East West Bancorp(US:EWBC)2021-08-05 16:00PART I — FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Presents unaudited consolidated financial statements, including balance sheet, income statement, and cash flows, for Q2 and H1 2021, with detailed notes Consolidated Balance Sheet As of June 30, 2021, total assets increased to $59.85 billion, driven by growth in cash, securities, and loans, while total deposits grew significantly to $52.58 billion, primarily in noninterest-bearing accounts Consolidated Balance Sheet Summary (Unaudited) | Account | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Assets | $59,854,876 | $52,156,913 | | Cash and cash equivalents | $5,997,805 | $4,017,971 | | AFS debt securities, at fair value | $8,399,460 | $5,544,658 | | Loans held-for-investment, net | $39,485,775 | $37,770,972 | | Total Liabilities | $54,307,328 | $46,887,738 | | Total deposits | $52,582,575 | $44,862,752 | | - Noninterest-bearing | $21,816,721 | $16,298,301 | | - Interest-bearing | $30,765,854 | $28,564,451 | | Total Stockholders' Equity | $5,547,548 | $5,269,175 | Consolidated Statement of Income For Q2 2021, net income surged to $224.7 million, driven by a $15.0 million reversal of provision for credit losses and higher net interest income, resulting in diluted EPS of $1.57 Consolidated Statement of Income Highlights (Unaudited) | Metric | Three Months Ended June 30, 2021 ($ in thousands) | Three Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2021 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $376,473 | $343,775 | $730,168 | $706,482 | | (Reversal of) provision for credit losses | $(15,000) | $102,443 | $(15,000) | $176,313 | | Total noninterest income | $68,431 | $55,707 | $141,297 | $111,213 | | Total noninterest expense | $189,523 | $184,766 | $380,600 | $365,099 | | Net Income | $224,742 | $99,352 | $429,736 | $244,176 | Earnings Per Share (Unaudited) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $1.58 | $0.70 | $3.03 | $1.71 | | Diluted EPS | $1.57 | $0.70 | $3.01 | $1.70 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and methodologies, covering fair value measurements, securities and loan portfolios, derivatives, credit losses, segment reporting, and contingencies Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q2 and H1 2021 financial performance, highlighting net income growth, balance sheet changes, and risk management, including credit, liquidity, and market risks - Q2 2021 net income was $224.7 million ($1.57/share), a 126% increase from Q2 2020, primarily due to a $15.0 million reversal of provision for credit losses, lower interest expense, and higher noninterest income258 - Total assets grew 15% to $59.85 billion as of June 30, 2021, from year-end 2020, driven by purchases of AFS debt securities and loan growth263 - Total deposits increased 17% to $52.58 billion from year-end 2020, with strong growth in noninterest-bearing demand deposits265 - Asset quality improved, with criticized loans decreasing 15% to $1.03 billion (2.58% of loans) from $1.22 billion (3.17% of loans) at year-end 2020267 Results of Operations Operational results improved significantly year-over-year, with net interest income rising 10% to $376.5 million, noninterest income growing 23% to $68.4 million, and an improved efficiency ratio of 42.60% Net Interest Margin Analysis | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 2.75% | 3.04% | 2.73% | 3.24% | | Yield on Avg. Earning Assets | 2.92% | 3.53% | 2.92% | 3.89% | | Avg. Cost of Funds | 0.18% | 0.53% | 0.20% | 0.71% | - Noninterest income for Q2 2021 increased by 23% YoY to $68.4 million, primarily due to higher other investment income, foreign exchange income, deposit account fees, and wealth management fees289 - Noninterest expense for Q2 2021 increased by 3% YoY to $189.5 million, mainly from higher compensation and benefits, partially offset by the absence of a prior-year debt extinguishment cost298 Balance Sheet Analysis The balance sheet expanded significantly in H1 2021, with AFS debt securities growing 51% to $8.40 billion, the loan portfolio increasing 5% to $39.49 billion, and deposits rising 17% to $52.58 billion - The fair value of AFS debt securities increased by 51% to $8.40 billion as of June 30, 2021, from $5.54 billion at year-end 2020, with 89% of the portfolio rated 'AA-' or higher334335 Loan Portfolio Composition (June 30, 2021) | Loan Type | Amount ($ in thousands) | % of Total | | :--- | :--- | :--- | | Total Commercial | $29,182,304 | 73% | | - C&I | $13,790,461 | 35% | | - Total CRE | $15,391,843 | 38% | | Total Consumer | $10,889,195 | 27% | | - Total Residential Mortgage | $10,741,536 | 27% | | Total Loans Held-for-Investment | $40,071,499 | 100% | - Total deposits grew 17% to $52.58 billion from year-end 2020, driven by a 34% increase in noninterest-bearing demand deposits, which now constitute 42% of total deposits386 Risk Management The company manages risk through a comprehensive ERM framework, showing improved credit quality with criticized loans decreasing 15%, strong liquidity, and an asset-sensitive position to rising interest rates - Criticized loans decreased by 15% to $1.03 billion (2.58% of total loans) as of June 30, 2021, from $1.22 billion (3.17% of total loans) at year-end 2020, indicating improved credit quality415 - As of June 30, 2021, loans under COVID-19 related payment deferral programs decreased to $863.5 million (2% of total loans) from $983.2 million at year-end 2020435 Net Interest Income Sensitivity (12-Month Simulation) | Change in Interest Rates (bps) | NII Volatility (June 30, 2021) | NII Volatility (Dec 31, 2020) | | :--- | :--- | :--- | | +200 | 15.6% | 12.6% | | +100 | 7.4% | 5.6% | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Market Risk Management discussion within Item 2 (MD&A) and Note 6 (Derivatives) for detailed disclosures about the company's market risk exposures - Disclosures regarding market risk are provided in the Management's Discussion and Analysis (Item 2) and the Notes to Consolidated Financial Statements (Note 6)522 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021523 - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2021525 PART II — OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 10 of the Consolidated Financial Statements for information regarding legal proceedings, where the company is a party to various legal actions arising in the ordinary course of business - The company is involved in various legal actions in the ordinary course of business; for details, refer to Note 10 — Commitments and Contingencies528214 Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There has been no material change to the Company's risk factors as presented in the Company's 2020 Form 10-K529 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports that there were no unregistered sales of equity securities or stock repurchase activities during the six months ended June 30, 2021 - The company did not engage in any unregistered sales of equity securities or repurchase activities during the first half of 2021530 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL data files