News Details

Q4 2010 Summary:

• Net income of $0.13 per diluted common share
• Net interest margin increases 11 basis points to 3.99% from 3.88% for prior quarter
• Continued improvement in deposit mix with a $21 million increase in average non-interest bearing deposits
• Improved asset quality with a 13% reduction in non-performing loans from the prior quarter
• Allowance coverage improves to 142% of non-performing loans
• Definitive merger agreement signed with Center Financial Corporation will create largest Korean-American banking franchise in U.S.

LOS ANGELES--(BUSINESS WIRE)-- Nara Bancorp, Inc. (the “Company”) (NASDAQ: NARA), the holding company of Nara Bank (the “Bank”), reported net income available to common stockholders of $5.0 million, or $0.13 per diluted common share, for the fourth quarter 2010, compared to net loss available to common stockholders of ($1.5) million, or ($0.04) per diluted common share, for the fourth quarter 2009, and net income available to common stockholders of $4.0 million, or $0.11 per diluted common share, for the third quarter 2010.

Alvin Kang, President and Chief Executive Officer, said, “Our strong fourth quarter performance was primarily attributable to an expanding net interest margin, an improving deposit mix and reduced credit costs. We are seeing increasing stability in the loan portfolio with reductions in impaired loans, non-performing loans, and net charge-offs. This is the result of a general improvement in the financial health of our borrowers, as well as the continued progress we are making in disposing of problem loans.

“Looking ahead to the full year 2011, we are expecting low- to mid-single digit loan growth, a slight increase in our net interest margin, a slight increase in our non-interest expense levels, and manageable credit costs. Barring an unexpected downturn in the economy, these trends should enable us to continue to be solidly profitable as we continue working towards gaining all of the required approvals for our merger with Center Financial Corporation.”

Operating Results for Fourth Quarter 2010

Net Interest Income and Net Interest Margin. Fourth quarter 2010 net interest income before provision for loan losses was $28.7 million, an increase of 9% from fourth quarter 2009. The increase in net interest income was due primarily to an improvement in the net interest margin.

Fourth quarter 2010 net interest margin (net interest income divided by average interest-earning assets) increased 65 basis points to 3.99% from 3.34% for fourth quarter 2009. The improvement in the net interest margin was primarily due to substantially lower rates paid on time deposits resulting from maturities in first and second quarter 2010. The cost of time deposits decreased to 1.31% for fourth quarter 2010 from 2.55% for fourth quarter 2009.

The weighted average yield on the loan portfolio for fourth quarter 2010 increased 10 basis points to 6.31% from 6.21% for the same period last year. The increase is mainly due to a decrease of $446 thousand in reversal of interest income on non-accrual loans year over year. At December 31, 2010, fixed rate loans were 48% of the loan portfolio, compared to 52% at December 31, 2009. The weighted average yield on the variable rate and fixed rate loan portfolios (excluding loan discount accretion) at December 31, 2010 was 4.82% and 7.23%, respectively, compared to 4.84% and 7.47% at December 31, 2009.

The weighted average yield on securities available-for-sale for fourth quarter 2010 decreased 97 basis points to 2.95% from 3.92% for the same period 2009. The decrease was attributable to new investment securities purchased during 2009 with lower yields and the sale of securities to balance the duration and mix of the investment portfolio as well as for liquidity purposes during fourth quarter 2009 and first quarter 2010.

The weighted average cost of deposits for fourth quarter 2010 decreased 89 basis points to 1.04% from 1.93% for the same period last year, driven primarily by the decrease in the cost of time deposits and the increase in the average balance of non-interest bearing deposits.

The weighted average cost of FHLB advances for fourth quarter 2010 decreased 27 basis points to 3.36% for fourth quarter 2010, compared to 3.63% for fourth quarter 2009, as maturing advances were refinanced at lower rates.

Sequentially, fourth quarter 2010 net interest income before provision for loan losses increased $1.1 million, or 4%, from third quarter 2010. The increase was attributable to an improvement in the net interest margin, which increased 11 basis points, and an increase in average net interest earning assets.

Non-interest Income. Fourth quarter 2010 non-interest income was $4.3 million, a decrease of $1.1 million, or 21%, compared to fourth quarter 2009. The decrease was primarily due to a decrease in net gains on sales of securities available-for-sale, offset by an increase in net gains on sales of SBA loans and an increase in net valuation gains on interest rate swaps. There were net gains on sales of securities available-for-sale of $1.7 million during fourth quarter 2009. A total of $99.8 million in available-for-sale GSE investment securities were sold as part of the rebalancing of duration and mix of our investment securities portfolio. No securities were sold during fourth quarter 2010. Net gains on sale of SBA loans were $713 thousand for fourth quarter 2010, an increase of $157 thousand from $556 thousand for the same quarter of 2009. The increase is attributable to the improvement in premium on sales. The net gains of $720 thousand for fourth quarter 2010 was from $8.1 million of SBA loans sold in third quarter 2010 at an average premium of 9.71%, compared to the net gains of $556 thousand from sales of $11.0 million of SBA loans at an average premium of 6.14% for fourth quarter 2009. Net valuation gains/(losses) on interest rate caps changed to $95 thousand net gains for fourth quarter 2010 from ($94 thousand) net losses for fourth quarter 2009. The increase in valuation was attributable to an increase in the implied volatility resulting from increases in Treasury yields during fourth quarter 2010.

Sequentially, non-interest income decreased $3.0 million, or 41%, from third quarter 2010. The decrease was primarily due to the net gain of $3.7 million recognized on sales of $61.1 million problem assets in third quarter 2010, partially offset by an increase of $321 thousand in net valuation gains on interest rate caps.

Non-interest Expense. Fourth quarter 2010 non-interest expense was $17.5 million, an increase of 17% from $15.0 million for the same period last year. The increase was primarily due to increases in salaries and benefits expense and other expense.

Salaries and benefits expense increased $894 thousand, or 14%, to $7.2 million for fourth quarter 2010, compared to $6.3 million for the same quarter of 2009. The increase is due to the increase in the number of full-time equivalent employees, which increased to 376 at December 31, 2010 from 337 at December 31, 2009, an ESOP contribution of $100 thousand in 2010 and an increase in vacation accrual by $106 thousand year over year. Included in other expense are merger related expenses of $1.0 million incurred during fourth quarter 2010 for the definitive merger agreement entered into with Center Financial in December 2010.

Sequentially, non-interest expense for fourth quarter 2010 increased by 12% to $17.5 million from $15.7 million in third quarter 2010, primarily due to increases in salaries and benefits expense and other expense. Salaries and benefits increased $938 thousand, mainly due to a year-end bonus expense of $364 thousand, a vacation accrual adjustment of $350 thousand and the ESOP contribution of $100 thousand. The increase in other expense is due to the merger related expenses mentioned previously.

Income Taxes. The effective income tax provision (benefit) rate was 37%, (52%) and 38% for fourth quarter 2010 and 2009 and third quarter 2010, respectively. The higher benefit rate for the fourth quarter of 2009 was due to the impact of tax credits on the amount of taxable income or loss.

Balance Sheet Summary

Gross loans receivable were $2.15 billion at December 31, 2010, a decrease of $14 million from $2.16 billion at September 30, 2010. New loan production was $87.2 million during fourth quarter 2010, compared to $97.9 million during third quarter 2010, and $149.2 million during fourth quarter 2009. Total loan pay-offs, pay-downs, amortization and other changes totaled $101.3 million during fourth quarter 2010, compared to $64.6 million during third quarter 2010 and $78.3 million during third quarter 2009.

Total deposits were $2.18 billion at December 31, 2010, a decrease of 1% from $2.20 billion at September 30, 2010. The decrease in total deposits was primarily due to decreases of $37 million in brokered CDs and $11 million on savings accounts, offset by an increase of $26 million in non-interest bearing demand deposit accounts.

Credit Quality

The Company recorded a provision for loan losses of $5.8 million in fourth quarter 2010, compared to $17.9 million for the same period of the prior year and $11.1 million in third quarter 2010. The decrease in provision for loan losses for fourth quarter 2010 compared to the other two quarters is due to a lower charge-off rate for two consecutive quarters resulting in lower historical loss rates and which led to a lower overall allowance requirement.

Total Watchlist loans, defined as Special Mention and Classified loans, were $165.6 million at December 31, 2010, a decrease from $178.8 million at September 30, 2010. Classified loans decreased to $136.0 million at December 31, 2010 from $148.1 million at September 30, 2010. The decrease in Watchlist loans was due to loan upgrades of $8.5 million, as well as Classified loan payoffs of $9.6 million, and $4.5 million in loans which were transferred to the loans held for sale account ($3.5 million after mark-to-market adjustment).

Total delinquent loans, 30 to 89 days past due, were $4.3 million at December 31, 2010, compared to $2.9 million at September 30, 2010. Non-performing loans (loans past due 90 days or more and non-accrual loans) at December 31, 2010, were $43.8 million, or 2.05% of total loans, compared to $50.5 million, or 2.35% of total loans, at September 30, 2010. The quarter-to-quarter decrease in non-performing loans was due to $1.3 million in non-accrual loans returning to accrual status, $3.1 million in non-accrual loans paying off, and $4.5 million in non-performing notes transferred to loans held for sale.

Non-performing assets, comprised of non-accrual loans, accruing restructured loans and other real estate owned (“OREO”) at December 31, 2010 were $80.5 million, or 3.77% of gross loans plus OREO, compared to $88.5 million, or 4.11%, at September 30, 2010. The decrease in non-performing assets from September 30, 2010 to December 31, 2010 was due to a net decrease in OREO balances of $2.0 million, as well as the same factors which resulted in the decrease in non-performing loans for the period.

Net loan charge-offs during fourth quarter 2010 were $7.2 million, or 1.33% of average loans on an annualized basis, compared to $11.4 million, or 2.08% during fourth quarter 2009, and $10.4 million, or 1.93% of average loans, during third quarter 2010. CRE and C&I loans represented 75.3% and 23.2%, respectively, of net charge-offs during fourth quarter 2010. Fourth quarter 2010 charge-offs included three relationships totaling $4.1 million in CRE loans. Excluding these three relationships, the average individual loan charge-off during the quarter was $36 thousand.

The allowance for loan losses at December 31, 2010 was $62.3 million, or 2.92% of gross loans receivable (excluding guaranteed portion of delinquent SBA loans and loans held for sale), compared to $63.7 million, or 2.97%, at September 30, 2010. The coverage ratio of the allowance for loan losses to non-performing loans increased to 142% at December 31, 2010, compared to 126% at September 30, 2010.

Impaired loans (defined as loans for which it is probable that not all principal and interest payments due will be collectible according to contractual terms) at December 31, 2010, were $122.7 million, a decrease from $135.6 million at September 30, 2010. This decrease in impaired loans is due primarily to the upgrading of $6.3 million in classified loans, $7.7 million in impaired loan payoffs, and $4.5 million in impaired notes transferred to loans held for sale. This decrease in impaired loans is offset by the addition of 32 loans amounting to $13.7 million that were specifically reviewed for potential impairment in fourth quarter.

Specific reserves for impaired loans were $21.1 million, or 17.20% of the aggregate impaired loan amount at December 31, 2010, compared to $20.3 million, or 14.98% of the aggregate impaired loan amount at September 30, 2010. Excluding specific reserves for impaired loans, the allowance coverage on the remaining loan portfolio was 2.05% at December 31, 2010, compared to 2.16% at September 30, 2010. The lower total level of general reserves for the non-impaired loans was primarily attributable to reduced historical loss ratios on nearly all loan pools as the weighted effect of prior quarter losses is reduced over time.

Capital

At December 31, 2010, the Company continued to be in excess of the regulatory capital requirements to be classified as a “well-capitalized” institution. The Leverage Ratio was 12.61% at December 31, 2010, compared to 12.78% at September 30, 2010. The Tier 1 Risk-based Ratio was 16.42% at December 31, 2010, compared to 16.55% at September 30, 2010. The Total Risk-based Ratio was 17.69% at December 31, 2010, compared to 17.82% at September 30, 2010. Despite of the increase in the net income available to common stockholders during fourth quarter 2010, capital ratios decreased due to the deferred tax assets disallowed in the regulatory capital calculation.

At December 31, 2010, tangible common equity represented 9.76% of tangible assets, compared to 9.61% of tangible assets at September 30, 2010. Tangible common equity per share was $7.61 at December 31, 2010, compared to $7.55 at September 30, 2010.

Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and other intangible assets, net divided by total assets less goodwill and other intangible assets, net. Management reviews tangible common equity to tangible assets in evaluating the Company’s capital levels and has included this ratio in response to market participant interest in tangible common equity as a measure of capital. See the accompanying financial information for a reconciliation of the ratio of tangible common equity to tangible assets with stockholders' equity and total assets.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss the Company’s fourth quarter 2010 financial results will be held tomorrow, January 25, 2011 at 9:30 am Pacific / 12:30 pm Eastern. Interested participants and investors may access the conference call by dialing 800-762-8908 (domestic) or 480-629-9774 (international), conference ID# 4401817. There will also be a live webcast of the call available at the Investor Relations section of Nara Bank’s web site at www.narabank.com.

After the live webcast, a replay will remain available in the Investor Relations section of Nara Bancorp’s web site. A replay of the call will be available at 800-406-7325 (domestic) or 303-590-3030 (international) through February 1, 2011, conference ID# 4401817.

About Nara Bancorp, Inc.

Nara Bancorp, Inc. is the parent company of Nara Bank, which was founded in 1989. Nara Bank is a full-service community bank headquartered in Los Angeles, with 23 branches and one loan production office in the United States. Nara Bank operates full-service branches in California, New York and New Jersey, and a loan production office in Texas. Nara Bank was founded specifically to serve the needs of Korean-Americans. Presently, Nara Bank serves a diverse group of customers mirroring its communities. Nara Bank specializes in core business banking products for small and medium-sized companies, with an emphasis in commercial real estate and business lending, SBA lending and international trade financing. Nara Bank is a member of the FDIC and is an Equal Opportunity Lender.

Additional Information and Where to Find It

In connection with the proposed merger, Nara Bancorp, Inc. will file with the SEC a Registration Statement on Form S-4 that will include a Joint Proxy Statement/Prospectus of Center Financial Corporation and Nara Bancorp, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the merger when it becomes available and any other relevant documents filed with the Securities and Exchange Commission (“SEC”), as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about Nara Bancorp and Center Financial at the SEC’s Internet site (www.sec.gov). You will also be able to obtain these documents, free of charge, from Nara at www.narabank.com under the tab “Investor Relations” and then under the heading “SEC Filings” or from Center Financial at www.centerbank.com under the tab “Investor Relations” and then under the heading “SEC Filings.”

Participants in Solicitation

Nara Bancorp, Center Financial and their respective directors, executive officers, management and employees may be deemed to be participants in the solicitation of proxies in respect of the merger. Information concerning Nara Bancorp’s participants is set forth in the proxy statement, dated May 24, 2010, for Nara Bancorp’s 2010 annual meeting of stockholders as filed with the SEC on Schedule 14A. Information concerning Center Financial’s participants is set forth in the proxy statement, dated April 30, 2010, for Center Financial’s 2010 annual meeting of stockholders as filed with the SEC on Schedule 14A. Additional information regarding the interests of participants of Nara Bancorp and Center Financial in the solicitation of proxies in respect of the merger will be included in the registration statement and joint proxy statement/prospectus to be filed with the SEC.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about future operations and projected full-year financial results that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include but are not limited to economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services, and pricing. Readers should carefully review the risk factors and the information that could materially affect the Company’s financial results and business, described in documents the Company files from time to time with the Securities and Exchange Commission, including its quarterly reports on Form 10-Q and Annual Reports on Form 10-K, and particularly the discussions of business considerations and certain factors that may affect results of operations and stock price set forth therein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.