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I-banker assisting with bank roll-up in Colorado

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I-banker assisting with bank roll-up in Colorado

A former managing principal at FIG Partners LLC is helping some bank investors pursue an acquisition strategy in Colorado.

Adam Desmond, who was co-head of investment banking at FIG Partners from 2002 to 2014, is now founding partner of the investment bank Needle Rock Capital, a division of Stonecrest Capital Markets Inc. Desmond helped lead a $30 million capital raise for investor-backed TIG Bancorp, which purchased Denver-based bank holding company Custer BanCorp. and its Hotchkiss, Colo.-based subsidiary First State Bank of Colorado.

First State is retaining its name, and the bank's leaders are seeking acquisitions, said Desmond, who is a shareholder and will join the board of the holding company.

"We are actively looking right now," he said in an interview.

The bank is eyeing targets in Colorado that have about $90 million to $250 million in assets; Desmond said First State could execute two to three deals in the next three years and boost its assets to about $750 million from the $221.8 million it had at the end of September. In order to execute such deals, however, First State would likely need to raise more capital.

Desmond said the plan is to raise capital for deals as needed. He believes that approach will help the bank remain disciplined as it considers growth opportunities. Many others that pursued a bank roll-up strategy after the financial crisis raised large amounts of capital upfront and felt a pressing need to spend it, he pointed out.

"I don't really like that approach," Desmond said.

Desmond also believes existing shareholders will provide more capital if they think the bank has found good targets. Some investors that backed the deal for First State are veterans in the bank space and will also join the holding company board.

One of them is Benjamin Mackovak, a managing member of Strategic Value Bank Partners. Mackovak works alongside Marty Adams, former CEO of Sky Financial Group Inc. and president of Huntington Bancshares Inc., who is also a managing member of Strategic Value Bank Partners.

A fund from FJ Capital Management LLC is also an investor and will have board representation. Martin Friedman is a co-founder, managing member and chief investment officer of FJ Capital and has previously served on bank boards.

An affiliate of EJF Capital LLC is another investor that took part in the deal for First State.

First State became available when Chairman Craig Walker, who owned more than 95% of the bank, needed to sell assets after filing for a Chapter 11 bankruptcy. First State itself was not in bankruptcy.

"This is a very clean bank," said Boyd Hodges, who was part of the investor group and will become the bank's chairman.

Hodges has a history of working with banks in Colorado. Most recently, Hodges was president and CEO of Bayfield, Colo.-based Pine River Bank Corp., which sold to Greenwood Village, Colo.-based National Bank Holdings Corp. in 2015. Gary Webb, former executive vice president of operations for First Financial Bankshares Inc., is slated to become chairman of the holding company.

One part of First State's growth strategy is to expand in Colorado's rural areas, which can offer lower-cost deposits. "There's fewer banks in these more rural areas, which allows us to have a competitive advantage," said First State President Jeffery Walker, who is the son of Craig Walker.

Walker said a good portion of First State's deposit base comes from rural areas, and its cost of funds is 0.19%. An S&P Global Market Intelligence analysis found the banking industry's total cost of funds was 0.54% in the third quarter.

Walker added that, even if First State cannot execute an acquisition strategy, the bank can grow organically. "There's just an incredible amount of momentum here from job growth to population growth to housing," he said, referring to Colorado's economy.

Desmond is also familiar with the state's economy. He has lived in Colorado for about 15 years and has a good understanding of the banking landscape in which First State operates.

"I know other banks I think we need to roll up," he said.