Middlefield Banc Corp. (MBCN) to Merge with Liberty Bancshares (LBSI)

Middlefield Banc Corp (NASDAQ: MBCN), the bank holding company for The Middlefield Banking Company, and Liberty Bancshares, Inc. (OTC Markets: LBSI) (“Liberty”), the holding company for Liberty National Bank, jointly announced today that they have entered into an Agreement and Plan of Reorganization (the “Agreement”).

Pursuant to the Agreement, each shareholder of Liberty will receive 2.752 shares of Middlefield’s common stock. Based on Middlefield’s closing share price of $24.95 on May 25, 2022, the transaction is valued at approximately $64.4 million. The merger is expected to qualify as a tax-free reorganization for Liberty’s shareholders, and Liberty’s shareholders will own approximately 31% of the combined company upon completion of the transaction. The transaction has been approved by the Boards of Directors of both Middlefield and Liberty. Completion of the transaction is subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of both Middlefield’s shareholders and Liberty’s shareholders. The transaction is expected to be completed during the fourth quarter of 2022.

“We are excited to announce our combination with Liberty Bancshares, which complements our growth in the Central Ohio market, and expands our footprint to the compelling Northwest Ohio market,” stated James R. Heslop, II, President and CEO of Middlefield. “Once the transaction is completed, we expect to benefit as a larger bank with total assets of approximately $1.8 billion, strong earnings accretion, and a robust footprint around two of Ohio’s largest and fastest growing markets. We believe this is a compelling transaction that generates meaningful earnings per share accretion, has a minimal tangible book value dilution and manageable earn-back period. We look forward to a prosperous partnership with Liberty and creating value for our combined customers, team members, communities, and shareholders.”

Ronald L. Zimmerly, Jr., Liberty’s President and CEO, stated, “We are thrilled to join The Middlefield Banking Company, an organization that shares a common philosophy focused on supporting customers, employees, and communities. I am excited by the future we are creating together.”

Mr. Zimmerly will assume the role of President of The Middlefield Banking Company. In addition, Mr. Zimmerly will become President of Middlefield Banc Corp. assuming Middlefield shareholders approve amendments to the Company’s Regulations that separate the positions of President and CEO.

Pursuant to the Agreement, Middlefield will add three new members to its Board of Directors including Mr. Zimmerly, Mark R. Watkins, Liberty’s Chairman of the Board, and Spencer T. Cohn, a representative of Castle Creek Capital, Liberty’s largest shareholder. Simultaneously upon entering into the Agreement, Middlefield also entered into voting agreements with Liberty’s directors and Castle Creek Capital, in which they agree to vote the Liberty common stock they own in favor of the Agreement. Collectively these parties represent approximately 15.9% of Liberty’s voting common shares. At closing, Castle Creek Capital will own approximately 7% of the pro forma company. Liberty also entered into voting agreements with Middlefield’s directors in which they agree to vote the Middlefield common stock they own in favor of the Agreement.

Spencer T. Cohn stated “Castle Creek believes that the combined Company represents a strong long-term investment, and the transaction will benefit the shareholders of both Middlefield and Liberty. We look forward to having a voice on the board and representing the best interest of all shareholders.”

“We are excited to partner with Castle Creek as a sophisticated and experienced investor that specializes in community banks,” stated Mr. Heslop. “We believe their support of the transaction validates the investment merits of the business combination and we look forward to working collaboratively with them in the future.”

Upon completion of the transaction, the combined Company will have approximately $1.8 billion in total assets, approximately $1.3 billion in total loans, and approximately $1.5 billion in total deposits. The Company will operate a total of 22 full-service banking centers across a 12-county operating footprint. Middlefield’s branch network will further expand in the Central and Northwest Ohio region by adding Liberty’s six branches located in the communities of Ada, Bellefontaine, Kenton, Marysville, and Westerville, Ohio. Middlefield also currently operates a loan production office in Mentor located in Lake County.

Middlefield expects the transaction 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. After completion of the transaction, Middlefield anticipates it will remain well-capitalized. Liberty anticipates that its shareholders will benefit from double-digit earnings and dividend accretion as a result of the transaction.

Keefe, Bruyette & Woods, a Stifel Company, is serving as financial advisor to Middlefield Banc Corp. and Grady & Associates is serving as legal counsel to Middlefield on the transaction. Raymond James & Associates, Inc. is serving as financial advisor to Liberty Bancshares, Inc. and Vorys, Sater, Seymour and Pease LLP is serving as legal counsel to Liberty on the transaction.

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