Colorado Business Bankshares has turned an outsourcing arrangement into an in-house revenue source.

Lacking the top-notch benefits needed to keep key employees, Colorado Business Bankshares five years ago hired fellow Denver company Employee Benefits Services Inc. to upgrade, obtain, and manage that function. This year, it occurred to the bank that it could save and even make money by hiring David Bashford away from the consulting firm and offering his guidance to small businesses lost in the benefits maze.

In May, using authority granted by the Gramm-Leach-Bliley Act permitting banks to offer a wide range of consulting services, Colorado Business Bankshares created CoBiz Connect Inc. and named Mr. Bashford to head the unit. It is among the first banks to establish an employee benefits subsidiary.

Company officials began to see benefits consulting as both a natural extension of the trust- and money-management services the bank was offering its small-business customers - not to mention a new source of noninterest income.

"We realized this was a great value-added service," said Virginia Berkeley, president of Colorado Business Bank, the principal subsidiary of $610 million-asset Colorado Business Bankshares. "For small businesses, it can be very frustrating to try and navigate the employee benefits field."

Paul Pusterino, an analyst with Grant Thornton in Chicago, predicted that other banks will start employee benefits firms.

"This is absolutely necessary," he said. "Small-business people need all kinds of advice and services. They are going to get them somewhere, so why shouldn't banks be that source?"

Mr. Bashford said banking and employee benefits go hand in hand. "First," he said, "we're a generator of fee-based revenue, and second, the commercial relationships we form tend to be more enduring than purely retail ties."

CoBiz Connect also acts as a broker, getting clients the coverage they want from insurers. After a client has selected a plan, CoBiz Connect administers it.

Though barely six months old, CoBiz Connect appears to be paying off for Colorado Business Bankshares. According to the 10-K report the bank filed in August with the Securities and Exchange Commission, second-quarter noninterest income unrelated to commercial banking or equipment leasing was $2.1 million, up 54%. Most of that increase was generated by CoBiz Connect, said Sue Hermann, assistant vice president for communications at Colorado Business Bank.

Joe Morford, an analyst at Dain Rauscher Wessels in San Francisco, called CoBiz Connect "an attractive new line of business."

"The bank has found a unique way to serve its customers," he said, "and the more services customers receive, the less likely they are to leave."

Colorado Business Bankshares last month announced a deal to buy $104 million-asset First Capital Bank of Arizona in Phoenix. The purchase is expected to close in the first quarter, after which CoBiz Connect will open an office in Phoenix, Mr. Bashford said.

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