The pending purchase of Liberty Bancshares in Ada, Ohio, will help Middlefield Banc Corp. in Middlefield, Ohio, address a succession issue.
The $1.3 billion-asset Middlefield agreed in May to buy the $437 million-asset Liberty for $64.4 million. The companies said at the time the deal was announced that Ronald Zimmerly Jr., Liberty’s president and CEO, would become Middlefield’s president after the deal closes.
A regulatory filing associated with the merger makes it clear that the plan is for Zimmerly to succeed James Heslop II as Middlefield’s CEO by January 2024.
Succession became a priority for Middlefield in June 2021 when Thomas Caldwell, Middlefield Bank’s president, announced plans to retire the following March.
Middlefield’s board first discussed the possibility of Zimmerly becoming CEO during a Sept. 9 meeting. They considered the need to pay severance benefits to Zimmerly if the board decided against making him CEO. The board also mulled having Castle Creek Capital Partners, a Liberty investor, as one of Middlefield’s shareholders.
Middlefield’s CEO search committee was instructed to meet with Zimmerly to evaluate him for the position.
The companies signed a nondisclosure agreement on Oct. 1 to pave the way for due diligence. Around that time the search committee met with Zimmerly, coming away with a “favorable impression,” the filing said.
The search committee interviewed 12 outside candidates, excluding Zimmerly, and four internal candidates over a seven-month period.
Three other Middlefield directors met with Zimmerly between late November and early December with each having a “favorable assessment.”
The companies signed a nonbinding letter of intent in December.
At a Feb. 14 meeting, Middlefield’s board approved appointing Heslop to become president and CEO and recommended Zimmerly as the proposed president if the merger took place. Middlefield announced Heslop’s promotion on Feb. 17.
Liberty’s board unanimously approved the merger agreement on May 24. Middlefield’s directors did the same two days later, and the deal was announced.
The deal, which is expected to close in the fourth quarter, priced Liberty at 115% of its tangible book value.
Liberty “complements our growth in the central Ohio market, and expands our footprint to the compelling northwest Ohio market,” Heslop said in a press release announcing the deal.
“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,” Heslop added.
Middlefield expects the transaction to be 5.6% accretive to its 2023 earnings per share. It should take three years to earn back an estimated 3% dilution to tangible book value.
Middlefield plans to cut about a third of Liberty’s annual noninterest expenses. The company expects to incur $7 million of merger-related charges.
Zimmerly will be paid a $295,000 salary and will be eligible for a bonus equal to 24% of his salary, according to the regulatory filing. Zimmerly will become CEO unless 80% of the other directors object.
If Middlefield terminates Zimmerly’s employment without cause before Jan. 1, 2024, it will owe him two times his current annual base salary.