asset position ($41.7 million) at December 31, 2024. The decrease was primarily due to a decrease in the deferred tax asset associated with unrealized securities losses ($11.2 million), as the market values of the Company's investment portfolio increased.
The components of the Company’s net deferred tax assets are disclosed in Note Twelve of the Notes to Consolidated Financial Statements. Realization of the most significant net deferred tax assets is primarily dependent on future events taking place that will reverse the current deferred tax assets. The deferred tax asset associated with unrealized securities losses is the tax impact of the unrealized losses on the Company’s available-for-sale security portfolio. The impact of the Company’s unrealized losses is noted in the Company’s Consolidated Statements of Changes in Shareholders’ Equity as an adjustment to Accumulated Other Comprehensive (Loss) Income. This deferred tax asset would be realized if the unrealized securities losses on the Company's securities were realized from the sales of the related securities. The Company believes that it is more likely than not that each of the deferred tax assets will be realized and that no material valuation allowances were necessary as of December 31, 2025 or 2024.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company evaluates the adequacy of liquidity at both the Parent Company level and at the banking subsidiary level. At the Parent Company level, the principal source of cash is dividends from its banking subsidiary, City National. Dividends paid by City National to the Parent Company 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 December 31, 2025, City National could pay dividends up to $43.7 million without prior regulatory permission.
During 2025, the Parent Company used cash obtained from the dividends received primarily to: (1) pay common dividends to shareholders and (2) fund repurchases of the Company's common shares. Additional information concerning sources and uses of cash by the Parent Company is discussed in Note Nineteen of the Notes to Consolidated Financial Statements.
The Parent Company anticipates continuing the payment of dividends, which are expected to approximate $50.0 million on an annualized basis for 2026 based on common shareholders of record at December 31, 2025 at a dividend rate of $3.48 per share for 2026. However, dividends to shareholders can, if necessary, be suspended. In addition to these anticipated cash needs, the Parent Company has operating expenses and other contractual obligations, which are estimated to require $2.2 million of additional cash over the next 12 months. As of December 31, 2025, the Parent Company reported a cash balance of $148.9 million and management believes that the Parent Company’s available cash balance, together with
cash dividends from City National, will be adequate to satisfy its funding and cash needs over the next twelve months. Excluding the dividend payments discussed above, the Parent Company has no significant commitments or obligations in years after 2026.
City National manages its liquidity position in an effort to effectively and economically satisfy the funding needs of its customers and to accommodate the scheduled repayment of borrowings. Funds are available to City National from a number of sources, including depository relationships, sales and maturities within the investment securities portfolio, and borrowings from the Federal Home Loan Bank ("FHLB"), the Federal Reserve Discount Window, and other financial institutions. City National had an additional $1.7 billion and $1.5 billion available from unused portions of lines of credit with the FHLB and Federal Reserve Discount Window at December 31, 2025 and 2024, respectively. No short-term or long-term funding has been utilized with certain other financial institutions the Company maintains business relationships as of December 31, 2025 or December 31, 2024. City National maintains a contingency funding plan, incorporating these borrowing facilities, to address liquidity needs in the event of an institution-specific or systemic financial industry crisis. Also, although it has no current intention to do so, City National could liquidate its unpledged securities, if necessary, to provide an additional funding source. 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 in attaining 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 required 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 were recognized as investment income in the accompanying statements of income. These agreements matured 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. As illustrated in the Consolidated Statements of Cash Flows, the Company generated $131.4 million of cash from operating activities during 2025, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings.
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 $1.53 billion at December 31, 2025, and that greatly exceeded the Company’s non-deposit sources of borrowing, which totaled $518 million.
The Company’s net loan to asset ratio is 66.8% as of December 31, 2025 and deposit balances fund 78.9% of total assets as compared to 73.0% for its peers (Bank Holding Company Peer Group, as of the most recent data available as of September 30, 2025, which includes commercial banks with assets ranging from $3 billion to $10 billion). Further, the Company’s deposit mix has a very high proportion of transaction and savings accounts that fund 59.5% of the Company’s total assets and the Company uses time deposits over $250,000 to fund 7.0% of total assets compared to its peers, which fund 9.1% of total assets with such 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 December 31, 2025.
Estimated Uninsured Deposits by Deposit Type
December 31, 2025
December 31, 2024
Noninterest-Bearing Demand Deposits
Interest-Bearing Deposits
Demand Deposits
Savings Deposits
Time Deposits
Total Deposits
Capital Resources
During year ended December 31, 2025, Shareholders’ Equity increased $79 million, or 10.8%, from $731 million at December 31, 2024 to $810 million at December 31, 2025. This increase was primarily due to net income of $130 million and other comprehensive income of $39 million, which were partially offset by cash dividends declared of $48 million and common share repurchases of $46 million.
During the year ended December 31, 2025, the Company repurchased approximately 397,000 common shares at a weighted average price of $115.24 per share as part of a one million share repurchase plan authorized by the Board of Directors in January 2024. At December 31, 2025, the Company could repurchase approximately 424,000 additional shares under the current plan.
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 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 City Holding Company or City National Bank.
The Company’s minimum required capital ratios for both City Holding and City National include the 2.5% capital conservation buffer and are illustrated in the following tables (in thousands):
December 31, 2025
Actual
Minimum Required - Basel III
Required to be Considered Well Capitalized
Capital Amount
Ratio
Capital Amount
Ratio
Capital Amount
Ratio
CET 1 Capital
City Holding Company
City National Bank
Tier 1 Capital
City Holding Company
City National Bank
Total Capital
City Holding Company
City National Bank
Tier 1 Leverage Ratio
City Holding Company
City National Bank
December 31, 2024
Actual
Minimum Required - Basel III
Required to be Considered Well Capitalized
Capital Amount
Ratio
Capital Amount
Ratio
Capital Amount
Ratio
CET 1 Capital
City Holding Company
City National Bank
Tier 1 Capital
City Holding Company
City National Bank
Total Capital
City Holding Company
City National Bank
Tier 1 Leverage Ratio
City Holding Company
City National Bank
As of December 31, 2025, 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 OCC and the 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 December 31, 2025, management believes that City Holding and City National meet all capital adequacy requirements.
In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, 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 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, discussed below. The final rules include a two–quarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater–than–9% leverage capital ratio requirement, is generally still deemed "well capitalized" so long as the banking organization maintains a leverage capital ratio greater than 8%. A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III Rules and file the appropriate regulatory reports. 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.
Contractual Obligations
The Company has various financial obligations that may require future cash payments according to the terms of the obligations. Demand, both noninterest- and interest-bearing, and savings deposits are, generally, payable immediately upon demand at the request of the customer. Therefore, the contractual maturity of these obligations is presented in the following table as "less than one year." Time deposits, typically certificates of deposit, are customer deposits that are evidenced by an agreement between the Company and the customer that specify stated maturity dates; early withdrawals by the customer are subject to penalties assessed by the Company. Short-term borrowings and FHLB long-term advances represent borrowings of the Company and have stated maturity dates. Operating leases between the Company and the lessor have stated expiration dates and renewal terms.
TABLE FOUR
CONTRACTUAL OBLIGATIONS
The composition of the Company's contractual obligations as of December 31, 2025 is presented in the following table (in thousands):
Contractual Maturity in
Less than One Year
Greater than One Year
Total
Noninterest-bearing demand deposits
Interest-bearing demand deposits (1)
Savings deposits (1)
Time deposits (1)
Short-term borrowings (1)
FHLB long-term advances (1)
Low income housing tax credits ("LIHTCs") funding commitments
Supplemental employee retirement plans
Deferred compensation plans
Real estate leases
Total Contractual Obligations
(1) Includes interest on both fixed- and variable-rate obligations. The interest associated with variable-rate obligations is based upon interest rates in effect at December 31, 2025. The contractual amounts to be paid on variable-rate obligations are affected by market interest rates that could materially affect the contractual amounts to be paid.
The Company’s liability for uncertain tax positions at December 31, 2025 was $1.5 million pursuant to ASC Topic 740. This liability represents an estimate of tax positions that the Company has taken in its tax returns that may ultimately not be sustained upon examination by tax authorities. As the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable reliability, this estimated liability has been excluded from the contractual obligations table.
As disclosed in Note Fifteen of the Notes to Consolidated Financial Statements, the Company has entered into agreements with its customers to extend credit or to provide conditional commitments to provide payment on drafts presented in accordance with the terms of the underlying credit documents (including standby and commercial letters of credit). The Company also provides overdraft protection to certain demand deposit customers that represent an unfunded commitment. As a result of the Company’s off-balance sheet arrangements for 2025 and 2024, no material revenue, expenses, or cash flows were recognized. In addition, the Company had no other indebtedness or retained interests nor entered into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit.
INVESTMENTS
The investment portfolio is structured to provide flexibility in managing liquidity needs and interest rate risk, while providing acceptable rates of return.
The majority of the Company’s investment securities continue to be mortgage-backed securities. 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.
The Company's municipal bond portfolio of $180 million as of December 31, 2025 has an average tax equivalent yield of 2.83% with an average maturity of 12.7 years. The average dollar amount invested in each security is $1.4 million. The portfolio has 92% rated "A" or better and the remaining portfolio is unrated, as the issuances represented small issuances of revenue bonds. Additional credit support has been purchased by the issuer for 31% of the portfolio, while 69% has no additional credit support. Management aggregates by issuer, and re-underwrites all securities greater than $1 million in the portfolio on an annual basis, using the same guidelines that are used to underwrite its commercial loans. Revenue bonds were 58% of the portfolio, while the remaining 42% were general obligation bonds. Geographically, the portfolio supports the Company's footprint, with 16% of the portfolio being from municipalities throughout West Virginia, and the remainder from communities in Texas, Washington, Ohio and various other states.
The weighted average market yield of the Company's investment portfolio is presented in the following table (dollars in thousands):
Within
After One But
After Five But
After
One Year
Within Five Years
Within Ten Years
Ten Years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Securities available-for-sale:
Obligations of states and political subdivisions
Mortgage-backed securities:
U.S. government agencies
Private label
Trust preferred securities
Corporate securities
Total Debt Securities available-for-sale
Weighted-average yields on tax-exempt obligations of states and political subdivisions have been computed on a taxable-equivalent basis using the federal statutory tax rate of 21%. Average yields on investments available-for-sale are computed based on amortized cost. Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.
TABLE FIVE
LOAN PORTFOLIO
Loans increased $232.2 million (5.4%) from December 31, 2024 to $4.51 billion at December 31, 2025. The composition of the Company’s loan portfolio as of the dates indicated follows (in thousands):
Commercial and industrial
1-4 Family
Hotels
Multi-family
Non Residential Non-Owner Occupied
Non Residential Owner Occupied
Commercial real estate
Residential real estate
Home equity
Consumer
DDA overdrafts
Total loans
The commercial and industrial ("C&I") loan portfolio consists of loans to corporate and other legal entity borrowers, primarily small to mid-size industrial and commercial companies. C&I loans typically involve a higher level of risk than other loan types, including industry specific risks such as the pertinent economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans increased $34.1 million from December 31, 2024 to $454.0 million at December 31, 2025.
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 to many of the same customers and carry similar industry risks as C&I loans, but have different collateral risk. Commercial real estate loans increased $98.6 million to $1.87 billion at December 31, 2025. At December 31, 2025, $35.8 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 consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled $210.2 million as of December 31, 2025. 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.
◦ The Hotel portfolio is comprised of all lodging establishments and totaled $398.6 million as of December 31, 2025. Risk characteristics relate to the demand for both business and personal travel.
◦ Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled $237.4 million as of December 31, 2025. 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 $767.6 million while nonresidential owner-occupied commercial real estate totaled $253.4 million as of December 31, 2025. Risk characteristics relate to levels of consumer spending and overall economic conditions.
The Company categorizes commercial loans by industry according to the North American Industry Classification System ("NAICS") to monitor the portfolio for possible concentrations in one or more industries. Management monitors industry concentrations against internally established risk-based capital thresholds. As of December 31, 2025, City National
was within its internally designated concentration limits. As of December 31, 2025, City National's loans to borrowers within the Lessors of Nonresidential Buildings (14%) and Lessors of Residential Buildings and Dwellings (11%) categories exceeded 10% of total loans. No other NAICS industry classification exceeded 10% of total loans as of December 31, 2025. Management also monitors non-owner occupied commercial real estate as a percent of risk based capital (based upon regulatory guidance). At December 31, 2025, the Company had $1.6 billion of commercial loans classified as non-owner occupied and was within its designated concentration threshold.
Residential real estate loans increased $86.5 million from December 31, 2024 to $1.91 billion at December 31, 2025. Residential real estate loans include loans for the purchase or refinance of consumers' residence and first-priority home equity loans that allow consumers to borrow against the equity in their home. These loans primarily consist of single family five- and seven-year adjustable rate mortgages with terms that amortize up to 30 years. City National also offers fixed-rate residential real estate loans. Residential purchase real estate loans are generally underwritten to comply with Fannie Mae and Freddie Mac guidelines, while first priority home equity loans are underwritten with typically less documentation, lower loan-to-value ratios and shorter maturities. Additionally, the Company periodically purchases residential mortgage loans. The credit and collateral documents for each potential purchased loan are reviewed to ensure the credit metrics are acceptable to management. At December 31, 2025, $9.9 million of the residential real estate loans were for properties under construction.
Home equity loans increased $25.5 million from December 31, 2024 to $224.7 million at December 31, 2025. City National's home equity loans represent loans to consumers that are secured by a second (or junior) priority lien on a residential property. Home equity loans allow consumers to borrow against the equity in their home without paying off an existing first priority lien. These loans include home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments. Second priority lien home equity loans are underwritten with less documentation than first priority lien residential real estate loans but typically have similar loan-to-value ratios and other terms as first priority lien residential real estate loans. The amount of credit extended is directly related to the value of the real estate securing the loan at the time the loan is made.
All mortgage loans, whether fixed rate or adjustable rate, are originated in accordance with acceptable industry standards and comply with regulatory requirements. Fixed rate mortgage loans are processed and underwritten in accordance with Fannie Mae and Freddie Mac guidelines, while adjustable rate mortgage loans are underwritten in accordance with City National's internal loan policy.
Consumer loans may be secured by automobiles, boats, recreational vehicles, certificates of deposit and other personal property, or they may be unsecured. The Company manages the risk associated with consumer loans by monitoring such factors as portfolio size and growth, internal lending policies and pertinent economic conditions. City National's underwriting standards are continually evaluated and modified based upon these factors. Consumer loans decreased $10.5 million from 2024 to $47.4 million at December 31, 2025.
The following table shows the scheduled maturity of loans outstanding as of December 31, 2025 (in thousands):
Within One Year
After One But Within Five Years
After Five Years Through Fifteen Years
After Fifteen Years
Total
Commercial and industrial
1-4 Family
Hotels
Multi-family
Non Residential Non-Owner Occupied
Non Residential Owner Occupied
Commercial real estate
Residential real estate
Home equity
Consumer and DDA Overdrafts
Total loans
The maturity table above is based on actual loan maturity dates and does not consider prepayments or any other assumptions.
Loans maturing after one year with interest rates that are:
Fixed until Maturity
Variable or adjustable
Total
Commercial and industrial
1-4 Family
Hotels
Multi-family
Non Residential Non-Owner Occupied
Non Residential Owner Occupied
Commercial real estate
Residential real estate
Home equity
Consumer and DDA Overdrafts
Total loans
The maturity table above is based on actual loan maturity dates and does not consider prepayments or any other assumptions.
ALLOWANCE FOR CREDIT LOSSES
The Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" effective January 1, 2020, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. ASU No. 2016-13 replaced the incurred lossimpairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The current expected credit losses model ("CECL") applies to the allowance for credit losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.
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.
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 "ACL" 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 December 31, 2025 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.
TABLE SIX
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
The allocation of the allowance for credit losses by portfolio segment and the percent of loans in each category to total loans is shown in the table below (dollars 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.
Amount
Percent of Loans in Each Category to Total Loans
Amount
Percent of
Loans in Each Category to Total Loans
Commercial and industrial
1-4 Family
Hotels
Multi-family
Non Residential Non-Owner Occupied
Non Residential Owner Occupied
Commercial real estate
Residential real estate
Home equity
Consumer
DDA overdrafts
Allowance for Credit Losses
The following table shows asset quality ratios as of December 31, 2025 and 2024:
Net charge offs to average loans
(Recovery of) provision for credit losses to average loans
Allowance for credit losses to non-performing loans
Allowance for credit losses to total loans
Non-performing assets as a percentage of total loans and OREO
The ACL decreased from $21.9 million at December 31, 2024 to $19.9 million at December 31, 2025. As a result of the Company’s analysis of the adequacy of the Allowance for Credit Losses, the Company recorded a recovery of credit losses of $1.4 million for the year ended December 31, 2025 and a provision for credit losses of $1.8 million for the year ended December 31, 2024. More specifically, the allowance for credit losses allocated to the commercial and industrial portfolio has decreased by $1.5 million since December 31, 2024. The decrease is due to an upgrade of a specific credit during 2025 that was previously downgraded in 2023, but has seen improved financial performance.
GOODWILL
The Company evaluates the recoverability of goodwill and indefinite lived intangible assets annually as of November 30 th , or more frequently if events or changes in circumstances warrant, such as a material adverse change in the Company's business. Goodwill is considered to be impaired when the carrying value of a reporting unit exceeds its estimated fair value. Indefinite-lived intangible assets are considered impaired if their carrying value exceeds their estimated fair value. As described in Note Three of the Notes to Consolidated Financial Statements, the Company conducts its business activities through one reportable business segment – community banking. Fair values are estimated by reviewing the Company’s stock price as it compares to book value and the Company’s reported earnings. In addition, the impact of future earnings and activities is considered in the Company’s analysis. The Company had approximately $150 million of goodwill at December 31, 2025 and December 31, 2024. No impairment was required to be recognized in 2025 or 2024, as the estimated fair value of the Company has continued to exceed its book value.
CERTIFICATES OF DEPOSIT
The Company has time certificates of deposit that meet or exceed the FDIC insurance limit of $250,000 totaling an estimated $467.7 million at December 31, 2025. Scheduled maturities of uninsured portion of time certificates of deposit are estimated at December 31, 2025 and are summarized in the table below (in thousands).
TABLE SEVEN
MATURITY DISTRIBUTION OF UNINSURED CERTIFICATES OF DEPOSIT
Amounts
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
FAIR VALUE MEASUREMENTS
The Company determines the fair value of its financial instruments based on the fair value hierarchy established in ASC Topic 820, whereby the fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The hierarchy classification is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). Assets and liabilities that are actively traded and have quoted prices or observable market data require a minimal amount of subjectivity concerning fair value. Management’s judgment is necessary to estimate fair value when quoted prices or observable market data are not available.
At December 31, 2025, approximately 23% of total assets, or $1.5 billion, consisted of financial instruments recorded at fair value. Most of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. At December 31, 2025, approximately $34 million of derivative liabilities were recorded at fair value using methodologies involving observable market data. The Company does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on the Company’s results of operations, liquidity, or capital resources. See Note Eighteen of the Notes to Consolidated Financial Statements for additional information regarding ASC Topic 820 and its impact on the Company’s financial statements.
LEGAL ISSUES
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 impacts to its financial performance in the period in which these legal actions are ultimately decided. There can be no assurance that current actions will have immaterial results, or that no material actions may be presented in the future. As of December 31, 2025, management expects the resolution of current legal actions will not have a material impact on the Company's financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
Note Two , "Recent Accounting Pronouncements," of the Notes to Consolidated Financial Statements, discusses recently issued new accounting pronouncements and their expected impact on the Company’s consolidated financial statements.
