City Holding Company · NASDAQ:CHCO
City — KBW 8th Annual Community Bank Investor Conference 2007
45 slides from City's conference presentation, Jul 31, 2007
Slide 1: KBW 8th Annual Community Bank Investor Conference
KBW 8 th Annual Community Bank Investor Conference July 2007 Skip Hageboeck David Bumgarner President & CEO CFO
Slide 2: 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 results differing from those pro
Slide 3: City Holding Company: Headquartered in Charleston WV
Headquartered In Charleston WV City Holding Company:
Slide 4: City Holding Company
n Total Assets at June 30, 2007 $2.5 bil n Net Income in 2006 $53 mil n Branches 68 n FTE 807 n Market Cap $640 mil n Institutional Ownership 54% n Avg Daily Volume $2.4 mil City Holding Company
Slide 5: Key Markets
1 st & 9% Market Share in Huntington WV/Ashland KY MSA $3.7 Billion 2 nd & 12% Market Share in WV’s largest market; $4.7B 1 st & 27% Market Share $1.7 Billion 8% Market Share in Morgan, Berkeley & Jefferson Co. WV $1.9 Billion Key Markets
Slide 6: CHCO History
n 1871 - City’s oldest affiliate n 1957 - City National Bank n 1982 - City Holding Company n 1985 - 1998 Acquisitions n 1997 - 1999 Acquisition of Non-Bank Subsidiaries & Move into High LTV 2 nd Mortgages; Asset quality deteriorates n 2000 - Placed under Formal Agreement with OCC and Fed; CEO termin
Slide 7: Today's Themes
n CHCO: Consistently superior results n CHCO: Conservative operating platform n CHCO: Growing and succeeding in slow-growth markets n CHCO: Value in the Banking Sector Today’s Themes:
Slide 8: CHCO is consistently and extraordinarily profitable
2004 2005 2006 YTD 2007 Reported ROA 2.10% 2.09% 2.11% 2.02% ROTE 23.2% 22.3% 22.4% 20.7% Tangible Equity/TA 9.7% 9.5% 10.1% 9.6% NIM 4.29% 4.49% 4.56% 4.36% Efficiency Ratio 48.7% 46.7% 44.5% 45.3% Non-Int Rev/Total Rev 33% 34% 34% 35% CHCO is consistently and extraordinarily profitable:
Slide 9: Since 2003 CHCO faced normalization of provision and loss of PSL revenues
Since 2003 CHCO faced “normalization” of provision and loss of PSL revenues:
Slide 10: Yet, strong bottom line results continue
Yet, strong bottom line results continue: ROA EPS
Slide 11: Although highly profitable, CHCO is conservatively positioned
1. Conservative Loan Portfolios 2. Strong Core Deposit Franchise 3. Highly Liquid 4. Strongly Capitalized 5. Strong Asset Quality 6. Strong Fee Income vs. NII 7. Well Managed Interest Rate Risk Although highly profitable, CHCO is conservatively positioned:
Slide 12: Conservative Loan Portfolio Mix
Loan to Deposits 84.5% Loan to Deposits 94.5% Sample of 250 publicly traded banks and thrifts with assets between $1-$10 billion as of December 31, 2006 As of December 31, 2006 Conservative Loan Portfolio Mix
Slide 13: Solid Loan Quality
As of June 30, 2007 Sample of 250 publicly traded banks and thrifts with assets between $1 and $10 billion as of March 31, 2007 Solid Loan Quality
Slide 14: YTD Gross Charge-offs 2007
1. Overdrafts are significant 2. Credit Cards sold in 2006 3. Acquired Loans of lower credit quality and were reserved at acquisition YTD Gross Charge-offs 2007 $1.816 MM $155 M $563 M $144 M
Slide 15: Asset Quality Deterioration
Reflecting two large relationships which were placed on Non-accrual in the 1 st & 2 nd quarters NPA’s to Loans & OREO Asset Quality Deterioration:
Slide 16: Largest Non-accrual Loans
n 3 spec homes in exclusive neighborhood of vacation homes; Borrower experiencing cash flow problems; Collateral & Guarantee dependent. n Home & additional lot in exclusive neighborhood of vacation homes; Customer Bankrupt. Loan represents 87% of cost. n Rental Homes in Charleston; Customer in bankr
Slide 17: Past-Due Loans (30+ days)
12/31/05 12/31/06 6/30/07 Residential 1.14% 0.76% 0.56% Home Equity 0.37% 0.34% 0.27% Consumer 2.32% 0.99% 0.85% CMRE 0.11% 0.03% 0.34% C&I 0.12% 0.27% Past-Due Loans (30+ days) 1.47% Excluding Non-accruals, Past-due loans continue to improve reflecting stronger underwriting implemented since 2002
Slide 18: Liabilities: Low Cost and Stable Deposits
Data: December 31, 2006 Liabilities: Low Cost and Stable Deposits
Slide 19: CHCO's Cost of Funds Advantage
CHCO Peers CD’s 3.96% 4.23% Interest Bearing Deposits 2.71% 3.19% Total Deposits 2.25% 2.77% Interest Bearing Liabilities 2.90% 3.54% Data: 2006. Peers are $1 to $10 billion banks CHCO’s Cost of Funds Advantage: Advantage 27 Bps 48 Bps 52 Bps 64 Bps
Slide 20: Favorable Revenue Profile for the current yield curve environment
34% 21% 79% 66% * As of December 31, 2006. Non-interest income excludes security gains Sample of 250 publicly traded banks and thrifts with assets between $1 and $10 billion as of December 31, 2006 Favorable Revenue Profile for the current yield curve environment:
Slide 21: City is Highly Efficient
92 nd percentile 2004 Efficiency Ratio adjusted to eliminate $5.5 million in revenue from Legal Settlement and associated legal expenses of $500M; Peers: Sample of 206 publicly traded banks and thrifts with assets between $1 to $10 Billion as of December 31, 2006 City is Highly Efficient
Slide 22: Strong Capital facilitates growth and provides opportunities for 2007
CHCO 6/30/07 Peer Median 12/31/06 Equity/Assets 12.1% 8.9% Tang Equity/Tang Assets 9.6% 7.1% Leverage Ratio 10.5% Tier I Capital Ratio 15.2% 11.3% Total Risk-based Capital Ratio 16.1% 12.6% Source: SNL for 206 publicly traded banks with total assets from $1 to $10 billion Strong Capital facilitates
Slide 23: CHCO is growing in slow-growth markets
Internal Loan Growth Internal Deposit Growth Improvements to Retail Distribution System Acquisition CHCO is growing in slow-growth markets: u u u u
Slide 24: Loan Growth: challenged by slower economy & low long-term rates
2003 2004 2005 2006 2007 YTD Commercial 9.8% 10.4% 16.3% 10.9% 2.3% Residential negative 5.2% 3.0% 1.0% 0.9% Home Equity 34.1% 9.1% negative 6.7% 5.3% Consumer negative negative negative negative 20.7% Growth in 2005 excludes Classic Acquisition Loan Growth: challenged by slower economy & low long-t
Slide 25: Loan Mix: Strong Commercial Opportunity
Loan Mix: Strong Commercial Opportunity
Slide 26: City's Retail Business Model
n : Best in class n : Strong distribution network n : Targeted marketing n : Alignment between staff, key performance measures, and compensation n : competitive in all markets City’s Retail Business Model Product Place Promotion People Pricing
Slide 27: Best in Class Products: an early adopter of Totally Free Checking
n Successful early adoption of Totally Free Checking n Growth slowed as competitors imitated City’s success n Launched 2 nd Generation of accounts with monthly fee n Re-invigorated new account generation Best in Class Products: an early adopter of Totally Free Checking 2001-2004 2005-2007
Slide 28: New Consumer DDA Account openings per month
New Consumer DDA Accounts openings per month Average of 2,372 in 2004 Average of 2,657 in 2005 Average of 2,674 YTD in 2006 Gave us the lift we wanted…
Slide 29: And the corresponding revenues
18% CAGR 2 nd Q 2001 to 2 nd Q 2007 And the corresponding revenues:
Slide 30: Optimizing our Retail Distribution System
Optimizing our Retail Distribution System:
Slide 31: City's Wal-Mart Strategy
n Part of a Hub and Spoke distribution strategy n Openings Charleston - 2004 Huntington - 2004 Beckley - 2005 Ashland - 2005 Ripley - 1 st Quarter 2007 City’s Wal-Mart Strategy u u u u u
Slide 32: Consolidations/Renovations/Relocations
Our New Downtown Charleston Office Housing Retail, Trust, Commercial & Private Banking Opened 2006 Consolidations/Renovations/Relocations:
Slide 33: October 2006: Newest branch in Charles Town WV
Newest branch opened in Charles Town WV (60 miles from Washington DC) October 2006:
Slide 34: Our new eastern panhandle HQ
Our new eastern panhandle HQ: Opened July 2007:
Slide 35: DeNovo Entry into new markets
n County Deposits: $1.7 billion Branches: 50 Largest Market Competitors: BBT (27%), FCBC (26%) DeNovo Entry into new markets: Bluefield WV-VA u u u
Slide 36: Capital Flexibility / Other Strategic Opportunities
Dividends - Increased 10% in April 2004 to $0.88 - Increased 13.6% in April 2005 to $1.00 - Increased 12% in April 2006 to $1.12 - - Share Repurchases - Tangible Capital @ 10.06% @ 12/31/2006 - Purchased 580,200 shares YTD in 2007 at average price of $39.14 (3.4% of outstanding) - Tangible Capital @
Slide 37: Acquisitions
$100MM to $500MM in assets Markets in or adjacent to CHCO footprint Retail Opportunity Accretive to EPS in first full year Acquisitions:
Slide 38: Industry Challenges for 2007
n CHCO is less dependent on NII for revenue than peers CHCO has demonstrated strong management of NII/NIM by delivering promised results to rising rates n CHCO has purchased interest rate floors CHCO maintains significant short-term investment assets which could be moved into long-term bonds n CHCO’
Slide 39: Previously Securitized Loans
A unique challenge for CHCO which was met in 2005 and 2006 thru loan growth and a balance sheet positioned to benefit from rising rates 2004 2005 2006 2007 Projected 2008 Projected 2009 Projected Average Balances $83.5 MM $42.9 MM $22.3 MM $12.1 MM $7.5 MM $5.5 MM Rate 17.4% 26.6% 42.2% 64% 71% 71%
Slide 40: Interest Rate Risk
CHCO remains positioned to benefit from rising rates (with balance sheet neutral): Immediate Basis Point Change in Interest Rates Estimated Increase of Decrease in Net Income between 1-12 months +200 Bp +3.7% +100 Bp +1.6% -100 Bp -2.1% -200 Bp -4.2% Data: June 30, 2007 Interest Rate Risk:
Slide 41: Net Interest Margin
CHCO’s margin has been adversely affected by loss of Previously Securitized Loans and Credit Cards (3 rd Q 2006) Prime Rate CHCO 5 yr swap Net Interest Margin:
Slide 42: CD's: Repricing has been detrimental to NII
CD’s: Repricing has been detrimental to NII. In future, repricing rate is comparable to maturing rate.
Slide 43: Re-mixing
12/31/06 12/31/05 Change Avg Rate for 2006 IB DDA $423 $438 ($15) 1.22% Savings $321 $303 $18 1.27% Time $920 $812 ST Borrowing $136 $152 ($16) 3.55% LT Debt $48 $98 ($50) 5.33% DDA $321 $376 Equity & OL $337 $323 $14 0.00% Note: Used EOP Data due to Classic Acquisition Re-mixing: $108 3.96% ($55) 0
Slide 44: CHCO trades at a discounted P/E ratio relative to Peers
Pricing Metrics *: n Price to Book: n Price to Tangible Book: n Price to 2008 Projected Earnings** n Institutional Ownership *Based on Price of $36.63 (close of business 7/18/07) ** Based on Analyst estimates for 2008 of $3.16 210% 262% 11.6x 54% CHCO trades at a discounted P/E ratio relative to Pee
Slide 45: CHCO Checklist for success in current environment
n Strong Net Interest Margin - n Strong NIM Management n Dependence on NII n Disciplined competition - n Ability to grow share - n Exploiting opportunities for growth in stable mkts: n Opportunity to grow into adjacent markets - n Management - n Efficient Cost Structure - n Capital Management Opport
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