First American Corp. strengthened its market share in eastern Tennessee and established a foothold in Virginia with an agreement to acquire Charter Federal Savings Bank for $67 million in stock.

Charter Federal, which has $740 million of assets, is based in Bristol, Va, but 11 of its 26 branches are located in Knoxville and the three-city area of eastern Tennessee.

Combining the Charter Federal branches with offices picked up from its pending acquisition of Heritage Federal Bancshares, Kingsport, Tenn., will give First American the second-ranked deposit market share in Knoxville and the top spot in the Bristol, Kingsport, and Johnson City, Tenn. area of eastern Tennessee.

"The acquisition of Charter Federal strengthens our presence in vitally important Tennessee trade areas," said Dennis C. Bottorff, First American's chairman and chief executive.

First American agreed Thursday to pay $13.30 a share for Charter Federal, or 1.4 times the thrift's book value. First American said the deal, expected to be consummated in the fourth quarter, will add to its 1996 earnings, given plans to slash Charter Federal's annual expense base by one-fourth.

"These are the kinds of mergers that make absolute sense: in-market, consolidation opportunities, and the buying of branches and deposits in good markets," said analyst Henry Coffey Jr., with J.C. Bradford & Co.

A deal had long been anticipated at Charter Federal, which struggled back from near-insolvency in 1993. The thrift announced in February that it was examining its strategic alternatives, which included a sale.

Charter Federal's Tennessee and Bristol branches will be consolidated into First American's Tennessee bank. Bristol is located right on the Tennessee line.

The remaining Virginia branches will operate as First American Savings Bank, a separate subsidiary of the Nashville-based holding company.

First American said it would account for the Charter Federal acquisition as a purchase transaction. The banking company, which has $7.6 billion of assets, anticipates buying back all of the stock required in the open market.

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