Shares of a West Virginia bank are under pressure because of a recent merger and a controversial lending program, according to an analyst.

City Holding Corp., a $1.6 billion-asset bank based in Charleston, merged in December with Horizon Bancorp, which had assets of $1.1 billion and headquarters in Beckley, W.Va. The resulting $2.7 billion-asset company operates 43 branches throughout West Virginia.

At the time of the merger, executives said they were optimistic about culling merger-related expense savings of $16 million annually by the end of this year.

"This level of expense cutting may be difficult to achieve without an offsetting loss of some revenue," said to Edward R. Najarian of Wheat First Union Securities, who recently reviewed the company's progress.

Mr. Najarian is the only analyst who tracks the company. Management at City Holding did not respond to phone calls.

City Holding shares began losing value last April, during a downdraft in banking sector stocks. But its shares have continued mostly downward while other banks have recovered ground.

City Holding closed Wednesday at $26.50, off 0.93%.

The West Virginia company has said that 75% of the projected $16 million of merger savings will come through branch-office consolidation and payroll savings. The balance has been expected through efficiencies in data processing and renegotiation of contracts.

First-quarter performance was hurt by higher operating expenses and a drop in fee income related to a slowdown in the company's 125% home equity lending operations, Mr. Najarian said.

The negative factors more than offset the positive growth in net interest income in the first quarter, he said.

The controversial loans, which are more difficult to securitize because of their nonconforming status, let customers borrow up to 125% of the value of their homes. City Holding is among only a few banks offering the product.

The bank has recently been cutting back its 125% lending activities, but Mr. Najarian said higher exposure remains. "There still exists some risk of a future revaluation of the assets to a lower level," he said.

The company's buildup of 125% mortgages came at considerable expense and was sideswiped by the general turndown in the securitization market last year. City Holding began holding the mortgages until it could market them at more attractive prices.

Mr. Najarian said that move was a positive but involved risk as well because of a possible pickup in the prepayment of the loans.

Meanwhile, in Wednesday's market bank stocks mostly moved lower as the yield on the benchmark 30-year "long" Treasury bond moved back above the 6% level, reflecting the current concerns about inflation and a possible rate hike by the Federal Reserve.

It was the first time in a year the yield has hit that level. Fed monetary policymakers, who have recently expressed concern about both price inflation and a tight job market that could lead to higher labor costs, are scheduled to meet again on June 29-30.

"It's frustrating," said Collym Bement, a banking industry analyst with Ferris Baker Watts. "For some reason, the selling in banks is being overdone one day and then the buying is overdone the following day.

"I don't think there is a lot of rational activity going on," Ms. Bement said.

The Standard & Poor's bank index fell 0.47% and the Dow Jones industrial average 0.70%. The Nasdaq bank index shed 0.25%, while the S&P 500 added 0.10%.

Among active bank issues, shares of Zions Bancorp. retreated for the third straight day, by 2.28%, to $56.3125, following its agreement on Sunday to buy rival First Security Corp.

Analysts said some cautious investors have apparently decided to take profits instead of waiting around to see how the prospective merger works out.

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