East West Bancorp Inc (EWBC) 2010 Q2 法說會逐字稿

Good morning, and welcome to East West Bancorp's second quarter 2010 earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions).

After today's presentation there will be and opportunity to ask questions.

(Operator Instructions).

Please note, this note this is being recorded.

I would now like to turn the conference over to Ms.

Kelly Adams.

Please go ahead.

Thank you.

Good morning, everyone, and thank you for joining us to review the finance results of the East West Bancorp for the second quarter of 2010.

To review result are Dominic Ng, Chairman and Chief Executive Officer; Julia Gouw, President and Chief Operating Officer; and Irene Oh, Executive Vice President and Chief Financial Officer.

We will then open the call to questions.

First we would like to caution you that during the course of the call 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.

These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties.

For a more detailed description of factors that affect the Company's operating results, please refer to our filings with the Security 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 andstreetevents.com.

I will now turn the call over to Dominic.

Thank you, Kelly.

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

We are pleased to announce yesterday that East West reported earnings for the second quarter of $36.3 million or $0.21 per diluted share, $11.4 million or $0.08 higher than the first quarter of 2010.

I'm going to touch on just a few highlights not quarter and ask Julie and Irene to discuss our in more detail.

While East West continued on and upward trends during the second quarter, reflecting strong credit quality metrics in growth and low cost core deposit and a stable net interest margin.

Also during the second quarter we acquired Washington First International Bank in our second FDIC assisted transaction.

Although smaller in size, this transaction is merely accretive to earnings, and we expect that the future opportunities from this acquisition for market share expansion and operating efficiencies will be beneficial for East West.

As the quality continues to trend positively for East West for the third quarter in a row, East West had a non-performing asset to total asset ratio under 1%, substantially better than many of our peer banks.

Additionally, the provision for [loan] losses decreased 28% and net charge-off decreased 14% from the previous quarter.

Further, we have experienced decline in loan delinquency levels.

Specifically we have noticed a decline in 30 to 60 day and 60 to 90 days delinquent commercial real estate loans, which further demonstrates the ability of this portfolio.

Our seasoned commercial real estate portfolio continues to perform well,with only $18.3 million in non-performing loans or only 0.52% of this portfolio.

As expected, we've also noticed a sharp decline in 30 to 60 day and 60 to 90 day residential construction loans as our concentration in this portfolio has diminished.

We think these factors are good indicators that credit calls will continue to decline in the future as we have indicated in our earnings guidance.

I would also like to point out that we have made strong progress in our goal to increase our commercial lending portfolio.

Quarter over quarter, commercial and trade finance loans have increased $84.1 million, which represents a 6% increase since March 31, 2010, or an annualized growth rate of 24%.

Now moving onto deposits.

Total deposits grew to $14.9 billion, up $312 million from March 31.

During the quarter East West acquired $395 million of deposit from the acquisition of Washington First International Bank, reduced broker deposit by $175 million, and increased deposit through our legacy retail and commercial platform by over $90 million.

More significantly, quarter to date, core deposit grew to a record $8.2 billion, an increase of $441 million or 6% from previous quarter or again an annualized increase of 24%.

With the increase in core deposit the [cause of] the deposit has also decreased down to 80 basis points for the first quarter, and improvement from 93 basis points in the first quarter and 1.47% in the second quarter of 2009.

We have now reported three consecutive quarters of earnings.

Overall, we believe that we have made good progress in the second quarter of 2010.

We completed the systems integration of United Commercial Bank, acquired Washington First International Bank, and have gained further clarity and visibility on the stabilization of our credit quality.

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

We currently estimate that [fully] diluted earnings per share for the second quarter of 2010 will be in the range of $0.19 to $0.22 per diluted share.

This EPS guidance is based on the following assumptions.

Flat balance sheet growth.

A stable interest rate environment, and a net interest margin between 3.98% to 4.02%, excluding the impact of discounts accretion on cover loans, dispositions and recoveries.

Provision for loan losses of approximately $35 million to $40 million for the quarter.

And none interest expense for the third quarter of approximately $105 million, net of FDIC reimbursable items --again, for your information, for REO loans and legal expenses related to covered assets, 80% of these items are reimbursable by the FDIC as reflected in non-interest income.

Finally, this earnings per share guidance assumes effective tax rate of approximately 37%.

We currently expect that earnings will further improve in the fourth quarter of 2010, driven by lower credit costs and improved operating efficiency.

I would now turn the call over to Julia to speak in more detail about our Washington First International Bank acquisition and integration and to summarize our current thoughts on how financial regulator reform bill would affect East West.

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

On June 11, 2010, we acquired the banking operations of Washington First International Bank, acquiring four branches in the Seattle area with total at assets of $482.6 million(Sic-see press release) and assumed $395.9 million in deposits.

In addition to the two branches in the Seattle area that we obtained from the acquisition of United Commercial Bank in November 2009, East West currently operates six branches in the greater Seattle area.

With our increased size, we now believe that our combined presence will be mutually beneficial to growing our customer base in this region through our legacy EWB and WFIB networks.

Overall, the integration of WFIB is progressing smoothlyWe expect is that all loan systems will be converted before the end of this month and that the core systems will be integrated by end of October.

With the integration of UCB completed in the second quarter, we believe that operating efficiency will continue to improve.

For the second quarter non-interest expense totalled $125.3 million, down approximately 10% from the first quarter of 2010.

Our second quarter none interest expense included many nonrecurring expenses, which I would like to in more detail.

During the quarter we prepaid Federal Home Loan Bank advances totaling $740 million and paid a prepayment penalty of $3.9 million, which is included as a non-interest expense item.

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

These additional expenses totalled $3.6 million in the second quarter and are comprised of severance expense of about $1.5 million and other integration related expenses of $2.1 million, which will primarily comprise of consultant and other acquisition related fees.

We also incurred a number of expense on covered loans and real estate owned, which are included in real estate owned expenses, legal expenses and loan related expenses.

Real estate owned expenses totaled $20.9 million in the first quarter related to the net losses on self valuation, adjustments and general maintenance expenses.

Of the$20.9 million in REO expense, $19.1 million stemfrom covered assets and are eligible for 80% reimbursement in accordance with the loss-sharing agreement with the FDIC.

As such, we are expect to receive 80% of the $19.1 million in REO expenses for the UCB covered assets of approximately $15.3 million from the FDIC in the near future.

Similarly, combined legal and loan [ex]-related expenses total $11.4 million in the second quarter of, which $7.4 million is eligible for reimbursement from the FDIC.

As such we expect to reach 80% of $7.4 million, or $5.9 million.

We have recorded these items as receivable as of June 30, 2010, and this is reflected in the P&L in the net decrease in the FDIC indemnification assets and receivable line times.

These amounts are [grossed up] on the income statement in accordance with GAAP.

I would like to spend a few moments discussing our thoughts on the recent regulatory reform and its potential impact to East West.

Overall, at this point we are still learning about the full impact of the regulatory reform will be for East West and for the banking industry.

We believe at this point that the Collins amendment will have the largest impact to us.

Under this provision, trust preferred securities will be phased out as Tier 1 capital for banks over $15 billion in assets starting January 1, 2013.

East West has $156 million in trust preferred securities, and our current Tier 1 risk based capital ratio is 18.9%.

The exclusion of trust preferred securities from our Tier 1 capital would lower our Tier 1 capital to 17.4%, which is still a very strong capital ratio.

Overall, the level of trust preferred securities that we have is very low compared to our Tier 1 capital level.

Also, at this point we do not believe that the change in the FDIC assessment will be significant to our FDIC assessment.

Further, with regards to [RACI] or interchange fees, we do not believe that will make [much of an] impact to our future profitability.

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

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

I would like to provide a little more color on our financial results for the quarter.

The net income for the second quarter of $36.3 million, or $0.21 per diluted share, was an improvement of $11.4 million, or $0.08, from the first quarter of 2010, and an improvement of $128.4 million, or $2.04, over net income from the second quarter of 2009.

Our core net interest margin, excluding the impact of yield adjustments, remains strong at 3.98% for the quarter, compared to 4.02% in the first quarter of 2010.

For the second quarter of 2010 yields adjustments from $29.8 million related to discount accretion on early pay offs and recoveries on UBC covered loans.

This compares to $81.3 million of yield adjustment in the first quarter of 2010.

Early prepayments on the covered portfolio have stabilize since we first took over UCB in November of 2009, leading to smaller yield adjustments in each subsequent quarter.

Excluding the impact of the yield adjustments, net interest income for the second quarter totaled $173.9 million, relatively unchanged from the prior quarter, and in an increase of $85.6 million or 97% from the second quarter of 2009.

In addition to the discount accretion on early pay off and recoveries of $29.8 million, we recorded about $6 million in normal discount accretion on the SOP 03-3 loan for loans that came from the UCB acquisition and also a partial month accretion on the WFIB transaction.

This amount does fluctuate based on actual cash flows and charge-off activity experienced in each period.

Ultimately, the actual losses experienced for the individual pools we created under SOP 03-3 for the UCB loan portfolio may differ were our initial analysis, but at this point in time we feel very comfortable with the credit loss assumptions.

Other actions we took during the second quarter included prepaying higher rate FHLB advances totaling $740 million at a prepayment penalty of $3.9 million.

Despite the current interest rate environment we have maintained a strong interest margin due to actions we have taken to reduce our interest rate risk.

These actions include the prepayment of higher cost FHLB advances that were at a rate of 1.72%.

This action helps to reduce our cost of funds for the second quarter 11 basis point quarter over quarter.

Further during the second quarter we recorded impairment losses on investment securities totaling $4.6 million, of which $2.4 million was recorded on pool trust preferred security and about $2 million was recorded on agency preferred stock.

As of June 30, 2010, the fair value of the agency preferred stock was written down to zero.

Excluding the impact of the decrease in the FDIC indemnification [asset and] receivable of $9.4 million, incomesales of investments security of $5.8 million, income sales of loans of $8.1 million, and a gain on the acquisition of $19.5 million,and impairment charges of $4.6 million,non-interest income for the second quarter totaled $16.4 million, a $6.8 million or 71% increase as compared to the second quarter of 2009.

We would also like to highlight that our capital levels remain very high and well above our piers and required ratios.

As of the end of the second quarter our Tier 1 leverage capital ratio 10.5%, our Tier 1 risk based capital ratio totaled 18.9% and the total risk based capital ratio totaled 20.8%.

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

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

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

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

I will now turn the call back to Dominic.

Thank you, Irene, and thank you, everyone, for joining the call this morning.

And I will now open the call to questions.

(Operator Instructions).

Our first question comes from Ken Zerbe at Morgan Stanley.

Okay, thanks.

A couple quick questions here.

The first one, just [into] EPS guidance, the $0.19 to $0.22, when he plug in all the numbers I get at the bottom end of that range.

Does the EPS guidance that you provide include yield adjustments yet the NIM assumption does not include yield adjustments?

There will be some early disposals that will increase the earnings a little bit, so that is included in the EPS guidance, but not in the quarterly.

So there will be some flexibility.

Every quarter you would expect that there will be some disposal, and you will have some additional income.

Understood.

Okay.

So that is included already in your EPS guidance.

Right.

Okay.

Great.

And then is there any -- I guess in terms of the reimbursable expenses that you highlight as being the one-time items, the way we should think of it, is there any recoveries in third quarter?

Or does that -- or is it already included in second quarter in a different line item that was offset?

It's already in the second quarter.

That's why the offset is in that decrease in the FDIC indemnification assets and receivable on the other income.

So every quarter the timing is the same.

Every time which have expenses that are reimbursable it got grossed up, the expenses on the expense and then the recoveries on the other income.

But it's not a one-time item.

It's recurring item that will be ongoing for a while, because as long as we have the REOs that we were selling, that they are covered by the FDIC, that we will be going through that reimbursable process to collects our 80% from the FDIC.

So, therefore, it's a recurring rather than a one time.

Ken the reason, though, we broke it out was because it's so confusing, because grossed up on the balance sheet where you have a total expense, a none interest expense, and then you also have 80% of the receivable and non-interest income.

So it's just to provide additional clarification on the REO expense amount.

That's why we broke it out that way.

Okay.

No,that is helpful.

And then last question, just your appetite for additional acquisitions.

Well, we -- I mean, we have the capacity to do it.

The only issue, really, it all gets back down to whether we will find anything strategically fit.

And if we looked at United Commercial Bank and Washington First International Bank both of them were strategically fit to our core business and so we made a move.

So if we see something similar in nature that we feel that is a good fit for us, obviously we'll be -- we'll be ready any time.

The question is that we are somewhat choosy in terms of making sure that we find the right acquisition.

We would not be inclined to just like [throw out 72] as a bid any time there is and FDIC assisted transaction available, and that's not the long term goal of East West to run our core business.

Okay.

All right.

Thank you very much.

Thank you.

Our next question comes from [Mike Duremski] at Credit Suisse.

Hi.

Thanks.

On the guidance, can you help me reconcile?

For next quarter you're saying $105 million of non-interest expense, and I think you said core this quarter was about $97 million.

So is the increase OREO, or maybe I'm thinking about it wrong?

Mike, the $105 million does include kind of what our estimate right now is of what the expenses related to the covered assets will be.

However, the difference from what we are considering to be core right now --the $96 million, $97 million -- and the $105 million, what we're showing next quarter, that does include items -- the $105 million does include items that are more none core in nature that may be related to the integration of UCB and WFIB.

Can you tell me --

In addition, Mike, for the WFIB we applied them June 11, so as a result expenses for the next quarter will be the full quarter.

So there will be an increase in the expenses there, too.

So then I guess would the next quarter, when you release earnings then, would the -- so you're not saying the organic run rates are really higher.

There will be some nonrecurring items in there?

So you -- when you show core next quarter, you're saying it might be similar to the $96 million, $97 million again?

Yes.

But we'll it take a look at that time how much of that will be recurring to the fourth quarter and over.

Okay.

And next on -- how are you guys thinking about current cash levels in terms of deploying excess liquidity, or are you guys willing to take any duration risk?

What's going on there?

We would like to grow our C&I loan portfolio.

As Dominic mentioned, we have very good progress, our annualized loan growth on the C&I loan was 24% quarter to quarter, but we will continue to look at different opportunities on investment securities.

We -- right now we are trying to reduce taking too much duration risk, because we don't also get compensated with the long term rate being very low.

So, but we are always look at different yield opportunities on the investment security.

But our number one priority would be to grow our C&I loan portfolio.

I guess that leads me to my last question.

Sorry,did I interrupt you in?

No, go ahead.

I guess my last question was on C&I loan growth.

I guess what -- is it pent up demand driving that growth?

Are you guys hiring new teams?

What's the sustain ability?

Just what you guys are thinking of?

I think we are definitely hiring more new C&I lenders, and also the existing C&I lenders that we have -- we do have quite a good size group of C&I lenders that have been in the bank for a while just stepping up a little bit more in terms of the marketing.

Now, keep in mind in 2007, 2008 and a large portion of 2009, with the market condition and our focus on driving down non-performing assets to the lowest level in the industry, most of our lenders were somewhat internal driven for the last few years.

And they have not been actively out in the market to promote business and so forth.

With where we are today -- and in fact I would say that several months ago knowing that we have a really strong balance sheet with strong capital and core earnings will be coming and getting better and better every quarter, just because the fact that not only did our quarter -- I mean our balance sheet have plenty of income flowing in, but the fact is the credit metrics that we have at less than 1% of non-performing assets, we have very low downside in the credit cost issue.

We have encouraged our existing lenders to start stepping up going out to the market and start bringing business in.

Now commercial C&I loans are very different and real estate mortgages.

It would take a lot more longer lead time to get them to start bringing the business in, and even when we get the commitment, it still take a little bit of lead time to get some outstanding balances, but as we have indicated in the second quarter, we have shown a quarter to quarter 6% increase in C&I and trade finance loans, and I think that we will expect the C&I portfolio will continue to make good movement going forward.

Now, what we've been doing so far in addressing your question on -- we have maybe some of these liquidity sitting there that are getting very low yield -- actually it does affect our net interest margin.

We are not putting as strong of a focus right now in terms of aggressively in a short term maximizing the yields, because only a few months ago a lot of people worrying about the Fed maybe increasing rate.

In fact, all regulatory bodies have been putting out guidance about they need to start worrying about interest rate risk.

So what we don't want to do is to in fact start locking ourself into a lot of fixed rate instruments and then -- while today I think we will say that we guessed it wrong, because it turn out that economy may slow for a little while.

But sometimes a few months later things change again.

And we just don't want to put ourselves in a position that we get caught with any kind of potential economic change that will severely affect our ability to focus in the long-term growth.

So to get back down to the bottom line here is that we know for sure, no matter what kind of economic condition, we still going to focus on C&I and trade finance lending.

And also no matter what kind of condition, we still going to want to go get core deposits, particularly the operating business checking accounts and also some of the fee income within the foreign exchange and so forth, we're still going to maintain to be the largest and best, the financial bridge between the East and the West, focusing on Pacific Rim region, in greater China, and also West Coast, and now we also have a little more presence in New York.

And we're going to gradually build some of our out of state regions like New York, Boston, and Seattle, Houston, and Atlanta, et cetera.

Gradually build them up and make them a better core business.

And we do have China that we are fixing up, that eventually will become an important force.

All of that I think that we going to do it one step at a time, and so in that regard I think that we tend to be a little bit more conservative in some of these other directions but maintaining very focused in the core business.

Okay.

That's helpful.

Thank you.

Thank you.

The next question comes from Joe Morford at RBC.

Good morning, everyone.

Good morning.

Good morning.

I guess just taken the expense question one step further and looking beyond the third quarter, either to fourth or going into 2011.

Once you realize the savings in WFIB and further efficiencies from UCB, what kind of normalized expense run rate would you be targeting at this point?

I think in a couple quarters we are projecting around $100 million, something like that, and we'll continue to review, because as Dominic mentioned about us building the C&I, some of the cost savings that we have will be replaced with further hirings and investments in the C&I platform.

Okay.

And would that $100 million include any of these reimbursable expenses that you're expecting here in the near term?

Yes.

Our portion, the 20% that we are taking.

Okay.

So we would always excluded the 80% that is reimbursable by FDIC for.

Yes.

So one of the challenges right now for your review purposes that the number never quite looked right.

You know why?

Because we are always going to have these -- a large chunk of expenses that we -- work that we provide for FDIC that we have incurred, but because under general accepted accounting principle we have to show growth, so therefore every quarter you will see expenses that looks overstated.

And then we have to tell you well, those expenses will be reimbursable by the FDIC, but by the way there is another line items up in the non-interest income area that shows the net effect, that we really need to net the non-interest income portion of the reimbursable expenses from the FDIC, and then down with the -- with that expense item.

However, right now and according to GAAP, we need to show a growth, so that's why it becomes so confusing.

But if we are able to net it then you -- I mean we would be able to give you that number much easier.

But we'll always explain it, and everyquarter we're going to explain it.

Right.

Okay.

Fair enough.

So just to be clear then, that $100 million is not a gross number.

It is not.

It is not.

And I think that it is easier also for you to project the future is do not also include the income, the 80%.

Right.

Yes.

Because the net number, it -- there's more clarity to the net number as to the close up number.

Right.

Okay.

And then just separately, would you have what the troubled debt restructuring number was for the quarter and how much, if any of that, is already included in the non-accrual category?

The troubled debt restructuring that are not included already in non-accrual loans is about $35 million.

I have to get back to you on the number of what is included in non-accrual.

Okay.

Thanks, Irene.

The next question comes from Aaron Deer at Sandler O'Neill.

Hi.

Good morning, everyone.

Hi.

I guess if we could circle back for a minute to the yield adjustments, and try and understand the impact that the discount accretion might have a on a go-forward basis, and maybe where that kind of settles out.

Is there a -- do you have a sense yet of what kind of ongoing number that might be, or maybe what the discount accretion was so far this quarter in July?

Yes, forthe quarter the normal discounts accretion is about $6 million.

We expecting the run rate somewhere around $8 million.

There will be some fluctuations quarter to quarter, but one thing is that every quarter -- and actual it is a core earnings.

Every quarter we will have a pay off where the loans will be paid off [at par], but it got carried at fair value.

That is lower than that.

So that's the yield accretion from the disposal, the $29 million, and the net impact is the 20% [to that] the loan to the bank.

So every quarter you will see some excess yields, the accretion coming from the disposal.

So there are two components, one account core accretion and then the disposals.

And, Aaron, we haven't run the calculation for July yet.

We do it at the end of the month, but overall the pay off and the pay down activity has subsided, even from the reduction that we saw in the second quarter.

Okay.

That's helpful.

And then I guess with -- I'm curious when performing UBC loans mature, are you renewing those as East West credits?

Are you renewing them under the same terms in order to retain the loss coverage?

Normally speaking in a performing loan we will -- if we renew it under the same terms and conditions, primarily with same commitment amount,it is covered under loss share for that five year-to-date period for a C&I loan or commercial loan and ten years for single family.

If we renew it and it is in accordance to the original commitment that existed as of 11-6, then it would fall outside of loss share predominantly they are renewed in accordance to their original commitment and continue to be covered.

Okay.

And then -- so knowing that what kind of ongoing quarterly attrition would you expect see on that covered loan book?

There will be always some.

Just like any portfolio, Aaron, but like Irene said, this quarter so far we see a low attrition.

But it can come and go you know depending also on the markets, what -- how competitive the market is.

Okay.

Thank you.

The next question is from Brett Rabatin at Sterne, Agee.

Good morning.

I wanted to ask the TARP repayment question, if you can provide any color around your thoughts on TARP repayment.

Well, as we indicated the last two or three quarters, our plan is to wait for three consecutive quarter of core earnings, and then we will then go in and request TARP repayment.

So we just completed three consecutive quarter of core earnings, so we will be right afterwards and as we finish the earns call, we going to start working on -- with our prime regulators in terms of paying off TARP.

Okay.

And then I wanted to ask on the -- your legacy portfolio as it relates to [Land A and D], I wanted to ask on that portfolio what you're seeing generally from here.

Obviously credit has gotten better the past two quarters in that portfolio.

What do the prospects look like in the remaining piece you have left?

Well, the balance now is about $650 million, slightly less than that, which is at a very, very low level.

And since we continue to monitor that portfolio and always write it down to the new fair value, we believe that unless the value deteriorates dramatically, then the additional losses coming from that portfolio will not be significant.

Okay.

And then just lastly I wanted to ask, on the credit markets you have on the acquired portfolio can you discuss the thought around the potential portfolio exceeding the performance that you have on the credit marks?

We -- from time to time we will continue to review the pools in the covered loans and assess whether the credit mark we have is adequate or need an additional amount, but at this moment we feel that it's adequate in terms of the credit marks.

But it's something that is ongoing review, so in the future if there is a quarter that we feel that our shows that we have too much credit marks, then we would reverse that.

Likewise, if the credit mark is not adequate at a certain [pool] under the O3-3 then we have to provide additional provision.

But that's an ongoing -- All in all, though, we believe that with $1.1 billion credit marks in the covered loan that the total credit marks will -- would be pretty sufficient.

Okay.

Great.

Thanks for the color.

(Operator Instructions).

Our next question comes from Lana Chan at BMO Capital Markets.

Hi, good morning.

Just on the credit quality, do you have some -- the number for inflows to non-performers this quarter, and did you sell any non-performing loans this quarters as well ?

Lana, the inflows non-performing loans were about $75 million, so that's down compared to where we were last quarter, which was about $100 million or so.

We also sold some non-performing loans.

We sold about $77 million during the quarter.

Also, again, lower than where we were last quarter.

And what are you seeing now in terms of the opportunity for additional loan sales, where we have seen a couple of banks be more aggressive in the second quarter as liquidity improved?

What are you guys seeing?

Well, from time to time we got very good offer, but given our non-performing assets are so low, we would evaluate, because sometimes it's better to foreclose and sell it as REO, because when you have clean title the price would be better.

And that's why you see a slowdown in the note sales in the second quarter.

But some of the offers we got seem to improve compared to before.

And in addition the 30 to 89 [stay] delinquent has dropped compared to the first quarter about 30%, so we don't want to sell the notes at a steep discount just to sell down the problem loans.

And we will evaluate it.

If we think that we will get much better value at REO, we will go ahead and foreclose the property.

Okay.

Thank you.

And just one more question.

You guys did some balance sheet repositioning in the second quarter with the debt prepayment, selling some consumer loans, and the security portfolio.

Any more of that going to happen in the next couple quarters?

Not in that magnitude.

The Federal Home Loan Bank advances -- the long term rates have come down, so since we have excess liquidity and these higher rates, it is an opportunity for us to reduce the cost of funding.

And also for the securities we -- again, we were concerned this longer duration security.

So when we have an opportunity to sell it at a gain, we reduce the duration risk by selling the security.

But we don't have much of the longer term duration investment securities any more.

So if we do some, it would not be in that magnitude, Lana.

Okay.

Thanks, Julia.

Thank you.

Our next question comes from Aaron Deer at Sandler O'Neill.

Hey, justtwo quick follow-ups on that points.

One was the [loan tilt] that you did with respect to student loans.

Is any more of that that you did with respect to the student loans any more of that come to, or something similar to that we might see in future quarters?

We would consider it.

What happened this quarter, we got an opportunity to sell it at a good price.

Where also we have new inflows coming in from additional commitments that we have that we know are going to come in the future months.

So with that we took opportunity this quarters, and we'd evaluate it next quarter or quarters afterwards, depending on the inflow and total where we think you are balances will be.

Okay.

And then where does the duration of the securities portfolio stand (inaudible)?

Pretty short.

Okay.

Any kind ever metric you can provide on that?

We don't have the calculation, but I would say that maximum like two, two and a half years.

Okay.

That's helpful.

Thank you all.

This concludes our question-and-answer session.

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

Well, thank you all for joining, and I will look forward to talking to you again in our next quarter conference call.

Thank you.

The conference is now concluded.

Thank you for attending.

You may now disconnect.