RICHMOND -- An affiliate of Montrose Capital Corp. of Durham, N.C., will acquire Virginia Federal Savings and Loan Association under an agreement that will convert the Richmond-based thrift from a mutual to a stock association.
After the conversion, 100 percent of the association's stock will be sold to Montrose Holding Co. for $20 million.
The agreement is subject to the approval of the Federal Home Loan Bank Board.
Carroll M. Cooper, Virginia Federal's chairman and chief executive officer, described the transaction last week as a "voluntary supervisory conversion." As such, he said, the association's membership will not have to approve the switch from mutual to stock ownership. Similarly, there will be no public offering of the association's stock.
Caught in the profit squeeze that has plagued the savings and loan industry in recent years, Virginia Federal's capital base has been eroded to the point where its current net worth of $6 million is substantially less than the $20 million mark it should have to meet minimum standards.
In addition to falling short of having a net worth of 3 percent of total assets, Cooper noted that the minimum requirement is being raised gradually over the next six years to 6 percent.
Considering Virginia Federal's existing position and its need to meet the higher target, Cooper said management had concluded that it would be extremely difficult to achieve the goal without help.
"The substantial capital infusion will enable the association to provide increased mortgage and lending services to the public, provide additional protection to depositors and will enable the association to compete more effectively in the Virginia market," Cooper said. "The conversion will make no changes in savings accounts or deposits of Virginia Federal, which will continue to be insured by the Federal Savings and Loan Insurance Corp."
Chartered in 1935, Virginia Federal has 16 offices in Richmond, Charlottesville, Orange, Waynesboro, Williamsburg and West Point. In fiscal 1986, the association lost about $3.2 million, and its loss for the nine months that ended March 31 was about $1.8 million.
Montrose Capital is a private investment company that makes commitments, through various subsidiaries, in a number of ventures.
W. Clay Hamner, president of Montrose Holding, said the $20 million capital infusion should help Virginia Federal to grow during a period when additional consolidations are expected to take place in the financial services industry.