Corporate Information

Press Release

East West Bancorp Reports Net Income for Third Quarter 2018 of $171 Million and Diluted Earnings Per Share of $1.17, Both Up By 29% Year-Over-Year

Company Release - 10/18/2018 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 third quarter of 2018. For the third quarter of 2018, net income was $171 million, or $1.17 per diluted share, up by 29% year-over-year compared to $133 million, or $0.91 per diluted share, for the third quarter of 2017. Third quarter 2018 return on average assets of 1.76%, return on average equity of 16.2% and return on average tangible1 equity of 18.5% were all up significantly year-over-year.

“Total loans grew $968 million, or 13% annualized, to a record $31.2 billion as of September 30, 2018 from $30.2 billion as of June 30, 2018,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “Total deposits grew $853 million, or 10% annualized, to a record $33.6 billion as of September 30, 2018 from $32.8 billion as of June 30, 2018.”

“Driven by our sustained loan growth, net interest income reached a record $349 million in the third quarter of 2018, an increase of 2% quarter-over-quarter and 15% year-over-year,” continued Ng. “Our current quarter adjusted2 efficiency ratio of 39.9% was stable compared to the prior quarter. For the third quarter of 2018, our adjusted pre-tax, pre-provision income3 was $238 million, an increase of 1% quarter-over-quarter and an increase of 13% year-over-year.

“In conclusion, with year-to-date results of strong loan growth and an expanding net interest margin, we are on track for another year of record earnings for 2018. Our net interest income continues to reach higher levels quarter after quarter, and our attractive profitability remains a valued proposition for shareholders,” concluded Ng.

____________________________________________

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

HIGHLIGHTS OF RESULTS

  • Quarterly Earnings – Third quarter 2018 net income of $171.3 million and diluted earnings per share (“EPS”) of $1.17 both decreased by 1% compared to second quarter 2018 net income of $172.3 million and diluted EPS of $1.18. Net income and EPS both grew by 29% year-over-year.
  • Net Interest Income Growth and Net Interest Margin – Third quarter 2018 net interest income was $348.7 million, a quarterly increase of $7.0 million, or 2%. Net interest income growth primarily reflected loan growth and loan yield expansion, partially offset by growth in time deposits and an increase in the cost of deposits. Third quarter 2018 net interest margin (“NIM”) of 3.76% declined by seven basis points linked quarter. Net interest income grew by 15% year-over-year, and NIM expanded by 24 basis points year-over-year.
  • Record Loans – Total loans of $31.2 billion as of September 30, 2018 were up $968.3 million, or 13% linked quarter annualized, from $30.2 billion as of June 30, 2018. The largest increase in loans this quarter was in commercial and industrial loans, followed by single-family mortgages. Total loans grew by 9% year-over-year.
  • Record Deposits – Total deposits of $33.6 billion as of September 30, 2018 were up $853.0 million, or 10% linked quarter annualized, from $32.8 billion as of June 30, 2018. The sequential quarter growth was largely from an increase in time deposits. Total deposits grew by 7% year-over-year.
  • Asset Quality Metrics – The allowance for loan losses was $310.0 million, or 0.99% of loans held-for-investment (“HFI”), as of September 30, 2018, compared to $301.6 million, or 1.00% of loans HFI, as of June 30, 2018. For the third quarter of 2018, annualized net charge-offs were 0.05% of average loans HFI, compared to annualized net charge-offs of 0.14% of average loans HFI for the previous quarter. Non-purchased credit impaired (“Non-PCI”) nonperforming assets were $114.6 million, or 0.29% of total assets, as of September 30, 2018, compared to $103.5 million, or 0.27% of total assets, as of June 30, 2018.
  • Capital Levels – Capital levels for East West continue to be strong. As of September 30, 2018, stockholders’ equity was $4.2 billion, or $29.29 per share. Tangible equity4 per common share was $25.91 as of September 30, 2018, an increase of 4% linked quarter and 14% year-over-year. As of September 30, 2018, the tangible equity to tangible assets ratio4 was 9.73%, the Common Equity Tier 1 (“CET1”) capital ratio was 12.3%, and the total risk-based capital ratio was 13.8%.

____________________________________________

4 See reconciliation of GAAP to non-GAAP financial measures in Table 15.

QUARTERLY RESULTS SUMMARY

      Quarter Ended
($ in millions, except per share data)      

September 30,
2018

     

June 30,
2018

     

September 30,
2017

Net income $ 171.3       $ 172.3       $ 132.7
Adjusted net income (1) $ 171.3 $ 172.3 $ 130.5
Earnings per share (diluted) $ 1.17 $ 1.18 $ 0.91
Adjusted earnings per share (diluted) (1) $ 1.17 $ 1.18 $ 0.89
Book value per common share $ 29.29 $ 28.39 $ 26.17
Tangible equity (1) per common share $ 25.91 $ 25.01 $ 22.71
Tangible equity to tangible assets ratio (1)       9.73 %       9.64 %       9.17 %
Return on average assets (2) 1.76 % 1.84 % 1.46 %
Return on average equity (2) 16.2 % 17.0 % 14.0 %
Return on average tangible equity (1)(2)       18.5 %       19.5 %       16.3 %
Adjusted return on average assets (1)(2) 1.76 % 1.84 % 1.44 %
Adjusted return on average equity (1)(2) 16.2 % 17.0 % 13.8 %
Adjusted return on average tangible equity (1)(2) 18.5 % 19.5 % 16.1 %
Adjusted pre-tax, pre-provision profitability ratio (1)(2)       2.44 %       2.50 %       2.32 %
Net interest income $ 348.7 $ 341.7 $ 303.2
Net interest margin (2) 3.76 % 3.83 % 3.52 %
Cost of deposits (2)       0.78 %       0.64 %       0.40 %
Efficiency ratio 45.5 % 45.5 % 46.6 %
Adjusted efficiency ratio (1)       39.9 %       39.9 %       39.8 %

(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. We are lowering our anticipated provision for credit losses, narrowing our expected expense growth range, and adjusting the tax rate.

The revised items are as follows:

  • Provision for credit losses to range from $60 million to $65 million (lowered from a range of $70 million to $80 million, previously).
  • Noninterest expense, excluding amortization of tax credit investments and core deposit intangibles, to increase by approximately 9% year-over-year (narrowed from a percentage rate change in the high single digits, previously).
  • Projecting full year effective tax rate of approximately 14% (versus 13%, previously). Other tax items are unchanged: investment in tax-advantaged credits, excluding low income housing tax credits, of $115 million and associated tax credit amortization expense of $100 million for the full year.

We continue to expect end-of-period loans to increase by approximately 10% year-over-year; and anticipate full year net interest margin, excluding the impact of ASC 310-30 discount accretion income, to be approximately 3.75%.

OPERATING RESULTS SUMMARY

Third Quarter 2018 Compared to Second Quarter 2018

Net Interest Income and Net Interest Margin

Net interest income totaled $348.7 million, a 2% increase from $341.7 million. Net interest margin decreased by seven basis points to 3.76% from 3.83%.

  • Excluding the impact of ASC 310-30 discount accretion, adjusted5 net interest income of $345.9 million increased by 3% and adjusted5 NIM of 3.72% declined by 4 basis points. ASC 310-30 discount accretion income was $2.9 million, a decline from $6.3 million last quarter.
  • Average loans of $30.5 billion grew by $851.3 million, or 11% linked quarter annualized.
  • Average deposits of $33.2 billion grew by $864.8 million, or 11% linked quarter annualized.
  • The yield on loans expanded by seven basis points to 5.02% from 4.95%.
  • The yield on earning assets expanded by six basis points to 4.55% from 4.49%.
  • The cost of deposits increased by 14 basis points to 0.78% from 0.64%.
  • The cost of funds increased by 15 basis points to 0.86% from 0.71%.

Noninterest Income

Noninterest income totaled $46.5 million, a decrease of $1.8 million or 4% from $48.3 million. Excluding the impact of all gains on sales, total fees and other operating income of $41.9 million in the third quarter of 2018 decreased by 6% from $44.6 million.

  • Decrease in derivative fees and other income reflected a lower volume of customer transactions, which was partially offset by an increase in the fair value of interest rate swaps.
  • Decrease in letters of credit fees and foreign exchange income reflected a decline in 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 September 30, 2018, June 30, 2018, and September 30, 2017.

 
      Quarter Ended
($ in thousands)

September 30,
2018

     

June 30,
2018

     

September 30,
2017

Branch fees $ 9,777 $ 10,140 $ 10,393
Letters of credit fees and foreign exchange income 14,649 15,673 10,564
Ancillary loan fees and other income 6,795 5,841 5,987
Wealth management fees 3,535 4,501 3,461
Derivative fees and other income 4,595 6,570 6,663
Other fees and operating income 2,569   1,865   3,653
Total fees and other operating income $ 41,920   $ 44,590   $ 40,721
 
 

Noninterest Expense

Noninterest expense of $179.8 million included $157.7 million of adjusted6 noninterest expense, $20.8 million in amortization of tax credit and other investments, and $1.4 million in amortization of core deposit intangibles.

  • Adjusted noninterest expense of $157.7 million increased by $2.1 million, or 1%, linked quarter. The increase in noninterest expense compared to the prior quarter was mostly due to an increase in compensation and employee benefits, as well as an increase in other operating expenses, partially offset by decreases in consulting and legal expenses.
  • The adjusted efficiency ratio was unchanged at 39.9% in the third quarter compared to the prior quarter.

____________________________________________________________

5 See reconciliation of GAAP to non-GAAP financial measures in Table 14.
6 See reconciliation of GAAP to non-GAAP financial measures in Table 13.

TAX RELATED ITEMS

Tax expense in the third quarter of 2018 was $33.6 million and the effective tax rate was 16%, compared to a tax expense of $24.6 million and an effective tax rate of 13% in the second quarter of 2018.

  • Currently, we are projecting a full year 2018 effective tax rate of approximately 14%, an increase from a projected rate of 13% previously.

CREDIT QUALITY

The allowance for loan losses totaled $310.0 million, or 0.99% of loans HFI, as of September 30, 2018, compared to $301.6 million, or 1.00% of loans HFI, as of June 30, 2018, and $285.9 million, or 1.00% of loans HFI, as of September 30, 2017.

  • The provision for credit losses recorded for the current quarter was $10.5 million, compared to $15.5 million for the second quarter of 2018, and $13.0 million for the third quarter of 2017.
  • Net charge-offs for the current quarter were $3.7 million, or annualized 0.05% of average loans HFI. This compares to net charge-offs of $10.6 million, or annualized 0.14% of average loans HFI, for the second quarter of 2018, and net charge-offs of $4.0 million, or annualized 0.06% of average loans HFI, for the third quarter of 2017.
  • Non-PCI nonperforming assets of $114.6 million, or 0.29% of total assets, as of September 30, 2018, increased from $103.5 million, or 0.27% of total assets, as of June 30, 2018, and decreased from $117.0 million, or 0.32% of total assets, as of September 30, 2017.

CAPITAL STRENGTH

Capital levels for East West continue to be strong. As of September 30, 2018, stockholders’ equity was $4.2 billion, or $29.29 per share. Tangible equity per common share was $25.91 as of September 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 September 30, 2018, June 30, 2018, and September 30, 2017.

 
EWBC Regulatory Capital Metrics   Basel III

($ in millions)

September 30,
2018 (a)

 

June 30,
2018

 

September 30,
2017

 

Minimum
Regulatory
Requirements

 

Well
Capitalized
Regulatory
Requirements

 

Fully Phased-
in Minimum
Regulatory
Requirements

CET1 capital ratio 12.3 % 12.2 % 11.4 % 4.5 % 6.5 % 7.0 %
Tier 1 risk-based capital ratio 12.3 % 12.2 % 11.4 % 6.0 % 8.0 % 8.5 %
Total risk-based capital ratio 13.8 % 13.7 % 12.9 % 8.0 % 10.0 % 10.5 %
Tier 1 leverage capital ratio

10.0

% 10.0 % 9.4 % 4.0 % 5.0 % 4.0 %
Risk-Weighted Assets (“RWA”) (b)   $

31,209

    $ 30,415     $ 29,178     N/A   N/A   N/A

N/A Not applicable.

(a)   The Company’s September 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 fourth quarter 2018 dividends for the Company’s common stock. The common stock cash dividend of $0.23 per share is payable on November 15, 2018 to stockholders of record on November 1, 2018.

Conference Call

East West will host a conference call to discuss third quarter 2018 earnings with the public on Thursday, October 18, 2018 at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses third 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 October 18, 2018 at 11:30 a.m. Pacific Time through November 18, 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: 10124728.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $39.1 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; success and timing of our business strategies; the Company’s ability to retain key officers and employees; changes in interest rates on our net interest income and net interest margin; the effect of changes in the deposit mix on our funding costs and net interest margin; changes in our costs of operation, compliance and expansion; our ability to adopt and successfully integrate new technologies into our business in a strategic manner; 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; future credit quality and performance, including our expectations regarding future credit losses and allowance levels; impact of adverse changes to our credit ratings from the major credit rating agencies; impact of adverse judgments or settlements in litigation; changes in the commercial and consumer real estate markets; 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; impact of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions; 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; impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on our business, business practices and cost of operations; heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers; impact of reputational risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions; impact of regulatory enforcement actions; 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 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; our capital requirements and our ability to generate capital internally or raise capital on favorable terms; changes in our ability to receive dividends from our subsidiaries; any future strategic acquisitions or divestitures; continuing consolidation in the financial services industry; changes in the equity and debt securities markets; fluctuations of our stock price; fluctuations in foreign currency exchange rates; 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; changes in the economy of and monetary policy in the People’s Republic of China; 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; 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                                          
                               
                 

September 30, 2018
% Change

September 30, 2018 June 30, 2018 September 30, 2017 Qtr-o-Qtr Yr-o-Yr
Assets
Cash and due from banks $ 408,049 $ 415,653 $ 364,328 (1.8 )% 12.0 %
Interest-bearing cash with banks 1,810,738   1,881,818   1,372,421   (3.8 ) 31.9
Cash and cash equivalents 2,218,787 2,297,471 1,736,749 (3.4 ) 27.8
Interest-bearing deposits with banks 400,900 360,900 404,946 11.1 (1.0 )
Securities purchased under resale agreements (“resale agreements”) (1) 1,035,000 975,000 1,250,000 6.2 (17.2 )
Investment securities 2,676,510 2,707,444 2,956,776 (1.1 ) (9.5 )
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock 73,729 73,524 73,322 0.3 0.6
Loans held-for-sale (“HFS”) 3,114 14,658 178 (78.8 ) NM
Loans held-for-investment (net of allowance for loan losses of $310,041, $301,550 and $285,926) 30,900,144 29,928,829 28,239,431 3.2 9.4
Investments in qualified affordable housing partnerships, net 148,097 152,556 178,344 (2.9 ) (17.0 )
Investments in tax credit and other investments, net 232,194 242,595 203,758 (4.3 ) 14.0
Goodwill 465,547 465,547 469,433 (0.8 )
Other assets 919,084   854,430   795,029   7.6 15.6
Total assets $ 39,073,106   $ 38,072,954   $ 36,307,966   2.6 % 7.6 %
 
Liabilities and Stockholders’ Equity
Deposits $ 33,629,124 $ 32,776,132 $ 31,311,662 2.6 % 7.4 %
Short-term borrowings 56,411 58,523 24,813 (3.6 ) 127.3
FHLB advances 325,596 325,020 323,323 0.2 0.7
Securities sold under repurchase agreements (“repurchase agreements”) (1) 50,000 50,000 50,000
Long-term debt 156,770 161,704 176,513 (3.1 ) (11.2 )
Accrued expenses and other liabilities 610,355   587,291   639,759   3.9 (4.6 )
Total liabilities 34,828,256 33,958,670 32,526,070 2.6 7.1
Stockholders’ equity 4,244,850   4,114,284   3,781,896   3.2 12.2
Total liabilities and stockholders’ equity $ 39,073,106   $ 38,072,954   $ 36,307,966   2.6 % 7.6 %
 
Book value per common share $ 29.29 $ 28.39 $ 26.17 3.2 % 11.9 %
Tangible equity (2) per common share $ 25.91 $ 25.01 $ 22.71 3.6 14.1
Tangible equity to tangible assets ratio (2) 9.73 % 9.64 % 9.17 % 1.0 6.2
Number of common shares at period-end       144,929         144,905         144,511         0.0         0.3  
NM Not Meaningful
(1)  

Resale and repurchase agreements have been reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45, Balance Sheet Offsetting. As of each of September 30, 2018, June 30, 2018 and September 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                                          
                               
                  September 30, 2018
% Change
September 30, 2018 June 30, 2018 September 30, 2017 Qtr-o-Qtr Yr-o-Yr
Loans:
Commercial lending:
Commercial and industrial (“C&I”) $ 11,517,054 $ 11,059,019 $ 10,645,156 4.1 % 8.2 %
Commercial real estate (“CRE”) 9,262,327 9,054,567 8,843,776 2.3 4.7
Multifamily residential 2,090,563 2,032,522 1,876,956 2.9 11.4
Construction and land 605,033 623,837 683,404 (3.0 ) (11.5 )
Consumer lending:
Single-family residential 5,684,587 5,316,895 4,356,009