QCR Holdings in Moline, Illinois, is buying Guaranty Federal Bancshares in Springfield, Missouri, for $151.6 million in cash and stock.
QCR expects to combine the $1.2 billion-asset Guaranty with one of its subsidiary banks, the $880 million-asset Springfield First Community Bank. The combination would bolster QCR in a region with a growing population and a rapidly expanding economy, the bank said.
In addition to Springfield First, QCR operates three Iowa-based banks: Quad Cities Bank & Trust in Bettendorf, Cedar Rapids Bank & Trust, and Community State Bank in Ankeny.
The combined Missouri subsidiary, which would adopt the Guaranty brand, would be the fourth-largest bank in the Springfield area, holding 9.6% of a $14.6 billion deposit market, based on June 30 Federal Deposit Insurance Corp. data. It would also control 4.7% of the $1.1 billion deposit market in neighboring Joplin.
“Springfield and neighboring southwest Missouri markets make up a vibrant region where strong relationships with our clients matter,” QCR Holdings CEO Larry Helling said Tuesday on a conference call with analysts. “Enhancing our market share in this region supports our strategic goals and enables us to extend our high-performing and profitable niche business lines benefiting clients and shareholders alike.”
QCR entered the Springfield market in July 2018 through the purchase of Springfield Bancshares, Springfield First’s parent. The 108-year-old Guaranty “has been on our radar screen ever since,” Helling said, adding that Tuesday’s deal was a negotiated transaction.
Guaranty President and CEO Shaun Burke will serve as president of the combined subsidiary while Springfield First CEO Monte McNew will be CEO.
The merged Guaranty would hold $2 billion of assets and $1.6 billion of loans. Once the deal is completed, QCR would have $7.2 billion of assets and $5.9 billion of deposits.
QCR has agreed to pay a mix of cash and stock equal to $34.31 per Guaranty share. In aggregate, the deal price amounts to 161% of Guaranty’s tangible book value, which is slightly higher than the 154% average for 2021 deals, according to Compass Point analyst Laurie Havener Hunsicker.
QCR is forecasting 5% tangible book value dilution with an earn-back period of just under three years. At the same time, the deal, which is slated to close in the first or second quarters of 2022, is expected to be 13% accretive to earnings in 2023.
QCR expects to achieve cost savings of about 25% of Guaranty’s noninterest expense base, which totaled $10.6 million for the quarter ending Sept. 30. QCR expects to record a pre-tax, one-time $13.4 million charge to account for integration expenses, according to President and Chief Operating Officer Todd Gipple, who did not provide timing for this charge.
In a research report Tuesday, Hunsicker predicted deal prices would increase as a bull market in equities continues to drive up bank stocks.
Acquiring Guaranty will keep QCR busy, but it won’t necessarily sideline the company from future deals.
“If the right strategic fit came along, we would certainly entertain that,” Helling said.
