United Virginia Bankshares Inc. of Richmond has agreed to buy controlling interest in Washington's NS&T Bank and its parent company, NS&T Bankshares Inc., for $119 million, in a transaction that could mark the first interstate bank merger in the Washington area.
Officials of the two bank-holding companies announced the merger agreement yesterday at a press conference in Washington.
The proposed merger is the strongest evidence yet that pressure is building for interstate bank mergers in the region. Virginia has already enacted a regional reciprocal interstate banking law; Maryland is expected to enact a similar bill soon and the D.C. City Council began hearings on a measure this week. The prospects of passage in the District and Maryland are considered good. In fact, the Maryland House of Delegates has already passed an interstate banking bill.
In the meantime, although yesterday's announcement apparently came as a surprise to most local bankers, several indicated that banking industry executives in the District, Maryland and Virginia have been actively discussing possible mergers across state lines.
The sale and merger agreement between NS&T and UVB are contingent upon approval by the Federal Reserve Board and passage of a regional reciprocal interstate banking law in the District. Even more critical to the proposed merger is a ruling that is expected later this year from the U.S. Supreme Court on the legality of regional banking agreements among states. New York's giant Citicorp has challenged the contitutionality of the regional banking pacts, which are designed to bar entry into a region and competition by big money-center banks.
Both NS&T and UVB officials yesterday expressed optimisim that the Supreme Court will uphold the regional interstate banking pacts and that the necessary regulatory approvals would be granted by next year. "I think that there is a dominant view that more than likely all of this will be cleared up in a year," said UVB Chairman Joseph A. Jennings.
Jennings said the proposed merger with NS&T is part of a previously announced strategy to expand UVB's market into the Washington area. He referred to it as the "second leg of three-legged stool" in an obvious reference to plans to expand into Maryland.
John J. Mason, NS&T's chairman and chief executive officer said his institution "sees the agreement with UVB as an inevitable move in a deregulatory environment."
Under the agreement signed late Thursday night, Mason, who owns just over 26 percent of NS&T's stock, and Meyer Feldman, a director whose family owns close to 32 percent, will sell their holdings to UVB for $86.98 a share. Mason and the Feldman family have agreed to vote in favor of a merger of NS&T into UVB at the same cash purchase price. NS&T has 1.37 million shares of common stock outstanding and about 125,000 unissued shares.
The agreement also calls for NS&T to operate as a separate banking subsidiary of UVB, whose principal banking subidiary is United Virginia Bank of Richmond. Mason would continue as chairman and chief executive officer of NS&T and Michael F. Ryan would remain as president and chief operating officer.
Reaction to yesterday's announcement was mixed, although favorable. It "certainly is the biggest bank merger around here in a long time," said Paul Geithner, president of First Virginia Bankshares Inc. of Falls Church. "I certainly think we will see more of this" as Maryland and the District move closer to passing regional interstate banking bills, he added.
While First Virginia Banks has had "no significant conversations" with other banks in the region, Geithner added, "we are always actively talking to banks around the state of Virginia."
"I think it's a good match," observed C. Coleman McGehee, president of Sovran Bank, Virginia's largest. "It gives UVB a market extension into the District and certainly gives NS&T shareholders a handsome premium for their stock."
A merger between NS&T and UVB "will help build the financial resources of Washington," said Luther H. Hodges Jr., chairman and chief executive officer of Washington Bancorp and National Bank of Washington, which the United Mineworkers of America agreed to sell earlier this month.
Hodges and other banking industry officials here observed that UVB obviously was willing to pay a high price for the opportunity to bank in Washington. UVB's offer for NS&T is more than twice the book value.
"From a strict numbers point of view, that's an interesting figure in terms of what someone is willing to come in and pay for a Washington bank," observed an official at a local securities firm.
NS&T's stock, which is thinly traded on the open market, opened at 49 yesterday before trading was halted, pending the merger pact.
At the end of 1984, NS&T -- which is Washington's fifth-largest bank -- had total assets of $925 million and 16 branch offices.
UVB, the second-largest banking institution in Virginia and the 66th largest in the nation, has assets of more than $6 billion. United Virginia Bank, the wholly owned subsidiary, has been the point in an aggressive expansion strategy aimed at the Washington market. In addition to operating 193 banking offices (41 in Northern Virginia), United Virginia Bank owns two subsidiaries engaged in mortgage lending, investment services and insurance. Both of those subsidiaries, United Virginia Mortgage Corp. and Capital Investment Services, would enhance NS&T's competitive position in the market.