EAST WEST BANCORP INC [EWBC] Filings

10-Q 1 ewbc-20230630.htm 10-Q ewbc-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-24939

EAST WEST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

95-4703316

(I.R.S. Employer Identification No.)

135 North Los Robles Ave., 7th Floor, Pasadena, California 91101

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(626) 768-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, par value $0.001 per share

EWBC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 141,483,668 shares as of July 31, 2023.

TABLE OF CONTENTS


			Page
FORWARD-LOOKING STATEMENTS			3
PART I — FINANCIAL INFORMATION			5

	Item 1.	Consolidated Financial Statements	5
		Consolidated Balance Sheet (Unaudited)	5
		Consolidated Statement of Income (Unaudited)	6
		Consolidated Statement of Comprehensive Income (Loss) (Unaudited)	7
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)	8
		Consolidated Statement of Cash Flows (Unaudited)	9
		Notes to Consolidated Financial Statements (Unaudited)	11
		1 — Basis of Presentation	11
		2 — Current Accounting Developments and Summary of Significant Accounting Policies	12
		3 — Fair Value Measurement and Fair Value of Financial Instruments	13
		4 — Assets Purchased under Resale Agreements and Sold under Repurchase Agreements	23
		5 — Securities	25
		6 — Derivatives	31
		7 — Loans Receivable and Allowance for Credit Losses	38
		8 — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities	52
		9 — Goodwill	53
		10 — Short-Term Borrowings and Long-Term Debt	54
		1 1 — Commitments and Contingencies	54


		1 2 — Stock Compensation Plans	56
		1 3 — Stockholders’ Equity and Earnings Per Share	57
		1 4 — Accumulated Other Comprehensive Income (Loss)	57
		1 5 — Business Segments	59


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62










	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	101

	Item 4.	Controls and Procedures	101


PART II — OTHER INFORMATION			102

	Item 1.	Legal Proceedings	102
	Item 1A.	Risk Factors	102
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102


	Item 5.	Other Information	103
	Item 6.	Exhibits	103

GLOSSARY OF ACRONYMS			104

SIGNATURE			105

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q (this “Form 10-Q”) contain forward-looking statements that are intended to be covered by the safe harbor provisions for such statements provided by the Private Securities Litigation Reform Act of 1995. In addition, East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company,” “we” or “EWBC”) may make forward-looking statements in other documents that it files with, or furnishes to, the United States (“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 assumptions, beliefs, estimates, expectations and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Forward-looking statements may relate to various matters, including the Company’s financial condition, results of operations, plans, objectives, future performance, business or industry, and usually can be identified by the use of forward-looking words, 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 or variations thereof, and the negative thereof, but these terms are not the exclusive means of identifying such statements. You should not place undue reliance on forward-looking 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.

There are various 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, capital or financial market disruption, supply chain disruption, level of inflation, interest rate environment, housing prices, employment levels, rate of growth and general business conditions, which could result in, among other things, reduced demand for loans, reduced availability of funding or increased funding costs, declines in asset values and/or recognition of allowance for credit losses;

•changes in local, regional and global business, economic and political conditions and geopolitical events, such as Russia’s invasion of Ukraine;

•the soundness of other financial institutions and the impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements, Federal Deposit Insurance Corporation (“FDIC”) insurance premiums, losses in the value of our investment portfolio, deposit withdrawals, or other adverse consequences of negative market perceptions of the banking industry or the Company;

•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 FDIC, the SEC, the Consumer Financial Protection Bureau (“CFPB”), the California Department of Financial Protection and Innovation — Division of Financial Institutions, the National Administration of Financial Regulation, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, and the Monetary Authority of Singapore;

•changes and effects thereof in trade, monetary and fiscal policies and laws, including the ongoing trade, 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;

•the impact from potential changes to income tax laws and regulations, federal spending and economic stimulus programs;

•the impact of any future U.S. federal government shutdown and uncertainty regarding the U.S. federal government’s debt limit and credit rating;

•the Company’s ability to compete effectively against financial institutions and other entities, including as a result of emerging technologies;

•the success and timing of the Company’s business strategies;

•the Company’s ability to retain key officers and employees;

•the 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 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;

•the impact of adverse judgments or settlements in litigation;

•the impact of 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 on the Company and its customers;

•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 (“FASB”) or other regulatory agencies and their impact on the Company’s 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 strategic acquisitions or divestitures;

•changes in the equity and debt securities markets;

•fluctuations in the Company’s stock price;

•fluctuations in foreign currency exchange rates;

•the impact of increased focus on social, environmental and sustainability matters, which may affect the operations of the Company and its customers and the economy more broadly; and

•the impact of climate change, natural or man-made disasters or calamities, such as wildfires, droughts, hurricanes, flooding and earthquakes or other events that may directly or indirectly result in a negative impact on the financial performance of the Company and its customers.

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, 2022, filed with the SEC on February 27, 2023 (the “Company’s 2022 Form 10-K”) under the heading Item 1A. Risk Factors, and Item 1A. Risk Factors of this Form 10-Q. You should treat forward-looking statements as speaking only as of the date they are made and based only on information then actually known to the Company. 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.

PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

($ in thousands, except shares)

(Unaudited)



	June 30, 2023		December 31, 2022

ASSETS
Cash and due from banks	$	614,053	$	534,980
Interest-bearing cash with banks	5,763,834		2,946,804
Cash and cash equivalents	6,377,887		3,481,784
Interest-bearing deposits with banks	17,169		139,021
Assets purchased under resale agreements (“resale agreements”)	635,000		792,192
Securities:
Available-for-sale (“AFS”) debt securities, at fair value (amortized cost of $6,820,569 and $6,879,225)	5,987,258		6,034,993
Held-to-maturity (“HTM”) debt securities, at amortized cost (fair value of $2,440,484 and $2,455,171)	2,975,933		3,001,868

Loans held-for-sale	2,830		25,644
Loans held-for-investment (net of allowance for loan losses of $635,400 and $595,645)	49,192,964		47,606,785
Investments in qualified affordable housing partnerships, tax credit and other investments, net	815,471		763,256

Premises and equipment (net of accumulated depreciation of $153,079 and $148,126)	88,966		89,191
Goodwill	465,697		465,697
Operating lease right-of-use assets	100,500		103,681
Other assets	1,873,006		1,608,038
TOTAL	$	68,532,681	$	64,112,150
LIABILITIES
Deposits:
Noninterest-bearing	$	16,741,099	$	21,051,090
Interest-bearing	38,917,687		34,916,759
Total deposits	55,658,786		55,967,849
Short-term borrowings	4,500,000		—


Assets sold under repurchase agreements (“repurchase agreements”)	—		300,000
Long-term debt and finance lease liabilities	152,951		152,400
Operating lease liabilities	110,383		111,931
Accrued expenses and other liabilities	1,648,864		1,595,358
Total liabilities	62,070,984		58,127,538
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 200,000,000 shares authorized; 169,310,864 and 168,459,045 shares issued	169		168
Additional paid-in capital	1,959,615		1,936,389
Retained earnings	6,075,735		5,582,546
Treasury stock, at cost 27,827,196 and 27,511,199 shares	(791,890)		(768,862)
Accumulated other comprehensive loss (“AOCI”), net of tax	(781,932)		(765,629)
Total stockholders’ equity	6,461,697		5,984,612
TOTAL	$	68,532,681	$	64,112,150

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

($ and shares in thousands, except per share data)

(Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	771,264	$	439,416	$	1,499,650	$	816,526
Debt securities	68,970		46,176		134,901		88,843

Resale agreements	3,969		8,553		8,472		16,936
Restricted equity securities	936		822		1,975		1,431
Interest-bearing cash and deposits with banks	60,995		4,787		96,642		8,047
Total interest and dividend income	906,134		499,754		1,741,640		931,783
INTEREST EXPENSE
Deposits	287,477		22,488		504,271		35,477
Federal funds purchased and other short-term borrowings	49,032		241		57,857		250
Federal Home Loan Bank (“FHLB”) advances	—		559		6,430		1,137
Repurchase agreements	211		2,418		1,263		4,434
Long-term debt and finance lease liabilities	2,668		1,096		5,212		1,920
Total interest expense	339,388		26,802		575,033		43,218
Net interest income before provision for credit losses	566,746		472,952		1,166,607		888,565
Provision for credit losses	26,000		13,500		46,000		21,500
Net interest income after provision for credit losses	540,746		459,452		1,120,607		867,065
NONINTEREST INCOME
Lending fees	20,901		20,142		41,487		39,580
Deposit account fees	22,285		22,372		43,988		42,687
Interest rate contracts and other derivative income	7,373		9,801		9,937		20,934
Foreign exchange income	13,251		11,361		25,911		24,060
Wealth management fees	6,889		6,539		13,193		12,591
Net (losses) gains on sales of loans	(7)		917		(29)		3,839
Net gains (losses) on AFS debt securities	—		28		(10,000)		1,306



Other investment income	4,003		4,863		5,924		6,490
Other income	3,936		2,421		8,198		6,700
Total noninterest income	78,631		78,444		138,609		158,187
NONINTEREST EXPENSE
Compensation and employee benefits	124,937		113,364		254,591		229,633
Occupancy and equipment expense	16,088		15,469		31,675		30,933
Deposit insurance premiums and regulatory assessments	8,262		4,927		16,172		9,644
Deposit account expense	10,559		5,671		20,168		10,364
Data processing	3,213		3,486		6,560		7,151
Computer software expense	7,479		6,572		14,839		13,866


Other operating expense	35,337		32,392		70,207		55,840
Amortization of tax credit and other investments	55,914		14,979		66,024		28,879

Total noninterest expense	261,789		196,860		480,236		386,310
INCOME BEFORE INCOME TAXES	357,588		341,036		778,980		638,942
INCOME TAX EXPENSE	45,557		82,707		144,510		142,961
NET INCOME	$	312,031	$	258,329	$	634,470	$	495,981
EARNINGS PER SHARE (“EPS”)
BASIC	$	2.21	$	1.83	$	4.49	$	3.50
DILUTED	$	2.20	$	1.81	$	4.47	$	3.47
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC	141,468		141,429		141,291		141,725
DILUTED	141,876		142,372		141,910		142,838

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

($ in thousands)

(Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	312,031	$	258,329	$	634,470	$	495,981
Other comprehensive loss, net of tax:
Net changes in unrealized (losses) gains on AFS debt securities	(43,618)		(192,878)		7,701		(362,148)
Reclassification of unrealized losses on debt securities transferred from AFS to HTM	—		—		—		(112,991)
Amortization of unrealized losses on debt securities transferred from AFS to HTM	2,816		3,750		5,578		6,061
Net changes in unrealized losses on cash flow hedges	(53,887)		(6,380)		(25,274)		(31,103)
Foreign currency translation adjustments	(7,249)		(10,215)		(4,308)		(10,086)
Other comprehensive loss	(101,938)		(205,723)		(16,303)		(510,267)
COMPREHENSIVE INCOME (LOSS)	$	210,093	$	52,606	$	618,167	$	(14,286)

See accompanying Notes to Consolidated Financial Statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in thousands, except shares and per share data)

(Unaudited)



	Common Stock and Additional Paid-in Capital			Retained Earnings		Treasury Stock		AOCI, Net of Tax		Total Stockholders’ Equity
	Shares	Amount
BALANCE, APRIL 1, 2022	142,256,520	$	1,903,042	$	4,863,721	$	(668,382)	$	(394,925)	$	5,703,456
Net income	—	—		258,329		—		—		258,329
Other comprehensive loss	—	—		—		—		(205,723)		(205,723)
Issuance of common stock pursuant to various stock compensation plans and agreements	51,733	11,190		—		—		—		11,190
Repurchase of common stock pursuant to various stock compensation plans and agreements	(5,347)	—		—		(380)		—		(380)
Repurchase of common stock pursuant to the Stock Repurchase Program	(1,385,517)	—		—		(99,990)		—		(99,990)
Cash dividends on common stock ($0.40 per share)	—	—		(57,400)		—		—		(57,400)
BALANCE, JUNE 30, 2022	140,917,389	$	1,914,232	$	5,064,650	$	(768,752)	$	(600,648)	$	5,609,482
BALANCE, APRIL 1, 2023	141,395,800	$	1,947,687	$	5,832,291	$	(790,653)	$	(679,994)	$	6,309,331

Net income	—	—		312,031		—		—		312,031
Other comprehensive loss	—	—		—		—		(101,938)		(101,938)
Issuance of common stock pursuant to various stock compensation plans and agreements	111,097	12,097		—		—		—		12,097
Repurchase of common stock pursuant to various stock compensation plans and agreements	(23,229)	—		—		(1,237)		—		(1,237)

Cash dividends on common stock ($0.48 per share)	—	—		(68,587)		—		—		(68,587)
BALANCE, JUNE 30, 2023	141,483,668	$	1,959,784	$	6,075,735	$	(791,890)	$	(781,932)	$	6,461,697