East West Bancorp Inc (EWBC) 2010 Q4 法說會逐字稿

Greetings and welcome to the MetroCorp Bancshares Inc. 2010 fourth-quarter earnings release conference call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

The statements contained in this conference call that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe the Company's future plans, projects, strategies, and expectations are based on assumptions and involve a number of risks and uncertainties.

Factors that could cause actual results to differ materially from anticipated or projected results are described under Risk Factors in our 2009 annual report on Form 10-K and other reports and documents filed by the Company from time to time with the Securities and Exchange Commission.

It is now my pleasure to introduce your host, Mr. George Lee, CEO for MetroCorp Bancshares Inc. Thank you, Mr. Lee, you may begin.

Good morning. Thank you for joining us this morning to review and discuss MetroCorp Bancshares fourth-quarter 2010 earnings. With me are my colleagues, Bert Baker, Chief Credit Officer, and David Choi, Chief Financial Officer.

After a disappointing 2009 and first quarter 2010 we are relatively pleased by the consecutive improvements made during the past three quarters. The trend was encouraging, but the magnitude of our progress was still very modest.

Our net earnings for fourth quarter at $1.7 million more than doubled our third-quarter net earnings of $637,000. Total non-performing assets declined by $10 million between December 31, 2009, and December 31, 2010. Subsequently, another $11.3 million reduction was concluded between December 31, 2010, and our earnings release.

Net interest margin at 3.84%, total risk-based capital ratio at 15.13% remained strong and stable. Allowance for loan losses is still very solid at 2.95% of total loans.

Overall, the primary performance markers show signs of increasing traction toward achieving stronger results for the new year. Underneath these markers, we have also observed some indications of a healthier credit pipeline.

Our combined past dues of 30 days and over at the end of the second quarter was $41 million or 3.35% of total loans as compared to $17.6 million or 1.56% of total loans, and reduction of $23 million or 56% percent.

Net charge-offs for the quarter ending December 31, 2010, were $3.4 million or 0.3% of total loans compared with net charge-offs of $9.2 million or 0.72% of total loans for the same three months ended December 31, 2009. On an annualized basis, net charge-offs for 2010 were $13.2 million or 1.16% of total loans as compared with net charge-offs of $20.5 million or 1.61% of total loans for 2009. Bert Baker will also provide you with other details later on.

Our non-performing loans and assets have steadily declined. Perhaps not as rapidly as some of our (inaudible), because in the best interest of our shareholders, given the unusually low market price of where our stock has been trading, we have been extra cautious with the management of our special assets.

Our workout strategies have been intense, effective, and less costly. Our goal, however, remains 3% NPA or less to total assets by the end of 2011. Even though the macro environment seems to have improved, especially for Houston, Dallas, and the California markets where we serve, but there are still much work to be done.

During 2010, we have placed management's priority on getting our asset and credit quality challenges under control perhaps somewhat at expense of the Company's operating efficiencies. Not to mention that certain costs were regulatory and macro economically driven. During 2011, we will be much more attentive to keeping both in balance while proactively improve on operating efficiencies.

In addition to the top leadership changes in credit and lending, we have reorganized the two departments and added depth to our staffing to enable us to reenter a phase of loan growth while continuing to monitor and improve and balance our loan concentrations. The latest developments in Texas banking landscape and signs of potentially a new era of US/China banking relationship are being closely monitored by our Board and management. With the positive momentum generated during 2010 we will seek to build and strengthen our rather unique franchise and business platform.

Thank you for your trust and support. Happy New Year. Stay tuned and we look forward to an exciting 2011. Now I am going to turn the call over to Bert Baker.

Thank you, George, and good morning. The total consolidated non-performing assets as of December 31 were $92.8 million compared to $102.9 million year-end 2009, which, as George mentioned, is a decrease of $10.1 million or 9.8%. The ratio of total non-performing assets to total assets decreased to 5.95% at December 31, 2010, from 6.47% year-end 2009.

At December 31, 2010, our total non-performing assets consisted of $50.985 million in non-accrual loans, $20.198 million in non-accrual TDRs, $1.314 million in accruing TDRs, $334,000 in over 90 days, and $19.956 million in ORE.

Let me give you a flavor now of just kind of the breakdown between Texas and California. For MetroBank, our non-accrual loans were $43.468 million, accruing over 90 $334,000, our non-accrual TDRs were $11.752 million, our accruing TDRs were $1.018 million, and ORE in MetroBank in Texas was $17.915 million for a total of $74.487 million.

The breakdown between for Metro United Bank in California -- non-accrual lessons were $7.517 million, non-accruing TDRs were $8.446 million, accruing TDRs were $296,000, and ORE was $2.041 million for a total non-performing in Metro United of $18.3 million.

On a linked quarter basis, our total non-performing assets increased by $7.2 million of which $5.4 million was in Texas and $1.8 million in California. The increase in non-performing assets in Texas consists primarily of net increases of $2.2 million in non-accrual loans, $334,000 in over 90 days accruing, and $3.6 million ORE, which was partially offset by a decrease of $704,000 in non-accruing TDRs.

The net increase in non-performing assets in California consists primarily of a net increase of $4.3 million in non-accruing TDRs partially offset by a net decrease of $2.7 million in non-accrual loans.

On a linked quarter basis, our ORE increased by approximately $3.8 million compared with September 30, 2010, and it was comprised of additions of $3.6 million in Texas and $192,000 in California. The increase in Texas was the result of the addition of $7 million in three commercial properties and one land parcel. These all moved to ORE from non-accrual and these were partially offset by the sale of $2.7 million for three commercial tracks and one townhome.

And in addition, $711,000 in write-downs. Please note that these write-downs were taken based on four sales contracts for which three have already closed and booked during January 2011. The increase in California ORE resulted from the addition of a commercial land tract for $672,000, which was partially offset by the sale of a residential lot track for $375,000 and a write-down of $105,000.

As George mentioned previously on a very positive note, in January of 2011, subsequent to December 31, NPAs have been reduced by $11.3 million consisting of $8.4 million in Texas and $2.9 million in California. The reductions include the sale of three properties in Texas, which we previously mentioned, and the sale and/or refinancing of four loans.

Based on these reductions, which have already occurred, the total NPAs dropped to around $81.7 million and the total NPAs to total assets is 5.2% versus 5.95% at year-end. Total non-performing loans -- non-performing loans to total loans decreased from 6.36% to 5.78% based on these reductions.

At December 31, 2010, the allowance for loan losses was $33.7 million or 2.95% of total loans, which as a percent of loans was unchanged versus the previous quarter. Please note that at year-end 2009 the allowance for loan losses was $29.4 million or 2.31% of total loans.

The provision for loan losses for the three months ended December 31, 2010, was $2.6 million, which is a decrease of $10.4 million compared with the $13 million for the same period in 2009. The provision for loan losses for the year ended December 31, 2010, was $17.6 million which was a decrease of $8.1 million compared with $25.7 million for the same period in 2010 -- 2009.

On a linked quarter basis, the provision of loan losses in the fourth quarter of December 2010 decreased $2.1 million compared to $2.6 million, with $4.7 million for the third quarter of 2010 primarily as a result of lower charge-offs.

I am not going to go through -- George has already gone through the net charge-offs, so I just want to say in conclusion that our overriding objective and strategy remain very simple -- significantly improving our asset quality by reducing NPAs. While we did see an increase in our NPAs in the fourth quarter of 2010, the first month of 2011 shows a positive trend. During January, 10 NPA relationships were either exited and/or reduced.

Obviously, the community markets that we operate in remain challenging, but there are signs of stabilization and in some metrics even improvement. We continue, though, to proactively and relentlessly monitor our CRA exposure, including retail, hotel, and land exposure.

In both Texas and California we hold weekly senior management meetings where we review the status of all problem loans and follow up on individual action plans. Our ORE is tracked and reviewed on a weekly basis. We continue to stress test segments of our portfolio and use the results as part of our loan policy.

We are also pursuing further diversification of our loan portfolio with a focus on C&I. During 2010, we reorganized the C&I underwriting and monitoring team and hired a very experienced senior credit officer to manage these efforts.

In conclusion, and in addition to just focusing on the numbers and percentages, the feeling is both the external environment and our internal machine are trending positively. But, there remain persistent challenges over the next several quarters and we remain very vigilant and focused. Thank you very much.

Okay, we are now ready for questions.

(Operator Instructions) Brian Klock, KBW.

Good morning, gentleman. Actually a nice quarter with -- the margin expansion was nice and obviously with some of the NPA in flows for the quarter you did clean some of that up in January. So actually I was trying to write as fast as I can so I am going to ask you -- maybe you can repeat some of the comments you made earlier about the 30 to 89 days past due, the numbers you gave for fourth quarter versus third quarter?

Right. Well, the 30 days and over past due at the end of the second quarter was $41 million or 3.35% of total loans as compared to $17.6 million or 1.56% of total loans. That is the reduction of $23 million.

Right, okay, okay. Bert, on the $11.3 million of NPAs that were settled in January, you mentioned that there was three properties in Texas. Was that the $7 million that went into ORE during the fourth quarter that you sold in January, is that what happened?

Part of that. We had -- ORE reductions actually were [4.596], okay? And those were three properties that -- one of which went in in the fourth quarter and we already sold it in January. That was, by far, the larger percentage of that.

Okay. So out of the $11.3 million, was it only the $4.6 million was ORE, the rest was in NPL? Is there anything in accruing?

That is right.

Okay. Anything that was accruing TDRs or was that all just [non-accrual]?

Non-performing.

Okay. And I guess was there any loss or did you sell that at that marked down book value? So the $11.3 million was that what the proceeds were that you got?

Yes, we took $711,000 in write-downs in the fourth quarter and that includes the losses that we anticipate for all these based on the sales contracts that we had at the time.

Got you, okay. I think overall, George, maybe a question for you is it seems like the non-performers seem to be getting to a point where the early-stage delinquencies are coming down and you are working out some of those credits. Margin is getting stronger. So again, maybe you can talk about -- and Bert commented about kind of gearing up and reorganizing on the C&I side.

Maybe you can talk about two things. One, what does the pipeline look like for loan growth in Houston and Dallas. And then, secondly, maybe the talk about TARP and with this SBLF what your options are around that.

Well, thank you. First thing, as I was listening to Bert, I also wanted to say that the hospitality industry, one of the major piece of increase in NPA was a hotel up in Dallas. But lately, with the Super Bowl coming up next week and the Final Four in Houston and so forth, that -- those are external environment, they come into play as well. So we certainly hope that the environment will be giving us a boost in that regard, so we are grateful for that.

As to your question about -- we look at it in a holistic way. Loan concentration, certainly we have no room to grow CRE land construction loans. So during 2010, while we were busy in dealing with the special asset areas and dealing with how we can reduce those concentrations as fast as we could, we have also put in place to beef up our trade finance, international area, and C&I.

The new Chief Lending Officer has set up three or four training sessions with internal expertise as well as external to retrain, if you will, our mindset to be going after more aggressively and proactively the C&I and trade finance type of loans. That will probably take a little time to gain additional traction.

But the position we are in, especially in Houston is that we believe that we have one of the strongest international departments in dealing with [debt and] credit and other trade finance type of services. So we see that as expanding into a new area with existing expertise plus this new person that has joined us almost a year ago. We have rewritten our policies -- we have rewritten our monetary process and so forth, so we feel very confident that we will be able to get into the market pretty smoothly.

The third part of your question was the TARP question, the popular TARP question, what are we going to be doing with SBLF. We are in the position to qualify for that, but because of the consent order with the California Metro United Bank there are some unclear regulations with that. So we are working closely with a very experienced law firm out in Washington DC to help us clarify that. That is definitely a strategy we are going to pursue.

And as far as growing the small business loans, we basically are in the business of writing small business loans so we don't see that as part of our challenge. So if we are able to qualify and get SBLF, I think we will be in a much, much stronger position.

I think it sounds like a good option. Thanks for taking my questions. Good quarter, guys.

Jordan Hymowitz, Philadelphia Financial.

Hey, guys. I always like having [Bain] get the first question, or Brian rather. So you said you sold $11 million in the month of January. Did anything else come on non-accrual or if you reported January financials today would your non-performing assets to assets be 5.2%?

That is a number that is based on the reduction and it doesn't really -- absolutely reflect what that number is. We are just reporting what we have seen in reductions. Until we have everything finalized and everything, we will not be able to say that that is the reduction number.

But so far, we have not seen any kind of major increases in here. There may be some minor, small numbers here and there, but, by and large, that is the number that we are looking at. In fact, actually yesterday we just closed another two properties of about $0.5 million that was not included in the $11.3 million. And then we have another contract for another piece of that is going out in February of about $800,000 or so.

So there are these pieces moving out, but exactly --and so what Bert has given you on the number of $5.2 million, that is just on a pro forma basis. It doesn't really mean that it is the number for as of January.

But it sounds like nothing else meaningfully came in. I mean maybe some small, but it's close. Would that be fair?

Yes, yes.

Okay. Second question, I am sure you have seen SPIV taken out or Danbury in Connecticut and I am just doing the numbers of SPIV on you guys and tangible book would be north of $20, [stand] book would be north of $15, core deposit premium would be $16, PE would be somewhere between $15 and $30 depending on what year. And my question is if someone were to approach you with those type of numbers, would you be interested in at least having a conversation?

Jordan, I would be very disappointed if you did not ask that question. I would think that you have missed something.

Certainly with the change of landscape in Texas, I think by far Texas is probably had, on the positive side, made itself known to be one of the best banking expansion markets. So we are excited about that. And with ICBC, with the Bank of East Asia, even though it's only $130 million deal, it is an indication of the direction that the US and China banking relationship may take.

So we have not really come down to putting a pencil to what would be the multiples and this and that, but like all the banks -- even Wells Fargo and large banks, small banks -- I think there is always an open mind to things.

And question, do you know what multiple or were there financials of the Bank of East Asia on what was taken out as a multiple of earnings or book or anything? Because I haven't been able to --.

No, we don't because that is a very small part of the Hong Kong bank.

All right, thank you.

(Operator Instructions) Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. George Lee for any closing comments.

Well, thank you for joining us and we will be talking to you in another three months. Have a nice day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.