East West Bancorp Inc (EWBC) 2011 Q1 法說會逐字稿

Greetings and welcome to the Metrocorp Bancshares Inc. 2011 first-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 describes the Company's future plans, projects, strategies and expectations are based on assumptions that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from anticipated or projected results are described under the Risk Factors in our 2010 Annual Report on 8-K and 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.

Thank you for joining us for [Metro Bancorp]'s first-quarter 2011 earnings conference call. With me today are my colleagues, Bert Baker, Chief Credit Officer and David Choi, Chief Financial Officer.

Well, our first-quarter 2011 performance might just be slightly better than average. But to be able to time our earnings conference call with the killing of bin Laden has to be impressive. That, very few companies in the world can top. Hopefully as the Chinese would say the strong headwind we have been facing has now turned into a tailwind to prepare us ahead.

We are pleased with our first-quarter 2011 performance. It was nice to be able to deliver consecutive improvements in earnings, credit quality and capital over linked quarters. The Company was able to wrap up 2010 with a solid fourth quarter, and now, starting the new fiscal year with another set of encouraging data points, reconfirming management's confidence that our operating platform, credit management and controls, special asset work-out process along with management's commitment to discipline execution is paying dividends and gaining momentum.

Net income of $2.1 million was about 23% higher than the $1.7 million delivered for the fourth quarter of 2010. On an annualized basis the Company's return on average assets improved from 0.44% at the end of the fourth-quarter 2010 to 0.56% at the end of first-quarter 2011.

We certainly will continue to strive for similar or better earnings going forward.

Total nonperforming assets was meaningfully improved between the linked quarters. Dollarwise, it was reduced by about $10 million overall from $92.8 million at the end of fourth quarter 2010 to $82.9 million at the end of first-quarter 2011.

We are especially pleased to see the strength of our Texas market recovery. NPA reduction for MetroBank in Texas was $13.3 million but partially offset by an increase of $3.5 million in NPA increase from Metro United Bank in California. In spite of this, in California's NPA during the first quarter, we're still confident that improvements in the last few quarters will more than offset the uptick.

Capital ratios continue to improve on a linked quarter basis between fourth-quarter 2010 and first-quarter 2011.

Total risk-based capital ratio increased from 15.13% to 16.11%, almost 1 full percentage point. Tier 1 risk-basked capital ratio increased from 13.8% to 14.84%, more than 1 percentage point. Leverage ratio from 10.75% to 11.39% and tangible common increased from 6.22% to 6.41%.

Further loss decreased by 4.2% between fourth-quarter 2010 and first-quarter 2011, and on an annualized basis total loans decreased by 13% from first-quarter 2010 to first-quarter 2011. Correspondingly, total loan to total deposit ratio was 86.2% at the end of first quarter of 2011 as compared to 88.4% at the end of fourth-quarter 2010 and 92.3% at the end of first quarter in 2010.

During the first-quarter 2010 earnings call, I had reported to you that we regard 2010 as a turnaround year. Subsequently, we had delivered a slightly profitable second quarter followed by consecutive strong performances in third and fourth quarter that year.

Today at this first-quarter 2011 earnings call, I would like to describe 2011 as a launching year. Starting off with a solid first quarter, we are prepared to use 2011 as a platform to launch the Company into a new phase of growth and prosperity. A lot of major overhaul fine-tunings were needed for wrestling through the day-to-day challenges brought about by the macroenvironment.

The most important one work was done when we made crucial changes to our lending and credit leaderships. Improvements with lending and credit operations, monetary and controls were also made as well as additional ongoing trainings were also put in place. With progressive progress being made in earnings, credit quality and capital, we now have the luxury of developing a well-balanced strategy to rekindle our loan growth with long concentration and regulatory constraints factored into our execution model.

The execution and implementation has started during the current quarter. We certainly hope that during the second half of this year we can see some concrete, steady but clear evidence. I believe that [MacroCorp], MetroCorp has emerged from the economic storm a stronger organization; and myself and the leadership team are rejuvenated and excited, totally committed to our strategic business plan going forward.

With this, I would like to turn the call over to Bert Baker who will provide you with additional color regarding our credit metrics.

Thank you, George, and good morning. Total consolidated nonperforming assets at March 31, 2011 were $82.9 million compared to the $92.8 million at year-end 2010 and $102.9 million at year-end 2009. This is a decrease of $9.9 million in the first quarter of this year which is a 10.6% reduction NPA. The ratio of nonperforming assets to total assets decreased to 5.4% at March 31, down from 5.95% at December 31, 2010 and 6.47% at December 31, 2009.

Okay. As of March 31, 2011, our total NPAs consisted of $50,084,000 in nonaccrual loans, $16.2 million in nonaccrual TDRs, $133,000 in accrued TDRs and $16.5 million in ORE. To give you some flavor of kind of a breakdown in these metrics between Texas and California, MetroBank in Texas had nonaccrual loans of $38.8 million, nonaccrual TDRs of $7.8 million, accruing TDRs of $133,000, total ORE of $14.3 million for total NPAs in MetroBank for Texas of $61.1 million.

Metro United Bank in California, nonaccrual loans were $11.2 million. Nonaccrual TDRs were $8.4 million and ORE was $2.2 million, resulting in total nonperformers of $21.8 million for Metro United Bank as of the quarter end. On a linked-quarter basis, total nonperforming assets decreased by $9.9 million, driven by a $13.4 million reduction in Texas offset by a $3.5 million increase in California.

The decrease in Texas consisted of reductions in the following categories. $4.6 million in nonaccrual loans, $3.9 million in nonaccrual TDRs, a reduction of $3.6 million in ORE, $885,000 in accrual TDRs and there were no over 90 days which is a reduction of $334,000. In Texas, the nonaccrual loans decreased primarily due to payoffs and the sale of loans, which totaled $6.4 million. We had $2.7 million in nonaccrual loans which were transferred over the quarter to ORE and we also had $1.1 million in charge-offs, mainly with two relationships. These were partially offset by $5.3 million in addition during the quarter to nonaccrual loans.

The NPA increase in California was primarily driven by an increase of $3.7 million in nonaccrual loans and a slight increase of $175,000 in ROE and these were offset by a $300,000 reduction in our TDRs accruals. The increase in California nonaccrual loans is primarily due to two relationships. For one of these nonaccruals, there is already a resolution plan in place which should be completed by the third quarter.

Please note that Texas also has a participation in this loan.

On a linked-quarter basis, our ORE decreased by $3.4 million, which I mentioned before, a $3.6 million reduction in Texas and a slight increase in California. The Texas reduction was a result of the sale of four commercial properties, two land parcels and one project which totaled nine town home units for a total of $9.2 million. During the quarter, there were also three retail properties that were brought into ORE and those totaled $5.7 million.

The increase in California was due to the addition of a $500,000 commercial property, which was partially offset by the sale of a land parcel for $175,000 and a write-down from two other parcels.

Our provision for loan losses, at March 31, 2011, the allowance for loan losses was $31.8 million or 2.91% of total loans; and this is versus $33.7 million or 2.95% of loans at year-end 2010. Please note the year-end 2009 allowance was $29.4 million or 2.31% of total loans. The provision for loan losses for three months ended March 31, 2011 was $330,000 versus $7.9 million for the same period in 2010. This is primarily due to the improvement in asset quality and our lower loan outstandings.

On a linked-quarter basis, the provision for loan losses in the first quarter of 2011 decreased by $2.3 million, primarily again due to asset quality improvements and lower loan levels. I also want to note during the quarter, the first quarter, that we provisioned an additional $1.1 million for unfunded commitments. Obviously this number moves around from quarter to quarter, but this is a large swing and is due to substantial paydowns on some committed lines of credit.

We do not expect such a wide variance in the future and anticipate more normal provisioning for the unfunded going forward.

Net charge-offs for the three months ending March 31, 2010 were $2.2 million or 20 basis points of total loans compared with net charge-offs of $2.6 million or 20% total loans for the same period in 2010. The breakdown of charge-offs consisted of $440,000 net charge-offs from loans from Texas and $1.7 million from California.

Please note that on a linked-quarter basis our charge-offs decreased by $1.2 million.

An overriding objective and strategy remains simple, simply improving our asset quality by reducing NPAs. The first-quarter 2011 showed good progress in NPA reduction, overall, for in MCBI. In Texas alone there were 10 nonperforming loans in ORE properties which were exited during the quarter. Partially offsetting this was a moderate uptick in NPAs in California.

There's no doubt that the economic environment remains challenging. But we're optimistic and hopeful that they will trend and NPA reduction will continue.

In order to succeed at our mission, we are aggressively attacking on many fronts. Our lenders are vigilantly monitoring the loan portfolio and proactively deal with issues as they arise. We continue to hold our weekly senior meetings in both Texas and California where we review the status of problem loans and our individual game plans for each loan.

Our ORE has also reviewed sales effort tracked with the result being steady progress in selling these properties. We also are continuously stress testing segments of our portfolio and we incorporate the results from these tests in our loan policy, as well as when we analyze our concentration analysis.

Thank you very much.

We're ready for questions.

(Operator Instructions). Brian Klock, KBW.

Actually the trends and asset quality continue to improve and thanks for a lot of good color in the release and on the call, Bert. Maybe you can -- the question for you as far as --. On the provision for unfunded commitment you said it was a $1.1 million provision in the first quarter or was an increase from the sequential quarter of $1.1 million?

We provisioned an additional $1.1 million into that this quarter.

Okay. Can you actually explain maybe why there was such an increase?

As mentioned, we had some substantial paydowns on some loans during the quarter which, of course, raised the level of unfunded commitments we had out there. One or two of these were in the watch category so that impacts the -- overall impacts the numbers higher. But we really did, it was just -- really experienced the substantial paydown. And again, I don't believe that we will have that kind of variance going forward.

Okay. What I was going, I was going to ask David Choi for why there was such a big increase in the other expenses in the first quarter versus the fourth? But I think that looks like the main driver for it.

I think so, yes.

Okay. And I guess maybe Bert, while we're still on credit, foreclosure expenses went down significantly. You had a lot of good movement out of ORE.

Right.

So maybe you can talk about our prices firming and I guess, is there any expectation that with the new items that moved into ORE I mean, I guess should we expect to see that foreclosure expense item continue to trend downward?

Well, we continued to be extremely active and proactive as we can as once we get properties in of moving these through ORE and I think we will continue that trend. The overall -- I think you are seeing some prices firming. There is some interest in foreclosure properties and we're getting interest in there. And we will just continue to focus on these.

Again, we are conservative when we take these properties into ORE, we're taking the writedowns we need to taking at that point in time to make sure that we've got the properties in their at a reasonable level. So we are hoping over time that our decent ORE expenses will continue to trend down.

That is obviously our plan. That is what we're all working towards.

What I think, Brian, it's not like all of a sudden the market has firmed up. I think it's a process of what we have been using, we've always been conservative. We pay a lot of attention to the price [soars] and so forth.

So the gap between the real market and what we can move it at is just -- continues to shrink and it can sort of make us look good at last quarter but we're starting to work a long time ago.

Okay, good, good. George, maybe just a big question picture for you and I will go back in the queue. Things are improving. Obviously, the credit quality trends are improving. If you take out this provision for [unfunded] commitments, your pretax pre-provision ROA is still solid.

So I guess thinking about for the rest of the year you talked about this being sort of a launch year for you guys. I guess maybe you could talk about your plans for, I guess, exit from the TARP. Maybe any update if you have any on the SBLF. And then, really I guess maybe thinking of when could you change from sort of defense to offense from credit quality control to maybe getting some loan growth?

Well, first of all I think it really started with the Chief Lending Officer change. Bert was the Chief Lending Officer but Bert came from Chase, sort of a different environment. He did a very, very good job and what we decided at that time is to really bring somebody on that really understands the culture of our community, the culture of our lenders and so forth.

So I think that Mohammed Tariq was just a natural. So even that piece alone, I think, would make the difference as we move forward.

As far as the loan growth is concerned, we just went through the OCC exams so we were very conservative, as we speak. We have the FDIC and California DFI exam going on in California. So basically we want to get a couple of good exams behind us.

Then I think that [enhanced] even though it's still a little tight but it's not tight as much as before. We can then execute a launch where loan growth Replenish plan. So that is the long side.

As far as TARP is concerned, we have submitted our application for SBLF at the end of March. But as you know, Congress is very busy with all of the trillions of dollars of other issues. Zero SBLF applications have been approved so we're not the only one.

So we're hoping that this would happen maybe between second or third quarters. Things will be cleared up, and then we're going to go out with a small raise of equity capital to fuel the gap and get the TARP repaid, if the terms are favorable for us in the long run. And of course if nothing is said the third quarter, the Board is going to look at other options and so perhaps at the second-quarter earnings call, we can shed some light on the TARP.

Okay, that's very helpful. Thank you.

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

Thank you very much. Look forward to talking with you again in a few months and have a nice, nice week. Thank you.

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