First Republic Bank in San Francisco has plenty of borrowers and private banking clients in the fast-growing markets east of the city - but no branches to attract deposits.
That would change when it buys the $564 million-asset BWC Financial Corp. in Walnut Creek, Calif.
The $9.3 billion-asset First Republic, which has never made a whole-bank acquisition, said Monday that it would buy BWC, which owns Bank of Walnut Creek, for $177 million in stock, or $41.95 per share.
Bank of Walnut Creek has seven branches in the East Bay area. "Our clients there were really eager for us to open branches there," said chief operating officer Katherine August-deWilde. "Plus, we'll be also able to bring our whole portfolio of services, including our wealth management services, to Bank of Walnut Creek's existing customers."
First Republic has bought the charters of financial services companies in the past but then liquidated their assets and used the charters to open offices in such cities as New York and Boston. It has also entered other markets, such as San Diego and Las Vegas, by first opening private banking office or loan production offices or both and then branches.
Ms. August-deWilde said that though buying BWC is a departure, "it was an opportunity far too good to overlook."
Rumors that BWC would soon be sold had been circulating in local business papers for weeks. Most its seven directors, including chairman and chief executive James L. Ryan, 72, been there since 1980, when the company was founded.
BWC's thinly traded stock closed at a 52-week high Friday of $38, up 9% since May 1. It rose another 6.2% Monday on news of the deal, to close at $40.35.
Mr. Ryan said the board decided to put the company up for sale because he and two other senior executives were ready to retire. "But it's so much more than that," he said. "Not only is it good for shareholders," but because First Republic's "high-touch culture is identical to ours, it's also good for our staff and our clients.
Manual Ramirez, an analyst at Keefe, Bruyette & Woods Inc. in San Francisco, said that at 3.28 times book value the deal is pricey.
"There's certainly a premium being paid for accelerating the build-up of their branch network there, but it was the only available company to give them the footprint that they needed," he said.
Though First Republic said that deal should be accretive to earnings next year, Mr. Ramirez said it would nonetheless be "a test for management."
"They've never completed an integration this big before, and while the business models are compatible, they're not identical," he said. First Republic mainly offers private banking services and high-end mortgages for the wealthy, and its commercial business is largely targeted to law firms and other professionals. Bank of Walnut Creek is a more traditional community bank that focuses mostly on small businesses.
"They're going to have to bring in additional private banking staff plus retrain existing staff in such a way that won't ruin the relationships they already have with their customers," Mr. Ramirez said. Fortunately, a number of senior at First Republic employees have integration experience from other banks, and several key Bank of Walnut creek executives have signed contracts to stay, he said.
Don Worthington, an analyst at Hoefer & Arnett Inc. in San Francisco, said customer runoff should be minimal because there is no overlap, so First Republic would not be closing branches or laying off employees.
The sale is expected to close in the fourth quarter.
