NEW YORK - German American Bancorp, Inc. (NASDAQ:GABC), a financial institution headquartered in Jasper, Indiana, has entered into an agreement to acquire Heartland Bancorp (OTCQX:HLAN), based in Whitehall, Ohio. Announced on July 29, the all-stock transaction is valued at $330.2 million and is expected to be finalized in the first quarter of 2025, subject to regulatory approval.
The merger will see Heartland's subsidiary bank, Heartland Bank, integrate into German American's subsidiary bank, German American Bank. The combined entity will operate under a co-branded name in the Ohio markets. As part of the agreement, G. Scott McComb, currently the Chairman, President, and CEO of Heartland, is set to join the board of directors for German American. Additionally, executives and senior team members from Heartland are anticipated to remain in place as regional management.
This acquisition aligns with German American's strategy to grow through mergers and organic expansion into contiguous markets. It will allow German American to extend its presence into the Ohio region, specifically targeting the Columbus and Cincinnati metropolitan statistical areas (MSAs). German American plans to leverage its commercial and industrial lending and wealth management services in these new markets.
Upon closing, the acquisition is expected to add approximately $1.9 billion in assets to German American's balance sheet, with pro forma total assets reaching $8.1 billion. This includes $5.7 billion in loans and $7.0 billion in deposits, based on financial data as of June 30, 2024. The combined network will consist of 95 branch locations across Indiana, Kentucky, and Ohio.
Financial projections for the merged company indicate strong profitability metrics, partly due to an anticipated 30% cost-savings on Heartland's expense base, with 75% of these savings expected to be recognized in 2025. The full realization of cost-savings is projected to yield a return on assets (ROA) of approximately 1.50% in 2025, or 1.35% excluding accretion income.
Both German American and Heartland have demonstrated strong credit quality with minimal nonperforming loans and charge-offs, which reflects their disciplined underwriting and conservative management. German American expects to record a gross pre-tax credit mark of $28.7 million and a Day 2 Current Expected Credit Loss (CECL) adjustment of $13.8 million in relation to the acquisition.
German American Bancorp also recently finalized the sale of its insurance subsidiary, German American Insurance, to Hilb Group. The all-cash transaction, valued at $40 million, is expected to yield an after-tax gain of approximately $27 million. This significant transaction amounts to roughly four times the insurance subsidiary's projected 2023 revenue and twenty-four times its estimated net income for the same year.
Financial analysts from Keefe, Bruyette & Woods have maintained their Market Perform rating for German American Bancorp, highlighting the strategic value of these transactions. The sale of the insurance assets is predicted to increase the company's tangible book value by an estimated 6.1% and improve its tangible common equity and common equity tier 1 ratio by 48 and 59 basis points, respectively.
InvestingPro Insights
As German American Bancorp, Inc. (NASDAQ:GABC) moves forward with its strategic acquisition of Heartland Bancorp, investors and industry observers are closely monitoring GABC's financial health and market performance. According to InvestingPro data, German American Bancorp has a market capitalization of $1.18 billion, which reflects its standing in the financial sector and its capacity for growth through acquisitions like the one with Heartland Bancorp.
One of the key InvestingPro Tips for GABC highlights a consistent track record of raising dividends, with 11 consecutive years of increases, and maintaining dividend payments for an impressive 32 years. This suggests a strong commitment to returning value to shareholders, which could be an attractive point for investors looking for stable income. Additionally, the company has experienced a significant price uptick over the last six months, with a 25.1% total return, indicating a positive market sentiment towards German American Bancorp's growth and stability.
InvestingPro data also sheds light on the company's profitability metrics. GABC's P/E ratio stands at 14.3, which may appeal to value investors seeking reasonable valuations in the financial sector. Furthermore, with a Price/Book ratio of 1.73, German American Bancorp is positioned as a potentially attractive investment when considering its tangible assets relative to its market value.
For readers interested in deeper analysis and additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/GABC. These tips can provide a more comprehensive view of German American Bancorp's financial landscape and future outlook.
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