Zions Bancorp, signaling it has put behind it the distractions of a failed merger with First Security Corp., said Monday it agreed to buy Utah neighbor Draper Bancorp.
The agreement also makes good on Zions pledge to return to its practice of seeking out bite-size acquisitions to build its presence.
Draper, the parent of the $250 million-asset Draper Bank headquartered in the northern Utah county of Salt Lake, where Zions is based, increases Zions share of deposits in that county by $213 million, to roughly $1.7 billion. The purchase price was not disclosed.
The announcement dovetails with comments from Zions chief financial officer, Dale Gibbons, during the companys third-quarter earnings conference call, when he talked of expanding our franchise in ways that would be accretive to earnings.
Weve always been in the market for smaller banks that have had a strategic fit for us, said George Hofmann, executive vice president and head of retail banking for the companys flagship Zions First National Bank, on Monday. Draper fits in nicely in the southern part of Salt Lake valley where we dont have a large presence, he said.
In addition to retail deposits Zions is gaining a small business-lending franchise and a construction lending business that have helped Draper raise margins to at least 7%, compared with Zions margin of 4.34% during the third quarter. Zions is the largest SBA lender in Utah.
But even after the Draper transaction, Zions will have some work to get to the top position in Salt Lake County and Utah overall, where it holds the No. 2 position, behind Wells Fargo & Co. The San Francisco banking company took the top position when it caught First Security on the rebound from the failed merger with Zions.
The First Security-Zions deal fell apart in March after First Security issued an unexpected profit warning and Zions shareholders balked at the deal.
But though the failure was painful at the time, Mr. Hofmann noted Monday that it would have sparked further antitrust issues in Utah, thus preventing future deals there. Zions and First Security had been required to divest 68 branches, mostly in Utah, in order to complete their merger.
Mr. Hofman said the Draper deal was not born out of the failed First Security merger. Zions has always strategically been an acquirer, he said.
Analysts said the announcement signaled that Zions has put the expense and disruption of the First Security transaction behind it and has resumed its previous role as a regional acquirer.
With holding company president and chief executive Harris H. Simmons at the helm, Zions was a frequent buyer of smaller banks in the West before announcing the First Security merger agreement.
Mr. Simmons and Mr. Gibbons, as head of the holding companys acquisition team, brokered the Draper deal.
The acquisition is in a small market they know intimately, and with high quality company thats what investors would want to see, said David Winton, an analyst at Keefe, Bruyette & Woods Inc.
And Zions has already identified other parts of the country where it may expand.
During the third-quarter conference call, Mr. Gibbons said the bank would consider acquisitions in markets where it does not have a big presence, such as California, Texas, and the Pacific Northwest.
In its home state, Zions could also increase its market in the central valley, Mr. Hofmann said.
The deal is expected to close Jan. 26; Zions plans to convert Drapers systems at the end of February.
It plans to close two of Drapers six branches plus one of its own, which overlaps with the Draper network.
Draper president and chief executive Bob Daugherty has signed a contract to stay on for a year.