East West Bancorp Reports Net Income for First Quarter 2017 of $169.7 Million and Diluted Earnings Per Share of $1.16, Both up 53% from the Prior Quarter

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 first quarter of 2017. For the first quarter of 2017, net income was $169.7 million or $1.16 per diluted share. First quarter 2017 return on average assets was 1.97%, return on average equity was 19.7% and return on average tangible1 equity was 23.2%.

“East West had a strong start to the year. In the first quarter of 2017, total loans grew $1.0 billion or 15% annualized to a record $26.5 billion from $25.5 billion as of December 31, 2016. Total deposits grew $652 million or 9% annualized to a record $30.5 billion as of March 31, 2017 from $29.9 billion at the end of 2016,” stated Dominic Ng, Chairman and Chief Executive Officer of East West. “Noninterest-bearing demand deposits grew to a record $10.7 billion, comprising 35% of East West’s deposit mix.”

“Our strong financial results for the first quarter of 2017 were driven by solid balance sheet expansion. Strong loan and deposit growth drove adjusted2 net interest income growth of 12% linked quarter annualized, to $269 million. Recent rising interest rates supported adjusted2 net interest margin expansion of 12 basis points to 3.29%. Disciplined oversight of our operating expenses delivered an industry-leading adjusted3 efficiency ratio of 43.3%. Finally, along with our strong operating performance, credit quality continues to be stable with an annualized net charge-off ratio of eight basis points this quarter,” continued Ng.

“In summary, East West delivered strong financial performance in the first quarter. Quarter after quarter, year after year, our results illustrate the key strengths of our bank. These key strengths are: consistent organic loan and deposit growth, favorable asset sensitivity, and prudent expense management,” concluded Ng.

HIGHLIGHTS OF RESULTS

• Solid Earnings - Net income of $169.7 million for the first quarter of 2017 increased by 53% compared to $110.7 million for the fourth quarter of 2016; diluted earnings per share (“EPS”) of $1.16 also increased by 53% linked quarter from $0.76. Excluding the net gain on sale of a commercial property during the first quarter of 2017, as noted below, adjusted4 net income of $128.2 million and adjusted4 diluted EPS of $0.88 both increased by 16% from the fourth quarter of 2016.
• Sale of Property - In the first quarter of 2017 East West Bank completed the sale and leaseback of a commercial property in San Francisco, California for a sale price of $120.6 million and entered into a lease agreement for part of the property, including a retail branch and office facilities. The total pre-tax profit from the sale was $85.4 million with $71.7 million recognized in the first quarter and $13.7 million to be deferred over the term of the lease agreement. The first quarter 2017 diluted EPS impact from the sale of the commercial property was $0.28, net of tax.
• Solid Profitability - Excluding the impact of the commercial property sale, first quarter 2017 adjusted4 return on average assets was 1.49%, up by 22 basis points linked quarter; adjusted4 return on average equity was 14.9%, up by 201 basis points linked quarter, and adjusted5 return on average tangible equity was 17.6%, up by 231 basis points linked quarter.
• Net Interest Income Growth and Net Interest Margin Expansion - Net interest income totaled $272.1 million for the first quarter of 2017. Accounting Standard Codification (“ASC”) 310-30 discount accretion declined by $8.4 million linked quarter, as anticipated, and adjusted6 net interest income of $268.9 million increased by $7.8 million sequentially, or 12% annualized, due to growth in the loan portfolio and the positive impact of recent interest rate increases. First quarter 2017 net interest margin (“NIM”) of 3.33% expanded by two basis points linked quarter; the adjusted6 NIM of 3.29% expanded by 12 basis points linked quarter.
• Record Loans - Total gross loans of $26.5 billion as of March 31, 2017 were up $1.0 billion or 15% annualized from $25.5 billion as of December 31, 2016. The quarter-to-date loan growth was broad based and driven by strong increases across all of our commercial and retail lines of business. Total gross loans grew by 11% year-over-year.
• Record Deposits - Total deposits of $30.5 billion as of March 31, 2017 were up $652 million or 9% annualized from $29.9 billion as of December 31, 2016. The growth in deposits was primarily due to increases in noninterest-bearing demand deposits, time deposits and interest-bearing checking accounts, partially offset by a decline in money market deposits. Noninterest-bearing demand deposits increased by $475 million to $10.7 billion as of March 31, 2017, comprising 35% of total deposits, up from 34% at the end of 2016. Total deposits grew by 7% year-over-year.
• Asset Quality - The allowance for loan losses increased to $263.1 million, or 0.99% of loans held-for-investment (“HFI”) as of March 31, 2017, compared to $260.5 million, or 1.02% as of December 31, 2016. The annualized net charge-offs ratio declined to 0.08% of average loans HFI in the current quarter, compared to 0.13% of average loans HFI in the previous quarter. Nonperforming assets increased to $144.8 million or 0.41% of total assets as of March 31, 2017, compared to $129.6 million or 0.37% of total assets as of December 31, 2016.

• Capital Ratios - Capital levels for East West continue to be solid. Tangible equity per common share as of March 31, 2017 was $21.20, growth of 5% linked quarter and 13% year-over-year. As of March 31, 2017, the tangible equity to tangible assets ratio was 8.79%, the Common Equity Tier 1 (“CET1”) capital ratio was 11.1%, and the total risk-based capital ratio was 12.6%.

QUARTERLY RESULTS SUMMARY

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 Loans: increase at a percentage rate in the low double digits. This is an increase from our previous outlook for full year 2017 loan growth in the high single digits.
• Net Interest Margin (excluding the impact of ASC 310-30 discount accretion): between 3.35% and 3.45%. This is an increase from our previous outlook for full year 2017 NIM in the range of 3.20% to 3.40%.
• Noninterest Expense (excluding tax credit amortization & core deposit intangible amortization): increase at a percentage rate in the low single digits. This is unchanged from our previous outlook.
• Provision for Credit Losses: in the range of $40 million to $50 million. This is unchanged from our previous outlook.
• Tax Items: projecting investment in renewable energy and historical tax credits of $95 million, and associated tax credit amortization of $75 million, resulting in a full year 2017 effective tax rate ranging from 26% to 29%. This compares to our previous outlook of $90 million of tax credit investments and $80 million of associated tax credit amortization.
• Interest Rates: our outlook incorporates the current forward rate curve; as such, it assumes two additional Fed Funds rate increases in 2017 in June and November. Our previous outlook incorporated Fed Funds rate increases in June, September, and December.

OPERATING RESULTS SUMMARY

First Quarter 2017 Compared to Fourth Quarter 2016

Net Interest Income

Net interest income totaled $272.1 million, a slight decrease of $0.6 million from $272.7 million.

• Adjusted7 net interest income, excluding ASC 310-30 discount accretion, increased by $7.8 million or 12% annualized to $268.9 million; ASC 310-30 discount accretion decreased by $8.4 million.
• Strong average loan growth of $1.1 billion or 17% annualized, to $26.1 billion, up from $25.0 billion.
• Modest average deposit decline of $118 million or 2% annualized, to $29.7 billion, down from $29.8 billion.
• Average noninterest-bearing demand deposits comprised 34.0% of total deposits compared to 34.1% last quarter.

Net Interest Margin

Net interest margin expanded by two basis points to 3.33% from 3.31%.

• Excluding the impact of ASC 310-30 discount accretion, adjusted NIM7 expanded by 12 basis points to 3.29% from 3.17%.
• The cost of deposits increased by only one basis point to 0.32% from 0.31%.
• The sequential quarter NIM expansion reflects loan growth and the positive impact of rising interest rates, which more than offset an anticipated decrease in accretion income.

Noninterest Income

Total noninterest income of $116.0 million includes the $71.7 million gain on sale of the commercial property discussed earlier. Excluding this gain, as well as net gains on sales of loans and securities, total fees and operating income of $38.8 million decreased by $8.7 million or 18% from $47.5 million in the fourth quarter of 2016.

• Letters of credit fees increased by $0.7 million linked quarter to $8.4 million in the first quarter of 2017.
• Customer-related foreign exchange (“FX”) income increased in the first quarter of 2017 compared to the prior quarter; however, total FX income declined over the same period largely due to valuation changes associated with currency hedges.
• Fees from assisting customers to hedge interest rates increased by $1.4 million linked quarter to $3.6 million in the first quarter of 2017. Overall, derivative fees and other income of $2.5 million declined by $4.5 million linked quarter primarily due to mark-to-market valuation adjustments related to changes in interest rates.

The following table presents fees and other operating income for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016.

Noninterest Expense & Effective Tax Rate

Noninterest expense totaled $153.1 million, comprised of $136.9 million of adjusted noninterest expense, $14.4 million of tax credit amortization and $1.8 million of core deposit intangible amortization.

• Adjusted noninterest expense of $136.9 million decreased by $1.8 million or 1% linked quarter. The adjusted efficiency ratio of 43.3% was essentially steady, increasing by only 9 basis points from 43.2%.
• Litigation related expense of $3.1 million increased from $(9.9) million in the prior quarter. Fourth quarter 2016 litigation expense included a legal accrual reversal of $13.4 million.
• The Company’s effective tax rate was 25.6%, compared to an effective tax rate of 31.3% in the prior quarter. The lower tax rate was primarily due to a change in the accounting for stock-based compensation in accordance with Accounting Standards Update 2016-09, which was effective January 1, 2017, lowering the Company’s tax expense in the first quarter by approximately $4.4 million or $0.03 per share

CREDIT QUALITY

The allowance for loan losses totaled $263.1 million as of March 31, 2017, or 0.99% of loans HFI, compared to $260.5 million or 1.02% of loans HFI, and $260.2 million or 1.10% of loans HFI as of December 31, 2016 and March 31, 2016, respectively.

• The Company recorded a provision for credit losses of $7.1 million in the current quarter, compared to $10.5 million in the fourth quarter of 2016, and $1.4 million in the first quarter of 2016.
• In the first quarter of 2017, net charge-offs were $5.4 million or 0.08% of average loans HFI, annualized, declining from prior quarter net charge-offs of $8.0 million or 0.13% of average loans HFI, annualized, and compared to prior year quarter net charge-offs of $5.1 million or 0.09% of average loans HFI, annualized.
• Nonperforming assets increased by $15.2 million or 12% linked quarter to $144.8 million or 0.41% of total assets as of March 31, 2017, compared to 0.37% as of December 31, 2016 and 0.51% as of March 31, 2016. The increase in nonperforming assets was due to two unrelated loans, a commercial real estate loan and a commercial loan, both of which were fully collateralized as of March 31, 2017.

CAPITAL STRENGTH

Capital levels for East West continue to be solid. Tangible equity per common share as of March 31, 2017 was $21.20, an increase of 5% linked quarter and 13% year-over-year. The following table presents the regulatory capital ratios for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016.

DIVIDEND PAYOUT AND CAPITAL ACTIONS

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

Conference Call

East West will host a conference call to discuss first quarter 2017 earnings with the public on Thursday, April 20, 2017 at 8:30 a.m. PT/11:30 a.m. ET. The public and investment community are invited to listen as management discusses first quarter 2017 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 April 20, 2017 at 11:30 a.m. Pacific Time through May 20, 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: 10103877.

About East West

East West Bancorp, Inc. is a publicly owned company with total assets of $35.3 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, 2016, 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.

(1) Resale and repurchase agreements are reported net pursuant to Accounting Standards Codification (“ASC”) 210-20-45, Balance Sheet Offsetting. As of March 31, 2017, December 31, 2016, and March 31, 2016, $250.0 million, $100.0 million and $250.0 million out of $450.0 million of gross repurchase agreements were eligible for netting against resale agreements, respectively.

(2) See reconciliation of the GAAP to non-GAAP financial measures in Table 12.

(1) Includes $(4.7) million, $1.2 million and $(13.5) million as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively, of net deferred loan fees, unamortized premiums and unaccreted discounts.
(2) Includes ASC 310-30 discount of $46.7 million, $49.4 million and $68.7 million as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

NM Not Meaningful.

(1) Includes average balances of ASC 310-30 discount of $48.6 million, $54.7 million and $76.7 million for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively.
(2) Annualized except for efficiency ratio.
(3) See reconciliation of the GAAP to non-GAAP financial measures in Table 9, 10, 11 and 12.

(1) Annualized.
(2) Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.
(3) Includes average balances of ASC 310-30 discount of $48.6 million and $54.7 million for the quarters ended March 31, 2017 and December 31, 2016, respectively.
(4) See reconciliation of the GAAP to non-GAAP financial measures in Table 11.

(1) Annualized.
(2) Average balances of resale and repurchase agreements are reported net, pursuant to ASC 210-20-45, Balance Sheet Offsetting.
(3) Includes average balances of ASC 310-30 discount of $48.6 million and $76.7 million for the quarters ended March 31, 2017 and 2016, respectively.
(4) See reconciliation of the GAAP to non-GAAP financial measures in Table 11.

(1) Total assets and loans held-for-investment include PCI loans of $611.7 million, $642.4 million and $866.8 million as of March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
(2) Annualized.

(1) Applied statutory tax rate of 42.05%.
(2) Annualized.

(1) Annualized.

(1) Annualized.

(1) Includes core deposit intangibles and mortgage servicing assets.
(2) Applied statutory tax rate of 42.05%.
(3) Annualized.

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