East West Bancorp (EWBC) Up on Q3 Earnings Beat, Revenue Growth
Shares of East West Bancorp EWBC gained 2.9% following the release of its third-quarter 2023 results. Earnings per share of $2.02 surpassed the Zacks Consensus Estimate by a penny. However, the bottom line declined 2.9% from the prior-year quarter.
Results were primarily aided by higher net interest income (NII) and non-interest income. The company also witnessed a rise in loan balances in the quarter. However, an increase in expenses and higher provisions were the undermining factors.
Net income was $288 million, declining 3% from the year-ago quarter. Our estimate for the metric was $337.2 million.
Revenues Improve, Expenses Rise
Net revenues were $647.6 million, rising 3.2% year over year. The top line beat the Zacks Consensus Estimate of $641.6 million.
NII was $570.8 million, which grew 3.4% year over year. The net interest margin (NIM) contracted 20 basis points year over year to 3.48%. We had expected NII and NIM of $559 million and 3.55%, respectively.
Non-interest income was $76.8 million, up 1.6% from the year-ago quarter. The improvement was driven by an increase in lending fees, interest rate contracts and other derivatives income, foreign exchange income, and other income. Moreover, in the reported quarter, the company recorded other investment income against losses in the prior-year quarter. We had estimated a non-interest income of $81.7 million.
Non-interest expenses were up 16.7% year over year to $252 million. The increase was mainly due to a rise in deposit insurance premiums and regulatory assessment costs, deposit account expenses, computer software expenses, other operating expenses, and costs related to the amortization of tax credit and other investments. Our estimate for the same was $181.7 million.
The efficiency ratio was 38.92%, up from 34.43% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Sep 30, 2023, net loans were $50.3 billion, up 2.2% sequentially. Total deposits declined 1% sequentially to $55.1 billion. Our estimates for net loans and total deposits were $49.1 billion and $55.1 billion, respectively.
Credit Quality Worsens
Annualized quarterly net charge-offs were 0.14% of average loans held for investment, up 8 bps from the prior-year quarter. As of Sep 30, 2023, non-performing assets amounted to $103.7 million, rising 6.9% year over year.
The provision for credit losses was $42 million, which rose 55.6% from the prior-year quarter. Our estimate for the same was $32.2 million.
Capital Ratios Improve, Profitability Ratios Worsen
As of Sep 30, 2023, the common equity Tier 1 capital ratio was 13.30%, up from 12.27% as of Sep 30, 2022. The total risk-based capital ratio was 14.74%, up from 13.57% in the prior-year quarter.
At the end of the third quarter, the return on average assets was 1.66%, down from 1.86% as of Sep 30, 2022. Return on average tangible equity was 18.65%, down from 22.16% as of Sep 30, 2022.
Share Repurchase Update
In the reported quarter, the company did not repurchase any shares.
Our View
East West Bancorp is well-poised for organic growth on continued improvement in loan balances, increasing interest rates and efforts to improve fee income. However, a rise in expenses and a tough macroeconomic environment are likely to hurt the bottom line.
East West Bancorp, Inc. Price, Consensus and EPS Surprise
East West Bancorp, Inc. price-consensus-eps-surprise-chart | East West Bancorp, Inc. Quote
Currently, EWBC 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
State Street’s STT third-quarter 2023 adjusted earnings of $1.93 per share surpassed the Zacks Consensus Estimate of $1.77. The bottom line was 6% higher than the prior-year quarter level.
STT’s results were primarily aided by an increase in fee revenues. Also, the company did not record any provisions in the quarter, which was a positive. However, lower net interest revenues and higher expenses hurt the results to some extent.
Hancock Whitney’s HWC third-quarter 2023 earnings of $1.12 per share outpaced the Zacks Consensus Estimate of $1.02. However, the bottom line reflects a year-over-year decline of 27.7%.
HWC’s results were positively impacted by a marginal rise in non-interest income. The loan balance witnessed a slight sequential rise, which was another positive. However, lower net interest income, higher expenses and significantly higher provisions were major headwinds.
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