Earnings Call: Q3 2011

Oct 20, 2011

Good morning, and welcome to the East West Bancorp third quarter 2011 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 1 on your touch-tone phone. To withdraw your question, please press Star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Kelly Adams. Please go ahead. Thank you. Good morning, and thank you for joining us to review the financial results of the East West Bancorp for the third quarter of 2011. Here to review the results are Dominic Ng, our Chairman and Chief Executive Officer, Julia Gouw, President and Chief Operating Officer, and Irene Oh, Executive Vice President and Chief Financial Officer. We will then open the call to questions. First, we would like to caution you that during the course of the call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company's operating results, please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2010. Today's call is also being recorded and will be available in replay format at eastwestbank.com and streetevents.com. I will now turn the call over to Dominic. Thank you, Kelly. Good morning. Thank you all for joining us this morning for our earnings call. Yesterday afternoon, we were pleased to report financial results for the third quarter of 2011. East West reported strong earnings of $62.4 million or $0.41 per diluted share for the quarter. Year-over-year, East West increased earnings by $15.5 million and increased earnings per share by 52% or $0.14. As compared to the second quarter of 2011, East West grew earnings by 3% or $1.9 million and increased earnings per share by 5% or $0.02. Quarter after quarter, East West has been able to achieve growth in the balance sheet and more importantly, in our earnings. We have demonstrated strong financial performance throughout this challenging operating environment, and we are confident that we will continue to do so for the remainder of 2011 and beyond. As of September 30, 2011, our non-covered loan portfolio grew to over $10 billion, primarily due to growth in our non-covered commercial and single-family portfolio, which grew 12% and 18%, respectively, from June 30, 2011. We also achieved quarter to date growth of $176.4 million in total loans receivable, including the covered portfolio, to a record $14.2 billion. Along with solid growth in the loan portfolio, we have also successfully grown core deposits, primarily commercial deposits. Core deposits increased $469.7 million or 5% to a record $9.8 billion. Total deposit increased $172.9 million or 1% to $17.3 billion. In particular, we have had strong growth in non-interest bearing deposits, which increased $225.9 million or 7% quarter to date to $3.4 billion or 20% of our total deposit at the end of the third quarter. Our unique value proposition as the bridge between the East and the West has allowed us to consistently increase our market share and grow our customer base throughout 2011. Strategically, we believe that we are well positioned to continue to grow market share, especially as macroeconomic conditions improve in the future. I would like to highlight that we have achieved this growth by making key and selective investments while also keeping core operating expenses stable and reducing credit costs. Our efficiency ratio has remained low at 41% for the third quarter as compared to 45% for the prior year period. Our net charge-offs have declined 23% from the second quarter of 2011 and 46% from the third quarter of 2010. Despite the challenging economic environment and headwinds from the flattening yield curve, our net interest margin remained stable at 3.98% for the third quarter of 2011, as compared to 4.03% in the previous quarter and 3.98% for the third quarter of 2011. 2010, I'm sorry. In the near future, we will be focused on effectively and prudently managing our net interest margin and maintaining strong profitability by growing our commercial customer base and lowering our cost of funds while remaining disciplined with expenses. As we head into the fourth quarter, we're very much encouraged by the positive trends and strong performance that we have seen thus far in 2011 and expect to finish the year on this upward trend. Overall, our franchise is strengthening, and our core earnings are expanding, which will directly result in long-term value for our shareholders. I will now turn the call over to Julia Gouw to speak in more detail about our loan and deposit growth in the third quarter of 2011. Thank you very much, Dominic, and good morning to everyone. I would like to first spend some time discussing the third quarter loan trends and where we are specifically seeing the most growth and opportunity. Total loans increased to $14.2 billion at September 30, 2011, an increase of $176 million or 1% from the prior quarter and an increase of $607 million or 4% from the prior year. We are very pleased with the progress we have made in reducing our exposure to trouble assets while increasing our commercial and trade finance loans and single-family loan portfolios. Our non-covered commercial and trade finance portfolio increased $328 million or 12% from June 30, 2011, and increased $1.3 billion or 78% from September 30 last year to $3 billion at September 30, 2011. Combined total non-covered and covered commercial loans increased $274 million or 8% from June 30, 2011 to $3.8 billion at September 30, 2011, and now equal 27% of our total gross loan portfolio. Our long-term goal is to have commercial loan portfolio equal at least one-third of total loans, and we have made strong progress in reaching this goal. This growth in the commercial and trade finance portfolio has been achieved while maintaining strong credit quality and strict underwriting criteria. The commercial and trade finance loan growth we experienced in the third quarter is largely due to our expanded lending platform in the U.S. The new originations have been well diversified across many industries, including trade, manufacturing, entertainment, professional services, and high technology. As we expected and as discussed during the second quarter earnings call, we experienced limited growth in Greater China during the third quarter of 2011. As of September 30, 2011, loans in Greater China, including Hong Kong, total $670 million, an increase of $20 million or 3% from June 30, 2011. Loans in Hong Kong total $473 million at the end of the quarter, of which approximately $147 million are covered under the loss-share agreements with the FDIC. In addition, the majority of the non-covered loans in Greater China are fully secured by a combination of cash and/or standby LCs issued by large financial institutions. In addition to the growth in our commercial and trade finance loan portfolio, we also continue to experience strong growth in our non-covered single-family portfolio, which grew $230 million or 18% as compared to the second quarter of 2011. These single-family loan originations have largely stemmed from our retail branch network. As discussed in the past calls, customer demand remains high for single-family loans in our markets. Our underwriting criteria for the single-family loans remain strong, with very high down payments and low loan-to-value ratio requirements. The maximum loan-to-value that we will lend against is 65%, and on average, the loan-to-value of the loans we originated in the third quarter was only 54%. Our growth in non-covered commercial and trade finance and single-family loans was offset by decreases in non-covered land, construction, and consumer loan portfolios. Quarter-over-quarter, construction and land loans have declined $48 million or 11%, and year-over-year, these balances have declined $190 million or 34%. This continued reduction in land and construction loan balances signals that our credit costs will likely to diminish in 2012. As we look ahead to 2012, management will be able to devote more time and energy on growing the portfolios that provide the best opportunity for East West to diversify our revenue sources, reduce credit risk, and improve core profitability. As we continue to build our commercial banking platform, we are experiencing strong growth in core deposits, primarily non-interest-bearing deposit accounts. Non-interest-bearing deposits increased $806 million or 31% from a year ago to $3.4 billion at September 30, 2011, and now account for 20% of our total deposits. This growth in non-interest-bearing deposits has resulted from the new deposit gatherers we have hired and also from the increase in commercial and trade finance lending and the operating accounts that come with these loans. Additionally, we have been successful in gathering deposits from new customers who are leaving larger financial institutions, super regional and money center banks, and moving their deposit relationship to East West. With the strong progress we have made in growing our loan portfolio and building low-cost core deposits, we feel comfortable that our net interest margin will remain stable in the near future. We are currently projecting that the adjusted net interest margin will be approximately 3.9% for the fourth quarter of 2011, a decrease of eight basis points from the third quarter of 2011. We would like to note that the loan portfolio will continue to be impacted by the replacement of higher yielding loans and loans with floors with lower yielding assets. In addition, we are intentionally keeping the duration of the investment securities portfolio relatively short. Although we could increase yields today by extending the duration of the loan and securities portfolio, our philosophy is that prudent risk management dictates that we do not take on too much interest rate risk, especially at this point in time when rates are at historic lows. That said, compared to peer banks, East West also has additional levers that can be utilized to maintain a strong net interest margin, including the accretable yield from the FDIC-assisted transactions and the ability to further reduce deposit costs. As of September 30, 2011, we had approximately $161 million in net accretable yield that will be accreted into interest income over the life of the loans. We expect that this amount will largely be accreted into interest income over the next 36 months. On the deposit front, we disclosed in the press release that we have $2.8 billion in time deposits carrying an average rate of 87 basis points and maturing in the fourth quarter of 2011. Additionally, in the first six months of 2012, we have another $3 billion in time deposits with an average rate of 1.15% maturing. We anticipate that all these maturing time deposits will be replaced at much lower rates. Additionally, as the deposit mix changes, as we continue to focus on low-cost commercial deposit customers, the cost of deposits should continue to improve. As opportunities arise to reduce borrowing costs in the future, we will continue to take them. As discussed in our earnings release, during the third quarter of 2011, East West again prepaid Federal Home Loan Bank advances, prepaying $49 million at an effective rate of 2.4%. Further, we called $10.8 million of 10.9% junior subordinated debt securities in the third quarter. Quarter-over-quarter, we have reduced the Federal Home Loan Bank borrowing by $76 million or 14%, and year-over-year, we have reduced the borrowings $561 million or 55%. Overall, the increase in profitability from the prior quarter and prior year is the result of an increase in earnings assets and thus net interest income and a reduction in credit costs. Average earning assets increased to $19.8 billion for the quarter ended September 30, 2011, compared to $19.4 billion for the quarter ended June 30, 2011, and $17.7 billion for the third quarter of last year. The adjusted net interest income, excluding the net impact to interest income of $39 million resulting from covered loans activity, increased to $198.5 million for the third quarter of 2011, up from $195 million in the second quarter of 2011 and $177 million in the third quarter of last year. With that, I would now like to turn the call over to Irene to discuss our third quarter 2011 financial results in more depth. Thank you very much, Julia, and good morning to everyone. I'd like to discuss our financial results for the quarter in more detail, especially as it relates to credit quality, the accounting for the assets acquired in the FDIC-assisted transactions, and non-interest income and expense for the third quarter. Asset quality metrics improved substantially during the third quarter of 2011. For the eighth consecutive quarter, net charge-offs declined, and non-performing assets, excluding covered assets, decreased by $12.3 million or 7% from the prior quarter to $168.9 million, or only 77 basis points for total assets as of September 30, 2011. The decrease in non-performing assets was primarily due to a $17 million or 10% decrease in non-accrual loans during the third quarter, slightly offset by an increase in REO assets. The movement of new loans into non-accrual status also decreased in the third quarter and was down to approximately $64 million during the quarter. As has been the case for the past few quarters, we are also pleased to report that we continue to see improvement in both classified assets and total delinquent loans during the third quarter compared to the prior quarter. The provision for loan losses was $22 million for the third quarter of 2011, a decrease of $4.5 million or 17% from the second quarter and a decrease of 43% as compared to the third quarter of 2010. Although our allowance for loan losses remains very strong at 2.16% of total non-covered loans, our allowance and provision have declined for several quarters as a result of increased credit quality improvement, partially offset by increases in the allowance for loan losses on commercial and trade finance loans as these portfolios have continued to grow. All of these data points indicate credit quality continues to improve and credit costs should be a diminishing issue with each passing quarter. Moving on to non-interest income. We recorded a total non-interest loss of $13.5 million for the third quarter of 2011, as compared to non-interest income of $12.5 million for the second quarter of 2011, and non-interest income of $29.3 million for the third quarter of 2010. Non-interest income was primarily impacted during the quarter by a net decrease in the FDIC indemnification asset and receivable of $43.5 million, as compared to a net decrease of $18.8 million in the second quarter of 2011, and a net increase of $5.8 million in the third quarter of 2010. The net decrease in the FDIC indemnification asset and receivable of $43.5 million was largely a result of increased accretable yield on the covered portfolio during the quarter and the resulting increased write-off of the FDIC indemnification asset. During the third quarter, total interest income on the covered portfolio equaled $124 million, compared to $121 million in the second quarter and $94 million in the third quarter of 2010. Additionally, in the third quarter, we recorded additional liabilities to the FDIC, due largely to the improved performance of the UCB acquired portfolio. The credit quality of UCB portfolio continues to perform better than we had originally estimated. In total, our core fees and other operating income totaled $21.2 million, compared to $22.1 million for the second quarter and $17.4 million for the third quarter of 2010. With the growth in commercial and trade finance loans, we continue to see improvement in core non-interest income from fee-based revenues. Aside from our core fees and operating income during the quarter, the company also recorded $5.5 million in gains on the sale of government-guaranteed student loans and SBA loans, and a net gain of $3.2 million on investment securities sold. Although we are making selective investments that support future growth, we also remain very disciplined on expense control, resulting in an efficiency ratio of 41% for the third quarter of 2011. Excluding prepayment penalties of $3.8 million on FHLB advances and the junior subordinated debt that was called, and netting out amounts that are reimbursable by the FDIC, third quarter non-interest expense totaled $97.2 million. This was within our expectation and additionally, the third quarter guidance we had provided in the earnings release last quarter. The $2.4 million or 2% decrease in our core non-interest expense from the prior quarter was primarily related to decreases in REO expense and a decrease in the deposit insurance premium expense. The decrease in the deposit insurance premium expense was due to a lower actual assessment from the FDIC during the quarter. As we have discussed before, under the loss-share agreements with the FDIC, 80% of eligible expenses on covered assets are reimbursable from the FDIC. In the third quarter, we incurred $4.4 million in expenses on covered loans, including legal and loan-related expenses and REO expenses and write-downs, for which we expect that 80% or $3.5 million will be reimbursed by the FDIC. Although we expect to continue to make investments in the future to support our growth, we are also actively looking at opportunities to streamline our operations, reduce costs, and ensure efficiency. As such, we expect that non-interest expense will continue to remain low and forecast that will approximate $97 million to $100 million for the fourth quarter of 2011, net of amounts that are reimbursable by the FDIC. As in the past, in our earnings release, we provided updated guidance for the fourth quarter of 2011 and the full year of 2011. We currently estimate that fully diluted earnings per share will range from $0.40 to $0.41 for the fourth quarter of 2011 and will range from $1.57 to $1.58 for the full year of 2011. This updated EPS guidance for the remainder of 2011 is based on the following assumptions: a stable balance sheet, a stable interest rate environment, and adjusted net interest margin of about 3.9%, provision for loan losses of about $20 million for the fourth quarter, total non-interest expense of approximately $97 million to $100 million for the quarter, net of amounts to be reimbursed by the FDIC, and lastly, an effective tax rate of approximately 36%. Finally, as stated in the earnings announcement released yesterday, East West Board of Directors has declared fourth quarter dividends on the common stock and Series A preferred stock. The common stock cash dividend of $0.05 is payable on or about November 24 to shareholders of record on November 10, 2011. The dividend on the Series A preferred stock of $20 per share is payable on November 1, 2011 to shareholders of record on October 15, 2011. I will now turn the call back to Dominic. Thank you, Irene. Thank you everyone for joining the call this morning, and I will now open the call to questions. Thank you, sir. In order to ask a question, please press star then the number 1 to ask your question. If at any time your question has been answered or you would like to withdraw from the queue, please press star then the number 2. Again, press star then 1 to ask a question. If you're using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. The first question is from Ken Zerbe of Morgan Stanley. Please go ahead, sir. All right, thanks. Can you guys explicitly address your views on buybacks? Obviously, very strong organic loan growth run off of UCB. Your capital's very strong. Something that we all sort of expect, but haven't really seen a lot of. How are you guys thinking about using share buybacks going forward? Thanks. Yeah. Our plan is to increase the dividend back to what it was before, the $0.40 in January of next year. That was the dividend before the crisis. We also will be looking into doing the buyback early next year, after we increase the dividend in January. So that's our capital management plan. Okay. And maybe just switching gears a little bit, in terms of the margin, obviously, I know you guys have talked about stable NIM. It is coming down 8 basis points in the fourth quarter. That's, I guess in my view, a fairly large drop. Aside from the 8 basis points next quarter, is there any reason to think that that will not continue to come down further in 2012? Or are there items or reasons why your NIM should be more stable in 2012 than it is in the fourth quarter? Thanks. Ken, this is Irene. When we look at the NIM next quarter and on a go-forward basis, next quarter, we feel pretty comfortable with the 390 with what's happening on the loan portfolio and the fact that our securities, we don't expect much change there. Over time, when we look at 2012, I think there is a chance that the margin can continue to come down. However, although the margin is coming down similar to what we saw in the third quarter, because our overall balance sheet growth is strong, we expect that that will help mitigate that. Additionally, when we look at 2012 overall, our profitability should be increased, credit costs should be down, and that will overall, we feel pretty comfortable when we look at 2012. All right, great. Thanks. The next question is from Joe Morford of RBC Capital Markets. Please go ahead. I wondered if you could just talk about where the growth is coming from geographically, both in the commercial and the residential mortgage portfolios. I recognize California is your biggest market and probably dominates the numbers, but I was also curious just how some of your other markets were doing as well. For the single-family mortgages, mostly they're coming from California, and particularly Southern California. I think that also goes with the geographic location of our branches. We have more branches, substantially more branches in Southern California than most of the other regions. I would say that, in terms of the other regions beyond California, which we have very few branches, New York has a little bit better volume than the others. But again, it's going very much proportional to the number of branches in each particular location. That's what we do in the single family. When it comes to the commercial C&I loans, trade finance loans, also, the vast majority of the loans come from Southern California. There are some, obviously, good momentum also in Northern California. But again, it's very much reflective of where our commercial lenders are. Okay. Can you remind us again why there was such little growth in Greater China this quarter as opposed to last quarter? Well, in Greater China, in the past quarters, the Chinese government has basically started a new program, this cross-border secured type of lending guarantee. Each, I guess, financial institution is allocated with a specific amount of Chinese currency that we are allowed to do these cross-border type of guarantee lending. We allocated X dollar amount, and we used them all up by middle of second quarter. Basically, the third quarter, we didn't do any of those cross-border guarantee type of transaction, and therefore, the volume slowed down substantially. Is that a program where beginning of 2012, you would get a new allocation, or is it just when the government decides to do another program? We'll see what the government will do. First of all, whether they will continue. Secondly is also whether there is a bigger allocation, and we'll have to go in and then see what the circumstance is. In addition to that, we wanted to see what the pricing is like, because, fortunately for all the banks, the pricing is relatively good at the time when we get these type of transaction. However, going forward, it all depends on what type of pricing that we'll get then, and then we'll decide whether this is something we wanted to do more or not. Okay. Thanks so much. The next question is from Joe Gladue of B. Riley. Please go ahead. I'll stick with that theme of the China branches, Greater China area. Just wondering, I know it's not a very seasoned portfolio. Oh, we lost you. Can you, Please redial into the queue, Joe. It's star then one to redial the queue. The next question is from Aaron Deer of Sandler O'Neill & Partners. Good morning. How are you? Good. First question, just given a lot of the recent trade data and the slowdown of port activity, curious, what is your outlook for trade finance loans? I know you have talked about your credit underwriting on them in the past and earlier today on the call, but just what is your outlook for any growth there? In terms of trade finance, we will expect that we will continue to have more volume coming to us. I think it is a combination that we still see have pretty healthy growth of trade volumes that going through throughout the California seaport, and that is one. The other part is that we have continued to have more lenders that are specialized in this area. So that is an area that we would expect that we will have decent growth. But it is not going to be something that I would say that is dramatically more different than what we have been doing for the last year or so. Got you. Thank you. Can you just discuss a little bit, the type of residential mortgages you are adding? Are these conforming, jumbo, 30 years, five years ARMs? What sort of rates are you getting on them? Yeah. We do not offer the 15, 30 year fixed because we wanted to manage our interest service. So most of these loans are adjustable, three to five years. To clarify, we offer them, but most of the ones that we're portfolioing are the adjustable ones. Yeah. We offer them, yes. What sort of rates? About 5%, 4.5% to 5%, three or five year adjustables. Great. Thank you. Hello? Hello? Oh, I think that disconnected. Hello? Hello? Oh, go ahead, please. Can you hear me? This is Joe Gladue. Oh, yes. Okay. Yes. Yes, go ahead. Okay. Yeah, sure. Just wondering, I know the portfolio in the Greater China region is probably not that seasoned, but just wondering if you could give us an idea of how that portfolio is performing relative to the mainland loan portfolio. Just our portfolio in terms of from China and Hong Kong, is that the question? Yes. I think it's performing just fine. In fact, we started off when we took over the United Commercial Bank portfolio from China with over 30% of non-performing assets. We pretty much cleaned it all up and now down to less than 1%. Every other loans that we originated so far performing as agreed well. But the key thing is that most of them are either collateral by 100% cash or collateral by standby LCs. So these are pretty safe kind of loans that we are originating. Going forward, we still are not expecting much growth and volume within the Greater China region. I think that, again, I want to highlight the importance of our branches in Hong Kong and China has everything to do with strategically having those branches there, having the ability to conduct business in the Chinese currencies in China, and also multiple currency in Hong Kong, really allow us a tremendous opportunity to increase our market share in U.S. It's not that we are going after substantial amount of business in China because there's this big population in China. It's that because we have the ability to conduct business in China, many of the business in the U.S., actually, who has either operation in China or have to do business in China, are actually looking at East West as a better alternative to be their banker in U.S. than some of our competitors. I think that if you look at the U.S. business growth, the U.S. C&I loan growth, and the U.S. trade finance growth, to a certain extent, these growth come from the fact that we have branches in China and also Hong Kong. It's because of that branches strategic advantage that we have allow us to have a much better value proposition for our U.S. clients. So, again, the purpose of the branches there are not necessarily to look into a high growth opportunity in that region locally, but it's used as a link for our opportunity in the U.S. Okay. Just one other question. Just wondering if you can tell us what the balance of performing TDRs was at the end of the quarter and, guess where you expect that to trend over the next few quarters? The performing TDRs was about $80 million as of the end of September. Up a little bit from June, it was about 60. We will have to see where it ends up at the end of the year. It is hard to predict that, but I would say roughly around the same level. We expect that it will not increase by much. It has been around that level. All right. That is it for me. Thank you. Once more, if you would like to ask a question, please press star, then one. Next question comes from Gary Tenner of D.A. Davidson. Please go ahead, sir. Hi, good morning, guys. Matt filling in for Gary. I was wondering if you guys could shed some light on the FDIC portfolios. When you guys expect that to stabilize and when you see the runoffs slowing down? This is Irene. Matt, the portfolio has stabilized quite a bit. Naturally, it is a portfolio that continues to go down. No loans are added to it. So as principal paydowns occur, payoffs occur, charge-offs occur, the balance will continue to come down. But compared to where we were before, a year and a half ago or something like that, the actual pay down, the balance decrease quarter-over-quarter has continued to be stable, roughly around that $200 million quarter-over-quarter. Okay, thanks. With regards to loan competition, have you guys been facing a lot on the pricing and things of that nature? Well, when it comes to C&I loans, obviously, everyone in the U.S. wants C&I loans. So there is competition there, and that's why our value proposition of being that bridge between the East and West and having branches in China that can assist unique customers who have the need for it, worked out just fine for us. So there are always going to be business that we can go after because we have ability to go beyond banking. There are services that we can provide in terms of helping them to learn how to do business in China, and then helping the Chinese business or investors who are coming to U.S. to make investment in the U.S. A lot of those extra services that we provide to the customers, get us the loans and get us the deposits. We're always going to have advantage to all our peers in that regard. I think that when it comes to some more generic type of good small middle market commercial or trade finance type of clients, if we do not have a value proposition, it's going to be very competitive. Okay, great. Thanks a lot. The next question comes from Jennifer Demba of SunTrust Robinson Humphrey, or Humphrey, I should say. Please go ahead, ma'am. Thank you. Good morning. Irene, is there any way you can help us in terms of modeling for non-interest income, the change in FDIC indemnification in future quarters? Obviously, it's bounced around a little bit. Jennifer, obviously that number, it is a little bit challenging. The easiest way that we look at it is if you net out the amount that we show on the rate volume table, the impact of the FDIC indemnification asset with the increase in the interest income. That's the easiest way to get down to what the core interest income is. I'd be happy to spend more time with you, maybe offline, to just go over that a little bit more detail. Okay. All right. Can you guys talk about, in terms of the commercial loans that you've added in the last two or three quarters, what your bread and butter loan size has been? The average, like the sweet spot that we're targeting for commercial loans right now, about $5 million-$15 million because as we got much bigger, that amount will be able to allow us to grow the portfolio faster, but it's still small enough relative to our exposure to capital. Yeah, that's what we like to target. However, still, I think today we're still booking a lot of smaller loans at that $1 million-$2 million size, simply because the vast majority of our existing clients, many of them are still small business clients, and their needs are just like $1 million or $2 million. So what we do is that we still continue to take good care of our existing clients, and they have small needs, which is fine because obviously taking care of existing client doesn't take as much time as going out and solicit new business. But when it comes to getting new business, we're trying to target the clients the size of what Julia just talked about, $5 million-$12 million or so. So that hopefully the marketing efforts and so forth make it justifiable because the deals get to the size that make it feasible for us to recoup all the overheads and so forth. But it's a combination of taking care of the existing clients and the small loans and also getting some new clients that have a little bit decent size with good profitability. And that combination, I think, give us a good balance. Okay, thanks. The next question is from Christopher Nolan of CRT Capital. Please go ahead, sir. Hi, guys. Irene, quick question on the structured repo debt. Any opportunities in 2012 to extend maturities and lower the cost on that? No, we don't plan to do that. We're going to just hold on. If interest rates go up, that will be called. But if not, we may just wait until it matures and pay it off. We just don't see any reason to continue to lengthen, because overall costs will increase if we continue to lengthen that liability. Great. Thank you very much. The next question is from Chris Stulpin of Raymond James. Please go ahead, sir. Thank you. Most of my questions have been answered, but I guess I want a little bit further detail. Oops. Hello. You got cut off, Chris. Please redial into the queue, sir. Star one to redial. Hello? Yes. Please go ahead, sir. Thanks. Can you hear me now? Yes. All right. Thank you. All my questions have been answered, but I do have to ask a little more detail on the accretable yield from the acquired UCB loan portfolio. I guess whenever it came on board, I think the average life was around 55 months. I forget, that is around 4 and a half years. And I believe, Irene, you say there is roughly 3 years remaining in that. Is there a possibility that could be accelerated to a shorter time period? It could be. I think at this point in time, I would say that that's probably not likely, Chris. Just with what's happening to the loan portfolio as certain loans pay off and other ones continue on, it does look like the lag will be closer to that 3 years at this point in time. Okay. It looks like right now we stand about, that adds around a buck to earnings if my calculations are correct. Is that correct? The $161 million, roughly? About $60 million a year, so about $36. Okay. After tax, yeah. Roughly. Yeah. Okay, very good. Thank you very much. That concludes the question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks. Well, I just want to thank everyone for joining our call, and I look forward to speaking with all of you in January. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.