Robert Gandy 4th, a third-generation Texas banker who has worked in the industry since childhood, said he "always wanted to build something on my own, start something from the bottom up."
But for his first venture, Gandy, 28, did not quite start from scratch. Rather, he made a deal to buy a small savings bank in La Grange, which he plans to expand into the Houston, San Antonio and Austin metropolitan areas and possibly Dallas. Among other reasons, Gandy cited the difficulty of obtaining approval for a new charter right now.
"Basically, buying a bank that is up and running, has infrastructure in place and is a clean bank is the perfect platform," he said.
Given the regulatory holdups, several industry watchers said Gandy is not the first — and most likely will not be the last — entrepreneur to buy a small bank instead of trying to charter one.
"This is really the new charter play," said Randy Dennis, the president of DD&F Consulting Group in Little Rock. "You can't charter a bank nowadays, so the best way is to buy."
Lee Bradley, a managing director in the Atlanta office of the Dallas investment bank and consulting firm Commerce Street Capital LLC, said he has seen several organizing groups withdraw charter applications and start looking for an acquisition, especially in parts of the country where there is a lot of interest in starting a bank but regulators have proven slow to grant deposit insurance.
"It is mostly going to be in Texas and here in the Southeast, because that is where the FDIC is redlining," he said.
Gandy organized Austin Bancshares Inc., which agreed to buy La Grange Bancshares Inc., the parent of the $29 million-asset Colorado Valley Bank. The deal, announced last week, is expected to close next quarter. The price was not disclosed.
It was the first deal to be announced in Texas this year; four had been announced by this point last year, according to data from Carson Medlin Co.
Nationwide, 44 deals have been announced this year. (Three have since collapsed.) By this point last year there were 69 announced deals. (Nine were later terminated.)
But there has been a sharp decline in the number of start-ups in Texas over the past year, as getting regulatory approval and deposit insurance has become tougher.
Since January of last year only seven start-ups have opened in the state, according to Carson Medlin data; in 2007 there were three times as many.
Observers say they expect more small deals like Gandy's to come about as would-be bank organizers opt to buy instead.
Dan Bass, the managing director in Carson Medlin's Houston office, who represented the sellers of La Grange Bancshares, said there are plenty of shoppers for Texas banks, though many people have unrealistic expectations that they can buy institutions with clean portfolios on the cheap.
"We get a lot of groups that are naive and think they can buy little banks for book value," Bass said. "Who would sell at that price unless they were having issues? You get what you pay for, and if you are buying something at book, there is going to be hair on it."
Geri Forehand, the director of strategic services at Brintech Inc., a consulting unit of United Community Banks Inc. of Blairsville, Ga., said many small banks are finding the regulatory burdens and expenses too high and are looking for buyers.
But with the slowing economy, Forehand said, prospective buyers should be cautious about what lurks in a loan portfolio. "The biggest deterrent is the due diligence you have to do on the loan portfolio and making sure you are comfortable that you have identified the problem loans," he said. "I'm not sure there is anybody out there that can identify the problem loans."
Gandy said Colorado Valley's clean loan portfolio made it attractive.
"They have zero credit issues, which is great at a time like this," he said. "The management is very capable. They are going to stay on and help run things."
Colorado Valley's nonperforming assets made up just 0.03% of total assets at Dec. 31, according to Federal Deposit Insurance Corp. data. The savings bank has $20.6 million of deposits, none of which are brokered.
However, the only profitable quarter the savings bank had last year was the third, which netted it $48,000 for the year.
Gandy said Colorado Valley needed more scale to become profitable, and that is exactly what he plans to do with it. He said he would expand to $300 million of assets over the next seven years.
Observers say buying can also be cheaper than opening a new bank.
Data from Carson Medlin showed 24 of the 57 start-ups that have opened in Texas since 2003 have posted a profitable quarter, with the bulk of those in the black having opened before 2006. The start-ups that have stopped losing money took an average of 5.7 quarters to do so, and their cumulative losses ate up an average of 13.5% of their initial equity.
Gandy works in Austin as a branch manager for the $4.2 billion-asset First National Bank Group Inc. of Edinburg. He also worked for four years in New York at Sandler O'Neill & Partners LP focusing on quantitative analytics and fixed-income trading for banks.
Despite his youth, he said he is well prepared to run a bank and gets plenty of "free advice" from his father, Robert Gandy 3rd, the chief executive officer of First National, and from his uncle, Robert Smith, who runs the $365 million-asset Soy Capital Bank and Trust Co. in Decatur, Ill., which the younger Gandy's grandfather started.
"I have been working at First National since I was 10," he said. "I have done basically every job in the bank since that age. It isn't an industry that is new to me. I grew up around bankers."
Family ties will also create some synergy for the new venture — Gandy said Colorado Valley will partner with First National for correspondent services and loan participations.