Hope Bancorp Inc (HOPE) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Center Financial Corporation first quarter 2009 earnings conference call. My name is Amity and I will be your coordinator for today. At this time all participants are in a listen-only mode. We'll facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

I will now like to turn the presentation to your host for today's call, Miss Angie Yang, Investor Relations for Center Financial. Please proceed, ma'am.

Thank you, Amity. Good morning, everyone and thank you for joining us today for Center Financial Corporation 2009 first quarter investor conference call. Before we begin, please recognize that certain statements made during this call may not be historical facts and may be deemed therefore forward-looking statements under the Private Securities Litigation Reform Act of 1995. Many important factors that may cause the company's actual results to differ materially from those discussed in or implied by such forward-looking statements. These risks and uncertainties are described in further detail in the company's filings with the SEC. Center Financial undertakes no obligation to update or revise its forward-looking statements.

As usual, we have allotted one hour for this call. Center Financial's President and CEO Jae Whan Yoo will begin today with introductory comments. CFO Lonny Robinson will then provide some additional color and details for the company's 2009 first quarter. JW will then make some closing remarks before opening the call for a question-and-answer session. As usual, Jason Kim, Center's Chief Credit Officer, is also here with us and will participate in the Q&A session. I'd now like to turn the call over to JW.

Thank you, Angie, good morning, everyone, thank you for joining us today.

Late yesterday we reported our financial results for the first quarter of 2009 and posted a net loss of $2.7 million, before the payment of preferred stock dividends equal to $0.90 per share. The primary driver for the losses for the quarter was a provision for the loan losses of $14.5 million. While this is a lower than adjusted provision of $19.8 million for the 2008 fourth quarter, the first quarter's provision is certainly much higher than what we have a provisioned in the past. The elevated levels of migration that we have experienced late in the 2008 fourth quarter accelerated into 2009.

Further, non-performing loans increased by nearly $36 million over 2008 year-end balances to $56.3 million. We believe this underscores the severity of the deterioration of economic environment and the consumer sentiment that we have all witnessed over the last two quarters. And how this is ultimately impacting the business operations of our commercial customers? I believe you will all agree that the downturn was a shifter and much more severe than almost all of us anticipated. And in times like this, even the best of the portfolios will feel stress. Unfortunately we are hard hit instead of getting a ping. Lonny will be going into more detailed discussion of the migration trend, but I think it is important to note at least to briefly some of the other highlights for the quarter before we start the more full discussion on asset quality.

First, let's talk about improving efficiencies. We are very pleased to see continued benefits from right-sizing the organization and resolving the KEIC litigation last year by way of improved operating efficiencies. Cost of containments continued to be a major focus for our management team. And this efforts will be particularly important this year to help mitigate the elevated credit cost that we are now anticipating.

With regard to deposit, total deposits as of March 31, 2009, increased by a little over $60 million from year-end 2008. $33 million of this was in core deposits and $27 million was in jumbo timed deposits. We attribute the bulk of this growth to a marketing campaign initiated in the last month of the quarter, targeting the mainstream markets. During March, this campaign brought in roughly $80 million in deposits at an average rate of 3.25%. Notably, this is the first quarter over the past four quarters in which we actually saw an uptick in deposits from prior quarter. This points to what we are seeing as a little lesser of competitive arena in terms of pricing in the deposit market or at least one in which the prices are not so irrational that Center Bank is unwilling to reenter the market. Generally, however, the competition remains very tough.

Now we are still dealing with the tendency of outflows of funds to Korea when the exchange rates are favorable to do so, and adjusted to give you a flavor for where we are at the average interbank exchange rate exceeded 1,401 against the US dollar for the 2009 first quarter. Any time that rate goes near 1,501, we will see increase demand for wires going through that day. So given these trends, we are pleased to see that our DDA balances were relatively stable from December 31, 2008. At quarter-end, non-interest bearing demand deposits declined as percentage of total deposits from 19% to 18.4%. Now, this is certainly down from our historical averages, but our note it is still exceeds the trend at most of our peers. With the growth in deposits and the continued contraction of our loan portfolio, our loan to deposit ratio dipped below 100 to 96.9%, versus 104.7% at year-end 2008. It is our goal to keep our loan to deposit ratio under 100%.

Loan production continued to be lower than past levels. We originated $82 million in new loans and renewals during the 2009 first quarter. If we were to effect new loan production it was predominantly variable rate loans, representing nearly 90%. Commercially listed lending accounted for only 24% of new loan production. This lower-level is reflective of our overall strategies to mitigate our exposure to commercial real estate. Commercial loans made up the bulk of the loan production for the quarter.

Now, let me pass over to Lonny to provide us some color on the migration of loans into non-performing status, afterwards, I will comment on what we're doing here to manage the situation. Lonny?

Thank you,JW, and good morning, everyone. Before I begin, let me I comment that I do not expect that our 10-Q will be on file until next week. I do hope to be back on a regular schedule next quarter, and have the Q filed concurrently with our financial results news release. Now, let's begin.

As you've all seen by now, we reported a dramatic increase in non-performing loans from year-end 2008 up to nearly $36 million. This is attributable to five larger credits. When we increased our provisioning for the 2008 fourth quarter, we reported that one of our loans that required impairment reserves was a warehouse line of credit, collateralized by first deeds of trust on properties located in California, Nevada, South Carolina and Texas. This credit is now non-accrual status and accounts for nearly all of the increase in our non-performing commercial loan category. From the original 20 million credit booked in 2005, approximately $16.4 million is outstanding. We are currently in discussions with the borrower for additional collateral and expect to be obtain an unpledged asset valued at $7 million. This warehouse line of credit matured during the first quarter but due to the decline in the real estate market, we elected not to renew the credit.

The other two loans are construction real estate loans totaling $13.5 million. One we have talked about previously with you is an $8.5 million residential construction loan in northern California. The borrower had a previous lending relationship with us that was paid off successfully. This project unfortunately is not going well in the current environment. A planned short sale that was scheduled did not happen.

The other is a $5 million participation loan for residential real estate construction project in Los Angeles. The project is in the final stages of completion. Currently there are no specific reserves for this credit as we are more than adequately collateralized as of March 31, 2009. We have two commercial real estate loans, one is a $2.7 million retail strip center and a $2.7 million hotel. The balance of the non-accrual loans is made up of smaller loans.

Given the sizeable increase, non-performing assets as a percentage of total loans jumped to 3.38%. This is up from 1.19% at the end of 2008, and 0.48% as of September 30, 2008. Now, since our Q is not yet filed, let me give you a little color on our impaired loan levels. Balance of impaired loans increased to $78 million at March 31st, 2009, from $61 million at year-end 2008. As of March 31st, 2009, 14 relationships were impaired for a total amount of $49 million, which has specific reserves of $16.2 million or 33.1% of the loan balance. Net charge-offs during the quarter totalled $2.8 million, $1.2 million which related to commercial loans and $130,000 related to construction real estate and a little more than $600,000 related to consumer loans, which are primarily auto loans.

As previously announced, we modified our methodology for calculating our FAS 5 reserve to more adequately assess true directional consistency. Given the severity and swiftness of the deterioration in our own portfolio, we absolutely think we did the right thing. With the increasing adverse credit environment, we plan to build up our reserves, based on our migration analysis, which weighs the two current quarters at 65% of the total loss experience. The 2009 first quarter provision of $14.5 million exceeds net charge-offs by more than $11.6 million, boosting our allowance to $49.8 million as of March 31st, 2009, or 2.99% of gross loans.

As of March 31st, we remain well capitalized by all regulatory standards, tangible book value per common share equalled $9.42, and our tangible common equity to total assets was 7.75% as of the close of 2009 first quarter. With that, let me turn the call back to JW for closing remarks.

Thank you, Lonny, for your review. We are naturally disappointed to see such a deterioration in our loss of quality, all in such a short time frame. But we are experienced bankers, and we've been through difficult times before. I myself went through the IMF financial crisis in Korea back in 1997 and Lonny and I certainly experienced the S & L crisis. We are facing the realities that the sudden current in the economy has put some cracks in our portfolio, and we have pulled up our sleeves and prepared to manage through this. As I discussed last quarter, the critical factors that determine a bank's ability to survive in this kind of environment includes the original strength of the underwriting at the time of origination, aggressive stress-testing, proactive monitoring of the portfolio and, of course, the credit experience of the management team.

At Center Bank, we know that we are strong in all of these measures. Center's a track record of high asset quality levels for the past 10 years is a testament to our conservative lending philosophy, stringent underwriting standards and proactive management of the portfolio. And we are confident that with our conservative credit culture, strong capital positioning and a deeply experienced management team we will be able to manage through this credit cycle and sustain our leadership as one of the safest and soundest community banks serving our niche markets.

For the past 23 years, Center Bank has grown through a sound and conservative banking philosophy that was designed to ensure our long-term success, and that of our customers. While 2009 will test all banks, we are confident that we will prevail and maintain our leadership as one of the strongest community banks serving our niche market. With that, let's open up the call to take your questions.

Operator? Would you please explain the technical elements for the Q&A session?

(Operator Instructions). Your first question comes from the line of Joe Gladue with B. Riley, please proceed.

Good morning, Joe.

Couple of questions, can you give us the number or trend in 30 to 89-day delinquencies?

Yes. Past due for 30 to 59 days totals$26.9 million.

Okay. And that was 30 to 59? And what about--

30 to 89 days. You want breakdown on 30 to 59?

No, that's okay. More of a philosophical question, but given the big jump in non-performing loans, that would suggest that there might be further charge-offs coming, and then obviously -- boosted the loan loss provision, which also suggests you're expecting further charge-offs coming ahead or prepared for it. The charge-offs were very, declined a little bit this quarter and we're still relatively well behave. Just wondering if you could go through a little of the, process there, and, how aggressive are you being at charging off loans as they become non-performers, and, I guess because they, I guess from the outside seem to be looks like a little disconnect, in some of those trends.

Sure, that's a good question. And I just wanted to -- we have impairment reserves out there of about $16 million, and we've seen a very, significant in the last two quarters build up of impaired loans, and with $16 million of impairment reserves, you would expect, as we do, to see in probably the second, maybe more so in the third quarter, elevated level of charge-offs as we work through these larger credits. As we go through the liquidation process, of these particular credits, and get them either moved into OREO, or sold off, either in the form of a note sale, or something like that, you may see the actual charge-offs come through on them.

Also, as we know, the elevated level of the delinquency, 30 to 89-day delinquency has been increased as well. So we expect to see the smaller commercial loans have elevated levels of charge-offs as well. We do expect that to occur. Second quarter, maybe more so in the third quarter. These larger credits take some time to work through as far as liquidation.

Okay. Let me -- I guess ask a little bit about the net interest margin. I guess try and get some idea of where it's going. You still have much CD repricing coming in the coming quarters? And I guess I'll also ask what impact interest reversals had on net interest market in the first quarter?

Okay. As far as the loan interest income impact, as far as reversal of non-accruals, it's about $693,000 for the quarter. The interest rates on time deposits, we have been in a campaign, we started the campaign in the middle of March. We've finished it up here probably toward the end of April here. We talked about the cost of those deposits between 3% and 3.25%. We have brought those rates down, and so what is maturing is probably coming in at 2.5%, 2.75% range as far as what we're seeing as rates from that standpoint. We do expect that if our loan portfolio, as far as loan production, continues to be at lower levels, and the portfolio continues to decline, we may see some slight compression in the net interest margin. But if we're successful in the SBA loan program that we really adopted and our team is getting ready to roll out some pretty significant program. If we start seeing some growth in the loan portfolio, we expect some mild recovery. So we're not looking to move too far off center from where we're at today, but obviously with what I just said, you can move one way or the other.

Thank you, I'll step back and last someone else ask some questions.

Thank you.

Your next question comes from the line of Chris Stulpin with DA Davidson. Please proceed.

Thank you, and good morning.

Good morning.

Hi, Chris.

Hi, hi. Maybe I missed it, or maybe I don't recall. Does your nonperforming loan category include loans greater than 90 days but still accruing?

We don't have any loans that are beyond 90 days that are accruing.

Okay. And can you go into a little bit your deposit campaign? You said you attracted some deposits from non-ethnic or mainstream customers and money market balances increased a little bit. Could you talk about that campaign a little bit?

That deposit campaign the middle of last month, actually at a time one of our -- our goal was to increase, deposits from non-Korean ethnic groups and non-Korean markets. And, what happened was we slightly increased our deposit rate compared with the market rate, but surprisingly, the response was very overwhelming, so we actually stopped in less than one month. But as a result of that, we were able to increase our core deposits and some jumbo CDs. And fortunately we were able to decrease our loan to deposit ratio below 100%, that is our target.

All right. So we basically -- we were very pleased with hitting our goals in about 65% of the deposits were from non-Korean customers, from that standpoint. We had anticipated that the campaign to go much longer but it was rather successful, so the pricing did draw a lot of interest. We did do some promotion in the LA Times and some other media that we haven't used recently; and we've had some success there. We do anticipate doing some additional campaigns to try to create a stickiness for these deposits by offering other products and services here going forward.

Okay. That's all that I have . Thank you very

Okay. Thank you, Chris.

Your next question comes from the line of Don Worthington with Howe Barnes Hoefer & Arnett. Please proceed.

Good morning, JW and Lonny. Couple of questions on the loan portfolio, I know that has been moving down, sounds like you're kind of letting CRE loans roll off as they mature. Would you expect that to continue, and would you kind of accelerate that through any loan sales?

Well, Don, as part of our deleveraging strategy announced in the early part of 2008, and the concern on the commercial real estate market, we intended to reduce our CRE exposure. Year-over-year at the end of March 31st, 2009, compared to March 31st, 2008, we have reduced our commercial real estate exposure by $114 million. And that was through sales and payoffs, and very selectively originating a new commercial real estate. But I think we are still concerned about the concern on the commercial real estate market, and we believe that the market has declined in the past one year, the caps has risen, there is some vacancy or NOI concern in the total CRE sector. So we are monitoring carefully, and when we see the valuation is in line, I think we will originate it a little bit more than what we have been doing.

Okay. Thanks, Jason. And then in term of the -- did you have any other OTTI charges that just flowed through the other comprehensive income, as opposed to the income statement with the new accounting guidance?

Don, we did not adopt the early adopt the new accounting guidance. We're presently evaluating it. And wanted to take -- spend a little more time looking at it, and obviously we have to adopt it in the second quarter. But, no, there has been nothing that ran through OCI that we would consider OTTI today.

Okay. Great.

Your next question comes from the line of Julianna Balicka with KBW. Please proceed.

Good morning. How are you? Hey, I have a follow-on question. Could you refresh your memory on that large C & I loan, what kind of industry or what kind of loan it was.

Juliana, this is Jason. This credit was originated in '05. We had this for about four years now. This warehouse line of credit was provided to originate CRE loans. We have exposure of 16.4, and our participant has exposure of 16.4. And we hold a number of properties, 34 four-plexes in Las Vegas, good location, and four other commercial real estate, two in California and two in out of state, of which two are retail and two are office buildings. And we based on the most recent -- because of the concern on the commercial real estate market, we had elected not to renew the loan, and additionally, the borrower is cooperating to pledge $7 million in assets of unpledged assets. So based on our reserve, we excluded the $7 million in assets that we are in cooperating with the borrower, and we are currently liquidating those assets in an orderly fashion.

Juliana, I might add that as of December 31st, we did subsequently impair this loan, which caused some additional increase in our impairment reserves.

Okay. Very good, thank you. And then follow-up question on the impaired loans is what is the dollar amount of your impaired loans, and what is the dollar amount 06 of serves against that? Sorry if I didn't catch that earlier.

The reserve is approximately $16.2 million. I think it's $78 million, as far as the loan principal.

Very good, thank you very much.

Your next question comes from the line of Brett Rabatin with Sterne Agee. Please proceed.

Hi, good morning.

Hi, Brett.

I want to do make sure I understood correctly the one loan that was construction-oriented that did not have a specific allocation reserve, given the collateralization of the property. Was that recently appraised or can you walk through why there was no specific impairment reserve for that particular loan?

Yes, good morning, Brett. That was based on most recent appraisal value.

Okay. So basically the appraisal came in and it was enough, and the underwriting was conservative enough and the appraisal came in high enough that you didn't feel like you needed to take a loss on that?

Right.

So there was no loss taken on that particular loan, is that correct?

That is correct.

Okay. And one of the -- ask Jason maybe on that -- on the CRE, I know you mentioned that you had one hotel loan go into CRE. I know you have done some extensive stress testing to be out in front of potential problems in the past. I was curious if you had done a similar anything similar to the past quarter and what that was telling you about the more retail-oriented pieces of the commercial real estate, like the hotel portfolio, for example?

Right, Brett, fourth quarter given the concern in the overall economy, worsening economy, we do have exposure in hotel/motel loans. And we had instructed all of our lending staffs to visit all of our hotel/motel loans and we did identify several accounts, notably one particular credit that went into an non-performing loan, which is $2.7 million, it experienced a material decline in revenue, and as there were several partners within subject experiencing cash flow issues.

Okay. So in the fourth quarter, you did the review, but you haven't done anything since then to update this is what we were seeing in terms of the portfolio?

Well, we did -- we identified several and notably from our discussions with all of our close to about $80 million some accounts totaling the hotel/motel portfolio, our initial discussion among the customers indicating about 15% declining in their revenues. But it really depends on the locations, as even the hotel/motel loans, some area may deliver more stress. Depending upon the location of the hotel/motel loans. And as these portfolio of hotel/motel loans, they are franchise independent flag hotel-motel property, with limited service. The borrowers are really containing expenses and trying to weather this economy, and I think last year I think I talked to you, I spoke with you about the areas of the stress in the commercial real estate market, the first wave was in the car wash industry.

Yes.

Which we only have about $10 million performing very well, and I think in this environment I think the hospitality industry is a concern based on PKF Research, it is expected to have revenue per available loan to drop by about 7.8% this year. So we are looking at it very carefully.

Okay.

Brett, this is JW. Let me touch on high -level comment on stress-testing.

Yes.

CRE concentration and some sort of, top up buttoned down analysis we have been conducting recently. Actually we run, various, couple of modules, some very realistic, and some very severe scenarios. And, in short, the result was very positive. Let me give you some idea what kind of factors we applied. For instance, in case of a CRE depreciation, we applied 32% decline and under the scenario was over 40% decline, and in some cases as recently the Wall Street Journal released the information about the FRB stress test, we applied various factors in that stress-testing. That actually combined, as the probability of a default and also loss given default. A very severe scenario I think we are very confident that we can sustain it, and our risk of base of capital would remain very strong and healthy given this dire economic condition.

And I know you addressed earlier the thoughts about loan sales and asset sales and just that kind of thing. Was there a level that you hoped to get the either the capital ratio to, just given where we are in the recession, or can you talk about maybe the loan portfolio size, getting to a certain level? Do you have goals for either of those?

Well, Brett, I think, one of the things is we are in a recession, there is a lot less qualified borrowers out there, and we have really shied away from commercial real estate lending in Southern California right now because of the tough market.

Right.

And those are larger loans typically. But we are planning a pretty good swing out or rollout of a SBA program, obviously, those are smaller loans, and, just fighting the principal pay-down would probably be difficult for us to actually have much mass there. But I think if we could start doing some slow growth of the loan portfolio, I don't think that would be bad for us at this point from that standpoint. But we were looking at the realities with the SBA loans being smaller loans in general and the principal pay-down that we're seeing in the portfolio right now in the payoffs it will probably be difficult for us to get a whole lot of positive growth out of it.

And, Brett, just to give you a on the status of SBA lending, the Small Business Administration has increased the guarantee portion to 90%, as you know.

Yes.

And also waive of loan fee which was a burden to many small business owners in the past. So with this program that the government is trying to promote to many small businesses out there, Center Financial, due to healthy SBA loans portfolio, and there are many SBA lenders out there experiencing a high level of delinquencies, and their SBA portfolios or their loan asset quality, I think it is the right time for us to capitalize in this market. And the secondary market has improved, about six months ago, we were seeing very, very low premium, typically 2 to 3%. Now we're seeing anywhere, type of loans, for, for C&I, SBA loan, we're seeing, 4 and 4.25%, and real estate being about 5.5%. So premium, secondary market, has improved. So I think, within our overall lending staff, we are focusing, I'm telling all of our staffs to really look and promote SBA loan and we will retain, maintain, our credit standards, and, when the loan -- any loan comes in, we will consider it in SBA first and then try to promote more of a lending and we balance our portfolio in that sense.

Okay. That's a good thing to hear on the SBA front. And last quick question, I know you're not obviously doing much CRE particularly as you noted, larger CRE credits, but I am curious as to what you're seeing, Jason, in the market, in terms of where you see loans being underwritten, for Class A properties, from a cap rate perspective, or just interest rate or spread to whatever index you want to use?

Well, Brad, even major banks are underwriting changes in their underwriting and CRE loans. For instance, I had one customer came to me, retail shopping center, I say we're not interested, and they went to a major bank, very major bank, and they had changed their underwriting from 25-year amortization to much, much lower amortization, because they're trying to reduce their CRE exposures, too. But overall in terms of cap rates, I believe the cap rate has gone up, at least a point, maybe between 1% to 1.25 on all type classes of CRE loans. And it is from my view and conversation with the appraisers out there, it is anticipated to increase another point in the upcoming year or so. So overall, 1% has gone up and expect to have another 1% increase.

And would those numbers be from where we had talked about them late last year?

From its peak, yes.

Okay. Thank you very much.

Thank you ,

Thank you, Brett.

(Operator Instructions). Your next question comes from the line of Bill Dezellem with Tieton Capital Management, please proceed.

Thank you, we had a group of questions. First of all, relative to your money perform e the larger non-performers, would you please take each one of those and discuss the losses that you're expecting and tied in with that, you had a much bigger increase in the non-performers in the March quarter versus the December quarter, than you did in the December versus the September quarter, and yet your provision for loan losses was lower in Q1 than Q4. Could you provide some perspective and understanding behind that, please?

Okay. Let's go over each type of -- each loans that are in NPL category. Let's start off with construction loan. We have three construction loans under that bucket. One is located in northern California, that credit amounts to $8.5 million. For collection interest, I would not be disclosing the reserve amount. Our reserve was based on most recent appraisal value, and one particular case we obtained a broker appraisal opinion as well and whichever was lower we had provisions that credit loan loss provision in that case, because that was situated in a very distressed area. The construction loan, $8.5 million, that's in northern California. The project is complete. There is no risk of not being completed.

There is another construction loan for $5 million, it's nearing completion, it is located in a good location in Los Angeles, and there is one small piece of $2 million that we participated with another lender that is located in Oakland downtown. So construction loan category totals about $15 million, and C&I, I already mentioned about where our line of credit which is 16.4. And there is one C&I credit which is SBA EWCP which is trade finance SBA provides 75% guarantee on it. We have a $1.2 million guarantee portion which we expect to collect in the second quarter.

In term of CRE, there are four credits. Of two were reflected in the fourth quarter. Let me give you color on those four credits. One is assisted living property located in a good location in Pasadena. We have a buyer. Because of the transfer of a license, it is taking a long time, and we expect in the next couple of quarters to complete the sale. That credit is $6.8 million. And we have a construction loan that was termed out last year, totals $6.4 million.

That credit we have all of these credits we have obtained most reasonable appraisal value not more than three months old and this credit we have obtained broker price opinion, and they came lower, so we have provisions with impairment reserve for this credit. And the other one credit is an office building, the loan matures, we had done appraisal on it and was forced to pay down the difference in principal, which they satisfied, and this account of $2.7 million is expected to go away in the second quarter. And, lastly, one motel loan, $2.7 million, has difficulty with their cash flow. So we are in the foreclosing on this property as we speak.

So these nine credits total $52 million that represents 92% of our total non-performing loans, and we are working very hard. Our regional directors and Mr. Yoo, myself, and our SAD lending staff, we are looking and working with the local brokers and we are also soliciting our wealthy customers, to settle these assets. And in the first quarter alone we sold two notes. One note, because of the good location, we sold the note at par, and the other note we sold, which was a construction retail center, we sold the note, at a discount of 16% or $930,000. So we are looking at all of the aspects, all of the opportunities, to remediate this problem asset loans. But as I mentioned , these nine credits represent the 92% of our non-performing

I'd like to add a little color. There is a couple of working pieces in the allowance for loan loss. Obviously have the FAS 114 impairment reserves which Jason had gone over with the particular credits. We had identified a lot of the credits in the fourth quarter and we set up about $12.4 million, in impairment reserves, and the reserves for impairment reserves at the end of the first quarter is 16.2.

Your comment was the provision was less in the first quarter, versus in the fourth quarter. Well, that was largely due to the large loans that we identified and impaired in the fourth quarter. If you look at what our FAS 5 reserve is, which is basically the general valuation allowance over the rest of the portfolio, we had increased it in the fourth quarter about $4.7 million, but in the first quarter, the FAS 5 reserve was increased $7.8 million. So those are the couple of working pieces.

So we had already identified the majority of the impaired loans. We had a couple new ones come on, added $3.7 million impairment reserves in the first quarter of 2009. But we did really have a pretty good movement in our FAS 5 reserves which is now over 2.02% of gross loans.

Lonny, would you again repeat what that FAS 5 general provision was again in Q1 versus Q4?

Q4 is about $4.7 million, and in Q1 was $7.8 million. So it really wasn't -- where in the fourth quarter we identified more impairment reserves, where in the first quarter we actually built up our FAS 5 reserve for evaluation purposes. That is the one where we evaluate the economy, we do the qualitative factors, we look at loss ratios. That is where we moved the weighting to the more -- we used to use a 12-quarter analysis, where we've gone to a six-quarter, but in that analysis we take 65% of the weighting as the last two quarters. As a result of the increased loss experience that we're seeing, that has actually moved up our FAS 5 which is the general evaluation provision.

That's helpful. Thank you. And then one additional question. Your trade finance loans, that category has been coming down pretty dramatically over the course of the last several quarters. Would you please discuss what's happening there?

Yes, Bill, given the weakening economy in South Korea and also the fluctuation concern on the currency issue, we are being very selective on our trade finance lending, as well.

So that's not necessarily a function of demand, it's as much a function of your unwillingness to extend credit?

It's a combination. We're being more cautious about certain type of trade finances.

Demand is lessening, Bill, as well, so it is a combination of the two.

Great. Thank you, both.

And I'm showing we have no further questions at this time.

Thank you, all, for participating in Center Financial's 2009 first quarter conference call this morning. On behalf of the entire Center Financial team we appreciate your continued interest and look forward to your ongoing support.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.