East West Bancorp Reports Net Income for Second Quarter 2020 of $99.4 Million and Diluted Earnings Per Share Of $0.70

East West Bancorp, Inc. (“East West” or the “Company”) (Nasdaq: EWBC), parent company of East West Bank, the financial bridge between the United States and Greater China, today reported its financial results for the second quarter of 2020. For the second quarter of 2020, net income was $99.4 million or $0.70 per diluted share. Second quarter 2020 return on average assets was 0.83% and return on average equity was 8.02%.

“East West is steadfast in its commitment to support our existing and new customers and the communities we operate in. Despite the challenges presented by adapting to the COVID-19 pandemic, total loans grew $1.3 billion, or 15% annualized, to a record $37.2 billion as of June 30, 2020 from $35.9 billion as of March 31, 2020,” stated Dominic Ng, Chairman and Chief Executive Officer of East West.

“During the second quarter, East West funded $1.8 billion of Paycheck Protection Program loans for over 7,200 customers. In addition, residential mortgage loans grew by 12% annualized and total commercial real estate loans grew by 9% annualized. This well-balanced loan growth demonstrates the strength of East West’s business model and our ability to generate responsible and attractive growth, even under difficult economic conditions.”

“Total deposits grew $2.0 billion, or 21% annualized, to a record $40.7 billion as of June 30, 2020 from $38.7 billion as of March 31, 2020,” continued Ng. “Second quarter 2020 deposit growth was driven by strong growth in noninterest-bearing demand and in low-cost money market deposits. Further, we proactively reduced higher-cost deposit balances. Overall, the average cost of deposits declined by 35 basis points quarter-over-quarter.”

“East West’s adjusted1 pre-tax, pre-provision profitability ratio remained strong at over 2% for the second quarter of 2020, despite the very low interest rate environment. During the quarter, we further strengthened our allowance for loan losses coverage to 1.70% of our loan portfolio, to reflect a more adverse macroeconomic outlook,” added Ng.

“We added to our already substantial levels of liquidity by participating in the Paycheck Protection Program Liquidity Facility, bolstering our balance sheet capacity to serve our customers. Quarter-over-quarter, our capital increased and our high capital ratios position us in a place of strength,” concluded Ng. “I wish to thank all of our associates for all of their hard work, dedication and adaptability in serving our customers in these unprecedented and challenging times.”

SUMMARY OF THE QUARTER

• Second Quarter Earnings – Second quarter 2020 net income was $99.4 million and diluted earnings per share (“EPS”) were $0.70, compared to first quarter 2020 net income of $144.8 million and diluted EPS of $1.00.

• Record Loans – Total loans of $37.2 billion as of June 30, 2020 increased by $1.3 billion, or 15% annualized, from $35.9 billion as of March 31, 2020. As of June 30, 2020, Paycheck Protection Program (“PPP”) loans were $1.7 billion.
  
  Second quarter 2020 average loans of $37.1 billion grew $2.0 billion, or 23% linked quarter annualized. Loan growth during the quarter came from each of East West’s major loan portfolios, with the strongest growth from commercial and industrial (“C&I”), driven by PPP loan growth. Commercial real estate and residential mortgage loans contributed to the growth during the quarter as well.

• Record Deposits – Total deposits of $40.7 billion as of June 30, 2020 increased by $2.0 billion, or 21% annualized, from $38.7 billion as of March 31, 2020.
  
  Second quarter 2020 average deposits of $39.9 billion grew $2.4 billion, or 26% linked quarter annualized, primarily driven by growth in noninterest-bearing demand accounts. Average non-interest bearing deposits increased to 34% of total deposits in the second quarter, up from 30% in the first quarter of 2020. Deposit growth in the second quarter was attributable to strong growth from consumer and small business commercial customers, as well as to PPP funds held in deposit accounts, partially offset by the intentional run-off of higher-cost balances.

• Balance Sheet Management – During the second quarter of 2020, the Company participated in the PPP Liquidity Facility (“PPPLF”), adding $1.4 billion to low-cost funding at a rate of 35 basis points. Also during the second quarter, East West prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million.

• Net Interest Income and Net Interest Margin – Second quarter 2020 net interest income (“NII”) was $343.8 million, a decrease of $18.9 million or 5% from first quarter 2020 NII of $362.7 million. Second quarter 2020 net interest margin (“NIM”) was 3.04%, a 40 basis point compression from 3.44% in the first quarter of 2020. The changes in the NII and in the NIM reflect the quarter-over-quarter drop in the average Prime and LIBOR interest rates.

• Noninterest Expense and Efficiency Ratio – Second quarter 2020 noninterest expense totaled $187.7 million, including $153.3 million of adjusted2 noninterest expense. Adjusted noninterest expense of $153.3 million decreased by $7.3 million, or 5%, from $160.6 million in the first quarter of 2020. Correspondingly, the adjusted2 efficiency ratio was 38.1% in the second quarter, compared to 38.5% in the first quarter.

• Asset Quality Metrics – The allowance for loan losses (“ALLL”) totaled $632.1 million, or 1.70% of loans held-for-investment (“HFI”), as of June 30, 2020, compared to $557.0 million, or 1.55% of loans HFI, as of March 31, 2020.
  
  Second quarter 2020 provision for credit losses was $102.4 million, compared to $ 73.9 million for the first quarter of 2020. Second quarter 2020 net charge-offs were $19.2 million, or annualized 0.21% of average loans HFI, compared to annualized 0.01% of average loans HFI in the first quarter of 2020. Nonperforming assets were $202.2 million, or 0.41% of total assets, as of June 30, 2020, compared to 0.33% of total assets as of March 31, 2020.

• Capital Levels – Capital levels for East West are strong. As of June 30, 2020, stockholders’ equity was $5.0 billion, or $35.25 per share. Tangible equity3 per common share was $31.86 as of June 30, 2020, an increase of 2% from $31.27 as of March 31, 2020. As of June 30, 2020, the tangible equity to tangible assets ratio3 was 9.2%, the common equity tier 1 (“CET1”) capital ratio was 12.7%, and the total risk-based capital ratio was 14.4%.

OPERATING RESULTS

Second Quarter 2020 Compared to First Quarter 2020

Net Interest Income and Net Interest Margin

Net interest income totaled $343.8 million, a decrease of 5% from $362.7 million. Net interest margin of 3.04% decreased by 40 basis points from 3.44%.

• Interest and fees earned on PPP loans contributed $21.3 million to interest income, and interest expense paid on the related PPPLF was $0.5 million.
• Average interest-earning assets of $45.4 billion grew $3.1 billion, or 29% linked quarter annualized. Average loan growth of $2.0 billion, or 23% linked quarter annualized, was mainly due to growth from PPP loans. The average balance of PPP loans was $1.5 billion in the second quarter of 2020.
• Average interest-bearing deposits were essentially flat at $26.4 billion. Average noninterest-bearing deposits of $13.5 billion grew $2.4 billion, or 87% linked quarter annualized. The average balance of the PPPLF, classified as long-term debt, was $530.3 million.
• The average loan yield contracted by 73 basis points to 3.98%, down from 4.71%, reflecting materially lower interest rates during the second quarter.
• The yield on average interest-earning assets contracted by 73 basis points to 3.53%, down from 4.26%.
• The average cost of interest-bearing deposits decreased by 46 basis points to 0.71%, down from 1.17%. The average cost of deposits decreased by 35 basis points to 0.47%, down from 0.82%.

Noninterest Income

Noninterest income totaled $58.6 million, an 8% increase from $54.0 million.

• Gains on sales of available-for-sale debt securities were $9.6 million, driven by $131.6 million in sales of municipal bonds during the second quarter.
• Lending fees of $21.9 million increased by $6.2 million, primarily reflecting an increase in the valuation of warrants received as part of lending relationships.
• The largest linked-quarter decreases in noninterest income were a $3.3 million decrease in foreign exchange income and a $2.3 million decrease in wealth management fees, both reflecting a decrease in customer-driven transactions during the second quarter.

Noninterest Expense

Noninterest expense totaled $187.7 million, a 5% increase from $178.9 million.

• Second quarter noninterest expense consisted of $153.3 million of adjusted noninterest expense, $24.8 million in amortization of tax credit and other investments, $8.7 million of debt extinguishment cost, and $0.9 million in amortization of core deposit intangibles.
• During the second quarter, the Company prepaid $150.0 million of repurchase agreements and incurred a debt extinguishment cost of $8.7 million.
• Adjusted noninterest expense of $153.3 million decreased by $7.3 million, or 5%, from $160.6 million. The largest linked-quarter change was a $5.0 million decrease in compensation and employee benefits expense, followed by a $1.9 million decrease in other operating expenses and a $1.7 million decrease in legal expense.
• The adjusted efficiency ratio was 38.1% in the second quarter, compared to 38.5% in the first quarter.

TAX RELATED ITEMS

Second quarter 2020 income tax expense was $12.9 million and the effective tax rate was 12%, compared to income tax expense of $19.2 million and an effective tax rate of 12% for the first quarter of 2020.

ASSET QUALITY

The allowance for loan losses totaled $632.1 million, or 1.70% of loans HFI, as of June 30, 2020, compared to $557.0 million, or 1.55% of loans HFI, as of March 31, 2020.

• Second quarter 2020 provision for credit losses was $102.4 million, compared to $73.9 million for the first quarter of 2020, and $19.2 million for the second quarter of 2019. Second quarter 2020 provision for credit losses was primarily driven by a more adverse macroeconomic forecast as of June 30, 2020, relative to March 31, 2020, as well as loan risk rating downgrades.
• Second quarter 2020 net charge-offs were $19.2 million, or annualized 0.21% of average loans HFI, compared to first quarter 2020 net charge-offs of $0.9 million, or annualized 0.01% of average loans HFI, and net charge-offs of $7.6 million, or annualized 0.09% of average loans HFI, for the second quarter of 2019. Second quarter 2020 net charge-offs were largely from loans in the oil and gas industry.
• Nonperforming assets were $202.2 million, or 0.41% of total assets, as of June 30, 2020, compared to nonperforming assets of $150.9 million, or 0.33% of total assets, as of March 31, 2020, and $119.3 million, or 0.28% of total assets, as of June 30, 2019. The increase in nonperforming assets was largely due to inflows to nonaccrual status of oil and gas and commercial real estate loans, partially offset by pay-offs and charge-offs of C&I loans.

CAPITAL STRENGTH

Capital levels for East West are strong. The following table presents the regulatory capital ratios as of June 30, 2020, March 31, 2020, and June 30, 2019.

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared third quarter 2020 dividends for the Company’s common stock. The common stock cash dividend of $0.275 per share is payable on August 17, 2020 to shareholders of record on August 4, 2020.

On March 3, 2020, East West’s Board of Directors authorized the repurchase of up to $500 million of East West’s common stock. East West did not repurchase any shares during the second quarter of 2020 under this authorization.

Conference Call

East West will host a conference call to discuss second quarter 2020 earnings with the public on Thursday, July 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 second quarter 2020 results and operating developments.

• The following dial-in information is provided for participation in the conference call: calls within the U.S. – (877) 506-6399; calls within Canada – (855) 669-9657; international calls – (412) 902-6699.
• A presentation to accompany the earnings call will be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
• A listen-only live broadcast of the call will also be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
• A replay of the conference call will be available on July 23, 2020 at 11:30 a.m. Pacific Time through August 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: 10145315.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $49.4 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, operating over 125 locations in the United States and Greater China. U.S. markets include 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 impact of disease pandemics, such as the worldwide spread of COVID-19, on us, our operations and our customers and employees; and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may precipitate or exacerbate one or more of the below-mentioned and/or other risks, and significantly disrupt or prevent us from operating its business in the ordinary course for an extended period; changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the Small Business Administration’s Payment Protection Program, the Board of Governors of the Federal Reserve Board System’s (the “Federal Reserve”) efforts to provide liquidity to the U.S. financial system, including changes in government interest rate policies, and to provide credit to private commercial and municipal borrowers, and other program designed to address the effects of the COVID-19 pandemic, as well as the resulting effect of all such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers; changes in the U.S. economy, including an economic slowdowns or recession, inflation, deflation, employment levels, rate of growth and general business conditions; the changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade dispute between the United States (“U.S.”) and the People’s Republic of China; fluctuations in our stock price; changes in income tax laws and regulations; 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 from 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 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 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; impact on our international operations due to political developments, disease pandemics, 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 Federal Reserve, 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; 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; impact on our liquidity due to 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 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 debt securities portfolio; impact of natural or man-made disasters or calamities, such as wildfires 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 our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Reports on Form 10-Q, and particularly the discussion of risk factors within those documents. In addition to the risk factors enumerated above, the economic impact of the COVID-19 pandemic could cause actual outcome to differ, possibly materially, from our forward-looking statement due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent to which the COVID-19 pandemic impacts us will depend on future developments that are uncertain and unpredictable, including the scope, severity and duration of the pandemic and its impact on our customers, the actions taken by governmental authorities in response to the pandemic as well as its impact on global and regional economies, and the pace of recovery when the COVID-19 pandemic subsides, among others. 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.