Q4 2023 East West Bancorp Inc Earnings Call
Participants
Adrienne Atkinson; Director of IR; East West Bancorp, Inc.
Christopher J. Del Moral-Niles; Executive VP & CFO; East West Bancorp, Inc.
Dominic Ng; Chairman, President & CEO; East West Bancorp, Inc.
Irene H. Oh; Executive VP & Chief Risk Officer; East West Bancorp, Inc.
Benjamin Tyson Gerlinger; Research Analyst; Citigroup Inc., Research Division
Brandon Thomas King; Associate; Truist Securities, Inc., Research Division
Broderick Dyer Preston; Analyst; UBS Investment Bank, Research Division
Casey Haire; VP & Equity Analyst; Jefferies LLC, Research Division
David Patrick Rochester; MD, Director of Research & Senior Research Analyst; Compass Point Research & Trading, LLC, Research Division
Ebrahim Huseini Poonawala; MD of United States Equity Research & Head of North American Banks Research; BofA Securities, Research Division
Gary Peter Tenner; MD & Senior Research Analyst; D.A. Davidson & Co., Research Division
Manan Gosalia; Equity Analyst; Morgan Stanley, Research Division
Matthew Timothy Clark; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Robert Andrew Terrell; Analyst; Stephens Inc., Research Division
Timur Felixovich Braziler; Associate Analyst; Wells Fargo Securities, LLC, Research Division
Presentation
Operator
Good afternoon, and welcome to the East West Bancorp's Fourth Quarter and Full Year 2023 Earnings Call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead.
Adrienne Atkinson
Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's Fourth Quarter and Full Year 2023 Financial Results. With me are Dominic Ng, Chairman and Chief Executive Officer; Christopher Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website.
The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and the reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today.
I will now turn the call over to Dominic.
Dominic Ng
Thank you, Adrienne. Good afternoon, and thank you, everyone, for joining us for our year-end earnings call. 2023 was another record-breaking year for East West. Our highlights include new record levels for revenue, net interest income, net income, loans and deposits. Our 2023 results speak to the resilience of our business model, the loyalty of our customers and the persistence of our bankers. Despite the turbulence in the earlier half of the year, we grew customer deposits by $1 billion in each of the past 2 quarters. We did this by adding 40,000 new deposit accounts over the past year, both consumer and commercial, and driving a more granular deposit base.
Our loan growth was driven by our differentiated residential mortgage product and the strength of our commercial lending relationships. Asset quality remains strong, and we continue to proactively manage our credit risk. Our 2023 annual net charge-offs to average loans were just 9 basis points and nonperforming assets to total asset ratio was just 16 basis points at year-end. We continue to deliver industry-leading efficiency supported by our simple, proven business model and effective branch network. Our efforts drove a 20% adjusted return on average tangible common equity and a 1.7% return on average assets in 2023.
Looking forward, we remain focused on driving core deposit growth, and we are pleased by the early progress on continued net new customers and balances as we begin 2024. We have started the new year from a position of strength given our earnings stability, solid credit performance and strong capital levels. I am pleased to announce that our Board of Directors has approved a 15% increase to the quarterly common stock dividend to $0.55 per share.
I will now turn the call over to Chris to provide more details on our fourth quarter financial performance. Chris?
Christopher J. Del Moral-Niles
Thank you, Dominic. Our fourth quarter 2023 net income was $239 million. Excluding the onetime FDIC charge and securities gains, our Q4 adjusted EPS was $2.02.
Turning to loans on Slide 4. East West grew total average loans by 9% for the year, reflecting the strength and scale of our core residential mortgage and commercial real estate platforms. We note that over the last 5 years, East West has grown loans at a very healthy 10% compounded annual growth rate. Demand for residential mortgage remained quite strong despite the generally rising rate environment, we originated $3.5 billion of low-risk, low-LTV mortgages in 2023. And while we expect growth to moderate from Q4's trend, our pipelines remain resilient going into the first quarter of '24.
Average CRE balances grew in '23 as we continue to work with long-standing relationship clients. We saw solid increases in both multifamily and industrial property lending while office loans declined. Looking at the Q4 end-of-period balances, our fourth quarter growth was driven by an uptick in C&I utilization and continued solid residential mortgage originations. Looking forward, assuming the economy moderates into a soft landing, we expect overall loan demand to moderate as well. We expect our growth will continue to be driven by strong residential mortgage activity and continued growth in C&I lending, leading to a further and better diversified loan portfolio.
Moving on to deposits. We note that over the last 5 years, East West has grown deposits faster than loans overall. Despite volatility in the first half of '23, East West continued to grow average deposits year-over-year. We continue to show deposit momentum in the fourth quarter by adding another $1 billion in deposit balances. Our growth reflects the focus and dedication of our bankers and the loyalty and resilience of our broad-based customers. Looking forward, we will continue to focus on adding granular low-cost consumer and business deposits while continuing to reduce our use of noncore brokered or wholesale funding.
Turning to net interest income and margin on Slide 6. Q4 dollar net interest income increased by 1% to $575 million from the third quarter. We held our net interest margin stable at 3.48%. While our $4.25 billion of cash flow hedges continue to be a net drag on NII in Q4, on a mark-to-market basis, some of these forward-looking hedges are now in the money, and expected rate cuts will only make that better. While these hedges cost us approximately $25 million of NII in the fourth quarter, they are expected to provide valuable earnings protection as rates decline. Given the current forward curve and consensus economic outlook, we expect NIM to decline by 3 to 5 basis points in Q1 as deposit costs continue to normalize and new asset yields continue to flatten out.
We then expect our margin to be further compressed in Q2 and Q3 as a result of the expected rates moving lower. NIM likely troughed in Q3, and we expect it to begin to rebound thereafter as assets grow expected lower funding costs kick in and the expected positive cash flow benefits from our balance sheet hedges begin to offset lower asset yields.
Speaking of asset yields, let's turn to Slide 7. Our expectation for margin resilience is also supported by the enhanced levels of fixed rate assets in our portfolio at year-end. Fixed rate and hybrid loans in their fixed period represented 42% of our loan portfolio at year-end '23 versus 35% at the beginning of 2022.
Turning to funding costs on Slide 8. Our average cost of deposits for the fourth quarter was 260 basis points, up 17 basis points from the third quarter. As Dominic previously mentioned, we remain laser-focused on driving core deposit growth and growing net new customers and balances as we begin 2024. Looking forward, we are optimistic about our operational ability to rapidly reprice non-time deposits in a falling rate environment.
Moving on to fees and noninterest income. East West has grown fee income at a 10% annual rate over the past 5 years. 2023 fee income growth reflect the continuing strength in our customer derivative business' lending fees and foreign exchange income. We note that Q4 saw growth in every fee categories.
Moving on to Slide 10. Total annual adjusted noninterest expense trends are on the left. Adjusted noninterest expense has grown 7% annually over the past 4 years compared with our 11% annual revenue growth. East West consistently delivers industry-leading efficiency. The fourth quarter adjusted efficiency ratio was 33.1% compared with 31.2% in the prior quarter. Adjusted noninterest expense was $215 million in the fourth quarter. Comp and benefits did increase $8 million, reflecting higher commissions and incentive growth; and other operating expenses did increase $6 million, reflecting some increased legal expense, realized credit card fraud losses and some advertising expense.
Looking forward, we expect adjusted noninterest expense to increase in the range of 6% to 8% year-over-year, driven primarily by comp and benefits and partially offset by lower deposit account expense as earnings credit and related rate-driven expense pressure begins to ease in a lower rate environment.
I will now turn the call over to Irene for a discussion of our asset quality and capital position. Irene?
Irene H. Oh
Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 11, the asset quality of our portfolio remains broadly stable. During the fourth quarter, we recorded net charge-offs of $20 million or 15 basis points, a 1 basis point increase from the third quarter. Quarter-over-quarter, nonperforming assets as of December 31 increased modestly by 1 basis point to 16 basis points of total assets. The criticized loan ratio decreased 14 basis points from September 30 to 1.87% of loans held for investment. The special mentioned loans ratio decreased 18 basis points quarter-over-quarter to 77 basis points of total loans held for investment as of December 31, and the classified loans ratio increased 4 basis points to 1.10% as credit continues to normalize. We remain vigilant and proactive in managing our credit risk. We recorded a provision for credit losses of $37 million in the fourth quarter compared with $42 million for the third quarter.
Turning to Slide 12. The allowance for loan losses increased $13 million quarter-over-quarter, primarily reflecting net loan growth. The allowance for C&I loans increased $9 million, the allowance for commercial real estate loans increased $4 million, and the allowance for resi mortgage and consumer remained unchanged from the prior quarter. The reserve for office loans increased by $2 million to 243 basis points of total office loans. We believe we are adequately reserved for the content of our loan portfolio given the current economic outlook.
Turning to Slide 13. As shown on this slide, all of our capital ratios expanded quarter-over-quarter due to the strength of our earnings. East West CET1 capital ratio stands at a robust 13.3%, while the tangible common equity ratio grew 34 basis points to 9.37%. These capital levels place us among the most well capitalized banks in the industry. East West's Board of Directors has declared first quarter 2024 dividends for the company's common stock, resulting in a 15% increase in the dividend. The quarterly common stock dividend of $0.55 per share will be payable on February 15, 2024, to stockholders of record on February 2, 2024. East West repurchased 1.5 million shares of common stock during the fourth quarter of 2023 for $82 million. We currently have $172 million of repurchase authorization that remains available for future buybacks.
I'll now turn it over to Chris to share our outlook for the 2024 full year.
Christopher J. Del Moral-Niles
Thank you, Irene. To summarize, as stated on Slide 14, our full year 2024 outlook assumes a softening economy with a more modest growth profile in '23 and takes into consideration the year-end forward curve with cuts assumed to begin in the second quarter. We expect end of period loan growth in this environment to be in the range of 3% to 5%, driven by moderating demand but buoyed by a relative strength in our residential mortgage and C&I lending activity.
We expect net interest income to decline in the range of 4% to 6%, driven by the expected rate cuts. Adjusted noninterest expense is expected to increase in the range of 6% to 8%, driven again primarily by comp and benefits and partially offset by lower deposit related expenses.
First quarter net charge-off levels are expected to be in line with the fourth quarter of '23, with subsequent quarters increasing modestly as we expect full year net charge-offs will fall within the range of 15 to 25 basis points. We expect our effective tax rate will increase modestly for the full year.
With that recap, now let me turn the call back to Dominic for his closing remarks.
Dominic Ng
Thank you, Chris. Let's go to Slide 15. As I look back, I'm very proud of our strong performance in 2023 marked by 18% growth in tangible book value per share year-over-year and by recognition from S&P Global, Forbes and Bank Director as a top-performing American bank. I also would like to thank our associates for their unwavering dedication to our clients.
As Chris mentioned, economists are projecting a softening economy and a declining rate environment in 2024. But at East West, our goals remain the same, which are to help our commercial clients thrive, to meet the savings and investment needs of our branch customers and to operate with strong capital and prudent risk management, allowing us to deliver top-tier returns to our shareholders in any environment.
I will now open the call to questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) The first question comes from Ebrahim H. Poonawala with Bank of America.
Ebrahim Huseini Poonawala
Thank you, and good afternoon. Maybe first question for Chris, just around the NII outlook and the sensitivity to the rate cuts. So it seems like the down 4% to 6% assumes the 6 rate cuts that were there in the forward curve. Give us a sense of what if we get zero rate cuts or just get 3 rate cuts, should we assume proportionately NII holds up a lot better. And if we don't get rate cuts in through until maybe even May, are you doing -- taking further actions to kind of neutralizing the balance sheet?
Christopher J. Del Moral-Niles
Yes, yes and yes. So yes, if there are not as many rate cuts as were projected at year-end, NII will do better. Yes, if rate cuts start later, NII will do better. And yes, we are proactively taking a number of steps to make sure we manage our sensitivity to rates. But in particular, our focus on deposits is one that we think will yield us some benefit as we move through the course of the year.
Ebrahim Huseini Poonawala
Noted. And I guess maybe another question, Dominic, for you. So you managed through last year very strong results. You have solid capital levels. It feels like there's a fair amount of disruption just across the banking sector maybe in terms of people moving, loan portfolios, maybe banks up for sale. Just give us a sense in terms of when you're looking at 2024, how do you see the opportunity set in terms of actually putting investment dollars to work and capitalizing on the disruption out there?
Dominic Ng
Well, we actually continue to look into the market and see to a certain extent, obviously, we all saw what happened last year. That a lot of our larger peers, well, two of them are gone and then some of the other peers are having some financial difficulty or transitioning and whatnot. And so from that -- from a competitive landscape, I think it is marginally better for East West Bank. But we have always been prudent and the reason we didn't get into trouble is because we don't try to go all out in any one particular direction. We're always trying to look at making sure that we have a diversified portfolio.
So in terms of recruiting talents and so forth, we are very selective. We're trying to make sure that there are talents out there that have the right mindset, that fit into the East West culture and also they are in the kind of like business that fit into our sweet spot, and then we will bring them over. And we'll continue to be out there recruiting and looking for the right talents to join us and together with our own associates who continue to grow.
And so we feel that 2024, we cannot predict exactly what the economy is going to be like, but we do know what East West can do, which is that our team will find a way to continue to bring new customers and we'll be able to continue to help support our existing customers. And with that, we'll be able to grow deposits and we'll be able to grow loans and also have meaningful diversified fee income. And that's the plan.
Operator
The next question comes from Ben Gerlinger with Citi.
Benjamin Tyson Gerlinger
Can you speak -- talk about the deposit base assumptions? I guess the forward curve, it is implying a success at year-end. And in the first half, probably it's (inaudible). What are you seeing in the back half of the year and year-end 2024 (inaudible) what would be the deposit for this?
Christopher J. Del Moral-Niles
So Ben, I think we missed a good portion of your question, but I think your question was broadly around deposit betas and how do we think deposit betas unfold. And so I think there's a couple of thoughts here. The first part is we had a reasonable uptick in deposit beta as rates rose. We would expect to have a reasonable downtick in deposit pricing as rates fall. Specifically, we are expecting our deposit beta to be north of 0.5 on the downtick. And I think that is a 0.5 that we recognize we could be more aggressive on, particularly if rate cuts come sooner or faster.
And we would note that we think there's upside to that level if we can get our arms around the pace of cuts that we expect. And I think that will be Fed path dependent, but I think we're very comfortable that there's upside to that if we can get some clarity on that as we move through the course of the year.
Operator
Mr. Gerlinger, if you could pick up a handset perhaps if you're on a speaker phone, by any chance?
Benjamin Tyson Gerlinger
Next question. I was curious from just the net interest expense cut, I know you had to back out a few things due to (inaudible) amortization of tax credit mix (inaudible) but I'm just trying to think the 6% to 8% growth in the noninterest expense number, how should we think about just on that perspective and kind of backing that can do? And is there anything you can do to be a little bit more aggressive (inaudible)?
Christopher J. Del Moral-Niles
We continue to see 2024 as a year for continued investments in our core businesses and platforms. And so while we recognize that up 6% maybe a higher number than you've heard from some others, we would also suggest that a 33% efficiency ratio is a much better start point than you have from many others. And we think that's the right decision to make for the long-term strength of East West franchise. We would also note that 6% growth off of 33% efficiency is a lot lower than 6% growth, say, off of 65% just for conversations.
Operator
The next question comes from Dave Rochester with Compass Point.
David Patrick Rochester
On your NII guide, what are you guys assuming for deposit growth in that? And what are you baking in for the BTFP maturity that's coming up. And if you can just give like a rough estimate, what are you seeing in terms of what a single cut means from a margin or NII impact at this point, just given the assumptions that you talked about on deposit betas?
Christopher J. Del Moral-Niles
Yes. So we fully expect to fund all of our loan growth with core deposit funding. We expect to pay down BTFP over the course of the year. It rolls over in March. We'll pay down some and we'll roll over some, and we'll be exiting the program in all likelihood by year-end. And with regard to sort of the rate sensitivity, it's somewhere in the $1.5 million to $2 million per cut per month is one way to think about it. And I think we're sort of working our way through that, but that's in the right ZIP code.
David Patrick Rochester
Great. And then the paydown of the BTFP, is that -- are you expecting to do that with deposits? Or could you fund that with some wholesale funding as well?
Christopher J. Del Moral-Niles
Well, at the March date, we'll pay down some. We'll roll over some. We'll have some securities coming due. We'll have a variety of other things. If we have better-than-expected deposit growth, we'll certainly avail ourselves of that better deposit flow. But whatever is left over, we'll just refinance at the end.
David Patrick Rochester
Great. And then maybe one last one on the loan pipeline. It sounded like that was looking pretty good. Obviously, you're expecting to grow loans really faster than other larger banks. How are you thinking about the composition of that growth this year? If you can discuss some of the puts and takes on that, that would be great.
Christopher J. Del Moral-Niles
Yes, the pipeline strength that we're seeing today is primarily on the residential mortgage side, which has been a strong contributor to our growth over the past year, and we expect will be the strongest contributor here certainly over the near term.
Operator
The next question comes from Gary Tenner with D.A. Davidson.
Gary Peter Tenner
Just a quick follow-up question on the loan growth guide. Given the strength of growth in the back half of the year, near 10% annualized, I would have thought would be maybe a little higher than that. Just wondering about kind of the C&I activity in the fourth quarter. Was there any sort of pull forward or drawdowns that were more seasonal in nature that were kind of normalized here early in the first quarter that would impact the point-to-point loan growth outlook?
Christopher J. Del Moral-Niles
We did see an uptick in utilization in December. And so that utilization rate, as you may not be surprised, came back a little bit in January. But nonetheless, we would expect C&I to be additionally a contributor to our 2024 growth. But as I just mentioned to Mr. Rochester, I think residential growth will lead the way. And from what we're hearing and seeing from our activity levels on the CRE side, CRE will be muted level of growth net for the year.
Irene H. Oh
And I'd just add, the C&I utilization at year-end, the trends are not that different, let's say, from the prior year as well. We'll pick up at year-end; it's pretty normal for us.
Gary Peter Tenner
Yes. Got you. And then just as a follow-up in terms of your guidance. In the past when -- and I hadn't a chance to look back, and I apologize. Had you not guided to also a fee income growth rate? Correct me if I'm wrong if that's not the case. But if it was, curious as to why you did not just cover it.
Christopher J. Del Moral-Niles
I've only been here one quarter, but it wasn't in last quarter's numbers.
Operator
The next question comes from Casey Haire with Jefferies.
Casey Haire
Maybe first one, just apologies if I missed this. The expense guide, is that ex amortization or does that include that? And if so, what is the tax amortization expense going forward?
Christopher J. Del Moral-Niles
It is excluding the onetime items and excluding the tax amortization. So it's what we reported adjusted expense which is net of those things. So it's a clean operating expense level, and we think the claim level comes up a bit.
Casey Haire
Okay. But there will be a tax amortization hitting the P&L, correct?
Christopher J. Del Moral-Niles
There will be, yes. And so the tax amortization expense, as you can see from this quarter's numbers can sometimes bounce around from quarter-to-quarter. We haven't given you a specific guide for that, but we're also looking at adopting PAM, which is a new accounting standard for that, which may move the numbers around geographically. So there'll probably be a reduction year-over-year in amortization expense and a slight uptick in the tax rate as a result for those 2 will net out to the bottom line.
Casey Haire
Okay. And then just switching to capital, just thoughts on buyback appetite going forward with a still strong 13.3% CET1.
Irene H. Oh
Well, that's correct. We do have strong capital, and that's something we're very proud of. We do have the remaining authorization. Certainly, that's something that we'll evaluate over the course of the coming months.
Operator
The next question comes from Manan Gosalia with Morgan Stanley.
Manan Gosalia
The NIM trough in the second half of '24 is a little later than what others are suggesting. I hear your comments on the 50% beta on the downside. But are you modeling some sort of lag into your deposit betas on the way down? Because I know you also mentioned that the NIM should rebound in 2025 after the lower funding costs kick in. So I was wondering if there is a little bit of a lag there?
Christopher J. Del Moral-Niles
There's a little bit of a lag, I would say, driven by the fact that you have to remember, we have a fair amount of CDs on the books. And so those CDs, for example, our Lunar CDs special that's in the market today, will be in place for the next 6 months. So we'll book those here January into February. They'll be with us until July, August. And so there'll be a bit of a lag because of the CDs that we're pricing today versus what will happen. So again, depending on the timing and the pace of rate cuts, we could outperform that. And certainly, as those roll over 6 months from now, we would expect to fully participate in the benefit of the lower funding costs at that point in time.
Manan Gosalia
Great. And maybe flipping over to credit. There remain a lot of concerns around California commercial real estate. Can you talk about why your book is different and also what you're hearing from borrowers right now and how negotiations are going given that -- given the outlook for lower rates coming up?
Irene H. Oh
Yes. Thanks. That's a great question. And as you can see from what we've reported, when we look at the precise, classified assets, those ratios, the nonperforming loan ratios, the criticized loans are down, nonperforming loans are down. We're pleased with that. As we look at the different categories, office, multifamily, et cetera, within CRE, we're comfortable with the loan grades. We're also very pleased to see that there are not a lot of new problem loans that are coming up.
So overall, these conversations with customers, certainly, there are some that we're working through but it's very manageable at this point, and we're very pleased to see that. All the efforts and work that we went through the last couple of years to shore up borrowers, have them pay down, have them swap, buy caps, those are all things that we see as positive today.
Dominic Ng
Also, as we highlighted in the previous calls before that we don't have that many loans that mature, well, neither in 2023 nor in 2024, with a very small percentage of loans coming due, so we actually really don't have much opportunity to have too many conversations with our customers in terms of dealing with some of the challenge when it comes to refinancing. And keep in mind that we have very low LTV and our portfolio is quite granular. So I think that's the reason why our portfolio so far stands up really well versus some of the other banks.
Manan Gosalia
Got it. And sorry if I missed it, but did you update what your reserve levels were on CRE office? And if it's still around 2.3% or so as it was last quarter. Can you talk about what keeps you comfortable with that level of reserves?
Christopher J. Del Moral-Niles
It's on Page 12 of the slide deck, and it was 2.43% at year-end, which is up obviously from the 2.3% you cited.
Manan Gosalia
Got it. And what keeps you...
Irene H. Oh
Office and all of CRE, we have a reverse process where we go through the portfolios, our RMs, our team leaders, credit supervision, all work together. And I think as we're going through these loan reviews on a regular basis and the cash flows from the clients, the properties, those are all things that help us and the cash quite candidly and the network, many of our borrowers and going towards us are all things that give us comfort.
Operator
The next question comes from Matthew Clark with Piper Sandler.
Matthew Timothy Clark
First one just around deposits. If you can speak to your outlook on noninterest bearing down here this quarter. Just your expectation on where that might trough relative to the mix. And then it also looks like your Chinese New Year special is 5.25%, at least on your website. So just thoughts there around kind of growth going forward, is it going to continue to be dominated by CDs?
Christopher J. Del Moral-Niles
In the near term, we expect CD growth certainly in the first quarter to be a significant contributor. Our current Lunar CD special will attract good flows that's been out there for about a week, and the early read on that has been very positive, both on the consumer side and in the private banking client base. So we're encouraged by that, and that will result partly in some of the deposit compression we expect to see in the first quarter. With regard to overall levels of noninterest-bearing demand accounts, we have previously bottomed out in the high 20s. We were at 27%, 28% at sort of a low point. We think we are trending in that level today, and we think that is a relative benchmark from which we will grow from over time.
Matthew Timothy Clark
Okay. And then just on some spot rates, it looks like that slide is no longer in there, that detail. Do you have the spot rate on deposits at year-end? And then just a related -- well, on the other side, on the resi mortgage book, you show a rate sheet price for 30-year fix as 7.88%, your portfolio is at 5.49%, which obviously includes hybrids. But can you give us a sense for kind of the spot rate on that book as well? You would think you get some decent lift out of that rate. So two questions within that. Sorry.
Christopher J. Del Moral-Niles
Yes. So I would say we have started to see, aside from the CDs, the deposit rates basically flattened out and some even start to trend lower. And on the mortgages, yes, it was 7.88% at year-end and it's in the 7.5% zone as we sit here today.
Irene H. Oh
The spot rate on deposits at year-end was 2.65.
Operator
The next question comes from Andrew Terrell with Stephens.
Robert Andrew Terrell
I wanted to circle back to the expense guidance just a little bit. Can you talk maybe, Chris, just about how we should expect the expense run rate to progress throughout the year? It feels like we could see kind of a seasonal bump earlier in the year and then kind of run rate moderation to the back half, especially if we're to get the forward curve to play out and you get that relief from the deposit cost. So any color on kind of the run rate throughout the year on expenses would be helpful.
Christopher J. Del Moral-Niles
I think you've called that correctly. So we're not going to see a material savings in deposit-related costs in the first quarter, absent some Fed rate action and maybe even a slight delay in the second quarter. So those cost savings to those benefits will really come in the third and fourth quarter. And on the other side, we are going to see an increase in our comp and benefit expense as we move through the first quarter as we go through the normal round of salary adjustments that we do here every year. And so as those numbers roll through, which will pick up at the end of the first quarter, they'll impact expenses a little bit in the first quarter, and then we'll see the offsets coming as rates decline later in the year.
Robert Andrew Terrell
Okay. Great. I appreciate it. And if I can also ask just as we think about maybe the opportunity for some of the BTFP reduction that you talked about earlier, can you just remind us the cash flow you'd expect off the bond book coming in 2024?
Christopher J. Del Moral-Niles
Roughly $0.25 billion or $250 million a quarter.
Operator
The next question comes from Brandon King with Truist Securities.
Brandon Thomas King
So on the strong C&I loan growth in the quarter, and I didn't see this in the deck, but could you comment on what the utilization levels were? And then just give us your expectations for utilization levels and if we could potentially see maybe a [concessional] uptick if rates come down.
Christopher J. Del Moral-Niles
The utilization level was 67% at year-end. I think when we look about -- when we think about uptick, it's a demand-dependent question, though. And we would say in a softening economy, we don't expect demand to run away with that number in 2024.
Brandon Thomas King
Okay. And then lastly just on the hedges you had and the SOF you had, how do you currently feel about your position? And are you looking to particularly add more?
Christopher J. Del Moral-Niles
We certainly got comfort in the fourth quarter that our forward starting hedges were a good call. As I mentioned in my comments, some of them are already in the money so you don't usually put a trade on expecting to be in the money in the same quarter, but I'm glad we did. And we're looking forward to an outlook that should have those cash flow as we move to the end of the year, which is always a wonderful thing.
Brandon Thomas King
Got it. So you feel pretty comfortable is a fair way to say it?
Christopher J. Del Moral-Niles
Absolutely.
Operator
The next question comes from Brody Preston with UBS.
Broderick Dyer Preston
I just wanted to follow up on a couple of things real quick on the NII. The cash flow hedges, are there any maturities through 2025 on the swaps that we need to be aware of? And then you said earlier that you expected a $0.5 billion deposit beta on the way down. Just wanted to clarify if you -- that was 50% interest-bearing deposit beta on the way down through 4Q '24. Is that a correct interpretation?
Christopher J. Del Moral-Niles
Yes, that will -- we will save at least half of every move in the Fed funds rates that the Fed engineers in the form of reduced deposit costs collectively across our deposit base on the interest-bearing deposits. With regard to the cash flow hedges, there really are no material maturities in 2024. However, two of our earliest or oldest trades will actually mature early in '25, and they are two of the lowest strike points. So it gets better as we move into '25.
Broderick Dyer Preston
Okay. Do you happen to have the dollar amount of those 2 hedges?
Christopher J. Del Moral-Niles
Yes, those 2 hedges are both underwater at $2 billion. And so the -- they're currently part of the drag. And as we move through 2024, obviously, as rates decline they incrementally improve as well. But when they go away, there'll be probably a net pickup in 2025 in the first quarter.
Broderick Dyer Preston
Okay. And then, Chris, my last one, I just wanted to clarify on the tax stuff. We've seen a couple of other banks, I think, adopt that this earnings season where I think effectively, the amortization almost went to 0 it's going to show up in a higher tax rate. Just wanted to ask if you guys adopted that treatment, should we expect something similar? And if so, I know that you guys have some lumpy amortization. So would that kind of introduce quarter-to-quarter kind of peaks and valleys in the tax rate itself?
Christopher J. Del Moral-Niles
Yes. So our goal in adopting TAM will be to dampen out the volatility that you've seen to introduce a greater level of stability, and it will help us on certain of the tax credits. However, on those tax credits, such as the energy tax credits that we place into service on as project completed basis, that level of volatility from when the projects get placed in service will continue to be with us and will continue to flow as amortization in sort of above the line.
So we will not go to 0. It will be dampened and reduced, and it will be both a function of how much we do in the different types of credits and how we moderate that activity as we think about making this a less volatile component of our expense rate moving forward. But our goal is to make it less of a talking point and more of a steady state number for you guys.
Operator
The next question comes from Timur Braziler with Wells Fargo.
Timur Felixovich Braziler
How should we think about the interplay of lower interest rates in your residential product? Is that -- it seems pretty rate-agnostic as demand actually pick up as rates fall. And then just maybe talk more broadly what factors impact that line item most.
Dominic Ng
Yes. Well, I think it's a relatively unique product that really cater to our core Asian-American customers. And we always think that the rate is not anywhere like sensitive like these traditional Fannie Mae, Freddie Mac type of products. So we feel pretty good about -- even when rates start going down, the rate reduction from our home mortgages would not be going in the same proportionately higher pace like the normal products in the market.
Timur Felixovich Braziler
Got it. Okay. And then looking at your multifamily portfolio, can you provide the composition geographically there? And more specifically, what portion is in New York City and what portion of that is rent regulated?
Irene H. Oh
Yes. So we have that -- of our $5 billion multifamily portfolio, the vast majority is in California and also in Southern California, in our backyard where a lot of our presence is. Pasadena, San Gabriel Valley, those areas are the largest sector. In New York, entire state of New York, we have under $300 million, and there's no rent regulated exposure.
Operator
And we have a follow-up from Ebrahim H. Poonawala with Bank of America.
Ebrahim Huseini Poonawala
Just another question in terms of when we think about deposit liquidity, loan-to-deposit ratio around 93%. Just structurally, do you expect the bank will operate with a 90%-plus loan-to-deposit ratio more or less? Or do you see that as resetting lower? And on the asset side, do you expect East West to run with a larger securities book, more HQLA securities, et cetera, even though you fall well below the $100 billion threshold that the Fed has kind of identified as a dividing line?
Christopher J. Del Moral-Niles
I think broadly, the answers are yes and yes. Yes, we expect to operate in sort of the lower 90s from a loan-to-deposit ratio even at a comfortable place to be. And over time, yes, it's likely our portfolio will migrate to be more HQLA-like in profile.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.
Dominic Ng
Again, thank you all for joining our call this afternoon. And we are looking forward to speaking to you again in April. Back to you, operator.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
