It is understandable that C. Malcolm Holland is only interested in buying healthy banks.
The veteran banker, who was the leader of the Texas division of Colonial Bank, has raised $45 million in capital to buy small, clean Texas banks with the goal of rebuilding the franchise he lost when Birmingham, Ala.,-based Colonial's failed in August 2009.
So far, his Veritex Holdings Inc. has struck two deals. Earlier this year, it purchased the $141 million-asset Professional Bank in Dallas. Veritex is also buying the $150 million-asset Fidelity Bank in Plano. If all goes according to Holland's plans, Veritex Community Bank will have six branches in the greater Dallas area by early next year, with plans to build an additional two branches.
"At Colonial, we had $1.6 billion in assets. I've brought on 12 of my employees. We are way top heavy here, but that's because I want to build a $1.5 billion bank," Holland said in an interview last week. "I'm really bullish on my plans."
Colonial's profitable Texas business was considered a bright spot on the otherwise tarnished $25 billion-asset bank. Still, Holland's ability to get nods from regulators and money from investors is evidence that there might be life for some after a bank failure after all.
"Have you ever worked at a failed bank is a question the regulators ask when vetting management," said Chet Fenimore, a managing partner at Fenimore, Kay & Harrison in Austin.
"That worries a lot of bankers, but you just have to show that you weren't the one that made the decision that lead to the ultimate demise," Fenimore added.
To Holland, it was largely a non-event. The Federal Deposit Insurance Corp. took no issue with his connection to Colonial. Investors naturally asked about it, but he was still able to secure the backing of private-equity firm SunTx Capital Partners in Dallas, which owns a 24.9% stake in Veritex.
Holland and SunTx struck up a partnership in late 2008 when the SunTx signed a nonbinding letter of intent to buy a 24.9% stake in Colonial, which was ailing from its exposure to residential real estate in the Southeast. That deal fell through a few months later.
"Initially, we were going to get control of the entire thing," Holland said. SunTx next backed Holland's effort to buy Colonial's Texas operations. Though a definitive agreement was signed, regulators seized the bank before it could be completed. The FDIC sold most of the bank's operations to BB&T Corp.
"The regulators vetted me very quickly. They knew I had nothing to do with" Colonial's failure, Holland said. "If I had, I dang sure would not have been approved."
Holland said that Colonial's demise in August 2009 was emotional.
"I didn't think that my career was over, but I did think how did I get into this position where I am part of a failed institution?" Holland said.
Holland is not the only banker to successfully stage a comeback.
Kevin J. Hanigan, who served as president, chief operating officer and eventually chief executive of Guaranty Financial Group Inc. in Austin, now heads Highlands Bank in Dallas.
Also, Frank Basirico, the chief administrative officer that took the reigns of Temecula Valley Bank for its final seven months is working with the $80 million-asset AtlaPacific Bank in Santa Rosa, Calif. Basirico has been tasked with helping the capital-flushed bank identify acquisitions.
In an interview, Basirico said his time as CEO of Temecula has proven useful in his new endeavor. "When you go through a situation like the one I had at Temecula, you learn a tremendous amount about dealing with regulators," he said in an interview Friday.
"It better prepared me for banking going forward," he added. "A lot of the banks we are talking to have high Texas ratios. I've walked in their shoes, I can identify with what they are challenged with."
Holland, though, is not interested in acquiring distressed banks.
"We don't want to spend 24 to 36 months cleaning up. We want to provide an alternative in Dallas for lending and business relationships," Holland said. "I want ours to be a story of growth, rather than of cleaning up."
Holland said he realizes that is a more-expensive route since healthy banks are selling at a premium, whereas strugglers sell at a discount. It is worth it, he said.
According to SNL Financial in Charlottesville, Va., Professional Bank sold for 1.89 times its book value. The pricing of the Fidelity transaction was not disclosed.
"The banks he is buying are good banks, so the owners are not going to give it away," said Dan Bass, a managing director with FBR Capital Markets. Bass said Holland's strategy of pursuing healthy banks is smarter than fighting over a few strugglers in Texas.
"There is a lot of of competition for failed banks here. Any failure has a waiting list of buyers waiing to do due diligence. And we've seen a few last-minute capital infusions," Bass said.