U.S. markets open in 8 hours 17 minutes
  • S&P Futures

    +10.75 (+0.25%)
  • Dow Futures

    +67.00 (+0.20%)
  • Nasdaq Futures

    +31.75 (+0.22%)
  • Russell 2000 Futures

    +6.40 (+0.36%)
  • Crude Oil

    +0.95 (+1.05%)
  • Gold

    -5.10 (-0.27%)
  • Silver

    -0.24 (-1.04%)

    -0.0016 (-0.15%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    +2.04 (+12.07%)

    -0.0014 (-0.12%)

    +0.0550 (+0.04%)
  • Bitcoin USD

    -115.94 (-0.44%)
  • CMC Crypto 200

    -2.12 (-0.38%)
  • FTSE 100

    +1.73 (+0.02%)
  • Nikkei 225

    -85.16 (-0.26%)

East West Bancorp (EWBC) Rides on Rates Amid Poor Asset Quality

East West Bancorp EWBC remains well-poised for growth on decent loan balances and higher interest rates. However, operating expenses are expected to remain elevated, thus hurting its profits. Deteriorating credit quality is another concern.

East West Bancorp is focused on improving revenues. Its primary source of revenues, net interest income (NII), witnessed a compound annual growth rate (CAGR) of 11.5% over the last six years (2017-2022), mainly driven by a rise in loan balances. The decent demand for loans and higher interest rates are expected to keep supporting NII. Management expects NII to increase in the range of 16-18% for 2023 and loans to increase within the 5-7% range. We project NII to record a CAGR of 5.8% over the next three years.

With the Federal Reserve expected to keep interest rates high in the near term, EWBC's net interest margin (NIM) is anticipated to improve in the quarters ahead. In 2022, NIM witnessed a year-over-year rise to 3.45%, with the uptrend continuing in the first quarter of 2023. We anticipate the metric to be 3.90%, 3.80% and 3.73% in 2023, 2024 and 2025, respectively.

Further, analysts are bullish on the stock’s earnings prospects. The Zacks Consensus Estimate for East West Bancorp's current-year earnings has been revised 1.4% upward over the last 30 days. The company currently carries a Zacks Rank #3 (Hold).

However, EWBC continues to record a rise in non-interest expenses over the past several years. The metric has grown at a CAGR of 5.4% over the last six years (2017-2022). The increase was mainly due to a rise in compensation and employee benefit costs.

The company expects adjusted non-interest expenses (excluding tax credit investment & core deposit intangible amortization) to rise 8-9% this year. Our estimates for total non-interest expenses suggest a CAGR of 5.8% by 2025.

Deteriorating credit quality is another major headwind for EWBC. Provision for credit losses has witnessed a CAGR of 9.7% over the six years ended 2022. The company expects provision for credit losses to be in the range of $100-$120 million for 2023. We anticipate provisions to increase 55.1% in 2023.

In the past three months, shares of East West Bancorp have declined 36.7% compared with the industry's 42% fall.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Banks Worth a Look

A couple of better-ranked stocks from the finance space are JPMorgan JPM and The Bancorp TBBK.

The Zacks Consensus Estimate for JPMorgan’s current-year earnings has moved marginally higher over the past seven days. Its shares have gained 4.9% in the past six months. Currently, JPM carries a Zacks Rank #2 (Buy).

The Bancorp currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 6.5% upward over the past 30 days. In the past six months, TBBK’s shares have rallied 5.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report

The Bancorp, Inc. (TBBK) : Free Stock Analysis Report

East West Bancorp, Inc. (EWBC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research