East West Bancorp Inc (EWBC) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2005 MetroCorp Bancshares Inc. earnings conference call.

My name is Bev and I will be your coordinator for today.

[Operator Instructions]

I would now like to turn the call over to your host for today's call, Mr. George Lee, President and CEO of MetroCorp.

Please proceed, sir.

Good morning.

Thank you all for joining MetroCorp's fourth quarter earnings teleconference.

From my past experience sitting at where you are, I have always regarded the fourth quarter discussion with management to be the most interesting and meaningful.

Whereas the other quarterly results represented a snapshot of the health of a company, it is the fourth quarter that brings the picture together and serves as a good opportunity for investors to measure the trends and momentum of the organization and a way to check up on the management's credibility in delivering what they have set out to do during the year.

When the board may change in management the end of 2003, I had the opportunity to discuss with some of you as to how our management team would meet the challenges ahead and what the investors can look forward to in general.

In line with my operating philosophy, I told you that we would be taking a very systematic and holistic approach to building and strengthening the foundation of our organization.

What we wanted to deliver to our investors is sustainable growth in all aspects of our business, including investing into strategic areas that over time can best benefit the company.

In other words, not to sacrifice our long-term potential for short-term results.

I'm pleased to tell you that the results of the fourth quarter of 2005 and fiscal year 2005 is reflective of our efforts, and the results of past efforts that were not obvious to you at that time.

We have delivered three consecutive quarters of record earnings, growing our loans and deposits organically while controlling and improving our asset quality and optimizing our yield.

The successful integration of First United Bank is also encouraging, providing not only accretive financial contributions, but also the [beachhead] needed for us to expand into California with confidence.

The quantifiable 2005 results are reflected in our earnings report.

But dissimilar to what the management team has done in 2004, there are many qualitative improvements made during the year that cannot be expressed with ratios or numbers.

As 2004 was the platform or stepping stone to a successful 2005, we believe that the intangible improvements made in 2005 made us even stronger providing the platform for success for 2006.

With this, I would like to open the lines for your questions and our discussion.

Thank you.

[Operator Instructions]

And your first question comes from Jordan Hymowitz.

Hey guys.

Can you hear me?

Morning Jordan.

Morning.

How are you?

Good.

It's early for you.

Early, please.

I'm here three and a half hours.

Yes.

Question for you.

Can you detail the one-time nature in the personnel line this quarter?

One-time nature in the personnel line-- you mean salaries and compensation?

Yes.

Okay.

I'm going to let David Choi give you some numbers.

But in general, what has happened is in the first half of the year, in our bonus plan, we have a couple tiers of compensation levels.

And in the first half, we accrued to a-- what we call a threshold level.

But as we see that the company's performing at a trend that would take us to the maximum, in the second half we step up our accrual for that bonus part.

And with this, I'd like to turn that over to David so that he can speak to that.

Yes.

A couple things in the fourth quarter in here.

One of that is the additional bonus accrual compared to last year.

Because of the improved performance over the year we have picked up another about $200,000 of additional accrual for the bonus in the fourth quarter for Metro Bank.

And First United also was there, performance picked up another 150 or so.

And on top of that, we have a one-time acceleration of some of the stock options.

That is about $145,000 that we expensed in the fourth quarter.

But this is more of a savings going forward, when we expense those options right now.

So Dave, given that the bonus accrual really isn't one time, it's because of the performance-- I mean, you wouldn't have the revenues without it-- it's really not non-recurring.

So the only number that's nonrecurring is the 145 in stock options?

Well, we have some-- a little bit of the severance in the fourth quarter and so forth, and other items such as customer appreciation that we did in San Diego for First United, additional expenses in stopping off the compliance and so forth.

So we do have a little bit of those in there.

So again, customer retention would probably be an ongoing expense.

Besides the 145, approximately how much in other severance or other things that would truly be one-time in nature might be in the fourth quarter?

Severance is about 80,000.

Okay, so about 250. 230.

Yes.

The 140 plus 80, yes.

Okay.

Thank you very much.

Welcome Jordan.

Your next question is from Brian Klock from KBW.

Good morning.

Good morning, Brian.

Morning.

I guess have a couple questions.

I think Jordan already kind of touched on the expense side.

It looks like you guys had some good, strong loan growth, solid [NEM] in the quarter, I guess maybe first question, maybe can you highlight the loan growth.

Where was that in, was it commercial, was it commercial real estate?

Obviously ex the acquisition, it looked like very strong loan growth.

And I guess maybe the second question is on the credit side.

Maybe you could just kind of walk me through the ins and outs with the NPLs and ORE?

Thanks.

Okay.

I'm going turn first over to Bert Baker, our Chief Lending Office.

And the second part of the question pertaining to NPL, it will be Terry Tangen.

Good morning.

Yes, the loan growth was pretty balanced amongst all the categories that you see on our balance sheet, so there continues to be a lot of demand for loans on the commercial real estate side.

But it also is balanced out by just some of our C&I loans also in the fourth quarter.

So Bert, the commercial pipeline looks pretty good?

We were satisfied with what we saw in the fourth quarter.

It continues to be a competitive market and don't see that trend continuing.

Okay, good.

And Brian, so that you're in a way a little bit of a newcomer, we have restructured our reporting system with other lending officers reporting to Bert.

And we also are in the process last year of hiring some loan officers to join us in Houston and in Dallas.

So, we foresee some payback--- I mean benefits-- coming out of that.

Okay, great.

And on the credit?

Hi, this is Terry Tangen.

Hi Terry.

Good morning.

Basically, the large loan that went to non-accrual is one that we have been working on for some time.

It went through bankruptcy and once we were able to take action, once they had basically gone through the bankruptcy proceedings, we were able to take that into ORE.

That happened in the fourth quarter.

As always, we would have hoped to have it sooner so we could take action sooner.

But it is being actively marketed as a single piece of property.

And now we are waiting on the timing of getting it sold and closed.

But that was a big transaction during the first quarter.

Okay.

So now that moved into ORE...

From non-performing loans.

...from non-performing.

And the release said you charged off 1.1 million on that wholesaler loan?

Right.

That's correct.

And so was there about a million of new adds into the NPL category?

No, I don't believe so.

There was really not much activity other than that.

We had some-- there might have been about a $0.5 million, I think, something like that.

But it was not any particular loans, some smaller ones.

Okay.

Okay, so more [grand], no large issues there?

No large loans.

Okay.

Brian, as far as the trend of our NPL, I think the improvement would be over time because we have options in settling things in different ways.

And we choose to really take the time and optimize the end result to benefit the company and the shareholders.

So we are satisfied with the pieces that we have put together, and some results will be obvious in the future.

And If I may add one other piece to that, and one of the reasons on the timing issue in some cases, is over 65% of non-performing loans are secured by real estate.

So sometimes there are some timing issues.

If the customer can sell the assets, that is fine.

But occasionally, we have to go through the foreclosure process, and that does sometimes take more time than we hoped.

Okay.

Alright, thank you.

Thank you, Brian.

[Operator Instructions]

And your next question comes from the line of Collins Porter with Front Point.

Hey guys.

How are you doing?

Good Porter.

I'm sorry, I might've missed the opening.

But I just wanted to ask a couple questions on your expenses.

I don't know if it was asked already, but obviously there were some chunky items in there.

If you could break out just what you think expenses are on a go-forward basis rather than just special items, whether they are expenses for the merger or option-related expenses.

Could you just break those out for us?

Well, Jordan asked the same question.

We're going to walk through the numbers very quickly with you, and then that hopefully that answers that.

Okay.

Porter, this is David Choi.

Yes.

In the fourth quarter, we have a little bit more of the bonus accruals that we accrued in fourth quarter.

And that is related to the improvement performance over the year.

About $200,000 is for Metro Bank, and about 150,000 for First United.

We have a severance of about $80,000 and additional [stuff] related to compliance costs about $200,000.

We have done some customer appreciation for First United Bank during the Christmas time, that's about $75,000.

And--

What was that one?

75.

Customer appreciation?

Yes, like --

It's a marketing thing.

That's not one time, though, is it or--?

This one is a particularly bigger one that we did for the San Diego.

This is an initial acquisition and we wanted to make sure that we address -

This is sort of an announcement that Metro has successfully acquired First United and to bring all the customers in.

It's a little bit more-- we don't expect the same degree of events.

Got you.

And then over the year, we certainly have some of the donations that we have done in the past couple quarters.

So we add a little bit more in that front.

And where about -- are you talking about options expense?

The option expense, this is a one-time thing that we have accelerated some options which will bring in some substantial savings for-- on the bottom line for the next couple of years.

How much was that?

That's about $144,000 that we expensed in relation to the acceleration.

Okay.

Otherwise, going forward when we implement FAS123R we will have to take on -

Got you.

It's a little over $300,000, which you think is sort of one-time in nature.

Is that correct?

Yes.

The 80 in the severance, the 20 of the SOX, the 75 in advertising, and then the 144 in terms of the stock?

That would be a close number, yes.

Yes, those are the more one-time items in there.

Could you talk about the fee line is obviously down for the quarter over quarter, but you had the addition of your new bank.

So could you talk about what's going on there, and could you talk about whether you see any revenue synergies in terms of the two banks now and on the fee income line?

In general, First United Bank does not have trade finance or some of the other fee opportunities.

And we hope that once the two banks are able to merge the system successfully, that those services can be offered to our California customers, as well.

And there are the things that we're trying to establish to beef up and increase the opportunity for our trade finance fees and so forth can grow over time.

So I would say that the trend would be that that fee income will increase over time.

As far as the reason why the fee income stayed flat this year versus last year, Bert, would you answer that question?

Can I take that one?

The main thing is really on the sale of loans.

We have not sold as much alone for this year as compared with last year.

And so on the fee side, it is a little bit lower.

But then -

I was more looking just quarter over quarter in terms of [first to the] third quarter.

Because you-I mean, you obviously-- the third quarter did not include the First United.

Let's see.

Can I come back to that question?

Sure.

No problem.

And then when-George, when you're system's closing.

When does that close?

The conversion of the system?

The integration should be complete by the end of the first quarter.

Great.

Thanks so much guys.

Welcome.

And your next question is from Carter Bundy with Stifel Nicolaus.

Good morning.

Good morning, Carter.

How are you, George?

Good.

Good.

I just had a few questions today if you wouldn't mind.

Sure.

I guess two things-- the securities portfolio.

I was trying to get kind of an idea, some color on where you think that might go in '06, if it's going to moderate or if it's going to shrink.

Just kind of what you all are thinking about that.

And the other thing is, are you all targeting an efficiency ratio in '06 given the First United deal?

Okay.

As far as the security, obviously, our most profitable way to utilize our money is to generate more loans.

So you can see our loan to deposit ratio will climb over time.

And the second question-- can you repeat the second question, please?

Are you all targeting any kind of certain efficiency ratio going forward?

I mean, we saw some nice improvement this year, and I'm just trying to model out given the fee income and expense side, where you all might think that might go in '06?

Yes.

I have always said that our goal over time is putting our efficiency ratio down to the mid-50s, and that goal still remains the same.

We will be working aggressively towards that.

Of course, the first milestone is to get it below 60.

Okay.

Thank you.

And you have a follow-up question from Jordan Hymowitz with Philadelphia Financial.

Hey guys.

The margin came in much higher that a lot of people had modeled it, 456.

So even with integrating the First United deal, the margin actually went up.

Is there any reason to think, especially with a couple rate increases, that that margin would go down in 2006?

The reason why I ask, because it seems like a simple question, is several of the analysts that are modeling the company have a decline in that margin this year.

And for the life of me, I don't understand how that is mathematically possible, unless the Fed cuts?

I think when you look at the trend of our company, as the Fed continues to raise their interest rates, our balance sheet is really asset sensitive.

And so we have consistently demonstrated accretion based on that.

And in terms of the drag in here is really on the sub-debt, on the trust preferred, and you have those numbers right there.

So overall for this one quarter, it is about one basis point below from last quarter.

But going forward, I think that because the sub-debt is a fixed-rate debt in here, it will stay flat going forward.

And so the-- if you look at a continue rising rate environment, I think that we will be looking at a similar trend from that from before.

Jordan, your question is being asked by ourselves at every weekly rate meeting.

This is the part that we really try to micromanage.

We look at our competition and try to pace ourselves.

So I would say that if, in general, the rate continues to increase, we should be able to manage that to our satisfaction and to yours.

All the other Asian- or Chinese- or Korean-focused banks have loan to deposit ratios far in excess of yours, to the extent that your loan to deposit ratio is much lower.

Do you have more flexibility on deposit pricing and [inaudible] is the Texas deposit market less competitive than California by nature?

I think by nature you'll find Texas to be a little bit less competitive.

But in today's-in the last few months, the California's also coming into the Texas market.

So I would say the difference is getting smaller and smaller.

Okay.

Thank you.

Thank you.

We have another follow-up from Collins Porter of Front Point.

Hey guys.

Just thinking about the credit in terms of the non-performing loans have come down, and you also have a mixed ship in terms of-- or a little bit more real estate-related assets in terms of the west coast assets.

How do you-- and the asset quality over there is obviously very good.

So how do you think about the reserve ratio going forward?

Well at this point, I think it's appropriate where it is.

On an ongoing basis, as we get the non-performing levels down, non-performing loans, this bank would assume we would not have a level at 1 7, and we get closer more to what would be considered more of a peer ratio.

But it's working that down over a period of time as the non-performers decrease.

Okay, great.

Thanks a lot, guys.

Thank you, Porter.

[Operator Instructions]

There are no further questions in the queue.

I would now like to turn the call back over to Mr. Lee for closing remarks.

Just a minute-- to Porter's question, David now wants to answer that.

On the question about the lower fees, in here it is mainly a decline on some of our service charge in the here.

And because of the competitiveness of the market, we do see there is little bit more competition on that.

But one thing that we have been focusing on is being a little bit more aggressive on getting non-maturity accounts.

These are DBAs and money market accounts.

If you look at the DBA account, we have been successful in getting more DBA accounts in here.

So that contributes to our service charge decline in here.

So just to give you an answer for that, Porter.

Well, if there is no other questions, thank you very much.

We will talk to you next quarter.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.