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Bank acquisition big boost for Enterprise Financial in prized St. Louis

Kevin Dobbsis a senior reporter and columnist. The views and opinions expressed in thispiece represent those of the author or his sources and not necessarily those ofS&P Global Market Intelligence.

stands to solidify its position as the biggest community bankin Greater St. Louis with its planned $130.6 million of Jefferson County BancsharesInc. 

Clayton,Mo.-based Enterprise Financial, which focuses on Missouri's largest marketswith a special emphasis on St. Louis, said the cash-and-stock would provide itsubstantial new scale and market share. It would lift it from under $4 billionin assets to nearly $5 billion in assets while also pushing it up a couplespots to the No. 4 ranked bank by deposit market share in the St. Louismetropolitan area, a market where unemployment has hovered below 5% this yearamid job growth across several sectors.

"Wethink it really positions us well in our primary market," CEO Peter Benoist said during a call with analysts Oct.11, shortly after announcing the acquisition. The deal is slated to close earlynext year.

Executives said that Festus, Mo.-based Jefferson,with a strong focus on commercial real estate, will complement Enterprise'scommercial-and-industrial core, helping it to diversify and broaden itsbusiness lending. Enterprise said it also intends to draw on its wider array ofofferings to deepen ties with Jeffersoncustomers, providing more mortgage, credit card, and wealth management productsand services.

The combination of those factors, Chief Strategy Officer andCFO Keene Turner said in an interview, shouldbolster the buyer's long-term growth in St. Louis, a market he describedas "stable, strong and growing" — anideal mix for a conservative but expansion-minded community bank.

"Wehave had a lot of success here — both organizations," Turner said, noting that the two companies wouldcombine with similar and favorable deposit mixes. The combined cost of depositsis estimated to be 0.36%.

Cost savings of nearly 30% also factor into the merits of thedeal, with about 63% of those savings realized in the first year and 100%annually thereafter. But Turner said expense reductions were not a drivingfactor to do the deal. He said Enterprise has no immediate plans to shutter any of thetarget's branches — often a key way to take outcosts following an acquisition — and instead would find cost savings primarilyby paring down overlapping back-office and administrative expenses.

"We'renot trying to cut too hard," Turner said,preferring instead to build off of the target's physical locations andtalent to push for growth long term.

Enterprisesaid it expects the deal to prove 3.5% accretive to earnings per share in 2017and 7.4% the following year. It projects 3.6% dilution to tangible book valueper share at closing, but it expects to earn that back in less than 3.25 years.Investors have made it known in the current cycle that they prefer earnbackperiods of less than four years.

Enterprise'sstock climbed more than 1% in morning trading Oct. 11.

D.A. Davidson & Co. analyst Jeffrey Rulis said in an interview that the acquisition shouldlayer onto Enterprise's existing strategic focus in its core markets,with the added heft and market share giving it a new edge as it pushes toattract new customers, do more business with existing customers and driveoverall loan growth.

Healso said the pricing looked reasonable —Enterprise estimated it at about 140% of tangible book value — and relativelylow risk, given that it is an in-market deal and that the buyer knows thetarget, its leadership and many of its customers. Those factors likelycontributed to investors' favorable initial reaction.  

"Itall seems practical," Rulis said. He added that the target "fits innicely with what they have going strategically."