EWBC East West Bancorp Inc

East West Bancorp, Inc. (Nasdaq: EWBC), parent company of East West Bank, one of the nation’s premier regional banks, today reported financial results for the third quarter of 2010. For the third quarter of 2010, net income was $47.0 million and net income available to common stockholders was $0.27 per diluted share.

“We are pleased to report strong third quarter earnings of $47.0 million, an increase of 29% from the second quarter of 2010. East West has consistently improved core profitability each and every quarter in 2010,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “During the third quarter we grew non-covered commercial and trade finance loan balances by $167.3 million or 11% to $1.7 billion. We grew core deposits by $290.3 million or 4% to a record $8.5 billion and total deposits to a record high of $15.3 billion.”

“For East West, credit costs have now declined for the past four consecutive quarters. Quarter over quarter, net charge-offs decreased $10.1 million or 18%, provision for loan losses decreased $16.6 million or 30% and nonperforming assets remained under 1% of total assets.”

Ng concluded, “Last week we seamlessly completed the core systems integration of Washington First International Bank. With the integrations of both United Commercial Bank and Washington First International Bank behind us, East West is 100% focused on profitably growing our core business and serving our customers.”

   

2010 Quarterly Results Summary

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

September 30,2010

 

June 30,2010

 

March 31,2010

Q3 vs. Q2 2010 Net income (loss) $ 47.0 $ 36.3 $ 24.9 29 % Net income (loss) available to common shareholders 40.2 30.2 18.8 33 % Earnings per share (diluted) 0.27 0.21 0.13 29 %   Return on average assets 0.93 % 0.73 % 0.49 % 27 % Return on average common equity 8.11 % 6.26 % 4.71 % 30 %  

Tier 1 risk-based capital ratio

17.9 % 18.9 % 18.9 % -5 % Total risk-based capital ratio 19.7 % 20.8 % 20.9 % -5 %  

East West has increased profitability each quarter of 2010, growing net income 46% in the second quarter to $36.3 million and 29% in the third quarter to $47.0 million. Quarter over quarter, diluted earnings per share grew $0.08 or 62% in the second quarter and $0.06 or 29% in the third quarter.

Third Quarter 2010 Highlights

• Third Quarter Earnings – For the third quarter 2010, net income was $47.0 million, an increase of $10.6 million over net income of $36.3 million reported in the second quarter of 2010 and an increase of $115.5 million over a net loss of $68.5 million reported in the third quarter of 2009.
• Strong Net Interest Margin – The core net interest margin, excluding the net impact to interest income of $5.5 million resulting from the disposition of covered loans, totaled 3.98% for the quarter. The third quarter core net interest margin of 3.98% reflected no change from the second quarter and an increase from 3.20% in the third quarter of 2009. (See reconciliation of the GAAP financial measure to this non-GAAP financial measure in the tables attached.)
• Strong C&I Loan Growth – Quarter to date, non-covered commercial and trade finance loans grew $167.3 million or 11% to $1.7 billion.
• Significant Deposit Growth – Core deposits grew to a record $8.5 billion as of September 30, 2010, an increase of $290.3 million or 4% from June 30, 2010. Additionally, time deposits grew $89.0 million or 1% resulting in total deposits of a record $15.3 billion as of September 30, 2010.
• Net Charge-offs Down 18% from Q2 2010, Down 70% from Q3 2009 – Net charge-offs declined to $45.1 million, a decrease of $10.1 million or 18% from the prior quarter and a decrease of $106.2 million or 70% from the third quarter of 2009.
• Nonperforming Assets Remains Below 1% – Nonperforming assets remain low at $196.3 million, or 0.96% of total assets. This is the fourth consecutive quarter East West has reported a nonperforming assets to total assets ratio under 1.00%.
• Reduction in Noninterest Expense – Total noninterest expense excluding expenses to be reimbursed by the FDIC, totaled $92.1 million in the third quarter, a decrease of $10.2 million or 10% as compared to the second quarter of 2010. This figure represents an improvement from our noninterest expense guidance of $105 million. (See reconciliation of the GAAP financial measure to this non-GAAP financial measure in the tables attached.)
• Strong Capital Levels – As of September 30, 2010, East West’s Tier 1 risk-based capital and total risk-based capital ratios were 17.9% and 19.7%, respectively, significantly higher than the well-capitalized requirements of 6% and 10%, respectively.

Management Guidance

The Company is providing guidance for the fourth quarter and the full year of 2010. Management currently estimates that fully diluted earnings per share for the fourth quarter of 2010 will range from $0.28 to $0.31 per diluted share resulting in earnings per share for the full year 2010 of $0.89 to $0.92. This EPS guidance is based on the following assumptions:

• Stable balance sheet with an increase in average earning assets to $17.9 billion,
• A stable interest rate environment and a net interest margin between 4.00% and 4.10%,
• Provision for loan losses of approximately $25 million to $30 million for the quarter,
• Total noninterest expense of approximately $95 million, net of amounts to be reimbursed by the FDIC,
• Effective tax rate of approximately 36%.

Balance Sheet Summary

At September 30, 2010, total assets were $20.4 billion as compared to $20.0 billion at June 30, 2010. During the third quarter, total loans decreased $157.8 million or 1% to $13.6 billion as a result of a decrease in covered loan balances of $300.0 million, offset by an increase in non-covered loans of $142.2 million. Investment securities increased $830.3 million or 40% during the quarter to $2.9 billion as a result of purchases of $1.7 billion of short-term corporate securities and agency securities, offset by sales of $177.4 million, as well as normal maturities, calls and paydowns. Deposits increased $379.3 million or 3% to $15.3 billion. During the quarter, we continued to deploy cash and short-term investments into shorter duration investment securities.

Gross loans at September 30, 2010 totaled $13.6 billion compared to $13.7 billion at June 30, 2010. During the quarter non-covered loan balances increased $142.2 million or 2%, to $8.6 billion at September 30, 2010. This increase in non-covered loans was largely driven by a $167.3 million increase in commercial and trade finance loans and a $111.4 million increase in consumer loans. The increases in the commercial and trade finance and consumer portfolios were partially offset by reduction in the commercial real estate, construction and land portfolios. The net increase in non-covered loans was offset by decreases in the covered loan portfolio. Covered loans totaled $5.0 billion at September 30, 2010, as compared to $5.3 billion at June 30, 2010. The decrease in the covered loan portfolio was due to expected amortization paydowns, payoff and charge-off activity.

Deposit balances increased to a record $15.3 billion at September 30, 2010, compared to $14.9 billion at June 30, 2010. Total core deposits increased to a record $8.5 billion as of September 30, 2010, or an increase of $290.3 million or 4% from June 30, 2010. The increase in core deposits was largely driven by a $175.7 million or 7% increase in noninterest-bearing demand deposits which grew to a record $2.6 billion as of September 30, 2010.

Third Quarter 2010 Operating Results

Net Interest Income

Although the low interest rate environment continues to be a challenge for the industry, our net interest income has remained solid. Throughout 2010, East West has focused on maintaining a strong loan yield, improving the yield on other earning assets and growing low-cost core deposits. East West reduced the cost of deposits to 0.75% for the third quarter of 2010, down from 0.80% in the second quarter of 2010 and 1.24% in the third quarter of 2009. Further, through strategic actions taken earlier in 2010 to lower borrowing costs, East West has reduced the costs of funds to 1.11% for the third quarter of 2010, as compared to 1.17% for the second quarter of 2010 and 1.88% in the third quarter of 2009.

The core net interest margin, excluding the net impact to interest income of $5.5 million resulting from the disposition of covered loans, totaled 3.98% for the quarter, reflecting no change from the second quarter and an increase compared to 3.20% in the third quarter of 2009. The net impact of $5.5 million relates to dispositions of covered loans including early payoffs as well as charge-offs. (See reconciliation of the GAAP financial measure to this non-GAAP financial measure in the tables attached.) Management believes that this adjusted net interest margin provides more clarity on the core net interest income and net interest margin, comparability to prior periods and the ongoing performance of the Company.

Noninterest Income

Noninterest income for the third quarter totaled $29.3 million, compared to noninterest income of $35.7 million in the second quarter of 2010 and a loss of $11.9 million in the third quarter of 2009. Noninterest income for the second quarter of 2010 included a purchase accounting gain of $19.5 million from the acquisition of Washington First International Bank (WFIB). The loss in the third quarter of 2009 was primarily due to impairment losses on investment securities.

Included within noninterest income for the third quarter is an increase in the FDIC indemnification asset and receivable of $5.8 million. This amount is primarily comprised of an increase of $7.8 million due to expenses reimbursable by the FDIC offset by a decrease of $5.5 million due to the disposition of covered loans. Of the $7.8 million of expenses reimbursable by the FDIC, $4.6 million is related to net writedowns and expenses on other real estate owned, and $3.2 million is related to legal and other loan related expenses. Additionally, we recorded a net increase of $3.5 million related to discount accretion on the FDIC indemnification asset, settlement adjustments and recoveries.

During the third quarter we recorded $4.2 million in gains on sales of loans, primarily from the sale of student loans. We also sold $177.4 million in investment securities at a gain of $2.8 million and recorded impairment losses on investment securities totaling $888 thousand related to pooled trust preferred securities.

As compared to the third quarter of 2009, branch fees increased by $3.3 million or 70%, letters of credit fees and commissions increased $904 thousand or 46%, and ancillary loan fees increased $1.1 million or 93%, primarily due to the acquisition of United Commercial Bank (UCB). In total, fees and other operating income increased $7.2 million or 71% for the third quarter of 2010 as compared to third quarter of 2009. A summary of these fees and other operating income items is detailed below:

    Quarter Ended Quarter Ended % Change September 30, 2010 September 30, 2009 (Yr/Yr) Noninterest income: Branch fees

$

7,976

$

4,679 70 % Letters of credit fees and commissions 2,888 1,984 46 % Ancillary loan fees 2,367 1,227 93 % Other operating income   4,178   2,294 82 % Total fees & other operating income

$

17,409 $ 10,184 71 %

Noninterest Expense

Noninterest expense totaled $99.9 million for the third quarter of 2010 compared to $125.3 million for the second quarter of 2010. The primary reason for the decrease in noninterest expense was due to a decrease in other real estate owned expenses to $5.7 million in the third quarter, compared to $21.0 million in the second quarter. In the second quarter, other real estate owned expenses were largely related to writedowns on covered assets which were foreclosed on. Additionally, in the third quarter, we recorded gains on sale of other real estate owned of $3.4 million, largely related to one asset, which reduced the net other real estate owned expenses to $5.7 million. Further, we recorded prepayment penalties of $3.9 million on FHLB advances in the second quarter which were included in other operating expenses. There were no FHLB advance prepayments in the third quarter.

A summary of the noninterest expenses for the third quarter, compared to the second quarter is detailed below:

    Quarter Ended

Quarter Ended

($ in thousands)

September 30, 2010

 

June 30, 2010

Total noninterest expense: $ 99,945

$

125,318

Amounts to be reimbursed on covered assets (80% of actual expense amount) 7,834

19,103

Prepayment penalty for FHLB advances

 

-

   

3,900

Noninterest expense excluding reimbursement amounts and prepayment penalty for FHLB advances

$ 92,111  

$

102,315

 

Under the loss share agreements with the FDIC, 80% of eligible expenses on covered assets are reimbursable from the FDIC. In the third quarter, we incurred $9.8 million in expenses on covered loans and other real estate owned, 80% or $7.8 million of which we expect to be reimbursed by the FDIC and which is recorded as an increase to the FDIC receivable as noninterest income.

Management anticipates that in the fourth quarter of 2010, noninterest expense will be approximately $95 million, net of amounts reimbursable from the FDIC.

The effective tax rate for the third quarter was 36.1% compared to 38.1% in the prior quarter and 43.5% in the prior year period. 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 Management

Credit metrics continue to improve. For the fourth consecutive quarter, both net charge-offs and the provision for loan losses have declined. The provision for loan losses was $38.6 million for the third quarter of 2010, a decrease of $16.6 million or 30% compared to the previous quarter and a decrease of $120.6 million or 76% from the third quarter of 2009. Total net charge-offs decreased to $45.1 million for the third quarter, a decrease of $10.1 million or 18% from the previous quarter and a decrease of $106.2 million or 70% from the third quarter of 2009. Management expects that the provision for loan losses will continue to decrease and range from $25 million to $30 million for the fourth quarter of 2010.

Nonperforming assets, excluding covered assets have remained low at $196.3 million or 0.96% of total assets at September 30, 2010. This compares to 1.84% of total assets at September 30, 2009. Nonperforming assets, excluding covered assets, as of September 30, 2010 included nonaccrual loans totaling $179.4 million and REO assets totaling $16.9 million.

Credit quality has remained stable in our commercial real estate portfolio. Net charge-offs on commercial real estate loans were low at 1.36%, annualized, of total average commercial real estate loans for the third quarter. Nonperforming commercial real estate loans increased by $41.2 million, but still remain low at 1.74% of total non-covered commercial real estate loans. Land and construction loan balances have declined even further during the quarter to less than 3% of total assets at September 30, 2010.

Notwithstanding the improvements noted above, we have maintained a strong allowance for non-covered loan losses at $240.3 million or 2.79% of non-covered loans receivable at September 30, 2010, to cover inherent losses in the portfolio. This compares to an allowance for loan losses of $249.5 million or 2.94% at June 30, 2010 and $230.7 million or 2.74% of outstanding loans at September 30, 2009.

As discussed above, all loans acquired from UCB and WFIB were recorded at estimated fair value as of the acquisition dates. East West entered into loss sharing agreements with the FDIC that cover future losses incurred on nearly all the UCB and WFIB legacy loans.

Capital Strength

  Capital Strength (Dollars in millions)

 

  September 30, 2010  

Well CapitalizedRegulatoryRequirement

Total Excess AboveWell CapitalizedRequirement

  Tier 1 leverage capital ratio 10.8 % 5.00 % $ 1,131 Tier 1 risk-based capital ratio 17.9 % 6.00 %

1,407

Total risk-based capital ratio 19.7 % 10.00 %

1,145

Tangible common equity to tangible asset 7.96 % N/A N/A Tangible common equity to risk weighted assets ratio 13.5 % 4.00 % * 1,121   As there is no stated regulatory guideline for this ratio, the SCAP guideline of 4.00% tangible common equity has been used.  

East West remains committed to maintaining strong capital levels that exceed regulatory requirements. As of the end of the third quarter of 2010, our Tier 1 leverage capital ratio totaled 10.8%, Tier 1 risk-based capital ratio totaled 17.9% and the total risk-based capital ratio totaled 19.7%. East West exceeds well capitalized requirements for all regulatory guidelines by over $1.0 billion.

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 $0.01 is payable on or about November 24, 2010 to shareholders of record on November 10, 2010. The dividend on the Series A Preferred Stock of $20.00 per share is payable on November 1, 2010 to shareholders of record on October 15, 2010.

About East West

East West Bancorp is a publicly owned company with $20.4 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, Shanghai, 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 representative offices in Beijing and 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, 2009 (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.

  EAST WEST BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (unaudited)       September 30, 2010 June 30, 2010 December 31, 2009 Assets Cash and cash equivalents $ 934,694 $ 1,185,944 $ 835,141 Short-term investments 381,799 447,168 510,788 Securities purchased under resale agreements 350,000 230,000 227,444 Investment securities 2,907,349 2,077,011 2,564,081

Loans receivable, excluding covered loans (net of allowance for loan losses of $240,286, $249,462 and $238,833)

8,323,684 8,177,966 8,246,685 Covered loans, net   4,975,502     5,275,492     5,598,155   Total loans receivable, net 13,299,186 13,453,458 13,844,840 Federal Home Loan Bank and Federal Reserve stock 216,738 223,395 217,002 FDIC indemnification asset 874,759 947,011 1,091,814 Other real estate owned, net 16,936 16,562 13,832 Other real estate owned covered, net 137,353 113,999 44,273 Premiums on deposits acquired, net 82,755 86,106 89,735 Goodwill 337,438 337,438 337,438 Other assets   878,239     849,229     782,824   Total assets $ 20,417,246   $ 19,967,321   $ 20,559,212     Liabilities and Stockholders' Equity Deposits $ 15,297,971 $ 14,918,694 $ 14,987,613 Federal Home Loan Bank advances 1,018,074 1,022,011 1,805,387 Securities sold under repurchase agreements 1,045,664 1,051,192 1,026,870 Subordinated debt and trust preferred securities 235,570 235,570 235,570 Other borrowings 28,328 35,504 67,040 Accrued expenses and other liabilities   406,879     365,386     152,073   Total liabilities 18,032,486 17,628,357 18,274,553 Stockholders' equity   2,384,760     2,338,964     2,284,659   Total liabilities and stockholders' equity $ 20,417,246   $ 19,967,321   $ 20,559,212   Book value per common share $ 13.75 $ 13.31 $ 14.47 Number of common shares at period end 146,508 147,939 109,963   Ending Balances September 30, 2010 June 30, 2010 December 31, 2009 Loans receivable Real estate - single family $ 1,059,913 $ 1,033,155 $ 930,840 Real estate - multifamily 971,155 985,194 1,025,849 Real estate - commercial 3,425,852 3,500,273 3,606,179 Real estate - land 259,979 297,364 370,394 Real estate - construction 317,165 354,547 458,292 Commercial 1,696,173 1,528,863 1,512,709 Consumer   886,124     774,746     624,784   Total loans receivable, excluding covered loans 8,616,361 8,474,142 8,529,047 Covered loans, net   4,975,502     5,275,492     5,598,155   Total loans receivable 13,591,863 13,749,634 14,127,202 Unearned fees, premiums and discounts (52,391 ) (46,714 ) (43,529 ) Allowance for loan losses on non-covered loans   (240,286 )   (249,462 )   (238,833 ) Net loans receivable $ 13,299,186 $ 13,453,458 $ 13,844,840   Deposits Noninterest-bearing demand $ 2,571,750 $ 2,396,087 $ 2,291,259 Interest-bearing checking 762,633 685,572 667,177 Money market 4,190,448 4,162,129 3,138,866 Savings   955,278     946,043     991,520   Total core deposits 8,480,109 8,189,831 7,088,822 Time deposits   6,817,862     6,728,863     7,898,791   Total deposits $ 15,297,971 $ 14,918,694 $ 14,987,613   EAST WEST BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (unaudited)     Quarter Ended September 30, 2010   June 30, 2010   September 30, 2009   Interest and dividend income $ 231,400 $ 253,533 $ 147,924 Interest expense   (48,595 )   (49,910 )   (52,044 ) Net interest income before provision for loan losses 182,805 203,623 95,880 Provision for loan losses   (38,648 )   (55,256 )   (159,244 ) Net interest income (loss) after provision for loan losses 144,157 148,367 (63,364 ) Noninterest income (loss) 29,315 35,685 (11,880 ) Noninterest expense   (99,945 )   (125,318 )   (46,064 ) Income (loss) before benefit for income taxes 73,527 58,734 (121,308 ) Provision (benefit) for income taxes   26,576     22,386     (52,777 ) Net income (loss) 46,951 36,348 (68,531 ) Preferred stock dividend, inducement, and amortization of preferred stock discount   (6,732 )   (6,147 )   (10,620 ) Net income (loss) available to common stockholders $ 40,219 $ 30,201 $ (79,151 ) Net income (loss) per share, basic $ 0.27 $ 0.21 $ (0.91 ) Net income (loss) per share, diluted $ 0.27 $ 0.21 $ (0.91 ) Shares used to compute per share net income (loss): - Basic 146,454 146,372 86,538 - Diluted 147,113 147,131 86,538     Quarter Ended September 30, 2010 June 30, 2010 September 30, 2009 Noninterest income (loss): Branch fees $ 7,976 $ 8,219 $ 4,679 Increase (decrease) in FDIC indemnification asset and FDIC receivable 5,826 (9,424 ) - Net gain on sale of loans 4,177 8,073 8 Letters of credit fees and commissions 2,888 2,865 1,984 Net gain on sale of investment securities 2,791 5,847 2,177 Impairment loss on investment securities (888 ) (4,642 ) (24,249 ) Ancillary loan fees 2,367 2,369 1,227 Gain on acquisition - 19,476 - Other operating income   4,178     2,902     2,294  

Total noninterest income (loss)

$ 29,315 $ 35,685 $ (11,880 )   Noninterest expense: Compensation and employee benefits $ 38,693 $ 41,579 $ 15,875 Occupancy and equipment expense 13,963 13,115 6,262 Loan related expenses 6,316 5,254 2,197 Other real estate owned expense 5,694 20,983 767 Deposit insurance premiums and regulatory assessments 5,676 4,528 6,057 Legal expense 5,301 6,183 1,323 Amortization of premiums on deposits acquired 3,352 3,310 1,069 Data processing 2,646 3,046 1,079 Consulting expense 1,612 1,919 759 Amortization of investments in affordable housing partnerships 1,442 2,638 1,709 Other operating expense   15,250     22,763     8,967   Total noninterest expense $ 99,945 $ 125,318 $ 46,064   EAST WEST BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (unaudited)     Year To Date September 30, 2010   September 30, 2009   Interest and dividend income $ 803,636 $ 439,180 Interest expense   (155,484 )   (175,359 ) Net interest income before provision for loan losses 648,152 263,821 Provision for loan losses   (170,325 )   (388,666 ) Net interest income (loss) after provision for loan losses 477,827 (124,845 ) Noninterest income (loss) 56,549 (24,285 ) Noninterest expense   (364,173 )   (155,382 ) Income (loss) before benefit for income taxes 170,203 (304,512 ) Provision (benefit) for income taxes   61,988     (126,790 ) Net income (loss) before extraordinary item 108,215 (177,722 ) Extraordinary item, net of tax   -     (5,366 ) Net income (loss) after extraordinary item $ 108,215 $ (183,088 ) Preferred stock dividend, inducement, and amortization of preferred stock discount   (19,017 )   (42,986 ) Net income (loss) available to common stockholders $ 89,198 $ (226,074 ) Net income (loss) per share, basic $ 0.66 $ (3.19 ) Net income (loss) per share, diluted $ 0.61 $ (3.19 ) Shares used to compute per share net income (loss): - Basic 134,396 70,967 - Diluted 146,993 70,967     Year To Date September 30, 2010 September 30, 2009 Noninterest income (loss): Decrease in FDIC indemnification asset and FDIC receivable $ (47,170 ) $ - Impairment loss on investment securities (10,329 ) (61,896 ) Net gain on sale of investment securities 24,749 7,378 Gain on acquisition 27,571 - Branch fees 24,953 14,463 Net gain on sale of loans 12,250 19 Letters of credit fees and commissions 8,493 5,768 Ancillary loan fees 6,425 4,812 Other operating income   9,607     5,171   Total noninterest income (loss) $ 56,549 $ (24,285 )   Noninterest expense: Compensation and employee benefits $ 131,051 $ 49,492 Other real estate owned expense 44,689 16,480 Occupancy and equipment expense 39,022 19,950 Deposit insurance premiums and regulatory assessments 21,785 18,950 Loan related expenses 14,567 5,274 Legal expense 14,391 4,856 Prepayment penalty for FHLB advances 13,832 - Amortization of premiums on deposits acquired 10,046 3,286 Data processing 8,174 3,362 Amortization of investments in affordable housing partnerships 7,117 5,121 Consulting expense 5,672 1,879 Other operating expense   53,827     26,732   Total noninterest expense $ 364,173 $ 155,382   EAST WEST BANCORP, INC. SELECTED FINANCIAL INFORMATION (In thousands) (unaudited)   Average Balances   Quarter Ended September 30, 2010   June 30, 2010   September 30, 2009 Loans receivable Real estate - single family $ 1,051,914 $ 989,744 $ 888,106 Real estate - multifamily 984,589 998,090 1,036,080 Real estate - commercial 3,452,114 3,530,045 3,552,897 Real estate - land 273,571 317,291 460,256 Real estate - construction 342,388 383,846 855,446 Commercial 1,591,042 1,492,560 1,360,223 Consumer   803,430     845,104     318,758   Total loans receivable, excluding covered loans 8,499,048 8,556,680 8,471,766 Covered loans   5,105,793     5,137,863     -   Total loans receivable 13,604,841 13,694,543 8,471,766 Investment securities 2,482,951 2,202,676 2,327,346 Earning assets 17,692,002 17,525,796 11,911,186 Total assets 20,097,142 19,886,269 12,635,277   Deposits Noninterest-bearing demand $ 2,436,031 $ 2,300,228 $ 1,335,131 Interest-bearing checking 731,267 663,936 342,922 Money market 4,162,847 3,968,293 2,160,722 Savings   960,927     961,374     421,844   Total core deposits 8,291,072 7,893,831 4,260,619 Time deposits   6,719,637     6,714,972     4,398,704   Total deposits 15,010,709 14,608,803 8,659,323 Interest-bearing liabilities 14,910,922 14,874,635 9,625,524 Stockholders' equity 2,360,025 2,310,623 1,543,822     Selected Ratios Quarter Ended September 30, 2010 June 30, 2010 September 30, 2009 For The Period Return on average assets 0.93 % 0.73 % -2.17 % Return on average common equity 8.11 % 6.26 % -27.12 % Interest rate spread (2) 3.90 % 4.45 % 2.78 % Net interest margin (2) 4.10 % 4.66 % 3.20 % Yield on earning assets (2) 5.19 % 5.80 % 4.93 % Cost of deposits 0.75 % 0.80 % 1.24 % Cost of funds 1.11 % 1.17 % 1.88 % Noninterest expense/average assets (1) 1.89 % 2.32 % 1.37 % Efficiency ratio (3) 47.64 % 56.56 % 39.99 %   (1) Excludes the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalty for FHLB advances.   (2) Yields on certain securities have been adjusted upward to a "fully taxable equivalent" basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.   (3) Represents noninterest expense, excluding the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, investments in affordable housing partnerships and prepayment penalty for FHLB advances, divided by the aggregate of net interest income before provision for loan losses, excluding nonrecurring adjustments and noninterest income, excluding impairment loss on investment securities and gain on acquisition and the decrease in FDIC indemnification asset and FDIC receivable.   EAST WEST BANCORP, INC. SELECTED FINANCIAL INFORMATION (In thousands) (unaudited)   Average Balances   Year To Date

 

September 30, 2010   September 30, 2009

 

Loans receivable Real estate - single family $ 990,806 $ 695,034 Real estate - multifamily 1,017,883 852,216 Real estate - commercial 3,519,178 3,511,979 Real estate - land 315,618 521,696

 

Real estate - construction 391,444 1,051,940

 

Commercial 1,496,885 1,411,609 Consumer   793,670     261,128   Total loans receivable, excluding covered loans 8,525,484 8,305,602 Covered loans   5,175,251     -  

 

Total loans receivable 13,700,735 8,305,602 Investment securities 2,291,588 2,546,488

 

Earning assets 17,584,474 11,874,514 Total assets 20,049,938 12,584,000   Deposits Noninterest-bearing demand $ 2,323,950 $ 1,292,852 Interest-bearing checking 672,817 351,933 Money market 3,868,588 1,826,626 Savings   971,381     416,011   Total core deposits 7,836,736 3,887,422 Time deposits   6,914,615     4,586,027   Total deposits 14,751,351 8,473,449 Interest-bearing liabilities 15,191,062 9,627,681 Stockholders' equity 2,321,690 1,538,284     Selected Ratios Year To Date

 

September 30, 2010 September 30, 2009

 

For The Period Return on average assets 0.72 % -1.94 %

 

Return on average common equity 6.47 % -27.46 %

 

Interest rate spread (2) 4.74 % 2.51 % Net interest margin (2) 4.93 % 2.97 % Yield on earning assets (2) 6.11 % 4.95 % Cost of deposits 0.83 % 1.50 %

 

Cost of funds 1.19 % 2.15 %

 

Noninterest expense/average assets (1) 2.22 % 1.56 % Efficiency ratio (3) 54.30 % 48.67 %   (1) Excludes the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, amortization of investments in affordable housing partnerships and prepayment penalty for FHLB advances.   (2) Yields on certain securities have been adjusted upward to a "fully taxable equivalent" basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.   (3) Represents noninterest expense, excluding the amortization of intangibles, amortization and impairment loss of premiums on deposits acquired, investments in affordable housing partnerships and prepayment penalty for FHLB advances, divided by the aggregate of net interest income before provision for loan losses, excluding nonrecurring adjustments and noninterest income, excluding impairment loss on investment securities and gain on acquisition and the decrease in FDIC indemnification asset and FDIC receivable.   EAST WEST BANCORP, INC. QUARTER TO DATE AVERAGE BALANCES, YIELDS AND RATES PAID (In thousands) (unaudited)     Quarter Ended September 30, 2010   September 30, 2009

AverageVolume

  Interest   Yield (1)  

AverageVolume

  Interest   Yield (1)          

ASSETS

Interest-earning assets: Short-term investments and interest bearing deposits in other banks $ 736,658 $ 2,362 1.27 % $ 897,527 $ 1,856 0.82 % Securities purchased under resale agreements 648,136 2,410 1.46 % 91,033 2,153 9.25 % Investment securities (2) 2,482,951 15,725 2.51 % 2,327,346 28,567 4.87 % Loans receivable 8,499,048 116,029 5.42 % 8,471,766 114,512 5.36 % Loans receivable - covered 5,105,793 94,057 7.31 % - - - Federal Home Loan Bank and Federal Reserve Bank stocks   219,416       817   1.49 %     123,514       918   2.97 % Total interest-earning assets   17,692,002       231,400   5.19 %     11,911,186       148,006   4.93 %   Noninterest-earning assets: Cash and due from banks 668,277 124,708 Allowance for loan losses (253,078 ) (244,542 ) Other assets   1,989,941     843,925   Total assets $ 20,097,142   $ 12,635,277      

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities: Checking accounts 731,267 550 0.30 % 342,922 286 0.33 % Money market accounts 4,162,847 7,103 0.68 % 2,160,722 6,830 1.25 % Savings deposits 960,927 818 0.34 % 421,844 608 0.57 % Time deposits 6,719,637 20,028 1.18 % 4,398,704 19,246 1.74 % Federal Home Loan Bank advances 1,020,640 5,725 2.23 % 1,046,056 11,172 4.24 % Securities sold under repurchase agreements 1,047,697 12,189 4.55 % 1,018,321 12,140 4.66 % Subordinated debt and trust preferred securities 235,570 1,685 2.80 % 235,570 1,760 2.92 % Other borrowings   32,337       497   6.01 %     1,385       2   0.57 % Total interest-bearing liabilities   14,910,922       48,595   1.29 %     9,625,524       52,044   2.15 %   Noninterest-bearing liabilities: Demand deposits 2,436,031 1,335,131 Other liabilities 390,164 130,800 Stockholders' equity   2,360,025     1,543,822   Total liabilities and stockholders' equity $ 20,097,142   $ 12,635,277     Interest rate spread 3.90 % 2.78 %   Net interest income and net interest margin $ 182,805 4.10 % $ 95,962 3.20 %  

Net interest income and net interest margin, adjusted (3)

$ 177,294 3.98 %   (1) Annualized (2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

(3) Amounts exclude the net impact of covered loan dispositions of $5.5 million.

    EAST WEST BANCORP, INC. YEAR TO DATE AVERAGE BALANCES, YIELDS AND RATES PAID (In thousands) (unaudited)     Year To Date September 30, 2010   September 30, 2009

AverageVolume

  Interest   Yield (1)  

AverageVolume

  Interest   Yield (1)          

ASSETS

Interest-earning assets: Short-term investments and interest bearing deposits in other banks $ 914,471 $ 7,405 1.08 % $ 835,769 $ 7,341 1.17 % Securities purchased under resale agreements 455,824 11,303 3.27 % 64,286 4,695 9.63 % Investment securities (2) 2,291,588 50,656 2.96 % 2,546,488 88,472 4.65 % Loans receivable 8,525,484 354,973 5.57 % 8,305,602 336,997 5.42 % Loans receivable - covered 5,175,251 376,840 9.74 % - - - Federal Home Loan Bank and Federal Reserve Bank stocks   221,856       2,473   1.49 %     122,369       1,969   2.15 % Total interest-earning assets   17,584,474       803,650   6.11 %     11,874,514       439,474   4.95 %   Noninterest-earning assets: Cash and due from banks 547,403 120,493 Allowance for loan losses (254,153 ) (210,015 ) Other assets   2,172,214     799,008   Total assets $ 20,049,938   $ 12,584,000      

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities: Checking accounts 672,817 1,691 0.34 % 351,933 1,003 0.38 % Money market accounts 3,868,588 23,405 0.81 % 1,826,626 18,664 1.37 % Savings deposits 971,381 3,234 0.45 % 416,011 1,969 0.63 % Time deposits 6,914,615 62,749 1.21 % 4,586,027 73,297 2.14 % Federal Home Loan Bank advances 1,427,903 20,905 1.96 % 1,200,713 38,191 4.25 % Securities sold under repurchase agreements 1,039,636 36,775 4.66 % 1,007,912 36,016 4.71 % Subordinated debt and trust preferred securities 235,570 4,823 2.70 % 235,570 6,211 3.48 % Other borrowings   60,552       1,902   4.14 %     2,889       8   0.37 % Total interest-bearing liabilities   15,191,062       155,484   1.37 %     9,627,681       175,359   2.44 %   Noninterest-bearing liabilities: Demand deposits 2,323,950 1,292,852 Other liabilities 213,236 125,183 Stockholders' equity   2,321,690     1,538,284   Total liabilities and stockholders' equity $ 20,049,938   $ 12,584,000     Interest rate spread 4.74 % 2.51 %   Net interest income and net interest margin $ 648,166 4.93 % $ 264,115 2.97 %  

Net interest income and net interest margin adjusted (3)

$ 551,080 4.19 %   (1) Annualized (2) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

(3) Amounts exclude the net impact of covered loan dispositions of $97.1 million.

    EAST WEST BANCORP, INC. QUARTERLY ALLOWANCE FOR LOAN LOSSES RECAP (In thousands) (unaudited)     Quarter Ended   9/30/2010       6/30/2010       3/31/2010       12/31/2009       9/30/2009   LOANS         Allowance balance, beginning of period $ 249,462 $ 250,517 $ 238,833 $ 230,650 $ 223,700 Allowance for unfunded loan commitments and letters of credit 1,133 (1,115 ) (808 ) (1,161 ) (1,051 ) Provision for loan losses 38,648 55,256 76,421 140,000 159,244   Net Charge-offs: Real estate - single family 14,620 3,257 3,426 7,083 8,034 Real estate - multifamily 7,526 7,552 4,860 8,425 7,231 Real estate - commercial 11,779 11,836 8,201 13,305 23,105 Real estate - land 4,236 9,765 26,828 20,390 39,988 Real estate - residential construction 3,087 3,086 11,642 48,919 32,535 Real estate - commercial construction 977 8,548 2,029 21,355 23,051 Commercial 2,546 10,563 6,422 5,789 14,956 Trade finance (7 ) (88 ) (54 ) 2,569 2,256 Consumer   293       677       575       2,821       87   Total net charge-offs (recovery)   45,057       55,196       63,929       130,656       151,243   Allowance balance, end of period (3) $ 244,186     $ 249,462     $ 250,517     $ 238,833     $ 230,650     UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT: Allowance balance, beginning of period $ 10,042 $ 8,927 $ 8,119 $ 6,958 $ 5,907 Provision for unfunded loan commitments and letters of credit   (1,133 )     1,115       808       1,161       1,051   Allowance balance, end of period $ 8,909     $ 10,042     $ 8,927     $ 8,119     $ 6,958   GRAND TOTAL, END OF PERIOD $ 253,095     $ 259,504     $ 259,444     $ 246,952     $ 237,608     Nonperforming assets to total assets (1) 0.96 % 0.98 % 0.89 % 0.91 % 1.84 % Allowance for loan losses on non-covered loans to total gross non-covered loans at end of period 2.79 % 2.94 % 2.93 % 2.80 % 2.74 % Allowance for loan losses on non-covered loans and unfunded loan commitments to total gross non-covered loans at end of period 2.89 % 3.06 % 3.03 % 2.90 % 2.82 % Allowance on non-covered loans to non-covered nonaccrual loans at end of period 133.95 % 139.31 % 143.62 % 137.91 % 112.82 % Nonaccrual loans to total loans (2) 1.32 % 1.30 % 1.27 % 1.23 % 2.43 %   (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 $3.9 million related to covered loans. 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 our general allowance.

 

EAST WEST BANCORP, INC TOTAL NON-PERFORMING ASSETS, EXCLUDING COVERED ASSETS (in thousands) (unaudited) 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 32,443 14,760 47,203 4,680 51,883 Real estate - residential construction 2,068 - 2,068 92 2,160 Real estate - commercial construction 17,188 4,077 21,265 830 22,095 Commercial 6,653 20,084 26,737 223 26,960 Trade Finance - - - - - Consumer   427   91   518   346   864

Total

$ 103,310 $ 76,074 $ 179,384 $ 16,936 $ 196,320   AS OF JUNE 30, 2010   Total Nonaccrual Loans

90+ DaysDelinquent

Under 90+DaysDelinquent

TotalNonaccrualLoans

REO Assets

TotalNon-PerformingAssets

Loan Type Real estate - single family $ 14,835 $ - $ 14,835 $ 395 $ 15,230 Real estate - multifamily 13,180 5,521 18,701 3,131 21,832 Real estate - commercial 15,778 2,569 18,347 7,047 25,394 Real estate - land 43,775 5,292 49,067 2,541 51,608 Real estate - residential construction 1,454 23,370 24,824 2,272 27,096 Real estate - commercial construction 22,997 449 23,446 830 24,276 Commercial 19,310 8,994 28,304 - 28,304 Trade Finance - - - - - Consumer   1,436   104   1,540   346   1,886 Total $ 132,765 $ 46,299 $ 179,064 $ 16,562 $ 195,626   AS OF DECEMBER 31, 2009   Total Nonaccrual Loans

90+ DaysDelinquent

Under 90+DaysDelinquent

TotalNonaccrualLoans

REO Assets

TotalNon-PerformingAssets

Loan Type Real estate - single family $ 3,262 $ - $ 3,262 $ 264 $ 3,526 Real estate - multifamily 10,631 - 10,631 2,118 12,749 Real estate - commercial 11,654 18,450 30,104 5,687 35,791 Real estate - land 27,179 42,666 69,845 4,393 74,238 Real estate - residential construction 17,179 - 17,179 540 17,719 Real estate - commercial construction - 17,132 17,132 830 17,962 Commercial 8,002 16,765 24,767 - 24,767 Trade Finance - - - - - Consumer   114   146   260   -   260 Total $ 78,021 $ 95,159 $ 173,180 $ 13,832 $ 187,012   AS OF SEPTEMBER 30, 2009   Total Nonaccrual Loans

90+ DaysDelinquent

Under 90+DaysDelinquent

TotalNonaccrualLoans

REO Assets

TotalNon-PerformingAssets

Loan Type Real estate - single family $ 6,189 $ - $ 6,189 $ 648 $ 6,837 Real estate - multifamily 11,211 652 11,863 1,147 13,010 Real estate - commercial 17,381 16,040 33,421 2,330 35,751 Real estate - land 23,568 33,610 57,178 4,020 61,198 Real estate - residential construction 55,130 - 55,130 12,238 67,368 Real estate - commercial construction 10,784 - 10,784 3,680 14,464 Commercial 11,783 13,227 25,010 122 25,132 Trade Finance 3,666 1,785 5,451 - 5,451 Consumer   293   676   969   -   969 Total $ 140,005 $ 65,990 $ 205,995 $ 24,185 $ 230,180  

EAST WEST BANCORP, INC.

GAAP TO NON-GAAP RECONCILIATION

(In thousands) (Unaudited)   The tangible common equity to risk weighted asset and tangible common equity to tangible asset ratios 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. As the use of tangible common equity to tangible asset 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 asset ratios.   As of September 30, 2010 Stockholders' Equity $ 2,384,760 Less: Preferred Equity (370,882 ) Goodwill and other intangible assets   (421,309 ) Tangible common equity $ 1,592,569     Risk-weighted assets   11,785,125     Tangible Common Equity to risk-weighted assets   13.5 %   As of September 30, 2010 Total assets $ 20,417,246 Less: Goodwill and other intangible assets   (421,309 ) Tangible assets $ 19,995,937     Tangible common equity to tangible asset ratio 7.96 %   Operating noninterest income 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. There are noninterest income line items that are non-core in nature. Operating noninterest income excludes such non-core noninterest income line items. The Company believes that presenting the operating noninterest income provides more clarity to the users of financial statements regarding the core noninterest income amounts.   Quarter Ended September 30, 2010 Noninterest income $ 29,315 Add: Impairment loss on investment securities 888 Less: Net gain on sale of investment securities (2,791 ) Net gain on sale of loans (4,177 ) Increase in FDIC indemnification asset   (5,826 ) Operating noninterest income (non-GAAP) $ 17,409       Quarter Ended September 30, 2009 Noninterest income $ (11,880 ) Add: Impairment loss on investment securities 24,249 Less: Net gain on sale of investment securities (2,177 ) Net gain on sale of loans   (8 ) Operating noninterest income (non-GAAP) $ 10,184     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 the operating noninterest expense provides more clarity to the users of financial statements regarding the core noninterest expense amounts.   Quarter Ended ($ in thousands) September 30, 2010 Total noninterest expense: $ 99,945 Amounts to be reimbursed on covered assets (80% of actual expense amount)   7,834 Noninterest expense excluding reimbursement amounts $ 92,111   Quarter Ended ($ in thousands) June 30, 2010 Total noninterest expense: $ 125,318 Amounts to be reimbursed on covered assets (80% of actual expense amount) 19,103 Prepayment penalty for FHLB advances   3,900 Noninterest expense excluding reimbursement amounts and prepayment penalty for FHLB advances $ 102,315   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, 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 %     Year to Date September 30, 2010 Average Volume Interest Yield (1) Total interest-earning assets $ 17,584,474 $ 803,650 6.11 % Net interest income and net interest margin $ 648,166 4.93 % Less net impact of covered loan dispositions   (97,086 )

Net interest income and net interest margin, excluding net impact of covered loan dispositions

$ 551,080   4.19 %   (1) Annualized.