East West Bancorp Reports Net Income for Third Quarter 2013 of $73.2 Million, up 3% from Prior Year
East West Bancorp Reports Net Income for Third Quarter 2013 of $73.2 Million, up 3% from Prior Year and Earnings Per Share of $0.53, up 10% from Prior Year
PASADENA, Calif.--(BUSINESS WIRE)-- East West Bancorp, Inc. ("East West") (NAS: EWBC) , parent company of East West Bank, the financial bridge between the United States and Greater China, today reported financial results for the third quarter of 2013. For the third quarter of 2013, net income was $73.2 million or $0.53 per dilutive share. East West increased third quarter net income by $2.0 million or 3% and increased earnings per dilutive share by $0.05 or 10% from the prior year period.
"East West is pleased to report solid earnings of $73.2 million or $0.53 per share for the third quarter of 2013, an increase in earnings per share of 10% from the prior year," stated Dominic Ng, Chairman and Chief Executive Officer of East West. "East West is focused on achieving a sustainable, superior financial performance and we believe our financial results for the third quarter of 2013 are reflective of this goal. Throughout the year and continuing in the third quarter of 2013, East West has successfully grown total assets, loans, deposits and fee income. Quarter to date, total loans increased 6% or $946.7 million to a record $17.2 billion and total deposits also increased 6% or $1.1 billion to a record $20.4 billion. Further, year to date, fee income has increased 20% to $81.4 million."
Ng continued, "With our solid financial results year to date, East West is on track for another year of record earnings. As the financial bridge between East and West, we continue to see opportunities to expand our market share, grow our profitability, and deliver strong results for our shareholders year after year."
"Additionally, we were pleased to announce last month, that we signed a definitive agreement to acquire MetroCorp Bancshares, Inc. ("MCBI"), headquartered in Houston, Texas. MCBI has $1.6 billion in total assets and operates 18 branches under its two subsidiary banks, MetroBank and Metro United Bank. Both strategically and culturally, MCBI is a good fit with East West and we are confident in our ability to execute a successful integration. We are equally confident that this transaction will create greater value for our shareholders as we expand our presence in California and significantly increase our presence in Texas. Currently, we expect the acquisition of MCBI to close in the first quarter of 2014 and be accretive to 2014 earnings," concluded Ng.
Quarterly Results Summary
|(Dollars in millions, except per share)||Quarter Ended|
|September 30, 2013||June 30, 2013||September 30, 2012|
|Net income available to common shareholders||$||73.16||$||72.30||$||69.40|
|Earnings per share (diluted)||$||0.53||$||0.52||$||0.48|
|Tangible book value per common share||$||13.96||$||13.55||$||13.07|
|Return on average assets||1.22||%||1.29||%||1.30||%|
|Return on average common equity||12.65||%||12.59||%||12.43||%|
|Net interest income, adjusted (1)||$||192.36||$||192.17||$||196.29|
|Net interest margin, adjusted (1)||3.44||%||3.62||%||3.95||%|
|Cost of deposits||0.30||%||0.33||%||0.41||%|
Third Quarter 2013 Highlights
- Strong Third Quarter Earnings - For the third quarter of 2013, net income was $73.2 million or $0.53 per dilutive share. Net income decreased 1% or $858 thousand from the second quarter of 2013 and grew 3% or $2.0 million from the third quarter of 2012. Earnings per dilutive share grew 2% or $0.01 from the second quarter of 2013 and 10% or $0.05 from the third quarter of 2012.
- Strong Capital Levels - Capital levelsfor East West remain high. As of September 30, 2013, East West's Tier 1 risk-based capital and total risk-based ratios were 12.4% and 14.0%, respectively, compared to the well capitalized requirements of 6% and 10%, respectively.
- Strong Loan Growth - Quarter to date, total loans receivable (including both covered and non-covered loans) grew 6% or $946.7 million to a record $17.2 billion as of September 30, 2013. This growth was due to an 8% or $1.1 billion increase in non-covered loans, partially offset by a decrease in loans covered under loss-share agreements of 6% or $145.8 million, quarter to date. In the third quarter, we experienced growth in all non-covered loan categories. In particular, we had strong growth in single family residential loans, commercial real estate loans, consumer loans and commercial and industrial loans.
- Strong Deposit Growth - Total deposits increased to record levels, increasing 6% or $1.1 billion to a record $20.4 billion as of September 30, 2013. During the third quarter, core deposits increased by 8% or $1.1 billion to a record $14.4 billion. The strong growth in core deposits for the quarter was fueled by a 12% or $628.4 million increase in noninterest-bearing demand deposits to a record $5.8 billion as of September 30, 2013.
- Cost of Deposits Down 3 bps from Q2 2013 and Down 11 bps from Q3 2012 - The cost of deposits improved to 0.30% for the third quarter of 2013, down from 0.33% in the second quarter of 2013 and 0.41% in the third quarter of 2012. The cost of funds improved to 0.51% for the third quarter of 2013, down from 0.55% in the second quarter of 2013 and 0.67% in the third quarter of 2012.
- Nonperforming Assets Down to 0.51% of Total Assets - Nonperforming assets decreasedto $124.1 million, or 0.51% of total assets at September 30, 2013, a 7% or $9.4 million decrease from June 30, 2013 and a 14% or $20.0 million decrease from September 30, 2012.
The Company is providing guidance for the fourth quarter and full year of 2013. Management currently estimates that fully diluted earnings per share for the full year of 2013 will range from $2.09 to $2.11, an increase of $0.20 to $0.22 or 11% to 12% from $1.89 for the full year of 2012. This EPS guidance assumes a full year adjusted net interest margin ranging from 3.51% to 3.53%1. Further, this EPS guidance for the remainder of 2013 is based on a stablebalance sheet, total loan growth of approximately $400 million, (including both covered and non-covered loans), provision for loan losses of approximately $3.5 million to $5.0 million, noninterest expense, adjusted for FDIC reimbursements, of approximately $95.0 million to $100.0 million, and an effective tax rate of 34%.
Management currently estimates that fully diluted earnings per share for the fourth quarter of 2013 will range from $0.53 to $0.55, an increase of $0.04 to $0.06 or 8% to 12% from $0.49 in the fourth quarter of 2012, based on the assumptions stated above.
Balance Sheet Summary
At September 30, 2013, total assets increased 5% or $1.2 billion to $24.5 billion compared to $23.3 billion at June 30, 2013. Correspondingly, average earning assets also increased during the third quarter, up 4% or $923.1 million to $22.2 billion compared to the prior quarter. The increases in both total assets and in average earning assets during the third quarter were primarily attributable to increases in average balances for non-covered loans.
Total loans receivable increased 6% or $946.7 million to $17.2 billion at September 30, 2013, compared to $16.3 billion at June 30 2013. This quarter to date increase in loans receivable stemmed from growth in the non-covered loan portfolio, partially offset by a decrease in the covered loan portfolio. The continued trend of growth in the non-covered loan portfolio was largely due to increases in single family loans, commercial real estate loans, consumer loans and commercial and industrial loans.
Covered loans, net of discount, totaled $2.4 billion as of September 30, 2013, a decrease of 6% or $145.8 million from June 30, 2013. The decrease in the covered loan portfolio was primarily due to payoffs and paydown activity, as well as charge-offs.
The covered loan portfolio is comprised of loans acquired from the FDIC-assisted acquisitions of United Commercial Bank (UCB) and Washington First International Bank (WFIB) which are covered under loss-share agreements with the FDIC. During the third quarter of 2013, we recorded a net decrease in the FDIC indemnification asset and receivable included in noninterest (loss)/income of ($74.5) million, largely due to the continuing payoffs and the continuing improved credit performance of the UCB portfolio as compared to our original estimate. Under the loss-share agreements with the FDIC, East West Bank is required to pay the FDIC a calculated amount if specific thresholds of losses are not reached. Included in the net decrease in the FDIC indemnification asset and receivable of ($74.5) million for the third quarter of 2013 is an expense of $15.2 million for this liability due to the continuing strong credit performance of the covered portfolios.
At September 30, 2013, total deposits reached a record $20.4 billion, an increase of 6% or $1.1 billion from $19.3 billion at June 30, 2013. In the third quarter of 2013, we continued to execute our strategy to grow low-cost, commercial deposits while reducing our reliance on time deposits. Core deposits increased to a record $14.4 billion at September 30, 2013, an increase of 8% or $1.1 billion from June 30, 2013. The increase in core deposits during the third quarter of 2013 was largely driven by an increase in noninterest-bearing demand deposits which increased by 12% or $628.4 million to a record $5.8 billion as of September 30, 2013.
Third Quarter 2013 Operating Results
Net Interest Income
Net interest income, adjusted for the net impact of covered loan activity, totaled $192.4 million for the third quarter of 2013, an increase of $189 thousand from $192.2 million for the second quarter of 2013. The core net interest margin, considering the net impact of $61.9 million to the FDIC indemnification asset due to covered loan activity and amortization of the FDIC indemnification asset, totaled 3.44% for the third quarter of 2013. This compares to a core net interest margin of 3.62% and 3.95%, considering the net impact of $35.5 million and $25.6 million to the FDIC indemnification asset due to covered loan activity and amortization of the FDIC indemnification asset, for the second quarter of 2013 and third quarter of 2012, respectively.1
The compression in the core net interest margin compared to the prior quarter was largely due to a decrease in the yield on the loan portfolio during the third quarter. Although, the core net interest margin declined, the adjusted net interest income expanded slightly from the second quarter to $192.4 million, due to the strong growth in balances of noncovered loans and investment securities.
During the third quarter, the cost of funds decreased to 0.51%, a decrease of 4 basis points from the second quarter of 2013. Additionally, interest expense for the third quarter of 2013 was $27.5 million, a decrease of $253 thousand from the second quarter of 2013. The reduction in the cost of funds and interest expense for the quarter is primarily due to the growth of lower cost, core deposits. The Company increased core deposit balances by 8% or $1.1 billion, quarter over quarter. These actions resulted in a reduction in the cost of deposits to 0.30% for the third quarter of 2013, a reduction of 3 basis points from 0.33% in the prior quarter.
Noninterest (Loss)/ Income & Expense
The Company reported a total noninterest loss for the third quarter of 2013 of ($41.4) million, compared to a noninterest loss of ($12.4) million in the second quarter of 2013 and noninterest income of $2.8 million in the third quarter of 2012. The increase in the noninterest loss in the current quarter compared to both the prior quarter and prior year period is largely due to changes in the net reduction of the FDIC indemnification asset and FDIC receivable.
Branch fees, letter of credit and foreign exchange income, ancillary loan fees and other operating income totaled $27.0 million in the third quarter of 2013, a decrease of 11% or $3.3 million from $30.3 million in the second quarter of 2013 and an increase of 12% or $3.0 million from $24.0 million in the third quarter of 2012. In addition, included in noninterest income for the third quarter of 2013 were net gains of $3.9 million on sales of SBA loans and $1.1 million from the sale of available for sale investment securities. A summary of fees and other operating income for the third quarter of 2013, compared to the second quarter of 2013 and third quarter of 2012 is detailed below:
|Quarter Ended||% Change|
|($ in thousands)||September 30, 2013||June 30, 2013||September 30, 2012||(Yr/Yr)|
|Letters of credit fees and foreign exchange income||8,555||9,075||7,166||19||%|
|Ancillary loan fees||2,125||2,634||1,817||17||%|
|Other operating income||8,210||10,504||7,326||12||%|
|Total fees & other operating income||$||27,013||$||30,332||$||24,029||12||%|
Noninterest expense totaled $100.4 million for the third quarter of 2013, an increase of 6% or $5.9 million from the second quarter of 2013 and a decrease of $604 thousand from the third quarter of 2012.
Noninterest expense, excluding the impact of reimbursable amounts from the FDIC on covered assets and prepayment penalties for FHLB advances, totaled $97.8 million for the third quarter of 2013.1 A summary of noninterest expense for the third quarter of 2013, compared to the second quarter of 2013 and third quarter of 2012 is detailed below:
|($ in thousands)||Quarter Ended|
|September 30, 2013||June 30, 2013||September 30, 2012|
|Total noninterest expense||$||100,352||$||94,420||$||100,956|
|Amounts to be reimbursed by the FDIC on covered assets (80% of actual expense amount)||2,558||2,910||3,005|
|Prepayment penalties for FHLB advances and other borrowings||-||-||42|
|Noninterest expense excluding reimbursable amounts and prepayment penalties for FHLB advances and other borrowings||$||97,794||$||91,510||$||97,909|
Total noninterest expense for the third quarter, excluding the impact of reimbursable amounts from the FDIC on covered assets and prepayment penalties for FHLB advances, increased 7% or $6.3 million from the prior quarter to $97.8 million for the third quarter of 2013. The increase in noninterest expense, quarter over quarter, was primarily due to an increase in legal expense which increased $3.5 million or 65% from the second quarter 2013, resulting from the resolution of litigation, including covered assets. Additionally, the Company recorded a net gain on sale of other real estate owned assets of $1.2 million in the second quarter of 2013, compared to an expense of $157 thousand in the third quarter of 2013.
The effective tax rate for the third quarter was 32.8% as compared to 33.8% in the prior quarter. The effective tax rate is reduced from the statutory tax rate primarily due to the utilization of tax credits related to affordable housing investments.
The Company recorded provision for loan losses for non-covered loans of $4.5 million for the third quarter of 2013. This compares to a provision for loan losses of $8.3 million and $13.3 million for the second quarter of 2013 and third quarter of 2012. The decrease in the provision for loan losses for non-covered loans compared to the prior quarter and prior year was largely due to the reduction in net chargeoffs in the third quarter of 2013. Total net charge-offs on non-covered loans totaled $334 thousand for the third quarter of 2013, a decrease from net charge-offs of $4.0 million in the second quarter of 2013.
Nonaccrual loans, excluding covered loans, totaled $103.9 million or 0.60% of total loans at September 30, 2013, a decrease from both 0.69% of total loans at June 30, 2013 and 0.72% of total loans at September 30, 2012. The nonperforming assets to total assets ratio also decreased, down to 0.51% as of September 30, 2013, compared to 0.57% as of June 30, 2013, and 0.66% as of September 30, 2012.
The allowance for non-covered loan losses was $234.2 million or 1.60% of non-covered loans receivable at September 30, 2013. This compares to an allowance for non-covered loan losses of $233.5 million or 1.73% of non-covered loans at June 30, 2013 and $223.6 million or 2.00% of non-covered loans at September 30, 2012.
The allowance for unfunded commitments and letters of credit was $11.5 million as of September 30, 2013. The Company recorded a provision for unfunded commitments and letters of credit of $3.4 million for third quarter 2013 due to an increase in unfunded commitments on new loans, including construction loans. This compares to a reversal of provision for unfunded commitments and letters of credit of $432 thousand and $1.5 million for the second quarter of 2013 and third quarter of 2012, respectively.
During the third quarter of 2013, the Company recorded a reversal of provision for loan losses of $964 thousand, on covered loans. As these loans are covered under loss-sharing agreements with the FDIC, for any charge-offs, the Company records income of 80% of the charge-off amount in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings of 20% of the charge-off amount.
|(Dollars in millions)|
|September 30, 2013||
Total Excess Above
|Tier 1 leverage capital ratio||8.7||%||5.00||%||$||873|
|Tier 1 risk-based capital ratio||12.4||%||6.00||%||1,056|
|Total risk-based capital ratio||14.0||%||10.00||%||654|
|Tangible equity to tangible assets ratio||8.0||%||N/A||N/A|
|Tangible equity to risk weighted assets ratio||11.6||%||N/A||N/A|
Our capital ratios remain very strong. As of September 30, 2013, our Tier 1 leverage capital ratio totaled 8.7%, our Tier 1 risk-based capital ratio totaled 12.4% and our total risk-based capital ratio totaled 14.0%.
The Company is focused on active capital management and is committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a strong return to our shareholders.
Dividend Payout and Capital Actions
East West's Board of Directors has declared fourth quarter dividends for the common stock. The common stock cash dividend of $0.15 is payable on or about November 15, 2013 to shareholders of record on October 31, 2013.
East West will host a conference call to discuss third quarter 2013 earnings with the public on Thursday, October 17, 2013 at 8:30 a.m. PDT/11:30 a.m. EDT. The public and investment community are invited to listen as management discusses third quarter results and operating developments. The following dial-in information is provided for participation in the conference call: Calls within the US - (888) 317-6016; Calls within Canada - (855) 669-9657; International calls - (412) 317-6016. A listen-only live broadcast of the call also will be available on the investor relations page of the Company's website at www.eastwestbank.com.
East West and MetroCorp Bancshares, Inc. Merger Announcement
On September 18, 2013, East West and MetroCorp Bancshares, Inc. announced that they had entered into a definitive agreement, dated as of September 18, 2013, pursuant to which MetroCorp will merge with and into the Company. Under the terms of the definitive agreement, East West will acquire the outstanding shares of MetroCorp for the lesser of $14.60 per share and 1.72 times the per share tangible equity, as adjusted, for an aggregate purchase price of approximately $273 million based on the 18,699,638 shares currently outstanding. The shareholders of MetroCorp will receive two thirds of the merger consideration in shares of East West common stock and the remainder in cash. The exchange ratio for determining the number of shares of East West common stock deliverable to shareholders of MetroCorp will be based on the weighted average closing price of East West's common stock over a 60 trading day measurement period ending five days prior to the closing. The transaction, which has been unanimously approved by the East West and MetroCorp Boards of Directors, is expected to be completed during the first quarter of 2014, although delays may occur. The transaction is subject to customary closing conditions, including approval by MetroCorp shareholders and regulatory approvals.
About East West
East West Bancorp is a publicly owned company with $24.5 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 one of the largest independent banks headquartered in California. East West is a premier bank focused exclusively on the United States and Greater China markets and operates over 120 locations worldwide, including in the United States markets of California, New York, Georgia, Massachusetts, Texas and Washington. In Greater China, East West's presence includes a full service branch in Hong Kong and representative offices in Beijing, Shenzhen and Taipei. Through a wholly-owned subsidiary bank, East West's presence in Greater China also includes full service branches in Shanghai and Shantou and a representative office in Guangzhou. For more information on East West Bancorp, visit the Company's website at www.eastwestbank.com.
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. 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 include, but are not limited to, local, regional, national and international economic, political or industry conditions and events and the impact they may have on us and our customers; our ability to attract deposits and other sources of liquidity; continued deterioration in values of real estate in California and other states where our bank makes loans, both residential and commercial; our ability to manage the loan portfolios acquired from FDIC-assisted acquisitions within the limits of the loss protection provided by the FDIC; changes in the financial performance and/or condition of our borrowers; changes in the level of nonperforming assets, reserve requirements, and charge-offs; the effect of changes in laws, regulations, and accounting standards, and related costs of these changes; inflation, interest rate, securities market and monetary fluctuations; changes in the competitive environment among financial and bank holding companies and other financial service providers; changes in our organization, management; the adequacy of our enterprise risk management framework; the ability to manage our growth and the effect of acquisitions we may make and the integration of acquired businesses and branching efforts; our success at managing the risks involved in the foregoing items 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, 2012, and particularly the discussion of risk factors within that document. Additional risks and uncertainties relating to the proposed transaction with MetroCorp include, but are not limited to: the ability to complete the proposed transaction, including obtaining regulatory approvals and approvals by the stockholders of MetroCorp; the length of time necessary to consummate the proposed transaction; the ability to successfully integrate the two institutions and achieve expected synergies and operating efficiencies on the expected timeframe; unexpected costs relating to the proposed transaction; and the potential impact on the institutions' respective businesses as a result of uncertainty surrounding the proposed transaction. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect. East West's results could differ materially from those expressed in, implied or projected by such forward-looking statements. East West assumes no obligation to update such forward-looking statements.
Important Information About the Proposed Merger and Where to Find It
In connection with the referenced proposed transaction, East West intends to file with the SEC a registration statement on Form S-4, which will include a proxy statement/prospectus with respect to the proposed acquisition of MetroCorp. The final proxy statement/prospectus will be mailed to the shareholders of MetroCorp in advance of a special meeting of shareholders that will be held to consider the proposed merger. INVESTORS AND SECURITY HOLDERS OF METROCORP ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER CAREFULLY AND IN ITS ENTIRETY, INCLUDING ANY DOCUMENTS PREVIOUSLY FILED WITH THE SEC AND INCORPORATED BY REFERENCE INTO THE PROXY STATEMENT/PROSPECTUS, WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION REGARDING EAST WEST, METROCORP AND THE PROPOSED MERGER. Investors will be able to obtain a free copy of the registration statement and proxy statement/prospectus, as well as other filings containing information about East West and MetroCorp (including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q), without charge, at the SEC's website at http://www.sec.gov/. Investors may also obtain these documents, without charge, from East West's website at http://www.eastwestbank.com or by contacting East West's investor relations department at (626) 768-6000 or from MetroCorp's website at https://www.metrobank-na.com or by contacting MetroCorp's investor relations department at (713) 776-3876.
Participants in a Solicitation
MetroCorp and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed merger. Information about the directors and executive officers of MetroCorp and their ownership of MetroCorp common stock is set forth in the Proxy Statement for MetroCorp's 2013 Annual Meeting of Shareholders as previously filed with the SEC. Additional information regarding the interests of such participants in the proposed transaction will be included in the proxy statement/prospectus, when it becomes available.
1 See reconciliation of the GAAP financial measure to the non-GAAP financial measure in the tables attached.
|EAST WEST BANCORP, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(In thousands, except per share amounts)|
|September 30, 2013||June 30, 2013||September 30, 2012|
|Cash and cash equivalents||$||1,322,383||$||1,050,214||$||1,836,372|
|Securities purchased under resale agreements||1,300,000||1,450,000||1,100,000|
|Loans receivable, excluding covered loans (net of allowance for loan|
|losses of $234,236, $233,480 and $223,637)||14,602,971||13,509,241||11,074,255|
|Covered loans (net of allowance for loan losses of $8,665, $9,629|
|Total loans receivable, net|