A West Virginia bank company is buying a big stake in a young community bank - with hopes of taking it over.

South Branch Valley Bancorp, Moorefield, W.Va., said in a securities filing last month that it plans to buy as much as 35% of Capital State Bank Inc.of Charleston.

South Branch entered into a binding letter of intent last month to buy 275,000 shares-a 23% stake-of Capital State from investor Fred L. Haddad, according to a filing with the Securities and Exchange Commission. The company said it wants to buy another 149,000 shares from Mr. Haddad and his family, bringing its stake in $30 million-asset Capital State to 35%

The $116 million-asset South Branch's ultimate goal is to gain control of the 14-month-old Capital State, according to the filing.

South Branch officials did not return telephone calls. Mr. Haddad could not be reached for comment.

Mike Hudnall, president and chief executive officer of Capital State, said he had not had any discussions with South Branch officials about a merger. He wasn't alarmed by the unsolicited interest, however.

"It really is a private transaction," he said. "It just happens to be a large block of stock."

Mr. Hudnall said the acquisition of the shares by South Branch isn't a "negative."

"Their philosophy is certainly along the lines of ours," he said.

John K. Brown, branch manager of the Ferris, Baker Watts Inc. office in Charleston, which handled Capital State's initial public offering, said South Branch's move surprised him.

However, he said that Capital State - and its one branch - would be a lucrative catch because it is located in Charleston, one of the few growth areas in West Virginia.

He said the bank's location near a thriving business district gives an acquirer a good market. With many of West Virginia's community banks disappearing, he said Capital State also has the advantage of being a small community bank.

"Now their main forte is trying to be like the small-town bank of yesteryear," Mr. Brown said. "That's what a lot of people want."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.