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Executives

Tony Rossi – Financial Relations Board

Min J. Kim – President & Chief Executive Officer

Alvin D. Kang – Chief Financial Officer

Bonnie Lee – Chief Credit Officer

Analysts

Aaron Deer – Sandler O’Neil & Partners LP

Brett Rabatin – FTN Midwest Securities Corp.

Lana Chan – BMO Capital Markets Corp.

Don Worthington – Howe Barnes Hoefer & Arnett

Erica Penala – Merrill Lynch

Joe Gladue – B. Riley and Co.

Chris Stuplin – D.A. Davidson & Co.

Sean Ryan – Sterne Agee & Leach Inc.

Nara Bancorp, Inc. (NARA) Q1 2008 Earnings Call April 23, 2008 12:30 PM ET

Operator

Good day ladies and gentlemen and thank you for standing by. Welcome to the 1st quarter 2008 Nara Bancorp earnings conference call. (Operator Instructions) I would now like to turn the conference call over to Tony Rossi of the Financial Relations Board. Please go ahead sir.

Tony Rossi

Thank you operator. Good morning everyone and thank you for joining us for the Nara Bancorp 1st quarter 2008 earnings call. Joining us this morning from management are Ms. Min J. Kim, Chief Executive Officer, Mr. Alvin D. Kang, Chief Financial Officer and Ms. Bonnie Lee, Chief Credit Officer.

Before we begin I’d 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 the actual results may differ materially as a result of risks and uncertainties that pertain to the companies business. We refer you to the documents the company files periodically with the SEC, specifically the company’s most recent 10Q and annual report on form 10K 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 forward looking statements. Nara Bancorp assumes no obligation to revise any forward looking projections that may be made on today’s call. With that I’d like to turn the call over to Ms. Min J. Kim. Ms. Kim?

Min J. Kim

Thank you, Tony. Good morning and thank you for joining us today. I am going to provide a brief overview of the first quarter of 2008 and then I will turn the call over to Al Kang, our Chief Financial Officer who will review our financial results. Following Al’s remarks I will conclude with a discussion of our outlook for the remainder of 2008.

We earned 27 cents per share in the 1st quarter compared to 28 cents in the same quarter last year. Our performance in the first quarter was in line with our expectations. One of the significant challenges during the first quarter was managing our net interest margin. With our federal reserve continuing to reduce interest rates we continue to experience significant compression in our net interest margin.

On a year-over-year basis our net interest margin declined by 47 basis points. It also declined 28 basis points from last quarter. We were able to offset the pressure on our net interest margin to some extent with a strong asset growth during the 1st quarter. Our loan portfolio increased at annualized rate of 13% during the quarter with all of the growth coming in our commercial real estate portfolio.

However, we are seeing the effect of the weaker economy in our SBA lending business. Quarter origination declined by 27% from the prior quarter as the demand for loan is decreasing and fewer borrowers are able to meet our conservative underwriting criteria. In addition the premiums on SBA loans sold continue to decline as the market is pricing in faster prepayment rate.

The average sales premium was 4.81% in the 1st quarter of 2008, down from 7.56% in the same period last year. These two factors contributed to a year-over-year decline of 41% in our net gains on SBA – on sales of SBA loans. We were pleased with the stability of our loan portfolio during the first quarter. Our non-performing loans declined slightly from the prior quarter. We did see some new credits going to the non-performing category this quarter but the quarter amount was more than offset but a large credit that returned to performing status.

As you may recall from our last conference call we discussed a $7.5 million commercial real estate loan that was placed into non-performing status due to a legal dispute between co-owners of the property over a buyout agreement. The dispute has been resolved and the owners have now brought the loan current.

We believe the primary reason that our asset quality remains stable during a period when many other financial institutions have experienced deterioration is that we have virtually no exposure to residential construction lending or residential mortgages. Our loan portfolio is impacted by the general economy conditions rather than issues specific to the housing market. As the economy has weakened over the past few quarters we are seeing increased credit costs but they continue to be manageable.

At this point I am going to turn the call over to Al who will review additional financial results for the 1st quarter. Al?

Alvin D. Kang

Thank you, Min. Let me first provide some color on our net interest margin. On a gap basis, our net interest margin was 4.15% in the 1st quarter of 2008 compared to 4.43% last quarter, a decline of 28 basis points at Min indicated. In the declining interest rate environment we’ve seen a steady decrease in the yield of our loan portfolio. At the same time we have not been able to reduce deposit costs at the same rate due to the highly competitive deposit pricing in the marketplace.

During the 1st quarter the yield on our loan portfolio declined by 70 basis points from 8.55% to 7.85% while the cost of total deposits only decline by 42 basis points from 3.85% to 3.43%. We also saw a decline in average non-interest bearing deposits during the quarter which contributed to the decline in net interest margin.

The decline in the yield on the loan portfolio is attributable to adjustable rate loans repricing lower with each reduction in interest rates. At March 31, 2008 the yield on our adjustable rate loan portfolio was 6.63%. On the other hand, our fixed rate portfolio with a yield of 7.69% at March 31, 2008 serves as a buffer against declining interest rates.

During the 1st quarter fixed rate loans represented 45% of loan originations and at March 31, 2008 fixed rate loans comprised 55% of the loan portfolio compared to 52% at December 31, 2007. Despite the decline in our net interest margin our strong growth and assets helped us to still achieve an 8% year-over-year increase in net interest income before provision for loan losses.

Our non-interest income was $4.6 million in the 1st quarter, essentially flat with the same period last year. Within our non-interest income categories our service fees on deposit accounts were $1.8 million, an increase of 12% from the 1st quarter of 2007. The increase is primarily due to the new fee structure we put into place for certain deposit services based on market surveys.

Our net gains on sales of SBA and other loans declined 34% to $800,000 in the 1st quarter of 2008. Most of the decrease in gains was attributable to a 41% decline in SBA gains. We sold $24.4 million of SBA loans during the 1st quarter of 2008 compared to $25.0 million in the same period last year. However, as Min indicated, the average sale period on these loans decline by almost 300 basis points from the prior year. We do not expect a meaningful improvement in SBA loan production or in the average sale premium in the foreseeable future.

During the quarter we recognize a gain of $467,000 from the sale of 54.1 million of available for sale fixed rate NBSs and the exercise of calls by issuers on 18.1 million of callable agency securities. With our level of fixed rate loans we decided to sell some of our fixed rate securities and reinvest the proceeds into adjustable rate securities as part of our interest rate risk management strategy.

Other income and fees declined by 14% from the 1st quarter of 2007 to $1.5 million. The decline was primarily due to a net loss of $307,000 on interest rate swaps. Our non-interest expense increased 3% over the prior year.

However, our non-interest expense in the 1st quarter of 2007 was reduced by the reversal of a $600,000 contingent liability accrual. When the impact of this reversal is excluded our total non-interest expense was slightly lower than the prior year. This was driven by reductions in our advertising and marketing expenses and a decrease in legal fees and outside consultant fees.

Our operating efficiency ratio was 49.4% in the 1st quarter of 2008 compared to 51.0% in the same period last year. This was driven by a 7% increase in revenues compared to a 3% increase in total non-interest expense.

Moving to the balance sheet, our growth loans were 2.07 billion at March 31, 2008, an annualized increase of 13% from the 2.01 billion at December 31, 2007. All of the growth occurred in our commercial real estate portfolio which increased at an annualized rate of 23% during the quarter. Approximately 90% of the CRE loans originated during the quarter were for owner occupied properties.

Our total deposits were $1.85 billion at March 31st, 2008 an increase of 5% annualized over the $1.83 billion at December 31, 2007. The increase was attributable to higher balances of brokers and state treasure CDs. This increase was offset by declines in non-interest bearing demand and money market deposits.

Retail deposit growth will continue to be a challenge for us. However, we will aggressively seek avenues to grow our deposit base. Online deposit accounts, new branches and deposit campaigns are just some of the plans in process. Our most recent deposit campaign featuring a flexible CD and a money market account raised $10 million in less than a week.

With loan and investment security growth continuing to exceed deposit growth, we increase our level of FHLB advances by almost $100 million during the quarter. During April of 2008 we did pay off 34 million in short-term FHLB advances from the proceeds of investment security sales. FHLB advances have been a stable source of funds for us at a cheaper cost compared to retail deposits.

Turing to asset quality, our non-performing assets were $17.3 million or 68 basis points of total assets at March 31, 2008. This compares to $17.4 million or 72 basis points at December 31st, 2007.

As Min mentioned, the $7.5 million loan that was placed in non-performing status last quarter has now been brought current. The other large loan we discussed on our last call, a $3.5 million credit has been restructured and the borrower is paying as agreed under the restructured terms.

The majority of new loans that were placed in non-performing status this quarter were concentrated in two commercial real estate borrowing relationships totaling $6.5 million. There is no commonality between these relationships with respect to either industry or geography.

We’ve noticed increasing speculation that commercial real estate may be the next asset class to show significant deterioration. While we can not speak to the broad commercial real estate market we would like to offer some insight into the particulars of our CRE portfolio that we believe insulate us from any deteriorations that may occur.

First, we have very little construction exposure with commercial construction loans representing less than 3% of our total loans. Second, 26% of our CRE portfolio is owner occupied properties. For practical purposes the percentage is much higher, closer to 50% if you include owner operated properties such as gas stations or car washes or motels. So the definition for our internal purposes is different than the regulatory definition.

As such, the health of the underlying businesses has much more of an impact on the quality of these credits than fluctuations in the value of properties. Third, our borrowers are primarily located in well-established communities in major metropolitan areas. We have virtually no exposure to properties in the areas that have been hit hardest by the downturn in the housing market such as the Inland Empire or Central Valley of California.

Fourth, with greater exception, our CRE loans are booked with loan values below 70%. This provides ample cushion for any deterioration in value that may occur. And fifth, the granularity and the geographic and property type diversification of our CRE portfolio helps to minimize the risk. The average CRE loan amount is less than $990,000 and the median is even lower at $570,000. While we expect to see increased losses this year we believe the overall credit quality in the CRE portfolio will remain generally healthy.

Our provision for loan losses was $2.9 million in the 1st quarter. The higher than normal provision reflects our higher – reflects our higher level of charge-offs in the commercial portfolio this quarter as well as an increase in reserves to reflect both qualitative and quantitative factors effected by the weaker economy.

At March 31, 2008 our allowance for loan losses was 1.01% of growth loans receivable compared to 1.00% at December 31st, 2007. The allowance coverage to non-performing loans was 130% compared to 121% at December 31st, 2007.

Our net charge-offs were $2.0 million in the 1st quarter representing 37 basis points of average loans on an annualized basis. In the 4th quarter of 2007 net charge-offs were 3.0 million or 61 basis points.

Now I’ll turn the call back over to Min. Min?

Min J. Kim

Thanks Al. At this point we would like to update our guidance for 2008. For the full year we now expect fully diluted earnings per share to range between $1 and $1.05. So reduction in earnings guidance is primarily attributable to our belief that we will experience more compression in our net interest margin than we initially expected.

With a federal reserve continuing to make drastic cuts in interest rates it appears that we will have a longer period of time to wait before rates have stabilized and our deposit repricing can catch up to our loan repricing.

Over the next few quarters we do not expect our loan production to be able to offset the net interest margin pressure as much as it did in the 1st quarter. The loan pipeline is not as robust as it was entering the year and we are not expecting to see the same levels of asset growth in the near future.

While we are disappointed with the lowered earnings expectations for 2008 we will now deviated from – we will not deviate from our disciplined operating philosophy in order to generate short-term gains. We believe that maintaining our conservative underwriting criteria, executing our interest rate risk management and capital management strategies and continuing to invest in our technological infrastructure will position the company to create long-term value for our shareholders as economic conditions improve in the future.

Now we will be happy to take any questions you might have. Operator would you please open up the calls?

Question-and-Answer Session

Operator

Yes ma’am. (Operator Instructions) Our first question comes from Aaron Deer with Sandler O’Neil. Please go ahead.

Aaron Deer – Sandler O’Neil & Partners LP

Hi, good morning everyone.

Min J. Kim

Good morning Aaron.

Aaron Deer – Sandler O’Neil & Partners LP

I was wondering if you could give us some more of your thoughts with respect to the margins, with respect to how much pressure you might anticipate in the 2nd quarter. I’m asking because it seems like your current deposit costs are well above kind of where market rates are, particularly on CDs and it just seems like there ought to be a pretty good snap back in the second half. So I’m just wondering how much more downside we see before we see that come back.

Alvin D. Kang

I think you’re right. We are seeing drops in our cost of funds, particularly the CDs. It seems to be dropping anywhere from five to 10 basis points a week. However, the competition in the marketplace is still a challenging proposition for us. So it would be nice if we could just follow the yield curve or follow the fed rate cuts that – but the competition really prevents us from doing that. And so we I think will see less compression than perhaps we did in the 1st quarter.

Aaron Deer – Sandler O’Neil & Partners LP

Okay, but you still see another say 10 to 20 basis points down in the 2nd quarter?

Alvin D. Kang

It could be in that range.

Aaron Deer – Sandler O’Neil & Partners LP

And then can you run by me how big your exposure is within the CRE portfolio to retail strip malls and similar types of properties and give us an update on how specifically that part of the CRE portfolio is performing?

Min J. Kim

Well on the retail strip malls we have not experienced any deterioration or weakness of those portfolios. And all those retail strip malls that we financed are very seasoned properties with strong cash flow. And it is all located within the metropolitan area. So for now, of course, we are closely monitoring that segment of our portfolio, but we are have not seen any deterioration.

Aaron Deer – Sandler O’Neil & Partners LP

Okay and then lastly, it looked like you took the securities portfolio up quite a bit, and I'm just wondering what your thoughts are on that, whether it's going to hold at this level or you continue growing it or maybe we see it drift back down.

Tony Rossi

Well, we've been trying to target our investment portfolio to fall within a certain range of percentage of assets for asset allocation purposes, and so we've gradually increased that portfolio over the year.

Also I think investments provide perhaps a more attractive opportunity given the fact that the loan yields have dropped so much and when you consider the credit issues and investments become an attractive opportunity.

So I think we're going to try to maintain a certain percentage but, you know, monitor the situation and see whether we need to sell securities for liquidity or, you know, just as part of our overall interest rate risk management.

Aaron Deer – Sandler O’Neil & Partners LP

And is that kind of the percentage that you're targeting? Is that it looks like it's somewhere between 10% and 15% of earning assets. Is that–would you put it at the higher end or the lower end of that range?

Tony Rossi

Probably the lower end. I think we’d like to get it within 10% to 12%.

Aaron Deer – Sandler O’Neil & Partners LP

Okay, that’s great. Thank you very much for the help.

Operator:

Our next question comes from Brett Rabatin with FTN Midwest. Please go ahead.

Brett Rabatin – FTN Midwest Research Corp.

Good morning.

Min J. Kim

Good morning, Brett.

Tony Rossi

Good morning.

Brett Rabatin – FTN Midwest Research Corp.

First, I wanted to ask on the CD rates in the quarter how much–I know you had $120 million of brokerage CDs reprice–how much that benefitted the time deposits? And then secondly, just I’ve heard that at least one of the two competitors that were offering the high rates have backed down some, and you mentioned competitors were still pretty aggressive, if things have changed any in the past month relative to what we were seeing in early March on the CD side in particular.

Tony Rossi

The brokerage CDs if we looked at–and this includes state and brokered CDs, we could break it down–but when you say state and brokerage CDs, at December our rate was 4.5%. And as of the end of March, we were at, let’s see, yes 2.99%.

The brokered CDs, our cost was–and this is at the point in time–is 5.2% and with the callable deposit programs that we had, we’re able to refinance those down to 3.76% at March end. Our state deposits of the rate was 3.96% at December, and because they price off treasuries, that dropped down to 2.22% at March.

Brett Rabatin – FTN Midwest Research Corp.

Okay and then wanted to talk about the CRE portfolio and first, was there a reclassification from year-end and CRE and CNI in terms of one category?

Tony Rossi

Yes, we had included some SBA CRE loans in the commercial portfolio, so we reclassified that to put it in its proper loan type.

Brett Rabatin – FTN Midwest Research Corp.

Okay, so that’s the difference?

Tony Rossi

Right.

Brett Rabatin – FTN Midwest Research Corp.

And just with the consumer soft and I know when I visited, you know, you could see restaurants slower. I’m just curious to hear on the retail, I know you have like 13% of those CRE portfolio and gas stations and car washes and another 20 or so in hotel/motel.

It sounds like you’re saying you haven’t seen the stress, but I’m curious as to dig a little deeper there and find out why you’re not seeing risk migration and just kind of what your expectations are for that portfolio.

Min J. Kim

So far from the hotel and motel properties, we only have actually one loan that’s in the past due area, and it’s not even related to actually the economic conditions. Actually, the partners are having a dispute.

As far as retail buildings are concerned, we just have a small retail rental building that’s in the past due less than $700,000. Other than that, those both categories, our portfolio’s pretty clean.

Brett Rabatin – FTN Midwest Research Corp.

Okay and remind me when–I can’t remember when the regulators come to see you guys. Is it this summer?

Min J. Kim

Yes, this summer.

Brett Rabatin – FTN Midwest Research Corp.

Okay and then just lastly on credit, the metrics were obviously very good this quarter. I was just hoping to get a little more color on the charge-offs that you had, $1.9 million, what those comprised of. Was there any thing unusual that comprised a larger portion of that or was it a bunch of smaller granular loans?

Min J. Kim

Yes, it’s pretty much a smaller retail loan type. I think that we gave out the numbers. The average charge-off is less than $100,000.

Brett Rabatin – FTN Midwest Research Corp.

Okay, so it’s all small stuff. Okay.

Tony Rossi

Right.

Brett Rabatin – FTN Midwest Research Corp.

Great, thank you.

Min J. Kim

Okay.

Operator:

Our next question comes from Lana Chan with BMO Capital Markets. Please go ahead.

Lana Chan - BMO Capital Markets Corp.

Hi. Good morning.

Tony Rossi

Morning.

Min J. Kim

Morning, Lana.

Lana Chan - BMO Capital Markets Corp.

Could you quantify how much Min said, you said before the loans pipeline is down from the end of 2007. Could you quantify how much it’s down?

Min J. Kim

Yes, compared to the first quarter loan pipeline, we are seeing about 20% to 30% reduction in our pipeline at the beginning of the second quarter. So there was some reduction in our pipeline.

Lana Chan - BMO Capital Markets Corp.

Okay and it that both really across all the markets, California and New York?

Min J. Kim

Right, right.

Lana Chan - BMO Capital Markets Corp.

Okay and then on the earnings guidance, what are your assumptions for the fed funds rate by the end of this year?

Tony Rossi

Well, probably two more rate cuts.

Lana Chan - BMO Capital Markets Corp.

Twenty-five basis points?

Tony Rossi

Twenty-five each, yes.

Lana Chan - BMO Capital Markets Corp.

Okay and then my last question is I was wondering if you could give us an update on the classified and special mention loans at the end of the quarter? I think they were about

$21 million at the end of ’07?

Min J. Kim

Yes, classified loans, they were about $21 million at the end of year-end. At the first quarter end under classified it’s about $28 million. You have to think that we still have that $7.5 million loan that we worked it out, brought it current. We still have it classified. We want to see some sustained performance.

Lana Chan - BMO Capital Markets

Okay, thank you.

Operator

Our next question comes from Don Worthington with Howe Barnes Hoefer and Arnett. Please go ahead.

Don Worthington – Howe Barnes Hoefer & Arnett

Good morning.

Min J. Kim

Good morning, Don.

Don Worthington – Howe Barnes Hoefer & Arnett

Just wanted to get an update on the New York/New Jersey market, how the hell that was looking, say, compared to Southern California just in terms of loan demand?

Min J. Kim

Well, we are seeing overall same level of decline in the loan pipeline overall, and it was mainly due to our changed underwriting criteria of particular industries and types of the loans. So overall, you know, we have not seen any big difference compared to New York and California.

Don Worthington – Howe Barnes Hoefer & Arnett

Okay and then would you expect any other gain on sale of securities throughout the year just periodic strategic type sales?

Tony Rossi

I think that would be probably on a strategic basis.

Don Worthington – Howe Barnes Hoefer & Arnett

Okay and I guess lastly you talked about SBA being, you know, categorized between your loan types. What’s the total SBA balance at quarter end?

Tony Rossi

It was about a hundred–

Min J. Kim

$110 million.

Tony Rossi

$110 million approximately.

Don Worthington – Howe Barnes Hoefer & Arnett

$110, okay. Thank you.

Operator

Our next question comes from Erica Penela, Merrill Lynch. Please go ahead.

Erica Penala - Merrill Lynch

Good morning.

Min J. Kim

Good morning, Erica.

Erica Penala - Merrill Lynch

Your guidance for $1.00 to $1.05, what are you assuming in terms of your loss rate and your allowance ratio?

Min J. Kim

Well, on the loss we are admitting about $2 million charge-off each quarter and maintaining at $1.01 loan loss reserve level.

Erica Penala - Merrill Lynch

You know, it seems that your tone surrounding the economy is appropriately cautious. I mean are you sort of, you know, I guess how are you thinking about that $1.01 reserve level going forward? Is that something that you’re looking to move up? I mean it doesn’t seem to gel with your outlook?

Tony Rossi

Well, the loan loss reserves I guess we can get into a long discussion on this, but our methodology has served us very well. We’re going to stick to it. It’s driven by several things. Obviously, one is charge-offs, but we first look at loans to see whether they’re impaired. That’s a FAS Loan 14 calculation.

Then we look at our historical loss experience, and that drives the quantitative reserve requirement, so if our losses pick up and we weight heavily towards the current period, then that would require higher quantitative reserves.

And then we look at qualitative factors, and we have nine difference categories that we look at to put additional reserves for the full portfolio, and so we don’t do anything that the methodology does not suggest or require us to do.

And when you look at the allowance, actually the qualitative allowance is significantly higher than the quantitative allowance. It’s about 60% of the total allowance, which suggests that, you know, we have quite a bit of additional reserve coverage, more than what the historical loss experience reflects.

The other thing is that we always have been aggressive in recognizing our problems and charging off loans, so it’s not a situation where we’re trying to delay recognition of losses. So, you know, we feel very comfortable with the way that we provide for our loan losses.

Whether the allowance stays at $1.01 we don’t know. If the losses pick up, then it’s obviously just by the nature of the methodology going to drive the allowance to a higher level. And but the–we’re very comfortable with how we’re providing.

Erica Penala - Merrill Lynch

On the qualitative portion of your reserve methodology, have you recently changed your assumptions for the underlying economic backdrop?

Tony Rossi

Yes, in fact we have. We increased it for the weakening economy. We also increased it for the increasing trend in delinquencies. We have a good percentage for concentration, and we also make an adjustment for the nature and the volume of loans, so those are the four primary qualitative factors that we look at.

Erica Penala - Merrill Lynch

Okay and I just have one more question. You know, you mentioned how difficult the deposit-gathering environment still is. Is more the pressure coming from other Korean-American peer banks or are the larger banks still fairly aggressive?

Tony Rossi

Well, I think it’s both, and it seems that the mainstream banks, particularly countrywide and some of the other shops in California, have actually bumped up their CD rates, so the pressure is coming from both sides.

Erica Penala - Merrill Lynch

Okay. Thank you for your time.

Operator

Our next question comes from Joe Gladue with B. Riley and Company. Please go ahead.

Joe Gladue – B. Riley and Co.

Yes, hi.

Min J. Kim

Good morning.

Joe Gladue – B. Riley and Co.

First off, let me ask a little bit about the expenses. I guess you mentioned there were some increases in professional fees and other fees. Just wondering I guess what those were and if we can expect those to continue going forward. And this is sequentially I guess they were increased versus the fourth quarter.

Tony Rossi

Well, the–professional fees. I’m just looking at our detail. There isn’t anything that we–oh, okay. We had some I guess reimbursements, not reimbursements, but a credit to legal fees so…

Min J. Kim

Previous quarter.

Tony Rossi

In the previous quarter so that was a reason, probably the primary reason.

Joe Gladue – B. Riley and Co.

Okay, alright and there was an increase in just the category Other Fees that was I guess about $362,000 versus the fourth quarter, again, just trying to gauge where things are going going forward.

Tony Rossi

It, you know, it’s a lot of little different things, nothing significant.

Joe Gladue – B. Riley and Co.

Okay. Alright, just an overall question on SBA loan sales. As, you know, the premiums continue to go down, does there become a point where you, you know, they get low enough that you decide to just hold onto the loans or cut back on originating them?

Tony Rossi

Well, in terms of whether we hold or sell, we actually are always considering that and so, you know, we’ll make that decision at some point if we feel that it just isn’t economic to sell the loan. On the production side, we know that production is down, but I think we still are very much interested in staying in the program and continuing to be a leader in the SBA loan business.

Joe Gladue – B. Riley and Co.

Okay and I guess just finally again on the looking forward, tax rate I guess you said there is some, you know, it was lower this quarter due to some tax credits. You know, I guess the 41% we saw this quarter, is that a good rate to use going forward or—

Tony Rossi

Yes, I think that’s a good run rate.

Joe Gladue – B. Riley and Co.

Okay. Alright. Thank you. That’s it.

Operator

Our next question comes from Chris Stuplin with D.A. Davidson. Please go ahead.

Chris Stuplin – D.A. Davidson & Co.

Good morning.

Min J. Kim

Good morning.

Chris Stuplin – D.A. Davidson & Co.

Most of my questions have been answered except one. Just following you guys, relatively new. You mentioned, you know, virtually no exposure to the inland empire. Exactly what is your exposure to that section of California?

Tony Rossi

We couldn’t hear what you were saying. Might be too far from the mic or something.

Chris Stuplin – D.A. Davidson & Co.

I’m sorry. What is your Inland Empire exposure? How much is that? You say there’s

Virtually–

Min J. Kim

Yes, virtually we have no exposure in that market.

Bonnie Lee

Yes, it is so insignificant. It doesn’t even come close to a percentage.

Chris Stuplin – D.A. Davidson & Co.

Okay and all the rest of my questions have been answered. Thank you very much.

Operator

Our next question comes from Sean Ryan with Sterne Agee and Leach. Please go ahead.

Sean Ryan – Sterne Agee & Leach Inc.

Good morning. One last question. You say delinquencies $12.6 million of them were either brought current or sold? Can you please give us a breakout of how much of that $12.6 was actually sold?

Bonnie Lee

Yes, we sold two loans, approximately $3.2 million and $7.5, one the large loan, and another $1.5 million, so a total of about $9 million that was brokered.

Sean Ryan – Sterne Agee & Leach Inc.

So the $7.5 and the $1.5 were the ones that were brought current.

Bonnie Lee

Right.

Sean Ryan – Sterne Agee & Leach Inc.

Okay, thank you very much.

Operator

And there appear to be no further questions in the queue. I’d like to turn the call back over to management for any concluding remarks they may have.

Min J. Kim

Well, once again, thank you all for joining us today. We’ll look forward to speaking with you again next quarter.

Operator

Ladies and gentlemen, this does conclude the First Quarter 2008 Nara Bancorp Earnings Conference Call. You may now disconnect and we thank you for using ATT Conferencing.

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