Guaranty Bank sale symptom of hot Colorado market

The number of Colorado-based banks has been slowly dwindling the past couple of years as outside banks jockey for position in one of the hottest banking markets in the country. The latest example is Guaranty Bancorp, which is being acquired by Texas-based Independent Bank Group Inc.

“The whole industry is consolidating. It’s not only business efficiency but it is regulatory pressure on those smaller banks that they can’t live with that leads them to the conclusion we need to sell or get bigger to spread out the cost of this burden over a bigger base of assets,” said Don Childears, president and CEO of the Colorado Bankers Association. “That regulatory burden is the major driving force in the consolidation that is going on. We lose a bank a day in the U.S. today. Those aren’t through bank failures. They are mergers and acquisitions where banks basically sell to another bank because they can’t survive in their current world.”

The number of Colorado-based banks dropped from 90 banks in 2015 to 81 in 2017. Another reason outside banks are clamoring to get into the Colorado market is because of its rapid growth along the Front Range.

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“For decades, bigger banks have really been focused on Colorado and expanding all they can,” he said. Chase Bank only had a few branches in the state a few years ago and now it has 99 branches and 112 ATM locations.

“They believe so strongly they’ve led a multiyear campaign to open branches everywhere they could. They invested that money. That tells you about the desirability of the Colorado market. When you combine those forces, we end up with quite a bit of activity here,” Childears said.

Wells Fargo, which is Colorado’s largest banking institution, has 144 branch banks in the state and 346 ATMs, while FirstBank, which is the largest Colorado-based bank, has 99 branches here.

It isn’t just large national banks that are interested in the Colorado market. The state is seeing interest from banks headquartered in Wyoming, Nebraska, Kansas, Oklahoma, Texas and New Mexico. There are 52 out of state banks in Colorado, which is the fourth-highest amount in the country.

Childears said that Independent’s acquisition of Guaranty Bancorp makes sense for both parties.

A buyer looks at the quality of the assets in the bank it is going to acquire. It also looks at the geographic area it covers and how well it is represented by either branches or ATM locations. It also considers the type of customer the bank is focused on and the quality of the bank’s management team.

“Independent and Guaranty found a good match here that made sense for both of them to proceed with this,” he said.

Peggy Smolen, a spokesperson for Independent Bank Group, said that Guaranty was a good fit for her company because “the Denver Metro area and the Colorado Front Range are dynamic high-growth metropolitan markets. Guaranty Bank’s team is heavily customer- and community-focused, which complements our mission to make an impact on the communities we serve through high-performance, purpose-driven banking.”

Gerard Nalezny, chairman and CEO of Verus Bank of Commerce in Fort Collins, keeps a close eye on what’s going on in the Colorado banking market.

“Colorado is a great place. Colorado is an attractive place to live and is also a good economy and an attractive market,” he said. “It certainly has been and will continue to be. We will continue to see out-of-state institutions looking at the Colorado market via acquisition.”

Nalezny added that the “high premium that was paid for Guaranty is a reflection of the fact they built up a great franchise and it is a great market.”

Independent said it would pay $1 billion in stock for Guaranty on May 23. If the deal goes through, Guaranty Bancorp shareholders will receive 0.45 shares of IBTX common stock for each share of GBNK common stock they own, or about $35.37 per GBNK share, based on the closing price of IBTX common stock of $78.60 on May 21.

Nalezny said that finding an acquisition target in Colorado made sense for Independent because it purchased Carlile Bancshares Inc. in April 2017. That company operates banks in Texas and Colorado under its wholly owned Northstar Bank subsidiary. Northstar had 24 full-service banking locations in Texas and 18 full-service locations in Colorado at the time of the acquisition.

The branches in Colorado weren’t at critical mass so the decision had to be made whether to sell those assets or expand them.

“Because of the attractiveness of the Colorado market and the attractiveness of the Guaranty franchise, they decided to expand, to double down,” he said.

Before buying Carlile Bancshares, Independent Bank Group was strictly a Texas-based banking company, with 41 branches in Dallas/Fort Worth, Austin and Houston.