Kroll Bond Rating Agency Comments on Heartland Financial USA, Inc. and Citywide Banks of Colorado, Inc. Merger

NEW YORK--()--Kroll Bond Rating Agency (KBRA) comments on Heartland Financial USA, Inc. and Citywide Banks of Colorado, Inc. merger. The comment makes the following key points:

  • Heartland Financial USA, Inc. (NASDAQ: HTLF or Heartland) and Citywide Banks of Colorado, Inc. (Citywide) announced the execution of a definitive merger agreement pursuant to which Citywide will merge with and into Heartland. Citywide Banks, the lead subsidiary, will be merged into Heartland’s Colorado subsidiary, Centennial Bank and Trust, and the Citywide Banks brand name will survive the merger.
  • The deal is expected to close early in the third quarter of 2017, and Heartland anticipates the merger to be accretive to its earnings per share within the first full year of combined operations, excluding one-time expenses associated with the transaction.
  • After completion of the merger, Heartland’s branch network will expand to 124 full-service banking locations with operations across 12 states, with pro-forma total assets of approximately $9.8 billion.
  • In March 2016, KBRA affirmed the senior unsecured debt rating of BBB, subordinated debt rating of BBB-, and short-term debt rating of K3 for Heartland Financial USA, Inc. In addition, KBRA assigned deposit and senior unsecured debt ratings of BBB+ and short-term debt and deposit ratings of K2, for the three largest subsidiary banks, Dubuque Bank & Trust, New Mexico Bank & Trust, and Wisconsin Bank & Trust. The Outlook on all long-term ratings is Stable.
  • Citywide Banks of Colorado, Inc. appears to have sound overall financial condition. As of third quarter 2016 data, KBRA’s Subscription Rating Service (SRS) rated Citywide Banks, B on the financial strength rating scale.
  • In KBRA’s opinion, the transaction is viewed as neutral to the credit ratings of Heartland in the short-term. The merger could potentially be a credit positive over the medium and long-term as it naturally extends and enhances scale within HTLF’s existing operating footprint, adds additional lending opportunities from the strong in-market branch of Citywide Banks, and adds a stable portfolio of deposits with low-cost funding. Further, Heartland expects the transaction to generate cost saves of approximately 32% of Citywide Banks’ noninterest expense, with 75% of the cost saves recognized by year-end 2017.

The ratings are based on KBRA’s Global Bank and Bank Holding Company Rating Methodology published on February 19, 2016.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Kroll Bond Rating Agency
Analytical:
John Rempe, 301-969-3045
Analyst
jrempe@kbra.com
or
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joseph Scott, 646-731-2438
Managing Director
jscott@kbra.com

Contacts

Kroll Bond Rating Agency
Analytical:
John Rempe, 301-969-3045
Analyst
jrempe@kbra.com
or
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joseph Scott, 646-731-2438
Managing Director
jscott@kbra.com