East West Bancorp Reports Record Third-Quarter Earnings; Success of Expansion Strategy Fuels Growth in Loans, Net Interest Margin and Earnings
SAN MARINO, Calif.--(BUSINESS WIRE)--Oct. 14, 1999--
EPS Up 55%, ROE Climbs to 19.37%
On Track to Achieve Record Earnings for Full Year
East West Bancorp, Inc. (Nasdaq:EWBC), parent company of East
West Bank, one of the nation's best performing community banks and a
leading financial institution focused on the Chinese-American market,
today announced record financial results for the quarter and nine
months ended Sept. 30, 1999.
The strong financial performance was the result of growth in the
loan portfolio, an increasing net interest margin and the successful
integration of the First Central Bank acquisition.
Net income for the third quarter of 1999 was a record
$7.0 million, or 50% above net income reported in the year ago period,
while diluted earnings per share climbed by 55% to a record $0.31. For
the nine months ended Sept. 30, 1999, net income grew by 75% to a
record $20.1 million and diluted earnings per share increased by 80%
to a record $0.88.
For the quarter and nine months ended Sept. 30, 1999, return on
average equity was 19.37% and 18.19%, respectively, compared to 13.12%
and 11.13% for the comparable periods in 1998. Commenting on the
results for the period, Dominic Ng, Chairman, President and Chief
Executive Officer, said, "We are very pleased with the financial and
operational results for the quarter, which were highlighted by
strength in every operating category.
"The significant gains in our loan portfolio, the contribution of
First Central and the further improvement in our efficiency ratio all
serve to validate our expansion and integration strategy. We believe
that the investments made in our service infrastructure and market
presence, including the recent agreement to acquire American
International Bank, will continue to yield meaningful results.
"Our results, coupled with the robust California economy, healthy
demand for commercial credits and our growing reputation as a leading
commercial bank, give us good cause to be optimistic about the future.
We are confident in our ability to achieve record earnings and returns
for 1999 and 2000."
Operating Results
Net income for the third quarter of 1999 rose by 50% to
$7.0 million, compared to the $4.7 million reported in the year ago
period, while diluted earnings per share climbed 55% to $0.31,
compared to $0.20 per share reported in the prior year. The Bank
generated a return on average assets of 1.34% and a return on average
equity of 19.37% for the quarter, compared to 1.02% and 13.12% for the
third quarter of 1998.
During the quarter, total average assets increased by 14% to
$2.09 billion, fueled primarily by growth in multifamily and
commercial real estate, commercial and construction loans. Average
loans for the quarter climbed to $1.38 billion, or 40% greater than
the prior year period.
The average yield on earning assets climbed to 7.56%, from 7.32%
for the year ago period, primarily as a result of the growth in the
loan portfolio. The Bank expects that commercial lending will continue
to account for the majority of origination growth for the remainder of
the year.
Average total deposits for the quarter ended Sept. 30, 1999,
rose 17%, to $1.46 billion. A primary component of the Bank's growth
strategy is the expansion of its low-cost core deposit base. As a
result of the Bank's focused efforts in increasing the volume of
transaction accounts, average non-interest bearing deposits increased
by 49% to $121.2 million, while average checking and money market
accounts collectively grew 49% to $156.8 million. The average cost of
deposits for the quarter was 3.56%, an 11% decrease from the prior
year period.
Net interest income for the third quarter was $18.6 million, or
3.72% of average earning assets, compared to $13.8 million, or 3.15%
of earnings assets, for the 1998 quarter. This 18% increase in the net
interest margin was the result primarily of the growth in the loan
portfolio and the decrease in the cost of funding. Management
anticipates that as commercial loans continue to increase as a
percentage of overall loans, and transactional deposits increase as a
percentage of total deposits, the net interest margin will continue to
climb.
Provision for loan losses amounted to $1.3 million for the third
quarter of 1999 and 1998. While credit quality remains strong,
management continues to enhance the allowance for loan losses and
shareholder value by building reserves as the Bank continues to grow
its loan portfolio.
Non-interest income totaled $3.5 million for the third quarter, a
13% increase over the $3.2 million reported in the 1998 quarter. A 38%
increase in branch fees and a 29% growth in letters of credit fees and
commissions accounted for the majority of the increase in non-interest
income.
Non-interest expense was $10.6 million for the third quarter, 27%
more than the $8.4 million in the prior year period. The increase was
primarily the result of the Bank's continuing growth, including the
opening of the Milpitas branch in August 1998 and the acquisition of
First Central Bank. In addition, higher amortization expense of
investments in affordable housing partnerships further contributed to
this increase.
The efficiency ratio for the third quarter improved to 42% vs.
46% for the year ago quarter. The Bank anticipates further growth in
the dollar volume of non-interest expense due to organic expansion and
the pending acquisition of American International Bank. However,
management expects that the efficiency ratio will continue to decline
as additional synergies from the First Central Bank acquisition are
achieved and the investments made in the operating infrastructure
yield greater efficiencies.
For the nine months ended Sept. 30, 1999, net income totaled
$20.1 million, a 75% increase over the $11.5 million reported for the
prior year period, while diluted earnings per share were $0.88, 80%
above the $0.49 per share reported a year ago. Return on average
assets for the nine months equaled 1.30% and a return on average
equity of 18.19%, compared to 0.89% and 11.13% for the first nine
months of 1998.
The Bank grew average assets by 19% to $2.06 billion for the nine
months ended Sept. 30, 1999, with increases in multifamily, commercial
and industrial and construction loans accounting for the majority of
the growth. Average loans for the period climbed to $1.26 billion, a
28% increase over the prior year period. The average yield on earning
assets climbed to 7.33%, again, primarily as a result of the growth in
the loan portfolio.
The Bank's strategic focus on deposit generation yielded positive
results during the nine months ended Sept. 30, 1999, with average
total deposits increasing 11%, to $1.37 billion and non-interest
bearing deposits up 49% to $110.2 million. The average volume of
traditional CD deposits continued its consistent growth, rising 7% to
$903.5 million.
Reflecting higher loan balances and lower cost of funds, net
interest income for the nine months totaled $52.2 million, or 3.52% of
average earning assets, compared to $39.5 million, or 3.17% of
earnings assets for the prior year period. During the first nine
months of 1999, the Bank recorded a $4.0 million provision for loan
losses compared to $4.6 million for the year ago period. The lower
provision reflects a better overall credit quality.
Non-interest income for the nine months increased by 49% to $11.1
million vs. $7.4 million earned in the 1998 period. An increase in
branch fees, letters of credit fees and commissions, and gains on
sales of securities were the primary contributors to the growth. Other
contributors include a gain on sale of a branch location as well as
investments in affordable housing partnerships.
Non-interest expense of $29.0 million was 19% above the
$24.4 million reported in the prior nine month period. A 169% increase
in the amortization of investments in affordable housing partnerships
to $2.1 million, a 36% increase in other operating expense and a 16%
increase in net occupancy expenses contributed the majority of the
expense increase.
The efficiency ratio, excluding amortization of intangibles and
investments is affordable housing partnerships, for the nine months
improved by 16% to 41% compared to 49% for the prior period. The
improvement in the efficiency ratio resulted from synergies achieved
in the First Central acquisition and greater efficiencies from the
recent investments in the Bank's infrastructure.
Asset Quality
Nonperforming assets as of Sept. 30, 1999, equaled $14.7 million,
or 0.71% of total assets, compared to $20.9 million, or 1.12% of total
assets, at September 1998. The decrease in non-performing assets
resulted from a strong California economy, more stringent underwriting
standards, and more aggressive collection efforts with troubled
debtors.
Nonaccrual loans totaled $5.8 million at the end of the third
quarter, or 0.42% of total loans, compared to $9.4 million, or 0.90%
of total loans at the end of the prior year quarter. The Bank's
management anticipates asset quality to be stable for the foreseeable
future.
The allowance for loan losses equaled $20.5 million, or 1.47% of
loans as of Sept. 30, 1999, compared to $15.8 million, or 1.51% of
loans, for the prior year period. Net charge-offs equaled 0.06% and
0.09% of total loans, for the three and nine months ended Sept. 30,
1999, respectively. Net (recoveries) charge-offs for the three and
nine-month periods of 1998 were (0.03)% and 0.11%, respectively.
Acquisitions
During the third quarter, the Bank completed the integration of
First Central Bank, consolidating all three offices while retaining
over 95% of the acquired deposits. Due to a number of operating
synergies and duplicate office locations, the Bank achieved an 80%
reduction in annualized operating costs of First Central.
The Bank's primary goal in its acquisition strategy is to acquire
community institutions that fit into its business model, with a focus
on becoming the leading consolidator of institutions serving the
Chinese American community.
As part of the strategy, East West announced during the third
quarter that it agreed to acquire American International Bank for
approximately $33.8 million in cash in order to expand both the
geographic coverage of the Bank and its penetration of the California
Chinese American community. The Bank anticipates the transaction to be
completed during the first quarter of 2000 and accretive to earnings
for fiscal 2000.
Capitalization
The Bank remained "well capitalized" under every regulatory
category, with a Tier I risk-based capital ratio of 9.39%, a total
risk-based ratio of 10.64% and a Tier I leverage ratio of 7.03%. The
Bank believes that its capital base is sufficient to support continued
growth for the next several quarters. However, in prudent anticipation
of future expansion, management is evaluating a number of capital
raising alternatives.
As part of its commitment to maximize shareholder value and
prudently manage its capital base, the Board of Directors has approved
a third stock repurchase program, authorizing management to repurchase
up to $7 million worth of shares in either the open market or in
privately negotiated transactions. As part of the program, Management
repurchased 168,000 shares for $1.7 million during the quarter. In
addition, the Bank paid a $0.03 dividend to shareholders during the
third quarter.
Year 2000 Compliance
East West believes that it has achieved complete Year 2000
compliance for its critical systems as of Dec. 31, 1998. The Bank's
secondary systems were substantially brought into compliance during
the second and third quarters of 1999. All critical systems have been
thoroughly tested to anticipate any potential problems.
State and federal regulators continuously audit the Bank to
ensure progress and compliance. In addition, the Bank is working with
its third-party suppliers to encourage, aid and monitor their progress
and remains confident that as a result of its efforts and those of its
vendor partners, the Bank will avoid serious operational disruptions
as a result of Year 2000 problems. |
