Employee Benefit Plans

9 Months Ended

Sep. 30, 2011

Note G – Employee Benefit Plans

Stock Options

A summary of the Company's stock option activity and related information is presented below for the nine months ended September 30, 2011 and 2010:

	2011					2010
	Options			Weighted-Average Exercise Price		Options			Weighted-Average Exercise Price

Outstanding at January 1		287,393		$	33.64		280,605		$	33.56
Granted		16,000			35.09		15,500			32.09
Exercised		(6,576	)		25.54		(1,700	)		27.11
Forfeited		-			-		(750	)		33.54
Outstanding at September 30		296,817		$	33.90		293,655		$	33.52

Additional information regarding stock options outstanding and exercisable at September 30, 2011, is provided in the following table:

Ranges of Exercise Prices		No. of Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Months)		Aggregate Intrinsic Value (in thousands)		No. of Options Currently Exercisable		Weighted-Average Exercise Price of Options Currently Exercisable		Weighted-Average Remaining Contractual Life (Months)		Aggregate Intrinsic Value of Options Currently Exercisable (in thousands)
$	26.62 - $33.90		188,317	$	31.51		51	$	-		135,817	$	32.06		36	$	-
$	35.09 - $40.88		108,500		38.05		69		-		52,500		37.68		56		-
			296,817					$	-		188,317					$	-

Proceeds from stock option exercises were less than $0.3 million and $0.1 million during the nine months ended September 30, 2011 and 2010, respectively. Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. During the nine months ended September 30, 2011 and 2010, all shares issued in connection with stock option exercises and restricted stock awards were issued from available treasury stock.

The total intrinsic value of stock options exercised was less than $0.1 million during the nine months ended September 30, 2011 and 2010, respectively.

Stock-based compensation expense totaled $0.2 million for both the nine months ended September 30, 2011 and 2010. Unrecognized stock-based compensation expense related to stock options totaled $0.5 million at September 30, 2011. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.6 years.

The fair value of the options is estimated at the date of grant using a Black-Scholes option-pricing model. The following weighted average assumptions were used to estimate the fair value of options granted during the three months ended September 30:

	2011			2010

Risk-free interest rate		3.07	%		3.24	%
Expected dividend yield		3.88	%		4.24	%
Volatility factor		41.12	%		42.67	%
Expected life of option	8.0 years			8.0 years

Restricted Shares

The Company records compensation expense with respect to restricted shares in an amount equal to the fair value of the common stock covered by each award on the date of grant. The restricted shares awarded 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 officers and employees terminate 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, 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 vested. Stock-based compensation expense related to restricted shares was approximately $0.4 million for both the nine months ended September 30, 2011 and 2010, respectively. Unrecognized stock-based compensation expense related to non-vested restricted shares was $2.1 million at September 30, 2011. At September 30, 2011, this unrecognized expense is expected to be recognized over 5.2 years based on the weighted average-life of the restricted shares.

A summary of the Company's restricted shares activity and related information is presented below for the nine months ended September 30:

	2011					2010
	Restricted Awards			Average Market Price at Grant		Restricted Awards			Average Market Price at Grant

Outstanding at January 1		96,060					88,109
Granted		14,050		$	35.07		13,450		$	32.17
Forfeited/Vested		(1,651	)				(5,799	)
Outstanding at September 30		108,459					95,760

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). Any employee who has attained age 21 is eligible to participate beginning the first day of the month following employment. Unless specifically chosen otherwise, every employee is automatically enrolled in the 401(k) Plan and may make before-tax contributions of between 1% and 15% of eligible pay up to the dollar limit imposed by Internal Revenue Service regulations. The first 6% of an employee's contribution is matched 50% by the Company. The employer matching contribution is invested according to the investment elections chosen by the employee. Employees are 100% vested in both employee and employer contributions and the earnings they generate. The Company's total expense associated with the retirement benefit plan approximated $0.5 million for the nine months ended September 30, 2011 and 2010.

The Company also maintains a defined benefit pension plan ("the Defined Benefit Plan") that covers approximately 300 current and former employees. The Defined Benefit Plan was frozen in 1999 subsequent to the Company's acquisition of the plan sponsor. The Defined Benefit Plan maintains a December 31 year-end for purposes of computing its benefit obligations. The Company made contributions of $0.3 million and $0.1 million to the Defined Benefit Plan during the nine months ended September 30, 2011 and 2010.

The following table presents the components of the net periodic pension cost of the Defined Benefit Plan:

	Three months Ended						Nine Months Ended
	September 30						September 30
(In thousands)	2011			2010			2011			2010

Components of net periodic cost:
Interest cost	$	162		$	169		$	487		$	507
Expected return on plan assets		(203	)		(203	)		(609	)		(609	)
Net amortization and deferral		137			92			410			276
Net Periodic Pension Cost	$	96		$	58		$	288		$	174

- Definition

Tabular disclosure of components of a stock option or other award plan under which equity-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares (or other type of equity) granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from equity-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from equity-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate.

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