CITY HOLDING CO (CHCO) stock intrinsic value fair value estimate & owner earnings analysis

City Holding is the holding company for City National Bank of West Virginia, a retail-focused community bank with 96 branches in West Virginia (58), Kentucky (22), Virginia (13) and southeastern Ohio (3). It has $6.7 billion of assets, $4.5 billion of loans and $5.3 billion of deposits, of which $1.4 billion carries no interest, and it ranks in the top three for deposit share in several core markets (Charleston/Huntington, Beckley/Lewisburg, Staunton, Winchester). A bank's borrowing is its raw material, so we value its earnings after interest and deduct no debt; its only term borrowing is $150 million of Federal Home Loan Bank advances at 4.14%. HOW WE MEASURE EARNINGS. We start from operating cash flow, take out swings in other assets and liabilities, and subtract stock compensation ($3.4 million in 2025) and maintenance capital spending ($2.6 million). Per diluted share this gives $3.67 (2016), $4.39, $3.72, $5.64, $5.44, $6.01 (2021), $7.67, $8.25, $8.82 and $9.29 (2025). Cash flow adds back the loan-loss provision, so actual loan losses are not captured in these figures; in the base case we therefore deduct a normal through-cycle loss of $0.37 per share a year (about 0.15% of loans, against actual net charge-offs of only 0.02% in 2025). The core-deposit intangible left from past acquisitions is small ($8.1 million, amortizing $2.2 million a year); we let it run off rather than adjust the earnings level for it. Reported earnings and cash-flow earnings reconcile exactly for 2023 through 2025. STARTING LEVEL. We use the median of 2021-2025, $8.25 per share. That window includes the near-zero-rate year of 2021 and the higher-rate years since, so it is not simply the peak-margin years. 2025's $9.29 was helped by a $1.4 million release of loan-loss reserves, and the reserve is now only 0.44% of loans. First-half 2026 held up (net income $65.0 million, up 2%; net interest income up 4.9%), which supports the level but does not lift it. Owner earnings per share grew 5.3% in 2025; the base case assumes 2.0% in year one, below that, so no reversal of a slowdown is needed. BASE CASE, about $126 per share. Earnings start at $7.88 (the $8.25 level less the normal $0.37 loan-loss charge) and grow 2% a year for ten years, to about $9.60, then stay flat for another twenty years, and we credit nothing beyond year thirty. What is in the bag: the deposit franchise and branch network, a lending book that has compounded (loans grew from $2.84 billion in 2015 to $4.51 billion in 2025, 4.7% a year, though acquisitions drove part of that and 2019-2022 was flat, so we credit only 2%), and a record of earning through the 2008-2010 credit cycle. What we left out: wider margins, more acquisitions (they come in occasional lumps rather than a steady annual pace), fee growth, and the per-share lift from share repurchases (we already treat all earnings as available to owners, so counting buybacks too would double count). The business is worth about $126 per share; deducted borrowings are none, so the shares are worth the same. BEAR CASE, about $68 per share. Two things go wrong. First, the margin returns to the 2019-2021 era (owner earnings of $5.44 to $6.01 per share in those years): $7.00 in year one, then $5.63 (the 2021 level less normal loan losses). Second, a full credit cycle modeled on 2008-2010 hits in years three to five. City's own record then was mild (2008 earnings fell to $28.1 million from a pace near $13 million a quarter before the cycle, then recovered to $42.6 million in 2009; reserves were 1.23% of loans and problem assets 1.64% in 2008), but the industry's was far worse, and today's book is 41% commercial real estate including $399 million of hotels, $768 million of non-owner-occupied commercial property and a reserve of only 0.44%. We assume net charge-offs of 1.0%, 1.2% and 0.8% of loans in years three to five (3.0%, about $135 million, roughly double City's own provision rate in 2008 and still below the industry's 2009-2010 peak). Owner earnings fall to $3.20, $2.70 and $3.70 per share in those years, recover to $5.63 by year seven, and then erode 1.5% a year through year thirty because West Virginia's population fell about 3% between the 2010 and 2020 censuses. After-tax losses of roughly $139 million are far smaller than capital in excess of the regulatory minimum (about $430 million at the holding company), so no capital raise or dilution is assumed. The business is worth about $68; nothing is deducted for borrowings. This is above tangible book value of about $46 per share because the franchise stayed solidly profitable through 2008-2010 and its low-cost core deposits are the source of that profit. BULL CASE, about $163 per share. Earnings start at $9.14 (2025's $9.29 less a light credit charge of $0.15, a level already reached) and grow 3.5% a year for ten years, then stay flat through year thirty. The drivers are visible now: the net interest margin held at 4.01%, 3.86% and 3.94% in 2023-2025 even as deposit costs fell, credit losses have been near zero, and loan growth runs at about the pace of the past decade. Worth about $163; nothing is deducted for borrowings. WHAT COULD MAKE THIS WRONG. If the margin falls back to the 2021 level but credit stays clean, we estimate about $73; if the credit cycle arrives while the margin holds at the base level, about $121. Securities carry about $82 million of unrealized losses (June 2026), which matter only if they must be sold, and 15% of deposits are uninsured. The earlier estimate published in early September was built on a different basis and is not comparable; nothing in the business has moved sharply since, apart from the 2026 first-half results above, repurchases of $38 million in the first half, and the reserve slipping from 0.51% to 0.44% of loans. MARGIN-OF-SAFETY PRICE, $72. We are fairly sure of the level of earnings: five years of $6.01 to $9.29 and a deposit franchise that has proven sticky. The worst plausible outcome is a hotel and commercial-property downturn on a thin reserve while rates fall, which would cut earnings to $3 to $4 per share for about three years. The structure survives that: capital is 16.9% against a 7% minimum, there is no meaningful wholesale funding, and the bank has stayed profitable through every cycle in the record. We are most likely to be wrong about the margin and about credit; if the margin simply reverts, the shares are worth about $73, roughly the $72 margin-of-safety price, with the dividend on top (2025: $3.32 per share, or 4.6% at that price). The price assumes a holding period of three to five years for the price to reflect the base case; from $72 the base case implies more than 20% a year and the bear case implies about break-even. That is why the margin-of-safety price is $72 and not higher.