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East West Bancorp Reports Net Income for 2019 of $674 Million and Diluted Earnings Per Share of $4.61; Record Revenue of $1.7 Billion

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 full year and fourth quarter of 2019. For the full year 2019, net income was $674.0 million or $4.61 per diluted share. For the fourth quarter of 2019, net income was $188.2 million or $1.29 per diluted share.

“2019 ended a transformational decade for East West, during which we more than doubled our asset size to $44.2 billion and grew both our commercial loans and our noninterest-bearing deposits nearly five-fold. Today, our loan portfolio is well-balanced between commercial, commercial real estate and residential mortgage loans, and our deposits are also well-balanced between commercial and consumer accounts,” stated Dominic Ng, Chairman and Chief Executive Officer of East West.

“Over the course of the decade, we expanded the breadth of our banking products and services in cash management, foreign exchange and interest rate risk hedging advisory, wealth management, and commercial lending solutions. As a result, we strengthened the resilience of our balance sheet, and achieved substantial earnings growth, increasing our diluted earnings per share by 458% to $4.61 in 2019, up from $0.83 in 2010.”

“In 2019, total loans grew $2.4 billion, or 7% year-over-year, to a record $34.8 billion as of December 31, 2019. Total deposits grew $1.9 billion, or 5% year-over-year, to a record $37.3 billion,” continued Ng. “Full year 2019 revenue of $1.7 billion grew by 5% year-over-year, a result of a strong contribution from fee income and record net interest income of $1.5 billion. Loan growth drove net interest income growth, overcoming net interest margin compression from three cuts to the fed funds rate.”

“Overall, we earned a return on average assets of 1.59% in 2019 and a return on average equity of 14.2%. Our growth and profitability reflect the strength of our diverse business model, which we are confident is a strong foundation for continued solid financial performance in the decade ahead,” concluded Ng.

HIGHLIGHTS OF RESULTS

  • Full Year Earnings – Full year 2019 net income was $674.0 million and diluted earnings per share (“EPS”) were $4.61, both down by 4% compared to full year 2018 net income of $703.7 million and diluted EPS of $4.81. Full year 2019 adjusted1 net income was $707.9 million and adjusted1 diluted EPS were $4.84, both up 4% compared to full year 2018 adjusted1 net income of $681.5 million and adjusted1 diluted EPS of $4.66.
  • Fourth Quarter Earnings – Fourth quarter 2019 net income was $188.2million and diluted EPS were $1.29, both up by 10% from third quarter 2019 net income of $171.4 million and diluted EPS of $1.17. Fourth quarter 2019 net income and diluted EPS were both up by 9% from fourth quarter 2018 net income of $173.0 million and diluted EPS of $1.18. Fourth quarter 2019 adjusted1 net income was $187.1 million and adjusted1 diluted EPS were $1.28, up by 9% quarter-over-quarter and up by 8% year-over-year.
  • Net Interest Income and Net Interest Margin – Full year 2019 net interest income (“NII”) of $1.5 billion increased by $81.3 million or 6% year-over-year. Full year 2019 net interest margin (“NIM”) of 3.64% contracted by 14 basis points year-over-year from 3.78% for the full year 2018.

    Fourth quarter 2019 NII was $368.2 million, a quarterly decrease of $1.6 million or 0.4% from third quarter 2019. Fourth quarter 2019 NIM was 3.47%, a 12 basis point contraction from 3.59% in the previous quarter. Quarter-over-quarter, the average loan yield contracted by 20 basis points, and the average cost of deposits decreased by 11 basis points.
  • Record Loans – Total loans of $34.8 billion as of December 31, 2019 increased by $2.4 billion, or 7%, from $32.4 billion as of December 31, 2018; and increased by $753.7 million, or 9% annualized, from $34.0 billion as of September 30, 2019.

    Full year 2019 average loans of $33.4 billion grew $3.1 billion, or 10% year-over-year. Average loan growth in 2019 was equally distributed across commercial real estate, residential mortgage and commercial loans. Fourth quarter 2019 average loans of $34.4 billion grew $748.7 million, or 9% linked quarter annualized. Average loan growth in the fourth quarter was led by commercial real estate, followed by residential mortgage.
  • Record Deposits – Total deposits of $37.3 billion as of December 31, 2019 increased by $1.9 billion, or 5%, from $35.4 billion as of December 31, 2018; and increased by $664.7 million, or 7% annualized, from $36.7 billion as of September 30, 2019.

    Full year 2019 average deposits of $36.0 billion grew $2.8 billion, or 8% year-over-year. Average deposit growth in 2019 primarily came from growth in time deposits and interest-bearing checking, partially offset by a decrease in noninterest-bearing demand accounts. Fourth quarter 2019 average deposits of $37.4 billion grew $910.9 million, or 10% linked quarter annualized. Average deposit growth in the fourth quarter was led by interest-bearing checking, noninterest-bearing demand and money market accounts, partially offset by a decrease in time deposits.
  • Asset Quality Metrics – The allowance for loan losses was $358.3 million, or 1.03% of loans held-for-investment (“HFI”) as of December 31, 2019; the comparable ratios were 1.02% as of September 30, 2019, and 0.96% as of December 31, 2018. Non-purchased credit impaired (“Non-PCI”) nonperforming assets were $121.5 million, or 0.27% of total assets as of December 31, 2019; the comparable ratios were 0.31% as of September 30, 2019, and 0.23% as of December 31, 2018.

    Full year 2019 net charge-offs were $52.8 million, or 0.16% of average loans HFI; the provision for credit losses was $98.7 million. Fourth quarter 2019 net charge-offs were $8.3 million, or annualized 0.10% of average loans HFI; the provision for credit losses was $18.6 million.
  • Capital Levels – Capital levels for East West are strong. As of December 31, 2019, stockholders’ equity was $5.0 billion, or $34.46 per share. Tangible equity2 per common share was $31.15 as of December 31, 2019, an increase of 3% linked quarter and 15% year-over-year.

    As of December 31, 2019, the tangible equity to tangible assets ratio2 was 10.4%, the common equity tier 1 (“CET1”) capital ratio was 12.9%, and the total risk-based capital ratio was 14.4%.

1 See reconciliation of GAAP to non-GAAP financial measures in Table 13.
2 See reconciliation of GAAP to non-GAAP financial measures in Table 16.

OPERATING RESULTS SUMMARY

Fourth Quarter 2019 Compared to Third Quarter 2019

Net Interest Income and Net Interest Margin

Net interest income totaled $368.2 million, a decrease of 0.4% from $369.8 million. Net interest margin of 3.47% contracted by 12 basis points from 3.59%.

  • Average loans of $34.4 billion grew $748.7 million, or 9% linked quarter annualized.
  • Average interest-earning assets of $42.1 billion grew $1.2 billion, or 12% linked quarter annualized. In addition to loan growth, average available-for-sale investment securities increased by $840.9 million, partially offset by decreases from interest-bearing cash and deposits with banks as well as from resale agreements.
  • Average deposits of $37.4 billion grew $910.9 million, or 10% linked quarter annualized.
  • The average yield on loans contracted by 20 basis points to 4.91% from 5.11%, reflecting a 25-basis point reduction in the fed funds rate and a decline in LIBOR rates during the current quarter. The yield on average interest-earning assets contracted by 22 basis points to 4.40% from 4.62%.
  • The average cost of deposits decreased by 11 basis points to 0.94% from 1.05%, and the average cost of interest-bearing deposits decreased by 15 basis points to 1.34% from 1.49%.

Noninterest Income

Noninterest income totaled $63.0 million, a 22% increase from $51.5 million.

  • The largest linked-quarter change in noninterest income was a $9.4 million increase in interest rate contracts and other derivative income to $17.8 million, which reflected a combination of strong customer demand for interest rate hedging products and a favorable quarter-over-quarter change in the credit valuation adjustment.
  • Quarter-over-quarter, lending fees of $17.2 million increased by $2.2 million, other investment income of $2.7 million increased by $2.0 million; foreign exchange income of $6.0 million decreased by $2.0 million.

Noninterest Expense

Noninterest expense totaled $193.4 million, a 9% increase from $176.6 million.

  • Fourth quarter noninterest expense consisted of $165.3 million of adjusted3 noninterest expense, $27.0 million in amortization of tax credit and other investments, and $1.0 million in amortization of core deposit intangibles.
  • Adjusted noninterest expense of $165.3 million increased by $6.6 million, or 4%, from $158.6 million. The largest linked-quarter change was a $3.2 million increase in compensation and employee benefits expense to $101.1 million. Quarter-over-quarter, other operating expense of $24.5 million increased by $1.7 million, and computer software expense of $7.6 million increased by $1.1 million.
  • The adjusted3 efficiency ratio was 38.3% in the fourth quarter, compared to 37.7% in the third quarter.

TAX RELATED ITEMS

Full year 2019 income tax expense was $169.9 million and the effective tax rate was 20%. Included in the full year 2019 income tax expense was a $30.1 million reversal of certain previously claimed tax credits. Adjusted, income tax expense4 was $139.8 million and the effective tax rate4 was 17% for the full year 2019. This compares to income tax expense of $115.0 million and an effective tax rate of 14% for the full year 2018.

  • Fourth quarter 2019 income tax expense was $31.1 million and the effective tax rate was 14%, compared to income tax expense of $35.0 million and an effective tax rate of 17% for the third quarter of 2019.

CREDIT QUALITY

The allowance for loan losses totaled $358.3 million, or 1.03% of loans HFI, as of December 31, 2019, compared to $345.6 million, or 1.02% of loans HFI, as of September 30, 2019, and $311.3 million, or 0.96% of loans HFI, as of December 31, 2018.

  • Non-PCI nonperforming assets were $121.5 million, or 0.27% of total assets, as of December 31, 2019, compared to $134.5 million, or 0.31% of total assets, as of September 30, 2019, and $93.0 million, or 0.23% of total assets, as of December 31, 2018.
  • Full year 2019 net charge-offs were $52.8 million, or 0.16% of average loans HFI, compared to 0.13% of average loans HFI for the full year 2018. Fourth quarter 2019 net charge-offs were $8.3 million, or annualized 0.10% of average loans HFI, compared to annualized 0.26% of average loans HFI for the third quarter of 2019, and annualized 0.20% of average loans HFI for the fourth quarter of 2018.
  • Full year 2019 provision for credit losses was $98.7 million, compared to $64.3 million for the full year 2018. Fourth quarter 2019 provision for credit losses was $18.6 million, compared to $38.3 million for the third quarter of 2019, and $18.0 million for the fourth quarter of 2018.

3 See reconciliation of GAAP to non-GAAP financial measures in Table 14.
4 See reconciliation of GAAP to non-GAAP financial measures in Table 12.

CAPITAL STRENGTH

Capital levels for East West are strong. The following table presents the regulatory capital ratios as of December 31, 2019, September 30, 2019, and December 31, 2018.

EWBC Regulatory Capital Metrics

Basel III



($ in millions)

December 31,
2019 (a)

September 30,
2019

December 31,
2018

Minimum
Capital
Ratio

Well
Capitalized
Ratio

Minimum
Capital Ratio +
Conservation Buffer (b)

CET1 capital ratio

12.9

%

12.8

%

12.2

%

4.5

%

6.5

%

7.0

%

Tier 1 risk-based capital ratio

12.9

%

12.8

%

12.2

%

6.0

%

8.0

%

8.5

%

Total risk-based capital ratio

14.4

%

14.2

%

13.7

%

8.0

%

10.0

%

10.5

%

Tier 1 leverage capital ratio

10.3

%

10.3

%

9.9

%

4.0

%

5.0

%

4.0

%

Risk-Weighted Assets (“RWA”) (c)

$

35,136

$

34,424

$

32,497

N/A

N/A

N/A

 

N/A Not applicable.

  1. The Company’s December 31, 2019 regulatory capital ratios and RWA are preliminary.
  2. 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.
  3. 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 first quarter 2020 dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share is payable on February 14, 2020 to shareholders of record on February 3, 2020.

Conference Call

East West will host a conference call to discuss fourth quarter and full year 2019 earnings with the public on Thursday, January 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 fourth quarter and full year 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 January 23, 2020 at 11:30 a.m. Pacific Time through February 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: 10137935.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $44.2 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 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 benchmark interest rate reform in the United States (“U.S.”) that resulted in the Secured Overnight Financing Rate (“SOFR”) 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; changes in the 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 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 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; changes in income tax laws and regulations; impact of other potential federal tax changes and spending cuts; our capital requirements and our ability to generate capital internally or raise capital on favorable terms; changes in our ability to receive dividends from our subsidiaries; any future strategic acquisitions or divestitures; continuing consolidation in the financial services industry; changes in the equity and debt securities markets; fluctuations in our stock price; fluctuations in foreign currency exchange rates; a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, a reduction in the availability of funding or increases in funding costs, a reduction in investor demand for mortgage loans and declines in asset values and/or recognition of other-than-temporary impairment on securities held in our available-for-sale investment securities portfolio; impact of natural or man-made disasters or calamities or conflicts or other events that may directly or indirectly result in a negative impact on our financial performance; and other factors set forth in our public reports including its Annual Report on Form 10-K for the year ended December 31, 2018, and particularly the discussion of risk factors within that document. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by such forward-looking statements. We assume no obligation to update or revise such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

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

(unaudited)

Table 1

December 31, 2019
% or Basis Point Change

December 31, 2019

September 30, 2019

December 31, 2018

Qtr-o-Qtr

Yr-o-Yr

Assets

Cash and due from banks

$

536,221

$

475,291

$

516,291

12.8

%

3.9

%

Interest-bearing cash with banks

2,724,928

2,566,990

2,485,086

6.2

9.7

Cash and cash equivalents

3,261,149

3,042,281

3,001,377

7.2

8.7

Interest-bearing deposits with banks

196,161

160,423

371,000

22.3

(47.1

)

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

860,000

860,000

1,035,000

(16.9

)

Available-for-sale (“AFS”) investment securities

3,317,214

3,284,034

2,741,847

1.0

21.0

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

78,580

78,334

74,069

0.3

6.1

Loans held-for-sale (“HFS”)

434

294

275

47.6

57.8

Loans held-for-investment (''HFI'') (net of allowance for loan losses of $358,287, $345,576 and $311,322)

34,420,252

33,679,400

32,073,867

2.2

7.3

Investments in qualified affordable housing partnerships, net

207,037

190,000

184,873

9.0

12.0

Investments in tax credit and other investments, net

254,140

211,603

231,635

20.1

9.7

Goodwill

465,697

465,697

465,547

0.0

Operating lease right-of-use assets

99,973

103,894

(3.8

)

100.0

Other assets

1,035,459

1,198,699

862,866

(13.6

)

20.0

Total assets

$

44,196,096

$

43,274,659

$

41,042,356

2.1

%

7.7

%

Liabilities and Stockholders’ Equity

Deposits

$

37,324,259

$

36,659,526

$

35,439,628

1.8

%

5.3

%

Short-term borrowings

28,669

47,689

57,638

(39.9

)

(50.3

)

FHLB advances

745,915

745,494

326,172

0.1

128.7

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

200,000

50,000

50,000

300.0

300.0

Long-term debt and finance lease liabilities

152,270

152,390

146,835

(0.1

)

3.7

Operating lease liabilities

108,083

112,142

(3.6

)

100.0

Accrued expenses and other liabilities

619,283

624,754

598,109

(0.9

)

3.5

Total liabilities

39,178,479

38,391,995

36,618,382

2.0

7.0

Stockholders’ equity

5,017,617

4,882,664

4,423,974

2.8

13.4

Total liabilities and stockholders’ equity

$

44,196,096

$

43,274,659

$

41,042,356

2.1

%

7.7

%

Book value per common share

$

34.46

$

33.54

$

30.52

2.7

%

12.9

%

Tangible equity (2) per common share

$

31.15

$

30.22

$

27.15

3.1

14.7

Number of common shares at period-end

145,625

145,568

144,961

0.0

0.5

Tangible equity to tangible assets ratio (2)

10.38

%

10.28

%

9.71

%

10

bps

67

bps

  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, $250.0 million, $400.0 million, and $400.0 million were eligible for netting against gross resale agreements as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively.
  2. See reconciliation of GAAP to non-GAAP financial measures in Table 16.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

TOTAL LOANS AND DEPOSITS DETAIL

($ in thousands)

(unaudited)

Table 2

December 31, 2019
% Change

December 31, 2019

September 30, 2019

December 31, 2018

Qtr-o-Qtr

Yr-o-Yr

Loans:

Commercial:

Commercial and industrial (“C&I”)

$

12,150,931

$

12,301,002

$

12,056,970

(1.2

)%

0.8

%

Commercial real estate (“CRE”):

 

CRE

10,278,448

9,749,583

9,260,199

5.4

11.0

Multifamily residential

2,856,374

2,589,203

2,470,668

10.3

15.6

Construction and land

628,499

719,900

538,794

(12.7

)

16.6

Total CRE

13,763,321

13,058,686

12,269,661

5.4

12.2

 

Consumer:

Residential mortgage: 

Single-family residential

7,108,590

6,811,014

6,036,454

4.4

17.8

Home equity lines of credit (“HELOCs”)

1,472,783

1,540,121

1,690,834

(4.4

)

(12.9

)

Total residential mortgage

8,581,373

8,351,135

7,727,288

2.8

11.1

 

Other consumer

282,914

314,153

331,270

(9.9

)

(14.6

)

Total loans HFI (1)(2)

34,778,539

34,024,976

32,385,189

2.2

7.4

Loans HFS

434

294

275

47.6

57.8

Total loans (1)(2)

34,778,973

34,025,270

32,385,464

2.2

7.4

Allowance for loan losses

(358,287

)

(345,576

)

(311,322

)

3.7

15.1

Net loans (1)(2)

$

34,420,686

$

33,679,694

$

32,074,142

2.2

%

7.3

%

Deposits:

Noninterest-bearing demand

$

11,080,036

$

10,806,937

$

11,377,009

2.5

%

(2.6

)%

Interest-bearing checking

5,200,755

4,837,391

4,584,447

7.5

13.4

Money market

8,711,964

8,400,353

8,262,677

3.7

5.4

Savings

2,117,196

2,094,638

2,146,429

1.1

(1.4

)

Time deposits

10,214,308

10,520,207

9,069,066

(2.9

)

12.6

Total deposits

$

37,324,259

$

36,659,526

$

35,439,628

1.8

%

5.3

%

  1. Includes $(43.2) million, $(39.8) million and $(48.9) million as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively, of net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts.
  2. Includes ASC 310-30 discount of $14.3 million, $16.7 million and $22.2 million as of December 31, 2019, September 30, 2019 and December 31, 2018, 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

December 31, 2019
% Change

December 31, 2019

September 30, 2019

December 31, 2018

Qtr-o-Qtr

Yr-o-Yr

Interest and dividend income

$

467,233

$

476,912

$

457,334

(2.0

)%

2.2

%

Interest expense

99,014

107,105

87,918

(7.6

)

12.6

Net interest income before provision for credit losses

368,219

369,807

369,416

(0.4

)

(0.3

)

Provision for credit losses

18,577

38,284

17,959

(51.5

)

3.4

Net interest income after provision for credit losses

349,642

331,523

351,457

5.5

(0.5

)

Noninterest income

63,013

51,474

41,695

22.4

51.1

Noninterest expense

193,373

176,630

188,097

9.5

2.8

Income before income taxes

219,282

206,367

205,055

6.3

6.9

Income tax expense

31,067

34,951

32,037

(11.1

)

(3.0

)

Net income

$

188,215

$

171,416

$

173,018

9.8

%

8.8

%

Earnings per share (“EPS”)

- Basic

$

1.29

$

1.18

$

1.19

9.8

%

8.3

%

- Diluted

$

1.29

$

1.17

$

1.18

9.7

8.6

Weighted average number of shares outstanding

- Basic

145,624

145,559

144,960

0.0

%

0.5

%

- Diluted

146,318

146,120

146,133

0.1

0.1

Three Months Ended

December 31, 2019
% Change

December 31, 2019

September 30, 2019

December 31, 2018

Qtr-o-Qtr

Yr-o-Yr

Noninterest income:

Lending fees

$

17,244

$

15,035

$

15,168

14.7

%

13.7

%

Deposit account fees

9,843

9,729

9,346

1.2

5.3

Foreign exchange income

6,032

8,065

7,191

(25.2

)

(16.1

)

Wealth management fees

4,215

4,841

2,796

(12.9

)

50.8

Interest rate contracts and other derivative income

17,828

8,423

1,125

111.7

NM

Net gains on sales of loans

1,068

2,037

1,509

(47.6

)

(29.2

)

Net gains on sales of AFS investment securities

864

58

161

NM

NM

Net gains on sales of fixed assets

66

48

1,081

37.5

(93.9

)

Other investment income

2,678

663

801

303.9

234.3

Other income

3,175

2,575

2,517

23.3

26.1

Total noninterest income

$

63,013

$

51,474

$

41,695

22.4

%

51.1

%

Noninterest expense:

Compensation and employee benefits

$

101,051

$

97,819

$

93,790

3.3

%

7.7

%

Occupancy and equipment expense

17,138

17,912

18,017

(4.3

)

(4.9

)

Deposit insurance premiums and regulatory assessments

3,371

3,550

3,093

(5.0

)

9.0

Legal expense

2,141

1,720

2,145

24.5

(0.2

)

Data processing

3,588

3,328

3,160

7.8

13.5

Consulting expense

3,159

2,559

1,424

23.4

121.8

Deposit related expense

3,749

3,584

3,043

4.6

23.2

Computer software expense

7,626

6,556

6,205

16.3

22.9

Other operating expense

24,512

22,769

26,262

7.7

(6.7

)

Amortization of tax credit and other investments

27,038

16,833

30,958

60.6

(12.7

)

Total noninterest expense

$

193,373

$

176,630

$

188,097

9.5

%

2.8

%

NM - Not meaningful.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

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

(unaudited)

Table 4

Year Ended

December 31, 2019
% Change

December 31, 2019

December 31, 2018

Yr-o-Yr

Interest and dividend income

$

1,882,300

$

1,651,703

14.0

%

Interest expense

414,487

265,195

56.3

Net interest income before provision for credit losses

1,467,813

1,386,508

5.9

Provision for credit losses

98,685

64,255

53.6

Net interest income after provision for credit losses

1,369,128

1,322,253

3.5

Noninterest income

209,377

210,909

(0.7

)

Noninterest expense

734,588

714,466

2.8

Income before income taxes

843,917

818,696

3.1

Income tax expense

169,882

114,995

47.7

Net income

$

674,035

$

703,701

(4.2

)%

EPS

- Basic

$

4.63

$

4.86

(4.6

)%

- Diluted

$

4.61

$

4.81

(4.2

)

Weighted average number of shares outstanding

- Basic

145,497

144,862

0.4

%

- Diluted

146,179

146,169

0.0

Year Ended

December 31, 2019
% Change

December 31, 2019

December 31, 2018

Yr-o-Yr

Noninterest income:

Lending fees

$

63,670

$

59,758

6.5

%

Deposit account fees

38,648

39,176

(1.3

)

Foreign exchange income

26,398

21,259

24.2

Wealth management fees

16,668

13,785

20.9

Interest rate contracts and other derivative income

39,865

18,980

110.0

Net gains on sales of loans

4,035

6,590

(38.8

)

Net gains on sales of AFS investment securities

3,930

2,535

55.0

Net gains on sales of fixed assets

114

6,683

(98.3

)

Net gain on sale of business

31,470

(100.0

)

Other investment income

5,249

1,207

334.9

Other income

10,800

9,466

14.1

Total noninterest income

$

209,377

$

210,909

(0.7

)%

Noninterest expense:

Compensation and employee benefits

$

401,700

$

379,622

5.8

%

Occupancy and equipment expense

69,730

68,896

1.2

Deposit insurance premiums and regulatory assessments

12,928

21,211

(39.1

)

Legal expense

8,441

8,781

(3.9

)

Data processing

13,533

13,177

2.7

Consulting expense

9,846

11,579

(15.0

)

Deposit related expense

14,175

11,244

26.1

Computer software expense

26,471

22,286

18.8

Other operating expense

92,249

88,042

4.8

Amortization of tax credit and other investments

85,515

89,628

(4.6

)

Total noninterest expense

$

734,588

$

714,466

2.8

%

EAST WEST BANCORP, INC. AND SUBSIDIARIES

SELECTED AVERAGE BALANCES

($ in thousands)

(unaudited)

Table 5

Three Months Ended

December 31, 2019
% Change

Year Ended

December 31, 2019
% Change

December 31,
2019

September 30,
2019

December 31,
2018

Qtr-o-Qtr

Yr-o-Yr

December 31,
2019

December 31,
2018

Yr-o-Yr

Loans:

Commercial:

C&I

$

12,237,081

$

12,203,341

$

11,554,737

0.3

%

5.9

%

$

12,073,820

$

11,037,992

9.4

%

CRE: 

CRE

10,006,424

9,685,092

9,179,181

3.3

9.0

9,642,301

8,955,920

7.7

Multifamily residential

2,771,555

2,561,648

2,347,321

8.2

18.1

2,588,347

2,215,121

16.8

Construction and land

668,147

694,665

582,311

(3.8

)

14.7

656,142

632,303

3.8

Total CRE

13,446,126

12,941,405

12,108,813

3.9

11.0

12,886,790

11,803,344

9.2

 

Consumer:

Residential mortgage: 

Single-family residential

6,934,361

6,636,227

5,854,551

4.5

18.4

6,526,415

5,309,689

22.9

HELOCs

1,506,346

1,557,358

1,709,022

(3.3

)

(11.9

)

1,580,343

1,754,071

(9.9

)

Total residential mortgage

8,440,707

8,193,585

7,563,573

3.0

11.6

8,106,758

7,063,760

14.8

 

Other consumer

286,096

322,951

307,752

(11.4

)

(7.0

)

305,768

324,918

(5.9

)

Total loans (1)(2)

$

34,410,010

$

33,661,282

$

31,534,875

2.2

%

9.1

%

$

33,373,136

$

30,230,014

10.4

%

Interest-earning assets

$

42,114,123

$

40,919,386

$

38,688,647

2.9

%

8.9

%

$

40,320,804

$

36,707,142

9.8

%

Total assets

$

44,471,242

$

43,136,273

$

40,525,188

3.1

%

9.7

%

$

42,484,885

$

38,542,569

10.2

%

Deposits:

Noninterest-bearing demand

$

10,976,368

$

10,712,612

$

11,447,345

2.5

%

(4.1

)%

$

10,502,618

$

11,089,537

(5.3

)%

Interest-bearing checking

5,540,300

4,947,511

4,449,541

12.0

24.5

5,244,867

4,477,793

17.1

Money market

8,592,058

8,344,993

8,180,426

3.0

5.0

8,220,236

7,985,526

2.9

Savings

2,118,911

2,154,592

2,124,697

(1.7

)

(0.3

)

2,118,060

2,245,644

(5.7

)

Time deposits

10,180,922

10,337,990

8,783,068

(1.5

)

15.9

9,961,289

7,431,749

34.0

Total deposits

$

37,408,559

$

36,497,698

$

34,985,077

2.5

%

6.9

%

$

36,047,070

$

33,230,249

8.5

%

Interest-bearing liabilities

$

27,522,469

$

26,773,253

$

24,122,509

2.8

%

14.1

%

$

26,408,961

$

22,709,554

16.3

%

Stockholders’ equity

$

4,977,759

$

4,838,281

$

4,335,110

2.9

%

14.8

%

$

4,760,845

$

4,130,822

15.3

%

  1. Includes ASC 310-30 discount of $16.0 million, $18.2 million and $23.8 million for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively, and $18.9 million and $28.4 million for the years ended December 31, 2019 and 2018, respectively.
  2. 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

December 31, 2019

September 30, 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

$

3,270,431

$

14,925

1.81

%

$

3,547,626

$

19,772

2.21

%

Resale agreements (2)

863,261

5,749

2.64

%

981,196

6,881

2.78

%

AFS investment securities

3,491,961

20,192

2.29

%

2,651,069

15,945

2.39

%

Loans (3)

34,410,010

425,773

4.91

%

33,661,282

433,658

5.11

%

FHLB and FRB stock

78,460

594

3.00

%

78,213

656

3.33

%

Total interest-earning assets

42,114,123

467,233

4.40

%

40,919,386

476,912

4.62

%

Noninterest-earning assets:

Cash and due from banks

534,326

441,898

Allowance for loan losses

(355,759

)

(328,523

)

Other assets

2,178,552

2,103,512

Total assets

$

44,471,242

$

43,136,273

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Checking deposits

$

5,540,300

$

13,589

0.97

%

$

4,947,511

$

14,488

1.16

%

Money market deposits

8,592,058

25,223

1.16

%

8,344,993

26,943

1.28

%

Savings deposits

2,118,911

2,266

0.42

%

2,154,592

2,656

0.49

%

Time deposits

10,180,922

47,935

1.87

%

10,337,990

52,733

2.02

%

Federal funds purchased and other short-term borrowings

43,313

404

3.70

%

40,433

382

3.75

%

FHLB advances

745,732

4,686

2.49

%

745,263

5,021

2.67

%

Repurchase agreements (2)

148,892

3,382

9.01

%

50,000

3,239

25.70

%

Long-term debt and finance lease liabilities

152,341

1,529

3.98

%

152,471

1,643

4.28

%

Total interest-bearing liabilities

27,522,469

99,014

1.43

%

26,773,253

107,105

1.59

%

Noninterest-bearing liabilities and stockholders’ equity:

Demand deposits

10,976,368

10,712,612

Accrued expenses and other liabilities

994,646

812,127

Stockholders’ equity

4,977,759

4,838,281

Total liabilities and stockholders’ equity

$

44,471,242

$

43,136,273

Interest rate spread

2.97

%

3.03

%

Net interest income and net interest margin

$

368,219

3.47

%

$

369,807

3.59

%

Adjusted net interest income and adjusted net interest margin (4)

$

362,166

3.41

%

$

367,286

3.56

%

  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 2.49% and 2.57% for the three months ended December 31, 2019 and September 30, 2019, respectively. The weighted-average interest rates of gross repurchase agreements were 4.35% and 4.68% for the three months ended December 31, 2019 and September 30, 2019, respectively.
  3. Includes loans HFS. ASC 310-30 discount was $16.0 million and $18.2 million for the three months ended December 31, 2019 and September 30, 2019, respectively.
  4. See reconciliation of GAAP to non-GAAP financial measures in Table 15.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

QUARTER-TO-DATE AVERAGE BALANCES, YIELDS AND RATES

($ in thousands)

(unaudited)

Table 7

Three Months Ended

December 31, 2019

December 31, 2018

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

$

3,270,431

$

14,925

1.81

%

$

3,373,608

$

19,476

2.29

%

Resale agreements (2)

863,261

5,749

2.64

%

1,035,000

7,819

3.00

%

AFS investment securities

3,491,961

20,192

2.29

%

2,671,257

14,531

2.16

%

Loans (3)

34,410,010

425,773

4.91

%

31,534,875

414,517

5.22

%

FHLB and FRB stock

78,460

594

3.00

%

73,907

991

5.32

%

Total interest-earning assets

42,114,123

467,233

4.40

%

38,688,647

457,334

4.69

%

Noninterest-earning assets:

Cash and due from banks

534,326

482,767

Allowance for loan losses

(355,759

)

(314,019

)

Other assets

2,178,552

1,667,793

Total assets

$

44,471,242

$

40,525,188

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Checking deposits

$

5,540,300

$

13,589

0.97

%

$

4,449,541

$

9,963

0.89

%

Money market deposits

8,592,058

25,223

1.16

%

8,180,426

27,640

1.34

%

Savings deposits

2,118,911

2,266

0.42

%

2,124,697

2,257

0.42

%

Time deposits

10,180,922

47,935

1.87

%

8,783,068

39,459

1.78

%

Federal funds purchased and other short-term borrowings

43,313

404

3.70

%

57,198

624

4.33

%

FHLB advances

745,732

4,686

2.49

%

325,826

2,903

3.53

%

Repurchase agreements (2)

148,892

3,382

9.01

%

50,000

3,396

26.95

%

Long-term debt and finance lease liabilities

152,341

1,529

3.98

%

151,753

1,676

4.38

%

Total interest-bearing liabilities

27,522,469

99,014

1.43

%

24,122,509

87,918

1.45

%

Noninterest-bearing liabilities and stockholders’ equity:

Demand deposits

10,976,368

11,447,345

Accrued expenses and other liabilities

994,646

620,224

Stockholders’ equity

4,977,759

4,335,110

Total liabilities and stockholders’ equity

$

44,471,242

$

40,525,188

Interest rate spread

2.97

%

3.24

%

Net interest income and net interest margin

$

368,219

3.47

%

$

369,416

3.79

%

Adjusted net interest income and adjusted net interest margin (4)

$

362,166

3.41

%

$

363,606

3.73

%

  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 2.49% and 2.72% for the three months ended December 31, 2019 and 2018, respectively. The weighted-average interest rates of gross repurchase agreements were 4.35% and 4.77% for the three months ended December 31, 2019 and 2018, respectively.
  3. Includes loans HFS. ASC 310-30 discount was $16.0 million and $23.8 million for the three months ended December 31, 2019 and 2018, respectively.
  4. See reconciliation of GAAP to non-GAAP financial measures in Table 15.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

YEAR-TO-DATE AVERAGE BALANCES, YIELDS AND RATES

($ in thousands)

(unaudited)

Table 8

Year Ended

December 31, 2019

December 31, 2018

Average

Average

Average

Average

Balance

Interest

Yield/Rate

Balance

Interest

Yield/Rate

Assets

Interest-earning assets:

Interest-bearing cash and deposits with banks

$

3,065,426

$

67,028

2.19

%

$

2,645,544

$

55,704

2.11

%

Resale agreements (1)

969,384

27,819

2.87

%

1,020,822

29,328

2.87

%

AFS investment securities

2,836,004

67,570

2.38

%

2,737,071

60,011

2.19

%

Loans (2)

33,373,136

1,717,415

5.15

%

30,230,014

1,503,514

4.97

%

FHLB and FRB stock

76,854

2,468

3.21

%

73,691

3,146

4.27

%

Total interest-earning assets

40,320,804

1,882,300

4.67

%

36,707,142

1,651,703

4.50

%

Noninterest-earning assets:

Cash and due from banks

471,060

445,768

Allowance for loan losses

(330,125

)

(298,600

)

Other assets

2,023,146

1,688,259

Total assets

$

42,484,885

$

38,542,569

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Checking deposits

$

5,244,867

$

58,168

1.11

%

$

4,477,793

$

34,657

0.77

%

Money market deposits

8,220,236

111,081

1.35

%

7,985,526

83,696

1.05

%

Savings deposits

2,118,060

9,626

0.45

%

2,245,644

8,621

0.38

%

Time deposits

9,961,289

196,927

1.98

%

7,431,749

107,778

1.45

%

Federal funds purchased and other short-term borrowings

44,881

1,763

3.93

%

32,222

1,398

4.34

%

FHLB advances

592,257

16,697

2.82

%

327,435

10,447

3.19

%

Repurchase agreements (1)

74,926

13,582

18.13

%

50,000

12,110

24.22

%

Long-term debt and finance lease liabilities

152,445

6,643

4.36

%

159,185

6,488

4.08

%

Total interest-bearing liabilities

26,408,961

414,487

1.57

%

22,709,554

265,195

1.17

%

Noninterest-bearing liabilities and stockholders’ equity:

Demand deposits

10,502,618

11,089,537

Accrued expenses and other liabilities

812,461

612,656

Stockholders’ equity

4,760,845

4,130,822

Total liabilities and stockholders’ equity

$

42,484,885

$

38,542,569

Interest rate spread

3.10

%

3.33

%

Net interest income and net interest margin

$

1,467,813

3.64

%

$

1,386,508

3.78

%

Adjusted net interest income and adjusted net interest margin (3)

$

1,455,342

3.61

%

$

1,366,336

3.72

%

  1. 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 2.65% and 2.63% for the years ended December 31, 2019 and 2018, respectively. The weighted-average interest rates of gross repurchase agreements were 4.74% and 4.46% for the years ended December 31, 2019 and 2018, respectively.
  2. Includes loans HFS. ASC 310-30 discount was $18.9 million and $28.4 million for the years ended December 31, 2019 and 2018, respectively.
  3. See reconciliation of GAAP to non-GAAP financial measures in Table 15.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

SELECTED RATIOS

(unaudited)

Table 9

Three Months Ended (1)

December 31, 2019
Basis Point Change

December 31,
2019

September 30,
2019

December 31,
2018

Qtr-o-Qtr

Yr-o-Yr

Return on average assets

1.68

%

1.58

%

1.69

%

10

bps

(1

)

bps

Adjusted return on average assets (2)

1.67

%

1.58

%

1.69

%

9

(2

)

Return on average equity

15.00

%

14.06

%

15.83

%

94

(83

)

Adjusted return on average equity (2)

14.91

%

14.06

%

15.83

%

85

(92

)

Return on average tangible equity (2)

16.71

%

15.75

%

17.97

%

96

(126

)

Adjusted return on average tangible equity (2)

16.61

%

15.75

%

17.97

%

86

(136

)

Interest rate spread

2.97

%

3.03

%

3.24

%

(6

)

(27

)

Net interest margin

3.47

%

3.59

%

3.79

%

(12

)

(32

)

Adjusted net interest margin (2)

3.41

%

3.56

%

3.73

%

(15

)

(32

)

Average loan yield

4.91

%

5.11

%

5.22

%

(20

)

(31

)

Adjusted average loan yield (2)

4.84

%

5.08

%

5.14

%

(24

)

(30

)

Yield on average interest-earning assets

4.40

%

4.62

%

4.69

%

(22

)

(29

)

Average cost of interest-bearing deposits

1.34

%

1.49

%

1.34

%

(15

)

Average cost of deposits

0.94

%

1.05

%

0.90

%

(11

)

4

Average cost of funds

1.02

%

1.13

%

0.98

%

(11

)

4

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

2.37

%

2.42

%

2.50

%

(5

)

(13

)

Adjusted noninterest expense/average assets (2)

1.47

%

1.46

%

1.53

%

1

(6

)

Efficiency ratio

44.84

%

41.93

%

45.75

%

291

(91

)

Adjusted efficiency ratio (2)

38.33

%

37.66

%

37.92

%

67

bps

41

bps

Year Ended

December 31, 2019
Basis Point Change

December 31,
2019

December 31,
2018

Yr-o-Yr

Return on average assets

1.59

%

1.83

%

(24

)

bps

Adjusted return on average assets (2)

1.67

%

1.77

%

(10

)

Return on average equity

14.16

%

17.04

%

(288

)

Adjusted return on average equity (2)

14.87

%

16.50

%

(163

)

Return on average tangible equity (2)

15.88

%

19.48

%

(360

)

Adjusted return on average tangible equity (2)

16.68

%

18.87

%

(219

)

Interest rate spread

3.10

%

3.33

%

(23

)

Net interest margin

3.64

%

3.78

%

(14

)

Adjusted net interest margin (2)

3.61

%

3.72

%

(11

)

Average loan yield

5.15

%

4.97

%

18

Adjusted average loan yield (2)

5.11

%

4.90

%

21

Yield on average interest-earning assets

4.67

%

4.50

%

17

Average cost of interest-bearing deposits

1.47

%

1.06

%

41

Average cost of deposits

1.04

%

0.71

%

33

Average cost of funds

1.12

%

0.78

%

34

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

2.43

%

2.46

%

(3

)

Adjusted noninterest expense/average assets (2)

1.52

%

1.61

%

(9

)

Efficiency ratio

43.80

%

44.73

%

(93

)

Adjusted efficiency ratio (2)

38.43

%

39.55

%

(112

)

bps

  1. Annualized except for efficiency ratio.
  2. See reconciliation of GAAP to non-GAAP financial measures in Tables 13, 14, 15 and 16.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

ALLOWANCE FOR CREDIT LOSSES

($ in thousands)

(unaudited)

Table 10

Three Months Ended

Year Ended

December 31,
2019

September 30,
2019

December 31,
2018

December 31,
2019

December 31,
2018

Non-Purchased Credit Impaired (“Non-PCI”) Loans

Allowance for non-PCI loans, beginning of period

$

345,576

$

330,620

$

310,010

$

311,300

$

287,070

Provision for loan losses on non-PCI loans

20,843

37,884

17,321

100,115

65,043

Net (charge-offs) recoveries:

Commercial:

C&I

(11,009

)

(23,450

)

(21,227

)

(59,484

)

(48,827

)

CRE: 

CRE

1,254

875

4,763

4,188

5,194

Multifamily residential

1,480

42

286

1,856

1,757

Construction and land

13

21

24

536

740

Total CRE

2,747

938

5,073

6,580

7,691

 

Consumer:

Residential mortgage: 

Single-family residential

2

49

106

125

1,213

HELOCs

5

38

7

38

Total residential mortgage

2

54

144

132

1,251

 

Other consumer

(5

)

(5

)

(2

)

(31

)

(185

)

Total net charge-offs

(8,265

)

(22,463

)

(16,012

)

(52,803

)

(40,070

)

Foreign currency translation adjustments

133

(465

)

(19

)

(325

)

(743

)

Allowance for non-PCI loans, end of period

358,287

345,576

311,300

358,287

311,300

Purchased Credit Impaired (“PCI”) Loans

Allowance for PCI loans, beginning of period

5

31

22

58

Reversal of loan losses on PCI loans

(5

)

(9

)

(22

)

(36

)

Allowance for PCI loans, end of period

22

22

Allowance for loan losses

358,287

345,576

311,322

358,287

311,322

Unfunded Credit Facilities

Allowance for unfunded credit reserves, beginning of period

13,424

13,019

11,919

12,566

13,318

Provision for (reversal of) unfunded credit reserves

(2,266

)

405

647

(1,408

)

(752

)

Allowance for unfunded credit reserves, end of period

11,158

13,424

12,566

11,158

12,566

Allowance for credit losses

$

369,445

$

359,000

$

323,888

$

369,445

$

323,888

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CREDIT QUALITY

($ in thousands)

(unaudited)

Table 11

Non-PCI Nonperforming Assets

December 31, 2019

September 30, 2019

December 31, 2018

Nonaccrual loans:

Commercial:

C&I

$

74,835

$

90,830

$

43,840

CRE: 

CRE

16,441

18,942

24,218

Multifamily residential

819

551

1,260

Total CRE

17,260

19,493

25,478

 

Consumer:

Residential mortgage: 

Single-family residential

14,865

9,484

5,259

HELOCs

10,742

9,924

8,614

Total residential mortgage

25,607

19,408

13,873

 

Other consumer

2,517

2,495

2,502

Total nonaccrual loans

120,219

132,226

85,693

Other real estate owned, net

125

1,122

133

Other nonperforming assets

1,167

1,167

7,167

Total nonperforming assets

$

121,511

$

134,515

$

92,993

Credit Quality Ratios

December 31, 2019

September 30, 2019

December 31, 2018

Non-PCI nonperforming assets to total assets (1)

0.27

%

0.31

%

0.23

%

Non-PCI nonaccrual loans to loans HFI (1)

0.35

%

0.39

%

0.26

%

Allowance for loan losses to loans HFI (1)

1.03

%

1.02

%

0.96

%

Allowance for loan losses to non-PCI nonaccrual loans

298.03

%

261.35

%

363.30

%

Annualized quarterly net charge-offs to average loans HFI

0.10

%

0.26

%

0.20

%

Annual net charge-offs to average loans HFI

0.16

%

N/A

0.13

%

N/A - Not applicable

  1. Total assets and loans HFI include PCI loans of $222.9 million, $240.7 million and $308.0 million as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 12

During the second quarter of 2019, the Company reversed $30.1 million of certain previously claimed tax credits related to the DC Solar tax credit investments (“DC Solar”). The table below shows the computation of the Company’s effective tax rate excluding the impact of the DC Solar tax credits reversal. Management believes that excluding the impact of the DC Solar tax credits reversal from the effective tax rate computation allows comparability to prior periods.

Three Months Ended

Year Ended

December 31, 2019

September 30, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Income tax expense

(a)

$

31,067

$

34,951

$

32,037

$

169,882

$

114,995

Less: Reversal of certain previously claimed tax credits related to DC Solar

(b)

(30,104

)

Adjusted income tax expense

(c)

$

31,067

$

34,951

$

32,037

$

139,778

$

114,995

Income before income taxes

(d)

219,282

206,367

205,055

843,917

818,696

Effective tax rate

(a)/(d)

14.2

%

16.9

%

15.6

%

20.1

%

14.0

%

Less: Reversal of certain previously claimed tax credits related to DC Solar

(b)/(d)

%

%

%

(3.5

)%

%

Adjusted effective tax rate

(c)/(d)

14.2

%

16.9

%

15.6

%

16.6

%

14.0

%

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

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

(unaudited)

Table 13

During the first, second and fourth quarters of 2019, the Company recorded a $7.0 million pre-tax impairment charge, reversed $30.1 million of certain previously claimed tax credits and recorded a $1.6 million pre-tax impairment recovery related to DC Solar, respectively. During the first quarter of 2018, the Company sold its Desert Community Bank (“DCB”) branches and recognized a pre-tax gain on sale of $31.5 million. 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

December 31, 2019

September 30, 2019

December 31, 2018

Net income

(a)

$

188,215

$

171,416

$

173,018

Less: Impairment recovery related to DC Solar (2)

(1,583

)

Tax effect of adjustment (3)

468

Adjusted net income

(b)

$

187,100

$

171,416

$

173,018

Diluted weighted average number of shares outstanding

146,318

146,120

146,133

Diluted EPS

$

1.29

$

1.17

$

1.18

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

(0.01

)

Adjusted diluted EPS

$

1.28

$

1.17

$

1.18

Average total assets

(c)

$

44,471,242

$

43,136,273

$

40,525,188

Average stockholders’ equity

(d)

$

4,977,759

$

4,838,281

$

4,335,110

Return on average assets (1)

(a)/(c)

1.68

%

1.58

%

1.69

%

Adjusted return on average assets (1)

(b)/(c)

1.67

%

1.58

%

1.69

%

Return on average equity (1)

(a)/(d)

15.00

%

14.06

%

15.83

%

Adjusted return on average equity (1)

(b)/(d)

14.91

%

14.06

%

15.83

%

Year Ended

December 31, 2019

December 31, 2018

Net income

(e)

$

674,035

$

703,701

Add: Impairment charge related to DC Solar (2)

6,978

Less: Impairment recovery related to DC Solar (2)

(1,583

)

Gain on sale of business

(31,470

)

Tax effect of adjustments (3)

(1,595

)

9,303

Add: Reversal of certain previously claimed tax credits related to DC Solar

30,104

Adjusted net income

(f)

$

707,939

$

681,534

Diluted weighted average number of shares outstanding

146,179

146,169

Diluted EPS

$

4.61

$

4.81

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

0.03

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

(0.01

)

Diluted EPS impact of gain on sale of business, net of tax

(0.15

)

Diluted EPS impact of reversal of certain previously claimed tax credits related to DC Solar

0.21

Adjusted diluted EPS

$

4.84

$

4.66

Average total assets

(g)

$

42,484,885

$

38,542,569

Average stockholders’ equity

(h)

$

4,760,845

$

4,130,822

Return on average assets

(e)/(g)

1.59

%

1.83

%

Adjusted return on average assets

(f)/(g)

1.67

%

1.77

%

Return on average equity

(e)/(h)

14.16

%

17.04

%

Adjusted return on average equity

(f)/(h)

14.87

%

16.50

%

  1. Annualized.
  2. Included in Amortization of tax credit and other investments.
  3. Applied statutory rate of 29.56%.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 14

Adjusted efficiency ratio represents adjusted noninterest expense divided by adjusted revenue. Adjusted pre-tax, pre-provision profitability ratio represents the aggregate of adjusted revenue less adjusted noninterest expense, divided by average total assets. Adjusted revenue represents the aggregate of net interest income and adjusted noninterest income, where adjusted noninterest income excludes the gain on the sale of the DCB branches that were sold in the first quarter of 2018 (where applicable). 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

December 31, 2019

September 30, 2019

December 31, 2018

Net interest income before provision for credit losses

(a)

$

368,219

$

369,807

$

369,416

Total noninterest income

63,013

51,474

41,695

Total revenue

(b)

$

431,232

$

421,281

$

411,111

Total noninterest expense

(c)

$

193,373

$

176,630

$

188,097

Less: Amortization of tax credit and other investments

(27,038

)

(16,833

)

(30,958

)

Amortization of core deposit intangibles

(1,044

)

(1,148

)

(1,265

)

Adjusted noninterest expense

(d)

$

165,291

$

158,649

$

155,874

Efficiency ratio

(c)/(b)

44.84

%

41.93

%

45.75

%

Adjusted efficiency ratio

(d)/(b)

38.33

%

37.66

%

37.92

%

Adjusted pre-tax, pre-provision income

(b)-(d) = (e)

$

265,941

$

262,632

$

255,237

Average total assets

(f)

$

44,471,242

$

43,136,273

$

40,525,188

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

(e)/(f)

2.37

%

2.42

%

2.50

%

Adjusted noninterest expense (1)/average assets

(d)/(f)

1.47

%

1.46

%

1.53

%

Year Ended

December 31, 2019

December 31, 2018

Net interest income before provision for credit losses

(g)

$

1,467,813

$

1,386,508

Total noninterest income

209,377

210,909

Total revenue

(h)

1,677,190

1,597,417

Noninterest income

209,377

210,909

Less: Gain on sale of business

(31,470

)

Adjusted noninterest income

(i)

$

209,377

$

179,439

Adjusted revenue

(g)+(i) = (j)

$

1,677,190

$

1,565,947

Total noninterest expense

(k)

$

734,588

$

714,466

Less: Amortization of tax credit and other investments

(85,515

)

(89,628

)

Amortization of core deposit intangibles

(4,518

)

(5,492

)

Adjusted noninterest expense

(l)

$

644,555

$

619,346

Efficiency ratio

(k)/(h)

43.80

%

44.73

%

Adjusted efficiency ratio

(l)/(j)

38.43

%

39.55

%

Adjusted pre-tax, pre-provision income

(j)-(l) = (m)

$

1,032,635

$

946,601

Average total assets

(n)

$

42,484,885

$

38,542,569

Adjusted pre-tax, pre-provision profitability ratio

(m)/(n)

2.43

%

2.46

%

Adjusted noninterest expense /average assets

(l)/(n)

1.52

%

1.61

%

  1. Annualized.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 15

Management believes that presenting the adjusted average loan yield and adjusted net interest margin that exclude the ASC 310-30 discount accretion impact provides clarity to financial statement users regarding the change in loan contractual yields and allows comparability to prior periods.

Yield on Average Loans

Three Months Ended

Year Ended

December 31,
2019

September 30,
2019

December 31,
2018

December 31,
2019

December 31,
2018

Interest income on loans

(a)

$

425,773

$

433,658

$

414,517

$

1,717,415

$

1,503,514

Less: ASC 310-30 discount accretion income

(6,053

)

(2,521

)

(5,810

)

(12,471

)

(20,172

)

Adjusted interest income on loans

(b)

$

419,720

$

431,137

$

408,707

$

1,704,944

$

1,483,342

Average loans

(c)

$

34,410,010

$

33,661,282

$

31,534,875

$

33,373,136

$

30,230,014

Add: ASC 310-30 discount

16,012

18,172

23,833

18,915

28,400

Adjusted average loans

(d)

$

34,426,022

$

33,679,454

$

31,558,708

$

33,392,051

$

30,258,414

Average loan yield

(a)/(c)

4.91

%

(1

)

5.11

%

(1

)

5.22

%

(1

)

5.15

%

4.97

%

Adjusted average loan yield

(b)/(d)

4.84

%

(1

)

5.08

%

(1

)

5.14

%

(1

)

5.11

%

4.90

%

Net Interest Margin

Net interest income

(e)

$

368,219

$

369,807

$

369,416

$

1,467,813

$

1,386,508

Less: ASC 310-30 discount accretion income

(6,053

)

(2,521

)

(5,810

)

(12,471

)

(20,172

)

Adjusted net interest income

(f)

$

362,166

$

367,286

$

363,606

$

1,455,342

$

1,366,336

Average interest-earning assets

(g)

$

42,114,123

$

40,919,386

$

38,688,647

$

40,320,804

$

36,707,142

Add: ASC 310-30 discount

16,012

18,172

23,833

18,915

28,400

Adjusted average interest-earning assets

(h)

$

42,130,135

$

40,937,558

$

38,712,480

$

40,339,719

$

36,735,542

Net interest margin

(e)/(g)

3.47

%

(1

)

3.59

%

(1

)

3.79

%

(1

)

3.64

%

3.78

%

Adjusted net interest margin

(f)/(h)

3.41

%

(1

)

3.56

%

(1

)

3.73

%

(1

)

3.61

%

3.72

%

  1. Annualized.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

($ in thousands)

(unaudited)

Table 16

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.

December 31, 2019

September 30, 2019

December 31, 2018

Stockholders’ equity

(a)

$

5,017,617

$

4,882,664

$

4,423,974

Less: Goodwill

(465,697

)

(465,697

)

(465,547

)

Other intangible assets (1)

(16,079

)

(17,435

)

(22,365

)

Tangible equity

(b)

$

4,535,841

$

4,399,532

$

3,936,062

Total assets

(c)

$

44,196,096

$

43,274,659

$

41,042,356

Less: Goodwill

(465,697

)

(465,697

)

(465,547

)

Other intangible assets (1)

(16,079

)

(17,435

)

(22,365

)

Tangible assets

(d)

$

43,714,320

$

42,791,527

$

40,554,444

Total stockholders’ equity to total assets ratio

(a)/(c)

11.35

%

11.28

%

10.78

%

Tangible equity to tangible assets ratio

(b)/(d)

10.38

%

10.28

%

9.71

%

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) related to DC Solar and the gain on the sale of the DCB branches; 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

Year Ended

December 31, 2019

September 30, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Net Income

$

188,215

$

171,416

$

173,018

$

674,035

$

703,701

Add: Amortization of core deposit intangibles

1,044

1,148

1,265

4,518

5,492

Amortization of mortgage servicing assets

567

834

448

2,738

1,814

Tax effect of adjustments (2)

(476

)

(586

)

(506

)

(2,145

)

(2,160

)

Tangible net income

(e)

$

189,350

$

172,812

$

174,225

$

679,146

$

708,847

Add: Impairment charge related to DC Solar (3)

6,978

Less: Impairment recovery related to DC Solar (3)

(1,583

)

(1,583

)

Gain on sale of business

(31,470

)

Tax effect of adjustment (2)

468

(1,595

)

9,303

Add: Reversal of certain previously claimed tax credits related to DC Solar

30,104

Adjusted tangible net income

(f)

$

188,235

$

172,812

$

174,225

$

713,050

$

686,680

Average stockholders’ equity

$

4,977,759

$

4,838,281

$

4,335,110

$

4,760,845

$

4,130,822

Less: Average goodwill

(465,697

)

(465,697

)

(465,547

)

(465,663

)

(466,346

)

Average other intangible assets (1)

(16,793

)

(18,391

)

(23,130

)

(19,340

)

(25,337

)

Average tangible equity

(g)

$

4,495,269

$

4,354,193

$

3,846,433

$

4,275,842

$

3,639,139

Return on average tangible equity

(e)/(g)

16.71

%

(4

)

15.75

%

(4

)

17.97

%

(4

)

15.88

%

19.48

%

Adjusted return on average tangible equity

(f)/(g)

16.61

%

(4

)

15.75

%

(4

)

17.97

%

(4

)

16.68

%

18.87

%

  1. Includes core deposit intangibles and mortgage servicing assets.
  2. Applied statutory rate of 29.56%.
  3. Included in Amortization of tax credit and other investments.
  4. Annualized.

Contacts:

Irene Oh
Chief Financial Officer
T: (626) 768-6360
E: irene.oh@eastwestbank.com

Julianna Balicka
Director of Strategy and Corporate Development
T: (626) 768-6985
E: julianna.balicka@eastwestbank.com

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