East West Bancorp Reports Net Income for Third Quarter 2019 of $171 Million and Diluted Earnings Per Share of $1.17; Record Operating Revenue of $421 Million

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.

HIGHLIGHTS OF RESULTS

• Third Quarter Earnings – Third quarter 2019 net income was $171.4 million, up by 14% compared to second quarter 2019 net income of $150.4 million, but 5% lower than second quarter adjusted² net income of $180.5 million. Third quarter 2019 diluted earnings per share (“EPS”) were $1.17, up by 14% compared to second quarter 2019 diluted EPS of $1.03, but 5% lower than second quarter adjusted² EPS of $1.24.

• Net Interest Income and Net Interest Margin – Third quarter 2019 net interest income (“NII”) was $369.8 million, a quarterly increase of $2.5 million or 1%, and a year-over-year increase of $21.1 million or 6%. Third quarter 2019 net interest margin (“NIM”) was 3.59%, a 14 basis point contraction from 3.73% in the previous quarter. Quarter-over-quarter, the average loan yield contracted by 17 basis points, and the average cost of deposits decreased by six basis points.

• Record Loans – Total loans of $34.0 billion as of September 30, 2019 were up $291.0 million, or 3% linked quarter annualized, from $33.7 billion as of June 30, 2019. Total loans grew $2.8 billion, or 9% year-over-year. Average loans of $33.7 billion grew $679.9 million quarter-over-quarter, or 8% linked quarter annualized. Average loan growth during the quarter was well-diversified across commercial and consumer loan portfolios.

• Record Deposits – Total deposits of $36.7 billion as of September 30, 2019 were up $182.0 million, or 2% linked quarter annualized, from $36.5 billion as of June 30, 2019. Total deposits grew $3.0 billion, or 9% year-over-year. Average deposits of $36.5 billion grew $1.2 billion quarter-over-quarter, or 13% linked quarter annualized. Average deposit growth during the quarter was well balanced across money market, noninterest-bearing demand and time deposits, partially offset by a decrease in interest-bearing checking accounts.

• Asset Quality Metrics – The allowance for loan losses was $345.6 million, or 1.02% of loans held-for-investment (“HFI”) as of September 30, 2019; the comparable ratios were 0.98% as of June 30, 2019, and 0.99% as of September 30, 2018. Non-purchased credit impaired (“Non-PCI”) nonperforming assets were $134.5 million, or 0.31% of total assets as of September 30, 2019; the comparable ratios were 0.28% as of June 30, 2019, and 0.29% as of September 30, 2018. For the third quarter of 2019, the provision for credit losses was $38.3 million; net charge-offs were $22.5 million, or annualized 0.26% of average loans HFI.

• Capital Levels – Capital levels for East West were strong. As of September 30, 2019, stockholders’ equity was $4.9 billion, or $33.54 per share. Tangible equity³ per common share was $30.22 as of September 30, 2019, an increase of 4% linked quarter and 17% year-over-year.
  
  As of September 30, 2019, the tangible equity to tangible assets ratio³ was 10.3%, the common equity tier 1 (“CET1”) capital ratio was 12.8%, and the total risk-based capital ratio was 14.2%.

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:

• End of Period Loans: increase by approximately 7% year-over-year.
• Net Interest Income (excluding ASC 310-30 discount accretion income): increase by approximately 6% year-over-year.
• Net Interest Margin (excluding the impact of ASC 310-30 discount accretion): between 3.60% and 3.65%.
• Noninterest Expense (excluding amortization of tax credit investments & core deposit intangibles): increase by approximately 3% year-over-year.
• Provision for Credit Losses: approximately $100 million.
• Tax Items: projecting full year effective tax rate of approximately 20%, including the impact of a $30.1 million reversal of previously claimed tax credits in the second quarter of 2019, or approximately 15% excluding the tax credit reversal.
• Interest Rates: 25-basis point cut to the fed funds rate in October 2019.

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%.

• Average loans of $33.7 billion grew $679.9 million, or 8% linked quarter annualized.
• Average interest-earning assets of $40.9 billion grew $1.5 billion, or 15% linked quarter annualized. Growth came primarily from an increase in the average interest-bearing cash and deposits with banks of $695.6 million and the aforementioned increase in average loans.
• Average deposits of $36.5 billion grew $1.2 billion, or 13% linked quarter annualized.
• The average yield on loans contracted by 17 basis points to 5.11% from 5.28%, reflecting the decline in Libor rates and two 25-basis point reductions in the fed funds rate during the current quarter. The yield on average interest-earning assets contracted by 21 basis points to 4.62% from 4.83%.
• The average cost of deposits decreased by six basis points to 1.05% from 1.11%, and the average cost of interest-bearing deposits decreased by eight basis points to 1.49% from 1.57%.

Noninterest Income
Noninterest income totaled $51.5 million, a 2% decrease from $52.8 million.

• The $2.0 million increase in net gains on sales of loans primarily reflected an increase in the volume of SBA loans sold. Wealth management fees increased $1.0 million, reflecting an increase in customer activity.
• The $2.0 million decrease in interest rate contracts and other derivative income primarily reflected the quarter-over-quarter change in the credit valuation adjustment, which was driven by the decline in long-term interest rates during the third quarter of 2019. Customer driven interest rate contract revenue was $11.1 million during the third quarter, compared to $11.8 million in the second quarter.

Noninterest Expense
Noninterest expense totaled $176.6 million, a 1% decrease from $177.7 million.

• Third quarter noninterest expense consisted of $158.6 million of adjusted⁴ noninterest expense, $16.8 million in amortization of tax credit and other investments, and $1.1 million in amortization of core deposit intangibles.
• Adjusted noninterest expense of $158.6 million decreased by approximately $1.2 million, or 1%, from $159.8 million. The largest linked-quarter decrease was in compensation and employee benefits expense.
• The adjusted⁴ efficiency ratio was 37.7% in the third quarter, an improvement of 37 basis points compared to 38.0% in the previous quarter.

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.

• For the full year 2019, the Company projects that its effective tax rate will be approximately 20%, including the impact of a $30.1 million tax credit reversal in the second quarter of 2019, or approximately 15% excluding the tax credit reversal.

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.

• Non-PCI nonperforming assets were $134.5 million, or 0.31% of total assets, as of September 30, 2019, compared to $119.3 million, or 0.28% of total assets, as of June 30, 2019, and $114.6 million, or 0.29% of total assets, as of September 30, 2018.
• Net charge-offs for the third quarter of 2019 were $22.5 million, or annualized 0.26% of average loans HFI; the charge-offs in the quarter largely stemmed from three commercial loans. Year-to-date, net charge-offs were $44.5 million, or annualized 0.18% of average loans HFI. This compares to annualized quarterly and year-to-date net charge-offs to average loans HFI of 0.05% and 0.11%, respectively, for the period ended September 30, 2018.
• The provision for credit losses recorded for the third quarter of 2019 was $38.3 million, compared to $19.2 million for the second quarter of 2019, and $10.5 million for the third quarter of 2018. Provision for credit losses was $80.1 million and $46.3 million for the nine month period ended September 30, 2019 and 2018, respectively.

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.

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.

• 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 17, 2019 at 11:30 a.m. Pacific Time through November 17, 2019. 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: 10135114.

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.