Actionable news
0
All posts from Actionable news
Actionable news in EWBC: East West Bancorp, Inc.,

East West Bancorp Reports Net Income for Second Quarter 2017 of $118.3 Million and Diluted Earnings Per Share of $0.81

PASADENA, Calif.--(BUSINESS WIRE)--East West Bancorp, Inc. (“East West” or the “Company”) (Nasdaq: EWBC), parent company of East West Bank, the financial bridge between the United States and Greater China, today reported its financial results for the second quarter of 2017. For the second quarter of 2017, net income was $118.3 million or $0.81 per diluted share. Second quarter 2017 return on average assets was 1.36%, return on average equity was 13.05% and tangible return on average tangible equity1 was 15.30%.

“For the second quarter of 2017, the yield on our loan portfolio expanded by 17 basis points from the prior quarter, compared to a modest increase in the cost of deposits of four basis points.”

Tweet this

“Second quarter results continued East West’s positive momentum from the first quarter. In the second quarter of 2017, total loans grew $732 million or 11% annualized to a record $27.2 billion from $26.5 billion as of March 31, 2017. Total deposits grew $611 million or 8% annualized to a record $31.2 billion as of June 30, 2017 from $30.5 billion at the end of the previous quarter,” stated Dominic Ng, Chairman and Chief Executive Officer of East West.

“East West’s balance sheet growth during the quarter, augmented by the positive impact of rising short-term interest rates on our loan portfolio, resulted in net interest income growth of 7% and net interest margin expansion of 16 basis points linked quarter,” continued Ng. “For the second quarter of 2017, the yield on our loan portfolio expanded by 17 basis points from the prior quarter, compared to a modest increase in the cost of deposits of four basis points.”

“In addition, our strong operating performance was supported by stable asset quality. Quarter over quarter, nonperforming assets declined by 8%, to 0.37% of total assets. The allowance for loan losses to loans held-for-investment increased to 1.02%, in part due to annualized net recoveries of four basis points for the quarter. In summary, second quarter results were consistent with East West’s track record of delivering long-term shareholder value through attractive growth and profitability,” concluded Ng.

HIGHLIGHTS OF RESULTS

  • Strong Earnings – Net income of $118.3 million for the second quarter of 2017 increased by 15% compared to $103.3 million for the second quarter of 2016, and diluted earnings per share (“EPS”) of $0.81 increased by 14% year-over-year from $0.71. Net income and diluted EPS for the second quarter of 2017 both decreased by 30% compared to net income of $169.7 million and EPS of $1.16 for the first quarter of 2017; first quarter results were positively impacted by the sale of a commercial property and a lower tax expense due to a change in the accounting for stock-based compensation. Second quarter 2017 adjusted2 pre-tax, pre-provision (“PTPP”) income of $198.0 million increased by 10% compared to $179.6 million in the first quarter. Year-over-year, adjusted PTPP income increased by 20% compared to $165.0 million in the second quarter of 2016.
  • Net Interest Income Growth and Net Interest Margin Expansion – Net interest income totaled $290.1 million for the second quarter of 2017, an increase of $18.0 million or 7% linked quarter. Accounting Standard Codification (“ASC”) 310-30 discount accretion income was $6.3 million this quarter, compared to $3.2 million in the prior quarter. Excluding this discount accretion income, second quarter 2017 adjusted3 net interest income of $283.8 million increased by $14.9 million or 6% sequentially, due to growth in the loan portfolio and the positive impact of recent short-term interest rate increases. Second quarter 2017 net interest margin (“NIM”) of 3.49% expanded by 16 basis points linked quarter; the adjusted NIM3 of 3.41% expanded by 12 basis points linked quarter.
  • Record Loans – Total loans of $27.2 billion as of June 30, 2017 were up $732 million or 11% annualized from $26.5 billion as of March 31, 2017. Total loans grew by 12% year-over-year. The sequential quarter loan growth was driven by strong performance in single-family residential mortgages, as well as continued growth in our commercial loans and a more modest net increase in our commercial real estate and multifamily portfolios.
  • Record Deposits – Total deposits of $31.2 billion as of June 30, 2017 were up $611 million or 8% annualized from $30.5 billion as of March 31, 2017. Total deposits grew by 10% year-over-year. The sequential quarter growth in deposits was primarily due to increases in interest-bearing checking, time, money market and savings deposits. Noninterest-bearing demand deposits decreased by $199 million to $10.5 billion as of June 30, 2017, comprising 34% of total deposits, down modestly from 35% as of March 31, 2017.
  • Steady Asset Quality – The allowance for loan losses increased to $276.3 million, or 1.02% of loans held-for-investment (“HFI”) as of June 30, 2017, compared to $263.1 million, or 0.99% of loans HFI as of March 31, 2017. In the second quarter of 2017, annualized net recoveries were 0.04% of average loans HFI, compared to annualized net charge-offs of 0.08% in the previous quarter. Non-purchased credit impaired (“Non-PCI”) nonperforming assets decreased to $133.0 million, or 0.37% of total assets, as of June 30, 2017, compared to $144.8 million, or 0.41% of total assets, as of March 31, 2017.
  • Capital Ratios – Capital levels for East West continue to be solid. Tangible equity per common share as of June 30, 2017 was $21.93, an increase of 3% linked quarter and 13% year-over-year. As of June 30, 2017, the tangible equity to tangible assets ratio4 was 8.95%, the Common Equity Tier 1 (“CET1”) capital ratio was 11.3%, and the total risk-based capital ratio was 12.8%.

QUARTERLY RESULTS SUMMARY

Quarter Ended
($ in millions, except per share data) June 30, 2017 March 31, 2017 June 30, 2016
Net income $ 118.3 $ 169.7 $ 103.3
Earnings per share (diluted) $ 0.81 $ 1.16 $ 0.71

Adjusted earnings per share (diluted) (1)

$ 0.81 $ 0.88 $ 0.71

Tangible equity per common share (1)

$ 21.93 $ 21.20 $ 19.36

Tangible equity to tangible assets (1)

8.95 % 8.79 % 8.60 %
Return on average assets (2) 1.36 % 1.97 % 1.27 %
Return on average equity (2) 13.05 % 19.71 % 12.71 %
Tangible return on average tangible equity (1) (2) 15.30 % 23.21 % 15.28 %
Adjusted return on average assets (1) (2) 1.36 % 1.49 % 1.27 %
Adjusted return on average equity (1) (2) 13.05 % 14.88 % 12.71 %

Adjusted tangible return on average tangible equity (1) (2)

15.30 % 17.57 % 15.28 %
Adjusted pre-tax, pre-provision profitability ratio (1) (2) 2.27 % 2.09 % 2.04 %
Net interest income $ 290.1 $ 272.1 $ 253.6
Adjusted net interest income (1) $ 283.8 $ 268.9 $ 240.3
Net interest margin (2) 3.49 % 3.33 % 3.31 %
Adjusted net interest margin (1) (2) 3.41 % 3.29 % 3.13 %
Cost of deposits (2) 0.36 % 0.32 % 0.29 %
Adjusted efficiency ratio (1) 41.3 % 43.3 % 44.6 %

MANAGEMENT OUTLOOK FOR 2017

Our current outlook for the expected full year 2017 results, compared to our full year 2016 results, is as follows:

  • End of Period Loans: increase at a percentage rate in the low double digits. This is unchanged from our previous outlook.
  • Net Interest Margin (excluding the impact of ASC 310-30 discount accretion income): between 3.35% and 3.45%. This is unchanged from our previous outlook.
  • Noninterest Expense (excluding tax credit amortization & core deposit intangible amortization): increase at a percentage rate in the low single digits. This is unchanged from our previous outlook.
  • Provision for Credit Losses: in the range of $40 million to $50 million. This is unchanged from our previous outlook.
  • Tax Items: projecting investment in renewable energy and historical tax credits of $115 million, and related tax credit amortization of $95 million. This, along with other tax items, is expected to result in a full year 2017 effective tax rate of 26%. This compares to our previous outlook of $95 million of tax credit investments, $75 million of related tax credit amortization, and an effective tax rate in the range of 26% to 29%.
  • Interest Rates: our outlook incorporates the current forward rate curve; as such, it assumes one more Fed Funds rate increase in December 2017. Our previous outlook incorporated Fed Funds rate increases in June and November.

OPERATING RESULTS SUMMARY

Second Quarter 2017 Compared to First Quarter 2017

Net Interest Income

Net interest income totaled $290.1 million, a 7% increase from $272.1 million.

  • Adjusted net interest income, excluding ASC 310-30 discount accretion income, increased by $14.9 million or 6% to $283.8 million; ASC 310-30 discount accretion increased by $3.0 million to $6.3 million.
  • Average loans of $26.7 billion grew by $612 million or 9% annualized from $26.1 billion.
  • Average deposits of $30.2 billion grew by $490 million or 7% annualized from $29.7 billion.
  • Average noninterest-bearing demand deposits comprised 34% of total deposits, similar to the prior quarter.
  • The average loan-to-deposits ratio was 88%, similar to the prior quarter.

Net Interest Margin

Net interest margin expanded by 16 basis points to 3.49% from 3.33%.

  • Excluding the impact of ASC 310-30 discount accretion income, adjusted NIM expanded by 12 basis points to 3.41% from 3.29%.
  • The yield on average loans expanded by 17 basis points to 4.40% from 4.23%; the adjusted5 loan yield expanded by 13 basis points to 4.30% from 4.17%.
  • The cost of deposits increased by four basis points to 0.36% from 0.32%.
  • The sequential quarter NIM expansion reflects loan growth and the positive impact of rising short-term interest rates.

Noninterest Income

Total noninterest income of $47.4 million was up by $3.0 million sequentially, or 7%, from adjusted6 noninterest income of $44.4 million, which excludes the gain on sale of the commercial property during the first quarter. Total fees and other operating income of $42.1 million increased by $3.3 million or 9% from $38.8 million in the first quarter. The increase in fee income was broad-based across most of our fee income businesses.

The following table presents total fees and other operating income for the quarters ended June 30, 2017, March 31, 2017 and June 30, 2016.

Three Months Ended
($ in thousands) June 30, 2017 March 31, 2017 June 30, 2016
Branch fees $ 10,700 $ 10,296 $ 10,353
Letters of credit fees and foreign exchange income 11,986 11,069 10,943
Ancillary loan fees and other income 5,907 4,982 4,285
Wealth management fees 3,537 4,530 2,778
Derivative fees and other income 3,765 2,506 1,444
Other fees and operating income 6,197 5,405 6,502

Total fees and other operating income

$ 42,092 $ 38,788 $ 36,305

Noninterest Expense & Effective Tax Rate

Noninterest expense totaled $169.1 million, comprising $139.5 million of adjusted7 noninterest expense, $27.9 million of tax credit amortization and $1.8 million of core deposit intangible amortization.

  • Adjusted noninterest expense of $139.5 million increased by $2.6 million or 2% linked quarter. The adjusted7 efficiency ratio of 41.3% improved by 192 basis points from 43.3%.
  • Compensation expense of $80.7 million decreased by 5% from a seasonally higher $84.6 million in the first quarter of 2017.
  • The Company’s effective tax rate was 25.0%, compared to an effective tax rate of 25.6% in the prior quarter.
  • During the second quarter, the Company closed an additional renewable energy tax credit investment, which contributed $8.7 million to the tax credit amortization expense for the quarter and reduced the effective tax rate to 25.0%. For the remainder of the year, the tax credit amortization expense is projected to be approximately $50 million, and the full year 2017 effective tax rate is projected to be 26%.

CREDIT QUALITY

The allowance for loan losses totaled $276.3 million or 1.02% of loans HFI as of June 30, 2017, compared to $263.1 million or 0.99% of loans HFI, and $266.8 million or 1.10% of loans HFI as of March 31, 2017 and June 30, 2016, respectively.

  • The Company recorded a provision for credit losses of $10.7 million in the current quarter, compared to $7.1 million in the first quarter of 2017, and $6.1 million in the second quarter of 2016.
  • In the second quarter of 2017, annualized net recoveries were $2.6 million or 0.04% of average loans HFI, compared to annualized net charge-offs of $5.4 million or 0.08% of average loans HFI in the first quarter of 2017, and annualized net charge-offs of $0.6 million or 0.01% of average loans HFI in the second quarter of 2016. The net recoveries in the second quarter of 2017 were in all loan categories, with the largest impact from commercial loan net recoveries of $1.7 million.
  • Non-PCI nonperforming assets decreased by $11.8 million, or 8% linked quarter, to $133.0 million, or 0.37% of total assets, as of June 30, 2017, compared to 0.41% as of March 31, 2017 and 0.54% as of June 30, 2016.

CAPITAL STRENGTH

Capital levels for East West continue to be solid. Tangible equity per common share as of June 30, 2017 was $21.93, an increase of 3% linked quarter and 13% year-over-year. The following table presents the regulatory capital ratios for the quarters ended June 30, 2017, March 31, 2017 and June 30, 2016.

Regulatory Capital Metrics Basel III
Well Fully Phased-
Minimum Capitalized in Minimum
June 30, March 31, June 30, Regulatory Regulatory Regulatory
($ in millions)

2017 (a)

2017 2016 Requirements Requirements Requirements
CET1 capital ratio 11.3 % 11.1 % 10.7 % 4.5 % 6.5 % 7.0 %
Tier 1 risk-based capital ratio 11.3 % 11.1 % 10.7 % 6.0 % 8.0 % 8.5 %
Total risk-based capital ratio 12.8 % 12.6 % 12.4 % 8.0 % 10.0 % 10.5 %
Tier 1 leverage capital ratio 9.3 % 9.0 % 8.7 % 4.0 % 5.0 % 4.0 %

Risk-Weighted Assets (“RWA”) (b)

$ 28,453 $ 28,088 $ 26,160 N/A N/A N/A

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared third quarter 2017 dividends for the Company’s common stock. The common stock cash dividend of $0.20 per share is payable on August 15, 2017 to shareholders of record on August 1, 2017.

Conference Call

East West will host a conference call to discuss second quarter 2017 earnings with the public on Thursday, July 20, 2017 at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses second quarter 2017 results and operating developments.

  • The following dial-in information is provided for participation in the conference call: calls within the U.S. – (877) 506-6399; calls within Canada – (855) 669-9657; international calls – (412) 902-6699.
  • A presentation to accompany the earnings call will be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
  • A listen-only live broadcast of the call will also be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
  • A replay of the conference call will be available on July 20, 2017 at 11:30 a.m. Pacific Time through August 20, 2017. 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: 10109143.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $35.9 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 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, Taipei 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 the Company’s current business plans and expectations regarding future operating results. Forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to, our ability to compete effectively against other financial institutions in our banking markets; changes in the commercial and consumer real estate markets; changes in our costs of operation, compliance and expansion; changes in the U.S. economy, including inflation, employment levels, rate of growth and general business conditions; changes in government interest rate policies; changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and California Department of Business Oversight — Division of Financial Institutions; heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with retail customers; changes in the economy of and monetary policy in the People’s Republic of China; changes in income tax laws and regulations; changes in accounting standards as may be required by the Financial Accounting Standards Board or other regulatory agencies and their impact on critical accounting policies and assumptions; changes in the equity and...


More