Taking advantage of a recent change in Iowa banking law, Wells Fargo & Co. said Friday that it would buy Des Moines-based Brenton Banks Inc. for $264.5 million in stock.
The deal would shore up San Francisco-based Wells Fargo's position as the largest bank in the state, adding $2 billion-asset Brenton and its subsidiary mortgage and insurance businesses and boosting Wells Fargo's share of deposits in Iowa to 15%, with $6.5 billion. The acquisition is slated to close by the end of the year.
Brenton Banks is the largest Iowa-based bank holding company, with 43 offices and 679 employees in the state. Only Wells Fargo and Mercantile Bank, which was recently acquired by Milwaukee-based Firstar Corp., have more deposits in the state. The company is also the second largest mortgage originator in the state, behind Wells Fargo.
Just a few months ago, Wells Fargo could not have done this deal because Iowa law prevented any single bank from holding more than a 10% share of deposits in the state. Norwest Bank Iowa, which changed its name to Wells Fargo Bank Iowa NA on May 12, reached that limit with its last big Iowa acquisition in 1992.
Things changed, however. By the time discussions between Wells Fargo and Brenton began in the early spring, the two banks were fairly sure that the cap would be lifted.
"We knew at this point we had enough votes in legislature," to pass the new banking law, said Lynn Horak, chairman and chief executive officer of Wells Fargo Bank Iowa. "If we had votes, the governor would sign it." Indeed, Iowa raised the deposit limit to 15% in April.
The deal is also emblematic of Wells Fargo's strategy to buy small banking institutions in the Midwest to fill gaps in its territory. "This is another classic Wells Fargo deal that demonstrates their position as a disciplined buyer," said Joseph K. Morford, an analyst at Dain Rauscher Wessels in San Francisco.
Mr. Morford estimated that Wells would pay two times book value for Brenton, and 14 times earnings - expected to be around $0.90 for the year. "Those are around the low end of the valuation scale," Mr. Morford said.
Wells had targeted Brenton as an acquisition candidate, but talks between the two banks did not start in earnest until February after Wells was approached by an investment banker who conveyed Brenton's interest in talking.
Though publicly traded, Brenton Banks is still closely held by members of the Brenton family, who hold just under 50% of the shares. The founder's great-grandson, Robert Brenton, is chairman of the holding company's board and his two brothers are also board members.
"We felt that this would be the best fit for us and our employees," said Robert L. DeMeulenaere, president and chief executive officer of Brenton Banks Inc. "There may be fewer jobs in the bank for us, but there will be other positions here," he said.