“Market Perform” / $27.00 Price Target / HQ = Michigan City, IN / $285.24 Mil. Mkt. Cap.
HBNC announced the acquisition of $543 Million in Asset, La Porte, Indiana based La Porte Bancorp, Inc. (LPSB) in a cash and stock deal valued at approximately $94 Million. The consideration is 65% stock and 35% cash. LPSB shareholders have the option to receive $17.50 in cash or 0.629 in shares of HBNC stock for each share of LPSB. The deal is expected to close in 3Q16 and comes on the heels of HBNC’s recent acquisition of $148 Million in Asset Kosciusko Financial, Inc.; announced on February 5, 2016.
Terms of the Transaction were 1) 20.6x LTM EPS, 2) a 5.8% Core Deposit Premium (ex CD) and 3) 122% of Tangible Book Value or a higher 140% of Core Tangible Book Value plus dollar for dollar credit on excess capital above and 8% TCE—Tangible Common Equity Ratio. LPSB had a TCE ratio of nearly 14.5%. We see this deal as a positive for HBNC as 1) it makes good strategic sense helping bolster its presence in NW Indiana, 2) helps enhance its capital position given LPSB’s high TCE ratio, 3) offers significant opportunity for cost saves given branch overlap. Notably, HBNC expects to close four of LPSB’s 8 offices including three full service offices and one LPO. Lastly, pricing appears reasonable which along with expected cost saves should result in healthy EPS accretion.
The LPSB deal boosts HBNC’s leading market share in La Porte, County Indiana to nearly 60% from its current 40%. HBNC also picks up some Deposits in Porter County, Indiana though it retains it number 5 market share rank in this county with its pro forma share increasing to ~11.6%.
We will have more details following a discussion with management. No details were provided on EPS accretion, TBV dilution, credit mark or cost savings.
About La Porte Bancorp, Inc. Headquartered in La Porte, Indiana, La Porte Bancorp, Inc. is the parent company of La Porte Savings Bank which was founded in 1871 and operates 8 branches in Northwest Indiana including 7 full service offices and one Loan Production Office. LPSB completed a mutual to stock conversion in October 2012 raising $27 Million. Shares began trading October 5, 2012. LPSB has repurchased ~10% of shares outstanding since November 2013. Similar to HBNC, the company has a mortgage warehouse business. Profitability was solid with a LTM ROAA of 0.89%. Net Interest Margin was 3.51% aided by a 4.9% loan yield and 58 bps cost of funds vs 62 bps at HBNC. LPSB’s Efficiency ratio was 69.3% at 4Q15. TCE was 14.4% at 4Q15 while credit quality was healthy with a NPA/Loan + OREO ratio of 1.30% (ex TDRs).
The post HBNC M&A Update: In Market Acquisition Bolsters Presence in NW Indiana and Offers Significant Cost Saves. appeared first on FIG Partners.