DENVER -- Keycorp on Monday made a further foray into Colorado by announcing the purchase of Commercial Bancorp for about $96 million in stock, or 2.4 times the Denver company's book value.

Commercial, a community bank with $356 million of assets and $316 million of deposits, owns 10 offices in Denver, Colorado Springs, Sterling, and Fort Collins.

Overshadowed by Rivals

Keycorp, which is based in Albany, N.Y. earlier this year bought Home Federal Savings, a $250 million-asset company in Fort Collins that has been renamed Key Bank of Colorado.

Even with the two purchases, Keycorp will he significantly smaller in the Rocky Mountain state than banks controlled by Northwest Corp., First Bank System Inc., and Banc One Corp.

"Colorado is a wonderful place for us," said Don Kauth, Keycorp's director of investor relations. "The big problem is there aren't many banks to acquire."

Mr. Kauth said his company, which has $32 billion in assets, likes the small-business orientation of Commercial Bancorp, and wants to buy more banks with similar niches in Colorado and Wyoming. It has not singled out specific targets. he added.

Terms of the Trade

Holders of Commercial stock will receive 0.746 share of Keycorp common for each of their shares. In afternoon trading Monday, Commercial's shares rose $5.625 to $27.875. Keycorp was off 37.5 cents to $40 a share.

The Keycorp acquisition and purchase price was questioned by some observers, who said the New York-based bank is straying from a strategy of buying northwestern banks in areas where it can be a dominant player.

"I'm a little surprised, because a few years ago they said they weren't interested in Denver," said Larry Martin, a bank consultant with Strategic Solutions Inc. in Golden, Colo. "It seems as if they've lost some focus on what they were trying to do."

Paying for Market Niche

Mr. Kauth shrugged off the criticism.

"On a price-to-book basis, it's not real cheap, but we feel this is a high-performing bank that has a niche in the marketplace," he said.

Commercial earned $3.9 million last year, for a return on assets of 1.28%. That figure should be much higher this year, said Jon Coates, the chairman of Commercial.

Mr. Coates, 59, who plans to stay with the company for "three to six more years," said he was not worried that the distant management would change his bank's orientation.

Keycorp officials have promised to retain Commercial's focus on small business (which represents 70% of its loan portfolio) while trying to enhance its consumer banking operation, he said.

Realistic Ambitions

In recent months, Commercial has concentrated on attracting retail customers from local banks that have been taken over by out-of-state companies.

But Mr. Martin, the bank consultant, said Keycorp may not be able to make significant inroads into Colorado's overcrowded retail banking market.

"With the distribution system Commercial has, Keycorp won't be able to compete in the mass retail market. But if they nurture that small-business niche, it will be a good fit strategically."

Mr. Kauth said Keycorp is aware of its limitation. "While we know we can't ever be a real major player in the state, we feel it's a great market area," he said.

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