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COVID-19 delays Va. bank deal but shows need for scale

Two Virginia-based community banks have shifted their focus to internal operations and delayed their merger as COVID-19 continues to weigh on the U.S. economy.

Pinnacle Bankshares Corp. and Virginia Bank Bankshares Inc. delayed the closing of their merger to focus on supporting their communities and employees and to handle the "frantic rush" for the Treasury Department's Paycheck Protection Program. At the same time, the pandemic has underscored the strategic benefits of their merger by highlighting the need for scale and the teams' ability to work well together once things have stabilized, Pinnacle Bankshares CEO Aubrey "Todd" H. Hall III and Virginia Bank CEO Donald Merricks said in a joint interview.

Running an essential business during a pandemic comes with internal operations challenges such as determining who can work remotely, ensuring sanitation efforts, transitioning to drive-thru-only branch access and supporting customers and employees, Hall said.

"Then you layer in this frantic rush for this funding, and I don't know how anyone could do anything else but that right now," he said.

Merricks said the resources required to participate in the Paycheck Protection Program factored in the decision to delay the deal. Government officials altered the terms of the program the night before its launch, leading to a rocky start.

"It really again justifies the fact that we are slowing this merger down because we are taking all our resources and putting them toward these PPP loans," he said.

Hall said the bank has been "flooded" with interest in the program, much like many other community banks. "The last week and a half, we have been consumed by Paycheck Protection Program," he said.

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First National Bank, the subsidiary of Pinnacle Bankshares, has facilitated 69 applications that have been approved for about $16.9 million. The bank has another 94 applications in process that total about $7.6 million. The bank stopped processing applications for clients inquiring about the program after the close of business on April 3 due to the bank's available funding and liquidity, Hall said.

"It's being funded upfront by the banks, and the banks only have so much capacity funding- and liquidity-wise to participate," Hall said. "We are fortunate we had the liquidity to participate." Hall wrote in an email that he is encouraged by the Federal Reserve's lending facilities announcement and will work with the regulator once more details are available.

Virginia Bank has processed about $9.5 million worth of PPP loans, Merricks said.

Both banks have been in "constant communication" to share strategies and best practices for navigating through the pandemic, Hall said. The ongoing COVID-19 situation has emphasized the need for scale, both CEOs said.

"This just proves that if you're going to weather a storm like we are right now, I'd rather be in a bigger boat," Merricks said. Going through this unprecedented time together has made the banks even more optimistic about their ability to work well together and integrate easily once the deal closes, Hall said.

The banks now anticipate their deal will close toward the end of the third quarter or in the fourth quarter, according to the press release.

"We have found out through the course of the pandemic thus far, that the need is even greater to have deeper resources and ... the size and scope to be able to manage and navigate through this situation," Hall said. "Both entities remain very much committed to the merger."

This is not the first merger to be delayed. Uniondale, N.Y.-based Flushing Financial Corp. and Islandia, N.Y.-based Empire Bancorp Inc. also delayed their merger due to challenges to the financial services industry from the spread of COVID-19. And Staten Island, N.Y.-based VSB Bancorp Inc. delayed its shareholder vote on its proposed merger with Woodbridge, N.J.-based Northfield Bancorp Inc.