Middlefield, Ohio-based Middlefield Banc Corp., the holding company for Middlefield Banking Co., and Ada, Ohio-based Liberty Bancshares Inc., the holding company for Liberty National Bank, agreed to merge.
Under the terms of the deal, each Liberty Bancshares shareholder will receive 2.752 Middlefield Banc common shares. Based on Middlefield Banc's closing share price of $24.95 on May 25, the transaction is valued at approximately $64.4 million.
At announcement, S&P Global Market Intelligence calculates the deal value to be 116.23% of common equity, 119.37% of tangible common equity, 17.00% of deposits, 14.73% of assets and 13.49x of earnings. The tangible book premium to deposits ratio is 2.76%.
Market Intelligence valuations for bank and thrift targets in the Midwest region between May 26, 2021, and May 26, 2022, averaged 146.95% of book and 150.76% of tangible book and had a median of 17.36x last-12-months earnings, on an aggregate basis, and averaged 139.08% of book and 148.94% of tangible book and had a median of 15.95x LTM earnings, on a per-share basis.
The merger is expected to qualify as a tax-free reorganization for Liberty Bancshares shareholders. Liberty Bancshares shareholders will own about 31% of the combined company upon completion of the deal.
The transaction is expected to be completed during the fourth quarter.
Upon completion of the deal, the combined company will have approximately $1.8 billion in total assets, about $1.3 billion in total loans and roughly $1.5 billion in total deposits. It will operate a total of 22 full-service banking centers across a 12-county operating footprint.
Middlefield Banc's branch network will further expand in the central and northwest Ohio region by adding Liberty Bancshares' six branches located in Ada, Bellefontaine, Kenton, Marysville and Westerville. Middlefield Banc also currently operates a loan production office in Mentor, located in Lake County, according to a news release.
With the merger, Middlefield Banc will enter Logan County, Ohio, with two branches to be ranked third with a 13.12% share of about $890.9 million in total market deposits; Hardin County, Ohio, with two branches to be ranked first with a 45.21% share of roughly $498.6 million in total market deposits; and Union County, Ohio, with one branch to be ranked seventh with a 2.25% share of approximately $1.10 billion in total market deposits. Middlefield Banc will also expand in Franklin County, Ohio, by one branch to be ranked 24th with a 0.12% share of approximately $82.34 billion in total market deposits, according to Market Intelligence data.
Liberty Bancshares President and CEO Ronald Zimmerly Jr. will assume the role of president of Middlefield Banking. Zimmerly will also become president of Middlefield Banc, assuming Middlefield Banc shareholders approve amendments to the company's regulations that separate the positions of president and CEO.
Middlefield Banc will add three new members to its board, including Zimmerly, Liberty Bancshares Chairman Mark Watkins and Spencer Cohn, a representative of Castle Creek Capital LLC, Liberty Bancshares' largest shareholder.
Middlefield Banc entered into voting agreements with Liberty Bancshares' directors and Castle Creek Capital, in which they agree to vote the Liberty Bancshares common shares they own in favor of the deal. Collectively, these parties represent approximately 15.9% of Liberty Bancshares' voting common shares. At closing, Castle Creek Capital will own about 7% of the pro forma company, according to the news release.
Liberty Bancshares also entered into voting agreements with Middlefield Banc's directors, in which they agree to vote the Middlefield Banc common shares they own in favor of the agreement.
Middlefield Banc expects the deal to be accretive to earnings in year one and to earn back the tangible book value dilution created from the transaction in approximately three years. The company anticipates it will remain well capitalized after the completion of the deal.
Liberty Bancshares anticipates that its shareholders will benefit from double-digit earnings and dividend accretion as a result of the merger.
Keefe Bruyette & Woods is financial adviser and Grady & Associates is legal counsel to Middlefield Banc on the transaction. Raymond James & Associates Inc. is financial adviser and Vorys Sater Seymour and Pease LLP is legal counsel for Liberty Bancshares.
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