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, newly stated its fiscal results for the 3rd-quarter of 2k19. For the 3rd-quarter of 2k19, net income was $171.40M or $1.170 for each diluted share, both up by 14.00% contrast to the 2nd-quarter of 2k19. 3rd-quarter 2k19 return on average assets was 1.580% and return on average equity was 14.10%.
“For the 3rd-quarter of 2k19, East West achieved both record total operating1 revenue of $421.00M and record net interest income of $370.00M,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “In a challenging environment of declining interest rates, we achieved a quarter-over-quarter incline in net interest income through balance sheet growth combined with a decline in the cost of deposits. For the 3rd-quarter of 2k19, the average cost of deposits reduced by six basis points to 1.050%, contrast to 1.110% in the 2nd-quarter of 2k19.”
“Total loans grew $291.00M, or 3.0% annualized, to a record $34.00B as of September 30, 2k19 from $33.70B as of June 30, 2k19. Year-to-date, total loans grew 7.0% annualized. Total deposits grew $182.00M, or 2.0% annualized, to a record $36.70B as of September 30, 2k19 from $36.50B as of June 30, 2k19. Year-to-date, total deposits grew 5.0% annualized.”
“We maintained strong cost discipline, resulting in a modest decline in noninterest costs quarter-over-quarter,” continued Ng. “However, the provision for credit losses raised to $38.00M for the 3rd-quarter, and our pre-tax income declined by 7.50% from the 2nd-quarter of 2k19. Nevertheless, net income grew 14.00% quarter-over-quarter as we benefitted from a linked-quarter reduction in the income tax cost.”
“Overall, our 3rd-quarter 2k19 return on assets was 1.580% and return on equity was 14.10%. We continue to deliver strong returns, in line with our long-term track record of generating attractive profitability,” concluded Ng.
HIGHLIGHTS OF RESULTS
- 3rd-Quarter Earnings – 3rd-quarter 2k19 net income was $171.40M, up by 14.00% contrast to 2nd-quarter 2k19 net income of $150.40M, but 5.0% lower than 2nd-quarter adjusted2 net income of $180.50M. 3rd-quarter 2k19 diluted earnings for each share (“EPS”) were $1.170, up by 14.00% contrast to 2nd-quarter 2k19 diluted EPS of $1.030, but 5.0% lower than 2nd-quarter adjusted2 EPS of $1.240.
- Net Interest Income and Net Interest Margin – 3rd-quarter 2k19 net interest income (“NII”) was $369.80M, a quarterly incline of $2.50M or 1.0%, and a year-over-year incline of $21.10M or 6.0%. 3rd-quarter 2k19 net interest margin (“NIM”) was 3.590%, a 14 basis point contraction from 3.730% in the previous quarter. Quarter-over-quarter, the average loan yield contracted by 17 basis points, and the average cost of deposits reduced by six basis points.
- Record Loans – Total loans of $34.00B as of September 30, 2k19 were up $291.00M, or 3.0% linked quarter annualized, from $33.70B as of June 30, 2k19. Total loans grew $2.80B, or 9.0% year-over-year. Average loans of $33.70B grew $679.90M quarter-over-quarter, or 8.0% linked quarter annualized. Average loan growth during the quarter was well-diversified across commercial and consumer loan portfolios.
- Record Deposits – Total deposits of $36.70B as of September 30, 2k19 were up $182.00M, or 2.0% linked quarter annualized, from $36.50B as of June 30, 2k19. Total deposits grew $3.00B, or 9.0% year-over-year. Average deposits of $36.50B grew $1.20B quarter-over-quarter, or 13.00% linked quarter annualized. Average deposit growth during the quarter was well balanced across money market, noninterest-bearing demand and time deposits, partially offset by a decline in interest-bearing checking accounts.
- Asset Quality Metrics – The allowance for loan losses was $345.60M, or 1.020% of loans held-for-investment (“HFI”) as of September 30, 2k19; the comparable ratios were 0.980% as of June 30, 2k19, and 0.990% as of September 30, 2k18. Non-purchased credit impaired (“Non-PCI”) nonperforming assets were $134.50M, or 0.310% of total assets as of September 30, 2k19; the comparable ratios were 0.280% as of June 30, 2k19, and 0.290% as of September 30, 2k18. For the 3rd-quarter of 2k19, the provision for credit losses was $38.30M; net charge-offs were $22.50M, or annualized 0.260% of average loans HFI.
- Capital Levels – Capital levels for East West were strong. As of September 30, 2k19, stockholders’ equity was $4.90B, or $33.540 for each share. Tangible equity3 for each common share was $30.220 as of September 30, 2k19, a boost of 4.0% linked quarter and 17.00% year-over-year.
As of September 30, 2k19, the tangible equity to tangible assets ratio3 was 10.30%, the common equity tier 1 (“CET1”) capital ratio was 12.80%, and the total risk-based capital ratio was 14.20%.
ADMINISTRATION OUTLOOK FOR 2k19
The Company has updated its outlook for the expected full year 2k19 results, contrast to its full year 2k18 results. The components are as follows:
- End of Duration Loans: incline by about 7.0% year-over-year.
- Net Interest Income (apart from ASC 310-30 discount accretion income): incline by about 6.0% year-over-year.
- Net Interest Margin (apart from the impact of ASC 310-30 discount accretion): between 3.60% and 3.650%.
- Noninterest Cost (apart from amortization of tax credit investments & core deposit intangibles): incline by about 3.0% year-over-year.
- Provision for Credit Losses: about $100.00M.
- Tax Items: projecting full year effective tax rate of about 20.00%, counting the impact of a $30.10M reversal of formerly claimed tax credits in the 2nd-quarter of 2k19, or about 15.00% apart from the tax credit reversal.
- Interest Rates: 25-basis point cut to the fed funds rate in October 2k19.
OPERATING RESULTS SUMMARY
3rd-Quarter 2k19 Contrast to 2nd-Quarter 2k19
Net Interest Income and Net Interest Margin
Net interest income totaled $369.80M, a 1.0% incline from $367.30M. Net interest margin of 3.590% contracted by 14 basis points from 3.730%.
- Average loans of $33.70B grew $679.90M, or 8.0% linked quarter annualized.
- Average interest-earning assets of $40.90B grew $1.50B, or 15.00% linked quarter annualized. Growth came mainly from a boost in the average interest-bearing cash and deposits with banks of $695.60M and the aforementioned incline in average loans.
- Average deposits of $36.50B grew $1.20B, or 13.00% linked quarter annualized.
- The average yield on loans contracted by 17 basis points to 5.110% from 5.280%, reflecting the decline in Libor rates and two 25-basis point reductions in the fed funds rate during the current quarter. The yield on average interest-earning assets contracted by 21 basis points to 4.620% from 4.830%.
- The average cost of deposits reduced by six basis points to 1.050% from 1.110%, and the average cost of interest-bearing deposits reduced by eight basis points to 1.490% from 1.570%.
Noninterest income totaled $51.50M, a 2.0% decline from $52.80M.
- The $2.00M incline in net gains on sales of loans mainly reflected a boost in the volume of SBA loans sold. Wealth administration fees raised $1.00M, reflecting a boost in customer activity.
- The $2.00M decline in interest rate contracts and other derivative income mainly reflected the quarter-over-quarter change in the credit valuation adjustment, which was driven by the decline in long-term interest rates during the 3rd-quarter of 2k19. Customer driven interest rate contract revenue was $11.10M during the 3rd-quarter, contrast to $11.80M in the 2nd-quarter.
Noninterest cost totaled $176.60M, a 1.0% decline from $177.70M.
- 3rd-quarter noninterest cost consisted of $158.60M of adjusted4 noninterest cost, $16.80M in amortization of tax credit and other investments, and $1.10M in amortization of core deposit intangibles.
- Adjusted noninterest cost of $158.60M reduced by about $1.20M, or 1.0%, from $159.80M. The leading linked-quarter decline was in compensation and employee benefits cost.