Unsuccessful in its bid last year to buy Cowlitz Bancorp outright, a private-equity firm has a new plan: Buy up enough shares to become the Longview, Wash., company's largest shareholder, and then pressure the board and management to make changes that would boost profits.
Crescent Capital VI LLC of Bellevue, Wash., has applied to the Federal Reserve Bank of San Francisco to become a bank holding company and increase its ownership stake in Cowlitz, currently 9.6%, to as much as 30%, according to a June 30 Federal Register notice.
Steve Wasson, a Crescent principal and a former U.S. Bancorp executive, said Cowlitz's management has so far been unreceptive to Crescent's requests for representation on the company's board and its suggestions for improving profitability.
He said the $539 million-asset Cowlitz should make more commercial and industrial loans to offset losses in its residential construction loan portfolio and should increase its lending in the higher-growth markets of Seattle and Portland, Ore.
If Crescent wins Fed approval and succeeds in acquiring more shares, Mr. Wasson said, "I'd like to think that the board might be a little more amenable to working with us."
If it is not, he said, "We might either make a tender offer or wage a proxy fight" to gain control of Cowlitz's board.
Cowlitz executives did not return calls for this story.
Crescent's push comes as the Federal Reserve Board is weighing whether to alter rules to make it easier for private-equity firms to increase their stakes in banks. The agency has not released a specific proposal, but regulators generally want to encourage new sources of much-needed capital for banks. Under current law, investors owning more than 9.9% of a bank are subject to Fed scrutiny, and those with stakes larger than 24.9% must register as bank holding companies.
Cowlitz has been at odds with Mr. Wasson and other Crescent investors since Crescent made an unsolicited offer in July 2007 to buy the bank for $15 a share, or $74 million. In September the Cowlitz board unanimously rejected the offer, saying a sale was not in the best interests of its shareholders.
"Amongst numerous other concerns, the board views your $15 per share offer as significantly inadequate from a financial point of view," Cowlitz chairman Phillip Rowley said at the time.
If Crescent had been successful in its bid, it would have named Mr. Wasson Cowlitz's chief executive and brought in other experienced bankers to help run the company.
Mr. Wasson said Wednesday that he no longer wants to run Cowlitz day to day. "If management can turn Cowlitz into a high-performing banking company, we'd be happy for them to continue in their current positions," he said.
Cowlitz lost $3.1 million in the fourth quarter after reporting a sixfold increase in its loan-loss provision from a year earlier, to $6.8 million.
In the first quarter Cowlitz's net income fell 29%, to $902,000, because of a $593,000 provision.
Cowlitz's return on assets and equity at March 31 were 0.83% and 6.72%, respectively, which is below the average ratios for banks nationwide with assets between $500 million and $1 billion, according to the Federal Deposit Insurance Corp.
Construction loans make up about a quarter of Cowlitz's portfolio. Like many other banking companies with such exposure, Cowlitz's stock price has tumbled in the last year, from a high of $16.45 last July 9 to $7.50 on Thursday.
Robert J. Rogowski, the managing director of corporate finance at McAdams Wright Ragen Inc. in Seattle, said it is hard to assign blame for the stock slide.
"How much of that is due to management and how much is due to the market — that's the big question," he said.
Mr. Rogowski said that while Cowlitz is hardly the best-performing community banking company in the Pacific Northwest, "it's not the worst, either."
Cowlitz is not the first banking company Crescent has tried to buy or exert more control over.
In February 2006 it offered $112 million in cash for the 91% of FirstBank NW Corp. in Clarkston, Wash., that it did not already own. FirstBank rejected the offer and then shopped for higher bids.
In December 2006, FirstBank sold itself to Sterling Financial Corp. in Spokane for $181.4 million, 62% more than Crescent offered.
In July 2006 Crescent bought a 5.5% stake in the $655 million-asset Timberland Bancorp Inc. in Hoquaim, Wash., then unsuccessfully lobbied the company to put Mr. Wasson on the board. It maintained that he could have used his contacts to bring the company additional business.
Crescent has since reduced its stake in Timberland to below 5%.
Mr. Wasson, Jeffrey D. Gow, a real estate developer who is Crescent's managing member, and another investor, Gary Young, are majority owners of the $36 million-asset Western Capital Bank in Boise, Idaho, which opened in April.
The three formed a holding company called GWY Inc. that funded about 75% of the $35 million used to capitalize Western Capital Bank and its parent, Western Capital Corp. Mr. Wasson said GWY is not affiliated with Crescent, which was formed in 2002.
