A month has gone by since the last earnings report for East West Bancorp (
EWBC Quick Quote EWBC - Free Report) . Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is East West Bancorp due for a pullback? 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 catalysts.
East West Bancorp Q2 Earnings In Line, Provisions Up
East West Bancorp’s second-quarter 2020 earnings per share of 70 cents were on par with the Zacks Consensus Estimate. The figure was down 32% from the prior-year quarter.
The results reflect a rise in non-interest income, and improving loan and deposit balances. However, lower net interest income, substantially higher provisions and increase in operating expenses were headwinds. Net income was $99.4 million, down 33.9% from the year-ago quarter. Revenues Down, Expenses Rise
Total revenues were $402.4 million, down 4.2% year over year. However, the figure beat the Zacks Consensus Estimate of $383.8 million.
Net interest income (NII) was $343.8 million, which fell 6.4% year over year. Net interest margin (NIM) also declined 69 basis points (bps) to 3.04%. Non-interest income was $58.6 million, up 11.1% from the year-ago quarter. The upswing was mainly driven by an increase in lending fees, deposit account fees and other investment income. Non-interest expenses rose 5.6% from the prior-year quarter to $187.7 million. The rise was largely due to higher deposit insurance premiums and regulatory assessments costs, along with data processing costs and computer software expenses. Efficiency ratio was 46.64%, up from 42.29% a year ago. A rise in the efficiency ratio indicates deterioration in profitability. Loans & Deposits Increase
As of Jun 30, 2020, net loans were $36.6 billion, up 3.6% sequentially. Total deposits increased 5.1% from first quarter-end to $40.7 billion.
Credit Quality Worsens
Annualized quarterly net charge-offs were 0.21% of average loans held for investment, up from 0.09% at the end of the prior-year quarter.
As of Jun 30, 2020, non-performing assets were $202.2 million, up 69.5% year over year. Also, provision for credit losses was $102.4 million, significantly up from $19.2 million in the prior-year quarter. Capital Ratios Improve, Profitability Ratios Deteriorate
Common equity Tier 1 capital ratio was 12.7% as of Jun 30, 2020, up from 12.4% as of Jun 30, 2019. Total risk-based capital ratio was 14.4%, up from 13.9% as of the same date.
At second quarter-end, return on average assets was 0.83%, down from 1.45% as of Jun 30, 2019. Further, as of Jun 30, 2020, return on average tangible equity was 8.96%, down from 17.39% in the corresponding period of 2019. Share Repurchase Update
During the quarter, the company did not repurchase any shares.
Based on the current pipelines, management expects strong residential mortgage origination volumes for the rest of the year.
If the macro economic outlook stabilizes, provision expenses are projected to decrease from the current levels. The company expects deposit balances to decrease as businesses and consumer activity resumes. NIM (excluding the variability from recognition of PPP loan fees) is expected to stabilize to around 3%. Deposit costs are anticipated to decline for the rest of the year, driven by the repricing of maturing CDs and run-offs of higher cost balances. How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, East West Bancorp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 #3 (Hold). We expect an in-line return from the stock in the next few months.