Irvine-based First Foundation Inc., its shares up 60% in the past year, is looking for more acquisitions after snapping up two banks and two branch offices in the past two years.
“We can continue into Los Angeles and expand more into Orange County,” Chief Executive Scott Kavanaugh said in an interview.
With the June 15 acquisition of Auburn-based Community 1st Bancorp, First Foundation now has branches from San Diego to Sacramento in California, as well as Las Vegas and Honolulu.
First Foundation began in 1990 as an investment adviser firm and moved into banking in 2007. It ranked fourth on the latest Business Journal list of banks with headquarters in OC, with $3.5 billion in assets as of June 30.
It acquired Desert Commercial Bank in Palm Desert in 2012, Pacific Rim Bank in Honolulu in 2015 and two branches in Seal Beach and Laguna Hills from Pacific Western Bank in December.
It tried to buy San Clemente-based Capital Bank, which was sold in May for $60 million to San Diego-based Seacoast Commerce Banc Holdings. Capital Bank was founded in 2008 and had two branches and assets of $305 million as of March 31.
“We took a hard look, but unfortunately we’re weren’t the winning bid,” Kavanaugh said.
Shares of First Foundation, which trades on the NASDAQ under the ticker symbol FFWM, climbed 60% in the past year since its 52-week low of $10.01 last June. Its shares have outpaced the 43% increase of the KBW Nasdaq Regional Banking Index during the same period.
A Complement
This month, First Foundation used its shares to pay $50.4 million to acquire Community 1st Bancorp, the parent company of Community 1st Bank, which has $373 million in total assets and offices in Auburn, Sacramento and Roseville. The transaction is expected to close in the fourth quarter.
The bank serves wealthy communities, like Auburn and Roseville, and there are many nonprofit groups that receive state funding, Kavanaugh said.
First Foundation made the purchase because it already had a loan production office in the Sacramento region and Community 1st Bank would complement it and add trust services. It had a decent commercial and industrial loan business and exceptionally strong deposit base, Kavanaugh noted.
Its leverage and its capital ratios, which measure the bank’s reserves, declined last year compared to the prior year, according to the bank’s annual report. The weakening ratios limited its ability to conduct business, including taking deposits, Kavanaugh said.
“They were at a crossroads where they either needed to find a partner or do a capital raise,” he said.
On a pro-forma basis, the combined banks would have had assets of $4.1 billion as of March 31. The transaction is expected to be immediately accretive to First Foundation’s earnings per share, excluding $4 million in one-time expenses.
The final price will depend on the shares of First Foundation. Community 1st Bancorp (CFBN) shareholders will receive 0.453 shares of First Foundation common stock in exchange for each share of Community 1st Bancorp. The transaction is based on a closing price of First Foundation’s common stock of $16.57 as of June 13, and the value per share for a Community 1st Bancorp shareholder is $7.51.
On the day of the announcement, shares of Community 1st Bancorp jumped 22% to $7.01 on volume of 183,000 shares and a $38 million market cap. Its previous average daily volume was 595 shares.
Since the announcement, First Foundation’s shares have fallen to $16.13 as of June 22, indicating a price of $7.31 for Community 1st Bancorp. However, the bank’s share price at $7.05 on June 22 may signal some Wall Street doubt that the acquisition will be completed or that First Foundation’s shares may fall further.
The chances of closing the deal “are very strong,” Kavanaugh said.
“Given the size of the transaction and my discussion with regulators, I don’t foresee any issues at this point.”
