Q4 2022 East West Bancorp Inc Earnings Call
Good day and welcome to the East West Bank Carp fourth quarter and full year 2022 earnings conference call. All participants will be in a listening mode. Should you need assistance please signal a conference specialist by pressing star then zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to
Juliana Balika, Director of Investor Relations. Please go ahead.
Director of investor relations. Please go ahead. Thank you, Bhai
Good morning and thank you everyone for joining EastWest Bank Corpís fourth quarter and full year 2022 earnings call with Dominic Ng, our Chairman and Chief Executive Officer, and Irene Oh, our Chief Financial Officer. This call is being recorded and will be available for replay on our Investor Relations website.
During their remarks, Dominic and Irene will reference a slide deck that 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. And management may discuss non-GAAP financial measures.
For more detailed descriptions 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 8K filed today. I will now turn the call over to Dominic.
Thank you, Juliana.
Good morning and thank you everyone for joining us for our earnings call.
I will begin the review of our financial results with slide 3 of our presentation.
A strong financial performance in 2022 was characterized by strong revenue growth, which was driven by strong loan growth and net interest margin expansion in a rising interest rate environment combined with disciplined expense management and solid financial performance.
and stable asset quality. Together, all these drivers result in industry-leading profitability, both for the full year and the fourth quarter of 2022.
East-west achieved record earnings of 1.1 billion or
$7.92 per share for the full year of 2022, an increase of 30% year over year.
Our 2022 total revenue of $2.3 billion was our highest ever.
grew 29% year-over-year.
Our pre-tax pre-provision income of $1.6 billion grew 40% year-over-year in 2022. We returned a 1.8% on assets and 21% on tangible equity for the full year.
Now, for the fourth quarter of 2022, we reported net income of $337 million and earnings per share of $2.37, which grew 55% annualized quarter over quarter.
Our industry leading returns were 2.1% on assets and 25% on tangible equity for the fourth quarter.
Our fourth quarter pre-tax pre-provision profitability was nearly 3%.
Now let's go to slide 4 and slide 4 presents a summary of our balance sheet.
As of December 31, 2022, total loans reached an all-time high of $48.2 billion, an increase of $771 million or 6% annualized from September 30.
Fourth quarter average loan growth was likewise 6% analyzed.
Average long growth in the fourth quarter was well balanced between our major long portfolios ofrypted and
Commercial real estate, residential mortgage, and commercial and industrial.
As of December 31, 2022, an increase of $2.1 billion or 16% annualized from September 30. Fourth quarter average deposit growth was 7% annualized. Growth was driven by time deposits reflecting a successful branch-based CD campaign during the fourth quarter. A deposit book is well diversified by deposit type.
38% of total deposits were in non-interest-bearing demand deposits as of December 31st.
our loan to deposit ratio decreased to 86% as of the end of the year from 88% as of September 30.
Turning to slide 5.
As you can see in the exhibit on this slide.
All our capital ratios expanded quarter over quarter.
As of December 31, 2022, we had a common equity tier one ratio of 12.7%.
A total capital ratio of 14%.
and a tangible common equity ratio of 8.7%.
quarter over quarter of book value and a tangible equity per share increased 6%. I'm pleased to announce that East-West Board of Directors approved a 20% increase to the quarterly common stock dividend.
from 40 cents per share to 48 cents per share and equivalent to an annual dividend of $1.92 cents per share.
The new dividend will take effect in the first quarter.
payable on February 21, 2023 to stockholders of record on February 6, 2023.
Moving on to a discussion about loan portfolio, beginning with slide 6.
As of December 31, 2022, CNI loans outstanding were $15.7 billion.
sequentially up 2% annualized and up 11% year-over-year.
Our CNI portfolio is well diversified by industry and sector.
Slide 7 and 8 show the details of our commercial real estate portfolio.
which is well diversified by geography and property type and consists of low loan to value loans.
Total commercial real estate loans were 19.1 billion as of December 31, 2022 up.
8% annualized from September 30 and up 18% year-over-year.
In slide 9, we provide details regarding our residential mortgage portfolio, which consists of single-family mortgages and home equity lines of credit.
Our residential mortgage loans are primarily originated through East West Bank branches.
I would highlight that 82% of our HELOC commitments
were in a first lean position as of December 31st, 2022.
Residential mortgage loans totaled $13.3 billion as of December 31, 2022, up 9% annualized from September 30 and up 19% year over year.
I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement. Irene
I mean.
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 stable and strong. Quarter over quarter, criticized loans decreased 1% and the criticized loan ratio improved 5 basis points.
Both classified and special mentioned loans decreased from 40 levels as of September 30th. At year-end, the non-performing asset ratio with 16 basis points of assets unchanged quarter over quarter. Charge-offs continue to be at low levels.
During the fourth quarter, we recorded net charge off of $10 million or 8 basis points compared with net charge off of 6 basis points in the third quarter. Our allowance totaled $596 million as of December 31st or $124 of loans up from $123 as of September 30th.
During the fourth quarter, we recorded a provision for credit losses of $25 million compared with $27 million for the third quarter. While asset quality remains strong and the current credit environment is benign, we continue to remain vigilant about credit. We are actively monitoring the loan portfolio and taking proactive measures to build our loans.
was 65 million compared to a 20 million in the third quarter. At the same time, the quarterly effective tax rate was 13% in the fourth quarter compared to a 23% in the third quarter.
This fluctuation is due to tax credit investments that were closed in the post quarter and the related projects that were placed into service.
This resulted in a lower effective tax rate and an increase in the amortization expense for the fourth quarter. For the full year of 2022, the effective tax rate was 20%.
I will now review the key drivers of our net interest income and net interest margin on slide 13 through 16 starting with average balance sheet.
As Dominic mentioned in his remarks, fourth quarter average loan growth of 6% annualized was well balanced among our major loan portfolios. An average deposit growth of 7% annualized reflected a successful branch-based deposit campaign. Our average loan-to-deposit ratio was stable quarter-over-quarter.
at 87%. Average non-interest bearing demand deposits date up to 39% of our average deposits in the fourth quarter.
Turning to slide 14, fourth quarter 2022 net interest income of $605.5 million was the highest quarterly net interest income in the history of East-West, growing 39 percent link quarter annualized. Our net interest margin of $398 expanded 30 basis points quarter of a quarter.
As you can see from the waterfall chart on the slide, net interest margin expansion in the fourth quarter reflected the impact of higher loan and earning asset yields, which increased the net interest margin by 82 basis points, partially offset by 52 basis points of compression from the funding side.
Our net interest income growth benefited from rising benchmark interest rates because of our asset sensitive loan portfolio. To preserve net interest income when interest rates go down, we added $3.25 billion of swaps and callers in 2022, which included $1 billion added early in the fourth quarter.
Turning to slide 15, the four quarter average loan yield was $5.59, an increase of 84 basis points quarter over quarter. The average loan yield comprised an average coupon yield of $5.53 plus yield adjustment which contributed six basis points to the overall loan yield in the fourth quarter.
As of December 31st, the spot coupon rate of our loans was $5.92.
In this slide, we also present the coupon spot yields for each major loan portfolio for the last five quarter ends. You can see the positive impact of rising interest rates on each of the loan portfolios as loans have been priced. In total, 61% of our loan portfolio was variable rate.
including 30% linked to the prime rate and 27% linked to LIBOR or SOFR rates.
I would also highlight that over 40% of our variable rate commercial real estate loans have customer level interest rate derivative contracts in place. To clarify, this is distinct from the balance sheet hedging I discussed a minute ago. With the customer level derivative contracts, we've helped our customers enter into loan level interest rate swaps, collars, and caps.
was 106 basis points, all 55 basis points from the third quarter. Our spot rate on total deposits was 134 basis points as of December 31st. A year-over-year increase of 125 basis points. This translates to a 29% increase in total deposits from the third quarter.
cumulative beta relative to the 425 basis point increase in the target Fed funds rate over the same period. In comparison, the cumulative beta on our loans has been 58% as our loan coupon spot rate increased 248 basis points year over year.
We started the rising interest rate cycle from a position of strength with historically high levels of demand deposits for East West Bank and strong liquidity.
This has bolstered the asset sensitivity benefits of our variable rate loan portfolio, supporting strong revenue growth through the cycle.
We are pleased with the lag in deposit beta cycle to date.
This has come through careful deposit cost management. With a 29% cumulative beta cycle to date, we are outperforming prior rising interest rate cycles. With 39% of our average deposits in interest-bearing accounts, we are outperforming prior rising
And with the growth that we have had in treasury management products and services for the pandemic, we feel comfortable about continuing to navigate the current cycle well.
Moving on to fee income on slide 17, total non-interest income in the fourth quarter was 65% down from 76% in the third quarter. Customer driven fee income and net gains on sales of loans were 66 million down 4.5% or 18% annualized from the third quarter.
amortization adjusted not interest expense with $192 million in the third quarter, down 2% quarter for quarter or 7% annualized, driven by lower compensation and employee benefits expense. Once again, we generated strong positive operating leverage with total revenue growth of 27% annualized in the fourth quarter. This article is cores quoting Lake yes Premier Kabanyanello, that n $ hollow
plus a sequential decrease in expenses. The fourth quarter adjusted efficiency ratio was 29% compared to 31% in the third quarter. Our adjusted pre-tax pre-provision income grew 43% link quarter annualized and our pre-tax pre-provision ROA was an attractive 295 in the fourth quarter.
And with that, I'll now review our updated outlook for the full year of 2023 on slide 19.
For the full year 2023 compared to 2022, we currently expect new year loan growth in the high single digit percentage range. We expect production from all of our major loan portfolios in 2023.
Year over year, we expect net interest income growth in the low 20% rate range. Underpinning our interest income assumptions is the forward interest rate curve as of year end which assumes a peak Fed funds target rate of 5% by April 2023 and a year end Fed funds target rate of 475.
but to cut late in the year. In our modeling, we assume that deposit betas will continue to rise in 2023.
adjusted non-interest expense growth, excluding tax credit and investment amortization in the range of 10 to 11%. We expect our revenue and expense outlook to result in positive operating leverage year over year. In terms of credit for 2023, we expect our revenue and expense outlook to result in positive operating leverage year over year.
The provision for credit losses will largely be driven by changes in the macroeconomic outlook. We are providing our expectations for gross charge-offs, which are expected to be in line with our recent gross charge-off experience if macroeconomic conditions stay stable. For context, the gross charge-off ratio was 8 basis forms 2022.
and 17 basis points in 2021. Asset quality today is excellent, and the potential losses from any problem loans are limited. However, realistically, if the economic background weakens, we would expect to see some credit normalization from the very low levels today.
In terms of tax items, we currently expect that approximately 150 million of tax credit investments, excluding low-income housing tax credits, will close and go into service in 2023 and therefore be part of our tax rate calculation for the full year. The tax credit amortization related to these tax credits should be...
$22 million for the quarter. There will be quarterly variability in the tax rate and the tax credit amortization due to the timing of tax credit investments placed into service. With that, I'll now turn the call back over to Dominic for closing remarks.
Thank you, Irene. In closing, 2022 was an excellent year for East-West.
with our highest ever earnings, revenue, loans and deposits.
and the achievement of industry leading profitability metrics.
Our annual earnings now exceed $1 billion.
We look forward to 2023 with excitement as we celebrate our 50-year anniversary.
The bank and our customers have come a long way since 1973.
Throughout our history, the pillar of our success has been, and continues to be, our spirit of going above and beyond to service our customers.
We are honored to be the bank of choice for our clients.
and wish to thank all our associates for their dedication and contribution to making our bank a success.
Lastly
I want to take this opportunity to wish everyone a Happy Lunar New Year.
May the year of the rabbit bring...
health, prosperity and happiness to all of us.
I will now open up the call to questions. Operator.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are 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 2.
In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.
The first question comes from Dave Rochester with Compass Point. Please go ahead.
Hey, good morning guys, nice quarter.
Bye.
Sure. My first question is on the NII guide. On slide 16, you guys highlight the total deposit beta, 29 percent. You got the 47 percent interest-bearing deposit beta through the end of last year. I was wondering what deposit beta you're baking into the guide at this point. I know you mentioned you expected deposit beta to rise through this year.
Whether you think in mid 30s or upper 30s for the overall cycle, or you're making it something higher than that. And then how do you think about deposit growth from here and what that means for borrowing levels, which are still very low. Thank you.
Great question Dave. At this point in time we're modeling that full cycle beta will be 40% for 2023 and at the same time for interest-bearing deposits and deposit data of 60% and that's factored in with our NNI guidance that we have of the increase.
we'll be able to continue to fund our loan growth with the deposits. Certainly though we're very opportunistic and look
Great. And then just one follow up on the back end of the year when you include your Fed rate cut. I was curious what you're expecting for the deposit cost movement as a result of that cut. Are you thinking that you'll get immediate benefit or are you thinking there might be a little bit of a lag there with the first couple cuts?
Thank you. Yeah, I think it's still late in the year at this point the expectation around that. We're not banking that today.
Thanks.
The next question comes from Manengosalia with Morgan Stanley . Please go ahead.
Hi, good morning.
Morning.
I wanted to ask on the hedges that you've been putting on the books, can you speak to how those might impact loan betas for both the remaining of the rate hike cycle and also when the Fed begins cutting rates?
and also how much more you plan to do on your hedging efforts from here.
Yeah, great question. Certainly the specifics of how much that's impacted us, quarter date, I do not have that but you know we can get you that information after the call. Certainly as we started adding this you know fourth quarter, third quarter, there was a little bit of impact as far as largely against the CRE loans that we've kind of...
hedged. We have 3.25 billion of swaps and also colors that we put on at this point in time. In discussion with our ALCO committee, there's probably another couple billion that we would look to do, but certainly we're opportunistic about this and also evaluating the overall balance sheet and the positioning of that. So that's something that will continue to
It's too early to say.
Yeah, it's your girl. Sorry, again.
Fair enough. And then, you know, just on credit, in November you emphasized, you know, like everyone else, you've been watchful for a normalization on credit and you're focused on early detection of any cracks.
In the reviews that you've been making, have there been any covenant breaches or any other cracks in the note?
I mean, I think certainly on an individual loan basis that is happening, right? But overall, I think we're very positive from the perspective that on credit, as we do continue to do these reviews on our commercial books, our consumer books throughout, what's positive is there not a lot of new problem loans. A load more on Charlie Brown and others that might be popular after theForresterAaron we
So as you can see in the criticized asset percentage.
is relatively benign. So far, surprisingly, asset quality is very, very good.
Look at the rising interest rate. Obviously, that's why we've been aggressively managing the portfolio and see how it goes. I always do this ongoing loan review. So far, so good.
The next question comes from Abraham Poonawalla with Bank of America. Please go ahead.
Hey, good morning.
I guess maybe just sticking with asset quality. So I appreciate what you just said Dominic. You haven't seen any stress within the portfolio. But is that a timing issue? Or in your slide 15 you are showing how interest rates yields have gone up on these loan portfolios.
Is it a timing issue or do you feel good about the loan book and your ability of these borrowers to absorb where if the Fed funds were to peak out at 5% they should be able to handle this where it doesn't become a credit issue for East-West? Do you feel good about that? Do you have visibility into that? Do you have visibility into the loan book and your ability to absorb where if the Fed
When you say timing issue, we obviously, when we do our stress tests on these water states, we obviously project it. It's not something that we're just looking at it as of today, whether they can handle and so forth. From that perspective, we feel pretty good about.
the liquidity level of our clients in terms of the cash flow that they've been getting from the existing business. I guess in a way that what we notice is that...
the cash flow
It's still pretty good. I think it's really coming back down to the economy. The economy is still strong. Now if you look at it, we project a much more deteriorating economy, that would be very different. At this point, we don't see it. Things are going pretty well.
I guess just separately in terms of loan growth, so appreciate the lower growth guidance, but just talk to us in terms of what are the pockets? I know Irene mentioned you expect loan growth across categories, but any particular verticals, any markets where you're seeing...
more strength and more market share opportunities. Everything about growth and maybe potential for upside surprise on that growth.
I think overall we have always been very
focus in having a more diversified group.
From that standpoint, there's always going to be one particular industry vertical.
Or here and there that seems to do a bit better than the others
However...
Overall, if it gets too far...
We reined it in anyway.
So in that standpoint, that's why you always see a much more even kill, more...
A diverse type of long portfolio that we have here is because we actually manage it.
But I would say that just looking at maybe a couple of weeks so far, we do have a few more private equity capital call line commitments that we have originated.
But I would expect that if it continues going that direction, we probably have a stronger PE loan growth. And then also... The population's growing.
Last year, we actually have surprisingly pretty decent growth from our Greater China region, despite the pandemic. We expected that they may be able to continue to do quite well. Now obviously, they have a much smaller balance sheet, but as a percentage growth, they're doing pretty well.
We may have a few other different areas that we'll be able to set up because we also have a...
Very strong competitive teams within the organization, everybody wanted to do better. So we just expect that different teams will step up in different quarters.
The next question comes from Brandon King with Truist Securities. Please go ahead.
Hey, good morning.
Good morning.
Hey, so I wanted to kind of touch again on the NII guide and in particular your outlook for the trajectory and nature's margin.
It appears
If the margin stays flat from 4Q levels, you could potentially hit the guidance just from that. I'm curious what your assumptions are as far as the trajectory and them going through the year and also your with the forward rate curve assumptions.
Yeah, you know, I think at this point my focus is really more on the NII, Brandon. We do expect when we look at our guidance, if you can tell, you can do a map of our guidance as well, that we do expect the NII to grow from the four quarter level. Depends really more about the fluctuation of what happens per quarter.
coming from and could you talk more about your ability to kind of mitigate losses in DDA? Yeah, great question. When we look at our deposit portfolio and our customers, one of the things that we benefit from is just the diversity of customers we have.
Certainly, in order to quite candidly remain competitive, we have these deposit CD campaigns in the fourth quarter and we have one right now priced below market but attractive enough rate and also six month duration. We don't want that to go too long. So that is something that we continue to do relative to other kind of funding costs right now that we are going to the common good market. Thank you.
maintain the deposit balances in the DDA accounts at the level that we have pre pre-rising rates. You know we are still onboarding new customers all the time. Pipelines are strong on the deposit side so we are we are very kind of positive about what we're doing. The investments that we've made in Treasury management, cash management products are
late 2020 because of COVID.
We had like maybe
went all the way up to close to 43%.
as a percentage of DDA to the non-interest bearing deposit to the entire deposit portfolio, 43%. 3.5%
Today.
We're down to 38%.
So, as you can see, there was a lot of liquidity then.
Bye!
By nature, even without interest rate rising and so forth, you expect that the…
These success and liquidity would not be sustainable. We are actually very, very pleased.
throughout the last few quarters, watching our non-interest bearing deposit and see what the percentage is then. Each quarter drop one basis point and so forth. Then so far so good. We drop now to 38. There's still 38%.
There's a lot of non-interest bearing deposits sitting there.
And by the way, the other part is that we continue to bring in new customers. We continue to bring in new commercial customers. We are still onboarding.
this new relationship one at a time. So in time it will continue to grow the noninterest bearing deposit. It's just that there are some excess liquidity that in relationship what the market rate.
In terms of deposit it is today, naturally there are people who are moving some of the maybe excess liquidity they put into whether money market accounts or maybe CDs account and so forth. That's why you see that there is a.
Some gradual reduction on non-interest bearing deposit balance, but in terms of number of accounts it keeps going up.
The next question comes from Casey Hare with Jefferies. Please go ahead.
Yeah, thanks. Good morning, guys.
Just wanted to follow up on the loan growth outlook. Was wondering how what you guys were assuming for utilization rates in your guide and then any color on on how long pipelines are shaping up versus 930.
At this point in time, we're not assuming a change in utilization rates, Casey. We're assuming flat from where we're at.
Okay, understood. And then on the credit quality side, you know, everything's still pretty benign and holding stable. I was wondering, is that true also for the...
the two billion dollar exposure in China which obviously gets a lot of attention from investors.
the $2 billion exposure in China, which obviously gets a lot of attention from investors? Yes, even better.
We've always had a very, very strong, pristine loan portfolio.
And so it's still exactly the same, you know.
So, we feel that with the economy opening up.
I think it was only going to help us better. We don't expect that there will be some sudden surge of no origination in 2023 because while the economy opened up, it's going to still take a little bit of time for business to sort of get back on track. It will probably benefit us more in 2024 than 2023.
The next question comes from Gary with DA Davidson. Please go ahead.dogs.
Good morning, this is Clark right on for Gary Tenner. I don't want to beat a dead horse, but just in terms of the loan growth again, are you expecting it to be front-end loaded or first try to cross the quarters?
We are assuming that it isn't front-end loaded. Will be throughout, maybe a little bit more in the latter half of the year.
Got it. And the rest of my questions have been answered. Thank you and great quarter.
Thank you.
The next question comes from Chris Negrati with KBW. Please go ahead.
Hey, good morning. Dominic, on capital, I think the dividend was a pretty strong signal, given how much capital you have in the position you're in. Is that really the only capital return that you're contemplating right now, given how much capital you have in the position
given the economy. I know you've been resistant to the buyback, but just wanted to see if there's any change in tone there. I just want to interject, we have not been resistant to the buyback. We bought back a hundred million last year.
Yeah, we did. 100 million in the second quarter of 2022. We still have 254 million outstanding that we can execute any time we want because it's been approved by the board.
last year and you know we are very opportunistic in terms of the buyback. All you have to look at is that you know fourth quarter we just racked up 25% return of tangible equity.
So.
We obviously, it's not one of those banks that really need to do this. However, we are always shareholders friendly.
So, if we ever see that there's great opportunity, we absolutely will use the capital.
at the right moment. I thought what we did in the second quarter for the 100 million.
it was a great execution because at that time, at that price, sure, I would jump right at it. But we have to also be mindful. One of the…
advantage of the East West Bank, you look at our capital ratio today, and this very kind of somewhat benign economic environment, and then because of the interest rate, we are doing extraordinarily well from a return of equity and return of asset standpoint. However, January har owe to C furryanchez.
Had this been a completely different economic...
Had this been a completely different economic situation?
had it been like a 6-7% unemployment rate, interest rate was in a much higher level that business were having trouble.
We at that point...
having this kind of capital.
will absolutely give our customers much stronger confidence about why they want to be banking with eSwiss than the others. So I was always mindful of that. This has been doing really, really well for us back in 2008 and 2009 during global financial crisis. Somehow, somewhere, we just have a bit more capital.
they're now peers. And so ultimately, customers just feel more comfortable with us. So we always been very mindful of that, so that's one key reason. The other thing is that we don't want to...
not have some excess capital just in case if there are even potential acquisition opportunity and so forth. So we are very choosy in terms of potential acquisition. However, if there is something available we are always ready to execute. So all of that is a combination of multiple factors that cause us to be where we are.
that we may want to.
do some buyback, we absolutely will step in, we'll do the right thing. So you can count on that.
Thank you for your perspective. Thanks, Elinor. I do want to ask the tax expert, but I want to make sure I understand the cadence of the amortization. Irene, you said roughly 95% of the 150 will flow through the AM line.
stuff's like a little over 140, and I think the Q1 is a little over 20. Can you help us with the tax rate? Because it looks like amortization last year was...
a decent amount lower and the tax rate was 20. So I'm coming to a tax rate kind of.
you know, mid to upper teens based on this guidance. I just want to make sure I don't make a mistake. Thank you.
Hi, Chris. This is Juliana. In terms of the tax rate, it will vary depending on your assumptions for pre-tax income, which will vary with your assumptions for provision for credit costs, obviously. In terms of the tax amortization, on the full year basis, when you look at the $150 million of tax credits, it's going to vary with your assumptions for pre-tax income.
Think of it as a 95% of that will go into the tax credit amortization. However, we booked amortization when the credits close and go into service. Therefore, for what's on the docket for the first quarter, that's 22 million. That means amortization rate in quarters two, three, and four will be higher in order to come up into that full year 95%.
number as credits close and go into service. So we wrote in the slide deck that for the first quarter, 92 million of tax credits will be in the tax rate calculation and that will go on up through the year. And I can follow up with you offline for a more detailed calculation if you like.
The next question comes from Jared Shaw with Wes Fargo. Please go ahead. Go ahead.
The next question comes from Jared Shaw with Wes Fargo. Please go ahead. Hi, good morning. Thank you. All right, thank you.
Good morning, Jeff.
I guess when you look at the moves you've made with swaps and collars and the potential to add more, is your goal to sort of eliminate all that asset sensitivity earlier, or much of that asset sensitivity earlier in 23, or how should we be thinking about just your general asset sensitivity positioning over the first few quarters.
Yeah, great question. I would say that that isn't our goal, Jared, to remove our asset sensitivity. What we want to make sure is that when we look at the balance sheet and the loan portfolio, that we are able to evaluate what we think might happen.
hedge kind of risks that we see from interest rate perspective, but we still expect to be asset sensitive even with
Okay, and then my follow-up, any outlook on the fee income lines and what you're seeing in terms of potential for growth there among the different lines?
Yeah, great question. On the fee income, I would say that areas that are, if you break that down as far as things that are within our control, things that have to do with investments that we've made, growth that we see with our customers, that's going great.
market driven factors, things that maybe we don't have a control over, I think that's going to continue to be challenging, especially if you look at it from the perspective of market to market on the derivatives and then also effects and that bounces around. But aside from that, we expect that.
From a core customer perspective and the growth perspective, we'll still see those increases.
next question is a follow-up from Ibrahim Poonawalla with Bank of
Thank you. I just wanted to follow up on China in terms of one given the reopening that's underway in China. Does that create?
maybe stronger growth opportunities as we think about this year. And how are you thinking about allocating more capital to that business? And I appreciate a lot of that business is kind of cross-border and cross-border connectivity, but would love to hear if there are increased growth opportunities emerging in China. And also Dominic, would love to hear your views as is now the chair of APEC.
Like how do you see that relationship evolving and creating more opportunity for the bank given its strategic positioning. Thank you.
In terms of the opening of China, it's not just like a sort of like a post-pandemic opening that the ability to travel
in and out of China and so to help the foreign investments to
do at ease about not having the restriction to do quarantine and so forth. That's actually a big factor because many of our management team have not been back to China for the last two or three years.
I think that likewise the same thing for many of the business around the world who are doing business in China and they were restricted by that. And then with this opening up, I think that's a...
Huge factor that helps substantially. That's one.
The second part is really the Chinese government new policy towards business.
Obviously, the last two or three years, the business sectors were having some hard time, whether you are in social media, high tech, video gaming, entertainment, real estate, education, you name it.
every one of these sectors were hammered because of a much...
more challenging policy or regulation that came up that hindered their ability to grow. Now, just for the last few weeks, I'll...
things turn in a completely different direction. Government are providing support to the real estate sectors. They are also
turn in a completely different direction. The government are providing support to the real estate sectors. They also really
getting much more business friendly to these other industries, etc. And so with that.
We also see that...
foreign investments.
are getting their license approved and getting their, let's say, additional investment to get majority shares, also sign off and so forth. So we do see that at this stage the business opportunity is much better. Now then reflected on the East West Bank.
we have always traditionally been mainly focusing on
mainly focusing on cross-border business.
And so I think that with this additional opening up and the more business friendly kind of policies, clearly it would encourage
board of business. Please keep in mind that despite the...
from the US side that we can see that maybe
Attitude towards China has not improved.
But, on the other hand, we ought to keep in mind is that the business that's been restricted are usually related to national security issues, the highly sensitive, or maybe some very, very high level technology or biotech type of business.
that, quite frankly, the East-West really do not have anything to do with. And our focus is on these very, very common, like, electronics...
garments and business.
items that import export.
investment to both shores that to the consumer market and etc that are not related to national security issue. So we do feel that there are plenty of room to grow you know even during the pandemic.
when China literally was shut down by the border.
We still find a way to grow our loans. We still bring in additional new customers. So we expect that to continue to grow. But I don't think that EastWest will be an organization that just because of this new opening that we will just rapidly trying to push a lot of capital in there and we're going to continue to stay steady.
and will continue to be observing the market and make sure we make the wise choice. But I expect that in terms of a sustainable growth opportunity in the greater China region and also particularly as you mentioned throughout Asia.
We feel pretty confident that that will be something that we expect a
And that that will be something that we expect a.
good opportunity going forward because the Chinese business also has expanded.
into Southeast Asia, Vietnam, Thailand
Indonesia, Malaysia, etc. So we expected that many of our customers who continue to migrate their business into those regions, which will be beneficial to us. And that's also the reason why we opened a rep office in Singapore. So we will continue to evolve and expand into...
Asia and to make sure that we can effectively roll this business model as the bridge between the East and the West.
That is helpful. Thank you so much.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.
I just want to thank you all for joining us for the call today. We feel really good about where we are today in 2023 and we'll continue to march forward and looking forward to the call with you all in April . Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.