City Holding Co. of Charleston, W.Va., has its first deal in more than five years, and its chief executive says it may not be done buying.
The $2.2 billion-asset company announced Wednesday that it would acquire the $340 million-asset Classic Bancshares Inc. of Ashland, Ky., for $77.4 million in cash and stock.
The deal is expected to close in the second quarter. It would give City Holding, the parent of City National Bank of West Virginia, its first branches in Kentucky — eight of them — plus two in Ohio.
More significantly, it would make it No. 1 in deposits in the Huntington, W.Va./Ashland metropolitan area. It is now No. 3 there, behind J.P. Morgan Chase & Co. via its deal for Bank One, and National City Corp. of Cleveland.
Gerald R. Francis, City Holding’s president and chief executive officer, said it had been scouting for acquisitions for about 18 months and found a good match in Classic, a top performer that operates in similar markets.
He added that his company has the currency for more deals. “There is not a lot to buy in West Virginia,” he said, so it is eyeing opportunities in bordering states.
“We continue to look to expand the franchise geographically and logically with banks that fit our requirements,” Mr. Francis said Thursday.
City Holding was an active acquirer of banks and nonbanks in the 1990s, but its aggressiveness under former CEO Steven Day proved disastrous. By the end of 2000 it was losing millions of dollars a quarter.
It hired Mr. Francis, a well-known turnaround specialist, in early 2001 to stop the bleeding. Mr. Francis vowed to return to basics; he quickly sold or shut down the nonbank subsidiaries and the two underperforming California banks City Holding had acquired.
Today the company is among the industry’s best performers. It reported a return on assets of 2.12% through the first nine months of 2004 and a return on equity of 23.12%; the averages for commercial banks with $1 billion to $10 billion of assets are 1.49% and 13.93%, respectively.
Investors that stuck with it through the bad times have been richly rewarded. City Holding stock, which was trading in the $6 range in early 2001, closed Thursday at $36.57.
Still, given Mr. Francis’ track record, the company has been viewed more as a seller than a buyer. Before joining it he engineered turnarounds at two Midwest banks, both of which were then sold for hefty premiums.
Asked if the deal for Classic was intended to make City Holding look more attractive to a potential buyer, Mr. Francis said: “It doesn’t make us any less attractive. Classic is a solid franchise.”
Steven Alexopoulos, an analyst with Sandler O’Neill & Partners LP in New York, said that though he was not surprised to see a deal, he was somewhat surprised that it is in Kentucky. He would have expected a banking company in a slow-growth state like West Virginia to go into a faster-growing market, he said.
Mr. Alexopoulos said he expects City Holding to make another deal of a similar size soon, and in a more attractive market, such as southern Ohio.
All but two of City Holding’s 58 branches are in West Virginia. It has two in Ohio, and it recently announced that it will open one in a Wal-Mart store in Classic’s hometown of Ashland.
City Holding is to pay nearly one share of its own stock and $11.08 in cash for each share of Classic. But Classic must sell or require full payment of a $4 million loan made to a borrower in a line of business with which Mr. Francis said his company is not comfortable. (He would not say what it is.)
Classic’s stock soared on news of the deal. It closed Thursday at $44.75, up 12%.
