Virginia National Bankshares Inc. of Norfolk and First & Merchants Corp. of Richmond have approved a definitive agreement for a merger, the chairmen of the two bank-holding companies announced yesterday.

The merger pact contains essentially the same terms that were disclosed in February when the two organizations announced that they had reached an agreement in principle to merge the holding companies and their subsidiary banks.

A merger of the two organizations would form Virginia's largest bank-holding company, replacing United Virginia Bankshares Corp. of Richmond as No. 1. VNB and F&M have combined assets of $6.7 billion.

As previously announced, Virginia National Chairman C.A. Cutchins III will be appointed chairman and chief executive of the new holding company and its subsidiary bank. C. Coleman McGehee, who is now chairman of First & Merchants, will become president, chief operating officer and chairman of the executive committees of the two institutions formed by the merger.

Virginia National and F&M are expected to convene special meetings of their shareholders during the summer to vote on the proposed merger.

In the meantime, requests for regulatory approval probably will be filed during the second quarter, officials of the two holding companies said. Assuming that all necessary approval is received by the middle of this year's fourth quarter, officials said they expect to complete the merger by the end of the year.