East West Bancorp has gained a competitive advantage by catering to the Asian American community.

• Since the day before Silicon Valley Bank failed in March 2023, East West's stock price has increased by 10%, excluding dividends.
• The Southern California bank, with its recent record deposits, can withstand a slowdown due to its conservative capital management, according to analysts.
• The fast-growing demographic in the U.S. is where the company's leadership excels, indicating promising future growth prospects.

Asian Americans have been a key customer base for little-known regional banks, allowing them to pull ahead despite heightened scrutiny.

In 2024, East West Bancorp shares experienced a slight increase of 2%, while the S&P 500 gained 10%. Despite this, the regional bank sector has underperformed, with a 9% decline over the same time period.

Since the day before Silicon Valley Bank failed in March 2023, East West has risen 10%, excluding dividends. Currently, East West yields 3%.

The Southern California bank, which recently reported record deposits, is a consensus buy on the Street, according to LSEG. Analysts say its conservative capital management and leadership in the fastest-growing demographic in the U.S. will enable it to weather a slowdown and ensure future growth.

"According to CFRA Research analyst Alexander Yokum, East West Bancorp's targeting of Asian Americans makes it less likely for customers to switch banks if they speak Mandarin, giving the bank a significant advantage in terms of customer retention."

The banking industry is highly competitive with numerous banks operating in the United States. To gain an edge, banks must offer something other than low prices. In April, the analyst maintained a strong buy rating on the stock, with a 12-month price target of $105, indicating a potential increase of over 40% from the current closing price.

American dream = home ownership

The success of East West with Asian Americans can be traced back to its founding in 1973 as a federal savings and loan in Los Angeles to serve the Chinese American and immigrant community's mortgage and business loan needs.

The bank has grown substantially since then, with over 100 branches in the U.S. and Asia and nearly $71 billion in assets as of March 31.

East West's residential mortgage business sets it apart from other banks, as it caters to recent immigrants who may not have all the necessary documentation for home ownership. This includes certifications such as a social security number, tax ID number, or documented income and employment history.

"According to Wells Fargo analyst Timur Braziler, some of their customers who are moving to the U.S. may not meet the requirements for a conforming mortgage, but they are using East West to obtain a mortgage for their homes. However, the company is familiar with this borrower group and their specific needs."

The analyst stated that the bank can charge a higher interest rate and more upfront fees for non-conforming mortgages, which do not adhere to the guidelines set by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. The analyst, who has a buy rating and a $85 price target on the stock, according to FactSet, also mentioned that Wells Fargo's target implies an almost 16% increase in stock value over the next year.

"When you can charge a higher rate for this mortgage, you're getting better leverage, meaning the customer is putting more money down, into the property," Braziler said. "And you're doing it in an asset class not many others are participating in."

East West's finance chief, Christopher Del Moral-Niles, stated that the company aims for its residential mortgage loan portfolio to account for one-third of its total loans. Currently, it is only at 29%.

""East West founders were determined to make homeownership accessible to Chinese Americans, and they found a way to do so. Today, we continue to do that in a way that other banks don't, as all communities seem to share a desire for this American dream," Del Moral-Niles stated."

Del Moral-Niles stated that the opportunity they feel has been a core component of their offering and is a core differentiator of their solutions.

The ability to adapt to a diverse customer base has helped East West retain its customers, as it has evolved from a Cantonese-speaking community to a broader diaspora.

Steven Leung, a resident of New York City's Chinatown, stated that his oldest business account is with East West Bancorp, where he has been banking for over 20 years.

""We are familiar with all the staff here, so it's very convenient. We require assistance, and they can provide it," Leung stated."

Cross-border trade

East West Bancorp has attempted to establish itself as the preferred commercial lender for Chinese American entrepreneurs both domestically and abroad, an international focus that is uncommon among regional U.S. banks.

Since its establishment in Beijing in 2003, East West Bank has been based in Shanghai for its China operations. It is one of the few U.S.-based banks to hold a full banking license in China. Additionally, East West Bank facilitates cross-border activity between the U.S. and other Asian countries, including Thailand and Vietnam.

"Del Moral-Niles stated that although larger international banks typically play this role, our bank has played a key role in the Asian community and smaller businesses, and has grown with them to become a significant player in the cross-border market. This is somewhat unique for a regional bank."

While strong ties with China present a potential challenge for East West due to rising geopolitical and trade tensions between Washington and Beijing, CFO Del Moral-Niles emphasizes that East West is primarily a U.S.-based bank with only four branches in Asia.

Strong capital management

The regional bank's conservative approach to savings and capital management is what attracts investors.

"According to CFRA's Yokum, Asian Americans have above-average income but below-average loan default rates, making them a promising demographic to target."

Yokum stated that East West Bancorp's CET-1 ratio, which measures a bank's capital in relation to its risk-weighted assets, is currently at 13%. This ratio is typically between 10.5% and 11% for typical banks.

The bank's approach has been to remain one of the strongest and best capitalized banks in the industry, as both the bank founders and CEO Dominic Ng are fairly conservative. CFO Del Moral-Niles emphasized this point, stating that from a position of strength, the bank can take the necessary steps to drive its business.

"As Del Moral-Niles stated, "When customers perceive you as a reliable bank, you become an appealing option for them during tough times for other financial institutions. This has proven beneficial for us over time, particularly in the past year.""