David Brooks at Independent Bank Group in McKinney, Texas, deserves some credit for keeping an open mind.

The $8.8 billion-asset company gained a small Colorado network after buying a Texas bank last year. That left Brooks, Independent’s chairman and CEO, with a difficult decision: stay in a market that went beyond his strategic goals or sell the branches to one of several interested parties.

Brooks decided to hold onto at least some of the branches.

A year later, Independent staked a bigger claim to Colorado, agreeing to pay $1 billion for Guaranty Bancorp in Denver. The acquisition is one of the three-biggest bank deals announced in 2018.

The move highlights the need for flexible business plans and the importance of scale.

There was a sense that Independent needed more than $1 billion in assets in Colorado to succeed over the long term, said Michael Rose, an analyst at Raymond James. “For them to really make this work … this probably was the deal they needed to do,” he added.

Throughout its history, Independent had been a steadfastly Texas company. Its focus had been on several metro areas within the state, including Dallas and Austin.

When Independent went public in 2013, Brooks assured investors that he had no plans to enter a nearby state, like when Prosperity Bancshares entered Oklahoma by buying Coppermark Bancshares.

“We had no interest in going out of state,” Brooks said in an interview last week. “We had said that we would grow and expand in the big markets in Texas. We had been very consistent about that.”

The company’s purchase of Carlile Bancshares in Fort Worth, Texas, presented an opportunity to adjust the strategy. The competitors knew each other well; Carlile once snagged a target that Independent had bid on. Carlile also gave Independent a chance to meaningfully expand around Fort Worth.

Carlile also had $600 million in assets and 18 branches in Colorado that shared a charter with its Texas operations. There was a bidding process, and Brooks worried that vying for just the Texas branches would have put Independent at a disadvantage.

While Independent won the auction, it also “had some explaining to do to the market on what we were doing going to Colorado,” Brooks recalled.

Investors can be understanding if a decision veers a bit of course, especially if the shareholder base includes institutional investors that understand the longer-term benefits of a strategic shift, said Greg Parisi, a lawyer at Hogan Lovells.

“Your investors are your owners,” Parisi added. “You want them to understand their investment and you want them to support the decisions that are made.”

It is a bit unusual for banks to expand beyond Texas, given its history as one of the nation’s best banking markets, said Matt Olney, an analyst at Stephens. Colorado is one of the few states that could keep up with the Lone Star State, he added.

Investors have seemingly bought into Independent’s Colorado expansion. Brooks and his team are largely viewed as transparent and upfront with shareholders, industry experts said. Independent did narrow its geographic focus in Colorado to the Front Range area by selling nine branches in the eastern part of the state and north of Denver to Triumph Bancorp.

Colorado’s Front Range area, which includes Fort Collins, Denver and Colorado Springs, has some similarities to Texas, and its projected growth in population and median household income is ahead of national expectations, according to a presentation from Independent.

Guaranty will greatly increase the size of Independent’s balance sheet in the state. Total loans are set to jump from $400 million to $3.2 billion. Deposits are set to increase from $278 million to more than $3 billion. More than a third of Guaranty’s 32 branches are in the Denver market.

This time, a Colorado deal was less surprising.

“It was well telegraphed by Independent about [an interest in] doing something of a decent size and doing something in Colorado,” Olney said. “The overall match with Guaranty makes sense because Independent wanted to get scale in Colorado and be active on the M&A front.”

The opportunity to make a big splash in Denver was diminishing, given accelerated consolidation in recent years.

Guaranty “is a pretty big jump but a high-quality jump,” said Jeffrey Rulis, an analyst at D.A. Davidson.

Independent, meanwhile, liked Guaranty’s geographic focus, Brooks said. CoBiz, another big Colorado bank, is a “terrific company,” Brooks said, though he noted that nearly a quarter of its $3.8 billion in assets are in Arizona — and Independent isn’t ready to cross into another new state.

With that in mind, Independent will continue to look for acquisitions in markets where it already conducts business. The next deal will likely to be in Texas simply because there are more targets there, Brooks said.

“When we look at banks available for sale [in Colorado], there’s not much I think that would be additive to us and our strategy,” Brooks added. “It’s not so much that we don’t want to do anything else in Colorado.”

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