Westchase Stays Focused in July
News Posted for July, 2010
The Westchase Team has re-focused the objectives for the second half of 2010. The focus has been directed to the following: (1) There is a compelling requirement to continue obtaining formal and informal commitments from bankers to join the Westchase Team. (2) There is a specific focus on recruiting bankers who have been approved as preferred Small Business Administration SBA lenders, as well as, bankers who have senior loan status. (3) There is a large market for injecting capital into small banks, even if only a minority interest is obtained, if ownership can be acquired at book or under book value. (4) To continue to solicit commission brokers to assist in the capital raise. (5) To continue to identify and negotiate with target banks for majority control, total ownership or a minority interest on favorable terms. (6) To increase the members on the Westchase Advisory Board with small business owners (# of employees < 100). (7) To evaluate the private equity market as a source for small business lending within the Texas Platinum Triangle.
Westchase’s Team Sees Big Banks More Relational
News Posted for July, 2010
Big banks are now shifting toward customer connectivity. This shift in emphasis has been commented on widely in the business literature (Dallas Business Journal June 11-17 pg 4) (Houston Business Journal June18-24 pg.14A). The shift in emphasis is based upon the banking reform legislation that has been passed by Congress and future legislation that is anticipated.
The cornerstone of competition by the large number of small banks that compete with the regional and national banks has always been the advantage of having the bank personnel close to the customer with respect to services.
In July and August 2010, new rules that are advantageous to banking customers go into effect. One of the most advantageous to consumers is the limit that banks can charge on overdraft fees. It is estimated that these rules will cost Bank of America $2 billion dollars annually.
Walter Elcock Bank of America’s head of consumer banking in the Western United States said with respect to the way banks will have to do business with customers as a result to the changes is that “business will have to be run…with deeper relationships instead of transactional business” ( Dallas Business Journal June 11-17 pg 4).
It remains to be seen whether big banks can change the way they do business and act more like a small or community bank. The hierarchal chain in a big bank makes customer connectivity very difficult. For instance, a loan officer in Bank of America does not sit on the board or even the loan committee. In a small bank the senior loan officer is often on the board and usually always on the loan committee.
The Westchase Team is focusing on small banks that have a proven track record of close customer relations. Many of these banks are rated “A” & “B” by the FDIC, even though, they are small by comparison with the large banks. However, most banks are seeking capital, regardless of size.
Westchase’ Team Evaluates Zombie Banks
News Posted for July, 2010
Recent news articles previously indicated that “lingering banks” were a subject of interest but only briefly. On July 9-15, 2010 the Dallas Business Journal (DBJ) has given them a front page article and renamed them “Zombie Banks.”
What are Zombie Banks? Briefly stated, Zombie Banks are: “too good to fail, too small to matter, too stuck to grow” (DBJ pg. 1.).
Bankers and Analysts employed as consultants to DBJ developed criteria for classifying zombie banks. This criterion applies to billion dollar banks or small banks. The criteria are centered on profitability, loan problems, capital reserves and real estate loans.
Texas has approximately 800 banks with only 92 having assets over $300 million. Generally speaking, there are more zombie banks within the banking sector that have $300 million or less in assets. For instance, the DBJ article (pg. 16) identifies 11 zombie banks in the Dallas/Fort Worth area and 8 of these have less than $300 million in assets. The two billion dollar banks (Park City bank $1 billion and Legacy Texas Bank 1.7 billion) mentioned on pg. 16 are still considered small banks for the zombie criteria.
There is no statewide estimate of the number of zombie banks, but extrapolating from the DBJ article identifying zombie banks in the Dallas/Fort Worth area there are probably 100 to 120 banks in Texas that meet the criteria of “lingering”, “zombie” or “walking wounded”.
A DBJ article (July 9-15, 2010 pg.19) entitled “Banks recapitalize as markets recover” uses the term “walking wounded” as a synonym for a “zombie bank.” That article states: “In general, investors believe it’s a good time to invest in banking, in Texas in particular,” quoting Kevin Hanigan, CEO of Highlands Bank. Highlands (a three year old bank) recently raised $25 million from investors and is planning another $15 million raise.
The DBJ article (pg. 19) states that large banks were recapitalized with TARP funds and had access to the public markets where their stock was publicly traded. Now the action has shifted to smaller banks that are privately held. Hanigan and Dory Wiley, president of Commerce Street Capital in Dallas, believe it is a good time to make a value investment in banks. “But there’s always (an investor) concern about the economy and the quality of assets (the banks) on the balance sheet,” quoting Hanigan.
Smaller banks are raising capital for a variety of reasons, such as, its survival capital or to increase its lending capacity since a bank can only lend one borrower 10% of its capital. According to the DBJ article, (pg. 19) the financial reforms coming out of Washington, D.C. are going to force banks of all sizes to raise capital; that includes small banks.
Most important, is the pending Obama program before the House and Senate which would create a $30 billion fund that community banks could tap for lending to small businesses. The better the community banks’ capital position, the more it can lend and make a profit on the loan (DBJ July 9-15, 2010 pg. 5).
An interesting article (DBJ July9-15, 2010 pg. 17) entitled “It’s a buyer’s market for potential bank purchasers” makes some salient points on the present investor/banking environment. This article points out, that for those banks with little opportunity to raise capital, selling the bank may be their only option.
Investors may be willing to buy a “zombie bank” and then inject it with additional capital. The article further points out that before the 2008 financial crisis banks were selling on an average of 3 times book value. But that price of three years ago is no longer a reality. “You have to sell it at 20 to 25 cents on the dollar of what your bank was worth two or three years ago,” said David Brooks, CEO of Independent Bank in McKinney, Texas. It is well accepted that banks will sell an interest in the bank or the entire bank at book value or even below book value to raise capital.
Nationally it’s a buyer’s market for banks, said Chris Murray, managing director, at Sandler O’Neill investment bank in New York City. One problem the article points out, at pg. 17, is that the bank that wants to sell has pre-2008 prices “stuck in their head.”
A bank that requires capital or wants to sell can disconnect from the mind set of the present seller’s market. There is the legitimate expectancy that in three to five years banks will be back to selling at 3 times book value so the bank stays stuck with insufficient capital to grow. On the other hand, there are a significant number of “zombie banks” that are willing to sell at book value or raise capital even at less than book value which creates an excellent investment opportunity based on the assumption that the 2000-2007 prices will be back in the banking cycle in 2013-2015.
Westchase Stays Focused in April
News Posted for April, 2010
The Westchase Team is evaluating their objectives for the second quarter of 2010 based upon results from the first quarter. The focus will be (1) To set up meetings with potential banker candidates and obtain commitments from them to join the Westchase Team. (2) To meet with bankers who have SBA lending experience and evaluate their opinion related to acquiring banks that have a focus on small business lending. (3) To obtain opinions from the bankers related to acquiring a minority interest in banks in need of a capital raise to strengthen their capital to asset ratio. (4) To determine what the ROI would be for investors with respect to bank acquisitions in the current financial climate. (5) To determine whether the acquisition of an existing Small Business Investment Company (SBIC) in need of capitalization would yield a higher ROI for investors than acquiring a bank. (6) To retain a commission broker to assist in the capital raise and determine the best approach for that capital raise. (7) To increase the members on the Westchase Advisory Board with small business owners (# of employees < 100). (8) To evaluate the private equity market as a source for small business lending within the Texas Platinum Triangle.
Westchase’s Team Sees Lingering Banks as Attractive
News Posted for April, 2010
There is a big difference between a bank that fails and one that “lingers.” The term “lingering bank” has found its way into banking lexicon. The term is explained in the Dallas Business Journal on April 23-29, pgs 1 and 8. A lingering bank is one that is too good to fail, but too weak to prosper. Weakness is directly related to the capital strength of the bank. It may might the minimal capital requirements of the regulators, but the bank does not have sufficient capital to grow.
Tom C. Nichols, the Chairman and CEO of Carlile Bancshares Inc. recently used the term lingering bank in the Dallas Business Journal Article cited above. Carlile Bancshares Inc. recently closed its $300 million fund designed to acquire failed banks from the FDIC and to acquire lingering banks. According to Tom C. Nichols, lingering banks are attractive acquisition targets. Texas and the Southwest have had fewer bank failures than most of the country, but there are a number of lingering banks within the Texas Platinum Triangle.
Westchase’ Team Evaluates Banking and Finance Post 2009
News Posted for April, 2010
Banking and Finance Post 2009
The FDIC closed 3 of the 10 banks in Puerto Rico on April 30, 2010 accounting for 30% of the Island’s deposit volume. The closings cost the FDIC $5.28 billion (Wall Street Journal May1-2, 2010 pg B1).
The closures of the banks in Puerto Rico bring the toll of bank closings since 2008 to 2009. The closings in Puerto Rico are the biggest closings in any single banking market since the savings and loan crises of the 1990s.
The Houston Business Journal on April 30-May6 2010 (pg 1B to pg 12B) published a special section on “The New Frontier in Banking and Finance in Houston."
The events of 2007 through 2009 have had a profound effect on the banking industry. Over 200 bank failures nationwide including Puerto Rico. Existing banks face continual loan losses, capital deterioration, increased regulation and a stagnant lending environment. Yet, in spite of these negatives some banks are showing record profits for the first quarter of 2010. There is no question that the banking industry is in a paradigm that seems to be moving toward regulatory scrutiny as to soundness of loans and adequate capitalization.
The FDIC has stopped approving applications for de novo (new) bank charters. Given this development, bank investors and promoters have gone the bank acquisition route. Jim Pledger, a former commissioner of the Texas Dept. of Savings and Mortgage Lending, says: “Institutions interested in creating their own bank...are....creating companies...to raise capital...to acquire a bank.”(pg1B).
The Carson Medlin team (bank brokers) picked up shop and moved into the investment bank FBR Capital Market Corp. The Dan Bass team will operate under the banner of FBR’s Texas based Financial Institutions Group. The Washington D.C. based FBR focuses on banking and financial institutions. Dan Bass, the former director of Carson Medlin in Houston moved his team so they could expand their menu of services to bank promoters and investors, as well as, mergers and acquisitions. Bass said: “We can do what we were doing before, but now we can help clients raise capital” (pg 2B).
The J.D. Power and Associates 2010 U.S. Retail Banking Satisfaction Study released April 22, 2010 established an average satisfaction score of 748 points out of 1000 achievable points for banks throughout the country.
Two Texas banks scored 800 points or more: First National Bank (829) and Woodlands National Bank (800). There were 37% of the people in the survey that changed from their primary bank in 2010. People were more reluctant to switch banks if they banked with a small bank as opposed to a large bank (pg 7B).
Banks in Texas are showing renewed interest in residential mortgage lending. J.P. Morgan Chase & Co. is hiring 275 home mortgage lenders including 100 in Houston. BBVA Compass Bank (the 4th largest bank in Texas) has put renewed interest in mortgage lending with a first time homebuyers mortgage product (pg 7B).
Westchase's Team Sees Action in the Private Equity Market
News Posted for April, 2010
Limited Partnerships (LPs) and Limited Liability Companies (LLCs) that go public with very active trade shares were of interest to investors prior to 2008. Initial Public Offerings (IPOs) related to LPs and LLCs came to a screeching halt as the great recession took hold. Now, it seems the IPO market for LPs and LLCs has resurrected itself with the above entities making trading gains in April after launch (Wall Street Journal May1-2 2010 (pg B3).
LP and LLC are structured so they are not taxed at corporate rates. These entities distribute cash to shareholders each quarter through dividends which attracts income seeking investors. Historically, yields in these entities are usually in the area of 7% per annum or 4% over the prime rate. However, yields can even be greater. Yields are paid in the form of dividends per share.
An LLC or LP that elects to stay private rather than being publicly traded can still pay dividends with the tax advantage of not being a corporation. A corporation must pay income taxes on its profits before it pays dividends. Dividends are not considered a business expense by the IRS. The advantage to going public is the ability to raise additional capital because of the liquidity that is associated with stock being traded on an exchange. This provides the company the ability to do a PIPE to raise additional capital for investments [a PIPE is a private placement by a public company at a discount from the stocks trading price].
Many LLCs and LPs start with a private placement under Regulation D Rule 506 to raise initial capital. If the LLC or LP performs for investors, then it can raise additional capital and eventually be strong enough to do an IPO. Some LLCs or LPs become licensed as a Small Business Investment Company (SBIC) and can then borrow up to $225 million from the Small Business Administration (SBA). Main Street Capital (MAIN NASDAQ) is such an example of an SBIC that went public, although most SBICs stay private.
Westchase Stays Focused in March
News Posted for March, 2010
John Daniels Added to Westchase Proposed Board of Directors
John Daniel, a value creation executive with over 23 years of financial advisory, product marketing, and alliance building experience has been added to WHC’s proposed Board of Directors. John is adept at formulating and implementing creative strategic and tactical plans to exploit market opportunities, dominate niches, and streamline critical processes in order to assist client companies in capital acquisition, top-line growth, and new market entry.
His consulting experience includes early stage management where he has helped build organizational infrastructures from strategic planning through funding, staffing and operations. John has led, advised, or been a principal in more than twenty start-up, development stage, emerging growth, private and public companies across diverse industries. Those companies include financial and business services.
He is personally credited with raising over $100 million and advising on approximately $500 million in investment banking transactions for both private and public early stage and middle market companies. He graduated from Washington and Lee University with a Bachelors Degree in European History, and studies in Economics and Finance at Williams School of Commerce, Politics and Economics. He also attended Georgetown University, and the New York Institute of Finance. Mr. Daniel will serve as the Director of the Private Equity Division of Westchase Holding Corp.
William Money Meets with Westchase Team
William Money, a member of the Westchase Advisory Board, spent a week in Houston meeting with members of the Team. He and several Team members met with the Chairman of Board of a bank that is being assessed for acquisition. They also met with several brokers to assist in the capital raise.
Team members also met with a former President/CEO of a bank in Houston and at a later date in Albuquerque, New Mexico. One of the Westchase Team’s objectives is to bring on board other bankers with experience that have an interest in providing advice to the Team.
Team to Create a Limited Partnership Offering to Raise $15 Million to Launch SBIC
A Limited Partnership Offering to raise $15 million to launch a Small Business Investment Company (SBIC) in both Texas and New Mexico has been an ongoing process. The analysis conducted by the Westchase Team indicates a strong borrower demand by small businesses in need of working capital for about $250,000 to $400,000 at this time to provide their goods and services. The job market will not improve without financial support to this sector.
Westchase's Team Sees that Small Banks Are Being Pressed by Regulators to Raise Capital
News Posted for March, 2010
It is no secret that the bank regulators are pressing small banks to raise additional capital. A bank with less than 6% capital ratio to assets (Tier 1 ratio) is considered by regulators to be less than well-capitalized (Dallas Business Journal, March 26 to April 1, pg 5).
The United Community Bank N.A. in Highland Village, Dallas, Texas is an example of this type It is a 12 year old suburban bank that had a Tier 1 risk-based capital ratio of 4.09% by December 31, 20009. The Office of the Controller of the Currency required that the bank raise additional capital or face being closed. As of April 1, the bank reported it had raised an additional $4.5 million and was seeking to raise additional capital. United Community Bank experienced losses of $9.2 million in 2009. These losses were in large part due to defaults in commercial real estate loans. In 2009 the bank had $83 million in loans and $53 million were in real estate loans. Since 2006 the bank regulators have warned that banks with large concentrations of real estate loans will face greater scrutiny. The rationale behind this is that down turns in the real estate market adversely affects commercial real estate loans.
Millennium State Bank of Texas as of July 2009 is the only bank which has been closed by regulators in North Texas since the start of the great recession.
Westchase's Team Sees that Texas Banks Lead More in Lending
News Posted for March, 2010
Texas banks, in contrast to the national trend, increased their lending levels in 2009 as compared to 2008 (Austin Business Journal, March 19-25, 2010 pg1).
Industry consultants believe that the stronger economy in Texas and the states mortgage restrictions protecting consumers from predatory lending enabled banks in Texas to do more favorable lending during the recession.
Texas has 629 banks, as state or national charters, that reported loans being made in 2009 at $247 billion. The years of 2008 had loans at $233.5 billion and in 2007 they were at $229.1 billion.
Consultants believe that much of the increased in lending activity in Texas was the result of business expansion when businesses were shunned by the national giant banks, such as, Citi Bank and Bank of America, which contracted their lending programs.
John Heasley, General Counsel for the Texas Bankers Association, said that lending levels are important to the state of Texas because they fuel growth of businesses and employment. He said “We’re still very strong in our fundamentals….For a major state, we have the healthy economy and healthy environment for borrowers and lenders (pg25).
In 2009, only five of the 126 bank closings in the United States happened in Texas.
Westchase Stays Focused in February
News Posted for February, 2010
Bank Branching Slows
According to SNL Financial, a Virginia research firm indicates there has been a substantial decline in banks opening branches during the recession and this trend is predicted to continue (Wall Street Journal March 3, 2010 pg C1& C8).
SNL Financial indicates there are 98,913 bank branches in the United States representing a decline of 300 since June of 2009.
Many banks are selling physical branch locations to commercial non-bank real estate investors based upon unattractive locations or poor performance by the branch's inability to attract depositors.
Another reason for the closing of branches is the increased popularity of online and mobile phone banking. Bank of America announced that it plans t reduce the size of its branch network by 10% due to customer preference for online banking.
Region Financial Corp. based in Alabama had losses in 2009 of $1.3 billion arising from bad loans. It announced it is closing 121 branches this year (6% of its total 1,895 branches); a strategic move expected t save $21 million per year.
According to the FDIC, 702 banks are considered "problem" institutions and 319 banks disappeared during 2008 to 2009 thru mergers or being closed by the FDIC. Banks are under intense pressure to comply with the capital requirements imposed by the regulators which impacts on the approximate $1 million the average bank spends out of capital to open a new branch.
Investors seeking to acquire or invest capital in a bank should look closely at the target bank's branch foot print and determine the profitability of any branch as part of the acquisition strategy.
Bank Loans Decline
In 2009, U.S. Bank lending showed its sharpest decline since 1942 (Wall Street Journal, February 24, 2010 pg A-1 & 2). The FDIC posted other grim statistics besides showing the biggest decline in lending in 67 years. The FDIC Chairman, Sheila Bair, predicted that during 2010 we would see more than the 140 bank failures that occurred during 2009.
The FDIC also reported that 5% of bank loans were more than 3 months past due; the highest level in the 26 years data has been collected. Chairman Bair, as spokes person for the FDIC and other FDIC representation stated that: "While the economy is moving ahead, banking results tends to lag behind" (pg A-2).
There are combinations of factors that cause bank lending to decline. As the economy slowly recovers, demand for loans by businesses is not in the fast expansion lane. Another factor, is the higher capital requirements being put on banks by the regulators which reduces the amount of money available for loans.
The opportunity to provide capital into a bank at book value has never been more favorable. Banks will recover and loans will be made as the economy recovers over time.
Small Banks in Capital Raise Crunch
It is no secret that small banks throughout the country are seeking capital (Wall Street Journal, February 12, 2010 pg C-1 to C4). There are several dilemmas investing in a bank that requires capital. On the positive side, investors can get stock in a bank at book value and that stock could be worth 3 times book value in 3 to 5 years as banks recover from the great recession. However, on the negative side, many banks issued Trust Preferred Securities (TPS) which take precedence over new investors. In this case, the TPS gets paid before subsequent investors.
Between 2006 and 2008 more than 1,500 small and regional banks issued $50 billion in TPS instruments, according to Red Pine Advisors, LLC, a New York firm that helps small banks value illiquid investments. The TPS instrument (a mixture of debt and equity) was favored because banks could count the investment as capital which gave the bank a stronger position to lend and boost earnings.
According to Brad Larson, Hexagon Securities, LLC stated that: "For many banks, raising capital is contingent on the extinguishment of trust preferred securities" (pg C-4). The acquisition strategy for small banks or investing capital in banks, must take a hard focus on whether those banks have used TPS to build capital.
Commercial Real Estate Loans' Impact on Small Bank Lending
The Congressional Oversight Panel released findings that 3,000 small U.S. banks could be forced to reduce lending because of anticipated losses on commercial real estate loans (Wall Street Journal, February 11, 2010 pg C-1 & 4).
Elizabeth Warren, a Harvard law professor, who heads the TARP oversight panel says that "The banks that are on the front lines of small business lending are about to get hit by a tidal wave of commercial loan failures."
The report issued by the Congressional Oversight Panel said that out of the approximately 8,100 U.S. banks, some 2,988 small banks have serious exposure to problematic commercial real estate loans during 2010.
Commercial real estate loans typically come due in 3 to 10 years. Monthly mortgage payments are usually not enough to cover the principal due on the loan at the end of the period. It is typical for a commercial borrower to take out a new loan at the end of the period. However, small banks are now strapped for capital and not in a position to provide a new loan. This will result in a situation that, if the principal on the loan cannot be repaid, it is written off as a bad loan which further deteriorates the capital position of the bank.
The cumulative lessons that are being learned in the bank acquisition challenge is to look for small banks that (1) need capital (2) do not have trust preferred security debt (3) do not have serious commercial real estate loan problems (4) have not provided SBA lending and (5) are located in a geographic market of small density.
Westchase's Team Remains Focused on Achieving Objectives
News Posted for February, 2010
Westchase Team has reviewed information supplied by several sources, such as, the Federal Reserve in Dallas. The information indicates that many small banks in 2010 are going to require infusion of small amounts of capital (i.e. $3 to $5 million) in exchange for selling their stock at approximately book value. This presents an opportunity to put a small amount of capital into a bank and secure board seats that allows participation in the bank's activities. This participation would provide the ability to assess strategies, such as, marketing, operations and lending policies for the small business market. In addition, over time there may be an opportunity to obtain an exclusive option to purchase a majority interest in the bank contingent upon the market and the economic conditions at that time.
The Westchase Team's proposed Board of Directors consist of primarily Texas residents with experience in banking, private equity and a variety of financial and business services. One of the primary objectives for 2010 is to have 7 to 12 members on the proposed Board and 9 to 12 small business owners and professionals on the Advisory Board.
The Westchase Team has been meeting with various brokers associated with institutional investors that have demonstrated an interest in providing initial capital in connection with capital raising documents. Members of the Team are attending an ACG Capital Connection event in March. This Houston event is attended by over 150 private equity companies which provide networking opportunities and access to the information displayed in booths. This event has been attended by members of the Westchase Team in the past and has proven to be an excellent resource.
It has been necessary to change the Westchase strategic approach based upon the recession and the slow recovery. Therefore, substantive changes have been made to the Team's capital raising documents. Networking is one of the best methods to assess investor response to the Westchase approach and make future revisions as necessary.
The small business market is enormous throughout the United States. This provides a tremendous opportunity to establish small business lending programs through private equity, SBIC's and banks.
One of the primary objectives of Westchase is to obtain commitments from bankers who have the required expertise to join our Team. The Team is actively interviewing bankers who indicate they have an interest; however, the reality that the Team must face is that the capital raise must come first.
The recession has forced banks to make adjustments which have provided a pool of unemployed bankers looking for new opportunities. The Team has been focusing on bankers with senior loan experience and bank acquisition expertise. In addition, the banker needs to have a following of customers that would draw depositors to a new location or are part of an existing bank that is acquired.
Wilson Fletcher, who has been with the Westchase Team since June of 2008, has been providing his expertise as a banker. He has been meeting with several bankers and is negotiating the terms and conditions for other bankers to provide their expertise to the Team in order to make the best acquisition choice.
The Team is taking into focus the ability to view other options then just a bank acquisition. In the revisions to the capital raising documents, the Team has elected to use a Limited Partnership as the vehicle for funding a Small Business Investment Corporation (SBIC).
Again, there are different options related to purchasing an existing SBIC or obtaining a license to start a SBIC. The SBA relationship to the SBIC will depend on the unfolding economic conditions and the federal government's commitment to the programs as to whether they become a reality.
The other option, in the interim period, is to provide funding under the Limited Partnership in order to function as a private equity company to invest in small business development with a raise between $1 and $2 million. This would be governed by highly reliable under writing criteria and excellent transparency. There are many options for meeting the needs of the small business owner and the Westchase Advisory Board would provide the guidance to assist the Team in achieving their objectives.
Westchase's Team Remains Focused on Small Businessess
News Posted for January, 2010
Westchase Team has reviewed the business journals that are focusing on small businesses and learned that Texas has weathered the recession more successfully than any major state (Austin Business Journal, Jan 22-28, 2010 pg 8).
Bizjournals conducted a major study of the 100 largest metropolitan areas. The highest scores in Bizjournals' study went to areas with economies that are prosperous and rapidly expanding. These areas have the greatest number of small businesses. For example, in 2007 Houston had 116,865 small businesses. Bizjournal defines a small business as any private sector employer with 99 or fewer employees.
One of the interesting statistics in the study is the average number of small businesses per 1000 residents. The average for the 6 Texas cities is 15 small businesses per 1000 residents. Austin has the highest number at 24 and the lowest at 14 for Mc Allen-Edinburg. Houston, San Antonio and Dallas-Fort Worth have an average of 20.
It is also interesting when extrapolating from these figures that there are approximately 440,000 small businesses in Texas with 99 or less employees. The combined population of the 100 metros in Bizjournals' study was 199.1 million as of mid-2008 with a total of 4.99 million small businesses.
The small business market is enormous throughout the United States. This provides a tremendous opportunity to establish small business lending programs through private equity, SBIC's and banks.
Westchase Stays Focused in December
News Posted on: 12/31/2009
The Westchase Team is focused on putting the pieces together for the best approach for banks today. The recent article on the Horizon Bank reflects the philosophy that a bank should achieve to be competitive. In an interview with President James Dyess of Horizon Bank, the Austin Business Journal (December 18-24 pg 5) indicated his position: "It's not easy, but it is what it is. You're conducting so many moving parts, and at the end of the day, they all have to come together."
Dyess was speaking of the move from the small headquarters in Austin to a larger facility. Horizon Bank, founded in 2006, grew from $12 million in assets with 3 employees to $200 million with 58 employees in four years. This rapid growth was based in large part on making SBA guaranteed loans to small businesses. This is the strategy that the Westchase Team agrees would be the best approach.
The Team also agrees with President Dyess that "It's not easy." The difficulty is putting the rights pieces together at the right time. These pieces are like "moving parts" because promises of capital appear to be available and instantaneously will disappear. The Team is focused on getting it right and seeks to obtain the capital to achieve their objectives through constant pursuit.
Jim Gardner, chairman of Commerce of Commerce Street Capital which is a Dallas investment bank, indicated in a recent article that: "Capital is king, you just have to have plenty of capital….and you'll find you're able to deploy it extremely well" (Dallas Business Journal, December 11-17 2009 pg 34).
The observation made in this article is that mega-banks are continuing to pull back on loans to small businesses. This creates an opportunity for regional and small community banks to move into this market. These banks should focus on credit lines to mid-sized and small stable businesses. A determination should be made if they meet the SBA criteria for guaranteed loans. The advice is that these banks should pull back from commercial real estate and land developer loans.
According to the article, 20% of Texas businesses need access to loans. There seems to be optimism that loan demand will pick up in 2010. The Westchase Team will continue to follow the progress of small businesses and the lending policies that enable them to obtain working capital which is critical to their survival.
Westchase's Team Reviews Bank Acquisitions and Consolidations in Texas
News Posted on: 12/31/2009
An analysis of bank acquisitions and consolidations was provided in the Austin Business Journal (December 25-31, 2009 pg 4). Texas experience a decline in Texas chartered banks from 1200 to 600 (50%), following the bubble in real estate market that occurred in the late 1980s and early 1990s with a decade of consolidation. This set the stage for the growth of banks for the next decade from 2000 to 2009 when Austin banks grew from 9 to 22. There were 53 chartered banks in Austin in 1985. As of 2010, there are 7 state chartered banks in Austin. During this period, larger banks acquired smaller banks as part of the consolidation process.
During the year of 2009, 123 banks were closed by the regulators throughout the United States. However, only 5 banks were closed in Texas. The trend will probably continue for a consolidation process to acquire existing banks as opposed to de novo banks starting to develop. Investors are waiting for the unfolding of the impact legislation will have upon creating steady economic growth during 2010. The Westchase Team is following the trends that will encourage investors to provide capital to acquire small banks or invest in the private equity sector.
Westchase Stays Focused in November
News Posted on: 11/30/2009
The Westchase Team met in November to discuss 3 factors that are impacting banks in the current market: (1) increased government regulation, (2) customer-centricity and (3) slow growth following a major economic crisis.
The increase in government regulation of banks will increase the costs of banks doing business. However, this will be offset by greater scrutiny of operations by the regulators. There is considerable debate among experts in the field of finance as to the actions that should be taken to improve loan portfolios and capital ratios. As a result, investors are still on the sidelines awaiting the outcome of the decisions that will be made to decrease risk and provide solutions for increasing profits. This is directly related to managing the national debt that the administration has to face.
Another factor relates to customer-centricity which the bank's management team must address in terms of meeting customer's needs and developing a greater relational interface with their depositors and borrowers. In the past, as a result of relinquishing this interface to intermediaries by packaging and selling their loan portfolios, a significant number of community banks became distressed.
The third factor is related to the major economic crisis which has slowed growth in many sectors of the economy. With respect to banking, slow growth must be met with strategic planning that addresses customer needs through greater customer contact with marketing directives that focuses on collaboration of the management team to achieve the desired result.
Community banks provide loans to small businesses that are critical for the job market and are the backbone of the national economy. Therefore, unless an innovational approach is provided by the strategic plan for attracting depositors and designing a loan program that achieves realistic goals it will be very difficult to attract investors.
Westchase's Team Evaluates "Blind Pools"
News Posted on: 11/30/2009
Westchase Holding Corp. (WHC) was formed as a "blind pool" to acquire a distressed bank or banks on a small scale. Currently, big Wall Street firms are forming blind pools to acquire distressed banks on a large scale. (Wall Street Journal, Nov. 13, 2009 pg C-1). Most of these pooled funds are hiring veteran bankers to make the acquisitions.
There is an important distinction between "blind pools" and Special Purpose Acquisition Corporations (SPACs). In a blind pool the investors have no vote as to the manager's decisions. In the SPAC, the investors have voting rights.
There is also an important distinction between failed banks versus distressed banks. According to the Wall Street Journal (Nov. 13, 2009 pg C-3), hundreds of US banks are expected to fail in the next 12 months. It is anticipated that there will be a shortage of bidders due to the recession, bad loans and other pressures related to the two year financial crisis. A distressed bank differs from failed banks in that it requires a capital infusion to survive.
Lee Meyerson, a prominent banking attorney, is respected for acquiring failed or distressed banks. He states, "It is a once-in-a-decade opportunity…Once the economy recovers, that opportunity will be gone." (Wall Street Journal, Nov. 13, 2009 C-3).
Westchase's Team Will Assess Community Banks and Tarp Impact on SBA Loans
News Posted on: 11/30/2009
The SBA indicates that community banks and small businesses provide between 60% to 80% of the new jobs created in the US. The Obama administration, based upon these findings, has initiated an increase to SAB loans caps and a program for community banks that want to draw on TARP funds. They will have to submit a plan on how it intends to lend to small businesses. One potential issue with this program is that a bank that draws on the TARP funds has to sell warrants to the U.S. government, giving it the right to purchase common stock in the bank at a set price. (Wall Street Journal, Oct. 21, 2009 pg A-4).
Westchase Stays Focused in October
News Posted on: 10/28/2009
The Westchase Team met on October 15th to discuss recent events related to achieving Westchase Holding Corp. (WHC) objectives. The next meeting scheduled for November 11th will bring the Team together to discuss their objectives for next month. The objectives will be discussed with the proposed CEO for Westchase Bancshares Corp. (WBC) who has met the desired qualifications for this position.
The Team has focused on adding Texas small business owners on the Advisory Board. The Team was introduced to Mark Farnell who agreed to be on the Westchase Advisory Board. Mark has senior marketing/advertising/sales management experience. He is a seasoned business executive with effective leadership skills in both the corporate and entrepreneurial environments.
He was educated at the University of British Columbia, Vancouver, Canada-MBA Marketing; BA. Mark will assist with the Westchase Website to provide improvements from a marketing perspective. He will be a valuable member to the Team for marketing ideas for other aspects related to the Westchase Team's objectives.
Team has performed an evaluation of the criteria to be utilized for the selection of community banks that are under consideration for acquisition.
The Westchase Team has targeted Texas banks for acquisition. These banks meet a financial profile of having assets between $40 million and $120 million. These banks also demonstrate a need for capital infusion or acquisition based upon regulatory filings.
During 2009, one hundred banks have failed and have been taken over by the Federal Deposit Insurance Corporation (FDIC). In comparison 25 banks failed in 2008 and in the previous 5 years only 10 banks failed. The increase in bank failures and banks that are low in capital has caused the regulators to begin putting pressure on banks to increase their capital. This provides an economic opportunity for private equity to invest in a bank that meets financially acceptable criteria.
Westchase's Team Evaluates Economic Recovery Issues
News Posted on: 10/28/2009
The Team continually evaluates the information that is provided by the media on the Internet, publications, radio and television. As a result of this evaluation, the Team provides an analysis of issues of major concern to our economy. This analysis is provided on the website under "Recent News" with a more extensive discussion and references under the "Sources" tab.
The Team provides a brief overview of the topics that are of primary concern to our group. Small businesses are of major concern due to the fact that entrepreneurship is the backbone of the U.S. economy. It is the entrepreneurs that are willing to go where others are not going to tread. It takes courage to "innovate" and change the direction of the "static mind set" that becomes paralytic with fear. The Department of Commerce wants to encourage entrepreneurship and provide a stronger voice for innovation by heightening their participation on government policies. (See Sources tab for more information)
Bank failures are also of concern to the Team and especially how the regulators are going to provide solutions. According to some analysts, the troubles for many small banks are just beginning. The prospect of more failures has led the FDIC to seek other alternatives in providing solutions. Whatever course is taken, bank failures are not good for the economy. It remains to be seen when and how this trend will be altered. (See Sources tab for more information)
Westchase Stays Focused in September
News Posted on: 09/28/2009
The Westchase Team found the summer months difficult for attracting investors to the Westchase Holding Corp.'s goal for acquiring a small Texas bank. However, by the end of the third quarter The Team had made considerable strides bringing together the pieces necessary to improve investor confidence.
The fourth quarter objectives will depend upon the Westchase Team increasing the number of Texas bankers and financial experts willing to become members of the proposed Board of Directors. The Team held a significant meeting in September with the existing proposed Board, as well as, the Advisory Board members. The focus of the meeting was to discuss the strategy for the fourth quarter and set forth time frames in which to achieve the agreed upon objectives.
The primary objective is to identify a high profile banker who has a following that brings contacts and a team that will build confidence with institutional investors. The Team has created an Advisory Board to assist in this pursuit ,as well as, provide additional expertise in the business and financial markets.
Westchase's Team Evaluates Troubled vs. Failed Banks
News Posted on: 09/28/2009
Failed banks are banks that are taken over by the Federal Regulators. In this case, the capital structure of these banks has deteriorated below 5% of a ratio of capital to assets.
In most circumstances, these banks are purchased by a stronger capitalized bank under an auction conducted by the Federal Regulators. An exception to this general rule occurs when the dynamics in the current economic market require other options. In this case, private equity firms can be pre-qualified by obtaining a shelf charter from the Regulators and become a "de facto" bank in order to bid on the assets of a failed bank. For instance, Ford Group Holdings raised 1.38 billion dollars to acquire failed banks. (Dallas Business Journal, Aug. 28 to Sept. 3, 2009 pg 1).
A troubled bank requires capital, but has not yet reached the "red zone" where it is ready to be taken over by the regulators. These banks are available to private equity firms to acquire or obtain control by infusing capital without becoming pre-qualified by the Regulators.
When the Federal Deposit Insurance Corporation (FDIC) implements an enforcement action in the form of a cease and desist order, it becomes an early warning sign that a bank has a "troubled" status. Recently, Metro Bank with $1.2 billion in assets was required with the Controller of the Currency to implement accounting and operational reforms (Houston Business Journal, Sept. 25 to Oct. 1, 2009 pg 7A). Metro Bank has 10 branches in Houston.
The Westchase Team continues to assess all Texas banks that are in the troubled status and which provide a potential opportunity to raise the capital necessary for acquisition or control.
The Team provides numerous references to journal articles that have been analyzed and considered significant in terms of the decision making process related to achieving the goals established by the Westchase Team. This information can be obtained under the "Sources" tab on this website. This month the Team has focus on the following subjects:
- Texas Remains the Most Attractive Market in the United States
- Patriot Bank Tracks to go Public
- Some Banks Contract While Other Expand
- Bank4Texas Skips De Novo, Opts for Acquisition
Westchase Stays Focused in August
News Posted on: 08/28/2009
The Westchase Team continues to interview individuals who have banking and financial service expertise. In addition, the Team is seeking to form an advisory Board comprised of business people who have a reputation for "rainmaking" and a core group who would follow them. This group would enlarge the net working potential for finding one or more bankers interested in the Westchase concept.
The Westchase Team has spent considerable time researching new approaches for raising capital to attain their goals. Numerous journal articles related to the banking and financial industry indicates that the timing is best for small bank acquisitions.
Christopher Williston, CEO of the Independent Bankers Association of Texas, pointed out that buying an existing bank that needs capital is the best option for investors today (Austin Business Journal, July 31,-Aug. 6, 2009 pg. A5).
During 2007, 23 new banks were licensed in Texas, but only 10 of the foregoing banks reached profitability by the first quarter of 2009. According to Paul Stephens, an associate of an investment banking firm, Carson Medlin based in Houston, buying an existing bank is a better option than starting a new bank (See Austin Business Journal Article above).
The Team continues to meet with high net worth individuals based on the new approaches for raising capital to acquire small existing banks.
Westchase's Team Analyzes Current Economic Climate for Raising Capital
News Posted on: 08/28/2009
FDIC is making it easier for private equity to buy banks
The Wall Street Journal (WSJ) on August 21, 2009 pg. C3 reported that the FDIC is now loosening its rules to permit private equity firms to purchase banks.
Regulators require that banks maintain a minimum Tier 1 ratio of at least 5% to be considered capitalized at a minimum level. Tier 1 is the ratio of equity capital relative to assets. In other words, a bank that has $100 million in assets should have a minimum of $5 million in capital.
The FDIC has been requiring private equity firms that seek to buy a bank to create a 15% ratio. The WSJ reports that the FDIC is considering scaling back the ratio to 10%. In practical terms, this means private equity firm needs less money to buy a bank.>For instance, if a troubled bank with $100 million in assets only had $4 million in capital it might be purchased at its book value of $4 million in capital. However, if the regulators stick to the 15% ratio for a private equity purchase, then the private equity firm would need $15 million to make the purchase. If the ratio is scaled back to 10% the private equity firm would only need $10 million to make the purchase.
The Score Card for failed banks in the year 2009 so far is 81
The FDIC has been hit to the extent of 50% of its assets as a result of the financial crisis of 2007-2009. Over the past two years, 102 banks and thrifts have collapsed (WSJ Aug. 17, 2009 pg. C1). These failures are a small percentage relative to the more than 8,000 banks and thrifts insured by the FDIC. However, this has caused the FDIC to give greater scrutiny with respect to the asset to capital ratio in banks. A deterioration of capital relative to assets is the early warning sign a bank is in trouble.
The present financial crisis also has to be put into perspective with the past bank failures. In the six year period between 1989 and 1995 characterized in the media as the Savings and Loan Disaster, 747 financial institutions were forced to shut their doors by the FDIC. This is a much larger number of individual failures than the present crisis. However, the FDIC has also reported that at present they have a list of approximately 300 banks and thrifts that they have marked as troubled.These institutions are not being made public by the FDIC for obvious reasons.
The FDIC has always favored a stronger bank buying a weaker bank as opposed to private equity buying a troubled bank. However, given the extent of troubled banks at present the FDIC is now more receptive to private equity as a source for strengthening the banking system (WSJ Aug. 17, 2009 pg. C3).
Union Bank-the fifth largest bank in California plans to purchase banks in Texas
Union Bank of California has changed its name to Union Bank and expects to have a charter in Texas in September, according to the Dallas Business Journal (August 7-13 pg 1 and 28).
Union Bank had net income of $285.2 million in 2008. It has the financial muscle to make offers to purchase Texas Banks. Dan Bass, managing director of Houston based investment banking firm, Carson Medlin, said "the obtaining of a Texas charter by Union Bank is a low risk deal."
It is unlikely that Union Bank would acquire small under capitalized banks in Texas.Instead, Union might try to buy a Texas giant like Sterling Bank, Frost Bank or Prosperity Bank. Alternatively, Union might try to acquire all of Citi Banks rural branches.
An interview with Union's president, Masaaki Tanaka, indicated in July, that Union was bidding for Colonial Bank's 22 branches in Texas. Those plans were not realized when the FDIC sold the failed Colonial Bank to BB&T on August 15, 2009 (Financial Times August 15/16 pg. 10).
Westchase Stays Focused in July
News Posted on: 07/27/2009
The Westchase Team welcomes two new members to the Board. This is in response to requests of several potentially interested individuals who want to acquire small banks in Texas and prefer a strong Texas Board. The Team is seeking to add 4 to 5 Texas based members to the Board.
The new Board members bring strong credentials in the business and finance sectors. Robert Burchfield and Kennie Matthews are listed under the Directors tab on this website with information related to their skills and experience in these sectors.
The Team has been meeting on a regular basis to discuss strategies for attracting investors to raise capital for the acquisition of small banks in Texas. As a result of extensive research and analysis, several small banks have been identified as potential candidates for acquisition. The selection criteria used by the Team provide the basis for investors who want to gain an attractive return to understand the reasoning for choosing specific banks.
Westchase's Team Evaluates Two Troubled Houston Banks
News Posted on: 07/27/2009
The "Source" menu item on the website provides a brief discussion of recent articles related to the analysis that has been performed by the Team. There are several troubled banks that have been discussed in the cited articles that indicate the need for capital to increase a troubled bank's capital ratio.
Federal and state regulators are taking action on banks with higher ratios of bad loans on the books. One of the banks, Texas Community, was ordered to appoint a chief credit officer within 90 days. The bank is required to create a "loan workout department" and a loan review system to ensure the appropriate action is taken.
The Team sees the opportunity to acquire banks at book or slightly above book value that are in need of capital to meet regulatory enforcement actions. Regulators are being stringent on federal and state banks due to the increase in the number of banks on the "watch lists" which is indicative of the fact that all enforcement are actions are regarded as serious measures. The goal of Westchase would be to indentify banks who would most benefit by the infusion of capital and meet the regulatory requirements with the least regulatory action.
Westchase Stays Focused in June
News Posted on: 06/23/2009
The Westchase Team sees the first signs of thawing in the capital markets since the beginning of the crisis in the banking and financial industry. As a result, there have been numerous meetings with high net worth individuals and financial firms who have expressed an interest with the acquisition of Texas banks.
The Team has been actively pursuing new opportunities for bank acquisitions based upon the increased availability of capital. As a result, the Team was invited to meet with the most significant investment banking firm involved in Texas. This meeting generated significant input and provided new strategies for raising capital. New approaches must be devised to meet the challenges of changing markets and regulatory environments.
Recent developments in banking are followed by the Team to assess the factors that contribute to influences upon the capital market. The fact that banks have passed the "stress test" has played a role in bank stocks rising. The ability of the banks to repay the funds borrowed from the government has strengthened the capital market. (See WSJ June 15, 2009, pg C-6)
In Texas,Houston's newest bank, (Houston Business Bank) opened its doors on May 15, 2009. While some Texas banks may be in serious need of capital, others are financially sound. For example, American Momentum Bank has opened offices in >Dallas in February 9, 2009. This discussion is covered under the "Sources" tab on this website for further information.
Westchase's Team Utilizes Asset to Capital Test for Bank Acquisition
News Posted on: 06/23/2009
The Asset to Capital Test is used by regulators to determine if a bank's liquidity with respect to capital reserves is within acceptable limits.
Shareholders focus on earnings, but regulators focus on the amount of capital relative to assets. As a general proposition, regulators become concerned if the bank's capital ratio is less than 7% of its assets. Therefore, a bank with $100 million in assets should have a minimum of $7 million in capital. If the ratio goes below 3% then this would indicate to the FDIC that the bank is going into failure mode.
When the FDIC considers a bank as failed, it is acquired and an auction is conducted where only operating banks can bid on acquiring the failed bank. The one exception to this is when the FDIC has permitted an institution to receive a banking license known as a "shelf charter" which is a specialized vehicle designed to acquire assets and deposits of failing depository institutions. The charter remains inactive or "on the shelf" until it is the successful bidder on a failing institution.
Recently, two Texas former bankers raised $50 million from private investors to become licensed as a "shelf charter" The new firm, Charlile Bancshares Inc., is only one of three institutions to receive such a license. Bank regulators will only allow former bankers the shelf charter status (See Dallas Business Journal June 12-18, 2009 pg 4).
According to Matthew Doyle, the chairman of Houston Business Bank, the Regulators and the Federal Deposit Insurance Corporation are very tentative about new charters in the current environment. However, the Regulators look favorably toward a responsible company with banking experience that is putting new capital into an existing bank as part of the acquisition.
The focus of the Westchase Team is to acquire existing banks that are not failing but can be acquired at book or up to two times book. The goal would to evaluate banks in need of additional capital to achieve the 7% or greater ratio of capital to assets.
Westchase Stays Focused in May
News Posted on: 05/18/2009
The Westchase Team has been focusing on the small business market as the financial crisis has forced businesses to seek alternative sources of capital instead of bank loans.
One of the major draw backs to the lending process is the delay related to extensive paper work and the time required to complete all the steps necessary for the lender's protection.
New business models must be designed to maintain accuracy in completing the process but move the process efficiently in a timelier manner.
The Team has performed extensive research with respect to small business lending practices. They have had ongoing meetings with experts in this field to discuss and analyze the results of this research.
A plan has been developed to design new approaches for increasing efficiency and accuracy with the lending process. The Team has scheduled meetings to implement this plan.
In addition, numerous contacts have been made with high-net-worth individuals who are interested in several small business projects that have been evaluated by the Team as potential candidates for small business loans. The Team recognizes the need for small business survival in a time of economic crisis and is committed to raising capital to meet this need.
Westchase's Team Concentrates on Small Business Candidates for Loans
News Posted on: 05/18/2009
Westchase's Team concentrates on small business candidates for loans since small community banks have tighten credit and have made it difficult for small businesses to obtain loans. At this time, the Westchase Holding Corp. sees the opportunity to provide capital to small businesses while waiting for other alternatives to become available.
In this respect, the Team is evaluating factors that build investor confidence to determine what protections can be provided to the investor that would encourage them to participate in raising the capital necessary to maintain stability for this market.
If some financial doors close to the small business, such as obtaining a SBA loan, other doors can be opened if the appropriate safe guards are present. Many small community banks have struggled in the current economic environment due to several factors and are not in the position to meet the need of the small business owner at the present time.
According to an article in the Wall Street Journal, [May 14, 2009 pg.C3] community banks are disappointed with the federal response to the financial crisis because there is effort in supporting "big banks" while allowing small banks to fail. They want the U.S. and state regulators to push for key policy changes. However, at present the small community banks are on the side lines waiting for their turn for protection. The Treasury's immediate approach is to extend the deadline for small banks to form a holding company so that they may take advantage of key financial rescue programs.
The Team is building business models that serve the need of the small business in obtaining the funds it requires to meet basic operating expenses and also build investor confidence by building safe guards that meet their expectations.
Westchase Stays Focused in April
News Posted on: 04/17/2009
Westchase's Management Team (WMT) has retained a national Investment Banking firm that specializes in bank acquisitions and mergers. The firm has identified five acquisition targets that meet the criteria provided by the investor submitting a proposal for funding bank acquisitions for less than 2 times book value.
Discussions have taken place with respect to the investment banking firm adding 2 Board of Directors with a strong presence in the Texas banking community. This addition would strengthen WHC's core banking experience and provide the opportunity for one of them to assume the role of CEO-President of Westchase Banc Shares. This will be the entity that acquires the banks. This model is designed to achieve the objective of the institutional investor who only wants to participate in bank acquisitions. On the other hand, if there are investors that want to participate in other financial service models, such as prepaid debit cards, private equity or Small Business Investment Companies, then other capital raising methods will be used.
WMT evaluates the dynamics of the economic and financial market to provide a better understanding how this environment impacts the decisions to develop transparency with respect to raising capital from investors. (See our article under the "Sources" tab on this website entitled: Mark to Market-What is it and how does it work).
WHC, as part of its due diligence, will evaluate any bank that it is considering purchasing and specifically will value both the investment portfolio and loan portfolio of the target bank.
Westchase's Team Sees Use Prepaid Debit Cards as Revenue Producer
News Posted on: 04/17/2009
The use of prepaid debit cards produces more revenues for Visa than credit card processing. These cards are not only used by the underbanked but are also used by business merchants who treat debit cards as cash which reduces processing fees.
The Team has prepared an extensive business plan for the prepaid debit card program. This plan required a complete review and analysis of the literature on the subject. This analysis provided the basis for the opinion that the prepaid debit cards are an excellent revenue source. There has been steady growth in the industry without any indication that this trend for continual growth will decrease due to economic factors.
Accordingly, there are numerous studies and performance analyses of the prepaid card market by the Center for Financial Services Innovation (CFSI). The current forecast for prepaid cards for 2009 suggests that there is a dramatic increase in the use of these cards.
A survey performed by CFSI indicated that more than one-third of the 40 million underbanked would rather use a prepaid card than a checking account for basis financial transactions if costs were equal (Underbanked Consumer Study, CFSI, June 2008).
The Team has identified an established software company that services employers in implementing a debit card program for its employees. Several meetings have been held with the owners of this company and a confidential relationship has been established to buy this company at an agreed upon price.
Westchase Stays Focused in March
News Posted on: 03/18/2009
Westchase's Management Team has focused on the dynamics related to the economy and the impact it has had upon employment. The current loss of jobs among different industries has placed an enormous burden upon small businesses to step up to the plate with solutions. This very difficult task can not take place without working capital. The bottom line is that as major industries are forced to reduce their workforce, old jobs must be replaced with "new jobs." When workers are not trained for new employment positions, the burden will fall upon the small business market to find the right solution for the job seeker.
A new study by the Kauffman Foundation, published in January, indicates that it is "not just small business but young companies" that create jobs. The majority of the small firm's startup capital is comprised of owner's equity, bank loans and/or credit card debt. (See Investor's Business Daily, February 23, 2009).
The deep recession has caused a severe contraction in this source of financing. Therefore, the private equity sector may be the logical choice as a potential solution for seeking financing. The need to encourage investors to trust this sector with confidence that risk can be mitigated will depend upon new approaches for the evaluation of risk versus benefits. The criticality of providing financing solutions for the formation and growth of new companies is essential for full employment. If small businesses are not funded, new jobs will not be created and unemployment will escalate.
However, it is a difficult economic market to obtain the trust of investors to believe that the risk associated with small businesses and specifically startups can be mitigated. Westchase's Team is spending considerable effort and time to develop new models for financing and business development to assist small business owners.
A key factor for the small business in providing jobs is to get the right employee fit for the right industry. Therefore, new jobs require training and educational programs. There must be sensible and successful models available to meet these demands for employment opportunities.
Additional factors, such as, cultural diversity with respect to age, sex, religion, race, education, etc. must be handled appropriately. Business models designed to overcome resistance toward these human factors is essential. The Westchase Team intends to research and develop the numerous factors that must be considered in the design of successful business and financial models. The Team will provide updates of the decisions that are derived from this research.
New paradigms of financial models will have to emerge given a number of factors. One of the most important factors is the new paradigm of the federal, state and local governments investing in various sectors of the business and financial economy. This investment is taking the form of direct capital infusions, grants and tax credits. Decisions related to the models that are developed will depend upon the outcome of the economic and financial effects upon our economy that occur dynamically.
There is significant uncertainty as to the methods for distribution and the time factor in which the benefit to the economy will occur, both in the short term as well as the long term. The need for greater certainty from the investor's perspective is critical to providing the necessary incentives in the near future.
As indicated in previous recent news events, Westchase Holding Corp. is currently focused on small businesses within the TPT. The following information was previously indicated to demonstrate the market that our Team is currently evaluating.
The preliminary analysis performed indicates that there are well over 250,000 small businesses in the Texas Platinum Triangle that may be potential candidates for private equity lending. A study by the University of Texas at El Paso in published in April 2002 indicated that approximately 60% small businesses in the study have annual sales less than $500,000. Over half of the sample indicated they had been in business under the same ownership for more that 10 years.
The Team is comparing this study to current factors in today's market. There are numerous factors that must be considered before an intelligent analysis can be performed. This website will be updated on a continual basis to provide the results of our ongoing research and the development toward a private equity approach in a challenging small business market.
Westchase's Team Sees Potential for Acquiring Small Banks in the Texas
News Posted on: 03/16/2009
Texas has not been the victim of the bank slowdown that is prevalent in other states. Generally, the banks in Texas are in good financial condition. However, Westchase believes that the market price in general may be more favorable to acquire Texas banks due to fewer premiums being paid for the banks that may be available for sale. This is due, in most part to the economic slowdown and the reluctance of investors to pay the excess premiums that were paid over the past decade. In addition, Westchase believes there may be a number of banks whose directors are ready to sell in order to get their estates in order and have some uncertainty about holding on to their shares until the market price rebounds.
Westchase believes that the Company is positioned to take advantage of the market and proceed to buy banks at lower prices with the upside being a turn-around in pricing over the next 3-5 years. In that respect, Westchase is interested in purchase existing banks rather than starting new banks.
Recently, an article appeared in Time in partnership with CNN on the web: While the Giants Reel, Many Small Banks Are Thriving by Barbara Kiviat Eustis. Listed below are some of the excerpts from the article:
"Last fall, soon after Congress decided it would spend $700 billion to shore up the nation's flailing financial system, about 100 shareholders of Reunion Bank of Florida gathered for a party. Over crab fondue and London broil, they toasted the start of their spanking new bank. It had been decades since a locally grown bank had opened in Tavares, an old citrus hub about an hour by car from Orlando. "We had folks drive from 45 miles away," recalls Reunion co-founder and CEO Mike Sleaford. "Everyone was so excited."
"New banks see people having a tough time getting loans, plus their funding costs are cheap since rates are low and they pay next to nothing for deposits," says Richard Sylla, an economist at New York University's Stern School of Business. "There's a profit opportunity there." Odd as it may sound, it's a great time to start a bank.
Bankers get that. Since last summer, at least 30 groups have filed to start new banks, according to SNL Financial. From Richmond, Va., to Tulsa, Okla., to Pacific Palisades, Calif., community bankers are hitting the pavement, raising funds a few hundred thousand dollars at a time from stock-market-wary investors. It's not an easy sell, and regulators, spooked by the wave of failures, are making it tougher than ever to win approval. For entrepreneurs who can run that gauntlet, though, the stars are aligned for small independent banks in a way they probably never will be again.
Last March, when Kenneth LaRoe set out to start a bank in Eustis — the next town over from Tavares — the speed bumps were already starting to pop up. Building a bank was old hat to LaRoe. The one he founded in 1999, he sold to a larger company in 2006, quadrupling investors' money. This time around, he lined up $24 million in commitments in three months. Then came IndyMac. On July 11, the FDIC moved to take over the nation's seventh largest savings and loan.
Eventually, LaRoe won out. First Green Bank opened its doors on Feb. 17 — and business has been booming. On a recent weekday morning, loan officers and account reps zipped between desks and offices, sidestepping exercise equipment (the bank is operating out of a defunct fitness center until it completes its new eco-friendly headquarters). When First Green was applying for a charter, it figured to make $39 million of loans in its first year. The bank already has nearly $60 million worth in the pipeline.
Admittedly, investors have been reticent to enter the market again, but Westchase is of the opinion that the opportunity will soon be apparent and capital will flow again. When that happens, Westchase is poised to take advantage of the market opportunity.
Westchase Stays Focused in February
News Posted on: 02/13/2009
Westchase's Management Team has had a number of meetings with major institutional investors as well as high net worth individuals. One institutional investor is only interested deploying funds for small bank acquisitions. There are other institutional investors, including high net worth individuals that are interested in the holding company concept of a private equity company and bank acquisitions.
As a general proposition, private equity companies invest in non-public companies that hold their investment for 3 to 7 years. They may realize their profits through an initial public offering, sale, merger or recapitalization.
Westchase's Management Team is focusing on the small business market. The Team has been evaluating numerous studies that have provided extensive research on small business lending in Texas. The primary focus is on current events they may impact the results of these studies reported in the literature from 2002 to the present date.
The preliminary analysis performed indicates that there are well over 250,000 small businesses in the Texas Platinum Triangle that may be potential candidates for private equity lending. A study by the University of Texas at El Paso in published in April 2002 indicated that approximately 60% small businesses in the study have annual sales less than $500,000. Over half of the sample indicated they had been in business under the same ownership for more that 10 years.
The Team is comparing this study to current factors in today's market. There are numerous factors that must be considered before an intelligent analysis can be performed. This website will be updated on a continual basis to provide the results of our ongoing research and the development toward a private equity approach in a challenging small business market.
Westchase Seeks Solutions for the Small Business Market to Cope with the Economic Crisis
News Posted on: 02/13/2009
Westchase Holding Corp.'s Management Team is currently addressing the unfolding events that are occurring with the small business market to determine possible solutions for this market within the Texas Platinum Triangle.
The Team is identifying critical factors that are necessary for the small business owner to survive in tough times. Since specific factors will vary from business to business and industry to industry, it is essential to determine what is central to the future of a particular business or industry. Human factors, such as, determination, dedication, enthusiasm, etc., are difficult to assess or qualify even though they may be critical factors for the survival of any business.
The use of metrics through statistical analysis from numerous published studies provides a measurable method that can compare factors that are considered critical for the success of small business firms. The Team will evaluate studies that provide critical factors that were considered for small business survival during the last 10 years. The focus will be to determine what factors would apply for business owners in Texas and more specifically to those owners within the Texas Platinum Triangle.
Small businesses are the very backbone of the United States economy. It is important that research and analysis of the factors that favor the success of new businesses be performed. It is essential for the continuation of the survival of existing businesses that diligent research is provided to this market on an ongoing basis.
The results from this research will be provided on this web site as it is developed. Please go to the contact tab on this web site and input any comments you may have regarding anything related to the information provided.
Westchase Stays Focused in January
News Posted on: 01/23/2009
Westchase's Management Team is evaluating the impact of "The Recovery" during the first quarter, specifically focused on the best business opportunities for equity markets that remain strong during this cycle with a positive outlook for future growth. The concept of "The Recovery" is coined by the media for Obama's administration plans to jump start the economy with support for the $850 or plus billion dollars stimulus plan.
The research provided by this Team indicates several articles report a positive outlook for Texas. The article "Texas: A guiding, lone star in a dark economy" (Dallas Business Journal, January 2-8, 2009 pg. 32) indicates that conditions in Texas are highly favorable for a capital raise in 2009. It sites, The Financial Times, as naming Texas the No.1 state economy in the nation in light of the ongoing economic and financial slowdown. The basis of the conclusion related to four economic indicators: employment growth rate, state product growth rate, personal income growth rate and home foreclosure rate. Particularly, over the last 12 months Texas accounted for 54% of the entire job gains for all states. The combined factors that place Texas in a favorable position have increased consumer confidence which carries over to businesses. Two additional articles in the Wall Street Journal (January 6, 2009 pg.C2) view Texas banks and private equity as the best source for investor dollars in 2009 based on growth and risk adverse investing.
Westchase Evaluates the Small Business Investment Corporation as a Solution for Providing Jobs by Providing Capital to Small Businesses (SBIC)
News Posted on: 01/23/2009
Westchase Holding Corp.'s Management has developed a Strategic Plan for "The Acquisition of an Existing SBIC or the Licensing of a New SBIC in the Texas Platinum Triangle with Development of a Private Equity Company in the Transitional Phase".
Westchase's Management Team (The Team) seeks to work with entrepreneurs, business owners and a team of consultants to provide financing for business acquisitions, mergers, expansion, recapitalizations or growth.
Transactions will be structured to increase value and minimize risk. The methods will be to (a) take priority liens on assets, (b) follow objective underwriting criteria and (c) create hybrid loans that encompass debt and equity.
The Team will develop an ownership portfolio for Westchase and lead selected companies within this portfolio to becoming publicly traded on the Toronto Exchange or U.S. exchanges.
The goal for Westchase is to become a diversified financial service company, primarily within the Texas Platinum Triangle that may eventually become publicly traded on the Toronto Exchange or a U.S. exchange.
There is a market opportunity to finance transactions with companies with revenues between $2,000,000 and $25,000,000. The Team defines these companies as "Micro Market Companies" (MMC). Many of these companies cannot obtain financing from traditional sources or are burdened by excessive interest rates on debt.
The financing market for MMCs is underserved. This provides a competitive opportunity for entry into this market. It creates the ability to negotiate favorable transaction terms and equity participation.
It is a critical time to provide solutions for small businesses in order to create jobs in a very difficult economic crisis. It is extremely necessary for companies to step up to the plate and provide solutions to stabilize our country.
To obtain additional information- visit our contact page and make your request in the comment section.
Westchase Stays Focused in December
News Posted on: 12/16/2008
Westchase remains focused with respect to establishing a private equity division until such time as it becomes licensed as a SBIC. Westchase's subsidiary, Westchase Banc Shares Corp., is focused on acquiring a small existing bank in the Texas Platinum Triangle (TPT). In order to achieve these objectives, Westchase Holding Corp., through its development team, has identified high net worth individuals who have shown considerable interest in the capital raise. It is anticipated that the initial capital subscription may be received in December and subsequent subscriptions in January and February of 2009. Meetings are scheduled with broker dealers during this time frame who have demonstrated interest in bank acquisitions.
Westchase is evaluating a dramatic initiative undertaken by the Federal Reserve Board on November 25, 2008 and also the SBA on November 13, 2008 to unfreeze small business lending. The SBA changed regulations to allow SBA lenders (principally banks) to use the Libor rate plus 3 percentage points as the base rate on their loans (see terminology tab for further information). Previously, lenders had to use the prime rate. This makes SBA loans more profitable to participants in the secondary market.
Participants in the secondary market have traditionally borrowed money at the Libor rate. This rate is a low interest rate that the London banks offer to other banks and selected participants. Recently, the Libor rate exceeded the prime rate.
The Federal Reserve bar initiated a 200 billion dollar program aimed at unfreezing the secondary market for SBA. Under this program the Federal Reserve has created a new market for asset-backed securities collateralized by SBA guaranteed loans. This creates a market for broker's dealers who assemble SBA loans to sell in the secondary market.
In effect, the Federal Government has created a $200 billion fund that will buy at the discount loan packages assembled by Brokers Dealers, thereby creating available cash to buy the loan package. (Austin Business Journal, November 28-December 4, 2008 pg.6)
Westchase Provides Solutions After Learning Other Bank's Mistakes
News Posted on: 12/16/2008
Solutions are provided by learning from the mistakes that have been made in the banking industry. The five levels of the banking system have been impacted by the current financial crisis in the United States generally describe as: (1) National Banks, (2) Super Regional Banks, (3) Regional Banks in more than one state, (4) Intra-state Regional Banks and (5) Community Banks in a local area. Some of the lessons learned from the mistakes relate to people or businesses that are not candidates for the following: accelerated rates; sub prime mortgages and those that can not afford the loans. Another valuable lesson is that regional doing business across state lines had more problems than intra-state banks. This is especially true with respect to CITI Group that banked nationally as well as internationally.
Westchase Stays Focused
News Posted on: 11/11/2008
Mobile Phone Banking represents the last (mostly untapped) market channel for direct interaction with bank customers. Mobil banking solutions have the potential to provide anytime access to private, sensitive financial information and allow consumers to perform in real-time transactions with their financial accounts from any location. The potential market for mobile banking in the United States has grown to 200 million consumers who use both traditional and mobile phone banking services. It is expected that Mobile banking will allow clients to extend services beyond existing banking channels such as branches, ATMs, and online banking.
Mobile banking may be characterized along three distinct stages of interactions between Financial Institutions (FIs) and their banking customers such as:
- Lower value activities i.e., account balance inquiries, which drive customer awareness and convenience through simple account access;
- Moderate value activities i.e., integrated mobile account management, which are enabled through additional interactivity and security and drive customer retention through these types of services;
- High value activities i.e., contextual marketing and direct selling of bank services, which are enabled through advanced technologies and emerging business models and drive profitability through the adoption of new services.
The majority of the United States banking industry is entrenched in lower and moderate value activities. The rush to introduce solutions greatly increases the risk that early deployment with underperform by failing to provide enough interactive activities, being too difficult to use, or by failing to be revenue producing.
It is clear that Mobile Banking will be a favored service of consumers in the future.
Westchase Holding Corporation is interested in purchasing banks that will offer these types of services to its customers. However, there are numerous considerations that will need to be addressed in offering this type of service such as security, advanced fraud protection, and regulatory compliance issues. Evaluation of reliable technology to address these factors is obviously an essential component.
Information provided by an article from the Yankee Group entitled "Mobile Banking in the United States: The Evolution of Anywhere Banking" issued in November 2007.
Westchase Seeks To Provide Solutions
News Posted on: 11/11/2008
National and super-regional banks have been adversely impacted by the present economic crisis. While these large banks must focus on resolving critical issues to stabilize themselves, an opportunity arises for small stable community banks to market and advertise their competitive advantage. Traditionally community banks were not able to effectively compete in the advertising market with national banks because they saturated the market with huge advertising budgets. The community banks which have remained stable during the crisis are in a unique position to demonstrate their effectiveness to their local markets and attract new customers. They can provide the basis for their stability through advertising to their local markets why they are in a better position to offer relational banking services that will be more competitive than large troubled banks. The stable community banks were not impacted by the mortgage catastrophe as they did not participate in subprime lending. The Texas real estate market has remained strong as real estate prices were not overpriced as was the experience in California and Florida.
Westchase believes that there is opportunity in owning a community bank, particularly in Texas, whose economy still remains very vibrant. Westchase would recommend a conservative approach to lending by utilizing SBA loans to fund the small to medium size businesses. Since these types of loans are partially guaranteed by SBA, the overall risk factor is reduced for the participating bank. Westchase is studying this market and believes the opportunity for the small to medium size companies is significant and the marketing effort to obtain these types of credit would be stressed in the Westchase business plan. However, it should be noted that a conservative lending philosophy should be in place for a community bank in these times of economic uncertainty. Even in a strong economy such as Texas, there is the possibility that, over time, there will be a slowdown and caution should be stressed in formulating a lending policy. In all cases, the community bank should also emphasize maintaining a balanced portfolio.
Westchase Stays Focused
News Posted on: 10/20/2008
Small stable banks are best for depositors, small businesses, investors, as well as better candidates for acquisition. Community banks are in a better position to weather the storm of adversity. The factors that contribute to a bottom line analysis of this are the following:
- Good capital ratios (i.e. $50M in assets and $5M to $7M in capital)
- Good credit quality (i.e. small ratios or zero subprime)
- Strong underwriting standards with history of profitability (i.e. 1% to2% of assets)
- Stable locations (i.e. Texas is a "safe haven")
- Strong operational and financial metrics (no cease and desist orders)
- FDIC insurance caps maintains deposit base (projected to increase to $250,00)
- Mobile banking equalizes small bank competitive advantage over larger banks
- Read Investor's Business Daily Oct. 13, 2008 page A7 for more information
Westchase has taken these factors into consideration when making on site visits to banks that may be potential candidates for acquisition. In addition, when performing this initial evaluation the other factors that are taken into consideration are the following:
- Bank history
- Legal status
- Current financial and operational status
- Location and condition of the bank building as well as its branches building
After the initial evaluation is performed, a more comprehensive due diligence analysis would be performed if the necessary criteria are met. Several site visits a have been performed and are under consideration. Site visits are scheduled for potential candidates for acquisition throughout Texas on a regular basis.
Westchase Seeks To Provide Solutions
News Posted on: 10/07/2008
We provide high lights from a variety of publications that focus on key business and financial issues for small businesses and entrepreneurs. The financial and business needs for this market are in need of a variety of services that can be provided through a comprehensive approach by combining financial and business solutions cost effectively.
Westchase Captial Raise
News Posted on: 09/20/2008
Westchase Holding Corp. (WHC) is in the process of implementing a $42,000,000 capital raise that will only be available to persons or entities having a pre-existing relationship to the Company. Westchase's Management Team has identified the Texas Platinum Triangle (TPT) as the premier growth area in the United States over the next decade as its key marketing strategy. This triangular area incorporates Dallas/Fort Worth, San Antonio/Austin and greater Houston Metroplex which we feel will have great appeal to persons of interest in the financial sector. The past year of investing in due diligence and research has proven fruitful and ripened into an opportunity.
Westchase Forming Limited Partnership
News Posted on: 09/20/2008
WHC is forming a Limited Partnership to develop a Small Business Investment Corporation (SBIC) program. It is the belief of our Management Team that there are significant opportunities both in Texas and New Mexico. Negotiations are currently ongoing with an existing experienced management team that has prior approval by the Small Business Administration (SBA). This relationship provides distinct advantages with respect to the management of a SBIC. Specifically, the time required to complete the administrative process to become approved as a SBIC is considerably shorten. In addition, the prior experience of their team shortens the learning curve for doing it right the first time. Under the SBA program, the SBA will provide 2 to 3 times the capital loaned. This means that for every dollar of investment made by the SBIC to a small business the SBA can draw an additional $2 to $3 dollars from the SBA up to $130 million. The demographics related to Texas indicate that there could be 6 additional SBICs located within the Texas Platinum Triangle. The principal office would be located in Houston, Texas. There are no SBICs located in New Mexico, but the Houston entity would co-locate in Albuquerque and Santa Fe and become licensed to do business as a SBIC.
Westchase Payroll Debit Card
News Posted on: 09/20/2008
Westchase Holding's Management Team has ongoing negotiations with a Dallas firm that is well established with the marketing of software that processes a proprietary method for payroll deduction with a debit Master card.
It is the intention of Westchase to be a fully vertically integrated player in the prepaid debit card industry, as well as offering an end user a retail program through MasterCard. Westchase will establish the necessary technical infrastructure, including software and hardware, to deliver prepaid debit processing solutions as a fully certified third party processor. As part of the implementation process, Westchase will deploy the following components to service its cardholders and business clients:
- Authorization Host for Card Issuing
- Settlement Subsystem for Sponsor Bank Clearing
- Front-End Applications for Program and Card Management
- Supporting Technologies for Risk, Fraud and Monitoring
- Interface to MasterCard Network
- Transaction processing, mobile banking, Interactive Voice Response Unit and 24 x 7 live customer service.
Westchase has mitigated uncertainty by partnering with employees who have early, mid and full investment and start up experience. In addition, the Company will outsource the majority of functional support to experienced software and support processing company in Dallas.
Westchase intends to offer selected programs designed specifically for the under banked and payroll debit card programs through an approved MasterCard bank. Westchase will focus in specific verticals setting us apart from our competitors. Our chosen verticals are Insurance, Payroll, Money Remittance and Virtual.