East West Bancorp (EWBC) Q3 Earnings Beat Estimates, Stock Up

East West Bancorp’s EWBC third-quarter 2020 earnings per share of $1.12 surpassed the Zacks Consensus Estimate of 94 cents. However, the figure is down 4.3% from the prior-year quarter.

The results reflect lower provisions and operating expenses. Further, improving loan and deposit balances strengthen the balance sheet. These driving factors boosted investors’ optimism, prompting a share-price appreciation of 1.12%, following the release. However, lower net interest and non-interest income, and shrinking margins remain headwinds.

Net income was $159.5 million, down 6.9% from the year-ago quarter.

Revenues Drop, Expenses Down

Total revenues were $373.7 million, down 11.3% year over year. Moreover, the figure missed the Zacks Consensus Estimate of $398 million.

Net interest income (NII) came in at $324.1 million, which fell 12.4% year over year. Net interest margin (NIM) also contracted 87 basis points (bps) year over year to 2.72%.

Non-interest income was $49.6 million, down 3.7% from the year-ago quarter. This decline mainly resulted from a decrease in net gains on sale of loans, foreign-exchange income and other investment income. The downside was partially offset by an increase in lending fees, deposit account fees and other income.

Non-interest expenses declined 5.1% from the prior-year quarter to $167.7 million. The fall was largely due to lower amortization, occupancy and legal expenses.

Efficiency ratio was 44.86%, up from the prior year’s 41.93%. A rise in the efficiency ratio indicates deterioration in profitability.

Loans & Deposits Increase

As of Sep 30, 2020, net loans were $36.8 billion, up marginally sequentially. Total deposits increased 2.5% from the end of the first quarter to $41.7 billion.

Credit Quality: A Mixed Bag

Annualized quarterly net charge-offs were 0.26% of average loans held for investment, unchanged from the end of the prior-year quarter.

As of Sep 30, 2020, non-performing assets were $260 million, surging 93.2% year over year. However, provision for credit losses was $10 million, tanking 73.9% from the prior-year quarter’s $38.3 million.

Capital Ratios Improve, Profitability Ratios Deteriorate

Common equity Tier 1 capital ratio was 12.8% as of Sep 30, 2020, unchanged from Sep 30, 2019. Total risk-based capital ratio was 14.5%, up from 14.2% as of the same date.

At the end of the third quarter, return on average assets was 1.26%, down from 1.58% as of Sep 30, 2019. Further, as of Sep 30, 2020, return on average tangible equity was 13.88%, down from the 15.75% witnessed in the corresponding period of 2019.

Our Viewpoint

East West Bancorp is well poised for organic growth on continued improvement in loan and deposit balances. However, pressure on margins and rising credit costs amid the pandemic are near-term concerns.

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 of Other Banks

Washington Federal’s WAFD fourth-quarter fiscal 2020 (ended Sep 30) earnings came in at 45 cents per share, surpassing the Zacks Consensus Estimate of 42 cents. However, the figure reflected a year-over-year plunge of 31.8%.

BancorpSouth Bank BXS delivered a positive earnings surprise of 32.7% during the September-end quarter on higher interest income. Net operating earnings of 69 cents per share beat the Zacks Consensus Estimate of 52 cents. The bottom line, however, was flat year over year.

Zions Bancorporation’s ZION third-quarter net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compared unfavorably with the year-ago quarter’s $1.17.

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