Hope Bancorp Inc (HOPE) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Center Financial Corporation earnings conference call.

My name is Alicia, and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later, we will conduct a question and answer session.

(Operator Instruction)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms.

Angie Yang, Senior VP, Investor Relations.

Please proceed.

Thank you, Alicia.

Good morning, everyone, and thank you for joining us today for Center Financial's 2010 fourth quarter investor conference call.

Before we begin, please recognize that certain statements made during this call may not be historical fact and may be deemed therefore to be forward-looking statements under the Private Securities Litigation Reform Act of 1995, including certain statements or responses to inquiries regarding the proposed merger of equals between Center Financial and Nara Bancorp.

The closing of the proposed transaction is subject to regulatory approval, the approval of the shareholders of both Center Financial and Nara Bancorp and other customary closing conditions.

Many important factors may cause the Company's actual results to differ materially from those discussed in or implied by any 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 publicly update or revise its forward-looking statements.

Now, as usual, we have allotted one hour for this call.

Center's President and CEO, Richard S.

Cupp, will begin today with introductory comments.

Our Interim CFO Doug Goddard will then review certain details for the Company's 2010 fourth quarter financial results.

Our Chief Credit Officer, Jason Kim, will then comment on loan production and asset quality metrics before Dick makes some closing remarks.

We will then open up the call for a question and answer session.

I'd now like to turn the call over to Dick Cupp.

Thank you, Angie.

Good morning, everyone, and thank you for joining us today on what is my first investor conference call as new CEO of Center Bank.

It's been my pleasure working closely with the management team and with the Board of Directors of Center Bank.

And in the few weeks since I arrived here, it's clear to me the Company has made a very strong recovery from the recent financial crisis.

With the results of the 2010 fourth quarter now in, it is confirmed that the Company was successful in its goal of returning to profitability.

Our 2009 capital [ratio] strengthened the balance sheet, and the profitable operations in every quarter of the year further fortified that position.

As of December 31, 2010, our leverage capital ratio was 12.75%, our tier 1 risk-based capital ratio was 17.61% and total risk-based capital was 18.89%.

Further, tangible common equity to tangible assets improved to 9.65%.

Over the course of the year, as you will hear, there was measurable improvement and stabilization in the bank's asset quality.

This, of course, has resulted in more normalized provisioning levels during the year that contributed to our profitable operations.

Now the Company has proven successful in returning to growth.

From an organic growth perspective, you can see that our refocus on business development efforts early in the third quarter of last year has resulted in a return to growth in the overall loan portfolio.

I think it's probably important to mention that since the Company began its deleveraging strategy back in the first quarter of 2008, this is the fist period in which the loan portfolio reflected actual sequential organic growth.

From a strategic growth perspective, in addition to our successful FDIC-assisted transaction which took place in April of last year, you know that Center Bank and Nara have agreed to a merger of equals that will create the largest Korean-American bank in the nation.

This is a profound event that will transform the landscape of the growing Korean-American market and is the first real step toward the much needed consolidation in this important banking space.

With that, let me pass it over to Doug Goddard to go over in more detail the financial results of Center's 2010 fourth quarter.

Doug.

Thank you, Dick, and good morning, everyone.

Late yesterday, we announced the financial results for our fourth quarter, and we were pleased to have closed the year on another strong quarter of profitable operations.

Since you should have all had a chance to look at our results by now, I will just highlight certain areas and provide you with some additional color.

For the fourth quarter, net income totaled $6.5 million.

After preferred stock dividends, net income available to common shareholders amounted to $5.7 million or $0.14 per diluted common share.

The fourth quarter results benefited from a further reductions in the deferred tax asset valuation allowance, which was reduced by approximately $3.3 million from the September 30th levels.

As we discussed last quarter, the potential for further reduction of the DDA reserve will be dependent upon the continuing trend of profitability among other factors.

With four consecutive quarters of profitable operations and stabilized asset quality trends, we are increasingly confident that we will be able to sustain our profitability in the coming quarters.

Looking at our results in more detail, you will see that there was a sequential decline in our interest and fee income on loans from our third quarter level.

While the average balance of our interest earning loans ticked up slightly, reflecting new loan generation, the average yield declined by 21 basis points linked quarter.

This was due to a number of factors.

First, the level and flow of global nonaccrual loans has been, and will continue to be, a drag on our loan yield.

This will have less and less impact as we continue to work through and reduce our nonaccrual loan balances.

Secondly, approximately 79% of our new loan originations and renewals during the fourth quarter were variable rate loans, which tend to be at lower rates than the average fixed rate loan.

Although we increased our volume in prime-based loans, even with floors in place for new volumes, the increased levels of these prime-based loans have caused the average loan yield to decrease.

So the shift in the mix of first versus variable at this time is holding our yields down.

That said, rates will eventually start to rise and when they do, we are in a position to benefit.

Overall, the yield on the average balance of total interest earning assets declined by only 8 basis points as we saw improved yields linked quarter on our investment portfolio.

The compression in yields on our interest earning assets from the third quarter negatively impacted our net interest margin for the fourth quarter of 2010.

Net interest margin contraction of 3 basis points in the fourth quarter was mostly attributable to the decline in yields on interest earning assets.

The pressure from the loan yield was offset somewhat by a decline in cost of deposits, which I will discuss shortly.

In terms of our non-interest income, as noted in the news release, we recorded a $1 million provision for loan losses related to the covered loan portfolio during the fourth quarter.

This provision expense was offset by an $808,000 increase in the FDIC loss share receivable balance, which bumped up our other non-interest income line item for the fourth quarter.

With regard to our non-interest expense line items, the quarter was relatively normal but I would like to point out two particular items.

First, as noted in the news release, one OREO property was resolved during the quarter.

Accordingly we posted some elevated OREO related costs compared with more recent quarters.

Secondly, our 2010 fourth quarter non-interest expense included approximately $717,000 in merger related professional fees.

Moving on to deposits.

Overall, we're pleased with the deposit trends we're seeing.

While total deposits on a quarter-end basis declined by approximately $21 million from September 30th, the decline is primarily attributed to the continued run off of broker deposits.

This was partially offset by increases in our retail deposits, including a $13.5 million increase in non-interest-bearing DDA deposits, which accounted for 22.4% of total deposits as of December 31st, compared with 21.4% at the end of the third quarter.

At year end our core deposits accounted for 67% of total deposits, and if you include deposit that have proven to be very stable, that ratio would be more than 78% of total deposits.

With the improved mix in our deposit base, our cost to deposit declined by another 4 basis points from the preceding quarter to 1.09%.

With that, let me turn the call over to Jason to discuss loan growth and asset quality.

Jason?

Thank you, Doug, and good morning, everyone.

Let's begin with loan production.

Last quarter, we said that we were beginning to see some increasing activity in loan production.

During the 2010 fourth quarter, new loan origination and renewals increased considerably.

Of this, as Doug mentioned, approximately 79% were variable rate loans, but we are very pleased this growth amounted to a 4% linked quarter increase in our gross loan balances.

It is important to note that the increase in new loan production was led by C&I Lending this quarter.

While our CRE and commercial loan balances declined modestly from September 30, 2010, balance, we saw strong increases across our commercial, trade finance and SBA loan balances.

As compared with September 30, 2010, balances, commercial real estate and construction loan balances decreased 1% each.

In contrast commercial loans expanded 13%, trade finance loans grew 8%, and SBA loan balances on our books increased 47%.

During our 2010 fourth quarter we funded $35.4 million in SBA loans.

We actually originated closer to $50 million of the remaining balance that is expected to fund during the current first quarter starts us off with a head start for 2011 SBA production.

With the shift in the mix of our loans, plus with the benefit of overall growth in our gross loan balances, commercial real estate and construction loans accounted for just 60.8% of total loans.

This compares with 63.6% as of September 30, 2010.

Now, as most of you already know, Center has moved away from regularly selling its SBA loans to the wholesale market.

Instead, we have been keeping them on the books favoring longer term profitability.

Given the premiums that are currently available in the wholesale market, we sold approximately $20 million of SBA loans during the 2010 fourth quarter.

As a result, we expect to post the related $2 million net gain on sale of loans in the current first quarter financial results.

Going forward, as long as the premiums remain as strong as they are, we plan to sell $20 million of new SBA loan production on a quarterly basis.

Of course, this will have a positive impact to our earnings in each following quarter.

Now, moving onto asset quality.

As we reported in our news release, at year end, total noncovered, nonperforming assets, net of the SBA guarantees, declined modestly to 2.82% of gross noncovered loans and OREO from 3.04% at September 30, 2010.

The main factor contributing to the decline was a resolution and pay off of one OREO property, which reduced the OREO balance $3.6 million.

On the other hand, noncovered, nonperforming loans, net of SBA guarantees at year end, grows modestly by $2 million to $42.2 million.

New inflows into nonaccrual status totaled $8.4 million.

This is relatively stable compared with $7 million of new inflows in the third quarter, though certainly well below the heightened level that we experience in 2009 and the first half of 2010.

Delinquent noncovered loads, 30 to 89 days past due, increased by $2.7 million, while performing TDR declined by $2.5 million at year end.

Noncovered loans, net charge-offs, during the 2010 fourth quarter equal $7.4 million, down from $8 million in the preceding third quarter.

These trends, while stabilized, underscore our comments the last quarter that economic recovery will take longer than any of us will like it to.

As such, we continue to stay very active in monitoring the portfolio for early detection and early and decisive action.

Underscoring our commitment to early detection and action, during the quarter we transferred one CRE loan from our performing pool of loans to loans held for sale at a fair market value of $11.9 million.

While the global cash flow still supported the loan, based on other qualitative factors, we determined it was in our best interests to take early action to mitigate any potential losses.

With that let me pass it back to Dick for closing remarks.

Thanks, Jason, very much.

In closing, I'd like to just say that, although the recovery at Center Financial is truly unmistakeable, it's also clear that we must remain quite diligent about monitoring the quality of our portfolio and continuing to be conservative and loan concentrations, underwriting and borrower selection.

In other words, the lessons we learn and applied in 2009 and 2010 will not and cannot be forgotten.

Now, before we open up the call for questions, which I am sure we'll have some, I would like to comment briefly on the planned merger with Nara Bancorp.

It is still premature to make any formal announcements on new developments, but they certainly are in the works and will be forthcoming.

I will say that we're working very closely with friends at Nara and our banking regulators to ensure that the approval process moves forward at a timely, efficient and, of course, successful manner.

As the incoming CEO for Center Bank, this is one of my top priorities.

The management teams, along long with the board consolidation committee members, have been very busy planning to ensure the integration will be as seamless and as successful as possible.

In addition to making sure the combined entity will be well prepared to capitalize on a million new opportunities that will be available to us, we're also thinking about the added responsibilities that the new bank will have as a preeminent leader in this space and in the Korean-American community.

This is clearly an exciting time for all of us at Center Bank.

We are approaching our bank's 25th anniversary in March of this year, and we can look back and be proud of the achievements made today.

But when we look ahead, the future prospects for Center Bank are stronger than they have ever been.

So with that, let's open up the call for questions, and operator, would you please explain the technical elements for the Q&A session?

My pleasure.

(Operator Instructions).

Your first question comes on the line of Chris Stulpin from Howe Barnes.

Please proceed.

Hello, everyone.

Hi, Chris.

Hi, Chris.

Let me see here.

Of the $1.9 million nonperforming loan that was moved to held for sale, how much was that written down whenever you moved it to held for sale status?

And, how much -- what are you carrying as a percentage of the original value currently?

Hello, Chris, good morning.

Jason here.

It's $11.9 million that we placed -- loan held for sale.

It was marked down in the fourth quarter.

The charge off was $2.7 million.

$11.9 million?

Yes, and we complete the no sale first week of January.

Okay.

Thank you.

And, any more color, anyone, on your MOU in what your expectations are there for that being -- for that to be lifted, please?

And, that's my last question.

Thank you.

Yes.

This is Dick.

We're hopeful of course that the MOU on Center Bank will be lifted at some point in time in the very near future, but that's predictable only upon when the FDIC and others deem it to be so.

We're confident that we are meeting all the terms and conditions of the MOU, and so we look for a fairly early release of that document.

Okay.

Thank you.

Thanks, Chris.

Your next question comes from the line of Brett Rabatin from Sterne, Agee.

Please proceed.

Wanted to ask about following up on credit -- wanted to ask the loans that were moved to nonperforming status, which I think totaled $8.4 million, which CRE was 42% of that.

Can you talk about what led to those loans -- how many of them there were -- what led to those loans being moved in nonaccrual, and just kind of your global macro view maybe, Jason, on what you're seeing from a cash flow perspective on a lot of the CRE properties that you monitor?

Hello, good morning, Brett.

The new nonaccruals were comprised of multiple small CRE loans -- CREs and small industrial property and one construction property that we had participated -- and, obviously, right now, our construction loan portfolio is about $14 million, so, we pretty much addressed the construction portfolio.

In terms of a commercial real estate landscape, we do see somewhat of stability, but, importantly, I think the -- when we look back couple years, we were very proactive in identifying and resolving, mostly related to commercial real estate.

We were the first one to really address the concentration in 2008, Jan -- first quarter.

And, then looking back, I think that we -- early detection and identifying and resolving through no sale charge-offs and everything, I think that was very important because those credits that we were resolving were basically out of skirt metropolitan area mainly [Indiscernible] and hospitalities and obviously some few large CRE retail properties.

So, when we look back, 2009 discounts on loan sale was high, 23% no sale and $30 million.

And, 2010, we sold about $95 million at average discount of 10%.

So, obviously, that we see a nonperforming collateral is improved on a discounted basis, so I think that's a positive note.

But, we do see somewhat instability in respect to commercial real estate.

Okay.

Were the loans added to nonaccrual, were those previously TDRs, or can you talk about movement or migration from those two buckets?

Yes.

They were TDRs?

Yes.

Okay.

And, then, wanted to follow up on the issue with the loan yields, or just the variable rate loans having an impact on the margin.

Can you quantify just where you're seeing pricing on fixed versus variable right now in the market?

I think, obviously, C&I credits the market.

The loan pricing yield is, on average, prime plus 1% to 1.5%, with a slower kick in of 5% to 5.5%.

On the commercial real estate, we're seeing about 6.25% short-term hybrid loan pricing on a fixed rate CRE loans.

But, I think the impact to our NIM compression was largely contributable to the declining -- our fixed rate portfolio as we have been resolving a number of loans in 2009 and 2010 for high rate fixed rate loans, so that impacted to the NIM compression.

Okay.

And, then, this last follow-up.

From a loan portfolio perspective, is there a goal to shrink the CRE book a certain dollar amount, or can you talk about your view of concentration of CRE pre and post the transaction?

Well, we've been addressing it, the CRE, for almost three years now, and, right now, we're -- based on our gross loan balance, it is about 61%.

Right now, we're seeing on a monthly normal paydown of $7 million per month, so, once we see a normal paydown on a monthly basis, and we see some good CRE loans that are well priced, we would replace those normal pay downs.

But, it's not going to be dramatic farther reduction, but we are rebalancing our portfolio through C&I and the SBA.

I think the SBA market will be very strong in 2011, so we expect to see a notable improvement in our product, in the SBA and C&I.

Okay.

Great.

Thanks for the color.

Thank you, Brett.

Your next question comes on the line of Julianna Balicka from KBW.

Please proceed.

Good morning.

Good morning.

Happy New Year, actually, today.

Happy New Year.

Yes.

I have a few questions, if I may.

One on the SBA premiums that you were referencing, could you repeat what they were again?

I didn't quite catch that number.

We sold $20 million, with a premium income of $2 million.

Okay.

And, then, on the loans that you sold at a discount, that you had just referenced, the ones that were sold in the first week of this year -- what was the discount on those?

15%.

15% discount.

Okay.

If I can switch topics for a minute and think about your returning to growth, which is nice to see, today, versus say two years ago or pre crisis levels -- in addition to reducing your loan portfolio, I think if I recall correctly, you've also have gone through a number of cost cutting measures and including probably head count reductions, as well.

So, as you think about going forward towards a level of reintroducing production, how are you thinking about staffing for Center independently, and what it would be kind of going forward if Center were to continue to operate independently, and also what that means in light of the merger with Nara, as you rebuild your platform?

That's a very big question.

Who is best to take that?

In terms of -- probably Jason?

Well, Julianna, we mentioned about the deleveraging strategy that was beginning of 2008 and 2009, we were addressing the credit issues.

And 2010, we see a notable improvement in our credits, and we announced that we are going to focusing on marketing of C&I and SBA, and last year mid our marketing staff -- we have a really good marketing staff that had been actively stepping up to cultivate C&I credits.

And, we're seeing a result now, and, obviously, on the SBA side, we had small business job act that was in place on October 1st, and right before that we were beefing up our SBA staff, almost doubling our SBA staff.

So we're seeing a notable improvement in the production in the SBA side, and we believe this will continue, but obviously not like [Inaudible] linked quarter increase.

Obviously, that C&I credit there is utilization rate and seasonality impacts of -- you'll see some of a variation component, but obviously we have been so actively identifying and just resolving the credit issue, and now that we have been in a position to really grow the bank with the new increase in C&I and diversifying our loan portfolio, I think that it's -- we're seeing a result.

I think I was going at this from the perspective of seeing the potential cost save from the deal.

If I were to think about Center independently, I would be mentally assuming that there is some amount of growth coming into your infrastructure staff persons just from returning back from the -- just returning to offensive mode, right?

So, if I think about cost saves from the deal, it's kind of unfair to cut cost saves off of infrastructure that's already been whittled down by the credit crisis, right?

So, I guess I'm just trying to think of what would be the normal number of expense expansion that you would see in 2011 for yourselves, and, from that, one could say maybe there might be cost saves.

Do you see what I mean?

Yes.

I see what you're asking.

We're not going to be able to give you a very specific answer.

On your first part, clearly we need to manage the staffing and the G&A as though we're going to be independent.

That's our first responsibility.

I don't think that's inconsistent with the benefit of the merger.

And, even though we did dramatically cut costs, we're not abandoning a cost efficient-mentality here, so I think the cost growth otherwise would be fairly modest.

We're not looking to increase our back office.

We're not adding locations particularly.

We are more than willing to add resources to the extent we can add lending capacity, but those are going to be one off kinds of things.

I think it is a very small percentage, in terms of restor-- adding back a lender or two, adding back a little bit of support staff.

But I don't think you're talking about a big increase off the base here.

Okay.

Very good.

Thank you very much.

Thank you.

Your next question comes on the line Tim Coffey from FIG Partners.

Please proceed.

Doug, I have a question.

Was there any yield accretion from the covered portfolio in the net interest margin?

Could you repeat the question?

Yes.

Did the covered loan portfolio have any impact on your net interest margin?

Not in terms of variability.

I mean, there is ongoing accretion because of the bizarre accounting we have to go through with the covered loan portfolio, but what we are accreting is not that far different from what the coupon rates of the underlying loans is, and it hasn't varied dramatically from quarter to quarter.

Okay.

And, then, we saw some growth in the covered loan portfolio in the quarter.

What was that from?

That's another oddity, because within that covered portfolio there is a fairly high SBA percentage, as you go through the collection process, and Jason will correct me on the words.

You end up buying back the guaranteed portion before you file a claim with the government, and, so, as you go through the collection process, when you buy back the guarantee portion of the loan, that portfolio goes up, and it goes down the next quarter when you the government reimburses you for it.

Okay.

So, we -- could we see ongoing variability with the net part of the coverage?

Yes.

I think this is probably a bigger swing than I would normally think, because we're still -- have been catching up on the process of that whole collection process on the portfolio part, but it could go up by 2 or $3 million and then down by $2 or $3 million very easily.

Great.

Overall, the direction will be down, but we'll see an occasion spike.

Okay.

And, then, since I have you on the phone, Doug, the OREO costs in the quarter, I know they were small but, how much of that was related, if any, to the revaluation?

Sorry, the revaluation?

Did you have to lower the value of any of the OREO you held?

Yes.

For one property, in very round numbers, it was $400,000.

Okay.

And, just going to toss this question out there.

As you look at the allowance recognition for the DTA, do the benefits, provided you continue to make profits, do the benefits of recognizing it sooner as opposed to spreading it out, are those benefits greater in your mind?

No, not at all.

It's a subjective and detailed process there.

Normally, what you'd see at some point, it clicks over and whatever's going to come back, comes back.

If we continue with -- if we had strong and improving profitability, you'd probably see us get most of the federal benefit more or less right away.

The state benefit is in question, as long as the state of California is reluctant to give NOL credits because of their budget problems.

But, it is not something like if we have got $6 million of federal benefit left, it's going to come back $1 million a month for six months or six quarters.

It is at some point, if the nonaccrual loans start to decline and our projected earnings just become that much more predictable, then the whole thing flips in.

Okay.

Thank you.

Those are all my questions.

Okay.

Thanks.

Your next question comes on the line of Bill Dezellem from Tieton Capital.

Please proceed.

Thank you.

We have a group of questions.

First of all, what is your view of the 30 to 89 day delinquencies ticking up by roughly $3 million?

Does that create some consternation or is that all part of the normal bouncing around?

Well, it's the increase on the pass throughs category were mostly commercial real estate, we're monitoring it carefully.

There was one item that was a timing issue that one account was missed by one day, but there was -- we're looking at the pass through loans very carefully.

And, do you feel that they are any sign that there is a change away from stabilization in commercial real estate that that's indicating?

In terms of migration, I think, we are monitoring it, but I think we can see a better improvement, for some reason when we look back last year, seems to be the first quarter -- year end was obviously some challenges in the pass throughs, but, hopefully, we like to see our pass throughs and nonaccrual improvement in the -- at the end of the first quarter.

And, then a question that's somewhat the opposite of what I just asked, and that is are you seeing any signs of construction loan opportunities returning to Center?

No.

We had couple of SBA construction loans that we're working on, but non-SBA loan, we're not seeing any.

And, then, on relative to both SBA and trade finance, given the degree to which those businesses have ramped up.

Do you see at some point in the future where you hit a saturation level with those businesses, or for the foreseeable future, do you feel like you have runway, not at the sequential growth as you noted that you had, but continue to have opportunity to grow?

Bill, that's a good question.

Number one, timing is really good because I think there is a separation amongst banks right now, that there is so many banks that are addressing the credit issues and not in a position to really accommodate the new production.

So, this kind of opportunity is a good opportunity, and, hopefully, we can increase the C&I because, once we bring in the C&I borrower, and as long as we have a good relationship, those C&I borrowers will not leave the bank.

And, when the economy turns around, and there is a more severe competition in the C&I borrowers, those borrowers that we brought in and that we be more stickier with our banks.

So, I think this is a good opportunity to really solidify our marketing effort on the C&I borrowers and capitalize in the SBA and trade finance right now.

So, you are not feeling a risk of saturation at this point?

Not at this time, Bill.

Great.

Thank you.

Thank you, Bill.

(Operator Instructions).

Your next question comes from the line of Joe Gladue from B.

Riley.

Please proceed.

Good morning.

I guess, first off, you mentioned in your prepared remarks that there was some leftover funding from some of the SBA loans in the fourth quarter that will go into the first quarter.

But, could you give us some color on what the pipeline is for SBA loans coming into the fourth quarter, I mean the first quarter, and, if possible, touch on the C&I loan pipeline as well?

Yes.

Good morning, Joe.

Right now, we have a fair amount of SBA inventory right now.

We have about $50 million of SBA inventory that we are reviewing and underwriting, so we will see a consistent and farther loan origination on the SBA side.

And, what was your second question?

C&I.

Okay, C&I.

I don't have inventory level off my head.

But, we are seeing notable amount in the underwriting as well as marketing dollar amount.

And, that $50 million you mentioned.

How does that compare to the pipeline going into the fourth quarter?

Fourth quarter, I think it is pretty similar level.

Yes.

All right.

And, on net interest margin, was there much of a difference in impact of interest rate reversals on loans migrating to nonaccrual versus the prior quarter?

I don't have a number right in front of me, but the key variable there is inflow of nonaccruals, so in-flow ticked up from $7 million to $8 million, so it was a little bigger hit, but it is not dramatic.

Okay.

And, lastly, I'll just say -- I think the press release had the net charge offs to average noncovered loans on a year-to-date basis.

Just wondering if you had that just on the fourth quarter basis?

I'll get back to you on that.

I don't have --

Not in my head.

Yes, not in my head.

Okay.

All right.

That was it.

Thank you.

Thanks.

Your next question comes from the line of Sachin Shaw from Capstone Global Markets.

Please proceed.

Hi.

Good afternoon.

I'm not sure if you covered this early on the call, but just wanted to get an update on some of the regulatory approvals.

I just haven't suspected or was expecting the S-4 to be filed by now.

Just wanted to find out if it is somewhat pending, as well as the California DFI.

Sachin, I think we've spoken before, and we had guided early on that we expect the application to be filed in February and we're still --

That's on track.

That's definitely on track.

The approvals come much later.

It's just the beginning of the approval process.

Okay, so you are expecting the preliminary S-4 to come out sometime this month, and the other filings have been made, the process is still ongoing, and we should kind of wait?

The S-4 will following the filings of the 10-Ks.

Right.

Okay.

Perfect.

Do you think --

Thank you very much.

The S-4 will follow there after.

Okay.

Perfect.

Thank you very much.

Your next question is a follow-up question from the line of Julianna Balicka from KBW.

Please proceed.

Good morning.

Thank you for letting me come back to the queue.

I have a follow-up question on the DTA, and I know it's impossible to forecast, but what is the left -- can you refresh my memory, what's the leftover amount of the valuation allowance that you could potentially get back at this point?

And, if your next quarter is basically equal to what we saw this quarter, could you reasonably get the same amount of tax benefit back?

Well, it's a declining pool.

We have left, in very round numbers, a reserve of $10 million.

About $4 million of that doesn't go away unless we have some improved picture of the ability to utilize a state NOL carry forward.

So, there's about $6 million that could come back essentially from the federal.

So, that's the maximum that could come back over the next year or whenever.

How quickly it comes back-- it's very, very complicated and subjective.

If we had very strong and improving earnings, it could come back all at once.

If it was stable or declining, it could come back later in the year.

I really can't get much more specific than that.

Okay.

That helps.

And, then, I have a second follow-up, please, on the asset quality of the roughly $40 million that you have of nonaccruals still.

Do you have plans on just letting them work out kind of naturally, kind of keeping them on the books and working with the borrowers, and maybe moving to foreclosure?

Or, do you have any plans for any sales to more aggressively move it off your balance sheet.

I was trying to get an update on thoughts on those?

Julianna, we look at each credit very carefully, and we discuss with the borrower, and we monitor that property very carefully, and we make a decision whether it is best to sell the note, or work with the borrower, or foreclose it.

And every situation is different, so we don't planning on any [bulk] sale.

We have never done it, and we will evaluate on each, case by case.

Okay.

So, just a gradual resolution as opposed to any fits and starts?

Yes, whatever makes sense for the Pang.

Right.

Exactly.

And, then, finally, could you update us, please, on what's going on in the northern California market?

Are you able to start originating there, get some traction with the innovative platform, or what is just the latest on the expansion up here?

We're actively marketing.

We -- obviously, the deal was closed April last year, and we're seeing some activities and -- but we haven't seen a notable improvement, but we are seeing some marketing activities on the lending side.

So, we could see more results coming quarters, but at this present time we haven't seen a significant result yet.

We had begun marketing in the northern California market, in September, October.

It was after we completed the consolidation of the branches, so we're seeing interest there.

We're actually seeing more growth in terms of the core deposits in northern California, but also given that we are now planning to merge with Nara, and Nara has a number of branches in the northern California market as well, we're taking that into consideration and that will all play a factor.

Great.

Thank you very much.

Great.

Thank you.

There are no more questions in the queue.

This does conclude the question and answer portion of the call.

I will now turn the call back over to Angie Yang for closing remarks.

Please proceed.

Thank you all for participating in Center Financial's 2010 fourth 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.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a wonderful day.