Question-and-Answer Session
Operator
[Operator Instructions].
Your first question comes from line of Andrea Jao with Lehman Brothers. Please proceed.
Andrea Jao - Lehman Brothers
Good morning everyone.
Julia Gouw - Executive Vice President and Chief Financial Officer
Good morning.
Andrea Jao - Lehman Brothers
Just thinking about loan growth and how you will manage the balance sheet in the forth quarter and then into 2008. Could you tell us what the deposit growth ex-acquisitions was this quarter and kind of your outlook for that? And then how are you going to fund loan growth? actually move into 2008.
Julia Gouw - Executive Vice President and Chief Financial Officer
For this quarter, our organic loan growth excluding the acquisitions, it dropped about 2% about 100?
Andrea Jao - Lehman Brothers
Deposit growth.
Julia Gouw - Executive Vice President and Chief Financial Officer
Under deposit and? but most of those are the high rate money market and CD that we? on purpose try to review and some of the reduction also came from the escrow title balances which at this moment really at the low level of about $165 million, given the nature of escrow title and the reduced activities that expected, plus at this moment, our escrow title balance is at a very low level, the impact in the future would be a lot less. So, deposit growth continuous to be challenging especially at the low cost deposits and we will continue to work on to get the deposit growth. In term of the loan growth, this quarter, it’s a pretty high growth because the pay-off has slowdown dramatically in the third quarter. So, we will continue to have some securitization in the fourth quarter. And going forward, we are projecting that the loan growth may not be that high because there is possibility also that the activities in the real estate and the markets slowdown on commercial real estate and other lending products. So, the loan growth is more in the 12% to 13% we can still support some of the loan growth to a borrowings or potentially selling some of the loans to get liquidity or further securitizing some more, not to the same level, in 2008, most likely not at the same level as what we have been doing this year, but we may? continue to do some of that.
Dominic Ng - President and Chief Executive Officer
I want to add why we think that loan growth would not be at sort of 23% our analyzed rate in 2008 is that, for example, like construction lending, we were able to originate plenty of them to the last few years, which now? I mean, they are drawing down, still currently. And therefore, I think that we continue to see construction lending? our loan balance is increase. However, in 2008-2009, I would assume that there are many developers who are going to be holding tight, who are not going to start new project. And for that reason, the likelihood? so, what we will be seeing in 2008 will be a pay down in that construction loan balance without adding much additional new origination. And that in general would help pretty much offset while the commercial C&I and trade finance and then some of the other real estate lending, they will still be growing, but then you have one that will be paying down faster than the norm for the last few years and that will result in loan growth maybe in the low teens rather than 20% some odd. That’s what we are currently experiencing.
And now? I always looked at it as, when it comes down to deposits, we can always get more deposit, if we’re willing to pay the rate. But in a very, very interesting situation, the last two months, when we are seeing Countrywide or IndyMac they are paying 5.5%, 5.7% even after the rate cut. And for us to try to get deposits to pay above Fed fund rate, it just doesn’t make sense. So, what we do is that we will get deposits, as we can get it below Fed fund rate. But if we have to pay up to get Fed fund rate just for window addressing, we would rather just borrow, and that’s been the philosophy that we have been going on and we tried, I mean, as much as we feel that having a lot of deposits to fund a loan, looks very good, but they have to be good deposits, not window addressing deposits. So, that’s the reason why we have not emphasize to go out there. And this mode, because it just happen the market, if a little unusual, I think the last two months because of liquidity issue that affects some of the other banks, who need to do what they need to do, which they do the rising for them, but for us to go and match today is not the right thing. And therefore, we just going to hold out for few months, but this kind of temporary incident will get back to normal, I believe. So, when things get back to normal, we will be able to go out and get deposit again.
Andrea Jao - Lehman Brothers
This is perfect. Very helpful. Thank you.
Dominic Ng - President and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Brett Rabatin of FTN Midwest. Please proceed.
Brett Rabatin - FTN Midwest
Good morning Dominic. Good morning Julia.
Dominic Ng - President and Chief Executive Officer
Good morning.
Julia Gouw - Executive Vice President and Chief Financial Officer
Good morning.
Brett Rabatin - FTN Midwest
I wanted to get an update on the exposure and the Inland Empire, I think last quarter you talked about $144 million and then obviously you added Desert Community Bank. And so, I am curious to get an update on exposure to the area both an outstandings and commitments. And then secondly, we are going through your loan-to-value ratio, so I am basically hearing that the there's not very many bids out there for land, presently. And so, I am curious to hear how you are sort of doing your appraisals and valuations on some of those properties out there?
Dominic Ng - President and Chief Executive Officer
Brett, the question about exposure Inland Empire, I mean, are you referring any type of? I know you talk about residential. We? residential construction loans, we currently have $124 million, residential construction loans.
Brett Rabatin - FTN Midwest
Okay.
Dominic Ng - President and Chief Executive Officer
And that include both Desert Community Bank and East West, and I can give you even a further breakdown. And Desert Community Bank outstanding balance of residential construction loans approximate $30 million, and the rest of them are East West Banks, before DCB. So, I will combine, together is $124 million, total of residential construction loans.
Brett Rabatin - FTN Midwest
Okay.
Dominic Ng - President and Chief Executive Officer
And the question of LTV?
Brett Rabatin - FTN Midwest
Dominic, it sounds to me like you obviously have worked one of the balance sheet after the? ended of the quarter the San Francisco credit. And so, but this sounded like in your prepared comments that you are expecting that there might some NPAs from the Inland Empire.
Dominic Ng - President and Chief Executive Officer
Yes, go ahead.
Brett Rabatin - FTN Midwest
Well, as I said I’m curious how? I just hear out there that this is not? in terms of raw land and some residential construction units. There’s just not a lot of bid. And so, I curious how you evaluate the market and how you sort of appraise things if there’s not a lot of transactions occurring?
Dominic Ng - President and Chief Executive Officer
It’s challenging right now, because since August the market is kind of? went dead for a little while. So, now it started picking up a little bit. However, still, I think it’s nearly? it? I mean the whole sort of like a new home development area. It’s having a lot of liquidity crunch from the? from lack of mortgage availability and also the concern about? I mean the subprime all of that kind of stuff and I think are affecting the market. I’m hearing the same kind of stories like you do about? like the large home builders that we’ve seen on the newspaper like the Norg [ph], KB Home et cetera. They all picking massive write-down by not picking those options to acquire certain land and then also picking charge-off for their residential development. So, we are seeing that happening.
What we are doing right now is that at this stage, interesting enough, like I said, because it only started in August when this sort of market changed dramatically. So, I think it is a little bit early for us to tell. And therefore, I? my position is that, sort of the bank position is that we really feel that with all this turmoil going on in the Inland Empire eventually something has to happen, even within our portfolio. So, we are waiting. And now? and so that is something that we just wanted to send cautionary note in terms of? we don’t know when this going to happen. But I just think that? for example, I’ll just share with you that we have $124 million of residential construction loans there. Now, while loan to values lower, that out to help us to get through this turmoil better than other banks, who are announcing a lot of charge-off lately. But you never know, because if it continues to go south or the market does not correct itself and continue to have sort of no bid, then we would need to address some of the clients who may become problematic. Secondly, I think that what I wanted to also share with you is that we do not wanted to do a very drastic approach that is at the minute you see the market going haywire and then the next thing happens which is just aggressively charging-off and dump all the assets with no record of maybe in two or three months things may get better.
So, I think that the advantage of East West is that we do not have the kind of major problems like some of the other in-financial institutions have. And there is really no reason for us to panic. So, what we do is that we? some problem as it come out, we work on it with the clients to make sure that we took care of these problems, one after another. Hopefully, it does not get any further south in terms of the market, and we will be able to manage it pretty well. But if it does go south, I mean further self in terms of deterioration of the market value and so forth, I still think that overall we should be able to do better than others. But if market continues to go south we will be impacted without any question.
Brett Rabatin - FTN Midwest
Okay. And then, just one of the question if I made that I have heard that some people comment that the commercial real estate market is still to early to tell, but with condo is out and seems like less yield seekers out there, potentially the pricing could be more favorable going forward on a relative basis, anyway. So, I am just curious to hear some comments on the commercial real estate market as you see it and any opportunities that maybe arising given that change and risk profiling by--?
Dominic Ng - President and Chief Executive Officer
Are you talking about loan pricing?
Brett Rabatin - FTN Midwest
Yes, just loan pricing and then just generally how you see theory market?
Dominic Ng - President and Chief Executive Officer
There is no question that we say that it will become more positive that is? obviously in the past? conduits was originating many commercial real estate loans at fixed rate at a very, very low rate and that we couldn’t compete and many of our very good clients that have? that have a plan to hold on their properties for long-term, rightfully so chose conduit to refinance their commercial real estate loans, because we are talking about we are charging like 8% or 8.25% at adjustable and while others do in 10 years 6% and 6.5%, just no way for us to compete. In fact, to be fair with our clients, we actually encourage them to do something like that because what is good for the client is eventually in the long run is good for us anyway. So, that fortunately, we always felt that this in not a sustainable type of scenario, and though, on the whole, I think as of today, our models all of these conduits are gone now. So, with that now we are basically just competing with other banks. And so, I think that would help that loan pricing coming back in a more reasonable margin. And I think that would help us in the next year or two. So, whenever, there is something bad like, for example, you look at? I expect that the constructional lending in the next two years, it is going to slowdown dramatically. However, if we do not get the volume maybe commercial real estate we can make up with the price, one way or the other, we still come back even hopefully.
Brett Rabatin - FTN Midwest
Okay. Great. Thank you for the color.
Dominic Ng - President and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Joe Morford of RBC Capital Markets.
Please proceed.
Joe Morford - RBC Capital Markets
Good morning Dominic and Julia.
Dominic Ng - President and Chief Executive Officer
Good morning.
Julia Gouw - Executive Vice President and Chief Financial Officer
Good morning.
Joe Morford - RBC Capital Markets
I just? I guess the quick question, following-up on China Minsheng Bank's investment in UCBH. There are some comments that some of the other Chinese banks are interested in investing in the U.S as well. Is that some thing that appeals to you all and have you had any discussions along those lines, probably speaking with your thought on that kind of partnership?
Dominic Ng - President and Chief Executive Officer
I think it is a good trend. I think what I liked about it is that, many time you have one historical transaction, it opened up for more. And I looked at as that we do not have an urgent need to do anything and we really? we do not have a strategic reason that we need to do any thing. However, I always look at it as, East West Bank focus is always been long-term shareholder value. When I look at long-term shareholder value, it’s more, not just long-term in way that don’t worry about now and then I will worry about it five years after in the long-term, but it is sustainable on going increase of core earning if you look at out, sort of going to be soon 11 consecutive record earnings that is the kind of example that I am talking about. If someone can help us to have sustainable recurring core earnings for many years to come and make our lives easier, we welcome them.
So, when it comes down to strategic partnership with mainland Chinese banks, our position will be? obviously we will saw that after, but the fact is we will? wanted to do it if we know they are very, very clear meaningful strategic potential for us to increase our let say maybe core deposit or increase our fee income and et cetera, et cetera, anything that can help to grow our balance sheet better and to create core earnings better we more to welcome. We have no? I mean I know that it is having institutional investor to put 5% or 9.9% is no difference that having mainland Chinese bank to put in the same percentage. But I would love to have that kind of arrangement only if we have very clear understanding that there will be very strong potential for future sustainable core earning. One thing that we wanted to be sure is that we not only that the arrangement will give us a strong comfort that we will get that kind of future core earning. But we also want make sure that by signing up something would not cause us to have less desirable relationship with all the other banks we are doing business with because currently we have substantial numbers their corresponding bank that we are going to do business within China and our position is that if we going to enter any kind of arrangement, we wanted to make sure arrangement is substantially outweighed we currently are getting from the rest of the other financial institution in China.
And so, that’s basically is the kind of very logical common sense approach of what’s best for our shareholder, and if there is something that makes sense, we obviously will be more in interested to entertain. And so, that’s what we are right now.
Joe Morford - RBC Capital Markets
Okay. Make sense. Thanks Dominic.
Dominic Ng - President and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Aaron Deer of Sandler O'Neill & Partners. Please proceed
Aaron Deer - Sandler O'Neill & Partners
Hi, good morning everyone.
Dominic Ng - President and Chief Executive Officer
Good morning.
Aaron Deer - Sandler O'Neill & Partners
Hi. I just wanted to follow-up I guess on the expense. They seem to be up fairly sharply this quarter obviously big part of that was due to the acquisition. But if I heard you correctly, it sounds like you are again calling for expenses to be up an additional 5% in the fourth quarter. It? I just confirm if that’s correct? And then what’s driving that I am not sure some of it is production related. But are there also any cost related to the acquisition specifically that you can pull out.
Julia Gouw - Executive Vice President and Chief Financial Officer
Yes, actually, 5% sequentially compared to the third quarter is about wide and mostly is that Desert Community Bank only come in 1.5% per month for the quarter. So, some of those expenses? work increased in the fourth quarter, because it’s a full quarter.
Aaron Deer - Sandler O'Neill & Partners
I understand. But I guess in the third quarter down here the expenses were up pretty sharply. Is most of that done just due to the higher production levels that you show or is there anything else going on there?
Julia Gouw - Executive Vice President and Chief Financial Officer
Mostly the sales at our Desert Community Bank in addition to some of the East West expense growth.
Aaron Deer - Sandler O'Neill & Partners
Okay. And then, lastly, given the? your current capital levels and growth outlook, what are you expecting in terms of the share repurchases going forward?
Julia Gouw - Executive Vice President and Chief Financial Officer
Well, when our loan growth was 23%, we are not increasing our total risk base capital. So, as well as our loan growth is high, we probably would hold off the stock buyback. If the loan growth is less than 15%, we will be accumulating excess capital.
Aaron Deer - Sandler O'Neill & Partners
Okay. That’s helpful. Thank you both.
Julia Gouw - Executive Vice President and Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Manuel Ramirez with KBW. Please proceed.
Manuel Ramirez - Keefe, Bruyette & Woods
Hi, good morning. Just one quick question. Could you talk a little bit about where delinquencies were outside of NPAs in the quarter? And as it might expected with particularly focused on the construction outside? Thanks.
Julia Gouw - Executive Vice President and Chief Financial Officer
In term of the overall delinquency, we? hang on, let me get the total. Comparing to June, 60 day delinquency itself pretty small about $18 million compared to $8 million. We do have increased 30 day delinquency. But sometimes some of them are just a temporary that people that just a few days, 30 days and they may get up. So, that’s what the delinquencies are. Usually, we really watch over 60 day, because that’s the one that potentially will go through 90 day.
Manuel Ramirez - Keefe, Bruyette & Woods
So, that would 60 plus the number that you gave me.
Julia Gouw - Executive Vice President and Chief Financial Officer
Correct.
Manuel Ramirez - Keefe, Bruyette & Woods
Terrific. Thank you.
Julia Gouw - Executive Vice President and Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Lana Chan with BMO Capital Markets. Please proceed.
Lana Chan - BMO Capital Markets
Hi, good morning. On the construction loans that detail you gave us before, it looks like versus the second quarter numbers the average LTV increased from 62% to 68% and the average loan size went down though. So, I was just wondering is there anything happening there, in particular that’s driving the LTV up?
Julia Gouw - Executive Vice President and Chief Financial Officer
Yes. The average loans dropped because our Desert Community Bank is pretty small that to average loan price. So, it brought it down. And they also have slightly higher LTV and some of the construction loans are paid off, like some of the lower LTV, so like? so, right now, in total, about 68% is the LTV for the construction portfolio.
Lana Chan - BMO Capital Markets
Okay. And then and my next question is on the margin. You said your thoughts are that may stabilize in the first quarter of ’08. Is that based on any other rate cuts either I guess by the end of this year or if we get another rate cut, does? as well as go takes not some time for the deposit rates to catch up.
Julia Gouw - Executive Vice President and Chief Financial Officer
Yes, that does not include since we don’t know they will be cut or not. Every time there is a cut, there could be immediate? the first quarter may have some hit, but sometimes if the cut is close enough, some of the CD’s may not be re-price at the first level, so, it may re-price down like assets re-price, so that the impact can be minimized on the subsequent rate cut, but our assumption is based upon no further rate cuts.
Lana Chan - BMO Capital Markets
Okay. Thank You.
Julia Gouw - Executive Vice President and Chief Financial Officer
Thank You.
Operator
Your next question comes from the line of James Abbott of FBR Capital Market. Please proceed.
James Abbott - Friedman, Billings Ramsey & Co
Hi, good morning. My question was on the loan to values as well. So, that’s been answered. But I might ask if I can. On interest reserves for these loans, are you experiencing, and if you? probably are, but can you quantify than any sort of fashion, how much your developers are digging into or utilizing their interest reserve as oppose to selling the home and using the proceeds to pay-down the loan balance. Give us a sense of that?
Julia Gouw - Executive Vice President and Chief Financial Officer
Well, like most of our interest reserves are used during the construction period. So, if? like the absorption rates goes down, there are two things that could happen, you have the interest reserve and have to come out with that own cash to keep the loans current, or if they get some proceeds fact enough than, they will be able to keep the loan current and make a pay-down. A good example is sometimes the value is so good, and we don’t expect losses at all like the $11 million condo construction in San Francisco, it was non-performing because the sale did not close fast enough to keep the interest current. But it has been brought current by now, and we expect a major pay-down on that loan, and no losses for that loan. So, a loan can still be non-performing and not making the interest payments, but later it can be made up by the sale and we will be paid off without any problems.
James Abbott - Friedman, Billings Ramsey & Co
Okay. Do you track the number of loans that have maxed out the interest reserve and in other words have utilized all of the interest reserve at this point and the payments are being made--?
Dominic Ng - President and Chief Executive Officer
Well, I think that it’s not just an interest reserve. I think we basically tracked all loans that have potential problem and that’s why we have classified assets, and as asset gets classified for many different reasons. I think interest reserve being used or interest reserve being usurped and now being funded by the developer own pocket money and those are all signs of threat that may require classification of loans. And so, I think to that regard, because we do ongoing classification of our loan portfolio and obviously interest reserve will be one of the elements will be one of the elements that we looked at for construction loan to se whether they’re a threat.
The other thing that decides interest? you may have developer who does an incredible job who actually were able to get the construction project finished without using any interest reserve or? and they are rarely? but we do see that happen. They actually come out under budget, but besides they have interest reserve execution, they may also have? because of the under budget have additional cushion. But if we made the loan at a high LTV, and on top of that happen to be the market that they have sort of like nothing going on and this developer need to sell fast and they may still run into a potential a lot situation. Even without using, because if the value of the sale dropped dramatically because of the? their unusual market condition today. And on top of that, the interest reserve even though they did not use it, we know that its not adequate enough to offset against that? the value between the potential sale and the cause of the loan then I think that we still may have loan.
So, I think that we do look at interest reserve, very much of a key ingredient for our classification of assets, but it’s not the only thing that we would sort of like track how many loans that have interest reserves will be extended, so to speak.
James Abbott - Friedman, Billings Ramsey & Co
Okay. Thank you. That’s helpful. On the sales rate, can you give us some insight into the monthly sales rates of home in the Inland Empire versus what you are experiencing in-field construction say in some of the sub divisions in Los Angeles or this what you would categorize as urban?
Julia Gouw - Executive Vice President and Chief Financial Officer
We don’t have like the statistics how many, but like definitely the Inland Empire the sales are slower than here. But even like every area the sales are not fast as like what it used to be that like it is? other demand is higher. The Inland Empire had been over building the last few years. So, it makes it harder even for people to sell because there is so much inventory out there.
James Abbott - Friedman, Billings Ramsey & Co
Maybe another way to ask the question and if you don't track that statistic, is classified assets of urban properties versus classified assets in the Inland Empire, is it dramatically skewed towards the Inland Empire or is it balanced, is it? what can you tell us there?
Julia Gouw - Executive Vice President and Chief Financial Officer
Well, not really because our portfolio in Inland Empire is? it’s a small part like we mentioned 75% are in the L.A. San Francisco area. So? and also, the timing of the development is different. So, the newer projects usually have not shown any stress yet, so, like? so most likely they are not being classified yet until they are further along that you see problems with properties..
James Abbott - Friedman, Billings Ramsey & Co
Okay. All right. Thank you for your answers.
Operator
Your next question comes from Erika Penala with Merrill Lynch. Please proceed.
Erika Penala - Merrill Lynch
Good morning.
Dominic Ng - President and Chief Executive Officer
Good morning.
Erika Penala - Merrill Lynch
I was wondering if you had any sense that the asset quality issues that you are seeing right now in your residential construction portfolio will eventually lead into commercial construction or certain segments of term CRE. And if so, what kind of lag do you expect?
Dominic Ng - President and Chief Executive Officer
It should not? well, what you are asking is really a very macro economic question and I don’t? having from my sense right now, I don’t see that happening, we are taking assumption? say we are taking assumption that, well, first of residential lending, the residential market is not only just going to be restricted to this new home development area, but permeate throughout the state of California and continue to scope [ph] more and more depressed. And finally, hit the consumer in the head, let's say that, well, we stop buying. And I think next thing happened, jobs are being cut from major corporations and small business, then I would assume that at that point commercial real estate market was also start slowing down and then was also starting having their evaluation coming down. And I think that will be the most likely scenario when that happen.
And obviously, I think the whole country’s economists are all struggling with that question is that with the subprime market with what’s happening with some of the housing situations. Why are consumers do spending and why are jobs still created? Why are companies still making record earnings? We don’t know. And that’s something that we just have to play by the years and be proactive and our position has always been proactive and then also during good time trying to leave some money on the table during the good time and that’s why our capital ratio is always pretty solid.
And when it comes down to underwriting loans, having a little bit lower loan term values so that? I mean the overall characteristics of the market are pretty much the same banks-to-bank. However, if we have a little more cushion then we can sort of like deal with that slowdown maybe a little bit better than the others. And that’s where we are right now.
Erika Penala - Merrill Lynch
Do you? given your cautious commentary on the local housing market, do you expect to be more meaningfully building reserves from here?
Dominic Ng - President and Chief Executive Officer
I? we didn’t hear your question. Can you speak louder?
Erika Penala - Merrill Lynch
Sure. Given your cautious commentary on the housing market, do you expect to be more meaningfully building reserves from here?
Dominic Ng - President and Chief Executive Officer
I think the building reserve is all based on whatever the? I mean how many classified assets we have, how many delinquency, how many non-performing, and how much potential losses. So, we expect obviously, I think for the last five to 10 years, we? I mean banks do not just reserve just based on whenever we feel like it. So, therefore, we have everything is based on the financial models that we put together and get reviewed by outside auditors. And so, in that regard, I think that we? if you ask me to make a general comment and I’ve said many times, I think that based on what’s happening in the market, I would say that I am very conscious about what the market was look like in the few months down the road. But we would only be able to build other provisions primary based on whatever we have on balance sheet.
So, I think that if we see strength of more non-performing loans coming up, in the pipeline, in the future, I mean you bet, we will have provisions. Because by then, we have much more justifiable reason to set a higher provision for loan losses. And if the values continue to come down further, we have more reason to book additional provisions. And so, this something that why we have look at it very diligently. And at this point? and now maybe a year ago or two years ago, you can look at it once every few months and then now we look at these construction real estate portfolio. We need to look at it a little bit more closer and that’s what we are doing right now. Because if the market can change value on a monthly basis, that would affect our outlook in terms of clarification of provision of loan losses differently, and that’s why taking a proactive approach and looking at construction portfolio very diligently is the only way to go.
And then what we do is that whatever happened, it happens and then we just? if there is more losses? more delinquency, more non-performing, we just have to book more provisions and that’s what we need to do. And then so, that’s what we are going to be looking at in the future. And then if next quarter comes back, we have NPA then? and then also it is what it is and we will book to provision accordingly to what the number.
Erika Penala - Merrill Lynch
Okay. And the one last question if I may. Did you experience much deposit iteration after the Desert Community deal close? Are you expecting any more iteration?
Dominic Ng - President and Chief Executive Officer
Altogether 5% as of today. And the 5% a primary due to a major deposit campaign from previous management. And at what percentage, it think, it’s like 5.5% or something like that. And we didn’t want that 5.5% to stay on, and so, the majority of them? so, for those that are hot money that 4% to 5% and not really core customers and then pretty much have left. And so, as of today, as it’s exactly 5% reduction in the Desert Community Bank deposit balance.
Erika Penala - Merrill Lynch
Thank you for taking my call.
Dominic Ng - President and Chief Executive Officer
Thank you
Operator
Your next question comes from line of Christopher Nolan of Oppenheimer. Please proceed.
Christopher Nolan - Oppenheimer & Co
Hi. Thanks for taking my call. Should we expect the percentage of construction loans relative to total loans to that decline in the coming quarters?
Dominic Ng - President and Chief Executive Officer
No, I don’t think so, because we continue to dispersed both projects who are in midst of it. So, I think that? actually my sense it that likelihood would actually increased by the end of fourth quarter. But then as I said earlier, I would expect that maybe in mid 2008, you may start seeing a reduction of the balance, because if we are not booking much now and going forward in future because not many people are doing anything, then more likely that the new origination would not be enough to outset against the pay-off. So, I would expect that by 2008, that’s going to happen. But as of today, I look at it, is that the continued ? when we originate these loans, a year or two years ago, they still being dispersed on the monthly bases. So, I would expect by fourth quarter, there is likelihood that that may still be some increase, but I am not sure, because you never know sometimes some projects pay-off really fast.
Christopher Nolan - Oppenheimer & Co
Great. Thank you very much.
Dominic Ng - President and Chief Executive Officer
Thank you.
Operator
[Operator Instructions]. Your next question comes from the line of Jennifer Demba, SunTrust. Please proceed.
Jennifer Demba - SunTrust Robinson Humphrey
Good morning.
Dominic Ng - President and Chief Executive Officer
Good morning.
Jennifer Demba - SunTrust Robinson Humphrey
If you cover this, I apologize. But Julia, I was wondering if you could give us the? you mention the Empire residential construction portfolio is about $124 million. What’s the entire portfolio?
Julia Gouw - Executive Vice President and Chief Financial Officer
The residential construction outstanding balance is about $888 million and that represent about 55% of the total construction balance, 45% non-residential, 55% residential. And the Inland Empire is $124 million, about 14% of the total residential compared to $888 million.
Jennifer Demba - SunTrust Robinson Humphrey
How much of that $888 million is acquisition and development versus single family homes or condos?
Julia Gouw - Executive Vice President and Chief Financial Officer
Most of the $888 million would be condos and single family residential, very few acquisition development land loan.
Jennifer Demba - SunTrust Robinson Humphrey
Okay. And just one more question on that topic, Dominic or Julia, are you seeing any other geographic sub-markets that give you cause for concern other than the input Inland Empire at this point?
Dominic Ng - President and Chief Executive Officer
Not in our portfolio, I mean in terms? because we are? we covered the geographic area primarily in California. And at this stage, I think that in terms of? for a sudden change of? I mean evaluation in terms of the single family of home market really are primarily restricted to the Inland Empire area, and I think for a good reason. There is sort of like big price cut comes from our new home developments. Only Inland Empire have a lot new home development and they are major builders. Major companies always like to take a big charge-off, so, that they can get it over with and then start booking a lot of income the next few quarters, that kind of stuff.
And so? but if you talk about small developers, it's their money. They are not just going to go ahead and let it go. It’s their money. I mean they got to work very hard to make sure that they get their money back. So, I think that if you talk about that in the Inland Empire because there are major builders there who are taking major charge-off and stuff like that so that the market value is really going into a see-saw balance. It’s no different that if you look at right now commercial paper on Wall Street it’s going haywire because nobody wants to bid because you don’t know what the price is.
And that’s kind of happening in the Inland Empire. But when you’re getting to like the City of Los Angeles, the City of San Francisco and the San Gabriel Valley where we have the bulk of our branches. All the developers can do in this area is just a little bit of initial, on a little plot of land they can build maybe 10 homes, 20 homes and stuff like that. But whenever in that kind of situation you do not have a neighbor who is a major builder, who says I am doing a massive fire cell at 20% discount and if you don’t then you can’t sell. You just can’t find these big builders. So, like? right next to you, adjacent to you who are selling like 300 homes and they have to get out in a heart beat. So, whenever you have that kind of situation, now the builders are doing 20 homes, 40 condos in West Los Angeles and stuff like that, they do have a lot more leverage in terms of while there is the demand I know that the buyers are now saying that, well, prices are supposed to come down because all the new papers say the price needs to come down. I need a bargain. So therefore, the developers now in West L.A. or maybe in San Francisco may come in and say okay I’ll give you 5% discount but you still need the home, I do need to sell and then I just get the deal done. I think you see more of that happening in the urban area but when it comes to in the newer developed areas that have a lot of land have a lot of big builders and that there situation maybe different. So, that’s what we see right now.
Jennifer Demba - SunTrust Robinson Humphrey
Thanks a lot. I appreciate it.
Dominic Ng - President and Chief Executive Officer
Thank you.
Operator
We have a follow-up question from the line of Andrea Jao with Lehman Brothers, please proceed.
Andrea Jao - Lehman Brothers
Hello, again.
Julia Gouw - Executive Vice President and Chief Financial Officer
Hi.
Andrea Jao - Lehman Brothers
Could you tell us when conversion of Desert Community scheduled for in? What remind us the cost savings? Talk about expense growth after that.
Julia Gouw - Executive Vice President and Chief Financial Officer
It will be the first week of November that we will consolidate and convert all the systems to the same platform. We expect some cost saving it’s not a tremendous amount of money, but then there’s some? there have been duplicative expenses by running two different systems.
Andrea Jao - Lehman Brothers
Is it to early to ask about the expense growth projections and drivers for 2008?
Julia Gouw - Executive Vice President and Chief Financial Officer
Yes, I think so.
Andrea Jao - Lehman Brothers
Fair enough.
Julia Gouw - Executive Vice President and Chief Financial Officer
But like just the likelihood is? we? if we don’t experience high growth we probably will make sure that we control the expenses well.
Dominic Ng - President and Chief Executive Officer
Yes, I think that one thing that you can expect is that we just do logical, common sense stuff. So, if we talk? we spend a lot of time talking about these residential construction loans and real estate market? I mean residential real estate market, when the market continues to effect the economy, obviously we have to? we would expect to have slower growth, and therefore, expense will be tightened up. And but if this is just a blip [ph] for a two quarters kind of situation and thing going better again and we start experiencing the kind of growth similar that we’ve had in the past and then we’ll expect that we will need to put invest in people and continue to provide infrastructure to support that kind of growth.
And so everything just grows proportionally and logically and that’s what we’re going to do. And our plan is always that we would talk about the 2008 sort of like guidance at the fourth quarter with these times. So, it will be January of 2008.
Andrea Jao - Lehman Brothers
Okay. Great. Thank you, again.
Dominic Ng - President and Chief Executive Officer
You’re welcome.
Operator
And your final question is a follow-up from the line of James Abbott of FBR Capital Market. Please proceed.
James Abbott - Friedman, Billings Ramsey & Co
Hi, again. If I can focus on little bit of positive for a second here. There has been a lot of dislocation in the jumbo mortgage market and particularly in California, that’s a very important piece of the market. If here is something that you have thought about doing strategically to get involved there or may not be permanent involvement, but may be a six months to 12 months opportunity here. Is there something that you consider there?
Julia Gouw - Executive Vice President and Chief Financial Officer
Jumbo single family apply this low loan to value because we just like? like our portfolio high loan to value. So, there are certain markets of people that have 60% or 65% loans to value that have come to us, but difficulty about like a jumbo market is that we do not want to portfolio 30 years or 15 years. So, what we offered is jumbo that the portfolio will be 3 years or 5 years or 7 years fix at most. So, what have just some? it’s not going to be something, it’s a dramatic amount.
Dominic Ng - President and Chief Executive Officer
It will be immaterial. The reason is that when you do mainly adjustable rate there only so may that you can capture and if we do want to take a manage of this sort of like a current opportunity to actually do a lot more origination for these fixed rate loan that we will need to build a much bigger infrastructure to support the secondary market operation. Problem is that as we have already seen. Mortgage business like farming, it just go by seasons and we are just not going to be very comfortable to build up an infrastructure to support the business that maybe another time it will go another direction and therefore it would effect our sort of consistent core earning. So, that is an area that unfortunate for us. I think that we will pickup some additional business, but not going to material.
James Abbott - Friedman, Billings Ramsey & Co
Okay. All right. Thanks again. I appreciate your comment.
Operator
And as that was your final question, I would now like to turn the call back over to management for closing remarks.
Dominic Ng - President and Chief Executive Officer
Well, thank you all for joining us for the call, and I look forward to you talking to you again in January of 2008. Thank You.
Operator
Thank you for your participation in today’s conference. This does conclude the presentation. You may now disconnect. Have a great day.
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