KBRA Comments on German American Bancorp, Inc.'s Proposed Acquisition of Heartland BancCorp
2024年8月1日 - 3:18AM
ビジネスワイヤ(英語)
Jasper, Indiana-based, German American BancCorp, Inc. (NASDAQ:
GABC, or "German American") (KBRA senior unsecured debt rating:
BBB+ / Stable Outlook) announced on July 29 that it had entered
into a merger agreement to acquire Heartland BancCorp (OTCQX: HLAN
or "Heartland'), based in Whitehall, Ohio. The transaction, valued
at $330.2 million (P/TBV: 2.02x), is an all-stock deal
consideration and expected to close in 1Q25 pending regulatory
approval. Upon completion of the transaction, Heartland’s
subsidiary bank, Heartland Bank, will be merged into German
American’s subsidiary bank, German American Bank, and operate under
a co-branded name within the Ohio markets. G. Scott McComb,
Chairman, President and CEO of Heartland is expected to join the
board of directors for GABC, while members of the Heartland
executive and senior teams are expected to stay on as regional
management to provide local leadership and decision making.
The proposed acquisition is in line with German American's
overall growth strategy of expansion into contiguous markets
through both acquisitive and organic means. The transaction allows
GABC to expand into Ohio, notably the attractive Columbus and
Cincinnati MSAs, offering solid opportunities to leverage GABC's
business lines in new markets, notably C&I lending and wealth
management business. The acquisition is expected to add
approximately $1.9 billion in assets to GABC's balance sheet at
close, with pro forma total assets of $8.1 billion, $5.7 billion in
loans, and $7.0 billion in deposits, based on financial data as of
June 30, 2024, as well as a branch network of 95 locations across
Indiana, Kentucky, and Ohio. The combined company’s financial
projections include strong profitability metrics following the
close of the transaction, in part, due to the 30% cost-savings
expected on HLAN's expense base, with 75% of the savings recognized
in 2025 and the remainder achieved in the year thereafter. With
cost-savings fully realized, the combined institution is expected
to generate an ROA of ~1.50% in 2025, though this estimate includes
a respectable amount of accretion income given the interest rate
marks on the securities and loan portfolios. Excluding accretion
income, ROA would be approximately 1.35%, still representing solid
earnings power. The proforma loan portfolio is not expected to
change materially as both institutions have complementary loan
mixes, with CRE remaining the largest component at 41% of total
loans, followed by residential loans at 27% and C&I at 12%.
With respect to deposit mix, while HLAN maintains a higher
proportion of time deposits (34% of deposits at 2Q24 vs. 16% for
GABC), the proforma cost of deposits is expected to remain
manageable at 1.95%, supported by a solid NIB component of 27% of
total deposits, based off of 2Q24 metrics. Furthermore, GABC's
liquidity position, measured by the loan-to-deposit ratio, will
continue to provide flexibility with its funding profile reflected
in a proforma ratio of 80% (76% as of 2Q24 for GABC).
Regarding credit quality, both institutions have had strong
metrics for an extended period of time, with minimal NCO and NPA
ratios for the past several years, which is a testament to
disciplined underwriting and conservative management teams that
have extensive knowledge of their operating markets. German
American conducted a thorough review of the loan portfolio,
inclusive of 74% of the total loan portfolio, and expects to record
a total gross pre-tax credit mark of $28.7 million (1.85% of HLAN's
loans) along with a Day 2 CECL adjustment of $13.8 million in
relation to the transaction. While investor CRE relative to total
risk based capital is expected to increase upon closing, CRE
concentration will remain well below the 300% guidance (proforma
212%). GABC has prudently managed capital metrics with an above
peer CET1 ratio of 14.5% in 2Q24, reflective of the conservative
nature of the bank, though this ratio is expected to decline to
~12% at closing. Nonetheless, proforma capital metrics appear solid
and, combined with the proforma earnings profile, capital rebuild
should be relatively quick. Overall, we believe that the proposed
acquisition complements the company’s growth strategy, and while
there is an inherent level of integration risk involved with any
bank M&A transaction, such risk is somewhat mitigated by GABC's
demonstrated track record as an experienced acquirer.
About KBRA
KBRA is a full-service credit rating agency registered in the
U.S., the EU, and the UK, and is designated to provide structured
finance ratings in Canada. KBRA’s ratings can be used by investors
for regulatory capital purposes in multiple jurisdictions.
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Anna Jezerski, Associate +1 301-960-7047
anna.jezerski@kbra.com
Brian Ropp, Managing Director +1 301-969-3244
brian.ropp@kbra.com
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justin.fuller@kbra.com