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Headed for the Higher Ground

By: Bill Poquette

With total assets of $118 million as of Sept. 30, Alterra Bank isn’t a giant among financial institutions in Overland Park, Kan., a suburb of Kansas City. Overland Park is the largest city in Johnson County, Kan., one of the most affluent counties in the nation and, hence, a lucrative banking market.

In addition to several local community banks nudging the billion-dollar mark, formidable competitors from out of state have set up shop in the county, ranging from giants Bank of America and U.S. Bank, as well as regional powerhouses Commerce Bank and UMB Bank, based in Kansas City itself. Asked how Alterra Bank differentiates itself from this multitude of financial services providers, many of them much bigger, Chairman Mick Aslin says, “by a desire to make loans.”

He can say that because Alterra Bank has virtually none of what many others have too much of — past due and nonperforming loans. Alterra Bank is as clean or cleaner than any bank in its market.

Formerly the troubled 1st Financial Bank, it was acquired by the Aslin Group in April in a transaction that injected $12.5 million in capital and left most of the foreclosed real estate and nonperforming loans with the sellers.

Aslin is a veteran Kansas City-area banker, whose resumé includes 22 years with UMB Bank and its parent, UMB Financial Corp., where he served as president of both entities; four years as chairman of the former Western National in Lenexa, Kan.; and six years with the former Gold Banc Corp. in Leawood, Kan., where he was serving as CEO prior to its merger with Milwaukee-based Marshall & Ilsley Corp. in 2006. He was a director of M&I from 2006–2008.

It was in late 2008 that he began thinking about acquiring a bank, and discussions about 1st Financial began a few months later in the spring of 2009. Raising the capital was difficult in the current environment, Aslin concedes. “I didn’t know what to expect,” he says. “As it turned out, we did essentially all of this capital raise in the Kansas City area. We did talk to, and continue to talk to, institutional investors but for the most part they are interested in big chunks of cash.”

Regulatory approval was difficult as well, more difficult than he has ever seen. “I’ve been involved with a lot of acquisitions in my career,” he says, “but buying a troubled bank is a bit different from a totally clean bank, so that was more of a challenge than I expected.”

The ongoing regulatory involvement has also been more of a challenge than he expected. “The regulators are wanting to make sure that the right amount of capital and real strong platforms are in place,” he explains. His track record at UMB, Western National and Gold Banc probably helped in the regulatory approval process, Aslin believes.

Asked to describe Alterra Bank’s business model Aslin replies, “We really are focused on small businesses and the people who own, work in and run those businesses. We’ll certainly be involved in retail banking in the immediate areas around our banks, but our big marketing effort will be on the business side.” And while the bank is at least somewhat unique in its desire to make loans, “We’re sort of meat and potatoes — take deposits, make loans and provide a high level of service,” Aslin says.

The new name, by the way, means “higher ground” and symbolizes to Aslin and his colleagues the higher ground in banking.

Already demand deposits have grown by about 50 percent, a rise that Aslin attributes to relationships previously established by himself and veteran Kansas City-area bankers Pam Berneking, president and CEO of the bank, and Kent Brown, chief lending officer.

Aslin and his management group are projecting growth of 20–25 percent annually, and believe they will be able to have historically attractive spreads. “We believe we can make 1 percent on assets even in a new, $100 million-plus bank,” Aslin says. But his aspirations don’t stop there. In five years, “I certainly aspire to be in the top eight from a market share standpoint in Kansas City. That puts you at $2-plus billion in today’s dollars.”

That means more mergers and acquisitions, of course. For the next several months the focus will be on “stabilizing” Alterra Bank, but Aslin has hopes of raising as much as $200 million in additional capital for expansion involving either live-bank or FDIC-assisted transactions.

Aslin says he has spent time looking at how many FDIC-assisted transactions are structured. “I have a fairly good feel for what the metrics are that can make it work.” He also believes his organization may have an advantage over some private equity investors in gaining approvals. “There are some investor groups out there that have the money but do not have management. We’ve heard from some of those but we’re pretty intent on doing our own thing — building a base to be an acquirer.”

Aslin projects that his five-year growth target “would probably require a couple of FDIC-assisted transactions and a couple of clean bank integrations.” However, if the assisted transactions do not materialize it won’t be the worst thing that ever happened. “I’d be very happy to do some mergers with other local banks that are healthy and perhaps are looking for a vehicle to create some liquidity,” he says.

Alterra Bank is counting on acquisitions rather than de novo branching to expand its footprint in the Kansas City area beyond its current office in Overland Park and a branch in Lee’s Summit, Mo. Aslin is a firm believer in bricks and mortar, explaining that people still like to come into branches, “and you do not build the franchise value that we aspire to through any form of Internet banking.”

In assessing the future for community banks, Aslin describes himself as “actually pretty bullish.” Those that have a sound capital base and a marketing plan to reach out to customers will do well, he believes.

“The real test is going to come,” he suggests, “as interest rates start moving up and whether customers are going to be willing to remain at the banks instead of putting all of their assets back into money market mutual funds. I certainly hope that the banking industry will do a good job of competing,” he adds, “demonstrating that it is in everyone’s best interest if we have a healthy community banking environment.”

Without a healthy community banking environment, Aslin sees slim hope for small business formation and community development.

Bill Poquette is editor-in-chief of BankNews.

Copyright © November 2010 BankNews Media