Palisair Capital Partners, LP, a fund managed by Palisair Capital, LLC announced today that it intends to commence a friendly tender offer to acquire up to three-hundred and ninety-six thousand shares (396,000) of the common stock of 1st Century Bancshares, Inc. (FCTY: OTC) at a price, net to the seller, of $8.00 per share, on Friday March 14, 2007, and will be open for at least 20 business days.
At the close of trading on February 29th, Palisair Capital Partners L.P. controlled 593,692 shares. This represents approximately 6.0% of the shares outstanding. According to a simple holders search on Bloomberg, there are only three institutional holders of 1st Century Bancshares, Inc. Based on this information, Palisair Capital Partners, L.P. is the largest institutional shareholder of 1st Century Bancshares, Inc.
As indicated in the previous press release, Palisair Capital's offer price will represent a premium of approximately 35% to the average price at which 1st Century Bancshares, Inc. was trading on the over-the-counter bulletin board market in the last (30) thirty days of trading preceding the original announcement of the tender offer and a premium of approximately 20% to the average trading price for the (1) one year period preceding this original announcement.
The following text constitutes remarks by Zachary James Cohen, Managing Member of Palisair Capital, LLC.
"After an extensive due diligence process speaking to competitors, customers, and business acquaintances of Mr. Rothenberg, we are even more confident that the Company has a tremendous amount of potential that is not being recognized by the market and represents an attractive investment at current price levels.
"With respect to Mr. Rothenberg's comments on a press release from 1st Century Bancshares ("The Company) on February 28, 2008, we believe that Mr. Rothenberg is correctly fulfilling his legal obligation to shareholders by raising doubts about Palisair Capital Partners, L.P. ("Palisair) ownership of the Company's common shares. Mr. Rothenberg is one of the finest lawyers in Los Angeles so this should not come as a surprise.
"We want to communicate to Mr. Rothenberg that Palisair intends to file a 13-D with the Securities and Exchange Commission shortly. Because of the sensitive nature of the filing and the disproportionate levels of wealth, power, and influence, of Mr. Rothenberg and the Board of Directors relative to Palisair, it has been difficult to retain a qualified group of lawyers, investment bankers, and other service providers who do not have a ˜conflict of interest' with Mr. Rothenberg and the Board of Directors.
"So, in the interim, we want to reach out to Mr. Rothenberg and the Board of Directors with some observations and recommendations.
"First, there are several banks in California that are in terrible shape because of exposure to subprime, Alt-A, and option ARM mortgages, declining customer deposits, and/or the inability to access FHLB lines of credit or raise equity in the form of preferred/ common stock. For example, if you look at First Federal Bank (NYSE: FED), Fremont General (NYSE: FMT), Downey Financial (NYSE: DSL), and Indymac Bancorp (NYSE: IMB), it is obvious that the chances of these banks becoming insolvent in the next couple of years are the same as a ˜coin-flip.'
"We are not picking on any of these banks as they likely have many nice employees and shareholders, but when you have liquidity concerns in a challenging industry and economic environment with a commoditized, leveraged business such as banking not to mention monstrous short interests relative to the total shares outstanding, the chances of survival are not particularly high.
"In the interests of full disclosure, Palisair is not currently short any of the stocks of these banks, although the fund might initiate short positions in the stocks of these banks sometime in the foreseeable future.
"More importantly, these stocks are trading below book value and could offer an opportunity for expansion at an attractive price. Clearly, some of these banks may be in such poor shape that they may need massive capital injections. We will leave that up to the investment bankers and regulators to decide. 1st Century Bank has the most pristine balance sheet of any bank in Southern California.
"Consequently, we demand as shareholders that Mr. Rothenberg and the Board of Directors hire a reputable investment banking firm to evaluate an acquisition of these companies. We are not legal experts and do not have relationships with the FDIC of the California State Comptroller, so we will trust Mr. Rothenberg to work closely with these officials on behalf of all shareholders.
"In general, the number of financial services companies with liquidity and a competent management team is very few these days. This is why Wilbur Ross, one of the most well-respected vulture investors around, is willing to invest up to $1 billion in Assured Guaranty, a municipal bond insurer. Before competitors Ambac and MBIA started having liquidity issues, Assured Guaranty was considered an average bond insurer by most investors and traded around or below book value for most of the time following its 2004 IPO. Now because of the downfall of their competitors, the franchise has tremendous value just by virtue of the fact that it is capable of writing new business.
"This situation is very similar that of 1st Century Bank. It reinforces the fact that a lot of growth capital is available for financial services companies who have solid liquidity and potential for expansion.
"Another interesting example to look it is that of Societe Generale ("SocGen), a large French bank. After a 31 year old junior trader named Jerome Kerviel committed the largest fraud in banking history by making unauthorized trades in futures markets around the world, SocGen is attempting an $8 billion rights offering to keep the bank solvent and defend against a takeover by rivals.
"Our question is as follows to Mr. Rothenberg and the Board of Directors: how much equity capital can be raised by leveraging the industry experience and relationships of Mr. Rothenberg, Mr. Jason DeNinapoli, Mr. William Anderson, Mr. Christian Bement, Mr. Leslie Bider, Mr. Dave Brooks, Mr. Joseph Digange, Mr. Marshall Geller, Mrs. Joanne Corday Kozberg, Mr. Alan Levy, Mr. Robert A. Moore, Dr. Barry D. Pressman, Mr. Lewis Wolff, and Mr. Richard Ziman?
"To answer these questions, we suggest contacting Kenneth D. Moelis and his team over at Moelis and Company. Mr. Moelis is one of the premier investment bankers in the world and is based out of Los Angeles. We presume that 1st Century Bank shareholders, employees, and directors would benefit from his general advice on how to leverage money, a commodity product, in a way that generates value for 1st Century Bank shareholders, deposit holders, and employees alike.
"Another recommendation would be to contact Sandler O' Neill ("Sandler) based out of New York. Sandler is led by CEO James Dunne III who is not only a kind and caring man who helped save the firm after 9/11, but he is also one of the best investment bankers in the US who specializes in thrifts and community banks. We presume that Mr. Dunne would be able to communicate his ideas on how 1st Century Bank can create value for shareholders by making acquisitions of other banks, possibly ones on the East Coast as well as ones in California mentioned above. Palisair has reviewed dozens of thrifts that are trading at or below tangible book value that could be possible acquisition candidates at the right price.
"Finally, we urge you to contact Herb and Marion Sandler. This husband-and-wife team has over 45 years of unparalleled experience in community banking. They are down-to-earth, humble people who believe in helping citizens achieve home ownership”the American Dream. After they sold Golden West Financial (NYSE: GDW) to Wachovia (NYSE: WB) at the top of the real estate market, we believe that they might be willing to speak to you and share their wisdom about how to run a community thrift that helps honest, hard-working people get a mortgage. They can also explain how community banking is a great business that generates high returns for shareholders.
"In a February 2007 article in LA Magazine, Mr. Rothenberg stated that it was likely that "the reason that we were able to attract so much capital in the first place is that it was a boring business¦It wasn't some crazy high - tech thing where you might make 10,000 percent on your money or you might lose it real fast. You know, good old boring stuff.
http://www.1stcenturybank.com/news/media_archive_detail.aspx?id=43
"Maybe you are correct that making 10,000% on an investment is a stretch Mr. Rothenberg, but so far an investment in 1st Century Bank since its official opening in March 2004 has not been a successful one for your shareholders.
"Before Palisair started accumulating its stake in the Company, investors in the February 2003 IPO that was heavily oversubscribed were barely above water. Investors in the April 2005 secondary offering and a high majority of other shareholders have lost money in this investment.
"Mr. Rothenberg, we have looked at many banks including thrifts, commercial banks, first and second step mutual conversations, etc and we believe that the management team that you have assembled is the finest in the history of community banking.
http://www.1stcenturybank.com/about/bod.aspx
"In addition, we believe that you are a rare talent, a passionate, but also tough and fair man, a wonderful father, and a once-in-a-generation leader, who has the potential to become one of the greatest executives in the history of community banking and begin the 21st Century or should we say 1st Century with a strategy of measured growth and value creation for shareholders, employees, civic leaders, current borrowers and potential loan applicants, and deposit holders.
"Even most S&P 500 companies could only fantasize about having the type of relationships and business experience that 1st Century Bank's management team and Board of Directors possess. All of this talent is being wasted with only one branch and a stock trading over-the-counter that few people know about.
"Finally for those who want to know about the numbers, the Company is clearly over-capitalized, not earning its anywhere close to its cost of capital, or paying a dividend to shareholders. The Company's results in the quarter ending September 30, 2007 of a 0.67% ROA, 2.67% ROE, and a Tier 1 leverage capital ratio of 25% are not generating any value for shareholders. The one impressive metric is the Net Interest Income margin of 4.49%. This suggests that there is a healthy spread inherent in the loan portfolio in a challenging environment that shows a lot of promise.
"We believe a return on assets ("ROA) of 1.25% to 1.75%, a Tier 1 leverage capital ratio of between 8% and 10%, and a return on equity ("ROE) of between 15% and 20% is a reasonable goal for management when the economy improves and liquidity is restored to the system. These goals are not lofty given Mr. Rothenberg and the Board of Directors' prowess. If Mr. Rothenberg and the Board of Directors works as hard as they are capable of, we believe normalized earnings power of the Company could easily grow to $1.00 to $1.25 per share in the next three to five years.
"As mentioned in the prior press release, Mr. Rothenberg and the Board of Directors have an opportunity to not only do the right thing for the business, but also to make sure minority shareholders and community members are treated fairly as well.
"As a result, we are going to directly reach out to shareholders via a proxy statement and request that Zachary James Cohen, the Managing Member of Palisair Capital, LLC, be awarded a seat on the Board of Directors to assist Mr. Rothenberg in implementing the exciting and profitable growth initiatives described above. Apparently, there are already 14 directors, according to the www.1stcenturybank.com, so we are confident that adding Mr. Cohen should not be overly onerous and is appropriate given Palisair Capital's filing position and ownership of stock.
"In the next few weeks, we will reach out to Mr. Rothenberg and the Board of Directors to discuss how 1st Century Bancshares can represent value for shareholders and 1st Century Bank can represent value for the community as a whole.
Firm and Manager Background
Palisair Capital is a hedge fund founded in September 2007 by Zachary James Cohen.
Before founding Palisair Capital, Zachary James Cohen was an analyst at Witmer Asset Management, LLC ("Witmer) from March 2003 to August 2004. Witmer serves as investment adviser to Eagle Capital Partners, L.P., a value-oriented, hedge fund in New York City. From September 2004 to December 2006, Mr. Cohen was a Managing Member of Coldwater Asset Management, LLC and was co-portfolio manager for Coldwater Partners, LP, a hedge fund based in Los Angeles from January 2005 to October 2006. Zachary graduated from the Harvard-Westlake School in North Hollywood, California and received a Bachelor of Science Degree in Business Administration with Honors from the Haas School of Business at the University of California, Berkeley in 2002.
Palisair Capital's Schedule 13-D and offer to purchase will be filed with the Securities and Exchange Commission on Schedule TO and will be made only by a formal offer to purchase and letter of transmittal which will be mailed to all shareholders of record as of a recent date. FCTY shareholders should read the tender offer statement and other related documents when they become available because they will contain important information. The tender offer statement and other filed documents will be available for free at the Securities Exchange Commission's website and the tender offer statement will be provided at no cost by Palisair Capital.