Shares of East West Bancorp EWBC rallied 3.3% following the release of fourth-quarter 2018 results. Earnings per share of $1.18 surpassed the Zacks Consensus Estimate by a penny. Also, the figure compares favorably with adjusted earnings of 87 cents in the prior-year quarter (excluded the impact of tax act).
Results primarily benefited from improvement in net interest income and higher loans and deposits. However, increase in expenses, higher provisions for credit losses and decline in non-interest income were the undermining factors.
Net income in the reported quarter was $173 million, up substantially from $84.9 million in the prior-year quarter.
For 2018, adjusted earnings per share of $4.66 lagged the Zacks Consensus Estimate of $4.80. However, the figure compares favorably with earnings of $3.46 in 2017. Net income (GAAP basis) was $703.7 million, up 39.2%.
Revenues Improve, Costs Rise
Net revenues in the reported quarter were $411.1 million, increasing 12.7% year over year. Also, the reported figure beat the Zacks Consensus Estimate of $407.3 million.
Net revenues for 2018 were $1.60 billion, up 10.7%. Further, the reported figure beat the Zacks Consensus Estimate of $1.58 billion.
Net interest income (NII) was $369.4 million, increasing 15.6% year over year. Further, net interest margin (NIM) expanded 22 basis points (bps) to 3.79%.
Non-interest income amounted to $41.7 million, down 7.8% from the year-ago quarter.
Non-interest expenses increased 7.3% to $188.1 million.
The efficiency ratio was 45.75%, down from 48.03% a year ago. Notably, fall in efficiency ratio indicates higher profitability.
Loans & Deposits Increase
As of Dec 31, 2018, total loans were $32.4 billion, up 3.8% sequentially. Total deposits increased 5.4% from the end of the previous quarter to $35.4 billion.
Credit Quality: A Mixed Bag
Annualized net charge-offs were 0.20% of average loans held for investment, down from 0.22% at the end of the prior-year quarter. As of Dec 31, 2018, Non-PCI non-performing assets were $93 million, down 19.2%.
However, provision for credit losses of $18 million, up 16.1% from the prior-year quarter.
Strong Capital & Profitability Ratios
Common equity Tier 1 capital ratio was 12.2% as of Dec 31, 2018, up from 11.4% at the end of the prior-year quarter. Total risk-based capital ratio was 13.7%, up from 12.9% .
At the end of the reported quarter, return on average assets was 1.69%, increasing from 0.90% on Dec 31, 2017. Further, as of Dec 31, 2018, return on average tangible equity was 18.0%, up from 10.2% a year ago.
Management provided 2019 guidance on assumption of no rate hike this year.
Total loans are expected to be up 10% year over year.
NII (excluding the impact of discount accretion) is projected to increase at the low double digits rate. NIM (excluding impact of the discount accretion) is expected to be 3.75-3.80%.
Non-interest expenses (excluding tax credit amortization & core deposit intangibles) are expected to increase in the mid-single digits rate.
Provision for credit losses is expected to be $80-$90 million.
Effective tax rate is anticipated to be 15%, including the impact of tax credit investments.
East West Bancorp remains well positioned for organic growth, backed by the continued improvement in loans and deposit balances. 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. 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
Citizens Financial Group CFG delivered a positive earnings surprise of 4.3% in fourth-quarter 2018, riding on higher revenues. Adjusted earnings per share of 98 cents topped the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 38% from the prior-year quarter.
Signature Bank’s SBNY fourth-quarter 2018 earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.
People's United Financial Inc. PBCT reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.
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