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Operator
Good morning.
My name is Taylor, 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 speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).
Mr. Canup, you may begin your conference.
Steven Canup - IR
Good morning, everyone, and thank you for joining us to discuss East West Bancorp's financial results for the first quarter of 2004.
In a moment, Dominic Ng, our Chairman, President and Chief Executive Officer, will provide highlights for the quarter, and 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 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 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 31, 2003.
I would also like to remind listeners today that the call is being recorded, and is available in replay format at EastWestBank.com and StreetEvents.com.
Now, I will turn the call over to Dominic.
Dominic Ng - CEO
Thank you, Steven.
Good morning, and thank you for participating in today's call.
This morning, we announced the financial results for the first quarter of 2004, and I am pleased to say that we continued the strong momentum we had through 2003.
Our net income of 16.9 million is the highest level in the history of East West Bancorp, and it was achieved with very strong returns on both assets and equity.
We also recorded earnings per share of 67 cents for the quarter, a 40 percent increase from the first quarter of 2003.
Shortly, Julia will provide an overview of the financial results for the quarter, but first I would like to discuss a few notable items from the quarter, and provide an update on our outlook for 2004.
In the first quarter, we saw continued growth of our loan portfolio, which increased 11 percent over the end of 2003.
The strongest growth in the portfolio came in the commercial real estate, multifamily, construction and commercial segments, and we also benefited from a lower rate of loan repayments compared to prior years.
The healthy residential and commercial markets in California and particularly Southern California are creating strong loan demand from our customer base.
We also believe our efforts to capture additional market share in our niche markets have proven very successful, which is a contributing factor to the significant loan growth we are seeing.
We believe the additional market share is attributable to a number of factors.
First, we are very pleased with the productivity of our lending officers.
They made strong contributions to the loan growth for the quarter and assisted the bank in achieving achieving a greater coverage within our footprint, adding new relationships with high-quality borrowers and further penetrate our niche market.
We also continue to build a stronger sales culture, and improved the ability of our retail brand retail branch personnel to generate smaller commercial real estate and multifamily loans.
The improved capabilities of our branch personnel is not only positively impacting our overall loan growth but also allowing us to further leverage our established infrastructure and enhance our overall efficiency ratio.
We also believe our reputation as a good business partner continues to grow within our niche markets, which helps to build our network of referral sources and enhance customer acquisition.
We are known as being fast and responsive, which are two qualities that customers place a high value on when choosing a banker.
While competition in California's middle market remains as intense as ever, we believe that customers are increasingly looking for a bank that will act as a partner in their success, helping to provide financial solutions to key issues they face in the business, as well as maintain a commitment to the relationship.
We believe that the banking professionals we have assembled at East West are well-suited to answer this call, and will support continued loan growth.
While we still see favorable market conditions, we believe that the significant growth rate of the past few quarters reflects specific developments, and that our growth rate will moderate during the year.
We expect an annualized loan growth for the remainder of 2004 of between 18 to 20 percent, resulting in a full-year increase of 24 to 26 percent.
As I mentioned earlier, the lending officers' high productivity and the growth of our small loan program at the branches all enhanced our organic loan growth rate in the quarter.
We continued to expect meaningful contribution from these sources throughout the year, although the magnitude of the impact on our overall rate of loan growth will lesson as the year progresses.
During the first quarter, we completed a 30 million private placement of our common stock, issuing approximately 600,000 shares.
The investors also received an option to purchase approximately 200,000 additional shares for roughly $10 million, and we believe that this option will be exercised within the next several months.
We filed a registration statement covering the resale of these shares with the SEC in March, and received notice that the SEC has declared that the registration effective last week.
This additional capital will provide the bank with the financial capacity to continue servicing the healthy volume of high-quality lending opportunities we have, while maintaining our capital ratios at a prudent level.
We have consistently operated the bank with a sound level of capital that provides us with the maximum flexibility in pursuing organic growth opportunities as well as acquisitions.
And we feel that it is in shareholders' best interests to maintain the leverage ratio in the 9 percent range.
Turning to our outlook for the remainder of 2004, we are very pleased with the trends we are seeing in our business.
Based on our first-quarter performance and the outlook for the remainder of the year, we now expect our full-year earnings per share to range between range between $2.76 and $2.80.
It should be noted that this earnings per share estimate is now based on a higher share count, due to the recent equity placement.
We believe that the additional interest income derived from the strong loan origination volume we had in the first quarter will more than offset the increased share count and we can still hit our full-year earnings per share goals.
Our guidance is based on the assumption of a stable interest rate environment, and a margin in the 4.25 percent to 4.4 percent range, and an efficiency ratio in the high 30's range and an effective tax rate of 35 to 36 percent.
I will now turn the call over to Julia to discuss the details of our financial quarter results.
Julia Gouw - EVP, CFO
Thank you, Dominic.
I will provide a summary of the key results for the quarter.
The details of our financial performance were included in this morning's release, so I will focus on a few selected items.
The net interest margin for the first quarter was 4.23 percent.
This compares to 4.01 percent a year ago and of course (ph), 4.34 percent last quarter.
The increase in margin from the prior year was primarily attributable to the significant growth in the loan portfolio, the higher percentage of loans to earnings assets and a greater decline in the cost of funds than the decline in the yield on earnings assets.
We did experience a decrease in the net interest margin compared to last quarter, which we viewed as a temporary dilution taken in order to lock in longer-term financing at attractive prices.
During the first quarter, we added approximately 200 million of FHLB advances, with maturities of between 24 to 36 months.
The average maturity was 30 months, and the weighted average rate on these advances was 2.23 percent.
These advances will expand the maturity on our liability side at a very reasonable rate, and help to fund our continued loan growth.
For the full year, we expect that our net interest margin will be in the range of 4.25 percent to 4.40 percent range, again assuming stable interest rates, as we expect the growth in earnings assets will offset the modestly higher cost of funds resulting from our retail time deposit program.
The effective tax rate for the first quarter was 34.9 percent, compared to 34.5 percent for the first quarter of 2003.
We anticipate an effective tax rate for 2004 in the 35 to 36 percent range.
Our effective rate remains below the typical 40 percent range for a California company, due primarily to our investment in affordable housing partnerships, which generate federal tax credits based upon the amount invested.
We did not receive any tax benefit from our prior registered investment company in either 2004 or 2003, and dissolved the RIC in late 2002.
East West does not have, nor did we ever have, a tax REIT.
Asset quality -- our loan portfolio remains well diversified, with loan-to-value ratios remaining very strong, and maintaining granularity as our retail branch personnel are bringing in numerous smaller-sized loans.
Commercial real estate loans as of March 31 had an average balance of 1.2 million, an average loan-to-value ratio of 56.8 percent and an average seasoning of 1.9 years.
Multifamily loans had an average balance of approximately 500,000, 63.4 percent average LTV and an average seasoning of 1.8 years.
Construction loans had an average balance of 1.7 million, 69.7 percent average loan to value, and 1.2 years average seasoning.
Finally, our commercial business and trade finance loans had an average balance of 439,000 and 2.3 years average seasoning.
I will now turn the call back to Dominic.
Dominic Ng - CEO
Thank you, Julia.
Again, thank you for joining today's call and for your continued interest in East West.
We are pleased with the progress we have made in execution of our growth strategies, and we believe we are building a stronger, more valuable franchise for our shareholders.
We look forward to continuing this strong performance as we move forward.
I will now open the call to questions.
Operator
(OPERATOR INSTRUCTIONS).
Campbell Chaney, Sanders Morris Harris.
Campbell Chaney - Analyst
Good morning, everyone.
I have a couple of questions.
We'll start with the margin.
Julia, can you give us an idea of how the margin may expand over the next several quarters?
And maybe theoretically or hypothetically, you can give us an idea of what would happen if the Fed were to raise rates 25 basis points, let's say at the midpoint of the year, what impact that would have on your margin.
And then I have a follow-up.
Julia Gouw - EVP, CFO
In terms of the margin, we locked in a longer-term Federal Home Loan Bank advances because the rates went down and we were able to lock in at pretty attractive rates.
We don't think that we will be locking in any more longer-term FHLB advances, so the loan growth will most likely be funded by either deposits or if we take on Federal Home Loan Bank advances, it would be a shorter term at a lower interest rate.
I don't expect the margin to increase that much in the second quarter; it will be gradual, as we increase our loan portfolio.
In terms of the interest rate increase, approximately -- you know, like for (ph) 100 basis point rate increase will increase our net interest income by about 8 million or 20 basis points, and it would be quite symmetrical, so this (ph) 25 basis points; it would be one-fourth of that.
That would be our benchmark for the impact on the rate increases.
Steven Canup - IR
And that's for a 12-month period, Campbell.
Julia Gouw - EVP, CFO
Yes.
The 8 million is for 12 months.
Campbell Chaney - Analyst
And also, on your loan growth, can you give us an idea and color geographically, as well as from a (ph) product line, where some of your commercial real estate traction is coming from and also, and maybe more importantly, your business lending traction?
Where is that coming from?
Dominic Ng - CEO
In terms of geographically, obviously, we are more heavily concentrated in Southern California.
So I would say that more of the loans are coming from Southern California than Northern California, but I do want to point out even though we have a much smaller operation in Northern California, our Northern California actually continued to have nice, healthy growth for the last few years.
So what was the second question?
Campbell Chaney - Analyst
Um --
Dominic Ng - CEO
The business?
The commercial business side -- I think that in general, most out of the loans are in the Southern California area.
Campbell Chaney - Analyst
Can you give us an idea of what type of products you are funding?
Dominic Ng - CEO
Small.
Small-business loans.
Campbell Chaney - Analyst
Just general small-business?
Dominic Ng - CEO
Yes.
Campbell Chaney - Analyst
I guess maybe I could be a little clearer on your commercial real estate traction geographically.
I know it's mostly Southern California, but is it inland empires on the west side, South Bay?
Can you give us maybe a breakdown of that?
Dominic Ng - CEO
I would say all over Southern California.
Operator
Jennifer Demba, SunTrust Robinson Humphrey.
Jennifer Demba - Analyst
Thank you.
Outstanding quarter.
I was just wondering if you could give us some more color on the types of loans your branch personnel are originating, in terms of type and size, and kind of when that effort really ramped up and started contributing to your loan growth.
Julia Gouw - EVP, CFO
In terms of the branch personnel, most of the loans are smaller commercial real estate and multifamily residential.
The average for the commercial real estate will be about 700,000.
We started the program last year about May or June, to allow our branch personnel that did not really do any commercial real estate loans before to talk to the customers, and we underwrite the loan centrally.
So the branches right now for the first quarter contributed about 10 percent of our total commercial loan production for the quarter.
Jennifer Demba - Analyst
And just a follow-up question on a different topic.
Your commercial real estate portfolio overall has grown quite a bit over the last 12 months.
Dominic, any thoughts as to where you want this loan mix to be, ideally?
Or is there any ideal mix you're looking for?
Dominic Ng - CEO
When you say loan -- overall loan mix?
Jennifer Demba - Analyst
Overall loan mix, yes.
Dominic Ng - CEO
Well, I think ideally we'd like to see more balance.
However, what we have looked into in terms of -- if you look at East West, we have a very heavily real estate concentration.
Actually, if I look back in the history of East West for the last 31 years, we always have a very heavy concentration on real estate.
In fact, it was because we have such a heavy concentration on real estate that somehow for the last 31 years it never got us into any kind of problem.
And one of the reasons is that there are different kinds of real estate loans.
There are real estate loans which are huge projects or very high-leverage loan to value, or maybe real estate projects that are very speculative -- which many of the banks had gotten into trouble back in the late '80s and early '90s.
We didn't get into that, and we are not getting into that today, either.
So if you look at, as Julia mentioned earlier in her discussion, that our commercial real estate have average loan to value of a little bit over 56 percent.
And if we do a mark to market, I'm sure it's going to be substantially lower.
And because of that strong and well-secured real estate position, we feel very comfortable with these loans.
So, even though on one hand, if we talk about a risk allocation purpose, it will be better to further diversify.
But when we look at these loans, it's hard to resist not booking them because they are such a good loan.
But we are going to continue to focus on expanding on the commercial business side.
As you can see in our deposit end, clearly we have continued to bring in more and more deposit customers -- I mean, commercial customers.
And that results in our deposits becoming more and more commercial-oriented.
However, a lot of the commercial customers, even today, still are not aggressively expanding their business.
So manufacturers and even some of the trade customers -- they are not aggressively expanding their business, which therefore, even though in terms of number of customers we might have increased, the loan balances may not necessarily see a proportional type of increases.
Operator
Brett Rabatin, FTN Securities.
Brett Rabatin - Analyst
A couple of questions.
First, I wanted to ask you on the operating expenses was there a gain on the sale of ORE (ph), which you guys had, I believe, on the books at Q4, at 1.3 million.
Did that lower the other operating expense line item in the first quarter?
Julia Gouw - EVP, CFO
We don't have real estate loans.
We have not had it for sometime, so there is no like expenses, again, on sale of REO (ph).
Brett Rabatin - Analyst
And then, wanting to discuss deposits, you are basically giving guidance for CDs to be approximately 47 to 49 percent, and you are basically already on the lower end of that.
So I was curious to hear if you thought that the escrow markets might do better in the next few quarters or title, and then if you might do anything here in the near term with being more aggressive on the 99 Ranch?
Dominic Ng - CEO
In terms of the CDs, the percentage is based on our continued promotions that we plan to do throughout the year at this point.
And in terms of escrow and title deposits, our expectation is that it should level off or maybe even decrease a little bit this year, simply for the fact that the real estate refi market, we would think, at some point in time has to slow down quite a bit, which will result in those deposits also decreasing.
And that's the expectation.
In terms of 99 Ranch market, we currently do not have plans to open any more in-store branch this year.
We already have six, and they are continuing to grow, and we are going to continue to manage the performance of those six branches that helped it to do better and better, and now -- and then there's going to be a possibility that in 2005, we may look into opening more branches.
Operator
Scott Valentin, FBR Capital.
James Abbott - Analyst
This is James Abbott, actually.
Great quarter.
I wanted to touch on a couple of thanks.
Could you give us an update on the percentage of variable-rate loans as a percentage of your total portfolio, based on the strong commercial real estate loans, because I don't know what -- and maybe also along those same lines, what the terms are of most of those commercial real estate loans.
Julia Gouw - EVP, CFO
In some of our commercial portfolio (indiscernible) loan portfolio about 12 percent are fixed over five years, which is, you know, a small percentage.
The rest of the portfolio will be loans that mature -- the fixed period is either less than five years or adjustable, purely adjustable-rate.
So we still have a lot more adjustable-rate than the longer-term fixed-rate portfolio.
James Abbott - Analyst
Maybe if I could dig one step deeper on that, do you know what the percentages of purely adjustables or purely variable, in other words, prime-based or LIBOR-based that require (multiple speakers)?
Julia Gouw - EVP, CFO
I would say at least 50 percent are purely adjustable.
James Abbott - Analyst
And then the second question is on what your sense is -- I understand that first quarter is a little bit seasonally weak on the trade finance loan side, and then the second and third quarter can really do very well, which we saw last year, obviously.
Can you touch on what your sense is as to how -- we have seen some very strong numbers coming out of China, as far as import-export business and so forth, and growth numbers there.
Obviously, it will affect you positively, but can you give us a sense as to how positive it will be?
Is this going to be a blowout year for you?
Do you expect, or -- how should we view that?
Dominic Ng - CEO
I think it would help us in the overall financial performance of the organization, as long as there is more trade going on, there is just -- I mean, I think economic condition in China is getting better.
There are just going to be more of our customers who are doing business on both shores, going to continue to generate more wealth, which will result in more business for East West, but the business may not necessarily just be on the trade finance loan portfolio category.
The reason is that, when customers are doing better and they have, let's say, business or homes in both California and China, then they are more likely that they may acquire more real estate, both for commercial real estate or maybe residential homes and so forth.
And their business in the marketing arm here in the United States may expand, which will result in more deposits for us.
So there are a lot of other additional pluses for East West.
Now, going back to the trade finance, we strategically two or three years ago have switched direction in terms of focusing more on trade customers that do more letter of credit transactions versus loans.
And the other thing is that we are getting more export customers than we ever had before, and the export customers tend not to have as much advances as the import customers.
So that had resulted in our trade portfolio not growing as much.
But I think that, in terms of the customers' growth opportunity, I still see that there are going to be more opportunities for us to expand our international department (ph) business because of the strength of the economic condition of China.
James Abbott - Analyst
And I think last year, for the 10-K, if I recall the number correctly -- I am not looking at it, but I think it was something like a 25 percent year-over-year growth, as far as the trade finance fee income and so forth.
Are you expecting that to be stronger, at 30 percent, or in line, or any sense on that?
Julia Gouw - EVP, CFO
Last year, for the whole year, the trade finance fee income went up 30 percent.
And, based upon the run rate on the first quarter, we do expect a nice increase this year, too.
James Abbott - Analyst
So maybe even greater than 30 percent?
Julia Gouw - EVP, CFO
I would say probably 20 to 30 percent.
James Abbott - Analyst
And I forgot to circle back on the commercial real estate.
In terms of those loans, are they generally in line with what -- the rest of your portfolio is mostly purely variable?
Steven Canup - IR
You mean in terms of current production?
James Abbott - Analyst
In terms of the current production during the quarter; right, exactly.
Julia Gouw - EVP, CFO
The current production is mostly adjustable and short-term fixed-rate, only because the longer-term fixed-rate has become more expensive.
So there are a lot of customers that, if they don't plan to hold the property for 10 years, they are better off taking the adjustable because it still cheaper.
James Abbott - Analyst
And on the debt service coverage ratios on those that were coming in during the quarter, can you give us a sense -- because my concern, I guess, is in a rising rate environment that you maybe get squeezed on the cash flow coverage a little bit in that situation.
I know you guys are well covered on that front, but can you remind me on what that is?
Julia Gouw - EVP, CFO
Well, our underwriting guidelines is 1.3 internal debt coverage ratio.
But our actual DCR -- I don't have the number -- would be higher than that.
The good thing is that our average loan to value is very low, so these loans are very well collateralized, and even in the event of higher interest rate environment, they should be able to cover the cash flow.
James Abbott - Analyst
And is the 1.3 -- is that based on today's rate environment, or is that up 100 or 200 basis points?
Julia Gouw - EVP, CFO
That's our minimum, as a general guideline.
James Abbott - Analyst
Based on today's interest rates?
Julia Gouw - EVP, CFO
A lot of customers are more than that, 1.5 to 1.7 under the current rate.
Operator
Joe Morford, RBC Capital Markets.
Brian Conn - Analyst
It's actually Brian Conn, and most of my questions have already been answered.
But I just want to touch on two things that I guess Dominic made mention of, and just get a little more clarity.
One would be on the line utilizations.
You mention that commercial loan volumes would pick up.
Can you give us any color on where the line utilizations sit today, as well as where they would normally be?
And the second question is on the mortgage refinance activity and the secondary market activities, I guess, on the income statement.
We've seen it down maybe 65 percent or so from third-quarter levels.
How much more exposure do you think you have to lower refinance volumes, or should we start to see it balance out at current levels?
Julia Gouw - EVP, CFO
Let me answer about the mortgage first.
We do have a lower production.
For example, the first quarter of this year is about 30 percent less than a year ago.
I think that this year, our mortgage loan production will be lower than last year.
The income line item was almost the same as last year, because we were selling some of the loans in the portfolio; when interest rates went down, we were able to sell some of those loans at a pretty good gain.
But overall, we do expect the income from the secondary market probably 25 to 30 percent less than last year.
Brian Conn - Analyst
Year over year, 25 --
Julia Gouw - EVP, CFO
Year over year.
In terms of the utilization for our business and trade finance, we are roughly about (multiple speakers).
Dominic Ng - CEO
Trade finance is about in the 40 percent, 30 percentile range.
Business is about 60 percentile range.
So it's right about 50 percent.
Brian Conn - Analyst
And what are they normally?
Say two or three years ago, what were they running at?
Dominic Ng - CEO
Higher.
I would say three years ago, our trade finance are over 60 percent instead of the 40 percentile.
Keep in mind, though, it's not just that our customers are not using as much of the line or anything like that, but it's a combination of the mix of the loans that we have, that we used to have customers that borrowed a lot more because they are importers.
And now we have switched to a balanced mix of importers and exporters, and that kind of creates one of the factors that affected (ph) the lower utilization rate.
The other second factor is obviously customers are not aggressively borrowing, either.
So on the business side, I do feel that maybe a little bit less than before, but it's not dramatic because we still have the 60 percentile range.
Brian Conn - Analyst
I wasn't aware that the exporter/importer -- there was a big difference in the utilization rates.
Dominic Ng - CEO
It depends on the type of utilization.
Many of our customers now just use letter of credit for financing instead of just have much longer advances.
For that reason, I think, a lot of times what happened is that -- what we try to do is to really build more fee income.
And as you can see, our fee income actually has grown 30 percent last year.
And that's the whole point, is that really growing growth fee income, but limit our exposure to the credit side.
Operator
Manuel Ramirez, KBW.
Manueal Ramirez - Analyst
I have a couple of questions for you.
First, Dominic, you did mention a couple of times that you are getting better penetration within your niche markets.
Obviously, we know about the Chinese market.
But certainly in, for lack of a better term, the mainstream commercial real estate lending business that you are doing, could you talk about what you view as your niches or the areas that you really target?
And secondly, I guess it's always natural to worry about things when the environment appears to be really good.
And if there are any areas that you are concerned with, either types of loans that you might do in this environment or geographically, if there are areas that you think are set for a fall, could you talk about those as well?
And then I have a follow-up question.
Dominic Ng - CEO
In terms of niche market, I think what I would like to point out is that we have different niches.
We have the ethnic niche, which is pretty obvious, you know, and that we are in the Chinese market.
And we continue to have done better and better, because we're getting more and more of our branches' personnel to be involved with generating these commercial real estate multi-family loans, which also result in, a lot of times, through that relationship we're getting the commercial deposits.
As much as they are much smaller customers, but they are our bread-and-butter business that in totality it adds up to a nice number.
That's the ethnic niche.
And then there is the mainstream, you know.
You may be aware that we are very, very active in the low-income and senior housing development area.
And we also, in fact, were one of the first banks that were active in the downtown redevelopment -- on the residential side.
And so we have made quite a bit of successes in those different niches.
And so, in terms of the mainstream niches -- let's take a good example, the downtown residential development area.
Several years ago, we were one of the only banks in town that are in that arena.
Today, every single bank claims that they are the expert on downtown redevelopment.
And so, obviously, with that kind of competition, it may be something that we may not necessarily have the kind of growth in that arena, because now everybody is in competition.
We would probably move onto some other niches.
So every few years we will find other niches that we can move onto.
The other part is also because of our loan making (ph).
For example, in terms of the low-income housing credit enhancement for bond financing, if we wanted to increase that volume dramatically because of our expertise, because of our depth of relationships that we have with so many developers in this arena, I'm sure that we can get a lot more business.
But we have always been very disciplined in terms of credit exposure to any particular type of niches and products.
And for that reason, when you asked me the third question, what I feel will be potentially a concern, we basically -- once we get to a certain level, we just kind of like slow down or move onto something else.
And that has always been the discipline of East West, whether it's going to be like total exposure to one individual borrower, or maybe a maximum dollar amount we can land to one particular project, or maybe a specific industry or specific geographic area.
We always have house limit.
We have so many limits in so many different categories that I can't -- it would take a long time for me to spell them all out.
I think the whole idea is that as long as we have the discipline to limit exposure in many different categories, we will be able to find a way to not have surprises year after year.
And that's the kind of approach that we take.
Manueal Ramirez - Analyst
And then, as far as staying out of certain markets right now, you mentioned the downtown redevelopment in L.A.
Any other things that you are trying to avoid deliberately?
Dominic Ng - CEO
I would not say that we are staying out of downtown development area.
I think it's just more or less -- one is that there may be more competition out there.
Secondly is that we would not be making maybe as many of those loans, simply because our house limit -- we will never exceed our house limit, anyway.
But our house limit is, let's say, we would put a percentage of -- it cannot be more then, let's say, X percentage of our total portfolio.
And when we inch it closer and closer to that category, we probably would slow down.
We do the same thing in hotels.
We do the same thing in like office buildings, and we do the same thing in certain geographic areas.
And we just look at -- we always put a percentage -- our Chief Credit Officer just basically put a percentage guidance in terms of how much overall percentage we are allowed to be in this type of product.
And then, when we start inching closer and closer, we slow down in that particular product.
I don't think of anything that, at this point, that we have concern at this moment.
Julia Gouw - EVP, CFO
No.
I think that, going back to -- although we have a lot of real estate loans, one of the strengths of our portfolio is that it has very low loan to value and, two, like Dominic said, the discipline on the size -- we will participate out (ph).
We do some projects that are pretty sizable -- 20, 30 million -- but we will participate that out down to no more than 10 million per real estate project.
And I think that will clearly help us a lot in case there's a downturn in the real estate market.
Operator
(OPERATOR INSTRUCTIONS).
Campbell Chaney, Sanders Morris Harris.
Campbell Chaney - Analyst
I just had a follow-up on your branch fees.
Can you veer off (ph) in the first quarter versus the fourth quarter?
Can you give us some idea of what was going on there, in light of the significant growth in deposits?
Julia Gouw - EVP, CFO
The branch fee -- sometimes there will be some fluctuation.
Sometimes our first quarter is a bit lower, and then the second and third quarter, there may be some annual charges, (indiscernible) different things.
I think that fluctuation will happen, depending on certain fees that are being waived on certain types of accounts.
So if we look at branch fees from last quarter to this quarter, it is off by $35,000.
So I think that that is not a big fluctuation.
Campbell Chaney - Analyst
Can you give us an idea of some growth year over year in that area, say 2004 for the year over 2003, some idea of what the growth in the branch fees are going to be -- again, in light of the increase in deposits?
Julia Gouw - EVP, CFO
Last year, 2003, we have a pretty good growth, like about 17 percent.
I think that the growth probably will slow down, especially this year.
We will also be very active in the CD versus mostly in demand deposits, accounts.
So I would think that it would not be a significant growth compared to 2003.
Campbell Chaney - Analyst
You mean so it will be flat?
Julia Gouw - EVP, CFO
Yes, or maybe even like 5 to 10 percent.
Campbell Chaney - Analyst
And, I guess, one follow-up.
The fees you charge for wiring money from your Ranch 99 stores and other branches to overseas -- is that part of the branch fees?
Julia Gouw - EVP, CFO
Yes, that would go to the branch fees.
And also, or maybe I mention, too, like to escrow title, like some of the accounts that we charge wire, depending on the balance.
If their earnings credit is less than all the fees that we charge, we will end up with more fee income.
But if they have higher balances, enough to cover all the charges, then it will not show up as fee income.
So we can have some fluctuation, based upon people's balances.
Operator
At this time, there are no further questions.
Are there any closing remarks?
Dominic Ng - CEO
If there is no more questions, I just would like to thank everybody for joining our call, and I look forward to talking to all of you again in our second-quarter conference call.
Thank you.
Operator
This concludes today's conference call.
You may now disconnect.