Good day, and welcome to the East West Bancorp's Fourth Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you everyone for joining us to review East West Bancorp's Fourth Quarter and Full Year 2024 Financial Results. With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations site. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.

Thank you, Adrienne. Good afternoon, and thank you for joining us for today's fourth quarter and full-year 2024 earnings call. Before we begin, I'd like to express my sympathy to everyone impacted by the wildfires in Southern California. I would also like to extend my deep gratitude to the firefighters, public service workers, and volunteers who were on the front lines and are helping with recovery and cleanup efforts. During this time of need for our city, I'm proud of the actions East West is taking to support our customers, our community, and our associates. For customers impacted by the fires, we're offering accommodation on an as needed basis to help those who are impacted, focus on the health and safety of their families and businesses. We have also contributed significant relief funds for community members and associates, who were impacted by the evacuation or who lost their home. We have assessed East West exposure, which is minimal at this time. With that, let me turn to our financial results on slide four. 2024 was another record-breaking year for East West. Our highlights include new record levels for revenue, fee income, net income, earnings per share, and loans and deposits. Our results speak to the strength of East West brand and service model. I'm particularly proud of last year's over $7 billion of deposit growth. We grew average deposit by 9% year-over-year and average loans by 6%, further diversifying our portfolio by emphasizing residential and C&I lending. 2024 was also a consecutive year of record fee income, driven in part by consistent sales execution across our wealth management, commercial payments, and foreign exchange businesses. Asset quality remained relatively stable in 2024 with full-year net charge-offs and year-end -- non-performing assets, both of 26 basis points. We maintain a disciplined approach to credit management in the fourth quarter, but dealt with two problem credits, which Irene will elaborate on later. We believe these occurrence to be isolated events and are diligently pursuing recovery efforts. We remain vigilant about managing our credit risk and are proactively managing our risk profile. We delivered substantial returns for shareholders in 2024. We reported tangible book value per share growth of 13% and generated a 17% return on tangible common equity. We were opportunistic in the fourth quarter and repurchased 200,000 shares at an average price of $98 per share. I'm also pleased to announce our Board approved an incremental share repurchase authorization of $300 million and a 9% increase to the quarterly dividend to $0.60 per share. Let me turn it to Chris for more details on the balance sheet and income statement.

Thank you, Dominic. Let me start with deposits on slide five. Over the past five years, East West growth has been deposit-led. This has allowed us to fund loans, while maintaining strong balance sheet liquidity. In 2024, East West grew end-of-period deposits by 13% to a record $63.2 billion. In early 2024, we also repaid $4.5 billion of BTFP borrowings, driven by our confidence in our ability to grow core deposits. During the fourth quarter, we saw a notable uptick in DDA and money market balances with continued overall stability in savings in time deposits. Our deposit mix has stabilized with DDA levels in the mid-20s. Our period-end total deposit cost declined a further 25 basis points in the fourth quarter to 2.59%. Looking into Q1, our 2025 Lunar New Year CD special was launched last week, offering a six-month CD at 4.18% and a nine-month CD at 4.08%. We believe these are competitive for our regional markets and we expect good retention and potentially good traction on new money inflows at these price points. Notably, these levels are 107 and 117 basis points below last year's CD offering at 5.25%. Turning to loans on slide six. East West grew total average loans by 6% for the year and end-of-period loans by 3%, in line with our prior guidance. C&I growth in the fourth quarter was driven by new credits as utilization was relatively stable quarter-over-quarter. Although we have yet to see evidence of increased demand in Q1, we expect C&I growth to pick up later in 2025 given the improving overall business sentiment. Residential mortgage had a good quarter in Q4, partly reflecting the drop-in rates we saw in the third quarter. Despite the recent backup rates, pipelines remain full going into the first quarter. We expect residential mortgage…

Thank you, Chris, and good afternoon to all on the call. As shown on slide 10, the credit environment is benign and the asset quality of our portfolio as a whole remains solid. Provision for credit losses increased $28 million from the third quarter to $70 million. Net charge-offs in the fourth quarter were $64 million. The net charge-offs for the fourth quarter largely stem from two domestic, commercial, and industrial credits. These two credits were unrelated, but both loans were made to companies in the technology sector and we had determined in the fourth quarter that the collateral and AR not collectible. Non-performing assets remained stable at 26 basis points of total assets quarter-over-quarter. The special mentioned loans ratio improved slightly to 83 basis points, while the classified loans ratio increased 15 basis points to 135. The absolute level of problem loans, migration into criticized loan categories, and non-performing loans remain low and at manageable levels. Regarding the wildfires in Los Angeles, we are actively accessing our exposure from the Palisades of Eaton Canyon fires. Based on what we currently know, we expect our direct exposure to be minimal. To date, we have identified 32 loans totaling $26 million outstanding that are impacted. These are largely consumer mortgage loans, but the numbers are inclusive of any direct exposure in entire loan portfolio, including collateral of the commercial real estate, multifamily, and commercial and industrial loans. Further, our gross exposures to loans in the vicinity of the Hughes fire just north of Los Angeles is very limited. Based on these preliminary results from the impact of the wildfires, we foresee very limited credit impact to East West at this time. We remain vigilant and proactive in managing our credit risk. Based on what we know today, we are projecting that full-year 2025 net charge-offs to be in the range of 25 basis points to 35 basis points. As seen on slide 11. Our allowance for credit losses ended the fourth quarter at $702 million or 1.31%, unchanged from the prior quarter end. We believe our loan portfolio is appropriately reserved as of December 31st, 2024. Turning to slide 12, East West regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional bank averages. East West common equity Tier 1 capital ratio stands at a robust 14.3%, while the tangible common equity ratio is at 9.6%. Our Board of Directors has declared a first quarter 2025 common stock dividend of $0.60 per share, a 9% increase to the dividend. The dividend will be payable on February 17 to stockholders of record on February 3. East West opportunistically repurchased 200,000 shares of common stock during the fourth quarter of 2024 for $20 million. Additionally, our Board has approved a new $300 million repurchase authorization, resulting in $329 million of total current authorization available. I will now turn it back to Chris to share a few comments on our outlook for the full-year. Chris?

Thank you, Irene. With respect to our guidance, as previously mentioned, our outlook assumes modest economic growth and further cuts of 50 basis points over the course of 2025, consistent with the year-end yield curve. We expect end-of-period loans to grow in the range of 4% to 6% with continued relative strength in both C&I and residential lending. We expect net interest income to grow in the range of 4% to 6%, driven by balance sheet growth and total revenue growth in the range of 5% to 7%, bolstered by our continued momentum in our fee income businesses. Total operating expenses are expected to increase in the range of 7% to 9% year-over-year, driven primarily by headcount and IT-related expenditures, offset partly by lower expected deposit account expenses. Again, we expect full-year net charge-offs in the range of 25 to 35 basis points and our effective tax rate in the range of 21% to 23%. With that, now let me open the call up for questions. Operator?

Thank you. [Operator Instructions] And your first question today will come from Jared Shaw of Barclays. Please go ahead.

Hi. Good afternoon, everybody.

Hey, good afternoon, Jared.

Maybe just starting with the expense guide. When you look at the investments in people and technology that you're -- that you're highlighting. How should we think about that sort of being layered in during the course of the year? And is most of that in preparation for Category four or how would you sort of describe the color around the investments there?

Yes. I think we continue to make the investments we need to be for the bank we expect to be over the coming years and we expect the bank will be a strong capable and well-positioned bank to meet all the needs of our customers in the years ahead. With that in mind, I would note that our expense percentage is high relative perhaps to some others. But keep in mind, it's half of a much smaller base. And so our implied revenue growth far outstrips even the larger percentage of expense growth and leads to positive operating leverage.

Okay, great. Thanks for that color. And then I guess it's great to see the announcement of a buyback or increasing the buyback. But when we look at it in light of sort of the limited amount of repurchase that you've done in the past, should we think that this is a change in the philosophy around utilizing the buyback with this capital -- level or is it more you just want to have the flexibility in the future to buy back stock if something changes?

The philosophy here has been opportunistic. We were opportunistic in the fourth quarter. We'll continue to be opportunistic, but we certainly like the price points that we saw in the fourth quarter and we have plenty of flexibility to do what's in the best interest of our shareholders.

Is that opportunistic view only around the share price or is it a more -- broader view of potentially seeing lower capital ratios?

I think we operate from a position of capital strength that has served the company very, very well. Being one of the better-capitalized banks in the industry allows us to withstand whatever comes and gives the bank the flexibility to be here for our customers regardless of the economic or rate environment that's out there, and regardless of events like fires that may tragically impact some of our customers. Being here with that strength is a differentiator for East West. And if we weren't earning 17% returns on tangible capital, it would be of concern. But since we've been able to do that consistently year-in, year-out for years, I think it's a great place to be.

Great. Thank you for that.

Your next question today will come from Manan Gosalia with Morgan Stanley. Please go ahead.

Hi, good afternoon.

Good afternoon, Manan.

Hi, I wanted to start on deposit costs. They're down nicely, 50 basis points or so on the interest-bearing side. So I guess you're getting a 50% data there. I know some of your CDs still have to reprice lower. So where do you think we should shake out on deposit betas, is there a lot more room for that to go down from here?

Yes. Well, Manan we've been guiding to about a 50% beta and we're pleased to see that the results over the last couple of quarters have been consistent with that. I think we'll continue to see positive momentum on that as long as rates are moving lower or expected to move lower. And so we have that benefit that the CDs effectively reprice a little bit ahead of the actual Fed cuts. And so that will continue to be to our benefit here over the near term. We'll see where things shake out with the yield curve as we get later into the back half of the year.

I think last quarter, you noted that $20 billion or so of the $23 billion in CDs were due to reprice in the next three quarters. Do you have that number for the end of the fourth quarter?

Yes. Look, there's $10 billion repricing in Q1 and another 7-ish -- 8-ish in reprice in Q2, and then it drops off to less than 2 in Q3.

Got it. Okay. And maybe as a follow-up on loan growth, I know you noted that you expect C&I growth to pick-up with improving business sentiment. Can you give us some more color on what you're seeing there? And maybe as tariffs roll through, would that have an impact on growth or investment spend among your client base?

Well, I think I heard the first part of your question is sort of what's driving our positive outlook with business sentiment. And the reality is commitments are up 5% year-over-year. So we know there's dry powder in our customers' capacity to draw and there's active dialog with a number of customers across a number of industries. Obviously, we have a strong entertainment business. We have positive outlook on that. We'll wait to see what the private equity market does, partly rate-dependent, but we know that there'll be interest in a variety of projects and opportunities as we move through the year and then it will be a matter of time of how those go on. The second part of your question, Manan, I missed. Maybe you can repeat it?

Oh, yes. It was just -- if tariffs would impact that outlook?

At this point in time, as we look-back over the last eight years, the overall growth in the balance sheet, both on the loan and deposit side was fairly unimpacted by both the introduction of tariffs and the extension of tariffs under the Biden Administration. And so the reality is at this point in time, we don't have a reason to believe, it will have a material impact. Obviously, I think we're all waiting to see what tariffs ultimately come to pass. But based on what we've seen so far and there's a flurry of orders, so I may have missed some. We don't expect much at this point in time. But in any case, our customers have had eight years on their own to prepare for these. Many of them have reorganized their supply chains, many of them have prepared themselves for the expectation here of tariffs. And so the reality is, I think many of our customers have taken a proactive stance to managing their business and we're being supportive in whatever way we can. But that's for politicians to decide where they land on that. We're just here to support our customers.

I just want to add just on the record. And for the last eight years, East West Bank did not make any kind of M&A activity, acquisition, what not and -- but we were able to grow our deposit at an annual growth rate of 10%. And on the deposit side, coincidentally, we also were able to grow our deposit on an annual basis at 10%. So we actually pretty much outgrew most of our competitors at our peer group, while we did not even use any kind of M&A activities to supplement that. So -- and that's kind of like give you a pretty good perspective that tariffs, more tariffs, world global tariffs, whatever, right. I mean, somehow East West Bank will be able to figure out how to navigate. I really think that at the end of the day, it gets back down to our knowledge and expertise and recognizing where the path that East West should take and to appropriately find ways to grow organically. We've done that for the last eight years and we will feel very comfortable that in the next four years, we will be able to find a way to continue our successful growth.

I appreciate that. Thank you.

And your next question today will come from Ebrahim Poonawala with Bank of America ML. Please go ahead.

Hey, good afternoon. I guess maybe first on just commercial real estate. So, heard your comments on loan growth. Remind us what we should expect on CRE loan balances? Are those growing? Are they going to be running off and that's probably netting out in terms of your loan growth guidance? And if rates remain where they are or if the curve moves up by another 30, 50 basis points, is there any incremental credit risk that you see in the CRE book?

So, if you look at the last quarter or the last year, total CRE balances are actually both down a bit either -- over both periods. We are focusing on growing our C&I in residential. And yes, we expect CRE growth will be more muted as we move forward. From a credit risk perspective, I think we would say we have a very strong credit profile in the book. Obviously, lower rates helps many of our customers in that space. Higher rates would hurt some. The good news is, as the pages in the appendix of our materials show, our LTVs are such and our average loan sizes are such that in many cases, a small rate impacts will have no impact, right. Keep in mind, these customers were paying when rates were 100 basis points higher. They won't really have that many issues we hope as we move forward. And in any case, we're working with all our customers to make sure we are ready for whatever changes they face and help them through it.

Maybe just also specifically an answer to your question, I don't think that kind of modest increase in long-term rates really impacts our loans in our portfolio. They're more tied to the short-term rates.

That's helpful. Thank you. And I guess just a follow-up, Chris, your point about on a dollar basis, I think you mentioned revenue should expect -- exceed expenses going up this year. But given sort of this preparation for Cat 4, other investments you're making, is the efficiency ratio generally trending higher? Means, again, it's best-in-class where it is today, but I'm wondering, should we be thinking about it in terms of the efficiency ratio maybe lifts higher over the next few years or this is just limited to this year in terms of the guidance?

If we look back over the last several years, it's been growing at a faster clip. So I think the reality is we're acknowledging the pace that we've been on for the last several years and expecting 2025 won't be materially different. We have a long-term vision for investing in the platforms and peoples to make us the bank we want to be. We're going to get there. I don't know that means we've changed anything about our long-term philosophy about being best-in-class efficiency and I don't expect it to materially change the average trajectory we've been on for efficiency over the last several years. We've been able to grow, make the investments we needed to make, and deliver consistent profitability over that last decade, -- last three decades under Dominic's leadership. I think we can continue that for several more years to come.

Let me add by saying that obviously, for us, we would pay more attention to return of equity, return of asset, earnings per share growth, et cetera. Efficiency is one of the components that we are obviously have it available to share with the public, it's not for me as a high priority. Let me put it this way. The reason I say this is that, while we are growing, we'll continue to expand into other product and fee revenues. And when you change the business model gradually, East West would never do anything dramatically. So you don't have to worry about that. That's why you see our consistent high performance year in, year out, quarter-after-quarter, record-breaking after record-breaking. So you wouldn't have to worry about suddenly we go pivot to a direction that's shocking everybody. But while we are not going to that direction, you may notice that we keep it, calling out these record fee income, wealth management, record fee incomes for cash management fee income, foreign exchange, et cetera., et cetera., right. Is that we will continue to build our capabilities, our talents and continue to acquire more clients that will actually utilize these products that generate fee income for us. While we're we doing that, I think the expense ratio will be different than a predominantly loans and deposit shop, right. So the key really coming back down to -- so if we start actually diversifying the income stream, what does that mean? My position is that we know exactly what's the healthiest way to grow East West Bank balance sheet and our P&L, and we understand how we should look at our performance comparing with our peers. And as long as we continue to outperform our peers and sit in the top quartile, we're good. So that's the reason why I look at it, if the efficiency ratio went from 36% to 40%, it's not a big deal. And quite frankly, right now, it looks ridiculously low right now, so I'm not too worried about it.

Very clear. Thank you.

And your next question today will come from Timur Braziler with Wells Fargo. Please go ahead.

Good afternoon, Timur.

Hi, good afternoon. Hi. Just looking at some of the loans that were affected by the wildfires, just remind us of the insurance requirements for your SFR book specifically? And then maybe just walk us through kind of the timeline of insurance collections and what the obligations the bank might be to the impact of borrowers?

Yes. So great question, Timur. And as we looked at the exposure and the loans, I can also say affirmatively that all impacted properties are covered under -- with hazard assurance that's adequate for a loan. We've gone through this in the past as well. I mentioned -- I think the wildfires, let's say in 2020 or beyond -- years past. At the end of the day, the track record that we have is, we really don't have much impact because we make sure that the hazard assurance is there, placed them -- placed on the properties, the LTVs are low, borrowers have enough equity to rebuild. But realistically, these things can take time and also especially for mortgages, consumer loans where people live in these homes, but this is certainly something where we will accommodate our customers and their needs.

Okay. And then maybe this is hard to kind of frame, but just looking at the impact on the small business side and potential C&I impact, how do you start to frame some of that potential disruption and maybe what are some of the expectations for East West to participate in the recovery process?

Yes. Great question. At first [Indiscernible], as we're looking through our portfolios, this review also included commercial and industrial loans as far as businesses that were located in the impacted areas or businesses that might have had collateral in those impacted areas. As you know, we have many C&I loans where they are collateralized by real estate, maybe sometimes totally unrelated to the actual business. So from that perspective, we're very comfortable because those factors are included in the numbers I shared earlier. Small businesses have impact, one-by-one, we are reaching out to the customers to get that information. Thus far, I would say there hasn't been anything that we're really concerned about. But again, small business owners are part of the community. And if there are things that we need to do to accommodate, we'll certainly look at that.

Great. And then just last one from me…

I just want to add that there are substantial assistance coming from both federal, state and local government. So obviously, for small business SBA is out there are ready to standby for relief and then FEMA, et cetera. Just -- it's not only East West that we are more than happy to provide flexible solution to accommodate our small business customers, but also that -- out there plenty of resources that are be ready to support these customers that are impacted by the wildfires.

Great. And then just last from me, looking at the minutes, the end of period balance versus the average, both are up end-of-period, obviously up much more. I'm just wondering does all of that stick around into the first quarter or some of that end-of-period growth in DDA is transitory in nature?

Well, sure, we have some year-end transitory deposits, but I think what we draw comfort from is, as we sit here few weeks into the quarter, our DDA mix seems to have stabilized where we are, and we think it probably is on a positive trajectory as we move forward.

Great. Thank you.

And your next question today will come from Ben Gerlinger with Citi. Please go ahead.

Good afternoon, Ben.

Hey, good afternoon, everyone. It kind of follows up on the non-question -- when you think about just the CD repricing, I know Lunar New Year special has already started. Lunar New Year is actually next week. I'm pretty sure you have some hedge roll-off. I think it was mid-quarter. So when you think about just kind of the net impact outside of just kind of loans and deposits, I guess you think, can you give us some color of kind of what you're expecting like a margin might be for 1Q, 2Q just because 1Q has so much noise in it?

Yes. I mean, I think the short-term answer is it'll get better. So the reality is, we don't expect much, if anything on the rate action side in Q1, at least that's not what the forward said. We know the hedges are rolling off and we know that we're going to reprice some deposits still lower. So all of that's positive.

Got you. Okay. That is helpful. I think everything else has been asked and answered. So I appreciate the time.

And your next question today will come from Chris McGratty with KBW. Please go ahead.

Oh, great.

Hey, Chris.

Hey, Chris. Hey, Dominic. Hey, Irene. Slide 13 on the expense guide, is the starting point dollars like just GAAP ex-tax credit or are there any adjustments for kind of one-offs that happened during the years? Want to get the right starting point?

There was a small -- there was a small amount of FDIC. So I think we're focusing here on the operating non-interest expense line. So if you look at slide 10 of the -- press release tables, you know, it's that number as the base and that includes the FDIC land, but obviously, we don't expect any FDIC special assessment as we look forward. So that's sort of a baseline for your focus on.

Okay. And then within that, the -- could you help on the tax amortization that's backed in or baked into the guide?

So actually, the tax amortization is the next line below that. So that's why we focus on the operating non-interest expense growth.

That number is important [Technical Difficulty]

But for 2025, I'm just trying to get the right amortization in the adjusted line?

It'll probably be closer to what -- we didn't specifically guide on that. I mean, our tax rate will be in that 21% to 23% range, but we don't think tax amortization is poised to move or be as volatile it has been invest. That's part of why we adopted the PAM accounting we adopted, and we think it will be a more normalized number in the range of this what we did in 2024?

Okay.

It will all be on the actual investments that make, but it will offset in the tax line.

Understood. Okay. Great. And then Dominic, on the capital -- kind of capital use commentary, are there any businesses or non-interest income opportunities that you would consider to diversify the revenues and deploy some capital?

Anything that we will consider, but it's a high bar. The reason is that we've done pretty well for the -- in fact, the last 10 years, we haven't made an acquisition. And so the way I looked at it is anything that we wanted to do in terms of inorganic growth related to a certain extent, while we immediately have -- can have a positive impact to the balance sheet and possibly even P&L, the challenge is a distraction from our focus of running our business. We've done really well at what we're doing, just focusing on growing organically. So that's why I say it's a high bar. It would not be easy to find these potential acquisitions. I think it's a lot easier for institutions who find acquisition target when they have no ability to grow, no ability to generate business. And then the easiest thing to do is go buy somebody and then cut all the costs, right. So for us, that's not what we're good at. Now, we're good at actually growing business in relationship banking. So in that standpoint, that's what the high bar makes it not what I call highly likely that we will find the opportunity, but obviously, we're out there keeping our eyes open.

Great. Thank you.

Your next question today will come from Gary Tenner with D.A. Davidson. Please go ahead.

Thanks. Good afternoon,

Good afternoon, Gary.

I wanted to -- I wanted to ask about how you're thinking about just overall balance sheet growth as you're -- you gave the guide on loan growth, but you've got at least a part of FHLB outstanding that I think matures here in the first quarter and the Lunar New Year special. So how are you thinking about utilizing funds if you're able to have a pretty good growth quarter on the deposit side? Would you use some to condemn that FHLB or would you plan to roll that FHLB?

So I think we're -- I think we think about the balance sheet growth as the desired end-state of being here always to support our customers first and foremost with whatever their borrowing needs may be and to always have the liquidity and the funding to make that readily available. Second, we look at opportunistically, continuing to manage the investment liquidity levels. We think those are pretty strong right now. So that's not the incremental thrust at the moment, but we'll continue to evaluate that with changing market conditions. And then, yes to pay down our other higher cost borrowings or other higher cost deposits within our portfolio. And so as we sit here today, we're optimistic that we'll get good traction on the lunar CD special. And if that produces additional excess funding beyond our borrowing growth, we'll certainly be looking at how best to deploy that.

Okay. And is there -- how much of that of the floating part of the FHLB matures in the first quarter?

There's $1 billion that comes due later in the quarter, and we'll have the opportunity to see how much we've garner from the CD program as we evaluate how we fund, pay down or roll that.

Perfect. Thank you.

We may have timed the maturities to make sure we have that flexibility around the time of our expected CD campaigns.

This will conclude our question-and-answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.

Well, I'd just like to thank everyone for joining our call today and we are looking forward to speaking with you in April. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.