East West Bancorp, Inc. (EWBC) Q3 2010 Earnings Report, Transcript and Summary

Good morning and welcome to the East West Bancorp third quarter 2010 earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Ms. Kelly Adams First, Vice President. Please go ahead.

Good morning, and thank you for joining us to review the financial results of East West Bancorp for the third quarter of 2010. 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 this call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company’s operating results, please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31st, 2009. Today’s call is also being recorded and will be available in a replay format at eastwestbank.com and streetevents.com. I will now turn the call over to Dominic.

Thank you Kelly. Good morning, I thank you all for joining us to today’s call. We announced financial results for the third quarter of 2010 yesterday and East West reported earnings of 47 million of $0.27 per diluted share. 10.6 million or $0.06 higher than last quarter. Our results marked a fourth consecutive quarter of product serving for the bank. During this quarter, we selectively proved commercial and trade finance and consumer loan portfolios and also posted strong deposit growth, particularly in low cost core deposits. Further, we have reduced operating expenditures and are realizing economics up scale from the recent acquisitions, we have made. Just last weekend in fact we successfully completed the core systems integration of Washington First International Bank. With the integrations of both recent acquisitions United Commercial Bank and Washington First International Bank behind us. The Management and audit team members of East West are now concentrating on our assets on our strategic growth initiative and providing better service for our customers. During our C&I lending platforms is a key area that we have focused on this year. As we continue to focus on throughout 2011. I am pleased to report that we have made solid progress on this front. Quarter-over-quarter commercial and trade finance loans have increased 167.3 million which represents and 11% increase to $1.7 billion of loan balance. This increase in the third quarter of 2010 is the continuation of product C&I loan growth over the end of year. Over the last six months we have increased C&I loan balances by 251.5 million, over 17% by March 31st 2010. I would like to point out that these C&I loans figures do not include the covered loan portfolios acquired from the United Commercial Bank and Washington First International Bank. Including the covered loan portfolios the book balance of our total C&I loan portfolio was $2.6 billion as of September 30th, 2010. Both a 90% of our total loan portfolio. We are also pleased to report that along with the loan growth we have also growing deposits. Deposit grew to a record 15.3 billion on $379 million or 3% from June 30th, 2010. This growth was largely driven by growth in core deposit of $290 million or 4% quarter-over-quarter. We have been successful in achieving deposit growth, while reducing our cost of deposit. Our third quarter cost of deposit has now reduced to 75 basis point. An improvement from the 80 basis point in the second quarter of 2010 and a 124 basis points to the third quarter of 2009. Our net income of $47 million for the third quarter also kind of (inaudible) problem fatal credit quality. Credit indicators continue to play in a positive direction with East West. And gave for the fourth consecutive quarter all charge offs and provision for loan losses have declined. The provision for loan losses was $38.6 million, a decrease of $16.6 million or 30% compared in the previous quarter, and a decrease $120.6 million, up 76% from the third quarter of 2009. Total net charge offs go to $45.1 million, a decrease of 10.1 million or 18% on the previous quarter and a decrease of 106.2 million of 70% from the third quarter of last year. Non-covered, non-performing assets have also remained low at 96 basis point to total assets, as of September 30, 2010. This quarter marks a fourth consecutive quarter again, that non-performing asset have been under 100 basis point of total assets. Also early stage delinquencies, on performing loans that are past to 30 to 89 days for 73 million or 54 basis points of total gross loans. Land and construction loans are now down to 4% of total gross loans as we continue to actively manage down these loan portfolios. Driven by the lower credit cost growth at selected loan portfolio and improve operating efficiency, we fully expect the core earnings will continue to improve in the coming quarters. In our early release, we provide guidance for the fourth quarter of 2010, we currently estimated that fully diluted earnings per share for the fourth quarter of 2010 will be in the range of $0.28 to $0.31 per diluted share, resulting in full year 2010 earnings per share of $0.89 to $0.92. This earning for share guidance is based on the following assumptions: Stable balance sheet with an increasing quarterly average earning assets to 17.9 billion, a stable environment and a net interest margin between 4 and 4.1%, provision for loan looses was approximately 25 million to 30 million for the quarter. Non-interest expense for the fourth quarter of approximately 95 million, net off amount to be reimbursed by the FDIC. Finally this earning per share guidance assumes an effective tax-rate of approximately 36%. Many of the actions we have taken in investments, we have made over the course of the year are positively benefiting us. We expect this trend to continue in the following year as the economy improves and we will be able to take advantage of growth opportunities that come our way. I will now turn the call over to Julia to speak in more detail about our WFIB integration and all the strategic actions that East West have made recently.

Thank you very much Dominic and good morning to everyone. On June 11, 2010, we acquired the banking operations of Washington First International Bank, just this last weekend and only 4 months into acquisition, we successfully completed the cost systems integration of Washington First International Bank. Along with the completion of the integration, we performed a thorough analysis of our banking operations in the Seattle area. We have made the decision to close one legacy WFIB branch and consolidate an existing East West branch into a nearby legacy WFIB branch. After these branch integrations, East West will operate a total of 4 branches in the greater Seattle area. In addition to these changes in the Seattle area and as part of our ongoing strategy to further improve the efficiency and profitability of our core business while creating a better customer experience, we will be making additional changes to our branch network. We have identified a number of opportunities including a new branch location, lease negotiations and consolidation and consolidations that will optimize our branch network. In November 2010, we will open a new info branch located in 99 Ranch market in Pleasanton Northern California. With this location, East West Bank is expanding its presence to the Tri-Valley area of the East Bay, a diverse upper middle class region with a growing Asian population. Additionally we have also identified opportunities to optimize our branch network with the consolidation of two open branches and consolidation of two (inaudible) locations later this year in December. In addition to these changes in our branch network, we have also spent time revaluating our resources. This evaluation has resulted in reduction in redundance back. Prior to the acquisition of UCB in November 2009, East West had 1,314 employees. With the acquisition of UCB, we added 1507 employees in November 2009 and with the acquisition of WFIB in June of 2010 we added 68 employees. As of September 30 2010, total headcount for East West was 2284, 21% less than the combined East West UCB and WFIB headcount level. At the same time, we are optimizing redundant functions. We are continuously making investments in associates, in areas that are part of our overall strategic objective. We feel that this targeted and strategic action will assist in propelling up forward in 2011 and result in improved operating efficiencies and a better experience for our customers. With the third quarter, non-interest expense totaled 99.9 million, down approximately 20% for the second quarter of 2010. There were many factors contributing to the lower expenses in the third quarter. However, in summary core non-interest expenses have declined as credit cycle costs for both legacy East West and FDIC-assisted acquisitions have decreased and as we integrate our recent acquisition and continue to optimize our franchise. Severance and integration related expenses continued to decline quarter-over-quarter and are expected to substantially decline in coming quarters. In the second quarter, we incurred the expenses on covered assets of about $23.9 million of which 80% or $19.1 million will be reimbursed by the FDIC. This reimbursement amount is included as income and non-interest income. This comprised with $7.8 million to be reimbursed by the FDIC in the third quarter. Additionally, in the second quarter we incurred prepayment penalties for FHLB advances of $3.9 million. As you strip these items out, we incurred $92.1 million in non-interest expense in the third quarter compared to a $102.3 million in the second quarter, a $10.2 million improvement. Based on our current run rate, we anticipate that in the fourth quarter of 2010, non-interest expense will total approximately $95 million, net of any reimbursable amount from the FDIC that has shown growth up on the income statement. With that, I would now like to turn the call over to Irene who will discuss our third quarter 2010 financial results in more depth.

Thank you very much Julia and good morning to everyone. I would like to provide a little more insight into our financial results for the quarter. The net income for the third quarter of $47 million or $0.27 per diluted share with an improvement at 10.6 million or $0.06 from the second quarter of 2010 and improvement of 115.5 million or $1.80 over a net loss in the third quarter of 2009. Our core net interest margin remained unchanged in the second quarter at 3.98% for the third quarter. Our GAAP net interest margin was 4.1% for the third quarter compared to a 4.66 in the second quarter. Included in our GAAP net interest income is discount accretion on disposition and recoveries on covered loans. In addition as a result of the disposition of covered loans we recorded a net reduction in the FDIC indemnification asset and receivable of 5.5 million in the third quarter which is reported within non-interest income on the income statement. This net reduction of 5.5 million is essentially represented at 80% of the amounts that impacted our net interest income as a result of our covered loan dispositions. As such, we believe that reducing the GAAP net interest margin by this 80% or so is a better reflection of our core net interest margin, up 3.98%. As we have previously indicated, early prepayments on the covered portfolios have declined in the past few months leading to a much smaller yield adjustment in the third quarter. We expect that this trend will continue based on the activity thus in the fourth quarter. Excluding the impact of discount accretion on covered loan dispositions, net interest income for the third quarter totaled 177.3 million, a 3.4 million increase from the second quarter and increase of 81.3 million from the third quarter of 2009. Dominic already went over our credit metrics, but there are couple of points I would like to add. Non-performing assets, excluding covered assets as of September 30, 2010 included non-accrual loans totaling a 179.1 million, and REO assets totally 16.9 million. Both of these [ticket] have remained relatively stable over the last few quarters, which we view as being very positive considering that we were at a higher level than our peers only several quarters ago. All non-performing assets to total assets ratio which remained under 1% continues to be substantially better than many of our peers. During the quarter, non-performing commercial real estate loan increased by 41.2 million, this increase primarily related to 2 lending relationship totaling 28.4 million. At September 30, 2010 these loans were written down to the fair value of the collateral securing the loans. Further losses in the CRE portfolio continued to be low at 1.36% of total average non-public CRE loan on a annualized basis and total non-performing real estate loans as a percentage of total non-covered real estate loans also remained very low at 1.74%. Overall, we feel very comfortable with the credit quality of our season, legacy CRE portfolio and we do not expect a significant level of charge-offs in this portfolio in the future. Further our CRE charge-offs delinquencies and non-performing asset levels are still eventually better than many of our peers. Also, after nearly a year of experience with the ECB legacy loans, we feel very comfortable with our credit loss assumptions, ultimately the actual losses experienced for the individual for we have created under the ASP 310 accounting for the ECB Loan portfolio may differ from on the outset, but overall we do not and currently anticipate that any significant provision or reserve will be in plan for this portfolio. Further, if process were to exceed our original estimates, they are a subject to the last year agreement with the FDIC. Non interest income there are couple of noteworthy items in the quarter. During the third quarter we sold 177.4 million in investment securities, had a gain of 2.8 million this was primarily to reduce (inaudible) risk and to also take advantage of market price volatility. Additionally, we reported gains on sale of 4.2 million largely due to sale of a 131.8 million of student loans. Student loan sale that we have reported in the second quarter, we have also sold the buyer a call option such as additional loans in the third quarter. Currently, we do not have any commitment to sell any additional student loans and we do not expect to sell in the near future. We would like to underscore that our capital levels remains very high and continue to exceed the levels of our piers. As of the end of the third quarter of 2010 our Q1 leveraged capital ratio totaled 10.8%, our Q1 risk based capital ratio totaled 17.9% and the total risk based capital ratio totaled 19.7%. East West exceeds well capitalized requirements for all regulatory guidelines by over 1 billion. As stated in the earnings announcement we’ll lease up to date East West based board of directors have declared fourth quarter dividend on common stock and [tier a] preferred stock. The common stock cash dividend of $0.01 is payable on or about November 24, 2010 to shareholders of record on November 10th, 2010. The dividend on the Series A preferred stock of $20 per share is payable on November 1st, 2010, to shareholders of record on October 15th, 2010. I will now turn the call back to Dominic

Thank you, Irene. Thank you everyone for joining the call this morning. And I will now open the call to questions.

We will now begin the question-and-answer session. (Operator Instructions). The first question comes from Aaron Deer of Sandler O'Neill. Please go ahead.

Just wanted to talk a little bit about the loan growth that you saw it was encouraging to see, but I was hoping to get a little color on the on the types of customers that were brought on, the size of the loans where they are coming from may be what the yields are in these new loans?.

Its really (inaudible), we have been working on increasing our capabilities to bring in the C&I loans and deposits and we are now much larger, so the deals that we are doing its on the larger side than what we used to do, but its very diverse, different type of customers that we have brought in over the last six months.

Well, I think on the size of deal, we actually are comfortable to do over $10 million, but still relatively speaking we have very few of those loans. In fact a vast majority of the C&I loans that we booked still are less than 1 million. We actually are encouraging our staff to trying to do more deals about 1 million, but as of today we are who we are for years always been doing these $500,000 - $700,000 loans and we have been successful doing that and so obviously as of today we still are doing most of the loans that these $500,000 to $700,000 size, its just that we are now starting to well I would say for the last six months or nine months or so we are encouraging a fact to step up to maybe looking to deals that are maybe above 2 million or may now to 5 million or maybe even if its above 10 million, its okay, but we are getting a few of them, little above 10 million we just, we hope we can get like an average size of our 5 million, I think that will be better. But as we have not gotten there yet, this would take time, but then as long as we continue to have season growth coming from these less than $1 million size, I think that we are happy to see that we actually have the business keep coming to us.

And the pricing on these new originations?

Most of our price was half or Libor plus 255 around that.

That’s were the largest price loan, so in for the smaller loan side, we get a little bit better pricing.

And then you gave some guidance for next quarter on the expense print, I'm wondering given some of the cost saves from the branch consolidations and the personal reductions and additions that are being made. Is that kind of 95 million run rate likely to drop as we head into 2011? What are their thoughts on that front?

We will be you know are reinvesting and will be hiring more people to increase our C&I platform capabilities and other initiatives. So I would say that I would not go down, but we hope that it will increase sub-offset by the increase in revenue. I would say that it would be difficult for us to continue to reduce the dollar amount of that, non-interest expenses.

The next question comes from Joe Morford of RBC Joe Morford – RBC: First just a quick follow-up on Aaron’s question, any trends geographically in terms of the growth. Is it mostly Southern California or is it coming throughout the footprint?

California, obviously because that’s the area that we have the largest number of branches and also lending officers and so we are booking more business in the California area, but in 2011 level, we will have the time to explore the global opportunity in some of the other states and also the greater China region. Joe Morford – RBC: If you can talk a little bit about the 40% growth in the investment portfolio, at least on an end of period basis. Just posted more about what you are buying there and did the duration of portfolio change much and, things like that?

Mostly short term, about 2 to 3 years. Reinvested some of the very, the lowest you know the money market accounts to a 2 to 3 year. So the yield is very stable compared to the second quarter but 2.5%-2.4% yield, so it’s just an increase in cash that we got from the deposits and plus investing the cash into investments securities, but we try to be very careful with the duration risk knowing the interest rates are very, very low. So our duration overall is pretty short. Joe Morford – RBC: Okay so this mostly just agencies you are buying?

Yes mostly agencies Joe Morford – RBC: Okay and then lastly just as we think about 2011 and as your loan growth begins or you start to see greater loan growth, should we expect overall earning assets to grow as well or is it mostly going to just be a remix of these cash and securities into these higher yielding loans

I would say that the total earning assets may not grow that much Joe, it’s more to remix like you said unless we have a major growth in the deposits, it’s just a remix because we are very liquid right now, so we will just be investing our investments into loans.

The next question comes from Ken Zerbe of Morgan Stanley. Please go ahead.

On your expense guidance a little bit, you see obviously at a huge amount of improvement from lower OREO costs this quarter and I understand that a large part of that is covered by the FDIC guarantee, what gives you the confidence that OREO costs could actually remaining low going forward. So on the net basis to you because that does seem to at least a partial driver to lower expense run rate.

They might have fluctuations Ken, but we think that we took care of some of the more problematic OREOs in the second quarter, but we cannot predict with certainty from quarter-to-quarter there will be some fluctuation, but the good thing is that our net net is only 20% of those expenses.

And just one more comment can with the acquisition of UCB in November and we look back and looked at it, a lot of the OREOs, it flushed through in the second quarter, so the new movement into OREO, it has come down, so those are also indications that give us a little bit more color as to what will happen in the future.

In terms of loan growth, specifically it looks like the ongoing reduction in commercial real estate and I understand you want to reduce your exposure there, increase in C&I and this is excluding the covered loans, but when you think about the net of, so the lower CRE and higher C&I, how do you think about loan balances over the next couple of years?

Unless we really grow in the C&I big time, chances are the total loan balance will stay fairly stable, but it’s a mix of the loans just like we said earlier that the interest earning assets probably will stay stable with reinvesting the liquidity from investments too long.

Yeah, it’s more like changing the mix of our loan portfolio, so that will have a much more diversified loan portfolio going forward in the next few years rather than a little bit too much of I would say concentration. On one hand we are very comfortable with our CRE portfolio and history have shown so far that we have much lower delinquency and charge off then other peers, but on the other hand having the ability to diversify now, particular now because many of our peers really are not in position to make too many loans. So therefore this is a good time for us to take market shares and what we need to do on the consumer side, on the C&I side but also from a proper commercial real estate we are not shy away from originate, some more, we are just not taking a very, very aggressive approach to try to actively market in that arena. So, our investment in terms of human recourses have been put into international trade finance and C&I. So, therefore what I think most likely is going to happen is this just gradually change of mix, just because we are very aggressive in trying to recruit additional resources in international trade finance and C&I, these loans are harder to grow. The size of the loans relatively speaking compared to commercial real estate are a little bit smaller and the time to cultivate relationship takes a little bit longer, so that combination will result in not growing as rapidly from that one end. So, all together I think we would be just a push.

And on the margin, are the new C&I loans more profitable to you than a marginal new CRE loan at this point?

Not from a loan yield point of view, but I think that in the totality of the balance sheet, but when you look on the C&I side, often time we can put a decent fee income from the cash management area, many of them we get potentially foreign exchange fee income. Is all the other stuff that all combine, we have look at both loan deposit fee income all combined.

Yeah that’s right on, on an all end basis including the non?

Yeah on non basis I think its pretty, it’s quite frankly a little bit better because also if we originate one C&I loan and we keep the C&I customer happy and making sure that they continue to be profitable and get a little bit bigger, we can sit on the account year in, year out, it get bigger and bigger and make more money which is a little bit different than our commercial real estate loans. You have start off with the biggest balance and then you start amortizing it down to a lower level and then in five years that you know that you have to take a risk over refinance, potentially from competitors. So I mean in that regard I think that all-in-all it’s a little bit more profitable. It’s a little bit harder to get, but it’s a little bit more profitable.

The next question comes from Joe Gladue of B. Riley. Please go ahead.

I think let’s get a little into detail on the net charge-offs, so I guess considerable change in the make up of net charge-offs this quarter and I realize that the declines in commercial and commercial real estate, commercial construction and they are fairly lumpy, the single family real estate showed a big jump from the second quarter to the third quarter, was that one or just a couple of large loans, just what was driving that?

During the quarter we did do some sales of single family loans which is why you saw the increase from last quarter.

Just wanted to talk about, just update on TARP and also on any other thoughts that you are building up your capital and just wondering if there is any thoughts on what to do in terms of dividends or repurchases or any other thoughts on utilizing the capital any time soon?

Well we want to do things one step at the time, so as we discussed before that our plan is to payback TARP in the fourth quarter. So in our last quarter earnings release, we reported to you that we will be talking to the regulators, so we have already talked to regulators. So we are in the process of just basically waiting for the regulators, the regulators are very busy right now with all of these problem tanks out there and we do understand that these things that are not, well frankly not as urgent as looking at helping these other problem banks to deal with their issues. So take a look at maybe a longer period of time, but we started the conversations, we are very comfortable, that conversation got very well and it’s just a matter of time that we hopefully, our expectation is that in the fourth quarter we still plan to pay back TARP in full. Once we get that behind us, we can look at any other issues. We have active management here to actively manage the balance sheet, liquidity and also capital is also something that we will be actively managing going forward, but our approach has always been, do one thing at a time where at this moment the most important thing we need to focus on is to get TARP paid off hopefully before the end of the fourth quarter

The next question comes from Julianna Balicka of Keefe, Bruyette & Woods. Please go ahead. Julianna Balicka - Keefe, Bruyette & Woods: I have couple of quick questions. Some of the loans that you picked up this quarter in the student loan area, do you have any more information as to who you were able to pick up the loans from?

Do you mean on a rebound of student loans from a variety of sources?

All of these offset or guaranteed, these are guaranteed student loans, but we bought it from different places. Julianna Balicka - Keefe, Bruyette & Woods: And you talked (inaudible) about the improvement in efficiency and optimization and are there any efficiency ratio targets you are aiming for anything along those lines?

Right now its high 40s may be you know like that it will stay around there 48% area.

The next question comes from Lana Chan of BMO Capital Markets. Please go ahead. Lana Chan – BMO Capital Markets: I had two questions. One on the increase in commercial real estate non-performance this quarter could you give us a little bit more color around that was that couple of smaller credits one larger one and what are you seeing with the recent appraisals on the problem CRE?

So the increase in the CRE non-performing for the quarter was a result of two relationships that was about $28 million was the result of these two relationships, so, I think the relationship were a little bit better and then also the credits were a little bit larger than our normal CRE loans which as you know about $1.2 million in size. But you know I think sometimes it can be a little lumpy there, but we have taken the charge that sort of necessary to bring that down to fair value as of 930. Lana Chan – BMO Capital Markets: What was the charge that you took?

It was (inaudible) million. Lana Chan – BMO Capital Markets: And my second question was with the strong deposit growth this quarter clearly liquidity is improving. Can you talk about any opportunities to pay down further some of the higher cost borrowings particularly some of the structured repose?

No, because there is a pre payment penalty on those structure repose and that just be advances. So, it definitely make sense because you know the interest rates are so low you know for the long term so the present penalty is pretty steep back doesn’t seem to make sense to pay at all this time.

The next question comes from Jennifer Demba of Robinson Humphrey. Please go ahead.

Just wanted to get a sense of what you are seeing in terms of acquisition possibilities and if you are seeing any acceleration in opportunities?

Not really growth, because there are lot of opportunities, that we obviously, banks are savings are constantly get opportunities coming from the FDIC, however our approach is that we want to be more strategic, we want to make sure that the [times] that we are acquiring something that we can know, actually add more through the franchise value instead of just a bunch of mismatch that cause management to get this factored into just doing a bunch of integration and thinks like that, that may not necessarily be beneficial for the long term future. We feel that its strongly that United Commercial Bank acquisition the big one and the little one Washington First International Bank, both of them strategically make a lot of sense for us. If we see more of these kind of deals coming in, the good news for us is that we are very good at doing these type of deals. When it comes down to integration, taking care of all these operational issue, we have always been on it, pretty good in executing deals like that. So if there are more of these deals coming, we have order capacity to work on it and we have no doubt we shall be into it if they are strategically valuable for us. However, while I say that we are very comfortable to do acquisitions, we don’t need to do any acquisitions so therefore our position is that we will just be very strategic and the way to see what’s out there and if there is something good out there, we have the capacity and be ready to go out all from a capital point of view and also from a sort of like human point of view. But on the other hand, we want to be a little bit more choosy because the nice point about not jumping into any kind of acquisition is that we will be able to really focusing on taking care of customers and building a better C&I platform and better managing our international, greater China platform when we have little bit more time internally to deal with those issues. So while there is brief better when we make a great deal, the downside of making a great deal is that to a certain degree, these organic growth initiatives suffers, because we have to put in a back [border]. Its nice for me, I just came back from China last week, its nice to be able to go back there and not worrying about getting over some other places Friday night to be with FDIC to close the branch now, so those are kind of things that, it’s a balance that as a trade off, but we will make that decision at the moment when we see some things available.

You next question comes from Ram Shankar of FBR. Please go ahead.

Just a follow up to few of the questions earlier just assuming the same trajectory in your earning assets makes in the new pricing that you are seeing on loans toady, would it be fair to say that your fourth quarter co-ordinance guidance is probably the peak until rates move up substantially

No some variation between 4 to 410 has a lot to do with the accretion that be a bit higher depending on the pay off and also the pre payments speed assumptions so there’ll be a few million dollar adjustments on that so we see that, like its either stable or slightly higher.

Do you have any more dues left on the funding side maybe to improve is that a possibility?

No that much

And then outlook you said you had to repay TARP in fourth quarter is there any actions that you anticipate taking there that might effect your outlook did you issue any senior debt or any other instruments out there?

No, we have enough cash and we anticipate that we do not need to issue more capital or like some other debt that will be very costly for us.

Okay just one more question if I may. May be you could just help me understand the dynamics and the non-accrual loans for instance last quarter you had about $23 million in early stage delinquencies in the early spend in the Reg-D construction book and this quarter you have none and the 90 days delinquencies are only $2 million or so. What happens to these credits, they just get resolved are they restructured?

Yeah, the last one is a construction residential construction that was completed as of June, 30, there have not been any sale so even though it was not delinquent we [put as forced] non-accrual, but since then the loan have been paid down and the value is there through the sales of this units, so we feel very comfortable that the loan will be paid off, that loan have come down from $22 million to $40 million in a matter of three months.

The next question comes from Chris (inaudible). Please go ahead.

Just one or two questions. What are you seeing regarding Cap rates or cash flows which income producing properties you see them decline stabilizing or improving within your different markets.

I think from multifamily the Cap rates definitely decline, I think the commercial real estate is really [vary] space upon the type of property and the region. And mostly (inaudible) said that multifamily that have been a decline in the Cap rate for multifamily.

And what was your TDR balance for the quarter?

It was about 80 million.

88?

88, But it is a increase from June 30th, the increase really have to do with a couple of construction projects that we had where we renewed them. But the fortunate thing is that subsequent to the renewals or this pay down activity, the units are selling, so we hope to see that that balance continues to decline.

And one additional question. And just alone crystal clear here, your guidance for your (inaudible) between 4% and 4.1%, is that core or is that adjusted that includes the gain from the (inaudible)?

If you want to calculate the net interest income, we are projecting that interest earning asset of 17.9 billion, at times 4% or 4.10%. So we are projecting a net interest income of 179 to 182 million compared to 177 million this quarter. So that’s quite comparable to this quarter.

Next question comes from Mike Zaremski of Credit Suisse. Please go ahead.

In terms of the covered loan portfolio, how should we think about the pace of run off in the coming quarters and how much construction is left in that overall portfolio?

I think construction is about (inaudible) on the portfolio, we think that in the pay down will be very similar in the next few quarters, its supplied dramatically last quarter and we expect to be relatively the same in the next few quarters.

Okay, and just to confirm I think you said this earlier, so in terms of the past cost, in terms of downward re-pricing is there any room left for that and how much brokers are in there?

Not much, we expect the cost of fund, the cost of deposits to save along is next couple of quarters.

(Operator Instructions). This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng, Chairman and CEO for any closing remarks.

Thank you, since there are no more questions. We are looking forward to talk to you again at the fourth quarter earnings release. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.