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

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 percent 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.

Ronald L. Zimmerly, Jr., Liberty’s President and CEO, will assume the role of President of The Middlefield Banking Company. In addition, 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.

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.