Community banks come back to the community

Plans to shed ties to their holding company will pave the way for future growth for three locally chartered banks.

Capitol Bancorp Ltd. – co-headquartered in Lansing, Mich., and Phoenix, Ariz. – announced in mid-April that it reached an agreement in which its 51 percent shares in Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce would be redeemed. The deal is expected to close later this year, pending regulatory approval.

Capitol’s involvement in the day-to-day operations at the Northern Colorado banks has been non-existent, explained Fort Collins Bank of Commerce President Gerard Nalezny. Capitol’s role was limited to that of a shareholder. Each of the three banks has its own local board and loan review committees. Capitol’s operating model was to help set up local community banks and provide basic back-office functions to them.

“They were instrumental to getting us started,´ said Mark Kross, president of Larimer Bank of Commerce. “And they should be applauded for supporting the community bank model.”

The model has worked well here. Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce had combined assets of $224 million at the end of 2009. Fort Collins Commerce, founded in 2005, reported an 11.5 percent increase in its loan portfolio during 2009, while Loveland Bank of Commerce saw a 24 percent increase.

But throughout Capitol’s network of affiliate banks, not everything was looking positive. Capitol entered into an agreement with the Federal Reserve in September that requires the holding company to boost its capital. The company divested or announced plans to divest a number of holdings during the past year.

“It is a win-win for us to buy them out,” Nalezny said.

As part of the stock redemption agreement, the banks will eventually seek to raise additional capital. That will translate into even more local ownership and, potentially, more lending power.

“We want to fill a void in our marketplace,” Kross said. “This is our first step to meet the needs that are out there.”

Kross explained that during the good times, some deals got done that shouldn’t have. Today, the tables have turned and deals that should get done are going unfunded. Nalezny agreed that the stock redemption will position the banks for growth.

“We think, as part of this transaction, it will allow us to evaluate opportunities to expand,” he said.

Kross pointed out that the split from Capitol will have no impact on the institutions’ foundations of community banking.

“It really doesn’t change what we are or who we are,” he said.

RWN3 Fund launched

A former local banker feels so strongly about the viability of the community bank model that he is translating its basic principles into the world of personal investment.

Bud Noffsinger, former president of First Western Bank and Trust’s Northern Colorado operations, launched a locally based mutual fund in April. His RWN3 Conservative Allocation Fund in Windsor employs an asset allocation strategy that includes investments into the broad asset categories of debt securities, making up 50 percent to 75 percent of the fund; equity securities, 25 percent to 50 percent; and cash investments for up to 25 percent of assets. In its first month of trading, the fund increased 8 percent from its $10 start.

Mutual funds give investors diversification without the requisite pile of cash or expertise that would be needed if they were investing on their own. Minimum buy-in for RWN3 Fund is $5,000.

Noffsinger feels that the mutual fund industry is headed for a major overhaul, as individual investors seek better values and more personal service. There has been some backlash against excessive fees, such as front-end load fees and 12B-1 marketing fees. A front-end load fee of 5 percent would mean that an investor’s $100,000 investment would immediately be reduced to a $95,000 investment. The RWN3 fund doesn’t charge load fees or 12B-1 fees.

Noffsinger said he wants to see changes in the industry. As the funds advisor, he has agreed to waive his fees or absorb expenses of the Fund to ensure that total annual operating expenses don’t exceed 1.25 percent of average daily net assets.

The fund is actually one of several in a series trust associated with UMB Bank. As part of the trust, the RWN3 fund can share legal, accounting and other service expenses. Without partnering, the fund would need $40 million in assets to break even, but as part of the trust, that point lowered to $11.5 million. It also allows Noffsinger to focus on the fundamentals.

“In Northern Colorado, I want to focus on two things: managing the portfolio and finding the shareholders,” he said.

Noffsinger likens his fund advisory methods to that of a community bank versus a national chain.

“In the mutual fund space, I think that model will work well,” he said.

Kristen Tatti covers the banking industry for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 219 or ktatti@ncbr.com.

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