California TARP bank plans merger

Pacific City Financial Corp., which got $16.2 million in public money through the Troubled Asset Relief Program, plans to merge with North Asia Investment Corp., a shell company listed on the American Stock Exchange.

Pacific City Financial, which operates Pacific City Bank in Los Angeles, will be the surviving entity. It expects to be listed on the AMEX, according to a Securities and Exchange Commission filing.

Pacific City Financial, known as Pac City, was created in 2003 to address the banking needs of the Korean-American community.  The company says the merger should strengthen its ties with that community while tapping new resources within both Korean and American markets.

Pac City's executive management and board of directors will remain in place, with the addition of Thomas Chan-Soo Kang as the new chairman.

Kang is the current chief executive officer of NAIC, an acquisition company founded in 2007 and incorporated in the Cayman Islands. According to Pac City's press release on the merger, that company "has neither engaged in any operations nor generated any revenue to date."  Its sole purpose is to acquire or merge with other entities to create investment opportunities for its shareholders.

Pac City will issue as many as 18.5 million shares of its stock, representing 70.6 percent of the company, to NAIC shareholders. The deal will bring Pac City roughly $50 million in cash that NAIC has been holding since a stock offering in July 2008.

Pac City, which had $534 million in assets at the end of the third quarter, has faced many of the same challenges as other Southern California-based banks. 

Although the company turned a $721,000 profit in 2008, it had a net loss of $12.2 million through the first nine months of 2009.  According to an SEC filing, management expects a further loss of around $4 million in the fourth quarter, primarily because of provisions for bad loans.

Approximately 53 percent of Pac City's loan portfolio was tied to commercial real estate at the end of the third quarter, and another 23 percent was in commercial and industrial loans.

The bank's assets declined by more than $46 million in the first nine months of 2009, while deposits fell by $21 million.

Pac City has paid the required dividends to the Treasury on the preferred stock it issued in return for the TARP money. But unlike dozens of other recipients of the government aid, it has not repurchased any of the shares or warrants.

The deal is still subject to approval by the shareholders of both Pac City and NAIC.  It is also subject to the customary approvals of the SEC.