EWBC's Q4 Earnings Beat Masked by Surging Costs, Reinforcing DeepValue's Cautionary Stance

What happened

EWBC reported Q4 2025 earnings that exceeded analyst expectations, with revenues and net income rising year-over-year. However, the stock dipped as investors focused on a sharp increase in non-interest expenses, which weighed on profitability and efficiency. This aligns with the DeepValue report's prior warnings about noninterest expense growth of 22-23% YoY in Q3 2025, indicating persistent cost pressures that could undermine operating leverage. The report also highlights emerging office-CRE stress and rising criticized loans, which, combined with higher expenses, threaten future earnings stability amid the 2026 maturity wall. Thus, the market's negative reaction reflects skepticism about EWBC's ability to sustain its premium valuation while navigating these headwinds.

Implication

The earnings beat is overshadowed by rising non-interest expenses, which could compress margins and efficiency if not offset by revenue growth, as flagged in the DeepValue report. This reinforces concerns about office-CRE stress and increasing criticized loans, which may accelerate provision builds and pressure ROE downward. With the stock trading near the report's base case fair value of $115, the risk-reward appears unfavorable given the asymmetric downside to $90 in a bear scenario. The report's recommendation to trim above $130 and re-enter at $95 suggests the current dip lacks sufficient margin of safety for new investments. Therefore, investors should monitor upcoming disclosures on expense control and credit metrics to assess if negative trends are temporary or structural.

Thesis delta

The Q4 results confirm the DeepValue report's concerns about escalating costs, reinforcing the bearish thesis that expense growth and credit risks are material threats to EWBC's earnings power. While the earnings beat shows some operational resilience, it does not alter the core investment call of a potential sell, as the limited upside and crowded ownership persist without clear cost containment.