East West Bancorp Inc (EWBC) 2003 Q2 法說會逐字稿

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  • Operator

  • Good morning.

  • My name is Melissa and I will be your conference facilitator today.

  • At this time, I would like to welcome everyone to the East West Bancorp second quarter earnings release conference call.

  • 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 press star and the number one on your telephone keypad.

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

  • You may begin your conference.

  • Steven Canup - Investor Relations

  • Good morning and thank you for joining us to discuss -- quarter of 2003.

  • In a moment, our Chairman and Chief Executive Officer will provide a summary of our financial performance and reflected key issues, then Julia Gouw, our CFO and Chief Financial Officer will review details and open the call for questions.

  • I would like to caution during the course of the conference call today management may make precautions 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, I wish to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainty.

  • For a more detailed discussion of company results, refer to our filings with the Securities and Exchange Commission including our annual report on form 10K for year ended December 31st, 2002.

  • I would also like to remind […] that today's call is being recorded and is available in a replay form at East West Bank.com and streetvents.com.

  • Now I'll turn the call over to Dominic.

  • Dominic Ng - CEO

  • Thank you, Steven.

  • Good morning and thank you for joining us to discuss the second quarter financial results.

  • The earnings released this morning are, we believe, an indication of our success in building one of the best community banking franchises in the state over the past several years.

  • Despite a challenging economic and interest rate environment East West generates substantial growth across all our business lines during the period, which lead to another quarter of record earnings.

  • Earnings per share for the second quarter equal 60 cents, 22% higher than the 49 cents per share reported for the second quarter of 2002.

  • Pre-tax earnings increased 33% to $22.3 million.

  • Also, a record amount.

  • Shortly, Julia will provide an overview of the financial review for the quarter but let me first review a few items for you.

  • The most significant driver of our earnings growth this quarter was increasing our loan portfolio, which climbed by 18% over the balance at year end 2002 and 7% sequentially from March.

  • Organic growth, excluding the acquisition of Pacific Business Bank, PPB, total 13%.

  • While a number of factors contributed to this growth, we believe that the primary factor is the strength of our relationship, the market presence that we have created and are [--] in our continued drive to extend our banking franchise.

  • In our environment when [ inaudible ] loans are hard to achieve, we are very pleased to generate over $400 million in that portfolio growth in the first six months of the year.

  • Especially encouraging was the balance in the portfolio growth.

  • With all loan categories, with the exception of construction loans, contributing to the growth. [Among the] other highlights of the quarter included a continued expansion of our net interest margin from late 2002, which reached 4.28% for the quarter.

  • Further repricing of time deposit, healthy increases in average earnings assets offset by a decrease in loan […] ] contributed to the higher margin.

  • The latest interest rate cuts by the fed will, however, have a negative impact on our margin in the third and fourth quarters.

  • Combined with anticipated growth in earnings assets, we estimate a net interest margin for the this is correct of 4.2% and the fourth quarter of 4.25%.

  • We also generate exceptional core deposit growth across all categories.

  • With an increase of over $225 million, or 16% increase in total core deposit for the first six months of the year.

  • Organic growth, excluding PPB, equaled 10% with primary -- we're particularly pleased with the balance of the core deposit growth with double digit percentage increases in every category.

  • We believe that the strong results in quarter deposits results from a number of strategic actions undertaken in 2003, including an aggressive outreach to small and midsize business through our branch network to generate traditional commercial demand deposits, the continued high level of business activity at our real estate clients and our continued […] ] our core ethnic Chinese retail market.

  • We also are very pleased our ability to increase […] increase.

  • During the second quarter, we achieved a record core income of $80 million, a 44% increase over the second quarter of 2002.

  • In this income line item, we also achieved balanced growth with loan branch and letter of credit fees all increasing at double digit percentages.

  • Our single-family mortgages, operations made us particularly a strong contribution this quarter.

  • Finally, I would like to provide updated guidance for 2003.

  • As disclosed in this morning's release, we anticipated a strong growth in loans and fee income, combined with a modest level of expense growth and a [quarterly] provision similar to this quarter to offset the negative impact of the recent rate cut.

  • As a result, we are projecting earnings per share for the full year 2003 of $2.28 to $2.30, assuming a stable interest rate environment.

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

  • Julia Guow - CFO

  • Thank you, Dominic.

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

  • Net income and earnings per share for the second quarter both reached record level with income increasing by 20% to $14.7 million and earnings per share [coming] by 22% to 60 cents.

  • Higher earnings assets, increases in non-interest income and a slight loss in the loan loss provision offset by a higher tax rate drove the increase in earnings.

  • The net interest margins for the quarter were 4.28%, roughly equal to a year ago, and up from 4.01% for the March quarter.

  • In addition to higher average loan balance, the continued repricing of time deposits contributed to the increase in the margin.

  • Looking to the second half of the year, we believe that the recent cuts in from rates will have a negative impact on our margin or the [mitigated] continued loan growth an deposit repricing.

  • Approximately $622 million of the time deposits were repriced during the third quarter and $371 million in the fourth quarter.

  • Based on these assumptions, we sants Pate a margin of 4.2% for the third quarter and 4.25% for the fourth quarter.

  • We continue to degree our loan portfolio during the quarter with total loans of $2.8 billion up 18.% per year of 2002, average loan of $2.6b 14% higher than the second quarter of 2002.

  • Commercial real estate, multi-family and single-family loans continue to account for most of the loan growth in the quality with [...] ] finance and new loans making smaller contribution to the growth.

  • We believe that the net loan growth for the second half of the year will equal an annualized 15% with the level of loan repayment having the largest impact of the net growth.

  • Fee income growth was also a highlight of the second quarter.

  • Core recurring non-interest income with exclusive non-sale of guaranty of loan securities increased by 44% to $8 million, a record amount for East West, and represented 18.5% for recurring revenue.

  • The higher loan and deposit balances drove increases in loan fees of 23% and branch fees of 17%.

  • Letters of credit fees from our trade finance and affordable housing financing activities continue to grow, reaching $1.9 million with our Beijing office making the contribution in the second quarter.

  • Our second-day market activities generated over $1.4 million in fee income for the quarter as the interest rate environment, combined with an expansion of our operations meet to strong origination volumes for the division.

  • We anticipate a more modest rate of growth in non-interest income for the second half of the year compared to last year.

  • Non-interest expense for the quarter equal $19.3 million, 21% higher than the prior period.

  • Cash operating expenses, which exclude the amortization of intangibles and investments in affording housing partnerships total $17.1 million a 19% increase from the second quarter of 2002.

  • Higher staffing level due primarily to the acquisition of Pacific Business Bank as well as higher growth and acquisition account for the majority of the increases in expense.

  • Other expenses increased by 15% due primarily to higher vendor costs related to the growth in commercial departments as well as general growth at the bank.

  • The efficiency ratio for the quarter equaled 39.26%, compared to 40.81% a year ago.

  • We anticipate an efficiency ratio for the second half of 2003 in the low 40% range.

  • The effective tax rate for the first quarter increased to 34.3% compared to 27.1% a year ago.

  • The higher tax rate reflects the elimination of the register investment companies in the fourth quarter of 2002 offset by additional tax credits from new investments in affordable housing partnership made in 2003.

  • Based on this new tax credit, we anticipate an effective tax rate for the second half, approximately equal to the second quarter.

  • As to quality, we continue to be very comfortable with our asset ratios.

  • Non-performing assets for the second quarter total 40 basis points of total assets of $14.4 million, compared to 19 basis points of $5.9 million a year ago.

  • Non-accrual loans total 30 basis points of total loans or $8.2 million compared to ten basis points or $2.5 million a year ago and 36 basis points, or $9.3 million in the first quarter.

  • Approximately 8m of the non-performing assets of 55% of the total are represented by three loans that we expect will be resolved in the near future.

  • One is a multi-family real estate loan which is well secured and in the process of being resolved.

  • The others are trade finance credits that are insured by XN bank policies and on which we believe we will fully recover our principle.

  • We maintain our non-performing asset product for 2003 at or under 50 basis points.

  • Net chargeoff for the second quarter equals $764,000 or an annualized 12 basis points of average loan compared to a net recovery of $346,000 or six basis points of a year ago.

  • We ants paid net chargeoff for 2003 to be at or below the 35 basis point target.

  • The total [allowance] loan losses equal $40.8 million or 1.47% of total loans and 495% of non-accruals.

  • During the second quarter, we provided $2 million [loan loss] down from the $2.5 million we have provided in the past several quarters.

  • We believe that given our recent loss history, the level of non-accrual loans and our current underwriting guidelines and portfolio, $2 million is a sufficient provision.

  • And assuming the current [trends] and loan growth remain on target, we anticipate a similar provision level for the remaining two quarters of the year.

  • Our loan portfolio remain very gradual in 2003 and loan-to-value ratios remain very strong.

  • Commercial real estate loans as of June 30 had an average balance of $1.1 million.

  • Average loan-to-value of 57.5% and 2.7 years seasoning.

  • Multi-family loans had an average balance of approximately $500,000. 64.7% loan-to-value and 1.9 year seasoning. loan had an average balance of $2.1 million, 66% loan-to-value and 1.5 year seasoning.

  • Finally our commercial [business…] loan had an average balance of $370,000 and a 2.2 year seasoning.

  • I will now turn the call back to Dominic.

  • Dominic Ng - CEO

  • Thank you, Julia.

  • Thank you for joining us for today's call.

  • Again, we are very much encouraged by our strong first half of 2003 and believe that we are well on our way to delivering another year of record earnings to our shareholders.

  • We're especially pleased that we can generate this performance through the successful strategy of focusing or core community banking fundamentals.

  • We remain committed to generating solid growth in a well diversified, secure loan portfolio, to building one of the most valuable [stated] deposit franchises and [grow income…] while making prudent and beneficial investments in our platform.

  • We believe that this focus will allow us to weather the challenging economic and interest rate environment and to be well positioned to further capitalize on growth opportunities as the economy expands in a more normalized interest rate environment.

  • I will now open the call to questions.

  • Operator

  • At this time, I would like to remind everyone, in order to ask a question, please press star and the number within on you are you're telephone keypad.

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

  • Your first questions comes from Lana Chan with Advest.

  • Lana Chan - Analyst

  • Right, good morning.Great quarter.

  • Julia Guow - CFO

  • thank you.

  • Lana Chan - Analyst

  • A couple of questions.

  • One, I was wondering if you could give us a breakdown in terms of the 27 basis points of margin expansion this quarter.

  • How much of that came from the time deposit repricing?

  • How much of it came from the strong loan growth?

  • And maybe some other factors?

  • Julia Guow - CFO

  • I would -- it's a combination.

  • We did not really break down.

  • But, you know, the time deposits repricing contributed a significant percentage, as well as the loan growth, because second quarter loan growth is quite exceptional, with 7% increase from quarter to quarter.

  • And some other, you know, factors, including also the prepayment penalties of the loans that -- you know, like have been paid off within a prepayment period.

  • Lana Chan - Analyst

  • Do you have any idea how much in prepayment penalties affected the margin this quarter?

  • Julia Guow - CFO

  • Not a percentage.

  • But, you know, every quarter we always have prepayment penalty, you know, for the last few years because interest rates have been low.

  • And, you know, some quarters we have more than the others.

  • Dominic Ng - CEO

  • But I don't think there is that much difference between the [first…].

  • It's not a significant difference between the first and second quarter.

  • So the prepayment penalties is -- not only it's not material but also it's not a significant contributor to the growth of the margin, because that has always been consistent for the past many quarters.

  • Lana Chan - Analyst

  • Okay.

  • Because I'm just trying to get a sense for why the margin came in so much stronger than we had been giving guidance in the first quarter.

  • Because we knew about the time deposits repricing.

  • We knew the amount and how much they were going to reprice down by.

  • And the loan growth seemed to come in pretty much as expected in terms of the growth rate.

  • So I'm trying to understand why the margin came in that much stronger than we had expected at the end of the first quarter.

  • Julia Guow - CFO

  • The loan growth has been stronger than -- because from quarter to quarter it's a 7% increase.

  • And, also,, assets are now -- our loan yields have been pretty good.

  • We -- you know, like have a variable of -- depending on the repricing of our loans that there's a possibility that some of the higher interest rate loans got paid off and being replaced with the lower yield loans.

  • So there's a combination of that mix of the loan yield that will impact the margins.

  • Lana Chan - Analyst

  • Okay.

  • And then my second question is just any idea on terms of the tax rate for 2004?

  • Would you expect the tax rate to increase from this 34.5% level?

  • Julia Guow - CFO

  • For 2004, probably slightly increase if we do not replenish the tax credit that -- you know, the tax rate will increase in 2004.

  • That will depend on whether we are able to find attractive acquisition of the tax credit.

  • Lana Chan - Analyst

  • okay.

  • Thank you very much.

  • Operator

  • You're next question comes from Brett Rabatin from FTN securities.

  • Brett Rabatin - Analyst

  • A couple of questions for you.

  • First off, I'm not sure if you can give details on this, but wanted to see if you could give us how much deposit growth came from prime this quarter and then if you could give gross and net loan growth, meaning how much did you have in prepayments?

  • You guys obviously operate in some loan categories that have had a lot of prepayments here in the past couple of quarters.

  • And then wanted to make sure that going forward, COM amoritzation , the premium MOR is not going to be an issue as obviously at least half as much as it was in the first quarter.

  • Julia Guow - CFO

  • In terms of deposit growth for Pacific Business Bank, it -- from the first quarter to second quarter, it contributed a small amount.

  • Majority of the growth from the internal growth of East West deposits.

  • Brett Rabatin - Analyst

  • How much did prime add, prime bank?

  • Julia Guow - CFO

  • OH.

  • Commercial banking center?

  • Brett Rabatin - Analyst

  • Right.

  • Julia Guow - CFO

  • For the commercial banking center, it's also a small growth for the second quarter.

  • The growth in the deposits is more across the board as opposed to one segment.

  • Brett Rabatin - Analyst

  • So you guys didn't pull any large balances from escrow or anything like that during the quarter?

  • Julia Guow - CFO

  • Not this quarter.

  • Brett Rabatin - Analyst

  • Okay.

  • And then gross and net loan growth?

  • Julia Guow - CFO

  • In term of the prepayment, majority of the prepayment would be coming from the real estate -- commercial real estate multi-family and some single family.

  • Brett Rabatin - Analyst

  • right.

  • Julia Guow - CFO

  • For the --

  • Dominic Ng - CEO

  • Brett Can you repeat your question again?

  • Brett Rabatin - Analyst

  • I'm just trying to get a sense of, like last year, you guys -- loan growth last year was like 8%, but you had a huge amount of originations that was somewhat offset by prepayment.

  • So I'm kind of curious as to what the flow looks like here.

  • You're obviously experiencing pretty strong loan growth, as expected.

  • But want to get a flavor for how much prepayments were slowing the growth of your commercial bank.

  • Julia Guow - CFO

  • For the second quarter, the loan repayment is about $170 million.

  • So if you add back that -- you know, like that would be approximately the payoffs on the commercial loan portfolio.

  • Brett Rabatin - Analyst

  • so about $170 million.

  • Dominic Ng;

  • Which is not including the mortgage -- this is not including the mortgage banking business that when we originate these -- I mean [fixed rate] Fannie Mae, Freddie Mac type of loans, the normal procedure we have immediately been selling them in the second […] market.

  • We will act as a conduit.

  • If you take out the single family mortgage banking activities, the second quarter loan repayment is $160 million.

  • And the first quarter loan repayment is just a little bit over $100 million.

  • So that kind of gives you a flavor.

  • Now, while the loan repayment have grown the second quarter proportionally, I think the loan origination in the second quarter was substantially higher than the loan origination in the first quarter.

  • Brett Rabatin - Analyst

  • Okay.

  • That's what I was looking here.

  • And then in terms of fee income, can you give us some thoughts if the credit business will continue at this strength here and then any thoughts on gain of sale of loans going forward in the second half totals?

  • Dominic Ng - CEO

  • The letter of credit trey finance business we will expect it to continue growth.

  • And I think that this year we're having a nice healthy increase in the [trade] area.

  • And it has to do with, in fact, we started last year in our strategy of focusing more on trade customers that have higher volume of fee income based that customers that tend to use more on the lower credit to finance their business instead of borrowing from bank.

  • While we have a nice growth in our trade finance loan portfolio -- in fact, a number of customers that we have brought in the bank is substantially higher because many of these customers do not require to have too much outstanding borrowing from the bank but actually use letter of credit financing.

  • We expect the letter of credit financing continue -- the letter of credit will continue increase.

  • I think you have another question regarding the CMO.

  • As of today, I think we have a hundred --

  • Julia Guow - CFO

  • 150,000 in the premium lapse.

  • So it's just a small amount.

  • Even if pay us out completely, it's a small amount going forward.

  • Dominic Ng - CEO

  • Also, basically, there's no change from -- there is almost no change from the first quarter.

  • Julia Guow - CFO

  • Interrupt again on sales.

  • That really depends on the market.

  • Some of the higher rates, fixed rate loans that we have on the portfolio, if we can get very good price, we may sell.

  • If not, we won't sell the fixed rate loans.

  • We sell it because if we get a high premium, CHANCES are the loans may get paid off pretty fast.

  • So it's better for us to get the premium.

  • Brett Rabatin - Analyst

  • Let me go back to the premium amortization I was under the expectations that in 2Q the remaining amortizationt I guess it was $258,000 during the quarter but now you're splitting it between 3Q and 2Q basically?

  • Julia Guow - CFO

  • At the end of March, was $258,000.

  • Reamortized to 100,000, down $150,000.

  • That's a normal amortization.

  • There was no significant payoff that resulted us in required to write off a big chunk.

  • Brett Rabatin; so some of it is going to --

  • Julia Guow - CFO

  • Yes.

  • Brett Rabatin;

  • In terms, you're giving the same numbers for CD in terms of repricing, $622 million.

  • Can you give us an average rate on those CDs possibly for 3Q and 4Q?

  • Julia Guow - CFO

  • For the [first quarter], the average cost of funds is 1.5%.

  • And for the fourth quarter it's 1.69% and at this point, the highest rate we pay all the way to one year is 1.25%.

  • Brett Rabatin - Analyst

  • okay.

  • So --

  • Julia Guow - CFO

  • So it was like -- the average of the new rate would be below 1.25%.

  • Brett Rabatin - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • Your next question comes from Jennifer Demba from Robinson Humphries.

  • Jennifer Demba - Analyst

  • Good morning.

  • I was wondering if you could give us a flavor of how sensitive your margin would be if we were to get another interest rate cut.

  • Julia Guow - CFO

  • If we -- like, you know, we don't assume another rate cut.

  • But if there's another rate cut, it would be like negatively impacting our margin, because it would be harder for us to catch up on the repricing deposits.

  • Jennifer Demba - Analyst

  • Okay.

  • And I have a couple of follow-ups.

  • You gave a number at the beginning of the call that said, I think you had had organic loan growth of 13%.

  • I'm assuming that was a year-to-date number.

  • Julia Guow - CFO

  • that's correct.

  • Jennifer Demba - Analyst

  • What was your organic loan growth from the first quarter to the second quarter?

  • Do you have that number?

  • Julia Guow - CFO

  • everything was organic because the acquisition happened in March, middle of the quarter.

  • So month to month was all organic.

  • Jennifer Demba - Analyst

  • That was all organic.

  • Lastly, from Dominic, I would like an update on the acquisition strategy going forward now that we have closed the most recent one.

  • Dominic Ng - CEO

  • In terms of future acquisition strategy, we pretty much stay very much within our discipline that is set.

  • Every time that there is a good fit, you know, another bank that we feel that we can [so] of be able to -- can sort of be able to convert with our risk and so forth, and if the price is right that we can be able to make an immediate […] to our [earnings] in the first year and, also, we'll have a long-term viable future.

  • We're not going to hesitate to try to make it happen.

  • You know, sometimes it's not easy to find them.

  • But so far, I would say looking back for the last four years or so, we kind of average one per year.

  • So if we do get fortunate to find another acquisition target, we will be ready to go.

  • However, you know, I wouldn't be able to promise, because we -- let me go back to the acquisition strategies.

  • That we really do not have a strategy that we have to have an acquisition to make the numbers because, as you can see, we were able to make very nice, healthy organic growth.

  • And that's why it is hard for us to justify going out and make a deal to pay a high premium when in fact we can do it on our own anyway, so we have always been very cautious about trying to make sure that whenever we go and find a deal, that it will be better or equally as good as our organic growth capability.

  • So it's kind of compliment to what our basic growth strategy.

  • Jennifer Demba - Analyst

  • What about geography, Dominic?

  • What would be kind of your priorities there?

  • Dominic Ng - CEO

  • We will be a lot more comfortable to stay within California simply for the fact that we can get a lot more efficiency when we look at a target.

  • By looking at California.

  • Not to say that we'll have problem with going out of state.

  • The only problem with out of state is that, obviously, it would not be easier for us to take out more of the back office overhead cost.

  • And in terms of the marketing and sales and also [human managing] financial market from the corporate office to get involved with out of state which is a little bit more challenging.

  • But that's not to say it cannot be achieved.

  • It's just that it's a bit more challenging.

  • I would say that the probability of finding deals is most likely it will be in California.

  • Jennifer Demba - Analyst

  • Okay.

  • Thank you.

  • Julia Guow;

  • Thank you.

  • Operator

  • Your next question comes from Scott Valentin from FBR capital.

  • Scott Valentin - Analyst

  • Good morning.

  • Congratulations on a good quarter.

  • Dominic Ng - CEO

  • thank you.

  • Scott Valentin - Analyst

  • One question for you.

  • You had very strong loan growth.

  • Is the GBC acquisition pushing customers your way?

  • Have you seen any disruptions in the market because of that?

  • Dominic Ng - CEO

  • You know, every time -- every day, we have -- you know, trying to go out there and get more customers.

  • So we really do not have any specific, you know sort of like target range in terms of any specific banks.

  • I would say in general that for the last ten years, we have been enjoying this sort of like growth every year organically is because of consolidation.

  • So every year, there is always banks being sold or merged and that all may be getting a little bit too vague or moving the head quarters out of state and all of that help us to get more business.

  • I wouldn't call any of our growth attributed to any one particular merger that would take place in town.

  • Scott Valentin - Analyst

  • Okay.

  • And as far as the commercial loan growth, what's the split between -- obviously you do all the commercial mainstream lending.

  • What would you say is the split between commercial growth and ethnic Chinese commercial growth.

  • Dominic Ng - CEO

  • Are you talking about the second quarter?

  • Scott Valentin;

  • I'm sorry.

  • Yes, the second quarter as far as the loan growth.

  • Dominic Ng - CEO

  • I would say probably 60/40. 60% from the mainstream and 40% from the Chinese community.

  • Scott Valentin - Analyst

  • Okay.

  • And then I noticed also that the FHLB advances increased percentage-wise dramatically chri from the first quarter to the second quarter.

  • Can you tell us about the term of those advances, longer term advances?

  • Julia Guow - CFO

  • Between one year -- most of them are one year and the smaller amount of two years.

  • The reason we did it is because the rate is very low.

  • We were able to get the one-year at 1.1%.

  • So we are taking advantage of the rate.

  • It's very attractive.

  • Scott Valentin - Analyst

  • Can you talk about the 900 branch relationship?

  • I know you downsized due to the lack of substantial reinvestment on the deposits?

  • Any thought[ rates move higher…] a result of deposits moving forward, that you rekindle that, and move forward again?

  • Dominic Ng - CEO

  • we haven't really downsized it.

  • We just haven't grown aggressively.

  • I think the plan is with this kind of rate environment and […market] primary is a retail deposit-gathering vehicle.

  • And, you know, it's hard to open a new branch and, you know, evenly offer 1.25%, which is for CDs, it's still 25 basis points higher than fed funds.

  • And, therefore, you know, at this point, you know, we are not going to have an aggressive growth plan in terms of opening more branches.

  • I think that we anticipate opening one more either in the third or the fourth quarter.

  • And that's pretty much it for this year.

  • And then 2004, we may look into another, you know -- we look into our business plan to see how many more we want to open.

  • We do not want to not roll this retail strategy at all because of this difficult rate environment.

  • The reason we do not want to stop that, because you never know when rates are going to come back to a nor normalized environment.

  • When it does happen, it will be awfully nice to have these others that we have that generates -- I mean, that kind of retail CDs and also savings account and personal checking accounts that's going to be available for us.

  • So I think that our plan is that we are just being prudent and not to have a substantial high growth that's going to create a big burden for our current earnings capacity.

  • But, on the other hand, we will continue to grow this direction so that a few years down the road, when the market, you know, rate -- interest rates start going to a more normal circumstances, we're going to have an extraordinary strong retail franchise there that can help us to -- to improve our earnings performance even better.

  • Scott Valentin - Analyst

  • Okay.

  • Thank you very much.

  • Dominic Ng - CEO

  • Thank you.

  • Operator

  • Your next question comes from Manuel Ramirez, with KBW.

  • Manuel Ramirez - Analyst

  • Hi, good morning.

  • A couple of questions.

  • First, could you tell us approximately what was the yield on your new loan production for the quarter?

  • Second, could you talk about what percentage of your [existing] portfolio is at interest rate floors and how that compares to the first quarter?

  • Then I have a couple more questions, but I'll wait on those.

  • Julia Guow - CFO

  • In terms of the new loans, you know, on the average, you know, our rate would be like prime plus one.

  • And, you know, like -- so -- before the prime rate goes down, about 5.25, 5.3 is the new loan yield.

  • Manuel Ramirez - Analyst

  • Okay.

  • And then percentage of the portfolio to interest rate floors.

  • Julia Guow - CFO

  • We don't have that breakdown in the amounts.

  • But we have some.

  • It's not really the most significant in term of the floors.

  • For example, our commercial loans, our trade financing […] prime, pretty much none of them have floor -- construction loans.

  • Manuel Ramirez - Analyst

  • How about approximately what percentage of the real estate portfolio, I guess, would have interest rate floors?

  • Is that a third, half?

  • More than that?

  • Julia Guow - CFO

  • I don't have that information right now, so -- you know, like the --

  • Dominic Ng - CEO

  • Most likely less than half.

  • Julia Guow - CFO

  • Yeah.

  • Probably a third.

  • Dominic Ng - CEO

  • Yeah, at best.

  • Julia Guow - CFO

  • Because for a long time, we didn't have any floors.

  • Manuel Ramirez - Analyst

  • Correct.

  • Okay.

  • Great.

  • And then on the mortgage line, could you talk about what the origination in sales volume was in the quarter?

  • Single family.

  • Julia Guow - CFO

  • For the single family, the origination has been about $30 to $40 million a month for the second quarter.

  • Manuel Ramirez - Analyst

  • Okay.

  • And then if I look at your mortgage -- your end of period mortgage balance, it looks like you've had significant growth since year end.

  • Are you going to be selling some of that or is that all adjustable rate production you decided to keep on balance sheet?

  • Julia Guow - CFO

  • No, some of them are fixed rate in the process of being sold.

  • There is some time lag when we sell the fixed rate portfolio.

  • Manuel Ramirez - Analyst

  • Okay.

  • Dominic Ng - CEO

  • Most of the single family mortgages originating today are fixed rate.

  • Therefore, if you look at the $30 million to $40 million of loan production per month, let's just say times three, to end with a quarter of over $100 million of production, it will add up to the balance of the portfolio.

  • Many of them have been sold and also, there are a lot more paid off at the single family mortgages because quite frankly, I'm sure quite a few are just refinance of existing loans to these new origination.

  • Manuel Ramirez - Analyst

  • : Okay.

  • So some of that balance is really held for sale?

  • Julia Guow - CFO

  • Yes.

  • Manuel Ramirez - Analyst

  • Okay.

  • Terrific.

  • And that -- actually, I think that was -- oh, on your commercial real estate production, how much is coming from existing customers and how much from new customers, roughly?

  • Dominic Ng - CEO

  • I think that most of them are from existing customers and now -- I mean, the existing customers, to say that Pacific Business Bank also has their own customers.

  • So, I mean, it is a new customer for East West Bank but there are Pacific bank's longtime customers.

  • So I would think we look at all of that together. [Majority from] existing customers every single day we are picking up new customers from the market.

  • So we are always going to count on new customers as a -- one of the key drivers for us to grow our loan portfolio.

  • Manuel Ramirez - Analyst

  • Great.

  • Thank you very much.

  • Congratulations on the quarter.

  • Dominic Ng - CEO

  • Thank you.

  • Operator

  • Again, to ask a question, please press star and the number one.

  • Your next question comes from Lee Calfo with Acadia Research.

  • Lee Calfo - Analyst

  • Good morning.

  • How are you?

  • Dominic Ng - CEO

  • Good morning.

  • Thank you.

  • Lee Calfo;

  • Real quickly, would you please tell us the capitalization?

  • You talked a little bit about it in your press release that you didn't purchase any shares this quarter.

  • Going forward is there any change to your outlook on your shares or dividends?

  • Julia Guow - CFO

  • We have approximately $900 million available that have been reauthorized.

  • We will do a ve purchase if we feel that's a good opportunity for us.

  • But at this point in time we're comfortable with, like, our capital level, of risk/base capital level of 11%.

  • Dominic Ng - CEO

  • In terms of dividends, I think every year we make that decision on our dividends.

  • Pay out around January.

  • So -- and I think that we will try and follow that -- you know, that tradition.

  • And we'll make a decision before January.

  • Lee Calfo - Analyst

  • Okay.

  • And then, lastly, given that you have some of your NPAs that you feel pretty good about, if those roll off in the second half of the year are you comfortable with the reserve-to-loan value at 140 or keep it up to 145 to 150?

  • Julia Guow - CFO

  • That really depends on the -- you know, on the non-performing, the chargeoff level.

  • We do a migration analysis to calculate that.

  • But I would say that it would be roughly about, you know, the same ratio that we have right now.

  • Lee Calfo - Analyst

  • Okay.

  • Thank you very much.

  • Dominic Ng - CEO

  • thank you.

  • Operator

  • At this time, there are no further questions.

  • Are there any closing remarks?

  • Dominic Ng - CEO

  • Okay.

  • Well, thank you for joining us today.

  • And I look forward to talking to you-all again next quarter.