Take My Name, Just Don't Take My Bank

For cash-strapped banks, nothing is off limits when you are trying to survive. In the case of Don Woods, having a bank with no name was better having no bank at all.

Faced with a prompt corrective action directive calling for his $1.4 billion-asset Colorado bank to raise enough capital to become adequately capitalized or risk failure, Woods struck a deal earlier this month to sell branches in Colorado's most heavily populated area — and the institution's Community Banks of Colorado moniker.

The deal gives Woods, the chief executive of Community Bankshares Inc, sufficient capital to have a fighting chance at survival and perhaps an opportunity to get back to its southern Colorado roots, even if it now has to find a new name for its bank.

"The marketplace is challenging," Woods said in an interview Wednesday. "Very few banks are getting recapitalized. This proposal took extra effort on all sides. The opportunity to continue service is quite worth it. I was not inclined to sell the name, but I kept an open mind."

The sale to NBH Holdings Corp., a Boston banking company that entered Colorado last month by buying the failed Bank of Choice in Greeley, includes 16 branches. The companies did not disclose a price or the overall deposits or assets involved. Woods, however, said that the proceeds, along with a reduction in assets, would return his bank to adequately capitalized status; it is currently labeled as significantly undercapitalized.

The bank, which is based in Greenwood Village, Colo., has been under a prompt corrective action directive with the Federal Reserve since February. The order gave the bank 90 days to either sell itself or become adequately capitalized. Such a directive is often considered a final warning before regulators move to shutter a bank. Given that the bank is long past its due date, losing the name is not that big of a deal.

"The community bank name has value and it is obviously important," said Ken Thomas, a Miami-based economist and branching expert. "It is a lot easier to find a new name than it is to watch your whole bank disappear some Friday night."

NBH was able to upgrade its name in the state from Bank of Choice, which it bought in a deal brokered by the Federal Deposit Insurance Corp.

"Community Banks of Colorado has a lot more cachet than Bank of Choice," said Jeffrey C. Gerrish, a partner at Gerrish McCreary Smith. "If you are entering Colorado and want to be there in a big way I can't think of a better name."

Community Bankshares has not yet identified a new name. If the deal closes, the bank would keep 24 branches concentrated in southern Colorado, where its roots lay. It began as Rocky Ford National Bank in an agricultural town in southeast Colorado. Through acquisitions, it built a significant franchise in similar communities, said Wesley A. Brown, a managing director of St. Charles Capital, a Denver investment bank.

"This deal allows Don to get back to a region where he has done very well in the past. Those branches are generally profitable. They are in little towns where his bank might be one of maybe two banks," Brown said, adding that he didn't expect the name change to hurt the remaining franchise. "Those people know this bank, regardless of its name. I don't think it is going to be a big deal."

Like many banks that have run into trouble in recent years, Community Banks of Colorado looked to bigger cities for loan growth. It entered Denver, tony mountain towns, and the western side of the state, Brown said. It also bet heavily on construction lending. At June 30, the bank's nonaccrual loans made up 10.7% of total loans. Its leverage ratio was 1.92%, a dangerously low level.

"We hope that this deal gives him the fire power to turn the bank around," Brown said.

The deal only returns the bank back to a merely adequately capitalized status, meaning that it will still need to find more capital before declaring victory.

Industry observers said it is unclear if scaling back will help or harm the bank as it seeks more investors.

"Having a franchise in rural markets might be a turn off to some institutional investors," he said. Still, "the branches he is retaining are the better ones. They are in low density, low growth markets, but they are profitable. Plus, he has a demonstrated record of successfully running those branches."

"Being able to grow and be profitable in an area that they know and where they have excelled before could be attractive to investors," added Rick Levenson, the president of Western Financial Corp., a San Diego investment bank.

NBH declined to comment, but industry observers said that the company is getting a solid name in a state where it has bullish plans to expand with acquisitions from Colorado Springs to Fort Collins. NBH, backed by $1 billion in equity, has said it could move its headquarters to Denver. It is also considering Kansas City, Mo., where it owns the $2.8 billion-asset Bank Midwest.