CITY HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations Statistical Information (Form 10-K)

The information below is provided in accordance with Guide 3 — Statistical Disclosure by Bank Holding Companies.


                                                                                                                          Page
Description of Information                                                                                              Reference
Item I.        Distribution of Assets, Liabilities and Stockholders'
               Equity; Interest Rates and Interest Differential
               a.                            Average Balance Sheets                                                        32
               b.                            Analysis of Net Interest Earnings                                             33
               c.                            Rate Volume Analysis of Changes in Interest Income and Expense                33

II.            Investment Portfolio
               a.                            Maturity Schedule of Investments                                              41

III.           Loan Portfolio
               a.                            Types of Loans                                                                42
               b.                            Maturities and Sensitivity to Changes in Interest Rates                       42
               c.                            Other Interest Bearing Assets                                                None
               d.                            Risk Elements                                                                  72

V.             Deposits
                                             Breakdown of Deposits by

Categories, average balance and average rate

               a.                            Paid                                                                          32
               b.                            Maturity Schedule of Uninsured Time Certificates of Deposit                   48
VI.            Return on Equity and Assets                                                                                 31

VII.           Short-term Borrowings                                                                                       37


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CITY HOLDING COMPANY


City Holding Company (the "Company"), a West Virginia corporation headquartered
in Charleston, West Virginia, is a registered financial holding company under
the Bank Holding Company Act and conducts its principal activities through its
wholly owned subsidiary, City National Bank of West Virginia ("City National").
City National is a retail and consumer-oriented community bank with 94 bank
branches in West Virginia (58), Kentucky (19), Virginia (13) and Ohio (4). City
National provides credit, deposit, and trust and investment management services
to its customers in a broad geographical area that includes many rural and small
community markets in addition to larger cities including Charleston (WV),
Huntington (WV), Martinsburg (WV), Ashland (KY), Lexington (KY), Winchester (VA)
and Staunton (VA). In the Company's key markets, the Company's primary
subsidiary, City National, generally ranks in the top three relative to deposit
market share and the top two relative to branch share (Charleston/Huntington
MSA, Beckley/Lewisburg counties, Staunton MSA and Winchester, VA/WV Eastern
Panhandle counties). In addition to its branch network, City National's delivery
channels include automated-teller-machines ("ATMs"), interactive-teller-machines
("ITMs"), mobile banking, debit cards, interactive voice response systems, and
Internet technology. The Company's business activities are currently limited to
one reportable business segment, which is community banking.

COVID-19 Pandemic/Update


The ongoing COVID-19 pandemic has placed significant health, economic and other
major pressure throughout the communities the Company serves, the United States
and the entire world. The Company previously implemented a number of procedures
in response to the pandemic to support the safety and well-being of our
employees, customers and shareholders including pushing as much traffic as
possible to our drive-thru facilities, providing extensions and deferrals to
loan customers affected by COVID-19 and participating in the CARES Act Paycheck
Protection Program ("PPP"). The Company continues to closely monitor this
pandemic and will continue to make changes to respond to the pandemic as this
situation continues to evolve.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The accounting policies of the Company conform to U.S. generally accepted
accounting principles and require management to make estimates and develop
assumptions that affect the amounts reported in the financial statements and
related footnotes. These estimates and assumptions are based on information
available to management as of the date of the financial statements. Actual
results could differ significantly from management's estimates. As this
information changes, management's estimates and assumptions used to prepare the
Company's financial statements and related disclosures may also change. The most
significant accounting policies followed by the Company are presented in   Note
One   of the Notes to Consolidated Financial Statements included herein. Based
on the valuation techniques used and the sensitivity of financial statement
amounts to the methods, assumptions, and estimates underlying those amounts,
management has identified: (i) the determination of the allowance for credit
losses and (ii) income taxes to be the accounting areas that require the most
subjective or complex judgments and, as such, could be most subject to revision
as new information becomes available.

Provision for credit losses


The Allowance for Credit Losses section of this Annual Report on Form 10-K
provides management's analysis of the Company's allowance for credit losses and
related provision. The allowance for credit losses is a valuation account that
is deducted from the loans' amortized cost basis to present the net amount
expected to be collected on the loans. Loans are charged off against the
allowance when management believes the uncollectibility of a loan balance is
confirmed. Expected recoveries do not exceed the aggregate of amounts previously
charged-off and expected to be charged-off. Management estimates the allowance
balance using relevant available information, from internal and external
sources, relating to past events, current conditions, and reasonable and
supportable forecasts. Historical credit loss experience provides the basis for
the estimation of expected credit losses. Adjustments to historical loss
information are made for differences in current loan-specific risk
characteristics, such as differences in underwriting standards, portfolio mix,
delinquency level, or term as well as for changes in environmental conditions,
such as changes in unemployment rates, property values, or other relevant
factors. These evaluations are conducted at least quarterly and more frequently
if deemed necessary. Additionally, all commercial loans within the portfolio are
subject to internal risk grading. Risk grades are generally assigned by the
primary lending officer and are periodically evaluated by the Company's internal
loan review process.

To assess the adequacy of its allowance for credit losses, the Company classifies the loan portfolio into six main groups. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

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          Portfolio Segment             Measurement Method
Commercial and industrial                   Migration
Commercial real estate:
  1-4 family                                Migration
  Hotels                                    Migration
  Multi-family                              Migration
  Non Residential Non-Owner Occupied        Migration
  Non Residential Owner Occupied            Migration
Residential real estate                      Vintage
Home equity                                  Vintage
Consumer                                     Vintage



Migration is an analysis that tracks a closed pool of loans for a configurable
period of time and calculates a loss ratio on only those loans in the pool at
the start date based on outstanding balance. Vintage is a predictive loss model
that includes a reasonable approximation of probable and estimable future losses
by tracking each loan's net losses over the life of the loan as compared to its
original balance. For demand deposit overdrafts, the allowance for credit losses
is measured using the historical loss rate. Loans that do not share risk
characteristics are evaluated on an individual basis. Loans evaluated
individually are not included in the collective evaluation. When management
determines that foreclosure is probable, the expected credit losses are based on
the fair value of the collateral at the reporting date, adjusted for selling
costs as appropriate.

Expected credit losses are estimated over the contractual term of the loan,
adjusted for expected prepayments when appropriate. The contractual term
excludes expected extensions, renewals, and modifications unless either of the
following applies: management has a reasonable expectation at the reporting date
that a troubled-debt restructuring will be executed with an individual borrower
or the extension or renewal options are included in the original or modified
contract at the reporting date and are not unconditionally cancellable by the
Company.

The Company uses a number of economic variables in its scenarios to estimate the
allowance for credit losses, with the most significant drivers being an
unemployment rate forecast and qualitative adjustments. In the December 31, 2021
estimate, the Company assumed an unemployment forecast range of 3.5% to 5.2%,
which has decreased from a range of 4.6% to 9% utilized in the December 31, 2020
estimate. Historical loss rates from periods where the average unemployment rate
matches the forecast range are considered when calculating the forecast period
loss rate. The impact of the changes in the unemployment forecast range between
December 31, 2020 and December 31, 2021 resulted in a decrease in the ACL of
approximately $0.6 million.

Based on sensitivity analysis of all portfolios, a 0.0050% change (slight
improvement or decline on bank's scale) in all 11 qualitative risk factors
(where assigned) would have a $1.8 million impact on the reserve allocation.
Changing each factor by 0.01% (moderate improvement or decline) would have a
$3.7 million impact. Management recognizes that these are extreme scenarios and
it is very unlikely that all risk factors would change by 0.005% or 0.01%
simultaneously. Between December 31, 2020 and December 31, 2021, management
assigned a "moderate improvement," or 1 basis point decrease, to the overall
economic conditions and unemployment qualitative factors and eliminated the
0.055% COVID-19 qualitative adjustment. Management also assigned a "moderate
improvement," or 1 basis point decrease to 0.01%, to the delinquency trend
factor for all pools. In total, the qualitative changes reduced the ACL by
approximately $2.9 million.

Income taxes


The Income Taxes section of this Annual Report on Form 10-K provides
management's analysis of the Company's income taxes. The Company is subject to
federal and state income taxes in the jurisdictions in which it conducts
business. In computing the provision for income taxes, management must make
judgments regarding interpretation of laws in those jurisdictions. Because the
application of tax laws and regulations for many types of transactions is
susceptible to varying interpretations, amounts reported in the financial
statements could be changed at a later date upon final determinations by taxing
authorities. On a quarterly basis, the Company estimates its annual effective
tax rate for the year and uses that rate to provide for income taxes on a
year-to-date basis. The Company's unrecognized tax benefits could change over
the next twelve months as a result of various factors.   The Company is
currently open to audit under the statute of limitations by the Internal Revenue
Service and various state taxing authorities for the years ended December 31,
2018 and forward.

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The effective tax rate is calculated by taking the statutory rate and adjusting
for permanent and discrete items. The discrete items can vary between periods
but historically have remained consistent.

FINANCIAL SUMMARY

The Company’s financial performance over the past three years is summarized in the following table:


                                                             2021          

2020 2019


Net income available to common shareholders (in
thousands)                                               $   88,080    $   89,595    $   89,352
Earnings per common share, basic                         $     5.67    $     5.55    $     5.43
Earnings per common share, diluted                       $     5.66    $     5.55    $     5.42
Cash dividends declared                                  $     2.34    $     2.29    $     2.20
Book value per share                                     $    45.22    $    44.47    $    40.36
Dividend payout ratio                                          41.3  %       41.2  %       40.5  %
ROA*                                                           1.49  %       1.66  %       1.80  %
ROE*                                                           12.7  %       12.9  %       14.0  %
ROATCE*                                                        15.3  %       15.6  %       17.3  %


*ROA (Return on Average Assets) is a measure of the efficiency of asset use. ROE (Return on Average Equity) is a measure of shareholder return on investment. ROATCE (Return on Average Tangible Common Equity) is a measure of return on equity less intangible assets.

ANALYSIS OF THE BALANCE SHEET


  Selected balance sheet fluctuations and ratios are summarized in the following
table (in millions):

                                                December 31,
                                              2021         2020      $ Change    % Change

   Investment securities                     1,433.7     1,206.2     227.5           19  %
   Gross loans                               3,543.8     3,622.1     (78.3)          (2) %

   Total deposits                            4,925.3     4,652.2     273.1            6  %

   Tangible equity to tangible assets           9.58  %    10.33  %



Investment securities increased $227.5 millionfrom $1.21 billion at
December 31, 2020for $1.43 billion at December 31, 2021 due to an increase in deposit balances and a decline in loan demand.


Gross loans decreased $78.3 million (2.2%) from December 31, 2020 to $3.54
billion at December 31, 2021. PPP loans decreased $48.8 million from $55.4
million at December 31, 2020 to $6.6 million at December 31, 2021. Excluding
outstanding PPP loans (included in the commercial and industrial loan category),
total loans decreased $29.4 million, (0.8%), from December 31, 2020 to $3.54
billion at December 31, 2021. Residential real estate loans decreased $38.7
million (2.4%); home equity loans decreased $14.1 million (10.4%); and consumer
loans decreased $6.8 million (14.2%). These decreases were partially offset by
increases in commercial and industrial loans ($22.1 million, or 7.5%) (excluding
PPP loans).

Total deposits increased $273.1 million from December 31, 2020 to $4.93 billion
at December 31, 2021. Noninterest bearing demand deposits increased
$196.1 million, savings deposits increased $159.4 million, and interest bearing
demand deposits increased $108.6 million. These increases were partially offset
by a decrease in time deposits of $191.1 million.

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TABLE ONE
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME
(In thousands)


                                                              2021                                                 2020                                                  2019
                                                                             Yield/                                                Yield/                                               Yield/
                                           Average Balance     Interest       Rate              Average Balance     Interest        Rate              Average Balance     Interest       Rate
Assets
Loan portfolio(1):
Residential real estate(2),(3)           $      1,658,710    $  64,492          3.89  %       $      1,768,789    $  74,452           4.21  %       $      1,791,636    $  81,603          4.55  %
Commercial, financial, and
agriculture(3)                                  1,838,560       68,784          3.74                 1,816,658       72,128           3.97                 1,717,381       84,167          4.90
Installment loans to individuals(3),(4)            48,708        2,831          5.81                    56,163        3,319           5.91                    58,126        3,559          6.12
Previously securitized loans(5)                         -          568             -                         -          599              -                         -          684             -
   Total loans                                  3,545,978      136,675          3.85                 3,641,610      150,498           4.13                 3,567,143      170,013          4.77
Securities:
  Taxable                                       1,075,550       23,071          2.15                   890,771       23,355           2.62                   761,358       23,389          3.07
  Tax-exempt(6)                                   242,125        6,362          2.63                   164,740        4,954           3.01                    98,217        3,756          3.82
   Total securities                             1,317,675       29,433          2.23                 1,055,511       28,309           2.68                   859,575       27,145          3.16
Deposits in depository institutions               568,928          693          0.12                   230,043          492           0.21                    84,826        1,332          1.57
   Total interest-earning assets                5,432,581      166,801          3.07                 4,927,164      179,299           3.64                 4,511,544      198,490          4.40
Cash and due from banks                            92,847                                               76,173                                          

65,664

Bank premises and equipment                        76,069                                               77,670                                          

78 103

Goodwill and intangible assets                    117,899                                              119,471                                               121,460
Other assets                                      216,493                                              221,864                                               191,422
  Less: allowance for credit losses               (21,922)                                             (22,770)                                              (14,466)
Total assets                             $      5,913,967                                     $      5,399,572                                      $      4,953,727

Liabilities

Remunerated sight deposits $1,071,628 504

    0.05  %       $        912,306        1,005           0.11  %       $        878,716        3,490          0.40  %
Savings deposits                                1,291,225          689          0.05                 1,071,727        1,591           0.15                   977,327        4,405          0.45
Time deposits(3)                                1,157,502        8,213          0.71                 1,329,841       19,927           1.50                 1,368,752       24,771          1.81
Short-term borrowings                             298,413          489          0.16                   253,456          993           0.39                   211,452        3,491          1.65
Long-term debt                                          -            -             -                       830          100          12.05                     4,054          182          4.49
   Total interest-bearing liabilities           3,818,768        9,895          0.26                 3,568,160       23,616           0.66                 3,440,301       36,339          1.06
Noninterest-bearing demand deposits             1,315,801                                            1,035,801                                               818,161
Other liabilities                                  84,377                                              100,166                                                57,350
Total shareholders' equity                        695,021                                              695,445                                               637,915
Total liabilities and
shareholders' equity                     $      5,913,967                                     $      5,399,572                                      $      4,953,727
Net interest income                                          $ 156,906                                            $ 155,683                                             $ 162,151
Net yield on earning assets                                                     2.89  %                                               3.16  %                                              3.59  %



1.For purposes of this table, non-accruing loans have been included in average
balances and the following net loan fees (in thousands) have been included in
interest income:

                                           2021      2020     2019
                       Loan fees, net    $ 3,550   $ 1,842   $ 863


2.Includes the Company’s Residential Real Estate Lending and Home Equity Lending categories.

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3. The table above includes the following amounts (in thousands) for the accretion of fair value adjustments related to the Company’s acquisitions:

                                                      2021      2020      2019
          Residential real estate                   $   620   $   630   $   323
          Commercial, financial, and agriculture      1,198     2,445     2,366
          Installment loans to individuals               87       143        47
          Time deposits                                 193       622       843
             Total                                  $ 2,098   $ 3,840   $ 3,579



4.Includes the Company's consumer and DDA overdrafts loan categories.
5.Effective January 1, 2012, the carrying value of the Company's previously
securitized loans was reduced to $0.
6.Computed on a fully federal tax-equivalent basis assuming a tax rate of
approximately 21%.

NET INTEREST INCOME

    2021   2020   2019


Total interest income    $ 165,467      $ 178,259      $ 197,700
Total interest expense       9,894         23,615         36,339
Net interest income        155,573        154,644        161,361









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TABLE TWO
RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In thousands)

                                                       2021 vs. 2020                         2020 vs. 2019
                                                    Increase (Decrease)                   Increase (Decrease)
                                                     Due to Change In:                     Due to Change In:
                                             Volume        Rate         Net        Volume        Rate         Net
Interest-earning assets:
Loan portfolio
  Residential real estate                  $ (4,633)   $  (5,327)   $  

(9,960) $(1,041) ($6,110) ($7,151)

Commercial, financial and agricultural 870 (4,214) (3,344) 4,865 (16,904) (12,039)

  Installment loans to individuals             (441)         (47)        

(488) (120) (120) (240)

  Previously securitized loans                    -          (31)         (31)          -          (85)         (85)
   Total loans                               (4,204)      (9,619)     (13,823)      3,704      (23,219)     (19,515)
Securities:
  Taxable                                     4,845       (5,129)        (284)      3,976       (4,010)         (34)
  Tax-exempt(1)                               2,327         (919)       1,408       2,544       (1,346)       1,198
   Total securities                           7,172       (6,048)       1,124       6,520       (5,356)       1,164
Deposits in depository institutions             725         (524)         201       2,280       (3,120)        (840)
Total interest-earning assets              $  3,693    $ (16,191)   $ 

(12,498) $12,504 ($31,695) ($19,191)


Interest-bearing liabilities:
Interest-bearing demand deposits           $    176    $    (677)   $    (501)   $    133    $  (2,618)   $  (2,485)
  Savings deposits                              326       (1,228)        (902)        425       (3,239)      (2,814)
  Time deposits                              (2,582)      (9,132)     (11,714)       (704)      (4,140)      (4,844)
  Short-term borrowings                         176         (680)        

(504) 693 (3,191) (2,498)

  Long-term debt                               (100)           -         

(100) (145) 63 (82)

   Total interest-bearing liabilities        (2,004)     (11,717)     (13,721)        402      (13,125)     (12,723)
Net Interest Income                        $  5,697    $  (4,474)   $   1,223    $ 12,102    $ (18,570)   $  (6,468)


1. Fully federal taxable equivalent using a tax rate of approximately 21%.

2021 vs. 2020


  The Company's net interest income increased from $154.6 million for the year
ended December 31, 2020 to $155.6 million for the year ended December 31, 2021.
The Company's tax equivalent net interest income increased $1.2 million, or
0.8%, from $155.7 million for the year ended December 31, 2020 to $156.9 million
for the year ended December 31, 2021. The Company recognized $4.0 million of
loan fees associated with PPP loans during 2021 as compared to $1.6 million
during 2020. However, lower loan yields (which fell 29 basis points) decreased
net interest income by $10.0 million. Additionally, lower average loan balances
($95.6 million) lowered net interest income by $4.2 million and a decrease in
accretion from fair value adjustments decreased interest income by $1.7 million.
Higher investment balances (which increased $262.2 million) increased net
interest income by $7.2 million, while investment yields (which decreased by 45
basis points) decreased net interest income by $6.0 million. Lower rates paid on
interest bearing liabilities (40 basis points) and lower average time deposit
balances (down $172.3 million) increased net interest income by $11.7 million
and $2.6 million, respectively. The Company's reported net interest margin
declined from 3.16% for the year ended December 31, 2020 to 2.89% for the year
ended December 31, 2021. Excluding the favorable impact of the accretion from
the fair value adjustments, the net interest margin would have been 2.85% for
the year ended December 31, 2021 and 3.08% for the year ended December 31, 2020.

2020 vs. 2019


  The Company's net interest income decreased from $161.4 million for the year
ended December 31, 2019 to $154.6 million for the year ended December 31, 2020.
The Company's tax equivalent net interest income decreased $6.5 million, or
4.0%, from $162.2 million for the year ended December 31, 2019 to $155.7 million
for the year ended December 31, 2020.
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Lower loan yields (68 basis points) and investment yields (48 basis points)
decreased net interest income by $24.5 million and $5.4 million, respectively.
These decreases were partially offset by lower rates paid on interest bearing
liabilities (40 basis points), higher investment balances ($195.9 million), and
higher commercial loan balances ($99.3 million, driven largely by PPP loans)
which increased net interest income by $13.1 million, $6.5 million, and $4.7
million, respectively. In addition, the Company recognized $1.6 million of loan
fees associated with PPP loans during 2020. The Company's reported net interest
margin declined from 3.59% for the year ended December 31, 2019 to 3.16% for the
year ended December 31, 2020. Excluding the favorable impact of the accretion
from the fair value adjustments, the net interest margin would have been 3.08%
for the year ended December 31, 2020 and 3.51% for the year ended December 31,
2019.

Non-GAAP Financial Measures

  Management of the Company uses measures in its analysis of the Company's
performance other than those in accordance with generally accepted accounting
principles in the United States of America ("GAAP"). These measures are useful
when evaluating the underlying performance of the Company's operations. The
Company's management believes that these non-GAAP measures enhance comparability
of results with prior periods and demonstrate the effects of significant gains
and charges in the current period. The Company's management believes that
investors may use these non-GAAP financial measures to evaluate the Company's
financial performance without the impact of those items that may obscure trends
in the Company's performance. These disclosures should not be viewed as a
substitute for financial measures determined in accordance with GAAP, nor are
they comparable to non-GAAP financial measures that may be presented by other
companies.

TABLE THREE
NON-GAAP FINANCIAL MEASURES
(In thousands)

                                                               2021           2020           2019

Net interest income ("GAAP")                              $   155,573    $   154,644    $   161,361
Taxable equivalent adjustment                                   1,333          1,039            790
Net interest income, fully taxable equivalent             $   156,906    $  

155,683 $162,151


Average total interest earning assets                     $ 5,432,581    $ 

4,927,164 $4,511,544


Net interest margin                                              2.89  %        3.16  %        3.59  %
Accretion related to fair value adjustments                     (0.04)         (0.08)         (0.08)
Net interest margin (excluding accretion)                        2.85  %    

3.08% 3.51%


Equity to assets ("GAAP")                                       11.34  %       12.18  %       13.11  %
Effect of goodwill and other intangibles, net                   (1.76)         (1.85)         (2.13)
Tangible common equity to tangible assets                        9.58  %    

10.33% 10.98%


Return on tangible equity ("GAAP")                               15.3  %        15.6  %        17.3  %
Impact of sale of VISA shares                                       -           (2.4)             -
Impact of merger related expenses                                   -              -            0.1
Return on tangible equity, excluding the above items             15.3  %        13.2  %        17.4  %

Return on assets ("GAAP")                                        1.49  %        1.66  %        1.80  %
Impact of sale of VISA shares                                       -          (0.24)             -
Impact of merger related expenses                                   -              -           0.02
Return on assets, excluding the above items                      1.49  %        1.42  %        1.82  %



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NON-INTEREST INCOME AND EXPENSES

2021 vs. 2020

Fluctuations and selected income statement ratios are summarized in the following table (in millions of dollars):

                                                        For the year ended December
                                                                    31,
                                                              2021           2020       $ Change       % Change
Unrealized gains (losses) recognized on equity
securities still held                                  $           0.5    $   (0.9)   $     1.4               156  %
Sale of VISA shares                                                  -        17.8        (17.8)             (100) %
Non-interest income, excluding net investment
securities (losses) gains and sale of VISA shares                 68.8        65.6          3.2                 5  %
Non-interest expense                                             117.2       115.3          1.9                 2  %

Efficiency ratio                                                  51.3        51.3
Full-time equivalent employees                                        905      926



  Non-interest income was $69.6 million for 2021 as compared to $82.7 million
for 2020. During 2020, the Company sold the entirety of its Visa Inc. Class B
common shares (86,605 shares) in a cash transaction that resulted in a pre-tax
gain of $17.8 million, or $0.84 diluted per share on an after-tax basis.
Additionally, the Company reported $0.3 million of realized security gains on
the sale of investment securities and $0.5 million of unrealized fair value
gains on the Company's equity securities during 2021 compared to $0.9 million of
unrealized fair value losses on the Company's equity securities during 2020.
Exclusive of these items, non-interest income increased from $65.6 million for
the year ended December 31, 2020 to $68.8 million for the year ended December
31, 2021. This increase was largely attributable to an increase of $3.9 million,
or 17.0%, in bankcard revenues and a $0.7 million, or 8.8%, increase in trust
and investment management fee income. These increases were partially offset by a
decrease of $0.7 million, or 15.0%, in other income and a decrease of $0.5
million in bank owned life insurance due to lower death benefit proceeds
received during 2021 compared to 2020.

Non-interest expenses increased from $115.3 million for 2020 to $117.2 million
for 2021. This increase was primarily due to an increase in telecommunication
expenses ($0.7 million), FDIC insurance expense ($0.7 million), bankcard
expenses ($0.6 million), occupancy related expenses ($0.3 million), advertising
expenses ($0.3 million), and equipment and software related expense ($0.3
million). These increases were partially offset by a decrease in other expenses
($0.6 million) and repossessed asset gains ($0.3 million).

2020 vs. 2019


  Selected income statement fluctuations are summarized in the following table
(dollars in millions):

                                                           For the year ended
                                                              December 31,
                                                           2020          2019       $ Change       % Change
Unrealized gains (losses) recognized on equity
securities still held                                  $     (0.9)   $     0.9    $    (1.8)             (200) %
Sale of VISA shares                                          17.8            -         17.8               100  %
Non-interest income, excluding net investment
securities (losses) gains and sale of VISA shares            65.6         67.5         (1.9)               (3) %
Merger related expenses                                         -          0.8         (0.8)             (100) %
Non-interest expense, excluding merger related
expenses                                                    115.3        116.8         (1.5)               (1) %



  Non-interest income was $82.7 million for 2020 as compared to $68.5 million
for 2019. During 2020, the Company sold the entirety of its Visa Inc. Class B
common shares (86,605 shares) in a cash transaction which resulted in a pre-tax
gain of $17.8 million, or $0.84 diluted per share on an after-tax basis.
Additionally, the Company reported $0.9 million of unrealized fair value losses
on the Company's equity securities compared to $0.9 million of unrealized fair
value gains on the Company's equity securities during 2019. Exclusive of these
items, non-interest income decreased from $67.5 million for the year ended
December 31, 2019 to $65.6 million for the year ended December 31, 2020. This
decrease was largely attributable to a decrease of $5.8 million, or 18.3%, in
service charges as average deposit balances have increased during the COVID-19

                                       36
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pandemic. This decrease was partially offset by an increase of $2.0 million, or
9.3%, in bankcard revenues, an increase of $0.7 million, or 17.3%, in other
income (largely due to fees from loan interest rate swap originations), an
increase of $0.7 million in bank owned life insurance due to higher death
benefit proceeds received during 2020 compared to 2019, and an increase of $0.6
million in trust and investment management fee income.

During 2019, the Company recognized $0.8 million of acquisition and integration
expenses associated with the completed acquisitions of Poage Bankshares, Inc.
("Poage") and Farmers Deposit Bancorp, Inc. ("Farmers"). Excluding these
expenses, non-interest expenses decreased from $116.8 million for 2019 to $115.3
million for 2020. This decrease was primarily due to a decrease in occupancy
related expense of $0.8 million, other expenses of $0.8 million (largely on the
strength of a gain from the sale of a branch bank location acquired in
connection with the acquisition of Farmers), advertising of $0.6 million,
repossessed asset losses of $0.4 million, and telecommunication expense of $0.3
million. These decreases were partially offset by an increase in equipment and
software related expenses ($1.2 million), bankcard expenses ($0.3 million), and
FDIC insurance expense ($0.2 million).

INCOME TAXES

Selected information regarding the Corporation’s income taxes is presented in the table below (in millions of dollars):

                                        For the year ended December 31,
                                         2021           2020        2019

               Income tax expense   $     23.1     $     21.7     $ 24.1

               Effective tax rate         20.8   %       19.5   %   21.3  %


A reconciliation of the effective tax rate to the statutory rate is included in note eleven of the notes to the consolidated financial statements.


  Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company was in a net
deferred tax asset position ($0.1 million) at December 31, 2021 and a net
deferred tax liability position ($3.2 million) at December 31, 2020. The
increase from net deferred tax liability to net deferred tax asset was largely
due to a decrease in the Company's investment valuation, primarily in the
mortgage-backed security portfolio.

  The components of the Company's net deferred tax assets/liabilities are
disclosed in   Note Eleven   of the Notes to Consolidated Financial Statements.
Realization of the most significant net deferred tax assets is primarily
dependent on future events taking place that will reverse the current deferred
tax assets. The deferred tax asset and/or liability associated with unrealized
securities losses and/or gains is the tax impact of the unrealized gains and/or
losses on the Company's available-for-sale security portfolio. The impact of the
Company's unrealized losses is noted in the Company's Consolidated Statements of
Changes in Shareholders' Equity as an adjustment to Accumulated Other
Comprehensive Income (Loss). This deferred tax asset/liability would be realized
if the unrealized securities gains/losses on the Company's securities were
realized from either the sales or maturities of the related securities. The
deferred tax asset associated with the allowance for credit losses is expected
to be realized as additional loan charge-offs, which have already been provided
for within the Company's financial statements, and is recognized for tax
purposes. The Company believes that it is more likely than not that each of the
deferred tax assets will be realized and that no significant valuation
allowances were necessary as of December 31, 2021 or 2020.

CASH AND CAPITAL RESOURCES

Liquidity


The Company evaluates the adequacy of liquidity at both the Parent Company level
and at the banking subsidiary level. At the Parent Company level, the principal
source of cash is dividends from its banking subsidiary, City National.
Dividends paid by City National to the Parent Company are subject to certain
legal and regulatory limitations. Generally, any dividends in amounts that
exceed the earnings retained by City National in the current year plus retained
net profits for the preceding two years must be approved by regulatory
authorities. At December 31, 2021, City National could pay dividends up to $76.9
million without prior regulatory permission.

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During 2021, the Parent Company used cash obtained from the dividends received
primarily to: (1) pay common dividends to shareholders and (2) fund repurchases
of the Company's common shares. Additional information concerning sources and
uses of cash by the Parent Company is discussed in   Note Eighteen   of the
Notes to Consolidated Financial Statements.

  During the first quarter of 2020, the Company repaid its Subordinated
Debentures, assumed as part of its acquisition of Poage, at a price of 100% of
the principal amount. These securities were issued in December 2006 and were
callable in whole or in part any time after December 22, 2012.

The Parent Company anticipates continuing the payment of dividends, which are
expected to approximate $36.1 million on an annualized basis for 2022 based on
common shareholders of record at December 31, 2021 at a dividend rate of $2.40
per share for 2022. However, dividends to shareholders can, if necessary, be
suspended. In addition to these anticipated cash needs, the Parent Company has
operating expenses and other contractual obligations, which are estimated to
require $1.2 million of additional cash over the next 12 months. As of
December 31, 2021, the Parent Company reported a cash balance of $26.9 million
and management believes that the Parent Company's available cash balance,
together with cash dividends from City National, will be adequate to satisfy its
funding and cash needs over the next twelve months. Excluding the dividend
payments discussed above, the Parent Company has no significant commitments or
obligations in years after 2022.

City National manages its liquidity position in an effort to effectively and
economically satisfy the funding needs of its customers and to accommodate the
scheduled repayment of borrowings. Funds are available to City National from a
number of sources, including depository relationships, sales and maturities
within the investment securities portfolio, and borrowings from the Federal Home
Loan Bank ("FHLB") and other financial institutions. As of December 31, 2021,
City National's assets are significantly funded by deposits and capital. City
National maintains borrowing facilities with the FHLB and other financial
institutions that can be accessed as necessary to fund operations and to provide
contingency funding mechanisms. As of December 31, 2021, City National had the
capacity to borrow an additional $2.1 billion from the FHLB and other financial
institutions under existing borrowing facilities. City National maintains a
contingency funding plan, incorporating these borrowing facilities, to address
liquidity needs in the event of an institution-specific or systemic financial
industry crisis. Also, although it has no current intention to do so, City
National could liquidate its unpledged securities, if necessary, to provide an
additional funding source. City National also segregates certain mortgage loans,
mortgage-backed securities, and other investment securities in a separate
subsidiary so that it can separately monitor the asset quality of these
primarily mortgage-related assets, which could be used to raise cash through
securitization transactions or obtain additional equity or debt financing if
necessary.

 The Company manages its asset and liability mix to balance its desire to
maximize net interest income against its desire to minimize risks associated
with capitalization, interest rate volatility, and liquidity. With respect to
liquidity, the Company has chosen a conservative posture and believes that its
liquidity position is strong. As illustrated in the Consolidated Statements of
Cash Flows, the Company generated $102.3 million of cash from operating
activities during 2021, primarily from interest income received on loans and
investments, net of interest expense paid on deposits and borrowings.

The Company has obligations to extend credit, but these obligations are
primarily associated with existing home equity loans that have predictable
borrowing patterns across the portfolio. The Company has investment security
balances with carrying values that totaled $1.43 billion at December 31, 2021,
and that greatly exceeded the Company's non-deposit sources of borrowing, which
totaled $312 million.

The Company's net loan to asset ratio is 58.7% as of December 31, 2021 and
deposit balances fund 82.0% of total assets as compared to 79.5% for its peers
(Bank Holding Company Peer Group, as of the most recent data available as of
September 30, 2021, which includes commercial banks with assets ranging from $3
billion to $10 billion). Further, the Company's deposit mix has a very high
proportion of transaction and savings accounts that fund 64.2% of the Company's
total assets and the Company uses time deposits over $250,000 to fund 2.2% of
total assets compared to its peers, which fund (4.3)% of total assets with such
deposits.

Capital Resources

During 2021, Shareholders' Equity decreased $20 million, or 2.9%, from $701
million at December 31, 2020 to $681 million at December 31, 2021. This decrease
was primarily due to common share repurchases of $59 million, cash dividends
declared of $36 million, and other comprehensive loss of $17 million (due to a
decrease in the Company's investment valuation), partially offset by net income
of $88 million.

                                       38
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During the year ended December 31, 2021, the Company repurchased approximately
760,000 common shares at a weighted average price of $77.21 per share as part of
a one million share repurchase plan authorized by the Board of Directors in
March 2021. At December 31, 2021, the Company could repurchase approximately
315,000 shares under the current plan.

  The Basel III Capital Rules require City Holding and City National to maintain
minimum CET 1, Tier 1 and Total Capital ratios, along with a capital
conservation buffer, effectively resulting in new minimum capital ratios (which
are shown in the table below). The capital conservation buffer is designed to
absorb losses during periods of economic stress. Banking institutions with a
ratio of CET 1 capital to risk-weighted assets above the minimum but below the
conservation buffer (or below the combined capital conservation buffer and
countercyclical capital buffer, when the latter is applied) will face
constraints on dividends, equity repurchases and compensation based on the
amount of the shortfall. The Basel III Capital Rules also provide for a
"countercyclical capital buffer" that is applicable to only certain covered
institutions and does not have any current applicability to City Holding Company
or City National Bank.

The Company’s regulatory capital ratios for the two City Outfit and City National include the 2.5% capital conservation buffer and are shown in the following tables (in thousands):


                                                                                                                                      Required to be 

well regarded

                                                             Actual                          Minimum Required - Basel III                      

In capital letters

December 31, 2021                              Capital Amount             Ratio           Capital Amount           Ratio            Capital Amount            Ratio

CET 1 Capital
   City Holding Company                      $       555,532                16.1  %       $   241,772                 7.0  %       $     224,503                 6.5  %
   City National Bank                                492,721                14.4  %           240,392                 7.0  %             223,221                 6.5  %
Tier 1 Capital
   City Holding Company                              555,532                16.1  %           293,581                 8.5  %             276,311                 8.0  %
   City National Bank                                492,721                14.4  %           291,905                 8.5  %             274,734                 8.0  %
Total Capital
   City Holding Company                              570,336                16.5  %           362,659                10.5  %             345,389                10.0  %
   City National Bank                                507,526                14.8  %           360,588                10.5  %             343,418                10.0  %
Tier 1 Leverage Ratio
   City Holding Company                              555,532                 9.4  %           235,403                 4.0  %             294,254                 5.0  %
   City National Bank                                492,721                 8.5  %           233,342                 4.0  %             291,678                 5.0  %



                                       39
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                                                                                                                                      Required to be Considered Well
                                                             Actual                          Minimum Required - Basel III                      Capitalized
December 31, 2020:                             Capital Amount             Ratio           Capital Amount           Ratio            Capital Amount            Ratio

CET 1 Capital
   City Holding Company                      $       557,641                16.2  %       $   241,221                 7.0  %       $     223,991                 6.5  %
   City National Bank                                482,754                14.1  %           239,569                 7.0  %             222,457                 6.5  %
Tier 1 Capital
   City Holding Company                              557,641                16.2  %           292,911                 8.5  %             275,681                 8.0  %
   City National Bank                                482,754                14.1  %           290,906                 8.5  %             273,793                 8.0  %
Total Capital
   City Holding Company                              577,292                16.8  %           361,831                10.5  %             344,601                10.0  %
   City National Bank                                502,405                14.7  %           359,354                10.5  %             342,242                10.0  %
Tier 1 Leverage Ratio
   City Holding Company                              557,641                10.2  %           218,163                 4.0  %             272,704                 5.0  %
   City National Bank                                482,754                 9.0  %           215,277                 4.0  %             269,097                 5.0  %



As of December 31, 2021, management believes that City Holding Company, and its
banking subsidiary, City National, were "well capitalized." City Holding is
subject to regulatory capital requirements administered by the Federal Reserve,
while City National is subject to regulatory capital requirements administered
by the OCC and the FDIC. Regulatory agencies can initiate certain mandatory
actions if either City Holding or City National fails to meet the minimum
capital requirements, as shown above. As of December 31, 2021, management
believes that City Holding and City National meet all capital adequacy
requirements.

  In November 2019, the federal banking regulators published final rules
implementing a simplified measure of capital adequacy for certain banking
organizations that have less than $10 billion in total consolidated assets.
Under the final rules, which went into effect on January 1, 2020, depository
institutions and depository institution holding companies that have less than
$10 billion in total consolidated assets and meet other qualifying criteria,
including a leverage ratio of greater than 9%, off-balance-sheet exposures of
25% or less of total consolidated assets and trading assets plus trading
liabilities of 5% or less of total consolidated assets, are deemed "qualifying
community banking organizations" and are eligible to opt into the "community
bank leverage ratio framework." A qualifying community banking organization that
elects to use the community bank leverage ratio framework and that maintains a
leverage ratio of greater than 9% is considered to have satisfied the generally
applicable risk-based and leverage capital requirements under the Basel III
Rules and, if applicable, is considered to have met the "well capitalized" ratio
requirements for purposes of its primary federal regulator's prompt corrective
action rules, discussed below. The final rules include a two-quarter grace
period during which a qualifying community banking organization that temporarily
fails to meet any of the qualifying criteria, including the greater-than-9%
leverage capital ratio requirement, is generally still deemed "well capitalized"
so long as the banking organization maintains a leverage capital ratio greater
than 8%. A banking organization that fails to maintain a leverage capital ratio
greater than 8% is not permitted to use the grace period and must comply with
the generally applicable requirements under the Basel III Rules and file the
appropriate regulatory reports. The Company and its subsidiary bank do not have
any immediate plans to elect to use the community bank leverage ratio framework
but may make such an election in the future.

Contractual obligations


The Company has various financial obligations that may require future cash
payments according to the terms of the obligations. Demand, both noninterest-
and interest-bearing, and savings deposits are, generally, payable immediately
upon demand at the request of the customer. Therefore, the contractual maturity
of these obligations is presented in the following table as "less than one
year." Time deposits, typically certificates of deposit, are customer deposits
that are evidenced by an agreement between the Company and the customer that
specify stated maturity dates; early withdrawals by the customer are subject to
penalties assessed by the Company. Short-term borrowings and long-term debt
represent borrowings of the Company and have stated maturity dates. Operating
leases between the Company and the lessor have stated expiration dates and
renewal terms.

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TABLE FOUR
CONTRACTUAL OBLIGATIONS

The composition of the Company’s contractual obligations at December 31, 2021 is presented in the following table (in thousands):

                                                                          Contractual Maturity in
                                                                Less than One   Greater than
                                                                    Year          One Year         Total

Noninterest-bearing demand deposits                            $  1,373,125    $          -    $ 1,373,125
Interest-bearing demand deposits(1)                               1,135,852               -      1,135,852
Savings deposits(1)                                               1,347,455               -      1,347,455
Time deposits(1)                                                    872,474         197,545      1,070,019
Short-term borrowings(1)                                            312,962               -        312,962

Low Income Housing Tax Credit (“LIHTC”) funding commitments 5,719

          13,299         19,018
Supplemental employee retirement plans                                  861           6,439          7,300
Deferred compensation plans                                               -           2,777          2,777
Real estate leases                                                      980           5,722          6,702
Total Contractual Obligations                                  $  5,049,428 

$225,782 $5,275,210




(1)Includes interest on both fixed- and variable-rate obligations. The interest
associated with variable-rate obligations is based upon interest rates in effect
at December 31, 2021. The contractual amounts to be paid on variable-rate
obligations are affected by market interest rates that could materially affect
the contractual amounts to be paid.

The Company's liability for uncertain tax positions at December 31, 2021 was
$1.8 million pursuant to ASC Topic 740. This liability represents an estimate of
tax positions that the Company has taken in its tax returns that may ultimately
not be sustained upon examination by tax authorities. As the ultimate amount and
timing of any future cash settlements cannot be predicted with reasonable
reliability, this estimated liability has been excluded from the contractual
obligations table.

As disclosed in   Note Fourteen   of the Notes to Consolidated Financial
Statements, the Company has entered into agreements with its customers to extend
credit or to provide conditional commitments to provide payment on drafts
presented in accordance with the terms of the underlying credit documents
(including standby and commercial letters of credit). The Company also provides
overdraft protection to certain demand deposit customers that represent an
unfunded commitment. As a result of the Company's off-balance sheet arrangements
for 2021 and 2020, no material revenue, expenses, or cash flows were
recognized. In addition, the Company had no other indebtedness or retained
interests nor entered into agreements to extend credit or provide conditional
payments pursuant to standby and commercial letters of credit.

INVESTMENTS

The investment portfolio is structured to provide flexibility in managing liquidity needs and interest rate risk, while providing acceptable rates of return.

The majority of the Company’s investment securities continue to be mortgage-backed securities. These titles are secured by residential and commercial properties. The mortgage-backed securities in which the Company has invested are primarily issued by government-sponsored agencies such as Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”) and ginnie mae (“GNMA”).


The Company's municipal bond portfolio of $272 million as of December 31, 2021
has an average tax equivalent yield of 2.50% with an average maturity of 13.1
years. The average dollar amount invested in each security is $1.2 million. The
portfolio has 92% rated "A" or better and the remaining portfolio is unrated, as
the issuances represented small issuances of revenue bonds. Additional credit
support has been purchased by the issuer for 28% of the portfolio, while 72% has
no additional credit support. Management re-underwrites 100% of the portfolio on
an annual basis, using the same guidelines that are used to underwrite its
commercial loans. Revenue bonds were 55% of the portfolio, while the remaining
45% were general obligation bonds. Geographically, the portfolio supports the
Company's footprint, with 17% of the portfolio being
                                       41
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municipalities across West Virginiaand the rest of the communities of Texas, Washington, Ohio and various other states.

The weighted average return of the Company’s investment portfolio is presented in the following table (in thousands of dollars):

                                                     Within                After One But              After Five But                 After
                                                    One Year             Within Five Years           Within Ten Years              Ten Years
                                               Amount      Yield        Amount        Yield        Amount        Yield        Amount        Yield
Securities available-for-sale:
Obligations of states and political
subdivisions                                 $ 2,910         3.97  % $   

21,701 2.91% $31,580 2.81% $216,025 2.07% Mortgage-backed securities:

   U.S. government agencies                      179         2.56        

10,348 2.38 231,770 2.30 852,014 1.73

   Private label                                   -            -             -            -             -            -         9,108         3.90
Trust preferred securities                         -            -             -            -             -            -         4,203         1.57
Corporate securities                               -            -        11,698         4.92        16,137         2.82           492         3.60

Total debt securities available for sale 3,089 3.89 43,747 3.32 279,487 2.39 1,081,842 1.82




Weighted-average yields on tax-exempt obligations of states and political
subdivisions have been computed on a taxable-equivalent basis using the federal
statutory tax rate of 21%. Average yields on investments available-for-sale are
computed based on amortized cost. Mortgage-backed securities have been allocated
to their respective maturity groupings based on their contractual maturity.



                                       42
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TABLE FIVE
LOAN PORTFOLIO

  Loans decreased $78.3 million (2.2%) from December 31, 2020 to $3.54 billion
at December 31, 2021. PPP loans decreased $48.8 million from $55.4 million at
December 31, 2020 to $6.6 million at December 31, 2021. Excluding outstanding
PPP loans (included in the commercial and industrial loan category), total loans
decreased $29.4 million, (0.8%), from December 31, 2020 to $3.54 billion at
December 31, 2021. The composition of the Company's loan portfolio as of the
dates indicated follows (in thousands):

                                                      2021          2020

           Commercial and industrial              $   346,184   $   372,989

             1-4 Family                               107,873       109,812
             Hotels                                   311,315       294,464
             Multi-family                             215,677       215,671
             Non Residential Non-Owner Occupied       639,818       641,351
             Non Residential Owner Occupied           204,233       213,484
           Commercial real estate                   1,478,916     1,474,782

           Residential real estate                  1,548,965     1,587,694
           Home equity                                122,345       136,469
           Consumer                                    40,901        47,688
           DDA overdrafts                               6,503         2,497
           Total loans                            $ 3,543,814   $ 3,622,119



The commercial and industrial ("C&I") loan portfolio consists of loans to
corporate and other legal entity borrowers, primarily small to mid-size
industrial and commercial companies. C&I loans typically involve a higher level
of risk than other loan types, including industry specific risks such as the
pertinent economy, new technology, labor rates and cyclicality, as well as
customer specific factors, such as cash flow, financial structure, operating
controls and asset quality. Collateral securing these loans includes equipment,
machinery, inventory, receivables and vehicles. C&I loans decreased $27 million
to $346 million at December 31, 2021, largely due to a decrease in PPP loans,
which decreased from $55 million at December 31, 2020 to $7 million at December
31, 2021. Excluding the decrease in PPP loans, C&I loans increased $21 million
from December 31, 2020 to December 31, 2021.

Commercial real estate loans consist of commercial mortgages, which generally
are secured by nonresidential and multi-family residential properties, including
hotel/motel and apartment lending. Commercial real estate loans are to many of
the same customers and carry similar industry risks as C&I loans, but have
different collateral risk. Commercial real estate loans remained flat at $1.48
billion at December 31, 2021. At December 31, 2021, $12 million of the
commercial real estate loans were for commercial properties under construction.

In order to group loans with similar risk characteristics, the portfolio is further segmented by product type:


•Commercial 1-4 Family loans consist of residential single-family, duplex,
triplex, and fourplex rental properties and totaled $107.9 million as of
December 31, 2021. Risk characteristics are driven by rental housing demand as
well as economic and employment conditions. These properties exhibit greater
risk than multi-family properties due to fewer income sources.
•The Hotel portfolio is comprised of all lodging establishments and totaled
$311.3 million as of December 31, 2021. Risk characteristics relate to the
demand for both business and personal travel.
•Multi-family consists of 5 or more family residential apartment lending. The
portfolio totaled $215.7 million as of December 31, 2021. Risk characteristics
are driven by rental housing demand as well as economic and employment
conditions.
•Non-residential commercial real estate includes properties such as retail,
office, warehouse, storage, healthcare, entertainment, religious, and other
nonresidential commercial properties. The non-residential product type is
further segmented into owner- and non-owner occupied properties. Nonresidential
non-owner occupied commercial real
                                       43
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estate totaled $639.8 million while nonresidential owner-occupied commercial
real estate totaled $204.2 million as of December 31, 2021. Risk characteristics
relate to levels of consumer spending and overall economic conditions.

The Company categorizes commercial loans by industry according to the North
American Industry Classification System ("NAICS") to monitor the portfolio for
possible concentrations in one or more industries. Management monitors industry
concentrations against internally established risk-based capital thresholds. As
of December 31, 2021, City National was within its internally designated
concentration limits. As of December 31, 2021, City National's loans to
borrowers within the Lessors of Nonresidential Buildings categories exceeded 10%
of total loans (14%). No other NAICS industry classification exceeded 10% of
total loans as of December 31, 2021. Management also monitors non-owner occupied
commercial real estate as a percent of risk based capital (based upon regulatory
guidance). At December 31, 2021, the Company had $1.4 billion of commercial
loans classified as non-owner occupied and was within its designated
concentration threshold.

Residential real estate loans decreased $39 million from December 31, 2020 to
$1.55 billion at December 31, 2021. Residential real estate loans include loans
for the purchase or refinance of consumers' residence and first-priority home
equity loans allow consumers to borrow against the equity in their home.  These
loans primarily consist of single family three- and five-year adjustable rate
mortgages with terms that amortize up to 30 years. City National also offers
fixed-rate residential real estate loans. Residential purchase real estate loans
are generally underwritten to comply with Fannie Mae and Freddie Mac guidelines,
while first priority home equity loans are underwritten with typically less
documentation, lower loan-to-value ratios and shorter maturities. Additionally,
the Company periodically purchases residential mortgage loans. The credit and
collateral documents for each potential purchased loan are reviewed to ensure
the credit metrics are acceptable to management. At December 31, 2021, $17
million of the residential real estate loans were for properties under
construction.

Home equity loans decreased $14 million from December 31, 2020 to $122 million
at December 31, 2021. City National's home equity loans represent loans to
consumers that are secured by a second (or junior) priority lien on a
residential property.  Home equity loans allow consumers to borrow against the
equity in their home without paying off an existing first priority lien.  These
loans include home equity lines of credit ("HELOC") and amortized home equity
loans that require monthly installment payments.  Second priority lien home
equity loans are underwritten with less documentation than first priority lien
residential real estate loans but typically have similar loan-to-value ratios
and other terms as first priority lien residential real estate loans.  The
amount of credit extended is directly related to the value of the real estate
securing the loan at the time the loan is made.

All mortgage loans, whether fixed rate or adjustable rate, are originated in
accordance with acceptable industry standards and comply with regulatory
requirements. Fixed rate mortgage loans are processed and underwritten in
accordance with Fannie Mae and Freddie Mac guidelines, while adjustable rate
mortgage loans are underwritten in accordance with City National's internal loan
policy.

Consumer loans may be secured by automobiles, boats, recreational vehicles,
certificates of deposit and other personal property, or they may be unsecured.
The Company manages the risk associated with consumer loans by monitoring such
factors as portfolio size and growth, internal lending policies and pertinent
economic conditions. City National's underwriting standards are continually
evaluated and modified based upon these factors. Consumer loans decreased $7
million from 2020 to $41 million at December 31, 2021.


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The following table shows the expected maturity of outstanding loans as of
December 31, 2021 (in thousands):

                                                       After One But   

After five years

                                                        Within Five     

Until fifteen after fifteen

                                      Within One Year      Years             Years            Years          Total

Commercial and industrial             $     61,406    $     125,931    $      126,094    $     32,753    $   346,184

  1-4 Family                                 9,552           13,321            32,864          52,136        107,873
  Hotels                                    20,368          106,155           161,336          23,456        311,315
  Multi-family                               2,529           36,888           146,775          29,485        215,677
  Non Residential Non-Owner Occupied        18,502          158,033           360,609         102,674        639,818
  Non Residential Owner Occupied            10,159           39,548            96,391          58,135        204,233
Commercial real estate                      61,110          353,945           797,975         265,886      1,478,916

Residential real estate                      4,866           29,084           176,536       1,338,479      1,548,965
Home equity                                  4,475            9,108            16,144          92,618        122,345
Consumer and DDA Overdrafts                  2,222           26,540            12,047           6,595         47,404
Total loans                           $    134,079    $     544,608    $    

1,128,796 $1,736,331 $3,543,814

The above maturity table is based on actual loan maturity dates and does not take into account prepayments or any other assumptions.


Loans maturing after one year with      Fixed until     Variable or
interest rates that are:                 Maturity        adjustable          Total

Commercial and industrial             $    100,485    $     184,293    $      284,778

  1-4 Family                                 4,779           93,542            98,321
  Hotels                                    45,832          245,115           290,947
  Multi-family                              20,464          192,684           213,148
  Non Residential Non-Owner Occupied       115,237          506,079           621,316
  Non Residential Owner Occupied            35,985          158,089           194,074
Commercial real estate                     222,297        1,195,509         1,417,806

Residential real estate                    178,135        1,365,973         1,544,108
Home equity                                 13,891          103,971           117,862
Consumer and DDA Overdrafts                 36,973            8,208            45,181
Total loans                           $    551,781    $   2,857,954    $    3,409,735


The maturity table above is based on actual loan maturity dates and does not
consider prepayments or any other
assumptions.





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PROVISION FOR CREDIT LOSSES


The Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments" effective January
1, 2020, using the modified retrospective method for all financial assets
measured at amortized cost and off-balance sheet credit exposures. ASU No.
2016-13 replaced the incurred loss impairment methodology with a methodology
that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit loss estimates.
The new current expected credit losses model ("CECL") applies to the allowance
for credit losses, available-for-sale and held-to-maturity debt securities,
purchased financial assets with credit deterioration and certain off-balance
sheet credit exposures. Results for reporting periods beginning after January 1,
2020 are presented under ASU No. 2016-13, while prior period amounts continue to
be reported in accordance with previously applicable GAAP.

Management systematically monitors the loan portfolio and the appropriateness of
the allowance for credit losses on a quarterly basis to provide for expected
losses inherent in the portfolio. Management assesses the risk in each loan type
based on historical trends, the general economic environment of its local
markets, individual loan performance and other relevant factors. The Company's
estimate of future economic conditions utilized in its provision estimate is
primarily dependent on expected unemployment ranges over a two-year period.
Beyond two years, a straight line reversion to historical average loss rates is
applied over the life of the loan pool in the migration methodology. The vintage
methodology applies future average loss rates based on net losses in historical
periods where the unemployment rate was within the forecasted range.

Individual credits in excess of $1 million are selected at least annually for
detailed loan reviews, which are utilized by management to assess the risk in
the portfolio and the appropriateness of the allowance.

Determination of the Allowance for Credit Losses "ACL" is subjective in nature
and requires management to periodically reassess the validity of its
assumptions. Differences between actual losses and estimated losses are assessed
such that management can timely modify its evaluation model to ensure that
adequate provision has been made for risk in the total loan portfolio.

As a result of the Company's quarterly analysis of the adequacy of the ACL, the
Company recorded a recovery of credit losses of $3.2 million for the year ended
December 31, 2021, compared to a provision for credit losses of $10.7 million
for the comparable period in 2020. The determination of the Company's allowance
for credit losses is largely dependent on expected unemployment ranges. Due to
improvements in the outlook for unemployment ranges utilized by the Company and
adjustments to other qualitative and other factors, during 2021 the Company
partially recovered a portion of the provision for credit losses incurred in the
quarter ended March 31, 2020 related to the COVID-19 pandemic.

Based on the Company's analysis of the adequacy of the allowance for credit
losses and in consideration of the known factors utilized in computing the
allowance, management believes that the allowance for credit losses as of
December 31, 2021 is adequate to provide for expected losses inherent in the
Company's loan portfolio. Future provisions for credit losses will be dependent
upon trends in loan balances including the composition of the loan portfolio,
changes in loan quality and loss experience trends, and recoveries of previously
charged-off loans, among other factors.
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TABLE SIX
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES

  The allocation of the allowance for credit losses by portfolio segment and the
percent of loans in each category to total loans is shown in the table below
(dollars in thousands). The allocation of a portion of the allowance in one
portfolio segment does not preclude its availability to absorb losses in other
portfolio segments.

                                                           2021                              2020
                                                                                                 Percent of
                                                           Percent of Loans in                  Loans in Each
                                                            Each Category to                  Category to Total
                                                Amount         Total Loans        Amount            Loans

Commercial and industrial                    $    3,480                  10  % $    3,644                  10  %

  1-4 Family                                        598                   3           771                   3
  Hotels                                          2,426                   9         4,088                   8
  Multi-family                                      483                   6           674                   6
  Non Residential Non-Owner Occupied              2,319                  18         3,223                  18
  Non Residential Owner Occupied                  1,485                   6         2,241                   6
Commercial real estate                            7,311                  42        10,997                  41

Residential real estate                           5,716                  44         8,093                  44
Home equity                                         517                   3           630                   4
Consumer                                            106                   1           163                   1
DDA overdrafts                                    1,036                   -         1,022                   -
Allowance for Credit Losses                  $   18,166                 100  % $   24,549                 100  %



The ACL decreased from $24.5 million at December 31, 2020 to $18.2 million at
December 31, 2021. Below is a summary of the changes in the components of the
ACL from December 31, 2020 to December 31, 2021.

The allowance attributed to the commercial real estate loan portfolio decreased
$3.7 million from $11.0 million at December 31, 2020 to $7.3 million at
December 31, 2021. This decrease was primarily due to a reduction in the
unemployment forecast range, a reduction in qualitative factor adjustments, and
a payoff and partial charge-off of a previously identified individually analyzed
loan.

The allowance attributed to the residential real estate portfolio decreased $2.4
million from $8.1 million at December 31, 2020 to $5.7 million at December 31,
2021. This decrease was primarily due to a reduction in the unemployment
forecast range, a reduction in qualitative factor adjustments, and a decrease in
loan balances.

The following table shows asset quality ratios as of December 31, 2021 and 2020:

                                                                   2021       2020

Net charge offs to average loans                                   0.09  %    0.10  %
(Recovery of) provision for credit losses to average loans        (0.09)    

0.29

Allowance for credit losses to nonperforming loans               290.15     

200.69

Allowance for credit losses to total loans                         0.51     

0.68

Non-performing assets as a percentage of total loans and OREO 0.21

  0.38



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GOOD WILL


The Company evaluates the recoverability of goodwill and indefinite lived
intangible assets annually as of November 30th, or more frequently if events or
changes in circumstances warrant, such as a material adverse change in the
Company's business. Goodwill is considered to be impaired when the carrying
value of a reporting unit exceeds its estimated fair value. Indefinite-lived
intangible assets are considered impaired if their carrying value exceeds their
estimated fair value. As described in   Note One   of the Notes to Consolidated
Financial Statements, the Company conducts its business activities through one
reportable business segment - community banking. Fair values are estimated by
reviewing the Company's stock price as it compares to book value and the
Company's reported earnings. In addition, the impact of future earnings and
activities is considered in the Company's analysis. The Company had
approximately $109 million of goodwill at December 31, 2021 and 2020, and no
impairment was required to be recognized in 2021 or 2020, as the estimated fair
value of the Company has continued to exceed its book value.

DEPOSIT CERTIFICATES

The Company has term deposit certificates that meet or exceed the FDIC
insurance limit of $250,000 totaling an estimate $352.8 million. Expected maturities of uninsured term deposit certificates are estimated at
December 31, 2021 and are summarized in the table below (in thousands).


TABLE SEVEN
MATURITY DISTRIBUTION OF UNINSURED CERTIFICATES OF DEPOSIT

                                                           Amounts

                 Three months or less                    $  54,173
                 Over three months through six months       40,172
                 Over six months through twelve months      35,802
                 Over twelve months                         21,106
                 Total                                   $ 151,253



FAIR VALUE MEASUREMENTS

The Company determines the fair value of its financial instruments based on the
fair value hierarchy established in ASC Topic 820, whereby the fair value of
certain assets and liabilities is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. ASC Topic 820 establishes a three-level
hierarchy for disclosure of assets and liabilities recorded at fair value. The
hierarchy classification is based on whether the inputs in the methodology for
determining fair value are observable or unobservable. Observable inputs reflect
market-based information obtained from independent sources (Level 1 or Level 2),
while unobservable inputs reflect management's estimate of market data (Level
3). Assets and liabilities that are actively traded and have quoted prices or
observable market data require a minimal amount of subjectivity concerning fair
value. Management's judgment is necessary to estimate fair value when quoted
prices or observable market data are not available.

      At December 31, 2021, approximately 24% of total assets, or $1.45 billion,
consisted of financial instruments recorded at fair value. Most of these
financial instruments used valuation methodologies involving observable market
data, collectively Level 1 and Level 2 measurements, to determine fair value. At
December 31, 2021, approximately $24 million of derivative liabilities were
recorded at fair value using methodologies involving observable market data. The
Company does not believe that any changes in the unobservable inputs used to
value the financial instruments mentioned above would have a material impact on
the Company's results of operations, liquidity, or capital resources. See   Note
Seventeen   of the Notes to Consolidated Financial Statements for additional
information regarding ASC Topic 820 and its impact on the Company's financial
statements.

LEGAL ISSUES

  The Company is engaged in various legal actions that it deems to be in the
ordinary course of business. As these legal actions are resolved, the Company
could realize impacts to its financial performance in the period in which these
legal actions are ultimately decided. There can be no assurance that current
actions will have immaterial results, or that no material actions may be
presented in the future.
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RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS


  Note Two  , "Recent Accounting Pronouncements," of the Notes to Consolidated
Financial Statements, discusses recently issued new accounting pronouncements
and their expected impact on the Company's consolidated financial statements.

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