425: First National Corporation and Touchstone Bankshares Receive Regulatory Approvals for Merger

First National Corporation and Touchstone Bankshares, Inc. have received regulatory approvals to proceed with their previously announced all-stock merger.

Summary

• First National Corporation and Touchstone Bankshares, Inc. announced they have received regulatory approvals for their merger from the Federal Reserve Bank of Richmond and the Bureau of Financial Institutions of the Commonwealth of Virginia.
• The merger is an all-stock transaction.
• Following the merger, Touchstone Bank will merge with and into First Bank.
• The merger is expected to close in the fourth quarter of 2024, pending shareholder approvals and customary closing conditions.
• As of March 31, 2024, the combined company would have approximately $2.1 billion in assets, $1.8 billion in deposits, and $1.5 billion in loans.
• Touchstone Bank customers will receive information about the account conversion in February 2025.
• Until the conversion, customers will continue to be served through their respective Touchstone Bank and First Bank branches, websites, and mobile apps.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the receipt of regulatory approvals, which de-risks the merger. The management's comments are also optimistic about the future prospects of the combined company. However, risks associated with integration and market conditions temper the overall sentiment.

Positives

• The merger received regulatory approvals, clearing a significant hurdle.
• The combined entity will have a larger asset base, deposit base, and loan portfolio, potentially leading to increased profitability and market share.
• The merger will expand First National's presence in the Richmond metro area with the addition of seven branches.
• Management anticipates the merger will accelerate growth and drive long-term shareholder value.

Risks

• The merger is subject to shareholder approvals and customary closing conditions.
• There are risks associated with integrating Touchstone's operations into First National's operations.
• The anticipated cost savings and revenue synergies may not be realized or may take longer than expected.
• The merger could disrupt customer, supplier, employee, or other business partner relationships.
• There is a risk of potential litigation or regulatory action related to the merger.
• The integration of Touchstone's operations into First National's operations could be materially delayed or more costly or difficult than expected.
• The dilution caused by First National's issuance of additional shares of its common stock in the proposed Merger.

Future Outlook

The merger is expected to close in the fourth quarter of 2024, pending shareholder approvals and customary closing conditions, with account conversions anticipated in February 2025.

Management Comments

• Scott Harvard, President and Chief Executive Officer of First National, stated that the merger will accelerate growth and drive long-term shareholder value.
• Scott Harvard also noted the common cultures and values and shared commitment to customers, employees, and communities, and expressed excitement about expanding the Richmond metro presence.

Industry Context

The banking industry is experiencing consolidation as institutions seek to achieve economies of scale, expand their market presence, and enhance their product offerings.

Comparison to Industry Standards

• The merger of First National and Touchstone is similar to other community bank mergers aimed at increasing market share and efficiency.
• Comparable mergers in the community banking sector often involve institutions with similar asset sizes and geographic footprints.
• The pro forma metrics of $2.1 billion in assets, $1.8 billion in deposits, and $1.5 billion in loans place the combined entity in a competitive position among regional community banks.

Stakeholder Impact

• Shareholders of both companies will be impacted by the merger, with potential benefits from increased shareholder value.
• Employees of both banks will be affected by the integration, with potential changes in roles and responsibilities.
• Customers of both banks will eventually be served by a single entity, with changes to account access and services expected in February 2025.
• The communities served by both banks may benefit from the combined entity's increased resources and expanded service offerings.

Next Steps

• Obtain shareholder approvals from both First National and Touchstone.
• Satisfy customary closing conditions.
• Close the merger in the fourth quarter of 2024.
• Merge Touchstone Bank with and into First Bank.
• Convert Touchstone Bank accounts to First Bank in February 2025.

Key Dates