East West Bancorp Management Discusses Q2 2012 Results - Earnings Call Transcript

East West Bancorp (EWBC)

Q2 2012 Earnings Call

July 19, 2012 11:30 am ET

Executives

Kelly Adams

Dominic Ng - Chairman, Chief Executive Officer, Member of Executive Committee, Chairman of East West Bank and Chief Executive Officer of East West Bank

Julia S. Gouw - Vice Chairman, President, Chief Operating Officer, Member of Executive Committee, Vice Chairman of East West Bank, President of East West Bank and Chief Operating Officer of East West Bank

Irene H. Oh - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Chief Financial Officer of the Bank and Executive Vice President of the Bank

Analysts

David Rochester - Deutsche Bank AG, Research Division

Joe Morford - RBC Capital Markets, LLC, Research Division

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

Lana Chan - BMO Capital Markets U.S.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Herman Chan - Wells Fargo Securities, LLC, Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Presentation

Operator

Good morning, and welcome to the East West Bancorp Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kelly Adams, Senior Vice President. Please go ahead.

Kelly Adams

Thank you. Good morning, and thank you for joining us to review the financial results of East West Bancorp for the second quarter of 2012. Here to review the results are Dominic Ng, Chairman and Chief Executive Officer; Julia Gouw, President and Chief Operating Officer; and Irene Oh, Executive Vice President and Chief Financial Officer. We will then open the call to questions.

Second, we would like to caution you that during the course of the call, 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.

These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company’s operating results, please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2011.

Today's call is also being recorded and will be available in replay format at eastwestbank.com and streetevents.com. I will now turn the call over to Dominic.

Dominic Ng

Thank you, Kelly. Good morning, and thank you for joining our earnings call. Yesterday afternoon, we were pleased to report financial results for the second quarter of 2012.

East West reported strong earnings of $70.6 million or $0.47 per diluted share for the second quarter of 2012. We increased second quarter net income by $10 million or 17% and increased earnings per diluted share by $0.08 or 21% from the prior year period. As compared to the prior quarter, East West grew earnings by $2.5 million or 4% and increased earnings per share by $0.02 and also 4%.

Once again, East West demonstrated strong operating performance. Our second quarter net income of $70.6 million was the highest in the last 10 quarters, resulting in a solid return of assets of 1.3% and return of average common equity of 12.5% for the quarter.

We grew our noncovered loans, excluding loan held for sale, by $296.8 million or 3% quarter-to-date. This increase in our noncovered loan portfolio was primarily attributable to growth in our commercial and trade finance loans, which grew $180 million or 6% to $3.4 billion as of June 30, 2012. This growth in commercial and trade finance loans is the continuation of strong momentum from the first quarter of 2012. Year-to-date, we have grown our noncovered commercial and trade finance loans by $276.2 million or 9%.

During the second quarter and first half of 2012, East West continues to experience strong momentum in winning new customers and retaining existing customers who need our expertise, services and operating platform between the United States and Greater China.

As a financial institution solely focused on the U.S. and Greater China market, we believe we have an inherent competitive advantage over our peers in this arena. Our strong growth in noncovered commercial and trade finance loans in the second quarter and over the last several quarters is reflective of this advantage over our peers.

Also, at East West, we understand that strong operating performance for financial institution does not solely depend on growing the balance sheet and winning new customers but also balancing growth with prudent credit underwriting, interest rate risk management and expense control. We strive to be a top performing bank quarter-after-quarter, year-after-year and know that to do so, an ongoing focus on risk management and the health of the entire balance sheet is absolutely necessary.

We believe that during the second quarter and first half of 2012, we made strong progress on all of these fronts, and we continue to demonstrate our ability to perform well despite the challenging operating environment.

In the second quarter, our efficiency ratio improved to 43%, while the cost of funds and deposits, credit costs and noninterest expense were all down compared to the prior quarter and the prior year period.

As in the past, in our earnings release, we've provided guidance for the third quarter of 2012 and the full year of 2012. We currently estimate that fully diluted earnings per share for the full year of 2012 will range from $1.84 to $1.86 or an increase of 15% to 16% from the full year of 2011.

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