East West Bancorp (EWBC) Q3 2026 earnings call transcript

Thank you, Operator. Good afternoon, and thank you, everyone, for joining us to review EastWest Bank Corp's third quarter 2026 financial results. With me are Dominic Ng, Chairman and Chief Executive Officer, Chris Del Morale-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 gap-to-non-gap financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8K filed today. I will now turn the call over to Dominic.

Thank you, Adrian. Good afternoon, and welcome to all who have joined the call. East-West delivered another quarter of strong performance, gathering, 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 and the resilience of our business model. Deposits reached new record levels with over $1.4 billion of net deposit growth and increased inflows of money market deposits.

Deposit growth continued to be a key driver of our performance. Motivably, we reduced our average deposit cost in the third quarter by two basis points, even as we grew balances to record levels. Classic costs have been well controlled in the first two weeks of the fourth quarter.

Lones also hit records 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-old year for the nine months through September. which leads us to raise our full-year guidance today.

As importantly, asset quality remained solid. Charge-offs, non-performing assets, and 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. This was continues to operate from a position of strength, diversified business model, conservatively managed balance sheet, and industry-leading profitability allow us to deliver an over 17% return on average tangible common equity while maintaining a greater than 10% tangible common equity ratio.

With that, let me turn the call over to Chris for a more detailed review of our financial results. Chris?

Thank you, Dominic, and good afternoon to everyone on the call. Turning to slide four, we have more details on our deposits. We've enjoyed a broad-based deposit growth quarter. We're 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 continued to bear fruit.

Non-interest-bearing demand deposits continue to represent over 26% 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 five, 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 the 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 longstanding real estate clients getting back into the market, sometimes at discounted levels. D&I balances declined modestly from the second quarter, largely reflecting reductions in non-depository financial solution borrowings in business credit, mortgage credit, and other NDFI categories.

Switching to NII and margin on slide 6, our net interest margin expanded by six 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 two 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 nine 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 more than 10% for all of 2026.

Looking at expenses on slide 8, total operating non-interest expense declined for the quarter. The decline was primarily driven by lower other operating costs and lower comp and employee benefits expense. As a result, EastWest delivered another quarter of industry-leading efficiency. The Q3 efficiency ratio improved to 34.4%, while operating non-expense as a percentage of average assets declined eight basis points to 1.21%. Both of these are industry-leading metrics. Year-to-date growth in operating non-experience is 8% in line with our guidance, and we remain comfortable with our overall full year expense guidance.

I'll now hand the call over to Irene for comments on credit and capital.

Chris, 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, or $27 million. Year-to-date, annualized net charge-offs were 14 basis points. Given our performance through the first nine months of the year and 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.

Order over quarter, non-performing assets saw a slight uptick of one 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. According to slide 10, the allowance for credit losses increased $23 million to $865 million, or 1.45% of total loans as of September 30th, reflecting quarter-over-quarter loan growth and portfolio mix shift.

Our allowance coverage ratio increased two basis points from the prior quarter. It remains at a healthy level relative to the risk of the portfolio. Turning to slide 11, east-west capital position 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 one ratio was 15.4 percent, while the tangible common equity ratio was 10%. These levels support current and future balance sheet growth. Peace West ended the quarter with $117 million in repurchase authorization that remains available for future buybacks and declared a fourth quarter 2026 dividend of $0.80 per share.

I now turn the call back to Chris.

Thank you, Irene. So to recap, we've updated three elements of our guidance today, each of which is reflected on slide 12. Number one, we're increasing our NII outlook, assuming flat rates. Number two, we're reducing our full year net charge-off range. And three, we're narrowing our expectation for the amortization of tax credits and CRA investments, all of which reflected again on slide 12.

With that, we'll now open the call to questions. Operator?

Good afternoon, Casey.

I think what we've said before I would stand by, which is higher rates overall will get 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 percent we came down into the low 20s We continuing to work our way up We continuing to build on that But I not sure I 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'll still see some bleed off. On the other hand, as we've shown already, even with rates ticking down just a little bit, we'll probably see continued improvement in DDA over time.

If I look at the broad cross-section of our commercial loans, they're generally SOFR-based, and we're generally somewhere between SOFR 225 and 250. Obviously, CNI and CRE sometimes trade places in that range, but that's the right range to focus on.

Good afternoon, Ryan.

That's correct, and I think what we've 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've 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.

Yeah, if you look at the details, and we show a little bit more in the slides, The increases did come in CNI in those categories. Not one area or asset class we're most concerned about, but both special mention and substandard picked up a little.

It's a combination of could deposit costs chip into that, which we thankfully haven't seen here through the first couple of weeks of October, as Dominic mentioned. But, again, it's early, and we could see that. And certainly if there's a recurring pattern of additional hikes, we would expect to see some of that catch up into our numbers. but we're still fundamentally asset sensitive, Dave. So to your broad question and following up on Ryan's comment, yes, I think if we saw higher rates, we would expect NII to grow.

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

Yeah. 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's 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 and 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, but we expect that to kick in as we roll through the fourth quarter and into the first quarter of next year.

Good afternoon, Bernard.

Sure. 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 didn't have to pay any higher costs for the incremental asset growth that we saw during the quarter, which was a net positive.

Sure. And so I think we referred to this previously as sort of our shoe leather strategy, which is we've asked each of our branch managers, assistant branch managers, commercial relationship managers, to go pound the pavement and walk up and down, whether it's Main Street, Broadway, Valley Boulevard, whatever the most significant thoroughfare for their customers is within their neighborhood, more than once to make sure they've knocked on each door to make sure we've 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 fruit.

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's worked really well and continues to help us grow our DDA balances. At this point in time, certainly more than one out of four dollars 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're very proud of and very thankful for the team that put the effort in to make those calls on all their various customers up and down all the different avenues.

Great. Thanks for that. And in terms of the CDs that were renewed in August from the Lunar New Year, did those mostly renew into new six-month CDs, or did they go out further with term? Actually, we offered both a special nine- and 12-month term, and so we got a mix across all three of those.

Thankfully, as you can notice on page 11 in the tables, the net cost of that program, though, was still a net reduction in our total time to cost, came down by three basis points, quarter over quarter. And so even despite the fact that we extended, we extended into a lower total cost blend than what we started with. which was a welcome benefit.

I would also note that we've got $15 billion rolling off during the fourth quarter of CDEs, but our second quarter specials were not particularly aggressively priced. So we have both a positive opportunity because the repricing benchmark will be low and a risk of those. There's some volume there. So back to Rochester's question, you know, what are some of the puts and takes? the CD repricing will be an important part of what happens for us in the Q4, but we've taken that into consideration and broadly expect stable minimum through the quarter.

Good afternoon, Timur.

I think we'll give guidance for 2027 in 2027. But as we said here today, we're very comforted by the recent trends we've seen in CD repricing. And our current CD specials, we think, are at appropriate levels to retain the balances that we have today.

I think our capital priorities are outlined, and Irene kind of commented on them. but organic growth continues to be priority one for the bank. At 10% tangible common equity, which is a level Dominic has previously commented on, is a level that we're 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. And I think that 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 and the timing and the opportunity when they come forward.

Dominic, anything you would add to that?

No. Like that.

Good afternoon, Janet.

Yeah. Yeah, so clearly I think if you look back to the NBFI slide, you'll 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 well over $200 million. There was a pretty diverse mix of businesses and opportunities that made up the positives on the core bilateral CNI.

We continue to expect more core bilateral CNI 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 wasn't a particular concentration. We haven't seen a particular sector or industry that has emerged as a growth driver. It's been a broad-based cross-section of commercial lending activity.

I'll also add, too, total commitments are up, Janet, but you know innovations are a little bit down quarter over quarter.

Yeah, and I think someone else asked this earlier. Both the special mention and the substandard loans for CNI increased a little bit. If you look at the details, it wasn't necessarily just one sector or area in specific. I would say maybe it was a quarter a little bit. We had less upgrades to offset some of the downgrades. When we look at the details, you know we're comfortable and we'll be able to help our clients work through this.

I think we're still very much in the early innings. While we appreciate the fact that the commercial bank has been building out, I think we're 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've made great progress and we're very pleased by the double-digit growth, we also know we're just scratching the surface of what's possible, and it's got to be early earnings given the opportunities we see ahead.

Okay, great. And then the second question would be on expenses. You guys have a track record of setting the bar on expenses and not moving it throughout the year. Within that, could you just speak for a moment on current AI strategies, you know, tech spend, any early wins from those investments? Thanks.

Sure. I think the reality is, you know, our computer and software-related expenses are up 21% year over year, which would be perhaps a high number and a chalky number. But I would note that, again, our total expenses are exactly in line with our guidance, and so it was part of the plan to continue to grow those. Where we've seen pilot initiatives in our AI development efforts internally, they've been focused on efficiency and speed of evaluation of things, so more on cost-saving oriented activities. and we haven't quite found the right use case yet that boosts revenue, but we'll continue to, I think, pilot some initiatives that we think will help us contain costs and we'll be looking for the right revenue opportunities when they present themselves.

Chris, we are kind of, when it comes to AI, we are early followers. So if someone has some great idea that actually worked great, we are more than happy to follow.

But then we wouldn't think that, you know, East West Bank, which are great on relationship banking, great in cross-border banking, you know, those are where we differentiate ourselves from all our other peer banks. And that's 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 don't 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 and we're paying attention to it. And whenever someone can actually come with something great, we'll be happy to follow.

We wouldn't want us to be that pioneer to spend a lot of tokens and just for the sake of saying that we're the first to come up with this and first to come up with that. That's not, you know, an area that we feel that easily claim to be champion. in reclaim championship in relationship banking and cross-border banking. That's what we wanted to continue to spend more of our effort to. And I do feel that we have tremendous respect for what AI can do to help the bank.

We think there will be plenty of opportunities. We also respectfully are making sure that there are risks involved right now, And right now, the landscape is somewhat chaotic in that standpoint. So we want to be proven and make sure that if someone wants to be heroic, make sure they are not us. And then our position is that when we see that, you know, the battlefield is clear, that there is something great, we'll go ahead and snatch it.

Clearly, rates higher for a far longer extended period of time will put more pressure on more customers. So we take that as a given. That hasn't been said, Irene. I don't know if you want to comment on sort of where we are.

Evie, I would note that at 30 basis points of MPA, it's really not that much of a change from where we were last quarter or, frankly, from a year ago.

I think, Evie, Chris's point is correct. Higher, 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 the last several years where there's been concern about one asset class or another. Overall, we've done really well, better than I expected, honestly. And I think that's 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'll do fine.

Well, I think if we compare with, let's say, five, seven years ago, obviously if you look back, our cross-border customers obviously had quite a bit of, back then, quite a bit of 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, you know, what would be the consumer sentiments and how can you pass through the cost to the consumer or is that you have to just go halfway in between? There are many sort of issues that each and every one of these companies, by the way, it's not just a cross-border issue.

In fact, all business in the U. S. pretty much have to deal with that challenge. But as we look at it today, you know, tariffs are like, you know, just a very day-to-day common thing.

Everybody gets so used to it, you know, they may not like it, but they get used to it. and everybody adjust, adapt, and then move on. And so I looked at it as that, quite frankly, even that if you look at today, that U. S. -China relationship appeared to be getting better.

The Trump administration are working with China to maybe find some other better way to reduce tariffs and whatnot. But frankly, men in the business don't really pay that much attention to it anymore, in a way, because people just get used to it. For East West Bank, our position is that in good times and bad times, East West is still out there offering our best banking services to our clients. And we stay on top of what's been happening in the geopolitical issue, and we do the best we can to provide best support for our clients So with that and 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, you continue to outperform all the other banks.

You know, the geopolitical tension was a lot more worse. It seems to be better. Our performance has been steady. And even when we have record earnings after record earnings, they're just slightly better than the year before. Because we manage our business pretty rigorously. We don't ever want to get ourselves way 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 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 a 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'm in a buying that I cannot grow, which is never the case at East West? So that's why it's just not something that suddenly went quite dormant when it comes to M&A work. It's just that, relatively speaking, we just haven't had 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, we continue to build better capability, and we continue to see more opportunities. You know, this universe is big, and it's going to take us decades after decades in order to get sort of like feel like oversaturated.

Hi, Jared.

It was a small positive. We had, you know, we've had over a billion dollars of total deposit 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's probably a similar amount that's migrated on to a money market or other savings vehicle, but it's a small number. Most of the numbers, most of the refunds came through, were then passed through to either an underlying buyer, seller, or someone else in the chain, and so they went out, but, you know, again, a couple hundred million stayed on the books, and they're still in DDA. Those have also been here for, you know, 30 to 120 days, and so we don't know that there's a reason they're going to leave us, but we would expect some of that will stick for the long haul, and it's been a plus.

Well, the good news is CRE NPLs came down. Go ahead, Amy.

I saw that. So now that we've got our math, our arithmetic here sorted out. So we did have some loans that we foreclosed on that were non-performing, and we did also have some deeds in lieu that we took in the quarter. You know, we're working through it, right? The volume, the numbers aren't a level where we're super concerned at this point, but certainly our team is working hard as far as selling these properties.

Geographically, it's dispersed. Asset type it is as well. We have, you know, we're working through it. So no big concentration.

is more granular. Yeah, I mean, certainly, if you look where we're at, there are asset classes that hit all of our real estate. Balance is why single family is smaller. Larger ones are Cree. Category rise, right? We have REOs that are in the categories of greenhouses, office, retail, and also some one that they can land. But overall, you know, we're moving through these. Some of them will have LOIs, and we hope to see some resolution very soon.

Hi, Ben.

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 on our wealth management. And to a large extent, didn't 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's nothing there. However, we'll continue to look for the way to further diversify and grow our fee revenues over time and that's the focus as we move forward.

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, we expect, somewhere here in the next three to six months. But, you know, if the rules don't change, we are on a path to be appropriately positioned to successfully grow into them. And if the rules do change, then we'll have even more flexibility.

I like your math.

Sure. So on the $15 billion, most of that, again, was priced about six months ago. The end of period costs, that's the two questions. So the first one is, right now, the current month, six-month CD special is at $365. The nine-month is at $378. And the 12-month is $388. Now, a portion of the $15 billion, of course, it doesn't all come on at 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're offering here in the fourth quarter on the six-month offering is actually very much in line with what we were offering in the second quarter. So as we say here today, it's relatively flat, assuming there's a similar reinvestment profile of the underlying fees, which would be a good outcome.

With regard to the second part of your question, you know, our total interest-bearing deposit cost at quarter end was 283. That compares to an average of 281 on average for the full third quarter. And we haven't really seen that move as we sit here. You know, if anything, it's probably stayed flat to get a little bit better as we move it into the fourth quarter.

We haven't targeted a specific ratio. I think we raised the dividend by a third last year. We're at $0.80. We reiterated and declared $0.80 dividend today for our shareholders in the fourth quarter. and we're committed to look at that and revisit that at least annually, and so we will do so in the ordinary course.

Thank you. 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 the conference is now concluded thank you for attending today's presentation you may now disconnect Thank you.