First Defiance Financial and United Community Financial signed a definitive merger agreement under which United Community will merge into First Defiance in a stock-for-stock transaction.

Home Savings Bank, a wholly owned subsidiary of United Community, will merge into First Federal Bank of the Midwest, a wholly owned subsidiary of First Defiance.

Under the terms of the merger agreement, shareholders of United Community will receive 0.3715 shares of First Defiance common stock for each share of United Community common stock. Based upon a closing price for First Defiance as of September 6, 2019 of $26.32, the transaction is valued at approximately $473 million. Upon closing, First Defiance shareholders will own approximately 52.5% of the combined company and United Community shareholders will own approximately 47.5%.

The pro forma combined company will have approximately $6.1 billion in assets, $5 billion in loans and $4.9 billion in deposits, utilizing financial information as of June 30, 2019. It will leverage the respective strengths of each institution and better position the combined company to serve the geographies of Ohio, Michigan, Indiana, Pennsylvania and West Virginia with increased scale and expanded product offerings.

“After a long relationship between the two companies, we are thrilled to bring together these two great Ohio community bank franchises. These organizations are a perfect strategic fit, balancing the strengths of each. With enhanced scale, we will have the opportunity to continue to grow and compete more effectively in all the markets we serve for the foreseeable future,” said Donald P. Hileman, president and CEO of First Defiance.

“We are pleased to partner with a company that has a shared community-minded vision, culture and focus on performance,” said Gary M. Small, president and CEO of United Community. “I truly believe that this merger is a win-win for all stakeholders: customers, associates, shareholders as well as the communities we serve.”

Once the merger is complete, Hileman will serve as the CEO of the holding company and the bank before transitioning to an executive chairman role in early 2021. Small will assume the role of president of the holding company and the bank before transitioning to the CEO role when Hileman becomes executive chairman.

The board of directors of the combined company will be comprised of seven members designated by First Defiance (including Hileman and its current chairman, John Bookmyer) and six members designated by United Community (including Small and its current chairman, Richard Schiraldi who will be named vice chairman). The directors of the combined company will be determined in the coming months and identified prior to the closing of the transaction.

The transaction is expected to close early in the first quarter of 2020, subject to the approval of shareholders of both First Defiance and United Community and regulatory approvals, as well as satisfaction or waiver of other customary closing conditions. The combined company will operate under a name to be jointly determined prior to closing and the holding company will be headquartered in Defiance, OH with the bank headquartered in Youngstown, OH.

First Defiance expects the transaction to deliver run-rate earnings per share accretion of approximately 14%, with cost savings on a fully-phased in basis. Applying pro forma merger adjustments and assuming an expected early 2020 closing, dilution to tangible book value per share is estimated to be approximately 4%, inclusive of restructuring charges with an earnback period of approximately 1.8 years using the crossover method.

Keefe, Bruyette & Woods served as financial advisor and provided a fairness opinion to First Defiance. Barack Ferrazzano Kirschbaum & Nagelberg served as First Defiance’s legal counsel. Sandler O’Neill + Partners served as financial advisor and provided a fairness opinion to United Community. Wachtell, Lipton, Rosen & Katz served as United Community’s legal counsel.