First National in Strasburg, Virginia, said Tuesday it agreed to acquire cross-state rival
The $1.4 billion-asset
"Combining our companies will help ensure that we continue to be part of the fabric of the communities we serve," Scott Harvard, president and CEO of First National, said in a release announcing the deal. "We are incredibly excited about this opportunity to expand our Richmond metro presence."
Founded in 1906 as The Bank of Dinwiddie, Prince George-based Touchstone Bank currently operates 12 branches in and around Richmond, south central Virginia and northern North Carolina. It has assets of about $659 million, gross loans of $509 million and total deposits of $542 million.
The transaction, projected to close in the fourth quarter, would bolster First National's footprint to $350 million of deposits and eight branches in the Richmond market.
First National, whose roots date to 1907, estimated the combination would generate cost savings of $7.2 million, or 35% of Touchstone's noninterest expense base. The increased scale would also enable the combined bank to originate larger loans and more efficiently absorb costs across the organization, First National said.
The deal's savings would help to drive 36% earnings per share accretion. The buyer estimated it would earn back tangible book value dilution in about three years.
First National also said both banks have low-cost, long-duration deposits because of their more than century-long histories in Virginia.
First National said it and its bank unit, First Bank, would appoint three Touchstone directors to join its existing nine directors on each board. James Black, the president and CEO of Touchstone, would join First Bank as a regional president.
Hovde Group served as financial advisor and Nelson Mullins Riley & Scarborough provided legal counsel to First National. Piper Sandler was financial advisor and Williams Mullen legal counsel to Touchstone.
Bank M&A slowed last year amid high interest rates and economic uncertainty. But industry observers say there is pent-up demand that could get unleashed as 2024 wears on. Community banks are eager to pack on assets and gain efficiencies in order to invest in digital platforms and better compete with larger lenders, said Christopher McGratty, head of U.S. bank research at Keefe, Bruyette & Woods.
"Banks need to achieve significant scale to absorb more regulatory costs and to be competitive," McGratty said in a recent interview. "All of our work suggests more M&A is going to happen."
However, deal activity is off to a modest start in 2024. Through March 22, S&P data showed that 23 bank sales had been announced this year, putting the industry roughly on pace to match 2023.
Bank sellers
