East West Bancorp, Inc. (“East West” or the “Company”) (Nasdaq: EWBC), parent company of East West Bank, reported its financial results for the third quarter of 2022. Third quarter 2022 net income was $295.3 million, or $2.08 per diluted share; diluted earnings per share grew 58% linked quarter annualized and 32% year-over-year.

“This was another quarter of outstanding results. Net interest income increased to a record $552 million, up 66% linked quarter annualized, and our net interest margin expanded an impressive 45 basis points quarter-over-quarter to 3.68%,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “Our efficiency improved, expanding all profitability ratios. For the third quarter of 2022, we returned 1.9% on average assets and 20.3% on average equity.”

“Total loans reached a record $47.5 billion as of September 30, 2022, up 8% linked quarter annualized, with growth across all our major loan categories. Asset quality continued to be healthy, with very low charge-offs and criticized loans decreasing 11% from June 30, 2022.”

“All our capital ratios expanded in the third quarter of 2022, driven by the strength of our earnings growth. We ended the quarter with a common equity tier 1 ratio of 12.3% and a tangible common equity ratio¹ of 8.35%,” continued Ng.

“With our industry-leading operating margins and strong capital, we are well positioned to navigate the changing economic conditions, and help our customers prosper and maximize personal and business opportunities. We are looking forward to finishing 2022 on a high note and entering 2023 with strength and confidence,” concluded Ng.

FINANCIAL HIGHLIGHTS

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BALANCE SHEET

• Record Assets – Total assets reached $62.6 billion as of September 30, 2022, up $181.8 million, or 0.3% (1% annualized), from $62.4 billion as of June 30, 2022. Year-over-year, total assets grew $1.6 billion, or 3%, from $61.0 billion as of September 30, 2021.
  
  
  
  Third quarter 2022 average interest-earning assets of $59.5 billion were up $810.0 million, or 1% (5% annualized), from $58.7 billion in the second quarter of 2022. Quarter-over-quarter, average loan growth of $2.2 billion was partially offset by declines in other, lower yielding interest-earning assets.

• Record Loans – Total loans reached $47.5 billion as of September 30, 2022, an increase of $926.2 million, or 2% (8% annualized), from $46.5 billion as of June 30, 2022. Year-over-year, total loans grew $7.0 billion, or 17%, from $40.5 billion as of September 30, 2021.
  
  
  
  Third quarter 2022 average loans of $46.9 billion grew $2.2 billion, or 5% (20% linked quarter annualized), with solid growth spread across all our major loan categories, led by residential mortgage and commercial real estate loans.

• Total Deposits – Total deposits were $53.9 billion as of September 30, 2022, a decrease of $0.5 billion, or 1% (4% annualized), from $54.3 billion as of June 30, 2022. Year-over-year, deposits grew $0.5 billion, or 1%, from $53.4 billion as of September 30, 2021.
  
  
  
  Third quarter 2022 average deposits of $54.1 billion decreased $78.3 million, essentially unchanged from the second quarter. Quarter-over-quarter, growth in average time deposits, interest-bearing checking and money market accounts was offset by a decrease in average noninterest-bearing demand deposits. Average noninterest-bearing deposits made up 41% of average total deposits in the third quarter of 2022, compared with 44% in the second quarter of 2022 and 43% in the third quarter of 2021.

• Strong Capital Levels – As of September 30, 2022, stockholders’ equity was $5.7 billion, or $40.17 per common share, and tangible equity³ per common share was $36.80; each increasing 1% (4% annualized) quarter-over-quarter. As of September 30, 2022, the tangible equity to tangible assets ratio was 8.35%, an increase of six basis points quarter-over-quarter. The common equity tier 1 (“CET1”) capital ratio was 12.3%, and the total risk-based capital ratio was 13.6% as of September 30, 2022.

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OPERATING RESULTS

Third Quarter Earnings – Third quarter 2022 net income was $295.3 million, an increase of 14%, or 57% annualized, from $258.3 million for the second quarter of 2022, and an increase of 31% from $225.4 million for the third quarter of 2021. Third quarter 2022 diluted earnings per share were $2.08, an increase of 15%, or 58% annualized, from $1.81 per diluted share for the second quarter 2022, and an increase of 32% from $1.57 per diluted share for the year-ago quarter.

Third Quarter 2022 Compared to Second Quarter 2022

Net Interest Income and Net Interest Margin

Record net interest income (“NII”) totaled $551.8 million, an increase of 17%, or 66% annualized, from $473.0 million. Net interest margin (“NIM”) of 3.68% expanded 45 basis points from 3.23%.

• NII growth and NIM expansion were driven by expanding earning asset yields and loan growth, partially offset by an increase in the cost of funds.
• The average loan yield was 4.75%, up 80 basis points from the second quarter. The average interest-earning asset yield was 4.19%, up 77 basis points from the second quarter. Average loans made up 79% of average interest-earning assets in the third quarter of 2022, compared with 76% in the second quarter of 2022.
• The average cost of funds was 0.55%, up 35 basis points from the second quarter. The average cost of deposits was 0.51%, up 34 basis points, and the average cost of interest-bearing deposits was 0.86%, up 56 basis points from the second quarter.
• The changes in yields and rates reflected rising benchmark interest rates.

Noninterest Income

Noninterest income totaled $75.6 million in the third quarter, a decrease of $2.9 million, or 4%, from $78.4 million in the second quarter.

• Fee income and net gains on sales of loans were $69.0 million, an increase of $4.2 million, or 7% (26% annualized), from $64.8 million in the second quarter. Growth in wealth management fees, deposit account fees and gains on sale of SBA loans was partially offset by decreased foreign exchange income.

Noninterest Expense

Noninterest expense totaled $216.0 million in the third quarter, compared with $196.9 million in the second quarter. Third quarter noninterest expense consisted of $195.6 million of adjusted noninterest expense⁴, $19.9 million in amortization of tax credit and other investments, and $0.5 million in amortization of core deposit intangibles.

• Adjusted noninterest expense of $195.6 million increased $14.2 million, or 8%, from $181.4 million in the second quarter, driven by higher compensation and employee benefits.
• Amortization of tax credit and other investments totaled $19.9 million in the third quarter, compared with $15.0 million in the second quarter. Quarter-over-quarter variability in the amortization of tax credits and other investments partially reflects the impact of investments that close in a given period.
• The adjusted efficiency ratio⁴ was 31.2% in the third quarter, compared with 32.9% in the second quarter.

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TAX RELATED ITEMS

Third quarter 2022 income tax expense was $89.0 million compared with income tax expense of $82.7 million for the second quarter of 2022. The year-to-date effective tax rate for the first nine months of 2022 was 22.7%.

ASSET QUALITY

The asset quality of our loan portfolio continued to be solid and stable.

• Criticized loans decreased $117.4 million, or 11%, quarter-over-quarter to $905.2 million as of September 30, 2022, down from $1,022.6 million as of June 30, 2022. Special mention loans decreased 20% quarter-over-quarter to $471.0 million, and classified loans were essentially unchanged at $434.2 million.
• The criticized loans ratio decreased 29 basis points quarter-over-quarter to 1.91% of loans held-for-investment (“HFI”) as of September 30, 2022, down from 2.20% as of June 30, 2022. The special mention loans ratio decreased 28 basis points quarter-over-quarter to 0.99%, and the classified loans ratio decreased one basis point to 0.92%.
• As of September 30, 2022, nonperforming assets were $97.0 million, or 0.16% of total assets, compared with $89.9 million, or 0.14% of total assets, as of June 30, 2022.
• Third quarter 2022 net charge-offs were $6.6 million, or annualized 0.06% of average loans HFI, compared with net recoveries of $6.6 million, or annualized 0.06% of average loans HFI, for the second quarter of 2022.
• The allowance for loan losses totaled $582.5 million, or 1.23% of loans HFI, as of September 30, 2022, compared with $563.3 million, or 1.21% of loans HFI, as of June 30, 2022. The quarter-over-quarter build in the allowance coverage largely reflects the current macroeconomic outlook and loan growth during the quarter.

Provision for credit losses was $27.0 million for the third quarter of 2022, compared with $13.5 million for the second quarter of 2022.

CAPITAL STRENGTH

Capital levels for East West are strong. The following table presents the regulatory capital metrics as of September 30, 2022, June 30, 2022 and September 30, 2021.

EWBC Risk-Based Capital Ratios

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared fourth quarter 2022 dividends for the Company’s common stock. The common stock cash dividend of $0.40 per share is payable on November 15, 2022, to stockholders of record on November 1, 2022.

On March 3, 2020, East West’s Board of Directors authorized the repurchase of up to $500 million of East West’s common stock, of which $254 million remains available. East West did not repurchase any shares during the third quarter of 2022.

Conference Call

East West will host a conference call to discuss third quarter 2022 earnings with the public on Thursday, October 20, 2022, at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses third quarter 2022 results and operating developments.

• The following dial-in information is provided for participation in the conference call: calls within the U.S. – (877) 506-6399; calls within Canada – (855) 669-9657; international calls – (412) 902-6699.
• A presentation to accompany the earnings call will be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
• A listen-only live broadcast of the call will also be available on the Investor Relations page of the Company’s website at www.eastwestbank.com/investors.
• A replay of the conference call will be available on October 20, 2022, at 11:30 a.m. PT/2:30 p.m. ET through November 20, 2022. The replay numbers are: within the U.S. – (877) 344-7529; within Canada – (855) 669-9658; international calls – (412) 317-0088; and the replay access code is: 3874614.

About East West

East West Bancorp, Inc. is a public company with total assets of $62.6 billion and is traded on the Nasdaq Global Select Market under the symbol “EWBC”. The Company’s wholly-owned subsidiary, East West Bank, is the largest independent bank headquartered in Southern California, operating over 120 locations in the United States and in China. The Company’s markets in the United States include California, Georgia, Illinois, Massachusetts, Nevada, New York, Texas and Washington. In China, East West’s presence includes full-service branches in Hong Kong, Shanghai, Shantou and Shenzhen, and representative offices in Beijing, Chongqing, Guangzhou, and Xiamen. For more information on East West, visit the Company’s website at www.eastwestbank.com.

Forward-Looking Statements

Certain matters set forth herein (including any exhibits hereto) contain forward-looking statements that are intended to be covered by the safe harbor for such statements provided by the Private Securities Litigation Reform Act of 1995. In addition, the Company may make forward-looking statements in other documents that it files with, or furnishes to, the U.S. Securities and Exchange Commission (“SEC”) and management may make forward-looking statements to analysts, investors, media members and others. Forward-looking statements are those that do not relate to historical facts, and that are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. These statements may relate to the Company’s financial condition, results of operations, plans, objectives, future performance and/or business and usually can be identified by the use of forward-looking language, such as “anticipates,” “assumes,” “believes,” “can,” “continues,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “likely,” “may,” “might,” “objective,” “plans,” “potential,” “projects,” “remains,” “should,” “target,” “trend,” “will,” “would,” or similar expressions, and the negative thereof. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described below. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company.

There are a number of important factors that could cause future results to differ materially from historical performance and any forward-looking statements. Factors that might cause such differences, include, but are not limited to: changes in the global economy, including an economic slowdown, market or supply chain disruption, level of inflation, interest rate environment, housing prices, employment levels, rate of growth and general business conditions; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit; changes in local, regional and global business, economic and political conditions and geopolitical events; the economic, financial, reputational and other impacts of the ongoing Coronavirus Disease 2019 (“COVID-19”) pandemic, including variants thereof, and any other pandemic, epidemic or health-related crisis, as well as a deterioration of asset quality and an increase in credit losses due to the COVID-19 pandemic; changes in laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the SEC, the Consumer Financial Protection Bureau, and the California Department of Financial Protection and Innovation – Division of Financial Institutions; changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing economic and political disputes between the U.S. and the People’s Republic of China and the monetary policies of the Federal Reserve; changes in the commercial and consumer real estate markets; changes in consumer or commercial spending, savings and borrowing habits, and patterns and behaviors; fluctuations in the Company’s stock price; the impact from potential changes to income tax laws and regulations, federal spending and economic stimulus programs; the Company’s ability to compete effectively against financial institutions in its banking markets and other entities, including as a result of emerging technologies; the soundness of other financial institutions; the success and timing of the Company’s business strategies; the Company’s ability to retain key officers and employees; impact on the Company’s funding costs, net interest income and net interest margin from changes in key variable market interest rates, competition, regulatory requirements and the Company’s product mix; changes in the Company’s costs of operation, compliance and expansion; the Company’s ability to adopt and successfully integrate new technologies into its business in a strategic manner; the impact of the benchmark interest rate reform in the U.S. including the transition away from the U.S. dollar (“USD”) London Interbank Offered Rate (“LIBOR”) to alternative reference rates; the impact of communications or technology disruption, failure in, or breach of, the Company’s operational or security systems or infrastructure, or those of third party vendors with which the Company does 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, and materially impact the Company’s ability to provide services to its clients; the adequacy of the Company’s risk management framework, disclosure controls and procedures and internal control over financial reporting; future credit quality and performance, including the Company’s expectations regarding future credit losses and allowance levels; the impact of adverse changes to the Company’s credit ratings from major credit rating agencies; impact of adverse judgments or settlements in litigation; the impact on the Company’s operations due to political developments, pandemics, wars, civil unrest, terrorism or other hostilities that may disrupt or increase volatility in securities or otherwise affect business and economic conditions; heightened regulatory and governmental oversight and scrutiny of the Company’s business practices, including dealings with consumers; the impact of reputational risk from negative publicity, fines, penalties and other negative consequences from regulatory violations, legal actions and the Company’s interactions with business partners, counterparties, service providers and other third parties; the impact of regulatory investigations and enforcement actions; 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; the Company’s capital requirements and its ability to generate capital internally or raise capital on favorable terms; the impact on the Company’s liquidity due to changes in the Company’s ability to receive dividends from its subsidiaries; any future strategic acquisitions or divestitures; changes in the equity and debt securities markets; fluctuations in foreign currency exchange rates; the impact of increased focus on social, environmental and sustainability matters, which may affect the Company’s operations as well as those of its customers and the economy more broadly; significant turbulence or disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for loans, a reduction in the availability of funding or increases in funding costs, declines in asset values and/or recognition of allowance for credit losses on securities held in the Company’s debt securities and equity securities portfolio; and the impact of climate change, natural or man-made disasters or calamities, such as wildfires, droughts and earthquakes, all of which are particularly common in California, or other events that may directly or indirectly result in a negative impact on the Company’s financial performance.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 under the heading Item 1A. Risk Factors and the information set forth under Item 1A. Risk Factors in the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation to update or revise any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.