New Frontier Bancorp had hoped to be announcing its rescue last week.
Instead, its hometown of Greeley, Colo., was abuzz over the possibility the company might fail, after a $30 million deal to bolster it fell through.
The residents had reason to anticipate the worst.
Larry Seastrom, New Frontier's ousted chief executive officer, told a local newspaper that its prospective investors had withdrawn because the Federal Deposit Insurance Corp. had begun shopping the $2 billion-asset company.
"When the FDIC has you out on the bid process, why would anyone buy you?" the Greeley Tribune quoted Seastrom as saying.
Reached at home, Seastrom would not discuss the report or the situation at New Frontier.
He left the company this month, because of a regulatory order requiring it to appoint a new management team.
A group led by two Colorado businessmen announced in January that it had a deal to invest $30 million in New Frontier. Gary Jacobs and Mark Wong said they had formed Colorado Financial Holdings LLC to take a 51% stake in New Frontier, pending the results of a loan review.
The deal had been expected to close by April 10.
Neither Jacobs nor Wong returned calls for comment.
Joe Tennessen, a spokesman for New Frontier, confirmed that the deal collapsed, but he would not say why.
He said the company — which has been hurt by rising losses on its residential construction and development loans — would continue to work with the Denver investment firm St. Charles Capital LLC to find capital and explore other options.
Tennessen would not discuss the matter further, and New Frontier's acting CEO, Wanda Anderson, did not return a call for comment.
Those familiar with the FDIC bidding process said banks generally appear on the list about a week before getting seized.
That would put New Frontier on a tight deadline, and deal experts said renegotiating with Colorado Financial Holdings would be its only hope in that case.
"If you are about to be hanged and have spent three months with one attorney, but you are now walking to the gallows, there is no time for another attorney to save you," said Michael Iannaccone, the president of MDI Investments Inc. in Chicago.
"Same applies here. I don't think another investor would have the time to do the due diligence needed to save them."
Andrew Gray, an FDIC spokesman, said the agency does not discuss specific companies.
However, he added, it does not decide the timing of failures. "The primary regulator makes the decision to close an institution, not the FDIC."
The Colorado Division of Financial Services, New Frontier's primary regulator, did not return a call for comment.
Charles R. Crowley, a managing director at Stifel, Nicolaus & Co. Inc., said that if the FDIC were looking for buyers, there would be no motivation for private investors to remain on the scene or get involved.
"If a company were being preliminarily shopped, that would certainly change or kill any interest of private investors," Crowley said. "There likely would not be enough time to get a private capital deal completed before the regulators came in and shut the bank, and then there is the likelihood that a given buyer could get the bank cheaper from the FDIC."
Iannaccone said he doubted Seastrom's assertion that the FDIC had begun taking bids on New Frontier, unless its failure were imminent.
The remark may have been a stunt designed to prod the private investors into closing the deal, Iannaccone said.
"It may just be his way of putting pressure on the investors," he said. "He might be telling them, 'If you don't close soon, you are going to lose the deal to the government, and you are going to be the one to blame.' "
New Frontier is by far the largest deposit holder in Weld County, with a 38% share, according to FDIC data. That is more than four times its largest competitor.
But some customers had begun yanking their deposits last week — and observers said that raises liquidity concerns.
Walter G. Moeling 4th, a partner in the Atlanta office of Bryan Cave LLP, said regulators generally are not quick to declare a failure, but "irresponsible" comments like those made by Seastrom could become a self-fulfilling prophecy for a troubled institution.
"Customers read that and think, 'I am getting my money out of there,' and it triggers a liquidity event where one wouldn't have occurred otherwise," Moeling said. "The bank becomes automatically in trouble at that point, even if it wasn't already."
New Frontier has been under capital pressure.
At yearend, its bank unit had a core capital ratio of 7.7% and a total risk-based capital ratio of 10.4%, according to FDIC data.
Regulators have ordered it to increase the core capital ratio to 8% and the total risk-based capital ratio to 12%.
Iannaccone said New Frontier would need roughly $40 million to get its capital ratios to those levels.
Any prospective investors also would have to be prepared to pump an additional $120 million to $160 million into the company over time, he said, depending on the performance of the construction and development portfolio.
Most of New Frontier's troubles stem from those loans, which make up a quarter of its total.
They have been deteriorating rapidly over the past year, causing New Frontier's ratio of noncurrent loans to jump to 7.49% at Dec. 31, from 1.38% a year earlier.
That figure might have spiked even further in the first quarter. New Frontier had a large exposure to Johnson Dairy, the largest milk producer in Colorado, which filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code in January.
Sarah MacQuiddy, the president of the Greeley Chamber of Commerce, said rumors about New Frontier's demise began swirling last year, then tapered off after the Colorado Financial Holdings deal was announced.
But by last week the fear had taken hold again.
"We've had some people tell us they are pulling out their accounts, and others are saying, 'I am going to stay there,' " MacQuiddy said. "Truly, both sides have been equally vocal."