The decision to terminate a shared-loss agreement with the Federal Deposit Insurance Corp. boosted third-quarter profits at East West Bancorp in Pasadena, Calif.
The $31.1 billion-asset company reported a 2.3% increase in net income year over year, to $94.1 million. Earnings per share of 65 cents met the average estimate of analysts polled by Bloomberg.
East West reached an agreement with the FDIC in September to end early a shared-loss agreement tied to Washington First International Bank, which was closed by regulators in 2010 and acquired by East West. To end the agreement, East West made a payment of $7 million, which had been anticipated in the second quarter and did not hurt third-quarter results.
Moreover, costs associated with the FDIC indemnification asset on East West's books dropped to $3.9 million from a $39.7 million expense a year earlier.
The lower FDIC indemnification expenses and higher gains on the sales of loans pushed noninterest income up 80.9%, to $54.2 million, and offset a reduction in fee income.
Total loans, including those held for sale, rose 8.5% to $23 billion. But net interest income fell nearly 7%, to $240.3 million, as net interest margin shrank 57 basis points to 3.32%.
The provision for credit losses fell to $7.7 million from $15.2 million in the third quarter of 2014.
Noninterest expenses also improved, dropping 12.9% to $147.7 million, on decreases in legal costs and the amortization of tax credit and other investments. The company’s efficiency ratio improved to 40.06% from 51.42% a year ago.