Hello and welcome to the East West Bancorp's First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, 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 First Quarter 2025 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 website. 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 our first quarter earnings call. I'm pleased to report strong first quarter results. We continue to grow the bank and reported another quarter of record revenue. Loan growth was solid. We grew end-of-period loans 1% quarter-over-quarter to a new record level of $54 billion. Our relationship-driven business model helped support continued residential mortgage and commercial real estate lending. On the deposit side, we executed another successful Lunar New Year CD campaign and further optimized our pricing this quarter while continuing to add customers. We also delivered another record quarter of fee income. Fees were up 8%, driven by strong customer activity across the board. We continue to see opportunities to grow and diversify our fee revenues. Asset quality has remained solid and credit is performing as expected. First quarter annualized net charge-offs totaled 12 basis points or $15 million. The non-performing assets ratio decreased two basis points from the end of Q4 to 24 basis points at quarter-end. Given the recent increase in economic uncertainty, we bolstered our allowance levels, bringing our total allowance for loan losses to 1.35%. The strength of our diversified balance sheet continued to show this quarter, allowing East West to continue to deliver top-tier returns. We delivered a near 16% return on tangible common equity and a 1.6% return on average assets, while growing tangible book value per share 3% quarter-over-quarter and 15% year-over-year. Now before I hand the call over to Chris, I'd like to take a moment to talk about the current economic environment. Tariffs are not new for East West or our customers. We have been taking tariffs into consideration since 2017. Many of our clients decided to diversify their supply chains way back then and accelerated those efforts during the COVID-19 pandemic. Since that time, we have seen our customers increase their investments in the US and other markets. All the while, East West engaged with our customers and continued to grow. Over the past six months, we have seen our customers reposition themselves for a range of potential outcomes. In the past several weeks, our teams have spent a lot of time with our customers talking about their business plans. They are proving to be forward-thinking, nimble, and are mostly staying ahead of the curve. Our experience has taught us to confront challenges from a position of strength. We entered the second quarter with a diversified balance sheet, a granular and strong consumer and commercial banking network, top-tier profitability, best-in-class operating efficiency, and among the highest levels of capital in the banking industry. We have the capital and balance sheet flexibility to take care of our customers in any environment and are well positioned to capitalize on any opportunities ahead. I will now turn the call over to Chris to provide more details on our first quarter financial performance.

Thank you, Dominic. Let me start with loan growth on Slide 4. We added over $0.5 billion of loans to the balance sheet in Q1. Demand for residential mortgage proved durable, and new originations continue to be accretive to yields. Even with the current elevated rates, we continue to see steady mortgage origination activity in Q1 and have a strong pipeline going into the second quarter. As Dominic mentioned, we also grew commercial real estate balances this past quarter as we continue to support our long-standing relationship clients and select multifamily projects. C&I balances also grew modestly in Q1, likely reflecting the pull forward activity we saw in Q4. Overall, we are encouraged by the lending trends we have seen so far even into April. Moving on to Slide 5. We strategically optimized our deposit pricing strategy this quarter to lower our overall funding costs. We successfully retained our Lunar New Year CD balances and incrementally captured some additional CD market share, even at much lower pricing. Average DDA balances, money market balances, and time balances all grew quarter-over-quarter. We continue to expect customer deposit growth will fund all of our loan growth this year. Overall, we're encouraged by the deposit trends we have seen this year even into April. Slide 6 covers our net interest income. We grew quarterly dollar net interest income to $600 million, up $12 million from Q4 despite two fewer days in the quarter. Similarly, we grew our net interest margin by 11 basis points from Q4 to 3.35% in the first quarter, primarily by decreasing our end-of-period interest-bearing deposit costs by 13 basis points and partly due to day counts. In both cases, dollar NII and margin were also assisted by the expiration of some of our legacy hedges. Looking back to the start of the cutting cycle, we have decreased interest-bearing deposit costs by 62 basis points, successfully exceeding our 50% beta guide which we've shared in prior quarters. We continue to expect net interest income expansion as we go through the balance of the year. Moving on to fees on Slide 7, as Dominic mentioned, fee income grew 8% from Q4 to another record level with growth in four of our five major fee categories. We will remain focused on driving growth in our fee categories and further diversifying our revenue streams. We are encouraged by the pace of growth in fee revenue so far this year. Turning to expenses on Slide 8. East West continued to deliver industry-leading efficiency while investing for future growth. The Q1 efficiency ratio was 36.4%. Total operating non-interest expense was $236 million for the first quarter, including seasonally higher payroll-related costs. Overall, we continue to expect expenses will be in line with our guidance for the year. Now I'll hand the call over to Irene for comments on credit and capital.

Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 9, our asset quality metrics continue to broadly outperform the industry. With quarterly net charge-offs, non-accrual loans, and non-performing assets metrics all improving. We recorded net charge-offs of just 12 basis points in the first quarter or $15 million compared to 48 basis points in the fourth quarter or $64 million. Quarter-over-quarter non-performing assets decreased by two basis points to 24 basis points of total assets as of March 31st, 2025. The criticized loans ratio increased during the quarter due to 2.3% of loans. The special mentioned loans ratio increased eight basis points quarter-over-quarter, while the classified loans ratio increased three basis points to 1.38%. We recorded a lower provision for credit losses of $49 million in the first quarter compared with $70 million for the fourth quarter of 2024. We remain vigilant and proactive in managing our credit risk. Turning to Slide 10, the allowance for credit losses increased $33 billion to $735 million or 1.35% of total loans as of March 31st, 2025. We utilized a multi-scenario methodology for the allowance, and the increase in the quarter was largely driven by an increase in downside scenario weightings given the economic uncertainty in early April 2025. We believe we are adequately reserved for the condition of our loan portfolio given the current economic outlook. Turning to Slide 11. As Dominic mentioned, our strong capital levels allow us to operate from a position of strength and support our customers in any economic environment. All of East West's regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional and national bank averages. East West's CET1 capital ratio stands at a robust 14.3%, while the tangible common equity ratio rose to 9.9%. These capital levels place us amongst the best-capitalized banks in the industry. In the first quarter, East West repurchased approximately 920,000 shares of common stock for $85 million. We currently have $244 million of repurchase authorization that remains available for future buybacks. East West also distributed $85 million to shareholders via quarterly dividends. East West's second quarter 2025 dividends will be payable on May 16th, 2025 to stockholders of record on March 2nd, 2025. I will now turn the call back to Chris to share our outlook.

Thank you, Irene. On Slide 12, we are reiterating our full year guidance. We're also providing some additional detail on tax items. Amortization of tax credit and CRA investment expense is now expected to be within the range of $70 million to $80 million this year. We continue to expect our full year 2025 effective tax rate to be below 23%. With that, I will now open the call to questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Casey Haire with Autonomous. Please go ahead.

Yes, thanks. Good afternoon, everyone. So I guess first question, why is the NII guide not moving higher? It sounds like loan pipelines are in good shape and NIM is up. And at this current run rate, you're right at the middle of the guide level.

And to be honest we could probably think about that a little bit harder but the reality is there's a couple of rate cuts baked into the March 31st curve and since then probably the outlook has stemmed a little further for three to four cuts. So as we sit here today, we think the current guidance is appropriate and we're comfortable.

Okay. And then so, Chris, the deposit beta as you pointed out was well ahead of what we were expecting. Can you sustain that at this level or is that normalized lower?

Casey, I think what we've told folks is we've been benefiting from rolling down the hill particularly with the repricing of our CDs. And so as the forward curve starts to flatten out, that positive momentum will start to slow a bit. Nonetheless, we think we'll be above the 50% guide we've given you.

Thank you.

The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

Hi. Can you hear me?

Yes, we can.

Okay. Hey, Chris. So on capital, I think you bought back in the first quarter at an average price of, I mean, the 90s. Given the pullback that we've seen in stocks, I appreciate the macro is uncertain. Just talk to us in terms of how much of a ramp-up can we see in terms of capital return and buybacks if the selloff continues or does the macro make you a little bit more cautious and stay on the sidelines and sit with the excess capital for now?

So if I look back over the last six quarters, we purchased $310 million of stock at an average price of around 72. So we clearly think the price has value still below where we bought it in Q4 and in Q1, and we'll continue to look at it. But as you know, Ebrahim, we continue to want to position the bank to always be in a position of strength, to be in the best position to service and support our customers, and to have the flexibility to do what's right for shareholders in all environments. So we'll continue to be opportunistic, but as Irene mentioned, we have $244 million available and all the flexibility to consider what's best for our shareholders.

Got it. And I guess maybe just one big picture question, maybe Dominic for you on client activity. So you've talked about the experience you all have had since 2018. It feels the rhetoric, the pushback between US and China is a lot more elevated this time around. And I'm just wondering when you think about your customers, their ability to withstand this, do you think the risks are larger today than what we were faced in 2018, '19? And have you seen any deceleration or a pickup in activity ahead of these tariff concerns?

Well, I think in terms of, from our client's perspective who have business that may have a direct sort of may actually be impacted by tariff, I would say that back in 2017, it would be a little bit more challenging for them because it was the first time they really went through this sort of surprise with tariffs. Most of them were not necessarily as well prepared. It took them a few years to get themselves in a position that, be able to figure out how to deal with the supply chain. I think in a way, COVID-19 actually accelerated many of their desires to make sure they have multiple alternative ways to continue to do business in terms of either they are an importer of goods from the Asia region. So today, while the tariff rate is particularly for China is very high, and then even for other countries, potentially can be high, but I guess all of that will be subject to negotiations. So we at East West Bank try not to put too much time focusing on the speculation about what the outcome is. What we've done back then in 2017, '18, and we're pretty much just focusing on working with our clients one customer at a time, helping these clients that have direct exposure and getting them through. And fortunately for us, in fact, as we have said it numerous times in earnings calls, our trade finance portfolio did not suffer any losses during those periods of time. And so today, in a very similar way, we see at the size at East West Bank that we can actually engage with our customers one at a time. In fact, so far we have already talked to over 500 commercial clients that have some exposure due to the newly proposed tariffs. We feel pretty good with the discussions with these clients and everyone has a different way to manage it. For those C&I loan balance portfolios, we feel pretty good where we are today. And in terms of potential credit loss, as of today, we don't see any at this moment. But we continue to work with our clients on a day-to-day basis, continuing to help them through. We feel that actually, this exercise not only is great for credit risk management for East West Bank, but more importantly, that's how we help build loyalty with our C&I customers. And more importantly, I do want to point out that through this process, the likelihood we're going to end up gaining more business from other banks because there are other banks who actually are not as familiar with how we manage the tariff situation that may potentially trigger disappointment from some of their high-quality clients. So we feel that we may have an opportunity going forward in that regard.

Got it. Thanks for the color, Dominic.

The next question comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Hi. Good afternoon. Dominic, if you can comment on what you just said. As you work with clients as it drives a bigger opportunity for East West, does that imply that it's a bigger opportunity for bringing in more clients, getting higher loan growth, getting more deposits as soon as this year or is that more of a longer-term opportunity in your mind?

I look at everything more from a longer-term perspective. In terms of the current environment, there are uncertainties out there. So whatever I project, I think that sometimes in a few days, things change, right? We saw the volatility of the stock market and whatnot. So our position is that, number one, we want to make sure that we are in a position of strength. That's why we're very proud that our tangible capital ratios approach 10%. We have plenty of liquidity. And as long as we're in this position, we feel very confident that within our control, we have plenty of flexibility and a very fortress-like balance sheet that can work with anybody. Now how that would end up either getting more customers to us this year versus a year from now, two years from now? It all depends on how everything plays out in the economic environment in the next six to nine months, and that is something that is somewhat beyond my control.

Got it. So you're saying that East West has the capital, has the balance sheet to work with clients. And at the same time, there is an elevated level of risk for the US economy as a whole as well. What would cause you to pull back on loan growth in this environment?

There are various scenarios to consider. A significant decline in economic conditions could lead to decreased demand, prompting us to be cautious and refrain from discussing growth strategies with clients if we are heading toward a recession. However, currently, these aren't major risks. There are uncertainties ahead since no one can predict what will happen in the coming months, and we will need to see how things unfold. The best way to navigate uncertainty is to maintain strong financial health. Looking back, in three out of the last five years, we faced challenges from COVID, the regional banking crisis, and now potential tariff impacts on the economy. During these times, we have felt confident in our strong capital ratio, reinforcing our position as a solid financial institution. This instills confidence in both our commercial and retail customers, reducing panic about East West Bank, which in turn supports our ability to achieve organic growth. We'll watch how all of this develops, but I am optimistic about our financial standing. However, predicting how the economy will progress—whether up, down, or sideways—exceeds my expertise.

I appreciate that. Thanks so much.

Thank you.

The next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Hi. Good afternoon. I'm wondering just on the fee income side, how much of the broader fee income is somehow generated one way or another through cross-border trade? And then just maybe following up on the conversation we were just having, how would you balance the view that East West's expertise maybe becomes more coveted as complexity starts to increase in cross-border trade versus maybe some of those fees at risk if cross-border activity actually does flow?

A small portion of the commercial deposit-related fees are cross-border, but the reality is the lending fees are domestic, the wealth management fees are domestic, and the derivative activity is tied to our domestic customers. So it's really just the FX fees. And obviously the FX fees are, you could almost say, by definition, cross-border related, but everyone has a little bit of them, so they're not specific to East West. But I think it's really a portion of the commercial fees and the FX fees that are tied in some way to cross-border activity.

And then maybe one for Irene. Just can you talk us through the allowance build, the rationale on the C&I side, if there are any specific segments where maybe that allowance was more so applied? And then on CRE, I guess, I was a little bit surprised to see that allowance tick down quarter-on-quarter even though classified were up sequentially.

Yes. Good question. So the increase in the allowance for us was largely based on our increasing the weighting for the downside scenario. As I said in the prepared remarks, we use a multi-scenario for calculating the allowance and we haven't closed the books yet in early April. So with the fact pattern that was out there and the market disturbance with the tariff, we increased the downside scenario. The impact of that was multiple. But what we highlighted there for the reserves of the C&I and the increase of seven basis points or $37 million for C&I was a result of that.

Great. Thank you.

The next question is from Ben Gerlinger with Citi. Please go ahead.

Hi. Good afternoon. Appreciate it. If you could take a minute and you're talking about expenses. I know you guys you have a guide of 7% to 9%. It seems like 1Q over 1Q last year is pretty de minimis with total change. Just trying to think about how to look at the remainder of the year, the nine months, and any time investments might hit or what we should expect from 2Q, 3Q, and 4Q?

Yes, look, I think we're still comfortable with the overall guide for expenses for the year. We continue to invest in cyber and technology and enterprise risk and growing the infrastructure to be a better and stronger bank for our customers. And all of those investments continue at pace, some will come into play in Q2 and Q3 as technology gets implemented and placed in service.

Got you. That's helpful. And then when you just kind of think holistically if we're kind of in a vacuum here, no rate cuts, like first quarter had the impact of lowering CD pricing and deposit costs overall. Then you also had partial headwind reprieve from your swaps, I should say. But when you think about kind of the 2Q, it should naturally work higher, day count included. And then if you layer in a cut in the middle of the year like that's the headwind. Is that what you were trying to convey, Chris?

Yes. So I think we naturally expect the balance sheet to continue to grow. That will be a positive. The positive from the derivatives that expired have already been recognized. The CD repricing opportunity in a flat rate environment will dissipate towards zero. And we will be offsetting the balance sheet volume growth with potentially the risk of slower growth on the one hand than perhaps our expectations given just how the economy might slow in the latter half of the year and the potential for rate cuts, which, at least as of March 31, had two rate cuts baked in, and we've previously said each rate cut is worth $2 million per month. So that's a negative to offset essentially the positive balance sheet volumes that we expect.

Got you. That's helpful.

$2 million per rate cut per month.

Right. Got it. Thank you.

The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Hey, good afternoon, everyone. Thanks for the questions.

Good afternoon.

Hey, just on the deposit cost side, it looked like the spot rates at 3.30%, just four basis points below the average in the quarter. Can you just remind us what you have in the way of CDs coming due in 2Q, maybe even 3Q and kind of the differential in rate before it drifts to zero?

Yes. We have about $10 billion coming due in the next quarter here in Q2 and about $8 billion in the third quarter. Rate-wise, most of the things that will stay in the third quarter rollover have just been repriced now, right? So essentially, the stuff that's coming on in the third quarter is all going to be in the low 4s, 4 to 4.08%, a little bit at 4.18% range. So the incremental benefit in a flat rate context will be 18 basis points. Of course, if we see one or two rate cuts by then, it will get better. And then with regard to stuff that will rollover here in Q2, it's stuff that generally we put on the books in December or January that will come due in ordinary course. And that's going to be sort of in the low 4s, 4.25% area roughly.

Got it. Okay. Thank you. And then just on the uptick in criticized commercial real estate ex multifamily, I think it went from 3.08% to 3.76%. Can you just give us a sense for the types of properties that drove that increase in your plans there?

Yes. The increase there was pretty broad-based. Some related to no concentration, really, honestly, from a customer perspective or really relative to the portfolio and geography. The areas where we had the kind of downgrades were industrial and largely retail and then some of them in our other category as well, which is broad-based. Nothing we saw or thought was systemic at this point.

Okay. Thanks for the color.

The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Thanks. Good afternoon. Dominic, I appreciate your comments earlier on the tariffs. Wondering if, as it relates to the trade finance business, have you or do you expect to see sort of an earlier year level of activity there as any of your customers kind of pulling supplies or inventory earlier than they might typically do? Have you seen any of that yet?

That's already happened. I mean the customers that react to the sort of potential tariffs that may be coming into place pretty much, I think, the stocking and then putting more inventory in place early on. So I look at it right now. I don't anticipate in the next two to three months there will be any more balance increases because I hope right now it's going to be the kind of worst-case scenario. It doesn't make sense for any of the importers to start parting with more inventory at this stage.

Okay. So that's already kind of embedded in some of the C&I activity in the first quarter, it sounds like?

Yes. As I mentioned Gary, we may have seen part of that actually in the fourth quarter as well. So there was a pull forward of activity. So we probably saw some of it in Q4, some of it here in Q1. As Dominic mentioned, we don't expect to see a buildup on the C&I side at least, of materiality related to that activity at this time.

Got it. Okay. Makes sense. And then second question I had was just on the wealth management fee income, the year-over-year and sequential quarter increase, pretty significant. Was that, I think in the slide deck, it just notes higher customer activity, but the sequential quarter number is so strong. I'm just wondering if there was anything in there that did impact the quarter that may not recur here in the second quarter?

I think there was a lot of volatility in the quarter. And so customers came and asked for advice and we were happy to provide it. The reality was this was a combination of putting money to work into fixed income products, putting money to work into insurance products, putting money to work just in allocating some to insurance policies and putting some money to work in structured notes and other activities along with the normal ordinary course investments in the markets that we usually support our customers with. So it really was across the board and on many fronts, but in response to some very active conversations which created opportunities to reposition some things.

Thank you.

The next question comes from Jared Shaw with Barclays. Please go ahead.

Good morning or good afternoon.

Hey, Jared.

Maybe following up on the wealth management question. What's the broader strategy for growing that line? Is there an opportunity for M&A to come in and play a part in growing wealth management or is it really just going to be continual blocking and tackling and growing customers one at a time?

Well, we have been successful at the blocking and tackling and growing customers one at a time, which I think is a hallmark of East West's capabilities. But in addition to that, as you're aware, we made an investment in a firm back in 2023 and we would selectively look at opportunities to continue to expand our capability for our customers and offer a broader set of both products and services and solutions because we think there's incremental demand within our customer base for those services and solutions that we will continue to tap into with each quarter that passes and we know we can do more.

Okay. All right. Thanks. And then on the hedge strategy, can you maybe give us an update on what the expected sort of volume or appetite is going forward? And then what's the blended received fixed rate on the existing swap book after that $1 billion rolled off in first quarter?

It got a lot better. I don't know whether I have the blended right at my fingertips, but the next sort of relevant trade that will impact the portfolio is we've had about $500 million of forward starting swaps, just under 4%. And that will receive fixed on starting in Q3. And so to the extent we see rate cuts in Q3, we're poised to be in the money on those. And actually, I'm sorry, early in Q3 and then another $500 million later. So there will be a total of $1 billion over the back half of 2025, again, both with the received fixed rate at around 4%.

Great. Thank you.

The next question comes from Chris McGratty with KBW. Please go ahead.

Great. Thanks. Chris, just on the security purchases in the liquidity management. Can you just elaborate on what you bought in the quarter on yield duration and expectations for kind of the mix between cash and bonds going forward?

Sure. So during the first quarter, we continued to mostly buy Ginnie Mae floaters, although we did begin to layer in some fixed-rate Ginnie Mae. Our focus is all on purchasing HQLA Level 1 Securities. So far in Ginnie Mae has been sort of exclusively the focus. Our duration at the end of the quarter basically ended up at around three and that's a blend of the floaters, which obviously are less than 1, and the legacy portfolio of fixed that we had, and the HFS, the whole portfolio comes out to about three. But again, if we're buying mostly floaters at the short end, we're adding less than one stuff although incrementally and today we do see value in the fixed side of the equation at levels above 5.5%.

Okay. Great. And then just a clarifying comment. The tariff exposure, I think you talked about reviewing 500 customers. Was it 1% of the C&I that was a statistic? I missed that before that you were watching a little bit closer?

Yes, 1% of the C&I outstanding balances is the portion of the customers that we know that we're actively engaged, which is why we engage with them. And those are the outstanding balances. Again, we're not saying any of those are necessarily at risk, but we know they're actively engaged and will be impacted to some extent.

Great. Thanks, Chris.

The next question is a follow-up from Gary Tenner with D.A. Davidson. Please go ahead.

Hi. Thanks for the follow-up question. I just wanted to ask about the FHLB advance of the $3.5 billion kind of expectations for. I know there's some maturities there this year. Would you expect to just continue to roll those, or do you have a different approach in mind as it relates to paying down that liquidity or funding?

I think we'll continue to look at the Federal Home Loan Bank advances as a flexible component of our overall balance sheet to the extent that there's an opportunity to pay those down with excess deposits. Happy to do so from time to time. To the extent there's an opportunity to put the money to work in securities that has a better profile for us and better return to our shareholders. We've been doing that essentially over the course of last year and I think we'll continue to reevaluate that as we move through the year.

Appreciate it.

Thank you. This concludes our question-and-answer session. I will now turn the call back over to management for any closing remarks.

Thank you. Thank you for joining us on today's call and we are looking forward to speaking with you again in July. Bye, bye.

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