CROSS LANES, W.Va. — City National Bank president and CEO Charles “Skip” Hageboeck said he didn’t plan on becoming a banker.
“I thought about teaching, but decided it really wasn’t something I wanted to do for the rest of my life,” he said in a recent interview.
Hageboeck (pronounced Hedgeback) grew up in Indiana and earned an undergrad degree at Butler and then completed a Ph.D. program in economics at Indiana University in 1991.
“I like teaching, but it wasn’t going to be the career for me,” he said.
Hageboeck had a friend in the banking industry and asked him if there were any jobs available.
“I just wanted a job at a bank and he said there was a position in asset liability management,” he said. “That was my first job in banking, at Indiana National Bank, as an asset liability analyst.”
That entry into the industry eventually led Hageboeck to City National, and for the last 18 years he has been involved in City’s remarkable financial turnaround, as well as making the company one of the most profitable and highly-rated banks in the industry.
“Our earnings growth has been good, loan losses have decreased, tax rates went down and the number of our customers continues to increase,” Hageboeck said. “I think it’s because our focus is on being a bank full of small customers. We are trying to be a really successful community bank with lots of local, traditional customers. We believe we have roughly twice as many customers in each of our branches as would be typical for other banks our size.”
City’s financial turnaround
City National Bank was founded in 1956 in Kanawha City, a Charleston neighborhood, and the bank remained headquartered in Kanawha City until the 1990s when the headquarters shifted to Cross Lanes.
Meanwhile, in 1994, Hageboeck became chief financial officer of the much smaller Peoples Bank in Indianapolis, Indiana. While at Peoples, Hageboeck met Gerald “Jerry” Francis, a veteran banker who would have a lasting impact on his career. Over nearly four years, they roughly doubled Peoples’ size, to $700 million in assets.
“Peoples went from being an average performer to being a high-performing bank,” Hageboeck said.
He said Peoples Bank was sold to Fifth Third Bancorp in 1999.
In 2001, Hageboeck joined Francis in West Virginia at City.
“At that time, the company was operating under a regulatory order and most of its management team left, including the CFO,” he said. At the time, City was about half its current size.
In 2001, City “was trading for half of book value,” Hageboeck said, whereas today, City’s common stock trades for over twice book value.
“In 2001, City had a lot of serious problems. But Jerry recognized it was a great franchise that could be easily saved, so he brought a total of five executives from Peoples Bank to West Virginia,” he said.
They downsized the company, selling two banks it owned in California and exiting other ancillary businesses to focus on its core strengths.
“We were involved in a lot of things that had nothing to do with banking,” he said.
Hageboeck said City’s financial turnaround was completed by 2002.
He said Francis was named the American Banker’s Community Banker of the Year in 2002 for those results. Francis stepped aside from City in 2005 and Hageboeck became president and CEO of the company.
City Holding Company today
Today, City Holding Company is a $4.9 billion bank. The company recently declared a quarterly dividend of 57 cents per common share for shareholders of record as of Oct. 15, 2019 — a 7.5% increase from the 53 cents per share cash dividend paid in the third quarter of 2019.
“No company is going to increase a dividend unless they are doing well and they believe they are going to continue to do well,” Hageboeck said. “The decision to increase the dividend to $2.28 on an annualized basis is based on the company’s current strong capital and liquidity position, our outstanding financial performance during 2019 and our confidence in the company’s ability to sustain this performance.”
City Holding Company also has increased its earnings per share by an average of 12% a year over the last three years. It achieved revenue growth of 15% over the last year.
“The increase in the dividend rate affirms our commitment to return our profits to our shareholders and brings City’s dividend payout ratio closer to 50% of earnings estimates,” Hageboeck said. “Over the last five years, City has returned approximately 87% of its earning to shareholders either through dividends, share repurchases or cash acquisitions.”
In February, the company announced that it would buy back one million of its common shares, which represented approximately 6% of outstanding shares.
“We view this repurchase plan as part of an ongoing strategy to build value for our stockholders while maintaining appropriate capital levels,” Hageboeck said.
City has completed five bank acquisitions since Hageboeck started. They bought Classic Bank in Ashland, Kentucky in 2005, Virginia Savings Bank in Front Royal in 2012 and Community Bank in Staunton, Virginia in 2013.
In July 2018, City agreed to buy two Kentucky banks that included Town Square Bank in Ashland and Farmers Deposit Bank in Cynthiana.
“We are using our excess earning to buy more earnings, so that we can continue to grow,” he said.
Hageboeck says City’s growth would not be possible without its focus on customer satisfaction.
“Our most important goal is to provide exceptional personal service,” he said.
Hageboeck says financial institutions carry many of the same products, but not all community banks are the same.
City offers a comprehensive range of products and services, including checking and savings, certificates of deposit (CDs), credit and debit cards, personal loans, commercial loans, business cash management, mortgages, investments, wealth management, as well as online and mobile banking technologies.
Also, City National Bank was the first in its markets to introduce an innovative checking option, Bounce Back Checking, for individuals who have been denied the opportunity to open a checking account and are looking for a fresh start. In addition, City National Bank also launched Community Hero Checking, which honors current and retired military personnel, firefighters, police officers, medical professionals and teachers by providing special account benefits.
Being a community bank, Hageboeck said, City supports its local communities financially as well.
“City National Bank contributes generously to the United Way and many other charitable, cultural and civic causes,” he said.
City recognized by others
The bank recently received the highest ranking in customer satisfaction in the north central region in J.D. Power’s 2019 U.S. Retail Banking Satisfaction Study.
“It is always nice to be acknowledged, and I can think of no greater achievement than to be honored by our customers for the service they receive,” Hageboeck said.
City National Bank claimed the top honor in its region for the second year in a row, beating out all other banks in West Virginia, Kentucky, Ohio, Indiana and Michigan.
In addition to ranking highest overall in its region, the company also fared best in factors of “products and fees” and “communication and advice.”
“We are one of the most profitable publicly traded banks in the U.S.,” according to Hageboeck. “City Holding Company continually ranks at the top of its peer group in the country.”
Hageboeck said the achievement is a testament to all of the company’s 900-plus employees at more than 90 branches across West Virginia, Kentucky, Ohio and Virginia.
“They are committed to making the overall customer experience as efficient, personal and helpful as possible,” he said. “We have some very talented people working here.”
Challenges and changes
While West Virginia faces challenges with growing its population, the state’s economy is doing well, in Hageboeck’s view.
“Overall, the economy in 2019 is better than it has been in many, many years,” he said. “We don’t see any signs of it slowing down. People have jobs and when people have jobs they are happy and spending money. Interest rates are low, so it’s a fantastic time to borrow money. The economy is so strong that banks are not hunkering down like they did in 2007 when the economy went into a recession.”
Another factor that helped the banking industry tremendously was the federal tax relief enacted in 2018 by Congress and President Donald Trump.
“It reduced tax rates for business from a statutory tax rate of 35% to a statutory tax rate of 21%,” Hageboeck said. “When those rates went down that meant earnings went up for most banks. Increased earnings translated to higher wages, higher dividends, and more competition for loans and deposits.”
Hageboeck says that while banking has continually evolved through new products and services to meet the changing needs of customers, the underlying fundamental reason banks exist has not changed.
“The economy still needs intermediation between savers and borrowers which only financial institutions can provide,” he said. “While the industry has changed a lot, in the most fundamental ways it hasn’t changed all that much. We still take deposits and we make loans.”
One thing that has changed is banking consolidation.
“There were 16,000 banks in 1990 and there are less than 5,000 today,” he said. “I think you will see continued consolidation in the banking industry. While there will always be small community banks, as well as some very large banks, consolidation will continue.”
Hageboeck’s view is that very small banks may struggle in today’s market.
“They struggle with the regulatory environment that imposes a lot of costs on banks,” he said. “Almost every bank has to have a compliance officer. It’s one thing to have a compliance officer for a $5 billion bank, like City, but it’s much more expensive to have the same person for a $100 million bank. Also the cost of technology, such as providing mobile banking solutions for customers, is more affordable for larger institutions than smaller institutions. Very small banks appear to struggle with efficiency, regulatory challenges and also often struggling with management challenges.”
Unique to City, Hageboeck says the bank now holds its annual shareholder meetings on college campuses. While on campus, City’s executives talk to students about intern opportunities and careers in the banking industry.
City has had annual meetings on college campuses that include Marshall University in Huntington, University of Charleston, Shenandoah University in Winchester, Virginia and Washington and Lee University in Lexington, Virginia. Students and faculty are invited to attend the meetings.
City’s 2020 annual shareholder meeting will be on the campus of West Virginia University in Morgantown.
“We also do job fairs at universities as well,” he said.
Hageboeck says the future is bright for City.
“I believe we will continue with growth even in some of our slower-growth markets,” Hageboeck said. “We’re seen as the strongest community bank in many slow-growth markets.”
Hageboeck, 57, said he doesn’t have any plans to retire soon.
“I hope to be at City for a fairly long time and hope to help the company continue to be successful and achieve what we call reasonable growth,” he said. “Many of our peers seem to think the bigger the bank the better the bank. We do not believe that. We believe you are only better when you are better. Getting bigger is not the same as getting better. We have grown through acquisitions, but we are more cautious about acquisitions because we hold each possible business combination to a pretty high standard. We don’t want to have people join with us that will not be a good fit. So far, we have not been disappointed.”