First National Corporation (NasdaqCM:FXNC) signed a definitive merger agreement to acquire The Bank of Fincastle (OTCPK : BFTL) for $31.5 million on February 18, 2021. First National will acquire Fincastle for a combination of stock and cash valued at approximately $3.09 per share for each share of Fincastle's common stock outstanding. Under the terms of the agreement, Fincastle shareholders could elect, for each share of Fincastle common stock, to receive 0.1649 shares of First National stock, or $3.30 in cash, or a combination of stock and cash, subject to election and proration such that the aggregate consideration will consist of 80% First National stock and 20% cash. Additionally, in connection with the merger, subject to the terms and conditions of the Agreement, each outstanding Fincastle stock option will be cancelled in exchange for a cash payment. Fincastle will merge with and into First Bank with First Bank being the surviving entity in the merger. After the acquisition is completed, the former Fincastle branches will continue to operate as The Bank of Fincastle, a division of First Bank, until the systems conversion is expected to be completed in the fourth quarter of 2021. The agreement also provides certain termination rights for both First National and Fincastle and further provides that upon termination of the agreement under certain circumstances, Fincastle will be obligated to pay First National a termination fee of $1.4 million. First National and First Bank will appoint three Fincastle directors to join the existing eight legacy directors on each respective Board. Scott Steele, the President and Chief Executive Officer of Fincastle will join First Bank as the First Bank Regional President.

The transaction is subject to approval of both companies' shareholders, regulatory approvals, registration statement shall have been declared effective by the SEC, exchange listing, tax opinion and other customary closing conditions. The boards of directors of First National, First Bank and Fincastle have unanimously approved the agreement. The Board of First National Corporation recommend the shareholders to vote in favor of the transaction. First National shareholder meeting will be held on June 16, 2021 to approve the transaction. As of April 26, 2021, the transaction was declared effective. As of June 16, 2021, the shareholders of both, First National Corporation and The Bank of Fincastle have approved the transaction. The transaction is expected to close in the third quarter of 2021. First National expects the transaction to be approximately 10% accretive to earnings per share.

Piper Sandler & Co. served as financial advisor and Benjamin A. Barnhill, Neil Grayson, Brittany McIntosh, Maurice Holloway and Kathy Solley of Nelson Mullins Riley & Scarborough, LLP provided legal counsels to First National. Janney Montgomery Scott LLC and RP Financial, LC served as fairness advisors, and Thomas R. Homberg of Godfrey & Kahn, S.C. served as legal counsel to Fincastle. Regan & Associates, Inc acted as information agent for First National and would receive a fee of approximately $13,500 plus certain expenses. Piper Sandler will receive a fee for its services in an amount equal to $300,000, including a $100,000 fee from First National upon for rendering its opinion. RP Financial will receive from Fincastle total professional fees of approximately $60,000. YHB provided auditor's report for the financials of First National. Regan & Associates, Inc. acted as information agent for Fincastle and would receive a fee of approximately $6,500 plus certain expenses. The transfer agent and registrar for First National common stock is Broadridge Corporate Issuer Solutions.