Midwest banks have long been enamored with growth in sunny locations, but Enterprise Financial Services Corp. is using government-backed deals with loss-sharing agreements as protection.
In slightly more than a year, the $2.5 billion-asset St. Louis company has expanded its Arizona operations from one banker in a loan production office to $400 million of assets and four branches. It has done so by striking three deals with the Federal Deposit Insurance Corp., including last week's purchase of the $150 million-asset Legacy Bank in Scottsdale.
"We are here to build. We have the benefit of coming in at the right time. Demographics albeit have softened, [but] have a lot of long-term potential here," said Jack Barry, the president and chief executive of Enterprise Bank and Trust in Arizona. "We jumped over a lot of banks in a short period of time."
For an out-of-state bank, scale can make or break a foray into a market, said Randy Dennis, the president of DD&F Consulting in Little Rock, Ark. A new player with multiple failed-bank deals can create an aura of strength in a market of ailing banks.
"It is difficult to build a franchise in a new market without multiple acquistions," Dennis said. "It is hard to establish your name in a new market. There are a lot of questions. Doing a few acquisitions does give you some intrigue."
Although three deals is a lot in a year, Barry described the company's approach in Arizona as selective. It is looking for deals that are going to further its mission of becoming a middle-market player.
The latest one not only gives Enterprise some size, it breaks into Scottsdale, a well-heeled part of the Phoenix metropolitan market, and it adds a trust division with $70 million of assets under management.
Wealth management is a key component of the company's mission to be a banker for both a business and for the business' owners, said John Rodis, an analyst at Howe Barnes Hoefer & Arnett Inc. "They do a good job with wealth management in St. Louis and Kansas City," Rodis said.
"We are not quite sure how the new customers are going to react, but in theory this could give them a platform to grow the wealth management segment in the Arizona market."
Rodis said he has mixed feelings about Arizona. Although the expansion has been a boon to earnings, he is curious if Enterprise is missing opportunities in its home markets.
"The yield accretion is helping their earnings," Rodis said. "But all things equal, I would rather see them focus on the Midwest. There is still room for growth there, too."
Peter Benoist, the company's president and CEO, said in an interview Tuesday that Enterprise has not lost its focus on its home turf, but is open to new opportunities.
Enterprise's decision to head southwest began like a lot of other Midwest banks: growth. "Four or five years ago, we were looking, and relative growth rates and a third market made sense," Benoist said. "We knew we needed the right banker in the growth market who would know the good guys from the bad guys."
Enter Barry, who had worked with Benoist at Mark Twain Bancshares Inc. in the late 1990s. Barry was living in Phoenix and had recently been in charge of Marshall & Ilsley Corp.'s commercial lending division there. Barry and Enterprise set out to form a new bank, but the credit crisis of 2008 hit and the FDIC all but stopped issuing charters.
It created a loan production office as it waited to strike, finally picking up the $40 million-asset Valley Capital Bank in Mesa in December 2009.
Last summer, it struck a unique deal, buying $250 million of Arizona-originated assets from the failed Home National Bank in Blackwell, Okla.
Benoist described the Home National deal as largely an asset play, buying at a deep discount and making a profit by working out the assets. Barry said he is mining that loan book for other opportunities. "Building a bank is all about relationships, so we are securing the good customers that were embedded in that portfolio," Barry said. "We want to salvage and build on those."
Benoist said the Phoenix expansion is based on more than growth. As he sees it, the 7,500 local companies with revenues of $5 million to $100 million are a major pull.
"The perception is that Phoenix is a purely real estate-driven market," Benoist said. "But there is a lot of commercial business there, and that's our sweet spot."