East West Bancorp Inc (EWBC) 2014 Q1 法說會逐字稿

Good day and welcome to the East West Bancorp first quarter 2014 earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions)

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

(Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference over to Irene Oh, EVP and CFO.

Please go ahead.

Good morning and thank you for joining us to review the financial results of East West Bancorp for the first quarter of 2014.

Also participating on this call this morning will be Dominic Ng, our Chairman and Chief Executive Officer; and Julia Gouw, our President and Chief Operating Officer.

Second, we would like to caution you that during the portion 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 Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2013.

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

I will now turn the call over to Dominic.

Thank you, Irene.

Good morning.

Thank you for joining us for earnings call today.

Yesterday afternoon we were pleased to report financial results for the first quarter of 2014 with a net income of $76.7 million or $0.54 per diluted share.

Net income increased 6% or $4.6 million from the first quarter of 2013 and earnings per diluted share increased 8% or $0.04 for the first quarter of 2013.

Excluding the impact of MetroCorp-related integration and merger expenses in the first quarter, earnings per diluted share was $0.58, or an increase of 5% or $0.03 as compared to fourth quarter 2013 and an increase of 16% or $0.08 as compared to first quarter of 2013.

Further, we achieved strong profitability with a return of average assets up 1.18% and the return of average equity of 12.05%.

Overall, it was a strong quarter.

We started off the year by completing the acquisition of MetroCorp Bancshares Inc.

headquartered in Houston, Texas, on January 17, 2014.

Further, we achieved solid growth in both loans and deposits.

During the first quarter of 2014 we realized loan growth of 10%, or $1.8 billion; $1.1 billion was due to the addition of loans for MetroCorp and $728 million was due to strong growth for the legacy East West portfolio, largely from growth and not covered commercial and industrial loans.

As discussed in our fourth quarter earnings call, our focus for 2014 will be growing the commercial industrial loan portfolio and our results for the first quarter show good progress towards this goal.

Total deposit also increased significantly by 12% on $2.4 billion quarter to date to a record $22.8 billion, including core deposit of $16.4 billion.

Through the MetroCorp acquisition, the Company acquired deposits of $1.3 billion.

Excluding MetroCorp, core deposit increased 7% or $1 billion from December 31, 2013, and increased 21% or $2.7 billion for March 31, 2013.

I'm also pleased to report that the balance sheet growth was achieved without compromising profitability.

Both adjusted net interest income and adjusted net interest margin were up quarter over quarter.

For the first quarter, adjusted net income interest totaled $209 million, an increase of $10.7 million or 5% from the fourth quarter of 2013, and an increase of $24.3 million on 13% from the first quarter of 2013.

Similarly, for the first quarter the adjusted net interest margin totaled 3.45%, an increase of 4 basis points from 3.41% from fourth quarter of last year.

Now, I would like to give a brief update on acquisition of MetroCorp.

Since we closed the transaction on January 17, we have been hard at work with integration.

As part of the integration plan, we will be consolidating a total of six branches, two in Texas and four in California.

The integration process is progressing smoothly and the full conversion of all MetroCorp systems is scheduled for completion later this year in June.

We have had ongoing communications and meetings with MetroCorp customers and we look forward to the expanded products and services we will be able to bring to them once they are fully on the East West Bank's platform.

In summary, we believe that our solid operating results for the first quarter will serve as a strong foundation for the remainder of the year.

Our continued ability to win new customers and grow loans and deposits organically is attributed to our distinct positioning as the bridge between the East and the West.

During the first quarter we received approvals for new branch locations in Shenzhen, China, and a new sub branch in the recently established pilot free trade zone in [Shanghai], China.

These two new branches in China are expected to open later this year the fourth quarter.

With our growing expanded network in mainland China, we expect to have more opportunities to provide our cross-border customers a wider array of banking services and products in both the US and in China.

As such, we continue to make investments in people and infrastructure to better serve our customers and strengthen our core capabilities.

For these reasons, we believe that East West will continue to deliver strong financial results for the rest of 2014 and beyond.

With that, I would now turn the call over to Julia to discuss in more detail our key successes in the first quarter and our expectations for the remainder of 2014.

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

I would like to spend a few minutes discussing the loan growth we experienced during the quarter, our net interest margin, and our expectations for the future.

Finally, I will review the guidance we provided in the earnings release yesterday for the second quarter and the full year of 2014.

Our total loan portfolio increased $19.9 billion at March 31, 2014, an interest of $1.8 billion or 10% from December 31, 2013, which includes $1.1 billion of loans acquired from MetroCorp.

Excluding the addition of the acquired loans from MetroCorp, our loan growth for the first quarter was driven by increases in commercial and industrial loans, in particular growth in the sectors of (inaudible) corporate, specialty finance, private equity, technology and life sciences.

Additionally, we experienced solid commercial and industrial loan growth in Hong Kong in the sectors of trade finance and cross-border business, corporate and real estate.

This growth in the non-covered commercial and industrial loans was approximately 11% or $600 million during the first quarter.

During the first quarter, non-covered single-family and home equity residential loan growth was approximately 5% or $190 million, non-covered multifamily loan growth was 6% or $60 million, and non-covered CRE loan growth was approximately 2% or $75 million.

As Dominic discussed, we expect that for the remainder of 2014, growth in the non-covered loan portfolio will largely be focused on commercial and industrial loans.

Although the growth in the non-covered portfolio will continue to be offset by the expected reduction in the covered portfolio, at this point we project that we can grow the total loan portfolio by approximately $400 million per quarter for the remainder of the year.

Along with the strong loan originations, our ability to generate strong deposit growth also continues to be very successful.

As of March 31, 2014, total deposit reached a record $22.8 billion, an increase of $2.4 billion from December 31, 2013.

Through the MetroCorp acquisition, the Company acquired approximately $800 million of core deposits and $520 million of timed deposits.

In the first quarter of 2014, we continue to execute on our long-term strategy to grow low cost commercial deposits.

Excluding MetroCorp deposits acquired, core deposit increased 7% or $1 billion from December 31, 2013, and increased 21% or $2.7 billion from March 31, 2013.

The organic increase in core deposits was largely driven by an increase and non-interest-bearing demand deposits of 8% or $447.6 million during the first quarter.

I would add that some of this increase in deposits point-to-point from December 31, 2013, to March 31, 2014, came during the latter part of March, particularly in the non-interest-bearing demand deposit category.

We do expect outflow in the second quarter as some of our customers have used the funds for tax payments and other uses in the first half of April.

Next, I would like to spend a few moments discussing the net interest income and net interest margin for the first quarter, and our expectation for the rest of 2014.

Net interest income adjusted for the net impact of covered loan activity totals $209 million for the first quarter of 2014, an interest of $10.7 million for the fourth quarter of last year.

The core net interest margin totaled 3.45% for the first quarter of 2014, up 4 basis points from the fourth quarter of 2013.

This quarter over quarter interest in the adjusted net interest income and margin was largely due to the strong growth in our non-covered loan portfolio and also due to higher yielding loans from MetroCorp, and increases in yields and other earnings assets.

Additionally, we are pleased to see that for the first quarter of 2014 the average cost of deposits decreased to 30 basis points, down 1 basis point from the fourth quarter of last year.

Lastly, I would like to provide some additional color on our guidance for 2014.

As in the past, in our earnings release yesterday we provided guidance for the second quarter and full year of 2014.

We estimate that fully diluted earnings per share for the full year of 2014 will range from $2.27 to $2.31, an increase of $0.17 to $0.21 or 8% to 10% from $2.10 EPS in 2013.

We have widened the guidance that the adjusted net interest margin given the unpredictability of the timing of the accretion from the covered loans.

Further, we have lower the estimated effective tax rate for the remainder of the year from 35% to 32% due to the purchase of additional tax credits in the first quarter of 2014.

For the second quarter of 2014, we estimate that fully diluted earnings per share will range from $0.56 to $0.58 per diluted share.

With that, I would now like to turn the call over to Irene to discuss our first quarter 2014 financial results in more depth.

Thank you very much, Julia.

I am going to discuss our financial results for the first quarter of 2014 in a little bit more detail, specifically as it relates to credit quality, non-interest income and expense, and I will also summarize fair value accounting for the MetroCorp acquisition.

Starting with credit quality, the total nonperforming assets, excluding covered assets to total assets ratio, continues to be under 1% as it has been for over four consecutive years with nonperforming assets of $[160.9] million or 59 basis points of total assets at March 31, 2014.

Nonaccrual loans, excluding covered loans, totaled $132.5 million or 67 basis points of total loans as of March 31, 2014, an increase from 62 basis points of total loans at December 31, 2013, largely due to $26.5 million of nonperforming loans and assets acquired from MetroCorp.

For the first quarter of 2014 the Company recorded a provision for loan loss for non-covered loans of $8 million as compared to a provision of $6.3 million for the fourth quarter 2013.

East West continues to maintain a strong allowance for non-covered loan losses of $245.6 million or 1.42% of non-covered loans receivable as of March 31, 2014.

Total net charge-offs on non-covered loans totaled $4.1 million for the first quarter of 2014 compared to net recoveries of $1.3 million in the fourth quarter of 2013, and net charge-offs of $540,000 for the first quarter 2013.

During the first quarter 2014, the Company recorded a reversal of provision of loan losses $1 million on covered loans.

As these loans are covered under law share agreement with the FDIC, for any charge-offs, the Company records income of 80% of the charge-off amount and non-interest income of a net increase of the FDIC receivables resulting in a net impact to earnings of 20% of the charge-off amount.

For all recoveries, the Company also wrote shares 80% of the amount recovered with the FDIC.

Additionally, during the first quarter we reported an expense of $6.8 million as a claw-back liability.

Under the loss share agreement with the FDIC, if losses in a covered portfolio do not reach specific thresholds, the bank is required to pay the FDIC a calculated amount.

As of March 31, 2014, our total recorded liability to the FDIC for this claw-back liability for both the UCB and the WFIB acquisitions is approximately $82 million.

Moving on to non-interest income and expense.

East West reported a non-interest loss for the first quarter of 2014 of $14.9 million, a reduction of loss from a non-interest loss of $36.6 million, and an increase from non-interest loss of $2.1 million in the fourth quarter and first quarter of 2013 respectively.

Fee income, including branch fees, letter of credit and FX income, loan fees, and other operating income totaled $28.9 million in the first quarter of 2014, a decrease from the prior period of $4.5 million and an increase from the prior year period of $4.9 million.

Fourth quarter 2013 fee income was higher than the first quarter 2014 due in part to higher volume of customer transactions in that quarter.

During the first quarter, we recorded net gains on sales of loans of $6.2 million, a $2.1 million increase from the prior quarter and a $6.1 million increase from the prior year period.

The $6.2 million gain primarily related to the sale of $132 million of government guaranteed student loans and $27 million SBA loans.

We also recorded net gains of $3.4 million primarily related to the sale of $277 million of investment securities.

Moving on to non-interest expense, excluding amounts to be reimbursed by the FDIC and merger-related expenses, total non-interest expense for the first quarter was $111.8 million, a decrease of $11.2 million or 9% from the prior quarter and an increase of $15.4 million or 16% of the first quarter of 2013.

The decrease in non-interest expense quarter over quarter was primarily due to a decrease in legal expenses of $9 million, a decrease of amortization of investments in affordable housing partnerships and other investments of 7.3, somewhat offset by a $12.6 million increase in compensation and employee benefits.

Quarter over quarter, compensation and employee benefits increased due primarily to one-time Metro-related retention and severance cost, seasonal increases in payroll taxes, and also a reduction in deferred loan costs.

Additionally, I'd like to spend a few minutes recapping the MetroCorp acquisition accounting.

As discussed earlier, we reported $10.6 million in merger and acquisition-related charges in the first quarter.

Of this amount, approximately $6 million was due to termination costs from the MetroCorp system and $3 million was largely due to retention and severance cost.

Further, the total loan loss we recorded was approximately 2% of the total $1.2 billion of loans acquired or $25 million.

Finally, we recorded $8.6 million of core deposit intangibles and a total of $121 million of goodwill.

Finally, as stated in earnings announcement release yesterday, East West Board of Directors has declared second quarter dividend on the common stock.

The common stock cash dividend of $0.18 per share is payable on May 19, 2014, to shareholders of record on May 2, 2014.

I will now turn the call back to Dominic.

Thank you, Irene.

I would now open the call to questions.

Thank you.

We will now begin the question and answer session.

(Operator Instructions)

At this time, we will pause momentarily to assemble our roster.

Our first question is Dave Rochester, Deutsche Bank.

Nice growth this quarter.

Thank you, Dave.

A question on that growth going forward.

The commercial growth was great this quarter.

And it looked like you didn't get that much growth from the resi side, which you've talked about as slowing in the last call.

I was just wondering though if we should still expect some kind of a seasonal pickup in Q2 in that bucket?

And then as we look at 2014 in general, you did $1 billion in growth in that product last year.

Are you thinking that comes down one-third, one-half?

How should we be thinking about that growth for the year there?

We do -- also on purpose because of that growth, we feel that the total portfolio is at a size that we don't want to continue at that same growth and that's the reason.

As a result, because of the interest rate risk exposure, we no longer offer five-year hybrid ARMs.

Instead, the maximum is only three years.

So, with that, we won't grow as much as we have in the past.

But I would say that we are comfortable that the total loan growth each quarter is about $400 million, mostly from the C&I.

Some will be from the single family and HELOC, plus commercial real estate.

But the majority, we would expect would be a growth from the C&I portfolio.

Okay.

And I guess just a general question on the loan pipeline heading into 2Q versus what it was heading into 1Q.

Are you seeing a similar level of activity there, or has it strengthened at all?

Well, for the single family and --

Well, not just single-family, just overall.

Overall, we do see good pipeline.

But we don't think that the growth of like what we had in Q1 is going to recur every quarter.

That's why we're projecting about $400 million.

Got you.

And I guess switching to the margin, can you just talk about the increases in yields on the securities portfolio?

What actions you took that drove those higher?

And then, secondly, what your appetite is for shifting some of that excess cash you have back into securities, given you had cash basically double on you this quarter.

Dave, this is Irene.

In general, we're keeping the securities portfolio pretty short.

The duration did inch up a little bit from where it was at December 31, but not much.

The yield increase, I would say a little bit of what happened isn't necessarily -- optically, obviously, the yield did increase.

But we did have some shorter-term securities that matured or were called during the quarter.

And we used that kind of liquidity during the quarter.

Some of that was a kind of cash, as you mentioned, as of the end of the year.

Got you, thanks.

And just one last one on Texas.

Once you complete that integration in June, are you expecting to reposition or build that platform out at all at that point?

And what do you see is the biggest opportunity in Texas at this point for maybe next year?

Well, yes, that's the whole intent is to first -- we do think one step at a time.

And we believe that by the end of June, we have all the system integration issues all behind us.

And once we get our Metro customers on the same East West Bank platform, we will be able to offer the additional products and then really try to work with the region and try and expand from there.

Opportunity is abound in Texas.

As you know, it's a fast-growing state.

We have branches now in both Houston and Dallas.

And interesting enough, the Houston port is also a very active port that also does a lot of trade with China.

And there are more and more investments coming from China to the state of Texas, particularly in Houston.

So it will be more or less following the East West strategic direction.

We pride ourselves a financial bridge between East and West, and we know that US China space really well.

So we expect that we will continue to follow the same scene and pick up commercial banking customers, international banking customers, in the Texas region.

All right.

Great.

Thanks, guys.

Aaron Deer, Sandler O'Neill & Partners.

Good morning, everyone.

You were talking among the different categories within the C&I where you're looking to grow.

You mentioned private equity, tech, and life sciences.

¶ I'm wondering, can you talk a little bit about the nature of those loans and kind of what stage of lending you're talking about and what kind of deal sizes you're doing?

On the private equity, we've mainly focused on helping private equity funds in the capital call lines.

Obviously, with private equity, they work with their limited partners.

Whenever they, let's say, make an acquisition or do a transaction, they draw down the working capital line from East West Bank.

And then after they call the capital from the limited partners, then they pay down the line.

So, it's a very traditional commercial banking activity.

We work with private equity firms throughout the country.

So that will be a factor that we believe will continue to grow.

And the size of the use varies; but I would say that in general, $10 million to $15 million size.

And in the technology arena, I think that it also varies in many different stages.

Obviously, for the early stage, we require a lot more.

Oftentimes like cash secure and then various kinds of forms to make sure that we are comfortable with the credit strength.

But then when you get into a much more mature stage that the Company generates substantial earnings, that we'll have high predictability of earnings that we will underwrite in a different manner.

But it will be various different stages of technology business.

So, any other life signs?

It will be very similar, like the technology factors.

Any other industry sectors that you have any questions on?

No.

That's helpful.

And then with respect to the covered loan book, is there anything that we should be watching for over the next few quarters in terms of unusual pay down activity or indemnification adjustments as you come up to the five-year period on that agreement?

No.

It will my continue to have a run down just because there are no additional.

So far, it looks like the runoff is about $160 million to $200 million per quarter; and we do expect probably similar size.

Okay, very good, I'll step back.

P&L adjustments, I think that's what you're referring to, Aaron?

Yes, just if there's anything we should be watching for that would be unusual from what we've been seeing?

No, we don't expect any.

All right, thank you.

Jennifer Demba, SunTrust Robinson Humphrey.

Thank you, good morning.

Question on the loans you made in Hong Kong during the first quarter.

Just wondered if you could give us more color on those loans and what your thoughts are for growth in future periods?

Thanks.

The type of loans -- mostly.

The loans in Hong Kong mainly are trade finance loans and also some large corporate clients.

And one is large corporate clients that are active in the real estate business.

And then there's another one that are large corporate clients that are active in international trade business.

But then the majority of the C&I loans are in the trade finance area.

How big a portfolio would you envision building overseas over the next couple of years?

Currently, we have a total of $500 million -- $300 million from Hong Kong and $200 million in China.

Got plenty of room for us to grow because we have plenty of capital in China that can afford us to grow.

But as I look at the pace of growth, China actually had like a 40% growth last year.

And so relatively speaking, compared with US, it was much higher; however, the size was small.

So I would definitely expect that the pace of growth in Hong Kong and China will be faster than the United States in terms of percentage.

But in terms of the size is still not going to be impactful from an overall point of view.

Let me highlight again, when it comes to China and Hong Kong, the intention has never been to aggressively grow that portfolio to create any kind of balance or sort of diverse concentration of our overall portfolio.

If you look at it in the US, what we saw, residential mortgages was growing at a substantially higher pace in 2012 and 2011.

It got to the point, if I classify residential mortgage as consumer loans, altogether we reached a level of 30% of our portfolio of consumer; another 30-some odd percent as C&I; and then close to 40% are the CRE and then (inaudible).

So it's one-third, one-third, one-third.

And we like that because that's a very well diversified portfolio.

And what we try to do now is to grow C&I to get even bigger, so eventually C&I turns out to be the biggest percentage, that's okay; however, we don't have any intent to make it like the Hong Kong and China become that one-third.

The location and our license to practice banking in the Greater China Region is extremely important.

So many of our customers that we got from Seattle to New York and then San Francisco to Los Angeles has to do with because we have a license to do they can business in Hong Kong and Shanghai.

So we will continue to grow business and private equity, continue to grow business in the entertainment sector.

Will continue to grow business in agriculture, and high-tech, life science, et cetera because of our presence in China and also because of our knowledge, our specialized knowledge about what's happening in China.

And that's why we are getting those businesses.

And so it's critical for our success.

But in terms of the need for Hong Kong and China to suddenly become $2 billion to $3 billion in size is not necessary.

Now, while that's not necessary, we continue to find growth opportunity.

So whenever we find opportunity to have very solid commercial clients that we can do business with in Hong Kong or Shanghai, we'll make sure that we'll bring them on as another East West bank client.

And by the time we open our Shenzhen branch in the fourth quarter of this year, I'm pretty sure that we'll end up bringing more commercial customers from that region.

So, again, we'll continue to grow that portfolio.

I think the next few years that will be a very substantial material number to the overall financial, but it will continue to be very impactful from a strategic point of view.

Thanks very much.

Joe Morford, RBC Capital Markets.

Thanks.

Good morning, everyone.

I guess just following up on that, can you talk about the new branches that you're opening in China?

What's the motivation behind that?

Is it a geographic filling out the footprint, or is it specifically targeting a special customer base?

Just how does it fit in with the overall strategy in China?

Actually, a few different reasons.

One is that geographically, Shenzhen is one hour driving time from Hong Kong.

We already have our full-service branch in Hong Kong since 2005, so we actually feel that strategically that geographic location will make it very good for us because the Hong Kong office also can help out the Shenzhen branch and vice versa.

That's very important.

Of course, Shenzhen is one of the largest international cities in China.

And that is also important, too.

And then the other side is that customer base.

Currently in the US, particularly in the Los Angeles region, we have many customers from China that are originally based in Shenzhen.

Their headquarters are in Shenzhen, and they came to LA expanding into US and started doing business here.

And many of them became our clients.

So it is just natural that we wanted to be in the Shenzhen region connecting with these clients that we already know well in the United States.

Third, Shenzhen is a city that not only is a mecca for the lot of the exporters from China who are doing all the manufacturing and shipping.

A lot of the widgets like from toys to furniture and electronic products, what I call traditional lion shares of international trade finance business, is right around within an hour, two-hour drive from Shenzhen.

There is another new phenomenon that is happening in Shenzhen.

It's really the mecca for telecommunication, social media business -- all the large social media businesses, like Tencent; or telecommunication businesses, like ZTE and TCL.

All these companies, or a Printech company like BYD, they are all based in Shenzhen.

So I think that it is just going to be more like the growth industries city.

And so we feel that an area like that with so much more connected business with the US, it makes sense for us to have a branch there.

And do you staff that with people who are coming out of your Hong Kong office?

Or how have you gone about recruiting to bring someone in to head that office?

At this point, we have transferred the head of our Beijing office to Shenzhen.

So she will take over as the branch manager by the time it is open, let's say the fourth quarter of this year.

And we will recruit people locally.

In addition to recruiting people locally, we are always looking to the opportunity to transfer people both from the US, Hong Kong, or Shanghai.

East West is very, very much into moving our staff around all over the place.

And we encourage our staff to go from one area to another.

And so I think it will be a mix of transfer from the US, transfer from other cities in the Greater China Region, and then also local hires.

Okay, that's helpful.

The other was just a followup on you referenced large corporate lending a couple of times within C&I.

How big would you say your large corporate portfolio is?

And for the customers there, how much do you have broader relationships with those customers; and how much is, say, just participation in credits?

This one in Hong Kong -- specifically Hong Kong because we don't have much large corporate relationship in Shanghai at this point -- but in Hong Kong actually it's one.

It's a line of credit with the customers.

The other one is working on a transaction with another client.

Neither one of these deals are huge in size.

They are a large corporation.

They can actually afford to take on much bigger line of credit.

But the specific relationship to work with us, -- both of them desire to work with East West because of our US connections, which is distinctly different than the local banks that they work with.

They have plenty of capacity to stick with size with them.

But on these two loans I think --

Irene, what's the size of these two loans?

They're ranging from about $12 million to $20 million.

Yes, $12 million to $20 million, so it's not a big size deal.

And that's pretty much our sweet spot in terms of -- we've said it many, many times at different conference calls -- is that we do not like to do deals above $20 million.

That's helpful, thanks so much.

Thank you.

Julianna Balicka, KBW.

Good morning.

Loan yields.

You are cutting out.

Can you repeat the question?

Looking at your loan --.

We cannot hear you, Julianna.

You are in and out.

Looking at your linked quarter increase in covered loan yields, you had mentioned in your remarks that that was attributable to MCBI.

So can you talk a little bit more about whether that is entirely from MCBI, or what is the loan yield on the MCBI portfolio?

And how much of the loan yield on the MCBI portfolio is their core loan yield versus any discount accretion that might be coming in?

I didn't quite hear all of your question, but I think I will answer it accordingly.

And if I didn't answer the full question, just let me now.

The total discount that we took on the Metro portfolio was 2%, so it really wasn't very high.

If you think about accretion on a go-forward basis, part of that is a credit mark.

It's very little, and it makes really a very de minimis impact as far as aside from the coupon the customer is paying.

When we look out on a linked quarter basis from the fourth quarter to the first quarter, I would say that largely the increase in the yield on the non-covered loans came from the Metro loans.

The coupon on the loans that we acquired was about 4.9% or so.

So it was higher than the legacy East West portfolio.

So that's a large reason for the increase in the non-covered loan yields.

So when we think about where the loan yields are going to go to, how much of the Metro 4.9% has already repriced kind of down to current interest rates versus five- or seven-year kind of CRE loan that has yet to price down?

Do you know what I mean?

There are definitely some that are going to price down.

I think that will naturally happen, Julianna; and that's something that we have factored in.

Okay.

And then on the non-loan yields, the other earning assets you had talked about this quarter some of the securities had matured and you had redeployed some cash.

So when we think about the rest of the year, are you also factoring in additional redeployment of your other earning assets?

And should we be looking for some incremental yields from that side, too?

We'd have to take a look and see kind of what happens on a quarterly quarter basis.

I think that would depend on the kind of liquidities, deposits that we have, the opportunities to redeploy, at what rates, et cetera.

Okay, very good.

Thank you very much.

You're welcome.

Ebrahim Poonawala, Bank of America Merrill Lynch.

Good morning, guys.

I just have one follow-up question in terms of, Dominic, your comments around the commercial loan growth and what you mentioned on the private equity and life sciences side.

Has sort of the impact from the recent sort of sell off that we've seen in the tech space, has that led you to lower your expectations when you think about growth in those segments over the coming quarters versus maybe what you expected two months ago?

Or is the activity essentially still very much where it was maybe 60 or 90 days ago, despite sort of the volatility you've seen in the markets on the IPO side as well?

We wish we were that dominating in the tech and the biotech sector, the social media sectors, to have an impact to us.

I would say our exposure because even without total portfolio of all the loans combined is only a little bit over $19 billion.

And then C&I is just like one-third, and then the tech side out of the overall is probably like in a very small percentage.

Because of the limited size, we always find business to do.

And we really are not, quite frankly, are not active at all into what I call pre-IPO type of situation.

Yes, occasionally we end up getting into a client that we have a line of credit with.

And then three months later, they go into an IPO.

And then because of all the excess liquidity, they have to pay us off.

We had a few of those occasions in the past.

But I would say overall, the volatility of the stock market at this point and the IPO factors and so forth really don't have that much impact to our commercial banking business in the tech or the private equity side.

I think, frankly, it all gets back down to there is just not many people out there that have a very strong knowledge of the US/China business.

But there are just enough from tech to private equity firms that do need to do business in the Greater China Region and find our advisors to be much more valuable and, therefore, move some of the banking relationship to us because they find us to be much more helpful as a banker than just another bank asking for a loan.

So, in that regard I think that we will continue -- as this global economy continues to expand, and as US and China continue to have very healthy trade and investment cross-border business going back and forth, we expect that East West will continue to gain market share one at a time.

But very specifically because our value proposition is unique.

And as long as there are people who recognize our value proposition, the likelihood of them moving their banking relationship with us is very high.

So, in general, we are a little bit more immune from the overall market condition, simply because the clients who come for us are specifically looking for something that in general are not offered by most of our peer banks.

Understood.

Thanks a lot.

And one follow-up question in terms of the growth in China.

Is the growth predominately relationships that you're sort of cultivating in Hong Kong and in Greater China?

Or are these relationships that you had in LA, and they are sort of translating into growth there because of your presence in those markets?

Most of them are cross-border relationships.

That is, many of them is because they have business in US that we get to know them in the US.

And then we end up doing some more business with them at the Greater China Region, Hong Kong or Shanghai, or vice versa.

And then some of the others is that we, because our Hong Kong and Shanghai office met with these people in that region, and then they would make requests.

Oh, now I know that you have a very healthy bank in the United States and in the regions that they actually are doing business, they say -- We have a request in the US; maybe you can help us to do something like that.

So that's pretty much the core of our business.

And that's also the reason why we are not growing leaps and bounds there in a way because we are looking mainly to connect the US/China business.

We are not out there, let's say in China, and saying -- Look, there's 1.3 billion people there, consumers there.

Let's go ahead and try and go after every one of them one step at a time.

We never had intention when we started there in 2009, and we still don't have any intention to capitalize on the local consumer market over there.

And our plan is to continue to stick with what we do best.

When it comes to a business in China that is looking for expanding in the United States and looking for advice, we are very good at it, and that is what we want to stick with -- what we are good at.

And the likelihood we are getting these clients to appreciate our service is substantially higher than if we go into China, know nothing about the business over there, and trying to make loans to these from enterprises or to some of the private sectors, private entrepreneurs.

We are not familiar with those businesses over there.

We are not as familiar with the local sometimes regulation or policy.

Then the risk for us to get in trouble is much higher.

So, that's why we never really tried to make an attempt to do too much on these local businesses.

And we more or less just keep focusing on connecting with US customers who are doing business in China, Chinese customers doing business in the US -- and so far, so good.

Thank you very much.

Gary Tenner, D.A. Davidson.

Thanks, good morning.

I just had a follow-up question regarding the yields of MetroCorp book of business.

I think you mentioned around 4.9%.

Can you talk about the relative difference in pricing within that franchise in California versus Texas, and how you see the Texas part impacting the overall book over time?

Well, I think in general when we look at Metro, the pricing was different in Texas versus franchises in California.

Obviously, Gary, the bank, Metro United Bank in California was much smaller.

And sometimes they have to price up, especially on the deposits, on the funding side, to attract the core customers.

As we kind of talked about earlier, over time I think when we look at the pricing on the loan side and the yields, one of the reasons the yields are a little bit higher on Metro and the loans that we acquired than our legacy portfolio is that they are kind of longer ARM products than what we have.

So over time, we do expect that will be priced downward as we're going to kind of institute our current philosophy, which is we are not willing to take on too much interest before it looks like rates are going to go up.

So I would say on the loan side, we do expect that yield to come down over time and then on the funding side as well.

The cost of deposits combined for Metro, Metro United Bank -- probably about 45 basis points on the cost of deposits, quite a bit higher than us.

Over time, we expect to reduce that as well, particularly in the California area where usually the branches are very much kind of absorbed by the East West platform.

Thanks for that.

And then just regarding the six branches you said were targeted for consolidation, are those already shuttered?

Or will that happen when you convert the systems in June?

When we do the conversion because that would be the better timing of it.

Okay, thanks very much.

(Operator Instructions)

Brett Rabatin, Sterne, Agee.

Hi, good morning, everyone.

I wanted to ask about fee income.

You usually have somewhat of a seasonal quarter in 1Q from a letter of credit perspective.

So I was just, I guess, first just curious if we might see the rebound in that line item in the second quarter going forward?

And then if fee income was where we might also see some of the wider array of services you mentioned in China showing up over the next year or so?

Brett, I think at this point, the results for the first quarter around $28 million or so.

That's what we're projecting for the run rate for the remainder of this year.

As a kind of reminder, we did kind of talk about how in fourth quarter last year there was kind of a lot of volume of activity from the LC FX side and then also from swap fee income, which is another line item for us.

I think that that was probably a little bit higher.

And the $28 million is probably a better run rate on a go-forth basis.

Okay.

And then also was just curious.

I realize you have to be somewhat conservative around margin guidance given the accretion that you have.

But was curious, just given the margin guidance, maybe talk about the progression of loan yields as you expect them without any change to fit fund rates, or rates in general if you're expecting what kind of decline over the next few quarters in terms of loan yields?

Load yield has been stable the last -- especially for the legacy East West only because most of our loans have repriced to current rates.

So we do expect the loan yield to be somewhat stable.

But in terms of the accretion quarter by quarter, that amount can be different.

That's why we provided a wider guidance on the margin.

This quarter, Brett, the impact of the accretion net of the write-off of the indemnification asset was a little over $6 million to the adjusted net interest income number.

So that translates 10 points on the margin; so it's quite a bit different.

That's one of the reasons why, as Julia mentioned in the prepared remarks, that we did kind of expand the margin guidance.

Because, as you can see, we're not very good as far as being able to predict exactly when that accretion is going to happen.

So given your outlook for stable loan yields, would it be fair to say aside from discount accretion noise that maybe the margin would be on a stable run rate?

I think so.

Okay.

Great.

Thanks for all the color.

Aaron Deer from Sandler O'Neill Partners.

Hi.

Just a quick followup, Irene, on your guidance for the non-interest income.

I was just curious.

I know that there was a pretty significant amount of loans held for sale at period ends.

And so I'm just wondering what your expectations are for loan sales and the impact that that's going to contribute to your non-interest income guidance?

From time to time, as you've seen, we do sell off loans as of this quarter.

The loans that we sell have largely been government guaranteed student loans and then also seven ASBA loans that we originate and we saw the guaranteed portion of those.

We did transfer some loans from -- and that's help for investment to available or to help for sale -- and those were government guaranteed student loans.

Since we have purchased these loans at a discount, I would say that there really wasn't a P&L impact for this classification.

There is really just a balance sheet re-class.

During the quarter, what we experienced was that we got attractive pricing on the government guaranteed student loans, more attractive pricing that we have actually gotten in the past.

So we thought it made sense to re-class these.

We'll look at it.

It doesn't necessarily mean we're going to sell them all in one period.

That is not the intention.

But over kind of a long run, we do expect that we will be selling these.

Okay, that's helpful.

Thank you.

You're welcome.

Julianna Balicka from KBW.

Hi, I have a quick followup.

In terms of your EPS guidance for the year, the $2.27 and $2.31 range, other than the $0.04 of merger charges this quarter, are there any integration or other merger charges that we should think about for the rest of the year and kind of getting to an operating EPS number in terms of the guidance?

There will be some additional cost.

Integration-related costs.

But they'll be also reduction for the people that no longer transitioned.

So nothing other than $0.04 from this quarter that will stand out?

There will be a little bit more, Julianna.

It is hard to say exactly.

But I'd guess right now, probably $1 million to $1.5 million.

Got it.

Thank you.

Having no further questions, this concludes our question and answer session.

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

Well, thank you for joining our call today.

And I look forward to speaking with you all in July.

Bye bye.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.