VIRGINIA BEACH - Essex Bancorp will acquire Home Bancorp of Norfolk, Va., in a transaction meant to save Essex from failure.
Essex said the transaction should push it past all regulatory capital requirements. The company now falls short of two of the three requirements.
Without the acquisition, Essex said, federal regulators would have put its thrift subsidiary under conservatorship.
"We have been telling our stockholders for months that Essex's survival was in jeopardy unless we obtained a new source of capital," said Gene D. Ross, chief executive. "The Home transaction will recapitalize Essex Savings Bank and preserve value for our shareholders that would have been lost if the bank had been seized by the regulators."
The transaction is unusual because it paves the way for the shareholders of Home Bancorp, the much smaller institution, to own Essex in three years at a very low price - 93.75 cents a share.
That was Essex's trading price as last Friday, the day the deal closed. Essex was trading at $2 a share Wednesday afternoon.
Under the agreement, privately held Home Bancorp will merge with an Essex subsidiary, and Home Savings Bank will be merged into Essex Savings Bank. As of March 31, Essex Savings had $227.6 million of deposits in eight branches in North Carolina and Virginia, and Home Savings Bank had $50.8 million of deposits in six branches in the Hampton Roads, Va., area.
The proposed acquisition is expected to be completed in the third quarter.
Stockholders of Home would receive nonvoting perpetual preferred stock of Essex with an aggregate redemption and liquidation value of $15 million and cumulative annual dividend rates of 8% to 9.5%.
In addition, Home's current shareholders would receive warrants to purchase 7.9 million shares of Essex Bancorp common stock at Friday's price. The warrants would be exercisable three years after the merger.
Essex has one million shares of common stock outstanding.
After the transaction was complete, two representatives designated by Home would join the Essex Bancorp and Essex Savings Bank boards, filling vacancies.
