Charting the Patient Road to Bank Growth

Skip Hageboeck, the chief executive of City Holding Co., believes in taking his time.

Until this week, it had been six years since City Holding's last deal, and it may be just as long before the West Virginia company does another.

Hageboeck is hot on the outer markets of northern Virginia — a high-growth area that, he says, resemble his familiar turf more than the more urban suburbs close to Washington, D.C. The $2.7 billion-asset City Holding said Monday it had agreed to buy Virginia Savings Bancorp Inc. of Front Royal, Va., for $13.4 million.

Hageboeck is scoping for more targets, but will not rush to pull the trigger on another deal, he says.

"It could be six months from now, it could be six years from now," Hageboeck said in a phone interview Tuesday that he gave while driving from Virginia Savings' headquarters to City Holding's corporate offices in Cross Lanes, W.V.

Its last acquisition was the $333 million-asset Classic Bank in Ashland, Ky., in 2005.

The deal announced Monday fits into City Holding's longtime strategy of focusing on core deposits and eschewing risk, analysts say.

"It is a nicely core-funded retail franchise that will complement City's retail funding tilt, thereby lowering execution risk in addition to it being a small deal that will also lower execution risk," Stifel, Nicolaus & Co. analyst Carter Bundy says. All but 2% of Virginia Savings' deposits are core, with no brokered deposits in the mix, he says.

The $130 million-asset Virginia Savings ranked No. 6 with 6.92% of the deposits in its home base of Warren County, Va., as of June 30.

"We're focused on companies that really represent a good fit, that make City a better company, not just a bigger company," Hageboeck says. "We're not all about acquisitions."

The same rationale seems to apply to how Hageboeck has managed City Holding. In metropolitan Charleston, W.V., City National Bank of West Virginia had 10.5% of retail deposits as of June 30, according to the Federal Deposit Insurance Corp. That put it in third place; BB&T Corp. was first at 28%.

What the Virginia Savings Bank deal gives City Holding, Hageboeck says, is an entry point into a region that is growing fast — organically. "It's not just population growth, it's also economic growth,' he says.

Others have judged the greater Washington area's growth potential to be high. Ron Paul, the chairman and CEO of Eagle Bancorp Inc. of Bethesda, Md., this summer touted his bank's 25% loan growth, and attributed it the region's ability to withstand the recession.

Virginia Savings' $89 million loan portfolio was also attractive, Hageboeck says, given its focus on first-residential mortgages and business loans secured by commercial real estate.

Just don't call Virginia Savings Bank's markets suburban Washington, D.C., Hageboeck says. Similar to the Eastern Panhandle of West Virginia, where City National Bank has branches, the northern Virginia markets that City is entering — Front Royal, Fredericksburg, Strasburg and Winchester — are a long commute from the nation's capital

"They really are not suburbs of Washington," he says. "Very few people there really commute all the way into D.C."

Saying that City has been eyeballing an expansion into Virginia for several years, Hageboeck called the Virginia Savings acquisition a "perfect first step for us." He declined to say if he already has the second step in mind.

"We don't have any specific plans," Hageboeck says.

But Hageboeck explained where he is looking for another deal — the Interstate 81 corridor.That highway runs the length of Virginia, starting in Bristol, crossing over the West Virginia border near Winchester, and passing through Martinsburg, W.V., before entering Hagerstown, Md.

Other areas for expansion would need to be no farther than a five-hour drive from Charleston, W.V. They includes eastern Kentucky, southeastern Ohio and even Charlotte, N.C., he says. City Holding already has a loan officer located in Charlotte.

Hageboeck says he would consider only a very small portion of southwestern Pennsylvania, and he holds no interest in the District of Columbia.

"We wouldn't actually try to move into the District," he says. "City is a very strong retail player and you really need to have a significant branch distribution network" to compete in Washington.

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