Robert asked me to post this on his behalf because he's having some connectivity troubles.

My apologies for the hiatus.  The fact that I am in Alaska is a partial excuse. More importantly, I hoped the EWBC investor relations department could shed light on my outstanding questions.

The IR department was kind enough to provide me with the attached presentation.

Let’s revisit what (in my mind) are the main issues, and how this IR presentation helps us to any conclusions:

Issue 1: What is the likely growth rate for EWBC once the economy and banking sector returns to normalcy?

My Stock Study assumes a 5-year growth rate of 5% annually (both revenue and earnings) from 2007 levels . . . a pretty conservative level given the 5-year historic annual growth of 24.8% and 20.7%, respectively.  Nonetheless, I want to look closely at future growth as a measure of “upside” in the stock. 

What is the likelihood that EWBC’s growth engine is still intact?  What is the alternative likelihood that EWBC has outgrown its niche and will trend toward a mainstream bank? 

I really wanted to know the size of the “core” market (i.e how much banking business in southern California from Chinese-Americans), what share EWBC has, and what are the trends in both market size and EWBC’s share. Unfortunately, I have not been able to locate this specialized data, but welcome anyone else in the StockCentral community to find it.

However, the attached presentation provides a few indicators:

Note slide 13, which states “greater than 60% of EWB’s Commercial Business is with mainstream (non-Chinese market) customers.”  Also note slide 9, EWBC’s vision statement, which refers to EWBC’s “increasingly diverse” customer base.

 Management appears to be touting their diversification as a positive thing, i.e. EWBC has “graduated” from its niche.  However, I take these are clues that EWBC is outgrowing its high-growth niche, or the niche is not growing like it used to, and therefore conclude that  EWBC’s growth will trend toward its peers.  For the past 5 years, peer group EPS growth has been 9% (see slide 6).  Who knows what peer growth will be going forward.  I conclude that EWBC’s future 5-year growth will decline but not as low as its peers, i.e. somewhere between historic (20% annually) and peer (9% annually) growth.

 What are the downside risks to EWBC’s current loan portfolio?

 The presentation sheds some additional light on this.  Note slides 15 and 16, which shows EWBC’s historic non-performing asset and net charge-offs as a % of loans, in comparison with its peers.  EWBC has done quite well here with the exception of a 1.5% chargeoff in 1995.  Since I don’t think that lending policy changes overnight, I think this is an applicable indicator of future chargeoffs, and therefore a positive sign.

 Note also the LTV distributions on slides 17 and 21.  Pretty conservative, suggesting that the assets underlying the loans can fall in value 25% - 40% before EWBC is in the hole.

 See also the slides starting at slide 26, which show the distribution of loans geographically.  EWBC’s loans seem fairly well distributed, without a large percentage in risky outlying areas. 

 This additional data supports my earlier view that while there is certainly risk in the loan portfolio, I do not think that EWBC’s risk level exceeds its peers.  In fact, there is a good chance it is lower.

 
I welcome your comments here.  In my next posting, I will relate my conclusion and what I intend to do based on this analysis, both to my existing position and to the possibility of adding to it.