East West Bancorp Gains on Y/Y Earnings Growth - Analyst Blog

The stock price of East West Bancorp, Inc. (EWBC) was up nearly 1% on Thursday's trading session following its after-market release on Wednesday. The company's fourth-quarter 2013 earnings of 55 cents per share were in line with the Zacks Consensus Estimate. However, it compared favorably with the prior-year quarter figure of 49 cents, primarily driven by lower provisions.

For the full year 2013, the company recorded earnings per share of $2.10 compared with $1.89 cents in 2012. Further, earnings were in line with the Zacks Consensus Estimate.

Results benefited from a decline in provision for loan losses, partially offset by a decrease in the top line and higher operating expense. Improvements in loans and deposits as well as credit quality were the tailwinds for the quarter. Further, while capital ratios were strong, profitability ratios were a mixed bag.

Net income came in at $75.8 million, up 5.4% year over year. Further, for full-year 2013, net income came in at $295.0 million, increasing 4.7% from $281.7 million in 2012.

Performance in Detail

East West Bancorp's total revenue was down nearly 1.0% from the prior-year quarter to $256.6 million. However, revenues surpassed the Zacks Consensus Estimate of $226.0 million.

For 2013, total revenue came in at $976.2 million, down from $1,045.5 million in 2012. However, total revenue surpassed the Zacks Consensus Estimate of $882.0 million.

Adjusted net interest income was $198.24 million, down marginally from the prior-year quarter figure of $198.42 million.  Net interest margin (NIM) was 4.55%, down 19 basis points (bps) from the prior-year quarter figure.

Non-interest loss increased 97.8% year over year to $36.6 million. This substantial rise was attributable to changes in net reduction of Federal Deposit Insurance Corporation (FDIC) indemnification asset and receivable. Nevertheless, sequentially, the company reported 11.5% decline in net interest loss mainly due to 23.7% increase in total fees and other operating income.

Non-interest expense rose to $124.4 million from $105.2 million in the prior-year quarter. Despite this increase, for full-year 2013, expenses fell 1.7% to $415.5 million.

The efficiency ratio for East West Bancorp deteriorated to 47.69% from 41.41% in the prior-year quarter. An increase in efficiency ratio indicates decline in profitability.

East West Bancorp's average loans were $17.5 billion, up 20.1% from the year-ago quarter. Total deposits for the quarter rose 12.6% year over year to $20.5 billion.

Asset Quality

East West Bancorp's asset quality showed improvement in the quarter. As of Dec 31, 2013, non-accrual loans (excluding covered loans) as a percentage of total loans was 0.62%, down from 0.72% as of Dec 31, 2012.

Total nonperforming assets (excluding covered assets) were $130.6 million, down 7.4% from the year-ago quarter. Moreover, provision for loan losses fell 54.3% year over year to $6.3 million.

Capital and Profitability Ratios

East West Bancorp's capital ratios were strong and well above the minimum requirement. As of Dec 31, 2013, Tier 1 leverage ratio was 8.6%, Tier 1 risk-based capital ratio was 11.9% and total risk-based capital ratio came in at 13.5%.

However, profitability ratios were a mixed bag. The return on average assets declined 7 bps to 1.21% from the Dec 31, 2012 level. As of Dec 31, 2013, return on average common equity came in at 12.65%, up from 12.26% as of Dec 31, 2012.

Management Guidance

Management expects earnings per share between 49 cents to 51 cents in first-quarter 2014 and $2.24 to $2.28 for full-year 2014.

For 2014, adjusted NIM is expected to be 3.29%–3.33%. Further, management foresees 8% to 10% growth in total loans and provision for loan losses of nearly $20 million. Non-interest expense will range from $430 million to $440 million and effective tax rate will be 35%.

The full-year guidance as well as earnings guidance for first-quarter 2014 was provided after taking into consideration tentative one-time costs related to the acquisition of MetroCorp in first-quarter 2014,

Our Viewpoint

The near-zero interest rate condition will continue to weigh on interest income. This, along with the limited scope to boost fee income, will keep the top line under pressure in the coming quarters. Moreover, though we observe disciplined expense management on the company's front, expenses will rise due to inorganic growth plans of the company.

Nevertheless, we remain optimistic about East West Bancorp's efficient capital deployment activities based on its strong balance sheet position. Additionally, further improvement in credit quality will bolster the company's growth prospects.
 
At present, East West Bancorp has a Zacks Rank #3 (Hold).

Among other banks, First Interstate Bancsystem Inc. (FIBK) is slated to release earnings results on Jan 29, while Bank of Hawaii Corp. (BOH) and UMB Financial Corporation (UMBF) are scheduled to report on Jan 27 and Jan 28, respectively.