ST. LOUIS — There are too many banks in St. Louis, but few bankers are in a hurry to do anything about it.

The lack of willing sellers is a puzzler in a market with nearly 140 banks and forecasts of 2% annual economic growth over the next decade, two acquisition-minded bankers said this week.

They, like other prospective buyers, are sitting on capital and waiting for the right opportunity to come along. Each has an idea of what he would do if the right deal suddenly appeared but is equally willing to talk up plans for organic growth.

"St. Louis is not a growing economy, so it is a little bit dog-eat-dog and a little bit about stealing business," says Thomas Brouster Sr., chairman of Reliance Bancshares (RLBS) in Frontenac, Mo. "There are a lot of banks here, which means roll-up opportunities."

Some regional markets are ahead of others when it comes to M&A. Activity has heated up in the northwestern states of Idaho, Oregon and Washington, with some recent deals setting the stage for a new batch of regional powers. However, the bloated Chicago market may have only just entered the massive consolidation long predicted for it with deals such as MB Financial's (MBFI) agreement to buy Taylor Capital (TAYC).

In St. Louis, the $1 billion-asset Reliance — which aggressively purged bad loans and emerged from regulatory enforcement actions following a capital infusion led by Brouster — is open to a deal that would allow it to double in size.

"Finding the right partner our same size makes sense," Brouster says.

The search has been a challenge. The same can be said for Enterprise Financial Services (EFSC), a $3.1 billion-asset St. Louis institution that has bought three failed banks in recent years.

"Boards are still wrestling with valuations," says Peter Benoist, Enterprise's president and chief executive.

"These things take time," Benoist adds. "For us, acquisitions would take place on an opportunistic basis. We don't believe in acquisitions as a business. When it comes to whole-bank deals, we evaluate how it adds franchise value, not about how it adds assets."

Other factors may be discouraging deals in St. Louis, says Joseph Porter Jr., partner at Polsinelli Shughart. Several of the city's struggling banks brought in new management teams in hopes of staying in the game longer.

"A number of the smaller banks will combine to address technology and regulatory compliance" issues, Porter says. "Competition will drive them in some manner. But I think, for the most part, that the banks that are starting to come around have good, solid management teams, which will allow them to stay independent."

A factor that will favor consolidation is the Troubled Asset Relief Program. A number of St. Louis banks still hold Tarp capital, and "a lot of these banks have targeted the five-year anniversary to get out," Porter says.

Reliance still owes Tarp funds to third parties who paid the Treasury Department a premium last month to buy the company's preferred stock. Reliance is in no hurry to redeem the shares before the dividend rate rises to 9% early next year from the current 5%, says Brouster, who owns about 60% of the company's common stock.

Other banks in the market still hold Tarp funds, including First Banks in Clayton, Mo., and Centrue Financial (TRUE) in Ottawa, Ill. Efforts to meet with executives at the $6.2 billion-asset First Banks and the $887 million-asset Centrue were unsuccessful.

Still, an occasional deal slips through, and local bankers take notice. Midland States Bancorp in Effingham, Ill., agreed last month to buy Heartland Bank in St. Louis to create a $2.5 billion-asset company. Brouster says this acquisition in particular gives him optimism that more deals can be done.

Out-of-market deals are slowly reshaping the city, too. Bank of Montreal's 2011 purchase of Marshall & Ilsley in Milwaukee prompted a number of lending officers to jump ship, landing at smaller institutions such as Enterprise and the $1.1 billion-asset Carrollton Bank in nearby Carrollton, Ill.

"M&I was our main competitor, but now their talent has been dispersed," says Scott Goodman, the president of Enterprise Bank, which recruited an asset-based lending team that had been with M&I.

In fact, pilfering lending teams and expanding product offerings is the primary way that area banks plan to grow in the short run.

In addition at asset-based lending, Enterprise is looking more at tax-credit lending and M&A financing for private-equity deals. The company also bought a mortgage business from F&M Bank and Trust in May.

Reliance in July hired Rick Sems from PNC Financial (PNC) to run its bank, who in turn brought in former co-worker Tim Fogarty as senior loan officer. Sems says the pair is looking at opportunities that could include financing employee stock-ownership plans. Taylor Capital launched a similar business earlier this year.

Still, the St. Louis executives predict many local banks will ultimately conclude that they can no longer survive on their own and decide to sell. It is just a matter of time.

"We believe that 10% to 15% of the industry will meet the definition of being a high-performance institution," Benoist says. "That is the track to independence. But if you don't understand the challenges in the environment, you won't be able to deliver shareholder value."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.