Q3 2025 East West Bancorp Inc Earnings Call
Speaker #1: Good afternoon, and welcome to the East West Bancorp Q3 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing *0.
Christopher Del Moral-Niles: Good afternoon and welcome to the East West Bancorp Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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.
Speaker #1: Please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star then one on your telephone keypad .
Speaker #1: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Adrian Atkinson , Director of Investor Relations .
Speaker #1: Please go ahead .
Speaker #4: Thank you . Operator . Good afternoon , and thank you , everyone , for joining us to review East West third Quarter 2020 Financial results .
Adrienne Atkinson: Thank you, Operator. Good afternoon, and thank you everyone for joining us to review East West Bancorp Inc.'s third quarter 2025 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 a 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.
Speaker #4: With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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-K filed today.
Speaker #4: I will now turn the call over to Dominic.
Speaker #5: Thank you . Adrian . Good afternoon , and thank you for joining us for our earnings call . I'm proud to report East West record breaking financial results for the third quarter .
Dominic Ng: Thank you, Adrienne. Good afternoon, and thank you for joining us for our earnings call. I'm proud to report East West Bancorp Inc.'s record-breaking financial results for the third quarter. We continued to grow the bank and reported record quarterly revenue, net income, and earnings per share. This third quarter was also another record quarter for deposits. Our deposit-led growth funded our entire loan growth, allowing us to further optimize our funding mix and contributing to improved liquidity. This deposit growth drove record levels of net interest income for the quarter. We are continuing to attract core deposits while prudently balancing our loan and investment positions to optimize returns. On the fee revenue side, every one of our fee businesses, wealth management, FX, derivatives, all reported quarter-over-quarter and year-over-year growth. Our wealth management business, in particular, continues to expand strongly, reflecting increasing customer penetration and deepening relationships.
Speaker #5: We continue to grow the bank and reported record quarterly revenue, net income, and earnings per share. This third quarter was also another record quarter for deposits.
Speaker #5: Our deposit-led growth funded our entire loan growth, allowing us to further optimize our funding mix and contributing to improved liquidity. This deposit growth drove record levels of net interest income for the quarter.
Speaker #5: We are continuing to attract core deposits while prudently balancing our loan and investment positions to optimize returns on the fee revenue side . Every one of our fee business , while management FX derivatives all reported quarter , over quarter and year over year growth .
Speaker #5: Our wealth management business in particular , continues to expand strongly , reflecting increasing customer penetration and deepening relationships . Asset quality has remained resilient and credit is performing as expected with low absolute levels of net charge offs and non-performing assets .
Dominic Ng: Asset quality has remained resilient, and credit is performing as expected with low absolute levels of net charge-offs and non-performing assets. We have significant capital levels to support our customers and the flexibility to capitalize on opportunities across market environments. With 10% tangible common equity, we continue to operate from a position of strength. I will now turn the call over to Chris to provide more details on our third quarter financial performance.
Speaker #5: We have significant capital levels to support our customers and the flexibility to capitalize on opportunities across market environments, with 10% tangible common equity.
Speaker #5: We continue to operate from a position of strength , and will now turn the call over to Chris to provide more details on our third quarter financial performance .
Speaker #6: Thank you . Dominic . Let me start with more details on our deposits . Looking to slide for . East . West grew deposits by over 1.5 billion in the third quarter .
Christopher Del Moral-Niles: Thank you, Dominic. Let me start with more details on our deposits. Looking to slide four, East West Bancorp Inc. grew deposits by over $1.5 billion in the third quarter. Notably, non-interest-bearing deposits outpaced time deposit growth on a percentage basis, reflecting our focus on diversifying our deposit mix. The mix shift was driven by our branch-based consumer and business banking customers who added to their granular household and small business accounts. Our commercial deposit customers also grew their balances with notable increases in commercial DDA as well. Given the strong deposit inflows, we seized the opportunity during the quarter to reprice our wholesale funding and to strategically reduce our treasury managed deposits, public funds, and Federal Home Loan Bank borrowings throughout the quarter. We expect continued deposit growth in Q4. Moving on to loans on slide five, East West Bancorp Inc.
Speaker #6: Notably , noninterest bearing deposits outpaced time deposit growth on a percentage basis , reflecting our focus on diversifying our deposit mix . The mix shift was driven by our branch based consumer and business banking customers , who added to their granular household and small business accounts .
Speaker #6: Our commercial deposit customers also grew their balances, with notable increases in commercial DDA as well. Given the strong deposit inflows, we seized the opportunity during the quarter to reprice our wholesale funding and to strategically reduce our Treasury managed deposits.
Speaker #6: Public funds and Federal Home Loan Bank borrowings. Throughout the quarter, we expect continued deposit growth in Q4. Moving on to loans on slide five.
Speaker #6: East West posted another steady, balanced quarter of loan growth with over $800 million in fundings in the third quarter. Commercial real estate balances grew as we continue to support our longstanding clients.
Christopher Del Moral-Niles: posted another steady, balanced quarter of loan growth with over $800 million of fundings in the third quarter. Commercial real estate balances grew as we continue to support our long-standing clients. Our commercial real estate book remains very granular with an average loan size of just $3 million and LTVs of less than 50% in most categories. Demand for residential mortgage also proved resilient during the quarter, and our pipelines remain full leading into Q4. We expect residential and consumer lending to be a consistent contributor to our year ahead. D&I grew more modestly this quarter as utilization remained broadly stable. Looking to net interest income and margin, our continued low-cost deposit growth strategies drove our record-reported NII as we reduced end-of-period deposit pricing by 10 basis points quarter over quarter.
Speaker #6: Our commercial real estate book remains very granular, with an average loan size of just $3 million and LTVs of less than 50% in most categories.
Speaker #6: Demand for residential mortgage also proved resilient during the quarter, and our pipelines remain full leading into Q4. We expect residential and consumer lending to be a consistent contributor to our year ahead.
Speaker #6: CNI grew more modestly this quarter as utilization remained broadly stable . Looking to net interest income and margin , our continued low cost deposit growth strategies drove our record , reported NII .
Speaker #6: As we reduced end of period deposit pricing by ten basis points quarter over quarter . Looking back to the start of the cutting cycle , we have lowered our interest bearing deposit costs by 77 basis points .
Christopher Del Moral-Niles: Looking back to the start of the cutting cycle, we have lowered our interest-bearing deposit cost by 77 basis points against a backdrop of 125 basis points of cuts in the Federal Reserve's target rate, achieving a downcycle beta of 0.62 even while growing our deposit base over the course of the year. I note that our reported third quarter NII included $32 million of discounted accretion and interest recoveries from the full payment on some purchased credit impaired and workout loans. However, even excluding this amount, our adjusted NII of $645 million was still an all-time quarterly record for East West Bancorp Inc. Moving on to fees on slide seven, fee income was $92 million, marking another record quarter for East West Bancorp Inc. Year over year, our fees have grown 13%, while our wealth management fees specifically have grown 36%.
Speaker #6: Against the backdrop of 125 basis points of cuts in the Fed's target rate, we achieved a down cycle beta of 0.62, even while growing our deposit base over the course of the year.
Speaker #6: I note that our reported third quarter net interest income included $32 million of discount accretion and interest recoveries from the full payment on some purchased credit-impaired and workout loans.
Speaker #6: However , even excluding this amount , our adjusted NII of 645 million was still an all time quarterly record for East West . Moving on to fees on slide seven .
Speaker #6: Fee income was $92 million, marking another record quarter for East West year over year. Our fees have grown 13%, while our wealth management fees specifically have grown 36%.
Speaker #6: As Dominic mentioned, all fee categories grew, reflecting our sustained focus on building out new products, services, and capabilities for our customers.
Christopher Del Moral-Niles: As Dominic mentioned, all fee categories grew, reflecting our sustained focus on building out new products, services, and capabilities for our customers. Turning to expenses on slide eight, total operating expenses were $261 million for the quarter. This amount included $27 million of additional compensation expense relating to a one-time change in our equity award recognition for retirement-eligible employees. Even including these charges, East West continued to deliver industry-leading efficiency while investing for our future growth. The reported Q3 efficiency ratio was 35.6%. With that, let me hand the call over to Irene for comments on credit and capital.
Speaker #6: Turning to expenses on slide eight. Total operating expenses were $261 million for the quarter. This amount included $27 million of additional compensation expense relating to a one-time change.
Speaker #6: In our equity award recognition for retirement eligible employees . Even including these charges , East West continued to deliver industry leading efficiency while investing for our future growth .
Speaker #6: The reported Q3 efficiency ratio was 35.6%. With that, let me hand the call over to Irene for comments on credit and capital.
Speaker #7: Thank you , Chris , and good afternoon to all on the call . As you can see on slide nine , our asset quality metrics continue to broadly outperform the industry .
Irene Oh: Thank you, Chris, and good afternoon to all on the call. As you can see on slide nine, our asset quality metrics continue to broadly outperform the industry. We recorded net charge-offs of 13 basis points in the second quarter, or $18 million, compared to 11 basis points in the prior quarter, or $15 million. We recorded a lower provision for credit losses of $36 million compared with $45 million for the second quarter. Our non-performing and criticized loan balances continue to be at low, relatively stable levels. Total non-performing assets were 25 basis points as of September 30, 2025. Total criticized loans were down to 2.14%, largely reflecting declines in commercial real estate and residential mortgage criticized loans. We remain vigilant and proactive in managing our credit risks.
Speaker #7: We recorded net charge offs of 13 basis points in the second quarter or 18 million , compared to 11 basis points in the the prior quarter , or 15 million .
Speaker #7: We recorded a lower provision for credit losses of $36 million compared with $45 million for the second quarter. Our nonperforming and criticized loan balances continue to be at low, relatively stable levels.
Speaker #7: Total non-performing assets were 25 basis points as of September 30th , 2025 . Total . Criticized loans were down to 2.14% , largely reflecting declines in commercial real estate and residential mortgage criticized loans .
Speaker #7: We remain vigilant and proactive in managing our credit risks . Turning to slide ten , reflecting the ongoing overall uncertainty in the economic outlook , we increased our overall allowance for credit losses this quarter to 791 million , or 1.42% of loans , from 1.38% as of the prior quarter end .
Irene Oh: Turning to slide 10, reflecting the ongoing overall uncertainty in the economic outlook, we increased our overall allowance for credit losses this quarter to $791 million, or 1.42% of loans, 1.38% as of the prior quarter end. While we continue to monitor changes to the overall economy and geopolitical events, we believe we are adequately reserved for the content of our loan portfolio as of September 30, 2025. Turning to slide 11, as Dominic mentioned, our strong capital levels allow us to operate from a position of significant strength and support our customers with confidence. All of East West's regulatory capital ratios remain well in excess of regulatory capital requirements for well-capitalized institutions and place us amongst the best capitalized banks. In the third quarter, East West repurchased approximately $25 million of common stock. We currently have $216 million of repurchase authorization that remains available for future buybacks.
Speaker #7: While we continue to monitor changes to the overall economy and geopolitical events, we believe we are adequately reserved for the content of our loan portfolio.
Speaker #7: As of September 30th , 2025 . Turning to slide 11 . As Dominic mentioned , our strong capital levels allow us to operate from a position of significant strength and support our customers with confidence .
Speaker #7: All of East West's regulatory capital ratios remain well in excess of regulatory capital requirements for well-capitalized institutions and place us among the best-capitalized banks in the third quarter.
Speaker #7: East West repurchased approximately 25 million shares of common stock. We currently have $216 million of repurchased authorization that remains available for future buybacks.
Speaker #7: East West's fourth quarter 2025 dividends will be payable on November 17, 2025, to shareholders of record on November 3, 2025.
Irene Oh: East West's fourth quarter 2025 dividends will be payable on November 17, 2025, to shareholders of record on November 3, 2025. I'll now turn it back to Chris to share our outlook. Chris?
Speaker #7: I'll now turn it back to Chris to share our outlook. Chris.
Speaker #6: Thank you Irene . We are making a few updates to our full year outlook , which was presented on slide 12 . We've incorporated the quarter end forward curve and assumed two additional rate cuts will occur over the course of the fourth quarter .
Christopher Del Moral-Niles: Thank you, Irene. We are making a few updates to our full-year outlook, which is presented on slide 12. We've incorporated the quarter-end forward curve and assume two additional rate cuts will occur over the course of the fourth quarter. Given those rate cuts, and also given our improved deposit mix, we now see both net interest income and revenue trending to better than 10% growth for the full year. In addition, following the comments Irene just gave, given our resilient credit performance, we now expect full-year net charge-offs to be in the range of 10 to 20 basis points of reduction from our prior guidance. With that, I'll now open the call to questions. Operator? We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.
Speaker #6: Given those rate cuts, but also given our improved deposit mix, we now see both net interest income and revenue trending to better than 10% growth for the full year.
Speaker #6: In addition , following the comments , Irene just gave , given our resilient credit performance , we now expect full year net charge offs to be in the range of 10 to 20 basis points , a reduction from our prior guidance .
Speaker #6: With that, I'll now open the call to questions. Operator.
Speaker #1: We will now begin the question and answer session . To ask a question , you may press star , then one on your telephone keypad .
Speaker #1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.
Christopher Del Moral-Niles: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question today comes from Manan Gosalia with Morgan Stanley. Please go ahead.
Speaker #1: Our first question today comes from Monongahela with Morgan Stanley. Please go ahead.
Speaker #8: Hi . Good afternoon .
Manan Gosalia: Hi, good afternoon, Manan.
Speaker #6: Martin .
Speaker #8: Good afternoon Chris . At a recent conference , you said that East West is liability sensitive in the very near term . So can you just walk us through how you expect loan yields and deposit costs to perform as we get a couple more rate cuts this year , which I think is embedded in your guide .
Christopher Del Moral-Niles: Good afternoon.
Manan Gosalia: Chris, at a recent conference, you said that East West is liability-sensitive in the very near term. Can you just walk us through how you expect loan yields and deposit costs to perform as we get a couple more rate cuts this year, which I think is embedded in your guide, and where there might be some give-back once the Federal Reserve stops cutting rates?
Speaker #8: And then, there might be some give-back once the Fed stops cutting rates.
Speaker #6: Sure. So, we have moved to a cycle where we're now updating our deposit pricing the night of any given Fed action.
Christopher Del Moral-Niles: Sure. We have moved to a cycle where we're now updating our deposit pricing the night of any given Federal Reserve action. We are a nearly automated process for the vast majority of our consumer and commercial accounts where we're immediately passing through those rate cuts on the day of. That acceleration of that rate action movement on the downward basis means that we're repricing our deposits that same day, and our loans often reprice with some lag, whether that's the next month's end, the next reset date, the next repricing period, which in some cases is specified can be a week later, can be almost six or eight weeks later. We're seeing the benefit of the immediate deposit repricing hit us first, followed by the negative of the loan repricing sometimes weeks later. That's resulting in a small and immediate repricing benefit with each Federal Reserve cut.
Speaker #6: So we are nearly automated in the process for the vast majority of our consumer and commercial accounts, where we're immediately passing through those rate cuts on the day of that acceleration of that rate action. Movement on a downward basis means that we're repricing our deposits that same day, and our loans often reprice with some lag, whether that's the next month's end, the next reset date, or the next repricing period, which in some cases is specified and can be a week later or can be almost 6 or 8 weeks later.
Speaker #6: And so we're seeing the benefit of the immediate deposit repricing hit us first, followed by the negative of the loan repricing, sometimes weeks later.
Speaker #6: And that's resulting in a small and immediate repricing benefit with each fed cut that will catch up to us . Of course , when the fed stops cutting and an additional when the Fed's when there's no more additional further fed cuts in the forward curve .
Christopher Del Moral-Niles: That will catch up to us, of course, when the Federal Reserve stops cutting. In addition, when there's no more additional further Federal Reserve cuts in the forward curve, our CD pricing, which benefits from an expectation of declining rates, will also catch up with us. As we look forward today, we expect a few cuts into Q4. This will be probably a modest positive for us in Q4 and then a perhaps lesser impact item as we move through 2026 until the Federal Reserve is done and starts moving in the other direction or flattens out.
Speaker #6: Our CD pricing , which benefits from an expectation of declining rates , will also catch up with us . So as we look forward today , we expect a few cuts into Q4 .
Speaker #6: This will be probably a modest positive for us in Q4 . And then a perhaps lesser impact item as we move through 26 until the fed is done and starts moving the other direction or flattens out .
Speaker #8: Got it . So as we think about NII , your guide implies , I guess NII of about six , 56 , 60 million in for Q is that a good jumping off point for next year or given the strong balance sheet growth that you are already seeing ?
Manan Gosalia: Got it. As we think about NII, your guide implies, I guess, NII of about $650 million, $660 million in Q4. Is that a good jumping-off point for next year, or given the strong balance sheet growth that you are already seeing?
Speaker #6: I think balance sheet growth remains to be seen. I think we're highlighting some uncertainty in the outlook and some uncertainty in the economy.
Christopher Del Moral-Niles: I think balance sheet growth remains to be seen. I think we're highlighting some uncertainty in the outlook and some uncertainty in the economy, and it will clearly be a function of how those uncertainties unfold over the course of 2026. We're not here to provide 2026 guidance. As I look at Q4, I think there's a lot of reasons why we'll be very thoughtful in making sure we're supporting our core customers and our long-standing customers, but not going out to try and hit the cover off the ball on new loan growth. We're trying to just deliver for our customers and be consistent in the marketplace.
Speaker #6: And it'll clearly be a function of how those uncertainties unfold over the course of 2026 . So we're not here to provide 2026 guidance , but as I look at Q4 , I think there's a lot of reasons why we'll be very thoughtful and making sure we're supporting our core customers and our long standing customers .
Speaker #6: But not going out to try and hit the cover off the ball. On new loan growth, trying to just deliver for our customers and be consistent in the marketplace.
Speaker #8: Great . Thank you .
Manan Gosalia: Great. Thank you.
Speaker #1: The next question is from Ebrahim Poonawala with Bank of America. Please go ahead.
Christopher Del Moral-Niles: The next question is from Ebrahim Poonawala with Bank of America. Please go ahead.
Speaker #5: Hey . Good afternoon .
Speaker #6: Good afternoon .
Ebrahim Poonawala: Hey, good afternoon.
Christopher Del Moral-Niles: Hey, good afternoon, Ebrahim.
Speaker #9: Hey , Chris . Maybe just following up on the balance sheet growth comment . When we look at especially like the noninterest bearing deposit growth , better than expected this quarter , just talk to us in terms of are there certain verticals driving that growth .
Ebrahim Poonawala: Hey, Chris. Maybe just following up on the balance sheet growth comment. When we look at especially like the non-interest-bearing deposit growth, better than expected this quarter, just talk to us in terms of are there certain verticals driving that growth? What's the momentum there? Could we actually now, are we at a point with the Federal Reserve probably getting close to ending QT just from a system standpoint? Could we see non-interest-bearing deposit mix actually grow as a percentage of total deposits moving forward?
Speaker #9: Like, what's the momentum there? Where could we actually go now? Are we at a point where the Fed is probably getting close to ending?
Speaker #9: Kutty, just from a system standpoint, could we see an IB mix actually grow as a percentage of total deposits moving forward?
Speaker #6: So, as we think about it, the drivers this quarter clearly included a nice lift in household accounts, a nice lift in small business accounts, and further positives from our commercial.
Christopher Del Moral-Niles: As we think about it, the drivers this quarter clearly included a nice lift in household accounts, a nice lift in small business accounts, and further positives from our commercial. We really saw it in all three major categories. It was broad-based but driven by our consumer and retail bank group. We continue to believe that will be a source of continued DDA growth as we move into the fourth quarter. We're not yet guiding for 2026, but I'd like to think that, as you alluded to, our stability in DDA growth has found its footing here. We are tracking at roughly 25% or so of new deposit growth in line with the bank's growth coming in the form of DDA, and that feels like a comfortable level at today's interest rate environment. We have said previously we see the DDA mix as interest rate level dependent.
Speaker #6: So we really saw it in all three major categories. And so it was broad-based, but driven by our Consumer and Retail Bank group.
Speaker #6: And so we continue to believe that this will be a source of continued DDA growth as we move into the fourth quarter. We're not yet guiding for 2026, but I'd like to think that, as you alluded to, our stability in DDA growth has found its footing here.
Speaker #6: And we are tracking at roughly , you know , 25% or so of new deposit growth in line with the bank's growth coming in the form of DDA .
Speaker #6: And that feels like a comfortable level at today's interest rate environment. We have said previously we see the DDA mix as interest rate level dependent.
Speaker #6: So if we go down 100 basis points from here, I would assume the 25% gets a little better. But at these levels, 25% seems like the right place to think about as we move into 2026.
Christopher Del Moral-Niles: If we go down 100 basis points from here, I would assume the 25% gets a little better. At these levels, 25% seems like the right place to think about as we move into 2026.
Speaker #9: Got it . And I guess maybe just as a follow up for you , or maybe Irene , when looking at the credit metrics , just talk to us .
Ebrahim Poonawala: Got it. I guess maybe just as a follow-up for you, or maybe Irene, when looking at the credit metrics, just talk to us about what you're seeing when we look at relative stability on criticized loans as you laid out or non-performing assets. When you think about this both from a CNI and commercial real estate perspective, where are the soft spots? You break down your CNI disclosure around this focus on the NBFI loans. Just your visibility around this portfolio, your comfort on sort of the credit quality of the non-bank lending piece of it. Thanks.
Speaker #9: What you're seeing when we look at relative stability , I guess on criticized loans , as you laid out or non-performing assets , but when you think about just both from a CNI and commercial real estate , where are the soft spots ?
Speaker #9: And then again, can you break down your CNI disclosure around this? Focus on the NFI loans. Just your visibility around this portfolio.
Speaker #9: You're comfortable on sort of the credit quality of the non-bank lending piece of it. Thanks.
Speaker #7: Sure . So first , when we talk about credit quality , I would say that when we look at credit quality and the loan portfolio today , you know , it's very stable .
Irene Oh: Sure, Ebrahim. First, when we talk about credit quality, I would say that when we look at credit quality and the loan portfolio today, it's very stable. I think that is something we have been pleasantly surprised at, especially given really the absolute low levels of problem loans incoming that we are seeing and have continued to see, and also the metrics that you see for non-performing assets, criticized classified loans, delinquency, etc. That's something that we have maintained, I would say, a lot of discipline on as far as ensuring that we don't have concentrations in one area. That's something that we've continued to do on the CRE book, single family, and then also from a C&I perspective. I think you also asked about the topic of this earnings cycle, NBFI book. We do have NBFI exposure. It's about 13% of our total loan portfolio as of 9:30 A.M.
Speaker #7: I think that is something we have been pleasantly surprised at, especially given really the absolute low levels of problem loans incoming that we are seeing and have continued to see.
Speaker #7: And also the metrics that you see for MPA criticized , classified loans , delinquencies , etcetera . So that's something we have maintained .
Speaker #7: I would say there is a lot of discipline in ensuring that we don't have concentrations in one area. That's something that we've continued to do with the book.
Speaker #7: Single Family . And then also from a CNI perspective . I think you also asked about the , I guess , the topic of this earnings cycle and the book .
Speaker #7: You know, we do have M/WBE exposure. It's about 13% of our total loan portfolio as of 9/30.
Speaker #9: And just any comments there? Go ahead.
Ebrahim Poonawala: you have any comments?
Speaker #7: Sure . You know , when we look at the Mfy book that we have and I'll just , you know , maybe to make sure it's very clear we don't have any direct exposure to tricolor .
Irene Oh: Sure. When we look at the NBFI book that we have, and I'll just, maybe to make sure it's very clear, we don't have any direct exposure to Tricolor, First Brands, Kanter, or any of the developers or related entities behind Kanter as well, right? When we look at that NBFI book, much of it has been customers that we have grown and industry verticals that we have grown over many years. If we look at the different subsets of that, a big component of that, and you see the details on slide 15, where we show the loan portfolio and the composition of C&I. A big component of that is capital call lending. Also, other elements within that that you see are in the real estate investment and management sector, financial services, art finance, consumer finance, and equipment finance.
Speaker #7: First brands , Cantor or any of the developers or related entities behind Cantor , as well . Right . When we look at that book , you know , much of it has been customers that we have kind of grown and industry verticals that we have grown over many years .
Speaker #7: If we look at the different subsets of that , you know , a big component of that and you see the details on slide 15 where we show the loan portfolio and the composition of CNI , you know , a big component of that is capital call lending .
Speaker #7: Also , other elements within that that you see are in the real estate investment and management sector , financial services , art , finance , consumer finance and equipment finance .
Speaker #7: And I would say for East , West , when we look at this generally , we're comfortable . These are clients that we have been working with for a long time .
Irene Oh: I would say for East West, when we look at this, generally, we're comfortable. These are clients that we have been working with for a long time. We also ensure that from a collateral perspective, our collateral is secure. This is something that we independently validate or confirm as well. Overall, when I look at this portfolio, Evie, at this point in time, I'm comfortable. If you look at the subset of C&I loans, we only have two loans totaling $7 million that are not rated pass. There are virtually no losses or charge-offs, and delinquency as of 9:30 A.M. was $1 million.
Speaker #7: We also ensure that, from a collateral perspective, our collateral is secure. This is something that we independently validate or confirm as well.
Speaker #7: So overall when I look at this portfolio , Eddie , you know , at this point in time , I'm comfortable . If you look at the subset of CNI loans , we only have two loans totalling 7 million that are not rated pass that are virtually no losses or charge offs .
Speaker #7: And delinquency as of 9/30 was $1 million.
Speaker #5: But and I want to add , even historically for the past 15 years , we hardly have any losses in the and we are NDP portfolio .
Dominic Ng: I want to add, even historically, for the past 15 years, we hardly had any losses in the NBFI portfolio. This is something that we feel pretty strongly that so far, so good, and it has historically been very good.
Speaker #5: So this is something that we feel pretty strongly that so far, so good. And then has historically been very good.
Speaker #9: Thank you both . .
Ebrahim Poonawala: Got it. Thank you both.
Speaker #6: To a certain extent , IB credit is credit and it's all about knowing your customer , perfecting your collateral , managing your concentration risks , and monitoring the cash flows .
Christopher Del Moral-Niles: To a certain extent, EB, credit is credit, and it's all about knowing your customer, perfecting your collateral, managing your concentration risks, and monitoring the cash flows. East West has a long-standing track record of being very good at all of those things.
Speaker #6: And East West has a long-standing track record of being very good at all of those things.
Speaker #9: Yep. No. Agreed. Thanks for that.
Ebrahim Poonawala: Yep, agreed. Thanks for that.
Speaker #1: The next question is from Dave Rochester with Cantor. Please go ahead.
Christopher Del Moral-Niles: The next question is from Dave Rochester with KBW. Please go ahead.
Speaker #10: And that's a different Cantor . Different Cantor . Yeah , exactly . How you doing , guys ? Appreciate the .
[Analyst]: That's a different Kantor, by the way.
Christopher Del Moral-Niles: Different Kantor.
[Analyst]: I just wanted to—yeah, exactly. How are you doing, guys? Appreciate it.
Speaker #11: Great timing. Is everything...
Christopher Del Moral-Niles: Timing is everything.
Speaker #10: That's exactly on fees . Your trends there have been consistently very strong . Can you just talk about some of your efforts to build out some of those fee based lines , specifically wealth management , that you highlighted earlier ?
[Analyst]: Exactly. On fees, your trends there have been consistently very strong. Can you just talk about some of your efforts to build out some of those fee baselines? Specifically, wealth management that you highlighted earlier. Can you give an update on where you stand on the new FX platform? Thanks.
Speaker #10: And then can you give an update on where you stand on the new FX platform? Thanks.
Speaker #6: Sure. So we continue to build out the team around our wealth management area, because the reality is, it continues to provide additional opportunity.
Christopher Del Moral-Niles: We continue to build out the team around our wealth management area because the reality is it continues to provide additional opportunity. With each new set of hires, we're finding additional growth opportunities, additional client penetration opportunities, and additional, frankly, revenue opportunities. We continue to invest in direct hires in that line of business, and we continue to invest in some new product development alongside those new hires to get ourselves to the right place. With regard to our payments business, we continue to roll out and develop enhanced payment solutions, and we're working through integrating that with the FX platform, Dave, that I think you're referring to, that we are continuing to develop the APIs for so that we can be in a better position, we believe, in 2026 to have that capability launched.
Speaker #6: And with each new set of hires , we're finding additional growth opportunities . Additional client penetration opportunities , and additional , frankly , revenue opportunities .
Speaker #6: And so we continue to invest in direct hires in that line of business . And we continue to invest in some new product development alongside those new hires to get ourselves to the right place with regard to our payments business , we continue to roll out and develop enhanced payment solutions , and we're working through integrating that with the FX platform .
Speaker #6: Dave, that I think you're referring to, is that we are continuing to develop the APIs so that we can be in a better position.
Speaker #6: We believe that in 2026, we will have that capability launched.
Speaker #10: That's great. Early in '26 or later in the year.
[Analyst]: That's great. Early in 2026 or later in the year?
Speaker #6: I think the wire payment capability will be immediately ready for a subset of our customers. Frankly, here at the end of Q4, we plan to broaden it to a larger set throughout 2026.
Christopher Del Moral-Niles: I think the wire payment capability will be immediately ready for a subset of our customers, frankly, here at the end of Q4, broadening to a broader set throughout 2026. The foreign exchange capability will come probably mid to later in the year.
Speaker #6: And then the foreign exchange capability will probably come mid to later in the year.
Speaker #10: Great . Appreciate that . And then just switching to capital , the TCE ratios at 10.2% . Now I know you've mentioned you like that 10% level .
[Analyst]: Great. Appreciate that. Just switching to capital, the tangible common equity ratio is at 10.2% now. I know you mentioned you like that 10% level, and I was just curious if you're going to end up liking 11% at some point or if maybe the outlook for growth and buybacks might be accelerating a little bit next year and can keep that sort of stable from here. Any thoughts on that?
Speaker #10: And I was just curious if you're going to end up liking 11% at some point, or if maybe the outlook for growth and buybacks might be accelerating a little bit next year and can keep that sort of stable from here.
Speaker #10: Any thoughts on that ?
Speaker #5: Yeah , we are looking at all all different scenarios . One one thing for sure is that we always wanted to be one of the strongest .
Dominic Ng: Yeah. We're looking at all different scenarios. One thing for sure is that we always wanted to be one of the strongest, you know, among all peers when it comes to capital ratio because it really helped us to attract customers, to attract talents to come join East West Bank. For us to do well, we need to have strong talents to build relationships with great customers, and having strong capital makes it much easier for us to attract talents and attract clients. With that, it's just part of the formula of us being successful. As you look at, you know, our return on equity and return on asset, you know, we, you know, generate, you know, high teens in return on equity and 1.8+% on return on asset. With that kind of return, we outperform most of our peers anyway, despite the fact that we have substantially higher capital.
Speaker #5: You know , amount all peers when it comes to capital ratio , because it really helped us to attract customers , to attract talents to come join East West Bank and for us to do well , we need to have strong talents to build relationships with great customers and having strong capital and make it much easier for us to attract talent and attract clients .
Speaker #5: So with that , it's just part of the formula of us being successful . And as you looked at , you know , our return of equity and return of asset , you know , we , you know , generate , you know , high teens in return on equity .
Speaker #5: And 1.8% plus on return of assets, with that kind of return, we outperform most of our peers anyway, despite the fact that we have substantially higher capital.
Speaker #5: So obviously, in our perspective, the strength of a high capital ratio helps us to continue to generate this kind of high performance.
Dominic Ng: Obviously, in our perspective, that strength of high capital ratio helps us to continue to generate this kind of high performance, and we want to stick with that. That doesn't mean that we are not going to be looking for opportunistic buyback. We got, you know, board-approved, you know, allocation about X dollar amount to do buyback at the appropriate time. We're always looking for opportunities. Had we not been in a quiet period, you know, the last several days was a pretty good opportunity. Every now and then, there's always, you know, a few weeks out of the year that is a great opportunity. Our advantage is that we always have these kind of situations that allow us to do the right thing at the right time and not having a gun on our head to do something, right?
Speaker #5: And we want to stick with that . But that doesn't mean that we are not going to be looking for opportunistic buyback . We got , you know , board approved .
Speaker #5: You know, we allocate a certain dollar amount to do buybacks at the appropriate time, so we're always looking for opportunities. Have we not been in a period, you know, the last several days, which was a pretty good opportunity.
Speaker #5: So, every now and then, there are always, you know, a few weeks out of the year that present great opportunities. Our advantage is that we consistently have these kinds of situations that allow us to do the right thing at the right time.
Speaker #5: And not having a gun on our head to do something right . The other thing would be obviously from a dividend standpoint , you know , after the fourth quarter , we're always going to be start looking into , you know , as reassessing how much dividend we want to pay .
Dominic Ng: The other thing would be, obviously, from a dividend standpoint, you know, after the fourth quarter, we're always going to be start looking into, you know, reassessing how much dividend we want to pay. Obviously, there are always opportunities for us to possibly increase dividends. We are always out there looking for whatever other opportunity for us to grow. I think we're in a very, very advantageous position right now with the strong capital, and then we're going to continue to stick with that.
Speaker #5: And obviously, there are always opportunities for us to possibly increase dividends, and we are always out there looking for whatever other opportunities for us to grow.
Speaker #5: And so I think we're in a very, very advantageous position right now with this strong capital. And then we're going to continue to stick with that.
Speaker #10: Sounds good. I'd agree. Thanks.
[Analyst]: Sounds good. I'd agree. Thanks.
Speaker #6: Thank you .
Speaker #11: Thank you .
Christopher Del Moral-Niles: Thank you, Dave.
Ebrahim Poonawala: Thank you.
Speaker #1: The next question is from Timur Braziller with Wells Fargo. Please go ahead.
Christopher Del Moral-Niles: The next question is from Timur Braziler with Wells Fargo. Please go ahead.
Speaker #5: Hi .
Speaker #6: Good afternoon .
[Analyst]: Hi, good afternoon.
Speaker #5: Hi , Chris .
Christopher Del Moral-Niles: Hi, Timur.
[Analyst]: Hi. Chris, going back to your deposit-related commentary on the ability to reprice deposits the night of Federal Reserve actions, just what's the size of that base that gets repriced that same day?
Speaker #12: Going back to your deposit-related commentary on the ability to reprice deposits the night of Fed actions, just what's the size of that base that gets repriced that same day?
Speaker #6: It's the vast majority of everything other than the CDs . And of course , the noninterest bearing . So . Substantially all of the money markets , all of the interest bearing checking and even the savings accounts that are above 1% .
Christopher Del Moral-Niles: It's the vast majority of everything other than the CDs and, of course, the non-interest-bearing. Substantially all of the money markets, all of the interest-bearing checking, and even the savings accounts that are above, you know, 1%. A lot. It's on the order of magnitude, you know, $24 billion or so.
Speaker #6: So a lot . It's on the order of magnitude , you know , 24 ish billion or so .
Speaker #12: Okay , great . And then maybe looking at some of the tariff related impact , we're hearing from some others that you're starting to see a little bit of relief there in their third quarter loan growth as clarity increases in some cases is east West seeing any of that ?
[Analyst]: Okay, great. Maybe looking at some of the tariff-related impact, we're hearing from some others that you're starting to see a little bit of relief there in their third-quarter loan growth as clarity increases in some cases. Is East West seeing any of that? Was that any part of the Q3 growth, or is this really still an opportunity as maybe we get a little bit more clarity on some of the tariffs that might be more impactful to your client base?
Speaker #12: Was that any part of the three? Q growth, or is this really still an opportunity as maybe we get a little bit more clarity on some of the tariffs that might be more impactful to your client base?
Speaker #6: Look , I think clarity is going to be good for our customers , for the economy , for everyone . And so reduced tensions and increase transparency and clarity about what will happen is in everyone's best interest here , that having been said , our customers have proved remarkably resilient throughout this period .
Christopher Del Moral-Niles: Look, I think clarity is going to be good for our customers, for the economy, for everyone. Reduced tensions and increased transparency and clarity about what will happen is in everyone's best interest here. That having been said, our customers have proved remarkably resilient throughout this period. They have taken steps to prepare themselves well in advance, taken steps here in the interim to do other things, and seem to be looking forward to business opportunities and finding the right way to do business in whatever environment presents itself. We like to think that East West is very nimble. Our customers have proven remarkably nimble, and you know, we think they'll find a way to navigate through whatever environment exists. Right now, they're not coming to us with concerns about navigating the current waters.
Speaker #6: They have taken steps to prepare themselves well in advance. They have taken steps here in the interim to do other things and seem to be looking forward to business opportunities and finding the right way to do business in whatever environment presents itself.
Speaker #6: We like to think that East West is very nimble. Our customers have proven remarkably nimble, and you know, we think they'll find a way to navigate through whatever environment exists.
Speaker #6: But right now, they're not coming to us with concerns about navigating the current waters.
Speaker #12: Okay , great . And then just one last one for me , maybe for Irene , just looking at slide nine , the reduction in multifamily criticized loans .
[Analyst]: Okay, great. Just one last one for me, maybe for Irene. Just looking at slide nine, the link quarter reduction in multifamily criticized loans and then the link quarter increase in commercial real estate non-performers, was there any migration from the multifamily book into NPAs there? Maybe talk a little bit more broadly about California multifamily. It's been a topic that's been getting a little bit more focus.
Speaker #12: And then kind of the linked quarter increase in commercial real estate non-performers. Was there any migration from the multifamily book into NPAs there?
Speaker #12: And then just maybe talk a little bit more broadly about California multifamily? It's been a topic that's been getting a little bit more focus.
Speaker #7: You know, I didn't hit the last part of your question. Could you just repeat that?
Irene Oh: I didn't hit the last part of your question. Could you just repeat that?
Speaker #12: Yeah . The linked quarter reduction in criticized multifamily versus the quarter on quarter step up in commercial real estate Non-performers was any of that related ?
[Analyst]: Yeah. The linked quarter reduction in criticized multifamily versus the quarter-on-quarter step-up in commercial real estate non-performers, was any of that related? Maybe speak to the broader multifamily environment in California as that's been getting a little bit more questions.
Speaker #12: And then just maybe speak to the broader multifamily environment in California, as that's been getting a little bit more questions.
Speaker #7: Oh , great . Okay . So when we look at the the linked quarter reduction in multifamily , you know , albeit at a very low base , you know , the reduction was really kind of the ability to kind of upgrade loans .
Irene Oh: Oh, great. Okay. When we look at the linked quarter reduction in multifamily, albeit at a very low base, the reduction was really kind of the ability to upgrade loans, right? The cash flows were there. We were able to upgrade them for multifamily. For CRE, the changes that we've seen as far as the criticized levels there, excluding multifamily as well, overall, I would say that there are inflows and outflows that happen there. Generally speaking, it is something where we find it very manageable at this point. For multifamily in the markets that we are in, which is largely California, we're finding that the markets continue to be holding up. When we look at the cash flows and the information that we are receiving from our customers, their ability to debt service continues to be very resilient.
Speaker #7: Right . So really the cash flows were there . We were able to upgrade them for multifamily for CRE , the you know , the changes that we've seen as far as the criticized levels there , excluding multifamily as well , overall , I would say that , you know , there are inflows and outflows that happen there .
Speaker #7: Generally speaking, it is something where we find it very manageable at this point for multifamily in the markets that we are in, which is largely California.
Speaker #7: You know , we're finding that the markets continue to be holding up when we look at kind of the cash flows and information that we are receiving from our customers , their ability to debt service , continues to be very resilient .
Speaker #12: Great . Thank you .
[Analyst]: Great. Thank you.
Speaker #1: The next question is from Jared Shaw with Barclays. Please go ahead.
Christopher Del Moral-Niles: The next question is from Jared Shaw with Barclays. Please go ahead.
Speaker #13: Hey , good afternoon . Jared . Hey , maybe sticking with credit Irene . Could you could you just talk through the the thought process behind the sale of Non-performers ?
[Analyst]: Hey, good afternoon.
Christopher Del Moral-Niles: Hey, Timur. Good.
[Analyst]: Hey, maybe sticking with credit, Irene, could you just talk through the thought process behind the sale of non-performing assets? It looks like you must have got some good pricing on that, assuming if the NII benefit is mostly interest recoveries. Is there an opportunity to do more NPL sales?
Speaker #13: And it looks like I guess you must have got some good pricing on that . Assuming if the the NII benefit is mostly interest recoveries , is there is there an opportunity to do more MPL sales ?
Speaker #6: It wasn't a sale , it was a full payoff from an existing set of customers where the loans , at least in one of them was , had been non-accrual for years .
Christopher Del Moral-Niles: It wasn't a sale. It was a full payoff from an existing set of customers where the loans, at least one of them, had been on accrual for years. It was the full payoff, the recovery of the principal, the recovery of our prior charge-offs, and the recovery of years and years of accrued interest that had compounded. It wasn't a sale. We worked with the customers long enough and well enough that collectively, we were able to recover in full.
Speaker #6: So it was the full payoff: the recovery of the principal, recovery of our prior charge-offs, and the recovery of years and years of accrued interest that had compounded.
Speaker #6: So it wasn't a sale; it was just that we worked with the customers long enough and well enough that collectively we were able to recover in full.
Speaker #13: Okay , you just have to do that now with with everyone else . Right ? And it will be . That sounds easy .
[Analyst]: Okay, you just have to do that now with everyone else, right? It sounds easy.
Speaker #6: You know , Dominic expects that on pretty much everything . So yes , that's that's the mandate around .
Christopher Del Moral-Niles: Dominic expects that on pretty much everything. Yes, that's the mandate around here.
Speaker #11: Here .
Speaker #13: Okay . All right . Well that's that's good color . Thanks . And then I guess just , you know , looking at expenses , you know , with all this growth in fees , especially on the wealth management side , how should we think about .
[Analyst]: Okay. All right. That's good color. Thanks. I guess just, you know, looking at expenses, with all this growth in fees, especially on the wealth management side, how should we think about a correlating growth on the expense side? I guess I was a little surprised to see such good expense control with that fee income growth.
Speaker #13: A correlating growth on , on the expense side ? I guess I was a little surprised to see such good expense control with with that fee income growth .
Speaker #6: Look, I think if you look over the last several years, we've been growing at a steady clip in the upper single digits.
Christopher Del Moral-Niles: I think if you look over the last several years, we've been growing at a steady clip in the upper single digits. We continue to grow in aggregate at that level here even into this year. The reality is, as we continue to grow the bank, we're always looking to obviously grow on an accretive basis. If we're growing revenue double digits, then I certainly have no problem with expenses growing in the high single digits and creating operating leverage as we continue to grow.
Speaker #6: We continue to grow in aggregate at that level here, even into this year. And so the reality is that we continue to grow the bank.
Speaker #6: We're always looking to obviously grow on an accretive basis. But if we're growing revenue double digits, then I certainly have no problem with expenses growing in the high single digits and creating operating leverage as we continue to grow.
Speaker #13: Yeah , but I guess should we is there any is there any sort of paper for pay for performance component to the to the wealth management growth and , and any of the other stuff ?
[Analyst]: Yeah, should we, is there any sort of pay for performance component to the wealth management growth and any of the other stuff, or is it really just more, you know, salary and bonus, and we shouldn't tie them directly to that growth?
Speaker #13: Or is it really just more, you know, salary and bonus, and we shouldn't tie them directly to that growth?
Speaker #6: No . When we think about our fee revenue businesses , for sure , our wealth management businesses , they have a higher efficiency ratio to their business model .
Christopher Del Moral-Niles: No, when we think about our fee revenue businesses, for sure, our wealth management businesses, they have a higher efficiency ratio to their business model. I think, as Dominic alluded to on our last call, we'll be happy to see our expenses grow a little bit faster if we're growing our fee businesses faster because those obviously are good, long, sustainable revenue streams that we think the market values at a premium, that we value at a premium internally, and that we'll be happy to pay people for to generate over time. If our efficiency ratio goes up a little bit because we're developing a steadier, more recurring fee stream, I don't think anyone will be too upset about that.
Speaker #6: And I think , as Dominic alluded to in our last call , we'll be happy to see our expenses grow a little bit faster if we're growing our fee businesses faster , because those obviously are good long , sustainable revenue streams that we think the market value is at a premium , that we value at a premium internally , and that we'll be happy to pay people for to generate over time .
Speaker #6: So if our efficiency ratio goes up a little bit because we're developing a steadier, more recurring fee stream, I don't think anyone will be too upset about that.
Speaker #7: Maybe I could just also clarify , me , because maybe this is the nature of your question . With that increased fee income , there is increased kind of compensation for those individuals , and that's reflected in the same period revenue recognition .
Irene Oh: Maybe I could just also clarify, because maybe this is the nature of your question. With that increased fee income, there is increased kind of compensation for those individuals. That's reflected in the same period revenue recognition.
Speaker #13: Okay . All right . Thanks . Then just finally for me , do you have the the impact the hedge impact this quarter ?
[Analyst]: All right. Thanks. Finally, for me, do you have the hedge impact this quarter? I think it was $6 million last quarter.
Speaker #13: I think it was $6 million last quarter.
Speaker #6: It was also -$6 million for Q3.
Christopher Del Moral-Niles: It was also negative $6 million for Q3.
Speaker #13: Thanks .
[Analyst]: Thanks.
Speaker #1: The next question is from Chris McGratty with CCB. Please go ahead.
Christopher Del Moral-Niles: The next question is from Christopher McGratty with KBW. Please go ahead.
Speaker #11: Oh , great . Thanks for the question , Chris . Maybe to start with you , just to follow up on the on the revenue growth , operating leverage conversation , does the operating leverage outlook get any easier with , you know , deregulation , deregulation and the momentum there in terms of what you're spending on perhaps currently that you might be able to .
Ben Gerlinger: Oh, great. Thanks for the question. Chris, maybe start with you just to follow up on the revenue growth, operating leverage conversation. Does the operating leverage outlook get any easier with, you know, deregulation in the momentum there in terms of what you're spending on, perhaps currently that you might be able to either cut or divert next year?
Speaker #11: Either cut or divert next year?
Speaker #6: I think the things that are in flight are largely things that we recognize as appropriate to have a better controlled, better managed, better monitored bank in the long run.
Christopher Del Moral-Niles: I think the things that are in flight are largely things that we recognize as appropriate to have a better controlled, better managed, better monitored bank in the long run. We are, of course, developing plans for what might come a few years down the road. I would say we are generally today doing things that make sense for our business, make sense for our customers, and make sense for the shareholders. That continues to be what we focus on.
Speaker #6: We are , of course , developing plans for what might come a few years down the road , but I would say , you know , we are generally today doing things that make sense for our business , makes sense for our customers and makes sense .
Speaker #6: For the shareholders, and that continues to be what we focus on.
Speaker #11: Okay . Great . And then second question would be on just loan demand from clients . I know you touched upon it a little bit before , but what do you think it will take to to get the loan book growing at a quicker rate in 2026 ?
Ben Gerlinger: Okay, great. The second question would be on just loan demand from clients. I know you touched upon it a little bit before, but what do you think it'll take to get the loan book growing at a quicker rate in 2026?
Speaker #6: Look , I think our residential mortgage demand is fairly steady and consistent . The American dream is alive and well . And for the niche that we focus in on , it's a very steady , consistent contributor to our business .
Christopher Del Moral-Niles: Look, I think our residential mortgage demand is fairly steady and consistent. The American dream is alive and well. For the niche that we focus in on, it's a very steady, consistent contributor to our business. On the real estate side, it's been interesting. I think you've heard me say on these calls and Dominic say in other forums that it felt like for a while some of our best customers were sitting on the sidelines. We've seen some of them come back and look at things, and some of them even start to do things. I think real estate is at the edge of additional interest. Lower rates will probably create more opportunities for things to happen in that space. Dominic said a few cuts ago that he thought 100 basis points would probably be enough to bring the market back into alignment.
Speaker #6: On the real estate side , it's been interesting . I think you've heard me say on these calls and Dominic say , and other forums that it felt like for a while , some of our best customers were sitting on the sidelines .
Speaker #6: We've seen some of them come back and look at things , and some of them even start to do things . So I think real estate is at the edge of , you know , additional interest , lower rates will probably create more opportunities for things to happen in that space .
Speaker #6: Dominic said a few cuts ago that he thought 100 basis points would probably be enough to bring the market back into alignment.
Speaker #6: I think we're still 50 basis points away from that. So a few more cuts, maybe into next year, and real estate could have some more traction.
Christopher Del Moral-Niles: I think we're still 50 basis points away from that. A few more cuts, maybe in the next year, and real estate could have some more traction. We'll see how that plays out. On the CNI side, I think Irene alluded to the fact that we've got a lot of private equity capital call line type activity. That portfolio has been relatively quiet. Lower rates probably means they come back in more, but it still remains relatively quiet, as we sit here today.
Speaker #6: We'll see how that plays out . And then on the CNI side , I think I alluded to the fact that we've got a lot of , you know , private equity capital , call line type activity that portfolio has been relatively quiet , lower rates , probably means they come back in more .
Speaker #6: But it still remains relatively quiet as we sit here today.
Speaker #11: Thanks for that. And then, Chris, just on the full cycle beta, can you just remind us of the assumptions for deposits?
Ben Gerlinger: Thanks for that. Chris, just on the full cycle beta, can you just remind us the assumptions for deposits?
Speaker #6: Sorry , I think you cut out there , but the question was deposit beta . And I think we're our observed deposit beta on interest bearing deposits was 0.62 .
Christopher Del Moral-Niles: Sorry, I think you cut out there, but the question was deposit beta, and I think our observed deposit beta on interest-bearing deposits was 0.62, and we continue to expect it'll be better than 0.5 going forward.
Speaker #6: And we continue to expect it will be better than 0.5 going forward.
Speaker #11: All right. Perfect. Thank you. Yep.
Ben Gerlinger: All right. Perfect. Thank you.
Christopher Del Moral-Niles: Yep. The next question is from Ben Gerlinger with Citi. Please go ahead.
Speaker #1: The next question is from Ben Gerlinger with Citi. Please go ahead.
Speaker #14: Good afternoon .
Speaker #6: Good afternoon Ben .
Ben Gerlinger: Good afternoon.
Christopher Del Moral-Niles: Afternoon, Ben.
Speaker #14: Chris, you've laid out a lot of information on how kind of moving deposits are almost instantaneously cut outside of the time deposits on time deposits.
Ben Gerlinger: Chris, you've laid out a lot of information on kind of moving deposits being almost instantaneously cut outside of the time deposits. On time deposits, I've noticed you guys keep cutting the term from basically six months to four to three. It seems like you're kind of trying to time everything into the first quarter. At the same time, you also have the Lunar New Year every year, which is a big quarter for repricing in general. I'm just kind of curious, do you have anything in front of you, like how much time deposit dollars are supposed to be repriced in Q1 next year?
Speaker #14: I've noticed you guys keep cutting the term from basically six months to four to three. It seems like you're kind of trying to time everything into the first quarter.
Speaker #14: And also at the same time, we have the Lunar New Year every year, which is significant. So it's a big quarter for us.
Speaker #14: Repricing in general. I'm just kind of curious, do you have anything in front of you, like how much time deposit dollars are supposed to be repriced in one queue next year?
Speaker #6: Yes . Very perceptive question . And yes , very observant of you . And yes , we do have a fair amount that we have structured .
Christopher Del Moral-Niles: Yes. Very perceptive question. Yes, very observant of you. Yes, we do have a fair amount that we have structured so that we have the ability to do something meaningful in Q1 around our Lunar New Year special. We have been shortening those maturities, as you stated, to both keep the balances today, but in recognition and anticipation that there would be a few Federal Reserve cuts coming here at the end of October and in December that would allow us, therefore, to roll over. To specifically address your question, we have about $10 billion, a little over $10 billion that's rolling over in Q4 and a little over $8 billion before any rollovers that happen from Q4 that would otherwise come due in Q1. We've got $18 plus billion rolling over in the next six months.
Speaker #6: So that we have the ability to do something meaningful in Q1 around our Lunar New Year special. And we have been shortening those maturities, as you stated, to both keep the balances today.
Speaker #6: But in recognition and anticipation that there would be a few Fed cuts coming here at the end of October and in December, that would allow us, therefore, to roll over.
Speaker #6: And so, to specifically address your question, we have about $10 billion— a little over $10 billion— rolling over in Q4.
Speaker #6: And a little over $8 billion before any rollovers that happened from Q4 that would otherwise come due in Q1. So we've got $18 billion plus rolling over in the next six months.
Speaker #6: And we assume the vast majority of that will benefit from the embedded 50 basis points of rate cuts. That's already out there.
Christopher Del Moral-Niles: We assume the vast majority of that will benefit from the embedded 50 basis points or rate cuts that's already out there. Our current six-month CD rate that's out there today is a 3.55% rate.
Speaker #6: So, our current six-month CD rate that's out there today is a 3.55% rate.
Speaker #14: Got it . Yeah . So Citi's patent pending CD tracker is doing pretty good anyway . So when you think about the I mean , you're not going to give any guidance next year , but it seems like it's going to be another really big year .
Ben Gerlinger: Got it. Yeah. Citi's patent pending CD tracker is doing pretty good. Anyway, when you think about the, I mean, you're not going to give NII guidance next year, but it seems like it's going to be another really big year. Are there any investments down the road that we might think about? Otherwise, I would imagine this year's guide is probably similar to next year's guide.
Speaker #14: Are there any investments down the road that we might think about otherwise? I would imagine this year's guide is probably similar to next year's guide.
Speaker #6: We haven't given guidance yet for 2026, but I appreciate your enthusiasm.
Christopher Del Moral-Niles: We haven't given guidance yet for 2026, but I appreciate your enthusiasm.
Speaker #14: Sure enough. All right. Thank you.
Ben Gerlinger: Fair enough. All right. Appreciate it. Thank you.
Speaker #1: The next question is from David Smith with Truist. Please go ahead.
Christopher Del Moral-Niles: The next question is from David Smith with Truist. Please go ahead.
Speaker #15: Hi there . Have to confirm . Afternoon . I just wanted to confirm on the guidance . It's the NIH guide , inclusive of the accretion and recovery this quarter .
David Smith: Hi there.
Christopher Del Moral-Niles: Good afternoon.
David Smith: I just wanted to confirm.
Christopher Del Moral-Niles: Afternoon.
David Smith: I just wanted to confirm on the guidance, is the NII guide inclusive of the accretion and recovery this quarter, and does the expense outlook include the equity plan adjustment? Can you also just help us give us some color on when the timing on those became clear to you? Was the NII item already contemplated with the guidance update last month? Have you had the equity comp item already planned when you gave the guidance earlier this year? I know some folks have been surprised last quarter that the expense guide, staying where it was, seemed to imply such a step up in the second half of the year. Thank you.
Speaker #15: And does the expense outlook include the equity plan adjustment? And can you also just help us give us some color on when the timing on those became clear to you? Like, was the item already contemplated with the guidance update last month, and have you had the equity comp item already planned?
Speaker #15: When you gave the guidance earlier this year? I know some folks have been surprised last quarter the expense guide staying where it was seemed to imply such a step up in the second half of the year.
Speaker #15: Thank you .
Speaker #6: Yeah, so I think we've been thinking about our employee retirement eligibility over the last six months and hadn't taken any definitive actions until this quarter.
Christopher Del Moral-Niles: Yeah. I think we've been thinking about our employee retirement eligibility over the last six months and hadn't taken any definitive actions until this quarter. That was, I'll say, in the back of our minds, but we hadn't concretely defined it. We hadn't gone through the appropriate approvals, hadn't updated our board, etc. That came together in Q4. The revenue side came together because the clients paid off. No, we didn't control that. They controlled that, and they paid it off. With regard to our guide, I would say, look, we're guiding to over 10% today because we're clear that that's the trajectory we're on. I don't know that we had a clarity of vision around all the pieces when we last spoke, but clearly, we have that clarity now. Clearly, it's not just trending towards 10%, but obviously trending well above 10%.
Speaker #6: So that was , I'll say , in the back of our minds , but we hadn't concretely defined it . We hadn't gone through the appropriate approvals , had an updated our board , etc.
Speaker #6: . So that came together in Q4 and the revenue side came together because the the clients paid off . And no , we didn't control that .
Speaker #6: They controlled that and they they paid it off . With regard to , you , our guide , I would say , look , we're guiding to over 10% today because we're clear that that's the directory we're on , you know , and I don't know that we had a clarity of vision around all the pieces when we last spoke .
Speaker #6: But clearly we have that clarity now . And clearly it's like it's not just trending towards 10% , but obviously trending well above 10% .
Speaker #15: Okay . And then expenses that had I guess , been contemplated in the guide from earlier this year , then if you weren't , even if you weren't sure on the exact timing within the year , is that the right way to understand that .
David Smith: Okay. On expenses that had, I guess, been contemplated in the guide from earlier this year, even if you weren't sure on the exact timing within the year, is that the right way to understand that?
Speaker #15: ?
Speaker #6: That's the right way to think about it? Yeah.
Christopher Del Moral-Niles: That's the right way to think about it. Yeah.
Speaker #15: Thank you .
David Smith: All right. Thank you.
Speaker #1: Again , if you have a question , please press star . Then one . The next question is from Janet Li with TD Cowan .
Christopher Del Moral-Niles: Again, if you have a question, please press star, then one. The next question is from Janet Lee with TD Cowen. Please go ahead.
Speaker #1: Please go ahead .
Speaker #16: Hello . Just going back on . Hi . Just going back on Nim . So am I interpreting your commentary correct . To assume that there will be a , you know , a bigger increase in Nim and then the Nim expansion after the first quarter will be moderating or flattish .
Janet Lee: Hello.
Christopher Del Moral-Niles: Hey, Janet.
Janet Lee: Just going back on NIM. Am I interpreting your commentary correct to assume that there will be a, you know, a bigger increase in NIM and then the NIM expansion after the first quarter will be moderating or flattish? Is that the right way to think about this NIM trajectory comment?
Speaker #16: Is that the right way to think about this? Nim trajectory? Comment.
Speaker #6: So if I look at the core run rate of Nim, excluding the interest recoveries, and I'm focused on page six, that's the adjusted number at around $645.
Christopher Del Moral-Niles: If I look at the core run rate of NIM, excluding the interest recoveries, and I'm focused on page six, that's the adjusted number at around 645. That's a good run rate number. We're moving, obviously, to continue to grow the balance sheet modestly. Hopefully, we'll have some benefit from the repricing dynamics in the short run that could make that a little bit better. That's a good run rate starting point. The question will be, you know, what happens to both the long-term rates, which impacts the backbook refinancing and repricing that'll drive sort of the long end of our loans and securities investments in 2026 versus the short-end FX and how that plays out over the course of 2026. If the answer is we get a steepening yield curve, that's generally a positive for us.
Speaker #6: You know , that's a good run rate number . And we're moving obviously to continue to grow the balance sheet modestly . And hopefully we'll have some benefit from the repricing dynamics in the short run .
Speaker #6: That could make that a little bit better . But that's a good run rate starting point . And the question will be is what happens to both the long term rates , which impact the back book refinancing and repricing .
Speaker #6: That'll drive sort of the long end of our loans and securities investments in 2026 versus the short end effects and how that plays out over the course of 2026.
Speaker #6: And if the answer is we get a steepening yield curve , that's generally a positive for us . If the answer is for some reason , the yield curve flattens because of of the dynamics , well , that won't be as good for us .
Christopher Del Moral-Niles: If the answer is for some reason the yield curve flattens because of the dynamics, that won't be as good for us. I think those are the things that are at play and the things that we're looking for as looking to better understand as we also move in towards 2026.
Speaker #6: So, I think those are the things that are at play, and the things that we're looking for is looking to better understand as we also move towards 2026.
Speaker #16: Okay . Thank you . And just going back to credit , I know you guys gave a lot of color on credit and tariff , but I still want to just understand this direction of allowance for loan losses because when I look at other banks reserve ratios tended to be more so stable is your reserve increase , you know , tied to resi mortgage and CRE to .
Janet Lee: Thank you. Just going back to credit, I know you guys gave a lot of color on credit and tariff, but I still want to just understand this direction of allowance for credit losses. Because when I look at other banks, reserve ratios tended to be more so stable. Is your reserve increase tied to resume mortgage and CRE to capture potential effects of business cycle? Is this really just referring to the potential tariff-related uncertainty?
Speaker #16: Capture potential effects of the business cycle? Is this really just referring to the potential tariff-related uncertainty?
Speaker #6: Or more than just the tariffs? Yeah, I would look, I think the reality is it's across the board, and I'll let Irene jump in here.
Christopher Del Moral-Niles: I think it's more than just the tariffs. I would look, I think the reality is it's across the board. I'll let Irene jump in here. It wasn't just in our resume mortgage book. We were thoughtful about different positions in different portfolios. Irene?
Speaker #6: But it wasn't just in our resi mortgage . Book it . You know , we we were thoughtful about different positions in different portfolios .
Speaker #6: Irene .
Speaker #7: Yeah. And look at the residential book with the kind of incredible credit quality we've had over 30 years for much of that portfolio.
Irene Oh: Yeah. The resume book, with the kind of incredible credit quality we've had over 30 years for much of that portfolio, we increased the reserve level from 36 basis points to 41. Ultimately, when you look at those levels, I think they're appropriate given the credit quality. In a situation where the economy is more uncertain, certainly, when we look at consumer credit, even consumer that is well-secured by a low loan-to-value real estate mortgage, that's impacted when we do the modeling. It really is less so on the tariffs, more so on kind of the economic uncertainty and what could happen there. Does that make sense? All the kind of metrics and drivers for that, unemployment, GDP, etc.
Speaker #7: You know, we increased the reserve level from 36 basis points to 41. So ultimately, when you look at those levels.
Speaker #7: I think they're appropriate , given the credit quality . But in a situation where the economy is more certainly when we look at consumer credit , even consumer , that is well secured by a low loan to value real estate mortgage .
Speaker #7: You know, that's impacted when we do the modeling. So it really less so on the tariffs, more so on kind of the economic uncertainty.
Speaker #7: And what could happen there? Does that make sense? And all that kind of metrics and drivers for that—unemployment, GDP, etc.
Speaker #16: Got it. Thank you.
Janet Lee: Got it. Thank you.
Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.
Christopher Del Moral-Niles: This concludes our question and answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.
Speaker #5: Well , thank you all for joining our earnings call . This afternoon . And we are looking forward to speaking with you in January next year .
Dominic Ng: Thank you all for joining our earnings call this afternoon. We are looking forward to speaking with you in January next year.
Christopher Del Moral-Niles: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.