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With deal, QCR Holdings bolstering presence in Iowa's 2nd-largest city

QCR Holdings Inc. is strengthening its presence in Iowa's second-largest city with its planned acquisition of Cedar Rapids-based Guaranty Bankshares Ltd.

The deal, valued at roughly $44.2 million, will strengthen QCR Holdings' presence in the area by five branches. In 2001, the Moline, Ill.-based company opened a de novo institution, Cedar Rapids Bank and Trust Co., which operates two branches.

QCR Holdings operates four separate bank charters in the Midwest. The deal will give the company over $1 billion in assets in its Cedar Rapids market.

Raymond James analyst Daniel Cardenas noted in a report that the deal will increase QCR Holdings' deposit market share in the Cedar Rapids metropolitan statistical area to 13.9% from 10.3%, giving the company the No. 2 spot in the MSA.

The deal is in line with a continued surge in Midwest bank deals, as more and more companies consolidate in the region. In August 2016, QCR Holdings closed its $80 million deal with Ankeny, Iowa-based Community State Bank.

In an interview, Executive Vice President, CFO and COO Todd Gipple said a growing population and solid economic base attracted the company to Cedar Rapids. He said the company is keeping its eye on additional M&A opportunities, either in its existing markets or in Iowa's surrounding states.

"The local communities in Iowa seem to be driving a fair amount of new activity," Gipple said. "The Des Moines metro is seeing a big influx of new corporations looking for that Midwestern work ethic and availability of some millennials that have a lot of talent and want to live in Iowa, that maybe grew up in the state or like some of the Midwestern values. They can certainly attain very nice housing and a lower cost of living than some of the other communities in the country."

Gipple said the $3.38 billion company is in no rush to jump over the $10 billion asset threshold, and that theoretically, the company would like to be between $7 billion to $9 billion in assets, or the "sweet spot" for larger community banks.

"Partnering with Guaranty made a lot of sense in that they have some good people and some good clients," Gipple said. "It puts us in a very strong competitive position. … It really solidifies Cedar Rapids Bank & Trust as the leading local community bank."

FIG Partners analyst Brian Martin noted that while the deal is relatively small in size, he sees it as a "moderate positive" for the company, because of its attractive pricing that is expected to be immediately accretive to tangible book value and 4% accretive to 2018 earnings per share. It is also expected to be accretive to the company's return on average assets, post 30% cost savings that Gipple said will stem from back-office efficiencies and the consolidation of overlapping branches.

Martin wrote the deal "makes good strategic sense" and will make QCR Holdings the "leading community bank in the market."

"Increased scale in this MSA as well as a broader product set and larger balance sheet has positive implications for future growth," Martin wrote.

"Guaranty is very highly regarded in the community, as are we at Cedar Rapids Bank & Trust," Gipple said. "We expect it to go really well in terms of integration — systems, people, clients — we expect to really have that done by the end of the year."