First Interstate Bancorp is now obliterated, but its name and logo will live on.
Wells Fargo & Co. has agreed to cede the rights to both to the Billings, Mont.-based community bank to which it is selling First Interstate's Wyoming and Montana bank subsidiaries. The deal price is $72 million, or 1.93 times the combined book value of the two units. First Interstate of Montana has $252 million of assets; First Interstate of Wyoming, $278 million.
The acquiring institution is $1.3 billion-asset First Interstate BancSystem of Montana Inc.
"It's a great acquisition for us," said Neil W. Klusman, the community bank's vice president and marketing director .
The transaction is expected to close late in the third quarter, depending upon regulatory approvals.
One impetus for the sale lies in a 1984 marketing agreement that Los Angeles-based First Interstate Bancorp signed with what was then called Commerce Bancshares.
Commerce agreed to become a First Interstate "franchisee." For a fee that varied with the bank's financial performance, First Interstate agreed to let the institution use its name, logo, products, and market intelligence, but continue to be independently owned.
The program initially gave First Interstate a way to expand its marketing reach. At its peak, there were more than a dozen First Interstate franchisees, Mr. Klusman said. Commerce Bancshares, which changed its name to First Interstate BancSystem when it struck the franchise agreement, was the third to sign on.
First Interstate later cooled to the franchise concept, and one by one the franchisees dropped out, leaving First Interstate BancSystem the last of the breed. The privately held company had 18 years left on its franchise agreement, and no intention of ending it.
The Billings-based bank, which ranks No. 3 in the state after the Montana subsidiaries of Norwest Corp. and First Bank System, in recent years had been making annual payments of about $370,000 to First Interstate Bancorp.
But it liked the ability to ride on a larger company's coattails, and it appreciated an agreement that kept First Interstate Bancorp from expanding its six-branch Wyoming and Montana operations beyond their current operating territory.
None of that sat well with Wells Fargo, which acquired First Interstate Bancorp on April 1. Wells officials said they did not want to continue the franchise agreement. Nor were they content to be two-bit players in the two states.
The deal marks the first time Wells has voluntarily decided to exit a market that First Interstate had been in. Wells chief financial officer Rodney Jacobs said that the bank is also considering selling First Interstate's $50 million-asset, three-branch subsidiary in Alaska.
Beyond that, though, no other sales are planned, Mr. Jacobs said. He added that the bank definitely plans to keep First Interstate's Texas subsidiary, which has been rumored to be on the block.
Mr. Jacobs said he was "quite pleased with the price" Wells received for the Montana and Wyoming banks, even though it is well below the more than three times book value Wells paid for First Interstate. Mr. Jacobs noted that the premium was based on substantial cost cutting in California, and that the Wyoming and Montana bank subsidiaries deserve a lower premium since they have less market share and fewer opportunities for cost cutting.