After criticism from investors over its strategic plan, First California Financial Group Inc. last week announced a pair of moves designed to increase profits and boost share price.
The Westlake Village bank holding company said it will acquire Premier Service Bank, a small lender in Riverside, and announced a branch realignment plan that will lead to the closure of several underperforming offices. The acquisition will expand First California’s presence in the Inland Empire and the closures will result in immediate cost savings, but bank leaders insist the steps were not taken merely to appease dissatisfied shareholders.
“What we’re doing is evaluating every opportunity to increase shareholder value and enhance the profitability of First California,” said Chief Executive C.G. Kum. “This situation was being explored before any of the issues with the shareholders came to light.”
In a Jan. 11 filing with the Securities and Exchange Commission, brothers James, Robert and William Pohlad, who collectively own 12 percent of First California shares, criticized the company, saying its “current strategy is inadequate to maximize stockholder value.” The Pohlad family, which owns and operates the Minnesota Twins baseball team, is the bank’s largest shareholder.
The brothers demanded that the company consider dramatic changes to its business, including a possible sale of the bank.
The Pohlads were subsequently backed by Boston’s Castine Capital Management LLC, an investment firm that owns more than 5 percent of First California’s shares. In a letter to the board, Castine said the bank’s “historical returns on assets and equity and, more important, prospective returns, do not, in our opinion, justify independence.”
The bank said recently that it has hired an investment bank to review its options, but Kum declined to say whether it was looking into a sale.
Leading acquirer
First California, founded in 1979, operates 19 First California Bank branches across Southern California and has nearly $2 billion in assets. The bank has been a leading local acquirer of failed banks in recent years, picking up three institutions from the Federal Deposit Insurance Corp. after they’d been seized due to heavy losses.
But the company’s stock price has remained down significantly from prerecession levels, falling under $3 a share as recently as December. Shares have been on the rise since the Pohlads’ demands became public and received a further boost with last week’s announcements, closing March 1 at $4.65.
Under the terms of the Premier Service acquisition, First California will pay $2 million, or about $1.59 a share. Premier Service, which has two branches and $141 million in assets, had been struggling with loan losses and received a regulatory enforcement order.
The acquisition, expected to close in the third quarter, was announced Feb. 28, the same day the bank unveiled its branch realignment plan. First California plans to close four branches, which it said will result in pretax cost savings of $1.4 million this year and $2.7 million in each subsequent year.
Kum said the moves fit the bank’s long-term strategic goals.
“Regardless of whether we stay independent or whether we sell the bank, these are the kind of steps that makes us more profitable and increases the value of First California,” he said.
Still, they may not be enough to satisfy shareholders.
Gary Tenner, a stock analyst with Great Falls, Mont.-based D.A. Davidson & Co., called the acquisition and branch realignment “incremental positives,” but said the return to shareholders won’t be as much as a sale would bring.
“I don’t think these steps are going to placate investors enough to take the pressure off,” he said.
