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Hope Bancorp, Inc. (HOPE)

Q4 2014 Earnings Call· Tue, Jan 27, 2015

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Transcript

Operator

Operator

Good day and welcome to the BBCN Bancorp fourth quarter 2014 Conference Call and webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Angie Yang, Senior Vice President, Investor Relations. Please go ahead.

Angie Yang

Analyst

Thank you, Emilie. Good morning everyone and thank you for joining us for the BBCN 2014 fourth quarter investor conference call. 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. These statements constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and are not statements of historical facts. We wish to caution you that such forward-looking statements reflect our expectations based on information currently available, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Actual results may differ materially as a result of risks and uncertainties that pertain to the company’s business. We refer you to the documents the company files periodically with the SEC, as well as the Safe Harbor statements in the press release issued yesterday. BBCN assumes no obligation to revise any forward-looking projections that may be made on today’s call. The company cautions that the complete financial results to be included in the Annual Report on Form 10-K for the year ended December 31, 2014 could differ materially from the financial results being reported today. As usual, we have allotted one hour for this call. Presenting from the management's side today will be Kevin Kim, BBCN Bancorp’s Chairman and CEO; Kyu Kim, our Chief Operating Officer and Doug Goddard, our Chief Financial Officer. Chief Credit Officer, Mark Lee; Chief Lending Officer, Jason Kim and Chief Retail Banking Officer Cha Park are also here with us today and will participate in the Q&A session. With that, let me turn the call over to Kevin Kim. Kevin?

Kevin Kim

Analyst

Thank you, Angie. Good morning everyone and thank you for joining us today. Let me begin today with some brief comments on the quarter before asking Kyu and Doug to provide more details on the financial results. When they're finished I will close with some final comments before we open up the call for questions. Notwithstanding the headwinds of the low interest rate environment and diminishing purchase accounting benefits we delivered a solid quarter with quality balance sheet growth, a strong performance from our SBA lending group and stable expense levels. This resulted in net income of $22.7 million over $0.29 per diluted common share for the fourth quarter of 2014. Since the formation of BBCN we have been very strong in terms of new loan originations. For the 2014 fourth quarter, we originated $304 million in new loans, which resulted in total loan growth of 10% over year end 2013. In total of 2014, we originated $1.33 billion in new loans, reflecting a 17% increase over loan originations of $1.14 billion in 2013. At year end, total deposits increased to $5.69 billion, reflecting a 3% increase over September 30, 2014. And an 11% increase over December 31, 2013. And total assets increased 10% over the course of 2014 to $7.14 billion, reflecting all organic growth. During the fourth quarter, BBCN made history with the opening of a representative office in Seoul, marking the first ever formal expansion by a Korean-American bank into South Korea. We were very grateful that Los Angeles Mayor Eric Garcetti and Won Soon Park, the Mayor of Seoul Metropolitan Government, both recognized the significance of this initiative and honored us with their presence at the opening reception in Seoul this past November. We were also pleasantly surprised with level of media attention that we have received in Korea as a result of this event. As we have indicated in the past, one of our key initiatives is to increase our commercial and industrial lending with U.S. subsidiaries of Korean national companies being a natural target for us. By having feet on the ground in Seoul, we believe we can more readily identify Korean companies seeking to expand into the United States. And as we make progress, building the BBCN Brand in Korea, we can also begin building the relationships that we believe will ultimately be to greater lending and deposit gathering opportunities for our domestic business development officers. Our presence in Seoul is a clear differentiator and an important step in reinforcing our positioning as the definitive leader in the Korean-American banking. Now let me turn the call over to Kyu to provide some additional details on our business development efforts in the fourth quarter. Kyu?

Kyu Kim

Analyst

Thank you, Kevin. As mentioned earlier we had $304 million in new loan originations for the fourth quarter. We had a particularly strong quarter in C&I lending including developing more relationships with U.S. subsidiaries of Korean National Company. C&I accounted for 18% of our total loan originations during the fourth quarter, which is one of the largest contributions we have seen from C&I in recent quarters. We funded $54.5 million in C&I loans up from $48 million last quarter. In terms of total C&I loans commitment made during the quarter, we extended $78.5 million in commitment to commercial customers. Overall, we have $1 billion in total with credit commitments outstanding to commercial customers with a utilization rate of 63% on lines of the credit at December 31, 2014. Commercial real estate loans accounted for 81% of our loan production in the fourth quarter. The mix of production was very healthy from a concentration management standpoint with the strongest force coming in our audit category of CRE, which consists of profit-type outside of the major product segment. In our last conference call, you may recall that we discussed a new strategy to take out more proactive stands in balancing the products and geographic mix of our loan portfolio. As I mentioned, we were very pleased with the mix of our loan originations during the fourth quarter, which minimize the need to consider participating out any meaningful portion of our loan. During the fourth quarter, we participated out only $60 million from our existing portfolio. Due to a timing issue we expect to participate out approximately $25 million to $30 million of existing loans during the first quarter. If we complete with this fall in shifting our loan originations to a more favorable mix that is more diversified in the product type,…

Douglas Goddard

Analyst

Thank you, Kyu. As usual, let me just discuss a few items where I think some additional color is warranted given that we provide quite a bit of detail in our press release and the quarter was relatively consistent with recent performance. Our net interest income decreased by $1.7 million from the preceding third quarter. A number of factors contributed to this decrease including first and the largest impact. The purchase accounting benefit in the fourth quarter was $1.2 million less than the preceding third quarter. Second, non-accrual loan income reversals and pre-prepayment fee income was about $630,000 less than it was in the last quarter. And finally, the impact of the lower yield of interest-earning assets as we continue to operate at a low-interest-rate environment. And just to know while we had a solid growth in growing assets during the quarter much of the loan production incurred later in the quarter so we did not see a meaningful increase in loans on an average basis. And therefore the interest income from the loans will make a more meaningful contribution beginning of the first quarter for 2015. Compared with the third quarter 2014, our net interest margin decreased by 25 basis points to 3.9%. On a core basis, excluding the effects of purchase accounting adjustments, our net interest margin declined by 16 basis points. The decline on a core basis was primarily attributable to three factors. First, we had an unfavorable shift in the mix of earning assets as we had a couple of unusually large commercial deposits during the quarter that we placed in the Federal Reserve. Second, with more of our current loan production weighted towards lower yielding variable rate loans, the average rate on new loan originations is bringing down the overall yield of the loan portfolio.…

Kevin Kim

Analyst

Thanks, Doug. 2014 was the year of building stability and fortifying the foundation of BBCN for greater sustained growth. We strengthened the executive management and board of directors with a number of key additions which significantly enhanced our experience and leadership capabilities. In addition to the increased financial support of our customers and communities as well as the progress in expanding our product offering we marked a new chapter in the history of BBCN by becoming the first Korean-American bank to establish a presence in Korea. All the while we’ve delivered solid financial performance. For the full year net income totaled a record $88.6 million or $1.11 per diluted common share reflecting an increase of 8% over 2013 earnings. Looking forward into 2015, we are highly focused on operating the company with a long-term perspective. We are making investments today to lay the foundation for a much stronger, much more diversified banking franchise for years to come. Following the launch of our equipment leasing business late in the first quarter of 2014, we have received a very positive response from our customer base and we are announcing a strong ramp-up in our pipeline for this new product just by focusing and cross-selling this product line to our existing customers. Our confidence for this product has grown and we are optimistic that we will generate meaningful levels of loan production over the next few years. We believe our equipment lease financing business is an important addition for commercial lending platform and expect it can grow in excess of $200 million portfolio by year five. With regard to the residential mortgage lending business, we launched our pilot program in a handful of branches in Southern California late in the fourth quarter generating our first direct lending opportunities. The focus during the pilot…

Operator

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Aaron Deer from Sandler O'Neill and Partners. Please go ahead.

Aaron Deer

Analyst

Good morning, everyone. Kevin, congratulations on the new rep office in Seoul, that’s an exciting news. I guess given the big margin pressure in the quarter, I want to focus, my question there Doug, can you talk a little bit about what the impact of the excess cash that came in under the balance sheet during the quarter. What impact that had in terms of maybe a basis point impact on the margin? And what kind of a snapback we can expect from that?

Douglas Goddard

Analyst

Sure. That's a good question because there were a number of separate factors affecting the margin this quarter. We carved out the purchase accounting fees. For the rest of it, about eight basis points of the shift this quarter is basically mix of earning assets. And looking forward this quarter and actually most fourth quarters probably at our low end in terms of how unfavorable that is in our mix, so I would expect an improvement in the mix impact on margin in the next quarter. So out of that, that eight basis points decline which occurred this quarter will not only -- not recur, it actually probably should improve next quarter.

Aaron Deer

Analyst

Alright, okay and then on a related point, the core loan you were down seven basis points. It sounds like maybe if I did my math right here it was about four basis points due to the shift toward variable rate production, is that right? Is that something that we would expect without any changes in the overall rate environment? Maybe we see some continued pressure in that quarter loan yield?

Douglas Goddard

Analyst

There is some, but actually of the decline in loan yield, about four basis points of it is actually the variance from quarter to quarter on the inflows and outflows of non-accruals and the levels of prepayments and the actual impact of the difference between the loans originating less paying off was about three basis points. That three basis points declined probably pretty typical for us for the next three quarters. But the rest of it probably should not recur or expect a normal decline from re-pricing the loan portfolio between two to four basis points right now.

Aaron Deer

Analyst

Okay, perfect, that’s what I expected and then just a question on the -- you started breaking out these low credit related expenses and you mentioned that that sounded like that’s largely or entirely maybe delinquent property taxes, I am wondering if there is other costs that are also in there, whether it's just overall cost for the credit department or write-downs on the loans that you moved to held for sale or maybe your provision for unfunded commitments. What all else might be in there other than delinquent property tax payments?

Douglas Goddard

Analyst

To break out that line largely coincides with the Foster acquisition because of the nature of the portfolio and the work out situations we require there at the line just became more material to our total G&A. By far the biggest numbers as we mentioned property tax related, we do put any earlier reserves in, we have to write down a piece of REO that goes to, I think this quarter we had about $600,000 of REO write downs. And after that, while looking cross-table and market it’s really miscellaneous processing type of cost like that related to the collection efforts, is that a fair clear position Mark?

Mark Lee

Analyst

Yes.

Aaron Deer

Analyst

Okay. So is it reasonable to assume that particularly given that it sounds like you’ve got a pretty positive outlook for non-performers going forward that that line item should decline obviously with some variability, but should decline at a pretty good clip over the next, say 12 to 24 months?

Douglas Goddard

Analyst

I would emphasize the variability because Mark, Keith are reminding me that we are in the state of Chicago, we’re dealing with a state that has a lot of very intense collection process, you’ve got to go through, judicial foreclosure. So it was a fairly long workout period. So we're certainly looking to about the lines of decline over the time and would not necessarily protected any given one or two quarters in this year just to get a sharp decline.

Aaron Deer

Analyst

Okay. I’ll step back with my remaining questions.

Operator

Operator

Our next question is from Matthew Clark of Sterne Agee. Please go ahead.

Matthew Clark

Analyst

Good morning, everyone.

Douglas Goddard

Analyst

Morning.

Matthew Clark

Analyst

Can you talk about expenses here, expense is down slightly here in quarter and just wanted to sink through with you, the product expansion and you guys are pursuing geographic expansion as well to help on the products set diversify the balance sheet over time. Just trying to think about expense growth as we lookout throughout this year and what we might expect?

Douglas Goddard

Analyst

Sure. We did a lot of additions to our infrastructure in 2014, in several areas both in the production side in terms of some of the start-up costs of our new ventures and in terms of continuing adding to our compliant infrastructure, looking forward to 2015 we will see some of that continuing that probably at a lesser rate than this year. So I look at it in terms of our efficiency ratio, which we were just under 15% through the fourth quarter. I still think that’s the longer term where we would like to be and I think we can be, we are likely to tip just over that and maybe the first half of next year as we add it to the final few pieces of some of the new ventures like mortgage.

Matthew Clark

Analyst

Okay. That’s helpful. Great and then on capital management, can you just talk through your priorities on that front. You still have obviously a lot of excess capital. I assume the number one priority will be organic growth. I just wanted to talk a little bit more on dividend increases and the targeted payout and any M&A opportunities you might see out there?

Douglas Goddard

Analyst

The only real change, probably from our -- when we answered that question last quarter is the general market prices of banks were down, so that the share buyback option is -- raises in our analysis and that's something that we will -- are and will evaluate. And apart from that we continue to look at our use of capital bring organic growth or a strategic opportunity which exceeds our cost of capital and buyback. In terms of dividend payout ratio, we think we are fairly normal range. As far as the ratio right now I don’t see a dramatic change with that. We’re certainly looking to long-term growth of payment of the dividend as we grow earnings.

Jason Kim

Analyst

And if I add one more comment to that is that we have also other considerations when we evaluate our capital situation and that is the fact that the regulators look at or expect higher standards for an institution like us with higher CRE concentration. So although we do not have any limitation at this point, the stronger capital levels give us greater freedom to grow at the rate that we are targeting. So that is one of the considerations that we have at this time.

Matthew Clark

Analyst

Okay and I guess that leaves me to the related question on loan growth and the outlook there. I know you’re guiding the high-single digits. I think you just mentioned also that 18% of production was C&I this quarter, just trying to get some sense of the timing and related impact of these other verticals, this could unfold over time and in ratcheting down that commercial real estate concentration.

Angie Yang

Analyst

First of all, I’ll cover the loan growth. We are projecting high single digit growth in loan outstanding for the full year which includes our expectations for pay-ups, pay-downs and potential participations and as we were keep saying that we will have stronger assets which in our C&I loan generations for our frontline managers in 2015 and we would like to continue with the improved mix of loan originations. And we are hopeful that with our new residential mortgage business starts ramp up and as well as our new credit card business starts soon, we expect the mix of loan production going forward to continue to become more diversified. Does that answer your question?

Matthew Clark

Analyst

Yes. That's helpful. Thank you. I’ll step back, thanks.

Operator

Operator

Our next question is from Scott Valentin of FBR. Please go ahead.

Scott Valentin

Analyst

Good morning and thanks for taking my questions. Just with regard to problem assets I know you mentioned you expect on accruals to trend down over the course of year and just wondering just specifically with the portfolio you’re seeing trends at the point of direction or is it more just a reflection of what you are seeing kind of general improving economic conditions?

Mark Lee

Analyst

Good morning. This is Mark. With regards to the improvement expected on a nonperforming loans in terms of nonperforming that's currently paying as agreed. We have about 78% to 79% of our nonperforming loans are paying as agreed. And drilling down specific to the nonaccrual, more than half of them are paying as agreed. So we just need to be more timely in terms of recognizing and converting them to accrual status.

Scott Valentin

Analyst

Okay. And then with regard to reserve coverage has been trending down, I guess over time like it was 1.3% of loans back at the end of 2013 and now it’s 1.2%. Where do you guys see that going over time – as continue to come down, reflecting a better credit or does it kind of hold around here?

Douglas Goddard

Analyst

I don’t see a dramatic move in that coverage ratio in the next several quarters or during 2015. We obviously don’t manage to that ratio per se. We have a very detailed bottom of analysis. But it seems to be resulting in a coverage ratio in that range right now.

Scott Valentin

Analyst

Okay. Thanks very much.

Operator

Operator

[Operator instructions]. And our next question is from Julianna Balicka of KBW. Please go ahead.

Julianna Balicka

Analyst

Good morning. I have several questions. One, in terms of your originations and paydowns, as I take your originations and subtract the paydowns in your press release, I get a linked quarter change of roughly 40 something million dollars and your loans grew more than that in that linked quarter. So were there purchases this quarter, or is there something else going into the mathematics that I did not see?

Angie Yang

Analyst

Purchase was included.

Douglas Goddard

Analyst

The mathematics is surprisingly complex. We don’t count as an origination, for example we refinance our own loan, so we may have a paydown and paydown numbers, $3 million -- and on that same loan that we've refinanced it for a new loan of $4 million. That transaction we’re not showing as an origination. That’s not part of our marketing effort and that is actually during the quarter, current quarter the biggest probably reconcile.

Julianna Balicka

Analyst

Okay, that makes sense. And then you referenced that in your comments about a couple of unusually large commercial deposits. Could you size those up? How big were they and how many were there? Are those still in your balance sheet? Or have they already left?

Douglas Goddard

Analyst

Our current position in the market and some successful marketing, we were able to attract some pretty big customers. And so at any given time our top three or four customers can cause a pretty big move. If I look at the top handful of inflows in that fourth quarter it probably accounts for pushing $200 million [ph]. But it's not like that $200 million [ph] is parked one day and gone the next. It's a range of volatility we have with those bigger customers. So yes, it’s a large number, a fair amount of it is still there. But we just -- we treat the liquidity of that a little differently when it's that big.

Julianna Balicka

Analyst

So that means that when we think about how much cash to be -- you talked about this a little bit when Aaron was asking his questions, but when we think about how much cash ongoing basis should be left in your balance sheet, it might be a slightly higher level than more of these 200 deposits you have versus what you had historically?

Douglas Goddard

Analyst

Sorry, I didn’t catch them all. I know you are asking of our average cash, and short-term investment is higher than normal because of these?

Julianna Balicka

Analyst

No, I am saying on an ongoing basis, it will be higher than normal because these deposits are not going away?

Douglas Goddard

Analyst

No, not to the current magnitude. It is not just -- it is the timing of when they come in, the back if it’s this year end, we’re building up liquidity anyway because the first quarters are most volatile, quarter trends with deposits. We tend to like to build up the cash reserves, December, January, because March, April tends to be a little bit -- so I would expect that level of cash to come down noticeably during the first quarter.

Julianna Balicka

Analyst

Okay. I see, all right. And then maybe if I can circle back to Kevin's remarks about capital, the regulators expect a higher standard for banks with such a serious concentration, such as yourself and with your real estate loans to your tangible common equity of 500, 74% could you quantify for us how much of the capital that you have currently in place is “excess/growth capital” that if you absolutely have to pay it out today in a special dividend, how much would you be able to release, in a hypothetical situation?

Douglas Goddard

Analyst

My sure answer will be no. We wouldn’t quantify that. It’s such a dynamic number. It’s not like we have a mandate to maintain a certain amount above the regulatory evidence. It's an ongoing dynamic analysis we do internally. We talked about long term. We might get that leverage ratio down in the 9 range [ph] [indiscernible] we can really give you when we do that all at once.

Julianna Balicka

Analyst

Okay. And then, in terms of some of the new and I will step back after this, some of the initiatives that you are building up. In terms of equipment leasing business, what is their current dollars outstanding of receivables or what was the contribution to Q4 earnings from that business, if you could quantify that for us and then I have one more question on the other initiatives.

Jason Kim

Analyst

Good morning Julianna. This is Jason. We had a first equipment leasing origination about six months ago and we have approved about 40 transactions. In terms of quantifying the approval, we did about $8 million for the second half of 2014, but though we did not open up in a full scale because this is a new initiative. We opened up to few selected commercial lending team and we kicked off 2013 with all of our commercial lending team. So we have already beginning to see waiting customers and we are projecting a minimum of $25 million in 2015 and we project that to double going into over the next several years. So this is a huge market to be dealt with and you are seeing a very positive response to my customers. And there is certainly a lot of opportunity. First of all, we have a number of subcontractors dealing with the Korean national companies doing a business [indiscernible] supermarket in New York. So I think from the assessment the first year in 2015, the very first year, that is a very conservative figure, but we will need the second and third year, we’re certainly expecting to double each year going forward.

Julianna Balicka

Analyst

Got it. And then in terms of the residential mortgage that you have the pilot program rolled out, could you tell us what kind of reception you have to that program? What kind of loan growth you had in the pilot program and therefore what kind of loan growth/origination growth you expect to achieve once you roll it out through the rest of your branch network.

Cha Park

Analyst

This is Cha Park and I will go and answer the question. First and foremost we just started the pilot. So it’s a little bit early for us to book anything at this point. As Kevin mentioned the purpose of the pilot is to make sure our policies and procedures that we built is working smoothly before we roll it out to the rest of the franchise. And so far we only have four branches that are actually in the pilot. The reception actually had been very, very positive, not only from our branches but also our customers. So we are currently working on a lot of scenarios. We did just a -- although the pilot just begun, we already took three loan applications and again we would be testing it out. We are expecting to launch to the full franchise by the second half of the year. And we are -- I think we mentioned it in our last call that our projected transaction, origination volume by mid 2016 is approximately 100 million per quarter.

Julianna Balicka

Analyst

Got it, very good thank you very much. And I will step back.

Operator

Operator

Our next question is from Gary Tenner, D.A. Davidson, please go ahead.

Gary Tenner

Analyst

Thanks and all my questions have already been answered, but I will just ask about SBA, pretty nice year-over-year increase in SBA gain on sale, almost 15%. Can you talk about what your view is going to ’15 on demand secondary market demand as well? And what do you think you might be able to accomplish there this year?

Douglas Goddard

Analyst

As Kevin mentioned we had a record breaking year in terms of SBA origination in 2014, that is up 10% compared to 2013. We started at a higher single digit growth in 2015 and there are some of the initial -- were we are going to roll about in 2015 too, maybe exceed that ratio but in terms of secondary market, I felt to be a secondary market trader on a monthly basis. The consensus are there expecting a very steady and some even estimate that the premium may go up in the second half given that the rate might go up. So I think the secondary market will hold steadily for the rest of the year and we are pretty excited about the initial discuss about the SBA, equipment leasing, mortgage, credit card business is coming up. So we are pretty excited about 2015.

Gary Tenner

Analyst

Okay. And then, one of you just update us on your 12/31 breakout of fixed versus variable rate loans and also talk about for a single variable rate loans?

Douglas Goddard

Analyst

I don’t have the exact numbers, probably we are at 52% variables.

Angie Yang

Analyst

The projection has 52% variable, 48% for our portfolio is switched around with 52% fixed and 48%.

Douglas Goddard

Analyst

Yes, our variable should be 52% fixed.

Cha Park

Analyst

[Indiscernible]

Douglas Goddard

Analyst

898 million which still has force.

Gary Tenner

Analyst

Okay. I'm sorry. So, 52% variable at your end and portfolio award?

Angie Yang

Analyst

52% fixed.

Douglas Goddard

Analyst

52% fixed at year end.

Gary Tenner

Analyst

So the same as the production rates in fourth quarter, basically?

Angie Yang

Analyst

No, it’s the reverse of the production rate. Production was 52% variable, but at year end our portfolio was 52% fixed.

Gary Tenner

Analyst

Okay. I apologize. I misread the table relative to that text. Okay. Thanks very much for clarifying that.

Operator

Operator

Our next question is from Oliver Brassard of BMO Capital Markets. Please go ahead.

Oliver Brassard

Analyst

Hi, thanks for taking my questions. I saw you guys had that long-growth target. Did you happen to give or do you happen to have a deposit growth target? It looks like you outgrew deposits versus loans this year is that the plan for 2015?

Douglas Goddard

Analyst

No. We generally have similar targets of the loans and deposit sides for grant loans. So we’re looking for high single digit deposit growth also.

Oliver Brassard

Analyst

And just as a follow up, do you think, are you expecting a little more competition for deposits on pricing this year versus 2014?

Douglas Goddard

Analyst

I would say we are really started seeing that second half of 2014 then I don’t see any reason why that's probably going to change with 2015.

Oliver Brassard

Analyst

Okay. Thanks for taking questions.

Operator

Operator

Our next question is from Donald Worthington, Raymond James, please go ahead.

Donald Worthington

Analyst

Good morning everyone. It’s a small number, but I was looking at the increase in borrowings of about 14 million in the quarter and given the liquidity level, just curious as to what that was? Was that an opportunity to lengthen some maturities or just some restructuring on the borrowings?

Douglas Goddard

Analyst

That’s exactly right. That’s in [indiscernible] of our day-to-day management we move a certain amount of our liabilities out longer than one year and the easiest place to do that is in the borrowing line.

Donald Worthington

Analyst

Okay, great. And then the tax rate for the quarter was kind of below the year-to-date, was there a -- is that a true-up in there, they impacted the fourth quarter?

Douglas Goddard

Analyst

Yes, the true-up is when we finally file all the state returns by October, when we true-up that, with the estimates we made in the previous year and the biggest variance was in the area of income credits of the state of California, but there was some benefit in the fourth quarter for that. And normal tax rate is about 40% right now.

Donald Worthington

Analyst

Okay, alright thank you.

Operator

Operator

[Operator Instructions] Our next question is a follow up from Julianna Balicka of KBW, please go ahead.

Julianna Balicka

Analyst

Good morning, I have a quick follow up on your variable rate loans, please. What is the underlying rate of your indexed to, or how could [Inaudible] priced, is it three months LIBOR or are they on some kind of one year re-pricing? Could you remind us please?

Douglas Goddard

Analyst

They’re mostly priced.

Julianna Balicka

Analyst

So once they’re above floors they will re-priced immediately?

Douglas Goddard

Analyst

Excuse me.

Julianna Balicka

Analyst

Once they’re above floors, once rates rise above the floors that you have in place, those loans will repricing immediately and re-price every what -- three months or something?

Mark Lee

Analyst

The variable rates are basically priced up to Wall Street general price. So whenever Wall Street general price does change, it’s kind of every quarter, but keeping in mind the floor, we have basically just about $900 million in our variable rates that are subject to floor. So yes, keep that it to consideration.

Douglas Goddard

Analyst

But if you are asking for the periodic repricing, as soon as the prime changes, it does affect those loans, if it is over the floor, that’s what you are asking.

Julianna Balicka

Analyst

And what is the floor rate?

Douglas Goddard

Analyst

It averages 67 basis points below the -- I didn’t count that. I am very close when I say 67 basis points of market on the average.

Julianna Balicka

Analyst

Okay got it. Thank you very much.

Operator

Operator

This concludes our question-and-answer session. I’d like to turn the conference back over to management for any closing remarks.

A - Kevin Kim

Analyst

Thank you. Once again thank you all for joining us today and we look forward to speaking with you next quarter in April. Thank you everyone.