East West Bancorp, Inc. (EWBC) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the East West Bancorp conference call. (Operator Instructions) I would now like to turn the presentation over to the host of your call, Ms. Irene Oh, Senior Vice President. Please proceed.

Good morning, everyone. Thank you for joining us to review the financial results of East West Bancorp for the first quarter of 2008. In a moment, Dominic Ng, our Chairman, President and Chief Executive Officer will provide highlights for the quarter; then Julia Gouw, our Executive Vice President and Chief Financial Officer will review the financial details. We will then open the call to questions. First, I would like to caution participants that during the course of the conference call today 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. We wish to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company's operating results we refer you to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2007. Today's call is also being recorded and will be available in replay format at www.EastWestBank.com and www.Streetevents.com. I will now turn the call over to Dominic.

Thank you, Irene. Good morning. Thank you for joining us on today's call. Yesterday afternoon we announced the financial results of the first quarter 2008. Since our last call in January, to discuss fourth quarter and full year 2007 earnings, the residential real estate market and overall economy have continued to move in a negative direction. The economic and real estate slowdown has impacted virtually everyone in the financial sector since mid-2007. Many businesses, including East West, our peers, and our customers have been affected by the weakening economy and slowing real estate market. During the first quarter, disruptions on Wall Street and in the financial markets continued, compounded with declining values in the real estate market. Furthermore, there are mounting concerns of the potential for recession and continued deterioration of the economy. We have spent the last several months proactively and aggressively dealing with the harsh realities of the market and believe the shift and decisive actions we have taken during the first quarter to build reserves and minimize credit losses will position the bank to benefit as the current economic and financial challenges will present new future opportunities. During the first quarter, we recorded provision for the losses of $55 million, increasing the allowance for loan losses by 32% for the quarter. As of March 31, 2008 the total allowances for loan losses and unfunded loan commitments to the total loans was 1.46% compared to 1.13% as of December 31, 2007. Primarily as a result of increased provision for loan losses, earnings for the first quarter of 2008 fell to $5 million, or $0.08 per diluted share. This equates to an 88% decrease in net income and earnings per share from the same period of 2007. Julia will provide a brief summary on our overall financial performance for the first quarter shortly, but first I would like to discuss how the current economic environment is impacting East West and share with you the intensive due diligence we are performing on our loan portfolio. Additionally, yesterday we also announced the planned transition of Julia Gouw and I will discuss that also later in the call. The provision for loan losses for the first quarter of $55 million exceeds net charge-offs by $29.6 million, or 117%. $24.6 million, or 92% of total of $25.4 million in net charge-offs for the quarter consists of seven loans which I will discuss in more detail. The single largest charge-off during the first quarter was a $10 million C&I loan that was charged off in full. We believe that there is potential recovery on this loan and are working aggressively to collect these amounts. However, due to fraud associated with this loan, we felt it prudent to charge off the entire balance and then begin our collections efforts later. This one loan represents 39% of total net charge-offs for the first quarter of 2008. I would like to emphasize that we believe that this is an isolated incident and at this point in time do not see any signs of systemic problems within our C&I portfolio. As part of the earnings release yesterday, we disclosed the delinquency categories for all of our loans. Delinquencies on C&I and trade finance loans remain at a very low level. 30 to 59 days delinquent loans were 29 basis points; 60 to 89 days delinquent loans were 25 basis points; and 90-plus days delinquent loans were only 10 basis points. The bulk of the remaining charge-offs were comprised of six residential construction and land loans for which we recorded $13.6 million during the quarter. Five of these residential construction and land loans, or $10.9 million in charge-offs were located in the Inland Empire of Southern California. During the first quarter, housing prices continued to decrease throughout the country and in the area we do business, and in particular in the Inland Empire. These declining home prices have continued to impact residential construction and residential land sectors of our loan portfolio. As of March 31, 2008 we had a total of $1.6 billion in construction loans. I would like to emphasize that the vast majority of our residential construction and also land loans are in areas of Southern and Northern California where valuations are still holding up strong. Of the total construction loans that we had at March 31, 2008 $1.1 billion, or 70%, were residential construction projects. Of this $1.1 billion, only $116 million or 11% were in Inland Empire. Additionally, at March 31, 2008 we had a total of $145 million in residential land loans located in the Inland Empire. Again, I would like to emphasize that the vast majority -- 92% of the total $261 million in residential construction and land loans altogether -- we have located in the Inland Empire area performing as agreed. Although the real estate market has declined substantially in the Inland Empire, our borrowers have high liquidity and financial strength and for the most part, are paying as agreed. We continue to vigilantly and systematically monitor our loan portfolio for potential weaknesses, particularly in our residential construction portfolio. On an ongoing basis, we continue to re-examine our credits, specifically focusing on land construction and C&I loans. Overall, we believe that our loan portfolio is sound; however, we are cognizant of the deterioration that has occurred in the real estate market in a relatively short period of time. As such, we have enhanced our credit analysis. We have also ordered new market valuation on every single land and residential construction loan that we have. Within the next several weeks, all land and residential construction loans will be completely updated using current market valuations. With the ongoing decline in the real estate market, it is only prudent for us to gather this information and perform a comprehensive risk assessment. We believe that by being proactive and aggressively addressing any loans with any early signs of weakness will be critical in minimizing the financial effects of a downturn. Overall, we believe that East West Bank will continue to be a market leader among our peers. We have always been a disciplined and conservative lender focused on core, sustainable earnings and are confident that this operating discipline will carry us through these challenging times. Year after year, in all types of economic cycles, East West has outperformed its peers. Although the start of 2008 has been challenging, we expect to continue to outperform our peers, and deliver solid financial results for our shareholders. In the earnings release we announced yesterday we did not provide updated guidance for 2008. As I'm sure many of you are aware, East West normally provides earnings projections and updates each quarter. Given the current economic turbulence and uncertainties, we believe that it is not meaningful to provide earnings guidance at this time. However, we are confident that East West will be profitable, even in this very difficult year. Additionally, we also announced yesterday that there was a management change at East West, as Julia Gouw will transition to her role as Vice Chairman and Chief Risk Officer. In her new role as Chief Risk Officer, Julia will focus on credit risk for the remainder of the year. Julia is retiring at the end of 2008 after almost 20 years of service to the bank. After her retirement, she will continue her role as Vice Chairman of the Board and will also serve on the risk oversight committee of the board. I would like to emphasize that Julia will stay actively involved with East West after her retirement and I believe that her continued role as a board member shows her commitment and vested interest in the bank. In essence, Julia's not leaving the bank; she will continue to be in the bank for many years to come. We have hired a new CFO, Tom Tolda, who will be joining the bank starting next Monday, April 21. Tom joins us from Wells Fargo Bank where he was CFO of the Consumer Credit Group. I believe Tom's extensive experience and larger institution including Wells Fargo and Citibank, and his international background will help propel East West forward. I look forward to working with Tom and am excited to add a seasoned banker to our management team at East West. With that I will now turn the call over to Julia who will discuss in more depth the specifics about the first quarter of 2008 financial results.

Thank you, Dominic. I will provide a summary on the financial results of the first quarter of 2008. The release contains a detailed discussion of the financial results for the quarter, so I will focus on key areas. As Dominic mentioned, for 2008 our priorities will include the careful monitoring of credit and expenditures. Additionally, we plan to reduce the loan to deposit ratio, concentrate on growing [low cost] deposits and strengthen our capital base. I will touch on each of these topics in my discussion. With the current challenges facing the entire financial service industry, our plans for 2008 include deleveraging our balance sheet. As of March 31, 2008 the gross loan to deposit ratio was 117%. Our goal is to lower this ratio to 100% by the end of this year. We plan to achieve this goal by reducing our loan balance by selling loans if the terms are attractive, continuing the deposit growth we achieved in the first quarter, and also use excess cash to pay down the borrowings. During the first quarter, deposits were $272.9 million, or 15% on an annualized basis. The growth of low-cost deposits is a primary focus for all of our front line sales and marketing force as we will continue to diligently drive the deposit growth. Overall, our capital levels remain very strong. Our capital levels continue to exceed the levels defined as well capitalized by the regulators. Safety and soundness is a concern for all banks in such challenging operating environments and East West will continue to focus on maintaining strong capital levels. We are very pleased to report that our margin remained relatively stable during the first quarter, despite the steep 200-basis point decrease in the target Fed funds rate. Our net interest margins for the quarter equaled 3.63%, a 32 basis point decrease from the year-ago margin of 3.95% and a 28-basis point decrease from the prior quarter margin of 3.91%. For the first quarter of 2008, the annual volume of earnings assets was $11.1 billion and the yield was 6.81%, an increase of average volume of $935 million, offset by a decrease in yield of 66 basis points from the prior year period. The average cost of deposits was 2.86% for the quarter, a decrease of 57 basis points from the year-ago quarter and a decrease of 29 basis points from the prior quarter. We continue to price our loans and deposits at rates that are competitive but will ensure strong profitability for the bank. We now estimate that our margin will range from 3.4% to 3.5% for the full year of 2008. This estimate includes the assumptions that the Fed funds rate will decrease another 50 basis points, down to 1.75%, which is what the Fed funds future is currently indicating. As Dominic has spoken extensively about the credit quality, the allowance for loan losses and provision levels for 2008, I would like to briefly touch upon the composition of the nonperforming loans as of March 31, 2008. As of March 31, 2008, we had $74.5 million in nonperforming assets, comprised of $57.9 million in nonperforming loans, $1.7 million in modified loans, and $14.9 million in OREO assets. Nonperforming assets as of March 31, 2008, were comprised of 11 single family loans totaling $4 million; nine multifamily loans totaling $11.3 million; nine commercial real estate loans totaling $13.1 million; 11 construction loans totaling $30.9 million; 12 commercial business loans totaling $1.7 million; and seven consumer loans totaling $198,000. For all our problem loans, we are active and aggressive in managing and resolving issues. Our loan portfolio is largely tied to variable indices. At March 31, 2008 60% of our loan portfolio reprices immediately; 17% reprices within a year; and 7% is tied to an intermediate index between one and three years. Non-interest income for the fourth quarter totaled $15.9 million, 27% higher than the year-ago level of $9.3 million. Excluding the impact of gain on sale of investments, securities, and other assets core non-interest income grew nicely totaling $10.6 million for the quarter, or an 11% increase from the prior year. Non-interest expense was $52.8 million for the first quarter, an increase of 25%, or $10.5 million for the prior year figure. The increase from the prior year is largely a result of increases in both compensation and occupancy expense resulting from the acquisition of Desert Community Bank which closed last August; and also, increased legal expenses. We currently expect that the run rate for non-interest expense for the remainder of 2008 will level off from the first quarter 2008 figures as we continue to carefully monitor all costs. As Dominic mentioned, I'll be shifting my focus to credit risk and the management of our loan portfolio for the duration of the year. Additionally, I'll be assisting Tom in the transition of the CFO role. Although these are challenging times for the banking industry, I feel very comfortable retiring at this juncture, based upon the financial strength and strong core profitability of the bank. After 20 years of employment at the bank, I can confidently say that I believe that the bank will be able to meet any future challenges head-on. In my future role as Vice Chairman of the Board, I will be proud to watch the bank grow and succeed for the next 20 years. I will now turn the call back over to Dominic.

Thank you, Julia. Again, I would like to thank everyone for joining the call today and for your continued interest in East West. I would now open the call to questions.

(Operator Instructions) Your first question comes from the line of Erika Penala - Merrill Lynch. Please proceed.

I just wanted to get an idea, I'm guessing that you've already gotten new appraisals for some of the nonperforming construction projects. I'm trying to get an idea of what the new valuations will look like. Could you give us a sense of what kind of value haircuts your new appraisals have been implying on land, partial completes and completed construction projects?

It varies, obviously. We have actually completed most; in fact, for the nonperforming, every one has been done. In fact we are, as I said in the call earlier, we are doing 100% of every single construction and land loan. In fact, most of them are already completed. We're just going to be finishing up for the rest of them in the next several weeks. It goes all over the map. Most of the regions are still holding up pretty strong and there is no question that Inland Empire is the one most distressed and the valuations go down even more. This is one of the phenomenon, very similar to the financial markets like mortgage-backed securities or CDOs and things like that, when the market just goes really crazy right now in terms of thinking about these land loans and construction loans are relatively distressed, I think suddenly the valuation dropped tremendously. What you will find is what we have seen occasionally, there are some land loans that the value dropped even 70%, 80% simply because at this particular moment, obviously, appraisal may be more aggressive or more bullish the last two or three years, and the appraiser today suddenly becomes substantially more pessimistic.

You're thinking the values could actually come back in '08?

There's no question that the market value will come back There's no question the market value will come back. What happened is that we are going through a very challenging time that when you have major developers like KB Homes and all of the big ones who are suddenly walking away from big developments in this kind of environment, appraisers are turning to extremely, extremely pessimistic views. I look at it as, it is what it is. What we look at is we ask at what the asset is valued at today, what can we sell. They give us a value. Because of the illiquid market that we're looking at right now, basically buyers, even if they feel that there's a property that is worth tremendous value, they look at it as there's an assumption or perception that everyone should get a steep discount. If you have buyers who have tremendous liquidity today and go in like a voucher, and buying land and they're expecting steep discounts and are getting into this vicious cycle. So from that standpoint, I think that despite the fact that we have loan-to-value at a very extremely low level for our land loans, we still end up taking charge-offs because this market is what it is. Our perception is go ahead and take the writedown and for some of these property, the writedown becomes almost close to zero. We have the ability to hold and sit on maybe some of these OREOs and wait a couple of years because the Inland Empire will grow one way or the other, faster than the rest of the country. It's just a matter of this is a temporary slowdown. But with the vast opportunity of jobs and the lower cost of living and so forth, more and more companies’ headquarters are moving in that direction. More and more L.A. and California residents are finding those areas are much more affordable to live. That's the reason why the last 20 or 30 years the Inland Empire are growing phenomenally. They're substantially higher in terms of percentage than let's say a city like San Francisco and L.A. We know without a doubt in a couple of years that it's going to come right back again, particularly since a lot of the infrastructure has already been built. It's just that with the supply market being gone and with the mortgages not accessible in sort of a very, very unusual financial market condition, there is this temporary illiquidity that caused builders and homeowners, and also consumers to be antsy about a situation which resulted in what the current situation is right now. So the good news is that despite all of that, with so many of our borrowers who have substantial equity into these land loans or construction loan s, it is not an easy decision for anyone to say, let me just walk away. So many of them continue to hold on to these properties because they are also smart and shrewd investors. They look at it and say, why would I want to give up this property to the bank to foreclose on when I know if I can just hang onto it for two years, I can come back and reap profits? So that's why 92% of our construction and land loans in the Inland Empire today are still paying as agreed.

Going back to what you mentioned about potentially holding questionable construction projects until the market comes back, are you seeking --

No, I'm sorry, let me correct that. Land. When we have land. No, construction projects, I mean once something is being built, either the borrower has to take care of it or we have to liquidate it. We do not have the capacity within the bank to be property managers. What we do is for a piece of land that right now is a writedown to almost zero we can just leave it alone and not worry about it. But we pay property tax, I mean that's something we need to do. But when it comes down to construction loans, we cannot do that.

Sorry, I misunderstood.

It will be liquidated, if we ever take it over.

Given the economic uncertainty that you mentioned, will you be seeking to raise more capital or seek out a strategic partner at this point?

Well, our position is that first of all, we feel very comfortable we can be profitable throughout the year. Also right now it's well capitalized. So we're in a good position right now. On the other hand, let me tell you; I mean, with where we are today, absolutely we will consider any kind of alternatives. I mean, there's no question that we will consider all kinds of alternatives because we are here to protect shareholder interests and there is no reason for us to -- If you look at the way that we handled problem [inaudible] we are proactive and aggressive. We are never the kind of bankers that will be in denial. So we can look at our stock price and we know that to be fair with shareholders, despite the fact that no matter how much we do in our financial performance if there are any kind of concerns out there we also need to be proactive and look at what are the best alternatives. So in that regard, I would say that we'll definitely look at all kinds of potential opportunity which is best for shareholders but we would not be hasty to make any kind of decision that will cause more problems.

We're sad to hear the news that Julia's going to be stepping out of the executive position and we're curious to know whether or not there were any management changes on the credit admin side; and if not, are there plans to do so?

Well first of all, Julia's not leaving. I look at her right now, she's laughing. She seems to be pretty happy about her new role. So anyway, no we do not have any current plan about any major changes. While we did add a very senior level person to head up our retail operations and in charge of all of the retail banking business, but in terms of our current situation right now we feel very confident that with Julia 100% focusing on the credit management issue for the next eight months, and plus, Tom coming in starting Monday, so I instantaneously double up the financial acumen, expertise within the organization. With Julia being here for the next eight months, she can always be available, being mixed with Tom in terms of offices sitting side by side, she'll be able to assist in way that Tom needs her to help to get up to speed. Because despite the fact that he has two decades of experience between Citibank and Wells Fargo, he would not be as familiar of East West as she is. But myself, Julia, Irene, every one of us will be working with Tom to make sure he gets up to speed as quickly as possible which will allow Julia plenty of time to look at the credit problem. I would look at the current East West balance sheet right now. I'm very comfortable in the next several weeks we have a very, very good grip of exactly; we are already 70%, 80% in terms of getting totally comfortable with where we are and I think with those weeks of additional time, we're going to be in great position. Now, that being said, the likelihood that we actually are getting ourselves in a position that we have no idea what's going on about these problem assets and so forth, by first quarter 2009 I think that is highly unlikely. So I feel very confident that in fact, this arrangement is actually a big plus to the organization in today's environment. Now, the fact that Julia's plan of retirement was discussed, I mean Julia discussed this with me over two years ago, shooting for her 20-year anniversary. But the fact is we looked at it and it turns out that timing today from the market standpoint doesn't look very good. But from a true internal East West Bank current scenario, it has actually worked out to be better because right now, that's exactly what I need. I need to double up to spend more time focusing on where do we stand on allowances? Where do we stand on provisions? How do we resolve these NPA and how do we focus on getting a better assessment about the guarantors and the borrowers' financial condition, all the cash flow and so forth? Then having more bodies to help, it's just going to be a big plus. I think it all worked out for the best.

Your next question comes from the line of Andrea Jao - Lehman Brothers.

I was hoping Julia would drill down a little on the balance sheet delevering and talk in a little more detail regarding the rationale. Are the original assumptions for loan growth, which was 3% for '08 and deposit growth 5% for '08, are those still good and do you just plan to sell loans and pay down borrowings to meet your delevering targets?

The loan growth, first quarter, if we annualize excluding the sale it's about 7%. But given the current market conditions, I think the demand for new loans will also go down because transaction volume also has gone down. So I would say that the 3% probably is still holding up, but that's before the sale. As long as we can sell the loans at an attractive price, at this moment to reduce the loan to deposit ratio will only strengthen the bank's balance sheet. In addition, the capital relief from selling the commercial real estate at 100% risk weighted assets will also help us with our capital ratio. So in terms of the deposits, we had good success in the first quarter. We hope to actually do better than the 5% that we originally projected. So, that would be the main focus is to increase the deposits as much as we can and then reduce the loan to deposit ratio. Any excess cash that we have will pay down the borrowings, so in a way we are also relieving capital by deleveraging the balance sheet.

Could you give us at this point how much loan sales you expect for '08?

Well at this moment it's hard to tell in two months the appetites of the buyers. But if we can sell another $300 million, $400 million, $500 million, that would be helpful for the bank. But we will only do that on an opportunistic basis. There are always buyers, if they offer very low prices then it would not make sense for the bank to do so. We can always hold on. We have plenty of liquidity. We have very large, over $1 billion of excess borrowing capacity that we haven't used. So it's not that we need to sell the loans at any cost. However, if we can get a very good price, it would be prudent for us to monetize these loans and pay down our borrowings and we'll just increase our liquidity to a very, very high level.

Okay, that's perfect. My follow-up question is actually for Dominic. Dominic, if you could talk about or give specific examples of how you're working through credit issues with especially your construction clients and how you feel this is different from what your peers are doing, and is this enough to get ahead of the curve?

Well, what we do in fact, we started even before the end of last year is we pull all our senior team leaders who have credit responsibility altogether on a weekly basis at our loan committee meeting and instead of spending most of the time in the past of granting new loans, we actually put granting new loans on a second priority and we can do it on the side and so forth but we spend mainly our loan committee meeting in addressing the review of these construction and land loans and also C&I loans. Every week we are doing that. That's since about August and September last year we've been going through every single week. And in addition to that, every week we also have meetings with individual team leaders to look at their specific team's portfolio and we will pick maybe one month looking at construction loans, one month we look at land loans, and then another month we look at C&I loans, and then we cycle it through. On a weekly basis, we pull the team leaders one-on-one with the chief credit officer, myself, Julia, and those people who are involved with asset resolution and credit analysis and so forth. We have a group of about nine or ten people that we will go through this portfolio review with the team leader one on one on different types of categories of portfolio. Now beyond that, we started a few months ago ordering new appraisal for every single one of these construction loans; residential construction and also land loans. The idea is that just by reviewing them is not adequate. We have to also look at the most updated market value. That is ongoing. Now, a substantial amount of that work's been completed but we will continue to do more and frankly if the market condition continues to deteriorate, I would imagine that three months from now we will start this process all over again. Sometimes it is what it is, the reality is that we cannot look at today's market value in Inland Empire and then using the value that we looked at back in October and November. Interestingly enough, when we looked at some of these loans that we identified as potential problems back in October and November and then when we do our updated review in March the value had changed. And also, some of them even the borrower's financial conditions has changed; just because the borrower had $30 million, $40 million net worth four months, five months ago and appeared to have strong liquidity at that time doesn't mean that it will be still the same case today. So we are very aggressive and proactively looking at the borrower's financial conditions to make sure, are they still in a good position to be in the position to ride through this recession? So these are the kind of things we're going through right now basically one loan at a time. Residential, construction loans and land loans. Now the interesting thing is despite the fact that our average loan size is very small, that means the total number of loans is big still on a relative basis, we are not talking about too many loans. Julia, I don't know if you have a number of loans in total.

We have about 300 land loans; those are all land loans, residential and construction. We have 400 residential construction loans. So we are looking at updating the value on 700 of them.

So on one hand, I mean people they do not know the detail. I mean, we have a $12 billion balance sheet. It may look like overwhelming, wow, all of these loans and then if you have to update every three months how are you going to be able to handle it? I look at it as it's only 300 land loans and 400 construction loans, and this is not the year that we need to be out there every day and going to golf tournaments and trying to solicit new customers. So we saved those hours and then we sit in the office and working with our Chief Appraiser, with our Chief Credit Officer, and then all these other folks who are looking at either risk assessment and also asset resolution folks all together, putting our heads together and trying to look at these loans with the account officers instead of going out there and aggressively soliciting more new customers, but turning back and then start looking at the portfolio. Actually, it's not that big of a deal. I mean, I'm talking about looking at every single one of these loans and we have only got 700 of them, land and residential construction. So, therefore, we feel very comfortable that we will be able to manage exactly what we've got and be able to get very much up-to-date financial information at all times. Now what we are our peers doing? Obviously we do not have as much transparency. All we know is that we've been hearing from, we go to these regulatory updates. We have heard from regulators like OCC and FDIC and the Fed have been expressing concern that when they talk to banks, most of them basically have one-liners saying that, well, it's just somebody else’s problem. We don't have problems. I guess from a construction loan standpoint, if you do not aggressively go in and start analyzing the portfolio before the loan is actually mature or finished, you would never know that you have problems. C&I loans, if you do not spend a lot of time looking at the current cash flow and the current financial condition or the current economic environment that may impact the business of the C&I loans one may not have a good insight or transparency about how well the customers are doing. What we're trying to do is to make sure we are proactively looking at that. I feel very confidently that we are ahead of the curve when it comes to the credit management area. By the way, this is nothing unusual. When I look back in the early '90s, from 1991 through 1995, when I was a brand-new CEO at East West Bank, actually Julia and I spent Thanksgiving weekend classifying assets together and we had a great time working on classifying assets together. But by Saturday of the Thanksgiving weekend we got everything classified before the regulators came in and they were very, very proud of what we had done. Because we nailed them all, you know? So those are the kind of things that I looked at it, we went through it before. We are very comfortable about how to deal with this current economic environment. Every recession is different. We are not going to use the same exact formula like we did in the past but we will recognize one thing though; is that the sooner you get to it, the better it gets. The sooner we get to it, the more likely we're going to get out ahead of the curve and we're going to be substantially better than the peers two to three years from now. Because what happened is that for those people who do not address a problem head-on at the beginning, they would not have any signs of distress now; but a year from now, that will be a very different situation. Because not only there are still going to be more losses to charge off but more importantly, there will be all kinds of regulatory restrictions at that point for those who are not addressing it upfront. That will put the banks in a very difficult position in terms of handling customers' needs. One of the things we feel is most important is that we're not just here to sort of quickly take care of these problem assets just because we want to erase the pain as soon as possible. That's not the intent. The intent is that East West has always been financially sound. We never once have any kind of regulatory problem and we're not going to put ourselves into that position ever. The idea is that our number-one priority is to protect our customers' deposits and also make sure our great borrowers who have always been very, very loyal to East West, if they have financial needs today we do not want to be in a position that we say that, “guess what, we have liquidity problems or have regulatory problems and we can no longer service you.” We are not going to do that for our great customers. So in order to make sure we are always going to be in that position, we are going to take a very aggressive approach now and try not to go out and keep looking for more potentially risky loans and try not to go out there to ignore our current potential nonperforming assets that have not shown signs of clear stress yet, but we need to start dealing with it now. By doing that, our long-term loyal borrowers will be protected. Our depositors will feel very good sleeping at night and our staff will be very comfortable with a continued successful career within the organization. That's what we're trying to do. By doing all of that, no question about it, we are protecting long-term shareholder values.

Dominic, that sounds great. It also sounds like you've done a lot of work. So based on all the analysis and the scrutiny you have given your portfolios -- and this could be an unfair question -- but what would be the probability of another quarter where you see $50 million or $55 million in loan loss provisioning? Or do you think it's more probable we see something, half of that, in the remaining quarters of '08?

At this moment, Andrea, we feel that if the market deteriorated significantly there's a possibility that we may have to book this a $50 million, $55 million provision. However, we believe that if the market deteriorates slightly there's a high likelihood that we will book lower provisions. But it would not be as low as what we used to be -- $4 million, $5 million a quarter -- until the market recovers. So we believe that somewhere in-between the likelihood is it would be less but it's not going to be $5 million. So I would say maybe between $15 million to $25 million is not within the outside range of possibility that we have to book for the remaining of the year. But keep in mind we are very comfortable because our pretax earnings before provision is $60 million per quarter for the last eight quarters. So for the year it's $240 million so it can absorb provisions up to $240 million before we have losses. So that's why we are very comfortable that this year we'll be profitable no matter what happens.

That's perfect. Thank you so much.

Your next question comes from James Abbott - FBR Capital Markets.

I had a question on the margin. You have given guidance for the year. Could you give us a sense what the margin was for the month of March? Just trying to get a sense as to where we're starting from. I understand that there's some dynamic that it collapses early in the cycle as the Fed cuts and then there is some rebound effect. A related question is what level are you issuing CDs at right now, roughly, for the new incremental volume?

Well the margin for the month of March is about 347, 348. So that took in a portion of the reason that decreases. But we believe that the lowest margin will be in the second quarter where the full impact of the rate decreases will be felt, with some of the loans that will reprice down in April because when the Fed cuts in the middle of March some of the loans will not reprice until April. That's why we believe that with another 50-basis point rate cut for the full year is between 340 to 350. In terms of the CD rate, the posted CD rate, I believe maximum is about 2.5%, 2.75%. But we did raise new money, $135 million, when we had a CD promotion during Chinese New Year in the early part of the year in early February. We paid 3.88% on that. So we will expect the CD cost of funds will continue to decrease as it reprices down to the new posted rate.

The positive side of this current recession is that on the loan side because there's just so little competition out there in fact pricing has improved substantially. Two years ago in our call or even last year we always kept talking about the competition the pricing getting out of control. I think specifically C&I loans and basically all of our prime items out there in the market and even commercial real estate loans because of the conduits out there who are basically charging only 5.5% for ten-year fixed and make it very challenging for us to try to hold up with our East West loan pricing. But in today's market, fortunately, that is no longer a factor at all. In fact we were able to get our pricing right back into the good ole days of good margin pricing. So with that, I think that it helped ease some of the severe rate cut that we are experiencing right now from the Fed. I think, all in all, the margin compression may not be as severe as we initially were concerned.

On the expense side. I would imagine that the expense number didn't go up. I think guidance, you probably beat your guidance from the prior quarter on that front, cutting some costs and stuff like that. I imagine that's probably bonus accruals. If that's the case could you tell us what number you'd need to hit as far as the net income number for the year to have to start reaccruing bonuses, if that makes sense?

We will continue to book some bonus accruals because we don't really have a system that is purely based upon net income. But each year, when we actually give up the bonus we tend to over accrue, because we will never pay bonuses more than what we accrue. So most likely the accrual will be at a lower level than in the prior years but it will not be zero and then kicking up when we achieve a certain level.

Throughout the organization there are various different job functions. Some of the people who obviously for those people who are actively involved with production and bringing revenues to the bank when the revenues subside and production is not as strong, naturally you would expect that their bonuses will be lower. For those people who are in charge of P&L like myself, naturally you would expect that there shouldn't be any much bonus at all. But then when you talk about people in the organization who are very actively doing a great job to slice and dice the numbers in our problem credit areas and some of the people there will be probably getting a reasonable amount of bonus. Because what we do is that we incent people to do a great job for the organization. The focus, the objective in 2008 is quite different than in the past so we will see some shifting of bonuses but I would imagine that overall, just because of the financial performance in terms of earnings has been dramatically reduced and therefore it would be appropriate that the overall bonus will be reduced.

Your next question comes from the line of Aaron Deer - Sandler O'Neil.

I had a question on the land loans. I was wondering if you could update us on what the outstanding dollar value of that portfolio is. And to confirm, if I recall that correctly, that's actually in the commercial real estate portfolio. What are the current average LTVs on that portfolio?

In terms of land loans it's roughly the same, about $680 million. Out of that, about $400 million is residential and the remaining is commercial land. So far, the updates we have gotten are mostly in the Inland Empire, which Dominic mentioned the property value really varies and also depending on the location in the Inland Empire, the one closer to Los Angeles, the value holds up better. The commercial land seems to be holding up better also compared to residential, because if anything, any planned development in the Inland Empire area would be put on hold for some time. So as a result, the biggest deterioration of value would be further east in the Inland Empire for residential. But so far, the commercial land seems to be holding up pretty well.

Where would you peg the current LTVs on that?

We don't have that information yet, as to overall. On average, the whole land portfolio it was at 45% at origination. As we update the entire portfolio, we'll be able to have a better feel of the average loan-to-value of the entire portfolio.

I was wondering if you could talk a little bit about the nature of the fraud and that $10 million C&I loan. How many loans do you have in the C&I portfolio that are at that $10 million level or above?

Very few. I don't have an exact number, but very few. This is considered a big, huge loan, you know. Very huge. We can get that number. What we'll do is I will have Julia look it up and then we'll just have to call you back on the that.

Can you give some color on what the nature of the fraud was? It didn't involve anyone internal at East West or anything like that, I would gather?

No, nothing internal. What we meant is that we believe that the information, the financial condition information is incorrect, the value of the collateral is not what was presented to us. So that's why to be prudent, we charged off the entire loan. But we believe the business is still ongoing so there's some value to the inventory, and receivables. We'll collect as much as we can. Nothing to do with internal involvement. It's all pretty much false documentation, documents and false information given to us by the borrower.

Your next question comes from the line of Joe Morford - RBC Capital Markets.

Despite the earnings, the book value was down a little over a $1 a share. Can you provide a little more color on that? It sounded like some of it was due to some marks or unrealized losses on your private label securitization. How severe were those marks and what kind of exposure is there for additional writedowns?

You're exactly correct. Most of them are FAS 115 mark-to-market on the private securitization. Because the private securitization we have is not liquid and the market value that we got is in comparison to the quarter or the sales of the comparable securities, which with the distressed sales that people were doing it got marked down significantly. The average market price we got is $0. 72 on the private securitization but we know our private securitization, we know the collateral. There have not been any losses on our securities. The loan-to-value is 60%. The delinquency is low. In addition, on the securities itself, those are AAA securities, they are fully insured by a monoline rep. We believe the market value that we got, the $0.72 is below the true economic value of the securities, but for accounting purposes we have to market it to market value given by the brokers to us. Since we have the intention to hold until maturity, it's not something; it will fluctuate. But if we hold to maturity and collect all the underlying principal, eventually it will go back to par. So that market value, how far down can it go, it really depends what we got quoted by the market. But we truly believe that the underlying economic value of the securities is much, much higher. We expect that given the fact that it's fully insured AAA, we expect full collection on the principal of the securities.

Joe, just for those people who may not be familiar about private securitization here, is that we, for the last two to three years, have been on an ongoing basis securitizing our multifamily portfolio and single-family portfolio into mortgage-backed securities. We basically securitize and keep and hold these securities within the bank for additional collateral purpose. These are the loans that we originated. These are the very, very good single-family, multifamily loans that we so far really hardly have had any losses. In fact, we have been making all these loans all these years, and we have no losses. So there's no doubt that we know the underlying securities are very strong and we are going to continue to hold onto it. But again, in this very crazy, distressed financial market these are the kind of -- what we need to go out and ask for a quote in order to do a mark-to-market for valuation for GAAP accounting purposes, it is what it is. Now, obviously, the good news is that this is not going to be something that impacts regulatory capital.

Right. Okay, that's very helpful. Thanks so much.

Your next question comes from Lana Chan - BMO Capital Markets.

Could you tell us on the residential construction and land loans in the Inland Empire that you had charged off this quarter, how much was the haircut that you took on those loans?

It really varies.

Those five loans in total. How much were they originally?

We don't have the number right now, but if I were to estimate overall probably about 30% is the charge-offs.

When I look at the delinquency table you put in your press release -- and I thank you for putting that in -- there was an increase on the 60 to 89 days bucket on the residential construction side versus last quarter, that was the biggest increase. Are those primarily residential construction loans and how much of that is Inland Empire versus outside?

Yes they are primarily residential construction. $13.5 million of the 60-day delinquent have been resolved, have been paid off.

In the first week of April there was $13.5 million taken care of. So, therefore, what is the number now?

It started with $30 million, minus the $13 million. Most of the other remaining, they are not in Inland Empire.

Is there any particular geographical concentration?

Actually, mostly here in Los Angeles, or we believe that those have good collateral.

Just one more question on the Inland Empire loans that have been problematic. Were any of those loans that you acquired from Desert Community, or were they primarily originated by East West?

There was some very small ones; very small ones. The thing about Desert Community Bank is that they helped to increase our delinquency total because they had a lot more delinquency, but most of the loans are very small like at $200,000, $300,000, things like that. After all, while many of them are chronically delinquent, we seem to have some pretty good success in resolving them without taking much losses. One that I would say that the major losses we've taken whether the C&I loan and these Inland Empire land loan and residential construction loans are not part of that, did not come from the DCB acquisition.

Okay. I was wondering if there's any risk of goodwill impairment charge with DCB?

The goodwill impairment is the entire goodwill on the balance sheet. We have tested the goodwill as of 3/31; we engaged a third-party expert study. So we feel comfortable as of 3/31 that there is no goodwill impairment. It's an area that we'll have to continue to balance our goodwill.

My last question is, have you guys recently completed your annual regulatory exam, or when do the examiners come in?

It was December. I think our exit interview was in January. We had an exit interview in January and so relatively recent.

Your next question comes from Joe Gladue - B. Riley.

Let me first ask Julia to repeat the breakdown of NPLs that you went through in your opening remarks?

On the detail of how many loans?

Yes.

Is that what you want?

I am a slow writer.

Okay. Let me summarize for you. So, for the non-performing assets, $74.5 million. $57.9 million, nonperforming loans; [$1.7] million modified loans, $14.9 OREO. In terms of the different types of properties, 11 single family loans totaling $4 million, so they are smaller average-sized single-family loans; nine multifamily loans totaling $11.3 million; nine commercial real estate loans, $13.1 million; 11 construction loans, $30.9 million; 12 commercial business loans, $1.7 million; and seven consumer loans, $198,000.

Discuss the net interest margin a little bit. Do you have an estimate of the impact on the net interest margin of the nonperforming assets, how much interest was reversed or not recognized?

There is some, however it's not very significant. Because if you look at our nonperforming assets, even though it has gone up it has not gone up in a very, very dramatic way if you compare quarter to quarter. So while there are some impacts it's not such a tremendous impact on the net interest margin.

I believe most of my other questions have been answered. Thank you.

Your next question comes from Brett Rabatin - FTN Midwest.

First, I'm a little confused. There seems to be somewhat of a disconnect, at least as I see it, in terms of the Inland Empire charges that you had in the quarter and what you're seeing with the rest of the portfolio. I'm just trying to figure out, I know there were some extenuating circumstances with a few construction loans and then obviously with the C&I loan. But given how you underwrite loans from a loan-to-value perspective, when I look at the losses you took in the quarter they seem large relative to the size. I wanted to hear some commentary on why those loans were written down as significantly as they were and then why the rest of the portfolio still seems to be performing pretty well in that area?

Well, one thing is that while the rest of the portfolio still seems to be performing well has a lot to do with our traditional conservative underwriting criteria that we've been doing for the last many years. The fact is when you have, for example, a land loan, a construction loan, with a lower loan to value and with the borrowers putting substantial equity into it, many of the borrowers today I would call them real estate investor/developers, are probably very, very angry with the market. However, given the amount of equity they have already invested in this type of property, it is highly unlikely for them to just say that well because now it may be under water and I should just walk, knowing the fact that this is a temporary impairment; that within two years' time they're going to get the value back. I mean, it is highly unlikely that most of our borrowers will walk away from these properties. We have very good examples from the early '90s, between '91 through '95, that when the real estate market is not just residential but commercial real estate, multifamily, all sorts of real estate in California with value dropping anywhere from zero to 40% or 50%. At that time, our loan-to-value was even higher than we are today. We have substantially less delinquency and less NPA than most of our peers in the banking industry. The reason was because despite the fact that most of our borrowers, even at that time, were under water in maybe a period of six months to 12 months they refused to walk away from the property because they had substantial equity. That is a very different scenario than what you find today in the sub-prime market. In the sub-prime market, if you have borrowers who never actually had money down, or you have investors who invest in investment properties who only had maybe 5% down, the minute they see maybe a 20% reduction in value, they make an investment choice and say I didn't need to put any money into it, so why do I care? I might as well as walk. That's a very easy position. But for people who put a substantial amount of equity in there, they are not going to walk. So what happened is we have a substantial number, 92% of our residential construction and land loans in the Inland Empire area are still paying as agreed. But I would imagine if we do a mark-to-market today, just like the same way we mark-to-market our mortgage-backed securities, private label, you will find that while maybe many of them are under water, it is no different than somebody who just bought a home with 40% down in the Inland Empire and finds out three months later they lost 50% of the value. However, because the person with 40% down is not going to just walk away from his house just because they feel that 50% of the equity is gone because the price dropped 20%. He's not going to do that. So I think this is what we're seeing here. Now, let's talk about those few NPA here. These few NPAs that we have here just happen to be (1) the value came down. Secondly, these borrowers are having personal financial difficulties beyond just the value of the land. Because keep in mind though, pretty much almost every one of these borrowers have personal guarantees. So it's not just that the value is down, they can just walk. This is again, not like the sub-prime borrowers who just say well, I don't feel like living here anymore because there's no upside and I am walking. With our borrowers, they have a legal obligation to East West to continue to make payments and we have a legal right to pursue for the personal guarantee. So with that in mind, the one that we have to take these charge-offs obviously is that first of all, we feel that maybe the financial condition is no longer as strong and may not necessarily have the ability to pay us all back even if we pursue them aggressively. That’s one. Secondly, we pretty much look at the updated market that we see a loan is sort of substandard that it may be doubtful, based on the most up-to-date as-is market value today, we just charge it down to that lowest value. So, in that regard, if we get our appraisal come back, the value dropped 80%, 90%, from what it was originally appraised it is what it is and we're going to have to put that in as part of the charge-off. That's what's happening right now.

Those are meaningful writedowns. Maybe we can follow up a little bit offline about that. The other two quick questions I had is last quarter, Dominic, you disclosed the level of classified loans. I didn't know if you wanted to do that again this quarter? I was also just curious if you discussed the dividend policy and if you thought there might be a change in that or how you were viewing the dividend; not that it's a huge dividend, but if there was any thought about changing the policy there?

In terms of the substandard, Brett, as of 3/31 it is about $335 million. So it has increased since last quarter.

But if you look at our delinquency it's really not that big of an increase. In fact, even the total amount versus many banks within our peers -- or maybe forget our peers, just banks in general -- our delinquency ratio is really not in any way high compared with many of these other banks out there who are having the difficulties in the real estate market. Our delinquencies are still low. The fact of why our classified ads have increased I think has a lot to do with we are substantially more aggressive in terms of getting to the loans a lot sooner than maybe the others and therefore, it's very likely that our classification may be higher. But I think what you need to do is to compare our overall delinquency versus others and I think that we do not have as bad numbers as most of the banks out there. Now that being said, let's talk about the dividend policy. Right now, because we know we are profitable, we are well capitalized, we really don't see there's any need to make any more additional adjustment today. But just like the previous question that was asked about shall we look into other alternatives like either capital rates, or what can we do to strengthen our balance sheet or give even more signs that we are totally immune from any kind of financial recession in the market and so forth, these are the questions that we will continue to explore aggressively with our board to make sure we do the right thing. But not at this point or at this moment do we have any plan of any kind of dividends reduction. At this stage, all I can say is that we will look at any different kind of avenues and alternatives to help make sure we can improve our shareholder value.

Okay, great. Thanks for all of the color.

Your next question comes from the line of Chris Dalton - D.A. Davidson.

What is the quarter-end balance of your private label securities that you hold on the balance sheet?

We don't have that exact amount. I would say probably $600 million, $700 million, around there.

All of the rest of my questions have been answered, thank you very much.

Your next question comes from the line of Julianna Balicka - KBW.

Good morning. Most of my questions have been answered, but I have one. In terms of your loan loss allowance methodology, it increased this quarter because you were able to factor in higher charge-offs recently. So, assuming hypothetically that next quarter say your charge-offs remain elevated at $20 million for argument's sake, how much higher could you potentially increase your reserve to be? Not that you would choose to, but under the mathematics of your methodology, to what ratio could you bring up your coverage?

Because our historical loss used to be very low, any charge-off that we have will continue to increase the historical loss ratio that we apply to the entire loan pool as well as the classified assets of delinquent loans. So most likely we will provide reserve in excess of the charge-offs. So whatever that charge-off we have in the future quarters we will have to add on additional which would result in the ratio being higher as the time goes by until such a time that additional charge-offs do not change the historical loss ratio, we kind of peak in terms of loss ratio, then you would not expect the interval ratio to loans to continue to increase. I hope that makes sense.

It does make sense. I'm just trying to get the math behind it a little bit more. So if you were to have one more quarter of $20 million charge-offs having had this quarter the $25 million, could you see your reserves going to 150, 160? I'm just trying to get an idea of the ratio.

That would not be unreasonable to expect that it's 150, 160 depending on what kind of charge-off and loss ratio. That's under ratio but in terms of the dollar amount, it also depends on the composition of the loans and the level of delinquency and classified assets, but I would say it's not unreasonable to expect 1.5, 1.6 kind of reserve level.

Your next question comes from Jennifer Demba – SunTrust. Jennifer Demba – SunTrust : Dominic, I'm wondering, after Julia retires at year end, will you be appointing a new Chief Risk Officer? Secondly, do you see the weakness in residential construction and land development spreading over to traditional commercial real estate and commercial industrial loans?

Yes and no. Yes, I will appoint a new Chief Risk Officer upon Julia's retirement starting next year. Our bank has a pretty good succession policy for all senior management and we have a pretty robust process. My plan is that when it comes to near the third and fourth quarter of the year, Julia and I together with other relevant parties will assess the pool of talent that we would look at mainly internally, because we've got some great talent internally, and also external potential recruits, because there are other banks who are maybe having a lot more difficulty than we have and there are maybe potential great talents out there. We will look at both external and internal and identify the right person. I think that I'm very confident that we'll get some very strong candidates, simply because I just look at the internal pool right now, I already identify several people who can pick up that job easily. Again, keep in mind and let me emphasize that Julia's not leaving so therefore she's always going to be here to help out and for her to be actively involved with the risk oversight committee for the board, which really are the ones that drive the enterprise risk management for the bank. What we do, the way that we are set up is that the risk oversight committee of the board are actively involved with interest rate risk, liquidity risk and credit risk; and the fact is that committee meets quite often and Julia will be a very active member in that committee having her office still in the bank. So therefore, 2009/2010 she's still going to be actively telling me what to do. I will follow the advice accordingly. So that's the yes. Let's talk about the no. The commercial real estate portfolio is very different than the residential construction loan situation. I think the residential loan construction is a very interesting phenomenon that we never had in the past. The reason is that quite a few of these residential loans that we originated with great intent in the past focusing on the first-time homebuyers and the not high-end type of residential with less speculation or less volatility, those are the old models in the past. As much as East West knew day one that we would not want to even dip our toe into sub-prime lending, we never made one sub-prime loan, did not get ourselves into buying this silly CDO stuff, we thought that we were doing a great job to not only as a bank, but to the community, by providing construction financing for these single-family homes, condos, for first-time homebuyers. Unfortunately, because of the sub-prime debacle, that pretty much wiped out most of the mortgage company to even do anything with the first-time homebuyers. So right now, when you have first-time homebuyers who have no mortgage, no financing for them to buy any homes, these builders, once they finish their homes, they get stuck or have a difficulty to sell. Interestingly enough, as much as I say this market is really, really bad basically most of our construction loans are still selling their homes. They're just not selling at the price they liked or they expected two years ago or a year and a half ago or a year ago. Most of them are still selling. We're still seeing pay down. This is primarily because we have our construction loans at a lower loan to value so they can sell the loan, and they can sell these homes, let's say, at a 15% to 20% discount and still have profit for themselves and still more than adequate to pay a loan, principal and interest. But for those who are having some distress right now, for example the OREO construction loans we got is due to the death of a developer before the project was finished and East West is not equipped to go and finish it and we also worry about potential legal liability of stepping in too soon and we have to wait. Anytime you wait and let the properties rot and deteriorate for several months because you had to go through the proper legal channel to foreclose on the property we're going to end up taking losses, and that's where we are with those properties. But when it comes to commercial real estate, it's very, very different. The commercial real estate portfolio that we have, we have always talked in the past we even have lower loan-to-value. You know, our construction because of residential for single-family, for low income, affordable first-time homebuyers program, we actually have a little bit higher LTV, we actually have a blended average LTV at 69% loan to value for our construction. For commercial real estate, it is 55% loan to value. And also, they have very good cash flow. So we are 1.8 debt coverage ratio. So with that, and also you do not have all loans coming due at the same time. If you look at construction loans, their average term is about 12 to a maximum 24 months, minimum 12 months. So pretty much the entire $1.5 billion all coming due within a year or so, which is not the same way like we see now in commercial real estate. Commercial real estate usually has terms of five years, seven years, ten years so each and every one of them have different terms. Let's just assume the commercial real estate price will drop because, again, because of the illiquidity of the market, because of the media in New York Times, and Wall Street and L.A. Times like to write bad news and keep saying the prices will go down, down, down, and the prices do go down. If the price does go down, I don't think our borrowers need to be in a hurry to resolve it because they have good cash flow, they don't need to sell. Secondly, unlike a residential construction loan who have all the homes all finished, that's the time that they have the largest principal loan outstanding with no cash flow to take care of the interest unless they find a way to sell the property. So therefore, it's a very different nature. Commercial real estate these shopping centers, hotel s, industrial warehouses, office buildings, the occupancy rate right now in California is still holding up very, very strong. Despite all of the concern about recession and so forth, we have not seen any kind of increase in vacancy rate in any substantial manner, that's one. Secondly, there's a huge relief because interest rates have come down so much due to the Fed fund reduction. Now our customers used to pay about 7.5%, 8% to us and now they're paying, about 5.5%, 6% and they may be even lower but the rents are not dropping, so they're picking up even more cash flow. On top of that, I think what I am seeing right now is that many of these areas that we our commercial real estate in, in California, have very little supply and this is very different again like residential, when no one is buying now because the consumers, or sub primes are not having the mortgage availability to buy, there's suddenly a huge glut of inventory available on the residential side than the commercial real estate. It's not like every day people are building shopping centers and occupancy of hotels is strong in California due to overseas tourists coming to California. We found that the L.A. economy has a very different dynamic to the Midwest or the Southeast and so forth because there are a substantial number of tourists coming up from Latin America, Asia, Europe now to America to go on shopping sprees. In that regard, the hotels are holding up pretty strong. All in all, I do not see commercial real estate will affect East West in the same way like the residential. On the other hand, normally I'm a lot more pessimistic than a lot more of the bankers, so I would say I predict the commercial real estate price will go down. I predict commercial real estate as a whole in the next two years will be going through some stress, but I feel very confident that those stresses will not affect East West because it's exactly the same kind of cycle. If commercial real estate is going to go south, it will be exactly the same kind of cycle that we went through in the early '90s and we came out looking very strong. Now, we were blindsided a little bit from these construction and residential land loans, because the supply market in a very direct way affected us. We actually were a little bit more aggressive in the loan-to-value, thinking about for the sake of doing good deeds for the community like affordable housing is something we all should help and we jumped a little bit too soon on that. Now, that being said, let me just clarify one thing. I worry about in today's market any comments will turn into another vicious rumor. Let me clarify one thing. Our low-income housing, credit enhancement with bond financing and all that kind of stuff, the low-income housing development that we've been actively engaged in since 1995 do not have one penny of delinquency. That portfolio is going extremely strong and going very well. We have absolutely no problem. These are the tax credit investor investing in syndicated deals that East West is the lender for these type of financing transactions. The low-income housing tax credit deals are going very strong, no problem. We specialize in it. We are very good at it, and we're still doing extremely well with it. So, what I'm talking about the affordable first-time homebuyer stuff, we are lending to developers who specialize in building first time homes. That's the one that we're now having a little bit of stress in the Inland Empire area. Jennifer Demba – SunTrust : I appreciate that perspective. Thanks a lot. And, Julia, I know you're not going to sit on the beach, but we will miss talking to you as often as CFO. So congratulations. Thanks a lot.

Thank you, Jennifer.

We tell her to come to New York, or whatever, to do a road show for us on her own dime, because we're cutting expenses.

But if I'm really tanned, then you know where I have been.

Your next question comes from Don Worthington - Hughes, Barnes, and Hoefer.

Good morning. A couple of clarifications. One, in terms of the non-accrual loans, are those included in the delinquency balances?

Yes.

So there's an overlap there. And then in terms of expense outlook compared with the last quarter, where you're looking for fairly aggressive expense growth and you're not now, I think last quarter you were looking at perhaps adding people strategically and then also the expectation that there would be additional expenses related to resolution of credit issues. Just kind of looking for some commentary on how that's changed in terms of your current outlook on expense growth.

I think it should taper off a little bit simply because of our experience in the early '90s, we felt that any time when we get into a very stressful market banks are going to have to spend more money on OREO expense and collection expense, we're going to have a staff up more people on portfolio management and collection s and legal expenses related to collection and so forth. So those are kind of things that we projected, we expected, and so, we expect that to continue to grow in that area. But offsetting against it is that we really do not have to spend as much money like we had in the past in terms of, let's say, promoting the bank in terms of going after substantially more customers, or recruiting more lenders to help us to expand the business aggressively because this is probably not the time that we would be able to find enough energy to focus on all of the other new product developments or things that we can wait, let's say, another six months to nine months from now. What we do right now is that we have a handful focusing on portfolio management. Account officers are getting a little bit more internally focused and looking at their own portfolio instead of going out there, jumping on more business. I looked at it as if you go out there every day trying to look for new business, there's a lot of lunches that you have to pay for. But if you're sitting in the office analyzing your own portfolio, order to go is a lot cheaper. So therefore altogether we feel that there's a lot more expenses that we can save that can offset against the expenditures from beefing up the asset resolution or portfolio management category. So each offset against one another and I think that with an organization being tightened up in terms of looking at credit and also with earnings not as strong as we had in the last many, many years it's only prudent that every one of our employee and executives start looking at expense tightly. Just by looking at things tightly I think that we will be able to find ways to be able to help us to pare down expenses. Now again, keep in mind we have everything that we do here -- a little bit exaggerated fashion -- we are a little bit more aggressive in terms of portfolio management. We are probably a little bit more aggressive in now going forward with expense control. But one has to look as of last quarter, March 31, our efficiency ratio is at 41%, 42%. I try to look up in the map to see how many banks out there in this country actually have better efficiency ratio than we do. So we are in very good shape even as it is right now. So banks are dying to have our sort of expense control, even from the go-go days of East West. So I think we will just tighten up even further down but this is not something that I would look at it as I get way too overly concerned to see that this is a lot of improvement that needs to be made, because we have already been I think even in a good time doing a great job in managing expenses. It is only rational and obvious in today's environment that we will even look further to see how we can help reduce expense to make sure that we come up with financial performance that enhances shareholder values in the long run.

Your final question is a follow-up from the line of Erika Penala - Merrill Lynch.

I'm so sorry, just one quick question. Dominic, I know your answer to this question was that it was all over the map, but could you give us a sense on average where the new appraisals are coming in for those 700 loans versus the original appraisals?

Erika, at this point in time most of the completed ones are the land loans in the Inland Empire.

What's the question again?

I'm sorry, I was asking on average where were the new appraisals coming in versus the original appraisals on the 700 loans you mentioned?

We have not completed all of them, that's why we're not giving loan-to-value numbers to you, because we need to finish everything in order to give you an accurate number. We cannot give an accurate number without finishing them all. At this stage right now, based on what we have completed, we have plenty of them are holding up very well. I would say the majority of them are holding up very well. But then, there are a few of those just it looks pretty freaky to me, that when I first look at that this absolutely cannot be true. But, you know what? We are talking about when these things start coming in, they're coming in a pace. Normally we never have to go through such a quick update of appraisal value. We can take our time and then analyze, is this right, is that right? At this moment we just say, this is a well-regarded appraiser and he comes up with this value, and it may not be right in terms of exactly what the market value is, but it appears to be if in doubt more conservative than we expected, let's just take it and move on. So we have a few of those that have taken place. But the majority of them actually are, I would say looking decent. Now the value dropped. I mean, across the board. The value dropped. But it's not in any sort of significance in the way that I would be very, very much in alarm.

There are no additional questions at this time. I would now like to turn the presentation over to management for closing remarks.

Thank you for your patience to spending all this time with us to listen to the call. Management will continue to aggressively work on review of the portfolio and we feel very confident that in the next few months we'll be even much better positioned in terms of assessing the credit issues and also resolving these problem assets. We feel very confident that we will finish this year despite how challenging it is in a positive way, and our balance sheet will only be stronger than ever. Management, frankly, will also be stronger because for those who may not have gone through the tough recession cycle in the past, this actually is a wake-up call and is great for them to get a lot more active in understanding credit risk and so forth. I feel very confident going forward in 2009 that we will be able to have a much stronger balance sheet, much stronger management, and we'll be able to have many more years of strong earnings. With that I want to thank every one of you for listening to the call and I look forward to talking to you in July. Thank you.

Thank you for your participation in today's conference. This concludes the presentation.