EAST WEST BANCORP REPORTS STRONG EARNINGS
OF $40.5 MILLION FOR SECOND QUARTER 2007
Pasadena, CA - July 18, 2007 - 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 2007. Fully diluted earnings per share for the second quarter increased 12% to a solid $0.66 from $0.59 in the prior year period.
“We are pleased with the operating results of the second quarter. Double-digit organic loan growth, continued credit quality and sustained operating efficiencies were the primary factors for our strong performance in the second quarter of 2007,” stated Dominic Ng, Chairman, President and Chief Executive Officer of East West. “East West has been able to consistently achieve strong core earnings and growth and we are confident that we will continue our outstanding performance.”
“In late April we announced the acquisition of Desert Community Bank (“DCB”), a $584 million commercial bank headquartered in Victorville, California. We have received regulatory approval for the acquisition and subject to approval by the DCB shareholders on August 9th, the acquisition is expected to close by the end of August. This acquisition will allow us to expand our footprint in the California marketplace,” concluded Ng.
Second Quarter Summary
| · | Diluted earnings per share of $0.66, up 12% from second quarter 2006 |
| · | Net income of $40.5 million, up 10% from second quarter 2006 |
| · | Record net interest income of $98.9 million, up 8% from second quarter 2006 |
| · | Net interest margin of 3.97% |
| · | Return on equity of 15.53% |
| · | Total nonperforming assets were 0.23% of total assets |
| · | Net loan chargeoffs of $576 thousand for the quarter |
Financial Summary
Second quarter net income was a strong $40.5 million, up 10% from $36.6 million reported in the prior year period. Diluted earnings per share for the second quarter rose to $0.66, up 12% from $0.59 in the prior year period. Return on average equity for the quarter totaled 15.53%, while return on average assets for the quarter totaled 1.52%. Pretax income for the second quarter totaled $66.5 million, an 11% or $6.6 million increase over the same period a year ago. The increase in earnings in the second quarter of 2007 was primarily driven by higher net interest income which totaled $98.9 million, the highest ever in the history of the Company.
Management Guidance
The Company provided updated guidance for the full year 2007. Based on the performance during the first half of the year and the expectations for the remainder of 2007, management estimates that fully diluted earnings per share for the full year of 2007 will range from $2.61 to $2.63, an increase of $0.26 to $0.28 or 11% to 12% from $2.35 in 2006. Additionally, this is an increase from the previously announced estimate of $2.56 to $2.60 for the full year 2007. This guidance does not include the impact of the acquisition of Desert Community Bank, which is estimated to add approximately $0.01 in 2007.
The EPS guidance is based on the following assumptions for the remainder of 2007:
| · | Annual organic loan growth of 12% to 15% |
| · | Stable deposit balances |
| · | Annual increase in noninterest expense of 8% to 9% |
| · | Efficiency ratio of approximately 37% |
| · | Effective tax rate of approximately 39% |
| · | A stable interest rate environment and a net interest margin between 3.95% and 4.00% |
| · | $300.0 million in loan securitizations each quarter |
| · | $1.0 million provision for loan losses each quarter |
Balance Sheet Summary
At June 30, 2007, total assets were $10.8 billion, unchanged from December 31, 2006. Gross loans at June 30, 2007 totaled $8.0 billion compared to $8.3 billion at year-end 2006. Excluding the impact of $326.1 million in on-balance sheet single family and multi-family loan securitizations, organic loan growth was $331.5 million, or 16% annualized during the quarter, and $486.7 million, or 12% annualized year-to-date.
Average earning assets for the second quarter of 2007 equaled $10.0 billion, 11% higher than the second quarter of 2006. The yield on average earning assets for the quarter was 7.51%, an increase of 42 basis points from a year ago and an increase of 4 basis points from the previous quarter. The yield on average loans receivable for the quarter was 7.87%, an increase of 42 basis points from the year ago quarter and an increase of 3 basis points from the previous quarter. The yield on average investment securities for the quarter was 5.77%, an increase of 109 basis points from the year ago quarter and an increase of 13 basis points from the previous quarter.
Total deposits at June 30, 2007 were $7.1 billion, a 1% decrease over total deposits of $7.2 billion at December 31, 2006. The decrease in deposits is largely a result of the Bank’s efforts to reduce high cost money market and broker deposits.
Average total deposits for the second quarter totaled $7.2 billion, or 3% above the figure for the prior year period. Average core deposits for the quarter totaled $3.4 billion, reflecting no change compared to the year ago figure. The average cost of deposits for the second quarter of 2007 was 3.42%, a 56 basis point increase from the year ago quarter and a 5 basis point increase from the previous quarter. The average cost of funds for the second quarter equaled 3.74%, a 57 basis point increase from the prior year and a 4 basis point increase from the prior quarter.
Second Quarter Operating Results
Net interest income for the second quarter increased to a record $98.9 million, 8% or $7.3 million greater than the second quarter of 2006 and $326 thousand greater on a sequential quarter basis. The net interest margin for the quarter of 3.97% reflected a decrease of 11 basis points from the year ago margin and an increase of 2 basis points from the previous quarter margin.
East West did not record a provision for loan losses during the second quarter of 2007. In comparison, East West provided $1.3 million for loan losses during the second quarter of 2006 and did not record a provision for loan losses for the first quarter of 2007. Based on the projected growth of the loan portfolio during the remainder of the year, management anticipates that the provision for loan losses will be $1.0 million for each remaining quarter of 2007.
Noninterest income for the second quarter totaled $10.8 million, 33% or $2.7 million higher than the second quarter of 2006 and 14% or $1.7 million less than the first quarter of 2007. The decrease from the prior quarter is primarily the result of a $1.3 million gain on the sale of real estate owned recorded in the first quarter. Core noninterest income, excluding the impact of gain on sales of investment securities, real estate owned and fixed assets, totaled $9.6 million during the quarter, 20% or $1.6 million higher than the prior year figure and reflecting no change compared to the first quarter. The growth in core noninterest income from the prior year stems from increased demand for letters of credit and mortgage servicing fees, which are included in ancillary loan fees.
Noninterest expense totaled $43.3 million for the second quarter of 2007, 12% or $4.7 million higher than a year ago. However, noninterest expense increased a modest 2% or $945 thousand from the previous quarter. Management will continue to carefully manage expenditures and anticipates that operating expenses for the full year 2007 will only increase approximately 8% to 9% from 2006. The Company expects that its efficiency ratio for the full year 2007 will be approximately 37%.
East West generated an efficiency ratio of 36.91% for the second quarter of 2007, compared to 35.30% a year ago. The effective tax rate for the second quarter was 39.08% compared to 38.82% in the prior year period. Management anticipates an effective tax rate for the full year 2007 to be approximately 39%.
Asset Quality
Total nonperforming assets as of June 30, 2007 were $24.4 million or 0.23% of total assets, compared to $19.9 million, or 0.18% of total assets at December 31, 2006. Although nonperforming assets has increased compared to the year-end figure, overall, the credit quality of our loan portfolio continues to be healthy and we continue to experience low levels of nonperforming assets. Nonaccrual loans at of June 30, 2007 were $23.7 million or 0.30% of total loans, compared to $17.1 million or 0.21% of total loans, at December 31, 2006.
For the second quarter of 2007, East West had net loan chargeoffs of $576 thousand or an annualized 0.03% of average loans. This compares to net loan chargeoffs of $305 thousand, or an annualized 0.02% of average loans for the second quarter of 2006 and net loan chargeoffs of $156 thousand or an annualized 0.01% of average loans for the first quarter of 2007.
The allowance for loan losses at June 30, 2007 was $77.3 million or 0.96% of total loans and 325% of nonaccrual loans, compared to $78.2 million or 0.95% of total loans and 457% of nonaccrual loans at December 31, 2006. At June 30, 2007, the allowance for unfunded loan commitments and off-balance sheet credit exposures was $12.4 million, compared to $12.2 million at December 31, 2006. The allowance for unfunded loan commitments and off-balance sheet credit exposures is included in accrued expenses and other liabilities on the balance sheet.
Capitalization
East West continues to remain well capitalized under all regulatory guidelines. At June 30, 2007, our Tier I risk-based capital ratio was 9.77%, total risk-based capital ratio was 11.21% and Tier I leverage ratio was 8.89%. During the first quarter of 2007, our Board of Directors authorized stock repurchases of up to $80.0 million of the Company’s stock. During the second quarter, we repurchased 400,000 shares at a weighed average cost of $40.29. As of June 30, 2007, East West had $34.2 million of repurchase authorization remaining. Total stockholders’ equity as of June 30, 2007 was $1.1 billion, representing a book value of $17.34 per share.
About East West
East West Bancorp is a publicly owned company with $10.8 billion in assets and is traded on the Nasdaq Global Select 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 60 branch locations across Southern and Northern California and a branch location in Houston, Texas. East West Bank has two international locations in Greater China, including a full-service branch in Hong Kong 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, 2006 (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.
