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Operator
Good day ladies and gentlemen, and welcome to the East West Bancorp first quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero, on your touch-tone telephone.
As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Steven Canup. Mr. Canup, you may begin your conference.
- Sr. Vice President, Strategic Planning & Investor Relations
Thank you operator. Good morning everyone, and thank you for joining us to discuss East West Bancorp's financial results for the first quarter of 2002. In a moment Dominic Ng, our Chairman, President and Chief Executive Officer, will provide a summary of the quarter, and selective corporate issues.
Then Julia Gouw, our Executive Vice President and Chief Financial Officer, will review the financial details. We will then open the call to questions.
First I would like to caution participants that during the course of the conference call, management may make projections or other forward-looking statements regarding the events or future financial performance of the company, within the meaning of the Safe Harbor Provision of the Private Securities Litigation Act, Reform Act of 1995.
We wish to caution you that these forward-looking statements may differ materially from actual results, due to a number of risks and uncertainties. For a more detailed description of the factors that effect operating results, we refer you to East West filings with the Securities and Exchange Commission, including our annual report on form 10-K for the year-end December 31, 2001.
I would like to also remind listeners that today's call is available on both live and re-play format at East West Bank.com and streetevents.com.
Now I would like to turn the call over to Dominic.
- Chairman, President and CEO
Thank you, Steven. Good morning. And I am pleased this morning to announce our highest net income and earning per share for any quarter in the bank's history.
Julia will provide the details for the first quarter results in a few moments, but I would like to first spend a few minutes to discuss a few highlights for the quarter. We are especially pleased with the quality and balance of the first quarter earnings.
As a result of our continuing efforts in our deposit-gathering program, focus on both retail and commercial customers, we continue to generate significant gains in transactional deposits, which lower our cost of deposits and increase our net interest margin.
This deposit growth originates from all of our operations. From our commercial banking centers, our traditional branch operations, as well as our newly opened 99 ranch installed branches.
In order to maintain a prudent deposit diversity, we anticipate a high rate of deposit growth from our retail operations, including the 99 ranch install branches, and from an expanded effort in number of new commercial sectors. However, with a slower rate of growth from the real estate industry deposits from our commercial banking centers.
In addition to the deposit growth, we generate a healthy loan growth, which also contributes to the increase in the net interest margin to 4.15 percent. We also achieved greater efficiency in our operations, with an efficiency ratio of 41.4 percent down from 46.2 percent in the fourth quarter and 44.4 percent in the first quarter of 2001.
This improvement in the ratio resulted from a careful control of operating expenses as well as results achieved from investments made in our infrastructure during the past several years. While we remain committed to supporting future growth through ongoing investments in our platform,
we believe that our
extension plans require relatively moderate expense for this year and that we achieve efficiency ratio for 2002 in the low to mid 40 percent range.
Again, the first quarter asset quality remained strong. Net charge-offs for the quarter total only 17 basis points, compared to 10 basis points for the fourth quarter of 2001, and 12 basis points for the first quarter of 2001.
We believe that this continued strength in asset quality reflects not only our current diligence in loan underwriting and servicing, but also the actions taken in 2000 and 2001 that we have highlighted in the previous conference calls.
Non-performing assets and non-accrued loans remained well within our target ranges, and we do not see any systemic issues in our portfolio which would lead to a material change in our asset quality.
Finally, I would like to provide additional update on two corporate issues. Our registered investment company, which we call RIC, and the success of the 99 ranch-installed banking operation. As many of you know, a proposal was added to the Senate Bill 1660 that would have not only ended the tax benefit of the RIC to banks in California,
but also called for retroactive repayment of benefits received to date. In hearings at the Franchise Tax Board, a number of the board members raised concerns regarding the retroactive nature of the proposal, as well as the method in which the motion was introduced into the bill.
In addition, the California Chamber of Commerce and the California Bankers Association lobbied against the provision. As a result, the provision was later removed from SB-1660 altogether. There was currently no legislation in the Senate or Assembly regarding the RIC,
although we have no assurance that another bill will not be introduced this year or next regarding the tax benefit of the RIC. Based on the current situation, we anticipate receiving the tax benefit through the remainder of 2002, but returning to a normalized tax rate in the low 30 percent range in 2003.
Second, I would like to provide an update on the '99 ranch installed branches. We opened the first branch in the first week of February, and the second branch in the last week of February. As of March 31st, the two branches have added approximately seven million in new deposit from new relationships in an average of six weeks of operations.
We are encouraged by the strong to the 99 ranch program, and intend on opening two to three additional stores in 2002.
These and other success for the first quarter result in the strongest financial performance for any quarter in the bank's history.
I would now turn the call over to Julia to discuss the details of these results.
- Executive Vice President and Chief Financial Officer
Thank you Dominic. I will review the major financial results for the quarter, as well as contrast in our operations. Earnings per share for the first quarter of 2002 equaled a record 48 cents, or 11.7 million. Earnings per share before a change in accounting principles totaled 45 cents, or 10.9 million, both also record amounts.
The 45 cents per share figure is ten percent higher than the comparable earnings per share of 41 cents reported for the first quarter of 2001.
The growth in earnings was driven by an increase in the net interest margin, a higher balance of average loans and earnings assets, growth in core non-interest income, and minimal increases in non-interest expenses, offset by a higher provision.
Net interest income totaled 27.6 million, 17 percent above the prior year. The net interest margin for the first quarter equaled 4.15 percent, compared to 3.95 percent for the first quarter of 2001, and four percent margin for the fourth quarter. The margin benefited from a substantial reduction in the cost of funds, and the growth in earnings assets.
The yield on earnings assets for the first quarter was 6.03 percent, compared to 8.28 percent for the prior year period, while the cost of the profits declined to 1.84 percent, compared to 4.26 percent a year ago.
We believe that due to the further growth in construction deposits, as well as the re-pricing of selected time deposits, the margin experience modest growth through the next quarter, then remain fairly stable for the second half of the year. We are anticipating a margin for the full year of 2002, in the 4.15 percent to 4.20 percent range.
Provision for loan losses totaled 2.6 million for the first quarter of 2002, 256 percent above the 700,000 for the prior year quarter. In line with the guidance provided last quarter, we intend to provide approximately ten million during 2002, both as a result of anticipated loan growth, and in response to continued economic uncertainty.
We were especially pleased with the growth in core non-interest income, which rose 29 percent to 5.3 million. All of our business lines contributed to the growth, with meaningful increase came from loan fees, from strong single and multi family mortgage originations, branch fee income,
fees from
finance and affordable housing activities, and higher commissions from insurance and alternative investment products. We will continue to focus on growing fee income during 2002.
As Dominic mentioned earlier, we achieved greater efficiency in our operations through both strict cost control and benefits realized from recent investments.
Total operating expenses equal 15.1 million, two percent below the year ago period. Cash operating expenses, which exclude the amortization of intangibles, totaled 14.6 million, two percent above the prior year period.
Cash operating expenses remained flat due to lower compensation expenses and minimal growth in all other operating line items. The efficiency ratio for the first quarter was 41.4 percent, compared to 44.4 percent for the first quarter of 2001. We anticipate that we will maintain an efficiency ratio in the low to mid 40 percent range as we achieve greater efficiencies from our infrastructure.
We believe that the expenses required to support our anticipated growth will be modest during the year. The effective tax rate for the quarter was 27.8 percent compared to 28.4 percent a year ago. We expect a similar tax rate for the remainder of the year.
Asset quality. As Dominic mentioned early, asset quality remained strong during the quarter. Total non-performing assets were 33 basis points of total assets or 9.5 million, compared to 27 basis points or 6.9 million for the first quarter of 2001.
The increase in NPA, non-performing assets, was related to two commercial real estate loans on which interest payments have been restructured. We anticipate that due to the low level of NPAs, we will experience some quality fluctuations within our anticipated ratios.
Total non
loans as of March 31, 2002 were 23 basis point of total loans, or 5.2 million compared to 21 basis points or 3.9 million a year ago. Net charge offs equal to an annualized 17 basis points of total loans, or 900,000 compared to 12 basis points or 600,000 in the first quarter of 2001.
We continue to expect total net charge offs for 2002 at or below our 35 basis points target. The portfolio
was diversified with very strong ratios. At quarter end, commercial real estate loans had an average balance of 1.1 million with an average original loan to value of 51.7 percent and an average
of 3.1 years.
Again, we did not have any commercial real estate loans 90 days or more delinquent.
Multi-family loans had an average loan balance of 463,000 with an original loan to value of 53.3 percent, a
of 3.1 years and we had one small loan with a balance of 19,000 that was 90 days delinquent.
Commercial business loans had an average balance of 350,000, and an average seasoning of 2.4 years. Finally, the bank remained well-capitalized with a tier one risked-based capital ratio of 9.91 percent, a total risk-based capital ratio of 11.11 percent, and a tier one leveraged ratio of 8.61 percent.
We have sufficient capital to support our anticipated growth, and expect to maintain our ratios in this general range during 2002. We did not repurchase any shares during the quarter, and have $8.9 million authorized under our repurchase program.
I will now turn the call to Dominic.
- Chairman, President and CEO
Thank you, Julia. Thank you for participating in this morning's call. And again, I would like to reiterate that we are very pleased with the results announced this morning. We believe that the results not only reflect the current strength of our franchise, but also the benefits achieved from strategic actions undertaken during the past several years to generate quality, balanced earnings.
As always, we remain committed to building the strongest and most dynamic commercial banking franchise in the state, and delivering superior shareholders return.
I would now open the call to questions.
Operator
Thank you. Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered, or if you wish to remove yourself from the queue, please press the pound key.
Our first question comes from
of
.
Good morning. Actually, I have a couple of questions, if I may. The first is on your non-performing assets, the two commercial real estate loans. Can you give us some color, such as what type of collateral you're talking about with the commercial real estate, whether it's office or warehouse or such? And were they owner-occupied, or were they non-owner-occupied?
And the second question has to do with the ranch '99 stores. How much do you anticipate spending in opening up those two to three additional branches? And when might you, or when might we be seeing those openings? And, on a quarterly basis?
- Executive Vice President and Chief Financial Officer
OK, in
restructure loans, those are two commercial real estate totaling about $2 million. They're industrial property, non-owner-occupied. The loan is very well collateralized by the value, but because of the drop in cash flow temporarily, we are restructuring the interest payment. We don't expect there's a problem with the collateral value of those two properties.
Julia, where are they located?
- Executive Vice President and Chief Financial Officer
They are located here in Southern Cal.
Southern Cal, OK.
- Executive Vice President and Chief Financial Officer
Yes.
And then the ranch '99 stores.
- Executive Vice President and Chief Financial Officer
In to look at the '99 ranch market, per store, the good thing about the '99 ranch market the capital expenditure is roughly about 200 to 250,000 to open one store. So it's quite low in comparison to a regular full branch, and we anticipate sometime in ..
- Chairman, President and CEO
Our current plan is to open most likely in August.
OK. So over the third quarter then?
- Chairman, President and CEO
Yes.
- Executive Vice President and Chief Financial Officer
Yes.
And how long, or how - what time frame to amortize those startup costs?
- Executive Vice President and Chief Financial Officer
Most, the, over the lease, about ten years.
So the amortize ...
- Executive Vice President and Chief Financial Officer
... the computer, you know it would be a shorter, about three years.
OK, but. OK. So it's pretty immaterial then.
- Executive Vice President and Chief Financial Officer
Yes.
OK. That's all I had. Great, thanks a lot.
- Executive Vice President and Chief Financial Officer
And thank you.
- Chairman, President and CEO
Thank you.
Operator
Our next question comes from
of Friedman Billings Ramsey.
Good morning.
- Chairman, President and CEO
Good morning.
- Executive Vice President and Chief Financial Officer
Good morning.
Several questions. One, in the loan growth category, you had strong growth in commercial real estate and multi family, while the trade finance balances outstanding continue to decline. Is that a conscientious shift away from trade finance into the real estate market?
- Chairman, President and CEO
Yes and no. What we have done is that our trade finance business actually have grown pretty healthy. The difference is that we have switch - we have kind of switched gear in terms of the direction of trade finance for two things.
One is that we for example, back let's say two or three years ago, because our loans to one borrower limit is substantially higher, we were doing like let's say, five, ten, $12 million trade finance deal. For the last two years that we have talked about in the several previous calls is that we have continued to participate out,
or manage down the exposure to one individual borrower for the trade finance, and other commercial - and then also, even in the commercial real estate - all category we have reduced exposure. So therefore, the dollar amount, even though the number of customers remain quite high, the dollar amount have reduced per customer. Which result in the total become smaller.
The other direction that we are going is that, we have start putting more of our focus into the export financing. Instead of the import - we still have a substantial loan portfolio in the import side, but in the export side most of those are guaranteed by the U.S. government, from the XM Bank Program.
And when the deals are guaranteed by the government, you know, and they, and also a lot of time we also do have a fee only type of transaction, such as we may only process the letter of credit without taking on a credit exposure, so because of that change of direction, you will see that, well actually that's why the balance have reduced quite a bit for the last two years.
And but I do expect that starting this year, the trade finance overall balance will grow back up.
OK. And as far as the real estate loan growth, is that something that we look forward to in the future, seeing fairly strong growth in the commercial real estate, multi-family areas?
- Chairman, President and CEO
First quarter the growth is pretty good. I mean we expect, somewhere - what we are trying to do is loan growth of three to four percent per quarter and last quarter it was over five percent. So, somewhere around there, I think that , we could grow that portfolio.
OK. I am looking at the income statement. Your
expense was down significantly
, part of that of course is goodwill amortization ceased this quarter, but also your compensation expense was down quit a bit. Is it 15.1 million in
expense is that a good base rate going forward or are there some one time events that would artificially lower that expense level?
- Chairman, President and CEO
We anticipate modest growth as we are expanding also the 99 ranch market stores installed branches, so I would expect that each quarter we'll see a modest increase, but of a major increase.
OK.
- Chairman, President and CEO
When we opened 99 ranch market, each store we need anywhere about five, maybe five staff or so, so far to six staff. So if we open two or three more we add on about 15 or so additional bodies and what we usually do is that a month or two before we start opening, we start hiring the people and start training them, you know.
And so therefore we would expect some slight modest increase in terms of compensation expense, you know , for that reason.
OK. And one final question. In your press release you talk about this quarter being really positively being impacted by downward repricing of the deposits, do you expect some of that to come into the second quarter? The 415, 420 guidance that assumes no fed fund increases?
- Chairman, President and CEO
Yeah, it is assuming a fairly flat, at the low end, you know, the 415, but if the rate started to inch up a little bit, you know, you could be as high 420 for the whole year.
Great. Congratulations on a strong quarter.
- Chairman, President and CEO
Thank you.
Operator
Again ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. Our next question comes from
of
.
Thank you. Good morning. I had a quick question on the loan portfolio. It looks like you guys have a fair, and always have had, a fair amount of exposure to hotels. Can you comment on vacancy rates in Southern California right now? You know, is that part of the portfolio holding up well? Obviously, it seems to be. Any thing there troubling you at all?
- Executive Vice President and Chief Financial Officer
Yeah. We looked at the portfolio very carefully. It does look like - it went down after 9/11. But right now it's supposed to pick up. We don't see any sign of problems in our hotel portfolio. So that's at this point of time, they look pretty good.
How low do the vacancy rates get to in your average hotel after 9/11? And where would you say they're at now, Julia?
- Executive Vice President and Chief Financial Officer
In some of the occupancy, our hotel, because they are not the big hotel -- the big conference hotels - probably some of them experience occupancy in the 50 percent, where they used to be higher. But most of the borrowers we've talked to, they have come back in quite a back. And when we look at the cash flow, they not have any cash flow problems.
OK, thank you.
Operator
Our next question comes from
of Midwest Research.
Good morning, great quarter.
- Chairman, President and CEO
Thank you.
Just one question related to deposits. I was impressed with the DDA growth-linked quarter. And was curious if the ranch - the acquired Ranch franchise continues to add any deposits there?
- Chairman, President and CEO
In terms of the DDA, that does not have much to do with it. Well, the '99 Ranch, one of the great thing about it is that, first of all, it's predominantly retail. Most of the deposit I would say is a pretty nice spread between personal checking accounts and CDs.
I'm sorry, I meant prime, not Ranch. I didn't mean Ranch.
- Chairman, President and CEO
In terms of from Prime Bank, they continue to experience some very nice growth in the commercial deposit area. The first year, particular the first two quarters when we acquired them, we were taking the opportunity,
because of a lot of consolidation taking place in Southern California banking community, and they were able to capitalize on that, and got a lot of deposits from the real estate industry. We are not expecting that we would - see, they grew from 100 million to a 300 million basically in one year.
Right.
- Chairman, President and CEO
We are not going to expect that kind of growth this year. We are expecting some really nice healthy growth coming from them, but not in that kind of magnitude. So in fact, it will be a more balanced growth this year, that, not only coming from the Prime Bank side.
But then you know, with our retail operation, and also within East West, our corporate commercial banking has been doing pretty well in terms of bringing additional commercial deposits.
OK, great. Thanks. Sorry for the confusion.
- Chairman, President and CEO
Thank you.
Operator
Our next question comes from
of the
.
Good morning, folks.
- Chairman, President and CEO
Good morning.
I have a couple areas I'd like to focus on. One is the '99 Ranch, and the other is your strategy for pricing deposits. On the '99 Ranch and the other is your strategy for pricing deposits.
On the 99 Ranch, I just like to get some idea about what kind of deposits do you need on a per store base to break even, you know, where's your break even point, and when do you expect to reach that from each store as you, how long is it going to take you?
Also, what are your expectations for, when the, when the branch matures, what type of deposit, or what size of deposits do you expect?
- Chairman, President and CEO
Well, in terms within our budget, the dollar amount that we need to for the 99 Ranch to break even is ten million. And that per store, ten million per store.
OK.
- Chairman, President and CEO
And in terms of, after it sort of like season, mature, how big it will go, the only statistics that we have is from the, I guess, the expert in-store banking, they think, I mean, it can vary some, you know, 30 to 50 million. It all depends on location, the type of store that you're in.
And nobody really have a clue about what is like in an Asian market, because no one else have a big, you know, Asian supermarket store like the 99 Ranch Market, and no one has been in there before, you know.
So, we are going to be a little
how, we have no statistics that we can sort of share with you about how big it's going to grow. All we know is that when we look at what Wells Fargo going through the other store maybe, you know, some other, you know, like B of A, go to the other supermarket store, they have some statistics out there that show, you know,
I mean anywhere between like 20, 30 or 50 or 60 million, you know, it ranges, you know.
But our 99 Ranch Market store is not going to be, just one little ATM and a single booth with nobody housing there, I mean we are a, as small as it is, you know, it ranges from 250 12 foot to 450 square foot is two little places that we have there.
But they are, you know, work like a full branch in terms of, you know, the four or five staff, taking deposit, doing, you know in terms of taking deposit, you know, helping customer on their transactions, and filling out consumer loan application,
and referring home mortgage loan, and et cetera, and even commercial loan referring to corporate office. So, I do have an expectation that they would do very well, but it's going to be too early for us to share.
So for your planning purposes, what do you - how long do you expect each unit or each branch to, how long before it'll take it to reach its $10 million ...
- Chairman, President and CEO
Our, our budget, our budget is that they would need to reach $10 million in one year. That's our budget ...
How long before they reach maturity?
- Chairman, President and CEO
Three years maybe.
OK. All right now on deposit pricing. I guess what I am trying to get at in your strategy for deposit pricing is that - now that interest rates are at fairly low level, there is increasing levels of competition for your depositors.
Alternatives and also I think there is probably a certain amount of depositors that when you get down to interest rates - at a certain point they decided that they are going to do something else besides leave it in the bank.
And I just wanted to know what your thoughts in this area are and what is your strategy for pricing deposits, particularly in this low interest rate environment is?
- Chairman, President and CEO
We've been very successful because of the franchise name
of the retail. Our retail niche is in the Chinese market and many of them would like to keep some money in the banks regardless of the interest rate environment. That is the reason why we have a very high balance on passbook accounts and transaction accounts as well as CDs.
So in terms of pricing, we price it competitively, but we are not, we don't offer the highest rate in town, and many of the customers come in because of our name, because of our service. And they have been long time customers. So that is somewhat how we would price our deposits.
- Executive Vice President and Chief Financial Officer
I would also add one other thing. That is why the 99-ranch market is crucial to our overall strategy about the direction about how we are going to grow the deposits. The convenience that we offer. We only have two stores at this moment, but we will, down the road we will open, you know, in the next few years we are going to get to all of 20 stores.
The idea is that allowing the customers do one stop shopping when they to buy groceries and then they can immediately perform their banking transaction on a Saturday afternoon, or a Sunday afternoon, you know. And things that are not offered from the traditional banking arena.
That, I think the added convenience is a big difference. Additional incentive about joint promotion with 99-ranch market, and all of these conveniences can make a difference. I think that just a quick example for these two stores.
As of today, our two stores have 70 percent of the transaction that they perform at those stores for the other branches of East West today. So that just kind of gives you an example that the minute that we opened -
I mean less than two months we already have customers from the other store - from the other traditional branches - going to the stores to perform the transactions. And we feel that this will be a very important attraction to sort of like make the customers feel that it is crucial to bank with East West, because of all these added convenience.
And therefore, pricing may not necessarily be that big a factor. But now for the last 29 years of history of East West, we have never been sort of like leader of the pricing arena. So therefore, but all
were able to grow their deposits.
So we feel comfortable that no matter what happens, the interest rate whether its come down or go up, that we are always going to be able to get our share of our deposit, as long as our group continue to execute, like we have been in the past.
Try to help me along a little bit. I would imagine if your ethnic client deposit base is not too concerned about interest rates, then you do have a great deal of flexibility, that your balance sheet would be more liability-sensitive to interest rates.
However, in the past several months, as these interest rates have gone down, it's shown that your assets are more sensitive to changes in interest rates than your liabilities. Can you try to reconcile that for me?
- Executive Vice President and Chief Financial Officer
Interest rate sensitivity will be a blend between the assets and liabilities. And the reason that we are slightly asset-sensitive is that over the last few years we've built up a lot more adjustable rate loans in our balance sheet.
And we do not portfolio the long term fixed, such as 15 year or 30 year single family residential. We sold them all, because we don't portfolio long term assets. And because of that, the combination between the assets and the liabilities, we've become slightly asset sensitive.
Well, I guess that's what I'm trying to get at. If you have such a great deal of flexibility in pricing your deposits, why are your liabilities less sensitive to interest rates than your assets?
- Executive Vice President and Chief Financial Officer
For example, in the rising rate, the reason why we would benefit is that when rates go up, our loan portfolio will reprice up. Majority of them will reprice up. But on the liability side, the CD will have to wait until the CD matures before it goes up.
And also, we do have the flexibility how much we increase the interest rate on the non-CD, the transactional. The DDA, those are zero percents, so when rates increase, they don't increase. And the checking account, passbook account.
Historically, when rates go up we do not increase the checking account or passbook account at the same rate as the market rate. So, because of that blend, we can do better in a rising rate.
- Chairman, President and CEO
I can't just sum it up, because it's like, precisely because we're losing more control of our liability, and that's why we are a little bit less tempted to, in the liability side, for the asset sides, you know, because when prime rate adjusts, you know, we can't tell the customers that we decided not to change it.
But for the liability side, when rate let's say goes up, I think that if we are not increasing our deposit rate as high as some of our competitors, and still be able to retain a deposit, then we're able to get a better margin, and that's why we are a little bit more extra sensitive than liability sensitive.
So, we can expect that you will continue to be slightly more assets sensitive in the future than, as you have been in the past, then you will, than liability sensitive?
- Executive Vice President and Chief Financial Officer
Yeah, we, you know, project that our balance sheet will continue to be slightly - we are not talking about very, you know, high asset sensitive balance sheet - within a year we pretty much, you know, like come back to somewhat a neutral position.
- Chairman, President and CEO
Well, I guess I would like to point out that in terms of philosophy, East West really does not want to be either asset sensitive or liability sensitive. We would like to be a best interest rates neutral, but the reality is that, you know, I mean, no one can really hold a balance sheet, you know, forever just very neutral.
But the idea is that if we are not in an extreme, on either end, we're not going to be as susceptible to the kind of interest rate environment, and I think one of the reason why last year we're able to come out OK, is because had we been extremely, extremely asset sensitive, we were be taking a big hit last year.
So we always try to stay as interest rate neutral as possible, but knowing the fact that we are, I mean, a financial institution that in a very, I mean very much, I mean determine on the interest environment, and so it - we do the best we can. So I would say that while we see the interest rate, while say that we're interest rate sensitive, if we get to be a little bit too far to the other end we're going to have to do something, in terms of hedging, you know.
But as of now, we're comfortable with this sort of slight, sort of like, a little bit asset sensitive, you know, and I think that's OK with us at this point, you know.
OK. Thank you folks.
- Chairman, President and CEO
Thank you.
- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question comes from
of
Managers.
Congratulations Dominic, to you and your colleagues on a very solid quarter.
- Chairman, President and CEO
Thank you.
Have you calculated what the impact on East West would have been if the
legislation was passed as originally written?
- Executive Vice President and Chief Financial Officer
If it were to pass retroactively from the beginning, the impact is 27 cents that we have to reverse. And on the ongoing basis, for example this year 2002, we are projecting a benefit from
is about 12 basis, 12 cents.
However, we believe that probably more likely if there were a change
be done on the prospectus versus retroactive.
- Chairman, President and CEO
So in 2003, in our budget for 2003 we would not include the benefit in there.
OK. And then just a quick second issue. Is there any regulator items that are pending that could an adverse effect on East West?
- Chairman, President and CEO
Not that I'm aware of.
- Executive Vice President and Chief Financial Officer
Not at this point. We are not aware of anything.
Thanks again. We really appreciate it.
- Chairman, President and CEO
Thank you.
- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question comes from
of
Yes, good morning. My question is on the 99 ranch locations, the impressive deposit growth that you have had, and certainly the new client base, in addition to the branches that you are going to open this year are going to make a nice market for you there.
On your fee side for the retail customers, is there anything that you expect to benefit greatly from this increase in customer base? Or is there anything that you would like have to add? Supplement your product offering there? Thanks.
- Chairman, President and CEO
Not in the very near immediate future. The plan is that when we first opened the - for example these two branches we first opened, they only focus on retail deposit gathering. You know, small mom and pop customers, retail deposit gathering. And referral of consumer loans, such as auto loans, home mortgages, home equity lines, et cetera.
However, we do have plans to have every one of these staff trained to also learn how sell annuity, mutual funds and insurance products. And that will be sort of like - in fact we are going to be continuing to train these staff to get up to speed that everyone of them becomes sort of multi-functional.
And so I don't think that, if you look at the financial statement this year that you will see substantial fee income generated, that we will have increase of fee income generated from our traditional branches selling annuities, mutual funds, and insurance products. But we would not expect any kind of a meaningful number from the '99 Ranch staff.
However, make sure the year after and so forth, that is something that we expect very much from those installed banking staff to show the performance, to help supplement our non-interest income revenue.
Great. Thank you.
- Chairman, President and CEO
Thanks.
Operator
Our next question comes from
of
.
I just have a couple of follow-ups. I think on Scott Valentin's question you talked about modest increases in operating costs. Can you quantify what you mean by modest?
And the second question with the '99 Ranch, of the seven million in deposits you've had over the last six weeks, how much of that has come from previously unbanked customers, or customers that didn't have bank accounts before?
- Chairman, President and CEO
All of them are not East West customers.
No, I mean, they just didn't have any bank accounts.
- Executive Vice President and Chief Financial Officer
Oh, no.
- Chairman, President and CEO
Oh, no, '99 I think it's a slightly upscale actually, and most of the customers there are pretty -- I would say that, you know, more or less of the middle class or above kind of income customers.
And obviously there are some few exceptions here and there, but we really didn't go into a lot of these details. But I imagine that 99 percent of them are actually - they have relationship with other banks, that decided that they will rather bank with us.
OK. And then, the modest increases, Julia?
- Executive Vice President and Chief Financial Officer
I would project that per quarter it increased by about 200 to 300,000.
OK. Ok, great, thank you.
Operator
At this time, it appears we have no further questions.
- Chairman, President and CEO
You have no further questions, I'd like to thank you all for joining us this morning, and I will talk to you again in April. Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Thank you, and have a great day.