East West Bancorp, Inc. (EWBC) Earnings Call Transcript & Summary

We can go ahead and get started. Next up, delighted to welcome from East West. We have CFO, Chris Niles. So Chris, thank you so much for being here.

Delighted to be here. Thank you for having us.

And maybe just to kick it off. Obviously, you provided a bit of an update last night, give us -- so if you don't mind running through it with regards to what you're seeing in terms of the trend so far this quarter.

Yes. No. So I think the -- largely, the year has kicked off as we expected. And I think as we communicated in our January earnings call, we expected to see transaction levels in commercial real estate in particular, take a bit of a pause. And we continue to see that, and we continue to expect that to be more muted from an overall growth perspective. So I think that's part of the dimension. Additionally, we would say, as we've looked into the first quarter and the RF data is that we saw probably higher levels of utilization going into year-end and at December than we're seeing here early in the year. So there's often a paydown event in January. We saw some of that pay down happen. And so both CRE and C&I will likely be slower than the 3% to 5% that we have guided for the whole year in the first quarter. We're continuing to see residential growth and we'll continue to fund that growth as we see it, and that continues to come on at a good rate and level. But those elements of growth that we largely projected are coming a little bit slower in Q1 than the full year guidance, and that we would further follow up on that and say, given that we have more capital than we needed. And as we said previously, we don't think warehousing capital is the right answer. We think we have a strong capital base but incremental capital can be used opportunistically. And so the other update is that we repurchased 1.2 million shares so far in Q1.

Thanks for running through that. I guess maybe just to double-click on some of those -- on loan growth, if you take a step back, give us a sense, if you look through the 3 buckets around one, your appetite to lend into those and the customer sentiment, customer demand, what's driving or what's kind of prohibiting customers for taking down loans or making investments?

Yes. So I think maybe I'll start with the broader, Dominic has talked about an ideal 1/3, 1/3, 1/3, and you like to see sort of 1/3 of the bank's loan book in C&I loans, 1/3 in CRE and 1/3 in residential. And right now, we're over-indexed on that 1/3, 1/3, 1/3 in the CRE at 39% or so. And so really a part of the goal over time is to continue to grow the residential and C&I books at a slightly faster clip and slow the effect of growth in CRE over time. Now a good portion of our CRE portfolio is in multifamily, which has been a wonderful asset class. But there's lots of other buckets of that, and we're kind of looking collectively and saying, we're going to slow it, how do we slow it and how do we manage that to more balanced portfolio overall. Second part of that is the reality that we're seeing, which is that there's a fairly significant gap between buyer and seller expectations in the marketplace, which is contributing to less volume of real estate transactions. CRE transactions in particular, then you would expect, all things being equal. And that disconnect, we think, clears either because nothing changes for 2 years and people have to or because the rates take a step downward and arrive at a level where transactions can clear more efficiently perhaps later this year. And so we're -- in the meantime, not expecting to see a tremendous uptick in CRE volume, which we're not seeing. And so when we think about the 3 buckets, emphasis is on continuing to meet our -- the needs of our residential customers, particularly with our targeted solutions in a high down payment product set that we think resonates in a lot of our markets and through a very relatively low cost distribution, which is our own branch network, and that seems to work really well. And then secondly, to focus on C&I opportunities as they present themselves.

And I don't think you meant this, but I'm just wondering, is the construct around 1/3, 1/3, 1/3 change? Like just over time, do we see CRE diminish relative to the other 2?

Yes, I think the emphasis is on building out over time the other 2. And so it's not that we won't grow CRE. It's just that our goal would be to grow C&I faster and grow residential faster to get to more of a balanced place over time. We're not trying to get there in any particular time frame, but we think a more balanced portfolio over time, we'll see this well.

Makes sense. And just on the residential mortgage, it's been a very strong category for a long, long time. Just give us a little bit of flavor of what's driving that demand. You said it's coming from the acquired through the branches. But just where is that constant demand coming from? And what are the puts and takes that drives growth there?

Yes. No, I think the bank was founded to meet the needs of Asian immigrants a little over 50 years ago and that was one of the core initial products, right? So you come to this country. You come looking for a better future for your family and part of American dream is a home and we facilitate those for those that can come up with basically half of it, we'll facilitate the other half. And that's worked out really well for that subset. We obviously do the broader across-the-board lending, but that's a key component of our portfolio, and that's the part that continues to see growth and opportunity. And the extent that broadly speaking, I think Asian immigrants will represent the largest portion of immigrants expected, at least over the most horizons according to census and PU research and other places, we'll continue to play a role in helping those people achieve the American dream.

And moving to the third piece on C&I. I mean, obviously, there's been a focus on some of the industry verticals. Just talk to us around when we think about where growth is coming from, or likely to come from this year, are there any particular verticals driving that expectation?

Look, I think the bank has done a really nice job in the media sector. We just hired a gentleman as new Head of our media team from a long-standing Beverly Hills-based bank that has a strong presence in this that has had some recent issues, and so he was looking for a better home and we were a better home and we're delighted to bring that gentleman on board. And I think we'll continue to make strategic investments like that whenever there's disruption in the marketplace that allow us to pick up key people. We'll also continue to make investments in our general commercial middle market teams because the reality is that's our bread and butter. And there are just literally tens of thousands of businesses stretched across the San Gabriel to Ventura Valley, including the San Fernando Valley and then down all the way down into Orange County. And the reality is we will continue to do our best to make as many of them as we can, and they come in all flavors in all markets. We finance Asian companies. We finance a lot of Hispanic small businesses and micro companies. We finance a range of customers across the entire spectrum. L.A. covers the entire spectrum. And our market -- core market is LA, but we also finance businesses that are completely unconnected to international trade, but just happen to be based there and a good number that also have some component that's import-related, mostly importation of goods and redistribution and selling onward to U.S. consumers in one form or another, right. So a lot of what you buy off the shelf at a Costco or you order it through -- you get ordered and delivered through Wayfair may come from one of our customers or distributors that we support.

I was going to save this for later, but since you brought disruption and when you're talking about the media business, obviously, there was a fair bit of disruption last March in new markets where you -- market overlap, product overlap. We've seen other banks talk about big hiring announcements. But my sense, just talking to you and talking to Dominic has been there's a long runway there in terms of what that might mean for East West. Just maybe frame that for us in terms of given the overlap that you had both market and business-wise, is there an opportunity there that should accrue over time?

We are accruing it already, right. And so the reality is, yes, there was disruption, particularly in Northern California around 2 very large banks. And yes, we saw inbound phone calls and account moves related to that. I think Dominic has been very clear with the teams that more isn't necessarily -- and bigger isn't it the goal, it's not -- more is not necessarily better -- better is better. And so be very selective, be very thoughtful about who are the people we want to bring on from those institutions that will be accretive to our business model. Who are the customers that we want to bring on, right? So there's frankly a lot of, say, private equity capital call line availability in the marketplace for new entrants or people who are willing to take on more. The question for us is, do we really want more? And if so, what size and scale because that can be a very sort of episodic short-term utilization type business, and it's not one that we necessarily see as particularly accretive. And so are there select opportunities to work with select entities that we would think would be accretive to our business profile. They will come with deposits. That will come with some portfolio companies that we will be part of, maybe. Are there lots of ones that we'll take pass on, absolutely. Right. But we have the opportunity to actually think about that and choose, which I think is a relatively rare as often times we find ourselves competing to consider bringing -- how do we compete to win this customer and the answer to that is, yayy, there's 5 guys that want to talk to us, which are the 1 or 2 that we want to spend time on. And that's a different dynamic than we've seen here before. And so I think we're winning on that front. And similarly, I think there were people who if you wanted to hire someone. There was a handful of banks that in this business or that business, where people gravitated towards and maybe East West wasn't there. But now that those banks are all gone, suddenly East West looks a lot more attractive in that relative landscape and suddenly, we're attracting people of a caliber that perhaps was not necessarily available to us in every sector. And that's -- it's nice. It's nice to be in that position.

Good to hear. I guess maybe on the other side of the balance sheet in terms of deposits. I think one of the learnings for all of us was just the speed at which deposits can leave a bank. And revisiting the duration profile, the whole concept of insured versus uninsured, you've done this for a long, long time. Give us a sense of like how this has changed, how you think about liquidity deposit management for bank like East West?

Yes, look I think at the end of the day, some things have changed, but the core hasn't changed, right. The more granular core retail deposits you have, the more stable and stickier deposit base. That's, I think, understood and that's perhaps better understood by more people today given the dynamics of last March. So that's the positive, right? Incrementally, East West has a fair degree of larger and commercial relationships relative to its business mix. It has a very strong core retail base, which is Golden and then it has a commercial base, that has been very good. But it clearly has more volatility. And we saw that last March. I mean there was DDA drawdown, and it was in commercial accounts, and it was in large balance commercial accounts. right. And now we saw it all come back, right, through actions taken into the bank over the course of the year. So was there a drop? Yes, where was it? It was in high-balance commercial and where did it back. It came back in high-balance commercial because everybody got comfortable again. And then we saw $1 billion of deposit growth in the third quarter, $1 billion in the fourth quarter, and we're on pace for another $1 billion here in the first quarter. So the good news is, everyone saw it. And I think it changed some mindsets within the bank and the emphasis and the reason we're seeing $1 billion of core deposit growth is everyone's on board with the idea that we have to grow granular, small business, retail deposits. And that's a message that's completely understood across the bank. I think you asked the call -- a question, I think, on the last earnings call about sort of loan-to-deposit ratio. And I think it's a measure that we're very focused on, and we continue to think that in the low 90s is fine, but we don't want to see it creep higher. And so the reality is the focus is on continue to build the level of low-cost insured retail deposits to the maximum extent possible. And we're going to continue down that path. Are we concerned about the commercial we have? No, right. So when I look through the commercial accounts, one of our largest depositors is a hospital group that's headquartered not 10 miles from our bank headquarters. And is that hospital group going to go away? No, right. It serves our communities, it serves our ethnic communities. It serves the broader market community and the San Gabriel Valley and surrounding areas, there's lots of connectivity between our bank and the institution. It's not going anywhere, right. And so okay, and you keep going down the list, and you get to the battery maker that's selling batteries to Tesla or whatever. And like, yes, that account is not going anywhere, right. We know where the batteries come from. We know where they get sold to. That business isn't going anywhere, and those balances aren't going anywhere, those are larger balances, but they're stable, and we feel very good about that. And we've done that analysis. We've done account by account through the larger accounts and said, do we think this is rate dependent? Do we think this is at some level, all deposits are reputational dependent. And so when we think about what are we going to do? We're going to make sure that we take the right steps to drive more granular deposit growth, and then we're going to take steps to ensure that our reputation doesn't get challenged, right? And we don't see that as things that could challenge your reputation, a cyber event, right. Okay. Let's make sure we don't skimp there, and we fully invest and we're as robust as possible. That in fact cost us a little more, and those people are expensive. Dominic is not a person to willfully spend money, but he'll invest money in resources that defend and protect and grow the franchise, and that's one place, for example.

And when you talk about sort of growing retail granular deposits in this environment, some of that comes to offering promotional rates, CDs. Is that the right way to think about it? And -- has that also just talked to us around has there been a revisiting or evaluation of the branch strategy? Are you opening more branches forward? Any of that?

So on the CD strategy, specifically, the bank has a history of offering a lunar CD special, and this is the lunar season, Lunar New Year season, and that has -- that went into our thinking so we price our lunar CD special a little more aggressively this year. We sort of historically have looked around the competitors and said, we don't have to be the highest price. Let's see where some key competitors are priced 5 basis points below them or 10 basis points below them. We sort of took the opposite approach and said, "Let's go out with what we think is the right level and go out early and sort of set price and force people either to price higher or move differently". Now as the year started off, there was a provision for a variety of rate cuts, and there were still people that were in the high 5s on deposit pricing. So we put out a 5.25%, 6 month CD special, which is a very attractive rate still today but it's actually turned out to be higher than most of our ethnic competitors we're willing to go, which has actually just resulted in more activity and more volume and more customers and more net growth than expected, which we think is a wonderful positive across the board. And so we're delighted by the result of that. We're seeing that deposit inflow. And again, we're on pace for another $1 billion deposit quarter growth, largely in CDs this quarter, and we think at a reasonable price point. And 6 months from now, when those CDs come off, we think if the rate environment is lower, then we'll be able to reprice and retain a good portion of that with new money. And if the rate environment hasn't changed for whatever reason, we'll think we would be very happy to have locked that in and continue to roll over at the right price point at that point.

And I guess the one area people struggle with CDs is -- is this really way transactional. You had a high rate, the customer came in. Is this truly a client acquisition tool? Or is there a subset of clients that you're now able to convert to a more stickier relationship or...

So when we do a CD rollover analysis, and we do this for all kinds of reasons, for liquidity stress testing and other things that are part of this equation, we are seeing consistently between 80% and 90% rollover rates on this and so to the extent you acquire a couple of hundred million of new deposits through this process and you think you're going to keep 80-plus percent of it, it's a wonderful customer acquisition tool. And the reality is it's a core part of our deposit portfolio. And when rates went to near 0, those CDs didn't necessarily all migrate away, right? They come down in balance as people were less worried about putting their money necessarily in the CD, but they were happy to leave the money market [ account ] with us. And so those customers, right, if you look at the history of the bank, our deposit portfolio growth over the last 5 years has been 11% CAGR, right. We are acquiring and growing in households and customers across the board and it's worked out well. And we're acquiring them partly through these CDs specials.

And remind me, I'm not sure last, you've talked about this, but around the branch strategy, are we growing branches on a net basis? And if so, what markets?

So we haven't expanded a lot here recently. I think one of the questions we've all seen the announcements from somebody who's opening 500 branches nationwide or something. And I think we're cognizant that the marketplace appreciates. I mean I think -- there's no surprise that larger banks are focusing on well. I can't do acquisitions. I'm already paying a competitive dividend. Deposit growth might slow. Let's invest in retail branches that at least fund some growth that makes sense, intuitively, right? And we're not immune to that logic. And we're thinking about how does that play in, in a world where core retail deposits are more and more important. And so we've looked at our branch networks of a variety of ways and we were speaking to investor group earlier today, and I said, look, we've done a scan where we compared where all of our branches are relative to all of the Ranch 99 and H Marts, which are technically focused markets. And we said, are there markets where they are because they've done their market research to figure out who's going to come and buy their product and where we aren't, because a good number of our branches are within 2 miles of them. So maybe every time they open a new branch, we should be more focused on where those new emerging markets are and think about it. I don't think Dominic is quite ready to start investing in a nationwide branching strategy that's not in -- his cup of tea, but that doesn't mean there aren't incremental adjacent opportunities or because we had this partnership with some of these markets for in-stores that we wouldn't consider upgrading a variety of the in-stores to full freestanding branches and making some colocation event opportunities come to fruition, right. And so we've taken one -- that's 3 miles away plus an in-store, do we move something to a mile or 1.5 miles away from each of them, plug it in middle and create a new freestanding branch that will sort of merge the 2 together. And so we're looking at a variety of combinations of strategies that will likely enhance the network. I don't know that we're, at this point in time, looking to make an investment to grow the network by 10% or something, but we'll continue to look at the network and grow appropriately.

Got it. And I guess -- so we talked about loan and deposit growth when you bring this into NII outlook.

Let me make one more comment. I think one of the things to consider, and I think it's on Page 11 of the deck that we put out last night, which is the new slide is pound for pound. And whether it's per pound of person or per square foot of branch space, East West branches are more productive than almost anybody else out there. And so the reality is there is a high level of productivity from our branches and which is why we look at it very positively.

Why is that?

So I think our market -- our branches today are extremely well positioned in places where our brand resonates with the immediate customer base, and we are able to service them in a manner that has some defensive moat around it, right? So a portion of our customers aren't necessarily comfortable for whatever set of reasons, walking into a U.S. bank branch, but they're perfectly comfortable walking into our branches and conversation, right? And so that accrues for our benefit. Our customer service lines, we answer calls in, it's 11 to languages right? And so we just have a different product mix. I don't think -- no offense to Bank of America. I don't think America answers it's customer service lines in that many languages. I think usually, I call and there's a [Foreign Language] option, but there's not necessarily 9 more after that, right? And the reality is East West serves a broader marketplace that has a lot more variety to it, but it serves extremely well. And those customers are very loyal, and that loyalty accrues and why we have the high customer retention rates and the high balances per location and per employee.

I'm going to dial in to see what 11 language options are. But just remind us in terms of the NII outlook, what were the assumptions around rate cuts? I think you assume at the start of the year. And more broadly, like how sensitive is that NII outlook to 2 cuts or 0 cuts or 4 cuts?

Yes. So I think we said we're expecting the year end yield curve, which had for the sake of our -- forward curve, for the sake of our -- and we had about 6 cuts into it. And so we said 4% to 6% NII shrinkage with that. And so to the extent there are less, there'll be less shrinkage in NII. We further said that we thought it was about $1.5 million per month per cut. And so to the extent that cuts are delayed a month, it's $1.5 million more, to the extent are delayed for 3 months, $4.5 million more, et cetera, to the line item. And then, of course, it scales if the first 2 cuts are omitted, then it's perhaps $3 million in that fourth month or fifth month of the analysis, right, it's stacked. I think the dynamics that we called for on the margin where we'd see, call it, 5 basis points of downdraft in the first quarter, driven by 2 factors. Factor 1, the continuing trickle out of DDA and very low cost savings in money market into higher-priced products. People walk into the branch. They see the 5.25% CD special. They see 4.18% liquid CD, they say, "Hey, wait, my money market is only paying 2%. Can I move it to one of these 2 products?" And there's an option that we can facilitate. So the money doesn't leave, and we will, right. And so that just happens. I have excess in my checking account, can I put $50,000 over here? Yes. They don't get the 5.25% rate maybe, but the -- or maybe $50,000 they do, $25,000 they don't get it, and they get some other rate, but it's still significantly higher than 0, right, and so that trickle is going to be part of it. The second is the BTFP program was a wonderful program. East West participated in the program last March. That marked that program comes to an end in March, and we're going to pay back the $4.5 billion. We'll pay some of it back out of cash. We'll pay some of it rolling over into some other Federal home bank or other borrowings. But the reality is the cost is going to step up on us, right? So we had it locked in at 4.37% or something and going to step into a 5-plus percent rate, and that will eat into our margin beginning in March and will be a net drag going forward. Now we're garnering new deposits, and we've got slower loan growth. And so therefore, we should produce more deposits than loans. And therefore, we should be able to pay some of that from organic customer resources. But if the marginal rate of acquiring customers is flat in a quarter, then that's our marginal cost of funding. And that's the bogey against the 4.37% that we're paying, that's a negative, right?

And just very simplistically, 5.25% is the marginal cost of funding, what's the asset yield or loan yield that's coming on? I'm just wondering what's the incremental margin today?

Yes. So I mean, as we sit here today, the residential mortgages are still coming on with [ 7 ] handles. Okay. And so those are still positive, and there's not a lot on the other side. But most of our commercial loans are in the SOFR plus 2.25% at the thin, 2.75% to 3.25% small business is still -- basically prime-like, even if it's not tied to prime, it is basically priced like prime at 3.25% over. So there's that range there where commercial stuff comes on. But again, that's slower here in the current environment than in other environments. But we're replacing at least the cost of funding at a cost below other wholesale options.

Sounds like the balance sheet is asset-sensitive outside of the BTFP phenomenon and that hitting funding costs. Are you doing anything to kind of neutralize that asset sensitivity and prepare for rate cuts eventually?

Yes, we have $4.5 billion of swaps on the books. Roughly -- a good portion of $2 billion or so are forward starting. And those are trades that we put on last year in the fourth quarter -- the third and fourth quarter. And those are, as we said here today, all in the money, right. And so those are the trades. The other half we put on before that, and they've been out of the money. But nonetheless, the reality is every step down, we're going to see positive incremental benefits from those trades, which today are costing us agents in the market, I think the answer is about $25 million a quarter. She's nodding her head. So the costing us today as rates set lower, they'll cost us less and the reality that there will all be positive cash flowing if rates get much below 4.

Will they put that before they hired you...

Sorry?

I said they put those trades on before you join the banks.

Yes. The last couple I put on when I joined the bank, I am glad to be part of those.

And just very quickly, a couple of topics. One on credit outlook. Give us like -- of the ACL at the end of the year, what did you assume in terms of losses and the macro outlook? And what are you seeing just fundamentally in terms of just how credit trends are migrating?

Sure. So under CECL, we're using sort of a Moody's version, so we're all Moody's model dependent, but we take a look at sort of their base case and then also some of the stress alternative scenarios, this [indiscernible] as I call it, right? And so we're taking a mix of those 2. And the reality is we all expected to see a softening in slower economy, right? The sort of #1 bullet point on our guidance page is we expect the soft landing. And what a soft landing means is slower growth, yes, and we're seeing that. And some incremental credit events, right? So we had 9 basis points of net charge-offs last year. That number is too good to be -- to sustain. It's true, it's just too good to be sustained. And so we called for 15 to 25 basis points in net charge-offs as we move through the course of the year. We had 15 basis points in the fourth quarter. And we wouldn't be surprised if it was sort of in that ZIP code here earlier in the year and migrating higher through the year. To the extent there are no rate cuts will probably trend to that level or higher because there'll be incremental stress in some sectors, to the extent there are rate cuts, we feel pretty good about that outlook. But that does still means a higher level of provisioning likely next year, this year, 2024, than last year 2023, where we booked $125 million of provision and os it will be some level higher than that.

And I know these are small numbers, but the 15 to 25 basis points are there pockets of C&I, CRE that's driving -- are expected to drive those higher losses?

It's interesting. There hasn't been a cross-sectional view that points to any particular trend, right? So it's an importer here, but we have 3 other importers that do this thing, and they don't have any issues. So it seems more company specific. Did someone lose their contract with Costco and someone lose an order at Walmart. And therefore, there's having an issue, but it's not -- we've got a bunch of furniture guys, a bunch of lamp guys, a bunch of frozen food guys, one of them and each of them is having some issues, but not across all of them, right, so...

And maybe, Chris, if you don't mind spending some time on the CRE book, where I think the issues in the office CRE will understood, but talk to us about your office CRE book as we think about [ higher for longer ] rates, the implication for the rest of the CRE book or some pressure on the borrowers.

Yes. So I think our CRE is a suburban sort of almost by definition, Class B and lower book. I think Adrienne went through the entire list of credits over sort of individually with pictures and one of the services that just like validate this and make sure we could all talk -- there's only one of our portfolio that is a office story that sort of meets the definition of a tower, it's 13 stories and includes a parking lot, which is part of the valuation in a central [indiscernible] . So the reality is we're talking about loan sizes. I think we have no loan over 55 -- no loan over 60 for sure, and it's really kind of in that mid-50s level. And then even in that top tier, I think we talked about -- there's a handful of loans in our highest bucket of [indiscernible] and we scale down rapidly from there, right? So our average loan likes are below most of our industry peers. And we're not concerned that there's a significant people aren't commuting into their Manhattan office issue that were their San Francisco office issue or their Downtown L.A. office that we're worried about. People are still commuting to that 3-story building in West Covina or in Riverside or in the San Fernando Valley, and that's okay, right. The nature of those smaller businesses is they usually expect the people to show up a little more often than perhaps someone in some tower downtown. And we see that in the broadly generalized occupancy. Someone asked us, well, can you show us? The answer is, well, no, we don't have it. So I can give you a chart that shows you the occupancy, by tire, by place. But the reality is we see it, right, because there's still traffic on those streets and we drive [indiscernible] streets on our way to and from our offices, except for that walk. But broadly, we're seeing that core middle market 3, 4-story office tower -- office building stay very well occupied and very well utilized and we don't see the issues the way you see them in some [ CBEs ] and we're not exposed to [ CBEs ]. So we think our relative rate, I think there's another large bank headquartered in California, One. And if you look at their portfolio, and they do their CRE analysis, they break it out in sort of the smart portion underwritten by their investment bankers, and they've got a giant reserve on it and then the other portion, which we think is probably more comparable to our suburban office and the reserve is almost identical to ours. So assuming that bank knows how to do reserving and then they have a CECL outlook that's similar to ours, then we think we're in line with office reserving levels given the outlook and the portfolio that we have.

That's good for sure. But -- and beyond office, when you think about multifamily or multiuse retail hotel, just talk us like any pressure points or any pressure points as we look out into next year, if we don't see a big relief on rates?

I mean my one thing noticing is hotels seem to be really highly booked in lots of places. I'm surprised it's -- the post-pandemic hotel booking dynamics seems real. So I don't see that emerging in lots of places. Are there pockets? Yes, I don't think San Francisco hotels are back to where they used to be. We have some exposure there. So far so good, but that's -- there's some exposure, right? And so I think there's exposure, but it hasn't bled through yet in any way.

Maybe just lastly, actually, 2 things. But maybe first, remind us on expenses, East West for those of us who followed it for a long time, extremely efficient bank. Remind us in terms of, as you think about incremental dollars of investments, are there still areas where you're accruing savings and getting those to reinvest? Or how should we think about what the organic expense growth profile for the branch is over a medium term?

Yes. So I think the structural benefit of the very efficient branch network we have is real. And so when I think about the efficiency, it's really driven by the fact that pound per pound, we garner twice as many loans and deposits per employee and therefore, our efficiency ratio is that much lower than many banks. That's just -- that at core. Where do we need to invest? We need to invest where everybody else is, we need to invest in cyber, we need to invest in digital, we need to invest in broadly technology that further allows us to scale that network without necessarily scaling branches and people at the same rate. And that has been investment dollars that have been good investments that we've made. The bank has basically developed its own mobile front end, and that's worked out wonderfully for the bank. The bank has invested in some incremental development for its customers and those unique developments have been very effective at yielding new deposits or new solutions for our customers. We can do some more of that sort of core development ourselves, but we also know that there's solutions we can plug in from other vendors that will accelerate our efforts, and we're doing so in a variety of ways, right? And so foreign exchange is an important part our business and our fees. And we didn't have a slick mobile offering. We'll have one later this year. And so those are kind of solutions that we know we can incrementally introduce that are out there. We don't have to build them ourselves. We just integrate them in a more effective way. Nobody wants to have a third bank app on their phone, right? So if you can integrate it back single sign on and all that stuff and trade, foreign exchange, that's a solution that isn't part of the standard Bank of America, right? And so it's a differentiated solution that we can offer. And for some portion of our customers, that will be interesting.

Got it. And broadly, we don't talk about fee revenue as often with the bank. Is that an opportunity? Or just given your clientele where you see your areas of strength, you don't see a ton of runway and the need to invest on [indiscernible] fee revenue.

No, and I would say it differently. So I think the reality is, we have a clientele that keeps higher average balances and therefore, doesn't produce overdraft fees, right? I mean there's less than $1 million of overdraft fees for this bank. Think about that. You got $70 billion bank with less than $1 million overdraft fees, why? Our customers hold balances, right. And therefore, we produce probably lower deposit revenue deposit account revenue, et cetera, because they all exceed. We tell them they have $10,000 nominal balance, they all keep $40,000 right? If we tell the $25,000 minimum for this, they keep $100,000, right? It's great. But we don't collect fees, right? And so the real opportunity is on the commercial deposit side, right? So the commercial deposit side, what we call Global Treasury and Transaction Services, our GTS team is the opportunity set that we see to introduce incremental things, right. And what are the incremental things? It's additional reporting solutions because the reality is our customers perhaps aren't as used to the full suite of options that someone might get from Bank of America corporate team, but we can offer those solutions, right? And we need to basically in part introduce them and in part, sell them on those solutions have been value-added. I think there's incremental security solutions that some of our customers haven't taken a -- haven't availed themselves of because they have issues. But with business e-mail compromise with checkfrauds that are sort of more easily to perpetuate today than ever before, a lot of the services are more relevant than ever, and it's easier to sell them on. All it takes us one bad check hitting their account and they suddenly realize, "Hey, don't you have something to help this", "Oh, yes, we do." Here's -- 2 different things that you could do to make that less likely. And I think those services are resonating and we'll continue to make progress on those. And there's a broader set of our customers where we play a part of their relationship but we think there's opportunity to penetrate more of it, right? And so there will be treasury sales that will be an important part of the mix and foreign exchange and swap business, right? And those have been contributors to our business here and both of them continue to grow, and we continue to see positive dynamics in both. And to the extent that we continue to facilitate importation of goods, which is part of what we do, right, trade finance, you want to get something off the shelf at Costco, Home Depot or otherwise comes from Asia. There's a possibility that we played a hand and getting it there. But then the portion of those funds get remitted back to somebody that's either the manufacturer or the agent or perhaps the same company back in Asia, and that has to go through some foreign exchange process, and we help facilitate those transactions as well. And we collect our small stake on that and facilitate that business, but that's many profitable growing business. And as long as the importation continues whether it's from China or Vietnam or Malaysia or wherever, as long as there's somebody buying something off the shelf that's coming from Asia, we may support it in one way or another.

Got it. I guess just one last question around capital field. Give an update in terms of buybacks. Just remind us if there's the right way to think about the appropriate level of capital for East West and how you're thinking about just the pace of buybacks as we think through the rest of the year?

Yes. So I think we have what we see as an appropriate level of capital. We don't necessarily see a reason to warehouse more, and we will be opportunistic as we think about buying back. We were opportunistic in the fourth quarter. I think it's fair to say we've been opportunistic in this first quarter. There was some disruption, some bank in New York had some issues and the market sold off and Dominic thought it was a great time to buy, which we did. And we'll continue to be opportunistic as we move forward.

And so you haven't been particularly acquisitive but you've been opportunistic when it comes to M&A. Over the last 10, 15 years, is M&A really on the radar right now in terms of -- is it of interest or just there are too many macro and regulatory uncertainties to step in?

I think it's challenging. I think we have a differentiated client and business profile. And one of the challenges is if we were to meaningfully acquire something that didn't share that perspective, it would dilute to a certain extent, some of what makes East West special and perhaps contributes to its profitability profile. It would require us to integrate a different cost profile, structure, perhaps, et cetera, et cetera. On the other hand, there aren't that many things that line up perfectly well with East West that would make sense to bring in that would share that affinity and that dynamic. And so I think there's limited landscape for things that make sense. But we are not in all the target markets that we could be. And so could there be a targeted as Dominic has done in the past, right? A targeted smaller institution that tucks in that helps us meet the needs of a different market possibly. But it would -- I don't see us moving the needle massively through additions in any meaningful way, unless it's an incredibly rare opportunity.

Got it. With that, thank you, Chris.

Thank you. Appreciate it. Thank you.