使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good day, ladies and gentlemen, and welcome to the first-quarter 2010 Center Financial Corporation earnings conference call.
My name is Manesia, and I will be your operator for today.
(Operator Instructions).
I would now like to turn the call over to your host for today, Ms.
Angie Yang, Investor Relations for Center Financial.
Angie Yang - IR
Good morning everyone and thank you for joining us today for Center Financial's 2010 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 to be forward-looking statements under the Private Securities Litigation Reform Act of 1995.
Many important factors may cause the Company's actual results to differ materially from those discussed in, or implied by any such forward-looking statement.
These risks and uncertainties are described in further detail in the Company's filings with the SEC.
Center Financial undertakes no obligation to publicly update or revise its forward-looking statements.
Now, as usual, we have a allotted one hour for this call.
Center Financial's President and CEO Jae Whan Yoo, will begin today with some introductory comments.
CFO Lonny Robinson will then provide additional color and details for the Company's 2010 first-quarter and the recent assumption and purchase of Innovative Bank, an FDIC-assisted transaction.
J.W.
will then make some closing remarks before we open up the call for a question-and-answer session.
As usual, Center's Chief Credit Officer, Jason Kim, is also here with us, and will participate in the Q&A session.
I would now like to turn the call over to J.W.
Jae Whan Yoo - CEO, President
Thank you, Angie.
Good morning everyone and we thank you for joining us today.
Yesterday afternoon we announced the financial results for Center Financial's 2010 first quarter, and we reported that we returned to profitability with a net income of $2.8 million.
As we previously stated many of the actions taken in 2009 were designed to accelerate our return to profitability and growth.
So we are very pleased that our efforts have related to this positive trend, which are evident across almost all areas of our operations, and certainly in the areas of provisioning and the charge-off levels.
Now we must keep in mind that we are still operating in what continues to be a challenging economic environment.
Our core customer base, that is the small to medium-sized business owners in Southern California.
Fortunately for Center we believe our (inaudible) recognition, provisioning, charge-off and resolution of a problem [asset] last year, have lightened the burden for us as we cautiously navigate through 2010.
With that, let's move directly into a discussion on asset quality since it's one of the most critical factors determining our ability to sustain profitability.
We experienced modest upticks in our nonperforming and delinquent loan balances, underscoring the ongoing difficult operating environment.
But we also continued to make solid progress effecting resolutions.
Nonperforming loans increased by only $7 million from December 31, 2009, to $70.4 million as of March 31, most of which is additions in nonaccrual CRE loans.
Commercial real estate loans accounted for 74% of nonaccrual loans at March 31, while construction loans and the C&I loans represented 10% and 16%, respectively.
New nonaccrual loans inflows during the quarter totaled $15.4 million.
Of this, one (inaudible) retail CRE loan is an outstanding balance of $260 million was brought current during the quarter.
But the borrower must stay current for six consecutive months before we migrate the loan out of a nonaccrual status.
As another sign of the difficult operating environment for our borrowers, delinquent loans 30 to 89 days past due increased to $28.8 million from $13.4 million as of year-end 2009.
Now during the quarter we dissolved two loans, aggregating $13 million in loan to sales.
One was a nonaccrual and the other was delinquent 30 to 89 days.
Notably after the close of the 2010 fourth quarter we dissolved two additional nonaccrual loans aggregating $16.6 million moved (inaudible).
We are particularly pleased that a recovery of approximately $2 million will be recorded in relation to one of these loans.
We have taken the mindset of working through a potential problem [asset] sooner than later.
Along that line of thought, we are already under way to [sell] loans on two loan relationships totaling $4.4 million, and expect to close on those transactions before the end of second quarter.
Another important factor that impacts our ability to sustain earnings is the level of charge-offs.
Net charge-offs for the 2010 first quarter amounted to $4.5 million and represented 1.2% of average loans on an annualized basis.
This is down significantly from the levels that we recorded in 2009.
In that $3.6 million of this was related to commercially related loan with the balance of it in C&I loans.
Given the slowed pace of renewal loan accrual additions and the low-level of charge-offs, our provision for 2010 first quarter was $7 million, a level that is significantly lower than what we provisioned each quarter of 2009.
This provision exceeded net charge-offs by $2.5 million, and increased our allowances for loan losses to $61 million, equal to 4.01% of gross loans.
Whilst there is certainly are some positive signs in the economy and our overall outlook, we believe it is prudent to keep our reserves at elevated levels for the time being.
Hopefully, we will be able to see a few additional quarters of more sustainable economic metrics after which we will reevaluate our loans' leverage.
Now with the benefit of having reported a profitable first quarter, and looking back at the strategic actions that were taken in 2009, we can say even more confidently now that the steps we took last year were the right ones in the given environment.
The net earnings for our 2010 first quarter helped boost our very strong capital ratios.
Our total risk-based capital ratios at March 31 was 18.23%.
Tier 1 risk-based capital ratios equaled 16.94%, and our Tier 1 leverage capital ratio was 12.82%.
Moreover, our strong capital position enabled us to capitalize on the opportunity to expand our geographic footprint into Northern California, as we announced just two weeks ago.
This was a second quarter event.
The benefits of this transaction will not be evident until we report our second-quarter financial results.
But importantly, this earnings of [credible] transactions strengthens our earning power and will support our overall capacity to maintain profitable operations in 2010 and beyond.
As well, we are pleased that we are able to redeploy a portion of our new capital relatively quickly in a transaction that adds immediate value to our shareholders base, as well as to our customers.
This transaction also exemplified Center Financial's formidable stance as a leading community bank now in each market.
With that, let me pass it over to Lonny, who will review in more detail our operational results.
And then I will come back with some closing remarks.
Lonny Robinson - CFO
Thank you, J.W., and good morning everyone.
Before I go into my review of the quarter, let me just give you some details on the FDIC-assisted transaction.
Upon settlement of the deal it was determined that Center Bank is entitled to receive $20 million in cash for asset discount and negative transaction equity net of deposit premium paid.
As part of this transaction the FDIC received 1 million equity appreciation instruments based on Center Financial's stock price.
On April 26 they exercised these instruments, realizing a gain of approximately $1.4 million.
Now moving on to our results.
To save more time for the Q&A session, I will just review some of the more pertinent details of our 2010 first-quarter financial results, which was released yesterday after the market closed.
Now in addition to the lower levels of provisioning and charge-offs, there are many other factors which contributed to our profitable operations in the 2010 first quarter.
During the quarter we sold $56.8 million of GSE investment securities in an effort to shorten up the duration of our securities portfolio, with the expectation for rising rates later in the year.
This resulted in a $2.2 million gain on sales of securities available for sale.
I would like to note, however, that even without this gain, we would have posted a net earnings of $1.3 million for the quarter, though our profitability was not dependent on this gain, which review as non-core to our operations.
Another contributing factor to our profitable quarter was a strong extension in our net interest margin, which gained 41 basis points linked quarter to 3.41%.
This is primarily attributed to our continued success in lowering our cost of deposits as we rolled off higher rate maturing deposits.
Our cost of deposits improved another 29 basis points from the 2009 fourth quarter.
This was helped further by a continuing trend from the preceding quarter.
We had reduced levels of interest earning assets and low yielding Fed funds and higher average balances on higher-yielding investments.
Now we have been successful to date in reducing our core noninterest expenses and improving our operating efficiencies over the past two years.
On a sequential basis and factoring out the $1.4 million impairment of goodwill and intangible assets last quarter, we were able to contain the noninterest expenses to levels below the preceding fourth quarter.
As previously mentioned, we believe we have reduced our operating expense structure to the extent that we can at this point.
Given our recent FDIC-assisted transaction, we will see some increases in operating expenses in the second quarter.
While there are some immediate cost saves, most of the anticipated cost saves from the transaction will be more evident after the full integration of our systems.
Moving onto deposits.
Our total deposits as of March 31 declined by more than $122 million from the December 31 levels.
Supported by a capital injection late in 2009 fourth quarter, we continued to rolloff higher deposits, including brokered deposits of $39 million.
The deposits outflows came from time deposits and our money market accounts.
You may recall that we had launched a money market campaign last year.
Our interest-bearing demand deposits ticked up by $8 million linked quarter, and represented 22% of total deposits at March 31.
Given the reductions in our money market accounts, time deposits accounted for a little less than 45% of total deposits, which is roughly in line with levels at December 31.
Now moving onto loan production.
During the 2010 first quarter total new loan origination and renewals amounted to $118 million, of which 66% where variable rate loans.
There are a number of factors contributing to the lower levels of productions relative to historical levels.
Of course, I think you are seeing it everywhere that new loan demand is very sluggish.
Secondly, the first quarter always tends to be impacted from a seasonal perspective.
Not a lot of people are looking for new loans just before tax season.
Third, we continue to refrain from originating new commercial real estate loans, and actually have elected not to renew certain CRE loans as a means to mitigate our exposure to the CRE market.
Finally, active resolutions of potential problem loans are also having the impact, while setting the slow loan production pace.
All of these factors are offset in part by our efforts to expand C&I loans portfolio, and the growing accessibility of SBA loan products.
During the 2010 first quarter we originated $15.3 million in SBA loans, which is more than double what we produced in the preceding 2009 fourth quarter.
Near-term we will continue to focus our lending activities in the areas of C&I and SBA lending.
With that, let me turn the call back to J.W.
Jae Whan Yoo - CEO, President
Thank you, Lonny, for your review.
So we have had a very strong start to 2010.
Immediately our team is working very hard to integrate the operations of the former Innovative Bank.
Both Lonny and I have a deep experience with M&A, and together with our Chief Credit Officer, Jason, their Counsel and Chief Operations officer, we will lead the integrations effort.
We anticipate the full systems integration to be completed in late July to early August.
I look forward to giving you an update on our next quarterly conference call.
As most of you are already alerted to, the landscape for the FDIC-assisted transactions continues to evolve.
And it has been signaled that a number of failed institutions will not accelerate as previously thought.
As well, the going price for these transactions also seem to be heading upwards.
That said, there are still plenty of opportunities, and we are staying active in evaluating and researching transactions that would immediate value to our franchise and the shareholder value base.
Given our start to 2010 to date, our Board and management team have a strong sense of optimism that we may now have turned the corner.
And we look forward to keeping you updated on our progress.
With that, let's open up the call for questions.
Operator, would you please explain the technical elements for the Q&A session?
Operator
(Operator Instructions).
Chris Stulpin, D.A.
Davidson.
Chris Stulpin - Analyst
J.W., you just mention that you feel confident or optimistic that you may have turned the corner.
I'm guessing that is regarding credit costs.
So what are your expectations for directional movements in net charge-offs and the provision for the next few quarters?
I'm just trying to get a sense of how you see credit costs developing please.
Jae Whan Yoo - CEO, President
Thank you, Chris.
I think maybe those -- the questions might be better responded by, I think, Jason.
Jason Kim - Chief Credit Officer
Good morning, Chris.
Jason here.
Just to give you 2009, as you recall, we have been really active in identifying and resolving a lot of credit issues that were on the table.
We sold a lot of notes.
We sold a lot of credits, a lot of charge-offs.
And we even had an outside investor party review our portfolio.
And obviously the pain in 2009 is behind us.
And the $4.5 million charge-off in the first Q has now become more of a kind of a foreseeable level that we could probably predict for now.
Chris Stulpin - Analyst
As far as your reserve build, I know you had some credits cure after the end of the first quarter, $16.4 million, I think you said.
And that brings your reserve to NPAs well over 100%, but have an inflow -- or your 30 to 89 days has increased.
So what is your philosophy as far as building reserves going forward?
Lonny Robinson - CFO
This is Lonny, and good morning.
Philosophically we have always tried to really be maybe more on the proactive side of addressing credit.
The reason we built the ALLL this quarter was that we did indeed see our nonaccruals -- even though we knew some of those these were going to be worked out after quarter end, we did see a bump up in our 30 to 89 days, and total delinquency overall.
Though we believe we have been fully very active and proactive in 2009 to address these issues, we recognize full well that the CRE market still has some troubles out there.
And so we are going to be cautiously optimistic here that we think that levels may be peaking, but we are still going to -- we are going to still watch our provisioning levels.
We have used our qualitative factors and quantitative factors.
We have not backed off on them at this point.
We still feel comfortable with 4.01% ALLL at this stage.
I do believe later on in the year there may be a situation where we could back off at these levels from the high, say, 3.75% to 4% to some lower levels at some point.
But again, we are being very cautious at this point.
Jason Kim - Chief Credit Officer
Additionally, I know the inflow into nonaccrual loans totals about $16.4 million.
That is about 31 accounts.
But as Mr.
Yoo mentioned, one large nonaccrual loans that amount is $1.7 million.
We sold it with a gain we recognize over (technical difficulty).
The other $4 million pass-due, which was reflected in the 60 to 89 bucket, that's also being resolved after the first Q.
So if there are inflows, obviously there's outflows.
Some of those discounts on the note sales in the first Q, I am looking at the figured now.
One hotel/motel loan, this is a 504 SBA loan, we sold the note at 1% discount.
Now the advanced rate was low.
SBA has a second dealer trust.
And the other note that we resolved in the first Q, this was a vacant land in Koreatown (inaudible) additionally.
I mean, these assets obviously has underlying value.
And even one construction loan that we elected not to sell last year, the underlying collateral, strength of the borrower, debt construction townhome in nearby Koreatown came down, and we expect a full recovery in the second quarter.
So we evaluate every aspect of the underlying collateral, what is our maximized gain and recovery of each asset.
Chris Stulpin - Analyst
Great.
Lonny, you said levels may have peaked.
You meant NPLs?
Lonny Robinson - CFO
Yes, we are thinking that we may be very close to those levels from that standpoint.
I guess we are -- I can use the term cautiously optimistic.
Some of the color that Jason gives you hopefully will support why we have that thinking.
We are seeing some credits now that we are going to be able to have some nice recoveries on.
So we think maybe some of the prudent actions that we have taken in 2009 will pay off here in 2010.
So with that being said, we do know that the (inaudible) market still has some tough times ahead, but we hopefully our very active nature in 2009 will warrant some dividends here in 2010.
Chris Stulpin - Analyst
Excellent.
Just one more clarification and then I will step back.
Lon, did you initially state that your one-time gain for innovative bank would be say $20 million?
Lonny Robinson - CFO
No, that is not the gain.
That is actually the cash that we received from the FDIC.
The gain -- the accretive gain that you're talking about, we are presently evaluating, and we will be finishing that up here shortly.
And obviously that will be recorded in the second-quarter results from that standpoint.
So I really -- we are going to have an accretive gain, but I would not want to give any more color than that.
The $20 million is actually what we got from the FDIC.
Operator
Tim Coffey, FIG Partners.
Tim Coffey - Analyst
Lonny, I had a couple of questions.
If we look at the deposit changes in the quarter, specifically the noninterest-bearing, is that -- do you think that can be replicated as we go through the rest of the quarters of the year?
Lonny Robinson - CFO
You mean as far as the 22% level of DDAs that we have here at the end of the quarter?
Tim Coffey - Analyst
Specifically the increases in those balances.
Lonny Robinson - CFO
We are working very, very hard at trying to build our customer base, and really looking at core deposits, because obviously that is what creates franchise value at Center Financial.
We expect to be able to at least hold these levels at 22%.
But our goal -- couple of years ago we were up around 25%, 26%.
We would like to get back to those levels.
And we've got strategies in place to obviously build that up.
I wish I could say for a certainty that we will achieve that, but that is the direction we want to head.
Tim Coffey - Analyst
J.W., how long does -- given that there is a lot of things on your plate to deal with as far as integrating Innovative Bank, but how long do you think it is until we start seeing some good organic loan growth from Center?
Jae Whan Yoo - CEO, President
First of all, we are planning to complete the integration from IB at least by August this year.
I think there is good potential for loan growth and some earning potential, because when I stayed over there about 10 days right after the acquisition of the bank, we found the market is still vibrant, but we needed to build up more marketing capability over there.
But we have the resources over here to support and to deploy our resources over there.
So I think probably from may be second or third quarter -- I'm sorry, the third quarter or fourth-quarter, that will be more visualized.
Tim Coffey - Analyst
Okay, great.
Then the rest of my questions have already been answered.
Thank you very much.
Operator
Joe Gladue, B.
Riley.
Joe Gladue - Analyst
Let me follow up a little bit on Chris's question about asset quality.
I am just wondering, the migration of loans to nonperforming, was most of that loans that had been on the watchlist or classified loans?
And maybe could you just (multiple speakers) what the trends are?
Jason Kim - Chief Credit Officer
Yes, they were.
And the migration of the nonaccrual, 90% were commercial [related].
Joe Gladue - Analyst
A couple of questions about the Innovative acquisition.
One is, of course, you mentioned you're still trying to reduce the concentration of CRE loans, and I guess Innovative had a fair concentration of CRE loans too.
Any hopes that you can -- how do you think you can reduce the reliance of those branches on CRE?
Lonny Robinson - CFO
I think our overall strategy will obviously reflect in that acquisition as well.
We want to get back and have a more balanced portfolio approach to lending, a combination of C&I/SBA.
CRE needs to be more balanced going forward.
So what we are attempting to do is restrain ourselves from doing any active CRE -- new CRE production, and are focusing on C&I and more SBA business type loans.
With that being said, that is why loan growth, we are not expecting to see a lot of loan growth probably until the end of 2010.
If the economy does start to kick into a recovery here at the third and fourth quarter, then obviously we could see that, but we would really want to rebalance that loan portfolio and not take excess concentration risk in any portfolio bucket.
Joe Gladue - Analyst
Let me ask a little bit about the net interest margin.
You talked about the decrease in cost of funds.
But it looks like you did have some increase in asset yields as well.
I am just wondering if that was really just driven by the decline in securities relative to loans, and I guess if we can expect any more of that trend to continue?
Lonny Robinson - CFO
Just to give you a little bit of color there, we had nonaccrual income reversals of about $376,000, which was about 7 basis point loss in yields for the first quarter.
Now keep in mind the improvement in yield is probably relevant to -- if you recall last year, we were experiencing approximately $1.1 million a quarter in nonaccrual income reversals.
So part -- that is predominantly due to the fact that we just had lower losses on nonaccrual interest on nonaccrual loans for this particular quarter.
We do expect the loan yields to probably maintain these levels and maybe have some slight improvement.
Like I said, the $376,000 for the quarter on an annualized basis points is about 7 basis point to us in loss yield.
So we do expect obviously as the nonaccrual interest number lessens that yields will just improve from that standpoint.
If we get some loan growth, obviously we could see some improvement there as well.
Joe Gladue - Analyst
Just to follow up a little bit.
Again, a little bit of change -- shift in the asset mix.
Securities declining more than the loans.
Is that shift going to continue or what do you expect on the growth of the securities portfolio?
Lonny Robinson - CFO
It was our decision once Mr.
Bernanke had indicated that the Treasury was going to stop buying mortgage-backed securities that we thought we needed to shorten up the duration in the anticipation of higher rates, and some other actions that is going on in the marketplace.
So we decided to shorten up the duration of our portfolio.
We were probably over a 3.5 year duration, and we are trying to bring that in under three years now, and that is what we attempted to do.
Obviously, the benefit of that sale, we did get a $2.2 million monetized gain as a result of that strategy.
But I don't think we are looking at liquidating that portfolio substantially from the levels of where it is today.
Joe Gladue - Analyst
All right.
That's all I had.
Thank you.
Operator
(Operator Instructions).
Don Worthington, Howe Barnes Hoefer.
Don Worthington - Analyst
Just a couple of things.
Continuing on the margin outlook, on the cost of fund side, do you have the opportunity to lower that some more with deposit maturities, CD maturities in the second quarter?
Lonny Robinson - CFO
I think we do, but it is not going to be to the extent that we achieved in the third -- the fourth quarter and the first quarter -- the fourth quarter of 2009, the first quarter of 2010.
I expect those declines to be a little more modest than what we have seen.
I am probably expecting cost of funds -- I could probably get another 6 to 7 basis points.
It is not going to be anything like I said we saw in the fourth quarter of 2009, first quarter of 2010.
Don Worthington - Analyst
Okay, great.
Then in terms of -- and Jason, you may have mentioned this, and pick it up if you did.
On the $16 million in resolutions that you alluded to in the press release, were those sales transactions or refinances?
Jason Kim - Chief Credit Officer
That was a note sale.
Don Worthington - Analyst
Note sale, okay.
I think that is all I had.
Thank you.
Operator
Julianna Balicka, Keefe, Bruyette & Woods.
Julianna Balicka - Analyst
I just had a couple of quick questions since most have already been asked.
On the CRE portfolio review that you did back in the third and fourth quarter of last year, it is a pretty comprehensive one, right?
For the loans that you marked to nonaccrual and/or watchlist at that time have you have had incremental provisions or is the provision that you had specific reserve or charge-off or, you know, that you had booked at that time been carrying you through so far?
Jason Kim - Chief Credit Officer
I don't have that ratio, but the outside third-party that was performed in the late part of fourth quarter, they were provisioning based on the risk rating system anywhere between 35% to -- even 50% provisioning.
Julianna Balicka - Analyst
So incrementally your provisions have not been coming from that?
Lonny Robinson - CFO
No, that is indeed correct.
There hasn't been additional provisioning from the result of that review, not going into the first quarter.
Julianna Balicka - Analyst
Right.
Then -- and I am sorry if you already discussed the SBA part, from the $15.3 million originations, did you sell any?
Lonny Robinson - CFO
Yes, we did do a sale.
And obviously with the new accounting treatment it doesn't get recognized until the second quarter.
It was approximately $15 million, wasn't it?
Jason Kim - Chief Credit Officer
We sold $17.5 million.
Lonny Robinson - CFO
$17.5 million.
Yes.
Okay.
Julianna Balicka - Analyst
$17.5 million, and what will be the gain then in the second quarter?
Lonny Robinson - CFO
My guess it is approximately $1 million.
Julianna Balicka - Analyst
Is that a good run rate or is that going to be increasing each incremental quarter as SBA lending picks up?
Jason Kim - Chief Credit Officer
SBA is picking up.
And additionally we do expect one LPO outside of our market.
And additionally now with the new [footprint] in Northern California, we are retaining some of the staff to really actively promote SBA landing.
So we will see some more activity in the second half in the SBA lending side.
Julianna Balicka - Analyst
Very good, thank you very much.
I will step back now.
Operator
Bill Dezellem, Tieton Capital Management.
Bill Dezellem - Analyst
Relative to the Innovative transaction, would you please discuss the level of earnings accretion that you expect from the transaction please?
Lonny Robinson - CFO
This is Lonny.
What they call day-one accounting and 141R gain, we are in process of developing that.
And we will have that to report in the second quarter.
But as far as the assets that we acquired and the liabilities we assumed, as far as the earnings potential, we expect approximately on an annual basis about a contribution of earnings on those assets to around $3 million a year.
Bill Dezellem - Analyst
Then the second question, I think that J.W.
had mentioned in the opening remarks that you didn't see the magnitude of potential FDIC transactions that you had originally anticipated.
But yet there are still transactions out there.
So I guess, number one, did we hear correctly?
And number two, if so, would you provide additional perspective on the FDIC transaction landscape please?
Jae Whan Yoo - CEO, President
The first question, yes, you're right.
And the second, even though the trends might be less than before, but still we are expecting some additional opportunities, and we continue to look for that kind of trends.
I think that there will.
Bill Dezellem - Analyst
How does that relate, or be a completely different issue from the comment in the press release?
The earnings release, I believe the same comment was also made in the Innovative transaction release, where you say, "you set the stage for additional growth opportunities in 2010".
Would you tie that into what you discussed so far please?
Jae Whan Yoo - CEO, President
Actually after three years of deleveraging I think we are going back into growth mode, particularly taking over this FDIC-assisted transactions.
And as I mentioned earlier, we are still continuously looking at that opportunity.
Even with that acquisition alone we think we can accelerate our growth by taking more asset and a loan portfolio from that IB -- Innovative Bank.
And I think -- well, maybe third quarter, as I mentioned earlier, the benefit would be materialized.
I think this has kind of led to a continuation of growth.
Bill Dezellem - Analyst
So that comment is not specific to transactions, although it could include them, but is really more an indication to the outside world that the time of shrinking and retrenchment is done, and you are ready to hit the gas pedal little bit.
Lonny Robinson - CFO
That is correct.
Keep in mind, we are under an MOU.
We went under that in December.
And obviously one of our efforts here this year is to really try to get out from under that.
We really appreciate what the FDIC has done for us in regards to allowing us to look at this transaction with Innovative.
We feel that they have been a great partner with us in this transaction.
Our next goal here is to resolve the MOU in a timely fashion.
Now I can't predict when that is going to happen, but that is one of our goals.
And obviously coming out from under that will obviously allow us the opportunity to do additional things as well.
Bill Dezellem - Analyst
Thank you both.
Operator
Vincent Staunton, Wedbush.
Jeremy Zhu - Analyst
This is Jeremy Zhu from Wedbush Opportunity Partners.
Congratulations on a great quarter.
But let's hope the worst is behind you at this point.
Aside from the FDIC acquisitions, you guys still have a shrinking balance sheet.
Just when do you expect that to reverse itself and start growing again?
Kind of along the question Bill just asked, I guess.
Lonny Robinson - CFO
Good morning.
Obviously, we started deleveraging our balance sheet in 2008, no surprise to anyone, to protect our capital.
Obviously, everybody knows in the fourth quarter we raised $83.6 million of capital and we've got some fairly robust capital ratios that we need to deploy.
We were able to do the Innovative transaction, as we mentioned previously.
Our goal is really to focus on getting the credit issues behind us and being able to deploy our strategies and our management team to focus on loan growth.
So our efforts are really more to -- that we believe that we've got maybe the lion's share of our credit problems, at least we are moving down the slope, so to speak, that we can now start focusing on loan growth strategies.
And so we want to try to do that.
We don't really see that happening probably until the latter part of 2010, and obviously that is predicated upon the economic recovery as well from that standpoint.
So my guess it is going to be the latter part of the year before we start seeing some meaningful loan growth.
Jeremy Zhu - Analyst
Because the Innovative acquisition opens you up to the Northern California market, what is the plan there?
And are you retaining most of the staff?
And are you going to focus on any particular area or any particular type of loans?
Jae Whan Yoo - CEO, President
This is J.W.
In Northern California we have three branches over there.
Actually two branches in Oakland, one in Chinatown, the other one is near the Koreatown area.
And another one is Santa Clara, which is close to San Jose and the Silicon Valley area.
My plan is to maintain those three branches up there in Northern California.
And I think almost all of the staff in the frontline, particularly contacting the customers will be retained.
But in the head office level we are planning to consolidate with our Los Angeles head office for obvious reasons.
So responding to your questions, yes, we are going to continue to retain those staff working at the frontline in the branch level, but in the head office level we are working on consolidation.
Lonny Robinson - CFO
This is Lonny.
Let me just add a little bit more color to what J.W.
is saying about the Northern California market.
Something that we are finding out, J.W.
has done a lot of outreach in that community since the acquisition -- since our acquisition.
In fact, J.W.
and I have been spending a lot of time up there.
What we are finding is the reaction seems to be very positive that Center Bank is in that marketplace today.
We thank we have probably done more outreach than maybe historically what that bank has done.
We think the initial reaction has been positive.
So we are going to continue to build upon that momentum that J.W.
established in that market, by putting some good team players up there that can really grow that.
Because we do think there is a nice opportunity there.
Jeremy Zhu - Analyst
Thanks guys.
Great job.
Operator
(Operator Instructions).
[Mr.
Arnot Sady], Atlas Capital.
Arnot Sady - Analyst
Most of my questions have already been answered, but I was wondering if I could get some more color on this.
Just looking at your growth strategy, what are the priorities as far as making a decision to make the acquisition?
Is it based on the mix between CRE, C&I, SBA that the bank might have, or is it more driven by geography?
You just talked about the Northern California market being a place you are very interested in.
Or is it simply a factor of how attractive the assistance is from the FDIC?
And what kind of size are you looking at for future growth?
Is it going to be in line with the Innovative Bank acquisition?
Lonny Robinson - CFO
I would like to address a couple of those points.
Obviously, the geography in the Innovative transaction was very appealing to us, because we don't have a presence there.
So I think it has to make strategically -- from a strategic transaction it has to make logical sense, and obvious market extension for us in that regard.
I know a lot of people like the day one accounting and the pricing in regards to the accretive gain there.
But I think it has to make economic sense on a go forward basis and be accretive to earnings, more so from that standpoint of what the assets that you are purchasing and the liabilities you are assuming.
So a combination is, it has got to be good market position for us from that standpoint.
It has got to be on a go forward basis accretive to our earnings.
We are not really as focused so much on what I would say the day one accretive gain is.
Obviously, that place a part of it, but I would say the focus is more on the market positioning for these opportunities.
Operator
Brendan MacMillan, Centurion Investment Management.
Brendan MacMillan - Analyst
Just two questions.
First of all, the $3 million accretion, Lonny, that you mentioned, do you asses that to be fully taxed or a pretax number?
Lonny Robinson - CFO
I did not mention a $3 million -- we are presently evaluating the accretive gain, but --
Brendan MacMillan - Analyst
No, not the gain, just ongoing earnings accretion.
I think you estimated that the Innovative transaction would be about -- would be accretive to the tune of $3 million annually.
Lonny Robinson - CFO
(multiple speakers) after tax.
Brendan MacMillan - Analyst
After tax?
Okay.
Thank you.
The other question was just, Jason made a comment on you all making the decision not to renew some CRE loans.
And could you just comment or describe how aggressive you are being with that, and how you're making the decisions on which loan not to renew and just the process there?
Jason Kim - Chief Credit Officer
It depends on a loan by loan by case.
Obviously, if one borrower has a lot of different relationships and we want to kind of balance our exposure, that might be a case.
And certainly location or a certain type of CRE, we value it on a loan by loan case.
Brendan MacMillan - Analyst
Okay.
All right.
I appreciate it.
So basically it is the breadth of the relationship with you primarily, as well as the loans' relative riskiness, etc.?
Jason Kim - Chief Credit Officer
Yes.
Operator
(Operator Instructions).
Ladies and gentlemen, this concludes the question-and-answer session for today's call.
I would now like to hand the call over to Ms.
Angie Yang for any closing remarks.
Angie Yang - IR
Thank you all for participating in Center Financial's 2010 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.
Operator
Thank you for your participation in today's conference.
This concludes the presentation.
You may now disconnect.