East West Bancorp Reports Strong Third Quarter 2011 Net Income Of $62.4 Million And Earnings Per Share Of $0.41, Up 52% From The Prior Year Period

East West Bancorp, Inc. (Nasdaq: EWBC), parent company of East West Bank, the financial bridge between the U.S. and Asia, today reported financial results for the third quarter of 2011. For the third quarter of 2011, net income was $62.4 million or $0.41 per dilutive share. East West increased third quarter net income $15.5 million or 33% and increased earnings per dilutive share $0.14 or 52% from the prior year period.

“Earnings per share for the third quarter was a solid $0.41, an increase of 52% from the prior year period,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “We are committed to ensuring long-term stable growth and earnings by thinking strategically and growing the business for the future while maintaining a strong focus on current profitability and navigating through the current challenges faced by all financial institutions. These strategic actions have resulted in solid loan growth, a stable net interest margin, and reduced credit costs, resulting in net income for the quarter of $62.4 million, up 3% from the second quarter of 2011 and up 33% from the third quarter of 2010.”

Ng continued, “Total gross loans increased to a record $14.2 billion as of September 30, 2011 due to strong growth in our noncovered loan portfolio, which surpassed $10 billion at quarter end. During the third quarter, noncovered commercial and trade finance loans grew 12% to $3.0 billion, and noncovered single family loans grew 18% to $1.5 billion. At the same time, we saw noticeable improvement in credit quality and credit costs in our noncovered portfolio. Nonperforming assets decreased 7% during the third quarter of 2011 to $168.9 million, or only 0.77% of total assets, and net charge-offs were down 23% from the second quarter of 2011.”

Ng concluded, “Although the prolonged low interest rate environment poses challenges for all financial institutions, our third quarter results show that East West continues to rise above its peers. East West has continued to prove that we can demonstrate strong financial performance in all types of economic environments and deliver superior return to our shareholders.”

2011 Quarterly Results Summary

                 
For the three months ended,
Dollars in millions, except per share

September 30,2011

June 30,2011

September 30,2010
Net income $ 62.4 $ 60.5 $ 47.0
Net income available to common shareholders 60.7 58.8 40.2
Earnings per share (diluted) 0.41 0.39 0.27
 
Return on average assets 1.13 % 1.12 % 0.93 %
Return on average common equity 10.99 % 11.06 % 8.11 %
 
Tier 1 risk-based capital ratio 14.6 % 15.2 % 17.9 %
Total risk-based capital ratio         16.2 %         17.0 %         19.7 %
 

Third Quarter 2011 Highlights
  • Strong Third Quarter Earnings For the third quarter of 2011, net income was $62.4 million or $0.41 per share. Earnings per dilutive share grew $0.02 or 5% from the second quarter of 2011 and $0.14 or 52% from the third quarter of 2010.
  • Strong Loan Growth – Quarter to date, noncovered commercial and trade finance loans grew $327.7 million or 12% to $3.0 billion, and noncovered single family loans grew $231.7 million or 18% to $1.5 billion.
  • Stable Net Interest Margin – The adjusted net interest margin for the third quarter totaled 3.98%, as compared to 4.03% for the second quarter of 2011 and 3.98% for the third quarter of 2010.1
  • Strong Deposit Growth – Quarter to date, core deposits increased $469.7 million or 5% to $9.8 billion and total deposits increased $172.9 million or 1% to $17.3 billion.
  • Cost of Funds Down 7 bps from Q2 2011 and 18 bps from Q3 2010 – The cost of funds declined 7 basis points from the second quarter of 2011 and 18 basis points from the third quarter of 2010 to 0.93% for the third quarter of 2011. Our cost of deposits declined 5 basis points from the second quarter of 2011 and 10 basis points from the third quarter of 2010 to 0.65% for the quarter ended September 30, 2011.
  • Net Charge-offs Down 23% from Q2 2011, Down 46% from Q3 2010 Net charge-offs declined to $24.4 million, a decrease of $7.2 million or 23% from the prior quarter and a decrease of $20.7 million or 46% from the third quarter of 2010.
  • Nonperforming Assets Down 7% to 0.77% of Total Assets Nonperforming assets decreased $12.3 million or 7% during the third quarter of 2011 to $168.9 million, or 0.77% of total assets. This is the eighth consecutive quarter East West is reporting a nonperforming assets to total assets ratio under 1.00%.

Management Guidance

The Company is providing updated guidance for the fourth quarter and full year of 2011. Management currently estimates that fully diluted earnings per share for the fourth quarter of 2011 will range from $0.40 to $0.41 resulting in earnings per share for the full year of $1.57 to $1.58 per dilutive share or an increase of approximately 89% to 90% from 2010. Also, this updated guidance for the full year of 2011 is an increase of approximately 3% from our previously released guidance. This EPS guidance is based on the following assumptions:
  • Stable balance sheet
  • A stable interest rate environment and an adjusted net interest margin of approximately 3.90%
  • Provision for loan losses of approximately $20 million for the quarter
  • Total noninterest expense of approximately $97 million to $100 million for the quarter, net of amounts to be reimbursed by the FDIC
  • Effective tax rate of approximately 36%

Balance Sheet Summary

At September 30, 2011, total assets equaled $21.8 billion compared to $21.9 billion at June 30, 2011. Although total assets remained relatively unchanged, total loans receivable grew $176.4 million and investment securities grew $73.5 million quarter to date. These increases were funded by existing cash and an increase in deposits of $172.9 million from June 30, 2011.

Loans receivable totaled $14.2 billion at September 30, 2011, as compared to $14.0 billion at June 30, 2011 and $13.6 billion at September 30, 2010. During the third quarter, noncovered loan balances increased 4% or $393.1 million, to $10.1 billion at September 30, 2011. The increase in noncovered loans during the third quarter was driven by growth in both commercial and trade finance loans and single family loans, which increased $327.7 million or 12%, and $231.7 million or 18%, respectively. The loan growth in our commercial and trade finance portfolio in the third quarter is attributed to our expanded lending platform in the U.S. and is well-diversified across many industries. The growth in the single family loan portfolio is due to ongoing demand from our retail branch network.

The growth in noncovered commercial and trade finance loans and single-family loans was partially offset by decreases in noncovered land, construction, and consumer loans, including loans held for sale, during the third quarter of 2011. Quarter to date, land and construction loans declined by $47.9 million or 11% to $372.1 million as of September 30, 2011. The consumer loan portfolio declined $85.4 million or 14% during the quarter, primarily as a result of the transfer of government guaranteed student loans to loans held for sale to reflect management’s intent to sell these loans at a future date. As of September 30, 2011, we classified $251.9 million of loans as held for sale, primarily comprised of government guaranteed student loans. Further, during the third quarter, we sold $219.8 million of government guaranteed student loans and $10.0 million of SBA loans at gains of approximately $4.4 million, and $1.1 million, respectively.

Covered Loans

Covered loans totaled $4.1 billion as of September 30, 2011, a decrease of $216.7 million from June 30, 2011. The decrease in the covered loan portfolio was primarily due to payoffs and paydown activity, as well as charge-offs.

The covered loan portfolio is comprised of loans acquired from the FDIC-assisted acquisitions of United Commercial Bank (UCB) and Washington First International Bank (WFIB) which are covered under loss share agreements with the FDIC. During the third quarter, we recorded a net decrease in the FDIC indemnification asset and receivable included in noninterest income (loss) of $(43.5) million which resulted largely from the improved performance of the UCB loan portfolio as compared to our original estimate.

Deposits and Borrowings

During the third quarter, total deposits grew $172.9 million from June 30, 2011 to a record $17.3 billion at September 30, 2011. In the third quarter, we continued our focus on growing commercial and low-cost core deposits and reducing our reliance on time deposits. Core deposits increased to a record $9.8 billion at September 30, 2011, or an increase of $469.7 million or 5% from June 30, 2011 while time deposits decreased to $7.5 billion at September 30, 2011, or a decrease of $296.7 million or 4% from June 30, 2011. Demand deposits grew to a record $3.4 billion, an increase of $225.9 million or 7% quarter to date.

As of September 30, 2011, FHLB advances totaled $457.1 million, a decrease of 14% or $75.9 million from June 30, 2011 due to both scheduled payments and prepayments during the third quarter. During the third quarter, we prepaid $48.8 million of FHLB advances with an effective interest rate of 2.4%, incurring a prepayment penalty of $3.3 million, which is included in noninterest expense. Additionally, during the third quarter, we called $10.8 million of 10.9% junior subordinated debt securities at a premium of $526 thousand, which is also recorded in noninterest expense. These actions were taken to reduce borrowing costs and improve the net interest margin in the coming quarters.

Third Quarter 2011 Operating Results

Net Interest Income

The core net interest margin, excluding the net impact to interest income of $39.3 million resulting from covered loan activity and amortization of the FDIC indemnification asset, remained strong at 3.98% for the third quarter of 2011, as compared to 4.03% for the second quarter of 2011 and 3.98% for the third quarter of 2010. 1 For the third quarter, the yield on noncovered loans was 4.87% compared to 5.10% in the prior quarter and the yield on covered loans, excluding the net impact to interest income from covered loan activity and amortization of the FDIC indemnification asset, was 7.89%, compared to 7.92% in the prior quarter. 1 Additionally, the yield on investment securities improved 9 basis points to 2.99% for the quarter ended September 30, 2011.

East West continues to focus on commercial and low-cost core deposits and successfully grew core deposits $469.7 million during the quarter and lowered the cost of deposits by five basis points to 0.65% for the quarter. In addition, the cost of funds was also down quarter to date, decreasing seven basis points to 0.93%.

Management believes that East West can maintain a relatively stable net interest margin throughout this prolonged low interest rate environment, while ensuring prudent interest rate risk management. In the upcoming months, the Company will continue to evaluate opportunities to reduce the cost of deposits and borrowings. In the fourth quarter of 2011, $2.8 billion of time deposits with a weighted-average interest rate of 0.87% will be maturing and the Company expects to replace these deposits at a substantially lower cost. Additionally, management is confident in its ability to organically grow the loan portfolio, maintaining stable interest earning assets. As such, while the net interest margin may decrease slightly, management still expects to maintain a relatively stable net interest margin and believes that the adjusted net interest margin will approximate 3.90% for the fourth quarter of 2011.

Noninterest Income (Loss)

The Company reported a total noninterest income (loss) for the third quarter of 2011 of ($13.5) million, compared to noninterest income of $12.5 million in the second quarter of 2011 and noninterest income of $29.3 million in the third quarter of 2010.

Total fees and other operating income remained stable and totaled $21.2 million for the third quarter of 2011, compared to $22.1 million for the second quarter of 2011 and $17.4 million for the third quarter of 2010 as detailed below:
                       
Quarter Ended Quarter Ended Quarter Ended % Change
($ in thousands) September 30, 2011       June 30, 2011       September 30, 2010 (Yr/Yr)
 
Branch fees $ 8,872 $ 9,078 $ 7,976 11 %
Letters of credit fees and foreign exchange income 6,450 6,216 3,914 65 %
Ancillary loan fees 2,076 2,055 2,367 -12 %
Other operating income   3,835   4,771   3,127 23 %
Total fees & other operating income $ 21,233 $ 22,120 $ 17,384 22 %
 

Also included in noninterest income for the third quarter of 2011 were gains on sales of government guaranteed student loans and SBA loans of $5.5 million and gains on sales of investment securities of $3.2 million.

Noninterest Expense

Noninterest expense totaled $104.6 million for the third quarter of 2011, compared to $117.6 million for the second quarter of 2011 and $99.9 million for the third quarter of 2010. The decrease in noninterest expense from the second quarter of 2011 was primarily related to decreases in other real estate owned expense of $10.1 million and deposit insurance premium expense of $4.4 million. The decrease in the deposit insurance premium was due to a lower actual assessment. In the third quarter, we incurred $4.4 million in net expenses on covered loans and other real estate owned for which we expect that 80% or $3.5 million is reimbursable by the FDIC. In addition, included in noninterest expense for the third quarter of 2011 is a prepayment penalty on FHLB advances and junior subordinated debt securities of $3.8 million.

Noninterest expense, excluding amounts to be reimbursed by the FDIC and the prepayment penalties on FHLB advances and junior subordinated debt securities, totaled $97.2 million for the third quarter of 2011. 1

A summary of the noninterest expenses for the third quarter 2011, compared to the second quarter 2011, is detailed below:
           
Quarter Ended Quarter Ended
($ in thousands) September 30, 2011       June 30, 2011
Total noninterest expense: $ 104,552 $ 117,597
Amounts to be reimbursed on covered assets (80% of actual expense amount) 3,539 13,574
Prepayment penalties for FHLB Advances and other borrowings   3,826         4,433

Noninterest expense excluding reimbursable amounts and prepayment penalties on FHLB Advances and other borrowings
$ 97,187       $ 99,590
 

Management anticipates that in the fourth quarter of 2011, noninterest expense will be approximately $97.0 million to $100.0 million, net of amounts reimbursable from the FDIC.

The effective tax rate for the third quarter was 36.1% compared to 36.8% in the prior quarter. The effective tax rate is reduced from the statutory tax rate primarily due to the utilization of tax credits related to affordable housing investments.

Credit Quality

Credit quality continued to improve during the third quarter of 2011. Nonperforming assets, excluding covered assets, decreased by $12.3 million or 7% from the prior quarter to $168.9 million or 0.77% of total assets at September 30, 2011. The decrease in nonperforming assets was due to a $17.0 million or 10% decrease in nonaccrual loans during the third quarter of 2011, partially offset by an increase in other real estate owned of $4.7 million. In addition, for the eighth consecutive quarter, net charge-offs declined. Total net charge-offs decreased to $24.4 million for the third quarter of 2011, a decrease of 23% from the previous quarter and a decrease of 46% compared to the prior year quarter.

East West continues to maintain a strong allowance for noncovered loan losses at $211.7 million or 2.16% of noncovered loans receivable at September 30, 2011. This compares to an allowance for noncovered loan losses of $213.8 million or 2.29% of noncovered loans at June 30, 2011 and $240.3 million or 2.79% of noncovered loans at September 30, 2010. The provision for loan losses was $22.0 million for the third quarter of 2011, a decrease of 17% from the prior quarter, and a decrease of 43% as compared to the third quarter of 2010. Our allowance for loan losses and provision for loan losses have declined for several quarters as a result of credit quality improvement, partially offset by increases in the allowance for loan losses on commercial and trade finance loans, commensurate with the increases in these portfolios.

Management expects that the provision for loan losses will decrease in future quarters and total approximately $20.0 million for the fourth quarter of 2011.

Capital Strength

                 
(Dollars in millions)
September 30, 2011

Well CapitalizedRegulatoryRequirement

Total Excess AboveWell CapitalizedRequirement
 
Tier 1 leverage capital ratio 9.3 % 5.00 % $ 932
Tier 1 risk-based capital ratio 14.6 % 6.00 % 1,186
Total risk-based capital ratio 16.2 % 10.00 % 853

Tangible common equity to tangible assets ratio
8.2 % N/A N/A
Tangible common equity to risk weighted assets ratio 12.8 %

N/A

 

 

N/A
 

Our capital ratios remain very strong. As of the end of the third quarter of 2011, our Tier 1 leverage capital ratio totaled 9.3%, our Tier 1 risk-based capital ratio totaled 14.6% and our total risk-based capital ratio totaled 16.2%. East West exceeds well capitalized requirements for all regulatory guidelines by over $800 million. The Company remains focused on active capital management and remains committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a strong return to our shareholders.

Dividend Payout

East West’s Board of Directors has declared fourth quarter dividends on the common stock and Series A Preferred Stock. The common stock cash dividend of $0.05 is payable on or about November 24, 2011 to shareholders of record on November 10, 2011. The dividend on the Series A Preferred Stock of $20.00 per share is payable on November 1, 2011 to shareholders of record on October 15, 2011.

Conference Call

East West will host a conference call to discuss third quarter 2011 earnings with the public on Thursday, October 20, 2011 at 8:30 a.m. PDT/11:30 a.m. EDT. The public and investment community are invited to listen as management discusses third quarter results and operating developments. The following dial-in information is provided for participation in the conference call: Local call within the US – (877) 317-6789; Call within Canada – (866) 605-3852; International call – (412) 317-6789. A listen-only live broadcast of the call also will be available on the investor relations page of the Company's website at www.eastwestbank.com.

About East West

East West Bancorp is a publicly owned company with $21.8 billion in assets 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 commercial banks headquartered in California with over 130 locations worldwide, including the U.S. markets of California, New York, Georgia, Massachusetts, Texas and Washington. In Greater China, East West’s presence includes a full service branch in Hong Kong and representative offices in Beijing, Shenzhen and Taipei. Through a wholly owned subsidiary bank, East West’s presence in Greater China also includes full service branches in Shanghai and Shantou and a representative office in Guangzhou. For more information on East West Bancorp, visit the Company's website at www.eastwestbank.com.

Forward-Looking Statements

This release may contain forward-looking statements, which are included in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and accordingly, the cautionary statements contained in East West Bancorp’s Annual Report on Form 10-K for the year ended Dec. 31, 2010 (See Item I -- Business, and Item 7 -- Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations), and other filings with the Securities and Exchange Commission are incorporated herein by reference. These factors include, but are not limited to: the effect of interest rate and currency exchange fluctuations; competition in the financial services market for both deposits and loans; EWBC’s ability to efficiently incorporate acquisitions into its operations; the ability of borrowers to perform as required under the terms of their loans; effect of additional provisions for loan losses; effect of any goodwill impairment, the ability of EWBC and its subsidiaries to increase its customer base; the effect of regulatory and legislative action, including California tax legislation and an announcement by the state’s Franchise Tax Board regarding the taxation of Registered Investment Companies; and regional and general economic conditions. Actual results and performance in future periods may be materially different from any future results or performance suggested by the forward-looking statements in this release. Such forward-looking statements speak only as of the date of this release. East West expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in the Bank’s expectations of results or any change in event.

1 See reconciliation of the GAAP financial measure to the non-GAAP financial measure in the tables attached.
                 
EAST WEST BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)
 
September 30, 2011 June 30, 2011 September 30, 2010
Assets
Cash and cash equivalents $ 1,135,888 $ 1,598,498 $ 1,164,936
Short-term investments 66,009 85,479 151,557
Securities purchased under resale agreements 951,824 812,281 350,000
Investment securities 3,279,592 3,206,108 2,907,349

Loans receivable, excluding covered loans (net of allowance for loan losses of $211,738, $213,825 and $240,286)
9,830,686 9,428,015 8,323,684
Covered loans, net   4,139,902     4,356,595     4,975,502  
Total loans receivable, net 13,970,588 13,784,610 13,299,186

Federal Home Loan Bank and Federal Reserve Bank stock
190,765 197,187 216,738
FDIC indemnification asset 569,157 637,535 874,759
Other real estate owned, net 21,178 16,464 16,936
Other real estate owned covered, net 87,298 123,050 137,353
Premiums on deposits acquired, net 70,115 73,182 82,755
Goodwill 337,438 337,438 337,438
Other assets   1,133,194     1,000,876     878,239  
Total assets

$
21,813,046   $ 21,872,708   $ 20,417,246  
 
Liabilities and Stockholders' Equity
Deposits

$
17,308,700 $ 17,135,753 $ 15,297,971
Federal Home Loan Bank advances 457,075 532,951 1,018,074
Securities sold under repurchase agreements 1,024,949 1,052,615 1,045,664
Long-term debt 214,178 225,261 235,570
Other borrowings 4,955 29,924 28,328
Accrued expenses and other liabilities   542,020     666,872     406,879  
Total liabilities 19,551,877 19,643,376 18,032,486
Stockholders' equity   2,261,169     2,229,332     2,384,760  
Total liabilities and stockholders' equity $ 21,813,046   $ 21,872,708   $ 20,417,246  
Book value per common share $ 14.62 $ 14.43 $ 13.61
Number of common shares at period end 148,962 148,751 147,982
 
Ending Balances
September 30, 2011 June 30, 2011 September 30, 2010
Loans receivable
Real estate - single family $ 1,517,954 $ 1,286,235 $ 1,057,697
Real estate - multifamily 942,428 950,981 971,155
Real estate - commercial 3,459,001 3,408,560 3,425,300
Real estate - land and construction 372,140 420,069 563,010
Commercial 3,012,152 2,684,472 1,696,173
Consumer   503,575     588,940     886,124  

Total noncovered loans receivable, excluding loans held for sale
9,807,250 9,339,257 8,599,459
Loans held for sale 251,920 326,841 16,902
Covered loans, net   4,139,902     4,356,595     4,975,502  
Total loans receivable 14,199,072 14,022,693 13,591,863
Unearned fees, premiums and discounts (16,746 ) (24,258 ) (52,391 )

Allowance for loan losses on noncovered loans
  (211,738 )   (213,825 )   (240,286 )
Net loans receivable $ 13,970,588 $ 13,784,610 $ 13,299,186
 
Deposits
Noninterest-bearing demand $ 3,377,559 $ 3,151,660 $ 2,571,750
Interest-bearing checking 948,679 792,330 762,633
Money market 4,434,983 4,311,583 4,190,448
Savings   1,063,086     1,099,065     955,278  
Total core deposits 9,824,307 9,354,638 8,480,109
Time deposits   7,484,393     7,781,115     6,817,862  
Total deposits $ 17,308,700 $ 17,135,753 $ 15,297,971
 
 
                 
EAST WEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
 
Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
 
Interest and dividend income $ 282,741 $ 274,468 $ 231,400
Interest expense   (44,959 )   (47,132 )   (48,595 )
Net interest income before provision for loan losses 237,782 227,336 182,805
Provision for loan losses   (22,000 )   (26,500 )   (38,648 )
Net interest income after provision for loan losses 215,782 200,836 144,157
Noninterest (loss) income (13,545 ) 12,491 29,315
Noninterest expense   (104,552 )   (117,597 )   (99,945 )
Income before provision for income taxes 97,685 95,730 73,527
Provision for income taxes   35,253     35,205     26,576  
Net income 62,432 60,525 46,951
Preferred stock dividend and amortization of preferred stock discount   (1,714 )   (1,714 )   (6,732 )
Net income available to common stockholders $ 60,718 $ 58,811 $ 40,219
Net income per share, basic $ 0.41 $ 0.40 $ 0.27
Net income per share, diluted $ 0.41 $ 0.39 $ 0.27
Shares used to compute per share net income:
- Basic 147,162 147,011 146,454
- Diluted 153,453 153,347 147,113
 
 
Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
Noninterest (loss) income:
Branch fees $ 8,872 $ 9,078 $ 7,976
(Decrease) increase in FDIC indemnification asset and FDIC receivable (43,451 ) (18,806 ) 5,826
Net gain on sales of loans 5,452 5,891 4,177
Letters of credit fees and foreign exchange income 6,450 6,216 3,914
Net gain on sales of investments 3,191 1,117 2,791
Net gain on sale of fixed assets 30 2,169 25
Impairment loss on investment securities - - (888 )
Ancillary loan fees 2,076 2,055 2,367
Other operating income   3,835     4,771     3,127  
Total noninterest (loss) income $ (13,545 ) $ 12,491 $ 29,315
 
Noninterest expense:
Compensation and employee benefits $ 39,885 $ 40,870 $ 38,693
Occupancy and equipment expense 12,580 12,175 13,963
Loan related expenses 5,208 4,284 6,316
Other real estate owned expense 4,489 14,585 5,694
Deposit insurance premiums and regulatory assessments 2,430 6,833 5,676
Prepayment penalties for FHLB advances and other borrowings 3,826 4,433 -
Legal expense 6,028 6,791 5,301
Amortization of premiums on deposits acquired 3,067 3,151 3,352
Data processing 1,827 2,100 2,646
Consulting expense 2,094 2,378 1,612
Amortization of investments in affordable housing partnerships 5,287 4,598 1,442
Other operating expense   17,831     15,399     15,250  
Total noninterest expense $ 104,552 $ 117,597 $ 99,945
 
 
           
EAST WEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
 
Year To Date
September 30, 2011 September 30, 2010
 
Interest and dividend income $ 811,544 $ 803,636
Interest expense   (137,592 )   (155,484 )
Net interest income before provision for loan losses 673,952 648,152
Provision for loan losses   (75,006 )   (170,325 )
Net interest income after provision for loan losses 598,946 477,827
Noninterest income 9,987 56,549
Noninterest expense   (328,938 )   (364,173 )
Income before provision for income taxes 279,995 170,203
Provision for income taxes   100,967     61,988  
Net income 179,028 108,215
Preferred stock dividend and amortization of preferred stock discount   (5,143 )   (19,017 )
Net income available to common stockholders $ 173,885 $ 89,198
Net income per share, basic $ 1.18 $ 0.66
Net income per share, diluted $ 1.17 $ 0.61
Shares used to compute per share net income:
- Basic 147,013 134,396
- Diluted 153,372 146,993
 
 
Year To Date
September 30, 2011 September 30, 2010
Noninterest income:
Branch fees $ 25,704 $ 24,953
Decrease in FDIC indemnification asset and FDIC receivable (79,700 ) (47,170 )
Net gain on sales of loans 18,753 12,250
Letters of credit fees and foreign exchange income 17,636 11,023
Net gain on sales of investments 6,823 24,749
Net gain on sale of fixed assets 2,236 77
Impairment loss on investment securities (464 ) (10,329 )
Ancillary loan fees 6,122 6,425
Gain on acquisition - 27,571
Other operating income   12,877     7,000  
Total noninterest income $ 9,987 $ 56,549
 
Noninterest expense:
Compensation and employee benefits $ 119,025 $ 131,051
Occupancy and equipment expense 37,353 39,022
Loan related expenses 12,591 14,567
Other real estate owned expense 29,738 44,689
Deposit insurance premiums and regulatory assessments 16,454 21,785
Prepayment penalties for FHLB advances and other borrowings 12,281 13,832
Legal expense 16,920 14,391
Amortization of premiums on deposits acquired 9,403 10,046
Data processing 6,530 8,174
Consulting expense 6,098 5,672
Amortization of investments in affordable housing partnerships 14,410 7,117
Other operating expense   48,135     53,827  
Total noninterest expense $ 328,938 $ 364,173
 
 
                 
EAST WEST BANCORP, INC.
SELECTED FINANCIAL INFORMATION
(In thousands)
(unaudited)
 
Average Balances Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
Loans receivable
Real estate - single family $ 1,382,715 $ 1,231,774 $ 1,051,914
Real estate - multifamily 945,007 950,687 984,589
Real estate - commercial 3,447,983 3,393,361 3,452,114
Real estate - land and construction 416,640 457,337 615,959
Commercial 2,859,985 2,450,510 1,591,042
Consumer   773,229     935,081     803,430  
Total loans receivable, excluding covered loans 9,825,559 9,418,750 8,499,048
Covered loans   4,253,687     4,487,610     5,105,793  
Total loans receivable 14,079,246 13,906,360 13,604,841
Investment securities 3,255,701 3,220,795 2,482,951
Earning assets 19,810,633 19,402,968 17,692,002
Total assets 21,978,123 21,574,103 20,097,142
 
Deposits
Noninterest-bearing demand $ 3,236,683 $ 2,935,704 $ 2,436,031
Interest-bearing checking 895,223 793,349 731,267
Money market 4,453,224 4,374,404 4,162,847
Savings   1,048,004     1,034,486     960,927  
Total core deposits 9,633,134 9,137,943 8,291,072
Time deposits   7,665,429     7,653,112     6,719,637  
Total deposits 17,298,563 16,791,055 15,010,709
Interest-bearing liabilities 15,842,752 15,913,856 14,910,922
Stockholders' equity 2,275,803 2,210,603 2,360,025
 
 
Selected Ratios Quarter Ended
September 30, 2011 June 30, 2011 September 30, 2010
For The Period
Return on average assets 1.13 % 1.12 % 0.93 %
Return on average common equity 10.99 % 11.06 % 8.11 %
Interest rate spread 4.53 % 4.48 % 3.90 %
Net interest margin 4.76 % 4.70 % 4.10 %
Yield on earning assets 5.66 % 5.67 % 5.19 %
Cost of deposits 0.65 % 0.70 % 0.75 %
Cost of funds 0.93 % 1.00 % 1.11 %
Noninterest expense/average assets (1) 1.67 % 1.95 % 1.89 %
Efficiency ratio (2) 41.19 % 43.95 % 44.67 %
 
(1) Excludes the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalties for FHLB advances and other borrowings.
 
(2) Represents noninterest expense, excluding the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalties for FHLB advances and other borrowings, divided by the aggregate of net interest income before provision for loan losses and noninterest income, excluding items that are non-recurring in nature.
 
 
                       
EAST WEST BANCORP, INC.
QUARTER TO DATE AVERAGE BALANCES, YIELDS AND RATES PAID
(In thousands)
(unaudited)
 
Quarter Ended
September 30, 2011     September 30, 2010
Average Average
Volume     Interest    

Yield(1)
    Volume     Interest    

Yield(1)
 

ASSETS
Interest-earning assets:
Due from banks and short-term investments $ 1,164,302 $ 7,866 2.68 %

$
736,658

$
2,362 1.27 %
Securities purchased under resale agreements 1,117,493 5,064 1.80 % 648,136 2,410 1.46 %
Investment securities available-for-sale 3,255,701 24,503 2.99 % 2,482,951 15,725 2.51 %
Loans receivable 9,825,559 120,596 4.87 % 8,499,048 116,029 5.42 %
Loans receivable - covered 4,253,687 123,927 11.56 % 5,105,793 94,057 7.31 %
Federal Home Loan Bank and Federal Reserve Bank stock   193,891         785     1.61 %       219,416         817     1.49 %
Total interest-earning assets   19,810,633         282,741     5.66 %       17,692,002         231,400     5.19 %
 
Noninterest-earning assets:
Cash and cash equivalents 254,918 668,277
Allowance for loan losses (225,395 ) (253,078 )
Other assets   2,137,967     1,989,941  
Total assets $ 21,978,123   $ 20,097,142  
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Checking accounts 895,223 936 0.41 % 731,267 550 0.30 %
Money market accounts 4,453,224 4,798 0.43 % 4,162,847 7,103 0.68 %
Savings deposits 1,048,004 756 0.29 % 960,927 818 0.34 %
Time deposits 7,665,429 21,726 1.12 % 6,719,637 20,028 1.18 %
Federal Home Loan Bank advances 508,913 3,013 2.35 % 1,020,640 5,725 2.23 %
Securities sold under repurchase agreements 1,035,466 12,218 4.68 % 1,047,697 12,189 4.55 %
Long-term debt 222,490 1,424 2.54 % 235,570 1,685 2.80 %
Other borrowings   14,003         88     2.49 %       32,337         497     6.01 %
Total interest-bearing liabilities   15,842,752         44,959     1.13 %       14,910,922         48,595     1.29 %
 
Noninterest-bearing liabilities:
Demand deposits 3,236,683 2,436,031
Other liabilities 622,885 390,164
Stockholders' equity   2,275,803     2,360,025  

Total liabilities and stockholders' equity
$ 21,978,123   $ 20,097,142  
 
Interest rate spread 4.53 % 3.90 %
 
Net interest income and net interest margin $ 237,782 4.76 % $ 182,805 4.10 %
 
Net interest income and net interest margin, adjusted (2) $ 198,489 3.98 % $ 177,294 3.98 %
 
(1) Annualized.
 
(2) Amounts exclude the net impact of covered loan dispositions of $39.3 million and $5.5 million for the three months ended September 30, 2011 and 2010, respectively.
 
 
           
EAST WEST BANCORP, INC.
SELECTED FINANCIAL INFORMATION
(In thousands)
(unaudited)
 
Average Balances Year To Date
September 30, 2011 September 30, 2010
Loans receivable
Real estate - single family $ 1,259,419 $ 990,806
Real estate - multifamily 952,426 1,017,883
Real estate - commercial 3,407,097 3,519,178
Real estate - land and construction 460,512 707,062
Commercial 2,458,701 1,496,885
Consumer   920,248     793,670  
Total loans receivable, excluding covered loans 9,458,403 8,525,484
Covered loans   4,477,467     5,175,251  
Total loans receivable 13,935,870 13,700,735
Investment securities 3,100,000 2,291,588
Earning assets 19,318,212 17,584,474
Total assets 21,484,046 20,049,938
 
Deposits
Noninterest-bearing demand $ 2,966,343 $ 2,323,950
Interest-bearing checking 820,518 672,817
Money market 4,400,912 3,868,588
Savings   1,018,215     971,381  
Total core deposits 9,205,988 7,836,736
Time deposits   7,487,935     6,914,615  
Total deposits 16,693,923 14,751,351
Interest-bearing liabilities 15,785,667 15,191,062
Stockholders' equity 2,211,373 2,321,690
 
 
Selected Ratios Year To Date
September 30, 2011 September 30, 2010
For The Period
Return on average assets 1.11 % 0.72 %
Return on average common equity 10.92 % 6.47 %
Interest rate spread 4.45 % 4.74 %
Net interest margin 4.66 % 4.93 %
Yield on earning assets 5.62 % 6.11 %
Cost of deposits 0.67 % 0.83 %
Cost of funds 0.98 % 1.19 %
Noninterest expense/average assets (1) 1.82 % 2.22 %
Efficiency ratio (2) 42.79 % 48.47 %
 
 
(1) Excludes the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalties for FHLB advances and other borrowings.
 
(2) Represents noninterest expense, excluding the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalties for FHLB advances and other borrowings, divided by the aggregate of net interest income before provision for loan losses and noninterest income, excluding items that are non-recurring in nature.
 
 
                       
EAST WEST BANCORP, INC.
YEAR TO DATE AVERAGE BALANCES, YIELDS AND RATES PAID
(In thousands)
(unaudited)
 
Year To Date
September 30, 2011     September 30, 2010
Average Average
Volume     Interest    

Yield(1)
    Volume     Interest    

Yield(1)
 

ASSETS
Interest-earning assets:
Due from banks and short-term investments $ 1,052,091 $ 15,106 1.92 % $ 914,471 $ 7,405 1.08 %
Securities purchased under resale agreements 1,029,000 14,443 1.88 % 455,824 11,303 3.27 %
Investment securities available-for-sale 3,100,000 66,613 2.87 % 2,291,588 50,656 2.96 %
Loans receivable 9,458,403 355,246 5.02 % 8,525,484 354,973 5.57 %
Loans receivable - covered 4,477,467 357,576 10.68 % 5,175,251 376,840 9.74 %
Federal Home Loan Bank and Federal Reserve Bank stock   201,251         2,560     1.70 %       221,856         2,473     1.49 %
Total interest-earning assets   19,318,212         811,544     5.62 %       17,584,474         803,650     6.11 %
 
Noninterest-earning assets:
Cash and cash equivalents 269,700 547,403
Allowance for loan losses (230,020 ) (254,153 )
Other assets   2,126,154     2,172,214  

Total assets
$ 21,484,046   $ 20,049,938  
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Checking accounts 820,518 2,283 0.37 % 672,817 1,691 0.34 %
Money market accounts 4,400,912 16,621 0.50 % 3,868,588 23,405 0.81 %
Savings deposits 1,018,215 2,421 0.32 % 971,381 3,234 0.45 %
Time deposits 7,487,935 62,003 1.11 % 6,914,615 62,749 1.21 %
Federal Home Loan Bank advances 751,822 12,746 2.27 % 1,427,903 20,905 1.96 %
Securities sold under repurchase agreements 1,059,770 36,351 4.59 % 1,039,636 36,775 4.66 %
Long-term debt 231,087 4,783 2.77 % 235,570 4,823 2.70 %
Other borrowings   15,408         384     3.33 %       60,552         1,902     4.19 %
Total interest-bearing liabilities   15,785,667         137,592     1.17 %       15,191,062         155,484     1.37 %
 
Noninterest-bearing liabilities:
Demand deposits 2,966,343 2,323,950
Other liabilities 520,663 213,236
Stockholders' equity   2,211,373     2,321,690  
Total liabilities and stockholders' equity $ 21,484,046   $ 20,049,938  
 
Interest rate spread 4.45 % 4.74 %
 
Net interest income and net interest margin $ 673,952 4.66 % $ 648,166 4.93 %
 
Net interest income and net interest margin, adjusted (2) $ 575,353 3.98 % $ 548,544 4.17 %
 
(1) Annualized.
 
(2) Amounts exclude the net impact of covered loan dispositions of $98.6 million and $97.1 million for the nine months ended September 30, 2011 and 2010, respectively, and repurchase agreement termination gain of $2.5 million for the nine months ended September 30, 2010.
 
 
           
EAST WEST BANCORP, INC.
QUARTERLY ALLOWANCE FOR LOAN LOSSES RECAP
(In thousands)
(unaudited)
 
Quarter Ended
9/30/2011     6/30/2011     9/30/2010
LOANS
Allowance balance, beginning of period $ 220,556 $ 226,161 $ 249,462
Allowance for unfunded loan commitments and letters of credit - (487 ) 1,133
Provision for loan losses 22,000 26,500 38,648
 
Net Charge-offs:
Real estate - single family 1,563 1,120 14,620
Real estate - multifamily 2,069 1,081 7,526
Real estate - commercial 1,157 2,164 11,779
Real estate - land and construction 12,855 18,143 8,300
Commercial 6,487 8,844 2,539
Consumer   253         266         293  

Total net charge-offs
  24,384         31,618         45,057  
Allowance balance, end of period (3) $ 218,172       $ 220,556       $ 244,186  
 
UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT:
Allowance balance, beginning of period $ 11,197 $ 10,710 $ 10,042
Provision for unfunded loan commitments and letters of credit   -         487         (1,133 )
Allowance balance, end of period $ 11,197       $ 11,197       $ 8,909  
GRAND TOTAL, END OF PERIOD $ 229,369       $ 231,753       $ 253,095  
 
Nonperforming assets to total assets (1)

0.77

%
0.83 % 0.96 %

Allowance for loan losses on noncovered loans to total gross noncovered loans held for investment at end of period

2.16

%
2.29 % 2.79 %

Allowance for loan losses on noncovered loans and unfunded loan commitments to total gross noncovered loans held for investment at end of period

2.27

%
2.41 % 2.90 %

Allowance on noncovered loans to noncovered nonaccrual loans at end of period

143.35

%
129.80 % 133.95 %
Nonaccrual loans to total loans (2) 1.04 % 1.17 % 1.32 %
 

(1)
   

Nonperforming assets excludes covered loans and covered REOs. Total assets includes covered assets.

(2)

Nonaccrual loans excludes covered loans. Total loans includes covered loans.

(3)

Included in the allowance is $6.4 million, $6.7 million and $3.9 million related to covered loans as of September 30, 2011, June 30, 2011 and September 30, 2010, respectively. This allowance is related to drawdowns on commitments that were in existence as of the acquisition dates and therefore, are covered under the loss share agreements with the FDIC. Allowance on these subsequent drawdowns is accounted for as part of the general allowance.

 

 
               
EAST WEST BANCORP, INC.
TOTAL NON-PERFORMING ASSETS, EXCLUDING COVERED ASSETS
(In thousands)
(unaudited)
 
AS OF SEPTEMBER 30, 2011    
Total Nonaccrual Loans

90+ DaysDelinquent
 

Under 90+DaysDelinquent
 

TotalNonaccrualLoans
 

REO Assets

TotalNon-PerformingAssets
Loan Type
Real estate - single family $ 7,173 $ 99 $ 7,272 $ 4,118 $ 11,390
Real estate - multifamily 12,906 5,468 18,374 - 18,374
Real estate - commercial 40,063 17,544 57,607 6,188 63,795
Real estate - land and construction 43,593 3,532 47,125 10,654 57,779
Commercial 11,121 3,275 14,396 142 14,538
Consumer   2,935   -   2,935   76   3,011
Total $ 117,791 $ 29,918 $ 147,709 $ 21,178 $ 168,887
 
AS OF JUNE 30, 2011
Total Nonaccrual Loans

90+ DaysDelinquent
 

Under 90+DaysDelinquent
 

TotalNonaccrualLoans
  REO Assets

TotalNon-PerformingAssets
Loan Type
Real estate - single family $ 13,326 $ - $ 13,326 $ 1,384 $ 14,710
Real estate - multifamily 11,174 3,708 14,882 833 15,715
Real estate - commercial 38,677 3,432 42,109 4,789 46,898
Real estate - land and construction 48,157 21,013 69,170 9,007 78,177
Commercial 19,078 5,091 24,169 358 24,527
Consumer   1,077   -   1,077   93   1,170
Total $ 131,489 $ 33,244 $ 164,733 $ 16,464 $ 181,197
 
AS OF SEPTEMBER 30, 2010
Total Nonaccrual Loans

90+ DaysDelinquent
 

Under 90+DaysDelinquent
 

TotalNonaccrualLoans
  REO Assets

TotalNon-PerformingAssets
Loan Type
Real estate - single family $ 5,359 $ - $ 5,359 $ 947 $ 6,306
Real estate - multifamily 10,386 6,263 16,649 3,088 19,737
Real estate - commercial 28,786 30,799 59,585 6,730 66,315
Real estate - land and construction 51,699 18,837 70,536 5,602 76,138
Commercial 6,653 20,084 26,737 223 26,960
Consumer   427   91   518   346   864
Total $ 103,310 $ 76,074 $ 179,384 $ 16,936 $ 196,320
 
 
 
EAST WEST BANCORP, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(unaudited)
 

The tangible common equity to risk weighted assets and tangible common equity to tangible assets ratios are non-GAAP disclosures. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance to provide additional disclosure. As the use of tangible common equity to tangible assets is more prevalent in the banking industry and with banking regulators and analysts, we have included the tangible common equity to risk-weighted assets and tangible common equity to tangible assets ratios.
               
As of
September 30, 2011
Stockholders' Equity $ 2,261,169
Less:
Preferred Equity (83,027 )
Goodwill and other intangible assets   (415,275 )
Tangible common equity $ 1,762,867  
 
Risk-weighted assets   13,756,976  
 

Tangible Common Equity to risk-weighted assets ratio
  12.8 %
 
As of
September 30, 2011
Total assets $ 21,813,046
Less:
Goodwill and other intangible assets   (415,275 )
Tangible assets $ 21,397,771  
 

Tangible common equity to tangible assets ratio
8.2 %
 
 
 
EAST WEST BANCORP, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(unaudited)
 

Operating noninterest expense is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance to provide additional disclosure. These are noninterest expense line items that are non-core in nature. Operating noninterest expense excludes such non-core noninterest expense line items. The Company believes that presenting operating noninterest expense provides more clarity to the users of financial statements regarding the core noninterest expense amounts.
                 
Quarter Ended
September 30, 2011
Total noninterest expense: $ 104,552
Amounts to be reimbursed on covered assets (80% of actual expense amount) 3,539
Prepayment penalties for FHLB advances and other borrowings   3,826

Noninterest expense excluding reimbursable amounts and prepayment penalties for FHLB advances and other borrowings
$ 97,187
 
Quarter Ended
June 30, 2011
Total noninterest expense: $ 117,597
Amounts to be reimbursed on covered assets (80% of actual expense amount) 13,574
Prepayment penalties for FHLB advances and other borrowings   4,433

Noninterest expense excluding reimbursable amounts and prepayment penalties for FHLB advances and other borrowings
$ 99,590
 
 
 
EAST WEST BANCORP, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(unaudited)
 
The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance to provide additional disclosure. The net interest margin includes amounts that are non-core in nature. As such, the Company believes that presenting the net interest income and net interest margin excluding such non-core items provides additional clarity to the users of financial statements regarding the core net interest income and net interest margin, comparability to prior periods and the ongoing performance of the Company.
                 
Quarter Ended September 30, 2011
Average Volume       Interest      

Yield(1)
Total interest-earning assets $ 19,810,633 $ 282,741 5.66 %
Net interest income and net interest margin $ 237,782 4.76 %

Less net impact of covered loan dispositions and amortization of the FDIC indemnification asset
  (39,293 )

Net interest income and net interest margin, excluding net impact of covered loan dispositions and amortization of the FDIC indemnification asset
$ 198,489   3.98 %
 
 
Quarter Ended June 30, 2011
Average Volume       Interest      

Yield(1)
Total interest-earning assets $ 19,402,969 $ 274,468 5.67 %
Net interest income and net interest margin $ 227,336 4.70 %

Less net impact of covered loan dispositions and amortization of the FDIC indemnification asset
  (32,381 )

Net interest income and net interest margin, excluding net impact of covered loan dispositions and amortization of the FDIC indemnification asset
$ 194,955   4.03 %
 
 
Quarter Ended September 30, 2010
Average Volume       Interest      

Yield(1)
Total interest-earning assets $ 17,692,002 $ 231,400 5.19 %
Net interest income and net interest margin $ 182,805 4.10 %
Less net impact of covered loan dispositions   (5,511 )

Net interest income and net interest margin, excluding net impact of covered loan dispositions
$ 177,294   3.98 %
 
(1) Annualized.
 
 
 
EAST WEST BANCORP, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands)
(unaudited)
 
The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance to provide additional disclosure. The net interest income on covered loans includes amounts that are non-core in nature. As such, the Company believes that presenting the net interest income on covered loans excluding such non-core items provides additional clarity to the users of financial statements regarding the covered loan yield, comparability to prior periods and the ongoing performance of the Company.
                 
Quarter Ended September 30, 2011
Average Volume       Interest      

Yield(1)
Loans receivable - covered $ 4,253,687 $ 123,927 11.56 %

Less net impact of covered loan dispositions and amortization of the FDIC indemnification asset
  (39,293 )

Covered loans excluding net impact of covered loan dispositions and amortization of the FDIC indemnification asset
$ 84,634   7.89 %
 
Quarter Ended June 30, 2011
Average Volume       Interest      

Yield(1)
Loans receivable - covered $ 4,487,610 $ 121,034 10.82 %

Less net impact of covered loan dispositions and amortization of the FDIC indemnification asset
  (32,381 )

Covered loans excluding net impact of covered loan dispositions and amortization of the FDIC indemnification asset
$ 88,653   7.92 %
 

(1) Annualized.

Copyright Business Wire 2010

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