Business Combination

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

Business Combination

NOTE 13:  BUSINESS COMBINATION

On April 27, 2015, we entered into an Agreement and Plan of Merger (the “merger agreement”) with NUVO Bank & Trust Company, Springfield, Massachusetts (“NUVO”) pursuant to which we will acquire NUVO in a transaction structured as a merger of NUVO with and into our wholly-owned subsidiary, Merchants Bank, with Merchants Bank surviving.

Pursuant to the merger agreement, each outstanding share of NUVO common stock will be converted into the right to receive, at the election of the shareholder and subject to the allocation and proration procedures described in the merger agreement, either: (i) 0.2416 shares of our common stock (the “stock consideration”), or (ii) $7.15 in cash, without interest (the “cash consideration”).  The value of the cash consideration will remain fixed while the value of the stock consideration will fluctuate with the market price of our common stock. At announcement of the proposed merger on April 27, 2015, the consideration to be paid was valued at approximately $21.8 million. All elections for the merger consideration are subject to allocation and proration procedures that are intended to ensure that approximately 75% of the total number of shares of NUVO common stock outstanding immediately prior to the effective time of the merger will be converted into shares of our common stock, and the remaining shares of NUVO common stock will be converted into cash.  This will result in NUVO shareholders owning up to 517,224 shares of our common stock, or approximately 8.2% of our outstanding shares, following the closing of the transaction.  Holders of NUVO common stock options will receive a cash payment for the difference between $7.15 and the exercise price of the option, while warrant holders of NUVO may either be cashed out in a similar fashion or receive an equivalent warrant to acquire our common stock.

We estimate that upon completion of the merger, our combined total assets, loans and deposits will approximate $2.00 billion, $1.42 billion and $1.53 billion, respectively. 

In conjunction with the planned merger, we have incurred certain non-recurring costs, including legal fees, investment banking fees, and other related expenses for the three and nine months ended September 30, 2015 of $215 thousand and $363 thousand, respectively.  These non-recurring costs are presented on the consolidated statements of income within non-interest expense as merger and acquisition costs. We expect to continue to incur related non-recurring costs through the closing of the planned merger with NUVO.

On September 30, 2015, the shareholders of NUVO approved the proposed merger.  The merger has also been approved by the FDIC and the Vermont Department of Financial Regulation.  An application for approval of the merger is pending with the Massachusetts Division of Banks. Subject to receipt of all required regulatory approvals and satisfaction of all other conditions, the parties expect the merger to close during the fourth quarter of 2015.