Bank leaders often say they have to earn the right to keep their banks independent by being good stewards of their investors' equity.

Hanmi Financial (HAFC), which considered selling itself early in the year, took a big step Monday toward earning that right by announcing a deal that would make it the second-largest bank that caters to Korean-Americans. Further, it would be the Los Angeles company's first step outside of Southern California and give it the top deposit share among Korean-American banks in Illinois, Texas and Virginia.

"You have to earn your independence through performance," says C.G. Kum, who became Hanmi's president and chief executive in June. "From a strategic and financial standpoint, this deal is very significant. It is a transformational transaction that gives us access to grow significantly in other markets. We are constrained in Southern California, which is so competitive. I'm a strong advocate of Texas — in a lot of ways it is better than Southern California."

He also said Monday that Illinois is attractive because the banks that served the Korean, Indian and Pakistani communities "basically don't exist anymore so there is tremendous opportunity."

The $2.8 billion-asset Hanmi has agreed to pay $50 million in cash for the $1.6 billion-asset Central Bancorp in Garland, Texas. The combined company would have $4.3 billion in assets.

At that size, Hanmi would be sandwiched between its two major Korean-American bank rivals: the $6.3 billion-asset BBCN Bancorp (BBCN) and the $3.6 billion-asset Wilshire Bancorp (WIBC).

The deal is part of the rapid consolidation of the nation's Korean-American banks in the last few years. Central was the last of those banks, other than the big 3, with more than $1 billion in assets, and rumors have swirled this year about Hanmi's interest in it.

"One of the big factors in this deal was its geographic diversification — they are now serving most of the same markets as BBCN, and they are getting it in one fell swoop," says Gary Tenner, an analyst at D.A. Davidson.

Investors appeared pleased by the deal, priced at 62% of Central's tangible book value. Hanmi's stock was up 14%, with shares closing at $22 on Monday.

The deal was priced at a discount because Central, which has 24 branches six states, is a struggling bank. It is under consent orders with regulators and at the end of November its classified assets totaled $472 million. That was down from $694 million at the end of 2012, but Hanmi has set a requirement in the merger agreement for classified assets to be less than $160 million. Kum said the deal's expected close is in the second half of 2014 is intended to give the management team, which arrived in 2012, time to deliver on that target.

"I'm not paying $50 million for the current bank," Kum said. "I'm paying $50 million for the future condition, when it has a relatively clean balance sheet."

Additionally, Hanmi has built a clause into the agreement that ties the ultimate price of the deal to the amount of money Central could owe the Federal Deposit Insurance Corp. for future recoveries and other valuation adjustments related to Central's acquisition of Mutual Bank in Harvey, Ill., a $1.7 billion-asset bank that failed in July 2009. The final amount is also dependent on an expected $19 million tax refund that Central is expecting.

Kum refers to the $160 million classified-asset limit and the potential adjustments as "a safety net for Hanmi shareholders."

Hanmi took one of the hardest hits from the economic downturn among Korean-American banks. But it raised $200 million in capital, and it was freed from its regulatory orders in 2012.

Analysts say Hanmi is maneuvering a tricky situation with Central. On one hand, the deal has tremendous opportunity for cost savings and expansion into new markets. On the other, the last thing it wants to do is become a struggler again.

"There is so much long-term potential here, but there are some potholes that they'll need to navigate carefully," says Tim Coffey, an analyst at FIG Partners.

Kum agreed with Coffey, but chose to amplify the risks. "It is more than a pothole — it is potentially a major hole."

"This could be a major, major deal for us if done right," Kum said. "If things fall in line, the $50 million we are paying for the pro forma upside is a bargain."

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