Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - EAST WEST BANCORP INC | ewbc9918k3312018.htm |
| 8-K - 8-K - EAST WEST BANCORP INC | ewbc8k3312018.htm |
EWBC Earnings Results
First Quarter 2018
April 19, 2018
Forward-Looking Statements
2
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 the Company’s 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,” 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. 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, our ability to compete effectively against other financial institutions in our banking markets; changes in the commercial and consumer real estate
markets; changes in our costs of operation, compliance and expansion; changes in the U.S. economy, including inflation, employment levels, rate of
growth and general business conditions; changes in government interest rate policies; changes in laws or the regulatory environment including regulatory
reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit
Insurance Corporation, the U.S. Securities and Exchange Commission, the Consumer Financial Protection Bureau and California Department of
Business Oversight — Division of Financial Institutions; heightened regulatory and governmental oversight and scrutiny of the Company’s business
practices, including dealings with consumers; changes in the economy of and monetary policy in the People’s Republic of China; changes in income tax
laws and regulations and the impact of the Tax Cuts and Jobs Act; impact of other potential federal tax changes and spending cuts; 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; changes in the equity and debt securities markets; future credit quality and performance, including our expectations
regarding future credit losses and allowance levels; fluctuations of our stock price; fluctuations in foreign currency exchange rates; success and timing of
our business strategies; our ability to adopt and successfully integrate new technologies into our business in a strategic manner; impact of reputational
risk from negative publicity, fines and penalties and other negative consequences from regulatory violations and legal actions; impact of adverse
judgments or settlements in litigation; impact of regulatory enforcement actions; changes in our ability to receive dividends from our subsidiaries; impact
of political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions; impact of
natural or man-made disasters or calamities or conflicts or other events that may directly or indirectly result in a negative impact on the Company’s
financial performance; continuing consolidation in the financial services industry; our capital requirements and our ability to generate capital internally or
raise capital on favorable terms; impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on our business, business practices and
cost of operations; impact of adverse changes to our credit ratings from the major credit rating agencies; 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; changes in interest rates on our net interest income and net
interest margin; the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; 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
increased funding costs, reduced 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 investment securities portfolio; the Company’s ability to retain key officers and employees; any
future strategic acquisitions or divestitures; and other factors set forth in the Company’s public reports including its Annual Report on Form 10-K for the
year ended December 31, 2017, and particularly the discussion of risk factors within that document. If any of these risks or uncertainties materializes or if
any of the assumptions underlying such forward-looking statements proves to be incorrect, the Company’s results could differ materially from those
expressed in, implied or projected by such forward-looking statements. The Company assumes no obligation to update such forward-looking statements.
1Q18
Net
income
$187
million
1Q18
Adj.1 Net
income
$165
million
1Q18
Diluted
EPS
$1.28
1Q18
Adj.1 Diluted
EPS
$1.13
Tangible equity1/share
$24.07
Record loans
$29.6 billion
Record deposits
$32.6 billion
Highlights of First Quarter 2018 Results
3
1 See reconciliation of GAAP to non-GAAP financial measures in the appendix of this presentation and in the Company’s 1Q18 Earnings Press Release. 1Q18 adjusted for the sale of DCB, which netted $22mm or $0.15/sh.
$ in millions, except
per share data Current Quarter Q-o-Q Change Y-o-Y Change
Earnings
Net income $ 187.0 120% 10%
Adj.1 net income $ 164.9 30% 29%
EPS $ 1.28 120% 10%
Adj.1 EPS $ 1.13 30% 28%
NII $ 326.7 2% 20%
NIM 3.73% 16 bps 40 bps
Balance Sheet
Loans $ 29,601 2% 12%
Deposits $ 32,609 1% 7%
TBVPS1 $ 24.07 4% 14%
Credit Quality
NCO ratio 0.13% (9) bps 5 bps
NPAs $ 131.0 14% (10)%
$170
$118
$133
$85
$187
$—
1Q17 2Q17 3Q17 4Q17 1Q18
Net Income and Diluted EPS
1.49%
1.36%
1.44%
1.35%
1.79%
14.9%
13.0% 13.8% 13.0%
17.0%
17.6%
15.3% 16.1% 15.1%
19.7%
5%
10%
15%
20%
25%
30%
35%
0.00%
1Q17* 2Q17 3Q17* 4Q17* 1Q18*
Profitability Ratios
Adj* return on equity Adj.* return on tang. eq.
1Q18 Earnings Growth and Profitability
4
1Q18 profitability ratios: GAAP ROA of 2.03%, ROE of
19.3% and tangible ROE of 22.3%.
Adjusted ROA of 1.79%, ROE of 17.0% and
tangible ROE of 19.7%.
1Q18 Q-o-Q net income growth and profitability
expansion reflects new federal corporate tax rate of 21%.
Desert Community Bank sale completed in March 2018.
After-tax gain of $22.2mm or $0.15/sh.
Eight branches and $613.7mm of deposits sold.
$59.1mm of related loans.
* See reconciliation of GAAP to non-GAAP financial measures in the appendix of this presentation and in the Company’s 1Q18 Earnings Press Release. 1Q18 adjusted for the gain on sale of DCB; 4Q17 adjusted
for the impact of the enactment of the Tax Cuts and Jobs Act; 3Q17 adjusted for the impact of the gain on sale of EWIS business;1Q17 adjusted for the impact of a commercial property sale.
Adj.* net income Adj.* diluted EPS Adj.* net income growth
Adj.* return on assets
-8% -3%+10% +30%
Net income Diluted EPS
$
i
n
m
ill
ion
s
, e
x
c
ept
per
s
hare
dat
a
$128 $118
$130 $127
$165
$—
$100
$200
1Q17* 2Q17 3Q17* 4Q17* 1Q18*
Adj.* Net Income and Adj.* Diluted EPS
$
i
n
m
ill
ion
s
, e
x
c
ept
per
s
hare
dat
a
$0.81
$1.16
$0.91
$0.58
$1.28
$0.88
$0.81
$0.89 $0.87
$1.13
$26.1
$26.7
$27.5
$28.6
$29.2
20
1Q17 2Q17 3Q17 4Q17 1Q18
$
in b
ill
ion
s
+9%
+12%
+16%
+8%
Average Loans
1Q18 Record Loans of $29.6 billion
5
EOP loan growth of 2% Q-o-Q (+8% LQA)
Avg. loan growth of 2% Q-o-Q (+8% LQA).
Largest avg. growth by category: SFR, which
increased by 6% Q-o-Q (+25% LQA).
1Q18 avg. loan yield of 4.69%, increased by 17 bps
Q-o-Q.
Yield expansion driven by upward repricing of
variable rate loans.
Loan portfolio composition: CRE = CRE, MFR, construction and land. Consumer = SFR, HELOC, and other consumer.
LQA average loan growthAverage loans
1Q18 EOP Loans
$ in billions
$10.8,
$11.6,
$7.1,
C&I CRE Consumer
39%
24%
37%
4.23%
4.40% 4.42%
4.52%
4.69%
0
1Q17 2Q17 3Q17 4Q17 1Q18
Average Loan Yield
0.32%
0.36%
0.40%
0.43%
0.49%
0
1Q17 2Q17 3Q17 4Q17 1Q18
$29.7
$30.2
$31.1
$32.3 $32.3
25
1Q17 2Q17 3Q17 4Q17 1Q18
$
in b
ill
ion
s
1Q18 Record Deposits of $32.6 billion
6
+7%
LQA average deposit growthAverage deposits
1Q18 EOP Deposits
$ in billions
Average Deposits Total Deposit Cost
$11.8,
$7.9,
$6.7,
$6.2,
DDA MMDA IB Checking & Savings Time
36%
24%
19%
21%
Deposit growth in 1Q18 more than offset
$613.7mm sale of DCB deposits.
EOP deposit growth of 1% Q-o-Q (+ 5% LQA).
Avg. deposits stable in 1Q18: up 0.1% Q-o-Q
(+0.5% LQA).
Largest avg. growth by category: IB checking,
up 6% Q-o-Q (+23% LQA).
1Q18 cost of total deposits: up 6 bps to 0.49%;
cost of IB deposits: up 10 bps to 0.76%.
+11%
+15%
+0.5%
9.9 10.7 10.8 10.3 10.4 27%
11.4
12.0
10.2 10.0 9.6 25%
5.0
5.9
6.0 6.5 5.6 15%
4.3
3.5
3.6 2.8
3.0 8%
2.5
3.8 6.7
4.7 6.7 18%
5.5
6.2 3.6
4.1 2.9 7%
$0
$10
$20
$30
$40
1Q17 2Q17 3Q17 4Q17 1Q18 1Q18 Mix
$
in
m
ill
ion
s
Total Fees and Other Operating Income
Branch fees LC fees & FX income
Ancillary loan fees & other income Wealth management fees
Derivative fees & other income Other fees & operating income
Q-o-Q Difference
Total noninterest income of $74.4mm increased
by $29.2mm, largely from the gain on sale of
DCB of $31.5mm.
Excluding the impact of all gains on sales, fees
and other operating income of $38.2mm was
essentially stable Q-o-Q.
Customer driven fees of $39.0mm increased by
4% Q-o-Q from $37.6mm.
Increased by 5% Y-o-Y from $37.2mm.
Strength in transaction volumes for
derivative fees and FX income in 1Q18.
1Q18 Fees & Other Operating Income
7
$38.2$38.6
$42.1
$40.9
$38.4
1Q18 Summary Income Statement
8
$ in millions, except per share data 1Q18 4Q17 $ Change % Change
Adjusted net interest income $ 321.5 $ 312.7 $ 8.8 3 %
ASC 310-30 discount
accretion income
5.2 7.0 (1.8) (26) %
Net interest income 326.7 319.7 7.0 2 %
Fees & operating income 38.2 38.4 (0.2) (1) %
Net gains on sales of fixed
assets, loans & securities
4.8 6.8 (2.0) (30) %
Net gain on sale of business 31.5 NA NM NM
Total noninterest income 74.4 45.2 29.2 65 %
Adjusted noninterest expense 150.3 151.8 (1.5) (1) %
Amortization of tax credit and
other investments, and core
deposit intangibles
18.9 23.5 (4.6) (20) %
Total noninterest expense 169.1 175.3 (6.1) (3) %
Provision for credit losses 20.2 15.5 4.7 30 %
Income tax expense 24.8 89.2 (64.5) (72) %
Net income $ 187.0 $ 84.9 $ 102.1 120 %
Diluted EPS $ 1.28 $ 0.58 $ 0.70 120 %
Note: See reconciliation of GAAP to non-GAAP financial measures in the appendix of this presentation and in the Company’s 1Q18 Earnings Press Release.
Notable Items
1Q18: DCB sale
Pre-tax gain of $31.5mm.
After-tax gain of $22.2mm or $0.15/sh.
4Q17: Tax Cuts & Jobs Act
Negative impact of $41.5mm, or $0.29/sh
from the enactment of the Tax Cuts &
Jobs Act.
Adjusted earnings growth:
1Q18 adj. net income of $164.9mm grew
30% Q-o-Q.
1Q18 adj. diluted EPS of $1.13 grew 30%
Q-o-Q.
Other items of note in 1Q18:
In noninterest expense: OREO gain of
$1.9mm.
In tax expense: reversal of a liability
related to state taxes for prior years:
$3.9mm reduction.
$272
$290
$303
$320
$327
$200
$220
$240
$260
$280
$300
$320
$340
1Q17 2Q17 3Q17 4Q17 1Q18
Net Interest Income
Net interest income
$
i
n
m
ill
ion
s
4.23% 4.40%
4.42% 4.52%
4.69%
0.32% 0.36% 0.40% 0.43% 0.49%
0%
6%
1Q17 2Q17 3Q17 4Q17 1Q18
Average loan yield Total cost of deposits
Average Loan Yield and Total Cost of Deposits
1Q18 Net Interest Income & Net Interest Margin
9
* See reconciliation of GAAP to non-GAAP financial measures in the appendix of this presentation and in the Company’s 1Q18 Earnings Press Release.
+7%
+5%
+5%
+2%
NII growth
1Q18 NII of $326.7mm increased Q-o-Q by 2%. GAAP NIM
of 3.73% expanded by 16 bps Q-o-Q.
1Q18 ASC 310-30 discount accretion income of
$5.2mm; remaining ASC 310-30 discount of $32.2mm
as of 03.31.18.
Excluding accretion, adj.* NII grew by 3% Q-o-Q and
adj.* NIM of 3.67% expanded by 18 bps Q-o-Q.
Q-o-Q NIM expansion reflects asset sensitivity of
balance sheet to interest rate increases and share of
DDAs in funding mix.
3.33% 3.49%
3.52% 3.57%
3.73%
1.00%
1.25% 1.25%
1.50%
1.75%
0%
6%
1Q17 2Q17 3Q17 4Q17 1Q18
Net interest margin Fed funds target rate
Net Interest Margin relative to
Upper Range of Fed Funds Target Rate
$180
$198
$210 $213
$219
2.09%
2.27%
2.32%
2.27%
2.38%
2.00%
3.00%
$150
$210
1Q17 2Q17 3Q17 4Q17 1Q18
Adj.* PTPP income Adj.* PTPP profitability ratio
PTPP Profitability and Efficiency
10
*See reconciliation of GAAP to non-GAAP financial measures in the appendix of this presentation and in the Company’s 1Q18 Earnings Press Release.
1Q18 total noninterest expense: $169.1mm.
1Q18 adj.* noninterest expense: $150.3mm, down
1% Q-o-Q.
Compensation and employee benefits expense: up
$4.9mm, or 5% Q-o-Q, largely due to seasonal increases.
Consulting exp. decrease: $(1.8)mm, or (43)% Q-o-Q.
Other operating exp. includes $1.9mm gain on OREO.
1Q18 adj.* efficiency ratio: 40.6% compared to
41.6% in 4Q17.
PTPP Income & PTPP Profitability Ratio
$137
$140 $139
$152 $150
43.2%
41.3%
39.8% 41.6% 40.6%
35.0%
55.0%
$100
$120
$140
$160
1Q17 2Q17 3Q17 4Q17 1Q18
Adj.* noninterest expense Adj.* efficiency ratio
Noninterest Expense & Efficiency Ratio
Growing pre-tax, pre-provision income.
Pre-tax, pre-provision (PTPP) income growth:
$219.4mm in 1Q18, up 3% Q-o-Q. Increasing PTPP
income for past 4 quarters.
5-qtr adj. PTPP profitability ratio range of 2.09% to
2.38%.
Generating positive operating leverage: revenue
growth outpacing expense growth.
$
i
n
m
ill
ion
s
$
i
n
m
ill
ion
s
$129 $130
$115
$131
0.40% 0.37%
0.31% 0.35%
0.10%
0.30%
0.50%
0.70%
0.90%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2015 2016 2017 03.31.18
$
in
m
ill
ion
s
Nonperforming Assets*
Nonperforming assets NPAs / Total assets
$23.6
$25.5
$29.0 $29.6
1.12% 1.02% 0.99% 1.01%
0.00%
1.00%
2.00%
3.00%
4.00%
$0
$7
$14
$21
$28
$35
2015 2016 2017 03.31.18
$
in b
ili
on
s
Gross loans HFI* (excludes HFS) ALLL / Gross loans HFI*
$14.2
$27.5
$46.3
$20.2
0.01% 0.15%
0.08%
0.13%
0.00%
0.50%
1.00%
$0
$40
2015 2016 2017 2018 YTD
$
in
m
ill
ion
s
Provision expense NCOs (net recoveries) / Avg. loans HFI*
Allowance for loan losses to loans HFI was 1.01%
as of 03.31.18, compared to 0.99% as of 12.31.17.
1Q18 net charge-off ratio: 0.13% annualized.
Overall, asset quality trends, including classified
assets and delinquent loans are stable.
Asset Quality Metrics
11
* Nonperforming assets and net charge-offs exclude purchased credit impaired loans. HFI represents held-for-investment.
Provision Expense and Net Charge-off* RatioAllowance for Loan Losses
$23.13
$24.07
7.0%
8.5%
10.5%
4.0%
9.12%
11.4% 11.4%
12.9%
9.2%9.37%
11.9% 11.9%
13.4%
9.6%
0.015
0.035
0.055
0.075
0.095
0.115
0.135
0.155
$15.00
$25.00
Tangible equity
per share
Tangible equity to
tangible assets ratio
CET1 risk-based
capital ratio
Tier 1 risk-based
capital ratio
Total risk-based
capital ratio
Tier 1 leverage
capital ratio
EWBC's Capital Position
Basel III Fully Phased-in Minimum Regulatory Requirement EWBC 12.31.17 EWBC 03.31.18
12
Strong Capital Ratios
Regulatory capital ratios increased by 40 bps to 48 bps year-to-date.
Current capital levels are sufficient to support organic growth.
Management Outlook: Full Year 2018
13
Earnings drivers
FY 2018 expectations
compared to FY 2017 results
Outlook
change from
prior quarter
1Q18
actual
FY 2017
actual
End of Period Loans Increase at a percentage rate of
approximately 10%.
Unchanged.
$29.6 billion
+8% LQA
$29.1 billion,
+14% Y-o-Y
NIM In the range of 3.65% to 3.75% (excl.
impact of ASC 310-30 discount
accretion).
In the range of 3.70% to 3.80% (incl.
accretion)
Unchanged.
3.67%
+18bps Q-o-Q
3.42%,
+27bps Y-o-Y
Noninterest Expense
(excl. tax credit
investment & core deposit
intangible amortization)
Increase at a percentage rate in the high
single digits.
Unchanged.
$150 million
-1% Q-o-Q
$567 million,
+5% Y-o-Y
Provision for Credit
Losses
In the range of $70mm to $80mm. Unchanged. $20 million $46 million
Tax Items Full year effective tax rate of
approximately 16%.
Y-o-Y decrease in effective tax rate due
to new federal corporate tax rate of 21%.
Tax credit investments, excluding low
income housing, of $105mm with
associated tax credit amortization of
$85mm above the line.
Unchanged. Effective tax rate:
12%
Effective tax rate:
31%
Tax credit investments,
excluding low income
housing, of $110mm
with associated tax
credit amortization of
$94mm.
Interest Rates Outlook incorporates the current forward
rate curve.
Anticipate two additional fed funds rate
increases of 25 bps each in June and
September of 2018.
Fed funds increased
25 bps in March 2018.
Fed funds increased
75 bps in 2017: 25 bps
each in March, June
and December.
APPENDIX
Appendix: GAAP to Non-GAAP Reconciliation
15
EAST WEST BANCORP, INC. AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
($ in thousands)
(unaudited)
During the first quarter of 2017, the Company consummated a sale and leaseback transaction on a commercial property and recognized a pre-tax gain on sale of $71.7 million. On
December 22, 2017, the Tax Cuts and Jobs Act was enacted, which resulted in an additional income tax expense of $41.7 million recognized in the fourth quarter of 2017. During the
first quarter of 2018, the Company sold its Desert Community Bank (“DCB”) branches and recognized a pre-tax gain on sale of $31.5 million. Management believes that presenting the
computations of the adjusted net income, adjusted diluted earnings per common share, adjusted return on average assets and adjusted return on average equity that exclude the impact of
the Tax Cuts and Jobs Act and after-tax gains on the sales of the commercial property and DCB branches (where applicable) provides clarity to financial statement users regarding the
ongoing performance of the Company and allows comparability to prior periods.
Quarter Ended
March 31, 2018 December 31, 2017 March 31, 2017
Net income (a) $ 187,032 $ 84,898 $ 169,736
Add: Impact of the Tax Cuts and Jobs Act (b) — 41,689 —
Less: Gain on sale of the commercial property, net of tax (1) (c) — — (41,526)
Gain on sale of business, net of tax (1) (d) (22,167) — —
Adjusted net income (e) $ 164,865 $ 126,587 $ 128,210
Diluted weighted average number of shares outstanding (f) 145,939 146,030 145,732
Diluted EPS (a)/(f) $ 1.28 $ 0.58 $ 1.16
Diluted EPS impact of the Tax Cuts and Jobs Act (b)/(f) — 0.29 —
Diluted EPS impact of gain on sale of the commercial property, net of tax (c)/(f) — — (0.28)
Diluted EPS impact of gain on sale of business, net of tax (d)/(f) (0.15) — —
Adjusted diluted EPS $ 1.13 $ 0.87 $ 0.88
Average total assets (g) $ 37,381,386 $ 37,262,618 $ 34,928,031
Average stockholders’ equity (h) $ 3,922,926 $ 3,856,802 $ 3,493,396
Return on average assets (2) (a)/(g) 2.03 % 0.90 % 1.97 %
Adjusted return on average assets (2) (e)/(g) 1.79 % 1.35 % 1.49 %
Return on average equity (2) (a)/(h) 19.34 % 8.73 % 19.71 %
Adjusted return on average equity (2) (e)/(h) 17.04 % 13.02 % 14.88 %
(1) Statutory rate of 29.56% was applied for the quarter ended March 31, 2018. Statutory rate of 42.05% was applied for the quarters ended December 31, 2017 and March 31, 2017.
(2) Annualized.
16
EAST WEST BANCORP, INC. AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
($ in thousands)
(unaudited)
Adjusted efficiency ratio represents adjusted noninterest expense divided by adjusted revenue. Adjusted pre-tax, pre-provision profitability ratio represents the aggregate of adjusted
revenue less adjusted noninterest expense, divided by average total assets. Adjusted revenue represents the aggregate of net interest income and adjusted noninterest income, where
adjusted noninterest income excludes the gains on the sales of the commercial property and DCB branches (where applicable). Adjusted noninterest expense excludes the amortization of
tax credit and other investments, and the amortization of core deposit intangibles (where applicable). Management believes that the measures and ratios presented below provide clarity to
financial statement users regarding the ongoing performance of the Company and allow comparability to prior periods.
Appendix: GAAP to Non-GAAP Reconciliation (cont’d)
Quarter Ended
March 31, 2018 December 31, 2017 March 31, 2017
Net interest income before provision for credit losses (a) $ 326,693 $ 319,701 $ 272,122
Total noninterest income 74,444 45,206 115,828
Total revenue (b) 401,137 364,907 387,950
Noninterest income 74,444 45,206 115,828
Less: Gain on sale of the commercial property — — (71,654)
Gain on sale of business (31,470) — —
Adjusted noninterest income (c) $ 42,974 $ 45,206 $ 44,174
Adjusted revenue (a)+(c) = (d) $ 369,667 $ 364,907 $ 316,296
Total noninterest expense (e) $ 169,135 $ 175,263 $ 152,878
Less: Amortization of tax credit and other investments (17,400) (21,891) (14,360)
Amortization of core deposit intangibles (1,485) (1,621) (1,817)
Adjusted noninterest expense (f) $ 150,250 $ 151,751 $ 136,701
Efficiency ratio (e)/(b) 42.16% 48.03% 39.41%
Adjusted efficiency ratio (f)/(d) 40.64% 41.59% 43.22%
Adjusted pre-tax, pre-provision income (d)-(f) = (g) $ 219,417 $ 213,156 $ 179,595
Average total assets (h) $ 37,381,386 $ 37,262,618 $ 34,928,031
Adjusted pre-tax, pre-provision profitability ratio (1) (g)/(h) 2.38% 2.27% 2.09%
Adjusted noninterest expense (1)/average assets (f)/(h) 1.63% 1.62% 1.59%
(1) Annualized.
17
(1) Annualized.
Appendix: GAAP to Non-GAAP Reconciliation (cont’d)
Quarter Ended
Yield on Average Loans March 31, 2018 December 31, 2017 March 31, 2017
Interest income on loans (a) $ 337,904 $ 326,401 $ 272,061
Less: ASC 310-30 discount accretion income (5,200) (7,024) (3,233)
Adjusted interest income on loans (b) $ 332,704 $ 319,377 $ 268,828
Average loans (c) $ 29,211,906 $ 28,646,461 $ 26,087,178
Add: ASC 310-30 discount 34,059 37,660 48,566
Adjusted average loans (d) $ 29,245,965 $ 28,684,121 $ 26,135,744
Average loan yield (1) (a)/(c) 4.69% 4.52% 4.23%
Adjusted average loan yield (1) (b)/(d) 4.61% 4.42% 4.17%
Net Interest Margin
Net interest income (e) $ 326,693 $ 319,701 $ 272,122
Less: ASC 310-30 discount accretion income (5,200) (7,024) (3,233)
Adjusted net interest income (f) $ 321,493 $ 312,677 $ 268,889
Average interest-earning assets (g) $ 35,513,663 $ 35,491,424 $ 33,095,396
Add: ASC 310-30 discount 34,059 37,660 48,566
Adjusted average interest-earning assets (h) $ 35,547,722 $ 35,529,084 $ 33,143,962
Net interest margin (1) (e)/(g) 3.73% 3.57% 3.33%
Adjusted net interest margin (1) (f)/(h) 3.67% 3.49% 3.29%
EAST WEST BANCORP, INC. AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
($ in thousands)
(unaudited)
Management believes that presenting the adjusted average loan yield and adjusted net interest margin that exclude the ASC 310-30 discount accretion impact provides clarity to financial
statement users regarding the change in loan contractual yields and allows comparability to prior periods.
18
Appendix: GAAP to Non-GAAP Reconciliation (cont’d)
(1) Includes core deposit intangibles and mortgage servicing assets.
(2) Statutory rate of 29.56% was applied for the quarter ended March 31, 2018. Statutory rate of 42.05% was applied for the quarters ended December 31, 2017 and March 31, 2017.
(3) Annualized.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
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. Tangible equity and tangible equity to tangible assets ratio are non-GAAP
financial measures. Tangible equity and tangible assets represent stockholders’ equity and total assets, respectively, which have been reduced by goodwill and other intangible assets. Given that the use of such
measures and ratios is more prevalent in the banking industry, and such measures and ratios are used by banking regulators and analysts, the Company has included them below for discussion.
March 31, 2018 December 31, 2017 March 31, 2017
Stockholders’ equity (a) $ 3,978,755 $ 3,841,951 $ 3,565,954
Less: Goodwill (465,547) (469,433) (469,433)
Other intangible assets (1) (26,196) (28,825) (33,843)
Tangible equity (b) $ 3,487,012 $ 3,343,693 $ 3,062,678
Total assets (c) $ 37,719,104 $ 37,150,249 $ 35,342,126
Less: Goodwill (465,547) (469,433) (469,433)
Other intangible assets (1) (26,196) (28,825) (33,843)
Tangible assets (d) $ 37,227,361 $ 36,651,991 $ 34,838,850
Total stockholders’ equity to total assets ratio (a)/(c) 10.55% 10.34 % 10.09 %
Tangible equity to tangible assets ratio (b)/(d) 9.37 % 9.12 % 8.79 %
Adjusted return on average tangible equity represents adjusted tangible net income divided by average tangible equity. Adjusted tangible net income excludes the after-tax effects of the amortization of core
deposit intangibles and mortgage servicing assets, the impact of the Tax Cuts and Jobs Act, and the after-tax gains on the sales of the commercial property and DCB branches (where applicable). Given that the
use of such measures and ratios is more prevalent in the banking industry, and such measures and ratios are used by banking regulators and analysts, the Company has included them below for discussion.
Quarter Ended
March 31, 2018 December 31, 2017 March 31, 2017
Net Income $ 187,032 $ 84,898 $ 169,736
Add: Amortization of core deposit intangibles, net of tax (2) 1,046 939 1,053
Amortization of mortgage servicing assets, net of tax (2) 333 254 266
Tangible net income (e) $ 188,411 $ 86,091 $ 171,055
Add: Impact of the Tax Cuts and Jobs Act — 41,689 —
Less: Gain on sale of the commercial property, net of tax (2) — — (41,526)
Gain on sale of business, net of tax (2) (22,167) — —
Adjusted tangible net income (f) $ 166,244 $ 127,780 $ 129,529
Average stockholders’ equity $ 3,922,926 $ 3,856,802 $ 3,493,396
Less: Average goodwill (468,785) (469,433) (469,433)
Average other intangible assets (1) (28,102) (29,527) (34,987)
Average tangible equity (g) $ 3,426,039 $ 3,357,842 $ 2,988,976
Return on average tangible equity (3) (e)/(g) 22.30 % 10.17 % 23.21 %
Adjusted return on average tangible equity (3) (f)/(g) 19.68 % 15.10 % 17.57 %