In Sacramento, Calif., Bank of Commerce Holdings agreed to acquire Merchants Holding Co. in a $37 million cash-and-stock transaction.

Merchants shareholders will be able to choose between receiving 3.8703 common shares of Bank of Commerce Holdings or $48.43 in cash, and a combination of 2.3223 common shares of Bank of Commerce Holdings and $19.37 in cash, for each Merchants common share held.

On an aggregate basis, the deal value is 186.2% of book and tangible book, and 44.0x earnings. It is also 16.93% of assets, 18.75% of deposits and the tangible book premium-to-core deposits ratio is 10.67%.

For comparison, SNL valuations for bank and thrift targets in the West region between Oct. 4, 2017, and Oct. 4, 2018, averaged 186.63% of book, 194.04% of tangible book and had a median of 25.55x last-12-months earnings on an aggregate basis.

Bank of Commerce, the parent of Redding Bank of Commerce, expects the deal to increase the company's earnings per share by 9.5% in 2019, and by 12% in 2020. Tangible book value per share dilution is 8.5% with an earnback of about 4 years, according to an investor presentation. The internal rate of return is more than 20%.

Merchants is the parent of Merchants National Bank of Sacramento, which has $218 million in assets as of June 30. The consolidated company will have approximately $1.5 billion in assets and $1.2 billion in deposits, and a network of 10 branches in Northern California, as of June 30.

Bank of Commerce will enter Sacramento County, Calif., with three branches to be ranked No. 17 with a 0.56% share of approximately $35.1 billion in total market deposits.

The deal is expected to close in the first quarter of 2019.

Bank of Commerce expects to incur one-time pretax merger-related expenses of about $3.8 million. It also expects cost savings of 40% of Merchants' noninterest expense, 50% realized in 2019 and fully phased-in by 2020.

Raymond James & Associates Inc. served as financial adviser to Bank of Commerce in the transaction and delivered a fairness opinion to its board. Miller Nash Graham & Dunn LLP served as legal counsel to Bank of Commerce Holdings. D.A. Davidson & Co. served as financial adviser to Merchants and delivered a fairness opinion to its board. Lewis Brisbois Bisgaard & Smith LLP served as legal counsel to Merchants.

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