Mile High chief sees merger as capital idea

Longmont-based Mile High Banks is looking to merge.

That’s the word from David Allen, president of the bank.

Mile High is “looking for possible banking partners as we speak,” Allen said recently. In Boulder County, the bank has its corporate office at 1726 Hover St. in Longmont, another branch in Longmont, a branch in Boulder and 10 other full-service branch locations in Colorado.

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As Allen looks for a partner with which to merge, he said he also is working to improve the bank’s balance sheet.

The bank’s capital ratios fell dangerously low in recent quarters, based on Federal Deposit Insurance Corp. call reports, which are used to monitor banks across the nation.

Mile High Banks’ core capital ratio was 2.31 percent for the quarter ended March 31, 2012, according to the latest FDIC call report. Federal regulators can shut a bank down if its capital ratio falls below 2 percent, according to Greg Hernandez, an FDIC spokesman. Performance and capital ratios are key measures of a bank’s health, Hernandez said.

Mile High Banks’ core capital ratio appears to have hit rock bottom at 2.27 percent in the previous quarter ended Dec. 31. In the quarter before, which ended Sept. 30, the bank’s capital ratio was 2.67 percent. In 2011’s June 30 quarter, the capital ratio was 4.36 percent.

While Mile High Banks is significantly undercapitalized, its losses have decreased quite a bit in recent quarters, according to Hernandez.

Mile High’s loan charge-offs have gone down in recent quarters for example. The bank is similar to many across the nation, which have seen huge losses in both commercial and residential real estate loans in recent years as unemployment rose and many people fell behind on loan payments.

In the most recent quarter, Mile High Banks charged off $5.14 million in loans, virtually all of them some form of real estate loans, according to FDIC call reports. In the previous quarter ended Dec. 31, the bank charged off $2.6 million in loans. In the quarter ended Sept. 30, the number was $28.8 million. The quarter before, which ended June 30, it was $6.6 million.

Bank merger activity is low right now because the heavy federal regulatory burden has depressed bank values, said Wesley Brown, a managing director at St. Charles Capital in Denver, an investment banking firm that handles mergers and acquisitions. But a bank merger may be a natural fit for a bank such as Mile High, said Brown.

“Typically when banks have quality problems that are serious, as is the case of Mile High Banks’, which results in the erosion of capital, they try to find a merger partner,” Brown said.

FDIC regulators often order banks to look for merger opportunities as well, Brown said. Hernandez has said the FDIC does not comment or speculate on open and operating banks, other than to reiterate that the government agency insures deposits up to $250,000.

But Mile High Banks isn’t the only bank looking for merger activity in recent months, Brown pointed out.

Millennium Bancorp Inc. in Edwards merged in December with CIC Bancshares Inc., parent of Centennial Bank.

Centennial Bank’s local tie is its new branch in Boulder, which it opened at the end of February at 2500 Broadway. The bank had its formal grand opening reception this week.

In addition, Loveland-based Advantage Bank recently sold its branch in Boulder at 1611 Canyon Blvd. to Citywide Banks to raise capital, Brown said. Citywide formally took over the location on April 23.

Mile High Banks has been under regulatory scrutiny since Dec. 1, when the FDIC issued a “supervisory prompt-correction-action directive.”

In general, banks across the state are seeing their average core capital ratios improve, said Larry Martin, a metro-area bank analyst. The statewide core capital ratio average is 9.11 percent.

“Loan losses have pretty well stabilized, and land values and appraisal values have stabilized,” Martin said. “A lot of banks are selling OREO (other real-estate owned, meaning bank-owned) properties for a profit, so that’s helping profit as well.”

Of local banks, AMG National Trust Bank, whose commercial operations are headquartered in Boulder, had a core capital ratio of 8.53 percent for the quarter ended March 31, following a 7.77 percent core capital ratio in the previous quarter.

Boulder-based Flatirons Bank had a core capital ratio of 8.81 percent for the quarter ended March 31. The bank reported an 8.95 percent core capital ratio for the previous quarter ended Dec. 31.

Beth Potter can be reached at 303-630-1944 or via email at [email protected].