NBH Holdings Inc. took the first step this week in its quest to build a $12 billion-asset community banking network by agreeing to acquire Bank Midwest in Kansas City, Mo. — one of many targets it is eyeing this year.
Tim Laney, the Boston company's chief executive, said the deal is a jumping-off point for NBH, which expects to spend the rest of the $1.15 billion it raised last year by the end of 2010.
"We're working to keep the scope broad, and then obviously we'll narrow it down based on great opportunities," Laney said in an interview Thursday. "You could expect a strong Midwestern franchise … a strong Southeastern franchise, and perhaps another. The key is to focus on two or three areas of the country."
The strategy was the vision of NBH co-founder James Connolly. The former president of Citizens Financial Group Inc. in Providence, R.I., died suddenly of a heart attack in January.
Despite the setback, Laney said NBH has continued to scour its target regions for open-bank acquisitions as well as failed bank deals, particularly in the Southeast. "We have a number of other opportunities in the pipeline and fortunately, the pipeline continues to grow," he said.
Laney said NBH sees immediate opportunities to fill in its network in Kansas City through other acquisitions. The Kansas City market is less prone to economic volatility than other Midwest markets, making it attractive for NBH, Laney said. "It didn't have the high highs; it also hasn't experienced the low lows," Laney said.
Another benefit of the deal: NBH was able to cherry-pick the loans it wanted from Bank Midwest's portfolio.
NBH would acquire 38 of the $4.3 billion-asset Bank Midwest's branches in Missouri and Kansas, along with some deposits and performing loans. Laney said the companies, which are privately held, would not disclose the sale price or the amount of deposits and assets to be acquired.
The acquired branches would continue to operate under the Bank Midwest name, and the company's headquarters would remain in Kansas City. The deal, which is subject to regulatory approval, was announced late Wednesday and is expected to close in the fall.
Bank Midwest's parent company, the $6 billion-asset Dickinson Financial Corp., will retain all of the bank's capital, reserves and nonperforming assets. Bank Midwest has struggled with nonperforming loans, and since May has operated under a consent order requiring it to reduce nonperforming assets and boost capital.
Dickinson CEO Paul Holewinski said in a press release that the sale of Bank Midwest — by far the company's largest subsidiary — would provide capital for its five other banks, in California, Florida, Arizona, Colorado and Kansas. "The smaller, more streamlined organization will be realigned and refocused for the future," he said.
Bank Midwest's dozens of branches located in retail stores were not included in the deal. Dickinson will continue to own and operate at least 25 branches in Wal-Mart stores in Kansas and Missouri, which will be rolled up into Dickinson's other subsidiary banks.
Ken Thomas, a banking consultant in Miami, said it was wise to leave the in-store branches on the table. Bank Midwest, though, will still face stiff competition in Kansas City, he said.
"The name helps, because they're recognized, and it certainly helps that they've got a strong source of capital," Thomas said. "That gives them the opportunity to expand elsewhere and to buy other banks, but I don't see them being too focused on just the Midwest."