The Bank Slate


Citizens in Ky. factored DTAs into timing of its sale

Citizens Commerce Bancshares in Versailles, Ky., waited to reap as much benefit as possible from deferred-tax assets before agreeing to sell to City Holding in Charleston, W.Va.

The $6 billion-asset City agreed in October to buy the $354 million-asset Citizens for $61 million.

Citizens, which was recapitalized in 2017, had “significant” DTAs – which allow companies to reduce taxable income – because of net operating losses it had before the recapitalization, according to a regulatory filing tied to the pending deal. Selling would have “limited” its ability to take advantage of the accounting move.

The DTAs totaled about $816,000 in mid-2021. That was also around the time that Skip Hageboeck, City’s president and CEO, first met with Michelle Oxley, Citizens’ president and CEO.

Citizens “had substantially utilized the tax benefits” of its DTAs by 2022. Another consideration was Citizens’ core processing contract, which was set to renew in October 2023; a large fee was likely if the company chose to terminate it.

The need for more capital and technology investments also factored into the board’s thinking. “Another challenge was the absence of a trading market in Citizens common stock, making … shares an illiquid investment for shareholders,” the filing said.

Citizens’ investment bank contacted three potential buyers in June. City was the only one that expressed an interest in a deal. City’s initial indication of interest was an all-stock pitch that valued Citizens at $14.50 a share.

Citizens asked for an increase to $15 a share, which City refused. City conducted its due diligence from August to September.

Hageboeck met with the Citizens board on Aug. 9. City sent the first draft of the merger agreement to Citizens on Sept. 24.

ProBank Austin, Citizens’ investment bank, was sold to Forvis on Oct. 1, though its financial advisory business wasn’t included. That team went to Hovde Group. While ProBank Austin’s engagement letter was assigned to Forvis, Citizens hired Hovde to provide a fairness opinion.

The Citizens board approved the sale on Oct. 18; the deal was announced the same day. The deal is expected to close in the first quarter.

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