D.C. National Bancorp, the District's sixth-largest bank company, and Sovran Financial Corp., Virginia's largest, have agreed to a merger that would make D.C. National a subsidiary of the Norfolk company.
The merger agreement, which is contingent upon passage of an interstate banking bill by the District and approval by regulatory authorities, is the second to be announced by Virginia and D.C. banks in just over three months. In March, United Virginia Bankshares of Richmond and NS&T Bankshares Inc. of the District announced the first proposed interstate bank merger in the Washington area.
After the announcement of yesterday's merger agreement, Sovran's stock, which is traded over the counter, closed at 43 3/8, down 1, on trading of 59,400 shares. D.C. National jumped from 29 bid on Friday to 55 yesterday.
The agreement calls for an exchange of stock worth an estimated $68 million on the effective date of the transaction, expected to be in October or November.
Shareholders of D.C. National will receive a market value of $72.50 a share in a tax-free exchange of stock. That represents a premium of nearly 2.9 times the current book value of D.C. National, according to Robert P. Pincus, its president and chief executive officer.
In the United Virginia and NS&T agreement, UVB agreed to pay NS&T's principal owners $119 million, or 2.5 times the local bank's book value, a price that was considered surprisingly high at the time for the District's fifth-largest bank company.
The Sovran-D.C. National agreement calls for an exchange of not more than 2.164 shares for one, or 1.9 million shares of Sovran Financial for the 890,550 shares outstanding of D.C. National. D.C. National also has more than 60,000 unissued shares, according to Pincus. Sovran would pay the difference in cash if the shares it has agreed to exchange do not provide the agreed-upon market value, officials said.
The agreement further provides that D.C. National Bancorp and its subsidiary, D.C. National Bank, will be operated as wholly owned subsidiairies of Sovran. John Safer, D.C. National's chairman, Pincus and other officers of the bank will continue in their present positions. Safer will be named a director on Sovran's board.
Sovran's planned entry into the District as the parent company of D.C. National is a "logical extension of our present market area from the Virginia suburbs to the nation's capital," said C. A. Cutchins III, Sovran's chairman and chief executive officer. He added that entry into the District is "an important part of Sovran's interstate strategy."
Pincus emphasized that D.C. National, although a wholly owned subsidiary of Sovran, will be autonomous. "We will operate under [Sovran's] general policies, but we will retain our own internal operating policies," Pincus said. "With the support afforded through Sovran's resources, the service we provide our customers can only be enhanced."
Sovran, which was formed in 1983 by a merger of First & Merchants Corp. of Richmond and Virginia National Bankshares Inc. of Norfolk, is the biggest banking institution in the region. It reported assets of $8.3 billion and deposits of $6.3 billion on March 31. D.C. National reported assets of $348.2 million and deposits of $316 million on that date.