Banks Give In to the Urge to Merge

Union Bankshares and Eastern Virginia Bankshares have long eyed the lucrative Richmond market.

Their recent mergers with Richmond-based banks--First Market in Union Bankshares's case and First
Capital Bancorp in EVB's--will give them locations there and pay other dividends as well. "Richmond is regarded as a strong, stable, growing market that will rebound stronger than Hampton Roads and Northern Virginia," said Kent Engelke, chief economic strategist and managing director of Capitol Securities Management in Richmond. "Both EVB and Union Bankshares have to get a greater presence in Richmond."

Caroline County-based Union Bankshares' largest member, Union Bank & Trust, currently has 43 locations, including some in Chesterfield, Hanover and Henrico counties. But neither it nor Union Bankshares' other member banks have branches within Richmond's city limits.

First Market, however, has three branches in downtown Richmond and 26 more in the greater Richmond area, as well as others in such places as Ashland, Chester and Fredericksburg.

The bank also has another plus--its headquarters is in Richmond. Union Bankshares, to be renamed Union First Market Bankshares, will relocate its headquarters there from Caroline. G. William Beale, Union Bankshares president, said he will divide his time between his old and new offices.

EVB, which has 25 branches throughout the Northern Neck, Middle Peninsula and Central Virginia, will pick up seven First Capital Bank branches in Ashland, Glen Allen and Richmond when it merges with First Capital Bancorp later this year. It will shift its headquarters from Tappahannock to Glen Allen.

"When you look at where our bank is, the Northern Neck and Middle Peninsula, you can see we've been around the Richmond area," said Joe A. Shearin, EVA's president and CEO. "The growth is more in the metro area because we've pretty much saturated the rural areas where we've been since 1919."

Merging, of course, will also make both bank-holding companies much larger. In Union Bankshares' case, it will become the largest Virginia-based community banking organization when the deal is finalized later this year.

"There's always been an underlying dynamic for banks to try to get bigger because they have fixed costs which have actually increased as new regulations have been placed on them and the FDIC increased deposit insurance," said Claude A. Hanley Jr., a partner at Capital Performance Group in Washington. "They can spread the fixed cost over a larger asset base."

Merging also will allow Union Bankshares and EVB to cut expenses by centralizing their operations centers, where such things as data processing are handled. First Market's will go to Union Bankshares' center in Carmel Church, and First Capital's will go to EVB's in Tappahannock.

"The costs of adding things to our data processing system is pretty expensive," said Beale. "By being able to add First Market into that, it becomes more cost efficient."

Merging also increases banks' deposits and lending limits, putting them in a position to be able to serve larger businesses, Hanley said. They get additional branches, which makes them more convenient, and customers get upgraded to the newest and best services that the combined banks offer.

Union Bankshares, for example, will likely add some trust services that First Market already offers, and is trying to figure out how to marry a new product it has been developing with a similar offering First Market has been working on.

"It will be a consumer product, not a commercial product," Beale said.

EVB, which has been focused more on individual customers, will add some of the commercial account offerings First Capital specializes in.

"We wanted to partner with a bank that had a lot of synergies that we don't have," Shearin said. "It truly is a strategic alliance of putting two good banks together to make one great bank. In today's environment, you're looking for partners to help you improve and get through this tough economic cycle."