Corporate Information

Press Release

East West Bancorp Reports Net Income for Second Quarter 2018 of $172 Million and Diluted Earnings Per Share of $1.18

Company Release - 7/19/2018 8:00 AM ET

PASADENA, Calif.--(BUSINESS WIRE)-- East West Bancorp, Inc. (“East West” or the “Company”) (Nasdaq: EWBC), parent company of East West Bank, the financial bridge between the United States and Greater China, today reported its financial results for the second quarter of 2018. For the second quarter of 2018, net income was $172 million or $1.18 per diluted share.

“Total loans grew $644 million, or 9% annualized, to a record $30.2 billion as of June 30, 2018 from $29.6 billion as of March 31, 2018,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “Total deposits grew $167 million, or 2% annualized, to a record $32.8 billion as of June 30, 2018 from $32.6 billion as of March 31, 2018.”

“East West delivered solid results in the second quarter of 2018. Compared to the first quarter, our net interest margin expanded by 10 basis points to 3.83% and our net interest income grew by 5% to $342 million. Our second quarter adjusted pre-tax, pre-provision income1 reached $234 million, an increase of 7% quarter-over-quarter and 18% year-over-year,” continued Ng.

“In the second quarter, our return on assets reached 1.84% and our return on equity reached 17.0%. Our strong profitability supports our organic growth, capital ratio expansion, and the increase to our common stock dividend, which we have raised by 15%.”

“As our profitability and revenue grow, we continue to invest in the bank. Our ongoing investment initiatives include adding talent throughout the organization, enhancing our customers’ experience, and strengthening our risk management infrastructure. Our initiatives demonstrate our commitment to our customers and employees, and our focus on generating long-term value for our shareholders,” concluded Ng.

HIGHLIGHTS OF RESULTS

  • Quarterly Earnings – Second quarter 2018 net income of $172.3 million and diluted earnings per share (“EPS”) of $1.18 both decreased by 8% compared to first quarter 2018 net income of $187.0 million and diluted EPS of $1.28. Linked quarter comparisons are impacted by the sale of Desert Community Bank (“DCB”) branches in the first quarter of 2018, which contributed an after-tax gain on sale of $22.2 million or $0.15 per share. Excluding this gain, second quarter net income increased by 5% from adjusted2 net income of $164.9 million for the first quarter of 2018; second quarter diluted EPS increased by 4% from the adjusted2 diluted EPS of $1.13 for the first quarter of 2018.
  • Net Interest Income Growth and Net Interest Margin Expansion – Second quarter 2018 net interest income was $341.7 million, a quarterly increase of $15.0 million, or 5%, primarily due to the expansion of loan yields and loan growth, partially offset by an increase in deposit costs. Second quarter 2018 net interest margin (“NIM”) of 3.83% expanded by 10 basis points linked quarter.
  • Record Loans – Total loans of $30.2 billion as of June 30, 2018 were up $643.6 million, or 9% linked quarter annualized, from $29.6 billion as of March 31, 2018. The strongest loan growth came from the single-family mortgage portfolio, followed by commercial and industrial loans. Total loans grew by 11% year-over-year.
  • Record Deposits – Total deposits of $32.8 billion as of June 30, 2018 were up $167.4 million, or 2% linked quarter annualized, from $32.6 billion as of March 31, 2018. The sequential quarter growth was largely from an increase in time deposits. Total deposits grew by 5% year-over-year.
  • Asset Quality Metrics – The allowance for loan losses was $301.6 million, or 1.00% of loans held-for-investment (“HFI”), as of June 30, 2018, compared to $297.7 million, or 1.01% of loans HFI, as of March 31, 2018. For the second quarter of 2018, annualized net charge-offs were 0.15% of average loans HFI, compared to annualized net charge-offs of 0.13% of average loans HFI for the previous quarter. Non-purchased credit impaired (“Non-PCI”) nonperforming assets were $103.5 million, or 0.27% of total assets, as of June 30, 2018. This is a decrease of $27.4 million or 21% from $131.0 million, or 0.35% of total assets, as of March 31, 2018.
  • Capital Levels – Capital levels for East West continue to be strong. As of June 30, 2018, stockholders’ equity was $4.1 billion, or $28.39 per share. Tangible equity3 per common share was $25.01 as of June 30, 2018, an increase of 4% linked quarter and 14% year-over-year. As of June 30, 2018, the tangible equity to tangible assets ratio was 9.64%, the Common Equity Tier 1 (“CET1”) capital ratio was 12.2%, and the total risk-based capital ratio was 13.7%.

 

1 See reconciliation of GAAP to non-GAAP financial measures in Table 13.
2 See reconciliation of GAAP to non-GAAP financial measures in Table 12.
3 See reconciliation of GAAP to non-GAAP financial measures in Table 15.

 

 

QUARTERLY RESULTS SUMMARY

    Quarter Ended
($ in millions, except per share data)     June 30, 2018   March 31, 2018   June 30, 2017
Net income $ 172.3   $ 187.0   $ 118.3
Adjusted net income (1) $ 172.3 $ 164.9 $ 118.3
Earnings per share (diluted) $ 1.18 $ 1.28 $ 0.81
Adjusted earnings per share (diluted) (1) $ 1.18 $ 1.13 $ 0.81
Book value per common share $ 28.39 $ 27.46 $ 25.40
Tangible equity (1) per common share $ 25.01 $ 24.07 $ 21.93
Tangible equity to tangible assets ratio (1)     9.64 %   9.37 %   8.95 %
Return on average assets (2) 1.84 % 2.03 % 1.36 %
Return on average equity (2) 17.0 % 19.3 % 13.0 %
Return on average tangible equity (1)(2)     19.5 %   22.3 %   15.3 %
Adjusted return on average assets (1)(2) 1.84 % 1.79 % 1.36 %
Adjusted return on average equity (1)(2) 17.0 % 17.0 % 13.0 %
Adjusted return on average tangible equity (1)(2) 19.5 % 19.7 % 15.3 %
Adjusted pre-tax, pre-provision profitability ratio (1)(2)     2.50 %   2.38 %   2.27 %
Net interest income $ 341.7 $ 326.7 $ 290.1
Net interest margin (2) 3.83 % 3.73 % 3.49 %
Cost of deposits (2)     0.64 %   0.49 %   0.36 %
Efficiency ratio 45.5 % 42.2 % 50.1 %
Adjusted efficiency ratio (1) 39.9 % 40.6 % 41.3 %
 
(1)   See reconciliation of GAAP to non-GAAP financial measures in Tables 12, 13, and 15.
(2) Annualized.
 

MANAGEMENT OUTLOOK FOR 2018

We have updated our outlook for the full year 2018, adjusting some components relative to a quarter ago. Compared to our full year 2017 results, our outlook for the expected full year 2018 results is as follows:

  • End of Period Loans: increase at a percentage rate of approximately 10%.
  • Net Interest Margin (excluding the impact of ASC 310-30 discount accretion): we expect full year NIM to be approximately 3.75%.
  • Noninterest Expense (excluding tax credit amortization & deposit premium amortization): increase at a percentage rate in the high single digits.
  • Provision for Credit Losses: in the range of $70 million to $80 million.
  • Tax Items: projecting investment in tax-advantaged credits of $115 million, excluding low income housing tax credits, and associated tax credit amortization expense of $100 million. Projecting full year effective tax rate of approximately 13%.
  • Interest Rates: our outlook assumes one more fed funds rate increase in September 2018.

OPERATING RESULTS SUMMARY

Second Quarter 2018 Compared to First Quarter 2018

Net Interest Income and Net Interest Margin

Net interest income totaled $341.7 million, a 5% increase from $326.7 million. Net interest margin expanded by 10 basis points to 3.83% from 3.73%.

  • Average loans of $29.6 billion grew by $434.9 million, or 6% linked quarter annualized.
  • Average deposits of $32.4 billion grew by $83.5 million, or 1% linked quarter annualized.
  • The yield on loans expanded by 26 basis points to 4.95% from 4.69%.
  • The yield on earning assets expanded by 24 basis points to 4.49% from 4.25%.
  • The cost of deposits increased by 15 basis points to 0.64% from 0.49%.
  • The cost of funds increased by 15 basis points to 0.71% from 0.56%.

Noninterest Income

Total noninterest income totaled $48.3 million, a decrease from $74.4 million in the first quarter, which included a pre-tax gain of $31.5 million from the sale of DCB branches. Excluding the impact of all gains on sales, total fees and other operating income of $44.6 million in the second quarter of 2018 increased by 17% from $38.2 million.

  • The increase in letters of credit fees and foreign exchange income largely reflects mark-to-market revaluations for foreign currency balance sheet items.

The following table presents total fees and other operating income for the three months ended June 30, 2018, March 31, 2018, and June 30, 2017.

 
    Quarter Ended
($ in thousands) June 30, 2018   March 31, 2018   June 30, 2017
Branch fees $ 10,140 $ 10,430 $ 10.321
Letters of credit fees and foreign exchange income 15,673 9,602 12,365
Ancillary loan fees and other income 5,841 5,581 5,907
Wealth management fees 4,501 2,953 3,381
Derivative fees and other income 6,570 6,690 3,765
Other fees and operating income 1,865   2,921   6,197
Total fees and other operating income $ 44,590   $ 38,177   $ 41,936
 

Noninterest Expense

Noninterest expense of $177.4 million included $155.6 million of adjusted4 noninterest expense, $20.5 million in amortization of tax credit and other investments, and $1.4 million in amortization of core deposit intangibles.

  • Adjusted noninterest expense of $155.6 million increased by $5.3 million, or 4%, linked quarter. Compared to the prior quarter, we had larger increases in consulting, legal and computer software expenses. These were partially offset by a decrease in compensation and employee benefits from a seasonally higher first quarter, as well as a decrease in deposit insurance premiums and regulatory assessments.
  • The adjusted4 efficiency ratio was 39.9% in the second quarter, compared to 40.6% in the first quarter.

 

4 See reconciliation of GAAP to non-GAAP financial measures in Table 13.
 

TAX RELATED ITEMS

Tax expense in the second quarter of 2018 was $24.6 million and the effective tax rate was 13%, compared to a tax expense of $24.8 million and an effective tax rate of 12% in the first quarter of 2018.

  • Tax expense in the first quarter included two discrete items: the accounting for stock-based compensation and the reversal of a liability related to state taxes for prior years, which reduced tax expense by $4.8 million and $3.9 million, respectively.
  • Currently, we are projecting a full year 2018 effective tax rate of approximately 13%; previously, we had projected an effective tax rate of 16%. The reduction in the tax rate for the second quarter and full year 2018 to 13% largely reflects a new tax credit investment added in the quarter.

CREDIT QUALITY

The allowance for loan losses totaled $301.6 million, or 1.00% of loans HFI, as of June 30, 2018, compared to $297.7 million, or 1.01% of loans HFI, as of March 31, 2018, and $276.3 million, or 1.02% of loans HFI, as of June 30, 2017.

  • The provision for credit losses recorded for the current quarter was $15.5 million, compared to $20.2 million for the first quarter of 2018, and $10.7 million for the second quarter of 2017.
  • Net charge-offs for the current quarter were $11.2 million, or annualized 0.15% of average loans HFI. This compares to net charge-offs of $9.4 million, or annualized 0.13% of average loans HFI, for the first quarter of 2018, and net recoveries of $2.6 million, or annualized 0.04% of average loans HFI, for the second quarter of 2017.
  • Non-PCI nonperforming assets of $103.5 million, or 0.27% of total assets, as of June 30, 2018, decreased from $131.0 million, or 0.35% of total assets, as of March 31, 2018, and $133.0 million, or 0.37% of total assets, as of June 30, 2017.

CAPITAL STRENGTH

Capital levels for East West continue to be strong. As of June 30, 2018, stockholders’ equity was $4.1 billion, or $28.39 per share. Tangible equity per common share was $25.01 as of June 30, 2018, an increase of 4% linked quarter and 14% year-over-year. The following table presents the regulatory capital ratios for the quarters ended June 30, 2018, March 31, 2018, and June 30, 2017.

 
EWBC Regulatory Capital Metrics     Basel III    


($ in millions)
June 30,
2018 (a)
  March 31, 2018   June 30,
2017
  Minimum

Regulatory

Requirements

 

Well
Capitalized
Regulatory
Requirements

  Fully Phased-

in Minimum

Regulatory

Requirements

CET1 capital ratio 12.2 % 11.9 % 11.3 % 4.5 % 6.5 % 7.0 %
Tier 1 risk-based capital ratio 12.2 % 11.9 % 11.3 % 6.0 % 8.0 % 8.5 %
Total risk-based capital ratio 13.7 % 13.4 % 12.8 % 8.0 % 10.0 % 10.5 %
Tier 1 leverage capital ratio 10.0 % 9.6 % 9.3 % 4.0 % 5.0 % 4.0 %
Risk-Weighted Assets (“RWA”) (b) $ 30,424 $ 29,892 $ 28,445 N/A N/A N/A
 

N/A Not applicable.

(a)   The Company’s June 30, 2018 regulatory capital ratios and RWA are preliminary.
(b) Under regulatory guidelines, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories based on the nature of the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar value in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWA.
 

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared third quarter 2018 dividends for the Company’s common stock. The common stock cash dividend of $0.23 per share is payable on August 15, 2018 to stockholders of record on August 1, 2018. As announced on May 29, 2018, this is a 15% increase to the quarterly common stock dividend, up from $0.20 per share previously.

Conference Call

East West will host a conference call to discuss second quarter 2018 earnings with the public on Thursday, July 19, 2018 at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses second quarter 2018 results and operating developments.

  • The following dial-in information is provided for participation in the conference call: calls within the U.S. – (877) 506-6399; calls within Canada – (855) 669-9657; international calls – (412) 902-6699.
  • A presentation to accompany the earnings call will be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
  • A listen-only live broadcast of the call will also be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
  • A replay of the conference call will be available on July 19, 2018 at 11:30 a.m. Pacific Time through August 19, 2018. The replay numbers are: within the U.S. – (877) 344-7529; within Canada – (855) 669-9658; International calls – (412) 317-0088; and the replay access code is: 10121411.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $38.1 billion that trades on the Nasdaq Global Select Market under the symbol “EWBC”. The Company’s wholly-owned subsidiary, East West Bank, is the premier bank exclusively focused on the United States and Greater China markets, and is one of the largest independent banks headquartered in California. With over 130 locations worldwide, East West operates in California, Georgia, Massachusetts, Nevada, New York, Texas and Washington in the United States. In Greater China, East West’s presence includes full service branches in Hong Kong, Shanghai, Shantou and Shenzhen, and representative offices in Beijing, Chongqing, Guangzhou, Taipei and Xiamen. For more information about East West, visit the Company’s website at www.eastwestbank.com.

Forward-Looking Statements

Certain matters set forth herein (including any exhibits hereto) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations regarding future operating results. Forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to, our ability to compete effectively against other financial institutions in our banking markets; changes in the commercial and consumer real estate markets; changes in our costs of operation, compliance and expansion; changes in the United States (“U.S.”) economy, including inflation, employment levels, rate of growth and general business conditions; changes in government interest rate policies; changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and the California Department of Business Oversight — Division of Financial Institutions; heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers; changes in the economy of and monetary policy in the People’s Republic of China; changes in income tax laws and regulations and the impact of the Tax Cuts and Jobs Act; impact of other potential federal tax changes and spending cuts; changes in accounting standards as may be required by the Financial Accounting Standards Board or other regulatory agencies and their impact on critical accounting policies and assumptions; changes in the equity and debt securities markets; future credit quality and performance, including our expectations regarding future credit losses and allowance levels; fluctuations of our stock price; fluctuations in foreign currency exchange rates; success and timing of our business strategies; our ability to adopt and successfully integrate new technologies into our business in a strategic manner; impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions; impact of adverse judgments or settlements in litigation; impact of regulatory enforcement actions; changes in our ability to receive dividends from our subsidiaries; impact of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions; impact of natural or man-made disasters or calamities or conflicts or other events that may directly or indirectly result in a negative impact on the Company’s financial performance; continuing consolidation in the financial services industry; our capital requirements and our ability to generate capital internally or raise capital on favorable terms; impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on our business, business practices and cost of operations; impact of adverse changes to our credit ratings from the major credit rating agencies; impact of failure in, or breach of, our operational or security systems or infrastructure, or those of third parties with whom we do business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused; adequacy of our risk management framework, disclosure controls and procedures and internal control over financial reporting; changes in interest rates on our net interest income and net interest margin; the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increased funding costs, reduced investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment on securities held in our available-for-sale investment securities portfolio; the Company’s ability to retain key officers and employees; any future strategic acquisitions or divestitures; and other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the year ended December 31, 2017, and particularly the discussion of risk factors within that document. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, the Company’s results could differ materially from those expressed in, implied or projected by such forward-looking statements. The Company assumes no obligation to update such forward-looking statements.

 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ and shares in thousands, except per share data)
(unaudited)
Table 1
 
                June 30, 2018
% Change
June 30, 2018   March 31, 2018   June 30, 2017

Qtr-o-
Qtr

  Yr-o-Yr
Assets
Cash and due from banks $ 415,653 $ 413,017 $ 429,121 0.6 % (3.1 )%
Interest-bearing cash with banks 1,881,818   1,901,921   2,323,355   (1.1 ) (19.0 )
Cash and cash equivalents 2,297,471 2,314,938 2,752,476 (0.8 ) (16.5 )
Interest-bearing deposits with banks 360,900 478,871 296,679 (24.6 ) 21.6
Securities purchased under resale agreements (“resale agreements”) (1) 975,000 1,050,000 1,300,000 (7.1 ) (25.0 )
Investment securities 2,707,444 2,811,416 2,943,856 (3.7 ) (8.0 )
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock 73,524 73,787 73,173 (0.4 ) 0.5
Loans held-for-sale (“HFS”) 14,658 46,181 11,649 (68.3 ) 25.8
Loans held-for-investment (net of allowance for loan losses of $301,550, $297,654 and $276,316) 29,928,829 29,257,594 26,934,350 2.3 11.1
Investments in qualified affordable housing partnerships, net 152,556 160,574 169,103 (5.0 ) (9.8 )
Investments in tax credit and other investments, net 242,595 246,183 189,405 (1.5 ) 28.1
Goodwill 465,547 465,547 469,433 (0.8 )
Other assets 854,430   788,067   777,493   8.4 9.9
Total assets $ 38,072,954   $ 37,693,158   $ 35,917,617   1.0 % 6.0 %
 
Liabilities and Stockholders’ Equity
Deposits $ 32,776,132 $ 32,608,777 $ 31,154,287 0.5 % 5.2 %
Short-term borrowings 58,523 30,277 24,426 93.3 139.6
FHLB advances 325,020 324,451 322,756 0.2 0.7
Securities sold under repurchase agreements (“repurchase agreements”) (1) 50,000 50,000 50,000
Long-term debt 161,704 166,640 176,450 (3.0 ) (8.4 )
Accrued expenses and other liabilities 587,291   534,258   519,437   9.9 13.1
Total liabilities 33,958,670 33,714,403 32,247,356 0.7 5.3
Stockholders’ equity 4,114,284   3,978,755   3,670,261   3.4 12.1
Total liabilities and stockholders’ equity $ 38,072,954   $ 37,693,158   $ 35,917,617   1.0 % 6.0 %
 
Book value per common share $ 28.39 $ 27.46 $ 25.40 3.4 % 11.8 %
Tangible equity (2) per common share $ 25.01 $ 24.07 $ 21.93 3.9 14.0
Tangible equity to tangible assets ratio (2) 9.64 % 9.37 % 8.95 % 2.9 7.8
Number of common shares at period-end 144,905 144,873 144,486 0.0 0.3
 
(1)  

Resale and repurchase agreements are reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45, Balance Sheet Offsetting. As of each of June 30, 2018, March 31, 2018 and June 30, 2017, $400.0 million out of $450.0 million of gross repurchase agreements were eligible for netting against gross resale agreements.

(2) See reconciliation of GAAP to non-GAAP financial measures in Table 15.
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
TOTAL LOANS AND DEPOSITS DETAIL
($ in thousands)
(unaudited)
Table 2
 
        June 30, 2018
% Change
June 30, 2018   March 31, 2018   June 30, 2017 Qtr-o-Qtr   Yr-o-Yr
Loans:
Commercial lending:
Commercial and industrial (“C&I”) $ 11,059,019 $ 10,818,304 $ 10,187,349 2.2 % 8.6 %
Commercial real estate (“CRE”) 9,054,567 9,022,746 8,465,030 0.4 7.0
Multifamily residential 2,032,522 1,954,855 1,772,741 4.0 14.7
Construction and land 623,837 669,340 660,819 (6.8 ) (5.6 )
Consumer lending:
Single-family residential 5,316,895 4,930,580 4,001,488 7.8 32.9
Home equity lines of credit (“HELOCs”) 1,769,511 1,775,443 1,786,207 (0.3 ) (0.9 )
Other consumer 374,028   383,980   337,032   (2.6 ) 11.0
Total loans held-for-investment (1)(2) 30,230,379 29,555,248 27,210,666 2.3 11.1
Loans HFS 14,658   46,181   11,649   (68.3 ) 25.8
Total loans (1)(2) 30,245,037 29,601,429 27,222,315 2.2 11.1
Allowance for loan losses (301,550 ) (297,654 ) (276,316 ) 1.3 9.1
Net loans (1)(2) $ 29,943,487   $ 29,303,775   $ 26,945,999   2.2 % 11.1 %
 
Deposits:
Noninterest-bearing demand $ 10,739,333 $ 11,763,936 $ 10,460,230

(8.7

)%

2.7 %
Interest-bearing checking 4,323,698 4,428,952 4,059,046 (2.4 ) 6.5
Money market 7,634,850 7,913,040 8,193,086 (3.5 ) (6.8 )
Savings 2,218,228   2,301,780   2,368,611   (3.6 ) (6.3 )
Total core deposits 24,916,109 26,407,708 25,080,973 (5.6 ) (0.7 )
Time deposits 7,860,023   6,201,069   6,073,314   26.8 29.4
Total deposits $ 32,776,132   $ 32,608,777   $ 31,154,287   0.5 % 5.2 %
 
(1)   Includes $(40.4) million, $(36.6) million and $(9.6) million as of June 30, 2018, March 31, 2018 and June 30, 2017, respectively, of net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts.
(2) Includes ASC 310-30 discount of $26.8 million, $32.2 million and $42.9 million as of June 30, 2018, March 31, 2018 and June 30, 2017, respectively.
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(unaudited)
Table 3
 
    Three Months Ended   June 30, 2018
% Change
June 30, 2018   March 31, 2018   June 30, 2017 Qtr-o-Qtr   Yr-o-Yr
Interest and dividend income $ 400,311 $ 371,873 $ 322,775 7.6 % 24.0 %
Interest expense 58,632   45,180   32,684   29.8 79.4
Net interest income before provision for credit losses 341,679 326,693 290,091 4.6 17.8
Provision for credit losses 15,536   20,218   10,685   (23.2 ) 45.4
Net interest income after provision for credit losses 326,143 306,475 279,406 6.4 16.7
Noninterest income 48,268 74,444 47,244 (35.2 ) 2.2
Noninterest expense 177,419   169,135   168,965   4.9 5.0
Income before income taxes 196,992 211,784 157,685 (7.0 ) 24.9
Income tax expense 24,643   24,752   39,355   (0.4 ) (37.4 )
Net income $ 172,349   $ 187,032   $ 118,330   (7.9 )% 45.7 %
Earnings per share (“EPS”)
- Basic $ 1.19 $ 1.29 $ 0.82 (8.0 )% 45.2 %
- Diluted $ 1.18 $ 1.28 $ 0.81 (7.9 ) 45.3
Weighted average number of shares outstanding
- Basic 144,899 144,664 144,485 0.2 % 0.3 %
- Diluted 146,091 145,939 145,740 0.1 0.2
 
Three Months Ended June 30, 2018
% Change
June 30, 2018 March 31, 2018 June 30, 2017 Qtr-o-Qtr Yr-o-Yr
Noninterest income:
Branch fees $ 10,140 $ 10,430 $ 10,321 (2.8 )% (1.8 )%
Letters of credit fees and foreign exchange income 15,673 9,602 12,365 63.2 26.8
Ancillary loan fees and other income 5,841 5,581 5,907 4.7 (1.1 )
Wealth management fees 4,501 2,953 3,381 52.4 33.1
Derivative fees and other income 6,570 6,690 3,765 (1.8 ) 74.5
Net gains on sales of loans 2,354 1,582 1,546 48.8 52.3
Net gains on sales of available-for-sale investment securities 210 2,129 2,720 (90.1 ) (92.3 )
Net gains on sales of fixed assets 1,114 1,086 1,042 2.6 6.9
Net gain on sale of business 31,470 (100.0 )
Other fees and operating income 1,865   2,921   6,197   (36.2 ) (69.9 )
Total noninterest income $ 48,268   $ 74,444   $ 47,244   (35.2 )% 2.2 %
Noninterest expense:
Compensation and employee benefits $ 93,865 $ 95,234 $ 80,744 (1.4 )% 16.3 %
Occupancy and equipment expense 16,707 16,880 15,554 (1.0 ) 7.4
Deposit insurance premiums and regulatory assessments 5,832 6,273 5,779 (7.0 ) 0.9
Legal expense 2,837 2,255 2,552 25.8 11.2
Data processing 3,327 3,401 3,058 (2.2 ) 8.8
Consulting expense 5,120 2,352 4,769 117.7 7.4
Deposit related expense 2,922 2,679 2,505 9.1 16.6
Computer software expense 5,549 5,054 5,462 9.8 1.6
Other operating expense 20,779 17,607 20,670 18.0 0.5
Amortization of tax credit and other investments 20,481   17,400   27,872   17.7 (26.5 )
Total noninterest expense $ 177,419   $ 169,135   $ 168,965   4.9 % 5.0 %
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
($ and shares in thousands, except per share data)
(unaudited)
Table 4
 
    Six Months Ended   June 30, 2018
% Change
June 30, 2018   June 30, 2017 Yr-o-Yr
Interest and dividend income $ 772,184 $ 625,444 23.5 %
Interest expense 103,812   63,231   64.2
Net interest income before provision for credit losses 668,372 562,213 18.9
Provision for credit losses 35,754   17,753   101.4
Net interest income after provision for credit losses 632,618 544,460 16.2
Noninterest income 122,712 163,072 (24.7 )
Noninterest expense 346,554   321,843   7.7
Income before income taxes 408,776 385,689 6.0
Income tax expense 49,395   97,623   (49.4 )
Net income $ 359,381   $ 288,066   24.8 %
EPS
- Basic $ 2.48 $ 2.00 24.4 %
- Diluted $ 2.46 $ 1.98 24.5
Weighted average number of shares outstanding
- Basic 144,782 144,368 0.3 %
- Diluted 146,046 145,774 0.2
 
Six Months Ended June 30, 2018
% Change
June 30, 2018 June 30, 2017 Yr-o-Yr
Noninterest income:
Branch fees $ 20,570 $ 20,245 1.6 %
Letters of credit fees and foreign exchange income 25,275 23,806 6.2
Ancillary loan fees and other income 11,422 10,889 4.9
Wealth management fees 7,454 7,716 (3.4 )
Derivative fees and other income 13,260 6,271 111.4
Net gains on sales of loans 3,936 4,300 (8.5 )
Net gains on sales of available-for-sale investment securities 2,339 5,194 (55.0 )
Net gains on sales of fixed assets 2,200 73,049 (97.0 )
Net gain on sale of business 31,470 100.0
Other fees and operating income 4,786   11,602   (58.7 )
Total noninterest income $ 122,712   $ 163,072   (24.7 )%
Noninterest expense:
Compensation and employee benefits $ 189,099 $ 165,347 14.4 %
Occupancy and equipment expense 33,587 31,194 7.7
Deposit insurance premiums and regulatory assessments 12,105 11,708 3.4
Legal expense 5,092 5,614 (9.3 )
Data processing 6,728 6,005 12.0
Consulting expense 7,472 6,688 11.7
Deposit related expense 5,601 4,870 15.0
Computer software expense 10,603 9,430 12.4
Other operating expense 38,386 38,755 (1.0 )
Amortization of tax credit and other investments 37,881   42,232   (10.3 )
Total noninterest expense $ 346,554   $ 321,843   7.7 %
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
SELECTED AVERAGE BALANCES
($ in thousands)
(unaudited)
Table 5
 
    Three Months Ended   June 30, 2018
% Change
  Six Months Ended   June 30, 2018
% Change
June 30, 2018   March 31, 2018   June 30, 2017

Qtr-o-
Qtr

  Yr-o-Yr June 30, 2018   June 30, 2017 Yr-o-Yr
Loans:
Commercial lending:
C&I $ 10,747,074 $ 10,712,583 $ 9,975,216 0.3 % 7.7 % $ 10,729,924 $ 9,968,745 7.6 %
CRE 9,038,228 9,006,593 8,351,403 0.4 8.2 9,022,498 8,248,718 9.4
Multifamily residential 1,970,538 1,944,516 1,764,720 1.3 11.7 1,957,599 1,710,111 14.5
Construction and land 667,997 657,568 655,588 1.6 1.9 662,811 664,465 (0.2 )
Consumer lending:
Single-family residential 5,103,008 4,771,427 3,816,572 6.9 33.7 4,938,134 3,690,782 33.8
HELOCs 1,787,036 1,779,242 1,800,022 0.4 (0.7 ) 1,783,160 1,784,464 (0.1 )
Other consumer 332,885   339,977   335,266   (2.1 ) (0.7 ) 336,411   336,260   0.0
Total loans (1)(2) $ 29,646,766   $ 29,211,906   $ 26,698,787   1.5 % 11.0 % $ 29,430,537   $ 26,403,545   11.5 %
 
Investment securities $ 2,735,023   $ 2,854,335   $ 2,962,201   (4.2 )% (7.7 )% $ 2,794,350   $ 3,110,280   (10.2 )%
Interest-earning assets $ 35,767,808   $ 35,513,663   $ 33,295,012   0.7 % 7.4 % $ 35,641,438   $ 33,204,629   7.3 %
Total assets $ 37,568,895   $ 37,381,098   $ 34,994,935   0.5 % 7.4 % $ 37,475,515   $ 34,961,668   7.2 %
 
Deposits:
Noninterest-bearing demand $ 10,984,950 $ 11,289,512 $ 10,195,755 (2.7 )% 7.7 % $ 11,136,389 $ 10,154,195 9.7 %
Interest-bearing checking 4,387,479 4,559,695 3,872,347 (3.8 ) 13.3 4,473,111 3,736,334 19.7
Money market 7,880,601 8,273,160 7,964,286 (4.7 ) (1.1 ) 8,075,796 7,953,618 1.5
Savings 2,214,793   2,452,452   2,295,299   (9.7 ) (3.5 ) 2,332,966   2,289,739   1.9
Total core deposits 25,467,823 26,574,819 24,327,687 (4.2 ) 4.7 26,018,262 24,133,886 7.8
Time deposits 6,907,174   5,716,638   5,871,236   20.8 17.6 6,315,194   5,821,587   8.5
Total deposits $ 32,374,997   $ 32,291,457   $ 30,198,923   0.3 % 7.2 % $ 32,333,456   $ 29,955,473   7.9 %
 
Interest-bearing liabilities $ 21,938,134   $ 21,553,595   $ 20,662,124   1.8 % 6.2 % $ 21,746,927   $ 20,723,804   4.9 %
Stockholders’ equity $ 4,062,311   $ 3,922,926   $ 3,637,695   3.6 % 11.7 % $ 3,993,004   $ 3,565,944   12.0 %
 
(1)   Includes ASC 310-30 discount of $30.0 million, $34.1 million and $45.4 million for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively, and $32.0 million and $47.0 million for the six months ended June 30, 2018 and 2017, respectively.
(2) Includes loans HFS.
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES, YIELDS AND RATES
($ in thousands)
(unaudited)
Table 6
 
    Three Months Ended
June 30, 2018   March 31, 2018
Average     Average Average     Average
Balance Interest Yield/Rate(1) Balance Interest Yield/Rate(1)
Assets
Interest-earning assets:
Interest-bearing cash and deposits with banks $ 2,316,194 $ 11,715 2.03 % $ 2,323,771 $ 10,945 1.91 %
Resale agreements (2) 996,154 7,182 2.89 % 1,050,000 6,934 2.68 %
Investment securities 2,735,023 15,059 2.21 % 2,854,335 15,456 2.20 %
Loans (3) 29,646,766 365,555 4.95 % 29,211,906 337,904 4.69 %
FHLB and FRB stock 73,671   800   4.36 % 73,651   634   3.49 %
Total interest-earning assets 35,767,808   400,311   4.49 % 35,513,663   371,873   4.25 %
 
Noninterest-earning assets:
Cash and due from banks 432,401 443,357
Allowance for loan losses (292,645 ) (285,836 )
Other assets 1,661,331   1,709,914  
Total assets $ 37,568,895   $ 37,381,098  
 
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Checking deposits $ 4,387,479 $ 8,416 0.77 % $ 4,559,695 $ 6,727 0.60 %
Money market deposits 7,880,601 18,805 0.96 % 8,273,160 15,840 0.78 %
Savings deposits 2,214,793 2,035 0.37 % 2,452,452 2,021 0.33 %
Time deposits 6,907,174 22,009 1.28 % 5,716,638 14,548 1.03 %
Federal funds purchased and other short-term borrowings 11,695 124 4.25 % 871 7 3.26 %
FHLB advances 324,665 2,552 3.15 % 334,121 2,260 2.74 %
Repurchase agreements (2) 50,000 3,042 24.40 % 50,000 2,306 18.70 %
Long-term debt 161,727   1,649   4.09 % 166,658   1,471   3.58 %
Total interest-bearing liabilities 21,938,134   58,632   1.07 % 21,553,595   45,180   0.85 %
 
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits 10,984,950 11,289,512
Accrued expenses and other liabilities 583,500 615,065
Stockholders’ equity 4,062,311   3,922,926  
Total liabilities and stockholders’ equity $ 37,568,895   $ 37,381,098  
 
Interest rate spread 3.42 % 3.40 %
Net interest income and net interest margin $ 341,679   3.83 % $ 326,693   3.73 %
Adjusted net interest income and adjusted net interest margin (4) $ 335,380   3.76 % $ 321,493   3.67 %

 

(1)   Annualized.
(2)

Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.

(3) Includes loans HFS and ASC 310-30 discount of $30.0 million and $34.1 million for the three months ended June 30, 2018 and March 31, 2018, respectively.
(4) See reconciliation of GAAP to non-GAAP financial measures in Table 14.
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES, YIELDS AND RATES
($ in thousands)
(unaudited)
Table 7
 
    Three Months Ended
June 30, 2018   June 30, 2017
Average     Average Average     Average
Balance Interest Yield/Rate(1) Balance Interest Yield/Rate(1)
Assets
Interest-earning assets:
Interest-bearing cash and deposits with banks $ 2,316,194 $ 11,715 2.03 % $ 2,191,730 $ 7,552 1.38 %
Resale agreements (2) 996,154 7,182 2.89 % 1,369,231 7,853 2.30 %
Investment securities 2,735,023 15,059 2.21 % 2,962,201 13,861 1.88 %
Loans (3) 29,646,766 365,555 4.95 % 26,698,787 293,039 4.40 %
FHLB and FRB stock 73,671   800   4.36 % 73,063   470   2.58 %
Total interest-earning assets 35,767,808   400,311   4.49 % 33,295,012   322,775   3.89 %
 
Noninterest-earning assets:
Cash and due from banks 432,401 386,213
Allowance for loan losses (292,645 ) (264,869 )
Other assets 1,661,331   1,578,579  
Total assets $ 37,568,895   $ 34,994,935  
 
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Checking deposits $ 4,387,479 $ 8,416 0.77 % $ 3,872,347 $ 4,183 0.43 %
Money market deposits 7,880,601 18,805 0.96 % 7,964,286 10,145 0.51 %
Savings deposits 2,214,793 2,035 0.37 % 2,295,299 1,386 0.24 %
Time deposits 6,907,174 22,009 1.28 % 5,871,236 11,331 0.77 %
Federal funds purchased and other short-term borrowings 11,695 124 4.25 % 37,609 252 2.69 %
FHLB advances 324,665 2,552 3.15 % 322,410 1,761 2.19 %
Repurchase agreements (2) 50,000 3,042 24.40 % 117,582 2,273 7.75 %
Long-term debt 161,727   1,649   4.09 % 181,355   1,353   2.99 %
Total interest-bearing liabilities 21,938,134   58,632   1.07 % 20,662,124   32,684   0.63 %
 
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits 10,984,950 10,195,755
Accrued expenses and other liabilities 583,500 499,361
Stockholders’ equity 4,062,311   3,637,695  
Total liabilities and stockholders’ equity $ 37,568,895   $ 34,994,935  
 
Interest rate spread 3.42 % 3.26 %
Net interest income and net interest margin $ 341,679   3.83 % $ 290,091   3.49 %
Adjusted net interest income and adjusted net interest margin (4) $ 335,380   3.76 % $ 283,830   3.41 %
 
(1)   Annualized.
(2)

Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.

(3) Includes loans HFS and ASC 310-30 discount of $30.0 million and $45.4 million for the three months ended June 30, 2018 and 2017, respectively.
(4) See reconciliation of GAAP to non-GAAP financial measures in Table 14.
 
 
EAST WEST BANCORP, INC. AND SUBSIDIARIES
 
YEAR-TO-DATE AVERAGE BALANCES, YIELDS AND RATES
($ in thousands)
(unaudited)
Table 8
 
    Six Months Ended
June 30, 2018   June 30, 2017
Average     Average Average     Average
Balance Interest Yield/Rate(1) Balance Interest Yield/Rate(1)
Assets
Interest-earning assets:
Interest-bearing cash and deposits with banks $ 2,319,962 $ 22,660 1.97 % $ 1,935,455 $ 12,668 1.32 %
Resale agreements (2) 1,022,928 14,116 2.78 % 1,681,492 17,321 2.08 %
Investment securities 2,794,350 30,515 2.20 % 3,110,280 29,108 1.89 %
Loans (3) 29,430,537 703,459 4.82 % 26,403,545 565,100 4.32