East West Bancorp Inc (EWBC) 2024 Q2 法說會逐字稿

Good day and welcome to the East West Bancorp's second quarter 2024 earnings call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations.

Please go ahead.

Thank you, operator.

Good afternoon, and thank you, everyone, for joining us to review East West Bancorp second quarter 2024 financial results.

With me are Dominic Ng, Chairman and Chief Executive Officer; Christopher Del Moral-Niles, Chief Financial Officer; and Irene Oh Chief Risk Officer.

This call is being recorded and will be available for replay on our Investor Relations website.

Slide deck reference during this call is available on our Investor Relations site.

Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties.

Management may discuss non-GAAP financial measures.

For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today.

I will now turn the call over to Dominic.

Thank you, Adrienne.

Good afternoon, and thank you for joining us for our second quarter earnings call.

I'm pleased to report that the strength of East West diversified business model have continue to deliver for our shareholders in the second quarter.

Second quarter 2024 net income was $288 million or $2.6 per diluted share.

We grew end of period loans and deposits in a balanced way, growing each by 2%.

Loans grew in line with our expectation driven by C&I and residential mortgage.

Deposits grew across commercial and customer groups marking the fourth consecutive quarter of customer deposit growth exceeding $1 billion.

Our balance sheet growth was complemented by record quarterly fee income of $77 million, up 8% quarter-over-quarter as we have focused on growing our fee business.

This growth was driven by notable continued strength in foreign exchange income and wealth management fees.

Second quarter annualized net charge-offs remained stable at $23 million.

Our nonperforming asset ratio was 27 basis points at quarter end, among the lowest when compared to our peers.

And our criticized loans decreased 10%.

We are confident that our disciplined underwriting and monitoring standards will serve us well through the cycle, and we remain proactive in managing our credit risk.

Overall, our asset quality remained strong.

We deliver top-tier value for our shareholders in the second quarter, generating a 1.6% return on average assets and a 17.5% return on tangible common equity in the second quarter.

Tangible book value per share also grew by 3% quarter-over-quarter and 15% year-over-year.

And lastly, I'm pleased to announce that East West Bank has once again been selected by Bank Director magazine as the number one performing bank above $50 billion in assets.

This is the second consecutive year we have earned the top spot and is our third title in the past four years.

This achievement is a testament to the steady execution of our associates and demonstrates our resilience in what proved to be a challenging year for the banking sector.

I will now turn the call over to Chris to provide more details on our second quarter financial performance.

Chris?

Thank you, Dominic.

Turning to loans on slide 4.

End-of-period loans grew 2% quarter-over-quarter with overall growth in line with our expectations.

C&I growth was driven by notable increases in entertainment lending and overall C&I utilization levels.

However, our growth came very late in the second quarter.

We expect C&I to continue to grow over the back half of the year, but likely at a more moderate pace.

Residential mortgage (technical difficulty) was consistent and our pipeline levels remain strong going into Q3.

We expect residential mortgage will continue to be a growth driver at present levels.

In commercial real estate, we saw healthy growth in multifamily in Q2, offset by declines in the remainder of the CRE portfolio.

We are continuing to work with our long-standing clients, but foresee very modest CRE loan growth for us for the balance of 2024.

Moving on to deposits on slide 5.

We grew end-of-period deposits by 2% to a new record level of $60 billion, with growth coming across all of our customer groups.

Q2 marks the fourth consecutive quarter of $1 billion-plus customer growth, reflecting our focus on full relationships.

Notably, our end-of-period non-interest bearing deposit mix remained stable at 25%.

Switching to margin. slide 6 covers our margin and net interest income trends.

Second quarter dollar net interest income totaled $553 million, while our net interest margin was 3.27%.

As expected, NIM compression for the quarter reflected higher overall the deposit and funding costs, partially offset by improving mostly fixed rate asset yields.

As we move through the second half of the year, we expect NIM to grind marginally lower before bottoming out.

Nonetheless, increasing asset growth is expected to drive growing dollar NII through the back half of the year.

Slide 7 summarizes our non-interest income trends.

We achieved a record level of fee income, $77 million this quarter, up $6 million or 8% from the prior quarters, with growth in every fee category.

I think that says a lot.

With that, let me turn the call over to Irene.

Thank you, Chris, and good afternoon to all on the call.

On slide 8, credit trends remain stable and the asset quality of our portfolio remains strong.

As Dominic mentioned earlier, we reported net charge-offs in the second quarter of $23 million or 18 basis points annualized compared to $23 million or 17 basis points annualized in the first quarter of 2024.

Quarter over quarter, non-performing assets rose by 4 basis points to 27 basis points of total assets, primarily due to increases from C&I loans and commercial real estate loans we have for closed on.

Nonetheless, the absolute level of non-accrual loans and nonperforming assets remains relatively low and at manageable levels.

Criticized loans decreased during the quarter by 10%, driven by decreases in both special mention and substandard loans.

The special mention loan ratio decreased 22 basis points quarter-over-quarter to 0.83% of loans and the classified loans ratios decreased 3 basis points to 1.22%.

We reported higher provision for credit losses of $37 million in the second quarter compared with $25 million for the first quarter.

With regards to commercial real estate loan maturities, as of June 30, 2024, 5% of outstanding balances are scheduled to mature and by the end of 2024 and 10% of outstanding balances will mature in 2025.

For office loan, specifically, 8% of outstanding balances will mature in 2024 and 16% will mature in 2025.

We remain vigilant and proactive in managing our credit risk.

Based on what we know today, we continue to expect quarterly net charge-offs to be in the range of 15 to 25 basis points for the foreseeable future.

Turning to slide 9.

The total allowance for loan losses increased $14 million quarter-over-quarter, driven by the expected economic outlook and also loan growth during the quarter, resulting in allowance for loan losses coverage ratio of

[1.30%].

Within commercial real estate, we increased the reserve for office loans by $7 million, bringing the total coverage ratio to 3.10% of office loans.

We believe our loan portfolio is appropriately reserved as of June 30, 2024.

Turning to slide 10.

All of the East West regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional bank averages.

East West Common Equity Tier 1 capital ratio stands at a robust 13.7%, while our tangible common equity ratio is at 9.4%.

These capital ratios place us among the most well-capitalized banks in the industry.

East West repurchased 560,000 shares of common stock during the second quarter for approximately $41 million at an average price under $73 a share.

We currently have $49 million of repurchase authorization that remains available for future buybacks.

East West third quarter of 2024 dividend will be payable on August 16, 2024, to stockholders of record on August 2.

I will now turn it back to Chris to share our outlook for the 2024 full year.

Chris?

Thank you, Irene.

Our full year outlook remains largely unchanged from the first quarter.

We are still assuming the forward curve as of this quarter end in a currently expect that first rate cut in September.

We continue to expect full year end-of-period loan growth in the range of 3% to 5%.

We expect full year net interest income to decline in the range of 2% to 4%.

We also continue to expect adjusted noninterest expense to increase in the range of 6% to 8%.

Regarding tax items, we now expect for the effective tax rate to be lower in the range of 21% to 23% versus the prior range of 23% to 24%.

We also now expect full year tax credit amortization expense to be within the range of $60 million to $65 million.

With that, I will now open the call to questions.

Operator?

(Operator Instructions) Dave Rochester, Compass Point.

I wanted to start on fee income.

You guys had highlighted this earlier.

You had a solid quarter there with some pretty broad-based growth.

So I was hoping you can talk about what you are expecting for that trajectory in the back half or what you're thinking for the full year in terms of growth overall?

Sure.

So we've had about 10% full year year-over-year growth through the midpoint.

I think about the core drivers of that, obviously, deposit account fees are the biggest component and that's also been growing at that same pace, and it's been growing, call it in the range of $1 million a quarter.

I don't know if that will continue in a declining rate environment immediately, but it should bode well going for another quarter or so.

Lending fees are a function of lending growth.

I think we commented that we expect lending to moderate over the back half of the year.

So I would expect that the case, and derivatives goes along with lending to a certain extent.

FX has been a wonderful piece of our business, that's contributed greatly this quarter.

It does have some volatility in the wealth management fees, which have grown very nicely, have obviously been benefiting from the backdrop of positive overall equity markets and a strong fixed income yield opportunity.

Again, that will probably moderate to some extent as we look over the back half of the year.

Okay.

So all in maybe a little bit of moderation, but looking for decent growth there, it sounds like.

It's a core focus of us to drive overall fee income levels higher overtime.

Okay.

Maybe I appreciate that.

Maybe as my follow-up on capital last quarter, I know you were talking about a target TCE ratio range around where it is right now

[9394].

Any changes to that -- thinking on that?

And should we expect a range for at least the back half of the year?

We continue to believe it's not in our shareholders' interest for us.

We have the additional capital beyond the levels.

Obviously, it will bounce around a few basis points, but we're trying to be thoughtful about managing that in the best interest of returns

Jared Shaw, Barclays Capital.

Hi, good afternoon.

Good afternoon, Jared.

Maybe just looking -- starting with margin and taking into account the strong growth that you just pointed out in C&I at the end of the quarter as well as maybe some of the dynamics around potentially getting to the end of a deposit remix pressure.

How should we be thinking about margin over the next few quarters with that backdrop?

Yeah.

We still expect margin to have some downward compression over the back half of the year, not sure of the trough will come in Q3 or Q4, but we think it does trough later this year.

That having been said, well, we think margin will come down a bit.

We do see dollar NII growing precisely because the balances grew here in the second quarter and we still see incremental growth, although at a more moderate pace in the third and fourth quarters.

So balance sheet growth will keep the NII moving higher, NIM will still see come compression, and we expect it to trough as we get later in the year.

Okay.

And is that margin compression I guess, coming more from just some tail on funding costs or are you not getting the -- maybe the same spreads on the incremental C&I loan, as you have in maybe the existing portfolio.

I think we expect some downward compression on fixed rate assets as the expectation for Fed cut comes into play.

And so, the higher yields, for example, that we've been earning here more recently on mortgages will start to come down and some other fixed rate options as well as fixed investments.

Those will put incremental downward pressure on the fixed rate asset repricing.

At the same time, we don't think the Fed cut, which probably won't come until mid-September will do much to damp in the near-term deposit costing that we have the rollover here in the third quarter.

So you'll recall we had a fairly significant first quarter Lunar New Year City campaign.

We're out there today growing deposits and managing that, but it's not at a 25 basis points or 30 basis points lower level because rates haven't really moved up or down.

Okay, great.

Thanks.

And then maybe as my follow-up, just on credit, any color around the dynamic with C&I NPL is up, but the criticized down, any broader trends there or those more one-off?

Yeah.

I would say, I mean, obviously at those levels, they are at very low bases.

So there are loans that we're looking and borrowers that we're looking at carefully for C&I.

And then also, CRE as well.

But there is nothing I would say that systemic at this point industry concentrations, regions or anything overly concerned about.

Casey Haire, Jefferies.

Great.

Thanks.

Good afternoon, everyone.

I have a follow up on the NIM.

So if we do get this trough in the back half of the year, like what is the expectation if the forward curve plays out as is -- is it is NIM stability with CD repricing benefits and maturing hedges offsetting the pressure you feel on the floating rate loan book.

Just a little color on what happens post second half here.

Yeah.

The order of magnitude, I think we've said for every 25 basis points rate cut, we would assume there would be something in the neighborhood of $2 million to maybe $3 million of downward pressure from the rate cuts.

But we've also said we expect about a 50% deposit beta baked into those numbers.

So I think those are two things that are in play in our forward look.

With both of those assumptions baked in, given the growth that we see ahead of us, we think the answer is rising dollar NII fairly consistently third quarter and the fourth and margin coming down again modestly from current levels down into a slightly lower [3.20%] range and then finding its footing and we assume moving higher, particularly as a number of negative cash flow hedges that currently weigh on us come off in the first quarter of '25.

Got you.

Okay.

And then just the loan growth outlook, it sounds like you guys.

I mean, obviously the CRE you guys are holding the line on that near term and enjoying the C&I resi growth.

But it sounds as if you are looking to open that up or get reengagement and commercial real estate and '25, unless I'm misreading that.

But just wondering where, CRE concentration, what's the strategy there?

Like when can you turn that back on?

Is there certain level?

Well, to be clear, we're always here for our core customers, and we are always engaged to support them.

We just haven't been pursuing marginal new transactions.

And so we will continue to engage with our core customers and service our portfolios and help them with whatever comes their way.

With regard to the over arching loan strategy, I think Dominic has articulated a long-term plan to get to a third, a third, a third.

And that will involve us growing our C&I and residential portfolios over time at a faster clip than CRE.

I just want to add one comment here is that -- we -- it's not like that we are looking for marginal business in the past and now we're not.

It's really coming back to the issue is that our core customers.

Don't worry you see a lot of very interesting activity for them to engage in.

So our volume on CRE have dropped a lot has -- no this is simply because of the fact that they're just not a lot of great deals out there.

So we expect CRE activities will probably continue to slow simply because that then the external environment factor.

And so our position is that we always have the capital and the balance sheet to support our core customers in any kind of economic environment.

But for them to be our core customers that worthy of support, they obviously are the people that are very savvy and know what they're doing.

And so they wouldn't be foolishly getting involved in transaction that don't make sense

.

So that's why the volume of from CNI to CRE, et cetera, very much tied into to a certain extent interest rate environment and also the economic circumstances.

And so that's how we see utilization and CNI also for relatively low for the last couple of years, simply because ForEx kind of interest rate is high for people to drawdown because the cost of borrowing is so much higher.

So all-in-all, I think that -- that's the beauty of having strong capital and strong balance sheet and be in a position to always take good care of our customers.

These good customers in turn will continue to take care of us.

Ebrahim Poonawala, Bank of America.

Good afternoon.

I guess maybe first first one, just click on slide 22.

So we saw some mix shift from cash into securities during the quarter.

Is that kind of steady-state?

Just remind us one, when we think about securities to earning assets, are we where we want to be?

And then in terms of the level of cash you want to be holding if the $4 billion relative to the $16 billion the right level to think about?

Yeah.

And I think we said last quarter, we thought the overall cash and securities and we kind of look at that as one basket would stay relatively stable, relative to the total balance sheet.

I think that certainly happened on an average basis.

The amount that can be invested, I think from a variety of factors probably doesn't come down a lot of the $4 billion in cash component, but could come down a little bit more.

We certainly have the bandwidth and flexibility to do that, but we're not pushing that were.

Again, our focus is on core customer activity, core loan growth, core deposit growth, and I think that will ship most of the change in the balance sheet over the back half of the year.

Got it.

And I guess this the other one, maybe, Dominic, for you.

Just sentiment among your commercial customers as we think about maybe getting a September rate card, you're going to get to the elections, do you see those being as a trigger where we could see an acceleration in loan growth and loan demand?

Like do you feel there is some pent-up demand that could lead to a rebound in loan growth looking into 2025?

Is the beginning of the rate cut cycle in elections enough to do that?

Well, based on the current expectation on the rate cuts, I wouldn't think that the rate cut will be like a significant enough that can really move that much of a needle.

The fact is 25 basis points cut here and there.

I mean, if we -- even if we do a two to three times is less than 1%.

And when we're sitting at 5.5% Fed fund rate, I don't think that's material enough to really drive a lot of thought excitement in terms of making investment and whatnot.

So and then also of all election is something no one knows by now.

I mean, there's a lot of drama going on.

So we'll just have to watch it and see how it goes and then see how would that affect business sentiment.

But at this stage right now, my expectation is still going to -- everything say more at the same here is like maybe is exactly what the Fed is driving a soft lending.

I think that's what it looks like going in that direction.

So far in our business still seems to be holding up pretty good and -- but no one's going out there trying to aggressively chase new business at this point and I expect that's going to be the way it is for the fourth quarter and possibly even the first quarter.

And then we'll see we'll see how elections may affect policy and so forth.

Brandon King, Truist Securities.

So from what I understand, residential is going to lead loan growth in the back half of the year.

So could you just talk about what you're seeing in that category as far as demand?

There's concerns about housing supply.

I know you have a unique product, but just give us some context behind your outlook already driving growth for the back half of the year and how sensitive that could be to interest rate moves and other things?

Thanks.

Yeah.

And let me just make sure we're clear.

Residential growth will continue to be a consistent contributor to the growth at about the pace it's been here over the first half of the year into the second half of the year.

Our pipelines already here in the third quarter would support that.

We can see that necessarily shifting much in our outlook.

C&I will be as was today this quarter.

A prominent contributor to the quarter.

It will moderate, but it could also still be a good contributor to the overall growth.

We do have a unique product offering.

And one way to think about it is most of our borrowers are only borrowing $0.5 on a dollar.

And so by definition, they're sort of [5/8] as rate sensitive as your typical 80% LTV borrower.

And therefore, we have not seen the same downdraft in overall origination activities.

And we think that will hold here.

As Dominic mentioned, we don't think a rate cut or to will too much difference to the outlook.

And those people that are coming to us pursuing the American dream of homeownership are not going to be turned away or more excited necessarily by give-or-take 25 basis points.

Got it.

Okay.

And then in regards to the new commentary, I think you briefly mentioned kind of CD repricing, particularly the Lunar New Year deposits.

Could you just give us some context was a high of what you're expecting as far as seen in pricing in the back half of the year in how the opinion that is our own rate cuts or not?

The bulk of the Lunar CD pricing driver in the first quarter was at a rate of 5.25%.

Our current special offering today are at 5% and 4.88%, and we therefore expect that we will be able to reprice somewhat lower, but that's also a function of all that coming through in most of that activity it was sort of February into March.

So the proof will be in August and into September when those come off.

And we think right now, we have a competitive rate that will keep us managing and maintaining those balances, but we'll see how that plays out over the next 45 days.

Got it.

Thanks for taking my questions.

Timur Braziler, Wells Fargo.

Hi, good afternoon.

So taking that a line of questioning, sticking with the line of questioning on deposits, nice reversal in trends within DDA.

Is that sustainable going forward?

Do you think that we've kind of troughed within excess liquidity exiting the balance sheet?

Or is there still stuff on risk maybe in the back end of the year that there's some more migration in that line.

We definitely see it as rate dependent.

And so what we've said previously, and we still believe cases as long as rates remain elevated, there will be incremental push for deposit migration that did somewhat slow during the second quarter and there was a little pop at the end of the quarter, but the trend would be still somewhat negative migration until the rate cuts start.

And at that point as expectations dip lower, we think the incremental bit away from money market funds and from other offerings will be lessened enticing and result in less migration and even possibly stabilization and then subsequent reversal.

And we think that's our model being view.

But we also see anecdotally that other banks have reported similar stabilization, and we think that's consistent with industry trends.

Great.

And then maybe following up on Ebrahim's question, just looking at some of the uncertainties with the election.

I'm just wondering if your Greater China clientele or maybe pulling forward some of the activity in anticipation of some of the uncertainty may be in the back end of the year.

I guess what is the temperature gauge of your Greater China client base?

And how are they thinking about the election risk or lack thereof in the back end of the year?

Well, if you look at our Greater China customers, I think that -- I don't think they have a much big anticipation of what's going to come out from the election one way or the other.

And I mean, as we looked at interesting enough for the last eight years under two different administrations, and if you look at the the tariff started in 2017.

But then in the current administration, not only is keep going on and figured out a little bit more.

So but then if you take a look at East West Bank, we haven't really stopped growing our cross-border business and we consistently outperform our peer groups in terms of financial performance.

I think it all get down to at the end of the day despite political rhetorics and there was some US-China geopolitical issue when you get down to national security, et cetera.

The common goods have been shipped between US and China import and export, really hasn't slowed down that much.

There are a lot of business, still, commerce going back and forth.

And I would say that the vast majority of the business really the business going as usual.

They don't like to hear those rhetorics.

However, the business still going as usual.

What we found is that many of our customers, whether they're in import business, export business from the Greater China region, all US to Asia region, and they continue to visits.

They continue to find way to do business.

And we at East West continue to navigate in this rough sea and somehow understanding the dynamic.

And I think we've done a pretty good job managing this overall US geopolitical situation.

And that's why we uniquely find a way to continue to be one of the highest performing bank in a country simply because we know what we're doing and we continue to go on through eight years.

As for many others, we looked at significant turmoil, but for us somehow we get by just fine.

And this is something that we feel very confident in the next four to eight years.

I don't know who's going to be the President.

It really doesn't matter to us because we are here to run East West Bank.

We know how to run our business and so far so good.

Matthew Clark, Piper Sandler.

Hey, thank you.

First, let me just around capital.

Given that you're not looking to accrete more capital at this stage, should we just assume you re-up the buyback when you're done?

Or are you more price sensitive at this level?

And then if not any other ways to return capital that you might be considering?

We'll begin with, we've always been both opportunistic and shareholder-friendly and those guiding principles will remain during the quarter.

I think we were fairly opportunistic in the repurchases we did.

We didn't fully utilize what we have left.

We have $49 million yet to go, and we'll continue to look at it on an opportunistic basis.

We would not expect to reauthorize until we've exhausted our current program.

And so we'll update you as that come together.

Okay.

But you're not considering any other types of capital returns at this stage other than organic growth?

We traditionally look at our dividend on an annual basis, and we'll obviously look at that as we look to our expectations for 2025.

I think obviously, our first and foremost use of capital is to support our customers that will always be our first use capital.

We are not currently contemplating any meaningful M&A activity, and we certainly think about the other use of capital in a shareholder-friendly manner.

Okay.

Great.

And then the question just on the loan side, I think you hired the Head of Entertainment lending from City National in the last two to three months.

(multiple speakers) Have they contributed to that entertainment growth yet?

And how large of a contributor would you like that vertical to be?

Or what's your limit in that vertical?

Yes, they have already contributed.

And yes, one of the key drivers of growth in our C&I business for this quarter was an uptick in entertainment lending and I think we like all of our verticals, but we particularly like the entertainment vertical being based here in the Los Angeles region.

Dominic, anything you'd care to add?

Well, I think that as much as we always like to have, there's industry vertical to continue to excel.

But we at East West Bank is very much put overall risk oversight as a priority.

That's why if you reflect back in March 2023, we didn't have the kind of problems like some of the other larger banks had in California.

Because we did not overload ourselves with private equity, venture capital, not that we didn't like the business.

We love those business.

We're doing good with those business.

But we would never allow us to also extend to one particular industry that potentially when there's a run here and there, that causes harm.

So I very much expected entertainment business to continue to grow. not only in the United States, but also in the Greater China region.

We expect the entertainment business to grow in a very healthy pace with the exception that will never allow it to grow so much that becomes over-concentrated.

That potentially causes regret someday when there's so much concentration in one particular industry.

So East West always run a very diversified portfolio.

As you can see, actually quarter-by-quarter, we always have different winners.

When Chris talked about this quarter is entertainment and something else next quarter probably be somebody else again.

It's nice to see those different units all competing positively to get that championship per quarter.

So and by doing that, we don't have an issue of over-concentration.

Chris McGratty, KBW.

Well, thanks.

I noticed several times on the call you talked about the optimism for the fee income outlook.

Is there a scenario where there could be a tuck-in acquisition, the use of capital to grow that business?

There could be obviously last year, Chris, you'll recall the company made a significant investment in Reliant the asset management entity that we took a 49% stake in.

And so those types of opportunities may present themselves, but it's not top of the agenda as we sit here, say looking forward.

Okay.

And Chris, while I have you just I just want to get a little bit of a better understanding on slide 6, where you talk about the $1 billion cash flow hedges that come off in the first quarter of the negative carry and then the hedges and the backup.

How should we think about just the impact on margin and NII from those actions in next year.

So the current cash flow hedges are causing us, if you just top of that page.

The impact is about $25 million a quarter, and it's pulling down the NIM by about 15 basis points in the current period.

And those hedges largely expire come Q1 2025.

And so essentially that negative drag will work its way down.

Of course, if there's a rate cut in September and additional ones in the Q4 will incrementally chip away at that.

But that whole amount will come off Q1 '25.

And what will happen then is somewhere in the second half of the year, $1 billion of new hedges will come on with a blended average received before.

So the extent by the middle of '25, the Fed's down to [4%], no harm, no foul.

If it's above there, it will cost us a little for the interim.

If it's below there, we'll see the benefit of that in our bottom line begin in the second half of '25.

Gary Tenner, D.A. Davidson.

Thanks.

Good afternoon.

Just wanted to ask on the loan side on the C&I side, in particular.

Chris, for your mention of the surge late quarter.

I don't think I heard you comment on this, but wondering if there's any through line in terms of types of loans, business purpose, a commentary from borrowers that you think kind of drove that surge.

There was a little bit more activity late in the day from some private equity and one particular biotech related entity.

And I think we were a little bit surprised by the volatility, but it was positive.

So we took it and I think we've seen some of that activity moved back already, which were not exactly what we expected.

But yes, there's a bit of volatility, but nonetheless, we expect to grow balances in total throughout the third quarter and the fourth quarter.

Okay, great.

And then if you could just update us on the thoughts around the FHLB borrowings you have that replaced the BTFP.

Is that purely going to be a function of liquidity trends over time in terms of paying that down?

Or is there a more specific focus on that?

Yeah, I think we're focused on making sure we get past sort of this rollover period here with the CDs in Q3.

And as we continue to see positive trends, which we have seen and continue to see so far into the Q3 period, additional oncoming -- on onboarded customers on the deposit side, we'll consider where we put those incremental dollars to work.

Whether that's to earn cash at the Fed or pay down liabilities.

That's about a push.

So we'll look at that and put money to work obviously every day.

Thank you.

That having been said, I would expect that we'll keep a good portion of that FHLB outstanding for an extended period of time as we think that's going to become a component of what otherwise maintains a very strong liquidity profile.

Samuel Varga, UBS.

I just wanted to go back to the deposit conversation for a little bit and could you provide an update on private banking deposits?

And specifically, I guess, how they've trended over the past 12 months?

And then what sort of growth you anticipate over the next 12 to 18 months.

Yeah.

Our Private Banking -- customers participated in our CD specials and have found a positive place to put incremental balances of work.

And so those balances have generally grown.

We expect them to likely continue to grow as wealth management solutions overall have grown nicely.

And as they come in, they allocate a portion of their portfolio or they reallocate record equity levels into fixed income and stable products.

And that has generally been a win for us.

I think private banking continue to bring in new customers and they are new customers, both from the fee incomes perspective in terms of wealth management product side and also on the deposits and loans.

And then just thinking of piggybacking off of that on the wealth management side, can you just share broader thoughts around this business?

Where do you see it going and the wealth management over the next couple of years.

What sort of opportunities are there in the market from disruption that you'd like to take advantage of?

On the wealth management area, we see tremendous potential for East West Bank.

Our approach is not to trying to do quick hit and rather take our time to strategically plan it in the right way and then have gradual, sustainable, recurring, and profitable type of business.

So far has been going good.

I mean, oftentimes people may looked at our overall wealth management fee income.

It's really not at a very high level from a percentage standpoint to our overall profitability.

But we're trying to grow in the right way.

And we see a tremendous opportunity and potential for the demographic of the customers that we have so far.

And we just see that there is just going to be a great opportunity, not only just here in the United States and even potentially in Asia area.

Andrew Terrell, Stephens.

Hey, good afternoon.

Most of mine were addressed already.

But just a quick modeling question.

Chris, can you remind us the repricing dynamics on the securities portfolio?

Just how much of that is floating rate at this point? And then what does the quarterly cash flow look like?

can you remind us that the repricing dynamics on the securities portfolio, just how much of that is floating rate at this point?

And then what does the quarterly cash flow look like?

Sure.

It's roughly 60% -40% on the overall mix, 60% fixed, 40% floating.

And the floating is all Ginnie Mae floaters at SOFR plus, I'll call it 115 for conversation. And the cash flow on a recurring monthly basis is 110 to $120 million.

Neal, obviously with some variability.

The floating is all Jamie floaters that So plus, call it one 15 for conversation.

And the cash flow on a recurring monthly basis is $110 million to $120 million, obviously with some variability.

And then do you have the offhand, just the yield on the securities purchased during the second quarter?

Just trying to think about where the securities yield heads into 3Q?

Yeah, there was about $200 million of fixed that call it 5.5-ish and there was the balance was all floatersat SOFR plus 15-ish.

Manan Gosalia, Morgan Stanley.

I wanted to ask on the spreads you're getting on your new -- loans.

Some of your peers have highlighted that there's tougher competition from both banks and non-banks, and that's putting pressure on C&I spreads.

Is that something you're seeing in your portfolio as well?

Yeah.

I think we're seeing in C&I generally in the SOFR plus 250 zone for most of the stuff that we're putting on balance sheet.

I don't know, that that's a typical for the traditional business range that we've done, but we're -- that's where we're seeing it.

And then on the commercial real estate front, can you talk about what your conversations have been like with borrowers?

I mean, do you think two or three rate cuts from here will alleviate some of the pressure that they're feeling, especially on the office and multifamily side.

And more recently, as you've maybe extended or whichever launches come up for extension what has been the reaction from the borrowers?

Have they brought in more equity.

Just looking to get more color there.

Thanks.

So as Dominic said a few minutes ago, I don't know that a rate cut or two will make that much difference in the near term.

And so if rates are elevated in the [5%-plus] ZIP code for an extended period of time on the base rate.

It's likely there will be pain to be felt by a number of borrowers.

Many of whom are buying the projects cap rates of 5% a few years ago.

So that will be a challenge for many of them.

We have taken a very hard look at with Irene and Dominic, but also obviously our credit teams and our RMs, et cetera, all the way down to figure out what's coming due, what the situation, where the cash flows, whereas the debt service coverage, what else can we do with these customers that are up for renewal from now through the end of 2025 has been the primary focus, but looking at things even beyond that, just to make sure that we're on top of things.

So I think the short answer is we're doing all of the above to make sure that we're proactive and ahead of it, and it is an issue.

But to the extent that rates come down, not one or two cuts, but 100 basis points to 150 basis points, things get easier.

And obviously, if rates come down 200 basis points will probably there's a lot of issues that just go away.

I'll just add to it.

Certainly the macro environment for office, it is what it is.

But this continuous review of the portfolio, this is something we started before the pandemic.

And efforts that we did there for borrowers to kind of shore up, pay down loans, pledge additional asset, what have you.

So today I think if you look at the results that we have, the still very, very good credit quality across the Board, a lot of that is the proactive actions that we took years ago.

Got it.

And what matters more?

Is that the belly of the curve or is it the short end of the curve for that?

Can you reframe the question, Manan?

Oh, just in term of

--

Yeah.

Short end, yeah, the vast majority of our customers are floating rate borrowers and while they might fix their need to refinance if they can will be best met on the short end.

This concludes our question and answer session.

I would like to turn the conference back over to Dominic for any closing remarks.

I just wanted to thank everyone for joining us on the call today, and we are looking forward to talking to you again in October.

Thank you.

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