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Executives

Irene H. Oh - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Chief Financial Officer of the Bank and Executive Vice President of the Bank

Julia Gouw - Vice Chairman, President, Chief Operating Officer, Member of Executive Committee, Vice Chairman of East West Bank, President of East West Bank and Chief Operating Officer of East West Bank

Dominic Ng - Chairman of the Board, Chief Executive Officer, Member of Executive Committee, Chairman of East West Bank and Chief Executive Officer of East West Bank

Kelly Adams - Vice President, Corporate Communications

Analysts

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

William Christian Stulpin - Raymond James & Associates, Inc., Research Division

Christopher Nolan - CRT Capital Group LLC, Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Joseph Gladue - B. Riley & Co., LLC, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Joe Morford - RBC Capital Markets, LLC, Research Division

Matthew Hollands - D.A. Davidson & Co., Research Division

East West Bancorp (EWBC) Q3 2011 Earnings Call October 20, 2011 11:30 AM ET

Operator

Good morning, and welcome to the East West Bancorp Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kelly Adams. Please go ahead.

Kelly Adams

Thank you. Good morning, and thank you for joining us to review the financial results of East West Bancorp for the third quarter of 2011. Here to review the results are Dominic Ng, our Chairman and Chief Executive Officer; Julia Gouw, President and Chief Operating Officer; and Irene Oh, Executive Vice President and Chief Financial Officer. We will then open the call to questions.

First, we would like to caution you that during the course of 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, 2010. Today’s call is also being recorded and will be available in replay format at eastwestbank.com and streetevents.com. I will now turn the call over to Dominic.

Dominic Ng

Thank you, Kelly. Good morning. Thank you all for joining us this morning for our earnings call. Yesterday afternoon, we were pleased to report financial results for the third quarter of 2011. East West reported strong earnings of $62.4 million or $0.41 per diluted share for the quarter. Year-over-year, East West increased earnings by $15.5 million and increased earnings per share by 52% or $0.14. As compared to the second quarter of 2011, East West grew earnings by 3% or $1.9 million and increased earnings per share by 5% or $0.02. Quarter-after-quarter, East West has been able to achieve growth in the balance sheet and, more importantly, in our earnings.

We have demonstrated strong financial performance throughout this challenging operating environment. We are confident that we will continue to do so for the remainder of 2011 and beyond.

As of September 30, 2011, our noncovered loan portfolio grew to over $10 billion, primarily due to growth in our noncovered commercial and single-family portfolio, which grew 12% and 18%, respectively, from June 30, 2011. We also achieved quarter-to-date growth of $176.4 million in total loans receivable, including the covered portfolio to a record $14.2 billion.

Along with solid growth in the loan portfolio, we have also successfully grown core deposits, primarily commercial deposits. Core deposits increased $469.7 million, or 5%, to a record $9.8 billion. Total deposits increased $172.9 million, or 1%, to $17.3 billion.

In particular, we have had strong growth in non-interest-bearing deposits, which increased $225.9 million or 7% quarter-to-date to $3.4 billion or 20% of our total deposits at the end of the third quarter.

Our unique value proposition, as to bridge between the east and west, has allowed us to consistently increase our market share and grow our customer base throughout 2011. Strategically, we believe that we are well positioned to continue to grow market share, especially as macroeconomic conditions improve in the future.

I'd like to highlight that we have achieved this growth by making key and selective investments or also keeping core operating expenses stable and reducing credit cost.

Efficiency ratio has remained low at 41% for the third quarter, as compared to 45% for the prior year period. Our net charge-offs have declined 23% from the second quarter of 2011 and 46% from the third quarter of 2010.

Despite the challenging economic environment and headwinds in the flattening yield curve, our net interest margin remained stable at 3.98% for the third quarter of 2011, as compared to 4.03% in the previous quarter and 3.98% for the third quarter of 2011 -- 2010, I'm sorry.

In the near future, we will be focused on effectively and prudently managing our net interest margin, maintaining strong profitability by growing our commercial customer base and lowering our cost of funds, while remaining disciplined with expenses.

As we head into the fourth quarter, we are very much encouraged by the positive trends and strong performance that we have seen thus far in 2011 and expect to finish the year on this upward trend.

Overall, our franchise is strengthening and our core earnings are expanding, which will directly result in long-term value for our shareholders.

I would now turn the call over to Julia to speak in more detail about our loan and deposit growth in the third quarter of 2011.

Julia Gouw

Thank you very much, Dominic, and good morning to everyone. I would like to first spend some time discussing the third quarter loan trends and where we are specifically seeing the most growth and opportunity.

Total loans increased to $14.2 billion at September 30, 2011, an increase of $176 million or 1% from the prior quarter and an increase of $607 million or 4% from the prior year.

We are very pleased with the progress we have made in reducing our exposure to troubled assets, while increasing our commercial and trade finance loan and single-family loan portfolios.

Our noncovered commercial and trade finance portfolio increased $328 million or 12% from June 30, 2011, and increased $1.3 billion or 78% from September 30 last year to $3 billion at September 30, 2011. Combined, total noncovered and covered commercial loans increased $274 million or 8% from June 30, 2011, to $3.8 billion at September 30, 2011, and now equal 27% of our total gross loan portfolio.

Our long-term goal is to have commercial loan portfolio equal at least 1/3 of total loans, and we have made strong progress in reaching this goal. This growth in the commercial and trade finance portfolio has been achieved while maintaining strong credit quality and strict underwriting criteria.

The commercial and trade finance loan growth we experienced in the third quarter is largely due to our expanded lending platform in the United States. The new originations have been well diversified across many industries, including trade, manufacturing, entertainment, professional services and high technology. As we expected, and as discussed during the second quarter earnings call, we experienced limited growth in Greater China during the third quarter of 2011.

As of September 30, 2011, loans in the Greater China, including Hong Kong, totaled $670 million, an increase of $20 million or 3% from June 30, 2011. Loans in Hong Kong totaled $473 million at the end of the quarter, of which approximately $147 million are covered under the loss share agreements with the FDIC. In addition, the majority of the noncovered loans in Greater China are fully secured by a combination of cash and often by LCs issued by large financial institutions.

In addition to the growth in our commercial and trade finance loan portfolio, we also continue to experience strong growth in our noncovered single-family portfolio, which grew $230 million or 18%, as compared to the second quarter of 2011. These single-family loan originations have largely stemmed from our retail branch network.

As discussed in the past calls, customer demand remains high for single-family loans in our markets. Our underwriting criteria for the single-family loans remains strong, with very high down payments and low loan-to-value ratio requirements. The maximum loan-to-value that we will lend against is 65%, and on the average, the loan-to-value of the loans we originated in the third quarter was only 54%.

Our growth in noncovered commercial and trade finance and single-family loans was offset by decreases in noncovered land, construction and consumer loan portfolios.

Quarter-over-quarter, construction and land loans have declined $48 million or 11%. Year-over-year, these balances have declined $190 million or 34%. This continued reduction in land and construction loan balances signaled that our credit costs were likely to diminish in 2012.

As we look ahead to 2012, management will be able to devote more time and energy on growing the portfolios and provide the best opportunity for East West, diversify our revenue sources, reduce credit risk and improve core profitability.

As we continue to build our commercial banking platform, we're experiencing strong growth in core deposits, primarily non-interest-bearing deposit accounts. Non-interest-bearing deposits increased $806 million or 31% from a year ago to $3.4 billion at September 30, 2011, and now account for 20% of our total deposits.

This growth in non-interest-bearing deposits has resulted from the new deposit gatherers we have hired and also from the increase in commercial and trade finance lending and the operating accounts that come with these loans. Additionally, we have been successful in gathering deposits from new customers, who are leaving larger financial institutions for regional and money center banks and moving the deposit relationship to East West.

With the strong progress we have made in growing our Loan portfolio and building low-cost core deposits, we feel comfortable that our net interest margin will remain stable in the near future. We are currently projecting that the adjusted net interest margin will be approximately 3.9% for the fourth quarter of 2011, a decrease of 8 basis points from the third quarter of 2011.

We would like to note that the loan portfolio will continue to be impacted in the replacement of higher-yielding loans and loans with floors with lower yielding assets. In addition, we are intentionally keeping the duration of the investment securities portfolio relatively short.

Although we could increase yields today by expanding the duration of the loan and securities portfolio, our philosophy is that prudent risk management dictates that we do not take on too much interest at risk, especially at this point in time when rates are at historic lows.

That said, compared to peer banks, East West also had additional levers that can be utilized to maintain a strong net interest margin. Including the accretable yield from the FDIC-assisted transactions, with the ability to further reduce deposit cost.

As of September 30, 2011, we had approximately $161 million in net accretable yield that will be accreted into interest income over the life of the loans. We expect that these amounts will largely be accreted into interest income over the next 36 months.

On the deposit front, we disclosed in the press release that we have $2.8 billion in time deposits, carrying an average rate of 87 basis points and maturing in the fourth quarter of 2011.

Additionally, in the first 6 months of 2012, we have another $3 billion in time deposits with an average rate of 1.15% maturing. We anticipate that all of these maturing time deposits will be replaced with much lower rates.

Additionally, as the deposit mix changes, as we continue to focus on low-cost commercial deposit customers, the cost of deposits should continue to improve.

When opportunities arise to reduce borrowing costs in the future, we will continue to take them. As discussed in our earnings release, during the third quarter of 2011, East West, again, prepaid Federal Home Loan Bank advances, prepaying $49 million at an effective rate of 2.4%. Further, we called $10.8 million of 10.9% junior subordinated debt securities in the third quarter.

Quarter-over-quarter, we have reduced the Federal Home Loan Bank borrowings by $76 million or 14%, and year-over-year, we have reduced the borrowings $561 million or 55%.

Overall, the increase in profitability from the prior quarter and prior year is the result of an increase in earnings assets and those net interest income and the reduction in credit cost.

Average earning assets increased to $19.8 billion for the quarter ended September 30, 2011, compared to $19.4 billion for the quarter ended June 30, 2011, and $17.7 billion for the third quarter of last year.

Adjusted net interest income, excluding the net impact to interest income of $39 million resulting from covered loans activity, increased to $198.5 million for the third quarter of 2011, up from $195 million in the second quarter of 2011 and $177 million in the third quarter of last year.

With that, I would now like to turn the call over to Irene to discuss our third quarter 2011 financial results in more depth.

Irene H. Oh

Thank you very much, Julia, and good morning to everyone. I'd like to discuss our financial results for the quarter in more detail, especially as they relate to credit quality, the accounting for the assets acquired in the FDIC-assisted transactions and non-interest income and expense for the third quarter.

Asset quality metrics improved substantially during the third quarter of 2011. For the eighth consecutive quarter, net charge-offs decline and nonperforming assets, excluding covered assets, increased by $12.3 million to 7% from the prior quarter to $168.9 million or only 77 basis points of the total assets as of September 30, 2011. The decrease in nonperforming assets was primarily due to a $17 million or 10% decrease in nonaccrual loans during the third quarter, slightly offset by an increase REO assets.

The movement of new loans into nonaccrual status also decreased in the third quarter and was down to approximately $54 million during the quarter. As has been the case for the past few quarters, we are also pleased to report that we continued to see improvement in both classified assets and total delinquent loans during the third quarter compared to the prior quarter.

Provision for loan losses was $22 million for the third quarter of 2011, a decrease of $4.5 million or 17% from the second quarter and a decrease of 43% as compared to the third quarter of 2010. Although our allowance for loan losses remains very strong at 2.16% of total noncovered loans, our allowance and provision have declined for several quarters as a result of increased credit quality improvement, partially offset by increases in the allowance for loan losses on commercial and trade finance loans as these portfolios have continued to grow. All of these data points indicate credit quality continues to improve and credit costs should be a diminishing issue with each passing quarter.

Moving on to non-interest income. We recorded a total non-interest loss of $13.5 million for the third quarter of 2011, as compared to non-interest income of $12.5 million for the second quarter of 2011 and non-interest income of $29.3 million for the third quarter of 2010. Non-interest income was primarily impacted during the quarter by a net decrease in the FDIC indemnification asset and receivable of $43.5 million, as compared to a net decrease of $18.8 million in the second quarter of 2011 and a net increase of $5.8 million in the third quarter of 2010.

The net decrease in the FDIC indemnification asset and receivables of $43.5 million was largely a result of increased accretable yield on the covered portfolio during the quarter and the resulting increased write-off of the FDIC indemnification asset.

During the third quarter, total interest income on the covered portfolio equaled $124 million, compared to $121 million in the second quarter and $94 million in the third quarter of 2010. Additionally, in the third quarter, we had recorded additional liabilities to the FDIC, largely due to the improved performance of the UCB-acquired portfolio. The credit quality of UCB portfolio continues to perform better than we had originally estimated.

In total, our core fee and other operating income totaled $21.2 million, compared to $22.1 million for the second quarter and $17.4 million for the third quarter of 2010. The growth in commercial and trade finance loans, we continue to see improvement in core non-interest income from fee-based revenues.

Aside from our core fees and operating income during the quarter, the company also recorded $5.5 million in gains on the sale of government-guaranteed student loans and SBA loans and a net gain of $3.2 million on investment securities sold.

Although we are making selective investments that support future growth, we also remain very disciplined on expense control, resulting in an efficiency ratio of 41% for the third quarter of 2011. Excluding prepayment penalties of $3.8 million on FHLB advances and the junior subordinated debt that was called, net of amounts that are reimbursable by the FDIC, third quarter non-interest expense totaled $97.2 million. This was within our expectations and, additionally, the third quarter guidance we had provided in the earnings release last quarter.

The $2.4 million or 2% decrease in our core non-interest expense from the prior quarter was primarily related to decreases in REO expense and a decrease in the deposit insurance premium expense. The decrease in the deposit insurance premium expense was due to lower actual assessment from the FDIC during the quarter.

As we have discussed before, under the loss share agreements with the FDIC, 80% of eligible expenses on covered assets are reimbursable from the FDIC. In the third quarter, we incurred $4.4 million in expenses on covered loans, including legal and loan-related expenses and REO expenses and write-downs, for which we expect that 80% or $3.5 million will be reimbursed by the FDIC.

Although we expect to continue to make investments in the future to support our growth, we are also actively looking at opportunities to streamline our operations, reduce costs and ensure efficiencies. As such, we expect that non-interest expense will continue to remain low and forecast that will approximate $97 million to $100 million for the fourth quarter of 2011, net of amounts that are reimbursable by the FDIC.

As in the past, in our earnings release, we provided updated guidance for the fourth quarter of 2011 and the full year of 2011. We currently estimate that fully diluted earnings per share will range from $0.40 to $0.41 for the fourth quarter of 2011 and will range from $1.57 to $1.58 for the full year of 2011. This updated EPS guidance for the remainder of 2011 is based on the following assumptions: a stable balance sheet, a stable interest rate environment and adjusted net interest margin of about 3.9%; provision for loan losses of about $20 million for the fourth quarter; total non-interest expense of approximately $97 million to $100 million for the quarter, net of amounts to be reimbursed by the FDIC; and lastly, an effective tax rate of approximately 36%.

Finally, as stated in the earnings announcement released yesterday, East West Board of Directors has declared fourth quarter dividends on the common stock and Series A Preferred Stock. The common stock cash dividend of $0.05 is payable on or about November 24 to shareholders of record on November 10, 2011. The dividend on the Series A Preferred Stock of $20 per share is payable on November 1, 2011, to shareholders of record on October 15, 2011.

I will now turn the call back to Dominic.

Dominic Ng

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

Question-and-Answer Session

Operator

[Operator Instructions] First question is from Ken Zerbe of Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

Can you guys explicitly address your views on buybacks? Obviously, very strong organic loan growth, runoff at UCBA. Your capital is very strong, something that we all sort of expect but haven't really seen a lot of, so how are you guys think about using share buybacks going forward?

Julia Gouw

Yes, our plan is to increase the dividend back to where it was before, the $0.40 in January of next year. That was the dividend before the crisis. And we also will be looking into doing the buyback early next year, after we increase the dividend in January. So that's our capital management plan.

Ken A. Zerbe - Morgan Stanley, Research Division

Okay. And maybe just switching gears a little bit, in terms of the margin, obviously, I know you guys talked about stable NIM. It is coming down 8 basis points in the fourth quarter. That's, I guess, in my view, a fairly large drop. Aside from the 8 basis points next quarter, is there any reason to think that, that will not continue to come down further in 2012 and all throughout the 8 basis points per quarter is just a benchmark? Or are there items or reasons why your NIM should be more stable in 2012 than it is in fourth quarter?

Irene H. Oh

Ken, this is Irene. So when we look at the NIM next quarter and on a go-forward basis, next quarter, we feel pretty comfortable about the 3.90% [ph] with what's happening on the loan portfolio and the fact that our securities, we don't expect much change there. Over time, when we look at 2012, I think there is a chance that the margin could continue to come down. However, although the margin is coming down similar to what we saw in the third quarter, because our overall balance sheet growth is strong, we expect that, that will help mitigate that. And additionally, when we look at 2012 overall, our profitability should be increased, credit costs should be down and that, overall, we feel pretty comfortable when we look at 2012.

Operator

Next question is from Joe Morford of RBC Capital Markets.

Joe Morford - RBC Capital Markets, LLC, Research Division

I wondered if you could just talk about where the growth is coming from geographically, both in the commercial and the residential mortgage portfolios. I mean, I recognize California is your biggest market and probably dominates the numbers, but I was also curious just how some of your other markets were doing as well.

Dominic Ng

For the single-family mortgages, mostly, they are coming from California and, particularly, Southern California. I think that also goes with the geographic location of our branches. We have more branches -- substantially, more branches in Southern California than most of the other regions. So I would say that in terms of the other regions beyond California, which we have very few branches, New York has a little bit better volume than the others. But again, it's going very much proportional to the number of branches in each particular location. That's what we do in the single-family. And when it comes to the commercial C&I loans, trade finance loans, also, I mean, the vast majority of the loans come from Southern California. And there are some, obviously, good momentum also in Northern California. But again, it's very much reflective of the -- where our commercial lenders are.

Joe Morford - RBC Capital Markets, LLC, Research Division

Okay. And can you remind me -- remind us again why there was such little growth in Greater China this quarter as opposed to last quarter?

Dominic Ng

Well, in Greater China in the past quarters, there are -- Chinese government has basically started a new program, this cross-border, a secured-type of lending guaranty. And each, I guess, financial institution, is allocated with a specific amount of Chinese currency that we are allowed to do this cross-border type of guarantee lending. And so we allocated x dollar amount and we used them all up by middle of second quarter. So basically, the third quarter, we didn't do any of those cross-border guarantee type of transactions. And therefore, the volume slowed down substantially.

Joe Morford - RBC Capital Markets, LLC, Research Division

Is that a program where, beginning of 2012, you will get a new allocation or is it just when the government decides to do another program?

Dominic Ng

We'll see what the government will do and also -- first of all, whether they will continue, then secondly, is also whether there is a bigger allocation. And we have to go and then see what the circumstance is. In addition to that, we wanted to see what the pricing is like because, fortunately, for all the banks, the pricing is relatively good at the time when we did this type of transaction. However, going forward, it all depends on what type of pricing that we will get. Then we will decide whether this is something we wanted to do more or not.

Operator

Next question is from Joe Gladue of B. Riley.

Joseph Gladue - B. Riley & Co., LLC, Research Division

I'll stick with that theme of -- the China branches, Greater China area. Just wondering, I know it's not a very seasoned portfolio...

Dominic Ng

Joe, we lost you. Can you...

[Technical Difficulties]

Operator

[Operator Instructions] Next question is from Aaron Deer of Sandler O'Neill & Partners.

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

First question, just given a lot of the recent trade data and slowdown of port activity, I'm kind of curious what is your outlook for trade finance loans? And then I know you've talked about your credit underwriting on them in the past and then earlier today on the call, but just what is your outlook for any growth there?

Dominic Ng

In terms of trade finance, we will expect that we will continue to have more volume coming to us. I think it's a combination that we still see have pretty healthy growth of trade volumes that going through throughout the California seaport, and that's one. And the other part is that we have continued to have more lenders that are specialized in this area. So I mean, that's an area that we would expect that we will have decent growth. I mean, but it's not going to be something that I would say that it's dramatically more different than what we've been doing for the last year or so.

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

Got you. And then can you just discuss a little bit the type of residential mortgages you're adding? Are these conforming, jumbo, 30 years, 5 years, ARMs, like -- I mean, what sort of rates are you getting on them?

Julia Gouw

Yes, we do not offer the 15-, 30-year fixed because we wanted to manage our interest service. So most of these loans are adjustable, 3 to 5 years.

Irene H. Oh

To clarify, we offer them, but most of ones that we’re portfolioing are the adjustable ones.

Julia Gouw

Yes.

Irene H. Oh

Yes, we offer them.

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

And what sort of rates?

Julia Gouw

About 5%. 4.5% to 5%, 3- or 5-year adjustables.

Joseph Gladue - B. Riley & Co., LLC, Research Division

Can you hear me? This is Joe Gladue. Just wondering, I know the portfolio in the Greater China region is probably not that seasoned, but just wondering if you can give us an idea of how that portfolio is performing relative to the mainland loan portfolio.

Dominic Ng

That's our portfolio, in terms of Greater China and Hong Kong? Is that the question?

Joseph Gladue - B. Riley & Co., LLC, Research Division

Yes.

Dominic Ng

I think it's performing just fine. In fact, we started off, when we took over the United Commercial Bank portfolio from China with over 30% of nonperforming assets, we pretty much cleaned it all up and now down to less than 1%. So as every other loans that we originated so far are performing as agreed. Well, but the key thing is that most of them are either collateral by 100% cash or collateral by standby LCs. So -- and these are pretty safe kind of loans that we are originating. And going forward, we still are not expecting much growth in volume in the -- within the Greater China region. I think that, again, I want to highlight the importance of our branches in Hong Kong and China has everything to do with strategically having those branches there, having the ability to conduct business in the Chinese currencies in China, and also, multiple currency in Hong Kong really allow us a tremendous opportunity to increase our market share in United States. It's not that we’re going after substantial amount of business in China because there's just big population in China. It’s that because of the ability to conduct business in China, many of our -- many of the business in the United States actually who has either operation in China or have to do business in China, are actually looking at East West as a better alternative to be their banker in U.S. than some of our competitors. And I think that, if you look at the U.S. business growth, the U.S. C&I loan growth and the U.S. trade finance growth, to a certain extent, these growths come from the fact that we have branches in China and then also Hong Kong. And it's because of that branches, a strategic advantage that we have allow us to have a much better value proposition for our U.S. clients. And so, again, the purpose of the branches there are not necessarily to look into a high-growth opportunity in that region, locally, at least used as a link for our opportunity in United States.

Joseph Gladue - B. Riley & Co., LLC, Research Division

Okay. And just one other question. Just wondering if you could tell us what the balance of performing TDRs was at the end of the quarter and, I guess, where you expect that to trend over the next few quarters.

Irene H. Oh

The performing TDRs was about $80 million as of the end of September, up a little bit from June, it was about $60 million. We'll have to see where it ends up at the end of the year. It's hard to kind of predict that. But I'd say, roughly about the same level.

Julia Gouw

And we expect that. It will not increase by March. It has been around that level.

Operator

[Operator Instructions] The next question comes from Gary Tenner of D.A. Davidson.

Matthew Hollands - D.A. Davidson & Co., Research Division

It's Matt filling in for Gary. I was wondering if you guys could shed some light on the FDIC portfolios, sort of when you guys expect that to stabilize and when you see the runoff sort of slowing down.

Irene H. Oh

This is Irene. Matt, the portfolio has stabilized quite a bit. Naturally, it is a portfolio that continues to go down. No loans are added to it. So as principal paydowns occur, payoffs occur, charge-offs occur, the balances continue to come down. But compared to where we were before, 1.5 years ago or something like that, the actual paydowns, the balance increase quarter-over-quarter has continued to be stable, roughly around that $200 million quarter-over-quarter.

Matthew Hollands - D.A. Davidson & Co., Research Division

Okay. And then with regards to loan competition, have you guys been facing a lot on the pricing and things of that nature?

Dominic Ng

Well, when it comes to C&I loans, obviously, everyone in the United States wants C&I loans. So there is competition there. And that's why our value proposition of being that bridge between the east and west and having branches in China that can assist unique customers who have the need for it worked out just fine for us. So there are always going to be business that we can go after because we have ability to go beyond banking. There are services that we can provide in terms of helping them to learn how to do business in China and then helping the Chinese business or investors who come into the United States to make investment in the U.S., a lot of those extra services that we provide to the customers get us the loans and get us the deposits. And so we’re always going to have an advantage to all our peers in that regard. I think that when it comes to some more generic type of goods, small middle market, commercial-trade-finance-type of clients, if we do not have a value proposition, it's going to be very competitive.

Operator

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

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Irene, is there any way you can help us in terms of modeling for non-interest income, the change in FDIC indemnification in future quarters? Obviously, it's bounced around a little bit.

Irene H. Oh

Jennifer, obviously, that number, it is a little bit challenging. The easiest way that we look at it is if you net out the amount that we show on the rate volume table, the impact of the FDIC indemnification asset with the increase in the interest income. That's the easiest way to get down to kind of what the core interest income is. I'd be happy to spend more time with you, maybe off-line to just go over that a little bit more in detail.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And can you guys talk about in terms of the commercial loans that you've added in the last 2 or 3 quarters what your bread and butter loan size has been?

Julia Gouw

The average -- the sweet spot that we are targeting for commercial loans right now, about $5 million to $15 million, because as we got much bigger, that amount will be able to allow us to grow the portfolio faster. But it's still small enough, relative to our exposure to capital.

Dominic Ng

Yes, that's what we'd like to target. However, still, I think today, we're still booking a lot of smaller loans at that $1 million to $2 million size, simply because the vast majority of our existing clients, many of them are still small-business clients and then their needs are just like $1 million or $2 million. So what we do is that we still continue to take good care of our existing clients, and then they have small needs, which is fine. Because, obviously, taking care of existing clients doesn't take as much time as going out and solicit new business. When it comes to getting new business, we're trying to target the -- probably, the size of what Julia just talked about, $5 million to $12 million or so, and so that hopefully, the marketing efforts and so forth make it justifiable because of the deal get to the size and make it feasible for us to recoup all the overheads and so forth. But it's a combination of taking care of the existing clients and the small loans and also getting some new clients that have a little bit decent size with good profitability. And that combination, I think, give us a good balance.

Operator

Next question is from Christopher Nolan of CRT Capital.

Christopher Nolan - CRT Capital Group LLC, Research Division

Irene, quick question on structured repo debt. Any opportunities in 2012 to extend maturities and lower the cost of that?

Julia Gouw

At this time, we don't plan to do that. We’re going to just hold on. If interest rates go up, that will be called. But if not, we may just wait until it matures and pay it off. We just don't see any reason to continue to lengthen because overall cost will increase if we continue to lengthen that liability.

Operator

Next question is from Chris Stulpin of Raymond James.

William Christian Stulpin - Raymond James & Associates, Inc., Research Division

Most of my questions have been answered, but I guess, I want a little bit further detail...

Julia Gouw

You got cut off, Chris.

[Technical Difficulties]

Operator

[Operator Instructions]

William Christian Stulpin - Raymond James & Associates, Inc., Research Division

All my questions have been answered, but I do have -- ask a little bit more detail on the accretable yield from the acquired UCB loan portfolio. I guess, whenever it came on board, I think the average life is around 55 months. I guess that’s around 4.5 years. And I believe, Irene, you say there is roughly 3 years remaining in that? Is there a possibility that could be accelerated to a shorter time period?

Irene H. Oh

It could be. I think, at this point in time, I would say that, that is probably not likely, Chris. Just with what's happening to the loan portfolio, certain loans pay off and other ones continue on. It does look like the lag will be closer to 3 years at this point in time.

William Christian Stulpin - Raymond James & Associates, Inc., Research Division

Okay. And that looks like, right now, we stand at about -- that adds around $1 to earnings, if my calculations are correct. Is that correct? On the $61 million roughly?

Julia Gouw

About $60 million a year, so about $36 million after-tax, yes.

Irene H. Oh

Roughly, yes.

Operator

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

Dominic Ng

Well, I just want to thank everyone for joining our call and I look forward to speaking with all of you in January. Thank you.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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