Chris O'Connell

Chris O'Connell asked about the pace and opportunistic use of East West Bancorp's share buyback program, given strong capital levels and a recent dividend increase, and sought clarification on the margin commentary regarding near-term liability sensitivity.

Answer

Dominic Ng, Chairman and CEO, stated that buybacks are always opportunistic, executed when the price is right to create shareholder value, and there is no urgency given the bank's strong capital, high return on tangible common equity, and recent dividend increase. Christopher Del Moral-Niles, CFO, explained that some benefit from the December rate cut will extend into January, balancing out in Q1, with subsequent rate cuts providing a short-term positive lift for 30-45 days before reverting to the broad asset-sensitive profile.

Chris O'Connell asked about East West Bancorp's approach to share buybacks, specifically the pace and opportunistic use, given strong capital levels and a recent dividend increase. He also sought further clarification on the margin commentary, particularly how the near-term liability sensitivity might influence margin trends early in the year.

Answer

Chairman and CEO Dominic Ng stated that buybacks would remain opportunistic, executed when the price is right to create shareholder value, emphasizing that the bank's strong capital position and dividend increase provide flexibility without urgency. CFO Christopher Del Moral-Niles explained that some benefit from the December rate cut would bleed into January, but Q1 would likely balance out, with subsequent rate cuts providing a short-term positive lift in the immediate 30-45 day period before reverting to the broad asset-sensitive profile.

Inquired about the volume of CRE repricing in H1 2024, the remaining upward repricing on CDs, the cautious margin outlook before rate cuts, loan growth guidance, the future of the residential loan runoff strategy, the size of the stressed multifamily customer segment, and the potential for future stock buybacks.

Answer

H1 2024 CRE repricing was similar to H2. CDs are mostly at market rates. Margin caution is due to ongoing rate adjustments on money market accounts. Low single-digit loan growth guidance is maintained. The residential runoff strategy will continue to re-mix the portfolio. Only 6 loans show potential stress for the rest of 2024. Buybacks will be considered quarterly.

Inquired about the strength of the debt service coverage ratio for the 2025 free market multifamily loans, the yield on the current loan pipeline, details on loan and security repricing volumes, the outlook for the net interest margin in the second half of the year, the potential for future share buybacks, and the expected go-forward tax rate.

Answer

The high DSCR for 2025 free market loans is not unusual given their conservative underwriting. The current loan pipeline yield is approximately 7%. While specific repricing volumes weren't provided, they noted $80-90 million in quarterly cash flows. The NIM outlook is conservatively stated as flat but has upside potential as liability costs stabilize and assets reprice higher. Share buybacks are considered quarterly. The go-forward tax rate is expected to be between 6.25% and the initial 12% guidance as REIT tax benefits are maximized.

Inquired about the monthly net interest margin trend, the expected trough for the margin, the tax rate outlook for 2024, details on delayed IT upgrades, and the bank's view on credit quality.

Answer

The monthly margin fluctuated, with September being lower due to specific factors. The bank expects the margin to bottom out in the next 1-2 quarters, potentially declining another 5-10 basis points, but the outlook is uncertain. The 2024 tax rate is preliminarily budgeted at 13-14%. Delayed IT upgrades include a core conversion and other system enhancements expected in early 2024 to improve efficiency. Credit quality remains strong with no major concerns.

Focused on the 2024 expense outlook, particularly the Q1 starting point for compensation. Also questioned the nature of Q4 deposit outflows, the timing of the NIM bottom, and the amount of assets expected to reprice in 2024.

Answer

Q1 salary expense is guided to be around $7.3 million, with 2024 incentive accruals lower than 2023. Q4 deposit outflows were almost entirely seasonal municipal funds, which are expected to return in Q1. The NIM may face pressure into Q2 before stabilizing or expanding later in the year, helped by about $300 million of assets repricing in 2024.

Asked for the spot Net Interest Margin (NIM) for September, inquired about the possibility of an insurance business sale combined with a balance sheet restructuring, and asked for the outlook on net loan growth and new loan yields.

Answer

The September spot NIM was not readily available. Management confirmed they consider all strategic options to create shareholder value, including potential transactions like an insurance sale, by evaluating long-term shareholder return and capital impact. Net loan growth is projected in the low single digits (2-3%), with new loan yields at 7.5% or higher.