East West Bancorp (EWBC) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Tuesday, Oct. 20, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Adrienne Atkinson
• Chairman and Chief Executive Officer - Dominic Ng
• Chief Financial Officer - Christopher J. Del Moral-Niles
• Chief Risk Officer - Irene H. Oh

TAKEAWAYS

• Net Income -- $382 million, increasing 5% from the previous quarter driven by record revenue and record net interest income.
• Diluted EPS -- $2.76, representing a 5% sequential increase reflecting record quarterly performance.
• Total Revenue -- $823 million, growing 4% quarter over quarter due to record net interest income and strong fee income performance.
• Net Interest Income -- $719 million, a 5% sequential increase driven by positive asset repricing and flat liability costs.
• Net Interest Margin -- 3.49%, expanding 6 basis points from the previous quarter as average total deposit costs declined.
• Total Loans -- $59.7 billion, a 1% sequential increase led by residential mortgage and multifamily lending growth.
• Total Deposits -- $71.5 billion, increasing 2% from the second quarter with $1.4 billion in net deposit growth.
• Noninterest-Bearing Deposits -- $18.5 billion, representing 26% of total deposits as of Sept. 30, 2026.
• Net Interest Income Guidance -- 9% to 10% growth for the full year, assuming short-term rates remain at current levels through Dec. 31, 2026.
• Loan Growth Guidance -- 6% to 8% for the full year, with residential mortgage expected to remain a primary contributor.
• Fee Income Guidance -- Greater than 10% growth for the full year, supported by wealth management and foreign exchange services.
• Net Charge-Offs Guidance -- 15 basis points to 20 basis points for the full year, narrowed from previous expectations due to solid year-to-date performance.
• Efficiency Ratio -- 34.4%, improving from 36.7% in the previous quarter reflecting disciplined expense management.
• Tangible Common Equity Ratio -- 10.0%, compared to 10.4% in the second quarter due to changes in the value of available-for-sale debt securities.
• Common Equity Tier 1 Ratio -- 15.4%, maintaining a strong capital position relative to regional and national bank averages.
• Provision for Credit Losses -- $45 million, compared to $33 million in the previous quarter reflecting loan growth and portfolio mix shifts.
• Net Charge-Offs -- $22 million, or 15 basis points annualized, representing a decrease from 19 basis points in the second quarter.
• Nonperforming Assets Ratio -- 0.30%, a 1 basis point increase from the prior quarter primarily driven by an uptick in other real estate owned.
• Residential Mortgage Growth -- Nearly $400 million in net growth during the quarter, supported by a robust current pipeline.
• C&I Loan Balances -- $19.8 billion, a 0.4% sequential decline reflecting reduced borrowings from nondepository financial institutions.
• Operating Noninterest Expense -- $259 million, a 3% sequential decrease driven by lower compensation and employee benefits.
• Wealth Management Fees -- $15.5 million, declining 20.1% quarter over quarter due to lower customer activity in structured product sales.
• Foreign Exchange Income -- $17.8 million, up 19.2% sequentially on higher customer transaction and hedging activity.
• Technology and AI Investment -- Computer and software expenses increased 38.9% year over year to $18 million, supporting infrastructure and internal efficiency pilot programs.
• Share Repurchase Authorization -- $117 million remains available for future buybacks after the company executed no repurchases during the quarter.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Oh stated, "Both of the special mention and the substandard loans for C&I increased a little bit," regarding the sequential uptick in criticized loan levels across the commercial portfolio.
• Del Moral-Niles warned that "higher rates overall will beget more customer attention to how much their opportunity costs actually cost them," potentially leading to a decrease in noninterest-bearing deposits if interest rates rise materially.

SUMMARY

East West Bancorp, Inc. (NASDAQ:EWBC) reported record financial performance for the third quarter of 2026, highlighted by record revenue, record net interest income, and record diluted earnings per share. Management reported that balance sheet growth was driven by a $1.4 billion increase in net deposits and record loan levels supported by residential mortgage and multifamily lending. The company stated that its strategy of direct customer outreach, termed "shoe-leather strategy," successfully grew demand deposit balances. While asset quality remained resilient with net charge-offs below prior guidance, management raised its full-year net interest income growth outlook and lowered its net charge-off expectations for the year.

• Management noted that if the Federal Reserve raises interest rates by 25 basis points, it would benefit net interest income by approximately $2.5 million per month with a 45-day lag.
• Christopher J. Del Moral-Niles stated that the bank's strategy of relationship managers visiting local businesses at their offices and shops contributed to the growth of demand deposit accounts.
• The company launched a registered investment advisor entity during the third quarter to organically expand its wealth management capabilities and fee revenue.
• Management reported that the Asia payments program is fully operational in Hong Kong, while the Mainland China program transitioned to a live status with modest initial transaction volumes.
• Dominic Ng stated, "We claim championship in relationship banking, and cross border banking. that is what we wanted to continue to spend all of our effort to."
• The bank identifies itself as an "early follower" in artificial intelligence, choosing to pilot initiatives focused on internal efficiency and cost containment rather than pioneering revenue-generation tools.

INDUSTRY GLOSSARY

• C&I: Commercial and Industrial loans.
• CET1: Common Equity Tier 1, a key regulatory capital ratio measuring a bank's core equity capital compared to its total risk-weighted assets.
• CRE: Commercial Real Estate.
• DDA: Demand Deposit Account, typically a noninterest-bearing checking account.
• HQLA: High Quality Liquid Assets, which are assets that can be easily and quickly converted into cash.
• NDFI: Nondepository Financial Institution.
• NII: Net Interest Income, the difference between the revenue a bank earns from its interest-bearing assets and the expenses of its interest-bearing liabilities.
• NIM: Net Interest Margin, a ratio that measures the difference between interest income and interest expense relative to the amount of interest-earning assets.
• OREO: Other Real Estate Owned, representing properties foreclosed upon or otherwise acquired by the bank in satisfaction of a debt.
• RWA: Risk-Weighted Assets, used to determine the minimum amount of capital a bank must hold to reduce the risk of insolvency.
• SOFR: Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
• TCE: Tangible Common Equity, a measure of a bank's capital which excludes intangible assets like goodwill.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to East West Bancorp's Third Quarter 26 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 third quarter 26 financial results. With me are Dominic Ng, Chairman and Chief Executive Officer Christopher J. Del Moral-Niles, Chief Financial Officer and Irene H. 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 a reconciliation of GAAP to non-GAAP financial measures, Please refer to our filings with the Securities and Exchange Commission including the Form 8-Ks filed today. I will now turn the call over to Dominic.

Dominic Ng: Thank you, Adrienne. Good afternoon. And welcome to all who have joined the call. East West delivered another quarter of strong performance generating record revenue record net interest income, record pre-tax pre-provision income, and record diluted earnings per share. These results reflect the value of our customers' relationships the resilience of our business model, [Inaudible] reached new record levels with over $1.4 billion of net deposit growth, primarily inflows of money market deposits. Deposit growth continued to be a key driver of our performance. Notably, we reduced our average deposit cost in the third quarter by 2 basis points even as we grew balances to record levels.

Other costs have been well controlled in the first 2 weeks of the fourth quarter Loans also hit a record this quarter with prudent growth led by residential and multifamily lending. This balance sheet growth contributed to record net interest income. Net interest income is up 9.5% year-over-year for the 9 months through September. Which leads us to raise our full year guidance today. This is importantly, asset quality remained solid Charge offs, non performing assets criticized loans remained well controlled and within our expectations, reflecting the quality of our portfolio and our disciplined approach to risk management.

Given our lower than expected year to date net charge offs, we are also updating our net charge off guidance lower for the year. East West continues to operate from a position of strength diversified business model, conservatively managed balance sheet, industry-leading profitability allow us to deliver an over 17% return on average tangible common equity while maintaining a >10% tangible common equity ratio. With that, let me turn the call over to Christopher for a more detailed review of our financial results. Christopher?

Christopher J. Del Moral-Niles: You, Dominic, and good afternoon to everyone on the call. Turning to Slide 4, we have more details on our deposits. We enjoyed a broad based deposit growth quarter. We are particularly encouraged by the strong money market deposit growth that Dominic just mentioned. Average non interest bearing deposits increased 16% year-over-year and our focus on small business checking accounts also continue to bear fruit. Non interest bearing demand deposits continue to represent >20% of our total deposits at quarter end, providing an important source of stable funding and supporting our ability to effectively manage our deposit costs. Turning to Slide 5, some highlights on loans. Loans grew 7% year-over-year consistent with our 6% to 8% full-year 2026 guidance.

As we previously communicated, residential mortgage, came in as this quarter standout with nearly $400 million of net growth. We continue to expect residential mortgage to be a key contributor to our growth given our robust current pipeline. Multifamily lending also had a strong quarter reflecting continued broad based housing demand in our core markets. CRE growth this quarter was led by our long standing real estate clients getting back into the market sometimes at discounted levels. T and I balances declined modestly from the second quarter, largely reflecting reductions in non depository financial institutions borrowings in business credit mortgage credit and other NDFI categories.

Switching to NII and margin on Slide 6, Our net interest margin expanded by 6 basis points quarter over quarter as positive asset repricing and flat liability costs drove NII to record levels. We note that both average total deposit cost and total cost of funds declined 2 basis points quarter over quarter. Given September's rate hike and our strong third quarter performance, we now expect full year NII growth of 9% to 10%, The guidance assumes that short term rates remain at current levels through the end of the year. So flat rates through December. Moving on to fees on slide 7.

For the first 9 months of 2026, fee income has increased 11% year-over-year supported by strong year to date growth in wealth management, deposit related fees, and foreign exchange income. We continue to expect full year fee income to grow by >10% for all of 2026. Looking at expenses on Slide 8, total operating non interest expense declined for the quarter. Decline was primarily driven by lower other operating costs and lower comp and employee benefits expense. As a result, East West delivered another quarter of industry leading efficiency. The Q3 efficiency ratio improved to 34.4% while operating non-interest expense as a percentage of average assets declined 8 basis points to 1.21% Both of these are industry leading metrics.

Year to date growth in operating non-interest expense is 8% in line with our guidance and we remain comfortable with our overall full year expense guidance. I will now hand the call over to Irene for comments on credit and capital.

Irene H. Oh: Thank you, Christopher, and good afternoon to all on the call. As you can see on Slide 9, credit performance remained resilient in the third quarter. Net charge offs declined to 15 basis points or $22 million in the third quarter compared to 19 basis points in the second quarter of $27 million Year to date, annualized net charge offs were 14 basis points. Given our performance through the first 9 months of the year, our current visibility, we have narrowed our prior guidance for net charge offs and now expect full year charge offs to be 15 to 20 basis points.

Quarter over quarter, non performing assets saw a slight uptick of 1 basis point to 30 basis points as of September 30, 2026. We recorded a provision for credit losses of $45 million in the third quarter compared with $33 million for the second quarter. Overall, credit performance remained solid We continue to manage credit risk with vigilance and discipline. Turning to Slide 10, the allowance for credit losses increased $23 million to $865 million or 1.45% of total loans as of September 30. Reflecting quarter over quarter loan growth and portfolio mix shift. Our allowance coverage ratio increased 2 basis points from the prior quarter and remains at a healthy level relative to the risk of the portfolio.

Turning to Slide 11, East West capital remains a significant source of strength and strategic flexibility. All regulatory ratios remain well in excess of regulatory requirements for well capitalized institutions, and continue to compare favorably to both regional and national banks. At quarter end, our common equity Tier 1 ratio was 15.4% while the tangible common equity ratio was 10%. These levels support current and future balance sheet growth. East West ended the quarter with $117 million of repurchase authorization that remains available for future buybacks and declared a fourth-quarter 2026 dividend of $0.80 per share. I will now turn the call back to Christopher.

Christopher J. Del Moral-Niles: Thank you, Irene. So to recap, we have updated 3 elements of our guidance today. Each of which is reflected on Slide 12. 1. We are increasing our NII outlook assuming flat rates. 2. We are reducing our full year net charge off range and 3. We are narrowing our expectation for the amortization of tax credits and COA investments. All of which reflected again on Slide 12. With that, we will now open the call to questions. Operator?

Operator: Thank you. If you are using a speakerphone, please pick up your handset before pressing the keys. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Casey Haire at Autonomous Research. Please go ahead.

Christopher J. Del Moral-Niles: Good afternoon, Casey.

Casey Haire: Yes. Great, thanks. Good afternoon, everyone. Christopher, I wanted to touch on the deposit beta and the shoe leather strategy, which has obviously got pretty good momentum here. When I look at you guys your cumulative data in the last upcycle, it on an IBD basis, it was--oh, what was it? 60. 72. So with the shoe leather strategy working, is there an opportunity to do. To come in below that this go around with the Fed hiking?

Christopher J. Del Moral-Niles: I think what we have said before, would stand by, which is higher rates overall will beget more customer attention to how much their opportunity costs actually cost them. So will I tell you that I expect to do better The reality is, as we were at once upon a time at 40%, we came down into low 20s. We are continuing to work our way up. We are continuing to build on that. But I am not sure I have changed the economics of deposit math. And so the reality is, we continue to make progress. We continue to build the DDA book But if rates go materially higher, we will still see some bleed off.

On the other hand, as we have shown already, even with rates ticking down just a little bit, we will probably see continued improvement in DDA over time. Got you. Okay, great. And then I guess just switching to the loan side of things, can you just give us a flavor of where new money loan yields are just across your products? Versus the third quarter rate? I look at the broad cross section of our commercial loans, they are generally SOFR based. And we are generally somewhere between SOFR 25 and 52. Obviously, C&I and CRE sometimes trade places in that range, but that is the right range to focus on. Great. Thank you.

Operator: The next question is from Ryan Kenny at Morgan Stanley. Please go ahead.

Christopher J. Del Moral-Niles: Good afternoon, Ryan.

Ryan Kenny: Hi, good afternoon. Thanks for taking my questions. So you mentioned no hike in the guidance. And so if we were to get a hike, at some point this year, would that potentially push you more towards the high end of the range?

Christopher J. Del Moral-Niles: that is correct. And I think what we have quantified before is that we believe a 25-basis-point hike is worth $2.5 million per month with a bit of a lag. We have usually put that lag at about 45 days. But to the extent that the forwards are pricing in a hike, it may come through a little sooner, which we certainly observed in the September hike.

Ryan Kenny: And then separately, in the deck, it shows that the criticized loans and nonperforming assets picked up a little bit sequentially. And so just wondering if you could give any color on what drove that?

Irene H. Oh: Yes. If you look at the details that we show a little bit more in the slides, the increases did cover C&I and that was in categories, not 1 area or not 1 area or asset class we are most concerned about, but both special mention and substandard ticked up a little.

Operator: Next question is from Dave Rochester at Cantor. Please go ahead.

Dave Rochester: Hey, good afternoon, guys. Wanted to start on your outlook for the 4Q NIM to be broadly stable versus 3Q? Just given the September hike, I know things may have started a little bit for you earlier that benefited the third quarter, but it is the same thing happens with the potential December hike. I think that you would have some extra lift there that could get you a little bit higher on the NIM. So I am wondering, what are some of the off offsets that you are thinking about? Is it just deposit costs start to move Or is there something else going on? Thanks.

Christopher J. Del Moral-Niles: it is a combination of could deposit costs chip into that, which we thankfully have not seen here through the first couple of weeks of October, as Dominic mentioned. But again, it is early and we could see that. And certainly, there is a recurring pattern of additional hikes, we would expect to see some of that catch up into our numbers. We are still fundamentally asset sensitive, Dave. So to your broad question and then following up on Ryan's comment, yes, if we saw higher rates, we would expect NII to grow. Yes. And we think that the margin could expand a little bit then in Q4. Is that fair?

Based on what we are seeing right now, we think the margin holds broadly consistent, but it could expand. Okay.

Dave Rochester: And my question on the FX line, Was wondering if the fee growth was related to the rollout of the new platforms in the Mainland China customers this quarter and if you could just talk about where you are in that rollout and any early reports on how that is going, that would be great.

Christopher J. Del Moral-Niles: Yes. So our full program, our Asia payments program is in effect for all of our Hong Kong based activity and we are largely seeing upticks both in number of transactions individual wires counts and dollar volumes. So that is working for us. Those wire fees are largely reflected in the commercial deposit related fees. Foreign exchange activity really has just been driven by other customer transactions. Other customer activity. Some hedging activity and some notable spot transaction activity that we saw throughout the quarter. With regard to our Mainland China, program, that is now live, but transaction volumes are still modest.

We expect that to kick in as we roll through the fourth quarter and into the first quarter of next year. All right, great. Thanks for the color. Appreciate it.

Operator: The next question is from Bernard von Gizycki at Deutsche Bank. Please go ahead. I am sorry if I mispronounced your name.

Christopher J. Del Moral-Niles: Good afternoon, Bernard.

Bernard von Gizycki: Alright. Good afternoon. Just for my first question, maybe on the wealth management fees, I know that ticked down $4 million linked-quarter. And I know that was on lower activity, but just any other color you can provide in that line item and expectations maybe how the quarter just started?

Christopher J. Del Moral-Niles: We have had really strong results earlier in the year in our structured product sales. Predominantly structured notes, and those had provided some nice lifts particularly in the first quarter stepped down a bit in the second quarter and unfortunately stepped down a little bit more in the third quarter. That having been said, many other aspects of the business continue to sort of move in the right direction. We have continued to hire folks that we expect will help us build those volumes as we look into the fourth quarter and 2027. And then just a follow-up on the current quarter NIM, expectations were coming in, I think, flat as well. And it increased 6 basis points.

Just kind of curious what drove the better performance than previously expected? Just want to understand the puts and takes in the quarter. I think the reality is we were able to contain deposit costs much more effectively than we anticipated. And the net inflows both of DDA and money markets allowed us not to have to grow our wholesale levels. Which meant we did not have to pay any higher costs for the incremental asset growth that we saw during the quarter, which was a net positive. Okay. Thanks for taking my questions.

Operator: The next question is from David Chiaverini at Jefferies. Please go ahead.

Christopher J. Del Moral-Niles: Good afternoon.

David Chiaverini: Hi, thanks for taking the questions. On the non interest bearing deposit mix, clearly holding in very strongly here in the third quarter. Should we expect the DDA growth momentum to continue? And remind us what is driving this strong growth?

Christopher J. Del Moral-Niles: Sure. And so I think we referred to this previously as sort of our shoe-leather strategy, which is we have asked each of our branch managers, assistant branch managers and commercial relationship managers to go pound the pavement and walk up and down whether it is Main Street, Broadway, Valley Boulevard, whatever the most significant thoroughfare for their customers is within their neighborhood. More than once. To make sure they have knocked on each door to make sure we have had the opportunity to make our inroads. And that outreach and calling and visiting our customers at their offices at their shop, at their restaurant.

Has just resulted in a flow of activity that thankfully has helped us maintain and grow these balances over the last year and a half. And continues to bear additional fruits and that deposit accounts opened last year are actually growing in total balances year over year. And so that has been a wonderful strategy that is worked really well and continues to help us grow our DDA balances. At this point in time, certainly more than $1 out of $4 of net deposits on average has come to us in incremental DDA and continues to be the primary source of net growth across the bank as we look at the last year and a half or so.

And something that we are very proud of. I am very, thankful for the team that put the effort in to make those calls on all their biggest customers up and down all the different avenues. Great. Thanks for that.

David Chiaverini: And in terms of the CDs that were renewed in August from the Lunar New Year, did those mostly renew into new 6-month CDs or did they go out further with term?

Christopher J. Del Moral-Niles: Actually, offered both a special 9- and 12-month term. And so we got a mix across all 3 of those. Thankfully, as you can notice on Page 11 in the tables, the net cost of that program that was still a net reduction our total time deposit cost came down by 3 basis points. Quarter over quarter. And so even despite the fact that we extended into a lower total cost blend what we started with, which was a welcome benefit. I would also note that we have got $15 billion rolling off during the fourth quarter of CDs but our second quarter specials were not particularly aggressively priced.

But we have both positive opportunity because the repricing benchmark will be low and a risk of those. there is some volume there. So back to Rochester's question, what are some of the puts and takes CD repricing will be an important part of what happens for us in the Q4. But we have taken that into consideration broadly expect stable NIMs through the quarter. Very helpful. Thank you.

Operator: The next question is from Timur Braziler at Wells Fargo. And I probably messed that 1 up, too. Sorry about that.

Christopher J. Del Moral-Niles: Good afternoon, Timur.

Timur Braziler: Hi, good afternoon. Maybe dovetailing on that last question, just any early thoughts around how aggressive East West may be this go around for the Chinese Lunar CD specials just in light of how strong other loan growth or other deposit growth has been?

Christopher J. Del Moral-Niles: I think we will give guidance for 2027. In 2027, But as we sit here today, we are very comforted by the recent trends we have seen in CD repricing. And our current CD specials we think are at appropriate levels to retain the balances that we have today. Okay, fair enough.

Timur Braziler: And then maybe 1 on capital. You guys have maybe been a little bit more focused on TCE. Just any evolution of thoughts on excess capital here, given the linked quarter reduction, albeit still at a high level of 10%? Then maybe what, if any, impacts does that have on capital priorities, primarily your appetite for M&A?

Christopher J. Del Moral-Niles: No. I think our capital priorities are outlined. I And Irene commented on them, but organic growth continues to be priority 1 for the bank. At 10% tangible common equity, which is a level Dominic has previously commented on, the level that we are very comfortable with. We think that we have the flexibility to meet all of the organic growth opportunities present to us from our current customers pay a competitive dividend and still have the flexibility to be thoughtful about perhaps disciplined inorganic opportunities. And opportunistic share repurchase. I think that is the right framework from which we sort of look at the landscape.

From a position of strength with the capital to do the things that we need to for our customers, and the flexibility to do the things that we might want to do should they be the right things to do and consider for the price and the value the timing and the opportunity when they come forward. Dominic, anything you would add to that?

Timur Braziler: Great. Thank you.

Operator: The next question is from Janet Leigh at TD Cowen. Please go ahead.

Christopher J. Del Moral-Niles: Good afternoon, Janet.

Janet Lee: Hello. Could you give us some puts and takes around the C&I growth. I understand that the decline was really driven by the lower NDFI. How about on the core C&I side and the outlook there on the loan growth front, Going forward?

Christopher J. Del Moral-Niles: Yes. So clearly, I think if you look back to the MBFI slides, you will see that the reduction in consumer credit and mortgage credit added up to over $300 million. So obviously, that means the core side had a positive of well over $200 million. That was a pretty diverse mix of businesses and that made up the positives on the core bilateral C&I. We continue to expect more core bilateral C&I business to land in the fourth quarter. And we continue to be pursuing that sort of through all avenues. But as Irene sort of mentioned in the credit side, there was not a particular concentration.

We have not seen a particular sector or industry that has emerged as the growth driver. it is been a broad based cross section of commercial lending activity. I will also add to total commitments are up, Janet. But utilizations are a little bit down quarter over quarter. Got it. Thanks for the color.

Janet Lee: And the NPLs were down quarter over quarter in dollar terms, but the criticized ratio on the C&I front went up a bit and so was the allowance for loan losses for the C&I segment. Can you explain what drove the criticized levels in the quarter?

Irene H. Oh: Yes. And I think someone else asked this earlier. Both of the special mentioned and the substandard loans for C&I increased a little bit. Look at the detail, there was not necessarily just 1 sector or area in specific. I would say maybe to report a little bit, we have a number of upgrades to offset some of the downgrades When we look at the details, we are comfortable we will be able to help our clients work through this. Thank you.

Operator: The next question is from Chris McGratty at KBW. Please go ahead.

Christopher J. Del Moral-Niles: Great. Thank you very much. Hello.

Chris McGratty: A lot of questions about the components of fee income. I think, Christopher, in your prepared remarks, you talked about double digit growth for the year. I guess stepping back, this has been a focus of the bank for several years. I guess where in the build out of the fee income capabilities are you maybe an inning? And then can you accelerate it organically? Is that something inorganically that is an option? Any color would be great. Thanks.

Christopher J. Del Moral-Niles: I think we are still very much in the early innings. While we appreciate the fact that the commercial bank has been building out, I think we are still building the capability to provide a broad session of services payment services, investment solutions and services, foreign exchange solutions and services, to a wider range of our clients. And so while we recognize we have made great progress and we are very pleased by the double digit growth We also know we are just scratching the surface of what is possible. And it is got to be early innings given the opportunities we see ahead.

Chris McGratty: Okay. Great. And then the second question would be on expenses.

Christopher J. Del Moral-Niles: You guys have track record of setting the bar on expenses and not moving it throughout the year. Within that, can you just speak for a moment on current AI strategies tech spend, any early wins from those investments? Thanks. Sure. I think the reality is computer and software related expenses are up 21% year-over-year, which would be perhaps a high number and a shocking number. But I would note that again, our total expenses are exactly in line with our guidance. and so it is part of the plan to continue to grow those.

Where we have seen pilot initiatives in our AI development efforts internally, They have been focused on efficiency and speed of evaluation of things, so more on cost saving oriented activities. And we have not quite found the right use case yet that boosts revenue. But we will continue to I think, pilot some initiatives that we think will help us contain costs, and we will be looking for the right revenue opportunities when they present themselves.

Dominic Ng: Christopher, we are kind of, when it comes to AI, we are early followers. So if someone have some great idea that will actually work great, we are more than happy to follow But then we would not think that East West Bank which are great on relationship banking, great in cross border banking, those are where we differentiate ourselves from all our other peer banks and that is why we have this very high return of equity even when we have very high tangible you know, common equity ratio. But folks like that do not suddenly get very nerdy and then become an AI expert.

So the reality check is that we will be much better off to pay attention to what all the other folks are doing either in the banking industry or even in the FinTech world. We are paying attention to it. Whenever someone can actually come with something great, we will be happy to follow. We do not want to be that pioneer to spend a lot of tokens And just for the sake of saying that we are the first to come up with this and first to come up with that. that is not, you know, an area that we feel that we can easily claim to be champion.

We claim championship in relationship banking, and cross border banking. that is what we wanted to continue to spend all of our effort to. So and I do feel that we have tremendous respect what AI can do to help the bank. We think there will be plenty of opportunities. We also respectfully making sure that there are risk involved right now. And right now, the landscape is somewhat chaotic in that standpoint. So we want to be prudent and make sure that if someone want to be heroic, make sure they are not us.

And then our position is that when we see that the battlefield is clear that there is something great We will go ahead and snatch it.

Operator: The next question is from Ebrahim Poonawala at Bank of America. Please go ahead.

Christopher J. Del Moral-Niles: Good afternoon, Ebrahim.

Ebrahim Poonawala: Hey, good afternoon. 2 questions. First, just around credit more in terms of forward looking We saw rates gap up a fair bit, during the third quarter. Just remind us like how you think or how we should think about the risk of incremental pressure both in terms of, thinking about your commercial real estate book or on the C&I side does that mean much, especially if rates go up even further, does that in any meaningful way, increase the credit risk? You look through your portfolio.

Christopher J. Del Moral-Niles: Clearly, rate higher for a far longer extended period of time will put more pressure on more customers. We take that as a given, That having been said, Irene, I do not know if you want to comment on sort of where we are. But I would note that at 30 basis points of NPA, it is really not that much of a change from where we were last quarter or frankly from a year ago.

Irene H. Oh: I think, Ebrahim, Christopher's point is correct. Higher for longer does increase credit risk, not only for East West Bank, for every bank. With that said, you know, if you look at our loan book, you know, we have been disciplined in our underwriting. Low loan-to-values. These are things that help. You know, in this period of time when rates have gone up or last several years where there is been concern about 1 asset class or another. Overall, we have done really well, better than I expected. And I think that is a testament to the underwriting, the credit quality, and the collateral that we have against the loan.

So relative to others, I expect that we will do fine. Got it.

Ebrahim Poonawala: And I guess, just a separate question. Dominic, mentioned about 1 of your areas you are champion in is cross-border. Just give us a latest on kind of where those cross border flows are given where US China relationships stand, just what are the drivers as you think about driving activity? Any difference today than 5 to 10 years ago? And maybe just broadly, like, what is customer sentiment and resilience to all the macro noise and geopolitics?

Dominic Ng: Well, I think if we compare with, let's say, 5, 7 years ago, obviously if you look back we our cross border customers obviously has quite a bit of back then quite a bit anxiety concern about tariffs. Because that was something relatively new that U. S. Imposed across the board And many people were just trying to figure out how to adapt to it. And then on top of it, what would be the consumer sentiments and how. How can you pass through the costs to the consumer or is that you have to just go halfway in between?

There are many sort of issues that each and every 1 of these companies, by the way, it is not just a cross border issue. In fact, all business in U. S. Pretty much have to deal with that challenge. But as we look at it today, tariffs are like a very day-to-day common thing. It gets everybody gets so used to it. You know, they may not like it. They get used to it. And everybody adjusted, adapted, and then moved on. And so I looked at it and said, quite frankly, even that if you look at today that U. S.

China relationship appear to be getting better The Trump administration are working with China to maybe find some other better way to reduce tariff and whatnot. But frankly, many of the business do not really pay that much attention to it anymore in a way because people just get used to it. But East West Bank, our position is that in good time and bad times, East West is still out there. Offering our best you know, issued banking services to our client. And we stay on top of what is been happening in the geopolitical issue and we do the best we can to provide best support for our clients.

So with that, and I then you can look at our results for the past, you know, 10 years. Since the first Trump administration. What you see is that year in year out, we continue to outperform all the other banks. Geopolitical tension was a lot more worse. Some years it seems to be better. Performance has been steady. And even when we have record earnings after record earnings, they are just slightly better than the year before. And so because we manage our business, pretty vigorously. We do not ever want to get ourselves off in terms of going into the edges and committing too much risk and then eventually end up paying for it.

So our position is that run a prudent relatively conservative balance sheet, make sure we have ample capital. And we will continue to focus on organic growth while always with our eyes open for any kind of potential opportunistic and strategically viable M&A opportunity. The reality is that because we spend so much time focusing on the organic business growth. And making sure we have better products we have better capability and whatnot And relatively speaking, it makes the M&A opportunity less likely because we continue to be able to find way to grow organically. Everything is an opportunity cost.

Why would I want to go out there, buy another bank and deal with their problems Unless I am in a bind that I cannot grow. Which is never the case at East West. So that is why it is not something that suddenly we have gone quiet and dormant When it comes to M&A world. it is just that relatively speaking. We just have not found anything that we feel that the opportunity cost justified And so in short, I would say that from a cross border banking business right now, continue to build better capability and we continue to see more opportunities This universe is big.

And it is going to take us decades after decades in order to get sort of like, feel like we are oversaturated. Got it. Thank you.

Operator: The next question is from Jared Shaw of Barclays. Please go ahead.

Jared Shaw: Hey, thanks. Good afternoon. A lot of questions asked. I guess, do you know what the--was there any measurable impact on tariff refunds on deposit growth or DDA growth in the quarter?

Christopher J. Del Moral-Niles: It was a small positive. We have had over a billion dollars of total deposits refunds flow through the bank. Most of that came in the second quarter, but we had some carry forward into the third quarter. The on balance sheet portion that we would say is related to sort of same customer, same account is less than $200 million in the quarter end number. And there is probably a similar amount that is migrated on to money market or other savings vehicle. But, it is a small number. Most of the refunds came through were then passed through to either underlying buyer seller or someone else in the chain.

And so they went out, but you know, again, a couple of hundred million stayed on the books and they are still in DDA. Those have also been here for 30 to a hundred and 20 days. And so we do not know that there is a reason they are gonna leave us, but would expect some of that will stick for the long haul and it is been a plus. Okay. Thanks.

Jared Shaw: And then I guess just on the credit side, there was an increase in OREO. Any color on what was driving that and what your expectations are for disposition timing and potentially any additional loss on that?

Christopher J. Del Moral-Niles: Well, the good news is CRE NPLs came down. Go ahead, Irene.

Jared Shaw: I saw that.

Irene H. Oh: So now that we have got our math, our arithmetic here sorted out, So we did have some loans that we foreclosed on that were nonperforming, and we did also have some decent moves That we talked in the, in the quarter. We are working through it. In the volume, the numbers are not at a level Where we are super concerned at this point, but certainly, team is working hard as far as, selling these properties. Geographically, it is dispersed. Asset type, it is as well. We are working through that. So no big concentration, It was--it is more granular. Yeah.

I mean, certainly, if you look where we are at, there are asset classes that hit all of our real estate. balances. While single-family is smaller. larger ones are CRE. Category wise, right, we have REOs that are in the categories greenhouses, office, retail, and also some 1 vacant land, but overall, you know, we are moving through these Some of them have LOIs and hope to see some resolution very soon. Thanks.

Operator: The next question is from Benjamin Gerlinger at Citi. Please go ahead.

Benjamin Gerlinger: Just wanted, kind of just higher level. Guys have kind of alluded to previously, like, adding something within fee income or view kind of a bigger wealth management offering or trust or something like that. But and, Dominic, when you when you just talked about, like, being there for your clients on. Across pretty much every spectrum, is there other areas where East West might be potentially naked in the offering where there is nothing to really add, or you just really bolstering current offerings right now? I am just thinking inorganic. Potentials down the road.

Christopher J. Del Moral-Niles: I think broadly speaking, we focused on a good portion of our attention on the corporate development front looking for the right bolt on or add on our wealth management. And to a large extent, did not obviously find the right opportunity. And so we did during the third quarter formally launch our registered investment advisory entity and we are in the process of building organically out the team to further those efforts. And so at this point in time, there is nothing there However, we will continue to look for the way to further diversify and grow our fee revenues over time, and that is the focus as we move forward. Got it.

Benjamin Gerlinger: And then tailoring rules changed $100 billion I am not necessarily looking for like an acquisition-type answer, but like, would-- Is there anything on the balance sheet, whether it be HQLA approach to security? Is there anything on that end that like, you might tweak the current operations?

Christopher J. Del Moral-Niles: As we sit here today, I think we have built an HQLA oriented investment portfolio that would be appropriate and suitable should we be subject to those rules as they, get finalized, which we expect somewhere here in the next 3 to 6 months. But if their rules do not change, we are on a path to be appropriately positioned. To successfully grow into them. If the rules do change, then we will have even more flexibility. Got it. Thank you.

Operator: The next question is from David Smith at Truist Securities. Please go ahead.

David Smith: Just as we think about the range of outcomes for NII in the fourth quarter, you are pointing to an expectation of a flat margin and the loan growth outlook suggests somewhere between $0.5 billion and $1.5 billion of additional loan growth in the fourth quarter. So even the midpoint of your full year guidance, we have NII about flat in the fourth quarter versus the third quarter. So I guess with a flat margin and balance sheet growth, why would not you be towards the upper end of your NII range?

Christopher J. Del Moral-Niles: I like your math. Fair enough.

Operator: Next question comes from Matthew Clark at Piper Sandler.

Matthew Clark: Just wanted to touch on deposit costs a little further. If you had the spot rate at the end of September, And then also the $15 billion of CDs that are maturing, just the kind of the roll off and roll on rates that you expect?

Christopher J. Del Moral-Niles: Sure. So on the 15 billion most of that again was priced about 6 months ago. The end of period costs that is the 2 questions. So the first 1 is right now the current month 6-month CD special is at $3.65 the 9-month is at $3.78, and the 12-month is at $3.88 Now a portion of the $15 billion, of course, it does not all come on, special rates. So people that will roll over existing programs at lower rates. So you have to think about the blend But the blended rate that we are offering here in the fourth quarter on the 6-month offering is very much in line with what we were offering in the second quarter.

As we sit here today, it is relatively flat. Assuming there is a similar reinvestment profile of the underlying fees. Which would be a good outcome. With regard to the second part of your question, our total interest bearing deposit costs at quarter end was $2.83 That compares to an average of $2.81 on average for the full third quarter And we have not really seen that move as we sit here. If anything, it is probably stayed flat, gotten a little bit better as we move into the fourth Okay, great.

Matthew Clark: And then just back to the capital return knowing you guys have a ton of capital and accumulating capital, Can you just remind us of your targeted dividend payout ratio as earnings continue to grow?

Christopher J. Del Moral-Niles: We have not targeted a specific ratio. We raised the dividend by 1/3 last year. We are at $0.80. We reiterated and declared $0.80 dividend today for our shareholders in the fourth quarter. And we are committed to look at that and revisit that at least annually. And so we will do so in the ordinary course. Fair enough. Thanks.

Operator: At this time, we show no further questions. And that concludes our question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.

Dominic Ng: Before we conclude, I would like to thank our employees for their hard work and commitment to serving our customers. We are encouraged by the momentum we are seeing across our core businesses and confident in our ability to execute on the opportunities ahead. Thank you for joining us today. And we appreciate your continued interest in East West and looking forward to speaking with you again next quarter. Bye.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.