East West Bancorp Reports Net Income for First Quarter 2019 of $164 Million and Diluted Earnings Per Share of $1.12, Increases Quarterly Dividend by 20%

Business Wire 18-Apr-2019 8:00 AM

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 2019. For the first quarter of 2019, net income was $164.0 million or $1.12 per diluted share. First quarter 2019 return on average assets was 1.63% and return on average equity was 14.7%.

"We started off the year with solid balance sheet growth. Our total assets reached a record $42.1 billion. Total loans grew $478 million, or 6% annualized, to a record $32.9 billion from $32.4 billion as of December 31, 2018," stated Dominic Ng, Chairman and Chief Executive Officer of East West. "Total deposits grew $834 million, or 10% annualized, to a record $36.3 billion from $35.4 billion at the end of 2018."

"Our first quarter 2019 net interest margin, excluding the impact of accretion, was 3.77%¹, a quarter-over-quarter increase of four basis points from 3.73%, and a year-over-year increase of 10 basis points from 3.67%," continued Ng.

"Our balance sheet growth, the profitability of our business, and our capital levels are strong. As of March 31, 2019, our tangible equity to tangible assets ratio² was 9.9%, an increase of 16 basis points quarter-over-quarter. I am pleased to announce that East West's Board of Directors approved a 20% increase to the quarterly common stock dividend. Our quarterly dividend will increase to $0.275 per share, up from $0.23 per share. We are optimistic about the year ahead, and look forward to delivering another year of strong returns for our shareholders," concluded Ng.

HIGHLIGHTS OF RESULTS

• First Quarter Earnings – First quarter net income was $164.0 million and diluted earnings per share ("EPS") were $1.12, compared to fourth quarter 2018 net income of $173.0 million and diluted EPS of $1.18. Excluding an impairment charge in the first quarter, adjusted³ first quarter net income was $168.9 million and adjusted³ diluted EPS were $1.16.During the first quarter, the Company recorded an impairment charge related to certain tax credit investments. Included in amortization of tax credit and other investments, this impairment charge reduced net income by $7.0 million before tax and $4.9 million after tax, impacting EPS by $0.04.
• Dividend Increase – Second quarter 2019 common stock dividend has increased by 20%, or 4.5 cents per share. The new quarterly dividend will be $0.275, up from $0.23 per share. At the new rate, the annualized dividend will be $1.10, compared to the previous annualized rate of $0.92 per share.
• Net Interest Income and Net Interest Margin – First quarter 2019 net interest income ("NII") was $362.5 million, compared to $369.4 million in the fourth quarter of 2018. Excluding the impact of ASC 310-30 discount accretion income, first quarter 2019 adjusted⁴ NII was $360.3 million, compared to $363.6 million in the previous quarter. First quarter 2019 net interest margin ("NIM") of 3.79% was unchanged linked quarter. Excluding the impact of ASC 310-30 discount accretion, adjusted⁴ NIM of 3.77% expanded by four basis points linked quarter from 3.73% in the fourth quarter of 2018.
• Record Loans – Total loans of $32.9 billion as of March 31, 2019 were up $477.8 million, or 6% linked quarter annualized, from $32.4 billion as of December 31, 2018. Total loans grew by $3.3 billion or 11% year-over-year.
• Record Deposits – Total deposits of $36.3 billion as of March 31, 2019 were up $834.3 million, or 10% linked quarter annualized, from $35.4 billion as of December 31, 2018. Total deposits grew by $3.7 billion or 11% year-over-year.
• Asset Quality Metrics – The allowance for loan losses was $317.9 million, or 0.97% of loans held-for-investment ("HFI"), as of March 31, 2019, compared to 0.96% of loans HFI as of December 31, 2018, and 1.01% of loans HFI as of March 31, 2018. For the first quarter of 2019, net charge-offs were $14.4 million, or annualized 0.18% of average loans HFI, compared to annualized net charge-offs of 0.20% of average loans HFI for the previous quarter and 0.14% for the year-ago quarter. Non-purchased credit impaired ("Non-PCI") nonperforming assets were $138.0 million, or 0.33% of total assets, as of March 31, 2019, compared to 0.23% of total assets as of December 31, 2018, and 0.35% of total assets as of March 31, 2018.
• Capital Levels – Capital levels for East West continue to be strong. As of March 31, 2019, stockholders' equity was $4.6 billion, or $31.56 per share. Tangible equity⁵ per common share was $28.21 as of March 31, 2019, an increase of 4% linked quarter and 17% year-over-year. As of March 31, 2019, the tangible equity to tangible assets ratio was 9.9%, the common equity tier 1 ("CET1") capital ratio was 12.4%, and the total risk-based capital ratio was 13.8%.

MANAGEMENT OUTLOOK FOR 2019

Our current outlook for the expected full year 2019 results, compared to our full year 2018 results, is unchanged relative to a quarter ago. The components are as follows:

• End of Period Loans: increase by approximately 10%.
• Net Interest Income (ex. ASC 310-30 discount accretion income): increase at a percentage rate in the low double-digits.
• Net Interest Margin (ex. impact of ASC 310-30 discount accretion): between 3.75% and 3.80%.
• Noninterest Expense (ex. amortization of tax credit investments & core deposit intangibles): increase at a percentage rate in the mid-single-digits.
• Provision for Credit Losses: in the range of $80 million to $90 million.
• Tax Items: projecting full year effective tax rate⁶ of approximately 15%, including the impact of tax credit investments, which reduce our tax liability from statutory rates.
• Interest Rates: No changes to the fed funds rate in the year 2019.

OPERATING RESULTS SUMMARY

First Quarter 2019 Compared to Fourth Quarter 2018

Net Interest Income and Net Interest MarginNet interest income totaled $362.5 million, a 2% decrease from $369.4 million. Net interest margin remained unchanged at 3.79%.

• Excluding the impact of ASC 310-30 discount accretion, adjusted NII of $360.3 million decreased by 1% and adjusted NIM of 3.77% increased by four basis points. ASC 310-30 discount accretion income was $2.2 million, a decrease from $5.8 million last quarter.
• Average loans of $32.4 billion grew by $879.9 million, or 11% linked quarter annualized. Growth was broad-based across the major portfolios of commercial real estate, commercial, and consumer loans.
• Average deposits of $34.9 billion declined by $61.7 million, or 1% linked quarter annualized.
• The yield on loans expanded by eight basis points to 5.30% from 5.22%. Excluding the impact of ASC 310-30 discount accretion, the adjusted⁷ yield on loans expanded by 13 basis points to 5.27% from 5.14%.
• The yield on interest-earning assets expanded by 16 basis points to 4.85% from 4.69%.
• The cost of deposits increased by 17 basis points to 1.07% from 0.90%.
• The cost of funds increased by 17 basis points to 1.15% from 0.98%.

Noninterest IncomeNoninterest income totaled $42.1 million, a 1% increase from $41.7 million.

• Interest rate contracts and other derivative income, net gains on sales of AFS investment securities, wealth management fees, and deposit account fees increased linked quarter.
• Foreign exchange income, net gains on sales of loans, and lending fees decreased linked quarter.

Noninterest ExpenseNoninterest expense totaled $186.9 million, a 1% decrease from $188.1 million. First quarter noninterest expense consisted of $160.8 million of adjusted⁸ noninterest expense, $24.9 million in amortization of tax credit and other investments, and $1.2 million in amortization of core deposit intangibles.

• Adjusted noninterest expense of $160.8 million increased by $5.0 million, or 3%, from $155.9 million in the fourth quarter of 2018. The linked quarter change primarily reflected seasonal first quarter increase in compensation and employee benefits, partially offset by decreased other operating expense.
• Included in the first quarter 2019 amortization of tax credit and other investments was a $7.0 million impairment charge related to certain tax credit investments.
• The adjusted⁸ efficiency ratio was 39.8% in the first quarter, compared to 37.9% in the previous quarter.

TAX RELATED ITEMS

First quarter 2019 tax expense was $31.1 million and the effective tax rate was 16%, compared to a tax expense of $32.0 million and an effective tax rate of 16% in the fourth quarter of 2018.

• For the full year 2019, the Company expects to continue to invest in tax credits and projects an effective tax rate of approximately 15%.

CREDIT QUALITY

The allowance for loan losses totaled $317.9 million, or 0.97% of loans HFI, as of March 31, 2019, compared to $311.3 million, or 0.96% of loans HFI, as of December 31, 2018, and $297.7 million, or 1.01% of loans HFI, as of March 31, 2018.

• The provision for credit losses recorded for the current quarter was $22.6 million, compared to $18.0 million for the fourth quarter of 2018, and $20.2 million for the first quarter of 2018.
• Net charge-offs for the current quarter were $14.4 million, or annualized 0.18% of average loans HFI. This compares to net charge-offs of $16.0 million, or annualized 0.20% of average loans HFI, for the fourth quarter of 2018, and net charge-offs of $9.8 million, or annualized 0.14% of average loans HFI, for the first quarter of 2018.
• Non-PCI nonperforming assets were $138.0 million, or 0.33% of total assets, as of March 31, 2019, compared to $93.0 million, or 0.23% of total assets, as of December 31, 2018, and $131.0 million, or 0.35% of total assets, as of March 31, 2018. The quarter-over-quarter variance in nonperforming assets reflects an increase in commercial nonaccrual loans.

CAPITAL STRENGTH

Capital levels for East West continue to be strong. The following table presents the regulatory capital ratios for the quarters ended March 31, 2019, December 31, 2018, and March 31, 2018.

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West's Board of Directors has declared second quarter 2019 dividends for the Company's common stock. The common stock cash dividend of $0.275 per share is payable on May 15, 2019 to shareholders of record on May 1, 2019. This represents a 20% increase, or 4.5 cents per share, to the quarterly common stock dividend, up from $0.23 per share previously. At the new rate, the annualized dividend is $1.10, compared to the previous annualized rate of $0.92 per share.

Conference Call

East West will host a conference call to discuss first quarter 2019 earnings with the public on Thursday, April 18, 2019 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 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 April 18, 2019 at 11:30 a.m. Pacific Time through May 18, 2019. The replay numbers are: within the U.S. – (877) 344-7529; within Canada – (855) 669-9658; International calls – (412) 317-0088; and the replay access code is: 10129569.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $42.1 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 StatementsCertain 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, our ability to compete effectively against other financial institutions in our banking markets; success and timing of our business strategies; our ability to retain key officers and employees; impact on our funding costs, net interest income and net interest margin due to changes in key variable market interest rates, competition, regulatory requirements and our product mix; changes in our costs of operation, compliance and expansion; our ability to adopt and successfully integrate new technologies into our business in a strategic manner; impact of failure in, or breach of, our operational or security systems or infrastructure, or those of third parties with whom we do business, including as a result of cyber attacks; and other similar matters which could result in, among other things, confidential and/or proprietary information being disclosed or misused; adequacy of our risk management framework, disclosure controls and procedures and internal control over financial reporting; future credit quality and performance, including our expectations regarding future credit losses and allowance levels; impact of adverse changes to our credit ratings from major credit rating agencies; impact of adverse judgments or settlements in litigation; changes in the commercial and consumer real estate markets; changes in consumer spending and savings habits; changes in the United States ("U.S.") economy, including inflation, deflation, employment levels, rate of growth and general business conditions; changes in government interest rate policies; impact of benchmark interest rate reform in the U.S. that resulted in the Secured Overnight Financing Rate selected as the preferred alternative reference rate to the London Interbank Offered Rate; impact of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions; changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and the California Department of Business Oversight — Division of Financial Institutions; impact of the Dodd-Frank 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 and the impact of the Tax Cuts and Jobs Act of 2017; 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 of 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; changes in the economy of and monetary policy in the People's Republic of China; 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.