CHCO City Holding Company

CHARLESTON, W.Va., Jan. 22 /PRNewswire-FirstCall/ -- City Holding Company, "the Company" (NASDAQ:CHCO), a $2.5 billion bank holding company headquartered in Charleston, today announced net income of $53.2 million, or diluted earnings per share of $2.99, for the year ended December 31, 2006 compared to $50.3 million, or diluted earnings per share of $2.84 during 2005. This represents an increase in diluted earnings per share of 5.3% despite an increase in the Company's provision for loan losses from $1.4 million in 2005 (or 9 basis points of average loans outstanding) to $3.8 million in 2006 (or 23 basis points of average loans outstanding). Return on assets for the full year was 2.11%, return on equity was 17.9%, the net interest margin was 4.56%, and the efficiency ratio was 44.5%. This compares with a return on assets of 2.09%, a return on equity of 18.9%, net interest margin of 4.49%, and an efficiency ratio of 46.7% for 2005. For the fourth quarter of 2006, the Company reported net income of $12.9 million, or $0.74 per diluted share compared to $13.1 million or $0.72 per diluted share in the fourth quarter of 2005. This represents a 2.8% increase in diluted earnings per share, even with a loss of $0.7 million in connection with the redemption of $6.0 million of the Company's trust preferred securities in 2006. For the fourth quarter of 2006, the Company achieved a return on assets of 2.06%, a return on equity of 16.9%, a net interest margin of 4.43%, and an efficiency ratio of 46.4%. This compares with a return on assets of 2.10%, a return on equity of 17.7%, net interest margin of 4.55%, and an efficiency ratio of 46.6% for the comparable period of 2005. Charles Hageboeck, Chief Executive Officer and President, stated, "In 2006, City Holding Company continued as one of the best performing banks in the industry based on profitability, the net interest margin, efficiency ratio and asset quality. Through the efforts of our management and staff, the Company is reporting record earnings for 2006 and increased return on assets to 2.11% from what was already the highest level of return on assets for banks between $1 and $10 billion during 2005. Diluted earnings per share were up 5.3% in 2006 as compared to 2005 despite headwinds from a higher provision for loan losses and from a decrease in interest income of $2 million associated with run-off of the legacy portfolio of previously securitized loans. As a result, we were very pleased with the underlying performance of the Company during 2006. Beyond maintaining its enviable financial performance, the Company has embarked upon strategies to grow the franchise. The Company opened its first new free-standing branch in eight years in Charles Town, West Virginia, which is located in the Washington-Baltimore, DC-MD-VA-WV PMSA in October of 2006. We have broken ground on a new 7,500 square foot office in Martinsburg, WV that will serve as the headquarters for the bank's presence in the eastern panhandle of West Virginia and have acquired additional parcels of land for future branch expansion in areas within our current foothold. As a result of changes in state law, the Company has hired a team of 6 insurance professionals as part of City Insurance to provide Worker's Compensation Insurance to businesses throughout West Virginia -- a move that is expected to lift insurance revenues by nearly 50% during 2007. The Company has also hired a team of insurance agents in Beckley, WV to drive significant expansion of the Company's personal lines insurance business throughout the Company's footprint. During 2006, the Company sold its credit card portfolio (which resulted in a $3.6 million gain) to create shareholder value and leverage our ability to build strong customer relationships across all of our product lines. The Company continues to offer credit cards to its customers through its partnership with Elan Financial Services (Elan), one of the premier providers of processing services for financial institutions. Due to the credit card portfolio sale, interest and fee income decreased $1.0 million from 2005. To mitigate this decrease, the Company implemented a strategy in the third and fourth quarter to reposition the balance sheet by selling approximately $55 million of investment securities and replacing them with higher yielding investment securities. The Company also repurchased $9.5 million of its 9.15% trust preferred securities, which reduced total interest expense by $0.1 million during the third and fourth quarters. Subsequent to changes the Company implemented in its underwriting standards beginning in 2001, the Company has demonstrated considerable consistency in its asset quality. Gross charge-offs at the Company are monitored by losses on depository accounts, losses on credit cards, losses on loans acquired in 2005 as part of the acquisition of Classic Bancshares, losses on loans that were underwritten prior to 2002, and losses on loans that have been underwritten since 2002. Loss rates on loans underwritten since 2002 demonstrate the significant turn-around achieved in asset quality, with gross charge-off rates that have averaged well below our gross charge-off rate for all loans over this time period. As time passes, the Company's total gross charge-off experience increasingly reflects the solid underwriting standards that the Company utilizes in commercial and retail lending as loans written prior to 2002 become a smaller portion of our loan portfolio. At December 31, 2006, balances of loans written subsequent to 2002 comprise approximately 73% of total loan balances. The Company also remains well positioned with respect to capital. With a tangible capital ratio in excess of 10%, the Company is positioned to use its capital to either significantly accelerate the past repurchase levels of our common stock or to use cash in an accretive acquisition. In summary, the Company performed well against all measures during 2006 and I am confident that we are positioned to continue to perform solidly in 2007 despite what is anticipated to be a challenging year for banks based on the current economic environment." Balance Sheet Trends As compared to December 31, 2005, loans have increased $64.6 million (4.0%) at December 31, 2006 with increases in commercial loans of $69.0 million (11.0%), home equity loans of $20.0 million (6.6%) and residential real estate loans of $6.0 million (1.0%). These increases were partially offset by decreases in installment loans of $15.7 million, due primarily to the sale of the Company's retail credit card portfolio, and previously securitized loans of $14.7 million (see Previously Securitized Loans). Total average depository balances increased $79.6 million, or 4.2%, from the quarter ended December 31, 2005 to the quarter ended December 31, 2006. This growth was primarily in time deposits, which have increased $105.6 million from the quarter ended December 31, 2005. Net Interest Income For the full year, the Company's tax equivalent net interest income increased $5.3 million, or 5.4%, from $98.1 million in 2005 to $103.4 million in 2006, despite a decrease of $2.0 million in interest income from previously securitized loans from 2005 and a decrease of $0.9 million in interest income from credit cards. The average balances of previously securitized loans decreased $20.6 million, or 48.0%, from $42.9 million for the year ended December 31, 2005 to $22.3 million for the year ended December 31, 2006. This decrease was partially mitigated as the yield on previously securitized loans rose from 26.6% for the year ended December 31, 2005 to 42.2% for the year ended December 31, 2006 (see Previously Securitized Loans). Exclusive of interest income from previously securitized loans and credit cards, interest income from all other loans increased $13.1 million from 2005 and the yield on these loans increased 81 basis points. The average balances of these loans increased $167 million during 2006 due to both internal growth and the acquisition of Classic during the second quarter of 2005. Interest income attributable to this growth totaled $10.3 million. These increases were partially offset by an increase of $15.3 million in interest expense. The average rate paid on deposits increased 75 basis points during 2006 and resulted in an increase in deposit interest expense of $11.0 million. Due to the Classic acquisition and internal growth, the Company experienced an increase of $153 million, or 10.4%, in average deposit balances that increased deposit interest expense by $4.3 million. The net interest margin for the year ended December 31, 2006 of 4.56% represented a 7 basis point increase from the year ended December 31, 2005's net interest margin of 4.49%. The Company positioned its balance sheet to benefit from rising interest rates by emphasizing variable rate loan products. As interest rates rose during 2005 and 2006, the Company's interest rate risk management strategy offset the decreasing balances of previously securitized loans and resultant reduced levels of interest income from these assets. Excluding previously securitized loans, the sale of the Company's credit card portfolio, and the impact of the Classic acquisition, the Company's net interest margin increased 26 basis points and net interest income increased $6.3 million from 2005. The Company's tax equivalent net interest income decreased $0.5 million, or 2.0%, from $25.8 million during the fourth quarter of 2005 to $25.3 million during the fourth quarter of 2006. This decrease is attributable to two factors. First, during the third quarter of 2006, the Company sold its credit card portfolio. Average credit card loans outstanding were $15.3 million in the fourth quarter of 2005. The sale of these loans resulted in a decrease in interest income of $0.5 million. Secondly, the Company experienced a decrease of $0.6 million in interest income from previously securitized loans in the fourth quarter of 2006 as compared to the fourth quarter of 2005 as the average balance of these loans decreased 48.6%. The decrease in average balances was partially mitigated by an increase in the yield on these loans which rose from an average of 31.0% for the fourth quarter of 2005 to 46.6% for the fourth quarter of 2006 (see Previously Securitized Loans). An increase of $4.3 million in interest income from all other loans (commercial, residential, home equity, and consumer) was essentially offset by an increase of $4.0 million in interest expense on deposits. The Company's net interest margin was 4.43% in the fourth quarter of 2006 as compared to 4.55% in the fourth quarter of 2005. The decline in the net interest margin can be attributed to lower interest income from previously securitized loans and the sale of the credit card portfolio. Excluding these assets, the Company's net interest margin decreased 2 basis points from 4.22% during the fourth quarter of 2005 to 4.20% for the fourth quarter of 2006 while net interest income increased $0.3 million from the quarter ended December 31, 2005. Credit Quality At December 31, 2006, the Allowance for Loan Losses ("ALLL") was $15.4 million or 0.92% of total loans outstanding and 385% of non-performing loans compared to $16.8 million or 1.04% of loans outstanding and 402% of non- performing loans at December 31, 2005, and $15.6 million or 0.92% of loans outstanding and 408% of non-performing loans at September 30, 2006. While the Company's ALLL as a percent of outstanding loans has decreased since December 31, 2005, this decrease can be directly attributed to the sale of the bank's credit card portfolio in the third quarter of 2006. In fact, after consideration of the impact of the sale of the credit card portfolio, the ALLL (less the portion of the allowance allocated to credit cards) was 0.93% of total loans outstanding (net of credit card loans outstanding) and 355% of non-performing loans (net of non-performing credit card loans) at December 31, 2005. As a result of the Company's quarterly analysis of the adequacy of the ALLL, the Company recorded a provision for loan losses of $0.9 million in the fourth quarter of 2006 and $3.8 million for the year ended December 31, 2006 compared to $0.8 million and $1.4 million for the comparable periods in 2005. The provision for loan losses recorded during 2006 was the result of increases in allocations to commercial, commercial real estate, and home equity loans. While the Company has increased the provision from 2005, the amount of provision recorded was favorably impacted by continued improvement in the quality of the loan portfolio and the sale of the credit card portfolio. Changes in the amount of the provision and related allowance are based on the Company's detailed methodology and are directionally consistent with growth and changes in the quality of the Company's loan portfolio. The Company had net charge-offs of $1.1 million for the fourth quarter of 2006, with depository accounts representing $0.4 million (or approximately 36%) of this total. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is reflected in service charges and has been steadily growing as the core base of checking accounts has grown. Net charge-offs on commercial loans were $0.7 million for the fourth quarter, while residential loans experienced net recoveries of $0.1 million during the quarter. The increase in net commercial charge-offs was primarily related to four credits that had been previously identified with appropriate amounts of reserve allocated for each credit. The Company experienced net charge-offs related to loans (excluding overdrafts) of 0.11% in 2006; 0.22% in 2005; and 0.17% in 2004. The Company's ratio of non-performing assets to total loans and other real estate owned has steadily improved over the last four years, ranging from 0.34% in 2003 to 0.25% at December 31, 2006. This compares quite favorably relative to the Company's peer group (bank holding companies with total assets between $1 and $5 billion), which reported average non-performing assets as a percentage of loans and other real estate owned for the most recently reported quarter ended September 30, 2006 of 0.70%. The composition of the Company's loan portfolio, which is weighted more heavily toward residential mortgage loans and less towards non-real estate secured commercial loans than peers, has allowed it to maintain a lower allowance in comparison to peers. In addition, the sale of the Company's credit card portfolio resulted in a reduction of the allowance by $1.4 million during 2006. As a result, the Company's ALLL as a percentage of loans outstanding is 0.92% at December 31, 2006. The Company believes its methodology for determining the adequacy of its ALLL adequately provides for probable losses inherent in the loan portfolio and produces a provision for loan losses that is directionally consistent with changes in asset quality and loss experience. Non-interest Income For the full year, net of investment securities (losses) gains and the gain from the sale of the Company's credit card portfolio, non-interest income increased $2.7 million, or 5.4%, from $49.9 million in 2005 to $52.6 million in 2006. Service charges from depository accounts increased $3.5 million, or 8.9%, from $39.1 million in 2005 to $42.6 million in 2006. This increase is partially due to the acquisition of Classic Bancshares, Inc. during the second quarter of 2005. This increase was partially mitigated by a $0.4 million decrease in bank-owned life insurance revenues from the settlement of insured claims and a $0.4 million decrease in other income due primarily to lower credit card fee income as a result of the sale of the credit card portfolio. Net of investment securities gains, non-interest income increased $0.1 million to $13.5 million in the fourth quarter of 2006 as compared to $13.4 million in the fourth quarter of 2005. The largest source of non-interest income is service charges from depository accounts, which increased $0.4 million, or 4.1%, from $10.5 million during the fourth quarter of 2005 to $10.9 million during the fourth quarter of 2006. This increase was essentially offset by a decrease in other income of $0.3 million due to lower credit card fee income due to the sale of the credit card portfolio on August 4, 2006 to Elan. Non-interest Expenses For the full year, non-interest expenses increased $2.2 million, or 3.1%, from $69.1 million in 2005 to $71.3 million in 2006. The increase was primarily a result of the Classic acquisition during the second quarter of 2005, which increased non-interest expenses by $1.8 million from 2005. In addition, the Company recognized $1.4 million of losses from the redemption of $12.0 million of its trust preferred securities during 2006. Other expenses decreased $1.3 million from 2005 due to a charge recorded in 2005 that was associated with interest rate floors utilized in the Company's interest rate risk management process. Exclusive of these items, non-interest expenses increased by $0.3 million from 2005 due to increased advertising expenses incurred to facilitate the Company's focused efforts to attract and grow new customer relationships. The Company's efficiency ratio improved from 46.7% for the year ended December 31, 2005 to 44.5% for the year ended December 31, 2006, reflecting ongoing strength in managing expenses while increasing revenues. The average efficiency ratio for the Company's peer group for the most recently reported quarter was 58.5%. Non-interest expenses decreased $0.2 million from $18.3 million in the fourth quarter of 2005 to $18.1 million in the fourth quarter of 2006. The Company incurred a loss of $0.7 million during the fourth quarter of 2006 in connection with the redemption of $6.0 million of its trust preferred securities. The Company redeemed the trust preferred securities that have a stated interest rate of 9.15% in 2006 as a part of its strategy to reposition the balance sheet in response to the sale of its credit card portfolio. In addition, the Company experienced a decrease in health insurance costs of $0.4 million during fourth quarter of 2006, although such savings are not expected to be of a recurring nature. During the fourth quarter of 2005 the Company recorded a charge of $1.3 million associated with interest rate floors. Previously Securitized Loans At December 31, 2006, the Company reported "Previously Securitized Loans" of $15.6 million compared to $30.3 million at December 31, 2005, representing a decrease of 48.5%. The yield on the previously securitized loans was 46.6% for the quarter ended December 31, 2006, compared to 43.2% for the quarter ended September 30, 2006, and 31.0% for the quarter ended December 31, 2005. The yield on the previously securitized loans has increased due to improved cash flows as net default rates have been less than previously estimated. The default rates have decreased as a result of the Company's assumption of the servicing of all of the pool balances during the second quarter of 2005. Subsequent to our assumption of the servicing of these loans, the Company has averaged net recoveries but does not believe that continued net recoveries can be sustained indefinitely. The Company now projects that the yield on these loans will be in the range of 47-49%. Capitalization and Liquidity One of the Company's strengths is that it is highly profitable while maintaining strong liquidity and capital. With respect to liquidity, the Company's loan to deposit ratio was 84.5% and the loan to asset ratio was 66.9% at December 31, 2006. The Company maintained investment securities totaling 20.7% of assets as of this date. Further, the Company's deposit mix is weighted heavily toward checking and saving accounts that fund 42.5% of assets at December 31, 2006. Time deposits fund 36.7% of assets at December 31, 2006, but very few of these deposits are in accounts that have balances of more than $150,000, reflecting the core retail orientation of the Company. The Company is also strongly capitalized. With respect to regulatory capital, at December 31, 2006, the Company's Leverage Ratio is 10.79%, the Tier I Capital ratio is 15.30%, and the Total Risk-Based Capital ratio is 16.19%. These regulatory capital ratios are significantly above levels required to be considered "well capitalized," which is the highest possible regulatory designation. The Company's tangible equity ratio was 10.0% at December 31, 2006 compared with a tangible equity ratio of 9.5% at December 31, 2005. During the year ended December 31, 2006, the Company repurchased 666,753 common shares at a weighted average price of $36.45 as part of a one million share repurchase plan authorized by the Board of Directors in June 2005. On December 21, 2006, the Company announced that the Board of Directors authorized the Company to buy back up to one million shares of its common shares (approximately 5% of outstanding shares) in open market transactions at prices that are accretive to the earnings per share of continuing shareholders. No time limit was placed on the duration of the share repurchase program. As part of this authorization, the Company rescinded the previous share repurchase program plan approved in June 2005. The Company had repurchased 837,853 shares under the June 2005 Stock Repurchase Plan. Due to the Company's strong earnings, the Company was able to both repurchase these shares and increase its tangible equity ratio. As a result of repurchases completed in 2006, the Company's outstanding shares decreased 666,753 shares during the year (exclusive of stock option exercises), providing the Company's shareholders increased earnings capacity as shares repurchased improve earnings per share on the remaining shares outstanding. As of January 19, 2007, the Company has approximately 931,000 shares remaining for repurchase under the plan approved by the Board of Directors in December 2006. The repurchase of 666,753 shares during 2006 represents 3.7% of total shares outstanding as of December 31, 2005. City Holding Company is the parent company of City National Bank of West Virginia. City National operates 67 branches across West Virginia, Eastern Kentucky and Southern Ohio. Forward-Looking Information This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information involves risks and uncertainties that could result in the Company's actual results differing from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to, (1) the Company may incur additional loan loss provision due to negative credit quality trends in the future that may lead to a deterioration of asset quality; (2) the Company may incur increased charge-offs in the future; (3) the Company may experience increases in the default rates on previously securitized loans that would result in impairment losses or lower the yield on such loans; (4) the Company may continue to benefit from strong recovery efforts on previously securitized loans resulting in improved yields on these assets; (5) the Company could have adverse legal actions of a material nature; (6) the Company may face competitive loss of customers; (7) the Company may be unable to manage its expense levels; (8) the Company may have difficulty retaining key employees; (9) changes in the interest rate environment may have results on the Company's operations materially different from those anticipated by the Company's market risk management functions; (10) the Company may be unable to increase its insurance revenues as expected; (11) changes in general economic conditions and increased competition could adversely affect the Company's operating results; (12) changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact the Company's operating results; and (13) the Company may experience difficulties growing loan and deposit balances. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made. CITY HOLDING COMPANY AND SUBSIDIARIES Financial Highlights (Unaudited) Three Months Ended Dec 31 Dec 31 Percent 2006 2005 Change Earnings ($000s, except per share data): Net Interest Income (FTE) $25,333 $25,844 (1.98)% Net Income 12,939 13,089 (1.15)% Earnings per Basic Share 0.74 0.72 2.78% Earnings per Diluted Share 0.74 0.72 2.78% Key Ratios (percent): Return on Average Assets 2.06% 2.10% (1.91)% Return on Average Equity 16.93% 17.66% (4.11)% Net Interest Margin 4.43% 4.55% (2.65)% Efficiency Ratio 46.40% 46.57% (0.37)% Average Shareholders' Equity to Average Assets 12.14% 11.87% 2.25% Risk-Based Capital Ratios (a): Tier I 15.30% 15.41% (0.72)% Total 16.19% 16.38% (1.16)% Average Tangible Equity to Average Tangible Assets 10.06% 9.52% 5.71% Common Stock Data: Cash Dividends Declared per Share $0.28 $0.25 12.00% Book Value per Share 17.46 16.14 8.17% Tangible Book Value per Share 14.09 12.85 9.68% Market Value per Share: High 41.87 37.62 11.30% Low 37.49 32.68 14.72% End of Period 40.89 35.95 13.74% Price/Earnings Ratio (b) 13.81 12.48 10.67% Twelve Months Ended Dec 31 Dec 31 Percent 2006 2005 Change Earnings ($000s, except per share data): Net Interest Income (FTE) $103,359 $98,097 5.36% Net Income 53,187 50,288 5.76% Earnings per Basic Share 3.00 2.87 4.53% Earnings per Diluted Share 2.99 2.84 5.28% Key Ratios (percent): Return on Average Assets 2.11% 2.09% 0.93% Return on Average Equity 17.91% 18.98% (5.64)% Net Interest Margin 4.56% 4.49% 1.55% Efficiency Ratio 44.49% 46.66% (4.65)% Average Shareholders' Equity to Average Assets 11.80% 11.03% 6.96% Common Stock Data: Cash Dividends Declared per Share $1.12 $1.00 12.00% Market Value per Share: High 41.87 39.21 6.78% Low 34.53 27.57 25.24% (a) December 31, 2006 risk-based capital ratios are estimated. (b) December 31, 2006 price/earnings ratio computed based on annualized fourth quarter 2006 earnings. CITY HOLDING COMPANY AND SUBSIDIARIES Financial Highlights (Unaudited) Book Value and Market Price Range per Share Market Price Book Value per Share Range per Share March 31 June 30 September 30 December 31 Low High 2002 $8.92 $9.40 $9.64 $9.93 $12.04 $30.20 2003 10.10 10.74 11.03 11.46 25.50 37.15 2004 12.09 11.89 12.70 13.03 27.30 37.58 2005 13.20 15.56 15.99 16.14 27.57 39.21 2006 16.17 16.17 16.99 17.46 34.53 41.87 Earnings per Basic Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date 2002 $0.38 $0.45 $0.53 $0.56 $1.92 2003 0.56 0.73 0.69 0.64 2.62 2004 0.66 0.80 0.66 0.67 2.79 2005 0.70 0.72 0.73 0.72 2.87 2006 0.71 0.78 0.78 0.74 3.00 Earnings per Diluted Share Quarter Ended March 31 June 30 September 30 December 31 Year-to-Date 2002 $0.38 $0.45 $0.52 $0.55 $1.90 2003 0.55 0.72 0.68 0.63 2.58 2004 0.65 0.79 0.65 0.66 2.75 2005 0.69 0.71 0.72 0.72 2.84 2006 0.71 0.77 0.77 0.74 2.99 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Three Months Ended December 31, 2006 2005 Interest Income Interest and fees on loans $32,157 $28,918 Interest on investment securities: Taxable 6,800 7,188 Tax-exempt 423 497 Interest on deposits in depository institutions 459 36 Interest on federal funds sold 86 - Total Interest Income 39,925 36,639 Interest Expense Interest on deposits 12,543 8,569 Interest on short-term borrowings 1,304 1,049 Interest on long-term debt 973 1,446 Total Interest Expense 14,820 11,064 Net Interest Income 25,105 25,575 Provision for loan losses 901 800 Net Interest Income After Provision for Loan Losses 24,204 24,775 Non-Interest Income Investment securities gains (losses) 72 125 Service charges 10,962 10,530 Insurance commissions 675 620 Trust and investment management fee income 498 504 Bank owned life insurance 576 691 Other income 803 1,067 Total Non-Interest Income 13,586 13,537 Non-Interest Expense Salaries and employee benefits 8,354 8,416 Occupancy and equipment 1,655 1,569 Depreciation 1,037 1,062 Professional fees and litigation expense 415 486 Postage, delivery, and statement mailings 735 728 Advertising 876 710 Telecommunications 549 560 Bankcard expenses 478 540 Insurance and regulatory 375 380 Office supplies 408 388 Repossessed asset losses (gains), net of expenses 6 (28) Loss on early extinguishment of debt 708 - Other expenses 2,503 3,528 Total Non-Interest Expense 18,099 18,339 Income Before Income Taxes 19,691 19,973 Income tax expense 6,752 6,884 Net Income $12,939 $13,089 Basic earnings per share $0.74 $0.72 Diluted earnings per share $0.74 $0.72 Average Common Shares Outstanding: Basic 17,535 18,127 Diluted 17,601 18,211 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data) Twelve Months Ended December 31, 2006 2005 Interest Income Interest and fees on loans $123,945 $103,714 Interest on investment securities: Taxable 28,418 29,804 Tax-exempt 1,782 1,887 Interest on loans held for sale 322 - Interest on deposits in depository institutions 1,477 109 Interest on federal funds sold 179 4 Total Interest Income 156,123 135,518 Interest Expense Interest on deposits 44,046 28,805 Interest on short-term borrowings 5,099 3,369 Interest on long-term debt 4,579 6,264 Total Interest Expense 53,724 38,438 Net Interest Income 102,399 97,080 Provision for loan losses 3,801 1,400 Net Interest Income After Provision for Loan Losses 98,598 95,680 Non-Interest Income Investment securities (losses) gains (1,995) 151 Service charges 42,559 39,091 Insurance commissions 2,335 2,352 Trust and investment management fee income 2,140 2,025 Bank owned life insurance 2,352 2,779 Gain on sale of credit card portfolio 3,563 - Other income 3,249 3,693 Total Non-Interest Income 54,203 50,091 Non-Interest Expense Salaries and employee benefits 34,484 33,479 Occupancy and equipment 6,481 6,295 Depreciation 4,219 4,096 Professional fees and litigation expense 1,760 2,021 Postage, delivery, and statement mailings 2,832 2,666 Advertising 3,216 2,941 Telecommunications 2,048 2,248 Bankcard expenses 1,964 2,137 Insurance and regulatory 1,528 1,496 Office supplies 1,578 1,193 Repossessed asset (gains), net of expenses (98) (78) Loss on early extinguishment of debt 1,368 - Other expenses 9,905 10,619 Total Non-Interest Expense 71,285 69,113 Income Before Income Taxes 81,516 76,658 Income tax expense 28,329 26,370 Net Income $53,187 $50,288 Basic earnings per share $3.00 $2.87 Diluted earnings per share $2.99 $2.84 Average Common Shares Outstanding: Basic 17,701 17,519 Diluted 17,762 17,690 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited) ($ in 000s) Three Months Ended December 31, 2006 December 31, 2005 Balance at October 1 $298,327 $290,432 Net income 12,939 13,089 Other comprehensive income: Change in unrealized gain on securities available-for-sale 1,913 (3,701) Change in underfunded pension liability 503 (748) Change in unrealized gain on interest rate floors (663) - Reclassification of unrealized derivative losses - 543 Cash dividends declared ($0.28/share) (4,896) - Cash dividends declared ($0.25/share) - (4,522) Issuance of stock awards, net 13 - Exercise of 104,966 stock options - 3,128 Exercise of 6,488 stock options 145 - Excess tax benefits on stock compensation 47 - Purchase of 171,000 common shares of treasury - (6,080) Purchase of 76,700 common shares of treasury (3,021) - Balance at December 31 $305,307 $292,141 Twelve Months Ended December 31, 2006 December 31, 2005 Balance at January 1 $292,141 $216,080 Net income 53,187 50,288 Other comprehensive income: Change in unrealized gain on securities available-for-sale 2,190 (6,120) Change in unrealized gain on interest rate floors (210) - Change in underfunded pension liability 503 (748) Cash dividends declared ($1.12/share) (19,721) - Cash dividends declared ($1.00/share) - (17,716) Issuance of 1,580,034 shares for acquisition of Classic Bancshares, net 108,173 owned and transferred to treasury - 54,339 Issuance of stock awards, net 484 147 Exercise of 367,675 stock options - 7,783 Exercise of 46,423 stock options 798 - Excess tax benefits on stock compensation 269 - Purchase of 342,576 common shares of treasury - (11,912) Purchase of 666,753 common shares of treasury (24,334) - Balance at December 31 $305,307 $292,141 CITY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Quarterly Statements of Income (Unaudited) ($ in 000s, except per share data) Quarter Ended Dec 31 Sept 30 June 30 March 31 Dec 31 2006 2006 2006 2006 2005 Interest income $39,925 $39,747 $39,010 $37,441 $36,639 Taxable equivalent adjustment 228 236 246 252 269 Interest income (FTE) 40,153 39,983 39,256 37,693 36,908 Interest expense 14,820 14,233 13,085 11,588 11,064 Net interest income 25,333 25,750 26,171 26,105 25,844 Provision for loan losses 901 1,225 675 1,000 800 Net interest income after provision for loan losses 24,432 24,525 25,496 25,105 25,044 Noninterest income 13,586 14,766 13,463 12,389 13,537 Noninterest expense 18,099 18,133 17,555 17,497 18,339 Income before income taxes 19,919 21,158 21,404 19,997 20,242 Income tax expense 6,752 7,302 7,397 6,879 6,884 Taxable equivalent adjustment 228 236 246 252 269 Net income $12,939 $13,620 $13,761 $12,866 $13,089 Basic earnings per share $0.74 $0.78 $0.78 $0.71 $0.72 Diluted earnings per share 0.74 0.77 0.77 0.71 0.72 Cash dividends declared per share 0.28 0.28 0.28 0.28 0.25 Average Common Share (000s): Outstanding 17,535 17,557 17,719 18,006 18,127 Diluted 17,601 17,619 17,772 18,067 18,211 Net Interest Margin 4.43% 4.51% 4.58% 4.71% 4.55% CITY HOLDING COMPANY AND SUBSIDIARIES Non-Interest Income and Non-Interest Expense (Unaudited) ($ in 000s) Quarter Ended Dec 31 Sept 30 June 30 March 31 Dec 31 2006 2006 2006 2006 2005 Non-Interest Income: Service charges $10,962 $10,833 $10,903 $9,862 $10,530 Insurance commissions 675 526 521 614 620 Trust and investment management fee income 498 572 504 566 504 Bank owned life insurance 576 561 678 537 691 Other income 803 778 857 810 1,067 Subtotal 13,514 13,270 13,463 12,389 13,412 Investment security gains (losses) 72 (2,067) - - 125 Gain on sale of credit card portfolio - 3,563 - - - Total Non-Interest Income $13,586 $14,766 $13,463 $12,389 $13,537 Non-Interest Expense: Salaries and employee benefits $8,354 $8,733 $8,764 $8,632 $8,416 Occupancy and equipment 1,655 1,602 1,624 1,599 1,569 Depreciation 1,037 1,061 1,071 1,050 1,062 Professional fees and litigation expense 415 379 571 395 486 Postage, delivery, and statement mailings 735 765 689 644 728 Advertising 876 810 755 774 710 Telecommunications 549 498 525 476 560 Bankcard expenses 478 485 458 543 540 Insurance and regulatory 375 384 381 388 380 Office supplies 408 417 372 383 388 Repossessed asset losses (gains) net of expenses 6 20 (129) 4 (28) Loss on early extinguishment of debt 708 379 - 282 - Other expenses 2,503 2,600 2,474 2,327 3,528 Total Non-Interest Expense $18,099 $18,133 $17,555 $17,497 $18,339 Employees (Full Time Equivalent) 779 767 779 764 770 Branch Locations 67 67 67 66 67 CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000s) December 31 December 31 2006 2005 (Unaudited) Assets Cash and due from banks $58,014 $81,822 Interest-bearing deposits in depository institutions 27,434 4,451 Federal funds sold 25,000 - Cash and cash equivalents 110,448 86,273 Investment securities available-for-sale, at fair value 472,398 549,966 Investment securities held-to-maturity, at amortized cost 47,500 55,397 Total investment securities 519,898 605,363 Gross loans 1,677,469 1,612,827 Allowance for loan losses (15,405) (16,790) Net loans 1,662,064 1,596,037 Bank owned life insurance 55,195 52,969 Premises and equipment 44,689 42,542 Accrued interest receivable 12,337 13,134 Net deferred tax assets 23,652 27,929 Intangible assets 58,857 59,559 Other assets 20,667 18,791 Total Assets $2,507,807 $2,502,597 Liabilities Deposits: Noninterest-bearing $321,038 $376,076 Interest-bearing: Demand deposits 422,925 437,639 Savings deposits 321,075 302,571 Time deposits 920,179 812,134 Total deposits 1,985,217 1,928,420 Short-term borrowings 136,570 152,255 Long-term debt 48,069 98,425 Other liabilities 32,644 31,356 Total Liabilities 2,202,500 2,210,456 Stockholders' Equity Preferred stock, par value $25 per share: 500,000 shares authorized; none issued - - Common stock, par value $2.50 per share: 50,000,000 shares authorized; 18,499,282 shares issued at December 31, 2006 and December 31, 2005 less 1,009,095 and 395,465 shares in treasury, respectively 46,249 46,249 Capital surplus 104,043 104,435 Retained earnings 194,213 160,747 Cost of common stock in treasury (33,669) (11,278) Accumulated other comprehensive (loss) income: Unrealized loss on securities available-for-sale (2,649) (4,839) Unrealized loss on derivative instruments (210) - Underfunded pension liability (2,670) (3,173) Total Accumulated Other Comprehensive (Loss) Income (5,529) (8,012) Total Stockholders' Equity 305,307 292,141 Total Liabilities and Stockholders' Equity $2,507,807 $2,502,597 CITY HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in 000s) Dec 31 Sept 30 June 30 March 31 Dec 31 2006 2006 2006 2006 2005 Residential real estate $598,502 $604,867 $601,097 $595,093 $592,521 Home equity 321,708 318,666 313,301 304,559 301,728 Commercial, financial, and agriculture 698,719 713,933 668,581 643,269 629,670 Installment loans to individuals 42,943 41,215 42,307 54,287 58,652 Previously securitized loans 15,597 18,520 22,253 25,918 30,256 Gross Loans $1,677,469 $1,697,201 $1,647,539 $1,623,126 $1,612,827 CITY HOLDING COMPANY AND SUBSIDIARIES Previously Securitized Loans (Unaudited) ($ in millions) Annualized Effective December 31 Interest Annualized Year Ended: Balance (a) Income (a) Yield (a) 2005 $30.3 $11.4 27% 2006 15.6 9.4 42% 2007 10.9 6.2 47% 2008 8.5 4.6 47% 2009 7.2 3.8 47% a - 2005 and 2006 amounts are based on actual results. 2007, 2008 and 2009 amounts are based on estimated amounts. Note: The amounts reflected in the table above require management to make significant assumptions based on estimated future default, prepayment, and discount rates. Actual performance could be different from that assumed, which could result in the actual results being materially different from the amounts estimated above. CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months Ended December 31, 2006 Average Yield/ Balance Interest Rate Assets: Loan portfolio: Residential real estate $600,372 $8,853 5.85% Home equity 320,302 6,439 7.98% Commercial, financial, and agriculture 710,467 13,584 7.59% Installment loans to individuals 41,827 1,297 12.30% Previously securitized loans 16,878 1,984 46.64% Total loans 1,689,846 32,157 7.55% Securities: Taxable 494,380 6,800 5.46% Tax-exempt 40,006 650 6.45% Total securities 534,386 7,450 5.53% Deposits in depository institutions 37,827 459 4.81% Federal funds sold 5,989 87 5.76% Total interest-earning assets 2,268,048 40,153 7.02% Cash and due from banks 49,068 Bank premises and equipment 44,073 Other assets 172,709 Less: Allowance for loan losses (15,631) Total assets $2,518,267 Liabilities: Interest-bearing demand deposits 426,536 1,367 1.27% Savings deposits 316,734 1,207 1.51% Time deposits 915,041 9,969 4.32% Short-term borrowings 125,448 1,304 4.12% Long-term debt 74,200 973 5.20% Total interest-bearing liabilities 1,857,959 14,820 3.16% Noninterest-bearing demand deposits 323,500 Other liabilities 31,153 Stockholders' equity 305,655 Total liabilities and stockholders' equity $2,518,267 Net interest income $25,333 Net yield on earning assets 4.43% CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Three Months Ended December 31, 2005 Average Yield/ Balance Interest Rate Assets: Loan portfolio: Residential real estate $595,309 $8,365 5.57% Home equity 303,977 5,318 6.94% Commercial, financial, and agriculture 626,341 10,928 6.92% Installment loans to individuals 60,233 1,739 11.45% Previously securitized loans 32,851 2,569 31.03% Total loans 1,618,711 28,919 7.09% Securities: Taxable 580,845 7,187 4.91% Tax-exempt 47,675 766 6.37% Total securities 628,520 7,953 5.02% Deposits in depository institutions 5,188 36 2.75% Federal funds sold - - - Total interest-earning assets 2,252,419 36,908 6.50% Cash and due from banks 52,828 Bank premises and equipment 42,432 Other assets 168,395 Less: Allowance for loan losses (17,272) Total assets $2,498,802 Liabilities: Interest-bearing demand deposits 442,130 1,207 1.08% Savings deposits 302,904 684 0.90% Time deposits 809,433 6,678 3.27% Short-term borrowings 159,185 1,049 2.61% Long-term debt 114,590 1,446 5.01% Total interest-bearing liabilities 1,828,242 11,064 2.40% Noninterest-bearing demand deposits 347,777 Other liabilities 26,287 Stockholders' equity 296,496 Total liabilities and stockholders' equity $2,498,802 Net interest income $25,844 Net yield on earning assets 4.55% CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Twelve Months Ended December 31, 2006 Average Yield/ Balance Interest Rate Assets: Loan portfolio: Residential real estate $598,017 $34,483 5.77% Home equity 311,854 24,384 7.82% Commercial, financial, and agriculture 670,243 50,165 7.48% Installment loans to individuals 47,477 5,507 11.60% Previously securitized loans 22,273 9,406 42.23% Total loans 1,649,864 123,945 7.51% Securities: Taxable 539,634 28,418 5.27% Tax-exempt 42,113 2,741 6.51% Total securities 581,747 31,159 5.36% Loans held for sale 2,496 322 12.90% Deposits in depository institutions 30,633 1,478 4.82% Federal funds sold 3,433 179 5.21% Total interest-earning assets 2,268,173 157,083 6.93% Cash and due from banks 50,571 Bank premises and equipment 43,111 Other assets 171,214 Less: Allowance for loan losses (16,008) Total assets $2,517,061 Liabilities: Interest-bearing demand deposits 433,244 5,284 1.22% Savings deposits 314,732 3,983 1.27% Time deposits 877,592 34,779 3.96% Short-term borrowings 143,705 5,099 3.55% Long-term debt 85,893 4,579 5.33% Total interest-bearing liabilities 1,855,166 53,724 2.90% Noninterest-bearing demand deposits 335,089 Other liabilities 29,840 Stockholders' equity 296,966 Total liabilities and stockholders' equity $2,517,061 Net interest income $103,359 Net yield on earning assets 4.56% CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s) Twelve Months Ended December 31, 2005 Average Yield/ Balance Interest Rate Assets: Loan portfolio: Residential real estate $545,280 $30,570 5.61% Home equity 305,525 19,088 6.25% Commercial, financial, and agriculture 564,612 36,287 6.43% Installment loans to individuals 56,091 6,368 11.35% Previously securitized loans 42,859 11,401 26.60% Total loans 1,514,367 103,714 6.85% Securities: Taxable 623,155 29,804 4.78% Tax-exempt 43,767 2,904 6.64% Total securities 666,922 32,708 4.90% Loans held for sale - - - Deposits in depository institutions 4,609 109 2.36% Federal funds sold 105 4 3.81% Total interest-earning assets 2,186,003 136,535 6.25% Cash and due from banks 48,562 Bank premises and equipment 39,109 Other assets 145,899 Less: Allowance for loan losses (17,515) Total assets $2,402,058 Liabilities: Interest-bearing demand deposits 433,831 3,866 0.89% Savings deposits 295,045 2,070 0.70% Time deposits 743,725 22,869 3.07% Short-term borrowings 157,264 3,369 2.14% Long-term debt 137,340 6,264 4.56% Total interest-bearing liabilities 1,767,205 38,438 2.18% Noninterest-bearing demand deposits 341,873 Other liabilities 28,026 Stockholders' equity 264,954 Total liabilities and stockholders' equity $2,402,058 Net interest income $98,097 Net yield on earning assets 4.49% CITY HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital (Unaudited) ($ in 000s) Dec 31 Sept 30 June 30 2006 (a) 2006 2006 Tier I Capital: Stockholders' equity $305,307 $298,327 $284,120 Goodwill and other intangibles (58,857) (59,038) (59,219) Accumulated other comprehensive income 2,859 4,109 9,762 Qualifying trust preferred stock 16,000 22,000 25,500 Excess deferred tax assets - - (4,079) Total tier I capital $265,309 $265,398 $256,084 Total Risk-Based Capital: Tier I capital $265,309 $265,398 $256,084 Qualifying allowance for loan losses 15,405 15,557 15,268 Total risk-based capital $280,714 $280,955 $271,352 Net risk-weighted assets $1,734,214 $1,770,458 $1,757,720 Ratios: Average stockholders' equity to average assets 12.14% 11.67% 11.51% Tangible capital ratio 10.06% 9.69% 9.13% Risk-based capital ratios: Tier I capital 15.30% 14.99% 14.58% Total risk-based capital 16.19% 15.87% 15.45% Leverage capital 10.79% 10.81% 10.34% (a) December 31, 2006 risk-based capital ratios are estimated. CITY HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital (Unaudited) ($ in 000s) March 31 Dec 31 2006 2005 Tier I Capital: Stockholders' equity $288,376 $292,141 Goodwill and other intangibles (59,378) (59,559) Accumulated other comprehensive income 6,265 8,012 Qualifying trust preferred stock 25,500 28,000 Excess deferred tax assets (2,254) (1,071) Total tier I capital $258,509 $267,523 Total Risk-Based Capital: Tier I capital $258,509 $267,523 Qualifying allowance for loan losses 16,818 16,790 Total risk-based capital $275,327 $284,313 Net risk-weighted assets $1,743,243 $1,735,538 Ratios: Average stockholders' equity to average assets 11.87% 11.87% Tangible capital ratio 9.24% 9.52% Risk-based capital ratios: Tier I capital 14.83% 15.41% Total risk-based capital 15.80% 16.38% Leverage capital 10.62% 10.97% (a) December 31, 2006 risk-based capital ratios are estimated. CITY HOLDING COMPANY AND SUBSIDIARIES Intangibles (Unaudited) ($ in 000s) As of and for the Quarter Ended Dec 31 Sept 30 June 30 March 31 Dec 31 2006 2006 2006 2006 2005 Intangibles, net $58,857 $59,038 $59,219 $59,378 $59,559 Intangibles amortization expense 181 181 181 181 183 CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan Loss Experience (Unaudited) ($ in 000s) Quarter Ended Dec 31 Sept 30 June 30 2006 2006 2006 Balance at beginning of period $15,557 $15,268 $16,818 Reduction of allowance for loans held for sale - - (1,368) Charge-offs: Commercial, financial, and agricultural 844 207 43 Real estate-mortgage 230 177 232 Installment loans to individuals 126 165 239 Overdraft deposit accounts 892 1,018 955 Total charge-offs 2,092 1,567 1,469 Recoveries: Commercial, financial, and agricultural 101 44 33 Real estate-mortgage 350 64 56 Installment loans to individuals 118 131 151 Overdraft deposit accounts 470 392 372 Total recoveries 1,039 631 612 Net charge-offs 1,053 936 857 Provision for loan losses 901 1,225 675 Balance at end of period $15,405 $15,557 $15,268 Loans outstanding $1,677,469 $1,697,201 $1,647,539 Average loans outstanding 1,689,846 1,662,929 1,630,454 Allowance as a percent of loans outstanding 0.92% 0.92% 0.93% Allowance as a percent of non-performing loans 384.93% 408.43% 408.02% Net charge-offs (annualized) as a percent of average loans outstanding 0.25% 0.23% 0.21% Net charge-offs, excluding overdraft deposit accounts, (annualized) as a percent of average loans outstanding 0.15% 0.07% 0.07% CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan Loss Experience (Unaudited) ($ in 000s) Quarter Ended March 31 Dec 31 2006 2005 Balance at beginning of period $16,790 $17,768 Reduction of allowance for loans held for sale - - Charge-offs: Commercial, financial, and agricultural 185 527 Real estate-mortgage 296 302 Installment loans to individuals 368 664 Overdraft deposit accounts 958 996 Total charge-offs 1,807 2,489 Recoveries: Commercial, financial, and agricultural 32 30 Real estate-mortgage 105 188 Installment loans to individuals 198 163 Overdraft deposit accounts 500 330 Total recoveries 835 711 Net charge-offs 972 1,778 Provision for loan losses 1,000 800 Balance at end of period $16,818 $16,790 Loans outstanding $1,623,126 $1,612,827 Average loans outstanding 1,615,242 1,618,711 Allowance as a percent of loans outstanding 1.04% 1.04% Allowance as a percent of non-performing loans 503.53% 401.96% Net charge-offs (annualized) as a percent of average loans outstanding 0.24% 0.44% Net charge-offs, excluding overdraft deposit accounts, (annualized) as a percent of average loans outstanding 0.13% 0.27% CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Non-Performing Assets (Unaudited) ($ in 000s) Dec 31 Sept 30 June 30 March 31 Dec 31 2006 2006 2006 2006 2005 Nonaccrual loans $3,319 $3,359 $3,046 $2,743 $2,785 Accruing loans past due 90 days or more 635 328 573 512 1,124 Previously securitized loans past due 90 days or more 48 122 123 85 268 Total non-performing loans 4,002 3,809 3,742 3,340 4,177 Other real estate owned, excluding property associated with previously securitized loans 161 499 294 403 135 Other real estate owned associated with previously securitized loans 20 20 92 306 - 181 519 386 709 135 Total non-performing assets $4,183 $4,328 $4,128 $4,049 $4,312 Non-performing assets as a percent of loans and other real estate owned 0.25% 0.25% 0.25% 0.25% 0.27% DATASOURCE: City Holding Company CONTACT: Charles R. Hageboeck, Chief Executive Officer and President, of City Holding Company +1-304-769-1102 Web site: http://www.cityholding.com/

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