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East West Bancorp (EWBC) Stock Up 7.4% on Q4 Earnings Beat

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Shares of East West Bancorp (EWBC - Free Report) gained 7.4%, following the release of fourth-quarter and 2019 results. Quarterly adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.16. Moreover, the figure was higher than the prior-year quarter level of $1.18 per share.

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 (NII) was $368.2 million, decreasing marginally year over year. Net interest margin (NIM) 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 were $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%.

2020 Outlook

Management provided 2020 guidance on the assumption of no change in interest rates during the year.

Total loans are expected to be up 7-8% year over year.

NII (including the impact of discount accretion) is projected to be stable or increase 2% year over year.

NIM (including the impact of the discount accretion) is projected to be 3.40-3.45%.

Non-interest expenses (excluding tax credit amortization & core deposit intangibles) are expected to rise 4%.

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.

Our Take

East West Bancorp remains well-positioned for revenue growth, given the steady improvement in loan and deposit balances. Given a solid capital position, the company is expected to continue enhancing shareholder value through efficient capital deployments. However, persistently rising expenses (as witnessed in the fourth quarter) and relatively lower rates are likely to hurt financials in the near term.

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.

Performance & Earnings Release Date of Other Companies

Washington Federal’s WAFD first-quarter fiscal 2020 (ended Dec 31) adjusted earnings were 58 cents per share, missing the Zacks Consensus Estimate of 60 cents. Results excluded the net positive impact of two significant non-recurring items.

Hancock Whitney Corporation’s HWC fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.

Prosperity Bancshares, Inc. PB is slated to report results on Jan 29.

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