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spk_0: the day and welcome to the east west bank courts third quarter twitter twenty two earnings call advertisement for vienna listen only mode should you need assistance signal conference tested by pressing the stocky followed by bureau after today's presentation they'll be an opportunity to ask questions to ask a question you may press star than one on your touched on some to withdraw your question please press starts and to please note this event is being recorded i would now like to join the conference over the juliana police sketch director of investor relations please go ahead
spk_1: thank you my see good morning and thank you everyone for joining us being course third quarter twenty twenty two earnings call with stomach or chairman and chief executive officer and i read out or chief financial officer this call is being recorded will be available for replay on or investor relations website during their remarks dominic can i remove reference to slide deck that it's available on our enough to really site management made make projections are other forward looking statements which may differ materially from the actual results due to a number of risks and uncertainties and management made discuss non gaap financial measures for more detailed description of the risk factors and a reconciliation of go after not just financial measures please refer to are filing for the securities and exchange commission including the form a case files day i will now trying to call over to dominic
spk_2: thank you juliana
spk_3: the morning and thank you everyone for joining us softening school i would begin to review of our financial results with slide three presentation this morning we reported net income of two hundred ninety five million and earnings per share of two dollars accents for the third quarter of two thousand and twenty two earnings push your group fifty eight percent analyzed for the second quarter of two thousand and twenty two
spk_4: total revenue of six hundred twenty seven billion through fifty five percent link quarter analyzed and included like records that interesting income or five hundred fifty to me
spk_3: bomb revenue growth and improve efficiency twelve third quarter two thousand and twenty two adjusted pre tax presupposition income growth of sixty six percent link quarter analyzed
spk_5: as a quality continue to be healthy
spk_6: with very low charge off
spk_3: a bottom line returns or industry leading we returned one point nine percent on average assets twenty percent on average equity and twenty two percent on average tangible equities
spk_7: discord
spk_4: what over quarter or our profitability ratios expand
spk_8: can importantly
spk_9: our capital ratios group
spk_4: without impressive operating margins and strong capital we are well positioned for continues ss and to appropriately navigate a range of possible outcomes
spk_3: in an alarm and have elevated uncertainty fly for presents a summary of them she's as of september thirty two thousand and twenty two total long reach a wretched forty seven and a half billion an increase of nine hundred twenty six million or two percent from june sued
spk_4: as anticipated long growth slowed in the third quarter here to date lungs are up fifteen percent excluding the forgiveness of ppp loans and we continue to expect the full year long growth will be in the range of sixteen to eighteen percent a loan portfolio is well balanced between commercial real estate commercial and industrial
spk_10: and residential mortgage
spk_3: this diversification is a sound a mental strength to provide both stability and optionality to generate food and growth as economic cycles change
spk_4: total deposit was fifty three point nine billion says of september thirty two thousand twenty two a decrease of four hundred eighty six million old one percent from june thirty good for the average deposit were fifty four point one billion essentially unchanged from the second quarter i'll deposit book is well diversified by deposit type
spk_3: and forty percent of total deposits were non interest bearing demand accounts as of september so turning to size five we have a zillion down she was strong capital and hi liquidity
spk_4: as you can see the exhibit on this life
spk_9: oh our capital ratios expanded quarter over quarter
spk_3: as of september thirty two thousand and twenty two we had a common equity tier one ratio of twelve point three percent
spk_4: a total capital ratio of thirteen point six percent
spk_3: and a tangible common equity racial of a point three eight eight point three five percent
spk_4: he's was board of directors has declared fourth quarter two thousand and twenty two dividends
spk_11: for the company's common stock
spk_4: the quarterly common stock dividends or forty cents is payable on november fifteen two thousand and twenty two two stock photos of records on november first two thousand and twenty two
spk_9: we do not execute any by that in the third quarter
spk_3: moving on to a discussion a loan portfolio beginning with slight six as of september thirty two thousand and twenty two cm lies the and i loans outstanding was fifteen point six billion sequentially up to present and total see and i commitments with twenty two point two billion sequentially up one percent or see and i long utilization rate was unchanged quarter over quarter as
spk_12: seventy percent
spk_3: i'll see an ipo photos well diversified by industry and sector
spk_4: sly seven and eight show the details of our commercial lucy for for you
spk_9: which is well diversified by geography and property type and consists of so long to value loss
spk_4: total commercial estate loans were eighteen point seven billion as of september thirty two thousand twenty two up one percent from two to three
spk_3: inside ninth we provide details regarding our residential mortgage food which consist of single family mortgages and home equity line of credit and is primarily originated through east west bank branches of the highlight that eighty three percent of our home equity
spk_9: the lines of credit or in a first lean position
spk_4: residential mortgage loan total thirteen billion as of september thirty two thousand twenty two growing four percent from june insert i will now turn to call over to i mean for more detail discussion
spk_5: of our as a quantity and income statement read
spk_13: thank you dominic i'll start with our asses all the matter to the presence of our allowance for loan losses on slides ten and eleven the ass of the other portfolio continues to be strong quarter to quarter criticized loans decrease eleven percent and the precise numbers show shows of twenty nine basis points special mention loans decreased twenty percent largely from upgrades of see are we loans
spk_14: largely hotel loans
spk_13: due to improvements finance performance and liquidity classified loans were essentially unchanged as of september thirtieth nonperforming assets were ninety seven million or sixteen basis points of assets
spk_1: during the third quarter we both net charges of seven million for a low six basis points of average loans analyzed compared with net recovery of six basis points analyzed and the second quarter or allow a total of five hundred eighty three million as of september thirtieth or one point two three percent of loads comparable one point two one percent of loans as of june thirtieth during the third over for did a provision for credit losses of seven million compared to thirty five million for the second
spk_15: for a reporter build and reserve an allowance coverage
spk_1: larger reflects the current macro economic outlook which is weaker than porterville as well as third quarter alone
spk_13: while kind of quality remain strong and the current credit environment is benign we a watchful a very talented affecting the economy and our customers taking pro active actions were warranted including conservatively building our allowance and now moving to a discussion of our income statement on flights twelve this slide summarizes the key line items a big statements which i'll discuss in more detail on the phone slice of note amortization of tax credits other documents in the third quarter was twenty long years compared with the teen movie the second quarter this is lower than what we had previously anticipated because of timing oh and tax credit projects are delayed and a recognition of the associated amortization expands will be in the fourth quarter accordingly the current currently that the amortization of tax credit another investment them to be approximately thirty million in the fourth quarter third quarter twenty twenty two income tax expense was eighty nine million compared with income tax expanded of eighty three million for the second quarter of twenty twenty two year to date be effective tax rate for the first nine months of twenty twenty two was twenty three percent we currently expect that the full year effective tax rates low
spk_1: approximately twenty two percent including the impact of tax credit investment expected in the fourth quarter
spk_13: i'm now with the the key drivers of our net interest income and at interest margin on flights thirteen through sixties starting with the average balance she's third quarter average loads of forty six point nine billion grew two point two billion or twenty percent analyze the stronger across all on categories drove a favorable next shift and average early as this quarter of were in the third quarter hours loans made up seventy nine percent of average earning assets compared with seventy six percent in the prior quarter third quarter average deposits at fifty four point one billion declined only seventy eight million quarter of a quarter remaining essentially flat growth and interest bearing deposits nearly offset the decrease in demand deposits at some customers shifted access balances the higher yielding option the flood the market dynamics in a rise in interest right environment
spk_1: average non interest bearing deposits held up and made up forty one percent of total deposits in the third quarter
spk_13: turning to fly forty third quarter twenty twenty two nets interest income a five hundred fifty two million as a high as a net interest income in the history of east west groin sixty six percent flint court analyze the net interest margin of three sixty eight expanded by forty five basis points court over a quarter as you can see from the waterfall chart on the slide that interests it's margin expansion in the third quarter reflected the impact of higher loan and earning asset field which increased the name by seventy one basis points plus a favorable earning ass it must shift which expanded the name by seven basis points this is partially offset by thirty three bases point of compression some the funny side turning to slice of cheese the second quarter average low yield as four seventy five an increase of eighty basis points quarter over quarter the average low yield comprised an average coupon yelled of for sixty five plus you have just month which computer have contributed ten basis points to the overall loan yelled and a third quarter as of september thirtieth the spot coupon raid on our bones with five ten in the slides we also present the coupon spot yields for each major loan for built to last for quarter and period you can see the positive impact of rising interest rates on each loan portfolio as loans or reply ic and total sixty two percent of our most powerful is variable rate including thirty percent linda to primates and twenty seven percent literate a library or so for race most of the loans replies and least month later i would also highlights the forty three percent of our variable rate crv loans have customer level interest rate derivative contracts and place we are help our customers enter into low level interest rate derivatives helping to protect them against rising debt service costs at the same time the loans remain variable rate on our balance sheets and the big benefits from the acid sensitivity additionally
spk_1: two billion of ah the eighty six percent of arable rescue nylons also have negative contracts and place
spk_13: turning to slide sixty or average cost of deposits for the third quarter with city one basis points up thirty four basis points from the second or spot rate on total deposits for seventy four basis points as of september thirtieth twenty twenty two a year to date increase of sixty five basis points this translates to a twenty two percent to motive beta relative to the three hundred basis points increase in the target fed funds rate of at the same period in comparison the cumulative they it out on a low and has been fifty five percent as or loan coupons bought rates increased of hundred and sixty six basis points your
spk_16: two days
spk_13: he started the rising interest rate cycle from a position of strength historically high levels of demand deposits for each west bank and strong liquidity this is bolstered the acid sensitively benefits of our variable rate loan and securities portfolios supporting strong revenue growth through the cycle as to continue to rise were please with the lag and deposit beta cycle today this has come through careful deposit cost management as rate continue to rise we believe our approach will continue to support and expanded that interest margin and robust yet interest income growth in the coming year with forty one percent of our average deposits and non interest bearing account and with the brought that we have had and for every match and product an annualised accounts since before that had pandemic me feel comfortable about continue to navigate the cycle well moving on to see and come on slide seventies total non interest income and the third quarter with somebody six million down from seventy eight million and and quarter customer driven the income and that games on sales of loans or sixty nine million up seven percent or twenty six percent analyze from the second quarter or and up ten percent year over year we saw growth across most of the fee income line of business this quarter moving to slide eighteen third quarter not interest expense was two hundred and sixteen million excluding amortization of tax credits and other investments and core deposited tangible amortisation since adjusted not interest expense was one hundred and ninety six million in the third quarter of fourteen million or a percent sequentially driven by higher compensation employee benefits express in comparison or success sequential total revenue growth was fourteen percent exceeded expense got and generating positive operating leverage quarter of a quarter or efficiency improved third quarter adjusted efficiency ratio with thirty one percent compared with thirty three percent and the second quarter or adjusted pre tax provision income through seventeen percent sequentially or sixty six percent analyze and are pre tax free provision are away was an attractive to point seven percent in the third quarter and with that are now have you are updated outlook for the full year of twenty twenty two on slide ninety
spk_1: for the four year twenty twenty two compared to our for your twenty twenty one result we currently expat you have a year logo excluding ppp approximately sixty to eighty percent unchanged from our prayer out last year over year net interest income growth excluding ppt approximately thirty five i percent this narrowed down to the upper end of our prior out love which was for net interest income growth ranging from thirty to thirty five percent underpinning our interest income assumptions is afford interest rate curve as of september thirtieth twenty twenty two with fed funds expected to reach for fifty by year end religious and non interest expense growth it's going to have put investment numbers asian of approximately eleven percent year over year which is a slight increase from my previous outlooks with are strong revenue growth we expect positive operating leverage and modestly improving efficiency next quarter for the full year our twenty twenty two we now expect that the provision for credit losses will be approximately eighty million this is up from our previous outlook and largely with products the change macro economic sackcloth compared with a foreigner go we currently spat that's a four year twenty twenty two effective tax rate for be approximately twenty two percent slightly higher than our previous outlook which was for an effective tax rate of twenty one percent the change in our outlook reflects higher pretax income and a law amount of tax credit investments as compared with up previous forecast we currently expect that the fourth quarter tax credit investment amortization of them for be approximately thirty million
spk_13: what's that allowed from the call back over to dominic for closing remarks
spk_17: thank you i ran in closing we are looking forward to finish in two thousand and twenty two on a high note or song offering a margins and capital give us the confidence that we would navigate and merging and changing economic cycle well i wish to thank all of our dedicated bankers for their
spk_3: excellent work which is reflected in our strong financial performance
spk_4: how would now open up the hall to questions later
spk_0: we will now begin the question and answer session to ask the questions you may press star one on your touch time some if you were using a speaker phone please pick up your hands for pressing the keys if at any time your question has been addressed and you would like to withdraw your question please post star and to in the interests of time since limit yourself to one question and one follow us at this time we will pause momentarily to assemble a roster the first question today comes from abraham him along with bank of america please go ahead
spk_18: good morning
spk_19: good morning so many first question just it on deposits overseas autofocus and domes our fault line behavior in given da placing hades the dunno to deposited a should have crept up eighty eight percent one hour maybe just talk about how high you think that load the deposited show going before you start being more active in terms of managing deposits and second how does this translate into up where you think the margin phoenix and for east west would that also marks little beacon and i do you expect and i to continue until it driven by druid
spk_20: ah down there are a lot of questions or abraham i don't know than other than ah but i'll try to get to throw out i'm sorry that barely through the there okay so if we look at our under site what i did the end of your question which is probably the more important one
spk_1: given where things are right right now we do expect the margin will continue to grow from i we expected to grow in the fourth quarter and of when we look year over year we also expect a margin and added twist income to increase in twenty twenty three won't go into guidance and specifics around that but i just wanted to make sure that that way
spk_13: very clear right even though the we do expect that deposit betas will increase and have continued to increase or you saw that a little in the a third quarter results ah with that sad from our loan book and or securities book that increase that we're seeing and a pickup we're seeing their
spk_21: far outpaces his
spk_13: i think on the question about the deposits out a loan to deposit ratio we ended the border at eighty eight percent little under that from an average perspective eighty seven or so we do feel comfortable increase in the a from this point in time i don't think that are we have said that publicly the pass and that still deserve position right now or poor funding is very strong and i they going to kind of a low nineties or something that will comfortable lives
spk_19: sorted and i guess own just a stupid question you talked about the hedging that you customers as done but talk to us it's as the i'm heading into a recession where you see the biggest the drivers have created his for east from his loan book
spk_22: yeah i think at this point in time so the hedging either honestly for us it's been a balance sheet management strategy in this period of time and all this year when rates are so low a certain way that we wanted to share that
spk_13: that is certainly protects our customers in this period of time because of that services easier for see or read for multifamily also for see and i loans on the clutter side you know at this point in time credit it's still very benign so we certainly if you look at kind of the results are we have is that third quarter criticized loans or down
spk_1: tar jobs are so barry been i know as we look through the poor follows i wouldn't say there's an area that were really concerned worth from a credit perspective that will continue to monitor and continue to evaluate our portfolio
spk_4: i think from a micro and macro economic perspective you know that's why we have a increase opposition simply because with this kind of a slight interest rates one would expect at the economy will slow down and so therefore we all anticipating maybe things are going to slow down
spk_23: an hour
spk_4: however we just haven't seen much in terms of acquire quality issues at this point you know everything since to look pretty good as you see that of criticize as it actually come down and and so forth
spk_0: the next question comes from chris agreed with t v w please go ahead
spk_24: morning i really want to go to go back to the it i question i think it's pretty the read your stocks with this morning the and i guide would imply guide for cure for i cleared for a little more about the clarity around acres the one point five billion that your site as a starting point irrational numbers a bit lower than that excluding to repay i just want to get a little bit of us
spk_1: the fine tune on the fourth quarter
spk_13: well as a time when we need a fourth quarter maybe i'll just share a little bit more specifics right arm with the
spk_1: based on the ford curve and nine thirty on if you kind of break it down and maybe this will help you press and clinton alice's weeks back the loan deal to continue to increase rice maybe not the same pace of the increase that we saw in the forces
spk_13: a close to that under security side base on the available way and the nature of the for will probably another twenty to thirty basis points rights and total especially if you look at from a number of deaths and i i i think the timing of the increase in the costs a deposit is something where the hell were modeling that the departed betas will continue to increase the was in very poor says we talked about in are prepared remarks of the lads by and will just realistic as rates continue to increase sunday and chops but overall i think the other guidance that we gave him the specifics as far as
spk_24: and i and eyebrow at times higher end of that range thirty five percent is a number that we're comfortable with that disappointed okay and i guess as i follow again go back to the one point five is that that's the starting point or that like one point four seventy six started get this week but there's a big difference
spk_1: and the applied trying to get a sense of weather and i index you wind will grow off at a cure for number that we're talking about juliana if i can just a with precision the level of that you are looking for guidance that has the word approximately in it if you start with at one point four seven starting point from twenty twenty one and thirty five percent increase on that implies and and i growth or five hundred sixty million but and i increase of thirty six percent of the that implies and i growth of five seventy four point five million right now we put the word approximately because quite frankly whether to give you thirty five or thirty six percent right now impossible for us to tell given of as effective some of the things such as deposit that you cannot know two months and
spk_0: that's not what we are comfortable telling you is that we are hitting as upper end of our guidance and were higher as we're talking about his as i read said we access or and i to continue to grow by in terms of x x or precision that unfortunately from where we provide that level of detail us soldiers take the word
spk_25: approximately and user justice the next question comes from gary tenor with a d a davidson since go ahead
spk_9: are there are just is court right on for gary time this morning or much had some thoughts on capital ayers is give you some questions or in terms of the by back in stock and nurturing below where you for your repurchase and to kill are you thinking about the by that you're moving forward to cover economic headwinds a
spk_4: and of revised economic outlook
spk_3: at this point we have we don't anticipate to me because
spk_10: to any by that simply because our
spk_4: we are looking at them macroeconomics
spk_3: situation would decide
spk_26: making these unprecedented like out rate spike
spk_4: that i think it will be prudent for us to hold on to all
spk_27: very very healthy capital ratio
spk_28: you know the one of the great thing about where we are two days when we looked at
spk_29: east west
spk_30: incredible
spk_31: earnings tower
spk_5: very high margin
spk_9: hi liquidity
spk_4: are benign credit quality issues
spk_11: very strong capital ratio
spk_32: he was have always done well
spk_9: whenever economic cycle
spk_3: go down that's what we actually like most about money
spk_4: well very proud of our financial performance for the first three quarters so far however as and we will be even prouder is actually economy situation get worse
spk_3: simply because we've always have a very strong bouncers didn't allow us to have all the flexibility to do whatever we want so does to reason why will always been somewhat
spk_25: the genes himself not want to do too much by back because having all dry powder in place in the downcycled may be much more advantageous for us
spk_3: got it thank you that if i could just have it over the loan growth in your outlook where did where are your thoughts on the next heading into twenty twenty three years yet strong single family growth your this quarter by just in terms of syrian that see and i were his act and to be going in at what you are your thoughts heading into the next year while we obviously expect long growth to slow down compare was our two thousand twenty two or twenty was simply because the that kind of rate and marlins
spk_33: naturally will expect as investors say not all
spk_3: you know business enterprises are not going to go in there and start making aggressive acquisition of as a commercial this investment or building apartments lying warehouses a lot of those activities have taken place in a much more normal interest rate environment
spk_9: looking at in codey part of two thousand twenty three i was i would expect yes those type of activities was slow down
spk_3: a massively sort of like increasing in monterrey is also something done i was say most likely out as a question so with that will expect to see and i and see are equals would most likely to be coming down
spk_4: so we will provide guidance you know india
spk_3: after the what the time of release a fourth quarter earnings when it comes to residential mortgages we are also expected somewhat slow down simply that i would expect that it would not be as much we financing for even home purchases but as of today we still see and pipeline both see and i see our you and also did
spk_34: single family mortgages
spk_3: lol we're seeing those numbers in the pipeline reports
spk_9: def you very positive about it
spk_0: we also are very prudent and looking after macro economic situation and interest way environment coming forward and we are
spk_35: taking a more conservative oh look in some software maybe
spk_36: the next question comes from jared child with wells fargo securities go ahead
spk_1: a good morning everybody
spk_13: it's first son second the deposits what's your expectations for service through cycle data on deposits and is that assume that ca stays roughly stable as a percentage of a total
spk_1: a great question not when earlier in the year i think we share that given that be expectation for where weights i'm where the was moving that we thought our through cycles data as ah for deposits would be about thirty percent as a reminder in the law
spk_13: last cycle although a very different cycle had ah are to cycle beta was thirty seven percent as we shared on the details the presentation cumulative late our team of data to today has been twenty two percent quite a bit of a loud and and also but up by from where we were at six thirty which was fifteen process at this point in time on yard given the piece
spk_36: the rate increases from the fad we do except that the through cycle deposit bad as will increase from that thirty percent more specifics as far as what's happening that sure a dominant mentioned bushehr next year i'll also add that with that sad you know weeks back to the loan beta to continue to increase and soon there will still be significant and i expansion good color thanks man i'm looking at the at the allowance for alone loss in the growth this quarter should read things that the ratio of allowance loans can continue to march shop if i agree on see a significant change in in the economy or or that really be more dependent upon
spk_14: either you or fully performance or
spk_13: for mental deterioration from here every question you know i think so when we look at our models are largely the drivers for the models are gdp growth unemployment city i procedure we the market dynamics in the areas where we have theory loans and also for the single family and he'll officer h p
spk_37: i've aziz deteriorate on change you know we are appropriately book eighty the reserve i think if the right at this point in time as we talked about earlier there's no major weaknesses that we say that we wanna just be realistic imprudent especially with the way the calculations are for a while and
spk_1: ah to increase as appropriate that macro economic factors decrease that was one of the reasons for the increase in the allowance of ah to basis points or share of the twenty seven million that we bumped approximately ten million was related to the new low growth that we had in the flair
spk_9: and back in and harrods your question about that deposit betas that i'm answering questions was about to deposit makes let me just a highlight that before the presented were at thirty percent the end up at the end of two thousand and nineteen today we're forty percent deviate we do not
spk_3: it takes me back to the pre production levels are confident were happy about three and damage because of the growth and dds has come from operating accounts president nasa products and services week accounts so we have a much stronger deposit next and last cycle and also i want to ask as those hotel um dos or towns come from a lot of you
spk_0: new customers or excessive existing customers as used to use other thanks for operating accounts because we did not offer the services that's because he was bang have improve our gts product offerings that we are able to transition many of these clouds he's less than inclines to move out offering a council other larger banks to us so the last two years that operating accounts accountable has been quite phenomenal and soggy reflect even on some of the gts he income growth there too
spk_38: as a reminder if you have a question see press star send one to be joint into the questions you
spk_39: the next question comes from branding king was true it's securities please go ahead
spk_40: thirty groin morning and
spk_22: yes south korea's booting gives the date on animal planet to use force to to be good luck in game
spk_40: are you race has to be for the balance sheet amputating against the downside of raised concerns future
spk_41: it but you know it came as it out would you mind putting a question answer i didn't quite catch us
spk_42: yes yes on how serious you can update ice on your plane or thoughts on potentially locking in gases and city of the valley she gets on a phone rates are incidents in the future
spk_13: oh okay great we ha increase kind of our balance is heading strategies or with our out and sensitive be as you know that you know trying to walk in and he was a great words or acid sensitivity so i can share that on as of nine thirty watch chalet we entered into trade just after nine thirty as well so as of today the have about two point seven five billion
spk_40: the ah hedges and also callers that we had entered into to help preserve our margin and and not an i if and when rates fall
spk_0: and that's something that will continue to die wait looking at our with our algo committee as far as what's appropriate given the acid sensitivity and balances of the bank
spk_3: such as
spk_43: and if you know my shown what is time the duration of those had and collars are they range i say the are forty five years
spk_44: this concludes our question and answer session i would like to turn the conference sack over to dominate funny of the remarks
spk_45: oh thanks you've all for joining us for this call and we're looking forward to
spk_46: sticking with you
spk_47: in january
spk_48: share with you
spk_0: two thousand twenty two
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