After a period of rapid growth through acquisition, First California Bank is closing branches in Woodland Hills and Thousand Oaks next month as it realigns its operations. The closures are nearing as the Westlake Village-based financial institution itself endures scrutiny and pressure following a public bid earlier this month by Los Angeles-based PacWest Bancorp to buy the bank for $7.25 per share. First California management rejected the offer, a move that upset some of the bank’s institutional investors who want to see more profitability. Now some observers say other banks may up the ante, a scenario that raises questions about whether the bank will remain independent amid a shrinking regional banking industry. A $1.48 billion deposit base and low losses during the recession make First California an attractive acquisition target, said Gary Tenner, vice president and senior research analyst with D.A. Davidson & Co., an investment bank based in Portland, Ore. PacWest’s interest, Tenner said, “could be a defensive play to not let a competitor get a beachhead in their market.” Robert Gipson, chairman of the board for First California, could not discuss specifics about the PacWest offer or the bank’s plans for the future but urged patience as the process continues. PacWest CEO Matthew Wagner declined to comment. Joe Gladue, a banking industry analyst with B. Riley & Co., speculated in a May 9 research update on First California that a bidding war for the company was “not out of the question.” Financial services firm Keefe, Bruyette & Woods named City National Bank, CVB Financial Corp., and US Bancorp as potential buyers. In an analysis of three scenarios, the firm said PacWest would gain the most financially from an acquisition whereas City National has the least to gain. Amid the speculation of a sale, First California’s share price has topped $6 since May 9, a level not seen in about three years. Shares of First California closed at $6.79 on May 18. First California vs. PacWest First California operates 19 branches, has 296 employees and assets of $1.8 billion. PacWest, by comparison, has 76 branches, more than 900 employees and $5.5 billion in assets. While the banks differ in size, they’re similar in scope. First California and PacWest operate in the same geographic area stretching from San Luis Obispo County to San Diego County and offer services to a clientele that includes small- to medium-sized business and affluent individuals, Gladue said. First California’s electronic banking services and pre-paid debit card division offers a potential buyer a growth opportunity, Gladue said. “That can generate low cost core deposits,” he said. Both banks have grown in recent years through acquisitions. Between 2009 and 2011, First California purchased three failed banks: 1st Centennial Bank, Western Commercial Bank, and San Luis Trust Bank. In February, the bank announced it was buying Premier Service Bank in a deal valued at $2.2 million that added branches in Riverside and Corona. That same month, the company announced plans to close four of its branches. Analysts say the company is battling high expenses as investors remain disappointed with profitability. In a statement about the closures, CEO C.G. Kum said the growth in branches created the need to evaluate the bank’s coverage area. “The resulting branch realignment plan will help ensure that we are efficient and productive,” he said. The Woodland Hills branch in the Warner Center Towers will close June 22 and customers are directed to the Encino office by a posting on the doors. The Thousand Oaks branch on Hillcrest Drive closes in June, as well. The other branches slated for closure are in Brea and Temecula. In its early years PacWest bought other banks for expansion reasons. The institution was founded in 1999 as First Community Bancorp and changed its name in 2008. Between 2008 and 2010, it took over the assets of three failed banks including Security Pacific Bank in 2008, Affinity Bank in 2009 and Los Padres Bank in 2010. PacWest’s bid for First California and a pending $58 million deal for American Perspective Bank signals the bank is returning to an expansion strategy. “This puts them back on their strategy of consolidating banks in Southern California,” Tenner said. Pushing for change PacWest began taking an interest in First California more than six months ago. At the time, First California’s stock price hovered in the $3 to $4 per share range. The performance fell short with some institutional investors, including members of the Pohlad family of Minneapolis, who own Major League Baseball’s Minnesota Twins. The Pohlad family owns 12.1 percent of the bank’s shares. In a January filing with the U.S. Securities and Exchange Commission, the Pohlads took First California management to task for not doing more to “create stockholder value” and demanded the bank hire outside consultants to assess all strategic alternatives, including a sale. Attempts to reach a representative at CRP Holdings LLC, the Minneapolis firm controlled by the Pohlad family, were unsuccessful. Another institutional investor, Boston-based Castine Capital Management, also filed a letter of protest regarding the company’s financial performance. This month, the company reduced its stake in First California by half to about 2.5 percent. Officials from Castine Capital Management could not be reached for comment. Matthew A. Lindenbaum, a principal with Basswood Capital Management in New York, wrote a May 10 letter to the First California board. The firm, which has a 5.2 percent stake in the bank, stated: “If you fail to do what is right for stockholders, we will not hesitate to begin the process of calling a special meeting to remove the board.” Attempts to reach Lindenbaum were not successful. First California’s Gipson, however, showed no concern of changes in board members. “I am highly confident the board is doing the right thing and will continue to do the right thing,” said Gipson, a Los Angeles attorney. “I take the concerns (of shareholders) seriously, but they do not have the same information that people inside the board have.” Despite criticism of First California’s stock price, Gipson said he was pleased with the bank’s financial performance and emphasized that the management and board had long-term goals in mind. An example of that, he said, was the bank’s ability to raise $41 million through the sale of 16 million shares in early 2010, a move that kept the price at near or below $3 for the remainder of the year. As the bank invested that money in buying up smaller banks, the market began to respond and the price stayed above $3 for much of 2011. In January, the price reached $4 and kept rising. “Our plans were conceived and implemented before we got the extra shareholder attention,” Gipson said. “A lot of that (shareholder) attention is caused by the stock going up.”
First California May Be Target
