After spending the last year getting into the insurance, printing, and even Internet industries, West Virginia's City Holding Co. has gone back to buying banks.
City Holding, based in Charleston, announced Friday that it would buy Horizon Bancorp for $413 million in stock.
The deal would move City from fifth to third in deposit share among West Virginia bank holding companies, behind only One Valley Bancorp and United Bankshares.
The deal for Beckley-based Horizon, valued at 3.58 times book and 29 times earnings, is expected to close during the first quarter of 1999. It would give City $2.5 billion of assets, up sharply from its midyear 1998 total of $1.5 billion.
Recently, though, much of City's growth has occurred outside its traditional bank businesses. Last year City bought a specialty mortgage operation in Irvine, Calif., to go with its mortgage servicing unit in Costa Mesa. And since December, City has bought two insurance agencies, a direct mail and printing company, and CityNet, a Charleston-based Internet service provider.
Steven J. Day, City's president and chief executive officer, said that through these deals the company has positioned itself to offer the same services as larger banks.
Not only would Horizon provide more customers to sell those services to, he said, but City did not want its bank subsidiaries to overshadowed by the nonbanking ventures.
"Our mortgage earnings are growing faster than commercial bank earnings," he said. "We didn't want to lose our reputation as a commercial lender."
As for Horizon, its president and chief operating officer said that the $1 billion-asset company had grown to an "awkward" size.
"Investors want to see the kind of growth you can only reach through buying other banks," Philip L. McLaughlin explained. "But there are not many small banks left to buy."
Horizon hired an investment banker earlier this year, and when word got out that it was considering a sale, at least six bidders inquired, he said. The company chose City because it promised the least disruption to Horizon customers.
The City deal also leaves Horizon's management with some control. Mr. McLaughlin would become chairman of the combined company's board, which will feature equal representation from the two companies.
"You could call it an acquisition with all the flavors of a merger of equals," he said. "But with our strong banking business and their investment in the future, it made sense."
However, at least one analyst was left scratching her head about City's long-term plans.
Collyn Bement of Ferris, Baker, Watts in Baltimore said City's expansion strategy seems to be "all over the place."
Ms. Bement speculated that the company might be growing to attract attention as a takeover candidate. If so, it may not be an easy sell, she warned.
"I don't know what commercial bank would want to buy them," she said. "The bigger guys have those lines of business. CityNet wouldn't necessarily add value to SunTrust, for example."