LOS ANGELES - Despite its promise of record first-quarter earnings, California Center Bank is bracing for a potential proxy battle.
David Harvey, general partner of Everest Managers LLC in Gardnerville, Nev., and a prominent community bank investor, told California Center last week that he would seek election to its board at its annual meeting this year. Mr. Harvey said the current eight-member board - made up entirely of Korean-Americans - does not sufficiently represent the institutions and hedge funds that now own nearly half of the bank's stock.
"I don't expect that I would be able to outvote this board of directors," said Mr. Harvey, whose firm owns a 3.5% stake in $372 million-asset California Center. "But there ought to be somebody on the board to speak for the other shareholders."
Seon Hong Kim, president and chief executive officer, said directors would discuss Mr. Harvey's proposal at a meeting this week. Though he did not rule out the idea of opening up a seat, Mr. Kim said he was concerned about the "language barrier and cultural gaps" that would surely arise with an outsider on the board.
Mr. Harvey said he is particularly frustrated at the bank's stock price, which has been flat even though California Center enjoyed a record 1999.
Net income grew 34%, to $5.1 million, and the bank is expected to report that earnings doubled in the first quarter, but the stock is trading well below the values the market gives its peers, at 7.3-times 12-month earnings.
The stock - it was trading at $15.75 a share early Tuesday - has been hurt by the board's refusal to consider merging with a larger bank, Mr. Harvey contended. "It looks like they haven't taken advantage to do some high-priced business combinations that may still be available to them," he said in an interview.
But Mr. Kim said that, contrary to rumor, California Center has gotten no formal purchase bid. He also blamed market conditions - not the board's policies - for investors' seeming indifference to the bank's stock.
"Investors are not paying much attention to small-bank stocks these days," said Mr. Kim. "We understand that shareholders have some frustrations, but this is a situation that is largely out of my control."
Still, Mr. Kim said the bank is taking steps to boost its stock price. Late last month, for example, it announced a plan to repurchase 10% of its shares.
Greg Mitchell, an adviser hired by California Center, said he was puzzled by Mr. Harvey's stance. With the bank's stock trading below its perceived value, Mr. Mitchell said, the bank would not fetch enough to justify a sale.
"The execution of the business plan is what's in the best interests of the shareholders," said Mr. Mitchell, senior vice president at Hovde Financial Inc. in Walnut Creek, Calif.
But Mr. Harvey, who has owned the bank's stock for more than four years, is getting impatient. He argued that the board needs to be shaken up to send a signal that the bank is looking out for its shareholders.
"It's not enough that the bank makes money," he said. "The shareholders want to make money, too."
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