Cathay General Bancorp (CATY) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's first quarter 2011 earnings conference call.

My name is Yvette, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

Following the prepared remarks, there will be a question-and-answer session.

(Operator Instructions)

Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com.

Now I would like to turn the call over to Monica Chen, Investor Relations for Cathay General Bancorp.

You may proceed.

Thank you, Yvette, and good afternoon.

Here to discuss the financial results today are Mr.

Dunson Cheng, our Chairman of the Board, President and Chief Executive Officer; Mr.

Heng Chen, our Executive Vice President and Chief Financial Officer; and Mr.

Kim Bingham, our Executive Vice President and Chief Credit Officer.

Before we begin, we wish to remind you that speakers of this call may make forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events, and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially.

These risks and uncertainties are further described in the Company's annual report on Form 10-K, for the year ended December 31, 2010; at item 1a in particular, and in other reports and filings with the Securities and Exchange Commission from time to time.

As such, we caution you not to place undue reliance on such forward-looking statements which speak only as of the date of this presentation.

We undertake no obligations to update any forward-looking statement or publicly announce any revision of any forward-looking statements to reflect future developments or events, except as required by law.

This afternoon, Cathay General Bancorp issued an earnings results release outlining its first quarter 2011 results.

To obtain a copy, please visit our website at www.cathaygeneralbancorp.com.

After comments by management today we will open up this call for questions.

I will now turn the call over to our Chairman of the Board, President and CEO, Mr.

Dunson Cheng.

Thank you, Monica, and good afternoon, everyone.

Welcome to our 2011 first quarter earnings conference call.

This afternoon Cathay General Bancorp reported a net income of $22.1 million for the first quarter of 2011, or $0.23 per common share.

That compared to a net income of $18.1 million, or $0.18 per common share, for the fourth quarter of 2010; an increase of 28%.

We are happy to be able to report a fourth consecutive profitable quarter and a welcoming start for 2011.

We are also encouraged by the continued stabilization in credit quality.

Net charge-offs for the first quarter of 2011 were $10.4 million, or 60 basis points of average loans on an annualized basis, compared to $22.8 million in the fourth quarter of 2010.

Our loan loss provision was $6 million for the first quarter of 2011, compared to $10 million for the fourth quarter of 2010.

Our non-accrual loans increased by $32.7 million during the first quarter 2011, due to $26 million of new non-accrual inflow in Texas.

However, subsequent to quarter end, we obtained title to $20 million of Texas properties.

Our reserve to loans was 3.5%, and the coverage of non-accrual loans was 88%.

For the first quarter our core deposits grew 12.4% on an annualized basis, and maintained a loan-to-deposit ratio of 94%.

On the loan side, our C&I loans grew $90 million in the first quarter due primarily to growth in [truly] financed loans.

Our residential mortgage loans increased $45 million while our CRE and construction loans dropped by $113 million.

The net interest margin improved from 2.88% in the fourth quarter of 2010 to 3.06% in the first quarter of 2011.

During the first quarter of 2011, we prepaid $200 million of fixed-rate FHLB borrowings, with an average rate of 4.33%; and incurred prepayment costs of $8.8 million.

To fund part of the prepayment, we sold securities from our investment portfolio for a net gain of $6.3 million.

At the end of the first quarter, our OREOs consisted of 59 properties with a book value of $75 million.

We disposed of 19 properties at $25.5 million, at a gain of roughly of $2 million.

Currently, we have 12 properties in escrow for an amount of $31.6 million.

At March 31, 2011, our Tier 1 capital ratio increased to 11.79%, Tier 1 risk-based capital ratio increased to 15.36%, and our total risk-based capital ratio increased to 17.28%.

All ratios significantly exceeded well-capitalized minimum ratios under all the regulatory guidelines.

We are pleased with the progress we have made so far and we are hopeful that our results will continue to improve, and that the worst is behind us.

With that, I will turn the floor over to our Executive Vice President and CFO, Heng Chen to discuss the first quarter 2011 financials in more details.

Heng?

Thank you.

Thank you, Dunson, and good afternoon, everyone.

For the first quarter, we announced net income of $22.1 million, or $0.23 per share.

The net interest margin, as Dunson mentioned, improved to 3.06%, which is an increase of 18 basis points from the 2.88% for the fourth quarter of 2010.

We expect steady improvements in the net interest margin throughout 2011, as a result of the prepayment of the $200 million of FHLB borrowings during February 2011.

The maturity of $100 million of repurchase agreements in March 2011, with a rate of 4.77%; additional investments in mortgage-backed securities, as well as between $100 million to $400 million of additional prepayments of federal home loan bank borrowings and repurchase agreements during the remainder of 2011.

Non-interest expense, excluding costs associated with redemption of debt, decreased $4.3 million, or 9.9%, to $39 million in the first quarter of 2011, compared to $43.3 million in the same quarter a year ago, due primarily to lower OREO expense and lower write down of loans held for sale in the first quarter -- the write downs were in the first quarter of 2010.

The efficiency ratio was 54.5% in the first quarter of 2011, compared to 55.6% for the same period a year ago.

With that, I would like to turn the call to our Executive Vice President and Chief Credit Officer, Mr.

Kim Bingham.

Thank you, Heng, and good afternoon to everyone.

I am pleased to report that the positive momentum in credit trends, first apparent in the second quarter of last year, continued into the first quarter of the current year.

Charge offs, and to a lesser extent, classified loan totals, reflect improvement during the quarter, leading to a lower provision for credit costs.

Net charge-offs for the first quarter totaled 0.60% of loans compared with 1.33% of loans in the prior quarter.

These losses were concentrated in commercial real estate loans, as this segment accounted for more than 85% of gross charge-offs for the period.

Provision for credit losses was $6 million for the first quarter of 2011, compared to $10 million for the fourth quarter of 2010 and $84 million in the same quarter a year ago.

Trends regarding classified credits and net charge-offs are currently positive.

Classified loans decreased from $750 million at December 31, 2010 to $724 million at March 31, 2011.

A reduction in classified credit exposure has the effect of reducing, all other factors held constant, the amount of our [ALL].

Our loss migration analysis is very heavily weighted towards our most recent loss history, and the recent reductions in net charge-offs will therefore also tend to reduce the amount of our [ALL].

We anticipate that a continuation of current trends in these regards will continue to allow for a quarterly loss provision that is less than net charge-offs during 2011.

Total non-accrual loans, excluding $2.4 million of non-accrual loans held for sale, increased by 13.1% or $31.7 million to $274 million at March 31, 2011; compared to $242.3 million at December 31, 2010.

During the fourth quarter, total inflows and non-accrual loans were $80 million, including $26 million of real estate loans in Texas; transfers to OREO were $17 million, charge-offs were $13 million, and cures and repayments were $18 million.

In early April we completed the foreclosure of $20 million of loans secured by real estate in Texas.

We expect an increase in the amount of pay downs and foreclosures in the second quarter of 2011 compared to the first quarter.

Loans past due 30 to 89 days at March 31 were $69.9 million, and are suggestive of only moderate inflow of non-accrual loans in the second quarter.

During the first quarter, we sold OREO with a carrying value of $17 million.

As of April 20, OREO with a carrying value of $32 million has either been sold after March 31, or is in contract for sale.

With that, I would like to hand the call back to Dunson.

Thank you, Kim.

We will now proceed to the question-and-answer portion of the call.

Operator?

Ladies and gentlemen, we are ready to open the lines up for you questions.

(Operator Instructions).

Standby for your first question.

Your first question comes from the line of Jonathan Elmi with Macquarie, please proceed.

Hi, good afternoon, guys.

Thanks very much for taking my questions.

Just wanted to start with a couple of quick questions around asset quality.

It's certainly nice to see the improvement again this quarter.

And I'm just wondering as I'm looking at the troubled debt restructurings, it looks like the accruing PDRs were flat, but then the non-accruing portion looks like it ticked up a little bit, just wondering if there was any kind of negative migration or what was going on there.

I will take that one.

Of the increase that you see there, we -- about a little less than $12 million of that were accruing TDRs that migrated in to be non-accruing TDRs.

There was only about $3.5 million of loans that were performing that were -- that went both non-accrual and PDR status during the quarter.

Okay, got you.

And then one other follow up, you mentioned the OREO sales that you expect to complete this quarter, it being the second quarter.

Wondering if you could give us any color around the property types and maybe where those properties might be marked, if you are currently anticipating any types of gains or losses on the sales, to the extent you can provide that.

Yes.

Jonathan, this is Heng Chen.

The -- we think the gain will be -- some of them are still in the contingency period, but will be between $3 million to $5 million.

They are all different types of property.

There is in terms of size, that's our ownership percentage, the largest one is an office building in Northern California, followed by land in the Inland Empire.

And then there is also, we sold three properties already, gains are about $2 million.

Those are basically a couple parcels of land and a former car dealership.

Okay, terrific.

And did you guys finance any of those sales?

Some of them.

Including in the first quarter, we sold a parcel of land that we financed at about 50%, that was carried on the books for about $6.5 million, and that was the bulk of the gain in the first quarter.

But the new loans are conforming in terms of loan to value ratios.

For the most part they are less, they are lower loan to values than our regular loan portfolio.

Okay.

Terrific, thanks very much, guys.

Your next question comes from the line of Michael Zaremski with Credit Suisse.

Please proceed.

Hi, guys.

Hi, Mike.

In terms of the NIM guidance, is there any change there?

I know Heng, you gave a range of prepay -- potential prepays.

Is that just going to be opportunistic based on earnings levels or levels of securities gains?

Yes, Mike.

The -- we -- based on how we see the rest of the year, we will probably prepay more than we thought a month ago.

But we would -- we generally don't expect anymore security gains.

What we would do is, for example, is we are so fortunate as to have $5 million of OREO gains in Q2, we would use that to prepay another $100 million, $150 million of FHLB borrowings.

Or if the loan loss provision looks to be lower in Q2 or Q3, we have -- we would prepay more.

So that's -- in terms of what we are prepaying, the bulk of it has a final maturity of August of 2012.

They're relatively inexpensive to prepay, and the average rate on them is 4.5%.

Okay.

In terms of deposit levels, I believe in the past you had said you were looking to run down certain deposits, doesn't look like that happened.

Is there any update on both deposit levels and deposit costs?

Do you see further deposit cost improvement or are things as competition starting to kind of creep up on the CD side?

On the CDs, we have about $300 million of broker CDs left.

The -- and we are letting that mature or run off as they mature.

But we are not seeing much deposit competition, because our loan to deposit ratio is 94% or thereabout.

We see continued improvement in deposit costs.

I'm hopeful that -- a couple of years ago we used to have public deposits that were fairly expensive, and with our profitability, we are going to, at some point in 2011, go back to that market and seek to get public deposits, which -- they are generally tied to the six month treasury.

So, there is going to be room for additional reduction in deposit costs.

Okay.

And just lastly, just to clarify, did you say that there could be $3 million to $5 million of gains on the OREO you have in contract and that was sold quarter to date?

In the second quarter, yes, that's correct.

Thanks, guys.

Your next question comes from the line of Joe Morford with RBC Capital Markets, please proceed.

Thanks, good afternoon, everyone.

Hi, Joe.

Hi.

Just wondered if you could give us a little more color on the inflows to non-accrual this quarter, the $26 million in the commercial real estate.

It sounded like mostly out of Texas market, just nature of the properties and other marks taken, prospects or resolution.

Yes.

This is Kim Bingham, Joe.

Yes, let me -- there's varied reasons why non-accruals went up, and let me give you some specifics.

But let me emphasize first the fact that they increased was not due the an extraordinary inflow of non-accruals for the quarter.

$80 million, the $80 million we reported is significant, but it's not inconsistent with the general level of new inflows to non-accrual in three out of the four prior quarters as well in which -- and we were able to reduce the overall level of non-accruals.

There was a couple of things that played into this.

One is obviously a little bit of unfortunate timing in that we were able to foreclose on, we mentioned $20 million in Texas property, less than one week into April.

Had the timing been a little bit different there, it would have looked different.

I would also mention that we purposely or strategically put one loan on non-accrual that was otherwise accruing due to a change in our workout strategy on an accruing substandard.

We had been working with the borrower and he had been performing, but we later negotiated what we think will be a short pay at a very nominal discount.

But nevertheless, that required non-accrual and a slight charge-off.

That together is about $30 million.

And then the more significant factor is the fact that we are seeing a lot more resistance from borrowers to foreclosure proceedings.

In particular, some of our larger borrowing relationships that slipped into the non-accrual status in the past quarter or two have gone bankrupt and stalled the process.

If I look at all of our non-accrual relationships of $5 million and over, it's about $175 million.

And once you take away the $20 million that we foreclosed on after quarter end, almost 50% of the remaining balance in dollar terms is currently BK.

While we don't think it's an inflow problem, per se, the workout is going to be more protracted obviously once they file.

Regarding the other part of your question, on the $26 million in inflows, $14 million out of the $26 million was part of that $20 million that is already gone into foreclosure.

That was a retail center in Texas.

The bulk of the rest is another retail center in the Houston area and then a smaller amount of some patio homes that weren't selling very well.

As far as the workout prospects on the other retail center, I would say they are reasonably good and they are approaching breakeven cash flow and at the least, we should be able to engineer either a restructure with -- of the whole thing or at a minimum, an AB restructure that gets the vast majority of it back to accrual status in relatively short order.

Joe, this is Dunson.

I can give a little bit more color to this process.

And the reason why the borrowers are being more resistant is that they see the market turning as we have talked previously, we can sell OREOs as a gain now.

So, the market is doing better and motivation for the borrower is to try to prolong the foreclosure process and try to do it themselves, so that in effect, that prolonged the resolution process.

That's great.

That's extremely helpful, good color.

I guess one other follow up for Heng, can you talk a little bit more about the increase in compensation costs from the fourth quarter?

You talked about some higher bonuses but also new hires.

I was curious to that, just what hires have you been making and types of offices --

I will cover the bonuses, Dunson can talk about the new hires.

Great, thank you.

The additional bonus is roughly $2 million and actually, we paid that out, most of it, on March 31.

We are looking at about a $8 million bonus expense number for the full year, which is sort of back to our level in 2008.

But -- and hopefully in 2012, the bonuses will go up commiserate with the pretax income.

But -- yes.

Joe, I'm sure that you are aware that recently the regulatory burden has gone up quite substantially in several areas.

For example, banks are required to have a robust risk management department, and that is a new department for us, and we are adding people to that.

And also in the compliance area, there is a big demand for talent as compliance is being looked at and focused on pretty heavily.

The other area that we have strengthened, of course, in our loan origination area, because our mortgage department has been doing quite well for last couple of years.

We are adding more people in that department, and we also have several new lenders that we have acquired recently.

Those are some of the areas that we have put money in and resources in.

Okay, appreciate it.

Thank you.

Your next question comes from the line of Aaron Deer with Sandler O'Neill and Partners.

Please proceed.

Hey, good afternoon everyone.

Hi, Aaron.

First question is for Kim.

Given the overall decline in classified loan totals, you mentioned that the provisioning is based on recent loss rates, and I would say this quarter's loss is down quite meaningfully.

Is it your expectation -- well, all else being equal, that provisions should remain at this level or drift lower still?

My expectation, our expectation is that it will be approximately the same level, may drift down a little bit, presuming charge-off activity unfolds as we believe that it will.

Okay.

And then I guess following up on Joe's expense question, given the new lenders that you've been hiring, it does seem like you've had some favorable growth in your C&I and residential.

I'm curious where that growth is coming from and then what your outlook is given that the pipeline and what kind of growth we might see going into --

Yes, this is Dunson Cheng.

The increase in C&I loans in the first quarter came, I would say maybe 60%, 65% from three related area, and then 30% some is from regular commercial loans.

Our Hong Kong branch has also contributed to some growth in commercial C&I area.

For the single family mortgages, most of the mortgage, most of that came from our New York region and to a lesser extent, from the other regions.

Most of them are -- we have seen our markets surface area, and we are not -- we don't have any loan brokers introducing single family loans to us.

And -- this is Heng Chen.

I think on the commercial loan growth, that was rel -- there is some uniqueness in the first quarter growth.

We don't expect to see that much growth every quarter.

Yes, in 2010, I think our commercial loan grew about 10% or so, and my expectation is that we should be doing a little bit better than 15%.

Just in that category, yes.

Okay, and how about overall in terms of when you are looking at the pipeline?

Well, we don't look at the -- it's hard for us to factor that in.

But we see, in terms of looking to future, continued rapid payoffs in the construction loan portfolio, and we are not growing the commercial, the CRE loans.

I think total loans increased on the net basis 5%, that's for the year, that's probably likely, I guess.

Sure, okay.

That's very helpful.

Thanks for taking my questions.

Sure.

Your next question comes from the line of Chris Stulpin with Raymond James.

Please proceed.

Thank you.

Just two things here, under the new FAS B TDR guidelines, do you expect to reclassify any performing loans as TDRs once you choose to adopt those guidelines?

I don't think that that will have a great impact in that our approach already as a practical matter implements some of those -- some of the things being talked about in the new guidance.

Very good.

I don't think it as having a big impact.

Okay.

And also, can you update us on your thoughts on addressing your TARP payments again?

Yes Chris, our first goal is to make sure that our MOUs, that the regulators see enough improvement so that our MOUs get lifted.

As so we're -- and as we understand it, the most important -- earnings are important, capital, which has been strengthful for us, then earnings and then the one that we are most focused on is the classified loans.

We have a plan to try to make significant improvement throughout 2011 on classified loans and hopefully, towards the end of the year, there will be enough improvement to warrant something happening on the MOUs.

And then the TARP repayment, the discussions would become serious after that time.

We've turned in our updated capital plan at the end of March, and we put in the hypothetical TARP repayment without raising any additional capital, but that's just pro forma exercise for now.

But that's where we are.

It's not really much changed.

Okay, very good.

All right, thank you very much.

Yes, thank you, Chris.

Your next question comes from the line of Lana Chan with BMO Capital Markets.

Please proceed.

Hi, good afternoon.

Hi, Lana.

I just had a few follow-up questions, one on the personnel costs.

So Heng, are you saying that the $18.3 million in the first quarter is a good run rate to use for the rest of the year?

Yes, it's -- let me see what's -- let's take a look at the table.

Yes, it's -- we have some salary increases that are effective in April, but they are relatively modest.

And then there is a FICA burn off that happens around this time.

Yes, yes.

That would be a decent run rate, yes.

Okay.

And when we visited with you in early March, it seemed like on the loan origination side, especially on commercial, it seemed like it was pretty weak early on in the year.

Did most of the growth come in late in the quarter?

Because trade finance is where the growth is and it really depends on the behavior of our exporters and importers, and they may come in for disbursement and then pay off at the regular level, so it's really difficult to gauge.

Normally when we talk to you, normally in the first quarter of the year, most of our importers have collections from the Christmas -- previous Christmas season, and they tend to pay down.

Normally it should be a slow quarter for us, but I guess I did not look at the most current numbers at that time.

Okay, that's helpful.

And it sounds like there may be, from what you said before, more opportunities to be able to more aggressive some of the balance sheet leveraging and paying down some of the higher cost borrowings later on in the year.

Does that change your margin guidance of 360 by the fourth quarter, Heng, and do you have where the margin ended at March?

Yes, Lana.

We still are concerned about rapid increases in interest rates, like many banks.

We are analyzing the margin every month, we are forecasting out what they would look like and practically what we should be doing in terms of buying securities and prepaying what we could afford to prepay.

We are going to do just enough to keep the margin at 3.6 for Q4 and position ourselves for future increases in interest rates.

There is no -- so that's our -- that was our approach.

And I forgot the second part of your question.

Just the spot margin at the end of the quarter.

Oh, yes, it's the same -- it was 3.06.

That was for March, that was distorted by a couple of things.

One, we had a bunch -- a lump of non-accrual -- new non-accruals, so we reversed out quite a bit of non-accrual interest in March.

And also, March wasn't a clean month, we modified the terms of our -- we have some sub debt, we extended that by a year, and there was a change in the interest rates, so that was a few hundred thousand.

Actually, March is better than 3.06.

And then lastly, if you look at the table we have for average balances, we have $260 million on average in securities purchased under repurchase agreements and cash, and we basically, here in the middle of April, have invested all of that.

That's -- those are all things that are going to help improve the margin.

Okay, great, thanks, Heng.

Sure.

Your next question comes from the line of Juliana Balicka with KBW.

Please proceed.

Good afternoon.

Oh, hi, Juliana.

How are you?

Good, good.

Most of my questions have actually been answered, but I have a couple of follow ups, if I may.

One, you were just discussing the new investments in the redeployment of the fed funds and cash.

Yes.

Yes, what kind of rates did you redeploy that into, and then as part of that question, when you talked about your guidance towards borrowing -- margin improvement, including the borrowing repayments, you mentioned new investments in MBS.

So for the rest of the year, do you have a vision of how much or how that -- what kind of chunks are you thinking about, things like that?

Yes, our -- we are trying to keep the total assets the same or a little bit less from the $10.7 billion number.

In terms of new MBS investments, they are 30 year, 4.5% MBS.

The rates -- our target rate is about 4.3, because there are slight premiums.

And in terms of how much more we have to do, it's just -- for the rest of the year, aside from replacing prepayments, we only plan on buying another $200 million to $300 million of new MBS.

And that would replace -- we have some lower yielding agency securities that we expect to be called.

That's a total investment portfolio, it won't go up, but the mix will be improved.

Very good.

That helps.

And then I have a question on the loan growth.

You had referenced that in answering questions that there was some uniqueness to this quarter's trade finance growth, maybe you can elaborate on that.

And also, in terms of the trade finance growth that you are able to achieve, what kind of banks are you running against that are competitive right now against you or broader market look like on that?

Well Juliana, this is Dunson Cheng.

And one of our customers is in exporting of waste paper business, and his business has been growing pretty dramatically in the first quarter.

We funded quite a bit of proceeds in export related loans.

So, that is little bit higher than what we are used to.

And that's the reason for the uniqueness that Heng talked about.

Very good, excellent.

Thank you for taking my questions.

Excellent quarterly results.

Thank you.

Your next question comes from the line of Ram Shankar with FBR Capital Markets, please proceed.

Good afternoon, thanks for taking my question.

Hi, Ram.

How are you?

Good.

Can you talk about the new terms fees that you issued on your new C&I growth and maybe compare that to all the yield that you are losing on the CRE and construction book?

What are the typical deal terms like, prepayment penalties, floors?

Any color on that would be helpful.

Most of our C&I loans price with Wall Street prime as an index, typically I would say that they would price roughly between 4% to 4.5%, and that's the floor, and the rate is Wall Street maybe half, prime to a half.

And most of them are also one year in maturity.

Ram, that's going to be somewhat lower than maybe on a fixed rate commercial real estate loan, but in terms of growth, the floating rate commercial loans are our emphasis.

Okay.

Thanks for the color.

Kim, could you -- I apologise for this, could you repeat the ins and outs of non-accruals, if you can, for this quarter?

The ins and outs of non-accruals.

Yes, hold on.

I apologize.

Let me do it, I'm going to read it from the script, Ram.

$80 million of new inflow, transfers to OREO were $17 million, gross charge-offs were $13 million and repayments were $18 million.

And on repayments of any of these CRE and construction loans, do you get prepayment fees on these?

Yes.

We got some.

We got some.

Not a huge amount in the first quarter, but if they are in the loan agreement and they are able to refinance elsewhere and we don't waive them.

Okay.

Thanks for taking my question, appreciate it.

Your next question comes from the line of Brett Rabatin with Sterne, Agee, please proceed.

Hi, guys, good afternoon.

Wanted to ask, I don't think I heard it if you gave it, but just some color around the late quarter decrease in classified loans that you discussed, $750 million to $724 million.

Can you talk about the net decrease there, was there -- obviously that was somewhat a fact for of construction, but can you give a little more color around that?

Yes, as far as the reconciliation on that, the -- we have one loan for $13 million, that is construction loan in West Hollywood, that paid down to $400,000.

And then in the second quarter, we were going to -- we are hopeful we will get like a $2.5 million to $3 million recovery from the loan as it finishes the sellout.

Then we had, I think, roughly we had the trends, the foreclosures, which were about $20 million, what Kim gave you was the classified loan number.

And then I would say the inflows into substandard were moderate compared to prior quarters.

And then on the watch list, there is actually a significant decrease.

In the picture, even though the non-accruals by themselves went up, which we tried to explain, but the pipeline of future sub-standalone seems to be reducing at a decent clip.

Having construction decrease by $60 million always helps.

Brett, I would add to that too, this is the first quarter where we've had in our risk rating migrations, we took a look at the special mention and in prior quarters, that was overwhelmingly migrating downward into substandard.

This quarter we actually had more of the starting substandards migrate to something better, pass or watch, as opposed to going down.

It seems like we are starting to see a lot of the bifurcation in the CRE portfolio that we saw several years ago -- or several quarters ago rather, in the residential construction portfolio where your borrowers are bifurcating into not going to make it or clearly are.

And there is fewer and fewer customers where their fate is in doubt.

Okay, good color.

And would the -- Kim, would the segments of hotel and the retail centers, would those be the two primary beneficiaries of the trend you are seeing?

To some degree, yes.

That seems to be more of a function of location rather than product type.

A lot of our lodging exposure has been in New York.

That market has done, in relative terms, pretty well, so we haven't had a lot of problems there.

And on the retail side, most of our problems have been in secondary, second tier markets, more outlying areas that were target -- were thought to be areas of residential growth for example, that never occurred.

And those outlying areas, they remain a problem.

But those loans have largely already been identified as problems, we don't have a lot of new ones popping up of that sort.

Okay.

Great, thanks for the color.

Thanks.

Thank you for your participation.

I will now turn the call back over to Cathay General Bancorp's management for closing remarks.

You may proceed.

Thank you.

Again, thank you for joining us for this call, and we look forward to talking with you again next quarter after our earnings release.

Thank you very much.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation, you may now disconnect, have a great day.