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Ohana Pacific Bank, which began nearly 15 years ago catering to small and midsize businesses and the Korean American community, has signed an agreement to be acquired by Los Angeles-based CBB Bancorp Inc. in an all-cash deal worth up to $24.8 million.
The transaction, which is still subject to regulatory and Ohana Pacific shareholder approvals, is expected to close in late June or the early second half of this year.
Ohana Pacific President and CEO James Hong, who is going to remain in Hawaii overseeing local operations, said in an interview that discussions are still ongoing but that his intention is to keep the Ohana Pacific name and expand to two or three other locations on Oahu. The state’s smallest locally based bank currently has two branches. Its headquarters and main branch, which opened in June 2006, are at 1357 Kapiolani Blvd., a block from Ala Moana Center. The bank also has an in-store branch that opened in December 2013 at Palama Super Market in Kalihi.
Hong, 67, said none of the bank’s roughly 25 employees will be laid off, and there will be no effect on customers’ accounts. This will be the first bank acquisition in Hawaii since Irvine, Calif.-based First Foundation Inc. acquired Pacific Rim Bank, with its one branch at Waterfront Plaza, in a mostly all-stock $12.3 million deal that closed in June 2015.
“As a community bank, our top priority has always been our customers, our employees and our Korean-American community,” Hong said in a statement. “Our merger with CBB will increase our legal lending limit and expand our product offerings to our customers, and will greatly benefit the Korean community. We’ve become very familiar with CBB’s franchise over the years, and are excited about the opportunities that will come from being a part of this extraordinary platform.”
Under the deal, Ohana Pacific’s roughly 250 stockholders could receive as much as $11 a share for each Ohana Pacific share that they own. Ohana Pacific shareholders will receive $10.25 in cash for each share they own upon the closing of the transaction. In addition, the shareholders will receive the right to get an additional 75 cents a share based on the performance of a specified pool of 11 Ohana Pacific loans — some roughly $1 million to $2 million in value — during the period from Sept. 30, 2020, through the date that is
12 months following the completion of the merger or, if earlier, June 30, 2022. Ohana Pacific will become a CBB subsidiary upon completion of the deal.
Hong said in an interview that the additional 75 cents a share was a compromise during the merger negotiations because CBB was concerned about loan quality due to COVID-19 in these uncertain times.
“In my opinion, those loans are well secured and not at all in trouble at this time,” said Hong, who expects the bank’s shareholders to ultimately end up with $11 a share.
Ohana Pacific finished 2020 with net income of
$1.2 million, assets of
$198 million, loans of
$150 million and deposits of $174 million.
CBB Bancorp, the holding company for Commonwealth Business Bank, ended 2020 with net income of $9.9 million, assets of $1.38 billion, net loans of $1.03 billion and deposits of $1.10 billion. CBB, which does business as CBB Bank, specializes in small to medium-size businesses. It has eight full-service branches in Los Angeles and Orange counties in California, and Dallas County in Texas; two Small Business Administration regional offices in Los Angeles and Dallas counties; and five loan production offices in Texas, Georgia, Colorado and Washington.
Ohana Pacific’s stock closed unchanged Monday at $10 on the over-the-counter market. CBB’s stock closed up 5 cents at $8.05 on the OTC market. The deal was announced Thursday.
Hong said his plan once the merger is complete is to aggressively increase market share.
“Our customers will still remain our customers,” Hong said. “The only difference is they can access the branches in L.A. and be offered much better service because more products are being offered. We’ll also have a bigger lending limit that will give us more room to accommodate bigger-size customers.”
Hong said ohana Pacific has been limited in its lending practices because of regulatory requirements.
“We’ve been growing steadily, and I think we’ve been doing OK,” Hong said. “However, as a small bank, it’s kind of tough to compete with the bigger local banks, especially in terms of making loans. The Hawaii loan market is very competitive. Our lending limit is too small to attract the major relationships. We have many small businesses we already have relationships with, but we need to offer competitive pricing to attract that major relationship. Our lending limit now is 20% of total capital, so that limits us. We only have $4 million or so now. On a combined basis (with CBB), we’ll have a much higher lending limit, like $20 million or $25 million.”
Hong said a lot of Ohana Pacific’s customers have some type of contact between Los Angeles and the Honolulu Korean community so that CBB can use Ohana Pacific’s customer contacts and Ohana can use CBB’s customer contacts.
“Many customers would mutually benefit,” Hong said. “We can take advantage of their loan market in L.A., which is much bigger. The Hawaii deposit cost is lower than L.A., so they can increase their core deposit base by affiliating with the bank in Honolulu. So that’s their motivation. It’s a win-win situation. We also can share the senior management team and the core system, and all those things will bring us much-reduced expenses as well.”
CBB President and CEO Joanne Kim said she was thrilled to expand into the Hawaii market.
“Ohana will be of great value to our business, and will provide us with a stable source of core deposits and a high quality loan portfolio in an extremely desirable market,” Kim said in a statement.
Hong said since this is a remote acquisition for CBB, Ohana Pacific will still be relatively independent.
“We want to expand our network in this community, so that’s why we need bigger capital and bigger support from the head office,” he said. “We can open more branches and offer more services to the local community. In no way are we going away from the market and reducing our operations. In fact, it’s just the opposite. We’re probably opening two or three branches much sooner than later. That’s the big picture.”
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