CITY HOLDING CO (Form: 10-K405, Received: 03/31/1999 10:51:38)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
For Annual and Transition Reports Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period __________ to __________.

Commission File Number 0-11733
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)

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

25 Gatewater Road
Charleston, West Virginia 25313
(Address of principal offices)

Registrant's telephone number,
including area code: (304) 769-1100

Securities registered pursuant to Section 12(b) of the Act: None

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

        Title of Each Class                        Name of Each Exchange on Which Registered:
   Common Stock, $2.50 par value                            The Nasdaq Stock Market
---------------------------------                  ------------------------------------------

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [x]

The aggregate market value of the voting stock held by nonaffiliates of the registrant based on the closing price as of March 29, 1999 (Registrant has assumed that all of its executive officers and directors are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose.):

Aggregate Market Value -- $ 384,562,285

The number of shares outstanding of the issuer's common stock as of March 29, 1999:

Common Stock, $2.50 Par Value -- 16,812,944 shares

DOCUMENTS INCORPORATED BY REFERENCE

Documents                                     Part of Form 10-K
                                              into which Document
                                              is incorporated



Portions of the Annual                        Part I, Item 1; Part
  Report to Shareholders                      II, Items 5, 6, 7,
  of City Holding Company                     and 8; Part III, Item
  for the year ended                          13; Part IV, Item 14.
  December 31, 1998.                          _____________


Portions of City Holding                      Part III, Items 10,
  Company's Proxy statement                   11, 12 and 13.
  for the 1999 Annual
  Meeting of Shareholders.                    ______________

FORM 10-K INDEX

PART I Page
----

Item 1. Business 4

Item 2. Properties 12

Item 3. Legal Proceedings 12

Item 4. Submission of Matters to a Vote of 12-13
Security Holders

PART II

Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 13

Item 6. Selected Financial Data 13

Item 7. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations

Item 7a. Quantitative and Qualitative Disclosures About
Market Risk 14

Item 8. Financial Statements and Supplementary Data 14

Item 9. Changes In and Disagreements with Accountants 14
on Accounting and Financial Disclosure
PART III

Item 10. Directors and Executive Officers of Registrant 14

Item 11. Executive Compensation 14

Item 12. Security Ownership of Certain Beneficial 14
Owners and Management

Item 13. Certain Relationships and Related Transactions 14

PART IV

Item 14. Exhibits, Financial Statement Schedules and 15-16
Reports on Form 8-K

Signatures 17-18

Exhibit Index

PART I

ITEM 1 BUSINESS

City Holding Company (the Company), a West Virginia corporation headquartered in Charleston, West Virginia, is a multi-bank holding company that provides diversified financial products and services to consumers and local businesses. Through its network of 63 banking offices in West Virginia (60 offices), Ohio (1 office) and California (2 offices), the Company provides credit, deposit, investment advisory, insurance, and technology products and services to its customers. In addition to its branch network, the Company's delivery channels include ATMs, check cards, telemarketing, direct mail solicitation, interactive voice response systems, and Internet technology.

Community banking is the core business segment of the Company. Since 1983, the Company has provided traditional banking products and services through its lead bank, City National Bank of West Virginia (City National), and through the various financial institutions the Company has acquired over the years. In conjunction with the evolution of the financial services industry, the Company, in recent years, has diversified its business to offer additional products and services to existing and new customers. Mortgage banking, including the origination, acquisition, servicing and sale of mortgage loans has developed into a significant product line for the Company. Additionally, the Company provides other financial services, including investment advisory, insurance, and internet technology products. When combined, these business lines reflect the diversification of the Company and depth and breadth of the products and services the Company delivers to its customers.

In addition to the Company's community banking, mortgage banking, and other financial services business segments, the Company has identified a fourth segment, general corporate, which primarily includes the parent company and other administrative areas which provide general corporate support. These business segments are primarily identified by the products and services offered and the delivery channels through which the product or service is offered. The following tables summarize selected segment information for each of the last three years:

Other

                                            Community      Mortgage      Financial      General
(in thousands)                               Banking       Banking       Services      Corporate    Eliminations   Consolidated
                                          ---------------------------------------------------------------------------------------

1998
Net interest income (expense)             $    96,085     $    8,906    $     64      $   (1,712)            -    $   103,343
Provision for loan losses                      (8,481)             -           -               -             -         (8,481)
                                          ---------------------------------------------------------------------------------------
Net interest income after provision for
loan losses                                    87,604          8,906          64          (1,712)                      94,862
Other income                                   19,355         47,414      11,133             216    $   (5,695)        72,423
Other expenses                                 82,100         50,752      11,502          16,899        (5,695)       155,558
                                          ---------------------------------------------------------------------------------------
Income before income taxes                     24,859          5,568        (305)        (18,395)            -         11,727
Income tax expense (benefit)                    9,816          1,798          (8)         (5,113)            -          6,493
                                          ---------------------------------------------------------------------------------------
NET INCOME                                $    15,043     $    3,770    $   (297)     $  (13,282)   $        -          5,234
                                          =======================================================================================
Average assets                            $ 2,202,104     $  336,367    $ 14,660      $   12,969    $        -    $ 2,566,100
                                          =======================================================================================

1997
Net interest income (expense)             $    90,769     $    8,456    $      3      $   (2,074)            -    $    97,154
Provision for loan losses                      (4,064)             -           -               -             -         (4,064)
                                          ---------------------------------------------------------------------------------------
Net interest income after provision for
loan losses                                    86,705          8,456           3          (2,074)            -         93,090
Other income                                   13,858         17,636         446             673             -         32,613
Other expenses                                 61,165         14,702         366           8,666             -         84,899
                                          ---------------------------------------------------------------------------------------
Income before income taxes                     39,399         11,389          83         (10,067)            -         40,804
Income tax expense (benefit)                   12,604          4,284          36          (2,411)            -         14,513
                                          ---------------------------------------------------------------------------------------
NET INCOME                                $    26,795     $    7,105    $     47      $   (7,656)            -    $    26,291
                                          =======================================================================================
Average assets                            $ 2,041,150     $  133,792    $    627      $    4,892             -    $ 2,180,461
                                          =======================================================================================

1996
Net interest income (expense)             $    86,496     $    6,113    $      1      $   (1,236)            -    $    91,374
Provision for loan losses                      (5,012)             -           -               -             -         (5,012)
                                          ---------------------------------------------------------------------------------------
Net interest income after provision for
loan losses                                    81,484          6,113           1          (1,236)            -         86,362
Other income                                   11,732          3,924         111             706             -         16,473
Other expenses                                 59,399          4,637         129           5,901             -         70,066
                                          ---------------------------------------------------------------------------------------
                                               33,817          5,400         (17)         (6,431)            -         32,769
Income tax expense (benefit)                   11,830          2,032           -          (2,374)            -         11,488
                                          ---------------------------------------------------------------------------------------
NET INCOME                                $    21,987     $    3,368    $    (17)     $   (4,057)            -    $    21,281
                                          =======================================================================================
Average assets                            $ 1,867,334     $  149,075    $     92      $    5,487             -    $ 2,021,988
                                          =======================================================================================

Services provided to the banking segments by the direct mail, insurance, and internet service provider divisions are eliminated in the Consolidated Statements of Income.

MERGERS AND ACQUISITIONS

On December 31, 1998, the Company's merger with Horizon Bancorp, Inc. (Horizon) became effective. The merger into the Company of Horizon, a $1.0 billion bank holding company headquartered in Beckley, West Virginia, increased total assets by approximately 65% and increased deposit market share such that the Company currently ranks third in West Virginia in that category. The transaction was accounted for under the pooling-of-interests method of accounting. As such, the Company's historical financial information has been restated to include the operations of Horizon for all periods presented. With the addition of the Horizon banks, the Company significantly strengthens its presence in the Beckley and Huntington markets of West Virginia. Both areas are considered growth locations and the Company expects to capitalize and expand on its existing customer base in those cities. Additionally, the community banking philosophy utilized by Horizon management was very similar to the Company's management style. With minimal impact from overlapping markets and management's identification of operational efficiencies to be achieved, Horizon was identified as an ideal strategic partner that could significantly enhance the Company's community banking franchise.

On April 1, 1998, the Company consummated its acquisition of Del Amo Savings Bank (Del Amo), a federally-chartered savings bank headquartered in Torrance, California. At the date of acquisition, Del Amo reported total assets and deposits of approximately $116 million and $102 million, respectively. This transaction was accounted for under the purchase method of accounting. Accordingly, the operations of Del Amo have been included in the consolidated financial statements from the date of acquisition. This acquisition represented a strong addition to the Company's existing operations in the Southern California area and the Company's continued commitment to grow its community banking operating segment.

The other financial services business line also experienced growth during 1998. In April 1998, City National acquired Citynet Corporation and MarCom, Inc. The operations of these entities were consolidated into Citynet, a division of City National. With the addition of these companies, City National is expanding its Internet banking capabilities and introducing new Internet technology products, including balance inquiry and funds transfer capabilities, loan payment processing and web site development. In March 1998, City National increased the size of its insurance brokerage division with the acquisition of Morton Specialty Insurance Partners, Inc. (Morton). Morton was subsequently consolidated into RMI, Ltd., a division of City National, and increased the diversity of insurance products the Company offers. Also within the Other Financial Services business segment, City National acquired Jarrett/Aim Communications (Jarrett/Aim) in January 1998. Jarrett/Aim, a division of City National, conducts printing and direct mail marketing for the Company and third party customers.

Within the community-banking segment, no portion of the Company's deposits are derived from a single person or a few persons, the loss of which could have a material adverse affect on liquidity capital, or other elements of financial performance. No material portion of the Company's loans, within this segment, are concentrated within a single industry or group of related industries.

Within the mortgage banking segment, the Company has focused on the origination, acquisition, servicing and sale of mortgage loans, primarily junior lien mortgages and, to a lesser extent, traditional mortgage products. Junior lien mortgage loans, which comprise approximately 82% of loans classified as held for sale at December 31, 1998, are originated by the Company's four retail origination platforms on a nationwide basis. These loan production offices, located in West Virginia, California and Texas solicit potential borrowers through direct mail and telemarketing delivery channels. Additionally, the Company's correspondent lending division acquires loans either on a flow or bulk basis from an approved network of unaffiliated lenders. Because the retail and correspondent lending divisions originate and acquire these loans on a nationwide basis, the Company's risk related to geographic concentration is significantly reduced. These loans are generally expected to either be sold or securitized within 90 to 180 days.

The other financial services business segment is not significant to the Company's consolidated balance sheets or statements of income, representing less than 1% of total assets and net income in 1998.

The Company's business is not seasonal and has no foreign sources or applications of funds. There are no anticipated material capital expenditures, or any expected material effects on earnings or the Company's competitive position as a result of compliance with federal, state and local provisions enacted or adopted relating to environmental protection.

REGULATION AND SUPERVISION

The Company, as a registered bank holding company and its banking subsidiaries, as insured depository institutions, operate in a highly regulated environment and are regularly examined by federal and state regulators. The following description briefly discusses certain provisions of federal and state laws and certain regulations and the potential impact of such provisions to which the Company and its subsidiaries are subject. These federal and state laws and regulations have been enacted for the protection of depositors in national and state banks and not for the protection of shareholders of bank holding companies.

As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the Company is subject to regulation by the Federal Reserve Board. The Federal Reserve Board has jurisdiction under the BHCA to approve any bank or nonbank acquisition, merger or consolidation proposed by a bank holding company. The BHCA generally limits the activities of a bank holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity which is so closely related to banking or to managing or controlling banks as to be a proper incident thereto.

There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution becomes in danger of default or in default. For example, under a policy of the Federal Reserve Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the Bank Insurance Fund (BIF) as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The FDIC may decline to enforce the cross-guarantee provisions if it determines that a waiver is in the best interest of the BIF. The FDIC's claim for reimbursement is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution.

The Federal Deposit Insurance Act (FDIA) also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or shareholder. This provision would give depositors a preference over general and subordinated creditors and shareholders in the event a receiver is appointed to distribute the assets of any of the banking divisions.

The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include: operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing investment and financial advice; and acting as an insurance agent for certain types of credit-related insurance.

The banking subsidiaries are subject to supervision and regulation by the Office of the Comptroller of the Currency ("OCC"), West Virginia Division of Banking, the Federal Reserve Board and the FDIC. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as payment of dividends, incurring debt and acquisition of financial institutions and other companies, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices.

FDICIA

In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became effective. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and revised several other federal banking statutes. Among other things, FDICIA requires federal bank regulatory authorities to take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items, calculated under regulatory accounting practices. The Company's and its banking subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. FDICIA requires the federal banking regulators to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers:
well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

The Federal Reserve Board has adopted regulations establishing relevant capital measures and relevant capital levels for banks. The relevant capital measures are the total risk-adjusted capital ratio, Tier I risk-adjusted capital ratio and the leverage ratio. Under the regulations, a bank is considered (i) well capitalized if it has a total capital ratio of ten percent or greater, a Tier 1 capital ratio of six percent or greater and a leverage ratio of five percent or greater and is not subject to any order or written directive by such regulator to meet and maintain a specific capital level for any capital measure, (ii) adequately capitalized if it has a total capital ratio of eight percent or greater, a Tier I capital ratio of four percent or greater and a leverage ratio of four percent or greater (three percent in certain circumstances) and is not well capitalized, (iii) undercapitalized if it has a total capital ratio of less than eight percent, a Tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in certain circumstances), (iv) significantly undercapitalized if it has a total capital ratio of less than six percent, a Tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent, and (v) critically undercapitalized if its tangible equity is equal to or less than two percent of average quarterly tangible assets. As of December 31, 1997, City National had capital levels that qualify it as being well capitalized under such regulations.

FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve Board. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. In order to obtain acceptance of a capital restoration plan, a depository institution's holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. Furthermore, in the event of a bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator.

Under FDICIA, a depository institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. In addition, pass-through insurance coverage may not be available for certain employee benefit accounts.

CAPITAL REQUIREMENTS

Under the risk-based capital requirements of these federal bank regulatory agencies, the Company and its banking subsidiaries are required to maintain a minimum ratio of total capital to risk-weighted assets of at least 10% in order to remain categorized as "well capitalized". At least half of the total capital is required to be "Tier 1 capital", which consists principally of common and certain qualifying preferred shareholders' equity, less certain intangibles and other adjustments. The remainder, "Tier 2 capital," consists of a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments) and a limited amount of the general loan loss allowance.

In addition, each of the federal regulatory agencies has established a minimum leverage capital ratio (Tier 1 capital to average tangible assets). These guidelines provide for a minimum ratio of 4% for banks and bank holding companies that meet certain specified criteria, including that they have the highest regulatory examination rating and are not contemplating significant growth or expansion. All other institutions are expected to maintain a leverage ratio of at least 100 to 200 basis points above the minimum. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

During 1998, the Company created two separate special-purpose statutory trust subsidiaries which sold trust preferred securities generating gross proceeds of $87.50 million. Pursuant to rulings released in 1996 by the Federal Reserve Board, the Company has included the trust preferred securities in its regulatory capital ratio computations. At December 31, 1998, $72.02 million of trust preferred securities are included in the Company's Tier I capital, with the remaining $15.48 million added to the Company's total regulatory capital. Proceeds from the issuance of the trust preferred securities were used for general corporate purposes, including, but not limited to, repayment of long-term debt and infusion of capital into the Company's lead bank, City National Bank of West Virginia.

The Tier 1 capital, total capital and leverage ratios of the Company as of December 31, 1998 were 10.60%, 12.00%, and 9.99%, respectively, meeting the minimums required to be considered well capitalized. As of December 31, 1998, the most recent notifications from banking regulatory agencies categorized the Company and its banking subsidiaries as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since notifications that management believes have changed the institution's classifications.

LIMITS ON DIVIDENDS AND OTHER PAYMENTS

The Company is a legal entity separate and distinct from its subsidiaries. Most of the Company's revenues result from dividends paid to the Company by those subsidiaries. The right of the Company, and shareholders of the Company, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of such subsidiary, except to the extent that claims of the Company in its capacity as a creditor may be recognized. Moreover, there are various legal limitations applicable to the payment of dividends to the Company as well as the payment of dividends by the Company to its shareholders. Under federal law, the Company's subsidiaries may not, subject to certain limited expectations, make loans or extensions of credit to, or investment in the securities of, or take securities of the Company as collateral for loans to any borrower. The Company's subsidiaries are also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions.

The Company's banking subsidiaries are subject to various statutory restrictions on their ability to pay dividends to the Company. Under applicable regulations, at December 31, 1998, the banking subsidiaries have paid aggregate dividends to the Company of $30.26 million without obtaining prior approval of the Office of the Comptroller of the Currency (the OCC). The payment of dividends by the Company and the banking subsidiaries may also be limited by other factors, such as requirements to maintain adequate capital above regulatory guidelines. The OCC has the authority to prohibit any bank under its jurisdiction from engaging in an unsafe and unsound practice in conducting its business. The payment of dividends, depending upon the financial condition of the subsidiary in question, could be deemed to constitute such an unsafe or unsound practice. The Federal Reserve Board and the OCC have indicated their view that it generally would be an unsafe and unsound practice to pay dividends except out of current operating earnings. The Federal Reserve Board has stated that, as a matter of prudent banking, a bank or bank holding company should not maintain its existing rate of cash dividends on common stock unless (1) the organization's net income available to common shareholders over the past year has been sufficient to fund fully the dividends and (2) the prospective rate of earnings retention appears consistent with the organization's capital needs, asset quality, and overall financial condition. Moreover, the Federal Reserve Board has indicated that bank holding companies should serve as a source of managerial and financial strength to their subsidiary banks. Accordingly, the Federal Reserve Board has stated that a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company's ability to serve as a source of strength.

The ability of the Company's subsidiaries to pay dividends in the future is, and is expected to continue to be, influenced by regulatory policies and by capital guidelines. The OCC has broad discretion in developing and applying policies and guidelines, in monitoring compliance with existing policies and guidelines, and in determining whether to modify such policies and guidelines.

GOVERNMENTAL POLICIES

The operations of the Company and its banking subsidiaries are also affected by the policies set forth by regulatory authorities. In particular, the Federal Reserve Board regulates money and credit and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits and affect interest rates charged on loans or paid for time and savings deposits. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

Various other legislation, including proposals to overhaul the banking regulatory system and to limit the investments that a depository institution may make with insured funds are from time to time introduced in Congress. The Company cannot determine the ultimate effect that such potential legislation, if enacted, would have upon its financial condition or operations.

OTHER SAFETY AND SOUNDNESS REGULATIONS

The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" or "critically undercapitalized", as such terms are defined under uniform regulations defining such capital levels issued by each of the federal banking agencies.

(d) Employees

As of December 31, 1998, City Holding Company employed 1,869 associates. Employee relations within the Company are considered to be satisfactory.

(e) Statistical Information

The information noted below is provided pursuant to Guide 3 -- Statistical Disclosure by Bank Holding Companies. Page references are to the Annual Report to Shareholders for the year ended December 31, 1998 and such pages are incorporated herein by reference.

Page
Description of Information Reference
-------------------------- ----------

1. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

a. Average Balance Sheets 29

b. Analysis of Net Interest Earnings 29-30

c. Rate Volume Analysis of Changes in 30
Interest Income and Expense

a. Book Value of Investments 35

b. Maturity Schedule of Investments 35

c. Securities of Issuers Exceeding 10% of 35
Stockholders' Equity

3. LOAN PORTFOLIO

a. Types of Loans 35

b. Maturities and Sensitivity to Changes in Interest Rates 36

c. Risk Elements 38

d. Other Interest Bearing Assets N/A

4.         SUMMARY OF LOAN LOSS EXPERIENCE                                                    37

5.         DEPOSITS

           a.         Breakdown of Deposits by Categories, Average Balance                    29
                           and Average Rate Paid

           b.         Maturity Schedule of Time Certificates of Deposit                       40
                           and Other Time Deposits of $100,000 or More
                           $100,000 or More


6.         RETURN ON EQUITY AND ASSETS                                                        25

ITEM 2 PROPERTIES

City Holding Company and its subsidiaries own the facilities maintained as the Company's headquarters and generally own all of the facilities maintained as operating facilities by the subsidiaries. Those facilities not owned by the Company are maintained under long term lease agreements. The properties owned or leased by the Company consist generally of the main corporate office, sixty (60) banking offices in West Virginia, one branch office in Ohio, two banking and four loan production offices in California, two loan production offices in West Virginia and one non-banking office in West Virginia. All of the properties are suitable and adequate for their current operations and are generally being fully utilized.

ITEM 3 LEGAL PROCEEDINGS

There are various legal proceedings pending to which City Holding Company and/or its subsidiaries are parties. These proceedings are incidental to the business of City Holding Company and its subsidiaries and, after reviewing the matters and consulting with counsel, management is of the opinion that the ultimate resolution of such matters will not materially affect the consolidated financial statements.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 9, 1998, the Company held a special meeting of its shareholders to vote on:

(1)                  A proposal to approve the Agreement and Plan of
                     Reorganization, dated August 7, 1998, between City Holding
                     Company and Horizon Bancorp, Inc. ("Horizon"), a related
                     Plan of Merger, and the transactions contemplated by those
                     documents. These transactions included the merger of
                     Horizon into City Holding Company. They also included the
                     issuance of City Holding Company common shares to Horizon
                     shareholders in connection with the merger of Horizon and
                     the Company.

Results of shareholder votes cast were as follows:

                           NUMBER    % OF SHARES
                           SHARES    OUTSTANDING
                           ------    -----------


Voting For               4,682,695       70.30%
Voting Against              28,097        0.43
Abstain From Voting         32.921        0.49
                       ===========    ===========
Total                    4,743,713       71.22%
                       ===========    ===========

(2) A proposal to increase the authorized shares of common stock of the Company to fifty million (50,000,000) shares.

Results of shareholder votes cast were as follows:

                           NUMBER      % OF SHARES
                           SHARES      OUTSTANDING

Voting For                4,892,062       73.45%
Voting Against              329,950        4.95
Abstain From Voting          24,347        0.37
                        ------------ --------------
Total                     5,246,359       78.77%
                        ============ ==============

PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Page 26 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1998, included in this report as Exhibit 13, is incorporated herein by reference.

During 1998, the Company issued 74,401 shares of its common stock to the owners and certain employees of acquired businesses in transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

ITEM 6 SELECTED FINANCIAL DATA

Selected Financial Data on page 25 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1998, included in this report as Exhibit 13, is incorporated herein by reference.

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 26 through 42 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1998, included in this report as Exhibit 13, is incorporated herein by reference.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information appearing under the caption "Market Risk Management" appearing on pages 32 through 34 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1998, included in this report as Exhibit 13, is incorporated herein by reference.

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent auditors and consolidated financial statements, included on pages 43 through 62 of the Annual Report to Shareholders of City Holding Company for the year ended December 31, 1998, included in this report as Exhibit 13, are incorporated herein by reference.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by Item 10 of FORM 10-K appears in the Company's 1999 Proxy Statement to be filed within 120 days of fiscal year end under the captions "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS".

ITEM 11 EXECUTIVE COMPENSATION

The information required by Item 11 of FORM 10-K appears in the Company's 1999 Proxy Statement under the caption "EXECUTIVE COMPENSATION".

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 of FORM 10-K appears in the Company's 1999 Proxy Statement under the caption "OWNERSHIP OF EQUITY SECURITIES".

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 of FORM 10-K appears in the Company's 1999 Proxy Statement under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and in NOTE FIVE of Notes to Consolidated Financial Statements appearing on pages 52 and 53 of the Company's Annual Report to Shareholders for the year ended December 31, 1998, included in this report as Exhibit 13, and incorporated herein by reference.

PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements Filed; Financial Statement Schedules

The following consolidated financial statements of City Holding Company and subsidiaries, included in the Company's Annual Report to Shareholders for the year ended December 31, 1998, are incorporated by reference in Item 8:

Page Number

Report of Independent Auditors                                         43

Consolidated Balance Sheets - December 31, 1998     and 1997           44

Consolidated Statements of Income - Years Ended
December 31, 1998, 1997, and 1996                                      45

Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31,1998, 1997 and 1996 46

Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996 47

Notes to Consolidated Financial Statements - December 31, 1998 48-62

FINANCIAL SCHEDULES I AND II UNDER ARTICLE 9 OF REGULATION S-X ARE NOT APPLICABLE.

(b) Reports on Form 8-K: NONE.

The exhibits listed in the EXHIBIT INDEX included herein are filed herewith or incorporated by reference from previous filings.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CITY HOLDING COMPANY
(Registrant)

/s/  Steven  J. Day
------------------------------
Steven Day,
President/Director
(Principal Executive Officer)


/s/ Robert A. Henson
-------------------------------
Robert A. Henson,
Chief Financial Officer
(Principal Financial Officer)


/s/ Michael D. Dean
-------------------------------
Michael D. Dean
Senior Vice President - Finance
(Principal Accounting Officer)

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 8, 1999. Each of the directors and/or officers of City Holding Company whose signature appears below hereby appoints Steven J. Day and Robert A. Henson and each of them severally, as his attorney-in-fact to sign in his name and behalf, in any and all capacities stated below and to file with the Commission, any and all amendments to this report on Form 10-K, making such changes in this report on Form 10-K as appropriate, and generally to do all such things in their behalf in their capacities as officers and directors to enable City Holding Company to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission.

/s/ Samuel M. Bowling                               /s/ D. K. Cales
----------------------                              -----------------------
Samuel M. Bowling                                   Dr. D. K. Cales
Director                                            Director


/s/ Hugh R. Clonch                                  /s/ Robert D. Fisher
----------------------                              ----------------------
Hugh R. Clonch                                      Robert D. Fisher
Director                                            Director


/s/ William M. Frazier                              /s/ Jay C. Goldman
----------------------                              ----------------------
William M. Frazier                                  Jay C. Goldman
Director                                            Director

/s/ David E. Haden                                  /s/ Carlin K. Harmon
----------------------                              ----------------------
David E. Haden                                      Carlin K. Harmon
Director                                            Director


/s/ C. Dallas Kayser
----------------------                              ----------------------
C. Dallas Kayser                                    Leon K. Oxley
Director                                            Director


/s/ Mark H. Schaul                                  /s/ Steven J. Day
----------------------                              ----------------------
Mark H. Schaul                                      Steven J. Day
Director                                            Director/President


/s/ James E. Songer, Sr.                            /s/ Philip L. McLaughlin
----------------------                              ----------------------
James E. Songer, Sr.                                Philip L. McLaughlin
Director                                            Director


/s/ B. C. McGinnis III                              /s/Tracy W. Hylton II
----------------------                              ----------------------
B. C. McGinnis III                                  Tracy W. Hylton II
Director                                            Director


/s/ Albert M. Tieche, Jr.                           /s/ Phillip W. Cain
----------------------                              ----------------------
Albert M. Tieche, Jr.                               Phillip W. Cain
Director                                            Director


/s/ William C. Dolin                                /s/ David W. Hambrick
----------------------                              ----------------------
William C. Dolin                                    David W. Hambrick
Director                                            Director


/s/ Frank S. Harkins, Jr.                           /s/ Thomas L. McGinnis
----------------------                              ----------------------
Frank S. Harkins, Jr.                               Thomas L. McGinnis
Director                                            Director


/s/ R. T. Rogers                                    /s/ E. M. Payne III
----------------------                              ----------------------
R. T. Rogers                                        E. M. Payne III
Director                                            Director

EXHIBIT INDEX

The following exhibits are filed herewith or are incorporated herein by reference.

                                                                                     Prior Filing
Exhibit                                                                               Reference
Number                   Description                                                (if applicable)
------                   -----------                                               -----------------



 3(a)                Articles of Incorporation of                                            I
                     City Holding Company

 3(b)                Articles of Amendment to the                                            II
                     Articles of Incorporation of
                     City Holding Company, dated
                     March 6, 1984

 3(c)                Articles of Amendment to the                                            III
                     Articles of Incorporation of
                     City Holding Company, dated
                     March 4, 1986

 3(d)                Articles of Amendment to the                                            IV
                     Articles of Incorporation of
                     City Holding Company, dated
                     September 29, 1987

 3(e)                Articles of Amendment to the                                            V
                     Articles of Incorporation of
                     City Holding Company, dated
                     May 6, 1991

 3(f)                Articles of Amendment to the                                            V
                     Articles of Incorporation of
                     City Holding Company, dated
                     May 7, 1991

  3(g)               Articles of Amendment to the                                            VIII
                     Articles of Incorporation of
                     City Holding Company, dated
                     August 1, 1994

  3(h)               Articles of Amendment to the
                     Articles of Incorporation of
                     City Holding Company, dated
                     December 9, 1998

 3(i)                Amended and Restated By laws
                     of City Holding Company

 4(a)                Amendment and Restated Rights                                           VII
                     Agreement, dated as of May 7, 1991,
                     between the Company and Sovran Bank,
                     N.A. (predecessor to Nations Bank,
                     N.A.), as Rights Agent

4(b)                 Supplement, dated as of June 30,                                        XIII
                     1998, between City Holding Company
                     and SunTrust Bank, Atlanta, as Rights
                     Agent, to Amended and Restated Rights
                     Agreement dated May 7, 1991

10(a)                Agreement dated June 5, 1986, by                                        III
                     and between Steven J. Day and
                     City Holding Company

10(b)                Form of Employment Agreement,                                           IX
                     dated as of December 31, 1998,
                     by and between City Holding Company
                     and Steven J. Day

10(c)                Form of Employment Agreement,                                           IX
                     dated as of December 31, 1998,
                     by and between City Holding Company
                     and Robert A. Henson

10(d)                Form of Employment Agreement,                                           IX
                     dated as of December 31, 1998,
                     by and between City Holding Company
                     and Matthew B. Call

10(e)                Form of Employment Agreement,                                           IX
                     dated as of December 31, 1998,
                     by and between City Holding Company
                     and Philip L. McLaughlin

10(f)                Form of Employment Agreement,                                           IX
                     dated as of December 31, 1998,
                     by and between City Holding Company
                     and Bernard C. McGinnis, III

10(g)                Form of Employment and Consulting                                       IX
                     Agreement, dated as of December 31, 1998
                     by and between City Holding Company
                     and Frank S. Harkins, Jr.

10(h)                Junior Subordinated Indenture,                                          X
                     dated as of March 31, 1998,
                     between City Holding Company
                     and The Chase Manhatten Bank,
                     as Trustee

10(i)                Form of City Holding Company's                                          X
                     9.15% Debenture due April 1, 2028

10(j)                Form of City Holding Company's                                          XI
                     9.125% Debenture due October 31, 2028

10(k)                City Holding Company's 1993                                             XII
                     Stock Incentive Plan

11                   Statement Re: Computation of Per
                     Share Earnings

13                   City Holding Company Annual Report
                     to Shareholders for Year Ended
                     December 31, 1998

21                   Subsidiaries of City Holding Company

23                   Consent of Ernst & Young LLP

24                   Power of Attorney (included on the signature page hereof)

27(a)                Financial Data Schedule for the year ending


27(b)                Restated Financial Data Schedule for the year ending
                     December 31, 1997

27(c)                Restated Financial Data Schedule for the year ending
                     December 31, 1996

I Attached to, and incorporated by reference from Amendment No. 1 to City Holding Company's statement on Form S-4, Registration No. 2-86250, filed November 4, 1983, with the Securities and Exchange Commission.

II Attached to, and incorporated by reference from City Holding Company's Form 8-K Report dated March 7, 1984, and filed with the Securities and Exchange Commission on March 22, 1984.

III Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1986, and filed March 31, 1987, with the Securities and Exchange Commission.

IV Attached to and incorporated by reference from City Holding Company's Registration Statement on Form S-4, Registration No. 33-23295, filed with the Securities and Exchange Commission on August 3, 1988. Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1991, and filed March 17, 1992, with the Securities and Exchange Commission.

V Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1991, and filed March 17, 1992, with the Securities and Exchange Commission.

VI Attached to, and incorporated by reference from City Holding Company's Form 10-K Annual Report dated December 31, 1988, and filed March 30, 1989, with the Securities and Exchange Commission.

VII Attached to, and incorporated by reference from City Holding Company's Form 8-K Current Report dated May 7, 1991, and filed May 14, 1991, with the Securities and Exchange Commission.

VIII Attached to, and incorporated by reference from City Holding Company's Form 10-Q Quarterly Report dated September 30, 1994 and filed November 14, 1994, with the Securities and Exchange Commission.

IX Attached to, and incorporated by reference from, City Holding Company's Registration Statement on Form S-4, Registration No. 333-64205, filed with the Securities and Exchange Commission on September 24, 1998.

X Attached to, and incorporated by reference from, City Holding Company's Registration Statement on Form S-4, Registration No. 333-62419, filed with the Securities and Exchange Commission on August 28, 1998.

XI Attached to, and incorporated by reference from, the Pre-Effective Amendment No. 1 to City Holding Company's Registration Statement on Form S-3, Registration No. 333-64809, filed with the Securities and Exchange Commission on October 21, 1998.

XII Attached to, and incorporated by reference from, City Holding Company's Registration Statement on Form S-8, Registration No. 033-62738, filed with the Securities and Exchange Commission on May 14, 1993.

XIII Attached to, and incorporated by reference from, City Holding Company's Form 10-Q Quarterly Report dated June 30, 1998 and filed August 14, 1998, with the Securities and Exchange Commission.

EXHIBIT 3(h)

ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CITY HOLDING COMPANY

1. Name. The name of the corporation is City Holding Company.

2. Amendment Adopted. The text of the amendment adopted is as follows:

The first paragraph of Article VI of the Articles of Incorporation is deleted in its entirety and the following is substituted in its place:

VI. The Corporation shall have the authority to issue 500,000 shares of preferred stock of a par value of $25 per share and 50,000,000 shares of common stock of a par value of $2.50 per share.

The remainder of Article VI shall be unchanged.

3. Shareholder Vote. The amendment was adopted at a special meeting of shareholders of the Corporation on December 9, 1998. As of the record date for the special meeting, the Corporation had 6,660,717 shares of common stock outstanding and entitled to vote, and no shares of preferred stock outstanding. The number of shares of common stock voted for and against the amendment was 4,892,062 shares and 329,950 shares, respectively. The holders of 24,347 shares abstained. As a result of the amendment, the stated capital of the Corporation is increased to $137,500,000.

4. Document Preparation. These Articles of Amendment were prepared by Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219.

Dated: December 9, 1998
CITY HOLDING COMPANY

By:  /s/ Steven J. Day
     -------------------------------------
     Steven J. Day
     President and Chief Executive Officer


And  /s/ Otis L. O'Connor
     -------------------------------------
     Otis L. O'Connor
     Secretary

ACKNOWLEDGEMENT

STATE OF WEST VIRGINIA
COUNTY OF KANAWHA

I, Drema T. Gibson, a Notary Public, do hereby certify that on this 21st day of December, 1998, personally appeared before me, Steven J. Day, who being first duly sworn, declared himself to be President and Chief Executive Officer of City Holding Company, a corporation, that he signed the foregoing document as President and Chief Executive Officer of the Corporation, and that the statements therein contained are true.

 /s/ Drema T. Gibson
------------------------------
      Notary Public

My commission expires September 11, 2001

(SEAL)

Exhibit 3(i)

CITY HOLDING COMPANY

AMENDED AND RESTATED BYLAWS

ARTICLE I

STOCKHOLDERS

Section 1. Annual Meetings. The annual meeting of the shareholders shall be held at the principal office of the corporation at Charleston, Kanawha County, West Virginia, on the 30th of March of each year, or at such other place and on such other date as the Board of Directors may designate by resolution from time to time.

For the purpose of determining shareholders entitled to vote at the annual meeting of the shareholders or any adjournment thereof, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date to be not more than fifty days and not less than ten days prior to the date of the annual meeting.

Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors or by the President and Secretary, or by any three or more shareholders holding together not less than ten percentum (10%) of the capital stock of the corporation.

For the purpose of determining shareholders entitled to vote at the special meeting of the shareholders or any adjournment thereof, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date to be not more than fifty days and not less than ten days prior to the date of the special meeting.

Section 3. Notice of Meetings. Notice of either annual or special meetings of the shareholders shall be given by mailing to each shareholder of record at his last know post office address, postage prepaid, at least ten (10) days prior to the date of the meeting, a written notice thereof. Such notice shall state the time and place of the meeting. The call for the meeting, if made by shareholders, shall be signed by the shareholders making the call. If the call should be made by the Board of Directors, it shall be signed by the President, a Vice President or the Secretary of the corporation. If the call be made by the President or the Secretary, it shall be signed by both of them. The notice of special meetings of the shareholders shall state the business to be transacted, and no business other than that included in the notice or incidental thereto shall be transacted at any such meeting. Notice of the time, place or purpose of any meeting of shareholders may be dispensed with if each shareholder shall attend either in person or by proxy of if every absent shareholder shall, in writing filed with the records of the meeting, either before or after the holding thereof, waive such notice, any such meetings may be held at any time and place that the shareholders agree upon.

Section 4. Quorum. The holders of a majority of all the shares of the capital stock of the corporation entitled to vote shall constitute a quorum at any meeting for all purposes, including the election of Directors. Any number less than a quorum present may adjourn any shareholders' meeting until a quorum is present.

Section 5. Voting. In all elections of Directors, each shareholder shall have the right to cast one (1) vote for each share of stock owned by him and entitled to a vote, and he may cast the same in person or by proxy, for as many persons as there are Directors to be elected, or he may cumulate such votes and give one candidate as many votes as the number of Directors to be elected multiplied by the number of his shares of stock shall equal; or he may distribute them on the same principle among as many candidates and in such manner as he shall desire, and the Directors shall not be elected in any other manner; and on any other question to be determined by a vote of shares at any meeting of shareholders, each shareholder shall be entitled to one (1) vote for each share of stock in person or by proxy.

Section 6. Annual Report. The President shall annually prepare a full and true statement of the affairs of the corporation, which shall be submitted at the annual meeting of the shareholders and filed within twenty (20) days thereafter in the principal office of the corporation at Charleston, West Virginia, where it shall, during the usual business hours of each secular day be open for inspection by any shareholder of the corporation.

ARTICLE II
DIRECTORS

Section 1. Number. The Board shall consist of not less than five nor more than twenty-five shareholders, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full Board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full Board of Directors may not increase the number of directors to a number which: (i) exceeds by more than three the number of directors last elected by shareholders where such number was fifteen or less; and (ii) to a number which exceeds by more than four the number of directors last elected by shareholders where such number was sixteen or more except when directors are added as a result of a business combination accounted for as a pooling-of-interests, but in no event shall the number of directors exceed twenty-five, and provided, further, however, that no decrease shall have the effect of shortening the term of any incumbent director.

Section 2. Director Emeritus. Any director between the ages of 65 and 70 shall have the right to become a director emeritus. If the right is not exercised then when a director reaches 70 years of age, he shall automatically become a director emeritus. A director emeritus shall have the privilege of attending any meetings of the Board of Directors; to voice his opinion in matters before the Board. He shall not have the right to vote on any matters or to receive attendance fee for the meetings he attends. This provision shall not apply to any director who was a member of the Board of Directors of The City National Bank of Charleston on February 12, 1976, and who had attained the age of 70 on or before February 12, 1976.

Section 3. Qualifications. The members of the Board of Directors need not be residents of the State of West Virginia.

Any shareholder who intends to nominate or cause to have nominated any candidate for election to the Board of Directors (other than any candidate proposed by the corporation's management) shall notify the corporation. The notification shall be made in writing and delivered or sent by first class registered or certified mail to the President of the corporation not less than 14 days nor more than 50 days prior to any meeting of stockholders called for the election of directors, provided, however, that if less than 21 days notice of the meeting is given to shareholders, such nomination shall be delivered or sent by first class registered or certified mail to the President of the corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholders.

(a) the names and addresses of the proposed nominees;
(b) the principal occupation of each proposed nominee;
(c) the total number of shares that to the knowledge of the notifying shareholders will be voted for each of the proposed nominees;
(d) the name and residence address of the notifying shareholders; and
(e) the number of shares owned by the notifying shareholders.

Section 4. Time of Holding Office. Commencing with the 1986 annual meeting of stockholder, the Board of Directors shall be divided into three classes, Class I, Class II, and Class III, as nearly equal in number as possible. At the 1986 annual meeting of stockholders, directors of the first class (Class I) shall be elected to hold office for a term expiring at the 1987 annual meeting of stockholders; directors of the second class (Class II) shall be elected to hold office for a term expiring at the 1988 annual meeting of stockholders; and directors of the third class (Class III) shall be elected to hold office for a term expiring at the 1989 annual meeting of stockholders. At each annual meeting of stockholders after 1986, the successors to the class of directors whose term shall then expire shall be identified as being of the same class of directors they succeed and elected to hold office for a term expiring at the third succeeding annual meeting of stockholders. When the number of directors is changed, any newly-created directorships or any decrease in directorship shall be so apportioned among the classes by the Board of Directors as to make all classes as nearly equal as possible.

Section 5. Election of Officers. The Board of Directors shall elect from within their number a President. The Board shall also elect from within or without their number one or more Vice Presidents, a Secretary, a Treasurer, and all such other officers and agents as they may deem proper. The Board shall have the authority to fix the salaries of all officers and agents, whether such officers and agents be Directors or not. All officers and agents elected by the Board shall hold office during the pleasure of the Board.

Section 6. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business. Any number less than a quorum present may adjourn any Directors' meeting until a quorum is present.

Section 7. Regular Meetings. Regular meetings of the Board of Directors shall be held as needed.

Section 8. Special Meetings. Special meetings of the Board of Directors may be called by the President, or any three Directors to be held at such time and place and for such purposes as shall be specified in the notice.

Section 9. Notice of Special Meetings. Telephonic or written notice of every special meeting of the Board of Directors shall be duly give to each Director not less than one (1) day before such meeting. Such notice shall state the time and place of the meeting and, if the meeting is being called for the purpose of amending the bylaws or for the purpose of authorizing the sale of all or substantially all of the assets of the corporation, such notice shall set forth the nature of the business intended to be transacted. Notice of any meeting of the Board may be dispensed with if every Director shall attend in person, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened, or if every absent Director shall in writing filed with the records of the meeting, either before or after the holding thereof, waive such notice. Any provision of these bylaws to the contrary notwithstanding a meeting of the Board of Directors may be held immediately following the adjournment of any meeting of the shareholders, and no notice need be given for any such meeting of the Board of Directors.

Section 10. Chairman of the Board. The Board of Directors shall elect from among its members a Chairman of the Board of Directors who shall preside at all meetings of the Board of Directors and perform such other duties as may be designated by the Board.

Section 11. Committees. The Board of Directors may, by resolution of resolutions passed by a majority of the whole Board, designate one or more committees, each to consist of two or more of the Directors, which, to the extent provided in such resolution or resolutions, shall have and may exercise the powers of the Board in the management of the business and affairs of the corporation, and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board.

Section 12. Powers of Directors. The Board of Directors may exercise all of the powers of the corporation except such as are by law or by the charter or by the bylaws conferred upon or reserved to the shareholders. It shall also have the power to fix the compensation of the officers elected or appointed by it, and of all other officers and employees of the corporation; to purchase or otherwise acquire for the corporation any property rights or privileges which the corporation is authorized to acquire, at such price and on such terms and conditions as the Board may think proper; to sell or otherwise dispose of any property owned by the corporation and not necessary for carrying on the business of the corporation and upon such terms and conditions and for such consideration as the Board may deem proper. The Board may also confer on any officers of the corporation the right to choose, remove or suspend any subordinate officer, agent, or employee. The Directors shall further have the power to fix Directors' fees form time to time in such amounts as the Directors shall deem proper.

Section 13. Newly-Created Directorships and Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 14. Voting. No member of the Board of Directors shall vote on a question in which he is interested otherwise than as a shareholder, except the election of a President or other officer or employee or be present at the Board while the same is being considered; but if his retirement from the Board in such case reduces the number present below a quorum, the question may nevertheless be decided by those who remain. On any question the names of those voting each way shall be entered on the record of their proceedings if any member at the time requires it.

Section 15. Depositories. The Board of Directors shall have the power to designate the bank in which corporate funds and securities shall be deposited.

Section 16. Bonds for Officers. The Board of Directors may require any officer of the corporation whose duties involve the handling of its funds, or a part thereof, to furnish proper bond, such bond to be in a penalty to be prescribed by the Board.

Section 17. Removal of Directors. Any director may be removed, with or without cause, only by the affirmative vote of the holders of a majority of the outstanding common stock.

ARTICLE III
OFFICERS

Section 1. Executive Officers. The executive officers of the corporation shall be a President, one or more Vice Presidents as the Board of Directors may fix from time to time by proper resolutions, a Secretary and a Treasurer, all of whom shall be chosen by the Board of Directors as provided for in Section 4 of Article II of these bylaws. Any two of the above-named offices, except those of President and Secretary, may be held by the same person, but no officer shall execute an acknowledgement or verify any instrument in more than one capacity, if such instrument is required by law or by these bylaws to be executed, acknowledged, verified or countersigned by two or more officers. The Board may, by resolution, provide for an Assistant Secretary and an Assistant Treasurer, and may also elect or appoint such other officers, agents and employees as the Board may deem proper.

Section 2. Powers and Duties. The officers of the corporation shall have such powers and duties as are usually incident to their respective offices, as well as such powers and duties as from time to time shall be assigned to them by the Board of Directors.

Section 3. Checks, Notes, Etc. All checks and drafts of the corporation, bank accounts, and all bills of exchange, promissory notes, and all acceptances, obligations and other instruments for the payment of money shall be signed and/or countersigned by such officers as the Board of Directors may designate.

Section 4. Corporate Acknowledgments. The corporation may acknowledge any instrument required by law to be acknowledged by its attorney appointed to serve, and such appointment may be embodied in the deed or instrument to be acknowledged, or be made by a separate instrument, or such deed or other instrument may be acknowledged by the President or a Vice President of the corporation without such appointment, or in any manner provided by law.

ARTICLE IV

CAPITAL STOCK

Section 1. Stock Certificates. The certificates of stock of this corporation shall be in such form as shall be approved by the Board of Directors, and shall be signed by the President or a Vice President and countersigned by the Secretary or Assistant Secretary and evidenced by the seal of the corporation. Each certificate shall recite on its face that the stock represented thereby is transferable only upon the books of the corporation properly endorsed.

Section 2. Issuing Stock and Fixing Value. The Board of Directors of this corporation may issue the shares of its capital stock from time to time for such considerations as the Board may deem advisable. If the stock is to be issued for consideration other than cash, the Directors shall by resolution state their opinion of the actual value of any consideration other than cash for which such stock is issued.

Section 3. Title. Title to a certificate and to the shares represented thereby may be transferred only (a) by delivery of the certificate endorsed, either in blank or to a specific person, by the person appearing by the certificate to be the owner of the shares represented thereby; or (b) by the delivery of the certificate and a separate document containing a written assignment of the certificate or a power of attorney to sell, assign, or transfer the same or the shares represented thereby, to be signed by the person appearing by the certificate to be the owner of the shares represented thereby. Such assignment or power of attorney may be either in blank or to a specified person.

Section 4. Lost Certificate. A new certificate may be issued in lieu of one lost or destroyed without requiring publication of notice of loss and the cost of said publication applied on a bond of proportionately increased penalty in any case where such procedure is agreed to by said holder of record and deemed adequate by the Board of Directors. A new certificate may also be issued in the discretion of the Board without requiring either the publication of notice of loss or the giving of a bond; and upon such other conditions as may be agreed to by said holder of record and deemed adequate by the Board for the protection of the corporation and its shareholders.

ARTICLE V

FISCAL YEAR AND CORPORATE SEAL

Section 1. Fiscal Year. The fiscal year of the corporation shall begin on the first day of January and shall end on the 31st day of December of each year.

Section 2. Corporate Seal. The Board of Directors shall provide a suitable seal containing the name of the corporation, which seal shall be in the charge and custody of the Secretary and Treasurer.

ARTICLE VI

DIVIDENDS

Section 1. Dividends. The Board of Directors may from time to time declare and pay dividends from the surplus or any profits of the corporation, whenever they shall deem it expedient in the exercise of discretion and in conformity with the provisions upon which the capital stock of the corporation has been issued. If any shareholder shall be indebted to the corporation, his dividend, or so much as is necessary thereof, may be applied to the payment of such indebtedness, if then due and payable.

Section 2. Working Capital. The Board of Directors may fix a sum which may be set aside or retained over and above the corporation's capital stock paid in as working capital for the corporation, and from time to time as the Board may increase, diminish and vary the same in its absolute judgment and discretion.

ARTICLE VII

AMENDMENT OF BYLAWS

Section 1. Amendment. The Board of Directors shall have the power to make, amend and repeal the bylaws of the corporation at any regular or

special meeting by a majority of the votes cast thereat.

EXHIBIT 11

COMPUTATION OF EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

                                                        1998                 1997               1996
                                                        ----                 ----               ----

Numerator:
Net Income                                           $  5,234,000        $  26,291,000       $  21,281,000
                                                   ===============     ===============       ==============
Denominator:
  Denominator for basic earnings per share --
  Weighted average shares outstanding                  16,799,000           16,428,000          15,914,000

  Effect of dilutive securities:
    Employee stock options                                 77,000               42,000              14,000
    Contingent stock-acquisition                            9,000                4,000                   -
                                                   ---------------     ---------------       --------------
  Dilutive potential common shares                         86,000               46,000              14,000
                                                   ---------------     ---------------       --------------

  Denominator for diluted earnings
     per share -
  Weighted average shares and assumed
     Conversions                                       16,885,000           16,474,000          15,928,000
                                                   ===============     ===============       ==============

Basic earnings per share                             $       0.31        $        1.60        $       1.34
                                                   ===============     ===============       ==============

Diluted earnings per share                           $       0.31        $        1.60        $       1.34
                                                   ===============     ===============       ==============

Exhibit 13

SELECTED FINANCIAL DATA

TABLE ONE
FIVE-YEAR FINANCIAL SUMMARY
(in thousands, except per share data)

                                  1998               1997             1996             1995             1994
                             ---------------------------------------------------------------------------------
Summary of Operations
  Total interest income       $196,680            $173,166          $159,708         $145,743         $124,993
  Total interest expense        93,337              76,012            68,334           61,180           46,857
  Net interest income          103,343              97,154            91,374           84,563           78,136
  Provision for loan losses      8,481               4,064             5,012            3,609            3,304
  Total other income            72,423              32,613            16,473           11,343            9,106
  Total other expenses         155,558              84,899            70,066           61,908           57,277
  Income before income taxes    11,727              40,804            32,769           30,389           26,661
  Net income                     5,234              26,291            21,281           20,200           18,266

Per Share Data
  Net income (basic)          $   0.31            $   1.60          $   1.34         $   1.26         $   1.14
  Net income (diluted)            0.31                1.60              1.34             1.26             1.14
  Cash dividends declared (1)     0.77                 .73               .63              .56              .49
  Book value per share           13.08               13.13             11.86            11.52             9.66

Selected Average Balances
  Total loans               $1,676,828          $1,427,269        $1,286,868       $1,206,408       $1,056,997
  Securities                   377,834             409,713           419,974          464,024          516,999
  Deposits                   1,974,995           1,698,699         1,616,479        1,559,106        1,487,888
  Long-term debt                95,926              46,129            24,666            8,204            6,252
  Trust preferred               32,452                   -                 -                -                -
  securities
  Stockholders' equity         235,616             204,114           181,923          168,353          158,525
  Total assets               2,566,099           2,180,460         2,021,988        1,874,056        1,735,469

Selected Year End Balances
  Net loans                 $1,698,319          $1,490,411        $1,315,078       $1,262,243       $1,121,862
  Securities                   395,722             378,330           412,586          450,570          477,148
  Deposits                   2,064,415           1,779,805         1,626,666        1,602,996        1,509,424
  Long-term debt               102,719              75,502            34,250           20,000            6,875
  Trust preferred               87,500                   -                 -                -                -
  securities
  Stockholders' equity         220,059             220,277           188,784          177,522          159,191
  Total assets               2,706,004           2,286,424         1,995,878        1,983,871        1,778,391

Selected Ratios
  Return on average assets        0.20%               1.21%             1.05%            1.08%            1.05%
  Return on average equity        2.22               12.88             11.70            12.00            11.52
  Average equity to               9.18                9.36              9.00             8.98             9.13
  average assets
  Dividend payout ratio (1)     248.39               35.96             34.81            36.47            33.91

(1) Cash dividends and the related payout ratio are based on historical results of the Company and do not include cash dividends of acquired companies prior to the dates of consummation.

On December 31, 1998, the Company's merger with Horizon Bancorp, Inc. (Horizon) became effective. The transaction was accounted for under the pooling-of-interests method of accounting. As such, the Company's historical financial information has been restated to include the operations of Horizon for all periods presented.

TWO YEAR SUMMARY OF
COMMON STOCK PRICES AND DIVIDENDS

                        Cash
                        Dividends        Market Value
                        Per Share*       Low      High
                       -------------------------------------
1998
Fourth Quarter           $ .20        $30.000    $37.125
Third Quarter              .19         34.250     44.875
Second Quarter             .19         41.000     48.000
First Quarter              .19         41.500     51.000

1997
Fourth Quarter           $ .19        $39.875    $42.375
Third Quarter              .18         32.250     43.250
Second Quarter             .18         30.000     34.500
First Quarter              .18         25.750     34.750

City Holding Company's common stock trades on The Nasdaq Stock Market under the symbol CHCO. This table sets forth the cash dividends paid per share and information regarding the market prices per share of the Company's Common Stock for the periods indicated. The price ranges are based on transactions as reported on the The Nasdaq Stock Market. At December 31, 1998, there were 4,762 stockholders of record. See NOTE FOURTEEN of the Audited Consolidated Financial Statements for a discussion of restrictions on bank dividends.

*Cash dividends represent amounts declared by the Company and do not include cash dividends of acquired companies prior to the dates of acquisition.

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CITY HOLDING COMPANY
City Holding Company (the Company), a West Virginia corporation headquartered in Charleston, West Virginia, is a multi-bank holding company that provides diversified financial products and services to consumers and local businesses. Through its network of 63 banking offices in West Virginia, Ohio and California, the Company provides credit, deposit, investment advisory, insurance and technology products and services to its customers. In addition to its branch network, the Company's delivery channels include ATMs, check cards, telemarketing, direct mail solicitation, interactive voice response systems, and Internet technology.

MERGERS AND ACQUISITIONS
On December 31, 1998, the Company's merger with Horizon Bancorp, Inc. (Horizon) became effective. The merger with Horizon, a $1.0 billion bank holding company headquartered in Beckley, West Virginia, increased total assets by approximately 65% and increased deposit market share such that the Company currently ranks third in West Virginia. The transaction was accounted for under the pooling-of-interests method of accounting. As such, the Company's historical financial information contained in this discussion and analysis and in the consolidated financial statements has been restated to include the operations of Horizon for all periods presented. With the addition of the Horizon banks, the Company significantly strengthens its presence in the Beckley and Huntington markets of West Virginia. Both areas are considered growth locations and the Company expects to capitalize and expand on its existing customer base in those cities. Additionally, the community banking philosophy of Horizon's management was very similar to the Company's management style. With minimal impact from overlapping markets and management's identification of operational efficiencies to be achieved, Horizon was identified as an ideal strategic partner that could significantly enhance the Company's community banking franchise.

The other financial services business line also experienced growth during 1998. In April 1998, City National acquired Citynet Corporation and MarCom, Inc. The operations of these entities were consolidated into Citynet, a division of City National. With the addition of these companies, City National is expanding its Internet banking capabilities and introducing new Internet technology products to its customers, including balance inquiry and funds transfer capabilities, loan payment processing, bill payment processing, and web site development. In March 1998, City National increased the size of its insurance brokerage division with the acquisition of Morton Specialty Insurance Partners, Inc. (Morton). Morton was subsequently consolidated into RMI, Ltd., a division of City National, and increased the diversity of insurance products the Company offers. Also within the other financial services business segment, City National acquired Jarrett/Aim Communications (Jarrett/Aim) in January 1998. Jarrett/Aim, a division of City National, conducts printing and direct mail marketing for the Company and third party customers.

FINANCIAL SUMMARY
Consolidated net income for 1998 was $5.23 million or $0.31 per diluted common share, compared to $26.29 million or $1.60 per diluted common share in 1997. These results include the operating results of Horizon and the $20.28 million charges to pre-tax earnings recorded during the fourth quarter of 1998. Net income for 1996 was $21.28 million or $1.34 per diluted common share. Return on average assets (ROA), a measure of the effectiveness of asset utilization, for 1998, 1997, and 1996 was 0.20%, 1.21%, and 1.05%, respectively. Return on average equity (ROE), a measure of the return on stockholders' investment for 1998, 1997, and 1996 was 2.22%, 12.88%, and 11.70%, respectively.

The decline in 1998 net income, ROA, and ROE was due primarily to the one-time costs associated with the merger of Horizon. Merger-related charges of $13.55 million, including fees of $4.8 million for advisory and other professional services, data processing contract termination costs of $1.7 million, and employee severance costs of $3.2 million, were recorded during the fourth quarter of 1998, after the merger of Horizon received necessary shareholder and regulatory approvals. Also included in merger-related charges is $2.5 million associated with the write down of goodwill, determined to be impaired as a result of the merger, related to a branch previously acquired by Horizon. The goodwill was determined to be impaired based on an undiscounted cash flow analysis of the branch and the amount to be written-off was based on the excess of the carrying value over the discounted net future revenue of the branch.

In addition to merger-related charges, the Company recorded $2.93 million of additional loan loss provision during the fourth quarter of 1998 as a result of identifying credit quality deterioration within the indirect lending portfolio and other credit quality issues identified in one of the Company's geographic markets. Specifically, during the fourth quarter management identified additional credit quality concerns associated with its indirect automobile lending relationships that resulted in increases to the loan loss provision of approximately $1.51 million. During the fourth quarter, management also quantified certain credit quality exposures within one of its geographic markets that resulted in an additional increase to the loan loss provision of approximately $1.42 million.

Also associated with the merger, the Company recorded a $1.80 million charge to earnings related to conforming operating and accounting policies and procedures of the two companies. The Company also recorded a $2.00 million charge to earnings in its mortgage banking segment, in part due to the changing economic environment within the industry. As exit strategies for the Company's junior lien mortgage loans became less profitable during the fourth quarter, the Company initiated an overall restructuring of the retail and wholesale divisions, which includes combining these separate entities into one division, restructuring and diversifying the product lines and developing a comprehensive marketing plan.

As more fully discussed in the Other Income and Expense section, total other income increased $39.81 million or 122% during 1998 while total other expenses increased $50.31 million, excluding fourth quarter charges, or 63%. While the other financial services segment represented approximately $4.99 million and $5.44 million of the increases in other income and expense, respectively, the mortgage banking segment represented $29.78 million and $36.05 million of the increases in those respective classifications. The increases in other income and expense reflect the Company's emphasis on diversifying its operations into revenue sources independent of the net interest margin.

INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Average interest-earning assets increased $332.82 million or 16.42% during 1998 from $2.03 billion in 1997 to $2.36 billion in 1998. Of this increase, the acquisition of Del Amo represented approximately $85 million (primarily in the real estate loan classification), increases in the average balance of loans held for sale represented approximately $70 million, and increases in the average balance of retained interests in securitized loan pools represented $24.35 million. The remaining $154 million increase, 7.60% of the 1997 average earning assets balance, reflects the Company's continued growth in its existing operating markets. This in-market growth, primarily in real estate and commercial loan products, is attributable to the Company's community banking philosophy of retaining local autonomy at its banking divisions and emphasis on community-based banking relationships.

Of the $332.82 million increase in interest-earning assets, approximately $239 million is attributable to the community banking segment. The acquisition of Del Amo and in-market growth, as described above, represents the majority of this growth. Increases in the average balances of loans held for sale and retained interests in securitized loan pools are derived from the Company's mortgage banking segment. These are the direct result of the Company's investment in and creation of its retail origination and correspondent lending divisions and its loan securitization program during the fourth quarter of 1997.

The increase in interest-earning assets resulting from retained interests in securitized loan pools is the result of the Company's four loan securitizations transacted during 1998, which yielded approximately 9.51% during 1998.

From 1996 to 1997, average interest-earning assets increased $134.63 million or 7.11%, from $1.89 billion to $2.03 billion. The majority of this increase was due to growth in the community banking segment resulting from a $140.40 million or 10.91% increase in portfolio loans. Of this increase, growth within the commercial and consumer loan classifications represented $63.25 million and $55.84 million, respectively. Commercial loan growth was attributable to the Company's more active solicitation of commercial loan volume, while increases in the consumer loan portfolio were primarily related to certain loan products previously offered by the Horizon-affiliated banks.

Average interest-bearing liabilities increased approximately $319.36 million or 18.84% to $2.01 billion in 1998 from $1.69 billion in 1997. Of this increase, the acquisition of Del Amo represented approximately $83 million or 4.90%. Average interest-bearing deposit growth, excluding Del Amo, represented approximately $157.44 million or 9.29% as the Company's banking subsidiaries continued to experience increases in deposit market share within their existing markets.

The average balance of long term debt increased approximately $49.80 million during 1998 as the Company took advantage of declines in longer term interest rates, utilizing long term borrowing facilities through the Federal Home Loan Bank that are available to its subsidiary banks. This additional funding was used to finance the growth experienced in the Company's loan portfolio and loans held for sale balances.

Although a portion of the increase in long term debt is attributable to the General Corporate operating segment, the majority of the increase in long term debt and increases in the deposit base are associated with the Company's community banking segment. Also during 1998, the Company, through its wholly-owned trust subsidiaries, issued $87.50 million of trust preferred securities, resulting in an average balance for 1998 of $32.45 million. While portions of the proceeds received were used for general corporate purposes, the majority of the proceeds were used to either provide necessary capital to the mortgage banking segment or to repay long term debt that had originally been obtained to provide such capital. Therefore, all of the interest expense associated with the trust preferred securities is considered by management in its evaluation of the profitability of the mortgage banking segment.

From 1996 to 1997, interest-bearing liabilities increased approximately $109.50 million or 6.9%. Of this increase, $74.05 million was attributable to increases in core deposits. This increase was primarily associated with, and used to fund, increases in the loan portfolio of the community banking segment. The remaining increase of $35.45 million was attributable to increases in the average balances of short- and long-term borrowings primarily to fund loan growth.

TABLE TWO
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)

                                           1998                             1997                              1996
                               Average                 Yield/   Average                Yield/     Average                Yield/
                               Balance    Interest     Rate     Balance     Interest   Rate       Balance    Interest    Rate
                           -------------------------------------------------------------------------------------------------------
EARNING ASSETS
Loans (1):
  Commercial and              $499,781    $44,745       8.95%   $466,704    $42,025     9.00%    $403,455     $38,457       9.53%
   industrial
  Real estate                  805,380     64,285       7.98     623,456     53,242     8.54      602,144      48,155       8.00
  Consumer obligations         371,667     38,506      10.36     337,109     34,967    10.37      281,269      31,597      11.23
                           -------------------------------------------------------------------------------------------------------
   Total loans               1,676,828    147,536       8.80   1,427,269    130,234     9.12    1,286,868     118,209       9.19
Loans held for sale            250,968     23,013       9.17     180,543     17,847     9.89      171,308      15,394       8.99
Securities:
  Taxable                      279,086     17,189       6.16     311,560     19,840     6.37      331,184      20,718       6.26
  Tax-exempt (2)                98,748      7,623       7.72      98,153      7,811     7.96       88,790       7,160       8.06
                           -------------------------------------------------------------------------------------------------------
   Total securities            377,834     24,812       6.57     409,713     27,651     6.75      419,974      27,878       6.64
Retained interest in            24,346      2,315       9.51           -          -        -            -           -          -
securitized loans
Federal funds sold              30,191      1,672       5.54       9,817        489     4.98       14,561         840       5.77
                           -------------------------------------------------------------------------------------------------------
   Total earning assets      2,360,167    199,348       8.45   2,027,342    176,221     8.69    1,892,711     162,321       8.58
Cash and due from banks         58,750                            71,311                           59,429
Bank premises and               63,991                            48,610                           44,286
equipment
Other assets                   101,858                            51,467                           41,407
Less: allowance for
  possible                     (18,667)                          (18,270)                         (15,845)
  loan losses
                            -----------------------------------------------------------------------------------------------------
   Total assets             $2,566,099                        $2,180,460                       $2,021,988
                            =====================================================================================================

INTEREST-BEARING
LIABILITIES
Demand deposits               $299,543      $9,447      3.15%  $262,036     $7,782     2.97%    $238,240      $6,728       2.82%
Savings deposits               411,886      12,026      2.92    393,088     12,075     3.07      430,009      13,609       3.16
Time deposits                  987,170      52,959      5.36    803,035     42,949     5.35      715,865      37,325       5.21
Short-term borrowings          187,140       9,677      5.17    190,467      9,945     5.22      176,480       8,984       5.09
Long-term debt                  95,926       6,223      6.49     46,129      3,028     6.56       24,666       1,688       6.84
Trust preferred                 32,452       3,005      9.26          -          -        -            -           -          -
  securities                -----------------------------------------------------------------------------------------------------
   Total                     2,014,117      93,337      4.63  1,694,755     75,779     4.47    1,585,260      68,334       4.31
     interest-bearing
     liabilities
Demand deposits                276,396                          240,540                          232,365
Other liabilities               39,970                           41,051                           22,440
Stockholders' equity           235,616                          204,114                          181,923
                            -----------------------------------------------------------------------------------------------------
   Total liabilities and
     stockholders' equity   $2,566,099                       $2,180,460                       $2,021,988
                            =====================================================================================================
   Net interest income                    $106,011                        $100,442                           $93,987
                            =====================================================================================================
   Net yield on earning                                 4.49%                          4.95%                               4.97%
     assets                 =====================================================================================================

(1)For purposes of this table, non-accruing loans have been included in average balances and loan fees, which are immaterial, have been included in interest income.

(2)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 35% in 1998 and 1997 and 34% in 1996.

NET INTEREST INCOME
Net interest income is generally most significantly impacted by activities conducted within the community banking operation segment. However, the mortgage banking segment also affected net interest income during 1998 through net interest income earned on loans held for sale, retained interests in securitized loan pools, and the cost of capital utilized by the Company to finance mortgage-banking activities.

Although net interest income, on a tax equivalent basis, increased $5.57 million or 5.54% during 1998, the Company experienced an overall decline in its net interest margin of 46 basis points from 4.95% in 1997 to 4.49%. Within the community banking segment, the yield earned on real estate loans declined 59 basis points in 1998 as interest rates on residential real estate loans reached record lows nationwide. Although yields on the commercial and consumer obligation portfolios remained relatively stable, the rate decline in the real estate portfolio resulted in an overall decline of 32 basis points for the total loan portfolio. While the return on the loan portfolio decreased from 9.12% in 1997 to 8.80% in 1998, the average cost of total interest and noninterest-bearing deposits increased 7 basis points from 3.70% in 1997 to 3.77% in 1998. This increase was partially offset by a 5 basis point decline in short-term borrowing interest rates during 1998.

Within the mortgage banking segment, the yield earned on loans held for sale declined 72 basis points during 1998 from 9.89% in 1997 to 9.17%. This decline was also due to changes in the residential real estate interest rate environment. Volume increases in loans held for sale resulted in $6.54 million of additional interest income, partially offset by a $1.37 million decline due to interest rate changes. During 1998, the Company earned $2.32 million interest income resulting from its retained interest in its five securitized loan pools, compared to no similar income in 1997. Partially offsetting increases in interest income resulting from mortgage banking activities, the cost of trust preferred securities, used primarily to capitalize mortgage banking operations, represented $3.01 million in interest expense during 1998 with no similar cost in 1997.

TABLE THREE
RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)

                                           1998 vs. 1997              1997 vs. 1996
                                        Increase (Decrease)        Increase (Decrease)
                                         Due to Change In:          Due to Change In:
                                     Volume    Rate      Net    Volume    Rate      Net
                                    -------------------------------------------------------
INTEREST INCOME FROM
Loans:
  Commercial and industrial           $2,963   $ (243)  $2,720   $5,790   $(2,222)  $3,568
  Real estate                         14,707   (3,664)  11,043    2,120     2,967    5,087
  Consumer obligations                 3,580      (41)   3,539    6,126    (2,756)   3,370
                                    -------------------------------------------------------
  Total loans                         21,250   (3,948)  17,302   14,036    (2,011)  12,025
Loans held for sale                    6,537   (1,371)   5,166      859     1,594    2,453
Securities:
  Taxable                             (2,016)    (635)  (2,651)  (1,302)      424     (878)
  Tax-exempt (1)                          47     (235)    (188)     720       (69)     651
                                    -------------------------------------------------------
  Total securities                    (1,969)    (870)  (2,839)    (582)      355     (227)
Federal funds sold                     1,122       61    1,183     (262)      (89)    (351)
Retained interest in securitized       2,315        -    2,315        -        -        -
loans
                                    -------------------------------------------------------
Total interest-earning assets        $29,255  $(6,128) $23,127  $14,051   $  (151) $13,900
                                    =======================================================

INTEREST EXPENSE ON
Demand deposits                       $1,162   $  503   $1,665   $  745   $   309   $1,054
Savings deposits                         563     (612)     (49)  (1,152)     (382)  (1,534)
Time deposits                          9,878      132   10,010    4,643       981    5,624
Short-term borrowings                   (173)     (95)    (268)     636       325      961
Long-term debt                         3,231      (36)   3,195    1,412       (72)   1,340
Trust preferred securities             3,005        -    3,005        -        -        -
                                    -------------------------------------------------------
Total interest-bearing liabilities   $17,666   $ (108) $17,558   $6,284    $1,161   $7,445
                                    =======================================================
NET INTEREST INCOME                  $11,589  $(6,020)  $5,569   $7,767   $(1,312)  $6,455
                                    =======================================================

(1)Fully federal taxable equivalent using a tax rate of approximately 35% in 1998 and 1997 and 34% in 1996.

The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

OTHER INCOME AND EXPENSES
Total other income and total other expenses were significantly affected by three separate series of events that occurred during 1998. First, the Company's retail origination of junior lien mortgage loans became fully operational during the first quarter of 1998, after the platforms for the originations were established during the fourth quarter of 1997. The impact of this product line is reflected within the Company's mortgage banking segment. Second, the Company's acquisitions of insurance, direct mail, and internet service providers resulted in increases in other income and expense, which are reflected within the other financial services operating segment. Third, the Company's merger with Horizon resulted in significant charges to earnings, impacting other expenses, which are reflected within the community banking and general corporate operating segments.

Within the community banking segment, other income increased approximately $5.50 million or 39.67%, from $13.86 million in 1997 to $19.36 million in 1998. Generally, this increase is associated with the overall volume growth of products offered by the banking divisions and the related fee income generated by these products. Other expenses increased approximately $20.94 million or 34.23% during 1998, from $61.17 million in 1997 to $82.10 million. Fourth quarter charges to earnings of approximately $5.87 million, comprised primarily of a $2.50 million write down in the recorded value of goodwill determined to be impaired, and $1.58 million associated with employee severance costs, represented 28% of the 1998 increase in other expenses within this segment. Increases in occupancy, depreciation, maintenance and data processing represented approximately $3.85 million or 18% of the increase during 1998. Additionally, the acquisition of Del Amo in 1998 further increased total other expenses by approximately $2.47 million or 12% of the 1998 increase.

Other income within the mortgage banking segment increased $29.78 million or 169% during 1998, from $17.64 million in 1997 to $47.41 million. Net origination fees on junior lien mortgage loans increased $12.03 million in 1998, representing 40% of the increase. Gains recognized from the sale or securitization of mortgage loans increased approximately $9.85 million, representing 33% of the increase. Additionally, mortgage loan servicing fees increased $7.13 million during 1998, representing 24% of the increase in other income within the mortgage banking segment. Each of these increases was primarily the result of the Company's fourth quarter 1997 investment in its network of retail origination platforms and the corresponding development of exit strategies for junior lien mortgage loans, including third-party loan sales and securitizations. Increases realized from mortgage loan servicing were primarily the result of fees earned from servicing securitized loan pools. Additionally, in September 1998, the servicing division completed the acquisition of the right to service an additional $535 million of junior lien mortgage loans from a third party, which resulted in increased servicing fees recognized during the fourth quarter.

Other expenses within the mortgage banking segment also experienced significant increases, from $14.70 million in 1997 to $50.75 million in 1998, an increase of $36.05 million or 245%. Of this increase, approximately $25.04 million is associated with the advertising for and direct mail solicitation of junior lien mortgage loans. Additionally, employee compensation and benefits represented an increase of $3.77 million during the year. Costs associated with the four loan securitizations completed during the year, primarily underwriting and other professional fees, represented $2.80 million of the 1998 increase in other expenses. Finally, the Company also recorded a $2.00 million charge to earnings during the fourth quarter of 1998 involving the restructuring of its retail origination and wholesale acquisition divisions.

With the December 1997 acquisition of RMI, Ltd. and the first and second quarter acquisitions of Jarrett/Aim Communications, Morton Specialty Insurance Partners, Inc., Citynet Corporation and MarCom, Inc., the other financial services operating segment was essentially formed during 1998. As a result, after minimal other income and expense in 1996 and 1997, this operating segment realized $11.13 million of other income and $11.50 million of other expense during 1998. Of these amounts, $5.70 million, representing services provided to the banking segments, is eliminated in the Consolidated Statements of Income.

The general corporate segment, which generally includes the parent company, recognized an increase in other expenses of approximately $8.23 million or 95% during 1998. This increase was primarily due to merger-related charges associated with the Company's merger of Horizon. Of the increase, $4.61 million was the result of advisory and other professional fees, $1.70 million due to the termination of data processing contracts previously entered into by Horizon, and $1.60 million associated with employee severance costs.

From 1996 to 1997, total other income increased $16.14 million or 98%, from $16.47 million in 1996 to $32.61 million in 1997. The majority of this increase, $13.71 million, is attributable to growth within the mortgage banking segment, while $2.13 million is associated with the community banking segment. Within the mortgage banking segment, income derived from mortgage loan servicing increased $8.98 million, from $2.96 million in 1996 to $11.93 million in 1997. Additionally, gains generated from sales of mortgage loans increased $3.13 million in 1997, from $1.26 million in 1996 to $4.39 million in 1997. Other expenses increased $14.83 million or 21% in 1997, from $70.07 million in 1996 to $84.90 million. As with the increase in other income, the increase in other expenses was primarily due to activities within the mortgage banking segment. Within this segment, other expenses increased from $4.64 million in 1996 to $14.70 million in 1997, an increase of $10.07 million or 217%. Of this increase, $6.86 million was associated with costs incurred by the mortgage loan servicing division, primarily attributed to salaries and employee benefits. The remaining $3.21 million of increase in other expenses within the mortgage banking segment was due to costs incurred by the retail origination platforms, established during the fourth quarter of 1997.

INCOME TAXES
Income tax expense for the year ended December 31, 1998 was $6.49 million, compared to $14.51 million and $11.49 million for the years ended December 31, 1997 and 1996, respectively. The Company's effective tax rates for 1998, 1997, and 1996 were 55.37%, 35.57%, and 35.06%, respectively. The significant increase in the effective tax rate for 1998 was the result of certain non-deductible, merger-related expenses incurred by the Company. Investment banker advisory fees, regulatory filing fees, valuation adjustments related to impaired intangible values, and certain other merger-related charges were non-deductible for income tax purposes, but recognized as expense for financial reporting purposes.

MARKET RISK MANAGEMENT

Market risk to the Company is the risk of loss arising from changes in current and future cash flows, fair values, earnings, or capital due to adverse movements in interest rates. The Company seeks to reduce interest rate risk through asset and liability management, where the goal is to optimize the balance between earnings and interest rate risk. The Company's asset and liability management function is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. Management measures interest rate risk through an interest sensitivity gap analysis as illustrated in TABLE FOUR and through performing an earnings sensitivity analysis which is further discussed in this section.

At December 31, 1998, the one year period shows a negative gap (liability sensitive) of $632 million. This analysis is a "static gap" presentation and movements in deposit rates offered by the Bank lag behind movements in the prime rate. Such time lags affect the repricing frequency of many items on the Company's balance sheet. Accordingly, the sensitivity of deposits to changes in market rates may differ significantly from the related contractual terms. TABLE FOUR is first presented without adjustment for expected repricing behavior. Then, as presented in the "management adjustment" line, these balances have been notionally distributed over the first three periods to reflect those portions of such accounts that are expected to reprice fully with market rates over the respective periods. The distribution of the balances over the repricing periods represents an aggregation of such allocations and is based upon historical experience with individual markets and customers. Management expects to continue the same pricing methodology in response to market rate changes; however, management adjustments may change as customer preferences, competitive market conditions, liquidity, and loan growth change. Also presented in the management adjustment line are loan prepayment assumptions, which may differ from the related contractual terms of the loans. These balances have been distributed over the four periods to reflect those loans that are expected to be repaid in full prior to their maturity date. After management adjustments, TABLE FOUR shows a negative gap in the one-year period of $604 million. Generally, a negative gap position is advantageous when interest rates are falling because interest-bearing liabilities are being repriced at lower rates and in greater volume, which has a positive effect on net interest income. However, when interest rates are rising, this position produces the converse effect.

TABLE FOUR
INTEREST RATE SENSITIVITY GAPS
(in thousands)

                                 1 TO 3 MO.   3 TO 12 MO. 1 TO 5 YRS. OVER 5 YRS.   TOTAL
                                -----------------------------------------------------------
ASSETS
  Gross loans                     $393,009   $252,135     $851,285    $219,500   $1,715,929
  Loans held for sale              246,287           -           -           -      246,287
  Securities                        33,844    111,625      209,211      41,042      395,722
  Federal funds sold                31,911           -           -           -       31,911
  Retained interest                 65,623           -           -           -       65,623
                                -----------------------------------------------------------
Total interest-earning assets      770,674    363,760    1,060,496     260,542    2,455,472

LIABILITIES
  Savings and NOW accounts         707,208          -            -           -      707,208
  All other interest-bearing       283,928    508,792      260,987          79    1,053,786
  deposits
  Short-term borrowings            176,204      7,214            -           -      183,418
  Long-term debt                    47,719     35,000        5,000      15,000      102,719
  Trust preferred securities             -          -            -      87,500       87,500
                                -----------------------------------------------------------
Total interest-bearing           1,215,059    551,006      265,987     102,579    2,134,631
liabilities
                                -----------------------------------------------------------
Interest sensitivity gap         $(444,385) $(187,246)    $794,509    $157,963     $320,841
                                -----------------------------------------------------------
Cumulative sensitivity gap       $(444,385) $(631,631)    $162,878    $320,841
                                ===========================================================
Management adjustments           $   9,319    $27,957      $17,795    $(55,071)
                                ===========================================================
Cumulative management
adjusted gap                     $(435,066) $(603,674)    $180,673    $265,770
                                ===========================================================

The table above includes various assumptions and estimates by management as to maturity and repricing patterns. Future interest margins will be impacted by balances and rates which are subject to change periodically throughout the year.

In addition to the interest rate sensitivity gap analysis, the Company performs an earnings sensitivity analysis to identify the impact of changes in interest rates on its net interest income. Since the simulated gap analysis incorporates management assumptions as noted in the previous gap analysis discussion, actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.

The Company's policy objective is to avoid negative fluctuations in net interest income of 10% within a twelve-month period. As of December 31, 1998, the Company had the following estimated earnings sensitivity profile:

Basis Point Percentage Change
Change in
in Interest Rates Net Interest

                       Income
------------------------------------

   200 point           (9.79)%
   increase
   100 point           (1.52)
   increase
   100 point            3.91
   decrease
   200 point            9.05
   decrease

The results of the simulation model indicate that an immediate and sustained 200 basis point increase in interest rates would result in a corresponding reduction in net interest income of 9.79% over a twelve-month period, while a 200 basis point decrease in interest rates would result in an increase of 9.05% in net interest income within one year. Similarly, an immediate and sustained 100 basis point increase in interest rates would reduce net interest income by 1.52%, while a 100 basis point decrease in interest rates would result in a 3.91% increase in net interest income over a twelve-month period.

Liquidity: The Company manages its liquidity position to provide necessary funding for asset growth and to ensure that the funding needs of its customers can be satisfied promptly. Liquidity management is accomplished by maintaining a significant portion of the Company's investment portfolio classified as available-for-sale, maintaining sufficient borrowing capacity with the Company's lenders and providing consistent growth in the core deposit base of its banking subsidiaries. The Company also utilizes its access to the capital markets as a tool for managing its liquidity position.

During 1998, through the issuances of asset-backed and trust preferred securities, the Company successfully utilized the capital markets to diversify its available funding sources. Additionally, the Company has entered into agreements with three investment banking firms to issue over $100 million of the Company's certificates of deposit. The certificates of deposit can be issued in maturities of up to five years at rates equal to a comparable Treasury instrument at the time of issuance plus a market-based spread. The Company is not committed to issuing a pre-determined amount of its certificates of deposit under these agreements, the use of which is at the sole discretion of the Company. At December 31, 1998 and 1997, $22.0 million and $2.0 million, respectively, of certificates of deposit had been sold under these agreements at an average interest rate of 5.36% and 5.70%, respectively. The average term of the issued certificates of deposit was 1.5 years and 2.0 years at December 31, 1998 and 1997, respectively.

An additional source of liquidity includes the parent company's $35.0 million revolving loan agreement. At December 31, 1998, $15.0 million was outstanding pursuant to the terms of the agreement. As necessary, the parent company has used funds available from this facility to provide additional capital to its subsidiaries, to finance merger and acquisition activity, and to fund internal growth and expansion.

As available, dividends from the Company's subsidiaries have been and will continue to be used to satisfy the cash needs of the parent company. As more fully discussed in NOTE FOURTEEN, during 1999, the subsidiary banks can, without prior regulatory approval, declare dividends of approximately $30.26 million to the parent company, plus net profits earned during the year.

The Company's cash and cash equivalents, represented by cash, due from banks, and federal funds sold, are a product of its operating, investing and financing activities as set forth in the Consolidated Statements of Cash Flows included herein. The increase in cash used in the Company's operating activities during 1998 was generally associated with a $31.52 million increase in net fundings of loans held for sale. Additionally, overcollateralization requirements associated with loan securitizations transacted during 1998 represented an additional $33.20 million use of cash during the year. This increase in cash uses is reflected in the increase in other assets within the Consolidated Statements of Cash Flows. Also impacting the increased use of cash in 1998, the change in net income for the year, a decline of $21.06 million as compared to 1997, resulted in less cash provided by operating activities for the Company.

Cash used in investing activities increased in 1998 from $75.43 million in 1997 to $162.01 million in 1998, primarily the result of activity within the Company's investment portfolio.

To finance increases in the loans held for sale balance, the investment portfolio and other growth experienced during 1998, the Company primarily utilized cash provided by deposit growth and the issuance of trust preferred securities, as set forth in the financing activities section of the Consolidated Statements of Cash Flows. The net increase in deposits in 1998 was $182.04 million, compared to a net increase of $76.47 million during 1997, as the Company continued to experience core deposit growth within the markets of its subsidiary banks. Net increases in short term borrowings and long term debt approximated $32.75 million during 1998, compared to a net increase of $11.69 million during 1997. Additionally, the net proceeds from the issuance of trust preferred securities in 1998 were utilized to finance the overall growth of the Company's consolidated balance sheet during the year, principally within the mortgage banking business segment.

INVESTMENTS
As illustrated in TABLE FIVE, the Company's investment portfolio is comprised primarily of U.S. Treasury and other U.S. government agency securities. As of December 31, 1998, 1997, and 1996, investments in these securities represented 75%, 79%, and 67% of the total investment securities portfolio. The remaining investments within the portfolio include securities of state and local subdivisions and other debt and equity securities. The Company's investment portfolio is structured to provide flexibility in managing liquidity and interest rate risk, while providing acceptable rates of return. Although the Company reclassified its entire held-to-maturity securities portfolio to the available-for-sale classification in June 1997, Horizon maintained a portion of its investment portfolio in the held-to-maturity category. Such amounts are reflected in the 1998 and 1997 held-to-maturity classification in TABLE FIVE.

The Company had $1.4 million in structured notes as of December 31, 1998. All structured notes are federal agency securities that are classified as available for sale. They have a weighted average coupon of 4.43% and a weighted average maturity of 2.7 years. The impact of holding these securities on the results of operations was immaterial for the period ending December 31, 1998.

TABLE FIVE
INVESTMENT PORTFOLIO
(in thousands)

                                                               CARRYING VALUES AS OF
                                                                    DECEMBER 31
                                                            1998       1997       1996
                                                         ----------------------------------
Securities available-for-sale:
  U.S. Treasury and other U.S. government corporations      $258,095   $258,936   $261,445
   and agencies
  States and political subdivisions                           69,002     57,116     32,718
  Other                                                       29,562     20,724     34,705

Securities held to maturity:
  U.S. Treasury and other U.S. government corporations             -          -     15,416
   and agencies
  States and political subdivisions                           39,063     41,554     67,756
  Other                                                            -          -        546
                                                         ----------------------------------
   Total                                                    $395,722   $378,330   $412,586
                                                         ==================================

At December 31, 1998, there were no securities of any non-governmental issuers whose aggregate carrying or market value exceeded 10% of stockholders' equity.

                                                       MATURING
                                 Within      After One But      After Five But         After
                                One Year      Within Five        Within Ten         Ten Years
                                                 Years               Years
                             Amount   Yield  Amount   Yield      Amount  Yield     Amount  Yield
                            ----------------------------------------------------------------------
U.S. Treasury and other
  U.S. government           $42,460   6.22% $150,460   5.97%     $60,710  6.54%    $4,465  7.39%
  corporations and
  agencies
States and political          4,120   7.90    42,558   7.94       43,219  7.79     18,168  7.36
subdivisions
Other                        22,537   4.43     6,748   6.98            -     -        277  7.15
                            ----------------------------------------------------------------------
   Total                    $69,117   5.73% $199,766   6.42%    $103,929  7.06%   $22,910  7.36%
                            ======================================================================

Weighted average yields on tax-exempt obligations of states and political subdivisions have been computed on a fully federal tax-equivalent basis using a tax rate of approximately 35%.

LOAN PORTFOLIO
The composition of the Company's loan portfolio is presented in the following table:

TABLE SIX
(in thousands)

                                                           DECEMBER 31
                                         1998        1997         1996        1995         1994
                                      ------------------------------------------------------------
Commercial, financial and               $509,214    $464,678     $442,981   $417,828     $343,164
agricultural
Real estate-mortgage                     842,727     676,828      574,897    537,097      492,490
Installment loans to individuals         363,988     367,095      327,222    337,786      315,225
                                      ------------------------------------------------------------
   Total loans                        $1,715,929  $1,508,601   $1,345,100 $1,292,711   $1,150,879
                                      ============================================================

The loan portfolio increased 13.74% in 1998, from $1.51 billion at December 31, 1997, to $1.72 billion at December 31, 1998. Of this $207.33 million increase, the acquisition of Del Amo represented $86.98 million or 5.72%. The remaining $120.35 million or 7.98% increase is due to the Company's continued growth in its existing markets. The Company grants portfolio loans to customers generally within the market areas of its subsidiary banks. Although the Company has, in recent years, more actively solicited commercial loan volume, the loan portfolio remains relatively concentrated in residential real estate loans. Approximately 49% of the total portfolio is comprised of residential real estate loans at December 31, 1998, compared to 45% of the total portfolio at December 31, 1997. The increase in the percentage of the total portfolio comprised of real estate loans is due to the acquisition of Del Amo, which is predominantly a lender of mortgage loans.

The following table shows the maturity of loans outstanding as of December 31, 1998:

                                                            MATURING
                                      -------------------------------------------------
                                       Within         After One      After      Total
                                      One Year        But Within   Five Year
                                                      Five Years
                                     --------------------------------------------------
Commercial,financial                 $298,004        $174,999      $36,211     $509,214
 and  agricultural
Real estate-mortgage                  283,561         369,615      189,551      842,727
Installment loans to
 individuals                           66,154         276,677       21,157      363,988
                                     --------------------------------------------------
   Total loans                       $647,719        $821,291     $246,919   $1,715,929
                                     ==================================================

Loans maturing after one year with:
  Fixed interest rates               $789,910
  Variable interest rates             278,300
                                   ----------
   Total                           $1,068,210
                                   ==========

ALLOWANCE AND PROVISION FOR LOAN LOSSES
Management systematically monitors the loan portfolio and the adequacy of the allowance for loan losses on a monthly basis to provide for losses inherent in the portfolio. Through the Company's internal loan review department, 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. Individual credits are selected throughout the year for detail loan reviews, which are utilized by management to assess the risk in the portfolio and the adequacy of the allowance. Due to the nature of commercial lending, evaluation of the adequacy of the allowance as it relates to these loan types is often based more upon specific credit review, with consideration given to historical charge-off percentages and general economic conditions. Conversely, due to the homogeneous nature of the real estate and installment portfolios, the portions of the allowance allocated to those portfolios are primarily based on prior charge-off history and general economic conditions, with less emphasis placed on specifically reviewing individual credits, unless circumstances suggest that specific reviews are necessary. In these categories, specific loan reviews would be conducted on higher balance and higher risk loans. In evaluating the adequacy of the allowance, management considers both quantitative and qualitative factors. Quantitative factors include actual repayment characteristics and loan performance, cash flow analyses, and estimated fair values of underlying collateral. Qualitative factors generally include overall trends within the portfolio, composition of the portfolio, changes in pricing or underwriting, seasoning of the portfolio, and general economic conditions. Reserves not specifically allocated to individual credits are generally determined by analyzing potential exposure and other qualitative factors that could negatively impact the adequacy of the allowance. Determination of such reserves is subjective in nature and requires management to periodically reassess the validity of its assumptions. Differences between net charge-offs 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 of December 31, 1998, management is of the opinion that the consolidated allowance for loan losses is adequate to provide for losses on existing loans within the portfolio.

At December 31, 1998, the allowance for loan losses was $17.61 million or 1.03% of total year-end loans compared to $18.19 million or 1.21% and $16.89 million or 1.26% as of December 31, 1997 and 1996, respectively. These numbers reflect the historical trend of both the Company and Horizon as if the companies had been combined. As management has worked aggressively to collect problem credits and restructure its post-merger portfolio, charge-offs have reduced the allowance. The 1998 decrease in the allowance and the related percentages of the allowance to total year-end loans is primarily due to certain charge-offs occurring in the fourth quarter of 1998 related to Horizon's indirect lending portfolio, as more fully discussed below. In addition, the level of charge-off activity throughout 1998 for the installment loan portfolio compared to the previous years has increased due to the additional indirect lending business that Horizon concentrated on in 1998 and 1997. However, indirect lending has not been a significant product line of the Company nor does management expect it to be in the future. As a result, Horizon began to curtail its indirect lending in the fourth quarter of 1998 and, accordingly, increased the number of loans charged-off. Going forward, management anticipates that as a result of the curtailment of the indirect lending business and other restructuring of the portfolio, the allowance will be adequate to absorb any remaining future charge-offs in its portfolio.

During 1998, the Company recorded loan charge-offs of approximately $11.47 million and recorded recoveries of $1.62 million resulting in net charge-offs of $9.85 million. This represents an increase of $6.57 million or 200% from 1997 net charge-offs of $3.28 million. Loans charged-off within the installment loan portfolio represented approximately $2.94 million of this increase. Charge-offs related to indirect automobile loans offered by certain Horizon banks, represented approximately $2.4 million of this increase. As part of the restructuring resulting from the merger of Horizon into the Company, participation in indirect automobile lending was significantly reduced during the fourth quarter of 1998. Commercial loan charge-offs represented $2.4 million of the 1998 increase, while real estate loan charge-offs comprised the remaining $1.23 million. The increase in commercial loan charge-offs can primarily be attributed to credit exposure related to three significant credits associated with the former Horizon banks. Included primarily in the real estate charge-offs, and to a lesser extent the commercial and installment portfolios, are charge-offs of $1.20 million associated with the Company's identification of credit quality issues within one of its geographic markets.

As these exposures were quantified, management increased the Company's provision for loan losses accordingly. As a result, the provision for loan losses increased $4.42 million or 109% during 1998. As previously indicated, fourth quarter quantification of additional indirect lending portfolio expected losses and management's restructuring of this program resulted in a $1.51 million charge to earnings, recorded through the loan loss provision. Additionally, $1.42 million of additional loan loss provision associated with the Company's quantification of loss exposure within one of its geographic markets was charged to earnings during the fourth quarter.

Non-performing loans, consisting of non-accrual, past-due and restructured credits, increased $1.57 million in 1998, of which $1.04 million was included in the non-accrual category. This increase is due, in part, to the second quarter acquisition of Del Amo, which reported $1.33 million of non-accrual loans at December 31, 1998. As a general policy, Del Amo has historically reclassified all loans greater than 90 days past due to non-accrual status and, therefore, has a proportionately larger balance of non-accrual loans, but has no loans past due 90 days and accruing interest.

Tables Seven, Eight and Nine detail loan performance and analyze the allowance for loan losses.

TABLE SEVEN
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)

                                                              DECEMBER 31
                                              1998      1997      1996      1995     1994
                                          -------------------------------------------------
Balance at beginning of year               $18,190  $16,888   $15,088   $14,630   $13,510
Charge-offs:
  Commercial, financial and agricultural    (2,385)    (906)   (1,625)   (1,213)     (906)
  Real estate-mortgage                      (1,375)    (252)     (323)     (367)     (351)
  Installment loans to individuals          (7,709)  (4,594)   (3,063)   (2,540)   (2,003)
                                          -------------------------------------------------
  Totals                                   (11,469)  (5,752)   (5,011)   (4,120)   (3,260)

Recoveries:
  Commercial, financial and agricultural       297    1,219       794       157       310
  Real estate-mortgage                          43      149       191        44        49
  Installment loans to individuals           1,283    1,103       814       768       717
                                          -------------------------------------------------
  Totals                                     1,623    2,471     1,799       969     1,076
                                          -------------------------------------------------
Net charge-offs                             (9,846)  (3,281)   (3,212)   (3,151)   (2,184)
Provision for loan losses                    8,481    4,064     5,012     3,609     3,304
Balance of acquired institution                785      519         -         -         -
                                          -------------------------------------------------
Balance at end of year                     $17,610  $18,190   $16,888   $15,088   $14,630
                                          =================================================

AS A PERCENT OF AVERAGE TOTAL LOANS
  Net charge-offs                              .58%     .23%      .25%      .26%      .21%
  Provision for loan losses                    .51      .28       .39       .30       .31
AS A PERCENT OF NONPERFORMING AND
  POTENTIAL PROBLEM LOANS
   Allowance for loan losses                118.59%  136.97%   142.67%   126.94%   143.83%
------------------------------------------------------------------------------------------

TABLE EIGHT
NONACCRUAL, PAST-DUE AND RESTRUCTURED LOANS
(in thousands)

                                                              DECEMBER 31
                                            1998      1997       1996       1995       1994
                                          -------------------------------------------------

Nonaccrual loans                             $8,844   $7,801    $5,200    $7,081    $6,087
Accruing loans past due 90 days or more       5,126    5,149     6,402     4,664     3,823
Restructured loans                              879      331       235       141       262
                                          -------------------------------------------------
                                            $14,849  $13,281   $11,837   $11,886   $10,172
                                          =================================================

During 1998, the Company recognized approximately $527,000 of interest income received in cash on nonaccrual and restructured loans. Approximately $1.04 million of interest income would have been recognized during the year if such loans had been current in accordance with their original terms. There were no commitments to provide additional funds on nonaccrual, restructured, or other potential problem loans at December 31, 1998.

Interest on loans is accrued and credited to operations based upon the principal amount outstanding. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest unless the loan is well collateralized and in the process of collection. When interest accruals are discontinued, interest credited to income in the current year that is unpaid and deemed uncollectible is charged to operations. Prior year interest accruals that are unpaid and deemed uncollectible are charged to the allowance for loan losses, provided that such amounts were specifically reserved.

TABLE NINE
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)

                                                                  DECEMBER 31
                                  1998             1997            1996              1995           1994
                       -----------------------------------------------------------------------------------
                                 Percent           Percent         Percent          Percent         Percent
                                 of                of              of               of              of
                                 Loans             Loans           Loans            Loans           Loans
                                 in Each           in Each         in Each          in Each         in Each
                                 Category          Category        Category         Category        Category
                                 to                to              to               to              to
                                 Total             Total           Total            Total           Total
                       Amount    Loans    Amount   Loans   Amount  Loans    Amount  Loans   Amount  Loans
                       ------------------------------------------------------------------------------------
Commercial,
 financial and          $6,270    29%     $7,284    31%    $6,549   33%     $5,931   32%   $5,151     30%
 agricultural
Real estate-mortgage     6,227    49       5,575    45      5,604   43       4,930   42     4,867     43
Installment loans to     5,113    22       5,331    24      4,735   24       4,227   26     4,612     27
 individuals
                       ------------------------------------------------------------------------------------
                       $17,610   100%    $18,190   100%   $16,888  100%    $15,088  100%  $14,630    100%
                       ====================================================================================

The portion of the allowance for loan losses that is not specifically allocated to individual credits has been apportioned among the separate loan portfolios based on the risk of each portfolio.

LOANS HELD FOR SALE
Loans held for sale represent mortgage loans the Company has either purchased or originated with the intent to sell or securitize and includes traditional fixed-rate and junior lien mortgage loans. Certain traditional fixed-rate mortgages are originated by the Company, with the intent to sell, servicing released, in the secondary market. This product line enables the Company to provide conventional, fixed-rate mortgage products to its customers, but minimize the interest-rate risk associated with fixed-rate loans. At December 31, 1998, conventional mortgage loans represented $45 million or 18.2% of the reported balance of loans held for sale.

Through the Company's correspondent lending division and four separate loan origination platforms, the Company purchases and originates junior lien and similar mortgage loans for sale or securitization. Generally, these loans are used by the borrower to finance property improvements or to consolidate personal debt. The correspondent lending division acquires loans either on a flow or bulk basis from an approved network of unaffiliated lenders. Additionally, through its retail origination divisions, located in West Virginia, California and Texas, the Company solicits loans directly from borrowers on a nationwide basis. These loans are generally expected to either be sold or securitized within 90 to 180 days. From 1994 through the first quarter of 1998, the Company participated in a whole loan purchasing program whereby the Company purchased HUD Title I home improvement and other junior lien mortgage loans. In May 1998, the Company terminated its participation in this program.

Although these loans are generally obtained from borrowers outside of the Company's community banking market areas, management believes that the geographic diversification of the loan pool reduces the risks associated with downturns in specific local economies. Because the retail and correspondent lending divisions originate and acquire these loans on a nationwide basis, the Company's risk related to geographic concentration is significantly reduced. At December 31, 1998, 11.89% of the loans held for sale were to borrowers located in California and no other state had a concentration of loans greater than 6.50%.

In addition to concentration risk, as discussed above, there are other risks associated with the junior lien mortgage pool. Such risks include credit risk related to the quality of the underlying loan and the borrower's financial capability to repay the loan, market risk related to the continued attractiveness of the loan product to both borrowers and end-investors, and interest rate risk related to potential changes in interest rates and the resulting repricing of both financial assets and liabilities. The Company manages this risk by continuously improving policies and procedures designed to reduce the risk of loss to a level commensurate with the return being earned on the Company's investment in this program.

The Company has established formal underwriting guidelines and quality control procedures which emphasize the creditworthiness of the borrower, with less focus placed on the value of the underlying collateral. Factors such as credit scores, debt-to-income ratios, mortgage credit history and others are factored into the lending decision for these loans. Additionally, property appraisals, in varying degrees, are required for certain loans. Other risk-reducing factors include the correspondent lending division's pre-approved list of lenders from whom loans may be acquired. Approval of lenders is based on due diligence procedures performed on each lender and continued evaluation of the performance of loans purchased from each lender.

During 1998, the Company originated $696 million and purchased $755 million in loans held for sale and sold $1.36 billion during the same period. This compares to originations of $97 million, purchases of $798 million, and sales of $851 million during 1997.

LOAN SECURITIZATIONS
One of the methods utilized by management to mitigate the risk of loss related to the origination and acquisition of junior lien mortgage loans is the securitization of these loans. By securitizing originated and purchased junior lien mortgage loans, the Company effectively removes these loans from its balance sheet by creating an investment security or securities, supported by the cash flows generated by these loans, and selling the resulting investment security or securities to independent third parties. As part of this process, the Company provides credit enhancement, in the form of overcollateralization, with respect to the investment security created. As a result, the Company does maintain a certain level of credit, prepayment and interest rate risk related to these loans. The risk maintained by the Company, however, is less than that which would be maintained had the Company held these loans on its balance sheet until the loans matured.

In return for this risk exposure, the Company receives on-going income from each securitization that is determined as a function of the "excess spread" derived from the securitized loans. The "excess spread", generally, is calculated as the difference between (A) the interest at the stated rate paid by borrowers and (B) the sum of pass-through interest paid to third-party investors and various fees, including trustee, insurance, servicing, and other similar costs. The "excess spread" represents income to be recognized by the Company over the life of the securitized loan pool.

During 1998, the Company completed four securitizations of junior lien mortgage loans with total loan balances approximating $463.13 million. This compares to one securitization of approximately $35 million of loans completed in December 1997. As of December 31, 1998 and 1997, the Company reported retained interests in these securitized loan pools of approximately $65.62 million and $4.36 million, respectively, including accrued interest. Assumptions used to estimate the retained interest include default rates approximating 10% cumulative losses, prepayment rates of 17-21% CPR, and a weighted-average discount rate of 12.23%. Management monitors the actual default and prepayment rates of each securitized pool on a monthly basis, in addition to the outstanding pool balance, to ensure the rates used to estimate the retained interest are still reasonable. Each of the securitized pools is serviced by the Company's mortgage loan servicing division.

LOAN SERVICING
City Mortgage Services, a division of City National Bank, was ranked as the seventh largest servicer of non-conforming loans in the country, according to a recently released national industry publication. This division has grown from a de-novo operation in 1996 to a servicing portfolio of $1.98 billion and approximately 81,000 accounts at December 31, 1998. Of the $1.98 billion servicing portfolio, $1.77 billion of loans are serviced for others at December 31, 1998, compared to $1.25 billion at December 31, 1997. Loans serviced for others are not included in the Consolidated Balance Sheets of the Company. The servicing division, with operations in West Virginia, California, and Texas, specializes in servicing sub-prime and other non-conforming loans, home improvement and home equity loans and similar products.

The Company has recorded mortgage loan servicing rights of $8.87 million and $2.46 million in Other Assets at December 31, 1998 and 1997, respectively, associated with the right to service mortgage loans for others. The recorded value of mortgage servicing rights is assessed quarterly to determine if the value of those rights has become impaired during the period. In doing so, management estimates the present value of future net cash flows to be derived from its servicing activities. Factors included in the impairment analysis include anticipated servicing income, costs associated with servicing the portfolio, discount rates, and loan prepayment and default rates. As of December 31, 1998, management has determined, based on this analysis, that the recorded value of its servicing rights is fairly stated and there is no impairment in that value.

CERTIFICATES OF DEPOSIT
Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 1998, are summarized as follows:

TABLE TEN
(in thousands)

                                                       Amounts     Percentage
                                                    ----------------------------

Three months or less                                    $48,155         23%
Over three months through six months                     38,581         18
Over six months through twelve months                    69,429         33
Over twelve months                                       56,373         26
                                                    ----------------------------
Total                                                  $212,538        100%
                                                    ============================

CAPITAL RESOURCES

During 1998, the Company's consolidated stockholders' equity decreased 0.10% from $220.28 million at December 31, 1997 to $220.06 million at December 31, 1998. This decrease was largely due to the impact of the Company's merger of Horizon Bancorp. After fourth quarter charges to earnings, the Company reported $5.23 million net income for 1998. However, prior to the merger, both companies paid approximately $12.17 million in cash dividends to their respective shareholders. Additionally, the Company experienced a $2.75 million decline in Other Comprehensive Income, primarily the result of declines in the fair market value of the Company's available-for-sale securities portfolio. During 1998, the Company repurchased approximately 111,000 shares of its outstanding common stock at an average price of $43.24 per share, while Horizon, prior to the merger, repurchased approximately 71,000 shares of its common stock. Together, treasury stock transactions resulted in an additional $6.99 million reduction in stockholders' equity. Combined, the net effect of net income less dividends paid, declines in Other Comprehensive Income and treasury stock acquisitions resulted in a net decrease to consolidated equity of approximately $16.67 million. This net decline was partially offset by a $15.77 million increase to equity resulting from the Company's acquisitions of Del Amo, Jarrett/Aim Communications, Morton Specialty Insurance Partners, Citynet Corporation, and MarCom, Inc. Each of these transactions, accounted for under the purchase accounting method, involved the issuance of the Company's common stock and, therefore, resulted in increases to consolidated equity.

Regulatory guidelines require the Company to maintain a minimum total capital to risk-adjusted assets ratio of 8 percent, with at least one-half of capital consisting of tangible common stockholders' equity and a minimum Tier I leverage ratio of 4 percent. At December 31, 1998, the Company's total capital to risk-adjusted assets ratio was 12.00% and its Tier I capital ratio was 10.60%, compared to 12.82% and 11.84%, respectively, at December 31, 1997. The Company's leverage ratio at December 31, 1998 and 1997 was 9.99% and 8.73%, respectively.

Similarly, the Company's banking subsidiaries are also required to maintain minimum capital levels as set forth by various regulatory agencies. Under capital adequacy guidelines, the banking subsidiaries are required to maintain minimum total capital, Tier I capital, and leverage ratios of 8.00%, 4.00%, and 4.00%, respectively. To be classified as "well capitalized," the banking subsidiaries must maintain total capital, Tier I capital, and leverage ratios of 10.00%, 6.00%, and 5.00%, respectively. As of December 31, 1998, the Company's lead bank, City National, reported total capital, Tier I capital, and leverage ratios of 10.70%, 10.10%, and 8.90%, respectively. As of December 31, 1998, the Company and each of its banking subsidiaries satisfied capital requirements as established by regulatory authorities to be categorized as well capitalized.

During 1998, the Company created two separate special-purpose statutory trust subsidiaries which sold trust preferred securities generating gross proceeds of $87.50 million. Pursuant to rulings released in 1996 by the Federal Reserve Board, the Company's primary regulatory authority, the Company has included the trust preferred securities in its regulatory capital ratio computations. At December 31, 1998, $72.02 million of trust preferred securities are included in the Company's Tier I capital, with the remaining $15.48 million added to the Company's total regulatory capital. Proceeds from the issuance of the trust preferred securities were used for general corporate purposes, including, but not limited to, repayment of long-term debt and financing activities within the mortgage banking business segment.

Continued improvement in operating results, effective management of risks affecting the Company, and a focus on high asset quality have been, and will remain, the key elements in maintaining the Company's present capital position. Earnings from bank operations are expected to remain adequate to fund payment of stockholders' dividends and internal growth. In management's opinion, the subsidiary banks have the capability to upstream sufficient dividends to meet the anticipated cash requirements of the Company.

IMPACT OF THE YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities.

Based on management's assessment of this issue, the Company determined that it would be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with the modifications that were implemented to existing software and conversions to new hardware, the Year 2000 issue will not pose significant operational problems.

The Company's plan to resolve the Year 2000 issue is sponsored and closely monitored by both senior and executive level management. The Federal Financial Institutions Examination Council recommended that all systems reprogramming efforts be completed by December 31, 1998 to allow for sufficient testing and implementation. Management is of the opinion that the Company has complied with this recommendation. Plan components have been executed in accordance with guidelines that were mandated by the Office of the Comptroller of the Currency. The Company's approach to Year 2000 compliance involves five industry standard phases:

1.Awareness Phase
2.Assessment Phase
3.Renovation Phase
4.Validation Phase
5.Implementation Phase

Each of these phases has been fully completed. A sixth phase, "post implementation" was also adopted by the Company and is currently on-going and involves further testing of systems, vendor and supplier monitoring, and contingency plan assessments. The Company has developed a contingency plan for certain critical applications. This plan includes the development of crisis management procedures, manual back-up options, and the adjustment of staffing strategies.

The Company has historically updated systems, replaced software and hardware, and made other systematic investments in technology on a regular basis. As a result, the Company's costs associated with Year 2000 remediation efforts have not been significant. Where necessary, the Company has utilized both internal and external resources to reprogram or replace, test, and implement the software and operating equipment for Year 2000 modifications, and will continue to do so. However, due to the Company's technology plan of hardware, software, and systems maintenance, the sum of the costs incurred to-date and the estimated costs remaining to be incurred is not material to the consolidated financial statements.

Based on the results, to date, of implementing the Company's strategic plan, management believes that the risks affecting the Company associated with the Year 2000 issue should be minimal. Accordingly, management does not believe that the Year 2000 presents a material exposure as it relates to the Company's products and services. In addition, the Company has gathered information about the Year 2000 compliance status of its significant vendors, suppliers, and customers and continues to monitor their compliance. To date, the Company's management is not aware of any such party with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that such parties will be Year 2000 ready. The inability of such parties to complete their Year 2000 remediation process in a timely manner could materially impact the Company. The effect of non-compliance by such parties is not determinable.

The Company's recent merger of Horizon does not significantly impact the Company's Year 2000 readiness. The Company has historically converted each of its acquired financial institutions to its internal data processing environment. With the merger of Horizon, all significant data processing systems would have been converted to the Company's operating systems, regardless of the Year 2000 issue. Therefore, Year 2000 readiness has not necessarily accelerated the Company's replacement of equipment and systems within the Horizon banks. All significant applications of the Horizon banks are expected to be fully converted by June 30, 1999.

Management believes it has an effective program in place to resolve the Year 2000 issue in a timely manner and in accordance with the guidelines set forth by its regulatory authorities. As noted above, the Company is in its final post-implementation phase of further testing. If final testing identifies previously unknown Year 2000 exposures and those exposures cannot be timely addressed, the Company could experience significant difficulties in processing daily operating activities. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems product failure, for example, or failure to properly date business records. The amount of potential liability and lost income cannot be reasonably estimated at this time.

INFLATION
Since the assets and liabilities of the Bank are primarily monetary in nature (payable in fixed, determinable amounts), the performance of banks is affected more by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same.

Non-financial assets, such as premises and equipment, comprise a relatively small percentage of the Company's total assets. Therefore, inflation is less a factor to the Company than it may be for non-financial entities. However, as the rate of inflation increases, there generally could be a negative impact to the Company, such as increases in operating costs. As operating costs rise, product repricing and effective management of the Company's interest rate environment are used to manage the impact of rising costs.

FORWARD-LOOKING STATEMENTS
Information included in the Annual Report includes forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. Such information involves risks and uncertainties that could result in the Company's actual results achieved being materially different from those projected in the forward-looking information. The risks and uncertainties that could cause a material difference include, but are not limited to, those associated with the interest rate and general economic environment, federal and state banking regulations, competition within each of the Company's operating segments, remediation of Year 2000 issues, the successful integration of the Horizon banks into the operations of the Company, and other areas. The forward-looking information is provided to assist investors and Company stockholders in understanding anticipated future financial operations of the Company and are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company disclaims any intent or obligation to update this forward-looking information.

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
City Holding Company

We have audited the accompanying consolidated balance sheets of City Holding Company and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of City Holding Company and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.

                                         /s/ Ernst & Young LLP

Charleston, West Virginia
February 5, 1999

CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES

                                                                      DECEMBER 31
                                                                   1998          1997
                                                              -----------------------------
                                                                     (in thousands)
ASSETS
Cash and due from banks                                          $  87,866     $  78,469
Federal funds sold                                                  31,911        54,063
                                                              -----------------------------
      Cash and cash equivalents                                    119,777       132,532

Securities available for sale, at fair value                       356,659       336,776
Securities held-to-maturity (approximate fair value at
  December 31, 1998 and 1997 -  $40,539 and $42,771)               39,063        41,554
Loans:
  Gross loans                                                    1,715,929     1,508,601
  Allowance for possible loan losses                               (17,610)      (18,190)
                                                              -----------------------------
      NET LOANS                                                  1,698,319     1,490,411

Loans held for sale                                                246,287       134,990
Premises and equipment                                              71,094        53,758
Accrued interest receivable                                         21,660        17,553
Other assets                                                       153,145        78,850
                                                              -----------------------------
      TOTAL ASSETS                                              $2,706,004    $2,286,424
                                                              =============================

LIABILITIES
Deposits:
  Noninterest-bearing                                            $ 303,421     $ 250,257
  Interest-bearing                                               1,760,994     1,529,548
                                                              -----------------------------
      TOTAL DEPOSITS                                             2,064,415     1,779,805
Short-term borrowings                                              183,418       172,833
Long-term debt                                                     102,719        75,502
Corporation-obligated mandatorily redeemable capital
  securities of subsidiary trusts holding solely                    87,500             -
  subordinated debentures of City Holding Company
Other liabilities                                                   47,893        38,007
                                                              -----------------------------
      TOTAL LIABILITIES                                          2,485,945     2,066,147

STOCKHOLDERS' EQUITY
Preferred stock, par value $25 per share: authorized -
  500,000 shares: none issued
Common stock, par value $2.50 per share: authorized -
  50,000,000 shares; issued and
  outstanding: 1998 - 16,820,276 shares; 1997 - 16,770,400          42,051        41,926
  shares including 10,000 and
  11,236 shares in treasury at December 3l, 1998 and 1997
Capital surplus                                                     58,365        52,004
Retained earnings                                                  120,209       127,142
Cost of common stock in treasury                                      (274)       (3,248)
Accumulated other comprehensive income                                (292)        2,453
                                                              -----------------------------
      TOTAL STOCKHOLDERS' EQUITY                                   220,059       220,277
                                                              -----------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $2,706,004    $2,286,424
                                                              =============================

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES

                                                            YEAR ENDED DECEMBER 31
                                                        1998         1997         1996
                                                    ---------------------------------------
                                                    (in thousands, except per share data)
lNTEREST INCOME
Interest and fees on loans                            $170,549     $147,760     $133,465
Interest on investment securities:
  Taxable                                               17,189       19,840       20,718
  Tax-exempt                                             4,955        5,077        4,685
Other interest income                                    3,987          489          840
                                                    ---------------------------------------
      TOTAL INTEREST INCOME                            196,680      173,166      159,708

INTEREST EXPENSE
Interest on deposits                                    74,432       63,086       57,662
Interest on short-term borrowings                        9,677        9,898        8,984
Interest on long-term debt                               9,228        3,028        1,688
                                                    ---------------------------------------
      TOTAL INTEREST EXPENSE                            93,337       76,012       68,334
                                                    ---------------------------------------
      NET INTEREST INCOME                              103,343       97,154       91,374
Provision for loan losses                                8,481        4,064        5,012
                                                    ---------------------------------------
      NET INTEREST INCOME AFTER PROVISION FOR           94,862       93,090       86,362
        LOAN LOSSES

OTHER INCOME
Investment securities gains                                  7            8            8
Service charges                                          9,738        8,245        7,132
Mortgage loan servicing fees                            19,058       11,933        2,958
Net origination fees on junior-lien mortgages           14,489        2,458          517
Gain on sale of loans                                   14,238        4,392        1,260
Other income                                            14,893        5,577        4,598
                                                    ---------------------------------------
      TOTAL OTHER INCOME                                72,423       32,613       16,473

OTHER EXPENSES
Salaries and employee benefits                          56,653       41,592       34,471
Occupancy, excluding depreciation                       14,016        6,350        4,835
Depreciation                                            10,313        6,597        4,991
Advertising                                             27,827        4,935        1,499
Other expenses                                          46,749       25,425       24,270
                                                    ---------------------------------------
      TOTAL OTHER EXPENSES                             155,558       84,899       70,066
                                                    ---------------------------------------
      INCOME BEFORE INCOME TAXES                        11,727       40,804       32,769
INCOME TAXES                                             6,493       14,513       11,488
                                                    ---------------------------------------
      NET INCOME                                       $ 5,234      $26,291      $21,281
                                                    ---------------------------------------

Basic earnings per common share                        $  0.31      $  1.60      $  1.34
                                                    ---------------------------------------
Diluted earnings per common share                      $  0.31      $  1.60      $  1.34
                                                    ---------------------------------------
Average common shares outstanding:
  Basic                                                 16,799       16,428       15,914
                                                    ---------------------------------------
  Diluted                                               16,885       16,474       15,928
                                                    ---------------------------------------

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
CITY HOLDING COMPANY AND SUBSIDIARIES

                                                                                Accumulated
                                         Common                                    Other                          Total
                                          Stock      Capital      Retained     Comprehensive      Treasury      Stockholders'
                                         (Par        Surplus      Earnings         Income          Stock         Equity
                                         Value)
                                       -----------------------------------------------------------------------------------------
                                                                             (in thousands)
Balances at December 31, 1995          $38,580       $29,143      $108,370        $1,964           $(535)        $177,522

Comprehensive income:
  Net income                                 -             -        21,281             -               -           21,281
  Other comprehensive income, net of
   deferred income taxes
   of $(805):
     Unrealized loss on securities of
     $1,321, net of reclassification         -             -            -         (1,316)              -           (1,316)
     adjustment for gains included in                                                                             ----------
     net income of $5                                                                                              19,965
  Total comprehensive income
Exercise of stock options                    3            17            -              -               -               20
Cash dividends declared:
  City ($.63 a share)                        -             -       (3,540)             -               -           (3,540)
  Horizon                                    -             -       (5,213)             -               -           (5,213)
Sale of 2,299 shares of treasury stock       -            (2)           -              -              60               58
Redempton of fractional shares               -           (28)           -              -               -              (28)
Issuance of 10% stock dividend           1,268         9,508      (10,776)             -               -                -
                                       ------------------------------------------------------------------------------------------

Balances at December 31, 1996           39,851        38,638      110,122            648            (475)         188,784

Comprehensive income:
  Net income                                 -             -       26,291              -               -           26,291
  Other comprehensive income, net of
   deferred income taxes
   of $1,138:
     Unrealized gain on securities of
      $1,791, net of reclassification        -             -            -          1,786               -            1,786
      adjustment for gains included in
      net income of $5                                                                                            --------
                                                                                                                   28,077
  Total comprehensive income
 Cash dividends declared:
  City ($.73 a share)                        -             -       (4,486)             -               -           (4,486)
  Horizon                                    -             -       (6,935)             -               -           (6,935)
Exercise of 2,629 stock options             13            81            -              -               -               94
Sale of 2,511 shares of treasury stock       -            13            -              -              67               80
Purchase of 2,300 shares of treasury         -             -            -              -             (77)             (77)
  stock
Purchase of shares of treasury stock by      -             -            -              -          (2,763)          (2,763)
  Horizon
Common stock issued in acquisitions        860        12,974            -              -               -           13,834
Issuance of stock for Old National       1,202           298        2,150             19               -            3,669
                                       ---------------------------------------------------------------------------------------
Balances at December 31, 1997           41,926        52,004      127,142          2,453          (3,248)         220,277

Comprehensive income:
  Net income                                 -             -        5,234              -               -            5,234
  Other comprehensive income, net of
   deferred income taxes
   of $(1,998):
     Unrealized loss on securities of
      $2,749, net of reclassification        -             -            -         (2,745)              -           (2,745)
      adjustment for gains included in                                                                            -------
      net income of $4                                                                                              2,489

  Total comprehensive income
 Cash dividends declared:
  City ($.77 a share)                        -             -       (5,105)             -               -           (5,105)
  Horizon                                    -             -       (7,062)             -               -           (7,062)
Exercise of 36,768 stock options            82           422            -              -             171              675
Purchase of 111,018 shares of treasury       -             -            -              -          (4,873)          (4,873)
  stock
Purchase of shares of treasury stock by      -             -            -              -          (2,114)          (2,114)
  Horizon
Common stock issued in acquisitions        807        14,965            -              -               -           15,772
Retirement of 108,396 shares of common    (271)       (4,396)           -              -           4,667                -
  stock held in treasury
Retirement of shares of common stock      (493)       (4,630)           -              -           5,123                -
  held in treasury by Horizon
                                       -------------------------------------------------------------------------------------
Balances at December 31, 1998          $42,051       $58,365     $120,209          $(292)          $(274)        $220,059
                                       =====================================================================================

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES

                                                               YEAR ENDED DECEMBER 31
                                                           1998        1997         1996
                                                       -----------------------------------
                                                                (in thousands)
OPERATING ACTIVITIES
Net income                                             $  5,234     $26,291      $ 21,281
Adjustments to reconcile net income to net cash
  (used in)
  provided by operating activities:
   Net amortization                                       2,647       1,776         1,561
   Provision for depreciation                            10,313       6,599         4,990
   Provision for possible loan losses                     8,481       4,064         5,012
   Deferred income tax benefit                           (3,011)       (909)       (1,412)
   Loans originated for sale                           (695,576)    (97,465)     (118,287)
   Purchases of loans held for sale                    (754,703)   (797,537)   (1,029,098)
   Proceeds from loans sold                           1,364,657     850,742     1,178,395
   Realized gains on loans sold                         (14,238)     (4,392)       (1,260)
   Realized investment securities gains                      (7)         (8)           (8)
   (Increase) decrease in accrued interest               (3,515)     (1,763)          657
     receivable
   Increase in other assets                             (58,030)    (31,925)       (2,545)
   Increase in other liabilities                          6,547       9,193         6,868
                                                    ---------------------------------------
      NET CASH (USED IN) PROVIDED BY OPERATING         (131,201)    (35,334)       66,154
        ACTIVITIES

INVESTING ACTIVITIES
Proceeds from maturities and calls of investment          3,390       4,565       154,066
securities
Purchases of investment securities                         (898)          -      (137,824)
Proceeds from sales of securities available for sale     33,930      87,139        58,772
Proceeds from maturities and calls of securities        146,140      79,912        87,799
available for sale
Purchases of securities available for sale             (201,487)   (102,523)     (127,151)
Net increase in loans                                  (119,225)   (128,169)      (57,847)
Net cash acquired (paid) in acquisitions                  2,584      (4,516)            -
Purchases of premises and equipment                     (26,446)    (11,840)      (15,686)
                                                    ---------------------------------------
      NET CASH USED IN INVESTING ACTIVITIES            (162,012)    (75,432)      (37,871)

FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing           52,960      (3,262)        5,287
deposits
Net increase in interest-bearing deposits               129,083      79,733        23,201
Net increase (decrease) in short-term borrowings         10,529      52,940       (44,043)
Proceeds from long-term debt                             87,917      41,252        14,250
Repayment of long-term debt                             (65,700)          -             -
Net proceeds from issuance of trust preferred            84,148           -             -
securities
Purchases of treasury stock                              (6,987)     (2,840)            -
Proceeds from sales of treasury stock                         -          80            58
Redemption of dissenter and fractional shares                 -           -           (22)
Exercise of stock options                                   675          94            14
Cash dividends paid                                     (12,167)    (11,421)       (8,753)
                                                    ---------------------------------------
      NET CASH PROVIDED BY (USED IN) FINANCING          280,458     156,576       (10,008)
        ACTIVITIES
                                                    ---------------------------------------
      (DECREASE) INCREASE IN CASH AND CASH              (12,755)     45,810        18,275
        EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR          132,532      86,722        68,447
                                                    ---------------------------------------
      CASH AND CASH EQUIVALENTS AT END OF YEAR         $119,777    $132,532      $ 86,722
                                                    =======================================

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITY HOLDING COMPANY AND SUBSIDIARIES

NOTE ONE
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Summary of Significant Accounting and Reporting Policies: The accounting and reporting policies of City Holding Company and its subsidiaries (the Company) conform with 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. Actual results could differ from management's estimates. The following is a summary of the more significant policies.

Principles of Consolidation: The consolidated financial statements include the accounts of City Holding Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Description of Principal Markets and Services: The Company is a multi-bank holding company headquartered in Charleston, West Virginia. The Company's banking subsidiaries are retail and consumer oriented community banks with offices in West Virginia, Ohio, and California. The nonbanking subsidiaries of the Company are comprised of a full service securities brokerage and investment advisory company headquartered in Charleston, two separate special-purpose statutory trusts created to issue trust preferred securities and an inactive mortgage banking company.

Cash and Due from Banks: The Company considers cash and due from banks and federal funds sold as cash and cash equivalents.

Securities: Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold debt securities to maturity, they are classified as investment securities and are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale along with the Company's investment in equity securities. Securities available for sale are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. Securities classified as available for sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk, and other factors.

The specific identification method is used to determine the cost basis of securities sold.

Loans: Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods which generally result in level rates of return. The accrual of interest income generally is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in process of collection.

Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Loans Held for Sale: Loans held for sale represent mortgage loans the Company has either purchased or originated with the intent to sell or securitize in the secondary market and are carried at the lower of aggregate cost or estimated fair value.

Mortgage Servicing Rights: The value of mortgage servicing rights, regardless of how obtained, are capitalized and amortized in proportion to and over the period of estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. To determine fair value, the Company estimates the present value of future cash flows incorporating various assumptions including servicing income, cost of servicing, discount rates, prepayment speeds, and default rates. For purposes of measuring impairment, the mortgage servicing rights are stratified based upon predominant risk characteristics of the underlying loans.

Retained Interest: The Company retains a financial interest in its securitized loan sales. This retained interest is generally comprised of two components: excess spread receivable and overcollateralization. Excess spread receivable represents the present value of the excess cash flows generated by the securitized loans. The excess cash flows generally represent the difference between interest at the stated rate paid by borrowers and the sum of (A) pass-through interest paid to third-party investors and (B) on-going securitization expenses, including servicing, insurance, and trustee costs. The Company determines the present value of the excess cash flows at the time each securitization closes, based on valuation assumptions, including default rates, prepayment rates, and discount rates.

Additionally, the Company provides credit enhancement with respect to the securities issued, in the form of overcollateralization. The initial overcollateralization will generally be required to increase to a pre-determined amount, at which time the excess cash flows discussed above will be released, monthly, to the Company. The initial overcollateralization amount will reach the required overcollateralization level through the application of monthly excess cash to accelerate payment of the note(s). Generally, the required overcollateralization amount will decrease or increase, subject to pre-established requirements based on the performance of the collateral loans. The Company determines the present value of cash flows to be received by the Company related to the overcollateralization feature at the time each securitization closes, based on the same assumptions previously discussed for the excess spread component.

The retained interest is accounted for similar to an available-for-sale security, and as such, the recorded value is adjusted, quarterly, to its estimated fair value with the related increase or decrease in fair value recorded as a separate component of stockholders' equity, net of tax. If the decrease in fair value is determined to be permanent, the impairment is charged to operations. Because the retained interest is uncertificated, the Company has included the recorded value of the retained interest in Other Assets in the consolidated balance sheet.

Allowance for Loan Losses: The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance for loan losses is based upon management's evaluation of individual credits in the loan portfolio, historical loan loss experience, current and expected future economic conditions, and other relevant factors. This determination is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The allowance for loan losses related to loans considered to be impaired is generally evaluated based on the discounted cash flows using the impaired loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets. Generally, estimated useful lives of premises and furniture, fixtures, and equipment do not exceed 30 and 7 years, respectively.

Intangibles: Intangible assets, not including mortgage servicing rights, are comprised of goodwill and core deposits and are included in other assets in the consolidated balance sheets. Goodwill is being amortized on a straight-line basis over a 10 to 15 year period and core deposits are being amortized using accelerated methods over 10 year estimated useful lives.

The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as indicated based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows discounted over the remaining amortization period.

Advertising: Advertising costs are expensed as incurred.

Income Taxes: The consolidated provision for income taxes is based upon reported income and expense. Deferred income taxes (included in other assets) are provided for temporary differences between financial reporting and tax bases of assets and liabilities. The Company files a consolidated income tax return. The respective subsidiaries generally provide for income taxes on a separate return basis and remit amounts determined to be currently payable to the Parent Company.

Stock-Based Compensation: In accordance with Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock options. Because the exercise price of the Company's employee stock options granted equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Basic and Diluted Earnings per Common Share: The Company adopted the provisions of FASB Statement No. 128, Earnings per Share, effective December 31, 1997. Under Statement No. 128, basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding, while diluted earnings per share is computed by dividing net income by the weighted-average number of shares outstanding increased by the number of shares of common stock which would be issued assuming the exercise of stock options and other immaterial common stock equivalents. The incremental shares related to the options were 77,000, 42,000, and 14,000 in 1998, 1997, and 1996 while other common stock equivalents were 9,000 and 4,000 in 1998 and 1997. The impact of this change was not significant and all per share amounts for all periods have been presented to conform to Statement No. 128 requirements.

Segment Reporting: Effective January 1, 1998, the Company adopted FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131 establishes standards for reporting information concerning the Company's operating segments. The adoption of Statement No. 131 did not affect the results of operations or financial position of the Company, but did result in additional financial statement disclosures (see NOTE TWENTY-THREE).

New Accounting Pronouncements: Certain provisions of FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, relating to repurchase agreements, securities lending and other similar transactions, and pledged collateral, were deferred for one year by FASB No. 127 and were adopted prospectively as of January 1, 1998. FASB No. 125, established new criteria for determining whether a transfer of financial assets in exchange for cash or other consideration should be accounted for as a sale or as a pledge of collateral in a secured borrowing and also established new accounting requirements for pledged collateral. The adoption of these provisions did not have a material impact on financial position or results of operations.

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity and bypass net income. The Company adopted the provisions of this statement in 1998. These disclosure requirements had no impact on financial position or results of operations.

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The provisions of this statement require that derivative instruments be carried at fair value on the balance sheet and allows hedge accounting when specific criteria are met. The provisions of this statement become effective for quarterly and annual reporting beginning January 1, 2000. The impact of adopting the provisions of this statement on the Company's financial position or results of operations subsequent to the effective date is not currently estimable and will depend on the financial position of the Company and the nature and purpose of the derivative instruments in use by management at that time.

Statements of Cash Flows: Cash paid for interest, including long-term debt, was $90.3 million, $74.9 million, and $68.7 million in 1998, 1997, and 1996, respectively. Cash paid for income taxes was $14.0 million, $15.0 million and $12.2 million in 1998, 1997, and 1996, respectively.

Reclassifications: Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform to the 1998 presentation. Such reclassifications had no impact on net income or stockholders' equity.

NOTE TWO
RESTRICTIONS ON CASH AND DUE FROM BANKS

Certain subsidiary banks are required to maintain an average reserve balance with the Federal Reserve Bank. The average amount of the balance for the year ended December 31, 1998, was approximately $33.66 million. Included in cash and due from banks at December 31, 1998, is $19.50 million of cash restricted for mortgage banking activities.

NOTE THREE
ACQUISITIONS

On December 31, 1998, the Company merged with Horizon Bancorp, Inc. (Horizon), a $1 billion asset bank holding company headquartered in Beckley, West Virginia, in a transaction accounted for as a pooling of interests. The Company issued 10.2 million shares of common stock to the shareholders of Horizon based upon an exchange ratio of 1.111 shares of the Company's common stock for each outstanding share of Horizon common stock. The Company's historical consolidated financial statements have been restated to reflect this transaction.

Net interest income, net income, and diluted net income per share for the Company and Horizon as originally reported for the two years ended December 31, 1997, prior to restatement are as follows:

                             1997           1996
                           ----------------------
Net interest income:
  Company                  $52,105       $47,005
  Horizon                   45,049        44,369
                           ----------------------
  Combined                 $97,154       $91,374
                           ======================

Net income:
  Company                  $12,464       $10,130
  Horizon                   13,827        11,151
                           ----------------------
  Combined                 $26,291       $21,281
                           ======================

Diluted net income per common share:
  Company                   $2.02   $1.81
  Horizon                    1.49    1.20
  Combined                   1.60    1.34

Merger expenses incurred in 1998 as a result of the merger with Horizon approximated $13.5 million and consisted of: advisory and professional fees of $4.8 million, employee severance costs of $3.2 million, data processing contract terminations of $1.7 million, and other miscellaneous expenses of $3.8 million. Included in the miscellaneous expenses is a $2.5 million write-down of goodwill, determined to be impaired as a result of the merger, related to a branch previously acquired by Horizon.

Effective April 1, 1998, the Company consummated its acquisition of Del Amo Savings Bank, FSB (Del Amo). Del Amo is a federally chartered savings bank, headquartered in Torrance, California, with total assets and total deposits of approximately $116 million and $102 million, respectively, at March 31, 1998. The merger involved the exchange of approximately 261,000 shares of the Company's common stock for all of the outstanding shares of Del Amo. This transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations have been included in the consolidated totals from the date of acquisition. Due to the immaterial impact on the Company's financial statements, no proforma information has been included for the information provided herein.

In January 1998, City National Bank of West Virginia (City National), a wholly-owned subsidiary of the Company, acquired Jarrett/Aim Communications, Inc. (Jarrett/Aim), a printing and direct mail corporation. In March 1998, City National acquired Morton Specialty Insurance Partners, Inc. (Morton Insurance), an insurance brokerage that offers property and casualty insurance and bonding programs to established commercial and industrial clients, primarily in energy-related industries. In April 1998, City National acquired Citynet Corporation (Citynet) and MarCom, Inc. (MarCom), an internet service provider and web site development firm, respectively. These transactions were accounted for under the purchase method of accounting. Accordingly, the results of operations attributable to these transactions have been included in the consolidated totals from the dates of the acquisitions. The assets of Jarrett/Aim, Morton Insurance, Citynet, and MarCom represent less than 1% of the total assets of the Company. Accordingly, no proforma information has been included for the information provided herein.

In October 1997, City National Bank acquired First Allegiance Financial Corporation (First Allegiance), a mortgage loan origination company headquartered in Irvine, California. The acquisition involved an initial purchase price of approximately $15 million, which was comprised of 300,000 shares of the Company's common stock valued at approximately $12 million (286,000 issued at the acquisition date and the remaining 14,000 to be issued over a three year period), and cash in exchange for substantially all of the assets and liabilities of First Allegiance, which approximated $7.5 million and $6.8 million, respectively, at September 30, 1997. Additional consideration was contingent upon the First Allegiance division satisfying certain pre-established loan production levels subsequent to the acquisition. As a result of certain loan production levels achieved in 1998 and in the fourth quarter of 1997, the Company has paid $5.30 million of additional consideration. This transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations attributable to the acquisition have been included in the consolidated totals from the date of acquisition.

In September 1997, Horizon acquired Beckley Bancorp, Inc., headquartered in Beckley, West Virginia. Under the terms of the agreement, Horizon paid $15.4 million in cash. The transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations attributable to the acquisition have been included in the consolidated totals from the date of acquisition.

In January 1997, the Company consummated its acquisition of Old National Bank of Huntington (Old National). Under the terms of the agreement, the Company acquired all the outstanding shares of Old National common stock for 480,917 shares of the Company's common stock valued at approximately $10.1 million. Old National's total assets at December 31, 1996, were approximately $49 million or 4.7% of the Company's consolidated assets. This transaction was accounted for under the pooling of interests method of accounting. However, due to the immateriality of the transaction, prior period financial statements have not been restated and the results of operations attributable to the acquisition have been included in the consolidated totals from the date of acquisition.

Intangible assets arising from purchase business combinations noted above and in the previous years consist primarily of goodwill and core deposits which have an aggregate unamortized balance at December 31, 1998 and 1997, of $38.37 million and $27.56 million, respectively. Excluding the fourth quarter 1998 write-down of goodwill determined to be impaired, amortization of goodwill and core deposits approximated $3.08 million, $1.52 million, and $960,000 during the years ended December 31, 1998, 1997, and 1996, respectively.

NOTE FOUR
INVESTMENTS

Included in the Company's investment portfolio are structured notes with an estimated fair value of $1.4 million and $4.1 million at December 31, 1998 and 1997, respectively. Such investments are used by management to enhance yields, diversify the investment portfolio, and manage the Company's exposure to interest rate fluctuations. These securities consist of federal agency securities with an average maturity of less than two years. Management periodically performs sensitivity analyses to determine the Company's exposure to fluctuation in interest rates of 3% and has determined that the structured notes meet regulatory price sensitivity guidelines.

The aggregate carrying and approximate market values of securities follow. Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

                                   December 31, 1998
                                  Gross         Gross         Estimated
                                 realized     Unrealized        Fair
                       Cost       Gains         Losses         Value
                  -------------------------------------------------------
                                      (in thousands)
Available-for-sale
securities:
 U.S. Treasury
  securities and
  obligations of
  U.S.
  government
  corporations
  and agencies     $244,706      $2,508         $413           $246,801
 Obligations of
  states and
  political
  subdivisions       66,926       2,179          103             69,002

  Mortgage-backed    11,102         199            7             11,294
  securities
  Other debt          8,565         292            -              8,857
  securities      --------------------------------------------------------
   Total debt       331,299       5,178          523            335,954
   securities
 Equity              27,083         357        6,735             20,705
  securities      --------------------------------------------------------
                   $358,382      $5,535       $7,258           $356,659
                  ========================================================
Held-to-maturity
securities:
 Obligations of
  states and
  political
  subdivisions     $39,063       $1,476          $ -           $ 40,539
                  ========================================================

                                      December 31, 1997
                                   Gross           Gross           Estimated
                                 Unrealized      Unrealized          Fair
                       Cost        Gains           Losses            Value
                  -----------------------------------------------------------
                                       (in thousands)
Available-for-sale
securities:
 U.S. Treasury
  securities and
  obligations of
  U.S.
  government
  corporations
  and agencies     $238,582      $1,661            $395             $239,848
 Obligations of
  states and
  political
  subdivisions       55,233       1,886               3               57,116
 Mortgage-backed     18,868         302              82               19,088
  securities
 Other debt
  securities          3,203         275               -                3,478
                  -----------------------------------------------------------
   Total debt       315,886       4,124             480              319,530
   securities
 Equity
  securities         16,968         368              90               17,246
                  -----------------------------------------------------------
                   $332,854      $4,492            $570             $336,776
                  ===========================================================

Held-to-maturity
securities:
 Obligations of
  states and
  political
  subdivisions      $41,554      $1,222             $ 5              $42,771
                  ===========================================================

The amortized cost and estimated fair value of debt securities at December 31, 1998, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

                          Available-for-Sale                   Held-to-Maturity
                                   Estimated                          Estimated
                                   Fair                                 Fair
                      Cost         Value             Cost               Value
                  --------------------------------------------------------------
                                           (in thousands)

Due in one year
or less             $47,267       $47,654          $  935             $ 945
Due after one
year through
five years          179,534       181,668          14,835            15,288
Due after five
years through
ten years            78,695        80,436          20,027            20,886
Due after ten
years                14,701        14,902           3,266             3,420
                  --------------------------------------------------------------
                    320,197       324,660          39,063            40,539
Mortgage-backed
securities           11,102        11,294               -                 -
                  --------------------------------------------------------------
                   $331,299      $335,954         $39,063           $40,539
                  ==============================================================

Gross gains of $47,000, $431,000, and $109,000, and gross losses of $40,000, $423,000, and $101,000, were realized on sales and calls of securities during 1998, 1997, and 1996, respectively.

The book value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated $161 million and $175 million at December 31, 1998 and 1997, respectively.

NOTE FIVE
LOANS

The loan portfolio is summarized as follows:

                                                 December 31
                                      1998                           1997
                           ------------------------------------------------
                                               (in thousands)
Commercial, financial and
agricultural                      $509,214                       $464,678
Residential real estate            842,727                        676,828
Installment loans to
individuals                        363,988                        367,095
                           ------------------------------------------------
                                $1,715,929                     $1,508,601
                           ------------------------------------------------

The Company grants portfolio loans to customers generally within the market areas of its subsidiary banks. There is no significant concentration of credit risk by industry or by related borrowers. There are no foreign loans outstanding and highly leveraged loan transactions are insignificant.

Subsidiaries of the Company have granted loans to the officers and directors of the Company and its subsidiaries, and to their associates. The loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The following presents the activity with respect to related party loans during 1998:

                                         1998
                                      -----------
                                         (in
                                      thousands)

Balance at January 1, 1998             $47,233
Loans made                              11,829
Principal payments received            (10,648)
Other changes                          (23,406)
                                      -----------
Balance at December 31, 1998           $25,008
                                      ===========

NOTE SIX
ALLOWANCE FOR LOAN LOSSES

A summary of changes in the allowance for possible loan losses follows:

                                1998          1997            1996
                           -----------------------------------------
                                         (in thousands)
Balance at beginning of
year                         $18,190        $16,888        $15,088
Provision for possible
loan losses                    8,481          4,064          5,012
Charge-offs                  (11,469)        (5,752)        (5,011)
Recoveries                     1,623          2,471          1,799
Balance of acquired
institution                      785            519              -
                           ------------------------------------------
BALANCE AT END OF YEAR       $17,610        $18,190        $16,888
                           ==========================================

The recorded investment in loans that were considered impaired was $9.13 million and $8.65 million at December 31, 1998 and 1997, respectively. Included in these amounts are $4.04 million and $3.53 million, respectively, of impaired loans for which the related allowance for loan losses is $1.68 million and $1.14 million, respectively, and $5.09 million and $5.12 million of impaired loans that, as a result of write-downs or being well secured, do not have an allowance for loan losses. The average recorded investments in impaired loans during the years ended December 31, 1998, 1997 and 1996, were approximately $9.39 million, $8.44 million, and $11.83 million. During the years ended December 31, 1998, 1997, and 1996, $1.04 million, $643,000, and $772,000, respectively, was recognized as interest income on impaired loans and $527,000, $326,000, and $619,000, respectively, was recognized as interest income using a cash basis method of accounting.

NOTE SEVEN
LOAN SECURITIZATIONS AND SALES

The Company originates or purchases junior lien mortgage loans to be sold or securitized. At December 31, 1998 and 1997, these loans held for sale were approximately $201 million and $114 million, respectively. The Company also originates and sells fixed rate mortgage loans on a servicing released basis. At December 31, 1998 and 1997, these loans held for sale were approximately $45 million and $21 million, respectively.

During 1998, the Company completed four securitizations of junior lien mortgage loans with total loan balances approximating $463.13 million. This compares to one securitization of approximately $35 million of loans completed in 1997. As of December 31, 1998 and 1997, the Company reported retained interests in these securitized loan pools of approximately $65.62 million and $4.36 million, respectively, including accrued interest. Each of the securitized pools is serviced by the Company's mortgage loan servicing division. Significant assumptions used to estimate the value of the retained interest include:
prepayment rates of 17-21% CPR, default rates approximating 10% cumulative losses, and a weighted-average discount rate of 12.23%.

Gain on sales of loans approximated $14.24 million, $4.39 million, and $1.26 million in 1998, 1997, and 1996, which included gains on securitization of the junior lien mortgage loans of $8.6 million and $1.1 million in 1998 and 1997, respectively. The gain on sales of loans is recorded net of the change in the valuation allowance for loans held for sale, which approximated $4.7 million and $2.1 million in 1998 and 1997, respectively.

NOTE EIGHT
LOAN SERVICING

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others was $1.77 billion and $1.25 billion at December 31, 1998 and 1997, respectively.

Mortgage loan servicing rights of $8.87 million and $2.46 million at December 31, 1998 and 1997, respectively, are included in other assets in the accompanying balance sheets. The fair value of mortgage loan servicing rights at December 31, 1998 and 1997, was not materially different from the recorded value and since the fair value exceeds the recorded value, no valuation allowance is necessary. Amortization of mortgage loan servicing rights approximated $765,000, $383,000, and $225,000 during the years ended December 31, 1998, 1997, and 1996, respectively.

NOTE NINE

PREMISES AND EQUIPMENT

A summary of premises and equipment and related accumulated depreciation are summarized as follows:

                                                 December 31
                                             1998          1997
                                            --------------------
                                               (in thousands)

Land, buildings, and
improvements                                $64,034      $52,217
Furniture, fixtures, and
equipment                                    57,026       41,934
                                           ----------------------
                                            121,060       94,151
Less allowance for
depreciation                                (49,966)     (40,393)
                                           ----------------------
                                            $71,094      $53,758
                                           ======================

NOTE TEN
SHORT-TERM BORROWINGS

Short-term borrowings consist primarily of advances from the Federal Home Loan Bank of Pittsburgh (FHLB) and securities sold under agreement to repurchase. The underlying securities included in repurchase agreements remain under the Company's control during the effective period of the agreements. A summary of the Company's short-term borrowings is set forth below:

                                                          (in thousands)
1998:
----
 Average amount outstanding during the year               $ 187,140
 Maximum amount outstanding at any month end                307,185
 Weighted average interest rate:
  During the year                                              5.17%
  End of the year                                              4.83%

1997:
----
 Average amount outstanding during the year                $190,467
 Maximum amount outstanding at any month end                322,445
 Weighted average interest rate:
  During the year                                              5.22%
  End of the year                                              5.24%

1996:
----
 Average amount outstanding during the year                $176,480
 Maximum amount outstanding at any month end                229,870
 Weighted average interest rate:
  During the year                                              5.09%
  End of the year                                              5.01%

NOTE ELEVEN
SCHEDULED MATURITIES OF TIME CERTIFICATES OF DEPOSITS OF $100,000 OR MORE

Scheduled maturities of time certificates of deposits of $100,000 or more outstanding at December 31, 1998, are summarized as follows:

                                              (in thousands)
Within one year                                 $156,165
Over one through two years                        42,603
Over two through three years                      11,084
Over three through four years                      1,202
Over four through five years                       1,484
                                                ----------
   Total                                        $212,538
                                                ==========

The Company has agreements with three investment banking firms to issue over $100 million of the Company's certificates of deposit. The certificates of deposit can be issued in maturities of up to five years at rates equal to a comparable treasury at the time of issuance plus a market-based spread. The Company is not committed to issuing a pre-determined amount of its certificates of deposit under these agreements, the use of which is at the sole discretion of the Company. At December 31, 1998 and 1997, $22 million and $2 million, respectively, of certificates of deposit had been sold under these agreements at an average interest rate of 5.36% and 5.70%, respectively. The average term of the issued certificates of deposit was 1.5 years and 2.0 years at December 31, 1998 and 1997, respectively.

NOTE TWELVE
LONG-TERM DEBT AND UNUSED LINES OF CREDIT

Long-term debt includes an obligation of the Parent Company consisting of a $35 million revolving credit loan facility with an unrelated party. At December 31, 1998, $15 million was outstanding. The loan has a variable rate (7.125% at December 31, 1998) with interest payments due quarterly and principal due at maturity in June 30, 1999. Management intends to refinance the loan according to provisions provided in the agreement.

The loan agreement contains certain restrictive provisions applicable to the Parent Company including limitations on additional long-term debt. The Parent Company has pledged the common stock of City National Bank as collateral for the revolving credit loan.

The Company, through its banking subsidiaries, maintains long-term financing from the FHLB as follows:

                            December 31, 1998
                          --------------------
  Amount               Amount           Interest          Maturity
 Available          Outstanding           Rate              Date
------------------------------------------------------------------------
                              (in thousands)

 $2,000               $2,000              6.58%           June 2000
 10,000               10,000              5.60            July 2002
 25,000               25,000              5.47            September 2002
  1,500                1,500              6.94            June 2005
 82,212                3,414              6.02            July 2005
 25,000               25,000              4.89            January 2008
  5,000                5,000              5.48            February 2008
  2,300                2,200              6.05            April 2008
  2,000                2,000              5.62            July 2008
 10,000               10,000              4.86            October 2008
  1,500                1,500              7.14            June 2015

The Company has purchased, through its banking subsidiaries, 107,513 shares of FHLB stock at par value. Such purchases entitle the Company to dividends declared by the FHLB and provide an additional source of short-term and long-term funding, in the form of collateralized advances.

Financing obtained from the FHLB is based in part on the amount of qualifying collateral available, specifically U.S. Treasury and agency securities, mortgage-backed securities, and residential real estate loans. At December 31, 1998, collateral pledged to the FHLB included approximately $24 million in investment securities and $464 million in residential real estate loans.

In addition to the financing discussed above, one of the Company's subsidiaries has as unused line of credit available with the FHLB in the amount of $26.8 million.

NOTE THIRTEEN
TRUST PREFERRED SECURITIES

On October 27, 1998, City Holding Capital Trust II (Capital Trust II), a special-purpose statutory trust subsidiary of the Company sold via public offering $57.5 million of 9.125% trust preferred capital securities (the Capital Securities II) and issued $1.8 million of common securities to the Company. Distributions on the Capital Securities II are payable quarterly and each Capital Security has a stated liquidation value of $25. To fund Capital Trust II, the Company sold to Capital Trust II $59.3 million in 9.125% Junior Subordinated Debentures (the Debentures II) with a stated maturity date of October 31, 2028. The sole assets of Capital Trust II are the Debentures II. Cash distributions on the Capital Securities II in Capital Trust II are made to the extent interest on the Debentures II is received by Capital Trust II. The Company, through various agreements, has irrevocably and unconditionally guaranteed all of Capital Trust II's obligations under the Capital Securities II regarding payment of distributions and payment on liquidation or redemption of the Capital Securities II, but only to the extent of funds held by Capital Trust
II. The Capital Securities II are subject to mandatory redemption (i) in whole, but not in part, at the Stated Maturity upon repayment of the Debentures II,
(ii) prior to October 31, 2003, in whole, but not in part, contemporaneously with the optional redemption at any time by the Company of the Debentures II at any time within 90 days following an event of certain changes or amendments to regulatory requirements or federal income tax rules and (iii) in whole or in part, at any time on or after October 31, 2003, contemporaneously with the optional redemption by the Company of the Debentures II at a redemption price equal to the aggregate liquidation amount of the Capital Securities II, plus accumulated but unpaid distributions thereon. After deducting expenses incurred in the issuance, the Company received proceeds of $55.34 million from the Capital Securities II offering.

On March 31, 1998, City Holding Capital Trust (the Trust), a special-purpose statutory trust subsidiary of the Company, issued $30 million in 9.15% trust preferred capital securities (the Capital Securities) to certain qualified institutional investors and $928,000 of common securities (the Common Securities) to the Company. Distributions on the Capital Securities are payable semi-annually, and each Capital Security has a stated liquidation amount of $1,000. To fund the Trust, the Company sold to the Trust $30.9 million in 9.15% Junior Subordinated Debentures (the Debentures) with a stated maturity date of April 1, 2028. The sole assets of the Trust are the Debentures. Cash distributions on the Capital Securities are made to the extent interest on the Debentures is received by the Trust. The Company, through various agreements, has irrevocably and unconditionally guaranteed all of the Trust's obligations under the Capital Securities regarding payment of distributions and payment on liquidation or redemption of the Capital Securities, but only to the extent of funds held by the Trust. In the event of certain changes or amendments to regulatory requirements or federal income tax rules, the Capital Securities are redeemable in whole at par or, if greater, a make-whole amount. Otherwise, the Capital Securities are generally redeemable in whole or in part on or after April 1, 2008, at a declining redemption price ranging from 104.58% to 100% of the liquidation amount. On or after April 1, 2018, the Capital Securities may be redeemed at 100% of the liquidation amount. After deducting expenses incurred in the issuance, the Company received proceeds of $29.2 million from the Capital Securities offering.

The obligations outstanding under Capital Trust II and the Capital Trust are classified as "Corporation-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of City Holding Company" in the liabilities section of the consolidated balance sheets. Distributions on the capital securities are recorded in the consolidated statements of income as interest expense. The Company's interest payments on the Debentures are fully tax deductible.

For regulatory purposes, the Company has included $72.02 million of the total offerings in its Tier I capital for risk-based capital computations. The remaining $15.48 million is included in the Company's total risk-based capital.

NOTE FOURTEEN
RESTRICTIONS ON SUBSIDIARY DIVIDENDS

Certain restrictions exist regarding the ability of the subsidiary banks to transfer funds to the Parent Company in the form of cash dividends. The approval of the banks' applicable primary regulator is required prior to the payment of dividends by a subsidiary bank in excess of its earnings retained in the current year plus retained net profits for the preceding two years. During 1999, the subsidiary banks can, without prior regulatory approval, declare dividends of approximately $30.26 million to the Parent Company, plus retained net profits for the interim period through the date of declaration.

NOTE FIFTEEN
INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

                                   December 31
                                 1998        1997
                           -------------------------
                                  (in thousands)
Deferred tax assets:
 Allowance for loan losses     $7,213      $7,216
 Loans held for sale            2,224         832
 Acquired net operating           484         741
  loss carryforward
 Deferred compensation          3,543       2,248
  payable
 Securities available for         416           -
  sale
 Loan securitizations             957           -
 Goodwill                         269           -
 Other                            215         281
                           --------------------------
   TOTAL DEFERRED TAX          15,321      11,318
   ASSETS
Deferred tax liabilities:
 Federal income tax                 -         148
  allowance for loan
  losses
 Premises and equipment         2,197       1,933
 Core deposit intangible          947         358
 Loans                            713       1,101
 Securities available for           -       1,582
  sale
 Other                          1,840         767
                           --------------------------
   TOTAL DEFERRED TAX           5,697       5,889

LIABILITIES --------------------------
NET DEFERRED TAX ASSETS $9,624 $5,429

Significant components of the provision for income taxes are as follows:

                     1998        1997       1996
                    ------------------------------
                            (in thousands)
Federal:
 Current            $9,261     $13,129    $11,086
 Deferred           (3,011)       (909)    (1,412)
                    ------------------------------
                     6,250      12,220      9,674
State                  243       2,293      1,814
                    ------------------------------
   TOTAL            $6,493     $14,513    $11,488
                    ==============================

Current income tax expense attributable to investment securities transactions approximated $3,000 in 1998, 1997, and 1996.

As of December 31, 1998, the Company has approximately $1.2 million and $1.6 million, respectively, of federal and state net operating loss carryforwards which expire in 2006.

A reconciliation between income taxes as reported and the amount computed by applying the statutory federal income tax rate to income before income taxes follows:

                            1998      1997     1996
                         -----------------------------
                                 (in thousands)

Computed federal taxes    $4,104    $14,086   $11,469
and statutory rate
State income taxes, net      159      1,446     1,113
 of federal tax benefit
Tax effects of:
 Nontaxable interest      (1,601)    (1,648)   (1,596)
 income
 Non-deductible merger     1,716          -         -
 charges
 Non-deductible goodwill   1,110          -         -
 Other items, net          1,005        629       502
                         -----------------------------
                          $6,493     14,513   $11,488
                         =============================

NOTE SIXTEEN
EMPLOYEE BENEFIT PLANS

The Company's 1993 Stock Incentive Plan has authorized the grant of options to key employees for up to 300,000 shares of the Company's common stock adjusted for changes in the capital structure of the Company since the adoption of the plan. The options granted under the Company's Plan have five year terms and vest and become fully exercisable at the end of up to four years of continued employment. As of December 31, 1998, 399,300 options are authorized for grant, of which 300,087 have been awarded to date. Additionally, effective with the merger of Horizon, outstanding options to acquire the common stock of Horizon that were previously granted under Horizon's employee benefit plans were converted into options to acquire the Company's common stock. As of December 31, 1998, there were 95,243 such options outstanding and included in the total 380,781 options outstanding at year end.

Proforma information regarding net income and earnings per share is required by Statement No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average

assumptions: a risk-free interest rate of 5.37%, 5.90%, and 6.04% for 1998, 1997, and 1996, respectively; an expected dividend yield of 2.04%, 2.50%, and 2.75% for 1998, 1997, and 1996, respectively; a volatility factor of .255, .266, and .232 for 1998, 1997, and 1996, respectively; and an expected life of the option of four years for each period.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the options' vesting period. Pro forma net income for the year ended December 31, 1998 was $3.40 million or $0.20 per basic and diluted common share. The effect of applying the fair value method to the Company's employee stock options in 1997 results in net income and earnings per share that are not materially different from the amounts reported.

A summary of the Company's stock option activity and related information for the years ended December 31 is presented below:

                                    1998                          1997
                        --------------------------------------------------------
                                       Weighted-                  Weighted-
                                       Average                    Average
                                       Exercise                   Exercise
                         Options       Price        Options       Price
                        --------------------------------------------------------

Outstanding at           177,169       $21.73       123,744        $18.31
beginning of
year
Granted                  249,438        40.62        58,720         30.10
Exercised                (36,768)       18.43        (4,802)        19.52
Forfeited                 (9,058)       33.31          (493)        12.60
                        ---------                   ---------
Outstanding at           380,781       $32.26       177,169        $21.73
end of year             =========                   =========

Exercisable at           271,934       $31.35        88,688        $22.16
end of year

Weighted-average
 fair value of            $10.44                      $6.57
 options
 granted during
 the year

Exercise prices for options outstanding at December 31, 1998, ranged from $12.83 to $42.75. The weighted-average remaining contractual life of those options at December 31, 1998, was four years.

The City Holding Company Profit Sharing and 401(k) Plan (the Plan) is a deferred compensation plan under section 401(k) of the Internal Revenue Code. All employees who complete one year of service are eligible to participate in the Plan. Participants may contribute from 1% to 15% of pre-tax earnings to their respective accounts. These contributions may be invested in any of six investment options selected by the employee, one of which is City Holding Company common stock. The Company matches 50% of the first 6% of compensation deferred by the participant with City Holding Company common stock. Although the profit sharing features of this plan remain intact, future profit contributions, if any, are expected to be made to the employee stock ownership plan discussed below.

The City Holding Company Employees' Stock Ownership Plan (ESOP), covering all employees who have completed one year of service and have attained the age of 21, was created January 1, 1996 and includes both Money Purchase and Stock Bonus plan features. Annually, the Company will contribute to the Money Purchase account an amount equal to 9% of eligible compensation. Contributions to the Stock Bonus account are discretionary, as determined by the Company's Board of Directors.

The Company's total expense associated with the Plan and the ESOP (collectively, the benefit plans) approximated $2.28 million, $2.46 million, and $2.13 million in 1998, 1997, and 1996, respectively. The total number of shares of the Company's common stock held by the benefit plans is 333,402. Other than the benefit plans, the Company offers no postretirement benefits.

Horizon has a defined benefit pension plan covering substantially all of its employees. The following table summarizes the benefit obligation and plan asset activity of the plan:

                                               Pension  Benefits
                                              1998            1997
                                             ----------------------
                                                (in thousands)
Change in fair value of plan assets:
 Balance at beginning of                     $8,093          $6,939
  measurement period
 Actual return on plan                          584           1,297
  assets
 Employer contribution                          875             116
 Benefits paid                                 (201)           (259)
                                             -----------------------
Balance at end of                             9,351           8,093
measurement period

Change in benefit
obligation:
 Balance at beginning of                     (8,870)         (7,527)
  measurement period
 Service cost                                (1,018)           (751)
 Interest cost                                 (718)           (561)
 Actuarial loss (gain)                       (1,629)           (290)
 Benefits paid                                  201             259
                                             -----------------------
Balance at end of                           (12,034)         (8,870)
measurement period                           -----------------------
 unded status                                (2,683)           (777)

Unamortized prior service                     1,008           1,142
cost
Unrecognized net                               (156)         (1,927)
actuarial loss (gain)
Unrecognized net                               (286)           (316)
obligation                                   -----------------------
   PREPAID (ACCRUED)                        $(2,117)        $(1,878)
   BENEFIT COST                              =======================

Weighted-average assumptions as of
December 31:
 Discount rate                                 7.25%           7.25%
 Expected return on plan                       8.50%           8.00%
  assets
 Rate of compensation                          5.00%           5.00%
  increase

Plan assets consist principally of U.S. Government securities, corporate stocks and bonds, and other short-term investments.

The following table presents the components of net defined benefit pension costs:

                                                Pension Benefits
                                            1998       1997      1996
                                            -------------------------
                                                  (in thousands)
Components of net periodic benefit cost:
 Service cost                             $1,018       $751      $513
 Interest cost                               718        561       547
 Expected return on                         (680)      (650)     (528)
  plan assets
 Net amortization and                        103         80        33

deferral ----------------------------
BENEFIT COST $1,159 $742 $565

Horizon has individual deferred compensation and supplemental retirement agreements with certain directors and officers. The cost of such individual agreements is being accrued over the period of active service from the date of the respective agreement. The cost of such agreements approximated $449, $395, and $420 during 1998, 1997, and 1996. The liability for such agreements approximated $2,556 and $2,254 at December 31, 1998 and 1997, and is included in other liabilities in the accompanying consolidated balance sheets.

To assist in funding the above liabilities, Horizon has insured the lives of certain directors and officers. Horizon is the owner and beneficiary of the insurance policies with a cash surrender value approximating $3,410 and $3,107 at December 31, 1998 and 1997, included in other assets in the accompanying consolidated balance sheets.

NOTE SEVENTEEN
OTHER INCOME AND EXPENSES

The following items of other income and other expense exceeded one percent of total revenue for the respective years:

                               1998       1997      1996
                              ---------------------------
                                    (in thousands)

Professional fees             $9,671     $1,975   $2,578
Telecommunications             4,317      2,165    1,435
Bank supplies                  3,558      2,252    2,220

NOTE EIGHTEEN
COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, certain financial products are offered by the Company to accommodate the financial needs of its customers. Loan commitments (lines of credit) represent the principal off-balance sheet financial product offered by the Company. At December 31, 1998 and 1997, commitments outstanding to extend credit totaled approximately $195.60 million and $198.14 million, respectively. To a much lesser extent, the Company offers standby letters of credit which require payments to be made on behalf of customers when certain specified future events occur. Amounts outstanding pursuant to such standby letters of credit were $9.07 million and $8.80 million as of December 31, 1998 and 1997, respectively. Historically, substantially all standby letters of credit have expired unfunded.

Both of the above arrangements have credit risks essentially the same as that involved in extending loans to customers and are subject to the Company's standard credit policies. Collateral is obtained based on management's credit assessment of the customer. Management does not anticipate any material losses as a result of these commitments.

NOTE NINETEEN
PREFERRED STOCK AND SHAREHOLDER RIGHTS PLAN

The Company's Board of Directors has the authority to issue preferred stock, and to fix the designation, preferences, rights, dividends and all other attributes of such preferred stock, without any vote or action by the shareholders. As of December 31, 1998, there are no such shares outstanding, nor are any expected to be issued, except as might occur pursuant to the Stock Rights Plan discussed below.

The Company's Stock Rights Plan provides that each share of common stock carries with it one right. The rights would be exercisable only if a person or group, as defined, acquired 10% or more of the Company's common stock, or

announces a tender offer for such stock. Under conditions described in the Stock Rights Plan, holders of rights could acquire shares of preferred stock or additional shares of the Company's common stock, or in the event of a 50% or more change-in-control, shares of common stock of the acquirer. The value of shares acquired under the plan would equal twice the exercise price.

NOTE TWENTY
REGULATORY MATTERS

The Company, including its banking subsidiaries, is subject to various regulatory capital requirements administered by the various banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, action by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company's and its banking subsidiaries' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiaries to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined). Management believes, as of December 31, 1998, that the Company and its banking subsidiaries met all capital adequacy requirements to which they were subject.

As of December 31, 1998, the most recent notifications from banking regulatory agencies categorized the Company and its banking subsidiaries as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Company and its banking subsidiaries must maintain minimum total risk-based, Tier 1 risk-based, and Tier I leverage ratios set forth in the table below. There are no conditions or events since notifications that management believes have changed the institutions' categories. The Company's and its significant banking subsidiary's actual capital amounts and ratios are presented in the following table.

                                                                         Well
                                  1998                 1997           Capitalized      Minimum
                          Amount       Ratio     Amount     Ratio       Ratio          Ratio
                     -----------------------------------------------------------------------------
                                                       (in thousands)
Total Capital (to
Risk Weighted
Assets):
  Consolidated         $282,100        12.0%   $206,327    12.8%          10%            8%
  City National         162,248       10.07     109,693    12.3           10             8

Tier I Capital (to
Risk Weighted
Assets):
   Consolidated         249,018        10.6     190,294    11.8            6             4
   City National        153,608        10.1     102,020    11.5            6             4

Tier I Capital (to
Average Assets):
   Consolidated         249,018        10.0     190,294     8.5            5             4
   City National        153,608         8.9     102,020     7.7            5             4

NOTE TWENTY-ONE
FAIR VALUES OF FINANCIAL INSTRUMENTS

FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. FASB No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following table represents the estimates of fair value of financial instruments:

                                 Fair Value of Financial Instruments
                                      1998                   1997
                           -------------------------------------------------
                           Carrying         Fair        Carrying       Fair
                            Amount          Value        Amount        Value
                           -------------------------------------------------
                                            (in thousands)
Assets:
 Cash and due             $119,777       $119,777       $132,532     $132,532
  from banks
 Securities                396,444        397,398        378,330      379,547
 Net loans               1,698,319      1,701,744      1,490,411    1,493,417
 Loans held                246,287        246,287        134,990      134,990
  for sale
 Retained                   65,623         65,623          4,356        4,356
 interests
Liabilities:
 Demand                  1,056,342      1,056,342        899,981      899,981
  deposits
 Time deposits           1,008,073      1,027,503        879,824      896,782
 Short-term                183,418        183,418        172,833      172,833
  borrowings
 Long-term                 102,719        105,493         75,502       76,003
  debt
 Trust                      87,500         87,493              -            -
  preferred
  securities

The following methods and assumptions were used in estimating fair value amounts for financial instruments:

The fair values for the loan portfolio are estimated using discounted cash flow analyses at interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying values of accrued interest approximate fair value.

The fair values of demand deposits (i.e. interest and noninterest-bearing checking, regular savings, and other types of money market demand accounts) are, by definition, equal to their carrying amounts.

Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities of time deposits.

Securities sold under agreements to repurchase represent borrowings with original maturities of less than 90 days. The carrying amount of advances from the FHLB and borrowings under repurchase agreements approximate their fair values.

The fair values of long-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

The fair value of the trust preferred securities is estimated using a discounted cash flow calculation that applies interest rates that would be currently offered on such securities.

The fair values of commitments are estimated based on fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the counterparties' credit standing. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair values approximated the carrying values of these commitments and letters of credit as of December 31, 1998 and 1997.

NOTE TWENTY-TWO
CITY HOLDING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS

                                            December 31
                                         1998          1997
                                      -----------------------
                                           (in thousands)
Assets
Cash                                   $6,362         $2,639
Securities available for                3,636          2,164
sale
Investment in subsidiaries            311,879        243,217
Fixed assets                            6,080          7,957
Other assets                            5,557          9,839
                                     ------------------------
   TOTAL ASSETS                      $333,514       $265,816
                                     ========================
Liabilities
Long-term debt                        $15,000        $40,400
Junior subordinated                    90,114              -
debentures
Advances from affiliates                1,191            934
Other liabilities                       7,150          4,205
                                     ------------------------
   TOTAL LIABILITIES                  113,455         45,539

Stockholders' equity                  220,059        220,277
                                     ------------------------
   TOTAL LIABILITIES AND             $333,514       $265,816

STOCKHOLDERS' EQUITY ========================

Advances from affiliates, which eliminate for purposes of the Company's consolidated financial statements, represent amounts borrowed from banking subsidiaries to fund the purchase of certain bank premises and to meet other cash needs of the Parent. Such debt is collateralized by the securities and fixed assets of the Parent Company. Interest is due quarterly at prime with principal due at maturity in 1999. Junior subordinated debentures, which eliminate for purposes of the Company's consolidated financial statements, represent the Parent Company's funding of City Holding Capital Trust II and City Holding Capital Trust (see NOTE THIRTEEN).

CONDENSED STATEMENTS OF INCOME

                                          Year Ended December 31
                                       1998        1997        1996
                                      ------------------------------
                                              (in thousands)
INCOME
Dividends from bank                  $17,879     $20,351     $12,344
subsidiaries
Mortgage loan                                                  1,147
servicing fees
Administrative fees                    6,239       6,065       2,828
Other income                             286       1,001       1,084
                                     --------------------------------
                                      24,404      27,417      17,403
EXPENSES
Interest expense                       4,799       2,273       1,477
Other expenses                        27,232      15,352      11,592
                                     --------------------------------
                                      32,031      17,625      13,069
                                     --------------------------------
   INCOME BEFORE
    INCOME TAX BENEFIT
    AND (EXCESS
    DIVIDENDS) EQUITY
    IN UNDISTRIBUTED
    NET INCOME OF
    SUBSIDIARIES                      (7,627)      9,792       4,334
Income tax benefit                    (7,795)     (3,615)     (2,965)
                                     ---------------------------------
   INCOME BEFORE
    (EXCESS DIVIDENDS)
    EQUITY IN                            168      13,407       7,299
    UNDISTRIBUTED NET
    INCOME OF
    SUBSIDIARIES
EQUITY IN
 UNDISTRIBUTED NET
 INCOME OF SUBSIDIARIES                5,066       12,884      13,982
                                     ---------------------------------
   NET INCOME                         $5,234      $26,291     $21,281
                                     =================================

CONDENSED STATEMENTS OF CASH FLOWS

                                               Year Ended  December 31
                                         1998          1997            1996
                                        -------------------------------------
                                                  (in thousands)
OPERATING ACTIVITIES
Net income                              $5,234       $26,291          $21,281
Adjustments to reconcile net
 income to net cash (used in)
 provided by operating
 activities:
  Provision for                          2,687         1,843            1,679
   depreciation
  Increase (decrease)                    7,278           219           (4,287)
   in other assets
  Increase in other                      2,945         2,084            3,584
   liabilities
  (Equity in
   undistributed net                    (5,066)      (12,884)         (13,982)
   income) excess
   dividends of
   subsidiaries
  Realized investment                        -          (308)               -
   securities gain
                                        ---------------------------------------
   NET CASH PROVIDED
    BY OPERATING ACTIVITIES             13,078        17,245            8,275

INVESTING ACTIVITIES
Cash paid in                                 -       (15,447)               -
acquisition
Proceeds from                                -           537              250
maturities of
investment securities
Proceeds from sales of                     769           496              192
securities
Purchases of                            (2,132)         (514)            (483)
investment securities
Net change in loans                          -         1,644              (71)
Cash invested in                       (50,399)       (4,495)            (625)
subsidiaries
Purchases of premises                     (733)       (3,953)          (4,817)
and equipment
                                        ---------------------------------------
   NET CASH USED IN                    (52,495)      (21,732)          (5,554)
    INVESTING
    ACTIVITIES

FINANCING ACTIVITIES
Proceeds from                           43,800         9,150            9,250
long-term debt
Principal repayments                   (69,200)        7,000                -
on long-term debt
Increase in advance                        257             -                -
from affiliates
Net proceeds from
 issuance of junior                     86,762             -                -
 subordinated
 debentures
Cash dividends paid                    (12,167)      (11,421)          (8,753)
Purchases of treasury                   (6,987)       (2,840)               -
stock
Proceeds from sales of                       -            80               58
treasury stock
Exercise of stock                          675            65                -
options
Net cash received from                       -            29               14
stock transactions
Redemption of                                -             -              (22)
dissenter and
fractional shares
                                       ----------------------------------------
   NET CASH PROVIDED
    BY (USED IN)                        43,140         2,063              547
    FINANCING
    ACTIVITIES
                                       ----------------------------------------
   (DECREASE) INCREASE
    IN CASH AND                          3,723        (2,424)           3,268
    CASH EQUIVALENTS
CASH AND CASH
 EQUIVALENTS AT
 BEGINNING OF YEAR                       2,639         5,063            1,795
                                       ----------------------------------------
   CASH AND CASH
    EQUIVALENTS AT
    END OF YEAR                         $6,362        $2,639           $5,063
                                       ========================================

NOTE TWENTY-THREE
SEGMENT REPORTING

The Company operates three business segments: community banking, mortgage banking, and other financial services. These business segments are primarily identified by the products or services offered and the channels through which the product or service is offered. The community banking operations consists of various community banks that offer customers traditional banking products and services through various delivery channels. The mortgage banking operations include the origination, acquisition, servicing, and sale of mortgage loans. The other financial services business segment consists of nontraditional services offered to customers, such as investment advisory, insurance, and internet technology products. Another defined business segment of the Company is corporate support which includes the parent company and other support needs.

The accounting policies for each of the business segments are the same as those of the Company described in Note One. Selected segment information is included in the following table:

                                                                             Other
                                                Community        Mortgage    Financial     General
                                                Banking          Banking     Services      Corporate   Eliminations    Consolidated
                                            ----------------------------------------------------------------------------------------
1998
Net interest income (expense)                  $96,085           $8,906       $  64        $(1,712)       $   -           $103,343
Provision for loan losses                       (8,481)               -           -              -            -             (8,481)
                                            ----------------------------------------------------------------------------------------
Net interest income after provision             87,604            8,906          64         (1,712)           -             94,862
 for loan losses
Other income                                    19,355           47,414      11,133            216       (5,695)            72,423
Other expenses                                  82,100           50,752      11,502         16,899       (5,695)           155,558
                                            ----------------------------------------------------------------------------------------
Income before income taxes                      24,859            5,568        (305)       (18,395)           -             11,727
Income tax expense (benefit)                     9,816            1,798          (8)        (5,113)           -              6,493
                                            ----------------------------------------------------------------------------------------
   NET INCOME                                  $15,043           $3,770       $(297)      $(13,282)       $   -            $ 5,234
                                            ========================================================================================
Average assets                              $2,202,104         $336,367     $14,660        $12,969        $   -         $2,566,100
                                            ========================================================================================

1997
Net interest income (expense)                  $90,769           $8,456       $   3        $(2,074)       $   -            $97,154
Provision for loan losses                       (4,064)               -           -              -            -             (4,064)
                                           -----------------------------------------------------------------------------------------
Net interest income after provision
 for loan losses                                86,705            8,456           3         (2,074)           -             93,090
Other income                                    13,858           17,636         446            673            -             32,613
Other expenses                                  61,165           14,702         366          8,666            -             84,899
                                           -----------------------------------------------------------------------------------------
Income before income taxes                      39,398           11,390          83        (10,067)           -             40,804
Income tax expense (benefit)                    12,604            4,284          36         (2,411)           -             14,513
                                           -----------------------------------------------------------------------------------------
   NET INCOME                                  $26,794           $7,106       $  47        $(7,656)       $   -            $26,291
                                           =========================================================================================
Average assets                              $2,041,150         $133,792       $ 627         $4,892        $   -         $2,180,461
                                           =========================================================================================

1996
Net interest income (expense)                  $86,496           $6,113       $   1        $(1,236)       $   -            $91,374
Provision for loan losses                       (5,012)               -           -              -            -             (5,012)
                                           -----------------------------------------------------------------------------------------
Net interest income after provision
 for loan losses                                81,484            6,113           1         (1,236)           -             86,362
Other income                                    11,732            3,924         111            706            -             16,473
Other expenses                                  59,399            4,637         129          5,901            -             70,066
                                           -----------------------------------------------------------------------------------------
Income before income taxes                      33,817            5,400         (17)        (6,431)           -             32,769
Income tax expense (benefit)                    11,830            2,032           -         (2,374)           -             11,488
                                           -----------------------------------------------------------------------------------------
   NET INCOME                                  $21,987           $3,368       $ (17)       $(4,057)       $   -            $21,281
                                           =========================================================================================
Average assets                              $1,867,334         $149,075       $  92         $5,487        $   -         $2,021,988
                                           =========================================================================================

Services provided to the banking segments by the direct mail, insurance, and internet service provider divisions are eliminated in the Consolidated Statements of Income.

NOTE TWENTY-FOUR
SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of selected quarterly financial information for 1998 and 1997 follows:

                                 First               Second           Third              Fourth
                                 Quarter             Quarter          Quarter            Quarter
                              --------------------------------------------------------------------
                                             (in thousands, except common share data)
1998
Interest income                 $46,053             $49,701           $51,050            $49,876
Interest expense                 21,203              23,026            24,664             24,444
Net interest                     24,850              26,675            26,386             25,432
income
Provision for                     1,229               1,238             1,949              4,065
possible loan
losses
Investment                          (15)                  9                11                  2
 securities gains
 (losses)
Net income (loss)                 6,737               6,999             6,575            (15,077)
Basic earnings                     0.40                0.41              0.39              (0.89)
per common share
Diluted earnings                   0.40                0.41              0.39              (0.89)
per common share
Average common
 shares
 outstanding:
 Basic                           16,642              16,879            16,850             16,821
 Diluted                         16,789              17,042            16,995             16,821

1997
Interest income                 $39,600             $42,928           $44,339            $46,299
Interest expense                 16,864              18,343            19,352             21,453
Net interest                     22,736              24,585            24,987             24,846
income
Provision for                     1,088                 840               802              1,334
possible loan
losses
Investment                          (10)                (15)                8                 25
securities gains
(losses)
Net income                        6,071               6,687             7,012              6,521
Basic earnings                     0.37                0.41              0.43               0.39
per common share
Diluted earnings                   0.37                0.41              0.43               0.39
per common share
Average common
shares
outstanding:
 Basic                           16,395              16,382            16,342             16,602
 Diluted                         16,422              16,418            16,396             16,662

Certain amounts previously reported during 1998 have been reclassified to conform to the financial statement presentation. These reclassifications had no impact on net income or stockholders' equity.

EXHIBIT 21

Subsidiaries of City Holding Company

As of December 31, 1998, the subsidiaries, each wholly-owned, of City Holding Company included:

City National Bank of West Virginia       Insured depository institution
3601 MacCorkle Avenue S.E.
Charleston, West Virginia

Bank of Raleigh                           Insured depository institution
One Park Avenue
Beckley, West Virginia

The Twentieth Street Bank                 Insured depository institution
Third Avenue and Twentieth Street
Huntington, West Virginia

Greenbrier Valley National Bank           Insured depository institution
109 South Jefferson Street
Lewisburg, West Virginia

National Bank of Summers                  Insured depository institution
Temple Street
Hinton, West Virginia

First National Bank in Marlinton          Insured depository institution
300 Eighth Street
Marlinton, West Virginia

Del Amo Savings Bank, F.S.B.              Insured depository institution
3422 Carson Street
Torrance, California

City Financial Corporation                Securities brokerage and investment
3601 MacCorkle Avenue S.E.                    advisory company
Charleston, West Virginia

City Mortgage Corporation                 Inactive mortgage banking company
Pittsburgh, Pennsylvania

City Holding Capital Trust                Special-purpose statutory trust
25 Gatewater Road
Charleston, West Virginia

City Holding Capital Trust II             Special-purpose statutory trust
25 Gatewater Road
Charleston, West Virginia

EXHIBIT 23

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of City Holding Company of our report dated February 5, 1999, included in the 1998 Annual Report to Shareholders of City Holding Company.

We also consent to the incorporation by reference in the Registration Statements (Form S-3, Number 33-38391, Form S-8, Number 33-38269, and Form S-8, Number 33-62738) pertaining to the Dividend Reinvestment and Stock Purchase Plan, the Profit-Sharing and 401(k) Plan, and the 1993 Stock Incentive Plan, respectively, of City Holding Company and in the related Prospectuses of our report dated February 5, 1999, with respect to the consolidated financial statements of City Holding Company incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1998.

                                         /s/ Ernst & Young LLP


Charleston, West Virginia
March 29, 1999

ARTICLE 9

MULTIPLIER: 1,000


PERIOD TYPE	YEAR
FISCAL YEAR END	DEC 31 1998
PERIOD END	DEC 31 1998
CASH	87,866
INT BEARING DEPOSITS	0
FED FUNDS SOLD	31,911
TRADING ASSETS	0
INVESTMENTS HELD FOR SALE	356,659
INVESTMENTS CARRYING	39,063
INVESTMENTS MARKET	40,539
LOANS	1,715,929
ALLOWANCE	17,610
TOTAL ASSETS	2,706,004
DEPOSITS	2,064,414
SHORT TERM	183,418
LIABILITIES OTHER	47,893
LONG TERM	190,219
PREFERRED MANDATORY	0
PREFERRED	0
COMMON	42,051
OTHER SE	178,008
TOTAL LIABILITIES AND EQUITY	2,706,004
INTEREST LOAN	170,549
INTEREST INVEST	22,144
INTEREST OTHER	3,987
INTEREST TOTAL	196,680
INTEREST DEPOSIT	74,432
INTEREST EXPENSE	18,905
INTEREST INCOME NET	103,343
LOAN LOSSES	8,481
SECURITIES GAINS	7
EXPENSE OTHER	155,558
INCOME PRETAX	11,727
INCOME PRE EXTRAORDINARY	0
EXTRAORDINARY	0
CHANGES	0
NET INCOME	5,234
EPS PRIMARY	0.31
EPS DILUTED	0.31
YIELD ACTUAL	4.49
LOANS NON	8,844
LOANS PAST	5,126
LOANS TROUBLED	879
LOANS PROBLEM	0
ALLOWANCE OPEN	18,190
CHARGE OFFS	11,469
RECOVERIES	1,623
ALLOWANCE CLOSE	17,610
ALLOWANCE DOMESTIC	17,610
ALLOWANCE FOREIGN	0
ALLOWANCE UNALLOCATED	0

ARTICLE 9

MULTIPLIER: 1,000


PERIOD TYPE	YEAR
FISCAL YEAR END	DEC 31 1997
PERIOD END	DEC 31 1997
CASH	78,469
INT BEARING DEPOSITS	0
FED FUNDS SOLD	54,063
TRADING ASSETS	0
INVESTMENTS HELD FOR SALE	336,776
INVESTMENTS CARRYING	41,554
INVESTMENTS MARKET	42,771
LOANS	1,508,601
ALLOWANCE	18,190
TOTAL ASSETS	2,286,424
DEPOSITS	1,779,805
SHORT TERM	172,833
LIABILITIES OTHER	38,007
LONG TERM	75,502
PREFERRED MANDATORY	0
PREFERRED	0
COMMON	41,926
OTHER SE	178,351
TOTAL LIABILITIES AND EQUITY	2,286,424
INTEREST LOAN	147,760
INTEREST INVEST	24,917
INTEREST OTHER	489
INTEREST TOTAL	173,166
INTEREST DEPOSIT	63,086
INTEREST EXPENSE	12,926
INTEREST INCOME NET	97,154
LOAN LOSSES	4,064
SECURITIES GAINS	8
EXPENSE OTHER	84,899
INCOME PRETAX	40,804
INCOME PRE EXTRAORDINARY	0
EXTRAORDINARY	0
CHANGES	0
NET INCOME	26,291
EPS PRIMARY	1.60
EPS DILUTED	1.60
YIELD ACTUAL	4.95
LOANS NON	7,801
LOANS PAST	5,149
LOANS TROUBLED	331
LOANS PROBLEM	0
ALLOWANCE OPEN	16,888
CHARGE OFFS	5,752
RECOVERIES	2,471
ALLOWANCE CLOSE	18,190
ALLOWANCE DOMESTIC	18,190
ALLOWANCE FOREIGN	0
ALLOWANCE UNALLOCATED	0

ARTICLE 9

MULTIPLIER: 1,000


PERIOD TYPE	YEAR
FISCAL YEAR END	DEC 31 1996
PERIOD END	DEC 31 1996
CASH	83,854
INT BEARING DEPOSITS	0
FED FUNDS SOLD	2,868
TRADING ASSETS	0
INVESTMENTS HELD FOR SALE	328,867
INVESTMENTS CARRYING	83,719
INVESTMENTS MARKET	85,180
LOANS	1,331,966
ALLOWANCE	16,888
TOTAL ASSETS	1,995,878
DEPOSITS	1,626,666
SHORT TERM	119,452
LIABILITIES OTHER	26,726
LONG TERM	34,250
PREFERRED MANDATORY	0
PREFERRED	0
COMMON	39,851
OTHER SE	148,933
TOTAL LIABILITIES AND EQUITY	1,995,878
INTEREST LOAN	133,465
INTEREST INVEST	25,403
INTEREST OTHER	840
INTEREST TOTAL	159,708
INTEREST DEPOSIT	57,662
INTEREST EXPENSE	10,672
INTEREST INCOME NET	91,374
LOAN LOSSES	5,012
SECURITIES GAINS	8
EXPENSE OTHER	70,066
INCOME PRETAX	32,769
INCOME PRE EXTRAORDINARY	0
EXTRAORDINARY	0
CHANGES	0
NET INCOME	21,281
EPS PRIMARY	1.34
EPS DILUTED	1.34
YIELD ACTUAL	4.97
LOANS NON	5,200
LOANS PAST	6,402
LOANS TROUBLED	235
LOANS PROBLEM	0
ALLOWANCE OPEN	15,088
CHARGE OFFS	5,011
RECOVERIES	1,799
ALLOWANCE CLOSE	16,888
ALLOWANCE DOMESTIC	16,888
ALLOWANCE FOREIGN	0
ALLOWANCE UNALLOCATED	0