East West Bancorp, Inc. (EWBC) Q4 2010 Earnings Report, Transcript and Summary

Good day and welcome to the East West Bancorp Fourth Quarter 2010 Earnings Conference Call and Webcast. All participants will be in listen-only mode. 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 Kelly Adams, First’s Vice President. Please go ahead.

Good morning and thank you for joining us to review the financial results of East West Bancorp for the fourth quarter and full-year 2010. Here to review the results are Dominic Ng, Chairman and Chief Executive Officer; Julia Gouw, President and Chief Operating Officer; and, Irene Oh, 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 provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company’s operating results, please refer to our filings with the SEC, including our annual report on Form 10-K and for the year ended December 31, 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 and thank you for joining us in today's call. Yesterday afternoon, we were pleased to report financial results for the fourth quarter and full year of 2010. As announced yesterday, this was the reported earnings for the fourth quarter of $56 million and $165 million for the full year. Our fourth quarter earnings were $9 million or 20% higher than the third quarter of 2010 and our earnings for the full year 2010 were $88 million or 115% higher than 2009. Our results for the fourth quarter of 2010 marked the fifth consecutive quarter of solid earnings and record full year earnings for East West. Looking back, 2010 marked the end of an extraordinary decade in the history of East West. Over the past 10 years, East West has grown over 800% from $2.5 billion in total asset in the year 2000 to $20.7 billion at the end of 2010. We began the decade as a small community bank and grew to a bank with international operations at over 130 branches. We’ve created long-term value for our shareholders, increasing our market capitalization from over $500 million to over $3 billion, through both our organic growth and successful acquisitions, including the instrumental FDIC assisted acquisition of United Commercial Bank 2009, East West has now grown to be 30th largest publicly traded bank in the nation. The bank achieved many accomplishments during 2010. We set up small internal goals for specific loan and our deposit growth at [the bank]. We increased C&I loans by $480 million or 32% year-to-date. Core deposit growth was equally processed at $1.8 billion or 25% year-to-date. Credit quality is stable and both provision and net charge-off levels decreased throughout 2010. For the fifth consecutive quarter, non-performing asset levels were under 1% and both provision and net charge-offs decreased quarter-over-quarter. With our expanded strength and size, we believe that we will continue to win new business and continue to deliver strong financial performance in 2011 and beyond. Over the course of 2010, we have made investments in both our people and technology that are positively and profitably benefiting us. We are focused on delivering superior customer service to our customers and expanding our cross-border business through our expanded domestic and international footprint. I am also pleased to report that East West has been recognized by both Fortune and Forbes magazines. Fortune recently named East West as one of the 10 best stocks for 2011, the only banking institution to make the list. Additionally, Forbes magazine recently published that East West was number two bank for the best bank in the nation. While the accolades and recognition are nice to hear, we know that we need to deliver strong earnings and shareholder value year-in and year-out and we are confident that we will be able to do so. In our earnings release, we provide guidance for the first quarter and full year of 2011. We currently estimated that fully diluted earnings per share for the full year of 2011 will range from $1.44 to $1.48 or an increase of approximately 73% to 78% from 2010. This earning per share guidance is placed on overall asset growth of approximately 5%, provision for loan losses of $95 million to $100 million and an adjusted net interest margin between 4.15% and 4.25%. We currently estimated that fully diluted earning per share for the first quarter of 2011 will be from $0.33 to $0.35 per diluted share. This earning per share guidance is based on the following assumptions. A stable balance sheet, a stable interest rate environment and a net interest margin between 4.15% and 4.2%; provision for loan losses of approximately $25 million $30 million for the quarter, and non-interest expense of approximately $100 million net of amounts to be reimbursed by the FDIC. Lastly, effective tax rate of approximately 36%. Driven by the lower credit cost, growth in selective portfolios and an improved operating efficiency, we fully expect that core earnings will continue to increase throughout 2011 and beyond. In closing, over the last decade, we have grown tremendously and increased our franchise values significantly. As we enter a new decade in the history of East West, I am confident that we will meet challenges head-on and continue to grow and increase shareholder value for the next 10 years and beyond. I would now turn the call over to Julia to speak in more detail about the strategic action that East West has taken recently.

Thank you very much, Dominic and good morning to everyone. East West Bank has spent much of 2010, positioning itself for post-recessionary growth from its new position as the 30th largest publicly traded bank in the nation and the largest bank serving the Asian-American community. We have strengthened our infrastructure by making substantial investments in people, systems and processes to support the next phase of our growth and development. We continue to diversify risk in our balance sheet, focus on strategies to diversify income sources and generate more fee-based revenue. In 2010, we reduced our real estate concentration of non-covered loans by $372 million or 6% year-over-year. As of December 31, 2010, the total non-covered, non-real estate loans increased to 34% of our non-covered portfolio and compared to 25% at the end of 2009. We have been able to increase the interest income while reducing our real estate exposure because we have been very successful in growing other loan categories, C&I and trade finance, and other consumer loans. Non-real estate loans grew $588 million or 28% year-over-year. C&I and trade finance growth was $480 million or 82% of the non-real estate loan growth. We have grown the C&I portfolio throughout the year and also ended 2010 strongly. The fourth quarter C&I loan balance growth of $287 million represented a 17% increase since September 30, 2010 to $2 billion, a record increase for East West. I would like to point out that these C&I loan numbers are for non-covered portfolio only. Including the covered C&I loan portfolio acquired from United Commercial Bank and Washington First International Bank, the book balance of our total C&I loan portfolio were $2.9 billion as of December 31, 2010 or 21% from our total loan portfolio. Total non-real estate loan increased to 29% of our total loan portfolio at December 31, 2010 and compared to 23% at December 31, 2009. Building our C&I platform is an ongoing initiative that we will continue to focus on the New Year. Throughout 2011, we will continue to focus on C&I loans and showing that appropriate investments are made while maintaining operating efficiencies and superior customer service. Shifting gear slightly to operating expenses; Non-interest expense increased from $100 million in the third quarter to $140 million in the fourth quarter of 2010. The main driver of our increase in non-interest expense was higher other real estate loan expense. Other real estate loan expense grew to $17 million in the fourth quarter, compared to $6 million in the third quarter. The higher expense in the fourth quarter was largely related to the write-downs and expenses of $10 million on covered other real estate loan of which 80% or $8 million is reimbursable by the FDIC. As mentioned before, under the last year agreement with the FDIC, 80% of eligible expenses on covered assets are reimbursable from the FDIC. In the fourth quarter, we incurred $16 million in expenses on covered loan and other real estate loans, 80% or $30 million of which we expect to be reimbursed by the FDIC and which is recorded as an increase to the FDIC receivable as non-interest income. Excluding the reimbursable portion of $13 million, non-interest expense totaled $101 million an increase of $9 million from $92 million in the third quarter. Aside from the expense related to [lost share] assets, quarter to date increases in non-interest expense came from higher consulting expenses and small increase in compensation and employee benefit and other operating expenses. This on our current run rate we anticipate that in the first quarter of 2011 non-interest expense will total approximately a $100 million that of any reimbursable amounts from the FDIC to assure growth on the income segment. In addition we did see some noise in our non-interest income for the quarter as well. We reported a net non-interest loss of $17 million during the fourth quarter. The loss was primarily caused by a net decrease in the FDIC indemnification asset and receivable of $36 million, which Irene will discuss in further detail. In addition, during the quarter the company recorded $6 million in gains from sales of loan, primarily from the sale of $207 million in student loans and the net gain of $5 million on investment sold. Additionally as of December 31, 2010, we classified $230 million loans up for sale primarily student loans. As we continue to sell student loans on an opportunistic basis, we felt for part of the portfolio to held for sale [capitalization] was more appropriate. Further, in the fourth quarter we recorded impairment on investment securities of $6 million and a purchase accounting adjustment of $5 million. The impairment was recorded on private label mortgaged-backed securities that we own, the only private label MBS security in our portfolio. Additionally in the quarter we recorded purchase accounting adjustments of a net $5 million. This amount was comprised of fair value adjustment on affordable housing investments from UCB and a small reduction in the asset acquired from the FDIC on the WFIB acquisition. Because the discount base was function of total assets, we had a purchase accounting adjustment when the assets decreased. Excluding this non-core item, our operating non-interest income increased in the fourth quarter to $18 million, up $883,000 or 5% from the third quarter of 2010. As a final note on December 29, 2010, we exited the TARP capital purchase program during the quarter and repaid in full the 306.5 million of preferred stock issued to the U.S. treasury department under the TARP program. We would like to emphasize that because of our excellent capital level, current profitability and strong future earnings growth, East West was able to exit TARP without raising any capital. Throughout 2010, we stated that it was our goal to repay TARP without wasting any additional capital and I am very pleased to report that we successfully achieved our goal. Further, we are pleased to report that we have recent agreement with the U.S. treasury to buyback all outstanding loans for a total purchase price of $14.5 million. This transaction is expected to close today. Even after the repayment of TARP our capital ratio is among highest in the nation. As of the end of the fourth quarter of 2010 our tier I leveraged capital ratios totaled 9.3%, tier I risk-based capital ratio totaled 15.9% and our total risk-based capital ratio totaled 17.6%. East West exceeds well capitalized requirements for all regulatory guidelines by over $800 million. The conclusion of our participation in this program will save the company $15 million in preferred dividend payment or approximately $0.10 per diluted share on an annual basis beginning in 2011, which will allow us to continue to invest in our franchise and will have a direct impact on shareholder value. In light of our continuous strong profitability and capital, we plan to reevaluate our current common stock dividend level in the coming quarter. Overall, we feel that our new position of strength and focus on our strategic initiative will assist in propelling us forward in 2011 and result in improving operating efficiencies and a better experience for our customers. With that, I would now like to turn the call over to Irene who will discuss our fourth quarter 2010 financial results in more depth.

Thank you very much Julia and good morning to everyone. I would like to provide a little bit more insight into our financial results for the fourth quarter and then also asset quality. The net income for the fourth quarter was $56.3 million or $0.22 per diluted share with an improvement of $9.4 million from the third quarter of 2010. Net income for the full-year 2010 of $164.6 million was an improvement of $87.9 million from the prior year. I would like to point out that the net income available for common shareholders for the fourth quarter of 2010 include preferred stock discount [cushion] of approximately $80.7 million or $0.13 per diluted share as a result of the repurchase of preferred stock issued under the TARP program. Excluding this amount, East West earned $0.35 per dilute share, $0.08 or 30% more than the June quarter. During the fourth quarter, our interest income and non-interest income were impacted by certain covered loan activities. As such, I would like to spend some time discussing these activities. As we mentioned in our earnings release after actively managing the UCB covered loan portfolio for approximately one year, we have resolved many problem loans and concluded that the credit quality is better than originally estimated. The improvement in credit quality was a direct result of the hard work and successful resolutions of our seasoned workout team who effectively managed these relationships and worked tirelessly to mitigate any credit weaknesses. As a result of the improvement in credit quality, we lowered the credit discount on these loans in the fourth quarter and increased expected cash flow. Our original credit discount was approximately 20% of the UCB covered loan balances and we’ve now reduced it to approximately 14%. By lowering the credit discount, interest income will increase over the life of the loans. Our interest income for covered loans totaled $142.3 million for the fourth quarter of 2010. This amount is gross of the net impacted interest income, fourth quarter resulting from the decrease in the credit discount and disposition activity of $43.8 million. Correspondingly, with the lower credit discount, the expected reimbursement from the FDIC under the loss sharing agreement will also decrease resulting in amortization on the FDIC indemnification asset, which is recorded as a charge to non-interest income. Going forward, the company will continue to report amortization on the FDIC indemnification assets. In the fourth quarter we reported a net reduction in the FDIC indemnification assets and receivable of $36 million. This net reduction of $36 million is comprised of the net decrease of $43.8 million due to the disposition of covered loan and amortization of the FDIC indemnification asset partially offset by an increase of $13 million due to expenses reimbursable by the FDIC. Additionally, this amount includes a net decrease of $5.2 million related to recoveries and settlement adjustments. The $43.8 million is essentially representative of 80% of the amount that impacted our net interest income as a result of a covered loan activity and the increase in the credible yield. The core net interest margin, excluding the impact to that interest income of $43.8 million totaled 4.43% for the quarter. This fourth quarter margin of 4.43% reflects an increase from 3.98% in the third quarter of 2010 of 45 basis points. Not only has credit quality for the [ECD] legacy portfolio improved. The credit quality on the East West legacy portfolio continues to improve. For the fifth consecutive quarter, both net charge-offs and the provisions for loan losses have declined. The provision for loan losses was $29.8 million for the fourth quarter of 2010, a decrease of $8.8 million or 23% compared to the previous quarter. Total net charge-offs decreased to $38.3 million for the fourth quarter, a decrease of $6.7 million or 15% from the previous quarter. Our non-performing assets to total asset ratio which remains under 1% continues to be substantially better than our peers. Non-performing assets, excluding covered assets remain low at $194.8 million or 94 basis points of total assets at year-end. NPAs excluding covered assets as of December 31, 2010 included non-accrual loan totaling $172.9 million and REO assets totaling $21.9 million. I am pleased to report that the movement into non-accrual loans decreased substantially in the fourth quarter to about $70 million. Additionally, as of year-end, TDRs totaled about $120 million. At this point in time, at least 50% of these TDRs have rolled off. As stated in the earnings announcement released yesterday, East West's Board of Directors have declared first quarter dividends on the common stock and Series A preferred stock. The common stock cash dividend of $0.01 that's payable on or about February 24, 2011 to shareholders of record on February 10,2011, the dividend on the Series A preferred stock of $20 per share is payable on February 1, 2011 to shareholders of record on January 15, 2011. I will now turn the call back to Dominic.

Thank you, Irene. I would now open the call to questions.

(Operator Instructions). The first question comes from Andrea Jao of Cowen & Company. Please go ahead. Andrea Jao - Cowen & Company: Good morning, everyone, and congratulations.

Thank you. Andrea Jao - Cowen & Company: Can you hear me?

Yeah. Andrea Jao - Cowen & Company: Your assumption regarding loan loss provisioning for 2011 is an important component of your 2011 outlook. Just wanted to get more color or more detail on what went into that assumption of $95 billion to $100 billion, and your confidence in that range.

We feel pretty comfortable. Given the trend in the last few quarters, our non-performing assets continue to be below 1%. And if you look at in our charge-offs continued to decline each quarter and we have a very healthy allowance followed by some stocks as the economy at least stabilize and started to get better. We feel the provision of $95 million to $100 million should be adequate for 2011, especially in line of the fact that most of the charge-offs and loss have come from construction land loan, where if the property value do not decline substantially more, than we probably will see the charge-offs subside compared to 2010. Andrea Jao - Cowen & Company: Great. I have a follow-up question regarding investment spending. What kind of investment spending cost and initiatives should we expect for 2011? But it helps assure your place amongst the bigger regional banks. Thank you.

Well, the key fall up like G&A expenses, which that we think that we will have some increases on primary from the people side. We actually have started in late -- I mean, like basically in 2010 and throughout, but the fact that we have a very strong commitment to grow the C&I portfolio in the next five years to make sure that our balance sheet, five years from now, would have a very, very, a balanced approach to the overall portfolio. In essence, decreasing the real estate, overall exposure and increasing the C&I and diversify the overall lending portfolio. And in that regard, we have to not only ask our assisting lending officers to all step up, to work harder to bring in more C&I relationship. We also find that it is extremely advantageous at this stage, in this type of economy with this current banking environment to recruit people also throughout the industry and we have some successes in 2010. We will continue to do that in 2011. So as the combination of both, bringing the people and also gradually increase different type of products that we think that can make the C&I relationship stickier going forward in the future, we offering more sophisticated products to our customers and also by doing that help East West Bank to move to another level of sophistication in terms of, let’s say five, ten years ago we may win by relationship, but from a product point of view, from a technical point of view we may not be able to compete with some of the larger banks. But in today’s world and going forward we feel very confident that we would not only that we can cover very small entrepreneurial customers, but we are now able to take on many more of the larger sized clienteles because of the product offering that we provide. But to do that we need to continue to upgrade our technology, upgrade our people and just keep investing in this arena and through that I think that not only that our expenses will sort of gradually increase but most importantly our revenue will proportionally increase even bigger. Andrea Jao - Cowen & Company: Great thank you so much and happy new year.

Happy new year. Andrea Jao - Cowen & Company: And happy Chinese new year too.

Thank you.

And the next question is from Jonatahan Elmi of Macquarie. Please go ahead.

Hey thanks very much guys for taking my question. Just wanted to take a look at the reported yield on the covered loan, it looks like that came up too bad at 11.60% this quarter versus 7.31% in the third quarter, and I guess I just wanted to be clear exactly, how much was that delta related from the change in your purchase accounting assumptions with regards to the credit mark on the covered loans?

Jonathan if you look at number, so the $142 million if you reduce it by the net impact that covered, dispositions and amortization $43.8 million is $98.5 million. So that delta between that and the third quarter is just same now, that’s about $10 million. So part of that had to with this change, where we are reducing the credit market, we’ll have more accretable feasible income. Additionally, during the quarter we also had a little bit of additional cash flow, cash recovery, so it’s a combination of the two.

Okay but what you said is the majority of that $10 million now is related to the change in assumptions?

Majority of the increase is because we are reducing the non-accretable discount coming from the credit mark to accretable discounts.

Right, got it, I understand. Okay and then just looking at your margin guidance for 2011. how much of that change in the credit mark is driving that margin guidance if any?

Generally speaking, most of the increase in the margin is related to the change in the credit mark. All the other items that we think are assumptions as far as to cost to deposits, what’s happening with the other loans and investments, it pretty much nets out. So the increase is really related to in the covered loans, Jonathan.

Okay, got you. Thanks very much guys.

Thank you.

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

Great, thanks. So, the first question I have is just on capital, I know you mentioned how you evaluate your dividend going forward. Maybe just to kind of summarize your views on dividend payout ratio, I mean you targeting sort of 30%, so what’s sort of next step and also if you can kind of put that in context with potential share buybacks and the timing of those? Thanks.

Yes. First thing we would do to increase the dividend in the next quarter and we will be pretty conservative in regards to the payout and then we take a look if we have opportunity to go to the balance sheet then we will not have to do a buyback. However, based upon future capital and what kind of earnings, what kind of growth we have, one, we may continue to increase the dividend and two, we will evaluate potential stock buyback as part of our capital management.

I think capital management is an ongoing process. I mean, so at the most East West Bank Board meeting we always go to through this exercise. So you can pretty much count on an ongoing basis, we’ll continue to evaluate what is the optimal level of sort of like dividend or any kind of potential type of activities the buyback we evaluate it. But at this stage right now, I think that it will be a bit too early for us to be able to tell you one way or the other. But I think that as time goes by, you can pretty much count on the management who actively look in to the our capital ratio and then make the, what I call, the prudent judgment going forward.

And is that really because you just repaid TARP and it's more of a regulatory issue or is it because it’s too early because you are seeing exceptionally strong loan growth and you may need it for loan growth instead?

Well, we kind of do things always, one step at a time. It's the same thing that we actually have a way too much capital totally ready to pay off TARP the minute that we actually finish the UCB acquisition. But we take our time to make sure that the economy, is strong earning, it's really very strong and when every thing is in place, and then we would step up to pay our TARP. Just by doing that, I think it's not just prudent management and board decision in terms of overall risk management. I think that by doing that, we give better credibility to the regulators. They always know that we are very concerned about [Indiscernible] and the overall risk management. And I think, sometimes it works out better because everything goes much smoother by being little bit more prudent and we always sort of jump the gun too fast or be the first one to. So, we don’t want to be the first one to receive TARP and the first one to jump on and that kind of stuff. For these type of activities, I think, that for quarter or two lag, probably is okay.

A quarter or two, okay. And then, the other question I had, just in terms of C&I loan growth, obviously, very strong. In terms of your guidance that you gave for 2011, did you have any implicit loan growth assumptions in there?

Well, I would say that, the fourth quarter, the increase of $285 million is very, very strong. We expect like a slightly lower but we do want to emphasize and grow the C&I portfolio and I believe that the momentum will continue but I would say that probably 25% annual increase to the $2 billion would be a do able goal.

Okay. Okay, great. Thank you very much.

The next question comes from Brett Rabatin of Sterne, Agee. Please go ahead. Brett Rabatin – Sterne, Agee: Hi, good morning.

Good morning.

I wanted to ask, I'm just curious about M&A, I’d wanted to have some thoughts if possible on the ICBC transaction for Bank of East Asia. How you view that deal potentially and the pricing and your thoughts on just on where the M&A market?

Well, I think that’s a good news because that’s another transaction that show pretty decent pricing out there and it shows that the bank’s activities and the M&A side has stopped taking output much more better pricing. And I think that’s good for the banking industry. Both banks are very friendly bank with East West. So I think that this is something good to see that they have actually a good transaction that put together. And the other thing that I think will be very interesting to watch is that how long it takes for the U.S. and China regulatory bodies to approve the transaction because as you know this is a unprecedented transaction in terms of a 70% Chinese government owned bank acquiring a U.S. domestic financial institution. This will be new to the history of U.S. and so how soon it will get approved and so forth. I think will be something that everybody in the banking world globally will like to see how it goes. So we all are somewhat like interested to see how it progress and then also as friend of ICBC and Bank of East Asia, we will love to see that this goes smoothly.

Okay. And then, I wanted to follow-up on just the covered loan portfolio and ask a question about what the progression might be in terms of the accretable discount going forward and then how we should think about the 2011 quarterly yield on the covered portfolio excluding the amortization of the indemnification asset?

I think that the margin that we give would be pretty stable. So 4.15 to 4.25. That includes the new assumptions on the accretion of the discount and I would say that in the next few years unless major changes in the shift from non-accretable discount to accretable discount, you can use that 4.15 to 4.25 as a guidance for our margins.

Okay. Thank you.

The next question is from Mike Zaremski of Credit Suisse. Please go ahead.

Hi, good morning.

Good morning, Mike.

So, on the NIM guidance, so if I look at this quarter, your non-covered loan yields rose, your securities yields rose. So I am curious, do you think that you are going to continue reinvesting at higher rates in the securities portfolio and I am kind of curious how the non-covered loan yields rose given that, it seems like lot of it's from C&I growth, which I thought had lower yields.

I think in the investment securities, we are very cautious, so we don't expect. Interest rate went up slightly and that's why we took advantage. But, if you look at the increase on the investment securities, because they are always short. The yield is pretty long, and unless interest rates go up, I would say that we should not expect any increase in the yield. And in terms of non-covered, I think that in the new loans, like, coming in slightly lower however, we also some of the renewal on the existing loan has slightly increased, so any other? Yeah so, it's a small change and we expect margin probably to be somewhat stable for 2011 unless we see major changes in the market interest rates.

Okay. And, I'm just curious, since you guys are much bigger bank now, does your philosophy on M&A, has it changed at all? Did you guys ever look to do deals with non-Chinese American-focused banks? I'm just curious.

So, if I look at for the last 10, 12 years, we actually had made two acquisitions with non-Asian financial institutions and they worked out pretty good in terms of integration and retention of customers that all worked out very well. So, it's something that it wasn't like that we hadn't done it before. So it is something that we were very, very comfortable to do. It’s just that by and large for the past decade, we have always found better value and better synergies from the Chinese American banks that we acquired and but the fact is the other two non-Asian banks that we acquired retaining customers were not an issue, integration were not an issue. So therefore we feel very comfortable to do that if we think that overall that will help create additional shareholder value. Now that being said I think so going forward, yes we will look at any kind of combination but naturally we always seem to find there maybe a little bit better synergy or maybe more accretive type of transaction from the Chinese American space because we are the most dominant force in the Chinese community from a banking point of view. So obviously when we do that type of transaction we will have much higher likelihood through consolidation and so forth to have better cost savings and so with that I think we will continue to look. But then one thing I wanted to highlight is that our organic growth is going pretty well and also our C&I initiative is first and foremost number one priority. Also we will continue to focus on being that financial bridge between east and the west so that means that the cross border transaction into working relationship between our US branches and our branch in China and Hong Kong et cetera will become much more critical and we will put a higher priority of focus into these two arenas. And with that so it will make M&A transaction I would say a little bit less of a priority simply because unless something is really, really attractive, we do not want that to be a distraction to our current momentum because we are doing really well right now by bringing in new talents, upgrading the products technology and also making some really nice momentum in growing core deposit business, checking accounts and C&I loans, international trade finance, helping entrepreneur from China investing in United States vice versa. These are things that are really important for our long-term value. So therefore despite the fact that there are still plenty of Friday night special from the FDIC that we have not yet taken a plunge into this direction at this stage.

Okay thanks for taking my question, good quarter.

Thank you

Thank you.

The next question is from Christopher Nolan from CRT Capital. Please go ahead.

Hi good morning.

Good morning Chris.

Could you please clarify a little bit on the C&I loans, is it mostly from smaller businesses or larger clients. Is there a mix in terms of the clients that’s driving the growth?

Well not that we are bigger. Many of our customer base are also bigger. These are more middle market businesses where the loan size are bigger and that’s why it is a lucky steal for us to grow our C&I portfolio because we now have very high capital levels and then serve a very wide range of middle market businesses.

Okay so Julia that’s the primary driver for the C&I growth?

Yeah

I wanted to also highlight and then caution that the last two quarters have been a relatively decent pension environment from a competitive point of view because many of the banks in California are still somewhat struggling or maybe have internal issues that are pre-occupied on internal issues. So it makes our effort of going out to a new business much easier, and also the attacks from other banks to our existing client base is not as intense as it would I say three to four years ago. So I think that we were able to capitalize on this sort of like great timing and we work hard knowing that this is a great timing because the nice thing about C&I loans is that once you bring them in, as long as you do a really good job to take good care of them, you earn their trust and their loyalty. They will be with us for a long, long time. If they have good profitable business; they will be there for long, long time. And they will help us to grow our balance because when they grow, our balances grow too. And so that’s why we spend a lot of efforts and work really hard to trying to bring as many as we can particular this sort of very profitable business out there and making sure that we can earn their trust going forward in the future. So that we don’t have to work that hard, lets say three, four, five years from now, because who knows what the market will be like a year or two from now because, when all the banks start get through with their own capitalization and then get through with all the internal issue and they get out of MOU and C&D, they are all going to be coming back and everybody wants to do C&I. And at that point we better have a pretty strong portfolio that we can sit on and then hope for our clients to grow and then, so that we can grow with them. So, I mean that’s pretty much our current strategy right now. But going forward I think that my prediction is that within a year or two there are going to be some very, very intense competition in the C&I arena.

Is there a limit in terms of how much you will grow C&I as a percentage of total loans?

No. We will like to see that some day C&I portfolio represents 30% to 35% of the total portfolio.

Great, thank you.

At some point we already at that stage for the non-covered loans. So if you look at which is divided into the legacy East West and the legacy UCB, the legacy East West at this stage right now for the non-real estate loans already have 34%, 35% TARP and so, C&I is 80% on that total, so it’s already in a pretty good shape. However, the UCB legacy loans we still have a lot of real estate in there. So therefore if we add them all up together we are still not quite there and then also when you add up together it’s a much bigger balance sheet and therefore even though the dollar amount that we grow right now look pretty good, but to the total portfolio it doesn’t need to hold that that quickly. So our plan is that in three to four years we want to get there.

Okay, thank you for taking my call.

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

You just covered my question. Thank you very much. Nice quarter.

Thanks, Jennifer.

Thank you.

The next question is Joe Morford, RBC Capital Markets.

Thanks, good morning everyone.

Good morning.

Also just following up on, I guess, Chris's question. If you look at the commercial loan growth in the period, how has does that split slipped between trade finance and more regular C&I and what are the relative sizes of those two portfolios?

Mostly, if you are talking about percentage, our trade finance represent about 30%-35% of total commercial loans.

Okay.

So, that would be, roughly to split between trade finance, the companies that are involved in the import, export versus the entire commercial loan portfolio.

And was the growth pretty well split between the two portfolios this quarter or?

Yes. Pretty similar.

Okay. And then, I guess, Dominic, I wondered if you could tell us a bit more about the current strategy for China. You had a year or so to clean up the UCB portfolio and maybe make some changes to the team, but what's the game plan for leveraging the full banking license you have, given that it allows you to do some things that many of your competitors can't?

Yeah, and by the way, we just finished the clean-up. I think, in December, the Chinese Banking Authority officially lifted all the restrictions from our banking subsidiary back in China, because of all the problems that UCB had before and they were put under pretty severe penalties, so to speak. And we got everything cleaned up and back in sort of couple two or three months ago we got everything cleanup and then the banking authority came back in December and then left everything. So we are now in good shape to move forward. So the plan is we are not again, I would emphasize, we are not interested to the tremendous growth opportunity in the consumer space in China. While it looks very attractive, we just didn’t think that that would be a core strategy that East West can do well with. ICBC and Agricultural Bank of China and the Construction Bank of China and also all of those banks will do a much better job than we are, having all the branch network there. The things that we want to focus on, primarily, and this is going to be a very narrow focus is that for the last 19 years, we’ve been saying that we aspire to be the financial bridge between the East and West. So the U.S.-China trade, the U.S.-China cross border investment, those are the type of activities that we are most interested in. We have our branch in Shanghai, Shantou and also Hong Kong plus a few other strategic back office locations such as Beijing, Shenzhen, Guangzhou and Taipei. All of these locations I think that will allow us the opportunity to better serve our U.S. customers who are interested to do business with companies in China whether importing or exporting or the investing, vice versa. What you see is that, as President Hu Jintao was in Chicago just last week, signing up a lot of deals. There could be a lot more business from China coming to United States. We want to make sure that we will do a good job to take on as many of this business coming from China to help them to invest wisely in U.S., so that we can create more jobs in U.S. and so forth. And in the same token, because of that reason, more and more of our clients, particularly mainstream clients are being attracted to the opportunity in China or the opportunity of forming joint venture with Chinese partners, either in China or in the United States. These are the kind of work that we are going to be focusing on. And that’s going to be the primary focus of East West and there is not going to be a too much of high likelihood that you will see us opening many branches throughout China and then stop looking into what kind of strategy we can do to go after the local Chinese business or local Chinese consumer markets in China. It’s going to be, everything has to do with what’s happening between East and West and what’s happening between U.S. and China trade and investments.

Okay. That’s helpful. Thanks a lot, Ng.

Thank you.

The next question is from Julianna Balicka from KBW. Please go ahead.

Good morning and quarter. Most of my questions had actually been answered. That’s a pretty thorough Q&A session. Just a couple of small question, if I may. What was the dollar amount of restructured loans at the end of the quarter without covered loans and what was the 32 to 89 day delinquency without covered?

Well, the total TDRs as of 12/31 was about $120 million. And as we said in our remark, Julianna, after this point, it looks like about 50% of the loans. The 32 to 89 day delinquency, I don’t have that in front of me, but I can give you that after the call.

Okay, very good. Thank you very much.

(Operator Instructions). Our next question comes from Aaron Deer of Sandler O'Neill & Partners. Please go ahead. Aaron Deer - Sandler O'Neill & Partners: Hi. Good morning, everyone.

Good morning. Aaron Deer - Sandler O'Neill & Partners: Yeah. Most of my question has also been answered. I just wanted to follow up quickly on the margin guidance. So, even recognizing that the adjustment that you made in the quarter on the discount and the offset and adjustments, which would happen in indemnification asset, it seems like your margin guidance is a little low from what it might otherwise expect. What, I guess, how much are you including in there that would be discount accretion over and above what might be a base line level?

We're not really including any additional discount accretion above what we think the core is. Obviously, that is something that changes month-over-month, quarter-over-quarter. And from our viewpoint is and something that we can forecast, and naturally I think over the course of 2011, there maybe some more. But as we can't forecast that, we're not building that in right now. And you saw it too. In the third quarter, there was very little additional cash activity, so our core margin was 390, so that's why we're not building that in. Aaron Deer - Sandler O'Neill & Partners: Okay. And then just lastly the deposit insurance cost in the quarter looked like it was down a bit. Is that due to a lower assessment rate or is that just some true-up or noise in there?

We did have a small adjustment in the fourth quarter. Aaron Deer - Sandler O'Neill & Partners: Okay, great. Thank you.

The next question comes from Ram Shankar of FBR Capital Markets. Please go ahead.

Good morning. Congratulations on the quarter.

Thank you.

Thank you.

Thanks for taking my question. Just a follow-up to Aaron's question, maybe just looking at your guidance for 2011, if you just gross up your 2010 assets by about 5%, take the implied net income from your guidance range, that’s an ROA of just about 1%. At the first look, it kind of looks conservative given all the positive things going on in the franchise, would you care to comment on that?

Well we would like to give a guidance that we know we can hit, so we feel quite comfortable with our guidance. As the time goes by, we’ll have more clarity on about like how conservative or additional income that we can generate. The most important thing is the provision because that’s a big number, a big fluctuation on the provision can change the return on assets and earnings.

Okay and just so that I don’t get this wrong, so your NIM guidance for 2011 is what you would report on a GAAP basis. Is that a fair assessment?

Correct, correct. You know once that you net that, a net increase or decrease of the FDIC is that an indicative, when we say core margin every quarter we net those amount they are saving in non-interest income against the interest income. So it is a GAAP.

It is a GAAP. Okay and another one last housekeeping question. In terms of modeling should we be modeling still $1.7 million per quarter of preferred dividends that’s non [PARB] related?

Correct yes. That’s for our preferred A.

Preferred A?

We have about $85 million outstanding.

Okay thanks for taking my questions.

This concludes our question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.

Well thank you very much for joining us to this call and we all look forward to speaking with you again in April. Bye bye.