On July 20, 2017, Delmar Bancorp (OTCQB: DBCP), the parent company of The Bank of Delmarva, Seaford, Delaware, and Liberty Bell Bank, Marlton, New Jersey (OTCQB: LBBB) entered into a definitive agreement pursuant to which Liberty will be acquired by Delmar through the merger of Liberty into Delmarva, with Delmarva being the surviving institution.
Under the Agreement, each Liberty shareholder will be entitled to elect to receive either 0.2857 shares of Delmar common stock, or $1.70 in cash, for each share of Liberty common stock they own, provided that in the aggregate 70% of the shares of Liberty common stock must be converted into Delmar common stock and 30% of the shares of Liberty common stock must be converted into cash. Options and other warrants to acquire Liberty common stock will be assumed by Delmar and converted into options and rights to acquire shares of Delmar common stock.
Based on the average closing price of Delmar common stock during the 90 days ended July 14, 2017 of $6.58, the aggregate value of the transaction would be approximately $16 million, or approximately 162% of Liberty's tangible book value per common share as of March 31, 2017 and 54 times Liberty's projected 2017 earnings available to common shareholders, each as of March 31, 2017. Delmar expects to recover at closing of the transaction $6.1 million of Liberty's $6.8 million valuation reserve on its deferred tax asset, due to the significant common ownership of Delmar and Liberty (they share the same largest shareholder), providing a unique opportunity for Delmar and Liberty shareholders. With this valuation reserve recovery, the aggregate value of the transaction represents approximately 100% of Liberty's tangible book value. Approximately $4.5 million of the aggregate consideration will be payable in cash. Delmar expects that the transaction will be accretive to Delmar's earn ings within twelve months following the closing of the merger, and will result in modest dilution to tangible book value, which is expected to be earned back in approximately three years.
The acquisition of Liberty, with three branches in Burlington and Camden Counties, will be Delmar's initial entry into the Southern New Jersey/Suburban Philadelphia market. The merger will enable Delmar to enhance its growth opportunities by leveraging its larger capital base and legal lending limit with Liberty's customer base.
At March 31, 2017, Liberty had approximately $149.9 million in assets, $121.2 million in loans and $136.5 million in deposits. On a pro forma basis at March 31, 2017, the combined company would have $668.6 million of assets, $556.1 million in loans and $575.0 million in deposits.
Kenneth R. Lehman currently serves on the Board of Directors of both Liberty and Delmar. In connection with the merger, two additional members of the Board of Directors of Liberty will join the Board of Directors of Delmar and Delmarva. Liberty will continue to operate under the name "Liberty Bell Bank, a division of The Bank of Delmarva".
The merger is expected to close in the fourth quarter of 2017 or first quarter of 2018. The Agreement has been unanimously approved by the boards of directors of both Delmar and Liberty and is subject to the approval by the shareholders of Liberty, the approval of the applicable bank regulatory authorities, and the satisfaction or waiver of the conditions to closing and covenants of each party contained in the Agreement.
John W. Breda, President and CEO of Delmar and Delmarva said, "We are extremely excited about the proposed acquisition of Liberty and the transformative opportunities the combination creates for us. We are familiar with the market and believe that it provides substantial opportunities for growth of the combined bank. We look forward to serving Liberty's customers with our portfolio of deposit, cash management, and loan products for businesses and consumers. We plan to work very closely with the Liberty team to provide a seamless transition, and make Liberty's customers feel that nothing has changed, except our capacity to serve them. Having just assumed the role of President and CEO of Delmar, I am very proud and eager to lead it into a new market and new opportunities."
Benjamin F. Watts, President and CEO of Liberty said, "We are thrilled to have found such a strong and high caliber institution as Delmar Bancorp to merge with. This partnership will serve our shareholders, our employees, our customers and our community well."
Liberty was advised by FIG Partners, L.P. as financial advisor, and Stevens & Lee as legal counsel. RP Financial LC. served as financial advisor, and Buckley Sandler LLP served as legal counsel, to Delmar.
About the Companies: Delmar Bancorp is the holding company for The Bank of Delmarva, which commenced operations in 1896. Delmarva's main office is in Seaford, Delaware, and it conducts full service commercial banking through 10 offices, soon to be 11, located in Wicomico and Worcester Counties in Maryland, and Sussex County in Delaware. Delmarva focuses on serving its local communities, knowing its customers and providing superior customer service.
