UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 0-11733

CITY HOLDING COMPANY

(Exact name of registrant as specified in its charter)

West Virginia

55-0619957

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

25 Gatewater Road,

Charleston,

West Virginia

25313

(Address of Principal Executive Offices)

(Zip Code)

(304) 769-1100

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $2.50 par value	CHCO	NASDAQ Global Select 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 reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	x	Accelerated filer	o
Non accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding ~~16,148,796 share~~16,030,180 sharess of common stock as of ~~May 1,~~July 31, 2020.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements express only management's beliefs regarding future results or events and are subject to inherent uncertainty, risks, and changes in circumstances, many of which are outside of management's control. Uncertainty, risks, changes in circumstances and other factors could cause the Company's (as hereinafter defined) actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, but are not limited to, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 under “ITEM 1A Risk Factors” and the following: (1) general economic conditions, especially in the communities and markets in which we conduct our business; (2) the uncertainties on the Company’s business, results of operations and financial condition, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its continued influence on financial markets, the effectiveness of the Company’s work from home arrangements and staffing levels in operational facilities, the impact of market participants on which the Company relies and actions taken by governmental authorities and other third parties in response to the pandemic; (3) credit risk, including risk that negative credit quality trends may lead to a deterioration of asset quality, risk that our allowance for credit losses may not be sufficient to absorb actual losses in our loan portfolio, and risk from concentrations in our loan portfolio; (4) changes in the real estate market, including the value of collateral securing portions of our loan portfolio; (5) changes in the interest rate environment; (6) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; (7) changes in technology and increased competition, including competition from non-bank financial institutions; (8) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers' performance and creditworthiness; (9) difficulty growing loan and deposit balances; (10) our ability to effectively execute our business plan, including with respect to future acquisitions; (11) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their subsidiaries; (12) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions; (13) regulatory enforcement actions and adverse legal actions; (14) difficulty attracting and retaining key employees; and (15) other economic, competitive, technological, operational, governmental, regulatory, and market factors affecting our operations. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made.

Table of Contents

Index

City Holding Company and Subsidiaries


PART I	Financial Information	Pages

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	67
	Consolidated Statements of Cash Flows	78
	Notes to Consolidated Financial Statements	810
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3537
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5259
Item 4.	Controls and Procedures	5259

PART II	Other Information

Item 1.	Legal Proceedings	5460
Item 1A.	Risk Factors	5460
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5460
Item 3.	Defaults Upon Senior Securities	5461
Item 4.	Mine Safety Disclosures	5561
Item 5.	Other Information	5561
Item 6.	Exhibits	5662

Signatures		5763

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Table of Contents

Consolidated Balance Sheets

City Holding Company and Subsidiaries

(in thousands)


		(Unaudited)					(Unaudited)
		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
Assets	Assets							Assets
Cash and due from banks	Cash and due from banks	$	92,365	$	88,658	Cash and due from banks	$	87,658
Interest-bearing deposits in depository institutions	Interest-bearing deposits in depository institutions	18,271		51,486		Interest-bearing deposits in depository institutions	285,596		51,486
Cash and Cash Equivalents	Cash and Cash Equivalents	110,636		140,144		Cash and Cash Equivalents	373,254		140,144

Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	934,113		810,106		Investment securities available for sale, at fair value	1,055,185		810,106
Investment securities held-to-maturity, at amortized cost (approximate fair value at March 31, 2020 and December 31, 2019 - $0 and $50,598, respectively)		—		49,036
Investment securities held-to-maturity, at amortized cost (approximate fair value at June 30, 2020 and December 31, 2019 - $0 and $50,598, respectively)						Investment securities held-to-maturity, at amortized cost (approximate fair value at June 30, 2020 and December 31, 2019 - $0 and $50,598, respectively)	—		49,036
Other securities	Other securities	26,827		28,490		Other securities	26,144		28,490
Total Investment Securities	Total Investment Securities	960,940		887,632		Total Investment Securities	1,081,329		887,632

Gross loans	Gross loans	3,613,050		3,616,099		Gross loans	3,665,596		3,616,099
Allowance for credit losses	Allowance for credit losses	(24,393)		(11,589)		Allowance for credit losses	(25,199)		(11,589)
Net Loans	Net Loans	3,588,657		3,604,510		Net Loans	3,640,397		3,604,510

Bank owned life insurance	Bank owned life insurance	116,000		115,261		Bank owned life insurance	116,746		115,261
Premises and equipment, net	Premises and equipment, net	78,948		76,965		Premises and equipment, net	77,991		76,965
Accrued interest receivable	Accrued interest receivable	12,570		11,569		Accrued interest receivable	14,200		11,569
Net deferred tax asset	Net deferred tax asset	2,159		6,669		Net deferred tax asset	—		6,669
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	119,829		120,241		Goodwill and other intangible assets, net	119,417		120,241
Other assets	Other assets	98,710		55,765		Other assets	105,438		55,765
Total Assets	Total Assets	$	5,088,449	$	5,018,756	Total Assets	$	5,528,772	$	5,018,756

Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	857,501	$	805,087	Noninterest-bearing	$	1,079,469	$	805,087
Interest-bearing:	Interest-bearing:					Interest-bearing:
Demand deposits	Demand deposits	837,966		896,465		Demand deposits	921,761		896,465
Savings deposits	Savings deposits	989,609		1,009,771		Savings deposits	1,067,254		1,009,771
Time deposits	Time deposits	1,366,977		1,364,571		Time deposits	1,342,631		1,364,571
Total Deposits	Total Deposits	4,052,053		4,075,894		Total Deposits	4,411,115		4,075,894

Short-term borrowings:	Short-term borrowings:					Short-term borrowings:
Federal Home Loan Bank advances		9,900		—
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	224,247		211,255		Securities sold under agreements to repurchase	282,676		211,255
Long-term debt	Long-term debt	—		4,056		Long-term debt	—		4,056
Net deferred tax liability						Net deferred tax liability	2,598		—
Other liabilities	Other liabilities	117,021		69,568		Other liabilities	138,633		69,568
Total Liabilities	Total Liabilities	4,403,221		4,360,773		Total Liabilities	4,835,022		4,360,773
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, par value $25 per share: 500,000 shares authorized; none issued		—		—
Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at March 31, 2020 and December 31, 2019, less 2,907,168 and 2,744,109 shares in treasury, respectively		47,619		47,619
Preferred stock, par value $25 per share: 500,000 shares authorized; NaN issued						Preferred stock, par value $25 per share: 500,000 shares authorized; NaN issued	—		—
Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at June 30, 2020 and December 31, 2019, less 2,970,815 and 2,744,109 shares in treasury, respectively						Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at June 30, 2020 and December 31, 2019, less 2,970,815 and 2,744,109 shares in treasury, respectively	47,619		47,619
Capital surplus	Capital surplus	170,096		170,309		Capital surplus	169,881		170,309
Retained earnings	Retained earnings	556,718		539,253		Retained earnings	565,804		539,253
Cost of common stock in treasury	Cost of common stock in treasury	(116,665)		(105,038)		Cost of common stock in treasury	(120,583)		(105,038)
Accumulated other comprehensive income:	Accumulated other comprehensive income:					Accumulated other comprehensive income:
Unrealized gain on securities available-for-sale	Unrealized gain on securities available-for-sale	33,730		12,110		Unrealized gain on securities available-for-sale	37,299		12,110
Underfunded pension liability	Underfunded pension liability	(6,270)		(6,270)		Underfunded pension liability	(6,270)		(6,270)
Total Accumulated Other Comprehensive Income	Total Accumulated Other Comprehensive Income	27,460		5,840		Total Accumulated Other Comprehensive Income	31,029		5,840
Total Shareholders’ Equity	Total Shareholders’ Equity	685,228		657,983		Total Shareholders’ Equity	693,750		657,983
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	5,088,449	$	5,018,756	Total Liabilities and Shareholders’ Equity	$	5,528,772	$	5,018,756

See notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Income (Unaudited)

City Holding Company and Subsidiaries

(in thousands, except earnings per share data)


Interest Income	Interest Income	Three months ended March 31,						Interest Income	Three months ended June 30,							Six months ended June 30,
				2020		2019					2020	2019				2020	2019

Interest and fees on loans	Interest and fees on loans	$	41,335	$	42,279	Interest and fees on loans	$	37,718	$	43,174		$	79,053	$	85,453
Interest and dividends on investment securities:	Interest and dividends on investment securities:					Interest and dividends on investment securities:
Taxable	Taxable	5,871		5,689		Taxable	5,718		5,732			11,589		11,421
Tax-exempt	Tax-exempt	707		779		Tax-exempt	821		755			1,528		1,534
Interest on deposits in depository institutions	Interest on deposits in depository institutions	304		186		Interest on deposits in depository institutions	55		577			360		763
Total Interest Income	Total Interest Income	48,217		48,933		Total Interest Income	44,312		50,238			92,530		99,171

Interest Expense	Interest Expense					Interest Expense
Interest on deposits	Interest on deposits	7,238		7,767		Interest on deposits	5,963		8,417			13,201		16,184
Interest on short-term borrowings	Interest on short-term borrowings	464		1,052		Interest on short-term borrowings	279		863			743		1,915
Interest on long-term debt	Interest on long-term debt	100		48		Interest on long-term debt	—		47			100		95
Total Interest Expense	Total Interest Expense	7,802		8,867		Total Interest Expense	6,242		9,327			14,044		18,194
Net Interest Income	Net Interest Income	40,415		40,066		Net Interest Income	38,070		40,911			78,486		80,977
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	7,972		(849)		Provision for (recovery of) credit losses	1,250		(600)			9,222		(1,449)
Net Interest Income After Provision for (Recovery of) Credit Losses	Net Interest Income After Provision for (Recovery of) Credit Losses	32,443		40,915		Net Interest Income After Provision for (Recovery of) Credit Losses	36,820		41,511			69,264		82,426

Non-Interest Income	Non-Interest Income					Non-Interest Income
Gains on sale of investment securities, net		63		88
Unrealized (losses) gains recognized on equity securities still held		(2,402)		75
(Losses) gains on sale of investment securities, net						(Losses) gains on sale of investment securities, net	(6)		21			56		109
Unrealized gains (losses) recognized on equity securities still held						Unrealized gains (losses) recognized on equity securities still held	242		113			(2,159)		188
Service charges	Service charges	7,723		7,321		Service charges	4,945		7,778			12,667		15,099
Bankcard revenue	Bankcard revenue	5,115		4,969		Bankcard revenue	5,888		5,522			11,003		10,491
Trust and investment management fee income	Trust and investment management fee income	1,799		1,642		Trust and investment management fee income	1,931		1,699			3,730		3,341
Bank owned life insurance	Bank owned life insurance	1,676		1,016		Bank owned life insurance	848		1,132			2,523		2,148
Sale of VISA shares	Sale of VISA shares	17,837		—		Sale of VISA shares	—		—			17,837		—
Other income	Other income	1,536		814		Other income	783		1,560			2,318		2,374
Total Non-Interest Income	Total Non-Interest Income	33,347		15,925		Total Non-Interest Income	14,631		17,825			47,975		33,750

Non-Interest Expense	Non-Interest Expense					Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	15,851		15,243		Salaries and employee benefits	14,873		15,767			30,724		31,010
Occupancy related expense	Occupancy related expense	2,488		2,732		Occupancy related expense	2,402		2,598			4,890		5,330
Equipment and software related expense	Equipment and software related expense	2,429		2,191		Equipment and software related expense	2,504		2,223			4,933		4,414
FDIC insurance expense	FDIC insurance expense	—		291		FDIC insurance expense	167		347			167		638
Advertising	Advertising	843		869		Advertising	933		920			1,776		1,789
Bankcard expenses	Bankcard expenses	1,435		1,182		Bankcard expenses	1,498		1,534			2,933		2,716
Postage, delivery, and statement mailings	Postage, delivery, and statement mailings	616		624		Postage, delivery, and statement mailings	592		545			1,208		1,169
Office supplies	Office supplies	394		386		Office supplies	353		399			747		785
Legal and professional fees	Legal and professional fees	601		521		Legal and professional fees	589		605			1,190		1,126
Telecommunications	Telecommunications	511		726		Telecommunications	531		597			1,042		1,323
Repossessed asset losses, net of expenses	Repossessed asset losses, net of expenses	198		216		Repossessed asset losses, net of expenses	76		253			274		469
Merger related costs	Merger related costs	—		250		Merger related costs	—		547			—		797
Other expenses	Other expenses	4,102		4,180		Other expenses	3,950		4,437			8,052		8,617
Total Non-Interest Expense	Total Non-Interest Expense	29,468		29,411		Total Non-Interest Expense	28,468		30,772			57,936		60,183
Income Before Income Taxes	Income Before Income Taxes	36,322		27,429		Income Before Income Taxes	22,983		28,564			59,303		55,993
Income tax expense	Income tax expense	7,322		5,810		Income tax expense	4,732		5,813			12,054		11,623
Net Income Available to Common Shareholders	Net Income Available to Common Shareholders	$	29,000	$	21,619	Net Income Available to Common Shareholders	$	18,251	$	22,751		$	47,249	$	44,370

Table of Contents


Average shares outstanding, basic	Average shares outstanding, basic	16,080		16,411		Average shares outstanding, basic	16,081		16,368		16,123		16,390
Effect of dilutive securities	Effect of dilutive securities	21		18		Effect of dilutive securities	16		18		19		18
Average shares outstanding, diluted	Average shares outstanding, diluted	16,101		16,429		Average shares outstanding, diluted	16,097		16,386		16,142		16,408

Basic earnings per common share	Basic earnings per common share	$	1.79	$	1.31	Basic earnings per common share	$	1.12	$	1.38	$	2.90	$	2.68
Diluted earnings per common share	Diluted earnings per common share	$	1.78	$	1.30	Diluted earnings per common share	$	1.12	$	1.38	$	2.90	$	2.68

See notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Comprehensive Income (Unaudited)

City Holding Company and Subsidiaries

(in thousands)


		Three Months Ended							Three Months Ended						Six Months Ended
		March 31,							June 30,						June 30,
		2020		2019			2020		2019		2020		2019

Net income available to common shareholders	Net income available to common shareholders	$	29,000	$	21,619	Net income available to common shareholders	$	18,251	$	22,751	$	47,249	$	44,370

Available-for-Sale Securities	Available-for-Sale Securities					Available-for-Sale Securities
Unrealized gains on available-for-sale securities arising during the period	Unrealized gains on available-for-sale securities arising during the period	26,714		11,362		Unrealized gains on available-for-sale securities arising during the period	4,652		14,309		31,365		25,671
Reclassification adjustment for gains	Reclassification adjustment for gains	(63)		(88)		Reclassification adjustment for gains	6		(21)		(56)		(109)
Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	1,562		—		Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	—		—		1,562		—
Other comprehensive income before income taxes	Other comprehensive income before income taxes	28,213		11,274		Other comprehensive income before income taxes	4,658		14,288		32,871		25,562
Tax effect	Tax effect	(6,593)		(2,643)		Tax effect	(1,089)		(3,349)		(7,682)		(5,992)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	21,620		8,631		Other comprehensive income, net of tax	3,569		10,939		25,189		19,570

Comprehensive Income, Net of Tax	Comprehensive Income, Net of Tax	$	50,620	$	30,250	Comprehensive Income, Net of Tax	$	21,820	$	33,690	$	72,438	$	63,940

See notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

City Holding Company and Subsidiaries

Three Months Ended ~~March 31,~~June 30, 2020 and 2019

(in thousands)


		Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity			Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2018		$	47,619	$	169,555	$	485,967	$	(87,895)	$	(14,482)	$	600,764
Balance at March 31, 2019														Balance at March 31, 2019	$	47,619	$	170,215	$	498,847	$	(91,589)	$	(5,851)	$	619,241
Net income	Net income	—		—		21,619		—		—		21,619		Net income	—		—		22,751		—		—		22,751
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		8,631		8,631		Other comprehensive income (loss)	—		—		—		—		10,939		10,939
Cash dividends declared ($0.53 per share)	Cash dividends declared ($0.53 per share)	—		—		(8,739)		—		—		(8,739)		Cash dividends declared ($0.53 per share)	—		—		(8,687)		—		—		(8,687)
Stock-based compensation expense	Stock-based compensation expense	—		803		—		—		—		803		Stock-based compensation expense	—		571		—		—		—		571
Restricted awards granted	Restricted awards granted	—		(224)		—		224		—		—		Restricted awards granted	—		(1,333)		—		1,333		—		—
Exercise of 5,638 stock options		—		81		—		171		—		252
Purchase of 54,740 treasury shares		—		—		—		(4,089)		—		(4,089)
Balance at March 31, 2019		$	47,619	$	170,215	$	498,847	$	(91,589)	$	(5,851)	$	619,241
Exercise of 2,502 stock options														Exercise of 2,502 stock options	—		(79)		—		192		—		113
Purchase of 107,210 treasury shares														Purchase of 107,210 treasury shares	—		—		—		(8,020)		—		(8,020)
Balance at June 30, 2019														Balance at June 30, 2019	$	47,619	$	169,374	$	512,911	$	(98,084)	$	5,088	$	636,908


		Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity			Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance at December 31, 2019		$	47,619	$	170,309	$	539,253	$	(105,038)	$	5,840	$	657,983
Adoption of ASU 2016-13		—		—		(2,335)		—		—		(2,335)
Balance at March 31, 2020														Balance at March 31, 2020	$	47,619	$	170,096	$	556,718	$	(116,665)	$	27,460	$	685,228
Net income	Net income	—		—		29,000		—		—		29,000		Net income	—		—		18,251		—		—		18,251
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		21,620		21,620		Other comprehensive income (loss)	—		—		—		—		3,569		3,569
Cash dividends declared ($0.57 per share)	Cash dividends declared ($0.57 per share)	—		—		(9,200)		—		—		(9,200)		Cash dividends declared ($0.57 per share)	—		—		(9,165)		—		—		(9,165)
Stock-based compensation expense	Stock-based compensation expense	—		1,009		—		—		—		1,009		Stock-based compensation expense	—		693		—		—		—		693
Restricted awards granted	Restricted awards granted	—		(1,154)		—		1,154		—		—		Restricted awards granted	—		(879)		—		879		—		—
Exercise of 2,650 stock options		—		(68)		—		190		—		122
Purchase of 181,899 treasury shares		—		—		—		(12,971)		—		(12,971)
Balance at March 31, 2020		$	47,619	$	170,096	$	556,718	$	(116,665)	$	27,460	$	685,228
Exercise of 1,516 stock options														Exercise of 1,516 stock options	—		(29)		—		96		—		67
Purchase of 79,238 treasury shares														Purchase of 79,238 treasury shares	—		—		—		(4,893)		—		(4,893)
Balance at June 30, 2020														Balance at June 30, 2020	$	47,619	$	169,881	$	565,804	$	(120,583)	$	31,029	$	693,750

See notes to consolidated financial statements.

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Consolidated Statements of Changes in Shareholders’ Equity(Unaudited)

City Holding Company and Subsidiaries

Six Months Ended June 30, 2020 and 2019

(in thousands)


	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2018	$	47,619	$	169,555	$	485,967	$	(87,895)	$	(14,482)	$	600,764
Net income	—		—		44,370		—		—		44,370
Other comprehensive income (loss)	—		—		—		—		19,570		19,570
Cash dividends declared ($1.06 per share)	—		—		(17,426)		—		—		(17,426)
Stock-based compensation expense	—		1,374		—		—		—		1,374
Restricted awards granted	—		(1,557)		—		1,557		—		—
Exercise of 8,140 stock options	—		2		—		363		—		365
Purchase of 161,950 treasury shares	—		—		—		(12,109)		—		(12,109)
Balance at June 30, 2019	$	47,619	$	169,374	$	512,911	$	(98,084)	$	5,088	$	636,908


	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance at December 31, 2019	$	47,619	$	170,309	$	539,253	$	(105,038)	$	5,840	$	657,983
Adoption of ASU 2016-13	—		—		(2,335)		—		—		(2,335)
Net income	—		—		47,249		—		—		47,249
Other comprehensive income (loss)	—		—		—		—		25,189		25,189
Cash dividends declared ($1.14 per share)	—		—		(18,363)		—		—		(18,363)
Stock-based compensation expense	—		1,702		—		—		—		1,702
Restricted awards granted	—		(2,033)		—		2,033		—		—
Exercise of 4,166 stock options	—		(97)		—		286		—		189
Purchase of 261,137 treasury shares	—		—		—		(17,864)		—		(17,864)
Balance at June 30, 2020	$	47,619	$	169,881	$	565,804	$	(120,583)	$	31,029	$	693,750

See notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (Unaudited)

City Holding Company and Subsidiaries

(in thousands)


	Six months ended June 30,
			2020			2019
Net income	$	47,249		$	44,370
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion) and amortization, net	873			557
Provision for (recovery of) credit losses	9,222			(1,449)
Depreciation of premises and equipment	2,772			2,467
Deferred income tax expense	2,323			2,134
Net periodic employee benefit cost	362			386
Unrealized and realized investment securities losses (gains), net	2,103			(297)
Stock-compensation expense	1,702			1,374
Excess tax benefit from stock-compensation expense	(137)			(433)
Increase in value of bank-owned life insurance	(2,523)			(2,148)
Loans held for sale
Loans originated for sale	(9,372)			(9,915)
Proceeds from the sale of loans originated for sale	9,854			10,584
Gain on sale of loans	(177)			(284)
Payments for other operating activities	(450)			—
Change in accrued interest receivable	(2,631)			(295)
Change in other assets	(9,515)			(1,231)
Change in other liabilities	16,334			2,600
Net Cash Provided by Operating Activities	67,989			48,420

Net (increase) decrease in loans	(46,146)			68,403
Securities available-for-sale
Purchases	(232,478)			(113,412)
Proceeds from sales	28,548			31,597
Proceeds from maturities and calls	51,246			31,982
Securities held-to-maturity
Proceeds from maturities and calls	—			7,427
Other investments
Purchases	(2,132)			(9,365)
Proceeds from sales	2,282			11,857
Purchases of premises and equipment	(3,798)			(3,017)
Proceeds from bank-owned life insurance policies	1,513			2,211
Sale of Virginia Beach branch, net	—			(24,661)
Other investing activities	(142)			(3,414)
Net Cash Used in Investing Activities	(201,107)			(392)

Net increase in non-interest-bearing deposits	274,382			19,696
Net increase in interest-bearing deposits	61,150			62,574
Net increase (decrease) in short-term borrowings	71,421			(54,878)
Repayment of long-term debt	(4,124)			—
Purchases of treasury stock	(17,864)			(12,109)
Proceeds from exercise of stock options	189			365
Dividends paid	(18,492)			(17,510)
Other financing activities	(434)			(438)
Net Cash Provided by (Used in) Financing Activities	366,228			(2,300)
Increase in Cash and Cash Equivalents	233,110			45,728
Cash and cash equivalents at beginning of period	140,144			122,991
Cash and Cash Equivalents at End of Period	$	373,254		$	168,719

Three months ended March 31,
2020 2019
Net income $ 29,000 $ 21,619
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion) and amortization, net (422) 455
Provision for (recovery of) credit losses 7,972 (849)
Depreciation of premises and equipment 1,325 1,209
Deferred income tax expense (824) 1,922
Net periodic employee benefit cost 181 193
Unrealized and realized investment securities losses (gains), net 2,339 (163)
Stock-compensation expense 1,009 803
Excess tax benefit from stock-compensation expense (121) (77)
Increase in value of bank-owned life insurance (1,676) (1,016)
Loans held for sale
   Loans originated for sale (2,327) (4,325)
   Proceeds from the sale of loans originated for sale 2,229 5,939
   Gain on sale of loans (77) (165)
Change in accrued interest receivable (1,001) (1,233)
Change in other assets (5,926) (4,193)
Change in other liabilities 8,937 (57)
Net Cash Provided by Operating Activities 40,618 20,062
Net decrease in loans 6,442 26,920
Securities available-for-sale
     Purchases (94,151) (61,432)
     Proceeds from sales 26,090 25,062
     Proceeds from maturities and calls 20,644 15,432
Securities held-to-maturity
     Proceeds from maturities and calls — 5,484
Other investments
     Purchases (1,357) (9,006)
     Proceeds from sales 624 11,715
Purchases of premises and equipment (3,329) (1,576)
Disposals of premises and equipment 119 30
Proceeds from bank-owned life insurance policies 1,412 304
Sale of Ashland office, net 440 —
Net Cash (Used in) Provided by Investing Activities (43,066) 12,933
Net increase in non-interest-bearing deposits 52,414 4,514
Net (decrease) increase in interest-bearing deposits (76,100) 63,190
Net increase (decrease) in short-term borrowings 22,892 (67,228)
Repayment of long-term debt (4,124) —
Purchases of treasury stock (12,971) (4,089)
Proceeds from exercise of stock options 122 252
Dividends paid (9,293) (8,775)
Net Cash Used in Financing Activities (27,060) (12,136)
(Decrease) Increase in Cash and Cash Equivalents (29,508) 20,859
Cash and cash equivalents at beginning of period 140,144 122,991
Cash and Cash Equivalents at End of Period $ 110,636 $ 143,850

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Supplemental Cash Flow Information:
Cash paid for interest	$	14,878	$	18,333
Cash paid for income taxes	2,400		7,025

See notes to consolidated financial statements.

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Notes to Consolidated Financial Statements (Unaudited)

~~March 31,~~June 30, 2020

Note A –Background and Basis of Presentation

City Holding Company ("City Holding"), a West Virginia corporation headquartered in Charleston, West Virginia, is a registered financial holding company under the Bank Holding Company Act and conducts its principal activities through its wholly-owned subsidiary, City National Bank of West Virginia ("City National"). City National is a retail and consumer-oriented community bank with 9594 banking offices in West Virginia (58), Kentucky ~~(20)~~(19), Virginia (13) and southeastern Ohio (4). City National provides credit, deposit, and trust and investment management services to its customers in a broad geographical area that includes many rural and small community markets in addition to larger cities including Charleston (WV), Huntington (WV), Martinsburg (WV), Ashland (KY), Lexington (KY), Winchester (VA) and Staunton (VA). In addition to its branch network, City National's delivery channels include automated-teller-machines ("ATMs"), interactive-teller machines ("ITMs"), mobile banking, debit cards, interactive voice response systems, and Internet technology. The Company’s business activities are currently limited to 1 reportable business segment, which is community banking.

On January 30, 2019, the Company announced that City National had signed a definitive agreement to sell its Virginia Beach, Virginia branch. The terms of the agreement provided for the acquirer to assume the majority of deposits and to acquire the equipment and other select assets associated with the branch, while City National retained the loans. The transaction closed during the second quarter of 2019. As a result of this transaction, the Company recognized a gain of $0.7 million and outstanding deposit balances decreased by $25.7 million.

The accompanying consolidated financial statements, which are unaudited, include all of the accounts of City Holding and its wholly-owned subsidiaries (collectively, the "Company"). All material intercompany transactions have been eliminated. The consolidated financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition for each of the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results of operations that can be expected for the year ending December 31, 2020. The Company’s accounting and reporting policies conform with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such policies require management to make estimates and develop assumptions that affect the amounts reported in the consolidated financial statements and related footnotes. Actual results could differ from management’s estimates.

The consolidated balance sheet as of December 31, 2019 has been derived from audited financial statements included in the Company’s 2019 Annual Report to Shareholders. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2019 Annual Report of the Company.

Certain amounts in the financial statements have been reclassified. Such reclassifications had no impact on shareholders’ equity or net income for any period.

Note B - Recent Accounting Pronouncements

Recently Adopted:

CECL

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new current expected credit losses model ("CECL") will apply to the allowance for credit losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses." This amendment clarifies the scope of the guidance in ASU No. 2016-13. In December 2018, the federal bank regulators issued a final rule that would provide an optional three-year phase-in period for the day-one regulatory capital effects of the adoption of ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial

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Instruments, as amended, on January 1, 2020. In April 2020, federal bank regulators issued an interim final rule which provided banking organizations that implement CECL before the end of 2020 the option to delay for two more years an estimate of CECL's effect on regulatory capital, followed by the three-year transition period as previously issued. Management has elected to utilize the five-year interim final rule.

The Company adopted 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet ("OBS") credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior ~~periods~~period amounts continue to be reported in accordance with previously applicable GAAP.

The Company adopted 2016-13 using the prospective transition approach for financial assets purchased with credit deterioration ("PCD") that were previously classified as purchased-credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether the PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $2.7 million of the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income over the remaining life of the asset.

The following table illustrates the impact of ASC ~~326:~~326 (in thousands):


	As Reported Under		Pre-ASC 326		Impact of ASC 326
	ASC 326		Adoption		Adoption

Gross Loans	$	3,618,825	$	3,616,099	$	2,726
Allowance for Credit Losses	(17,349)		(11,589)		(5,760)
Deferred Tax Assets, net	7,380		6,669		711

Shareholders' Equity	655,648		657,983		(2,335)

As a result of the adoption of ASU 2016-13, the Company revised some of its existing accounting policies as noted below:

Allowance for Credit Losses - Available-for-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Purchased Credit Deteriorated ("PCD") Loans: The Company has purchased loans during its acquisitions, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and the allowance for credit losses becomes the initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is accreted or amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

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Allowance for Credit Losses - Loans: The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:


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

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

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

Troubled Debt Restructurings ("TDRs"): A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.

Others

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This amendment simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This ASU became effective for the Company on January 1, 2020. The adoption of ASU No. 2017-04 did not have a material impact on the Company's financial statements.

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." This amendment expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU became effective for the Company on January 1, 2019. The adoption of this ASU

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did not have a material impact on the Company's financial statements. In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." This amendment clarifies the guidance in ASU No. 2017-12. This amendment became effective for the Company on January 1, 2020. Effective January 1, 2020, the Company reclassified its held-to-maturity securities as available-for-sale utilizing the transition guidance under ASU 2019-04, and the unrealized gains/losses on these investments will be recorded through Other Comprehensive Income.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." This amendment removes, modifies, and clarifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU became effective for the Company on January 1, 2020. The adoption of ASU No. 2018-13 did not have a material impact on the Company's financial statements.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU became effective for the Company on January 1, 2020. The adoption of ASU No. 2018-15 did not have a material impact on the Company's financial statements.

In October 2018, the FASB issued ASU No. 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." This amendment permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Federal Funds Effective Rate, and the SIFMA Municipal Swap Rate. This ASU became effective for the Company on January 1, 2019 with anticipation the LIBOR index will be phased out by the end of 2021. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This amendment provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and is effective as of March 12, 2020 through December 31, 2022. The Company is in the process of reviewing all of its contracts that will be impacted by changing from LIBOR to SOFR.

In October 2018, the FASB issued ASU No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities." This amendment simplifies the analysis of fees paid to decision makers or service providers in determining variable interest entities. This ASU became effective for the Company on January 1, 2020. The adoption of ASU No. 2018-17 did not have a material impact on the Company's financial statements.

Pending Adoption:

In August 2018, the FASB issued ASU No. 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans." This amendment removes, modifies, and clarifies certain disclosure requirements for defined benefit plans and other post-employment benefit plans. This ASU will become effective for the Company on January 1, 2021. The adoption of ASU No. 2018-14 is not expected to have a material impact on the Company's financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. This ASU will become effective for the Company on January 1, 2021. The adoption of ASU No. 2019-12 is not expected to have a material impact on the Company's financial statements.

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Note C – Investments

The aggregate carrying and approximate fair market values of investment securities follow (in thousands). 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 financial instruments.


		March 31, 2020														December 31, 2019																				June 30, 2020								December 31, 2019
				Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value						Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses	Estimated Fair Value
Securities available-for-sale:	Securities available-for-sale:																	Securities available-for-sale:
U.S. Treasuries and U.S.	U.S. Treasuries and U.S.																	U.S. Treasuries and U.S.
government agencies	government agencies	$	500	$	2	$	—	$	502	$	500	$	2	$	—	$	502	government agencies	$		—		$	—		$	—		$	—		$	500		$	2		$	—		$	502
Obligations of states and	Obligations of states and																	Obligations of states and
political subdivisions	political subdivisions	121,684		4,896		630		125,950		112,393		4,800		6		117,187		political subdivisions	211,439		7,383			595			218,227			112,393			4,800			6			117,187
Mortgage-backed securities:	Mortgage-backed securities:																	Mortgage-backed securities:
U.S. government agencies	U.S. government agencies	718,679		41,318		532		759,465		631,637		12,292		1,825		642,104		U.S. government agencies	746,148		40,638			279			786,507			631,637			12,292			1,825			642,104
Private label	Private label	10,669		269		76		10,862		10,896		589		—		11,485		Private label	10,477		876			4			11,349			10,896			589			—			11,485
Trust preferred securities	Trust preferred securities	4,549		—		1,149		3,400		4,781		27		347		4,461		Trust preferred securities	4,551		—			1,071			3,480			4,781			27			347			4,461
Corporate securities	Corporate securities	31,618		465		390		31,693		31,669		500		43		32,126		Corporate securities	31,568		1,857			44			33,381			31,669			500			43			32,126
Total Debt Securities	Total Debt Securities	887,699		46,950		2,777		931,872		791,876		18,210		2,221		807,865		Total Debt Securities	1,004,183		50,754			1,993			1,052,944			791,876			18,210			2,221			807,865
Certificates of deposit held for investment	Certificates of deposit held for investment	2,241		—		—		2,241		2,241		—		—		2,241		Certificates of deposit held for investment	2,241		—			—			2,241			2,241			—			—			2,241
Total Securities Available-for-Sale	Total Securities Available-for-Sale	$	889,940	$	46,950	$	2,777	$	934,113	$	794,117	$	18,210	$	2,221	$	810,106	Total Securities Available-for-Sale	$	1,006,424	$	50,754		$	1,993		$	1,055,185		$	794,117		$	18,210		$	2,221		$	810,106


Securities held-to-maturity:
Mortgage-backed securities:
U.S. government agencies	$	—	$	—	$	—	$	—	$	49,036	$	1,562	$	—	$	50,598
Total Securities Held-to-Maturity	$	—	$	—	$	—	$	—	$	49,036	$	1,562	$	—	$	50,598

Effective January 1, 2020, the Company reclassified its held-to-maturity securities as available-for-sale utilizing the transition guidance under ASU 2019-04, and the unrealized gains/losses on these investments will be recorded through Other Comprehensive Income.

The Company's other investment securities include marketable and non-marketable equity securities. At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company held ~~$10.2~~$10.5 million and $12.6 million, respectively, in marketable equity securities. Marketable equity securities mainly consist of investments made by the Company in equity positions of various community banks. Included within this portfolio are ownership positions in the following community bank holding companies: First National Corporation (FXNC) (4%) and Eagle Financial Services, Inc. (EFSI) (1.5%). Changes in the fair value of the marketable equity securities are recorded in ~~Unrealized~~"unrealized gains (losses) ~~gains~~ recognized on equity securities still ~~held~~held" in the ~~Consolidated Statements~~consolidated statements of ~~Income.~~income. The Company's non-marketable securities consist of securities with limited marketability, such as stock in the Federal Reserve Bank ("FRB") or the Federal Home Loan Bank ("FHLB"). At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company held ~~$16.6~~$15.7 million and $15.9 million, respectively, in non-marketable equity securities. These securities are carried at cost due to the restrictions placed on their transferability.

The Company's mortgage-backed U.S. government agency securities consist of both residential and commercial securities, all of which are guaranteed by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), or Ginnie Mae ("GNMA"). At ~~March 31,~~June 30, 2020 and December 31, 2019 there were 0 securities of any non-governmental issuer whose aggregate carrying value or estimated fair value exceeded 10% of shareholders' equity.

Certain investment securities owned by the Company were in an unrealized loss position (i.e., amortized cost basis exceeded the estimated fair value of the securities) as of ~~March 31,~~June 30, 2020 and December 31, 2019. The following table shows the gross unrealized losses and fair value of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

1214

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		March 31, 2020																												June 30, 2020
				Less Than Twelve Months						Twelve Months or Greater						Total														Less Than Twelve Months					Twelve Months or Greater	Total
				Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss							Estimated Fair Value			Unrealized Loss			Estimated Fair Value			Unrealized Loss			Estimated Fair Value	Unrealized Loss
Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	17,990	$	629	$	320	$	1	$	18,310	$	630	Obligations of states and political subdivisions	$			595		$	—		$	—				$	35,005		$	595
Mortgage-backed securities:	Mortgage-backed securities:													Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	64,404		511		4,780		21		69,184		532		U.S. Government agencies	83,810				279			38			—			83,848			279
Private Label	Private Label	5,540		76		—		—		5,540		76		Private Label	275			4			—			—			275			4
Trust preferred securities	Trust preferred securities	—		—		3,400		1,149		3,400		1,149		Trust preferred securities	—			—			3,480			1,071			3,480			1,071
Corporate securities	Corporate securities	15,193		390		—		—		15,193		390		Corporate securities	445			44			—			—			445			44
Total available-for-sale	Total available-for-sale	$	103,127	$	1,606	$	8,500	$	1,171	$	111,627	$	2,777	Total available-for-sale	$		119,535		$	922		$	3,518		$	1,071		$	123,053		$	1,993


	December 31, 2019
			Less Than Twelve Months						Twelve Months or Greater					Total
			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Securities available-for-sale:
Obligations of states and political subdivisions	$	230	$	—	$	1,439	$	6	$	1,669	$	6
Mortgage-backed securities:
U.S. Government agencies	123,289		1,247		34,746		578		158,035		1,825
Trust preferred securities	4,200		347		—		—		4,200		347
Corporate securities	11,248		43		—		—		11,248		43
Total available-for-sale	$	138,967	$	1,637	$	36,185	$	584	$	175,152	$	2,221

There were 0 held-to-maturity securities in an unrealized loss position as of December 31, 2019.

The Company incurred 0 credit-related investment impairment losses in either the ~~three~~six months ended ~~March 31,~~June 30, 2020 or ~~March 31,~~June 30, 2019.

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary would be reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition, capital strength, and near-term (within 12 months) prospects of the issuer, including any specific events which may influence the operations of the issuer, such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; (iii) the historical volatility in the market value of the investment and/or the liquidity or illiquidity of the investment; (iv) adverse conditions specifically related to the security, an industry, or a geographic area; and (v) the intent to sell the investment security and if it’s more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, management also employs a continuous monitoring process in regards to its marketable equity securities, specifically its portfolio of regional community bank holdings. Although the regional community bank stocks that are owned by the Company are publicly traded, the trading activity for these stocks is minimal, with trading volumes of less than 0.2% of each respective company being traded on a daily basis. As part of management’s review process for these securities, management reviews the financial condition of each respective regional community bank for any indications of financial weakness.

As of ~~March 31,~~June 30, 2020, management does not intend to sell any impaired security and it is not more than likely that it will be required to sell any impaired security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage-related securities, general financial market uncertainty and unprecedented market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities ~~approach~~approach their maturity date or repricing date. As of ~~March 31,~~June 30, 2020, management believes the unrealized losses detailed in the table above are temporary and therefore no ~~additional impairment loss~~allowance for credit losses has been recognized inon the Company’s consolidated income statement. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss will be recognized in net income in the period the other-than-temporary impairment is identified, while any noncredit loss will be recognized in other comprehensive income.securities.

~~Table of Contents~~

The amortized cost and estimated fair value of debt securities at ~~March 31,~~June 30, 2020, by contractual maturity, are shown in the following table (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.

Amortized Cost Estimated Fair Value
Available-for-Sale Debt Securities
Due in one year or less $ 2,091 $ 2,108
Due after one year through five years 14,955 15,386
Due after five years through ten years 235,144 248,975
Due after ten years 635,509 665,403
Total $ 887,699 $ 931,872

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	Amortized Cost		Estimated Fair Value
Available-for-Sale Debt Securities
Due in one year or less	$	2,050	$	2,062
Due after one year through five years	15,327		15,900
Due after five years through ten years	294,981		312,351
Due after ten years	691,825		722,631
Total	$	1,004,183	$	1,052,944

Gross gains and gross losses recognized by the Company from investment security transactions are summarized in the table below (in thousands):


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
Gross realized gains on securities sold	Gross realized gains on securities sold	$	134	$	89	Gross realized gains on securities sold	$	—	$	21	$	133	$	110
Gross realized losses on securities sold	Gross realized losses on securities sold	(71)		(1)		Gross realized losses on securities sold	(6)		—		(77)		(1)
Net investment security (losses) gains	Net investment security (losses) gains	$	63	$	88	Net investment security (losses) gains	$	(6)	$	21	$	56	$	109

Gross unrealized gains recognized on equity securities still held	Gross unrealized gains recognized on equity securities still held	$	24	$	143	Gross unrealized gains recognized on equity securities still held	$	242	$	113	$	36	$	241
Gross unrealized losses recognized on equity securities still held	Gross unrealized losses recognized on equity securities still held	(2,426)		(68)		Gross unrealized losses recognized on equity securities still held	—		—		(2,195)		(53)
Net unrealized (losses) gains recognized on equity securities still held		$	(2,402)	$	75
Net unrealized gains (losses) recognized on equity securities still held						Net unrealized gains (losses) recognized on equity securities still held	$	242	$	113	$	(2,159)	$	188

During January 2020, the Company sold the entirety of its Visa Inc. Class B common shares (86,605) in a cash transaction which resulted in a pre-tax gain of $17.8 million. The carrying value of the Visa Class B shares on the Company's balance sheet was $0, as the Company had no historical cost basis in the shares.

The carrying value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated ~~$563~~$581 million and ~~$508~~$519 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

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Note D –Loans

The following summarizes the Company’s major classifications for loans (in thousands):


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
Commercial and industrial	Commercial and industrial	308,567		308,015		Commercial and industrial	369,122		308,015
Commercial real estate		1,470,949		1,459,737

1-4 Family	1-4 Family	120,852		N/R		1-4 Family	123,814		N/R
Hotels	Hotels	294,072		N/R		Hotels	295,179		N/R
Multi-family	Multi-family	205,684		N/R		Multi-family	204,580		N/R
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	627,852		N/R		Non Residential Non-Owner Occupied	628,628		N/R
Non Residential Owner Occupied	Non Residential Owner Occupied	222,489		N/R		Non Residential Owner Occupied	215,472		N/R
Commercial real estate						Commercial real estate	1,467,673		1,459,737

Residential real estate	Residential real estate	1,629,578		1,640,396		Residential real estate	1,631,151		1,640,396
Home equity	Home equity	146,034		148,928		Home equity	142,672		148,928
Consumer	Consumer	54,749		54,263		Consumer	52,278		54,263
DDA overdrafts	DDA overdrafts	3,173		4,760		DDA overdrafts	2,700		4,760
Gross loans	Gross loans	3,613,050		3,616,099		Gross loans	3,665,596		3,616,099
Allowance for credit losses	Allowance for credit losses	(24,393)		(11,589)		Allowance for credit losses	(25,199)		(11,589)
Net loans	Net loans	$	3,588,657	$	3,604,510	Net loans	$	3,640,397	$	3,604,510

Construction loans included in:	Construction loans included in:					Construction loans included in:
Residential real estate	Residential real estate	$	28,870	$	29,033	Residential real estate	$	28,252	$	29,033
Commercial real estate	Commercial real estate	44,453		64,049		Commercial real estate	42,092		64,049
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.									N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company’s commercial and residential real estate construction loans are primarily secured by real estate within the Company’s principal markets. These loans were originated under the Company’s loan policies, which are focused on the risk characteristics of the loan portfolio, including construction loans. In the judgment of the Company's management, adequate consideration has been given to these loans in establishing the Company's allowance for credit losses.

The Company originated loans to its customers under the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”) under the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Loans covered by the PPP may be eligible for loan forgiveness. The remaining loan balances, if any, after the loan forgiveness are fully guaranteed by the SBA. As of June 30, 2020, the Company has funded approximately $90 million of SBA-approved PPP loans to over 1,500 customers. Under the terms of the program, the SBA will pay the lender a processing fee tiered by the size of the loan (5% for loans less than $350,000; 3% for loans greater than $350,000 but less than $2.0 million; and 1% for loans greater than $2.0 million). The Company expects to recognize approximately $3.0 million in PPP loan related processing fees, net of associated expenses, over the term of these loans.

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Note E – Allowance For Credit Losses

The following table summarizes the activity in the allowance for credit losses, by portfolio loan classification, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands). The allocation of a portion of the allowance in one portfolio segment does not preclude its availability to absorb losses in other portfolio segments.


		Commercial and		Commercial		Residential						DDA					Commercial and		Commercial		Residential						DDA
		Industrial		Real Estate				Home Equity		Consumer		Overdrafts		Total			Industrial		Real Estate				Home Equity		Consumer		Overdrafts		Total
Three months ended March 31, 2020
Six months ended June 30, 2020																Six months ended June 30, 2020
Beginning balance	Beginning balance	$	2,059	$	2,606	$	3,448	$	1,187	$	975	$	1,314	$	11,589	Beginning balance	$	2,059	$	2,606	$	3,448	$	1,187	$	975	$	1,314	$	11,589
Impact of adopting CECL	Impact of adopting CECL	1,715		3,254		2,139		(598)		(810)		60		5,760		Impact of adopting CECL	1,715		3,254		2,139		(598)		(810)		60		5,760
Charge-offs	Charge-offs	(77)		(383)		(483)		(45)		(55)		(703)		(1,746)		Charge-offs	(77)		(422)		(859)		(206)		(91)		(1,162)		(2,817)
Recoveries	Recoveries	9		203		95		47		13		451		818		Recoveries	14		331		103		56		141		800		1,445
Provision for credit losses	Provision for credit losses	2,149		3,709		1,759		111		110		134		7,972		Provision for credit losses	2,555		4,321		2,492		208		(95)		(259)		9,222
Ending balance	Ending balance	$	5,855	$	9,389	$	6,958	$	702	$	233	$	1,256	$	24,393	Ending balance	$	6,266	$	10,090	$	7,323	$	647	$	120	$	753	$	25,199

Three months ended March 31, 2019
Six months ended June 30, 2019																Six months ended June 30, 2019
Beginning balance																Beginning balance	$	4,060	$	4,495	$	4,116	$	1,268	$	319	$	1,708	$	15,966
Charge-offs																Charge-offs	(51)		(178)		(631)		(117)		(296)		(1,213)		(2,486)
Recoveries																Recoveries	140		607		125		—		143		749		1,764
(Recovery of) Provision for credit losses																(Recovery of) Provision for credit losses	(1,353)		(1,455)		349		60		343		607		(1,449)
Ending balance																Ending balance	$	2,796	$	3,469	$	3,959	$	1,211	$	509	$	1,851	$	13,795

Three months ended June 30, 2020																Three months ended June 30, 2020
Beginning balance	Beginning balance	$	4,060	$	4,495	$	4,116	$	1,268	$	319	$	1,708	$	15,966	Beginning balance	$	5,855	$	9,389	$	6,958	$	702	$	233	$	1,256	24,393
Charge-offs	Charge-offs	—		(45)		(328)		(46)		(185)		(625)		(1,229)		Charge-offs	—		(39)		(376)		(161)		(36)		(459)		(1,071)
Recoveries	Recoveries	135		32		75		—		97		419		758		Recoveries	5		128		8		9		128		349		627
(Recovery of) provision	(Recovery of) provision	(1,225)		158		(43)		26		237		(2)		(849)		(Recovery of) provision	406		612		733		97		(205)		(393)		1,250
Ending balance	Ending balance	$	2,970	$	4,640	$	3,820	$	1,248	$	468	$	1,500	$	14,646	Ending balance	$	6,266	$	10,090	$	7,323	$	647	$	120	$	753	$	25,199

Three months ended June 30, 2019																Three months ended June 30, 2019
Beginning balance																Beginning balance	$	2,970	$	4,640	$	3,820	$	1,248	$	468	$	1,500	$	14,646
Charge-offs																Charge-offs	(51)		(133)		(303)		(71)		(111)		(588)		(1,257)
Recoveries																Recoveries	5		575		50		—		46		330		1,006
(Recovery of) provision																(Recovery of) provision	(128)		(1,613)		392		34		106		609		(600)
Ending balance																Ending balance	$	2,796	$	3,469	$	3,959	$	1,211	$	509	$	1,851	$	13,795

Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for ~~probable incurred~~expected losses inherent in the portfolio. Management assesses the risk in each loan type based on ~~historical~~historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The provision for credit losses recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2020 largely reflects the expected economic impact from the COVID-19 pandemic. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, ~~an immediate~~a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of COVID-19, expected unemployment ranges have significantly increased and resulted in an increase in the Company's provision for credit losses.

Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance. Due to the nature of commercial lending, evaluation of the appropriateness of the allowance as it relates to these types of loan types is often based more upon specific credit reviews, with consideration given to the potential impairment of certain credits and historical loss rates, adjusted for economic conditions and other inherent risk factors.

Table of Contents

Non-Performing Loans

Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods that generally result in level rates of return. Loan origination fees, and certain direct costs, are deferred and amortized as an adjustment to the yield over the term of the loan. The accrual of interest generally is discontinued when a loan becomes 90 days past due as to principal or interest for all loan types. However, any loan may be placed on non-accrual status if the Company receives information that indicates a borrower is unable to meet the contractual terms of its respective loan agreement. Other indicators considered for placing a loan on non-accrual status include the borrower’s involvement in bankruptcies, foreclosures, repossessions, litigation and any other situation resulting in doubt as to whether full collection of contractual principal and interest is attainable. 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 credit losses. Management may elect to continue the accrual of interest when the net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in the process of collection.

~~Table of Contents~~

Generally for all loan classes, interest income during the period the loan is non-performing is recorded on a cash basis after recovery of principal is reasonably assured. Cash payments received on nonperforming loans are typically applied directly against the outstanding principal balance until the loan is fully repaid. Generally, loans are restored to accrual status when the obligation is brought current, the borrower has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of ~~March 31,~~June 30, 2020 (in thousands):


		Non-accrual With No		Non-accrual With		Loans Past Due			Non-accrual With No		Non-accrual With		Loans Past Due
		Allowance for				Over 90 Days			Allowance for				Over 90 Days
		Credit Losses				Still Accruing			Credit Losses				Still Accruing
Commercial & Industrial	Commercial & Industrial	$	207	$	968	$	—	Commercial & Industrial	$	207	$	880	$	—

Commercial Real Estate		2,522		5,343		—
1-4 Family	1-4 Family	—		1,488		—		1-4 Family	—		2,212		—
Hotels	Hotels	—		2,752		—		Hotels	—		2,748		—
Multi-family	Multi-family	—		—		—		Multi-family	—		—		—
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		594		—		Non Residential Non-Owner Occupied	—		346		3
Non Residential Owner Occupied	Non Residential Owner Occupied	2,522		509		—		Non Residential Owner Occupied	2,521		888		—
Commercial Real Estate								Commercial Real Estate	2,521		6,194		3

Residential Real Estate	Residential Real Estate	437		2,313		26		Residential Real Estate	232		3,245		4
Home Equity	Home Equity	41		208		—		Home Equity	—		265		61
Consumer	Consumer	—		1		—		Consumer	—		—		—
Total	Total	$	3,207	$	8,833	$	26	Total	$	2,960	$	10,584	$	68

The following table presents the Company's loans on non-accrual status and loans past due over 90 days still accruing as of December 31, 2019 (in thousands):


			Loans Past Due
			Over 90 Days
	Non-accrual		Still Accruing
Commercial and industrial	$	1,182	$	184
Commercial real estate	6,384		—
Residential real estate	3,393		83
Home equity	531		—
Consumer	—		—
Total	$	11,490	$	267

Table of Contents

The Company recognized less than $0.1 million of interest income on nonaccrual loans during each of the three months ended ~~March 31,~~June 30, 2020 and ~~2019.~~2019 and less than $0.1 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.

The following table presents the amortized cost basis of collateral-dependent loans as of ~~March 31,~~June 30, 2020 (in thousands). Changes in the fair value of the collateral for collateral-dependent loans are reported as credit loss expense or a reversal of credit loss expense in the period of change.

~~Table of Contents~~

Secured by
Real Estate Equipment
Commercial and industrial $ — $ 207
Commercial real estate 5,386 —
   1-4 Family — —
   Hotels 2,861 —
   Multi-family — —
   Non Residential Non-Owner Occupied — —
   Non Residential Owner Occupied 2,525 —
Total $ 5,386 $ 207


	Secured by
	Real Estate		Equipment
Commercial and industrial	$	207	$	—

1-4 Family	—		—
Hotels	2,634		—
Multi-family	—		—
Non Residential Non-Owner Occupied	—		—
Non Residential Owner Occupied	2,520		—
Commercial real estate	5,154		—

Total	$	5,361	$	—

The following table presents the Company’s impaired loans, by class (in thousands) as of December 31, 2019. The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off. There were no impaired residential, home equity, or consumer loans.


	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	501	$	501	$	—
Commercial real estate	3,546		3,572		—
Total	$	4,047	$	4,073	$	—

With an allowance recorded:
Commercial and industrial	$	—	$	—	$	—
Commercial real estate	2,644		2,644		87
Total	$	2,644	$	2,644	$	87

Table of Contents

The following table presents information related to the average recorded investment and interest income recognized on the Company’s impaired loans, by class (in thousands), for the three and six months ended ~~March 31,~~June 30, 2019:


		2019							Three months ended June 30, 2019						Six months ended June 30, 2019
		Average		Interest			Average		Interest		Average		Interest
		Recorded		Income			Recorded		Income		Recorded		Income
		Investment		Recognized			Investment		Recognized		Investment		Recognized
With no related allowance recorded:	With no related allowance recorded:					With no related allowance recorded:
Commercial and industrial	Commercial and industrial	$	618	$	—	Commercial and industrial	$	589	—		$	603	$	—
Commercial real estate	Commercial real estate	6,521		36		Commercial real estate	3,614		2		5,067		38
Total	Total	$	7,139	$	36	Total	$	4,203	$	2	$	5,670	$	38

With an allowance recorded:	With an allowance recorded:					With an allowance recorded:
Commercial and industrial	Commercial and industrial	$	—	$	—	Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	Commercial real estate	2,985		30		Commercial real estate	5,667		76		4,326		106
Total	Total	$	2,985	$	30	Total	$	5,667	$	76	$	4,326	$	106

~~Approximately~~The Company would have recognized less than $0.1 million of interest income ~~would have been recognized~~ during each of the three months ended ~~March 31,~~June 30, 2020 and 2019 ~~respectively,~~and less than $0.1 million during each of the six months ended June 30, 2020 and 2019 if such loans had been current in accordance with their original terms.

~~Table of Contents~~

Generally, all loan types are considered past due when the contractual terms of a loan are not met and the borrower is 30 days or more past due on a payment. Furthermore, residential and home equity loans are generally subject to charge-off when the loan becomes 120 days past due, depending on the estimated fair value of the collateral less cost to dispose, versus the outstanding loan balance. Commercial loans are generally charged off when the loan becomes 120 days past due. Open-end consumer loans are generally charged off when the loan becomes 180 days days past due.

The following table presents the aging of the amortized cost basis in past-due loans as of ~~March 31,~~June 30, 2020 by class of loan (in thousands):


		30-59		60-89		90+		Total		Current		Total			30-59		60-89		90+		Total		Current		Total
		Past Due								Loans					Past Due								Loans
Commercial and industrial	Commercial and industrial	$	53	$	18	$	—	$	71	$	308,496	$	308,567	Commercial and industrial	$	130	$	30	$	—	$	160	$	368,962	$	369,122

Commercial real estate		1,018		3		—		1,021		1,469,928		1,470,949
1-4 Family	1-4 Family	291		—		—		291		120,561		120,852		1-4 Family	753		—		—		753		123,061		123,814
Hotels	Hotels	—		—		—		—		294,072		294,072		Hotels	—		—		—		—		295,179		295,179
Multi-family	Multi-family	—		—		—		—		205,684		205,684		Multi-family	—		—		—		—		204,580		204,580
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	175		3		—		178		627,674		627,852		Non Residential Non-Owner Occupied	—		—		3		3		628,625		628,628
Non Residential Owner Occupied	Non Residential Owner Occupied	552		—		—		552		221,937		222,489		Non Residential Owner Occupied	161		—		—		161		215,311		215,472
Commercial real estate														Commercial real estate	914		—		3		917		1,466,756		1,467,673

Residential real estate	Residential real estate	5,664		2,125		26		7,815		1,621,763		1,629,578		Residential real estate	3,923		1,334		4		5,261		1,625,890		1,631,151
Home Equity	Home Equity	361		69		—		430		145,604		146,034		Home Equity	223		108		61		392		142,280		142,672
Consumer	Consumer	159		18		—		177		54,572		54,749		Consumer	67		—		—		67		52,211		52,278
Overdrafts	Overdrafts	465		2		—		467		2,706		3,173		Overdrafts	272		1		—		273		2,427		2,700
Total	Total	$	7,720	$	2,235	$	26	$	9,981	$	3,603,069	$	3,613,050	Total	$	5,529	$	1,473	$	68	$	7,070	$	3,658,526	$	3,665,596

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The following presents an aging analysis of the Company's past-due loans, by class, as of December 31, 2019 (in thousands):


	30-59		60-89		90+		Total		Current		Total
	Past Due		Past Due		Past Due		Past Due		Loans		Loans
Commercial and industrial	$	243	$	31	$	184	$	458	$	307,557	$	308,015
Commercial real estate	1,514		66		—		1,580		1,458,157		1,459,737
Residential real estate	5,758		1,643		83		7,484		1,632,912		1,640,396
Home equity	840		116		—		956		147,972		148,928
Consumer	156		32		—		188		54,075		54,263
Overdrafts	644		86		—		730		4,030		4,760
Total	$	9,155	$	1,974	$	267	$	11,396	$	3,604,703	$	3,616,099

Troubled Debt Restructurings ("TDRs")

The Company’s policy on loan modifications typically does not allow for modifications that would be considered a concession from the Company. However, when there is a modification, the Company evaluates each modification to determine if the modification constitutes a troubled debt restructuring (“TDR”) in accordance with ASU 2011-02, whereby a modification of a loan would be considered a TDR when both of the following conditions are met: (1) a borrower is experiencing financial difficulty and (2) the modification constitutes a concession. These modifications range from partial deferrals (interest only) to full deferrals (principal and interest). When determining whether the borrower is experiencing financial difficulties, the Company reviews whether the debtor is currently in payment default on any of its debt or whether it is probable that the debtor would be in payment default in the ~~foreseeable~~foreseeable future without the modification. Other indicators of financial difficulty include whether the debtor has declared or is in the process of declaring bankruptcy, the debtor’s ability to continue as a going concern, or the debtor’s projected cash flow to service its debt (including principal and interest) in accordance with the contractual terms for the foreseeable future, without a ~~modification~~.modification.

~~Table of Contents~~

Regulatory guidance requires loans to be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt. The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of the debt by the bankruptcy court is deemed to be a concession granted to the borrower.

The following tables set forth the Company’s TDRs (in thousands). Substantially all of the Company's TDRs are accruing interest.


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
Commercial and industrial	Commercial and industrial	$	—	$	—	Commercial and industrial	$	—	$	—

Commercial Real Estate		5,163		4,973
1-4 Family	1-4 Family	128		N/R		1-4 Family	126		N/R
Hotels	Hotels	2,861		N/R		Hotels	2,634		N/R
Multi-family	Multi-family	1,940		N/R		Multi-family	1,921		N/R
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		N/R		Non Residential Non-Owner Occupied	—		N/R
Non Residential Owner Occupied	Non Residential Owner Occupied	234		N/R		Non Residential Owner Occupied	234		N/R
Commercial real estate						Commercial real estate	4,915		4,973

Residential real estate	Residential real estate	21,413		21,029		Residential real estate	20,631		21,029
Home equity	Home equity	2,294		3,628		Home equity	2,138		3,628
Consumer	Consumer	184		—		Consumer	185		—
Total	Total	$	29,054	$	29,630	Total	$	27,869	$	29,630
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.									N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

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The Company has ~~allocated $0.7~~allocated $1.6 million and $0.8 million of the allowance for credit losses for these loans as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. As of ~~March 31,~~June 30, 2020, the Company has 0t committed to lend any additional amounts in relation to these loans.

The following table presents loans by class, modified as TDRs, that occurred during the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively (dollars in thousands):


		March 31, 2020								March 31, 2019									June 30, 2020				June 30, 2019
			Pre-		Post-			Pre-		Post-				Pre-		Post-			Pre-		Post-
			Modification					Modification						Modification					Modification
			Outstanding					Outstanding						Outstanding					Outstanding
		Number of	Recorded				Number of	Recorded					Number of	Recorded				Number of	Recorded
		Contracts	Investment				Contracts	Investment					Contracts	Investment				Contracts	Investment
Commercial and industrial	Commercial and industrial	—	$	—	$	—	—	$	—	$	—	Commercial and industrial	—	$	—	$	—	—	$	—	$	—

Commercial real estate		—	—		—		—	—		—
1-4 Family	1-4 Family	—	—		—		N/R	N/R		N/R		1-4 Family	—	—		—		N/R
Hotels	Hotels	—	—		—		N/R	N/R		N/R		Hotels	—	—		—		N/R
Multi-family	Multi-family	—	—		—		N/R	N/R		N/R		Multi-family	—	—		—		N/R
Non Owner Non-Owner Occupied	Non Owner Non-Owner Occupied	—	—		—		N/R	N/R		N/R		Non Owner Non-Owner Occupied	—	—		—		N/R
Non Owner Owner Occupied	Non Owner Owner Occupied	—	—		—		N/R	N/R		N/R		Non Owner Owner Occupied	—	—		—		N/R
Commercial real estate												Commercial real estate	—	—		—		—	—		—

Residential real estate	Residential real estate	9	807		805		23	1,729		1,729		Residential real estate	24	1,720		1,716		27	2,066		2,066
Home equity	Home equity	2	70		70		5	69		69		Home equity	2	70		70		7	194		194
Consumer	Consumer	—	—		—		—	—		—		Consumer	—	—		—		—	—		—
Total	Total	11	$	877	$	875	28	$	1,798	$	1,798	Total	26	$	1,790	$	1,786	34	$	2,260	$	2,260
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.																					N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

~~Table of Contents~~

The TDRs above increased the allowance for credit losses by less than $0.1 million in each of the ~~three~~six months ended of ~~March 31,~~June 30, 2020 and 2019 and resulted in charge-offs of less than $0.1 million during those same time periods.

The Company had 1 TDR that subsequently defaulted in 2019. The loan balance was approximately $3.0 million and the subsequent default resulted in a charge-off of $0.7 million and the remaining balance was transferred to OREO during 2019. The Company has had no0 TDRs that subsequently defaulted in 2020.

COVID-19 Pandemic

In March of 2020, in response to the COVID-19 pandemic, ~~regulatory~~regulatory guidance was issued that clarified the accounting for loan modifications. Modifications of loan terms do not automatically result in a TDR. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extension of repayment terms, or other ~~delays~~ delays that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time the modification program was implemented. However, these deferrals do not absolve the company from performing its normal risk rating and therefore a loan could be current and have a less than satisfactory risk rating.

~~As of May 1,~~Through June 30, 2020, the Company has granted deferrals of approximately ~~$99.0~~$125 million for mortgage borrowers and ~~$391.3~~$430 million forfor commercial borrowers. As of ~~May 1,~~June 30, 2020, ~~none~~$3.6 million of ~~these~~the mortgage deferrals were previously and currently considered ~~TDRs.~~TDRs due to Chapter 7 bankruptcies.

Credit Quality Indicators

All commercial loans within the portfolio are subject to internal risk rating. All non-commercial loans are evaluated based on payment history. The Company’s internal risk ratings for commercial loans are: Exceptional, Good, Acceptable, Pass/Watch, Special Mention, Substandard and Doubtful. Each internal risk rating is defined in the loan policy using the following criteria: balance sheet yields; ratios and leverage; cash flow spread and coverage; prior history; capability of

Table of Contents

management; market position/industry; potential impact of changing economic, legal, regulatory or environmental conditions; purpose; structure; collateral support; and guarantor support. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process. Based on an individual loan’s risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of probable loss.

The Company categorizes loans into risk categories based on relevant information regarding the customer’s debt service ability, capacity and overall collateral position, along with other economic trends and historical payment performance. The risk rating for each credit is updated when the Company receives current financial information, the loan is reviewed by the Company’s internal loan review and credit administration departments, or the loan becomes delinquent or impaired. The risk grades are updated a minimum of annually for loans rated Exceptional, Good, Acceptable, or Pass/Watch. Loans rated Special Mention, Substandard or Doubtful are reviewed at least quarterly. The Company uses the following definitions for its risk ratings:

~~Table of Contents~~


Risk Rating			Description
Pass ratings:
(a) Exceptional			Loans classified as exceptional are secured with liquid collateral conforming to the internal loan policy. Loans rated within this category pose minimal risk of loss to the bank.
(b) Good			Loans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans in this category generally have a low chance of loss to the bank.
(c) Acceptable			Loans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles. Loans within this category generally have a low risk of loss to the bank.
(d) Pass/Watch			Loans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk. A borrower in this category poses a low to moderate risk of loss to the bank.
Special Mention			Loans classified as special mention have a potential weakness(es) that deserves management’s close attention. The potential weakness could result in deterioration of the loan repayment or the bank’s credit position at some future date. A loan rated in this category poses a moderate loss risk to the bank.
Substandard			Loans classified as substandard reflect a customer with a well defined weakness that jeopardizes the liquidation of the debt. Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank’s collateral value is weakened by the financial deterioration of the borrower.
Doubtful			Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable. Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position.

Based on the most recent analysis performed, the risk category of loans by class of loans at ~~March 31,~~June 30, 2020 is as follows (in thousands):

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Total
Commercial and industrial
Pass $ 11,278 $ 73,573 $ 47,077 $ 40,534 $ 10,855 $ 16,258 $ 74,776 $ 274,351
Special mention — 53 21 138 —�� 92 467 771
Substandard 62 1,462 1,180 684 9,363 2,135 18,559 33,445
Total $ 11,340 $ 75,088 $ 48,278 $ 41,356 $ 20,218 $ 18,485 $ 93,802 $ 308,567

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Total
Commercial real estate -
Total
Pass $ 79,795 $ 351,869 $ 243,124 $ 184,499 $ 171,409 $ 345,185 $ 41,261 $ 1,417,142
Special mention — 5,190 913 730 364 7,343 113 14,653
Substandard 4,250 1,765 4,759 2,247 10,648 15,393 92 39,154
Total $ 84,045 $ 358,824 $ 248,796 $ 187,476 $ 182,421 $ 367,921 $ 41,466 $ 1,470,949


													Revolving
	Term Loans																Loans
	Amortized Cost Basis by Origination Year and Risk Level																Amortized
	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Commercial and industrial
Pass	$	74,977	$	74,675	$	63,750	$	38,259	$	10,177	$	11,707	$	62,386	$	335,931
Special mention	85		46		18		61		—		441		211		862
Substandard	64		830		1,196		816		8,729		2,195		18,499		32,329
Total	$	75,126	$	75,551	$	64,964	$	39,136	$	18,906	$	14,343	$	81,096	$	369,122

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														Revolving																	Revolving
		Term Loans																						Loans					Term Loans						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized					Amortized Cost Basis by Origination Year and Risk Level						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total			2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Commercial real estate -	Commercial real estate -																	Commercial real estate -
1-4 Family
Total																		Total
Pass	Pass	$	6,891	$	23,018	$	11,600	$	9,806	$	8,887	$	39,410	$	11,705	$	111,317	Pass	$	172,741	$	343,898	$	200,306	$	165,468	$	164,439	$	346,209	$	27,105	$	1,420,166
Special mention	Special mention	—		—		—		26		338		3,249		—		3,613		Special mention	—		5,156		1,222		691		359		6,211		—		13,639
Substandard	Substandard	—		240		—		228		111		5,330		13		5,922		Substandard	220		1,655		4,596		3,927		9,919		13,144		407		33,868
Total	Total	$	6,891	$	23,258	$	11,600	$	10,060	$	9,336	$	47,989	$	11,718	$	120,852	Total	$	172,961	$	350,709	$	206,124	$	170,086	$	174,717	$	365,564	$	27,512	$	1,467,673


														Revolving
		Term Loans																						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Commercial real estate -	Commercial real estate -																	Commercial real estate -
Hotels
1-4 Family																		1-4 Family
Pass	Pass	$	13,862	$	111,220	$	35,026	$	49,583	$	21,516	$	55,359	$	—	$	286,566	Pass	$	19,584	$	21,409	$	10,445	$	8,686	$	6,918	$	37,060	$	9,734	$	113,836
Special mention																		Special mention	—		—		—		26		334		3,053		—		3,413
Substandard	Substandard	—		—		—		—		4,538		2,968		—		7,506		Substandard	—		229		—		952		109		5,268		7		6,565
Total	Total	$	13,862	$	111,220	$	35,026	$	49,583	$	26,054	$	58,327	$	—	$	294,072	Total	$	19,584	$	21,638	$	10,445	$	9,664	$	7,361	$	45,381	$	9,741	$	123,814


														Revolving
		Term Loans																						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Commercial real estate -	Commercial real estate -																	Commercial real estate -
Multi-family
Hotels																		Hotels
Pass	Pass	$	5,862	$	58,377	$	20,114	$	34,045	$	35,008	$	49,075	$	611	$	203,092	Pass	$	14,655	$	110,833	$	35,038	$	49,483	$	21,518	$	56,378	$	—	$	287,905
Special mention		—		1,940		565		—		—		—		—		2,505
Substandard	Substandard	—		—		—		—		—		87		—		87		Substandard	—		—		—		—		4,526		2,748		—		7,274
Total	Total	$	5,862	$	60,317	$	20,679	$	34,045	$	35,008	$	49,162	$	611	$	205,684	Total	$	14,655	$	110,833	$	35,038	$	49,483	$	26,044	$	59,126	$	—	$	295,179


														Revolving
		Term Loans																						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Commercial real estate -	Commercial real estate -																	Commercial real estate -
Non Residential Non-Owner Occupied
Multi-family																		Multi-family
Pass	Pass	$	51,209	$	122,311	$	143,394	$	59,571	$	82,003	$	139,639	$	23,383	$	621,510	Pass	$	57,954	$	57,159	$	2,836	$	22,528	$	32,957	$	27,812	$	770	$	202,016
Special mention	Special mention	—		320		287		561		—		600		—		1,768		Special mention	—		1,921		561		—		—		—		—		2,482
Substandard	Substandard	—		99		1,187		322		1,519		1,368		79		4,574		Substandard	—		—		—		—		—		82		—		82
Total	Total	$	51,209	$	122,730	$	144,868	$	60,454	$	83,522	$	141,607	$	23,462	$	627,852	Total	$	57,954	$	59,080	$	3,397	$	22,528	$	32,957	$	27,894	$	770	$	204,580






Commercial real estate -
Non Residential Non-Owner Occupied
Pass	$	69,473	$	120,792	$	121,420	$	57,873	$	81,033	$	160,184	$	11,318	$	622,093
Special mention	—		316		602		574		—		595		—		2,087
Substandard	58		98		1,181		78		1,446		1,347		240		4,448
Total	$	69,531	$	121,206	$	123,203	$	58,525	$	82,479	$	162,126	$	11,558	$	628,628






Commercial real estate -
Non Residential Owner Occupied
Pass	$	11,076	$	33,705	$	30,567	$	26,899	$	22,012	$	64,777	$	5,279	$	194,315
Special mention	—		2,919		58		91		24		2,563		—		5,655
Substandard	162		1,329		3,415		2,896		3,839		3,700		161		15,502
Total	$	11,238	$	37,953	$	34,040	$	29,886	$	25,875	$	71,040	$	5,440	$	215,472

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Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Total
Commercial real estate -
Non Residential Owner Occupied
Pass $ 5,943 $ 35,860 $ 31,896 $ 29,802 $ 23,223 $ 69,589 $ 6,009 $ 202,322
Special mention — 2,930 61 92 25 3,106 113 6,327
Substandard — 1,317 3,330 1,447 3,631 4,115 — 13,840
Total $ 5,943 $ 40,107 $ 35,287 $ 31,341 $ 26,879 $ 76,810 $ 6,122 $ 222,489


													Revolving
	Term Loans																Loans
	Amortized Cost Basis by Origination Year and Risk Level																Amortized
	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Residential real estate
Performing	$	197,377	$	281,064	$	223,330	$	165,437	$	129,448	$	507,921	$	123,143	$	1,627,720
Non-performing	—		668		—		124		212		2,374		53		3,431
Total	$	197,377	$	281,732	$	223,330	$	165,561	$	129,660	$	510,295	$	123,196	$	1,631,151


														Revolving
		Term Loans																						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Residential real estate
Home equity																		Home equity
Performing	Performing	$	67,016	$	300,014	$	253,660	$	183,583	$	143,910	$	556,686	$	121,900	$	1,626,769	Performing	$	5,054	$	7,570	$	7,121	$	2,733	$	2,121	$	12,861	$	105,047	$	142,507
Non-performing	Non-performing	—		—		—		317		186		2,168		138		2,809		Non-performing	—		—		—		—		—		—		165		165
Total	Total	$	67,016	$	300,014	$	253,660	$	183,900	$	144,096	$	558,854	$	122,038	$	1,629,578	Total	$	5,054	$	7,570	$	7,121	$	2,733	$	2,121	$	12,861	$	105,212	$	142,672

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
2020 2019 2018 2017 2016 Prior Cost Basis Total
Home equity
Performing $ 1,673 $ 8,793 $ 8,012 $ 2,924 $ 2,392 $ 10,702 $ 111,289 $ 145,785
Non-performing — — — — 41 — 208 249
Total $ 1,673 $ 8,793 $ 8,012 $ 2,924 $ 2,433 $ 10,702 $ 111,497 $ 146,034


														Revolving
		Term Loans																						Loans
		Amortized Cost Basis by Origination Year and Risk Level																						Amortized
		2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Consumer	Consumer																	Consumer
Performing	Performing	$	5,884	$	21,327	$	14,100	$	5,394	$	3,143	$	2,315	$	2,585	$	54,748	Performing	$	9,689	$	18,922	$	12,199	$	4,492	$	2,485	$	2,284	$	2,207	$	52,278
Non-performing	Non-performing	—		—		1		—		—		—		—		1		Non-performing	—		—		—		—		—		—		—		—
Total	Total	$	5,884	$	21,327	$	14,101	$	5,394	$	3,143	$	2,315	$	2,585	$	54,749	Total	$	9,689	$	18,922	$	12,199	$	4,492	$	2,485	$	2,284	$	2,207	$	52,278

The following table presents the Company’s commercial loans by credit quality indicators, by portfolio loan classification (in thousands):


	Commercial and Industrial		Commercial Real Estate		Total
December 31, 2019
Pass	$	276,847	$	1,408,644	$	1,685,491
Special mention	2,472		13,838		16,310
Substandard	28,696		37,255		65,951
Total	$	308,015	$	1,459,737	$	1,767,752

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The following table presents the Company's non-commercial loans by payment performance, by portfolio loan classification (in thousands):


	Performing		Non-Performing		Total
December 31, 2019
Residential real estate	$	1,636,920	$	3,476	$	1,640,396
Home equity	148,397		531		148,928
Consumer	54,263		—		54,263
Total	$	1,839,580	$	4,007	$	1,843,587

Note F –Derivative Instruments

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the Company primarily utilizes non-hedging derivative financial instruments with commercial banking customers to facilitate their interest rate management strategies. For these instruments, the Company acts as an intermediary for its customers and has offsetting contracts with financial institution counterparties. Changes in the fair value of these underlying derivative contracts generally offset each other and do not significantly impact the Company's results of operations.

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The following table summarizes the notional and fair value of these derivative instruments (in thousands):


		March 31, 2020						December 31, 2019							June 30, 2020				December 31, 2019
		Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value

Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Customer counterparties:	Customer counterparties:									Customer counterparties:
Loan interest rate swap - assets	Loan interest rate swap - assets	$	610,508	$	60,886	$	377,534	$	16,094	Loan interest rate swap - assets	$	620,392	$	65,882	$	377,534	$	16,094
Loan interest rate swap - liabilities	Loan interest rate swap - liabilities	13,907		1,232		189,803		3,214		Loan interest rate swap - liabilities	2,041		279		189,803		3,214

Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Financial institution counterparties:	Financial institution counterparties:									Financial institution counterparties:
Loan interest rate swap - assets	Loan interest rate swap - assets	13,907		1,232		189,803		3,214		Loan interest rate swap - assets	2,041		279		189,803		3,214
Loan interest rate swap - liabilities	Loan interest rate swap - liabilities	615,348		61,091		382,566		16,133		Loan interest rate swap - liabilities	625,038		66,100		382,566		16,133

The following table summarizes the change in fair value of these derivative instruments (in thousands):


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
				2020		2019					2020		2019		2020	2019
Change in Fair Value Non-Hedging Interest Rate Derivatives:	Change in Fair Value Non-Hedging Interest Rate Derivatives:					Change in Fair Value Non-Hedging Interest Rate Derivatives:
Other income - derivative assets	Other income - derivative assets	$	37,911	$	(2,879)	Other income - derivative assets	$	3,807	$	5,128	$	41,718	$	2,249
Other income - derivative liabilities	Other income - derivative liabilities	(37,911)		2,879		Other income - derivative liabilities	(3,807)		(5,128)		(41,718)		(2,249)
Other expense - derivative liabilities	Other expense - derivative liabilities	172		58		Other expense - derivative liabilities	10		97		183		154

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company's derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association ("ISDA") master agreements which include "right of setoff" provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes.

Pursuant to the Company's agreements with certain of its derivative financial institution counterparties, the Company may receive collateral or post collateral, which may be in the form of cash or securities, based upon mark-to-mark positions.The Company has posted collateral with a market value of ~~$65.4~~$68.5 million as of ~~March 31,~~June 30, 2020.

Loans associated with a customer counterparty loan interest rate swap agreement may be subject to a make whole penalty upon termination of the agreement. The dollar amount of the make whole penalty varies based on the remaining term of the agreement and market rates at that time. The make whole penalty is secured by equity in the specific collateral securing

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the loan. The Company estimates the make whole penalty when determining if there is sufficient collateral to pay off both the potential make whole penalty and the outstanding loan balance at the origination of the loan. In the event of a customer default, the make whole penalty is capitalized into the existing loan balance; however, no guarantees can be made that the collateral will be sufficient to cover both the make whole provision and the outstanding loan balance at the time of foreclosure.

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Note G –Employee Benefit Plans

Stock Options

A summary of the Company’s stock option activity and related information is presented below:


		Three months ended March 31,											Six months ended June 30,
		2020				2019						2020				2019
			Options		Weighted-Average Exercise Price	Options		Weighted-Average Exercise Price				Options	Weighted-Average Exercise Price		Options	Weighted-Average Exercise Price
Outstanding at January 1	Outstanding at January 1	46,251	$	52.74	57,972	$	51.15	Outstanding at January 1	46,251	$	52.74	57,972	$	51.15
Exercised	Exercised	(2,650)	46.06		(5,638)	44.74		Exercised	(4,166)	45.44		(8,140)	44.85
Outstanding at March 31		43,601	$	53.15	52,334	$	51.84
Outstanding at June 30								Outstanding at June 30	42,085	$	53.47	49,832	$	52.18

Exerciseable at March 31		23,730	$	49.84	14,146	$	44.70
Exerciseable at June 30								Exerciseable at June 30	22,214	$	50.22	11,644	$	44.62

Information regarding stock option exercises and stock-based compensation expense associated with stock options is provided in the following table (in thousands):


		Three months ended March 31,							Six months ended June 30,
		2020		2019			2020		2019
Proceeds from stock option exercises	Proceeds from stock option exercises	$	122	$	252	Proceeds from stock option exercises	$	189	$	365
Intrinsic value of stock options exercised	Intrinsic value of stock options exercised	44		177		Intrinsic value of stock options exercised	77		263

Stock-based compensation expense associated with stock options	Stock-based compensation expense associated with stock options	$	22	$	37	Stock-based compensation expense associated with stock options	$	34	$	64

At period-end:	At period-end:	March 31, 2020				At period-end:	June 30, 2020
Unrecognized stock-based compensation expense associated with stock options	Unrecognized stock-based compensation expense associated with stock options	$	63			Unrecognized stock-based compensation expense associated with stock options	$	50
Weighted average period (in years) in which the above amount is expected to be	Weighted average period (in years) in which the above amount is expected to be					Weighted average period (in years) in which the above amount is expected to be
recognized	recognized	1.4				recognized	1.2

Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares would be issued from available authorized shares. During the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, all shares issued in connection with stock option exercises were issued from available treasury stock. For the stock options that have performance-based criteria, management has evaluated those criteria and has determined that, as of ~~March 31,~~June 30, 2020, the criteria were probable of being met.

Restricted Shares, Restricted Stock Units, Performance Share Units

The Company records compensation expense with respect to restricted shares, restricted stock units and performance share units in an amount equal to the fair value of the common stock covered by each award on the date of grant. These awards become fully vested after various periods of continued employment from the respective dates of grant. The Company is entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Compensation is being charged to expense over the respective vesting periods.

Restricted shares are forfeited if the awardee officer or employee terminates his employment with the Company prior to the lapsing of restrictions. The Company records forfeitures of restricted stock as treasury share repurchases and any compensation cost previously recognized is reversed in the period of forfeiture. Recipients of restricted shares do not pay any cash consideration to the Company for the shares, and, except for restricted stock units and performance share units, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have

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vested. For restricted shares that have performance-based criteria, management has evaluated those criteria and has determined that, as of ~~March 31,~~June 30, 2020, the criteria were probable of being met.

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A summary of the Company’s restricted shares activity and related information is presented below:


		Three months ended March 31,											Six months ended June 30,
		2020				2019						2020				2019
			Restricted Awards		Average Market Price at Grant	Restricted Awards		Average Market Price at Grant				Restricted Awards	Average Market Price at Grant		Restricted Awards	Average Market Price at Grant
Outstanding at January 1	Outstanding at January 1	148,083	$	62.62	152,692	$	51.85	Outstanding at January 1	148,083	$	62.62	152,692	$	51.85
Granted	Granted	23,028	70.36		13,531	79.46		Granted	37,103	67.40		31,006	79.86
Vested	Vested	(24,910)	50.42		(23,667)	45.60		Vested	(26,450)	49.58		(41,657)	39.79
Outstanding at March 31		146,201	$	65.91	142,556	$	55.51
Outstanding at June 30								Outstanding at June 30	158,736	$	65.91	142,041	$	61.50

Information regarding stock-based compensation associated with restricted shares is provided in the following table (in thousands):


		Three months ended March 31,							Three months ended June 30, 2020						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
Stock-based compensation expense associated with restricted shares	Stock-based compensation expense associated with restricted shares	$	629	$	434	Stock-based compensation expense associated with restricted shares	$	681	$	501	$	1,310	$	935

At period-end:	At period-end:	March 31, 2020				At period-end:					June 30, 2020
Unrecognized stock-based compensation expense associated with restricted shares	Unrecognized stock-based compensation expense associated with restricted shares	$	6,009			Unrecognized stock-based compensation expense associated with restricted shares					$	6,208
Weighted average period (in years) in which the above amount is expected to be
recognized		3.1
Weighted average period (in years) in which the above amount is expected to be recognized						Weighted average period (in years) in which the above amount is expected to be recognized					3.2

Shares issued in conjunction with restricted stock awards are issued from available treasury shares. If no treasury shares are available, new shares would be issued from available authorized shares. During the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, all shares issued in connection with restricted stock awards were issued from available treasury stock.

Benefit Plans

The Company provides retirement benefits to its employees through the City Holding Company 401(k) Plan and Trust (the “401(k) Plan”), which is intended to be compliant with Employee Retirement Income Security Act (ERISA) section 404(c). The Company also maintains a frozen defined benefit pension plan (the “Defined Benefit Plan”), which was inherited from the Company's acquisition of the plan sponsor (Horizon Bancorp, Inc.).

The following table presents the components of the Company's net periodic benefit cost, which is included in the line item ~~"Other Expenses"~~"other expenses" in the consolidated statements of income, (in thousands):


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
				2020		2019					2020		2019		2020	2019
Components of net periodic cost:	Components of net periodic cost:					Components of net periodic cost:
Interest cost	Interest cost	$	112	$	174	Interest cost	$	112	$	174	$	224	$	348
Expected return on plan assets	Expected return on plan assets	(203)		(266)		Expected return on plan assets	(203)		(266)		(406)		(531)
Net amortization and deferral	Net amortization and deferral	272		285		Net amortization and deferral	272		285		544		569
Net Periodic Pension Cost	Net Periodic Pension Cost	$	181	$	193	Net Periodic Pension Cost	$	181	$	193	$	362	$	386

Note H –Commitments and Contingencies

COVID-19

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effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic

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and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, the effects could have a material adverse impact on the Company in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, human capital and self-insurance, as well as financial statement related risk associated with critical accounting estimates such as the allowance for credit losses or valuation impairments on the Company's goodwill, intangible assets and deferred taxes.

Credit Related Financial Instruments

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The Company has entered into agreements with certain customers to extend credit or provide a conditional commitment to provide payment on drafts presented in accordance with the terms of the underlying credit documents. The Company also provides overdraft protection to certain demand deposit customers that represent an unfunded commitment. Overdraft protection commitments, which are included with other commitments below, are uncollateralized and are paid at the Company’s discretion. Conditional commitments generally include standby and commercial letters of credit. Standby letters of credit represent an obligation of the Company to a designated third party contingent upon the failure of a customer of the Company to perform under the terms of the underlying contract between the customer and the third party. Commercial letters of credit are issued specifically to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated, as intended, between the customer and a third party. The funded portion of these financial instruments is reflected in the Company’s balance sheet, while the unfunded portion of these commitments is not reflected in the balance sheet.

The table below presents a summary of the contractual obligations of the Company resulting from significant commitments (in thousands):


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
Commitments to extend credit:	Commitments to extend credit:					Commitments to extend credit:
Home equity lines	Home equity lines	$	213,793	$	214,715	Home equity lines	$	219,045	$	214,715
Commercial real estate	Commercial real estate	80,029		56,941		Commercial real estate	51,646		56,941
Other commitments	Other commitments	222,546		213,904		Other commitments	247,219		213,904
Standby letters of credit	Standby letters of credit	6,915		6,748		Standby letters of credit	5,026		6,748
Commercial letters of credit	Commercial letters of credit	1,045		1,249		Commercial letters of credit	1,045		1,249

Loan commitments and standby and commercial letters of credit have credit risks essentially the same as those 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.

Litigation

In addition, the Company is engaged in various legal actions that it deems to be in the ordinary course of business. As these legal actions are resolved, the Company could realize positive and/or negative impact to its financial performance in the period in which these legal actions are ultimately resolved. There can be no assurance that current legal actions will have an immaterial impact on financial results, either positive or negative, or that no material legal actions may be presented in the future.

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Note I –Accumulated Other Comprehensive Income ~~(Loss)~~

The activity in accumulated other comprehensive income ~~(loss)~~ is presented in the tables below (in thousands). All amounts are shown net of tax, which is calculated using a combined federal and state income tax rate approximating 23%.


									Three months ended June 30,										Six months ended June 30,
		Three months ended March 31,
				Unrealized					Defined						Defined
				Gains (Losses)					Benefit		Securities				Benefit		Securities
		Defined Benefit		on Securities					Pension		Available-				Pension		Available-
		Pension Plan		Available-for-Sale		Total			Plan		-for-Sale		Total		Plan		-for-Sale		Total
2020	2020							2020
Beginning Balance	Beginning Balance	$	(6,270)	$	12,110	$	5,840	Beginning Balance	$	(6,270)	$	33,730	$	27,460	$	(6,270)	$	12,110	$	5,840

Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	—		20,471		20,471		Other comprehensive income before reclassifications	—		3,565		3,565		—		24,036		24,036
Amounts reclassified from other comprehensive income	Amounts reclassified from other comprehensive income	—		(48)		(48)		Amounts reclassified from other comprehensive income	—		4		4		—		(44)		(44)
Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	—		1,197		1,197		Reclassification of unrealized gains on held-to-maturity securities to available-for-sale	—		—		—		—		1,197		1,197
		—		21,620		21,620			—		3,569		3,569		—		25,189		25,189

Ending Balance	Ending Balance	$	(6,270)	$	33,730	$	27,460	Ending Balance	$	(6,270)	$	37,299	$	31,029	$	(6,270)	$	37,299	$	31,029

2019	2019							2019
Beginning Balance	Beginning Balance	$	(5,871)	$	(8,611)	$	(14,482)	Beginning Balance	$	(5,871)	$	20	$	(5,851)	$	(5,871)	$	(8,611)	$	(14,482)

Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	—		8,698		8,698		Other comprehensive income before reclassifications	—		10,956		10,956		—		19,654		19,654
Amounts reclassified from other comprehensive loss		—		(67)		(67)
Amounts reclassified from other comprehensive income								Amounts reclassified from other comprehensive income	—		(17)		(17)		—		(84)		(84)
		—		8,631		8,631			—		10,939		10,939		—		19,570		19,570

Ending Balance	Ending Balance	$	(5,871)	$	20	$	(5,851)	Ending Balance	$	(5,871)	$	10,959	$	5,088	$	(5,871)	$	10,959	$	5,088

Amounts reclassified from Other Comprehensive Income (Loss)
Three months ended Affected line item
March 31, in the Consolidated Statements
2020 2019 of Income
Securities available-for-sale:
Net securities gains reclassified into earnings $ 63 $ 88 Gains on sale of investment securities, net
Related income tax expense (15) (21) Income tax expense
Net effect on accumulated other comprehensive income (loss) $ 48 $ 67


	Amounts reclassified from Other Comprehensive Income
	Three months ended						Six months ended			Affected line item
	June 30,						June 30,			in the Consolidated Statements
	2020		2019		2020		2019		of Income

Securities available-for-sale:
Net securities (losses) gains reclassified into earnings	$	(6)	$	21	$	56	$	109	(Losses) gains on sale of investment securities, net
Related income tax expense (income)	2		(4)		(12)		(25)		Income tax expense (income)
Net effect on accumulated other comprehensive income	$	(4)	$	17	$	44	$	84

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Note J – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share using the two class method (in thousands, except per share data):


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
				2020		2019					2020		2019		2020	2019
Net income available to common shareholders	Net income available to common shareholders	$	29,000	$	21,619	Net income available to common shareholders	$	18,251	$	22,751	$	47,249	$	44,370
Less: earnings allocated to participating securities	Less: earnings allocated to participating securities	(263)		(186)		Less: earnings allocated to participating securities	(180)		(197)		(463)		(382)
Net earnings allocated to common shareholders	Net earnings allocated to common shareholders	$	28,737	$	21,433	Net earnings allocated to common shareholders	$	18,071	$	22,554	$	46,786	$	43,988

Distributed earnings allocated to common stock	Distributed earnings allocated to common stock	$	9,117	$	8,661	Distributed earnings allocated to common stock	$	9,073	$	8,615	$	18,147	$	17,231
Undistributed earnings allocated to common stock	Undistributed earnings allocated to common stock	19,620		12,772		Undistributed earnings allocated to common stock	8,998		13,939		28,639		26,757
Net earnings allocated to common shareholders	Net earnings allocated to common shareholders	$	28,737	$	21,433	Net earnings allocated to common shareholders	$	18,071	$	22,554	$	46,786	$	43,988

Average shares outstanding	Average shares outstanding	16,080		16,411		Average shares outstanding	16,081		16,368		16,123		16,390
Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
Employee stock awards	Employee stock awards	21		18		Employee stock awards	16		18		19		18
Shares for diluted earnings per share	Shares for diluted earnings per share	16,101		16,429		Shares for diluted earnings per share	16,097		16,386		16,142		16,408

Basic earnings per share	Basic earnings per share	$	1.79	$	1.31	Basic earnings per share	$	1.12	$	1.38	$	2.90	$	2.68
Diluted earnings per share	Diluted earnings per share	$	1.78	$	1.30	Diluted earnings per share	$	1.12	$	1.38	$	2.90	$	2.68

Anti-dilutive options are not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares and therefore, the effect would have been anti-dilutive. Anti-dilutive options were not significant for any of the periods shown above.

Note K –Fair Value Measurements

Fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company bases fair value of assets and liabilities on quoted market prices, prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. If such information is not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty ~~credit quality and the Company’s~~ creditworthiness, ~~among other things,~~ as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amount presented herein. A more detailed description of the valuation methodologies used for assets and liabilities

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~~valuation methodologies used for assets and liabilities~~ measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Financial Assets and Liabilities

The Company used the following methods and significant assumptions to estimate fair value for financial assets and liabilities measured on a recurring basis.

Securities Available for Sale. Securities available for sale are reported at fair value utilizing Level 1, Level 2, and Level 3 inputs. The fair value of securities available for sale is determined by utilizing a market approach by obtaining quoted prices on nationally recognized securities exchanges (other than forced or distressed transactions) that occur in sufficient volume or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. If such measurements are unavailable, the security is classified as Level 3. Significant judgment is required to make this determination.

The Company utilizes a third party pricing service provider to value its Level 1 and Level 2 investment securities. Annually, the Company obtains an independent auditor’s report from its third party pricing service provider regarding its controls over investment securities. On a quarterly basis, the Company reprices its debt securities with a third party that is independent of the primary pricing service provider to verify the reasonableness of the fair values.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company utilizes a market approach by obtaining dealer quotations to value its customer interest rate swaps. The Company’s derivatives are included within ~~Other Assets~~"other assets" and ~~Other Liabilities~~"other liabilities" in the accompanying consolidated balance sheets. Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Company pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Company considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Company's Asset and Liability Committee ("ALCO") are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, if necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Company to estimate its own credit risk in derivative liability positions. To date, 0 material losses have been incurred due to a counterparty's inability to pay any undercollateralized position. There was 0 significant change in the value of derivative assets and liabilities attributed to credit risk that would have resulted in a derivative credit risk valuation adjustment at ~~March 31,~~June 30, 2020.

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The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis. Financial assets measured at fair value on a nonrecurring basis include impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data for both real estate collateral and non-real estate collateral. The following table presents assets and liabilities measured at fair value (in thousands):


		Total		Level 1		Level 2		Level 3		Total Gains (Losses)			Total		Level 1		Level 2		Level 3		Total Gains (Losses)
March 31, 2020
June 30, 2020												June 30, 2020
Recurring fair value measurements	Recurring fair value measurements											Recurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
U.S. Government agencies		$	502	$	—	$	502	$	—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	125,950		—		125,950		—				Obligations of states and political subdivisions	$	218,227	$	—	$	218,227	$	—
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	759,465		—		759,465		—				U.S. Government agencies	786,507		—		786,507		—
Private label	Private label	10,862		—		5,600		5,262				Private label	11,349		—		5,987		5,362
Trust preferred securities	Trust preferred securities	3,400		—		3,400		—				Trust preferred securities	3,480		—		3,480		—
Corporate securities	Corporate securities	31,693		—		27,619		4,074				Corporate securities	33,381		—		29,331		4,050
Marketable equity securities	Marketable equity securities	10,233		6,073		4,160		—				Marketable equity securities	10,474		5,960		4,514		—
Certificates of deposit held for investment	Certificates of deposit held for investment	2,241		—		2,241		—				Certificates of deposit held for investment	2,241		—		2,241		—
Derivative assets	Derivative assets	62,118		—		62,118		—				Derivative assets	66,161		—		66,161		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Derivative liabilities	Derivative liabilities	62,462		—		62,462		—				Derivative liabilities	66,526		—		66,526		—

Nonrecurring fair value measurements	Nonrecurring fair value measurements											Nonrecurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
Impaired loans		$	9,540	$	—	$	—	$	9,540	$	(229)
Loans individually evaluated												Loans individually evaluated	$	6,447	$	—	$	—	$	6,447	$	(1,150)
Non-Financial Assets	Non-Financial Assets											Non-Financial Assets
Other real estate owned	Other real estate owned	3,922		—		—		3,922		(79)		Other real estate owned	3,997		—		—		3,997		(267)

December 31, 2019	December 31, 2019											December 31, 2019
Recurring fair value measurements	Recurring fair value measurements											Recurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
U.S. Government agencies	U.S. Government agencies	$	502	$	—	$	502	$	—			U.S. Government agencies	$	502	$	—	$	502	$	—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	117,187		—		117,187		—				Obligations of states and political subdivisions	117,187		—		117,187		—
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	642,104		—		642,104		—				U.S. Government agencies	642,104		—		642,104		—
Private label	Private label	11,485		—		5,841		5,644				Private label	11,485		—		5,841		5,644
Trust preferred securities	Trust preferred securities	4,461		—		4,461		—				Trust preferred securities	4,461		—		4,461		—
Corporate securities	Corporate securities	32,126		—		28,064		4,062				Corporate securities	32,126		—		28,064		4,062
Marketable equity securities	Marketable equity securities	12,634		7,787		4,847		—				Marketable equity securities	12,634		7,787		4,847		—
Certificates of deposit held for investment	Certificates of deposit held for investment	2,241		—		2,241		—				Certificates of deposit held for investment	2,241		—		2,241		—
Derivative assets	Derivative assets	19,310		—		19,310		—				Derivative assets	19,310		—		19,310		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Derivative liabilities	Derivative liabilities	19,380		—		19,380		—				Derivative liabilities	19,380		—		19,380		—

Nonrecurring fair value measurements	Nonrecurring fair value measurements											Nonrecurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
Impaired loans	Impaired loans	$	8,925	$	—	$	—	$	8,925	$	(87)	Impaired loans	$	8,925	$	—	$	—	$	8,925	$	(87)
Non-Financial Assets	Non-Financial Assets											Non-Financial Assets
Other real estate owned	Other real estate owned	4,670		—		—		4,670		(470)		Other real estate owned	4,670		—		—		4,670		(470)
Other assets	Other assets	100		—		—		100		(297)		Other assets	100		—		—		100		(297)

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The Company's financial assets and liabilities measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3) include impaired loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for credit losses based upon the fair value of the underlying collateral (in thousands). The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. The significant unobservable inputs used in the fair value measurement of collateral for collateral-dependent impaired loans primarily relate to discounts applied to the customers’ reported amount of collateral. The amount of collateral discount depends upon the marketability of the underlying collateral. During the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, collateral discounts ranged from 20% to 30%. During the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, the Company had no Level 2 financial assets and liabilities that were measured on a nonrecurring basis.

Non-Financial Assets and Liabilities

The Company has no non-financial assets or liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non-recurring basis include other real estate owned (“OREO”), which is measured at the lower of cost or fair value, and goodwill and other intangible assets, which are measured at fair value for impairment assessments.

Fair Value of Financial Instruments

ASC Topic 825 “Financial Instruments,” as amended, 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 discount rates and estimate 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. ASC Topic 825 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.

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The following table represents the estimates of fair value of financial instruments (in thousands). This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest-bearing demand, interest-bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.


		Carrying Amount	Fair Value	Level 1	Level 2	Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
March 31, 2020
June 30, 2020							June 30, 2020
Assets:	Assets:
Cash and cash equivalents	Cash and cash equivalents						Cash and cash equivalents	$	373,254	$	373,254	$	373,254	$	—	$	—
Securities available-for-sale	Securities available-for-sale	934,113	934,113	—	924,777	9,336	Securities available-for-sale	1,055,185		1,055,185		—		1,045,773		9,412
Marketable equity securities	Marketable equity securities	10,233	10,233	6,073	4,160	—	Marketable equity securities	10,474		10,474		5,960		4,514		—
Net loans	Net loans	3,588,657	3,576,504	—	—	3,576,504	Net loans	3,640,397		3,634,170		—		—		3,634,170
Accrued interest receivable	Accrued interest receivable	12,570	12,570	12,570	—	—	Accrued interest receivable	14,200		14,200		14,200		—		—
Derivative assets	Derivative assets	62,118	62,118	—	62,118	—	Derivative assets	66,161		66,161		—		66,161		—

Liabilities:	Liabilities:						Liabilities:
Deposits	Deposits	4,052,053	4,081,662	2,685,076	1,396,586	—	Deposits	4,411,115		4,444,930		3,068,484		1,376,446		—
Short-term debt	Short-term debt	234,147	224,247	—	224,247	—	Short-term debt	282,676		267,186		—		267,186		—
Long-term debt		—	—	—	—	—
Accrued interest payable	Accrued interest payable	2,613	2,613	2,613	—	—	Accrued interest payable	2,257		2,257		2,257		—		—
Derivative liabilities	Derivative liabilities	62,462	62,462	—	62,462	—	Derivative liabilities	66,526		66,526		—		66,526		—

December 31, 2019	December 31, 2019						December 31, 2019
Assets:	Assets:						Assets:
Cash and cash equivalents	Cash and cash equivalents	140,144	140,144	140,144	—	—	Cash and cash equivalents	$	140,144	$	140,144	$	140,144	$	—	$	—
Securities available-for-sale	Securities available-for-sale	810,106	810,106	—	800,400	9,706	Securities available-for-sale	810,106		810,106		—		800,400		9,706
Securities held-to-maturity	Securities held-to-maturity	49,036	50,598	—	50,598	—	Securities held-to-maturity	49,036		50,598		—		50,598		—
Marketable equity securities	Marketable equity securities	12,634	12,634	7,787	4,847	—	Marketable equity securities	12,634		12,634		7,787		4,847		—
Net loans	Net loans	3,604,510	3,574,435	—	—	3,574,435	Net loans	3,604,510		3,574,435		—		—		3,574,435
Accrued interest receivable	Accrued interest receivable	11,569	11,569	11,569	—	—	Accrued interest receivable	11,569		11,569		11,569		—		—
Derivative assets	Derivative assets	19,310	19,310	—	19,310	—	Derivative assets	19,310		19,310		—		19,310		—

Liabilities:	Liabilities:						Liabilities:
Deposits	Deposits	4,075,894	4,094,493	2,711,323	1,383,170	—	Deposits	4,075,894		4,094,493		2,711,323		1,383,170		—
Short-term debt	Short-term debt	211,255	211,255	—	211,255	—	Short-term debt	211,255		211,255		—		211,255		—
Long-term debt	Long-term debt	4,056	4,124	—	4,124	—	Long-term debt	4,056		4,124		—		4,124		—
Accrued interest payable	Accrued interest payable	2,849	2,849	2,849	—	—	Accrued interest payable	2,849		2,849		2,849		—		—
Derivative liabilities	Derivative liabilities	19,380	19,380	—	19,380	—	Derivative liabilities	19,380		19,380		—		19,380		—

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

COVID-19 Pandemic/Update

The COVID-19 pandemic has placed significant health, economic and other major pressure throughout the communities the Company serves, the United States and the entire world. The Company has implemented a number of procedures in response to the pandemic to support the safety and well-being of our employees, customers and shareholders that continue through the date of this report:

•We have addressed the safety of our ~~branch~~branches and while the branches generally remain open to customers, we have taken steps, and continue to evaluate, to push as much traffic and transactions as possible to our drive-thru facilities;

•Provided extensions and deferrals to loan customers effected by COVID-19 provided such customers were not 30 days past due at March 19, 2020; As of ~~May 1,~~June 30, 2020, the Company has granted deferrals of approximately ~~$99.0~~$125 million for mortgage borrowers and ~~$391.3~~$430 million for commercial borrowers; and

•We have chosen to participate in the CARES Act Paycheck Protection Program that will provide government guaranteed and forgivable loans to our customers. As of June 30, 2020, the Company has funded approximately $90 million of SBA-approved PPP loans to over 1,500 customers.

The Company continues to closely monitor this pandemic and expects to make future changes to respond to the pandemic as this situation continues to evolve.

Critical Accounting Policies

The accounting policies of the Company conform with U.S. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. These estimates and assumptions are based on information available to management as of the date of the financial statements. Actual results could differ significantly from management’s estimates. As this information changes, management’s estimates and assumptions used to prepare the Company’s financial statements and related disclosures may also change. The most significant accounting policies followed by the Company are presented in Note One to the audited financial statements included in the Company’s 2019 Annual Report to Shareholders. The information included in this Quarterly Report on Form 10-Q, including the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the financial statements and notes thereto included in the 2019 Annual Report of the Company. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for credit losses and income taxes to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new information becomes available.

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

The Company is subject to federal and state income taxes in the jurisdictions in which it conducts business. In computing the provision for income taxes, management must make judgments regarding interpretation of laws in those jurisdictions. Because the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. On a quarterly basis, the Company estimates its annual effective tax rate for the year and uses that rate to provide for income taxes on a year-to-date basis. The amount of unrecognized tax benefits could change over the next twelve months as a result of various factors. However, management cannot currently estimate the range of possible change. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state taxing authorities for the years ended December 31, 2016 and forward.

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Financial Summary

~~Three~~Six months ended ~~March 31,~~June 30, 2020 vs. 2019

The Company's financial performance is summarized in the following table:


		Three months ended March 31,										Six months ended June 30,
		2020			2019				2020			2019

Net income available to common shareholders (in thousands)	Net income available to common shareholders (in thousands)	$	29,000		$	21,619		Net income available to common shareholders (in thousands)	$	47,249		$	44,370
Earnings per common share, basic	Earnings per common share, basic	$	1.79		$	1.31		Earnings per common share, basic	$	2.90		$	2.68
Earnings per common share, diluted	Earnings per common share, diluted	$	1.78		$	1.30		Earnings per common share, diluted	$	2.90		$	2.68
Dividend payout ratio	Dividend payout ratio	31.9		%	40.6		%	Dividend payout ratio	39.3		%	39.5		%
ROA*	ROA*	2.29		%	1.76		%	ROA*	1.81		%	1.80		%
ROE*	ROE*	17.0		%	14.1		%	ROE*	13.7		%	14.3		%
ROATCE*	ROATCE*	20.6		%	17.7		%	ROATCE*	16.6		%	17.8		%
Average equity to average assets ratio	Average equity to average assets ratio	13.5		%	12.5		%	Average equity to average assets ratio	13.2		%	12.6		%

*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.

The Company's net interest income for the six months ended June 30, 2020 decreased $2.5 million compared to the six months ended June 30, 2019 (see Net Interest Income). The Company recorded a provision for credit losses of $9.2 million for the six months ended June 30, 2020 compared to a recovery of credit losses of $1.4 million for the six months ended June 30, 2019 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-interest income increased $14.2 million and non-interest expense decreased $2.2 million for the six months ended June 30, 2020 from the six months ended June 30, 2019.

Financial Summary

Three months ended June 30, 2020 vs. 2019

The Company's financial performance is summarized in the following table:


	Three months ended June 30,
	2020			2019

Net income available to common shareholders (in thousands)	$	18,251		$	22,751
Earnings per common share, basic	$	1.12		$	1.38
Earnings per common share, diluted	$	1.12		$	1.38
Dividend payout ratio	50.8		%	38.5		%
ROA*	1.35		%	1.84		%
ROE*	10.5		%	14.4		%
ROATCE*	12.6		%	17.9		%
Average equity to average assets ratio	12.9		%	12.8		%

The Company's net interest income for the three months ended ~~March 31,~~June 30, 2020 ~~increased $0.3~~decreased $2.8 million compared to the three months ended ~~March 31,~~June 30, 2019 (see Net Interest Income). The Company recorded a provision for credit losses of ~~$8.0~~ $1.3

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million for the three months ended ~~March 31,~~June 30, 2020 compared to a recovery of credit losses of ~~$0.85~~$0.6 million for the three months ended ~~March 31,~~June 30, 2019 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-interest income ~~increased $17.4~~decreased $3.2 million and non-interest expense ~~increased $0.1~~decreased $2.3 million for the three months ended ~~March 31,~~June 30, 2020 from the three months ended ~~March 31,~~June 30, 2019.

Balance Sheet Analysis

Selected balance sheet fluctuations from the year ended December 31, 2019 are summarized in the following table (in millions):


		March 31,		December 31,							June 30,		December 31,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change

Cash and cash equivalents										Cash and cash equivalents	$	373.3	$	140.1	$	233.2	166.5	%
Investment securities	Investment securities	$	960.9	$	887.6	$	73.3	8.3	%	Investment securities	1,081.3		887.6		193.7		21.8	%
Gross loans	Gross loans	3,613.1		3,616.1		(3.0)		(0.1)	%	Gross loans	3,665.6		3,616.1		49.5		1.4	%
Other assets										Other assets	105.4		55.8		49.6		88.9	%

Total deposits	Total deposits	4,052.1		4,075.9		(23.8)		(0.6)	%	Total deposits	4,411.1		4,075.9		335.2		8.2	%
Federal Funds purchased		9.9		—		9.9		100.0	%
Customer repurchase agreements										Customer repurchase agreements	282.7		211.3		71.4		33.8	%
Other liabilities										Other liabilities	138.6		69.6		69.0		99.1	%

Cash and cash equivalents increased $233 million from December 31, 2019 to $373 million at June 30, 2020, due to the increase in deposit balances and weak loan demand environment.

Investment securities increased ~~$73.3~~$194 million ~~(8.3%~~(21.8%) from December 31, 2019 to ~~$960.9 million~~$1.1 billion at ~~March 31,~~June 30, 2020, asdue to the ~~Company elected to grow investment~~increase in deposit balances ~~to enhance net interest income, in conjunction with its interest rate risk management strategy.~~and weak loan demand environment.

Gross loans ~~decreased $3.0~~increased $50 million ~~(0.1%~~(1.4%) from December 31, 2019 to ~~$3.61~~$3.67 billion at ~~March~~June 30, 2020. As a result of the Company's participation in the Paycheck Protection Program ("PPP") administered by the Small Business Administration ("SBA"), commercial and industrial loans increased $90 million. Excluding these loans, total loans decreased $39 million, (1.1%), from December 31, ~~2020, primarily due~~2019 to ~~decreases in~~$3.58 billion at June 30, 2020. Commercial and industrial loans decreased $27 million (8.9%) (excluding PPP loans), residential real estate loans ~~of $10.8~~decreased $9 million ~~(0.7%~~(0.6%) ~~and~~, home equity loans ~~of $2.9~~decreased $6 million ~~(1.9%~~(4.2%) and DDA overdrafts decreased $2 million (43.3%). These decreases were partially offset by an increase in commercial real estate loans of ~~$11.2~~$8 million ~~(0.8%~~(0.5%).

Other assets increased $50 million to $105 million and other liabilities increased $69 million to $139 million, respectively, at June 30, 2020, primarily as a result of market value changes in the Company's interest rate swap derivatives.

Total deposits ~~decreased $23.8~~increased $335 million from December 31, 2019 to ~~$4.05~~$4.41 billion at ~~March 31,~~June 30, 2020. This increase was largely attributable to stimulus checks received by the Company's customers from the CARES Act (approximately $90 million), proceeds from PPP loans, and customers not spending as much due to COVID-19.

Customer repurchase agreements increased $71 million to $283 million at June 30, 2020, due to ~~decreases~~proceeds from PPP loans, and due to the liquidity needs of the Company's customers, specifically customers leaving monies in ~~demand deposits~~these deposit accounts due to the security of $58.5 million and savings deposits of $20.2 million during the three months ended March 31, 2020. These decreases were partially offset by an increase in noninterest-bearing deposits of $52.4 million.these deposits.

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~~Federal Funds purchased increased $9.9 million from December 31, 2019, due to short-term borrowings needed at March 31, 2020 mainly due to a decrease in deposits and an increase in investments.~~

Net Interest Income

~~Three~~Six months ended ~~March 31,~~June 30, 2020 vs. 2019

The Company’s tax equivalent net interest income ~~increased $0.3~~decreased $2.5 million, or ~~0.8%~~(3.1)%, from ~~$40.3~~$81.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019 to ~~$40.6~~$78.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. ~~In addition, lower yields on commercial loans decreased~~Excluding the impact of accretion from fair value adjustments, net interest income ~~$2.1~~decreased $3.7 million for the six months ended June 30, 2020. Lower loan yields (54 basis points) and lower investment yields ~~on residential real estate loans~~(40 basis points) decreased net interest income by ~~$0.4~~$9.6 million ~~as compared to the three months ended March 31, 2019. Further, lower yields on investments decreased investment income by $0.6 million.~~and $1.9 million, respectively. These decreases were partially offset by ~~an increase~~a decrease in rates paid on interest-bearing liabilities (26 basis points) and increases in investment balances ($128 million) and average loan balances ($77 million), which increased net interest income ~~due to higher accretion from fair value adjustments ($1.1 million); increased volume in taxable investment securities ($0.8 million);~~by $4.3 million, $2.0 million and ~~higher volume in commercial loans ($0.7 million).~~$1.9 million, respectively. The Company’s reported net interest margin decreased from ~~3.67%~~3.66% for the ~~three~~six months ended ~~March 31,~~June 30, 2019 to ~~3.54%~~3.33% for the ~~three~~six months ended ~~March 31,~~June 30, 2020.

As a result of the COVID-19 crisis on March 15, 2020, the Federal Reserve cut the target range for the Fed Funds Rate to a range of 0-25 basis points, which had the impact of lowering interest rates on variable rates tied to Prime, LIBOR or Fed Funds, as well as the decreases in deposit ~~rates~~rates. The Company's loan portfolio has historically included a significant portion of adjustable rate residential mortgage loans made in markets where the Company has a presence, and significant commercial loans collateralized with real estate.

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Six months ended June 30,
			2020										2019
			Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio⁽¹⁾:
Residential real estate⁽²⁾	$	1,785,795	$	38,930	4.38	%	$	1,791,263	$	40,904	4.60	%
Commercial, financial, and agriculture⁽²⁾	1,791,510		38,141		4.28		1,710,281		42,503		5.01
Installment loans to individuals^(2),(3)	57,217		1,715		6.03		56,383		1,728		6.18
Previously securitized loans⁽⁴⁾	***		267		***		***		317		***
Total loans	3,634,522		79,053		4.37		3,557,927		85,452		4.84
Securities:
Taxable	853,882		11,589		2.73		731,976		11,420		3.15
Tax-exempt⁽⁵⁾	107,671		1,934		3.61		101,356		1,942		3.86
Total securities	961,553		13,523		2.83		833,332		13,362		3.23
Deposits in depository institutions	169,626		360		0.43		87,031		767		1.78
Total interest-earning assets	4,765,701		92,936		3.92		4,478,290		99,581		4.48
Cash and due from banks	75,132						64,583
Bank premises and equipment	78,042						78,671
Goodwill and intangible assets	119,886						122,114
Other assets	213,147						192,768
Less: allowance for credit losses	(20,303)						(15,617)
Total assets	$	5,231,605					$	4,920,809

Liabilities
Interest-bearing demand deposits	$	881,904	$	647	0.15	%	$	880,401	$	1,842	0.42	%
Savings deposits	1,021,608		1,063		0.21		963,804		2,302		0.48
Time deposits⁽²⁾	1,359,442		11,491		1.70		1,376,284		12,040		1.76
Short-term borrowings	232,900		743		0.64		218,527		1,915		1.77
Long-term debt	1,670		100		12.04		4,053		95		4.73
Total interest-bearing liabilities	3,497,524		14,044		0.81		3,443,069		18,194		1.07
Noninterest-bearing demand deposits	948,196						804,489
Other liabilities	95,516						52,070
Stockholders’ equity	690,369						621,181
Total liabilities and stockholders’ equity	$	5,231,605					$	4,920,809
Net interest income			$	78,892					$	81,387
Net yield on earning assets					3.33	%					3.66	%

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

	Loan fees	$	725	$	615

(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

		2020		2019
	Residential real estate	$	345	$	115
	Commercial, financial and agriculture	1,891		858
	Installment loans to individuals	76		(12)
	Time deposits	311		452
		$	2,623	$	1,413

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

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


	Six months ended June 30, 2020 vs. 2019
Interest-earning assets:	Increase (Decrease) Due to Change In:
			Volume		Rate		Net

Loan portfolio
Residential real estate	$	(125)	$	(1,849)	$	(1,974)
Commercial, financial, and agriculture	2,024		(6,386)		(4,362)
Installment loans to individuals	26		(39)		(13)
Previously securitized loans	—		(50)		(50)
Total loans	1,925		(8,324)		(6,399)
Securities:
Taxable	1,907		(1,738)		169
Tax-exempt⁽¹⁾	121		(129)		(8)
Total securities	2,028		(1,867)		161
Deposits in depository institutions	730		(1,137)		(407)
Total interest-earning assets	$	4,683	$	(11,328)	$	(6,645)
Interest-bearing liabilities:
Interest-bearing demand deposits	$	3	$	(1,198)	$	(1,195)
Savings deposits	138		(1,377)		(1,239)
Time deposits	(148)		(401)		(549)
Short-term borrowings	126		(1,298)		(1,172)
Long-term debt	(56)		61		5
Total interest-bearing liabilities	$	63	$	(4,213)	$	(4,150)
Net Interest Income	$	4,620	$	(7,115)	$	(2,495)

(1)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

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Net Interest Income

Three months ended June 30, 2020 vs. 2019

The Company’s tax equivalent net interest income decreased $2.8 million, or 6.9%, from $41.1 million for the ~~last~~three months ended June 30, 2019 to $38.3 million for the three months ended June 30, 2020. Excluding the impact of accretion from fair value adjustments, net interest income decreased $2.9 million for the three months ended June 30, 2020. Lower loan yields (76 basis points) and lower investment yields (49 basis points) decreased net interest income by $7.1 million and $1.3 million, respectively. These decreases were partially offset by a decrease in rates paid on interest-bearing liabilities (38 basis points) and increases in average loan balances ($121 million) and investment balances ($168 million), which increased net interest income by $3.3 million, $1.5 million and $1.3 million, respectively. The Company’s reported net interest margin decreased from 3.66% for the three months ended June 30, 2019 to 3.13% for the three months ended June 30, 2020.

As a result of the COVID-19 crisis on March 15, ~~days~~2020, the Federal Reserve cut the target range for the Fed Funds Rate to a range of 0-25 basis points, which had the impact of lowering interest rates on variable rates tied to Prime, LIBOR or Fed Funds, as well as the decreases in ~~the first quarter.~~deposit rates. The Company's loan portfolio has historically included a significant portion of adjustable rate residential mortgage loans made in markets where the Company has a presence, and significant commercial loans collateralized with real estate.

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Table ~~One~~Three

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Assets	Three months ended March 31,																										Assets	Three months ended June 30,
				2020												2019															2020										2019
				Average Balance		Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate		Assets				Average Balance		Interest			Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio⁽¹⁾:	Loan portfolio⁽¹⁾:
Residential real estate⁽²⁾	Residential real estate⁽²⁾	$	1,780,473				$	19,881		4.49		%	$	1,806,233	$	20,451	4.59														%	Residential real estate⁽²⁾	$	19,048	4.29	%	$	1,783,718	$	20,454		4.60	%
Commercial, financial, and agriculture⁽²⁾	Commercial, financial, and agriculture⁽²⁾	1,770,178		20,476		4.65		1,715,524			20,845			4.93		Commercial, financial, and agriculture⁽²⁾	1,818,344			17,665		3.91		1,698,186			21,658		5.12
Installment loans to individuals^(2),(3)	Installment loans to individuals^(2),(3)	58,217		863		5.96		55,227			840			6.17		Installment loans to individuals^(2),(3)	56,199			852		6.10		57,173			889		6.24
Previously securitized loans⁽⁴⁾	Previously securitized loans⁽⁴⁾	***		115		***		***			144			***		Previously securitized loans⁽⁴⁾	***			152		***		***			174		***
Total loans	Total loans	3,608,868		41,335		4.61		3,576,984			42,280			4.79		Total loans	3,660,174			37,717		4.14		3,539,077			43,175		4.89
Securities:	Securities:															Securities:
Taxable	Taxable	810,766		5,871		2.91		714,413			5,689			3.23		Taxable	896,997			5,718		2.56		749,346			5,732		3.07
Tax-exempt⁽⁵⁾	Tax-exempt⁽⁵⁾	94,591		895		3.81		102,375			986			3.91		Tax-exempt⁽⁵⁾	120,751			1,039		3.46		100,348			956		3.82
Total securities	Total securities	905,357		6,766		3.01		816,788			6,675			3.31		Total securities	1,017,748			6,757		2.67		849,694			6,688		3.16
Deposits in depository institutions	Deposits in depository institutions	102,932		304		1.19		60,596			186			1.24		Deposits in depository institutions	236,320			55		0.09		113,176			577		2.04
Total interest-earning assets	Total interest-earning assets	4,617,157		48,405		4.22		4,454,368			49,141			4.47		Total interest-earning assets	4,914,242			44,529		3.64		4,501,947			50,440		4.49
Cash and due from banks	Cash and due from banks	70,763						64,688								Cash and due from banks	79,501							64,478
Bank premises and equipment	Bank premises and equipment	77,368						78,220								Bank premises and equipment	78,717							79,116
Goodwill and intangible assets	Goodwill and intangible assets	120,091						122,605								Goodwill and intangible assets	119,681							121,628
Other assets	Other assets	195,875						195,954								Other assets	230,423							189,618
Less: allowance for credit losses	Less: allowance for credit losses	(15,905)						(16,182)								Less: allowance for credit losses	(24,700)							(15,057)
Total assets	Total assets	$	5,065,349					$	4,899,653							Total assets	$		5,397,864						$	4,941,730

Liabilities	Liabilities															Liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	869,976	$	468	0.22	%	$	886,833		$	933		0.43	%	Interest-bearing demand deposits	$	893,832		$	178	0.08	%	$	874,039		$	909	0.42	%
Savings deposits	Savings deposits	1,005,829		700		0.28		947,337			1,066			0.46		Savings deposits	1,037,387			363		0.14		980,089			1,236		0.51
Time deposits⁽²⁾	Time deposits⁽²⁾	1,365,268		6,070		1.79		1,368,465			5,768			1.71		Time deposits⁽²⁾	1,353,619			5,422		1.61		1,384,017			6,272		1.82
Short-term borrowings	Short-term borrowings	209,010		464		0.89		237,616			1,052			1.80		Short-term borrowings	256,790			279		0.44		199,648			863		1.73
Long-term debt	Long-term debt	3,340		100		12.04		4,053			48			4.80		Long-term debt	—			—		—		4,053			47		4.65
Total interest-bearing liabilities	Total interest-bearing liabilities	3,453,423		7,802		0.91		3,444,304			8,867			1.04		Total interest-bearing liabilities	3,541,628			6,242		0.71		3,441,846			9,327		1.09
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	852,384						788,109								Noninterest-bearing demand deposits	1,044,009							820,689
Other liabilities	Other liabilities	75,922						55,372								Other liabilities	115,110							48,803
Shareholders’ equity	Shareholders’ equity	683,620						611,868								Shareholders’ equity	697,117							630,392
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,065,349					$	4,899,653							Total liabilities and shareholders’ equity	$	5,397,864						$	4,941,730
Net interest income	Net interest income			$	40,603						$	40,274				Net interest income				$	38,287						$	41,113
Net yield on earning assets	Net yield on earning assets					3.54	%							3.67	%	Net yield on earning assets						3.13	%						3.66	%

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

		Loan fees	$	116	$	134	Loan fees	$	609	$	481

(2)	(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:									(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

			2020		2019			2020		2019
		Residential real estate	$	151	$	32	Residential real estate	$	194	$	83
		Commercial, financial and agriculture	1,240		190		Commercial, financial and agriculture	651		668
		Installment loans to individuals	39		(6)		Installment loans to individuals	37		(6)
		Time deposits	155		256		Time deposits	155		196
			$	1,585	$	472		$	1,037	$	941

(3)	(3)	Includes the Company’s consumer and DDA overdrafts loan categories.									(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	(4)	Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.									(4)	Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.
(5)	(5)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.									(5)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.

Table ~~Two~~Four

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


		Three months ended March 31, 2020 vs. 2019												Three months ended June 30, 2020 vs. 2019
Interest-earning assets:	Interest-earning assets:	Increase (Decrease) Due to Change In:											Interest-earning assets:	Increase (Decrease) Due to Change In:
				Volume		Rate		Net			Interest-earning assets:			Volume		Rate		Net

Loan portfolio	Loan portfolio
Residential real estate	Residential real estate	$	(294)			$	(276)	$	(570)		Residential real estate					$	22	$	(1,428)	$	(1,406)
Commercial, financial, and agriculture	Commercial, financial, and agriculture	670		(1,039)		(369)		Commercial, financial, and agriculture		1,528		(5,521)		(3,993)
Installment loans to individuals	Installment loans to individuals	46		(23)		23		Installment loans to individuals		(15)		(22)		(37)
Previously securitized loans	Previously securitized loans	—		(29)		(29)		Previously securitized loans		—		(22)		(22)
Total loans	Total loans	422		(1,367)		(945)		Total loans		1,535		(6,993)		(5,458)
Securities:	Securities:							Securities:
Taxable	Taxable	774		(592)		182		Taxable		1,126		(1,140)		(14)
Tax-exempt⁽¹⁾	Tax-exempt⁽¹⁾	(76)		(15)		(91)		Tax-exempt⁽¹⁾		194		(111)		83
Total securities	Total securities	698		(607)		91		Total securities		1,320		(1,251)		69
Deposits in depository institutions	Deposits in depository institutions	131		(13)		118		Deposits in depository institutions		626		(1,148)		(522)
Total interest-earning assets	Total interest-earning assets	$	1,251	$	(1,987)	$	(736)	Total interest-earning assets		$	3,481	$	(9,392)	$	(5,911)
Interest-bearing liabilities:	Interest-bearing liabilities:							Interest-bearing liabilities:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	(18)	$	(447)	$	(465)	Interest-bearing demand deposits		$	21	$	(752)	$	(731)
Savings deposits	Savings deposits	66		(432)		(366)		Savings deposits		72		(945)		(873)
Time deposits	Time deposits	(14)		316		302		Time deposits		(137)		(713)		(850)
Short-term borrowings	Short-term borrowings	(128)		(460)		(588)		Short-term borrowings		246		(830)		(584)
Long-term debt	Long-term debt	(9)		61		52		Long-term debt		(47)		—		(47)
Total interest-bearing liabilities	Total interest-bearing liabilities	$	(103)	$	(962)	$	(1,065)	Total interest-bearing liabilities		$	155	$	(3,240)	$	(3,085)
Net Interest Income	Net Interest Income	$	1,354	$	(1,025)	$	329	Net Interest Income		$	3,326	$	(6,152)	$	(2,826)

(1) Computed on a fully federal taxable equivalent using a tax rate of 21%.

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Non-GAAP Financial Measures

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


		Three months ended March 31,										Three months ended June 30,									Six months ended June 30,
		2020			2019				2020			2019			2020			2019

Net interest income (GAAP)	Net interest income (GAAP)	$	40,415		$	40,066		Net interest income (GAAP)	$	38,070		$	40,911		$	78,486		$	80,977
Taxable equivalent adjustment	Taxable equivalent adjustment	188			208			Taxable equivalent adjustment	217			202			406			410
Net interest income, fully taxable equivalent	Net interest income, fully taxable equivalent	$	40,603		$	40,274		Net interest income, fully taxable equivalent	$	38,287		$	41,113		$	78,892		$	81,387
Less accretion income								Less accretion income	(1,037)			(941)			(2,623)			(1,413)
Net interest income excluding accretion income								Net interest income excluding accretion income	$	37,250		$	40,172		$	76,269		$	79,974

Equity to assets (GAAP)	Equity to assets (GAAP)	13.47		%	12.59		%	Equity to assets (GAAP)	12.55		%	12.89		%
Effect of goodwill and other intangibles, net	Effect of goodwill and other intangibles, net	(2.09)			(2.22)			Effect of goodwill and other intangibles, net	(1.93)			(2.19)
Tangible common equity to tangible assets	Tangible common equity to tangible assets	11.38		%	10.37		%	Tangible common equity to tangible assets	10.62		%	10.70		%

Return on tangible equity (GAAP)	Return on tangible equity (GAAP)	20.6		%	17.7		%	Return on tangible equity (GAAP)	12.6		%	17.9		%	16.6		%	17.8		%
Impact of merger related expenses	Impact of merger related expenses	—			0.1			Impact of merger related expenses	—			0.3			—			0.2
Impact of sale of VISA shares	Impact of sale of VISA shares	(9.7)			—			Impact of sale of VISA shares	—			—			(4.8)			—
Return on tangible equity, excluding merger related expenses and sale of VISA shares	Return on tangible equity, excluding merger related expenses and sale of VISA shares	10.9		%	17.8		%	Return on tangible equity, excluding merger related expenses and sale of VISA shares	12.6		%	18.2		%	11.8		%	18.0		%

Return on assets (GAAP)	Return on assets (GAAP)	2.29		%	1.76		%	Return on assets (GAAP)	1.35		%	1.84		%	1.81		%	1.80		%
Impact of merger related expenses	Impact of merger related expenses	—			0.02			Impact of merger related expenses	—			0.04			—			0.03
Impact of sale of VISA shares	Impact of sale of VISA shares	(1.08)			—			Impact of sale of VISA shares	—			—			(0.52)			—
Return on assets, excluding merger related expenses and sale of VISA shares	Return on assets, excluding merger related expenses and sale of VISA shares	1.21		%	1.78		%	Return on assets, excluding merger related expenses and sale of VISA shares	1.35		%	1.88		%	1.29		%	1.83		%

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Loans

Table ~~Three~~Five

Loan Portfolio

The composition of the Company's loan portfolio as of the dates indicated follows (in thousands):


		March 31, 2020		December 31, 2019		March 31, 2019			June 30, 2020		December 31, 2019		June 30, 2019
Commercial and industrial	Commercial and industrial	308,567		308,015		289,327		Commercial and industrial	369,122		308,015		288,803
Commercial real estate		1,470,949		1,459,737		1,436,190

1-4 Family	1-4 Family	120,852		N/R		N/R		1-4 Family	123,814		N/R
Hotels	Hotels	294,072		N/R		N/R		Hotels	295,179		N/R
Multi-family	Multi-family	205,684		N/R		N/R		Multi-family	204,580		N/R
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	627,852		N/R		N/R		Non Residential Non-Owner Occupied	628,628		N/R
Non Residential Owner Occupied	Non Residential Owner Occupied	222,489		N/R		N/R		Non Residential Owner Occupied	215,472		N/R
Commercial real estate								Commercial real estate	1,467,673		1,459,737		1,378,116

Residential real estate	Residential real estate	1,629,578		1,640,396		1,625,647		Residential real estate	1,631,151		1,640,396		1,644,494
Home equity	Home equity	146,034		148,928		152,251		Home equity	142,672		148,928		150,676
Consumer	Consumer	54,749		54,263		52,483		Consumer	52,278		54,263		53,356
DDA overdrafts	DDA overdrafts	3,173		4,760		3,424		DDA overdrafts	2,700		4,760		3,922
Total loans	Total loans	$	3,613,050	$	3,616,099	$	3,559,322	Total loans	$	2,197,923	$	2,156,362	$	2,141,251
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.													N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Loan balances ~~decreased $3.0~~increased $49.5 million from December 31, 2019 to ~~March 31,~~June 30, 2020.

Residential real estate loans decreased ~~$10.8~~$9.2 million from December 31, 2019 to ~~March 31,~~June 30, 2020. Residential real estate loans represent loans to consumers that are secured by a first lien on residential property. Residential real estate loans provide for the purchase or refinance of a residence and first-lien home equity loans allow consumers to borrow against the equity in their home. These loans primarily consist of single family 3 and 5 year adjustable rate mortgages with terms that amortize up to 30 years. The Company also offers fixed-rate residential real estate loans that are sold in the secondary market that are not included on the Company's balance sheet; the Company does not retain the servicing rights to these loans. Residential mortgage loans are generally underwritten to comply with Fannie Mae guidelines, while the home equity loans are underwritten with typically less documentation, but with lower loan-to-value ratios and shorter maturities. At ~~March 31,~~June 30, 2020, ~~$28.9~~$28.3 million of the residential real estate loans were for properties under construction.

Home equity loans decreased ~~$2.9~~$6.3 million during the first ~~three~~six months of 2020. The Company's home equity loans represent loans to consumers that are secured by a second (or junior) lien on a residential property. Home equity loans allow consumers to borrow against the equity in their home without paying off an existing first lien. These loans consist of home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments. Home equity loans are underwritten with less documentation, lower loan-to-value ratios and for shorter terms than residential mortgage loans. The amount of credit extended is directly related to the value of the real estate at the time the loan is made.

The commercial and industrial ("C&I") loan portfolio consists of loans to corporate borrowers that are primarily in small to mid-size industrial and commercial companies. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans are considered to contain a higher level of risk than other loan types, although care is taken to minimize these risks. ~~Numerous~~Numerous risk factors impact this portfolio, including industry specific risks such as the economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. C&I loans increased ~~$0.6~~$61.1 million from December 31, 2019 to ~~March 31, 2020.~~June 30, 2020, largely due to approximately $90 million of PPP loans funded.

Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties, including hotel/motel and apartment lending. Commercial real estate loans are to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans increased ~~$11.2~~$7.9 million from

Table of Contents

December 31, 2019 to ~~March 31,~~June 30, 2020. At ~~March 31,~~June 30, 2020, ~~$44.5~~$42.1 million of the commercial real estate loans were for commercial properties under construction.

~~Table of Contents~~

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

◦Commercial 1-4 Family loans consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled ~~$120.9~~$123.8 million as of ~~March 31,~~June 30, 2020. Risk characteristics are driven by rental housing demand as well as economic and employment conditions. These properties exhibit greater risk than multi-family properties due to fewer income sources.

◦The Hotel portfolio is comprised of all lodging establishments and totaled ~~$294.1~~$295.2 million as of ~~March 31,~~June 30, 2020. Risk characteristics relate to the demand for travel.

◦Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled ~~$205.7~~$204.6 million as of ~~March 31,~~June 30, 2020. Risk characteristics are driven by rental housing demand as well as economic and employment conditions.

◦Non-residential commercial real estate includes properties such as retail, office, warehouse, storage, healthcare, entertainment, religious, and other nonresidential commercial properties. The non-residential product type is further segmented into owner- and non-owner occupied properties. Nonresidential non-owner occupied commercial real estate totaled ~~$627.9~~$628.6 million while nonresidential owner-occupied commercial real estate totaled ~~$222.5~~$215.5 million as of ~~March 31,~~June 30, 2020. Risk characteristics relate to levels of consumer spending and overall economic conditions.

Consumer loans may be secured by automobiles, boats, recreational vehicles and other personal property or they may be unsecured. The Company monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Consumer loans ~~increased $0.5~~decreased $2.1 million during the first ~~three~~six months of 2020.

Allowance for Credit Losses

The Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ~~("CECL")~~ effective January 1, 2020, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. ASU No. 2016-13 replaced the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new current expected credit losses model ("CECL") will apply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASU No. 2016-13, while prior period amounts continue to be reported in accordance with previously applicable GAAP. As a result of adopting CECL, the Company increased its allowance for credit losses ("ACL") by $3.0 million and decreased retained earnings by $2.3 million on January 1, 2020. In addition, the adoption required the Company to "gross up" its previously purchased credit impaired loans through the allowance at January 1, 2020. As a result, the Company increased its ACL and loan balances as of January 1, 2020 by $2.7 million.

Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. Management assesses the risk in each loan type based on historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The ~~provision for credit losses recorded during the three months ended March 31, 2020 largely reflects the expected economic impact from the COVID-19 pandemic. The~~ Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, ~~an immediate~~a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of COVID-19, expected unemployment ranges have significantly increased and resulted in an increase in the Company's provision for credit losses.

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

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As a result of the Company’s quarterly analysis of the adequacy of the ACL, the Company recorded a provision for credit losses of ~~$8.0~~$9.2 million during the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to a recovery of ~~$0.8~~$1.4 million for the comparable period in 2019. The provision for credit losses recorded induring the ~~first quarter of~~six months ended June 30, 2020 largely reflects the expected economic impact from the COVID-19 pandemic. The Company’s estimate of future economic conditions used in its CECL estimates is primarily dependent on expected unemployment ranges. ~~As a result of COVID-19,~~The expected unemployment ranges utilized at June 30, 2020, have not changed significantly ~~increased and resulted in an increase in~~from those utilized at March 31, 2020 which reflected the ~~Company’s ACL~~expected economic impact of ~~$4.1 million.~~the COVID-19 pandemic. Additionally, adjustments in qualitative and other factors ~~due~~have not been revised significantly from March 31, 2020, to ~~COVID-19 added $3.4 million. Due to changes~~June 30, 2020. The provision for credit losses recognized in the ~~Company’s loan portfolio and loss rates, exclusive~~second quarter of ~~COVID-19,~~2020 primarily relates to updated valuations for two specific credits during the quarter based on current market conditions which increased the Company’s ACL increased $1.1 million. During the quarter ended March 31, 2020, the downgrade of a hotel/motel related credit (located in North Central West Virginia) due to occupancy rates continuing to decline as a result of a slowdown in the oil and gas industry resulted in an increase to the ACL of $0.25by $1.7 million. Partially offsetting these increases in the ACL ~~were payoffs from purchase credit-impaired loans that~~was a decrease in the ACL due to lower amounts of DDA overdrafted balances which released ~~$0.85~~$0.5 million of ACL reserves. Due to the guarantee from the SBA for the PPP loans that were issued during the quarter ended June 30, 2020, no reserve for credit losses was deemed necessary for these loans.

The Company had net charge-offs of ~~$0.9~~$1.4 million for the first ~~three~~six months of 2020 and ~~$0.5~~$0.7 million for the first ~~three~~six months of 2019. Net charge-offs in the first ~~three~~six months of 2020 consisted primarily of net charge-offs of residential real estate loans ($~~0.4~~0.8 million), DDA overdrafts ($~~0.3~~0.4 million), and ~~commercial real estate~~home equity loans ($0.2 million).

Based on the Company’s analysis of the adequacy of the allowance for credit losses and in consideration of the known factors utilized in computing the allowance, management believes that the allowance for credit losses as of ~~March 31,~~June 30, 2020 is adequate to provide for expected losses inherent in the Company’s loan portfolio. Future provisions for credit losses will be dependent upon trends in loan balances including the composition of the loan portfolio, changes in loan quality and loss experience trends, and recoveries of previously charged-off loans, among other factors.

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~~Table Four~~

~~Analysis of the Allowance for Credit Losses~~

~~An analysis of changes in the Company's allowance for credit losses follows (dollars in thousands):~~

Three months ended March 31,
Year ended
December 31,
2020 2019 2019
Balance at beginning of period $ 11,589 $ 15,966 $ 15,966
Charge-offs:
Commercial and industrial (77) — (261)
Commercial real estate (383) (45) (1,358)
Residential real estate (483) (328) (787)
Home equity (45) (46) (294)
Consumer (55) (185) (1,177)
DDA overdrafts (703) (625) (2,777)
Total charge-offs (1,746) (1,229) (6,654)
Recoveries:
Commercial and industrial 9 135 764
Commercial real estate 203 32 624
Residential real estate 95 75 369
Home equity 47 — —
Consumer 13 97 265
DDA overdrafts 451 419 1,505
Total recoveries 818 758 3,527
Net charge-offs (928) (471) (3,127)
Impact of adopting CECL 5,760 — —
Provision for (recovery of) credit losses 7,972 (849) (1,250)
Balance at end of period $ 24,393 $ 14,646 $ 11,589
As a Percent of Average Total Loans:
Net charge-offs (annualized) 0.10 % 0.05 % 0.09 %
Provision for (recovery of) credit losses (annualized) 0.88 % (0.09) % (0.04) %
As a Percent of Non-Performing Loans:
Allowance for credit losses 202.20 % 119.86 % 98.57 %
As a Percent of Total Loans:
Allowance for credit losses 0.68 % 0.41 % 0.32 %

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~~Table Five~~

~~Allocation of the Allowance for Credit Losses~~

The allocation of the allowance for credit losses is shown in the table below (in thousands). The allocation of a portion of the allowance in one portfolio loan classification does not preclude its availability to absorb losses in other portfolio segments.

As of March 31, As of December 31,
2020 2019 2019
Commercial and industrial $ 5,855 $ 2,970 $ 2,059
Commercial real estate 9,389 4,640 2,606
Residential real estate 6,958 3,820 3,448
Home equity 702 1,248 1,187
Consumer 233 468 975
DDA overdrafts 1,256 1,500 1,314
Allowance for Credit Losses $ 24,393 $ 14,646 $ 11,589

The ACL increased from $11.6 million at December 31, 2019 to $24.4 million at March 31, 2020. As previously discussed, the adoption of CECL comprised $5.8 million of this increase from December 31, 2019. Below is a summary of the changes in the components of the ACL from December 31, 2019 to March 31, 2020.

The allowance related to the commercial and industrial loan portfolio increased from $2.1 million at December 31, 2019 to $5.9 million at March 31, 2020. The adoption of CECL increased the allowance by $1.7 million. The remainder of the increase was attributable to a change in unemployment forecast range due to the COVID-19 pandemic ("COVID-19"), coupled with changes in migration (primarily in the substandard portfolio) and an increase to the qualitative factors utilized related to COVID-19.

The allowance allocated to the commercial real estate portfolio increased from $2.6 million at December 31, 2019 to $9.4 million at March 31, 2020. The adoption of CECL increased the allowance by $3.3 million. The remainder of the increase was attributable to a change in the unemployment forecast range due to COVID-19, coupled with changes in the migration within the portfolio and an increase to the qualitative factors utilized related to COVID-19.

The allowance related to the residential real estate loan portfolio increased from $3.4 million at December 31, 2019 to $7.0 million at March 31, 2020. The adoption of CECL increased the allowance by $2.1 million~~. The remainder of the increase was attributable to an increase to the qualitative factors utilized related to COVID-19 and an increase in the historical loss rates associated with the portfolio.~~

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Table Six

Analysis of the Allowance for Credit Losses

An analysis of changes in the Company's allowance for credit losses follows (dollars in thousands):


	Six months ended June 30,									Year ended December 31,
				2020			2019			2019
Balance at beginning of period	$	11,589		$	15,966		$	15,966
Charge-offs:
Commercial and industrial	(77)			(51)			(261)
Commercial real estate	(422)			(178)			(1,358)
Residential real estate	(859)			(631)			(787)
Home equity	(206)			(117)			(294)
Consumer	(91)			(296)			(1,177)
DDA overdrafts	(1,162)			(1,213)			(2,777)
Total charge-offs	(2,817)			(2,486)			(6,654)
Recoveries:
Commercial and industrial	14			140			764
Commercial real estate	331			607			624
Residential real estate	103			125			369
Home equity	56			—			—
Consumer	141			143			265
DDA overdrafts	800			749			1,505
Total recoveries	1,445			1,764			3,527
Net charge-offs	(1,372)			(722)			(3,127)
Impact of adopting CECL	5,760			—			—
Provision for (recovery of) credit losses	9,222			(1,449)			(1,250)
Balance at end of period	$	25,199		$	13,795		$	11,589
As a Percent of Average Total Loans:
Net charge-offs (annualized)	0.08		%	0.04		%	0.09		%
Provision for (recovery of) credit losses (annualized)	0.51		%	(0.08)		%	(0.04)		%
As a Percent of Non-Performing Loans:
Allowance for credit losses	185.12		%	115.32		%	98.57		%
As a Percent of Total Loans:
Allowance for credit losses	0.69		%	0.39		%	0.32		%

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Table Seven

Allocation of the Allowance for Credit Losses


	As of June 30,						As of December 31,
	2020		2019		2019
Commercial and industrial	$	6,266	$	2,796	$	2,059
Commercial real estate	10,090		3,469		2,606
Residential real estate	7,323		3,959		3,448
Home equity	647		1,211		1,187
Consumer	120		509		975
DDA overdrafts	753		1,851		1,314
Allowance for Credit Losses	$	25,199	$	13,795	$	11,589

The ACL increased from $11.6 million at December 31, 2019 to $25.2 million at June 30, 2020. As previously discussed, the adoption of CECL comprised $5.8 million of this increase from December 31, 2019. Below is a summary of the changes in the components of the ACL from December 31, 2019 to June 30, 2020.

The allowance related to the commercial and industrial loan portfolio increased from $2.1 million at December 31, 2019 to $6.3 million at June 30, 2020. The adoption of CECL increased the allowance by $1.7 million. The remainder of the increase was largely attributable to a change in unemployment forecast range due to the COVID-19 pandemic ("COVID-19"), changes in migration (primarily in the substandard portfolio) and an increase to the qualitative factors utilized related to COVID-19.

The allowance allocated to the commercial real estate portfolio increased from $2.6 million at December 31, 2019 to $10.1 million at June 30, 2020. The adoption of CECL increased the allowance by $3.3 million. The remainder of the increase was largely attributable to a change in the unemployment forecast range due to COVID-19, changes in the migration within the portfolio and an increase to the qualitative factors utilized related to COVID-19.

The allowance related to the residential real estate loan portfolio increased from $3.4 million at December 31, 2019 to $7.3 million at June 30, 2020. The adoption of CECL increased the allowance by $2.1 million. The remainder of the increase was largely attributable to an increase to the qualitative factors utilized related to COVID-19 and an increase in the historical loss rates associated with the portfolio.

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Table Eight

Non-Performing Loans

The Company's nonperforming assets and past-due loans as of ~~March 31,~~June 30, 2020, ~~March 31,~~June 30, 2019 and December 31, 2019 are shown below (dollars in thousands):


		March 31, 2020			March 31, 2019			December 31, 2019				June 30, 2020			June 30, 2019			December 31, 2019
Non-accrual loans with allowance for credit losses	Non-accrual loans with allowance for credit losses	$	8,833		N/R			N/R			Non-accrual loans with allowance for credit losses	$	10,584		N/R
Non-accrual loans with no allowance for credit losses	Non-accrual loans with no allowance for credit losses	3,207			N/R			N/R			Non-accrual loans with no allowance for credit losses	2,960			N/R
Total non-accrual loans	Total non-accrual loans	12,040			12,113			11,490			Total non-accrual loans	13,544			11,868			11,490
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	26			106			267			Accruing loans past due 90 days or more	68			94			267
Total non-performing loans	Total non-performing loans	12,066			12,219			11,757			Total non-performing loans	13,612			11,962			11,757
Other real estate owned ("OREO")	Other real estate owned ("OREO")	3,922			3,186			4,670			Other real estate owned ("OREO")	3,997			2,581			4,670
Total non-performing assets	Total non-performing assets	$	15,988		$	15,405		$	16,427		Total non-performing assets	$	17,609		$	14,543		$	16,427

Non-performing loans (as a percent of loans and OREO)	Non-performing loans (as a percent of loans and OREO)	0.44		%	0.43		%	0.45		%	Non-performing loans (as a percent of loans and OREO)	0.48		%	0.41		%	0.45		%

Past-due loans	Past-due loans	$	9,981		$	11,006		$	11,396		Past-due loans	$	7,071		$	9,475		$	11,396
Past-due loans (as a percentage of total loans)	Past-due loans (as a percentage of total loans)	0.28		%	0.31		%	0.32		%	Past-due loans (as a percentage of total loans)	0.19		%	0.27		%	0.32		%
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.																		N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Table ~~Seven~~Nine

Troubled Debt Restructurings ("TDRs")

The following table sets forth the Company's troubled debt restructurings ("TDRs") (in thousands):


		As of March 31,						December 31,			As of June 30,				December 31,
		2020		2019					2020		2019

Commercial and industrial	Commercial and industrial	$	—	$	89	$	—	Commercial and industrial	$	—	$	83	$	—

Commercial real estate		5,163		8,164		4,973
1-4 Family	1-4 Family	128		N/R		N/R		1-4 Family	126		N/R
Hotels	Hotels	2,861		N/R		N/R		Hotels	2,634		N/R
Multi-family	Multi-family	1,940		N/R		N/R		Multi-family	1,921		N/R
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		N/R		N/R		Non Residential Non-Owner Occupied	—		N/R
Non Residential Owner Occupied	Non Residential Owner Occupied	234		N/R		N/R		Non Residential Owner Occupied	234		N/R
Commercial real estate								Commercial real estate	4,915		8,044		4,973

Residential real estate	Residential real estate	21,413		23,481		21,029		Residential real estate	20,631		22,373		21,029
Home equity	Home equity	2,294		3,018		3,628		Home equity	2,138		3,062		3,628
Consumer	Consumer	184		—		—		Consumer	185		—		—
Total TDRs	Total TDRs	$	29,054	$	34,752	$	29,630	Total TDRs	$	27,869	$	33,562	$	29,630
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.	N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.													N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Regulatory guidance requires that loans be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt. The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of debt by the bankruptcy court is deemed to be a concession granted to the borrower.

The Company's troubled debt restructurings ("TDRs") related to its borrowers who had filed for Chapter 7 bankruptcy protection make up ~~80%~~82% of the Company's total TDRs as of ~~March 31,~~June 30, 2020. The average age of these TDRs was ~~12.5~~12.8 years; the

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~~the~~ average current balance as a percentage of the original balance was ~~68.3%~~67.4%; and the average loan-to-value ratio was ~~64.3%~~63.6% as of ~~March 31,~~June 30, 2020. Of the total ~~445~~435 Chapter 7 related TDRs, 2933 had an estimated loss exposure based on the current balance and appraised value at ~~March 31,~~June 30, 2020.

COVID-19 Pandemic

In March of 2020, in response to the COVID-19 pandemic, regulatory guidance was issued that clarified the accounting for loan modifications. Modifications of loan terms do not automatically result in a TDR. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extension of repayment terms, or other delays that are ~~insignificant.~~insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time the modification program was implemented.

As of ~~May 1,~~June 30, 2020, the Company has granted deferrals of approximately ~~$99.0~~$125 million for mortgage borrowers and ~~$391.3~~$430 million for commercial bo~~rrowers.~~borrowers. As of ~~May 1,~~June 30, 2020, ~~none~~$3.6 million of ~~these~~the mortgage deferrals were previously and currently considered ~~TDRs.~~TDRs due to Chapter 7 bankruptcies.

Non-Interest Income and Non-Interest Expense

~~Three~~Six months ended ~~March 31,~~June 30, 2020 vs. 2019

(in millions)


		Three months ended March 31,											Six months ended June 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
Net investment securities gains		$	(2.3)	$	0.2	$	(2.5)	(1,250.0)	%
Net investment securities (losses) gains										Net investment securities (losses) gains	$	(2.1)	$	0.3	$	(2.4)	(800.0)	%
Sale of VISA shares	Sale of VISA shares	17.8		—		17.8		100.0	%	Sale of VISA shares	17.8		—		17.8		100.0
Non-interest income, excluding net investment securities gains and sale of VISA shares	Non-interest income, excluding net investment securities gains and sale of VISA shares	17.8		15.8		2.0		12.7	%	Non-interest income, excluding net investment securities gains and sale of VISA shares	32.2		33.5		(1.3)		(3.9)
Merger related expenses	Merger related expenses	—		0.3		(0.3)		(100.0)	%	Merger related expenses	—		0.8		(0.8)		(100.0)
Non-interest expense, excluding merger related expenses	Non-interest expense, excluding merger related expenses	29.5		29.2		0.3		1.0	%	Non-interest expense, excluding merger related expenses	57.9		59.4		(1.5)		(2.5)

Non-Interest Income: Non-interest income was $48.0 million for the six months ended June 30, 2020, as compared to $33.8 million for the six months ended June 30, 2019. During the ~~quarter~~six months ended ~~March 31,~~June 30, 2020, the Company reported $2.1 million of unrealized fair value losses on the Company's equity securities compared to $0.3 million of unrealized fair value gains on the Company's equity securities during the six months ended 2019. Also, during the six months ended June 30, 2020, the Company sold the entirety of its Visa Inc. Class B common shares (86,605) in a cash transaction which resulted in a pre-tax gain of $17.8 million. Excluding these items, non-interest income decreased from $33.5 million for the six months ended June 30, 2019 to $32.2 million for the six months ended June 30, 2020. This decrease was largely attributable to a decrease of $2.4 million, or ~~$0.84 diluted per share on~~16.1%, in service charges as average deposit balances have increased during the COVID-19 pandemic. This decrease was partially offset by increases in the Company's bankcard revenue ($0.5 million), trust and investment management fee income ($0.4 million) and bank owned life insurance income ($0.4 million).

Non-Interest Expense: During the six months ended June 30, 2019, the Company incurred an ~~after-tax basis. Additionally,~~additional $0.8 million of acquisition and integration expenses associated with the acquisitions of Poage Bankshare, Inc. and Farmers Deposit Bankcorp, Inc. Excluding this expense, non interest expenses decreased $1.5 million (2.5%), from $59.4 million in the first six months of 2019 to $57.9 million in the first six months of 2020. Decreases in other expenses ($0.6 million), FDIC insurance expense ($0.5 million) and occupancy related expenses ($0.4 million) were partially offset by an increase in equipment and software related expenses ($0.5 million).

Income Tax Expense: The Company’s effective income tax rate for the six months ended June 30, 2020 was 20.3% compared to 20.8% for the six months ended June 30, 2019.

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Non-Interest Income and Non-Interest Expense

Three months ended June 30, 2020 vs. 2019

(in millions)


	Three months ended June 30,
	2020		2019		$ Change		% Change
Net investment securities gains	$	0.2	$	0.1	$	0.1	100.0	%
Non-interest income, excluding net investment securities gains	14.4		17.7		(3.3)		(18.6)	%
Merger related expenses	—		0.5		(0.5)		(100.0)	%
Non-interest expense, excluding merger related expenses	28.5		30.2		(1.7)		(5.6)	%

Non-Interest Income: Non-interest income was $14.6 million for the second quarter of 2020, as compared to $17.8 million for the second quarter of 2019. During the second quarter of 2020, the Company reported ~~$2.4~~$0.2 million of unrealized fair value ~~losses~~gains on the ~~Company’s~~Company's equity securities compared to $0.1 million of unrealized fair value gains on the ~~Company’s~~Company's equity securities ~~during~~in the ~~first~~second quarter of 2019. The Company’s portfolio of equity securities consists primarily of holdings in First National Corporation (a commercial banking company headquartered in Strasburg VA) and Eagle Financial Services (a commercial banking company headquartered in Berryville, VA). Exclusive of these ~~items,~~gains, non-interest income ~~increased~~decreased from ~~$15.8~~$17.7 million for the ~~first~~second quarter of 2019 to ~~$17.8~~$14.4 million for the ~~first~~second quarter of 2020. This ~~increase~~decrease was largely attributable to ~~an increase~~a decrease of ~~$0.7~~$2.8 million, or ~~88.7%~~36.4%, in service charges as average deposit balances have increased during the COVID-19 pandemic. In addition, other income decreased $0.8 million primarily due to ~~fees from loan interest rate swap originations and bank owned life insurance revenues increased~~recognition of a $0.7 million ~~due to death benefit proceeds received~~gain from the sale the Company's Virginia Beach, VA, branch in June 2019. These decreases were partially offset by increases in the ~~first quarter of 2020. Additionally, service charges increased $0.4 million (5.5%)~~Company's bankcard revenues ($0.4 million) and trust and investment management fee income ~~increased $0.2 million (9.6%)~~($0.2 million). While revenues for service fees and bankcard revenues for the quarter ending March 31, 2020, were only modestly impacted by COVID-19, such revenues are likely to trend downward for the quarter ended June 30, 2020. Through the end of April 2020, the run rate for these revenues has decreased approximately 25% due to reductions in discretionary spending from our customer base likely attributable to “stay at home” requirements in most markets in which City has a presence.

Non-Interest Expense: During the quarter ended ~~March 31,~~June 30, 2019, the Company incurred ~~$0.3~~an additional $0.5 million of acquisition and integration expenses associated with the acquisitions of Poage Bankshare, Inc. and Farmers Deposit ~~Bancorp,~~Bankcorp, Inc. Excluding this expense, non-interest expenses ~~increased $0.3~~decreased $1.7 million ~~or 1.0%~~(5.6%), from ~~$29.2~~$30.2 million in the ~~first~~second quarter of 2019 to ~~$29.5~~$28.5 million in the ~~first~~second quarter of 2020. ~~Salaries~~This decrease was primarily due to a decrease in salaries and employee benefits ~~increased $0.6~~of $0.9 million largely due ~~primarily~~ to ~~annual salary adjustments, bankcard~~lower health insurance and incentive expenses. Additionally, other expenses decreased $0.5 million, occupancy related expenses decreased $0.2 million, FDIC expense ~~increased $0.3~~decreased $0.2 million and repossessed asset losses decreased $0.2 million. These decreases were partially offset by an increase in equipment and software related expenses ~~increased $0.2~~of $0.3 million. ~~These increases were partially offset by lower FDIC insurance expense ($0.3 million), occupancy related expense ($0.2 million), and telecommunication expense ($0.2 million).~~

Income Tax Expense: The Company's effective income tax rate for the three months ended ~~March 31,~~June 30, 2020 was ~~20.2%~~20.6% compared to ~~21.2%~~20.4% for the three months ended ~~March 31,~~June 30, 2019.

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Risk Management

Market risk is the risk of loss due to adverse changes in current and future cash flows, fair values, earnings or capital due to adverse movements in interest rates and other factors, including foreign exchange rates, underlying credit risk and commodity prices. Because the Company has no significant foreign exchange activities and holds no commodities, interest rate risk represents the primary risk factor affecting the Company’s balance sheet and net interest margin. Significant changes in interest rates by the Federal Reserve could result in similar changes in LIBOR interest rates, prime rates, and other benchmark interest rates that could affect the estimated fair value of the Company’s investment securities portfolio, interest paid on the Company’s short-term and long-term borrowings, interest earned on the Company’s loan portfolio and interest paid on its deposit accounts.

The Company’s Asset and Liability Committee (“ALCO”) has been delegated the responsibility of managing the Company’s interest-sensitive balance sheet accounts to maximize earnings while managing interest rate risk. ALCO, comprised of various members of executive and senior management, is also responsible for establishing policies to monitor and limit the Company’s exposure to interest rate risk and to manage the Company’s liquidity position. ALCO satisfies its responsibilities through quarterly meetings during which product pricing issues, liquidity measures, and interest sensitivity positions are monitored.

In order to measure and manage its interest rate risk, the Company uses an asset/liability management and simulation software model to periodically update the interest sensitivity position of the Company’s balance sheet. The model is also used

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to perform analyses that measure the impact on net interest income and capital as a result of various changes in the interest rate environment. Such analyses quantify the effects of various interest rate scenarios on projected net interest income.

The Company’s policy objective is to avoid negative fluctuations in net income or the economic value of equity of more than 15% within a 12-month period, assuming an immediate parallel increase of 300 points or decrease of 200 basis points. The Company measures the long-term risk associated with sustained increases and decreases in rates through analysis of the impact to changes in rates on the economic value of equity.

The following table summarizes the sensitivity of the Company’s net income to various interest rate scenarios. The results of the sensitivity analyses presented below differ from the results used internally by ALCO in that, in the analyses below, interest rates are assumed to have an immediate and sustained parallel shock. The Company recognizes that rates are volatile, but rarely move with immediate and parallel effects. Internally, the Company considers a variety of interest rate scenarios that are deemed possible while considering the level of risk it is willing to assume in “worst-case” scenarios such as shown by the following:


Immediate Basis Point Change in Interest Rates	Immediate Basis Point Change in Interest Rates	Implied Federal Funds Rate Associated with Change in Interest Rates		Estimated Increase (Decrease) in Net Income Over 12 Months		Immediate Basis Point Change in Interest Rates	Implied Federal Funds Rate Associated with Change in Interest Rates		Estimated Increase (Decrease) in Net Income Over 12 Months
March 31, 2020
June 30, 2020						June 30, 2020
+400	+400	4.25	%	+17.3	%	+400	4.25	%	+22.6	%
+300	+300	3.25		+17.2		+300	3.25		+21.1
+200	+200	2.25		+14.9		+200	2.25		+17.0
+100	+100	1.25		+9.3		+100	1.25		+10.4

December 31, 2019	December 31, 2019					December 31, 2019
+300	+300	4.75	%	+3.8%		+300	4.75	%	+3.8%
+200	+200	3.75		+4.8		+200	3.75		+4.8
+100	+100	2.75		+3.7		+100	2.75		+3.7
-50	-50	1.25		-3.9		-50	1.25		-3.9
-100	-100	0.75		-10		-100	0.75		-10

These estimates are highly dependent upon assumptions made by management, including, but not limited to, assumptions regarding the manner in which interest-bearing demand deposit and savings deposit accounts reprice in different interest rate scenarios, changes in the composition of deposit balances, pricing behavior of competitors, prepayments of loans

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and deposits under alternative rate environments, and new business volumes and pricing. As a result, there can be no assurance that the estimates above will be achieved in the event that interest rates increase or decrease during the remainder of 2020 and beyond. The estimates above do not necessarily imply that the Company will experience increases in net income if market interest rates rise. The table above indicates how the Company’s net income behaves relative to an increase or decrease in rates compared to what would otherwise occur if rates remain stable.

Based upon the estimates above, the Company believes that its net income is positively correlated with increasing rates as compared to the level of net income the Company would expect if interest rates remain flat.

Liquidity

The Company evaluates the adequacy of liquidity at both the City Holding level and at the City National level. At the City Holding level, the principal source of cash is dividends from City National. Dividends paid by City National to City Holding are subject to certain legal and regulatory limitations. Generally, any dividends in amounts that exceed the earnings retained by City National in the current year plus retained net profits for the preceding two years must be approved by regulatory authorities. At ~~March 31,~~June 30, 2020, City National could pay dividends up to ~~$73.7~~$81.8 million plus net profits for the remainder of 2020, as defined by statute, up to the dividend declaration date without prior regulatory permission.

Additionally, City Holding anticipates continuing the payment of dividends on its common stock, which are expected to approximate ~~$36.8~~$36.7 million on an annualized basis over the next 12 months based on common shares outstanding at ~~March 31,~~June 30, 2020. However, dividends to shareholders can, if necessary, be suspended. In addition to these anticipated cash needs, City Holding has operating expenses and other contractual obligations, which are estimated to require ~~$1.5~~$1.4 million of additional cash

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over the next 12 months. As of ~~March 31,~~June 30, 2020, City Holding reported a cash balance of ~~$9.6~~$5.1 million and management believes that City Holding’s available cash balance, together with cash dividends from City National, will be adequate to satisfy its funding and cash needs over the next 12 months.

City National manages its liquidity position in an effort to effectively and economically satisfy the funding needs of its customers and to accommodate the scheduled repayment of borrowings. Funds are available to City National from a number of sources, including depository relationships, sales and maturities within the investment securities portfolio, and borrowings from the FHLB and other financial institutions. As of ~~March 31,~~June 30, 2020, City National’s assets are significantly funded by deposits and capital. Additionally, City National maintains borrowing facilities with the FHLB and other financial institutions that are accessed as necessary to fund operations and to provide contingency funding mechanisms. As of ~~March 31,~~June 30, 2020, City National has the capacity to borrow ~~$2.0~~$2.1 billion from the FHLB and other financial institutions under existing borrowing facilities. City National maintains a contingency funding plan, incorporating these borrowing facilities, to address liquidity needs in the event of an institution-specific or systemic financial industry crisis. Also, although it has no current intention to do so, City National could liquidate its unpledged securities, if necessary, to provide an additional funding source. City National also segregates certain mortgage loans, mortgage-backed securities, and other investment securities in a separate subsidiary so that it can separately monitor the asset quality of these primarily mortgage-related assets, which could be used to raise cash through securitization transactions or obtain additional equity or debt financing if necessary.

The Company manages its asset and liability mix to balance its desire to maximize net interest income against its desire to minimize risks associated with capitalization, interest rate volatility, and liquidity. With respect to liquidity, the Company has chosen a conservative posture and believes that its liquidity position is strong. The Company’s net loan to asset ratio is ~~70.5%~~65.8% as of ~~March 31,~~June 30, 2020 and deposit balances fund ~~79.6%~~79.8% of total assets. The Company has obligations to extend credit, but these obligations are primarily associated with existing home equity loans that have predictable borrowing patterns across the portfolio. The Company has investment security balances with carrying values that totaled ~~$960.9 million~~$1.08 billion at ~~March 31,~~June 30, 2020, and that exceeded the Company’s non-deposit sources of borrowing, which totaled ~~$234.1~~$282.7 million. Further, the Company’s deposit mix has a high proportion of transaction and savings accounts that fund ~~52.8%~~55.5% of the Company’s total assets.

As illustrated in the ~~Consolidated Statements~~consolidated statements of ~~Cash Flows,~~cash flows, the Company generated ~~$40.6~~$68.0 million of cash from operating activities during the first ~~three~~six months of 2020, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings. The Company used ~~$43.1~~$201.1 million of cash in investing activities during the first ~~three~~six months of 2020, primarily due to purchases of securities available-for-sale of ~~$94.2~~$232.5 million, a net increase in loans of $46.1 million, purchases of premises and equipment of ~~$3.3~~$3.8 million, and purchases of other investments of ~~$1.4~~$2.1 million. These decreases were partially offset by proceeds from sales and maturities of securities available-for-sale of ~~$46.7~~$79.8 million, ~~a net decrease in loans~~proceeds from sales of ~~$6.4~~other investments of $2.3 million, and proceeds from bank-owned life insurance policies of ~~$1.4 million, and proceeds from sales of other investments of $0.6~~$1.5 million. The Company ~~used $27.1~~generated $366.2 million of cash in financing activities during the first ~~three~~six months of 2020, principally as a result of ~~a decrease~~an increase in non-interest-bearing deposits of $274.4 million, short-term borrowings of $71.4 million, and interest-bearing deposits of ~~$76.1 million, purchases of treasury stock of $13.0 million,~~$61.2 million. These increases were partially offset by dividends paid of ~~$9.3~~

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$18.5 million to the Company's common stockholders, purchases of treasury stock of $17.9 million and repayment of long-term debt of ~~$4.2 million. These decreases were partially offset by increases in noninterest-bearing deposits of $52.4 million and short-term borrowings of $22.9~~$4.1 million.

Capital Resources

Shareholders' equity increased ~~$27.2~~$35.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 due to net income of ~~$29.0~~$47.2 million, other comprehensive income of ~~$21.6~~$25.2 million, and stock based related compensation expense of ~~$1.0~~$1.7 million. These increases were partially offset by cash dividends declared of ~~$9.2~~$18.4 million, the repurchase of ~~181,899~~261,137 common shares at a weighted average price of ~~$71.31~~$68.41 per share ($~~13.0~~17.9 million) as part of a one million share repurchase plan authorized by the Board of Directors in February 2019, and the adoption of ASU 2016-13 ($2.3 million).

In July 2013, the Federal Reserve published the final rules that established a new comprehensive capital framework for banking organizations, commonly referred to as Basel III. These final rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions. The final rule became effective January 1, 2015 for smaller, non-complex banking organizations, with full implementation on January 1, 2019.

As of January 1, 2019, the Basel III Capital Rules require City Holding and City National to maintain minimum CET 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios (which are shown in the table below). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to City Holding Company or City National Bank.

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The Company’s regulatory capital ratios for both City Holding and City National are illustrated in the following tables

(in thousands):


March 31, 2020		Actual						Minimum Required - Basel III						Required to be Considered Well Capitalized
				Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
June 30, 2020														June 30, 2020	Actual						Minimum Required - Basel III						Required to be Considered Well Capitalized
																	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital	CET I Capital													CET I Capital
City Holding Company	City Holding Company	$	547,040	16.0	%	$	238,976	7.0	%	$	221,906	6.5	%	City Holding Company	$	548,972	16.1	%	$	238,741	7.0	%	$	221,688	6.5	%
City National Bank	City National Bank	485,565		14.3	%	237,386		7.0	%	220,430		6.5	%	City National Bank	492,875		14.6	%	237,098		7.0	%	220,162		6.5	%
Tier I Capital	Tier I Capital													Tier I Capital
City Holding Company	City Holding Company	547,040		16.0	%	290,185		8.5	%	273,115		8.0	%	City Holding Company	548,972		16.1	%	289,900		8.5	%	272,847		8.0	%
City National Bank	City National Bank	485,565		14.3	%	288,255		8.5	%	271,298		8.0	%	City National Bank	492,875		14.6	%	287,904		8.5	%	270,969		8.0	%
Total Capital	Total Capital													Total Capital
City Holding Company	City Holding Company	561,944		16.5	%	358,463		10.5	%	341,394		10.0	%	City Holding Company	569,213		16.7	%	358,112		10.5	%	341,059		10.0	%
City National Bank	City National Bank	502,442		14.8	%	356,079		10.5	%	339,123		10.0	%	City National Bank	513,115		15.2	%	355,647		10.5	%	338,711		10.0	%
Tier I Leverage Ratio	Tier I Leverage Ratio													Tier I Leverage Ratio
City Holding Company	City Holding Company	547,040		11.1	%	197,182		4.0	%	246,478		5.0	%	City Holding Company	548,972		10.5	%	210,060		4.0	%	262,575		5.0	%
City National Bank	City National Bank	485,565		10.0	%	194,657		4.0	%	243,321		5.0	%	City National Bank	492,875		9.3	%	212,162		4.0	%	265,202		5.0	%

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December 31, 2019	Actual						Minimum Required - Basel III						Required to be Considered Well Capitalized
			Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital
City Holding Company	$	532,640	16.0	%	$	232,358	7.0	%	$	215,761	6.5	%
City National Bank	459,006		13.9	%	230,808		7.0	%	214,322		6.5	%
Tier I Capital
City Holding Company	536,640		16.2	%	282,150		8.5	%	265,552		8.0	%
City National Bank	459,006		13.9	%	280,267		8.5	%	263,781		8.0	%
Total Capital
City Holding Company	548,291		16.5	%	348,538		10.5	%	331,941		10.0	%
City National Bank	470,656		14.3	%	346,213		10.5	%	329,726		10.0	%
Tier I Leverage Ratio
City Holding Company	536,640		11.0	%	195,558		4.0	%	244,448		5.0	%
City National Bank	459,006		9.5	%	193,074		4.0	%	241,342		5.0	%

As of ~~March 31,~~June 30, 2020, management believes that City Holding Company and its banking subsidiary, City National, were “well capitalized.” City Holding is subject to regulatory capital requirements administered by the Federal Reserve, while City National is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”). Regulatory agencies can initiate certain mandatory actions if either City Holding or City National fails to meet the minimum capital requirements, as shown above. As of ~~March 31,~~June 30, 2020, management believes that City Holding and City National have met all capital adequacy requirements.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less

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

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item is provided under the caption “Risk Management” under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4 - Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief

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Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II - OTHER INFORMATION

Item 1.Legal Proceedings

The Company is engaged in various legal actions that it deems to be in the ordinary course of business. As these legal actions are resolved, the Company could realize positive and/or negative impact to its financial performance in the period in which these legal actions are ultimately resolved. There can be no assurance that current actions will have immaterial results, either positive or negative, or that no material actions may be presented in the future.

Item 1A. Risk Factors

Other than the additional risk factor below, there have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.

The COVID-19 pandemic ~~may~~has adversely ~~impact~~impacted our business and financial ~~results, and the~~results. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, stay-at-home orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, human capital and self-insurance.

Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and the Company’s financial condition and results of operations. The Company is currently evaluating and quantifying the impact on its consolidated financial statements.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On February 27, 2019, the Board of Directors of the Company authorized the Company to buy back up to 1,000,000 of its common shares (the "Program") in open market transactions, in block trades or otherwise at prices that are accretive to the earnings per share of continuing shareholders. The Program, which has no time limit on the duration, permits management to commence or suspend purchases at any time or from time-to-time based upon market and business conditions and without prior notice. The following table sets forth information regarding the Company's common stock repurchases transacted during the quarter ended ~~March 31,~~June 30, 2020:

Total Number Maximum Number
of Shares Purchased of Shares that May
as Part of Publicly Yet Be Purchased
Total Number of Average Price Announced Plans Under the Plans
Period Shares Purchased Paid per Share or Programs or Programs
January 1 - January 31, 2020 — $ — 260,764 739,326
February 1 - February 29, 2020 76,500 $ 76.05 337,264 662,826
March 1 - March 31, 2020 105,399 $ 67.88 442,663 557,427

Total Number

Maximum Number

of Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased

Total Number of

Average Price

Announced Plans

Under the Plans

Period

Shares Purchased

Paid per Share

or Programs

June 1 - June 30, 2020

79,238

61.75

521,901

478,189

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Item 3.Defaults Upon Senior Securities

None.

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Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

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Item 6.Exhibits

The exhibits required to be filed or furnished with this Form 10-Q are attached hereto or incorporated herein by reference as shown in the following "Exhibit Index."

Exhibit Index

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


						2(a)			Agreement and Plan of Merger, dated November 14, 2011, by and among Virginia Savings Bancorp, Inc., Virginia Savings Bank, F.S.B., City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated November 14, 2011, and filed with the Securities and Exchange Commission on November 14, 2011).
						2(b)			Agreement and Plan of Merger, dated August 2, 2012, by and among Community Financial Corporation, Community Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated August 7, 2012, and filed with the Securities and Exchange Commission on August 7, 2012).
						2(c)			Agreement and Plan of Merger, dated July 11, 2018, by and among Poage Bankshares, Inc., Town Square Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018).
						2(d)			Agreement and Plan of Merger, dated July 11, 2018, by and among Farmers Deposit Bancorp, Inc., Farmers Deposit Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018).
						3(a)			Articles of Incorporation of City Holding Company (attached to, and incorporated by reference from, Amendment No. 1 to City Holding Company’s Registration Statement on Form S-4, Registration No. 2-86250, filed November 4, 1983 with the Securities and Exchange Commission).
						3(b)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated March 6, 1984 (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).
						3(c)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated March 4, 1986 (attached to, and incorporated by reference from, City Holding Company's Form 10-K Annual Report for the year ended December 31, 1986, filed March 31, 1987 with the Securities and Exchange Commission).
						3(d)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated September 29, 1987 (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).
						3(e)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated May 6, 1991 (attached to, and incorporated by reference from, City Holding Company's Form 10-K Annual Report for the year ended December 31, 1991, filed March 17, 1992 with the Securities and Exchange Commission).
						3(f)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated May 7, 1991 (attached to, and incorporated by reference from, City Holding Company's Form 10-K Annual Report for the year ended December 31, 1991, filed March 17, 1992 with the Securities and Exchange Commission).
						3(g)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated August 1, 1994 (attached to, and incorporated by reference from, City Holding Company's Form 10-Q Quarterly Report for the quarter ended September 30, 1994, filed November 14, 1994 with the Securities and Exchange Commission).
						3(h)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated December 9, 1998 (attached to, and incorporated by reference from, City Holding Company’s Form 10-K Annual Report for the year ended December 31, 1998, filed March 31, 1999 with the Securities and Exchange Commission).
						3(i)			Articles of Amendment to the Articles of Incorporation of City Holding Company, dated June 13, 2001 (attached to, and incorporated by reference from, City Holding Company’s Registration Statement on Form 8-A, filed June 22, 2001 with the Securities and Exchange Commission).

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3(j)

Articles of Amendment to the Articles of Incorporation of City Holding Company, dated May 10, 2006 (attached to, and incorporated by reference from, City Holding Company’s Form 10-Q, Quarterly Report for the quarter ended June 30, 2006, filed August 9, 2006 with the Securities and Exchange Commission).

3(k)

Articles of Amendment to the Articles of Incorporation of City Holding Company, dated April 19, 2017 (attached to, and incorporated by reference from, City Holding Company's Form 10-Q Quarterly Report for the quarter ended March 31, 2017, filed May 5, 2017 with the Securities and Exchange Commission).

3(l)

Amended and Restated Bylaws of City Holding Company, revised February 24, 2010 (attached to, and incorporated by reference from, City Holding Company’s Current Report on Form 8-K filed March 1, 2010 with the Securities and Exchange Commission).

4(a)

Rights Agreement dated as of June 13, 2001 (attached to, and incorporated by reference from, City Holding Company's Form 8–A, filed June 22, 2001, with the Securities and Exchange Commission).

4(b)

Amendment No. 1 to the Rights Agreement dated as of November 30, 2005 (attached to, and incorporated by reference from, City Holding Company’s Amendment No. 1 on Form 8-A, filed December 21, 2005, with the Securities and Exchange Commission).

31(a)

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck

31(b)

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner

32(a)

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck

32(b)

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner

101

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XBRL Taxonomy Extension Schema*

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XBRL Taxonomy Extension Calculation Linkbase*

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104

Cover Page Interative Data file (formatted as inline XBRL and contained in Exhibit 101).

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements 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/ Charles R. Hageboeck
			Charles R. Hageboeck
			President and Chief Executive Officer
			(Principal Executive Officer)

			/s/ David L. Bumgarner
			David L. Bumgarner
			Executive Vice President, Chief Financial Officer and Principal Accounting Officer
			(Principal Financial Officer)

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Date: ~~May 7,~~August 6, 2020

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