A Story of Second Chances in Texas

An acquisition unveiled earlier this week in north Texas highlights the importance of second chances.

The seller, First National Bank of Chillicothe, has agreed to sell itself to Rockwall Bancshares Inc., a company in suburban Dallas, after a deal with another investor group fell through early last year. Rockwall is led by Kevin Fowler, a career banker who is returning to the industry after a failed run for local office.

First National has remained profitable throughout the downturn, but it began looking for a buyer in 2009 because of the constraints of its 800-person town.

"We have no problem gathering deposits, but there are just limited loan opportunities here," said Mike Baustert, First National's president, in an interview Thursday. "We are in an area where we just don't have a lot of growth opportunities."

Its planned sale to Bank4Texas Holdings Inc. fell through in March of last year because the buyers were unable to get regulatory approval, Baustert said.

The latest cash-and-stock deal seems more like a partnership than a traditional acquisition because Rockwall is planning to keep current management in place in north Texas and allow them to remain relatively autonomous, while it uses the bank's charter to open a branch in Rockwall that it will brand Victory Bank.

Fowler said he would have preferred not to buy a bank that is located four hours away from the Dallas area, but sometimes situations call for flexibility.

"We looked in Dallas. Obviously, closer would have been easier, but we couldn't find one that we gelled with. This one was a perfect fit for what we were looking for in a bank," Fowler said. "You can't really do a de novo right now and we couldn't find one that we were willing to take on locally, so that drove most of our decision to look outside of our area."

Using a rural bank to enter the big city is not unusual, investment bankers said. That is particularly true in Texas, which has one of the highest numbers of charters because it was one of the last states to allow branch banking. The financial crisis has also helped the cause, as rural banks might be in better shape than their city counterparts.

"In many cases, the banks in the major metropolitan areas that are affordable have problem loans and are under regulatory pressure," said Curtis Carpenter, a managing director at Sheshunoff & Co. "It can be just as good for the country bank's investors, who might want some kind of liquidity options. Their universe tends to be limited."

Carpenter said, all else equal, a rural bank also tends to be cheaper. (Rockwall and First National did not disclose the deal's price.)

Fowler, who left his job as a commercial lender at American National Bank last year to run for Rockwall County judge, said he wants to open a bank because Rockwall is a growing area, but it lacks a community bank that is based and owned there. Data from the Federal Deposit Insurance Corp. shows only one bank headquartered in the county — the $48 million-asset Texas Leadership Bank in Royse City.

"There is a bank on every corner, but not a locally owned one," Fowler said.

Fowler wants to complete the deal and open a Rockwall branch by January, though he admitted that his schedule is aggressive. Fowler said he has identified a potential chief executive and has other key hires lined up. While he has the seed money, he is still in the midst of filing a private placement memorandum, the documents needed to start raising capital from other investors. The firm can't file for bank holding company status until it has met its funding goals.

Fowler said he has encountered a "multitude of interest" from investors.

Dan Bass, a managing partner at FBR Capital Markets, said Fowler should be prepared for a tough sell to potential investors.

"I don't know them from Adam, but when Bank of America [Corp.] is trading at a discount making a growth story sales pitch is tough," Bass said. "The market is just so value driven right now."

When asked if he is worried that he'll be jilted again, Baustert said, "We'll just have to see, won't we?"