East West Bancorp, Inc.
) second-quarter 2014 earnings of 58 cents per share came in line
with the Zacks Consensus Estimate. However, it compared favorably
with the year-ago figure of 52 cents.
Results benefited from robust top line, but considerably
overshadowed by higher operating expenses. Appreciable growth in
loans and deposits along with strong capital ratios were the
tailwinds for the quarter. On the other hand, dwindling
profitability ratios were among the negatives.
Net income came in at $83.99 million, up 13.5% year over year.
East West Bancorp, Inc - Quarterly EPS (BNRI) |
Performance in Detail
East West Bancorp's total revenue grew 15.0% from the prior-year
quarter to $279.5 million. Moreover, revenues surpassed the Zacks
Consensus Estimate of $250.0 million.
Adjusted net interest income came in at $218.4 million, up 13.6%
year over year. However, net interest margin (NIM) fell 7
basis points (bps) to 4.22%.
Non-interest loss widened 20.2% year over year to $14.9 million.
Changes in net reduction of Federal Deposit Insurance Corporation
(FDIC) indemnification asset and receivable was the main reason for
the significant rise.
Non-interest expense rose to $127.9 million, up 35% from the
prior-year quarter. The substantial increase was mainly
attributable to higher compensation and employee benefits as well
as elevated amortization expense and operating costs.
The efficiency ratio for East West Bancorp increased to 43.98% from
40.40% in the prior-year quarter. An increase in efficiency ratio
indicates a decline in profitability.
East West Bancorp's total loans receivable were $20.5 billion, up
26.1% year over year. The growth was primarily due to higher
non-covered loans, partly offset by lower covered loans. Total
deposits rose 18.6% year over year to $22.9 billion.
East West Bancorp's asset quality reflected a mixed outcome. As of
Jun 30, 2014, non-accrual loans (excluding covered loans) as a
percentage of total loans was 0.58%, down from 0.69% as of Jun 30,
Total nonperforming assets (excluding covered assets) were $161.4
million, up 20.9% from the year-ago quarter. Moreover, provision
for loan losses rose 7.2% year over year to $8.9 million.
Capital and Profitability Ratios
East West Bancorp's capital ratios were strong and well above the
minimum regulatory requirement. As of Jun 30, 2014, Tier 1 leverage
ratio was 8.5%, Tier 1 risk-based capital ratio was 11.0% and total
risk-based capital ratio came in at 12.8%.
However, profitability ratios were slightly weakened. The return on
average assets declined 5 bps year over year to 1.24%. The return
on average common equity declined 3 bps year over year to 12.56%.
Management expects earnings per share between 58 cents and 60 cents
in third-quarter 2014 and in the range of $2.29 to $2.33 for
For 2014, adjusted NIM is expected to be 3.35%-3.40%. Further,
management foresees total loan growth of approximately $400 million
per quarter and provision for loan losses of nearly $5 million to
$8 million per quarter. Non-interest expense will range from $120
million to $125 million per quarter and effective tax rate will be
Despite the bleak economic environment, East West Bancorp's solid
loan and deposit growth is commendable. Also, the company's strong
capital position and raised guidance are favorable factors.
However, as suspected initially, the company's inorganic growth
strategy has led to an alarming rise in expenses. Also, the
company's rising nonperforming assets remain a major headwind for
the sustainability of its long-term growth. Moreover, the company
needs to rein in its mounting non-interest losses, which can put
the top line under pressure.
At present, East West Bancorp has a Zacks Rank #4 (Sell). Among
First Interstate Bancsystem Inc.
UMB Financial Corporation
) are scheduled to report on Jul 21 and Jul 22, respectively, while
Bank of Hawaii Corp.
) is slated to release earnings results on Jul 28.
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