First Interstate Buys 53-Branch San Diego Trust : Banking: The $340-million stock swap with parent San Diego Financial Corp. quadruples First Interstate’s presence in that county.
In a deal that illustrates the accelerating consolidation in California’s banking industry, First Interstate Bancorp said Monday that it will acquire the parent company of San Diego Trust & Savings Bank in a stock swap valued at $340 million.
The acquisition of San Diego Financial Corp. will quadruple First Interstate’s presence in a county where it has been badly outgunned by Wells Fargo and Bank of America. The deal is expected to be final by year’s end.
The bank’s sale stunned local observers, who saw the bank as the last major survivor of a once mighty cast of locally owned banks and S&Ls; that included the now defunct Great American Bank and Imperial Savings.
The acquisition of the 53-branch bank is the fourth statewide transaction this year by First Interstate, whose return to profitability and strengthening capital position have put it in a deal-making mode. San Diego Trust is a healthy, well-established bank that has remained in the control of the Sefton family since its founding in 1889.
First Interstate outbid “at least” seven other banks, all of which were based outside California, San Diego Trust Vice Chairman Harley Sefton said in an interview. After the Seftons and the board decided in February to sell, San Diego Trust began contacting potential acquirers through an investment banker, he said.
Trading in thinly traded San Diego Financial shares--the company has only 350 stockholders--was suspended at a $300 bid price by market makers on Thursday after rumors began circulating of an impending acquisition. Under terms of the stock swap, San Diego Financial stockholders will receive $756.10 worth of First Interstate shares for each share they own.
In 1990, retiring Chairman Thomas Sefton, whose grandfather Joseph Sefton founded the bank and whose family controls 52% of the bank shares, said the bank was not for sale. However, the family and board members decided to sell mainly to minimize estate taxes, said Harley Sefton, Thomas’ son.
Branch closings and layoffs are certain to result from the consolidation of the two bank networks, but the numbers of staff and locations to be cut have yet to be determined, Bruce G. Willison, chairman of First Interstate Bank of California, said at a news conference here after the deal was announced.
Most at risk among San Diego Trust’s 1,500 full-time employees are 100 managers, San Diego Trust & Savings President Dan Herde said.
Adding San Diego Trust’s 52 local branches--the bank also has a branch in Riverside County--to First Interstate’s 15 offices will give the Los Angeles-based bank the third-largest San Diego County branch network, after Bank of America and Wells Fargo.
The big banks increasingly see healthy deposit bases as profit centers from which to generate fee income on accounts, investments and mortgages, said Dakin Securities analyst Campbell Chaney.
At 2.5 times book value, the purchase price is far above the 1.5 to 2 times book value that banks normally fetch. “It’s a very high price,” Chaney said. “First Interstate wants to expand in San Diego County, and it’s one of the few opportunities remaining to them.”
In February, First Interstate acquired five HomeFed branches in Fresno. In May, it bought the 12-branch California Republic Bank in Bakersfield. Last week, the bank said it was buying First State Bank of the Oaks, a Thousand Oaks bank with five offices.
