- Earnings call transcript Q3 2022

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Operator

Good day, and welcome to the East West Bancorp Third Quarter 2022 Earnings Call. All participants will be in a listen -only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Julianna Balicka, Director of Investor Relations. ahead. go Please

Julianna Balicka

Irene Good available East Betsy. with thank everyone, Relations recorded Officer; you, Ng, This Financial Thank is website. replay call Bancorp's morning, on Third joining being and Executive Chief West Chairman will Call our Quarter for Chief our Officer. be you, and and and Oh, for XXXX Dominic Investor Earnings our

may deck make remarks, results and of or from Relations Irene that slide is measures. management and Dominic a Investor materially available and discuss their risks statements, During site. due forward-looking non-GAAP reference Management projections other differ number which financial our on will uncertainties, may to may a actual the

of filings call non-GAAP to Dominic. filed GAAP please refer For Form the including now with measures, turn to the over risk more a description reconciliation of financial our detailed and I will X-K the the to Exchange Securities today. Commission, a factors and

Dominic Ng

joining you, the of our of Thank you, of and of three million results Slide Julianna. morning, for the with begin I for XXXX. our share Good our thank earnings $XXX financial review presentation. $X.XX morning, everyone, call. will per third earnings reported us quarter income net we and This for

annualized of efficiency and net pre-provision pretax XX% interest per income growth share quarter quarter of earnings revenue growth record included revenue million the Total third annualized. of Strong improved XXXX. of Our linked $XXX grew XXXX, for XX% income and quarter second million. linked grew annualized drove XX% quarter adjusted $XXX

be Asset low very to charge-offs. quality continued healthy with

of tangible assets, profitability XX% XX% and as navigate strong of We Quarter-over-quarter, industry-leading. are presents and of X.X% margins elevated are summary And of of positioned in uncertainty. equity With a we sheet operating for from to possible on record balance average all a impressive ratios X% importantly, capital Total June reached expanded. this $XX.X million XXXX. well continued equity average range our our ratios quarter. loans outcomes four our returns an or average Slide success capital, on all XX. a appropriately on $XXX increase September line and XX, an environment bottom grew. Our billion, returned

slowed loan XX%, loans forgiveness we in continue Year-to-date, XX%. in the are XX% PPP growth expect year will to third up loans, anticipated, of excluding loan be the quarter. to the that of full range As growth and

industrial fundamental Our as change. generate to is prudent is provides and optionality billion balanced XXXX, Total cycles and $XXX of as between and June were diversification estate, stability portfolio X% loan economic decrease million growth mortgage. strength a commercial from deposits a September well This real commercial or XX. that residential both XX, of $XX.X

deposits average quarter. quarter were unchanged the $XX.X from second billion, Third essentially

and of demand deposit well Our by deposit XX% accounts deposits book noninterest-bearing of is were type, September as XX. diversified total

Turning to five. Slide

We have high a resilient balance sheet liquidity. with strong capital and

see exhibit our on the all ratios can you expanded quarter-over-quarter. As in capital this slide,

did company's West XXXX November common East quarter. As and X.XX%. $X.XX total stock. third of common of ratio common of had XX, in stockholders of to November the dividends quarterly common the XXXX. payable record is for stock on dividend X, of XXXX We buybacks execute The on any fourth not equity XX.X% a X has XXXX, quarter of XX.X%, Directors declared tangible equity Board ratio a September capital Tier a we XX, ratio of

Moving with Slide on loan portfolio, six. a beginning discussion our to of

outstanding XX, sequentially sequentially up and loans were September X%. $XX.X XXXX, up C&I C&I of As X%, were commitments total billion, billion $XX.X

quarter-over-quarter unchanged at was rate XX%. utilization loan C&I Our

property we home will lines totaled X% lines diversified $XX Residential estate credit June Total first real asset which of and from statement. mortgages consists I geography details is provide credit sector. turn that billion XX, portfolio equity more our growing XX. by Irene industry East call our up of regarding C&I will single-family September as seven consists portfolio, eight of the loans Slide Irene? XXXX, $XX.X through and nine, I which billion highlight mortgage loans. as branches. and of of type a equity our XXXX, show September of now mortgage residential In home detailed of X% are were XX% in and originated XX, income and well discussion loans portfolio, the is real a to commercial over June our by lien West from Bank loan-to-value XX. is commercial Our position. Slides for quality of of diversified details and and well low estate primarily

Irene Oh

and XX%, Thank liquidity. unchanged. mention of loan and The upgrades continues Classified essentially asset metrics criticized decreased loans, portfolio from decreased XX. Slides start and allowance were the improved quality ratio you, on and criticized our performance of loan CRE to quality I'll financial basis Dominic. loans our Quarter-over-quarter, components points. loans in strong. hotel XX largely XX be with for of Special our losses XX%, loans, due improvements loans to largely asset

million of basis XX, assets. non-performing assets points were of XX As or September $XX

the quarter, basis or quarter. of points charge-offs basis low net loans average the booked second a net third of X X annualized with as recoveries During we of million points annualized compared $X in

or of of XX. of totaled loans September compared as allowance X.XX% X.XX% loans Our June as $XXX of million with XX

quarter, the provision and the reserve loan reflects compared we outlook, a, well million losses coverage allowance quarter credit The than weaker ago, recorded which build for quarter. $XX third third second During in current macroeconomic of quarter million largely the growth. as $XX.X quarter-over-quarter is to a as for

And will Slide our on of credit proactive affecting watchful discuss a slides. of to compared actions was income and delayed, detail discussion of lower other third income is the and the more and items anticipated statement, second $XX million which note, summarizes following amortization including million line because Certain tax of the strong I'll be in of the we slide credit the be the in the on are allowance. and credit recognition statement our in remains environment $XX amortization This million XX. customers, moving expense expect credit of the associated fourth warranted, is quarter. fourth Of timing. approximately had tax This to quarter. quarter. what expense tax key quality where we building currently now $XX the conservatively of investment investments credit our are in projects Accordingly, in and economy previously challenges taking other various the benign, we than with the current quarter amortization the While

first I'll for was expect XX%. income Year-to-date, for compared that full with was year second of We quarter million income $XX effective expense Third expense the nine-months XXXX. the quarter XXXX XXXX review currently tax of with XX%, in of average the including the balance tax drivers tax rate rate impact million XX, interest tax the XX key the of $XX sheet. the now tax effective will net our through be income of expected Slides net starting fourth approximately quarter. interest and on the investments margin credit

$XX.X quarter. compared billion quarter third up billion growth with a grew strong average categories the XX% $X.X Third The prior earning XX% made XX% assets across loans of the in assets drove quarter, loan of annualized. average average quarter-over-quarter. favorable all or average shift In loans in earning mix

some in rate of quarter. remaining quarter essentially reflecting Growth higher-yielding made Average deposits quarter-over-quarter, interest customers declined held excess Third market the the rising deposits deposits average dynamics offset $XX $XX.X options, bearing of to decrease up deposits shifted million nearly interest-bearing a deposits and up flat. billion in XX% balances only and in environment. as demand total non-interest third

to Slide XX. Turning

quarter quarterly the income net East XX expanded $XXX XXXX interest highest The was annualized. margin quarter of by net XX% interest million quarter-over-quarter. the linked of of basis history growing points net Third income in interest X.XX% West,

this which NIM asset a by can chart was by basis offset higher you reflected points expansion earning compression funding third points loan This the impact the the basis earning yields, increased As points. interest shift side. margin XX the the of quarter net in plus partially see favorable from and asset on by waterfall X which slide, expanded XX basis of from mix

Slide to Turning XX.

loan XX overall points yield quarter-over-quarter. the comprised yield average The points was plus average which the of The third quarter basis X.XX%, increase an loan average of loan an in XX adjustments, second yield yield quarter. contributed yield to basis X.XX%, coupon

XX, rate slide, coupon for the our we four quarter last on present periods. yields was loans portfolio In coupon As this the X.XX%. of end spot spot also the each through September major loan

linked You are place. loans linked to rate I would monthly. loans loans rate the derivative highlight variable in LIBOR of of contracts to can XX% interest the XX% positive see rate repricing. prime In rates our loan as rising Most reprice of have XX% of loan and at SOFR impact customer variable level interest on our including also rate, least portfolio XX% portfolio is CRE total, each that rates. or

against We the to variable into derivatives sheet our big interest rising costs. benefits debt rate will and remain sensitivity. same balance At service loans rate asset level enter them the our help helping time, the on customers from loan the protect

of billion of have XX% place. $X the variable contracts rate also derivative C&I Additionally, in loans

Turning XX. to Slide

for deposits points the XX the up was quarter second third of from cost points, average basis Our basis quarter. XX

We liquidity. a deposit with translates of our historically for deposits growth East variable strong September We're deposit basis and the portfolios, on This of securities of rate loan to was XXX rate spot cost rates the has XXX careful supporting benefits In a to cumulative and XX% the demand cumulative rising Our loan This basis through target a increased West the lag continue to spot started increase been sensitivity as year-to-date. of of the come beta position basis XX from has funds rise. year-to-date This points. point management. the cycle period. cycle-to-date. asset XXXX, on XX% Bank has through bolstered beta relative same the total with over XX in comparison, the deposits in strength loans rate our beta points rates XX, Fed strong levels increase our interest as high cycle pleased basis as revenue rate points coupon

continuing support the margin bearing net the of well. growth and will our interest and deposits and As management continue XX% have to an rise, comfortable interest coming year. cycle new products in to treasury the since about in income robust our accounts net that rates With had annualized believe with navigate to we expanding approach the average non-interest we accounts we before feel pandemic, in continue growth

XX% were million, XX. X% income third $XX or on income the this from on income and from loans We the fee year-over-year. the across saw lines income second of and was fee quarter. business in Customer-driven Slide net to of sales most million the $XX on quarter down in Total of second $XX Moving quarter quarter. up million gains annualized XX% non-interest fee growth up

XX. Slide to Moving

was non-interest million. expense Third quarter $XXX

the operating in third credits amortization up or Excluding XX%, intangible sequential expense. expense amortization, core compensation tax higher employee of total $XX and revenue investments million non-interest quarter by and and leverage. driven growth million and generating improved. our deposit positive was efficiency expense sequentially growth our was other comparison, Quarter-over-quarter, adjusted X% benefits exceeding In $XXX

Third quarter compared efficiency second was quarter. XX% adjusted XX% ratio in with the

income adjusted pretax of our XXXX outlook XX% updated and for that, annualized, And attractive the grew third on Slide review was ROA now Our in sequentially XX. pretax or quarter. year our the XX% pre-provision with an X.X% I'll pre-provision full

which we of unchanged expense For year-over-year operating income reach assumptions This the down tax growth, XXXX, curve to rate our credit expect prior which ranging to excluding expected interest income of as approximately to end results, full XX%. XX% XX%. for a excluding increase slight XX% growth investment growth, PPP, X.XX% outlook, outlook; year currently quarter. the of upper year income full from by XX, growth, September previous interest funds interest net to to positive compared interest forward excluding our outlook. improving revenue our approximately leverage next from growth, modestly loan strong prior year-end. is narrows PPP, XX%, year-over-year net with from Fed and XXXX our to efficiency our we non-interest approximately Adjusted the was XXXX XX% our With year-over-year, is Underpinning amortization, of expect

that, and is be remarks. be I'll expect was from expense a for approximately provision of XX%. now will investment our outlook the reflects outlook, currently to for forecast. up higher With full which backdrop of million. for tax our compared year change the with is back previous expect income approximately higher the losses tax in The over rate XXXX compared This a now We our call with approximately $XX the changed closing This macroeconomic effective previous an will We amount rate largely tax previous XXXX, currently investment amortization XX%. full year as than fourth our be will credit pretax reflects we effective that turn Dominic outlook quarter lower $XX the that that credit credit For and the tax slightly quarter million. expect ago.

Dominic Ng

Irene. In forward note. on you, to Thank looking closing, high a XXXX we finishing are

operating Our the call well. cycle confidence we all I now economic open work in and their changing performance. Operator? margins bankers to capital strong us reflected thank will and up our that of our will dedicated give I emerging navigate financial is the for which strong questions. wish to excellent

Operator

[Operator Instructions] go from today comes first Ebrahim ahead. Bank of The Please with question Poonawala America.

Ebrahim Poonawala

Good morning.

Dominic Ng

morning. Good

Ebrahim Poonawala

does before about you margin little into Obviously, to a terms up The how more East of you of also ratio has given would high lot Maybe loan-to-deposit just mark loan peak loan-to-deposit a being for One, in driven of continue first bit translate in question, second, And until the do crept West, how client growth just And rising you Or that active expect focus around start this think deposits. deposits. managing think peaks? maybe you of by going in NII? XX%. a the talk behavior NII where ratio that terms growth? rates.

Irene Oh

go Ebrahim. There them remember know a questions I I if at of all, but to try lot are a I'll it. there, don't get

Sorry, its here. be early for

Okay.

So with, the your end question, the are expect start grow where to now. -- look I the right We at continue if going probably at here. from do at think is of more which will given to one, margin important things we I'm

make in that the when in and book was from fourth increase we're a grow interest and we guidance quarter. to into that increase far we're We -- increase deposit said, that expect betas our there net seeing to and that, year-over-year, quarter we our wanted increase, look also I but very we you And the to loan to results. margin continued that and Even it clear. outpaces won't pickup sure saw in the will around XXXX. expect specifics have go seeing securities income the third do though that, expect With and We the little that. book, that the just

XX%, an I question increasing is we that at the I don't XX% ended in right the now. said about ratio, think our quarter think the a and we We in the time. from feel under perspective, comfortable from loan-to-deposit the or that that have on average little still point do position deposits and so. that, this publicly past,

that Our low of core is funding comfortable And strong. with. I going think very to kind the XXs we're is something

Ebrahim Poonawala

question. Got separate it. just And guess I a

talked East have But where are recession, You that customers the if about drivers the hedging loan of to risk see you West biggest done. us book? heading into credit for talk a your we

Irene Oh

Yes.

until it's point is time, balance share to wanted debt at were for we time service this multifamily, think C&I it for loans. in of this easier certainly, rates customers period for But the a strategy management low. this sheet because that for in been also so think protects certainly hedging, us, of so the our in CRE, period time I I year honestly, when this

side, On kind very look this benign. credit at still is third criticized of in still we have benign. are the results if We very Charge-offs that -- time, in credit you the the certainly, quarter, at loans down. are point

our but perspective, an and concerned As really we say portfolio. there's to from with I continue a look we portfolios, the that through monitor to credit area we're wouldn't continue evaluate

Dominic Ng

the because from expect slow have down. of economy think that's this would I why a and rates, provision we one in our spike interest will increased perspective, macroeconomic with kind simply that

quality at criticized you seems we we are so And point. actually so to terms down. Everything pretty look down forth. therefore, And a in our things good seen just that issue to of haven't maybe and this much credit see going as are however, anticipating slow come assets

Operator

KBW. The Please next ahead. question comes from with Chris McGratty go

Chris McGratty

Good to morning. to want I circle NII question. Irene, the back

PPP. QX, implied than a can the that's a of reason excluding a part bit just think fourth it? quarter? get is that, guide a bit billion the $X.X more starting a actual I put little little this stocks bit clarity wanted for around fine-tune cite weak a guide, the number the NII The of that lower morning. on you I as of your you point, little Because just to your

Irene Oh

at when quarter, little specifics. think more we bit I'll I maybe just look Well, fourth a the share

based -- the you the down, the of at on With forward analysis. X.XX%, curve if Chris, and will kind it maybe kind break this of you, in help

same that. right? not yield that the loan but increase, the to increase the to close expect of we we fourth, Maybe in Now to saw the pace [ph] continue

timing guidance that that we've another points. as we nature based the a the lag. rates look range, side, rate about probably in perspective, the you as we're to XX security deposits realistic the they point chop. at specifics we've as especially think at the on in we're very NII, NIM of number of But the to And if end where the the higher I increase. basis deposit I cost variable talked I NII of to we're with just from that think XX% the and and total, that portfolio, far XX remarks, increase, this growth, in something it In the is the is at a in modeling will as continue time. betas comfortable continue increase overall, of gave On of think that prepared our fortunate, then been But

Chris McGratty

point? in like QX that QX into will weeds, sense just big I'm talking to about? grow to whether in to -- off again, is trying implied a we're going that this I difference the Sorry And the trajectory. the but the that's back of NII number of there's a get Okay. starting it Or my the X.XXX? guess as X.X, follow-up, is get

Julianna Balicka

can that. the of is level in jump If precision I This with Julianna.

for You guidance it. are the in has word looking a approximately that

increase million, increase start an growth XX% you with implies $XXX growth a NII that If an starting X.XX% the but NII XXXX, from of that point NII on XX% $XXX.X of million. of implies of

Irene to know the frankly, right Now now, the what in some betas, are of given you months things grow. talking hitting are going cannot going deposit from because, such the we impossible we And level of as that we're NII as fact for we that we you advance. quite upper whether is approximately of it's But terms But in that to that or we're XX% to our to higher put actual XX% in as tell telling end precision, isn't continue of word at guidance. we us the our because expect comfortable about moving sit, where said, detail. be to two unfortunately, the provide

So take approximately your judgment. the word just and use

Operator

comes Tenner Davidson. D.A. question next with from The ahead. go Gary Please

Clark Wright

there. Wright Tenner some is just I thoughts Clark for this Hi, on This some Gary capital, morning. questions. had on

you terms you in stock repurchased headwinds a now In the thinking the kind trading How buyback, of buyback outlook? about where here moving forward and economic XQ. below the is into economic are revised of

Dominic Ng

we very because anticipate that it be macroeconomic at don't this situation very, making will we to do on are the we point, healthy buyback looking like capital to Fed prudent have ratio. our to with any that -- rate us spike, At think simply hold for this I unprecedented

when make well of most credit strong great done financial quality today money. liquidity, whenever always for far. benign we quarters incredible ratio. very what proud we our the cycle West, the have Well, earnings about three power, at capital so go East of is issue, That's economic our very we're very actually of performance West first down. margin, we high One East high looked thing are where

gets prouder whatever situation simply flexibility a because do have balance to will However, want. us I worse the to sheet think have allow we have even that very actually we all strong we economy be always if

not advantageous the us. have in of So much that's somewhat place we for why in be more the all always cycle thinking may the wanting do much powder reason to been too in because terms down having buyback dry

Clark Wright

to XXXX? Thank year? mix in just kind in on single-family here it. pivot this the over What is where in into And your Got growth strong terms going loan could into quarter. You you. are of CRE and the What had going outlook. heading C&I, I if heading the to just your growth that then next be of your your are at? But thoughts thoughts

Dominic Ng

much kind that aggressive buying expect obviously loan simply let's is growth slow not Well, lot looking enterprises maybe of XXXX Massively, are like will of slow environment, taking go making with those going that would normal or most acquisition we also I that not part of of expect rate sort out naturally, of activities to all the would will in interest question. say that XXXX, rate expect in a compared estate environment, A and with more apartments, commercial to activities at building down type in or investment we because there were say, those the place early of increasing investors warehouses. something business of likely real I inventory that 'XX start down.

So likely coming with growth down. that, will be the CRE we expect and C&I most

would -- the single-family we CRE residential comes are in guidance earnings. provide we and simply it will mortgages. When pipeline, there as slowdown, expect both of C&I, in in a much we our also as somewhat also release quarter But or of even fourth home we expecting refinancing in still today, I when the to that be see not would So purchases. that mortgages, time

macroeconomic While positive very may and seeing coming the outlook it in we of taking they be. in report, and are conservative looking pipeline environment those the about more interest what prudent the situation we are it, at are numbers and rate feel we a very terms forward, also

Operator

comes from The ahead. Shaw next Please with Jared Fargo Wells go Securities. question

Jared Shaw

a your total? deposits. roughly stable deposits? DDA a beta as that that assume the of Good What's expectation does of sort guess, just -- percentage And the back on through-cycle on morning, I for everybody. on first, stays

Irene Oh

for thought where that moving in great are given question. about were deposits would betas and we I the rates think earlier cycle Fed When shared the -- the we expectation XX%. that year, be through where Yes, was for

was the a very a cycle through-cycle we cycle, XX%. reminder, although beta different our in had, As last

on shared then details quite been we in As pace XX%, beta a increase we betas X.XX%, and a -- which the from through right, has of that deposit the of XX%. but that date increases to And where our of were presentation, will the given next at also lag we specifics point cumulatively, was happening cumulative up, this rate time, as the cycle year. far what's At from the expect from XX%. the Fed, more do bit as

we'll Dominic expect I'll As mentioned, add loan and share year. the increase, also be next NII But there will has that betas still with we significant that said, to continue expansion. to

Jared Shaw

good That's that significant at to a should allowance upon Okay. really dependent And ratio then change economy? in to up loan that Thanks. be from will this looking for growth we quarter, color. the continue we of here? loans loss think if see allowance the march the deterioration don't incremental the performance portfolio more can Or or and either

Irene Oh

great Yes, question.

for the at look the our the largely, the -- dynamics HPI. are GDP CRE unemployment, also we for areas in CRE, we where single-family HELOC for drivers have loans CPI also and models when think market models, growth, so I the

appropriately As these reserve. deteriorate booking or change, the we are

the I and that the we way $XX to especially reasons $XX as no major there's as we for approximately of if this talked think that we -- prudent, growth the are see. the in allowance share, million we be the But in with just factors want time, had loan if realistic increase points. new are that allowance about we earlier, booked the one was for of macroeconomic of the million the that basis point related calculations X I'll increase to at weaknesses quarter. That there in was to decrease. appropriate

Julianna Balicka

Jared, about was to question betas Irene deposit your And one was I mix. the questions prior of can deposit answering, that the add, if your about

the highlight think Let we're XX% We to DDA. XXXX. we me not the end of back go at that going the to pre-pandemic Today, just levels. DDA XX% were at at do pandemic, before

from has management growth services-linked above the in confident come and pandemic to We going because are DDA of treasury operating we're accounts, pre accounts. be products

So we stronger mix deposit have last a than cycle. much

Dominic Ng

to West use accounts accounts want that that improved larger customers to banks because their services, offerings of the operating are operating move did East because these to lot we we those have transition a used West offer from for East able of new to accounts us. clients or many And also, GTS product come to I Bank add that Bank existing banks customers other from other not

last the operating growth quite net phenomenal. account has So years, two been

In fact, the income reflects too. there, it even GTS of on some growth fee

Operator

[Operator comes with Please next question ahead. King Instructions] The Truist go Securities. from Brandon

Brandon King

Thank you. Good morning.

Irene Oh

Brandon. morning, Good

Brandon King

Yes.

So curious as as of the of against for us can the kind potentially future? update an give on if locking sheet was strategically and in I you far the downside planning protecting your potentially balance in rates rate sensitivity the

Irene Oh

out. you and in came it question? Brandon, didn't repeating mind Would your I'm sorry, I quite catch it.

Brandon King

potentially kind of of can locking sheet you yes. your plan sensitivity the future? asset in against update into the rates on -- thoughts falling the was if or the on curious I Yes, us in balance

Irene Oh

Okay. Great.

to asset words, as asset walk increase We with those of sensitivity, balance I have hedging think are great sensitivity. strategy you our trying kind sheet our our know, in,

of that, well. as entered actually, share X.XX%, trade So after just into can X.XX% as we I well,

evaluate, also So and the committee as and of rates balance And we our asset to help sheet if something and billion of today, to the as that what's entered colors looking when of far sensitivity we given continue bank. $X.XX that margin have as into with hedges preserve we'll fall. at and the appropriate about that's have our NII ALCO

Brandon King

the don't is you those what And colors? hedges and of of if sharing, kind you. Got mind duration

Irene Oh

think, I range, four They to five years.

Operator

Dominic back This turn the for over concludes to our any question-and-answer session. closing would like conference to remarks. I

Dominic Ng

looking are for call, you we and thank Well, in XXXX to you this you. share with with joining you for Thank result. all year-end us to forward speaking our January

Operator

now today's for attending has Thank conference concluded. The you presentation.

disconnect. now may You

East West Bancorp (EWBC) 20 Oct 222022 Q3 Earnings call transcript