Community First Bankshares of Fargo, N.D., said it plans more California acquisition deals and may enter as many as nine other western and midwestern states.
Nine months after it last announced a bank purchase deal, the $5.9 billion-asset company announced Monday that it would move into California by buying Valley National Corp. of El Cajon for $65 million in stock. Valley National, with $241 million of assets, owns six branches in fast- growing San Diego County.
More California deals will follow, Donald R. Mengedoth, Community First's chief executive, told a group of bankers and investors at a conference Tuesday.
"California will be a long-term part of our strategy," Mr. Mengedoth said. The conference was sponsored by Chicago-based Howe Barnes Investments.
William V. Ehlen, president of Valley National's Valle de Oro Bank, would remain with Community First as a scout for further deals in California. Mr. Ehlen is well known among bankers in California and is president of the Western Independent Bankers Association, which serves banks in six states,
"Bill thinks there are more deals he can bring to us early on," Mr. Mengedoth said.
Analysts said they like the Valley National deal, even though it is not expected to add to earnings until next year.
"We are glad to see Community First back in the acquisition mode," wrote Timothy Willi, a bank analyst at A.G. Edwards & Sons Inc. in St. Louis, in a report on the announcement.
Finding more deals in California may prove challenging, however. Analysts said Community First would have to beat out a half-dozen other companies bidding for small banks in the state, including Zions Bancorp. and First Security Corp., both of Salt Lake City, and Western Bancorp. and City National Corp., both of Los Angeles.
Community First's stock, which has been trading down since the company announced a restructuring plan last summer, is weaker than some of its rivals' shares. At midday Wednesday, Community First's shares were trading at $22.1875 with a trailing price-to-earnings ratio of 22.64, while Zion's shares were selling for $66.125 with a ratio of 31.92.
"They do not have the ability to be the No. 1 bidder unless their stock reaches at least $30 a share," said Erick J. Reim, a bank analyst at U.S. Bancorp Piper Jaffray.
But not all companies want stock in a buyout, Mr. Mengedoth said. Community First has paid cash in about 20 of its 30 deals in the past decade.
Community First's expansion strategy could extend beyond California. The company has been in talks with banks in nine other western and midwestern states where it currently has no branches, Mr. Mengedoth said.
Community First has branches in 154 communities in Arizona, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin, and Wyoming.
Community First will probably not be first in line for branches that Wells Fargo & Co. is selling in the Phoenix market, however. Mr. Mengedoth said his company had a poor experience with some Bank One branches it bought in Arizona in 1998, because many customers chose to stay with the larger bank.
"It was tough," he said. "Most people passed another Bank One branch on their drive to work."
