EWBC Q2 Deep Dive: Deposit Growth and Asset Quality Offset Margin Pressures

Cross-border banking company East West Bancorp (NASDAQ:EWBC) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 10.2% year on year to $703.3 million. Its non-GAAP profit of $2.28 per share was 1.4% above analysts’ consensus estimates.

Is now the time to buy EWBC? Find out in our full research report (it’s free).

StockStory’s Take

East West Bank’s second quarter results were shaped by steady loan and deposit growth, balanced by margin pressures that drew a negative market reaction. Management attributed revenue expansion to solid commercial and consumer banking activity, noting that average loan and deposit balances both increased 2% sequentially. CEO Dominic Ng highlighted that the bank’s relationship-driven approach continued to support “consumer and commercial growth on both sides of the balance sheet.” Operating efficiency remained strong, yet adjusted operating income fell short of analyst expectations, partly due to higher operating expenses and a one-time tax expense. Asset quality metrics improved, with criticized and nonperforming loans decreasing from the prior quarter, which management cited as evidence of disciplined risk controls.

Looking ahead, management’s guidance is anchored in expectations for continued loan growth and stable asset quality, supported by strong capital levels. CFO Chris Del Moral-Niles stated, “We continue to expect dollar net interest income growth as we progress throughout the year,” while also acknowledging that the pace of deposit cost optimization and timing of rate cuts will influence results. The company is actively investing in people, technology, and compliance to support long-term growth, and sees opportunities to further diversify fee income. Management cautioned that uncertainties remain, particularly around tariff policy and the broader economic outlook, but expressed confidence in the bank’s ability to adapt through its diversified loan portfolio and experienced customer base.

Key Insights from Management’s Remarks

Management attributed second quarter performance to balanced loan and deposit growth, resilient asset quality, and continued investment in technology and compliance.

• Deposit growth momentum: Total average deposits rose 2% from the prior quarter, with notable increases in both noninterest-bearing and interest-bearing balances. Commercial deposit growth outpaced consumer and business banking, reflecting the bank’s strong relationships across customer segments.
• Loan growth led by C&I: Average loan balances increased, with commercial and industrial (C&I) lending as the largest contributor. Management cited active pipelines and steady demand for residential mortgages, expecting similar or higher volumes in the next quarter.
• Fee income diversification: Fee income was the third highest in the bank’s history, reflecting strength in core products and services. Management emphasized ongoing efforts to diversify revenue streams, noting that fee income for the first half of the year was up 14% compared to last year.
• Asset quality improvements: Both criticized and nonperforming loans declined in the quarter, with net charge-offs and provisions for credit losses decreasing. Chief Risk Officer Irene Oh noted that the allowance for credit losses increased to reflect changes in the economic outlook but remained adequate for current portfolio risk.
• Ongoing investment in infrastructure: The bank continued investing in technology, cybersecurity, and regulatory compliance, with operating expenses rising as hiring and digital initiatives ramped up. Management indicated these investments are integral to supporting future growth and resilience as the bank’s asset base expands.

Drivers of Future Performance

Management expects future performance to be driven by continued loan and deposit growth, effective cost management, and adaptability to shifting interest rates and regulatory changes.

• Net interest income sensitivity: The outlook for net interest income is tied to the pace and timing of Federal Reserve rate cuts. Management explained that “fewer rate cuts is better for us,” signaling that a slower rate-cutting cycle or higher loan growth could provide upside to current expectations.
• Expense growth for scalability: Operating expenses are expected to increase as the bank invests in staffing, technology, and compliance to support growth and meet regulatory thresholds. Management described these investments as necessary to build a “robust and resilient” organization capable of sustaining performance amid regulatory changes.
• Diversification and risk management: Management aims to further diversify both the loan book and fee income streams. They cited a shift away from reliance on import/export lending to a broader industry mix and highlighted efforts to build new fee-based business lines, which could help mitigate volatility from macroeconomic shifts and policy changes.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace and sustainability of loan and deposit growth, (2) progress in expense management as investments in technology and compliance accelerate, and (3) the stability of asset quality metrics amid an evolving economic and regulatory landscape. Additional focus will be placed on fee income diversification and the bank’s ability to optimize capital deployment.

East West Bank currently trades at $103.51, down from $109.09 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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