East West Bancorp, Inc.

Good day and welcome to the East West Bancorp third quarter 2020 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Juliana Balica. Please go ahead.

Thank you, Sarah. Good morning, and thank you, everyone, for joining us to review the financial results of EastWest Bancorp for the third quarter of 2020. With me on this conference call today are Dominic Ng, our Chairman and Chief Executive Officer, and Irene Oh, our Chief Financial Officer. We would like to caution you that during the course of the call, management may make projections and 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 risk factors that could 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, 2019. In addition, some of the numbers referenced on this call pertain to adjusted numbers. Please refer to our third quarter earnings release for the reconciliation of GAAP to non-GAAP financial measures. During the course of this call, we will be referencing a slide deck that is available as part of the webcast and on the Investor Relations site. As a reminder, today's call is being recorded and will also be available in replay format on our Investor Relations website. I will now turn the call over to Dominic.

Thank you, Juliana. Good morning. And thank you, everyone, for joining us for our third quarter 2020 earnings call. I will begin with a review of our financial condition and results on slide three of this presentation. This morning, we recorded, we reported, Third quarter 2020 net income of $160 million, or $1.12 per share, up 61% from second quarter net income of $99 million, or $0.70 per share. Our third quarter return of average assets was 1.26%. Return on average equity was 12.5%. And return on average tangible equity was 13.9%. Our profitability rebounded from the trough of the second quarter as provision for credit losses declined. Deposit growth this quarter was very healthy, with especially strong growth in non-interest-bearing demand accounts, which grew 28% annualized quarter-over-quarter based on period and balances, and 22% annualized based on average balances. As of September 30, we reached a record $41.7 billion in deposits, including a record $14.9 billion in demand deposit accounts. We generated positive loan growth also in the third quarter, reaching a record $37.4 billion in loans as of September 30, 2020, despite a challenging backdrop of slow economic activity, due to the COVID-19 pandemic. The biggest driver for the quarter over quarter increases in net income was a reduction in the provision for credit losses, which was 10 million in the third quarter compared to 102 million in the second quarter. In the first half of the year, we recorded 176 million in provision for credit losses compared to net charge-offs of 20 million substantially building our reserve level. Based on an improved macroeconomic outlook, we modestly decreased our allowance for loan losses as of September 30. Overall, credit continues to be very manageable, as demonstrated by net charge-offs at annualized 26 basis points of average loans. Also in the third quarter, We earned $219 million of pre-tax pre-provision income on total revenue of $374 million. Our pre-tax pre-provision profitability ratio was 1.74%. The steep decline in interest rates this year has impacted our revenue. However, as the downward repricing of our earning assets to benchmark rates is largely complete, and we continue to reduce the cost of funds as maturing CDs replies lower. We anticipate that our pre-tax, pre-provision income and profitability will stabilize going forward. Importantly, our efficiency remains industry leading and is a key variable to maintaining above average pre-tax, pre-provision profitability. Efficiency ratio in the third quarter was Moving to slide four for a summary review of our balance sheet. Our balance sheet is strong. We have high levels of liquidity and capital. And as of September 30, 2020, we crossed over the $50 billion in assets milestone, ending the quarter at $50.4 billion. This translates to an organic compound annual growth rate of 10% over the past five years. Quarter over quarter, total loans of $37.4 billion increased $208 million or 2% linked quarter annualized. Total deposit of $41.7 billion increased $1 billion or 10% annualized. Our deposit growth combination of onboarding new clients, expanding existing relationships, and our clients maintaining high levels of liquidity. We believe the momentum of strong deposit growth can be sustained post-pandemic. Due to our deposit growth this quarter, our loan-to-deposit ratio as of September 30 was 89.8% compared to 91.5% as of June 30. Now turning to slide five, you can see that East-West capital ratios are strong and growing. and are some of the highest amount of regional banks, particularly for common and Tier 1 equity. Our book value and tangible equity per share were both up 3 percent from the prior quarter, and our tangible equity to tangible assets ratio increased to 9.3 percent. You can see from the chart that all our capital ratios increased quarter over quarter. East-West Board of Directors has declared fourth quarter 2020 dividends for the company's common stock. The common stock cash dividend of 27.5 cents is payable on November 16, 2020 to stockholders of record on November 2, 2020. Moving on to a discussion about loan portfolio, beginning with slide six. CNI loans, excluding PPP, were $11.5 billion as of September 30, or 31% of total loans. Total CNI commitments excluding PPP were $16.3 billion as of September 30, a quarter-over-quarter increase of 5% annualized. Month-over-month growth of loans outstanding turned positive in September. reversing a trend of negative monthly growth since March. Overall, CNI loans outstanding excluding PPP decreased by 144 million between June 30 and September 30, a decrease of 5% annualized compared to a decrease of 29% annualized in the second quarter. Moving to slide seven, as of September 30, Our total commercial real estate portfolio was $14.7 billion, or 39% of total loans. Total commercial real estate loans grew $171 million, or 5% annualized, from June 30. The portfolio is well-balanced across the major property types of retail, multifamily, office, industrial, and hotel. Our exposure to construction and land loan remains low at 1.5% of total loans. You can see on slide eight that the weighted average loan-to-value of our total commercial real estate portfolio is 51%, with an average loan size of only 2.4 million. Nearly 90% of our commercial real estate loans have an LTV of 65% or lower. In the chart on the right, you can see that the weighted average loan-to-values of our loans by property type range from 49% to 53%. On slides 9 and 10, we provide additional details regarding our single-family residential loans and home equity lines. Combined, residential mortgage and other consumer loans make up 25% of our total loan. As of September 30, our single-family residential portfolio was $7.8 billion, up by $126 million, or 7% annualized from June 30. In the third quarter, we originated $768 million of residential mortgage loans, consistent with the pace from the first half of 2020, and up by 19%, year over year, from the third quarter of last year. We expect a similar pace of origination for the fourth quarter. The average loan size in our residential mortgage portfolio is only $386,000, and the weighted average loan-to-value is 53%. Again, 90% of our residential mortgage loans have an LTE loan-to-value, 60% or less. On to slide 10. On September 30, we had 1.5 billion of home equity lines outstanding, plus 1.6 billion in undisbursed commitments, translating into a utilization rate of 48%, unchanged from last quarter. Home equity lines outstanding increased 52 million quarter over quarter, or 14% annualized. And total commitments increased 11% annualized. The average size of our home equity commitments is 367,000, and the weighted average combined LTV is only 48%. 97% of our home equity commitments have an LTV loan-to-value of under 60%. I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement.