Shares of East West Bancorp EWBC dropped 4.1% following the release of first-quarter 2019 results. Adjusted earnings per share of $1.16 missed the Zacks Consensus Estimate of $1.22. However, the figure compares favorably with adjusted earnings of $1.13 reported in the prior-year quarter.
Results were affected by rise in expenses, higher provisions for credit losses and decline in non-interest income. However, improvement in net interest income, and higher loans and deposits acted as tailwinds.
Net income in the reported quarter was $164 million, down 12.3% from $187 million in the prior-year quarter.
Revenues Improve, Costs Flare Up
Net revenues in the first quarter were $404.6 million, up nearly 1% year over year. However, the reported figure missed the Zacks Consensus Estimate of $411 million.
Net interest income (NII) was $362.5 million, increasing 10.9% year over year. Further, net interest margin (NIM) expanded 6 basis points (bps) to 3.79%.
Non-interest income amounted to $42.1 million, down 43.4% from the year-ago quarter’s reported tally. This downside resulted primarily from lower foreign exchange income, net gains on sale of loans and lending fees. Further, absence of a net gain from sale of business in the prior-year quarter was one of the reasons for the decline.
Non-interest expenses flared up 10.5% to $186.9 million. This upswing mainly resulted from higher compensation and employee benefits, deposit-related expense, amortization of tax credit and other investments and other operating expenses.
The efficiency ratio was 46.20%, up from 42.16% a year ago. Notably, rise in efficiency ratio indicates lower profitability.
Loans & Deposits Increase
As of Mar 31, 2019, total loans were $32.9 billion, up 1.5% sequentially. Total deposits increased 2.4% from the end of the previous quarter to $36.3 billion.
Credit Quality Worsens
Annualized net charge-offs were 0.18% of average loans held for investment, up from 0.14% at the end of the prior-year quarter. As of Mar 31, 2019, non-PCI non-performing assets were $138 million, up 5.4%.
Also, provision for credit losses were $22.6 million, up 11.7% from the prior-year quarter.
Strong Capital & Profitability Ratios
Common equity Tier 1 capital ratio was 12.4% as of Mar 31, 2019, up from the prior-year quarter’s 11.9%. Total risk-based capital ratio was 13.8%, up from 13.4% reported a year ago.
At the end of the reported quarter, return on average assets was 1.63%, down from 2.03% as of Mar 31, 2018. Further, as of Mar 31, 2019, return on average tangible equity was 16.53%, down from 22.30% reported 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 in low double digits. NIM (excluding impact of the discount accretion) is projected at 3.75-3.80%.
Non-interest expenses (excluding tax credit amortization & core deposit intangibles) are expected to flare up in mid-single digits.
Provision for credit losses is estimated to be $80-$90 million.
Effective tax rate is anticipated to be 15%, including the impact of tax credit investments.
Concurrently, East West Bancorp announced quarterly dividend of 27.5 cents per share, marking an increase of 20% from the prior payout. The dividend will be paid on May 15, to shareholders on record as of May 1, 2019.
East West Bancorp remains well positioned for organic growth, backed by the continued improvement in loans and deposit balances. Nonetheless, persistently rising expenses might keep denting 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 #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Riding on higher revenues, Citizens Financial Group, Inc. CFG delivered a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results exclude one-time items of $4 million or 1 cent per share.
Texas Capital Bancshares Inc. TCBI reported a positive earnings surprise of 19.4% in the Jan-Mar quarter. Earnings per share of $1.60 comfortably surpassed the Zacks Consensus Estimate of $1.34. Further, the bottom line compared favorably with the prior-year quarter figure of $1.38.
Hancock Whitney Corporation’s HWC first-quarter operating earnings per share of $1 outpaced the Zacks Consensus Estimate of 98 cents. The reported figure also came in 11.1% higher than the year-ago reported tally.
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