Back to top

Image: Bigstock

East West Bancorp (EWBC) Stock Down Despite Q3 Earnings Beat

Read MoreHide Full Article

East West Bancorp’s (EWBC - Free Report) third-quarter 2018 adjusted earnings per share of $1.17 surpassed the Zacks Consensus Estimate of $1.15.  Further, the figure compares favorably with the prior-year quarter’s adjusted earnings of 91 cents per share.

Results primarily benefited from improvement in net interest income. Moreover, loans and deposit balances improved, which supported results to some extent. However, elevated expenses partially offset increase in net interest income.

Furthermore, net revenues missed the Zacks Consensus Estimate. Perhaps due to these reasons, the company’s shares have declined 3.4% following the earnings release.

Net income in the reported quarter was $171.3 million, up from $132.7 million in the prior-year quarter.

Revenues Improve, Costs Escalate

Net revenues in the third quarter were $395.2 million, increasing 12.1% year over year. However, the reported figure lagged the Zacks Consensus Estimate of $398.3 million.

Net interest income was $348.7 million, increasing 15% year over year. The rise was primarily driven by loan growth and expansion of loan yield, partially offset by increase in time deposit and rise in cost of deposit. Further, net interest margin expanded 24 basis points (bps) year over year to 3.76%.

Non-interest income amounted to $46.5 million, down 6% from the year-ago quarter. The decline was mainly attributable to gain on the sale of loans, investment securities, fixed assets and business recorded in third-quarter 2017. Further, branch fees, derivative fees, and other fees and operating income declined, which was partially offset by rise in letters of credit fees and foreign exchange income.

Non-interest expenses increased 9.4% from the year-ago quarter to $179.8 million.

The efficiency ratio was 45.5%, down from 46.6% a year ago. Notably, fall in efficiency ratio indicates higher profitability.

Strong Balance Sheet

As of Sep 30, 2018, net loans were $30.9 billion, up 3.2% sequentially. Total deposits increased 2.6% from the end of the previous quarter to $33.6 billion.

Credit Quality Improves

Annualized net charge-offs were 0.05% of average loans held for investment, down from 0.06% at the end of the prior-year quarter. Further, in the reported quarter, the company registered provision for credit losses of $10.5 million, down from $13 million recorded in the prior-year quarter.

However, as of Sep 30, 2018, total non-performing assets were $114.6 million, down 2% year over year.

Strong Capital & Profitability Ratios

Under the Basel III rules, common equity Tier 1 capital ratio was 12.3%, as of Sep 30, 2018, up from 11.4% at the end of the prior-year quarter. Total risk-based capital ratio was 13.8%, up from 12.9% witnessed in the year-ago quarter.

At the end of the reported quarter, return on average assets was 1.76%, increasing from 1.46% as of Sep 30, 2017. Further, as of Sep 30, 2018, return on average tangible equity was 18.50%, up from 16.30% a year ago.

2018 Outlook

Management projects loans to be up 10% year over year.

NIM (excluding impact of the discount accretion) is expected to be 3.75%.

Management expects non-interest expenses (excluding tax credit amortization & core deposit intangibles) to increase 9% year over year.

Provision for credit losses is expected to be $60-$65 million.

The company anticipates effective tax rate of 14% in 2018.

Conclusion

East West Bancorp remains well positioned for organic growth, backed by the continued improvement in loans and deposit balances. Despite decline in non-interest income, it retained the uptrend in revenues during the third quarter of 2018. Nonetheless, persistently rising expenses might dent bottom-line growth in the quarters ahead.

East West Bancorp, Inc. Price, Consensus and EPS Surprise

 

East West Bancorp, Inc. Price, Consensus and EPS Surprise

East West Bancorp, Inc. price-consensus-eps-surprise-chart | East West Bancorp, Inc. Quote

Currently, East West Bancorp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other stocks in the same industry, Bank of Hawaii Corporation (BOH - Free Report) is set to release its earnings numbers on Oct 22, while RBB Bancorp (RBB - Free Report) and First Hawaiian, Inc. (FHB - Free Report) are slated to report their figures on Oct 23  and Oct 25.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

 

Published in