Bank deal could portend wave of merger activity

John Eggemeyer and his investment group made it clear that they were a force to be reckoned with when they entered the Colorado banking market in March by acquiring Centennial Bank of the West.
With the pending merger of Guaranty Corp. and Centennial Bank Holdings Inc., announced Sept. 1, the group would become the second-largest independent bank in Colorado. Not a bad start for the new holding company with an investment group that was relatively unknown when it announced plans to acquire Centennial Bank of the West.
“We’ve been busy – the Guaranty merger is a terrific opportunity,´ said Eggemeyer, chairman and CEO of Centennial Bank Holdings. “We are excited about operating in this great state.”
The result of the merger will be a bank holding company with 30 branches, combined assets of more than $2.4 billion and total deposits of about $1.8 billion.
Under terms of the agreement, Centennial Holdings will pay $365 million in cash in exchange for all of Guaranty’s outstanding common stock and options. The closing of the transaction is expected in the fourth quarter of 2004 or first quarter of 2005.
Guaranty operates 10 branches in the Denver area and two branches in Buena Vista and Salida under the name Collegiate Peaks Bank. In addition, Guaranty Corp. owns First National Bank of Strasburg, which has six branches, including a location in Brighton. As of June 30, Guaranty had total assets of about $1.4 billion.
Guaranty will maintain its identity, with only its Longmont branch possibly taking the Centennial Bank of the West moniker. Centennial currently has two branches in Longmont.
This recent merger appears to be a sign of the times. Banks are looking for a bigger piece of the market share, and the quickest way to gain that piece is to buy a share.
There isn’t much geographic overlap between Guaranty and Centennial Bank of the West, making it an even better agreement for Centennial Holdings. The purchase gives the holding company a footprint in Denver, Boulder and Evergreen.
With the merger, the holding company becomes now the seventh-largest in the state, with 2.4 percent of the deposit market share, based on data for each bank reported as of June 30, 2003.
“One thing that attracted us to Colorado is its very fragmented banking market,” Eggemeyer said. “There are 131 independent banks in the state, which is quite high. For example, Arizona and Nevada are also experiencing rapid growth, but there are far fewer banks.”
Eggemeyer and his group are not the only holding company in the area making strides to capture a bigger piece of the pie.
BancWest Corp. announced plans to acquire Community First Bankshares Inc. in March. Community First, based in North Dakota, has local offices in Fort Collins, Greeley and Berthoud. The combined company will have $44 billion in assets and 451 branches in 16 states.
J.P. Morgan Chase & Co. and Banc One Corp., which operates Bank One in Colorado, agreed to sign a merger agreement in January. The combined company will have assets of $1.1 trillion and 2,300 branches in 17 states.
“I think the pace of bank acquisitions nationally is quite robust,” Eggemeyer said. “The economy is growing but at a slower pace than expected … there are a lot of big banks out there that are interested in increasing their presence and speeding up their growth. The only practical way to do this is through acquisition.”
Furthermore, the need to hire bank management talent – considered to be in short supply – makes the creation of new branches problematic. Expanding banks can not only add branches with acquisitions, but also pick up the management staff that comes with the purchase.
Ron Schneider, regional president for Bank One, agrees that more acquisitions are looming nationally, but he said he feels, ” This is a revival of the desire to increase market share.”
Schneider is referring to the string of acquisitions and mergers that occurred in the late 1990s and earlier this decade that involved 1st Choice Bank, American Bank, FirsTier Bank and others.
“I am thinking the mergers and acquisitions quieted down during the recession and that now we are going to see an increase,” he said.
Gerard Nalezny, president of Community First Bank in Northern Colorado, said he thinks more acquisitions may be in the works locally, based on the national scene.
“Without any insider information, I would expect the trend of mergers and acquisitions to continue,” he said. “Banks need to expand to acquire a bigger piece of the market share.”