UMB Financial to acquire Heartland Financial for $2 billion

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UMB Financial in Kansas City, Missouri, announced on Monday that it has agreed to purchase Heartland Financial USA in Denver in an all-stock transaction valued at approximately $2 billion.

The combination of the two regional banks would create a $64.5 billion-asset company with a 13-state branch footprint across parts of the Midwest, South and West. UMB currently operates in eight states — Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas — and would expand into California, Minnesota, New Mexico, Iowa and Wisconsin.

The $45.3 billion-asset UMB said the acquisition of $19.4 billion-asset Heartland would provide a critical source of low-cost deposits to support UMB's growth strategy. It would also nearly double the size of UMB's branch and ATM networks, expanding them to 197 and 475, respectively.

Heartland, which does business as HTLF, had about $16.2 billion of deposits as of March 31.

"I think we're really thinking about this from a standpoint of raw materials providing funding for growth," UMB Chairman and CEO Mariner Kemper said Monday during the company's first-quarter earnings call, which was primarily focused on the deal. "And also layering in another 100-plus distribution points [to] continue to build our strong profile as a deposit generator itself."

UMB's acquisition of Heartland is one of two bank M&A deals announced Monday — Hope Bancorp in Los Angeles said it agreed to buy Territorial Bancorp in Hawaii for $78.6 million — and it comes just three days after Fulton Bank in Lancaster, Pennsylvania, agreed to acquire substantially all of the assets and deposits of the shuttered Republic First Bank in Philadelphia after regulators seized it. 

The transaction, which is subject to regulatory approval, is expected to close in the first quarter of 2025, UMB said in a press release. Upon closing, five members of Heartland's board of directors will join UMB's board, which will expand to 16 directors, UMB said in the release.

Terms call for HTLF stockholders to receive a fixed exchange ratio of 0.55 shares of UMB common stock for each share of HTLF common. The per share consideration is worth $45.74 per share based on UMB's closing price of $83.17 on April 26, according to the release. 

In conjunction with the deal, UMB conducted a capital raise, selling 2.8 million of shares at $75 per share, the company announced Monday in a separate press release. The sale generated $210 million of proceeds and underwriters have an option to purchase up to 420,000 more shares of UMB's common stock. If that's exercised, UMB said it will enter into an additional forward sale agreement with an 18-month term.

The pending combination appears to be beneficial for both parties, Barclays analyst Jared Shaw said Monday in an interview. UMB will get access to "very good, granular deposits in markets that continue to grow" and have the opportunity to expand its commercial banking products and services into those markets, while Heartland will "jump-start" its own growth plan, Shaw said.

The company launched what it calls "HTLF 3.0" in the fourth quarter of 2023. Led by CEO Bruce Lee, the initiative aims to expand treasury management products and capabilities, create more consumer and small-business digital platforms and shrink its footprint and facilities operations, Heartland said Monday in a press release announcing its first-quarter earnings results.

During the first quarter, it announced the sale of its Rocky Mountain Bank division, reduced its wholesale and institutional deposits by $312.4 million and completed "key hires and promotions" in wealth management and commercial and middle-market banking, it said in the release.

"There are lots of synergies on both sides," Shaw said.

Heartland has gone through some challenges in recent years. Two years ago, as it began to consolidate 11 bank charters into a single entity called HTLF Bank, It faced pressure from an investor group to sell. The investor group was led by its former chairman and CEO, Lynn Fuller.

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The company eventually reached an agreement with the investor group and moved forward with its charter consolidation plan, which was set to deliver annual savings of $20 million. 

In February, Heartland announced that Lee would retire as both CEO and board director at the end of this year and that it would commence a nationwide search for Lee's successor. Prior to Monday's acquisition announcement, Heartland had not provided any updates on the CEO search, Stephens Research analyst Terry McEvoy noted Monday in an interview.

Heartland's strong financial performance may be part of its appeal, McEvoy said. It is "viewed as a higher quality, well-capitalized financial institution with a consistent track record," he said.

The deal's biggest risk will be securing regulatory approval, Shaw said. Setting a target closure date nearly 12 months from now is a bit longer than the timeline banks have previously set to close deals.

"As we've seen with many other deals, the time to approval is extended and we've seen some deals where they felt like they couldn't get approval and the deal collapsed," Shaw said. "I think that [sense of] increased uncertainty is reflected now in having a 12-month timeline."