East West Bancorp, Inc.it’s (EWBC – Free Report) organic growth strategy remains impressive. The company’s capital deployment activities reflect a strong balance sheet and liquidity position. However, continued pressure on margins from relatively lower rates, deteriorating asset quality and increased spending are near-term concerns.
East West Bancorp’s net interest income (NII), which is its primary source of revenue, has grown at a compound annual growth rate (CAGR) of 5.8% over the past five years (2017-2021). ). An increase in loan demand and an improving economy should continue to support the NII in the coming quarters. Management projects adjusted the NII (excluding PPP revenue) to rise 17-19% this year.
East West Bancorp has a strong balance sheet. As of December 31, 2021, the company had total debt worth $701.3 million, while cash and cash equivalents stood at $3.91 billion. Investment grade credit ratings from Standard & Poor’s and Fitch Ratings provide the company with favorable access to debt markets.
Additionally, the company’s capital deployment activities look impressive. In January, EWBC increased its quarterly dividend by 21%. In addition, the company has implemented a stock repurchase plan, under which it has authorized the repurchase of shares of up to $500 million. As of December 31, 2021, there were $354.1 million in shares remaining to be repurchased. Given its capital strength and earnings strength, the company’s capital deployment plan appears viable.
Additionally, analysts appear optimistic about the company’s prospects. Thus, the Zacks consensus estimate for 2022 revenue has been revised up 1.4% over the past seven days. For 2023, it has moved 2.3% north over the same period.
This Zacks Rank #2 (Buy) stock has gained 4.7% over the past year, outperforming the industry’s 3.8% rally.
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However, while East West Bancorp’s Net Interest Margin (NIM) increased in 2017 and 2018, it has also declined over the past three years due to near-zero interest rates. Despite a decent increase in loan demand and expected interest rate hikes this year, pressure on the NIM is likely to persist in the near term due to relatively lower rates.
East West Bancorp’s asset quality has deteriorated in recent years. Provision for credit losses experienced a CAGR of 65.7% in the four years ending 2020. While the company recorded negative provisions in 2021, a substantial increase in provisions was recorded in 2020 as the company continued to build up reserves to fight the coronavirus. related economic downturn. For 2022, EWBC expects the provision for credit losses to be less than $50 million.
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