Fairfax-based First Virginia Community Bank announced today it has reached an agreement to acquire Arlington’s 1st Commonwealth Bank of Virginia for $3.7 million in stock.
The merger will give First Virginia an additional $57.3 million is assets, $51.3 million in deposits and an office in Arlington. Both boards have signed off on the deal, which is expected to close in the fourth quarter, subject to shareholder and regulatory approval.
“First Commonwealth has some very valuable attributes ... their loan portfolio is comprised of high performing assets,” said First Virginia chairman and chief executive David Pijor.
Pijor said 1st Commonwealth Chairman Sidney Simmonds will join First Virginia’s board of directors, but he doubts president and chief executive Ernest L. Tressler will have a role at the bank. First Virginia has yet to determine how many 1st Commonwealth employees will be absorbed.
“There is bound to be some overlap, but we think the transaction will be accretive in many respects, especially in term of the personnel,” Pijor said. “We’re anxious to dig in and see how we fit.”
Once the merger is wrapped up, First Virginia will have $331.8 million in assets and $284.3 million in deposits. The bank expects the transaction will boost earnings within 12 months of closing.
Founded four years ago, First Virginia has been positioning itself for growth. The bank came out of the gate with $23 million in capital and continued to stock pile cash. At the end of last year, it took in $6.7 million in its third capital raise, nearly $2 million more than its initial goal.
“At the time we hadn’t thought of a possible merger with 1st Commonwealth, but it turned out to be lucky that we raised the capital because it makes the numbers work a lot better and the transaction easier to conduct,” Pijor said.
Over the past year, he said the bank has shopped around for acquisition opportunities, but some of the transactions required more capital than First Virginia was willing to deploy. In contrast, 1st Commonwealth has “a nice capital position, about $4 million of capital, and from that perspective the pro forma balance sheet lined up nicely,” Pijor said.
First Commonwealth tangled with regulators last year, when board members and executives were ordered to pay thousands of dollars in penalties for deviating from the institution’s original business plan. The action stemmed from a 2009 inquiry by the Office of Thrift Supervision, which was concerned that the bank had grown its residential mortgage business beyond what the agency approved in its 2008 charter.
The inquiry led to an enforcement order claiming 1st Commonwealth ”engaged in unsafe or unsound practices” for failing to comply with its business plan, even though the bank submitted a revised plan that regulators rejected.
First Commonwealth is still under the enforcement order, but Pijor suspects the merger will “help them clear the cobwebs out.”
He said, “They’ve always had really well-performing assets notwithstanding the sanction, the merger — with our capital base, our management team — will help them remove some of those conditions and terms of the order.”