雅虎香港財經 East West Bancorp (EWBC) Rides on Loan Growth Amid High Costs
East West Bancorp, Inc. EWBC remains well-poised for growth on the back of decent loan growth, low-cost deposits, higher rates and diversified fee income streams. However, elevated expenses and weak asset quality are major headwinds.
EWBC primarily emphasizes an organic growth strategy that is evident from the company’s net interest income (NII) growth, which is the primary source of its revenues. While the metric dipped in 2020 on account of a tough operating backdrop, the same experienced a 12% compound annual growth rate (CAGR) over the last four years (2019-2023). This growth was predominantly driven by loan growth and higher rates. Though NII declined in the first quarter of 2024 due to higher funding costs, the metric is likely to enhance led by gradual growth in loan demand and stabilizing deposit costs. Moreover, down-rate protection hedge initiatives and sustained emphasis on the acquisition of low-cost deposits are likely to aid in boosting NII. While we estimate NII to decrease 3% this year, it will rebound and grow at the rate of 3.3% and 5.8% in 2025 and 2026, respectively.
East West Bancorp’s net interest margin (NIM) expansion is aided by the current high interest rate scenario, while higher funding costs will exert pressure on it. The Federal Reserve has hiked the interest rates 11 times since March 2022, leading to the current 23-year high level of 5.25-5.5%. The company’s NIM rose to 3.61% in 2023 from 3.45% in 2022. High funding costs and probable rate cuts are weighing on NIM expansion. This is reflected in the first quarter of 2024 as NIM contracted due to high funding costs. Per our estimates, NIM will reduce to 3.31% in 2024 with a subsequent recovery to 3.37% and 3.44% in 2025 and 2026, respectively.
EWBC’s fee income has witnessed a persistent improvement in the past few years. The metric experienced a CAGR of 10% over the last four years ended 2023. The uptrend was sustained during the first quarter of 2024. Deposit account fees and lending fees were major contributors, with 34% and 32.3% of total fee income, respectively, in the first quarter. Management anticipates sustained deposit and loan growth via consistent client acquisition, which is likely to boost deposit account fee and lending fee incomes. In 2024, we project deposit account fees and lending fees to grow 3.6% and 4.3%, respectively.
East West Bancorp currently carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have gained 29.9%, outperforming the industry’s growth of 15.1%.
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Nonetheless, EWBC’s deteriorating asset quality is a major concern. Though the company recorded negative provisions in 2021, a significant jump in provisions was witnessed afterward due to continued reserve building to tackle the tough operating backdrop. Provision for credit losses witnessed a 6% CAGR over the last four years ended 2023, with the uptrend persisting during the first quarter of 2024. The metric is likely to remain elevated in the near term in the light of tough operating backdrop and expectation of an economic slowdown. We project provision for credit losses to rise 9.3% in 2024.
Additionally, East West Bancorp’s persistent increase in non-interest expenses is another challenge. While the metric dipped in 2020, it witnessed an 8.6% CAGR over the last four years ended 2023. The uptrend continued in the first quarter of 2024 as well. The rise was mainly driven by higher compensation and employee benefit expenses. Expenses are likely to stay escalated given the rising headcount, inflationary pressures and technological investments to boost non-interest income. Per our estimates, total non-interest expenses are expected to fall 3.7% in 2024, with a subsequent rise of 4.5% in 2025.
Stocks Worth Considering
Some better-ranked bank stocks worth a look are Central Pacific Financial Corp. CPF and Northrim BanCorp, Inc. NRIM, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for CPF’s current-year earnings has been revised 1% upward in the past 60 days. Central Pacific Financial’s shares have gained 1.7% over the past six months.
The Zacks Consensus Estimate for NRIM’s current-year earnings has been revised 12.2% north in the past 60 days. Northrim’s shares have lost 1.5% over the past six months.
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