City Holding Company · NASDAQ:CHCO
City — RBC Conference, Martha's Vineyard 2005
48 slides from City's conference presentation, Sep 21, 2005
Slide 1: RBC Conference
RBC Conference Martha’s Vineyard September 20, 2005
Slide 2: Forward Looking Statements
Forward Looking Statements This news release 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 resul
Slide 3: $2.5 Billion Commercial Bank
$2.5 Billion Commercial Bank headquartered in Charleston, WV 67 Banking Offices 165,000 households $660 million market capitalization* *As of 8/24/05
Slide 4: City Holding Company: Headquartered in Charleston WV
City Holding Company: Headquartered In Charleston WV
Slide 5: Key Markets
Key Markets 8% Market Share in Morgan, Berkeley & Jefferson Co. WV 2nd & 12% Market Share in WV’s largest market 1st & 10% Market Share in Huntington WV/Ashland KY MSA 1st & 30% Market Share 25 Gatewater Road Charleston, West Virginia 25313 (304) 769-1106 www.cityholding.com
Slide 6: Themes
Themes: CHCO: Under Continuing Management CHCO: Consistently superior results CHCO: Growth in slow-growth markets
Slide 7: CHCO: Under Continuing Leadership
CHCO: Under Continuing Leadership Former CEO Jerry Francis engineered the turn-around of the Company CFO Skip Hageboeck assumed the role of CEO on February 1, 2005 City has assembled a team of top-notch talent over the last three years capable of continuing City’s strong performance
Slide 8: Engineering the Turn-around: Starting from Ground Zero
Engineering the Turn-around: Starting from Ground Zero $38 million loss reported in 2000 Formal Agreements with OCC and Federal Reserve $130 million in “problem loans” Stock trading at $5.125 per share from a high (in 1998) of $45 per share; discontinued common share cash dividends; deferred trust p
Slide 9: Why Own This Stock?
Why Own This Stock? 1. CHCO is highly profitable
Slide 10: Mission Accomplished: Turn-around Complete & Continuing
Mission Accomplished: Turn-around Complete & Continuing 2004 1st half 2005 ROA 2.10% 2.10% 1st Best ROE 22.4% 20.3% 15 Best th NIM 4.29% 4.44% Efficiency Ratio 48.7% 47.1% Non-Int Rev/Total Rev 33% 34% Non-performing Loans/Loans 0.29% 0.28% ALLL/Non-performing Loans 487% 464% * Rankings among 205 pu
Slide 11: Why Own This Stock?
Why Own This Stock? 1. CHCO is highly profitable 2. CHCO is well-positioned for the future Conservative Loan Portfolios Strong Asset Quality Exceptional Core Deposit Base Highly Liquid Very Efficient Strongly Capitalized Positioned to benefit from rising rates
Slide 12: Conservative Loan Portfolio Mix
Conservative Loan Portfolio Mix City Holding Company Peer Group 9% 3% 19% 25% 37% 28% 8% 36% 12% 4% 19% Residential Real Estate Consumer/Other C&I Home Equity Commercial Real Estate PSL’s Residential Real Estate Consumer/Other C&I Home Equity Commercial Real Estate Loan to Deposits 84.5% Loan to Dep
Slide 13: Strong Loan Quality
Strong Loan Quality 0.53% 464% 0.25% 222% Non Performing Loans/Loans ALLL/Non-Perf Loans CHCO* Peer *As of June 30, 2005 Sample of 205 publicly traded banks and thrifts with assets between $1 and $5 billion
Slide 14: Customer Profile: Retail Focused
Customer Profile: Retail Focused $1,579,587 $1,016,821 $584,164 $315,998 $ Deposits $ Loans $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Retail Commercial Source: Internal data as of June 30, 2005
Slide 15: Deposits: Low Cost and Stable
Deposits: Low Cost and Stable 7% 1% 1% 11% 3% 7% 13% 25% 19% 3% 10% Equity MMS FHLB Non Interest DDA CDs Other Interest DDA Jumbos Trust Preferred Savings Customer Repos Data: June 30, 2005
Slide 16: Favorable Revenue Profile
Favorable Revenue Profile City Holding Company Peer Group 34% 21% 66% 79% Non Interest Income Net Interest Income Non Interest Income Net Interest Income *As of June 30, 2005. Non-interest income excludes security gains Sample of 205 publicly traded banks and thrifts with assets between $1 and $5 bi
Slide 17: City is Highly Efficient
City is Highly Efficient Efficiency Ratio 92nd percentile 86.9% 62.8% 62.2% 60.4% 59.0% 58.7%60.7% 52.1% 50.1% 47.1% 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 12/31/01 12/31/02 12/31/03 12/31/04 6/30/05 CHCO Peer 2004 Efficiency Ratio adjusted to eliminate $5.5 million in revenue from Legal Settlem
Slide 18: Key Capital Ratios
Key Capital Ratios: strong but reflect impact of acquisition of Classic 12/31/04 6/30/05 Equity/Assets 9.8% 11.1% Tang Equity/Tang Assets 9.5% 8.8% Leverage Ratio 10.7% 10.8% Tier I Capital Ratio 15.5% 14.4% Total Risk-based Capital Ratio 16.6% 15.4%
Slide 19: Challenges for 2005
Challenges for 2005 Provision Expense At June 30, 2005, the ALLL was 1.14% of Loans No Provision expense has been recorded since the 2nd Quarter of 2002 when the ALLL was 2.31% of Loans 25 Bp of Provision expense would reduce earnings by about $0.13 per share per year after-tax
Slide 20: Ratio of ALLL to Gross Loans
Ratio of ALLL to Gross Loans 3.44% 3.50% 2.37% 1.66% 1.31% 1.14% 1.23% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 9/30/01 12/31/01 12/31/02 12/31/03 12/31/04 6/30/05 Peer group Peers: Sample of 205 publicly traded banks and thrifts with assets between $1 to $5 Billion as of June 30, 2005.
Slide 21: Ratio of ALLL to Nonperforming Assets
Ratio of ALLL to Nonperforming Assets 491 456 414 279 160 150 1,000 800 600 400 200 - 9/30/01 12/31/01 12/31/02 12/31/03 12/31/04 6/30/05 Peer group Peers: Sample of 205 publicly traded banks and thrifts with assets between $1 to $5 Billion as of June 30, 2005.
Slide 22: Net Loan Charge-Offs
Net Loan Charge-Offs $25,000 $20,000 $15,000 $10,000 $5,000 $0 ($5,000) 12/31/02 12/31/03 12/31/04 6/30/05 Commerical Consumer Depository (NSF’s) Real Estate (Mortgage)
Slide 23: Previously Securitized Loans
Previously Securitized Loans 2005 2006 2007 2008 2004 Projected Projected Projected Projected Average Balances $83.5 MM $43.4 MM $28.2 MM $19.9 MM $14.8 MM Rate 17.4% 24-27% 26-29% 26-29% 26-29% Gross Interest Revenue $14.5 MM $11.3 MM * $8.0 MM $5.7 MM $4.2 MM * Based on projected average outstandi
Slide 24: As Previously Securitized Loans Have Declined
As Previously Securitized Loans have declined, CHCO has offset lost interest income on these loans with: Loan Growth Benefits of rising interest rates
Slide 25: CHCO Remains Positioned to Benefit from Rising Rates
CHCO remains positioned to benefit from rising rates: Immediate Basis Point Change in Interest Rates Estimated Increase of Decrease in Net Income between 1-12 months +200 Bp +6.9% +100 Bp +3.4% -100 Bp -2.4% -200 Bp -5.6%
Slide 26: Interest Rate Dynamics
Interest Rate Dynamics 12 months ago, Fed Funds was at 1% and CHCO was positioned to strongly benefit from rising rates Over the last year, the Prime rate and the Fed Funds rate have risen 250 Bps As Prime has increased, rates on home equity loans, commercial loans, and some commercial real estate l
Slide 27: Interest Rate Dynamics
Interest Rate Dynamics 8,000 7,500 7,000 6,500 6,000 5,500 1. IF rates remain flat, and IF loans and deposits do not grow, reported NII will fall as the balances of Previously Securitized Loans decrease from $41.7MM at 6/30/05 to a projected balance of about $15MM at 6/30/07. These loans carried a y
Slide 28: Interest Rate Dynamics
Interest Rate Dynamics 8,000 7,500 7,000 6,500 6,000 5,500 2. But, the underlying dyamics of loans (excluding Previously Securitized Loans, Indirect Auto Loans, and unsecured consumer loans) and deposits at current interest rates is positive over the next 24 months. Jun-05 Jul-05 Aug-05 Sep-05 Oct-0
Slide 29: Interest Rate Dynamics
Interest Rate Dynamics 3. CHCO can avoid deterioration in NII over 24 months IF rates rise 100 bp AND loan balances grow 4.5% per year (and assuming equity accumulation is utilized for share repurchases rather than funding asset growth). 8,500 8,000 7,500 7,000 6,500 6,000 5,500 Jun-05 Jul-05 Aug-05
Slide 30: Why Own This Stock? CHCO is growing
Why Own This Stock? 1. CHCO is highly profitable 2. CHCO is well-positioned for the future 2. CHCO is growing Internal Loan Growth Internal Deposit Growth Improvements to Retail Distribution System Acquisition
Slide 31: Growth in Targeted Lines of Business—Loans
Growth in Targeted Lines of Business—Loans Real Estate Secured Loans grew 9.1% in 2004 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Commercial
Slide 32: Growth in Deposits: Totally Free Checking Accounts
Growth in Deposits: Totally Free Checking Accounts 2002-2005 130,000 125,000 120,000 115,000 110,000 105,000 100,000 95,000 90,000 7.3% CAGR (excluding acquisition) Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Feb-05 Ap
Slide 33: Dramatic Growth in Fees
In addition to dramatic growth in Fees: 22% CAGR 2nd Q 2001 to 2nd Q 2005 11 10 9 8 Millions 6 5 4 3 2 Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005
Slide 34: Strategic Opportunities
Strategic Opportunities Branch Restructuring – additions, closures, relocations Capital Flexiblity Aquisitions
Slide 35: Restructuring the Retail Delivery System
Restructuring the Retail Delivery System City’s Retail Distribution can be improved (In WV’s 60 densest markets, City is in only 33%) Wal-Mart Strategy Consolidations New Branches in growing areas of existing markets DeNovo entry into contiguous markets
Slide 36: City's Wal-Mart Strategy
City’s Wal-Mart Strategy Inexpensive distribution High-traffic Wal-Marts Supports existing retail distribution outlets in City’s major Markets: Openings Charleston – Sept 2004 Huntington – Sept 2004 Beckley – May 2005 Ashland – August 2005 Ripley – September 2006
Slide 37: CHCO's Newest Branches
CHCO’s newest branches: located in high-density shopping areas
Slide 38: City's Newest Locations
City’s newest locations: 60,000 Wal-Mart shoppers weekly
Slide 39: Wal-Mart Branches
Wal-Mart Branches – average age 6 months 6.0% of City’s branches 3.7% of total branch expenses 3.4% of branch FTE’s @ 8/31/05 0.1% of total deposit balances @ 8/31/05 0.2% of total loan balances @ 8/31/05 1.8% of fee income as of 6/30/05 1.8% of all transactions are processed by these branches
Slide 40: Branch Optimization
Branch Optimization July 2005 – Closed Pomeroy, OH branch January 2006 – Open new office in Charleston, WV Early 2006 – likely branch closure March 2006 – Open new Branch in Charles Town, WV (strong growth market) September 2006 – Open new Branch in Martinsburg, WV (strong growth market)
Slide 41: Strategic Opportunities: Capital Flexibility
Strategic Opportunities Capital Flexibility Dividends Increased 10% in April 2004 Increased 13.6% in April 2005 Payout ratio in 2nd Quarter 2005: 35% Share Repurchases Tangible Capital @ 8.8% Holding Company has $35MM in cash
Slide 42: Acquisition Parameters
Acquisition Parameters $100MM to $500MM in assets Markets in or adjacent to CHCO footprint Retail Deposit Franchise Accretive to EPS in first full year
Slide 43: Acquisition Territory
Acquisition Territory
Slide 44: Classic Bancshares Acquisition
Classic Bancshares Acquisition: Opportunity to build retail share: Share CHCO County Boyd Co. KY 9% $75MM $833M Lawrence Co. Ohio 12% $59MM $490M Greenup Co. KY 6% $21MM $350M Johnson Co. KY 31% $102MM $329M Carter Co. KY 4% $11MM $275M
Slide 45: Combined Balance Sheet
Combined Balance Sheet: Strong CHCO CLAS Combined 5/31/05 CLAS Contribution Assets $2,273 $310 $2,583 12% Loans $1,353 $256 $1,609 16% Deposits $1,682 $233 $1,915 12%
Slide 46: Classic Results
Classic Results – June 2005 through August 2005 Annualized net income—$5.5MM Issued 1.472 million shares Annualized EPS of $3.74/incremental share issued for CLAS NIM of 4.23% Efficiency ratio of 39.3% Non-interest revenue/total revenue ratio of 23.8% (Improvement & Opportunity!)
Slide 47: Summary: Why Own This Stock?
Summary: Why Own This Stock? CHCO is highly profitable CHCO earns high returns on a conservative platform Retail bank with strong core deposits Strong fee income Conservative loan portfolio Well capitalized Liquid & positioned to benefit from rising rates Extraordinary profitability CHCO is growing
Slide 48: Pricing Metrics
Pricing Metrics* Price to Book: 236% Price to Tangible Book: 300% Price to 2006 Projected Earnings**: 12.7x Institutional Ownership 40% * Based on Closing Price on September 9th: $36.69 ** Based on Analyst estimates
City Holding — RBC Conference, Martha's Vineyard 2005 on 6ix