City Holding Company · NASDAQ:CHCO
City — Stephens, Inc. Chicago & Milwaukee investor meetings (March 2016)
48 slides from City's conference presentation, Mar 17, 2016
Slide 1: Stephens, Inc. Chicago & Milwaukee March 17, 2016
Stephens, Inc. Chicago & Milwaukee March 17, 2016
Slide 2: Forward looking statements
Forward looking statements • This presentation contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such information involves risks and uncertainties that could result in the Company's actual res
Slide 3: Company key facts
• Total Assets $3.7 bil • Branches 85 • FTE 853 • Market Cap $711 mil • Institutional Ownership 61% • Average Daily Volume $3.6 mil Date: March 4, 2016 3
Slide 4: Value in the banking sector? Checklist for success
Value in the banking sector? Checklist for success in current environment: • Markets – Solid distribution network – Stable geographic markets – Disciplined competition • Performance – Strong net interest margin – Strong NIM management – Strong fee income – Ability to control expenses • Growth – Liqu
Slide 5: City Holding Company
City Holding Company • Markets: Operates an extremely strong retail/commercial franchise in stable markets with disciplined competition • Asset Quality: Strong compared to peers and City’s management has recognized and dealt with issues • Performance: Has consistently outperformed peers with respect
Slide 6: City National Markets
City National Markets 1st Branch Share & 2nd Deposit Share (10%) In Charleston MSA/Huntington MSA; $10.5 Billion 1st Branch Share & 31% Deposit Share $2.0 Billion 2nd Branch Share & 2nd Deposit Share (15%) in Staunton MSA $1.4 Billion 2nd Branch Share & 6% Deposit Share in Winchester VA & Morgan, Be
Slide 7: Market Position
Market Position Market Population Deposits ($mm) Deposit Share National/ Regional Banks Deposit Share Branches Branch Share Branch Rank Beckley/Lewisburg WV 175,000 $703 29% 24% 16 25% 1 Huntington/Ashland MSA 365,000 575 11% 27% 19 15% 1 Charleston MSA 240,000 523 10% 60% 11 15% 1 Winchester/Martin
Slide 8: Bank Director ranked City: A High Performing Bank
Bank Director ranked City: CHCO: A High Performing Bank 8 • #3 of largest 150 US banks in 2010 • #8 among US Banks with assets between $1B - $5B in 2011 • #19 among US Banks with assets between $1B - $5B in 2012 • #5 among US Banks with assets between $1B - $5B in 2013 • Named City 10th on the “Nift
Slide 9: ROA
ROA -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2008 2009 2010 2011 2012 2013 2014 2015 CHCO W/O Merger Costs $1B - $5B Peer Data as of December 31, 2015 9
Slide 10: ROTCE
ROTCE -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 2008 2009 2010 2011 2012 2013 2014 2014 CHCO W/O Merger Costs $1B - $5B Peer Data as of December 31, 2015 10
Slide 11: The key to City's success: an enviable deposit franchise
The key to City’s success: an enviable deposit franchise • Branches 85 • Average Deposits per Branch $36 MM • Average Households per Branch 1,900 • Average Deposit Share 12.9% • Average Household Share* 20% * - Excludes Coastal & Lexington-Fayette Regions 11
Slide 12: Low cost and stable funding
Low cost and stable funding: 11% 17% 18% 10% 11% 18% 10% 4% 0.4% 1% 0.4% Equity Non Interest DDA Interest DDA Savings MMS CDs Jumbos Customer Repos FHLB Other Trust Preferred Data: December 31, 2015 12
Slide 13: Reported NIM and NIM Excluding Acquisition Accretion
Reported NIM and NIM Excluding Acquisition Accretion, Interest rate floors, and PSL’s: 3.48% 3.00% 3.50% 4.00% 4.50% 5.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $1 to $5B Peer CHCO CHCO excluding PSLs, floors & accretion Peer Data as of December 31, 2015 March 2008 thru June 2011: NIM su
Slide 14: CHCO's sensitivity to interest rate risk
CHCO’s sensitivity to interest rate risk : Immediate Basis Point Change in Interest Rates Estimated Increase or Decrease in Net Income between 1-12 months +400 Bp +6.0% +300 Bp +7.5% +200 Bp +6.8% +100 Bp +3.3% Data: December 31, 2015 Assumes that deposit mix changes as rates rise 14
Slide 15: Strong deposit franchise drives top decile non-interest revenue
Strong deposit franchise drives top decile non-interest revenue: 31.7% 68.2% City Holding Company Non Interest Income Net Interest Income *As of December 31, 2015. Non-interest income excludes investment gains/(losses) & gain from sale of insurance division. Sample of 278 reporting publicly traded b
Slide 16: Non-interest income is branch driven
Non-interest income is branch driven: 2009 2010 2011 2012 2013 2014 2015 Bankcard Revenues $9.0 $9.9 $11.1 $12.4 $13.5 $15.1 $15.9 Service Charges $36.0 $30.1 $27.0 $26.3 $27.6 $26.6 $26.3 Insurance $5.6 $5.5 $5.9 $6.1 $5.8 $6.0 SOLD Investment Management $2.3 $2.8 $3.1 $3.8 $4.0 $4.6 $5.1 BOLI $3.3
Slide 17: CityInsurance
CityInsurance • Sold in January 2015 at after-tax gain of $5.8MM • CityInsurance had revenues of $6.0 million and expenses of $4.2 million during 2014 • City’s decision to sell was due to rapidly consolidating insurance industry. • Retrospectively, the timing was excellent – the downturn in the coal
Slide 18: Efficiency Ratio
Efficiency Ratio 40.0% 50.0% 60.0% 70.0% 2008 2009 2010 2011 2012 2013 2014 2015 CHCO $1B - $5B • 2015 Efficiency Ratio for CHCO excludes Gain from Sale of Insurance Division • Data as calculated using SNL Financial definition. Peer data as of December 31, 2015. 18
Slide 19: Charge-off trends
Charge-off trends: 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 2008 2009 2010 2011 2012 2013 2014 2015 CHCO Net Charge-off % Industry Source: FDIC, All Insured Depository Institutions Peer data as of September 30, 2015 19
Slide 20: Non-performing assets & OREO
Non-performing assets & OREO 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 2008 2009 2010 2011 2012 2013 2014 2015 CHCO NPA/Assets Industry Source: FDIC, All Insured Depository Institutions Peer data as of September 30, 2015 20
Slide 21: 2015 Charge-offs
2015 Charge-offs 21 Net C/O Bp Residential Mortgages $0.945 MM 7 bp Home Equity $0.312 MM 21 bp Commercial & Industrial $4.977MM 300 bp Commercial RE $0.214 MM 2 bp Consumer/OD $0.646 MM 161 bp Total $7.094 MM 25 bp Net Charge-offs in 2015 for C&I loans were primarily related to a single coal-mining
Slide 22: Growth: positioned to achieve reasonable growth in core franchise
Growth: CHCO is positioned to achieve “reasonable growth” in its core franchise • Commercial • Retail Lending • Trust & Investment Management • Deposits 22
Slide 23: Commercial loan growth
Commercial loan growth: Success achieved due to community bank orientation, strong team, strong underwriting, and strong local economies -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Growth percentages exclude ac
Slide 24: Commercial Loan Growth targeted to new markets
Commercial Loan Growth targeted to new markets Key Loan Markets Percent of Commercial Portfolio Core West Virginia Markets – dating to 1870 52% Virginia/Eastern Panhandle Markets – acquires 2012/13 20% Charlotte LPO – de novo 2006 8% Lexington, KY – acquired 2015 11% Columbus, OH & Pittsburgh PA 9%
Slide 25: Retail loan growth
Retail loan growth Adjustable Rate Mortgages, Home Equity Loans, Installment credit $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Loans $M M Residential Real Estate Home Equity Consumer 25 Growth percentages exclude acquisition in the 4th quarter of 2015
Slide 26: Trust AUM & Revenues: Strong growth
Trust AUM & Revenues: Strong growth AUM CAGR 11.7% and Revenue CAGR 10.2% (Dec 31, 2006-Dec 31, 2015) $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $0 $200 $400 $600 $800 $1,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 R ev e n u e s A UM $M M AUM (MM$) Revenues 26
Slide 27: Deposit growth opportunity
Deposit growth opportunity: CHCO has many small deposit transaction relationships; Peers tend to have larger commercial & public deposits; SO liquidity is readily available as needed Branches Deposits Deposits/Branch CHCO 85 $ 3.1 B $36 million BBT 70 $ 5.3 B $76 million UBSI 31 $ 1.9 B $61 million
Slide 28: Acquisition philosophy
Acquisition philosophy: • Opportunities have increased • Actively looking • Size: Generally $100MM to $1B • Historically less acquisitive than peers because City’s strategy is driven by creating shareholder value – not merely size driven • Acquisitions must truly be strategic or meaningfully accreti
Slide 29: Acquisitions in new territory
n territory: > Acquisitio le om 4
Slide 30: Acquisitions in Growth Markets
Acquisitions in Growth Markets 30
Slide 31: Virginia Savings Bank
Virginia Savings Bank • Closed May 31, 2012 • 5 branches in Winchester, VA market • VSB was an underperforming small bank with little market visibility but some great talent • Projected Population growth of 5.0% over 5 yrs • City’s strategy has been increased visibility, significant improvements in
Slide 32: Community Bank
Community Bank • Closed January 10, 2013 • 9 branches in Virginia • Community was a poorly performing bank with significant asset quality problems but good retail distribution and some great talent. • City was a significant shareholder of Community. • Projected Population growth of 3.1% over 5 years
Slide 33: Branches from American Founders Bank
Branches from American Founders Bank • Closed November 6, 2015 • 3 branches in Lexington, KY – $119 million in loans (chosen by City) – $145 million in deposits – 3,100 households – Strong talent • Projected Population growth of 4.3% over 5 years in Lexington-Fayette, KY region, with exceptional dem
Slide 34: Facility Enhancements Woodstock, Virginia
Facility Enhancements Woodstock, Virginia BEFORE AFTER 34
Slide 35: Facility Enhancements Winchester, Virginia
Facility Enhancements Winchester, Virginia BEFORE AFTER 35
Slide 36: Financial Impact of Acquisitions
Financial Impact of Acquisitions: VSB – Before VSB – After Community – Before Community - After Branches 5 5 11 9 FTE 48 30 (-38%) 153 58 (-62%) Loans^ $73 MM $87 MM $371 MM $295 MM * Deposits $120 MM $152 MM $385 MM $303 MM ** Expenses $4.7 MM (2011) $2.4 MM (-49%) (2015) $14.7 MM (2012) $4.5 MM (-
Slide 37: Tangible Common Equity: strong following acquisitions
Tangible Common Equity: strong following acquisitions in 2012, 2013 & 2015 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 2008 2009 2010 2011 2012 2013 2014 2015 37
Slide 38: Share Count: aggressive share repurchases
Share Count: strong capital and high profitability allow aggressive share repurchases 12,000,000 13,000,000 14,000,000 15,000,000 16,000,000 17,000,000 18,000,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average Shares Outstanding 38
Slide 39: Cash Dividends/Share Declared & Dividend Payout Ratio
Cash Dividends/Share Declared & Dividend Payout Ratio 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 D ivide n d P ay ou t R at io Ca sh D ivide n d s/
Slide 40: An experienced management team
An experienced management team TITLE EXPERIENCE AGE JOINED CEO PPLS; CHCO CFO; PHD 53 2001 EVP – Retail PPLS 60 2001 EVP – Commercial One Valley; BB&T, CPA 66 2004 CFO Public Accounting, CPA 50 2005 SVP - Operations CHCO 52 1989 SVP - Branches Cardinal 44 2013 SVP – Branches BB&T 47 2001 SVP – CCO U
Slide 41: Value in the banking sector? Checklist for success
Value in the banking sector? Checklist for success in current environment: Markets • Solid distribution network - Excellent • Stable geographic markets – Yes; WV, E Kentucky, and Western Va. • Disciplined competition - Yes – few de novo’s Performance • Strong net interest margin - Yes • Strong NIM m
Slide 42: Industry Challenges in 2015
Industry Challenges in 2015: • Economic Activity & Loan Growth • Mortgage Banking Slowdown • Branch Fees are stagnant • Loan Competition – Terms & Price • Regulatory Compliance • Future Regulatory Agenda 42 Challenges specific to CHCO: • Downturn in Mining
Slide 43: CHCO overcomes challenges
CHCO overcomes challenges thru: • Excellent distribution network • Exceptional Customer Depth driving strong non-interest income • Markets characterized by disciplined competition • Industry leading profitability achieved from strong non-interest income and discipline in managing expenses • Strong l
Slide 44: Accretion from Acquisitions
Accretion from Acquisitions $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 2012 2013 2014 2015 2016 2017 2018 Historical Forecasted 44
Slide 45: Growth per share
Growth per share (12/31/10 – 12/31/15): • Loans per share: 8.8% CAGR • Deposits per share: 6.8% CAGR • Non-interest inc per share*: 0.8% CAGR • Expenses per share**: 3.7% CAGR Implication: While CHCO operates in relatively low growth markets, high profitability allows share repurchases, which have d
Slide 46: CHCO represents good value and stability
CHCO represents good value and stability • Pricing Metrics*: • Price to Book: 168% • Price to Tangible Book: 207% • Price to 2016 Projected Earnings** 13.8x • Dividend Yield 3.7% • Div Payout Ratio** 54% • Tangible Capital/Tangible Assets*** 9.34% • Institutional Ownership 61% * Based on Price of $4
Slide 47: Average Daily Volume and Short Position in CHCO
Average Daily Volume and Short Position in CHCO 0 10 20 30 40 50 60 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 Da y s t o Co v e r A v er a ge Dail y V ol u m e Volume Days to cover At February12, 2016: 1,114,763 shares shorted 14,999,420 shares outstanding 47
Slide 48: City Holding Company
City Holding Company
City Holding — Stephens, Inc. Chicago & Milwaukee investor meetings (March 2016) on 6ix