425: First Community Bankshares to Acquire Hometown Bancshares in $41.5 Million All-Stock Merger

First Community Bankshares, Inc. announced an agreement to acquire Hometown Bancshares, Inc. for approximately $41.5 million in an all-stock transaction, expanding its presence in West Virginia.

Summary

• First Community Bankshares, Inc. (First Community) has entered into an Agreement and Plan of Merger to acquire Hometown Bancshares, Inc. (Hometown) for a total valuation of approximately $41.5 million.
• The acquisition is based on a closing price for First Community's common stock of $40.33 as of July 18, 2025.
• Hometown, a single bank holding company headquartered in Middlebourne, West Virginia, operates Union Bank, Inc. with eight locations.
• As of June 30, 2025, Hometown reported total assets of approximately $402.3 million, total loans of approximately $175.7 million, total liabilities of approximately $372.9 million, total deposits of approximately $365.7 million, and total shareholders' equity of approximately $29.4 million.
• Upon completion, First Community is expected to have total consolidated assets of approximately $3.6 billion and 60 branch locations across four states.
• Each outstanding share of Hometown common stock will be converted into the right to receive 11.706 shares of First Community common stock, equating to $472.10 per Hometown share.
• The Exchange Ratio may be adjusted if Hometown's Actual Adjusted Shareholders Equity is less than $29,250,000 as of the last day of the calendar month prior to the Effective Time.
• The merger is intended to be a tax-free reorganization under Section 368(a) of the Internal Revenue Code.
• Hometown's directors, who beneficially own approximately 17.1% of outstanding Hometown Common Stock, have entered into voting and support agreements to vote in favor of the merger.
• Hometown will pay a termination fee of $2.0 million to First Community under specific conditions, such as a change in recommendation by Hometown's board or entering into an alternative acquisition proposal within 12 months of termination.

Sentiment

Score: 8

Explanation: The sentiment is highly positive due to the expected high-single digit EPS accretion, minimal tangible book value dilution, strategic market expansion, and unanimous board approvals. The identified risks are standard for M&A and are disclosed as forward-looking statements, not current issues.

Positives

• The transaction is expected to be minimally dilutive to tangible book value per share for First Community.
• The merger is anticipated to provide high-single digit accretion to earnings per share for First Community.
• The acquisition aligns with First Community's strategic focus on growing low-cost core deposits.
• The combined entity will expand its presence in the Parkersburg-Marietta-Vienna MSA.
• First Community Bank will bring new services, such as Trust and Wealth Management, to Union Bank's communities.
• Union Bank's customers will benefit from increased scale, higher lending limits, and enhanced product and technology offerings from First Community.
• The Boards of Directors of both First Community and Hometown unanimously approved the transaction.

Negatives

• The transaction involves a termination fee of $2.0 million payable by Hometown to First Community under certain conditions, indicating potential financial exposure for Hometown if the deal falls through due to specific reasons.
• The Exchange Ratio is subject to adjustment if Hometown's Actual Adjusted Shareholders Equity falls below a specified minimum, which could reduce the consideration received by Hometown shareholders.

Risks

• Cost savings and revenue synergies anticipated from the transaction may not be realized or may take longer than expected.
• Disruption from the proposed transaction could impact customer, supplier, employee, or other business relationships.
• The Agreement and Plan of Merger could be terminated due to various events, changes, or circumstances.
• There is a risk associated with the successful integration of the two organizations' businesses.
• Hometown shareholders may fail to approve the proposed transaction.
• The actual costs, fees, expenses, and charges related to the proposed transaction could be higher than anticipated.
• The ability to obtain required governmental and regulatory approvals for the proposed transaction is not guaranteed.
• Reputational risk and the reaction of the parties' customers to the proposed transaction could be negative.
• The conditions to closing of the proposed transaction may not be satisfied.
• The integration of Hometown's operations with First Community's could be materially delayed or prove more costly or difficult than expected.
• The proposed transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• First Community's issuance of additional shares of its common stock in the proposed transaction will cause dilution.
• Changes in management's future plans could affect the outcome.
• Prevailing economic and political conditions, particularly in the market areas, could impact the combined entity.
• Credit risk associated with lending activities remains a factor.
• Changes in interest rates, loan demand, real estate values, and competition could adversely affect the business.
• Changes in accounting principles, policies, or guidelines could impact financial reporting.
• Changes in applicable laws, rules, or regulations could affect operations.
• Other competitive, economic, political, and market factors could affect business, operations, pricing, products, and services.

Future Outlook

First Community expects the transaction to be minimally dilutive to tangible book value per share and to provide high-single digit accretion to earnings per share. The transaction is anticipated to close in the first quarter of 2026, subject to customary closing conditions including shareholder and regulatory approvals. First Community plans to welcome Union Bank's CEO, Tim Aiken, to its team upon completion.

Management Comments

• "Our partnership with Hometown and Union Bank is a natural expansion into West Virginia markets that are similar in size and makeup to the locations where we've had great success across our broader banking footprint. We look forward to bringing the two franchises together to better serve our customers and local communities." Gary R. Mills, President and CEO of First Community Bank.
• "When considering a long-term partner, we sought a community-minded bank that shares our commitment to providing top-tier banking services with that personal touch. Also, First Community Bank will bring services to our communities that Union Bank currently does not provide, such as Trust and Wealth Management services. We are confident that our combined franchise will serve our communities well and continue to create value for our customers, shareholders, and employees." Tim Aiken, President, CEO and Director of Hometown and Union Bank.
• "We are pleased to announce our partnership with Union Bank. This collaboration will further strengthen our robust banking franchise in West Virginia. We believe First Community will benefit from Union's strong deposit base, while Union's customers will enjoy the advantages of increased scale, higher lending limits, and enhanced product and technology offerings from First Community." William (Will) P. Stafford, II, Chairman and Chief Executive Officer of First Community.

Industry Context

This acquisition represents a strategic move by First Community Bankshares to consolidate and expand its market presence within the regional banking sector, particularly in West Virginia. The focus on acquiring a bank with a 'strong deposit base' and expanding into 'similar in size and makeup' markets aligns with a broader trend in community banking where larger regional players seek to grow through M&A to achieve greater scale, enhance product offerings, and leverage technology, especially in areas with attractive core deposit profiles. The emphasis on 'low-cost core deposits' suggests a focus on funding stability and cost efficiency, a key driver in the current interest rate environment. The merger also reflects the ongoing consolidation within the banking industry, where smaller institutions may seek partnerships to offer a wider range of services (e.g., Trust and Wealth Management) and compete more effectively.

Comparison to Industry Standards

• The expected high-single digit accretion to earnings per share is generally considered a positive outcome for an acquiring bank, indicating a financially beneficial transaction. This is a common metric used by analysts to evaluate the immediate impact of a merger.
• The 'minimally dilutive to tangible book value per share' (non-GAAP) expectation is also a favorable indicator, as significant tangible book value dilution can be a concern for investors in bank mergers. Many successful bank mergers aim for minimal or no tangible book value dilution, often targeting a earn-back period of 3-5 years.
• The acquisition of a bank with a 'strong deposit base' is a common strategic objective in the banking industry, as deposits are a stable and often lower-cost source of funding compared to wholesale funding. This aligns with industry best practices for balance sheet management.
• The expansion into contiguous or similar markets, as described by First Community, is a typical growth strategy for regional banks, allowing for operational efficiencies and leveraging existing infrastructure, similar to how other regional banks like Truist Financial Corporation or PNC Financial Services Group have expanded their footprints through targeted acquisitions.

Management Changes

Corporate Governance

Stakeholder Impact

• **Shareholders (First Community):** Expected high-single digit EPS accretion and minimal tangible book value dilution, potentially increasing shareholder value.
• **Shareholders (Hometown):** Will receive 11.706 shares of First Community common stock for each Hometown share, providing them with shares in a larger, more diversified banking entity. Hometown directors have committed to vote in favor, indicating their belief in the deal's benefit.
• **Employees (Hometown):** 'Continuing Employees' will be offered employment with First Community or its subsidiaries at equivalent base salary/hourly wages. Service with Hometown will be credited for eligibility and vesting in First Community's benefit plans (with exceptions). Employees whose positions are eliminated will receive severance.
• **Customers (Union Bank):** Will gain access to increased scale, higher lending limits, and enhanced product and technology offerings, including Trust and Wealth Management services, which Union Bank currently does not provide.
• **Local Communities (Union Bank):** The merger is framed as a 'natural expansion' into similar markets, with a commitment to 'better serve our customers and local communities,' suggesting continued local presence and community focus.
• **Regulatory Authorities:** The transaction is subject to various regulatory approvals, indicating oversight to ensure compliance and stability within the banking sector.

Next Steps

• First Community will file a registration statement on Form S-4 with the SEC within 60 days from the date of the Agreement.
• Hometown will call a meeting of its shareholders to consider and vote upon the approval of the Agreement.
• Both parties will use reasonable best efforts to prepare and file all applications, notices, and other documents to obtain necessary consents and approvals from regulatory bodies (Federal Reserve, VSCCBFI, WVDFI).
• First Community will file a notification or application with Nasdaq for the listing of the shares of First Community Common Stock to be issued in the Merger.
• Hometown's Board of Directors will adopt resolutions to terminate the Company ESOP on the day immediately before the Effective Time.
• Hometown will take actions to repay all outstanding ESOP Loans.
• First Community will assume the Unvested Company SARs and certain executive compensation agreements.
• The transaction is expected to be consummated in the first quarter of 2026.
• First Community anticipates welcoming Union Bank's Chief Executive Officer, Tim Aiken, to the First Community team upon completion of the transaction.

Key Dates

Recommendation

Keywords

Bank Merger, Acquisition, Financial Services, Community Banking, Bank Holding Company, SEC Filing, Merger Agreement, Stock Exchange, Regulatory Approval, Shareholder Approval, West Virginia, Virginia, NASDAQ