East West Bancorp Inc (EWBC) 2011 Q2 法說會逐字稿

Greetings and welcome to the MetroCorp Bancshares 2011 second-quarter earnings release conference call. At this time, all participants are on 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 the 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 risk and uncertainties.

Factors that can cause actual results to differ materially from anticipated or projected results and described under the risk factors in our 2010 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, George M. Lee, CEO for MetroCorp Bancshares.

Thank you for joining us for MetroCorp Bancshares' second quarter 2011 earnings conference call. With me today are my colleagues, Bert Baker, Chief Credit Officer, and David Choi, Chief Financial Officer.

Our second quarter 2011 performance is tracking nicely with Management's expectations, delivering another quarter of consecutive improvements in earnings, credit quality and capital ratios. Net income of $2.4 million was about 14% higher than the $2.1 million on the linked-quarter basis between second and first quarter of this year, demonstrating 4 consecutive quarters of meaningful earnings since the second quarter last year.

It was also encouraging to see that both MetroBank in Texas and Metro United Bank in California have contributed accordingly.

Total NPA was improved overall, with Texas leading the way. Total NPA for MetroBank decreased by $13 million between year-end 2010 and first quarter 2011, and then $7 million between the first quarter and second quarter of this year. Management will certainly strive to continue the encouraging trend going forward.

At Metro United Bank, total NPA increased by $3.5 million between the fourth quarter 2010 and first quarter 2011, and $1.2 million increase between first quarter and second quarter 2011. But we have reasons to believe, based upon our special asset workout pipeline, that the trend would reverse itself starting in the third quarter.

Capital ratios improved on a linked-quarter basis between the first and second quarter of 2011. Total risk-based capital improved from 16.1% to 16.7%. Tier 1 capital ratio fell 14.8% to 15.5%, and leverage ratio from 11.4% to 11.8%.

Liquidity ratio of 23.7% at the end of the second quarter was also slightly up from 23.5% for the first quarter this year. Loan loss provisions, net interest margin, charge-offs and other performance metrics also remained stable.

We had said during our earnings conference call last quarter that 2011 would be a launching year, preparing the Company for the next phase of growth. Our performance during the first 2 quarters of the year further solidified the foundation of the launching platform. As we move forward, we will continue to maintain our stringent controls over credit underwriting, operating expenses and net interest margin, while also navigating the shift to a [mold] of loan and asset growth.

During the first half of this year, our marketing and lending officers have started to reassert their effort to cultivate and build their loan portfolios. We are beginning to see an increase of quality loans in our pipeline, going through our stringent credit underwriting process, and do believe that our loan volume will begin to stabilize and turn the corner.

After 2 years of retrenchment and market stagnancy, this will be a rebuilding process, especially in view of the weak signs of the general economic recovery. [Loan] production progress starting in the second half may be modest, but with the objective of building momentum going into more meaningful growth in 2012.

Results for the first half of 2011 have measured up to our plans and we will continue to strive for even stronger results for the second half. At this time, I would like to ask Bert Baker to provide you with an update on our asset quality status.

Thank you, George, and good afternoon. Total consolidated nonperforming assets as of June 30, 2011 were $77.2 million compared to $82.9 million in March and $92.8 million as of December 2010, and $102.9 million as of December 31, 2009.

As George mentioned, this is a further decrease of $5.7 million, or 6.8% reduction in NPA, after we had a decrease of $9.9 million in the first quarter of 2011. Our total decrease year to date is $15.5 million.

The ratio of nonperforming assets to total assets decreased to 5.18% as of June 30, 2011 versus 5.4% at March 31, 2011 and 5.95% December 31, 2010 and 6.47% as of December 31, 2009. At June 30, 2011, our total nonperforming assets consisted of $43 million in nonaccrual loans, $18 million in nonaccrual TDRs, $132,000 in accruing TDRs, $121,000 in accruing over 90 days and $15.8 million in ORE.

Next, to give you a flavor of the breakdown in the nonperformers between Texas and California. On our nonaccrual loans, Texas $25.9 million, Metro United $17.1 million, for a total of $43 million. Accruing over 90, $121,000 here in Texas.

For our nonaccrual TDRs, $13.9 million in Texas, $4.2 million in Metro United for a total of $18.1 million. TDR accruing, $132,000 here in Texas. And then ORE, we have $14 million in Texas, $1.7 million in Metro United for a total of $15.8 million, which gives us the total nonperformers as of the quarter end of $77.2 million.

On a linked-quarter basis, the nonperformers decreased by $5.7 million here driven by $6.9 million reduction in Texas. As George mentioned, we had a $1.2 million increase in California. The decrease in Texas consisted of nonaccrual loans were -- of $12.9 million, were offset by $6.1 million in nonaccrual TDRs, and $219,000 reduction in our ORE.

In Texas, the nonaccrual loans decreased primarily due to the payoff of a $1.4 million land loan and the movement of 2 other loans totaling $3.4 million into our ORE. We had another nonaccrual loan of $7.9 million, which moved into nonaccrual TDR status. We also charged off $2.5 million during the quarter on 5 loans.

Our Texas ORE was impacted by the sale of a retail center for $2.9 million, and 2 townhomes totaling $429,000. Please note that these are the last 2 townhomes that the bank held in ORE under development that initially contained 19 units. And then as noted, we moved 2 other loans totaling $3.4 million into ORE and this gave us a net reduction in the quarter of ORE of $219,000.

The $1.2 million NPA increase in California was driven by 2 loans that totaled $2.2 million going to nonaccrual TDR, whereas we also had a decrease in ORE for $496,000 due to the sale of a commercial property in Fresno, California.

Regarding our provision, at June 30, 2011, the allowance for loan losses was $30.393 million, or 2.85% of total loans. And this is versus $33.7 million, or 2.95% of loans at year end 2010. The year end 2009 allowance for loan losses was $29.4 million, or 2.31% of total loans.

The provision for the loan losses for the 3 months ended June 30 was $1.2 million versus $2.4 million during the same period in 2010. The provision for loan losses for the first 6 months was $1.6 million versus $10.3 million in 2010, whereas we've had a decrease of $8.7 million over the 6 months versus last year.

The decrease in the provisioning for the 3- and 6-months ending June 30, 2011 is due to an improvement in our asset quality as well as lower loan outstandings versus the same period in 2010. On a linked-quarter basis, the provision for loan losses in the second quarter of 2011 increased by $915,000 to $1.2 million, primarily as a result of charge-offs I discussed previously.

Net charge-offs for the 3 months ending June 30 were $2.7 million, or 0.26% total loans, compared with $1.2 million, or 0.09% of total loans for the same period in 2010. Kind of a break down in the charge-offs, net charge-offs in Texas consisted of $2.3 million and $396,000 in loans from California. The net charge-offs for the first 6 months totaled $4.9 million, which is comprised of $2.9 million from Texas and $2.2 million for California.

The second quarter 2011 showed another quarter of steady progress in our NPA reduction for MCBI. Our overriding objective and focus continues to be in the proactive but prudent reduction of NPAs and criticized assets. This entails dealing with and consistently monitoring for potential credit issues in the loan portfolio.

One of the methods we use, for example, to review particular segments of our portfolio on an ongoing basis is stress testing. In Texas, we have an objective of stress testing a minimum of 70% of our CRE portfolio on an annual basis.

The stress test allows us to not only analyze the impact of certain factors on certain segments of the portfolio, such as hotel and retail, but also to review individual credits and how they may react as well under the stress conditions. The insight from the stress test is useful in helping to review our concentration limits, and adjust accordingly, and the results are also incorporated into our credit policy.

We also continue to aggressively sell and manage our ORE. There's a weekly Senior Management meeting where our ORE sales results are tracked and marketing progress is monitored. In Texas and California, $3.9 million of ORE was sold during last quarter. We also continuously evaluate asset values and take the charge-offs and write-downs as appropriate.

It probably goes without saying, but the pulse of recovery in both Texas and California remain sporadic. The markets seem to have stabilized and there's signs of an increase in economic activity, but not near to the degree we would wish for at this point. Please note that our attention to asset quality is also a cornerstone of our approach to new business.

Our lenders are aggressively working to retain our top quality relationships while also selectively marketing to top tier prospects. Thank you very much.

We'll now open for questions.

(Operator Instructions) Brian Klock.

Good quarter. I think, Bert, you gave me a lot of color on the asset quality trends. So I guess maybe, George or Bert, maybe you can talk about you guys continue to work the NPLs down nicely, so it is bringing down and derisking the balance sheet, and George, you talked about being focused on growing loans.

If maybe you could talk about the outlook for the second half of the year and what kind of a pipeline you can see building within the C&I portfolio, your core small business C&I loan portfolio?

Well, I know one thing, Brian, as you know, building the C&I pipeline takes a bit longer, but we basically since the beginning of this year has changed our course a bit. Like last year, where we were hardly looking at adding new loans into credit underwriting; basically everybody was focused on the reduction of asset quality and so forth.

So we're seeing that the pipeline being replenished and so we're going through a number of I would say meaningful loans that we hope that we can put in place during the third quarter, and if not, the fourth quarter. I think that, and I -- certainly we will strive to make this happen and so I would wait till the next call to report the good news, if you will, with the effort of Tariq and Bert, I think the probability of that happening is quite good. As well as in California, I think we're making progress.

I think overall we're expecting, or at least I'm expecting, some more runoff in nonperformings which may actually mean your overall loan portfolio might be shrinking still, but your profitability is improving. You guys actually increased your pretax, preprovision earnings in the quarter nicely. So I guess for me, keep doing what you're doing, keep the loan portfolio, derisking it as much as you are and keep the profitability levels up.

I would just ask maybe David you can -- within the other noninterest expense, there was a pretty meaningful drop from the first quarter. Is there anything seasonal in there, or do we think that we could see a little bit of a drift back up in the third quarter? I think it was $2 million, just a little over $2 million in the second quarter.

On the noninterest income, there is not much going on over there. There was a little bit of some -- I believe that there were some gains in the last quarter,(inaudible), but there is not any here in this quarter. So the noninterest income is pretty much stay where it is right now.

Right, so I guess on the expense side, the FDIC assessment was about $523,000 this quarter and $1.5 million or $1.6 million was in the other. Is there anything to think about within the other noninterest expense that there was some seasonal adjustments in there and it could maybe come back to the $2 million run rate next quarter or--?

On the noninterest expense side, we do have a reduction on unfunded commitments for this quarter. There's about $0.5 million. So that one is kind of a one-off adjustment for this quarter. The rest of that is primarily a reduction in FDIC assessment and also salaries and -- which is a result of lower head count and so forth.

And actually, speaking of salaries and benefits, do you have your FDA head count at the end of the period?

I think it's 283.

That is a reduction of -- between the 2 Companies, a reduction of 3 people, 3 FTEs.

I think what was positive is you continue to make your positive traction here on reducing your nonperformers and the pre pre is increasing. Maybe just last question for me on the margin side, a little bit of a compression there, but I guess maybe you can look out for the second half of the year. Do you think it's still 3.76%, is a pretty solid margin, do you think that stays above 3.70% into the second half of the year?

I think that it is going to be stable, but with the environment in here, I think that with the runoff on some of (inaudible) we will see a little bit of compression from the top, but probably maybe in the 5, 10 basis point range.

(Operator Instructions) At this time, we seem to have no further questions. I'd like to turn the floor back over to Management.

Well, thank you for joining us on a Friday afternoon, and we look forward to speaking to you, reporting back to you in a few months. Have a nice weekend. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.