ChoiceOne Financial Services Inc., the parent company of ChoiceOne Bank and Lakestone Bank & Trust, agreed to buy Community Shores Bank Corp. in a stock and cash transaction worth up to $21.9 million.

The merger will create a $1.5 billion-asset bank holding company with 33 offices in western and southeastern Michigan. ChoiceOne has about $1.3 billion in assets, with 29 offices serving western and southeastern Michigan, while Community Shores has about $204 million in assets, with four offices serving Muskegon and Ottawa counties in Michigan.

The deal is expected to close in the second quarter. Following deal close, Community Shores Bank CEO and President Heather Brolick will continue as ChoiceOne Bank's senior vice president for human resources. Community Shores Bank's chief lending officer, Brent McCarthy, will serve as vice president and Muskegon market executive for ChoiceOne Bank.

Under the merger agreement, each share of Community Shores common stock outstanding immediately prior to the merger will be converted into the right to receive, at the election of each Community Shores shareholder, an amount of cash equal to $5.00 or 0.17162 of a share of ChoiceOne common stock. Either case is subject to ChoiceOne stock consisting of not more than 75% and not less than 50% of the aggregate merger consideration and other adjustments set in the merger agreement.

S&P Global Market Intelligence valuations for bank and thrift targets in the Midwest region between Jan. 3, 2019, and Jan. 3, 2020, averaged 172.62% of book and 181.02% of tangible book and had a median of 19.82x last-12-months earnings, on an aggregate basis.

Based on a closing price of $31.54 per share of ChoiceOne common stock Jan. 3, the implied per share value to Community Shores shareholders is about $5.31 per share if 75% stock is elected, or an aggregate transaction value of $21.9 million, or $5.21 per share if 50% stock is elected, or an aggregate transaction value of $21.5 million.

S&P Global Market Intelligence calculates the deal value to be 158.0% of common equity and tangible common equity, as well as 24.2x of earnings on an aggregate basis. The deal value is 11.85% of assets and 13.24% of deposits, and the tangible book premium to deposits ratio is 4.86%.

The transaction is projected to generate roughly 7% to 10% earnings per share accretion when fully phased in and tangible book value dilution is expected to be earned back in about 2.5 to three years.

ChoiceOne will expand in Muskegon County by three branches to be ranked third with a share of 13.23% of approximately $1.61 billion in total market deposits and will expand in Ottawa County by one branch to be ranked No. 11 with a share of 1.37% of approximately $4.51 billion in total market deposits.

The companies have set a termination fee of $877,724 to be paid by Community Shores to ChoiceOne in case the agreement is terminated under certain circumstances, including termination of the merger deal to accept an alternative business combination transaction subject to the terms of the deal.

Community Shores Bank Corp. is the parent of Community Shores Bank.