East West Bancorp Inc (EWBC) 2010 Q1 法說會逐字稿

Good morning.

Welcome to the East West Bancorp first quarter, 2010 earnings conference call.

(Operator Instructions) I would now like to turn the conference over to Miss Kelly Adams, first Vice President.

Please go ahead.

Good morning, everyone, and thank you for joining us to review the financial details of East West Bancorp.

for the first quarter of 2010.

Here to review the financials are Dominic Ng, our Chairman and Chief Executive Officer, Julia Gouw, our President and Chief Operating Officer, and Irene Oh, our Chief Financial Officer.

We will then open the call to questions.

First we would like to caution participants that during the course of the conference call today management may make projections or other forward-looking statements regarding 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 the factors that affect the Company's operating results, we refer you to the filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2009.

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

I'll now turn the call over to Dominic.

Thank you, Kelly.

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

Yesterday afternoon we announced financial results for the first quarter of 2010.

We are pleased to announce that East West reported positive earnings for the first quarter of 2010 of $24.9 million or $0.13 per diluted share.

Our first-quarter results are a direct result of our strong core profitability, moderating credit costs, and core deposit growth.

Our net interest margin continues to expand and grew to 4.02% for the quarter excluding yield adjustment related to cover loss.

As we stated in our last year's third-quarter earnings call, we believe that credit costs peaked in the third quarter of 2009, and would subside in future quarters.

We indeed have experienced ongoing improvements for all credit indicators in the last six months.

Most significantly the provision for loan losses has declined sizably, decreasing by $63.6 million this quarter, a 45% decrease from the fourth quarter of 2009.

The decline in progression is a direct result of the continued improvement in credit quality as evidenced by a sharp decline in net charge-offs to $63.9 million or 51% decline from the prior quarter.

Further, we continue to see less migration into delinquent and non-accrual status.

And improvement in non-performing asset levels.

The credit improvement of our loan portfolio is a direct result of our aggressive management of prom assets in 2008 and 2009, resulting in fewer problem credits today and well ahead of our peers.

Our commercial real estate portfolio continues to perform well, at March 31, 2009, nonperforming commercial real estate loans were $32.6 million or less than 1% of total CRE loans.

Further, net charge-offs for this portfolio were only $8.2 million.

Additionally land and construction loan balances are now down to only 5.4% of total loan receivables.

Given the trend we are seeing in our loan portfolio, we expect that the provision for loan losses and net charge-offs would continue to decrease throughout 2010.

Now moving on to deposits.

Growth from our retail and commercial platform has been very strong.

Total deposits excluding growth of deposits increased $201.7 million during the first quarter.

Core deposits increased $656.9 million, increasing to $7.7 billion as of March 31, 2010.

Further, the retention of legacy UCB deposits has been successful with the increase in core deposits.

The cost of deposits has also decreased down to 93 basis points for the first quarter, an improvement from 1.81% in the first quarter of 2009.

We are very pleased with how 2010 has progressed thus far.

During the month we successfully completed the full integration of United Commercial Bank as planned and on time.

With the integration complete and meaningful improvements in credit quality, we will be 100% focused on growing our business, increasing profitability and taking full advantage of expansion opportunities.

In our earnings release, we provided guidance for the second quarter of 2010.

We currently estimated fully diluted earnings per share for the second quarter of 2010 will be in the range of $0.13 to $0.17 per diluted share.

On net income after tax ranging from $24 million to $31 million.

This earnings guidance is based on the assumptions that the balance sheet will remain flat.

Net interest margin for the second quarter will range from 4% to 4.10%, excluding the impact of new adjustments from cover-loans or other items.

Provisions for loan losses will progress to a range of $50 million to $60 million for the quarter.

Noninterest expense will decrease from the first quarter in the range of 25% to 27% to approximately $102 million to $104 million.

I will now turn the call over to Julia and Irene to speak in more details about the results of the first quarter and our expectations for the remainder of 2010.

Thank you very much, Dominic, and good morning to everyone.

As Dominic highlighted, the full integration of UCB was successfully completed this month as scheduled.

We have finished the conversion of the remaining operating systems last week.

Further, we closed the four remaining branches we have targeted for consolidations last weekend.

New signage is up on all Legacy UCB branches and all of our over 130 locations are now under the East West Bank name.

I would like to spend a few minutes to discuss noninterest expenses.

For the first quarter, noninterest expense totaled $138.9 million, up noticeably from the fourth quarter of 2009.

However, many of the expenses incurred in the first quarter of 2010 were nonrecurring or one time in nature, which I would like to discuss in more detail.

During the first quarter, we prepaid Federal Home Loan Bank advances totaling $379.1 million and paid a prepayment penalty of $9.9 million, which is included as a noninterest expense item.

Additionally, as we disclosed in the press release, in the first quarter we incurred expenses related to the acquisition and integration of UCB that are not expected to recur in the future.

These additional expenses total $9.9 million in the first quarter and are comprised of severance expense of about $3.3 million, consulting and legal expenses totaling $1.3 million, and other operating expenses, including data processing, communications, PR and advertising, and IT-related expenditures.

The real estate-owned expenses were $18 million for the first quarter related to net losses on sales, evaluation adjustments and maintenance expenses.

Of the $18 million in real estate-owned expenses in the first quarter of 2010, $13.9 million stemmed from UCB-covered assets are eligible for 80% reimbursement in accordance with the loss sharing agreement with the FDIC.

As such, we expect to receive approximately $11.1 million from FDIC in the near future.

We have recorded this receivable as of March 31, 2010, and this is reflected in the P&L in the net decrease in the FDIC indemnification assets and receivable line items.

This amount goes up on the income statement in accordance with GAAP.

In the coming quarters, we expect to decrease operating expenses and substantially increase operating efficiencies as we reduce and eliminate redundancies that were necessary prior to the full conversion and integration.

We expect operating expense run rates to be at about $100 million per quarter for the remainder of 2010 as we focus on controlling discretionary expenses and continue to benefit from synergies from the acquisition of UCB.

As you know, all loans acquired from UCB were recorded at the estimated fair value as of the acquisition date.

As of March 31, 2010, the outstanding balance of covered loans and real estate loans was $5.2 billion and $78.4 million respectively.

Covered loans have declined since December 31, 2009, as a result of additional paydowns and payouts in the first quarter of 2010, which Irene will discuss in further detail.

Legacy UCB deposit retention has been successful, and as of March 31, 2010, deposits level with Legacy UCB relationships were stable compared to December 31, 2009.

During 2009, we completed very successful capital raises totaling $607.8 million including $165 million in common stocks and $335 million in mandatory convertible preferred stock that was raised during the fourth quarter of 2009 in conjunction with the acquisition of UCB.

On March 25, 2010, the Company stockholders approved the conversion of the series C preferred stock into common stock, and the conversion occurred on March 28, 2010.

As of the end of the first quarter, all of our capital levels are very strong.

Our tier-one leverage capital ratio increases 10.2%, tier one risk based capital ratio increased to 18.9%, and total rate-based capital ratio increased to 20.9%.

East West exceeds all capitalized requirements for all regulatory guidelines by over $1 billion.

In addition, East West's tangible common equity levels are very strong, and our TCE to related assets ratio totaled 14.1% as of March 31, 2010.

With that, I would now like to turn over the call to Irene, who will discuss our first-quarter 2010 financial results in more depth.

Thank you very much, Julia, and good morning, everyone.

I would like to start with a summary of our financial results for the quarter.

For the first quarter, I am very pleased to report net income of $24.9 million or $0.13 per diluted share, an improvement of $47.4 million from a loss of $22.5 million or $0.

50 per diluted share from the first quarter of 2009.

Net interest income for the first quarter included revenue of $81.3 million as a result of payoffs and recoveries on covered loans.

Approximately 280 million loans were paid down or paid in full, and the $74.5 million discounts associated with these loans was released into interest income.

Additionally, we recorded $6.8 million as a yield adjustment from recoveries received on UCB covered loans.

The corresponding FDIC indemnification assets that had been estimated for these loans was also released and resulted in $43.6 million net reduction, in the FDIC indemnification act and receivables.

The high payoffs were largely from Hong Kong loans during the first quarter and we expect that the level of payoffs will be reduced in future quarters.

As such, we do not expect this elevated income from the UCB loan portfolio to occur in future quarters of 2010.

As of today, the balance of the UCB covered loans has remained at similar levels from March 31, 2010.

Excluding the gain of the yield adjustments in the covered loans and the gain on unwinding of the reversal of purchase agreements, the net interest margin for the first quarter was 4.02% or 35 basis points higher than the fourth quarter of 2009 and 128 basis points higher than the first quarter of 2009.

The cost of deposits improved to 93 basis points for the first quarter, down 18 basis points from the fourth quarter and down 88 basis points from the first quarter of 2009.

The cost of funds improved to 1.28% for the first quarter, down 31 basis points from the fourth quarter, and down 116 basis points from the first quarter of 2009.

These ratios in our net interest margin were impacted by actions that we took to mitigate current and future interest rate risk and better position the balance sheet for future profitability.

These actions included the sale of about $600 million in investment securities that were largely fixed rate US treasury, corporate, municipal, and mortgage-backed securities.

As a result of the sale of these securities, East West recorded a gain on sale of investment securities of $16.1 million.

Further, during the quarter, we prepaid $379.1 million of FHLP advances that had an average fixed cost of 4.26%.

We also unwound a reverse repurchase agreement totaling $150 million at a gain of $2.5 million during the quarter.

Additionally, we recorded $4.8 million impairment for trust preferred securities which are now fair valued at $2.1 million and have a book value of $13.4 million.

As stated in the earnings announcement released yesterday, East West Bank's Board of Directors has declared second-quarter dividends on the common stock and series A preferred stock.

The common stock, cash dividends of $0.01 is payable on or about May 24, 2010, to shareholders of record on May 10, 2010.

The dividend of the series A preferred stock of $20 per share is payable on May 1, 2010, to shareholders of record on April 15, 2010.

I will now turn the call back to Dominic

Thank you, Irene.

Thank you everyone for joining the call this morning.

And, I will now open the call to questions.

(Operator Instructions) The first question comes from David Rochester of FBR Capital Markets.

Please go ahead.

Hey, good morning, guys.

Thanks for taking my questions.

Good morning, Dave.

Can you guys break down -- and if you did this, I apologize.

But I'm trying to get at what drove the run-off in the covered loans this quarter.

It was general paydowns and resolutions?

Did you have some renewals in there so you were moving loans from the covered portfolio to your health and investment portfolio?

Do you have a sense for what those components are?

Dave, it's mostly run-off and payoffs, some of them are resolutions of problem loans.

But some of them are payoffs.

And we do not move the renewals into other categories.

So the renewal will stay as covered loans.

For the early payoff.

Got it.

With the loss share agreement with the FDIC, if the modify the loan in the terms of the original loan agreement, that would be just extended out.

That would be a modification that's included.

So those would be included as covered loans for the five year, 10-year period.

Got it.

And could you update us on your asset sensitivity now since you've made a number of balance sheet changes.

I think we're still slightly at the sensitive end but because many of our loans have floors they are above the fully indexed rate.

If the index rates increased only 50 to 100 basis points, there may be a point that there's some reduction in net interest margin.

However, eventually if rates go up, 200, 300 basis points, then all of the loans will be repriced above the floor rate.

Okay.

And I would estimate that our margin of 4%, around 4%, is stable to ramp up the year.

We probably will not see, a major move down unless interest rates move significantly.

Now on that last point, do you think you can get any more benefits by repricing that CD portfolio down anymore?

You're repricing those at 100 basis points or 125 basis points at that point?

Probably not that much.

Maybe a little bit like on some repricing.

But I would not expect that much because the UCB CDs have been in the purchased accounting have been like repriced, fair value.

Yes.

Current rates.

Okay.

Great.

Thanks, guys.

The next question comes from Lana Chan of BMO Capital Markets.

Please go ahead.

Hi, good morning.

Good morning, Lana.

I wanted to ask you about capital management.

I think Dominic said plans to take full advantage of expansion opportunities post completion of the integration of UCB.

Could you expand on what kind of acquisition-type opportunities you are looking at these days.

In terms of potential acquisition, I think it would depend on what's available.

I think that, our -- our balance sheet right now is pretty strong.

Our capital ratio is more than adequate, and system integration all complete.

We're ready to go.

But on the other hand, it depends on what's available in the market and also it depends on whether those potential acquisition targets fit into East West's strategic direction.

So we -- I think we always want to make sure that we're ready to strike, but then on the other hand, we really do not need to make any acquisition simply because what we have right now is going pretty good.

And if we have -- if we ever need to do more as we have -- we have the staff and the resources and everything ready to go.

Okay.

And any update in terms of plans to repay TARP?

I think our plan is as we indicated at the last quarter earnings call.

That we wanted to make sure that we have three quarters of solid earnings.

And so we already have two quarters in place.

So I think after June 30, I think it will be very appropriate that we need to seriously look into getting out of TARP.

But I do want to make sure that being conservative in nature that not only that we see three solid earnings and then also integration behind us and so forth, but the other thing is that we -- I think let's say three months ago the economy did not look as good as today.

And I'm pretty sure three months later the economy looks even better.

And all of the combination factors like our internal factor versus -- and then together with the external economic factors all coming to the equation sort of like make perfect sense for us to go ahead and get the Tarp issue taken care of.

We're going to start looking at that I think in the third quarter.

Okay.

Great.

And then just one more question from me in terms of credit.

I think Julia said that expectations are that charge-offs and provision are going to continue to moderate for the rest of the year.

The question is, at what point do you feel like you don't need to build the reserve anymore?

I really would like to wait and see until the market really show that it's recovering before we either take down the reserves or not build up the reserves.

But based upon what we know now, it looks like every quarter our charge-offs will be declining only because most of the loans that are nonperforming or have problems we have been reviewing, and keep chopping down the book value to market value.

So as a result we feel pretty comfortable that unless there's a major blip or decline in the market or especially on the real estate that our provision will continue to decline in the next few quarters.

What also we have done that makes us quite comfortable with the portfolio is that we have reviewed $1.9 billion of the $3.6 billion in commercial real estate.

Since most people are concerned about the state of commercial real estate.

And all that review, over 50% of the portfolio have been incorporated in our nonperforming assets and, the quality as of March 31.

And we feel very comfortable that our portfolio is very good for the reason we've stated many times before.

The loan value of these loans averages 55%, and the BCR going into the loans was much, much higher.

So when we update the cash flow of the property of the borrowers, we feel very, very comfortable that these loans will continue to perform.

And that seems to be proven by our delinquency on CRE, that continued to be less than 1% of the total portfolio.

So the LTV, it's a -- part of the major reason why our CRE loans have been performing very well.

We have reviewed most of the higher risk loans originated in '06, '07, '08, and also special properties such as hotel/motel, retail, shopping center.

And, that exercise, that review showed that our CRE loans are performing pretty well.

And, just to remind people, the seasoning on our CRE loans is four years.

So that means that 50% of the CRE loans that most of them we did not review, were originated in 2005 and before.

So if you have loan book value of 55% for loans originated in 2005 or before, chances are, that loan have been paying down for five years, and we will not see delinquency or problems on those loans.

So all in all, part of our comfort level indicates the likelihood of declining provision is that we have reviewed like over 50% of the CRE loans.

We all review over 100% of construction and land loans.

And, that's where we are.

We are very, very comfortable that the credit has really improved dramatically for our balance sheet.

That's good.

Thank you, Julia.

Okay.

The next question comes from Joe Morford of RBC.

Please go ahead.

Hi, this is actually Dave King for Joe.

Good morning, everyone.

Hi, Dave.

I guess first off, talked in the past about $50 million to $60 million of discount accretion on these loans over the course of the year, 2010.

Is that still the case?

And then I guess your margin guidance of 4% to 4.10% for the second quarter, how much accretion does that assume if any?

Normal accretion that is included in the first quarter (inaudible) is I would say about $8 million to $10 million for the second quarter incorporated in that 4% to 4.10%.

Okay.

Then still assuming -- $7 million in the first quarter.

Should we assume that same run rate then for the back half of the year or more then?

Yes, $8 million to $10 million first quarter.

Okay.

That's helpful.

Second, it looked like C&I demand was weak this quarter.

I guess what are you seeing that I guess since quarter end and how did that factor in?

I guess is that -- is that demand still weak now and how does that factor into your overall expectations for loan growth going forward?

Well, overall, I think throughout the whole country, I think C&I demand has been low.

And in fact every region that you looked at, , the C&I portfolio has been shrinking since 2008, I mean obviously because of the economy, which is very natural.

I think that from our point of view, I think looking at California's economy, I don't see a quick turnaround in any time soon.

So I don't think the C&I portfolio would drop much further because I think that the drop was much more significant back in 2008 and also in the -- in 2009.

But it dropped so much that it got to the point that most of the business needed to have this minimal amount of line of credit in order to function because many good clients, they also wanted to preserve their liability and then they were -- many of them have been paying down their debt.

But at some point, they would need to have the minimum amount of debt that you continue to operate.

So I think that looking forward in 2010, I don't see the portfolio shrinking, and the other thing will be from East West Bank's point of view is that with good, strong balance sheet that we have and then with the credit problems been really subsiding in a very positive trend, we are going to be much more comfortable to step up and grow business.

And it's a matter of like taking market share because obviously there have been banks closing down, and there will be more banks closing down going forward.

And so let's number the competition and provide the opportunity for smaller banks to take market share.

So I think from the C&I point of view we expect that the opportunities for East West were mainly coming from taking shares from banks who are financially having difficulty, who need to downsize in order to preserve capital.

And they're the ones that most likely have clients that may be forced to go find some other banks, simply because -- not because some of these clients are not good clients, because there are some banks that do need to shrink to preserve capital.

So I think that's the trend for 2010 and

That's very helpful.

Thank you.

The next question comes from Julianna Balicka of KBW.

Please go ahead.

Good morning.

Good morning, Julianna.

Thank you for taking my questions.

I have a couple of followup questions.

On the provision expense this quarter, the -- can you provide a breakdown between what went to cover charge-offs specific and qualitative reserves.

So Julianna, I think your first question was what went through the -- the specific -- the way we look at it is the point of March 31, what's the breakout.

And I can give you those numbers.

As of March 31, the specific -- amount that was allocated to the specific reserve was about $17 million.

And then the remainder of the allowance, about $190 million related to kind of historic migration, and about $44 million related to qualitative backers.

And on that $17 million of the specific allowance, what's the dollar amount of loans that this is associated with?

So for us, all of our loans that are nonaccrual, we consider those to be impaired loans.

And there are also a couple others that we throw in.

So the total impaired loans is 188.

We've continued to use our same methodology, loan nonaccrual, loan is 90 days delinquent If there's any shortfall we'll charge it off.

The amount of the -- she wants to know the $17 million how many --

I'm sorry.

Yes.

And what kind of --

I have that.

Give me a minute.

She'll look into that.

It's about 42 million, 43 million.

42 million, 43 million loans covered by $17 million of reserve -- if I'm hearing you correctly.

Yes?

That's correct.

And second followup question is on the resolutions of your existing portfolio this quarter, legacy portfolio, not the UCB loans.

Do you have a dollar amount or -- of loans that you resolved, and also do you have the dollar amount of the new nonaccruals this quarter on the Legacy?

It was about $100 million of new loans that went into nonaccrual status during the quarter.

That's down substantially from the fourth quarter and the third quarter of last year.

And resolution was also about that $100 million, $110 million.

That's right, nonperforming assets in total.

About $600 million (inaudible) in and out -- it's almost similar, Julianna.

Very good.

And final question.

In terms of thinking about your provision for the guidance you gave for next quarter is $50 million to $65 million.

And what we're thinking about the back half of the year, do you have a sense of how sharply it will drop?

We're getting to a point where it should start kind of getting to a significant drop, no?

Probably in the fourth quarter.

I would say that every quarter it will decline maybe, So if you compare fourth quarter to now it would be substantial decline.

But I would say that each quarter it will decline.

From third and fourth.

Because also -- just like our land and construction loan, it continued to get smaller and smaller, and so at some point as we predicted in the third quarter of last year, at some point there's just so many loans left to be charge-offs.

And at this moment also we continue to experience pretty decent performance from our commercial real estate mortgages, even as of today's deal.

Less than 1% are nonaccrual.

And so therefore we think that the likelihood of it just keeps declining is very high.

So if you look at most of the charge-offs come from construction and then loans, as you know we reviewed them 100%.

We keep writing it down.

So it the market stabilizes, you probably will not see that much more charge-offs coming from the portfolio.

And,so far we have indications that the market has been improving or stabilizing.

That a good example is that lately we are able to get offers of the note on the construction loans at par or near par, which is something that we did not see in 2009.

So it's also, has something to do with our strategy.

Given the nonperforming assets, that 89 basis points which we think is very low, we want to maximize recovery.

We are not willing to sell the note at a steep discount just to reduce the nonperforming assets.

So when we have the time to get a better offer or to foreclose and sell it as opposed to a note, I would say that the recovery on our nonperforming assets will be better in the coming quarters than what we have in the past.

But, in 2009, given the market was declining, we did the right thing of selling the note with the best offer that we had at that time.

But right now, things -- there's a lot of money on the pipeline.

When we see the value has stabilized, there has been a lot of interest from people to own that property.

And that's how we are able to get an offer at par like offer a 5% discount of par.

I'm encouraged that the ultimate recovery or the,, the additional charge-offs will beside in the canning quarters.

Very good.

Thank you very much for the color.

The next question comes from Joe Gladue of B.

Riley.

Please go ahead.

Good morning.

I guess first question I'm going to ask about the cash and liquidity on the balance sheet.

I guess you have over $1 billion in cash.

Just wondering if you think that that's the appropriate level for normal or if you'll be bringing that down.

And if so, when do you think you might do it?

Joe, the cash also includes money market.

Given the fact that we are concerned about the rising interest rates and we want to keep all our investment securities in the short term, so if we buy a short-term, one-year treasury, it would be in the investment securities.

If we keep it in the money markets, earnings slightly less than that.

Out 30, 40 basis points, it would be fitting in cash.

So what we will do is we'll continue to, try to maximize the yield without sacrificing the interest rate risk.

But,at some point in time, when interest rates have gone up, then we can buy investment securities with longer duration that is paying the higher yield.

Next cycle of banks will be interest rate risk.

Credit cycle I think is pretty much at the tail end.

So the next monster coming in will be interest rate issues.

So we just don't want to be part of that anymore.

So our position is that in fact the unwinding of the federal loan bank advances and then selling some of these a little bit higher yield but longer maturity fixed rate investment securities is all sort of (inaudible) We are doing truly good in our core profitability and our credit history is going pretty strong.

Why-- why put ourselves in a position that a year from now, a year and a half or two from now that suddenly we get stuck with a problem with our asset liability situation because the Fed decides to make a big hike on interest rates just like back in 1995.

We don't want to have that type of situation that hurt East West a year and a half or two from now when we are doing really well with our normal growth and expansion and that we got hit with the margin squeeze.

So therefore, I think that we have taken position now that we would rather give up some yield on the investment securities because our credit portfolio are giving us really nice yield.

And so we wanted to position ourselves today to have as low as a cost of fund as possible.

And then we have the flexibility on the asset side that hopefully a year or two from now when rates do spike up and we can capitalize on that opportunity by then.

Okay.

Do you have the number for the 30 to 89 a day past due line for accredit unions?

We don't have -- accruance?

We don't have that in front of us.

Off line I can get that to you.

Okay.

Lastly, I would just ask for an update on China.

I think you were waiting for some approvals at last quarter's conference call.

And just tell -- ask what your outlook there is.

China, we got the approval from the CDRC which is the regulatory body, which is the sort of official banking regulators in China.

And we're just waiting for things to pick up our business license from another department.

So that's where we are right now.

And so as of today, more or less the same.

Okay.

All right.

That's it from me.

Thanks.

Thank you.

The next question comes from Aaron Deer of Sanford O'Neill Partners.

Please go ahead.

Hi, everyone.

Hi, Aaron.

Question on the consumer book in the quarter was up again sharply this quarter.

I was wondering if you could talk about what was driving that.

Sure, Aaron.

So starting in the second quarter of last year, we started buying fully government guaranteed student loans.

So you'll see that throughout that period and next period of time we have been increasing our consumer loan portfolio, and it is the guaranteed student loan.

We were able to buy them at a discount, so they provide a nice yield for us.

And obviously with the full government guarantee there's no credit risks.

Okay.

And then the TDRs in the quarter that were not included in the nonaccrual number, can you give what that was at March 31 and then December --

It was about $50 million.

A lot of TDRs we had as of year end were the (inaudible) notes that after year end dropped off.

It dropped dramatically from the year end.

What was the year-end number?

About $110 million, $120 million.

Okay.

And then lastly, I guess kind of a theoretical question if you will.

The-- within the FDIC agreement that you have forming the UCB acquisition, I'm curious, outside of the loans and securities that were picked up with respect to assets such as the -- UCB's headquarters up here in San Francisco, what's the -- how does it work if you acquired those at, say, a negotiated price of -- $150 million or something and then a few years down the line you decide that you don't want to own that asset and sell it.

And you sell it for a gain, how does that work with the Wash -- does the FDIC share in that gain?

Or, how does that happen.

No, there's real no loss or gains share on that.

Because of other assets which we buy at a fair value based upon the place value.

So,whatever we pay, that becomes ours.

And whatever happens in the future, is ours.

Okay.

Great.

Thank you.

The next question comes from Ken Zerbe of Morgan Stanley.

Please go ahead.

Great, thanks.

When you guys think about your expense run rate -- I know you said $100 million give or take each quarter for the rest of this year.

But looking longer term, what's the possibility or the ability you guys have to really start taking advantages or advantage of some of those cost savings for the integration of UBC , or is the $100 million

I think that we have some room.

We'll continue to look at some of our operating efficiencies.

So we believe that right now $100 million is about what it is.

A part of our operations always we have to continue to look at our efficiencies and how we can reduce the overhead to manage the portfolio.

From an efficiency standpoint, we always strive to make sure that we stay, better than average in terms of compare with the industries, that's why we're always in the 40s versus the 50s in the industry.

But the dollar amount standpoint, I think that's clearly in the next quarter or so we will expect that big drop because of the one-time costs will be gone, and then so again it will be more normalized.

But on the other hand, we have to keep in mind that we're going to also get back in the flow mode.

So there will be a very high likelihood that the possibility comes, whether it's through acquisition or maybe just organic growth, we're going to end up bringing more people to East West obviously that wouldn't -- in the regular standpoint it would not hurt our efficiency because the people we're going to bring in, the additional payroll expenses that we're going to add to East West these are folks that are going to help generate more revenues.

Therefore, together with more revenues we have -- probably have a higher payroll cost, gradually moving forward in the next 18 months or so.

So what you would see is that it most likely will be a big dropoff, and then gradually it should go back up again.

Assuming that we're not making any acquisitions.

Okay.

The other question is just to be clear on your EPS guidance from the $0.13 to the $0.17 that does not include any early prepayments related to UBCH, in your nim guidance so therefore if you do have prepayments which seems like it might be likely, your actual reported EPS could be higher than your guidance, correct?

Correct, Ken.

Because the 4% margin to 4.10% does not include the early payout.

But we do see that the early payoffs have subsided.

But obviously there will be some amount.

The additional income may look like it will not be as large as the first quarter.

But there will be some.

We agree with your statement.

Okay.

Great.

Thank you.

The next question comes from Brett Rabatin of Stern Agee.

Go ahead.

Good morning.

Wanted to ask two questions quick on credit quality.

One was just do you have the number for what MPAs have been charged down by?

And also as it relates to the land and construction portfolio, was just curious if there -- if you could give any thoughts on being potentially more aggressive with either of those portfolios.

Going forward as you see the marked being more liquid in terms of transactions?

You're talking about originating new construction and land loans?

No, just the fact that you have land loans and maybe you're seeing some transactions in the market for volume liquidity so maybe that allows you to be more aggressive in reducing that portfolio that you have.

Our construction land loans have come down to $740 million, so have come down substantially.

We will continue to look at offers and, if we got good offers we'll sell those construction or land portfolios, but we feel at there time we don't have to do that.

If we don't get good offers, we wait and, like most likely the value, the price will be better, say, a year from now.

So with the MPA being low, we need to continue to weigh the cost benefits of resolving that now at a lower price or waiting a little bit for a better price in the future.

So that's an ongoing analysis that we have to make to decide how we want to finish construction and land loans.

Getting back to the MPA, most of the charge-offs come from the MPA portfolio.

No.

What I meant was, do you have a percentage that the current MPAs have been charged down by the current MPAs you have in the quarter?

I see.

All of the MPA-- We don't have that.

Exactly.

We just want to emphasize that all of the MPAs, we look at the short fall and charge it off.

So it would be properties but (inaudible) some have maybe 20%, some 10%.

Every quarter we look at all the nonperforming loans impaired.

We keep writing it down to the net realizable value.

Okay, thanks for the color.

I think in tradition we'll see the trend will be dropping.

Charge off definitely looks like it will be dropping.

MPA may not be dropping much by intent.

At 89 basis points, staying around the 5% or 5% plus, and we feel that at this kind of low level, it may not -- it may not make a lot of sense for us to quickly dispose of these assets in the fashion the same as everybody else.

Now I think that we can probably set that in 2008 or 2009, early 2009.

No one could sell problem loans a fast as East West.

It would be kind of like King of the Jungle when it comes down to selling (inaudible) what did you get that extraordinary low level, and we feel maybe at this point this is not necessary and we have room to play with it.

I would not say that we were slacking off and not being aggressive in managing the portfolio.

It's more or less strategically we have to go a little bit different direction.

We're very aggressive in selling in 2008 because we had a gut feeling that things sort of got worse.

That the best part is the first offer.

And if we didn't -- dispose of them, we may end up partying up to 5%, 6% MPA levels, and at that point, we may lose the option of flexibility to sort of like determine our own fate.

At this stage right now with the current capital ratio with a counter allows as close as 3% the MPA at 89 basis points, we're getting to the point now that -- and earnings is being strong.

And it doesn't make a lot of sense for us to-- trying to be a hero and jump up with the master disposer of MPA.

Because of that, I think it's a -- a little bit different strategy and different circumstances.

But the relentless efforts that we took last two years will remain the same.

It's just that now we're going to be a lot more aggressive in trying to find -- or trying to find an alternative solution or different type of focus in terms of bargaining for the best price et cetera..

That doesn't mean that at some point we look at a lot of the properties, we still feel that it's better for us to sell it cheap and get it out because whatever reason we decided that piece of property is not something that we want to hold on for too long.

That is something that on an ongoing basis, our special asset department will continue to be very aggressive in looking at all alternatives.

Okay.

Thank you, Dominic.

You're welcome.

(Operator Instructions) The next question comes from Chris Stulpin of DA Davidson.

Please go ahead.

Thank you.

And just to be clear, I have one question.

Did you say you were performing TDRs at the year end were $114 million.

Did you say they were $15 million in Q1 or were they $50 million?

I thought the --

5-0.

So it's not 56 but it's 50?

Correct.

5-0.

Okay.

Thank you.

So I had -- appreciate it.

(Operator Instructions) From Don Worthington of Howe, Barnes, Hoefer and Arnett.

Please go ahead.

Good morning.

Good morning, Don.

Just one followup.

On the securities portfolio, would you expect further gains on sales?

Yoy had a fairly hefty gain on sale this quarter.

Would you be looking for more of that over time?

Not a big thing on sale.

But we will continue to look forward to other long-term investment securities and evaluate whether we should sell it now and wait, until they grow up to redeploy into a longer duration.

Okay, thank you.

This concludes our question-and-answer session.

I would like to turn the conference back over to Dominic Ng for any closing remarks.

I just want to thank everyone for joining our call again today.

I'm looking forward to talking to all of you again in the next quarter's earnings release call.

Thank you.

This concludes the East West Bancorp.

first quarter 2010 earnings conference call.

Thank you for attending today's presentation.

You may now disconnect.