PASADENA,Calif. ( TheStreet) -- California-based East West Bancorp ( EWBC) is plunging 10.5% to $15.86 on Wednesday afternoon, despite beating consensus estimates by 3 cents. The bank projected higher-than-expected non-interest expenses in the the third quarter,clouding visibility for profitability in the upcoming quarters. East West reported a net income of $36.3 million or 21 cents a share, compared to a loss of $92.1 million in the year-ago quarter. Analysts were expecting 18 cents a share. The results included a pre-tax gain of $19.5 million in relation to the FDIC-assisted acquisition of Seattle-based Washington First International Bank (WFIB) in June. East West acquired total assets of $492.6 million, including $313.9 million of loans (net of purchase accounting adjustments) and assumed $395.9 million in deposits. The acquisition was the second FDIC-assisted deal the bank participated in. Brett Rabatin of Sterne Agee said that there were many positives in the bank's second quarter results."It was one of the very few banks that grew their C&I
commercial and industrial loan portfolio; 99% of the banks are seeing a shrinkage." However, the bank projected a non-interest expense, net of FDIC reimbursable items, of $105 million for the third quarter, up from $96.6 million in the June quarter. That confused analysts who were expecting efficiencies from the United Commercial Bank acquisition. "If you are getting efficiencies out of the UCB acquisition, why are expenses going higher?" asked Rabatin. But little clarity seemed to emerge from the conference call this morning, which has dimmed visibility on future profitability, according to the analyst. He suspects that there are still costs associated with the integration of the acquired banks that will need to be incurred. Rabatin, who has a buy rating on the stock, has lowered his earnings estimates for 2010 and 2011 to reflect a more conservative outlook on balance sheet growth and margins. Net interest income before provision of losses rose 130 % to $203.62 million in June 2010 quarter from $88.2 million in the year-ago quarter. Net interest margins improved to 3.98% from 2.98% in the second quarter of 2009, as the bank secured funding at lower costs. It grew core deposits by 5% or $359.9 million during the quarter, excluding the impact of WFIB acquisition. Meanwhile, the cost of deposits declined 67 basis points year-on-year to 0.8%.
Credit quality also showed significant improvement, with provision for loan losses declining 64% to $55.3 million from $151.4 million in June 2009. Net charge-offs declined 59% to $55.2 million. Non -performing assets as a percentage of total assets declined to 0.9% from 1.5%. "It would have been nice if non performing assets ratio had been lower than Q1. It increased from the first quarter," said Rabatin. Management expects that the provision for loan losses and net charge-offs will continue to decrease for the second half of 2010 and range from $35 million to $40 million for the third quarter of 2010. But outlook for loan growth remains weak, with the management expecting third quarter balance sheet growth to remain flat. During the quarter, growth in commercial and single-family loans was offset by the decline in consumer and construction loans. The company expects earnings for the third quarter to range between 19 cents and 22 cents. -- Reported by Shanthi Venkataraman in New York. Follow TheStreet.com on Twitter and become a fan on Facebook.