Hope Bancorp Inc (HOPE) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 BBCN Bancorp conference call.

My name is Karma and I'll your coordinator for today.

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

(Operator Instructions)

Later, we will conduct a question and answer session.

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

Angie Yang, Senior Vice President, Investor Relations.

Please proceed.

Thank you, Karma.

Good morning, everyone.

Thank you for joining us for the BBCN Bancorp 2011 fourth-quarter investor conference call.

Before we begin, I would like to make a brief statement regarding forward-looking remarks.

The call today may contain forward-looking projections regarding future events and the future financial performance of the Company.

We wish to caution you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to the Company's business.

We refer you to the documents the Company files periodically with the SEC, specifically the Company's most recent 10-Q and annual report on Form 10-K, as well as the Safe Harbor Statement in the press release issued yesterday.

These documents contain important risk factors that could cause actual results to differ materially from the forward-looking statements.

BBCN assumes no obligation to revise any forward-looking projections that may be made on today's call.

The financial results for the 2011 fourth quarter reflect a further refinement of the estimated fair value calculations and accounting adjustments required under the acquisition method of accounting.

The Company cautions that complete financial results to be included in the annual report on Form 10-K for the year ended December 31, 2011 could differ materially from the financial results being reported today, pending the finalization of the acquisition accounting adjustments.

Now, we have allotted one hour for this call.

BBCN's President and CEO Alvin Kang will begin today with an overview of the quarter, and our Chief Financial Officer, Phil Goldman will discuss financial results in more detail.

Then, Al will wrap up our presentation with closing remarks before we begin the question and answer session.

Also joining us this morning from Management are Bonnie Lee, Chief Operating Officer; Mark Lee, Chief Credit Officer; and Doug Goddard, our Deputy Chief Financial Officer.

With that, I would like to turn the call over to Al King.

Al?

Thank you, Angie.

Good morning, and thank you for joining us for our first conference call as the new BBCN Bancorp.

I'm going to start today's call by providing an overview of the quarter and then Phil will walk through our financial results in more detail.

Clearly, this was an exciting quarter for us that brought about the completion of a merger between Nara and Center that was almost a year in the making.

BBCN Bancorp stands today as the largest Korean-American bank in the country by a wide margin, and the positive response we have received from the communities we serve has been very rewarding to see.

From announcement to closing, we had a lot of time to be thorough in our integration planning and we hit the ground running on December 1 under the new banner of BBCN Bank.

Our new name is symbolic of the roots of the two organizations that came together to form the new Company, and our long partnership with the growing businesses from the communities that we serve.

Looking at our logo, you may have noticed the blue C representing Center is interlocked with the red N representing Nara.

The logo as a whole is symbolic of the complimentary and synergistic merger of the two banks and represents our collective experience and leadership.

Our combined bank strategic plan includes four major initiatives.

First, post integration -- post-merger integration, we understand that a successful integration is critical to the success of BBCN, underscoring our focus on ensuring a seamless systems conversion with minimal customer impact, we created a new position of Chief Information Officer and brought in an expert in this field.

Second, while BBCN is now the largest Korean-American bank in the nation we will also strive to set a new standard for relationship banking.

Third, we will continue to seek market expansion through both organic and acquisitive opportunities.

Additionally, with our national footprint, we will focus on expanding our SBA operations across the country.

And our fourth initiative is to have a laser focus on enterprise management.

As we move forward with our strategic objectives, we want to ensure that our risk management, our IT technology, and the depth and skill base of our employees are all on par to support our targeted financial goals.

In terms of key integration items scheduled for later this year, our IT systems conversion is on schedule for May 2012, after which we will consolidate the branches previously announced as part of the consolidations plan.

We will also then consolidate our headquarters into one location.

As we complete these steps, we will start to realize more of the cost savings projected for the merger.

Over the next two years, we expect the total cost savings to reach approximately $11.2 million.

While revenue synergies are difficult to project, we definitely believe that the additional scale, convenience, and brand recognition that we have as the largest Korean-American bank will help us capture additional market share.

We plan to be aggressive in pursuing new business relationships in what we see as an expanded potential market of customers, whether you look at it from the perspective of customer size, customer location, or customer ethnicity.

While we certainly had our hands full completing our capital raise, closing the merger, and starting the integration process in the fourth quarter, we are very pleased that the Organization did not get distracted from our primary day-to-day responsibilities, that being customer service and continually developing new business relationships.

The strongest evidence of this is the solid loan production we had during the quarter.

Our total loan originations in the fourth quarter were $157 million, when you only count Center Bank's December loan production.

If you also count their October and November production, on a combined pro forma basis, the total increases to $199 million.

Of the $157 million, approximately 75% of the new originations were in commercial real estate, with 25% in C&I lending.

Our SBA loan production was also strong in the quarter, totalling $33 million, when you only count the December loan production from Center.

If you count Center's October and November production as well, then the total increases to slightly more than $51 million on a pro forma combined basis.

I should note that our SBA loan production figures include all types of SBA loans, while only the 7A and express loans are typically sold into the secondary market.

Our production of 7A and express loans were $17.6 million for the quarter, or $27.8 million on a pro forma combined basis.

So to use a sports analogy, with the new year, BBCN Bank really has the mojo, that is the momentum, and that should only improve as more time, as we have more time to leverage our combined strengths.

With that, I'll turn the call over to Phil.

Phil?

Thank you, Al.

Let me start by saying two things up front.

First, as mentioned in the opening statement, the numbers we're going to share with you are based on estimates that are subject to change, up to the issuance of our Form 10-K.

This is more true now than normal because of the magnitude and complexity of the fair-market value estimates used to create those projections.

Second, the impact of the merger makes prior period comparisons somewhat difficult, and in some cases, actually meaningless, so we aren't going to spend much time in today's call discussing the differences between our fourth-quarter results and prior quarter or prior year.

Instead, we'll do our best to give you a sense of how our operations performed in the fourth quarter and provide some estimates for the run rate of key metrics going forward.

Our results for the fourth quarter of 2011 reflect two months of stand-alone operations of the former Nara Bank and one month combined operations following the completion of the merger.

We generated net income of $2.9 million, or $0.05 per diluted share.

Our fourth-quarter results were impacted by three particularly large items.

First, we recorded a $6.4 million charge on the prepayment of FHLB advances, as part of a post merger balance sheet restructuring strategy.

Second, we had $3.2 million in merger-related expenses.

And third, we had $1.9 million in post-merger provision expense with acquired Center Bank portfolio, which I'll discuss further in a couple of minutes.

Collectively, these three items reduced our pretax income in the fourth quarter by $11.9 million.

I should mention that the FHLB prepayment penalty has been reclassified since the preliminary press release from noninterest income to noninterest expense.

As you may know, under acquisition accounting, Center's balance sheet was marked to fair value as of the November 30 acquisition date.

The mark on the loan portfolio came in better than we expected, requiring a discount to fair value of just $95.8 million, or 6.1% of gross loans acquired.

After eliminating the $39.9 million that Center had in allowance for loan losses at the acquisition date, we wrote down the acquired Center loan portfolio by $55.9 million to get to the fair-value mark.

A portion of the discount on the loan portfolio will be accreted into interest income over time.

Other significant acquisition accounting adjustments on Center's balance sheet include a $6.7 million reduction in the FDIC loss share receivable, a $6.4 million reduction in the value of certificates of deposit, and the positive impact of $27.4 million resulting from the deferred tax effect of all of the acquisition accounting adjustments.

In addition, our initial estimate of the amounts of good will generated by the merger is approximately $92 million.

To expand on the post-merger balance sheet restructuring a bit, you may recall from our third-quarter conference call, that we indicated that some restructuring was a possibility after we analyzed the combined bank's cash and securities positions.

Following this analysis, we determined that it was in our best interest to reposition certain assets and liabilities.

We prepaid $71 million in FHLB advances and recorded an early debt retirement charge of $6.4 million.

We also sold available for investment securities with an aggregate book value of $138.2 million at a gain of $1.2 million, or just under 1%.

We then purchased replacement securities with an aggregate book value of $108.9 million.

Looking at the transaction by itself, the securities transactions will have the effect of increasing interest income by approximately $750,000 in 2012, and only modestly increasing the overall portfolio duration.

I'm going to start on the income statement with our net-interest income.

We generated $40.6 million in net-interest income in the fourth quarter.

This includes approximately $2.5 million of loan-interest income resulting from the December accretion of the acquisition accounting discount on Center's loan portfolio.

For the first quarter of 2012, we estimate that net-interest income could range from $50 million to $55 million, although the variability of net-interest income is significantly greater than normal due to the accretion that's now component of our interest income.

Our net-interest margin was 4.52% in the fourth quarter, which was significantly impacted in a positive way by the effects of the acquisition accounting and the loan discount accretion.

Rather than going through all the various changes that occurred in the fourth quarter, I think the most meaningful data that we can provide would be the spot rates of our major assets and liabilities as of December 31, 2011.

The yield on our loan portfolio including loan discount accretion from the transaction was 6.22%.

The yield on our loan portfolio excluding the loan discount accretion was 5.69%.

So you can see the impact of the accretion aspect.

The yield on our securities portfolio was 2.83%.

The cost of deposits was 72 basis points.

The cost of funds was 86 basis points.

And our cost of FHLB advances, including fair-market value adjustments, was 193 basis points.

As always, our spot-rate reports do not take into consideration the normal discount of deferred loan origination fees into income, so the actual results may be slightly higher than those for loan- and net-interest margin.

Looking into the first quarter, we would expect that our net-interest margin would be flat to slightly higher, principally as a result of the benefits of purchase accounting accretion, offset to some extent by the pricing pressures in the current rate environment.

Our noninterest income was $6.7 million in the fourth quarter.

This included net gains on the sale of securities of $1.2 million.

We also recognized the gain of $1 million on the sale of SBA loans during the fourth quarter.

We sold $14.3 million of SBA loans during that quarter, and at the end of the year, we had $18 million in SBA loans in our held-for-sale portfolio.

At the time of the merger date, all of Center's SBA loans were marked up to fair value, which eliminated the opportunity to sell these loans in the secondary market at a gain.

Accordingly, we transferred $84 million of SBA loans from Center into our loans held for investment portfolio.

Our noninterest expense was $31.8 million in the fourth quarter, which included higher costs associated with the combined operations, the $6.4 million prepayment charge related to the early retirement of FHLB advances, and $3.2 million in merger-related expenses.

We have incurred an aggregate of $9.3 million merger-related expenses through the end of 2011 and anticipate incurring approximately $4 million to $5 million in expenses substantially in the first half of 2012 as we complete the systems integration, the branch closings, and other integration tasks.

For the first quarter of 2012, we would expect noninterest expense to be in the range of $31 million to $33 million.

Moving to our balance sheet, our gross loans were $3.74 billion at December 31, 2011.

CRE loans now comprise close to 71% of our loan portfolio and C&I loans comprise approximately 26%.

We plan to continue our focus on commercial lending to achieve a more balanced portfolio.

Our total deposits were $3.94 billion at December 31, 2011.

Following the merger, we intentionally ran off some of our higher-rate time deposits.

As a result of this and helped by the combination of former Center's deposits, our noninterest bearing deposits now represent 25% of our total deposit base.

I'll now move on to a discussion of asset quality.

As I indicated earlier, as part of the merger accounting, Center's loan portfolio was marked to fair value as of November 30.

The allowance for loan losses that was on their books was eliminated, and all of their loans were placed on accrual status within the BBCN portfolio.

This includes loans that had been previously classified as nonaccrual by Center prior to the merger.

Accordingly, this presents some challenges for analyzing quarter-to-quarter trends and asset quality.

For loan classifications, we believe the most appropriate comparison are pro forma combination of Nara and Center's combined figures at September 30, 2011 with BBCN's figures at year end.

So our total watch-list loans, which is the sum of special mention and classified loans, were $302 million at December 31, compared with pro forma combined figure of $349.9 million at September 30.

Approximately $28 million of the decline in watch-list loans is attributable to improving asset-quality trends.

Moving to nonperforming loans, we have changed our definition of the NPLs to include all of the following loans.

Loans that are past due 90 days or more and on nonaccrual status, loans that are past due 90 days or more, but aren't on accrual status, this represents the nonperforming loans acquired from Center that were marked to fair value and put on accrual status.

And finally, accruing restructured loans.

Using this more expansive definition, our nonperforming loans were $66.2 million at December 31, compared to $51.3 million at September 30.

The increase in nonperforming loans is primarily attributable to the addition of the NPLs from Center and the inflow of one $7.9 million commercial real estate loan.

Based on a current appraisal, we established the specific reserve of $4.4 million to reflect the decline and the collateral value of that loan.

On a percentage basis, NPLs were 1.77% of total loans at December 31 compared with 2.2% at the end of the prior quarter.

Our nonperforming assets were $73.8 million at December 31, compared to $56.2 million at September 30.

On a percentage basis, nonperforming assets were 1.43% of total assets at December 31, compared to 1.86% at the end of the prior quarter.

Our net charge offs were $7.2 million in the fourth quarter and of this amount, $3.8 million was related to individual note sales during the quarter.

We recorded a provision for loan losses of $9.1 million in the quarter, $4.4 of this provision expense was related to the one CRE loan I mentioned earlier that migrated to nonaccrual status during the fourth quarter.

We also recorded $1.9 million in post-merger provision expense, attributable to general valuation allowances established against $74.4 million in loans from the acquired Center portfolio.

All of these loans had been marked to fair value as of November 30 and accordingly, there was no general valuation allowance held against them.

During the month of December, these loans matured, were refinanced, and that requires that they be treated as new loans.

As such, a general valuation allowance was established for these loans in the amount of $1.9 million.

The maturation in refinancing of acquired Center loans that have no valuation allowance held against them will continue to be a driver of provision expense going forward, particularly in the first quarter.

We estimate that the additional provision expense required for maturing loans could range between $2.5 million and $3.5 million.

At December 31, we had an allowance for loan losses of $62 million, or 1.66% of total loans, and we had 124% coverage of our total nonperforming loans.

And finally, due primarily to the stock offering conducted during the fourth quarter, all of our capital ratios improved from levels at September 30 and are well in excess of regulatory definitions for a well-capitalized institution.

The one number that is artificially inflated by the merger is the leverage ratio, which is reported at 19.49% at December 31, 2011.

This is due to the fact that the leverage ratio utilizes the average -- the daily average balance of total assets in the denominator as opposed to the period-end balances utilized in the calculation of the other capital ratios.

Accordingly, the leverage ratio is significantly impacted by the change in total asset balances during the quarter resulting from the merger.

On a pro forma basis, using the daily average balance of total assets in the month of December following the completion of the merger, our leverage ratio was 13.69%, which we believe is a more accurate representation of our leverage.

And now I'll turn it back to Al.

Al?

Thank you, Phil.

Can you believe we cut back his speaking part?

From an overall perspective, we feel pretty optimistic about 2012.

As I said before, we ended 2011 with a lot of momentum and we see that accelerating as a new year progresses.

However, it is worth reemphasizing that merger-related expenses will have a greater impact on the first two quarters of 2012.

Also, reestablishing general valuation allowances on acquired loans, which generally accepted accounting principles requires, will affect provision expense throughout the year.

We are seeing some modest improvement in loan demand and the loan pipeline remains consistent with levels we were seeing in the fourth quarter.

We anticipate that the growth rate in the C&I portfolio will be higher than the commercial real estate growth rate, and that is consistent with our objectives.

However, when you look at the total portfolio, it will not have the effect of changing the needle significantly in terms of concentrations.

The loan production that we are anticipating should lead to solid revenue growth this year, resulting from both increasing net-interest income and consistent gains on sales of SBA loans.

We believe we'll see an increasing amount of operating leverage as we move through the year, complete the remaining steps in our integration and take out redundant expenses.

With the higher revenue and higher efficiencies, we should see a nice increase in our earnings power, particularly in the second half of the year.

On a final note, with the strength of our balance sheet and the internal capital we anticipate generating on a go-forward basis, we also expect to repay our TARP funds as quickly as possible, without having to raise additional capital.

Now, we would be happy to take any questions you might have.

Operator, can you please open up the call?

(Operator Instructions)

Aaron Deer, Sandler O'Neill & Partners.

Congratulations on the enormous accomplishments you managed this year.

Let me begin with a couple of the items that you mentioned, Phil.

I appreciate you giving the spot rates on the margin.

Just one question with respect to your guidance there.

You said flat to up, and when you're saying that, are you referring to the core margin excluding the accretion impact that you saw this quarter?

No, that would be including it.

We have a positive impact of the accretion coming in, and then a negative impact of the market conditions, the competitive market conditions.

So that would include the impact of the accretion.

The accelerated accretion, if you will, the 14 basis points, that's inclusive?

Yes, that's correct.

So is the rate of call it early prepays that you saw on the Center portfolio, was that what you had in the fourth quarter, or at least in December, was that faster than you would expect going forward, or is that -- because it seemed like that would be relatively high, given the normal paydowns that you might see in the portfolio.

Well, you do have, we have a lot of shorter-term loans, trade-finance loans, for instance, which are paying off in the first quarter.

So there is going to be a slightly more accelerated impact in the earlier quarters and it will trail off as time goes on.

But, Mark, why don't you add to that, if you would.

In the month of December, there were about $74 million that was refinanced, of which $26 million was the trade-finance notes.

These are typically 90 to 120 days subnotes to finance this import activity.

And these were -- as of November 30 was on the Center book, but as of December 30, for the purchase accounting purpose, it was captured in our book, on combined book.

And subject to the allowances.

Okay.

That's helpful.

So I guess it's -- with that accretion then running off pretty quickly, the margin will -- notwithstanding this early increase here in the first quarter, should drift down pretty quickly after that?

I don't think it will drift down tremendously quickly, no.

If it does, there will be some negative impact by the accretion diminishing over time.

But you have to keep in mind that the same thing that is driving the income coming in from accretion is also driving the need for provision expense.

So I think the two of them are going to move in the same direction, although not necessarily at the exact same speed, but the faster we have refinancing and repayments, the quicker the accretion comes in, but then the quicker those loans become rewritten under BBCN standards and require a provision expense or an allowance requirement, which drives a provision expense.

I follow, okay.

And then one other question with respect to the guidance, just -- I gather that your noninterest expense guidance does include your expectations for merger charges?

Yes, that is correct.

Okay, that's it.

I'll step back.

Thank you for taking my questions.

Brett Rabatin, Sterne Agee.

Wanted to ask a question, I think there was a comment about the March or the loan yield excluding accretion being $559 million for the quarter, if I heard that correctly.

Was curious, the comment about pricing pressure, where you're seeing new commitments extended in terms of commercial real estate and C&I from a pricing perspective.

Yes, we do see very high pressure in terms of both CRE and C&I pricing even through the loans that we generated in the fourth quarter.

Okay, but can you give us some idea of where it is either relative to current portfolio yields or where it is relative to LIBOR or market rates?

For example, for the CRE loans that we booked in the fourth quarter, the average rate come in at about 5.2% and for C&I loans, average rate is coming in at around 4.8%.

Okay.

That's what I wanted to know.

Thank you.

Julianna Balicka, KBW.

I have a couple questions.

One, on the SBA loan sale gains that you are anticipating for next year, do you have a sense of how much more ramps there ought to be?

Feels like this quarter is a little bit less sales than otherwise would have been because of the transfer to held for investments?

Yes, that's correct.

That $84 million that might have been available for sale did get transferred to the held for investments.

So what's a run rate we should be thinking about for next year increasing from this $1 million from this quarter?

How should we be thinking about that for our models?

Well, I think we mentioned somewhere that we expect production to be -- did we give guidance on that?

Yes, $200 million.

For the year.

And percentage sale, is that like similar to this year?

If you were to look at the two banks on a combined basis, you would have to take into consideration that both banks had a pretty good first quarter because of the spill-over of the loss of the premium, and the loss of the government's charge in the end of 2010.

Okay.

And then on the expense run rate that you were discussing, that includes some merger-related charges, which we can maybe back out.

But then even once you back out the charges related directly to merger expenses when you think about your base run rate of expenses, how much of that is actually also somewhat inflated from still integrating, which is not specifically an accounting assigned as a merger charge under accounting but just more like expenses that will naturally run off and go away over time in the next couple quarters, do you know what I mean?

I think I do, Julianna.

The $4 million to $5 million in merger-related expense, most of which we expect to incur in the first two months, does include the cost of integrating systems.

So --

But is there any like other related expenses, not specific to merger-related, but more just like you just got you the of a merger and you're going to be kind of excess -- not cost -- never mind.

Well, Julianna, the cost saves will kick in more towards the second half of the year and then on into the next year.

Okay, very good.

Thank you very much.

Scott Valentin, FBR Capital Markets.

Just as it pertains to the loan origination volumes you mentioned, $200 million was the total origination pro forma for both companies the entire quarter.

And another comment was made, you're seeing a pipeline about where it was in the fourth quarter.

So should we expect this $200 million run rate to persist for the quarter or two and then increase after that?

This is in line with the trend that we have seen throughout 2011 so.

But I'm not sure about increasing, but it should be fairly consistent, given some improvement in the market that we may have slightly higher payouts that we really didn't experience in 2011.

So I would say that to be fairly consistent.

Okay.

And then just going back to capital management, you mentioned, repayment of TARP is probably top priority for use of capital.

After that, would buyback or reinstatement of dividend, or are those two, maybe can you prioritize those two?

Well, I think dividends would be on the table, but also we need to see what opportunities there are for our use of capital in terms of supporting growth.

So whether that's organic or acquisitive.

Okay, and you did say just to clarify, that you don't perceive having to raise or issue any equity capital or debt capital to repay TARP?

Yes, that's our current thinking.

Okay.

Thank you very much.

(Operator Instructions)

Gary Tenner, DA Davidson.

Just a question on the SBA sales.

Looks like the premium this quarter was down around 7% as compared to about 8.5% in the third quarter.

Are you seeing some pressure there?

And what are your thoughts going forward?

Doug?

I don't know.

I'm just telling you where he got the 7%.

Right.

I'll have to get back to you on that, unless Bonnie do you have --

Overall premium yield, it looks like it dropped about 70 basis points from the third quarter, but just looking at the quarter-to-quarter 2011, it's -- the variance of about 70 to 80 basis points up and down during the whole quarter, so we'll have to see how it's going to roll out, whether it's going to be a continuous pressure or not.

And some of that might depend upon the mix of the loans, whether we have loans that had brokers involved and that we had a commission that we had to pay as opposed to those which were generated internally.

So I could see that as being a variable in the net premium that we record after we defer those origination expenses.

Okay.

And then on the occupancy expense line item, the increase from third quarter to fourth quarter seemed to be much more than I would have expected just from one additional month of Center.

Was there anything unusual in that line item for the quarter?

Well, we had some lease termination costs and other write-downs, and also we're starting, we're incurring some costs to improve some of the branch locations.

Okay.

Great.

And then finally, one last question just regarding TARP repayment.

Al, you mentioned you would like to repay it as soon as possible.

Do you think regulators will require a full quarter or two of results from the combined Company?

Or do you think there's any other pushback on repayment?

Well, I think I really can't speak for the regulators.

I think they're obviously going to want to see what our performance is, what our capital levels are.

If we were to repay TARP, what would be our post-TARP capital levels, and they make an assessment based on the perceived risk that we have.

There are three regulators involved, and four if you count US treasury.

So we have already actually initiated conversations with each of our supervisory regulators, and so we have an idea of what they are thinking.

So in terms of a time line, I think, an aggressive payback would be the June 30 time, and if we were on a more conservative basis, then we would be talking about the end of the year.

Okay.

Thanks for taking my questions.

Lana Chan, BMO Capital Markets.

Just couple of follow-up questions.

One on the expense side.

I just wanted to come about that a different way.

The $11.2 million of cost savings, what run rate would you expect to be on with those cost savings by the end of this year, post the systems conversion?

We just went through our budgeting process and our current estimates are basically the same as the original ones, that about half of that will be captured in this year and the remaining half will be captured in the following year.

Okay, great.

And second question, on the balance sheet restructuring, does that, is that -- has that helped in terms of positioning the margin, or lowering the risks to the margin from a lower for longer interest rate environment possibly through 2014?

Well we did it for two reasons, one of which was to increase our interest income, which we did to the tune of about $0.75 million.

The other was to eliminate the prepayment risk associated with a lot of the securities.

Many of the Center securities were marked to market, which meant that they ended up having a higher premium associated with them.

And of course if prepayment speeds increase, that premium would be written off more quickly.

So we thought it was prudent to move into securities where we thought there was less prepayment risk and less opportunity to get hit by a quicker amortization of the premium discount.

Okay, and just one more question for me.

Do you think that there's more opportunities to lower the cost of funds at 86 basis points now?

Is there other repricing of the deposits or other borrowings that you can possibly pay down?

Boy, we are always looking to push that, but the market is very, very competitive and I don't think we'll -- clearly, we will not be able to achieve the kinds of reductions we did last year.

That's just not going to happen.

Bonnie, would you like to--

Yes, I'll have to agree with that.

Okay, thank you.

Julianna Balicka, KBW.

I have one follow-up.

On the accretion income that you are expecting over the course of the next couple years as the Center loans maturing, and roll into the combined portfolio, what's the total dollar amount that we should be mentally thinking about and spreading out over time?

I'll ask Doug, our Deputy CFO to --

This is Doug.

We'll be breaking out a lot of that detail when we have the 10-K.

We don't have final numbers for you.

The number we booked in December was probably a pretty representative month without any unusual prepays.

It's absent that usual prepay that's a declining curve, but so -- I would start with that $1.9 million in December and look at it declining slightly.

But in terms of breaking out the total accretable, that's a fairly detailed disclosure that we're a week or two away from finishing.

That number was $2.5 million, the $1.9 million.

I'm sorry, $2.5 million, yes.

Thank you, Al.

So just to highlight what you just said, that $2.5 million accretion, that's absent any unusual prepayments, so to speak, that's almost a core component of your income because if you hadn't had fair-value accounting, that would have been part and parcel of the net-interest income?

Yes, it's core, but I would just remind you, it is declining slowly.

Right, okay.

So but it's not going to be as lumpy as some peers who have run-off portfolios from the FDIC, for example, down the street?

Correct.

Correct, okay.

Thank you.

(Operator Instructions)

Jonathan Elmi, MacQuarie.

Just a couple of primarily housekeeping items.

One is, in terms of TARP repayment, can you remind us how much cash you have available at the holding company either directly or potentially from dividend capacity from the banks?

Just trying to get a sense.

It sounded like you don't need to raise either debt or equity for repayments, but just wanted to be clear on that matter.

We don't have that number right now, but we would have to dividend out from the bank to the holding company to be able to make the TARP repayment.

So that will all be in the application process and approval from the regulators.

So both the bank and the holding company regulators will want to look at that, and that will be part of their determination.

So currently, we don't have enough cash at the holding company.

Okay, and then what was the tier 1 common ratio for the fourth quarter?

Who can find it the fastest?

You're asking for the tier 1?

Yes, the tier 1 common ratio.

We can follow up after the fact on that if you guys don't have it handy.

It's not a big deal.

And then my only other question was just thinking about the tax rate going forward, just for purposes of the model.

I think we were assuming 41%.

41%.

41%.

Okay, great.

Thanks a lot, guys.

This concludes the Q&A session for today.

I would now like to turn the call back over to Mr.

Al Kang, President and CEO.

Please proceed.

Well, we thank you for joining us today and we'll talk to you next quarter.

Thank you very much.

This concludes the presentation for today, ladies and gentlemen.

You may now disconnect.

Have a wonderful day.