Q2 2022 East West Bancorp Inc Earnings Call
Speaker 2: Good day and welcome to the East West Bancorp second quarter 2022 earnings call.
Speaker 2: All participants will be in lesson only mode. Could you need assistance? Please signal from specialists by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question, you may press star then 1 on your touch tone phone. To withdraw from the question queue, please press star then 2.
Speaker 2: Please note this event is being recorded.
Speaker 2: I would now like to turn the conference over to Juliana Belieska. Please go ahead.
Speaker 2: Thank you, Sarah. Good morning and thank you everyone for joining us to review the financial results of East Swiss Bank Group for the second quarter of 2022. With me on this conference call today, our Dominic Aing, our chairman and chief executive officer, and Irene O., our chief financial officer. We would like to caution you that during the course of the call, management may make projections or other forward-looking statements regarding events for future financial performance of the company, was in the meaning of the safe harbor provision of the private security litigation reform act of 19.
Speaker 2: filings including our Form 8K filed today for the reconciliation of GAAP to non-GAAP financial measures.
Speaker 2: During the course of the call, we will be referencing a side deck that is available as part of the webcast and on the investor relations site. As a reminder, today's call is being recorded and will also be available in Replay format on our investor relations website. I will now turn the call over to Dominic.
Speaker 3: Thank you, Juliana. Good morning and thank you everyone for joining us for our earnings call.
Speaker 3: I will begin the review of our financial results with Flight 3 of our presentation. This morning, we reported net income of $250,000,000,000, and earnings per share of a $1.81,000, for the second quarter of 2022.
Speaker 3: Our earnings per share crew 38% and last for the first quarter 2022.
Speaker 3: Total revenue of 551 million grew 45% length quarter annualized.
Speaker 3: including Waker Net Interest Income of 473.
Speaker 3: Our strong revenue growth combined with controlled expense management drove second quarter 2022 adjusted pre-tax pre-provision income growth of 62% and lent quarter annualized.
Speaker 3: Our bottom line returns are industry leading. We return 1.7% on average assets, 18% on average equity, and 20% on average tangible equity.
Speaker 3: or our profitability ratios extended.
Speaker 3: The second quarter results demonstrate the strength of the East-West business model, which is clear for our performance.
Speaker 3: A balance sheet is well positioned for rising interest rate and revenue growth is quarter reflected not only in long growth but also not interest margin expansion of 36 basis point quarter over quarter.
Speaker 3: A lone portfolio is well-diversified, and second quarter growth was brought based across a major lone portfolios of commercial velocity.
Speaker 3: commercial and industrial, and residential mortgage.
Speaker 3: Our deposit base spans consumer.
Speaker 3: Small Business and Corporate Commercial Accounts.
Speaker 3: Quarter over quarter, average non-interest bearing demand deposit increased 8% and totaled 41-44% of average deposits for the second quarter.
Speaker 3: We have a Vesunian downsheet.
Speaker 3: with strong capital and high liquidity.
Speaker 3: The diversification of our loans and deposits is important, not just because it helps, but also because it supports growth across different economic cycles. Support growth across different economic cycles.
Speaker 3: but because it supports prudent risk management and our conservative credit coaches.
Speaker 3: Economic environment is changing, but we're well positioned to navigate it through with confidence and importantly help our customers navigate well too.
Speaker 3: Slide four presents a summary of our balance sheet.
Speaker 3: As of June 30, 2022, Tolo Longs reached a record high of 46.5 billion.
Speaker 3: The second quarter average longs were 44.6 billion, and grew 24% link quarter analyzed.
Speaker 3: Based on our year-to-date results, we are updating our long growth outlook for the full year to a range of 16-18%.
Speaker 3: up from 13 to 15 percent previously.
Speaker 3: Or else you quote, our outlook does imply a slower rate of long growth in the second half of the year, compared with the pace of the first half.
Speaker 3: Our current pipelines are healthy. Our borrower financial position and liquidity are strong.
Speaker 3: and we are very optimistic about the future of East West Bank.
Speaker 4: However
Speaker 3: In an environment of rising interest rates, the state transaction volume may slow.
Speaker 3: Impacting commercial and residential mortgage growth.
Speaker 3: Also, the high pace of CNI long growth in the first half of 2022 may moderate due to inflationary supply chain and other macroeconomic pressures.
Speaker 3: Given the current economic uncertainty we wanted to be conservative in our expectations and prudent in our growth.
Speaker 3: Model deposits were 54.3 billion as of June 30, 2022, and second quarter average deposits were 54.1 billion. And second quarter average deposits were 54.1 billion.
Speaker 3: Average total deposit grew 1% link quarter analyzed in the second quarter.
Speaker 3: Turning to slide five.
Speaker 3: Earlier in the quarter, we repurchased 100 million of common stock, or 1.4 million shares.
Speaker 3: As you can see in the exhibit on this slide, our capital ratios are healthy and strong.
Speaker 3: As of June 30, 2022, we have a common equity tier 1 ratio of 12%, a total capital ratio of 13.2%,
Speaker 3: an essential common equity ratio of 8.3% which provides us with meaningful capacity for future growth.
Speaker 3: where the board of directors has declared for the 2022 dividends for the company's common stock.
Speaker 3: The quality-common starts dividend of $0.40 is payable on August 15, 2022, to start holders of record on August 22, 2022. The quality-common starts dividend of $0.40 is payable on August 22, 2022.
Speaker 3: Moving on to a discussion on our long portfolio, beginning with slide six.
Speaker 3: CNI loans outstanding were $15.4 billion as of June 30, 2022, an increase of 15% annualized from March 31, 2022.
Speaker 3: So those CNI commitments worth 22 billion as of June 30th.
Speaker 3: Sequentially, I'll file 20% analyzed.
Speaker 3: Our CN ion utilization rate was stable, quarter-over-quarter at 70%.
Speaker 3: Overall, similar to reason quarters.
Speaker 3: Freedom Quarters CNI growth was well diversified across our lending teams, geographies, and specialized verticals.
Speaker 3: including robust growth in our private equity and entertainment portfolios in terms of long-aw steady and commitments. In terms of long-aw steady and commitments.
Speaker 3: My 7-8 show the details about commerce that we're going to see for full, which is well-diversified by geography and property type and consists of low, low to value, low.
Speaker 3: Total commercial business loans were 18.5 billion as of June 30, 2022, up by 37% analyzed from March 31.
Speaker 3: Both were broad-paced and well-diagrified geographically. Thank you. Thank you.
Speaker 3: And our property type segment grew in the second phase, with the strongest net growth in multifamily and industrial commercial real estate law.
Speaker 3: In Flight 9, we provide details regarding our residential mortgage portfolio.
Speaker 3: which consists of single-family mortgages and home equity lines of credit.
Speaker 3: I would highlight that 84%.
Speaker 3: 10%
Speaker 3: Home-equal-in-line or credit commitments are in a first-learn position.
Speaker 3: Residential mortgage loans totaled $12.5 billion as of June 30, 2022, growing by 33% analyzed from March 31.
Speaker 3: I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement.
Speaker 3: Are we?
Speaker 5: Thank you, Dominic. I'll start with our asset quality metrics and components of our allowance for loan losses on slides 10 and 11. The asset quality of our portfolio continues to be strong. Quarter over quarter, non-performing assets decreased by 5%, down to 90 million, and the non-performing assets ratio improved by 1 basis point, down to 14 basis points of total assets as of June 30th.
Speaker 5: Other ARIO and foreclosed assets were down to zero as of June 30th.
Speaker 5: Total criticized loans increased modestly to 2.2% of loans from 1.9% as of March 31, largely from CRE and CNI loans.
Speaker 5: From the least-stages, the Lignewon C-Lone decreased quarter of recorder to 39 million.
Speaker 5: During the second quarter, we booked net recoveries of $7 million or six basis points of average loans, annualized, compared to net charge-offs of eight basis points of average loans, annualized, for the first quarter. The second quarter recoveries were primarily in CNI loans.
Speaker 5: Our allowance totaled 563 million as of June 30th, or 1.29, excuse me, 1.21% of loans, compared to 1.25% as of March 31st. The quarter of the quarter changed in the allowance, largely reflects the mix of the loan portfolio, as of June 30th, as well as the second quarter loan growth.
Speaker 5: During the second quarter, we recorded a provision for credit losses of $13.5 million compared to $8 million for the first quarter. And now, moving to discussion of our income statement on page 12. This slide summarizes the key line items of the income statement, which I'll discuss in more details on the following slide. Of note, amortization of tax credit and other investments in the second quarter was $15 million compared with $14 million in the first quarter.
Speaker 5: This is lower than what we have previously anticipated because of timing. We expect the ameryization of tax credit. We expect the ameryization of tax credit.
Speaker 5: and other investment expense to be approximately 40 million in the third quarter and 25 million in the fourth quarter now. Second quarter, 2022, income tax expense was 83 million compared with income tax expense of 60 million for the first quarter of 2020. Here today, the effective tax rate for the first six months of 2022 was 22%. We currently expect that the full year effective tax rate will be approximately 21%. Thank you.
Speaker 5: including the impact of tax credit investments expected in the second half of the year.
Speaker 5: Now review the key drivers of our net interest income and net interest margin on slides 13 through 16, starting with the average balance sheet. Second quarter average loans of $44.6 billion grew by $2.5 billion or 24% annualized. The strong blow across all loan categories drove a favorable mid shift in average earning assets quarter to quarter. In the second quarter, average loans made up 76% of average earning assets.
Speaker 5: compared with 72% in the prior quarter. Second quarter average deposits of $54.1 billion grew by $104.5 million, or 1% linked quarter annualized. Growth in average non-interest bearing demand deposits, CDs, savings, and interest bearing checking accounts was partially offset by a decrease in average money market accounts. This quarter, we observed customers utilizing their excess funds for acquisitions and investments. The webpage
Speaker 5: Importantly, we saw quarter of a quarter growth and average demand deposits, which made up 44% of our average deposits in the second quarter, compared with 43% in the first quarter, and 39% in the year-old quarter.
Speaker 5: Turning to slide 14, second quarter, 2022 net interest income of $473 million with the highest quarterly net interest income in the history of East Wrestth, growing by 55% link quarter analyze. $253 million in the history of East Wrestth, losing due to millions of dollar. you
Speaker 5: The net interest margin of 323 expanded by 36 spaces points color temperature
Speaker 5: As you can see from the waterfall chart on this slide.
Speaker 5: The net interest margin expansion in the second quarter reflects impact of higher loan and earning asset yields, which increased the name by 31 basis points, plus the favorable earning asset membership, which expanded the name by 12 basis points. This was partially offset by seven basis points of compression from higher cost of interest bearing funds. The roadmap for??? balance
Speaker 5: Turning to slide 15, the second quarter average loan yield was $3.95, an increase of 32 basis points quarter over quarter. The average loan yield comprised an average coupon yield of $3.83 plus yield adjustments, which contributed 12 basis points to the overall loan yield in the second quarter. As of June 30, the spot coupon rate on our loans was $4.19.
Speaker 5: In this slide, we also present the coupon spot yields for each major loan portfolio for the last three quarter end periods.
Speaker 5: You can see the positive impact of rising interest rates on each low portfolio of low-end-3 price. In total, 63% of our low portfolio is variable rate, including 32% linked to the prime rate, and 26% linked to liboard or short-term rates.
Speaker 5: Most of these loans reprise at least monthly.
Speaker 5: Coming to slide 16, our average cost of deposits for the second quarter was 17 basis points, up 7 basis points from the first quarter. Our spot rate on total deposits was 32 basis points as of June 30th, a year-to-date increase of 21 basis points. This translates to a 15% cumulative beta relative to the 150 basis point increase in the target fed funds rate over the same period.
Speaker 5: In comparison, the cumulative beta on our loans has been 50% as our loan coupon spot rates increased by 75 basis points your today.
Speaker 5: We started the rising interest rate cycle from a position of strength with historically high levels of demand deposits for East West Bank, strong liquidity, and an average loan to deposit ratio of 82% in the second quarter. These boundary characteristics...
Speaker 5: bolster the asset sensitivity benefits of our variable rate loan portfolio, supporting strong revenue growth through the cycle.
Speaker 5: Moving on to fee income on slide 17. Total non-interest income in the second quarter was $78 million down from $80 million in the first quarter. Number driven fee income and net gains on sales.
Speaker 5: Aloned were 65 million essentially unchanged from the first quarter and up 3% year over year.
Speaker 5: Moving on to slide 19, second quarter non-interest expense was $197 million.
Speaker 5: excluding amortization of tax credits and other investments. And core deposit and tangible amortization, adjusted non-exit expense was 181 million in the second quarter, up 6 million or 4% sequentially from a seasonally lower first quarter. The second quarter adjusted efficiency ratio was 33%, comparing to 35% in the first quarter.
Speaker 5: This reflects strong revenue growth and our ongoing disciplined expense management. And with that, I'll now review our updated outlook for the full year of 2022 on slide 19 not too long.
Speaker 5: For the full year 2022, compared to our full year 2021 results, we currently expect...
Speaker 5: Year-over-year loan growth, excluding TPP of approximately 16 to 18% reflecting your today performance. Our updated outlook is an increase from our previous outlook of 13 to 15% loan growth.
Speaker 5: Year-over-year net interest income growth, excluding PPP, in the range of 30 to 35%. This is an increase from our previous outlook of net interest income growth ranging from 22 to 24%. Our updated outlook reflects loan growth as well as the impact of anticipated Fed funds rate increases on our asset sensitive balance sheet. Underpinning our interest.
Speaker 5: Income Assumptions is the forward interest rate curve as of June 30th with Fed funds expected to reach $3.50 by year-end.
Speaker 5: Johnson, not interested expense growth, excluding tax credit investment amortization of approximately 90% year-over-year increased from our previous outlook for a expense growth of approximately 8%. Hollins REAR This investment generation is making people increasingly willing to participate in. However, recently the time negative hits and Somehow with the usage of the investment rate of tuviness or progress, the support overcome drug creation to support the benefits of that This bath light is no face, no face, no face.
Speaker 5: For 2022, we currently expect that provision for credit losses will be in the range of 60 to 70 million per the full year. This is up from our previous outlook for provision for credit losses in the range of 50 to 60 million.
Speaker 5: Finally, we now expect that the full year 2022 effective tax rate will be 21%. This is compared with our previous outlessness for an effective tax rate of 18-19%.
Speaker 5: The change in our outlook reflects higher pre-tax income and a lower amount of tax credit investment as compared with our previous forecast. There will be quarterly variability in the tax rate due to timing of tax credit investments placed into service. We currently expect that the third quarter tax credit investment ammarization expense will be approximately 40 million. With that, I'll now turn the call back to Dom.
Speaker 3: Thank you, Irene.
Speaker 3: In closing, we have had a great first half of the year and look forward to delivering some very strong financial results for our shareholders in the second half of 2022.
Speaker 3: We're well positioned to navigate the current environment.
Speaker 3: a balance sheet with SS-sensitance.
Speaker 3: We have ample liquidity and strong capital.
Speaker 3: Our credit quality is likewise strong. Our associates are focused on providing superior banking services to our customers, and I wish to thank them for their efforts and excellent results.
Speaker 3: I will now open up the call to questions.
Speaker 3: questions. Operator.
Speaker 2: Thank you. We will now begin the question and answer session.
Speaker 2: To ask a question, you may press star, then one on your touch tone both.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker 2: To withdraw your question, please press star then two.
Speaker 2: Please limit yourself to one question and one follow-up.
Speaker 2: At this time, we will pause momentarily to assemble a roster.
Speaker 2: Our first question comes from Abraham Puna Walla with Bank of America Merrill Lynch. Please go ahead.
Speaker 6: Good morning.
Speaker 6: Good morning.
Speaker 7: I guess first question just around loan growth outlook. Dominic, you mentioned about maybe your guidance obviously assumes some slowdown in the back half. Is that just out of being wanting to be conservative given all the things you laid out or over the last two to four weeks have you actually seen customer appetite to borrow and activity begin to slow down?
Speaker 3: I think mainly from our perspective is that
Speaker 3: No one really know what they are.
Speaker 3: is going to be like, let's say, six to 12 months from now, while there's a lot of prediction here and there, our position is that with interest rate rising, we're going
Speaker 3: Naturally, there are not going to be as many refinancing on single family mortgages, or CRE, et cetera. Even on the CNI side, we expect that, you know, we expect that the federal government
Speaker 3: We don't know what the Christmas is going to be like this year.
Speaker 3: Would consumers do gonna be active in terms of purchasing gifts?
Speaker 3: for families and friends or would they not? No one knows at this stage. And so, but from the East West Bank perspective is that while our customers are doing really well,
Speaker 3: We think that at this stage, it's only prudent for us to expect that there will be a slowdown because it appears to me that modically.
Speaker 3: When rates are rising higher, these refinancing activities will slow down. And then from the CNIs side, maybe some acquisition or major investment may not be happening, maybe deferring to future. So we just look at it from an overall perspective as to why our customers are doing just fine. We wanted to...
Speaker 3: guide our projection lower to make sure that
Speaker 3: Just in case that economy do go into a direction that in a negative way.
Speaker 7: got it. I guess one question for you Irene. Give us your assumption on the deposit beta as you think about relative to your NII guidance and just to put a fine point on your NII outlook assuming 35% year over year growth implies exit fourth quarter NII closer to 575 to 600 million. Just want to make sure we are thinking about that correctly.
Speaker 5: Yeah, I think Abraham your number is pretty close to where I think weíll end up. On the deposit betas, you know, I think for East-West and really the entire industry weíve been able to lag the deposit costs. So realistically I think weíre very proud of what weíve done here today. I want to give a shout out to all of our team members frontline. This variable rate pricing is very challenging.
Speaker 5: But realistically, we do expect that deposit data to increase for the rest of the year. With that said, you know, with these.
Speaker 5: the strong amount of operating accounts that we have, the strong amount of the DDA that we have a percent of our total deposits. Overall, at this point, I'm very comfortable that our kind of lifetime or cycle-through deposit beta will be much better than we had in the last cycle. We will be much better than we had in the last cycle.
Speaker 2: For next question, comes from Brandon King with Surest. Please go ahead.
Speaker 8: We leave the morning.
Speaker 9: Morning Brandon.
Speaker 8: I wanted to touch you know, moan grows. I saw this pretty strong growth in China or this past quarter. I was wondering when you were seeing any ground there, and which expectations you could have taken after the year, and if that's also swimming, can you go there?
Speaker 10: self-misizability.
Speaker 3: I have some difficulty hearing.
Speaker 3: Your question is that what is the second half of the year? Oh, China. Oh, sure, sure. Which our, yeah, our branch, well, our...
Speaker 3: China operation and also Hong Kong operation have done extraordinarily well.
Speaker 3: and the first half of the year. Because we all saw the headline news, you know, from the media about a lockdown in Shanghai, and then all these quarantine requirements in Hong Kong. And then all these quarantine requirements in Hong Kong.
Speaker 3: And so our associates in that region went through some very, very tremendous difficulty personally. You know, like either most of them being locked up at home while working and a few of them actually locked up in the office. And actually locked up in the office.
Speaker 3: for
Speaker 3: Over two months.
Speaker 3: and the factors.
Speaker 3: They came through. Throughout this time, they not only were able to get the business going and take good care of our clients, in fact they even grew loans and deposit. So they were doing really well. But overall, obviously China is only 5% of our balance.
Speaker 3: So in that respect, obviously, is not going to have a material impact to our overall financial performance, but I'm very, very pleased.
Speaker 3: with what they have done and they continue to grow very diverse C&I business and that covers from general manufacturing, consumer goods, entertainment, private equity, technology, clean energy, and digital media, healthcare, et cetera. So they really have done a good job at...
Speaker 3: continue to diversify their focus and have very high quality customers that they brought in. And in addition to that, our customers are doing very well. As you can see for the last several years now, since the US started putting tariff in place, our accessed and deployedworkers.on our website.
Speaker 3: Long portfolio in China.
Speaker 3: Asso quality is pristine. We did not have any kind of like credit issues and they continued to perform well. This is because we really believe that our bridge banking strategy, understanding of.
Speaker 11: China.
Speaker 3: and our expertise in cross-border business.
Speaker 3: Let it take difference.
Speaker 3: winning the play that with East West will have to expertise in cross-border business between US and China.
Speaker 3: that allow us to be able to offer unique
Speaker 3: Value proposition.
Speaker 12: like services.
Speaker 3: that are really important and relevant.
Speaker 12: to the prisoners.
Speaker 3: whether the US business is doing business in China or Chinese business doing business in the US, we do offer a unique banking service for them. 99% of the banks in the United States.
Speaker 3: Don't offer.
Speaker 3: So in that respect, we have substantially less competition.
Speaker 12: and we're able to choose.
Speaker 3: exactly the high quality customers you want to do banking with. So we're very, very pleased with how everything's going right now. So as of today, obviously, I'll.
Speaker 3: The so-called Hong Kong and China are all back to the office and doing business.
Speaker 3: As normal, so we expect them to continue to be able to do good work for the second half of the year.
Speaker 8: Okay, thanks. It may be more of a big picture question as far as business planning and on the efficiency of business planning and how that can work for a career.
Speaker 8: As the industrial efficiency ratio reaches 30% and potentially below, the way is the kind of...
Speaker 8: to lower for what you kind of picture at in the physical ratio. I know you've been a lot out of a lot of operating at the same rates. And the average attention for you to accelerate some investments we make to you because we're not a situation with that. We're not a situation with that.
Speaker 5: Yeah, I think on the efficiency ratio, Brandon, we don't have a ratio that we're trying to append to normally. This is a time when Dominic goes through the calculation of the numerator and denominator. Obviously, for East West, you know, we remain disciplined on spending, right? With that said, we have continued to make the investments we think necessary to support our business. Our cash management products, you see that with the outstanding growth we have cross border, as Dominic talked about, also particularly on the consumer side, on the digital side.
Speaker 5: as well. Also, in this kind of environment, we're asset sensitive banks, so with the revenue increasing, obviously that efficiency ratio is adjusted related to that, but just to recap, we don't just try to guide to our efficiency ratio, but we make investments we need to support the business. We're making investments we need to support the business.
Speaker 3: Yeah, efficiency ratio is report card kind of like number. Return of equity, return of asset, efficiency ratio, these are report card numbers. So we looked at it as about proud to be in that position. However, we really are much more focused in measuring input such as deposit growth, long growth, interest margin, expansion.
Speaker 3: As a quality and also, you know, making sure that expenses growing according to what the balance sheet is called for. That's what we're trying to work on.
Speaker 5: I'll just add that maybe the report card numbers of ROA and ROE matter more for us.
Speaker 13: Again, if you'd like to ask a question, please press stars then one at this time.
Speaker 13: Our next question comes from Chris McGrawdy with KBW. If you have any questions about KBW, please go ahead.
Speaker 13: Please go ahead.
Speaker 14: Hey, good morning. Dominic, positive surprise to see the buyback in the quarter. How do we think about…
Speaker 14: perspective uses the rest of the buyback given the markets, the stock valuation, but also uncertainty in the macro.
Speaker 3: Okay, on the buyback, well, I said it before that
Speaker 3: The bank is always shareholders friendly, but we are relatively, I think, more prudent and conservative than other banks.
Speaker 3: But we are opportunistic when we do see that it's the right time and the right place, we do strike. And so that's what we did in the second quarter.
Speaker 3: Here's what I looked at. This is on the...
Speaker 15: Thank you.
Speaker 3: Economic landscape today and looking forward and seeing that
Speaker 3: The set will continue to increase interest rate.
Speaker 3: with many economists not predicting, you know.
Speaker 3: Good economy going forward. We just feel like that now is the time that we probably want to pause and wait....
Speaker 3: And that's a kind of like very consistent East West Bank philosophy that when we do feel that it's the right time to do something that we have plenty of capital, plenty of earnings and et cetera, while obviously when the opportunity arise, we will step in and do the right thing for shareholders. And but at the meantime, we feel that preserving capital is a better way to go. Now reflecting back.
Speaker 3: Several years ago, you know, obviously most banks were actively doing buyback and East West was one of the isolated few that is not. But if you look at what we've done.
Speaker 3: in the last four to five years.
Speaker 3: We have actually almost double our balance sheet.
Speaker 3: organically.
Speaker 3: Not acquisition organically.
Speaker 3: So obviously...
Speaker 3: We knew we had the engine that can grow and we did not want to spend the capital into ViBAC when we knew that we had plenty of growth opportunity.
Speaker 3: And it didn't hurt when we had plenty of capital right in the beginning of COVID.
Speaker 3: And so our position is that we'll always be very considerate of shareholders' return. However, we always want to look at it.
Speaker 3: from a long-term basis. And so that's how we come to this conclusion about bye-bye, cannot bye-bye.
Speaker 14: Thank you, that's a great perspective. If I could ask one more, you know, a common thread throughout the quarter for all the banks has just been deposits and levels.
Speaker 14: And I think a concern in the market is that you know with the Fed you know executing QT There's going to be a little bit of an air pocket on deposits I'm sure you've looked over your portfolio and kind of separated what may be at risk But could you share with me share with us any observations about what? Pieces of the book might be at more risk and how much you think could actually pull out if the Fed does what it says It's going to thank you
Speaker 3: I think it's cheese.
Speaker 3: Park at East West Bank deposit franchise.
Speaker 16: Peace out.
Speaker 3: each of our vanting deposit.
Speaker 3: You know, we, unlike many regional banks, we actually have a very, very strong retail banking deposit franchise. It's very stable.
Speaker 3: plenty of customers out there
Speaker 3: Yeah, thank for East West, thank for many years. And they are the ones that normally do not expect a lot of...
Speaker 3: years and they are the ones that normally we do not expect a lot of volatility.
Speaker 3: obviously, one, way too wide.
in a substantial way, we do need to make sure we take care of them and pay them, you know, higher rate, but I don't expect that there will be a lot of movement of volatility from the retail banking side. In fact, I do expect that we have opportunity to grow even more. One good example is that...
Sarah, talk.
We started a
Business checking deposit products about a year ago, less than a year ago actually, just the last six months and we brought in about close to $500 million of DDA deposits.
We will continue to be able to find opportunities to grow.
ETA balances in this very small business.
in these very small business customers.
And I looked at it as that in addition to that.
We continue to see activities of overseas investors that still put money in the United States and most of them do look at East West of their first choice. So from that standpoint, we feel pretty good. Obviously, we have commercial accounts that some of them have more volatility due to the operating needs and so forth. So those are the ones that we will keep a close eye on it. But we also feel that because of our...
activities of overseas investors that are still putting money in the United States and most of them do look at East-West of their first choice. So from that standpoint we feel pretty good. Obviously we have commercial accounts that some of them have more volatility due to the operating needs and so forth. So those are the ones that we keep a close eye on it but we also feel that because of our deposit
Great today we got plenty of room to work with our customers. If we do need to pay a little bit higher rate to retain more deposit, then it's something that we obviously have much more flexibility than maybe other banks.
The next question comes from Jared Shaw with Wells Fargo. Please go ahead.
Hi, good morning, thanks. Maybe just scrolling up a little bit on the deposit side. When you look at the...
your guidance for NII, what's the expectation for overall deposit growth and I guess maybe sort of loan to deposit ratio in this environment? And it sounds like I guess Dominic you think that in that scenario you can still see DDA balance growth from some of these new initiatives. Is that the right way to look at it?
And we do expect that deposits will grow for the entire year. I think quarter over quarter, especially on an average basis, point to point, you will see variability. For example, this quarter as well, historically, we've had one client in particular related to tax property tax payments made in the second quarter. The balances are down. And then we saw that this quarter as well.
With that said, I would also just comment on just the granularity and the deposits that we have. As Dominic mentioned, not only do we have kind of a broad base on the retail side, small business on the retail side, overall on the commercial side as well, the deposits are very granular in nature. So that's something that we think will continue to help us as we go through this cycle.
But with that backdrop, assuming we could assume that you'd be comfortable getting that loan to the positive ratio back north of 90% if the loan growth is there.
Yes, if the loan growth is there, you know, we've commented on this before, high 80s, low 90s is something we're very comfortable with, again, particularly with the granularity of the deposits that we have. These are things that you can anywhere and anywhere in the world, and Bell
We don't have a problem of growing our loan balances due to like a pressure from deposit, because at this 80 plus percent loan to deposit ratio, we have plenty of rooms.
The reason that we do not have a very high expectation of high loan growth for the second half despite the fact that we have good pipelines and good momentum is because the economic outlook overall does not look very good. But if it turns out that we continue to find high quality loans that we can vote.
And we will simply because we got plenty of deposits to support it.
Great, thanks. And then just the follow, that was my second question. Looking at the expense.
guide and the increase there. Is that primarily just performance, based on better revenue drives, better performance in set of comp, or are there some new initiatives in there for the franchise? I'm going to be in there for the franchise. I'm going to be in there for the franchise.
We always make incremental investments, I mean every single year. East-West philosophy never really do a major, major big project and load it in one year and that cause, you know, sort of volatility of our earnings.
So we'll continue to invest. And of course, there are certain inflationary factors in here simply because ragers and other type of miscellaneous expenses all have gone up because we saw that 9.1% consumer price index number that came out recently. So our position is that we feel that while we're managing our expenses, our...
very prudently, we expect that it will go up slightly. That's why we're guiding it up from 8% increase to...
we expect that it will go up slightly. So that's why we're guiding it up from 8% increase to 9-10% increase.
Our next question comes from Clark Wright with BA-Babidson. Please go ahead. Hi, everyone.
Good morning, this is Clark Wright on for Gary Tenor this morning.
This is Clark Wright on for Gary Tenor this morning. Good morning, Eric.
My question pertains to loan growth in the guide. So I guess just assuming lower pace of growth in the second half.
I mean, it wouldn't be surprising given the first half gross, but do you think it's the pipeline going into the third quarter and whether or not your projections assume a drop-off in force quarter or if the drop-off is balanced between a third and a fourth.
Given the first half gross, could you give it the pipeline going into the third quarter and whether or not your projections assume a drop-off in the fourth quarter or if the drop-off is balanced between a third and a fourth?
But we at this point again, the projection is more or less.
At this point, again, the projection is more or less how I put it.
We are just being prudent because, we are pipelines.
Sometimes pipeline does not result in funding. Our projection right now is that yes, there may be a lot of
Sometimes pipeline does not result in funding. Our projection right now is that, yes, there may be a lot of cues in the making. There may be a lot of cues in the making.
But I expect that there will be some prudent investor.
which are our great customers who would look at it maybe two months or now, three months or now and if they're right, continue to go up.
Like what the fad expected to do may come to a conclusion that maybe I should move forward.
I'm just kind of looking at it on the downside scenario.
That may be a lot of deals that people were thinking about doing, and I'm not sure.
And those are the kind of things that we are anticipating. I mean a very simple answer would be like in the residential mortgages area.
You know, we would expect that people that may expect it to refile their mortgage.
Decided.
Not you, because the rate is so high. It doesn't make sense, or if you will expect to buy a home, or buy a second home, or third home.
Decide or not to, again, because a raise high, price haven't come down yet enough to make it a good deal. These are what I call the transitional time.
Again, because a raise high price haven't come down yet enough to make it a good deal. These are what I call the transitional time. The transitional time in a way that...
when the price...
the
stay pretty very much up there, but then the interest rate suddenly makes the economic less attractive. The economy signs all around sadness.
So that would discourage people making investments.
in real estate or maybe make an investment in certain type of business they're involved with. So this is a kind of logic that we're going through in our mind that despite the fact that...
our relationship managers out there and our branch managers out there bringing in more new clients and more opportunities.
To do more deals, I would just look at it as naturally.
relationship with each other. HitAfq on2 Renish you
Take a break.
when they are not true.
having some certainty about what the horizon would be.
which is very different that once you get into a recession, or maybe once you get into a tailed-end recession, people are jumping in left and right, taking advantage of the distressed prices and so forth. So in this standpoint, what we see right now is that we are just assuming.
that maybe in the third and fourth quarter will transitioning slowly into that kind of uncertain path. However, if for some reason things changed and for the positive, obviously, we will expect a stronger, strong, long growth. We will expect a stronger, strong, long growth.
Thank you all my other questions.
Thank you all my other questions. Thank you. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Dominic James for any closing remarks.
Well, thank you all for joining the call and we are looking forward to talking with you again in October .
Thank you.
The conference is now concluded. Thank you for attending today's presentation. Thank you for attending now, this cannot.