BankWest in Castle Rock, Colo., did not grow much in its first five years, and investors were getting restless.
Founded in 1998 as a community bank offering consumer and business loans, BankWest had failed to distinguish itself from dozens of others doing the same thing along the state’s Front Range.
It was not losing money, but it was not making much, either, so in August 2003 its founders turned to new investors and a new model to boost growth and profits.
BankWest’s assets have since doubled, to $125 million, and executives are aiming for $500 million by 2010, but profits have yet to materialize. The bank lost $709,000 in 2003 and $703,000 in 2004. As of March 31 its return on assets was negative-2.12%, and its return on equity was negative-19.46%. Its efficiency ratio was 132.05%.
That is partly because the revised strategy — courting businesses with cash and wealth management products and services — is an expensive one requiring highly paid specialists and more branches in affluent areas. But executives claim BankWest will turn a profit next quarter.
It has not had any trouble attracting capital. After raising an initial $9 million, it had a second offering of $5 million in April that sold out in a week. A third offering of $5 million is planned for next month.
BankVest Inc., a holding company established for the bank in 2003, has roughly 90 shareholders and aims to have 130 to 140 about a year from now.
“I think there’s a niche within the market to grow very rapidly,” said John Davis, BankVest’s president and chief executive. “We focus on just privately owned businesses and their owners, so our whole strategy lies in the kind of service that we can give to our select accounts.”
Mr. Davis headed the investor group that bought about an 85% stake in BankWest, which changed its name to Colorado Capital Bank last month.
With new branches in the Denver area, Colorado Springs, and Vail, Colorado Capital has grown from 25 employees in August 2003 to more than 60. It has invested in technology and hired experts to launch cash management and, more recently, wealth management products and services.
Though the state has scores of community banks that compete for business customers, not many offer cash and wealth management — and it is unusual for such a small bank to do so, according to Larry Martin, the president of Banking Strategies LLC in Denver. Most small banks — particularly start-ups — do not have the wherewithal to spend the millions needed to put in expensive systems and attract the required talent, he said.
“There aren’t a lot of community banks with assets under $100 million in the Denver area that are this aggressive about fee-based products,” Mr. Martin said. “The larger banking companies that have these products focus on companies with revenues over $10 million, so that leaves a niche for a community bank like Colorado Capital Bank to go after the smaller customers — provided they’ve brought the right people … who can really service these customers.”
John R. Pittman, a director in the Kansas City, Mo., office of the consulting firm RSM McGladrey Inc., said the bank’s new owners have a track record of running successful banks with similar offerings.
Mr. Davis was previously the chairman of GRA Inc., a bank consulting and accounting firm with offices in Denver and Kansas City. Before that had had been the president of the $225 million-asset Fidelity Bankshares Inc. in Garden City, Kan., from 1983 to 1992. (Commerce Bancshares Inc. of Kansas City bought Fidelity in 1998.) He also was the president of the Kansas Bankers Association from 1990 to 1991.
BankVest’s investor group also includes Fred Eller, the former president and CEO of Enterprise Bank and Trust, a unit of the $1.1 billion-asset Enterprise Financial Services Corp. in St. Louis. Like Colorado Capital, Enterprise emphasizes cash and wealth management products and services.
Mr. Davis said that Colorado Capital has separate boards for each of its six branches and that a number of the 70-odd new investors had been appointed as directors.
“We get them to be customers of the bank, and they can then bring in additional clients, because they want the bank to do well — as owners, they are the best salespeople for the bank that we could possibly have,” he said.
