East West Bancorp, Inc. (EWBC)
Q3 2009 Earnings Call
October 22, 2009 10:00 a.m. ET
Irene Oh - SVP
Dominic Ng - Chairman, President and CEO
Tom Tolda - EVP and CFO
Ken Zerbe - Morgan Stanley
Joe Morford - RBC Capital Markets
David Rochester - FBR Capital Markets
Aaron Deer - Sandler O'Neill & Partners
Lana Chan - BMO Capital Markets
Julianna Balicka - KBW
Jeannette Daroosh - JMP Securities
Joe Gladue - B. Riley & Company
Jennifer Demba - SunTrust
Previous Statements by EWBC
» East West Bancorp, Inc. Q2 2009 Earnings Call Transcript
» East West Bancorp Inc. Q1 2009 Earnings Call Transcript
» East West Bancorp, Inc. Q4 2008 Earnings Call Transcript
I would now like to turn the conference over to Irene Oh, Ms. Oh the floor is your ma’am.
Thank you. Good morning everyone and thank you for joining us to review the financial results of East West Bancorp for the third quarter of 2009. In a moment Dominic Ng our Chairman, President and Chief Executive Officer will provide highlights for the quarter. Then Tom Tolda our Executive Vice President and Chief Financial Officer will review the financials. We will then open the call to questions.
First I would like to caution participants that during the course of the conference call today management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. We wish to caution you that these forward-looking statements may differ materially from actual results due to number of risks and uncertainties.
For a more detailed description of factors that affect the company’s operating results we refer you to our filings with the Securities & Exchange Commission including our annual report on Form 10K for the year ended December 31, 2008. Today’s call is also being recorded and will be available in replay format at www.eastwestbank.com and www.streetevents.com.
I will now turn the call over to Dominic
Thank you Irene. Good morning. And thank you for joining us on today’s call. Yesterday afternoon, we reported a net loss of $68.5 million, and the loss was driven by the $159 million of provision for loan losses and a $24 million write down on our trust preferred securities.
During the quarter, we made great strides in our efforts to reduce risks in our loan portfolio. We believe we are well on our way to getting our credit issues behind us in 2009, and returning to profitability in 2010.
Now, the overall operating environment continues to remain difficult with a weak economy and unemployment rate still high. The latest figures show that unemployment in the California is still at 12.2% for September [albeit] as a slight decline from August. However for East West because of our aggressive actions throughout 2008 and 2009 to reduce credit risk and improve our capital position. We actually seen many positive signs that the majority of our credit issues are behind us.
Our strategy of managing through this credit cycle was to be aggressive from the onset taking charge off as necessary and disposing of problem loans. In many instances, we have separated the charge offs by resolving problem loans quickly and aggressively to remove additional risk today and to reduce any of the additional deterrence for future profitability.
We believe that our approach of quickly resolving problem loans today as opposed to waiting for the market to improve and slowly work out these problems has proven to be a success.
Our strategy for reducing credit risks includes various actions. These actions include selling loans that are actually performing and current which we believe to have inherent risks. The $180 million in loans sold during the quarter includes sales of such performing current loans. Also of the $204 million in non-accrued loans as of September 30, $66 million or 32% are actually under 90 day delinquent. But in fact of the $66 million, $26 million or 40% are not even delinquent, and are actually current and paying as agreed.
We are committed to proactively recognizing problem credits, our dedicated focus remains on taking action to get our credit issues behind us in 2009. One of those primary reasons we believe that our credit issues peaked in the third quarter is that we were able to dramatically reduce our exposure to land and construction loans.
Over the last 21 months since the start of 2008, we have reduced exposure to land and construction by 2 billion. Quarter-over-quarter, we have reduced exposure to land and construction loans by 25% or $355 million. We sold $206 million as loans and REO during the quarter at about a 29% discount to carrying value largely in land and construction loans.
Loan delinquency remains low with 30 to 89 days delinquent loans comprised only 1% of total loans. And total non-performing assets are also low at about 1.84% of total assets. I believe that of the banks that have issued third quarter earnings so far our credit metrics are now set. Many of our peers have low exposure to problem asset classes at the onset of the downturn today. The same peers have higher exposure to come asset class, higher delinquencies and higher nonaccrual loans that need (Inaudible).
One interesting fact is that after our acquisition of Desert Community Bank in May 2007 our construction exposures at that time were highest among our Chinese American peers. Now we are lowest in our construction exposure and also lowest in delinquency and Naps and nonaccrual. So we feel pretty confident at this stage right now, our credit exposure is substantially better shape than our peers.
Additionally, allowances for loan losses coverage remains high at 2.74% of total loan. As of September 30, 2009 the allowance for loan losses is over 100% of both delinquency and nonaccrual. Based on [these sales] we have seen in early parts of the fourth quarter we expect that land and construction loan balance will continue to increase in the fourth quarter of 2009.