Yes, we'll go ahead and get started. So next up, I'm delighted to welcome Dominic Ng, Chairman and CEO of East West. So Dominic does this once in five years, so we're lucky to have Dominic join us. Thank you so much. But maybe just to start things out, obviously East West, I think it's known for being a bank that has done extremely well in terms of growth in a calibrated way, but above average growth. When we think about just the macro cross-currents, talk to us in terms of your outlook for the bank today versus a year ago. Are you more optimistic on the growth outlook, and how are your customers feeling about things still?
I definitely will feel a little bit more optimistic than 12 months ago, but for us, I think that you can't just count on the macroeconomic condition. Whenever we feel things are great, sometimes things don't turn out to be that great. Ultimately, it's still coming back down to our internal execution. What we've been focusing on for years is that East West Bank has always been a relationship-driven organization. We'll bring one customer at a time. When we earn the business, we want to make sure we take care of them so that the retention rate is high. As long as we keep doing that, everything is relative in banking because we are competing against all the other banks. If you can do better than them, you are better. That's all it comes down to.
So we've done well in a great economic environment. We've always done even better in a more challenging economic environment because ultimately, all you have to do is do better than the other. It's like a bear chase. We always run faster than the other guy, so we don't get killed.
Got it. So I guess as you think about the customer base today, that means there's some concern that the Fed might be done for the year in terms of rate cuts. Does that have any negative implications as you think through your three sort of C&I, CRE, residential mortgage buckets? Do the lack of rate cuts a bit of a steepening in the curve? Do you worry about that in terms of what it could mean for credit quality, the health of your customers?
Yeah, I think if there's not going to be another rate cut or maybe the steepening of the yield curve, that probably will have a negative impact more so for CRE. And I still think that it will curb investment opportunity, which indirectly would affect C&I business growth, and that would not be positive. But on the other hand, the dynamic is that if it gets worse, and I'm pretty sure with a very, very active president like what we have today, he's going to make all kinds of moves, right?
Because right now, the environment is such that even though rate is not dropping much, the market reacts positively because people feel that, hey, as long as economy is going to grow substantially stronger, as long as business is going to get a higher revenue growth, they are totally okay with a high interest rate to pay more interest expense because the revenues grow even at a higher pace. That's all that matters, right? That's how people feel. But if for some reason the rate is such that causes business not to be able to generate additional business or the interest expenses stay high, then I think that indirectly it would affect business and then the market. And I'm pretty sure when the market starts going south, practically we'll react. We react very, very strongly. And then at that point, we'll see what happens.
Within that, so when we think about this, even in the last week around tariffs and all the macro headlines, when we think about your growth outlook and you mentioned growing beyond macro, just talk to us how, now that we are maybe a month or two in the new year, since the new administration a few weeks into it, are we beginning to see a pickup in lending demand? Are you seeing customers actually act, or are they still in wait-and-watch mode?
Not quite, because even with the enthusiastic excitement on all these so-called new plans that our new administration has sort of talked about, I think in general, it would take months to get going. It would take months to get going. So I would say that in general, I don't expect January was going to. I mean, our January is not a great month, but it's traditionally. It's always never been that great of a month. Then on top of it, with the Southern California wildfire, people are a little bit distracted. I don't think that maybe the first quarter will be a good test. Right now, I'm expecting things are going to start picking up, maybe the second quarter and then so on. Probably second half of the year will become stronger.
If the Trump administration policy is moving forward in a positive way, then I expect that the economy should be stronger and then people should have more confidence to invest, and therefore there will be more demand for banks like us. When it comes to tariffs, I looked at it as that we at East West Bank dealt with tariffs for eight years now, whether it's the Trump administration and the Biden administration, tariff after tariff, and our clients that actually are in the cross-border business also have dealt with it, and they navigated just fine. We actually sustained no losses, and during actually the last eight years, when I look back, we have a 10% growth, Compound Annual Growth Rate in loans, 10% growth in deposits year after year, so in that standpoint, it's not bad.
So we know exactly how to navigate it, which is quite different than I would say that the vast majority of the banks here, that they always looked at it as that tariff doesn't have anything to do with us because we don't have anything to do with Asia or China, when in fact, the vast majority of the imports coming to the United States are from those regions. So I think that tariffs are affecting them without them knowing about it. But with us, since we know so much about it, we know exactly how to navigate. So I'm not too concerned about the additional tariff that's coming in because quite frankly, most of our clients are well prepared for it.
And maybe let's talk about your guidance. I think loan growth about 6% for the year. What's?
4% to 6%.
4% to 6%. Well, I have a high bar for you, so I think you know better. But 4% to 6% loan growth, when you think about the three loan buckets, just give us a sense of within C&I, are there certain markets or lending verticals that's driving that growth?
Yeah, I think on the C&I side, we'll expect that in general, in most of the areas that we've been involved with from entertainment, private equity, and renewable energy stuff. Well, despite the fact that I think the current administration doesn't care much about it, there are projects that means already sort of like in motion. We expect that to be happening. And we expect quite a few of these and various other industries, GNI, no, C&I, and in the digital media space, we expect growth from all of those areas. And then so we are somewhat confident that we should be able to get some meaningful growth there. And our residential mortgages is always the star. And year in, year out, we always get the kind of growth coming from that segment.
In addition, right now in Southern California, there is high demand for mortgages because when you have, I mean, unfortunately, that many homes get burned down, there are a lot more people out there looking to buy homes, actually, and then also getting new mortgages. From that standpoint, we feel pretty good about there will be demand there. CRE is, I think, at East West Bank, we internally intentionally try not to grow as much as to make sure that we stay way below that CRE concentration percentage limit. That is an internal decision. Demand's out there, but we just internally decided that we don't want it to have too much growth there because the regulator looks at CRE in a very different sense, not necessarily 100% based on there are substantially higher credit risk.
And it's just that CRE somehow is just not looked upon as a decent asset. But we have to respect that. So therefore, we just balance in between.
Does that mean CRE balance has stayed relatively stable here, or do you see a run-off in the future?
We still expect growth from it, but it's just a much smaller percentage growth than the other two. Yeah.
And also talk a little bit from a C&I perspective. A few years ago, we would talk about Chicago and New York were still under-penetrated as far as East West is concerned. From a geography standpoint, are there certain markets that are of particular interest where you're hiring, where you see an opportunity to grow?
Yeah, we are still growing in Chicago. Our office in Atlanta, I think we're also picking up some growth. Obviously, both Dallas and Houston, these are areas that we don't have the kind of concentration of exposure. Unlike Southern California, we're the largest bank headquartered in Southern California, so that we have a great presence. To a certain degree, it's so much easier to grow in Southern California because our name's everywhere. You go watch the Lakers game here, and you see East West Bank names all over the place, right? We do banking with the Rams, we do banking with the Clippers, we do banking with the Lakers. What else is left, right, except ice hockey? I'm not going to get that soon.
So from that standpoint, I think that because we are kind of a powerhouse in LA, so it makes it easy because our brand is so strong. While folks in Chicago, while folks in Atlanta jumping out to Charlotte to get business, that kind of way is harder for them. But while it's harder, we encourage them to continue to build up their business so that we would have a much more diverse growth down the road.
I think it's maybe sticking to California means we obviously had a couple of California banks get into trouble in 2023. Has that meant it feels like East West traffics in some of those businesses where there might be opportunities. Just, has that created either client acquisition or talent acquisition opportunities for the bank?
We have both, but not that much. Not as much as people expected. Some people think that, well, Wells Fargo was the biggest. We didn't do any much for the last few years, and then everybody moved to East Coast. And then you have the second and third largest, which is First Republic and Silicon Valley Bank. We're the fourth, right? And when they left, obviously, you would expect the business all flowing down to us, but we didn't get much because there are a few different reasons. One, both of them tend to do much, much, much, much bigger loans. And East West, we're not that much smaller. We just fundamentally don't like to have over-concentration risk on these one customer or two, that kind of thing. For them, that's business as usual.
For us, it's like, wow, that's exceptionally big when you do $100, $200, $300 million size kind of deals. And that's not something that we are very comfortable with. That's one. The second thing is that I think First Republic in general are very customer-friendly when it comes to pricing. And it's so customer-centric that it's not a win-win for me. I look at it, it says, you got to be kidding. When I look at these kinds of pricing, I say, you got to be kidding, right? I mean, this is not, I mean, the reason that why they were so-called so mistreated by JPMorgan is because these customers are getting back to reality, right? But there's no way for me to take it on when the pricing is so far apart. Yeah.
And I looked at it and said, even if I take it on, I'm not sure I can maintain and sustain that relationship for long if someone's so used to being treated so royally without paying, right? And then you have Silicon Valley Bank. There's a lot of those different nuances, which is they oftentimes get the business, get the banking business like loans and deposit because they invest in the funds. So I don't like the idea about, well, we will replace Silicon Valley Bank for me putting in $5 million, $10 million of equity to invest in the funds. And then I got all these volatile fee income or capital gain, right? And this is not the kind of model that I'm too excited with. So I would say these are the three reasons that make them to be less likely to fit into our profile.
But we continue to find ways to grow. Occasionally, there's always some customers that will come to us that still fit into our pricing model and also still not coming to us and asking for us to step up in terms of making equity investments. Those customers come to us. Yeah.
That's helpful. Maybe there is part of the change in the administration is also this expectation that we may get back to a bit more of a balanced regulatory backdrop. Talk to us as you think about from a regulatory. You mentioned first, second, and third bank. You're the fourth bank, which you moved up in terms of the love you're getting from the regulators, I guess. What does this mean from a regulatory or supervisory perspective? What could change that would make life easier for you?
We have a lot of tender love and care from the regulators. So there are a massive number of regulators in our office quite frequently because they're available. They're available, right? But on the other hand, I think what I envision in this new administration when they said, shut this down, shut that down, and I would imagine that there will be new regulations that we're planning that may not be implemented. And that may even be some existing regulation that may be sort of loosened a little bit. From our perspective, anytime there are less regulatory burden, that's always helpful because then we don't have to spend that much time submitting the report here and report there. It's always helpful. So we feel that this is by and large, hopefully, it will be better for East West Bank and the whole banking industry.
I mean, the key is that, I mean, it's too early for me to tell right now what exactly would, what exactly a specific regulation that will be eliminated or not, and that once I see the clear picture, maybe six to nine months from now, then I have a better idea about how would that affect the safety and soundness of the banking industry going forward in the next several years because we saw deregulations only like 20 years ago. That deregulation caused eventually the global financial crisis, right? That can hurt not only the United States, the world quite drastically. But if I look at it from an East West perspective, either way, I'm going to be fine because we did extraordinarily well at the global financial crisis, so I looked at it.
If things turn out to be too loose and then a lot of banks out there taking a little bit sort of like unsafe and unsound practice, my view is that we just have to be patient and hang in there and make sure that at some point, we'll be able to be ready and available to take the leadership to support FDIC.
Is that why you're building the capital so you're ready to?
There's always that just in case, right? I will tell you, we have a very, I mean, my 32, almost 33 years now at East West Bank as a CEO, we have consistently outperformed our peer banks, right? You can look at it from a one-year standpoint, three-year standpoint, five-year standpoint, 10 years, 20 years, 30 years, we always outperform. But the best of times have always been a crisis situation. In 1991 and 1992, it was a savings and loan crisis because I was able to buy S&L and then double the size and triple the profit, and then even convert to a commercial bank and now become a full-fledged international commercial bank, right? You look at Home Savings, Great Western, and then turn to WaMu, they all eventually fell, right?
But we were able to do that because we came in always hitting on the right spot at the right time and because we prepared for it. And because when I first became CEO, we made sure that we have capital to execute and also the right timing and also regulatory in a safe and sound manner so that we're eligible, right? In 1998, it was the Asian financial crisis. So we did the management buyout and then went public and then basically just took off in terms of our financial performance. And then in 2000, the dot-com meltdown, we were actually in great shape to take on more customers when there are technology companies all falling apart. 2001, 9/11, we have a lot of hotel customers. We had no losses.
Without capital ratio, without strong balance sheet, without low NPAs , I was able to tell these customers. I said, just hang in there. Don't worry. I'm not going to foreclose on you. Just hang in there, right?, and these are the customers today. They are now billionaires, and every time there is a hotel loan, they said, you guys want to look at it? If you don't, I'll go for somebody else, but you get the first right, and then that kind of loyalty builds is really critical, and the same thing for 2008, and when I helped some of the customers to carry it through past 2009, now they are sort of like big-time business folks, and they always are the ones that say, you get it, you get it first.
And I always looked at it as that it's always the crisis are the perfect moment for us to substantially build strength and build loyalty. And that's why to a certain extent, I don't want to wish the economy would demise, but on the other hand, it worked out really well for us because of the strong capital, the strong balance sheet, and then the tremendous profitability that we have. Because if you just have a lot of capital, if you have low return, there'll be enough activists who will take me out anyway. So I wouldn't be able to execute. I say, just give me a few more years. I'll give you a beautiful one during the crisis. You wouldn't even have the opportunity to do that, right?
But when you have very, very high ROE, ROA that basically higher than all our peer banks, and then you go out there and you have higher capital, then you just have to wait for the perfect storm. That's what we do.
Let's hope the perfect storm is a few years out, as much as it may be.
That is good for me too.
I guess you mentioned international. Just remind us when we think about the China or Greater China strategy, kind of how do you think about investment spend there, growth? Are you hiring? Are you not hiring? Are you acquiring clients?
Yeah. We actually, well, first of all, we never once put a substantial investment in terms of investing in assets in the Greater China region. So as of today, our Greater China, Hong Kong and China combined, the loan is about 4% of our total, and then deposit is close to 5% of our total. So it's really small. It's intentional, that this is a U.S. bank and the vast majority of our assets are based in the U.S. But it's important for us to recognize that our cross-border expertise, our knowledge about Asia is the value proposition that we created for East West that differentiates ourselves from the other banks. If you look at us, if you call us regional banks, then you're comparing us with all these other regional banks from Fifth Third, Huntington, or Comerica, Zions, et cetera, right?
There is some commonality among them all is that we don't want to deal with the big four because they're so impersonal. They don't have that community feel. They're thinking about all the global economy and then they're always in congressional hearings, and so therefore, you want to do banking with us, but to a certain extent, every one of them looks more or less the same. They all got that community feel. They're a little bit more relationship-driven, but they're more or less the same, but we at East West, we go a little bit further. We said that we understand the international banking dynamic. We're not Citibank. They're all over the world. We're just going to specialize between U.S. and Asia. The GDP growth between these regions is going to be so big. It will take us before my lifetime.
And still, we can rack up growth just if we can hone in and be good at it. But that unique value proposition helped us to generate tons of business. For one, the demographic we focus on, on consumer banking with this Asian-American population. And as a culturally, many of them as immigrants to this country, when they first came in, they like to buy homes at 50% to 60% down payment because wherever they came from, usually that's what they need to put in substantial down payment. When we're underwriting mortgages at 50% to 60% down payment, when we are doing HELOC, we're doing a home equity line. And 80% to 90% of the home equity line are first trust deed. Where you can find it from our regional banks? No, right? East West Bank has it, right? So these are automatic money printing, that kind of business.
And then we also look at when it comes to private equity, when they have international operations in Hong Kong, in Singapore, they think about East West Bank, right? When it comes to entertainment, when they are doing distribution of the films or the streaming content into Asia, they think about East West Bank. Digital media in video gaming and all that, they think about the world market. They think about East West Bank. So we are looking at it in the standpoint is that we have that unique value proposition that can bring the business in. So despite the fact that we put very little asset in the Greater China region, we'll continue to build up the expertise.
We continue to hire senior-level people from Hong Kong or potentially from any part of Asia and then even bring them on to Pasadena so that we round up the expertise to make sure that when it comes to the tariff, for example, right now, not just the 10% of China because there's 25% potentially to Canada, to Mexico coming soon. Next thing, Europe. You know, Denmark may get even 75% or you give them Greenland or you get 60% to 75%, right? Who knows, right? We have a very transactional president who's very transactional-driven. You know, so from that standpoint, I look at it as that for banks that lack knowledge and understand the dynamic of this tariff situation. And by the way, tariffs is not one-way street. It comes back and hits the United States too. How many banks today are really focusing on it?
They may think that they don't have that exposure. In fact, they have a lot more exposure than I have. The only thing is that in East West Bank, all our employees are laser-focused on it. Yeah. For the other banks, they say, you know, I have nothing to do with it because they look at their clients and say, they don't look like they're from Asia, and then they just think that they have no exposure. I mean, so it's a very different dynamic, right, so I feel that in the next two or three years, we may be having great opportunity to pick up business simply because of the tariff issue because our knowledge and expertise, they can advise our client better.
And we are not afraid of that perception risk that causes us to be able to get some strong credit from other banks when other banks suddenly freak out and say, oh my gosh, there's tariff. I don't want to do banking with this client anymore, right? And then we can actually enter into that opportunity. So we're hoping that may be an opportunity to come to us.
I think you had mentioned this back in 2018, 2019 when the tariffs were imposed of competitors pulling back, which created opportunity for East West, so it makes sense. Maybe another piece which is somewhat new, I mean, East West has been a very net interest income spread revenue-driven bank. You talked about on the call last month, just investing on the fee revenue side, growing some fee revenues. Talk to us there in terms of one, the capabilities that need to be built out, the investments that's needed, and what's the growth strategy on fee revenues?
Yeah. In fact, we started and we'll continue, but it's always going to be incremental. You are not going to see East West Bank suddenly making a big announcement and say, oh, we're going to make a $300 to $500 million investment in 2026 or 2027 to get ourselves to be a $100 billion bank, that kind of stuff. We're not going to do this kind of announcement. We're going to just incrementally build up, incrementally build up. And both from a technology, from a product capability standpoint, we need to build up, but also more importantly, it's the talents. Talents is not just frontline that can get business, but also talents in the mid-office, in the back-office, people who manage the operation, who actually manage the products. We need to get all of those right talents to get us to the next phase.
The next phase of East West Bank, let's say five to 10 years from now, you will see that there'll be a higher percentage of fee income than we are today because gradually, obviously, we want to go in that direction. We don't want to be just all spread income. In fact, you saw our fee incomes every single year for the last few years have always outperformed, always outperformed. But relatively speaking, it's still a smaller percentage because we have a big balance sheet. We have a huge loan portfolio. Obviously, there are massive interest income that overshadow this nice growth of fee income. But while that overshadow nice fee income, that doesn't stop us to continue to focus on it because we want to get more demand deposits and we want to get more fees coming from the cash management.
We want to get more foreign exchange fee income. We want to get more wealth management fee income. So those are the kinds of things we're going to build. And now, so five to ten years from now, and you may see that, well, maybe East West Bank efficiency ratio may not look as attractive as we are today. But it's not because we become a bigger bank. Naturally, we should be trying to copy the other big banks to have a bigger, you know, like 50%, 60% efficient. That's not what we're never going to get there, right? But it's more like if we're going to build fee income, obviously, you will have a little bit higher expenses, right? And wealth management fee income is going to create higher expenses. But those fee income, those profits that we generated, get a higher premium from the market.
So one way or the other, I'm still working to create better shareholders' value. It may be a lower efficiency, maybe a not as attractive efficiency ratio, but then it will generate an even stronger premium to the stock price. And that's what we need to work on. So I'm not too worried about the efficiency ratio. It's really like building up the capability to continue to diversify the income stream to get higher quality income and also to get maybe more diversified profitability so that it's not 100% based on credit to earn our living.
On wealth, I remember many years ago talking to you and you'd mentioned we're not going to win against the big wealth managers in wealth management. So that's why part of the reason at the time East West wasn't competing in that business. When you think about the value proposition the bank had, what drives those wealth management fees or assets under management to the bank?
So again, you said it just right. We are not going to be copycat and follow the others because then you know for sure you cannot win because even if you copy them, if you're as good as them at 70%, you know that's not going to be good enough, you know, because even them at 100% doesn't look very attractive. So from our perspective, it's that there will be, if we are going to be growing more and more on the wealth management side, we're looking at the opportunity of finding talents that can work on cross-border business. If you look at it, it's that US dollar, US currency is still the most important currency in the world. Everyone around the world wants to have some exposure in US currency. Even if the stock market is not as bullish, people like to park money in the US.
In fact, today, even in terms of deposit, we have quite a few non-resident aliens who park their money at East West Bank just to have US dollar exposure because the U.S. is a safe haven. In case something goes wrong, they say, at least I got some US dollar in the United States. I'm sure I can use it for whatever purpose if something goes wrong, right? And we mainly in the past and even today, like a parking lot, a parking garage, taking their deposit. But we are not as aggressive in terms of offering asset management. We weren't that aggressive because frankly, if you look at, for example, like in China, there are 1.4 billion people. In the old days, nobody wants to invest in mutual funds and stuff like that. They just buy real estate.
They buy residential apartments or they park their money in the bank or they put some money in the United States at East West Bank or something like that, right? But today, they get sophisticated. And China's already opened up. The U.S. is not opened up to China. China's opened up to the U.S. China is just saying, hey, everybody come on down. Put those U.S. funds in. And our Chinese citizens love to get overseas exposure, particularly U.S. stocks, right? So they're doing that. So if we are ever going to go even bigger, that's the angle, right? We would love to be able to offer something in that regard. Money investing in U.S. stock, but then we are able to somehow put together products that can serve them.
We need to work with the partner there to do the distribution, but we can actually work with someone here to build a fund. In fact, we invest in a company called Rayliant who's doing just that. East West owns 50% of it. Yeah. So I mean, those are the sort of beginning of East West Bank, you know, coming up with different ideas.
That's interesting. I guess you mentioned in terms of cash management and deposits, just talk to us around what the environment is for deposit growth right now, and in terms of deposit pricing, I'm hearing from all banks deposit pricing is just cooling off, but your outlook in terms of the ability of the bank to generate deposit growth?
Yeah. We have always been able to generate decent deposit growth, and our retail banking is always very, very reliable. In fact, we're in the midst of this Lunar New Year CD campaign. So far is tracking pretty good. And so we expect them to have another decent campaign by the time it's done. And then besides from the retail side with these sort of like CD campaigns and stuff like that, we actually, the retail banking this year have a big goal of growing business checking account. So they are out there looking one customer at a time, finding them. But when I have 100 branches and several of them, each branch and each of them going and get one customer at a time, we can rack up some decent deposit customers.
You know, so and then commercial banking, you know, as we continue to have, you know, a full suite of cash management products and we're out there continuing to try to bring in more sophisticated commercial clients that are getting tired of the banks that they are doing banking with and trying to bring them over.
I guess time for one last question. So you mentioned you've been CEO for 30 plus years. You've seen many, many cycles. Just talk to us when you think about the operating outlook and things can always change, but how favorable does the operating backdrop be? Regulations, where interest rates are, where growth opportunities are for East West compared to the last 30 years, on a scale of, is it the most attractive? Is it less attractive?
I think it's relatively more attractive today, mainly because East West Bank is in a very different kind of positioning versus that we have ever had in the last 30-some-odd years of my career at East West because remember, it was an East West Federal Savings Bank, $600 million in assets. What could you do? Well, I somehow found a way to do something, right? But it was like a pretty pitiful kind of like institution at that size, you know? And then even when we got into $5 billion, I mean, you look at it, you said someone came approached me, they're $5 billion. I said, what are you talking to me for? You're $5 billion. I mean, I can grow $5 billion in a few months. So those are kind of situations.
It was in a very disadvantaged position, but we somehow find a way to get to where we are today. We're in a great, great position right now with our size, with our market recognition, with the ability to hire better talents. So with that, I feel really good about where we are. So the key really is that not get all over our head and then just screw it all up. I think that the key is really just making sure that we pace ourselves and bring in great talents and making sure that when I'm not around many years from now, there's going to be somebody else who can continue the legacy. You know, that's the key.
Many years is the emphasis there. So, Dominic, thank you so much.
Good. Thank you.