East West Bancorp Inc (EWBC) 2004 Q3 法說會逐字稿

I would like to welcome everyone to the East West Banc Third Quarter 2004 earnings conference call. (OPERATOR INSTRUCTIONS).

Mr. Canup, you may begin your conference.

Good morning everyone, and thank you joining us to discuss East West Bancorp's financial results for the third quarter of 2004.

In a moment Dominic Ng, our Chairman, President, and Chief Executive Officer will provide highlights for the quarter.

Then Julia Gouw, our Executive Vice President and Chief Financial Officer will review details.

We'll then open the call for questions.

During the course of the conference call today, we may make projections or other forward-looking statements regarding advanced or future financial performance of the Company of the Private Securities Litigation 1995.

We should 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 31, 2003.

Also like to remind listeners today, the call is being recorded and is available on replay format at eastwestbank.com and streetevents.com.

Dominic?

Thank you Steven.

Good morning and thank you for participating in today's call.

In the third quarter of 2004, we continued our trend of reporting strong double-digit growth in earnings with a 22 percent increase to 39 cents per share.

Our net income of $20.4 million is also the highest level in history of the East West Bancorp and once again, we have received strong contributions from nearly all areas of the Company.

Shortly, Julia will provide you an overview of the financial results for the quarter, but first I would like to discuss a few notable items and provide an update on our outlook for the remainder of 2004.

First, I would like to discuss our ability to consistently deliver higher than average loan growth that significantly exceeds the normalized rate of growth in our core market.

For a fourth quarter in a row, we generated sequential organic loan growth of over 10 percent with approximately 12 percent organic growth for the third quarter.

This rate of growth would likely moderate in the future to a more normalized annual rate of 15 to 20 percent.

We believe that a number of structural changes have driven to strong origination pipeline.

In addition, I would like to emphasis that our ability to grow the loan portfolio reflects no changes in underwriting standards.

The loan characteristics that we'll report to you each quarter, including fixed value ratios and loan size have remained remarkably consistent for the past 3 years.

Reflecting our commitment to the credit standards that we have served us -- that have served us so well in the past.

There are number of drivers that lead to our loan portfolio growth.

First, we have continued to check market share within California driven largely by the increased awareness of the bank's service quality, responsiveness, and the breath of our product offerings.

Increasingly, we are becoming the bank of choice for many of our relationships and have a growing number of customers coming to us for the banking needs based on referrals from existing East West customers, lawyers, CPAs, and other professionals.

We also have expanded our team of Relationship Officers.

The active calling efforts have attracted more new customers.

Our loan growth also continue to be positively impacted by increased production from our branch network while we have focused on improving our ability to identify and capture smaller, commercial, real estate lendings in our local communities.

All of these loans tend to be smaller than our average loans and are underwritten to us being straight credit criteria.

We have also continued to experience a much lower rate of loan repayment than in 2000 through 2002, which augments delayed upload in the portfolio.

This trend we believe will also play a part in the event a high-interest rate begins to impact our origination pipeline.

As raise impacts refinancing activity in the commercial real estate and multifamily markets, lower origination volumes will be mitigated by a lower rate of prepayments.

Now, I would like to comment on our core market base and the implications for loan portfolio growth.

While percentage growth has been among the highest in our peer group in recent quarters, our overall market share still remains small in our universe.

We continue to focus on the small-to-mid-size real estate investors.

We tend to have higher equity in the properties and typically use real estate as their primary investment vehicles.

This type of borrow accounts for a significant number of ownership and transactions in most of our core geographic markets.

While we continue to gain market share among these borrowers, in terms of pure numbers, we only have a small number of these customers relative to the total market in most areas we serve.

On the commercial business and trade finance funds, we have an even greater market share opportunity.

Again, this category has been growing at double-digit rate for the past several quarters, but represents a smaller portion of our portfolio and a very small percentage of the total market in California.

Small-to-middle market funds dominated the state's economy and are typically customers of the major banks.

We believe they are good sources of growth to our bank.

During the third quarter, we closed the Trust Bank acquisition adding over 4000 customers to our franchise and expanding our presence in our core Chinese ethnic market.

We completed the conversion of the Trust Bank systems early in October and have already begun offering the full range of deposits and lending products to these new customers.

Finally, I would like to provide an update to our financial guidance for 2004 and give preliminary guidance for 2005.

Reflecting the recent rate of growth in the portfolio, as well as the 2 most recent rate increases by the Fed, we are estimating fourth quarter earning per share of approximately 40 cents resulting in a full-year 2004 estimate over $1.47 representing a 24 percent increase over 2003 earning per share.

As typical, we assume in this guidance, a stable interest rate environment, a 20 to 25 percent annualized loan growth for the quarter and stable efficiency ratio and tax rate.

For 2005, we have an initial earning per share guidance of $1.76 or approximately 20 percent growth.

This guidance is based on an assumed 18 to 20 percent loan growth, 15 to 17 percent deposit growth, and again stable interest rate and efficiency ratio, and a slightly higher effective tax rate.

We are quite comfortable that we can meet our 2005 loan portfolio growth without significant new initiatives.

We'll be more focused on the deposit side of our business next year.

Looking to contain deposit costs during the year and drive a balanced growth in our net interest margin, which we believe will reach 4.28 percent to 4.30 percent.

I'll now turn the call over to Julia.

Thank you, Dominic.

As most of the detail for the quarter was included in today's release, I'll now provide a summary of selected key items from the quarter.

We were very pleased to report earnings per share for the third quarter of 39 cents, a record amount despite a higher loan loss provision, 2.2 million lower gain on single family mortgages, and a higher effective tax rate.

The net interest margin for the third quarter reached 4.24 percent compared to 4.12 percent last quarter and a core net interest margin of 4.26 percent a year ago.

The increase in the margins compared to the last quarter reflects the rate increase by the Fed as well as our continued loan growth.

Approximately 60 percent of our loan portfolio reprises immediately and we benefited from the general upward movement in rates during the quarter.

We experienced a meaningful sequential increase in the yield on loans during the quarter from 5.47 percent in the second quarter to 5.63 percent in the third quarter.

In addition, we worked hard to manage our cost of deposits for the quarter seeing only 8 basis point increase from last quarter due primarily to the higher deposit cost from Trust Bank, was equal to 1.38 percent at closing as well as an increase in rates we paid on selected time deposits.

Our focus on small business demand accounts, commercial money market accounts, and core retail deposits helped to moderate general market rate pressure and we remain in the middle of our peer-group pricing for most deposit products.

As Dominic mentioned earlier, we believe that a combination of loan growth and a focus on core deposits in 2005 will allow us to expand the margin to the 4.28 percent to 4.30 percent range.

The loan loss provision of $5 million was $3 million above the prior year period and $2 million higher than last quarter.

We believe that the increase provision was prudent, given the continued growth in the loan portfolio and current uncertainty in the general economic environment.

We anticipate a similar level of provisions in the next several quarters based on expected portfolio growth.

Non-interest income for the quarter totaled $7.2 million, $2 million below prior year period and approximately 200,000 below last quarter.

Core non-interest income, which excludes gain on sale of loan securities and other assets, totaled $5.6 million, $3 million below the prior year quarter and $1.9 million below last quarter.

The decrease resulted primarily from the absence of secondary marketing income from the sale of single-family mortgages during the third quarter, which decreased by $2.2 million, compared to the prior year quarter.

During that quarter, we have realized a net gain of approximately

on relocations.

East West transferred approximately $24 million of assets from loans to family-made securities on our balance sheet, which we executed in order to lower the risk based capital requirement as low as to provide greater liquidity against the assets if needed.

We anticipate further on balance sheet securitization in the next several quarters for the same purposes.

We

these transactions at

Securities, thereby avoiding gain on sale accounting and intensive retain when possible.

All the securities on our -- Finally our non-interest expense for the quarter totaled $23.2 million, 17 percent above the prior year period and 7 percent above last quarter.

Core non-interest expenses, which exclude amortization of affordable housing and core deposit intangible $0.9 million, 19 percent higher than last year's quarter, 9 percent above last quarter.

The higher expenses were attributable to the higher compensation and benefit cost from the Trust Bank acquisition and recent new officers hires, higher occupancy expense from the acquisition, and the opening of additional locations, and higher other costs due to the general growth at the bank.

Our efficiency ratio for the quarter equaled 34.8 percent, the lowest in the past decade.

Although we continue to add seasoned banking professionals as raw as support staff to manage our ongoing growth, the new additions have generally been very productive and a net benefit to the bottom line within a few months.

Asset quality, as Dominic mentioned, our credit quality remained well within our targeted level of risk.

Our ratio of non-performing assets reached the lowest mark in the decade, equaling 5 basis points of total asset or $2.6 million.

Non-accrual loans also reached a decade low, equaling 6 basis points of total loans or $2.6 million.

We believe that the loan portfolio remains healthy and we see no systemic risk or downward trend.

As we have stated for the past several quarters, even with our low level of non-performing assets and well-secured portfolio we will experience periodic jump in net charge-offs due to unique situations.

For the third quarter, net charge-offs increased on the annualized 30 basis points or $3.3 million to almost entirely to two commercial loans.

The year-to-date net charge-offs on an annualized basis is 15 basis points.

We maintain a well-diversified portfolio across collateral types, geographic location, and granularity of loan size.

There has been no significant changes in the characteristics of the loan portfolio over the past several quarters, except for the fact that we are now retaining the majority of our residential mortgages due to the switch in customer preference for adjustable and hybrid loans.

To provide more detail on some of the segments of the portfolio, commercial real estate loans as of September 30, had an average balance of 1 and added loans to value of 57.5 percent and an average seasoning of 1.8 years.

Multifamily loans have an average approximately 511,000 a 62.8 percent average loan to value and average seasoning of 1.7 years.

Construction loans had an average balance of 1.5 million, 63.6 percent average loan to value and 1 year of average seasoning.

Finally, our commercial business and trade finance loans had an average balance of 503,000 and 2.3 years average seasoning.

I will now turn the call back to Dominic.

Thank you Julia.

Again, thank you for joining today's call and for your continued interest in East West.

We were very pleased with the results we have achieved so far in 2004 and we are confident that we can continue to perform very high levels

future.

I will now open the call to questions.

(OPERATOR INSTRUCTIONS).

Jennifer Demba, SunTrust.

Good afternoon.

I was wondering, given that you intent to focus some more on core deposit generation, if -- will you be adding any more 99 Ranch branches and I have follow-up question?

Yes, I believe that we will add at least 2 99 Ranch installed branches for the upward year 2005.

Okay.

And I am sorry.

I missed the beginning of the call, you noted what your sequential organic loan and deposit growth was.

Could you repeat that?

For this quarter, it is 12 percent, but we have, I mean 4 quarters in a row, we have over 10 percent sequential loan growth every quarter.

Deposit, do we have the number in deposit?

Yes, the deposit sequentially 3 percent growth.

Okay.

Thank you very much, good quarter.

Thank you.

Thanks Jennifer.

I am sorry, I apologize, that is actually 13 percent sequentially.

Joe Morford, RBC Capital Markets.

Good morning everyone.

A couple of questions.

I guess first in the past you have given some kind of parameters for asset sensitivity, you know for every 25 basis point increase in rates and something like 8 basis points on the margin and now you got stable rate forecast for the projections, but can you update us to where that sensitivity stands at the end of the quarter and maybe where the deposit, that is it, thanks.

In terms of asset sensitivity, because we have you know much greater earnings assets now.

It would be roughly about 6 basis point interim of the 25 basis point increase.

Okay.

And the prime rate -- mostly is driven by the prime rate.

Okay, And secondly, just on critical on the reserve, specifically, I know you know the reserve to loan ratio is just something that kind of sticks out, a number you target, but you know, given that we are now below 1 percent of loans.

Is there a level at which just kind of optically, you get concerned about you know the way that ratio looks and you know might be something caused you to step up the provision rate at all?

We do -- we would like to

1 percent.

Right now, it is 99 basis point.

However, since we planned to securitize more of the loans and also you know if we don't have continued such a high rate of growth under loan portfolio we believe that allowance for loan losses, ratio will pull up above 1 percent.

Okay, thanks very much.

James Abbott, FBR.

Hi, good morning.

Great quarter.

Thank you.

I wanted to see if I could get a sense as to how many lenders that you might have been able to hire from season lenders I should say from the marketplace within the last say, 3 or 5 months or so and then if I get sense as to what their production might be that you might expect from them or if you can give any color.

I mean that may be too specific, but if you can give some color on that?

For this quarter?

Are you talking about just this quarter?

Yes, this quarter or last quarter, something that probably hasn't shown up

?

5.

5?

Yes.

And any sense that do you expect 30 million production per lender per year or any sort of sense on that?

While they all varies.

You know, for the commercial and trade finance, it takes a little bit time and also, not only takes a little bit time, normally for the commercial and trade finance loans, you know say a $5 million of credit commitment and the customer may only draw up -- I mean, they draw up and down and therefore the average outstanding balance varies, sometimes usually above 40 to 50 percent of the commitment, that is to begin with.

So, from the $5 million line of credit, we come down to may be only 2 to 2.5 million average balance.

It also fluctuates seasonally.

So, for certain quarter it goes up little bit more and then for certain quarter it comes down little more.

So, for the commercial deals, it is hard to predict.

Now, for the real estate size, it is much easier to predict because normally when they took a loan most of the dollar amounts go immediately outstanding.

Now for constructional lending, also you know, it takes awhile to build up the outstanding balance.

So for real estate lender we tend to ask them to do a little more in terms of dollar amount reduction, simply because most of the amount

is really outstanding and for the commercial and trade finance lenders we do not have this high offer

.

Okay, I appreciate that.

Actually you touched somehow or the other the subsequent follow-up questions that I had which was the line usage and what minds the credit outstanding that are -- may be if you can give us an update on your next quarter improvement there or what happened?

I think the usage increased slightly, I mean, not a great deal but we have a slightly higher usage for the line of credit.

I don't know if you have the numbers for what the line of credit was last quarter versus what it is this quarter on a total basis.

I don’t think you give that out or not?

So

The release actually show the increase of commercial and trade finance in terms of outstanding balance.

Right.

You are looking for the usage right?

The total balance is what I am looking for.

As of September 30, both the CNI and trade finance uses about 55 percent, I would say, last quarter probably about 50 percent, slightly increasing on the usage.

Okay, thank you very much, again great quarter.

Richard Eckert, Roth Capital Partners.

Actually, mostly my questions are finance.

I just had one quick additional question to decline in loan and deposit fees.

Can I assume that that represented prepayment fees?

Can you repeat that?

The decline in loan and deposit fees quarter over?

For the loan fee income?

Yes.

Can I assume that the decline represent your pre-payment fees?

No, the prepayments will go into the interest adjustments.

This loan fee represents ancillary miscellaneous fees, so it depends on what kind of loan product, sometimes the underwriting fees; processing fees may be higher than others, so it really depends on the composition and the type of loan product that we book during the quarter.

The significant portion of the loan fees under Safety 91

-- majority of them either differ -- it becomes a new adjustment to your net income or the other portion will be an offset to the -- this is like a low origination cost.

So, therefore these are all the miscellaneous minor loan fees.

Okay, There was a significant decline of 1.6 million quarter over quarter.

Yes, that really depends on what type of loans, and what kind of commitment fees, processing fees, appraisal

that we collect.

(OPERATOR INSTRUCTIONS).

Lana Chan, Advest.

Good morning.

Great quarter.

I got a couple of questions.

One is -- when I look at your period-end loan outstanding as September 30th about 4.7 billion, its pretty much higher than the average loan balance 4.4 billion for the quarter.

I know its somewhat distorted by Trust Bank corpus.

Is there any seasonality at period end or is that a sort of a good base to grow up for the fourth quarter?

There is not much seasonality when they come to loan balance.

The growth is mostly coming from the production and Trust acquisition, cost is about 160 million.

Okay, my second question is related to -- just a bit of accounting question for the future securitization with the pass through securities from the loan portfolio.

What kind of impact does that have on the margins?

That is small because we would pay guarantee fees to

when we securitize this.

So, the net impact -- for a 100 million securitization it is about 1 basis point, so it's not a great impact on the yield.

Okay, Thank you and then the last question is related to letter of credit fees and commissions that dropped about 300,000 from the second quarter.

Could you discuss what happened there?

On the LC fees, some seasonality -- for both in the state finance and also the credit enhancements.

Okay, because I mean the first half was much stronger than what you have been typically running at last year, so should you view something in the middle of that or?

Yes, I think the fourth quarter is probably roughly the same as the third quarter or increasing slightly.

Campbell Chaney, Sanders Morris Harris.

I was going on the chargeoffs at 30 basis points.

What was the story behind that?

There are basically two commercial loans that -- both of them has been -- I guess one has been customers in Northern California and another one is the customers of Southern California and very seasoned business but this didn't do well and then we end up charging these loans off.

So these are business loans and C&I loans?

Yes.

They are unsecured.

Others are secured business loans.

What kind of businesses were they in?

If you can say?

Consumer products.

And then the other one was the sale --- the fixed assets -- the gain?

I think that was a brand sale, just by the outsized gain.

Yes, the property.

We inherited the property from an acquisition of AIB, so we are going to relocate to a better location and we sold the building.

Okay.

And then kind of getting to Richard's question about the dropoff in loan fees, 750 this quarter.

Was the last quarter kind of an outsized such as appraisal fees or so forth or maybe the second quarter is a little bit inflated and then came to normal?

I believe so.

Based upon the trend -- depending on what type of loans and what we collected in terms of commitment fees and all these miscellaneous fees, I would say that the last quarter was under high-end.

So, what would be a kind of a good, kind of a good rate for us to model out your earnings going forward for a kind of the loan fee?

I would just add probably a 100,000 -- 200,000 per quarter.

On top of the 750?

Yes.

(OPERATOR INSTRUCTIONS).

James

,

.

Could you give us a little bit of an update on what is going on in terms of competition for the Chinese ethnic market.

We have been hearing about several start-ups in this space as well as some of the Korean banks trying to hire Korean ethnic loan officers, as well as you are also taking place the things -- strategy being sought to be looked into by some of the larger banks, the Wells Fargo and Bank of America to the world?

In terms of the new start-up, really it doesn't have much effect to us at this point because they are so new and smaller.

I mean, there is some very minor impact to a standpoint of that usually sort of like to come to us and ask for loan participation, and we have always been very generous in participating loans to other banks.

The reason is that with our very strict criteria in terms of loan size, we have many of the logic relationship, we don't want to keep them all within the bank anyway, so anytime the new start-up --

participating bank that would want to get loans from East West which is more than welcome.

In terms of Korean banks getting involved with other ethnic market, we really haven't -- from our standpoint we haven't seen anything that sort of affects our market base at this point.

I forgot what is the last question.

From Bank of America, Wells Fargo etc?

They've been very, very active in the Chinese market for actually now, a few years now, and I think they will continue to see more action.

And so far, the activity has mostly been focused on the retail consumer banking area, in the retail banking, consumer banking area and I haven't seen them being that active in the small middle market commercial business.

And when it comes down to the retail consumer banking I think that the BOA, Wells Fargo,

now Citibank and also HSBC, they all have, sort of like gearing up and the good news is that we actually have been able to grow retail banking pretty good with the competition.

And if I go back to the history of the eighties, back then it was the Japanese banks that, many of them who came to California acquiring some pretty good size local community banks or regional banks and they have been very, very active in focusing on actually both commercial and retail banking throughout California within the Chinese community.

And the results have actually generated even more new Chinese banks throughout the eighties and the nineties.

So therefore I think that it appears to me that competition, they do come and go and then in different forms and shapes but then it doesn't seem to slow down the Chinese banks.

All right.

Then just one quick follow-up with the -- in terms of asset quality, it seems that obviously your asset quality is really quite pristine right now, very low levels of NPA's, very low levels of chargeoffs despite the past growth in the portfolio.

How should we think about this seasoning of the portfolio going forward?

Just in that, the history of banking is that when you make loans, sometimes you have loan losses and that their periods for loan losses are very low and periods for loan losses are higher and right now it seems that the entire banking industry from Citigroup all the way down to the banks your size are having very little loan losses across the board.

When does that start to turnaround and how do we think about this seasoning of the portfolio going forward?

I think one of the strength that we have is that most of our loans are in the collateralized real estate with very, very low loan to value, which is unlike back in the eighties or early nineties.

Most banks had real estate loans with much higher loan to value.

For example, our commercial real estate with an average size of 1.1 million to 57 percent loan to value.

We believe that even if we end up with that real estate cycle that our loans still are well collateralized.

The second thing is to spread the risk geographically and also reduce the loan size to a level that we would not have, lets say 1 or 2 big real estate loan and the two of them combine you go to $40 to $50 million.

And whenever you have these big nonperforming assets hanging our there, sometimes it is likely to make irrational decisions

from the repository pressure or may be investor pressure and so forth.

We have been very much disciplined to make sure that on the loan-getting system side, we will either participate them out to other banks.

If I borrow -- does not want to have a relationship with us, spread with other banks and we just kind of not having that customer.

And the nice thing about us -- able to let go of some larger-sized customers who are very much particular in terms of not wanting to have the credit share with other banks is that -- there is no customers really that big that can substantially affect our financial conditions anyway because we are never trying to go out there and have this relationship that we cannot let go.

And so I think between the very low loan to value and also limited loan size, spread it out geographically throughout California and all of that, I think, help us to most likely be able to withstand any kind of economic depression that may be coming and fortunately for the last few years the economic condition has been good.

But we went through the stress test back in the early nineties.

because of the real estate portfolio, but we are doing just fine and I think that the key factor here that we feel very strongly that if there is going of be any kind of major recession that comes or if there is going to be any kind of downturn on the real estate market, we will be most likely be able to deal with that condition, in fact most likely at that point, we will be able to take advantage of the market and capitalize it and take more customers and get more market shares within California.

Kathleen Steinbreche, Piper Jaffray.

Good morning.

I have 2 questions related to relationship officer.

The first question is -- do you plan to hire in the fourth quarter and also in 2005, the approximate number?

And secondarily on your relationship, how many of those were in new market?

We actually have already hired a few more in the fourth quarter.

We will continue to hire additional account officers and that's something that is definitely in the plan.

And now I don't have exactly the numbers of -- because we are still doing our budget -- finalizing our budget for 2005, and I don't have in terms of the details how many number of new account officers.

We don't have that number yet.

Well quite frankly the way that we look at is that -- is there good people available, and willing, and want to come to East West, we will hire them anyway.

The fact is pretty much every one of our account officers has been immediately accretive to earnings.

We really don't have an issue in terms of -- we can only hire so many.

As long as we continue to have these kind of financial performance, as long as we continue to take more market share than the other banks, we are going to continually attract more people to come to us.

And now on the other hand, only reason we are not hiring a lot is because we are also very, very choosy.

We want to make sure the people who come in are going to really add value to the bank, so that it does not become a burden.

And so in that sort of selection process, we end up getting whatever the number we are now getting.

In terms of new market, are you saying new market means -- can you define new market so that I can answer your question better?

When you hire a Relationship Officer, and for example may be there is a particular market at particular town or city, where you haven't had penetration.

And that new Relationship Officer moves into that market and starts to generate loan growth.

How many of these officers in the last year -- you said the number was 30 -- that you've hired are in new markets versus expanding existing markets?

Yes, for example we just opened a loan production office at Orange County.

So we have hired couple of people down there, and hopefully in the future, we'll be able to identify more people and expand that region, that's in Orange County.

And we may have sometimes one or two different products that -- for example, we just hire persons that specialize in nonprofit deposit gathering.

And so whether it is a product or may be a region, we will continue to explore that kind of opportunities here.

Brett Rabatin, FTN Midwest Research.

I joined kind of late, so I apologize if it has already been addressed but -- was just curious if, Dominic, you could give any detail or Julia may be, on the -- how much was raised during the quarter as a Greater China Investment Index CD product during the quarter.

And then -- if there are any other products or sort of initiatives to grow deposits given this obviously very strong loan growth.

The Greater China Investment Index CD is $14 million.

14 million?

And what's the other question.

Well if there is any more product that potentially be rolling out to continue to fall under your really strong loan growth -- if you might be doing anything else that's relatively unique in the next couple of quarters?

Brett, we typically -- we try to be fairly integrated and introduce products on continual basis, not want to

with the home runs, we're going to gather 100 million at a deposit shop.

But we have things like the Chinese CD, where incrementally we add to our product line up and deposit gathering.

And so we will be doing that but it's sort of on an ongoing basis throughout next year.

For various reasons, we obviously won't be talking about details here until after they're rolled out.

Sure.

It might be anticipated that there could be additional -- you need products that you guys might role out?

What we will focus on in 2005 is to really expand our commercial deposits because we believe that there is a great opportunity for us to increase the market share in commercial deposits like Dominic talked about -- we have somebody now that specialize in nonprofit deposits.

So we will continue to look at the different areas, so we can gather the low cost.

Okay.

Would it be fair to assume that a small portion of the balance sheet growth over the next year like continuing to be a little bit of borrowings?

Yes.

If you plan from the loan growth, there is a possibility that if the loan growth continues to be pretty high that we will be using borrowings to fund that.

Okay, great.

Dean

, Neuberger Berman

Could you talk a little bit about the competition in commercial real estate lending.

You had tremendous growth I guess in loan portfolio

there.

And may be can you talk about a little bit what the typical terms are in terms of maturity?

Are you seeing pressure to go to a premiere loan at a fixed rate month.

And may be if you could talk what would be the use

the typical yield is right now?

In term of our typical commercial real estate, it's somewhere between 1 to 5 million that would come in from real estate loans that we see.

And we do from time-to-time see very big loans, more than 10 millions.

However, for those loans, we will find a participation to reduce amount that we take on our portfolio to $10 million for the commercial real estate.

And in terms of the loan to value, we had been very fortunate, we are very disciplined, we always look for low loan to value, the average loan to value that we see is 55 to 60 percent even for the new origination.

And in terms of rate, I think that's normally about 5 to 7 years, most of them are adjustable?

We do offer longer-term fix that varies from all portions of originations

.

It's not a huge demand in the marketplace.

The price for the 10-year fix or 15 year fix, even though we offer, it's much higher than adjustable, so people will get 5 for 75 basis point versus paying 7 to 7.5 percent for the longer term fix.

So you adjust the typical 5 to 7 years?

Does that look adjustable on a three month basis or --?

That would be enough.

It would be for 5 years, some of the terms fixed for 5 years and then it's adjustable monthly.

But there is a prime based one; most of our share adjustables are prime based.

That would be monthly.

Monthly change.

Okay and can you just may be say what is the going rate for these loans right now and how does it change within the last couple of quarters?

Well, we increased the rate about a few months ago.

However the longer term -- the treasury actually has moved down a little bit.

So, right now the pricing is for a 5-year rate; it would be about six and quarter percent for the regular way cookie cutter commercial real estate, but if somebody is looking for more compact deal, they have to pay higher rates.

For the prime, on the average, it would be prime plus half to prime plus one of the commercial real estate.

Campbell Chaney.

Good morning, Dominic.

How much of your new business coming in is say is ethnic Chinese versus mainstream.

In terms of loan.

Yes. in terms of loan.

It may be also deposit, if you can just differentiate.

I would say that still above 40, 60 percent from the non-Asian market.

Is that lending?

For the new one -- yes for the loans.

Yes, thanks.

How about deposits?

Deposit, I would say there will be a limit -- I mean because we got a lot more deposit from the branches.

Correct.

So it tends to be more in ethnic Chinese area.

And can you give us an idea may be now what the healthy composition is for the existing portfolio?

Is it still the same breakdown as that's been in the prior quarters?

I think it's very similar than the prior quarter.

And how is your marketing campaign advertising in the radio in L.A?

What kind of business is that bringing in?

We obviously get a lot of recognition throughout the Southern California.

So, it helps both on the mainstream and the ethnic market because if you drive by the free way, see a Billboard or may be listening to the AM radios and then heard

that is all very cater to the mainstream, which is true.

However many of our ethnic Chinese customers, all potential customers have always knew our brand for years and years and it just delighted to hear us now being more visible and many of them end up coming to us too.

So, we are attracting customers from both ends.

Okay, so is that really throwing the weight one way or another between non-Chinese and Chinese?

Well, obviously, if we look at our current loan production, it is still a little bit heavier in terms of coming from the non-Chinese bay.

So I see that trend will continue.

Okay.

Okay great, thank you, that is close enough.

At this time, there are no further questions.

Once again, I would like to thank everyone on joining the call today, and I look forward to speaking with you again in January 2005.

Thank you.

This now concludes today's East West 2004 earnings conference call.

You may now disconnect.