Bank of Lincoln County in tiny Elsberry, Mo., had just $35.7 million of assets when Nancy and Bill Laurie bought it in 2007.
They had big dreams for the institution and soon moved the headquarters to Columbia, renamed it Providence Bank and, as of June 30, quadrupled its assets to $150.2 million. On Friday Providence pulled off its biggest feat yet in picking up a failed bank more than five times its size, following a $75 million capital injection from the Lauries.
It didn't hurt that Providence's owners have deep, deep pockets to go along with their ambitious plans; Nancy Walton Laurie is the niece of Wal-Mart Stores Inc. founder Sam Walton.
"The fact that they're smaller is insignificant, because the Laurie-Walton family, they've got billions," said John Rodis, an analyst for Howe, Barnes, Hoefer & Arnett based in St. Louis.
Providence bought the $1.2 billion-asset Premier Bank in Jefferson City, one of three banks to fail Friday. The other banks were in Missouri and Kansas.
This flurry of failed-bank bidding is a reminder that Illinois — No. 2 in failures this year — isn't the only Midwest state with signs of stress. Minnesota, Wisconsin, Michigan, Kansas and Missouri are among the top 11 states with banks on Foresight Analytics' troubled-bank watch list.
Indeed, the management team at Providence kept a close eye on the mounting stress among other banks in its market, Brett Burri, the chief executive, said in an interview.
"We've been looking for an acquisition opportunity for quite some time, and the fact that Premier was near our existing market areas and was kind of in our backyard made it attractive," Burri said.
The initial vision for the bank was to move it to Columbia and grow through acquisitions. Burri was hired in 2007 to establish a new loan production office in Columbia, and the bank opened its first full-service Columbia branch in late 2008.
Providence's parent company, Linco Bancshares, also owned by the Lauries, bid unsuccessfully on an open bank, Burri said, and conducted due diligence on others yet couldn't find the right fit.
Premier was a strategic match — its primary location was in Jefferson City, the state capital, and it also had locations in the high-growth market of St. Charles, and throughout St. Louis County.
"It was ideal I think in the context of retaining employees," Burri said, noting that there was minimal branch overlap between the institutions.
The regulators also worked closely with the smaller bank to complete the deal, said Randy Dennis, the president of DD&F Consulting, which advised Providence on the deal.
Providence acquired Premier through a "modified whole-bank" transaction, which excluded things like Federal Home Loan bank advances and brokered deposits, which acquirers usually pick up.
The deal excluded Premier's nonperforming loans, meaning Providence picked up only $657.9 million of Premier's assets. The Federal Deposit Insurance Corp. agreed to share in losses on 80% of those assets.
"Obviously their losses, they believe, will be much less," Dennis said.
Dennis said Providence also assured regulators that it was familiar with Premier and many of the institution's key personnel, whom they intend to retain.
"Even though it's a failed bank, that doesn't mean they don't have a lot of very, very good people," Dennis said. "So I think the regulatory agencies understood that, and certainly the bank went into it with an integration plan on how it was going to make this work."
Regulators asked Linco Bancshares — in effect, the Laurie family — to contribute enough additional capital to ensure that the combined companies would have a leverage ratio of at least 8%. Dennis said the $75 million capital injection puts them above that threshold.
Burri said the bank has plenty on its plate and plans to digest this acquisition before it pursues other opportunities. "We're going to take our time in making sure that we successfully integrate the two organizations," he said.
But when the time is right, it appears there will still be plenty of opportunities in the Midwest. The reasons are twofold, said Matthew Anderson, a managing director at Foresight.
"There are quite a few smaller banks in the Midwest, so there's a larger proportion to begin with, in terms of the number of banks," Anderson said. "Also, a lot of them have high exposure to commercial real estate, which has been by far the No. 1 driver of bank failures throughout the cycle."
Some banks also have experienced problems because of a lack of diversification in their loan portfolios as well as their entry into unfamiliar areas, mainly related to real estate, said Travis Ford, a spokesman for the Missouri Division of Finance.
"Our commissioner's [Richard J. Weaver] position is that until there are substantial improvements in the economy, banking is still going to be a tough road," Ford said.
This was clear last Friday, when two other Midwest banks failed.
Midland State Bank in Effingham, Ill., acquired WestBridge Bank and Trust Co. in Chesterfield, Mo., from the FDIC. WestBridge had $91.5 million of assets and $72.5 million of deposits. Midland State entered into a loss-share agreement with the FDIC on $72.6 million of WestBridge's assets and assumed all of its deposits.
Also, Simmons First National Bank of Pine Bluff, Ark., acquired the $508.4 million-asset Security Saving Bank. Simmons First has been an aggressive acquirer in both open-bank and government-assisted deals since the 1990s.
Its acquisition Friday was the second FDIC-assisted deal Simmons First has made in less than six months.
Simmons First acquired a $95.6 million-asset bank in Missouri, Southwest Community Bank, in May. That deal was Simmons' first step outside of Arkansas.
The company raised $70.5 million in capital in late 2009 to finance failed-bank deals.
Its chairman and chief executive, J. Thomas May, said the two acquisitions this year are among "several that we anticipate making over the next two to three years."