LOVELAND  - A major investor in Advantage Bancorp Inc. is foreclosing on a $2 million note backed by the bank’s stock, according to documents obtained by BizWest, a move that likely will transfer ownership of the bank to the investor.

Like many banks, the Loveland-based Advantage Bancorp., the bank's holding company, suffered during the recession, and has been under a directive from the Federal Deposit Insurance Corp. to raise capital since 2009. The bank’s financial position improved after a stock offering in early 2012, but dropped off precipitously at the end of 2013.

As part of its effort to raise capital, Advantage in June 2013 issued a promissory note worth $2 million secured by 5,000 shares in the bank to Jeff Demaske of Greeley, owner of Greeley-based Journey Homes, according to a letter dated April 28, 2014, written by Demaske.

Demaske called in the note, demanding cure for the $2 million invested in Advantage by March 31, according to a letter to shareholders written by Advantage Bank CEO Tom Chinnock dated March 18.

Neither an attorney for Demaske nor Demaske himself returned requests for comment.
“The company’s board of directors is considering all available courses of action in response to this notice of default,” Chinnock wrote in the March 18 letter.

Advantage was unable to pay the $2 million, and Demaske subsequently foreclosed on the note, engaging Denver-based St. Charles Capital LLC to market the bank stock to potential buyers. St. Charles is expected to begin accepting bids in June, select a winning bid in July, and obtain regulatory approval for any transaction by late October, according to the April 28 letter written by Demaske.

Officials at St. Charles Capital declined to comment.
In an April 30 report to shareholders about the bank’s first-quarter earnings, Chinnock addressed the foreclosure.

“The company received a notice of default from its secured lender pursuant to the terms of the bank stock loan that is secured by a pledge of 100 percent of the bank’s stock,” the report states. “The company was unable to cure the default by the demanded date of March 31 or any time thereafter.”

Representatives from Advantage Bank declined to comment.

By foreclosing on the note, Demaske will own the bank, according to multiple sources with knowledge of the situation. But by working with St. Charles Capital to sell the shares, another owner could be found who will be able to buy the ailing bank for very little.

If no buyer is found, regulators could shut down the bank and sell the loans on the bank’s books to other banks or auction them off.

Before any change of ownership can take place, however, regulators at both the state and federal level will have to approve a “change of control” application, a process which usually takes 60 to 90 days, according to the Colorado Division of Banking.

Shareholders who invested money in Advantage likely will lose what they’ve invested, according to one source.

Despite the bank's deteriorating capital position, its operating losses had narrowed dramatically as of the first quarter of 2014, when it sustained a net operating loss of $366,000, down from $6.4 million at the end of 2013, according to the bank’s balance sheet. Performing loans increased by $9.1 million, but total non-performing assets remained at $29 million.

The bank’s Tier 1 leverage capital ratio, a key metric in determining the health of a bank, fell to 2.4 percent in the first quarter from 2.6 percent in the fourth quarter of 2013. Bank regulators consider a 4 percent ratio “adequate,” and once a bank’s ratio falls below that threshold, that bank must improve its capital levels or face a potential shutdown.

Advantage has two branches, one in Fort Collins and one in Loveland. It sold its Boulder branch to Citywide Banks in 2012. The bank held $264 million in assets as of March 31.