East West Bancorp Reports Net Income for First Quarter 2020 of $145 Million and Diluted Earnings Per Share Of $1.00

Nachrichtenquelle: Business Wire (engl.)
23.04.2020, 14:00  |  128   |   |   

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 first quarter of 2020. For the first quarter of 2020, net income was $144.8 million or $1.00 per diluted share. First quarter 2020 return on average assets was 1.30% and return on average equity was 11.6%.

“In these unprecedented times, East West Bank has a clear focus – to support our customers and communities by being a source of strength and stability. We have taken actions to ensure the safety and well-being of our customers and associates, especially those on the front-line, by modifying working arrangements and protocols. Despite the many challenges and the volatile economic and market conditions resulting from the worldwide efforts to combat COVID-19, all of our 3,200 associates at East West stand ready and able to help our commercial and consumer customers,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. "I want to thank all of our associates for their dedication and perseverance through this difficult time.”

“East West’s sustained history of strong profitability and earnings has well positioned us for the current economic conditions. Our balance sheet is strong, our loans and deposits are diversified, and most importantly, our capital is strong. East West has some of the highest capital ratios among regional and national banks. Further, we strengthened the allowance for credit losses to 1.55% during the first quarter, to reflect the recent economic and market impact from COVID-19.”

“Total loans grew $1.1 billion, or 13% annualized, to a record $35.9 billion as of March 31, 2020 from $34.8 billion as of December 31, 2019. Total deposits grew $1.4 billion, or 15% annualized, to a record $38.7 billion as of March 31, 2020 from $37.3 billion as of December 31, 2019,” continued Ng. “Despite the stay-at-home orders issued in March, business at East West was strong in the first quarter.”

“As we start the second quarter of 2020, we are encouraged by the expansive monetary and fiscal support from the government. We are committed to the ongoing support of our customers and their businesses by participating in the new government-sponsored programs. We funded over $1.5 billion of loans for over 4,500 businesses through the federal government’s Paycheck Protection Program,” concluded Ng.

SUMMARY OF THE QUARTER

  • First Quarter Earnings – First quarter 2020 net income was $144.8 million and diluted earnings per share (“EPS”) were $1.00, compared to fourth quarter 2019 net income of $188.2 million and diluted EPS of $1.29.

  • Net Interest Income and Net Interest Margin – First quarter 2020 net interest income (“NII”) was $362.7 million, a decrease of $5.5 million or 1% from fourth quarter 2019 NII of $368.2 million.

    First quarter 2020 net interest margin (“NIM”) was 3.44%, a three basis point decrease from 3.47% in the fourth quarter of 2019. Against a backdrop of materially lower interest rates during the first quarter, declines in earning asset yields were largely offset by decreases in the cost of funds.

  • Record Loans – Total loans of $35.9 billion as of March 31, 2020 increased by $1.1 billion, or 13% annualized, from $34.8 billion as of December 31, 2019.

    First quarter 2020 average loans of $35.2 billion grew $744.0 million, or 9% linked quarter annualized. Average loan growth in the first quarter was led by commercial real estate, followed by residential mortgage, partially offset by a decrease in commercial loans.

  • Record Deposits – Total deposits of $38.7 billion as of March 31, 2020 increased by $1.4 billion, or 15% annualized, from $37.3 billion as of December 31, 2019.

    First quarter 2020 average deposits of $37.5 billion grew $64.5 million, or 1% linked quarter annualized. Average deposit growth in the first quarter was led by money market accounts, followed by noninterest-bearing demand and time deposits, partially offset by decreases in interest-bearing checking and savings accounts.

  • Asset Quality Metrics – The allowance for credit losses (“ACL”) totaled $557.0 million, or 1.55% of loans held-for-investment (“HFI”), as of March 31, 2020, compared to $358.3 million, or 1.03% of loans HFI, as of December 31, 2019. Quarter-over-quarter, the ACL increased by $198.7 million. The increase in the ACL included the $125.2 million impact from the adoption of the new current expected credit loss model (“CECL”) accounting standard on January 1, 2020, and a $73.9 million provision for credit losses for the first quarter of 2020, which reflects the deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic.

    Our other asset quality metrics for the first quarter 2020 remained strong. First quarter 2020 net charge-offs were $0.9 million, or annualized 0.01% of average loans HFI, compared to fourth quarter 2019 net charge-offs of $8.3 million, or annualized 0.10% of average loans HFI. Nonperforming assets were $150.9 million, or 0.33% of total assets, as of March 31, 2020, compared to $121.5 million, or 0.27% of total assets, as of December 31, 2019.

  • Capital Levels – Capital levels for East West are strong. As of March 31, 2020, stockholders’ equity was $4.9 billion, or $34.67 per share. Tangible equity1 per common share was $31.27 as of March 31, 2020, an increase from 31.15 as of December 31, 2019. As of March 31, 2020, the tangible equity to tangible assets ratio1 was 9.7%, the common equity tier 1 (“CET1”) capital ratio was 12.4%, and the total capital ratio was 14.0%. During the first quarter of 2020, the Company repurchased $145.9 million of common stock, or 4.5 million shares.

__________________________________

1 See reconciliation of GAAP to non-GAAP financial measures in Table 12.

OPERATING RESULTS

First Quarter 2020 Compared to Fourth Quarter 2019

Net Interest Income and Net Interest Margin

Net interest income totaled $362.7 million, a decrease of 1% from $368.2 million. Net interest margin of 3.44% decreased by three basis points from 3.47%. Against a backdrop of materially lower interest rates during the first quarter, declines in earning asset yields were largely offset by decreases in the cost of funds.

  • Average interest-earning assets of $42.4 billion grew $248.4 million, or 2% linked quarter annualized. Average loan growth of $744 million, or 9% linked quarter annualized, was partially offset by decreases in available-for-sale debt securities, and in interest-bearing cash and deposits with banks.
  • Average interest-bearing deposits of $26.4 billion decreased $76.9 million, or (1)% linked quarter annualized. Average noninterest-bearing deposits of $11.1 billion grew $141.3 million, or 5% linked quarter annualized.
  • The average loan yield contracted by 20 basis points to 4.71%, down from 4.91%, reflecting materially lower interest rates during the first quarter, including 150 basis points of cuts to the fed funds rate in March 2020. The yield on average interest-earning assets contracted by 14 basis points to 4.26%, down from 4.40%.
  • The average cost of interest-bearing deposits decreased by 17 basis points to 1.17%, down from 1.34%. The average cost of deposits decreased by 12 basis points to 0.82%, down from 0.94%.

Noninterest Income

Noninterest income totaled $54.0 million, a 14% decrease from $63.0 million.

  • The largest linked-quarter change in noninterest income was a $10.8 million decrease in interest rate contracts (“IRC”) and other derivative income, which was $7.1 million in the first quarter of 2020. This decrease was largely related to a negative credit valuation adjustment, as customer-driven IRC fee income was stable quarter-over-quarter.
  • In other fee income categories, quarter-over-quarter, foreign exchange income of $7.8 million increased by $1.8 million; wealth management fees of $5.4 million increased by $1.1 million, and lending fees of $15.8 million decreased by $1.5 million.

Noninterest Expense

Noninterest expense totaled $178.9 million, a 7% decrease from $193.4 million.

  • First quarter noninterest expense consisted of $160.6 million of adjusted2 noninterest expense, $17.3 million in amortization of tax credit and other investments, and $1.0 million in amortization of core deposit intangibles.
  • Adjusted noninterest expense of $160.6 million decreased by $4.7 million, or 3%, from $165.3 million. The largest linked-quarter change was a $3.4 million decrease in other operating expense, followed by a $1.9 million decrease in consulting expense and a $1.5 million decrease in computer software expense. Quarter-over-quarter, legal expense increased by $1.1 million, and compensation and employee benefits increased by $0.9 million.
  • The adjusted2 efficiency ratio was 38.5% in the first quarter, compared to 38.3% in the fourth quarter.

__________________________________

2 See reconciliation of GAAP to non-GAAP financial measures in Table 11.

TAX RELATED ITEMS

First quarter 2020 income tax expense was $19.2 million and the effective tax rate was 12%, compared to income tax expense of $31.1 million and an effective tax rate of 14% for the fourth quarter of 2019.

ASSET QUALITY

The allowance for credit losses totaled $557.0 million, or 1.55% of loans HFI, as of March 31, 2020, compared to $358.3 million, or 1.03% of loans HFI, as of December 31, 2019. Quarter-over-quarter, the ACL increased by $198.7 million.

  • The increase in the ACL included the impact of the adoption of the new CECL accounting standard, which resulted in an increase to the ACL of $125.2 million on January 1, 2020.
  • First quarter 2020 provision for credit losses was $73.9 million, compared to $18.6 million for the fourth quarter of 2019, and $22.6 million for the first quarter of 2019. First quarter 2020 provision for credit losses was primarily driven by the deteriorating macroeconomic conditions and outlook as a result of the COVID-19 pandemic, which increased the ACL. As of March 31, 2020, the impact of the pandemic crisis was not yet evident in other asset quality metrics, which remained strong.
  • First quarter 2020 net charge-offs were $0.9 million, or annualized 0.01% of average loans HFI, compared to annualized 0.10% of average loans HFI for the fourth quarter of 2019, and annualized 0.18% of average loans HFI for the first quarter of 2019.
  • Nonperforming assets were $150.9 million, or 0.33% of total assets, as of March 31, 2020, compared to non-purchased credit impaired nonperforming assets of $121.5 million, or 0.27% of total assets, as of December 31, 2019, and $138.0 million, or 0.33% of total assets, as of March 31, 2019.

CAPITAL STRENGTH

Capital levels for East West are strong. The following table presents the regulatory capital ratios as of March 31, 2020, December 31, 2019, and March 31, 2019.

EWBC Regulatory Capital Metrics

 

Basel III

 

 

($ in millions)

 

March 31,
2020 (a)

 

December 31,
2019

 

March 31,
2019

 

Minimum
Capital
Ratio

 

Well
Capitalized
Ratio

 

Minimum
Capital Ratio +
Conservation
Buffer (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Based Capital Ratios:

CET1 capital ratio

 

12.4

%

 

12.9

%

 

12.4

%

 

4.5

%

 

6.5

%

 

7.0

%

Tier 1 capital ratio

 

12.4

%

 

12.9

%

 

12.4

%

 

6.0

%

 

8.0

%

 

8.5

%

Total capital ratio

 

14.0

%

 

14.4

%

 

13.9

%

 

8.0

%

 

10.0

%

 

10.5

%

Leverage ratio

 

10.2

%

 

10.3

%

 

10.2

%

 

4.0

%

 

5.0

%

 

4.0

%

Risk-Weighted Assets (“RWA”) (c)

 

$

36,548

 

 

$

35,136

 

 

$

33,162

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A Not applicable.

(a)

The March 31, 2020 regulatory capital ratios and RWA are preliminary and reflect the Company’s election to adopt the 2020 CECL optional transition provision to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending December 31, 2024.

(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.

(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.

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared second quarter 2020 dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share is payable on May 15, 2020 to shareholders of record on May 4, 2020.

On March 3, 2020, East West’s Board of Directors authorized the repurchase of up to $500 million of East West’s common stock. During the first quarter of 2020, the Company repurchased $145.9 million of common stock, or 4.5 million shares, under this authorization.

Conference Call

East West will host a conference call to discuss first quarter 2020 earnings with the public on Thursday, April 23, 2020 at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses first quarter 2020 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 April 23, 2020 at 11:30 a.m. Pacific Time through May 23, 2020. 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: 10140713.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $45.9 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 125 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 impact of disease pandemics, such as the novel strain of coronavirus disease (COVID-19), on us, our operations and our customers and employees; changes in the U.S. economy, including an economic slowdown or recession, inflation, deflation, employment levels, rate of growth and general business conditions; fluctuations in our stock price; government intervention in the financial system, including changes in government interest rate policies; changes in income tax laws and regulations; the ongoing trade dispute between the United States (“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 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 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; impact on our international operations due to political developments, disease pandemics, 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 Wall Street Reform and Consumer Protection 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; 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; impact on our liquidity due to 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 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, such as wildfires 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 our Annual Report on Form 10-K for the year ended December 31, 2019, 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

CONDENSED CONSOLIDATED BALANCE SHEET

($ and shares in thousands, except per share data)

(unaudited)

Table 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020
% or Basis Point Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

427,415

 

 

$

536,221

 

 

$

462,254

 

 

(20.3

)%

 

(7.5

)%

 

Interest-bearing cash with banks

 

2,652,627

 

 

2,724,928

 

 

3,323,071

 

 

(2.7

)

 

(20.2

)

 

Cash and cash equivalents

 

3,080,042

 

 

3,261,149

 

 

3,785,325

 

 

(5.6

)

 

(18.6

)

 

Interest-bearing deposits with banks

 

293,509

 

 

196,161

 

 

134,000

 

 

49.6

 

 

119.0

 

 

Securities purchased under resale agreements (“resale agreements”) (1)

 

860,000

 

 

860,000

 

 

1,035,000

 

 

 

 

(16.9

)

 

Available-for-sale (“AFS”) debt securities (amortized cost of $3,660,413 in 2020)

 

3,695,943

 

 

3,317,214

 

 

2,640,158

 

 

11.4

 

 

40.0

 

 

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock

 

78,745

 

 

78,580

 

 

74,736

 

 

0.2

 

 

5.4

 

 

Loans held-for-sale (“HFS”)

 

1,594

 

 

434

 

 

 

 

267.3

 

 

100.0

 

 

Loans held-for-investment (''HFI'') (net of allowance for credit losses of $557,003 (2), $358,287 and $317,894)

 

35,336,390

 

 

34,420,252

 

 

32,545,392

 

 

2.7

 

 

8.6

 

 

Investments in qualified affordable housing partnerships, net

 

198,653

 

 

207,037

 

 

197,470

 

 

(4.0

)

 

0.6

 

 

Investments in tax credit and other investments, net

 

268,330

 

 

254,140

 

 

217,445

 

 

5.6

 

 

23.4

 

 

Goodwill

 

465,697

 

 

465,697

 

 

465,697

 

 

 

 

 

 

Operating lease right-of-use assets

 

101,381

 

 

99,973

 

 

104,289

 

 

1.4

 

 

(2.8

)

 

Other assets

 

1,568,261

 

 

1,035,459

 

 

891,921

 

 

51.5

 

 

75.8

 

 

Total assets

 

$

45,948,545

 

 

$

44,196,096

 

 

$

42,091,433

 

 

4.0

%

 

9.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

38,686,958

 

 

$

37,324,259

 

 

$

36,273,972

 

 

3.7

%

 

6.7

%

 

Short-term borrowings

 

66,924

 

 

28,669

 

 

39,550

 

 

133.4

 

 

69.2

 

 

FHLB advances

 

646,336

 

 

745,915

 

 

344,657

 

 

(13.3

)

 

87.5

 

 

Securities sold under repurchase agreements (“repurchase agreements”) (1)

 

450,000

 

 

200,000

 

 

50,000

 

 

125.0

 

 

NM

 

Long-term debt and finance lease liabilities

 

152,162

 

 

152,270

 

 

152,433

 

 

(0.1

)

 

(0.2

)

 

Operating lease liabilities

 

109,356

 

 

108,083

 

 

112,843

 

 

1.2

 

 

(3.1

)

 

Accrued expenses and other liabilities

 

933,824

 

 

619,283

 

 

526,048

 

 

50.8

 

 

77.5

 

 

Total liabilities

 

41,045,560

 

 

39,178,479

 

 

37,499,503

 

 

4.8

 

 

9.5

 

 

Stockholders’ equity (2)

 

4,902,985

 

 

5,017,617

 

 

4,591,930

 

 

(2.3

)

 

6.8

 

 

Total liabilities and stockholders’ equity

 

$

45,948,545

 

 

$

44,196,096

 

 

$

42,091,433

 

 

4.0

%

 

9.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per common share

 

$

34.67

 

 

$

34.46

 

 

$

31.56

 

 

0.6

%

 

9.8

%

 

Tangible equity (3) per common share

 

$

31.27

 

 

$

31.15

 

 

$

28.21

 

 

0.4

 

 

10.8

 

 

Number of common shares at period-end

 

141,435

 

 

145,625

 

 

145,501

 

 

(2.9

)

 

(2.8

)

 

Tangible equity to tangible assets ratio (3)

 

9.73

%

 

10.38

%

 

9.87

%

 

(65

)

bps

(14

)

bps

 

 

 

 

 

 

NM - Not meaningful.

  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. Out of $450.0 million of gross repurchase agreements, $0 million, $250.0 million and $400.0 million were netted against gross resale agreements as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.
  2. On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments using the modified retrospective approach. The March 31, 2020 Allowance for credit loss reflects an increase of $125.2 million as a result of adopting ASU 2016-13. We recorded an after-tax decrease to opening retained earnings of $98.0 million as of January 1, 2020.
  3. See reconciliation of GAAP to non-GAAP financial measures in Table 12.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

TOTAL LOANS AND DEPOSITS DETAIL

($ in thousands)

(unaudited)

Table 2

 

 

 

 

 

 

 

 

 

March 31, 2020
% Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

Loans:

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

Commercial and industrial (“C&I”)

 

$

12,590,764

 

 

$

12,150,931

 

 

$

12,040,806

 

 

3.6

%

 

4.6

%

Commercial real estate (“CRE”):

 

 

 

 

 

 

 

 

 

 

CRE

 

10,682,242

 

 

10,278,448

 

 

9,439,375

 

 

3.9

 

 

13.2

 

Multifamily residential

 

2,902,601

 

 

2,856,374

 

 

2,467,553

 

 

1.6

 

 

17.6

 

Construction and land

 

606,209

 

 

628,499

 

 

647,380

 

 

(3.5

)

 

(6.4

)

Total CRE

 

14,191,052

 

 

13,763,321

 

 

12,554,308

 

 

3.1

 

 

13.0

 

Consumer:

 

 

 

 

 

 

 

 

 

 

Residential mortgage:

 

 

 

 

 

 

 

 

 

 

Single-family residential

 

7,403,723

 

 

7,108,590

 

 

6,309,331

 

 

4.2

 

 

17.3

 

Home equity lines of credit (“HELOCs”)

 

1,452,862

 

 

1,472,783

 

 

1,626,222

 

 

(1.4

)

 

(10.7

)

Total residential mortgage

 

8,856,585

 

 

8,581,373

 

 

7,935,553

 

 

3.2

 

 

11.6

 

Other consumer

 

254,992

 

 

282,914

 

 

332,619

 

 

(9.9

)

 

(23.3

)

Total loans HFI (1)

 

35,893,393

 

 

34,778,539

 

 

32,863,286

 

 

3.2

 

 

9.2

 

Loans HFS

 

1,594

 

 

434

 

 

 

 

267.3

 

 

100.0

 

Total loans (1)

 

35,894,987

 

 

34,778,973

 

 

32,863,286

 

 

3.2

 

 

9.2

 

Allowance for credit losses

 

(557,003

)

 

(358,287

)

 

(317,894

)

 

55.5

 

 

75.2

 

Net loans (1)

 

$

35,337,984

 

 

$

34,420,686

 

 

$

32,545,392

 

 

2.7

%

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

11,833,397

 

 

$

11,080,036

 

 

$

10,011,533

 

 

6.8

%

 

18.2

%

Interest-bearing checking

 

5,467,508

 

 

5,200,755

 

 

6,123,681

 

 

5.1

 

 

(10.7

)

Money market

 

9,302,246

 

 

8,711,964

 

 

8,243,003

 

 

6.8

 

 

12.9

 

Savings

 

2,117,274

 

 

2,117,196

 

 

2,049,086

 

 

0.0

 

 

3.3

 

Time deposits

 

9,966,533

 

 

10,214,308

 

 

9,846,669

 

 

(2.4

)

 

1.2

 

Total deposits

 

$

38,686,958

 

 

$

37,324,259

 

 

$

36,273,972

 

 

3.7

%

 

6.7

%

 

  1. On January 1, 2020, the Company adopted ASU 2016-13. Total loans include net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(50.3) million, $(43.2) million and $(46.0) million as of March 31, 2020, December 31, 2019 and March 31, 2019, 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

 

March 31, 2020
% Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

Interest and dividend income

 

$

449,190

 

$

467,233

 

$

463,311

 

(3.9

)%

 

(3.0

)%

Interest expense

 

86,483

 

99,014

 

100,850

 

(12.7

)

 

(14.2

)

Net interest income before provision for credit losses

 

362,707

 

368,219

 

362,461

 

(1.5

)

 

0.1

 

Provision for credit losses

 

73,870

 

18,577

 

22,579

 

297.6

 

 

227.2

 

Net interest income after provision for credit losses

 

288,837

 

349,642

 

339,882

 

(17.4

)

 

(15.0

)

Noninterest income

 

54,049

 

63,013

 

42,131

 

(14.2

)

 

28.3

 

Noninterest expense

 

178,876

 

193,373

 

186,922

 

(7.5

)

 

(4.3

)

Income before income taxes

 

164,010

 

219,282

 

195,091

 

(25.2

)

 

(15.9

)

Income tax expense

 

19,186

 

31,067

 

31,067

 

(38.2

)

 

(38.2

)

Net income

 

$

144,824

 

$

188,215

 

$

164,024

 

(23.1

)%

 

(11.7

)%

Earnings per share (“EPS”)

 

 

 

 

 

 

 

 

 

 

- Basic

 

$

1.00

 

$

1.29

 

$

1.13

 

(22.6

)%

 

(11.4

)%

- Diluted

 

$

1.00

 

$

1.29

 

$

1.12

 

(22.5

)

 

(11.3

)

Weighted-average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

- Basic

 

144,814

 

145,624

 

145,256

 

(0.6

)%

 

(0.3

)%

- Diluted

 

145,285

 

146,318

 

145,921

 

(0.7

)

 

(0.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 2020
% Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

Noninterest income:

 

 

 

 

 

 

 

 

 

 

Lending fees

 

$

15,773

 

$

17,244

 

$

14,969

 

(8.5

)%

 

5.4

%

Deposit account fees

 

10,447

 

9,843

 

9,468

 

6.1

 

 

10.3

 

Foreign exchange income

 

7,819

 

6,032

 

5,015

 

29.6

 

 

55.9

 

Wealth management fees

 

5,357

 

4,215

 

3,812

 

27.1

 

 

40.5

 

Interest rate contracts and other derivative income

 

7,073

 

17,828

 

3,216

 

(60.3

)

 

119.9

 

Net gains on sales of loans

 

950

 

1,068

 

915

 

(11.0

)

 

3.8

 

Net gains on sales of AFS debt securities

 

1,529

 

864

 

1,561

 

77.0

 

 

(2.0

)

Other investment income

 

1,921

 

2,678

 

1,202

 

(28.3

)

 

59.8

 

Other income

 

3,180

 

3,241

 

1,973

 

(1.9

)

 

61.2

 

Total noninterest income

 

$

54,049

 

$

63,013

 

$

42,131

 

(14.2

)%

 

28.3

%

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

$

101,960

 

$

101,051

 

$

102,299

 

0.9

%

 

(0.3

)%

Occupancy and equipment expense

 

17,076

 

17,138

 

17,318

 

(0.4

)

 

(1.4

)

Deposit insurance premiums and regulatory assessments

 

3,427

 

3,371

 

3,088

 

1.7

 

 

11.0

 

Legal expense

 

3,197

 

2,141

 

2,225

 

49.3

 

 

43.7

 

Data processing

 

3,826

 

3,588

 

3,157

 

6.6

 

 

21.2

 

Consulting expense

 

1,217

 

3,159

 

2,059

 

(61.5

)

 

(40.9

)

Deposit related expense

 

3,563

 

3,749

 

3,504

 

(5.0

)

 

1.7

 

Computer software expense

 

6,166

 

7,626

 

6,078

 

(19.1

)

 

1.4

 

Other operating expense

 

21,119

 

24,512

 

22,289

 

(13.8

)

 

(5.2

)

Amortization of tax credit and other investments

 

17,325

 

27,038

 

24,905

 

(35.9

)

 

(30.4

)

Total noninterest expense

 

$

178,876

 

$

193,373

 

$

186,922

 

(7.5

)%

 

(4.3

)%

 

EAST WEST BANCORP, INC. AND SUBSIDIARIES

SELECTED AVERAGE BALANCES

($ in thousands)

(unaudited)

Table 4

 

 

 

Three Months Ended

 

March 31, 2020
% Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

Loans:

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

C&I

 

$

12,166,178

 

$

12,237,081

 

$

11,845,860

 

(0.6

)%

 

2.7

%

CRE:

 

 

 

 

 

 

 

 

 

 

CRE

 

10,485,683

 

10,006,424

 

9,377,170

 

4.8

 

 

11.8

 

Multifamily residential

 

2,889,844

 

2,771,555

 

2,498,775

 

4.3

 

 

15.7

 

Construction and land

 

641,079

 

668,147

 

584,445

 

(4.1

)

 

9.7

 

Total CRE

 

14,016,606

 

13,446,126

 

12,460,390

 

4.2

 

 

12.5

 

Consumer:

 

 

 

 

 

 

 

 

 

 

Residential mortgage:

 

 

 

 

 

 

 

 

 

 

Single-family residential

 

7,257,367

 

6,934,361

 

6,151,550

 

4.7

 

 

18.0

 

HELOCs

 

1,442,450

 

1,506,346

 

1,652,211

 

(4.2

)

 

(12.7

)

Total residential mortgage

 

8,699,817

 

8,440,707

 

7,803,761

 

3.1

 

 

11.5

 

Other consumer

 

271,367

 

286,096

 

304,774

 

(5.1

)

 

(11.0

)

Total loans (1)

 

$

35,153,968

 

$

34,410,010

 

$

32,414,785

 

2.2

%

 

8.5

%

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

$

42,362,531

 

$

42,114,123

 

$

38,745,004

 

0.6

%

 

9.3

%

Total assets

 

$

44,755,509

 

$

44,471,242

 

$

40,738,404

 

0.6

%

 

9.9

%

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

11,117,710

 

$

10,976,368

 

$

10,071,370

 

1.3

%

 

10.4

%

Interest-bearing checking

 

5,001,672

 

5,540,300

 

5,270,855

 

(9.7

)

 

(5.1

)

Money market

 

9,013,381

 

8,592,058

 

8,080,848

 

4.9

 

 

11.5

 

Savings

 

2,076,270

 

2,118,911

 

2,091,406

 

(2.0

)

 

(0.7

)

Time deposits

 

10,264,007

 

10,180,922

 

9,408,897

 

0.8

 

 

9.1

 

Total deposits

 

$

37,473,040

 

$

37,408,559

 

$

34,923,376

 

0.2

%

 

7.3

%

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

$

27,593,341

 

$

27,522,469

 

$

25,452,835

 

0.3

%

 

8.4

%

Stockholders’ equity

 

$

5,022,005

 

$

4,977,759

 

$

4,537,301

 

0.9

%

 

10.7

%

 

  1. Includes loans HFS.

     

EAST WEST BANCORP, INC. AND SUBSIDIARIES

QUARTER-TO-DATE AVERAGE BALANCES, YIELDS AND RATES

($ in thousands)

(unaudited)

Table 5

 

 

 

Three Months Ended

 

 

March 31, 2020

 

December 31, 2019

 

 

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

 

$

2,973,006

 

 

$

11,168

 

 

1.51

%

 

$

3,213,016

 

 

$

14,657

 

 

1.81

%

Resale agreements (2)

 

882,142

 

 

5,565

 

 

2.54

%

 

863,261

 

 

5,749

 

 

2.64

%

AFS debt securities

 

3,274,740

 

 

20,142

 

 

2.47

%

 

3,549,376

 

 

20,460

 

 

2.29

%

Loans (3)

 

35,153,968

 

 

411,869

 

 

4.71

%

 

34,410,010

 

 

425,773

 

 

4.91

%

FHLB and FRB stock

 

78,675

 

 

446

 

 

2.28

%

 

78,460

 

 

594

 

 

3.00

%

Total interest-earning assets

 

42,362,531

 

 

449,190

 

 

4.26

%

 

42,114,123

 

 

467,233

 

 

4.40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

510,512

 

 

 

 

 

 

534,326

 

 

 

 

 

Allowance for credit losses

 

(492,297

)

 

 

 

 

 

(355,759

)

 

 

 

 

Other assets

 

2,374,763

 

 

 

 

 

 

2,178,552

 

 

 

 

 

Total assets

 

$

44,755,509

 

 

 

 

 

 

$

44,471,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Checking deposits

 

$

5,001,672

 

 

$

10,246

 

 

0.82

%

 

$

5,540,300

 

 

$

13,589

 

 

0.97

%

Money market deposits

 

9,013,381

 

 

22,248

 

 

0.99

%

 

8,592,058

 

 

25,223

 

 

1.16

%

Savings deposits

 

2,076,270

 

 

1,817

 

 

0.35

%

 

2,118,911

 

 

2,266

 

 

0.42

%

Time deposits

 

10,264,007

 

 

42,092

 

 

1.65

%

 

10,180,922

 

 

47,935

 

 

1.87

%

Federal funds purchased and other short-term borrowings

 

59,978

 

 

556

 

 

3.73

%

 

43,313

 

 

404

 

 

3.70

%

FHLB advances

 

693,357

 

 

4,166

 

 

2.42

%

 

745,732

 

 

4,686

 

 

2.49

%

Repurchase agreements (2)

 

332,417

 

 

3,991

 

 

4.83

%

 

148,892

 

 

3,382

 

 

9.01

%

Long-term debt and finance lease liabilities

 

152,259

 

 

1,367

 

 

3.61

%

 

152,341

 

 

1,529

 

 

3.98

%

Total interest-bearing liabilities

 

27,593,341

 

 

86,483

 

 

1.26

%

 

27,522,469

 

 

99,014

 

 

1.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities and stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

11,117,710

 

 

 

 

 

 

10,976,368

 

 

 

 

 

Accrued expenses and other liabilities

 

1,022,453

 

 

 

 

 

 

994,646

 

 

 

 

 

Stockholders’ equity

 

5,022,005

 

 

 

 

 

 

4,977,759

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

44,755,509

 

 

 

 

 

 

$

44,471,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate spread

 

 

 

 

 

3.00

%

 

 

 

 

 

2.97

%

Net interest income and net interest margin

 

 

 

$

362,707

 

 

3.44

%

 

 

 

$

368,219

 

 

3.47

%

 

  1. Annualized.
  2. Average balances of resale and repurchase agreements have been reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.54% and 2.49% for the three months ended March 31, 2020 and December 31, 2019, respectively. The weighted-average interest rates of gross repurchase agreements were 4.10% and 4.35% for the three months ended March 31, 2020 and December 31, 2019, respectively.
  3. 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

 

March 31, 2020

 

March 31, 2019

 

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

 

$

2,973,006

 

 

$

11,168

 

1.51

%

 

$

2,578,686

 

 

$

15,470

 

2.43

%

Resale agreements (2)

 

882,142

 

 

5,565

 

2.54

%

 

1,035,000

 

 

7,846

 

3.07

%

AFS debt securities

 

3,274,740

 

 

20,142

 

2.47

%

 

2,642,299

 

 

15,748

 

2.42

%

Loans (3)

 

35,153,968

 

 

411,869

 

4.71

%

 

32,414,785

 

 

423,534

 

5.30

%

FHLB and FRB stock

 

78,675

 

 

446

 

2.28

%

 

74,234

 

 

713

 

3.90

%

Total interest-earning assets

 

42,362,531

 

 

449,190

 

4.26

%

 

38,745,004

 

 

463,311

 

4.85

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

510,512

 

 

 

 

 

 

468,159

 

 

 

 

 

Allowance for credit losses

 

(492,297

)

 

 

 

 

 

(314,446

)

 

 

 

 

Other assets

 

2,374,763

 

 

 

 

 

 

1,839,687

 

 

 

 

 

Total assets

 

$

44,755,509

 

 

 

 

 

 

$

40,738,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Checking deposits

 

$

5,001,672

 

 

$

10,246

 

0.82

%

 

$

5,270,855

 

 

$

14,255

 

1.10

%

Money market deposits

 

9,013,381

 

 

22,248

 

0.99

%

 

8,080,848

 

 

30,234

 

1.52

%

Savings deposits

 

2,076,270

 

 

1,817

 

0.35

%

 

2,091,406

 

 

2,227

 

0.43

%

Time deposits

 

10,264,007

 

 

42,092

 

1.65

%

 

9,408,897

 

 

45,289

 

1.95

%

Federal funds purchased and other short-term borrowings

 

59,978

 

 

556

 

3.73

%

 

60,442

 

 

616

 

4.13

%

FHLB advances

 

693,357

 

 

4,166

 

2.42

%

 

338,027

 

 

2,979

 

3.57

%

Repurchase agreements (2)

 

332,417

 

 

3,991

 

4.83

%

 

50,000

 

 

3,492

 

28.32

%

Long-term debt and finance lease liabilities

 

152,259

 

 

1,367

 

3.61

%

 

152,360

 

 

1,758

 

4.68

%

Total interest-bearing liabilities

 

27,593,341

 

 

86,483

 

1.26

%

 

25,452,835

 

 

100,850

 

1.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities and stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

11,117,710

 

 

 

 

 

 

10,071,370

 

 

 

 

 

Accrued expenses and other liabilities

 

1,022,453

 

 

 

 

 

 

676,898

 

 

 

 

 

Stockholders’ equity

 

5,022,005

 

 

 

 

 

 

4,537,301

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

44,755,509

 

 

 

 

 

 

$

40,738,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate spread

 

 

 

 

 

3.00

%

 

 

 

 

 

3.24

%

Net interest income and net interest margin

 

 

 

$

362,707

 

3.44

%

 

 

 

$

362,461

 

3.79

%

 

  1. Annualized.
  2. Average balances of resale and repurchase agreements have been reported net, pursuant to ASC 210-20-45-11, Balance Sheet Offsetting: Repurchase and Reverse Repurchase Agreements. The weighted-average yields of gross resale agreements were 2.54% and 2.80% for the three months ended March 31, 2020 and 2019, respectively. The weighted-average interest rates of gross repurchase agreements were 4.10% and 5.01% for the three months ended March 31, 2020 and 2019, respectively.
  3. Includes loans HFS. See reconciliation of GAAP to non-GAAP financial measures in Table 15.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

SELECTED RATIOS

(unaudited)

Table 7

 

 

 

Three Months Ended (1)

 

March 31, 2020

Basis Point Change

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

Qtr-o-Qtr

 

Yr-o-Yr

 

Return on average assets

 

1.30

%

 

1.68

%

 

1.63

%

 

(38

)

bps

(33

)

bps

Adjusted return on average assets (2)

 

1.30

%

 

1.67

%

 

1.68

%

 

(37

)

 

(38

)

 

Return on average equity

 

11.60

%

 

15.00

%

 

14.66

%

 

(340

)

 

(306

)

 

Adjusted return on average equity (2)

 

11.60

%

 

14.91

%

 

15.10

%

 

(331

)

 

(350

)

 

Return on average tangible equity (2)

 

12.93

%

 

16.71

%

 

16.53

%

 

(378

)

 

(360

)

 

Adjusted return on average tangible equity (2)

 

12.93

%

 

16.61

%

 

17.02

%

 

(368

)

 

(409

)

 

Interest rate spread

 

3.00

%

 

2.97

%

 

3.24

%

 

3

 

 

(24

)

 

Net interest margin

 

3.44

%

 

3.47

%

 

3.79

%

 

(3

)

 

(35

)

 

Average loan yield

 

4.71

%

 

4.91

%

 

5.30

%

 

(20

)

 

(59

)

 

Yield on average interest-earning assets

 

4.26

%

 

4.40

%

 

4.85

%

 

(14

)

 

(59

)

 

Average cost of interest-bearing deposits

 

1.17

%

 

1.34

%

 

1.50

%

 

(17

)

 

(33

)

 

Average cost of deposits

 

0.82

%

 

0.94

%

 

1.07

%

 

(12

)

 

(25

)

 

Average cost of funds

 

0.90

%

 

1.02

%

 

1.15

%

 

(12

)

 

(25

)

 

Adjusted pre-tax, pre-provision profitability ratio (2)

 

2.30

%

 

2.37

%

 

2.43

%

 

(7

)

 

(13

)

 

Adjusted noninterest expense/average assets (2)

 

1.44

%

 

1.47

%

 

1.60

%

 

(3

)

 

(16

)

 

Efficiency ratio

 

42.92

%

 

44.84

%

 

46.20

%

 

(192

)

 

(328

)

 

Adjusted efficiency ratio (2)

 

38.54

%

 

38.33

%

 

39.75

%

 

21

 

bps

(121

)

bps

 

  1. Annualized except for efficiency ratio.
  2. See reconciliation of GAAP to non-GAAP financial measures in Tables 10, 11 and 12.

     

EAST WEST BANCORP, INC. AND SUBSIDIARIES

ALLOWANCE FOR CREDIT LOSSES & OFF-BALANCE SHEET CREDIT EXPOSURES

($ in thousands)

(unaudited)

Table 8

ASU 2016-13 replaced the incurred loss methodology used in calculating the allowance for credit losses with a current expected credit loss model (“CECL”). The Company adopted ASU 2016-13 using the modified retrospective approach on January 1, 2020. As a result, prior comparative periods have not been adjusted. In addition, ASU 2016-13 introduces the concept of Purchased Credit Deteriorated (“PCD”) financial assets, which replaces purchased credit-impaired (“PCI”) assets. For PCD assets, the initial allowance for credit losses is added to the purchase price and is considered to be part of the PCD loan amortized cost basis, hence, there is no income statement impact on acquisition. This contrasts with PCI loans where allowance for credit losses only reflects losses that are incurred by the Company after the acquisition. The allowance for credit losses on loans, including PCD loans, is evaluated each quarter and adjusted as necessary by recognizing a credit loss expense or a reversal of credit loss expense. There were no PCD loans during the quarter ended March 31, 2020.

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Commercial

 

Consumer

 

Total

 

 

 

 

 

CRE

 

Residential Mortgage

 

 

 

 

 

 

C&I

 

CRE

 

Multi-
Family

Residential

 

Construction
and Land

 

Single-
Family
Residential

 

HELOCs

 

Other

Consumer

 

Allowance for credit losses, December 31, 2019

 

 

$

238,376

 

 

$

40,509

 

 

$

22,826

 

 

$

19,404

 

 

$

28,527

 

 

$

5,265

 

 

$

3,380

 

 

$

358,287

 

Impact of ASU 2016-13 adoption

 

 

74,237

 

 

72,169

 

 

(8,112

)

 

(9,889

)

 

(3,670

)

 

(1,798

)

 

2,221

 

 

125,158

 

Allowance for credit losses, January 1, 2020

 

 

$

312,613

 

 

$

112,678

 

 

$

14,714

 

 

$

9,515

 

 

$

24,857

 

 

$

3,467

 

 

$

5,601

 

 

$

483,445

 

Provision for credit losses

(a)

 

60,618

 

 

11,435

 

 

1,281

 

 

1,482

 

 

1,700

 

 

412

 

 

(2,272

)

 

74,656

 

Gross charge-offs

 

 

(11,977

)

 

(954

)

 

 

 

 

 

 

 

 

 

(26

)

 

(12,957

)

Gross recoveries

 

 

1,575

 

 

9,660

 

 

535

 

 

21

 

 

265

 

 

2

 

 

1

 

 

12,059

 

Total net charge-offs

 

 

(10,402

)

 

8,706

 

 

535

 

 

21

 

 

265

 

 

2

 

 

(25

)

 

(898

)

Foreign currency translation adjustments

 

 

 

(200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(200

)

Allowance for credit losses, March 31, 2020

 

 

$

362,629

 

 

$

132,819

 

 

$

16,530

 

 

$

11,018

 

 

$

26,822

 

 

$

3,881

 

 

$

3,304

 

 

$

557,003

 

 

 

 

 

 

Three Months Ended

 

 

 

December 31, 2019

 

March 31, 2019

Non-PCI Loans

 

 

 

 

 

 

 

 

 

Allowance for credit losses, beginning of period

 

 

 

 

 

$

345,576

 

 

$

311,300

 

Provision for credit losses

 

(a)

 

 

 

20,843

 

 

20,648

 

Net (charge-offs) recoveries:

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

C&I

 

 

 

 

 

(11,009

)

 

(14,993

)

CRE:

 

 

 

 

 

 

 

 

CRE

 

 

 

 

 

1,254

 

 

222

 

Multifamily residential

 

 

 

 

 

1,480

 

 

281

 

Construction and land

 

 

 

 

 

13

 

 

63

 

Total CRE

 

 

 

 

 

2,747

 

 

566

 

Consumer:

 

 

 

 

 

 

 

 

Residential mortgage:

 

 

 

 

 

 

 

 

Single-family residential

 

 

 

 

 

2

 

 

2

 

HELOCs

 

 

 

 

 

 

 

2

 

Total residential mortgage

 

 

 

 

 

2

 

 

4

 

Other consumer

 

 

 

 

 

(5

)

 

(14

)

Total net charge-offs

 

 

 

 

 

(8,265

)

 

(14,437

)

Foreign currency translation adjustments

 

 

 

 

 

133

 

 

369

 

Allowance for credit losses, end of period

 

 

 

 

 

$

358,287

 

 

$

317,880

 

PCI Loans

 

 

 

 

 

 

 

 

Allowance for PCI loans, beginning of period

 

 

 

 

 

 

 

22

 

Reversal of loan losses on PCI loans

 

(a)

 

 

 

 

 

(8

)

Allowance for PCI loans, end of period

 

 

 

 

 

 

 

14

 

Allowance for credit losses

 

 

 

 

 

$

358,287

 

 

$

317,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Unfunded Credit Facilities

 

 

 

 

 

 

 

 

Allowance for unfunded credit commitments, beginning of period

 

 

 

$

11,158

 

 

$

13,424

 

 

$

12,566

 

Impact of ASU 2016-13 adoption

 

 

 

 

10,457

 

 

 

 

 

(Reversal of) provision for credit losses

 

(b)

 

(786

)

 

(2,266

)

 

1,939

 

Allowance for unfunded credit commitments, end of period (1)

 

 

 

$

20,829

 

 

$

11,158

 

 

$

14,505

 

 

 

 

 

 

 

 

 

 

Total provision for credit losses

 

(a) + (b)

 

$

73,870

 

 

$

18,577

 

 

$

22,579

 

 

  1. Included in Accrued expense and other liabilities on the Consolidated Balance Sheet.

     

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CREDIT QUALITY

($ in thousands)

(unaudited)

Table 9

The Company adopted ASU 2016-13 using the modified retrospective approach on January 1, 2020. As a result, prior comparative periods have not been adjusted. PCI loans prior to the adoption of ASU 2016-13 are classified as PCD loans as of January 1, 2020. Nonaccrual loans as of March 31, 2020 include all loans that are 90 or more days past due, unless the loan is well-collateralized or guaranteed by government agencies, and in the process of collection. Nonaccrual loans presented as of December 31, 2019 and March 31, 2019 include only Non-PCI nonaccrual loans.

 

Nonperforming Assets

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

 

Total
Nonaccrual loans

 

Non-PCI
Nonaccrual Loans

 

Non-PCI
Nonaccrual Loans

Commercial:

 

 

 

 

 

 

C&I

 

$

89,079

 

 

$

74,835

 

 

$

86,466

 

CRE:

 

 

 

 

 

 

CRE

 

6,298

 

 

16,441

 

 

25,209

 

Multifamily residential

 

803

 

 

819

 

 

1,620

 

Total CRE

 

7,101

 

 

17,260

 

 

26,829

 

Consumer:

 

 

 

 

 

 

Residential mortgage:

 

 

 

 

 

 

Single-family residential

 

17,536

 

 

14,865

 

 

10,467

 

HELOCs

 

10,446

 

 

10,742

 

 

10,473

 

Total residential mortgage

 

27,982

 

 

25,607

 

 

20,940

 

Other consumer

 

2,506

 

 

2,517

 

 

2,506

 

Total nonaccrual loans

 

126,668

 

 

120,219

 

 

136,741

 

Other real estate owned, net

 

19,504

 

 

125

 

 

133

 

Other nonperforming assets

 

4,758

 

 

1,167

 

 

1,167

 

Total nonperforming assets

 

$

150,930

 

 

$

121,511

 

 

$

138,041

 

 

 

Credit Quality Ratios

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Nonperforming assets to total assets

 

0.33

%

 

0.27

%

 

0.33

%

Nonaccrual loans to loans HFI

 

0.35

%

 

0.35

%

 

0.42

%

Allowance for credit losses to loans HFI

 

1.55

%

 

1.03

%

 

0.97

%

Allowance for credit losses to nonaccrual loans

 

439.73

%

 

298.03

%

 

232.48

%

Annualized quarterly net charge-offs to average loans HFI

 

0.01

%

 

0.10

%

 

0.18

%

 

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ and shares in thousands, except for per share data)

(unaudited)

Table 10

During the first and fourth quarters of 2019, the Company recorded a $7.0 million pre-tax impairment charge and $1.6 million pre-tax impairment recovery related to the DC Solar tax credit investments (“DC Solar”), respectively. Management believes that presenting the computations of the adjusted net income, adjusted diluted earnings per common share, adjusted return on average assets and adjusted return on average equity that adjust for the above discussed non-recurring items provides clarity to financial statement users regarding the ongoing performance of the Company and allows comparability to prior periods.

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Net income

 

(a)

 

$

144,824

 

 

$

188,215

 

 

$

164,024

 

Add: Impairment charge related to DC Solar (1)

 

 

 

 

 

 

 

6,978

 

Less: Impairment recovery related to DC Solar (1)

 

 

 

 

 

(1,583

)

 

 

Tax effect of adjustment (2)

 

 

 

 

 

468

 

 

(2,063

)

Adjusted net income

 

(b)

 

$

144,824

 

 

$

187,100

 

 

$

168,939

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average number of shares outstanding

 

 

 

145,285

 

 

146,318

 

 

145,921

 

Diluted EPS

 

 

 

$

1.00

 

 

$

1.29

 

 

$

1.12

 

Diluted EPS impact of impairment charge related to DC Solar, net of tax

 

 

 

 

 

 

 

0.04

 

Diluted EPS impact of impairment recovery related to DC Solar, net of tax

 

 

 

 

 

(0.01

)

 

 

Adjusted diluted EPS

 

 

 

$

1.00

 

 

$

1.28

 

 

$

1.16

 

 

 

 

 

 

 

 

 

 

Average total assets

 

(c)

 

$

44,755,509

 

 

$

44,471,242

 

 

$

40,738,404

 

Average stockholders’ equity

 

(d)

 

$

5,022,005

 

 

$

4,977,759

 

 

$

4,537,301

 

Return on average assets (3)

 

(a)/(c)

 

1.30

%

 

1.68

%

 

1.63

%

Adjusted return on average assets (3)

 

(b)/(c)

 

1.30

%

 

1.67

%

 

1.68

%

Return on average equity (3)

 

(a)/(d)

 

11.60

%

 

15.00

%

 

14.66

%

Adjusted return on average equity (3)

 

(b)/(d)

 

11.60

%

 

14.91

%

 

15.10

%

 

  1. Included in Amortization of tax credit and other investments on the Consolidated Statement of Income.
  2. Applied statutory rates of 28.35% for the three months ended March 31, 2020, and 29.56% for each of the three months ended December 31, 2019 and March 31, 2019.
  3. Annualized.

     

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 11

Adjusted efficiency ratio represents adjusted noninterest expense divided by revenue. Adjusted pre-tax, pre-provision profitability ratio represents revenue less adjusted noninterest expense, divided by average total assets. Adjusted noninterest expense excludes the amortization of tax credit and other investments and the amortization of core deposit intangibles. Management believes that the measures and ratios presented below provide clarity to financial statement users regarding the ongoing performance of the Company and allow comparability to prior periods.

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Net interest income before provision for credit losses

 

(a)

 

$

362,707

 

 

$

368,219

 

 

$

362,461

 

Total noninterest income

 

 

 

54,049

 

 

63,013

 

 

42,131

 

Total revenue

 

(b)

 

$

416,756

 

 

$

431,232

 

 

$

404,592

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

(c)

 

$

178,876

 

 

$

193,373

 

 

$

186,922

 

Less: Amortization of tax credit and other investments

 

 

 

(17,325

)

 

(27,038

)

 

(24,905

)

Amortization of core deposit intangibles

 

 

 

(953

)

 

(1,044

)

 

(1,174

)

Adjusted noninterest expense

 

(d)

 

$

160,598

 

 

$

165,291

 

 

$

160,843

 

Efficiency ratio

 

(c)/(b)

 

42.92

%

 

44.84

%

 

46.20

%

Adjusted efficiency ratio

 

(d)/(b)

 

38.54

%

 

38.33

%

 

39.75

%

Adjusted pre-tax, pre-provision income

 

(b)-(d) = (e)

 

$

256,158

 

 

$

265,941

 

 

$

243,749

 

Average total assets

 

(f)

 

$

44,755,509

 

 

$

44,471,242

 

 

$

40,738,404

 

Adjusted pre-tax, pre-provision profitability ratio (1)

 

(e)/(f)

 

2.30

%

 

2.37

%

 

2.43

%

Adjusted noninterest expense (1)/average assets

 

(d)/(f)

 

1.44

%

 

1.47

%

 

1.60

%

 

  1. Annualized.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 12

 

 

 

 

 

 

 

 

The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance. Tangible equity and tangible equity to tangible assets ratio are non-GAAP financial measures. Tangible equity and tangible assets represent stockholders’ equity and total assets, respectively, which have been reduced by goodwill and other intangible assets. Given that the use of such measures and ratios is more prevalent in the banking industry, and such measures and ratios are used by banking regulators and analysts, the Company has included them below for discussion.

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Stockholders’ equity

 

(a)

 

$

4,902,985

 

 

$

5,017,617

 

 

$

4,591,930

 

Less: Goodwill

 

 

 

(465,697

)

 

(465,697

)

 

(465,697

)

Other intangible assets (1)

 

 

 

(14,769

)

 

(16,079

)

 

(21,109

)

Tangible equity

 

(b)

 

$

4,422,519

 

 

$

4,535,841

 

 

$

4,105,124

 

 

 

 

 

 

 

 

 

 

Total assets

 

(c)

 

$

45,948,545

 

 

$

44,196,096

 

 

$

42,091,433

 

Less: Goodwill

 

 

 

(465,697

)

 

(465,697

)

 

(465,697

)

Other intangible assets (1)

 

 

 

(14,769

)

 

(16,079

)

 

(21,109

)

Tangible assets

 

(d)

 

$

45,468,079

 

 

$

43,714,320

 

 

$

41,604,627

 

Total stockholders’ equity to total assets ratio

 

(a)/(c)

 

10.67

%

 

11.35

%

 

10.91

%

Tangible equity to tangible assets ratio

 

(b)/(d)

 

9.73

%

 

10.38

%

 

9.87

%

 

 

 

 

 

 

 

 

 

Adjusted return on average tangible equity represents adjusted tangible net income divided by average tangible equity. Adjusted tangible net income excludes the after-tax impacts of the amortization of core deposit intangibles and mortgage servicing assets, impairment charge/(recovery) and the reversal of certain previously claimed tax credits related to DC Solar (where applicable). Given that the use of such measures and ratios is more prevalent in the banking industry, and such measures and ratios are used by banking regulators and analysts, the Company has included them below for discussion.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

Net Income

 

 

 

$

144,824

 

 

$

188,215

 

 

$

164,024

 

Add: Amortization of core deposit intangibles

 

 

 

953

 

 

1,044

 

 

1,174

 

Amortization of mortgage servicing assets

 

 

 

584

 

 

567

 

 

324

 

Tax effect of adjustments (2)

 

 

 

(436

)

 

(476

)

 

(443

)

Tangible net income

 

(e)

 

$

145,925

 

 

$

189,350

 

 

$

165,079

 

Add: Impairment charge related to DC Solar (3)

 

 

 

 

 

 

 

6,978

 

Less: Impairment recovery related to DC Solar (3)

 

 

 

 

 

(1,583

)

 

 

Tax effect of adjustment (2)

 

 

 

 

 

468

 

 

(2,063

)

Adjusted tangible net income

 

(f)

 

$

145,925

 

 

$

188,235

 

 

$

169,994

 

 

 

 

 

 

 

 

 

 

Average stockholders’ equity

 

 

 

$

5,022,005

 

 

$

4,977,759

 

 

$

4,537,301

 

Less: Average goodwill

 

 

 

(465,697

)

 

(465,697

)

 

(465,559

)

Average other intangible assets (1)

 

 

 

(15,588

)

 

(16,793

)

 

(21,860

)

Average tangible equity

 

(g)

 

$

4,540,720

 

 

$

4,495,269

 

 

$

4,049,882

 

Return on average tangible equity (4)

 

(e)/(g)

 

12.93

%

 

16.71

%

 

16.53

%

Adjusted return on average tangible equity (4)

 

(f)/(g)

 

12.93

%

 

16.61

%

 

17.02

%

 

 

 

 

 

 

 

 

 

  1. Includes core deposit intangibles and mortgage servicing assets.
  2. Applied statutory rates of 28.35% for the three months ended March 31, 2020, and 29.56% for each of the three months ended December 31, 2019 and March 31, 2019.
  3. Included in Amortization of tax credit and other investments on the Consolidated Statement of Income.
  4. Annualized.

 

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