East West Bancorp, Inc. ($EWBC)

Okay. Up next, we have East West Bank, and I'm delighted to have with us today, Dominic King, Chairman and CEO, Dominic, thanks so much for joining us.

Thank you. Thank you for inviting me here. .

So Dominic, one part of the environment that you did want to bring out, just given that you have this unique vantage point into both the U.S. and Asia Pacific economies what do you think investors may be unappreciating about how the relationship between these 2 large economies is evolving over time? And what does that mean for you and your clients?

Well, at East West Bank, we've always been proud to be that financial bridge between the East and West. Really, we are talking about U.S. and Asia Pacific. And, in fact, it's been decades. We've seen that the ASA Pacific region has been growing in a much faster pace than the rest of the world. And U.S. being the largest economy in the world, obviously, everyone wanted you trade our investment with U.S., particularly that U.S. currency is really the most powerful currency ever. And I don't think that sort of business in any way, slowdown. It got detoured into maybe some particular industry such as we talk about these very high-end, sophisticated, semiconducting chips or maybe most innovative life science type of business, there may be some issues that prohibit the Asia Pacific from investing in U.S. The reality is that investment keep going. And so we, as a bank, they have spent decades of building expertise in this area. And also, fortunately, the vast majority of banks in the United States really don't have much interest in sort of understanding the potential in that region and that helped East West tremendously because we don't really have much competition out there when it comes to competing with our peers in the banking industry because the domestic market in the United States is so big. And everyone gets busy working on most of the domestic business, and we have the entire line of opportunity, wide open for us, and we continue to benefit from it. And our cross-border banking business continue to stay very strong. And we continue to -- as you see, what our financial performance have been continuously doing really well, and we've got record earnings after record earnings, not because of we're taking sort of unnecessary risk and whatnot is really coming back down to we have a unique value proposition and have a very unique business that at the extra, what I call the extra gravy on top to help East West from a above-average performing bank to a top quartetperforming bank, simply because our active involvement with the U.S. and Asia Pacific trade and investment.

Okay. So unique positioning, unique relationships and for your clients, I guess, the investment cycle continues, and there are capital flows but maybe just bringing it a little bit more, net the geopolitical environment. There's always been some concerns along the line, but maybe the concerns are a little bit more elevated today. What are you hearing from your client base?

Yes, I think -- I mean, a good example that you're talking about is a U.S.-China, that competitive environment, the largest economy versus the second largest economy, and they are both spending enormous resources on AI and from the technology side and building up the economy and whatnot, there's that competitiveness out there. And banks like us, that understand the dynamic so well, we know how to navigate. And a good example would be if I looked at from a perspective of what I talked about earlier. Obviously, we're not going to be actively engaging doing banking with a, let's say, the Chinese companies that are actively involved with AI to drones and so forth. But then there are a bunch of business in China that are actively engaged in consumer brands -- in fact, they continue to come to U.S. and acquire consumer brands and continue to expand the business and because so many of those businesses in Asia are now looking at markets beyond their territory and where is the best market, of course, in the United States because this is such a huge consumer base here, right? So many of them are acquiring consumer brands in U.S. And here we are, U.S. East West Bank are there to support them. The other part will be you look at students. As much as we hear a lot of noise, headline news saying that U.S. are not granting visas to foreign students and whatnot, there's still enormous number of students coming to the United States for their high undergraduate and more so graduate programs because U.S. is the best place for high-level education. And that hasn't stopped. And many of those folks continue to stay in U.S. and photo their career and many of them end up being East West Bank customers. And as the professionals, they're working in the U.S. and later on when they became entrepreneurial, they're also bank with East West. And so we are benefiting from this growing population and the population tend to increase their net worth at a much faster pace and then all indirectly helping East West Bank to benefit from it.

And you can clearly see it in the deposit growth and the expense ratios, which I know we'll get into. But 1 of the things you've spoken about is your ability to follow clients based on how the geographic mix evolves, right? So from the student community, you get in early on the consumer side, but also from the business and commercial side, you can follow your clients wherever they go. Can you talk a little bit more about that and what you bring to the table there?

Well, a good example is that our -- we have a subsidiary bank in China. We also have a food service branch in Hong Kong. And a lot of our clients in U.S. By the way, you look at our balance sheet, like 95% of our assets, deposits based in the United States. And the fact is -- but we started identifying these clients or prospects even when they start thinking about, okay, how do I expand in the United States, and we've already been working with some of these folks, they're in Hong Kong and so forth and helping them to make sure they set up their business properly in the United States. So a lot of these customers that came to United States with meaningful deposit balances and also open the business account in deducting business in U.S. are being guided by our branch managers, by our lending officer, by international bankers and so forth and helping them to reach further in the United States, helping them to simulate and then also form partnership. -- with U.S. partners. And those are the things that we do best. And those values build tremendous trust in the banking relationship that's why oftentimes, people always wonder that how do use East West bank be able to have a cost of funds that will lower the other banks? Or what exactly you do and then was a relationship we say, what kind of relationship -- while a lot of time, it's beyond banking relationship. When they first come to U.S. and they need support, they need help and will provide a lot of services to help them to adjust to DMI. Some of them, as I said earlier, even when they were a student, we start helping them even when they were a student. And then the parents have come over that you take good care of my kit. I'll make sure I take care of your bank, right? So those are kind of things that we do really well. And I've been at East West Bank for 34 years as a CEO, and I looked at it is that when we were very small, we've done that. And when we are now much bigger, we're still doing that. And so far, so good to help us continue to grow organically nicely.

But even on the commercial side, as supply chains have evolved over the past few years, you've been able to follow your clients in different areas of the Asia Pacific as well. Can you talk a little bit more about that?

Oh, absolutely. I mean, for example, I would say, 10, 15 years ago, the vast majority of the manufacturing that support import to U.S. in China. But as the geopolitical issues, shift and many of our clients start manufacture in China and start moving their manufacturing plants to Vietnam, to Thailand, to Malaysia, Indonesia, -- but it's basically the same customers that actually originate goods initially in China, but now start going to these other Southeast Asia countries. We at East West continue to be able to follow that direction and help them and guide them and then still doing business with them. And then the same thing when it comes to tariffs, we're able to help them to navigate to make sure that we stay on top of the tariff issue identify the risk and help guide these customers to make sure that get them through the process. And then to a certain extent, we end up picking up many new clients -- in fact, at the term administration, the first from administration, we looked at it is the first time when we have this big tariff hit to a lot of importers. But the reality is that we know how to help the clients to navigate. And then interestingly enough, many other banks didn't want to learn much about it. I didn't quite understand it. They just look at Anyone got a hit with tariffs must be too risky. -- exit. We were able to end up taking on those clients who are perfectly fine. Financially, they may not be making as much profit as it used to be, but they still solid goal as a commercial clients, and we're able to sort of bring them over. And as you have seen, we've hardly taken any sort of charge-off throughout this whole period of time. And now we're benefiting from some of these clients are getting tariff refund. And then deposits start coming in and said, oh, it's nice. -- big paycheck.

And in the longer term, it does drive the stickiness of the client relationship as well. Dominic, maybe to pivot over to AI. I want to get your thoughts there. First, I guess, how is East West using AI today? And how is that impacting how you run the business? And then as you look out 3 to 5 years, how do you see that evolving? And efficiency ratio is 35%. Can it get even better than that with AI? Could you just talk a little bit more about what you're doing there?

Well, I think AI is extraordinarily powerful. And I think it's going to make a huge impact to society throughout the world. That's a given. And I have tremendous respect with what's happening, and I feel like that it's still very much at the infancy stage in United States, in fact, affecting the banking industry. Now our staff sort of like I start looking at AI as an opportunity to, let's say, potentially on the loan underwriting side when it comes to BSA, know your customer due diligence and analytical assessment or there are many different areas in terms of using AI can dramatically improve the process of handling transaction and whatnot. That, to me, is a given because the technology has proven it can do all of the above. It's just that it will take a bit more time for banks to appropriately apply AI to streamline and make that process more efficient and making sure not to skip too much and end up getting themselves a big problem in operating losses or whatnot. So that's a given. But on the other hand, I looked at it is that -- do I know what's going to be happening in the next 3 to 5 years, I don't have the crystal ball. And the other thing is also my 30-some-odd years in banking, allow me the opportunity to go through that golden era back when Internet was involved. So if I look at Internet in the '90s, I still remember in 1992, but I was the CEO of EastWest Bank. I wrote a memo to all associates. And then I gave it to my secretary, type it up ask her to make 250 SROC copy so that don't really have a mall guy delivered to everybody, right, to the inbox. That's how we work within [indiscernible] to all associates e-mail, type it myself. And that I still remember in '96, there were a lot of talks about -- there will be no more branches in 25 years because digital banking will replace all banking. I never believe that would happen, but I absolutely believe Internet was for real. Now Internet was for real. And today, you look at what we're doing right now without Internet, I don't know how we could do if we can survive. I look at my iPhone is everything is in here, right? The fact is it changed behavior and increased productivity in a big way. It also that whole process sort out a whole bunch of 1 of the equated -- Yes, the Google still stay alive. The Amazon doing great. Mata ris doing great, but then a whole bunch of Petcom e-Toyand all these other stuff, it's all gone, right? So right now, AI is going to exactly the same process. There's going to be a few of them. It's going to dominate. But there is like thousands of these AI companies now hanging around in San Francisco paying high rent they're not going to make it. That's what it is. And then eventually, the AI is going to be getting into our daily lives. That's going to make a big difference. People talk about what robot would do all seen what's happening in China, in the manufacturing plants, robot replace tens of thousands of labors, right? It's already happening. The technology is already there. It's already applying that technology. It's not even it would have been this, it would have been that. So I very much respect that direction, and the East West Bank will take the position is that we will be a quick adopter. -- that will watch out we let them Aman and those guys to do whatever they wanted to do. Elon Musk, do whatever you want to do, right? Whatever they do, -- there will be something that's very applicable for the bank, make sure that some pioneer banks who love to be the first 1 to get there, let them test that, right? After the teste get them with cyber attack, whatever that is. When that's done, I'm coming in, right, coming in fast. And last approach of East West. So what I look at is that what -- of course, we're going to have to spend some money and hiring the people who understand AI and whatnot and then make sure that we beef up our information security area to make sure we don't get in trouble. But all in all, I don't expect East West will be at the forefront to try and to be out there working with those big guns to develop anything. That's not our priority. That's not our job. -- let JP -- more can do that. Yes.

But maybe bring that 30-plus years of experience, and you've seen how the landscapes evolve through various technology cycles. And 1 of the debates that we've been having here is around how genic AI might impact to pass costs down the line? -- stable coin might impact deposit costs. Given your views early on that the branches are not dead, that they will continue how do you bring some of that experience into this debate? And what do you think about it?

Yes. Again, it's the -- my approach is that do not get stubborn and refuse to change I believe I'm a strong believer that we need to constantly be changing and adapting to the new environment. That's what we do at East West -- but while we're changing adopting, we also not get too naive and then start getting so overly excited and exuberant about any new technology come in and he wanted to be the first 1 to get in there because -- my view is that when I look at, for example, what AI would do to the -- how -- to what extent we cannibalize deposit and then mix deposit rate goes up higher because now we've got that AI that comes in and automatically help you to move balances from your checking account to maximize your deposit rate not. I don't get it at -- it doesn't take much IQ. Then I look at my balances. I have too much deposit, I can move it too, right? So this whole idea is about that sort of stuff. I don't think that it's going to be that big of a deal. And again, I'm talking about my long-time experience 20-some-odd years ago. I remember when child swap and Fidelity, started debt sort of like low-cost brokerage accounts, right? We all used to in the old days. I have my Merrill lynch account and I have to pay commission every time I do a trade and the commission was not cheap. And then suddenly, the child swap and fidelity you can sue Internet, you go online, you can do your own trade. We won't charge you much or won't charge you anything, right? And then the money market accounts there actually pay a higher rate. Did I see some outflow. It's not just East West Bank, every the entire banking industry saw some deposit gets set out to Fidelity and child swap and whatnot, right? That happened. The industry overall banking industry shrunk a little, but those who survive, those who continue to sustain, stay pretty healthy. So I looked at it is that AI is going to make some impact. I don't know what it's going to be, what it's going to make some impact. It's going to change the banking industry, it changed the banking landscape. One thing I do know is that it's like a batches, -- we always want faster than everybody else. So -- and that's the that it is when it comes to -- like if you look at it, when I first became sort of like CEO of East West Bank in the there are 13,000 banks and now it's like 6,000 something, right? Down the road, it may be only 2,000. But as long as we always perform at the top quartile good, and that's what we're looking at.

So that brings me to a question on scale. And you spoke about how East West would be a fast adopter as opposed to the leader in deploying some of these technologies -- but how do you think about the impact of scale in an AI world and the ability to invest in these technologies over time?

In terms of scale, I think that we really -- we're always going to be looking at any kind of technology, whether it's AI or whatever else that come in as long as it's going to help the bank to do the work with higher speed, higher accuracy and help us to be more productive. We do it. And most importantly, we'll do it with the perspective about to what extent that would help our customer because East West Bank for ever since I've been involved with the bank. We have always been focusing on. We are a relationship-driven and customer-centric organization. We always follow that sort of a guiding principle, relationship-driven and customer-centric. So whatever that efficiency that were coming from the technology, how does that help these 2? If it helps, we absolutely embrace it and adopt it and put the resources on it. But if it's helping us to be more transactional, helping us to be more internally driven and said, we do whatever we do that may not necessarily be beneficial to the customers that doesn't work for us because our sort of guiding principles have hopes to go from a $40 million market value to today of 17-some-odd billion, well, I think that something is going right. So therefore, our look at it is that we're going to say, continuous stay focused in that direction.

Got it. All right. Perfect. So let's maybe pivot over to the competition. And 1 of the things that mixed East West unique is the focus on the Asian-American community -- how does your more focused client concentration insulate you from new competitors that are coming in?

Yes. In fact, we started with this Asian sort of affinity focus because the founders of East West Bank who found East West many years ago, opened the bank in Chinatown, Los Angeles because the Chinese immigrants in L.A. is not able to get banking services for MainsaBank. -- and that's why they had to open their own bank. So that was the origin of East West. And so gradually, when I came in and I took over and said, no, I'm not only going to be focusing on helping the Asian immigrants in order to effectively help the Asian immigrants, East West needs to break out and actively engaged in the mainstream community, if we actually have more mainstream customers, the more that we have, the more we can help the immigrant customers that we brought in to further assimilate and reach out and enjoy the full citizenship of being American citizen. That, to me, is a much better calling than just tell these milligrams and say stay in Chinatown don't go anywhere. You don't need to be -- you don't need to be exposed with anybody. I SwissBankknow your culture on your language or take care of you. That to me is not the right way to help our customers to reach further. So that's why -- when I first joined East West, I changed the mission, vision and be that bridge and then continue to expand, and we've done exactly just that. Now that said, as of today, our total asset size $83 billion, $84 billion. So it's actually bigger than all the other Asian affinity banks in the entire country, all of them add up together. It's still smaller than us. So that's why, obviously, we have the great advantage because when it comes to supporting the Asian customers, particularly in the retail consumer space, where sober brand is so big, and there is so much trust from our customers. And they are the 1 that string the words. We don't have to do a whole lot of marketing. Our customers are telling their friends. They are telling their children. They are telling the customers who are migrating over that Well, when you come here, just open an account, it is for us. So it just makes so much easier. So that's why, to a certain extent, we continue to always outperform. And now -- and that only works because most of the banks do not have a strong interest and focusing on [indiscernible]. And I always worry about 20-some-odd years ago said, wow, 1 day, HSBC just woke up, right? They did and they stop enough time and then they exit, right? So it's good. I mean we just keep doing whatever we're doing. And so far, so good. And we think that we will have plenty of growth opportunity because that segment continue to be the fast-growing community and on top of it, there is a certain cultural affinity and so forth and that allow us to put in together products that really cater to their needs. Again, going back to the customer-centric principle. We build products that cater to their needs that allow them to comfortably and join the banking relationship with East West we continue to grow in size, so we can help them to grow.

So when you think about growing in new geographies, I guess, what drives your decision-making process there? What you typically -- what KPIs do you typically focus on ?

Yes. We're focusing on metropolitan cities have a lot of, let's say, direct flight to Asian countries, let's put it that way, right? Because it will be highly unlikely for me to open a brand like a branch, let's say, in Jackson Hole, Wyoming, and things like that, right? We are more into like -- so if you look at our geographic footprint today, all the way in California from down south in San Diego, all the way up to Sacramento in between San Francisco, Silicon Valley, LA or Chan and whatnot. Vibrant community with a lot of Asian Americans plus international flights allow us to do a lot of cross-border banking business. And then to Seattle Boston, New York, Atlanta, Houston, Dallas, Las Vegas, and then we have also loan production office in Chicago. So when we start growing, we'll be looking at file. And then if there are cities that we think that fit that criteria will be obviously be interested to opening more branches there.

Got it. Okay. Let's talk about capital. And contrary to popular demand, I'm not going to ask the buyback question because I think you've been pretty clear that you will remain opportunistic there given your high capital levels. But maybe talk about I guess, how do these high capital levels maybe help you get more client relationships and help you get more business? Is that part of the conversation? And how does that form part of the conversation when you show up to a new client?

Absolutely. I think that when I look at throughout the last 30-some-odd years, we've done really well. during time of persperity, like right now, the last few years, record earnings, record earnings, record earnings. But the time that we digest is when there are financial crisis. So in '91, when I made the acquisition of East West for savings alone, there was a savings on crisis. The minute I bought East West, I merely doubled the size of East West Bank because I wanted a RTC Resolution Trust Corporation and bought these distressed SNL, right? . And when I looked at 2009 global financial crisis, East was double the size because, again, we're in a safe and sound position and have ample capital -- and we got invited by the FDIC to acquire our competitor who even more bigger than us that we're able to, again, make a huge impact by doubling our size. COVID. We have more time to do PPP loan for our customers, finish them in 1 week and have plenty of time to help the other banks' customers. That's why we grew our balance sheet substantially because many of these -- those customers or other banks who didn't get help come to us, 2023, Silicon Valley banks that March Magnus, we also benefit. But all of that is because East West Bank have so much capital that the customers feel safe to bank with us. We have to keep in mind that I said we are not the big for -- the media have classified the big 4, they are too big to fail. And therefore, no matter what they do, it doesn't matter. The deposit is always safe. If you're not the big for you have to every day prove to the customers that you were safe. And I'm not naive enough and say just because we have a great strong financial performance that automatically give me so the A grade from a customer standpoint. Customers have everybody to be clear. They have $250,000 insurance deposits. And if they park $5 million, $10 million at East West Bank, they have every right to be fearful, right? The only way I can prove to them that, "Hey, look at my capital ratio. There's nobody out there, have my capital ratio, tangible capital ratio over 10%. I would say you go find a bank that can be bigger. And when we rationally discuss with the bank, that's why relationship banking is important, customers of East West Bank would actually listen to us making a pitch to them. During the Silicon Valley Bank's crisis, We had to make our pitch because every day from Bloomberg, Wall Street Journal, they are spreading sort of like these rumors out there, say all regional banks will be in trouble, right? It's the second and third largest bank at California went down. How do you feel where you're the fourth largest bank rationally, the customers were concerned. And then we have to explain to these customers, the easiest way to explain that, look at the financial performance of East West. We always -- we have to make so much money. We have so much liquidity and -- our capital ratio is so much higher. The last thing you need to worry about is East West. And that's how we win customers, and we continue to be able to be in a position of strength. Now I would look at it is that if my financial performance really starts and I performed on the average or even above the average level. I obviously will spend a lot of time thinking about the capital level. But performing the top quartile all the time, right? And that I'm not putting too much attention to that, a bit of excess capital.

And then as you think about the Basel and game rules and the benefit that, that has to capital issues as well, does that change how you think about allocating capital, whether it's in capital return or in capital deployment within the business?

No, because, again, it's the same philosophy, a bit of excess capital, if it actually would -- that excess capital would cause us to be not getting the kind of profitability to be above our peers. I absolutely we need to do something intensely just because we are extraordinarily shareholders friendly. As a shareholder funding bank and also I understand that we work for our shareholders, I got to do what's right, right? But I'm giving these cash dividends increase year after year, and then I am buying back, it's just not buying back excessively. I'm buying back opportunistically. And I wanted to have some extra capital just in case. Who knows? -- once the next crisis coming, right? Who knows what is the next potential inorganic opportunities coming. So I'm going to look at all of that. So all in all, it's more importantly is that -- we are in the top-performing financial performance at this point, and I look at it that those other stuff is not essential.

But even in terms of allocating capital within the business, does it make more sense to say, do mortgage or investment-grade credit or anything else there?

I'll do whatever that makes sense for us to grow and then also make sure that we continue to keep it safe and sound and no concentration risk. And so you look at it. We keep diversifying, diversifying our growth, and we continue to make sure that we don't have over concentration risk. And we are in the perfect time to sort of strengthen our balance sheet by creating an even stronger, healthy East West. And that's what we're doing right now. So that on a rainy day, we are substantially stronger. -- than anybody else to take advantage of whatever opportunity it will come. .

All right. Perfect. With that, we're out of time. Dominic, thanks so much for joining us.

Thank you.