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. -0- *T 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 *T
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