keeps on chugging
East West Bancorp Reports Continued Strong Financial Performance; Strategic Actions During the Quarter Position the Bank for Continued Strong Growth for 2000
SAN MARINO, Calif.--(BUSINESS WIRE)--July 13, 2000--
-- EPS Climbs 19% to $0.37
-- Return on Equity Increases to 21.2%
East West Bancorp (Nasdaq:EWBC), parent company of East West Bank,
one of the nation's premier community banks and a leading financial
institution focused on the Chinese-American and other niche markets,
today reported financial results for the second quarter and first half
of 2000. Management attributed the strong financial performance to
continued asset growth, a higher net interest margin and solid asset
quality. Management also indicated the Bank was on track to report
another year of record earnings.
Highlights for the quarter included:
-- Nonperforming assets decreased 18% from the first quarter and
20% from the prior year period;
-- Achieved higher net interest margin despite repeated increases
in fed funds rate;
-- No commercial real estate or multifamily loans in the 90 day
delinquent category;
-- EPS growth driven entirely by core operations, with strong
provisions and no asset sale gains;
-- Continued success in integrating AIB acquisition into the
Bank's infrastructure;
-- Completed strategic actions, including loan participations,
intended to fuel higher growth and maintain superior asset
quality through the remainder of year.
Financial Summary
Net income for the second quarter climbed to $8.4 million, 18%
greater than the prior year period, while diluted EPS rose 19% to
$0.37. Cash earnings, which exclude the amortization of intangible
items, increased 22% to $8.9 million, with Cash EPS also increasing
22% to $0.39 per diluted share. Return on average assets totaled 1.43%
for the second quarter, while return on average equity advanced to
21.18%.
Dominic Ng, Chairman and CEO, commented on the results, "We are
especially pleased with the results for the second quarter and believe
that they provide an unambiguous demonstration of the success of our
growth strategies. Not only have we strengthened our market position
as the financial bridge between east and west for our traditional
clients, but we also achieved considerable success in building our
image as an innovative, responsive bank for a wide range of mainstream
commercial enterprises. The combination of our growth in customer
relationships with our prudent credit culture and stringent cost
controls drove our growth in earnings and returns. We believe that the
quality of our earnings, however, is of more importance this quarter
than the rate of growth. We reached our internal goals for the quarter
without the benefit of securities or other gains, while continuing to
provide for estimated loan losses, reducing our already low levels of
nonperforming assets and further investing in our service
infrastructure. In addition, during the quarter we implemented a
number of key strategic actions intended to ensure shareholders that
the Bank is well positioned to continue to deliver sustainable,
consistent earnings power while maintaining our sound asset quality."
Ng noted that among the steps taken during the second quarter were
additional loan participations to correspondent banks totaling $30
million. As part of its ongoing strategy to rebalance the loan
portfolio and reduce selected concentrations, the Bank has
participated out over $80 million of its loan portfolio over the past
two years. The Bank also progressed on the integration of AIB into the
East West infrastructure with completion expected in mid-August 2000.
"We are greatly encouraged by the fact that we achieved our internal
earnings objectives during a time of increased investment in our
operations and a number of unique events. Our net interest margin rose
by 2 basis points over the first quarter of the year despite a higher
interest cost from the recent trust preferred issuance. In addition,
we grew our loan portfolio even after the effect of our loan
participations, and maintained our efficiency ratio within our target
range despite running dual systems at AIB prior to the completion of
their integration into our data system," concluded Ng.
Management Outlook
Ng commented on the outlook for the second half of the year, "We
have initially set an EPS target for the year of at least 20% above
the record results for 1999. We believe that through a combination of
organic loan growth, modest increases in our net interest margin and
our ability to translate higher revenues to the bottom line through
careful expense control and credit quality, we will continue to
deliver exceptional shareholder value."
Ng provided additional profitability targets as well, stating that
East West intends to maintain return on average equity of at least
20%, an efficiency ratio in the low 40% range and a NPA ratio at or
below 1.0% of assets.
Operating Results
The Bank reported net income for the quarter of $8.4 million, 18%
above the prior year period. Earnings per share for the June quarter
equaled $0.37 per diluted share, 19% greater than the same period in
1999, while diluted cash EPS, which excludes the amortization of
intangible items, grew by 22% to $0.39. Return on average assets
totaled 1.43% for the second quarter, compared to 1.38% for the prior
year period, while return on average equity advanced to 21.18% from
19.26% for the 1999 second quarter.
The growth in earnings and returns resulted from a combination of
further loan growth and higher net interest margin, offset by lower
non-interest income related to gains on the sale of selected assets
and higher non-interest expense. Total average loans equaled $1.7
billion, compared to $1.6 billion for the first quarter of 2000 and
$1.3 billion for the second quarter of 1999. Total loan originations
and loan purchases for the second quarter of 2000 were $159 million,
reduced by loan participations of $30 million. Such loan
participations were undertaken by the Bank in order to reduce certain
credit exposures to large loan balances and selected collateral types.
As a result of the sales, the Bank believes that it has achieved a
more diversified and stable loan portfolio mix that will reduce the
potential for future loan losses and serve as a support for continued
lending growth during 2000. Commercial real estate, multifamily,
construction and commercial business loans accounted for the majority
of the loan balance increase. The Bank believes that its core customer
base continues to demonstrate healthy demand for a variety of loans.
Total earning assets for the quarter equaled $2.2 billion,
approximately equal to the level for the first quarter of the year and
13% above the prior year period. The yield on earning assets increased
to 8.31%, compared to 8.08% for the March quarter and 7.31% for the
second quarter of 1999.
Average deposits totaled $1.8 billion, compared to $1.7 billion in
the prior quarter and $1.3 billion in the year ago period. Time
deposits over $100,000, combined with increases in non-interest
bearing demand deposits and money market accounts, contributed the
majority of the deposit growth. As a result of this growth in deposit
volume compounded by an increase in overall interest rates, the cost
of deposits increased to 3.98% during the second quarter compared to
3.51% for the prior year period.
The growth in earnings assets, combined with a moderately higher
growth in the yield on earning assets over the cost of funds generated
a 4.03% net interest margin, compared to 4.01% for the first quarter
and 3.52% for the prior year period. Growth in the net interest margin
was driven by a graduated increase in the Bank's prime rate to 9.5% in
late May, offset partially by the first full quarter of interest paid
on the recent trust preferred issuance. Excluding the effect of trust
preferred securities, the net interest margin for the second quarter
would have equaled 4.07%.
Non-interest income for the second quarter totaled $3.5 million,
compared to $4.4 million in the first quarter of the year and $4.2
million for the prior year period. The decrease was due to an absence
of any gains on the sale of securities, affordable housing
partnerships or branches during the quarter. Such items totaled $1.2
million for the first quarter of the year and $1.4 million in the
second quarter of 1999. Excluding these gains, non-interest income
rose by 10% over the March 2000 quarter and 23% over the second
quarter of 1999.
Total non-interest expense for the quarter equaled $12.2 million,
compared to $11.7 million for the March quarter and $9.6 million in
the second quarter of 1999. The majority of the increase was due to
higher amortization of intangible assets and investments in affordable
housing partnerships, as well as higher compensation expense related
to both new hires and the acquisition of AIB. Excluding the
amortization of intangibles and affordable housing investments, total
non-interest expense for the quarter equaled $10.3 million, compared
to $10.0 million for the first quarter of the year and $8.4 million
for the prior year period. The Bank reported an efficiency ratio for
the second quarter of 40.2%, compared to 38.0% for the March quarter
and 39.4% for the second quarter of 1999. The increase in the
efficiency ratio resulted from the slightly higher operating costs
combined with the lower level of non-interest income. The Bank
continues to target its long-term efficiency ratio in the low 40%
range.
Asset Quality
Nonperforming assets as of June 30, 2000 totaled $12.6 million, or
0.54% of total assets, compared to $15.4 million, or 0.67% of assets
as of March 31, 2000 and $15.8 million, or 0.75% of assets as of June
30, 1999. Nonaccrual loans equaled $7.7 million, or 0.46% of total
gross loans, versus $10.4 million, or 0.63% of total gross loans at
the end of the last quarter and $5.5 million, or 0.41% of gross loans
at the end of the second quarter of 1999. During the second quarter
the Bank provided $1.4 million for estimated loan losses, equal to the
provision for the first quarter, and $86 thousand lower than the
provision for the second quarter of last year. Total net charge-offs
for the quarter equaled $832 thousand, or 0.05% of average loans,
versus $488 thousand, or 0.03% for the first quarter and $177
thousand, or 0.01% for the prior year period. Total reserve coverage
as of June 30, 2000 represented 1.46% of total loans and 321% of
nonaccrual loans, compared to 1.45% and 230% for March 31, 2000 and
1.49% and 363% for June 30, 1999. Management believes that the Bank's
asset quality remains sound, with the majority of its borrowers in
solid financial condition. Management also believes its underwriting
standards to be conservative and its reserve coverage sufficient to
absorb anticipated loan losses.
Capitalization
East West remained "well capitalized" under every regulatory
category, with a total risk based capital ratio of 10.37%, a Tier I
risk based capital ratio of 9.12% and a Tier I leverage ratio of
7.12%. While the Bank believes that its current capitalization ratios,
combined with internally generated capital, are sufficient to support
its short-term growth objectives, it is currently evaluating a number
of financing proposals for additional trust preferred capital to
provide additional support for future expansion. Management
anticipates completing its evaluation and a subsequent financing
transaction during the second half of the year. |
