Regulation, consumer demand, tech drive bank mergers

A rash of bank mergers in the region and across the country is being driven by the demands of compliance with federal regulations — but also by changing consumer demands and the advance of technology, bank officials say.

“If they don’t have that expertise in house, they have to hire it. But it’s easier to find a partner that has done those things,” said Ed Francis, president, chief executive and board chairman of InBankshares Corp. and InBank, which in December announced it would acquire Wiley-based Legacy Bank. “That’s what’s fueling a lot of the mergers and acquisitions.”

The InBank-Legacy merger was one of several that have affected area banks recently.

In November, First National Bank of Omaha, which rebranded as FNBO in 2020 and operates branches in Boulder, Brighton, Fort Collins, Greeley, Johnstown, Kersey, Longmont, Loveland, Wellington and Windsor, signed a deal to acquire Laramie, Wyoming-based Western States Bank, whose branches include two in Fort Collins and one in Loveland. Western States has $542 million in total assets while FNBO, one of the nation’s 100 largest publicly traded banks based on growth, credit quality and profitability, has more than $25 billion.

In October, Walden-based Mountain Valley Bank, which has about $350 million in assets, announced it was buying Greeley-based Cache Bank & Trust, which also has a Fort Collins bank and reports assets of about $115 million.

In September, Billings, Montana-based First Interstate BancSystem Inc. announced an all-stock transaction by which it would acquire Sioux Falls, South Dakota-based Great Western Bancorp Inc., which has 174 branches including locations in Boulder, Broomfield, Erie, Fort Collins, Greeley, Lafayette, Longmont, Louisville and Loveland.

In June, Pittsburgh-based PNC Financial Services Group Inc. completed its $11.6 billion acquisition of Birmingham, Alabama-based BBVA USA Bancshares Inc., and is converting local BBVA branches in Boulder, Fort Collins, Greeley, Lafayette, Longmont, Loveland and Westminster.

In 2019, Texas-based Independent Bank Group. Inc. acquired Denver-based Guaranty Bancorp for $1 billion and rebranded itself to Independent Financial, with branches including sites in Berthoud, Brighton, Boulder, Eaton, Fort Collins, Greeley, Longmont, Loveland and Westminster. But in 2020 it scuttled a planned all-stock deal with Texas Capital Bancshares Inc., blaming economic uncertainty related to the COVID-19 pandemic.

When Denver-based InBank’s acquisition of Legacy Bank was announced, Francis noted that it was expected to be “a transformational merger … with the potential to gain significant scale and operating leverage, increase our market capitalization and significantly improve our earnings power. The completion of this transaction will help make InBank a formidable competitor in the Colorado Front Range banking marketplace and helps position us for continued profitable growth.”

InBank, which opened a branch in Boulder in July, reported total assets of around $705 million on Sept. 30, Legacy, founded in 1907, had about $497 million in total assets as of Sept. 30, very near the $500 million benchmark that would require some voluminous compliance measures under the 1991 Federal Deposit Insurance Corp. Improvement Act, referred to by industry officials as “Fedicia.” After the acquisition is finalized in the first or second quarter of this year, the combined bank will boast approximately $1.2 billion in total assets — triggering an additional set of FDICIA regulations that apply when a bank passes the $1 billion mark in total assets.

FDICIA, signed into law by President George H.W. Bush after a rash of bank failures and a financial crisis in the savings-and-loan industry, imposed auditing, monitoring and reporting requirements that further strengthened the role of the Federal Deposit Insurance Corp. in protecting consumers. Financial institutions that fail to comply with FDICIA requirements could face civil penalties and additional administrative actions. Banks that reach the $500 million and $1 billion asset plateaus can face a huge compliance burden, but Francis said mergers are a good way to smooth the path, especially by bringing in a partner that “has made the investments in technology, infrastructure and accounting practices.”

Meeting federal regulations isn’t the only issue driving the mergers, he said.

“The banking business is changing. A financial-technology revolution is happening,” he said. “Financial-technology companies are challenging our business, forcing banks to look at investing in ways of better serving our clients,” he said.  “Banks continue to invest and take advantage of disruption in the marketplace. But how are they going to compete in tomorrow’s world?”

Facing such a revolution is even more daunting, he said, because “management teams are getting older. How do they continue on with serving their clients? There’s a lot of self-reflection going on.

“Customers want more access to online technology to help their business,” he said, “but branches are still being built because customers still want to go in and see bankers. So a bank has to be best in online delivery and best in branches. The challenge for us is to see what that balance is.”

Bank consolidation has been happening in Colorado for the past 15 years or so, noted Wade Gebhardt, corporate president for Mountain Valley Bank. “There are so many different strategies for banks in general. Some looked at market opportunities, increased costs, compressed margins or economies of scale.”

However, he added, another reason for 2021’s sudden spurt in mergers was simply a backlog. “A number of mergers might have happened last year except for the pandemic, so in 2021 you had a year with more mergers than you would normally see.”

The downside of consolidation, Gebhardt said, is that “it has reduced customers’ choices.” However, he added, “you saw how responsive community banks were to small business through the Payroll Protection Program.”

The quest for a larger footprint was cited by several banking officials involved in mergers.

Mountain Valley and Cache “share the same belief that people are at the center of how we do business,” said Gebhardt. “We believe banking is a people business, and people do business with people, no matter the delivery system. We just felt like not being on the Front Range wasn’t meeting our customers’ needs, so we wanted to be there for them.”

Added FNBO president Clark Lauritzen, “Western States has a proud history and an excellent reputation, plus it shares our values and commitment to community. We’re thrilled about this opportunity to grow and continue to serve customers in Colorado and Nebraska markets where we operate today, while introducing ourselves to new customers in the vibrant Wyoming communities of Laramie and Cheyenne.”

Once InBank’s acquisition of Legacy Bank is completed, it will have 19 offices, including 12 full-service offices and two loan-production offices in Colorado, and five full-service offices in northern New Mexico.

“In more rural communities especially, branches will still be important,” Francis said. “It’s not just a branch or technology that wins it for us.”

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