Premier Valley Bank announces merger with Iowa-based company

Premier Valley Bank of Fresno agreed Friday to a merger with Iowa-based Heartland Financial USA Inc. in a deal valued at about $95 million.

The Fresno bank — currently the fourth-largest locally owned and headquartered bank in the central San Joaquin Valley — will become a whollyowned subsidiary of Heartland Financial but will continue to operate under its current name and management team, led by president/CEO J. Mike McGowan.

The agreement calls for Premier Valley shareholders to receive $7.73 per share of common stock, amounting to a total of about $95 million, in either cash or Heartland Financial stock.

As of March 31, Premier Valley had assets of about $647 million, including a loan portfolio of about $394 million.

McGowan said Premier Valley was not actively seeking a merger partner before Heartland Financial representatives reached out last summer. “We weren’t looking, but we always answer the phone,” he said. “The initial contact was last summer, but we didn’t meet until the fall. We didn’t really get serious until about January, when things started moving a little more quickly.”

McGowan added that there is a great deal of common ground in how the two companies operate in their markets. “Their business plan fits our business plan, their operating strategies fit our operating strategies,” he said. “Their roots are in community banking. Their management and ownership team are mostly a combination of community bankers. … When they found us, they thought it was an ideal match.”

Becoming part of a larger company will allow Premier Valley to benefit from economy of scale in terms of services offered as well as spreading out regulatory burdens, he added. Heartland Financial has a wealth-management division as well as treasury-management services for corporate customers, and the bigger organization could also enable Premier Valley to make larger loans than it has been able to take on in the past. “We had plenty of time for due diligence, and we couldn’t find anything wrong,” McGowan said. “I think it’s fair to say both sides liked what they saw.”

Premier Valley also sees the deal as good for its shareholders. “We thought $95 million was a very attractive offer,” McGowan said. At $7.73 per share, the offer is higher than any price at which the bank’s stock has traded since April 2006.

Bryan McKeag, Heartland Financial’s chief financial officer, said Premier Valley was an attractive investment because “they’ve done a good job with their earnings and they’re a clean, well-run bank.”

The deal also gives Heartland Financial a foot in the door for banking in California. The company already has a loan-production presence in the state through a mortgage-lending subsidiary, National Residential. Heartland reports that it has nearly 90 bank locations in 63 communities across the Midwest and Southwest, but none in California. The company reported total combined assets across its 10 state-chartered banks of $6.51 billion in the first quarter of 2015. Its largest bank is the 80-year-old Dubuque Bank & Trust Co. in Iowa, with assets of more than $1.4 billion.

“This opens up a new state and new market for us,” McKeag said. “Our strategy for each state we invest in is to get enough pass to grow each state banking charter to $1 billion. We’ll do that through a combination of organic growth and looking at other potential merger and acquisition transactions that are a good fit and can get us there.”

McKeag said Heartland Financial has two other mergers pending with much smaller banks in Arizona and New Mexico.

Heartland Financial trades on the Nasdaq market under the symbol HTLF. The stock’s closing price Friday was $34.08 per share, down 1.43% from its Thursday closing price. Earlier in the day the price had dipped as low as $33.85 per share after the merger was announced.

Premier Valley stock, on the OTC board under the symbol PVLY, was priced at $7.50 per share at the market’s close, up almost 5.63% from Thursday’s closing price of $7.10. The company has almost 13 million shares of stock outstanding.

The Premier Valley merger still requires the approval of both companies’ shareholders as well as banking regulators, but representatives of the two companies said they expect the deal to be finalized late this year, with systems conversions completed in early 2016. According to Friday’s announcement, members of Premier Valley’s board of directors have already agreed to vote their shares of common stock in favor of the merger.

When completed, the merger will reduce the number of locally owned community banks based in the central San Joaquin Valley to nine: five in Fresno County, four in Tulare County.

This story was originally published May 29, 2015 at 10:26 AM with the headline "Premier Valley Bank announces merger with Iowa-based company."