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Southern National to merge with Eastern Virginia Bankshares in $178M deal

McLean, Va.-based Southern National Bancorp of Virginia Inc. plans to merge with Tappahannock, Va.-based Eastern Virginia Bankshares Inc. in a stock transaction worth approximately $178.3 million.

Under the deal terms, common and preferred shareholders of Eastern Virginia will receive 0.6313 common shares of Southern National in a fixed exchange ratio. The deal is valued at approximately $9.72 per Eastern Virginia common and preferred share, based on the average closing price of Southern National's common stock for the 10 trading days ending Dec. 12. After deal completion, Southern National shareholders will own approximately 51.4% of the resulting entity, while Eastern Virginia shareholders will own about 48.6%. The preferred shares of Eastern Virginia will convert into 5,240,192 common shares.

On a per-share basis, SNL calculates the deal value to be 134.4% of book and 154.6% tangible book, and 21.9x last-12-months earnings. The price is 17.91% of deposits and 13.76% of assets, and the tangible book premium to core deposits ratio is 7.21%.

For comparison, SNL valuations for bank and thrift targets in the Southeast region between Dec. 13, 2015 and Dec. 13, 2016 averaged 153.55% of book, 163.12% of tangible book and had a median of 19.50x LTM earnings, on a per-share basis.

The one-day premium is 2.76% based on Eastern Virginia Bankshares' Dec. 12 closing price of $9.59. The one-month premium is 15.12% based on Eastern Virginia Bankshares' Nov. 14 closing price of $8.56.

According to SNL data, Southern National reported assets of $1.14 billion as of Sept. 30 at the end of third quarter, while Eastern Virginia had $1.31 billion in total assets. The resulting company, which will assume the Southern National Bancorp of Virginia Inc. name, will have approximately $2.4 billion in total assets, $2.0 billion in total deposits and $1.8 billion in total loans, a Dec. 13 press release stated. Furthermore, the company will have 47 branches in Maryland and Virginia — including in the Washington, D.C., and Richmond, Va., MSAs.

Data compiled by SNL shows that the combined bank will rank No. 17 in Virginia with a 0.56% share of approximately $287.21 billion in total market deposits and rank No. 36 in Maryland with a 0.23% share of approximately $136.24 billion in total market deposits.

EVB will merge with and into Sonabank immediately after Eastern Virginia merges into Southern National. The combined entity will conduct all banking operations under the name Sonabank. The resulting holding company will have corporate headquarters in McLean, and the bank will be based out of Richmond.

The companies expect $9.9 million in cost savings, or 16% of the expected noninterest expense base in 2016, through operational synergies and branch consolidations. Additionally, the deal is expected to be more than 15% accretive to 2017 EPS, more than 20% accretive to 2018 EPS, and less than 5% dilutive to tangible book value with an expected earnback within two years. Furthermore, the deal entails $16.0 million in pretax expenses, which represents 9.0% of the transaction value.

The companies are expecting a pretax loan mark of approximately $23.5 million, or 2.5% of Eastern Virginia's total loans, compared to its total nonperforming assets of $20.9 million. Also, the companies expect a pretax other real estate owned mark of $460,000, or 30% of Eastern Virginia's total OREO.

Following deal completion, Joe Shearin, president and CEO of Eastern Virginia, will serve as president and CEO of the combined entity; with Georgia Derrico, chairman and CEO of Southern National, as executive chairman; and R. Roderick Porter, vice chairman, president and COO of Southern National, as executive vice chairman. The board of the combined company, with 11 members, will have six members from Southern National's board, including Derrico and Porter, and five members from Eastern Virginia's board including Shearin.

The deal, pending shareholder and regulatory approvals, is expected to close during the second quarter of 2017. Should it be terminated, a fee of $7.5 million may be payable under certain circumstances.

FIG Partners LLC advised Southern National as financial adviser, and Alston & Bird LLP served as legal counsel. Sandler O'Neill & Partners LP served as financial adviser to Eastern Virginia, with Frank Blanco III and Nathan Mittag as lead bankers, and Troutman Sanders LLP served as legal counsel.

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