Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

Date : 11/15/2018 @ 9:03PM
Source : Edgar (US Regulatory)
Stock : Bank of Commerce Holdings (BOCH)
Quote : 11.05  0.0 (0.00%) @ 1:53PM

Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

 

  Table of Contents

As filed with the Securities and Exchange Commission on November 15, 2018

Registration No. 333-228243

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549

                          

PRE-EFFECTIVE AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

                          

BANK OF COMMERCE HOLDINGS

(Exact name of registrant as specified in its charter)

 

CALIFORNIA
(State or other jurisdiction of

incorporation or organization)

6022
(Primary standard industrial

classification code number)

94-2823865
(I.R.S. employer identification no.)

 

555 Capitol Mall, Suite 1255, Sacramento, California 95814 ( 800) 421 - 2575
(Address, including zip code, and telephone number, includin g area code, of registrant s principal executive offices)

                          

 

RANDALL S. ESLICK

President and Chief Executive Officer

555 Capitol Mall, Suite 1255

Sacramento, California 95814

(800) 421-2575
(Name, address, including zip code, and telephone number, including area code, of agent for service)

                          

Copies of communications to:

 

STEPHEN M. KLEIN

BART E. BARTHOLDT

Miller Nash Graham & Dunn LLP

Pier 70, 2801 Alaskan Way, Suite 300

Seattle, Washington 98121-1128

Telephone: (206) 777-7506

Facsimile: (206) 340-9599

 

DANIEL b. eng
Lewis Brisbois Bisgaard & Smith LLP
333 Bush Street, Suite 1100
San Francisco, California 94104

Telephone: (415) 262-8508

Facsimile: (415) 434-0882

 

 

Approximate date of commencement of proposed sale of securities to the public:

 

As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ (Do not check if a smaller reporting company)

 

  Smaller reporting company ☐
   
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided purchase to Section 7(a)(2)(B) of the Securities Act. ☐

 

 

The information in this proxy statement/prospectus is not complete and may be changed. Bank of Commerce Holdings may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and Bank of Commerce Holdings is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED NOVEMBER 15 , 201 8

 

 

PROXY STATEMENT OF PROSPECTUS OF
MERCHANTS HOLDING COMPANY BANK OF COMMERCE HOLDINGS

   

MERGER PROPOSED YOUR VOTE IS VERY IMPORTANT

 

Dear Merchants Holding Company Shareholders:

 

As you probably know, the boards of directors of Merchants Holding Company (“Merchants”) and Bank of Commerce Holdings (“BOCH”) have each approved a merger (“merger”) of Merchants with and into BOCH, subject to approval by Merchants shareholders, appropriate bank regulators, and other customary conditions. Immediately following the merger, Merchants’ wholly-owned subsidiary, The Merchants National Bank of Sacramento (“Merchants Bank”), will be merged into BOCH’s subsidiary, Redding Bank of Commerce (“RBC”), subject to approval of appropriate bank regulators.

 

Under the terms of the Agreement and Plan of Merger, dated as of October 4, 2018 (the “merger agreement”), BOCH will pay to Merchants shareholders a total of 1,834,173 shares of BOCH common stock, plus cash in the amount of $15,300,000, with each portion of the merger consideration being subject to adjustment in the event that the “Merchants Core Deposits” (as defined in the merger agreement) fall below an agreed threshold, as described in the attached proxy statement/prospectus. Merchants shareholders may elect to receive 3.8703 shares of BOCH common stock per Merchants share, or $48.4318 in cash per Merchants share, or a unit consisting of a mix of approximately 2.3223 shares of BOCH common stock and $19.3716 cash per Merchants share. However, because the total amounts of cash and stock to be issued by BOCH in the merger is fixed, Merchants shareholders who elect to receive all cash or all stock will be subject to a pro rata adjustment such that the amount of cash and stock paid or issued in the transaction will not exceed the total amount of cash and number of shares of BOCH common stock to be paid and issued at closing. Merchants shareholders who elect to receive the unit consisting of a mix of stock and cash will not be subject to adjustment as to the type of consideration received. Because the value of BOCH common stock will fluctuate prior to the effectiveness of the merger, you will not know the exact value of the merger consideration at the time of the shareholders’ meeting or at the time Merchants shareholders make their elections of the form of merger consideration.

 

Shares of BOCH common stock are listed on the NASDAQ Global Market under the symbol “BOCH.” On October 4, 2018, immediately prior to the first public announcement of the merger, the closing price of BOCH common stock was $11.80 per share, and on November 14, 2018, the latest practicable date before the printing of this proxy statement/prospectus, the closing price of BOCH common stock was $11.98 per share.

 

The accompanying proxy statement/prospectus serves as: the proxy statement for the special meeting of shareholders of Merchants and the prospectus for the shares of BOCH common stock to be issued in the merger. The accompanying proxy statement/prospectus includes detailed information about the special meeting of Merchants shareholders and the merger, and the documents related to the merger. We urge you to read the proxy statement/prospectus and its appendices carefully, including the considerations discussed under “Risk Factors” beginning on page 11.

 

Merchants will hold a special shareholders’ meeting to vote on the merger agreement. The special meeting of the shareholders of Merchants will be held on Thursday, December 20, 2018, at 10:00 a.m. Pacific Time, at 1015 Seventh Street, Sacramento, California 95814. Your vote is very important. Whether or not you plan to attend the special meeting, please take the time to vote by completing and mailing the enclosed form of proxy.

 

The board of directors of Merchants has recommended that you vote FOR approval of the merger agreement and the other proposals described in this proxy statement/prospectus.

 

 

If you have any questions concerning the merger or the proxy statement/prospectus, please contact Stephen A. Meyers, Chairman, Chief Executive Officer and President of Merchants at (916) 442-3883.

 

              /s/Stephen A. Meyers
 

Stephen A. Meyers, Chairman, Chief Executive

Officer and President

 

 

 

Neither the Federal Deposit Insurance Corporation, Securities and Exchange Commission, nor any state securities commission has approved the securities to be issued by BOCH or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

                                                                     

 

The shares of BOCH common stock to be issued in the merger are not savings or deposit accounts or other obligations of a bank and are not insured by the Federal Deposit Insurance Corporation, the Federal Deposit Insurance Fund or any other governmental agency. Such shares are not guaranteed by BOCH or Merchants and are subject to investment risk, including the possible loss of principal.

                                                                     

 

This proxy statement/prospectus is dated November 15, 2018 and is first being mailed to
Merchants shareholders on or about November 19, 2018.

 

 

m erchants holding company
1015 Seventh Street, Sacramento, California 95814

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD  DECEMBER 20 , 2018

 

TO THE SHAREHOLDERS OF MERCHANTS HOLDING COMPANY :

 

A special meeting of shareholders of Merchants Holding Company (“Merchants”) will be held on Thursday, December 20, 2018, at 10:00 a.m. Pacific Time, at 1015 Seventh Street, Sacramento, California 95814. The special meeting is for the following purposes:

 

 

1.

To consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of October 4, 2018, by and between Bank of Commerce Holdings (“BOCH”) and Merchants, under the terms of which Merchants will merge with and into BOCH and Merchants’ subsidiary, The Merchants National Bank of Sacramento (“Merchants Bank”), will merge with and into BOCH’s subsidiary, Redding Bank of Commerce (“RBC”), as more fully described in the accompanying proxy statement/prospectus. The merger agreement is attached as Appendix A to the proxy statement/prospectus.

 

 

2.

To approve one or more adjournments of the Merchants special meeting, if necessary or appropriate, including adjournments to solicit additional proxies in favor of approval of the merger agreement.

 

Holders of record of Merchants common stock at the close of business on November 13, 2018, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of it. The affirmative vote of the holders of at least a majority of the shares of Merchants’ outstanding common stock is required for approval of the merger agreement. Merchants’ directors, certain executive officers and a substantial shareholder have signed agreements to vote their shares in favor of the merger agreement. Such persons are entitled to vote 448,503 shares of outstanding common stock,  representing approximately 56.8% of all outstanding shares of Merchants common stock. As of the close of business on November 13, 2018, there were 789,814 shares of Merchants common stock outstanding.

 

Merchants’ shareholders have the right to dissent from the merger and obtain payment of the fair market value of their Merchants shares under California law, but only if they perfect their dissenters’ rights and comply with the provisions of California law. A copy of the applicable California statutory provisions regarding dissenters’ rights is attached as Appendix B to the accompanying proxy statement/prospectus. For details of dissenters’ rights and how to exercise them, please see the discussion under “The Merger – Dissenters’ Rights of Appraisal.”

 

Your vote is important. Whether or not you plan to attend the special meeting, please complete, sign, date and promptly return the accompanying proxy using the enclosed envelope. If for any reason you should desire to revoke your proxy, you may do so at any time before it is voted at the meeting. If you do not vote your shares in person or by proxy , it will have the same effect as voting against the merger .

 

The board of directors of Merchants has determined that the merger agreement is fair to , advisable, and in the best interests of Merchants and its shareholders and recommends that you vote FOR approval of the merger agreement. With regard to its recommendation that shareholders vo te FOR approval of the merger agreement, t he board of directors of Merchants considered a number of factors, including the receipt of a fairness opinion from the investment banking firm of D.A. Davidson & Co. , as discussed in Background of and Reasons for the Merger beginning on p age 24 . Such factors also constituted the reasons that the board of directors determined to approve the merger agreement .

 

 

You will receive instructions on how to exchange your shares of Merchants common stock for the merger consideration promptly after the closing of the merger.

 

  By Order of the Board of Directors,
   
              /s/ Madelyne Carpenter
  Madelyne Carpenter, Secretary

 

Sacramento, California
November 15, 2018

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

BOCH

 

This proxy statement/prospectus incorporates important business and financial information about BOCH from documents that BOCH has previously filed with the Securities and Exchange Commission (“SEC”) and that are contained in or incorporated by reference into this proxy statement/prospectus. For a listing of BOCH documents incorporated by reference into this proxy statement/prospectus, please see the section entitled “Where You Can Find More Information.” This information is available for you to review through the SEC’s website at http://www.sec.gov .

 

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference into this proxy statement/prospectus or other information concerning BOCH, without charge, by telephone or written request directed to:

 

Bank of Commerce Holdings

1901 Churn Creek Road

Redding, California 96002

ATTN: Corporate Secretary

Telephone: (800) 421-2575

 

Certain reports can also be found on BOCH’s website at www.bankofcommerceholdings.com .

 

BOCH’s common stock is traded on the NASDAQ Global Market under the symbol “BOCH.”

 

You will not be charged for the documents that you request. If you would like to request documents, please do so by December 11 , 201 8 in order to receive them before the Merchants special shareholders meeting.

 

Merchants

 

Merchants does not have a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”), is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly does not file documents or reports with the SEC.

 

If you have questions concerning the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus, would like copies of Merchants’ articles of incorporation or bylaws, or would like copies of Merchants’ historical consolidated financial statements or need help voting your shares of Merchants, please contact:

 

Merchants Holding Company
1015 Seventh Street
Sacramento, California 95814
ATTN: Stephen A. Meyers, Chairman, Chief Executive Officer and President
(916) 442-3883

 

 

TABLE OF CONTENTS

 

Page

 

QUESTIONS AND ANSWERS

1

   

SUMMARY

7

   

RISK FACTORS

11

   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

14

   

SELECTED HISTORICAL FINANCIAL INFORMATION OF BOCH

15

   

SELECTED HISTORICAL FINANCIAL INFORMATION OF MERCHANTS

16

   

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET

17

   

COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION

20

   

MERCHANTS SPECIAL SHAREHOLDERS’ MEETING

22

   

PROPOSAL 1 TO CONSIDER AND TO APPROVE THE AGREEMENT AND PLAN OF MERGER

24

   

BACKGROUND OF AND REASONS FOR THE MERGER

24

   

THE MERGER

41

   

INFORMATION CONCERNING MERCHANTS HOLDING COMPANY

64

   

DESCRIPTION OF BOCH’S CAPITAL STOCK

67

   

COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF BOCH AND MERCHANTS COMMON STOCK

67

   

CERTAIN LEGAL MATTERS

71

   

EXPERTS

71

   

PROPOSAL 2 - ADJOURNMENT

72

   

WHERE YOU CAN FIND MORE INFORMATION

72

 

 

Appendix A – Agreement and Plan of Merger, dated as of October 4, 2018

Appendix B – Selected Sections of Chapter 13 of the California Corporations Code (Dissenters’ Rights)

Appendix C – Opinion of D.A. Davidson & Co., Financial Advisor to Merchants

 

 

QUESTIONS AND ANSWERS

 

Why am I receiving these materials?

 

We are sending you these materials to solicit your proxy to vote in favor of the merger and to help you decide how to vote your shares of Merchants Holding Company (“Merchants”) common stock with respect to its proposed merger with Bank of Commerce Holdings (“BOCH”). The merger cannot be completed unless Merchants receives the affirmative vote of the holders of at least a majority of the outstanding shares of Merchants’ common stock. Merchants is holding a special meeting of shareholders to vote on proposals relating to the merger. Information about the special meeting is contained in this document. See “Merchants Special Shareholders’ Meeting.”

 

This document is both a proxy statement of Merchants and a prospectus of BOCH. It is a proxy statement because the officers and board of directors of Merchants (the “Merchants Board”) are soliciting proxies from Merchants shareholders in connection with voting on the merger. It is a prospectus because BOCH will issue shares of its common stock in exchange for shares of Merchants common stock as part of the consideration to be paid in the merger.

 

What will Merchants shareholders receive in the merger?

 

Under the terms of the merger agreement, BOCH will issue a total of 1,834,173 shares of BOCH common stock, and will pay a total of $15,300,000 in cash, for all of the outstanding shares of Merchants common stock, other than dissenting shares. The mix of stock and cash to be issued in the transaction was 60% stock and 40% cash, based on the 10-day weighted average closing price of BOCH common stock as of August 10, 2018 (as negotiated by BOCH and Merchants at the time they entered into a letter of intent), which was $12.51 per share. Under the merger agreement, each share of Merchants common stock will be exchanged, at the holder’s election, for one of the following three types of consideration, subject to adjustment as described below:

 

 

Cash in a fixed amount of $48.4318;

 

 

3.8703 shares of BOCH common stock; or

 

 

A unit consisting of $19.3716 in cash and 2.3223 shares of BOCH common stock.

 

The total amount of stock and cash to be issued by BOCH is fixed. As a result, Merchants shareholders electing to receive all cash or all stock will be subject to a pro rata adjustment if too many Merchants shareholders elect one form of consideration over the other, such that the total mix of consideration in the transaction will equal the total amount of cash and number of shares of BOCH common stock to be issued at closing. Merchants shareholders electing the unit consisting of 2.3223 shares of BOCH common stock and $19.3716 in cash will be entitled to receive such mix of consideration without pro rata adjustment, although such amounts are subject to reduction based on “Merchants Core Deposits” as described immediately below.

 

Additionally, the total amount of cash and number of shares of BOCH common stock to be issued at closing will be reduced if “Merchants Core Deposits” (i.e., average daily balance of all deposits other than maturity deposits and public funds) are less than $139,750,922 for the 30-day period ending approximately one week before the completion of the merger, which, in such event, will result in the amounts received for each election being reduced. The method and manner of any such reduction will occur as explained in detail under “The Merger—Adjustments to Merger Consideration.”

 

 

Is the value of the per share consideration that I receive expected to be substantially equivalent regardless of which election I make ?

 

Not necessarily. The formulas used to calculate the per share consideration are based on the 10-day weighted average closing price of BOCH common stock as of August 10, 2018 (as negotiated by BOCH and Merchants at the time they entered into a letter of intent), which was $12.51 per share. Accordingly, the formulas are not expected to provide substantially equal value for each share of Merchants common stock that is exchanged in the merger, regardless of whether you elect to receive cash, stock, or a unit consisting of a mix of cash and stock, and will only do so if the per share value of BOCH common stock at closing is equal to $12.51. As the trading price of BOCH common stock fluctuates above or below this amount, the relative values of an all-cash, all-stock, or mixed consideration election will vary, with one form of election having more value than the others at the time of payment of the merger consideration by BOCH, without taking account of tax considerations.

 

Because the value of BOCH common stock will fluctuate prior to the effectiveness of the merger, you will not know the exact value of the stock portion of the merger consideration at the time of the shareholders’ meeting or at the time Merchants shareholders make their elections as to the form of merger consideration.

 

How and when do I elect the form of consideration that I prefer to receive?

 

An election statement with instructions for making the election as to the form of consideration you prefer accompanies this proxy statement/prospectus. To make an election, you mu st submit an election statement to BOCH ’s exchange agent , Broadridge Corporate Issuer Solutions, Inc., before 5:00 p.m., Pacific Time, on the date that is three business days prior to the completion of the merger (or such other time as mutually agreed by BOCH and Merchants). This date is referred to as the “election deadline” and has been selected to allow Merchants shareholders to consider BOCH’s stock price as proximately to closing as possible, while preserving the ability to effect timely exchange of your Merchants common stock for the merger consideration. Election choices and election procedures are described under “The Merger –Merchants Shareholder Election Alternatives.” DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.

 

NOTE: The actual election deadline is not currently known. BOCH and Merchants will issue a press release announcing the date of the election deadline at least five business days prior to the election deadline. Additionally, BOCH and Merchants will post the date of the election deadline on their respective websites (the Merchants Bank website, in the case of Merchants), also at least five business days before that deadline.

 

May I change my election once it has been submitted?

 

Yes. An election may be changed as long as the new election is received by the exchange agent prior to the election deadline. To change an election, you must send the exchange agent a written notice revoking any election previously submitted.

 

What happens if an election is not made prior to the election deadline?

 

If you fail to submit an election statement to the exchange agent prior to the election deadline, then you will be deemed to have made no election and will receive for each share of Merchants common stock you hold a unit consisting of 2.3223 shares of BOCH common stock and $19.3716 in cash.

 

 

How soon after the merger is completed can I expect to receive my merger consideration?

 

BOCH will work with its exchange agent, Broadridge Corporate Issuer Solutions, Inc., to distribute consideration payable in the merger as promptly as practicable following the completion of the merger.

 

Will the shares of BOCH common stock that I receive in the merger be freely transferable?

 

Yes. All BOCH common stock issued in the merger will be transferable free of restrictions under federal and state securities laws.

 

When will the merger occur?

 

We presently expect to complete the merger during the first quarter of 2019. The actual timing of the transaction is subject to a number of factors, many of which are beyond the control of BOCH and Merchants. The merger is also conditioned upon and will only occur after the approval of the merger agreement by the affirmative vote of holders of at least a majority of the shares of Merchants common stock, the receipt of required regulatory approvals, and the satisfaction or waiver of the other conditions to the merger described in the merger agreement and summarized under “The Merger” below.

 

Either BOCH or Merchants may terminate the merger agreement if the effective date does not occur on or before April 30, 2019, unless extended under certain circumstances as described under “The Merger —Termination of the Merger Agreement.”

 

When and where will the special meeting take place?

 

Merchants will hold a special meeting of its shareholders on Thursday, December 20, 2018, at 10:00 a.m. Pacific Time, at 1015 Seventh Street, Sacramento, California 95814.

 

Who may vote at the special meeting?

 

The Merchants Board has set November 13, 2018 as the record date for the special meeting. If you were the owner of Merchants common stock at the close of business on November 13, 2018, you may vote at the special meeting.

 

What vote is required to approve the merger agreement?

 

Approval of the merger agreement requires the affirmative vote of the holders of at least a majority of the shares of Merchants’ outstanding common stock. As described in this proxy statement/prospectus, Merchants’ directors, certain executive officers and a substantial shareholder have agreed to vote the shares they are entitled to vote in favor of the merger agreement. As of the date hereof, such persons are entitled to vote 448,503 shares of Merchants common stock, representing approximately 56.8% of all outstanding shares of Merchants common stock. See “Merchants Special Shareholders’ Meeting” and “The Merger – Voting Agreements.”

 

What vote is required to approve the adjournment of the special meeting, if necessary or appropriate?

 

Pursuant to Merchants’ bylaws, any shareholders’ meeting, whether or not a quorum is present, may be adjourned by the vote of a majority of the shares represented at the meeting, either in person or by proxy.

 

 

How do I vote?

 

If you were a shareholder of record as of the close of business on November 13, 2018, you may vote on the proposals presented at the special meeting in person or you may submit a proxy to have your shares voted on your behalf. We urge you to promptly complete the enclosed proxy card. Even if you plan to attend the special meeting, we recommend that you submit a proxy in advance to have your shares voted on your behalf so that your vote will be counted if you later decide not to attend the special meeting.

 

You may submit your voting instructions by mail by completing, signing and dating the enclosed proxy card and returning it to us promptly in the enclosed envelope. Returning the proxy card will not affect your right to attend the special meeting and vote in person.

 

If you choose to vote your shares in person at the special meeting, please bring the enclosed proxy card (if not already mailed) and proof of identification.

 

Can I change my voting instructions after I have mailed my signed proxy card?

 

Yes. You may change your voting instructions at any time before your proxy is voted at the special meeting. If your shares of Merchants common stock are held in your own name, you may:

 

 

Send a written notice to the Secretary of Merchants at 1015 Seventh Street, Sacramento, California 95814, ATTN: Secretary, Madelyne Carpenter, stating that you would like to revoke your proxy and provide new instructions on how to vote;

 

 

Complete and submit a later-dated proxy card; or

 

 

Attend the meeting and vote in person.

 

If you choose either the first or second method above, you must deliver your notice of revocation or your new proxy card to Merchants’ Secretary prior to the vote at the special meeting.

 

What happens if I return my proxy but do not indicate how to vote my shares?

 

If you sign and return your proxy card but do not provide instructions on how to vote your shares of Merchants common stock at the special meeting of shareholders, your shares of Merchants common stock will be voted “FOR” approval of the merger agreement and “FOR” approval of one or more adjournments of the special meeting.

 

What should I do if I receive more than one set of voting materials?

 

If you hold shares of Merchants common stock in “street name” and also directly as a record holder or otherwise or if you hold shares of Merchants common stock in more than one brokerage account, you may receive more than one set of voting materials relating to the special meeting. Please complete, sign, date and return each proxy card or otherwise follow the voting instructions provided in this proxy statement/prospectus in order to ensure that all of your shares of Merchants common stock are voted. If you hold your shares in “street name” through a bank, brokerage firm or other nominee, you should follow the procedures provided by your nominee to vote your shares.

 

 

How does the Merchants Board recommend that I vote?

 

The Merchants Board recommends that Merchants shareholders vote “FOR” the proposals described in this proxy statement/prospectus, including in favor of the merger agreement.

 

What do I need to do now?

 

We encourage you to read this proxy statement/prospectus and related information in its entirety. Important information is presented in greater detail elsewhere in this document, and documents governing the merger are attached as appendices to this proxy statement/prospectus. In addition, much of the business and financial information about BOCH that may be important to you is incorporated by reference into this document from documents separately filed by BOCH with the SEC. This means that important disclosure obligations to you are satisfied by referring you to one or more documents separately filed with the SEC.

 

Following review of this proxy statement/prospectus, please complete, sign, and date the enclosed proxy card and return it in the enclosed envelope as soon as possible so that your shares of Merchants common stock can be voted at Merchants’ special meeting of shareholders.

 

Should I send in my common stock certificates now?

 

No . Please do not send your Merchants common stock certificates with your proxy card or your election statement. You will receive written instructions from BOCH’s exchange agent promptly following the closing of the merger on how to exchange your Merchants common stock certificates for the merger consideration.

 

What risks should I consider?

 

You should review carefully the discussion under “Risk Factors.” You should also review the factors considered by the Merchants Board in approving the merger agreement. See “Background of and Reasons for the Merger.”

 

What are the tax consequences of the merger to me?

 

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and it is a condition to the respective obligations of Merchants and BOCH to complete the merger that each of Merchants and BOCH receives an opinion of counsel to that effect.

 

In a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code:

 

(A) a shareholder who exchanges his, her or its common stock in an acquired company solely for shares of common stock in an acquiring company will not generally be required to recognize gain or loss on the exchange;

 

(B) a shareholder who exchanges his, her or its common stock in an acquired company for shares of common stock in an acquiring company, plus cash (whether by election to receive cash compensation or by virtue of pro rata adjustment), must generally recognize gain (but not loss) on the exchange in an amount equal to the lesser of (i) the amount of gain realized (i.e., the excess of the sum of the fair market value of the shares of acquiring company common stock (including any fractional shares) and cash received pursuant to the merger (excluding any cash received in lieu of fractional shares) over the shareholder’s adjusted tax basis in his, her or its shares of acquired company stock surrendered pursuant to the merger), or (ii) the amount of cash (excluding any cash received in lieu of fractional shares) received pursuant to the merger; and

 

 

(C) a shareholder who exchanges his, her or its common stock in an acquired company solely for cash must generally recognize gain or loss on the exchange in an amount equal to the amount of gain or loss realized (i.e., the excess or the deficient of the cash received pursuant to the merger over the shareholder's adjusted tax basis in his, her or its shares of acquired company stock surrendered pursuant to the merger).

 

For a detailed discussion of the material United States federal income tax consequences of the merger, see “The Merger – Material U.S. Federal Income Tax Consequences of the Merger.”

 

We urge you to consult your tax advisor to fully understand the tax consequences to you of the merger. Tax matters are very complicated and in many cases the tax consequences of the merger will depend upon your particular facts and circumstances.

 

Do I have appraisal or dissenters’ rights?

 

If you are a Merchants shareholder of record as of the record date for the special meeting, you do not have your shares voted in favor of the merger agreement, and you take certain other actions required by California law, you will have dissenters’ rights under Chapter 13 of the California General Corporation Law (“CGCL”). Exercise of these rights will result in the purchase of your shares of Merchants common stock at “fair value,” as determined in accordance with the CGCL. If you elect to exercise this right, we encourage you to consult with your financial and legal advisors. Please read the section entitled “The Merger – Dissenters’ Rights of Appraisal” for additional information.

 

Who can help answer my questions?

 

If you have questions about the merger, the special shareholders’ meeting, or your proxy, or if you need additional copies of this document or the enclosed proxy card, you should contact:

 

Merchants Holding Company

1015 Seventh Street

Sacramento, California 95814

ATTN: Stephen A. Meyers, Chairman, Chief Executive Officer and President

Tel. No. (916) 442-3883

 

 

SUMMARY

 

This summary, together with the preceding section entitled Questions and Answers , highlights selected information about this proxy statement/prospectus. It may not contain all of the information that is important to you. We urge you to read carefully the entire proxy statement/prospectus and any other documents to which we refer to fully understand the merger. The merger agreement is attached as Appendix A to this proxy statement/prospectus.

 

Information about BOCH and Merchants

 

Bank of Commerce Holdings
555 Capitol Mall, Suite 1255
Sacramento, California 95814
(800) 421-2575

 

BOCH is a California corporation that commenced banking operations in 1982 in Redding, California, where there are now three offices, and expanded into the Sacramento market as a loan and depository office in 2001. BOCH is a regional bank holding company providing a full range of commercial banking services from nine full service facilities in Northern California. BOCH is the parent company of Redding Bank of Commerce, which operates under two separate names (Redding Bank of Commerce, and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). BOCH offers a wide range of banking products and services, including transaction and savings deposits, real estate, commercial, agriculture and consumer loans, mortgage origination services, and retail brokerage services. RBC serves individuals, small to medium-sized businesses, community organizations and public entities.

 

BOCH's common stock trades on the NASDAQ Global Market under the symbol “BOCH.”

 

As of September 30, 2018, BOCH had total assets of approximately $1,300,000,000, total gross loans of approximately $927,500,000, total deposits of approximately $1,100,000,000 and approximately $133,000,000 in shareholders’ equity.

 

Financial and other information regarding BOCH, including risks associated with BOCH’s business, is set forth in BOCH’s annual report on Form 10-K for the year ended December 31, 2017 and quarterly report on Form 10-Q for the quarter ended September 30, 2018. Information regarding BOCH’s executive officers and directors, as well as additional information, including executive compensation and certain relationships and related transactions, is set forth or incorporated by reference in BOCH’s annual report on Form 10-K for the year ended December 31, 2017, and BOCH’s proxy statement for its 2018 annual meeting of shareholders, and the Forms 8-K filed by BOCH that are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

 

Merchants Holding Company
1015 Seventh Street
Sacramento, California 95814
(916) 442-3883

 

Merchants is a California corporation, formed in 1994 to serve as the holding company for Merchants Bank, which commenced operations in 1921. Merchants Bank offers a wide range of banking products and services, including savings deposits, commercial, consumer and real estate loans, mortgage origination services and retail brokerage services. Merchants Bank serves individuals, small-to-medium sized businesses, community organizations and public entities.

 

 

As of September 30, 2018, Merchants had total assets of approximately $213,387,000, gross loans receivable of approximately $88,003,000, total deposits of approximately $192,241,000 and approximately $19,945,000 in shareholders’ equity.

 

For additional information about Merchants, see “Information Concerning Merchants.”

 

The Merger

 

Both the BOCH and Merchants boards of directors have approved and adopted the merger agreement, which provides for the merger of Merchants with and into BOCH and the merger of Merchants Bank with and into RBC. Under the terms of the merger agreement, BOCH will pay to Merchants shareholders, a total of 1,834,173 shares of BOCH common stock, plus $15,300,000 in cash, subject to adjustment as described below. Merchants’ shareholders may elect to receive, for each share of Merchants common stock, either all BOCH common stock (3.8703 shares of BOCH common stock), all cash ($48.4318), or a unit consisting of $19.3716 in cash and 2.3223 shares of BOCH common stock.

 

However, because the total amount of stock and cash to be issued by BOCH is fixed, Merchants shareholders electing to receive all cash or all stock will be subject to a pro rata adjustment such that the total mix of consideration in the transaction will equal the total amount of cash and number of shares of BOCH common stock to be issued at closing. Merchants shareholders electing to receive the unit of 2.3223 shares of BOCH common stock and $19.3716 in cash, however, will not be subject to this pro rata adjustment. Because the value of BOCH common stock will fluctuate prior to the effectiveness of the merger, you will not know the exact value of the merger consideration at the time of the shareholders’ meeting or at the time Merchants shareholders make their elections as to the form of merger consideration.

 

Additionally, the total amount of cash and number of shares of BOCH common stock to be issued at closing will be reduced if “Merchants Core Deposits” (i.e., average daily balance of all deposits other than maturity deposits and public funds) are less than $139,750,922 for the 30-day period ending the day preceding the fifth business day immediately preceding the effective date of the merger. The reduction in merger consideration will be based on a pricing schedule that is set forth under “The Merger – Adjustments to Merger Consideration” below. That schedule establishes incremental reductions in the all-cash, all-stock, and mixed consideration election amounts depending on the value of Merchants Core Deposits as of the applicable determination date. For each increment of $250,000 that Merchants Core Deposits is less than the threshold amount of $139,750,922, the aggregate available cash consideration will be reduced by approximately $11,860 and the aggregate available stock consideration will be reduced by approximately 1,422 shares of BOCH common stock. If Merchants’ average core deposits at closing are less than $128,419,766, however, BOCH may terminate the merger agreement.

 

Recommendation of Merchants Board

 

The Merchants Board recommends that holders of Merchants common stock vote “FOR” the proposal to approve the merger agreement.

 

For further discussion of Merchants’ reasons for the merger and the recommendations of the Merchants Board, see “Background of and Reasons for the Merger – Reasons for the Merger – Merchants.”

 

 

Opinion of Merchants’ Financial Advisor

 

In connection with the merger, Merchants’ financial advisor, D.A. Davidson & Co., (“Davidson”) delivered a written opinion, dated October 3, 2018, to the Merchants Board as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Merchants common stock of the merger consideration in the proposed merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Davidson in preparing the opinion, is attached as Appendix C to this document. The opinion was for the information of, and was directed to, the Merchants Board (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Merchants to engage in the merger or enter into the merger agreement or constitute a recommendation to the Merchants Board in connection with the merger, and it does not constitute a recommendation to any holder of Merchants common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter.

 

For further information, see “Background of and Reasons for the Merger – Opinion of Merchants’ Financial Advisor.”

 

Interests of Merchants Directors and Executive Officers in the Merger

 

When you consider the recommendation of the Merchants Board that Merchants’ shareholders approve the merger agreement, you should be aware that certain members of Merchants’ and/or Merchants Bank’s management have interests in the merger that are different from, or in addition to, their interests as Merchants shareholders. These interests arise out of, among other things, voting and non-competition agreements that have been entered into or may be entered into by the directors and certain executive officers of Merchants, employment agreements entered into by certain Merchants and Merchants Bank executive officers, change-in-control payments to be received by certain executive officers, and provisions in the merger agreement relating to indemnification of Merchants directors and officers. For a description of the interests of Merchants’ directors and executive officers in the merger, see “The Merger – Interests of Merchants Directors and Executive Officers in the Merger.”

 

The Merchants Board was aware of these interests and took them into account in its decision to approve the merger agreement.

 

Merchants Shareholders’ Dissenters’ Rights

 

Under California law, Merchants shareholders have the right to dissent from the merger and receive cash for the “fair value” of their shares of Merchants common stock. The procedures required under California law are described later in this document, and a copy of the relevant statutory provisions is attached as Appendix B . For more information on dissenters’ rights, see “The Merger – Dissenters’ Rights of Appraisal.”

 

Regulatory Matters

 

Each of BOCH and Merchants has agreed to use its commercially reasonable efforts to obtain all regulatory approvals required by the merger agreement and the transactions contemplated by the merger agreement. These approvals include approval or a waiver from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the California Department of Business Oversight – Division of Financial Institutions. Applications have been filed with these regulatory bodies seeking such approvals. BOCH and Merchants expect to obtain all such regulatory approvals, although neither can be certain if or when approval will be obtained. See “The Merger – Regulatory Requirements.”

 

 

Conditions to Completion of the Merger

 

Currently, BOCH and Merchants expect to complete the merger during the first quarter of 2019. As more fully described in this proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. Neither BOCH nor Merchants can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived. See “The Merger – Conditions to the Merger.”

 

Termination of the Merger Agreement

 

The merger agreement provides that either BOCH or Merchants may terminate the merger agreement either before or after the Merchants special meeting, under certain circumstances. See “The Merger – Termination of the Merger Agreement.”

 

Termination Fee

 

The merger agreement provides that Merchants must pay BOCH a termination fee of $1,340,000 if the merger agreement is terminated (i) by BOCH if the Merchants Board fails to recommend approval of the merger agreement by Merchants’ shareholders or modifies, withdraws or adversely changes its recommendation, or (ii) by BOCH, regardless of whether the Merchants Board recommends to Merchants shareholders the approval of the merger, if Merchants shareholders do not approve the merger at the special meeting, or (iii) by the Merchants Board due to its determination that an acquisition proposal received by Merchants constitutes a “Superior Proposal” (as defined in the merger agreement), which is acted upon by Merchants, or (iv) by BOCH because an “Acquisition Event” (as defined in the merger agreement) with respect to Merchants has occurred.

 

Merchants agreed to pay the termination fee under the circumstances described above in order to induce BOCH to enter into the merger agreement. This arrangement could have the effect of discouraging other companies from trying to acquire Merchants. See “The Merger – Termination Fee.”

 

Merchants Shareholders’ Rights After the Merger

 

The rights of Merchants shareholders are governed by California law, as well as by Merchants’ articles of incorporation and bylaws. After completion of the merger, the rights of the former Merchants shareholders receiving BOCH common stock in the merger will continue to be governed by California law, and will be governed by BOCH’s restated articles of incorporation and amended and restated bylaws. Although BOCH’s restated articles of incorporation and amended and restated bylaws are similar in many ways to Merchants’ articles of incorporation and bylaws, there are some substantive and procedural differences that will affect the rights of Merchants shareholders. See “Comparison of Certain Rights of Holders of BOCH and Merchants Common Stock.”

 

 

RISK FACTORS

 

In addition to the other information contained in or incorporated by reference into this document, including the matters addressed under the caption Cautionary Note Regarding Forward-Looking Statements, you should consider the matters described below carefully in determining whether or not to approve the merger agreement and the transactions contemplated by the merger agreement.

 

Risks Associated with the Proposed Merger

 

Because the market price of the BOCH common stock may fluctuate, you cannot be sure of the value of the shares of BOCH common stock that you will receive.

 

Although the aggregate number of shares of BOCH common stock that will constitute the stock portion of the mixed election consideration or all-stock consideration in the merger is fixed, you will not be able to determine the value of any BOCH common stock that you would receive upon completion of the merger at the time of the special meeting of shareholders. Any change in the market price of BOCH common stock prior to completion of the merger will affect the value of the stock consideration that Merchants shareholders will receive in the merger. Common stock price changes may result from a variety of factors, including but not limited to general market and economic conditions, changes in BOCH’s business, operations and prospects, and regulatory considerations. Many of these factors are beyond the control of BOCH or Merchants. On November 14, 2018, the latest practicable date before the printing of this proxy statement/prospectus, the closing price of BOCH common stock was $11.98 per share. You should obtain current market prices for BOCH common stock.

 

Merchants shareholders may receive a form of merger consideration different from what they elect.

 

Although each Merchants shareholder may elect to receive all cash or all BOCH common stock in the merger, or a unit consisting of $19.3716 in cash and 2.3223 shares of BOCH common stock, the aggregate amounts of cash and BOCH common stock to be paid in the merger are fixed. As a result, if either the aggregate cash or stock elections exceed the maximum amounts available (for example, the all-cash elections plus the cash portion of all mixed consideration elections exceeds $15,300,000, or, alternatively, the all-stock elections plus the stock portion of all mixed consideration elections exceeds 1,834,173 shares of BOCH common stock), shareholders electing exclusively to receive the oversubscribed form of consideration will receive a portion of that consideration in the form they did not choose. However, those shareholders electing the unit consisting of $19.3716 in cash and 2.3223 shares of BOCH common stock are not subject to this pro rata adjustment.

 

The merger agreement limits Merchants’ ability to pursue other transactions and provides for the payment of a termination fee if Merchants does so.

 

While the merger agreement is in effect, subject to very narrow exceptions, Merchants and its directors, officers, employees, agents and representatives are prohibited from initiating or encouraging inquiries with respect to alternative acquisition proposals. The prohibition limits Merchants’ ability to seek offers from other potential acquirers that may be superior from a financial point of view to the proposed transaction. If Merchants receives an unsolicited proposal from a third party that is superior from a financial point of view to that made by BOCH and the merger agreement is terminated, Merchants will be required to pay a $1,340,000 termination fee. This fee makes it less likely that a third party will make an alternative acquisition proposal. See “The Merger – Termination Fee.”

 

 

Combining our two companies may be more challenging, costly or time-consuming than we expect.

 

Although BOCH previously acquired five branches from Bank of America in 2016, it has not previously been involved in a whole-bank acquisition such as the proposed merger. It is possible that the integration of Merchants Bank into RBC could result in the unanticipated loss of key employees, the disruption of the ongoing business of Merchants or inconsistencies in standards, controls, procedures and policies that adversely affect the ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger. As with any merger of banking institutions, there also may be disruptions that cause loss of customers or cause customers to take their deposits out of Merchants Bank.

 

Unanticipated costs relating to the merger could reduce BOCH’s future earnings per share.

 

BOCH believes that it has reasonably and conservatively estimated the likely costs of integrating the operations of Merchants Bank into RBC, and the incremental costs of operating as a combined financial institution. However, it is possible that unexpected transaction costs or future operating expenses, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of BOCH after the merger. If the merger is completed and unexpected costs are incurred, the merger could have a dilutive effect on BOCH’s earnings per share, meaning earnings per share could be less than they would be if the merger had not been completed.

 

The fairness opinion of Merchants’ financial advisor received by the Merchants Board prior to signing of the merger agreement does not reflect changes in circumstances since the signing of the merger agreement.

 

General market and economic conditions, including the recent volatility of U.S. and worldwide equities markets, and other factors that may be beyond the control of BOCH or Merchants, may have altered the price of shares of BOCH common stock as of the date of this proxy statement/prospectus, or may alter such sale prices by the time the merger is completed. The opinion of Davidson, Merchant’s financial advisor, dated October 3, 2018, does not speak as of the time the merger will be completed or as of any date other than the date of the opinion. The Merchants Board’s recommendation that Merchants shareholders vote “FOR” approval of the merger agreement, however, is made as of the date of this proxy statement/prospectus. For a description of the other factors considered by the Merchants Board in determining to approve the merger, see “Background of and Reasons for the Merger – Reasons for the Merger – Merchants.”

 

After the merger is completed, Merchants’ shareholders will become BOCH shareholders and will have different rights that may be less advantageous than their current rights.

 

Upon completion of the merger, those Merchants shareholders who receive BOCH shares will become BOCH shareholders. Differences in BOCH’s restated articles of incorporation and amended and restated bylaws and Merchants’ articles of incorporation and bylaws will result in changes to the rights of Merchants’ shareholders who become BOCH shareholders. See “Comparison of Certain Rights of Holders of BOCH and Merchants Common Stock.”

 

BOCH has certain anti-takeover measures that could impede a takeover.

 

BOCH has certain anti-takeover measures in place, which are described elsewhere in this proxy statement/prospectus. Any one or more of these measures may impede the takeover of BOCH without the approval of the BOCH board of directors and may prevent BOCH shareholders from taking part in a transaction in which they could realize a premium over the then-current market price of BOCH common stock. See “Comparison of Certain Rights of Holders of BOCH and Merchants Common Stock.”

 

 

Risks Associated with BOCH’s Business

 

BOCH is, and will continue to be, subject to the risks described in BOCH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as updated by Quarterly Reports on Form 10-Q for the quarters ended March 30, 2018; June 30, 2018; and September 30, 2018, and subsequent Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “References to Additional Information” and “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.

 

 

CAUTIONARY NOTE REGARDING forward-looking statementS

 

This document, including information included or incorporated by reference in this document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the merger, including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the merger; (ii) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; and (iii) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond BOCH’s and Merchants’ control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 

In addition to risk factors described above, the following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed or implied in the forward-looking statements:

 

 

the merger may not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

 

 

BOCH’s stock price could change before closing of the merger due to, among other things, stock market movements and the performance of financial companies and peer group companies, over which BOCH has no control;

 

 

benefits from the merger may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which BOCH and Merchants operate;

 

 

Merchants’ business may not be integrated into BOCH successfully, or such integration may take longer to accomplish than expected;

 

 

the anticipated growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected;

 

 

operating costs, customer losses and business disruption following the merger, including adverse developments in relationships with customers, employees, and counterparties may be greater than expected; and

 

 

management time and effort may be diverted to the resolution of merger-related issues.

 

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in BOCH’s reports filed with the SEC.

 

All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to BOCH or Merchants or any person acting on behalf of BOCH or Merchants are expressly qualified in their entirety by the cautionary statements above. Neither BOCH nor Merchants undertakes any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

 

selected HISTORICAL FINANCIAL INFORMATION OF BOCH

 

The following table summarizes selected historical consolidated financial data of BOCH for the periods and of the dates indicated. This information has been derived from BOCH’s consolidated financial statements filed with the SEC. Historical data of and for the nine months ended September 30, 2018 and 2017 are unaudited and include, in the opinion of BOCH’s management, all normal recurring adjustments considered necessary to present fairly the results of operations and financial condition of BOCH. You should not assume the results of operations for past annual periods or for the nine months ended September 30, 2018 are indicative of the results for any future period.

 

You should read this information in conjunction with BOCH’s consolidated financial statements and related notes thereto and unaudited condensed financial statements, which are incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”

 

   

Nine Months

Ended
September 30 ,

201 8

   

Nine Months

Ended
September 30 ,

201 7

   

At or for the Fiscal Years Ended

December 31

 
                   

2017

   

2016

   

2015

   

2014

   

2013

 
                   

Amounts in thousands, except ratios and per-share data

 

Statements of i ncome

                                                       

Interest income

  $ 38,951     $ 33,902     $ 45,949     $ 41,009     $ 38,753     $ 36,693     $ 37,261  

Net interest income

  $ 35,052     $ 30,493     $ 41,362     $ 36,231     $ 33,770     $ 32,601     $ 33,783  

Provision for loan and lease losses

  $ --     $ 500     $ 950     $ --     $ --     $ 3,175     $ 2,750  

Noninterest income

  $ 2,887     $ 3,542     $ 4,824     $ 3,486     $ 3,183     $ 4,307     $ 3,412  

Noninterest expenses

  $ 23,338     $ 23,073     $ 30,964     $ 32,500     $ 24,905     $ 26,426     $ 21,659  

Net income available to common shareholders

  $ 10,891     $ 7,337     $ 7,344     $ 5,259     $ 8,295     $ 5,527     $ 7,735  

Balance sheets

                                                       

Total assets

  $ 1,315,469     $ 1,231,881     $ 1,269,421     $ 1,140,992     $ 1,015,441     $ 997,192     $ 956,342  

Average total assets

  $ 1,275,369     $ 1,180,150     $ 1,198,251     $ 1,079,750     $ 992,731     $ 973,807     $ 953,854  

Total gross loans

  $ 927,480     $ 824,874     $ 879,835     $ 804,211     $ 716,639     $ 660,898     $ 597,995  

Allowance for loan and lease losses

  $ 12,392     $ 11,692     $ 11,925     $ 11,544     $ 11,180     $ 10,820     $ 14,172  

Total deposits

  $ 1,144,761     $ 1,062,785     $ 1,102,732     $ 1,004,666     $ 803,735     $ 789,035     $ 746,293  

Total shareholder’s equity

  $ 132,969     $ 128,405     $ 127,264     $ 94,106     $ 90,522     $ 103,602     $ 101,787  

Ratios

                                                       

Return on average assets

    1.14 %     0.83 %     0.61 %     0.49 %     0.86 %     0.59 %     0.83 %

Return on average shareholders’ equity

    11.29 %     8.80 %     6.34 %     5.68 %     8.10 %     5.59 %     7.47 %

Average equity to average assets

    10.11 %     9.45 %     9.67 %     8.57 %     10.68 %     10.51 %     11.13 %

Common equity tier 1 capital ratio

    12.65 %     12.66 %     12.26 %     9.43 %     10.06 %     n/a       n/a  

Tier 1 capital ratio

    13.59 %     13.65 %     13.23 %     10.42 %     11.16 %     13.91 %     15.94 %

Total capital ratio

    15.75 %     15.91 %     15.44 %     12.68 %     13.52 %     15.16 %     17.20 %

Tier 1 leverage ratio

    11.18 %     11.12 %     10.86 %     9.13 %     10.03 %     11.60 %     12.80 %

Net interest margin

    3.92 %     3.78 %     3.78 %     3.71 %     3.77 %     3.71 %     3.86 %

Average earning assets to total average assets

    94.62 %     93.76 %     93.85 %     93.34 %     93.43 %     93.81 %     95.00 %

Nonperforming assets to total assets

    0.29 %     0.67 %     0.46 %     1.06 %     1.53 %     2.22 %     3.23 %

Net charge-offs (recoveries) to average loans

    (0.05 )%     0.04 %     0.07 %     (0.05 )%     (0.05 )%     1.04 %     (0.13 )%

Allowance for loan and lease losses to gross loans

    1.34 %     1.42 %     1.36 %     1.44 %     1.56 %     1.64 %     2.37 %

Nonperforming loans to allowance for loan and lease losses

    30.00 %     65.04 %     48.63 %     98.64 %     126.09 %     200.30 %     210.25 %

Efficiency ratio

    61.51 %     67.79 %     67.04 %     81.83 %     67.40 %     71.60 %     58.23 %

Share data

                                                       

Average common shares outstanding - basic

    16,242       14,884       15,207       13,367       13,331       13,475       14,940  

Average common shares outstanding - diluted

    16,327       14,984       15,310       13,425       13,365       13,520       14,964  

Book value per common share – tangible

  $ 8.03     $ 7.77     $ 7.70     $ 6.83     $ 6.76     $ 6.29     $ 5.86  

Basic earnings per share

  $ 0.67     $ 0.49     $ 0.48     $ 0.39     $ 0.62     $ 0.41     $ 0.52  

Diluted earnings per share

  $ 0.67     $ 0.49     $ 0.48     $ 0.39     $ 0.62     $ 0.41     $ 0.52  

Cash dividends per share

  $ 0.11     $ 0.09     $ 0.12     $ 0.12     $ 0.12     $ 0.12     $ 0.14  

 

 

selected HISTORICAL FINANCIAL INFORMATION OF MERCHANTS

 

The following table summarizes selected historical consolidated financial data of Merchants for the periods and of the dates indicated. This information has been derived from Merchants’ consolidated financial statements, which are available upon request. See “Where You Can Find More Information.” Historical data of and for the nine months ended September 30, 2018 and 2017 are unaudited and include, in the opinion of Merchants’ management, all normal recurring adjustments considered necessary to present fairly the results of operations and financial condition of Merchants. You should not assume the results of operations for past annual periods or for the nine months ended September 30, 2018 are indicative of the results for any future period.

 

   

Nine Months
Ended
September 30,
2018

   

Nine Months
Ended
September 30,
201 7

   



At or for the Fiscal Years Ended
December 31

 
           

(In thousands, except for per-share data)

 
                   

2017

   

2016

   

2015

 

Statements of income

                                       

Interest income

  $ 4,536     $ 4,276     $ 5,695     $ 5,392     $ 5,147  

Net interest income

  $ 4,043     $ 3,937     $ 5,230     $ 5,056     $ 4,848  

Provision for loan and lease losses

  $ 45     $ 45     $ 60     $ 150     $ (29 )

Noninterest income

  $ 87     $ 153     $ 177     $ 485     $ 570  

Noninterest expenses

  $ 2,671     $ 2,719     $ 3,616     $ 3,421     $ 3,373  

Net income available to common shareholders

  $ 1,083     $ 906     $ 725     $ 1,307     $ 1,384  

Balance sheets

                                       

Total assets

  $ 213,387     $ 209,739     $ 216,625     $ 213,872     $ 198,848  

Average total assets

  $ 215,834     $ 213,955     $ 212,662     $ 217,287     $ 199,785  

Total gross loans

  $ 88,003     $ 81,114     $ 85,297     $ 78,308     $ 66,948  

Allowance for loan and lease losses

  $ 1,281     $ 1,220     $ 1,235     $ 1,171     $ 1,019  

Total deposits

  $ 192,209     $ 185,057     $ 190,115     $ 187,236     $ 177,269  

Total shareholder’s equity

  $ 19,945     $ 21,778     $ 20,808     $ 20,277     $ 20,418  

Ratios

                                       

Return on average assets

    0.67 %     0.56 %     0.34 %     0.60 %     0.69 %

Return on average shareholders’ equity

    7.20 %     5.72 %     3.41 %     6.12 %     6.73 %

Average equity to average assets

    9.29 %     9.87 %     9.99 %     9.83 %     10.29 %

Common equity tier 1 capital ratio

    23.19 %     25.10 %     22.98 %     23.93 %     25.03 %

Tier 1 capital ratio

    23.19 %     25.10 %     22.98 %     23.93 %     25.03 %

Total capital ratio

    24.44 %     26.35 %     24.23 %     25.18 %     26.28 %

Tier 1 leverage ratio

    10.68 %     10.48 %     10.56 %     9.99 %     10.44 %

Net interest margin

    2.55 %     2.52 %     2.52 %     2.45 %     2.49 %

Average earning assets to total average assets

    99.21 %     98.50 %     98.88 %     94.56 %     99.58 %

Nonperforming assets to total assets

    0.00 %     0.00 %     0.00 %     0.00 %     0.00 %

Net charge-offs (recoveries) to average loans

    0.00 %     0.01 %     (0.01 )%     (0.00 )%     0.16 %

Allowance for loan and lease losses to gross loans

    1.46 %     1.50 %     1.45 %     1.50 %     1.52 %

Nonperforming loans to allowance for loan and lease losses

    0.00 %     0.00 %     0.00 %     0.00 %     0.00 %

Efficiency ratio

    64.67 %     66.48 %     66.48 %     61.74 %     62.26 %

Share data

                                       

Average common shares outstanding – basic

    789,814       789,814       789,814       789,814       789,814  

Average common shares outstanding – diluted

    789,814       789,814       789,814       789,814       789,814  

Book value per common share - tangible

  $ 25.25     $ 27.57     $ 26.35     $ 25.67     $ 25.85  

Basic earnings per share

  $ 1.37     $ 1.15     $ 0.92     $ 1.65     $ 1.75  

Diluted earnings per share

  $ 1.37     $ 1.15     $ 0.92     $ 1.65     $ 1.75  

Cash dividends per share

  $ 0.30     $ 0.25     $ 0.55     $ 0.55     $ 0.65  

 

 

unaudited pro forma combined
condensed consolidated BALANCE SHEET

 

The following unaudited pro forma combined condensed consolidated financial information combines the historical consolidated financial position of BOCH and its subsidiaries and Merchants and its subsidiary using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Merchants will be recorded by BOCH at their respective fair values as of the date the merger is completed. The unaudited pro forma combined financial information should be read in conjunction with BOCH's Quarterly Report on Form 10-Q for the period ended September 30, 2018, and Annual Report on Form 10-K for the year ended December 31, 2017, which are incorporated in this registration statement by reference.

 

The unaudited pro forma combined condensed balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2018. The preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma combined condensed consolidated financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger. A final determination of the fair value of Merchants’ assets and liabilities, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of Merchants that exist as of the date of completion of the transaction. Consequently, fair value adjustments and amount preliminarily allocated to goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma combined condensed balance sheet presented below. In addition, the value of the final purchase price of the merger will be based on the closing price of BOCH common stock on the closing date of the merger.

 

 

Bank of Commerce Holdings

Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet

As of September 30, 2018

amounts in thousands

 

 

   

BOCH

   

MERCHANTS

   

Pro Forma

           
   

As Reported

   

As Reported

   

Adjustments

 

Ref

 

Pro Forma

 

Cash and Fed Funds Sold

  $ 91,236     $ 9,174     $ (18,195 )

(a)

  $ 82,215  

Securities AFS

    239,633       111,462       0         351,095  

Cash and Securities

    330,869       120,636       (18,195 )       433,310  
                                   

Gross Loans

    929,237       88,259       (1,589 )

(b)

    1,015,907  

Allowance for Loan and Lease Losses

    (12,392 )     (1,281 )     1,281  

(c)

    (12,392 )

Net Loans

    916,845       86,978       (308 )       1,003,515  
                                   

Premises and Equipment, Net

    13,495       400       1,900  

(d)

    15,795  

Other Real Estate Owned

    136       0       0         136  

Goodwill

    665       0       14,138  

(e)

    14,803  

Core Deposit Intangible, Net

    1,199       0       4,210  

(f)

    5,409  

Deferred Tax Assets, Net

    8,084       1,870       (1,683 )

(g)

    8,271  

Life Insurance

    22,282       745       0         23,027  

Other Assets

    21,894       2,755       0         24,649  

Total Assets

  $ 1,315,469     $ 213,384     $ 62       $ 1,528,915  
                                   
                                   

Deposits

  $ 1,144,761     $ 192,209     $ 0       $ 1,336,970  

Senior Debt

    4,393       0       0         4,393  

Subordinated Debt

    9,900       0       0         9,900  

Trust Preferred Securities

    10,310       0       0         10,310  

Other Liabilities

    13,136       1,230       (100 )

(h)

    14,266  

Total Liabilities

    1,182,500       193,439       (100 )       1,375,839  
                                   

Common Equity

    132,969       19,945       162  

(i)

    153,076  

Total Liabilities and Equity

  $ 1,315,469     $ 213,384     $ 62       $ 1,528,915  

 

 

(a) Adjustment to cash and fed funds sold:

       

Payment of cash consideration to Merchants common stock shareholders

  $ (15,300 )

Payment of estimated Merchants and BOCH transaction costs, net of tax

    (2,895 )
    $ (18,195 )
         

(b) Adjustment to loans:

       

To reflect fair value of loans acquired after considering both contractual rates and credit risk

  $ (1,589 )
         

(c) Adjustment to allowance for loan and lease losses:

       

The acquired Merchants loans are fair valued at the acquisition date eliminating any need to carryover the Merchants allowance for loan and lease losses

  $ 1,281  
         

(d) Adjustment to premises and equipment:

       

The Merchants building has a value greater than its current carrying amount

  $ 1,900  
         

(e) Calculation of goodwill for Merchants merger:

       

Goodwill is the amount by which the total consideration paid by BOCH to Merchants shareholders exceeds the fair value of net assets acquired and liabilities assumed.

       

 

 

BOCH common shares issued to Merchants shareholders (1,834,173 shares @ $12.20 per share)

  $ 22,377  

Cash consideration paid to Merchants shareholders

    15,300  

Total consideration paid to Merchants shareholders

  $ 37,677  
         

Carry value of Merchant's net assets at September 30, 2018

  $ 19,945  

Estimated Merchants transaction costs, net of tax

    (625 )

Carry value of Merchants' net assets after estimated transaction costs

    19,320  

Fair value adjustments:

       

Loans

    (1,589 )

Allowance for loan and lease losses

    1,281  

Allowance for undisbursed loan commitments

    100  

Premises and equipment

    1,900  

Core deposit intangible

    4,210  

Deferred taxes, net

    (1,683 )

Total fair value adjustments

    4,219  

Adjusted fair value of net assets acquired as of September 30, 2018

  $ 23,539  
         

Excess of consideration paid over fair value of net assets acquired (Goodwill)

  $ 14,138  

 

The total merger consideration in this illustration assumes that core deposits exceed $139,750,922 as of the "Determination Day" and, accordingly, no adjustment has been made to the merger consideration. If at close, core deposits fall below $139,750,922 both the cash and equity components of the merger consideration will be adjusted downward according to the schedule provided elsewhere in this registration statement. Additionally, this illustration values the stock component of the transaction at $12.20 per share, the closing price for BOCH on September 30, 2018. The actual price per share of BOCH may vary significantly upon completion of the merger.

 

(f) Adjustment of core deposit intangible:

       

To record the fair value of core deposit intangible related to Merchants' nonmaturity deposits

  $ 4,210  
         

(g) Adjustment of the net deferred tax asset:

       

Adjustments related to:

       

Loans

  $ 429  

Available for sale securities

    (115 )

Allowance for loan and lease losses

    (332 )

Allowance for undisbursed loan commitments

    (29 )

Premises and equipment

    (513 )

Core deposit intangible

    (1,137 )

Other

    14  
    $ (1,683 )
         

(h) Adjustment of other liabilities:

       

The acquired Merchants loans are fair valued at the acquisition date eliminating any need to carryover the Merchants allowance for undisbursed loan commitments

  $ (100 )
         

(i) Adjustment of common equity:

       

Estimated Merchants and BOCH transaction costs, net of tax

  $ (2,895 )

Eliminate Merchants equity, after estimated transaction costs

    (19,320 )

Issuance of BOCH common shares to Merchants shareholders

    22,377  
    $ 162  

 

 

COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION

 

BOCH Common Stock

 

BOCH common stock is quoted on the NASDAQ Global Market under the symbol “BOCH.” The following table sets forth for the periods indicated:

 

 

the high and low sales prices per share for BOCH common stock as reported on the NASDAQ Global Market; and

 

 

cash dividends declared per share on BOCH common stock.

 

   


High

   


Low

   

Cash
Dividends Declared

 

201 6

                       

First quarter

  $ 6.93     $ 5.05     $ 0.03  

Second quarter

  $ 6.77     $ 6.09     $ 0.03  

Third quarter

  $ 7.41     $ 6.05     $ 0.03  

Fourth quarter

  $ 9.67     $ 7.00     $ 0.03  

201 7

                       

First quarter

  $ 11.00     $ 9.10     $ 0.03  

Second quarter

  $ 11.90     $ 10.30     $ 0.03  

Third quarter

  $ 11.65     $ 9.90     $ 0.03  

Fourth quarter

  $ 12.40     $ 10.30     $ 0.03  

201 8

                       

First quarter

  $ 12.00     $ 10.75     $ 0.03  

Second quarter

  $ 12.90     $ 10.10     $ 0.04  

Third quarter

  $ 13.21     $ 8.40     $ 0.04  

Fourth quarter (through November 14, 2018)

  $ 12.83     $ 11.01     $ 0.00  

 

At September 30, 2018, the 16,329,902 outstanding shares of BOCH common stock were held by approximately 174 shareholders of record and approximately 912 beneficial owners.

 

Merchants Common Stock

 

Merchants does not make a market in its common stock and no market exists for its securities. From time to time, Merchants becomes aware of transactions in its common stock. Merchants is aware of the following transactions in its common stock:

 

Calendar

Year

 

Number of transactions and number of shares

 

Per Share Price range

2016

Four transactions involving 7,000 shares in the aggregate

$26.06 to $26.09

2017

Two transactions involving 414 shares in the aggregate

$27.69 to $30.00

2018 (through October 31, 2018)

One transaction involving 6,800 shares in the aggregate

$26.35

 

 

As this information was obtained from private parties, no assurance can be given that the information provided actually or accurately reflects the transaction or price per share. This information is provide for informational purposes and may or may not bear a relationship to the actual value for a share of common stock of Merchants.

 

At September 30, 2018, the 789,814 outstanding shares of Merchants common stock were held by approximately 68 holders of record.

 

Since 2016, Merchants has paid a cash dividend on its common stock as follows:

 

Calendar Year

Cash Dividend Per Share

2016

$0.55

2017

$0.55

2018 (through October 31, 2018)

$0.30

 

 

Merchants SPECIAL SHAREHOLDERS’ MEETING

 

Date, Time, Place

 

The Merchants special meeting of shareholders will be held on Thursday, December 20, 2018, at 10:00 a.m. Pacific Time, at 1015 Seventh Street, Sacramento, California 95814.

 

As described below under “Votes Required and Quorum,” approval of the merger agreement requires the affirmative vote of at a majority of the shares of Merchants’ outstanding common stock. The proposal to adjourn the special meeting, if necessary or appropriate, including adjournments to solicit additional proxies, will be approved if such proposal is approved by the vote of a majority of the shares represented at the special meeting, either in person or by proxy.

 

Purpose

 

At the special meeting, Merchants shareholders will:

 

 

Consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of October 4, 2018, by and between BOCH and Merchants, under the terms of which Merchants will merge with and into BOCH and Merchants Bank will merge with and into RBC. The merger agreement is attached as Appendix A .

 

 

Approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to solicit additional proxies in favor of the merger agreement.

 

Record Date; Shares Outstanding and Entitled to Vote

 

The Merchants Board has set November 13, 2018 as the record date for determining the holders of shares of Merchants common stock entitled to notice of and to vote at the special meeting. At the close of business on the record date, there were approximately 68 holders of record and 789,814 shares of Merchants common stock issued and outstanding. Holders of record of Merchants common stock on the record date are entitled to one vote per share and are also entitled to exercise dissenters’ rights if certain procedures are followed. See “The Merger – Dissenters’ Rights of Appraisal” and Appendix B .

 

Merchants’ directors, certain executive officers and a substantial shareholder have agreed to vote all shares of Merchants common stock they are entitled to vote that are held or controlled by them in favor of approval of the merger agreement. As of the date hereof, a total of 448,503 shares of Merchants common stock, representing approximately 56.8% of all outstanding shares of Merchants common stock, are covered by the voting agreements. See “The Merger – Interests of Merchants Directors and Executive Officers in the Merger – Voting Agreements.”

 

Votes Required and Quorum

 

The affirmative vote of the holders of at least a majority of the shares of Merchants’ outstanding common stock is required to approve the merger agreement. At least a majority of the total outstanding shares of Merchants common stock must be present, either in person or by proxy, in order to constitute a quorum for the special meeting. For purposes of determining a quorum, abstentions are counted in determining the shares present at a meeting.

 

 

For voting purposes, however, shares must be affirmatively voted FOR approval of the merger agreement in order to be counted as votes in favor of the merger. As a result, abstentions with respect to the proposal to approve the merger agreement will have the same effect as votes against such proposal.

 

Pursuant to Merchants’ bylaws, the special meeting may be adjourned, whether or not a quorum is present, by the vote of a majority of the shares present at the meeting, whether in person or by proxy.

 

Voting, Solicitation, and Revocation of Proxies

 

If the enclosed proxy card is duly executed and received in time for the special meeting, it will be voted in accordance with the instructions given. If the proxy card is duly executed and received but no instructions are given, it is the intention of the persons named in the proxy to vote the shares represented by the proxy FOR the approval of the merger agreement and FOR the proposal to approve one or more adjournments to solicit additional proxies, and in the proxy holder’s discretion on any other matter properly coming before the meeting. Any proxy given by a shareholder may be revoked before its exercise by:

 

 

sending written notice to the Secretary of Merchants;

 

completing and submitting a later-dated proxy; or

 

attending and voting at the special meeting in person.

 

Merchants is soliciting the proxy for the special meeting on behalf of the Merchants Board. Merchants will bear the cost of solicitation of proxies from its shareholders. In addition to using the mail, Merchants may solicit proxies by personal interview, telephone, and facsimile. Banks, brokerage houses, other institutions, nominees, and fiduciaries will be requested to forward their proxy soliciting material to their principals and obtain authorization for the execution of proxies. Merchants does not expect to pay any compensation for the solicitation of proxies. However, Merchants will, upon request, pay the standard charges and expenses of banks, brokerage houses, other institutions, nominees, and fiduciaries for forwarding proxy materials to and obtaining proxies from their principals.

 

Voting in Person at the Special Meeting

 

Shares held directly in your name as the shareholder of record may be voted in person at the special meeting. If you choose to vote your shares of Merchants common stock in person, please bring the enclosed proxy card (if not already mailed) and proof of identification. Even if you plan to attend the special meeting, we recommend that you submit a proxy to have your shares of Merchants common stock voted at the special meeting so that your vote will be counted if you later decide not to attend the special meeting.

 

 

proposal 1 to consider and to approve the
agreement and plan of merger

 

BACKGROUND OF AND REASONS FOR THE MERGER

 

Background of the Merger

 

The Merchants Board and management periodically review the business plan, strategies, opportunities and challenges of Merchants as part of their consideration and evaluation of its long-term prospects, with the goal of enhancing value for Merchants’ shareholders. The business plan and strategic considerations have focused on, among other things, the competitive business and regulatory environment facing financial institutions generally, and in the Sacramento, California county community, in particular, conditions and ongoing consolidation in the financial services industry.

 

The Merchants Board during the latter part of 2017 and early 2018 began to have more frequent discussions regarding its overall strategy. These discussions included, but were not been limited to, raising capital to remain independent and support growth or acquire another financial institution or selling to another financial institution. Discussion of these topics has typically involved a review of current and projected market conditions, the results of operations of Merchants Bank, forecasts and performance projections that can be reasonably achieved, limitations and constraints due to capital or other required metrics, the availability of and the cost of capital, certain peer group performance comparisons, reported merger and acquisition activity, and selected industry information and analyses provided to the Merchants Board by management.

 

During the first quarter of 2018, Merchants Board continued to have discussions regarding its future and direction and on April 2, 2018 the Merchants Board decided to increase the size of its board and appoint new members such that the Merchants Board size and composition would mirror the Merchants Bank’s board at ten members. Further on that date, the Merchants Board formed a strategic planning committee (“Committee”) consisting of five directors, Ms. Bolton and Messrs. Bolton, Inderkum, Myers and Ross, along with Mr. Meyers as an advisor, to further review, define and analyze strategic planning alternatives for Merchants. One of the first tasks by the Committee was to review and recommend an investment banking firm to the Merchants Board to assist in its analysis. On April 19, 2018, the Committee met and interviewed two investment banking firms. After the initial meeting, two follow on Committee meetings and subsequent discussions with the investment banking firms, the Committee recommended the engagement of Davidson as its investment banker to assist Merchants in its analysis. Based on the Committee’s recommendation, the Merchants Board approved the engagement of Davidson at its meeting held on May 17, 2018 and subsequently entered into an engagement letter with Davidson on June 8, 2018.

 

With the assistance of Davidson, the Committee, and subsequently the Merchants Board, discussed and evaluated various strategic planning alternatives and whether they would be in the best interests of Merchants shareholders. The Committee was principally focused on the highly competitive banking market in which Merchants Bank currently operates (competition for deposits and loans, in particular), the current number and valuation of bank mergers in California, the current and projected interest rate environment for commercial banks and the availability and cost of capital to continue to grow or otherwise acquire other institutions. These discussions also examined the importance of operational scale and financial resources in the current banking environment, and the ability of current management and/or their successors to implement any business plan adopted. The Committee took notice of the possibility that a business combination with a larger financial institution, having more products and resources, higher lending limits, greater loan demand, a more geographically diversified customer base and existing management, could result in a stronger financial institution and increase value for Merchants shareholders. The Merchants Board also considered continuing as a community bank or acquiring another institution. However, this latter strategy required Merchants to raise capital at a potentially substantial dilution to existing Merchants shareholders, along with the risks involved in successfully implementing such strategies and length of return on investment. Further, in light of certain Merchants executive officers and board members seeking to retire soon, there were questions raised and risks involved as to who would implement an acquisition plan. In light of these factors, on June 21, 2018, the Committee recommended to the Merchants Board that Merchants seek a strategic partner in order to enhance shareholder value. That same day, following a presentation made by Davidson, the Merchants Board adopted the Committee’s recommendation.

 

 

Subsequent to the Merchants Board meeting on June 21, 2018, the Committee met three times with Davidson to prepare, review and revise a confidential information memorandum regarding Merchants and discussed potential parties who should receive such memorandum. On July 9, 2018, Davidson began contacting potential partners soliciting requests of interest.

 

At the Committee’s meeting on August 21, 2018, Davidson provided an overview of the process. Davidson had contacted 18 banking institutions of which 11 executed a non-disclosure agreement. Of the 11 parties that signed non-disclosure agreements, there were six that had submitted a non-binding letter of intent and one party which submitted a verbal cash offer. The initial letters of intent included proposed merger consideration, based on stock prices as of July 27, 2018, which ranged from $19.8 million on the low end to $36.8 million on the high end, or $25.13 per share to $46.54 per share of Merchants common stock. After discussion, the Committee instructed Davidson to contact three of the parties (referred to as Company A, Company B, and BOCH) to determine whether they would be interested in further discussions regarding a potential acquisition opportunity, and to negotiate certain terms in the letter of intent, including an increase in proposed merger consideration. These three institutions were identified as potentially having the ability to meet Merchants’ criteria for a transaction. Each of these three parties met with the Committee on August 7, 2018, in Sacramento, California to further discuss their respective proposals, and each submitted its final proposal on August 14, 2018.

 

On August 15, 2018, the Committee reviewed the revised letters of intent from Company A, Company B, and BOCH. Company A offered merger consideration of $33.7 million, or $42.73 per share. Company B offered merger consideration of $36.1 million, or $45.67 per share. The BOCH letter of intent offered merger consideration of $38.2 million, or $48.41 per share. Each of the letters of intent from Company A, Company B, and BOCH included a mix of merger consideration with the majority of consideration in the form of common stock of the proposing company, and the remainder in cash.

 

On August 16, 2018, the Merchants Board held a meeting to discuss the proposals. At that meeting, at which Davidson was also present, the Committee recommended that a letter of intent be entered into with BOCH based on the fact that BOCH’s proposal was the highest value of consideration to Merchants’ shareholders, and that the BOCH letter of intent addressed other issues considered relevant by the Merchants Board. The Merchants Board reviewed and discussed the non-binding letter of intent from BOCH. The Merchants Board also discussed its desire to retain as many of Merchants Bank staff as possible while also maintaining its customer service philosophy. The Merchants Board also discussed the respective merits and features of the BOCH non-binding letter of intent, their financial position, geographic footprint, banking philosophy and stock fundamentals. Based on the Committee’s recommendation, discussions with Davidson and a review of the information presented, the Merchants Board recommended that Merchants enter into a letter of intent with BOCH. On August 20, 2018, Merchants and BOCH signed the letter of intent.

 

 

Subsequent to the signing of the letter of intent with BOCH, Merchants’ management, and in particular its president, had meetings and discussions with BOCH and its management team. Further each party conducted due diligence on the other party. On August 28 and 29, 2018, members of BOCH met at Merchants’ office to conduct, among other things, a loan review. On September 17, 2018, Merchants’ management, along with Davidson, met with BOCH’s representatives for further due diligence.

 

On September 28, 2018, Merchants Board met and discussed the merger agreement and other ancillary documents. Davidson attended the Merchants board meeting as well as Merchants’ legal counsel Lewis Brisbois Bisgaard & Smith LLP (“Lewis Brisbois”). At the September 28, 2018, meeting Lewis Brisbois discussed the terms of the merger agreement and ancillary agreements and Davidson discussed the financial terms and supporting analysis for the proposed merger, including the valuation of the merger consideration, a market update on BOCH, historical trends for BOCH’s dividends and trading volume, a net present value analysis and an update on the M&A environment, including comparable M&A transactions. The meeting on September 28, 2018 was adjourned and continued on October 3, 2018 at which time Davidson updated the Merchants Board on certain financial matters regarding the proposed merger and provided its oral fairness opinion (which was subsequently confirmed in writing) to the Merchants Board, dated as of October 3, 2018, to the effect that, as of that date, and subject to the procedures followed, assumptions made, matters considered and the qualifications and limitations set forth in its opinion, the merger consideration provided for in the merger agreement was fair, from a financial point of view, to the holders of Merchants common stock. After careful consideration and discussion, the Merchants Board determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable for, fair to and in the best interests of Merchants and its shareholders, and the Merchants Board voted to approve the merger agreement and ancillary documents.

 

Subsequent to the close of the stock market on October 4, 2018, BOCH and Merchants issued a joint press release announcing the execution of the merger agreement and the terms of the proposed merger.

 

Reasons for the Merger – Merchants

 

At a board meeting held on October 3, 2018, the Merchants Board determined that the terms of the merger agreement were fair to, and in the best interests of Merchants and its shareholders. In the course of reaching this determination and the related decision to approve the merger agreement, the Merchants Board evaluated the merger and the merger agreement in consultation with the management of Merchants and Merchants’ financial advisor and legal counsel. In reaching its determination, the Merchants Board considered a number of factors. Such factors also constituted the reasons that the Merchants Board determined to approve the merger agreement and to recommend that Merchants shareholders vote in favor of the merger agreement. Such reasons included the following:

 

 

the terms of the merger agreement and the value, form and mix of consideration to be received by Merchants shareholders in the merger;

 

 

the historical trading ranges for BOCH common stock;

 

 

the historic and prospective business of Merchants and the strategic plan of Merchants;

 

 

the current and prospective economic and competitive environment facing the financial services industry generally, including continued consolidation in the industry and the increased importance of operational scale and financial resources in maintaining efficiency and remaining competitive over the long-term;

 

 

 

the likely impact of the merger on the employees and customers of Merchants Bank and the strategic plans, methods of operation and organizational structure of RBC;

 

 

the future employment opportunities for the existing employees of Merchants;

 

 

the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the proposed acquisition by BOCH;

 

 

information concerning BOCH’s financial condition and results of operations;

 

 

the opinion, dated October 3, 2018, of Davidson to the Merchants Board as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Merchants common stock of the merger consideration in the proposed merger, as more fully described below under “Opinion of Merchants’ Financial Advisor”;

 

 

the expectation that a substantial percentage of Merchants’ shareholders would have the opportunity to elect to continue to participate in the growth of the combined company and would also benefit from the significantly greater liquidity of the trading market for BOCH common stock;

 

 

that BOCH has historically paid cash dividends on its common stock;

 

 

the fact that BOCH’s common stock is widely held and has an active trading market, whereas Merchants’ stock is illiquid;

 

 

that one Merchants board member will be appointed to BOCH’s board of directors;

 

 

the provisions in the merger agreement that provide for the ability of the Merchants Board to respond to an unsolicited acquisition proposal that the Merchants Board determines in good faith is a “Superior Proposal” (as defined in the merger agreement) and to otherwise exercise its fiduciary and legal duties;

 

 

the provisions of the merger agreement that provide for the ability of the Merchants Board to terminate the merger agreement, subject to certain conditions, including the payment of a termination fee, if Merchants has entered into a definitive agreement with respect to a “Superior Proposal”; and

 

 

the likelihood of the merger being approved by applicable regulatory authorities without undue conditions or delay.

 

The Merchants Board also considered a number of uncertainties and risks in its deliberations concerning the transactions contemplated by the merger agreement, including the following:

 

 

that a portion of the merger consideration will be paid through the issuance of a fixed total number of shares of BOCH common stock, and that any decrease in the market price of BOCH common stock after the date of the merger agreement will result in a reduction in the merger consideration to be received by Merchants shareholders who receive BOCH common stock at the time of completion of the merger;

 

 

 

the possibility that some Merchants shareholders will not receive the type of consideration that they have elected due to the allocation and proration procedures set forth in the merger agreement;

 

 

the possibility that the aggregate merger consideration payable by BOCH could be reduced in the event that the Merchants Core Deposits, as determined prior to closing, are less than $139,750,922;

 

 

the fact that Merchants shareholders will not necessarily know or be able to calculate the actual value of any BOCH common stock which they would receive upon completion of the merger;

 

 

the possible disruption to Merchants’ business that may result from the announcement of the merger and the resulting distraction of management’s attention from the day-to-day operations of Merchants’ business; and

 

 

the restrictions contained in the merger agreement on the operation of Merchants’ business during the period between signing of the merger agreement and completion of the merger, as well as the other covenants and agreements of Merchants contained in the merger agreement.

 

The foregoing discussion of the reasons that led the Merchants Board to approve the merger agreement and recommend that the Merchants shareholders vote in favor of the merger agreement is not intended to be exhaustive but is believed to include all of the material reasons for the Merchants Board’s decision. In reaching its determination to approve and recommend the transaction, the Merchants Board based its recommendation on the totality of the information presented to it and did not assign any relative or specific weights to the reasons considered in reaching that determination. Individual directors may have given differing weights to different reasons. After deliberating with respect to the merger, considering, among other things, the matters discussed above, the Merchants Board approved the merger agreement and the merger being fair to, and in the best interests of, Merchants and its shareholders.

 

Opinion of Merchants’ Financial Advisor

 

On June 8, 2018, Merchants entered into an engagement agreement with Davidson to render financial advisory and investment banking services to Merchants. As part of its engagement, Davidson agreed to assist Merchants in analyzing, structuring, negotiating, and if appropriate, effecting a transaction between Merchants and another corporation or business entity. Davidson also agreed to provide the Merchants Board with an opinion as to the fairness, from a financial point of view, of the consideration to be paid to the holders of Merchants’ common stock in the proposed merger. Merchants engaged Davidson because Davidson is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger and is familiar with Merchants and its business. As part of its investment banking business, Davidson is continually engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

 

On October 3, 2018, the Merchants Board held a meeting to evaluate the proposed merger. At this meeting, Davidson reviewed the financial aspects of the proposed merger and rendered an opinion to the Merchants board that, as of such date and based upon and subject to assumptions made, procedures followed, matters considered and limitations on the review undertaken, the consideration to be paid to the holders of the Merchants’ common stock was fair, from a financial point of view, to such holders of Merchants’ common stock in the proposed merger.

 

 

The full text of Davidson’s written opinion, dated October 3, 2018, is attached as Appendix C to this proxy statement-prospectus and is incorporated herein by reference. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. Merchants’ shareholders are urged to read the opinion in its entirety.

 

Davidson’s opinion speaks only as of the date of the opinion and Davidson undertakes no obligation to revise or update its opinion. The opinion is directed to the Merchants Board and addresses only the fairness, from a financial point of view, of the consideration to be paid to the holders of Merchants’ common stock in the proposed merger. The opinion does not address, and Davidson expresses no view or opinion with respect to, (i) the underlying business decision of Merchants to engage in the merger, (ii) the relative merits or effect of the merger as compared to any alternative business transactions or strategies that may be or may have been available to or contemplated by Merchants or the Merchants Board, or (iii) any legal, regulatory, accounting, tax or similar matters relating to Merchants, its shareholders or relating to or arising out of the merger. The opinion expresses no view or opinion as to any terms or other aspects of the merger, except for the merger consideration. Merchants and BOCH determined the consideration through the negotiation process. The opinion does not express any view as to the amount or nature of the compensation to any of Merchants’ or BOCH’s officers, directors or employees, or any class of such persons, relative to the merger consideration, or with respect to the fairness of any such compensation. The opinion has been reviewed and approved by Davidson’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

 

Davidson has reviewed the registration statement on Form S-4 of which this proxy statement-prospectus is a part and consented to the inclusion of its opinion to the Merchants Board as Appendix C to this proxy statement-prospectus and to the references to Davidson and its opinion contained herein. A copy of the consent of Davidson is attached as Exhibit 23.5 to the registration statement on Form S-4.

 

In connection with rendering its opinion, Davidson reviewed, among other things, the following:

 

 

a draft of the Agreement, dated October 1, 2018;

 

 

certain financial statements and other historical financial and business information about BOCH and Merchants made available to Davidson from published sources and/or from the internal records of BOCH and Merchants that Davidson deemed relevant;

 

 

certain publicly available analyst earnings estimates for BOCH for the years ending December 31, 2018 and December 31, 2019 and estimated long-term growth rate for the years thereafter, in each case as discussed with, and confirmed by, senior management of Merchants and BOCH;

 

 

financial projections for Merchants for the years ending December 31, 2018 and estimated long term growth rate for the years thereafter, in each case as discussed with, and confirmed by, senior management of Merchants;

 

 

the current market environment generally and the banking environment in particular;

 

 

the financial terms of certain other transactions in the financial institutions industry, to the extent publicly available;

 

 

 

the market and trading characteristics of selected public companies and selected public bank holding companies in particular;

 

 

the relative contributions of BOCH and Merchants to the combined company;

 

 

the pro forma financial impact of the Transaction, taking into consideration the amounts and timing of the transaction costs, cost savings and revenue enhancements;

 

 

the net present value of Merchants with consideration of projected financial results; and

 

 

such other financial studies, analyses and investigations and financial, economic and market criteria and other information as Davidson considered relevant including discussions with management and other representatives and advisors of BOCH and Merchants concerning the business, financial condition, results of operations and prospects of BOCH and Merchants.

 

In arriving at its opinion, Davidson assumed and relied upon the accuracy and completeness of all information that was publicly available, supplied or otherwise made available to, discussed with or reviewed by or for Davidson. Davidson has relied on the assurances of management of Merchants that they were not aware of any facts or circumstances that would make any of such information, forecasts or analyses inaccurate or misleading. Davidson did not independently verify, and did not assume responsibility for independently verifying, such information or undertake an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Merchants or BOCH. In addition, Davidson did not assume any obligation to conduct, nor did Davidson conduct any physical inspection of the properties or facilities of Merchants or BOCH and has not been provided with any reports of such physical inspections. Davidson assumed that there has been no material change in Merchants’ or BOCH’s business, assets, financial condition, results of operations, cash flows, or prospects since the date of the most recent financial statements provided to Davidson.

 

With respect to the financial projections and other estimates (including information relating to certain pro forma financial effects of, and strategic implications and operational benefits anticipated to result from, the Transaction) provided to or otherwise reviewed by or for or discussed with Davidson, Davidson was advised by management of Merchants that such forecasts and other analyses were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of management of Merchants as to the future financial performance of Merchants and the other matters covered thereby, and that the financial results (including the potential strategic implications and operational benefits anticipated to result from the Transaction) reflected in such forecasts and analyses will be realized in the amounts and at the times projected. Davidson assumes no responsibility for and expresses no opinion as to these forecasts and analyses or the assumptions on which they were based.

 

Davidson did not make an independent evaluation or appraisal of the loan and lease portfolios, classified loans, other real estate owned or any other specific assets, nor has Davidson assessed the adequacy of the allowance for loan losses of Merchants or BOCH. Davidson has not reviewed any individual credit files relating to Merchants or BOCH. Davidson assumed that the respective allowances for loan losses for both Merchants and BOCH are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity. Davidson did not make an independent evaluation of the quality of Merchants’ or BOCH’s deposit base, nor has Davidson independently evaluated potential deposit concentrations or the deposit composition of Merchants or BOCH. Davidson did not make an independent evaluation of the quality of Merchants’ or BOCH’s investment securities portfolio, nor has Davidson independently evaluated potential concentrations in the investment securities portfolio of Merchants or BOCH.

 

 

Davidson assumed that all representations and warranties contained in the merger agreement and all related agreements are true and correct in all respects material to Davidson’s analysis, and that the merger will be consummated in accordance with the terms of the Agreement, without waiver, modification, or amendment of any term, condition or covenant thereof the effect of which would be in any respect material to Davidson’s analysis. Davidson has assumed that all material governmental, regulatory or other consents, approvals, and waivers necessary for the consummation of the merger will be obtained without any material adverse effect on BOCH, Merchants, or the contemplated benefits of the merger.

 

Davidson assumed in all respects material to its analysis that Merchants and BOCH will remain as going concerns for all periods relevant to its analysis. Davidson’s opinion was necessarily based upon information available to Davidson and economic, market, financial and other conditions as they exist and can be evaluated on the date the fairness opinion letter was delivered to the Merchants Board.

 

Davidson’s opinion did not take into account individual circumstances of specific holders with respect to control, voting or other rights which may distinguish such holders.

 

Davidson expressed no opinion as to the actual value of Merchants’ common stock when issued in the Transaction or the prices at which BOCH’s common stock will trade following announcement of the Transaction or at any future time.

 

Davidson did not evaluate the solvency or fair value of Merchants or BOCH under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Davidson’s opinion was not a solvency opinion and did not in any way address the solvency or financial condition of Merchants or BOCH. Davidson did not express any opinion as to the impact of the Transaction on the solvency or viability of Merchants or BOCH or the ability of Merchants or BOCH to pay their respective obligations when they come due.

 

Set forth below is a summary of the material financial analyses performed by Davidson in connection with rendering its opinion. The summary of the analyses of Davidson set forth below is not a complete description of the analysis underlying its opinion, and the order in which these analyses are described below is not indicative of any relative weight or importance given to those analyses by Davidson. The following summaries of financial analyses include information presented in tabular format. You should read these tables together with the full text of the summary financial analyses, as the tables alone are not a complete description of the analyses.

 

Unless otherwise indicated, the following quantitative information, to the extent it is based on market data, is based on market data as of October 1, 2018, and is not necessarily indicative of market conditions after such date.

 

Implied Valuation Multiples for Merchants based on the Merger Consideration

 

Davidson reviewed the financial terms of the proposed transaction. As described in the merger agreement, each outstanding share of common stock of Merchants will be converted into the right to receive one of the following: (A) $48.4318 in cash; (B) 3.8703 shares of BOCH common stock (the “Exchange Ratio”); or (C) 2.3223 shares of BOCH common stock and $19.3716 in cash. Merchants shareholders will be subject to the allocation procedures such that in aggregate, BOCH will issue no more than 1,834,173 shares of BOCH common stock and pay no more than $15,300,000 in cash. The terms and conditions of the merger are more fully described in the merger agreement. For purposes of the financial analyses described below, based on the closing price of BOCH common stock on October 1, 2018, of $11.86, the consideration represented an implied value of $46.91 per share of Merchants common stock. Based upon financial information as of or for the twelve month period ended June 30, 2018 and other financial and market information described below, Davidson calculated the following transaction ratios:

 

 

Transaction Ratios

 
   

Per Share

   

Aggregate

 

Transaction Price / LTM Core Net Income (1)

 

28.7

x  

28.7

x

Transaction Price / Q2 2018, Annualized Net Income

 

23.1

x  

23.1

x

Transaction Price / 2018E Net Income (2)

 

24.4

x  

24.4

x

Transaction Price / Book Value

    186.7 %     186.7 %

Transaction Price / Tangible Book Value

    186.7 %     186.7 %

Tangible Book Premium / Core Deposits (3)

    -       11.0 %

(1) Net income for the preceding twelve months ending 6/30/2018, excluding the impact of DTA impairment

(2) Financial projections in 2018 based on management budget, as discussed with and confirmed by Merchants management

(3) Tangible book premium / core deposits calculated by dividing the excess or deficit of the aggregate transaction value compared to tangible book value by core deposits

 

 

Stock Price Performance of BOCH

 

Davidson reviewed the history of the reported trading prices and volume of BOCH common stock and certain stock indices, including the Russell 3000 and the KBW NASDAQ Regional Banking Index. Davidson compared the stock price performance of BOCH with the performance of the Russell 3000 and the KBW NASDAQ Regional Banking Index as follows:

 

One Year Stock Performance

 
   

Beginning Index Value

on 9/29/2017

   

Ending Index Value

on 10/1/2018

 

Russell 3000

    100.00%       115.63%  

KBW NASDAQ Regional Banking Index

    100.00%       100.45%  

BOCH

    100.00%       103.13%  

 

 

Three Year Stock Performance

 
   

Beginning Index Value

on 10/2/2015

   

Ending Index Value

on 10/1/2018

 

Russell 3000

    100.00%       149.16%  

KBW NASDAQ Regional Banking Index

    100.00%       136.94%  

BOCH

    100.00%       205.19%  

 

 

Contribution Analysis

 

Davidson analyzed the relative contribution of Merchants and BOCH to certain financial and operating metrics for the pro forma combined company. Such financial and operating metrics included: (i) core net income available for common shareholders during the preceding twelve months ended June 30, 2018; (ii) annualized net income available for common shareholders during the preceding three months ended June 30, 2018; (iii) estimates for BOCH GAAP net income in 2018 and 2019 based on publicly available consensus Street estimates and estimates for Merchants GAAP net income based on Merchants management’s budget in 2018 and a growth rate in 2019, as discussed with and confirmed by Merchants management; (iv) total assets; (v) gross loans; (vi) loan loss reserve; (vii) total deposits; (viii) non-interest bearing demand deposits; (ix) non-CD deposits; and (x) tangible common equity. The relative contribution analysis did not give effect to the impact of any synergies as a result of the proposed merger. The results of this analysis are summarized in the table below, which also compares the results of this analysis with the implied pro forma ownership percentages of Merchants or BOCH shareholders in the combined company:

 

Contribution Analysis

 
   

 

BOCH
Stand-alone

   

BOCH
% of Total

   

Merchants
Stand-alone

   

Merchants
% of Total

 
                                 

Income Statement - Historical

                               

LTM Net Income, Core (in thousands) (1)

  $ 12,242       90.5 %   $ 1,292       9.5 %

Q2 2018, Annualized Net Income (in thousands) (2)

  $ 13,718       89.5 %   $ 1,606       10.5 %
                                 

Income Statement - Projections

                               

2018E Net Income (in thousands) (3) (4)

  $ 14,203       90.3 %   $ 1,520       9.7 %

2019E Net Income (in thousands) (3) (4)

  $ 15,707       90.8 %   $ 1,596       9.2 %
                                 

Balance Sheet

                               

Total Assets (in thousands)

  $ 1,253,504       85.2 %   $ 217,326       14.8 %

Gross Loans, Incl. Loans HFS (in thousands)

  $ 938,579       91.2 %   $ 90,292       8.8 %

Loan Loss Reserve (in thousands)

  $ 12,388       90.7 %   $ 1,266       9.3 %

Total Deposits (in thousands)

  $ 1,054,529       84.3 %   $ 197,021       15.7 %

Non-Interest Bearing Demand Deposits (in thousands)

  $ 316,347       85.5 %   $ 53,648       14.5 %

Non-CDs Deposits (in thousands)

  $ 887,604       85.0 %   $ 156,530       15.0 %

Tangible Common Equity (in thousands)

  $ 128,158       86.6 %   $ 19,845       13.4 %
                                 

Pro Forma Ownership

                               

Merger Transaction - Actual

            89.9 %             10.1 %

Merger Transaction - 100% Stock Equivalent

            83.8 %             16.2 %

 

Note: Pro forma contribution does not include any purchase accounting or merger adjustments

(1) Net income for the preceding twelve months ending 6/30/2018

(2) Net income for the preceding three months ending 6/30/2018

(3) Financial projections for BOCH in 2018 and 2019 based on average Street EPS estimates, as discussed with and confirmed by BOCH and Merchants management

(4) Financial projections for Merchants based on management budget in 2018 and a growth rate in 2019, as discussed with and confirmed by Merchants management

 

BOCH Comparable Companies Analysis

 

Davidson used publicly available information to compare selected financial and market trading information for BOCH and a group of 13 financial institutions selected by Davidson which: (i) were headquartered in California; (ii) had their common stock listed on the NASDAQ or NYSE; (iii) had assets less than $5.0 billion; and (iv) were not pending merger targets or ethnic banks. These 13 financial institutions were as follows:

 

TriCo Bancshares

Heritage Commerce Corp

Bank of Marin Bancorp

Sierra Bancorp

Central Valley Community Bancorp

Pacific Mercantile Bancorp

BayCom Corp

Oak Valley Bancorp

United Security Bancshares

Community West Bancshares

Plumas Bancorp

American River Bankshares

Summit State Bank

 

Note: Does not reflect impact from pending acquisitions or acquisitions closed after October 1, 2018

 

 

The analysis compared the financial condition and market performance of BOCH and the 13 financial institutions identified above based on publicly available financial and market trading information for BOCH and the 13 financial institutions as of and for the twelve-month or three-month period ended June 30, 2018. The analysis also compared the 2018 and 2019 earnings per share multiples for BOCH and the 13 financial institutions identified above, based on publicly available consensus Street estimates for BOCH and the 13 financial institutions. The table below shows the results of this analysis (excluding the impact of earnings per share multiples considered not meaningful by Davidson).

 

Financial Condition and Performance

 
           

Comparable Companies

 
   

BOCH

   

Median

   

Average

   

Minimum

   

Maximum

 

Total Assets (in millions)

  $ 1,281.5     $ 1,345.7     $ 1,693.1     $ 586.0     $ 4,863.2  

Loan / Deposit Ratio

    89.0 %     77.2 %     77.8 %     50.8 %     100.6 %

Non-Performing Assets / Total Assets

    0.34 %     0.43 %     0.48 %     0.02 %     2.04 %

Tangible Common Equity Ratio

    10.02 %     9.45 %     9.66 %     7.77 %     13.45 %

Net Interest Margin (Most Recent Quarter)

    3.88 %     4.06 %     4.04 %     3.36 %     4.75 %

Cost of Deposits (Most Recent Quarter)

    0.29 %     0.22 %     0.35 %     0.08 %     1.06 %

Efficiency Ratio (Most Recent Quarter)

    61.2 %     64.2 %     63.4 %     51.1 %     75.5 %

Return on Average Tangible Common Equity (Most Recent Quarter)

    11.60 %     12.23 %     15.22 %     1.99 %     50.87 %

Return on Average Assets (Most Recent Quarter)

    1.14 %     1.25 %     1.40 %     0.12 %     4.57 %

 

 

Market Performance Multiples

 
           

Comparable Companies

 
   

BOCH

   

Median

   

Average

   

Minimum

   

Maximum

 

Market Capitalization (in millions)

  $ 193     $ 197     $ 333     $ 90     $ 1,140  

Price Change (LTM)

    3.1 %     15.4 %     12.5 %     -8.0 %     45.9 %

Price Change (YTD)

    3.1 %     5.6 %     8.5 %     -3.1 %     35.0 %

Price / MRQ Earnings Per Share

 

13.5x

   

14.6x

   

14.7x

   

9.4x

   

18.5x

 

Price / 2018E Earnings Per Share (1)

 

13.6x

   

14.6x

   

15.5x

   

13.5x

   

18.7x

 

Price / 2019E Earnings Per Share (1)

 

12.4x

   

13.4x

   

14.1x

   

12.1x

   

17.0x

 

Price / Tangible Book Value Per Share

    151.0 %     185.4 %     185.2 %     134.8 %     257.2 %

Dividend Yield (Most Recent Quarter)

    1.35 %     1.55 %     1.74 %     0.00 %     3.62 %

(1) Earnings per share estimates based on publicly available average Street estimates

 

Precedent Transactions Analysis

 

Davidson reviewed three sets of comparable merger and acquisition transactions. The sets of mergers and acquisitions included: (1) “Nationwide Transactions,” (2) “Western U.S. Transactions,” and (3) “California Transactions.”

 

“Nationwide Transactions” included 20 transactions where:

 

 

the selling company was a bank headquartered in the United States;

 

the selling company’s total assets were between $150 million and $300 million;

 

the transaction was announced between June 30, 2017 and October 1, 2018;

 

the selling company’s nonperforming assets were not greater than 1.50% of total assets;

 

the transaction’s pricing information was publicly available; and

 

the transaction was not a merger of equals.

 

“Western U.S. Transactions” included 13 transactions where:

 

 

the selling company was a bank headquartered in the Western United States;

 

the selling company’s total assets were less than $500 million

 

the transaction was announced between June 30, 2017 and October 1, 2018;

 

the selling company’s nonperforming assets were not greater than 2.00% of total assets;

 

the transaction’s pricing information was publicly available; and

 

the transaction was not a merger of equals.

 

 

“California Transactions” included 12 transactions where:

 

 

the selling company was a bank headquartered in California;

 

the selling company’s total assets were less than $500 million;

 

the transaction was announced between January 1, 2017 and October 1, 2018;

 

the transaction’s pricing information was publicly available; and

 

the transaction was not a merger of equals.

 

The following tables set forth the transactions included in “Nationwide Transactions,” “Western U.S. Transactions,” and “California Transactions,” and are sorted by announcement date:

 

Nationwide Transactions

     

Announcement Date

Acquirer

Target

     

7/11/2018*

6/27/2018*

6/21/2018*

6/20/2018*

6/12/2018

5/31/2018*

5/23/2018*

5/16/2018*

4/17/2018

3/26/2018*

3/20/2018

2/22/2018

1/29/2018

12/12/2017

11/14/2017

9/18/2017

7/31/2017

7/21/2017

7/17/2017

7/03/2017

River Financial Corporation

SmartFinancial, Inc.

Citizens Community Bancorp, Inc.

SB One Bancorp

Equity Bancshares, Inc.

Orrstown Financial Services, Inc.

Timberland Bancorp, Inc.

Century Next Financial Corporation

First US Bancshares, Inc.

Farmers & Merchants Bancorp

National Commerce Corporation

Bank of Southern California, N.A.

Guaranty Bancshares, Inc.

SmartFinancial, Inc.

Investor group

First American Bank Corporation

Bank of Marin Bancorp

Select Bancorp, Inc.

Equity Bancshares, Inc.

D2 Alliances, LLC

PSB Bancshares, Inc.

Foothills Bancorp, Inc.

United Bank

Enterprise Bank N.J.

City Bank and Trust Company

Mercersburg Financial Corporation

South Sound Bank

Ashley Bancstock Company

Peoples Bank

Bank of Rio Vista

Premier Community Bank of Florida

Americas United Bank

Westbound Bank

Tennessee Bancshares, Inc.

Bancorp of Lexington Inc.

Southport Financial Corporation

Bank of Napa, N.A.

Premara Financial, Inc.

Eastman National Bancshares, Inc.

Grandview Bancshares, Inc.

*Indicates the transaction was pending as of October 1, 2018

 

 

Western U.S. Transactions

     

Announcement Date

Acquirer

Target

     

8/13/2018*

5/23/2018*

3/26/2018*

3/08/2018

2/22/2018

1/11/2018

12/29/2017

12/20/2017

12/15/2017

11/07/2017

7/31/2017

7/26/2017

7/19/2017

BayCom Corp

Timberland Bancorp, Inc.

Farmers & Merchants Bancorp

Heritage Financial Corporation

Bank of Southern California, N.A.

Heritage Commerce Corp

Nano Financial Holdings, Inc.

Heritage Commerce Corp

Amalgamated Bank

Suncrest Bank

Bank of Marin Bancorp

Triumph Bancorp, Inc.

Guaranty Bancorp

Bethlehem Financial Corporation

South Sound Bank

Bank of Rio Vista

Premier Commercial Bancorp

Americas United Bank

United American Bank

Commerce Bank of Temecula Valley

Tri-Valley Bank

New Resource Bancorp

CBBC Bancorp

Bank of Napa, N.A.

Valley Bancorp, Inc.

Castle Rock Bank Holding Company

*Indicates the transaction was pending as of October 1, 2018

 

California Transactions

     

Announcement Date

Acquirer

Target

     

3/26/2018*

2/22/2018

1/11/2018

12/29/2017

12/20/2017

12/15/2017

11/07/2017

7/31/2017

6/15/2017

5/02/2017

4/27/2017

4/24/2017

Farmers & Merchants Bancorp

Bank of Southern California, N.A.

Heritage Commerce Corp

Nano Financial Holdings, Inc.

Heritage Commerce Corp

Amalgamated Bank

Suncrest Bank

Bank of Marin Bancorp

First Foundation Inc.

Seacoast Commerce Banc Holdings

Central Valley Community Bancorp

Sierra Bancorp

Bank of Rio Vista

Americas United Bank

United American Bank

Commerce Bank of Temecula Valley

Tri-Valley Bank

New Resource Bancorp

CBBC Bancorp

Bank of Napa, N.A.

Community 1st Bancorp

Capital Bank

Folsom Lake Bank

OCB Bancorp

*Indicates the transaction was pending as of October 1, 2018

 

For each transaction referred to above, Davidson compared, among other things, the following implied ratios:

 

 

transaction price compared to tangible book value on a per share and aggregate basis, based on the latest publicly available financial statements of the target company prior to the announcement of the transaction;

 

 

transaction price compared to earnings per share for the last twelve months, based on the latest publicly available financial statements of the target company prior to the announcement of the transaction;

 

 

tangible book premium to core deposits based on the latest publicly available financial statements of the target company prior to the announcement of the transaction.

 

 

Davidson compared the multiples of the comparable transaction groups and other operating financial data where relevant to the proposed merger multiples and other operating financial data of Merchants as of or for the three-month period ended June 30, 2018. The table below sets forth the results of this analysis.

 

Financial Condition and Performance

 
           

Nationwide

   

Western U.S.

   

California

 
   

Merchants

   

Median

   

Average

   

Minimum

   

Maximum

   

Median

   

Average

   

Minimum

   

Maximum

   

Median

   

Average

   

Minimum

   

Maximum

 

Total Assets (in millions)

  $ 218.2     $ 223.3     $ 220.1     $ 155.2     $ 285.3     $ 235.2     $ 242.2     $ 77.4     $ 400.5     $ 258.2     $ 257.6     $ 77.4     $ 373.5  

Return on Average Assets (Last Twelve Months)

    0.76 %     0.81 %     0.92 %     0.20 %     1.67 %     0.79 %     1.18 %     0.20 %     5.27 %     0.69 %     0.74 %     0.20 %     1.24 %

Return on Average Equity (Last Twelve Months)

    8.29 %     7.27 %     8.57 %     1.40 %     15.86 %     7.28 %     11.74 %     1.33 %     57.63 %     6.46 %     7.41 %     1.33 %     13.25 %

Tangible Common Equity Ratio

    9.09 %     10.64 %     10.88 %     9.00 %     13.04 %     11.96 %     11.42 %     5.44 %     17.35 %     10.51 %     10.39 %     5.44 %     17.35 %

Efficiency Ratio (Last Twelve Months)

    58.1 %     64.6 %     64.5 %     50.7 %     88.6 %     68.6 %     69.5 %     56.6 %     85.8 %     72.5 %     70.7 %     56.1 %     85.8 %

Non-Performing Assets / Total Assets

    0.00 %     0.24 %     0.38 %     0.00 %     1.10 %     0.30 %     0.66 %     0.00 %     1.98 %     0.13 %     0.37 %     0.00 %     1.26 %

 

 

Transaction Multiples

 
           

Nationwide

   

Western U.S.

   

California

 
   

Merchants

   

Median

   

Average

   

Minimum

   

Maximum

   

Median

   

Average

   

Minimum

   

Maximum

   

Median

   

Average

   

Minimum

   

Maximum

 

Transaction Price / Tangible Book Value (Per Share)

    186.7 %     162.3 %     164.4 %     119.7 %     199.9 %     173.4 %     173.7 %     135.1 %     223.2 %     175.2 %     176.4 %     135.1 %     210.4 %

Transaction Price / Tangible Book Value (Aggregate)

    186.7 %     163.5 %     166.4 %     119.7 %     199.9 %     173.4 %     176.6 %     138.6 %     223.5 %     190.9 %     186.0 %     138.6 %     222.0 %

Transaction Price / Last Twelve Months EPS

 

28.7x

   

21.6x

   

21.1x

   

10.8x

   

35.7x

   

24.9x

   

23.9x

   

17.0x

   

28.4x

   

25.3x

   

26.2x

   

17.9x

   

35.9x

 

Tangible Book Premium / Core Deposits (1)

    11.0 %     9.6 %     10.1 %     1.9 %     21.6 %     10.7 %     11.2 %     5.8 %     18.1 %     11.7 %     11.8 %     5.8 %     18.1 %

(1) Core deposits equals total deposits less CDs. Tangible book premium / core deposits calculated by dividing the excess or deficit of the aggregate transaction value over tangible book value by core deposits

 

Net Present Value Analysis for Merchants