EAST WEST BANCORP INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Loan Growth: Solid loan growth with end-of-period loans at a record $54 billion, supported by residential mortgage and commercial real estate lending.
• Deposit Management: Successful Lunar New Year CD campaign, optimized pricing, and continued customer acquisition to drive deposit growth.
• Fee Income: 8% growth in fees, driven by strong customer activity; focus on diversifying fee revenues to expand revenue streams.
• Asset Quality: Strong asset quality with net charge-offs and non-performing assets ratios improving; increased allowance for loan losses due to economic uncertainty.
• Economic Environment: Addressed tariff impact, customers repositioning supply chains, and staying nimble to navigate economic uncertainty.
• Efficiency: Delivered industry-leading efficiency ratio while investing in technology and infrastructure for future growth.

Segment Performance

• Loans: End-of-period loans grew 1% quarter-over-quarter to a record $54 billion, driven by residential mortgage and commercial real estate lending.
• Deposits: Executed a successful Lunar New Year CD campaign, optimized pricing, and added customers; average DDA, money market, and time balances grew quarter-over-quarter.
• Fee Income: Recorded another record quarter with 8% growth from Q4, driven by strong customer activity across four of five major fee categories.
• Net Interest Income: Grew to $600 million, up $12 million from Q4; net interest margin was 3.35%, up 11 basis points from Q4, due to decreased interest-bearing deposit costs and legacy hedge expirations.
• Expenses: Efficiency ratio was 36.4%, total operating non-interest expense $236 million, with industry-leading efficiency while investing for growth.
• Asset Quality: Net charge-offs totaled 12 basis points, non-performing assets ratio decreased to 24 basis points; increased allowance for loan losses to 1.35% of total loans due to economic uncertainty.
• Capital: CET1 capital ratio 14.3%, tangible common equity ratio 9.9%; repurchased ~920,000 shares for $85 million, with $244 million repurchase authorization remaining.

Guidance

• Full Year Guidance: Reiterated full year guidance; amortization of tax credit and CRA investment expense expected to be $70 million to $80 million; effective tax rate expected below 23%.

Risks

• Economic Uncertainty: Impact on loan growth, deposit pricing, and overall financial performance due to increased economic uncertainty.
• Tariff Impact: Potential impact on customer business plans and credit risk associated with tariffs and supply chain repositioning.
• Market Volatility: Impact on balance sheet and financial results from market volatility related to economic and tariff uncertainties.

Question and Answer

• Q: Why is the NII guide not moving higher? A: Current guidance is appropriate as rate cuts baked into the curve and outlook has stemmed further, so management is comfortable with the current guide.
• Q: Can deposit beta be sustained? A: Benefiting from CD repricing, but positive momentum will slow as the forward curve flattens, though still expected to remain above the 50% guide previously shared.
• Q: Capital return and buybacks? A: Management will continue to be opportunistic with share buybacks, with $244 million repurchase authorization available to consider what's best for shareholders.
• Q: Tariff impact on clients and business opportunity? A: Customers are repositioning supply chains, East West is in a strong position to work with clients, and there's potential to gain business from other banks due to their experience with tariff management.
• Q: Allowance build and CRE criticized loans? A: Allowance increase was due to increasing downside scenario weightings in the multi-scenario allowance calculation; criticized CRE increase was broad-based with no systemic concerns identified.
• Q: Expenses and investments? A: Management is comfortable with the expense guide for the year, with investments in technology and infrastructure continuing at pace, some to come in Q2 and Q3 as they are implemented.
• Q: Deposit costs and CD rollovers? A: CDs coming due in Q2 and Q3 have rates in the low 4% range; incremental benefit in a flat rate context is expected, with more if rate cuts occur.
• Q: Hedge strategy and swap book? A: Forward starting swaps with received fixed rate around 4%, poised to benefit from rate cuts in Q3, with $1 billion in relevant swaps over the back half of 2025.
• Q: FHLB advances? **A: Continue to evaluate using FHLB advances as a flexible component of the balance sheet, may pay down with excess deposits or invest in securities as appropriate.