Poage Bankshares — KBW Conference 2018
41 slides from Poage Bankshares's conference presentation, Aug 1, 2018
Slide 1: City Holding Company KBW Conference
City Holding Company KBW Conference New York City August 1, 2018
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: Snapshot
Snapshot • Total Assets $4.4 bil • Branches 86 • FTE 849 • Market Cap $1.3 bil • Markets: Stable, Slow growing, and less competitive • Business Lines: Retail, Commercial, Investment Mgmt • Asset Quality: Demonstrated strong track record • Performance: Long record as a high performer • Growth: Succee
Slide 4: Snapshot: City National Markets
Snapshot: City National Markets 2nd Branch Share & 7% Deposit Share in Winchester VA & WV Panhandle $5.7 Billion Major Competitors: BBT, UBSI, WFC 1st Branch Share & 3rd Deposit Share (11%) In Charleston MSA/Huntington MSA; $10.6 Billion Major Competitors: BBT, JPM, HBAN, UBSI st 1 Branch Share & 31
Slide 5: CHCO EPS
CHCO EPS $5.00 EPS $4.75 $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 Proj CHCO CHCO excl Recovery Impact Peer Data as of December 31, 2017 5 Projection based on KBW estimate of $4.94
Slide 6: CHCO: A perennial high-performing bank
CHCO: A perennial high-performing bank 2.25% ROA 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 Jun 2018 -0.25% -0.50% CHCO CHCO excl Recovery Impact $1B - $5B Peer Data as of December 31, 2017 6
Slide 7: Strong deposit franchise provides NIM strength in higher rate environments
City’s strong deposit franchise provides NIM strength in higher rate environments March 2008 thru June 4.75% 2011: NIM supported by Interest Rate Floors 2013 -2015: NIM supported 4.50% by Accretion from acquisitions 4.25% 4.00% 3.75% 3.50% 3.25% 3.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 201
Slide 8: Non-interest income is branch driven
Non-interest income is branch driven: June 2011 2012 2013 2014 2015 2016 2017 2018 Bankcard Revenues $11.1 $12.4 $13.5 $15.1 $15.9 $16.5 $17.1 $8.9 (+3.7%) (+4.2%) Service Charges $27.0 $26.3 $27.6 $26.6 $26.3 $26.7 $28.6 $14.2 (+7.0%) (+2.8%) Investment Management $3.1 $3.8 $4.0 $4.6 $5.1 $5.6 $6.3
Slide 9: Efficiency Ratio low despite a large number of small branches
Efficiency Ratio low despite a large number of small branches 70.0% 65.0% 60.0% 55.0% 50.0% 2011 2012 2013 2014 2015 2016 2017 Jun 2018 CHCO $1B - $5B • 2015 Efficiency Ratio for CHCO excludes Gain from Sale of Insurance Division 9 • Data as calculated using S&P Global MI definition. Peer data as of
Slide 10: Charge-off trends
Charge-off trends: 3.00% CHCO Industry 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 Jun 2018 -0.50% Source: FDIC, All Insured Depository Institutions Peer data as of December 31, 2017 10
Slide 11: A long history of strong asset quality at CHCO
A long history of strong asset quality at CHCO 3.50% CHCO NPA/Assets Industry 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2010 2011 2012 2013 2014 2015 2016 2017 Jun 2018 Source: FDIC, All Insured Depository Institutions Peer data as of December 31, 2017 11
Slide 12: Acquisitions of Poage Bankshares, Inc. & Farmers Deposit Bancorp, Inc.
Acquisitions of Poage Bankshares, Inc. & Farmers Deposit Bancorp, Inc. July 11, 2018
Slide 13: Overview of Pro Forma Company
Overview of Pro Forma Company Pro Forma Highlights (1) CHCO PBSK Total Assets $4.8 billion PBSK LPO Total Loans $3.5 billion Farmers Deposit Total Deposits $3.9 billion Branch Locations 98 • Creates a $4.8 billion in assets bank with presence across West Virginia, Kentucky, Virginia, and Ohio • Oppo
Slide 14: Overview of Poage Bankshares, Inc.
Overview of Poage Bankshares, Inc. Franchise Highlights Branch Footprint • Founded as a savings and loan association in 1889 • Long-standing ties to local communities • Strong market share in counties of operation • 4 PBSK branches within 1 mile of an existing CHCO branch; 5 within 2 miles • No esti
Slide 15: Overview of Farmers Deposit Bancorp, Inc.
Overview of Farmers Deposit Bancorp, Inc. Franchise Highlights Branch Footprint • Founded in 1866 as a full service bank Update • Operates 3 branches around the Lexington, KY market • Solid core funding base – MRQ cost of deposits: 0.25% Farmers UpdateDeposit Branch (3) Headquarters Cynthiana, KY Ma
Slide 16: Combined Financial Impact
Combined Financial Impact Pro Forma Impact • Immediate mid single digit EPS accretion • Minimal tangible book dilution, earned back in less than 3 years • IRR in excess of 20% Capital Ratios Standalone Today Pro Forma at Close TCE/ TA 10.0% 9.7% Leverage Ratio 10.9% 10.5% Total Risk-Based Ratio 16.3
Slide 17: Branch Overlap Detail
Branch Overlap Detail Huntington-Ashland and Lexington MSAs 0.13 miles 0.77 miles 0.74 miles 0.46 miles 1.41 miles 0.44 miles CHCO PBSK Farmers Deposit 17
Slide 18: Market Position
Market Position City’s biggest markets have strong distribution, large share, and high profitability Deposits Deposit Branch Branch Market Population ($mm) Share Branches Share Rank Charleston/Huntington/ 583,000 $1,469 13% 33-35 18% 1 Ashland MSA Beckley/Lewisburg WV 175,000 771 31% 16 25% 1 Winche
Slide 19: Market Demographics
Market Demographics Newer markets have high growth and higher incomes Projected Projected Change in Population Median HHLD Market Population Change 2016- Household Income 2021 Income 2016-2021 Charleston/Huntington/ Ashland 583,000 (0.8%) $45,700 8.0% MSA Beckley 122,000 (1.4%) $40,000 6.3% Winchest
Slide 20: Deposits mostly in WV and E. KY
Deposits mostly in WV and E. KY Key Deposit Markets Deposits West Virginia & E. Kentucky – dating to 1870 79% New Markets 21% 20
Slide 21: Diversified Commercial Loan Portfolio
Diversified Commercial Loan Portfolio Key Loan Markets Percent of Commercial Portfolio West Virginia & Eastern Kentucky – dating to 1870 47% Virginia/Eastern Panhandle Markets – acquired 19% 2012/13 Charlotte LPO – de novo 2006 12% Lexington, KY – acquired 2015 9% Columbus, OH & Pittsburgh PA 13% 21
Slide 22: Tangible Common Equity Ratio
Tangible Common Equity Ratio: strong following acquisitions in 2012, 2013 & 2015 11.00% 10.50% 10.00% 9.50% 9.00% Prior to ATM offering, TCE Ratio 9.4% @ 9/30/16 8.50% 8.00% 7.50% 7.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jun Proj 2018 2018 22
Slide 23: Share Count: aggressive share repurchases
Share Count: strong capital and high profitability allow aggressive share repurchases Average Shares Outstanding 18,000,000 17,500,000 Proj 2018: Reflects Poage 17,000,000 Acq. 16,500,000 2013: Reflects 2017: Reflects Comm. Acq. 16,000,000 ATM offering 15,500,000 15,000,000 14,500,000 14,000,000 13,
Slide 24: Cash Dividends/Share Declared & Dividend Payout Ratio
Cash Dividends/Share Declared & Dividend Payout Ratio $2.00 90% $1.80 80% $1.60 70% $1.40 60% $1.20 50% Dividend Payout Ratio Payout Dividend $1.00 40% Cash Dividends/Share Declared Cash Dividends/Share $0.80 30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Proj 2018 Proj Dividends/Share Divide
Slide 25: Capital Management: A Long-term Core Competency
Capital Management: A Long-term Core Competency • CHCO is more profitable than average • CHCO generates more capital than average • Projected Earnings of $76.5MM • CHCO pays a good dividend – Based upon earnings estimates – current dividend is 37% of projected 2018 earnings – Historically target 50%
Slide 26: CHCO's sensitivity to interest rate risk
CHCO’s sensitivity to interest rate risk Immediate Basis Point Estimated Increase or Change in Interest Decrease in Net Income Rates between 1-12 months +400 Bp +4.8% +300 Bp +5.6% +200 Bp +5.5% +100 Bp +3.8% -50 Bp -6.1% -100 Bp -14.4% Data: Internal Model as of March 31, 2018. Model assumes that d
Slide 27: West Virginia Economy
West Virginia Economy: WV Compared to: Source Employment 785,000 726,000 US Bureau of Labor (June 2018) (Apr 2015) Statistics Unemployment 5.3% 8.8% US Bureau of Labor Statistics Rate (June 2018) (June 2010) (US – July17 – 4.0%) Coal Employment 12,550 20,533 West Virginia Coal (2016) (2006) Associat
Slide 28: Commercial loan growth
Commercial loan growth: Success achieved due to community bank orientation, strong team, strong underwriting, and exposure to new higher growth markets. 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2018: 3.0% CAGR over -2.00% 12/31/17 -4.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 29: Retail loans
Retail loans Primarily residential related – demonstrates long-term steady and predictable growth; Recent challenges due to flat yield curve $1,750 $1,500 $1,250 Loans$MM $1,000 $750 $500 2010 2011 2012 2013 2014 2015 2016 2017 Jun 2018 Residential Real Estate Home Equity Consumer 29
Slide 30: 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 86 $ 3.3 B $39 million BBT 66 $ 5.5 B $83 million UBSI 29 $ 2.3 B $79 million
Slide 31: Trust Growth: AUM & Revenues
Trust Growth: AUM & Revenues AUM CAGR 12.4% and Revenue CAGR 11.90% (Dec 31, 2007-Dec 31, 2017) $1,200 $7,000 $1,000 $6,000 $800 $5,000 $600 $4,000 Revenues AUM $MM AUM $400 $3,000 $200 $2,000 $0 $1,000 AUM (MM$) Revenues 31 NOTE: Trust revenues annualized based on 6/30/18
Slide 32: City's Deposit Franchise provides access to low cost and stable funding
City’s Deposit Franchise provides access to low cost and stable funding 1.3% 0.4% 1% 12% 5% 11% 16% Equity Non Interest DDA Interest DDA 15% Savings MMS CDs 19% Jumbos 10% Customer Repos FHLB 9% Other Trust Preferred Data: December 31, 2017 32
Slide 33: Deposit Franchise
DEPOSIT FRANCHISE One key to City’s enviable success • Branches 86 • Average Deposits per Branch $39 MM • Average Households per Branch 1,900 • Average Deposit Share 13.7% • Average Household Share* 25% * - Excludes Coastal & Lexington-Fayette Regions 33
Slide 34: Impact of Acquisitions
Impact of Acquisitions: The Acquisition of Poage and Farmers will strengthen City’s already strong franchise City Town Square Farmers Households 176,000 Est. 14,000 Est. 6,000 Core Deposits/Assets 77% 78% 74% Consumer Loans/Ttl Loans 53% 60% 29% Demographics Slow Growth Slow Growth Slow Growth Mkt S
Slide 35: Strong deposit franchise drives top decile non-interest revenue
Strong deposit franchise drives top decile non-interest revenue: City Holding Company Peer Group 80.3% 68.2% 31.7% 19.7% Non Interest Income Non Interest Income Net Interest Income Net Interest Income *As of December 31, 2017. Non-interest Sample of 282 reporting publicly traded banks income exclude
Slide 36: Industry & CHCO are Optimistic in 2018
Industry & CHCO are Optimistic in 2018: – Lower Tax rates driving earnings and creating capital for deployment in acquisitions, dividends or share repurchases – Higher interest rates increase NIM’s – Less Regulatory Burden • allows more focus on customer needs • City Benefits from stable regulation
Slide 37: Acquisition philosophy
Acquisition philosophy: • Opportunities have increased • Actively looking, but for the best partners • Size: Generally $100MM to $1B • Historically less acquisitive than peers because City’s strategy is driven by creating shareholder value not by size • Acquisitions must truly be strategic or meanin
Slide 38: Tortoise vs. Hare
Tortoise vs. Hare • Tortoise Markets – Slow Growth Markets – Less Competitive – More Profitable – Better Dividends & Share Repurchase – No reason that Tortoise Markets can’t have at least the same Total Shareholder Return • Hare Markets – Faster Growth – More Competitive – Requires Capital to Feed G
Slide 39: Acquisition territory
Acquisition territory: But – Requires Willing Sellers…See slides which follow! 39
Slide 40: CHCO represents excellent value and stability
CHCO represents excellent value and stability • Pricing Metrics*: • Price to Book: 250% • Price to Tangible Book: 297% • Price to 2018 Projected Earnings** 16.5x • Dividend Yield 2.2% • Div Payout Ratio** 37% • Tangible Capital/Tangible Assets*** 9.9% • Institutional Ownership 67% • Average Daily Vo
Slide 41: Appendix: Non-GAAP Reconciliation
Appendix: Non-GAAP Reconciliation Projected 2018 EPS KBW Analyst EPS Estimate (“GAAP”) $4.94 Impact of Kentucky Fuels Corporation recovery (0.14) KBW Analyst EPS Estimate excluding Recovery Impact $4.80 6/30/18 Return on Assets (“GAAP”) 1.85% Impact of Kentucky Fuels Corporation recovery (0.11) Retu