Earnings Call: Q3 2015

Oct 22, 2015

Good morning, and welcome to the East West Bancorp third quarter 2015 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Irene Oh, Executive Vice President and Chief Financial Officer. 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 2015. 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, 2014. 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 our earnings call. Yesterday afternoon, we were pleased to report our financial results for the third quarter of 2015. Net income totaled $94.1 million or $0.65 per diluted share, an increase of 2% in both net income and earnings per diluted share from the prior year quarter. The return on average assets for the third quarter of 2015 was 1.22%, and the return on average equity was 12.23%. The financial results for the third quarter reflects the sixth consecutive quarter that our return on average assets was above 1.2%. The strong results for this quarter were achieved through growth in both loans and deposits, with loans growing $848.2 million or 4%, and deposits $1.2 billion or 5% over the June 30, 2015, balances. Not only did we have excellent loan and deposit growth during the third quarter, I am pleased to report that this growth was achieved without compromising profitability. Both the adjusted net interest income and adjusted net interest margin have increased from the prior quarter. The adjusted net income totaled $237.4 million, up $13.8 million or 6% from the second quarter of 2015, and the adjusted net interest margin increased 2 basis points to 3.28% from the previous quarter. Quarter to date, we grew the loan portfolio by $848.2 million or 4% to a new record of $23 billion. In particular, loan growth was strong in commercial and industrial loans, which were up by $468.5 million to $8.6 billion, and commercial real estate loans, which were up by $374.2 million to $7.1 billion. Both commercial and industrial loans and commercial real estate loans were up 6% from June 30, 2015. Along with our loan growth, deposits growth was also strong, increasing $1.2 billion or 5% from June 30, 2015, to a record $26.8 billion at the end of the third quarter. As of September 30, 2015, core deposits totaling a record $20.1 billion comprised 75% of total deposits. Within core deposits, non-interest-bearing demand deposits grew $668.9 million or 9% to a record $8.4 billion, and interest-bearing checking grew $360.4 million or 13% to a record $3 billion. As the financial bridge between the East and the West, East West Bank is focused on building cross-border customers in growth sectors. We believe that our expertise, knowledge, and footprint in the U.S. and Greater China provide us with a competitive edge in this niche, whereas many other financial institutions are not as experienced in this sector. Recently, the transitions occurring in the Chinese economy have taken center stage in the media, and I would like to spend a few minutes commenting on this. I believe that it is important to remember that the slowdown in China's GDP to 6.9% is intentional and ultimately the result of the major reform the Chinese leadership has put forth in its last strategic plan, which is the 12th Five-Year Plan, with 2015 being the final year of the plan. Areas of major focus in this five-year plan include a rebalancing of the economy away from a reliance on traditional heavy industry manufacturing and global foreign exports, and shifting to a domestic consumer-driven economy with a focus on environmental protection. The Chinese government has essentially de-emphasized or occasionally shut down major industries such as coal mining, and provided strong support for companies that aid in its goals to increase domestic spending. As a result, internet companies such as Alibaba, Tencent, clean energy companies such as BYD, smartphone companies such as Huawei, Xiaomi, entertainment studios such as Huayi Brothers, Bona, are all enjoying vibrant increasing annual revenue growth by high double digits. Coincidentally, U.S. companies in similar sectors who have presence in China are also enjoying the same revenue growth in the Chinese domestic consumer market. I can list examples such as Apple, Nike, Disney, et cetera, on the positive side, and Caterpillar on the negative side. The World Bank estimated that China has one of the lowest levels of household spending at 36% of GDP, so this transition toward a consumer-driven economy is very much warranted. In fact, the strategic plan is working well, and domestic consumption has now exceeded 50% of China GDP today. One can draw several parallels from the changes in the Chinese economy to the changes in the U.S. economies back in the 1980s, and the economic decline in the Rust Belt. The Midwest, including Michigan, Pennsylvania, Ohio, et cetera, has suffered as a result of the manufacturing sector migrating overseas and increased automation back in the 1980s. The shift in the U.S. towards a service economy. At the same time, the Sun Belt, stretching across the U.S. from California to Texas and Florida, has thrived from technology, life science, innovation, and a stronger population growth, where its significant contributions to the U.S. economy have more than offset the decline experienced in the Midwest. Although the concerns about China may have created much anxiety and may have caused the average U.S. investors to overreact, we strongly believe that fundamentally, the changes occurring in China are positive steps essential for its long-term health. Although the Chinese stock market took a tumble during the summer, the Shanghai Stock Exchange is still up an incredible 48% year-over-year. In August 2015, China devalued the renminbi currency in order to better benchmark it against market rates, and the currency was down about 3% against the U.S. dollar. Since then, the renminbi has regained some ground and is now down about just over 2% against the U.S. dollar. By the way, the currency depreciation from euros and Japanese yen for the past two years are substantially more dramatic than the minor movement that have taken place by the Chinese currency. In line with our bridge banking strategy and through our subsidiary bank in China, we are focused on growth industries and sectors such as technology, clean energy, agriculture, entertainment, and aviation, et cetera. These are the industries that are growing and have received strong government support or endorsement. As a result, we believe that these industries have the most potential for growing bilateral trade between the U.S. and China and are opportunities for East West Bank. What we are not doing is taking exposures and credit risk in mainland China by lending to small and medium enterprises business or traditional environmentally unfriendly old-line industries. In 2016 and beyond, we will continue to focus on our bridge banking strategy, where we have a competitive advantage and can continue to build our business for long-term sustainable success. With that, I will now turn the call over to Julia to discuss in more detail our key successes in the third quarter and our expectations for the fourth quarter of 2015. Thank you very much, Dominic, and good morning to everyone. I would like to spend a few minutes to discuss the growth in our loan portfolio, the drivers for the quarter-over-quarter improved net interest income and net interest margin, and to review the guidance provided in the earnings release yesterday for the 4Q 2015. Loans receivable reached a new record high of $23 billion as of September 30, 2015, up $848.2 million or 4% from June 30, 2015. The sequential quarter increase was mostly driven by the growth in the C&I loans of $468.5 million or 6% to $8.6 billion, and commercial real estate loans of $374.2 million, also up by 6% to $7.1 billion. Within the C&I loan portfolio, we experienced particular strong growth in the lending sectors of entertainment, trade finance, and cross-border, private equity, and specialty finance. Growth in the commercial real estate loans was primarily due to the higher level of originations compared to the prior quarter. We originated 157 new commercial real estate loans during the third quarter of 2015, totaling $773 million compared to 142 new loans during the second quarter of 2015, totaling $524 million. In particular, we experienced strong origination volumes in the retail and office sectors in California and in the retail sector in the N.Y. markets. During the third quarter of 2015, net gains from sale of loans totaled $4.9 million, primarily from the sale of $147.3 million of single-family real estate loans and $21 million of SBA 7(a) loans. We also transferred $301.5 million of single-family real estate loans from loans held for investment to loans held for sale as we anticipate selling these loans in the future. Next, I would like to spend a few moments discussing the net interest income and net interest margin for the third quarter of 2015 and our expectations for the last quarter of the year. Net interest income adjusted for the net impact of covered loan activities and amortization of the FDIC indemnification asset totaled $237.4 million for the third quarter of 2015. This was $13.8 million, or 6% higher than the second quarter of 2015, and $12.1 million, or 5% higher than the prior year quarter. The sequential quarter increase in the net interest income was largely due to an increase in interest income on loans from higher accretion income and higher loan balances. The adjusted net interest margin of 3.28% for the third quarter of 2015 was two basis points higher from the prior quarter of 3.26%, largely due to higher accretion income and lower cost of funds, primarily from the prepayment of the repurchase agreements. Included in the interest income for the third quarter of 2015 was $18 million of accretion income, which included $1.2 million of recoveries. This compared to $10.9 million of accretion income, which included $2.1 million from recoveries in the second quarter of 2015. As of September 30, 2015, the total remaining discount of the FDIC-assisted acquisition loans was $85 million, of which we estimate that $66 million will be accreted through interest income over the life of the loans. The decrease in interest expense was largely due to the extinguishment of repurchase agreements, which in turn contributed to higher net interest income compared to the second quarter of 2015. As of September 30, 2015, we had $150 million of repurchase agreements, $250 million or 63% less than the $400 million as of June 30. During the third quarter of 2015, we extinguished $445 million of repurchase agreements, resulting in $15.2 million in extinguishment costs during the quarter, which are included as part of non-interest expense. Of the $445 million of extinguished repurchase agreements, $195 million were eligible for netting against existing resale agreements as of June 30, 2015, hence accounting for the $250 million decrease in repurchase agreements between June 30 and September 30, 2015. I would like to note that during the third quarter of 2015, the company reached an agreement with the FDIC to terminate the Washington First International Bank share loss agreements for a cash payment to FDIC of $7 million. Since this amount has been fully accrued as of June 30, 2015, there was no impact to the income statement during the third quarter of 2015 for this payment. Lastly, I would like to provide some additional color on our 2015 guidance. In our earnings release yesterday, we provided guidance for the fourth quarter and full year of 2015. We estimate that fully diluted earnings per share for the fourth quarter of 2015 will range from $0.64 to $0.66, resulting in diluted earnings per share for the full year of 2015 ranging from $2.67 to $2.69, an increase of $0.26 to $0.28 or 11% to 12% from $2.41 for the full year of 2014. This EPS guidance for the fourth quarter of 2015 assumes an adjusted net interest margin of approximately 3.25% for the fourth quarter of 2015, reflecting no change in the federal funds target rate on organic loan growth of approximately $600 million for the fourth quarter of 2015. Additionally, this net interest margin guidance assumes accretion income of $10 million. Further, we are assuming provision for loan losses of approximately $500,000 for the fourth quarter of 2015, reflecting the impact of a $4.8 million loan recovery received in October 2015. The guidance also assumes non-interest expense of approximately $145 million, including the amortization of tax credits of $22 million for the fourth quarter of 2015, resulting in an effective tax rate of 32% for the entire year. With that, I would now like to turn the call over to Irene to discuss our third quarter 2015 financial results in more depth. Thank you very much, Julia. I would like to discuss the financial results for the third quarter of 2015 in more detail, specifically credit quality, non-interest income, and non-interest expense. Starting with credit quality, the company recorded a provision for credit losses of $7.7 million for the third quarter of 2015, compared to $3.5 million for the second quarter of 2015 and $15.2 million for the third quarter of 2014. Net charge-offs were $5.2 million for the third quarter of 2015 compared to net recoveries of $4.1 million for the prior quarter and net charge-offs of $14 million for the prior year quarter. The $5.2 million of net charge-offs for the third quarter were largely the result of charge-offs on two commercial loans. East West continues to maintain a strong allowance for loan losses of $264.4 million or 1.17% of loans held for investment as of September 30, 2015, compared to an allowance for loan losses of $261 million or 1.19% of loans held for investment as of June 30, 2015. Nonaccrual loans increased $30.4 million from $87.2 million as of June 30, 2015 to $117.5 million as of September 30, 2015. The sequential quarter increase in nonaccrual loans was largely due to three commercial loans where payments are current but were placed on nonaccrual due to cash flow concerns. Correspondingly, non-performing assets were also up $16.8 million or 15% from June 30, 2015 to $129.8 million as of September 30, 2015, and non-performing assets to total assets ratio was 42 basis points as of September 30, 2015, compared to 38 basis points as of June 30, 2015. Moving on to non-interest income. Non-interest income for the third quarter of 2015 was $54.2 million, a $13.6 million or 33% increase from the $40.6 million from the prior quarter. The sequential quarter increase in non-interest income was largely due to an $11.5 million increase in net gains on sales of available-for-sale investment securities and a $2.8 million reduction in expenses related to the changes in the FDIC indemnification assets receivable and payable. During the third quarter of 2015, the company sold U.S. Treasury securities and corporate debt securities, resulting in net gains on available-for-sale investment securities of $17 million. As Julia discussed earlier, we also sold single-family real estate and SBA 7(a) loans for a net gain of $4.9 million during the third quarter of 2015. Total fees and other operating income amounted to $36.1 million for the third quarter of 2015, down $287,000 or 1% from the prior quarter and down $3.6 million or 9% from the prior year quarter. Ancillary loan fees increased by $2 million or 72% during the sequential quarter due to increased fees and income on specific loans. Moving on to non-interest expense. Non-interest expense for the third quarter of 2015 was $147.7 million, $27.6 million or 23% higher than the prior quarter of $120.2 million. This sequential quarter increase was primarily a result of a $9.3 million increase in amortization of tax credits and other investments, an $8.6 million increase in repurchase agreements extinguishment costs, a $3.7 million reduction in other real estate owned income, a $3.3 million increase in compensation employee benefits, and a $2.2 million increase in consulting expenses. The $3.3 million increase in compensation and employee benefits is a result of the additional resources we have hired for the purposes of supporting our business, improving the execution of our business model, and strengthening our operations. Additionally, compensation employee benefits increased in the third quarter due to increased bonus accruals. As previously discussed, we are in the midst of implementing a new BSA/AML monitoring system to enhance our compliance and risk management programs, and also upgrading our commercial online banking system to an industry-leading platform to better serve our commercial deposits customers. These projects contributed to the $2.8 million increase in consulting expenses to $5 million for the third quarter of 2015. Additionally, the tax credit amortization was lower than projected for the third quarter and now is projected to be higher in the fourth quarter of 2015. This is partially due to the timing of when certain investments actually close, and also due to updated cash flow projections from the underlying investments. Finally, as stated in the earnings announcement yesterday, East West Board of Directors has declared fourth quarter dividends on the common stock. The common stock cash dividend of $0.20 per share is payable on November 16, 2015 to shareholders of record on November 2, 2015. I will now turn the call back to Dominic. Thank you, Irene. I will now open up for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Ken Zerbe of Morgan Stanley. Please go ahead. Great. Thank you. Good morning. Starting off with margin, just the fourth quarter guidance of the 325, probably a little bit low. Obviously, we know the asset yield's been under pressure, and I totally understand that. When we look out to 2016, it seems like there might be a bit more downward pressure on margin just given where we're starting from than what some people may have built in. Do you envision any offsets to the lower NIM out a year, or is it just a headwind that is unavoidable from an earnings perspective? If interest rates do not go up, there will be some pressure. Yeah. Some of the payoffs of the repo contributed positively to the margin. But absence of rate increases, we always indicated that margin can be under pressure. Got you. Okay. No, that makes sense. Then it looks like given the very strong deposit growth, looks like the liquidity went up a little bit this quarter. Is there any possibility of redeploying some of your excess liquidity into higher-yielding assets? Presumably, it's already in your NIM guidance, but just didn't know if there was any potential for upside there. Well, right now, on the investment securities, we try to be relatively short and with very high credit quality. As a result, any pickup is not really significant and has been included in our margin guidance. I think, Ken, if you look, the averages versus the period-end balances, you will see that some of that excess liquidity from the deposit growth had been shifted into securities and higher-yielding- Got it. assets versus just the short term or cash. Okay. All right. Well, thank you very much. Our next question is from Dave Rochester of Deutsche Bank. Please go ahead. Hey, good morning, guys. Good morning. Good morning. Hey, just back on the NIM guidance. With the adjusted NIM guide for 325 and accretion declining as much as you think it will down to $10 million, that implies the core NIM ex all accretion should actually be up maybe six or seven bps in 4Q. Is that the right way to look at it? Some of them are because of the payoffs of the repo that we did in Q3. The NIM ex all accretion should be moving up pretty decently in 4Q. Yeah. I guess it depends on what you consider a core, quite honestly, Dave. But certainly, I think as Julia mentioned, with the repos payoffs, that has helped. Maybe just to give a little bit more color on that, of the 445, more than half of that was in July. A lot of that impact was in the third quarter. But $100 million each we did in September and August. That is a little bit of a buffer that we have in the fourth quarter. Yep. Then the cost on the repos that are left, where is that? About 4%. It's a repo. Okay. Yes, sir. How are you guys looking at fee income trends into 4Q, excluding the FDIC line? Are you seeing the potential for growth there? I know you had a little bit of a hit in the FX line that likely unwinds in 4Q. Is that right? That's correct. We had a little bit of a decrease in FX income in the third quarter. I don't know if necessarily that'll occur. But overall, there are some other fee income line items that we had a little bit more of increase in the third quarter. Overall, I'd say it's about the same trend in the fourth quarter, Dave. Okay. Just on the amortization of tax credits line, as you think about your tax strategies for next year, I know it's still early, but can you just update us on what we should roughly expect for that amortization line and the tax line since there's been so much movement in that this year? It is, I'd say, Dave, a little bit early. What we'll do is in January, when we announce earnings, we'll give updated kind of guidance and provide a little bit more perspective on that. Based on what we have right now, I'd say realistically, probably the amortization levels are going to come down from what we expect for the full year for 2015. But also with that, I think the tax rate probably will bump up a little bit from the 32%. But depending on what investments close and what we have going for us in 2016, we'll provide an update on that. Okay, great. Then just one last one on the single-family portfolio. That concentration obviously continues to come down, and it is down pretty decently the last couple of years from about 20% just a couple of years ago. At what point are you planning to stabilize that and begin to grow that again? Is there some target dollar level or concentration that you have in mind? I know you have been growing the consumer piece alongside that, which is a part of your whole resi business. So I was just wondering how long you are going to run these balances off. Well, I think soon. I think we are coming to the point that we are very comfortable with the percentage concentration versus the others. Because obviously it is a combination of not only that we are ratcheted down a little bit more of the residential mortgages, but we are also growing CRE, C&I very nicely. So with the growth of the other products and getting to a percentage of where we like, and then with the residential mortgage coming down like the way that we have sold them, I think we are coming very close to that sort of the right balance. The likelihood we are doing as much of a sell pace like what we have done for the last two quarters, I would say, is highly unlikely going forward 2016. Okay, great. Thanks. Appreciate it. Our next question is from Jared Shaw of Wells Fargo Securities. Please go ahead. Hi, good morning. Good morning. On the credit trends that you spoke about, are the three loans that went into non-performing this quarter part of the loans that you already received some type of recovery for in October, or are those two separate groups? No, they're different. Okay. In terms of the timing for resolution of the three that moved into NPA this quarter, is that something that could be more near-term, or is that going to be longer term, looking at that? The loans are paying. We are just concerned about the future cash flow. As a result, it is classified as non-accrual. But the loans continue to pay. It is paying as agreed. There is nothing wrong with the payments. It is just that the financial condition of the companies are not doing as well. We wanted to put it as a non-accrual. But as far as payment goes, it is paying as agreed. So there is nothing to recover from at this point. Okay. Looking at the remaining potential for debt extinguishment, should we be assuming that that is something that you could address in 2016, or the remaining repos with 4% cost, should we assume they will stay on the balance sheet for a while longer? I want to clarify, I think maybe we just misspoke earlier. The actual cost is, one, the remaining repos are variable rate, and the cost is 3%. I think we will have to take a look and see if there is opportunity. If it makes sense, we may extinguish some of those. But given that it is variable rate and then also lower cost, I do not think it makes such an impact as, say, the fixed ones that we did this year, Jared. That were higher rate, of course. Great. Thank you. Our next question is from Joe Morford of RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. Good morning. The guidance for the organic growth of $600 million in the fourth quarter suggests you would be at the upper end of your targeted 8%-10% range, or perhaps even a bit better. Is that just based on the strength you are seeing in CRE and C&I, and how do you feel about sustaining that momentum going into next year? Yeah. Based upon what we have in the pipeline, we feel that there is a likelihood that it is about $600 million this quarter, which is higher than the previous guidance that we provided. I think it is too early to see what the growth will be for 2016. For the 4Q, we feel that the $600 million is doable. Okay. A question on expenses. If you look at expenses excluding the amortization for the tax credit investments, recognizing the comp and the consulting fees stepped up this quarter, and you have your ongoing projects there, should those continue to grow at a pretty good clip, or are we kind of just likely to stay at this new elevated run rate for a while? We think that it'll stay at this level for a while. It's not going to grow at the same growth rate, but it will be a while before we see the expenses to come down. So we feel at this point $122 million to $125 million per quarter core, excluding the tax credit amortization, the run rate for the expenses. But that's what we have been providing guidance before. However, some of the expenses did not come through earlier in the year. So at this moment, we feel that $122 million to $125 million per quarter core expenses. And maybe I'll just add, also with the impressive balance sheet growth that we've had, we need to make sure that on the employee side, on the infrastructure side, that we make sure that we hire. And these hires are coming from the front office, back office, everywhere. Great. That's helpful. Thanks so much. Our next question is from Julianna Balicka of KBW. Please go ahead. Good morning. Good morning, Julianna. Morning. I just wanted to follow up on Dominic's remarks in the beginning of the call about your view about what is going on in China. Could you give us more detail in terms of your direct exposure there, your cross-border loan growth, how it did this quarter, trade finance view on how your trade finance customers are doing, and then more importantly, how your cross-border business customers are doing, and just maybe more East West specific details? Okay. In terms of our exposure in the Greater China region, which include our business both in China and Hong Kong, currently, I think we have about maybe less than 6% of our total assets are in Hong Kong and China. That's pretty much, I would say, the cross-border from even not only asset, but also deposit and loans and all sort of within that 6% or 5% range in terms of from these two regions. In addition to that, when it comes to loan exposure there, again, we have emphasized over and over again that East West Bank are mainly focused in doing U.S.-China business. That is that many of the business that we Many of the loans that we originated, despite the fact that the companies may be from China, but they are doing business in U.S. So there are a lot of the business that we actually booked are actually in the United States. Going back to the loan balances, I think we have currently about, together again, Hong Kong and China combined, about $988 million in loan balances, and these loans are performing very well. Again, that sudden jolt in August in terms of the stock market and then the renminbi currency depreciation, the slight movement and so forth, really had not affect our business so well too much because simply, as I said earlier, we are focusing on the business, on the sectors, on the industries that are actually growing very nicely, both in China and they're expanding nicely in the United States. Therefore, the type of potential hit from us is substantially less than, let's say, financial institutions who actually are working with the tough business out in the northeast region, which is kind of the rust belt of China right now in terms of heavy industries. I think overall, we are doing well. In terms of our trade finance customers that you have heard earlier, we are actually still seeing growth, and they continue to have some pretty robust business import, export between U.S. and China. Last but not least, if I looked at the incoming investment, the foreign direct investment coming from China to United States, it really has not abated at all. In fact, keep in mind that it pretty much started in terms of with an intent about five, six years ago, when U.S. were under severe recession and our government have encouraged Chinese senior leaders to bring in their businesses, whether they are state-owned enterprises or private enterprises. We were encouraging them to come invest in the United States and help create jobs in the U.S. That was about six, seven years ago. But it took about two to three years for these business to gear up to figure out what they wanted to invest or who they connected with to help them to form the right partnership, et cetera. I think that this foreign direct investment from China to U.S. really picked up only a few years ago, but gradually been increasing every single year. As of today, if you look at 2015, it is still growing. Not only still growing, if I look at just the last two months' activities, we are still seeing Chinese investors from China who are finding strategic investment in U.S., not only just in real estate, but also actively in the entertainment industry, actively in the technology industry, and actively in the life science industry. We will see that trend to continue because the one way for these companies to continue to do well is to not only do well in the domestic consumption market in China, but also become a global company to start serving business all over the world. You see that happening also in the internet companies like Alibaba, Tencent. They are all expanding worldwide. They are not just focusing only in the Chinese domestic market. From that standpoint, I expect that the strategic business will continue to come to U.S. We have a client called BYD, which is in the clean energy business. They make electrical battery and electric cars. There is no question in my mind that they will continue to grow in the United States, not only just in China. I see that some of our clients will continue to have some really nice growth opportunity, not only in China but also in U.S. More importantly, East West will continue to focus on these strategically important and appropriate business, and we will continue to adjust our strategies because we will always be in lockstep knowing exactly what is happening in China. With our knowledge, with the expertise that we have in our business, in our organization, we have a much easier way to navigate through the changes that is happening in China, and we'll have stronger risk oversight than most of the others who do not know what's going on in China. I feel pretty confident that I think that going forward, things are going to be just fine. It sounds like from the bottoms up from your borrowers kind of outlook and business opportunities, your momentum for loan growth from you guys' specific niche strategy should be quite favorable for 2016? We think so because if you have seen so far for the last few years, we have always have a pretty good, robust organic growth versus our peers. Now, everything is relative because we still have a pretty big balance sheet that doing business with mainstream U.S. business and also Chinese Americans who are, despite the fact that they have Chinese ancestry, but they actually are doing U.S. business just like any other ethnicities. We look at that's still our predominantly lion's share of the business. We, East West Bank, is still going to be having loan growth or deceleration of loan growth, more or less the same like many of the other of our peers. If there's suddenly a big hike in interest rates in U.S., which I think is highly unlikely, but if that happens, I would expect that the real estate market in the United States would slow down dramatically, and it would not only affect many of our peers, but it would also affect East West Bank just the same, like our peers, because after all, we are still a $31 billion bank, and doing most of the business in the United States. I would say that we would have that kind of more or less similar up and down like most other banks. The key of East West Bank strategy is that the U.S.-China bridge banking is that extra layer of supplemental income or supplemental growth that we can count on that can put us or differentiate us and help us to generate the kind of return that hopefully is above our peers. That's what we're working on. So far it's been working. Very good. Thank you for that color. If I can ask a second question, I'll step back. In terms of looking out into 2016, without asking for guidance, as we think about EPS into next what are your levers for growing EPS into next year? If expenses stay flattened, modest margin pressure, is your earnings growth going to be dependent on your loan growth? Or how are you thinking about opportunities for earnings expansion and in regards to that, maybe reinstituting a buyback program? I think, certainly similar to the third quarter, if you look at the drivers for growth, it really did come from the balance sheet expansion driven by the loan growth and the strong deposit growth. I think that will be our largest driver when we look at 2016. As Julia talked about, also, depending on what happens with rates and the increase there, that can also propel a little bit more on the income side. I'd say largely it's the balance sheet and the loan growth, Julianna. Good. Buybacks? Not likely. No. We've been experiencing, so far, nice loan growth. We also wanted to be somewhat prudent and conservative. If we continue to have nice loan growth, if we experience even a positive surprise or even stronger loan growth, we don't want to have buyback to limit our ability to grow the business. Very good. Got it. Thank you very much. Our next question is from Matthew Clark of Piper Jaffray. Please go ahead. Hey, good morning, everyone. Good morning. The uptick in non-performing loans this quarter, were they energy or China related? If not, can you just give us a sense for the industries that those three credits are in? No, they are not energy. These are service industry, manufacturing, and one company, we rely on the inventory. None of the energy and not a direct Greater China. They are all in U.S. They are all U.S.-based. Okay, great. Then currency translation from the quarter, I did not see it highlighted, but I just want to double-check. Could you repeat the question? Yeah, please. It's coming in and out a little bit. Sorry. Any currency translation loss this quarter from your net hedge? Yeah. I think talked about earlier, we had a little bit, $1.4 million P&L impact foreign exchange due to a realized loss with the devaluation of the RMB. Additionally, in the third quarter, we recorded $6.8 million foreign currency translation loss for our investment in our subsidiary bank in Greater China as part of other comprehensive income as part of stockholders' equity. Okay, great. Thank you. Then just last one, in the C&I category, can you just give us the outstanding balance of trade finance that's embedded in that number? And then can you also talk to how much of the C&I growth came from higher line utilization and how much came from Texas? Yeah, I don't have it right in front of me, but the trade finance balance was about $815 million or so. $40 million, $50 million maybe increase from where we were at June. I don't have the specifics on how much came from Texas, but that's something offline we can- Very minimal. I would say that's almost very minimal. We don't really have much activities going in Texas in the third quarter. I think the last part of your question had to do with loan utilization. I don't really think that it's changed that much. It's very similar. If we look at point to point on C&I business, the loan utilization ticked up slightly, but nothing significant. Okay, thanks. Our next question is from Aaron Deer of Sandler O'Neill & Partners. Please go ahead. Hey, good morning, everyone. I think all my questions were addressed. I was just going to ask one quick follow-up on Joe's question with respect to the initiatives. I was just wondering if you could give any sort of breakout in terms of the cost related to the BSA/AML new platform that you're putting in as well as the commercial online platform, and for what period you might see elevated cost related to those. Aaron, I don't know if we have the specifics of exactly what that is, the breakdown of that. But if we look at that, we'll break it down by category. On the consulting cost, the increase to about $5 million in the third quarter, and I would say at this point, when we look at the fourth quarter and the guidance that we gave to there, we think it's going to be elevated. In the When we look at 2016, potentially maybe still at that kind of higher level for a little bit, but then we do expect it to come down. On the comp line, I would say that in all of those areas, when we talk about BSA, also online banking, commercial online banking, helping to support our growth that we're seeing for commercial depositors. That's something that we've continued to have investment in people as well. I think, realistically, it goes back to what Julia was commenting. We do think that kind of that operating cost level will still be at this level for a bit of time. Okay, great. Thanks for taking my question. Thanks, Aaron. As a reminder, if you'd like to ask a question, please press star then one. Our next question is from Jennifer Demba of SunTrust. Please go ahead. Can you just give us some more color on your BSA/AML upgrade plans as well as your commercial loan platform changes? At this time, it is in progress. Those are major software that takes some time to implement, but both of them are still going as we expected. Okay. What platform are you buying for the commercial loan origination? It's not commercial loan origination. It's more the commercial online banking so that the customer can access online for commercial, very complex treasury management services. But it's a better and more customer-friendly system that we have to upgrade. Okay. Thank you. Seeing no further questions, this concludes the question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks. Well, thank you again for joining our call today, and I look forward to talking to you at our next earnings release time. Thank you. The conference has now concluded. Thank you.