Citizens Holdings Tentatively Agrees to Acquire Rancho Santa Fe Bank

Only a month after digesting the $17.5-million purchase of an Anaheim bank, Citizens Holdings in Costa Mesa said Wednesday that it has tentatively agreed to buy Rancho Santa Fe National Bank for $12 million in cash.

The deal would add a third bank to Citizens Holdings and bring it one step closer to creating a planned coastal banking system stretching from Long Beach to the Mexican border.

“We’d like to have five or six banks with a total of about $1 billion in assets,” said Paige V. Simpson, president of Citizens. “With Rancho Santa Fe National, we’d be about a third of the way there, with a total of $350 million in assets.”

The letter of intent between the two banks is subject to a definitive agreement, which both sides expect to be worked out by June, and approvals from state and federal regulators and Rancho Santa Fe shareholders. The proposed sale price amounts to $21.70 per share.

“We know a lot about the bank, so we don’t have to spend a lot of time looking at it,” Simpson said.

Twice previously, Rancho Santa Fe National has signed letters of intent to acquire or be acquired by San Diego County banks, but the deals have fallen through. This time, however, James A. Boyce, the bank’s president, said he sees no hitches.

“This offer is generous and fair, and the best part of the deal is that it will keep our little community here intact. No one’s leaving,” Boyce said. “It seems absolutely perfect.”

As it did with El Camino Bank in Anaheim, Citizens Holdings plans to continue to run Rancho Santa Fe National as a separate entity under its own name, its current management and its current board of directors.

Citizens was set up by Australian industrialist Richard Pratt to acquire Citizens Bank of Costa Mesa in 1986. Simpson, who has been president of Citizens Bank since it opened in 1972, said he was skeptical when Pratt first approached him and promised to keep current management in place.

“Two years later, and there’s been no changes,” Simpson said. “Now bankers are calling me asking if we want to buy their banks.”

Rancho Santa Fe National, with branches in Rancho Santa Fe, La Jolla and Escondido, had $103 million in assets at the end of March, up from $91.9 million a year earlier.

Much like Citizens Bank, Rancho Santa Fe National caters to small businesses and professionals with up to $5 million in sales. El Camino’s four branches--two in Anaheim and one each in Fullerton and Tustin--have concentrated on the retail market.

Citizens Bank has two branches in Costa Mesa and one in Brea, but it is seeking regulatory approval to sell its Brea branch to Mid City Bank of Los Angeles. With the sale of the branch and the acquisition of Rancho Santa Fe National, Citizens Holdings would operate nine banking offices.

Though Citizens Bank and Rancho Santa Fe National would not be merged, they can still share their services, Simpson said. With Pratt’s bank in Hong Kong, for instance, Citizens Bank and El Camino Bank can arrange international letters of credit for Pacific Rim customers overnight, he said.

And Citizens Holdings has been able acquire a blanket liability policy for directors and officers, cutting each bank’s premiums by 30%.

A major reason the banks won’t be merged into Citizens Bank, Simpson said, is because banks tend to operate most efficiently and provide greatest returns to investors when their assets do not exceed the range of $200 million to $250 million. Although none of the three banks have more than $130 million, Citizens Holdings plans for each to grow to the $200-million range.