Apr 17, 2014
Operator
Good day and welcome to the East West Bancorp First Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode.
(Operator Instructions) Please note, this event is being recorded. I’d now like to turn the conference over to Irene Oh, EVP and CFO.
Please go ahead.
Irene H. Oh
Good morning and thank you for joining us to review the financial results of East West Bancorp for the first quarter of 2014. Also participating on this call this morning will be Dominic Ng, our Chairman and Chief Executive Officer; and Julia Gouw, our President and Chief Operating Officer.
Second, we’d 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 Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2013. Today’s call is also being recorded and will be available in replay format at eastwestbank.com.
I’ll now turn the call over to Dominic.
Dominic Ng
Thank you, Irene. Good morning.
Thank you for joining us for our earnings call today and yesterday afternoon we were pleased to report financial results for the first quarter of 2014 with net income of $76.7 million or $0.54 per diluted share. Net income increased 6% or $4.6 million from the first quarter of 2013 and earnings per diluted share increased 8% or $0.04 from the first quarter of 2013.
Excluding the impact of MetroCorp related integration and merger expenses in the first quarter, earnings per diluted share was $0.58 or an increase of 5% or $0.03 as compared to fourth quarter 2013 and an increase of 16% or $0.08 as compared to first quarter of 2013. Further, we achieved strong profitability with a return on average assets of 1.18%, and a return on average equity of 12.05%.
Overall, it was a strong quarter. We started off the year by completing the acquisition of MetroCorp Bancshares Inc.
headquartered in Houston, Texas on January 17, 2014. Further, we achieved solid growth in both the loans and deposits.
During the first quarter of 2014, we realized loan growth of 10% or $1.8 billion. $1.1 billion was due to the addition of loans from MetroCorp and $728 million was due to strong growth from the legacy East West portfolio, largely from growth in non-covered commercial and industrial loans.
As discussed in our fourth quarter earnings call, our focus for 2014 will be growing the commercial industrial loan portfolio and our results for the first quarter show good progress towards this goal. Total deposit also increased significantly by 12% or $2.4 billion quarter to date to a record $22.8 billion, including core deposits of $16.4 billion.
Through the MetroCorp acquisition, the Company acquired deposits of $1.3 billion. Excluding MetroCorp, core deposit increased 7% or $1 billion from December 31, 2013 and increased 21% or $2.7 billion from March 31, 2013.
I’m also pleased to report that the balance sheet growth was achieved without compromising profitability. Both adjusted net interest income and adjusted net interest margin were up quarter-over-quarter.
For the first quarter, adjusted net interest income totaled $209 million, an increase of $10.7 million or 5% from the fourth quarter of 2013 and an increase of $24.3 million or 13% from the first quarter of 2013. Similarly for the first quarter, the adjusted net interest margin totaled 3.45%, an increase of 4 basis points from 3.41% from the fourth quarter of last year.
Now, I’d like to give a brief update on acquisition of MetroCorp. Since we closed the transaction on January 17, we’ve been hard at work with integration.
As part of the integration plan, we will be consolidating a total of six branches, two in Texas and four in California. Integration process is progressing smoothly and the full conversion of all MetroCorp systems is scheduled for completion later this year in June.
We have had ongoing communications and meetings with MetroCorp customers and look forward to the expanded products and services we’ll be able to bring to them once they’re fully on the East West Bank’s platform. In summary, we believe that our solid operating results for the first quarter will serve as a strong foundation for the remainder of the year.
Our continued ability to win new customers and grow loans and deposits organically is attributed to our distinct positioning as to bridge between East and the West. During the first quarter, we received approvals for new branch locations in Shenzhen, China and a new sub branch in the recently established pilot free trade zone in Shanghai, China.
These two new branches in China expected to open later this year in the fourth quarter. With our growing and expanded network in Mainland China, we expect to have more opportunities to provide our cross-border customers a wider array of banking services and products in both the U.S and in China.
As such, we continue to make investment in people and infrastructure to better serve our customers and strengthen our core capabilities. For these reasons we believe that East West will continue to deliver strong financial results for the rest of 2014 and beyond.
With that, I'll now turn the call over to Julia to discuss in more detail our key successes in the first quarter and our expectation for the remainder of 2014.
Julia S. Gouw
Thank you very much, Dominic, and good morning to everyone. I’d 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’ll review the guidance we provided in the earnings release yesterday for the second quarter and the full year of 2014. Our total loan portfolio increased to $19.9 billion at March 31, 2014, an increase of $1.8 billion or 10% from December 31, 2013, which include $1.1 billion of loans acquired from MetroCorp.
Excluding the addition of the acquired loans from MetroCorp, our loan growth for the first quarter was driven by increases in commercial and industrial loans, in particular growth in the sectors of [large] [ph], specialty finance, private equity, technology and life sciences. Additionally, we experienced solid commercial and industrial loan growth in Hong Kong in the sectors of trade finance and cross-border business corporate and real estate.
This growth in the non-covered commercial and industrial loans was approximately 11% or $600 million during the first quarter. During the first quarter, non-covered single-family and home equity residential loan growth was approximately 5% or $190 million.
Non-covered multi-family loan growth was 6% or $60 million and non-covered CRE loan growth was approximately 2% or $75 million. As Dominic discussed, we expect that for the remainder of 2014 growth in the non-covered loan portfolio will largely be focused on commercial and industrial loans.
Although the growth in the non-covered portfolio will continue to be offset by the expected reduction in the covered portfolio. At this point we project that we can grow the total loan portfolio by approximately $400 million per quarter for the remainder of the year.
Along with the strong loan originations, our ability to generate strong deposit growth also continues to be very successful. As of March 31, 2014 total deposits reached a record $22.8 billion, an increase of $2.4 billion from December 31, 2013.
Through the MetroCorp acquisition, the Company acquired approximately $800 million of core deposits and $520 million of time deposits. In the first quarter of 2014, we continue to execute on our long-term strategy to grow low cost commercial deposits.
Excluding MetroCorp deposits acquired, core deposits increased 7% or $1 billion from December 31, 2013 and increased 21% or $2.7 billion from March 31, 2013. The organic increase in core deposits was largely driven by an increase in noninterest-bearing demand deposits of 8% or $447.6 million during the first quarter.
I’d add that some of this increase in deposits point-to-point from December 31, 2013 to March 31, 2014 came during the later part of March, particularly in the noninterest-bearing demand deposit category. We do expect outflow in the second quarter as some of our customers have used the fund for tax payments and other uses in the first half of April.
Next I’d like to spend a few moments discussing the net interest income and net interest margin for the first quarter and our expectation for the rest of 2014. Net interest income adjusted for the net impact of covered loan activity, totaled $209 million for the first quarter of 2014, an increase of $10.7 million for the fourth quarter of last year.
The core net interest margin totaled 3.45% for the first quarter of 2014, up four basis points from the fourth quarter of 2013. This quarter-over-quarter increase in the adjusted net interest income and margin was largely due to the strong growth in our non-covered loan portfolio and also due to higher yielding loans from MetroCorp and increases in yields and other earnings assets.
Additionally, we’re pleased to see that for the first quarter of 2014 the average cost of deposits decreased to 30 basis points, down one basis point from the fourth quarter of last year. Lastly, I’d like to provide some additional color on our guidance for 2014.
As in the past, in our earnings release yesterday, we provided guidance for the second quarter and full-year of 2014. We estimate that fully diluted earnings per share for the full-year of 2014 will range from $2.27 to $2.31, an increase of $0.17 to $0.21, or 8% to 10% from $2.10 EPS in 2013.
We’ve widened the guidance with adjusted net interest margin given the unpredictability of the timing of the accretion from the covered loans. Further, we’ve lowered the estimated effective tax rate for the remainder of the year from 35% to 32% due to the purchase of additional tax credits in the first quarter of 2014.
For the second quarter of 2014, we estimate that fully diluted earnings per share will range from $0.56 to $0.58 per diluted share. With that, I’d now like to turn the call over to Irene to discuss our first quarter 2014 financial results in more depth.
Irene H. Oh
Thank you very much, Julia. I’m going to discuss our financial results for the first quarter of 2014 in a little bit more detail, specifically as it relates to credit quality, noninterest income and expense, and I’ll also summarize the fair value accounting for the MetroCorp acquisition.
Starting with credit quality, the total nonperforming assets, excluding covered-assets-to-total-assets ratio continues to be under 1% as it has been for over four consecutive years with nonperforming assets of $160.9 million or 59 basis points of total assets at March 31, 2014. Non-accrual loans, excluding covered loans, totaled $132.5 million or 67 basis points of total loans as of March 31, 2014, an increase from 62 basis points of total loans at December 31, 2013, largely due to $26.5 million of nonperforming loans and assets acquired from MetroCorp.
For the first quarter of 2014, the Company recorded a provision for loan loss for non-covered loans of $8 million, as compared to a provision of $6.3 million for the fourth quarter 2013. East West continues to maintain a strong allowance for non-covered loan losses of $245.6 million, or 1.42% of non-covered loans receivable as of March 31, 2014.
Total net charge-offs on non-covered loans totaled $4.1 million for the first quarter of 2014 compared to net recoveries of $1.3 million in the fourth quarter of 2013 and net charge-offs of $540,000 for the first quarter of 2013. During the first quarter of 2014, the Company recorded a reversal of provision for loan losses of $1 million on covered loans.
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 in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings of 20% of the charge-off amount. For all recoveries the Company also shares 80% of the amount recovered with the FDIC.
Additionally, during the first quarter, we reported an expense of $6.8 million as a clawback liability. Under the loss share agreements with the FDIC, if losses in the covered portfolio do not reach specific thresholds, the bank is required to pay the FDIC a calculated amount.
As of March 31, 2014, our total recorded liability to the FDIC for this clawback liability for both the UCB and the WFIB acquisitions is approximately $82 million. Moving on to noninterest income and expense, East West reported a noninterest loss for the first quarter of 2014 of $14.9 million, a reduction of loss from a noninterest loss of $36.6 million and an increase from noninterest loss of $2.1 million in the fourth quarter and first quarter of 2013, respectively.
Fee income, including branch fees, letter of credit and FX income, loan fees and other operating income totaled $28.9 million in the first quarter of 2014, a decrease from the prior period of $4.5 million and an increase from the prior year period of $4.9 million. Fourth quarter 2013 fee income was higher than the first quarter 2014 due in part to higher volume of customer transactions in that quarter.
During the first quarter, we recorded net gain on sales of loans of $6.2 million, a $2.1 million increase from the prior quarter and a $6.1 million increase from the prior year period. The $6.2 million gain primarily related to the sale of a $132 million of government guaranteed student loans and $27 million SBA loans.
We also recorded net gains of $3.4 million, primarily related to the sale of $277 million of investment securities. Moving on to noninterest expense, excluding amounts to be reimbursed by the FDIC and merger related expenses, total noninterest expense for the first quarter was $111.8 million, a decrease of $11.2 million or 9% from the prior quarter and an increase of $15.4 million or 16% from the first quarter of 2013.
The decrease in noninterest expense quarter-over-quarter was primarily due to a decrease in the legal expense of $9 million, a decrease in the amortization of investments and affordable housing partnerships and other investments of 7.3, somewhat offset by a $12.6 million in compensation and employee benefits. Quarter-over-quarter compensation and employee benefits increased due primarily to one-time Metro related retention and severance costs, seasonal increases in payroll taxes, and also a reduction in deferred loan costs.
Additionally, I’d like to spend a few minutes recapping the MetroCorp acquisition accounting. As discussed earlier, we reported $10.6 million in merger and acquisition related charges in the first quarter.
Of this amount, approximately $6 million was due to termination costs from the MetroCorp system and $3 million was largely due to retention and severance costs. Further, the total loan loss we recorded was approximately 2% of the total $1.2 billion of loans acquired or $25 million.
Finally, we recorded $8.6 million of core deposit intangibles and a total of $121 million of goodwill. Finally, as stated in the earnings announcement release yesterday, East West Board of Directors has declared second quarter dividend on the common stock.
The common stock cash dividend of $0.18 per share is payable on May 19, 2014 to shareholders of record on May 2, 2014. I’ll now turn the call back to Dominic.
Dominic Ng
Thank you, Irene. I’d now open the call to questions.
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions) Our first question is Dave Rochester, Deutsche Bank. Please go ahead sir.
Dave Rochester
Hey, guys. Nice growth this quarter.
Julia S. Gouw
Thank you, Dave.
Dave Rochester
A question on that growth, going forward the commercial growth was great this quarter and it looked like you didn’t get that much growth on the resi side, which you’ve talked about as slowing in the last call. I was just wondering though if we should still expect some kind of a seasonal pickup in 2Q in that bucket?
And then as we look at 2014 in general, you did $1 billion in growth in that product last year. Are you thinking that comes down a third, a half?
How should we be thinking about that growth for the year there?
Julia S. Gouw
We do -- also on purpose because of that growth, we feel that the total portfolio is at a size that we don’t want to continue at that same growth and that’s the reason -- as a result we’re -- also because of the interest rate risk exposure, we no longer offer five-year hybrid ARM, but instead the maximum is only three years. So with that, we won’t grow as much as what we have in the past.
But I’d say that we’re comfortable that the total loan growth in each quarter is about $400 million mostly from the C&I, some will be from the single-family and (indiscernible) plus commercial real estate. But majority we’d expect would be growth from the C&I portfolio.
Dave Rochester
Okay. And I guess, just general question on the loan pipeline heading into 2Q versus what it was heading into 1Q, are you seeing a similar level of activity there or has it strengthened at all?
Julia S. Gouw
Well, for the single-family and …
Dave Rochester
Well not just single-family, just overall.
Julia S. Gouw
Okay. Overall, what we do -- see good pipeline, but we don’t think that the growth of like what we had in the Q1 is going to recur every quarter.
That’s why we’re projecting about $400 million.
Dave Rochester
Got you. And, I guess, switching to the margin can you just talk about the increases in yields on the securities portfolio.
What actions you took that drove those higher? And then, secondly, what’s your appetite is for shifting some of that excess cash you’ve back into securities given you had cash basically double on you this quarter?
Irene H. Oh
Dave, this is Irene. In general we’re keeping the securities portfolio pretty short.
The duration did inch up a little bit from where it was at December 31, but not much. The yield increase I’d say a little bit of what happened, it isn’t necessarily optically obviously a little, but yield did increase.
But we did have some shorter term securities that matured or were called during the quarter and we had -- we use that kind of liquidity during the quarter. Some of that was in kind of cash as you mentioned, as of the end of the year.
Dave Rochester
Got you. Thanks.
And just one, last one on Texas. Once you complete that integration in June, are you expecting to reposition or build that platform out at all at that point and what do you see is the biggest opportunity in Texas at this point for maybe next year?
Dominic Ng
Well, yes, that’s the whole intent is to. First, we do things one step at a time and we believe that by the end of June, we have all the system integration issues all put behind us.
And once we get our Metro customers on the same East West Bank’s platform, we will be able to offer the additional products and I’m really trying to work with the region and trying to expand from there. Opportunity is abound in Texas.
As you know, fast growing state, we have branches now in both Houston and Dallas and interesting enough the Houston port is also a very active port that do a lot of trade with China and there are more and more investments coming from China to the State of Texas, particularly in the Houston. So it will be more or less following the East West strategic direction.
We pride ourselves as a financial bridge between the East and West and we know that U.S., China space really well. So we expect that we will continue to follow the same theme and pick up commercial banking customers into national banking customers in the Texas region.
Dave Rochester
All right, great. Thanks, guys.
Operator
Our next question is from Aaron Deer, Sandler O'Neill & Partners. Please go ahead.
Aaron Deer
Hi. Good morning, everyone.
Julia S. Gouw
Hi, Aaron.
Dominic Ng
Good morning.
Aaron Deer
You were talking among the different categories within the C&I were you’re looking to grow. You mentioned private equity, tech, and life sciences.
I’m wondering can you talk a little bit about the nature of those loans and kind of what stage of lending you’re talking about and what kind of deal sizes you’re doing?
Dominic Ng
On the private equity, we mainly focus on helping private equity funds in the capital call lines. Obviously, with private equity they work with their limited partners whenever they, let’s say, make an acquisition or do a transaction, they draw down to working capital line from East West Bank and then when they call after they call the capital from the limited partners, then they pay down the line.
So it’s a very traditional commercial banking activity. We work with private equity firms throughout the country.
And so that will be a factor that we believe that will continue to grow and the size of the use varies, but I’d say that in general it’s about …
Julia S. Gouw
10 million to 15 million.
Dominic Ng
… 10 million to 15 million size. And in the technology arena, I think that it also varies in many different stages.
Obviously for the early stage we require a lot more, often times like cash acquire and then various kind of forms to make sure that we're comfortable with the credit strength. But then when it get into a much more mature stage that the company generates substantial earnings that will have high predictability of earnings, then we will underwrite it in a different manner.
But it will be at various different stages of technology business. So now any other life science, it varies similar -- it varies similar like the technology sector.
So, well I don’t -- Aaron do you have any other industry sectors, that you have any questions on?
Aaron Deer
No, that’s helpful. And then any, with respect to the covered bond, because the only thing we should be watching for over the next few quarters in terms of unusual pay down activity or indemnification adjustments as you come up to the five-year period on that agreement?
Julia S. Gouw
No.
Irene H. Oh
We will continue to have a rundown just because there are no additional. So far it looks like the runoff is about $160 million to $200 million per quarter and we do expect probably similar price.
Aaron Deer
Okay. Very good, I'll step back.
Thank you.
Irene H. Oh
There’s no unusual, I think P&L adjustments. I think that’s what you’re referring to Aaron.
Aaron Deer
Yes, just if there’s anything that we should be watching for that would be unusual from what we’ve been seeing?
Irene H. Oh
No. We don’t expect any.
Aaron Deer
All right. Thank you.
Operator
Our next question is Jennifer Demba, SunTrust Robinson Humphrey. Please go ahead ma’am.
Jennifer Demba
Thank you. Good morning.
A question on the loans you made in Honk Kong during the first quarter. Just wondered if could give us some more color on those loans and what your thoughts are for growth in future periods?
Thanks.
Irene H. Oh
The type of loans. Mostly …
Dominic Ng
The loans in Hong Kong mainly are trade finance loans and also some large corporate clients that we -- and then some -- one is; large corporate clients that are active in real estate business and then there’s another one that are large corporate clients that are active in international trade business. But then the majority of the C&I loans are in the trade finance area.
Jennifer Demba
How big a portfolio would you envision building overseas over the next couple of years?
Dominic Ng
Currently we have a total of $500 million, $300 million from Hong Kong and $200 million in China. Got plenty of room for us to grow, because we have private capital in China that can afford us to grow, but now if I look at the pace of growth, China actually had like a 40% growth last year.
And so relatively speaking, comparing U.S. was much higher.
However the size was small. So, I would definitely expect that that the pace of growth in Hong Kong and China will be faster than in United States in terms of percentage.
But in terms of the size it's still not going to be impactful from an overall point of view. Let me highlight again, when it comes to China and Hong Kong the intention had never been to aggressively grow that portfolio to create any kind of balance so diverse concentration of our overall portfolio.
If you look at in U.S. what we saw residential mortgages was grown in a substantially higher pace in 2012 and 2011.
It got to the point if I classify residential mortgage as a consumer, loans and altogether we reached just a level of 30% of our portfolio our consumer, another 30 somewhat percentage of C&I and then close to 40% the CRE and multi-family. So it’s one third, one third, one third and then we like that, because that’s a very well diversified portfolio.
And what we’re trying to do now is to grow C&I to get even bigger. So eventually if C&I turn out to be the biggest percentage, that’s okay.
However we don’t have any intent to make it like the Honk Kong or China to become that one third. The location and our license to practice banking into Greater China region is extremely important.
So many of our customers that we get is from Seattle to New York and then San Francisco to Los Angeles has to do it because we have a license to do banking business in Hong Kong and Shanghai. So we will continue to grow business in private equity, continue to grow business in the entertainment sector, we’ll continue to grow business in agriculture and high-tech life science et cetera because of our presence in China.
And also because of our knowledge, our specialized knowledge about what's happening in China, and that’s why we came to this business. And so, it's critical for our success, but in terms of the needs for Hong Kong and China to suddenly become $2 billion to $3 billion in size is not necessary.
Now while that’s not necessary we continue to find growth opportunity. So whenever we find opportunity to have very solid commercial clients that we can do business with in Hong Kong or Shanghai we will make sure that we’ll bring them on as another East West bank client.
And by the time we opened our Shenzhen branch in the fourth quarter of this year, I am pretty sure that we will end up bringing more commercial customers from that region. So, again, we’ll continue to grow that portfolio is never going to be, I think in the next few years that will be a very substantial or material number to the overall financial, but it will continue to be very impactful from a strategic point of view.
Jennifer Demba
Thanks very much.
Operator
Our next question is Joe Morford, RBC Capital Markets. Please go ahead.
Joe Morford
Yes, thanks. Good morning everyone.
Julia S. Gouw
Good morning, Joe.
Dominic Ng
Good morning.
Joe Morford
I guess, just following up on that; can you talk about the new branches that you’re opening in China? What's the motivation behind that, is it a geographic filling out the footprint or is it specifically targeting a special customer base, just how does it fit in with the overall strategy in China?
Dominic Ng
Yes, actually a few different reasons. One is that, we geographically, Shenzhen is one hour driving time from Hong Kong.
We already have our full service branch in Hong Kong for, since 2005. So, we actually feel that just strategically that geographic location will make it very good for us because the Hong Kong office also can help out the Shenzhen branch and vice versa, that’s very important.
Well of course Shenzhen is one of the largest international city in China and that’s also important too. And then the other side is that customer base.
Currently in U.S., particularly in the Los Angeles region, we’ve many customers from China that are originally based in Shenzhen. Their headquarters are in Shenzhen and they came to LA and expanding into U.S.
and start doing business here and many of them became our clients. So, it is naturally that we wanted to be in the Shenzhen region connecting with these clients that we already know them well in United States.
Third, Shenzhen is a city and not only that it’s a Mecca for a lot of the exporters from China who are doing auto manufacturing and shipping a lot of the widgets like from toys to furniture’s and then all electronic products -- but why I call the traditional lion shares international trade finance business is right around within an hour, two hours drive from Shenzhen. There’s another new phenomenon that’s happening at Shenzhen is that, it's really the Mecca for the telecommunication, social media business.
All the large social media business like Tencent or telecommunication business like ZTE and TCL, all these companies (indiscernible) company like BYD, they’re all based in Shenzhen. So, I think that it's just going to be more like the growth in this city, and so we feel that an area like that and with so much more connective business with U.S.
it makes sense for us to have a branch there.
Joe Morford
And do you staff that with people who are coming out of your Hong Kong office or how have you gone about recruiting to bring someone in to head that office?
Dominic Ng
Well I think, at this point we have transferred the Head of our Beijing office to Shenzhen. So she will take over as the Branch Manager by the time it's opened lets say in the fourth quarter this year.
And we will recruit people from local -- locally and in addition to recruiting people locally we will also look into -- we’re always looking to opportunity to transfer people both of U.S.-Hong Kong or Shanghai and East West is very much into moving our staff around all over the places and we encourage our staff to go from one area to another. And so, I think it will be a mix of transfer from U.S.
transfer from other cities in the Greater China region and then also local hires.
Joe Morford
Okay, that’s helpful. The other is just was a follow up on U.S.
and its large corporate lending a couple of times within C&I. How big would you say large corporate portfolio is and for the customers there, how much do you have broader relationships with those customers and how much is say just more participations in credits?
Dominic Ng
And this one in Hong Kong specifically Hong Kong because we don’t have much large corporate relationship in Shanghai at this point. But in Hong Kong actually it's; one, it's a line of credit with the customers, the other one is working on a transaction with another client.
Either one of these deals are huge in size. They are large corporation, they can actually afford to take on much bigger line of credit, but this specific relationship to work with us, both of them decided to work with East West because of our U.S.
connections which is distinctly different than the local banks that they work with that have plenty capacity to do a lot of, to as bigger size with them. But on these two loans, I think -- Irene, what's the size of these two loans?
Irene H. Oh
They are ranging from about $12 million to $20 million.
Dominic Ng
Yes, $12 million to $20 million. So it's not a big size deal.
And that’s pretty much our sweet spot in terms of -- we said it many, many times at different conference calls is that, we do not like to do deals above $20 million.
Joe Morford
Right, okay. That’s helpful.
Thanks so much.
Dominic Ng
Thank you.
Operator
Our next question is Julianna Balicka, KBW. Please go ahead.
Julianna Balicka
Good morning.
Julia S. Gouw
Good morning.
Irene H. Oh
Good morning.
Julianna Balicka
About loan yields?
Julia S. Gouw
(Indiscernible) Julianna?
Dominic Ng
Can you repeat the question?
Julianna Balicka
Yes. Looking to your loan [technical difficulty].
Irene H. Oh
We cannot hear you Julianna. You’re in and out.
Julianna Balicka
Looks like your linked quarter increased covered loan yields. You had mentioned in your remarks that that was attributable to MCBI, so can you talk a little bit more about whether that it’s entirely from MCBI or what is the loan yield on the MCBI portfolio and how much of the loan yields on the MCBI portfolio?
Is their core loan yield versus any discount accretion that might be coming in [technical difficulty]?
Irene H. Oh
Okay, Julianna I didn’t quite hear all of your questions, but I think I’ll answer it accordingly. And if you -- if I didn’t answer the full question just let me know.
So the total discount that we took on the Metro portfolio was 2%, so it really wasn’t very high. So, if you think about accretion on a go forward basis, part of that is a credit mark, it's very little and it makes really a very de minimis impact as far as aside from the coupon the customer is paying.
When we look at on a linked quarter basis from the fourth quarter to the first quarter I would say that largely the increase in the yield on the non-covered loans came from the Metro loans. Metro loans, the coupon on the loans that we acquired was about 4.9% or so, so it was higher than the legacy East West portfolio.
So that’s a large reason for the increase in the non-covered loan yields.
Julianna Balicka
So when we think about where that loan yields are going to go to, how much of the Metro 4.9% has already re-priced kind of down to current interest rates versus is it five or seven year kind of CRE loan that has yet to price down, do you know what I mean?
Irene H. Oh
There are definitely some that are going to price down, I think that, that would actually happen Julianna and that’s something that we have factored in.
Julianna Balicka
Okay. And then on the non-loan yields, the other earning assets you had talked about this quarter having sold some of the -- or some of the securities have matured and you had redeployed some cash.
So when we think about the rest of the year, are you also factoring in additional redeployment of your other earning assets and should we be looking for some incremental yields from that side too?
Irene H. Oh
We would have to take a look and see kind of what happens on a quarter-to-quarter basis. I think that, that would depend on the kind of the liquidity deposits that we had, the opportunities we deploy or what rates et cetera.
Julianna Balicka
Okay, very good. Thank you very much.
Irene H. Oh
You are welcome.
Operator
Our next question is Ebrahim Poonawala, Bank of America Merrill Lynch. Please go ahead.
Ebrahim Poonawala
Good morning guys.
Julia S. Gouw
Good morning.
Irene H. Oh
Good morning.
Ebrahim Poonawala
I just had one follow up question in terms of, Dominic your comments around the commercial loan growth and on the, what you mentioned on the private equity and life science’s side. Has sort of the impact from the recent sort of the sell off that we’ve seen in the tech space, has that led you to lower your expectation when you think about growth in those segments over the coming quarters versus maybe what you expected two months ago or is the activity essentially still very much where it was, maybe 60 or 90 days ago despite sort of the volatility you’ve seen in the markets on the IPO side as well?
Dominic Ng
We do not have -- we wish we were that dominating in the tech and the biotech sector or the social media sector to have an impact to us. We are still, I would say in our exposure because as you know even without total portfolio of all the loans combined it's only a little bit over $19 billion and then C&I is just like one third and then the tech side out of the overall is probably like less, in a very small percentage.
Because of that limited size we always find business to do and we really are not that -- we’re quite frankly are not active at all into this what I call pre IPO type of situation. Yes, occasionally we end up getting into a client that we have a line of credit with and then few months later they can go into an IPO and then because of all the excess liquidity they have to pay us off.
We had a few of those occasions in the past. But I would say that overall the volatility of the stock market at this point and or the IPO sectors and so forth, we don’t have that much impact to our commercial banking business in the tech or the private equity side.
I think frankly it all gets back down to, there is just not many people out there that have a very strong knowledge on the U.S. China business, but there are just enough from tech to private equity firms that do need to do business in the Greater China region and find our advices to be much more valuable and therefore move some of the banking relationship to us because they find us to be much more hopeful as a banker than just another bank asking for a loan.
So in that regard I think that will continue, as this global economy continue to expand and as U.S. and China continue to have very healthy trade and investment cross border business going back and forth, we expect that East West would continue to gain market share one at a time, but very specifically because our value proposition is unique.
And as long as there are people who recognize our value proposition the likelihood of them moving the banking relationship with us is very high. So, in general we are little bit more immured from the overall market condition simply because the clients who come for us are specifically looking for something that in general are not offered by most of our PO banks.
Ebrahim Poonawala
Understood. Thanks a lot.
And then one follow up question in terms of the growth in China, are these -- is this growth predominantly relationships that you’re sort of cultivating in Hong Kong and Greater China or are these relationships that you had in LA and they are sort of translating into growth there because of your presence in both markets?
Dominic Ng
Most of them are cross bordered relationship, that is that, many of them is because they have business in U.S. that we get to know them, and then in U.S.
and then we're now doing some more business with them in the Greater China region, Hong Kong or Shanghai or vice versa and then with some of the others is that we because our Hong Kong and Shanghai office met with these people in that region and then they make request, but it is, Oh, now I know that you have a very healthy bank in United States and in the regions that they actually are doing business, so that we have a request in U.S. maybe you can help us to do something like that.
So, that’s pretty much the core of our business. And that’s also the reason why we’re not going leaps and bounds there anyway because we're looking mainly to connect the U.S.-China business.
We’re not out there in -- lets say in China say that look, that’s 1.3 billion there, people there are consumers, lets go ahead and try and go after every one of them one step at a time, we never had intention when we started there in 2009, and we still don’t have any intention to sort of capitalize on the local consumer market over there, and our plan is to continue to stick with what we do best is that, when it comes to a business in China who is looking for expanding in United States and looking for advice. We are very good at it.
And that’s what we want to stick with what we’re good at and the likelihood we’re getting these clients to appreciate our service is substantially higher that we go into China and know nothing about the business over there and trying to make loans to these, that’s from (indiscernible) enterprises or to some of the private sector -- private entrepreneurs and we’re not familiar with those business over there, we’re not as familiar with the local, sometime regulation or policy, then the risk for us to get in trouble is much higher. So that’s why we’re never really trying to make an attempt to do too much on these local business and we more or less just keep focusing on connecting with U.S.
customers who are doing business in China, Chinese customers doing business in U.S. and then so far so good.
Ebrahim Poonawala
Got it. Thank you very much.
Operator
Our next question is Gary Tenner, D.A. Davidson.
Please go ahead.
Gary Tenner
Thanks, good morning. I just had a follow-up question regarding the yields in the MetroCorp book of business , I think you had mentioned around 4.9%.
Can you talk about the relative difference in pricing within that franchise in California versus Texas and how you see the Texas part impacting the overall book over time?
Irene H. Oh
Well I think in general when we look at Metro, the pricing was different in Texas versus the franchise in California, obviously Gary the bank, Metro United Bank in California was much smaller and sometimes they have to price up as far as, especially on the deposits, on the funding side to attract the customers. As we kind of talked about earlier, over time I think when we look at the pricing on the loan side and the yields, one of the reasons that the yields are a little bit higher on Metro and the loans that we acquired then our legacy portfolio is that they are all kind of longer arm products than what we have, so over time we do expect that will be priced downward as we’re going to kind of institute our current philosophy which is we’re not willing to take on too much interest rate risk in the next couple of years right before it looks like rates are going to go up.
So, I would say on the loan side we do expect that yield to come down over time, and then on the funding side as well, the cost of deposits combined for Metro United Bank is probably about 45 basis points on the cost of deposits, quite a bit higher than us. Over time we expect to reduce that as well particularly in the California area where either branches are very much kind of absorbed by the East West platform.
Gary Tenner
Thanks for that. And then, just regarding the six branches you said were targeted for consolidation.
Are those already shuttered or will that happen when you convert the systems in June?
Irene H. Oh
When we do the conversion, because that would be the better timing of it.
Gary Tenner
Okay. Thanks very much.
Operator
(Operator Instructions) Our next question is Brett Rabatin, Sterne Agee. Please go ahead.
Brett Rabatin
Hi, good morning everyone.
Julia S. Gouw
Good morning, Brett.
Irene H. Oh
Good morning.
Brett Rabatin
I wanted to ask about fee income and usually have somewhat of a seasonal quarter in 1Q from a letter of credit perspective. So, I was just -- I guess first, just curious if we might see the rebound in that line item in the second quarter going forward.
And then if fee income was where we might also see some of the wider array of services you mentioned in China showing up over the next year or so?
Irene H. Oh
Brett, I think at this point the results for the first quarter around $28 million or so, that’s what we’re projecting for the run rate for the remainder of this year. As a kind of reminder we did kind of talk about how in fourth quarter last year there was kind of a lot of volume of activity from the LC, FX side, and then also from swap fee income which is in the other line item for us.
So, I think that that was probably a little bit higher and that $28 million is probably a better run rate on a go forward basis.
Brett Rabatin
Okay. And then also I was just curious, I realized you have to be somewhat conservative around margin guidance given the accretion that you have, but I was curious just given the margin guidance, if you could maybe talk about the progression of loan yields as you expect them without any change to fed fund rates or rates in general if you’re expecting.
What kind of decline over the next few quarters in terms of loan yields?
Irene H. Oh
I think the loan yield has been stable over the last, especially for the legacy East West only because most of our loans have re-pricing to current rate. So, we do expect the loan yield to be somewhat stable.
But in term of the accretion quarter-by-quarter that amount can be different that’s why we provided a wider guidance on the margins. So, this quarter Brett the impact of the accretion and the write-off of the indemnification asset was a little over $6 million to the adjusted net interest income number, so that translates 10 point on the margin.
So it's quite a bit different. So that’s one of the reasons why as Julia had mentioned in the prepared remarks that we did kind of expand the margin guidance, because as you can see we’re not very good as far as being able to predict exactly when that accretion is going to happen.
Brett Rabatin
So would it giving this -- given your outlook for stable loan yields, would it be fair to say aside from the discount accretion noise that maybe the margin would be on a -- kind of a stable run rate?
Irene H. Oh
I would say it does.
Brett Rabatin
Okay, great. Thanks for all the color.
Irene H. Oh
You are welcome.
Operator
Our next question is a follow up Aaron Deer from Sandler O'Neill & Partners. Please go ahead.
Aaron Deer
Hi, just a quick follow up Irene on your guidance for the non-interest income. I was just curious, I know that there was a pretty significant amount of loans held for sale at period ends and so I just wondered kind of what your expectations are for loan sales and the impact that that’s going to contribute to that, to your non-interest income guidance?
Irene H. Oh
Yes, so from time-to-time as you have seen we do sell loans as of this quarter. The loans that we sell have largely been government guaranteed student loans and then also 7(a) SBA loans that we originate and we sell the guaranteed portion of those.
The loans that -- we did transfer some loans from in best health for investment to available or to help for sale and those were government guaranteed student loans. Since we have purchased these loans at a discount I would say that there really wasn’t a P&L impact for this classification, that’s really just a balance you re-class.
So during the quarter what we experienced was that we got attractive pricing on the government guaranteed student loans, more attractive pricing than we’ve actually gotten in the past. So we thought it make sense to request.
We will look out at it. It doesn’t necessarily mean we’re going to sell them all in one period, that is not the intention, but over kind of a long run, we do expect that we’ll be selling these.
Aaron Deer
Okay. That’s helpful.
Thank you.
Julia S. Gouw
You’re welcome.
Operator
Our next question is a follow-up, Julianna Balicka from KBW. Please go ahead.
Julianna Balicka
Hi. Another quick follow-up.
In terms of your EPS guidance for the year, the 227 and 231 range, other than the $0.04 of merger charges this quarter, are there any integration or other merger charges that we should think about for the rest of the year in kind of getting to an operating EPS number in terms of guidance?
Irene H. Oh
Yes, there will be some additional costs in …
Julia S. Gouw
Integration related costs.
Irene H. Oh
Yes, but later, there will be also reduction for the people that no longer (indiscernible).
Julia S. Gouw
Trying to (indiscernible).
Julianna Balicka
So nothing other than the $0.04 from this quarter that will stand out.
Irene H. Oh
That will be a little bit more Julianna. It’s hard to say exactly, but I guess right now, probably $1 million, $1.5 million.
Julianna Balicka
Got it. Thank you.
Operator
Having no further questions, this concludes our question-and-answer session. I’d like to turn the conference back over to Dominic Ng for any closing remarks.
Dominic Ng
Well, thank you for joining our call today, and I look forward to speaking with you all in July. Bye-bye.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.