East West Bancorp Inc (EWBC) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 East West Bancorp earnings conference call.

I will be your coordinator for today.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's conference, Ms.

Irene Oh, Senior Vice President.

Please proceed.

Good morning, everyone, and thank you for joining us to review financial results of East West Bancorp for the first quarter of 2009.

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

Then Tom Tolda, our Executive Vice President and Chief Financial Officer, will review the financials.

We will then open the call to questions.

First, I would like to caution participants that during the course of the conference call today, management may make projections or other forward-looking statements regarding the events or future financial performance of the Company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

We wish to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties.

For 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 31st, 2008.

Today's call is also being recorded, and will be available in replay format at www.eastwestbank.com, and www.streetevents.com.

I will now turn the call over to Dominic.

Thank you, Irene.

Good morning, and thank you for joining us on today's call.

Yesterday afternoon, we announced financial results for the first quarter of 2009 and reported a net loss of 22.5 million, or $0.37 per common share before payment of preferred stock dividends.

The primary driver for the losses for the quarter was provision for loan loss of $78 million or $1.24 per common shares pretax.

This is a challenging economic period for everyone in the financial service industry.

Present losses in operating expenses such as higher REO and collection costs and FDIC deposit insurance premiums are impacting all financial institutions.

We are moving forward, taking actions to ride out this downturn in the best way we can to return to profitability as the economy improves.

At present, we are focusing on serving our customers, building a stronger retail branch network, and strengthening and improving all areas of our business that we can control and change.

Although the first quarter of 2009 has posed challenges for East West, there have also been opportunities and successes.

We successfully increased total deposit by $312 million, up 4% quarter over quarter.

This increase in deposits was driven by a $468 million or 14% quarter over quarter increase in core deposits.

We have actively promoted core deposit campaigns in our retail branch network and throughout our commercial deposit platforms over the past nine months.

The strong growth in core deposits in the first quarter is the accumulation of these actions.

During this quarter, we successfully attract new deposit customers by introducing new money market products to both retail and commercial customers, and were able to lower our overall cost of deposits considerably.

The cost of deposits for the first quarter of 2009 was 1.81%, a 33 basis point decrease from prior quarter.

As of March 31st, 2009, the cost of deposit was 1.59%, down from a cost of deposit of 2.01% at year end.

Additionally, I'm pleased to report that at March 31st, 2009, both core deposits and total deposits were at the highest level in the history of the bank.

Turning to the loan portfolio and asset quality, we ended quarter with total gross loan of $8.1 billion.

For the past three months, we continued to meet the lending needs of new customers and expand existing customer relationships.

We are prudently extending credit, and originated $306 million in new loans and renewals of existing loans during the quarter.

In light of the continued downturn in the economy and the impact to our loan portfolio, we have continued to build the allowance for loan losses to $196 million or 2.42% of total loans, up from $178 million, or 2.6% of the total loans at year end.

Given the continued weakness in the overall economy, we expect the provisions and present losses will most likely continue to be elevated for the remainder of the year.

Now, I would like to spend a little time discussing credit quality, delinquency, and trends we are seeing for each loan portfolio.

Starting with the residential loan portfolio, overall total delinquency in (inaudible) 518 single family portfolio have increased to 53.8 million at March 31st, from 36.5 million at year end.

This increase is largely a result of increased loan delinquency in the 30 to 59 days bucket, as loans delinquent 60 days to 90 days did not increase substantially.

We attribute much of the increase in single family loan delinquencies with the many federal and state programs for loan modifications causing confusion among homeowners.

Our latest delinquency report as of last Friday shows that total delinquencies have fallen from 53.8 million at March 31st to 44.7, a decrease of 17%.

Additionally, we obtained updated evaluations for all of these loans when they hit 60 days delinquent.

Overall, based on the lower loan to value we underwrote to, the loss content for these loans remains very -- at a very low levels.

We do not anticipate the single family mortgage portfolio to create any material losses moving forward for the next 12 months.

For the multi-family portfolio, again, delinquency rose in the 30 to 59 days bucket, but remained relatively unchanged from the 60 days to 90 days past due bucket.

This portfolio is behaving in a similar manner to the single family portfolio.

When we get updated valuation of 60 days delinquent, we know that the loss content is, again, very minimal.

Additionally, total delinquency as of last Friday are again down to 22.4 million, a decrease of 25% from March 31st.

For the income producing CRE loans, the primary reason for the increase to delinquency was due to one lending relationship we mentioned in the press release, where the borrower filed for bankruptcy towards the end of the quarter.

Approximately 35 million of these loans were commercial real estate loans in the 30 to 59 day delinquency bucket.

These loans were classified as non-accrual on March 31st.

Regardless of days delinquent, excluding these loans related to this borrowing, total delinquency only increased moderately at about 8 million or so against a portfolio of over $3 billion.

Again, new appraisals and valuation of our delinquent commercial real estate loans showed that the loss content is minimal for this portfolio.

We believe that the lower loan to value and smaller loan sizes have helped this portfolio perform reasonably well given the current economic conditions.

Overall, the portfolios for which we continue to see the most stress are our residential construction and land development portfolios.

The largest driver for charge-offs and non-performing loans continues to be in these loan categories, with net charge-offs of $28.9 million for the quarter and total non-performing assets at 143 million as of the end of March.

Commercial construction loans continued to perform reasonably well, given the economic conditions.

Delinquencies as of March 31st, 2009 are up, but we are not experiencing the same problems as our residential construction and land development loans.

In 2008, we reduced commitment on commercial construction loans significantly.

In the first quarter, as in the past few quarters since the credit downturn began, we have worked aggressively to resolve and reduce problem loans, working with our borrowers and also selling assets.

We expect to continue to do so for the remainder of 2009; and as this credit cycle continues, we are looking at the realistic values at which we can sell problem loans and REO assets and are providing the appropriate level of reserves against these loans.

Throughout the last few quarters and also the first quarter, we continued to apply a consistent methodology on these residential construction and land development loans, promptly charging off deficiencies if we do not believe that we will fully collect on the loans.

Our overall policy on nonaccrual loans, which has also been consistently applied, is that all nonaccrual loans are recorded at the lesser of the outstanding loan balance, or net realized book value; and any, if at all, shortfalls in value are charged off when the loans are delinquent 90 days.

Real estate owned is also recorded at the lowest amount of the fair market value at each reporting period.

I would also like to add that we do not have any loans past due 90 days or more that are still accruing.

Although many of our loans past due 90 days or more are also well secured from the collateral standpoint, and we are in the process of collecting, our position is that all loans past due 90 days should be nonaccrual.

We have stated in the past that C&I loans are the first to be really impacted in an economic downturn as unemployment levels increase.

Overall, we believe that our C&I portfolio is holding up relatively well.

Charge-offs for this portfolio were up markedly for this quarter at $18.1 million.

All of these problem C&I loans were identified during our comprehensive loan review that we performed last year.

There were no new surprises in the portfolio.

The $18.1 million in chargeoffs during the first quarter was largely reserved for sometime last year, and as of December 31st, 2008.

Additionally, I would like to add that we do not expect to see such high losses in the coming quarters.

The predictability in chargeoff of C&I loans tend to be more volatile than the other portfolios.

We experienced this in 2008 and also when the first quarter charge-offs were substantially higher than the other quarters throughout the year.

To round off the discussion on our various loan portfolio, trade finance loans continue to perform very well.

Total delinquency were $8.8 million at March 31st, 2009, and annualized chargeoff of this portfolio were about 1.3%.

Quarter over quarter, nonaccrual loans increased $33.4 million, or 16% in REO assets essentially stayed flat at about $39 million.

As we mentioned in earnings release, of the $248 million in nonaccrual loans, updated collateral value for these loans totaled $346 million at quarter end.

The vast majority of our nonaccrual loans are well secured by real estate, particularly single family, multifamily and income-producing commercial real estate.

I think it is important to note that for real estate secured loans, not all delinquencies or non-performing loans result in losses.

More than 98% of all nonaccrual loans at March 31st were secured by real estate or other collateral.

We mentioned in the press release and earlier in my remarks that the primary reason for the increase in nonaccrual loans was due to one lending relationship comprised of several land, residential and income producing commercial real estate loans located in the downtown Los Angeles region.

These loans were under 90 days past due, but we classified them as nonaccrual, as the borrower filed for bankruptcy right around the end of the quarter.

The net book value of these loans totaled $49.2 million as of March 31st, and the loans were well secured by [first deeds] on about 23 different properties.

We continue to assess the volatile situation and work through these credits.

We are also working diligently to stay ahead of credit issues in this challenging environment, and believe that our financial result shows it.

In fact, total loans delinquent 90 days or more actually decreased by $3.4 million to $178.7 million as of March 31st, 2009, compared to December 31st, 2008.

We also believe that we have taken a very rational and prudent approach to build the allowable losses, maintaining appropriate coverage of loans and nonaccrual loans, and charging off loans as necessary.

Our capital, liquidity and reserve levels are very strong.

Although the coming three quarters will continue to be challenging for East West and the rest of the industry, we believe that the actions that we have taken to improve our financial performance will be evident for the remaining of the year.

With that summary of the major issues of the quarter, the strong deposit momentum that we achieved and the recap of our credit quality, I would now like to turn the call over to Tom to review the first quarter results.

Okay.

Thanks very much, Dominic, and good morning, everyone.

Yesterday we reported a net loss of $22.5 million, driven by an elevated provision for loan loss of $78 million.

Also weighing on earnings in first quarter was a $7 million charge for other real estate owned.

These two charges taken together account for $49.3 million of loss for the quarter on an after-tax basis.

From a balance sheet perspective, we are continuing to strengthen it, and are making very good progress.

Dominic mentioned growth in deposits of $312 million over fourth quarter 2008, which was accompanied by a shift from higher cost CDs to core deposits.

Core deposits increased $468 million in the quarter, resulting in a 33 basis point reduction in cost of the deposits.

We anticipate the positive costs will continue to decline, yet at a lower pace than we have seen recently.

Higher cost CDs will continue to mature, offering us additional opportunities to migrate these to non-CD accounts.

Over the next three to six months, we have 1.3 billion in CDs coming due at 2.4%.

Over the next 12 -- over the next 9 to 12 months, we have another $1.3 billion in CDs maturing at 3%.

Additionally, promotional money market rates will be resetting lower in the second quarter; and in the last couple of weeks, we have observed some of our larger bank competitors reducing CD rates, which will also help to lower our own costs.

On the loan side, outstandings at March 31st were $8.1 billion versus $8.2 billion at quarter end last year.

The decrease in the quarter results from normal principal paydowns, maturities and charge-offs, partly offset by $306 million in originations and loan renewals.

The bulk of the loan portfolio decrease came in the landed construction portfolios, down $138 million.

The C&I portfolio decreased $81 million, and trade finance was also down $51 million, which were partly offset by growth in single and multi-family mortgages and some commercial real estate mortgage.

Looking back for a moment, good progress has been made with our loan-to-deposit ratio.

Back in December 2007, we had loans to deposits at 122%, ended 2008 at 101% and now stand at 95%.

We are comfortable at the current loan-to-deposit ratio and do not anticipate substantial changes from the current levels.

Moving to our investment portfolio, our overall investment portfolio is now $3.1 billion, up $600 million from December 31st, 2008.

With the increase in deposits and slight reduction in outstanding loans, we have excess liquidity which we have temporarily put to use in our investment security portfolio.

In this current operating environment, we believe it is prudent to have strong liquidity and flexibility in our asset base.

The investment portfolio is largely comprised of agency MPS, our own private label MPS, corporate debt, some municipal bonds, bank CDs, as well as money market mutual funds.

For the first quarter, the portfolio yielded 3.85%, comparing favorably to prior quarter.

As the economic environment improves in the future, we will look to deploy these funds into higher yielding loans.

The duration of our portfolio is relatively short at 2.5 years.

Excluding the seven basis point cost of nonaccrual loans, our net interest margin came in at 2.81%.

Overall, the margin is holding up well, particularly in comparison to many banks that have reported this quarter.

Actions we have taken to shift the positives to lower cost products, the focus on pricing, and improving the yield on interest earning assets have all contributed to margin improvement.

Currently, we estimate net interest margin will increase from 2.74% in the first quarter to about 2.85% in second quarter, and expect it to increase modestly in the second half of 2009, as both higher rate CDs and FHLB borrowings mature.

The final staff positions on fair value measurement and other than temporary impairment issued we chose to early adopt the first quarter.

The new accounting guidance bifurcates OTTI between credit-related impairment, which flows through P&L, and non-credit-related impairment, which flows through other comprehensive income.

In first quarter, the P&L impact of OTTI was 200,000 pretax, and the non-credit-related OTTI on securities of $9.7 million was recognized through other comprehensive income.

We continue to maintain strong levels of liquidity.

Total liquidity strengthened to $3.6 billion, up $210 million from year-end 2008.

During the quarter, reduced FHLB advances at a weighted average cost of 4.52% by $120 million or 9% during the quarter.

Throughout the remainder of 2009, we intend to pay down higher costs of FHLB advances, paying down $60 million at 5.05% in the second quarter, another $250 million at 5.14% in the third quarter; and finally, $200 million at 4.43% in the fourth quarter.

These actions will also serve to help margin for the quarters that come in higher over the remainder of the year.

On the capital front, we laid out regulatory capital ratios and risk-weighted assets in our press release.

East West continues to be very well capitalized, with quarter total end risk-based capital of 15.65%, tier one risk-based capital of 13.67%, and tier one leveraged capital of 11.47%.

For all the regulatory ratios, we are about $600 million or more above the well-capitalized threshold.

Additionally, as of March 31st, 2009, tangible common equity was $702.7 million, or 5.76% of tangible assets.

We will be looking to maintain or improve this as we go forward.

Dividends will continue to be reviewed each quarter in light of earnings and our desire to preserve and grow tangible common equities.

Non-interest income was $13.8 million for the quarter, up $14.7 million from the fourth quarter of 2008.

Excluding the impact of impairment write-downs in our pooled trust preferred securities, which in first quarter was $200,000 versus $9.7 million in the fourth quarter, the non-interest income for the quarter was $14 million, or $3.5 million above the fourth quarter of 2008.

This increase is attributable to $2.3 million in additional security gains and $1.2 million higher fee and other income.

Non-interest expense in first quarter totaled $51.4 million, $7.2 million above fourth quarter's $44.2 million.

The primary driver for the increase in expense was credit related, as both REO expense of $7 million and legal costs of $1.8 million account for $4.6 million of the quarterly variance.

The remaining $2.6 million variance is attributable to $1.3 million higher FDIC insurance premiums that increased for the entire industry in 2009, and higher payroll taxes.

We will continue to focus on our increasing operating efficiency in 2009, as opportunities continue to surface.

Net employee attrition, tighter (inaudible) management and space occupancies all offer additional productivity saves.

Cost of credit and FDIC insurance premiums will likely mute some of the progress that we expect to realize.

With that, I would like to turn the call back over to Dominic.

Thank you, Tom, and I'd like to open the call to questions now.

Thank you.

(Operator Instructions).

And your first question comes from the line of Joe Morford with RBC Capital Markets.

Please proceed.

Thanks, good morning, everyone.

Good morning.

I was curious if you had seen sales activity in problem assets pick up at all since quarter end?

And can you give us a better sense of the gap you need to close between your carrying values and current market values?

I think that we were selling the REO pretty much at similar kind of discount than last quarter in the carrying value.

Irene?

That's correct.

REO assets -- roughly the discount on them was about 10, 12%.

Yes.

So it's -- actually it's very consistent to three months ago.

And in terms of -- do we picking up any more additional sales volume, I would say that it's a little bit too early to tell.

I think that our intent always is to try to sell as much as possible.

But I think since we only have three quarters -- three weeks that pass us, we don't want to be commenting about our great success or anything, because we have got two and a half months to go.

Sure.

Understand.

I guess the other question I'd have would be -- is on the C&I portfolio.

And I know you said you identified most of these problems in your review last year.

But given that they were about a third of the charge-offs this quarter and now represent about 10% of MPAs, could you just talk a little bit more about what types of problems you are seeing there, and is it mostly in real estate-related businesses?

No, actually, almost all -- I would say that the vast majority of them are not real estate related at all.

These are business that at one time, it was great business in terms of inputting certain type of merchandise and selling to retail or business; however, because of the consumer market have dropped substantially, some of these businesses couldn't survive and then -- and that caused the major write-down.

Okay.

That's helpful.

Thanks, Dominic.

You're welcome.

And your next question comes from the line of Aaron Deer with Sandler O'Neill.

Please proceed.

Hi, good morning, everyone.

Good morning.

Dominic, you gave some good color on some of the improvements in the past dues since quarter end.

I was wondering if looking back from the past dues at year-end, kind of what percentage of those migrated into nonaccrual status, versus were resolved during the quarter?

I don't have that statistics right off the top of my head.

I mean, I -- we definitely have been doing a lot of different, sort of like, slicing and dicing of the numbers to analyze the information to see -- to help us to predict trends.

But at this particular moment, I do not have the information that I can share with you.

But clearly, there were some that, you know, when they became delinquent only 30 days back in December and now become over 90 days, when there were others that even been over 90 days for a while and then eventually we got everything resolved with the customers.

You know, so it's a mixed bag of everything.

And so there's really no particular very, very clear pattern, that even if I can share with you with detailed statistics, there isn't -- I mean, I would say that the information would not be as enlightening as we would like to be.

Okay.

Fair enough.

And then Tom, the average earning asset levels ballooned up during the quarter, even as loan balances declined some.

Obviously, a lot of that stems, I guess, from deploying the strong deposit growth you have seen into securities.

That's right.

But since some of those securities are not necessarily reflected in the end of period balances, I'm just wondering if you can give a sense of what level you'd expect to maintain earning assets on an average basis going forward.

Yes, well, certainly we are hopeful that we can continue to generate additional core deposits; but I think at this point, we are not expecting that the balance sheet will balloon in any way.

And at this point, I would think that potentially some growth in core deposits, hopefully going forward, but nothing very substantial at this point as we move through second, third quarter.

I think on the earning asset side, yes, a lot of this liquidity is being placed into short-term securities.

We don't want to take any kind of unnecessary risk in the security portfolio, so we are keeping it short.

We are keeping these things in very high quality paper; and there is a cost associated with that in terms of the margin, but we think right now that that's a prudent way to manage through this cycle.

Yes, I wanted to add to that, that our plan, which started nine months ago to really aggressively -- to push retail branches and also the commercial banking account officers to focus on bringing core deposits.

One good thing about the downturn in the economy, is that when the lending officers no longer get too busy, or making new loans, they spend a lot more time focusing on working with existing customers to generate new deposits and trying to find new customers that are non-credit-driven type of clients.

So sort of a deposit-driven-type of clients.

And so we have gained great success in terms of growing that core deposit.

But you may notice that when you see that $468 million of core deposit growth for this quarter, we only had grown total deposits of 318, and the reason is that we intentionally left some of the higher cost CDs run out.

Now, frankly, in order for us to achieve a better cost deposit than our peers and continue to sort of, like, outraise them by a wider margin, we need to be comfortable to let go of some of these customers would may with us for a long, long time; however, but for many, many years they have been asking for a very, very high rate, and we're going to have to start going into the other direction.

We have been doing that, actually, for many years; but we get a little bit more aggressive now because we are having more successes in bringing in lower cost deposits.

So going forward for 2009, in the next three quarters, our strategy is that since we already have picked up a pretty big gain of deposits and we are not planning to grow the balance sheet at all, we actually have room to continue to grow core deposits, and maybe possibly reducing these higher cost CDs, et cetera.

And so from a liability side, we wouldn't see much of a big increase, even if we continue to see good growth in core deposits because we can always offset it for these higher cost CDs.

From the asset side, are these investment securities that we have currently that we are keeping short?

Now, obviously, it hurt our yield, it hurt our margin; but we need to focus on that the economy will eventually come back some day.

We don't know when.

Would it be two or three quarters from now, or maybe one or two years from now?

We don't know.

However, what we know is that if we start chasing for yield too quickly today and lock ourselves up into the investments and not give us the excess liquidity allow us to have room to make loans when the economy pick up, we actually will hurt our longer term future more.

The other part that we looked at is that at this stage, we also feel that we are determined to try to pay down these Federal Home Loan bank advances; and some of them won't come due, I mean, until -- a big chunk coming in the third and the fourth quarter and also the first quarter of next year.

So if we start investing too hastily, we wouldn't have that liquidity to pay off, you know, these Federal Home Loan bank advances.

So I think that it may not help our margin today, it may not help our margin the second quarter; but by sometime early next year, this will be great for helping our margin because at that point, when we pay down at these Federal Home bank advances at this 4 to 5% level, it will make a big difference in terms of to our margin.

And then hopefully by then, we will be able to start deploying these liquidity that we see in cash right now for 1% or so, but we'll be able to deploy this liquidity into higher yield loans and relationship-type of customers.

That's great.

Thanks, Dominic, thanks Tom.

You're welcome.

And your next question is from the line of James Abbott with FBR Capital Markets.

Please proceed.

Yes, hi.

I hope you are doing well there.

I had a quick question on non-performing asset sales.

I know you mentioned the real estate-owned sales and the discount accepted there.

What was the dollar amount of non-performing assets that were sold, and then what was the discount that you took there, and how much of that was -- how much charge-off was associated with that?

James, we sold in the first quarter $45 million of non-performing -- right, non-performing assets, as well as REOs.

And with regard to the discount, Irene, what would you say?

Around --

REOs discount was about 12%, and for the non-performing loans, it was closer to about 25%, James.

Which is pretty consistent with what we have seen in the past.

Okay.

So the REO -- what was the REO sales?

So the 45 is a combined number between non-performing loans plus REO.

Do you have just the non-performing loan sales?

Roughly between 15 million.

Say again?

I'm sorry, the loan sales was roughly 15 million.

15.

So most of it was REO?

Absolutely.

Okay.

And -- okay, that's helpful.

And so what is your outlook on that?

Are you anticipating selling more at that price?

Do you anticipate waiting to see how the PPIP program works before selling more?

Where do you stand on that process?

No, we would not be waiting for any kind of government programs.

I mean, but -- I mean, whenever that new program come out, we always entertain whatever is out there.

I think our approach is that we need to resolve problem credit as quickly as we can.

Frankly, just because we only sold $45 million, but we actually -- we saw quite a few other credits by not selling them, but actually by able to find a way to get a resolution with the borrower and so then forth.

And so -- but I think looking forward for the second quarter, I think that we will continue to be aggressive in trying to find a way to reduce and pare down the MPA and make sure we do not see any high elevation in terms of the total MPA level.

So therefore, we will just look at all different way of getting things resolved; and clearly, as selling both non-performing loans and REO are the vehicles that I think are very straightforward.

We are not going to wait for something to happen for us.

We are always going to take a proactive approach at trying to take care of these problems.

And frankly, with this additional provisions and charge-offs, we are in a better position.

You see, every quarter, we are in a better position to take care of some of these problem loans.

How -- to your point, Dominic, how many either number of loans or dollar amounts of non-performing loans were you able to resolve without either going into foreclosure or selling the non-performing assets, that you were able to just resolve them through a natural workout process?

Do you have an estimate on that?

We would need to get back with you on that.

I mean, we need to tally up the numbers because many of them are in a very different way.

See, for example -- see, in terms of workout, actually it's not that many.

When we resolve it, a lot of times the borrowers may be not paying for a long, long time, and say they're nonaccrual, and then suddenly, you know, they said, "Well, we will find a buyer and he is going to buy the real estate and then pay you off.

That's in a way, so it's like -- it's a chronic delinquent and suddenly get resolved, or we have another scenario that after sitting there for a while and then maybe the borrower come out of bankruptcy and then there's some way that we can get things resolved.

There are many different scenario that help us to sort of get property -- I mean, get these problem loans resolved.

So what we need to do is, in fact, internal really go back and then take a look and our own definition of resolution, and basically I look at it as we take them out from MPA to current and then we take them out from the classifieds of standard to pass -- that's been resolved.

And we can take a look and tally up those numbers and share with you after the call.

Okay.

And then also to share with you, land and construction loans, the balances decreased about $137 million.

Of that, roughly $90 million or so related to some sort of principal pay down or payoff of the loan.

Yes.

Okay.

That's very helpful.

And on the special credit that you mentioned, the $49 million, was there a charge-off that was associated with that?

So in other words, was the gross balance more than $49 million before any charge-offs associated in this quarter?

The chargeoffs related to that were about $3 million.

Great, okay.

Thank you very much for your time.

You're welcome.

And your next question is from the line of Brett Rabatin with Sterne Agee.

Pleases proceed.

Hi, good morning.

I was wanting to ask on the land that you have and just what you are seeing in the market, can you give us any indication of where you are seeing prices for lots, and then just generally volumes in the couple of counties that you guys operate primarily in?

It goes everywhere.

I mean, I think right now the challenge is that there are so many buyers coming out of the woodwork; and frankly, many of them don't even have any experience into land development and so forth.

It's just that everybody thinking about this is the time for a golden opportunity to buy things cheap and there are people coming with offers in all different directions.

And so we will -- whenever we go out and then sort of like try to get bids from selling these land in the REO, we will get this in a very, very wide range.

And so it's really hard for us to really get a feel one way or the other.

And also, quite frankly, different regions and different -- real estate is really location, location, location, and then different locations, which actually have a very vast difference in terms of market value.

And they have also changed it dramatically.

So that's why that the dynamics is very interesting.

At one point, a certain region may be okay and suddenly it's not.

A good example will be right around our headquarter here in Pasadena and San Reno, single family homes are holding up really well.

It's almost like there's no changes at all from these all-time high, and we would be scratching our head because, you know, the L.A.

market is supposed to be down more than 30%.

So different place, different location, different outcome.

Clearly, our biggest stress is in the inland empire; and specifically, you know, we have a bank -- that's a community bank -- in 2007, and their portfolio is having more stress, simply because they are in the high desert area and there's a very depressed economic condition in that environment.

So I really don't have any specific numbers I can share with you.

Okay.

And then to follow up on that, Dominic, can you -- maybe you could just broadly, then, talk about how the buyers are looking at the lots from the land development perspective, when they think they are about buying them.

Do they buy them and they discount in?

Can you, A., provide what kind of discount rates they are using; and then B., sort of what their timeframe is when they assume that they will be able to sell the lot to a stake developer, so to speak?

I think it varies.

I think most of them who bought lots -- buy land from us were buying to hold.

Obviously, this is not much of a time to do development.

So, so far the land that we sold, we sold it to investors who plan to hold on to this land, and I would say anywhere between two years to seven years.

We have investors specifically tell us that they would like -- they are planning to hold the land for up to seven years time and then hopefully by then, to either think about development or maybe resell it to other developers.

And then there are other investors who bought this land, but bought a piece of land from us and specifically mentioned about within two years they plan to start building.

You know, so I think it depends.

Different individuals have different type of expectation.

They have different expectation on when the economy will come back; and the other thing will be -- again, it's also based on location.

And so it just -- it varies.

Our position is that as long as they give us a good price and help us out in terms of making sure that it's no longer our problem, and that we are more than happy to accommodate one way or the other.

Okay.

Great.

Thanks for the color.

Thank you.

And your next question comes from the line of Joe Gladue with B.

Riley.

Please proceed.

Yes, how are you doing, Dominic and Tom?

One other question on the 30 to 89 day past due.

I know a big chunk of it was the bankruptcy towards the end of the quarter; but, you know, there was a -- aside from that, it looks like there was an increase of another $100 million or so, and just wondering if there were any other big chunks contributing to that or if it was pretty much distributed all over.

Not any one big, large, relationship, you know in this kind of magnitude.

Yes.

It's just a bunch of little stuff, here and there -- I mean spread all over.

As we mentioned earlier about the single family, frankly, you know, when you have these California state law that we cannot go in and foreclose for an extended period of time, because of those moratorium, it obviously makes it harder for us to turn these inventories, and I would expect that as long as we have this type of moratorium, these type of single family mortgages may have a little bit more elevated type of delinquency than normal.

But ultimately, they've (inaudible).

Okay.

Also wanted to ask a question on the -- just salary and employee benefits expense.

It looks like that was close to -- a little over 9% from the -- versus the fourth quarter.

I just wondered --

Yes, Joe, at end of last year, we had some accrual reversals that contributed to the variance in the quarter.

So that -- that's all that is.

Okay.

All right.

I guess lastly, I will just ask if you can just give a brief comment on what you are seeing from the Hong Kong operation.

Hong Kong operation is doing good.

They grew some good core deposits.

Not a whole lot, I mean, they are consistently going through what I call a steady growth mode.

Right now it's a about -- a little over $200 million in deposits; and they just started a foreign exchange operation, and so it's too early to kick in the revenues.

But we expect them to do quite well going forward in the future and then be a great bridge to our banking franchise.

Okay.

That's you I had, thank you.

Thank you.

And your next question is from the line of Erika Penala with Banc of America Securities.

Please proceed.

Thanks for taking my call.

When you meant that you had -- the $248 million in nonaccruals had an updated value of $344.5 million, could you give us a sense of in your 172 million or so of construction nonaccruals, what the updated value of that bucket is?

Erica, I think we are going to have to get back to you on that one.

We don't have that at hand here, but I think we can get back to you on that one.

Okay.

And the difference in value is that when you realized the impairment, you also realized selling costs and potential discount, is that what the difference is in the two numbers, the 248 and the 345?

Erika, the difference in that is that -we have -- let's say there's a loan for $100, the value of that property is $200.

So when we get the updated value, that loan has an LTV of 50%.

Does that help?

Got it.

Got it.

Okay.

Okay,m and the loan sales that happened in the quarter, I'm guessing those are C&D related.

How much were you able to sell -- how did it split in terms of completed projects versus raw land?

Can you repeat the question again?

Sure.

The $45 million in MPA and OREO sales, how did that -- I'm guessing that's mostly construction development -- how did that split between completed projects versus incomplete and land?

We don't have a specific -- that percentage breakdown for you.

But we actually have sold incompleted projects.

We have sold raw land.

We have sold several pieces of raw land.

We have sold, let's say, at least two incompleted condo projects; and in terms of completed project, I don't think we have done any of them.

So actually, all of them -- I mean, let me explain again.

The $45 million that we sold are primarily a bunch of little single family mortgages that after we foreclosed that we sold them -- single family homes, so simple, easy -- just a bunch of little ones; and then we have a few unfinished condo projects that we sold, and then we had several pieces of raw land.

Well, I wouldn't say -- not all of them are all raw land, but they are land -- I mean, they are just land development.

Some of them are in title ready to be built; some of them are just not halfway -- all of that different type -- and that is pretty much is what we sold, you know.

There are quite a few of them together, if you add up the total numbers.

But the reason that there's so much high numbers of these transaction is primarily because we have sold a lot of these single family homes, which they only average about like maybe $200,000 each, that's why it looks like a whole bunch of them.

But in terms of these commercial properties, I would say that maybe a dozen or so.

I see.

And I guess moving to the -- looking at the average deposit balances for jumbo CDs, I was wondering why there is a large increase in the jumbo volumes and whether or not that's the bucket that you are expecting to run off aggressively over the next two quarters.

Well, I think that our focus is less on jumbo versus no jumbo, but mostly on interest rate.

Frankly, there is higher likelihood that we will run off jumbo, because we tend to pay a little bit higher rate for jumbo than the less than 100,000.

However, I wanted to point out that we actually have quite a few customers that have deposits with East West that have pretty high balances, but not necessarily getting very high rate because -- well, one is that because they have been with the bank for many years and have a very long-term relationship with us.

The other thing is that we have been pretty actively focused on -- for the last six months -- on selling the FDIC insurance products, such as the Cedar deposit program.

So because of the Cedar's program, the customer is able to get insurance at a much -- up to $50 million per borrower.

And through that program, obviously, there are a lot of customers who looked at that as a much better alternative than putting their CD deposits -- than putting their deposits into US Treasury bills.

And so in that regard, when you look at our rate -- despite that our rate is substantially lower than our peers, but it's still substantially higher than US Treasury, and when we get the full FDIC insurance, it makes a lot of sense for them to place their high balance with us.

So I wouldn't necessarily say that we are going to try to just focus on reducing the jumbo because there are many of the jumbos actually paying a very, very reasonable rate -- that we are paying a very, very reasonable rate.

So we tend to continue to keep them.

I see.

And can you give us an update on what your average offering right now is for a CD product?

And also what you are seeing out there in the market place for your closest competitors for the same product?

Sure, Erika.

Our top rate -- max rate -- for CD at nine months and beyond is currently at 2%, and we recently had increased that by about an eighth of a point from probably a month ago, but that's -- 2% is where we are at.

Relative to competition, we have seen some of our peers somewhat higher than that, as much as probably 40 to 50 basis points.

Some of the larger banks we have also seen at around 2.50 for 12 months.

So we are quite a bit lower, but I would also say that in the last couple of weeks -- and I think I mentioned this in my comments -- we have seen some of the banks reducing those rates.

So that's -- we think -- ware encouraged by that; and as a result, we think we are also at the same time getting more competitive in that regard.

But most of our build is coming from the retail deposits, and the growth is still coming mostly from the money market account.

And that we pay a lower rate.

Yes.

At the money market -- so our special money market account today is at about 1.78.

Does that answer your account today is at about 1.78.

Does that answer your question, Erika?

Yes, thank you.

Thank you for your time.

And you next question is from the line of Julianna Balicka with KBW.

Please proceed.

Good morning.

Thank you for taking my question.

I have a couple of quick questions.

In terms of your performing land portfolio, which is about $460 million, and your performing construction portfolio, the $981 million, of that can you give us some sense on the maturity curve, when those loans are going to be coming due and in what kind of increments?

For the land, many of them are shorter terms -- and actually for the construction, both of them are relatively short-term.

So they are -- I mean, their maturity is coming through, I mean, basically stacking up (inaudible) quarters, and a substantial amount of them coming through.

And so we don't have an exact number that I can share with you at this moment, but we can -- clearly, that's something we can put together and give you that information later on, if needed.

Okay.

And then within that, as a follow-up to that question then, what of your performing construction/land loans are currently operating under extensions?

Operating under extensions?

You are probably looking for some kind of kind of percentage, Julianna?

Or whatever information you are able to give me.

We don't have that with us right now.

So it's something that, again, we need to go in and take it up and then to see what you are looking for.

Okay.

Great.

Let me follow up on that later.

And then I have a second question, and I will step back in a different area on the deposit growth, which is very nice to see.

I have two follow-up questions.

On the jumbo deposits that you gathered, how many of those would you say are depositors who are increasing their regular balances because the FDIC limit is now in the 250 range, and then those may be scaled back or may be transferred to different accounts once the limit goes back to 100,000?

We don't have a -- we did not track it, like see how -- whether people are -- because of the -- we just brought the deposit in.

And we have not really looked at it in a customer-by-customer to really look at the difference.

And so as far as we are concerned, we don't know --

Yes, Julianna, I have no doubt that the FDIC insurance helped with that, but I don't think that that is necessarily a driver.

It it certainly has helped, but I don't think it was anything that had a game-changing sort of impact here.

It's actually the other way around.

One is that we have the Cedars program, which whether is 250,000, they are all going to be insured up to $50 million.

Okay.

So it had nothing to do with the FDIC raising the limit.

Now for other banks who don't have that fully insured program, clearly that may be an issue; but because we have the Cedars program, the FDIC can cut that insurance down to 20,000.

As long as the Cedars program is still recognized by the FDIC as non-broker deposits, we always can be able to find a way to protect our customers through the Cedars program rather than looking at the $100,000 to $250,000 limit.

That's one.

Very good.

I wanted to check that.

And then the --

Yes.

The second issue is that our growth of deposit in the first quarter actually mainly come from small customers.

Let me share that with you.

I mean, our bonus money market account, that right now we are offering at 1.78%, what we have done is that we actually have offered a flat rate to all of our retail customers.

We in the past have always put in limits in terms of if if you were a small -- if you are not giving at least over 100,000, you get a very, very low rate; but anybody who give a substantially higher balance, we give you a much higher rate.

We (inaudible) we will give flat rate.

In fact, we end up attracting huge number of small customers to East West, our growth mainly coming from the retail branches, and many of them are these 10,000, 15,000, $20,000 customers.

And we have opened many, many new accounts from these small customers who put their money into the money market rate because not only us having this tier pricing that have caused them not age to enjoy a decent rate, almost all competitors are doing pretty much the same traditional formula; that is that as long as you don't have a lot of deposits, you get very low rate, and so our -- sort of like equal opportunity money market -- bonus money market rate has actually caused more -- not only our existing customers excited for more deposit in our bank, but also many other customers from other banks are opening new accounts with us.

So actually, it's quite the other way around in terms of gaining deposits.

Very good.

Thank you very much for that color.

Okay.

And your next question comes from the line of [Jeannette DeRouche] with JMP Securities.

Please proceed.

Yes, good morning.

Thank you for taking my questions.

Going back to the $45 million of loan sales, you had indicated 12% discounts on the REO and 25% discounts on the MPAs.

I'm just wondering, how much of a write-down did you take on those assets when you moved them into the nonaccruing category, and then for those (inaudible) REO -- into REO?

It varies.

We don't have the information at this moment.

We always write every problem loans down to net realizable value based on the appraisal, and then -- based on the most current appraisal and minus the selling costs which -- Irene, I forgot?

8%.

8%.

So it's always the net appraisal value and then plus another 8%, as specific reserves or charge-offs, and that's what we do.

And after that, then I think what happened here is that some of these loans, after we got the appraisal and also minus the 8%, it may still have loan balances that are below the fair market value based on the appraisal.

But when we are trying to sell a note to a borrower, we have yet to find any borrower who is willing to pay par.

Now interesting enough, obviously in 2008, early on when we saw selling note right at the beginning, we actually -- most of the deals that we had done were selling at par -- or maybe just a small percentage, like at 3 or 4% discount to par.

In today's environment, that seems to be sort of like no longer in fashion.

So obviously we are going to have to -- whenever we sell note, we are expecting a higher discount, since like we have a 25% discount on selling note, versus a 12% on the REO.

Okay.

And then along those same lines, could you maybe provide a little bit more detail on what the actual selling process is?

Are you getting single bids for these assets, or are you actually receiving multiple bids on any of them?

Again, it varies.

Our process is that our specialty asset department, together with the various group team leaders who are responsible to loans, will hang together; and we oftentime, before the property go to foreclosure, we have already come up with a marketing strategy.

And most of the time, we have found a real estate broker that are familiar with that type of asset in that particular area, to put into a marketing plan and that will have the real estate broker then list the property; and then through that process, obviously, they have multiple interested parties who will come in, and that's what I would call the normal process.

We also have taken the approach that we have put together a list of these REO assets, and we sent out the list to potential interested parties, people that we know in the community that are interested to buy distressed assets, and we also share that information with some of our valuable clients.

And by giving that information to them, and we put out a deadline, and ask everybody to look being at these properties and do their due diligence, or we'll give them -- I mean, after they sign a confidentiality agreement, we give them information for due diligence, and we set a deadline for due diligence and we set a deadline for submitting the bid, and so it's kind of a little bit more public bidding process.

So we have done both, and we have successes coming from both.

And what we are going to do in the future, we are going to continue to finetune the process, and most likely we will continue to look at all different kind of alternatives that would help us to get the best price and then the most efficient way to unload these assets ASAP.

Okay.

Thank you.

And then my last question relates to the large lending relationship that resulted in the $49.2 million MPA in the quarter.

You indicated it was supported by 23 different properties.

I was wondering, could you give us approximately what the collateral value is for those properties?

Irene, do you have the number?

No.

I don't know if I have that right in front of me.

We might have to get back to you on that.

Okay.

Okay.

All right.

But clearly, you know that we have plenty of collateral against the current realized for value.

I mean, against the 49.2 million, there's no question that we have higher substantial collateral value as of today.

Okay.

Is this representative of your largest single type lending relationship, or are there other relationships that are comparable in size?

We have other relationships.

Not a whole lot, but we have other relationships that are comparable in size that is in aggregate, that for one borrower that we may have 50, $60 million; but as you see in this particular relationship, we've got 23 properties' collateral, and then also it's a multiple number of loans.

So actually, the average size of the loans are not big at all.

And then all of them are fully collateralized.

One -- if you look at for some of these larger banks, most of these deals are due non-recourse anyway.

From a non-recourse standpoint, every one of them are standalone, so we can actually look at these as well, the relationship is actually only maybe an average about $5 million or something like that.

But on the other hand, I think what happens here is that because we always aggregate relationship -- we always have information that we aggregate relationships together on the one single borrower, and I think that on the one hand, there is that likelihood that one single borrower will file bankruptcy, it taints all the other loan.

But one good news about it is that each and every one of these loans have separate collateral.

In fact, for this particular incident, not only each and every single loan have separate single collateral; in fact, each and every single one of these loans has multiple collateral for each single loan.

So I think that ultimately when the bankruptcy could wind down, we ought to be able to recruit most of our money.

Okay.

And then finally, what is your lending limit --your internal lending limit?

The legal lending limit is quite high; but our house limit is that we try to not have C&I loans above $10 million, and we try not to have real estate loans above $20 million.

Frankly, we hardly ever have -- I think we may have only less than a handful of loans that are at that level.

So as we talked about, average loan size, about $1.2 million for commercial real estate, about $2 million for construction loans and average about $500,000 for our C&I loans.

So that kind of gives you a pretty good idea about -- most of our loans are that very small dollar amount and there's only a handful of loans that are above -- at $10 million and beyond.

Okay.

Well, thank you very much.

You're welcome.

And your next question is from the line of [Saring Nubdu] from (Inaudible).

Please proceed.

Hi.

I want to go back to the early delinquency bucket question.

Q1 saw a markedly different trend from Q4 -- Q4 you had flattish to improving trends.

Q!

you saw these buckets in total double more than 100%, up $160 million.

So what is going on there?

And most of the issues also were centered on commercial real estate that's income producing and residential construction.

And the question is what's going on?

And second is, why shouldn't we believe that your pipeline to loan accruals has just doubled quarter over quarter?

What was the last question?

Why should we what?

With the early buckets doubling quarter over quarter, why should we think that your pipeline to nonaccruals has also doubled quarter over quarter?

This is Irene.

One thing I want to share with you is that if you look at the tables for our press release, we break out the nonaccrual loans for the ones that are 90 days or more that are delinquent, and then the ones under 90 days that we have classified as nonaccrual.

So you will see of the total nonaccrual loans of $248 million, 179 were delinquent 90 days or more, and there are about $69 million that are under 90 days delinquent.

So those more often than not were in the earlier delinquency stages of the 30 to 89 days delinquency.

I understand.

You've got some of the early buckets under nonaccrual.

I understand that.

That's $69 million.

That's still -- quarter over quarter change is $160 million for the 30 to 89 days.

So you still have a significant sort of ballooning of trends, which were not there in Q4.

And I understand that we could be facing a second wave, et cetera, but just the size of the trends -- the change in trends was a little bit surprising.

Yes, I just want to mention -- I mean, Dominic here had mentioned that in a couple of loan categories, some of that delinquency is showing signs of improvement as we moved into April.

So no question that the delinquency is higher; but at the same time, we have certainly seen some of the single family pull back, as well as multifamily.

So it remains to be seen how much of this actually rolls forward, but we are working this real hard.

We are working with our customers to bring in the -- to get them current.

And I think time will tell; but at this point, we have some good signs that some of this delinquency has pulled back.

Okay.

Thanks.

(Operator instructions).

Any other questions?

There are no further questions in queue at this time.

I would like to turn the call back over to East West Bank management for closing remarks.

Well, thank you all for joining us for this call, and I look forward to talk to all of you at our second quarter earnings release date.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.