Manhattan Beach-based Beach Business Bank announced last week that it will become a subsidiary of First PacTrust Bancorp, Inc. in a roughly $37.4 million deal expected to close early next year.
The transaction price translates into an 18.4 percent premium to Beach Business Bank’s tangible book value, according to a report by B. Riley, an investment banking and research firm.
The trading price was $5.93 at closing on Tuesday and increased to $8.60 on Wednesday after the announcement. The deal is expected to close somewhere between $9.07 and $10.06 per share. Shareholders who have held onto the stock since its opening day on June 1, 2004, all have a basis in the stock of $9.09 per share. The shares had traded as high as $16.90 in late 2006, prior to the economic downturn.
Depending on the holding company’s stock price when the transaction closes, which will be determined five days before the deal closes early next year, shareholders will receive cash, and either shares of the holding company, which would likely be worth more than shares of Beach Business Bank, or warrants to purchase shares of the holding company.
It’s estimated that the holding company’s stock will trade at $13.50 per share at closing, according to a Baird Equity Research report.
First PacTrust is the holding company for Pacific Trust Bank, which manages 11 banks in Southern California.
Founded seven years ago by Robert Franko, Beach Business Bank has offices in Manhattan Beach, Costa Mesa, Long Beach and Torrance. The bank deals with commercial and industrial loans, and is best known for its division, the Doctors Bank, which lends to doctors across the nation.
Beach Business Bank works with local non-profits, such as the Manhattan Beach Education Foundation and the West Coast Sports Medicine Foundation. The bank has financed a medical office building in Pasadena, the inventory and building for an aircraft parts distributor, and a Long Beach restaurant building, among other businesses. “We’ve sort of reached the maximum size we probably could have reached in our local community,” Franko said.
Pacific Trust Bank deals with residential mortgages and consumer loans, services that Beach Business Bank can not only benefit from, but also add to. “We can offer our products through their branches,” Franko said, adding, “We have ability to expand our product offering without having to go out and get a lot more real estate. So it’s a win-win situation for both.”
For current clients, not much will change, Franko said. “They won’t notice a difference,” Franko said. “I called customers and said, ‘Here’s what’s happening,’ and all they said was, ‘Well, is my banker going to change or any of the people going to change?’ The answer is no. ‘Are you still going be there?’ The answer is yes.”
Franko, currently the chief executive officer and president of Beach Business Bank, will become the president of the holding company. Greg Mitchell will remain the chief executive of the holding company.
New regulations are making it difficult for small banks to survive, Franko said. “It used to be that small banks could be competitive. But because of all the regulatory changes and particularly because of the problems of the last few years, it’s very difficult for small banks to be able to cover all their costs and still make money.”
By consolidating a group of small banks into one big bank, the compliance personnel are also consolidated, Franko said, saving costs. “You realize cost efficiencies – it costs less money to run that overall operation,” he said.
The holding company is also acquiring Gateway Business Bank. After the two transactions close, the holding company expects to have $1.3 billion in total assets, which includes 18 bank branches and 23 loan production offices, according to a press release.
The holding company plans to acquire additional small banks in the future, another reason Franko is attracted to the deal. “Whoever is the first bank, at least in this holding company, to come in, is the one who sets the pace for how the other acquisitions will happen,” he said.
Franko began talks with First PacTrust in February.
First PacTrust will pay back the remaining $4.5 million that Beach Business Bank owes the federal government under the Troubled Asset Relief Program, which lent funds to banks during the economic crisis. The original TARP loan was $6 million.
