SAN FRANCISCO -- Pacific Bank is counting on federal approval of a capital-raising effort with multiple tranches to shed its mantle as California's most-troubled community bank.

It plans to raise $30 million from both individual and institutional investors in California and abroad. According to company documents distributed to the bank's shareholders and obtained by the American Banker, Pacific will also significantly cut its bloated overhead and shore up its core trade finance and personal banking businesses to restore profitability.

Key to the plan is reducing Pacific's crushing level of nonperforming assets. On Sept. 30, Pacific had $56.8 million of nonperformers - predominantly real estate loans - comprising 13.8% of its total assets. Though the ratio of nonperformers is down from a June 30 level of 16%, it is still higher than that of any other bank in California.

|A Decade of Bad Decisions'

"They've got a long road ahead of them," said one Pacific shareholder, who wished not to be named. "They're trying to reverse a decade of bad decisions."

In a statement yesterday, Chairman Norman Dean said Pacific is sure it can raise the $30 million and turn things around.

Pacific, founded in 1983, catered to wealthy individuals. Much of its lending, however, was based on real estate and net worth instead of cash flow. When the California real estate economy slumped in 1991, Pacific was hit hard.

Pacific has lost more than $15 million this year. Assets have shrunk from a high of $833 million in 1991 to $410 million.

Under Order from Comptroller's Office

The Office of the Comptroller of the Currency, after a damning October 1992 examination, ordered the bank to raise at least $25 million in new equity by December 1993 and keep its leverage ratio above 7%. The agency "indicated that the volume and severity of the weaknesses or unsafe and unsound conditions were so critical as to require urgent aid from shareholders or other public or private sources of financial assistance," Pacific said in a Sept. 30 statement to shareholders.

In August, Pacific presented the Comptroller's office with its plan to raise $30 million in new capital, and three weeks ago it told the regulator it had received purchase committments from private investors for at least $15 million and as much as $25 million in new common stock. The bank plans to raise another $5 million in a rights offering to existing shareholders.

Making Cuts in Staff, Benefits

On the operations side, Pacific told shareholders it plans to cut noninterest expenses by as much as 40%. At the beginning of the year, Pacific had 408 employees. By next March, it plans to have 295. The bank is considering consolidating some of its eight Bay Area branches and has stopped health insurance coverage for the dependents of its executive officers.

Finally, the bank hopes to reduce its reliance on outside consultants and reduce its legal expenses, which the Comptroller's office criticized in 1992 as excessive. Notwithstanding, Pacific last month hired Alexandria, Va.-based J.E. Robert Cos. Inc., one of the biggest and most expensive special asset managers in the country, to manage-and, hopefully, liquidate-its nonperforming credits during the next year.

In addition, the bank is considering a mass sale of nonperformers. It plans to sell $17.5 million in other real estate owned this quarter, and is considering selling an additional $19 million of nonperforming loans before yearend.Pacific Bank's Plan for SurvivalCapital Raise $30 million in new capital through public and private placementAsset Reduce $83.2 million in nonperformingQuality assets with help from J.E. Robert Cos.; reduce overexposure to Northern California commercial real estateCosts Reduce noninterest expense 40% by reducing work force from 335 to 295, outsourcing, renegotiating leases, and consolidating branchesBusiness Refocus on private banking for wealthyStrategy individuals and beef up profitable niche in trade financing.

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