A wave of mergers in Virginia could force other homegrown banks in the state to pursue deals and play catch-up.

Virginia Commerce Bancorp (VCBI) in Arlington, Central Virginia Bankshares (CVBK) in Powhatan and StellarOne (STEL) in Charlottesville have agreed to sell in recent months. Each deal likely gave the state's remaining banks a reason to conduct serious soul-searching, industry experts say.

"When a bank gets sold in a particular market there are always repercussions," says Ken Lehman, a bank investor in northern Virginia. "There's always someone who is afraid that they missed an opportunity to sell. And there's always someone who didn't get the acquisition they wanted who becomes more eager to find one."

One deal in particular stands out for industry experts: Union First Market Bankshares' agreement this month to buy StellarOne. The $445 million deal would make Union First, based in Richmond, the state's biggest community bank.

Other banks may feel compelled to strike, says Bryce Rowe, an analyst at Robert W. Baird. "It is pretty meaningful" that Union First (UBSH) will have $7 billion in assets, he says. "There may be other banks in the $2 billion to $4 billion range that might try to beef up to compete."

Union First's executives believe the deal will make the company a formidable statewide bank. William Beale, Union First's chief executive, asserted during a June 10 conference call that the company will become the "largest solely Virginia-based bank in almost 20 years."

Capital One Financial (COF) in McLean, Va., could also claim to be the state's biggest bank, though it still exists mainly as a credit card company. Its banking operations stretch from New York to Texas.

"StellarOne and Union First are two strong banks that will create a powerhouse," says Lehman, who is a director at Virginia Commerce and owns a 41% stake in First Capital Bancorp (FCVA) in Glen Allen, Va.

"We haven't seen a bank of that scale in the better part of a decade," adds Lehman, who declined to discuss banks that are in his investment portfolio.

Other recent deals have taken place in Virginia's urban centers. This month C&F Financial (CFFI) agreed to buy Central Virginia Bankshares in a deal between banks in the Richmond area. In January, United Bankshares (UBSI) in West Virginia agreed to buy Virginia Commerce for $491 million.

Northern Virginia and Richmond, along with the Hampton Roads area along the Chesapeake Bay, are the most likely hubs of deal activity, says George Whitley, a lawyer at LeClairRyan. "If somebody were looking to enter Virginia ... those are the areas I'd look at," says Whitley, who advised Union First on the StellarOne deal.

The issue may be a lack of supply. During the 1990s, many of Virginia's largest homegrown banks — Crestar Financial, Signet Banking, Central Fidelity and Sovran — were bought by big out-of-state banks.

History is unlikely to repeat itself, some observers say. Most out-of-state buyers would prefer to make a bigger splash, via an acquisition, Whitley says.

"Fill-in acquisitions could make good sense for banks that are already here," Whitley adds. "If it's somebody looking to gain a foothold in Virginia, typically they would be looking" to buy a larger bank.

After Union First-StellarOne, the biggest Virginia-based community bank is the $4.6 billion-asset Carter Bank & Trust. The Martinsville, Va., bank held 1.4% of the state's deposits as of last June, according to the latest data available from the Federal Deposit Insurance Corp.

Still, there could be instances where outsiders buy Virginia banks near Washington, Lehman says. F.N.B. Corp. (FNB) in Hermitage, Pa., which has made three acquisitions in the last year, "has shown itself to have a voracious appetite," he says.

Deals may be possible between banks in southern Virginia and North Carolina, where the economies are similar, Lehman adds. Two years ago, a Virginia bank — American National Bankshares (AMNB) in Danville — crossed the state line to buy a North Carolina company.

Succession issues could also play a role in consolidation. StellarOne decided to sell partly because O.R. Barham Jr. had previously announced plans to retire as president and CEO, Rowe says.

More banks could reach the same conclusion if they struggle to find new executive blood, Rowe says. "It's got to at least raise some eyebrows and get other management teams and boards to consider selling as an option," he says.

Increased regulatory compliance costs will also factor into boards' decisions, says David Pijor, chairman and CEO of First Virginia Community Bank, a $419 million-asset company in Fairfax. The performance of bank stocks will also influence future decisions, he says.

"Between 2013 and 2015, I think we'll see more consolidation and mergers" in Virginia, Pijor says. "It's all a function of book value. We've been pushed down a little the last couple months, but we'll rebound."

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