The deal announced Monday by Union Bankshares Corp. of Bowling Green, Va., to buy First Market Bank in Richmond for $105.4 million in stock is the largest of the year by far.

But observers say the deal should not be seen as a sign of a spring thaw in the largely frozen market for mergers and acquisitions. Many of the other 21 deals announced this year involved distressed sellers.

"In the current regulatory and economic environment, it takes some serious courage and strong will to get a deal done right now," said Steve Huntington, a vice president at the investment banking firm Carson Medlin Co. in Raleigh. "This is one of the relatively few seemingly normal deals we have seen."

Before Union's agreement was unveiled Monday, the largest deal to be announced this year had been Colorado Financial Holdings Inc.'s agreement to buy a majority stake in the struggling $2 billion-asset New Frontier Bancorp in Greeley for $30 million.

G. William Beale, the $2.6 billion-asset Union's president and chief executive officer, said neither side has loan troubles in this case.

Absorbing the $1.3 billion-asset First Market would better position Union to attract customers from distracted larger competitors and absorb rising regulatory expenses, Beale said.

Despite the drought of healthy combinations — which in part has to do with would-be buyers fretting over what might lurk in other loan portfolios — he downplayed the timing of his deal.

"I don't know if there is ever a bad time to have an opportunity to affiliate with a good banking organization," Beale said. "The timing is right, because things are right in Virginia to create a banking organization that can make decisions locally."

The purchase would make Union the second-largest banking company based in the state. The largest is the $156 billion-asset Capital One Financial Corp. in McLean.

Dave Fairchild, First Market's CEO, said the added heft would help attract larger customers.

"From a community bank standpoint, it gives us an opportunity to be in a position to do deals with even larger companies in the middle-market arena, some of which aren't being serviced well by their banks," he said.

Union would become United First Market Bankshares Corp., a $3.9 billion-asset, four-bank holding company, after the deal closes. Its headquarters would be moved to Richmond.

The price works out to 1.18 times First Market's tangible book value.

Shareholders of First Market Bank would get a 33% stake in United First Market, and the Ukrop family — First Market Bank's largest shareholder, with a 60% stake — would become the largest stakeholder in United First Market, with roughly 20%.

The Ukrop family also owns a supermarket chain where First Market has 26 in-store branches.

First Market also would put three people on the buyer's board — Jim Ukrop, the chairman of First Market; Fairchild, who would become United First Market's president; and Steven A. Markel, the vice chairman of the insurance company Markel Corp., which owns a 40% stake in First Market Bank.

Both Union and First Market Bank accepted an investment under the Treasury Department's Troubled Asset Relief Program, and both plan to give the money back, Fairchild said.

"We haven't needed it and don't intend to use it," he said.

The deal is expected to be accretive to earnings next year and create 9% savings on the combined expense basis.

Beale said he expects his company's assets to grow to $10 billion over the next seven or eight years.

First Market Bank has a trust department that would become available to Union's customers, and Union has a mortgage company that would fill a void for First Market.

Industry watchers said the deal for First Market would be complementary to Union's branch network in the Richmond area, where First Market had the fifth-largest deposit share at the end of June, with 2.24%, according to Federal Deposit Insurance Corp. data. Union had the seventh-largest share, with 1.12%.

"It really enhances their footprint in Richmond," said Carter Bundy, a vice president with Stifel, Nicolaus & Co. Inc. "Not only do they get that, but they get some really strong people on the board."

However, he said the large stakes the Ukrop family and Markel would get in the combined company is a concern for Union shareholders. "When you have that large of a shareholder, if they continue to be that large of a shareholder, then they have a lot of say," Bundy said.

Huntington said very few deals are being announced now because of the slowing economy. "We've seen very few deals done in 2009."

In addition, some banks are more carefully scrutinizing deals, since revamped accounting standards no longer allow a deal's expenses to be counted as part of the goodwill, he said. The Financial Accounting Standards Board changed that rule Jan. 1.

Beale said the rule change will mean that his company's results will look worse this year, though he expects next year's results to make up the difference. "One of our quarters in 2009 isn't gong to look really good, and we've explained that to our directors," Beale said. "These are one-time expenses. We think the financial analysts will understand that, and it will be what it will be."

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