Troubled California First National Bancorp in Irvine is giving up on Wall Street’s main stage, citing regulatory costs.
The company, whose market cap hovered around $158 million last week, is voluntarily scheduled to stop trading on the Nasdaq on Friday and will be traded under the same ticker, CFNB, on OTCQX Market, considered the top tier of the three marketplaces for over-the-counter stocks.
CalFirst’s shares have fallen 16% to $15.20 since the Oct. 24 announcement.
Known as CalFirst, it’s an online-only bank with no branches, specializing in loans and leases, including for equipment and computer software.
Regulations like the Sarbanes-Oxley Act, a 2002 law that established new rules for publicly traded companies, demanded too much time from management, Chief Financial Officer S. Leslie Jewett said.
“This is a smart move to get rid of costs,” she said in an interview. “We continued on Nasdaq long beyond the time it provided benefits.”
The move off of Nasdaq isn’t a signal of a troubled bank, Jewett said, citing high capital ratios and increased profit.
The company reported on Oct. 24 that fiscal first-quarter net earnings rose 17% to $2.3 million from $1.96 million a year earlier.
Plus, she said the company will continue to pay a dividend, which last year yielded 2.95%.
“I don’t think you’ll find a stronger bank out there,” she said. “Last year was our strongest earnings. Clearly, we have some transition issues.”
The Office of the Comptroller of the Currency, which regulates the bank, advised it to cease originating leveraged and nonleveraged syndicated commercial loans and to take action to substantially reduce its concentration of leveraged loans, the company said in its fiscal 2017 annual report released last month.
The bank has therefore originated no commercial loans since January; it says its loan portfolio fell to $219.5 million as of Sept. 30, a 51% drop from Dec. 31. Management is hoping to resolve the regulatory issues in the coming quarters, Jewett said.
Assets fell 21% to $673 million as of June 30, making the bank the biggest percentage decliner by assets on the Business Journal’s annual list of banks based here (see separate article, page 26). Its employee count had fallen to 76 as of October, a 20% drop from a year earlier.
The company was founded in 1977 in Santa Ana by Patrick Paddon as an equipment financier called Amplicon. It reorganized in 2001 as California First National Bancorp.
Chief Executive Paddon owns 63% of shares and is married to Jewett, who’s been CFO since 1994. Glen Tsuma, who owns 13.1% of shares, has been chief operating officer since 1989. The largest outside investor is Dimensional Fund Advisors Inc., with 5.1%.
CalFirst said it doesn’t anticipate accessing the capital markets in the future. It intends to continue to file quarterly reports and be audited by an independent accounting firm. The company said it’s eligible to deregister with the Securities and Exchange Commission because it has fewer than 1,200 stockholders of record.
It’s been trading since 1988 and reached a high of $24 in 1998. The stock has generally traded below book value of $19 a share, and Jewett said she isn’t worried about a free fall.
It averaged about 3,750 shares daily, and Jewett said she doesn’t anticipate a loss of liquidity by going OTC. It’s unclear whether the bank will be included in indexes, she said.
Jewett explained the OTC Markets Group, which oversees the OTC, has expanded services in recent years. The stock market’s website said penny stocks, shells and companies in bankruptcy can’t qualify for the OTCQX.
“We will probably be one of the larger banks on the OTCQX,” Jewett said. “This is not the pink sheets of 10 years ago. It’s developed a market.”
