Earnings Call: Q1 2015

Apr 22, 2015

Good morning, and welcome to the East West Bancorp Q1 2015 earnings conference call. All participants will be in 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. Please go ahead, ma'am. Good morning, and thank you for joining us to review the financial results of East West Bancorp for the first quarter of 2015. 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 provisions 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, and thank you all for joining us this morning for the earnings call. Yesterday afternoon, we reported our financial results for the first quarter of 2015 with net income of $100 million or $0.69 per diluted share. Net income grew 5% from the prior quarter and 35% from a year ago. While earnings per diluted share increased 5% from prior quarter and 33% from a year ago. We're pleased with our financial performance for this first quarter. Excluding the impact of the loan sales during the first quarter, the loan portfolio grew by 9% annualized, totaling $21.6 billion as of March 31. In fact, on an organic basis, all loan categories were up in the first quarter. We experienced strong growth in the commercial real estate, consumer, which is largely comprised of home equity line of credit, and also single-family loan portfolios during the first quarter of 2015. The growth in commercial and industrial loans in the first quarter as compared to December 31, 2014, was a little weaker than in prior quarters. Although loan originations continued to be robust during the first quarter, we experienced larger paydowns and also lower line utilizations from some of our export customers. However, from looking at the line utilization trends and loan pipeline for the first few weeks of the second quarter, the pipeline is strong, and we are comfortable with our guidance of annualized loan growth of 8% for the remainder of the year. Growth in our deposit portfolio remains robust, and we reached a record $25.2 billion at the end of the first quarter, up $1.2 billion or 5% from December 31, 2014. Core deposits also reached a record high of $18.8 billion December 31. In fact, we experienced solid growth in all deposit categories during the first quarter of 2015. In particular, non-interest-bearing demand accounts grew to a record $8.1 billion, an increase of $739.6 million or 10% from December 31, 2014. Also contributing to the deposit growth was a $263.6 million or 4% increase from time deposits, which totals $6.4 billion at the end of the first quarter. The increase in core deposit for the first quarter was largely due to increased balances from our commercial deposit customers, and the increase in time deposit was largely due to new public deposit relationships. Quarter-over-quarter, year-over-year, we continue to generate strong growth. As of March 31, 2015, our total assets set another record high of $29.9 billion, and we achieved strong profitability metrics with a return on assets of 1.39% and a return of equity of 13.93%. With our unique position as the financial bridge between the East and the West and our knowledge and expertise in the U.S. and Greater China markets, we continue to see business opportunities for East West to profitably grow. In order to support this growth, we continue to make investments to build our bridge banking infrastructure. We are strengthening our sales and product expertise by adding strong bankers in the front office and by building upon our capabilities, technology and infrastructure, and risk management in the back office. Further, we continue to add leadership and talent in all the geographic regions where we are doing business. We have built a business model and balance sheet that we can successfully do business in various economic environment, and our solid financial results for the first quarter reflect just that. Given the ongoing low interest rate environment, it is a challenging time for the entire banking industry to grow and generate strong returns. I am very pleased that during this period, East West has continued to grow the balance sheet profitably, increasing core net interest income and margin and all profitability metrics. With that, I will now turn the call over to Julia to discuss in more detail our key successes in the first quarter and our expectation for the remainder of 2015. Thank you very much, Dominic, and good morning to everyone. I would like to spend a few minutes to discuss the changes to our loans portfolio and review the guidance provided in the earnings release yesterday for the second quarter and the remainder of 2015. Loans receivable totaled $21.6 billion as of March 31, 2015, compared to $21.8 billion as of December 31, 2014. We sold $668.8 million of loans during the first quarter as part of the company's strategy to better position the balance sheet, thus enabling us to capitalize on future opportunities heading our way. The $668.8 million of loans sold during the first quarter was comprised of $336.7 million of syndicated loans included in the C&I loans portfolio, $290.8 million of single family loans, $33.3 million of SBA 7 loans, and $8 million of consumer loans. The net gains from sale of these loans were $9.6 million during the quarter, largely comprised of $5.3 million from the sale of the single family loans and $3.3 million from the sale of the SBA 7 loans. During the first quarter, we sold the syndicated loans to reduce the company's overall exposure to leverage loans. Additionally, the single family loans were sold to establish a secondary market and create liquidity for the portfolio, which has grown significantly over the last few years. The SBA 7 loans were sold as a continued strategy to sell newly originated SBA 7 loans in the secondary market. Finally, we saw approximately $8.1 million in student loans, which were classified as held for sale as of December 31, 2014. Excluding the impact of the $668.8 million of loans sold, organic loan growth for the first quarter was $467 million or 9% annualized. Next, I would like to spend a few moments discussing the NII and net interest margin for the first quarter of 2015 and our expectation for the remainder of the year. NII adjusted for the net impact of covered loan activity and amortization of the FDIC indemnification asset of $3.4 million totaled $232.3 million for the first quarter of 2015. Compared to the previous quarter, this was an increase to the adjusted NII of $746,000. The core net interest margin adjusted for the net impact of covered loan activity and amortization of the FDIC indemnification asset of $3.4 million increased to 3.46% for the first quarter of 2015, up seven basis points from 3.39% in the prior quarter and up one basis point from 3.45% in the prior year quarter. Included in the interest income for the first quarter was $17.4 million of accretion income, which included $2.6 million from recoveries. Additionally, during the first quarter, we recorded an expense for estimated callback liability and other expense reimbursements of approximately $4.6 million, resulting in total pre-tax income from the accounting from the FDIC assisted acquisition loans of $9.4 million. This income associated with the accounting for the FDIC share loss loans has increased from the prior quarters as the write-off of the indemnification asset was largely completed in the fourth quarter of 2014 when the UCB commercial share loss coverage ended. As of March 31, 2015, the total remaining discount on the FDIC assisted acquisition loans was $112 million, of which we estimate that $84 million will be accreted to interest income over the life of the loans. Lastly, I would like to provide some additional color on our guidance for 2015. In our earnings release yesterday, we provided guidance for the second quarter and full year of 2015. We estimate that diluted EPS for the full year of 2015 will range from $2.64 to $2.68, an increase of 23 to 27 cents or 10%-11% from $2.41 for the full year of 2014, and an increase of 4 cents from our previously disclosed guidance for the full year of 2015. This EPS guidance for 2015 is based on the assumption that Fed funds target rate increases by 25 basis points in the fourth quarter of 2015, resulting in adjusted net interest margin ranging from 3.35% to 3.4%, annualized loan growth of approximately 8% Provision for loan losses of approximately $5 million-$7.5 million per quarter, non-interest expense of approximately $132 million-$136 million per quarter, and an effective tax rate of 32% for the remainder of the year. Additionally, management currently projects that based on the assumptions above, fully diluted EPS for the second quarter of 2015 will range from 63 to 65 cents. With that, I would now like to turn the call over to Irene to discuss our first quarter 2015 financial results in more depth. Thank you very much, Julia, and good morning. I'd like to discuss our financial results for the first quarter of 2015 in more detail, specifically credit quality, non-interest income and non-interest expense, the new accounting standard for investment in qualified affordable housing projects, and the Basel III capital rules adopted by East West as of January 1, 2015. Starting with credit quality, non-accrual loans were $87.8 million as of March 31, 2015, an improvement of $12.5 million or 12% from $100.3 million as of December 31, 2014. Correspondingly, non-performing assets as of March 31, 2015, were also down from year-end and totaled $120.5 million, $11.9 million or 9% lower than December 31, 2014. The non-performing assets to total assets ratio decreased to 40 basis points as of March 31, 2015, down six basis points from 46 basis points as of year-end. For the first quarter of 2015, the company recorded a provision for loan losses of $5 million compared to $19 million for the fourth quarter of 2014 and $6.9 million for the first quarter of 2014. Net charge-offs totaled $6 million for the first quarter compared to net charges of $9.3 million in the prior quarter and $4.3 million in the prior year-end quarter. East West continues to maintain a strong allowance for loan losses of $257.7 million or 1.2% of total loans held for investment as of March 31, 2015, compared to the December 31, 2014 allowance for loan losses of $261.7 million or 1.2% of total loans held for investment. Moving on to non-interest income. Non-interest income for the first quarter of 2015 totaled $44.1 million compared to non-interest income of $7.8 million for the prior quarter, and non-interest loss of $14.9 million for the first quarter of 2014. The $36.3 million increase in non-interest income for the first quarter of 2015 compared to the prior quarter was largely due to a $42.2 million reduction in expenses related to changes in FDIC indemnification asset and receivable payable from the expiration of the UCB commercial loss share coverage, which ended after December 31, 2014, and the continued strong credit performance of the existing covered loans. This was partially offset by an $8.9 million decrease in net gain on sale of loans. In the fourth quarter of 2014, we recorded $18.4 million in net gains on the sale of loans, largely from the sale of approximately $250 million of government-guaranteed student loans. Total fees and other operating income was $38.6 million for the first quarter of 2015, up $2.9 million or 8% from the prior quarter, and up $9.5 million or 33% from the prior year quarter. The increase in total fees and other operating income was largely due to increase in the wealth management fees and fees from assisting customers to hedge interest rates. Such increases were partially offset by a decrease in letters of credit fees and foreign exchange income during the first quarter compared to the prior quarter. Also included in non-interest income for the first quarter of 2015 were gains on sales of approximately $4.4 million on the sale of $176.1 million of securities, primarily agency MBS and municipal bonds. Moving on to non-interest expense. Non-interest expense for the first quarter of 2015 totaled $128 million, $2.3 million or 2% higher than $125.7 million from the prior quarter. The increase in non-interest expense between the first quarter of 2015 and the fourth quarter of 2014 was largely due to higher compensation and employee benefits of $4.9 million, a decrease in income from other real estate owned of $3.3 million, and an increase in loan-related expenses of $1.5 million. Such increases were partially offset by decreases in amortization of CRA and tax credit investments of $4.1 million and other operating expenses of $3.1 million. The higher compensation and employee benefits expenses during the first quarter were largely due to increased payroll taxes of approximately $2.7 million, 401(k) matching expense, and higher incentive compensation. During the first quarter of 2015, the company adopted the new accounting standard for the investment in qualified affordable housing projects. This new standard allows companies that invest in qualified affordable housing projects to amortize the cost of the investments in proportion to the tax credits and other tax benefits they receive and present the amortization expense below the line as a component of income tax expense. All prior periods have been restated to reflect this retrospective application of adopting this new accounting guidance, and details for this retrospective restatement have been disclosed in a table in the earnings release. In total, the impact to retained earnings as a result of this retrospective application as of December 31, 2014, was a positive $5.5 million. The company also invests in other CRA and tax credit investments that are not low-income housing tax credits, including new market, historic, and renewable energy tax credits. The amortization of such CRA and tax credit investments was $6.3 million for the first quarter of 2015, down from $10.4 million for the fourth quarter of 2014 due to a reduction in the purchase of tax credits and CRA investments in 2015 as compared to 2014. In addition, the Basel III capital rules are effective for the company effective January 1, 2015. Basel III capital rules revise the prompt corrective action requirements, introduce a minimum common equity Tier 1 capital ratio, and change the risk weighting of certain balance sheet and off-balance sheet assets under banking regulations. Additionally, for East West, the risk weighting for most of the commercial loans acquired from the FDIC-assisted acquisition of United Commercial Bank increased to 100%, up from 20% risk weighting prior to the expiration of the FDIC shared loss coverage, which ended after December 31, 2014. Due to the impact of the change in risk rating for these loans, and additionally, changes resulting from the adoption of Basel III, total risk-weighted assets as of March 31, 2015, totaled $23.4 billion, up from $21.9 billion as of year-end. Despite these increases in risk-weighted assets, our capital ratios remain strong. As of March 31, 2015, the common equity Tier 1 capital ratio was 10.5%, and the total risk-based capital ratio was 12.3%. Finally, as stated in the earnings announcement yesterday, East West's board of directors has declared second quarter dividends on the common stock. The common stock cash dividend of $0.20 is payable on May 15, 2015, to shareholders of record on May 1, 2015. I will now turn the call over to Irene. Thank you, Irene. I will now open the call to questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question is Dave Rochester, Deutsche Bank. Please go ahead. Hi, good morning, guys. Good morning, Dave. Hey, Dominic, you mentioned the strong pipeline heading into 2Q, and that you're comfortable with the 8% loan growth guidance for the rest of the year starting from that 1Q balance. Are you completely ruling out the possibility that you can make up for the loan sales for this quarter and hit that 8% for the full year? Sounds like activity should be pretty strong in 2Q. No, we're excluding the loan sale. We're looking at the organic growth without counting on that first quarter loan sale activity. Yes. We're very comfortable to meet that guidance. Well, I guess from the starting point at the end of the first quarter, you're maybe 1% lower than you were at the end of last year. I guess the question would be, you're looking at 8% excluding that, but why not including that is my point. It sounds like 2Q looks to be pretty strong. Well, what we like to do is to provide guidance for the next three quarters, and we are comfortable with an annualized 8% every quarter, which is about 2% a quarter for the following three quarters. So it's about $430 million per quarter net increase of the internal growth. The loan sales, we probably from time to time, we may potentially sell a little bit more of the single-family residential loans because, by doing so, we can increase our balance sheet risk without really building up concentration on the single-family portfolio. Are you still thinking you can grow that single-family portfolio this year, maybe in that 8% annualized range or maybe a little bit higher, even if you are selling some of that product? Is the new product you're thinking about selling stuff you're not generating today? Is it the longer duration stuff that you're kind of passing on right now? Yes. We are going to offer longer duration products if we can sell those products because we do not want to portfolio that. Well, at this stage, as we talked about, in fact, pretty much throughout last year's earnings release, that we were having nice growth in our loans, and that we specialize in for the sort of new immigrants population, low LTV, et cetera. However, if you have looked at our growth, in 2013, in these single-family mortgages has been very sort of robust. Actually, we had to slow down a little bit in 2014 because the balance sheet can only hold so much. As if you recall, we always wanted to have a very balanced portfolio, X percentage on C&I, X percentage in CRE, and X percentage in consumer and single-family mortgages. When the single-family mortgages loan growth had sort of risen to the point that we feel it tilts the balance off from our overall risk oversight in terms of not having too much concentration in any particular category, we ended up ratcheting down a little in terms of for the origination in 2014. But during that time, we also start looking at solutions. That is that while it's kind of unfortunate, not able to originate this mortgage from the demand from our customers, and in fact, these loans always have very strong record in terms of low, very low delinquency, hardly had any losses. We like to continue to make these mortgages to meet the demand for our customers. In that regard, we found a solution. As you have seen in the first quarter, we're able to find interested buyers to buy these mortgages. This allow us to now possibly to step up and do more. However, while we step up to do more, most likely we end up selling these additional origination rather than just keeping in the portfolio. By doing that, we'll continue to have a very balanced overall portfolio that have no higher concentration in any particular category. That's the plan, and that's what we did in the first quarter. Got you. That's great color. Then switching to the non-interest income side, can you just talk about what you're expecting there? Maybe walk through some of the drivers if you're expecting that FDIC indemnification asset line hit to decline decently through the year. Then if you could talk about what you expect for loan sale volume and gains on the resi side, as well as the SBA business, that'd be great. Sure, Dave. Unfortunately, I thought we wouldn't have to talk about that FDIC indemnification line item anymore. But still a little bit this quarter, although, it is decreasing rapidly. As Julia had mentioned in the prepared remarks, we did have recoveries in the first quarter, and with the recoveries, 80% of that we had to give back to the FDIC. Loss share for UCB commercial was 5 years. Recoveries continues for 3 more years. So that's part of it, and there was a little bit of adjustment as well, aside from the clawback of a couple million as far as just cleaning up a little bit with the end of the commercial loss share agreement. But we definitely expect that those dollar amounts, even though they decreased quite a bit in the first quarter, will continue to go down through the rest of this year. Hopefully, next year we won't have to talk about it anymore. On the gain side, I think with the ongoing origination that we do have of the SBA 7(a) loans, we do expect to continue to sell the guaranteed portion of that. Then I think, given the size of our portfolio, there are opportunities in the securities book from time to time. So with that guidance, Dave, we're modeling about $5 million kind of gains as far as gain on sales of potential student loans in the future, SBA, and then also the investment securities. $5 million a quarter is what we are That's right. Yeah. Not for the year. putting as a guidance. Got you. Okay, and then one last one on capital. You guys have solid capital ratios. Given your higher returns, it looks like those capital ratios should still continue to grow from here, even though you're growing the bank. Just wondering what your plans were for deploying the excess capital build over time. It will grow only a little bit. So, at this moment, with our guidance of 8% loan growth, we believe that we will be building up the capital a little bit, but it will not be excessive that we plan to do a buyback or anything like that. Okay, great. Thanks, guys. Our next question is Ebrahim Poonawala, Bank of America Merrill Lynch. Please go ahead. Good morning, guys. Good morning. Good morning. I had a follow-up on the loan growth question. One, just in terms of, Dominic, was there an impact on C&I growth because of the port strike during the first quarter? Do you see a lasting impact on your export-based clients because of the U.S. dollar strength as we look out into the rest of the year as far as commercial loan growth is concerned? What I'm trying to get to is loan growth like we saw in the second half of last year on the commercial side of 8%-10% repeatable, or do you think that probably unlikely to happen because of what we've seen with the U.S. dollar strength and any color that you can add there? Well, as you have seen in many previous quarters in the past, we always have very robust growth in C&I. This first quarter actually slowed down a little bit. In fact, it is predominantly from the exporters, and it does slow down a little bit. I do think that that may have something to do with a few combination reasons. The slight slowdown in the economy in China that require less commodity exports, and then you have the port slowdown, I think, may hurt a little bit. But now, the port, that labor dispute has been resolved. So as much as it was painful for some of our import and exporter customers for the last few months, things are getting back to normal. In general, I would say that some of these importers and exporters are having some financial difficulty, but none of them are at the stage that had caused problem in terms of affecting loan covenants and so forth. We are glad to see that it is over. In fact, as I indicated earlier, based on what we have seen for the last few weeks, the C&I loans are picking up pretty strong again. Now, we will continue to monitor it and see whether this is just a very short duration type of situation in the first quarter or would there be other new challenges that come up, and something we follow. However, I think one thing I wanted to highlight is that one reason why I think it is important for East West to stick to our strategic direction of being that financial bridge between East and West is that we are doing lending in area that most of the banks in U.S. are not competing against us. A good example is while the economy in China is slowing down slightly as expected because the Premier and the Central Bank Chairman in China have repeatedly provide guidance to everybody in the world that they will slow down to 7%, which they did. But if I look at East West, we did not have exposure, and we do not have exposure in the real estate sector in China. We are not heavy or active at all in commodities or these heavy manufacturing business. But the business that we are actually involved with right now, for example, is like in the film and television production, co-production with U.S., or maybe just local domestic movie production and TV production financing. That market has grown phenomenally in China today. We are benefiting from sectors despite the overall economy slowing down, but we are benefiting from sectors that actually have some robust growth. So we are pretty confident, for example, in China. If I look at just the entertainment sector, we will definitely do better than last year's in terms of loan production. It is that kind of little pocket of areas here and there that we strategically know what sector will have better growth than others, picking the right sectors for us to get involved with, making sure that sectors require special expertise that we do have that others do not, and I think just make us easier to increase market share and avoid heavy competition. Everybody know how to do real estate loans in China, and that is why we are not doing it. Those are kind of direction that we will continue to do, and we are always going to be the one that know China a little bit better than the other banks in U.S., and we will continue to explore the opportunities out there. And I think vice versa, for those investors who continue to invest from China to U.S., we continue to be able to offer meaningful advice to them, which result in us getting the banking business. Those are kind of stuff that we're going forward that give us the confidence that there's always going to be challenge in the economy. But at the end of the day, we'll find a way to make it work for East West. All right. That was helpful. Then I guess separate question, Irene, in terms of I'm sorry if I missed something, but expenses in the first quarter were $128 million, and I'm sort of tying that in to your expense guidance of $132 million-$136 million. Given that we should see some seasonal benefit in 2Q, sort of the taxes going lower for the comp line, where is that expense lift coming from for the next few quarters? If you can give some color on that would be helpful. Well, you're right. There is a little bit of a lift from the payroll taxes in the first quarter. First quarter is always unusually high from that. But when we look at 2015, Ebrahim, we are continuing to make investments in people, as Dominic mentioned, from the front office back to the back office. So in our projections are kind of the plans that we have for new hires. Then we do have some kind of system implementations that we are factoring in that are a part of that number as well. I also mentioned, we had an REO gain of $1 million. Certainly, hopefully, we have more positive surprises like that, but that isn't something that we're factoring in as far as the guidance. I just want to add, we have four system projects scheduled for 2015, including replacing our teller account opening system, replacing our BSA monitoring system, implementing a new foreign exchange system, and upgrading our commercial online banking system to an industry-leading platform. With these projects, we expect to obviously be able to improve our customer experience and our operational and technical capabilities. These are things that we have to do, and to make sure that we continue to be a strong-performing financial institution going forward. I always looked at it as that if we always keep focusing on just making profit and ignore about investing, it will be a short time type of great performance. But if we continue to invest while we find room to do that, in the long run, we'll have a much better sustainable return. I think that's the things that we wanted to do, and this year we're going to have some heavy investments in just upgrading these systems and so forth. But it's the right thing to do. We're doing well financially, and why not making investments? We continue to make investments, especially in the technology, and from time to time. A few years ago, we actually spent about $15 million to upgrade all the hardware, the redundancy, so that it can accommodate for many years to come in term of the hardware. Now we are in the phase of upgrading some of the major software to a new platform, the upgraded platform, because some of the software that we are using is already at the end of the life cycle. But it will be a continuous these are the big, major software providers. But after this is done, every year, we need to continue to upgrade some of the smaller product software that we offer. Very helpful. Thanks for taking my questions. Our next question is Jennifer Demba, SunTrust Robinson Humphrey. Please go ahead. Thank you. My question was addressed. Our next question is Joe Morford, RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. Good morning. I guess another stab at Dave's question on the loan growth. I guess, for a bank that operates in some of the best markets in the country that has consistently grown loans at a mid-teens or better rate the past couple of years and continues to hire front office bankers, would we be wrong in thinking the guidance for 8% loan growth is extremely conservative, or is it just somewhat the law of large numbers? Just trying to get to understand the slowdown a little bit here. Maybe we shouldn't say extremely conservative, but we try to be conservative, in the hope that it would be better. However, we don't want to be really aggressive in providing the guidance. However, I really do think that it's the law of big numbers. We are concerned that people continue to expect us to grow double digit every year, which would be harder and harder as we got bigger and bigger. Right. Okay. I guess the other question was just on the deposit side. I recognize here again that the first quarter was unusually strong, but just your expectations for deposit growth for the remainder of the year, and is there additional opportunity to further reduce pricing or run off some more expensive funding, things like that? Not on the pricing. If you look at our cost deposits, it has stayed pretty stable at 28 basis points, which is a very good cost of deposits. On the commercial DDA, there will be some fluctuation because April usually is an outflow because of the property tax, income tax payments. We do continue to expect to grow the core deposits, but Q1 actually was such an excellent growth that we do not think that, again, that it is something that we can grow at that magnitude. But that is something that we continually emphasize on, is to build core funding, low cost core deposits. We have been able to do so the last few years. Right. Okay. Thanks so much, Julia. Okay. Thanks, Joe. Thanks, Joe. Our next question is Aaron Deer, Sandler O'Neill & Partners. Please go ahead. Hi. Good morning, everyone. Good morning, Aaron. Circling back on the loan sales, I just want to confirm, it sounds as though the only additional loan sales that you plan to be making at this point would be out of the single family production and SBA production and not any more C&I loans. Is that correct? That's correct. On the single family, we'll take a look at how much we would be doing that, but other than the single family and the SBA, we will not be having a big sale of the C&I loans. Okay. What's the remaining balance of leveraged loans in that C&I book? About 3.5%. We never really had a big portfolio. Right now, we always keep it under 5%. Right now it's about 3.5% of the loan. That's of the total loan book? Yes. Okay. Just trying to understand some of the yield trends in the quarter, particularly in the loan book, given the sales. Do you have what the average spot rate was on the loan book at quarter end? Yeah. If you look at the loan yield also for the last few quarters, it seems that it's a pretty stable loan yield. As a result, you see our margin has been fairly stable within the range. So at this point, we feel that the loan yield is probably pretty stable. However, if rates do not go up at all, I would say that by next year, we may see yield compression, margin compression. But at this point, the yield seems to be pretty stable. Okay. Then, I guess, tied to that, given your expectations for maybe seeing at least a slight uptick in rates at year-end, what kind of rate increases do you need before you start getting some real benefit in the loan book? We probably don't see any significant increases, unless it goes up over 50 basis points. So our projection is that 100 basis point increase in the rates translate about $50 million, $60 million NII increase. So, if it's 25 basis point, it would be very small. Okay. But I'm guessing that there's floors on a good deal of loans that's going to prevent any kind of initial benefit, so there's probably a lag there. Is that correct? Yeah, there's some. But the floors, as the time goes by, will also decrease because many of them, the floors matures, and then when we renew it, we lower the floors. So as the time goes by, that floor is actually also decreased in its impact. Okay. Thanks, Julia. Thanks for taking my question. Our next question is Lana Chan, BMO Capital Markets. Please go ahead. Hi. Thanks. Can you talk about what gain on sale margins you actually got on the residential mortgage sales? Just curious, given your unique product. Close to about 2 points. Yeah. Okay. Is that kind of safe to assume going forward, do you think, in terms of future sales? Yeah. We're trying 1%-2% would be a very good pricing in term of the gain on sale. Okay. Just a question on the clawback expense. Sorry if I missed this before, but I think the original guidance for this year was about $7 million annually, and clearly was higher than that this quarter because of the recoveries. Any updated guidance on that for the rest of the year? Yeah. The total amount of the clawback actually for the first quarter was about $3 million. So I am still comfortable with the original guidance that we gave out. Lana, if you want, maybe after the call, we could talk about the other components that went into that decrease in the FDIC indemnification asset. There was a little bit cleanup with just the end of the commercial loss share agreement, and then also a reimbursement on some recoveries and other items as well. But that clawback projection is still the same. Okay. Thanks, Irene. Our next question is Juliana Balicka, KBW. Please go ahead. Good morning. I have a few follow-ups from some of the questions and some of your comments. One, you mentioned in your remarks that the accretion this quarter was $17.4 million in the NII, right? Could you refresh our memory as to what that was in the fourth quarter, and also how should we think about the accelerated versus scheduled accretion in terms of looking at the $17 million as core and non-core? Juliana, so $17 million is the total accretion that we had in the first quarter. That compares to accretion of about $36 million in the fourth quarter. In prior quarters, in fact, every quarter before that, it was higher. One, absolute dollar, the loans continues to decrease, so the accretion's going to continue to go down. What we have starting in the first quarter is less write-off of the FDIC indemnification asset associated really with that discount, as really most of that had been written off in connection with the end of the commercial loss share agreement in the fourth quarter. So that's why net net, if you include all the impact of everything, in the first quarter, the benefit really from SOP and the loss share accounting was positive about $9 million or so. But in the past, because we were writing off the FDIC indemnification asset, it was slightly negative or negligible. On a go-forward basis, I think it's splitting hairs as far as scheduled or kind of unscheduled accretion, but we do expect total accretion remaining to be about $83 million on the formally and currently covered portfolio. If there are additional recoveries, such as we had in the first quarter, which is about $2 million, $3 million, that will be a little bit higher than that, but that is certainly not something that we're factoring in right now, Juliana, because it's hard to forecast. Okay. All right. Just a second. In terms of your guidance in your remarks about the $5 million blended gains in your guidance between student loans, SBA, investments, does that include potential mortgage loan sales, or does that not include potential mortgage loan sales? To clarify, probably no student loans because we sold most of that portfolio in the fourth quarter, but it does include potentially single-family sales as well. Okay. Very good. I think that, then just to touch on the capital question one more time, not in terms of your capital disposition plans, but if your growth exceeds expectations, what are your plans for potentially boosting capital levels? Or do you feel comfortable that that is not a risk at this time? Well, if we have a very high loans growth of that, eventually we will look at additional capital. At that time, we will evaluate whether it should be common or preferred or sub-debt. That really depends at that time. But at this moment, we don't expect that we need to raise capital. However, if we have a double digit all the time, there's a likelihood that we will need to raise capital. Okay. Very good. Then finally, in terms of your tax advantage investments, that you made fewer purchases of that in 2015, why are you reducing those purchases, or do you plan to increase that later on in the year? And how should we think about that maybe for 2016? Well, we'll take a look at the market and the opportunity at that time. This is based upon what we have already. That's not something that we can project, because if the availability and the pricing is not good, we would not purchase those tax credit. Finally, in terms of your expense investments in the systems that you're improving and the people that you are hiring, when we look out into 2016 or 2017, should we think about your run rate of expenses to kind of stay at the projected levels, or will there be any offsets to reduce that? Or is it that some new form of investment will be necessary in the future? Yeah. We don't think that it's a one time, that as we grow, our expense base will continue to grow because there'll be some other investments that we have to make. So we don't expect that the expenses will come down. Okay. Very good. Thank you very much. As a reminder, if you wish to ask a question, please press star then one. Our next question is from Tom Alonso, Macquarie. Please go ahead. Hey, thanks, guys. Just real quick following up on the C&I loan sales, was there any industry concentration there to speak of, or was it sort of across the board? It's across the board, no industry concentration. Okay, great. Thanks. Our next question is a follow-up, Ebrahim Poonawala, Bank of America Merrill Lynch. Please go ahead. Hey, guys, just a quick question. Do we know, or can you disclose what the China loan portfolio was at the end of first quarter and at the end of last year? If, Dominic, you can talk about in terms of any new investment plans, in terms of any actual physical infrastructure that you expect to add in mainland in 2015. As of now, we don't expect any additional infrastructure expense or additional branches, because as you know, we have opened two branches in China in the fourth quarter of last year, one in Shenzhen, the other one in the Shanghai Free Trade Zone. So those are two brand new branches we just opened really near the end of the year. In terms of loan portfolio, as of today, we have $775 million in total loans, in the whole Greater China region. If you look at December 31, 2014, the total is $750 million. So the difference is basically we had a 10% increase in loan balances from the prior period. Understood. If I can just ask one separate follow-up in terms of the letter of credit fees declined, I think there's some seasonal impact there. Should we see that sort of bounce back and move towards maybe how it's tended in the second and third quarters of last year, around the $10 million-$11 million range, or? Well, that can fluctuate. What was mentioned previously, some of the export customers may have a reduction in the volume, so it may not come back to the same level, and there will be some fluctuation of that letters of credit fees. Understood. Thank you very much again for taking my questions. Thanks, Ebrahim. Our next question is a follow-up, Julianna Balicka, KBW. Please go ahead. Thank you. I have a couple questions on the deposit side. One, your deposit growth this quarter, was it back-end loaded? Sorry, what? What was that? Yeah. What is the question again? Can you repeat the question again? Yeah. Was it back-end loaded? Did it come through late in the quarter? Yeah. I think that our commercial customers always have high fluctuation. Yeah. As of March 31st, and in fact, the last few days, we do have some pretty high growth in our commercial deposits. It is something that happens when you have commercial clients, there is always these sort of fluctuation. It is quite normal. That is why we do not think that we would expect this kind of high growth repeatedly, quarter after quarter. One quarter we may have a big jump, and then near the end of the month of that quarter, and then the next quarter, we may not. But overall, we have, I would say, the steady growth of new customers. However, that high balance growth is not a good reflection of this acquisition of new customers, let us put it that way. Okay, very good. In terms of the public relationship that you referenced in terms of your CD growth, what kind of interest rate is that costing? Pretty good. It's low cost of time deposits, and that's the reason why we are doing it. Okay. We don't offer high rate CDs. We're not targeting to get CDs. I think it's just our same rate. I don't know the exact- I don't have exact rate, Juliana. I'm not giving you that, but it's not very high. Okay. In terms of your net interest margin, core margin, looking for it to migrate downwards through the rest of the year from your 346, given that your investment yield improved mid-quarter and that your loans yields have been steady, and your cost of funds has been steady, what's the driver behind your lower core margin decreases? Is it really the accretion declining, or is there other factors that we should be thinking about? Yeah, we're not projecting the same kind of accretion, and the accretion will decline over time. So, to be on the conservative side, that's why we are projecting 335-340. Until rates go up, Yeah the margin and the loan yields will continue to trend downwards. Yeah. Every quarter, there are always going to be some old loans that get paid off. Then with a renewal rate that is somewhat lower than rate that we have, let's say, 2 years ago. I think this is very common in the commercial real estate sector. When you have a mortgage come due and then refi, then for these good customers that we want to retain, instead of letting them go to somewhere else to do the refi, we will have to offer the market rate, and the market rate is much lower. So that trend will continue until interest rates start picking up again. Okay, all right. Thank you very much. Our next question is Matthew Keating, Barclays. Please go ahead. Oh, yes. Thank you. Could you remind us how large the trade finance book is within your C&I portfolio? About 30% of the total C&I. Okay, great. 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 us today on this call, and we are looking forward to speaking with you again in July. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.