Q1 2021 East West Bancorp Inc Earnings Call
Good morning, and welcome to the East West Bancorp first quarter 2021 financial results conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
After today's presentation there'll be an opportunity to ask questions.
Ask a question you May press Star, then one and a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Julian and I believe <unk> believes Scott director of strategy and corporate development. Please go ahead.
Thank you Betsy and good morning, and thank you everyone for joining us to review the financial results of East West Bancorp for the first quarter 'twenty you want with me on this conference call.
Dominic Inc. Our chief executive.
<unk> Executive Officer, and Irene Oh, our Chief Financial Officer.
Like to caution you that during the course of the call management may make projections or other forward and statements regarding events or future financial performance of the company within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act and 1995.
Forward looking statements may differ materially from the actual results due to a number of risks and uncertainties for a more detailed description of risk factors that could affect the operating results. Please refer to our filings with the Securities and Exchange Commission.
Our annual report and report on form 10-K for the year ended December 31, 'twenty Funny. In addition, some other numbers referenced on this call change to adjusted numbers. Please refer to our first quarter earnings release for the Reconsolidation of GAAP to non-GAAP financial measures. During the course of this call and we will.
And that's part of the webcast and on the Investor Relations site as a net.
A reminder, today's call is being recorded.
The available and replaced 100, and Investor Relations Web and I will now turn the call over to our chairman and CEO Dominic Inc.
Thank you Julianna. Good morning. Thank you everyone for joining us for our earnings call I will begin the review of our financial results was five three of our presentation.
This.
And we reported first quarter 2021, net income of $205 million.
Total $1 44 per share.
Which was up by 25% quarter over quarter.
The first quarter was a strong start to the year.
Highlights include strong loan and deposit gross.
Robust revenue growth and decreasing operating expenses.
All driving pretax pre provision growth of 4% or 17% annualized.
And the first quarter, we earned $262 million of pretax pre provision income on total revenue of $427 million.
Furthermore, due to an improved macroeconomic outlook and stable <expletive>et quality, we did not record any provision for credit loss in the first quarter.
We return.
And one 5% on average <expletive>et.
15, 6% on average equity and 17, 2% on average tangible equity and for the quarter.
Attractive returns reflect a strong financial performance and the first quarter of 2021.
Slide four presents a summary of our balance sheet.
As of March 31, 2021, total loans reached a record of $39 6 billion.
Growing by $1 2 billion or 13% annualized from December 31, 2020.
Paycheck protection program loans total $2 1 billion as of March 31, 2021.
During the first quarter the company funded 5075, new PPP loans totaling $828 million.
Since the PPP program launched in 2020 East.
East West Bank funded a total of 12005 hundred 17 loans totaling $2 6 billion through March 31 2021.
Excluding <unk> total loans grew by 8% linked quarter annualized first quarter.
At the top of our previous guidance range for the year.
Accordingly, based on current pipelines and economic trends.
Updating our loan growth outlook for the full year two 8%.
Compared with a range of 6% to 8% previously.
First quarter average loans of $38 7 billion grew by 11% linked quarter annualized or 9% annualized excluding PPP.
Growth was broad based across all our major loan portfolios with.
And with the strongest growth from residential mortgage.
Deposit growth for the quarter was exceptional.
March 31 2021.
Total deposits reached a record of $49 5 billion growing by $4 7 billion or 42% annualized from December 31st.
Non interest bearing deposit grew 65% annualized to a record 18 49 day as of March 31 2021.
Making up 38% of total deposits.
As of March 31st.
Up from 76% a quarter ago and up from 31% a year ago.
We are pleased with the deposit growth and related loans and deposits.
Accounts fees.
Which are up 47% year over year to 15 4 million.
We have continually invested and our digital banking platform and Treasury management product capabilities.
Allowing us to win and Bosch customers with more complex cash management needs.
At the same time, we have developed deposit products tailored to meet the needs of our small business customers.
And that has been growing nicely for some time now.
Our ability to compete for and win both large and small deposit customers laid a good foundation for future growth as the economy recovers and business activity increases.
Turning to slide five.
You can see a strong capital ratio.
As of March 31, 2021, we had a common equity tier one ratio of 12, 7% and a total capital ratio of 14, 3%, which provides us with a meaningful capacity to support all of our customers and their growth and expansion plans as the economy reopens and bandwidth.
Covid related restrictions.
East West Board of Directors has declared a second quarter 2021 dividends for the company's common stock the common stock.
Cash dividend of 33 cents is payable on May 17, 2021 to stockholders of record on May three 2021.
Moving onto a discussion of our loan portfolio beginning with slide six.
Yeah.
C&I loans outstanding excluding PPP were 12 billion as of March 31, 2021, declining $55 million or 2% annualized from December 31 2020.
Total C&I commitments was $17 2 billion as of March 31, 2021.
Quarter over quarter increase.
Of 137 million or 3% annualized.
The decline and outstanding balance reflects pay down in January.
But on and on average basis CNI loans, excluding PPP grew by 5% annualized in the fourth and the first quarter.
We are comfortable debt out of C&I loan growth will accelerate through the year based on our year to year year to date gross and commitments.
Current pipelines and a strengthening economy as you know it takes time for commitments to materialize into balance outstanding.
Slide seven and net show essential details of our commercial real estate portfolio.
Total commercial real estate loans were $15 1 billion as of March 31, 2021. This.
<unk> grew by $285 million or 8% annualized from December 31, 2000 and 'twenty.
On an average basis total CRE loans grew by 6% annualized in the first quarter.
And <unk> run rate of growth is stronger and we had originally expected.
Because of higher origination volume.
Our core traditional CRE lending customers.
Well as lower debt anticipated payoffs.
We expect to see how you pay offs to tick up in the second quarter, but for the full year, we are comfortable with debt. Our total CRE loan growth will be supported by.
And by continued good demand from our customers as the economy reopens and rebalance.
Yes.
And slides nine and 10, we provide details regarding our single family residential loans and home equity lines.
During the first quarter, we originated $1 1 billion of residential mortgage loans and increase of 5% quarter over quarter.
And 45% Euro.
This was a record quarter of residential mortgage originations.
East West and we are seeing the momentum continue into April.
Single family residential loans were $8 5 billion as of March 31, 2021.
This portfolio grew by $338 million or 17% annualized from December 31st.
On an average basis.
Single family residential loans grew by 16% annualized in the first quarter.
Home equity lines outstanding were one 7 billion as of March 31 up.
$147 million or 37% annualized from December 31st.
Including unfunded commitments total commitments on our home equity lines was $3 6 billion as of March 31.
Up by 32% linked quarter annualized.
So utilization rate remained steady at 48%.
On an average basis home equity lines grew by 28% annualized in the first quarter.
I will now turn the call over to Irene for a more detailed discussion.
Asset quality.
And income statement Irene.
Thank you Dominic I'll start with our <expletive>et quality metrics on slide 11, our criticized loans were $1 2 billion as of March 31st of $3. One per cent of total loans essentially unchanged from $1 2 billion as of December 31st a three two percentage of total loans quarter over quarter special mention loans decreased to 500 and.
4 million as of March 31st.
Down from 565 million as of December 31st cl<expletive>ified.
Cl<expletive>ified loans increased to $713 million up from 653 million as of year and nonperforming <expletive>ets for 258 million and 45 basis points of total <expletive>ets as of March 31, compared with 235 million and 45 basis points of total <expletive>ets as of December 31st.
New migration into adversely graded loans and the first quarter with limited is one thing and stable criticized loans quarter over quarter.
Oil and gas exposures continue to be the largest single concentration and our performing <expletive>ets and the operating backdrop for this sector is improving outside of oil and gas, we do not see systemic issues and our loan portfolio and Furthermore, and 608 million as of March 31, 2021, we believe that our allowance for loan losses is sufficient.
To absorb losses, and our loan portfolio as well as incremental reserve belt needed for new loan growth, we do not expect to record any provision for loan losses for the remainder of the year.
On slide 12, we present the components of our allowance for loan losses.
Our allowance for loan losses totaled 608 million as of March 31st a 162 of loans held for investment excluding P. P. P compared with 620 million 168 as of December 31st and compared with 483 million and 139 on day one post.
Zone.
Steady quarter over quarter reduction and allowance largely reflects an improved macroeconomic forecast.
Net charge offs and the first quarter were 13 million compared with 19 million and the fourth quarter and the first quarter net charge off ratio was 14 basis points of average loans annualized and improvement of six basis points from the fourth quarter of 2020. This improvement primarily reflects a decrease and commercial real estate charge offs.
During the first quarter, we recorded no provision for loan losses, compared to 24 million and the fourth quarter.
And now moving to a discussion of our income statement on slide 13. This slide summarizes the key line items of income statement, which I will discuss in more detail in the following slides.
First quarter income tax expense was $30 5 million and effective tax rate was 13% comparable at $49 million and 23 per cent for the fourth quarter first quarter income tax expense and effective tax rate reflect the benefit of a higher amount of tax credit investments and discrete items compared with the prior quarter.
Fourth quarter income tax expense included 8 million related to DC solar tax credit investments I'll now review the key drivers of our net interest income and net interest margin on slide 14 through 17, and starting with average balance sheet growth first quarter average loans of $38 7 billion grew by 1 billion or 11%.
And linked quarter annualized and the growth rate accelerated from the fourth quarter and was broad based across the major loan categories. The strongest growth for residential mortgage.
First quarter average deposits of $47 8 billion grew by $3 4 billion or 31% linked quarter annualized all deposit categories real.
Led by growth and noninterest bearing demand deposits at a rate of 44% annualized with a strong deposit growth average loan to deposit ratio was 81% and the first quarter down from 85% and the fourth quarter. During the first quarter, we deployed some cash and debt securities available for sale and also repo ASP.
On a quarterly average basis securities FX increased by $1 4 billion and repo <expletive>ets increased by $204 million.
During the second quarter of 2021 $400 million of our FHL beef funding carrying and effective interest rate of 225 will mature, which we expect to pay off.
Turning to slide 15 first quarter 2021 net interest income of 304 $354 million grew by 8% linked quarter annualized.
And the net interest margin was 271, a decrease of six basis points from the prior quarter.
Excluding income related to PPP loans are first quarter adjusted net interest income of $339 million grew by 7% linked quarter annualized.
Net interest income related to PPP loans, with 15 million and the first quarter compared with 14 million and the fourth quarter as of March 31st we had $34 million a PPP loan deferred east to accrete into income this.
Six basis points quarter over quarter decrease and the first quarter GAAP and breaks down as follows.
Plus five basis points from a lower cost of interest bearing deposits plus two basis points for more DDA and the funding mix offset by minus seven basis points from lower loan yields and minus six basis points from excess liquidity due to the strong deposit growth.
Turning to slide 16, first quarter average loans, Leo, but $3 58, and excluding the impact of PPP. The adjusted loan yield was 360, <unk> down by nine basis points quarter over quarter from 369, reflecting the impact of low interest rates portfolio.
Turning to slide 17, our cost of deposits continues to climb and maturing higher price Cds repriced to current market rates and our average cost of deposits for the first quarter dropped to 18 basis points down from 25 basis points and the fourth quarter the spot rate of total deposits as of March 31, two.
And a 21 was 16 basis points.
Our first quarter average cost of interest bearing deposits dropped to 30 basis points down from 40 basis points in the fourth quarter the spot rate of interest bearing deposits as of March 31 was 26 basis points quarter over quarter improvement was primarily driven by the repricing of Cds as well and.
And by a decrease and the cost of money market accounts.
The average cost of Cds, and the first quarter was 50 basis points, a meaningful drop of 24 basis points from 74 basis points and the fourth quarter and the first quarter, we originated or renewed $5 4 billion of domestic U S. C DS and a blended rate of 20 basis points and a weighted average term of four months.
We had.
964 million of Cds maturing and the second quarter and a blended rate of 62 basis points and another 817 million and the third quarter and a blended rate of 61 basis points moving.
Moving on to fee income on slide 18, total noninterest income and the first quarter was 73 million up from $70 million and the fourth quarter first quarter fee income and net gains on sales of loans were 55 million growing by 14% annualized from the fourth quarter.
Foreign exchange income wealth management, and deposit account fees reflected growth and customer driven transactions for these business lines.
The income growth momentum is continuing into the second quarter and we expect these business lines show strength for the full year.
Quarter over quarter increase and interest rate contracts and other derivative income reflected a favorable change and the credit valuation adjustment due to the increase and benchmark long term interest rates and an improved macroeconomic outlook the decline and interest rate contracts revenue reflects the lower customer transaction.
<unk> and day, Matt and the current environment.
Moving onto slide 19, first quarter noninterest expense was $191 million, excluding amortization of tax credits and other investments and core deposit intangible amortization adjusted noninterest expense was 165 million and in the first quarter, a decrease of <unk> 6 million quarter over quarter.
<unk> and overall operating expenses more than offset increased compensation and employee benefit expense, which is typically higher and the first quarter due to payroll taxes and other payroll and related expenses.
Year over year, adjusted noninterest expense increased by three 8% net.
And the first quarter adjusted efficiency ratio was $38 seven per cent compared with 39, 8% and the fourth quarter over the past five quarters. Our efficiency ratio has ranged from 38, 4% to 48% despite operating headwinds from the Covid pandemic related economic slowdown and nears.
Zero interest rates and with that I'll now review, our updated full year outlook for 2020 one on slide 20.
For the full year of 2021 compared to our full year 2020 results, we expect that year over year loan growth, excluding PPP will.
Will be approximately 8% narrowing to the upper end of our prior range of 6% to 8% year over year. Adjusted net interest income growth, excluding PPP will be generally in line with loan growth on a full year basis and the current interest rate environment. We are focused on net interest income growth.
Which will be primarily driven by loan growth for our bank underpinning our interest income <expletive>umptions is the current forward interest rate curve and.
Adjusted non interest expense growth, excluding tax credit investment amortization of 5% and year over year narrowing to the upper end of our prior range of 3% to 5%.
And this change parallels to the update of our loan growth outlook and largely reflects growth and compensation expense and higher computer software amortization expense as we amortize.
Previously capitalized technology investments and compensation expense will reflect loan production and revenue growth for the year.
Our updated outlook for revenue expense translate to higher pretax pre provision income growth for 2020, one compared to our prior expectations I would add debt. We also expect to see stable to modestly improving operating leverage for the comparator 2020.
And just on our macroeconomic forecasts and loan growth outlook, we do not expect to book provision for loan credit losses for the full year.
Finally, full year, 'twenty, 'twenty, one and effective tax rate of approximately 15%, including the impact of tax credit investments unchanged from our prior outlook that will be quarterly variability and the tax rate due to the timing of tax credit investments placed into service with that I'll now turn the call back to Dominic for closing remarks.
Thank you Irene.
In closing we had a very good start to the year with attractive broke and profitability.
And look forward to delivering strong financial results for our shareholders in 2021.
I would now open up the call to questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two and.
And the interest of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to <expletive>emble our roster.
Okay.
First question comes from Ebrahim, Pune Wala from Bank of America.
Please go ahead.
Good morning.
Good morning.
I guess my first question is just sit on the other.
And I'm trying to figure out the potential for upside to your loan growth outlook. Dominic if you could help us just across the three major buckets. One on the residential mortgage side is there any reason to believe that momentum close on C&I. What what are the industry's debt do you think will drive loan growth and then on CRE and <unk>.
And a lot more constructive than you did and the last three to six months. So is the reopening or what are you hearing from clients. It makes you feel better about CRE activity for the ear and you kept.
And.
Okay.
Free yeah, the three buckets residential mortgages and.
Home equity and in fact, I know I've been predicting it to slow down for the last four five years and I hadn't cepheid.
We've been having a very strong momentum and.
And the residential mortgages and home equity lines of business.
We'll actually.
Quite a few years now.
Almost we're getting tired of it.
And record every quarter after quarter.
That obviously you know these lower interest rates help but so what we've seen so far I mean, our momentum.
<unk> has continued to grow strong and I.
Look at even so.
And so far and April has kept going and at this stage right now.
And don't see.
The residential mortgage to come down much simply because we are getting good momentum both on refinance from a home purchases and our home equity lines are picking up really strong. So at this stage right now I think that should be looking pretty good to.
And to continue on for.
And on the C&I side, you know I think the.
And the Great news release debt, we are getting new customers with.
We continue to getting Rudy.
High quality and new customers I think since the.
And the PPP.
Back in April of 2020.
And we were successfully getting some very high quality customers.
Because of a bit more chaotic situation and now some of the other banks and it'll allow us to able to demonstrate.
And our service level.
And a better so from that standpoint, when we also looked at in terms of our C&I side is to grow from many different verticals.
And at different geographic regions. So it was pretty.
And is evenly distributed.
And the commitments continue to grow so of course and the first quarter. You know we haven't got that pick up much from the outstanding balance and point of view simply because we always have a slow first quarter.
That's the nature of our C&I business. So we do expect that debt.
The particular as we highlighted at our raised guidance and the third and fourth quarter would be most likely seeing more pickup.
So not only just because of economy would open up more is because the nature of the business tend to.
Have more draw down and a certain fourth quarter. So that's been going on the CRE side.
I highlighted and Mike.
Yeah.
Sort of like presentation earlier is debt.
We anticipate a payoff for first quarter.
It didn't happen.
And as high as we expected.
We do expect that maybe it will be.
And happening in the second quarter, but all and all I would say that we are seeing good momentum from our traditional core customers and the CRE.
And our sector.
Many of our customers now are getting more positive and in fact, they see opportunities.
And.
In fact, they started even in the.
Late third and fourth quarter of last year, and they continue to look for investment opportunities and this allow us.
The.
Opportunity to actually see some decent growth in our CRE social and so we.
Watching the progress and and as of today I would say that we.
And we're comfortable very.
Very comfortable with our guidance that we laid out so far.
Got it.
And just.
And as a quick follow up in terms of just the deposit growth was very strong this quarter.
You have a breakdown of how much of the growth came from the U S versus Hong Kong and greater China.
And I would say debt.
I mean, because as you know and our Hong Kong and China is just a very small part of our.
Deposits total sold most of the deposits are coming from United States.
And do you see that as continue.
Yes, well I looked at as well when you look at East 40, some odd percent of annualized growth rate of 65% you know like annualized growth for DTA.
So I'll kind of things that we are.
We think it has a lot to do with the current economic environment.
But what I would wanted to share is debt.
I don't necessarily get pay too much attention.
To do so sort of like big deposit growth quarter by quarter, and which has been happening for the last couple of quarters, but I would say that I'm much more interest is to look at.
And do we have high quality customers.
Coming into the bank do we have these new power do we have high growth in the new customers that are originated by our branches.
By our commercial lending officer, and our commercial bankers.
We're out U S and China, and so far that's been happening and fact.
Our treasury and management.
Cash management products team.
Working day and night over time.
Opening accounts setting up you know.
All of these.
Nine banking and digital banking.
Requirement for our customers because we are getting more.
New customers and that to me is.
Very encouraging and we're hoping that.
That.
Continued growth will sustain.
And that will allow us to really have a much more meaningful.
Core customer base going forward and this is above and beyond just the current environment because.
Many banks also have.
Hi deposit balance growth for the last quarter.
I guess, what I'm really focusing on.
How many new customers, we have and what kind of customer all day are these customer call to have a sustainability going forward and those tier one I'm paying attention and I feel pretty good right now that we will continue to see growth from this set of new customers and together with existing customers who are expanding their relationship.
With us because our core capability from product and technology wise are getting better.
Allow us to be able to take on more complex.
<unk>.
<unk> setup.
Our next question comes from Ken Zerbe with Morgan Stanley. Please go ahead.
Alright, great. Thanks, good morning.
Good morning, Ken I guess first are probably at a pretty easy one and two.
The provision expense guidance and I just want to make sure I understand it correctly, you said, you're not going to book a provision expense for the full year.
Are you, saying that it is generally going to be zero for each of the next quarters or could it potentially be BB free negative if you do end up releasing.
And a matter of research.
And that's a great question and I don't have a crystal ball on a slip, but and I with our guidance of the zero is as we kind of project out and we model out right now the likelihood of having to add net provision and you know is very low at this point and time and that's really what.
And drove the change that we made to our guidance and the min Max and what might happen each quarter, certainly that could vary and you know certainly it is possible and that will have a negative provision, but nonetheless, I I'm very comfortable at this point in time with the zero President vision for the fourth and full.
Yeah.
Got it okay, perfect and then just a quick follow up and <unk>.
So the P. P P amortization.
And with 34 million remaining but you did $15 million this quarter as teams.
It could potentially fall pretty noticeably on a go forward basis, you should remind us what your amortization schedule is of that 34 is it straight line over five years or is it more heavily weighted towards the front end.
Yeah, it's more heavily weighted toward the and and I'll also add we've had a fair amount of pay downs as well, if we look at that and the.
And the first quarter, there was a period of time or we stopped.
Do we are the PPP loan forgiveness and the lower back up on that in fact actually last week. We started opening our portal for PPP forgiveness for PPP round, two and as well.
Our next question comes from Michael Young with Truth Securities. Please go ahead.
Hey, Thanks for the question.
Okay.
Good morning, good morning.
And just wanted to start with the NII guide and make sure I understand so the increase and the loan growth to 8% would have a commiserate increase and the NII guide to 8% growth off that base number from last year.
And you know I don't know certainly if that's gonna exactly correlate, but it will definitely be online and Michael.
Okay and then my follow up is just sort of on the additional liquidity build that keeps coming with a strong deposit growth.
Do you have any updated thoughts about the pulling that given kind of where rates have moved to today and or any additional analysis of sort of the stickiness of those deposits going forward.
Yeah, Great question, and certainly in the first quarter, and what's kind of the rate movement and our comfort level as far as the deposits the growth that we've had the growth that we expect and the pipeline now that with some other decisions.
And factors that we considered as we redeployed some of that cash that we had been building into securities and to repos and keep in mind obviously.
And the part of that consideration was the <expletive>et sensitivity of our balance sheet and also keeping in mind, what the securities that we did purchase and the repos and you know we did extend duration, but being cognizant of the fact that we didn't want to extend too much. So the repos LIBOR plus one and 30 kind of pricing and then the securities as well.
Largely what we've been buying our treasuries no repo a GSE kind of step ups things like that where we're comfortable that we're earning a little bit more money cash today on the cash today, but not extending duration too much and this kind of environment on a go forward basis evaluating kind of our liquidity the deposit growth that search.
Something that will continue to look at and evaluate.
Over the course of the year.
Our next question comes from Brock Vandervliet from UBS.
Please go ahead.
Hi, good morning, Thanks for the question.
If you could just kind of review kind of the puts and takes on the non.
Non interest noninterest income and FX derivatives service charges, and we'd been expecting those kind of come in.
And a fairly materially off a very strong Q4, and they actually headed higher.
What should we be looking for and then the.
The balance of the year or the next quarter.
Yeah. So if you know I think if you look at the accompanying deck debt we have on page 18.
I think we do a nice job of breaking out the fee income from our customer transaction perspective, and a reconciling back to the GAAP. So if you look at each line item.
And FX income, we have seen a lot more kind of transaction volume and a number of clients. So in the prepared remarks, we talked about and how that we expect that that to continue.
And then 10, particularly on a year over year basis, so far and second quarter.
And we're doing pretty well as well.
On the wealth management side same thing no other various point in 2020 with the pandemic you know there wasn't a lot of customer activity. We saw more interest and we've also kind of expand and have some great kind of product offerings for our customers that they like and that has certainly helped as well I would say also.
So on with the.
Deposit growth now that Dominic I spoke about and we talked about and the prepared remarks, you know their G. T S.
Relayed and deposit account fees continues to grow and we expect that to continue to grow over the course of the year and as well. So really you know what the IRC contract per customer revenue related revenue given the kind of the rate environment and that's probably the category, where I don't see and that's kind of level of growth for the full year, but other areas.
Positive year over year.
So I just wanted to add again is like.
And its beauty when you when you look at noninterest income foreign exchange and <unk>.
Global Treasury services cash management and.
The consumer branch fees.
These are the type and wealth management.
These are all you know.
Customer related type of.
And the income and that's what I'm talking about earlier debt, we are getting new customers and we are getting new customers.
While obviously because of the.
Great dedicated service from our <expletive>ociates know throughout it.
U S and China.
More importantly, we because of the investment that we made.
From digital banking to FX too.
Cash management et cetera. These investment that we made allow us to now have the capability to take on some of those.
Yeah.
Additional.
Uh huh.
Sort of like product capability that we have now to allow us to earn these additional fees and had we not.
Has some of these technology.
Technological advancement and built we wouldn't be able to.
<unk> generated six even though.
We might have these customers before.
Some of these customers and not able to transact everything with east West before because we did not have.
The technical capability.
But the last few years slowly gradually we're building up their capability and.
And that is out now and our noninterest income and I would expect that we will continue to grow and that's why it's important for us to also continue to invest.
And also add you know last share, including largely and lending fees, we had warrant income.
About 11 million, which we don't expect to occur. So aside from that you know, we do expect good growth and fee income.
Got it thanks for the color and nice quarter.
Thank you you're welcome thank you.
Our next question comes from Dave Rochester from Comp<expletive> point.
Please go ahead.
Good morning, guys and nice growth this quarter.
Thanks, Thanks, Dave.
Was I was wondering if you could talk about where new loan yields are today across your major loan buckets as well as new securities yields just given the steeper curve and then we'll be glad to hear where the overall average yield was on those securities purchases and once you.
So called one minute, let me get that for you might computer locked up so and I got it and just give me one minute.
Alright.
And and the excitement of my computer locking up I didn't hear and the last part of your question. So would you mind repeating that.
Oh sure just where the securities purchases were this quarter in terms of just the overall yield gap that I don't need to look up so the securities that we purchased are generally are about 150, 160, or so lower than kind of the yield that we had the floor, but as I said earlier and we wanted to just make sure from a duration perspective, and we were comfortable.
And then give me one minute here if you look at our kind of Moloney ELD.
Current and new core loan yields generally first C&I other loans about kind of 4% probably including fees for commercial real estate, where I, probably prime flat and then consumer loans and total were about.
375.
Great and then for Rosie.
North of four.
The $3 75 was combined let me clarify for HELOC and single family.
Got you okay. So the.
And the resi piece is now I guess, maybe a little bit below four.
That's right that.
And that all combines okay, great and then.
Perspective about what day.
Yeah, and the blended perspective, and what they arm portfolios as well.
Okay, Great and then you guys have plenty of capital today, you still have that buyback outstanding was just wondering what would prompt you to take a closer look at that buyback as we go through the year. If you have any specific capital targets. You are looking at just any color there would be great. Thanks.
We.
Having pretty decent growth, so far and so I mean, that's how idea about having a.
A little bit more.
Capital.
That and our peers.
Well during the pandemic, particularly at the beginning of the pandemic when everybody panic, we didnt have dependent gets much because we have plenty of capital. So now I think when the economy start rebounding and we.
Have very nice growth as you can see our you know.
Huge.
Deposits and even logo is pretty strong.
And so we really looked at is that it's nice to have that kind of capital.
That encase will get even stronger.
We've got plenty of capital to support that so at this stage right now I think debt.
We got to stay put and and see how it goes keep in mind, though even with where our capital today.
I can share that we have.
Return of equity.
Tangible equity of 17, 2%.
Which is not bad.
And that's the way we see it when we can put and this kind of like a return.
We don't need to spend too much time in terms of that.
Managing the capital too tight.
Our next question comes from Elan Zanger with jet with Jefferies. Please go ahead.
Thanks, Good morning.
Just wanted to touch on credit was a little bit surprised to see.
The oil and gas.
Yeah.
And I'll actually go up despite the better backdrop did see a little bit of migration because you may be talk to the outlook and that book and there is.
For that kind of going forward for this year.
Yeah, Great question. So the reserve calculation did increase a little debt part of it is correlated to you know.
A little net adverse migration interest.
And substandard and then also specific reserves that we had for some other non accrual loan. So if you look at 331.
The total reserve that we had for the oil and gas portfolio was $113 million outstanding for the outstanding loans compared to $111 million as of December 31st overall, you know I I would say that we're continuing to work through.
Through the portfolio.
Generally the outlook is more positive, but certainly we want to be prudent and conservative with our reserving there.
Yes.
Okay and.
I think you touched on on on the China Fame earlier, but just can we maybe get a pulse on the outlook for cross border activity.
Maybe you know for the second half of this year.
Yes, the cross border activity is going very well and fact.
Again as getting back to.
It's a combination of people.
And technology again.
What we've noticed is that despite the fact that we have as I share earlier that most of the deposit growth is coming from U S. And then the loan growth mainly from U S interesting enough.
Quite a few of those deposits have that cross border elements into it and quite a bit of even the loans have a bit of cross border elements into it is because.
We actually have many of our customers that are doing business in U S, but that have either ownership from China or Hong Kong and.
So we are doing a lot more business.
In terms of a customer that we acquire maybe us.
Providing our longs and and commercial deposits setup and U S.
In addition to that.
They have business.
In China, and Hong Kong debt also set of additional.
Commercial banking relationship with Us and also a house.
<unk> guarantee support of letter of credit to show up.
Credit strength for U S and it's these kind of like.
Cross border type of.
Transaction that east West.
Is very proud to have the ability to.
To be able to handle it and.
24, seven and different time zones.
And we also have.
The compliance regulatory.
Expertise they can understand.
That the rules and regulations and different regions and so we are going to continue to be able to get these type of business that in general from and East West point of view that we do not have that kind of competition.
Yeah.
Against our peer banks and U S and more importantly, we would end up.
Underwriting credits that have substantially less.
Actual risk.
Versus perceived risk from other banks, who don't know anything about this.
Cross border kind of business, so and that standpoint, we'll continue to expect that we will do well going forward.
And in our sort of like bridge between the east and West type of value proposition and we are really looking at it and then the next two years that we have more opportunity to come for us.
Our next question comes from Jared Shaw with Wells Fargo. Please go ahead.
Hi, good morning.
Good morning.
Looking at credit and losses, and with the 15 basis points. This quarter do you think that we've turned the corner on.
And on loss content and should we be looking at this and sort of the the high watermark for expectations, given the broader economic backdrop or could we see more episodic losses as we go through the year.
Well I think that from our perspective, what we're most comfortable with is really looking at.
And tier levels.
Overall.
Do you know when we see that.
You know our criticize loans, it's been stable.
And we also continue to review our loan portfolio.
One sector at a time.
And recently just have another CRE loan review and then we look at these different industry verticals on C&I.
And so forth and based on our review.
So pretty confident that our loan portfolio overall has.
Oh.
In terms of credit quality has been very good and in terms of any kind of major concern that would it get even worse at this stage right now I would say it is not very likely there is always going to be occasion to one or two loans debt.
Debt, we ended up charging off but in terms of overall do we have enough reserves for our <unk>.
Sort of like a loan portfolio I would say that we're very very confident that we have plenty of.
Reserve and allowances to cover any potential losses and the future.
Yes.
Great. Thanks.
Our next question comes from Chris Mcgratty with K B W.
Go ahead.
Alright, great good morning.
Hey, good morning, how are you doing just a quick housekeeping on the on.
And on the tax tax rate and the and the am expense.
Any color on the cadence for the rest of the year I think 100 million was kind of the thought on the expense.
Right.
Yeah, you know and certainly and we've talked about this before depending on the timing of the investment and that can be a little bounce around but at this point and time are and what the cash.
Tax rate the effective tax rate that we're <expletive>uming it also includes a $138 million for the full year of credits and 115 million from amortization perspective for full year.
Okay. So 150, and so that will pick up from here okay. Great. Thank you.
You're welcome.
The next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Hey, Good morning first question just on the core NII guide it looks like in order to get to that 8% you need <expletive>ets to grow faster than loans and that just wondering if that phenomenon could put some additional pressure on your core NIM or do you think going from cash into securities can help mitigate that just trying to get a.
Sense for whether or not we trough and the core NIM.
Yeah, you know I think that's a great question and we you know we do.
Do think that the NII growth will correlate with the loan growth and then as you pointed out with the kind of redeployment of some of that excess cash into securities that will help from and NII perspective, and also a net.
I'll also point out that you know our continued kind of repricing on our funding side and the deposits the flu.
Rob also helps as well so at this point and time, although it's hard to predict exactly where that and then it's gonna fallout based on largely at this point you know the deposits and excess liquidity and and we're comfortable that our margin will stabilize and.
And could candidate and modestly increase.
Okay, and then last one from me just on the on slide 16 of the deck.
Your C&I and.
Which loan yield of 336 this quarter ex PPP.
Given your your gross prospects I guess, how can you.
Yes.
Do you feel comfortable I guess pricing and at that level. How do you ensure that you're getting paid for the risk you're taking and I guess, that's my question.
Yeah, you know I think what our rates being so low that that's a that's a question that we have every day every day, we talk about it with our our and our team leaders and the credit team and the Treasurer and I think that's not just C&I. It's also CRE as well for US as you know single family and HELOC the credit holidays. So.
Stored and area and I'm not concerned there and then from a product offering perspective, and also we have a unique product so for C&I and CRE and honestly I think that's also we're being very careful to make sure from an overall return perspective from kind of a credit.
Any perspective, you know, we are careful with that and with that reflected and kind of the growth numbers and as well that we're expecting.
The next question comes from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Good morning.
Good morning questions. Good morning, first in terms of the C&I growth.
And just kind of a general taking the temperature of the customer base.
Could you comment on kind of what degree growth has come from the specialty verticals and if there's any of those specialty verticals that organic particularly more active.
Well.
We've been fortunate I mean I think since.
I would say the latter part of third quarter of last year and.
We are really seeing a.
You know.
Positive momentum from just pretty much every single vertical every so every month. There is another there is another team that come out stronger than the other one is a nice little internal competition, which is very healthy.
But if I look at and the first quarter.
I'm, a long outstanding point of view.
I would say that the few that stand out for the first quarter for.
And for a C&I loan outstanding.
Growth will be mainly and attainment.
Health care.
Technology.
And a little bit of that.
Cross border business so.
But in terms of commitment.
So some of them some of them done well in terms of book and commitment. They just couldnt get anything funded and like for example up.
Private equity.
Capital call lines, they've got some nice commitment they just haven't been able to get funded.
And it but in time.
And you would think that some of these private equity funds. They raise money to invest so and time you would think that it will start investing so I would expect that you know different quarter will be a different mix.
At this stage, you know I'm pretty comfortable debt.
Different.
Sectors, all going to be doing quite well.
And the other than in the oil and gas that we are.
Decided to religious and those slowed down and and continue to.
Half debt balance to come.
Come down to less and that day and that's what we've been working on and it's been working so far.
Got it. Thank you and then in terms of the provision guide kind of a follow up question there.
If you <expletive>ume 8% growth ex PPP and kind of a zero provision over the course of the gear that seems to get you pretty close to the day when Cecil allowance.
Plus or minus one and $38 40.
Does that have there been any changes there.
And that could.
And maybe longer term drive that allowance below the Cecil day, one or is that kind of the glide path to more of a base level.
Yeah, you know my math works out the same as yours are.
Certainly I think there depending on kind of what happens largely to the forecast I think it could drive lower and if we look at it as a 331 versus day one.
Cecil near term there.
And the drivers such as unemployment that are certainly higher today, but when we look at the forecast over multi years, it's better GDP GDP growth.
It's also something over the next couple of years looks to be better. So there are other drivers I think that if especially if they improve could drive that law, but certainly that's something we're looking at very carefully.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
Our next question comes from David Giovanni with Wedbush Securities. Please go ahead.
Hi. Thanks. My first question is kind of a combo question between expenses and and loan so expenses were down in the quarter, but the guide was raised to the upper end of the range too.
And 5% from three years to five per cent and you mentioned that it's driven by growth and compensation related to loan production and computer software expense I guess. The question is are you hiring on the loan team side of things, whereas the loan growth that you're expecting more of a function of increased commitments and pipelines from the existing teams.
And.
We do.
We have hired additional people I wouldn't say that we have made.
Significant and the hiring I think that I would say the vast majority of our growth coming from <unk> 16 existing tier.
And I'll just add.
And part of that commentary is really the point that you know if we look at AD payroll is up also when we look at kind of the revenue from and the expectations for growth on the lending side. The fee income side. We are also increasing our bonus pool.
And that we've set aside given that our expectations and revenue and income will be up and considerably year over year and if you look at it I mean, the year over year increase from the first quarter. This quarter to last year was about 3%. So hopefully that gives you some perspective around that.
And the other thing to last years Ishares not at what I call a normal year.
Last year has been radically normal I would think that the incremental increase would not be.
And as much at all and simply because last year that we have.
And <unk>.
Reduce expenses.
And quite a bit so so everything is relative.
Thanks for that and then shifting gears to the deposit growth really nice this quarter and you mentioned about the digital banking platform and the success Youre, having with Treasury management and small business customers. I was wondering can you break out the split between commercial and consumer in terms of driving that deposit growth was one.
Weighted more than the other during the quarter.
Do we have that number.
I don't have the specific breakout, but it's definitely more weighted towards commercial.
And I'll I'll I'll know even for our retail branches growth on consumer and commercial had both and very nice yeah. I mean, I mean strong on both sides. It just at a probably a little more the dollars are much bigger.
This concludes our question and answer session I would like to turn the conference back over to Dominic Inc. For any closing remarks.
Thank you. So again, thank you so much for joining us on our call today and I'm just looking forward to.
Speaking to all of you in July for our second quarter earnings release. Thank.
Thank you bye.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.