Commerce banks merging together under one roof

Commerce banks in Larimer County will soon be under one proverbial roof, but bank principals Gerard Nalezny and Mark Kross are like two new parents.

They know their due date – Oct. 30 – on which they will buy out their majority shareholder, Capitol Bancorp. That will give birth to a new entity through the merger of Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce.

What they don’t know is their new baby’s name.

SPONSORED CONTENT

Water Wars: Thornton’s struggle and triumph in obtaining Pipeline Permits

Lyons Gaddis understands the complexities and challenges of water and real estate law. This case illustrates an important principle of building water projects: “It never gets easier.”

“It’s hard to find a name that says who you are,´ said Kross, noting the struggle is to encompass the ideas of doing right by their community, customers, shareholders and employees.

While they continue struggle with that, they are busy making all the preparations for this new birth, which will be their fourth in five years. The pair struck out on their own in 2005 to make a home after Community First Bank was taken over by Bank of the West. Their first, Fort Collins, came in 2005; Larimer and Loveland followed two years later.

When Nalezny and Kross started, Michigan-based Capitol Bancorp helped them kick-start their new venture by pumping in a 51 percent share. In that time, the local entrepreneurs have grown the banks to combined assets of $234 million.

But Capitol Bancorp is under regulatory pressure to divest its holdings. The easy entities to cut loose were those investments that aren’t considered integral parts of their model, they said.

Nalezny and Kross decided to cut that cord and start anew. The three Colorado banks have always run their own show, with their own and local loan approval committees and boards.

“The magic of combining the banks is having a broad breadth of ownership,” Nalezny said.

And the asking price was right. In the last seven weeks the pair has gathered 90 percent of the $14.5 million needed to buy out Capitol, which will free them up to offer shares to easily another 150 investors.

Kross and Nalezny are on a road show of sorts to collect those new shareholders at no more than a 5 percent stake, or $1.2 million cap. Call it a high-dollar baby shower.

And no one is more invested than these two.

“It’s difficult for people to come up with that kind of money, but we’re all in,” Nalezny said of himself, Kross and a couple of board members. “All of our savings, and equity, we’re all in. We have people who have a commitment and passion, and that rubs off.”

The effect being, they hope, that new investment brings more interest in their banks, thus more business.

“If we can replace (Capitol’s share) with 150 smaller shareholders, they’ll do business with us and tell their friends about us and lift our organization,” Kross said.

Growing young banks

Capital has been hard to raise in this economic climate, but Kross and Nalezny feel certain they can tempt local investors to let go of some of the cash they’ve been hoarding for a rainy day. Their banks are growing at a solid 18 percent during the rough times – a good return, though not quite the 40 percent to 50 percent they saw pre-recession. The banks have a cross-section of  performing loans, and they have continued to lend, even the more risky loans such as construction. Earnings have remained in the black, as well.

“Our job isn’t to convince people of anything,” Nalezny said. “Every chance we get … we share our vision. … When the bank does well, the shareholders reap the rewards, which will be spent in our community.”

The power in such a merger, approved by the Colorado Division of Banking last month and now awaiting the approval of the Federal Reserve Board, is the combined efficiencies.

As a unit, the banks will only face one regulatory examination every year; there will be only one board, one loan committee. That’ll free many employees up for the business of growing the banks, such as loan originations.

“It allows us to be more specialized, and it gives us better economies of scale,” Kross said.

Back to that elusive name. The gushing duo has called their holding company “Verus,” which is Latin for right, as in doing the right thing. Like any new parents seeking a unique baby name, they say they are the only ones who like it.

“We’re now two months before our baby is born,” Kross said. “You want the perfect name, but we can’t find it.”

Maybe they’ll have to wait to see what their baby looks like before attaching a name to it.

Sharon Dunn covers the banking industry for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 219 or [email protected].