City Holding Company Announces Record 2004 Earnings

    Business Editors

    CHARLESTON, W.Va.--(BUSINESS WIRE)--Jan. 25, 2005--City Holding Company, "the Company" (NASDAQ: CHCO), a $2.2 billion bank holding company headquartered in Charleston, today announced net income for the fourth quarter of 2004 of $11.1 million, or diluted earnings per share of $0.66 compared to $10.7 million, or $0.63 per diluted share in the fourth quarter of 2003. For the quarter, the Company achieved a return on assets of 2.01%, a return on equity of 20.5%, a net interest margin of 4.27%, and an efficiency ratio of 50.3%. The Company believes that these results place it among the most profitable banks within its peer group. At December 31, 2004 the market and book value of the Company's common stock was $36.24 and $12.99 per share compared to a market and book value of $35.06 and $11.46 per share at December 31, 2003.
    For the full year 2004, the Company reported record net income of $46.3 million, or diluted earnings per share of $2.75 compared to $43.7 million, or diluted earnings per share of $2.58 during 2003. Return on assets for the full year was 2.10%, return on equity was 22.4%, the net interest margin was 4.29% and the efficiency ratio was 48.5%.

    Balance Sheet Trends

    Between December 31, 2003 and December 31, 2004, total loans increased $62.6 million. Specifically, home equity loan balances increased by $25.7 million, or 9.1%; commercial real estate loan balances grew by $49.5 million, or 14.1%; and residential real estate loans grew by $23.3 million, or 5.2%. Offsetting growth in these targeted loan portfolios were decreases in indirect loans of $14.4 million and decreases in consumer loans of $15.5 million. The Company also experienced continued growth in average depository balances, which were 2.4% higher in the fourth quarter of 2004 as compared to the fourth quarter of 2003, increasing from $1.622 billion to $1.661 billion. This growth occurred in average non-interest bearing deposits, which were up 4.9%; interest-bearing demand deposits, which were up 4.0%; and time deposits, which were up 2.1%.

    Previously Securitized Loans

    Between 1997 and 1999, the Company originated and securitized $760 million in 125% loan-to-value junior-lien underlying mortgages in six separate pools known as City Capital Home Loan Trust 1997-1, 98-1, 98-2, 98-3, 98-4 and 99-1. The Company had a retained interest in the residual cash flows associated with these underlying mortgages after satisfying priority claims. Principal amounts owed to investors in the securitizations were evidenced by securities that were subject to redemption under certain circumstances. Once the Notes were redeemed, the Company became the beneficial owner of the mortgage loans and recorded the loans as "Previously Securitized Loans" within the loan portfolio. At December 31, 2003, the Company had exercised its early redemption option with respect to four of these trusts. The Company exercised its early redemption option with respect to the remaining two trusts during 2004. As a result, carrying balances for "Retained Interests" at December 31, 2003 became classified as "Previously Securitized Loans". Therefore, the combined balances of Previously Securitized Loans and Retained Interests at December 31, 2003 of $93.1 million declined by $34.7 million to $58.4 million at December 31, 2004, a reduction of 37%.
    Because the carrying value of the previously securitized loans incorporates discounts for expected prepayment and default rates, the carrying value of the loans is generally less than the contractual outstanding balance of the loans. As of December 31, 2004, the contractual outstanding balances of the mortgages securitized were $75.0 million while the carrying value of these assets was $58.4 million. The difference between the carrying value and the contractual outstanding balance of previously securitized loans is accreted into interest income over the life of the loans. Net credit losses on previously securitized loans are first recorded against this discount and, therefore, impact the yield earned on these loans. Should net credit losses exceed the reported balance of the discount over the life of the loans, credit losses would then be provided for through the Company's provision and allowance for loan losses.
    Because the previously securitized loans have been experiencing faster prepayment rates than previously assumed, the Company has revised its assumptions regarding prepayment rates upward as of December 31, 2004. This has two effects. First, balances are now expected to decrease more quickly than originally anticipated which will reduce the amount of net interest income earned on these assets. Second, the difference between the carrying value and the contractual outstanding balance must be amortized over a shorter anticipated average life, which will increase the anticipated yield on these loans. Based upon its revised assumptions, the Company now expects the net carrying value of previously securitized loan balances to decrease as shown below:

December 31, 2005 $36 million

December 31, 2006 $26 million

December 31, 2007 $19 million

December 31, 2008 $14 million
    While the average balances outstanding are now projected to be lower, the yield is now expected to be in the range of 18% and 20%, depending on defaults and prepayment rates experienced on these loans in the future.

    Net Interest Income

    Tax equivalent net interest income in the fourth quarter of 2004 was $21.9 million, as compared to tax equivalent net interest income of $22.3 million in the fourth quarter of 2003. This decrease in net interest income can be attributed to lower interest income on Previously Securitized Loans and Retained Interests, which declined by $2.2 million between the fourth quarter of 2003 and the fourth quarter of 2004. The combined average balance of Retained Interests and Previously Securitized Loans fell from $94.4 million during the fourth quarter of 2003 to average balances of $66.3 million during the fourth quarter of 2004. Further, the yield fell from a combined average of 21.2% in the fourth quarter of 2003 to 16.8% in the fourth quarter of 2004. The Company partially offset this significant decline in interest income through loan growth as previously described. Also, the Company increased average investment security balances by approximately $125 million between the fourth quarter of 2003 and the fourth quarter of 2004. This increase in investment security balances was funded using lower rate advances from the Federal Home Loan Bank of Pittsburgh. Finally, during the fourth quarter of 2003, the Company reduced the cost of long-term debt through the redemption of $57.5 million in 9.125% trust preferred securities.
    The average yield on interest-earning assets decreased 47 basis points from 6.33% in the fourth quarter of 2003 to 5.86% in the fourth quarter of 2004. This decrease reflects decreased balances of Previously Securitized Loans and Retained Interests, a decrease in the yield on previously securitized loans, significant growth in balances of investment securities which carry lower yields than loans, and the impact of earning assets that repriced downward due to lower interest rates.
    The cost of interest-bearing liabilities increased 2 basis points from 1.95% in the fourth quarter of 2003 to 1.97% in the fourth quarter of 2004. The increased cost of interest-bearing liabilities is primarily due to an increase in the average balances of short-term borrowings and long-term debt from the Federal Home Loan Bank of Pittsburgh that were utilized to fund the Company's increase in investment securities.
    For the full year, net interest income on a fully tax equivalent basis increased 1.6% from $86.6 million in 2003 to $88.0 million in 2004. Interest income on previously securitized loans and retained interests declined by $2.5 million overall for 2004 as compared to 2003. As previously described, most of this impact was felt in the fourth quarter of 2004 when outstanding balances were at their lowest levels compared to the prior year. For the full year, the Company also experienced compression in yields on loans due to the overall level of interest rates. As new loans were originated, or existing loans were repriced to reflect existing lower levels of market interest rates, the yield on the loan portfolio fell during 2004. These negative effects were offset by increases in average loans outstanding; by an increase in average investment security balances outstanding of $143.6 million; and by a corresponding increase in the rates earned on these securities of 30 basis points. This leverage strategy was put into place during the fourth quarter of 2003 specifically to offset anticipated reductions in net interest income from declining balances of previously securitized loans.

    Credit Quality

    At December 31, 2004, the Allowance for Loan Losses ("ALLL") was $17.8 million or 1.31% of total loans outstanding and 487% of non-performing loans. Adjusting for $58.4 million in previously securitized loans, where losses are not expected to flow through the allowance for loan losses but instead are reflected in the yield on these assets, the ALLL represents 1.38% of loans net of previously securitized loans. At December 31, 2003, the ALLL was $21.4 million or 1.66% of total loans outstanding and 529% of non-performing loans. The Company believes that its methodology for determining its ALLL adequately provides for probable losses inherent in the loan portfolio at December 31, 2004. The Company recorded no provision for loan losses in the fourth quarter of 2004 or for the year ended December 31, 2004.
    During the fourth quarter of 2004, the Company had gross charge-offs of $1.334 million. These charge-offs were offset by $0.612 million in recoveries, resulting in net charge-offs of $0.722 million. These charged-off loans had been adequately considered in determining the adequacy of the allowance for loan losses in prior periods. Of the net charge-offs of $0.722 million, net charge-offs on installment loans represented $0.311 million, or 43% of total net charge-offs. Installment loans include indirect auto loans and other unsecured consumer loans that have not actively been underwritten since 2001. Net charge-offs on these loans have been steadily declining in line with the decline in outstanding balances. Also, net charge-offs on depository accounts represented $0.348 million, or 48% of total net charge-offs. While charge-offs on depository accounts are appropriately taken against the ALLL, the revenue associated with depository accounts is generally reflected in service charges, and has been steadily growing as the Company's core base of checking accounts has grown. As a result, net charge-offs, exclusive of depository accounts and installment loans, amounted to just $0.063 million in the fourth quarter of 2004. For the full year, net charge-offs exclusive of depository accounts and installment loans amounted to only $0.819 million or 0.07% of outstanding loans exclusive of previously securitized loans, installment loans and depository accounts.
    Non-performing assets were $3.903 million, representing 0.29% of total loans and other real estate owned. This ratio has been very stable over the last two years, fluctuating between 0.29% and 0.38%. A significant portion of the non-performing assets are previously securitized loans representing 21% of all non-performing assets at December 31, 2004. Charge-offs of these particular loans do not run through the ALLL, but are reflected through the yield on the loans as previously described.

    Non-Interest Income

    Non-interest income in the fourth quarter of 2004 was $11.9 million as compared to $10.2 million in the fourth quarter of 2003, representing an increase of 16.4%. The largest source of non-interest income is fee income from depository accounts, which increased from $7.8 million during the fourth quarter of 2003 to $8.7 million during the fourth quarter of 2004, or 11.8%, reflecting growth in new customers and services provided to the Company's depository customers. The Company also experienced a 48% increase in insurance revenues and 23% increase in trust revenues in the fourth quarter of 2004 as compared to the fourth quarter of 2003. During the fourth quarter of 2004, the Company recorded additional income of $0.6 million from bank-owned life insurance, from the settlement of an insured claim.
    For the full year, non-interest income increased from $38.7 million in 2003 to $50.0 million in 2004. Service charges increased from $28.4 million in 2003 to $32.6 million in 2004, an increase of 14.7%. Insurance revenues increased by 10.8% and trust revenues increased by 28.6% between 2003 and 2004. During 2004, the Company recorded income of $5.5 million associated with the settlement of litigation brought on December 31, 2001 in a derivative action against certain current and former directors and former executive officers of the Company and City National Bank seeking to recover alleged damages on behalf of the Company and City National Bank. The Company previously disclosed a dispute with its insurer, regarding certain legal fees and costs associated with the litigation. During the fourth quarter of 2004, the Company received a reimbursement of $0.4 million from its insurer for previously paid legal fees in settlement of this dispute. As previously discussed, the Company benefited from an increase in income on bank-owned life insurance in 2004 of $0.6 million. The Company has also benefited during 2004 from gains on the sale of certain securities totaling $1.2 million as compared to losses of $0.1 million in 2003. In 2003, the Company benefited from a $1.6 million legal settlement with the FDIC. Total non-interest income net of security gains, litigation proceeds, and bank-owned life insurance increased from $36.0 million in 2003 to $40.5 million in 2004, representing an increase of 12.6%.

    Non-Interest Expenses

    Non-interest expense decreased from $17.9 million in the fourth quarter of 2003 to $17.1 million in the fourth quarter of 2004. This decrease was principally caused by a charge of $2.246 million associated with the early redemption of $57.5 million in 9.125% trust preferred securities during the fourth quarter of 2003. Net of this charge, non-interest expense increased by $1.5 million, or about 9.7%. This increase was principally in compensation expense, which increased by $1.7 million from $7.9 million in the fourth quarter of 2003 to $9.6 million in the fourth quarter of 2004. The Company incurred $1.9 million for executive severances in the fourth quarter of 2004 as compared to $0.4 million in the fourth quarter of 2003. At December 31, 2004 the Company has accrued its estimated obligation to five executive officers for severance payments as provided for under their respective employment agreements.
    For the full year, expenses increased by $1.8 million, or 2.9%, from $64.5 million in 2003 to $66.3 million in 2004. Compensation expense was up from $31.1 million in 2003 to $34.3 million in 2004, representing an increase of $3.2 million, or 10.2%. This increase is firstly attributable to executive severance costs of $3.3 million in 2004 as compared to $1.7 million in 2003 Secondly, the increase in compensation expense in 2004 as compared to 2003 can also be attributed to higher levels of heath care expense for the Company's employees.
    In 2003, the Company reported a charge of $2.388 million associated with the early redemption of $57.5 million in 9.125% trust preferred securities during the fourth quarter. In 2004 however, the Company reported a charge of only $0.263 million associated with the repurchase of $2 million of its outstanding 9.15% trust preferred securities in the open market. In 2003, the Company reported gains on repossessed assets totaling $0.691 million as compared to gains of $0.077 million in 2004. Non-interest expenses net of gains on repossessed assets, expenses associated with early extinguishment of debt, and executive severance costs, increased from $61.1 million in 2003 to $62.9 million, or an increase of $1.8 million or 3.0%.

    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 81.0% and the loan to asset ratio was 61.2% at December 31, 2004. The Company maintained investment securities totaling 30.7% of assets as of this date. Further, the Company's deposit mix is weighted heavily toward checking and saving accounts that fund 45.7% of assets at December 31, 2004. Time deposits fund 29.9% of assets but very few of these deposits are in accounts of more than $250,000 reflecting the core retail orientation of the Company. Equity represents 9.8% of total assets, leaving only 14.6% of the Company's assets funded by short and long-term borrowings and other liabilities.
    The Company is also strongly capitalized. Capitalization (as measured by average equity to average assets) was 9.81% at December 31, 2004 as a result of the Company's strong earnings. The Company's tangible equity ratio is 9.51% at December 31, 2004. With respect to regulatory capital, at December 31, 2004, the Company's Leverage Ratio is 10.74%, the Tier I Capital ratio is 15.47%, and the Total Risk-Based Capital ratio is 16.64%. The Company's regulatory capital ratios are significantly above levels required to be considered "well capitalized", which is the highest possible regulatory designation.
    During the fourth quarter of 2004, the Company repurchased no common shares. For the full year, the Company repurchased 197,040 shares at a weighted average price of $29.72 as part of a 1 million share repurchase plan originally authorized by the Board of Directors in June of 2002. Under this authorization, as of December 31, 2004, the Company may repurchase an additional 382,260 shares from time to time depending upon market conditions.

    Other Events of Interest

    In September, City National Bank opened new banking offices in Wal-Mart Supercenters located in Barboursville and Charleston, West Virginia. These two new locations provide customers with convenient access to City services and staff in two of the state's most popular shopping areas. Based upon the Company's success with these stores, in October, the Company announced plans to open two additional banking offices in new Wal-Mart Supercenters currently under construction in Beckley, West Virginia and in Ashland, Kentucky. Both branches are expected to open in the second quarter of 2005.
    On December 29, 2004 the Company announced that it had executed a definitive agreement to acquire Classic Bancshares, Inc. of Ashland, Kentucky, and its principal banking subsidiary, Classic Bank. The transaction is expected to close in the second quarter of 2005. As a result of this business combination, the Company will have the largest market share in the Huntington WV/Ashland, KY MSA.
    On January 18, 2005, the Company announced that David L. Bumgarner had joined City Holding Company as Senior Vice President and Controller.
    The Company has declared a first quarter dividend of $0.22 per common share payable on January 31, 2005, to shareholders of record on January 15, 2005, representing a 10% increase over the first quarter of 2004.
    City Holding Company is the parent company of City National Bank of West Virginia. In addition to the Bank, City National Bank operates CityInsurance Professionals, an insurance agency offering a full range of insurance products and services.
    This news release contains certain forward-looking statements that are included pursuant to the safe harbor provisions -looking statement to reflect events or circumstances that arise after the date such statements are
    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 not continue to experience significant recoveries of previously charged-off loans and the Company may incur increased charge-offs in the future; (3) the Company may experience increases in the default rates on previously securitized loans causing the yields on these assets to decline; (4) the Company could have adverse legal actions of a material nature; (5) the Company may face competitive loss of customers; (6) the Company may be unable to manage its expense levels;(7) the Company may have difficulty retaining key employees; (8) 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; (9) changes in general economic conditions and increased competition could adversely affect the Company's operating results; (10) 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 (11) 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 2004 2003 Change --------------------------------

Earnings ($000s, except per share data): Net Interest Income (FTE) $21,870 $22,341 (2.11)% Net Income 11,087 10,672 3.89% Earnings per Basic Share 0.67 0.64 4.69% Earnings per Diluted Share 0.66 0.63 4.76%

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Key Ratios (percent): Return on Average Assets 2.01% 2.08% (3.35)% Return on Average Equity 20.50% 22.79% (10.05)% Net Interest Margin 4.27% 4.74% (9.84)% Efficiency Ratio 50.28% 56.22% (10.57)% Average Shareholders' Equity to Average Assets 9.81% 9.12% 7.53%

Risk-Based Capital Ratios (a): Tier I 15.47% 11.93% 29.67% Total 16.64% 13.17% 26.35%

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Common Stock Data: Cash Dividends Declared per Share $ 0.22 $ 0.20 10.00% Book Value per Share 12.99 11.46 13.37% Market Value per Share: High 37.58 37.15 1.16% Low 31.85 31.50 1.11% End of Period 36.24 35.06 3.37%

Price/Earnings Ratio (b) 13.52 13.70 (1.31)%

(a) December 31, 2004 risk-based capital ratios are estimated. (b) December 31, 2004 price/earnings ratio computed based on annualized fourth quarter 2004 earnings.

---------------------------------------------------------------------- Twelve Months Ended Dec. 31 Dec. 31 Percent 2004 2003 Change --------------------------------

Earnings ($000s, except per share data): Net Interest Income (FTE) $87,985 $86,641 1.55% Net Income 46,344 43,694 6.06% Earnings per Basic Share 2.79 2.63 6.08% Earnings per Diluted Share 2.75 2.58 6.59%

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Key Ratios (percent): Return on Average Assets 2.10% 2.18% (3.89)% Return on Average Equity 22.43% 24.50% (8.43)% Net Interest Margin 4.29% 4.65% (7.75)% Efficiency Ratio 48.49% 52.09% (6.91)% Average Shareholders' Equity to Average Assets 9.34% 8.89% 5.05%

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Common Stock Data: Cash Dividends Declared per Share $ 0.88 $ 0.80 10.00% Market Value per Share: High 37.58 37.15 1.16% Low 27.30 25.50 7.06%

CITY HOLDING COMPANY AND SUBSIDIARIES Financial Highlights (Unaudited)

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Book Value and Market Price Range per Share Market Price Book Value per Share Range per Share March 31 June 30 Sept.30 Dec. 31 Low High ----------------------------------------------------------------

1999 13.07 12.85 12.80 11.77 12.50 32.75 2000 11.76 11.72 11.72 9.68 4.88 16.19 2001 8.82 8.70 8.37 8.67 5.13 14.64 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 12.99 27.30 37.58

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Earnings per Basic Share

Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Year-to-Date ----------------------------------------------------------------

1999 0.31 0.42 0.14 (0.49) 0.37 2000 0.24 0.02 (0.05) (2.47) (2.27) 2001 (0.34) (1.19) (0.46) 0.45 (1.54) 2002 0.38 0.45 0.53 0.56 1.93 2003 0.56 0.73 0.69 0.64 2.63 2004 0.66 0.80 0.66 0.67 2.79

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Earnings per Diluted Share

Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Year-to-Date ----------------------------------------------------------------

1999 0.31 0.42 0.14 (0.49) 0.37 2000 0.24 0.02 (0.05) (2.47) (2.27) 2001 (0.34) (1.19) (0.46) 0.45 (1.54) 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

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data)

Three Months Ended Dec. 31 2004 2003 -------- -------

Interest Income Interest and fees on loans $21,511 $21,331 Interest on investment securities: Taxable 7,779 5,760 Tax-exempt 437 479 Interest on retained interests - 2,000 Interest on deposits in depository institutions 16 11 Interest on federal funds sold 3 - -------- ------- Total Interest Income 29,746 29,581

Interest Expense Interest on deposits 5,932 5,653 Interest on short-term borrowings 424 133 Interest on long-term debt 1,756 1,711 -------- ------- Total Interest Expense 8,112 7,497 -------- ------- Net Interest Income 21,634 22,084 Provision for (recovery of) loan losses - (1,000) -------- ------- Net Interest Income After Provision for Loan Losses 21,634 23,084

Non-Interest Income Investment securities gains (losses) 32 287 Service charges 8,678 7,762 Insurance commissions 754 510 Trust fee income 466 379 Bank owned life insurance 1,184 593 Mortgage banking income 70 60 Other income 685 610 -------- ------- Total Non-Interest Income 11,869 10,201

Non-Interest Expense Salaries and employee benefits 9,578 7,916 Occupancy and equipment 1,560 1,550 Depreciation 981 1,056 Professional fees and litigation expense 571 542 Postage, delivery, and statement mailings 589 584 Advertising 600 578 Telecommunications 403 466 Insurance and regulatory 330 297 Office supplies 210 278 Repossessed asset (gains) losses and expenses (31) 19 Loss on early extinguishment of debt - 2,246 Other expenses 2,340 2,335 -------- ------- Total Non-Interest Expense 17,131 17,867 -------- ------- Income Before Income Taxes 16,372 15,418 Income Tax Expense 5,285 4,746 -------- ------- Net Income $11,087 $10,672 ======== =======

Basic Earnings per Share $ 0.67 $ 0.64 Diluted Earnings per Share $ 0.66 $ 0.63 Average Common Shares Outstanding: Basic 16,572 16,641 Diluted 16,810 16,961

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) ($ in 000s, except per share data)

Twelve Months Ended Dec. 31 2004 2003 --------- --------

Interest Income Interest and fees on loans $ 86,099 $ 81,296 Interest on investment securities: Taxable 30,110 21,267 Tax-exempt 1,809 2,112 Interest on retained interests 808 12,465 Interest on deposits in depository institutions 52 114 Interest on federal funds sold 3 36 --------- -------- Total Interest Income 118,881 117,290

Interest Expense Interest on deposits 23,207 22,537 Interest on short-term borrowings 1,082 792 Interest on long-term debt 7,582 8,456 --------- -------- Total Interest Expense 31,871 31,785 --------- -------- Net Interest Income 87,010 85,505 Provision for (recovery of) loan losses - (6,200) --------- -------- Net Interest Income After Provision for Loan Losses 87,010 91,705

Non-Interest Income Investment securities gains (losses) 1,173 (148) Service charges 32,609 28,422 Insurance commissions 2,733 2,467 Trust fee income 2,026 1,575 Bank owned life insurance 2,931 1,320 Mortgage banking income 282 517 Net proceeds from litigation settlement 5,453 1,600 Other income 2,829 2,985 --------- -------- Total Non-Interest Income 50,036 38,738

Non-Interest Expense Salaries and employee benefits 34,245 31,070 Occupancy and equipment 5,984 6,015 Depreciation 3,932 4,411 Professional fees and litigation expense 3,265 2,879 Postage, delivery, and statement mailings 2,474 2,646 Advertising 2,366 2,340 Telecommunications 1,820 1,874 Insurance and regulatory 1,323 1,266 Office supplies 1,048 1,428 Repossessed asset (gains) losses and expenses (77) (691) Loss on early extinguishment of debt 263 2,388 Other expenses 9,690 8,872 --------- -------- Total Non-Interest Expense 66,333 64,498 --------- -------- Income Before Income Taxes 70,713 65,945 Income Tax Expense 24,369 22,251 --------- -------- Net Income $ 46,344 $ 43,694 ========= ========

Basic Earnings per Share $ 2.79 $ 2.63 Diluted Earnings per Share $ 2.75 $ 2.58 Average Common Shares Outstanding: Basic 16,632 16,634 Diluted 16,882 16,947

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited) ($ in 000s)

Three Months Ended Dec. 31, Dec. 31, 2004 2003 --------------------

Balance at September 30 $210,285 $ 183,463

Net income 11,087 10,672 Other comprehensive income: Change in unrealized gain on securities available- for-sale (2,255) 545 Change in underfunded pension liability (35) (847) Cash dividends declared ($0.22/share) (3,650) - Cash dividends declared ($0.20/share) - (3,328) Exercise of 26,327 stock options 648 - Exercise of 5,000 stock options - 185

------------------ Balance at December 31 $216,080 $ 190,690 ======== =========

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Twelve Months Ended Dec. 31, Dec. 31, 2004 2003 --------------------

Balance at January 1 $190,690 $ 165,393

Net income 46,344 43,694 Other comprehensive income: Change in unrealized gain on securities available- for-sale (2,481) (2,198) Change in underfunded pension liability (35) (847) Cash dividends declared ($0.88/share) (14,629) - Cash dividends declared ($0.80/share) - (13,310) Exercise of 140,730 stock options 2,048 - Exercise of 104,982 stock options - 1,216 Purchase of 197,040 common shares for treasury (5,857) Purchase of 118,300 common shares for treasury - (3,258)

------------------ Balance at December 31 $216,080 $ 190,690 ======== =========

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 2004 2004 2004 2004 2003 ------- ------- ------- ------- -------

Interest income $29,746 $29,667 $29,293 $30,175 $29,581 Taxable equivalent adjustment 236 236 246 257 257 ------- ------- ------- ------- ------- Interest income (FTE) 29,982 29,903 29,539 30,432 29,838 Interest expense 8,112 8,035 7,860 7,863 7,497 ------- ------- ------- ------- ------- Net interest income 21,870 21,868 21,679 22,569 22,341 Provision for loan losses - - - - (1,000) ------- ------- ------- ------- ------- Net interest income after provision for loan losses 21,870 21,868 21,679 22,569 23,341

Noninterest income 11,869 10,856 16,389 10,920 10,201 Noninterest expense 17,131 15,783 16,985 16,433 17,867

---------------- ---------------- ------- Income before income taxes 16,608 16,941 21,083 17,056 15,675 Income tax expense 5,285 5,749 7,539 5,796 4,746 Taxable equivalent adjustment 236 236 246 257 257 ------- ------- ------- ------- ------- Net income $11,087 $10,956 $13,298 $11,003 $10,672 ======= ======= ======= ======= =======

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Basic earnings per share $ 0.67 $ 0.66 $ 0.80 $ 0.66 $ 0.64 Diluted earnings per share 0.66 0.65 0.79 0.65 0.63 Cash dividends declared per share 0.22 0.22 0.22 0.22 0.20

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Average Common Share (000s): Outstanding 16,572 16,584 16,694 16,681 16,641 Diluted 16,810 16,812 16,935 16,972 16,961

Net Interest Margin 4.27% 4.27% 4.20% 4.42% 4.74%

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 2004 2004 2004 2004 2003 ------- ------- ------- ------- -------

Non-Interest Income: Service charges $ 8,678 $ 8,440 $ 8,110 $ 7,381 $ 7,762 Insurance commissions 754 600 718 660 510 Trust fee income 466 446 627 487 379 Bank owned life insurance 1,184 575 591 581 593 Mortgage banking income 70 72 71 69 60 Net proceeds from litigation settlement - - 5,453 - - Other income 685 719 695 730 610 ------- ------- ------- ------- ------- Subtotal 11,837 10,852 16,265 9,908 9,914 Investment security gains (losses) 32 4 124 1,012 287 ------- ------- ------- ------- ------- Total Non-Interest Income $11,869 $10,856 $16,389 $10,920 $10,201 ======= ======= ======= ======= =======

Non-Interest Expense: Salaries and employee benefits $ 9,578 $ 8,150 $ 8,390 $ 8,127 $ 7,916 Occupancy and equipment 1,560 1,472 1,459 1,494 1,550 Depreciation 981 972 974 1,006 1,056 Professional fees and litigation expense 571 668 1,181 844 542 Postage, delivery, and statement mailings 589 601 598 685 584 Advertising 600 459 651 656 578 Telecommunications 403 488 463 466 466 Insurance and regulatory 330 342 320 331 297 Office supplies 210 252 273 312 278 Repossessed asset (gains) losses and expenses (31) 5 (108) 57 19 Loss on early exinguishment of debt - - 263 - 2,246 Other expenses 2,340 2,374 2,521 2,455 2,335 ------- ------- ------- ------- ------- Total Non-Interest Expense $17,131 $15,783 $16,985 $16,433 $17,867 ======= ======= ======= ======= =======

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Employees (Full Time Equivalent) 691 692 692 690 701 Branch Locations 56 56 54 54 54

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets ($ in 000s) Dec. 31 Dec 31 2004 2003 ---------- ---------- (Unaudited) Assets Cash and due from banks $ 52,854 $ 58,216 Interest-bearing deposits in depository institutions 3,230 5,122 ---------- ---------- Cash and cash equivalents 56,084 63,338

Investment securities available-for-sale, at fair value 620,034 645,663 Investment securities held-to-maturity, at amortized cost 59,740 59,298 ---------- ---------- Total investment securities 679,774 704,961 Loans: Residential real estate 469,458 446,134 Home equity 308,173 282,481 Commercial real estate 400,801 351,284 Other commercial 71,311 76,167 Installment 18,145 33,651 Indirect 10,324 24,707 Credit card 18,126 18,979 Previously securitized loans 58,436 58,788 ---------- ---------- Gross Loans 1,354,774 1,292,191 Allowance for loan losses (17,815) (21,426) ---------- ---------- Net loans 1,336,959 1,270,765

Retained interests - 34,320 Bank owned life insurance 50,845 49,214 Premises and equipment 34,607 35,338 Accrued interest receivable 9,868 10,216 Net deferred tax assets 27,025 29,339 Other assets 18,068 16,939 ---------- ---------- Total Assets $2,213,230 $2,214,430 ========== ==========

Liabilities Deposits: Noninterest-bearing $ 319,425 $ 309,706 Interest-bearing: Demand deposits 411,127 393,443 Savings deposits 281,466 278,117 Time deposits 660,705 655,496 ---------- ---------- Total deposits 1,672,723 1,636,762 Short-term borrowings 145,183 168,403 Long-term debt 148,836 190,836 Other liabilities 30,408 27,739 ---------- ---------- Total Liabilities 1,997,150 2,023,740

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; 16,919,248 shares issued and outstanding at December 31, 2004 and December 31, 2003, including 331,191 and 274,881 shares in treasury 42,298 42,298 Capital surplus 55,512 57,364 Retained earnings 128,175 96,460 Cost of common stock in treasury (8,761) (6,803) Accumulated other comprehensive (loss) income: Unrealized gain on securities available-for-sale 1,281 3,762 Underfunded pension liability (2,425) (2,391) ---------- ---------- Total Accumulated Other Comprehensive (Loss) Income (1,144) 1,371 ---------- ---------- Total Stockholders' Equity 216,080 190,690 ---------- ---------- Total Liabilities and Stockholders' Equity $2,213,230 $2,214,430 ========== ==========

CITY HOLDING COMPANY AND SUBSIDIARIES Loan Portfolio (Unaudited) ($ in 000s)

Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2004 2004 2004 2004 2003 ---------- ---------- ---------- ---------- ----------

Residential real estate $ 469,458 $ 468,372 $ 459,759 $ 439,643 $ 446,134 Home equity 308,173 304,934 301,231 292,192 282,481 Commercial real estate 400,801 377,742 374,292 347,724 351,284 Other commercial 71,311 70,745 73,139 74,743 76,167 Loans to depository institutions - - - 20,000 - Installment 18,145 20,221 24,722 28,351 33,651 Indirect 10,324 13,020 16,140 20,006 24,707 Credit card 18,126 17,893 17,961 18,119 18,979 Previously securitized loans 58,436 70,970 83,385 92,954 58,788 ---------- ---------- ---------- ---------- ---------- Gross Loans $1,354,774 $1,343,897 $1,350,629 $1,333,732 $1,292,191 ========== ========== ========== ========== ==========

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s)

Three Months Ended December 31, 2004 2003 Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate --------------------------------------------------

Assets: Loan portfolio: Residential real estate $ 468,362 $ 6,646 5.68% $ 449,765 $ 7,127 6.34% Home equity 307,712 3,966 5.16% 277,736 3,006 4.33% Commercial real estate 386,592 5,641 5.84% 329,013 4,784 5.82% Other commercial 68,816 1,015 5.90% 78,875 1,057 5.36% Installment 20,168 604 11.98% 36,475 1,064 11.67% Indirect 11,584 321 11.08% 26,785 742 11.08% Credit card 17,756 534 12.03% 18,791 558 11.88% Previously securitized loans 66,307 2,784 16.79% 54,141 2,993 22.11% ---------- ------------- ---------- ------------- Total loans 1,347,297 21,511 6.39% 1,271,581 21,331 6.71% Securities: Taxable 656,511 7,779 4.74% 531,308 5,760 4.34% Tax-exempt 37,573 673 7.16% 39,292 736 7.49% ---------- ------------- ---------- ------------- Total securities 694,084 8,452 4.87% 570,600 6,496 4.55% Retained interest in securitized loans - - - 40,287 2,000 19.86% Deposits in depository institutions 4,753 16 1.35% 4,465 11 0.99% Federal funds sold 766 3 1.57% - - - ---------- ------------- ---------- ------------- Total interest- earning assets 2,046,900 29,982 5.86% 1,886,933 29,838 6.33% Cash and due from banks 42,920 47,190 Bank premises and equipment 34,859 35,817 Other assets 99,641 107,409 Less: Allowance for loan losses (18,332) (23,153) ------------------------ ------------------------ Total assets $2,205,988 $2,054,196 ======================== ========================

Liabilities: Interest-bearing demand deposits $ 408,038 $ 675 0.66%$ 392,314 $ 583 0.59% Savings deposits 275,776 361 0.52% 281,689 375 0.53% Time deposits 661,131 4,896 2.96% 647,554 4,694 2.90% Short-term borrowings 131,202 424 1.29% 104,427 133 0.51% Long-term debt 174,923 1,756 4.02% 115,482 1,712 5.93% ---------- ------------- ---------- ------------- Total interest- bearing liabilities 1,651,070 8,112 1.97% 1,541,466 7,497 1.95% Noninterest-bearing demand deposits 315,759 300,905 Other liabilities 22,829 24,512 Stockholders' equity 216,330 187,313 ------------------------ ------------------------ Total liabilities and stockholders' equity $2,205,988 $2,054,196 ================================================= Net interest income $21,870 $22,341 ================================================== Net yield on earning assets 4.27% 4.74% ==================================================

CITY HOLDING COMPANY AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields, and Rates (Unaudited) ($ in 000s)

Twelve Months Ended December 31, 2004 2003 Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ----------------------------------------------------

Assets: Loan portfolio: Residential real estate $ 454,890 $ 26,869 5.91%$ 455,971 $ 30,583 6.71% Home equity 298,703 14,004 4.69% 251,135 11,165 4.45% Commercial real estate 367,599 20,684 5.63% 301,494 18,448 6.12% Other commercial 72,825 3,913 5.37% 84,738 4,988 5.89% Loans to depository institutions 3,060 35 1.14% 4,658 78 1.67% Installment 25,343 2,895 11.42% 47,121 5,349 11.35% Indirect 16,599 1,823 10.98% 35,449 3,868 10.91% Credit card 18,002 2,164 12.02% 18,925 2,268 11.98% Previously securitized loans 80,151 13,712 17.11% 20,426 4,549 22.27% ---------- -------------- ---------- -------------- Total loans 1,337,172 86,099 6.44% 1,219,917 81,296 6.66% Securities: Taxable 666,863 30,110 4.52% 517,728 21,267 4.11% Tax-exempt 38,169 2,784 7.29% 43,709 3,248 7.43% ---------- -------------- ---------- -------------- Total securities 705,032 32,894 4.67% 561,437 24,515 4.37% Retained interest in securitized loans 3,300 808 24.48% 66,662 12,465 18.70% Deposits in depository institutions 5,347 52 0.97% 10,778 114 1.06% Federal funds sold 193 3 1.55% 3,406 36 1.06% ---------- -------------- ---------- -------------- Total interest- earning assets 2,051,044 119,856 5.84% 1,862,200 118,426 6.36% Cash and due from banks 43,616 45,831 Bank premises and equipment 34,804 36,289 Other assets 102,179 89,549 Less: Allowance for loan losses (19,790) (26,877) ------------------------ ------------------------ Total assets $2,211,853 $2,006,992 ======================== ========================

Liabilities: Interest-bearing demand deposits $ 405,865 $ 2,599 0.64%$ 385,882 $ 2,174 0.56% Savings deposits 279,174 1,456 0.52% 287,823 1,606 0.56% Time deposits 662,068 19,152 2.89% 627,741 18,756 2.99% Short-term borrowings 120,849 1,082 0.90% 99,567 792 0.80% Long-term debt 201,218 7,582 3.77% 109,947 8,457 7.69% ---------- -------------- ---------- -------------- Total interest- bearing liabilities 1,669,174 31,871 1.91% 1,510,960 31,785 2.10% Noninterest- bearing demand deposits 312,036 292,075 Other liabilities 24,072 25,585 Stockholders' equity 206,571 178,372 ------------------------ ------------------------ Total liabilities and stockholders' equity $2,211,853 $2,006,992 ======================== ======================== Net interest income $ 87,985 $ 86,641 =========== ========================= ============== Net yield on earning assets 4.29% 4.65% ==================================================

CITY HOLDING COMPANY AND SUBSIDIARIES Analysis of Risk-Based Capital (Unaudited) ($ in 000s)

Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2004(a) 2004 2004 2004 2003 ---------- ---------- ---------- ---------- ----------

Tier I Capital: Stockholders' equity $ 216,080 $ 210,285 $ 197,569 $ 202,204 $ 190,690 Goodwill and other intangibles (6,255) (6,306) (6,357) (6,408) (6,459) Accumulated other comprehensive income 1,143 (1,146) 6,454 (4,742) (1,372) Qualifying trust preferred stock 28,000 28,000 28,000 30,000 30,000 Excess deferred tax assets (3,128) - (6,922) (807) (8,053) ---------- ---------- ---------- ---------- ---------- Total tier I capital $ 235,840 $ 230,833 $ 218,744 $ 220,247 $ 204,806 ========== ========== ========== ========== ==========

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Total Risk- Based Capital: Tier I capital $ 235,840 $ 230,833 $ 218,744 $ 220,247 $ 204,806 Qualifying allowance for loan losses 17,814 18,537 18,939 19,169 21,426 ---------- ---------- ---------- ---------- ---------- Total risk- based capital $ 253,654 $ 249,370 $ 237,683 $ 239,416 $ 226,232 ========== ========== ========== ========== ==========

Net risk- weighted assets $1,524,581 $1,517,158 $1,514,261 $1,505,892 $1,717,206

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Ratios: Average stockholders' equity to average assets 9.81% 9.26% 9.33% 8.96% 9.12% Tangible capital ratio 9.51% 9.24% 8.71% 8.85% 8.34% Risk-based capital ratios: Tier I capital 15.47% 15.21% 14.43% 14.63% 11.93% Total risk- based capital 16.64% 16.44% 15.68% 15.89% 13.17% Leverage capital 10.74% 10.47% 9.89% 10.01% 10.04%

(a) December 31, 2004 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 2004 2004 2004 2003 2003 ---------- ---------- ---------- ---------- ----------

Intangibles, net $ 6,255 $ 6,306 $ 6,357 $ 6,408 $ 6,459 Intangibles amortization expense 51 51 51 51 51

CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Loan Loss Experience (Unaudited) ($ in 000s)

Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2004 2004 2004 2004 2003 ---------- ---------- ---------- ---------- ----------

Balance at beginning of period $ 18,537 $ 19,833 $ 20,289 $ 21,426 $ 23,436 Charge-offs: Residential real estate 166 299 173 217 419 Home equity 5 105 66 133 18 Commercial real estate 105 1,134 44 342 130 Other commercial 14 220 22 159 28 Installment 458 568 457 588 715 Overdraft deposit accounts 586 631 610 787 583 ---------- ---------- ---------- ---------- ---------- Total charge- offs 1,334 2,957 1,372 2,226 1,893

Recoveries: Residential real estate 137 196 133 104 135 Home equity - 1 - 5 - Commercial real estate 10 922 201 311 141 Other commercial 80 103 127 55 182 Installment 147 183 202 260 211 Overdraft deposit accounts 238 256 253 354 214 ---------- ---------- ---------- ---------- ---------- Total recoveries 612 1,661 916 1,089 883

------------------------------------------------------- Net charge-offs 722 1,296 456 1,137 1,010 (Recovery of) provision for loan losses - - - - (1,000)

------------------------------------------------------- Balance at end of period $ 17,815 $ 18,537 $ 19,833 $ 20,289 $ 21,426 ========== ========== ========== ========== ==========

Loans outstanding $1,354,774 $1,343,897 $1,350,629 $1,333,732 $1,292,191 ---------- ---------- ---------- ---------- ---------- Average loans outstanding 1,347,297 1,348,265 1,342,001 1,310,894 1,271,581 ---------- ---------- ---------- ---------- ---------- Allowance as a percent of loans outstanding 1.31% 1.38% 1.47% 1.52% 1.66% ---------- ---------- ---------- ---------- ---------- Allowance as a percent of non-performing loans 487% 515% 493% 432% 529% ---------- ---------- ---------- ---------- ---------- Net charge-offs (annualized) as a percent of average loans outstanding 0.21% 0.38% 0.14% 0.35% 0.32% ---------- ---------- ---------- ---------- ----------

CITY HOLDING COMPANY AND SUBSIDIARIES Summary of Non-Performing Assets (Unaudited) ($ in 000s)

Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2004 2004 2004 2004 2003 ------ ------ ------ ------ ------

Nonaccrual loans $2,147 $1,924 $1,792 $2,268 $2,140 Accruing loans past due 90 days or more 677 800 689 1,039 1,195 Previously securitized loans past due 90 days or more 832 876 1,544 1,388 717 ------ ------ ------ ------ ------ Total non-performing loans 3,656 3,600 4,025 4,695 4,052 Other real estate owned 247 267 171 296 312 ------ ------ ------ ------ ------ Total non-performing assets $3,903 $3,867 $4,196 $4,991 $4,364 ====== ====== ====== ====== ======

Non-performing assets as a percent of loans and other real estate owned 0.29% 0.29% 0.31% 0.37% 0.34%

--30--MD/ch*

CONTACT: City Holding Company Gerald R. Francis, President & CEO, 304-769-1101

KEYWORD: WEST VIRGINIA KENTUCKY INDUSTRY KEYWORD: BANKING EARNINGS DIVIDEND SOURCE: City Holding Company

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