FOR FURTHER INFORMATION AT THE COMPANY:
Julia Gouw
Chief Financial Officer
(626) 768-6898
EAST WEST BANCORP REPORTS RECORD
EARNINGS OF $36.6 MILLION FOR SECOND QUARTER 2006
Pasadena, CA - July 19, 2006 - East West Bancorp, Inc. (Nasdaq: EWBC), parent company of East West Bank, one of the nation’s premier community banks, today reported financial results for the second quarter of 2006. Fully diluted earnings per share for the second quarter increased 26% to a record $0.59 per share from $0.47 in the prior year period.
Highlights for the Second Quarter
| · | Record net income of $36.6 million, up 44% from prior year |
| · | Record net interest income of $91.6 million, up 41% from prior year |
| · | Net interest margin of 4.08% |
| · | Return on equity of 15.98% |
| · | Record total assets of $10.0 billion |
| · | Record gross loans of $7.9 billion |
| · | Record total deposits of $7.1 billion |
| · | Total nonperforming assets of 0.11% of total assets |
| · | Efficiency ratio improved to 35.31% |
Financial Summary
Second quarter net income was a record $36.6 million, up 44% from $25.5 million reported in the prior year period. Diluted earnings per share for the second quarter of 2006 increased to a record $0.59, up 26% from $0.47 in the prior year period. For the quarter, return on average equity totaled 15.98% and return on average assets totaled 1.53%. The effective tax rate for the quarter equaled 38.82%, compared to 36.38% for the prior year period. Pretax income for the second quarter of 2006 climbed to $59.9 million, a 50% or $19.9 million increase over the year ago figure. The growth in the second quarter earnings was driven by the higher balance of interest earning assets resulting in an increase in net interest income.
“East West delivered outstanding results for the second quarter of 2006. We crossed a noteworthy milestone this quarter and reached $10.0 billion in total assets,” stated Dominic Ng, Chairman, President and Chief Executive Officer of East West. “Quarter after quarter, we have been able to both grow our portfolio and realize strong earnings. Our success is the direct result of our focus on fundamentals - strong underwriting criteria, solid customer service and well-aligned product pricing.”
“Despite the changing real estate market and the challenging interest rate environment, our commitment to having strong fundamentals has allowed us to perform well this quarter. Organic loan growth during the quarter was an outstanding 29% annualized, excluding $334.5 million in securitized loans. Additionally, organic core deposits grew at the steady pace of 9% annualized during the quarter. East West will continue to build our balance sheet and drive revenue growth,” continued Ng.
Management Guidance
Based on the results of the first half of the year and management’s expectations for the remainder of 2006, the Company has increased its guidance of earnings per share to $2.28 to $2.30 for the full year of 2006, an increase from the previously estimated amount of $2.25 to $2.29. This is an increase of $0.31 to $0.33 cents per share from 2005.
The EPS guidance is based on the following assumptions for the remainder of 2006:
| · | Annualized loan growth of 15% to 17% |
| · | Annualized deposit growth of 10% to 15% |
| · | Annual increase in noninterest expense of 25% to 28% from 2005 |
| · | Efficiency ratio between 36% and 38% |
| · | Effective tax rate between 39% and 40% |
| · | A stable or marginally increasing interest rate environment and a net interest margin between 4.00% and 4.10% |
| · | Implementation of expensing stock options in accordance with FASB 123R, a quarterly expense of approximately $300 thousand after tax |
Balance Sheet Summary
At June 30, 2006, total assets were $10.02 billion, a $1.74 billion increase above total assets of $8.28 billion at December 31, 2005. Gross loans at June 30, 2006 totaled $7.87 billion, up 32% annualized from $6.79 billion at year-end 2005. Excluding the impact of the Standard Bank acquisition and loan securitizations, organic growth for the first half of the year was a healthy $919.4 million, or 27% annualized. Growth in commercial real estate, single family and construction loans added the largest dollar impact to our organic growth year-to-date.
Average earning assets for the second quarter of 2006 totaled $9.01 billion, 44% higher than the second quarter of 2005. The growth in average earning assets was driven by a 39% or $2.16 billion increase in average loans to $7.72 billion. The yield on average earning assets for the quarter was 7.09%, an increase of 109 basis points from the year ago quarter and an increase of 19 basis points from the previous quarter. The yield on average loans receivable for the quarter was 7.45%, an increase of 116 basis points from the year ago quarter and an increase of 24 basis points from the previous quarter. The continued increase in the yield on average earning assets is attributable to increases in market interest rates and the corresponding repricing of our loan portfolio.
Total deposits at June 30, 2006 were $7.13 billion, an $868.4 million increase over total deposits of $6.26 billion at December 31, 2005. Excluding the impact of the Standard Bank acquisition, organic deposit growth for the first half of the year was $139.9 million, or 4% annualized. Core deposits at June 30, 2006 totaled $3.51 billion. Excluding the impact of the Standard Bank acquisition, organic core deposit growth for the quarter was $207.3 million, or 13% annualized.
Average total deposits for the second quarter grew to $7.00 billion, 48% above the figure for the prior year period, while average core deposits totaled $3.37 billion, 44% greater than a year ago. The growth in average deposits is primarily a result of substantial increases in average time deposits of 52% or $1.25 billion, money market deposits of 105% or $628.1 million and noninterest bearing demand deposits of 18% or $191.8 million.
The average cost of deposits for the second quarter of 2006 was 2.86%, a 121 basis point increase from the year ago quarter and a 32 basis point increase from the previous quarter. The average cost of funds for the second quarter equaled 3.17%, a 123 basis point increase from the prior year and a 31 basis point increase from the prior quarter. The increase in the cost of deposits from both the prior year and the prior quarter periods was attributable to continuing market competition for deposits.
Second Quarter Operating Results
Net interest income for the second quarter increased to a record $91.6 million, 41% or $26.7 million greater than the second quarter of 2005 and 10% or $8.6 million greater on a sequential quarter basis. The interest margin for the quarter of 4.08% reflected a decrease of 7 basis points from the year ago margin and a decrease of 10 basis points from the previous quarter margin. We continued to experience strong competition in loan and deposit pricing, resulting in the decrease in margin for both the sequential quarter and the previous year. Additionally, the lower net interest margin on the assets and liabilities acquired from Standard Bank also affected the interest margin for the second quarter. We expect a net interest margin between 4.00% and 4.10% for the remainder of the year as management anticipates that competitor banks will continue to aggressively price both loans and deposits.
East West provided $1.3 million for loan losses during the second quarter of 2006, compared to $4.5 million during the second quarter of 2005 and $3.3 million during the previous quarter. Based on the credit quality and the projected growth of the loan portfolio during the remainder of the year, management anticipates that the provision for loan losses for the rest of 2006 should be similar to the first six months.
Noninterest income for the second quarter totaled $8.1 million, 2% or $155 thousand higher than the second quarter of 2005 and 9% or $771 thousand lower than the sequential quarter. Core noninterest income, excluding the impact of gain on sales of investment securities, totaled $8.0 million during the quarter, 19% or $1.3 million higher than the prior year figure and 11% or $800 thousand higher than the sequential quarter. The increase in noninterest income compared to prior year was due to the growth of our franchise and the increase in the number of customer accounts. Branch fees increased 71% or $1.2 million and other operating income increased 35% or $708 thousand compared to the prior year. These increases were partially offset by decreases in both net gain on sales of investment securities of 89% or $1.1 million and income from secondary marketing activities of 81% or $803 thousand. Compared to the prior quarter, noninterest income grew in most sectors and the 9% decrease was attributable to a decrease in net gain on sales of investment securities of 92% or $1.6 million.
Noninterest expense totaled $38.5 million for the second quarter of 2006, 36% or $10.1 million higher than a year ago and 5% or $1.7 million higher than the previous quarter. This increase from prior year was largely due to increased staffing levels and occupancy costs due to our growth and the recent acquisitions of Standard Bank and United National Bank. Management anticipates that, based on the expected growth of the Bank for the remainder of 2006, noninterest expense should increase by 25% to 28% for the full year 2006.
East West generated a 35.31% efficiency ratio for the second quarter of 2006, compared to 35.78% a year ago. Management believes that an efficiency ratio between 36% and 38% remains achievable for the full year 2006.
Asset Quality
Strong credit quality continued for the second quarter of 2006. Total nonperforming assets were reduced to $10.5 million or 0.11% of total assets at June 30, 2006, compared to $30.1 million, or 0.36% of total assets at December 31, 2005. The decrease in nonperforming assets resulted from loans either that paid off or were brought current. Nonaccrual loans as of June 30, 2006 were $7.7 million or 0.10% of total loans, compared to $24.1 million or 0.36% of total loans, at December 31, 2005.
Net chargeoffs for the quarter totaled $305 thousand or an annualized 0.02% of average loans. This compares to net chargeoffs of $2.4 million, or an annualized 0.17% of average loans for the second quarter of 2005 and net loan recoveries of $46 thousand or an annualized 0.00% of average loans for the previous quarter.
The allowance for loan losses at June 30, 2006 was $75.8 million or 0.96% of total loans and 986% of nonaccrual loans, compared to $68.6 million or 1.01% of total loans and 284% of nonaccrual loans at December 31, 2005. At June 30, 2006, the allowance for unfunded loan commitments and off-balance sheet credit exposures amounted to $12.3 million compared to $11.1 million at December 31, 2005. The allowance for loan losses and unfunded loan commitments to total loans was 1.12% at June 30, 2006, compared to 1.17% of total loans at December 31, 2005.
Capitalization
East West continues to remain well capitalized under all regulatory guidelines. At June 30, 2006, our Tier I risk-based capital ratio was 9.41%, total risk-based capital ratio was 11.34% and Tier I leverage ratio was 8.43%. Total stockholders’ equity as of June 30, 2006 was $937.7 million, representing a book value of $15.41 per share.
About East West
East West Bancorp is a publicly owned company, with $10.0 billion in assets, whose stock is traded on the Nasdaq National Market under the symbol “EWBC”. The company's wholly owned subsidiary, East West Bank, is the second largest independent commercial bank headquartered in Los Angeles with 62 branch locations. East West Bank serves the community with 61 branch locations across Southern and Northern California, one branch location in Houston, Texas and a Beijing Representative Office in China. 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, 2005 (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 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.
