EWBC's Strong 2025 Revenues Mask Underlying Credit and Margin Risks

What happened

East West Bancorp reported strong 2025 revenues, driven by solid loan expansion, higher margins, and improving fee-based income. The recent Zacks article highlights these positive trends and questions whether the growth momentum can continue. However, the latest DeepValue master report reveals significant underlying risks, including rising office-CRE delinquencies and criticized loans. Despite surface-level strength, credit costs are increasing, and net interest margin could compress as rate-cut benefits fade. This creates a disconnect between optimistic headlines and the precarious credit and margin outlook detailed in regulatory filings.

Implication

The strong revenues may temporarily support the stock price, but investors must look beyond the propaganda to assess real risks. Office-CRE stress and rising provisions could erode earnings, making current valuations appear stretched. Expense growth outpacing revenue could further compress operating leverage. With the base case fair value at $115, close to the current price, upside is limited while downside risks are significant. Therefore, existing holders should consider trimming positions, while new investors should wait for a better entry point near $95.

Thesis delta

The positive news article does not shift the core bearish thesis from the DeepValue report. Instead, it underscores the market's focus on short-term revenue gains while ignoring escalating credit risks, reinforcing the recommendation to trim holdings and re-evaluate if office-CRE metrics deteriorate or NIM falls below critical levels.