A looming dividend spike tied to the Small Business Lending Fund convinced Hopewell Valley Community Bank in Pennington, N.J., to sell itself.
The $400 million-asset bank agreed in August to sell to the $3.2 billion-asset Northfield Bancorp for $54.9 million in cash and stock.
Hopewell Valley first received an unexpected offer in January from an unnamed institution that was willing to pay $13 to $14 a share, with 80% of the consideration involving stock, according to a recent regulatory filing. Hopewell Valley rejected the offer after its board determined that the amount "significantly" undervalued the bank.
A bigger concern for the board was the dividend rate tied to $11 million in SBLF funds, which was set to jump from 1% to 9% in January 2016. Hopewell Valley would have needed to raise additional capital to redeem the preferred stock prior to the raise increase, the filing said. The bank hired Sandler O'Neill and began an auction process in April.
Sandler O'Neill contacted 11 institutions. Nine signed non-disclosure agreements, and four submitted non-binding indications of interest that priced a potential deal at $12 to $13.75 a share. Northfield's offer was valued at $13.50 a share, with stock comprising 75% of the payout.
Northfield increased its offer three times, eventually settling on $14.50 a share in late July. A second suitor provided a maximum bid of $13.75 a share.
Hopewell Valley and Northfield reached an agreement to merge on Aug. 25, with Northfield also agreeing to redeem Hopewell Valley's SBLF shares. The deal was announced a day later.
The deal, which values Hopewell Valley at around 147% of its tangible book value, is expected to reduce Northfield's tangible book value per share by about 3%, with expected earnings per share accretion of roughly 14%.