Good day, and welcome to the East West Bancorp's Fourth Quarter and Full Year 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Julianna Balicka. Please go ahead.

Thank you Sarah. Good morning and thank you everyone for joining us to review the financial results of East West Bancorp for the full year and fourth quarter 2020. With me on this conference call today are Dominic Ng, our Chairman and Chief Executive Officer; and Irene Oh, our Chief Financial Officer. We would like to caution you that during the course of the call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of the Risk Factors that could affect the company's operating results, please refer to our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year-ended December 31, 2019. In addition, some of the numbers referenced on this call pertain to adjusted numbers. Please refer to our full year and fourth quarter earnings release for the reconciliation of GAAP to non-GAAP financial measures. During the course of this call, we will be referencing a slide deck that is available as part of the webcast and on the Investor Relations site. As a reminder, today's call is being recorded, and will also be available in replay format on our Investor Relations website. I will now turn the call over to Dominic.

Thank you, Julianna. Good morning and thank you everyone for joining us for our full year and fourth quarter 2020 earnings call. I would begin with the review of our financial condition with slide 3 of our presentation. This morning we reported full year 2020 net income of $568 million a $3.97 per share. We returned 1.16% on assets and 11.2% on equity for the year. Thanks to the unflagging commitment of our associates, we are successfully navigating the COVID-19 pandemic and the resulting economic crisis and also the low interest rate environment. The fourth quarter was a strong end to the year and resulted in net income of $164 million, or $1.15 per share increased by three quarter by 3% quarter-over-quarter. Fourth quarter return on asset was 1.24% and return on equity was 12.45%. In Q4, we earned $251 million of pre-tax pre-provision income on total revenue of $416 million. Quarter-over-quarter our revenue grew by 10%, reflecting loan growth and higher fee income. Our pre-tax pre-provision income grew by 12% and our pre-tax pre-provision profitability ratio expanded by 12 basis points to 1.9% in the fourth quarter, up from 1.78% in the third quarter. Importantly, we saw across the board improvement in our asset quality metrics, such as declining deferral and delinquency rates, lower net charge-offs and decreasing non-performing and criticized assets. The macroeconomic outlook for post pandemic recovery has been steadily improving. And as we begin 2021 we are optimistic about the year ahead. And now, moving to slide 4 for a summary review of our balance sheet. As of December 31 2020, total loans reached a record high of $38.4 billion growing by 10% annualised from September 30 and by 10%, year-over-year, from December 31 2019. Paycheck protection program, PPP loans totaled $1.6 billion as of December…

Thank you, Dominic. I'll start by discussing loans on COVID related deferral on slide 11. As of December 31 2020, loans on full payment deferral or 1.2% of total loans down from 2.7% as of September 30, including loans on partial payment deferral, which generally modifications of P&I payment to interest only deferred loans totaled $2.6 million of total loans down from 4.2% as of September 30. Quarter-over-quarter loans on COVID related deferrals decreased by 36% between September 30 and December 31. The largest improvement within our commercial real estate loan deferrals which decreased by $451 million, or 39% since September 30. As of December 31, the deferral rate on CRE was down to under 5%. Deferrals on residential mortgages decreased by 35% in fourth quarter, and the deferral rate on residential mortgages was 2.5%. The deferral rate on C&I loans continued to be very low. Turning to slide 12, for a review of our asset quality metrics, and slide 13 for review our allowance for loan losses. Along with a decline in COVID-19 related deferrals, we're very pleased with the across the board improvements in our asset quality metrics this quarter. Quarter-over-quarter our criticized and non-performing assets declined, and related asset quality metro ratios improved. The outlook for an economic recovery continues to strengthen, our borrowers have proven to be resilient and adaptable. We feel comfortable with a credit risk in our portfolio and believe that credit costs in 2021 will be manageable. Non-performing assets were 45 basis points of total assets as of December 31, and the amount of $235 million, a quarter-over-quarter decrease of 10%. Accruing loans 30 to 89 days past due were $51 million or 13 basis points of total loans as of December 31, a quarter of a quarter decrease of 40%. Criticized loans…

Thank you, Irene. In summary, we had a strong finish to a most unprecedented year. It has been a challenging year for many, and I wish to thank all of our associates for the commitment and dedication to meeting our customers banking needs. As I said at the beginning of my remarks, we are optimistic about the year ahead, including the expected additional government stimulus to rebuild businesses and communities, enhanced support for public health and the broader distribution of COVID-19 vaccines. In addition, we're looking forward to an improvement in the discourse between the U.S. and China, which will be constructive for cross border capital flows and accordingly, for our clients business opportunities. We have strong capital and liquidity to support balance sheet growth, as the economy recovers, and we are confident that we will be able to deliver another year of strong financial performance for our shareholders in 2021. I will now open up the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

Good morning. Morning, I guess just first question on credit. If there are two things you can address, I guess I need one. Talk to us about the remaining deferrals both the partial and the full deferrals? When is the sunset for these, when do they come to an end? And separately, if you could address your outlook on net charge-offs, as I think about what you talked about reserves, the potential for Federal Reserve release and would then be a provisioning guidance. So if you could address those two?

So on the deferrals, I think we talked about before, earlier in 2020. Most of the deferrals, P&I, or just the principle were for three months period. I would say that the ones that we had that were outstanding at year end, some of them giving just the nature and the process of deferrals every three months are a little bit longer term. But on average, I would say still two to six months is what those deferral terms all are. On the charge-off ratios and our expectations for 2021, I want to just start by saying if you look at the full year, or the fourth quarter, for 2020 the charge-off ratios were very low annualized for the fourth quarter 20 basis points, full year of 17. So at this point in time, I think it's realistic to think that if they increase a little bit from the levels, but as we look at credit quality. As it stands today, there's nothing that we're really concerned that the charge-off ratios will increase dramatically.

Got it. And just on a separate note or maybe Dominic, when you think about the C&I loan growth for the year, do you see there's more potential for upside surprise or downside risk to your outlook and just talk to us about any new opportunities that you see on the C&I lending front that could be meaningful growth driver for the bank? Thank you.

Well, we're always working on an upside surprise. But that being said, I think that we we've pretty much look at this year. Now, the fourth quarter is exceptional 18% annualized growth is really accumulation of efforts from the third and the fourth quarter. And we kind of like somewhat highlight in the third quarter that we were developing is much stronger pipeline, so although those loans can get booked in the fourth quarter, so that was exceptional. But if we look at the second half of 2020, sort of like, annualized growth was about 7%, for C&I. So we're kind of using that as our current run rate. And we feel pretty good about where we are today, because we're able to grow in a very diversified direction from industry types, product mix, and geographic regions, including even the Greater China region, as I mentioned earlier in my remarks that Greater China obviously the Chinese economy is recovered, ahead of the United States. And so we saw positive C&I loan growth in Hong Kong and China, in the third quarter, a 6.5% annualized growth for C&I loan growth in Greater China in third quarter, and then accelerate in the fourth quarter to 12%. annualized growth. So we see that all has so good signs. And then if we looked at, so far, domestically, from private equity, general wholesale manufacturing, entertainment, clean energy, all of these different areas we're growing. So from that standpoint, I overall right now, we expect them to continue to do well. And so hopefully, we'll do better than what we forecast. But in terms of downside, I guess the downside will be, in case I don't know, if there was a, that the vaccine distribution not working well, and then somehow, the execution from the government in towards the stimulus plan was not working, and so forth. And then that can potentially sort of like derail some of the customers confidence to invest or to grow the business. That can potentially happen. But I look at the current administration, looks like we have all very seasoned veterans that are managing the best they can. I have, I think, a higher confidence at this point that there's high likelihood that they will be able to get the economy turn around in the second half of the year.

Our next question will come from Ken Zerbe with Morgan Stanley. Please go ahead.

Great, thanks. My first question just in terms of your NII guidance, that is going to generally be in line with loan growth. Your loan growth comments that you said obviously, then that loan growth picks up in the back half of the year. Should we expect the NII to follow that same trend like that it stays relatively flat and first half and then acceleration back half for an average of just call it 68% or love to hear any commentary?

Ken, so our guidance is undeclared loan growth of 6% to 8%. So with the NII, obviously, following that average loan growth for the year, I think in general, probably will, you will get that maybe on the lower end of that 6% to 8% is probably what makes sense for that calculation.

Got it understood. Okay. I was thinking actually end of period. That totally makes sense. And then just a separate question. In terms of your CECL day one reserve, I think it was about 135 basis points, it could be wrong. Is that still a good target, post pandemic of where you might want to be given your current loan mix?

Yes, certainly, as you know, it's very complex calculation. So I can't comment on necessarily where I think it's going to end up. But I would confidently say, as economy recovers as a credit quality continues to improve that I believe there's certainly room to lower that allowance from the levels we are today.

All right. Thank you.

Thanks, Ken.

Our next question comes from Michael Young with Truist Securities. Please go ahead.

Hey, thanks for taking the question. And pre-emptive congratulations on the year of the Ox, I hope it's better than the Year of the Rat. Wanted to? Wanted to ask just literally on, on the charge-off this quarter? And maybe what you see coming through the pipe? I know, I know, generally, you guys went to the very low loan to value on commercial real estate. So kind of just curious what's causing the actual charge-off in those buckets?

Yes, so the charge-offs for CRE in the quarter, we obviously, especially with the pandemic in the environment, there are some loans that we're working through. So these have been kind of problem non-performing loans for a while, and depending on kind of looking at where the cash flows are, evaluations, a year and kind of making sure that the books are in order that took the charge-offs.

Okay, so they're burning through kind of 30% to 50%, equity cushions at resolution?

Yes, well, yes I think for these specific loans that are problematic, certainly, the circumstances are unique, which is why as which is what you're referring to, right, generally, for our borrowers and a loan to values being so low, there's a lot of equity, but there are specific situations related to really cash flow, which is why we took the charge-offs.

I do want to add to that, overall from a commercial real estate portfolio of multifamily office building hotels, retail, shopping centers, and then all industrial buildings, you name it, all of that I mean, as of today, we have a pretty strong portfolio, they saw not only just LTV, but many of our customers, despite the pandemic, are still, getting by quite well. So in fact, that's why you see the classified and criticize assets ratio coming down and deferral coming down. And surprisingly, we always expect that, these customers should do well should do better, as an average compared with industry as a whole, because of the, low loan to value. And then also, many of them have personal guarantee, and they have a lot of liquidity. But I think the pandemic was a very good stress test, to see how overall, most of these customers have done well. I mean obviously, we always have a few isolated incidents here and there. And that's what happened.

Okay, and maybe just as a follow up on the residential lending, which seems like might be a larger portion of the growth this year, what rate and provision do you put on that? And should we expect then kind of a lower growth rate of fee income as a result of that higher mix of resi loans?

Yes, for East West and the residential lending portfolio that we have, and some variation of it that we've been originating for 40 years, the credit quality generally has been outstanding. In general, the reserve that we have for our single family and also the HELOC which are my add are largely personally HELOC is quite low relative to the allowance that we bought for the rest of the portfolio. And in fact, with improvements in the for past, during the fourth quarter, we reduced the kind of required reserve from about 30 basis points down to 20. Overall, as I mentioned, with the data that we have the historical losses over the course of 10 years, 20 years, it's been incredibly low for this portfolio.

Okay, thank you. Happy New Year.

Happy New Year. Thank you.

Our next question comes from Dave Rochester with Compass Point. Please go ahead.

Hey, good morning, guys.

Good morning.

On your NII guide, I was just wondering what your thoughts were on adjusted NIM that you're expecting in that and given the strong securities growth in the quarter. If you get it here, your assumptions for that growth and deposit growth which all will ultimately impact earning asset growth and NII as well?

Yes Dave, I think your question is really maybe the most unknown thing for U.S. banks right now, as far as, the liquidity and the deposit growth that most banks are, are continuing to experience. I think for us, when we look at the growth of NIM, NII we’re very comfortable that we'll be able to expand from the fourth quarter levels, not year-over-year, but certainly from the fourth quarter levels, and that we'll be able to maybe just kind of continue to expand throughout 2021. I'll also add, maybe one of the key drivers of why we're comfortable, although on the asset side, there's some challenges, largely asset side things that repriced down securities. Now I'll share, like for example, the securities that we’re buying in January, probably yielding about 1.7% or so. We had extended out the duration a little bit and not extensively. And then what we have there, where we're more comfortable, is we do have a lot of deposit TF [ph], and the funding that we expect to reprice over the course of the coming months.

Okay, great. And just one follow up on capital, you got plenty of excess capital. And the buyback is still outstanding. You haven't done anything with it since early last year, was just wondering what you guys are waiting for? At this point, it looks like you've had some good improvement on the credit side, regulators seem to be warming to it a little bit with the East West banks, announcing buybacks for this quarter. So just want to get your updated thoughts there?

Yes, you're right, we still currently have a buyback authorization outstanding of 354 million remains. At this point, we're not -- we do not anticipate doing any buyback in the near future. Because frankly, we look at where we are right now, we're excited about the growth opportunities ahead of us. And frankly, we prefer to have capital available to take advantage of any emerging opportunities that may come. And as of today, when we look at where we are from a return perspective, currently we are generating attractive, return on equity. And we actually think we can hopefully do even better going forward. So from that point of view it’s not something that we lack of return that we need by back to push earnings per shares and stuff like that. I'll position is that, from my experience, for many years at East West Bank, we always done best whenever there's any kind of economic inflection point. And so one of the reasons why we already done that, it's not just ability to execute and all the other know what our associate who's done a great job, but more importantly, we have a lot of capital, always at that time, and allow us to be in position to take advantage or turn crisis into opportunities and so forth. So I generally inclined to stay with a little bit more capital. And, and but we will continue to watch the -- our ability to generate, above average return of equity for our shareholders as small as we feel that we can do that. And then we will continue to stay in this position for now, until a great opportunity to come along, that we may deploy the capital differently. Our board of directors, all very engaged. So the beauty of where we are right now, if I looked at from a capital perspective, we're really looking at the situation that we can just make a zoom call with a board members anytime and have a discussion executed, a buyback. So it's not like there's any kind of regulatory constraint or any of the other issues is very different than you know, when we're building up, you know, a separate C&I platform or when we start building something monumental. So this is something that is very easy to do. And we're always shareholder friendly. And we know exactly, when's the right time to announce a buyback, which we did back in, early last year. So I mean, that's the part that that we philosophically we are in line with our shareholders and we will do the right thing. It's just a matter of like, level of confidence that we have right now for potential future opportunities. And then that's what we said at this point.

Our next question comes from Chris McGratty of KBW. Please go ahead.

Good morning.

Morning.

Hey Dominic, I just wanted to follow up on that prior question. Is there -- is there a shift in maybe, willingness to do a deal, if you're not going to buy the stock? I mean, I understand the, the confidence and the growth outlook, but I'm wondering if, a deal might be more on the table in 2021, than it was in prior years?

Well, I mean, we always interest I mean, as you if you looked at our capital ratio, we always have the capital that allow us to look into various opportunities. It's just a matter of like, when the when the right deal come along, we have the capacity, from people perspective, from cap perspective, to, actually, to enter into a positive transaction. But you also have to take a look at where we are. If we reflect that, from the last, very tiny acquisition that we made was in 2014, for MetroBank, in Texas, a very small institution for about $2 billion in size. And at that time, since then, we've been growing organically. And we've doubled our size in less than six years. So we've done pretty well, organic growth through organic growth. So the our challenge really is more internal, the internal issue is that, how do we justify any acquisition, when we have the ability to double our size in less than six years, and so look like going forward, we still have that ability to continue to grow organically. And so from that perspective, any kind of potential acquisition that we looked at, it needs to be very attractive. So I mean, that's what we're looking at right now. But when the attractive view comes along, we absolutely will be interested to look at it. So again, as repeat the same philosophical view that I share earlier is that we are shareholders friendly, we always do, what's good for the bank, and what's good for the shareholders.

That's a great color. Thanks. Just a follow up on the deposit growth, the tremendous deposit growth you've seen this year. I'm interested in kind of any niches that are driving a disproportionate amount of that growth in the non-interest bearing, the ratios that gave us, the high 30% of total deposits is a great ratio. I'm just wondering what specific businesses might be driving that? Thanks.

It's coming from all over the place that is that if I look at the C&I industry verticals that we talked about, so each and every one of them contributes, even in commercial real estate, we have new commercial real estate customers that they contributed. I would say, and then, of course of retail banking, we're actually doing quite well. So, I would say that not only each and every one of them contributed I think as I shared earlier in my remarks is that we brought in quite a few new customers, which generate new deposits. And then we also got increase in deposits from existing customers. Because through the years of investments in the core capability, product enhancement in our cash management area, our payment capability is getting better and better. That in the past, we have customers that while we were having a lending relationship, we only get a smaller share of the PDA because we did not have the technical capability to serve a more complex cash management business that some of our clients have, these are somewhat sophisticated module customers. The last few years through investing, we continue to improve our cash management and treasury management capability and also FX, etcetera. So that get us to in a position that we are getting a larger wallet share of these relationship with existing customers. So it's really a combination of both new and existing customers, and I do want to emphasize is that we bring in a lot of small retail customers, one customer at a time at the retail branches, despite the pandemic, how branches will open, obviously, every single business day, and they're there to attract new customers, the PPP. PPP first round was very helpful. In April, from April to June, we actually brought in quite a few new customers. So it's all the combination that get us into where we are today. So I can't think of any particular one that actually makes [Indiscernible] the difference, because it's just across the board.

Thank you.

Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.

I think just going back to I guess the margin discussion. I was surprised to see, the securities book grows so much and you're able to maintain the yields. Are you changing, I guess the dynamic of what you're purchasing there in terms of either taking structure or credit risk in the portfolio. And I guess you can talk a little bit about where you are how you deployed that billion dollars and what you were buying enough?

And Jared yes. So in general, I would say we haven't really taken a lot of credit risk. We have extended the duration. The duration has gone up quarter-over-quarter, well, obviously, because of the steepening of the curve, but also the securities that we're purchasing. So as a comparison, we're about 384, as of 930. And that's in stuff to 425. And generally, if you look at the mix of the securities portfolio, that's substantially different from what we've had before as far as what we're buying. But overall, certainly, given the low for longer growth environment, we're taking a long, hard look at kind of what we're comfortable with, from interest rate risk perspective. And then as far as the increase, certainly, and that's also a function, really of us, the comfort level as far as the deposit, the deposit growth that we anticipate. And then of course, especially with our commercial customers, sometimes the balances with us can be go up and down, depending on the cash needs. But as we realize that the excess liquidity throughout 2020 was going to continue. That's why we took the actions of paying off the PPLF and then some of the securities moving more to securities versus keeping in cash.

Okay, thanks for the color, thanks. And Dominic, heard you talk about the increase, increased pace of lending from Greater China. I guess, how, how do you think that's going to translate into the pace of cross border trade expectations? And, whether that's just pure lending, or the opportunity for fee growth from, from that type of business as well.

In terms of in the Greater China region, I think that, again we will expect gradual increase in terms of activities, and our cross border team in U.S. actually have done well, both, in fact that they've grown both in loans deposit and fee incomes. And so, what we are looking at in 2021, is also a continuation of gradual increase, no, just because for the last four years under the Trump administration, that create a lot of hostility between U.S. and China. The way that I looked at it East West is that we know this we have strong knowledge of the business environment, and the political environment between U.S. and China. And we are very -- with our size is much easier to be nimble, to navigate accordingly. So despite the fact that, from the media perspective, the perception that U.S. China, business are not doing much at all, but the fact as we somehow find a way to get the business, but as we go forward in looking at 2021 and beyond under the Biden administration, and I just expect that there will be more predictable approach and it will I think the Biden administration will bring more stability to the relationship. So from that standpoint, we will most likely be able to gain additional business just because that -- because of the more predictable and more stable environment, that customers from both sides will be more comfortable to continue to invest in so forth. They are all going to be certain areas, some very what I call sensitive industry that affect national security, that obviously, we no longer be able to conduct a lot of business between two shores. But there are plenty of business that are non-national security sensitive, that I expected to continue. Things such as even tourism, students, attending colleges in the U.S., and some of the other general manufacturing general industries, even in healthcare that do not have these, what I call their essential purpose in the United States. And we expect that there will be more trade and commerce that take place between the two countries. So we know what they are, and we will continue to target those business opportunities. That's why I expect that in the next few years, there will be more opportunity to come.

Our next question comes from Matthew Clark with Piper Sandler. Please go ahead.

Good morning.

Good morning.

Hi, my first question was just around the multifamily portfolio was down slightly this quarter. And the growth I think in 2020 was about a quarter of what it was the prior year. Can you just speak to your appetite in that asset class? And, whether or not you're backing away from certain markets, and what your, what the prospects are for growth there?

We're not backing away from multifamily. We, our approach has always been, we work with our customers that we know well, and that have strong credit history. And whenever these customers request financing from us, we'll jump into the opportunity. Now, for multifamily there is one factor is the there are a lot of, like Fannie Mae type of pricing that is hard to beat. Sometimes we have customers that even they've been banking with us for many years, and always look at us as a first right of refusal. But there are these very attractive pricing out there, that it just makes sense for them to refi for a very low rate. And we respect that. And so from that standpoint, we have I would say that more like a payoff due to refi for a lower rate type of situation to cause our net growth is lower.

Got it? Okay. And then just maybe for Irene, the FX and derivative fee income pretty outsized this quarter, or is there something that would make that remain elevated here in the near term? Or should we start to normalize that room right now?

Yes, I think from a customer income perspective, it was a good quarter for both FX and then IRC. IRC, and if you the details of this, Matthew, we have on slide 19 of our deck, you'll see earlier in the year for IRC, customer revenue was much higher. But I'll just point out for the fourth quarter, the CBA March were positive with the kind of uptick in the 10 year, and then also kind of read it for lower kind of credit costs associated with interest rate contracts. So for the quarter, if you look at IRC, total GAAP revenue was 13 million, approximately 6.2 of that was customer facing income. And then the CBA adjustment was a positive 6.8 million. FX was up. We had many more kind of transactions in the fourth quarter, particularly kind of quarter-over-quarter and from the earlier part, and we're optimistic that we'll continue to be able to grow FX year-over-year.

Okay, great. Thank you.

Our next question comes from Brock Vandervliet with UBS. Please go ahead.

Oh, great. Thanks for the question. You covered Greater China performance already. I was just going to ask in terms of, is that an area now with a change of administration? Or incremental investment, or do you really feel like you've already got the pieces on the board that you need?

Well, in terms of incremental investment, it depends on the opportunities. What we, we have plenty of capital, to allow the Greater China team to grow if need to be, but East West had never really worked on a business model to rely on Greater China to keep fast pace of growth in order for us to generate the kind of meaningful financial performance for our shareholders. So Greater China has always been more strategically important than quantity driven. So from that perspective, we'll continue to look into how we can use Hong Kong and our China team to look into opportunities. Frankly, in the United States, many of our domestic C&I business chose East West as the banker, because of our knowledge of the China business. And often many of them, either their importer or exporter, or they may be buying components from China and so forth, have that interconnectivity between U.S. and China. After all, these are the two largest U.S. and China, the two largest GDP in the world. So that interconnectivity is out there for many of the business around U.S., and our team in China, who are able to help to provide, advice and services in China or in U.S., for our clients make a big difference and differentiate East West dramatically from other regional banks that we're competing with. So that part has been going well, whether we will need to make additional investment or not, I think that will depends on any kind of potential changes in regulatory direction from U.S. and China, and what kind of like potential opportunities may come? If there is a great opportunities? Again, the previous question about any kind of opportunity we'll be interested in looking at, I'd always look at it as we look at it broadly. And any kind of opportunities that have a high certainty to provide better returns for our shareholders, we looked at it. So at this stage right now, I don't really have anything specific to mention. I would just say that we are always on the lookout to identify opportunities that to deploy our capital wisely.

Got it? And more broadly, do you anticipate any changes in the bit in your business model coming out of, of COVID work for or not?

Not anything dramatically No, I would say that we have always been very much running our organization with a very sort of like a diversified approach in terms of making sure that we touch on many different industries in U.S. and we have a good percentage of loans in C&I and well balanced between C&I, CIE and single family mortgages from the consumer side, and we are generating a stronger fee income every year from wealth management to foreign exchange, and then cash management fee income and interest rate swap, etcetera, etcetera. So that is still going to be in place. We are always going to make sure we have a good balance between commercial banking and retail banking, there are not many banks out there, they're competing with us right now without size that actually have a strong retail banking business like we do. And so that's a big advantage for us. And we'll continue to grow our consumer retail banking, business going forward. And the element of Greater China is that, as I said earlier, with this two big GDP, the world largest and the second largest, and there are plenty of business for us to identify it, particularly for an organization like East West that don't really have much competition against us because most of the U.S. banks really do not have this sort of the growth element. So we looked at all of that is why for years we said our mission envision in terms of in our business model to focussing on in this direction and I would say that this is more or less the same direction that we’ll be focussing on in the next ten years or so. So at this point we’re very comfortable with our business strategy going forward.

Great, thanks for the color.

Our next question comes from David Chiaverini with Wedbush Securities. Please go ahead.

Hi, thanks. I wanted to follow up on loan growth C&I growth. You mentioned turned positive in September and momentum continued into year end. You also mentioned that pipelines have positive momentum, as you kind of look out from here, but you also mentioned to expect slower growth and C&I in the first half of 2021 versus the second half of 2021. So should we expect kind of similar C&I growth in the first half of 2021 versus the annualized growth in the fourth quarter, of course, on an X PPP basis, and then a further pickup in the second half from there.

No, as I mentioned, I think that maybe in one of the Q&A earlier, our keep in mind, our fourth quarter annualized growth rate was 18%. But if you look at the second half of the year, our annualized growth rate was 7% for C&I, right 7%. So we're using the 7% run rate as what we expected for the year. And at this stage, we figure out in the current environment, just looking at the current environment with, we’re still trying to figure out do we have enough vaccine for everybody, or how many more variants of the Vax of the Coronavirus that may popped up. We just looked at it, it says maybe the first quarter and two. We wouldn't be expecting business to be coming back as business as usual as a strong, but I would expect it after despite the summer or after the summer, business is going to come back stronger, because most of the economy's going to get back into normal. So there will be a pickup. So keep in mind that while we booking commitment, as you look at the utilization rate, we are somewhat of an all-time low. Because normally in the past, we always have about 80% utilization rate, we dropped it down to 70% as a business and not too many of them are not joined down the lines. So we were very pleased that we can book new business, bringing in new customers, but many of them are still hunkered down and not drawing the lines and until the economy really see some sort of like normalcy, I would expect that business will continue to be hesitant to actively draw down the line and actively engaged in a full blown business. So from that standpoint, that's why we think that chances are, it's going to be a little bit slower in the first two quarters and then pick it up a little bit stronger in the third and fourth quarter. One other factor is that there's always in seasonality for some of our C&I business, that, in general, things tend to slow down particular sense of slowdown in the first and second quarter because particularly the business, cater to consumer retail, and there's always like, stacking up the inventory, right around it near the end of summer and then start stacking it up all the way to near Christmas, and that type of core business that we have for years, is still a meaningful size of business in our C&I portfolio. And we expect that this those business will continue to behave accordingly, which is a little bit slower in the first and second quarter a little bit stronger in the third and fourth quarter because of the utilization behavior. So from that standpoint, I think it's a combination of different factors that cause us to conclude with this sort of like forecast.

Thanks for that, very helpful. And then shifting to a question on credit, the oil & gas portfolio, classified loans were $240 million down 13% so clearly expresses easing in this portfolio. Would it be fair to say that the based case is for continued improvement in the oil & gas portfolio that were in there is potential for reserve releases here?

Yes, I would say that’s not outside of the realm of possibility. At this point in time, you can just see from the information that we shared. We did kind of in chop the reserve ratio at year end compared to 930. Just honestly given kind of the environment we wanted to maintain kind of a conservative view about that. But I would say that if things continue to improve, the reserve release is within the realm of possibility.

Thanks very much.

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

Thank you. Thank you all for joining our call today. And we are very much looking forward to talking to you in our next call in April. Bye, bye.

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.