MARTINSBURG, W.Va. - Lacy I. Rice Jr., chairman of Mountaineer Bankshares of West Virginia, was on the hunt last summer.
He was scouring Maryland, northern Virginia, and his home state for acquisitions. He wanted to add more bulk to the $750 million-asset banking company so it could compete with Ohio's Banc One Corp. and Huntington Bancshares, which had invaded West Virginia.
But like many community bankers, the 61-year-old Mr. Rice and the board of directors had a change of heart about the future of Mountaineer.
They decided to sell when the chairman of neighboring One Valley Bancorp came knocking in July.
"We were looking for stability," said Mr. Rice, who is a labor lawyer in Martinsburg and a banker by inheritance.
"We are thinking ahead. We knew we could [compete] for a couple of years, but beyond that, where would we go? Now, we will be able to compete with Banc one and Huntington."
Mr. Rice's rationale for selling is becoming a common refrain among community bankers who are handing over the keys in droves.
Last year, 357 community banks and thrifts were acquired, compared with 277 institutions in 1991 and 198 in 1990, according to SNL Securities, Charlottesville, Va.
So far this year, 290 community banks and thrifts, with assets totaling $65.5 billion, have been acquired.
Attractive to Sell
There are plenty of reasons to sell.
Some bankers are lured by big profits. Others don't want to deal with regulators and regulations. Others fear competition or lack the management to carry the institution into the future. Still others simply grow old and have tired of the business.
"It's a whole mix of things," said Edward Furash, president of Furash & Co., a Washington-based bank consulting firm. "The top one is money. You get an offer you can't refuse. Somebody can get two times book and run away."
Seen as Good Deal
Analysts say the One Valley-Mountaineer merger, which is expected to be completed early next year, is a sweet deal for Mountaineer shareholders, who will receive one and a half shares of One Valley stock for each of their shares, or two times book value. The stock deal was valued at $130 million, or $44.65 per Mountaineer share when it was announced in August.
Mr. Rice holds 100,000 shares, or 3.45% of Mountaineer stock, which on paper is worth about $4.5 million.
He also acknowledges that someday One Valley may be acquired and the value of his stock may rise again.
The stock has appreciated "a heck of a lot," said Mr. Rice, a serious man sitting in his law office, which overlooks the bustling streets of downtown Martinsburg.
"I would estimate that my holdings after the merger with One Valley would have increased eight times."
Mr. Rice said the board didn't vote to sell because of the price. He said there were other offers that were even better.
But the directors wanted a homegrown bank that wouldn't shake up management or fire employees.
"There definitely will not be any mass-layoff," he said.
The merger will create the largest independent bank in the state, with $3.5 billion in assets, and 80 banking offices covering 67% of the state's population.
Mr. Rice will become vice chairman of the merged institution, but he will not participate in day-to-day management of the bank. He will also be chairman of One Valley Martinsburg after it is consolidated with Old National Bank. Old National was once run by Mr. Rice's father, who was also a labor lawyer in town.
"I think he [Mr. Rice] has taken a realistic approach to the challenges that lay ahead for Mountaineer," said David Stumph, a bank analyst with Wheat, First Securities Inc., a Richmond, Va.-based brokerage firm.
"Other bankers are less reluctant to deal with those challenges as reality."
This past summer, Mr. Rice and other board members weren't thinking of selling. Mountaineer had acquisitions cooking in western Maryland and northern Virginia. The bank was also one of the most profitable institutions in the state. It earned $6 million for the first nine months of the year and posted a 1.09% return on average assets.
Going for Growth
The board was holding fast to a growth strategy adopted in 1983, when West Virginia converted from a unit banking state and allowed branch banking. Since then, Mountaineer has been a prolific acquirer. From 1985 to 1993, it snapped up 10 banks that today have about $560 million in assets.
"We wanted to get larger," Mr. Rice said. "I wanted to build a bank holding company."
During that time Mr. Rice and a team of Mountaineer executives met with as many as 50 banks in the state. Mr. Rice tugs open two large file drawers stuffed with annual reports, statistics, and notes from meetings with target banks.
"We were doing all the calling," Mr. Rice said. "It's kind of like asking a girl for a date, you get slapped in the face a lot."
Mr. Rice made his first deal in a golf cart. An avid golfer with an eight handicap, Mr. Rice was playing a round with Cecil B. Highland, chairman of Empire National Bank of Clarksburg.
Look No Further
He began talking about how he wanted to acquire other banks and build Mountaineer when Mr. Highland asked: "Why don't you acquire me?" Mr. Rice said.
"My reaction was one of surprise," Mr. Rice said. "I didn't think he would be interested. I said O.K., we'll see what we can do."
From there, Mountaineer bought banks along the West Virginia panhandle in Fairmont City, Wadestown, and Wheeling.
"Those are going to be the future real growth markets in West Virginia," said J. Holmes Morrison, president and chief executive of One Valley. "They were certainly in some markets we were not."
Hit a Snag
Mountaineer was growing bigger and more profitable by the year, but in 1989 its lead bank, Old National, ran into problems.
Old National had built a $45 million portfolio of dealer development installment loans generated from a handful of states. But the loans were poorly underwritten and began to go bad. Old National officers were repossessing about 30 cars a month. Problems were exacerbated by rising expenses, few checks and balances, and a souring commercial real estate portfolio. In 1989, Old National posted an operating loss of $597,660.
Tough to Take
The losses were hard for Mr. Rice to stomach. The Rice family had been identified with the bank since his father became president 1935. "I would say this bank has been pretty much my life," said Mr. Rice, who took over in 1968.
It made matters worse when he had to fire Old National's president and other top officers. "It was just poor management," he said.
Position of Strength
Mr. Rice brought in Daniel E. Moffitt, a turnaround specialist from Ohio, who has since cleaned up the auto loan problems, but is still working out bad real estate loans. The bank earned $1.3 million for the first nine months of the year, and posted a 1.01% return on average assets.
"Mountaineer has done a tremendous job getting that company back on its feet," said Wheat's Mr. Stumph. "They sold from a position of strength."
About a year ago, One Valley's Mr. Morrison inquired whether Mountaineer was up for sale, but Mr. Rice rebuffed the advance.
"We said thank you very much, but we are not interested," Mr. Rice said.
But this past July, Mr. Morrison paid Mr. Rice another "courtesy call." that was scheduled to last 15 minutes. The meeting turned into a three-hour number-crunching session in Mr. Rice's office.
Meeting the Competition
"It all happened very quickly," Mr. Rice said.
"If you would have talked with me a year ago I would have given you a good answer as to why we were going to remain independent.
"Now, we will be the size that we can really offer our customers the services they need. We will be able to meet the competition."