Southern National Corp.'s acquisition of a small thrift in Richmond is its first step toward building a $1 billion-asset bank in Virginia's capital, according to chairman and CEO John A. Allison.
Southern National, based in Winston-Salem, N.C., said last week that it had acquired Fidelity Financial Bankshares of Richmond for $59.4 million in stock, or twice the thrift's book value and 16 and a half times its estimated 1996 earnings per share.
Fidelity Financial has $321 million of assets and seven branches. The deal, which has been approved by the directors of both companies, is Southern National's second venture into Virginia since acquiring Commerce Bank of Virginia Beach in June 1994.
Mr. Allison said Southern National would cut Fidelity Financial's annual expense base by 20%, mainly by ending an operations outsourcing arrangement and consolidating back-room functions.
Southern National hopes to build the Richmond bank with or without additional acquisitions, Mr. Allison added. "Our goal is to have a $1 billion operation in Richmond in seven or eight years," he said.
With $20.6 billion of assets overall, Southern National has the second- biggest share of North Carolina deposits and the third-largest in South Carolina. It will have just more than $1 billion of assets and 28 offices in Virginia after the acquisition of Fidelity Financial.
Fidelity Financial's subsidiary, Fidelity Federal Savings Bank, was founded 10 years ago and now holds a 2% deposit market share in Richmond.
"It's true we'll have a relatively small market share to start with," Mr. Allison said. "But we've got a good distribution system, and we think we can grow the franchise in a very attractive market."
Analysts said the deal would have no material financial effect on Southern National, despite the steep price. "The deal is so small, you're not going to see any adverse impact in 1997," said Sheri Ptashek of Salomon Brothers Inc. "They clearly paid a fairly high premium for a thrift, but I'd say they picked up a good-quality organization."
Fidelity Financial returned 1.04% on assets and 11.99% on equity in the first six months of 1996. Its 58.2% efficiency ratio is considered quite good for a thrift.
Mr. Allison said Southern National was attracted by Fidelity Financial's relatively new branches, which are sited in high-growth areas, and its residential construction financing operation. Southern National is a major residential construction lender in the Carolinas.
Fidelity Financial president Barry D. Crawford said he was impressed that Southern National "made a strategic decision" to enter Richmond and that Mr. Allison himself visited the thrift to help negotiate the deal.
Mr. Allison said Southern National continues to look for acquisition opportunities in Virginia, including the southwestern part of the state near the North Carolina border.