Merger of Nara and Center will create largest Korean-American bank in U.S.
Center Financial Corp. of Los Angeles will merge with one of its Koreatown rivals, Nara Bancorp Inc., creating by far the largest Korean-American bank in the nation and continuing consolidation in a banking niche hit hard by losses on commercial real estate loans.
The combined company, which will be renamed, will have more than 40 branches in Southern California, Northern California, New York, New Jersey, Seattle and Chicago, the banks said in a joint announcement Thursday afternoon.
With $5.3 billion in assets and $4 billion in deposits, it will have the largest share of deposits among Korean-American banks in Southern California and Northern California, the second largest in the New York/New Jersey area, and a strong presence in Seattle and Chicago.
Nara's chief executive, Alvin Kang, will take on that role at the holding company of the new bank, with J.W. Yoo, Center's president and chief executive, becoming president. The board of directors will have seven representatives from each back, with Ki Suh Park, Nara’s current board chairman, becoming chairman of the combined bank holding company.
Center stockholders will receive 0.78 of a share of Nara stock for each of their Center shares, valuing the transaction at about $286 million and resulting in current Nara shareholders owning about 55% of the new company.
Nara's shares fell 50 cents, or 5.4%, to $8.67 before the announcement, in active trading. At that price the deal is worth $6.76 a share to Center shareholders.
Center’s shares have soared 40% since Oct. 25. They slipped 1 cent to $6.64 on Thursday in heavy trading, also ahead of the news.
Analyst Joe Gladue of B. Riley & Co. said he was surprised by the deal but thought it could result in a bank with "very strong talent" if key executives from both sides can be retained, and contribute to a "more rational" competition in the crowded Korean-American banking space.
"Both Center and Nara had made good progress addressing their problem loans," Gladue said in an e-mail. "However, loan growth is likely to be challenging for most banks over the next year or two, and there was probably some excess capacity in the Korean-American banking space."
Sandler O'Neill analyst Aaron Deer agreed.
"I think this is a terrific deal, not just for shareholders, but for customers too," Deer said in an e-mail. "In many respects, the Korean-American banking niche is in need of consolidation. This deal will give the combined bank some additional scale and help improve its overall operating efficiency.
"It will also provide customers with access to more branches and possibly a broader array of products and services," Deer said. "I expect the deal will be welcomed by shareholders of both companies. And, I expect regulators will support the deal too."
The banks said the merger would reduce operating costs by about 10%. Kang, the CEO, said shareholders should enjoy increased earnings stemming from "our improved ability to generate profitable growth and higher returns going forward."
"The customers should benefit from the convenience of additional branches and the increased investment we can make in our products and services capabilities," he said in a statement. "And the employees of both companies should benefit from being part of the most profitable and strongest bank in the Korean-American community.”
-- E. Scott Reckard