East West Bancorp Inc (EWBC) 2003 Q1 法說會逐字稿

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  • Operator

  • Good morning and my name is Pleek and I will be your conference facilitator today.

  • At this time, I would like to welcome everyone to the East West Bancorp First Quarter Earnings Conference Call.

  • All lines have been placed on mute to prevent any background noise.

  • After the speaker's remarks, there will be a question and answer period.

  • If you would like to ask a question during this time, simply press "*" then the number "1" on your telephone keypad.

  • If you would like to withdraw your question, press the "#" key.

  • Thank you.

  • Mr. Canup, you may begin your conference Sir.

  • Steven Canup - Director Investor Relations

  • Thank you operator.

  • Good morning everyone and thank you for joining us to discuss the first quarter's results.

  • In a moment, Dominic Ng, our Chairman, President and CEO will provide a summary of our financial performance and key issues for the quarter then Julia Gouw, our Executive Vice President and Chief Financial Officer will review the financial details.

  • We'll then open the call for questions.

  • First, I'd like to caution participants that during the course of the conference call today, 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 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 more detailed description of the factors that affect the company's operating results, we refer you to our filings with the Securities and Exchange Commission including our annual report on Form 10-K for the year ended December 31st 2002.

  • Today's call is being recorded and is available and the replay and live form at the eastwestbank.com.

  • Now I'd like to turn the call over to Dominic.

  • Dominic Ng - Chairman, President and CEO

  • Thank you Steven.

  • Good morning.

  • Thank you for joining us to discuss the financial results for the first quarter of this year.

  • The results that we released this morning represent a good start to 2003.

  • Earnings per share totaled 48 cent 11% higher than the 45 cents per share before a change in the accounting principles reported for the first quarter of 2002.

  • Pretax earnings for the quarter rose by 19% to $18 million.

  • The most encouraging aspect of our results for the quarter is that the fundamentals of our operation continued to gain strength and generated earnings growth despite a fairly challenging environment.

  • Annualized organic growth in loans for the quarter was over 20% and for core deposits was 26%.

  • We also continue to add to our fee income generating 22% increase in our core recurring non interest income while at the same time maintaining our asset quality well within our target range.

  • In addition, we continue to invest substantial earnings power during the quarter, completed acquisition of Pacific Business Bank and opening our Representative Office in Beijing, China.

  • Now, all these actions added moderately to our expense levels for the quarter.

  • We anticipate realizing revenue contributions from both groups beginning in the second quarter of this year.

  • Shortly, Julia will provide an overview of the financial results for the quarter.

  • But I would like to first review a few items with you.

  • First, during the quarter our net interest margin experienced a nice rebound from the fourth quarter of 2002.

  • Excluding the impact of the mortgage securities and premium amortization, margin for the quarter was 4.07% - 17 basis points higher than the comparable margin of 3.9% for the fourth quarter.

  • We accomplished this sequential margin expansion through the continued repricing of our time deposits as well as loan growths.

  • Today, we'll provide additional details on new pricing trends for the second quarter.

  • Second, we also completed the acquisition of Pacific Business Bank in short PBB late in the quarter having approximately $140 million in loans and $135 million in deposits.

  • While the acquisition closed too late to make a meaningful contribution to the quarter's results, we remain confident that PBB will fit well into the East West platform and allow us to [inaudible] expand level and number of relationships at the PBB operations.

  • We have integrated the four branches into East West and have already seen the benefits of the merger in the lending activities of the former PBB professionals.

  • We intent to complete the conversion of its status system in the second quarter and continue to expect earnings per share accretion from the transaction between 4 to 6 cents in 2003.

  • Finally, I will like to provide additional guidance in terms of impact of potential changes in the interest rate.

  • As described in this morning's release we believe that a 25 basis point reduction in the fed funds rate will translate into a reduction in any net interest income of approximately $2 million or 5 cents per share for full year.

  • This equates to a 6 basis point reduction in our net interest margin.

  • This amount was said to impact over the 12 month period on the potential one time 25 basis point comp and did not assume any changes to other estimates such as loan growth or funding structure.

  • A 25 basis point increase in rates will have a similar benefit to our net interest income of approximately $2 million.

  • We continue to project that, assuming flat interest rates for the remainder of the year, 2003 earning per share will be in the $2.25 range.

  • I will now turn the call over to Julia to discuss the details of these results.

  • Julia Gouw - Executive Vice President & CFO

  • Thank you Dominic.

  • I'll provide a brief review of the major financial results for the quarter.

  • Net income and earnings per share before accounting change for the first quarter increased by 8% and 7% over first quarter of last year to $11.8 million and 48 cents respectively.

  • The primary driver of this growth was a higher balance of earnings asset and gains in non-interest income, offset by a lower net interest margin and a higher tax rate.

  • As Dominic discussed earlier, the net interest margin for the March quarter was 4.01%, compared to 4.15% a year ago and 3.78% in the fourth quarter of 2002.

  • The previously announced amortization session of a purchase premium on mortgage securities, lowered net interest income and pretax income by 480,000 representing an annualized 6 basis point reduction in the margin.

  • Excluding the impact of this premium amortization, the net interest margin for the first quarter equaled 4.07% compared to 3.90% in the fourth quarter.

  • Approximately, 258,000 of purchase premiums remained on our balance sheet as of March 31, and based upon the repayment profile of the underlying securities, we anticipate amortizing the remaining amount during the remainder of the year.

  • The increase in the margin in comparison to the fourth quarter resulted primarily from the repricing of all time deposits.

  • During the first quarter, approximately, $723 million of 47% of the time deposit repriced in addition, approximately $675 million or 44% of the current time deposit were repriced during the second quarter an amount that include some short term CDs were also repriced during the first quarter.

  • Assuming no changes in the fed funds rate, we anticipate a margin of 4.05% to 4.1% for the second quarter and 4.1% to 4.2% for the second half of the year.

  • In addition to repricing, the margin benefited from strong growth in earnings assets.

  • The average balance of earnings assets for the quarter increased 16% over first quarter of 2002 to $3.1 billion, but average loans for the quarter increased 10% to $2.4 billion.

  • Total gross loans were up 10% from the year-end to $2.6 billion.

  • Organic loan growths for the quarter totaled $129 million for an annualized rate of 22% with PBB acquisition adding $113 million in new loans to the balance sheet.

  • Commercial real estate, multifamily, construction and consumer loans, continue to account for the majority of the loan growth in the quarter, a trend we believe, will be consistent for the remainder of the year.

  • In addition to reflecting the general demand for credit in California market, we believe that these secured loans typically represent a more attractive risk profile than commercial business and trade finance given the current economic environment.

  • We maintain our expectation of loan growth for the year at approximately 20%, including the impact of acquisition of PBB.

  • We were also very pleased with the expansion of our fee income base during the quarter.

  • Core recurring non-interest income, which excludes non-recurring gains on sale of securities, grew by 22% to $6.4 million.

  • Branch fees increased by 18% to an annualized run rate of nearly $7 million, driven primarily by higher deposit balances.

  • We also generated strong gains in matters of credit fees from our trade finance and affordable housing financing activities, which totaled $1.5 million for the quarter, as well as higher fees from our insurance sales and fees, from the sale of residential mortgages to the secondary markets.

  • Total non-interest income for the quarter equaled $6.8 million, 29% higher than the first quarter of 2002.

  • Non-interest income is anticipated to increase by approximately 15% in 2003, with similar line item contribution.

  • Non-interest expense for the first quarter totaled $17.4 million, 15% above the year ago level.

  • Cash operating expenses, which exclude the amortization of intangibles and investments in affordable housing partnership, total $15.6 million, also a 15% increase from the first quarter of 2002.

  • The higher expense level was due to higher compensation cost related to new hires, salary increases and bonus accrual.

  • Other expenses increased by 18% to $5.1 million, due primarily to higher vended [ph] cost related to the growth in commercial deposits, as well as general growth at the bank.

  • We expect cash expenses to increase by 6% in the second quarter to reflect a fourth quarter of specific business bank operation.

  • The efficiency ratio for the quarter equaled 41.3% compared to 41.4% a year ago.

  • We anticipate an efficiency ratio for 2003, in the low 40% range.

  • The uplift for the first quarter was 34.5%, compared to 27.8% a year ago.

  • The higher tax rate reflects the elimination of the risk benefit in the fourth quarter of 2002.

  • Asset quality -- we continue to be very comfortable with our asset quality rations.

  • Non-performing assets as of March 31 equaled 36 basis point of total assets or $12.6 million compared to 33 basis point or $9.5 million a year ago and roughly equal to the level of the fourth quarter of 2002.

  • Non-accrual loans totaled 36 basis point of total loans or $9.3 million compared to 23 basis point or $5.2 million a year ago and 38 basis point or $8.9 million in the fourth quarter.

  • The non-performing asset ratios continue to represent a small number of loans with power specific issues and are not indicative of a systemic issue with the portfolio.

  • We have maintained our non-performing assets targets for 2003 at or under 50 basis points.

  • Net charge-off for the first quarter totaled $1.1 million or an annualized 18 basis point of average loan compared to $1 million or 17 basis point a year ago and $1.5 million or 26 basis point in the fourth quarter.

  • We anticipate net charge-off for the 2003 to be at or below 35 basis points.

  • Our portfolio remain very granule in 2003 and loan to value rations remain very strong.

  • As of March 31, average balance for commercial real estate loans was $1.1 million with an average loan to value of 58% and average seasoning of 3.3 years.

  • Multifamily loans had an average balance of $480,000 with an average loan to value of 65% seasoning of two years.

  • Construction loans had an average balance of $2.5 million, 67% loan to value, and a seasoning of 1.6 years.

  • Commercial business loans had an average balance of 368,000 and an average seasoning of 2.1 years.

  • Finally, we remained well capitalized with the Tier 1 risk based capital ratio of 9.76%, a total risk based capital ration of 11.02%, and a Tier 1 leverage ratio of 8.9%.

  • We have sufficient capital to support our anticipated growth and expect to maintain our ratios in this general range in 2003.

  • I will now turn the call back to Dominic.

  • Dominic Ng - Chairman, President and CEO

  • Thank you, Julia.

  • Again, thank you for joining us today, as we discussed earlier.

  • We continue to build a strong and marching commercial banking franchise by focusing on operational and financial fundamentals.

  • We believe that we are in a stronger position in our history with a very healthy balance sheet, a strong reputation in our core market, a competitive and growing presence in an attractive niche market, a solid loan growth, and a stable asset quality.

  • We recognize the challenging market environment today and are working to mitigate impact on our performance from historic low interest rates.

  • We will not, however, pursue actions following post short-term earnings to risk of our long-term viability and earnings power.

  • We believe that 2003 will prove to be another year of record earnings and provide further strengthening of our banking platform.

  • I will now open the call to questions.

  • Operator

  • At this time, if anyone would like to ask a question, please press "*" then the number "1" on your telephone keypad.

  • We'll pause for just a moment to compile the Q&A roster.

  • Your first question is from Brett Rabatin with FTN Securities.

  • Brett Rabatin - Analyst

  • Good Morning.

  • Dominic Ng - Chairman, President and CEO

  • Good Morning.

  • Brett Rabatin - Analyst

  • Couple questions for you.

  • First, can you talk about loan fees in the first quarter, that seem to be little bit lower than I was expecting, can you talk about what are the performance and the quarter earnings going forward right through those.

  • Julia Gouw - Executive Vice President & CFO

  • In term of the loan fees -- the best driven primarily from the residential mortgage activities so, you know, there will be some fluctuation on the loan fees that we collected depending on how much we originate, whether the portfolio or we sell the loans into the secondary market?

  • Dominic Ng - Chairman, President and CEO

  • The loan production remains strong in the residential mortgage origination area however, the mix of portfolio versus immediately selling to the secondary market depends on our customers, it all depends on our customer choices, many of them prefer all fixed rates to know there is high likelihood that we will start with the secondary market, but if they actually prefer to -- I mean, some of them prefer to have the intermediate fixed or may be adjustable rate, many of them were put in the portfolio so, the loan fees fluctuates for that reason.

  • But in terms of the total production, we still have a very strong growth in the first quarter.

  • Brett Rabatin - Analyst

  • Okay, I guess from a feeing come perspective, when I look at your guidance, I guess I am trying to calculate exactly how you get there and from a gain on sale of loans perspective, you want to have incrementally more in the second half of the year and then your service charges or whatever else would have to increase materially.

  • Can you give us a little more guidance on component increases throughout '03?

  • Julia Gouw - Executive Vice President & CFO

  • Yes, when we acquired PBB, the date of acquisition was March 14th, so their deposits also generate some fee income, across the board, which some trick finance from the loans and also the branch fee income.

  • So, we're comfortable about that 15% overall fee income growth very similar instrumental line items.

  • Brett Rabatin - Analyst

  • Okay, and then from a tax rate perspective the tax rate was 34.5 I'm assuming the tax rate will be 37 or 38 going forward in subsequent quarters can you talk about what are the tax rate in the first quarter, and whether or not you utilized any tax credits during 1Q?

  • Julia Gouw - Executive Vice President & CFO

  • In the first quarter, we purchased over $5 million in tax credit, so that lowered our tax rate ever.

  • You know we have amortize some more into the expenses, and we expect for the remainder of the year the tax rate is somewhere between the 35% to 37% range.

  • Brett Rabatin - Analyst

  • 35% to 37?

  • Julia Gouw - Executive Vice President & CFO

  • Yes.

  • Brett Rabatin - Analyst

  • Okay, and then from the credit perspective very good quarter.

  • It sounds like you're - you walked through a couple of larger loans, can you give us some guidance on you get about $9.3 million in NPAs presently.

  • Can you talk about our thought process on the movement of those to either ORE or getting them off the balance sheet?

  • Julia Gouw - Executive Vice President & CFO

  • I think that the trend based upon our review of the asset quality.

  • It's probably stable.

  • Some of this, a big percentage related to multi-family and commercial real estate.

  • Now we do not believe there're any loss but sometimes it takes some time to resolve that.

  • For example, one of the commercial real estate is $1.5 million, has been in the non-performing assets because of the restructuring for nine months and they got paid off in April.

  • I do believe that, the trend will probably, somewhat stable.

  • Brett Rabatin - Analyst

  • Okay and then one last question and I'll turn it over to someone else.

  • Can you talk about guidance for a loan to earning asset ratio throughout the year as you progress with this acquisition?

  • Will that trend to over 80% relatively quickly?

  • Julia Gouw - Executive Vice President & CFO

  • And you must earn loans to earnings asset it would be very similar to what we have right now.

  • You know the PBB acquisition will not change that ratio by much.

  • Brett Rabatin - Analyst

  • Okay, but so going forward you know we don't anticipate continuing to increase the relative proportion of loans to total earning assets.

  • Steven Canup - Director Investor Relations

  • Not with anything -- meaningful range.

  • It may increase slightly but it won't be a substantial increase.

  • Brett Rabatin - Analyst

  • Okay.

  • Thank you very much.

  • Dominic Ng - Chairman, President and CEO

  • Thank you.

  • Steven Canup - Director Investor Relations

  • Thank you.

  • Operator

  • Your next question is from Mark Agah with RBC Capital Markets.

  • Mark Agah - Analyst

  • Good Morning, everyone.

  • Dominic Ng - Chairman, President and CEO

  • Good Morning

  • Steven Canup - Director Investor Relations

  • Good Morning

  • Mark Agah - Analyst

  • Just a quick question on the margin, if the core bank margin was 4.07 in the quarter and, you know, we assume, we have all the CD's, repricing in Q2.

  • I'm considering the 4.05 to 4.10 could be potentially be a little conservative.

  • Could you give us a little more color on that?

  • Just a big payoff's coming down the line as you anticipate?

  • Are you assuming some more on the CMO premium amortization in the quarter?

  • Can you just give us little more color on that or is this just short of a conservative range in your opinion?

  • Julia Gouw - Executive Vice President & CFO

  • One of the thing that we don't know for sure is the CMO amortization, you know, based upon what we see, you know, it probably wouldn't pay off all, you know, in the second quarter.

  • So we're projecting for the whole year.

  • But sometimes, you don't know, you know, how much would be in the second quarter.

  • So that would be one of the criteria.

  • We do expect to have more CD repricing, so that would help our margin.

  • Mark Agah - Analyst

  • Okay.

  • So, potentially, there could have been an upside in 4.10 on top end of the range?

  • Julia Gouw - Executive Vice President & CFO

  • Yes.

  • There's a possibility but we feel comfortable between 4.05 to 4.10.

  • Mark Agah - Analyst

  • Okay.

  • Dominic Ng - Chairman, President and CEO

  • Well another thing to keep in mind while we continue to have very good -- we've been pretty good at repricing the cost of fund down through the CD's repricing of the loan you'll continue to give us some pressure, because while when we go out today and originate new loans they are at a much lower yield than we were able to do that a year ago.

  • So, the combination of the two, I think, net, net, I think that we feel comfortable against this 4.05 to 4.10 is probably something that we can be comfortable to achieve.

  • Mark Agah - Analyst

  • Okay.

  • The other question I was asking Dominic, could you give us an update on 99 ranch deposit growth in the quarter, and, you know, anticipated openings from my understanding you're sort of slowing the openings down this year.

  • Can you talk little about that?

  • Dominic Ng - Chairman, President and CEO

  • Yes, we are slowing down the opening for the reasons that as we just talked about from your previous question in terms of holding the price down, this 99 ranch is predominantly being used by as a vehicle to gather retail deposits which predominantly are checking -- personal checking accounts savings and CDs.

  • And with our CD rate being so low and at this moment and also we trying to mark sure that we have decent margin.

  • It really doesn't make sense for us to do any kind of promotion.

  • And any CD's we bring in today, if we try to open a new store, the chances are it's going to be still higher than Fed funds.

  • So therefore this year it doesn't make a lot of sense for us to open too many new stores.

  • Now, while I say that I think we still plan to open a one or two more.

  • I think at this stage, the plan is that we will open one in Golan Heights within the next two months or three months.

  • And we believe that in the long-term future, with 99 Ranch market in store banking will be a great addition to East West retail franchise.

  • However, in just today's interest rate environment, it's not very conducive to aggressive deposit gathering.

  • Mark Agah - Analyst

  • Okay.

  • Great.

  • Thank you.

  • Operator

  • Your next question is from Jennifer Demba with Robinson Humphrey.

  • Jennifer Demba - Analyst

  • Thank you.

  • A lot of your bank and smaller bank competitors has struggled with loan growth in the first quarter, could you kind of talk about what the environment was out there?

  • You did much -- was it mainly market share shift or what are you seeing?

  • Dominic Ng - Chairman, President and CEO

  • Our loan growth, I will say is relatively healthy, but if I breakdown between the real estate sectors versus commercial business and trade finance, clearly in today's economic environment the commercial business credit has been slower then before and as you have seen from our balance sheet for the last 12 months or so that we have not been able to grow the commercial business loans in the same kind of pace like our real estate loans.

  • And the real estate market is still, I would say, relatively a strong in Southern California but commercial business will continue to remain a little bit slow.

  • Jennifer Demba - Analyst

  • Okay.

  • Thanks Dominic.

  • Operator

  • Your next question is from Lana Chan with Advest.

  • Lana Chan - Analyst

  • Hi.

  • Good morning.

  • Just one or two -- two questions, one on the impacts from PBB, just on the fee income and expense levels going into the second quarter, could you just give us specific dollar amounts of what they should add to the second quarter numbers?

  • Julia Gouw - Executive Vice President & CFO

  • In term of the fee income, the run rate is about $800,000 a year.

  • So closer to $200,00 per quarter is the run rate for the fee income and then in term of the expenses for the second quarter, it would be approximately $1 million from the PBB.

  • Lana Chan - Analyst

  • A million dollars in a quarter?

  • Third quarter?

  • Julia Gouw - Executive Vice President & CFO

  • Yes.

  • Lana Chan - Analyst

  • Okay.

  • And then my second question is related to SARS and wanted to see what you guys are thinking about maybe the potential impact from the spread of SARS, particularly in China, on your trade finance business and then potentially spreading in the US -- what kind of impact that would have on your customer base?

  • Dominic Ng - Chairman, President and CEO

  • Well, it's hard to figure out what's going to happen in the future, but at this stage right now, what we've seen so far is that in terms of our trade customers most of them are in the importing and because of the products that they're involved with, that are in the -- let's say not the hi-tech type of industry -- the requirement of our customers to go to China to inspect goods and to make sure that everything's working okay and then so forth is not as crucial as those who're in the hi-tech industries.

  • So, therefore, I think that most of our customers today are still - I mean can actually conduct their business by using phone, email and fax and that's still going pretty good and we do not have any customers because of SARS today that have business losses and I have not heard any customers that have their workers in that factory in China that have been infected that caused, you know, business disruption.

  • And interesting enough myself just came back from China last -- two weeks ago and few of my staff also were there too and everyone of us were okay and that the situation right now is that -- I think that the biggest problem with SARS is the uncertainty that caused a lot of fear and that's why people are not, you know, traveling.

  • It is true that the airline industry is hurting very bad in Asia and the hotel industry, you know, hotel business and then the traveling tour business are hurting very, very bad in Asia.

  • We at East West Bank really do not have exposure in those type of business.

  • However, if the SARS, let's say, not only currently already in the United States but if it turn out that it would actually cause death and then also become a widespread epidemic then I would think that indirectly we will be effected because of a slowdown in business.

  • One other thing I do want to mention is that, you know, that's like East West have always run our business in a safe and sound manner.

  • We always want to make sure we have a very, very strong balance sheet.

  • We always want to make sure that our financial conditions not only is strong but our capital is more than adequate, and for the last 30 years we've gone through a lot of different things, even just in the last few years, you know, with the - besides the Asia crisis and then the September 11, and then -- and also the massive interest rates cuts and so forth we all and then the closing of the port in Los Angeles and then the West Coast.

  • We turn out okay in everyone of these tough scenario.

  • So, I believe that the situation in SARS is very unfortunate right now, the people are really scared about it but the same -- at the bottomline, in fact is that it wouldn't have too much issue for East West Bank.

  • Lana Chan - Analyst

  • Okay.

  • Thanks Dominic.

  • Dominic Ng - Chairman, President and CEO

  • You're welcome.

  • Operator

  • Your next question is from Scott Valentin with FBR.

  • Scott Valentin - Analyst

  • Good morning everyone.

  • Steven Canup - Director Investor Relations

  • Good morning.

  • Dominic Ng - Chairman, President and CEO

  • Good morning.

  • Julia Gouw - Executive Vice President & CFO

  • Good morning.

  • Scott Valentin - Analyst

  • A question on your guidance for 2003, 225 and 230.

  • Obviously 225 is if rates stay stable and 230 will be if the Fed increased rates.

  • My question I guess is, given the mix of different loans in the portfolio, some loans are of course tied to prime which keys off the Fed but also you have loans tied to Libor as well as a treasury index.

  • So, wouldn't just a general increase in mortgage of short-term mortgage rates kind of regardless to what the Fed does wouldn't that positively impact margin?

  • Julia Gouw - Executive Vice President & CFO

  • Yes in Libor, you know, changes in Libor or one year treasury does have some impact.

  • But then, you know, the big percentage, it's prime based.

  • So, the impact on the change on the prime rate is greater.

  • Scott Valentin - Analyst

  • Okay.

  • Do you have -- the percentage of primary based?

  • Julia Gouw - Executive Vice President & CFO

  • Yes.

  • I think we have about, you know, close to a $1 billion of our assets tied to the prime base.

  • Scott Valentin - Analyst

  • Okay.

  • All right and then I guess following up on 99 Ranch, supermarket branches so then is it safe to say that the fee income being generated by those branches is not sufficient to warrant, you know, continued, say, four branches a year opening it was something you're cutting back by about half number of branches you plan to open.

  • Is that a fair assessment?

  • Dominic Ng - Chairman, President and CEO

  • If we'd see -- no.

  • In terms of fee income, no, it's not.

  • But, I would say that on a normal interest rate environment, the spread that we can earn from our deposit, versus you know borrowing cost, that one in particular in combination with the fees and also the combination of some of the consumer loans that they generate should be able to make those branches quite profitable after they, you know, no open for two to three years.

  • However, I would say that, you know and today's rate environment, you know, it makes it a little bit difficult.

  • I still see that in fact, one of the branch out of the four is already have broken even and start making profit.

  • So, even despite the fact that, I mean, it opened in 19 - it only had been opened for 13 months, as already been, you know, broken even but the fact is in today's environment, we don't feel that its appropriate to continue to ask too many branches and all of them even though we have to carry, you know, for at least a year or more and for the 19 -- for the year 2004, we do anticipate, you know, want to rate - hopefully want to rate environment change to the other, to the positive side that, and that we would want to open more.

  • Okay.

  • Thank you.

  • Operator

  • At this time, I would like to give every one, an additional minute press "*" then the number "1" for a question.

  • Your next question is from Lee Calfo with Acadia.

  • Lee Calfo - Analyst

  • Hello, good morning.

  • Steven Canup - Director Investor Relations

  • Good morning.

  • Dominic Ng - Chairman, President and CEO

  • Good morning.

  • Julia Gouw - Executive Vice President & CFO

  • Good morning.

  • Lee Calfo - Analyst

  • Will the reserved delivered ratio to now up over a 1.5%, will that hold steady in terms of your provision expense for the remaining of the years assuming as the quality remains where it is?

  • Julia Gouw - Executive Vice President & CFO

  • Yes, roughly in that range of ration with the same provision at the first quarter.

  • Lee Calfo - Analyst

  • Good, thank you.

  • And then you also mentioned in your press release that you have $9 million remaining on your existing share of purchase programs.

  • Is that something you would look out, later on the year for capital ratios continued to improve?

  • Julia Gouw - Executive Vice President & CFO

  • Yes.

  • We'll continue to evaluate.

  • You know, we still have that $9 million [indiscernible] board, so at the time that we believe that you know, that is the best use of our capital.

  • We would do that.

  • Lee Calfo - Analyst

  • You cleared those of my two questions.

  • Thank you and congratulations.

  • Julia Gouw - Executive Vice President & CFO

  • Thank you.

  • Dominic Ng - Chairman, President and CEO

  • Thank you.

  • Operator

  • Your next question is from Manuel Ramirez with KBW.

  • Manuel Ramirez - Analyst

  • Hi, good morning.

  • Julia Gouw - Executive Vice President & CFO

  • Good morning.

  • Dominic Ng - Chairman, President and CEO

  • Good morning.

  • Manuel Ramirez - Analyst

  • Couple of questions for you.

  • First, could you talk about, what the mix of charge-offs were in the quarter and I know its a small number but could you talk about commercial real estate versus other.

  • Second, what was the annualized loan growth annualized or unannualized on organic basis by category.

  • And then third it has.

  • Manuel Ramirez - Analyst

  • Your -- friendly competitors to the North acquisitions of the last couple of quarters change your thinking about your franchise down in Southern California and I guess, more specifically do you feel like you have to go on the defense a little bit more?

  • That's all I have.

  • Thanks.

  • Julia Gouw - Executive Vice President & CFO

  • Okay.

  • Your first question in terms of charge-off, there are no real estate components, most of them are commercial business or some small leases and small business loans.

  • So that's the components of the charge-off.

  • And the second question is, the organic loan growth; in terms of the PBB acquisitions, they have a $113 million, majority of them are real estate.

  • They only have about $20 million there in commercial business and trade finance.

  • So that's the composition of the PBB.

  • Manuel Ramirez - Analyst

  • Okay.

  • Dominic Ng - Chairman, President and CEO

  • And in terms of the competition in Southern California.

  • We've always been active in the market and for the last many years and I've been involved with the bank as CEO since 1992, over 10 years now and I really never had one year that I sense that there are less competition than the others.

  • There's always been a competitive market.

  • And we have always welcomed the challenge and so, I don't think that any other banks decision of or acquisitions will make too many changes to our own strategy about just making sure, our plan have always been the reason that we make acquisition, because its a sound deal that not only help us to increase our earning per share, but more importantly is to help us to build a healthier balance-sheet and that's the direction we will continue to grow.

  • And if we find any target that can, sort of complement our whole strategy, of what absolutely, we'll be aggressive to pursue that, but if we don't and we just continue to do it organically and that will always going to be our sort of guiding principal now and also in the future.

  • Manuel Ramirez - Analyst

  • Great.

  • Thank you very much.

  • Dominic Ng - Chairman, President and CEO

  • Thank you.

  • Operator

  • Your next question, as we follow up from Scott Valentin with FBR.

  • Scott Valentin - Analyst

  • A quick question on the Beijing representative office, you mentioned, you'll start adding to earnings in the second quarter, is that from increased chit finance activity?

  • Is that were we are seeing accretion from?

  • Dominic Ng - Chairman, President and CEO

  • Yes, predominantly.

  • So, if letter of credit business, which is now trade finance department and they will continue to be able help us to market East West Bank to the corresponding banks in China and to help us to solicit more international letter of credit business.

  • Scott Valentin - Analyst

  • Okay.

  • And this is kind of I guess a longer term question, but is there opportunity for East West to apply for its deposit taking capability and setup some branches in Mainland China?

  • Dominic Ng - Chairman, President and CEO

  • At this stage, we do not have a plan to do local business.

  • It's a very, very different business when it comes down to dealing with [inaudible] local depository gathering from the residents of -- in China and also -- so we feel a lot more comfortable right now that -- I mean East West Bank understands that the trade finance and international matter of credit business very well and we have started developing a much better relationship with each correspondening bank in China as a business that we're good at, we're very comfortable with and that's what we wanted to focus on in terms of growing our business.

  • Now, that's not to say that in a few years, we may not sort of like have a change of heart and then decide that that actually we at that point learn enough about it that we want to do that.

  • But at this stage I would say that we have - we do not have that in our plan.

  • Scott Valentin - Analyst

  • Okay.

  • Thank you.

  • Operator

  • We have no further questions at this time.

  • Dominic Ng - Chairman, President and CEO

  • If there is no other question I want to thank everybody for being with us today and we look forward to talking to you again in July.

  • Thank you so much.

  • Bye bye.

  • Operator

  • This concludes today's East West Bancorp's first quarter earnings conference.

  • You may now all disconnect.

  • END