A month has gone by since the last earnings report for East West Bancorp (EWBC). Shares have lost about 9.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is East West Bancorp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
East West Bancorp Q4 Earnings Beat Estimates, Expenses Rise
East West Bancorp’s fourth-quarter 2019 adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.16. Moreover, the figure was 8.5% higher than the prior-year quarter level.
Results were driven by an increase in revenues. Moreover, loans and deposit balances witnessed growth in the quarter. However, higher expenses and provisions hurt results to some extent.
Net income (GAAP basis) was $188.2 million, up 8.8% from the year-ago quarter.
For 2019, adjusted earnings per share of $4.84 surpassed the Zacks Consensus Estimate of $4.48. Moreover, the figure was higher than $4.66 reported in 2018. Net income (GAAP basis) for the year was $674 million, down from $703.7 million recorded in 2018.
Revenues Improve, Expenses Rise
Net revenues for the quarter were $431.2 million, up 4.9% year over year. Also, the reported figure beat the Zacks Consensus Estimate of $408.4 million.
For 2019, net revenues were $1.68 billion, up 5% year over year. Also, the reported figure beat the Zacks Consensus Estimate of $1.65 billion.
Quarterly net interest income was $368.2 million, decreasing marginally year over year. Net interest margin declined 32 basis points (bps) to 3.47%.
Non-interest income was $63 million, up 51.1% from the year-ago quarter. The rise was driven by an increase in all fee income components, except for foreign exchange income, net gains on sales of loans and net gains on sales of fixed assets.
Non-interest expenses increased 2.8% to $193.4 million. All cost components, except for occupancy and equipment expenses, legal expenses, other operating expenses, and costs related to amortization of tax credit and other investment, witnessed a rise.
Efficiency ratio was 44.84%, down from 45.75% a year ago. A fall in the efficiency ratio indicates improved profitability.
Loans & Deposits Increase
As of Dec 31, 2019, total loans held-for-investment were $34.4 billion, up 2.2% sequentially. Total deposits increased 1.8% from the end of the previous quarter to $37.3 billion.
Credit Quality: Mixed Bag
Annualized quarterly net charge-offs were 0.10% of average loans held for investment, down from 0.20% at the end of the prior-year quarter. As of Dec 31, 2019, non-PCI non-performing assets were $121.5 million, up 30.7% year over year. Also, provision for credit losses was $18.6 million, up 3.4% from the prior-year quarter.
Capital Ratios Improve, Profitability Ratios Deteriorate
Common equity Tier 1 capital ratio was 12.9% as of Dec 31, 2019, up from 12.2% in the prior-year quarter. Total risk-based capital ratio was 14.4%, up from 13.7%.
At the end of the quarter, return on average assets was 1.68%, down from 1.69% as of Dec 31, 2018. Further, as of Dec 31, 2019, return on average tangible equity was 16.71%, down from 17.97%.
Management provided guidance on the assumption of no change in interest rates.
NII (including the impact of discount accretion) is projected to remain stable or increase 2% year over year. NIM (including the impact of the discount accretion) is projected to be 3.40-3.45%.
Total loans are expected to be up 7-8% year over year.
Non-interest expenses (excluding tax credit investment and core deposit intangible amortization) are projected to increase 4% year over year.
Provision for credit losses is estimated to be $90-$120 million.
Effective tax rate is anticipated to be 15%, including the impact of tax credit investments.
How Have Estimates Been Moving Since Then?
Estimates review followed an upward path over the past two months.
At this time, East West Bancorp has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
East West Bancorp has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.