A Comeback Exec Builds in Texas to Grow, Not Clean Up

It is understandable that C. Malcolm Holland is only interested in buying healthy banks.

The veteran banker, who led the Texas division of Colonial Bank, has raised $45 million in capital to buy small, clean Texas banks with the goal of rebuilding the size business he lost when Birmingham, Ala.-based Colonial failed in August 2009.

So far, his Veritex Holdings Inc. has struck two deals. It bought the $141 million-asset Professional Bank in Dallas this year and is in the process of buying the $150 million-asset Fidelity Bank in Plano. If all goes according to Holland's plan, Veritex Community Bank will have six branches in the Dallas area by early next year, with plans to build another two.

"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 for the otherwise tarnished $25 billion-asset bank. Still, Holland's ability to get nods from regulators and money from investors is evidence that, after all, there might be life for some after a bank failure.

" '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, Texas.

"That worries a lot of bankers, but you just have to show that you weren't the one that made the decision that led to the ultimate demise," Fenimore added.

To Holland, it was largely a nonevent. The Federal Deposit Insurance Corp. took no issue with his connection to Colonial. Investors naturally asked about it, but he was able to secure the backing of SunTx Capital Partners in Dallas, a private-equity firm that owns a 24.9% stake in Veritex.

Holland and SunTx struck up a partnership in late 2008 when SunTx signed a nonbinding letter of intent to buy a 24.9% stake in Colonial, which was ailing because of its exposure to residential real estate in the Southeast. The deal fell through a few months later.

SunTx next backed Holland's effort to buy Colonial's Texas operations, however those discussions were cut short when regulators seized the bank. 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.

He is not the only banker to achieve a comeback.

Kevin J. Hanigan, who was the 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 who took the reigns of California's Temecula Valley Bank for its final seven months, is working at the $80 million-asset AtlaPacific Bank in Santa Rosa, Calif. Basirico has been assigned to help the capital-flush bank identify acquisitions.

In an interview, Basirico said his time as CEO of Temecula proved useful to him at AtlaPacific. "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, said he is not interested in buying 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 his is a more expensive route since healthy banks are selling at a premium, whereas strugglers sell at a discount. But it is worth it, he said.

SNL Financial in Charlottesville, Va., said Professional Bank sold for 1.89 times its book value. The pricing of the Fidelity deal 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 at FBR Capital Markets. Holland's strategy of pursuing healthy banks is smarter than fighting over a few strugglers in Texas, Bass said.

"There is a lot of competition for failed banks here. Any failure has a waiting list of buyers wanting to do due diligence. And we've seen a few last-minute capital infusions," Bass said.