Apr 29, 2009
Executives
Dominic Ng - Chairman, President & Chief Executive Officer Tom Tolda - Executive Vice President & Chief Financial Officer Irene Oh - Senior Vice President of Corporate Finance
Analysts
Joe Morford - RBC Capital Markets Aaron Deer - Sandler O’Neill James Abbott - FBR Capital Markets Brett Rabatin - Sterne Agee Joe Gladue - B. Riley Erika Penala - Bank of America Securities Juliana Balicka - KBW Jeannette Daroosh - JMP Securities
Operator
Good day, ladies and gentlemen and welcome to the first quarter 2009 East West Bancorp earnings conference call. My name is Heather and I’ll be your coordinator for today.
At this time, all participants are in listen-only mode. We’ll be facilitating a question-and-answer session towards the end of today’s conference.
(Operator instructions) I would now like to turn the presentation over to your host for today’s conference Ms. Irene Oh, Senior Vice President.
Please proceed.
Irene Oh
Good morning, everyone and thank you for joining us to review the financial results of East West Bancorp for the first quarter 2009. In a moment, Dominic Ng, our Chairman, President, and Chief Executive Officer will provide highlights for the quarter; then Tom Tolda, our Executive Vice President and Chief Financial Officer, will review the financials.
We will then open the call to questions. First, I would like to caution participants that during the course of the conference call today, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.
We wish to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company’s operating results, we refer you to our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2008.
Today’s call is also being recorded and will be available in replay format at www.eastwestbank.com and www.streetevents.com. I will now turn the call over to Dominic.
Dominic Ng
Thank you, Irene. Good morning and thank you for joining us on today’s call.
Yesterday afternoon, we announced financial results for the first quarter of 2009 and reported net loss of $22.5 million or $0.37 per common share before payment of preferred stock dividends. The primary driver for the loss of the quarter was provision for loan loss of $78 million or $1.24 through common shares pre-tax.
This is a challenging economic period for everyone in the financial service industry. Credit losses in operating expenses such as higher REO in collection cost and FDIC deposit insurance premiums are impacting all financial institutions.
We are moving forward taking actions to write-off this down turn in the best way we can, to return to profitability after economy improves. At present, we are focusing on serving our customers, building a stronger retail branch network and strengthening and improving all areas of our business that we can control and change.
Although the first quarter of 2009 has apposed to challenges for East West, there have also been opportunities and successes. We successfully increased total deposit by $312 million or 4% quarter-over-quarter.
This increase in deposits was driven by $468 million or 14% quarter-over-quarter increase in core deposits. We have actively promoted core deposit campaigns in our retail branch network and throughout our commercial deposit platforms over the past nine months.
With strong growth in core deposits in the first quarter is the accumulation of these actions. During this quarter, we successfully attract new deposit customers by introducing new money market products to both retail and commercial customers and we are able to lower our overall cost of deposit considerably.
The cost of deposit for the first quarter of 2009 was 1.81%, a 33 basis points decrease from prior quarter. As of March 31, 2009, the cost of deposit was 1.59% down from a cost of deposit of 2.01% at year end.
Additionally, I’m pleased to report that at March 31, 2009, both core deposits and total deposits were at the highest level in the history of the bank. Turning to the loan portfolio and asset quality.
We ended the quarter with total gross loan of $8.1 billion, for the past three months we continued to meet the lending needs of new customers and expand existing customer relationship. We are prudently extending credit and originated $306 million in new loans and renewals of existing loans during the quarter.
In light of the continued downturn in economy and an impact to our loan portfolio we have continued to build the allowance for loan losses to $196 million or 2.42% of total loans, up from $178 million or 2.16% of total loans at year end. Given the continued weakness in the overall economy we expect the provisions and credit losses were most like continue to be elevated for the remainder of the year.
Now I’d like to spend a little time discussing credit quality, delinquency and trends we are seeing for each loan portfolio. Starting with the residential loan portfolios.
Overall total delinquency now $580 million single-family portfolio has increased to $53.8 million at March 31 from $36.5 million at year end. This increase is largely a result of increased loan delinquency in the 30 days to 59 days bucket.
As loans delinquent 60 days to 90 days did not increase substantially. We attribute much of the increase in the single-family loan delinquencies with the many federal and state programs for loan modifications causing confusion among home loans.
Our latest delinquency report as of last Friday shows that total delinquency have fallen from $53.8 million at March 31 to $44.7 million, a decrease of 17%. Additionally, we obtained updated valuations for all of these loans when they hit 60 days delinquent.
Overall based on the lower loan-to-value we under wrote to the loss content for these loans remain at a very low levels. We do not anticipate the single family mortgage portfolio to create any material losses moving forward for the next 12 months.
For the multi-family portfolio again delinquency rose in 30 days to 59 days buckets, but we remain relatively unchanged for the 60 days to 90 days first stage buckets. This portfolio is behaving in a similar manner to the single- family portfolio.
When we get updated valuation at 60 days delinquent, we note that the loss content is again very minimal. Additionally, total delinquency as of last Friday, all again down to $22.4 million a decrease of 25% from March 31, but income producing CRE loan, the primary reason for the increased delinquency was due to one lending relationship we mentioned in the press release were to borrow, filed for bankruptcy towards the end of the quarter.
Approximately $35 million of these loans were commercial real estate loans in the 30 days to 59 days delinquency bucket. These loans were classified as non accrual on March 31.
Regardless of days delinquency excluding these loans related to this borrowing, total delinquency only increased moderately at about $8 million or so against the portfolio of over $3 billion. Again, new appraisals and valuation on our delinquent commercial real estate loan showed that the loss content is minimal for this portfolio.
We believe that the lower loan-to-value and smaller loan sizes have helped this portfolio perform reasonably well given the current economic conditions. Overall, the portfolios of which we continue to see the most stress are our residential construction and land development portfolios.
The largest driver for charge-off and non-performing loans continue to be in these loan categories, with net charge-off of $28.9 million for the quarter and total non-performing assets at $143 million as of the end of March. Commercial construction loans continue to perform reasonably well given the economic conditions.
Delinquencies as of March 31, 2009 are up, but we are not experiencing the same problem as with our residential construction and land development loans. In 2008, we reduced commitment on commercial construction loan significantly.
In the first quarter as in the past few quarters since the credit down turn began, we have worked aggressively to resolve and reduce profit loans, working with our borrowers and also selling assets. We expect to continue to do so for the remainder of 2009 and as this credit cycle continuous, we are looking at the realistic values at which we can sell problem loans and REO assets and are providing the appropriate level of reserves against these loans.
Throughout the last few quarters and also in the first quarter we continue to imply a consistent methodology on these residential construction and land development loans. Partly charging off deficiencies if we do not believe that we will fully collect on the loans.
Our overall policy on non-accrual loans, which have also been consistently applied, is that all non-accrual loans are recorded at the lesser of the outstanding loan balance or net realizable value and any if that all short falls in value are charge-off when the loans are delinquent 90 days. This they owned is also recorded at the lowest loan amount of fair market value at each reporting periods.
I would also like to add that we do not have any loans passed due 90 days or more that are still accrual. Although many of our loans past due 90 days or more are also well secured from the collateral standpoint and we are in the process of collecting.
Our position is that all loans past due in 90 days should be non-accrual. We have stated in the past that C&I loans are the first to be ready impact in an economic downturn as unemployment levels increase.
Overall we believe that our C&I portfolio is holding up relatively well. Charge-off for this portfolio was up remarkably for the quarter at $18.1 million.
All of these C&I loans were identified during our comprehensive loan review that we performed last year. There were no new surprises in the portfolio.
$18.1 million in charge off during the first quarter was largely reserved for one-time last year and as of December 31, 2008. Additionally I’d like to add that we do not expect to see such high losses in the coming quarters.
The predictability and charge off of C&I loans tend to be more volatile than the other portfolios. We experienced this in 2008 also with first quarter charge off was substantially higher than the other quarters throughout the year.
To round up the discussion on our various loan portfolio, pre-finance loan continue to perform very well. Total delinquency was $8.8 million at March 31, 2009 and annualized charge off of this portfolio was about 1.3%.
Quarter-over-quarter non-accrual loans increased $33.4 million or 16% and REO asset essentially staying flat at about $39 million. As we mentioned in the earnings release, of the $248 million in non-accrual updated collateral value for these loans totaled $346 million at quarter-end.
The vast majority of our non-accrual loans are well secured by real estate particularly single-family, multi-family and income producing commercial real estate. I think it important to note that for real estate secured loans not all delinquencies or non-performing loans result in losses.
More than 98% of all non-accrual loans at March 31 were secured by real estate or other collateral. We mentioned in the press release and earlier in my remarks that the primary reason for the increase in non-accrual loans was due to one lending relationship comprised of several land residential and income producing commercial real estate loans located in the Downtown, Los Angeles region.
These loans were under 90 days past due to buy them as non-accrued as the borrower filed with bankruptcy by around the end of the quarter. The net book value of these loans totaled $49.2 million as of March 31 and the loans were well secured by proceeds on about 23 different properties.
We continued to assess the borrower situation and work through these credits. We are also working diligently to stay ahead of credit issues in this challenging environment and believe that our financial result should in fact total loan delinquent 90 days or more actually decreased by $3.4 million to $178.7 million as of March 31, 2009 compared to December 31, 2008.
We also believe that we have taken a very rational and prudent approach to build the allowance and loan losses, maintaining appropriate coverage of loan and non-accrual loans and charging off loans as necessary. Our capital, liquidity and reserve levels are very strong although the coming three quarters we will continuer to feel challenged for East West and the rest of the industry, we believe that the actions that we are taking to improve our financial performance will be self evident for the remainder of the year.
With that summary of the major issues for the quarter, the strong deposit momentum that we achieved and recap of our credit quality, I would now like to turn the call over to Tom to review the first quarter results.
Tom Tolda
Okay. Thanks very much, Dominic and good morning everyone.
Yesterday we reported a net loss of $22.5 million driven by net evaluated provision for loan losses of $78 million, also weighing on earnings in first quarter with the $7 million charge for other real estate loan. These two charges taken together accounted $49.3 million of loss for the quarter on an after-tax basis.
From the balance sheet perspective we are continuing to strengthen it and are making very good progress. Dominic mentioned growth in deposits of $312 million over fourth quarter 2008, which was accompanied by a shift from higher cost CDs to core deposits.
Core deposit increased $468 million in the quarter resulting in a 33 basis point reduction in cost of deposits. We anticipate deposit costs will continue to decline at a slower pace than we have seen recently.
Higher cost CDs will continue to mature offering us additional opportunities to migrate these to non-CD accounts. Over the next three to six months, we have $1.3 billion in CD’s coming due at 2.4%.
Over the next nine to 12 months we have another $1.3 billion in CDs maturing at 3%. Additionally promotional days will be re-setting lower in the second quarter and in the last couple of weeks, we have observed some of our larger bank competitors reducing CD rates which will also help to lower our own cost.
On the loan side, outstanding debt at March 31, were $8.1 billion versus $8.2 billion at quarter-end last year. The decrease in the quarter results from normal principal pay downs, maturities and charge offs, partly offset by $306 million in originations and loan renewals.
The bulk of the loan portfolio decrease came in the land and construction portfolio down $138 million, the C&I portfolio decreased $81 million and trade finance was also down $51 million which will partly offset by growth in single and multi family mortgages and some commercial real estate mortgage. Looking back for a moment, good progress has been made with our loans to deposit ratio.
Back in December 2007, we had loans to deposit at 122% ended 2008 at 101% and now stand at 95%. We are comfortable at the current loans and deposit ratio and do not anticipate substantial changes from the current levels.
Moving to our investment portfolio, our overall investment portfolio is now $3.1 billion, up $600 million from December 31, 2008. With the increase in deposit, and slight reduction in outstanding loans, we have excess liquidity which we have temporarily put to use in our investment security portfolio.
In this current operating environment, we believe it is prudent to have strong liquidity and flexibility in our asset base. The investment portfolio is largely comprised of agency, MBS, our own private label MBS, corporate debt, sub-municipal bonds, bank CDs as well as money market mutual funds.
In first quarter, the portfolio yielded 3.85% comparing favorably to prior quarter. As the economic environment improves in the future, we look to deploy these funds in to high yielding loans.
The duration of our portfolio is relatively short at 2.5 years. Excluding the 7 basis point cost of non-accrual loans, our net interest margin came in at 2.81%.
Overall the margin is holding up well, particularly in comparison to many banks that have reported this quarter. Actions we have taken to shift deposits to lower cost products, the focus on pricing and improving the yield on interest earning assets have all contributed to margin improvements.
Currently, we estimate net interest margin will increase from 2.74% in the first quarter to about 2.85% in the second quarter and expected to increase modestly in the second half of 2009 as both higher rate CDs and FHLB borrowings mature. With final FASB staff positions on fair value measurement and other than temporary impairment issue, we chose to early adopt the first quarter.
The new accounting guidance bifurcates OTTI between credit related impairments which flows through P&L and non-credit related impairment which flows through other comprehensive income. In first quarter the P&L impact of OTTI was $2,000 pre-tax and the non-credit related to OTTI on securities of $9.7 million was recognized through other comprehensive income.
We continue to maintain strong levels of liquidity with total liquidity strengthened to $3.6 billion up $210 million from year-end 2008. During the quarter we reduced FHLP advances at a weighted average cost of 4.52% by $120 million or 9% during the quarter.
Thought the remainder of 2009, we intent to pay down higher cost of FHLB advances, paying down $60 million at 5.05% in the second quarter, another $250 million at 5.14% in the third quarter, and finally $200 million at 4.43% in the fourth quarter. These actions will also serve to help margin for the quarters to come in higher over the remainder of the year.
On the capital front we laid our regulatory capital ratios and risk weighted assets in our press release. East West continues to be very well capitalized with quarter, total risk based capital of 15.65%, Tier 1 risk based capital of 13.67% and Tier 1 leverage capital of 11.47%.
All the regulatory ratios, we are about $600 million or more above the well capitalized threshold. Additionally as of March 31, 2009, tangible common equity was $702.7 million or 5.76% of tangible asset.
We will be looking to maintain or improve this as we go forward. Dividends will continue to be reviewed each quarter in light of earnings and our desire to preserve and grow tangible common equity.
Non-interest income was $13.8 million for the quarter, up $14.7 million from the fourth quarter of 2008. Excluding the impact of the payment write-downs in our pooled trust preferred securities which in first quarter was $200,000 versus $9.7 million in the fourth quarter.
Non-interest income for the quarter was $14 million or $3.5 million above the fourth quarter of 2008. This increase is attributable to $2.3 million in additional security gains and $1.2 million higher fee and other income.
Non-interest expense in the first quarter totaled $51.4 million, $7.2 million above fourth quarter’s $44.2 million. The primary drivers for the increase in expense was credit related as both REO expense of $7 million and legal cost of $1.8 million account for $4.6 million of the quarterly variance.
The remaining $2.6 million variance is attributable to $1.3 million higher FDIC insurance premiums that increased for the entire industry in 2009 in higher favorable taxes. We will continue to focus on increasing operating efficiency in 2009 as opportunities continue to serve.
Net employee attrition, higher vendor management and space occupancy all offer additional productivity. Cost of credits and FDIC insurance premiums will likely mute some of the progress that we expect to realize.
With that, I would like to turn the call back over to Dominic.
Dominic Ng
Thank you Tom and I would like to open the call for questions now.
Operator
(Operator Instructions) Your first question comes from Joe Morford - RBC Capital Markets.
Joe Morford - RBC Capital Markets
Thanks. Good morning everyone.
I was curious if you’ve seen sales activity of problem assets pick up at all since quarter-end and can you give us a better sense of the gap you need to close between your carrying values and current market values.
Dominic Ng
I think that we were selling the REO pretty much at similar kind of discounts than last quarter the carrying value.
Irene Oh
That’s correct. For our REO assets roughly the discount on them was 24%.
Dominic Ng
Yes, so actually it’s very consistent to three months ago and in terms of we picking up any more additional sale volume, I would say that it’s a little bit too early to tell, I think that our intent always is to try and to sell as much as possible, but I think since we only have three weeks that past us we wouldn’t want to be commenting about quick access or anything because we got two and half months to go.
Joe Morford - RBC Capital Markets
Yes, I understand. I guess the other question I have would be is on C&I portfolio, I know you said you identified most of these problems in your review last year, but given that they were about a third of the charge offs this quarter and now represent about 10% of MPAs.
Can you just talk a little bit more about what types of problems you are seeing there and is it mostly in real estate or related businesses?
Dominic Ng
Actually, I would say that the vast majority of them are now real estate related at all. These are business at one time were great business in terms of importing certain type of merchandise and selling to real estate regional or business.
However, because of the consumer market have dropped substantially some of these businesses couldn’t survive and then that caused the major of the write down.
Operator
Your next question comes from the line of Aaron Deer - Sandler O’Neill.
Aaron Deer - Sandler O’Neill
Dominic, you gave some good color on some of the improvements in the past dues since quarter end. I was wondering if looking back from the positives at year end, what percentage of those migrated into non-accrual status versus were result during the quarter.
Dominic Ng
I don’t have that statistics on top of my head. We definitely have been doing a lot of different sole of like slicing and dicing of the numbers to analyze the information to help us to predict trend, but at this particular movement I do not have the information that I can share with you.
But clearly they were some that when they became delinquent only 30 days back in December and now become over 90 days. When there were others there even been over 90 days for a while and then eventually we got everything resolved with the customers.
So it’s a mixed pack of everything and so others really no particular very, very clear pattern that even if I can share with you with detailed statistics, I mean I would say that information will not be as enlightening as we would like to be.
Aaron Deer - Sandler O’Neill
Then Tom, the average earning asset levels bloomed up during the quarter even as loan balances declined some. Obviously a lot of that stumps I guess is from deploying the strong deposit growth you’ve seen into securities, but some other securities aren’t necessarily reflected in the end of period bounces.
I’m just wondering if you can give a sense of what level you would expect to maintain earning assets left on an average basis going forward.
Thomas Tolda
Certainly, we are hopeful that we can continue to generate additional core deposits, but I think at this point we are not expecting that the balance sheet will balloon in anyway, and at this point I would think that potentially some growth in core deposits, hopefully going forward but nothing very substantial at this point as we move thorough second, third quarter. I think on the earning asset side, yes a lot of this liquidity is being placed into short term securities.
We don’t want to take any kind of unnecessary risk in the security portfolio as we are keeping it short, we are keeping these things in very high quality paper and there is cost associated with that in terms of the margins, but we think right now that that’s a prudent way to mange through this cycle.
Dominic Ng
Yes, I wanted to add to that our plan, which started nine months ago is to really aggressively to push retail branches and also the commercial banking account officers to focus on bringing core deposits. One of the good thing about the downturn in the economy is that when the lending officers no longer get too busy of making new loans, they spend a lit more time focusing on working with existing customers who generate new deposits and trying to find new customers that are non-credit driven type of plans or sort of mid deposit driven type of plan.
So we have gained great success in terms of growing their core deposits, but you may notice that when you see that the $468 million of core deposits flow for this quarter, we only had grown total deposit of $318 million and the reason is that we intentionally left some of the higher cost CDs run off. Now frankly, in order for us to achieve a better cost of deposit than our peers and continue to sort of like outrage them by a wider margin, we need to be comfortable to let go of some of these customers who may be with us for long, long time.
However, for many, many years they have been asking for very, very high rate and we are going to have to start going into the other direction. We’ve been doing that actually for many years, but I think we get a little bit more aggressive now because we are having more successes in bringing lower cost deposits.
So going forward for 2009 in the next three quarters, our strategy is that since we already have picked up a pretty big gain of deposits, we are not planning to grow the balance sheet at all we actually have to ruin to continue grow core deposits and maybe possibly reducing these higher cost CDs, etc. So from the liability side we wouldn’t see much of a big increase even if we continue to see quick growth in core deposit, because we can always offset it for these higher cost CDs.
From the asset side, all these investment securities that we have currently that we have, that we are keeping short now obviously it hurt our yield, it hurt our margin, but we need to focus on that the economy would eventually come back some day, we don’t know when, would it be two or three quarters from now or may be one or two years from now, we don’t know. However what we known is that if we start chasing for yield too quickly today and lock our self up into the investments and not give us the excess liquidity allow us to have room to make loans, when the economy pick up it will actually hurt our longer term future.
That the other part that we looked at is that at this stage we also feel that we are determined to trying to pay down these several on bank advances and some of them won’t come due; I mean until a big chunk coming in at the third and the fourth quarter and also the first quarter of next year. So if we start investing due peacefully we wouldn’t have that liquidity to pay off these Federal Home Loan Bank advances.
So I think that it may not help our margin today, it may not help our margin in the second quarter, but sometimes early next year this will be great for helping our margin because at that point what we pay down these Federal Home Loan Bank advances at this 4% to 5% level it will make a big difference in terms of to our margin. Hopefully by then we will be able to start the point in these liquidity that we sit on cash right now for 1% or so, but we will be able to deploy this liquidity into higher yield loans and relationship type of customers.
Operator
Your next question comes from James Abbott - FBR Capital Markets.
James Abbott – FBR Capital Markets
I hope you are doing well there. A quick question on non-performing asset sales, I know you mentioned the real estate own sales and discount accepted there.
What was the dollar amount of non-performing assets that were sold and then what was the discount that you took there and how much charge-off was associated with that?
Thomas Tolda
James we sold in first quarter $45 million of non-performing assets and as well as REOs and that regard to the discount it was --
Julia Gouw
So for the REOs discount was about 12% and for the non-performing loans it was closer to about 25% James.
Thomas Tolda
Which is pretty consistent with what we’ve have seen in the past
James Abbott – FBR Capital Markets
The 45 is the combined number between non-performing loans plus REO, you have just the non-performing loan sales?
Julia Gouw
The loan sale was roughly $15 million.
James Abbott - FBR Capital Markets
So most of with REO
Julia Gouw
Yes.
James Abbott – FBR Capital Markets
So what is your outlook on that, are you anticipating selling more of that price, do you anticipate waiting to see how the [inaudible] program works before, and selling more. Where do you stand on that process?
Dominic Ng
No. We will not be waiting for any kind of government programs, I mean whatever that our new program come out and announce, we always entertain whatever is out here.
I think, our approach is that we need to resolve problem credit as quickly as we can, frankly just because we only sold $45 million, but we actually solved quite a few other credit by not selling down, but actually by able to find a way to get a resolution with the borrowers and then so forth. But I think looking forward for the second quarter, I think that we will continue to be aggressive in trying to find a way to produce compare down the NPA and make sure that we do not see any high elevation in terms of the total NPA level.
So, therefore we would just look at all different ways of getting things resolved and clearly as selling in both non-performing loans and our yield are the vehicles that I think that very straight forward. We are not going to wait for something to happen for us.
We’re always going to take a proactive approach to trying to take care of these problems. Frankly, with this additional provisions and charge-off we are in a better position -- every quarter we are in a better position to take care of some of these problems.
James Abbott – FBR Capital Markets
To your point Dominic, how many either number of loans or dollar amount of non-performing loans where you able to resolve without either going into foreclosure or selling the non-performing asset? Are able to just resolve them through a natural work out process, do you have an estimate on that?
Dominic Ng
We would need to get back with you on that. I mean we need to tally up these numbers, because many of them are in a very different way.
See in terms of workout, actually is not that many. When we resolve it a lot of time is that the borrower maybe not paying for long, long time and says a non-accrual and then suddenly they said when we find a buyer and it’s going to buy the real estate and then they pay you off, that’s in a way.
So is like as of chronic delinquent, some of them get resolved or we have another scenario that after sitting there for a while and then maybe the borrower come out of bankruptcy and then there is some way that we can get things resolved. There are many different scenarios that help us to get these problem loans which are sold.
What we need to do is that in fact in terms really go back and then take a look on our own definition or resolution, and basically I look at it as we take amount from NPA to current and then we take amount from their classify sub-standards to pass, that’s been resolved, we can take a look and tally up those numbers and share with you after the call.
Irene Oh
Also to share with you, land and construction loans. So our balances decrease about $137 million, of that roughly $90 million or so related to some sort of principal pay down or pay off of the loan.
James Abbott – FBR Capital Markets
Okay. That’s very helpful and on the special credit that you mentioned, the $49 million was there a charge-off that was associated with that.
So in other words, was the gross balance more than $49 before any chare-off associated in this quarter?
Irene Oh
Charge-offs related to that was about $3 million.
Operator
Your next question is from line of Brett Rabatin - Sterne Agee.
Brett Rabatin - Sterne Agee
I was wanting to ask on the land that you have and just what you’re seeing in the market. Can you give us any indication of what you’re seeing prices for lots and then just generally volumes and the couple of counties that you guys operate primarily in?
Dominic Ng
It goes every where. I think the challenge is that there are so many buyers coming out of good workouts.
Frankly, many of them don’t even have any experience into land development and so forth, it’s just that everybody is thinking that this is the time for a golden opportunity to buy things cheap and there are people coming with offers in all different directions. So whenever we go out and like trying to get that from selling these lands in the REO, we’ll get this in a very, very wide range.
So it’s really hard for us to really get a feel one way or the other. Also quite frankly its different region and different real estate, its really location, location, location and different location which actually have a very vast difference in terms of market value, and it also changes dramatically.
So that’s why the dynamics are very interesting. At one point a certain region maybe okay and suddenly it’s not, a good example will be well around our headquarters here in Pasadena and San Marino.
New single family homes are holding up really well; it’s almost like there is no change at all from these all time high and we’ll be scratching our head because the LA market is supposed to be down more than 30%, so different place, different location, different outcome. Clearly our biggest stress is in the Inland Empire and specifically we have bought the Desert Community Bank in 2007 and their portfolio is having more stress, simply because they are in the high desert area and there is a very depressed economic condition in that environment, and so I really don’t have any specific numbers I can share with you.
Brett Rabatin - Sterne Agee
Okay, and then to follow up on that Dominic, maybe you could just broadly then talk about how the buyers are looking at the lots from a land development perspective when they are thinking about buying them today. Do they buy them and they discount; can you (a) provide kind of what discount rates you are using, and then (b) sort of what their timeframe is when they assume that they will be able to sell a lot to stake developers so to speak?
Dominic Ng
I think they vary, I think that most of them who buy land from us, were buying to hold. Obviously this is not much of a time to do development.
So far the land that we sold, we sold to investors who plan to hold onto this land and I would say anywhere between two years to seven years. A investor specifically told us that they are planning to hold land for up to seven years time and then hopefully by then to either think about development or may be resell it to other developers, and then there were other investors who bought a piece of land from us and specifically mention about within two years they planned to start building.
So and I think it depends; different individuals have different type of expectation; they have different expectation on when the economy will come back and the other thing will be again based on location and so it just varies. Our position is that as long as they give us a good price and help us out in terms of making sure that it’s no long our problem and then we are more than happy to accommodate one way or the other.
Operator
Your next question comes from line of Joe Gladue - B. Riley.
Joe Gladue – B. Riley
Dominic Ng
No any one big large relationship in this kind of magnitude. It’s just a bunch of little stuff, here and there spread all over.
As we’ve mentioned earlier about the single family, frankly when you have this California State law that we cannot go in and foreclose, we extend the period of time because of those moratorium, it obviously makes it harder for us to turn these inventories and I would expect that as long as we have these kind of moratorium, these type of single family mortgages may have a little bit more elevated type of delinquency than normal, but ultimately did it last on [Inaudible].
Joe Gladue – B. Riley
Okay. Also wanted to ask a question on the just salary and employee benefits expense; looks like that’s close to little over 9% versus the fourth quarter.
I was just wondered?
Dominic Ng
Joe, at the end of last year we had some accrual reversals that contributed to the variance point of the quarter, so that’s all that is.
Joe Gladue – B. Riley
Okay, all right I guess lastly I’ll just ask if you can just give a brief comment on what you are seeing from the Hong Kong operations.
Dominic Ng
Our Hong Kong operation is doing good. They grew some good core deposits.
I mean not a whole lot is I mean consistently going through what I call a steady growth mode. Right now it’s about over a bill for $200 million in deposits and they just started foreign exchange operation and so too early to kick in that the revenues, but we expect them to do quite well going forward in the future and then be a great grudge to our California banking franchise.
Operator
Your next question comes from the line of Erika Penala - Bank of America Securities.
Erika Penala – Bank of America Securities
Thanks for taking my call. When you mentioned that you had the $248 million in non-accruals, have an updated value of $344.5 million.
Could you give us a sense of in your $172 million or so of construction, non-accruals, what the updated value of that bucket is?
Thomas Tolda
Erika, I think we’re going to have to get back to you on that, we don’t have that on hand here, I think we can get back to you on that one.
Erika Penala – Bank of America Securities
Okay, and the difference in value is that when you realize the impairment, you also realized selling costs and potential discount, is that what the difference is in the two numbers, the 248 and the 345?
Julia Gouw
Erika, the difference in that is that, lets say there’s a loan for $100 dollar, the value of that property is 200. So when we get the updated value, that loan has a LPV of 50%.
Does that help?
Erika Penala – Bank of America Securities
Got it, got it. Okay, and the loans also happened in the quarter, I am guessing these are C&D related.
How does it score up in terms of completed projects versus raw land?
Julia Gouw
Can you repeat the question again?
Erika Penala – Bank of America Securities
Sure, the $45 million in NPA and OREO sales, I’m guessing that they’ll see construction development; how did that split between completed projects versus incomplete land?
Dominic Ng
We don’t have a specific percentage for example, but we actually have sold incomplete projects. We have sold raw land, we had sold several pieces of raw land.
We have sold at least two incomplete condo projects, and in terms of completed project, I don’t think we have done any of them. Let me explain again; the $45 million that we sold, are primarily a bunch of little single family mortgages, after we foreclosed that we’ve sold them.
In a single family home simple easy and then we have a few unfinished condo projects that we sold and that we have several pieces of raw land. Well, not all of them are raw land, but they are just land development.
Some of them are entirely ready to be filled; some of them are just half way in that different type and that’s pretty much is what we sold. Quite a few of them together if you add up the total numbers, but the reason that there’s so much high numbers of these transaction is primary because we sold a lot of the single-family home, which average about like maybe $200,000 or so each, that’s why it looks like a whole bunch of them, but in terms of these commercial properties, I would say that maybe a dozen or so.
Erika Penala – Bank of America Securities
And I guess looking at the average deposit balances for jumbo CDs, I was wondering why there is a large increase in the jumbo volumes and whether or not that’s the bucket that you are expecting to run off aggressively over the next few quarters?
Dominic Ng
Well, I think that our focus is less on jumbo versus non-jumbo, but mostly focus on interest rate. Frankly, there is higher likelihood that we will run off jumbo, because we tend to pay a little bit higher rate for jumbo than the less than $100,000.
However, I wanted to point out that we actually have quite a few customers that have deposit with East West, that are pretty high balances, but not necessary getting to the high rate, because one is, because they have been with the bank for many years and have a very long term relationship with us. The other thing is that we have been pretty actively focused on for the last six months on selling FDIC insurance products such as the cedar deposit program.
So because the cedars’ program customers are able to get insurance up to $50 million per borrower and through that program, obviously there are lot of customers who look at us as a much better alternative than putting their CD deposits or putting their deposit into U.S. treasury bills, and so with that regard, when you look at our rate, despite our rates are substantially lower than our peers, but is still substantially higher than U.S.
treasury, when they get the full FDIC insurance it makes a lot of sense for them to place their high balance with us. So I wouldn’t necessarily say that we’re going to try to just focus on reducing the jumbo because there are many of the jumbos actually are paying a very, very reasonable rate.
So we would tend to continue to keep them.
Erika Penala – Bank of America-Merrill Lynch
And can you give us an update on what your average offering right now is for a CD product and also what you’re seeing out there in the marketplace for your closest competitors for the same product?
Thomas Tolda
Sure. Erika our top rate, max rate for CD, nine-month and beyond is currently at 2% and we’ve recently had increased that by about an eighth-of-a-point from probably a month ago, but that’s 2% is where we’re at.
Relative to competition, we have seen some of our peers somewhat higher than that, as much as probably 40 to 50 basis points. Some of the larger banks, we’ve also seen at around 250 for 12 months.
So we are quite a bit lower, but I would also say that in the last couple of weeks and I think I mentioned this in my comment, we have seen some of the banks reducing those rates. So we think we’re encouraged by that and as a result, we think we’re also at the same time getting more competitive in that regard.
Dominic Ng
But most of our growth coming from the retail deposit and the growth still coming mostly from the money market account, on that we pay a lower rate.
Thomas Tolda
Yes, our special money market account today is at about 178. Did that answer to your question, Erica?
Erika Penala – Bank of America-Merrill Lynch
Yes, thank you. Thank you for your time.
Operator
Your next question comes from the line Juliana Balicka - KBW.
Juliana Balicka – KBW
Good morning. Thank you for taking my question.
I have a couple of quick questions. In terms of your performing land portfolio which is about $460 million and your performing construction portfolio, the $981 million, of that, can you give us some sense on the maturity curve, when those loans are going to be coming due and in what kind of increment?
Dominic Ng
For the land, many of them are shorter term and actually for the construction, both of them are relatively short-term. So I mean their maturity coming through haven’t basically staking up every quarters and then a substantial amount of them coming through, and so we don’t have an exact number that I can share with you at this moment, but clearly that’s something that we can put together and give you that information later on.
Juliana Balicka – KBW
Okay and then within that, as a follow up to that question then, one of your performing construction/land loans are currently operating under extensions?
Dominic Ng
Operating under extension.
Thomas Tolda
Are you probably looking for some kind of percentage, Julianna?
Juliana Balicka – KBW
Whatever information you are able to give me.
Dominic Ng
We don’t have that with us right now. So this is something that again we need to go in that and take it up and then to see what you are looking for?
Juliana Balicka – KBW
Okay, great. Let me follow up on that later and then I have a second question and I’ll step back in a different area on the deposit group, which was very nice to see.
I have two follow up questions. On the jumbo deposit you gathered, how many of those would you say are depositors who are increasing their regular balances because the FDIC limit is now in the 250 range and then those maybe scaled back or maybe transferred to different accounts once the limit goes back to $100,000?
Dominic Ng
We did not track it like to see how people are because of the spin. We just brought the deposit in and we have not really looked at it, like customer-by-customers to really look at it different.
So as far as we are concerned, we don’t know that.
Thomas Tolda
Julianna, no doubt that the FDIC Insurance helped with that, but I don’t think that that is necessarily a driver; it’s certainly is help, but I don’t think it was that anything that had a game changing sort of impact here.
Dominic Ng
It’s actually the other way around. One is that we have the CEDA program, which whether is 250,000 or 100,000, they are going to be insured up to $50 million.
It had nothing to do with the FDIC raising limit. Now for other banks who don’t have that fully insured program, clearly that may be an issue, but because we have the CEDA program, the FDIC can cut the insurance down to 20,000 as long as the CEDA program still recognized by the FDIC as non-broker deposit, we always can be happy to find a way to protect our customers through the CEDA program rather than looking at that 100,000 to 250,000 limit that’s one.
The second issue is that our growth of deposit in the first quarter actually mainly comes from small customers. Let me share that with you.
I mean our bonus money market account that right now we are offering at 1.78%, what we’ve done is that we actually have offered a flat rate to all of our retail customers. We are in the path have always put in terms of if you’re not giving at least over 100,000, you get a very, very low rate, but anybody who gives a substantially higher balance, would give you a much higher rate.
We propose that we will give flat rate. In fact, we ended up attracting a huge number of small customers to East West.
Our growth mainly coming from the retail branches and many of them are these $10,000, $15,000, $20,000 customers and we have opened many, many new accounts from these small customers who put their money into their money market rate, because not only us having these tier pricing that have cost them not able to enjoy a decent rate. Almost all our competitors are doing pretty much the same traditional formula; that is as long as you don’t have a large deposit, you get a low rate, and so my equal opportunity bonus money market rate has actually caused more not only our existing customers excited for more deposit in our bank, but also many other customers from other banks are opening new account with us.
So actually it’s quite the other way around in terms of obtaining deposits.
Operator
Your next question is from the line of Jeannette Daroosh - JMP Securities.
Jeannette Daroosh - JMP Securities
Going back to the $45 million of loan sales, you had indicated 12% discounts on the REO and 25% discount on the NPL. I’m just wondering how much of a write down did you take on those assets when you moved them into the non-accruing category and then for those into ROE?
Dominic Ng
It varies. We don’t have the information.
At the moment it’s that we always write every problem loans down to net realizable value based on the most current appraisal and minus the selling cost, which is 8%. So with the net appraisal value and then plus another 8% as specific reserve or charge-off and that’s what we do.
After that I think what happened here is that some of these loans after we got the appraisal and also minus the 8%, it may still have loan balance system that are below the fair market value based on the appraisal, but when we are trying to sell a note to a borrower, we have yet to find any borrower who are willing to pay par. Now, interesting enough obviously in 2008, 30 Aug when we started selling notes right at the beginning, actually most of the deals that we’ve done is selling at par or may be just a small percentage, I guess 3% or 4% discount to par.
In today’s environment that seems to be sort of all like no longer in fashion. So obviously whenever we felt note we are expecting a higher discount, in a sense why we have a 25% discount on selling note versus a 12% on the REO.
Jeannette Daroosh - JMP Securities
Okay, and then along those same lines, could you maybe provide a little bit more detail on what the actual selling process is. Are you getting single bids for these assets or you actually receiving multiple bids on any of them?
Dominic Ng
Again it varies, our process is that our special asset department, together with the various group team leaders who are responsible with the loans will go hand-in-hand together, and we often times before the property go to full closure. We have already come up with a marketing strategy and most of the time we have found a real estate broker that is familiar with that type of asset in that particular area to put into a marketing plan and that we have that real estate broker the list the property and then through that process obviously that interested parties will come in and that’s why we call it the normal process.
We also have taken an approach that we have put together a list of these OREO assets and we send out the list to potential interest of parties; people that we know in the communities that are interested to buy distressed assets and we also share that information with some of our valuable clients, by giving that information to them and we put out a deadline and ask everybody to look at these properties do their due diligence. After they sign a confidential agreement we give them information for due diligence and we set a deadline for due diligence and we set a deadline for submitting the bid and so kind of like a little bit more public bidding process.
So, we have done both and we have successes coming from both. What we are going to do in the future, we are going to continue to fine tune the process and most likely we’ll continue to look at all different kind of alternatives that would help us to get the best price and then the most efficient way to unload these assets ASAP.
Jeannette Daroosh - JMP Securities
My last question relates to the large lending relationship that resulted in the $49.2 million NPA in the quarter. You indicated it was supported by 23 different properties.
I was wondering could you give us approximately what the collateral value is for those properties.
Dominic Ng
Irene, do you have the number?
Irene Oh
I don’t know if I have that right in front of me. We might have to get back to you on that.
Dominic Ng
Clearly you know that we have plenty of collateral against the current net realizable value. I mean against that $49.2 million there is no question that we have substantially higher collateral value as of today.
Jeannette Daroosh - JMP Securities
Is this representative of your largest single type lending relationship or are there other relationships that are comparable in size?
Dominic Ng
We have other relationships, not a whole lot, but we have other relationships that are comparable in size, that is in aggregate that for one borrower that we may have $50 million, $60 million, but as you see in this particular relationship, we got 23 properties collateral and then also a multiple number of loans. So actually the average sizes of the loans are not big at all and then all of them are fully collaterals.
One, if you look at for some of these larger banks, most of these dues are non-recourse anyway. From a non-recourse standpoint, every one of them are standalone, so we can actually look at these as a relationship that’s actual only maybe average above $5 million or something like that.
On the other hand, I think what happens here is that because we always aggregate relationships, we always have the information that we aggregate relationship together on one single borrower, and I think that on one hand there is that likelihood that one single borrower filed bankruptcy, retained all the other loans, but one good news about it is that each and every one of these loans have separate collateral. In fact, for this particular incident not only each and every single loan have separate single collateral, in fact each and every single one of these loan have multiple collateral for each single loans.
So I think that ultimately when the bankruptcy wind down we ought to be able to recover most of our money.
Jeannette Daroosh - JMP Securities
Then finally, what is your lending limit, your internal lending limit?
Dominic Ng
The legal lending limit is quite high, but our house limit is that we try to not have C&I loans above $10 million, and we trying not to have real estate above $20 million. Frankly, I think we may have only less than a handful of loans still at that level.
So as we talk about average loan size about $1.2 million for commercial real estate, about $2 million for construction loans and average about $500,000 for our C&I loans, so that kind of gives you a pretty good idea. Most of our loans are at that very similar dollar amount and there is only a handful of loans that are above $10 million and beyond.
Operator
And your next question is from the line of [Inaudible]
Unidentified Participant
I want to go back to the early delinquency bucket question. Q1 saw a different trend from Q4.
Q4 you had flattish to improving trends, Q1 you saw these bucket in total double more than 100%, up $160 million. So what is going on there and most of the issues also were scented on commercial real estate income producing and residential construction?
A question, and second is why shouldn’t we believe that your pipeline to non-accrual is just doubled, quarter-over-quarter?
Dominic Ng
What was the last question, why should we?
Unidentified Participant
If the early buckets doubling quarter-over-quarter, why should we think that your pipeline to non-accrual has also doubled quarter-over-quarter?
Irene Oh
This is Irene, one think I want to share with you is that if you look at the tables for our press release, we break out the non-accrued loans for the ones in 90-days or more delinquent and then the ones that are under 90 days delinquent that we have classified as non-accrual. So you’ll see that of the total quarter non-accrual loans of $248 million, 179 were delinquent, 90-days or more and there are about $69 million under 90 days delinquent.
So those were often than not in the earlier delinquency stages of the 30 to 89 days delinquency.
Unidentified Participant
I understand, you’ve got some of the early buckets under non-accrual, I understand that, that’s 69 million; quarter-over-quarter change is $160 million for the 30 to 89 days, so you still have a significant sort of ballooning of trends which were not there in Q4 and I understand that we could be facing a second way etc, but just the size of the trends the change in trends was a little bit surprising.
Thomas Tolda
I just want to mention; I mean Dominic had mentioned that in the couple of loan categories some of that delinquency is showing signs of improvement as we moved into April. So, no question that delinquency is higher, but at the same time we’ve certainly seen some of the single-family pull back, as well as multi family.
So, it remains to be seen how much of this actually rolls forward, but we’re work in this real hard; we’re working with our customers to bring in to get some current and I think time will tell, but at this point we have some signs that some of this delinquency has pulled back.
Operator
(Operator Instructions) There are no further questions in queue at this time. I’d like to turn the call back over to East West Bank Management for closing remarks.
Dominic Ng
Well, thank you all for joining us for this call and I look forward to talk to all of you at our second quarter earning release date. Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Have a great day.