East West Bancorp in Pasadena, Calif., reported strong revenue growth in the fourth quarter due to a surge in loan demand, but its net income declined when compared with the same period in 2016 after the recently passed Tax Cuts and Jobs Act raised its tax bill.
The $37.2 billion-asset company said Thursday that its net interest income increased 16% year over year to $304.2 million thanks to both rising interest rates, which boosted loans yields, and double-digit growth in most loan categories. Single-family residential loans increased by 32% to $4.6 billion, multifamily loans climbed 20% and commercial and commercial real estate loans each increased by about 11%.
Those gains more than offset a nearly 19% decline in fee income, to $38.5 million, that was driven mainly by declines in fees from letters of credit and foreign exchange activities and derivatives fees. The loan growth also helped offset higher expenses and nearly 100% jump in chargeoffs, to $15.7 million.
Total revenue increased 13.5% year over year to $365 million.
For the quarter, East West earned $84.9 million, or 58 cents per share, down from $110.7 million, or 76 cents per share, in the same quarter in 2016. The results were hampered by a one-time recalculation of its deferred tax asset, which boosted its tax bill by $41.7 million in the quarter.
If not for that charge, East West said it would have earned $126.6 million in the quarter and 87 cents per share, or 2 cents below the mean estimates of analysts polled by FactSet Research Systems.
Though the new tax law had a negative impact on East West’s quarterly results, it will likely improve results going forward as it will lower its effective tax rate to about 16%. Its tax rate in 2017, adjusted for one-time items, was around 27%. The company has not laid out specific plans for how it might use its tax savings, but in a news release Chairman and CEO Dominic Ng said that it is “committed to investing in technology and human capital to drive our business forward.”
The company also said that its deal to sell eight branches in California operating under the Desert Community Bank brand is on pace to close this quarter. The buyer is Flagstar Bancorp of Troy, Mich.