With its stock price falling Friday, UCBH Holdings Inc. tried to allay concerns about the 92% drop in its first-quarter earnings, saying it has "a good handle" on the construction loan troubles that prompted an unexpectedly large $35 million loan-loss provision.
The $12.7 billion-asset San Francisco company, which reported earnings of $2.2 million late Thursday, stressed in a conference call with analysts that the problem loans are mainly in certain distressed California markets.
"We have scrubbed through the whole construction portfolio," Thomas S. Wu, UCBH's chairman, president and chief executive officer, said in an interview after the call. "I think we have a pretty good handle on the risk and exposure we have in distressed markets."
Analysts had mixed reactions.
Lana Chan, of Bank of Montreal's BMO Capital Markets Corp. said that she took no comfort from the call and that this year's negative developments had damaged the management team's credibility.
UCBH disclosed last month that its loan chargeoffs last year were $3.1 million higher than it had first reported, at $10.1 million, and that it had revised its provision for loan losses upward by $6 million.
"The main concern is the credit losses are going to be much higher than previously expected," Ms. Chan said. "I think you're going to start seeing some deterioration in some of the other loan segments, just given how severely California housing prices have come down and will probably continue to fall."
UCBH's earnings of 2 cents a share missed the average estimate of analysts by 19 cents.
On Friday, the stock fell to its lowest level in at least six years. It closed at $6.80, down 4.6%.
Mr. Wu said his company expects to add another $30 million to $35 million to its reserves in coming quarters but should experience more earnings growth next year, because it is positioned well to increase loan volume both in China and the United States.
"The business fundamentals at UCBH remain very strong, particularly in commercial lending and the international trade area," he said.
Several analysts said the detail offered by UCBH was helpful, though they are concerned about further deterioration in credit quality. Nonperforming assets rose to 1.45% of total assets, from 0.48% the previous quarter.
"I'm encouraged that management is actively addressing the issues at hand," said Aaron J. Deer of Sandler O'Neill & Partners LP. "Clearly they have some real challenges cut out for them over the year ahead, but it's obviously their intention to move aggressively in the first half of the year."
Still, he said, "the data we see coming out of these markets in terms of home sales and housing price deterioration hasn't suggested that an end is necessarily in sight."
Joseph K. Morford, an analyst at Royal Bank of Canada's RBC Capital Markets, said he welcomed the details UCBH gave about its loan review and the breakdown of its portfolio geographically and by loan type. But he agreed that the troubled economy creates uncertainty. "A lot still depends on the economy. Some of these distressed markets, as they call them, are very distressed, and the severity of the losses can be quite high," he said.
