Houston Start Up 26 July2006

Houston Start-Up Gets an Infusion for Its Acquisition Coffers

American Banker
Wednesday,July 26, 2006
By Katie Kuehner-Hebert

A San Francisco private equity firm is making good on its pledge to invest in high-growth markets other than California by buying a large stake in a Texas start-up.

Last week Belvedere Capital Partners Inc. and Green Bancorp Inc. jointly announced a deal in which Belvedere willinvest at least $20 million in the Houston company. Green is expected to use the capital to buy other small Texas banks - includingone for which it already has a deal, the $168 million-asset Redstone Bank in Houston.

"Texas is a high-growth market, particularly Houston," Richard Decker, Belvedere's co-founder and chairman, said Monday. "It's full of small businesses, and we really like small businesses, and the demand deposits and very strong net interest margins that go with them."

Belvedere, which has historically invested in California banks, has diversified of late into other markets and even other industries. Its investment would give it a 37% stake in Green and four seats on the board, and Mr. Decker said that it may invest more in Green.

Green Bancorp was formed in June by ManuelJ. Mehos, who in 1986 founded Coastal Bancorp in Houston. After buying a dozen banks and building its assets to about $3 billion,Coastal was sold to HiberniaCorp. of NewOrleans for about $230 million in 2004. Hibernia has since been sold to the $75 billion-asset Capital One FinancialCorp. in McLean, Va.

Mr. Mehos aims to repeat that strategy with Green, and will start with about $50 million of capital from Belvedere, other investors,and Redstone'sbooks once that deal is completed. The Redstonedeal, announcedlast month, is scheduled to close in the fourth quarter, at the same time as the deal with Belvedere.

"We're going to mostly look at banks that are under $200 million in assets, because we believe the pricing is a little more economical in that strata," Mr. Mehos said. "But we're going to be very selective, because everything here is pretty pricey right now."

Mr. Decker agreed. Texas banks' multiples have generally been higher than three times book value and have gone as high as six times book, he said. "But we want to be a lot more disciplined than that," he said.

Dave Alford, a bank consultant in Sacramento, said Belvedere has a track record of either investing in banking companies run by experienced managers or hiring such managers to run banks for it.

In 1999, Belvedere executive Ronald W. Bachli was named to lead California Community Bancshares, which Belvedere started after buying several banks. The company was later renamed Placer Sierra Bancshares, and has built its assets fivefold, to $2.7 billion, partly through acquisitions.

"Belvedere focuses on good management, and Mr. Mehos knows what he's doing," Mr. Alford said. "He's buying a bank in a high-net-worth area of Houston, and the plan is to buy similar commercially focused banks."

Belvedere is investing in Green through its second $150 million fund, Belvedere Capital Fund II, which closed in May. It is investing in three start-ups as well, in San Francisco, Los Angeles, and Orlando. Presidio Bank, in San Francisco, opened Monday, after its organizers raised more than $40 million of start-up capital. The other two start-ups have yet to be approved by regulators, Mr. Decker said.

Belvedere is also looking to buy stakes in community banks in either Oregon or Washington State. Additionally, Belvedere will use its new fund to buy insurance brokerage firms, payment systems companies, and other financial services comp~nies. It has already acquired Hometown Commercial Capital in Burlingame, Calif., a specialty finance company that participates in commercial real estate loans with community banks.