When Cordia Bancorp was formed in 2009, the investors behind the Washington company planned to acquire a shelf charter and bid on failed banks in the Middle Atlantic and Southeast regions.
But the market was moving faster than the regulators. And by 2010, the Cordia team of six banking veterans ditched the charter strategy to focus on investments in healthy banks needing capital. The group closed its first deal this month, and acquired a platform to make others, when it bought a controlling interest in Bank of Virginia in Midlothian.
"We felt that, at least on the East Coast and in the Mid-Atlantic, the world was evolving," Jack Zoeller, the company's chief executive, said in an interview last week, "and that there were more banks that were never going to fail but certainly could use some additional capital, and maybe management and adding new backgrounds to their boards."
Cordia announced its first deal in April to invest up to $15 million in the $219.3 million-asset Bank of Virginia.
After amending the agreement in October after a rise in the bank's provision for loan losses, Cordia completed the deal Dec. 13, buying 6.7 million shares in the bank at $1.52 share. The company may buy an additional 6.4 million shares at the same price by Sept. 30.
The initial $10.3 million investment gave the company a 59.8% stake, and a launching pad for growth.
"This is a great franchise in the Richmond area, predominantly on the south and west sides of the city, where there's been huge growth in the last 10 to 15 years," Zoeller said. "So our first task is to improve and grow the Richmond franchise. It follows from that, though, that there are other opportunities in central Virginia and across the state."
The first priority will be returning Bank of Virginia to profitability, Zoeller said.
Like other banks in its market, it has faced problems in its commercial real estate portfolio. It has had just two profitable quarters since September 2008 and this year had lost $5.5 million by Sept. 30, compared to a $2.7 million loss in the same period last year.
Though the Cordia team will have its hands full with the loan portfolio, Bank of Virginia's credit-quality deterioration allowed the investors to pick up more shares at a lower price and acquire a larger controlling interest than initially sought. (The original deal called for a $15 million investment, at $3 a share, for a 52% stake.)
The Cordia team has a wealth of experience in turnaround banking.
Zoeller, who will be the bank's new CEO, has 30 years of experience at start-up companies in banking and risk management. During the last banking crisis, he was the CEO and helped rehabilitate ComFed Bancorp, a troubled, $1.8 billion-asset bank in Massachusetts.
All but one of Cordia's seven principals — the group recently added a seventh member — has started a company, and four have served on bank boards. Several have relationships going back four or five decades, and three of them worked together most recently at TransCommunity Financial Corp., which Community Bankers Acquisition Corp. bought in 2008.
Six of the principals are to join Bank of Virginia's board.
"It's a group that had backgrounds, skill sets and orientations that are aligned with what you need to succeed if you're going to do a bank strategy now," Zoeller said.
Their strategy includes going after what they call "undervalued" franchises, primarily in the Middle Atlantic states along a corridor from Baltimore to Charlotte, N.C.
Virginia in particular has "highly attractive" demographics, including significant population growth and some of the highest median incomes in the country, Zoeller said.
It is not a bad place to start, said Stephen Moss, an analyst at Janney Montgomery Scott.
"There are some very inexpensive banks right now in Virginia," Moss said. "A lot of them are generally very small, but there are some larger names that are definitely of interest."
Northern Virginia has held up better than markets in the central part of the state, Moss said, and he expects to see additional failures in Virginia next year. Among others that have had their problems and are working through them, many are looking to sell, he said.
Richmond in particular has faced more strain in its real estate market, creating potential opportunities for buyers, said Martin Friedman, the chief executive of FJ Capital Management Inc. in Arlington, Va. But competition is likely. In a white paper released last month, Friedman noted that the pace of failures had slowed and that buyers are expected to come back to the traditional M&A market.
"M&A pricing is going off at recessionary levels, a reality poised to continue well into the foreseeable future and one that clearly favors buyers who are able to build market share on the cheap," Friedman wrote.
The demographics in Virginia — whose counties have some of the highest median incomes in the nation, according to recent census data — are "highly attractive" to Cordia, Zoeller said. Its priority is to look for opportunities in contiguous markets.
Zoeller said Cordia has not ruled out failed-bank deals, which would be easier to bid on now that it has bank holding company status.
He would not say how much capital Cordia started with but said it would look to raise more before pursuing another acquisition.
An ideal candidate for investment would be a bank that is fundamentally sound, with good management; strong market presence, particularly in retail markets; a good deposit mix and a high-quality lending division.
"And if they have some needs, particularly for capital, or interest in adding to their management in a way where we have some strength, then that would be ideal," he said.