Before he started CoBiz Financial Inc. 15 years ago, Steven Bangert made his name pairing investors with troubled institutions.
While at CoBiz he has acquired just one bank, but with the economy cratering again, Mr. Bangert is preparing to make more use of his dealmaking experience from the late 1980s and early 1990s.
"There were a lot of opportunities in those days, and this is certainly shaping up to be a very similar point in time," Mr. Bangert said.
The $2.7 billion-asset Denver commercial lender itself is feeling the pain. It lost money for the first time last quarter, and it is heavily exposed to real estate. But analysts said that if CoBiz can demonstrate to investors that it has its problems under control, it should be able to execute Mr. Bangert's plan to raise equity to finance acquisitions.
It probably cannot hurt its case with investors that CoBiz received $64.5 million from the Treasury Department's Troubled Asset Relief Program in December.
Mr. Bangert said the money would not go directly toward acquisitions, but it serves as a sweetener to private capital.
"Our potential investors took comfort in knowing that we received the Tarp money," he said, and the Tarp funds will be used to support organic growth. Mr. Bangert anticipates leveraging the infusion 10 to 1, and he expects CoBiz to fully deploy it over the next 30 months.
CoBiz will be selective with purchases, he said. "You turn over a lot of rocks to find the right transaction. We need to be patient and need to be willing to walk away from a transaction."
Though CoBiz would prefer to buy a relatively healthy business bank like itself, Mr. Bangert said he is open to taking over ailing institutions — with regulators' help.
"We want to feel comfortable. You don't want something that is going to overwhelm you, but that allows you to go grab market share," he said. "We don't want to be too inwardly focused" — too preoccupied with fixing the problems of an acquired institution to expand.
CoBiz could make a big purchase or a few small ones, he said; the targets could be in its Colorado or Arizona markets or elsewhere in the West.
To show investors that it is on top of things, the company commissioned a third-party review of its loan portfolio; the review led to a significant padding of reserves last quarter.
"We want to be able to raise capital quickly when we find a transaction that fits," Mr. Bangert said.
Analysts said Mr. Bangert's reputation should help with fund raising.
"Just looking at the history of the management team would give investors some confidence," said Bain Slack, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
However, "investors need some assurances that CoBiz can get its arms around the credit problems," Mr. Slack said. "They will want to know if the fourth quarter was a result of doing a deep dive into their portfolio. … If so, does the reserving put them in a position to get back on track quickly?"
Joe Morford, an analyst at Royal Bank of Canada's RBC Capital Markets, said that despite the fourth-quarter "deterioration being greater than we expected," CoBiz will likely find both investors and good buys.
"I suspect there will be significant acquisition opportunities in the future, assisted deals or not, and they are in a good position to capitalize on that," Mr. Morford said. "I also think potential equity investors will take some comfort in knowing that a third party has scrubbed the books, and the company has taken some appropriate measures to get out in front of the risk."
CoBiz, the parent company of Arizona Business Bank and Colorado Business Bank, focuses on serving small and midsize companies. Its loan portfolio was 32% commercial and industrial and 40% commercial real estate at the end of the fourth quarter. Mr. Bangert said the real estate loans are secured mostly by owner-occupied properties — meaning they are pegged to the health of a business, rather than demand for the space.
Though real estate lending helped the company add roughly $1 billion of assets over the last four years, this activity is now giving CoBiz heartburn. Last quarter it swung to an $8.6 million loss, from a $5.5 million profit a year earlier. Its provision for loan losses skyrocketed 1,491%, to $23.4 million. Nonperforming assets grew twelvefold, to $47 million.
Construction and development and land acquisition loans made up roughly 22% of the portfolio at the end of the quarter and contributed to the nonperformer spike.
"For the first time, we are feeling some stress in our Colorado market, and we are trying to get out in front of it," Mr. Bangert said. Colorado accounts for two-thirds of the company's assets.
He acknowledged that "there is some concern" the loan deterioration would slow the company's expansion, but he said he does not see it as a deterrent. Colorado will likely remain one of the stronger markets, and CoBiz tends to serve mature businesses that "have been through a few business cycles."
Another source of stability, Mr. Bangert said, is that usually a quarter to 30% of its revenue comes from fees, including those from its asset management and insurance businesses, making CoBiz less reliant on interest income. This is a high percentage for the industry.
Mr. Bangert, 52, spent the late 1980s and 1990s working on roll-ups in Illinois and Texas.
In 1988 he helped a pair of investors identify a small, healthy institution, River Valley Savings Bank in Rock Falls, Ill., to serve as a springboard. As its CEO, he led River Valley through six acquisitions of failed institutions from the Resolution Trust Corp. River Valley was sold to First Banks Inc. of St. Louis in 1994.
While he was leading River Valley, Mr. Bangert was a part of an investor group that practiced a similar roll-up strategy with Western Capital Holdings in McAllen, Tex. He also was part of a group of investors that recapitalized Lafayette American Bank and Trust Co. in Bridgeport, Conn., in 1992. He served on the company's executive committee until Hubco Inc. acquired it for $130 million in 1996.
Those deals were made with an eye toward selling, but Mr. Bangert, a Nebraska native, said he wanted "to get back to his Western roots" and invest in something for the long term. So he joined a group of investors that bought Equitable Bancorp. Inc. in Denver for $17.5 million to launch what is now CoBiz.
In 2001 the company, then known as Colorado Business Bankshares, entered what was then one of the country's fastest-growing markets by acquiring First Capital Bank of Arizona in Phoenix for $28.3 million in stock. It has also acquired two small investment management firms and three insurance companies.
For the last several years the company has expressed an interest in entering the Seattle and Portland, Ore., markets. But Mr. Bangert said it is looking at all points west. CoBiz has not entered the Pacific Northwest because it has just been too expensive, he said.