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Section 1: S-4/A (S-4/A)

Document


As filed with the Securities and Exchange Commission on September 7, 2018    Registration No.   333-226870    
    
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549 
 
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 
 
    

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City Holding Company
 (Exact name of Registrant as specified in its charter)

West Virginia
6021
55-0619957
(State or other jurisdiction of incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification
Number)
 
25 Gatewater Road, Charleston, WV 25313
(304) 769-1100
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices) 
 
____________________________________________________________________________________________________
Victoria A. Faw
Senior Vice President, Corporate Secretary
City Holding Company
25 Gatewater Road, Charleston, WV 25313
(304) 769-1100
(Name, address, including zip code, and telephone number, including area code, of agent for service) 
 
______________________________________________________________________________________________________
Copies to:
Michael G. Dailey, Esq.
Christian Gonzalez, Esq.
Dinsmore & Shohl LLP
255 East Fifth Street, Suite 1900
Cincinnati, Ohio 45202
Phone: (513) 977-8200
 
Kip A. Weissman, Esq.
Victor L. Cangelosi, Esq.
Luse Gorman, PC
5335 Wisconsin Avenue, NW, Suite 780
Washington, DC 20015
Phone: (202) 274-2000
 
_____________________________________________________________________________________________________
Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after the effective date of this Registration Statement. 
 
If the securities being registered on this Form are being offered in connection with the formation of a holding company and




there is compliance with General Instruction G, check the following box.  o 
 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
 
x Large accelerated filer
o Non-accelerated filer (do not check if smaller reporting company)
o Accelerated filer
oSmaller reporting company
o Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

If applicable, place an “x” in the box to designate the appropriate rule provision relied upon in conducting this transaction:
 
o
Exchange Act Rule 13e-4(i)(Cross-Border Tender Offer)
o
Exchange Act Rule 14d-1(d)(Cross-Border Third Party Tender Offer) 
 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. 
______________________________________________________________________________________________________





THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT ISSUE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
 
PRELIMINARY PROXY STATEMENT/PROSPECTUS
DATED SEPTEMBER 7, 2018, SUBJECT TO COMPLETION





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Prospectus of
City Holding Company

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Proxy Statement of
Poage Bankshares, Inc.
MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT

City Holding Company (“City”) and Poage Bankshares, Inc. (“Poage”) have entered into an Agreement and Plan of Merger dated as of July 11, 2018 (the “Merger Agreement”), which provides for the merger of Poage with and into City (the “Merger”). Consummation of the Merger is subject to certain conditions, including, but not limited to, obtaining the requisite vote of the shareholders of Poage and the approval of the Merger by various regulatory agencies.

Under the terms of the Merger Agreement, shareholders of Poage will be entitled to receive from City, at the effective time of the Merger, merger consideration payable in the form of City common shares to be calculated as set forth in the Merger Agreement. At the effective time of the Merger, each Poage common share will be converted into the right to receive 0.335 City common shares. The aggregate merger consideration to be paid to Poage shareholders under the Merger Agreement will fluctuate based on the market price of City common shares and will not be known at any time until the closing date of the Merger. Based on the closing price of City common stock on the NASDAQ Global Select Market® on August 31, 2018, the aggregate merger consideration would be $94,991,415. See “SUMMARY-What Poage shareholders will receive in the Merger.”

City will not issue any fractional shares of common stock in connection with the Merger. Instead, each holder of Poage common shares who would otherwise be entitled to receive a fraction of a City common share (after taking into account all shares of Poage common stock owned by such holder at the effective time of the Merger) will receive cash, without interest, in an amount (rounded to the nearest whole cent) equal to (i) the City fractional common share to which such holder would otherwise be entitled multiplied by (ii) the volume weighted average closing sale price of a City common share on the NASDAQ Global Select Market® for the ten consecutive trading days immediately preceding the effective date of the Merger.





Poage will hold a special meeting of its shareholders to vote on the adoption and approval of the Merger Agreement. The special meeting of Poage’s shareholders will be held at: 10:00 a.m., local time, on October 30, 2018, at Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101.

At the special meeting, Poage shareholders will be asked to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger. Poage shareholders will also be asked to approve, on an advisory basis, specified compensation to be paid to certain officers of Poage in the Merger, and the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the Merger Agreement and the transactions contemplated thereby, including the Merger.
 
This document is a proxy statement of Poage that Poage is using to solicit proxies for use at its special meeting of shareholders to vote on the Merger. It is also a prospectus relating to City’s issuance of its common shares in connection with the Merger. This proxy statement/prospectus describes Poage’s special shareholder meeting, the Merger proposal, and other related matters.
 
The boards of directors of City and Poage each approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and the board of directors of Poage unanimously recommends that shareholders vote “FOR” the approval of the Merger Agreement, “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of she special meeting to adopt and apprve the Merger Agreement and the Merger, and “FOR” the other matters to be considered at the Poage special meeting.

City’s common shares are traded on the NASDAQ Global Select Market® under the symbol “CHCO.” On July 11, 2018, the date of execution of the Merger Agreement, the closing price of City’s common shares was $78.92 per share. On August 31, 2018, the closing price of City’s common shares was $81.08 per share. Poage’s common shares are traded on the NASDAQ Capital Market® under the symbol “PBSK.” On July 11, 2018, the date of execution of the Merger Agreement, the closing price of Poage’s common shares was $20.45 per share. On August 31, 2018, the closing price of Poage’s common shares was $26.50 per share.

    You are encouraged to read this document, including the materials incorporated by reference into this document, carefully. In particular, you should read the “Risk Factors” section beginning on page 18 for a discussion of the risks related to the Merger and owning City common shares after the Merger.
 
Whether or not you plan to attend Poage’s special meeting, the Poage board of directors urges you to vote by completing, signing and returning the enclosed proxy card in the enclosed postage-paid envelope.
 
Not voting by proxy or at the special shareholder meeting will have the same effect as voting against the adoption and approval of the Merger Agreement. Your board urges you to read carefully this proxy statement/prospectus, which contains a detailed description of the special meeting, the Merger proposal, City’s common shares to be issued in the Merger, and other related matters.
 
Sincerely,
 
Sincerely,
 
 
 
Charles R. Hageboeck
 
Bruce VanHorn
President & Chief Executive Officer
 
President & Chief Executive Officer
City Holding Company
 
Poage Bankshares, Inc.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of City common shares to be issued in the Merger or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The securities to be issued in connection with the Merger described in this proxy statement/prospectus are not savings accounts, deposit accounts or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or any other federal or state governmental agency.  

This proxy statement/prospectus is dated September 7, 2018, and it is first being mailed to Poage shareholders on or about September 13, 2018.






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Notice of Special Meeting of Shareholders
To be held at 10:00 a.m., local time, on October 30, 2018, at Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101.
 
To the Shareholders of Poage Bankshares, Inc.:
 
Notice is hereby given that a special meeting of the shareholders of Poage Bankshares, Inc. (“Poage”) will be held at 10:00 a.m., local time, on October 30, 2018, at Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101, for the purpose of considering and voting on the following matters:
 
1.
A proposal to adopt and approve the Agreement and Plan of Merger dated as of July 11, 2018, by and between City Holding Company and Poage, and the merger contemplated thereby;
 
2.
A proposal to approve, on an advisory basis, specified compensation that may be payable to the named executive officers of Poage in connection with the merger; and

3.
A proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the Agreement and Plan of Merger and the merger.
 
Holders of record of Poage common shares at the close of business on September 4, 2018, the record date, are entitled to notice of and to vote at the special meeting and any adjournment or postponement of the special meeting.
 
A proxy statement/prospectus and proxy card for the special meeting are enclosed. A copy of the Agreement and Plan of Merger is attached as Annex A to the proxy statement/prospectus.

Your vote is very important. Your proxy is being solicited by Poage’s board of directors. For the proposed merger to be completed, the proposal to approve the merger agreement and the merger must be approved by the affirmative vote of a majority of the outstanding shares of Poage common stock. The specified compensation will be approved if a majority of the votes cast on such proposal at the Poage special meeting are voted in favor of such proposal. The Poage adjournment proposal will be approved if a majority of the votes cast on such proposal at the Poage special meeting are voted in favor of such proposal.
Whether or not you plan to attend the Poage special meeting, we urge you to vote. Shareholders of record may vote:
By internet - https://www.cstproxy.com/townsquarebank/sm2018;
By telephone - 1 (866) 894-0536 (toll-free);
By mail - complete, sign, date and mail your proxy card in the envelope provided as soon as possible; or
In person - vote your shares in person by attending the Poage special meeting.
 
If you hold your stock in “street name” through a banker or broker, please follow the instructions on the voting instruction card furnished by the record holder.
 




The Poage board of directors unanimously recommends that you vote (1) “FOR” the adoption and approval of the merger agreement and the merger, (2) “FOR” the approval of the specified compensation of certain executive officers of Poage, and (3) “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.
 
 
By Order of the Board of Directors,
 
Bruce VanHorn
 
President & Chief Executive Officer
September 13, 2018
Poage Bankshares, Inc.





WHERE YOU CAN FIND MORE INFORMATION
 
City and Poage are publicly traded companies that file annual, quarterly and other reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the “SEC”). You may obtain copies of these documents by mail from the public reference room of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 for further information on the public reference room. City and Poage also file reports and other information with the SEC electronically, and the SEC maintains a web site located at www.sec.gov containing this information. Certain information filed by City with the SEC is also available, without charge, through City’s website at www.bankatcity.com under the “Investors” section, and Poage’s website at www.townsquarebank.com under the “Investor Relations” section.
 
City has filed with the SEC a registration statement on Form S-4 to register its common shares to be issued to Poage shareholders as part of the merger consideration. This document is a part of that registration statement. As permitted by SEC rules, this document does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and request a copy of the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this document as to the contents of any contract or other documents referred to in this document are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This proxy statement/prospectus incorporates by reference important business and financial information about City and Poage from documents filed with or furnished to the SEC, that are not included in or delivered with this proxy statement/prospectus. See “INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE” on page 66. These documents are available, without charge, to you upon written or oral request at the applicable company’s address and telephone number listed below: 

City Holding Company
25 Gatewater Road
Charleston, West Virginia 25313
Attention: Investor Relations
 (304) 769-1100

Poage Bankshares, Inc.
1500 Carter Avenue
Ashland, Kentucky 41101
Attention: Bruce VanHorn
President and Chief Executive Officer
(606) 324-7196
 
To obtain timely delivery of these documents, you must request the information no later than October 23, 2018 in order to receive them before the Poage special shareholder meeting. 

City’s common shares are traded on the Nasdaq Global Select Market® under the symbol “CHCO.” Poage’s common shares are traded on the Nasdaq Capital Market® under the symbol “PBSK.”

Neither City nor Poage has authorized anyone to provide you with any information other than the information included in this document and documents which are incorporated by reference. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this document and the documents incorporated by reference are accurate only as of their respective dates. Each of City’s and Poage’s business, financial condition, results of operations and prospects may have changed since those dates.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding City has been provided by City and information contained in this document regarding Poage has been provided by Poage.





TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING
 
 
SUMMARY
 
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR CITY
 
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR POAGE
 
 
UNAUDITED COMPARATIVE PER SHARE DATA
 
 
MARKET PRICE AND DIVIDEND INFORMATION
 
 
RISK FACTORS
 
 
FORWARD-LOOKING STATEMENTS
 
 
THE SPECIAL MEETING OF SHAREHOLDERS OF POAGE
 
 
     Time, Date and Place
     Matters to be Considered
     Record Data; Shares Outstanding and Entitled to Vote
     Votes Required; Quorum; Voting of Proxies
     Solicitation and Revocation of Proxies
     Participants in the Poage ESOP
 
 
DISSENTERS' RIGHTS
 
 
THE MERGER
 
 
     The Proposed Merger
     Background of the Merger
     Poage's Reasons for the Merger
     Recommendation of the Poage Board of Directors
     Opinion of Poage's Financial Advisor
     Certain City and Poage Unaudited Prospective Financial Information
     City's Reasons for the Merger
     Regulatory Approvals Required
     Interests of Poage Directors and Executive Officers in the Merger
     Material U.S. Federal Income Tax Consequences of the Merger
     Accounting Treatment
     Resale of City Common Shares
     Employee Matters






THE MERGER AGREEMENT
 
 
     The Merger and Subsidiary Bank Merger
     Effective Time
     Merger Considerations
     Surrender of Certificates
     Poage Stock Options
     Indemnification and Directors' and Officers' and Company Liability Insurance
     NASDAQ Stock Listing
     Conditions to Consummation of the Merger
     Representations and Warranties
     Poage's Conduct of Business Pending the Merger
     City's Conduct of Business Pending the Merger
     Expenses of the Merger
     Termination of the Merger Agreement
     Voting Agreements
     Acquisition Proposals and Termination Fee
     Amendment
 
 
COMPARISON OF CERTAIN RIGHTS OF POAGE AND CITY SHAREHOLDERS
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF POAGE
 
 
EXPERTS
 
 
LEGAL MATTERS
 
 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Annexes:
 
 
 
 
 
ANNEX A
Agreement and Plan of Merger
A-1
 
 
 
ANNEX B
Opinion of Sandler O'Neill & Partners, L.P.
B-1





QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following are answers to certain questions that you may have regarding the special meeting. You are urged to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this document.

Q:    Why am I receiving this proxy statement/prospectus?
 
A:
You are receiving this proxy statement/prospectus because City Holding Company (“City”) and Poage Bankshares, Inc. (“Poage”) have entered into an Agreement and Plan of Merger dated as of July 11, 2018 (the “Merger Agreement”), attached to this proxy statement/prospectus as Annex A, pursuant to which Poage will be merged with and into City, with City being the surviving entity (the “Merger”). Thereafter, at the time specified by City National Bank of West Virginia in its certificate of merger filed with the OCC, Town Square Bank, a federal savings association and wholly-owned subsidiary of Poage (“Town Square”), will merge with and into City National Bank of West Virginia, a national banking association and wholly-owned subsidiary of City (“City National”), with City National being the surviving entity, which transaction is referred to as the “subsidiary bank merger.” The Merger Agreement and the Merger must be adopted and approved by the holders of a majority of Poage common shares outstanding and entitled to vote at the special shareholder meeting.
 
This proxy statement/prospectus contains important information about the Merger and the special meeting of the Poage shareholders, and you should read it carefully. The enclosed voting materials allow you to vote your Poage common shares without attending the special meeting.
 
Q:
Why are City and Poage proposing to merge?
 
A:
Poage believes that the Merger is in the best interests of its shareholders and other constituencies because, among other reasons, the merger consideration will provide enhanced value and increased liquidity to Poage shareholders. Furthermore, as a result of the Merger, Poage will become part of a larger banking institution, improving its ability to compete with larger financial institutions and better serve its customers’ needs while maintaining the community bank philosophy that both institutions currently share. To review Poage’s reasons for the Merger in more detail, see “THE MERGER-Poage’s Reasons for the Merger” on page 29 of this proxy statement/prospectus.
 
City believes that the Merger is in the best interests of its shareholders and will benefit City and its shareholders and other constituencies by enabling City to further expand into the markets currently served by Poage and strengthening the competitive position of the combined organization. Furthermore, City believes its increased asset size after the Merger will create additional economies of scale and provide opportunities for asset and earnings growth in an extremely competitive banking environment. To review City’s reasons for the Merger in more detail, see “THE MERGER-City’s Reasons for the Merger” on page 44 of this proxy statement/prospectus.
 
Q:
What will Poage shareholders receive in the Merger?
 
A:
Under the terms of the Merger Agreement, shareholders of Poage will be entitled to receive from City, at the effective time of the Merger, merger consideration payable in the form of City common shares to be calculated as set forth in the Merger Agreement. At the effective time of the Merger, each Poage common share will be converted into the right to receive 0.335 City common shares.
 
City will not issue any fractional shares of common stock in connection with the Merger. Instead, each holder of Poage common shares who would otherwise be entitled to receive a fraction of a City common share (after taking into account all shares of Poage common shares owned by such holder at the effective time of the Merger) will receive cash, without interest, in an amount equal to the City fractional common share to which such holder would otherwise be entitled multiplied by the volume weighted average closing sale price of a City common share on the NASDAQ Global Select Market® for the ten consecutive trading days immediately preceding the effective date of the Merger.

Q:
Can I make an election to select the form of merger consideration I desire to receive?
    
A:
No. Each Poage common share will be exchanged for City common shares if the Merger closes.




1



Q:
Does Poage anticipate paying any dividends prior to the effective date of the Merger?
 
A:
Yes. Under the terms of the Merger Agreement, Poage is permitted to pay to its shareholders its usual and customary cash dividend of not greater than $0.06 per share per quarter, but only if Poage reported positive net earnings in its most recently available reported quarterly earnings. Subject to compliance with the foregoing provision and applicable law, Poage plans to pay such a dividend.

Q:
When and where will the Poage special meeting of shareholders take place?
 
A:
The special meeting of Poage shareholders will be held at: 10:00 a.m., local time, on October 30, 2018, at Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101.
 
Q:
What matters will be considered at the Poage special meeting?
 
A:
The shareholders of Poage will be asked to (1) vote to adopt and approve the Merger Agreement and the Merger, (2) vote to approve, on a non-binding advisory basis, the specified compensation payable to certain executive officers of Poage, (3) vote to approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the special meeting to adopt and approve the Merger Agreement and the Merger.

Q:
Is my vote needed to adopt and approve the Merger Agreement and the Merger and to approve the other matters?
 
A:
The adoption and approval of the Merger Agreement and the Merger requires the affirmative vote of the holders of a majority of the Poage common shares outstanding and entitled to vote at the special meeting. The directors of Poage, who, collectively, beneficially own 359,916 Poage common shares, entered into a voting agreement with City, pursuant to which they agreed, subject to certain terms and conditions, to vote all of their shares in favor of the adoption and approval of the Merger Agreement and the Merger.

In addition, the affirmative vote of the holders of at least a majority of the votes cast at the special meeting is required to approve the advisory (non-binding) proposal on the specified compensation payable to certain executive officers of Poage.

The special meeting may be adjourned, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the Merger Agreement. The affirmative vote of a majority of the votes cast at the special meeting is required to adjourn such special meeting.

Q:
What will happen if the advisory (non-binding) proposal on certain executive compensation is not approved by the Poage shareholders?

A:
SEC rules that require Poage to seek an advisory (non-binding) shareholder vote with respect to certain payments that will or may be made to Poage’s named executive officers in connection with the Merger. The vote on the Poage advisory (non-binding) proposal on specified compensation is a vote separate and apart from the vote to approve the Merger Agreement. You may vote for the compensation proposal and against the Merger Agreement proposal, or vice versa. Because the vote on the specified executive compensation is advisory only, it will not be binding on Poage or City and will have no impact on whether the Merger is completed or on whether any contractually obligated payments are made to Poage’s named executive officers.

Q:
How do I vote?
 
A:
If you are a “shareholder of record,” you can vote your shares as follows:
via internet at https://www.cstproxy.com/townsquarebank/sm2018;
via telephone by calling 1 (866) 894-0536 (toll-free);
by completing and returning the enclosed proxy card; or
by voting in person at the meeting.


 

2



Please refer to the specific telephone and internet instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
 
If you hold your Poage common shares in the name of a broker, bank or other nominee, please see the discussion below regarding shares held in “street name.”
 
Q:
Does Poage’s board of directors recommend voting in favor of the Merger Agreement and the Merger?

A:
Yes. After careful consideration, Poage’s board of directors unanimously recommends that Poage shareholders vote “FOR” the adoption and approval of the Merger Agreement and the Merger.

Q:
What will happen if I fail to vote or abstain from voting?
 
A:
If you fail to submit valid proxy instructions or vote in person at the special meeting or if you mark “ABSTAIN” on your proxy card or ballot at the special meeting with respect to the proposal to adopt and approve the Merger Agreement and the Merger, it will have the same effect as a vote “AGAINST” the proposal.
 
The failure to vote in person or submit valid proxy instructions, broker non-votes and abstentions will have no effect on the voting on the proposals to approve the specified executive compensation or to adjourn the special meeting, if necessary, to solicit additional proxies.
 
Q: How do I vote if I own shares through the Poage ESOP?

A:
If you participate in the Town Square Bank Employee Stock Ownership Plan (the “ESOP”), you will receive a vote authorization form for the plan that reflects all shares you may direct the trustee to vote on your behalf under the plan. Under the terms of the ESOP, the trustee votes all shares held by the ESOP, but each ESOP participant may direct the trustee how to vote the Poage common shares allocated to his or her account. The trustee, subject to the exercise of its fiduciary responsibilities, will vote all unallocated Poage common shares held by the ESOP, deemed allocated shares for which no voting instructions are received and shares for which ESOP participants have voted to abstain, in the trustee’s discretion.

Q:
How will my shares be voted if I return a blank proxy card?
 
A:
If you sign, date and return your proxy card and do not indicate how you want your common shares to be voted, then your shares will be voted “FOR” each of the proposals.
 
Q:
If my shares are held in a stock brokerage account or by a bank or other nominee in “street name,” will my broker, bank or other nominee vote my shares for me?

A:
No. You must provide your broker, bank or nominee (the record holder of your common shares) with instructions on how to vote your shares. Please follow the instructions provided by your broker, bank or nominee regarding how to give them instructions on how to vote your shares. If you do not provide voting instructions to your broker, bank or nominee, then your shares will not be voted by your broker, bank or nominee.

Assuming a quorum is present, if you are a Poage shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares,
your broker, bank or other nominee may not vote your shares on the proposal to adopt and approve the Merger Agreement and the Merger, which broker non-votes will have the same effect as a vote “AGAINST” such proposal; and
your broker, bank or other nominee may not vote your shares on the specified executive compensation proposal and the adjournment proposal, which broker non-votes will have no effect on the vote for either of such proposals.

Under the rules of the NASDAQ Capital Market®, brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NASDAQ determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Poage special meeting are such “non-routine” matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

3



Q:    Can I change my vote after I have submitted my proxy?

A:
Yes. Poage shareholders may revoke a proxy at any time before a vote is taken at the special meeting by: (i) filing a written notice of revocation with Poage’s Corporate Secretary at 1500 Carter Avenue, Ashland, Kentucky 41101; (ii) executing and returning another proxy card with a later date; (iii) voting again via the internet or by telephone, or (iv) attending the special meeting and giving notice of revocation in person.

Your attendance at the special meeting will not, by itself, revoke your proxy.

If you hold your common shares in “street name” and you have instructed your broker, bank or nominee to vote your common shares, you must follow directions received from your broker, bank or nominee to change your vote.

Q: If I do not favor the adoption and approval of the Merger Agreement and the Merger, what are my dissenters’ rights?

A:
Under Poage’s articles of incorporation, Poage’s shareholders are not entitled to exercise any right of an objecting shareholder provided under Title 3, Subtitle 2 of the Maryland General Corporation Law (the “MGCL”), unless Poage’s board of directors determines that such rights apply with respect to a transaction. Poage’s board of directors has not made such a determination with respect to the Merger. Accordingly, Poage’s shareholders do not have dissenters’ rights with respect to the Merger. see “Dissenters’ Rights” on page 27 of this proxy statement/prospectus.

Q:
When is the Merger expected to be completed?
 
A:
We are working to complete the Merger as quickly as possible. We expect to complete the Merger in the fourth quarter of 2018, assuming Poage shareholder approval and all applicable governmental approvals have been received by that date and all other conditions precedent to the Merger have been satisfied or waived.
 
Q:
What are the conditions to completion of the Merger?

A:
The obligations of City and Poage to complete the Merger are subject to the satisfaction or waiver of certain closing conditions contained in the Merger Agreement, including the receipt of required regulatory approvals and tax opinions, and the adoption and approval of the Merger Agreement by Poage shareholders. For more information, see “The Merger Agreement-Conditions to Consummation of the Merger,” beginning on page 51.

Q:
What happens if the Merger is not completed?

A:
If the Merger is not completed, Poage shareholders will not receive any consideration for their shares of Poage common stock in connection with the Merger. Instead, Poage will remain an independent, public company, and Poage common stock will continue to be listed and traded on the NASDAQ Capital Market®. In addition, if the Merger Agreement is terminated in certain circumstances, a termination fee may be required to be paid by Poage. For a complete discussion of the circumstances under which a termination fee will be required to be paid, see “THE MERGER AGREEMENT-Acquisition Proposals and Termination Fee” on page 57.

Q:
What are the U.S. federal income tax consequences of the Merger to U.S. holders of Poage common shares?

A:
The obligation of City and Poage to complete the merger is conditioned upon the receipt of a legal opinion from their respective counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The Merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Accordingly, U.S. holders of Poage common shares generally will not recognize gain or loss in connection with the receipt of City common shares in exchange for their Poage common shares in connection with the Merger, but will recognize gain or loss with respect to any cash received in lieu of fractional City common shares. For more information, see “The Merger-Material U.S. Federal Income Tax Consequences of the Merger,” beginning on page 47.


Q:
Should Poage shareholders send in their stock certificates now?
 
A:
No. Either at the time of closing or shortly after the effective time of the Merger, the exchange agent for the Merger (the “Exchange Agent”) will send you a letter of transmittal with instructions informing you how to send in your stock

4



certificates to the Exchange Agent. You should use the letter of transmittal to exchange your Poage stock certificates for the merger consideration. Do not send in your stock certificates with your proxy form.
        
Q:
What should Poage shareholders do if they hold their shares in book-entry form?
 
A:
Poage shareholders holding their shares in book-entry form are not required to take any additional actions. Promptly following the completion of the merger, shares of Poage common stock held in book-entry form automatically will be exchanged for shares of City common stock in book-entry form and cash to be paid in exchange for fractional shares, if any.

Q:
What do I need to do now?
 
A:
After carefully reviewing this proxy statement/prospectus, including its Annexes, please complete, sign and date the enclosed proxy card and return it in the enclosed postage-paid envelope as soon as possible, or otherwise follow the voting instructions set forth in this proxy statement/prospectus. By submitting your proxy, you authorize the individuals named in the proxy card to vote your common shares at the special shareholder meeting in accordance with your instructions. Your vote is very important. Whether or not you plan to attend the special meeting, please submit your proxy with voting instructions to ensure that your common shares will be voted at the special meeting.
 
Q:
Who can answer my questions?
 
A:
If you have questions about the Merger or desire additional copies of this proxy statement/prospectus or additional proxy cards, please contact Poage at the address below.

Poage Bankshares, Inc.
Attention: Bruce VanHorn
President and Chief Executive Officer
1500 Carter Avenue
Ashland, Kentucky 41101
(606) 324-7196


5



SUMMARY
 
This summary highlights selected information from this proxy statement/prospectus. It does not contain all of the information that may be important to you. You should read carefully this entire document and its Annexes and all other documents to which this proxy statement/prospectus refers before you decide how to vote. In addition, we incorporate by reference important business and financial information about City and Poage into this document. For a description of this information, see “Incorporation of Certain Documents by Reference” on page 66. You may obtain the information incorporated by reference into this document without charge by following the instructions in the section entitled “Where You Can Find More Information” in the forepart of this document. Each item in this summary includes a page reference, where applicable, directing you to a more complete description of that item.

The Companies

City Holding Company

City Holding Company
25 Gatewater Road
Charleston, West Virginia 25313
Phone: (304) 769-1100

City is a financial holding company headquartered in Charleston, West Virginia. City conducts its principal activities through its wholly-owned subsidiary, City National Bank of West Virginia (“City National”). City National provides banking, trust and investment management and other financial solutions through its network of 86 bank branches located in West Virginia, Virginia, Kentucky and southeastern Ohio. City’s business activities are currently limited to one reportable business segment, which is community banking.

The principal products and services rendered by City National include:

Commercial Banking - City National offers a full range of commercial banking services to corporations and other business customers. Loans are provided for a variety of business purposes, including financing for commercial and industrial products, income producing commercial real estate, owner-occupied real estate and construction and land development. City National also provides deposit services for commercial customers, including treasury management, lockbox and other cash management services. City National provides merchant credit card services through an agreement with a third party vendor.

Consumer Banking - City National provides banking services to consumers, including checking, savings and money market accounts as well as certificates of deposit and individual retirement accounts. In addition, City National provides consumers with installment and real estate loans and lines of credit. City National also offers credit cards through an agreement with a third party vendor.

Mortgage Banking - City National provides mortgage banking services, including fixed and adjustable-rate mortgages, construction financing, production of conventional and government insured mortgages, secondary marketing and mortgage servicing.

Wealth Management and Trust Services - City National offers specialized services and expertise in the areas of wealth management, trust, investment and custodial services for commercial and individual customers. These services include the administration of personal trusts and estates as well as the management of investment accounts for individuals, employee benefits plans and charitable foundations. City National also provides corporate trust and institutional custody, financial and estate planning and retirement plan services.

At June 30, 2018, City had total assets of approximately $4.4 billion, total loans of approximately $3.2 billion, total deposits of approximately $3.4 billion, and total shareholders’ equity of approximately $503.8 million.
 
On July 11, 2018, City entered into an Agreement and Plan of Merger with Farmers Deposit Bancorp, Inc. (“Farmers”), pursuant to which Farmers will merge with and into City, with City as the surviving corporation (the “Farmers merger”). Immediately thereafter, Farmers Deposit Bank, a Kentucky state-chartered bank and wholly-owned subsidiary of Farmers, will merge with and into City National, with City National as the surviving financial institution. Subject to the terms of the Agreement and Plan of Merger with Farmers, Farmers shareholders will receive in the aggregate $24.9 million in cash for all outstanding Farmers common stock. The Farmers merger is expected to close in the fourth quarter of 2018 and is subject

6



to a number of customary closing conditions, including approval by Farmers shareholders and all applicable bank regulatory agencies.

City’s common shares are traded on the NASDAQ Global Select Market® (sometimes referred to herein as the “NASDAQ”) under the symbol “CHCO”. City is subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, and, therefore, files reports, proxy statements and other information with the SEC. Further important business and financial information about City is incorporated by reference into this proxy statement/prospectus. See “Incorporation of Certain Documents by Reference” on page 66 of this proxy statement/prospectus.
 
Poage Bankshares, Inc.

Poage Bankshares, Inc.
1500 Carter Avenue
Ashland, Kentucky 41101
(606) 324-7196
 
Poage, a Maryland corporation, is a savings and loan holding company headquartered in Ashland, Kentucky. Poage’s common stock is listed on the Nasdaq Capital Market® under the symbol “PBSK.” Poage is the parent holding company for Town Square Bank, a federal savings association headquartered in Ashland, Kentucky. Town Square was originally chartered in 1889. Town Square’s business consists primarily of accepting savings accounts, checking accounts and certificates of deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in first lien one- to four-family mortgage loans, commercial and multi-family real estate loans, commercial and industrial loans, consumer loans, consisting primarily of automobile loans and home equity loans and lines of credit, and construction loans. Town Square also purchases investment securities consisting primarily of mortgage-backed securities issued by United States Government agencies and government-sponsored enterprises, and obligations of state and political subdivisions. Town Square offers a variety of deposit accounts, including savings accounts, NOW and demand accounts, certificates of deposits, money market accounts and retirement accounts. Town Square provides financial services to individuals, families and businesses through our banking offices located in and around Ashland, Nicholasville and Mt. Sterling, Kentucky.
 
The Merger (page 28)
 
The Merger Agreement provides that, if all of the conditions are satisfied or waived, Poage will be merged with and into City, with City surviving. Thereafter, at a later time specified by City National in its certificate of merger filed with the OCC, Town Square will be merged with and into City National. The Merger Agreement is attached to this proxy statement/prospectus as Annex A and is incorporated in this proxy statement/prospectus by reference. We encourage you to read the Merger Agreement carefully, as it is the legal document that governs the Merger.
 
What Poage shareholders will receive in the Merger (page 50)
 
Under the terms of the Merger Agreement, shareholders of Poage will be entitled to receive from City, at the effective time of the Merger, merger consideration payable in the form of City common shares to be calculated as set forth in the Merger Agreement. At the effective time of the Merger, each Poage common share will be converted into the right to receive 0.335 City common share, subject to adjustment under certain circumstances as set forth in the Merger Agreement. The Merger Agreement requires that the merger consideration be adjusted if either: (i) the number of Poage common shares outstanding immediately prior to the effective time of the Merger exceeds the number of shares outstanding as of the date the Merger Agreement was signed, with certain exceptions for the exercise of stock options, or (ii) City changes the number of its common shares outstanding prior to the effective time of the Merger by way of a stock split, stock dividend, recapitalization or similar transaction with respect to the outstanding City common shares, and the record date is prior to the effective time. Following the Merger, Poage shareholders will own approximately 7% of the outstanding City common shares.
 
City will not issue any fractional shares of common stock in connection with the Merger. Instead, each holder of Poage common shares who would otherwise be entitled to receive a fraction of a City common share (after taking into account all shares of Poage common stock owned by such holder at the effective time of the Merger) will receive cash, without interest, in an amount equal to the City fractional share to which such holder would otherwise be entitled multiplied by the volume weighted average closing sale price of a City common share on the NASDAQ Global Select Market® for the ten consecutive trading days immediately preceding the effective date of the Merger.




7




Treatment of Poage Equity Awards (page 51)
 
Immediately prior to the effective time of the Merger, all outstanding stock options to acquire Poage common shares pursuant to Poage’s equity-based compensation plans will be cancelled in exchange for a cash payment, without interest and less applicable withholding taxes, equal to the product of (i) the number of Poage common shares subject to such stock options and (ii) the excess, if any of the per share merger consideration over the per share exercise price of such option. The vesting of all unvested Poage stock options will be accelerated immediately prior to cancellation in exchange for the cash payment.

Immediately prior to the effective time of the Merger, each outstanding share of restricted stock will vest and be converted into the right to receive 0.335 shares of City common stock.

Exchange of Poage common shares (page 50)

The conversion of Poage common stock into the right to receive the merger consideration will occur automatically at the effective time of the Merger. As soon as practicable after the completion of the Merger, but in no event later than five business days thereafter, the Exchange Agent will mail to Poage shareholders a letter of transmittal, together with instructions for the exchange of their Poage common stock certificates for the merger consideration. Until you surrender your Poage stock certificates for exchange after completion of the Merger, you will not be paid dividends or other distributions declared after the Merger with respect to any City common stock into which your Poage shares have been converted. When you surrender your Poage stock certificates accompanied by a properly completed letter of transmittal, City will pay any unpaid dividends or other distributions, without interest, that had become payable with respect to the shares of City common stock into which your Poage shares had been converted.
If you own shares of Poage common stock in “street name” through a broker, bank or other nominee, you should receive or seek instructions from the broker, bank or other nominee holding your shares concerning how to surrender your shares of Poage common stock in exchange for the merger consideration.
If your Poage stock certificates have been lost, stolen or destroyed, you will have to provide an affidavit claiming your Poage stock certificates to be lost, stolen or destroyed, and post a bond in such amount as the exchange agent may direct before you receive any consideration for your shares.

After the completion of the Merger, there will be no further transfers of Poage common stock. Poage stock certificates presented for transfer after the completion of the Merger will be canceled and exchanged for the merger consideration.

Poage special meeting of shareholders (page 24)
 
A special meeting of shareholders of Poage will be held at 10:00 a.m., local time, on October 30, 2018, at Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101, for the purpose of considering and voting on the following matters:
 
a proposal to adopt and approve the Merger Agreement and the Merger;

a proposal to approve, on a non-binding advisory basis, the specified compensation that may be payable to the named executive officers of Poage in connection with the Merger; and
 
• a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the Merger Agreement.
 
You are entitled to vote at the special meeting if you owned Poage common shares as of the close of business on September 4, 2018. As of September 4, 2018, a total of 3,497,243 Poage common shares were outstanding and eligible to be voted at the special meeting.

Required vote (page 24)
 
The adoption and approval of the Merger Agreement and the Merger by Poage will require the affirmative vote of the holders of at least 1,748,622 Poage common shares, which is a majority of the Poage common shares outstanding and entitled to vote at the special meeting. A quorum, consisting of the holders of a majority of the outstanding Poage common shares, must

8



be present in person or by proxy at the special meeting before any action, other than the adjournment of the special meeting, can be taken. The affirmative vote of the holders of a majority of the votes cast at the special meeting is required to approve the advisory (non-binding) proposal on the specified compensation payable to certain executive officers of Poage and to adjourn the special meeting, if necessary, to solicit additional proxies.

As of August 16, 2018, directors of Poage owned an aggregate of 359,916 Poage common shares, an amount equal to approximately 10.3% of the outstanding Poage common shares. The directors of Poage entered into a voting agreement with City on July 11, 2018, pursuant to which they agreed, subject to certain terms and conditions, to vote all of their shares in favor of the adoption and approval of the Merger Agreement. Excluding such shares held by Poage directors, the adoption and approval of the Merger Agreement will require the affirmative vote of the holders of at least 1,388,706 Poage common shares, or 44.3% of the non-committed outstanding shares.

As of the date of this proxy statement/prospectus, City and its directors, executive officers and affiliates beneficially owned no Poage common shares.

Recommendation to Poage shareholders (page 31)
 
The board of directors of Poage unanimously approved the Merger Agreement. The board of directors of Poage believes that the Merger is in the best interests of Poage and its shareholders, and, as a result, the directors unanimously recommend that Poage shareholders vote “FOR the adoption and approval of the Merger Agreement “FOR” the approval of the specified compensation, and “FOR” the proposal to adjourn the special meeting, if necessary and appropriate, to solicit additional proxies.  

In reaching this decision, the board of directors of Poage considered many factors, which are described in the section captioned “THE MERGER-Background of the Merger” and “THE MERGER-Poage’s Reasons for the Merger” beginning on page 28 and page 29, respectively, of this proxy statement/prospectus.
 
Opinion of Poage’s Financial Advisor (page 32)
 
In connection with the Merger, Poage’s financial advisor, Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), delivered a written opinion, dated July 10, 2018, to the Poage board of directors as to the fairness, from a financial point of view, of the exchange ratio of 0.335 in the Merger to the holders of Poage common stock. The full text of Sandler O’Neill’s opinion is attached as Annex B to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Poage’s board of directors in connection with its consideration of the Merger Agreement and the Merger and does not constitute a recommendation to any shareholder of Poage as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the Merger Agreement and the merger. Sandler O’Neill’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of Poage common stock and does not address the underlying business decision of Poage to engage in the Merger, the form or structure of the Merger or any other transactions contemplated in the Merger Agreement, the relative merits of the Merger as compared to any other alternative transactions or business strategies that might exist for Poage or the effect of any other transaction in which Poage might engage.
 
Material U.S. federal income tax consequences of the Merger (page 47)
 
The Merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and it is a condition to the obligation of Poage to complete the Merger that it receives a legal opinion to that effect. Accordingly, for U.S. federal income tax purposes, (i) no gain or loss will be recognized by City or Poage as a result of the Merger, (ii) Poage shareholders will not recognize gain or loss with respect to their receipt of shares of City common stock in exchange for shares of Poage common stock, but (iii) Poage shareholders will recognize gain or loss with respect to any cash received in lieu of fraction shares of City common stock. For more information, see the section entitled “The Merger-Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47.

All Poage shareholders should read carefully the description under the section captioned “The Merger-Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47 of this proxy statement/prospectus and should consult their own tax advisors concerning these matters. All Poage shareholders should consult their tax advisors as to the specific tax

9



consequences of the Merger to them, including the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws.
 
Interests of directors and executive officers of Poage (page 45)

In considering the information contained in this document, you should be aware that Poage’s directors and executive officers have change in control agreements and other compensation agreements or plans that give them financial interests in the Merger that are different from, or in addition to, the interests of Poage stockholders generally. The Poage board of directors was aware of these interests at the time it approved the merger agreement. These interests include, among other things:
change in control agreements between Town Square and each of Bruce VanHorn, President and Chief Executive Officer of Poage, Miles R. Armentrout, Executive Vice President and Chief Credit Officer of Poage, Jane Gilkerson, Executive Vice President and Chief Financial Officer of Poage, James W. King, Executive Vice President, Chief Information Security Officer of Poage and five other officers, that each provide for cash severance payments and continued life, medical, health and disability insurance if the executive’s employment is voluntarily terminated for good reason or involuntarily terminated without just cause following a change in control and during the term of the change in control agreement;
the termination, accelerated vesting and payment of all outstanding Poage stock options in an amount equal to the per share merger consideration less the exercise price per share for each Poage common share subject to a vested or unvested stock option;
the acceleration of vesting of all outstanding Poage restricted stock awards, which will be exchanged for the merger consideration;
a settlement agreement that Poage, Town Square and City entered into with Messrs. VanHorn, Armentrout, King, Ms. Gilkerson and five other officers in full satisfaction of the individual’s rights under their change in control agreements;
an employment agreement that City entered into with Mr. VanHorn;
the appointment of Thomas L. Burnette, a current director of Poage, to City’s board of directors immediately following the Merger; and
the rights of Poage officers and directors under the merger agreement to continued indemnification coverage and continued coverage under directors’ and officers’ liability insurance policies.

Dissenters’ rights of Poage shareholders (page 27)
 
Under Poage’s articles of incorporation, Poage’s shareholders are not entitled to exercise any right of an objecting shareholder provided under Title 3, Subtitle 2 of the MGCL, unless Poage’s board of directors determines that such rights apply with respect to a transaction. Poage’s board of directors has not made such a determination with respect to the Merger. Accordingly, Poage’s shareholders do not have dissenters’ rights with respect to the Merger. For additional information regarding dissenters’ rights, see “Dissenters’ Rights” on page 27 of this proxy statement/prospectus. If Poage shareholders should have any questions regarding dissenters’ rights, such shareholders should consult with their own legal advisers.
 
Certain differences in shareholder rights (page 59)
 
When the Merger is completed, Poage shareholders will receive City common shares and, therefore, will become City shareholders. As City shareholders, your rights will be governed by City’s Amended and Restated Articles of Incorporation and Bylaws, as well as West Virginia law. Notably, Poage shareholders will own less of the combined company and as such will have decreased voting power. The rights of City shareholders are different in certain other important respect than the rights of Poage shareholders. For more information, see “Comparison of certain rights of POAGE and CITY shareholders” beginning on page 59 of this proxy statement/prospectus.

Regulatory approvals required for the Merger (page 45)
The Merger cannot be completed until City receives necessary regulatory approvals, or a waiver of application, which include the approval of the Office of the Comptroller of the Currency (the “OCC”) and approval or waiver of the Federal Reserve Board. City has submitted an application to the OCC for such approval but has not yet received such approval. City also intends to request a waiver for filing an application with the Federal Reserve Board.
 
Conditions to the Merger (page 51)
 
As more fully described in this proxy statement/prospectus and in the Merger Agreement, the completion of the

10



Merger depends on the adoption and approval of the Merger Agreement and the Merger by Poage shareholders and receipt of the required regulatory approvals, in addition to satisfaction of, or where legally permissible, waiver of, other customary conditions. Although City and Poage anticipate that the closing of the Merger will occur in the fourth quarter of 2018, neither City nor Poage can be certain when, or if, the conditions to the Merger will be satisfied or, where permissible, waived, or that the Merger will be completed.  See “THE MERGER AGREEMENT-Conditions to Consummation of the Merger beginning on page 51 of this proxy statement/prospectus.

Termination of the Merger Agreement (page 57)
 
City and Poage may mutually agree to terminate the Merger Agreement and abandon the Merger at any time before the Merger is effective, whether before or after Poage shareholder approval, if the board of directors of each approves such termination by vote of a majority of the members of its board. In addition, either City or Poage, acting alone, may terminate the Merger Agreement and abandon the Merger at any time before the Merger is effective under the following circumstances:
 
 •
if any of the required regulatory approvals is denied;
 
 •
if the Poage shareholders do not adopt and approve the Merger Agreement at the special shareholder meeting;
 
 •
if there is a material breach by the other party of any representation, warranty, covenant or agreement contained in the Merger Agreement that cannot be or has not been cured within 30 days of notice of the breach;
 
 •
if the Merger has not been consummated by February 1, 2019, unless the failure to complete the Merger by that date is due to the knowing action or inaction of the party seeking to terminate; or

 •
if Poage has given written notice to City that (i) Poage desires to enter into a superior acquisition proposal, (ii) the Poage board of directors has failed to recommend to the Poage shareholders that they should approve and adopt the Merger Agreement, or (iii) the Poage board of directors determines to change its recommendation in favor of the Merger Agreement.
 
Acquisition proposals and termination fee (page 57)
 
Because Poage has entered into the Merger Agreement, a binding legal agreement, if either Poage or City terminates the Merger Agreement because (i) Poage desires to enter into a superior acquisition proposal, (ii) the Poage board of directors has failed to recommend to the Poage shareholders that they should approve and adopt the Merger Agreement, or (iii) the Poage board of directors determines to change its recommendation in favor of the Merger Agreement, then Poage shall pay to City a sum of $4 million. See “The Merger Agreement-Acquisition Proposals and Termination Fee” beginning on page 57 of this proxy statement/prospectus. 


11



SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR CITY
 
The following table summarizes financial results achieved by City for the periods and at the dates indicated and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” City’s Consolidated Financial Statements and the notes to the Consolidated Financial Statements contained in reports that City has previously filed with the SEC. Historical financial information for City can be found in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The information at and for the six months ended June 30, 2018 and 2017 is unaudited. However, in the opinion of management of City, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the results of operations for the unaudited periods have been made. The selected operating data presented below for the six months ended June 30, 2018 and 2017 are not necessarily indicative of the results that may be expected for future periods. See “Where You Can Find More Information” in the forepart of this document for instructions on how to obtain the information that has been incorporated by reference. You should not assume the results of operations for past periods noted below indicate results for any future period.
 
     The information below has been derived from City’s Consolidated Financial Statements.
 
At or for the Six Months Ended June 30,
 
At or for the Year Ended December 31,
 
2018
2017
 
2017
2016
2015(1)
2014
2013(2)
Summary of Operations
 
 
 
 
 
 
 
 
Total interest income
$ 76,824
$ 69,512
 
$ 142,930
$ 132,152
$ 127,074
$ 129,566
$ 138,539
Total interest expense
10,604
7,802
 
16,805
13,207
11,830
11,960
13,301
Net interest income
66,220
61,710
 
126,125
118,945
115,244
117,606
125,238
(Recovery of) provision for loan losses
        (1,882)
1,191
 
3,006
4,395
6,988
4,054
6,848
Total non-interest income
30,105
33,430
 
63,607
58,825
67,206
58,722
58,006
Total non-interest expenses
49,854
48,776
 
95,981
96,164
92,951
95,041
102,906
Income before income taxes
48,353
45,173
 
90,745
77,211
82,511
77,233
73,490
Income tax expense
9,763
14,459
 
36,435
25,083
28,414
24,271
25,275
Net income available to common  shareholders
38,590
30,714
 
54,310
52,128
54,097
52,962
48,215
 
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
 
Net income basic
$ 2.49
$ 1.98
 
$ 3.49
$ 3.46
$ 3.54
$ 3.40
$ 3.07
Net income diluted
2.48
1.98
 
3.48
3.45
3.53
3.38
3.04
Cash dividends declared
0.92
0.88
 
1.78
1.72
1.68
1.60
1.48
Book value per share
32.6
31.54
 
32.17
29.25
27.62
25.79
24.61
 
 
 
 
 
 
 
 
 
Selected Average Balances
 
 
 
 
 
 
 
 
Total loans
$ 3,135,987
$ 3,064,665
 
$ 3,082,448
 $ 2,920,837
$ 2,691,304
$ 2,593,597
$ 2,523,755
Securities
630,793
555,357
 
582,124
495,206
383,685
365,904
360,860
Interest-earning assets
3,796,185
3,642,949
 
3,691,714
3,426,158
3,084,722
2,968,706
2,905,783
Deposits
3,397,126
3,320,999
 
3,298,385
3,166,817
2,947,543
2,824,985
2,821,573
Long-term debt
16,495
16,495
 
16,495
16,495
16,495
16,495
16,495
Total shareholders’ equity
500,438
479,726
 
492,668
431,031
415,051
395,940
373,102
Total assets
4,182,933
4,055,283
 
4,079,674
3,835,081
3,564,730
3,404,818
3,378,351


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Selected Year-End Balances
 
 
 
 
 
 
 
 
Net loans
$ 3,138,592

$ 3,083,767
 
$ 3,108,574
$ 3,026,496
$ 2,843,283
$ 2,631,916
$ 2,585,622
Securities
641,553

590,497
 
628,985
539,604
471,318
354,686
370,120
Interest-earning assets
3,822,062

3,702,047
 
3,784,453
3,611,706
3,345,136
3,016,477
2,986,194
Deposits
3,421,778

3,278,147
 
3,315,634
3,231,653
3,083,975
2,872,787
2,785,133
Long-term debt
16,495

16,495
 
16,495
16,495
16,495
16,495
16,495
Total shareholders’ equity
503,754

492,507
 
502,507
442,438
419,272
390,853
387,623
Total assets
4,374,383

4,057,399
 
4,132,281
3,984,403
3,714,059
3,461,633
3,368,238
 
 
 
 
 
 
 
 
 
Performance Ratios
 
 
 
 
 
 
 
 
Return on average assets
1.85%

1.51%
 
1.33%
1.36%
1.52%
1.56%
1.43%
Return on average equity
15.4

12.8
 
11.0
12.1
13.0
13.4
12.9
Return on average tangible common equity
18.3

15.3
 
13.1
14.8
15.8
16.5
16.2
Net interest margin
3.54

3.46
 
3.46
3.50
3.76
3.98
4.33
Efficiency ratio
51.5

53.4
 
51.5
54.8
53.7
53.7
55.8
Dividend payout ratio
37.10

44.44
 
51.00
49.70
47.50
47.10
48.20
 
 
 
 
 
 
 
 
 
Asset Quality
 
 
 
 
 
 
 
 
Net (recoveries) charge-offs to average loans
0.00%

0.12%
 
0.13%
0.13%
0.29%
0.18%
0.20%
Provision for loan losses to average loans
              (0.12)

                0.08
 
0.10
0.15
0.26
0.16
0.27
Allowance for loan losses to nonperforming loans
127.63

177.63
 
178.39
140.10
110.37
127.62
90.25
Allowance for loan losses to total loans
0.53

0.62
 
0.60
0.65
0.67
0.76
0.79
 
 
 
 
 
 
 
 
 
Consolidated Capital Ratios
 
 
 
 
 
 
 
 
CET 1 Capital
15.49%

14.88%
 
15.10%
13.30%
13.70%
*
*
Tier 1 Capital
16.05

15.45
 
15.70
13.90
14.30
13.40
13.00
Total Capital
16.65

16.17
 
16.30
14.70
15.10
14.20
13.80
Tier 1 Leverage
11.13

10.79
 
11.00
10.20
10.20
9.90
9.80
Average equity to average assets
11.96

11.83
 
12.10
11.20
11.60
11.60
11.00
Tangible equity to tangible assets (end of period)
9.90

10.40
 
10.45
9.30
9.34
9.35
9.49
 
 
 
 
 
 
 
 
 
Full-time equivalent employees
849

839
 
839
847
853
889
923
 
 
 
 
 
 
 
 
 
*Basel III CET 1 ratio requirements were effective beginning January 1, 2015 and were not required for prior periods.
 
 
 
 
 
 
 
 
 
(1) - In January 2015, the Company sold its insurance operations, CityInsurance. In November 2015, the Company acquired three branches in Lexington, Kentucky from American Founder's Bank.
(2) - In January 2013, the Company acquired Community Financial Corporation and its wholly owned subsidiary, Community Bank.


13



SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR POAGE
 
The following table summarizes financial results achieved by Poage for the periods and at the dates indicated and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Poage’s Consolidated Financial Statements and the notes to the Consolidated Financial Statements contained in reports that Poage has previously filed with the SEC. Historical financial information for Poage can be found in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The information at and for the six months ended June 30, 2018, for the six months ended June 30, 2017 is unaudited. However, in the opinion of management of Poage, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the results of operations for the unaudited periods have been made. The selected operating data presented below for the six months ended June 30, 2018 and 2017 are not necessarily indicative of the results that may be expected for future periods. See “Where You Can Find More Information” in the forepart of this document for instructions on how to obtain the information that has been incorporated by reference. You should not assume the results of operations for past periods noted below indicate results for any future period.
 
     The information below has been derived from Poage’s Consolidated Financial Statements.
 
At June 30,
 
At December 31,
 
2018
 
2017
2016
2015
2014
2013
Financial Condition Data:
(In thousands)
Total assets
$ 447,877
 
$ 446,880
$ 458,465
$ 435,088
$ 414,702
$ 289,230
Cash and cash equivalents
26,401
 
20,499
24,389
23,876
16,967
6,684
Interest-bearing deposits in other financial institutions
3,735
 
2,988
1,992
1,992
0
0
Investment securities
67,087
 
64,130
58,261
63,975
65,262
86,062
Loans held for sale
258
 
256
611
367
712
307
Loans receivable, net
321,138
 
328,554
343,921
314,143
302,012
177,088
Deposits
372,065
 
370,050
374,708
343,130
323,138
209,440
Federal Home Loan Bank advances
6,579
 
7,419
9,332
15,803
17,952
19,958
Subordinated debenture
2,922
 
2,890
2,825
2,761
2,697
0
Retained earnings
31,935
 
31,423
35,065
34,270
31,933
30,789
Total shareholders’ equity
61,347
 
61,715
68,701
71,241
68,151
57,658

 
For the Six
For the Six
 
 
 
 
 
For the Three
 
Months Ended
Months Ended
 
 
 
 
 
Months Ended
 
June 30,
June 30,
 
For the Years Ended December 31,
December 31,
 
2018
2017
 
2017
2016
2015
2014
2013
 
(In thousands)
Operating Data:
 
 
 
 
 
 
 
 
Interest and dividend income
$ 9,264
$ 9,472
 
$ 18,982
$ 19,104
$ 19,106
$ 17,592
$ 2,883
Interest expense
1,524
1,348
 
          2,847
2,420
            2,210
2,164
        462
Net interest income
7,740
    8,124
 
16,135
16,684
16,896
15,428
2,421
Provision for loan losses
1,166
    699
 
             3,516
1,249
514
504
0
Net interest income after provision for loan losses
6,574
     7,425
 
12,619
15,435
16,382
14,924
2,421
Non-interest income
2,188
     1,371
 
2,700
3,023
3,912
3,017
274
Non-interest expenses
7,651
     7,577
 
       18,118
      16,031
          16,146
       15,483
      2,839
Income (loss) before income taxes
1,111
     1,219
 
(2,799)
2,427
4,148
2,458
(144)
Income taxes
178
     389
 
              69
632
971
            612
          16
Net income (loss)
933
     830
 
(2,868)
     1,795
3,177
1,846
         (160)

14



 
 
 
 
 
 
 
 
At or For the
 
At or For the Six
At or For the Six
 
 
 
 
 
Three Months
 
Months Ended
Months Ended
 
 
 
 
 
Ended
 
June 30,
June 30,
 
For the Years Ended December 31,
December 31,
 
2018
2017
 
2017
2016
2015
2014
2013
 
 
Performance Ratios:
 
 
 
 
 
 
 
 
Return on average assets
0.42%
0.37%
 
(0.63%)
0.40%
0.75%
0.47%
(0.22%)
Return on average equity
3.06%
2.43%
 
(4.24%)
2.54%
4.56%
2.84%
(1.11%)
Interest rate spread (1)
3.46%
3.59%
 
3.53%
3.80%
4.07%
4.01%
3.38%
Net interest margin (2)
3.68%
3.79%
 
3.73%
3.98%
4.24%
4.16%
3.54%
Noninterest expense to average assets
3.05%
3.34%
 
3.95%
4.59%
3.79%
3.81%
3.98%
Efficiency ratio (3)
74.83%
79.80%
 
96.19%
81.35%
77.60%
83.51%
105.34%
Dividend payout ratio (4)
42.86%
50.00%
 
(28.57%)
56.00%
26.44%
38.46%
n/a
Average interest-earning assets to average interest-bearing liabilities
129.31%
129.74%
 
129.45%
129.63%
131.09%
127.56%
122.33%
Average equity to average assets
14.75%
15.07%
 
14.75%
15.85%
16.38%
17.54%
19.89%
 
 
 
 
 
 
 
 
 
Capital Ratios (Bank only):
 
 
 
 
 
 
 
 
Total risk-based capital to risk-weighted assets
18.24%
21.83%
 
19.10%
21.01%
24.36%
24.34%
32.12%
Tier 1 capital to risk-weighted assets
16.98%
20.92%
 
17.85%
20.23%
23.68%
23.61%
30.87%
Tier 1 capital to adjusted total assets
12.39%
14.02%
 
11.80%
13.52%
15.31%
15.07%
16.16%
Common equity Tier 1 capital to risk-weighted assets
16.98%
20.92%
 
17.85%
20.23%
23.68%
n/a
n/a
 
 
 
 
 
 
 
 
 
Asset Quality Ratios:
 
 
 
 
 
 
 
 
Allowance for loan losses as a percentage of total loans
1.40%
0.79%
 
1.40%
0.68%
0.59%
0.63%
1.07%
Allowance for loan losses as a percentage of non-performing loans
59.12%
46.37%
 
73.62%
50.10%
41.27%
56.99%
206.05%
Net charge-offs to average outstanding loans during the period, annualized where applicable
0.39%
0.11%
 
0.35%
0.23%
0.18%
0.16%
0.18%
Non-performing loans as a percent of total loans
2.37%
1.71%
 
1.91%
1.35%
1.42%
1.10%
0.52%
Non-performing assets as a percent of total assets
1.89%
1.42%
 
1.75%
1.18%
1.36%
1.26%
0.45%
Non-performing assets and troubled debt restructurings to total assets
1.94%
1.90%
 
2.24%
1.85%
1.36%
1.26%
0.45%
 
 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
Number of offices
9
9
 
9
10
9
8
6
Loan production offices
1
1
 
1
3
1
1
1

(1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
(2) Represents net interest income as a percent of average interest-earning assets.
(3) Represents noninterest expense divided by the sum of net interest income and noninterest income.
(4) Represents dividends declared per share divided by the net income (loss) per share.



15



UNAUDITED COMPARATIVE PER SHARE DATA
 
The following table sets forth for City and Poage certain historical, pro forma and pro forma-equivalent per share financial information as of and for the year ended December 31, 2017, and as of and for the six months ended June 30, 2018. The information in the table below, in part, is derived from and should be read together with the historical Consolidated Financial Statements of City and Poage that are incorporated by reference in this proxy statement/prospectus. The unaudited pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect certain anticipated costs and benefits of the Merger and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the Merger been consummated at the beginning of the periods presented. The pro forma data gives effect to the Merger and is based on numerous assumptions and estimates. The pro forma combined per share data and Poage equivalent pro forma per share data are prepared assuming a maximum of 1,171,576 common shares will be issued in the Merger. See “The Merger Agreement-Merger Consideration” on page 50.

 
As of and for
the Year
Ended
December
31, 2017
 
As of and for the Six Months Ended June 30, 2018
Earnings (loss) per share:  Basic
 
 
 
City total historical
$
3.49

 
$
2.49

Poage historical
(0.84
)
 
0.28

Pro forma total combined
3.14

 
2.35

Equivalent pro forma for one share of Poage common stock
1.05

 
0.79

 
 

 
 
Earnings (loss) per share:  Diluted
 

 
 
City total historical
3.48

 
2.48

Poage historical
(0.84
)
 
0.28

Pro forma combined
3.13

 
2.35

Equivalent pro forma for one share of Poage common stock
1.05

 
0.79

 
 

 
 
Cash dividends declared per share
 

 
 
City historical
1.78

 
0.92

Poage historical
0.24

 
0.12

Pro forma combined
1.74

 
0.88

Equivalent pro forma for one share of Poage common stock
0.58

 
0.3

 
 

 
 
Book value per share:
 

 
 
City historical
32.17

 
32.6

Poage historical
17.56

 
17.54

Pro forma combined
34.57

 
34.99

Equivalent pro forma for one share of Poage common stock
11.58

 
11.72



16



MARKET PRICE AND DIVIDEND INFORMATION
 
City’s common shares are traded on the NASDAQ Global Select Market® under the symbol “CHCO.” Poage’s common shares are traded on the NASDAQ Capital Market® under the symbol “PBSK.”

The information presented in the following table reflects the last reported sale prices per share of City’s common shares and Poage’s common shares as of July 11, 2018, the last trading day preceding our public announcement of the Merger, and on August 31, 2018, the last practicable day for which information was available prior to the date of this proxy statement/prospectus. The table also presents the equivalent market value per Poage common share on July 11, 2018 and August 31, 2018, determined by multiplying the share price of a City common share on such dates by the exchange ratio of 0.335. No assurance can be given as to what the market price of City’s common shares will be if and when the Merger is consummated.
 
 
City’s
Common Shares


Poage’s
Common Shares
Poage’s
Equivalent
Per Share Price
 
 
 
 
July 11, 2018
$
78.92

$
20.45

$
26.44

August 31, 2018
$
81.08

$
26.50

$
27.16

 
The following table lists the high and low prices per share for City’s common shares and Poage’s common shares and the cash dividends declared by each company for the periods indicated.

 
City’s Common Shares
 
Poage's Common Shares
 
High
Low
Dividends
 
High
Low
Dividends
2016
 
 
 
 
 
 
 
First Quarter
$
47.78

$
40.82

$
0.43

 
$
18.85

$
16.59

$
0.06

Second Quarter
$
50.14

$
43.06

$
0.43

 
$
18.27

$
15.50

$
0.06

Third Quarter
$
50.60

$
44.53

$
0.43

 
$
19.42

$
17.04

$
0.08

Fourth Quarter
$
68.29

$
48.49

$
0.43

 
$
20.90

$
17.45

$
0.08

 
 
 
 
 
 
 
 

2017
 
 
 
 
 
 
 
First Quarter
$
67.93

$
60.86

$
0.44

 
$
20.25

$
18.80

$
0.06

Second Quarter
$
72.78

$
61.34

$
0.44

 
$
19.75

$
18.75

$
0.06

Third Quarter
$
71.91

$
59.94

$
0.44

 
$
19.42

$
17.20

$
0.06

Fourth Quarter
$
73.98

$
65.50

$
0.46

 
$
21.00

$
18.10

$
0.06

 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
First Quarter
$
72.87

$
65.03

$
0.46

 
$
20.20

$
19.00

$
0.06

Second Quarter
$
78.44

$
67.95

$
0.46

 
$
19.95

$
18.85

$
0.06

Third Quarter
$
82.79

$
75.59

$
0.46

 
$
27.00

$
19.90

$
0.06

(through August 31, 2018)


17



RISK FACTORS
 
In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the section “Forward-Looking Statements” commencing on page 22, you should carefully consider the following risk factors in deciding how to vote for the proposals presented in this proxy statement/prospectus. The following is a discussion of the most significant factors that make an investment in City common stock speculative or risky, but does not purport to present an exhaustive description of such risks. You should also consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” in the forepart of this document.

Risks Related to the Merger

The market value of City common shares you receive in the Merger may decrease if there are fluctuations in the market price of City’s common shares following the Merger.
 
Under the terms of the Merger Agreement, shareholders of Poage will be entitled to receive from City, at the effective time of the Merger, merger consideration payable in the form of City common shares to be calculated as set forth in the Merger Agreement. At the effective time of the Merger, each Poage common share will be converted into the right to receive 0.335 City common share, subject to adjustment under certain circumstances as set forth in the Merger Agreement. However, there will be no adjustment to the merger consideration for changes in the market price of City common shares or Poage common shares.
  
Any change in the market price of City common shares prior to the completion of the Merger will affect the market value of the merger consideration that Poage shareholders will receive following completion of the Merger. Stock price changes may result from a variety of factors that are beyond the control of City and Poage, including but not limited to general market and economic conditions, changes in their respective businesses, operations and prospects, and regulatory considerations. Therefore, at the time of the Poage special shareholder meeting, Poage shareholders will not know the precise market value of the consideration they will receive at the effective time of the Merger. Poage shareholders should obtain current sale prices for City common shares before voting their shares at the Poage special meeting.  

City could experience difficulties in managing its growth and effectively integrating the operations of Poage and Town Square, as well as the operations of its simultaneous acquisition.
 
City plans to acquire Farmers Deposit Bancorp, Inc. (“Farmers”) in the same period of time during which it acquires Poage. The earnings, financial condition and prospects of City after the Merger will depend in part on City’s ability to integrate successfully the operations of Poage, Town Square, Farmers and Farmers Deposit Bank (the wholly-owned operating subsidiary of Farmers), and to continue to implement its own business plan. City may not be able to fully achieve the strategic objectives and projected operating efficiencies anticipated in the Merger. The costs or difficulties relating to the integration of Poage, Town Square, Farmers and Farmers Deposit Bank with the City organization may be greater than expected or the cost savings from any anticipated economies of scale of the combined organization may be lower or take longer to realize than expected. Inherent uncertainties exist in integrating the operations of any acquired entity, and City may encounter difficulties, including, without limitation, loss of key employees and customers, and the disruption of its ongoing business or possible inconsistencies in standards, controls, procedures and policies. These factors could contribute to City not fully achieving the expected benefits from the Merger.

The Merger Agreement limits Poage’s ability to pursue alternatives to the Merger with City, may discourage other acquirers from offering a higher valued transaction to Poage and may, therefore, result in less value for the Poage shareholders.
 
The Merger Agreement contains a provision that, subject to certain limited exceptions, prohibits Poage from soliciting, negotiating, or providing confidential information to any third party relating to any competing proposal to acquire Poage or Town Square.

In addition, if the Merger Agreement is terminated because (i) Poage desires to enter into a superior acquisition proposal, (ii) the Poage board of directors has failed to recommend to the Poage shareholders that they should approve and adopt the Merger Agreement, or (iii) the Poage board of directors determines to change its recommendation in favor of the Merger Agreement, then Poage shall pay to City a sum of $4 million. The requirement that Poage make such a payment could discourage another company from making a competing proposal.



18



The opinion of Poage’s financial advisor delivered to Poage’s board of directors prior to execution of the Merger Agreement does not reflect changes in circumstances subsequent to the date of such opinion.
 
The Poage board of directors received an opinion, dated July 10, 2018, from its financial advisor as to the fairness of the exchange ratio of 0.335 from a financial point of view as of the date of such opinion. Subsequent changes in the operation and prospects of Poage or City, general market and economic conditions and other factors that may be beyond the control of Poage or City may significantly alter the value of Poage or City or the prices of shares of Poage common stock or City common stock by the time the Merger is completed. The opinion does not address the fairness of the exchange ratio from a financial point of view at the time the Merger is completed, or as of any other date other than the date of such opinion. The opinion of Poage’s financial advisor is attached as Annex B to this proxy statement/prospectus. For a description of the opinion, see “THE MERGER-Opinion of Poage’s Financial Advisor” on page 32 of this proxy statement/prospectus. 
 
Poage shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management of the combined organization.
 
The Merger will result in Poage’s shareholders having an ownership stake in the combined company that is smaller than their current stake in Poage. Upon completion of the Merger, we estimate that former Poage shareholders will own approximately 7% of the issued and outstanding common shares of the combined company. Consequently, former Poage shareholders, as a general matter, will have less influence over the management and policies of the combined company after the effective time of the Merger than they currently exercise over the management and policies of Poage.

Failure to complete the Merger could negatively impact the value of Poage’s stock and future businesses and financial results.
 
 If the Merger is not completed, the ongoing business of Poage may be adversely affected and Poage will be subject to several risks, including the following:
 
Poage will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, financial advisor and printing fees;

Poage may be required, under certain circumstances, to pay City a termination fee of $4 million under the Merger Agreement;

under the Merger Agreement, Poage is subject to certain restrictions regarding the conduct of its business before completing the Merger, which may adversely affect its ability to execute certain of its business strategies; and

matters relating to the Merger may require substantial commitments of time and resources by Poage management, which could otherwise have been devoted to other opportunities that may have been beneficial to Poage as an independent company.
 
In addition, if the Merger is not completed, Poage may experience negative reactions from its customers and employees. Employees could resign and obtain other employment as a result of the potential Merger. The market price of Poage’s common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed. Poage also could be subject to litigation related to any failure to complete the Merger. If the Merger is not completed, Poage cannot assure its shareholders that the risks described above will not materialize and will not materially affect the business, financial results and stock price of Poage.

If the Merger is not completed, Poage will have incurred substantial expenses without realizing the expected benefits of the Merger.

Poage has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing this proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the Merger. If the Merger is not completed, Poage would have to recognize these expenses without realizing the expected benefits of the Merger.





19



Completion of the Merger is subject to many conditions and if these conditions are not satisfied or waived, the Merger will not be completed. Further, the Merger Agreement may be terminated in accordance with its terms.

The respective obligations of City and Poage to complete the Merger are subject to the fulfillment or written waiver of many conditions, including approval by the requisite vote of Poage shareholders, receipt of requisite regulatory approvals, absence of orders prohibiting completion of the Merger, effectiveness of the registration statement of which this document is a part, approval of the City shares to be issued to Poage shareholders for listing on the NASDAQ, the continued accuracy of the representations and warranties by both parties, the performance by both parties of their covenants and agreements, and the receipt by each of City and Poage of an opinion from its respective counsel to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. See “THE MERGER AGREEMENT-Conditions to the Consummation of the Merger” on page 51 of this proxy statement/prospectus. These conditions to the consummation of the Merger may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by February 1, 2019, either City or Poage may have the opportunity to choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after approval by the requisite vote of the Poage shareholders. In addition, City or Poage may elect to terminate the Merger Agreement in certain other circumstances. See “THE MERGER AGREEMENT-Termination of the Merger Agreement” on page 57 of this proxy statement/prospectus for a fuller description of these circumstances.

Potential litigation against City or Poage could result in an injunction preventing the completion of the Merger or a judgment resulting in the payment of damages.

Shareholders of Poage may file lawsuits against City, Poage and/or the directors and officers of either company in connection with the Merger. These lawsuits could prevent or materially delay the completion of the Merger and result in significant costs to City and/or Poage, including any costs associated with the indemnification of directors and officers. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect City’s business, financial condition, results of operations and cash flows.

The City common shares to be received by Poage shareholders upon completion of the Merger will have different rights from Poage common shares.

Upon completion of the Merger, Poage shareholders will no longer be shareholders of Poage but will instead become shareholders of City, and their rights as shareholders of City will be governed by West Virginia law and by City’s Amended and Restated Articles of Incorporation and Bylaws. The terms of City’s Amended and Restated Articles of Incorporation and Bylaws and West Virginia law are in some respects materially different than the terms of Poage’s Articles of Incorporation and Bylaws and Maryland law. See “COMPARISON OF CERTAIN RIGHTS OF POAGE AND CITY SHAREHOLDERS” on page 59 of this proxy statement/prospectus.
Certain of Poage’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of Poage’s shareholders generally.
In considering the information contained in this proxy statement/prospectus, you should be aware that some of Poage’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of Poage’s shareholders generally. These interests include the vesting in full of certain outstanding Poage stock options, rights to continued indemnification and insurance coverage by City after the Merger for acts or omissions occurring before the Merger, serving on the boards of City and City National, and settlement payments. These interests and arrangements may create potential conflicts of interest. Poage’s board of directors was aware of these interests and considered these interests, among other matters, when making its decision to adopt and approve the Merger Agreement and in recommending that Poage shareholders vote in favor of adopting and approving the Merger Agreement. For a more complete discussion of these interests, see “The Merger-Interests of Poage’s Directors and Executive Officers in the Merger,” beginning on page 45 of this proxy statement/prospectus.
Following the Merger, a high percentage of the combined company’s loan portfolio will remain in West Virginia, Virginia, Kentucky and Ohio and in commercial and residential real estate. Deteriorations in economic conditions in this area or in the real estate market generally could be more harmful to the combined company compared to more diversified institutions.
 As of June 30, 2018, approximately $162.8 million, or 50%, of Poage’s loan portfolio was comprised of residential real estate loans, and $80.6 million, or 25%, of Poage’s loan portfolio was comprised of commercial real estate loans. As of June 30, 2018, approximately $1.47 billion, or 47%, of City’s loan portfolio was comprised of residential real estate loans, and $1.29 billion, or 41%, of City’s loan portfolio was comprised of commercial real estate loans. As a result of the Merger, the combined company’s loan portfolio, as of June 30, 2018, would have consisted of $1.64 billion, or 47%, of residential real estate loans and $1.38 billion, or 40%, of commercial real estate loans.

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Inherent risks of commercial real estate (“CRE”) lending include the cyclical nature of the real estate market, construction risk and interest rate risk. The cyclical nature of real estate markets can cause CRE loans to suffer considerable distress. During these times of distress, a property’s performance can be negatively affected by tenants’ deteriorating credit strength and lease expirations in times of softening demand caused by economic deterioration or over-supply conditions. Even if borrowers are able to meet their payment obligations, they may find it difficult to refinance their full loan amounts at maturity due to declines in property value. Other risks associated with CRE lending include regulatory changes and environmental liability. Regulatory changes in tax legislation, zoning, environmental regulation, or similar external conditions may affect property values and the economic feasibility of existing and proposed real estate projects. Environmental liability as a result of contamination may decrease the real estate collateral’s value or render the collateral worthless. Furthermore, the cost that may be imposed on a responsible borrower for the remediation of a contaminated property may severely impair the borrower’s ability to repay the loan.
The combined company’s CRE loan portfolio will be concentrated in West Virginia, Virginia, Kentucky and Ohio. There is a wide variety of economic conditions within the local markets of the four states in which most of the combined company’s CRE loan portfolio will be situated. Rates of employment, consumer loan demand, household formation, and the level of economic activity can vary widely from state to state and among metropolitan areas, cities and towns. Metropolitan markets comprise various submarkets where property values and demand can be affected by many factors, such as demographic makeup, geographic features, transportation, recreation, local government, school systems, utility infrastructure, tax burden, building-stock age, zoning and building codes, and available land for development. Despite the Merger, as a result of the continued high concentration of the combined company’s loan portfolio, the combined company may be more sensitive, compared to more diversified institutions, to future disruptions in, and deterioration of, this market, which could lead to losses which could have a material adverse effect on the business, financial condition and results of operations of the combined company.
Risks Related to City’s Business

You should read and consider risk factors specific to City’s business that may also affect the combined company after the Merger, described in City’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as updated by subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed by City with the SEC and incorporated by reference into this document. See “INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE” on page 66 of this proxy statement/prospectus.

Risks Related to Poage’s Business

You should read and consider risk factors specific to Poage’s business that may also affect the combined company after the Merger, described in Poage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which has been filed by Poage with the SEC and incorporated by reference into this document. See “INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE” on page 66 of this proxy statement/prospectus.


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FORWARD-LOOKING STATEMENTS
 
This proxy statement/prospectus and the documents incorporated herein by reference contain forward-looking statements, including statements about City’s, Poage’s and the combined entity’s financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements express City’s and Poage’s management’s current expectations or forecasts of future events and, by their nature, are subject to assumptions, risks and uncertainties. Certain statements contained in this proxy statement/prospectus and the documents incorporated herein by reference that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), notwithstanding that such statements are not specifically identified.

In addition, certain statements may be contained in the future filings of City and Poage with the SEC, in press releases, and in oral and written statements made by or with the approval of City or Poage that are not statements of historical fact and constitute forward-looking statements within the meaning of the Reform Act. Examples of forward-looking statements include, but are not limited to:
 
statements about the benefits of the Merger between City and Poage, including future financial and operating results, cost savings, enhanced revenues and accretion to reported earnings that may be realized from the Merger;

statements regarding plans, objectives and expectations of City or Poage or their respective management or boards of directors;

statements regarding future economic performance; and

statements regarding assumptions underlying any such statements.

Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
 
Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

the risk that the businesses of City and Poage will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

City’s ability to integrate the Farmers acquisition and any future acquisition targets may be unsuccessful or may be more difficult, time-consuming or costly than expected;

expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame;

revenues or earnings following the Merger may be lower than expected;

deposit attrition, operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected;

the inability to obtain governmental approvals of the Merger on the proposed terms and schedule;

the failure of Poage’s shareholders to approve the Merger;

local, regional, national and international economic conditions and the impact they may have on City and its customers and City’s assessment of that impact;

changes in the level of non-performing assets, delinquent loans and charge-offs;

material changes in the value of City’s common shares;


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changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

the risk that management’s assumptions and estimates used in applying critical accounting policies prove unreliable, inaccurate or not predictive of actual results;

inflation, interest rate, securities market and monetary fluctuations;

changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity;

competitive pressures among depository and other financial institutions may increase and have an effect on pricing, spending, third-party relationships and revenues;

changes in laws and regulations (including laws and regulations concerning taxes, banking and securities) with which City and Poage must comply;

the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve;

legislation affecting the financial services industry as a whole, and/or City and its subsidiaries, individually or collectively;

governmental and public policy changes; and

the impact on City’s business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts.

Additional factors that could cause City’s and Poage’s results to differ materially from those described in the forward-looking statements can be found in City’s and Poage’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to City or Poage or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements referenced above. Forward-looking statements speak only as of the date on which such statements are made. City and Poage undertake no obligation to update any forward-looking statement.


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THE SPECIAL MEETING OF SHAREHOLDERS OF POAGE


Time, Date and Place
 
The Poage special meeting is scheduled to be held as follows:
Date: October 30, 2018
Time 10:00 a.m., local time
Place: Ashland Community and Technical College, Technology Conference Room, 1400 College Drive, Ashland, Kentucky 41101

Matters to be Considered

At the Poage special meeting, Poage’s shareholders will be asked to approve:
A proposal to adopt and approve the Merger Agreement and the Merger.
A proposal to approve, on an advisory basis, specified compensation that may be payable to the named executive officers of Poage in connection with the Merger.
A proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the Merger Agreement and the Merger.

Record Date; Shares Outstanding and Entitled to Vote
 
You are entitled to vote if the records of Poage showed that you held shares of Poage common stock as of the close of business on September 4, 2018, which is the record date for the Poage special meeting. As of the close of business on the record date, 3,497,243 shares of Poage common stock were outstanding. Each share of Poage common stock has one vote on each matter presented to shareholders. If your Poage shares are held in “street name” by your broker, bank or other nominee and you wish to vote in person at the Poage special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the Poage special meeting.

Votes Required; Quorum
 
The Poage special meeting will conduct business only if a majority of the outstanding shares of Poage common stock is represented in person or by proxy at the meeting to constitute a quorum. If you submit valid proxy instructions or attend the meeting in person, your shares will be counted to determine whether there is a quorum, even if you abstain from voting. If you fail to provide voting instructions to your broker, bank or other nominee with respect to a proposal, that broker, bank or other nominee will not vote your shares with respect to that proposal.
Approval of the Merger Agreement and the Merger requires the affirmative vote of a majority of the outstanding shares of Poage common stock. Failure to submit valid proxy instructions or to vote in person will have the same effect as a vote against the Merger Agreement and the Merger. Broker non-votes and abstentions from voting will have the same effect as voting against the Merger Agreement and the Merger.
Approval of the specified compensation proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. The failure to vote in person or submit valid proxy instructions, broker non-votes and abstentions will have no effect on the voting on the proposal.

Approval of the Poage adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. The failure to vote in person or submit valid proxy instructions, broker non-votes and abstentions will have no effect on the voting on the proposal.

Voting of Proxies
You may vote in person at the Poage special meeting or by proxy. To ensure your representation at the Poage special meeting, Poage recommends that you vote by proxy even if you plan to attend the Poage special meeting. You can always change your vote at the special meeting.
If you are a “shareholder of record,” you can vote your shares:
via internet at https://www.cstproxy.com/townsquarebank/sm2018;

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via telephone by calling 1 (866) 894-0536;
by completing and mailing in the enclosed proxy card; or
by voting in person at the Poage special meeting.
Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
Poage shareholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker, bank or other nominee may allow you to deliver your voting instructions via telephone or the internet. If your shares are held in “street name” and you wish to vote in person at the Poage special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the special meeting.

If you are a holder of record of Poage common stock, voting instructions are included on the enclosed proxy card. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against or abstain with respect to each matter. If you are the holder of record of your shares of Poage common stock and submit your proxy without specifying a voting instruction, your shares of Poage common stock will be voted “FOR” the proposal to approve the Merger Agreement and the Merger, “FOR” the approval of the specified compensation, and “FOR” the Poage adjournment proposal. If your shares are held in street name and you return an incomplete instruction card to your broker, bank or other nominee, that broker, bank or other nominee will not vote your shares with respect to any matter.


Revocation of Proxies
You may revoke your proxy at any time before it is voted at the special meeting by:
filing with the Corporate Secretary of Poage a duly executed revocation of proxy;
submitting a new proxy with a later date;
voting again via the internet or by telephone not later than 11:59 p.m., Eastern Time, on October 29, 2018; or
voting in person at the special meeting.
If your shares are held in “street name,” you should contact your broker, bank or other nominee to change your vote.
Attendance at the Poage special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:

Poage Bankshares, Inc.
1500 Carter Avenue
Ashland, Kentucky 41101
Attention: Corporate Secretary
(606) 324-7196

Solicitation of Proxies
 
Poage will pay for the solicitation of proxies from Poage shareholders. In addition to soliciting proxies by mail, Laurel Hill Advisory Group, LLC, a proxy solicitation firm, will assist Poage in soliciting proxies for the Poage special meeting. Poage will pay $6,000 for these services plus out-of-pocket expenses. Additionally, directors, officers and employees of Poage and Town Square may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. Poage will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

Participants in the Town Square Bank ESOP
If you participate in the Town Square Bank Employee Stock Ownership Plan you will receive a vote authorization form for the plan that reflects all shares you may direct the trustee to vote on your behalf under the plan. Under the terms of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each ESOP participant may direct the trustee how to vote the shares of common stock allocated to his or her account. The ESOP trustee, subject to the exercise of its fiduciary duties, will vote all unallocated shares of Poage common stock held by the ESOP and allocated shares for which no voting instructions are received in the same proportion as shares for which it has received timely voting instructions. The deadline for returning your Voting Instruction Form to the plan’s trustee is October 23, 2018.


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DISSENTERS' RIGHTS

Rights of Dissenting Poage Shareholders
 
Under Poage’s articles of incorporation, Poage’s shareholders are not entitled to exercise any right of an objecting shareholder provided under Title 3, Subtitle 2 of the MGCL, unless Poage’s board of directors determines that such rights apply with respect to a transaction. Poage’s board of directors has not made such a determination with respect to the Merger. Accordingly, Poage’s shareholders do not have dissenters’ rights with respect to the Merger. If Poage shareholders should have any questions regarding dissenters’ rights, such shareholders should consult with their own legal advisers.


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THE MERGER
The Proposed Merger
 
The Merger Agreement provides for the merger of Poage with and into City (the “Merger”), with City as the surviving entity. Thereafter, at a later time specified by City National in its certificate of merger filed with the OCC, Town Square will be merged with and into City National, with City National surviving the subsidiary bank merger.
 
The Merger Agreement is attached to this proxy statement/prospectus as Annex A and is incorporated in this proxy statement/prospectus by reference. You are encouraged to read the Merger Agreement carefully, as it is the legal document that governs the Merger.

Background of the Merger

Since its initial public offering in 2011, Poage’s board of directors and senior management have regularly reviewed and assessed Poage’s strategic opportunities and challenges. Among other things, the board of directors considered the increasing difficulty in profitably growing and operating a community financial institution under today’s highly competitive conditions. At the same time, like other small financial institutions, Poage has experienced increasing costs for technology and regulatory compliance.

Over the last several years, the board of directors considered various strategies for improving Poage’s profitability as an independent financial institution. The board of directors noted that increased competition for core funding, increasing competition for commercial loans, and other factors have made earnings growth more challenging. As a result, during 2017, the board of directors met with representatives of several well-known investment banking and consulting firms to discuss strategic alternatives including remaining independent, merging with another institution and selling control. In these meetings, the board considered not only the current merger market but also the merger process and potential merger partners.

On December 13, 2017, Poage’s President and Chief Executive Officer met with a representative from Sandler O’Neill to discuss the general banking environment and current trends in the bank mergers and acquisitions market. During the first quarter of 2018, Poage’s Chairman of the Board and its President and Chief Executive Officer had several follow-up strategic discussions with representatives from Sandler O’Neill regarding various strategic alternatives. Sandler O’Neill is a nationally recognized investment banking firm with substantial experience advising financial institutions including with respect to mergers and acquisitions. At a meeting on March 14, 2018, the board of directors, senior management and Sandler O’Neill discussed Poage’s strategic options, challenges and prospects as an independent entity. Sandler O’Neill also provided feedback regarding the current mergers and acquisitions market and the possibility of Poage contacting other larger institutions to assess their interest in combining with Poage. Sandler O’Neill outlined a merger process and discussed potential merger partners that might be approached on behalf of Poage.
In March 2018, the board of directors reviewed Poage’s business plan as well as the prospects for enhancing Poage’s competitiveness and franchise value in the current economic and regulatory environment. Following a discussion of Poage’s prospects, the board of directors determined that it would be in the best interests of Poage’s stockholders, customers, employees and other constituents to explore a merger or sale. To that end, the board of directors voted to engage Sandler O’Neill as its financial advisor to assist Poage in connection with a potential business combination.
On March 27, 2018, Poage executed an engagement letter with Sandler O’Neill. Shortly thereafter, a confidential information memorandum was compiled to distribute to potential merger partners. At Poage’s direction, during April and May of 2018, Sandler O’Neill contacted eight parties on a no-name basis to solicit their interest in a potential transaction. Of the eight parties contacted, four signed non-disclosure agreements to receive additional information and three of these parties performed due diligence, including on-site meetings with management and due diligence on the credit files and credit processes of Poage. All three parties that performed on-site diligence submitted indications of interest in early June. City submitted an all-stock bid based on an initial exchange ratio of 0.3264 which equated to a price of $25.15 per based on the 5-day average of City’s stock price ending June 7, 2018. The City bid also included a seat on City’s corporate board of directors. The other proposals did not offer any board representation. The other two proposals had implied prices of $22.00 per share (65% stock/ 35% cash) and $22.25 per share (90% stock/10% cash). At Poage’s direction, Sandler O’Neill had a discussion with representatives from KBW (City’s investment banking firm) regarding a potential transaction between City and Poage and discussed the valuation metrics implied by the exchange ratio offered by City. Following this discussion, on June 14, 2018, City increased its bid by offering 0.335 shares of City common stock for every share of Poage common stock, which equated to a value of $25.81 per share.


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On June 14, 2018, the board of directors met with senior management and representatives of Sandler O’Neill and Luse Gorman to discuss the results of the solicitation of interest from potential merger partners. Sandler O’Neill reviewed with the board information regarding each potential merger partner and its proposal, including each potential merger partner’s financial and stock performance, certain non-financial terms of each proposal and each potential merger partner’s apparent financial ability to successfully complete a transaction. Sandler O’Neill also discussed the history of its discussions with the parties including the changes they had made to their proposals and their statements regarding their willingness to further increase the proposed merger consideration. Finally, Sandler O’Neill noted that each indication of interest included a clause requiring exclusive negotiations for various periods of time. After extensive review, the Poage board of directors concluded that the City proposal appeared to be superior to the other proposals. In addition, based on the higher implied pricing proposed by City and other factors, the board of directors determined to execute the indication of interest letter with City and thereby agree to an exclusivity period through June 29, 2018. At the same meeting, the board of directors appointed a special merger committee consisting of three outside directors and the President and Chief Executive Officer to assist in the merger negotiations.

Over the next three weeks, legal counsel to Poage, in close coordination with Poage’s management, the special merger committee, and Sandler O’Neill, negotiated a definitive merger agreement and other related agreements (including voting and non-competition agreements) with legal counsel to City. During this same period, representatives of Poage performed due diligence on City.

On July 9, 2018, the board of directors held a special meeting. Poage’s President and Chief Executive Officer, together with Luse Gorman and Sandler O’Neill, reviewed with the board of directors a history of the actions taken up to that point. The board of directors reviewed Poage’s operating challenges, the periodic reviews of its future strategic options, the solicitation of multiple potential merger partners, and the process by which City’s proposal was determined to provide the best value for stockholders. Sandler O’Neill reviewed the financial aspects of the proposed transaction, the financial metrics of other relevant transactions and the financial profile of the combined companies on a pro forma basis. Sandler O’Neill then indicated that, assuming no material changes in the proposed transaction and the factors it considered, Sandler O’Neill was in a position to render an opinion as the fairness, from a financial point of view, of the exchange ratio. The board then reviewed Poage’s overall strategic situation and considered whether there was any other strategic alternative that would deliver better value to the stockholders.

Representatives of Luse Gorman then reviewed with the board of directors in detail the terms of the draft merger agreement. During this discussion, the board noted several areas that were still unresolved. Following extensive discussions, the board voted to instruct management, Luse Gorman and Sandler O’Neill to continue to negotiate the unresolved issues with City’s representatives.

On July 10, 2018, the board of directors of Poage held a special meeting at which senior management, together with Poage’s legal and financial advisors, provided an update on the negotiations with City. Management and Luse Gorman discussed at length the changes to the legal documents and the additional disclosures and other information which had been obtained since the last meeting. Following discussions, Sandler O’Neill delivered to Poage’s board of directors its oral opinion, which was subsequently confirmed in writing on July 10, 2018, to the effect that, as of such date, the exchange ratio was fair to the holders of Poage common stock, from a financial point of view. After extensive discussions of the factors described under “- Poage’s Reasons for the Merger and Recommendation of the Board of Directors,” the Poage board of directors unanimously approved the merger agreement with City pending the resolution of certain remaining issues. However, the board instructed management not to execute the merger agreement until the board completed a final review the next day.
On July 11, 2018, the board of directors of Poage held a special meeting at which senior management and its legal and financial advisors were present. Management reported that all remaining open issues had been resolved. The board of directors also considered Sandler O’Neill’s prior relationship with City as disclosed under “The Merger - Opinion of Poage’s Financial Advisor - Sandler O’Neill’s Relationship” and, after review and discussion, determined that it did not impair Sandler O’Neill’s independence. The board then unanimously ratified and confirmed its approval of the merger agreement at the July 10 meeting.

On July 11, 2018, Poage and City executed the merger agreement and publicly announced the transaction.

Poage’s Reasons for the Merger

Poage’s board of directors unanimously determined that the proposed merger is in the best interests of Poage and its stockholders. In making its determination, the board of directors considered several factors affecting the business, operations, financial condition, earnings and prospects of Poage. The material factors considered by the board included:


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The business strategy and strategic plan of Poage, its prospects for the future, and its projected financial results;

A review of the risks and prospects of Poage remaining independent, including the challenges of the current financial, operating and regulatory environment;

Poage’s stand-alone financial projections, which estimated that, even if fully executed, Poage would not achieve through organic growth a comparable level of stockholder value that the merger is expected to offer;

Management’s assessment of the execution risks involved in attaining the performance levels assumed by the financial projections;

Conditions and activity in the mergers and acquisition market providing a unique window of opportunity with respect to a merger of Poage and delivering accelerated and enhanced stockholder value, as compared to organic growth;

The anticipated costs and necessary investments associated with continuing to develop and enhance Poage’s business capabilities;

The purchase price per share to be paid by City and the resulting valuation multiples;

The employment prospects for Poage’s employees within the larger combined company;

The favorable results of Poage’s due diligence investigation of City;

Poage’s and City’s shared corporate values and commitment to serve their customers and communities;

City’s historically strong financial condition and results of operations;

The ability of City to complete the merger from a business, financial and regulatory perspective;

The scale, scope, strength and diversity of operations, product lines and delivery systems that could be achieved by the combined company;

The likelihood of successful integration and operation of the combined company;

The likelihood of obtaining the stockholder and regulatory approvals needed to complete the transaction;

The results of the solicitation process conducted by Poage, with the advice and assistance of its advisors;

Certain structural protections included in the merger agreement, including:

that it does not preclude a third party from making an unsolicited acquisition proposal to Poage and that, under certain circumstances, Poage may furnish non-public information to and engage in discussions with such a third party regarding an acquisition proposal;

the ability of Poage’s board of directors to submit the merger agreement to stockholders without a favorable recommendation or any recommendation, in which event the board of directors may communicate the basis for its lack of a favorable recommendation to the extent required by law; and

Poage’s ability to terminate the merger agreement to enter into a definitive agreement for a superior proposal if certain requirements are met, in each case subject to the payment of a termination fee by Poage of $4.0 million, an amount that was negotiated at arm’s-length and was determined by Poage to be reasonable.

The financial presentation, dated June 10, 2018, of Sandler O’Neill to Poage’s board of directors and the opinion, dated June 10, 2018, of Sandler O’Neill to Poage’s board of directors as to the fairness, from a financial point of view, as of the date of the opinion, of the exchange ratio, as more fully described below under “-Opinion of Poage’s Financial Advisor;”

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Poage’s board of directors also considered several potential risks and uncertainties with respect to the merger, and factors unique to certain stockholders of Poage, including, without limitation, the following:

The challenges of integrating Poage’s business, operations and employees with those of City;

The need to and likelihood of obtaining requisite stockholder and regulatory approvals to complete the merger;

The risks and costs associated with entering into the merger agreement and restrictions on the conduct of Poage’s business before the merger is completed;

The form and amount of the merger consideration, including the increased volatility associated with all-stock consideration and the risk that the consideration to be paid to Poage stockholders could be adversely affected by a decrease in the trading price of City common stock during the pendency of the merger;

The fact that a termination fee of $4.0 million would have to be paid to City under certain circumstances described in the merger agreement and discussed further under the caption “-Termination Fee;”

The impact that provisions of the merger agreement relating to payment of a termination fee by Poage may have on Poage receiving an alternative takeover proposal;

The potential costs associated with executing the merger agreement, including change in control payments and related costs, as well as estimated advisor fees;

The potential for diversion of Poage’s management and employee attention, and for employee attrition, during the pendency of the merger, and the potential effect on Poage’s business and its relations with customers, service providers and other stakeholders, regardless whether the merger is completed;

The possibility of litigation relating to the merger; and

The interests of Poage’s directors and executive officers in the merger that are different from or in addition to those of its stockholders generally, as more fully described in the section entitled “-Interests of Poage’s Directors and Executive Officers in the Merger.”

The foregoing discussion of the material information and factors considered by Poage’s board of directors is not intended to be exhaustive. Poage’s board of directors evaluated the above factors and unanimously determined that the merger was in the best interests of Poage and its stockholders. In reaching its determination to approve the merger and recommend that Poage’s shareholders approve the merger, the board of directors considered the totality of the information presented to it and did not assign any relative or specific weights to any of the individual factors considered, although individual directors may have given different weights to different factors. The board of directors considered these factors, including the potential risks, uncertainties and disadvantages associated with the merger, in the aggregate rather than separately and determined the benefits of the merger to be favorable to and outweigh the potential risks, uncertainties and disadvantages of the merger. This explanation of the board of directors’ reasoning and certain other information presented in this section are forward-looking in nature and, therefore, should be read in the context of the factors discussed under “Cautionary Statement Concerning Forward-Looking Statements.”

Poage’s board of directors determined that the merger, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Poage and its stockholders. The board of directors also unanimously determined that the merger agreement and the transactions contemplated thereby are consistent with, and in furtherance of, Poage’s business strategies. Accordingly, Poage’s board of directors unanimously approved and adopted the merger agreement and approved the merger and unanimously recommends that Poage stockholders vote “FOR” approval of the merger agreement and the merger. The terms of the merger agreement were the product of arm’s-length negotiations between representatives of Poage and City.


Recommendation of the Poage Board of Directors
 
The board of directors of Poage unanimously approved the Merger Agreement. The board of directors of Poage

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believes that the Merger is in the best interests of Poage and its shareholders, and, as a result, the directors unanimously recommend that Poage shareholders vote “FOR the adoption and approval of the Merger Agreement and the Merger.

Opinion of Poage’s Financial Advisor

Poage retained Sandler O’Neill to act as financial advisor to Poage’s board of directors in connection with Poage’s consideration of a possible business combination. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. As part of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the Merger Agreement. At the July 10, 2018 meeting at which Poage’s board of directors considered and discussed the terms of the Merger Agreement and the Merger, Sandler O’Neill delivered to Poage’s board of directors its oral opinion, which was subsequently confirmed in writing on July 10, 2018, to the effect that, as of such date, the exchange ratio in the Merger was fair to the holders of Poage common stock, from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Annex B to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Poage common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed Merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Poage’s board of directors in connection with its consideration of the Merger Agreement and the Merger and does not constitute a recommendation to any shareholder of Poage as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the Merger Agreement and the Merger. Sandler O’Neill’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of Poage common stock and does not address the underlying business decision of Poage to engage in the Merger, the form or structure of the Merger or any other transactions contemplated in the Merger Agreement, the relative merits of the Merger as compared to any other alternative transactions or business strategies that might exist for Poage or the effect of any other transaction in which Poage might engage. Sandler O’Neill also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Merger by any officer, director or employee of Poage or City, or any class of such persons, if any, relative to the compensation to be received in the Merger by any other shareholder. Sandler O’Neill expressed no opinion as to any matters related to the Employee Stock Ownership Plan in which employees of Poage participate. Sandler O’Neill’s opinion was approved by its fairness opinion committee.


In connection with its opinion, Sandler O’Neill reviewed and considered, among other things:

a draft of the Merger Agreement, dated July 9, 2018;

certain publicly available financial statements and other historical financial information of Poage that Sandler O’Neill deemed relevant;

certain publicly available financial statements and other historical financial information of City that Sandler O’Neill deemed relevant;

certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2020, as provided by the senior management of Poage, and estimated long-term annual earnings growth rate, dividend and other assumptions for Poage, as directed by the senior management of Poage;

publicly available median analyst estimates for City for the years ending December 31, 2018 and December 31, 2019, a publicly available median analyst estimated long-term annual earnings growth rate for City and an estimated annual asset growth rate for City, as provided by the senior management of City;

the pro forma financial impact of the Merger on City based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of City, as well as certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of City;

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the publicly reported historical price and trading activity for Poage common stock and City common stock, including a comparison of certain stock market information for Poage common stock and City common stock and certain stock indices;

a comparison of certain financial information for Poage and City with similar institutions for which information was publicly available;

the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available;

the current market environment generally and the banking environment in particular; and

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of the senior management of Poage the business, financial condition, results of operations and prospects of Poage and held similar discussions with certain members of the senior management of City regarding the business, financial condition, results of operations and prospects of City.

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Sandler O’Neill from public sources, that was provided to Sandler O’Neill by Poage or City or their respective representatives or that was otherwise reviewed by Sandler O’Neill, and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler O’Neill relied on the assurances of the respective managements of Poage and City that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Sandler O’Neill was not asked to and did not undertake an independent verification of any of such information and Sandler O’Neill did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Poage or City or any of their respective subsidiaries, nor was Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Poage or City. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Poage or City, or of the combined entity after the Merger, and Sandler O’Neill did not review any individual credit files relating to Poage or City. Sandler O’Neill assumed, with Poage’s consent, that the respective allowances for loan losses for both Poage and City were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2020, as provided by the senior management of Poage, and estimated long-term annual earnings growth rate, dividend and other assumptions for Poage, as directed by the senior management of Poage, as well as publicly available median analyst estimates for City for the years ending December 31, 2018 and December 31, 2019, a publicly available median analyst estimated long-term annual earnings growth rate for City and an estimated annual asset growth rate for City, as provided by the senior management of City. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of City, as well as certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of City. With respect to the foregoing information, the respective senior managements of Poage and City confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available median analyst estimates and publicly available median analyst estimated long-term annual earnings growth rate referred to above, were consistent with) the best currently available estimates and judgments of those respective senior managements as to the future financial performance of Poage and City, respectively, and the other matters covered thereby. Sandler O’Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill also assumed that there was no material change in the respective assets, financial condition, results of operations, business or prospects of Poage or City since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that Poage and City would remain as going concerns for all periods relevant to its analysis.

Sandler O’Neill also assumed, with Poage’s consent, that (i) each of the parties to the Merger Agreement would comply in all material respects with all material terms and conditions of the Merger Agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of

33



the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Poage, City or the Merger or any related transaction, (iii) the Merger and any related transactions would be consummated in accordance with the terms of the Merger Agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, and (iv) the Merger would qualify as a tax-free reorganization for federal income tax purposes. Finally, with Poage’s consent, Sandler O’Neill relied upon the advice that Poage received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the Merger Agreement. Sandler O’Neill expressed no opinion as to any such matters.

Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of the opinion. Events occurring after the date of Sandler O’Neill’s opinion could materially affect the opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date of its opinion. Sandler O’Neill expressed no opinion as to the trading values of Poage common stock or City common stock at any time or what the value of City common stock would be once it is actually received by the holders of Poage common stock.

In rendering its opinion, Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of the analyses underlying Sandler O’Neill’s opinion, but is a summary of all material analyses performed by Sandler O’Neill. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Poage or City and no transaction is identical to the Merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Poage and City and the companies to which they are being compared. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O’Neill made its determination as to the fairness of the exchange ratio on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which are beyond the control of Poage, City and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of Poage common stock or City common stock or the prices at which Poage common stock or City common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by Poage’s board of directors in making its determination to approve the Merger Agreement and the Merger and should not be viewed as determinative of the merger consideration or the decision of Poage’s board of directors or management with respect to the fairness of the Merger. The type and amount of consideration payable in the Merger were determined through negotiation between Poage and City.

Summary of Implied Transaction Value and Implied Transaction Metrics. Sandler O’Neill reviewed the financial terms of the proposed Merger. Sandler O’Neill calculated a per share implied transaction price of $26.57, or an aggregate implied transaction value of $94.5 million (inclusive of payments for in-the-money options), based on the 0.335x exchange ratio and the closing price of City common stock on July 10, 2018. Based upon historical financial information for Poage as of or for the last quarter annualized (“LQA”) ended March 31, 2018, historical market information for Poage as of July 10, 2018

34



and earnings per share estimates for the years ending December 31, 2018 and December 31, 2019, as provided by the senior management of Poage, Sandler O’Neill calculated the following implied transaction metrics:

Implied Transaction Price / Poage March 31, 2018 Book Value Per Share:
153%
Implied Transaction Price / Poage March 31, 2018 Tangible Book Value Per Share:
159%
Implied Transaction Price / Poage LQA Earnings Per Share:
94.9x
Implied Transaction Price / Poage 2018E Earnings Per Share:
73.6x
Implied Transaction Price / Poage 2019E Earnings Per Share:
29.3x
Tangible Book Premium (¹) / Core Deposits (>$100,000) (²):
12.6%
Tangible Book Premium (¹) / Core Deposits (>$250,000) (³):
10.1%
Premium to Poage’s Closing Stock Price as of July 10, 2018:
33.5%

(1)
Calculated as aggregate implied transaction value less Poage reported tangible common equity at March 31, 2018
(2)
Calculated as total deposits less time deposits greater than $100,000
(3)
Calculated as total deposits less time deposits greater than $250,000








Stock Trading History. Sandler O’Neill reviewed the historical stock price performance of Poage common stock for the one-year period ended and the three-year period ended July 10, 2018. Sandler O’Neill then compared the relationship between the stock price performance of Poage common stock to movements in certain stock indices.

Poage One-Year Stock Price Performance
 
 
 
 
July 10, 2017
July 10, 2018
Poage
100%
105.3%
SNL U.S. Bank and Thrift Index
100%
109.3%
NASDAQ Bank Index
100%
112.3%
S&P 500 Index
100%
115.1%
 
 
 
Poage Three-Year Stock Price Performance
 
 
 
 
July 10, 2015
July 10, 2018
Poage
100%
128.4%
SNL U.S. Bank and Thrift Index
100%
136.3%
NASDAQ Bank Index
100%
147.0%
S&P 500 Index
100%
135.0%

Sandler O’Neill reviewed the historical stock price performance of City common stock for the one-year period ended and the three-year period ended July 10, 2018. Sandler O’Neill then compared the relationship between the stock price performance of City common stock to movements in certain stock indices.

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City One-Year Stock Price Performance
 
 
 
 
July 10, 2017
July 10, 2018
City
100%
120.0%
SNL U.S. Bank and Thrift Index
100%
109.3%
NASDAQ Bank Index
100%
112.3%
S&P 500 Index
100%
115.1%
 
 
 
City Three-Year Stock Price Performance
 
 
 
 
July 10, 2015
July 10, 2018
City
100%
160.6%
SNL U.S. Bank and Thrift Index
100%
136.3%
NASDAQ Bank Index
100%
147.0%
S&P 500 Index
100%
135.0%
















Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for Poage with a group of financial institutions selected by Sandler O’Neill (the “Poage Peer Group”). The Poage Peer Group included 17 publicly traded banks and thrifts headquartered in Kentucky, Ohio and West Virginia with total assets between $200 million and $1.0 billion and an average weekly trading volume as a percentage of shares outstanding of at least 0.10% over the most recent three month period, but excluded announced merger targets and mutual holding companies. The Poage Peer Group consisted of the following companies:

Heartland BancCorp
SB Financial Group, Inc.
HopFed Bancorp, Inc.
Croghan Bancshares, Inc.
United Bancshares, Inc.
Cortland Bancorp
Central Federal Corporation
Consumers Bancorp, Inc.
United Bancorp, Inc.
Citizens First Corporation
Wayne Savings Bancshares, Inc.
Andover Bancorp, Inc.
Perpetual Federal Savings Bank
Citizens Financial Corp.

The analysis compared financial information for Poage as of or for the most recent quarter (“MRQ”) ended March 31, 2018 with the corresponding publicly available data for the Poage Peer Group as of or for the most recent quarter ended March 31, 2018, with pricing data as of July 10, 2018. The table below sets forth the data for Poage and the high, low, mean and median data for the Poage Peer Group.


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Poage Comparable Company Analysis
 
 
Poage
Poage
Peer
Group
High
Poage
Peer
Group
Low
Poage
Peer
Group
Mean
Poage
Peer
Group
Median
Total Assets ($mm)
450
938
253
612
509
Loans / Deposits (%)
88.7
113.0
61.3
89.1
91.3
Nonperforming Assets / Total Assets (%) (¹)
2.34
1.56
0.38
0.70
0.57
Tangible Common Equity / Tangible Assets (%)
13.05
18.04
6.42
9.56
8.97
Tier 1 Leverage Ratio (%) (²)
12.29
18.03
8.74
10.54
10.22
Total Risk-Based Capital Ratio (%) (²)
19.10
31.32
11.64
15.36
13.41
CRE / Total Risk-Based Capital (%) (³)
88.79
342.7
29.3
194.2
204.1
MRQ Return on Average Assets (%)
0.20
1.58
0.49
0.98
0.91
MRQ Return on Average Equity (%)
1.49
12.86
5.16
9.43
9.46
MRQ Net Interest Margin (%)
3.60
4.33
3.09
3.66
3.64
MRQ Efficiency Ratio (%)
79.3
84.2
33.2
67.8
70.3
Price / Tangible Book Value (%)
119
188
94
142
147
Price / MRQ Annualized Earnings Per Share (x)
71.1
22.3
8.4
14.8
14.9
Current Dividend Yield (%)
1.2
3.9
0.0
2.3
2.2
MRQ Dividend Payout Ratio (%)
85.7
59.1
0.0
30.1
30.8
Market Capitalization ($mm)
64
147
22
82
71
Average Weekly Volumes / Shares 3 Months (%)
0.17
0.61
0.10
0.33
0.31
 
 
 
 
 
 
(1)
Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned
(2)
Bank-level regulatory financial data shown for: Poage; SB Financial Group, Inc.; United Bancshares, Inc.; and Central Federal Corporation
(3)
Bank-level regulatory financial data shown for: Poage; SB Financial Group, Inc.; HopFed Bancorp, Inc.; Croghan Bancshares, Inc.; United Bancshares, Inc.; Cortland Bancorp; Central Federal Corporation; Consumers Bancorp, Inc.; United Bancorp, Inc.; Citizens First Corporation; Wayne Savings Bancshares, Inc.; Andover Bancorp, Inc.; and Citizens Financial Corp.

Sandler O’Neill used publicly available information to perform a similar analysis for City and a group of financial institutions selected by Sandler O’Neill (the “City Peer Group”). The City Peer Group included 15 publicly traded banks and thrifts headquartered in Kentucky, Ohio, Virginia and West Virginia with total assets between $2.0 billion and $10.0 billion. The City Peer Group consisted of the following companies.

First Financial Bancorp.
Park National Corporation
Republic Bancorp, Inc.
Community Trust Bancorp, Inc.
Carter Bank & Trust
Peoples Bancorp Inc.
Stock Yards Bancorp, Inc.
Burke & Herbert Bank & Trust Company
First Defiance Financial Corp.
Access National Corporation
United Community Financial Corp.
Southern National Bancorp of Virginia, Inc.
First Community Bancshares, Inc.
Farmers National Banc Corp.
Summit Financial Group, Inc.
 

The analysis compared financial information for City as of or for the most recent quarter ended March 31, 2018 with the corresponding publicly available data for the City Peer Group as of or for the most recent quarter ended March 31, 2018 (unless otherwise indicated), with pricing data as of July 10, 2018. The table below sets forth the data for City and the high, low, mean and median data for the City Peer Group.


37



City Comparable Company Analysis
 
 
City
City
Peer
Group
High
City
Peer
Group
Low
City
Peer
Group
Mean
City
Peer
Group
Median
Total Assets ($mm)
4,200
8,898
2,135
3,846
3,040
Loans / Deposits (%)
91.0
111.2
72.5
92.9
93.9
Nonperforming Assets / Total Assets (%) (¹)
1.09
5.25
0.30
1.38
0.86
Tangible Common Equity / Tangible Assets (%)
10.03
12.57
8.43
9.77
9.24
Tier 1 Leverage Ratio (%)
10.90
13.14
8.87
10.44
10.07
Total Risk-Based Capital Ratio (%)
16.31
18.78
12.49
14.44
14.31
CRE / Total Risk-Based Capital (%)
272.1
348.3
103.7
210.2
209.9
MRQ Return on Average Assets (%)
1.69
2.08
0.86
1.41
1.40
MRQ Return on Average Equity (%)
14.05
17.12
7.65
12.16
11.84
MRQ Net Interest Margin (%)
3.51
5.50
2.97
3.79
3.74
MRQ Efficiency Ratio (%)
52.4
64.7
45.2
57.4
58.1
Price / Tangible Book Value (%)
256
271
128
213
228
Price / MRQ Annualized Earnings Per Share (x)
15.2
18.8
8.8
14.6
14.7
Price / 2018E Earnings Per Share (x) (²)
17.1
16.4
12.2
15.0
15.1
Price / 2019E Earnings Per Share (x) (²)
16.5
15.8
11.8
14.2
14.3
Current Dividend Yield (%)
2.7
3.4
0.0
2.1
2.1
MRQ Dividend Payout Ratio (%)
40.7
126.9
0.0
34.6
35.3
Market Capitalization ($mm)
1,059
3,110
338
857
606
 
 
 
 
 
 
(1)
Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned
(2)
Based on median analyst consensus estimates for the companies in the City Peer Group other than Carter Bank & Trust and Burke & Herbert Bank & Trust Company.





Analysis of Selected Merger Transactions. Sandler O’Neill reviewed a group of selected merger and acquisition transactions consisting of 13 bank and thrift transactions announced between January 1, 2016 and July 10, 2018 with announced transaction values, targets headquartered in Kentucky, Ohio or West Virginia and total assets of targets between $200 million and $800 million (the “Regional Precedent Transactions”). Sandler O’Neill also reviewed a group of selected merger and acquisition transactions consisting of 13 U.S. bank and thrift transactions announced between January 1, 2017 and July 10, 2018 with announced transaction values, total assets of targets between $200 million and $800 million and positive year-to-date ROAA of targets of less than 0.50% (the “Nationwide Precedent Transactions”).

The Regional Precedent Transactions group was composed of the following transactions:

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Buyer
 
Target
German American Bancorp, Inc.
 
First Security, Inc.
First Commonwealth Financial Corporation
 
Garfield Acquisition Corp
LCNB Corp.
 
Columbus First Bancorp, Inc.
CB Financial Services, Inc.
 
First West Virginia Bancorp, Inc.
WesBanco, Inc.
 
First Sentry Bancshares, Inc.
Peoples Bancorp Inc.
 
ASB Financial Corp.
First Merchants Corporation
 
Arlington Bank
MainSource Financial Group, Inc.
 
FCB Bancorp, Inc.
First Commonwealth Financial Corporation
 
DCB Financial Corp
United Community Financial Corp.
 
Ohio Legacy Corp
First Defiance Financial Corp.
 
Commercial Bancshares, Inc.
Middlefield Banc Corp.
 
Liberty Bank, National Association
Summit Financial Group, Inc.
 
First Century Bankshares, Inc.

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last twelve months (“LTM”) earnings, transaction price to tangible book value and core deposit premium. Sandler O’Neill compared the indicated transaction multiples for the Merger to the high, low, mean and median multiples of the Regional Precedent Transactions group.

 
Poage / City
Regional Precedent
Transactions
High
Regional Precedent
Transactions
Low
Regional Precedent
Transactions
Mean
Regional Precedent
Transactions
Median
Transaction Price / LTM Earnings (¹):
94.9x (²)
35.1x
14.3x
22.4x
19.6x
Transaction Price / Tangible Book Value:
159%
226%
105%
168%
160%
Core Deposit Premium (³):
12.6%
21.2%
0.7%
11.0%
10.4%
(1)
Excluded the impact of the multiples for two of the Regional Precedent Transactions, which multiples were considered to be not meaningful.
(2)
Based on price to most recent quarter annualized EPS; Poage reported a net loss on a last-twelve-months basis as of March 31, 2018
(3)
Core deposits defined as total deposits less time deposits greater than $100,000

The Nationwide Precedent Transactions group was composed of the following transactions:
Buyer
 
Target
German American Bancorp, Inc.
 
First Security, Inc.
National Commerce Corporation
 
Premier Community Bank of Florida
Park National Corporation
 
NewDominion Bank
CB Financial Services, Inc.
 
First West Virginia Bancorp, Inc.
Bangor Bancorp, MHC
 
First Colebrook Bancorp, Inc.
Select Bancorp, Inc.
 
Premara Financial, Inc.
Bank of McKenney
 
CCB Bankshares, Inc.
First Foundation Inc.
 
Community 1st Bancorp
Seacoast Banking Corporation of Florida
 
NorthStar Banking Corporation
Sussex Bancorp
 
Community Bank of Bergen County, NJ
Washington Federal, Inc.
 
Anchor Bancorp
Mid Penn Bancorp, Inc.
 
Scottdale Bank & Trust Company
Old Line Bancshares, Inc.
 
DCB Bancshares, Inc.

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last twelve months earnings, transaction price to tangible book value and core deposit premium. Sandler O’Neill compared the indicated transaction multiples for the Merger to the high, low, mean and median multiples of the Nationwide Precedent Transactions group.


39



 
Poage / City
Nationwide Precedent
Transactions
High
Nationwide Precedent
Transactions
Low
Nationwide Precedent
Transactions
Mean
Nationwide Precedent
Transactions
Median
Transaction Price / LTM Earnings (¹):
94.9x (²)
65.9x
24.6x
37.9x
35.1x
Transaction Price / Tangible Book Value:
159%
235%
99%
160%
160%
Core Deposit Premium (³):
12.6%
23.6%
5.5%
10.4%
8.4%
(1)
Excluded the impact of the multiples for four of the Nationwide Precedent Transactions, which multiples were considered to be not meaningful.
(2)
Based on price to most recent quarter annualized EPS; Poage reported a net loss on a last-twelve-months basis as of March 31, 2018
(3)
Core deposits defined as total deposits less time deposits greater than $100,000. Excluded the impact of the core deposit premiums for two of the Nationwide Precedent Transactions, which premiums were considered to be not meaningful.

Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the net present value per share of Poage common stock assuming Poage performed in accordance with certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2020, as provided by the senior management of Poage, and estimated long-term annual earnings growth rate, dividend and other assumptions for Poage for the years thereafter, as directed by the senior management of Poage. To approximate the terminal value per Poage common share at December 31, 2022, Sandler O’Neill applied price to 2022 earnings per share multiples ranging from 13.0x to 18.0x and price to December 31, 2022 tangible book value per share multiples ranging from 120% to 170%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 15.0% which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Poage common stock. As illustrated in the following tables, the analysis indicated an imputed range of per share values of Poage common stock of $8.34 to $13.23 when applying multiples of earnings per share and $13.85 to $22.74 when applying multiples of tangible book value per share.







Imputed Present Values per Share Based on Earnings Per Share Multiples:
Discount
 
 
 
 
 
 
Rate
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
11.0%
$9.80
$10.49
$11.18
$11.86
$12.55
$13.23
12.0%
$9.41
$10.07
$10.73
$11.38
$12.04
$12.70
13.0%
$9.04
$9.67
$10.30
$10.93
$11.56
$12.19
14.0%
$8.68
$9.29
$9.89
$10.50
$11.10
$11.70
15.0%
$8.34
$8.92
$9.50
$10.08
$10.66
$11.24


Imputed Present Values per Share Based on Tangible Book Per Share Multiples:
Discount
 
 
 
 
 
 
Rate
120%
130%
140%
150%
160%
170%
11.0%
$16.31
$17.60
$18.88
$20.17
$21.45
$22.74
12.0%
$15.65
$16.88
$18.11
$19.34
$20.58
$21.81
13.0%
$15.02
$16.20
$17.38
$18.56
$19.74
$20.92
14.0%
$14.42
$15.55
$16.68
$17.81
$18.95
$20.08
15.0%
$13.85
$14.93
$16.02
$17.10
$18.19
$19.28

40




Sandler O’Neill also considered and discussed with the Poage board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Poage’s net income varied from 15% above projections to 15% below projections. This analysis resulted in the following range of per share values for Poage common stock, applying the price to 2022 earnings per share multiples range of 13.0x to 18.0x referred to above and a discount rate of 12.68%.

Imputed Present Values per Share Based on Earnings Per Share Multiples:
Annual
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
Variance
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
(15.0)%
$7.91
$8.45
$8.99
$9.54
$10.08
$10.62
(10.0)%
$8.32
$8.90
$9.47
$10.05
$10.62
$11.20
(5.0)%
$8.74
$9.35
$9.95
$10.56
$11.17
$11.77
0.0%
$9.15
$9.79
$10.43
$11.07
$11.71
$12.35
5.0%
$9.57
$10.24
$10.91
$11.58
$12.25
$12.92
10.0%
$9.98
$10.69
$11.39
$12.09
$12.80
$13.50
15.0%
$10.40
$11.14
$11.87
$12.61
$13.34
$14.08

Sandler O’Neill also performed an analysis that estimated the net present value per share of City common stock assuming that City performed in accordance with publicly available median analyst estimates for City for the years ending December 31, 2018 and December 31, 2019, the publicly available median analyst estimated long-term annual earnings growth rate for City for the years thereafter and an estimated annual asset growth rate for City for the years thereafter, as provided by the senior management of City. Sandler O’Neill assumed that City would maintain a tangible common equity to tangible assets ratio of 10.0% and would retain sufficient earnings to maintain that level. To approximate the terminal value per City common share at December 31, 2022, Sandler O’Neill applied price to 2022 earnings per share multiples ranging from 13.0x to 18.0x and price to December 31, 2022 tangible book value per share multiples ranging from 190% to 265%. The terminal values were then discounted to present values using different discount rates ranging from 8.0% to 12.0% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of City common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of City stock of $65.39 to $96.74 when applying multiples of earnings per share and $58.00 to $85.03 when applying multiples of tangible book value per share.


Imputed Present Values per Share Based on Earnings Per Share Multiples:
Discount
 
 
 
 
 
 
Rate
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
8.0%
$76.00
$80.15
$84.30
$88.45
$92.60
$96.74
9.0%
$73.15
$77.12
$81.09
$85.06
$89.03
$93.00
10.0%
$70.43
$74.24
$78.04
$81.84
$85.64
$89.44
11.0%
$67.85
$71.49
$75.13
$78.77
$82.42
$86.06
12.0%
$65.39
$68.88
$72.37
$75.86
$79.35
$82.84

Imputed Present Values per Share Based on Tangible Book Per Share Multiples:
Discount
 
 
 
 
 
 
Rate
190%
205%
220%
235%
250%
265%
8.0%
$67.22
$70.78
$74.34
$77.90
$81.47
$85.03
9.0%
$64.74
$68.15
$71.56
$74.97
$78.38
$81.79
10.0%
$62.38
$65.64
$68.91
$72.17
$75.44
$78.70
11.0%
$60.13
$63.26
$66.39
$69.52
$72.65
$75.77
12.0%
$58.00
$60.99
$63.99
$66.99
$69.99
$72.98


41



Sandler O’Neill also considered and discussed with the Poage board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming City’s net income varied from 15% above estimates to 15% below estimates. This analysis resulted in the following range of per share values for City common stock, applying the price to 2022 earnings per share multiples range of 13.0x to 18.0x referred to above and a discount rate of 10.85%.

Imputed Present Values per Share Based on Earnings Per Share Multiples:
Annual
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
Variance
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
(15.0)%
$58.85
$61.97
$65.08
$68.20
$71.32
$74.44
(10.0)%
$61.98
$65.28
$68.58
$71.88
$75.18
$78.48
(5.0)%
$65.11
$68.59
$72.08
$75.56
$79.04
$82.53
0.0%
$68.24
$71.91
$75.57
$79.24
$82.91
$86.57
5.0%
$71.37
$75.22
$79.07
$82.92
$86.77
$90.62
10.0%
$74.51
$78.54
$82.57
$86.60
$90.63
$94.66
15.0%
$77.64
$81.85
$86.06
$90.28
$94.49
$98.70

Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Merger Analysis. Sandler O’Neill analyzed certain potential pro forma effects of the Merger, assuming the Merger closes at the end of the fourth calendar quarter of 2018. In performing its analysis, Sandler O’Neill utilized the following information and assumptions: (i) certain financial projections for Poage for the years ending December 31, 2018 through December 31, 2020, as provided by the senior management of Poage, and estimated long-term annual earnings growth rate, dividend and other assumptions for Poage for the years thereafter, as directed by the senior management of Poage; (ii) publicly available median analyst estimates for City for the years ending December 31, 2018 and December 31, 2019, the publicly available median analyst estimated long-term annual earnings growth rate for City for the years thereafter and an estimated annual asset growth rate for City for the years thereafter, as provided by the senior management of City; and (iii) certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of City. The analysis indicated that the Merger could be accretive to City’s estimated earnings per share (excluding one-time transaction costs and expenses) in the years ending December 31, 2019 through December 31, 2022, dilutive to estimated tangible book value per share at closing and accretive to estimated tangible book value per share at December 31, 2019, December 31, 2020, December 31, 2021 and December 31, 2022.

In connection with this analysis, Sandler O’Neill considered and discussed with the Poage board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Sandler O’Neill’s Relationship. Sandler O’Neill acted as financial advisor to Poage in connection with the Merger. Poage has agreed to pay Sandler O’Neill a transaction fee in an amount equal to 1.25% of the aggregate merger consideration, which transaction fee is contingent upon consummation of the Merger. At the time of announcement, based on City’s closing stock price of $79.30 as of July 10, 2018, Sandler O’Neill’s transaction fee was estimated to be approximately $1.2 million. Sandler O’Neill also received a $250,000 fee upon rendering its fairness opinion to the Poage board of directors, which opinion fee will be credited in full towards the transaction fee becoming payable to Sandler O’Neill upon closing of the Merger. Poage has also agreed to indemnify Sandler O’Neill against certain claims and liabilities arising out of its engagement and to reimburse Sandler O’Neill for certain of its out-of-pocket expenses incurred in connection with its engagement.

Sandler O’Neill did not provide any other investment banking services to Poage in the two years preceding the date of its opinion. In the two years preceding the date of Sandler O’Neill’s opinion, Sandler O’Neill has provided certain investment banking services to City and received fees for such services. In 2017, Sandler O’Neill was engaged as City’s financial advisor in connection with a potential acquisition, which was not consummated by City. In addition, in the ordinary course of Sandler O’Neill’s business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to City and its affiliates.

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Sandler O’Neill may also actively trade the equity and debt securities of Poage, City and their respective affiliates for its own account and for the accounts of its customers.

Certain City and Poage Unaudited Prospective Financial Information
City and Poage do not as a matter of course publicly disclose forecasts or internal projections as to future performance, revenues, earnings, financial condition or other results because of, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, City and Poage are including in this proxy statement/prospectus certain limited unaudited prospective financial information for City and for Poage. Such information contains unaudited prospective financial information for City and Poage on a stand-alone, pre-merger basis, respectively, to give Poage shareholders access to certain information that was provided to the City board of directors and the Poage board of directors, respectively, and to Sandler O’Neill in connection with its opinion. Such prospective information is referred to as “City prospective financial information” and “Poage prospective financial information,” respectively, and the “prospective financial information” collectively. The prospective financial information may differ in certain respects from what City and Poage use for their respective internal purposes.
The prospective financial information was prepared in good faith and on a reasonable basis based on the best information then available but was not prepared with a view to public disclosure. As such, the inclusion of the prospective financial information in this proxy statement/prospectus should not be regarded as an indication that City, Poage or any other recipient of the prospective financial information considered, or now considers, it to be necessarily predictive of actual future results. The prospective financial information was not prepared with a view toward complying with the guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of financial information. Neither Ernst & Young LLP, City’s independent registered public accounting firm, nor Crowe LLP, Poage’s independent registered public accounting firm, nor any other independent registered public accounting firm has compiled, examined or performed any procedures with respect to the prospective financial information, or expressed any opinion or any other form of assurance on it or the achievability of the prospective results indicated by it.
The City prospective financial information and the Poage prospective financial information reflect numerous estimates and assumptions made by City and Poage, respectively, with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to City’s and Poage’s respective businesses, all of which are difficult to predict and many of which are beyond City’s and Poage’s respective control. Such prospective financial information also reflects assumptions as to certain business decisions that are subject to change. The City prospective financial information and the Poage prospective financial information reflect subjective judgment in many respects and are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Accordingly, such prospective financial information constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such prospective information, including, but not limited to, City’s and Poage’s respective performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks

43



set forth in this proxy statement/prospectus and in the reports filed by City and by Poage with the SEC. For other factors that could cause the actual results to differ, see “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
The prospective financial information does not account for any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the merger agreement, and do not account for the effect of any possible failure of the merger to occur. None of City, Poage or Sandler O’Neill, nor any of their respective affiliates, intends to, and each of them disclaims any obligation to, update, revise or correct the City prospective financial information or the Poage prospective financial information if they are or become inaccurate, even in the short-term. The inclusion of such prospective financial information in this proxy statement/prospectus is not and should not be deemed an admission or representation by City or Poage that such information is viewed by City or Poage as material information of City or Poage, respectively, particularly in light of the inherent risks and uncertainties associated with such information. The prospective financial information presented below is not meant to influence the decision of a Poage shareholder whether to vote in favor of the merger proposal or any other proposal to be considered at the special meeting but is presented solely because it was made available to and considered by City’s and Poage’s respective boards of directors and Sandler O’Neill in connection with the merger.
City Prospective Financial Information. The following City prospective financial information was utilized and relied upon by Sandler O’Neill in performing financial analyses in connection with its opinion: (1) median consensus Wall Street research estimates published by Bloomberg for the estimated earnings per share of City for the years ending December 31, 2018 and 2019, (2) the median consensus Wall Street research estimate published by Bloomberg for the long-term earnings growth rate for City of 8% per year, and (3) an asset growth rate for City of 5% per year, in each case, as per guidance from City’s management.
Poage Prospective Financial Information. The following Poage prospective financial information was utilized and relied upon by Sandler O’Neill in performing financial analyses in connection with its opinion. For its discounted cash flow analysis, Sandler O’Neill utilized and relied upon net income estimates for Poage for the years ending December 31, 2018, 2019 and 2020 of $1.2 million, $3.0 million and $3.5 million, respectively, as provided by Poage’s management, and a long-term earnings growth rate for Poage of 4.5% per year, as directed by Poage’s management. For its pro forma analysis, Sandler O’Neill utilized and relied upon net income estimates for Poage for the years ending December 31, 2018, 2019, 2020, 2021 and 2022 of $1.5 million, $2.5 million, $3.1 million, $3.8 million and $4.2 million, respectively, as provided by City’s management.

City’s Reasons for the Merger
 
City believes that the Merger is in the best interests of City and its shareholders. In reaching this determination, the City board of directors consulted with City management, as well as its financial, accounting and legal advisors, and considered the projected pro forma impact of the Merger and a number of other factors, including, without limitation, the following:

the long-term interests of City and its shareholders, as well as the interests of its employees, customers, creditors and the communities in which City operates;
 
the opportunity to acquire a bank with deep community banking relationships;
 
enhanced market share in Kentucky with incremental high-quality, low-cost core deposits;
 
the market area in which Poage’s offices are located is a market in which City would like to expand to;
 
the cost of acquiring Poage, its branch network and customer base is estimated to be equivalent to the cost of building new branch facilities, which would not provide any customers, revenue stream, employees or community goodwill;
 
City believes it can realize cost savings and other benefits of size and operating efficiencies;
 
City believes that the Merger should assist it in maintaining its status as an independent holding company and City National as a community bank; and
 
the size and structure of the transaction allows City to maintain its strong capital position; additionally, the merged banks will also maintain a strong capital position allowing the organization to expand within its new markets.
 

44



The board of directors of City also considered a variety of risks and other potentially negative factors in deliberations concerning the Merger. In particular, the board of directors of City considered:
 
the costs associated with the regulatory approval process, the costs associated with calling a special meeting of Poage’s shareholders, and other Merger related costs; and

the risks associated with combining the operations of Poage with City’s existing operations, including difficulty in combining corporate, accounting, financial information and information systems.

The above discussion of the information and factors considered by City’s board of directors is not intended to be exhaustive, but includes all material factors considered by the board in arriving at its determination to approve the Merger. The board of directors of City did not assign any relative or specific weights to the above factors, and individual directors may have given differing weights to different factors.

Regulatory Approvals Required
 
The Merger must receive approval from both the Office of the Comptroller of the Currency (the “OCC”) and an approval or waiver of application from the Board of Governors of the Federal Reserve System (the “Federal Reserve”) before the Merger may be consummated. City has submitted an application to the OCC for such approval but has not yet received such approval. City also intends to request a waiver for filing an application with the Federal Reserve.
  
The approval of any regulatory applications merely implies the satisfaction of regulatory criteria for approval, which does not include review of the adequacy or fairness of the merger consideration to Poage shareholders. Furthermore, regulatory approvals do not constitute or imply any endorsement or recommendation of the Merger or the terms of the Merger Agreement.

Interests of Poage Directors and Executive Officers in the Merger
 
In considering the recommendation of the board of directors of Poage to approve the Merger Agreement and the Merger, you should be aware that Poage’s directors and executive officers have employment and other compensation agreements or plans that give them financial interests in the Merger that are different from, or in addition to, the interests of Poage stockholders generally, which are described below. Poage’s board of directors wa