RankingBanking Web Pageturn - Flipbook - Page 29
27
its to its balance sheet, and strengthened City’s
presence in the Lexington, Kentucky market.
borrower’s ability to repay.
“The fact that we are such a strong retail fran-
Despite being an experienced acquirer, Hage-
chise means we don’t have to go out and push the
boeck says the bank would generally rather buy
envelope on credit. We are able to be a little bit
back its stock, thereby raising value for its share-
more conservative and still generate enough net
holders, than engage in dealmaking for its own
interest income,” he says. “How we run our bank
sake.
works in good times and in bad times.”
“We do not believe that we have to accomplish
Still, one strategic challenge may be the $10
the next acquisition to be successful,” Hageboeck
billion asset threshold, if City should ever cross
says, adding that City has never overpaid for a
that mark at some point. Passing $10 billion
deal during his tenure at the bank. He looks for
would mean scrutiny by the Consumer Financial
targets with strong retail distribution and mean-
Protection Bureau, particularly over deposit ac-
ingful market share, either in legacy or adjacent
count fees, as well as a loss of interchange rev-
markets where City has some name recognition.
enue under the Durbin Amendment. That would
Analysts say investors like the bank’s lowcost retail deposit base, with a high proportion
reduce debit interchange income by almost half,
according to Gunther.
of insured deposits and low loan-to-deposit ra-
“Because we’re a very strong debit card bank,
tio, which stood at 78.2% in the second quarter
it would be a very big tax on us to go over that
2023. Its rural markets have been key to building
number,” Hageboeck says.
a sticky deposit base, and City does not have a lot
But that threshold could still be a ways off for
of competition for those funds. It also has a con-
City Holding Co. Casey Whitman, managing direc-
servative credit profile and little exposure to riski-
tor and senior research analyst at Piper Sandler
er asset classes. The bank sticks to what it knows,
& Co., believes City would most likely cross $10
and does not dabble in new lines of business or
billion as a result of M&A. In that case, “cost
exotic financing. Its underwriting fundamentals
saves would offset the revenue loss,” he says.
haven’t really changed under Hageboeck’s lead-
While City will likely continue to make acquisi-
ership. Like many banks in the RankingBanking
tions in the future, Hageboeck emphasizes that it
study, its credit quality remains solid. Nonper-
doesn’t need to engage in M&A to continue to be
forming assets totaled 0.17% of total assets and
a top performing bank.
other real estate owned for 2022, and as of the
end of the second quarter of 2023.
“Most banks believe that you have to be bigger
and bigger and bigger, and we just view that very
“This bank is everything that an investor would
differently,” Hageboeck says. “We have a great
want from a safety perspective in the current
franchise. We don’t see the need to grow into a
environment,” says Russell Gunther, a managing
bigger bank, unless it is a better bank.”
director at Stephens, who covers the company.
“They are built for the environment that we’ve
been in.”
City’s commercial underwriting standards tend
to be fairly conservative, Bumgarner says. For example, while appraised value is important when
making a deal, the bank places an even higher value on its clients’ debt service coverage ratio or the
Laura Alix is director of research at Bank Director.