East West Bancorp Reports Record Net Income for the Third Quarter
Continued Focus on Asset Quality and Expense Control Yield Positive
Benefits; Total Non-Performing Assets Decrease an Additional 14% from
Second Quarter; Management Reaffirms Outlook for Full Year 2000
SAN MARINO, Calif.--(BUSINESS WIRE)--Oct. 12, 2000--East West
Bancorp (Nasdaq:EWBC), parent company of East West Bank, one of the
nation's premier community banks and a leading institution focused on
the Chinese-American and other niche markets, today reported financial
results for the third quarter and first nine months of 2000.
Management cited an increased net interest margin, continued strong
asset quality and controlled expense growth as the primary drivers for
the quarter's financial performance.
Highlights for the quarter included:
-- Net interest margin increased by over 6 basis points from the
second quarter to 4.09%;
-- Increasing strength in asset quality with non-performing
assets decreasing an additional 14% and total reserves
increasing to 424% of nonaccrual loans;
-- Continued expense controls, with a 39.9% efficiency ratio for
the quarter;
-- Introduction of the nation's first interactive Chinese
Internet banking;
-- The acquisition of East West Insurance Agency; and
-- Issuance of an additional $10 million in Trust Preferred
Securities
Financial Summary
Net income rose to $8.8 million for the third quarter, a 25%
increase over the prior year quarter and 5% over the second quarter of
2000. Earnings per diluted share totaled $0.38, 23% higher than the
$0.31 reported for the third quarter of 1999, while cash earnings per
diluted share, which excludes the amortization of non-cash items,
climbed to $0.40, a 25% increase over the prior year period. Return on
average assets for the third quarter of 2000 equaled 1.50% and the
return on average equity was 20.97%.
Dominic Ng, Chairman and CEO, stated, "The results of the third
quarter continue to validate our expansion strategy, which has
produced sustained earnings growth balanced by sound asset quality. In
addition, during the third quarter, we worked diligently to expand our
products and services to support the next phase of our corporate
growth as well as expanding our position as the leading financial
bridge between east and west. Among the accomplishments of the quarter
were the expansion of our correspondent bank back-office trade finance
and our specialized law-firm depository services, the introduction of
the nation's first comprehensive Chinese on-line banking service, and
the enhancement of our fee income base with the acquisition of East
West Insurance. We were especially pleased that we were able to make
these investments in our future growth while maintaining our
efficiency ratio within the lower range of our target."
Ng commented on the Bank's loan origination activity and portfolio
balances, "After the successful completion during the second quarter
of our program to rebalance credit exposure to individual borrowers
and industries, we have again turned our attention to prudent loan
growth. During the third quarter, our gross loan portfolio experienced
modest growth from $1.68 billion at the beginning of the quarter to
$1.73 billion at quarter end. This anticipated slowing of our loan
growth, which resulted from our recent portfolio review, occurred for
a number of reasons. Although we achieved our goals for a reduction in
average loan balances and industry exposure during the early part of
the third quarter, we continued to selectively sell loan
participations to several community banks in order to deepen our
correspondent relationships. Additionally, a number of larger loans
repaid during the quarter due to a variety of individual
circumstances, led to a concentration of prepayments in the quarter.
Despite these developments, we remain confident in our ability to
generate 10% to 15% annualized loan growth during the remainder of
2000 and in 2001, while adhering to our proven underwriting criteria
and maintaining our asset quality."
Management Outlook
Commenting on the outlook for the remainder of the year, Ng
stated, "Given our higher net interest margin, the positive outlook
for loan growth and our continued high efficiency ratios, we are
confident in achieving our financial goals for 2000, including EPS
growth of approximately 24%, return on equity of at least 20% and a
level of non-performing assets no greater than 1%."
Operating Results
Net income for the third quarter totaled $8.8 million, a 25%
increase over the $7.0 million reported for the third quarter of 1999.
Earnings per share for the quarter rose by 23% to $0.38 per diluted
share, while cash earnings per share climbed by 25% to $0.40 per
diluted share. Return on average assets for the September quarter
equaled 1.50%, compared to the 1.34% reported in the prior year
period, while return on average equity for the quarter totaled 20.97%,
versus the 19.37% for the third quarter of 1999.
The solid financial performance for the quarter was driven by
higher loan balances and an increase in the net interest margin,
combined with modest growth in non-interest expense. Total average
loans for the quarter were $1.65 billion, 20% above the level of the
prior year period and approximately equal to the average balance for
the second quarter of 2000. Management attributed the stable average
loan balance to a number of unique circumstances that occurred during
the third quarter, including a number of loan repayments clustered
into the quarter and the continued demand for loan participations from
correspondent banks. In addition, due to timing factors, the majority
of loan generation occurred during the last few weeks of the quarter,
providing for minimal additions to the average portfolio. Following
the portfolio re-balancing of the second quarter, the Bank continues
to generate a well diversified mix of lending business, with the loan
portfolio comprised of 32.8% in commercial real estate, 6.8% in
construction lending, 19.9% in commercial business loans and 19.4% in
multifamily loans.
Total average earning assets for the quarter equaled $2.2 billion,
10% greater than the level for the third quarter of 1999 and equal to
the $2.2 billion reported for the second quarter of 2000. The yield on
earning assets rose to 8.56%, compared to 7.56% in the prior year
period, due primarily to higher yields on the loan portfolio.
For the third quarter of 2000, the Bank reported average total
deposits of $1.8 billion, compared to $1.5 billion for the year ago
quarter and equal to the amount reported for the second quarter of
this year. Increases in time deposits over $100,000, demand and money
market accounts contributed the majority of the deposit growth. Due to
the shift in deposit composition and generally higher interest rates,
the total cost of deposits increased to 4.22% in the third quarter of
2000 compared to 3.56% in the prior year period.
Higher yields on earning assets, combined with a reduction in the
amount of non-deposit funding resulted in an increase in the net
interest margin to 4.09%, compared to 3.72% for the prior year period
and 4.03% for the second quarter of 2000. Net interest income for the
quarter equaled $22.6 million, 21% greater than the prior year period.
Management anticipates a stable net interest margin for the remainder
of the year, with modest loan growth and flat interest rates as the
primary drivers of the margin. Excluding the effect of the $10 million
of trust preferred securities issued during the quarter, the net
interest margin for the third quarter would have been 4.14%.
The Bank reported non-interest income of $3.7 million for the
quarter, 3% above the $3.5 million in the prior year period. Branch,
loan and letter of credit fees for the third quarter of 2000 totaled
$2.7 million, compared to $2.4 million in the third quarter of 1999.
Gains on sales of affordable housing partnerships in the September
2000 quarter were $374,000, offset by a $60,000 loss on securities,
compared to gains of $841,000 in the September 1999 quarter. Excluding
these items, net interest income totaled $3.3 million, compared to
$2.7 million in the 1999 quarter.
Non-interest expense for the third quarter of 2000 totaled $12.3
million, 15% above the $10.6 million in the third quarter of 1999 and
a 1% increase from the $12.2 million in the second quarter of 2000.
The higher level of expenses was primarily related to the amortization
of goodwill and other intangible assets. In addition, the Bank
incurred slightly higher compensation and occupancy expense related to
recent acquisitions and expansion. Excluding the amortization of
intangibles and affordable housing investments, non-interest expense
for the September quarter totaled $10.4 million, compared to $9.3
million in the prior year period and $10.3 million in the second
quarter of this year. The efficiency ratio for the September quarter,
which excludes the amortization of intangible assets and investments
in affordable housing partnerships, equaled 39.9%, compared to 42.3%
for the prior year period and 40.2% for the second quarter of 2000.
The stable efficiency ratio for the first three quarters of 2000
resulted primarily from the Bank's ability to achieve additional
efficiencies from its operating platform and from the American
International Bank acquisition. Management continues to target the low
40% range for its long term efficiency ratio.
Asset Quality
Total non-performing assets declined by 14% to $10.9 million, or
0.46% of assets as of September 30, 2000, compared to $12.6 million,
or 0.54% as of June 30, 2000 and $16.2 million, or 0.75% as of
December 31, 1999. Nonaccrual loans at the end of the third quarter
decreased by 24% to $5.8 million, or 0.34% of gross loans versus $7.7
million, or 0.46% of gross loans at the end of the second quarter and
$10.9 million, or 0.73% of gross loans as of December 31, 1999. The
Bank provided $1.3 million for estimated loan losses, during the
quarter, approximately equal to the provision for both the first and
second quarters of 2000. Net charge-offs for the third quarter totaled
$1.2 million, or 0.07% of average loans, compared to $832 thousand, or
0.05% of average loans for the second quarter of 2000 and $806
thousand, or 0.06% of average loans, for the prior year period. In
general, management believes that the quality of the Bank's loan
portfolio remains strong, with no sign of systemic asset quality
problems or general deterioration in asset quality. Total reserves as
of September 30, 2000 were $24.7 million, or 1.43% of total loans and
423.5% of nonaccrual loans, compared to 1.46% and 320.7%,
respectively, as of June 30, 2000 and 1.38% and 190.7% as of December
31, 1999.
Capitalization
During the quarter the Bank issued an additional $10 million of
trust preferred securities in a pooled transaction. The additional
capital, combined with the growth in retained earnings, and proceeds
from the exercise of warrants issued in association with the Bank's
private placement, the Bank's risk based capital ratio increased to
11.23% and the total leverage ratio to 8.20%. The Bank believes that
its current capital levels are adequate to support anticipated organic
growth.
Earnings Release Conference Call
East West Bancorp will broadcast its third quarter 2000 earnings
conference call live via the Internet on Thursday, October 12, 2000 at
8:30 a.m. PDT. Interested parties are invited to access the live
conference call via Vcall at vcall.com and via StreetFusion
at streetfusion.com. Participants should log on to one of
the two sites 15 minutes prior to the conference call to register and
to follow directions at each site in order to access the conference
call. |
