East West Bancorp Reports Record Net Income for Full Year 2016 of $431.7 Million and Diluted Earnings Per Share of $2.97, Both Up 12% from Prior Year

East West Bancorp, Inc. (“East West” or the “Company”) (Nasdaq: EWBC), parent company of East West Bank, the financial bridge between the United States and Greater China, today reported its financial results for the fourth quarter and full year 2016. For the fourth quarter of 2016, net income was $110.7 million or $0.76 per diluted share. For the full year 2016, net income was $431.7 million or $2.97 per diluted share.

“East West is pleased to report record earnings of $431.7 million or $2.97 per diluted share for the full year 2016, an increase in diluted earnings per share of 12% from 2015. We delivered attractive returns of 1.30% on average assets and 13.1% on average equity,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “2016 marks the seventh consecutive year that East West has achieved record earnings. Our strength in providing cross-border expertise to clients across a number of industry specializations continues to drive growth and reinforces our niche as the financial bridge between the East and the West. Further, we continue to benefit from a strong footprint in some of the most dynamic metropolitan markets in the United States.”

“For the full year 2016, East West continued a track record of impressive growth in loans and deposits. Total loans grew $1.8 billion or 8% to a record $25.5 billion from $23.7 billion as of December 31, 2015. Total deposits grew $2.4 billion or 9% to a record $29.9 billion as of December 31, 2016 from $27.5 billion a year ago. Growth in 2016 was achieved through balanced, diversified loan originations across our business lines, supported by robust growth in core deposits, which increased by 16% year-over-year,” continued Ng.

“We believe that East West’s balance sheet is well positioned to benefit from a higher interest rate environment because of our asset and funding mix, driving net interest margin expansion and net interest income growth. We are optimistic about the new year and our ability to grow profitably and prudently,” concluded Ng.

HIGHLIGHTS OF RESULTS

• Solid Earnings – Net income of $110.7 million for the fourth quarter of 2016 modestly increased by $0.6 million compared to $110.1 million for the third quarter of 2016; diluted earnings per share ("EPS") of $0.76 were unchanged linked quarter. Full year 2016 net income of $431.7 million grew by 12% year-over-year from $384.7 million; diluted full year 2016 EPS of $2.97 also grew by 12% from $2.66 in the previous year.
• Solid Profitability – Fourth quarter 2016 return on average assets was 1.27%, return on average equity was 12.9%, and return on average tangible equity was 15.3%; full year 2016 return on average assets was 1.30%, return on average equity was 13.1%, and return on average tangible equity was 15.7%. Fourth quarter 2016 adjusted1 pre-tax, pre-provision profitability of 2.10% expanded by seven basis points from 2.03% in the previous quarter.
• Solid Net Interest Income and Revenue Growth – Net interest income totaled $272.7 million for the fourth quarter of 2016, up $18.6 million or 7% linked quarter. Year-over-year, net interest income grew $25.8 million or 10% from $246.9 million in the fourth quarter of 2015. Total revenue of $321.5 million grew by 6% linked quarter and 10% year-over-year.
• Record Assets – Total assets as of December 31, 2016 reached a record $34.8 billion, an increase of $1.5 billion or 5% from $33.3 billion as of September 30, 2016. Total assets grew by 8% year-over-year.
• Record Loans – Total gross loans of $25.5 billion as of December 31, 2016 were up $752.7 million or 12% annualized from $24.8 billion as of September 30, 2016. The sequential quarter growth in loans was primarily driven by increases in commercial loans and commercial real estate loans. Total gross loans grew by 8% year-over-year.
• Record Deposits – Total deposits of $29.9 billion as of December 31, 2016 were up $1.3 billion or 18% annualized from $28.6 billion as of September 30, 2016. The sequential quarter growth in deposits was primarily due to increases in noninterest-bearing demand deposits and money market deposits. Total deposits grew by 9% year-over-year. Noninterest-bearing deposits comprised 34% of total deposits as of December 31, 2016.
• Asset Quality – Asset quality was stable in the current quarter. Allowance for loan losses was essentially steady, at 1.02% of loans held-for-investment ("HFI") as of December 31, 2016, compared to 1.03% as of September 30, 2016. Nonperforming assets decreased slightly to $129.6 million or 0.37% of total assets as of December 31, 2016, compared to $130.8 million or 0.39% of total assets as of September 30, 2016. The net charge-offs ratio dropped to 0.13% of average loans, annualized, in the current quarter, declining from 0.37% of average loans, annualized, in the previous quarter.
• Capital Ratios – Capital levels for East West continue to be solid. Tangible equity per common share as of December 31, 2016 was $20.27, growth of 2% linked quarter and 12% year-over-year. As of December 31, 2016, the tangible equity to tangible assets ratio was 8.52%, the Common Equity Tier 1 (“CET1”) capital ratio was 10.9%, and the total risk-based capital ratio was 12.5%.

1 Pre-tax, pre-provision income excludes the amortization of tax credit and other investments, the amortization of premiums on deposits acquired, and, in the fourth quarter of 2016, a one-time impact from the reversal of a legal accrual. See reconciliation of the GAAP to non-GAAP financial measures in Table 12.

MANAGEMENT OUTLOOK FOR 2017

Our current outlook for the expected full year 2017 results, compared to our full year 2016 results, is as follows:

• End of Period Loan Growth: increase at a percentage rate in the high single digits.
• Net Interest Margin (excluding the impact of ASC 310-30 discount accretion): between 3.20% - 3.40%.
• Noninterest Expenses (excluding tax credit amortization & deposit premium amortization): increase at a percentage rate in the low single digits.
• Provision for Credit Losses: in the range of $40 million to $50 million.
• Tax Items: projecting investment in tax-advantaged credits of $90 million, and associated tax credit amortization expense of $80 million.
• Interest Rates: our outlook incorporates the current forward rate curve; as such, it currently assumes three fed funds rate increases in the year 2017: in June, September, and December.

OPERATING RESULTS SUMMARY

Fourth Quarter 2016 Compared to Third Quarter 2016

Net Interest Income

Net interest income totaled $272.7 million, an increase of $18.6 million or 7% from $254.1 million.

• Interest income from loans excluding ASC 310-30 discount accretion increased by $12.4 million or 5%, ASC 310-30 discount accretion income increased by $4.4 million, and interest income on other interest-earning assets increased by $4.9 million or 20%. Interest expense increased by $3.3 million or 12%.
• Average loans of $25.0 billion grew by $723.9 million or 12% annualized, up from $24.3 billion.
• Average deposits of $29.8 billion grew by $1.6 billion or 22% annualized, up from $28.3 billion. The strong deposit growth in excess of loan growth increased average interest-bearing cash and deposits with banks, which grew by $671.2 million to $2.3 billion, or 7% of average interest-earning assets, up from $1.6 billion or 5% of average interest-earning assets in the previous quarter.

Net Interest Margin

The net interest margin (“NIM”) expanded by five basis points to 3.31% from 3.26%. The sequential quarter NIM expansion primarily reflects the increase in accretion income; excluding the impact of ASC 310-30 discount accretion, NIM was 3.17% versus 3.16%.

• Interest rates moved higher in the fourth quarter of 2016, improving earning asset yields. Loan yields excluding the impact of ASC 310-30 discount accretion expanded by eight basis points to 4.13% from 4.05%. Over 75% of East West's loan portfolio is variable rate.
• The yield on investment securities expanded by 16 basis points to 1.79%, reflecting the repricing of floating rate investments and purchases of securities at higher yields.
• Net interest margin expansion, however, was tempered by higher balances of interest-bearing cash and deposits with banks, the yield on which was unchanged at 0.79%.
• Reflecting the increasing contribution of non-interest bearing demand deposits in the funding mix, the all-in cost of deposits was 0.31%, a sequential quarter increase of one basis point.

Noninterest Income

Total noninterest income of $48.8 million decreased $0.5 million or 1% from $49.3 million. Excluding net gains on sales of loans and securities and changes to the FDIC indemnification asset, total fees and operating income of $47.8 million increased by $2.4 million or 5% from $45.4 million in the third quarter of 2016, as presented in the following table for the quarters ended December 31, 2016, September 30, 2016 and December 31, 2015.

Noninterest Expense & Effective Tax Rate

Noninterest expense totaled $149.9 million, comprised of $138.7 million of adjusted2 noninterest expense, $22.7 million of tax credit amortization, $1.9 million of deposit premium amortization, and a $13.4 million reversal of a legal accrual related to the settlement of a lawsuit.

• Adjusted2 noninterest expense of $138.7 million increased by $2.9 million or 2% linked quarter. The adjusted2 efficiency ratio of 43.2% improved by 161 basis points from 44.8%.
• The Company’s effective tax rate was 31.3%, compared to an effective tax rate of 10.8% in the previous quarter. Amortization expense of tax credits and other investments was $22.7 million in the fourth quarter of 2016, a decrease of $9.9 million from $32.6 million in the third quarter of 2016. The lower effective tax rate and conversely, higher amortization of tax credits and other investments in the third quarter compared to the fourth quarter of 2016 was due to the increased level of investment in tax-advantaged credits in renewable energy projects, and also a $3.0 million favorable state tax settlement in the third quarter of 2016.

• For the full year 2016, the effective tax rate was 24.6% compared to 33.5% for the full year 2015.

CREDIT QUALITY

Asset quality was stable in the current quarter.

• The allowance for loan losses totaled $260.5 million as of December 31, 2016, or 1.02% of loans HFI, compared to $255.8 million or 1.03% of loans HFI, and $265.0 million or 1.12% of loans HFI as of September 30, 2016 and December 31, 2015, respectively.
• The Company recorded a provision for credit losses of $10.5 million in the current quarter, compared to $9.5 million in the third quarter of 2016, and a reversal of provision for credit losses of $2.0 million in the fourth quarter of 2015.
• In the fourth quarter of 2016, net charge-offs were $8.0 million or 0.13% of average loans, annualized, declining from net charge-offs of $22.5 million or 0.37% of average loans, annualized, in the previous quarter and compared to net recoveries of $3.8 million in the prior year quarter.
• Nonperforming assets decreased by $1.3 million or 1% linked quarter to $129.6 million or 0.37% of total assets as of December 31, 2016, compared to 0.39% as of September 30, 2016 and 0.40% as of December 31, 2015.

2 Adjusted noninterest expense excludes the amortization of tax credit and other investments, the amortization of premiums on deposits acquired, and, in the fourth quarter of 2016, a one-time impact from the reversal of a legal accrual. See reconciliation of the GAAP to non-GAAP financial measures in Table 12.

CAPITAL STRENGTH

Capital levels for East West continue to be solid. Tangible equity per common share as of December 31, 2016 was $20.27, an increase of 2% linked quarter and 12% year-over-year. The following table presents regulatory capital ratios for the quarters ended December 31, 2016, September 30, 2016 and December 31, 2015.

DIVIDEND PAYOUT AND CAPITAL ACTIONS

East West’s Board of Directors has declared first quarter 2017 dividends for the Company’s common stock. The common stock cash dividend of $0.20 per share is payable on February 15, 2017 to shareholders of record on February 1, 2017.

Conference Call

East West will host a conference call to discuss fourth quarter and full year 2016 earnings with the public on Thursday, January 26, 2017 at 8:30 a.m. PST/11:30 a.m. EST. The public and investment community are invited to listen as management discusses fourth quarter and full year 2016 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 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 January 26, 2017 at 11:30 a.m. PST through February 26, 2017. 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: 10098676.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $34.8 billion 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 130 locations worldwide, including in the United States markets of California, Georgia, Massachusetts, Nevada, New York, Texas and Washington. In Greater China, East West’s presence includes full service branches in Hong Kong, Shanghai, Shantou and Shenzhen, and representative offices in Beijing, Chongqing, Guangzhou, Taipei 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) 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 retail customers; changes in the economy of and monetary policy in the People’s Republic of China; changes in income tax laws and regulations; 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 potential federal tax increases and spending cuts; impact of adverse judgments or settlements in litigation or 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; 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; the effect of the current low interest rate environment or 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; 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, 2015, 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.