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Center Financial Corporation (NASDAQ:CLFC)

Q3 2008 Earnings Call Transcript

October 23, 2008, 11:30 1m ET

Executives

Angie Yang – IR

Jae Whan Yoo – CEO, President & Director

Lonny Robinson – EVP & CFO

Jason Kim – SVP & Chief Credit Officer

Analysts

Brett Rabatin – FTN Midwest

Don Worthington – Howe Barnes

Joe Gladue – B. Riley

Ella Bucheger – D.A. Davidson

Julianna Balicka – Keefe, Bruyette & Woods

Operator

Good day, ladies and gentlemen, and welcome to the Center Financial Corporation's third quarter 2008 earnings conference call. My name is Melanie, and I'll be your coordinator today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session at the end of this conference. (Operator instructions) Also as a reminder, please note that today's call is being recorded. I would now like to turn the call over to Ms. Angie Yang, Investor Relations for Center Financial. Please proceed.

Angie Yang

Thank you, Melanie. And good morning, everyone. Thank you for joining us today for Center Financial’s 2008 third quarter investor conference call. Before we begin, please recognize that certain statements that will be made during this call may not be historical facts. They 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 statements. These risks and uncertainties are described in further detail in the company's filings with the Securities and Exchange Commission, including Center Financial’s third quarter Form 10-Q filed this morning. Center Financial undertakes no obligation to publicly update or revise its forward-looking statements.

Also, please be advised that management will include comments using non-GAAP financial measures within the meaning of the Securities and Exchange Commission role. As noted in the new release distributed yesterday, Center Financial believes that a more meaningful analysis of its financial performance requires exclusion of certain items that obscures the company’s 2008 third quarter operational trend.

Accordingly, the company will discuss non-interest expense, net income, earnings per share, efficiency ratio, return on average assets, and return on average equity adjusted to exclude the impact of the KEIC settlement expense and OTTI impairment. This information is not intended to be considered in isolation or as a substitute for the relevant measures calculated in accordance with US GAAP. And the reconciliations have been included in the company’s 2008 third quarter news release available for everyone to view in the Investor Relations section of Center’s corporate site, www.centerbank.com.

Now as usual, this call will be one hour in duration. Center Financial’s President and CEO, Jae Whan Yoo, will begin today with introductory comments and a summary overview of the third quarter financial results. CFO, Lonny Robinson, will then provide some color and detail on selected highlights. JW will then make some closing remarks before we open up the call for a question-and-answer session. As usual, Jason Kim, Center's Chief Credit Officer, is also here with us and will participate in the Q&A session.

I'd now like to turn the call over to JW.

Jae Whan Yoo

Thank you, Angie. Good morning, everyone, and thank you for joining us today for our 2008 third quarter conference call. Before Lonny reviews with you our third quarter results, I’d like to begin today with some thoughts on the underlying significance of Center Financial’s 2008 third quarter. This was indeed a quarter to remember with the resolution of the longstanding KEIC litigation that eliminated all potential liabilities related to the consolidated action seeking more than $100 million. As a result of the settlement, we recorded a $7.7 million settlement expense in our third quarter. But by removing the uncertainties, burden, and the expense of a further litigation, our management team is now focusing 100% of our attention on strengthening our long-term prospects for our organization, while navigating the current obstacles in the financial market.

Even in the extraordinarily tumultuous landscape that we are now operating in, as a result of a serious, unprecedented event since September 2008, we are now deeply gratified that the KEIC matters are now behind us. Underscoring the difficult environment that we are operating in, late last week we announced that Center Financial would be recording a non-cash other-than-temporary impairment charge of $7.3 million related to a bank collateralized, pooled trust preferred CDO valued at $1 million, which we have held since 2002. Based on the current evaluation of our market conditions and the ratings downgrade by Moody’s, we believe the OTTI write-down adequately accounts for the recent declines in the fair market valuation of these types of securities in this profit strong environment, under which the markets have been severely stressed.

We do believe that the long-term economic intrinsic value of this security is likely to be greater than write-down if and when we value it in a more normalized market environment. While I guess it's fair to say it’s entirely possible that CDO could be subject to further write-downs, given that we have written down 67% this quarter, we do not at this time anticipate any further impairment would be necessary. At the same time, it is also entirely possible that we may be able to serve the security for a gain at a later time if we time it in a better environment.

Let me reassure you that we have no other holdings in securities of this nature subject to OTTI impairments nor do we have any Fannie Mae or Freddie Mac perpetual preferred stocks left in our investment portfolio.

Now, our core operation trends for our 2008 third quarter are clouded by these two large expenses totaling $15 million. But if we exclude the KEIC and OTTI expenses, we can see that the underlying performance for the quarter continues the many positive trends to date this year. Just to summarize a few of these positive trends. The first, the expansion in our net interest margin accelerated from a five basis point improvement from the first to the second quarter to 21 basis points from the second to third quarter.

Net interest income before provisions ramped up each quarter from Q1 to Q3 this year from $18.60 million to $19.0 million – to $19.8 million. This is despite the fact that firstly, the Fed funds rate was lowered by 325 basis points over the course of September 2007 through April 2008. And so we are effectively earning less interest on the variable rate portion of our loan portfolio, which is currently 45% of the total loans.

Secondly, we strategically shrunk our loan portfolio as part of our efforts to deleverage our balance sheet from $1.87 billion at the end of the first quarter to $1.76 billion as of September 30, 2008. In other words, we are earning less on smaller piece of loans. And finally, on the flipside, our interest expense has also come down from $17.1 million in Q1 to $14.6 million in Q2 to $13.2 million [ph] in Q3 as a function of our restructured balance sheet and a reduced deposit cost. Our cost of deposits trickled down each quarter from 3.46% in Q1 to 2.93% in Q2 to 2.62% in Q3 2008. While some of this is due to the low rate environment, our cost of deposits also benefited from a shift in the mix of funds as a result of our overall effort to minimize our deposit costs.

Total non-interest expenses, excluding the KEIC and OTTI expenses, declined each quarter from $13.2 million in Q1 to $12.3 million in Q2 to under $12.0 million in Q3. In line with the reductions in non-interest expenses, our efficiency ratio excluding the KEIC and OTTI impact, improved each quarter from 59.52% in Q1 to 53.49% in Q2 to 51.8% in Q3. And our ROAA and ROAE, excluding the KEIC and OTTI, also improved each quarter throughout the year.

With that, I’ll pass on to Lonny to provide a more detailed overview and color beyond these results. Lonny?

Lonny Robinson

Thank you, JW. And good morning, everyone. While our release was distributed late yesterday, our Form 10-Q was filed early this morning. And JW has given you a summarized overview of the operational trends for our third quarter. So let me review briefly our loan portfolio, asset quality, deposits, and capital positioning.

During the third quarter, we executed the sale of certain loans to the wholesale market totaling $14.5 million. This effectively completes our planned sales for the year, as we’ve now reduced our loan portfolio by more than $115 million from the end of the first quarter to September 30, 2008. This was achieved in part through the sale of loans, as we’ve guided earlier this year.

In addition, high levels of payoffs this year also contributed to reaching our goal as customers sought refis in order to take advantage of the lower interest rate environment. Our commercial real estate portfolio was reduced by approximately $65 million from March 31, 2008 to September 30, 2008. And our real estate construction loan balances are now down by about $14 million. However, because our total loan portfolio was now smaller, our commercial real estate and our real estate construction portfolio still approximates 69% of our total portfolio. I’ll note that our SBA loan portfolio is also down $23.5 million during this period from Q1 to Q2.

Overall, loan demand remains relatively strong. But as we said earlier this year, we are being even more selective and cautious than ever. And we have continued to refrain to a greater degree to the extension of new CRE loans. During the third quarter, Center Bank originated $132 million in new loans and renewals, down slightly from the $148 million in the preceding quarter. Of the total loan production in the quarter, approximately 69% represented variable rate loans and 31% was fixed rate and hybrid forms of fixed rate loans.

As of September 30, 2008, 55% of our loan portfolio was comprised of fixed rate loans, which is down from 58% at June 30. Accordingly, 45% of our total loan portfolio is now variable rate. The market activity for SBA loans has continued to deteriorate over the course of 2008. During the third quarter, we originated only about $5 million in new SBA loans, which is down from the $11 million in Q2 and $14 million in the first quarter. As we said last quarter, we do not currently see any near-term catalyst that would impact the current trends.

Moving on to asset quality. We are pleased that Center Financial continues to maintain consistently strong asset quality levels. Total non-performing loans declined modestly from June 30, 2008 and totaled $8.4 million, or $5.9 million net of SBA guarantee. Our non-performing loans as a percentage of total gross loans remained steady at 0.48% at the close of the third quarter, leading our core peers and certainly well ahead our current industry averages.

Now, I’d like to correct the mistake in one of the numbers in our news release. In our Allowance for Loan Losses table, the balance of average total loans outstanding during the 2008 nine-month period was reported as $1,759,602,000. This should have been $1,821,449,000. Let me repeat that. $1,821,449,000. This line item is correct in our Form 10-Q.

As we continue to cautiously and conservatively navigate the difficult credit environment, we are adequately provisioning for loan losses. As the current expectations for a more prolonged period of challenging credit conditions, we upped our provision again to 1.22% of gross loans, up another 4 basis points from the 1.18% as of June 30, 2008.

Now moving on to deposits and cost of funds. Non-interest bearing demand deposits at the end of the third quarter 2008 held in relatively steady, down only about $10 million from June 30, 2008. As a percentage, DDAs represent 22% of total deposits as of September 30, 2008, the same level as of June 30, 2008. Our money market accounts and NOW deposits at quarter-end continued to reflect strong level increases, up by nearly $50 million over the second quarter of 2008.

As we reported in the second quarter, we continue to run off time deposits prior greater than $100,000. As of September 30, 2008, jumbo CD levels were down by more than $91 million and represented 39.5% of total deposits. This is down further, 44% of total deposits at June 30 and 48% at March 31, 2008. This shift in our mix of funds contributed to the continued improvement in our cost of funds this year, as JW summarized.

Now, the reduction in our cost of funds was a major factor in the expansion of our net interest margin over the second quarter of 2008, coming in at 4.02%. However, the recent 50 basis point rate cut has set back our NIM, as we entered into the fourth quarter. The NIM after the rate cut was approximately 3.87% with the extremely competitive rate environment today and where the time deposit rates are set today, we do not expect any meaningful improvement in our NIM in the current fourth quarter.

Now, moving on to our capital positioning. Even with the KEIC and the OTTI expenses in the third quarter, we improved our total risk-based capital by 40 basis points to 11.03% as of September 30, 2008. As you know, there is a lot of interest right now in the government’s new TARP program. Our management team and our Board have reviewed the program carefully and we have recently applied for the program. If approved, up to $55 million in new capital would be available to us. As you know, this program will only be available to healthy banks. Based on our discussions with the FDIC, we have no reason to believe that Center would not qualify. This in addition to the organic gains would certainly further strengthen our capital positioning.

With that, I will turn the call over to JW for some closing remarks.

Jae Whan Yoo

Thank you, Lonny, for you review. All in all, we believe those strategies we implemented early this year were the right ones in the current environment. And the positive trends in our operations exemplify the benefits of our strategic management of our balance sheet and the focus on enhancing our efficiencies. With the ongoing progress this year to date, our best of breed asset quality, and strong capital positioning, we have further strengthened our position as one of the safest and soundest financial institution serving the Korean-American community. We are well poised and looking to capitalize on many potential opportunities that we believe will become available to us.

With that, let’s open up the call to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Brett Rabatin with FTN Midwest. Go ahead.

Brett Rabatin – FTN Midwest

Good morning, everyone.

Lonny Robinson

Good morning, Brett.

Brett Rabatin – FTN Midwest

First, just a housekeeping issue. I was reviewing the Q, and I noticed that the cost for deposits, FDIC insurance, were $25,000 lower this quarter just given the deposit run rate. Do you have an estimate for what they might be for ’09 and the fourth quarter? I know they were close to $1 million year-to-date.

Lonny Robinson

Yes. Well, there is proposal out there to raise the FDIC insurance approximately 7 basis points. And that's out for comment right now. I'm assuming that’s going to go through from that standpoint. And there is another factor with the non-interest bearing insurance add-on for the unlimited on the non-interest bearing deposits. I think it's a 10 basis point proposal above these levels. Brett, I’d have to get back to you on where I think that was going to be with those increases. But I think our quarterly assessment for the fourth quarter is going to approximate probably maybe down a little bit from the third quarter. But as far as next year, we can basically assume it’s going to probably more than double.

Brett Rabatin – FTN Midwest

Okay. What I’m getting at is, obviously there are some expense initiatives in the past quarter. So that played out with the expense – core expenses down a little bit in 3Q. But from our perspective, it looks like total expenses will probably be up even though you are fine tuning the expense base in ’09 just given where those deposit insurance costs will be. So, is that a fair assessment?

Lonny Robinson

You got a good point, Brett. We worked very hard at – we’ve done a lot to right-size our organization based on the environment we’re in today. Since the end of March, we reduced our FTEs by about 41.5. And that’s going to be about a 2 – probably about 2.3, 2.4 [ph] annual savings that we’re projecting on an annual basis going forward here. And we did our best to try to improve the NIM and then ended up to taking away with the 50 basis point rate cut. You've got the KEIC litigation expenses are gone. We think there is going to be some improvement there. So I think on a net-net basis, we’ll see some improvement in expense management going forward. But you’re right, there is the FDIC insurance premium. It’s going to go up substantially. There is going to be some other factors going on, some additional I think regulatory expenses going forward. I think it’s pretty clear that there is going to be much more rigorous regulatory environment going forward. So yes, I think there is going to be some of the offsets there, but I think net-net we could have some improvement.

Brett Rabatin – FTN Midwest

Okay. And then moving to credit quality, maybe a question – maybe for Jason, but I saw in the Q also the comments on the fabric wholesale and the retail stores being a significant portion of the $2.1 million in net charge-offs for the quarter. Can you guys walk through the exposure to the fabric industry? I don't recall it off the top of my head. And then, just what you're seeing from a retail store perspective among your CRE clients?

Jason Kim

Yes. Good morning, Brett. I don’t have an exact figure for exposure to fabric, but it’s not significant. I could get back to you on that. Your question regarding the perspective in this challenging environment, I could probably give you a perspective on some of the loan portfolio that many banks will face challenges. First, in the area of SBA lending, a lot of banks out there are experiencing high delinquency because of the nature of the product, lower down payments compared to conventional financing. Overall, SBA delinquency nationwide is up significantly. However, our SBA lending delinquency has come down. At the end of last year, our SBA delinquency on a non-accrual basis was $4 million that has come down to $2 million second quarter of this year and stabilized to $2 million for the third quarter. I’d like to make a note that our SBA non-accrual loans include the guarantee portion. So if you netted out the guarantee portion, our exposure was $1 million at the end of last year and about $0.5 million in the third quarter of this year. I think given the weakening -- farther weakening economy that we face today, I think the -- related to commercial real estate, I think that specialty use properties, such as car wash and gas stations will be more impacted in this climate, and currently in our portfolio, we have less than $10 million in car wash portfolio and about $29 million in gas station portfolio. And also the office building from our data, we are seeing a lot of increasing in vacancy rates, particularly in Inland Empire and Orange County. And from our portfolio, we have about $4 million in Orange County office building and $1.3 million in Inland Empire office building. So I think that is good in our portfolio. And retail shopping center, as you know, I mean the small businesses are very affected. But we believe that – when we’ve underwritten our CRE loans, we not only look at the subject cash flow but we look at the global cash flow. We look at the borrower’s capacity, net worth, experience, character, and all those elements are incorporated when we’ve underwritten those CRE. But it’s very challenging, and we are facing very questionable economy. But fundamentally, I think we have a very solid asset in commercial real estate. And I like to – I think that would give you a better color in your question.

Lonny Robinson

Hi, Brett, the fabric wholesale I know represents 40% of our charge-offs year-to-date, but that’s predominantly one relationship that we –

Brett Rabatin – FTN Midwest

Was that a 2Q relationship?

Lonny Robinson

Yes.

Brett Rabatin – FTN Midwest

Okay.

Lonny Robinson

Here it’s still 40% of our charge-off. It was $947,000. It was a rather large one. That’s unusual for us. And so I just wanted to note that.

Brett Rabatin – FTN Midwest

Okay. And then last I wanted to ask about the capital, and if you get up to $55 million from the TARP that takes you to about 13.5% total risk-based capital, A, have you guys been deemed one of the banks that would be kind of allowed or suggested to be a buyer of troubled bank assets? And would you elect to be on the higher end of that $55 million with the presumption that you might be able to acquire something in the Korean space, whether it be just on deposits or the whole institution?

Lonny Robinson

Well, the way the – with the discussions we’ve had with the FDIC and the FRB has basically entailed that though they are not going to guide you to the weak banks. They pretty much expect you to figure that out on your own. We’ve already identified some strategic opportunities that we think if we – assuming we get the capital. But part of the fallout of this whole process is I think the regulators are anticipating that there will be some M&A activity that will obviously take some of the weaker financial institutions out of the system by providing, I would say, some supplemental capital in the former -- and in our case, it's going to be maybe up to $55 million. So we do see opportunities from that standpoint. And we are deemed to be a qualified buyer.

Brett Rabatin – FTN Midwest

So you have received that notification?

Lonny Robinson

Yes.

Brett Rabatin – FTN Midwest

Okay, great. Thank you. Thanks for the color.

Lonny Robinson

Thank you.

Jae Whan Yoo

Thank you, Brett.

Operator

Our next question comes from the line of Don Worthington with Howe Barnes. Go ahead.

Don Worthington – Howe Barnes

Good morning.

Jae Whan Yoo

Hi, good morning, Don.

Lonny Robinson

Good morning, Don.

Don Worthington – Howe Barnes

Lonny, I want to go back over your comment on the margin. You were saying that margin – did you say 3.87 after the rate cut?

Lonny Robinson

After the rate cut, yes.

Don Worthington – Howe Barnes

Okay.

Lonny Robinson

We had an average of 4.02 for the quarter, but we ended the quarter higher than 4.02. But the average for the quarter was 4.02. So when you factor where we were with the 50 basis point rate cut, 45% of our variable rate loan portfolio was priced on that data approximately 50 basis points. But we also have some funding that is – it moves with the Fed funds rate as well, and so it moved down accordingly. So you take all that together, we -- starting after the rate cut, about 3.87%.

Don Worthington – Howe Barnes

Okay, great. Thank you. And then any update on the first intercontinental issue that’s still status quo from where it was last quarter? Has there been any progress in resolving that?

Lonny Robinson

Don, there has been some. We are – I think we touched on this the last quarter. We have filed for a summary judgment on a contractual issue as far as performance of the contract, whether it could have been performed or not. Mr. Yoo and I have actually given depositions and we have filed a lot of information in regards to this summary judgment. But unfortunately, I am not clear as when the judge will roll on this at this point. Again, we feel we have some meritorious defenses and feel pretty well positioned here, but you never know. But that’s about the latest that’s happened. And so extensively nothing new as far as any judge rulings from that standpoint. But we’re continuing to move on this summary judgment issue.

Don Worthington – Howe Barnes

Okay, great. Thanks for the update.

Operator

Our next question comes from the line of Joe Gladue with B. Riley. Go ahead.

Joe Gladue – B. Riley

Yes. Good morning.

Lonny Robinson

Hi, Joe.

Jae Whan Yoo

Hi, good morning, Joe.

Joe Gladue – B. Riley

I just wanted to ask one additional question on the expenses. I see that -- it looks like professional expenses were down about $0.5 million from the second quarter to the third quarter. And I imagine a lot of that’s due to settling KEIC litigation. But just wondering if there is more to come there, or if this quarter has a pretty good run rate there?

Lonny Robinson

Actually I think it’s -- legal expenses, 529 I think for the quarter if I recall. From that standpoint, a lot of the second quarter expenses were the KEIC. And we had some KEIC expenses in the third quarter. So we expect those numbers to reduce from those levels. Obviously we’re incurring some expense with the First Intercontinental litigation, but it's not going to be anywhere near what KEIC was running us from that standpoint. So we do expect those legal expenses to be down probably in the fourth quarter. But I don’t know that I can give you an exact number.

Joe Gladue – B. Riley

Okay. All right. Thank you.

Operator

Our next question comes from the line of Ella Bucheger with D.A. Davidson. Go ahead.

Ella Bucheger – D.A. Davidson

Good morning. I just have a few questions.

Jae Whan Yoo

Good morning.

Lonny Robinson

Good morning.

Ella Bucheger – D.A. Davidson

Out of those $14.5 million loans sold, what loan categories were those?

Lonny Robinson

$11 million of it was CRE and I think the balance was SBA.

Jason Kim

Right. And CRE were all hospitality loans.

Ella Bucheger – D.A. Davidson

Okay. And what kind of discounts were taken on those?

Jason Kim

There were no discounts.

Lonny Robinson

No discount. We sold them at a premium.

Jason Kim

Yes, everything was above premium.

Ella Bucheger – D.A. Davidson

Okay. And can you update us on what your intentions are regarding loan sales going into 2009? I know you said you were done for 2008.

Lonny Robinson

Yes, I think the market has definitely changed over the year. And I don’t see any meaningful recovery. We talked premiums and SBA loans really falling off. The valuations on CRE portfolios are falling off too. I understand that there are some banks that are liquidating well under par today. Fortunately, we’ve been able to sell our loans at a premium plus retain the servicing, so we work on the banking relationship. We are not looking to be sellers of loans in 2009. Our goal was to deleverage our balance sheet, get a risk-based capital up. Our goal was to get it over 11%. Fortunately for us in the third quarter we reduced our loan portfolio a little bit better than we thought we were going to, and so we were able to risk-based capital market of 11%. Plus if we get the TARP money, we’re going to go well over the 13.5 risk-based capital benchmark, which we think is very comfortable going forward. So we don’t think we’re going to sell assets off next year.

Ella Bucheger – D.A. Davidson

Okay. And then can you speak to what a good run rate for taxes should be going forward?

Lonny Robinson

Yes. That’s a good point to bring up. I just – a little bit of color on that. The KEIC charge and the OTTI expense charge did not impact our permanent differences. And it’s predominantly -- we have a very healthy California enterprise tax zone credit that we get. And the two charges that actually caused us to go into a pretax loss had no impact on those. And so we’re still expecting our run rate – we were about 38.5 or 38.6 in June. I would say it’s probably going to be in the 30 – not as high as 39, but 38.7 or 38.8, because we had a true-up. We also ran a true-up through – if you read the Q, from the tax returns, our state and federal tax returns to the provision from last year. And that we incurred additional – I think it was about $300,000 from that standpoint. So I'm probably bumping our June effective tax rate up just a little bit from those levels.

Ella Bucheger – D.A. Davidson

Okay, great. Thanks. That’s all I had.

Lonny Robinson

Thank you.

Operator

The next question comes from the line of Julianna Balicka. Go ahead.

Julianna Balicka – Keefe, Bruyette & Woods

Hi. I’m sorry if I’m asking a question that’s already stated, but – and very good quarter outside of the headline charges. The premium that you sold the CRE and SBA loans, what’s that premium exactly?

Jason Kim

5.5% was the premium for SBA gain and – we sold at – on the beginning of September, but as you know, after mid-September, after the AIG and Lehman fell, the premium has come down to 1% to 2% level. So we're fortunate to sell at the beginning of the month, but right now the SBA secondary market is extremely depressed.

Lonny Robinson

Julianna, on the CRE, we had a very slight premium on that because we did retain the servicing. I guess we could have sold them outright and probably got a better premium than that, but we just had a very slight premium on the CRE sales.

Julianna Balicka – Keefe, Bruyette & Woods

Very good. That’s just the detail I wanted to check. Thank you very much.

Lonny Robinson

Thanks, Julianna.

Jae Whan Yoo

Thank you, Julianna.

Operator

(Operator instructions) And we have a follow-up from the line of Brett Rabatin. Go ahead.

Brett Rabatin – FTN Midwest

Hi. I just wanted to make sure I understood in relation to the deposit trends in the quarter, and I know this is difficult, but if you can kind of lay out, hey, this is what happened in terms of our customers utilizing some liquidity versus we saw new customers come in. Can you give us some color on how many new accounts you might have opened in checking, or what the underlying trends were, aside from the market liquidity issues?

Lonny Robinson

Okay, Brett. Obviously, our jumbo time deposits, those accounts, we closed a number of those out, $99 million down. So those are actually in a decline. Our money market accounts, which we saw the biggest activity in our checking accounts, we were up probably – I want to say 700 or 800 accounts for the quarter.

Brett Rabatin – FTN Midwest

Okay. And any idea of what checking was like?

Lonny Robinson

Checking was normally positive as well. We did not have a decline in checking, but checking accounts were up. But I can’t remember the exact number. But it was a large percentage.

Jae Whan Yoo

Covering [ph] several percentage to total deposit, it is very constant, very stable level of 23%.

Brett Rabatin – FTN Midwest

And JW or Lonny, have you seen in the Korean space any material movement either to maybe some of the large regional banks or within the group as you had some fear mongering about safety of smaller banks?

Lonny Robinson

That’s been widely publicized nationally, and obviously in our local press, there's been some discussion about it. We don’t think it’s had any meaningful impact to our deposit base. The outflows that we’ve seen actually was by design. I can’t say that all of our jumbo time deposits were because we reduced the rates from that standpoint. But you do hear some discussions, and I know Mr. Yoo and I have talked to a number of our customers from time to time about the safety and soundness of regional and community banks and Center Bank specifically from that standpoint. But we feel overall I think after we’ve done talking to them, they are reassured. And I don’t think we’ve seen any meaningful outflow as a result going to the larger banks per se.

Brett Rabatin – FTN Midwest

No, I’m sorry, Lonny. I meant more along the lines of have you seen any outflow, or has it been evident that there had been outflow from maybe some of the weaker institutions in the Korean space, or have you seen any migration from some other really small names to larger names?

Jae Whan Yoo

Brett, frankly, it is very tough to mention about that (inaudible) because we don’t have the detail numbers, how much outflow migration of a deposit to major banks from, what do you call, weaker, smaller banks. But I heard from the market that the liquidity continues to be the depressing factor to them in operation.

Brett Rabatin – FTN Midwest

And just lastly, sorry for the questions, but just lastly, is that also fair to just note that the competitive is still similar to what it has been, either the CD rates haven’t really pulled in a whole lot for the past quarter or so?

Lonny Robinson

No, we were successful because we weren’t in a need of funding to pass on our rate reductions. And obviously we’ve benefited with the improvement in the NIM. But going into fourth quarter, it’s still a very competitive environment. We mentioned that in our Q from that standpoint. So I’m not looking that we’re going to get much of a pass-through on this last rate cut. But the market is still very competitive.

Brett Rabatin – FTN Midwest

Okay. Congrats on the 3Q results, guys.

Lonny Robinson

Thanks, Brett.

Jae Whan Yoo

Thank you, Brett.

Operator

Our next question comes from the line of Ella Bucheger with D.A. Davidson. Go ahead.

Ella Bucheger – D.A. Davidson

Hi, guys, just one more question. Are you seeing any stress in your C&I relationships?

Jason Kim

I think given the small, weaker economy, we’re seeing small loans that they are coming into delinquency, but average loan size are very small, like $70,000, $80,000 C&I loans.

Ella Bucheger – D.A. Davidson

Are there any industries where you’re seeing stress in particular?

Jason Kim

I don’t know. Restaurants, retail stores. Mostly restaurants and retail stores, particularly convenient stores.

Ella Bucheger – D.A. Davidson

Okay. Thank you.

Operator

Our next question comes from the line of Joe Gladue with B. Riley. Go ahead.

Joe Gladue – B. Riley

Yes. I’m sorry, but I may have missed this if you’ve talked about this. But can you give us any idea on what trends you are seeing in the delinquencies, 30 to 89-day delinquency?

Jason Kim

Our delinquency for the third quarter, 30 to 59 days totaled $10.3 million, 60 to 89 days totaled $836,000.

Joe Gladue – B. Riley

All right. Thank you.

Operator

And I see no further questions at this time. (Operator instructions) And this does conclude Q&A. I’d like to turn the call back over to Ms. Yang for any closing remarks. Please proceed.

Angie Yang

Thank you all for participating in Center Financial’s 2008 third 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.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. That does conclude the presentation. You may now disconnect. Have a wonderful day.

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Source: Center Financial Corporation Q3 2008 Earnings Call Transcript
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