Magazine article American Banker

Buying in to Buyouts by Nonbankers

Magazine article American Banker

Buying in to Buyouts by Nonbankers

Article excerpt

Byline: Rachel Witkowski

Brandon Steele knows how to process crude oil, sew duffle bags and raise cattle. But being chairman and majority owner of a community bank is a new one for this serial business owner.

The 33-year-old Texan recently formed Steele Holdings Inc. to buy out a community bank in Arp, Texas, on Friday, the $220 million-asset American State Bank.

That state and federal regulators approved a solo nonbanker who never attended college to own a bank is surprising considering the number applications from private equity and other startup groups sitting idle. But as a Texas regulator puts it, money has no value if the people behind it don't know how to grow a business.

"In the banking business, we need good businesspeople," Texas Department of Banking Commissioner Charles Cooper said in a phone interview Tuesday. "It's good to add new blood to the business. ... If you don't do that, it becomes a dying industry."

Cooper said his department has not approved a change in control to a nonbanker since he took office more than two years ago, nor had it seen such an application for about a decade. However, as analysts noted, it is becoming more common nationwide as individuals look to invest in industries they believe are currently undervalued.

The financier Michael Carrazza is one example. Carrazza became chairman of Patriot National Bancorp Inc. in Stamford, Conn., in October. His firm, PNBK Holdings LLC, bought an 88% stake in the company, replaced the chief executive with a community banking veteran and appointed four other directors who had finance or real estate experience.

"Especially during the last couple of years, there have been a decent number" of bank buyouts by nonbankers with experienced management teams, said Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners LP. "If there is a competent management team, I don't see why the regulators would object to it."

Cooper said the state approved the four partners behind Steele Holdings to buy out all 30 investors of the nearly century-old American State for two primary reasons: Steele's history of running businesses successfully and the decision to keep on board a management team that has done a good job of running the bank. As of Sept. 30 American State Bank was well capitalized, with a 13.09% total risk-based capital ratio and few nonperforming assets, representing 0.45% of total assets. The bank reported a 2009 loss of $319,000 but reported a profit of $1.6 million for the first nine months of this year.

Steele became a business owner during his senior year in high school, 1996, when he began sewing and selling athletic duffle bags. Five years later he bought a similar company, which he eventually expanded into a multibusiness holding company now called Ryno Texas Holdings Inc. …

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