Earnings Call: Q1 2011

Apr 27, 2011

Hello, and welcome to the East West Bancorp 2011 first quarter conference call and webcast. All participants will be in listen only mode. Should you need assistance, please signal to a conference specialist by pressing star 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 touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I'd now like to turn the conference over to Kelly Adams, First Vice President. Ms. Adams, please go ahead. Thank you. Good morning, and thank everyone for joining us to review the financial results of East West Bancorp for the first quarter of 2011. Here to review the results are Dominic Ng, 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 SEC, 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 first quarter of 2011. As announced yesterday, East West reported strong earnings for the first quarter of $56 million, or $0.37 per diluted share. Our results marked the sixth consecutive quarter of solid financial performance for East West. Year-over-year, East West increased earnings by 125%, or $31 million, and increased earnings per share by 185%, or $0.24. From the fourth quarter of 2010, East West increased earnings per share by 6%, or $0.02, excluding the $18.7 million of accelerated discount accretion recorded on the repurchase of preferred stock issued to the U.S. Treasury. We surpassed the $21 billion mark for total assets in the first quarter, largely fueled by strong deposit growth and continued growth in non-covered C&I loans, which increased 10%, or $200 million quarter to date. Total deposits increased 5%, or $795 million, to a record $16.4 billion, supporting a 3%, or $397 million increase in average interest-earning assets. Overall, we are very encouraged by the positive trends and performance of East West for the first quarter of 2011. For the fourth consecutive quarter, we have experienced strong growth in our non-covered C&I portfolio. While the covered and non-covered commercial real estate, land, and construction lending portfolios have been running off as expected. Single family loan originations have also been strong, with single family loan balances up $82 million, or 7% quarter over quarter. Organic deposit growth has been very strong, with record levels of core and total deposits as of March 31st, 2011. We have achieved this strong growth while significantly reducing both operating expenses as well as credit costs. With the integration of United Commercial Bank and Washington First International Bank behind us, we have improved our efficiency ratio, which decreased to 43% for the first quarter of this year. Credit cycle costs such as real estate owned expenses, legal, and loan related expenses are all down quarter over quarter, decreasing by 37%, or $10.7 million. Along with credit cycle expenses, credit quality continues to improve, resulting in a decrease in the provision for loan losses of 11% to $26.5 million. As of the first quarter, both the provision for loan losses and net charges are down for the sixth consecutive quarter. As of March 31st, 2011, the non-performing assets to total assets ratio was 0.89%, and non-performing asset levels decreased $6.5 million, or 3%, from the previous quarter end. Additionally, the land and construction portfolios were down to under $500 million, or a decrease of 8% from December 31st, 2010. These improvements are the direct results of proactive credit management, strong expense and control, and improved operating efficiency. With a slow but steady improvement in the U.S. economy, we expect that these positive trends will continue for East West. With growing investments from the Greater China region to the U.S., East West, as the bridge between the East and the West, is ideally situated to grow our business and take advantage of these opportunities. As a direct result of the strength of our financial performance, capital levels, and expectations for increase in our future earnings power, we are pleased to announce that the board of directors has approved an increase in our annual dividend from $0.04 to $0.20 per share. At East West, we are committed to delivering strong earnings and long-term value and return for our shareholders. Our capital levels are strong, and in the coming quarters, we expect to continue to actively manage our capital levels while retaining our capital strength. As in the past, in our earnings release, we provide updated guidance for the full year and second quarter of 2011. We currently estimated that fully diluted earnings per share will range from $1.47 to $1.50 for the full year of 2011, and $0.35 to $0.37 for the second quarter of 2011. The EPS guidance update for the second quarter is based on the following assumptions: a stable balance sheet, a stable interest rate environment, and an adjusted net interest margin between 4% and 4.1%. Provision for loan losses of approximately $24 million-$28 million for the quarter. Total non-interest expense of approximately $95 million-$100 million, net of amounts to be reimbursed by the FDIC. Effective tax rate of approximately 35%. I would like to point out that our adjusted net interest margin, for the second quarter of 4%-4.1%, is lower than the previous guidance we have given for the full year of 2011. Irene will talk about this in more detail later in the call, but this decrease in net interest margin is largely due to a reduction in prepayment activity for covered loans. Although prepayment activity has been high in past quarters, resulting in accelerated discount accretion into interest income, based on current activity, we expect that prepayment activity will subside in future quarters, and the net interest margin will be more normalized. Overall, we have experienced strong deposits and loan growth, and our earnings power remains strong. As such, we are pleased to increase our 2011 full year guidance from our previous released guidance by approximately $0.02. We are well positioned to continue to grow market share and provide increasing value to our customers and shareholders in 2011 and beyond. I will now turn the call over to Julia to speak in more detail about our key successes during the first quarter. Thank you very much, Dominic, and good morning to everyone. East West is well positioned to take advantage of the substantial investments in people, infrastructure, and technology that the company made in 2010 and continues to make. We have already seen a direct impact of these investments with double-digit growth in our commercial loan portfolio. Non-covered C&I loans grew 32% in 2010 and grew another 10% in the first quarter of 2011. Including the covered C&I loan portfolios acquired from UCB and WFIB, the book balance of our total C&I loan portfolio was $3.1 billion as of March 31, 2011, or 22% of our total loan portfolio. We have also been actively growing our single-family loan portfolio, where customer demand remains high for single-family loans in our niche markets. The non-covered single-family loan portfolio grew 7%, or $82.3 million during the first quarter to a record $1.2 billion. This growth in non-covered C&I and single family loans was offset by decreases in non-covered commercial real estate, land, and construction portfolios. Additionally, as expected, the covered loan portfolio continued to decline, although early payoff activity has decreased from prior quarters, resulting in the decrease in interest income on covered loans. However, with our strengthened lending platform in place and our proven track record, we are confident that the select portfolios we are focused on will continue to grow in future quarters. The growth in our loan portfolio is supported by our strong organic deposit growth. Core deposits grew to a record $9.1 billion as of March 31, 2011, an increase of $231.1 million or 3% from December 31, 2010, while total deposits increased to a record $16.4 billion as of March 31, an increase of $795.3 million or 5%. The increase in core deposits was largely driven by a significant increase in non-interest-bearing demand deposits, which grew 10%, or $275 million, during the first quarter of 2011. With the increase in C&I loans and the operating accounts that come with these loans, we are experiencing growth in DDA accounts and low-cost core deposits. Additionally, we launched a Chinese New Year promotional CD for our retail network in the first quarter of 2011. This campaign was very well positively received by our customers, and we gathered more deposits than we expected, increasing time deposits $564.2 million or 8% during the quarter. With the increased deposits and liquidity, we deployed these assets into short-term investments in the first quarter, impacting our margin by approximately 10 basis points. We expect that throughout the year, we will redeploy these funds into higher yielding assets. As a result of our strong organic deposit growth, our cost of deposits remain very low at 66 basis points for the first quarter of 2011, a reduction from 67 basis points in the fourth quarter of 2010 and 93 basis points for the first quarter of last year. The company will continue to actively manage core deposit levels and look for opportunities to maximize our net interest margin by reinvesting excess liquidity into higher interest earning assets. With the increase in the C&I loan business, we have experienced a slow but steady increase in our core non-interest income from fee-based revenues. We reported total non-interest income of $11 million during the first quarter. Non-interest income was impacted by a net decrease in the FDIC indemnification asset and receivable of $17.4 million, which Irene will discuss in further detail. In addition, during the quarter, the company recorded $7.4 million in gains on sale of loans from the sale of student loans and SBA loans and a net gain of $2.5 million on investment securities sold. Aside from this activity, our core fees and other operating income increased in the first quarter to $19 million, up $731,000 or 4% from the fourth quarter of 2010 and $3.3 million or 21% from the first quarter of last year. This increase is small but meaningful for East West. As we continue to look for opportunities to diversify our income sources and increase our fee-based income, we expect to continue to see improvement in core fees and other operating income. Although we continue to make investments to support future growth opportunities, we also remain disciplined on expense control. Excluding prepayment penalties of $4 million on FHLB prepayment and netting out amounts that are reimbursable by the FDIC, first quarter non-interest expense decreased by $7.5 million or 7% from the fourth quarter and $93.3 or $93 million to $93.3 million. With credit cycle cost declining for both the covered and non-covered loan portfolios, we expect that non-interest expense will remain low and forecast that it will be approximately $95 million-$100 million for the second quarter of 2011, net of amounts that are reimbursable by the FDIC. Compared to prior quarter, other real estate owned expense decreased $6.2 million, loan-related expenses decreased $3.4 million, legal expenses decreased by $1.1 million, consulting expenses decreased $686,000, and other operating expenses decreased by $3.9 million. 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 first quarter, we incurred $11.9 million in expenses on covered loans and other real estate owned, 80% or approximately $9.5 million of which we expect to be reimbursed by the FDIC and which is recorded as an increase to the FDIC indemnification asset as non-interest income. Expenses on covered assets declined approximately 25% from the fourth quarter of 2010, primarily due to a decrease in REO expense. These improvements in operating expense levels were partially offset by an increase in deposit insurance premium of $3.8 million and prepayment penalties on FHLB advances of $4 million during the first quarter of 2011. The increase in the deposit insurance premiums was mainly driven by an adjustment related to our increase in deposits. However, in the future quarters, upon the adoption of the FDIC new assessment rate calculation based upon our total assets, we estimate that our quarterly deposit insurance premium will decrease slightly from the first quarter of 2011. With that, I would now like to turn the call over to Irene, who will discuss credit quality, the net interest margin for the quarter, and the loss share accounting in a little bit more detail. Thank you, Julia, and good morning to everyone. I'd like to provide a little more insight into our financial results for the quarter, especially as it relates to credit quality and the loss share accounting. We reported net income for the first quarter of $56.1 million or $0.37 per diluted share. Excluding the accelerated discount accretion for the TARP payment in the fourth quarter of 2010, earnings per share for the fourth quarter was $0.35. As such, earnings per share improved $0.02 or 6% from the previous quarter. I'd like to highlight that the Series A preferred stock became diluted to our earnings per share for the first quarter of 2011 for the first time, resulting in an increase in our diluted shares to 153.3 million shares. However, now that the Series A preferred stock is diluted to EPS, our net income for purposes of our EPS computation is $56.1 million and is no longer impacted by our dividends on this preferred stock. The increase that we've had in profitability from the prior year and the prior quarter is a direct result of the reduced credit costs. Credit costs on our legacy East West portfolio continue to decline. For the sixth consecutive quarter, both net charge-offs and the provision for loan losses have declined. The provision for loan losses was $26.5 million for the first quarter of 2011, a decrease of $3.3 million or 11% compared to the previous quarter, and a decrease of $49.9 million or 65% from the prior year. Total net charge-offs decreased to $34.2 million for the first quarter, a decrease of $4.1 million or 11% from the previous quarter, and a decrease of $29.7 million or 46% from the prior year. Further, the net charge-off ratio for non-covered loans decreased to 1.55% for the first quarter of 2011, down from 1.76% in the fourth quarter and 2.99% in the first quarter of 2010. Non-performing assets, excluding covered assets, decreased 3% during the first quarter to $188.3 million or 89 basis points of total assets. East West has proactively managed our non-performing assets to ensure that they remain at low levels. As a result, we have maintained a non-performing assets ratio to total assets below 1% for six consecutive quarters. Non-performing assets, excluding covered assets, as of March 31, 2011, included non-accrual loans totaling $172.7 million and REO assets totaling $15.6 million. I am pleased to report that the movement into non-accrual loans has decreased sizably for the past two quarters and totaled about $66 million in the first quarter. In future quarters, we expect the inflow to continue to decline while we are also actively managing our REO sales, resulting in a total decline in non-performing assets. Additionally, other credit metrics have also improved. Compared with December 31, 2010, we saw improvements in both special mention and substandard rated loans. Data points show that credit is improving and should be less and less of an issue with each passing quarter. Further, our non-covered commercial real estate portfolio continues to hold up well with net charge-offs of 55 basis points during the quarter and a ratio of non-performing commercial real estate loans to total commercial real estate loans of about 1.5%. Dominic touched on the margin earlier, but I'd like to give a couple more details. The core net interest margin, excluding the net impact to interest income of $26.9 million resulting from the disposition of covered loans, totaled 3.94% for the quarter as compared to an adjusted net interest margin of 4.43% in the fourth quarter of 2010 and an adjusted net interest margin of 4.49% in the first quarter of 2010. The decline in net interest margin from the prior quarter and the prior year is primarily related to a decrease in the yield on the covered loans. As you may recall, prepayments in full accelerate the discount accretion into interest income. The early acceleration of the discount accretion was substantially reduced in the first quarter, resulting in yield on covered loans of 9.7% for the first quarter, down from 11.6% in the fourth quarter of 2010. The complex accounting and volatility surrounding our net interest margin is challenging to understand with the covered loan accounting. However, although the prepayment activity is not fully predictable, based on recent trends, prepayment activity has subsided, and we expect less early acceleration of the discount into interest income with each passing quarter. Additionally, due to the strong deposit growth during the quarter, excess cash was deployed into short-term investments at a lower yield. The impact to the margin due to this excess liquidity from the deposit growth was about 10 basis points for the quarter. As discussed in our earnings release, we are also experiencing some margin compression from the low interest rate environment aside from the items just discussed. However, as always, management is committed to taking proactive measures to manage interest rate risk. As such, we have taken steps and will continue efforts to minimize the impact of the low interest rate environment. In the first quarter of 2011, East West prepaid approximately $217 million of FHLB advances that had an average cost of 2.8%. The impact to our net interest margin on a go-forward basis is an improvement of about three basis points from this action. Further, in the second and third quarters of 2011, East West intends to call a total of $21 million of junior subordinated debt that has average cost of about 11%. East West does not expect to raise any debt or equity to replace the junior subordinated debt that we expect to call in 2011. Moving on to loss share accounting. In the first quarter, we recorded a net reduction in the FDIC indemnification asset and receivable of $17.4 million. This net reduction of $17.4 million is comprised of the net decrease of $26.9 million due to the disposition of covered loans and amortization of the FDIC indemnification asset, partially offset by an increase of $9.5 million due to expenses reimbursable by the FDIC. The $26.9 million is essentially representative of 80% of the total amount that impacted our net interest income as a result of the covered loan activity and increase in accretable yield. We are pleased to see that credit costs on the covered loans have started to decrease, reducing to $11.9 million in the first quarter of 2011, down $4.3 million or 27% from $16.2 million in the fourth quarter of 2010. Finally, as stated in the earnings announcement released yesterday, East West Board of Directors has declared second quarter dividends on common stock and the Series A preferred stock. The common stock cash dividend of $0.05 is payable on or about May 24, 2011, to shareholders of record on May 10, 2011. The dividend on the Series A preferred stock of $20 per share is payable on May 1, 2011, to shareholders of record on April 15, 2011. I will now turn the call back to Dominic. Thank you, Irene, and I'll now open the call for questions. Okay, thank you. At this time, we will begin the question and answer session. If you would like to ask a question, you may do so by pressing star then one on your touchtone phone. Star then two will withdraw your question. Once again, please press star then one to ask a question, star then two to withdraw the question. One moment, please, while we assemble our roster. The first question comes from Joe Morford from RBC Capital Markets. Thanks. Good morning, everyone. Good morning. I was curious on the commercial loan growth in the quarter. How much of that came from traditional C&I versus the trade finance type credits? I think it's about 70% in traditional C&I. The other 30% will be on the international trade finance. Okay. Given that you're taking market share from the bigger banks and they tend to be larger credits on the C&I side, can you talk about the type of yields you're getting on these new loans? I think in terms of the size of the loan, I think the average loan size is about $2 million. Right. It is a slight increase. Yeah. But we are still having some smaller deals as well as some of the bigger ones. In terms of the yield? About LIBOR plus 350, 375 for the C&I loans. Okay. Are you typically getting floors on those as well? If so, at what level? No, we're not doing floor anymore. I think that at this stage right now, I think that the likelihood of rates rising up, it's just a matter of time. I think what we're doing right now is to mainly try to bring in good quality C&I loans and trade finance loans. Okay. Thanks so much. Thank you. Thank you. The next question comes from Chris Stopen from Raymond James. Good morning. Good morning. Good morning. Can you please break out where your notable C&I loan growth is coming from? That's the question I have regarding C&I. It's across the board of different industries. As we continue to focus on the C&I portfolio, many of these customers for the traditional C&I, they come to us because they have some business activity in Asia. So with our full branch capacity in Asia as well as here, we have been attracting many of these customers that do business cross-border between U.S. and Asia. Sure. How about geographically? Geographically, I think that it's also. Again, obviously California is. We have more loans and assets and geographic coverage in California, so obviously the lion's share is coming from California. We do have good gains from, let's say, Seattle and also some of the other, like New York. So it's spread pretty evenly, but more so in terms of in proportion to the asset distribution of our branches throughout the country. We also picked up some loans from Hong Kong, and those are all cross-border transactions. Okay, great. So the New York City MSA is not outstripping California as far as growth currently? Not at all. Not at this point. I think that someday, we hope that we'll continue to bring in more talents in the C&I area, and then we continue to add. When we are able to add more people, obviously, we'll be able to gain more momentum. At this stage right now, I would say that the lion's share of the lending officers are in the state of California, and that's why we are still getting a lot of the growth in the state of California. Sure. Makes sense. Thanks. One more question, then I will step back. A question you receive every quarter, if not every day. What is your current position regarding M&A, and have you seen any material change in the landscape, or are you receiving more inquiries from troubled banks? If so, in which markets? We continue to receive inquiry, whether it is from the FDIC or from banks that may be interested in selling. However, I think that from our perspective, first of all, I think that we are always ready to do a deal, and from an internal resources standpoint, we will always be ready. The question really comes down to is that our appetite today, when we look at banks, anything less than $1 billion becomes relatively immaterial. Then we have to look at that. Is it worth our while to mobilize our internal resources to do integration and so forth when it is less than 5% of our total assets? That is one, that it automatically sort of reduces our appetite for these much smaller community banks. That is one. Second part will be, most of the banks available for sale, whether it is assisted deal or non-assisted deal, are primary in the real estate lending area. As much as we are actively gaining momentum in growing C&I loans, bringing more C&I lenders and bringing more C&I customers, we are doing pretty well organically in that direction. I think that the fact of bringing in more real estate loans and then taking away our attention to growing organically is a cost that we need to make sure that the gain that we are getting from any kind of transaction can properly offset against that kind of cost. In that regard, I think that, again, it kind of further reduces our appetite. In essence, I would say that there are not that many deals out there that can get East West very excited, simply because we have a pretty nice organic growth that is going on right now, and then focusing on area that we really need to focus on, which is growing C&I business and then continue to strengthen our relationship banking and building more sustainable and profitable kind of business that can help us in the long run. Very good. Thank you very much. Thank you. Thank you. The next question comes from Mike Zaremski from Credit Suisse. Hi, everybody. Hi. Good morning. In terms of the non-covered yield, it looks like it declined substantially this quarter from last. If that's correct, can you give some color and your expectation going forward? Yeah. The C&I, as we mentioned, like roughly about LIBOR + 350 to LIBOR + 375. Part of the reason that the yield went down is that on the CRE loan, a few years ago, we had intermediate hybrid fixed for 3 years, 5 years, and have prepayment penalty. The minute that the prepayment penalty expires and also some of those loans had a higher floor at 6%, 6.5%. With the competition for some of these good loans that are renewing, we do see that the yield go down on the CRE loan. I think that going forward, it is fairly stable, but the yield that we get right now would not have a lot of floors like we used to in the last 2, 3 years. Okay, that's helpful. One other question. In terms of the non-covered CRE portfolio, it continues to decline. Is there a portfolio within that portfolio that you guys view as runoff and kind of so we can gauge expectations for that portfolio going forward? Since we are not booking a lot more CRE, we wanted to reserve our CRE capacity for our good customers and relationship customers. We'll see some of the runoff, just a pay down as well as some of the loans, if they got very attractive pricing elsewhere or they sell the property, it will result in a decrease in our CRE portfolio. But you can see that the decline has slowed down also. It's not a big dollar amount for the CRE portfolio. Yeah. I think there really isn't that much of a substantial reduction in CRE portfolio because there's always going to be principal pay downs that are ongoing on a monthly basis. It's just that we are not aggressively originating new CRE loans. On one hand, you can look at it as that this is a perfect time to originate CRE loans, but we have to balance our overall objective in the long run, that is that we are continuing to downsize our real estate portfolio relative to the C&I loan portfolio. If we want to grow our C&I portfolio to a percentage that is more meaningful to the overall balance sheet, we cannot have CRE loan to keep running up. With that kind of an adjustment. I think that we are not aggressively booking CRE loans other than making sure we have high-quality customers so we can take care of them. That being said, what I think that you may see a big reduction is really coming from our intentional reduction of land and construction loans. In the entire real estate portfolio categories we are actually seeing increases in single-family mortgages, but we're seeing decrease in multi-family, CRE, land, and construction. But in the land and construction, we have actually a much higher reduction as always. No, that's very helpful. Thanks for taking my questions. Thank you. Thank you. The next question comes from Brett Rabatin from Sterne Agee. Hi, good morning. Wanted to ask on the organic loan growth, just obviously really strong growth in the C&I book this quarter. I am curious to hear about the outlook for maybe the full year, if you can give that, in terms of just is competition going to affect the growth profile of that portfolio in the next few quarters, i.e., can the organic loan portfolio grow fast enough to offset the reduced attrition or the attrition in the covered book as we go through the year? At this stage right now, I think that we would expect there will be more competition coming into the market going forward. However, there are new lending officers that we brought in, and we have been in the market for a little while, maybe longer than some of the new players coming in. So we have built up a pipeline that we think that we are relatively comfortable that we probably can grow about $150 million per quarter going forward. I think that is something that we are anticipating for the rest of this year. Dominic, that's gross, right? Basically, the non-covered portfolio. That's net. Net increase. Net increase. On the balance. Yeah. There's always going to be some pay. C&I loans, there's always, it depends on the trade cycle and the need. There's always going to be up and down, but then net-net, we expect approximately about $150 million net growth per quarter. That compares to the $200 million that we had for the Q1, Brett. Okay, great. The other question I was hoping to ask was just around capital and the potential for buybacks. Given that M&A is maybe not going to be the biggest priority the next quarter or two, just kind of give me thoughts on potential buybacks as we go through this year. Well, we will continue to review our capital deployment, but we would like to do it systematically. As we mentioned, we increased the dividend to $0.05 a quarter, $0.20. The next step will be to redeem the TARP, the high-yield TARP. And we would like- The trust preferred. Oh, no, the high-yield trust preferred, I'm sorry. I was thinking about TARP. The trust preferred. The high-yield trust preferred, $20 million at over 10% yield. So we would like to take advantage of redeeming the trust preferred on that. And we will continue to review our dividend payout. We hope that by next year, early next year, if things are going well as expected, then we would like to have the dividend back to where it used to be before we reduced the dividend, which is $0.10 a quarter to $0.40 annualized dividend. And then at that time, we'll continue to look at if there's no acquisition opportunity, we still have excess capital, then we'll do a buyback at that time. Okay, so it sounds like essentially the outlook's not for a buyback this year, and you're currently comfortable with the capital ratios about where they are going forward. Is that a good read? Yeah. We want to do it step by step. First, we would like to increase the dividend to the previous level first, and then we'll look at how much buyback that we can do if there are no acquisitions. Okay. Thank you. Thanks for all the color. Thank you. Next question comes from Aaron Deer, Sandler O'Neill. Hi, good morning, everyone. Good morning. The first question on the student loan sales. I saw that the student loans held for sale actually were up in the quarter by $80 million or so despite the loan sales. Is it reasonable to assume that you might continue to see increases in those loan sales then here in the second quarter or beyond, and that we see a similar level of gains on those? Hi, Aaron. It's Irene. Yes. We obviously classified some additional loans as held for sale with the intent that in the future, we would be selling those. At this point in time, this is the third kind of large loan sale we've done the last year and a half, and we would expect that to continue. Not to say that we would be having sales every quarter. What we're doing right now is kind of amassing a size because we are buying on a flow basis. When it gets to size, we'll put it out to bid, and if we get a good price, we would sell it in the future. Okay. Irene, you mentioned the sale of the sub-debt. Any additional paydowns on FHLBs planned as well or? That is something we would definitely consider throughout 2011 as we see what opportunities are out there to improve the margin and then also just to reduce our funding costs. Okay, great. Thanks for taking my questions. Thank you. The next question comes from Juliana Balicka of KBW. Good morning. Good morning. I have a couple of questions, if I may, please. One, you mentioned about the redeployment of your cash and your short-term investments throughout the rest of the year. Looking at your balance sheet with $1.5 billion of cash and then another almost a billion of short-term investments in Fed funds, do you have a target ratio, a target amount that you want to bring that level down to? What kind of investments are you reinvesting into? We don't have a specific target. We know that we have plenty of liquidity, and at this moment, because we are very concerned about interest rates rising, we try to keep our investment short. If you look at our investment portfolio, it is short and probably shorter than most banks. We do it on purpose. We have pretty good earnings, so there's no reason for us to take on so much interest rate risk at this point of time. If we have excess cash that we can use to pay down Federal Home Loan Bank advances since the cost of funds on the Federal Home Loan Bank is about 2%. From time to time, we take a look if it makes sense for us to pay down the Federal Home Loan Bank advances because it's more expensive than the short-term investments that we have. We will do that, and we'll probably do that throughout the remaining of the year this year. Okay. I think the bottom line is that our core earnings is so strong and relatively to our peers. This is clearly, I think that it's a time that we wanted to stay as conservative as possible in terms of from an interest rate risk point of view, from a credit risk point of view. We just want to stay as conservative as we can at this point, then going forward, things can only be better by doing this way. But if we overcommit ourselves on an interest rate bet or maybe go light on our aggressive discipline on charging off credit and things like that, then I think going forward, we may get ourselves in a tough situation. I think mainly it's looking at our strong core earnings right now, we feel this is the approach that we're going to take. That makes sense. Then I have another question on the guidance, if I may. Sure. In looking at your full year guidance, taking away this quarter's results, it looks like essentially flat EPS for the remaining three quarters, correct? And within that, for next quarter, you're guiding towards an increase in margin. With the loan growth that you're experiencing in the higher margin, I'm wondering what is the offset going to be in order to have what looks on the surface to be essentially flat EPS on a quarterly basis? Maybe you can talk a little bit about the moving parts, please. Well, we like to provide conservative guidance in some of the earnings, have some net gain on sale, which we cannot predict every quarter how much that is, Juliana. So we feel pretty comfortable. We want to provide a conservative guidance. The expenses, it can go up slightly, too. So rather than committing to a more aggressive guidance, we feel very comfortable the guidance that we provide right now is very doable. What you're saying means that if I think about your earnings this quarter on an X gains basis altogether, and then use that as your guidance, that's the baseline of your guidance, then there's upside surprise in there coming from securities or loan sale gains, which are somewhat not predictable, but recurring, so to speak. Correct. Because this quarter, the core earnings without any gain on sale is $0.35. That seems to be a very good core earning, and any upside from the gain on sale will just increase our earnings at that time. Very good. Thank you very much. Thank you. The next question comes from Jennifer Demba of SunTrust Robinson Humphrey. Thank you. Good morning. Why do you think East West has been so successful in the last few quarters at growing commercial loans when a lot of the industry seems to still be struggling on that front? Well, I think it- Frankly speaking. I look at it as a couple of reasons. One, when we talk about percentage growth, like 10% a quarter and stuff, it sounds very impressive, but we have to look at our base is relatively small. This is an organization that if we look at the breakdown of our loan portfolio, 80% of our loans are in real estate, and then the other 20% in C&I, so to speak. Because of that, I think that's one. Now, another thing that I also wanted to remind everyone on the call that is that actually for the last 15 years, we've been having great C&I loan growth. The only thing is every time we get a nice organic loan growth in C&I, we go in and buy a bank that have loaded up with real estate. So we are constantly in that struggle, so to speak, in terms of the loan portfolio diversification. One reason being is that the real estate lenders, we can buy in a low multiple, and then we always are able to look like that we are making acquisitions that are sort of like a deal of the century, so to speak. But at the end of the day, it comes with flaw, which is most of the loans are real estate loans. But we have always traditionally been able to grow our C&I loans. It's just that whatever C&I loan organic growth that we have done, it always been overshadowed by the real estate portfolio that we acquired by any acquisition that we make. Keep in mind that we have made just about one acquisition a year for the last decade. That's one. Now, then why do we always have good C&I loan growth? I think that has a lot to do with our mission at East West Bank. We are a very unique bank. We pride ourselves as a bridge between the East and West. We have a very clear purpose. Our purpose is to provide banking services to clients in U.S. who want to do business in the Greater China region and Asia, and also vice versa. Clearly, if you look at what's going on today, there are a lot more, let's say, in the cleantech industry, there are a lot more companies from China who make solar panels, who are now working with U.S. company installing solar panels throughout the state of California and then so forth. When it comes to high tech, there are high tech company who are exporting to Asia. When it comes to cross-border business, in terms of our Hong Kong office, who are providing loans to a customer, or the U.S. side providing loans to a customer, but their parent company in China are willing to pledge cash collateral to our subsidiary in Shanghai, which we can issue a standby LC. These are type of business that we are doing right now that I would say the vast majority of the banks in the United States are not doing because they have no interest and they have no purpose when it comes to this space. This is our space, and the space happened to be growing, and we expect that in the next 10 years or 20 years, that this space will become even more prominently important in the global economy. Therefore, I think that being in this space, having the right niche will make a difference. That's why, I think in the past, we have nice growth in C&I loans, but overshadowed by the real estate. But today, I think we get a little bit more disciplined. First of all, I think with our size right now, we're now more comfortable to make a little bit larger size loans. As you heard earlier, our average size is $2 million, and we're not afraid of making a loan if it has to go up to $10 million, $20 million or so. But obviously, back in the early 2000, we do not want to even talk about making loans more than $10 million for C&I. But at that time, we were only $5 billion, $6 billion. And now we're $20 billion plus in assets. And I think that all of that put us in a position that I think there are higher probability and likelihood that we can grow our C&I loans in a much better position than the other peers. Thank you. That's very helpful. Thank you. And once again, please press star then one if you would like to ask a question. And our next question comes from Christopher Nolan of CRT. Hi, can you hear me? Yes. Hi, a quick question on the security repurchase. A security sold under long-term repurchase agreements, which is approximately $1 billion. Do the prepayment penalties for that go down as interest rates start going up? Correct. Right now, there's a pretty heavy prepayment penalty on that, and there's an optionality, and because of that, it doesn't make sense for us to prepay the repo liabilities at this time. But when interest rates go up, the prepayment penalties will pull down substantially, or it may be called when the interest rates go up. Got it. And I guess, Julia, just to follow up on that, given that this is pretty expensive funding, have you guys looked as to how much rates have to go up to make this a prepayment of this a possibility? Yeah. Because roughly the cost of funds on that one is 4%, so rates have to go up a little bit for that instrument to be called or for the prepayment penalty to be small enough to justify an early payoff. Great. Thanks. Take my question. Thank you. The next question comes from Gary Tenner of D.A. Davidson. Thanks. Good morning. Good morning. You partially answered this question, but I wonder if you could in any way quantify how much of your C&I growth this quarter came from taking larger exposures with existing customers versus actual new loan origination? Pretty small. There are some customers that are requesting an increase, but majority are new relationship, new customers. Okay. You mentioned earlier your loan pipeline. Can you quantify where the pipeline is at March 31 compared to the end of the year? Well, on the pipeline side, I think that we look at it for internal purpose. One thing I don't like to talk about pipeline in terms of giving any kind of implied guidance is that until the loan is booked- To me, it's nothing. I do pay attention to these pipeline and making sure that what potential loan will be coming, in terms of managing the overall credit portfolio risk and things like that. We looked at it as nothing is real until it's booked. That has been our traditional way of looking at this loan growth. At this stage right now, I would say that internally we see there are stuff happening, but I would not be comfortable to give any kind of quantifiable numbers. Okay. Finally, again, on the loan topic, has there been any use of syndicated loan market or purchasing loans over the last couple of quarters? We have some small amount of syndicated loans. I think it's like what? A little bit over 10. Let me see. Yeah. About 10%-15%. 15%. 15%, yeah. 15% of your- 15. One, five. 1.5. 1.5, 15%. Right. Of your recent. Of the growth. Or of your overall C&I book? No, it's for the net growth for this quarter. Okay. Of the net growth. Just the growth. Yeah. But as a percentage of the portfolio, it's less than 10%. Yeah, less than 10%. About 10%. All right. Thank you very much. Thank you. The next question is a follow-up from Juliana Balicka of KBW. Good morning. Thank you for letting me come back into the queue. Two very quick questions. Could you clarify, you have two issues of TruPS, I see, in $10.75 million, 10.875% TruPS due 2030, and another $10 million of 10.945% due 2030. Which one are you planning on calling? Sorry. Both. We want to do both because those are very high yield, high rating. Both. Okay, very good. Excellent. Thank you very much. Okay. Thank you. I would like to turn the call back over to Dominic Ng for any closing remarks. Well, I wanted to thank everyone for joining our call, and we look forward to talking to you again in July. Thank you. Thank you. That does conclude today's teleconference. You may now disconnect.