East West Bancorp Inc (EWBC) 2014 Q3 法說會逐字稿

Good morning and welcome to the East West Bancorp 2014 third-quarter earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

Please note this event is being recorded. I would you now like to turn the conference over to Irene Oh, Executive Vice President and CFO. Please go ahead.

Good morning and thank you for joining us to review the financial results of East West Bancorp for the third quarter of 2014. Also participating this morning will be Dominic Ng, our Chairman and Chief Executive Officer; and Julia Gouw, our President and Chief Operating Officer.

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 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'll now turn the call over to Dominic.

Thank you, Irene. Good morning and thank you all for joining us this morning for our earnings call.

Yesterday afternoon we were pleased to report our financial results for the third quarter of 2014. For the third quarter, net income was $88.8 million or $0.62 per diluted share. Compared to the same quarter a year ago, net income increased $15.6 million or 21%, and earnings per diluted share increased $0.09 or 17%. Quarter-over-quarter, we grew net income by $4.8 million, or 6%, and earnings per diluted share by $0.04, or 7%. In line with our strong earnings for the quarter, we achieved strong profitability ratios as well. Return on assets was 1.25% and return on equity was 12.8% for the quarter. In fact, the quarterly return on assets and return on equity ratios were an improvement from both the prior quarter and the prior year period.

Our increased earnings and profitability were largely driven by the strength of our balance sheet and our robust growth in loans and core deposits. Overall, we are pleased with the results for this quarter. Total loans and total deposits are both at the highest levels ever in the history of the bank at $21.2 billion and $23.8 billion, respectively. Total loans receivables increased $4 billion or 23% from a year ago. Our outstanding loan growth is well diversified. We have achieved strong growth throughout the bank and in all loan categories.

Our ongoing efforts to improve the quality of our deposits and our deposit mix continued to progress well, as demonstrated by the solid deposit growth we continue to achieve. Total deposits increased $3.5 billion year-over-year to a record of $23.8 billion, as of September 30, 2014. Core deposits also reached record highs, totaling $17.7 billion as of September 30, 2014. The third quarter of 2014 marks the sixth consecutive quarter we have achieved net interest income growth, despite the low interest rate environment. Over the last few years we have proven that despite the challenging economic and interest rate environment, we can continue to profitably and prudently grow both our balance sheet and market share.

Our success in winning new customers and growing our business and market share is a direct result of our unique position as the bridge between the East and the West. We continue to build talent, expertise, and infrastructure in serving our cross-border customers that are doing business in the US and in Greater China. In Greater China, we are planning for the grand opening of our new branch in Shenzhen in November of this year. Given the vast size and business opportunities in the US and Greater China cross-border market, as we continue to build our capabilities, improve our operational excellence, and to meet and exceed the needs of our customers, I am confident that we can capitalize on new growth opportunities and continue our success.

With our acquisition of MetroCorp earlier this year in January, and the full integration of people, processes and systems, we have made good progress in building the team and talent. In fact, we have already made strong progress in deposit growth in Texas year-to-date. Deposits in Texas have grown $125 million or 14%. East West has proven its ability to generate healthy balance sheet growth, resulting in increased revenue and net interest income. Combined with high credit quality and strong expense control, we have been able to achieve strong earnings growth and return levels that are better than many peer banks.

Our goal at East West is to consistently be a high-performing bank and provide long-term value to our shareholders. As we demonstrate our ability to perform financially, quarter after quarter, year after year, we are confident that we are making great progress towards our goal. So in summary, based on strong results achieved in the third quarter and year-to-date, at this point we expect that we will end 2014 as our fifth consecutive year of record earnings for East West.

With that, I would now turn the call over to Julia to discuss more detail of our key successes in third 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 to discuss the key drivers for our loan growth and net interest margin for the quarter. Additionally, I will review the guidance provided in the Earnings Release yesterday for the fourth quarter and the full year of 2014.

As Dominic noted, our total loan portfolio reached a new record high of $21.2 billion as of September 30, 2014, an increase of $694.9 million or 3% from the end of the last quarter. The growth in our loan portfolio was broad-based. We grew all non-covered loan categories by at least 2% during the quarter. In particular, our commercial and industrial loan growth continues to be outstanding. Non-covered commercial and industrial loans increased $610.4 million or 9% to $7.3 billion during the quarter, due to strong originations and fundings in the sectors of manufacturing, entertainment, trade finance and agriculture.

On the consumer side, single family loan originations continued to be strong. We originated 667 new single family loans, totaling $316.8 million, and total of 649 home equity loans totaling $217 million in commitments. The growth of the single family loan portfolio to $3.5 billion is an increase of $156.1 million or 5% from the previous quarter. Additionally, non-covered home equity loans have increased $130.5 million or 13% quarter to date to $1.1 billion as of September 30, 2014. The credit quality of our non-covered consumer residential loans continue to be excellent. As of September 30, 2014, we had $8.3 million in single family and home equity loans delinquent over 90 days, out of a total balance of $4.6 billion or a 90 day delinquent ratio of 18 basis points.

In continuation of growth trends through the first three quarters of the year and for the remainder of 2014, we expect loan growth to be largely centered in the commercial and industrial loans. Although we expect the loan growth in the non-covered portfolio to continue to be offset by the reduction in the covered portfolio, we project that we can grow the total loan portfolio by approximately $400 million through the last quarter of 2014. Additionally, we sold approximately $300 million of loans during the quarter, largely comprised of government guaranteed student loans at a net gain of $7.7 million. As the student loan portfolio is not a core business to East West, we expect to continue to sell off this portfolio in the coming quarters.

Next, I would like to spend a few minutes discussing the net interest income and net interest margin for the third quarter of 2014, and our expectation for the rest of 2014. Net interest income adjusted for the net impact of covered loan activity and amortization of the FDIC indemnification assets totaled $225.4 million for the third quarter of 2014. This was an increase of $7 million or 3% from $218.4 million in the second quarter of 2014, and an increase of $33 million or 17% from $192.4 million for the third quarter of 2013. These figures take into consideration of the net impact of the reduction to the FDIC indemnification asset due to covered loan activity and amortization of the FDIC indemnification assets of $31.6 million for the third quarter of 2014, for the $8.1 million for the second quarter of 2014, and $61.9 million for the third quarter of 2013.

The core net interest margin for the third quarter decreased modestly by 5 basis points to 3.41% compared to 3.46% for the second quarter of 2014. The 5 basis point decrease in the net interest margin was due to the excess liquidity from the deposit growth during the quarter being deployed in short duration assets and the decrease in the investment securities deals. The yield on the non-covered loans stabilized during the third quarter and remain unchanged from the second quarter of 2014 at 4.21%.

Lastly, I would like to provide some additional color on our updated guidance for 2014. As in the past, in our Earnings Release yesterday we provided guidance for the fourth quarter and full year of 2014. We estimate that the diluted earnings per share for the full year of 2014 will range from $2.37 to $2.39, a an increase of $0.27 to $0.29 or 13% to 14% from $2.10 for the full year of 2013, and an increase of approximately 3% from our prior guidance. This EPS guidance for the remainder of 2014 is based upon adjusted net interest margin of approximately 3.4%, total loan growth of approximately $400 million, provision for loan losses for non-covered loans of approximately $8 million, non-interest expense of approximately $140 million, and the effective tax rate of 17.5%.

Management currently estimates that fully diluted earnings per share for the fourth quarter of 2014 will range from $0.63 to $0.65, based upon the assumptions previously stated. The increase in the fourth quarter guidance from our previously disclosed guidance is due to greater than estimated loan growth in the third quarter, resulting in a stronger adjusted net interest income, combined with the impact of the tax credit investments purchased in the third quarter of 2014.

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

Thank you very much, Julia, and good morning to everyone. I would like to discuss our financial results for the third quarter of 2014 in more detail, specifically on credit quality, the accounting for the covered loans, non-interest income, and non-interest expense. Starting with credit quality, the total non-performing assets excluding covered assets to total assets ratio continues to be under 1% as it has been for over four consecutive years, with non-performing assets at $159.1 million, or 56 basis points of total assets as of September 30, 2014. For the third quarter of 2014, the Company recorded a provision for loan losses for non-covered loans of $7.6 million, compared to $8.9 million for the second quarter of 2014, and $4.5 million for the third quarter of 2013.

Net charge-offs on non-covered loans totaled $5.4 million for the third quarter compared to $7.3 million in the second quarter of this year, and $334,000 in the prior-year quarter. The Company also recorded a provision of $7.7 million for covered loans during the quarter, due to charge-offs incurred on covered loans for which we expect reimbursement of 80% from the FDIC and accordingly have recorded a receivable in the third quarter of 2014. East West continues to maintain a strong allowance for non-covered loan losses of $249.3 million or 1.29% of non-covered loans receivable as of September 30, 2014. As of September 30, 2014, East West also has recorded an allowance for covered loans of $3.9 million.

Further, net of other FDIC related items, including the indemnification asset expected to be amortized and the future product liability, the future net pretax income estimated today to be accreted over the life of the loan is approximately $60 million as of September 30, 2014. During the quarter we recorded an expense of $6.3 million of additional clawback liability. Under the share loss agreements with the FDIC, if losses in the covered portfolio do not reach specific thresholds, the bank is required to pay the FDIC a calculated amount. As of September 30, 2014, our total recorded liability to the FDIC for this clawback liability for both the UCB and WFIB acquisitions was $96 million.

Moving on to non-interest income, East West reported non-interest income for the third quarter of 2014 of $10.3 million, compared to non-interest losses of $14.9 million last quarter, and $41.4 million for the third quarter of 2014. Branch fees, letter of credit fees, and foreign exchange income, loan fees, and other operating income totaled $35.6 million in the third quarter of 2014, a $1.3 million increase from the previous quarter and a $7.7 million increase from the prior-year period. This $1.3 million increase from the second quarter of 2014 was largely due to increases in fee income from letters of credit, customer foreign exchange, and interest rate swap transactions.

Moving on to non-interest expense. Non-interest expense for the third quarter of 2014 totaled $177 million, an increase of $49.1 million or 38% from the previous quarter, and an increase of $76.6 million or 76% from the third quarter of 2013. The increase in non-interest expense in the third quarter of 2014 compared to last quarter was largely due to an increase in amortization expense from new affordable housing partnership and other tax credit investments entered into during the quarter and also an increase in legal expenses.

During the quarter we purchased additional tax credit investments comprised primarily of historic and renewable energy tax credits which resulted in a higher amortization expense during the quarter and a reduction in the effective tax rate to 17.5% for the full year 2014, down from our previously estimated 29%. The impact of additional tax credits purchased to third quarter earnings was approximately $0.11 per diluted share. The non-interest expense guidance for the fourth quarter of 2014 of $140 million also includes approximately $23 million of estimated amortization expense for affordable housing partnerships and other tax credit investments.

The increase in legal expense during the third quarter of 2014 was largely due to a litigation accrual of $28.8 million or $0.12 per diluted share from an unfavorable jury verdict previously disclosed in an 8-K filing. The verdict is not final and if the final judgment is not favorably decided the Company will appeal. Finally, as stated in the earnings announcement released yesterday, East West's Board of Directors has declared fourth quarter dividend on the common stock. The common stock cash dividend of $0.18 is payable on or about November 17, 2014, to shareholders of record on November 3, 2014.

I will now turn the call back to Dominic.

Thank you, Irene. I would now open the call to questions.

We will now begin the question-and-answer session.

(Operator Instructions)

Dave Rochester, Deutsche Bank.

I wanted to ask about the loan growth first. That obviously continues to be very strong for you guys.

I know you're sticking with the $400 million in growth guidance. But I was just wondering how the loan pipeline looks heading into 4Q, if you've seen similar levels of activity in the pipeline heading into this quarter as you had heading into 3Q.

So far, I think we see the pipeline as pretty good. But you know, as always, we're always trying to be conservative. We don't want to just go ahead and overestimate, because in the pipeline until the loan gets booked, we don't have a loan yet.

So no matter how great the strong pipeline is, we always want to make sure that we don't overshoot. So at this point right now, we're pretty comfortable with the $400 million loan growth.

Okay, thanks for that. And then switching to your comments on Texas, you mentioned the deposit growth you've seen so far, it sounds pretty significant. Can you just update us on the loan growth opportunities you see there as well as how much of a contributor you expect that market to be next year?

What's your question? Like the --

In terms of how much loan growth you think you could potentially get out of Texas.

Oh, from Texas.

In terms of Texas, we actually, as of today, we've been building up in terms of recruiting new talent in the commercial banking area. As you recall, MetroBank mainly focused on commercial real estate and so over 90% of the loan portfolio is in commercial real estate and then various other real estate loans. And so our first priority is to help the Texas region to step up to originate more C&I loans, so to try to get the loan portfolio to, in time, gradually resemble the East West diverse portfolio.

So in that regard, I think that we are making good progress in terms of hiring some new people. We still have many more that we need to hire and in terms of system conversions, all taken care of.

So I think that, I would expect in 2015 we should have some nice progress. Even as of today, if I look at 2014 fourth quarter, I've seen some pretty good pipeline in the Texas region. But again, we don't want it to just get too excited about pipeline, because until these loans get booked, we don't know exactly what the end result is.

But at this point right now, I would say that I feel pretty confident that we're going to see some decent improvement in terms of not only just loan growth in Texas, but more importantly is that it's a different mix of loan growth which is what we're looking for. From a deposit standpoint, we're very fortunate that demand has been continued to going strong, so we have no reason to believe that 2015 we will not have also another good, strong deposit growth year.

Okay, great. And then just on the expense front, can you just update us on how you're feeling about your status on BSA and any other Reg and compliance fronts generally, and if you think you'll be able to manage expense levels while handling any enhancements that you may need?

At this time, we don't expect dramatic increase in expenses. However, as we continue to grow, obviously across the board, not just a front line, but operations, compliance or the costs will increase. However, we don't expect a big jump on the expenses.

Great. And then just one last one on the tax rate. Do any of the incremental strategies you employed in the third quarter carry into next year and what do you think for tax rate and then amortization expense line?

Some of the tax credits we purchased will roll over to next year and the following years. However, it won't be the same impact that we have in the current year.

Right now, based on our estimate, we're estimating that tax rate for the 2015 year will be about 28%. So that gives you an idea as far as what to project.

On the amortization expense line?

It's going to be a little bit confusing because starting next year as well we're going to change to the new accounting for [the light] which is below the line. Factoring that in, I think conservatively, maybe $10 million or so, $9 million to $10 million a quarter is probably what we're looking at.

Okay. All right. Great, thanks, guys.

Ebrahim Poonawala, Merrill Lynch.

I'm sorry if I missed this, but Dominic, I was wondering if you could give color on, obviously C&I growth was very strong this quarter. Just in terms of where the growth's coming from, and just what the competitive landscape looks like, and beyond your sort of quarterly growth outlook, how many look out over the next two to four quarters, just your thought process around growth and different loan types where you're seeing this growth come from.

This quarter, the loan growth comes from all different directions. We're very fortunate, if we look at -- I mean, this is the kind of ideal growth that I like to see. If you ask me, I think 2015 I wish I can do exactly the same just like the third quarter.

Let me share with you why. Because we have very strong C&I growth, actually C&I has the strongest growth, which is what we wanted. We also have decent momentum from commercial real estate.

And in addition to that, in our single family and home equity line category, we also have some nice, decent growth. So it's really growth coming from all different categories.

And I think that from our perspective, if we look at 2015, the growth will pretty much, I think, based on what the market would bear -- because what we've seen so far in 2014 is that the banking industry getting more and more competitive, pricing getting lower and lower. So we actually did not have much expectation about growth in terms of from the commercial real estate area, simply because there are too many players out there doing long-term fixed rate loans without hedging and pricing's very low. Some of these pricing have gone so far down to the bare bones that we decided it's not even profitable for us to pursue.

So that I think that if the trend continues, assuming that if the economy slows down a little bit and then the interest rate is not going to go up sooner, then I think that we will be expecting the commercial real estate category would not have the type of robust growth that we would hope that we would get. But in terms of C&I, I'm pretty confident that we'll be able to do just fine.

The reason is that we have a very unique value proposition. We're the one and only bank, sort of, in the country to focus on having the expertise and helping companies in the US and China working together. And clearly our industry specialization from high tech, clean tech, biotech, private equity, entertainment, agriculture, aviation, et cetera, have allowed us opportunities many of the other banks that would not be able to do because of our tack-on special expertise in terms of understanding how to do business between US and China.

And I think we naturally will always get clients that come to us first instead of the others, and our capability of having the ability to do banking in the Chinese currency also makes us substantially more attractive as the banker for some of these organizations who do need to open accounts in the Chinese currency in China or maybe open account in Hong Kong and so forth. And I think with that, I would expect that East West should have an above-average growth compared with our peers who are more in the generic banking business in US. So I think with that in mind, I think we still expect 2015 that we will have some decent loan growth.

Now, except on the real estate side, we will have to see how it all plays out. But frankly, we still, even on the real estate side, get some help because of our expertise in US/China.

Because for those folks that are coming out from China to invest in real estate, many of them also have a preference to come to East West first, and clearly, if I look at the single family mortgages growth that we have, many of those customers are first-time buyers coming out from foreign country and investing in single family properties in US with a substantial high down payment. So we think that as long as the trend continues, we should be able to do fine.

Understood. Thanks for that color. And on a separate topic could you just remind us, just in terms of capital deployment priorities, should we think of any buybacks for the foreseeable future or is it just the idea to fund organic growth and also be opportunistic on M&A?

We, first of all, always have a strong philosophy that we want some cushion in our capital and we always leave money on the table. We try not to overleverage. And so with that in mind, so that I think that we have a pretty decent capital ratio at this point, and there's no point for us to aggressively do buyback and then sort of like deplete the capital level because that would be not prudent according to the East West long-term philosophy.

And so based on that, in terms of acquisitions, from my view is that there are not a whole lot of great opportunities out there but if we see one that is great, we're always ready to deploy. We have the people. We have the capacity that can do that.

However, there's just not a whole lot of meaningful opportunity out there. So I would, at this stage, we'll say that acquisitions -- meaningful acquisition in 2015 is probably not very likely.

Got it. Thank you very much.

Thank you.

Aaron Deer, Sandler O'Neill & Partners.

Just a follow-up question on the loan sales. It sounds like you're going to continue to sell some of the student loan balances. I was wondering if you could provide what those student loan balances were at September 30 and maybe kind of what your expectation is for the pace of those sales.

So, Aaron, if you look at our balance sheet or the detail that we provide on the loans receivable, all the loans are at held for sale, $240 million or so are government guaranteed student loans, and then additionally in our held for investment portfolio, we probably have about $80 million or $90 million or so. So as Julia mentioned in the prepared remarks, this is something that we expect to exit over the coming quarters.

So I would also say that the sale of those would be over the next coming quarters. That's our plan right now.

Okay, and then on the -- I saw that you did the resale agreement in the quarter. I'm wondering if that -- does that effectively extend the durations that lower the cost of the funding that that offsets? And was there any other changes, are you planning to make any other changes on the funding side that could impact the margin going forward?

Yes. Actually, it doesn't do either of those. It's just a netting, a master netting agreement because of the same counterparty. So it's really just [optics] on the balance sheet.

It's just an accounting rule to net it, as opposed to grossing it up with the investments and --

The liability.

Okay. Are you looking to make any other changes on the funding side? Obviously you're having very strong deposit growth, so I don't necessarily see the need for it but just wondering if there's any plans to do other things along those lines.

Not at this time.

Not at this time.

Some of the repos will start rolling off next year, so you'll see some change there. But nothing actively at this point.

With the tax credit that you've added, how far off are you from hitting the corporate alternative minimum tax rate?

I don't think it's [in our model].

Okay. All right, very good. Thanks for taking my questions.

Joe Morford, RBC Capital Markets.

Thanks. Good morning everyone. With the loss share for UCBH elapsing in November, can you just remind us what impact, if any, that may have on the reported margin, either here in the fourth quarter or in the first quarter of 2015, which will be the first full quarter without it?

So Joe, we -- with the loss share agreement with the FDIC, so it will continue on, really, for the fourth quarter. So aside from any kind of major change, I think our adjusted margin that the guidance that we gave and then also the way that we're accounting for and reporting it should not be that different from what we had in the third quarter.

Starting with the first quarter of next year, I would say there are two changes. One, as the years progress, the amount of accretion left on these covered loans is coming down, and then two, over the course of the last few years, particularly more recently, as it's been more clear that the actual loss content is lower on the portfolio, we've been writing off the indemnification asset. And as you know, we have been offsetting that to show the adjusted margin.

So since we've already written off the FDIC indemnification asset, we won't have that offset, which is positive, which improves the margin. But all in all, there will be less accretion also in the future as well. So that's what -- right now, the additional kind of pretax income that we are estimating related to the covered loans is about $60 million, all-in.

60. Six, zero. Okay.

That's right.

Okay. And then I guess the -- that was helpful. The other question was, I guess you talked earlier about the Texas market.

I was just wondering if you could give us an update on how your business is evolving in the New York marketplace from historically where you were more thrift like to now also do more of the commercial banking. And do you have the team of lenders that you want to adequately serve that market?

New York, actually, is going well. In fact, we're hoping that Texas some day will be like New York, in terms of the commercial banking capability. For the last five years, obviously the first year -- I mean, in 2010 we really were just cleaning up the New York region.

It was -- at the time when you're not a commercial bank acquirer, was pretty much like a thrift, all consumer retail branches business and with loans mainly in construction lending. We have changed that. And I think that it took us a couple of years to turn around and -- because also, by the way, there was a lot of construction problem loans that we had to clean up.

So that was a distraction to our ability to focus on growth. But I would say for the last two years we have recruited some very, very good, talented commercial bankers and they have developed a pretty good reputation so far in terms of generating good business, and I would say New York this year have done a pretty good job in terms of growing both C&I loan growth and also the commercial deposits.

So the deposit growth's been very strong and the loan production has been very healthy. So I expect that New York region will continue to expand in 2015 and beyond.

Great. Thanks so much, Dominic.

Thank you.

Lana Chan, BMO Capital Markets.

Couple questions. One on the deposit growth in Texas. Is the pricing in that market similar or different to your other markets in California and New York?

Well, you have to keep in mind, at MetroBank they were primarily in the ethnic, the Chinese American or the Asian American retail market. So that tends to be a bit more competitive, because there are a lot more many -- a lot more CDs than traditional commercial bank. So the rate was higher.

We actually went in and substantially lowered the rate and trying to have it to be in alignment with East West Bank rate. In addition to just dropping the rate, which obviously results in some high rate CDs leaving East West to go to other competitive Chinese American banks that offer much higher rate, but in addition to substantially lower the rate we were also able to increase the deposit total.

And what the difference is that East West, we have built expertise in commercial deposits, more complex in demand deposit, operating accounts for bigger institutions and businesses and we were able to offer more complex product offerings of low cost commercial deposits. So that's why we have a pretty -- like a good growth in the deposits on the commercial side in Texas.

Putting it in another way, it's not like here come East West to Texas and then we're offering this high rate promotion so that we encourage our existing customers to put more money into the CDs, because the rate's even better. In fact, quite the contrary.

We have some existing customers who complained and basically was disappointed that here come East West and then we, instead of like giving them more goodies, and then we drop the rate, and then some of them decided that they rather would go to other banks that offer higher rate. And there are banks out there who saw a golden opportunity to capitalize on East West dropping rate and then they are offering a higher rate and to, sort of, like attract these customers to go over to the other side.

However, we weren't concerned about it because our view is that if customers always want higher rate than the market, eventually our margin will always be lower than the market and then we will always perform below the peer average. And that's not going to be consistent with the East West Bank's philosophy that we always consistently perform in the top compared with our peers.

So, but what we did was, as Julia mentioned, we offer substantially more product. We're going after much larger customers, commercial customers. And by going after larger commercial customers, who are used to getting low rates from the larger banks, and then suddenly our rate does not look unattractive, and our core capability in terms of products and so forth are strong, but we have these sort of smaller bank relationship mentality that some of the major banks are not able to do.

So through that, we're able to bring in new customers that have substantial bigger size deposits to make up for the difference of the outflow of the high rate CD retail customers. So it's really a mix, an in-flow out-flow mix, that adds up to that $125 million of deposits or 14% growth of our total deposit balance in Texas.

Okay, thank you. Also [just the stability] of the loan yields this quarter, on the resi mortgage and the home equity, what kind of loan pricing are you getting on those or did you get on those in the third quarter?

On the average, it's been stable, about 4.5% on that single family and home equity. So it really helps in terms of the loan yield for the portfolio it's 4.21%, so we feel that for the time being it probably is going to be quite stable and -- which is really good because last year, the last few years, we continued to see decrease in the loan yields. But we hope that it's stabilized at around this level.

Okay, and just one last clarification, just so I understand. In terms of the accretable yield purchase accounting accretion, the clawback liability expense, that's $6.3 million this quarter, does that go away next year?

No, it doesn't. So the $6.3 million this quarter is actually the expense, Lana.

As of the end of September we have $96 million that we have accrued. But just the way the calculation works, when we run different sensitivity analysis, in future, even though it extends on and the payment is five years from now, when we run different sensitivity analysis the impact of it and the increase in the clawback continues to diminish after this quarter, the next quarter, the fourth quarter.

It should be significantly less, you're saying?

Yes, yes, yes. Most of the factors that change the calculation are really kind of baked in. Like the losses up until now, et cetera.

So I can go into more detail with that, with you offline, if you like. But after the fourth quarter we expect there will be much less impact.

Okay. Thanks, Irene.

(Operator Instructions)

Julianna Balicka, KBW.

Good morning. To kind of continue on the deposit conversation please, one, in terms of the MMDA growth that you had this quarter which was very strong, and also good interest bearing deposit growth, could you talk about some of the concentrations or the verticals of deposits that you have, and specifically some qualitative color behind the MMDA -- the money market growth, how we should be thinking about that. When, eventually, rates rise, how sensitive to rates those deposits will be and/or to the loss of your real estate transactions or other such factors.

The money market is the excess liquidity that companies are putting. They keep the operating income in the demand deposits. If they have excess liquidity, because right now a lot of companies have a lot of excess liquidity.

So when it comes to interest rates it will go up. It may not be dollar to dollar with the market interest rates, but money market will go up along with the market rate.

And at the time it depends. Some companies, if they reinvest in other things, it may decrease their money market excess liquidity but some of them may continue to keep the excess liquidity.

But for us, as I mentioned before, we really have built our capabilities on the commercial deposits servicing commercial clients and big institutions in various industries where we do believe that we will continue to be able to grow that deposits. It would be different, new customers that we would be acquiring and continue to deepen our capabilities to serve many different specialty deposits that we will be able to get in the future.

That makes sense. And in terms of the industries in which you have specialization, could you give us some examples of ones where you have concentrations and/or more discernable verticals other than just broadly C&I?

Yes, we built capabilities in fiduciary services deposits, trust accounts, property management, escrow title. So there's various municipalities.

So there are a lot of commercial deposits out there within the different specializations and industries. As we build our capabilities and penetrate deeper, so each industry we're able to get more and more because of our relationship, our service and our know-how, what the needs are in that industry.

And also, industries are relevant to the bridge banking in terms of US/China related, they are -- for example, from the entertainment business and also from private equity, venture capital, technology business area, these are the type of business that tend to have pretty significant deposits. A good example would be private equity firms, and also these high-tech VCs and also the technology companies, many of them have pretty decent size of liquidity, which they usually keep in their money market accounts.

And in addition to that, studios that make television shows and movies that we get collection accounts for the money come in from -- once the movie's released. And so we continue to be able to enjoy deposit growth because the more business that we build in these arenas, the more deposits we get.

And Julianna, I'll add, Dominic and Julia both kind of shared the different areas where we've built expertise. But we don't have real concentration in one type of industry, more so than another. It's pretty broad-based.

And we have limits as far as how much we'll take from each industry as well. So I just wanted to share that with you, that we don't have a concentration issue.

Good point, thank you very much for all that color. And I have one more follow-up, then. In terms of your loan to deposit ratio, is there a loan to deposit ratio that you're comfortable operating at or how do you think about loan and deposit growth and balance sheet leverage?

We are comfortable, you know, like between 90% to 95%, slightly below 100%. I think that would be, probably, an ideal loan to deposit ratio for us.

Okay. Very good. Thank you very much.

Thank you.

(Operator Instructions)

This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng, Chairman and CEO, for any closing remarks.

Well, thank you. Well, again, thank you for joining us today and I look forward to speaking to you in January. Good-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.