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 2019. For the third quarter of 2019, net income was $171.4 million or $1.17 per diluted share, both up by 14% compared to the second quarter of 2019. Third quarter 2019 return on average assets was 1.58% and return on average equity was 14.1%.
“For the third quarter of 2019, East West achieved both record total operating1 revenue of $421 million and record net interest income of $370 million,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “In a challenging environment of declining interest rates, we achieved a quarter-over-quarter increase in net interest income through balance sheet growth combined with a decrease in the cost of deposits. For the third quarter of 2019, the average cost of deposits decreased by six basis points to 1.05%, compared to 1.11% in the second quarter of 2019.”
“Total loans grew $291 million, or 3% annualized, to a record $34.0 billion as of September 30, 2019 from $33.7 billion as of June 30, 2019. Year-to-date, total loans grew 7% annualized. Total deposits grew $182 million, or 2% annualized, to a record $36.7 billion as of September 30, 2019 from $36.5 billion as of June 30, 2019. Year-to-date, total deposits grew 5% annualized.”
“We maintained strong expense discipline, resulting in a modest decline in noninterest expenses quarter-over-quarter,” continued Ng. “However, the provision for credit losses increased to $38 million for the third quarter, and our pre-tax income declined by 7.5% from the second quarter of 2019. Nevertheless, net income grew 14% quarter-over-quarter as we benefitted from a linked-quarter reduction in the income tax expense.”
“Overall, our third quarter 2019 return on assets was 1.58% and return on equity was 14.1%. We continue to deliver strong returns, in line with our long-term track record of generating attractive profitability,” concluded Ng.
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1 |
Operating revenue consists of net interest income before provision for credit losses and noninterest income, excluding non-operating items. |
HIGHLIGHTS OF RESULTS
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2 |
See reconciliation of GAAP to non-GAAP financial measures in Table 13. |
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3 |
See reconciliation of GAAP to non-GAAP financial measures in Table 16. |
QUARTERLY RESULTS SUMMARY |
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Quarter Ended |
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($ in millions, except per share data and ratios) |
September 30,
|
June 30,
|
September 30,
|
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Net income |
$ |
171.4 |
|
$ |
150.4 |
|
$ |
171.3 |
|
Adjusted net income (1) |
$ |
171.4 |
|
$ |
180.5 |
|
$ |
171.3 |
|
Earnings per share (diluted) |
$ |
1.17 |
|
$ |
1.03 |
|
$ |
1.17 |
|
Adjusted earnings per share (diluted) (1) |
$ |
1.17 |
|
$ |
1.24 |
|
$ |
1.17 |
|
Book value per common share |
$ |
33.54 |
|
$ |
32.53 |
|
$ |
29.29 |
|
Tangible equity (1) per common share |
$ |
30.22 |
|
$ |
29.20 |
|
$ |
25.91 |
|
Tangible equity to tangible assets ratio (1) |
10.28 |
% |
10.02 |
% |
9.74 |
% |
|||
Return on average assets (2) |
1.58 |
% |
1.45 |
% |
1.76 |
% |
|||
Return on average equity (2) |
14.1 |
% |
12.9 |
% |
16.2 |
% |
|||
Return on average tangible equity (1)(2) |
15.7 |
% |
14.5 |
% |
18.5 |
% |
|||
Adjusted return on average assets (1)(2) |
1.58 |
% |
1.74 |
% |
1.76 |
% |
|||
Adjusted return on average equity (1)(2) |
14.1 |
% |
15.5 |
% |
16.2 |
% |
|||
Adjusted return on average tangible equity (1)(2) |
15.7 |
% |
17.4 |
% |
18.5 |
% |
|||
Adjusted pre-tax, pre-provision profitability ratio (1)(2) |
2.42 |
% |
2.51 |
% |
2.44 |
% |
|||
Net interest income |
$ |
369.8 |
|
$ |
367.3 |
|
$ |
348.7 |
|
Adjusted net interest income (1) |
$ |
367.3 |
|
$ |
365.6 |
|
$ |
345.9 |
|
Net interest margin (2) |
3.59 |
% |
3.73 |
% |
3.76 |
% |
|||
Adjusted net interest margin (1)(2) |
3.56 |
% |
3.71 |
% |
3.72 |
% |
|||
Average loan yield (2) |
5.11 |
% |
5.28 |
% |
5.02 |
% |
|||
Adjusted average loan yield (1)(2) |
5.08 |
% |
5.26 |
% |
4.97 |
% |
|||
Average cost of deposits (2) |
1.05 |
% |
1.11 |
% |
0.78 |
% |
|||
Efficiency ratio |
41.9 |
% |
42.3 |
% |
45.5 |
% |
|||
Adjusted efficiency ratio (1) |
37.7 |
% |
38.0 |
% |
39.9 |
% |
(1) |
See reconciliation of GAAP to non-GAAP financial measures in Tables 13, 14, 15 and 16. |
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(2) |
Annualized. |
MANAGEMENT OUTLOOK FOR 2019
The Company has updated its outlook for the expected full year 2019 results, compared to its full year 2018 results. The components are as follows:
OPERATING RESULTS SUMMARY
Third Quarter 2019 Compared to Second Quarter 2019
Net Interest Income and Net Interest Margin
Net interest income totaled $369.8 million, a 1% increase from $367.3 million. Net interest margin of 3.59% contracted by 14 basis points from 3.73%.
Noninterest Income
Noninterest income totaled $51.5 million, a 2% decrease from $52.8 million.
Noninterest Expense
Noninterest expense totaled $176.6 million, a 1% decrease from $177.7 million.
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4 |
See reconciliation of GAAP to non-GAAP financial measures in Table 14. |
TAX RELATED ITEMS
Third quarter 2019 income tax expense was $35.0 million and the effective tax rate was 17%. This compares to a tax expense of $72.8 million and an effective tax rate of 33% in the second quarter of 2019. Included in the second quarter 2019 income tax expense was a $30.1 million reversal of certain previously claimed tax credits related to DC Solar. Adjusted, tax expense was $42.7 million5 and the effective tax rate was 19%5 in the second quarter of 2019.
CREDIT QUALITY
The allowance for loan losses totaled $345.6 million, or 1.02% of loans HFI, as of September 30, 2019, compared to $330.6 million, or 0.98% of loans HFI, as of June 30, 2019, and $310.0 million, or 0.99% of loans HFI, as of September 30, 2018.
CAPITAL STRENGTH
Capital levels for East West are strong. The following table presents the regulatory capital ratios for the quarters ended September 30, 2019, June 30, 2019, and September 30, 2018.
EWBC Regulatory Capital Metrics |
Basel III |
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($ in millions) |
September 30,
|
June 30, 2019 |
September 30,
|
Minimum
|
Well
|
Minimum
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CET1 capital ratio |
12.8 |
% |
12.5 |
% |
12.3 |
% |
4.5 |
% |
6.5 |
% |
7.0 |
% |
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Tier 1 risk-based capital ratio |
12.8 |
% |
12.5 |
% |
12.3 |
% |
6.0 |
% |
8.0 |
% |
8.5 |
% |
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Total risk-based capital ratio |
14.2 |
% |
13.9 |
% |
13.8 |
% |
8.0 |
% |
10.0 |
% |
10.5 |
% |
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Tier 1 leverage capital ratio |
10.3 |
% |
10.4 |
% |
10.0 |
% |
4.0 |
% |
5.0 |
% |
4.0 |
% |
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Risk-Weighted Assets (“RWA”) (c) |
$ |
34,424 |
|
$ |
34,154 |
|
$ |
31,210 |
|
N/A |
N/A |
N/A |
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N/A Not applicable. |
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(a) |
The Company’s September 30, 2019 regulatory capital ratios and RWA are preliminary. |
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(b) |
An additional 2.5% capital conservation buffer above the minimum capital ratios is required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonus payments to executive officers. |
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(c) |
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. |
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5 |
See reconciliation of GAAP to non-GAAP financial measures in Table 12. |
DIVIDEND PAYOUT AND CAPITAL ACTIONS
East West’s Board of Directors has declared fourth quarter 2019 dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share is payable on November 15, 2019 to shareholders of record on November 1, 2019.
Conference Call
East West will host a conference call to discuss third quarter 2019 earnings with the public on Thursday, October 17, 2019 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 2019 results and operating developments.
About East West
East West Bancorp, Inc. is a publicly owned company with total assets of $43.3 billion and is traded on the Nasdaq Global Select Market under the symbol “EWBC”. The Company’s wholly-owned subsidiary, East West Bank, is one of the largest independent banks headquartered in California. East West is a premier bank focused exclusively on the United States and Greater China markets and operates over 130 locations worldwide, including in the United States markets of California, Georgia, Massachusetts, Nevada, New York, Texas and Washington. 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, and Xiamen. For more information on 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 our 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,” “assumes,” 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, and the negative thereof. 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, the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the U.S. and the People’s Republic of China; our ability to compete effectively against other financial institutions in our banking markets; success and timing of our business strategies; our ability to retain key officers and employees; impact on our funding costs, net interest income and net interest margin due to changes in key variable market interest rates, competition, regulatory requirements and our product mix; 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 major credit rating agencies; impact of adverse judgments or settlements in litigation; changes in the commercial and consumer real estate markets; changes in consumer spending and savings habits; changes in the United States (“U.S.”) economy, including inflation, deflation, employment levels, rate of growth and general business conditions; government intervention in the financial system, including changes in government interest rate policies; impact of benchmark interest rate reform in the U.S. that resulted in the Secured Overnight Financing Rate selected as the preferred alternative reference rate to the London Interbank Offered Rate; 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 Office of the Comptroller of the Currency, 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 Act on our business, business practices, cost of operations and executive compensation; heightened regulatory and governmental oversight and scrutiny of our 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 and from our interactions with business partners, counterparties, service providers and other third parties; 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; 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 in 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 increases in funding costs, a reduction in 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; 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 our financial performance; and other factors set forth in our public reports including its Annual Report on Form 10-K for the year ended December 31, 2018, 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, our results could differ materially from those expressed in, implied or projected by such forward-looking statements. We assume no obligation to update or revise such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
EAST WEST BANCORP, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED BALANCE SHEET |
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($ and shares in thousands, except per share data) |
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(unaudited) |
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Table 1 |
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|
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|
|
|
|
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|
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|
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|
|
September 30, 2019
|
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|
September 30, 2019 |
June 30, 2019 |
September 30, 2018 |
Qtr-o-Qtr |
|
Yr-o-Yr |
|
|||||||||||
Assets |
|
|
|
|
|
|
|
|||||||||||
Cash and due from banks |
$ |
475,291 |
|
$ |
425,949 |
|
$ |
408,049 |
|
11.6 |
% |
|
16.5 |
% |
|
|||
Interest-bearing cash with banks |
2,566,990 |
|
3,195,665 |
|
1,810,738 |
|
(19.7 |
) |
|
41.8 |
|
|
||||||
Cash and cash equivalents |
3,042,281 |
|
3,621,614 |
|
2,218,787 |
|
(16.0 |
) |
|
37.1 |
|
|
||||||
Interest-bearing deposits with banks |
160,423 |
|
150,273 |
|
400,900 |
|
6.8 |
|
|
(60.0 |
) |
|
||||||
Securities purchased under resale agreements (“resale agreements”) (1) |
860,000 |
|
1,010,000 |
|
1,035,000 |
|
(14.9 |
) |
|
(16.9 |
) |
|
||||||
Available-for-sale (“AFS”) investment securities |
3,284,034 |
|
2,592,913 |
|
2,676,510 |
|
26.7 |
|
|
22.7 |
|
|
||||||
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock |
78,334 |
|
78,093 |
|
73,729 |
|
0.3 |
|
|
6.2 |
|
|
||||||
Loans held-for-sale (“HFS”) |
294 |
|
3,879 |
|
3,114 |
|
(92.4 |
) |
|
(90.6 |
) |
|
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Loans held-for-investment ("HFI") (net of allowance for loan losses of $345,576, $330,625 and $310,041) |
33,679,400 |
|
33,399,752 |
|
30,900,144 |
|
0.8 |
|
|
9.0 |
|
|
||||||
Investments in qualified affordable housing partnerships, net |
190,000 |
|
198,466 |
|
148,097 |
|
(4.3 |
) |
|
28.3 |
|
|
||||||
Investments in tax credit and other investments, net |
211,603 |
|
210,387 |
|
232,194 |
|
0.6 |
|
|
(8.9 |
) |
|
||||||
Goodwill |
465,697 |
|
465,697 |
|
465,547 |
|
— |
|
|
0.0 |
|
|
||||||
Operating lease right-of-use assets |
103,894 |
|
109,032 |
|
— |
|
(4.7 |
) |
|
100.0 |
|
|
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Other assets |
1,198,699 |
|
1,052,252 |
|
888,691 |
|
13.9 |
|
|
34.9 |
|
|
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Total assets |
$ |
43,274,659 |
|
$ |
42,892,358 |
|
$ |
39,042,713 |
|
0.9 |
% |
|
10.8 |
% |
|
|||
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|
|
|
|
|
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Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
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Deposits |
$ |
36,659,526 |
|
$ |
36,477,542 |
|
$ |
33,629,124 |
|
0.5 |
% |
|
9.0 |
% |
|
|||
Short-term borrowings |
47,689 |
|
19,972 |
|
56,411 |
|
138.8 |
|
|
(15.5 |
) |
|
||||||
FHLB advances |
745,494 |
|
745,074 |
|
325,596 |
|
0.1 |
|
|
129.0 |
|
|
||||||
Securities sold under repurchase agreements (“repurchase agreements”) (1) |
50,000 |
|
50,000 |
|
50,000 |
|
— |
|
|
— |
|
|
||||||
Long-term debt and finance lease liabilities |
152,390 |
|
152,506 |
|
156,770 |
|
(0.1 |
) |
|
(2.8 |
) |
|
||||||
Operating lease liabilities |
112,142 |
|
117,448 |
|
— |
|
(4.5 |
) |
|
100.0 |
|
|
||||||
Accrued expenses and other liabilities |
624,754 |
|
595,223 |
|
579,962 |
|
5.0 |
|
|
7.7 |
|
|
||||||
Total liabilities |
38,391,995 |
|
38,157,765 |
|
34,797,863 |
|
0.6 |
|
|
10.3 |
|
|
||||||
Stockholders’ equity |
4,882,664 |
|
4,734,593 |
|
4,244,850 |
|
3.1 |
|
|
15.0 |
|
|
||||||
Total liabilities and stockholders’ equity |
$ |
43,274,659 |
|
$ |
42,892,358 |
|
$ |
39,042,713 |
|
0.9 |
% |
|
10.8 |
% |
|
|||
|
|
|
|
|
|
|
|
|||||||||||
Book value per common share |
$ |
33.54 |
|
$ |
32.53 |
|
$ |
29.29 |
|
3.1 |
% |
|
14.5 |
% |
|
|||
Tangible equity (2) per common share |
$ |
30.22 |
|
$ |
29.20 |
|
$ |
25.91 |
|
3.5 |
|
|
16.6 |
|
|
|||
Number of common shares at period-end |
145,568 |
|
145,547 |
|
144,929 |
|
0.0 |
|
|
0.4 |
|
|
||||||
Tangible equity to tangible assets ratio (2) |
10.28 |
% |
10.02 |
% |
9.74 |
% |
26 |
|
bps |
54 |
|
bps |
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|
|
|
|
|
(1) |
Resale and repurchase agreements have been reported net, pursuant to Accounting Standards Codification (“ASC”) 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. As of each of September 30, 2019, June 30, 2019 and September 30, 2018, $400.0 million out of $450.0 million of gross repurchase agreements were eligible for netting against gross resale agreements. |
|
(2) |
See reconciliation of GAAP to non-GAAP financial measures in Table 16. |
EAST WEST BANCORP, INC. AND SUBSIDIARIES |
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TOTAL LOANS AND DEPOSITS DETAIL |
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($ in thousands) |
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(unaudited) |
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Table 2 |
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|
|
|
September 30, 2019
|
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|
September 30, 2019 |
June 30, 2019 |
September 30, 2018 |
Qtr-o-Qtr |
Yr-o-Yr |
||||||||||||
Loans: |
|
|
|
|
|
||||||||||||
Commercial: |
|
|
|
|
|
||||||||||||
Commercial and industrial (“C&I”) |
$ |
12,301,002 |
|
$ |
12,402,967 |
|
$ |
11,517,054 |
|
(0.8 |
)% |
6.8 |
% |
||||
Commercial real estate (“CRE”) |
9,749,583 |
|
9,663,624 |
|
9,078,933 |
|
0.9 |
|
7.4 |
|
|||||||
Multifamily residential |
2,589,203 |
|
2,577,154 |
|
2,273,957 |
|
0.5 |
|
13.9 |
|
|||||||
Construction and land |
719,900 |
|
674,798 |
|
605,033 |
|
6.7 |
|
19.0 |
|
|||||||
Consumer: |
|
|
|
|
|
||||||||||||
Single-family residential |
6,811,014 |
|
6,494,882 |
|
5,684,587 |
|
4.9 |
|
19.8 |
|
|||||||
Home equity lines of credit (“HELOCs”) |
1,540,121 |
|
1,575,150 |
|
1,717,440 |
|
(2.2 |
) |
(10.3 |
) |
|||||||
Other consumer |
314,153 |
|
341,802 |