Center Financial (NASDAQ:CLFCE)
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Center Financial Corporation (NASDAQ:CLFCE), the holding
company of Center Bank, today reported another consecutive quarter of
record net income for the three months ended September 30, 2005.
The prior-period financial information contained in this news
release is preliminary and may change following the completion of a
review by the company's independent accountants. The company
previously announced that its financial statements for the years ended
December 31, 2001 through 2004 and the quarters during those years are
being restated to eliminate hedge accounting treatment for the
interest rate swaps. These adjustments are being made to ensure
compliance with hedge accounting principles generally accepted in the
United States. The preliminary results of the restatement were
included in the company's Form 10-Q filed on August 15, 2005 for the
period ended June 30, 2005. Subsequently, the company determined that
the financial results for the quarter ended June 30, 2005 also needed
to be restated to ensure compliance with hedge accounting principles.
"We expect to file our amended Form 10-K for the year ended
December 31, 2004 and our amended Forms 10-Q for the periods ended
March 31 and June 30, 2005, reflecting the restated financial
information, with the Securities and Exchange Commission near term,"
said Patrick Hartman, chief financial officer of Center Financial
Corporation. "Nasdaq has recently granted our request for continued
listing provided that by November 18, 2005, we file a complete Form
10-Q for the period ended June 30, 2005 and otherwise be in compliance
with Nasdaq's listing requirements. We anticipate that we will be able
to comply with these requirements."
(Paul) Seon-Hong Kim, president and chief executive officer, said,
"I am very proud that despite the necessary commitment of a
significant amount of resources and time to undertake these
restatements, our team at Center Bank continued the momentum and
maintained consistent levels of gains in loans and deposits, which
contributed to another quarter of high quality earnings for the
company."
2005 third quarter highlights, compared with a year ago, as
adjusted, include:
-- Net income increased 54% to $6.5 million, equal to $0.40 per
diluted share
-- Net loans rose 29% to $1.2 billion
-- Total deposits grew 29% to $1.4 billion
-- Total assets were up 26% to $1.6 billion
-- Return on average assets and return on average equity
increased to 1.74% and 24.61%, respectively
-- Efficiency ratio improved to 47.06%
-- Net interest income before provision for loan losses increased
51% to $16.5 million
-- Noninterest income declined 18% to $5.6 million
-- Quarterly cash dividend of $0.04 per share
THIRD QUARTER 2005
For the three months ended September 30, 2005, net interest income
before provision for loan losses grew to a record $16.5 million, up 6%
from $15.6 million in the linked prior quarter and up 51% from $10.9
million, as adjusted, in the 2004 third quarter. This primarily
reflects the positive impact of prime rate increases on a growing and
highly variable rate loan portfolio, partially offset by higher
interest expense on deposits. The net interest margin improved by 94
basis points to 4.81% from restated 3.87% in the third quarter of
2004, but narrowed by 10 basis points from 4.91% in the immediately
preceding second quarter. The company added $930,000 to its provision
for loan losses during the current third quarter, versus $700,000 in
the corresponding prior-year period.
Noninterest income totaled $5.6 million in the current third
quarter, up from $5.0 million in the linked second quarter, but down
from $6.9 million in the 2004 third quarter. The decrease compared
with the prior-year period principally reflects lower gains on sale of
loans totaling $555,000 in the current quarter versus $2.4 million a
year earlier.
Noninterest expenses for the 2005 third quarter totaled $10.4
million, reflecting increased staff, occupancy and operational costs
associated with the addition of two full-service branches located in
the San Fernando Valley and in Seattle, as well as a loss of $129,000
in the company's mark-to-market swap. This compares with noninterest
expenses of $10.2 million, as adjusted, in the third quarter a year
ago, which included an other than temporary impairment loss of $1.3
million related to a decline in the market value of the company's
Fannie Mae and Freddie Mac preferred stocks, offset by a gain of
$635,000 in its mark-to-market swap. The efficiency ratio for the 2005
third quarter improved to 47.06% from an adjusted 57.26% in year-ago
third quarter.
Net income for the 2005 third quarter increased 54% to a record
$6.5 million, or $0.40 per diluted share, from restated $4.2 million,
or $0.26 per diluted share, in the corresponding period a year ago.
"Especially considering the reduction in our comparable gain on
sale of loans this quarter, these results underscore the high quality
of our earnings, as well as the company's ability to sustain strong
levels of net income," Kim said.
Return on average assets for the current third quarter increased
to 1.74% from 1.37%, as restated, in the year-ago period. Return on
average equity improved to 24.61% from restated 19.86% in the third
quarter of 2004. The company's yield on interest earning assets rose
to 7.11% in the 2005 third quarter from 5.31% in the same period a
year ago.
FIRST NINE MONTHS OF 2005
For the year-to-date period, net interest income before provision
for loan losses increased 59% to $45.9 million from $28.9 million in
the first nine months of 2004, also reflecting the favorable impact of
prime rate hikes on a growing and highly rate sensitive loan
portfolio, offset in part by increased interest expense on deposits.
The net interest margin for the 2005 nine-month period expanded to
4.77% from 3.75% in the corresponding 2004 period. The company added
$2.6 million to its provision for loan losses during the current
nine-month period, compared with $2.2 million in the comparable
prior-year period.
Noninterest income for the year-to-date period totaled $15.7
million, compared with $15.8 million in the same 2004 period. The
increases in customer service fees, fee income from trade finance
transactions and wire transfers and other income in the first nine
months of 2005 was offset by a reduction in gain on sale of loans of
$1.8 million, compared with $3.7 million during the prior-year period.
Noninterest expenses for the current nine months were $29.4
million, reflecting higher staff, occupancy and operational costs
associated with the Bank's geographical expansion, increased
professional fees due primarily to Sarbanes-Oxley 404 compliance, a
loss of $306,000 realized from the termination of a swap and a loss of
$248,000 for the company's mark-to-market swap. For the 2004
nine-month period, noninterest expenses totaled $26.5 million, which
included other than temporary impairment charges of $1.9 million
related to the company's Fannie Mae and Freddie Mac preferred stocks
and a swap mark to market gain of $132,000. The efficiency ratio
improved to 47.79% for the 2005 year-to-date period from 59.18%, as
adjusted, in corresponding year-ago period.
Net income for the first nine months of 2005 increased 80% to
$18.0 million, or $1.08 per diluted share, from restated $10.0
million, or $0.60 per diluted share, in the same 2004 period.
Return on average assets for the current year-to-date period
increased to 1.70% from 1.17% in the year-ago period. Return on
average equity improved to 24.08% from 16.18% in the first nine months
of 2004. Yield on interest earning assets rose to 6.79% in the 2005
nine-month period from 5.15% in the corresponding 2004 period.
Gross loans at September 30, 2005 increased 29% to $1.2 billion
from $941.9 million, respectively, at September 30, 2004. On a
sequential quarter basis, gross loans increased 8% from June 30, 2005.
Commercial real estate loans grew 37% from prior-year levels and
accounted for 63% of the company's gross loans at the end of the 2005
third quarter. The company also posted another quarter of strong gains
in commercial business loans, up 38% over the third quarter of 2004
and representing 21% of loan portfolio at September 30, 2005. Trade
finance, SBA, consumer and construction loans totaled 6%, 5%, 6%, and
1%, respectively, of the company's loan portfolio at the end of the
2005 third quarter.
Total deposits rose to $1.4 billion at the end of the third
quarter of 2005. This represents a 5% increase from $1.3 billion in
the linked second quarter and a 29% increase from $1.1 billion at
September 30, 2004. Core deposits represented 50% of total deposits at
the end of the current quarter, with non-interest bearing, interest
bearing checking and savings deposits posting increases of 26%, 1% and
12%, respectively, over year-ago levels. Non-interest bearing deposits
accounted for 30% of total deposits at September 30, 2005, and time
deposits, which rose 44% over a year ago, accounted for 50% of total
deposits.
The average cost of interest-bearing deposits for the 2005 third
quarter increased to 3.13% from 1.92% a year earlier. The average cost
of total deposits rose to 2.20% for the current third quarter, up from
1.35% in the 2004 third quarter. The average cost of funds for the
three-month period ended September 30, 2005 was 3.20%, compared with
2.00% in the prior-year third quarter.
Total assets at September 30, 2005 grew to $1.6 billion, up from
$1.3 billion at year-end 2004. Interest-earning assets grew to $1.5
billion from $1.2 billion at December 31, 2004. The company continued
to finance the growth of its total assets with the increase in
deposits collected by the expanded network of branch offices.
The company further enhanced its asset quality with total
non-performing assets totaling $3.0 million, or 0.19% of total assets,
at September 30, 2005, compared with $3.4 million, or 0.26% of total
assets, at December 31, 2004. Net charge-offs for the current quarter
were $89,000, compared with $380,000 for the third quarter of 2004 and
$827,000 for the full 2004 year. The allowance for loan losses was
increased to $13.4 million, reflecting the expansion of the company's
loan portfolio, and represented 1.10% of loans, net of unearned income
at September 30, 2005, compared with 1.10% at year-end 2004.
Shareholders' equity at September 30, 2005 increased to $107.0
million from $90.7 million at December 31, 2004. At the end of the
2005 third quarter, Center Financial remained "well-capitalized" under
all regulatory categories, with a Tier 1 risk-based capital ratio of
9.46%, a total risk-based capital ratio of 10.51%, and a Tier 1
leverage ratio of 8.80%.
Kim added: "Looking forward, we are anxiously preparing for the
opening of our Irvine Branch early November 2005. This opening will
strengthen Center Bank's penetration in Southern California to 15
full-service branches. It also underscores our commitment to serve the
financial needs of Korean-American and other ethnic small business
customers as they continue to flourish and expand into new markets."
Investor Conference Call
The company will host an investor conference call at 10:30 a.m.
EDT (7:30 a.m. PDT) on Thursday, October 27, 2005 to review the
financial results for its 2005 third quarter. The call will be open to
all interested investors through a live, listen-only audio Web
broadcast via the Internet at www.centerbank.com and www.earnings.com.
For those who are not available to listen to the live broadcast, the
call will be archived for one year at both Web sites. A telephonic
playback of the conference call also will be available through 8:00
p.m. EST, Wednesday, November 2, by calling 888-286-8010 (domestic) or
617-801-6888 (international) and using reservation number 59785426.
About Center Financial Corporation
Center Financial Corporation is the holding company of Center
Bank, a community bank offering a full range of financial services for
diverse ethnic and small business customers. Founded in 1986 and
specializing in commercial and SBA loans and trade finance products,
Center Bank has grown to be one of the nation's largest financial
institutions focusing on the Korean-American community, with total
assets of $1.6 billion at September 30, 2005. Headquartered in Los
Angeles, Center Bank operates 25 branch and loan production offices
across the nation. Of the company's 16 full-service branches, 14 are
located throughout Southern California, along with one branch each in
Chicago and Seattle. Center Bank's nine loan production offices are
strategically located in Phoenix, Seattle, Denver, Washington D.C.,
Las Vegas, Atlanta, Honolulu, Houston and Dallas. Center Bank is a
California state-chartered institution and member of the FDIC. For
additional information on Center Bank, visit the company's Web site at
www.centerbank.com.
This release may contain forward-looking statements, which are
included in accordance with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and accordingly, the
cautionary statements contained in Center Financial Corp's Annual
Report on Form 10-K for the fiscal year ended Dec. 31, 2004 (See
Business, and Management's Discussion and Analysis), and other filings
with the Securities and Exchange Commission (SEC) are incorporated
herein by reference. These factors include, but are not limited to:
the company's ability to file a complete Form 10-Q for the period
ended June 30, 2005, along with restated financial statements, with
the SEC on or before Nasdaq's extension date of November 18, 2005; the
opening of the company's Irvine Branch in early November 2005;
competition in the financial services market for both deposits and
loans; the ability of Center Financial and its subsidiaries to
increase its customer base; and regional and general economic
conditions. Actual results and performance in future periods may be
materially different from any future results or performance suggested
by the forward-looking statements in this release. Such
forward-looking statements speak only as of the date of this release.
Center Financial expressly disclaims any obligation to update or
revise any forward-looking statements found herein to reflect any
changes in the company's expectations of results or any change in
events.
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CENTER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(In thousands, except share and per share data)
09/30/05 12/31/04 09/30/04
----------- ----------- -----------
(restated) (restated)
Assets
Cash and due from banks $87,289 $63,564 $59,068
Federal funds sold 43,575 35,915 84,145
Money market funds and interest-
bearing deposits in other banks 5,064 3,663 -
Securities available-for-sale 190,053 157,027 124,778
Securities held-to-maturity 11,014 11,396 11,920
Loans (net of unearned income) 1,211,644 1,021,700 939,195
Allowance for loan losses (13,379) (11,227) (10,364)
----------- ----------- -----------
Net loans 1,198,265 1,010,473 928,831
Fixed assets 13,461 11,695 11,221
Bank-owned life insurance - cash
surrender value 10,711 10,430 10,340
Goodwill 1,253 1,253 1,253
Other assets 34,115 32,698 25,919
----------- ----------- -----------
Total assets $1,594,800 $1,338,114 $1,261,345
=========== =========== ===========
Liabilities and Shareholders'
Equity
Deposits
Non-interest bearing deposits $410,767 $347,195 $325,486
Interest bearing deposits 977,803 818,341 753,239
----------- ----------- -----------
Total deposits 1,388,570 1,165,536 1,078,725
Borrowed funds 63,119 44,854 59,776
Long-term subordinated debenture 18,557 18,557 18,557
Other liabilities 17,533 18,447 17,011
----------- ----------- -----------
Total liabilities 1,487,779 1,247,394 1,174,069
Shareholders' equity 107,021 90,720 87,276
----------- ----------- -----------
Total Liabilities & Shareholders'
Equity $1,594,800 $1,338,114 $1,261,345
=========== =========== ===========
Book value per share $6.52 $5.57 $5.37
Number of common shares
outstanding at period end 16,426,663 16,283,496 16,251,158
CENTER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(restated) (restated) (restated)
Interest income $24,337 $14,964 $65,320 $39,700
Interest expense 7,876 4,052 19,433 10,820
----------- ----------- ----------- -----------
Net interest income
before provision for
loan losses 16,461 10,912 45,887 28,880
Provision for loan
losses 930 700 2,630 2,150
----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses 15,531 10,212 43,257 26,730
Noninterest income
Customer service
fees 2,268 2,340 6,931 6,250
Fee income from
trade finance
transactions 905 1,053 2,736 2,671
Wire transfer fees 220 204 675 602
Gain on sale of
loans 555 2,403 1,820 3,670
Net gain (loss) on
sale of securities
available for sale - (9) 51 (15)
Loan service fees 696 514 1,555 1,523
Other income 994 367 1,921 1,146
----------- ----------- ----------- -----------
Total noninterest
income 5,638 6,872 15,689 15,847
----------- ----------- ----------- -----------
Noninterest expenses
Salaries and
employee benefits 4,903 4,487 13,880 11,844
Occupancy 767 634 2,336 1,843
Furniture, fixtures,
and equipment 515 352 1,330 1,002
Data processing 534 675 1,476 1,649
Professional service
fees 1,061 1,181 2,967 2,486
Business promotion
and advertising 749 580 2,065 1,505
Stationery and
supplies 206 147 619 380
Telecommunications 144 114 443 397
Postage and courier
service 188 171 538 458
Impairment loss of
securities
available for sale - 1,329 - 1,869
Security service 215 221 587 543
Loss on termination
of interest rate
swap - - 306 -
Loss or (gain) on
interest rate swaps 129 (635) 248 (132)
Other operating
expenses 989 926 2,635 2,624
----------- ----------- ----------- -----------
Total noninterest
expenses 10,400 10,182 29,430 26,468
----------- ----------- ----------- -----------
Income before income
tax provision 10,769 6,902 29,516 16,109
Income tax provision 4,238 2,655 11,562 6,158
----------- ----------- ----------- -----------
Net income $6,531 $4,247 $17,954 $9,951
=========== =========== =========== ===========
Earning per share,
basic $0.40 $0.26 $1.10 $0.62
Earning per share,
diluted $0.40 $0.26 $1.08 $0.60
Basic average common
shares outstanding 16,396,503 16,136,334 16,335,992 16,104,842
Diluted average common
shares outstanding 16,765,284 16,635,368 16,661,889 16,472,731
CENTER FINANCIAL CORPORATION
SELECTED FINANCIAL DATA (Unaudited)
(In thousands)
September 30, December 31, September 30,
2005 2004 2004
------------- ------------ -------------
Non-performing assets
Loans past due 90 days or
more and still accruing
interest $- $- $-
Non-accrual loans 3,031 3,431 4,028
------------- ------------ -------------
Total non-performing loans 3,031 3,431 4,028
Other Real Estate Owned - - -
Total Non-performing assets $3,031 $3,431 $4,028
============= ============ =============
Allowance for Loan Losses
Balance as of January 1, 2005 $11,227 $8,804 $8,804
Provision for loan losses 2,630 3,250 2,150
Net loan (charge-offs) and
recoveries (478) (827) (590)
------------- ------------ -------------
Balance as of March 31, 2005 $13,379 $11,227 $10,364
============= ============ =============
September 30, December 31, September 30,
2005 2004 2004
(restated) (restated)
------------- ------------ -------------
Tier 1 risk-based capital
ratio 9.46% 9.59% 10.18%
Total risk-based capital
ratio 10/51 10.62 11.21
Tier 1 leverage ratio 8.80 9.13 9.11
Non-accrual loans to gross
loans 0.25 0.34 0.43
Non-performing assets to
total loans and OREO 0.25 0.34 0.43
Non-performing assets to
total assets 0.19 0.26 0.32
Allowance for loan loss to
gross loans 1.10 1.10 1.10
Allowance for loan losses to
nonperforming assets 441.45 327.22 257.30
Selected Ratios Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
For the Period 2005 2004 2005 2004
(restated) (restated) (restated)
--------- ---------- ---------- ----------
Return on average assets 1.74% 1.37% 1.70% 1.17%
Return on average equity 24.61 19.86 24.08 16.18
Interest rate spread 3.91 3.30 3.96 3.19
Net interest margin 4.81 3.87 4.77 3.75
Yield on earning assets 7.11 5.31 6.79 5.15
Cost of interest-bearing
deposits 3.13 1.92 2.74 1.90
Cost of deposits 2.20 1.35 1.91 1.32
Cost of funds 3.20 2.00 2.82 1.97
Noninterest expense/average
assets 0.70 0.83 2.09 2.33
Efficiency ratio 47.06 57.26 47.79 59.18
Net charge-offs to average
loans 0.01 0.04 0.04 0.07
CENTER FINANCIAL CORPORATION
SELECTED FINANCIAL DATA (Unaudited)
(In thousands)
September 30, December 31, September 30,
Loans 2005 2004 2004
------------- ------------ -------------
Real estate-construction $6,183 $16,919 $17,644
Real estate-commercial 759,806 607,296 554,853
Commercial 251,509 208,995 182,070
Consumer 68,350 58,178 56,300
Trade finance 73,160 83,763 77,603
SBA 55,982 49,027 53,074
Other 185 864 405
------------- ------------ -------------
Total loans-gross 1,215,175 1,025,042 941,949
Unearned Income (3,531) (3,342) (2,754)
Allowance for loan losses (13,379) (11,227) (10,364)
------------- ------------ -------------
Total loans-net $1,198,265 $1,010,473 $928,831
============= ============ =============
Deposits
Non-interest bearing $410,767 $347,195 $325,486
Interest bearing checking 203,293 210,842 200,472
Savings 80,333 73,733 72,027
Time deposits 694,177 533,766 480,740
------------- ------------ -------------
Total deposits $1,388,570 $1,165,536 $1,078,725
============= ============ =============
Three Months Ended Nine Months Ended
Average Balances September 30, September 30,
---------------------- ----------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
Gross loans $1,143,696 $902,447 $1,088,172 $846,638
Net loans 1,130,982 892,477 1,076,133 837,020
Interest earning assets 1,357,532 1,121,831 1,286,715 1,029,228
Assets 1,489,099 1,230,248 1,409,789 1,136,485
Deposits 1,335,083 1,103,629 1,249,765 1,003,477
Equity 105,313 85,077 99,338 82,456
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