M&A: Virginia banking merger to create largest force in state

Under the terms of the merger agreement, FNB shareholders will receive 1.5850 shares of VFG common stock for each of their shares of FNB common stock, with each share of VFG common stock becoming one share of common stock of the resulting holding company. FNB and VFG will consolidate their banking subsidiaries into one state-chartered bank. Both the resulting holding company and its banking subsidiary will be renamed and will initially consist of 67 full-service banking offices, total assets of over USD3 milliard and total deposits of approximately USD2.6 milliard. In addition, the resulting company's combined trust and wealth management unit will have approximately USD1 milliard in assets under management. The resulting holding company will be headquartered in Charlottesville, Virginia, with its banking subsidiary and operations center headquartered in Christiansburg, Virginia. The resulting holding company will be governed by a Board of Directors of up to 24 directors, with equal representation from FNB and VFG. The banking subsidiary's Board of Directors will also have equal representation from FNB and VFG. Current FNB President and Chief Executive Officer William P. Heath, Jr. will serve as Chairman of the Board for the resulting holding company. Current VFG President and Chief Executive Officer O. R. Barham, Jr. will serve as President and Chief Executive Officer for the resulting holding company. Gregory W. Feldmann, current FNB Chief Operating Officer and President and Chief Executive Officer of FNB's subsidiary, First National Bank, will serve as President and Chief Executive Officer of the resulting banking subsidiary. Raymond D. Smoot, Jr., current Chairman of the Board of FNB's First National Bank, will serve as Chairman of the Board of the resulting banking subsidiary. Current VFG Executive Vice President and Chief Operating Officer Litz Van Dyke will serve as Executive Vice President and Chief Operating Officer for the resulting holding company, and current VFG Executive Vice President and Chief Financial Officer Jeffrey W. Farrar will serve as Executive Vice President and Chief Financial Officer for the resulting holding company.The merger is subject to customary closing conditions, including approval by VFG's and FNB's shareholders and by both companies' regulatory agencies.

The merger, which is expected to yield approximately USD9.4 million in annual cost savings for the resulting holding company and banking subsidiary, is anticipated to be completed during the last quarter of 2007. Combined transaction costs for FNB and VFG are estimated at USD8.5 million and are expected to be incurred in 2007.

"This combination will create the largest independent bank holding company based in Virginia, and will enable us to better leverage resources and enhance our ability to achieve greater earnings and balance sheet growth. We see this transaction as a unique opportunity to bring two very compatible companies together in a combined company that will be much stronger than the sum of its parts. VFG and FNB have earned reputations as high quality community-focused banks with solid infrastructures that provide excellent service to their customers. While there is no overlap between our branch networks, we operate in contiguous regions of Virginia. Our people are our strength, and both companies have empowered them to make decisions that fulfill our customers' needs," said Bill Heath, President and Chief Executive Officer of FNB.

BISfaculty presents Mergers and Takeovers in the Financial Services Industry in Hong Kong on 2 & 3 October 2007. Click here for details.