East West Bancorp, Inc. (EWBC) Q2 2013 Earnings Report, Transcript and Summary

Kelly Adams Dominic Ng - Chairman, Chief Executive Officer, Member of Executive Committee, Chairman of East West Bank and Chief Executive Officer of East West Bank Julia S. Gouw - Vice Chairman, President, Chief Operating Officer, Member of Executive Committee, Vice Chairman of East West Bank, President of East West Bank and Chief Operating Officer of East West Bank Irene H. Oh - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Chief Financial Officer of The Bank, Principal Accounting Officer of East West Bank and Executive Vice President of The Bank

David Rochester - Deutsche Bank AG, Research Division Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division Herman Chan - Wells Fargo Securities, LLC, Research Division Joe Morford - RBC Capital Markets, LLC, Research Division Michael Rosado Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division Gary P. Tenner - D.A. Davidson & Co., Research Division

Hello, and welcome to the East West Bancorp Second Quarter 2013 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to your moderator, Kelly Adams, Senior Vice President. Ms. Adams, please go ahead.

Good morning, and thank you for joining us to review the financial results of East West Bancorp for the second quarter of 2013. 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. Second, we would like to caution you that during the course of the call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company's operating results, please refer to our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2012. Today's call is also being recorded and will be available in replay format at eastwestbank.com. I will now turn the call over to Dominic.

Thank you, Kelly. Good morning, and thank you, all, for joining us this morning for our earnings call. East West reported solid earnings of $74 million or $0.52 per diluted share for the second quarter of 2013. Net income was increased by $3.5 million or 5% and earnings per diluted share was increased by $0.05 or 11% from the prior-year period. As compared to the first quarter of 2013, East West grew in net income by $1.9 million or 3% and increased earnings per diluted share, $0.02 or 4%. Our second quarter operating results mark the ninth consecutive quarter we have increased both net income and earnings per share, resulting in a strong return on average equity of 12.59% and return on average assets of 1.29% for the quarter. Driven by strong loan growth, we increased the adjusted net interest income to $192.2 million, up $7.6 million, or 4% from the first quarter of 2013. In fact, compared to both the prior quarter and the prior-year period, we increased pre-provision net revenue, net income, return on equity and earnings per share while growing both loans and deposits and reducing noninterest expense. As of June 30, 2013, total loans receivable increased 6% or $921 million quarter-over-quarter, to a record $16.3 billion. The loan growth for the second quarter was driven by strong diversified loan originations throughout the bank. As in prior quarters, single-family residential loan originations from our retail branch network continue to be very robust. Additionally, noncovered commercial, industrial loans and commercial real estate loans also grew in the quarter, up 10% or $429 million, and 4% or $163 million, respectively. Along with strong loan growth, we successfully grew total deposits, which increased $347 million during the quarter to a record $19.3 billion, due to growth in core deposits of $420 million to a record $13.3 billion. We continue to make good progress in our ongoing efforts to increase low-cost commercial deposit relationships and the strong growth in core deposits was fueled by an increase in noninterest-bearing demand deposits. As of June 30, 2013, we had $5.1 billion in noninterest-bearing demand deposits, the highest ever in the history of the bank. For the second quarter of 2013, the average cost of deposits decreased to 33 basis points, down 4 basis points from the first quarter and down 12 basis points from a year ago. We are pleased with our strong results for the second quarter of 2013 and believe East West is on track for another year of record earnings. As the economic environment continues to improve in the U.S. and as trade and business opportunities between the U.S. China grow, East West is well-positioned to grow our balance sheet and our profits. With our healthy capital base and solid consistent earnings, we are able to provide strong return to shareholders. Year-over-year, we have increased our tangible book value per share by 7% to $13.55 as of June 30, 2013. During the second quarter, we completed the $200 million stock repurchase program approved by the board early in the year. And year-to-date, we have repurchased a total of 8 million shares of common stock. The capital actions we have taken to repurchase our common stock provide a healthy dividend payout ratio of 29%, a complement to our return on assets and return of equity ratios that are consistently above our peers. With that, I will now turn the call over to Julia, to discuss in more detail about our key successes for the second quarter of 2013.

Thank you very much, Dominic, and good morning to everyone. I would like to spend a few minutes discussing the loan growth we experienced during the quarter, our net interest margin and our expectations for the future. Finally, I will review the guidance we provided in the earnings release yesterday for the third quarter and the remainder of 2013. Our total loan portfolio increased to a record $16.3 billion at June 30, 2013, an increase of $920.8 million, or 6% from March 31, 2013, and an increase of $1.2 billion or 8% year-to-date. As expected, covered loan balances continued to decline, decreasing $248 million or 9% quarter-to-date. This decrease in the covered portfolio was more than offset with strong growth in the noncovered portfolio. We experienced good growth in our noncovered commercial and industrial loan portfolio, which increased by $429 million or 10% from the first quarter of 2013. Further during the quarter, the company purchased approximately $270 million of insurance premium financing loans, of which approximately $100 million are included in the commercial and industrial portfolio and the remaining $170 million are classified as consumer loans based upon the nature of the loan. Excluding the impact of this loan portfolio purchase, the growth of the noncovered loan receivables was 7%, or $899 million quarter-to-date. Over the last several quarters, we have consistently been able to generate strong residential loan demand from our retail branch network. Our noncovered single-family loan portfolio grew $241 million or 10% from March 31, 2013. This growth in the residential loan portfolio stems from strong residential loan originations during the quarter of approximately 1,000 loans totaling $415 million with an average loan size of $400,000 and average loan-to-value of 56%. The pipeline and demand from residential loans remain healthy and we expect to continue to see strong originations throughout the remainder of 2013. Although the growth in the noncovered portfolio is offset by expected reduction in the covered portfolio, at this time, with the strong growth in commercial and industrial, commercial real estate and single-family residential loans, we believe that we can grow the total loan portfolio by at least $250 million each quarter for the remainder of 2013. Next, I would like to spend a few moments discussing the net interest income and net interest margin for the second quarter and our expectation for the remainder of 2013. Net interest income adjusted for the net impact of covered loan dispositions totaled $192.2 million for the second quarter of 2013, an increase of $7.6 million from $184.6 million in the prior quarter. The core net interest margin, excluding the net impact to interest income of $35.5 million resulting from covered loan activity and amortization of the FDIC indemnification assets, totaled 3.62% for the second quarter of 2013. We were pleased to see that the adjusted net interest margins was higher than we had estimated and unchanged from prior quarter. This was largely a result of higher-than-expected loan growth and our ability to both increase earnings assets by $594 million or 3%, and redeploy cash and short-term investments into higher-yielding loans. Overall, we had a good quarter. We increased net interest income, lowered deposit costs and maintained good expense control, while increasing loans, deposits and fee income. We feel confident that we are building lines of business and making operational improvements that will benefit us for many years to come. Lastly, I would like to provide a brief summary of our guidance for 2013. As in the past, in our earnings release yesterday, we provided guidance for the third quarter and full year of 2013. Yesterday, we updated the guidance provided in April and we now estimate that fully diluted earnings per share for the full year of 2013 will range from $2.05 to $2.09, an increase of $0.16 to $0.20 or 8% to 11% from $1.89 for the full year of 2012. For the third quarter of 2013, we estimated that fully diluted earnings per share will range from $0.51 to $0.53 per diluted share. This guidance does not include the impact of the additional $100 million repurchase authorization approved by the board yesterday. With this new $100 million buyback authorization from the board, we expect to be both disciplined and opportunistic. And we'll take the opportunity to repurchase common shares, only if the market condition and the stock price makes sense for our shareholders. With that, I would now like to turn the call over to Irene to discuss our second quarter of 2013 financial results in more depth.

Thank you very much Julia, and good morning, to everyone. I would like to discuss our financial results for the second quarter of 2013 in more detail, specifically as it relates to credit quality, noninterest income and noninterest expense. Starting with credit quality. We are pleased to see that nonaccrual loans decreased $15.1 million or 12% from the first quarter of 2013 to $112 million as of June 30, 2013. Additionally, the total nonperforming assets, excluding covered assets, the total assets ratio has been under 1% for over 3 consecutive years with nonperforming assets of $133.5 million or 57 basis points of total assets as of June 30, 2013. For the second quarter, the company recorded a provision of loan losses for noncovered loans at $8.3 million as compared to a reversal of loan loss provision of $762,000 for the first quarter of 2013. East West continues to maintain a strong allowance for noncovered loans of $233.5 million or 1.73% of noncovered loans receivable as of June 30, 2013. This increase in the provision for loan losses as compared to the prior quarter is primarily due to the $1.2 billion increase in the noncovered portfolio and the need to generate -- the need to increase our general reserve for these new loans. Total net charge-offs on noncovered loans was $4 million for the second quarter of 2013, an increase from net charge-offs of $540,000 in the first quarter of 2013. During the second quarter of 2013, the company recorded a provision for loan losses of $186,000 uncovered loans outside the scope of ASC 310-30 and $537,000 on covered loans within the scope of ASC 310-30. For the full year 2013, the company recorded a provision for loan losses of $3.3 million on covered loans outside the scope of ASC 310-30 and $2.5 million on covered loans within the scope of ASC 310-30. As these loans are covered under loss-share agreements with the FDIC, for any charge-offs, the company records income of 80% of the charge-off amount into noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings of 20% of the charge-off amount. Additionally, during the second quarter of 2013, we recorded an expense of $15.4 million as a clawback Liability. Under the loss-share agreements with the FDIC, if losses in the covered portfolios do not reach specific thresholds, the bank is required to pay the FDIC calculated amounts. As of June 30, our total recorded liability to the FDIC for this clawback for both the UCB and the WFIB acquisition is approximately $50 million. Moving on to noninterest income and expense. East West reported a noninterest loss for the second quarter of 2013 of $12.4 million, an increased loss from a noninterest loss of $2.1 million and $11.7 million for the first quarter of 2013 and second quarter of 2012, respectively. The additional noninterest loss in the current quarter compared to the first quarter is due to changes in the net reduction in the FDIC indemnification asset and the FDIC receivable. In total, fee income including branch fees, letter of credit and foreign exchange income, loan fees and other operating income, totaled $30.3 million for the second quarter of 2013, an increase from the prior quarter and from the prior year. This increase in fee income for the second quarter as compared to both the prior quarter and the prior year, was largely due to increases in fees earned on interest rate swaps entered into by our customers, and also increases of investment commission fees from our wealth management division. During the second quarter, we recorded a $5.3 million gain on the sale of $124 million of investment securities. The investment securities we sold during the quarter were largely fixed rate and due to MBS and CMBS securities. Moving on to noninterest expense. Total noninterest expense for the second quarter, excluding amounts being reimbursed by the FDIC and prepayment penalties on FDIC advances, decreased to $91.5 million or by 5% from both the first quarter of 2013 and the second quarter of 2012, respectively. The decrease in noninterest expense quarter-over-quarter was primarily due to compensation and employee benefits decreasing. Compensation and employee benefits decreased resulting from a decrease in payroll taxes in the second quarter compared to the first, an increase in the offset to compensation expense from deferred loan costs, due to an increase in origination volumes. The decrease in noninterest expense year-over-year was primarily due to a decrease in REO expense as we recorded a net gain on sale of REO during the current quarter. To wrap up, I'd like to spend a few minutes to discuss what we currently estimate is the impact of a final Basel III capital rules for East West. Compared to the initial proposal, the final Basel III capital rules are more favorable for East West as the proposal to change the framework for the rich[ph] rating of residential mortgage loans was not included in the final rule and the current Basel I standards will be retained. As such, any increases to our risk-weighted assets under the final Basel III rules, will primarily be related to the higher capital requirement for land and construction loans, past due loans, exposures to foreign banks and unfunded commitments. We currently estimate that the impact of the final Basel III rules today is the increase in risk-weighted assets of approximately $600 million, or about 50 basis points to our capital ratios. Finally, as stated in the earnings announcement released yesterday, East West Board of Directors has declared third quarter dividends on our common stock. The common stock cash dividend of $0.15 is payable on or about August 15, 2013, to shareholders of record on July 31, 2013. I'll now turn the call back to Dominic.

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

[Operator Instructions] And the first question comes from Dave Rochester with Deutsche Bank.

I just wanted to start on the loan growth. You guys had given guidance of at least $200 million in growth for 2Q, and you more than tripled that on an organic basis excluding the purchase this quarter. Now you have guidance for at least $250 million. It sounds like you're still seeing some good momentum. So it seems like you're maybe just trying to be really conservative on this guidance, is that fair?

Yes, we try to be conservative with at least $250 million, so we are very comfortable with that, that conservative guidance. And hopefully, we can do better.

And you mentioned the pipeline was still strong. I was just wondering how the pipeline today measures up to the pipeline at the end of the last quarter, are they pretty similar?

They are pretty similar. But sometimes in the pipeline, given the competition, we don't know whether we'll end up winning the deal because the pricing out there is quite competitive. So I would not, just assume that or whatever is in the pipeline will eventually close. So that's why we wanted to give a conservative guidance of a net increase of $250 million. But we hope that it will be better than that.

Yes, let me just add on. If you look at the growth quarter per quarter, it's a net number. So it's -- a few different components that we need to look at: one is that our noncovered loans increase, which is due to new loans that we originated and also the continuing growing demand from our existing clients and so forth. But then we also have the other element, which is the covered loans. We continue to try and to work down the UCB covered loans. And so, the payoff, it varies. Although the timing of when we can resolve some of these problem loans, the timing varies. So sometimes, we may have pretty good growth in terms of growth, balance increase, but then if the covered loans, actually have also a substantial increase in payoff or resolution of problem loans, it would also offset. Now the other point that we'd also like to highlight is that -- because most of our growth come from C&I. C&I loans, when we booked the loans, initial commitment may be big, but the draw down, they not happen until sometimes 3 to 6 months, depends on the nature of the industries or nature of the business of the clients. So we may have a very nice loan growth in terms of origination based on commitment. However, outstanding balances may not necessary be high. So it's a combination of all of the above. After we look at that, it may not be that easy to predict even though we may have a good pipeline.

Got you. Thanks for that extra color. And that's a good segue to my next one on the C&I growth. I was just wondering if that's reflective of an increase in utilization rates this quarter. Or maybe you're focused on doing larger credits more so now than you were before?

A little bit. But we have good funding across the board, in the different segments of the C&I loans. And included in that is the $100 million of the insurance premium financing that we bought. So, yes.

Got you. And just one last one. Switching to the margin. Your loan yield x covered was actually up this quarter, can you just talk about what drove that increase? Was it extra prepayment penalty income? Is new production coming out at accretive rates? Any interest recoveries in there? Just any color there would be great.

Yes, Dave. It's really the impact as far as the increase in the margin quarter-over-quarter. So it's largely because of the new residential loans we booked. Those are 3, 5, 7-year arm, on average a 5-year arm and the yields are a little higher on that.

And the next question comes from Aaron Deer with Sandler O'Neill. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: Following up on the loan growth, I wanted to, can you just talk a little bit on your decision to purchase the insurance premium finance portfolio. It seems like that's something of a specialized book and so I'm wondering if you hired a team that came with that to manage, maybe build the book. And what kind of yield do you got on that portfolio?

No, we don't bring a team because that's just an opportunity that was presented to us by an investment bank that wanted to just sell the entire portfolio. It's $270 million and it's a very safe portfolio because they are collateralized by cash surrender value of life insurance policies. So it's just an opportunistic basis for us to buy a portfolio to extremely save in -- the yield is about 2.3%. So given that it's a very safe portfolio, we just bought the portfolio. We don't need to have a team because we are not planning to originate this portfolio substantially. So and in addition, like we -- we continue to use the third-party servicer to service these loans. Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division: Okay, that's helpful. And then, over the past couple of quarters, you've taken some securities, gains, and I'm just wondering there, with rates having moved higher and gains starting to evaporate, is that likely to stop here, or is that something that's still on the table?

Well, we may -- we'll take a look in the pricing, as we mentioned. Before, for the mortgage-backed securities, we try to monetize the gain only because if interest rates go up, the gains may not be there. But if interest rates stay low, the payoff is tremendous. So it's something that we'll continue to review the portfolio and we'll sell if we think that it's appropriate.

And the next question comes from Jennifer Demba of SunTrust Robinson Humphrey.

Staying on the loan growth topic. Just curious if you could give us some details behind the C&I growth, maybe by industry or specialty lending type?

Yes, actually, we have a pretty decent growth in various sectors: Technology, manufacturing, aerospace, entertainment. And so since we continue to build a lot of industry expertise, so if every single factor contributed a small amount, it can add up to a pretty good growth. Our export, also, our trade finance export, import.

Julia, do you have any sense of kind of the average size of the C&I loans that are getting originated at this point?

I would say average size now is about $5 million to $10 million, on the average, of the loans. And then sometimes, we have bigger ones, $15 million, $20 million, but I would say, on the average it's about $5 million to $10 million.

And the next question comes from Herman Chan with Wells Fargo Securities.

On the margin -- the outlook for the adjusted, that remains at the $3.50 to $3.60 range. I want to understand some of your assumptions and some moving parts there. We talked about the loan yields, but can you talk about accretion, which I believe, was a little bit higher than your $15 million guidance that was offered last quarter?

That's right, Herman. So normally, we project in our model that we'll have $15 million of accretion on a quarterly basis. So at the end of June, the net accretion that we'll have remaining is about $73 million. But as we've kind of talked about before, every quarter, depending on the cash flow activity, it can be a little bit higher. So in the second quarter, we booked about $18 million, $18.5 million of equitable income. So when we look at that and we model at $15 million, so that's where we're coming up with the $3.50 to $3.60 for the remainder of the year.

Great. And on the buybacks, it sounds like you're going to be a little bit more judicious with the repurchases, given the valuation levels of the stock at present. Can you talk about any additional and alternative methods to deploy capital? And specifically, your updated appetite for M&A?

Well, we always -- I mean, I think from a internal resources point of view, we always have the capacity and the capability to take on any potential M&A opportunity. We've been somewhat quiet for the last couple of years because we have not been able to identify anything that we feel that justify the type of capital that we put in. The reason is that, obviously, with where we are today, with our size, we don't want to buy something very small that really doesn't make much of a difference. And in addition to that, we clearly felt, for the last couple of years, with our stock price being where we were, will be much better off for our shareholders to just do buyback and again, if we look at the $100 million of stock repurchase program that has just been authorized by our board, we're going to be very judicious and looking at it in a very opportunistic way. We're not going to keep going out there and buy back stock at whatever price that is out there because the only reason we want to buy back stock is just to make sure that, in a very prudent manner to give shareholders the best value. So at this point, it all depends how the price grow. Sometimes it make M&A maybe more attractive than buyback and then one day, maybe buyback better than M&A, it depends on the opportunity of the M&A and also depends on what the market condition in the banking industry. And then we want to have all the tools available. The nice thing about where we are today is that we have the capital to deploy in many different way. And we got the authorization to buy back and obviously, if we see any good opportunity for M&A, we'll get the authorization from our board very quickly because our board works very fast in terms of responding to management requests. So in any event, I think that's where we are today and we're going to continue to watch the market and do the best we can to create best shareholders' value.

[Operator Instructions] Additional question comes from Joe Morford of RBC Capital Markets.

A question on the margin. I guess, looking at a bit longer term. Should the fed continue to keep short-term rates low. Do you see this kind of $3.50 level as a floor on the margin, or are we likely to just kind of steadily trend lower with repricing and stuff?

I think most likely, we hope that $3.50 is the floor, if the short-term rates do not go up. Only because we have some loans, such as our residential mortgage loans that give us a pretty decent yield because it's a hybrid, 3-year or 5-year fixed. So we believe that $3.50 could be the floor, we will benefit quite a bit if short-term rates start to go up.

And separately, can you just talk about what your kind of credit cycle costs amounted to in the quarter and kind of the expected pace of decline from the next few quarters?

Yes. So what we consider to be the credit cycle costs would be loan-related expenses, REO expense and then also legal. This quarter, we had a gain on the sale of REO but legal and loan-related expenses, were about at $9 million or so. So generally, there's some REO expense non-gains, so let's round that up to 10 or so. We expect that to come down -- for the rest -- quarter-over-quarter, it can vary, Joe, obviously, depending on the activity. But over time, that should come down.

. And the next question is from Mike Rosado with Credit Suisse.

Can you guys talk about trade finance, what you're seeing there? What the growth was in the quarter, and what opportunities remain?

The growth is about 3%. Sorry? 30?

30%.

Of growth during the quarter was about 30%.

I think we see good opportunities because there continues to be growth in the import, export business. Plus we have been able to gain in export customers in the last few years that contribute to our expectation that we can continue to grow this portfolio.

Okay. And then just on, can you also talk about your interest rate position and whether your current interest rate strategy would shift with the moving rates.

At this time, even though the long-term rates have moved up, since most of our portfolio assets and liabilities are tied to the short-term rate. So on the asset side, we think that it's still too risky to lengthen the duration on the investment securities on that. So we will continue to stay more conservative and not take on too much interest rate risk on that.

And the next question comes from Julianna Balicka from KBW. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: I have a couple of follow-up questions. One, sorry if I did not catch that in your earlier remarks. But in terms of the securities that you sold this quarter, what was the dollar amount that you sold?

It's about $125 million, Julianna. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: $25 million, and again, if I didn't catch this --

$125 million. I just want to... 125?

$125 million. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: Thanks. And then, what's the current accumulated gain in your securities portfolio?

I don't have that in front of me, but certainly, with a portfolio of our size, there are obviously gains in there. Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then another question I wanted to ask, in terms of your fee income, you talked -- you mentioned that swaps and investment [ph] commissions are up. But kind of going forward, excluding the gains for both this quarter and last quarter, looks like you had a $6 million gain increase in your fee income. So thinking about your guidance, what kind of fee income growth and/or baseline fee income are you building in there?

This quarter, the fee income is better. I would say that some of the fee income, like especially the swaps, that would really depend on the market. A lot of our customers may want to lock in, thinking that rates may continue to go up. But at some point of time, the fixed rate may be too high that people would rather do adjustables and do the swap on the fixed rate. So we would say that $30 million total fees may be, either flat or slightly down from quarter to quarter. I would not expect that number to continue to grow in -- for certain [ph].

[Operator Instructions] And the next question comes from Gary Tenner at D.A. Davidson. Gary P. Tenner - D.A. Davidson & Co., Research Division: I just had a question regarding that margin question from earlier on the $3.50 representing possibly a floor. Just as you look out over the next year, and I think you said you had about $72 million of discount accretion left -- or excuse me, of accretable yield left, presumably that's 4 to 5 quarters based on what you're suggesting on a quarterly basis. So if we're at second half of 2014 and rates are where they are right now, presumably, the margin would dip for some interim period before a tightening, is that the right way to look at it?

Yes. I think that this year and next year, because of the accretion, we think $3.50 is doable and -- on the floor. Once we don't have any of the accretion in 2015, I would say that if interest -- short-term rates do not go up,...

Okay, could you -- I think you said 2014 or 2013?

2014 is okay.

Second quarter of 2014? I just want to clarify that question. Gary P. Tenner - D.A. Davidson & Co., Research Division: I was assuming that there's 4 to 5 additional quarters from now of the benefit from the discount accretions, so at least through, call it third quarter next year.

No. The discount accretion, we'll have it over the life of the loan. So what will happen is, right now, we're modeling about $15 million. In actuality, the second quarter was $18 million, $18.5 million, and that will drift downward as the loans pay down. So it won't be, all of a sudden you'll see a decline and then it will go away. It will be gradual. Is that clear?

The accretion coincide with the life of the loss-share. The loans -- life of the loans, I'm sorry, yes.

Which is loans at the end of loss-share.

Yes.

But the other offer would be the loan growth, because then we are redeploying the yields from, lower yield on the investment securities to loans. So it kind of offsets. But obviously, if rates continue to stay low, margins will not increase dramatically until the interest rates -- short-term interest rates go up.

There are no more questions at the present time. So I'd like to turn the call back over to Dominic Ng for any closing remarks.

Well, I just want to thank you, all, for joining the call today and we look forward to talking to you again in October.

Thank you. This concludes today's teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.