Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- East West Bancorp Inc (EWBC, Financial) reported a strong net income of $288 million or $2.6 per diluted share for Q2 2024.
- The company achieved balanced growth in loans and deposits, each increasing by 2% quarter-over-quarter.
- Record quarterly fee income of $77 million, up 8% from the previous quarter, driven by foreign exchange income and wealth management fees.
- Nonperforming asset ratio remained low at 27 basis points, with criticized loans decreasing by 10%.
- Tangible book value per share grew by 3% quarter-over-quarter and 15% year-over-year.
Negative Points
- Net interest margin (NIM) experienced compression, dropping to 3.27% due to higher deposit and funding costs.
- Commercial real estate (CRE) loan growth is expected to be modest for the remainder of 2024.
- Provision for credit losses increased to $37 million in Q2 2024 from $25 million in Q1 2024.
- Non-performing assets rose by 4 basis points quarter-over-quarter, primarily due to increases in C&I and commercial real estate loans.
- The company anticipates continued downward pressure on NIM in the second half of the year.
Q & A Highlights
Q: You had a solid quarter with broad-based growth in fee income. What are your expectations for the trajectory in the back half of the year and for the full year?
A: We've had about 10% year-over-year growth through the midpoint. Deposit account fees, the biggest component, have been growing at about $1 million a quarter. Lending fees are expected to moderate, and FX income has been strong but volatile. Overall, we expect decent growth with some moderation.
Q: Any changes to your target TCE ratio range, and should we expect a range for the back half of the year?
A: We continue to believe it's not in our shareholders' interest to have additional capital beyond current levels. We aim to manage this thoughtfully for the best returns.
Q: How should we think about margin over the next few quarters given the strong C&I growth and potential end of deposit remix pressure?
A: We expect some downward compression in margin over the back half of the year, with a trough likely in Q3 or Q4. However, we see dollar NII growing due to balance sheet growth, despite margin compression.
Q: What is driving the recent surge in C&I loans, and how do you see this trend continuing?
A: The surge was driven by late-quarter activity in private equity and biotech. We expect C&I to continue growing, albeit at a more moderate pace.
Q: Can you provide an update on the FHLB borrowings that replaced the BTFP?
A: We are focused on managing liquidity trends and expect to keep a good portion of FHLB borrowings outstanding for an extended period to maintain a strong liquidity profile.
Q: What are your thoughts on the potential impact of the upcoming elections and rate cuts on loan growth and demand?
A: We don't expect significant changes from rate cuts or elections. The current rate cut expectations are not material enough to drive substantial investment or loan demand changes.
Q: How are you managing credit risk, particularly in the commercial real estate sector?
A: We are proactive in managing credit risk, with continuous portfolio reviews and actions to shore up loans. We expect some pressure in the office sector but are confident in our proactive measures.
Q: What is your outlook for the residential mortgage segment, and how sensitive is it to interest rate changes?
A: Residential mortgage growth will continue at a consistent pace. Our unique product offering, with borrowers typically borrowing $0.50 on the dollar, makes us less rate-sensitive.
Q: How do you see the wealth management business evolving over the next few years?
A: We see tremendous potential in wealth management, focusing on strategic, sustainable growth. We expect significant opportunities both in the U.S. and potentially in Asia.
Q: Are you considering any acquisitions to grow fee income?
A: While we are open to opportunities, it's not a top priority. We made a significant investment in Reliant last year and will consider similar opportunities if they arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
