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Christopher Del Moral-Niles

Thank you, Dominic. Let me start with deposits on slide 5.
Over the past five years, East West growth has been deposit-led. This has allowed us to fund loans while maintaining strong balance sheet liquidity. In 2024, East West grew end-of-period deposits by 13% to a record $63.2 billion. In early 2024, we also repaid $4.5 billion of BTFP borrowings driven by our confidence in our ability to grow core deposits.
During the fourth quarter, we saw a notable uptick in DDA and money market balances with continued overall stability in savings and time deposits. Our deposit mix has stabilized with DDA levels in the mid-20s. Our period-end total deposit costs declined a further 25 basis points in the fourth quarter to 2.59%.
Looking into Q1, our 2025 Lunar New Year CD special was launched last week, offering a six-month CD at 4.18% and a nine-month CD at 4.08%. We believe these are competitive for our regional markets, and we expect good retention and potentially good traction on new money inflows at these price points. Notably, these levels are 107 and 117 basis points below last year's CD offering at 5.25%.
Turning to loans on slide 6. East West grew total average loans by 6% for the year and end of period loan by 3%, in line with our prior guidance. C&I growth in the fourth quarter was driven by new credits as utilization was relatively stable quarter-over-quarter. Although we have yet to see evidence of increased demand in Q1, we expect C&I growth to pick up later in 2025 given the improving overall business sentiment.
Residential mortgage had a good quarter in Q4, partly reflecting the drop in rates we saw in the third quarter. Despite the recent backup in rates, pipelines remain full going into the first quarter. We expect residential mortgage growth to continue at its current pace.
Overall, we expect 2025 loan growth to be in the range of 4% to 6%, driven by strong growth in C&I production and continued residential mortgage strengths, leading to a further diversified and more balanced loan portfolio over time.
Shifting to net interest income and net interest margin on slide 7. And as we guided, NII rebounded in the back half of the year, driven primarily by lower total deposit costs. Our net interest margin was stable at 3.24%, while our interest rate spread widened 9 basis points quarter over quarter. At the end of the fourth quarter, our end-of-period interest-bearing deposit costs have come down 49 basis points from the second quarter consistent with our expected 50% deposit beta.
In the fourth quarter, our total hedges cost us $18 million of net interest income or 10 basis points to NIM. In January, $0.5 billion of negative carry swaps rolled off and a further $0.5 billion is set to roll off in February. These two maturities will alleviate approximately half of our negative hedge impact. The benefit of these hedges rolling off, our expected balance sheet growth, and our improving deposit costs and mix should combine to support net interest income and margin levels from here.
Our outlook for net interest income assumes [two 25-basis-point] cuts during 2025, resulting in a gradually steeping yield curve as the implied year-end curves suggested.
Moving on to fee income. Fee income grew by 11% over the last four years and grew by 12% in 2024. As Dominic mentioned, we achieved record fee income in 2024. Our strength over the past year was driven by sales execution in wealth management and foreign exchange and strong traction in treasury management sales, particularly around commercial payments activity.
East West has been consistently growing wealth management, foreign exchange and deposit account fees at over 20% per year, and we remain focused on driving this growth as we look into 2025. Taking NII and fee income together, we expect total revenue growth in 2025 in the order of 5% to 7%.
Turning now to expenses on slide 9. East West continue to deliver industry-leading efficiency. Fourth-quarter efficiency ratio was 36.9%. Excluding FDIC special deposit insurance assessment charges, total operating noninterest expenses have grown on average at an 8% clip over the past five years, including in 2024. This is in line with our expectations for 2025. Expense growth is expected to be driven primarily by investments in our people and tech to support our growth strategies.
Now, I'll hand the call over to Irene for some comments on credit and capital.

Irene Oh

Thank you, Chris, and good afternoon to all on the call. As shown on slide 10, the credit environment is benign and the asset quality of our portfolio as a whole remains solid. Provision for credit losses increased $28 million from the third quarter to $70 million. Net charge-offs in the fourth quarter were $64 million. The net charge-offs for the fourth quarter largely stemmed from two domestic commercial and industrial credits. These two credits were unrelated, but both loans were made to companies in the technology sector, and we had determined in the fourth quarter that the collateral and AR were not collectible.
Nonperforming assets remained stable at 26 basis points of total assets quarter-over-quarter. The special mention loan ratio improved slightly to 83 basis points, while the classified loans ratio increased 15 basis points to 135 basis points. The absolute level of problem loans, migration into criticized loan categories, and nonperforming loans remain low and at manageable levels. Regarding the wildfires in Los Angeles, we are actively accessing our exposure from the Palisades and Eaton Canyon fires. Based on what we currently know, we expect our direct exposure to be minimal.
To date, we have identified 32 loans totaling $26 million outstanding that are impacted. These are largely consumer mortgage loans but the numbers are inclusive of any direct exposure in entire loan portfolio, including collateral commercial real estate, multifamily, and commercial and industrial loans. Further, our gross exposures to loans in the vicinity of the Hughes fire just north of Los Angeles is very limited. Based on these preliminary results from the impact of the wildfires, we foresee very limited credit impact to East West at this time. We remain vigilant and proactive in managing our credit risk. Based on what we know today, we are projecting that full-year 2025 net charge-offs to be in the range of 25 to 35 basis points.
As seen on slide 11, our allowance for credit losses ended the fourth quarter at $702 million or 1.31%, unchanged from the prior quarter-end. We believe our loan portfolio is appropriately reserved as of December 31, 2024.
Turning to slide 12. 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 14.3%, while the tangible common equity ratio is at 9.6%. Our Board of Directors has declared a first quarter of 2025 common stock dividend of $0.60 per share, a 9% increase to the dividend. The dividend will be payable on February 17 to stockholders of record on February 3.
East West opportunistically repurchased 200,000 shares of common stock during the fourth quarter of 2024 for $20 million. Additionally, our Board has approved a new $300 million repurchase authorization, resulting in $329 million of total current authorization available.
I will now turn it back to Chris to share a few comments on our outlook for the full year. Chris?

Christopher Del Moral-Niles

Thank you, Irene. With respect to our guidance, as previously mentioned, our outlook assumes modest economic growth, and further cuts of 50 basis points over the course of 2025, consistent with the year-end yield curve. We expect end-of-period loans to grow in the range of 4% to 6% with continued relative strength in both C&I and residential lending.
We expect net interest income to grow in the range of 4% to 6%, driven by balance sheet growth and total revenue growth in the range of 5% to 7% bolstered by our continued momentum in our fee income businesses.
Total operating expenses are expected to increase in the range of 7% to 9% year over year, driven primarily by headcount and IT-related expenditures, offset partly by lower expected deposit account expenses. Again, we expect full-year net charge-offs in the range of 25 to 35 basis points and our effective tax rate in the range of 21% to 23%.
With that, now let me open the call up for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Jared Shaw. Barclays.

Jared Shaw

Yes, good afternoon, everybody.
Any aggressive injured.
Tom, maybe just starting with the expense guide.
When you when you look at the investments in people and technology that you're that you're highlighting, how should we think about that are being layered and during the course of the year and as most of that in preparation for category for or how are you sort of describe the color around around the investments there?

Christopher Del Moral-Niles

Yes, I think we continue to make the investments we need to be for the bank.
We expect to be over the coming years and we expect the bank will be a strong capable, 10 well positioned bank to meet all of them needs of our customers signed.
I would note that our expense percentage is high relative perhaps to some others, but keep in mind, it's also the much smaller base.
And so our implied revenue growth far outstrips even the larger percent expense growth at least a positive operating leverage.

Jared Shaw

Okay, great. Thanks for that color. And then I guess it's great to see the announcement of a buyback or increasing the buyback. But when we look at it in light of sort of the limited amount of repurchase that you've done in the past, should we think that this is a change? And Tom, the philosophy around utilizing the buyback with this capital ratio level? Or is it more you just want to have the flexibility in the future to buy back stock if and if something changes?

Christopher Del Moral-Niles

Philosophy here has been opportunistic. We were opportunistic in the fourth quarter will continue to be opportunistic, but we certainly like the price points that we saw in the fourth quarter.
And we have plenty of flexibility to do what's the best interests of our shareholders.

Jared Shaw

Is that opportunistic view only around the share price? Or is that more broader view of potentially seeing lower capital ratios?

Christopher Del Moral-Niles

I think we operate from a position of capital strength that has served the Company very, very well. Being the better capitalized banks in the industry allows us to withstand whatever comes and gives us the bank, the flexibility to be here for our customers regardless of the economic or rate environment.
It's out there and regardless of events like fires that may tragically impacts some of our customers being here with that strength is a differentiator for East West. And if we weren't earning a 17% returns on tangible capital, it would be of concern. But since we've been able to do that consistently year in year out for years, think it's a great place to be.

Jared Shaw

Great. Thank you for that.

Operator

Manan Gosalia, Morgan Stanley.
Please go ahead.

Manan Gosalia

Hi, good afternoon. So that may have high. I wanted to start on deposit costs said they're down nicely, 50 basis points or so on the interest-bearing side apps, I guess you're getting a 50% beta.
There have had some of your CDs will have to reprice lower still?
Or where do you think we should be a shakeout on deposit beta?
She has a lot more room for that to go down from here.

Christopher Del Moral-Niles

Manan, we've been guiding to about a 50% beta, and we're pleased to see that the results of the last couple of quarters have been consistent with that.
I think we'll continue to see positive momentum on that as long as rates are moving lower expected the new lower.
And so we have that benefit that the CDs effectively, we priced a little bit go ahead the actual Fed cuts.
And so that will continue to be up to our benefit here over the near term. We'll see where things shake out, what the yield curve as we get later into the back half here.

Manan Gosalia

I think last quarter you noted that $20 billion or so of the $23 billion in CDs were due to price in the next three quarters. Have you have that number for half of the end of the fourth quarter?

Christopher Del Moral-Niles

Yes, no, there's $10 billion repricing in Q1 and another [$7 billion-ish, $8 billion-ish] in inflation in Q2. And then it drops off to less than [2] in Q3.

Manan Gosalia

Got it. Okay. And maybe as a follow-up on loan growth, I know you noted that you expect C&I to us to pick up with improving business sentiment. And can you give us some more color on what you're seeing there and maybe US tariffs are rolled through, how would that have an impact on growth or investment spend among your client base.

Christopher Del Moral-Niles

I think I heard the first part of your question is sort of what's driving our positive outlook with business sentiment. And the reality is, as permits are up 5% year over year. So we know there's dry powder and our customers' capacity to draw. And there's active dialogue with a number of customers across the number of industries, obviously have a strong attachment business. We have positive outlook on that. We'll wait to see with the private equity market does probably rate dependent, but we know that they'll be interest in a variety of projects and opportunities as we move through the year and in the amount of time kind of goes along.
The second part of your question, Manan, and mix may be I repeat it?

Manan Gosalia

So it was just if tariffs were to impact that outlook.

Christopher Del Moral-Niles

And as point in time, as we look back over the last eight years, the overall growth in the balance sheet, both on the loan and deposit side was favorably impacted by both the introduction of tariffs and the extension of tariffs under the Biden administration.
And so the reality is at this point in time, we don't have a reason to believe it will have a material impact. Obviously, I think we're all waiting to see what tariffs ultimately come to pass based on what we've seen so far. And there's a flooring business in order. So I may have missed some.
We don't expect much at this point in time. But in any case, our customers have had eight years on their own to prepare for these. Many of them have we are going their supply chains. Many of them have prepared themselves for the expectation here, tariffs. And so the reality is I think many of our customers have taken a proactive stance to managing their business and we're being supportive in whatever way we can. But that's for a politician to decide where they land on that were just to support our customers.

Dominic Ng

I just wanted to add just on the record and for the last eight years, East West Bank did not make any kind of M&A activity, acquisition and whatnot. And but we were able to grow our deposit at an annual growth rate of 10%. And on the deposit side, coincidentally, we also were able to all our deposit on an annual basis at 10%.
So we actually pretty much all grew most of our competitors at our peer group while we've not even use any kind of M&A activities to supplement that. So and that's kind of like as give you a pretty good perspective that up can have more tariffs world, how global tariff, whatever wildly somehow east-west, and we'll be able to figure out how to navigate.
I really think that at the end of the day, it gets back down to knowledge and expertise and recognizing where the path that East West should take and to appropriately find ways to grow organically. We've done that for the last eight years, and we'll feel very comfortable that in the next four years, we will be able to find ways to continue our successful growth.

Manan Gosalia

I appreciate that. Thank you.

Operator

Ebrahim Poonawala, Bank of America ML.

Ebrahim Poonawala

Good afternoon. I guess maybe first on just commercial real estate. So how do you comments on loan growth? Remind us what we should expect on CRE loan balances? Are those drawings? Are they going to be running off? And that's probably the netting out in terms of your loan growth guidance and if rates remain where they are in the coal moves down by another 30, 50 basis points here in the early book.

Christopher Del Moral-Niles

So Eb, if you look at the last quarter of last year, total CRE balances are actually down a bit over both periods and we are focusing on growing our C&I and residential. And yes, we expect CRE growth will be more muted as we move forward. From a credit risk perspective, I think we would say we have a very strong credit profile and book. Obviously, lower rates helps many of our customers in that space. Higher rates would hurt. Some of the good news is as the pages in the appendix of our materials. So our LTVs are such and our average loan sizes are such that in many cases, a small rate impacts will have no impact or keep in mind these customers were paying when rates were 100 basis points higher. They won't really have that many issues.
We hope as we move forward and in any case, we're working with our customers to make sure we are ready for whatever changes they face and help them through.

Irene Oh

EBITDA was also specifically an answer to your question. I am hopeful that kind of modest increase in long-term rates will impact silos in our portfolio. That was how to the short term.

Ebrahim Poonawala

Helpful. Thank you. And I guess just a follow-up, Chris, to your point about on a dollar basis, I think you mentioned revenue should expect to exceed expenses going up this year.
But given sort of this preparation for cash for other investments you're making is the efficiency ratio generally trending?
I mean, again, it's best in class status today, but I'm wondering, should we be thinking about it in terms of the efficiency ratio, maybe drift higher over the next few years?
Are this is just limited to this year in terms of the guidance?

Christopher Del Moral-Niles

If we look back over the last several years, it's been growing at a faster clip.
So I think the reality is we're acknowledging the pace that we've been on for the last several years and expecting 2025 won't be materially different.
We have a long-term vision for investing in the platforms and people's to make us the bank.
We want to be we're going to get there.
I don't know that that means of change anything about our long-term philosophy about being best-in-class efficiency.
And I don't expect it to materially change the average exactly what we've been on for efficiency over the last several years, we've been able to grow, make the investments we needed to make and deliver consistent profitability over that the last decade plus last three decades under David's leadership, I think we can continue that for several years ago.

Dominic Ng

Let me add by saying that, you know, obviously for us we would pay more attention to return on equity, return on asset earning per share growth, et cetera.
Efficiency is one of the components that we obviously have it available to share with the public is not for me as a high priority.
Let me put it this way.
The reason I say this is that all while we are growing will continue to expand into all the price product and fee revenues.
And when you change the business model gradually, Esaase would never do anything dramatically.
So we don't have to worry about that.
That's why you see our consistent and high performance year-in, year-out quarter after quarter record breaking out the record-breaking.
So you wouldn't have to worry about suddenly we call pivot to a direction that's shocking, everybody.
But while we had not to go into that direction, you may notice that we keep it calling now these record fee incomes for of management, record fee incomes for cash management, fee income, foreign exchange, et cetera, et cetera, by is that we will continue to build our capabilities, our talents and continuing to acquire more clients that will actually up utilize these products that generate fee income for us.
While we're doing that, I think the expense ratio will be different and a predominantly loans and deposits shop by.
So the key really come back down to.
So we thought actually diversifying that income stream.
What does that mean?
My position is that we know exactly was the healthiest way to go East West Bank balance sheet and our P & L.
And we understand how we should look at our performance comparing with our peers.
And as long as we continue to outperform our peers and fit into the top quartile with good.
So that's the reason why I look at is if the efficiency ratio level from 36, 40% are not a big deal.
And quite frankly, right now, it looks ridiculously low right now.
So I'm not too worried about it.

Ebrahim Poonawala

Very clear. Thank you.

Operator

Timur Brazilier, Wells Fargo.

Timur Brazilier

Hi, good afternoon.
I am just looking at some of the loans that were affected by the wildfires from just remind us of the insurance requirements for your SFR book specifically.
And then maybe just walk us through kind of the time line of insurance collections and what the obligations Thank might be to the impact of borrowers and so on.

Irene Oh

A great question, Timur.
And as we look at the exposure and a lot on, I can also say affirmatively that all impacted properties on are covered under hasn't.
I hope that adequate all we've gone through this in the past as well.
I had mentioned, I think the wildfires, let's say, in 2020 or beyond, you have at the end of the day, the track record that we have is we really don't have much impact because we make sure that the housing issuance and they're placing placed on the property.
The LTVs are low.
Borrowers have enough equity to EBITDA of.
But realistically Steve can take time and also especially for mortgages, consumer loans with our people live in these home.
This is certainly something that we will accommodate our customers' end.

Timur Brazilier

Okay. And then maybe this is hard to kind of frame, but just looking at the impact on the small business side and potential CNI impact, how do you start to frame some of that potential disruption?
And maybe what are some of the expectations for East West to participate late in the recovery process?

Irene Oh

Yes, great question at first blush, as we're looking at our portfolios, this review also included commercial and industrial loans of five businesses fall or located in the impacted areas are businesses that might have had collateral in malls impacted areas.
As you know, we have any C&I loans were all the Apama analyzed all of the day.
Any unplanned told one related to the actual business sort of unlock correspondent.
We're very comfortable and those factors are included in the mineralization there, small businesses that impact your number one, we are reaching out to the customers to get that information thus far.
I saw it again, small business owners are part of the community.
And if there are things that we need to do to accommodate, we'll certainly look at that.

Timur Brazilier

Great. And then just lastly, at how do you want to add?

Dominic Ng

There are substantial assistance coming from of federal, state and local government.
And so I mean, obviously for small business, no SBA south there, you know how ready to stand by for relief and then female, et cetera.
So just a it's not only East-West that we are more than happy to provide flexible solution to accommodate all of our small business customers, but also that since Alba out there plenty of all of our resources that I'll be ready to support these out customers that are impacted by the wildfires.

Timur Brazilier

Great.
And then just last for me.
Looking at them at the end of period balance versus the average on both are up and the period, obviously up much more.
I'm just wondering, does all of that stick around until the first quarter or some of that end-of-period growth in DDA transitory in nature?

Christopher Del Moral-Niles

For sure. We have some year end transitory deposits, but I think we draw comfort from is as we sit here three weeks into the quarter, our DDA mix seems to stabilize where we are, and we think it probably is on a positive trajectory as we move forward.

Timur Brazilier

Great. Thank you.

Operator

Ben Gerlinger, Citi.
Please go ahead.

Ben Gerlinger

Hey, good afternoon to everyone.
It's kind of follows on from a low sequential, we think about just the CD repricing are nowhere near your special has already started earlier is actually next week.
I'm pretty sure you have sort of hydro off.
I think it was mid quarter, certainly favor.
Just kind of the net impact outside it's kind of loans and deposits.
I guess you're saying, can you give us some color kind of what you're expecting margin might be for 1Q 2Q just because we wanted to have so much noise in it?

Christopher Del Moral-Niles

Yes.
I mean, I think the short answer is it'll get better.
So the reality is we don't expect much if anything on the rate action side in Q1.
We set out the forward said, we know the hedges are rolling off and we know that we're going to replace some deposits still lower.
So all of that's positives.

Ben Gerlinger

Got you. Okay. That is helpful. And everything else has been asked and answered. So appreciate your time, sir.

Operator

Chris McGratty, KBW.

Chris McGratty

Great, thanks. Hearing the slide 13 on the expense guide, is the starting point dollar like this gap ex tax credit or the adjustments for kind of one-offs that happened during years longer than a starting point?

Christopher Del Moral-Niles

There is a small. There was a small amount out of SVICE.
So I think we're focusing here on the operating knowledge expense line.
If you look at slide 10, the some of the press release tables that number as the base and that includes the efficacy land.
But obviously, we don't expect any FDIC special assessment as we look forward.
So that's sort of a baseline for you folks up.

Chris McGratty

Okay. And then within that, the could you help on the tax amortization that's that's backed and are baked into that guide?

Christopher Del Moral-Niles

So actually the taxation Next line below that.
So that's why we focus on the operating noninterest expense growth.
Another important element in place.

Chris McGratty

But for 2025, I'm just trying to get the rights amortization done in the adjusted line?

Christopher Del Moral-Niles

I'll probably be closer to what I didn't specifically guide on that.
I mean, our tax rate will be in that 21 to 23 range.
But we don't think tax amortization is poised to move or be as volatile as an investor.
That's part of why we adopted the PAM accounting we adopted and you're going to be a more normalized number in the range.
This was 2024. on the actual investment made, but it will offset in the tax plan.

Chris McGratty

Understood.
Okay, great.
And then I'm going to have on the capital.
You kind of capital use commentary on, are there any businesses are from non-interest income opportunities that you would consider to diversify the revenues and deploy some capital?

Dominic Ng

Anything that we will consider, but it's a high bar.
The recent news that we've done pretty well for the impact of the last 10 years, we have made an acquisition.
And so the way I looked at it is there anything that we wanted to do in terms of inorganic growth related to some extent, while we nearly have can have a positive impact to the balance sheet and or possibly even P&L, that the challenge is a distraction from our focus of running our business.
We've done really well and what we'll end just focusing on growing organically.
So that's why I'd say it's a high ball.
It would not be easy to find these potential acquisition, I think is a lot easier for institutions will find an acquisition target when they have no ability to grow no ability to generate business.
And then the easier thing to do is go pay somebody and then cut all the cost side.
So for us, that's not what we did.
We could actually growing business in Malaysia banking.
So in that standpoint, that's what the high vol mix it up.
Now what I call highly likely that we'll find the opportunity, but obviously stay we are out there, you know, keeping our eyes open.

Chris McGratty

Great. Thank you.

Operator

Gary Tenner, D.A. Davidson.

Gary Tenner

Thanks. Good afternoon. I wanted to I wanted to ask about how you're thinking about just a real balance sheet growth as your you gave the guide on loan growth, but you've got at least a part of FHLB offsetting that, I think, matures during the first quarter and the Lunar New Year special.
So how are you thinking about utilizing funds which were able to have a pretty good growth quarter on the deposit side? Would you use some to condemn FHLB or would you plan to roll that each other?

Christopher Del Moral-Niles

So I think we're I think we think about our balance sheet growth because of the desired end state of being here always to support our customers first and foremost, with whatever their borrowing needs may be and always have that liquidity in the funding to make that readily available.
Second, we'd look at opportunistically continue to manage and invest and liquidity levels. We think those are pretty strong right now. So that's not the incremental thrust at the moment, but we'll continue to evaluate that with changing market conditions. And then yes, the pay down our other higher cost borrowings or other higher cost deposits within our portfolio. And so as we sit here today, we're optimistic that we'll get good traction on the lunar CD special.
And as that produces additional excess funding beyond our borrowing growth will certainly be looking at how best to join us.

Gary Tenner

And these are at how much of that of the floating part of the FHLB matures in the first quarter.

Christopher Del Moral-Niles

There's $1 billion that comes due later in the quarter, and we'll have the opportunity to see how much we've gone but paydown or will that perfect.
Includes only has to time that actually is to make sure we may have time to maturities to make sure we have that flexibility around the time of our expected to see the campaigns.

Operator

This will conclude our question and answer session.
I would like to turn the conference back over to Dominic Ng for any closing remarks.

Dominic Ng

I'd just like to thank everyone for joining our call today, and we are looking forward to speaking with you in April. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.