East West Bancorp, Inc. Stock

Good afternoon, everybody. My name is Jared Shaw. I cover the mid-cap banks here at Barclays. We're excited to start the mid-cap -- the first mid-cap panel or a fireside chat of our conference with Chris Del Moral-Niles from East West Bank, the CFO. Thanks a lot for coming.

My pleasure.

Just informed me he's fresh off a transpacific flight. So we appreciate you having the East Coast time.

Yes. It's always a great event, one that I've been delighted to participate alongside you, Jared, here for the last couple of years, and I look forward to many, many more in the years ahead. I will make sure everyone addresses Adrienne here in the front row, who I think you all know is Director of IR. And with us today is also Chris Mattern, our Treasurer. And so we've been having good dialogue with folks all this morning and look forward to good dialogues over the next day or so. Thanks for a full lineup up until 5:30 every day.

We want to keep you busy, for sure.

Thank you. Thank you.

Great. Thanks. Well, just kicking it off, East West remains differentiated through its exposure to both U.S. and Asian markets. As you look across the franchise today, what do you think continues to attract new customers on both the commercial and consumer side? And where are you seeing the strongest client acquisition opportunities?

Sure. And so we are a cross-border capable bank. It's important to recognize that 94% of our loans are in the U.S. and somewhere between 92% and -- 92% of deposits, 97% of dollar balances are in U.S. dollars. So we're a U.S.-centric bank that helps facilitate cross-border trade and activity for folks that have businesses and transactions to do abroad. Focus is American. And within that, what's been very interesting use case is if you've drawn a business plan map for where to build the perfect bank in the last 50 years in the United States, you probably would have picked a market like California.

You probably would have zoned in further on Southern California, you would have zoned in further on a highly educated entrepreneurial subset of that market, and that would have gotten into the core East West client base, and that has been a great market to serve over the last 50 years, and even better market to serve arguably over the last 30. And it's been complemented, particularly over the last 15, by an incredible flow of activity across the Pacific, which has only become more and more diverse as we've grown. And so the reality is we are finding pockets to grow in our core Southern California markets, in our San Francisco, Seattle, Houston, Dallas, Boston, Atlanta, New York markets. We are finding pockets to grow in cross-border activity with Hong Kong.

We're finding pockets to grow with cross-border activity with Shanghai. We're finding opportunities coming to us through our rep office in Singapore. And all of that is contributing to a better-than-average level of inherent organic growth than for most regional banks, in part because they don't have that same exposure or density exposure to California, which continues to be very positive, and they don't have the added transactional flow of activity that we see from our cross-border activities, which is the incremental sort of fuel to the engine that we have.

And it's a very strong deposit engine. Where are we seeing the growth? It's in deposits, first and foremost. A derivative of that is in wealth, and both of those are fueled by those same demographic trends, high educational component, high income component, high wealth component, all of which driving higher savings balances and higher wealth activity, and it's a very positive trend.

Many banks talk about relationship banking, but East West seems to have an unusually sticky customer base. What do you think customers value most today? And how has that changed over time?

I think fundamentally, our customers value the stability and strength of East West Bank as a partner. And that stability strength has only continued to enhance itself here over the last several years. And so we recognize that the banks that we primarily compete against and our primary competitors are the big 4, too-big-to-fail banks. And we think about their presence and all of them have some presence in Asia at different levels for different reasons, but they're all there, and they're all doing things to support a variety of folks, whether that's the Walmarts or the folks that Walmart is buying from, they're all transacting Fortune 1000 level entities on both sides.

But below the Fortune 1000, it's still those 4 banks and then East West Bank. And that's where we know that we have a disproportionate opportunity to win share and capture market. And so that positive dynamic really is part of the differentiation. But part of that differentiation comes from the fact that people recognize that those banks are too big to fail, they represent safe options. And so East West has to position itself, if not too big to fail, then too-strong-to-fail. And we have successfully positioned ourselves as that too-strong-to-fail alternative bank, which is why we're able to capture share.

And that too strong to fail is supported by strong capital levels, strong liquidity levels and strong profitability, all of which leads to positive reinforcement of that too strong fail dimension, which allows us to report quarter after quarter of record earnings or record growth or record capital levels, reinforcing this message with our customers that we are the strongest alternative for them. And that has bred loyalty.

I think touching on competition, it remains intense across, I guess, all of your markets. How would you characterize the competitive environment today? And where do you believe East West is winning the most business?

So the competitive environment today is a shifting landscape. And so if you think about the last couple of years, Adrienne, Mr. Mattern and I all joined the bank in 2023. And 2023 is an interesting watershed moment for regional banks, and maybe...

Did something happen then?

Yes. The dividing line perhaps between those that have the right risk management appetites and the right diversification. And I think our lesson learned from 2023 is you have to be diversified, diversified, diversified and you have to be prepared for the fact that there will be shocks to the system. And that since we're not too big to fail, we need to have that strength within the sort of 4 walls of the institution to support what's necessary. And so what we've been able to create is this balance of activity that's increasingly diversified. And that means finding new customers and new markets and new niches, to your question, I think, and finding the ability to service them in new and differentiated ways to create that diversification and create the sort of stability across markets and cycles that is necessary to succeed.

We've been able to do that by entering new verticals and new niches and new channels in a way that I think has positively differentiated ourselves and led to this sort of sustained continued growth in an environment that maybe hasn't seen all that much growth. We've also been able to do that in this environment post 2023, where we've had several, let's call them name changes, right, whether it's Union Bank used to be called something else or is called something else and Bank of the West has changed names and more recently here, Comerica has changed names. And with each of those conversions and changes, there's an incremental opportunity for East West to step in and capture more share, not to mention a couple of banks that just went away altogether.

And that combination of opportunities created by banks exiting the market because they weren't diversified enough, because they weren't risk aware enough or those exiting the market because they couldn't sustain the investor sentiment to keep them going without doing something radical for their balance sheets or their operations. Each of those changes has created incremental business opportunities for East West to both hire people, make inroads into the business or pick up clients in a way that has sustained our otherwise strong growth trajectory even more so.

You talked about leading with deposit growth, DDA growth continues -- continue to be a major differentiator in the past quarter with noninterest-bearing deposits increasing meaningfully again. What do you think is driving that success?

First and foremost, it's our retail bankers. They're doing a phenomenal job of getting out there and pounding the pavement. We call it the shoe leather strategy of just walking up and down Valley Boulevard, walking up and down Rosemead Boulevard, walking up and down and knocking on doors and making sure that knock is heard and following through and following up on opportunities. And that ability to get out at the grassroots level, literally at the street level and make connections with folks in our communities has been driving that underlying strength of DDA for the last, it feels like 6 quarters or so in a way that is far more sustained than I appreciated it could be, but it's creating good opportunities.

It's been complemented by -- over that time, we've also struck a partnership with Worldpay that has allowed us to offer those small business customers a variety of new terminals and merchant card equipment that was an improvement from what we were previously offering at a price point that was positive and that combination of us making the inroads, us making the call, us making the outreach and then being able to offer them something different and new led to an improved penetration of that existing customer base. And it was largely an existing customer base. We are already approaching a lion's share of the market in many of the Asian affinity communities we serve.

We've been able to take that shoe leather strategy as well as the machinery and go to new markets and also make inroads, and in addition to that, we've been able to sort of take the capabilities online and offer them to a broader cross-section of small business clients sort of around the market. And the 3 of those strategies all working together have really propelled the small business uptick. And that's been the driver of that DDA growth and continues to be here. I'd be remiss if I didn't point out, we've also benefited from tariff refunds. Tariff refunds helped buoy the numbers in the second quarter. They've continued to come in positively in the third quarter.

And while the flow has been approaching $1 billion or so, the reality is the net residual balances were a couple of hundred million at the end of the second quarter. They're probably in the same order of magnitude as we sit here today. And those are residual flows that we think at this point in time are likely to stay within the bank. They may move from DDA to money market at some point in time or have already, but there'll be incremental balances from that activity.

Great. You highlighted the importance of core relationship deposits and operating accounts. As you look ahead, how much opportunity remains to continue to improve the overall deposit mix?

Well, I think we have done a nice job of finding the floor, first and foremost. And so at around 24%, 25% of our total deposit mix feels like a transactional floor. And the good news is we've worked off the bottom of that floor towards the 25%, 26-plus percent. And in the current rate environment, that feels about the right level. Should rates move lower, which doesn't seem to be the expectation at this point in time, we would expect that to continue to improve. Should rates remain relatively stable, which is our current expectation, we would assume that mix holds relatively steady at the sort of mid- to high 20s. Should rates move higher, they might trend back towards that floor of 24%, 25% over time. But that feels like a pretty low risk threshold level for our floor at this point in time, and it feels like there's more upside than downside.

Okay. You have roughly $13 billion of CDs repricing this year and continue to discuss deposit remixing.

Yes. About $12 billion or $13 billion a quarter. $12 billion to $13 billion per quarter, right?

Yes. How should investors think about the balance between retention growth and funding cost optimization? And how are you thinking about pricing in this market to grow and retain?

So at the moment, we're priced exclusively to retain. And so we're not trying to grow share or capture balances through pricing. In fact, arguably, our pricing today, our CD special for the Lunar New Year back in February of this year was initially set for a 6-month CD at 3.68%, our current today CD offering for 6 months is 3.65%. So that obviously does not reflect an uptick. Now we would be the first to remind you all that when we spoke to investors back in January, we told you that the forwards for CDs were already reflecting a more competitive deposit environment. They were already reflecting a shift higher period in funding levels and an expectation that loan growth would be stronger in '26. It turns out those things all came together.

And so we're not surprised by where we find ourselves now. But what we do see is at 3.65%, we would probably be losing some deposits. So we've complemented that with a 3.75% 9 month and a 3.80% 12-month CD rate. And that blend result in some further duration extension of our clients' deposits with us, the deposit tenors, more shifting to the 9 and 12 months, holding the overall balance is relatively steady, but probably increasing the cost just a smidge. But that combination means that we will probably be in a very good circumstances should there be further future rate hikes because we're locking in funding levels at 3.75%, 3.80% where others will be paying more in the future.

We'll also note that even those levels of 3.75%, 3.80% feel like they're good 25 basis points, if not more, under market from what we see in the general marketplace. And general marketplace feels like that could be a 4 handle and where we are at 3 feels like a relative healthy level of discount, reflecting the relationship value we have with the sustained CD customers, which we've developed over many, many years.

Maybe switching over to the loan growth side. Loan growth guidance was raised again with second quarter. What's giving you the confidence that the current pace of growth remains sustainable with the broader macro uncertainty?

Sure. So let's take sort of the 3 different portfolios in stride. First, the strongest growth in the second quarter was in our mortgage -- single-family mortgage book, and that business has been sustained. Interestingly, despite the fact that long rates have backed up and that mortgage pricing hasn't come down, the reality is the American dream is alive and well. The desire for owning a home continues to be a driving force for many American households and the ability to work with a bank like East West, where we will provide a 50% down payment mortgage solution for you, has 2 curious side effects. One is for a subset of customers, the fact that they're only putting 50% -- they're only borrowing 50% means they're 5/8 less rate sensitive than the other customer.

So on average, you're borrowing less, you're less rate sensitive. That seems to track and we're seeing that. The other component is the reality for some of our customers is the reason they're talking to us and engaged in a 50% down mortgage program is because they have uneven earnings or a lack of track record of earnings, and it's difficult for them to qualify for traditional mortgage product period, in which case the 50% is the only option, and they're slightly less rate sensitive because there's not a competing marketplace for those loans. And so what we found over the 50-year history we've been offering this product is it's a very attractive risk return product because our risk has effectively been 0 over 50 years, and our returns have been quite positive.

And so on the residential mortgage side, what we've seen is continued flow of funds at a level that's sustained and reflects the durability of that business quarter after quarter and will continue into the third quarter. I can say that with confidence because we're 3/4 of the way through the third quarter on the one hand, and I know what's closing in the next several weeks. So it will be a good quarter for mortgage.

On the CRE side, which has not been a focal point for us, the reality is it looks better at 6.25-plus percent yield than it did at 5-something yield. And so the reality is we're able to sort of lock in some of those pricing points for developers and customers that we've had for decades, we're more than happy to do that for the right borrowers. And so we've been able to sort of apply ourselves to execute on some transactions for them and support their interest at what we think is an attractive level as well. And so that will be an area of growth for us, where it's been a more muted level of growth for us in prior quarters.

And then finally, on the C&I side, when we think about that, we sort of break that into 2 pieces. The NBFI loans or the PE loans and other loans that we've done, which were a big driver of the first quarter's outperformance, we told you they would pay down in the second quarter, and they did. We continue to see paydown in that activity and volume into the third quarter. And so that will be a soft point on that side. On the other hand, we've made up for that with some core C&I growth, which will put it back in the positive territory. And so you'll see positive loan growth in all 3 of our verticals, led by single-family.

On the commercial, the C&I side, any -- are there any specific industries or customer segments that are producing the most attractive opportunities today?

I think what we've been endeavoring to do on the C&I side is diversify, diversify, diversify. And so we have the North Star of balancing the 3 portfolios is 1/3, 1/3, 1/3 between the single-family, the CRE and the commercial. And then within each set of commercial, we endeavor that no subset of that should exceed more than 5% of the balance sheet. And that's not a fixed formal cap. But through our risk management approaches, we're managing essentially caps in that neighborhood. And to date, none of the portfolio categories have exceeded 5%. And so we'll continue to diversify that as we continue to grow. That means we're relatively more tapped out in, say, PE and entertainment, which are 2 big verticals of ours and less capped out in some other areas. And so we'll be focusing on trying to continue to build out more diversification of the volume and the business mix in the C&I book over time.

When we were here last year, we were looking at the potential for rate cuts. This year, we're looking at the potential for rate hikes. Investors are often focused on the margin, but management continually emphasizes net interest income. How are you thinking about balancing growth, deposit remixing and margin to maximize earnings in an environment like we're seeing today?

We'll continue to deliver double-digit ROTCE, continue to deliver top -- bottom line EPS growth. And I will continue to pull the levers, along with my friend, Mr. Mattern, here in the front row on deposit pricing, loan pricing and balance sheet allocation to create that environment. And if that means the margin goes up or down a few basis points, I'm less worried about that as long as I'm driving top quartile ROTCE returns on capital, which we have a good track record of a couple of decades of delivery and at least under Mr. Mattern and I, 3 years of sustained and continued expansion of that.

While rates went up, while rates have come back down, while rates may or may not go up again in this last 3-year window at least, with some liquidity questions on the industry, with some tariffs on the industry, with some oil price hikes and oil price drops and a few other curve balls, we've managed to consistently deliver approaching 17% ROTCEs. That will be the North Star top quartile returns with a strong level of efficiency and the balance sheet management, I think, we have enough levers to pull to make that happen.

Earlier on, you mentioned the importance of revenue diversification. Fee income has consistently grown faster than I think many investors have expected. Which fee businesses are creating the most opportunity today?

Wealth, wealth and wealth, followed by some FX and deposit-related fees. And so when we think about where we see the opportunities and where we've seen the most growth, it's been on the wealth front, and that continues to be where we're investing incrementally. We have spent the better part of the last year earnestly in dialogue trying to find a wealth partner that perhaps we could bring into the fold that would help accelerate those endeavors. That has proved unfruitful so far. And so we -- I won't say capitulated, but we finally threw in the towel and opened up our own RIA this quarter.

We began the process of pulling people into the RIA from the private bank and other areas, and we'll continue to build that up, and we continue to hire into that group and will be a source of further growth and expansion of our fee revenue lines within that capability with that addition. And that has proven early returns positively, and we have optimism that will continue to be a fueling force for fee income growth in the quarters ahead.

When you look at the investments in wealth management, how much more outright investment is there? And what -- how would you describe sort of the runway that remains for growth?

The runway is unbelievable. And what we are seeing is a combination of in our richest core domestic markets, there is a huge untapped opportunity for us that to date, we have allowed to flow out through the likes of Morgan Stanley and Merrill Lynch and Fidelity and Schwab, where we know we can see the outgoing wires and activity from our long-standing customers who have built their wealth over, if not generations, certainly, their lifetimes.

And we're disappointed that they haven't looked to us as a partner for that next leg of their investment because perhaps we didn't have the full breadth of capability. And so we're making amends here to sort of bridge that gap and offer them more and more solutions, more services and more compelling support. But that's an existing base that's been there and is now flowing away from us that we know we can capture and we are bringing people on and help us retain those funds and then capture that incremental activity.

In addition, we recognize there's an additional newer set of funds and flows that are coming from abroad where people continue to look at the U.S. market as an attractive place to put money to work or alternatively as a place where money has come to them because Walmart paid them and they decided to pay -- leave those funds in the U.S. for further investments and decided that part of that investment strategy would be either fixed income or equity securities. And as part of that strategy, we're providing some solutions and support for that. And a combination of that core consumer market that's really fueling this, some private banking that's additive to that and some corporate cash management that's additive to that is all driving a very positive dynamic for our wealth business activities.

Not to take anything away from the momentum in wealth, but beyond wealth, are there other opportunities to grow fee income that are...

FX and core commercial deposit services. So on the FX side, we have a very robust FX business, but the reality is we also recognize we haven't delivered the full suite of solutions that some of our larger bank competitors have, the largest bank competitors, right? And so the reality is we're competing against solutions offered by HSBC or Citibank that are at levels that we haven't seamlessly integrated the way they have. We can deliver the outcomes as quickly and efficiently as they can because we do have licenses in Hong Kong and in Mainland China to deliver those solutions and services in real time.

We just haven't package delivered it the same way they have. And so we're in that repackaging and delivery mode. But the early returns on our most recent integrations have been extremely positive, and we continue to see that lift come through in deposit management fees. And we're beginning to see that lift come through in foreign exchange activities. So up until very recently, if you wanted to trade FX with East West Bank, it required a phone interaction at some point. It wasn't a fully online-enabled solution. We are now offering that for certain customers in certain segments, the ability to do straight through from multiple currencies back to dollars and back to other currencies in various ways.

And that is creating a new pipeline of revenue streams that we hadn't really tapped into before that we're able to deliver on directly now. And I think that's an incremental opportunity for us that has been at about a year plus in the making, but we're seeing now beginning the fruit to be borne from that activity, and we see tremendous upside from that as we continue to deploy that in a way that's more seamless and visualized to our customer. But the reality is if it's not on a mobile phone, the capability doesn't really exist. And so the reality is we need to offer that seamless ability to move from euros to dollars or dollars to Hong Kong dollars or Singapore dollars seamlessly on their phone from account to account and offer them a real live exchange rate as they make that transfer in order for this business to really take off. And we've just started to offer that capability, and we can already see there's upside there.

Maybe shifting a little bit. The bank has consistently invested in technology and customer-facing capabilities. Where are you seeing the best returns on those investments today?

So the short answer is cyber, cyber, cyber and multifactor, multifactor, multifactor. Ensuring our clients' safety and stability of access to their funds in a fraud-free environment is sort of job one, and that's where the investment dollars have gone. Sometimes that doesn't come across as the most client friendly, but I think the clients who understand that safety is job one, appreciated and respected. And so I think that's where the dollars have incrementally been funded.

On the secondary part, I was just saying, this ability to seamlessly look across your accounts. There are 4,000 banks out in the United States. I don't think many of them offer multicurrency accounts in multiple jurisdictions. We're one of a handful of banks that do that with regularity. But the ability to then offer that on a mobile platform will position us as a small handful of banks. And I think that's an important capability for us to have, and we're building that capability, and it continues to be an emphasis.

Can you share with us how you're currently evaluating AI across the franchise? Where do you see the most promising opportunities internally? And where could AI specifically eventually help with improving that client experience you've been talking about?

Sure. So first and foremost, as probably many of us have, AI is now sort of an integrated part of everything, whether it's my e-mail or my word document. I used to think I had to click on the sort of spell check. It sort of somehow seems to do it for me now automatically, which is great. So one of the things I noticed is the consistency of language use across the departments and teams has improved. I don't know if that's because we all took remedial English classes or because AI just makes everything come across more consistently.

I'll go with the latter at this point in time. The consistency of our PowerPoint decks internally, and Dominic is not big on PowerPoint decks, but I can't lose my investment banker background, so I am, has improved dramatically. But the other dynamic is I had a treasury team before and Mr. Mattern is here, we had a couple of people that would be the go-to people to get something new or different built, different way of looking at things, and then it would take time.

And today, we have -- it feels like at least a half dozen, if not more, maybe more like a dozen of people that would say, "Hey, can you go build this dashboard?" And in a matter of days, I'll get back a dashboard that shows me something that I've never seen before from a different perspective. And the reality is the combination of having the data, which, as I said, I think to many forums before, East West is one of the most -- it is the most data-rich bank I've ever had the opportunity to work for. If there is a question you have about where a transaction happened, who did it, when it happened, what dollar amount it was, what fees were paid.

Any of those questions, we can get to that answer faster at East West than any place I ever worked before. And now we can display it and I can take a new question and give it to someone, and that will come back to me in very short order as a HTML, Python webpage, and/or as a Power BI dashboard and it feels like a very short time frame. Telling me exactly what I need to know as well as perhaps a bunch of things I didn't know I need to know that jump out of me from the data. But the ability to sort of get to the data, scrub the data, present the data and come to conclusions is remarkable, and it's only accelerating every day. And part of it's AI, part of it's dashboard and technology, part of it's just training your team how to use stuff and think about things differently.

And the fact that we don't have to go to IT. Three years ago, I wanted to see where all the ACH and wires were coming from, from which customers to -- from which vendors. How much is Walmart sending to how many of our customers every day and how much of that Walmart deposit goes to how many different accounts over the course of a month, a quarter or a year, and I can see that. But I had to go to IT, have them develop that Power BI that was 3 years ago. Today, there's at least half a dozen people on Chris Mattern's team that could create the dashboard for me, and I would have it within a day or 2. And so that cycle time to ask for something to get something back has just dramatically enhanced our ability to ask questions and get to the right answers sooner.

Maybe shifting to credit. Credit quality remains among the strongest in your peer group. What areas are you receiving the most attention internally today? And where are you becoming more comfortable?

So unfortunately, CRE continues to be sort of the focal asset class, CRE office specifically. And it's where we'll continue to expect to see some things go bump in the night. But the reality is we literally only have 10 credits that are CRE office credits over $30 million that total $387 million. So as an order of magnitude of exposure to the entire bank, no single CRE credit is going to do much of a challenge. It's not going to pose much of a challenge to East West Bank. The reality is much of the other portfolios are doing just fine. And so it's not a particular moment in time of concern the way it has been in other moments outside of CRE office. It just hasn't manifested itself. We had some wobbles in technology. Go back a couple of years, we had some wobbles in energy. Going back more years. Today, those industry-specific cycles don't seem to be channeling any particular concerns.

Anything that's a new opportunity coming out of some of that evaluation where you feel like you can get...

We've seen a lot of data center-related activity, and we just haven't found the right way to approach those credits to be an active -- more active participant. So we haven't been. I think we've seen a lot of newer PE-related activity come our way and in part because of our concentration already in that asset class and in part because I don't think we feel like we need to stretch at this point in the cycle. We haven't pursued a lot of those, but there's more out there. Where we have seen opportunity is, in fact, as there's been competitive disruption in the landscape of other banks, we've seen the opportunity to pick up specific individuals and specific even teams in some cases.

And so we have been actively picking up additional expertise, whether that was in charter schools or aerospace or some specific verticals within the entertainment industry. We've added selectively to the teams and are looking at some team lift-outs to further bolster our capabilities. We've also added on the credit side and the syndication side. And I think those adds on the personnel side will give us the opportunity to tap into some new opportunities, specifically, I'd say, in Southern California.

Great. East West continues to hold one of the strongest capital positions in the regional banking group, while still producing approximately 17% ROTCE. How do you think about the balance between maintaining strategic flexibility and optimizing capital?

I think the core strategic and financial outcome for us is to continuously drive towards top quartile returns. And I think as long as we keep that sort of the North Star for our activities, and we continue to deliver against that, I think we'll find ourselves erring on the balance of maintaining our position as the strongest bank in -- amongst the regional peers with the strongest levels of capital as long as we're delivering a top quartile level of return. If that balance changes, we'll certainly be good to reevaluate that. But so far, it's been a pretty good track record. And at the margin, the reality is we have more than ample capital to meet all of those customer loan demand that we're seeing, which is great.

We're also funding that from core deposit demand, which is even better, which means that's a very attractive organic core business that sustains that high teens ROTCE level, and we're very, very engaged and interested in driving -- continuous driving that momentum. What we have found is it's important to have a competitive dividend over time. We raised the dividend by 33% earlier this year. I think we'll be happy to revisit the dividend at the end of this year again. And probably if the economy continues to be fairly robust and our trends are as they are, we'll probably be looking to increase the dividend again as we have in prior years.

And beyond that, we've looked at M&A, and I think the phrase I used in one of the meetings earlier today is we found the opportunity is sparse. And with that in mind, that will leave us probably with some capital. And what we've done in most recent quarters, we applied some of that incremental capital and funding from deposits to help bolster the liquidity profile of the bank. We'll probably do that some more. And beyond that, we've also proven our chops to buy back stock sometimes in size, and that will always be a lever for us.

On the M&A front, It's, I guess, been a little while since you've done a deal.

12 years.

Yes. But when you look at the environment being sparse, what would you look for in a bank? What would be attractive to get you off that 12-year hiatus?

Yes. So I think some of the acquisition history of the bank was in rolling up smaller community banks. I think at this point in time, Dominic has given us a direction that $1 billion or $2 billion banking addition maybe isn't the right way to spend our energy. That's a quarter or 2 of growth, and that will take a couple of quarters to close. It might just be more of a distraction than value-added opportunities. And so that has taken our attention away from those small opportunities on the core banking side. If it's 5% or 10% of the balance sheet, it's probably enough of a level to get our interest. There are fewer of those opportunities out there.

And the reality is they tend to either be priced relatively inexpensively because they have hair on them or growth challenges or both, or they priced -- they're doing very well and they're priced exceptionally well, which is not really of interest to Dominic either. And so I think he's looking for something that he can bring value to as a franchise that we can add value to through our customer relationships in a way to some capabilities that they have, and we just haven't found that combination yet that makes sense for us. We've also spent the last year, as I mentioned earlier, focused on wealth management-oriented M&A, and this hasn't proved to be fruitful the way we thought it would be. And so we'll continue to keep that door open and continue to look for opportunities while we continue to build out now our own RIA and our own capabilities alongside that.

Great. Well, thank you very much. We're at the end of our time, but thanks for joining us and looking forward to seeing you next year.

Great. Thank you, Jared. Thanks.

Good day, and welcome to East West Bancorp's Second Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's Second Quarter 2026 Financial Results. With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer.

This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and the reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission including the Form 8-K filed today.

I will now turn the call over to Dominic.

Good afternoon, and thank you for joining us for our second quarter earnings call. I'm pleased to report that East West earned record total revenue, net interest income and noninterest income in the second quarter. These results were driven by new record levels of loans and deposits. End-of-period deposits grew by 8% year-over-year, with strength across all deposit product categories. Notably, demand deposits accounted for more than 2/3 of this quarter's total increase.

Our continued focus on providing solutions to our customers helped drive a 19% increase in noninterest-bearing deposits year-over-year.

End-of-period loans were up 7% year-over-year, with growth in residential mortgage and C&I further increasing the diversification of our portfolio. Noninterest income also grew to a new record in the second quarter and is up over 20% year-over-year. This performance has been driven by consistent execution across all our fee-based businesses. In particular, we see continued growth opportunities in Wealth Management and have been proactive in building out this business.

Our credit quality remains strong. Nonperforming assets, criticized loans and net charge-off levels all remained broadly stable and continue to reflect our disciplined approach to risk management.

Our capital position remains a key advantage for East West with a tangible common equity ratio over 10% on which we generate a 17% return. We believe our financial strength and customer-focused strategy position us to deliver sustainable growth and long-term shareholder value.

I will now turn the call over to Chris to provide more details on our second quarter financial performance. Chris?

Thanks, Dominic. Let's start with the deposit slide on Page 4. Our end-of-period deposits grew by $1.2 billion across our more than 700,000 customer accounts. Demand deposits were up $875 million during the quarter which accounted for the lion's share of the growth.

Average DDA was up 15% year-over-year, reflecting the continued success of our small business checking campaigns and positive flows from tariff refunds across hundreds of our accounts. Our DDA mix grew to 20% -- 26% of total deposits due to core relationship growth. We continue to shift away from CDs, wholesale and public funds deposits and further emphasize core DDA. This ongoing shift helped us to support the margin and control our deposit costs during the quarter.

Turning to loans on Slide 5. As Dominic mentioned, we continue to diversify our loan portfolio by emphasizing growth in residential mortgage and C&I. Residential mortgage was this quarter standout with over $300 million of net growth. We remain committed to our conservative underwriting approach as we continue to maintain a 52% average portfolio LTV in our residential book.

C&I lending balances were also up over $300 million in the second quarter with notable growth in lending to financial services, equipment, finance and lessors and manufacturers and wholesalers. Our NDFI balances increased by just $24 million, reflecting expected paydowns in our private equity loan book and consumer credit portfolios, which we had anticipated and relaid last quarter. Overall, C&I loans are up 11% year-over-year representing over $2 billion of net growth in that period.

Given the 7% level of growth we've seen over the first half of the year and the pipeline that we see looking into Q3, we are updating our guidance for the full year loan growth to now be in the range of 6% to 8% by year-end.

Switching to NII on margin trends on Slide 6. Quarterly dollar net interest income grew to a record $685 million, reflecting our balance sheet growth and improving mix shift. Our net interest margin came in at 3.43%, reflecting 1 less day in the quarter, in line with our guidance and up notably 8 basis points year-over-year. Our positive deposit remixing trends continued during the quarter and allowed us to further reduce our deposit costs, driving a 6 basis point reduction in our period-end deposit costs.

Looking back over the past year, we have decreased interest-bearing deposit costs by 49 basis points against the backdrop of 75 basis points of cuts in the Fed funds target.

Given our robust NII growth year-to-date, we now expect full year NII growth to be in the range of up 7% to 9%, an improvement from the prior guidance range of 6% to 8%.

Moving on to fees on Slide 7. Quarterly fee income grew 19% year-over-year to $96 million. While total fee income was down $3 million from Q1, this largely reflects the record wealth management results we reported in the first quarter and a slight downtick in some derivative activity. Nonetheless, loan and deposit-related fees were up 14% year-over-year, reflecting our ability to grow fees as we grow the balance sheet. We remain focused on driving a healthy level of fee income and further diversifying our revenue streams. We are on track to deliver double-digit year-over-year growth in fee income for 2026.

Turning to expenses on Slide 8. Total operating non expenses were $268 million for the second quarter. Comp and benefits costs were flat quarter-over-quarter. However, we expect the level of comp and benefits to actually moderate over the back half of the year. Other expense categories experienced an uptick as we continue to invest in people and platforms to sustain growth. Nonetheless, East West delivered another quarter of industry-leading efficiency. The Q2 efficiency ratio was 36.7%, consistent with the prior periods and our operating noninterest expense to average asset ratio remained flat at 1.29%. Based on our year-to-date trends, we are narrowing our full year expense growth guidance range to 8% to 9% versus last year.

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

Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 9, our asset quality metrics held broadly stable. Quarter-over-quarter, nonperforming assets saw a slight uptick of 3 basis points to 29 basis points as of June 30, 2026. We recorded net charge-offs of 19 basis points in the second quarter or $27 million compared to 9 basis points in the first quarter or $12 million. We are reaffirming our guidance range of 15 to 25 basis points for the full year. We recorded a provision for credit losses of $33 million in the second quarter compared with $36 million for the first quarter.

Overall, we continue to remain vigilant and proactive in managing our credit risk.

Turning to Slide 10. The allowance for credit losses increased $6 million to $842 million or 1.43% of total loans as of June 30, reflecting quarter-over-quarter loan growth and portfolio mix shift. We believe we are adequately reserved for the content of our loan portfolio given the current economic outlook.

Turning to Slide 11. All of East West's regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional and national bank averages. East West Common Equity Tier 1 capital ratio stands at a robust 15.4%, while the tangible common equity ratio now sits at 10.4%. These capital levels continue to place us amongst the best capitalized banks in the industry.

We currently have $117 million of repurchase authorization that remains available for future buybacks. East West also distributed approximately $111 million to shareholders via quarterly dividends. East West's third quarter 2026 dividend will be payable on August 17, 2026 to stockholders of record on August 3, 2026.

I will now turn the call back to Chris to share our outlook. Chris?

Thank you, Irene. To recap, we have updated 4 elements for our guidance today, each of which is reflected on Slide 12. Number one, we're assuming flat Fed funds through the end of the year. Number two, we're increasing our 2026 full year guidance for end-of-period loan growth. Number three, we are increasing our full year 2026 net interest income guidance. And number four, we're narrowing the range of our full year expense guidance.

With that, I'll now open the call for questions. Operator?

[Operator Instructions] The first question will come from Jared Shaw with Barclays.

I guess maybe just starting with margin. It was a great trends in cost of funds. It looks like you saw a little bit of spread compression maybe on the loan side. How should we think about some of those components going forward in the supply rate environment? Is there still an expectation that loan yields going lower from here?

Well, we're focused on, first of all, hitting our net interest income targets, and those continue to come along quite nicely. Absolutely, we consider margin dynamics. Overall, we expect our margin to hold relatively stable as we look to a relatively stable Fed fund environment.

That having been said, yes, we're seeing some marginal compression or grinding as you put it, on loan. Part of that was mix driven and part of that was some onetime accretion benefits that we saw in the first quarter, which partly offset by some negative items that we saw in the second quarter.

That having been said, our general outlook is, we're going to hold the margin relatively stable and continue to grind out stronger NII through balance sheet growth over the balance of the year. Obviously, there'll be some deposit competition factors that we're very mindful of and very thoughtful about as we think about how we're going to roll over and reprice particularly our CDs in Q3. But so far, our customers have hung with us even as we've been pricing below what might be considered top of market by a decent amount and a reflection of the customer relationships that we have and our ability to manage those at the branch level.

Okay. All right. I guess on the deposit side, could you -- you called out the DDA growth part of that coming from tariff benefits. What's the expectation of those balances staying through or are customers going to be deploying that windfall? And could you remind us of what the CD roll off is in the third quarter?

Sure. Let me take those in backwards order. The CD roll off in the third quarter will be $13 billion, and we're proactively pricing that today at 360 and 375 on -- 360 on a 6-month and 375 on a 12-month, although we'll be looking at those levels as we migrate through the quarter. in all likelihood will be a little bit more competitive later in the quarter.

With respect to tariff deposits, yes, we did see inflows. We estimate roughly somewhere between 200 and 250 of the period-end balance likely reflected net excess tariff-related inflows. But what we saw throughout the quarter as money came in and money went out. And so we would tell you that of the 250, 200, 250 that was there at quarter end. Most of it has already gone back to wherever it needs to go. On the other hand, there are ongoing tariff deposits coming in, still under those refund programs and they'll likely continue into August.

The next question will come from Casey Haire with Autonomous Research.

Casey, you might be on mute. Casey, going once. All right. The next one, operator.

The next question will come from Dave Rochester with Cantor.

Just maybe 1 quick 1 on expenses on the guide. It looks like you would need to see a decrease from that 2Q level in the back half of the year. And Chris, you spoke to moderating comp expense going forward earlier. Is that primarily where you're going to see the decrease to be able to hit that guide? And then what is it that made that comp line elevated this quarter?

Sure. I think you've probably heard 2 or 3 of our peer banks talk about deferred comp expenses this quarter. And so we do have a deferred comp plan, and that's part of it, obviously. We also had some changes to the way we think about vacation pay around here that influenced that number this quarter. But those 2 things will moderate out, therefore, the comp line certainly in Q3 and likely dampened what would otherwise be growth in Q4. And so that gives us comfort that overall expense levels remain relatively stable as we move through the back half of the year.

Great. And then just back on the DDA growth. Again, that was outstanding. I know some of this is coming from the tariff benefit. Have you guys changed any of your banker incentives or anything else that could support that going forward as you focus to shift towards more DDA?

I think it's been more a change of messaging and direction and focus. And that combination has resulted in, I think, a behavioral shift where people have seen the light on the need to essentially go door-to-door and make sure that we are evangelizing the East West value proposition as efficiently and effectively as possible, and that continues to work really well in our core markets.

We have a -- I mean on the retail banking side, we have a focus on getting our retail bankers to go after small business checking accounts. And that campaign has been going pretty well. In fact, it done really well last year. It continue to do well this year, getting them to focus on commercial banking clients. The small business, small business, 1 small business at a time.

Now that's not to say they are not taking care of retail consumer clients as that's always their core business. They have continued to bring in retail consumer core customers. But meanwhile, they're also out there in the market on the street and then talking to small business 1 at a time. And so far, they've generated some pretty decent momentum. I think that clearly contribute to our growth of noninterest-bearing deposits.

The next question will come from David Smith with Truist Securities.

C&I growth was pretty strong. Can you talk about the range of industries driving this? Are there a few standouts or is it a pretty diverse sectors that work? And then if you could compare that breadth to what you're also seeing a quarter ago, please?

Sure. So I think in the first quarter, by contrast, we saw a very significant uptick in private equity capital call line activity in particular. We called out at the end of the first quarter that we expected to see that volume pay down. And in fact, that's exactly what we saw in April and into early May. In the second quarter, we saw a pickup in financial services, equipment finance, lessor financing and as well as manufacturers and wholesale distribution borrowings. All of those sectors contributed to this year's -- this quarter's growth range, while we continue to obviously have a strong growth as well in residential mortgage. And so those 2 portfolios together accounted for the larger part of the total growth, and we're certainly delighted to see both the breadth and diversification of the C&I book and the continued conservative quality of the residential mortgage book drive our loan growth.

And then just for the loan growth this year, I assume that could continue to be predominantly C&I and residential mortgage into the second half?

We continue to be focused on attaining 1/3, 1/3, 1/3 diversification at some point in the future. And so as we look at our balance sheet mix today, we still find ourselves a little underweight in resi mortgage. So we're happy to see that be the standout this quarter and expect that will have a good quarter in Q3 as well. We obviously are continuously focused on growing our C&I business, and that's there. We're at 34% C&I to total loans right now. We intend to defend that level and hopefully improve on it a bit. And together, those 2 will chip away at the allocation to CRE, which is 37% is still a little heavier than our long-term vision, but we're very comfortable with our clients in that space. We're very comfortable with our portfolio. We're very comfortable with the credits. And so there's no intent for us to shrink those portfolios. It's just that we're growing all of our portfolios in a balanced manner.

The next question will come from Manan Gosalia with Morgan Stanley.

Maybe on the NIB deposits again. So if I understood your comments correctly, just given the tariff-related deposits coming in and going out. Is it fair to say that the average deposit number in 2Q is the right number to grow off of as opposed to the end-of-period number?

That's part of the reason I mentioned the 15% average quarter-over-quarter in my comments, yes, good catch.

Okay. Perfect. And then as we think about the jumping off deposit rates, right, you mentioned that you might take another look at the 6- to 12-month promo deposits that you're offering. But as we look at some of these deposit rates on Slide 6, the 2.76% on interest-bearing deposit cost spot and then the 2.04% and total deposit costs. Is that -- I guess, is that 2.76%, the right number to jump off for 3Q and 4Q?

Yes. I mean that is the end-of-period deposit cost. So that's the right launch point. And I think what we're trying to figure out is where do we think that number lines up relative to the competitive landscape as we move forward through the balance of the year. And as we sit here today, I think we recognize there are a number of smaller banks and some larger banks that are offering deposit rates well above where we are.

That having been said, we continue to see progress and expect to see more progress on our DDA over the balance of the year. And so we're not sure we need to stretch for the highest yield and I think we need to focus on making sure we're servicing our customers on a holistic basis across all of their deposit and lending needs. And that relationship, we think, is worth a few basis points.

The next question will come from David Chiaverini with Jefferies.

On net interest income, how you raised the guide to 7% to 9% from 6% to 8%. Is the main driver of that the DDA deposit growth? Can you talk through that?

Well, I think it's both because we're also raising the loan growth. And so the asset growth profile of the bank, I think, is coming in a little stronger in part because overall deposits have come in. And added to that is the fact that some of those deposits have come in, in noninterest-bearing. And so the combination of the fact that deposit growth and loan growth continue to come in, perhaps better than we would have expected earlier in the year is a positive, coupled with the fact that we are getting some of those deposits or the majority of those deposits in a lower cost framework allows us to lift the guide.

Great. And then on rate sensitivity, you mentioned about stable NIM with a stable Fed funds. How should we think about if we do get a rate hike, the impact on East West?

We are modestly asset sensitive. And we've said in the past that we think a 25 basis point rate hike or rate cut probably cost us about $2 million a month with about a 45-day lag.

The next question will come from Timur Braziler with UBS.

Looking at the CD repricing, I'm assuming you're now starting to get into some of the back end of '25 production that I think was in the 3.4s and now coming in kind of 3.6, 3.7. Is that the right way to think about it? Does CD costs start going up here? And I'm just wondering to what extent is the expectation internally that some of the growth in DDA will be a gating factor and maybe containing some of those seeing costs going higher?

I think we've been relatively both successful and pleased by our ability to retain the CD book here through the second quarter. And the majority of our book CD book has, in fact, than around the 6-month maturity. And so most of the lower level 340 special type dollars already repriced in the 360 or 368, which is where we ran our Lunar New Year CD campaign earlier this year. And so the baseline for those repricings will be what happens in August and September, and that's what we're looking at is given that those were at 3.68, what's the right level to price to retain those as we sit here in July, looking out to what's going to come rolling in, in August and September. And we haven't quite decided how we'll land on that. But I think we're looking at a variety of maturity structures in part to spread out that over a longer horizon and in part because to the extent the forwards of [indiscernible] rates might move forward, it could help pay for it over the longer term. But we're pricing for retention, not necessarily for CD balance expansion.

Got it. Helpful. And then as a follow-up, I would love to hear how you are thinking about that $100 billion threshold both in terms of LFI related expense and maybe what that means for capital optionality here?

Well, we continue to have a significant level of capital options. We continue to be focused on driving ourselves to be the best operational bank we can be making the investments in things like cyber, resiliency backup that we think support having a high-quality, high-performing bank. The emphasis regulatory-wise seems to have shifted to one's safety and soundness. And from a safety and soundness perspective, while East West Bank perhaps can't claim to be too big to fail, we aim and strive to be too strong to fail, and we have consistently made sure we had the capital and the liquidity profile to support that. And that's been the emphasis and focus. Dominic, would you care to add to that?

Yes, that all sounds good.

The next question will come from Ebrahim Poonawala with Bank of America.

Maybe just on capital, just maybe give us that one, given the trajectory you're on, do you see capital levels building, I'm assuming you're okay with it. And in your priorities, you lift buybacks below M&A. Is it just that you like buybacks even less than you like M&A? Or should we read anything into that?

I think that's a pretty standard lineup for us here, and given that we haven't done M&A in now going on 12 years, it's clearly not the first burner, but obviously, focusing on organic growth is a primary driver. From a total capital perspective, we feel very comfortable, in fact, proud of maintaining a 10-plus percent tangible common equity level from a capital distribution and return profile. We think our current dividend is very competitive, but we'll obviously look to revisit that from time to time. And I think the market is one where there will be opportunities for disciplined M&A. But in the absence of that, we obviously have been very opportunistic even this year in share repurchases, and we'll remain very opportunistic going forward.

Okay. Yes, I'll just add a little bit more. All of us here are professional hire guns at East West Bank, and we don't like or dislike M&A or buyback or anything. We love our shareholders. So what we do is that, we always weight each opportunity against the other, and we do it on a regular basis. Our sort of instant reflex is that whenever there is a, let's say, an M&A opportunity, we assess, evaluate and then we wait against, is it better to do this versus just go ahead and buyback, right? So those are the things that we're constantly evaluating and they're very neutral, and there is nothing particular that we either like or dislike, we're just going to do whatever what we think is the best option that enhance long-term shareholder values. But we also keep in mind is that long-term shareholder values may not come if we don't do well short term. So that's what you're seeing this record earnings after record earnings and record whatever, it's because the strong performance quarter after quarter is the best validation that we have the ability to sustain long-term growth and long-term shareholders' return. So in that standpoint, we actually don't take these buyback or not buyback likely. We're just looking at the entire East West Bank situation, and we're also looking at the global landscape in terms of what's happening in this world and we make our decision about what is the appropriate time to execute whatever is best for our shareholders. That's what we do.

Got it. Very clear. And I guess maybe just on the fee side, so good growth over the last several quarters, we have seen fees kind of bounce around in this $90 million range over the last 3 or 4 quarters. Just talk to us in terms of the trajectory of that, like the growth that we've seen year-over-year is that repeatable on fees? And maybe if we can spend some time on the wealth management side, you've talked about this in the past, like where are we investing and what should we expect in terms of the growth for that sort of revenue stream and the opportunity there?

Sure. So thank you EB for the question. I would note, well, the management fees, if you're looking at Page 9 of the press release tables, are up 71% year-over-year over the first 6 months. Clearly, that's been a market opportunity for us. We have leaned into that opportunity with new hiring. We have leaned into that opportunity with investments in the platform and the people and the talent to drive that business further forward. And we continue to think that is an area where there'll be additional opportunities for growth as we look through the back half of this year and into next year. We're certainly investing in the people and the platform to do so.

Commercial and consumer deposit-related fees have also been growing nicely. They're also up more than 15% year-over-year, 6 months. And again, we see that as an area where we have been able to push new solutions to our client -- not push solutions, we've been able to offer new solutions to our clients that have resulted in additional uptake which has been quite positive.

FX, loan-related fees also up quite nicely. Taken together, all fees up 15% year-over-year, gives us comfort that our double-digit growth aspiration is very much attainable for the full year 2026.

Got it. And it sounds like, Chris, if all else equal, macro remains more or less the same, the runway to deliver sort of double-digit growth, the kind of growth that you're seeing in wealth, there's still meaningful runway on both fronts, overall fees as well as the growth on the wealth side.

We absolutely -- I'm not calling for a sustained 70% year-over-year growth, but I am calling for continued -- I'm hoping that the investments we're making in the people and the platforms will continue to pay dividends to us and our shareholders in the quarters ahead.

The next question will come from Chris McGratty with KBW.

Chris, maybe on the NII guide up the second quarter in a row, you tightened up the expenses with it. If we are sitting here in 6 months and the NII growth is perhaps better than even this, does your expense guide move? Or was that kind of baked?

I guess I would look at it slightly differently. I think we're guiding to NII that we think is in line with the current expectations for the flat curve and the growth that we see ahead. I think we're giving you a guide for expenses that recognizes the current trajectory. But to the extent that, for example, in particular, fee income lines grew, the marginal efficiency ratio on those lines is slightly higher. And so as both Dominic and I have said in the past, we see the efficiency ratio as an output, but it's one that we tied to additional revenue growth. So to the extent that we are coming in hotter on expenses. As I sit here today, I would think that would only be driven if we came in better on revenue growth.

Okay. Great. And then just coming back to the NIBs, it's 26% on an end-of-period mix and 25%...

Up from 24%, too.

Exactly. The -- is the -- I just want to make sure that the guide assumes what in terms of mix, similar mix, any tweak either way?

Yes. I think we're assuming today given a flat rate environment, relatively stable mix to our growth trajectory, but that obviously means growing dollar balances as we continue to grow deposits through the end of the year.

The next question will come from Matthew Clark with Piper Sandler.

I Wanted to ask about the uptick in C&I criticized. It looks like your C&I reserve was down a little bit, so probably not something you're too concerned about it. But anything within that bucket to call out or anything lumpy? And then also just the uptick in CRE performers?

Yes. Good question. On the C&I criticized, we did look at -- we obviously go through a process where we're getting annual financial statements quarterly in some situations. And there were some where there were cash flow reductions, which is why we downgraded those 2 special mention.

With that said, in those same reviews, there are many loans that we upgraded from substandard. And that's why, as you noted, overall, the allowance for C&I, the drivers of those, ultimately, the coverage -- the amount that we needed was a little bit lower quarter-over-quarter.

And I think your second question was on CRE in general. Overall, when we look at the pre nonperforming, when we look at CRE nonperforming there were about 4 loans that moved into nonperforming, I would say we've always taken a very kind of conservative view as far as reserving and charge-offs and some of those were resolved in the quarter or subsequent to the quarter. We don't believe there's a lot of lost content as of 6/30 on a go-forward basis from those that flow into nonperforming.

Okay. Great. And then the other 1 for me, just on M&A, your comment in the deck about disciplined M&A. Can you just remind us of the type of bank or organization, you ideally want. We've talked about wealth in recent months. I assume it would you wanted to have a wealth component in Asian-American market to some degree. But any updated thoughts on the criteria there?

I think banks generally are sold more so than bought. And so I think, as Dominic pointed out earlier, when things become known to us, we dive in and we take a good look at evaluating if they make sense. We clearly have been investing on the wealth side of our business. We made significant investments back in an outside asset manager in 2023. We've continued to make investments in people and talent and platforms here more recently. And if we could find the right opportunity to invest additional capital behind the wealth platform or a wealth-oriented banking organization that might be attractive to us, but we just haven't found the right none yet.

From an Asian community banking standpoint, I think we're -- it's a relatively small universe and we know all the players and all the players know us. And so I think we continue to monitor that market, but there's nothing further to comment on. Dominic?

You said just fine, yes.

The next question will come from Janet Lee with TD Cowen.

Just making sure that I'm understanding the NIM dynamics. So outside of the increase in -- outside of any expected move in the Fed, should loan yields decline from the second quarter level through the rest of 2026 from spread compression or mix shift perspective?

We're not seeing spread compression the way we saw it last year. And so as I sit here today, it wouldn't be spread compression driven. We are seeing some mix shift elements so to the extent that, for example, there's less NDFI, which in some cases, can be yieldier and more core C&I, we would see a potential shift downward. But again, it depends on exactly where those loans originate from. As we sit here today, we would anticipate the margin remains relatively stable, given what we see in the pipeline at this point in time.

Okay. Got it. And that assumes that the deposit -- interest-bearing deposit cost increases from the 281 level?

I think that assumes our base level that if there's no Fed funds hike that are -- need to be competitive on loans -- on deposit pricing might step up a tad, but would be offset, we hope, in part by additional DDA growth as well.

Right. Got it. And just a quick last one. you have no problem growing loans and fund it with deposits. Should we expect the size of your security portfolios to continue grinding higher, consistent with the pace we've seen in the first half of 2026?

I think we look at our securities portfolio as a reservoir to fund growth. And so at this point in time, it can be added to, to the extent deposits exceed loan growth, or it can be detracted from the fund loan growth to the extent they don't materialize. But given that we've been able to grow deposits even faster than loans, it has been a net contributor year-to-date.

The next question will come from Bernard Von Gizycki with Deutsche Bank.

Just looking at loan growth, it was broad-based during the quarter, and there was some nice growth in CRE, especially in multifamily and construction. Wondering if those trends during the quarter expected to continue and you'll still see like good growth in those particular areas in the second half of the year?

We appreciate the growth that we have seen across all the portfolios. We will continue to be there for our clients, particularly the long-standing, well-tenured, well-experienced developers that are active in today's market. And yes, to the extent there are things we can do for them, we're very supportive.

Okay. And just as a follow-up. I know the capital deployment priorities were discussed. But just wondering if we could look at the potential Basel III impact versus peers. Unless it's changed, I think previously, you mentioned expecting 160 to 180 basis points uptick in capital versus peers who are probably expecting somewhere about 100 basis points increase. So your relative advantage in capital would continue to increase. Would you be more or less inclined or have no impact on learning our capital levels to similar move down versus like some of the larger banks just on the Basel III impact.

I think we're focused and very happy to manage the bank around a tangible common equity goal and driving a top quartile returns on tangible capital. And so as we think about those Basel impacts, they really don't influence our focus on either TCE or the ROTCE.

That having been said, it gives us comfort that our strategy of holding residential -- low-risk residential mortgage is a great strategy and 1 that effectively others have taken notice of by reducing what they see as their risk profile, which we had noticed a long time ago.

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

Thank you. Well, to conclude, as always, our results are a reflection of the dedication and discipline of our team, and I want to thank them for their contributions. We remain focused on creating long-term value, and we're looking forward to speaking with you again next quarter. Thank you.

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

Okay. Up next, we have East West Bank, and I'm delighted to have with us today, Dominic Ng, Chairman and CEO. Dominic, thanks so much for joining us.

Thank you. Thank you for inviting me here.

So Dominic, one part of the environment that I did want to bring out just given that you have this unique vantage point into both the U.S. and Asia Pacific economies. What do you think investors may be underappreciating about how the relationship between these two large economies is evolving over time? And what does that mean for you and your clients?

Well, at East West Bank, we've always been proud to be that financial bridge between the East and West. Really, we are talking about U.S. and the Asia Pacific. And in fact, it's been decades. We've seen that the Asia Pacific region has been growing in a much faster pace than the rest of the world. And U.S. being the largest economy in the world, obviously, everyone wanted to do trade or investment with the U.S., particularly that U.S. currency is really the most powerful currency ever. And I don't think that sort of business in any way has slowed down. It got detoured into maybe some particular industry such as we talk about these very high-end sophisticated semiconductor chips or maybe the most innovative life science type of business, there may be some issues that prohibit the Asia Pacific from investing in U.S. The reality is that investment keep going.

And so we, as a bank that have spent decades of building expertise in this area. And also, fortunately, the vast majority of banks in the United States really don't have much interest in sort of understanding the potential in that region, and that helped East West tremendously because we don't really have much competition out there when it comes to competing with our peers in the banking industry because the domestic market in the United States is so big. And everyone gets busy working on most of the domestic business. And we have the entire lane of opportunity wide open for us, and we continue to benefit from it. And our cross-border banking business continues to stay very strong.

And we continue to -- as you see what our financial performance have been continuously doing really well, and we got record earnings after record earnings, not because we're taking sort of unnecessary risk and whatnot. It's really coming back down to we have a unique value proposition and have a very unique business that add the extra -- what I call the extra gravy on top to help East West from a above-average performing bank to a top quartile performing bank simply because our active involvement with the U.S. and Asia Pacific trade and investment.

Okay. So unique positioning, unique relationships. And for your clients, I guess, the investment cycle continues and there are capital flows. But maybe just bringing it a little bit more near term, the geopolitical environment, there's always been some concerns along the line, but maybe the concerns are a little bit more elevated today. What are you hearing from your client base there?

Yes. I think that -- I mean, a good example if you're talking about just U.S.-China, that competitive environment, the largest economy versus the second largest economy, and they are both spending enormous resources on AI and from the technology side and building up the economy and whatnot, there's that competitiveness out there. And banks like us that understand the dynamic so well, we know how to navigate.

And a good example would be, if I look at from a perspective of what I talked about earlier, obviously, we're not going to be actively engaging doing banking with, let's say, the Chinese companies that are actively involved with AI to drones and so forth. But then there are a bunch of business in China that are actively engaged in consumer brands. In fact, they continue to come to U.S. and acquire consumer brands and continue to expand the business and because so many of those business in Asia are now looking at markets beyond their territory and where is the best market, of course, United States because this is such a huge consumer base here, right?

So many of them are acquiring consumer brands in the U.S. And here we are, U.S. East West Bank are there to support them. The other part will be you look at students. As much as we hear a lot of noises, headline news saying that U.S. are not granting visas to foreign students and whatnot, there's still enormous number of students coming to United States for their undergraduate and more so graduate programs because U.S. is the best place. for high-level education. And that hasn't stopped. And many of those folks continue to stay in U.S. and further their career and many of them end up being East West Bank customers. And as a professionals, they're working in U.S. And later on, when they became entrepreneurial, they're also bank with East West. And so we are benefiting from this growing population and the population tend to increase their net worth at a much faster pace and then all indirectly helping East West Bank to benefit from it.

And you can clearly see it in the deposit growth and the expense ratios, which I know we'll get into. But one of the things you've spoken about is your ability to follow clients based on how their geographic mix evolves, right? So from the student community, you get in early on the consumer side, but also from the business and commercial side, you can follow your clients wherever they go. Can you talk a little bit more about that and what you bring to the table there?

Well, a good example is that our -- we have a subsidiary bank in China. We also have a full-service branch in Hong Kong. And a lot of our clients in U.S. -- by the way, you look at our balance sheet, like 95% of our assets, deposit are based in the United States. And the fact is -- but we started identifying these clients or prospects even when they start thinking about, okay, how do I expand in the United States, and we've already been working with some of these folks there in Hong Kong and so forth and helping them to make sure they set up their business properly in the United States.

So a lot of these customers that came to United States with meaningful deposit balances and also open a business account, starting a business in U.S. are being guided by our branch managers, by our lending officer, by international bankers and so forth and helping them to reach further in the United States, helping them to assimilate and then also form partnership with U.S. partners. And those are the things that we do best. And those values build tremendous trust in the banking relationship. That's why oftentimes people always wonder how do East West Bank be able to have a cost of funds that are lower than other banks or what exactly you do? And then with that relationship, we said, what kind of relationship?

Well, a lot of time, it's beyond banking relationship. When they first come to U.S. and they need support, they need help and we provide a lot of service, help them to adjust to the environment. Some of them, as I said earlier, even when they were student, we start helping them even when they were student. And then the parents have come over and said, you take good care of my kid. I'll make sure I take care of your bank, right? So those are kind of things that we do really well. And with -- I've been at East West Bank for 34 years as a CEO, and I looked at it and said, when we were very small, we've done that. And when we are now much bigger, we're still doing that. And so far, so good. It helped us continue to grow organically nicely.

But even on the commercial side, as supply chains have evolved over the past few years, you've been able to follow your clients in different areas of the Asia Pacific as well. Can you talk a little bit more about that?

Oh, absolutely. I mean, for example, I would say 10, 15 years ago, the vast majority of the manufacturing that support import to U.S. in China. But as the geopolitical issues slipped and many of our clients start that manufacture in China and start moving their manufacturing plants to Vietnam, to Thailand, to Malaysia, Indonesia. But it's basically the same customers that actually originated the goods initially from China, but now start going to these other Southeast Asia countries, we at East West continue to be able to follow that direction and help them and guide them and then still doing business with them.

And then the same thing when it comes to tariff, we're able to help them to navigate to make sure that we stay on top of the tariff issue, identify the risk and help guide these customers and make sure that get them through the process. And then to a certain extent, we end up picking up many new clients, in fact, at the Trump administration -- the first Trump administration, we looked at it is the first time when we have this big tariff hit to a lot of importers. But the reality is that we know how to help the clients to navigate.

And then interestingly enough, many other banks didn't want to learn much about it, didn't quite understand it. They just look at anyone get a hit with tariffs must be too risky, exit, exit. We were able to end up taking on those clients who are perfectly fine. Financially, they may not be making as much profit as it used to be, but there's still solid gold as a commercial clients, and we're able to sort of bring them over. And as you have seen, we're hardly taking any sort of charge-off throughout this whole period of time. And now we're benefiting from some of these clients are getting tariff refund. And then deposits start coming in and said, well, it's nice, big paycheck.

And in the longer term, it does drive the stickiness of the client relationship as well. Dominic, maybe to pivot over to AI. I want to get your thoughts there. First, I guess, how is East West using AI today? And how is that impacting how you run the business? And then as you look out 3 to 5 years, how do you see that evolving? And your efficiency ratio is 35%. Can it get even better than that with AI? Could you just talk a little bit more about what you're doing there?

Well, I think AI is extraordinarily powerful, and I think it's going to make a huge impact to society throughout the world. That's the given. And I have tremendous respect with what's happening. And I feel like that it's still very much at the infancy stage in the United States, in fact, affecting the banking industry. Our staff sort of like I start looking at AI as an opportunity to, let's say, potentially on the loan underwriting side when it comes to [ BSA, ] know your customer due diligence and analytical assessment or there are many different areas in terms of using AI can dramatically improve the process of handling transaction and whatnot. That, to me, is a given because the technology have proven it can do all of the above.

It's just that it will take a bit more time for banks to appropriately apply AI to streamline and make that process more efficient and making sure not to skip too much and end up getting themselves in big problem in operating losses or whatnot. So that's a given. But on the other hand, I look at it and said, do I know what's going to be happening in the next 3 or 5 years? I don't have the crystal ball. And the other thing is also my 30-some-odd years in banking allow me the opportunity to go through that golden era back when Internet was in vogue.

So if I look at Internet in the '90s, I still remember in 1992, when I was the CEO of East West Bank, I wrote a memo to all associates and then I gave it to my secretary, type it up and ask her to make 250 Xerox copy so that she don't want to have a mail guy delivered to everybody, right, to the inbox. That's how it worked in '92. But in '96, I have to all associates, e-mail, type it myself. And that -- I still remember in '96, there were a lot of talks about there will be no more branches in 25 years because digital banking will replace all banking. I never believe that would happen, but I absolutely believe Internet was for real.

Now Internet was for real. And today, if you look at what we're doing right now, without Internet, I don't know how we could -- on earth we can survive. I look at my iPhone, everything is in here, right? The fact is it changed behavior and increased productivity in a big way. It also -- that whole process sort out a whole bunch of want to be, but never could quite make it. Yes, the Google still stay alive. The Amazon doing great. Meta is doing great. But then a whole bunch of Pets.com, eToys and all these other stuff is all gone, right? So right now, AI is going through exactly the same process.

There's going to be a few of them. It's going to dominate. But there are like thousands of these AI companies now hanging around in San Francisco paying high rent. They're not going to make it. That's what it is. And then eventually, the AI is going to be getting into our daily life. That's going to make a big difference. People talk about what robot would do. I've already seen it what's happening in China. In the manufacturing plants, robot replace tens of thousands of labors, right? It's already happening. The technology is already there. It's already applying that technology. It's not even -- it would have been this, it would have been that. So I very much respect that direction.

And the East West Bank will take the position is that we will be a quick adopter that we'll watch out and we'll let Sam Altman and those guys do whatever they wanted to do, Elon Musk, do whatever you want to do, right? Whatever they do, there will be something that's very applicable for the bank, make sure that somebody -- some pioneer banks who love to be the first one to get there, let them test it out, right?

After they test it out, get burned with cyber attack or whatever that is, when that's done, I'm coming in, right, coming in fast. And that's the approach of East West. So what I look at is that, of course, we're going to have to spend some money and hiring the people who understand AI and whatnot and then make sure that we beef up our information security area to make sure we don't get in trouble. But all in all, I don't expect East West will be at the forefront to trying to be out there working with those big guns to develop anything. That's not our priority. That's not our job. Let JPMorgan do that. Yes.

But maybe bring that 30-plus years of experience, and you've seen how the landscape evolved through various technology cycles. And one of the debates that we've been having here is around how agentic AI might impact deposit costs down the line, how stablecoin might impact deposit costs. Given your views early on that the branches are not dead, that they will continue, how do you bring some of that experience into this debate? And what do you think about it?

Yes. Again, the -- my approach is that do not get stubborn and then refuse to change. I believe -- I'm a strong believer that we need to constantly be changing and adopting to the new environment. That's what we do at East West. But while we're changing adopting, we also not get too naive and then start getting so overly excited and exuberant about any new technology coming in and wanted to be the first one to get in there. Because my view is this, is that when I look at, for example, what AI would do to the -- how -- to what extent would cannibalize deposit and then make deposit rate goes up higher because now we've got agenetic AI that comes in and it automatically help you to move balances from your checking account to maximize your deposit rate and not.

I look at it is that it doesn't take much IQ then I look at my balances. I have too much deposit, I can move it to, right? So this whole idea about that sort of stuff, I don't think that it's going to be that big of a deal. And again, I'm talking about my long-time experience 20-some-odd years ago. I remember when Charles Schwab and Fidelity started that sort of like low-cost brokerage accounts, right? We all used to in the old days, I had my Merrill Lynch account and I have to pay commission every time I do a trade. And the commission was not cheap. And then suddenly, the Charles Schwab and Fidelity said, you can through Internet, you go online, you can do your own trade. We won't charge you much or won't charge you anything, right?

And then the money market accounts there actually pay higher rate. Did I see some outflow? It's not just East West Bank. Every -- the entire banking industry saw some deposits get sucked down to Fidelity and Charles Schwab and whatnot, right? That happened.

The industry -- overall banking industry shrunk a little. But those who survive, those who continue to sustain, stay pretty healthy. So I looked at it and said, AI is going to make some impact. I don't know what it's going to be, but it's going to make some impact. It's going to change the banking industry. It change the banking landscape. One thing I do know is that it's like a bear chase, we always run faster than everybody else. So -- and that's the thought is. When it comes to -- like if you look at it, when I first became sort of like CEO of East West Bank in the '90s, there were 13,000 banks, and now it's like 6,000 something, right? Down the road, it may be only 2,000. But as long as we always perform at the top quartile, good, and that's what we're looking at.

So that brings me to a question on scale. And you spoke about how East West would be a fast adopter as opposed to the leader in deploying some of these technologies. But how do you think about the impact of scale in an AI world and the ability to invest in these technologies over time?

In terms of scale, I think that we really -- we're always going to be looking at any kind of technology, whether it's AI or whatever else come in, as long as it can help the bank to do the work with higher speed, higher accuracy and help us to be more productive, we'll do it. And most importantly, we'll do it with the perspective about to what extent that would help our customer because East West Bank for -- ever since I've been involved with the bank, we have always been focusing on we are a relationship-driven and customer-centric organization.

We always follow that sort of like guiding principle, relationship-driven and customer-centric. So whatever that efficiency that will come in from the technology, how does that help these two? If it helps, we absolutely embrace it and adopt it and put the resources on it. But if it's helping us to be more transactional, helping us to be more internal driven and said, we do whatever we do that may not necessarily be beneficial to the customers, that doesn't work for us because our sort of guiding principle help us to go from a $40 million market value to today of $17-some-odd billion, well, I think that something is going right. So therefore, I look at it is that we're going to continue to stay focused in that direction.

Got it. All right. Perfect. So let's maybe pivot over to the competition. And one of the things that makes East West unique is the focus on the Asian American community. How does your more focused client concentration insulate you from new competitors that are coming in?

Yes. In fact, we started with this Asian sort of affinity focus because the founders of East West Bank who found East West many years ago, opened the bank in Chinatown Los Angeles because the Chinese immigrants in L.A. was not able to again banking services for mainstream bank. And that's why they had to open their own bank. So that was the origin of East West. And so gradually, when I came in and I took over, I said, no, I'm not only going to be focusing on helping the Asian immigrants.

In order to effectively help the Asian immigrants, East West needs to break out and actively engage in the mainstream community. If we actually have more mainstream customers, the more that we have, the more we can help the immigrants customers that we brought in to further assimilate and reach out and enjoy the full citizenship of being American citizen. That, to me, is a much better calling than just tell these immigrants and say, stay in Chinatown, don't go anywhere. You need -- you don't need to be exposed to anybody. I East West Bank know your culture, know your language, I'll take care of you. That to me is not the right way to help our customers to reach further.

So that's why -- when I first joined East West, I changed the mission, vision and be that bridge and then continue to expand, and we've done exactly just that. Now that said, as of today, our total asset size, $83 billion, $84 billion or so is actually bigger than all the other Asian affinity banks in the entire country, all of them add up together. It's still smaller than us. So that's why, obviously, we have the great advantage because when it comes to supporting the Asian customers, particularly in the retail consumer space, we are so big. Our brand is so big. And there is so much trust from our customers. And they are the one that spreading the words. We don't have to do a whole lot of marketing.

Our customers are telling their friends, they are telling their children. They're telling the cousins who are migrating over that, well, when you come here, just open an account at East West. So it just makes it so much easier. So that's why, to a certain extent, we continue to always outperform. And now -- and that only works because most of the banks do not have a strong interest and focusing on our arena. And I always worry about 20-some-odd years ago we said, well, one day, HSBC just woke up, right? They didn't. And they slept enough time and then they exit, right? So look, it's good. I mean we'll just keep doing whatever we're doing. And so far, so good. And we think that we will have plenty of growth opportunity because that segment continue to be the fast-growing community.

And on top of it, there are certain cultural affinity and so forth and that allow us to put together products that really cater to their needs. Again, going back to the customer-centric principle. We build products that cater to their needs that allow them to comfortably enjoy the banking relationship with East West. And we continue to grow in size, but we can help them to grow.

So when you think about growing in new geographies, I guess, what drives your decision-making process there? What do you typically -- what KPIs do you typically focus on?

Yes. We're focusing on metropolitan cities, have a lot of, let's say, direct flight to Asian country, let's put it that way, right? Because it would be highly unlikely for me to open a like a branch, let's say, in Jackson Hole, Wyoming and things like that, right? We are more into -- like -- so if you look at our geographic footprint today, all the way in California from down south in San Diego, all the way up to Sacramento in between San Francisco, Silicon Valley, L.A., Orange County and whatnot.

So vibrant community with a lot of Asian Americans plus international flights allow us to do a lot of cross-border banking business. And then to Seattle, Boston, New York, Atlanta, Houston, Dallas, Las Vegas. And then we have also loan production office in Chicago. So when we start growing, we'll be looking at fill in. And then if there are cities that we think that fit that criteria, we'll be obviously be interested to opening more branches there.

Got it. Okay. Let's talk about capital. And contrary to popular demand, I'm not going to ask the buyback question because I think you've been pretty clear that you will remain opportunistic there given your high capital levels. But maybe talk about, I guess, how do these high capital levels maybe help you get more client relationships and help you get more business? Is that part of the conversation? And how does that form part of the conversation when you show up to a new client?

Absolutely. I think that when I looked at throughout the last 30-some-odd years, we've done really well. during time of prosperity, like right now, the last 2 years, record earnings, record earnings, record earnings. But the time that we did best is when there are financial crisis. So in '91, when I made the acquisition of East West for savings loan, there was a savings loan crisis. The minute I bought East West, I nearly doubled the size of East West Bank because I went to the RTC, the Resolution Trust Corporation and bought distressed [ S&L, ] right?

And when I looked at 2009 global financial crisis, East West doubled the size because, again, we're in safe and sound position and have ample capital, and we got invited by the FDIC to acquire our competitor who even were bigger than us that we were able to, again, make a huge impact by doubling our size. COVID, we have more time to do PPP loan for our customers, finish them in one week and have plenty of time to help the other bank's customers. That's why we grew our balance sheet substantially because many of these -- those customers or other banks who didn't get help come to us.

2023, Silicon Valley Bank that March Madness, we also benefit. But all of that is because East West Bank have so much capital that the customers feel safe to bank with us. We have to keep in mind that is that we are not the big 4. The media have classified the big 4. They are too big to fail. And therefore, no matter what they do, it doesn't matter. the deposits is always safe. If you're not the big 4, you have to every day prove to the customers that you are safe. And I'm not naive enough and say, just because we have great strong financial performance, that automatically give me the -- so the A grade from a customer standpoint. Customers have every right to be fear. They have $250,000 insurance deposits. And if they park $5 million, $10 million at East West Bank, they have every right to be fearful, right?

The only way I can prove to them is that, hey, look at my capital ratio. There's nobody out there have my capital ratio, tangible capital ratio over 10%. I would say, you go find a bank that can be bigger. And when we rationally discuss with the bank, that's why relationship banking is important. Customers of East West Bank would actually listen to us making a pitch to them. During that Silicon Valley Bank's crisis, we had to make our pitch because every day from Bloomberg, Wall Street Journal, they are spreading sort of like these rumors out there say, all regional banks will be in trouble, right? If the second and third largest bank at California went down. How do you feel where you're the fourth largest bank, rationally, the customers were concerned.

And then we have to explain to these customers. The easiest way to explain is that look at the financial performance of East West. We always -- we make so much money. We have so much liquidity. Our capital ratio is so much higher. The last thing you need to worry about is East West. And that's how we win customers, and we continue to be able to be in a position of strength. Now I would look at it is that if my financial performance really sucks and I perform on the average or even above average level, I obviously will spend a lot of time thinking about the capital level. But we're performing in the top quartile all the time, right? And that -- I'm not putting too much attention to that, a bit of excess capital.

And then as you think about the Basel Endgame rules and the benefit that, that has to capital ratios as well, does that change how you think about allocating capital, whether it's in capital return or in capital deployment within the business?

No, because, again, it's the same philosophy. That bit of excess capital, if it actually would -- that excess capital would cause us to be not getting the kind of profitability to be above our peers, I absolutely we need to do something intensely just because we are extraordinarily shareholder-friendly. As a shareholder-friendly bank and also I understand that we work for our shareholders, I got to do what's right, right? But I'm giving these cash dividends increase year after year, and then I am buying back. It's just not buying back excessively. I'm buying back opportunistically. And I wanted to have some extra capital just in case, who knows when is the next crisis coming, right? Who knows what is the next potential inorganic opportunities coming. So I got to look at all of that. So all in all, it's more importantly is that we are in the top-performing financial performance at this point, and I just look at it that those are the stuff is not essential.

But even in terms of allocating capital within the business, does it make more sense to say, do mortgage or investment-grade credit or anything else there?

I'll do whatever that makes sense for us to grow and then also make sure that we continue to keep it safe and sound and no concentration risk. And so you look at it, we keep diversifying, diversifying our growth, and we continue to make sure that we don't have overconcentration risk. And we are in the perfect time to sort of like strengthen our balance sheet by creating even a stronger, healthy East West. And that's what we're doing right now. So that on a rainy day, we are substantially stronger than anybody else to take advantage of whatever opportunity that will come.

All right. Perfect. With that, we're out of time, Dominic. Thanks so much for joining us.

Thank you.

Hello, and welcome to the Annual Shareholders Meeting of East West Bancorp. Please note that today's meeting is being recorded. [Operator Instructions]

It is now my pleasure to turn today's meeting over to Doug Krause, Vice Chairman and Chief Corporate Officer of East West Bancorp. Mr. Krause, the floor is yours.

Thank you, operator. Good afternoon. Welcome to the Annual Shareholders Meeting of East West Bancorp. I am Doug Krause, Vice Chairman and Chief Corporate Officer of East West Bancorp. And today, I am also the Inspector of Elections.

We will first conduct the formal agenda items for the annual meeting, which I anticipate will be brief. Following these items, Dominic Ng, Chairman and CEO of East West Bancorp will give a brief presentation on our company. We will then answer any questions from shareholders.

If any shareholders have questions of general interest relating to the business before this meeting, please submit them now via the virtual meeting website before voting begins so that they can be compiled and answered. I would like to thank you in advance for your attendance today. A quorum is present, so I will now officially call the meeting to order.

Let me start by introducing our directors who are in attendance at this virtual meeting. Manuel Alvarez, Peter Babej, Molly Campbell, Archana Deskus, Serge Dumont, Mark Hutchins, Paul Irving; Sabrina Kay, Jack Liu, Lester Sussman; and Dominic Ng, our Chairman. Members of East West's management team and representatives of KPMG, our independent auditors, are also in attendance.

First order of business is the notice of Annual Meeting of Shareholders. Notice of Annual Meeting of Shareholders indicates that the Annual Meeting of Shareholders will be held for the following purposes: one, election of directors; two, to approve on an advisory basis, our executive compensation for 2025; three, to approve the amendment and restatement of the 2021 Stock Incentive Plan; four, to approve the adoption of the Employee Stock Purchase Plan; five, to ratify KPMG as the company's independent registered public accounting firm for this year. Notice of meeting has been mailed to all shareholders. Polls are now open on the proposals in the proxy statement mailed to each shareholder of record.

[Voting]

I'd like to express my appreciation to all of the shareholders attending the meeting today and to all of the shareholders who returned their proxies. If anyone in virtual attendance did not return their proxy, please submit your vote now via the virtual meeting website. Additionally, any shareholder attending the meeting today who has previously returned a proxy and would like to revoke that proxy for any reason, please resubmit your vote now via the virtual meeting website. Thank you, everyone. I now declare the polls closed.

Results of the votes submitted by valid proxy were tabulated prior to this meeting. The holders of more than a majority of our shares have voted: for all of the director nominees set forth in the proxies -- set forth in the proxy, the nominees accordingly have now been duly elected as directors of East West Bancorp to serve until their respective successors are elected and qualified; for the advisory vote regarding the compensation of the company's named executive officers for 2025; for the amendment and restatement of the 2021 Stock Incentive Plan; for the adoption of the Employee Stock Purchase Plan; for the ratification of KPMG as the company's independent registered public accounting firm for the year ending December 31, 2026.

There being no further business, the formal portion of the meeting is now adjourned. I would now like to welcome Dominic Ng, our Chairman and CEO, to provide a brief business update and answer any questions that may have been submitted.

Thank you, Doug. I would like to thank everyone for joining us in our virtual annual meeting, including our auditors and directors.

Now I will provide a brief update of our company's performance, beginning with Slide 7 of the presentation. 2025 was another record-breaking year for East West. We set new record levels for revenue, net interest income, fees, noninterest income, earnings per share and loans and deposits. 2025, we achieved balanced loan growth and continue to expand our base of noninterest-bearing deposits. We produced consistent top-tier returns for shareholders again. 2025, East West generated a 17% return on average tangible common equity and a 1.7% return on average assets with an efficiency level that remained best-in-class. We also increased our quarterly dividend in the first quarter of 2026 by $0.20 or 33% to $0.80 per share. Overall, East West 2025 results reflect how our business model is designed to deliver meaningful value to clients, especially during periods of uncertainty when our ability to navigate challenging landscapes matters most.

Moving on to Slide 8, have been and will continue to be prudent stewards of shareholders' capital. We have grown tangible book value per share by 13% and dividends per share by 16% annualized over the past 4 years. On the bottom left of the slide, East West total shareholder return over the past 1, 3, 5 years, all well above our peer median. Total shareholder return is the price appreciation of shares, assuming reinvestments of dividends. And on the bottom right of the slide is a summary of our capital return to shareholders since 2021.

Slide 9, a few highlights from our first quarter financial results. We had another record quarter for loans, deposits and fee income. Our depositors continue to place their trust in us. C&I loans grew as utilization increased. Our wealth management business set a new record, being closely engaged with our clients in a dynamic market environment.

Turning to Slide 10 for a quick look at East West Bank's today. East West now stands at over $83 billion in assets, an increasingly diversified and granular balance sheet. Performance has earned us top ranks from bank directors and American Banker. We are well positioned to sustain our top performance. Although the economic environment remains somewhat uncertain, our experience has taught us to confront challenges from a position of strength, move forward with a diversified balance sheet, granular, strong consumer banking network, top-tier profitability, best-in-class operating efficiency amongst the highest levels of capital in the banking industry. We have the capital and balance sheet flexibility to take care of our customers and the environment are well positioned to capitalize on any opportunities in the year ahead.

We will now respond to any questions submitted to our moderator and Vice Chairman, Doug Krause. Doug?

Thank you, Mr. Chairman. I show no questions from shareholders via the website.

Okay. Thank you, Doug. This concludes our annual meeting. Thank you, everyone, for attending and participating in our 2026 Annual Shareholder Meeting. Thank you for your support as shareholders, we hope as happy customers. Operator?

This concludes the meeting. You may now disconnect.

Good day, and welcome to the East West Bancorp's First Quarter 2021 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's First Quarter 2026 Financial Results. With me are Dominic Ing, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, our Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and the reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. .

I will now turn the call over to Dominic.

Thank you, Adrienne. Good afternoon, and thank you for joining us for our first quarter earnings call. I'm pleased to report that East West had another record quarter for loans, deposits and fee income. Our consumer and commercial depositors continue to place their trust in us helping grow total deposits by 9% year-over-year. Growth in noninterest-bearing deposits was particularly strong this quarter, up nearly $800 million, driven by our continued focus on providing solutions to retail and small business customers. We also delivered 7% year-over-year loan growth. C&I loans increased by more than $900 million quarter-over-quarter, driven by higher line utilization, particularly amount capital call borrowers. .

We also achieved a record quarter of fee income growing 12% year-over-year. We saw strong momentum and wealth management this quarter as we stayed closely engaged with clients. We continue to see opportunity to grow and diversify our fee revenues over time. Credit performance remained stable. Net charge-offs and nonperforming assets were low in absolute terms consistent with our expectations and reflecting our disciplined approach to risk management. Our capital position remains a key advantage for East West with a tangible capital ratio of 10.3%. We maintained this capital level, while growing our balance sheet, increasing our dividend and opportunistically repurchasing shares. We continue to be focused on being disciplined stewards of our customers' trust and our shareholders' capital.

I will now turn the call over to Chris to provide more details on our first quarter financial performance. Chris?

Thanks, Dominic. Let's start with deposit growth on Slide 4. Our end-of-period deposits grew by $1.8 billion quarter-over-quarter. Average DDA growth was up 12% year-over-year and nearly $0.5 billion on an average basis. This checking account growth led us to price our leaner New Year CD campaign more conservatively this year, allowing us to focus on CD balance retention and drive a better mix of deposit costs for the quarter and going into the rest of 2026. Money market deposits were also up 9% year-over-year. As we continue to further diversify away from CDs and other higher-cost deposits.

Turning to loans on Slide 5. As we have emphasized before, our focus has been and continues to be on growing our C&I portfolio and C&I was the primary driver of growth in Q1. Most of the increase was driven by net line draws from existing customers. While utilization ticked up across a range of industries, as Dominic mentioned, capital call related borrowings made up the lion's share of the first quarter's net growth. The quarter's net draws on capital call lines reflected broad-based increases in M&A and real estate property acquisitions across the quarter.

While some of these lines have already been paid down here in the second quarter, private equity markets and real estate markets remain active and we expect to continue to participate in this activity during the remainder of the year. Residential mortgage experienced a seasonally slower Q1 than we expected, but our pipelines have grown and continue to grow into Q2, and we expect residential mortgage to be a consistent contributor to our overall loan growth during the year.

We also grew commercial real estate balances this quarter. Our priority continues to be on supporting our long-standing real estate relationship clients. Given the level of net growth we saw in the first quarter and the pipelines we see going into Q2, we are comfortable reiterating our guidance for the full year loan growth to be in the range of 5% to 7%. Now turning to 6, our loan portfolio remains well diversified with over 70% of our loans to commercial customers across a broad range of industries and commercial real estate asset types. C&I now represents 34% of our total loans, reflecting the results of our focus and emphasis on balanced growth across our balance sheet.

Our CRE portfolio remains diversified by a number of product types with an emphasis on multifamily, retail and industrial projects. As we look ahead, we remain focused on growing the portfolio in a disciplined way that enhances diversification and remains aligned with our overall risk appetite. Turning to Slide 7, we provided incremental disclosure on our NBFI portfolio. Growth in this portfolio this quarter has been driven primarily by capital call line. Our NBFI portfolio is granular with diversification across industry and category types. 99.99% of our NBFI loans are current and the past decades, there have been virtually no net charge-offs in this portfolio.

Approximately 30% of this portfolio is made of capital call lines. Capital call is not a regulatory classification -- and our capital call loans are spread across a range of private equity, mortgage credit and business credit borrowers. I'll now turn to net interest income and margin discussion on Slide 8. Quarterly dollar net interest income increased to $671 million, reflecting our ability to grow our balance sheet while overcoming the headwinds of rate cuts in Q4 and 2 fewer days in Q1.

Our short-term liability sensitivity on deposit pricing dynamics and our positive deposit be mixing during the quarter allowed us to continue to reduce our deposit costs driving period-end costs down a further 6 basis points quarter-over-quarter. Looking back to the start of the cutting cycle, we have decreased interest-bearing deposit costs by 111 basis points. Comfortably exceeding our 50% beta guidance shared in prior periods.

Moving on to fees on Slide 9. Fee income grew 12% year-over-year to a new record $99 million for the quarter. With significant growth in wealth management fees, driven by structured note and annuity sales and deposit-related fees, driven by higher customer activity. We will remain focused on driving this growth and further diversifying our revenue overall and are quite encouraged by the pace of growth in fee revenue so far this year. We continue to aspire to deliver double-digit year-over-year growth in fee income in 2026.

Now turning to expenses on Slide 10. East West continues to deliver industry-leading efficiency while investing for future growth. The Q1 efficiency ratio was 36.2%. Total operating noninterest expense was $258 million for the first quarter and included seasonally higher payroll-related costs, some increased stock-based compensation costs and higher incentive on reflecting increased commissions for our wealth management activity. Nonetheless, overall, we continue to expect expenses will come in line with our guidance for the year.

Now let me hand the call over to Irene for comments on credit and capital.

Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 11, our asset quality metrics held stable and continue to broadly outperform the industry. Quarter-over-quarter, nonperforming assets remained stable at 26 basis points as of March 31, 2026. We recorded net charge-offs of just 9 basis points in the first quarter of 2026 are $12 million compared to 8 basis points in the fourth quarter. We recorded a higher provision for credit losses of $36 million in the first quarter compared with $30 million for the fourth quarter. We remain vigilant and proactive in managing our credit risk.

Turning to Slide 12. The allowance for credit losses increased $26 million to $836 million or 1.44% of total loans as of March 31, reflecting quarter-over-quarter loan growth and the portfolio mix shift. We believe we are adequately reserved for the content of our loan portfolio given the current economic outlook. Turning to Slide 13. All of these less regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institution and well above regional and national averages. East West Common Equity Tier 1 capital ratio stands at a robust 15.1% and while the tangible common equity ratio now sits at 10.3%. These capital levels continue to place us amongst the best capitalized banks in the industry.

In the first quarter, East West repurchased approximately 938,000 shares of common stock during the first quarter of $98 million. We currently have $117 million of repurchase authorization that remains available for future buybacks. East West also distributed approximately $111 million to shareholders via quarterly dividend, East West second quarter 2026 fixed dividend will be payable on May 18, 2026, to stockholders of record on May 4, 2026.

I will now turn it back to Chris to share our outlook.

Thank you, Irene. We've assumed the forward curve as of March 31, which models no rate cuts. And therefore, we're updating our full year 2026 net interest income guidance to grow between 6% to 8%, up from our prior expectations of growth between 5% and 7%. We're also updating our net charge-offs and now projected to fall between 15 and 25 basis points for the full year. With that, we'll be happy to open the call for questions. Operator? .

[Operator Instructions] And the first question will come from Ebrahim Poonawala with Bank of America.

I guess maybe -- maybe the first question, just given the capital proposals that were put out by the Fed last month. I'm wondering if you can quantify what impact you expect to your capital ratios -- and yes, I guess, first, just what's the impact that you expect for what are really strong capital levels? And where is this headed if the proposal becomes a final rule. .

We are happy to cover that for you. The risk-weighted asset adjustment from what's been put out there as Basel-III end game is roughly a $7 billion reduction in our current risk-weighted assets to our current balance sheet. And that would probably translate to something on the order of magnitude of 1.6% to 1.8% increase in our various respective regulatory capital issues.

Are you going to use all that excess capital to start another bank, but.

Dominic is very opportunistic. And I think we are very comfortable maintaining very strong capital levels and having more capital has never served this bank badly.

We're going to use that capital to grow organically.

That's the best answer. So I hope you do. So -- and maybe, I guess, moving to the P&L, strong deposit growth. I wanted to get on the private capital call line lending. Lots of focus on just private equity in that space. One, it didn't sound like that any of that drawdown on capital call line lending was stressed and it felt like there was more activity that drove that, if you confirm that? And why are we not seeing more diversified C&I growth pick up, given just the broader momentum. I understand the macro volatility. But are you seeing at least green shoots of other areas where C&I is picking up?

Well, Sure. So EB, I think on the capital call lines, it was pretty diversified. It was the lion's share of the total growth, but it was across a range of industries, and that gives us comfort that things are happening out there and there are green shoots in general. And of course, there was a component that was a capital call line, which is well over $300 million, and that was all encouraging evidence of continued activity across a range of industries. So we saw activity in true distribution. We saw some cross-border. We talked commercial real estate. We saw a lot of areas that had positive momentum and continue to have positive momentum going into Q2.

And maybe I'll just add to clarify as a clarifying point, none of the drawdowns that we saw in the quarter were anything distressed. Opportunistic really is the time of that. And I think, as Chris alluded to, some of those, there's a timing component of this, right? Some of those did pay off in the early part of the second quarter, normal activity. .

The next question will come from Dave Rochester with Cantor Fitzgerald.

I just wanted to ask about the deposit growth. Very solid this quarter. Can you just give an update on the competitive environment there? Do you find yourself having an easier time growing core deposits. I mean normally, this is a softer quarter for that for most banks. -- the DDA trends look really good. How do you feel about that going into 2Q and the rest of the year, especially on the DDA side. .

I think the DDA growth that you saw has been the result of a now more than a year's long campaign to really deepen our connection with retail, small business customers across our footprint. That's been successful and continue to bear fruit into Q1 '26. We're not letting up on that strategy. That campaign has been working arguably better than we expected here going after it for more than a year, but in a way that we are continuing to go more time and effort to make sure we now even more. The landscape for deposits, however, is not easy. It is a very competitive landscape.

And from a pricing perspective, the fact that we moved from the outlook with multiple customers to an outlook with no cuts means that deposit pricing pressure is real and coming upon us. And so the reality is it's doubly impressive from our perspective that our teams are able to go out there and win noninterest-bearing DDA money in an environment where rates aren't expected to come down anytime soon. So kudos to our retail team, Kudos those to our strong business teams, to those to all commercial RMs out there working their customers to find opportunities for us to add value. really paid off here in the first quarter. But no, I don't think pricing is going to get any easier, and I don't think competition is going to get any easier.

All right. I appreciate that. Just a follow-up on wealth management. and you talked about staying close to the customer and that helped is out this quarter. It was a really big number this quarter. Can you just talk about how you see that trending moving forward? If you've added new people that are helping boost that number you've got new products. Just anything else that can help us figure this out going forward?

There was a fair amount of volatility in Q1 and some of our clients decided at some structured notes were a good thing, and we added some notable volume in structured notes. We also added some annuities during the quarter as people move out of equities at record highs into annuity products. But we also added people late in the quarter, so I don't have a big impact to the Q1 numbers, but we expect it will continue to support continued growth in wealth management as we roll through the rest of the year.

The next question will come from Jared Shaw with Barclays.

I guess sticking on the deposit theme with the good growth that you're seeing in the mix shift, how should we think about sort of the trend of deposit pricing costs in a flat environment? I mean do you think you're still going to be able to continue to march that lower as we go forward?

I think, Jared, in some prior calls or meetings, I had alluded to the fact that we have been benefiting from rolling down the hill and there would come a point in time where the hill stopped the so steep and flatten out. And I think we've hit that point now. So no, my comments earlier that I don't think deposit pricing is going to get easier, alluded to the fact that I think our ability to march down or roll down the next wave of CDs has run its course to a large extent. That having been said, I'll just remind you all, we are asset sensitive, which is why when we're changing our guidance from cuts to a flat rate environment, we're also upping our NII guidance because hire for longer is net better for East West Bank.

That's good color. And then any color, maybe, Irene, on the growth in resi nonperformers? Are you seeing any areas of stress there maybe from tech worker disruption from AI or anything that you're spending a little more time looking at?

Yes. That's a great question. We have seen a little bit of increases in that, ultimately, the -- there isn't anything that we view as systemic. It really is customer by customer loan by law. And ultimately, for us, given the low loan-to values we underwrite it, we don't see a lot of loss content there. .

The next question will come from Casey Haire with Autonomous Research.

I wanted to touch on loan growth. Apologies if I missed this, but -- so the guide of 5% to 7% off of a quarter where you're growing at 8% annualized and pipeline sound pretty constructive kind of a recurring question for you guys, but why -- is that a little conservative? Or what are we missing here?

I would point you to Page 9 of our press release tables, which says that from March 31 of last year to March 31 of this year, we grew by exactly 7.0% on total loans. So that felt like it was in the range of 5% to 7% and warrant it holding the range. .

Yes. I mean last year, it was much different. I mean we had the tariff and obviously, the macros. Okay. I get it. All right. Just -- moving back to the capital discussion. Irene, I heard you say you're going to grow organically. I've also heard you guys talk about some M&A aspirations on the East Coast where there's pockets of Chinese American populations that would fit well with the strategy here. Just some updated thoughts around that. And just given the excess capital under the Basel III proposal, what -- if you were to find an opportunity that you did like what are some parameters around earn-back and tangible book value dilution.

Well, I'll start and maybe Dominic and Chris can chime in afterwards. We have a kind of hierarchy organic right? Organic growth is our priority, and we've been able to show over many, many years the ability to grow our franchise through organic growth. Although, as you know, we have a history many years ago also of being able to do successful well-priced strategic acquisitions as well. So organic growth is our #1 priority. I think, certainly, when is opportunistic stock buybacks, you know what the return is and then also acquisitions, well priced strategic makes sense for the franchise, something that ultimately has to be a better return than our ability to grow organically.

Complemented, of course, was a regular dividend, and we review the dividend at least annually and the dividend is our second go-to after organic growth, and it's where we have most recently increased our dividend, you we call in the first quarter by a third and we'll continue to look at that to make sure it remains competitive. And then as I mentioned, follow up the organic growth with dividends and then inorganic opportunities at the right price and then share buybacks perhaps in the future opportunistically.

The next question will come from Manan Gosalia with Morgan Stanley.

On the deposit growth side, the question is do you typically see some flight to safety from clients, clients just holding more liquidity at a time when there is elevated geopolitical risk. And I guess the question is, did you see any of that this quarter? I'm just trying to assess how much of the strength in DDA growth is seasonal or it is syncratic versus how much of that -- do you see this as a new base to grow off of?

Clearly, East West Bank over the last 15 years has been the beneficiary a very strong, well-capitalized and highly liquid bank of net deposit loans from our customers and increased balances from other banks in the region, from other banks in the country and even some pockets outside. All of that has served to East West benefit and continues to be. And it does feel like whenever there's an errant headline. We see more opportunities to engage with more customers and have been successful at gathering more deposits.

So we like the positioning that we have. It apparently pays dividends to be the best capitalized bank in the industry and one of the most profitable banks in the industry and for everybody to recognize that and trust us in that way. And so I think we are well positioned, and I don't think it's temporary. But yes, we do see flows come in and out and tax flows do happen on April 15, and we saw some of those flow out, but we feel good about the base that we've built and a year-over-year growth in deposits that we've been seeing for almost 15 straight years.

And then you guys gave the C&I loan yields at the back and not a surprise to see that edge down slightly. Is that all just rate related? Or is there anything that comes there from mix shift maybe to capital call or investment-grade clients? Or is there anything you're seeing in terms of competition impacting spreads?

I think we have seen competition broadly impact spreads over the course of the last year. We also provided the net interest margin table on Pages 10 and 11 of the press release. And what you'll see there is a broad repricing downwards because most of our portfolio is floating rate. And that just comes through as those naturally move forward with the rate cuts that we saw last year, including the ones that happened in December. But as we've mentioned, our resets here sometimes don't kick in for about 45 days late. So we saw still repricing impact in Q1 related to the December rate cut. .

The next question will come from Bernard Von Gizycki with Deutsche Bank.

Chris, you mentioned the checking account growth led to pricing the Lunar New Year CD campaign more conservatively this year, allowing you to focus on CD retention. Can you just remind us how much city has rolled off during the quarter? How much was retained? Any color on expected improvement in pricing from rolling forward cities in 2Q.

Yes. So we had a little over $10 billion of rollover during Q1, and we net grew CDs as presented on Slide 4 by $127 million. So we essentially priced for retention and achieve retention. And then from a pricing perspective, as I mentioned earlier, we've been benefiting from rolling downhill, but we sort of flattened out that role. And as we sit here today, I'm not sure incremental new CDs will be necessarily repricing with much of a benefit as we roll into Q2 and Q3. We're currently pricing our CD special at 360, which is not going to necessarily move the needle a lot on our CD pricing.

And just as my follow-up, I think at last quarter, you mentioned the impact from hedging impact. There was a headwind of about $2 million. What was it this quarter? Any expectations for full year you can provide?

Yes. flat and all those hedges today are the money we're looking forward, given the backup in late. But we're still in the money on all the -- the mark-to-market value of all the trades is positive. So they're going to add value moving forward. .

The next question will come from David Chiaverini with Jefferies.

On the NII outlook, so you raised it 6% to 8% from 5 to 7 you alluded to higher for longer being good for East West. Was this the main contributor to raising the guide? Or was the loan outlook also part of it? Can you unpack that a little bit? .

We would attribute the guide increase exclusively to the change in the rate outlook. And as I noted earlier, we're not raising our loan guidance at this point in time, so that's still baked in there at 5% to 7%.

Got it. And on the net interest margin, how should we think about the outlook from here? Based on your commentary on the deposit front, is a dip a reasonable way to think of it? Or how should we think about the NIM going forward? .

So when thinking about the margin and dollar NII as moving higher, they'll probably both crack at least flat to positive.

So the NIM flat to positive from here?

Correct. Even though -- and it sort of alludes to the question I answered earlier, even though there's incremental deposit pressure, the fact that loan will be yielding higher for longer this year means will still end up with a better net interest income and likely slightly better than interest margin than we were previously projecting. I would remind you, though, that the first quarter has fewer days, so don't index off of the Q1 number. in the cost of the account adjusted number.

The next question will come from Chris McGratty with KBW.

The tweak in the credit guidance is a tweak, but it's -- I think it's a fairly important vote of confidence or statement. Could you unpack what drove you to change the charge-off guide after 1 quarter?

Yes. That's -- it's simply put, right? When we look at the portfolio, as we look at kind of what we're seeing, this is our view as far as at least today where we think the net charge flows are going to be. .

So good visibility on the outlook. Okay. And then within the 7% to 9% expense growth, I'm wondering if you could parse out run the bank versus invest in the bank. -- and how, over time, this level of growth, I think this is a similar guide you gave last year at the beginning of the year, how AI might influence that over the medium term?

In the short to medium term, AI is a cost because we also run to figure out how we're going to combat those and everything else that the market is growing at. And so the reality is we're spending time to make sure we're -- as we have been for the last year, investing in our cyber defense and investing in our monitoring tools, investing in our daily operating capability to make sure we're as resilient as possible. And those are investments that I'll highlight are not regulatory-driven. There are investments that are driving us to be the best bank we can be every day for our customers, and we're going to continue to make those investments every day. And that's why we will continue to believe 7% to 9% expense growth is the right level.

While delivering the best efficiency ratio in the industry.

Next question will come from David Smith with Truist Securities.

I wonder if you could give us any updates on how you're looking at blockchain or stable lines as you look at ways to better help our plans with international business needs, transfer on more efficiently?

We continue to see the vast majority of our customers wanting and continuing to transact in fiat currencies. But we do have customers that hold a variety of crypto and stablecoin, and we're monitoring those continued conversations, development, new products and new solutions. We have put some projects sort of into the hopper that we think we'll be able to deliver at the appropriate time when there's a little more market acceptance to those and we've been working with 1 or 2 clients on select opportunities to be supporting them on a back office basis. And so we'll continue to be active around the space, but have not yet rolled anything out to customers.

Our tokenized deposits part of that potentially or anything there?

We have explored those. We have not yet rolled out or put something like that on the shelf, but that's one of the things that we've looked at in concert with, I think, some larger industry vendors that are proposed solutions, and we're trying to figure out if we want to use those or something different. So we're just exploring that and monitoring those development cycles.

The next question will come from Janet Lee with TD Cowen.

So in recent years, your the pause, you generally were able to grow deposits at a pace that's modestly above loans. Is it fair to assume that your deposit growth for 2026 would be the same as coming in line to above your loan growth guide for the year, given the strong results, especially given the strong results from the first quarter?

Janet, I would note that on Page 3 of our financial highlights, we led with deposit-led growth as the story. And so we continue to see deposit-led growth as the story and continue to expect deposits to help us drive a better funding mix, a better liquidity profile and more reservoir dollars available to meet our clients' needs as borrowers over time. But yes, it's been a deposit-led story.

And maybe I'm missing something here, but if you were able to keep your net interest margin flat to modestly improving versus the first quarter, I guess, excluding the day count impact and then loans growing at 6.5% to -- sorry, as your loan growth guidance. Loan growth in the 5% to 7%, your NII what would be the puts and takes around you getting to that lower end versus the high end? It looks like you're tracking at least at the higher end and potentially better? Or.

I think some of those things are true, but the other things that we talked about are that deposit pricing pressure continues to build, and we would expect that to eat into some of the benefit that we might see from hire for longer, as we use through the course of the year. If the economy is strong enough or inflation levels are strong enough such that rates are not a lower then probably there's more net funding going on in the industry and deposit pricing competition strengthens or becomes more rigid or even increases and makes that more costly, and we factored that into our models toward 2026.

The next question will come from Timur Braziler with U.S.

Just circling back on the loan growth, maybe specifically for the coming quarter. I appreciate the comments that some of the capital call lines that already pay down. That's going to be offset with the improvement in the mortgage warehouse business. I guess, net-net, in 2Q, are you still expecting those loan balances to grow? And are we still thinking that 1Q is kind of seasonally softer for some of the traditional commercial business lines.

So I'll unpack that question again because you said something about warehouse at we don't do a lot of warehouse. So repeat your question for me teamer, sorry.

Yes. Just the puts and takes on some of the lines being paid down in 1Q versus the growth that you're expecting in the second quarter and whether or not that's going to net positive balances in 2Q and then just the seasonality on some of the commercial pieces.

Sure. So on the private equity capital call line activity that we saw in Q1, I mentioned and I mentioned, we've already seen some of that pay off here in April. And we probably expect more than 1/3 of this payoff, frankly, in the ordinary force during the ordinary second quarter. So that uptick that we saw should be in the ordinary course, paid down some sense. However, we continue to see continued activity in private equity and in mortgage private capital. And those 2 areas may therefore offset those paydowns and allow us to deliver additional growth in Q2. As we said here today, we would expect that. And then too much seasonality per se in the other areas of our commercial business.

And then 1 on credit ACL has been building over the last couple of quarters. I think you guys called out some mix shift here in the first quarter. Just Give us a sense of where you are likely in that ACL build and should expect that to start settling out and being utilized here at some point? Or -- is that going to remain fairly conservative in holding up at these kind of levels?

I think the bank has approached ACL as being making sure it was appropriate. And perhaps on the margin, making sure it was modestly conservative, I think we'll continue to do so. From a build perspective, it was 2 basis points for the quarter. All the first we're reading on specific comments around the portfolio. But I think the reality is with our visibility that we do have in the charge-offs, we feel pretty good about where we stand. Irene?

Yes. Maybe I'll just add, just a little bit on the technical side of it. We do use a multi-scenario model for calculating our allowance. And as of March 31, the downside in did change quite substantially from what it was at year-end. That certainly was 1 of the factors.

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

Well, thank you to everyone for joining us today. I want to thank our team for their continued hard work and dedication, which continues to show in our results. We appreciate everyone your time and interest and looking forward to speaking with you again next quarter. Goodbye. .

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

We'll go ahead and get started. So next up, we have one of the best banks in the industry in terms of most financial metrics, East West Bank from Pasadena, California. From East West, we have joining us, Chris Niles, CFO. Chris, thank you so much for making the journey.

Always a pleasure to be here and great to spend some time with your customers and one of...

Our shareholders, hopefully.

Absolutely.

So maybe I think just to kick it off, you're talking about this earlier, but, as we think about -- it feels like as much of optimism is out there, there's enough volatility in the macro in the markets week-to-week, day-to-day. When you think about just the customer sentiment and like you've done this for a long, long time, just talk to -- would you agree with the view that 2026 right now, to the extent we know, is shaping up to be a very constructive year for growth outlook for banks and East West relative to the last 5 years? Like how would you compare and contrast getting into '26 versus any year post pandemic?

Well, I think I won't try and compare it against the entire universe of the last 5, 6 years, but 2026 is shaping up to be a very auspicious year. It is year of the horse. And I don't know that our clients are galloping away, but the early read is both loans and deposits are meeting our expectations and continue to be in positive territory. And so we look at that as a great way to start the year.

Oftentimes, we see January where there's a little bit of pullback in terms of lending balances. There's a little bit of pull drawdown or pull down in deposit levels. And the reality is it's been a relatively smooth start and off to a positive trajectory. So we're encouraged by the activity we've seen, and we have no reason to suspect at this point in time, things moving down.

Our guidance is effectively slightly more optimistic this year than it was last year. So last year, we guided 4% to 6% loan growth. This year, we're guiding 5% to 7%. And that reflects our optimism, but it's informed by the customer optimism that we see. And we see that on the C&I side, we see that on the consumer small business side. And to a lesser extent, we see it with some of our strongest customers, where I'd say the CRE market has thawed from the relative frozen transaction levels that we saw in the past to one where we're seeing more activity today and one where we expect we will see increasing opportunities for our most sophisticated clients to capitalize on in the year ahead.

Got it. And I don't want to put words in your mouth, but it feels like things are trending better than your optimistic view.

Now you're putting words in my mouth. But yes, I think we came to the table with what we thought were very reasonable outlooks. And I'm not modifying those outlooks today at all, but I think we feel comforted that the early returns have us on the right trajectory.

Got it. Maybe I think just going through the 3 loan buckets you mentioned. Let's start with commercial real estate. And maybe let's start with from a credit quality standpoint on CRE, a year or 2 years ago, there was some concern around interest rates and debt service coverage ratio. How big of an issue is credit quality when you look at the entirety of your CRE book? And where are the stress areas? Is it still old office buildings? Or is it just on a case-by-case basis? Or is there no stress?

So I think about 18 months ago, Dominic made the comment, if we saw 150 basis points of rate cuts, we would see some of the stress abate. And I think we've seen both those rate cuts and the stress abate. So today, it's less specific to a single asset class or a single geography, although let's be honest, hotels in San Francisco still aren't charging full freight. So there's still upside that we think for that market. But in most other markets, things seem to have begun to clear at reasonable levels and refinancing is an option. And if we see a couple more rate cuts later this year, it probably gets even better for all the asset classes.

And so I think as we sit here today, our concerns remain real around our portfolio exposures, and we're clearly reserving for those. But we're also guiding for a slightly higher net charge-off level and in recognition that things will shake out when there's transaction flow and there'll be transaction flow increasing likely in 2026.

And we've heard today in terms of a couple of other banks talked about CRE could be bottoming out in 1Q, seeing more production picking up. I'm just wondering, are you seeing the same? Like does CRE become a much stronger contributor to loan growth even in '26?

Well, I think we're trying to balance what we see as significant opportunities with a disciplined view around portfolio construction and our desire to shape the portfolio the way Dominic has envisioned to be closer to 1/3, 1/3, 1/3. So we'd like to see 1/3 C&I, 1/3 single-family and 1/3 CRE. In order to achieve that, it means we'll be constraining some of our CRE growth. And so the reality is we already know that we're not pursuing a lot of opportunities that would be available to us. We're not chasing new customers. We are banking our most reliable, most consistent, most dependable, strongest character, strongest credit quality customers in whatever they want to do, but we're not necessarily trying to find new ones in today's environment.

Got it. And I guess, in the past, there were time to time where CRE would probably index more than 1/3 of the portfolio. It feels like that's not where you want to get there even temporarily if there are opportunities.

Yes. Look, I don't think there's any particular time line for that 1/3, 1/3, 1/3 to manifest itself. But I think the reality is we'll continue to try to grow, and we're continuing to hire folks to help us grow the C&I side of the house. We'll continue to support the single-family side of the house as we have consistently for our customer base. And we'll be thoughtful about how we support our best customers over the cycle in the CRE space.

Understood. Maybe just -- you mentioned C&I. Talk to us when we think about C&I verticals, it used to be like technology, the entertainment industry. There were a bunch of like growth drivers for East West. When you think about it today, what are the areas that you expect to be driving C&I growth? And then where are you hiring bankers?

Yes. No. So I think we've had great initiatives. We've hired bankers in things as the [indiscernible] chartered schools and ESOP and aerospace. And so those are just 3 examples of folks where we've hired. We've moved from a coverage model focused on -- let's say moved on. We've expanded from a regional coverage model and a personal relationship-driven coverage model to increasingly an expertise-driven model. And so you're going to bank the charter school space, you better know how that works. You're going to bank the aerospace space, you better know how that defense contracting payment process works. You're going to bank the ESOP universe, you better know how those tax rules work and how those programs need to be set up.

And so we've been hiring the expertise to help us better penetrate the opportunities that, in many cases, are right in our backyard, right? California is a large charter school space. California is a large aerospace industry. California has a significant number of large ESOPs. And so one of the largest in fact is in Pasadena, right? And so it makes sense for us to be in these areas. We just hadn't targeted the specific expertise the way we are now. And I think we're identifying places where we can plug in additional expertise and bringing that to the market.

Got it. And then you think about those verticals you mentioned, are those sort of expected to be the drivers of growth this year? Or is it more broad-based than that?

It's broad-based. They're complementary to the current -- undercurrent of positive momentum that we carried in from the fourth quarter into what appears to be a good start to the first quarter into what we hope will be an auspicious outcome for the full year.

An auspicious, I'm taking as better than expected. But...

There's a range. It would be good to be at the part of the range, be better than be at the low end of the range, sure.

And maybe, Chris, talk about there's this view around the tax bill having incentives around bonus depreciation. Is that a big deal for your clients? Like are you seeing them act on that today? Or is it still a lot of conversations but yet to materialize?

No, it's real. I was at a client dinner not 2 weeks ago, and we were talking about different things, and we started talking about the way they were thinking about the bonus depreciation and how that was accelerating their investment time lines. And clearly, that was part of their conversation. And so they were absolutely thinking about it and thinking about how they were going to benefit from that and leverage it. So yes, and this is a real money client doing real transactions with us, and it was part and parcel to the loan they had just completed that we're celebrating with them.

Understood. You also have a unique lens in terms of supply chains. As we think about the ongoing discussion around are we seeing reshoring our business is going to make investments that are longer dated? I heard last night where some of that was happening because the expectation is no matter who's in the administration post 3 years from now, some of these investments in defense and national security type sectors are going to be based in the United States. I'm just wondering, are you seeing that at all in your clients where some of those movement of supply chains and investment dollars are moving into the U.S. or North America, I guess?

Yes. And I think it comes back sometimes to the tax benefits and sometimes to sort of the way people position. So just because you have a manufacturing capability some place on the other side of the Pacific Ocean, doesn't mean you wouldn't want to have either warehousing, manufacturing, sales and distribution companies and employees in the United States. And it turns out that when you do it that way, you can be very nimble in how things are done. But by and large, perhaps the buyers, if the ultimate buyer is a Costco or Walmart, is perfectly comfortable dealing with your U.S. entity or your overseas entity.

But in general, they want to pay you in U.S. dollars in the U.S. bank account. And so whichever entity ends up "getting the order." The deposits tend to still come into East West Bank. And so we've noticed that. And so our goal is to stay close to the management teams as they navigate the changing landscape in the structure that works best for them and help them, whether that's with the financing of whatever they're bringing over from wherever it comes from, to the reinvestment of those proceeds or perhaps even the further capital investment and leveraging of whatever profits they've accumulated back into the U.S., we're here to support all of that in that channel.

Got it. And maybe one last one in terms of from a C&I business expansion standpoint. Like we've talked for many, many years around you acquired a small bank in Texas sort of as a nucleus to grow in Texas. New York has been a market which I think has been underpenetrated as far as what East West can achieve. Just where is that in the priority list today? And how are you investing towards that goal in terms of -- because it feels like it could be a significant growth runway for the bank and it already is, but, yes.

Look, I think we've got really nice market share in several of our key markets in California. Frankly, we're probably relatively underpenetrated in many of the others. But overall, we have a great market share. And so when we think about this from a network perspective, sort of we have the network halo. The question is, where can we incrementally add to the network to give us even more throughput. And as we look at that, that's on the East Coast, New York is a market that we look at in New York, New Jersey broadly. When we look at Boston, we see opportunities. We look down the Mid-Atlantic, D.C., Tysons Corner, Fairfax, all that has potential for us. And we just need to identify opportunities where we think about do we grow there organically. If so, how, if we grow there through acquisition, what's appropriate.

Again, we're not trying to materially increase our CRE exposures. We're trying to make sure we have a diversified granular customer deposit base. And so finding something that brings the right mix of things to the table as well as potentially fee income and wealth capabilities is, I won't say, looking for the unicorn. But at a bank that's smaller than us that's trading at a value that would be attractive for us to acquire is a challenge, right? And so we're looking for all of those things, and we'll recognize opportunities as they present themselves and evaluate them.

Obviously, we haven't pulled the trigger on anything yet, but we're also cognizant that while valuations for all bank stocks have risen and that makes things more expensive in nominal terms, our currency is also appreciated. And so on a relative basis, many opportunities still can make sense. And on an absolute basis, I don't think we're looking to do anything that would change the character of who we are, which means we're looking at things that are smaller, which generally -- they'll have a niche specialty or 2, but they probably won't have the full package, and that's okay. We're looking to incrementally build and grow.

This feels like a regulatory environment where incremental activity will be able to pass muster relatively quickly. And I think that's conducive. When we -- when every deal was subject to 9 to 12 months of -- we'll get back to you. That was tough in a world where things are -- things that make sense are getting approved relatively quickly. We think it's worth spending some time looking for those opportunities.

Sounds like [indiscernible]. I guess when we think about small deals, I mean, I'm thinking $20 billion, $30 billion in assets. I mean, I guess where I'm going with that is, it is possible that if you do something in organic, you cross $100 billion in assets. Does that mean anything? Like we just had a regulatory panel this morning and some of the conversations about the Basel end game would be limited to the G-SIBs, huge focus on just tailoring, et cetera. So I'm wondering if you did a deal and you cross $100 billion, is that no longer a big deal?

I think we're thinking about it more flexibly today. And I think we are informed in that view by Dominic and I were both present from Miki Bowman's comments at the January California Bankers Association meeting, where she indicated that new Fed policy would like to be promulgated, at least in terms of opinion papers or direction before the end of the first quarter. And she referred to indexing and other approaches, indexing meaning indexing the 100 either on an inflation or some growth factor or something else. And so if we take that message to heart and things are going to be reevaluated, it feels like we would have more room than we would have to worry about in the near term. And so I think that's given us a different perspective on how we can think about the landscape.

I'm not saying there's anything particularly -- there's nothing in our DNA growth and structure that tells us we have to go do a deal, right? We haven't done a deal since 2014, and yet the organic growth has been fairly robust. We haven't done a deal since 2014, and we've delivered probably as much efficiency gain as anybody and probably as much return on capital as anybody who has done a deal, right? And so the reality is we feel pretty good about our organic path. But if there's something we can find that's complementary to that, that could get announced and closed in a reasonable period of time, that certainly is something we shouldn't pass on the opportunity to explore.

That's fair. And I think, again, not to harp on M&A too much, but is it fair to assume like for the longest time when you talk to investors, the sense is if East West acquired something, it would kind of be at least somehow linked to your roots around the Asian-American community kind of densifying that market share. Is that still the right way to think about it? Because I know the bank's grown, evolved in many different ways.

Yes. If I think about the 3 bankers that we hired that I just mentioned, none of them came to us from the Asian-American community. They came to us with specific capabilities and skill sets that we could leverage across our infrastructure and marketplaces. And so I think it's more capabilities focused from our lens. We have trust powers at East West Bank. We're not currently exercising them because we don't have trust personnel or trust platforms. We could build those. We could hire for that and that the ability to build that way or we could buy it.

We don't have a fully in-house RIA. We have investment in a group that has some RIA, and we have a partnership with an external broker-dealer that provides some aspects of those services, but we could also look at bringing that into a model where we would have ownership. Is there a way we could acquire that ownership interest that would make sense for us, right? And then leverage that brokerage or RIA capability across our entire footprint. If we could, I think that would make sense.

So those are the things that we're trying to solve for. How do we deliver as full breadth of services as our customers are currently seeking. And the reality is we know our customers are currently banking with Merrill Lynch, and we know our customers are currently banking with [ Merrill Direct ] and Schwab and others. And so how do we bring that aspect of their wallet into our ecosystem in a way that's appropriate.

Got it. I guess maybe just on the deposit growth side, give us a sense in terms of just the deposit growth outlook. Do you expect that to go hand-in-hand with loan growth? And what's the competitive pricing environment look like?

Yes. So we do expect to largely, if not completely fund our loan growth out of deposit growth. And that certainly, we've done that the last several years, and we would expect to in 2026. As we sit here today, the competitive landscape for deposits, we think, is actually tightening. And I say that because while everyone is wanting a 6-year CD because it's the time of year, at least in the bank where has their sort of lunar CD special at about the same price point. Ours was launched at a rate of 3.73% for 6 months. I think our competitors will probably come in a few basis points higher. We've seen the ads already. They all waited for us, I guess, and they started launching. So we'll see how that comes together. And they'll pay more apparently. So we've set the floor to peers.

But when we look across the landscape, we look at the market for brokered CDs as an example, as a proxy for pricing, despite the fact that there are a couple of rate cuts in the forwards, there's no rate cut priced into the forward CD levels. And so for those that are [indiscernible] it's easy to bet on a couple of rate cuts. For those that are making a market on the other side and earning a positive return from providing the hedge, pricing a few rate cuts with a little bit of spread for the market maker is good business.

But for those that are apparently borrowing money 9 and 12 months, they're willing to pay the same flat rate, which is interesting. And so we look at that and we say, okay, well, what does that really mean for the tightness of the deposit market as we look forward. It implies there's at least more than a few people who think there'll be loan demand. And therefore, they'll need the funding and they're willing to pay for it, which is interesting. And it hasn't really been the case up until now. So we'll see how that plays out as we move through the course of this year.

Got it. If I recall correctly, you still had some of the higher rate CDs coming up for maturity through the first quarter. So it seems like you're going to still pick up some benefit in terms of the back book repricing and you're retaining a good chunk of those deposits, right?

We have been. I don't know that we've priced to grow the deposit book, right? We haven't. We're below brokered levels. We're below where we've seen competitors price. That's okay. We're not trying to grow our way out of this. We think we'll -- retaining the book will be a good starting point for the year and allow us to move forward with a focus, which we have been focusing on small business account growth, which has been working well and consumer money market and checking growth, which has been working out okay, too.

Got it. And I guess for the last year, you've talked about like NII growth mostly being a function of loan growth or balance sheet growth that still holds. Like when you think about the risk to that view, what's the biggest risk, just interest rate cuts being sharper and deeper?

So I think if we hit the 5% to 7% loan growth, then we're also calling for simultaneous 5% to 7% net interest income growth. So those things imply together, implicit in that is not a significant change in the level of back book repricing from a spread perspective. So spreads hold. And if spreads hold and the growth comes in, then the margin we're thinking will largely hold because the 2 or 2.5 rate cuts priced in the forwards will be offset by the back book effects, right? So it's kind of a flat-ish implication. We haven't said that specifically, but you can derive that.

So what are the risks there? The risk there are -- well, there are Fed cuts, in which case, the risk is NIM goes higher, I guess, and margins and NII goes better. That's a risk. The risk is that there's more cuts, in which case, perhaps the $2 million per 25 basis points works against us on the downward and offsets and off paces the back book repricing or worse yet, there's so many rate cuts that the back book starts to reprice negatively, right, which is not likely, but it's possible, right? And so that scenario is more conducive with a very aggressive rate cutting from, say, a new Fed Chairman. We'll see.

And just from an ALCO standpoint, or risk management standpoint, are you doing anything differently in terms of just managing the balance sheet, putting on hedges? Like what's...

Fixed rate securities. We bought -- fixed rate securities. We were a fairly significant buyer of floating rates, and we've basically shifted to a fixed rate security. So the portfolio has remixed back to more predominantly fixed rate and our purchases are very focused on fixed rate. And today, fixed rate securities are still yielding north of 5% in Ginnie Mae mortgage product. So it's a reasonable place to put liquidity dollars to work. And so it's great.

I think we were -- just before we started, there was a commentary about the Fed is changing its approach to some repo facilities and some other things. I think we're one of the smallest participants in the Fed standing repo facility, but we maintain a standing repo position. Not that we borrow against, but we have enough collateral. We can maintain a portion of it in the facility. And so we have secured our liquidity. Obviously, every bank has a discount window facility and collateral, and we also have stand repo facility collateral because we've got $11 billion of 0 risk-weighted treasuries and agencies that fit the criteria. And so it makes it a very liquid place for us to be at very economical terms should we ever need to.

Today, we're fully basically funded with deposits. There's a little bit of Federal home loan bank just so that we're still in the mix. But we've -- the capital and liquidity position of East West Bank have never been stronger. And so we think we're well poised for whatever challenges may come and also perfectly liquid and able to meet the needs of our customers should 2026 turn out to be even more auspicious than we expect.

Got it. And just on the capital and liquidity position, I mean my understanding is Dominic has never been a big fan of buybacks. I'm just wondering when you think about...

He's opportunistic. He has 100 million reasons to be fully aligned with shareholders, and he is.

Fair enough. And -- but when we look at the stock, just from a return on buyback standpoint, like do you think -- how do you think about just the stock valuation versus buying back stock as opposed to just holding on to that excess capital, it never hurts for a cyclical industry to have excess capital. So I'm just wondering...

Yes. I think, look, having dry powder is something that Dominic doesn't feel as a problem. On the other hand, there is not a light bulb at the bank that shouldn't be replaced yesterday with an LED light bulb that has like a 2-year earnback. And so the answer is we should absolutely be doing that, right? And there are any number of properties that were leased at some point in time by a bank, maybe in certain rate environment or context where it made sense to pay that lease and it made sense to pay the implied return on the equity investors and the bank that funded the property on other side of that. And you look back at that now and you say, we could just do that out of cash. And the math actually pencils, right?

And so I think we're looking at the full gamut of how do you deploy capital in a way that drives value for shareholders and making sure that we're doing stuff that has a good earnback and making sure we're doing stuff that drives earnings in a positive and consistent accretive manner.

Got it. Maybe let's just spend some time on the expense side. I mean, I think there was a period of expense build-out as you were getting for the $100 billion in assets. You're building out the fee and wealth management sort of product capabilities in-house. Maybe list for us, Chris, if you don't mind, like what are the top 3 areas of investment spend today at the bank?

People, technology, people, technology. And so if I go through that, it's people on the front line to help us build expertise in verticals, people to help us build out relationships. So frontline salespeople and frontline relationship folks is priority #1, probably has been for a while and continues to be. Cyber defense technology just because you have to, and that's a consistent need to continue to invest. I was on the phone Friday with our Head of Info Security, talking about the build-out he needs and the people he needs to support that, but that's constant.

But then people again in that we recognize that we had this extremely successful branch manager-led small business campaign last year, culminated with phenomenal fourth quarter small business checking growth. And we look back on that and like, wow, we wish we had an army more of folks in the branches that could help us go out. And we recognize that there's plenty of more small business opportunity in our core markets, and we just hired people to support our retail so that we could think about where we could have more coverage, where we can have more branches. Those are all things that we should be investing in and we need to.

And then lastly, just the general technology. And it's not just AI. I think we look at stuff like that all the time, but it's -- we'll use stablecoin as an example for conversations, like yes, there's a stable -- there's this peg currency called the Hong Kong dollar that our customers transacting with some regularity. Before I think about what stablecoin, I'm going to put on my screen next to my U.S. dollar accounts, I put the Hong Kong dollar on the same mobile app page. put the Hong Kong dollar payments instantaneously, which we can do. I want to move money back and forth. We can do it for you as a journal entry, same day, instant credit, make a payment to a third party. We've tested making payments. Our capability between U.S. and Hong Kong now is down to minutes for some institutions, right, not all institutions, but for some institutions, your payment can get from a U.S. account across the ocean into your third-party account in minutes.

And that capability is one that only a handful of banks have, and we're competitor there. But offering that in a seamless package so you can see it and then the ability to transact in different currencies, we think is critical to the next phase of banking, and we're going to make sure we create that environment and that capability for the currencies that we already support regularly for business. As much as we can in 2026, and then we'll hopefully be prepared for whatever comes next in 2027 and beyond.

And that technology investment in making our customers' lives more transparent, more seamless, more consistent so that they know what to expect. We had a conversation with an investor earlier who was lamenting about his experience in moving dollars from the U.S. to Singapore using stablecoin and how we end up paying a 1% fee, which turns out is a lot more than a $30 wire fee. And it turns out that's not always the best way to go about things. And so I think for real customers doing real business, banking is a much more secure will be more efficient and will be more effective way to move funds and transact. And so we're going to make sure that we consistently deliver a competitive offering that is as transparent as those systems and hopefully even more efficient.

And just lastly, on the expense side, so I appreciate the regulatory backdrop is shifting. But in terms of things that you had to do and invest in to become a Category 4 bank, is that like 70%, 80%, will that still be in place regardless? Or...

Well, let me maybe bifurcate that answer, right? So the first part is, if I look back -- it's in our investor deck, if pages on, you look at our expenses for the last 4 years, our 4-year CAGR on expenses is 10% growth, right? 10%. So if we're guiding 7% to 9%, that's down 100 to 300 basis points from the run rate. I would have thought that would be a remarkably well-received message. Somehow people seem to be thinking that we have like the 60% efficiency ratio like everybody else does. We don't. And so when you start with a base of like 35% and you say, okay, I'm going to grow that number at 7%, that barely covers like a 3% merit increase, right? And so the reality is we need to do something there, right?

And so that's what we're dealing with is, hey, we're going to continue to invest in the business, technology and people because that's really what's driving opportunities for us in a way that's consistent with supporting the business growth that we've seen. And despite the fact that we've grown expenses at 10% a year for the last 4 years and might grow them at 7% to 9% next year, we've grown revenue even faster. We've grown loans even faster, not loans, but fee revenues and other revenue streams. And we continue to grow those. And so the reality is as we look forward, even with 7% to 9% expense growth, we'll have revenue growth that outpaces that again in 2026 and beyond, and we'll continue to drive positive operating leverage and what we think will be likely top quartile returns with best-in-class efficiency.

The only thing best-in-class -- is not best-in-class is the stock valuation that needs to be fixed, but...

We're appreciative of the fact that once upon a time, we trade at a discount. and that now we trade more in line with our peers. And what's disappointing about that is given the consistent delivery of top quartile ROTCEs and given the generally fairly consistent long-term shareholder returns that have outpaced most of the industry, we're surprised people don't award a premium for that value. But we'll keep working to make sure people understand that value. And we appreciate your continued engagement to make sure the story gets out there.

Sure, no. I'm just doing my job.

You do it well. Thank you.

So I guess the other point, you mentioned Hong Kong dollar. Let's just talk a little bit about the Greater China strategy. What's going on there from a lending deposit standpoint? Like where are we growing? What's next year?

Our customers over there predominantly are those that are engaged directly in the U.S., right? They're selling goods. We are not their banking entities that are oriented to the domestic marketplace on the other side of the Pacific. They're oriented to serving the needs of American consumers on this side of the Pacific. And as long as the American consumer is still walking into Costco and Walmart and pick up goods that are made some place overseas, it's likely a portion of them will come from the other side of the Pacific. And in that supply chain, we play a disproportionate role because it turns out that while Bank of America has offices on the other side of the Pacific and JPMorgan and Citi and Wells, although Citi has fewer than used to, there is no U.S. bank branch on the other side of the Pacific. And you can go down the list for the next 20 banks until you get the East West, there's nobody else there.

And so there's a giant blue ocean of activity, particularly for smaller and midsized enterprises that the needs aren't perfectly met by the big 4, and there aren't too many other great choices. And so yes, there's always going to be HSBC or Standard Chartered or even ICBC for some. But for those that want to work with an American bank, we think we're a very good alternative to the big 4 and frankly, in many cases, the only good alternative to the Big 4 for those looking to transact across borders.

And that's a big enough transaction volume even after Liberation Day that even a small share of that will continue to be a positive driver to our foreign exchange business to our transfer business to other activities. But the reality is our customers are global, right? They've already seen how this movie plays out, and they've already started to buy warehouses if they hadn't had them already in the U.S. and build entities and distribution companies in the U.S. And they'll continue to invest in the U.S. because the marginal investment proposition in the U.S. today has a different value proposition than it did to you when you were considering where you could invest. Maybe 5 years ago, Vietnam was the answer for that marginal dollar. And today, maybe the answer is the U.S.

And if you're going to build, invest and repatriate or reinvest your profits from export activity someplace and that ends up being here, then working with East West turns out to be a great way to further that partnership. So it's been good and will continue to be good.

And if you see more of that, my sense is we should see more lending opportunity for East West.

More commercial lending opportunity.

Got it. I guess -- have a couple more minutes. Just one last question on fee income, like it's been a big driver of growth, a big focus on the sort of wealth management side over the last few years. Just talk to us around the -- organically, what the growth runway is for fee revenues? And is it still sort of driven by wealth, but obviously, there are other aspects of the business driving that growth?

Yes. From a percentage growth basis, wealth has been standout. And it continues to track fairly positively. And so we're encouraged by early read in Q1 and continue to expect that to be a good contributor to our growth for the full year. Deposit fees have been a positive contributor within the deposit fees include things like wire fees, transfer fees, et cetera. And foreign exchange has been a great contributor. And so that combination of managing the payment needs of our customers as payments, including foreign dollar payments or foreign currency payments and managing their wealth altogether is a great package that has been, I think, wind in our sails here for the last couple of years. And in a curious way, the more disruptive the environment, the more activity we see in those spaces.

Why is that?

Because when things are disruptive, people make moves. And when people make moves, there's a transaction. And when there's a transaction, there's usually a fee. So it turns out that a little bit of chaos on those things is not a bad thing. I think there's probably a broker-dealer in your coverage universe that said something similar.

I think we can't count on anything else, the one thing we can count on is continued chaos. So, Chris, thank you very much.

Appreciate that. Thank you, Ebrahim.

Good day, and welcome to the East West Bancorp's Fourth Quarter 2025 Earnings Call. [Operator Instructions].

After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead. .

Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's Fourth Quarter and Full Year 2025 financial results. With me are Dominic Ing, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, our Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. -- management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties.

Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and the reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.

Thank you, Adrian. 2025 was another record-breaking year for East West. Our highlights include: new full year record levels for multiple categories, including revenue, net interest income, fees noninterest income, earnings per share, loans and deposit gains every 1 of the above mentioned category reached a record level.

The strength of our financial results reflects how our business model is designed to deliver meaningful values to clients, especially during periods of uncertainty, when our ability to navigate challenging landscape matters most. We grew end-of-period deposits by 6% year-over-year with significant traction in both noninterest-bearing and time deposits.

We also grew anneperiod loans by 6%, with growth in C&I and residential mortgage lending leading the way. 2025 was also another consecutive year of record fee income, driven in part by consistent sales execution across all of our fee-based businesses. This balance sheet growth, combined with our fee income growth and the ability to grow our customer base, have collectively strengthened the durability of our business model and deliver substantial returns for shareholders.

As a result, in 2025, we reported tangible book value per share growth of 17% and generated a 17% return on tangible common equity. I'm also pleased to announce our Board declared a $0.20 increase to the quarterly dividend up to $0.80 per share or 33%.

We remain committed to disciplined capital management and delivery of top-tier returns for shareholders via prudent growth moving efficiency and robust risk management. Now let me turn it to Chris for more details on the balance sheet and income statement.

Thank you, Dominic. Let me start with deposits on Slide 4. I East West continue to differentiate itself via core deposit growth in 2025. This deposit growth allowed us to fund our full year loan growth, while also bolstered our balance sheet liquidity. In 2025, we prioritized the positive growth through a dedicated business checking campaign that delivered strong results. We plan to maintain this focus strategy in 2026 to further expand our deposit base.

During the fourth quarter, DDA levels improved by 1% to 25% of total deposits and inflection points. In 2026, we expect continued strong core customer deposit growth.

Turning to loans on Slide 5. East West grew end-of-period loans in line with our prior guidance and total average loans by 4% for the year, also within our guidance range, led by C&I growth. C&I growth in Q4 was driven primarily by new relationships and with encouraging growth across many sectors.

Our pipeline suggests that C&I will continue to lead our growth in lending for 2026. Residential Mortgage also had a good quarter in the fourth quarter, and the pipelines there remain full going into the first quarter. We expect residential mortgage to be a consistent contributor to our growth at its current pace.

Looking ahead, we expect total loan growth to be in the range of 5% to 7% for the year, driven by continued strength in C&I and residential mortgage production, leading to an increasingly diversified and balanced loan portfolio.

Switching now to net interest income and margin trends on Slide 6. Fourth quarter detest income was $658 million, reflecting the benefit of our short-term liability sensitivity over the near term in a quarter with 2 interest rate cuts, balance sheet growth and favorable deposit mix shifts. We continue to proactively reduce our deposit costs, driving period in cost of deposits down a further 23 basis points quarter-over-quarter.

Looking back to the start of this cutting cycle we have lowered our interest-bearing deposit costs by 105 basis points against a backdrop of 175 basis points of Fed cuts in their target rate. Achieving a down-cycle beta of 0.6, while growing our total deposit base by nearly $4 billion over the course of the year.

Looking ahead to 2026, we expect net interest income growth to be in the range of 5% to 7%, aligned with and driven by our expected balance sheet growth. Outweighing our modestly otherwise asset-sensitive position. Our outlook assumes 3 cuts of 75 basis points occurring over the course of 2026, resulting in a gradually steepening yield curve as implied by the year-end forwards.

Moving on to fees on Slide 7. In 2025, fee income grew by a robust 12%. As Dominic mentioned, we achieved record fee income levels in 2025. Our performance over the past year was driven by sustained quality execution across wealth management, derivatives, foreign exchange deposit fees and lending fees.

Our continued investments in our global treasury group have yielded strong traction in treasury management activity. Wealth management fee growth over the past year was supported by the hires of financial consultants and licensed bankers to capitalize on opportunities in the marketplace. Ongoing hiring is further reflected in our 2026 outlooks along with incremental fees and some expense growth.

East West has been consistently growing fee income at double digits, and we remain focused on driving similar growth as we look into 2026. Now let me turn to expenses on Slide 8. East West continues to deliver industry-leading efficiency. The fourth quarter efficiency ratio was 34.5%. In 2025, total operating nonexpense grew 7.5% as we invested in the expertise, systems and technology necessary to support our continued and ongoing growth.

As we look forward to 2026, total operating noninterest expense is expected to grow in the range of 7% to 9% as we continue to further our investments in the strategic priorities, which continue to develop the pace. With that, now I'm going to turn the call over to Irene.

Thank you, Chris, and good afternoon to all on the call. On Slide 9, you can see our asset quality metrics. We continue to broadly outperform the industry. We recorded net charge-offs of 8 basis points or $12 million in the fourth quarter and 11 basis points or $6 million for the full year of 2025. We recorded a provision for credit losses of $30 million for the fourth quarter compared with $36 million for the third quarter.

Nonperforming assets remained broadly stable at 26 basis points of total assets as of December 31, 2025. Criticized loans declined quarter-over-quarter to 2.01% compared with 2.14% as of September 30, 2025, reflecting declines in criticized loans for really all major loan categories. The absolute level of problem loans continues to remain at low levels that we believe are very manageable.

We continue to be vigilant and proactive in managing any credit risk. Currently, we are projecting that full year 2026 net charge-offs will be in the range of 20 to 30 basis points. As seen on Slide 10, we increased the allowance for credit losses during the fourth quarter from $791 million to $810 million or maintaining the 1.42%. We believe our loan portfolio is appropriately reserved as of December 31, 2025.

Turning to Slide 11. East West regulatory capital ratios remained well in excess of regulatory requirements for well-capitalized institutions and well above regional bank averages. East West common equity Tier 1 capital ratio stands at a robust 15.1% while our tangible common equity ratio stands at 10.5%. Our Board of Directors has declared a first quarter of 2026 common stock dividend of $0.80 per share, a 33% increase to the dividend. The dividend will be payable on February 17 to stockholders of record on February 2. I'll now turn it back to Chris to share a few comments on our outlook for the full year. Chris?

Thank you, Irene. With respect to our guidance, as I previously mentioned, our outlook assumes modest economic growth and about 50 basis points of rate cuts as implied by the year-end yield curve. We expect end-of-period loan growth to be in the range of 5% to 7% with continued relative strength in both C&I and residential mortgage lending. We expect net interest income to grow in the range of 5% to 7% also driven by the above reference balance sheet growth.

We aspire to grow fee income at a faster pace than the overall balance sheet growth. Total operating expenses are expected to increase in the range of 7% to 9% year-over-year, driven primarily by head count additions, IT-related expenditures and partially offset by expected lower deposit account costs.

We expect full year net charge-offs, as Irene mentioned, in the range of 20 to 30 basis points and our effective tax rate to land between 22% and 23%. With that, I'll now open the call up for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question today will come from Ebrahim Poonawala with Bank of America.

Good afternoon. So I guess first question, just in terms of loan growth, I guess the guidance makes sense. When we look at year-over-year, I think the expectation is 2026 growth could be better for the economy, for the industry on lending than 25%. When we think about East West, I would think you should do much better in terms of loan growth this year versus last? Like is there a reason why I missing something? Or are you deliberately trying to manage the pace of growth when you think about just the overall balance sheet?

Let me take a first at that since I see Dominic smiling across the table, I'll let him chime in as well. I think we had a really strong fourth quarter, and we saw really great traction in C&I, in particular, in the fourth quarter. The reality is we know that's somewhat seasonal. And we we saw a really nice fourth quarter last year. And then we saw a soft first half to some extent this year 2025.

And so we want to make sure we're thinking about the trends that we're seeing, the customer activity that we expect and the reporting forward numbers that we know we can hit with good reason. So I think there's a bit of recognizing the pattern that we saw last year and understanding that might repeat itself in 2026. Even though I think you're right, things are set up to be a little more -- or a little less erratic perhaps in 2026 than they were in 2025. Dominic?

Well, that all reflect back in year 2025, I would think that during the first quarter, not a whole lot of people would expect that this year turned out to be such a pretty good year. Because there was a lot of volatility of what the economy is going to be like and what are the changes that may be happening, but it all worked out fine.

In 2026, right now, it's looking pretty good. You are absolutely right that there should be the momentum that makes us even having a stronger loan growth opportunity for the remainder of the year. However, we just never know exactly what's going to happen throughout the year due to whatever changes that may come.

My view is very simple. Good time, bad time. East West always outperformed the others. So if things going really well, you would -- if you see that maybe the average is actually as a growth percentage, higher than our outlook, then the likelihood East West actually doing better than what we projected here is very high.

On the other hand, if the economy didn't turn out to be what we expected. And we probably may not even be able to get to this number, but Russia. So, we're going to be in doing better. and our peers. So I'm much more focusing on making sure that we stay as a high-performing bank and relatively speaking, compared with whether with our peers or the entire banking industry. And that's something sort of is a given from an East West Bank position in terms of what we wanted to do and what we want to achieve. So -- but in terms of projecting economy, sometimes hard for us to do.

No, that's helpful and makes sense. I guess maybe another question. Just when you look at the expense growth number, just remind us, I know that you're building out sort of the asset management and fee capabilities. But when you think about the top 2 or 3 areas, where the bank is spending today, is it hiring opening new branches, compliance and tech, like give us a sense of where these investments are going and how we should think about those driving future growth.

Sure. We are certainly budgeting a higher degree of expense growth in technology writ large, but specifically data processing, software, computer expenses. Along with that, we have a higher level of growth in some consulting costs, and that's the largest growth category. But along with that, as you correctly mentioned, we're hiring, and we're hiring for wealth and we're hiring for commercial banking and we're hiring for technology and we're hiring for risk management. And although those areas will be the second sort of biggest bucket.

And of course, comp is our biggest bucket overall. But if I draw your attention to Slide 8, Rahim and you look at the last 4 years, I think East West has put up a pretty strong track record over the last 4 years. And alongside that very strong earnings and balance sheet track record has come a 10% CAGR in expenses. But I don't think our shareholders mind because all of those expenses have gone to support even stronger total returns.

The next question will come from Dave Rochester with Cantor Fitzgerald.

Just wanted to touch base on the fee income trends for '26. I know you mentioned those would grow faster than that 5% to 7% for the balance sheet. Last year, you did something around 12% growth -- is there any reason why that should slow this year given the investments in the business you're making you're launching the FX platform, you just talked about wealth and other things. It seems like that should all help the growth rate this year, maybe even boost it a little bit versus last year. I just wanted to get your thoughts on all that.

Yes. And that's why I think I tried to say and maybe I didn't come across clearly, we aspire to continuing the double-digit trajectory. I think if you look at Page 7, the 4-year CAGR there has been 10% and we would like to aspire to continue to deliver that type of revenue growth on the fee income side.

Great. And then just on the loan growth, I think you mentioned recently seeing some of your CRE customers getting more interested and getting more active. And you actually grew that fairly decently this year in mid-single-digit range, which is probably stronger than what you thought this time last year. Do you think there's an opportunity to grow more in CRE this year?

I think I'll jump in for Dominic. I think what he said on the call about a year and a quarter ago, 1.5 years ago, was if we saw rates come down into the sort of short end with low to mid-3 handle, we would probably start to see traction pick up in commercial real estate. We're approaching that level essentially now and expect to hit that lower bound over the course of this year.

So our broad expectation is, yes, we'll see pickup overall in commercial real estate. But with that, what I think Dominic has emphasized to the team is where we are picking our partners is with folks that we have established long-term business relationships with where we know they are savvy operators and we know they're looking at the markets with the benefit of years and years of experience, and we think that will be the right place for us to play.

The market is there for us and -- but East West has a very, very strong discipline of our overall asset liability management and also concentration allocation, et cetera. So what we looked at it is that at this moment, while we are in a very, very comfortable position with our CRE concentration, we're nowhere even remotely close to the level that we need to have high alert.

However, we always understand that the ideal situation for the bank to have high-quality growth is at a very balanced growth from multiple categories, which is C&I, CRE, residential mortgages, all growing in balance. So on that standpoint, on 1 hand, I expect that there's a likely -- good likelihood the market will be there. For us to originate a lot more CRE loans, we tend to be a little bit more selective and making sure that we put our allocation primarily to our long-term sustainable clientele. So with that, we are not out there aggressively chasing just growing loan for the sake of growing loans.

Appreciate that. Maybe just 1 last one. On the TCE ratio, and we've talked about this a lot just in terms of where it is now. You're at 10.5% continues to grow. You had a very nice dividend increase there. I know that cuts into it a little bit, but it still seems like returns and your expected balance sheet growth could ultimately end up pushing that to 11% and beyond. What are your thoughts on allowing that to continue to grow and is there any new range that we should look for as to how you're thinking about where that should trend?

As pointed out on our guidance page on Slide 12, we remain committed to delivering top quartile returns. Alongside best-in-class efficiency. And we think our capital levels are part of what attracts customers to East West and allows us to deliver timely, effective service that we offer our clients in a way that things can't. And we think that capital supports that initiative and we're very proud of having 1 of the strongest levels of capital of any bank in the industry, which we think will sustain us particularly if there's continued volatility or uncertain times ahead.

the next question will come from Casey Haire with Autonomous Research.

So I had a question on deposit costs. So the 60% deposit beta just wanted some color on where you think that can trend throughout 2016?

Well, I think we've been very disciplined about reacting very quickly to changes in the market rates, but specifically to Fed rates. And so I think we've got that process very well oiled now and moves very efficiently. So we'll continue to make those changes. But obviously, as rates continue to grind lower, our incremental ability to do that at higher levels becomes more challenging. So what we've guided is we're very comfortable that we -- our betas will exceed 0.5 and we're very happy to deliver 0.6 so far.

Got you. Okay. And then Irene, a question for you on the credit. So the charge-off guide for '26 bumped up a little bit. Just wondering what's driving that. There was very little migration, NPA is very low. It feels pretty good. I'm just wondering why maybe '25 was just a very good year. I'm just wondering what you're seeing to bump up the charge-off guide.

Yes, great question. So if you look at charge-offs for the quarter and then for the full year, an absolute level or pretty low, right? And even if you compare to last year, we are at 26 basis points, 11 basis points, 26 basis points. Historically, these are low levels. With the guidance for 2026, although the absolute levels of credit, the metrics are all in late shape, quite honestly. There are and there are no systemic issues that we see from time to time, individual credits can turn and the charge-off of guidance simply reflects that.

The next question comes from David Chiaverini with Jefferies.

Chris. So I wanted to ask about the net interest margin, the outlook there. You mentioned about how the near-term liability sensitivity has benefited you. How should we think about your positioning as we kind of get into 2026?

Sure. We broadly remain an overall asset-sensitive bank. That has been said, we've been focused on growing dollar NII, and we believe we'll offset the expected downdraft effects of declining rates with balance sheet growth over the course of the year. That should allow us to deliver a growing dollar NII as you look over the course of the year. We think will be continued consistent deposit repricing activity.

Great. And on the deposit side, you mentioned about and we saw in the numbers, the noninterest-bearing deposit growth was strong in the fourth quarter. Can you talk about what drove that and if that could be sustainable in coming quarters?

Yes. So a shout out to our retail team in particular, but also to our commercial team. There was an increased emphasis and focus on driving core commercial DDA balance activity throughout the year, starting really towards the end of the second -- the first quarter and continuing over subsequent 3 quarters with outstanding results here accumulating in the fourth quarter. And so that focus on that driving business checking account relationships continued to build momentum and steam, both in our retail channels and our commercial relationship manager channels over the course of the year and drove the result that you're seeing.

We have and continue to drive a focus on that, and that will be a key priority for 2026. And we think it will be something that will deliver additional value, particularly in a declining rate context.

The next question will come from Bernard Gizvcki with Deutsche Bank.

Good afternoon. So just on -- you've been dynamically hedging for the outlook in rates and materially reduce the cash hedge headwinds. What was the headwind in full year '25 -- and what are you expecting in full year '26?

The headwinds for the quarter was $2 million. Keep in mind, rates came down over the course of the year. So we started -- it was more than $20 million at 1 point in time per quarter, and it came down to $2 million in the fourth quarter. And I think what we have indicated previously was essentially the hedges we have on today are in the money today. And so we are now in a position where we expect to have those tailwinds as we look forward into the into 2026 in addition to the fact that we expect more rate cuts to come.

We've got about $1 billion of swap at roughly like a 370, 380 level. And those will be -- those are in the money today.

Great. And just as a follow-up. As you get closer to the $100 billion asset threshold for category for where are you in your progress to fill the requirements with processes and expenses needed? And how does that change in the frescas increased as regulators have been pointing to?

Sure. We've been focused on making the investments and the technology and the staffing we need to be successful for our customers today. And we always looked at $100 million as being somewhere down the road. And so the investments that we're making, the expenses that we're talking about, the computer software, the consulting services, the data processing solutions, the ERM efforts. Those are all to maximize the opportunity we see to work with our clients today and deliver value.

And so we don't think there's anything about that, that changes over the near term, certainly 2026, but we look forward to what we expect will be some reconsideration of those thresholds, and we look forward to the opportunity to continue to grow and meet the needs of our customers over the long term.

Next question will come from David Smith with Truth Securities.

Good afternoon. On fee growth. I know that you all have been opportunistic at times in recent years about pursuing some inorganic tuck-in deals to bolster different parts of the fee growth engine. I'm just wondering, given how strong capital levels are today, are there any areas where you're contemplating some sort of partnership or other kind of inorganic deal to boost fee growth? Where might that come from? What areas are of interest to you right now?

Embedded in our projected expense trends is hiring and organic growth that will support and supplement our fee expectations as laid out. But in addition to that, yes, we have looked and continue to look for opportunities that are inorganic to bolster that growth and supplement that so that we have a better reach of either services platforms, geographies or talent to deliver even more value to our customers, and we'll continue to look for those opportunities.

And as you correctly point out, capital is not the constraint. But as I think for those of you that have been around the story for long, the constraint really is Irene and Dominic sense of where value is and the relative cost of buy versus build. And when you're building and delivering 10% organic, it's a high bar for something that makes sense that you have to go spend a big premium for. And so I think we'll be very thoughtful about that. But we have the flexibility. We have the optionality -- we have the capital. We're attracting the hires, and we're growing the fees all at the same time.

And then just specifically then, I wonder if you could give us an update on any plans on how blockchain or cryptocurrency might fit into your business helping clients with cross-border money movements or anything along those lines?

I think at this point, in the United States, when it comes to blockchain, that clearly can expedite payment, trade and so forth. We really haven't seen from banks and clients because it's not like something that we can just do on our own. -- without some sort of like collaboration with another corresponding bank and so forth. I think at this point, it's still a little bit early, and we're continuing to watching and the progress on this technology. And we will just -- we'll adjust accordingly. And that's something that what we would always do, which is while being prudent but stay agile.

The next question will come from Gary Tenner with D.A. Davidson.

This is [indiscernible] on for Gary.

Good afternoon.

Strong loan growth across all segments this quarter was really nice to see. What are you seeing in terms of general sentiment out there? Is the -- are the GDP numbers translating into client sentiment?

I think it's been interesting here seeing the volatility in the marketplace and recognizing that while the economy obviously impacts everything about banking. What's perhaps very clear about East West is what impacts East West is how we work with each of our clients.

And so while the economy is a great backdrop for continued positive momentum in some sectors, the credit for our loan growth and the credit for our progress and the credit for our fee growth comes down to RMs, working with individual clients, delivering individual solutions to help them nimbly and agilely navigate the landscape that we've seen over the course of last year.

And so to Dominic's earlier comments, while the economy matters, what matters more is that we're working really closely with their clients to stay 1 step ahead of the competition and meet their needs.

All right. That is fair. And I heard you talk about hiring this year. Is there any sort of numbers you can give around in terms of hiring goals this year like revenue producers or anything?

Well, I think I would draw you back to Page 8, and I would just note that year-over-year, our expense guidance is 7% to 9%. But if you look at year-over-year 2025, we grew compensation by 12%. Obviously, the focus on our growth is hiring talented people that can help drive our business in the right direction. And that continues to be a focus.

Next question will come from Janet Lee with TD Cowen.

Apologies if I -- if this was covered already, -- in terms of your hiring plans, I guess that's part of the expansion of your business plan, is there any plan to more aggressively move to other cities or other port cities other than California?

I think we continuously look at opportunities to diversify our branch network in positive ways. We continue to look for the right people and the right talent to help us drive that. And I think we'll be talent-driven more than putting pins on a map driven. So far, that's worked really well and allowed us to focus on making sure we concentrate our presence in places where people expect us to be with talent that can meet those needs, and that will continue to be a driving focus for us.

But we see other markets for growth. We know there are pockets of opportunity for us and we are looking at both organic and inorganic ways we could tap into those.

I think on the commercial banking side, we made some -- in fact, it's not just last year, I think for the last several years, we made quite a few hires in Texas and New York. And so we'll continue to look at these other regions that we already have a presence and to look at opportunities to grow it even further.

Got it. And for your allowance for loan loss, the reserve ratio, it has gone up quite a bit over the past 3 years while you're credit trends have obviously been very resilient. And I think creative size levels have also been going down. At what point would you be comfortable kind of environment would that be where you feel more comfortable maybe lowering the down reserve levels a bit because it really doesn't look like the underlying credit warrant?

I will point out that it's completely flat on a percentage basis quarter-over-quarter.

As you know, right, with the CECL allowance model and the methodology that we and other organizations also have to use. A lot of it is based on kind of the assumptions and the macroeconomic factors. We use a multi-scenario model and continue to honestly, that's going to be the largest driver of where the allowance is going, right? The modeling and understanding about what's happening quarter-over-quarter, there wasn't really that much change in Moody's models as those scenarios. And there hasn't been that much change. But I think it is a little bit -- your comments are fair.

Maybe there is a little bit kind of a forward cast of this versus where the charge-offs and the credit quality is because as you noted, continues to be very strong. I would also say the allowance is kind of like capital, right? It's an extra cushion first and buffer for us in general.

That hasn't been said as we say, the allowance is perfectly appropriate at year-end.

The next question will come from Jared Shaw with Barclays.

This is John Rau on for Jared. Most of my questions have been asked and answered. But just thinking about the rate sensitivity positioning. It looks like the floating rate portion of securities has been going down the last few quarters. Is there any target level for that? Or has it just been what you've been adding has been more fixed rate lately?

We see more relative value in the fixed rate side. And given the anticipation of a few more rate cuts coming, it seems to be prudent to sort of lean on that side of the securities purchases, and it's worked out for us so far.

Okay. Great. And then just on lending spreads overall, how those been trending? I know you're pretty selective on the client base that you work with, but just overall competitive levels and pricing trends in your market?

Yes. Broadly speaking, we've seen some compression. And so if you'd asked us where would that be? Over the course of the last year, we probably saw things broadly compressed, approaching something on the order of about 0.25 percentage point. Don't know where that's going from here, but we think we've seen a lot of that competitive pressure come to 4, and we're working with it. It seems to be holding at least relative to the term sheets we're setting out now. somewhat comparable to what we saw in the fourth quarter.

So I can't tell you there's been incremental compression over the last 30, 60 days. But clearly, it's been compressing relative to what it was a year ago.

The next question will come from Chris McGratty with KBW.

This is Chris O'Connell filling in for Chris McGratty.

All right. It's still Chris. Okay.

Yes, exactly. I was just hoping to circle back to the capital discussion. Obviously, you guys remain in a very strong position and had a big increase in the dividend this quarter, but capital levels continue to grow -- and the buyback was a little bit lighter than the last quarter. Just was hoping to get thoughts around kind of the pace of buyback and opportunistically using it going forward?

Yes. Our buyback will be always opportunistic. So from our perspective is that when the price is right, we do more. And we always been able to do buyback in an opportunistic way that create a lot more value for our shareholders and we'll continue to do that practice because there's no urgency for us to have to do anything simply because as you just noticed that we just announced is return of tangible common equity at 17%.

And so at this kind of capital level. And we also, by the way, by making this meaningful size increase of dividend. So we are doing what we need to do, but we also always look at the potential opportunity out there, whether it's a market that allow a meaningful organic growth or a market that allows some unusual quick fit. Inorganic growth opportunities.

And we look at it is that it's just very, very good in that position that we have all the flexibility that we can pull trigger at the right time, in the right way. So that's why we are not in any kind of sort of urgent situation that we have to sort of like announced some big buyback and so forth because we really are not in that kind of position like many others.

Got it. And then was hoping to just dive into the commentary on the margin, the near-term liability sensitivity versus the broader asset-sensitive position I think you had talked a little bit about last quarter about the near-term liability-sensitive position just being kind of a timing issue with the pace of deposit rate repricing. I guess, set up into the early part of the year, does that imply, given the rate movement this quarter that that the margin could head in a similar upward direction kind of early next year and then kind of trend down modestly after that?

I think we've seen some of the benefit already of the December rate cut in the December numbers. Some of it will continue to bleed through into January, but I don't think anyone is really expecting much more to happen this quarter. So we'll probably balance and wash itself out in Q1.

And then when we see the next rate cut, we would assume we'll see an immediate lift in that next 30- to 45-day period and then sort of revert back to the broad asset-sensitive profile. So again, we think the reality is over the course of 60 days lag, it's probably $2 million a month for a 25 basis point cut as a negative impact. But the reality is in that first 30 to 45 days and end up being a short-term positive.

Great. Very helpful.

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

I just want to say thank you for all of you joining our call today, and we are looking forward to speaking with you in April.

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

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 a comment on credit and capital.

Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 9, 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 over $15 million. 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 a low relatively stable levels. Total nonperforming 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 that will occur over the course of the fourth quarter.

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. 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?

[Operator Instructions] Our first question today comes from Manan Gosalia with Morgan Stanley.

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,-- and then where there might be some give back once the Fed stops cutting rates? .

Sure. So we have moved to a cycle where we're now updating our deposit pricing the night of any given Fed action. So we are the 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 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, the next repricing period, which is sometimes specified can be a week later, can be almost 6 or 8 weeks later. 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, and that's resulted 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 in additional, when the Fed when there's no more additional further Fed cast in the forward curve, 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. This will be probably a modest positive for us in Q4 and then perhaps lesser impact item as we move through until the Fed is done and start moving in the other direction or flattens out.

Got it. So as we think about NII your guide implies, I guess, NII of about $650 million, $660 million in 4Q. Is that a good jumping off point for next year? Or given the strong balance sheet growth that you are already seeing?

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. 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 in making sure we're supporting our core customers and our line customers. 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.

The next question is from Ebrahim Poonawala of Bank of America.

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? Like what's the momentum there? -- could we actually now -- are we at a point with the Fed probably getting close to ending Q2 just from a system standpoint, could we see NIB mix actually grew as a percentage of total deposits moving forward?

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. So we really saw it in all 3 major categories. And so it was broad based, but driven by our consumer and retail bank group. And so 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, and 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. So if we go down 100 basis points from here, I would assume that 25% gets a little better. But at these levels, 25% seems like the right place to think about as we move into 2026.

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 what you're seeing when we look at relative stability, I guess, on criticized loans. As you laid out our nonperforming assets. But when you think about just both from a C&I and commercial real estate, where are the soft spots? And then again, you break down your C&I disclosure around this focus on the NFI loans. Just your visibility around this portfolio, your comfort on sort of the credit quality of the nonbank lending piece of it?

Sure, EB. So 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, that is something we have been pleasantly surprised at, especially given really the absolute low levels of problem loans in coming that we are seeing and have continued to see and also the metrics that you see for MPA criticized classified loans, delinquencies, et cetera. So that's something we have maintained, I would say, a lot of discipline on as far as ensuring that we don't have concentrations in 1 area. That's something that we continue to do on the rebox, single-family and then also from a C&I perspective, I think you also asked about the, I guess, the topic of this earnings cycle. -- and the book, we do have MBIFI exposure. It's about 13% of our total loan portfolio as of 9/30.

Any comments, go ahead.

Sure. When we look at the MBFI 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, Cantor or any of the developers or related entities behind Kantar as well. right? When we look at that MBFI box, much of it has been customers that we have kind of 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, 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 you see are in the real estate investment and management sector, financial services, art finance, consumer finance and equipment finance. 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. We also ensure that from a collateral perspective, our collateral is secured. This is something that we independently validate or confirm as well. So overall, when I look at this portfolio, Ed, at this point in time, I'm comfortable. If you look at the subset of C&I loans, we only have 2 loans totaling $7 million that are not rated pass. There are virtually no losses or charge-offs and delinquency out of 9/30 was $1 million.

And I want to add, even historically for the past 15 years, we hardly had any losses in the NPI portfolio. So this is something that we feel pretty strongly that so far, so good and that has historically been very good.

To a certain extent, B credit is credit, and it's all about knowing your customer, perfecting your collateral, managing your concentration risk and monitoring the cash flows and East West has a long-standing track record of being very good at all of those things.

The next question is from Dave Rochester with Cantor.

And that's a different cancer -- just 1 of the -- exactly -- appreciate the -- timing is everything. 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? And then can you give an update on where you stand on the new FX platform?

Sure. So we continue to build out the team around our wealth management area because the reality is it continues to provide additional opportunity. And with each new set of hires, we're finding additional growth opportunities, additional client penetration opportunities and additional frankly, revenue opportunities. 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, 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?

That's great. Early in '26 or later in the year? .

I think the wire payment capability will be immediately ready for a subset of our customers, frankly, here at the end of Q4 and broadening to a broader set throughout 2026. And then the foreign exchange capability will come probably mid to later in the year.

Great. Appreciate that. And then just switching to capital, the TCE 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?

Yes. We're looking at all different here. One thing for sure is that we always wanted to be one of the strongest all peers when it comes to capital ratio because it really helps us to attract customers, to attract talent to come join East West Bank. And for us to do well, we need to have strong talents to build relationship with great customers and having strong capital and make it much easier for us to attract talent and attract clients. So with that, it's just part of the formula of us being successful. And as you look at our return on equity and return on assets, we generate high teens in return on equity and 1.8 plus percent on return on asset. With that kind of return, we outperformed most of our peers anyway despite the fact that we have substantially higher capital.

So obviously, in our perspective is that strength of high capital ratio help us to continue to generate this kind of high performance, 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 Board approved allocation, about external amount to do buyback at the appropriate time. So we're always looking for opportunities. Have we not been in a quiet period, the last several days was a pretty good opportunity. So every now and then, there's always a few weeks out of the year. It's a great opportunity. And our advantage is that we always have these kind of situation that allow us to do the right thing at the right time and not having a gun on our head to do something, right?

The other thing would be, obviously, from a dividend standpoint, after the fourth quarter, we're always going to be start looking into reassessing how much dividend we want to pay. And obviously, there are always opportunity for us to possibly increase dividend and we are always out there looking for whatever other opportunity for us to grow. And so I think we're in a very, very advantaged position right now with the strong capital, and then we're going to continue to stick with that.

The next question is from Timur Braziler with Wells Fargo.

Chris, going back to your deposit related commentary on ability to reprice deposits, just what's the size of that base that gets repriced that same day?

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%. So a lot on the order of magnitude, 24-ish billion or so?

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? Was that any part of the 3Q growth? Or is this really still an opportunity as maybe we get a little bit more clarity on some of the tariffs that may be more impactful to your client base?

Look, I think clarity is going to be good for our customers, for the economy, for everyone. And so reduce 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 we think they'll find a way to navigate through whatever environment exists. But right now, they're not coming to us with concerns about navigating the current waters.

Okay. Great. And then just 1 last 1 for me, maybe.

For Irene. Just looking at Slide 9, the linked quarter reduction in multifamily criticized loans and then kind of the linked quarter increase in commercial real estate nonperformers. Was there any migration from the multifamily book into NPAs there? And then just maybe talk a little bit more broadly about California multifamily. It's been a topic that's in getting a little bit more focus.

I didn't hear the last part of your question. Could.

You just repeat that?

Yes. The linked quarter reduction in criticized multifamily versus the quarter-on-quarter step-up in commercial real estate nonperformers. Was any of that related? And then just maybe speak to the broader multifamily environment in California that's been getting a little bit more questions. .

Great. Okay. So 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 kind of upgrade loans, right? So really, 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 kind of the cash flows and the information that we are receiving for our customers, their ability to debt service continues to be very resilient.

Next question is from Jared Shaw with Barclays.

Good afternoon, maybe sticking with credit. Irene, could you just talk through the thought process behind the sale of nonperformers? And it looks like, I guess, you must have got some good pricing on that, assuming that the NII benefit is mostly interest recoveries. Is there an opportunity to do more NPL sales?

It was in a sale, it was a full payoff from an existing set of customers where the loans -- at least 1 of them was -- had been nonaccrual for years. 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. So it wasn't a sale. It was just we worked with the customers long enough and well enough that collectively we were able to recover in full.

You just have to do that now with everyone else, right? It will be -- that sounds easy.

Dominic expects that on pretty much everything. So yes, that's the mandate around.

Okay. All right. Well, that's good color. And then I guess

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 that are premium that we value at a premium internally and that we'll be happy to pay people for to generate over time. 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.

Maybe I could just also clarify because maybe this is the nature of your question. Was that increased fee income, there is increased kind of compensation for those individuals, and that's reflected in the same period. revenue recognition.

Okay. All right. And then just finally for me. Do you have the impact -- the hedge impact this quarter, I think it was $6 million last quarter?

It was also a negative $6 million for Q3.

The next question is from Chris McGratty with KBW.

Rates. Chris, maybe start with you, just a follow-up on the revenue growth, operating leverage conversation. Does the operating leverage outlook get any easier with deregulation and 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?

I think the things that are in flight are largely things that we recognize as appropriate to have a better control, 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. But I would say we are generally today doing things that make sense for our business, makes sense for our customers and makes sense for the shareholders, and that continues to be what we focus on.

Okay. Great. And then 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 will take to get the loan book growing at a quicker rate in 2026.

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. On the real estate side, it's been interesting. I think you've heard me say on these calls and Dominic say in other forms 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.

So 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 some market back into alignment. 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. We'll see how that plays out. And then on the C&I side, I think Irene alluded to the fact that we've got a lot of private equity capital call line to 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.

And then, Chris, just on the full cycle beta. Can you just remind us the assumptions for deposits? .

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, and we continue to expect it will be better than 0.5 going forward.

The next question is from Ben Gerlinger with Citi. Ben.

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 6 months to 4 to 3. It seems like you're kind of trying to tie everything into the first quarter. And also at the same time, you also have the Lunar New Year every year, which is -- so it's a big quarter for repricing in general. I was just kind of curious -- do you have anything in front of you, how much time deposit dollars are supposed to be repriced in 1Q next year?

Yes, very perceptive question. And yes, very observant of you. And 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 special and we have been shortening those maturities, as you stated, to both keep the balances today. But in recognition in anticipation that there will be a few Fed cuts coming here at the end of October and December, that would allow us, therefore, to roll over. And so to specifically address your question, we have about a $10 billion -- a little over $10 billion that's rolling over in Q4 and a little over $8 billion before any rollover that happened from Q4 that would otherwise come due in Q1.

So we got $18-plus billion rolling over in the next 6 months. And we assume the vast majority of that will benefit from the embedded 50 basis points of rate cuts that's already out there. So our current 6-month CD rate that's out there today is a 355 rate.

Got it. Yes. So cities patent pending CD trackers on pretty good. Anyway, so 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.

We haven't given guidance yet for 2026, but I appreciate your enthusiasm.

The next question is from David Smith with Truist.

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. And can you also just help us give us some color on when the timing on those became clear to you? Like was the NII item already contemplated with the guidance update last month. And if 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, the expense guide staying where it was seemed to imply it is a step up in the second half of the year.

Yes. So I think we've been thinking about our employee retirement eligibility over the last 6 months and hadn't taken any definitive actions until this quarter. So 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, et cetera. So that came together in the Q4. And the revenue side came together because the clients paid off and 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. And 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. And clearly, it's like it's not just trending towards 10%, but obviously trending well above the 10%.

Okay. And on expenses that had, I guess, been contemplated in the guide from earlier this year then? -- even if you want to round the exact timing within the year. Is that the right way to understand that?

That's the right way to think about it. .

[Operator Instructions] The next question is from Janet Lee with TD Cowen. .

Hello. Just going back on just going back on NIM. So Am I interpreting your commentary correct to assume that there will be 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 the NIM trajectory comment?

So if I look at the core run rate of NIM, excluding the interest recoveries, I focus on Page 6. That's the adjusted number at around $645 million 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, 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 impacts the back book refinancing and repricing that will 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. 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 for flattens because of the dynamics, well, that won't be as good for us. 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 in towards 2026.

Okay. 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 tied to resi mortgage and CRE to capture potential effect of business cycle. Is this really just referring to the potential tariff-related uncertainty?

More than just the tariffs Yes. I would -- look, I think the reality is it's across the board, and I'll let Irene jump in here, but it wasn't just and our resi mortgage book, we were thoughtful about different positions in different portfolios. Irene?

Yes. And look, the resi 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%. So ultimately, when you look at those levels, I think they're appropriate given the credit quality, but in a situation where the economy is more certain. Certainly, when we look at consumer credit, even consumer that is well secured by low loan-to-value real estate mortgage, that's impacted when we do the modeling. So it really less so on the tariffs, nor so on kind of the economic uncertainty and what could happen there. Does that make sense? And all the kind of metrics and drivers for that, unemployment, GDP, et cetera.

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

Well, thank you all for joining our earnings call.

This afternoon, and we are looking forward to speaking with you in January next year.

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

Great. Thanks, everybody, for joining us for our next session. We're excited to have Chris Del Moral-Niles from East West. East West is about $80 billion in assets headquartered in Pasadena, California, with operations really throughout the country and internationally with multiple locations in China and Asia. Chris, thanks a lot for joining us.

Thank you.

Yes. I think maybe just kick it off a little bit. You came out with some updated guidance or updated thoughts on a slide deck recently. Maybe just give us a quick overview on how the quarter is going. And what you're seeing?

Yes. Look, we've had a great year and a continued positive trend with regard to deposit growth. And so core deposit growth has continued to be on a very positive trajectory. The mix of deposits has continued to be positive. And in total, that's given us the flexibility to accelerate some investments and accelerate some lending and all of that has worked out reasonably well for NII and in fact, better than expected given the inflow of deposits that we've seen.

That's allowed us to increase our guidance here for NII. And so we've increased the guidance from a better than 7% year-over-year increase in NII to trending towards 10%. That's based off the $2.279 billion of NII last year, which is now trending towards $2.5 billion on a core run rate basis. And we see that because we see the balances have come in, in deposits. We've seen the loans that we made in July and August, and we've seen the investments that we put in place here recently and that collectively is leading us on this journey towards $2.5 billion on a core run rate basis.

On that deposit growth side, where are you seeing that growth? Is that coming from new customer acquisition? Is that deepening wallet share? And how sustainable is that sort of organic deposit growth story here?

So the largest contributor has been our consumer bank. And so our core consumer bank has contributed an outsized portion of that. Product-wise, their largest and best moving product right now has been our liquid CD program, which is essentially a 9-month commitment on rates at 3.88%. It's a lucky number, but the opportunity to withdraw money after 7 days and achieve liquidity.

So the liquidity dynamic of that is attractive to our customers. And given that we foresee rates going lower from our perspective, having them withdraw funds and recapturing those funds at a lower rate in the future, it does not pose a particular problem. So it's a low-cost option for us to grant the customer. And we think in the current rate environment, it's attracting a good amount of flow.

The second largest component of flow we're seeing actually from small business customers. And so we've got a small business program that we're working with our branches and our retail staff, and it's having good traction, and it's continuing to bring in deposits. And then we've seen some positive dynamics on our cross-border business. And so the combination of those account for the vast majority of the core deposit influx that we've seen, and we think that will be sustained as we move forward.

Maybe when we look at that NII guide and the deposit discussion you just highlighted, how should we think about some of the margin mechanics underpinning that? And if you can talk a little bit about the performance on deposit beta within those categories within those products.

Yes. So if I start with the CD product, of course, we've historically had a good-sized CD book portfolio, which usually see $8 billion to $10 billion of CDs repricing and rolling over every quarter. The runoff rate for much of the stuff that was in a special 6 months ago, would have been around 4.08%.

The run-in rate or the new run on rate for a new product is going to be somewhere between 3.75% and 4%. So across the board, it's going to be probably an accretive positive roll-on even before we get to the September Fed rate cut that's largely assumed in the marketplace. Our CDs already reflect that pricing and they already reflect the next cut. And to the extent that there's a third cut in the outlook, they'll reflect that, too, right? And so the reality is we find ourselves in this position where we can see our CD pricing essentially rolling downhill and will continue to be a driver of positive NII dynamics.

You would say, well, wait a minute, Chris, you've got a lot of floating rate loans and a lot of floating rate securities, won't that cut against you, you're fundamentally asset sensitive. And while that's true, we are in the long run, the reality is we reprice deposits the same day the Fed moves and our loans often don't reprice until 3 to 6 weeks later. And so there's an inherent pickup that happens.

So we're almost instantaneously liability sensitive, become somewhat neutral over the next 30 to 60 days and then incrementally are asset sensitive thereafter. So in this current environment, we think the short-term dynamics are relatively positive, which is why we're positive on our NII guidance.

What about on spreads, especially on the C&I side and CRE? How have those been holding up and reacting recently?

So we're holding the line on our spreads, and that seems to be competitive. We don't see a lot of negative downward pressure on CRE spreads in particular. C&I spreads, it's a very competitive landscape. But I think for the customers that we're looking at, we're trying to hold the line on our stuff.

And unfortunately, we're sometimes saying no to stuff if it's too thin, but we're holding the line. We generally are looking at pricing that starts with the 2% and whether it's 2.25%, 2.5% and 2.75%, that's probably the lion's share of our work. But it's not thinner than that in most cases, unless there's something exceptional about it. And it's typically not much more than that because that probably means there's more hair on it than we would like.

Yes. We have a few questions for the audience. Maybe we'll run through those first, and that can inform some of our discussion. The first is what's your current position in East West shares? One is overweight or long; two, market weight; three, underweight or short; or four, not involved. Maybe it's better to phrase it as opposed or not interested.

Well, it was a great opportunity for us to get you all more interested and more involved in the story.

Exactly. Yes, over half currently not involved and then a quarter overweight. Second question...

I feel sorry for those who are short. Particularly in a day, we're outperforming the BKX by 200 points or so, 2 basis points or 2 percentage points.

Second question, which would have the largest impact on improving the relative valuation of shares of East West. One, better relative margin performance; two, above peer loan growth; three, better expense control; four, credit quality outperformance; five, more active share repurchase; or six, accretive bank acquisition. And these are what we're asking all of the mid-caps.

So continue to have above-average peer loan growth and more active share repurchases. I think we can get into that in a little while, but...

Both of those sound like put the capital to work, which I think we would take as a positive shareholder messaging, and I think we're generally a shareholder-friendly organization.

Great. Number three, what will organic loan growth be at East West in 2026, 1% to 3%, 5% to 7%, 7% to 9% or 9% plus. 7% to 9% and also a solid almost 30% at 9% plus. That's...

Setting the bar there. I haven't locked in the 2026 budget, but I think I have some input here. I appreciate my shareholder confidence in the ability to deliver that kind of growth. So...

Number four, if East West were to use excess capital for M&A, which type of acquisition would be the most well received by shareholders. Number one, a deposit generator tuck-in; two, an asset generator tuck-in; three, a fee generator; or four, a whole bank acquisition. So almost half, I would say, a whole bank and then 40%, 39% on the fee income side.

Well, I might just pause on that and elaborate just for a second because I think as we've looked at the banking landscape, I think one of the challenging things is when you think about banks that are generally smaller than East West, and you think about the things that would be attractive to East West, right? There's obviously certain geographies and demographics that we'd like to have more of.

That having been said, we also would rather have less CRE concentration. We'd like to have more noninterest-bearing deposits, and we like to have more fee income to total revenue in the acquisition. And so when you look at the universe of banks that are generally smaller than East West, there are a few that have less CRE, more noninterest-bearing and greater fee revenues.

And so the whole bank acquisition landscape that really sort of fits with what we're trying to drive the entire bank towards would be unfortunately, probably taken a step backwards. And while we are a very efficient bank, the reality is taking cost out of the bank require effort, and there are almost no banks in the country that are more efficient than us. And so that inherently poses a challenge where we can't really look at this the way other whole bank acquirers have looked at say, yes, we're just going to go there and strip costs down because the costs actually be gutted to get to our levels.

And they're probably not the core profile that fits the growth profile of what we're looking for. And so our focus, and I appreciate the feedback here on whole bank, our focus really has been on fee and I'll say, not asset generating, but asset management, wealth management generating opportunities as sort of the focal point, right? So I know that's asset generation, we don't need that much help on core lending generation.

But we'd like to put -- we'd like to take the deposits that come to us and where possible, obviously, put them to work to help support loan growth, of course. But where excess deposits are coming in, one way to put them to work is in securities, which we've been pretty efficient at over the last year.

Another way is to divert them to off-balance sheet investment opportunities that serve the customers' interest and create a fee revenue stream for the bank. And so our focus has been a little more in that space, and that continues to be, I think, where we'll spend more time incrementally as we look at the next year.

Great. And the fifth, what do you think happens to Category 4 bank regulation, but really bank asset size. One, nothing that stays at $100 billion. Two, we see a change where the level has increased with inflation; three, it's moved to $250 billion; or four, an asset size is removed and it's more of a qualitative test.

So overwhelming majority, 2/3 think it moves to $250 billion.

I love the enthusiasm. I look forward to that being the outcome. I do have to note that someone pointed out to us not too long ago that the Fed has gone through a process of tiering all the banks under $100 billion. We brought them into 4 different cohorts. So we have the pleasure of being in a Tier 1 cohort, and there are, I think, 7 banks in the Tier 1 cohort, which is banks between 75 and 100.

And so as pointed out to us, that means there are 7 Congress people that care about this moving because there's only 7 banks in 7 districts that are finding any pressure to see this move. So legislatively, to the extent that is relevant to this action, congressionally, there's very little political capital behind making a move. But to the extent the Fed can move things around on its own powers, we'll see how this plays out.

We can all hope.

I would say that the tone -- and this isn't the question, but the regulatory tone has markedly improved. I mean you're probably hearing that from others. But generally speaking, if there was a tense conversation a year ago, it's not nearly that today. And if there was a dialogue that requires some back and forth, there was a lot more pushback, let's call it. And today, I think we're feeling a lot more of people putting their best foot forward when there is differences.

And so I think that generally bodes positively, and we think that bodes positively for how things evolve going forward. And we're very pleased by the dialogues we have with the regulators today, and they continue to see seemingly move in a very positive dynamic. So we're optimistic that things will get -- that there won't be impediments to the growth plans and the strategies that we are putting forward, which is all we ask for.

We heard that this morning from Jonathan Gould, the Controller of the currency, really trying to refocus back on the core mission of the regulators as opposed to the political mission that has implemented or creeped into it over the last 4 years or even more than the last 4 years.

I guess maybe looking or following up on the fee income side, fee income has been very strong. You've had that be an initiative for a while. You've talked about the potential to add there. Do you think you have the pieces in place right now to continue to see good growth there? Or would it really require some inorganic mechanism to see a meaningful move higher in fee income?

Well, it's worth noting with the pieces we have in place today, we've been driving record fee incomes and in some categories, 40% year-over-year growth.

So to answer your question directly, yes, we have what it takes to grow meaningfully and deliver a positive trajectory on the various fee income side today.

That having been said, it's a bit -- the more you know, the more you know you don't know. And we're finding that out here in our wealth and asset management business. The more we're doing and the more customers we're interacting with and the more we're pursuing that, the more we're realizing we have some gaps in our product capability and in our expertise delivery, and we recognize there's opportunities to fill in those gaps and deliver even more over time.

And so yes, we've been successful growing those fees. Yes, we've been successful at driving that customer acquisition. And yes, we recognize there's more we could do, and there's probably more fees and value could capture for our shareholders. And there's more value we can deliver to our customers if we could fill in the capabilities a little more. But the answer is yes, there's more to be done. And yes, we will probably look to complement our organic build of that business with some acquisitions or partnerships or investments.

When you look at the organic build of fee income and the broader organic build of growth, are you going to be able to do that and maintain your class-leading efficiency ratio? At what point, whether it's asset size and continuing to make investments for what's now Category 4 thresholds as well as building out fee income that generally is less efficient. Maybe it's still providing good ROTCE, but on an efficiency ratio, it's more expensive. How long can you keep the efficiency ratio sort of in this range?

Well, I think Dominic is on record of saying he's okay with the efficiency ratio creeping higher as long as we're consistently delivering top quartile ROTCE type returns. And so the focus is to deliver quartile returns consistently to our shareholders, which he has a 33-plus year track record of doing. And he does not intend to disappoint on that front. And I don't think he'll let us. And so we'll continue to drive that.

And if that means that through the investments that we're making and the partnerships, acquisitions or others that we strike, the efficiency ratio creeps up a bit. He doesn't seem too concerned on that outcome as long as that means revenue is growing and the bottom line is growing in a way that's driving accretive capital returns, that's in the best interest of shareholders for the long haul.

I think that answers the question.

Yes. Maybe when you look at the work the bank has done as you've grown asset size and preparing for that $100 billion, what could be some of the -- if we do see an increase in the threshold, where could we see either savings or money released to be able to be invested in other areas?

Yes. So I think there's -- Dominic used the analogy at one point in time that the regulators are a bit like parents, right? They are happy to remind you that you should be putting your code on because it's getting cold out and you should go outside. And when you're a child, that seems a bit annoying. And as you go up, you come to recognize yourself and you put the code on yourself.

And so we're at the point where we recognize when it's cold out and we should put a code on. And to a certain extent, we recognize that the cyber threats that are out there, the dynamics around system access management that are prevalent across all landscapes and platforms are real that we need to make sure we have super harden defenses for.

And those investments are going to be front and center. At the same time, we realize that customers' demand to be -- have access anywhere and everywhere. And in our case, that means anywhere and everywhere in the U.S. as well as in various regions around the world is such that we need to be able to deliver that capability seamlessly across multiple platforms and multiple geographies.

So there's a challenge there that we'll have to continue to invest in to make sure that we're delivering the right security with the right access for our customers. We also recognize that the capabilities and expectations are only growing. And so if there's a threat for real-time payments, well, then we need to figure out how to make our existing payments platforms close to real time as possible, make them as frictionless as possible, and we're investing in those today, right? So we're not waiting to see what happens, where you going to see what people evolve to a year from now.

We're going to make it possible to move money seamlessly between geographies and portfolios instantly. And that's not a capability that many have, but it's one that we think we'll be able to deploy in short order for a number of currencies and geographies, and we think that will be a competitive advantage. And the fact that we're moving faster than some others is a good thing. But that requires investments, and we're making those investments that require some effort. And so we'll continue to do those things.

Are there enterprise risk functions that come along with that, that we're building the one side that to make sure that all of that is done the right way, absolutely. Could in theory, we dial back on some of those because they're not required? We might.

On the other hand, they're there for a reason, like risk management and the fraud risks in the world are not getting smaller. And so to a certain extent, I think the investments that we're making now are consistent with best banking practice, and they're largely going to continue. Are there additional administrative regulatory form filing pieces that come? Yes, then they come a little later.

And as we're at $80 billion, we haven't really started to sort of expend a lot of resources on those, but we're building the teams and capabilities that we're ready to. And so we'll continue on that journey. But Dominic's plan is not to hire an army of consultants to do this for us. It's to hire the right people that can help us get over the right hurdles in the right time lines, so that we have all the preparatory work that we need to do ready, and we have the muscle to move forward when we need to be, but not necessarily sooner than we need to be.

So we're going to build, we're going to build the teams internally. We're going to build things organically. We're not going to outsource this to the big 4 accounting firms or something. We're going to do it ourselves, and we think we have the right team to do so, and we'll do it in a cost-efficient East-West way.

And so I think we'll continue on this path. If the burden of regulatory expectations shifts to $250 billion or some other level, that will give us more breathing room, but we'll still become a better, faster, stronger bank as we move forward.

Growth has been a hallmark of East West for several years. You've generally been able to surpass initial expectations for guidance on the growth side. How has the bank been attracting new business customers over time? And how is that -- how do you anticipate that changing going forward as that velocity continues to stay strong?

Yes. So I think in some of our demographic and geographic submarkets where we've got particular market presence today, we have the benefit of sort of being the incumbent leader, and we're capturing share almost just because we're there, right? So we've got greater than 50% market share in certain geographies. And that's a leader's advantage, right? We recently did an analysis on San Gabriel Valley, if you strip out our El Monte region, which is sort of where we book a lot of corporate deposits and things and you look at the rest of the San Gabriel Valley, which is sort of the valley where we traffic in, our 20 branches in the San Gabriel Valley over the last 5 years have attracted more deposits than all of the BofA and Wells Fargo branches, which add up like 40 branches in the same market versus our 20.

So pound for pound, branch for branch, we outperform even the leading brand franchises in the United States on deposit growth in core markets where we focus our attention. The question for us is how can we find that focus in some other regions and geographies. So we continue to sort of roll this out in a concerted focused manner, but recognizing and capitalizing on our strengths.

And we've done that very effectively in Southern California. I think there's more opportunity that particularly in Texas and in New York. There's other markets that we're focused on as well, but those are 2 that are large and come to mind where we lack the penetration, but clearly see the potential for substantial expansion over time.

Let's check and see if there's any questions out in the audience. We have a microphone. No, [ short ] group right now.

Well, maybe we can look to the single-family residential growth. That's been a meaningful contributor overall, and you have a unique market position there. What's been the impact of the increased uncertainty with the trading relationship with China on capital flows that you've seen? And is that impacting the pace of home purchases and capital coming into the U.S.? And do you think that the current rate is sustainable?

So there's a lot in that question. So I'll stick to single-family and we'll come back. So the short answer is we have seen consistent application volumes, transaction volumes, closing volumes in our single-family portfolio over really the last 9 months. There's not a material change in that flow. And the dream of American homeownership is alive and well within our client base, and they continue to come to us for our differentiated product, which continues to appeal to a certain subset of the market, which we're able to deliver at a slightly better net yield to us than alternative products and yet on terms that our customers find very acceptable and are more than happy to sign up for.

And that continues to come in. It's hard to say it's not like clockwork because it feels like it's like clockwork. It continues to come in remarkably consistently and the pipelines are remarkably refilling. Even at the residual rate levels that we're seeing in the marketplace, which are higher than they were for most Americans to refinance at some point in pre-COVID or during COVID, there's still steady drumbeat of flows at current levels is a good thing.

And it continues -- we have a pipeline that we know loans will close here in September, October and into November, and that pipeline is full and continues to refill with each closing thereafter. So it's a good thing, and it's going to continue positive trend. It hasn't stepped up, but nor has it diminished despite all the noise that we've seen in the headlines of trade things in the last 9 months.

Yes. I think it was maybe on the April call, Dominic had pointed out that the actual direct impact on the C&I portfolio with cross-border trade is 1%, I think it was. What -- how is the the tariff environment and the trading dynamic with China impacting at all sort of the broader sentiment of your customers, even though it's a relatively small impact today compared to several years ago?

Well, so I think one of the things we would point out is deposits are up, right? So deposits across the board are up. And so to a certain extent, that means at some level, either folks are making more money or putting less money to work and choosing to put more into liquidity with East West. And the reality is we think both of those are true, right? We think the reality is we have a core consumer demographic that is disproportionately professional class, higher income, higher net worth, also disproportionately entrepreneurial that has been winning in the current economic context for some time, continued to win.

And at least if I read some of the headlines, they're probably representative of a good portion of that top 10% that's continuing to spend. And yet they're also continuing to save and accrete assets. And so that's a good reflection of a good cross-section of some of our customer base. And so we're participating in their continued savings and participating in their continued growth.

Second component is there's a portion of our business that's involved in bringing goods from Asia, selling them to U.S. retailers and collecting them and plays a middleman role. And those businesses continue to have it appears invested early in this trade dynamic, seeing the potential for risk, increase their inventories and have been successfully selling that off at the same or sometimes higher prices and reaping a small benefit in the interim. And that has probably somewhat reflected itself in the higher balances as well.

And so that combination of factors, the benefit from retail plus the benefit of the cross-border has been a net plus to deposit levels, which has allowed us to do this lending. We haven't seen the cross-border lending really move that materially. And so the reality is it just hasn't manifested itself yet. And perhaps it's still because there have been multiple delays to the tariffs.

There have been multiple delays to the de minimis package dates, et cetera. Now that more of those things are sort of looking like they've taken hold and haven't been further delayed, we expect we'll see some incremental impact as we move forward. But to date, it's been nominal. And to date, loans and deposits are up. So despite all the headlines, loans and deposits are up and therefore, NII is up and margins holding up.

Great. In China, you have about, what, $2 billion of footings, maybe a little more. I guess it's been a while since we've got a full update, but any change to the outlook or the positioning?

No. Again, we have more deposits than we have loans. And the activity there is really focused on those that have some interaction or dependency with the U.S. market, right? People don't go to our subsidiary entities because they want to do domestic business, right? And we do no commercial real estate business, right? So it's -- you have a commercial purpose that involves U.S. dollar receipts, that's how you become engaged or go look for a relationship with East West.

And so it's those folks that are -- have been exporting occasionally are importing. And so the focus is on U.S. dollar deposits and the receipt of those deposits back is the biggest piece. But even some of our balances overseas are actually U.S. dollar deposits simply held in our Hong Kong or Chinese subs.

Great. Maybe shifting to credit. Credit has been very good as we -- for a long time and certainly as we move through COVID. Are there any areas you're more focused on today than earlier? And I guess, how should we think about expectations for losses given the allowance has been growing while NPLs and criticized classifieds have been declining?

Yes. Look, I think as we continue to grow the balances overall of the balance sheet, you'll see the incremental levels probably of NPAs tick up a bit in dollar terms. Percentages perhaps won't move that materially. But dollar terms-wise, as we grow the portfolio, those dollars will grow.

That having said, if you'd asked me earlier this year, I would have said we were still working through a lot of the names that I had heard when I first arrived. So there's sort of a 12- or 15-month window where we were working through a lot of the same names. The good news is a lot of those have resolved themselves and they've gone away. In some cases, they've been sold off. In some cases, they've been fully paid off, a confluence of different factors that have led to changes in that portfolio mix.

The bad news is they've been replaced by some new names, roughly in the same level of magnitude, but I think it's positive that we're working our way through credits and that we're proactively continuing to sort of be very active around prepositioning for challenges that we see in the current environmental context.

I also think I take the heart on Dominic's comments from earlier in the year where he basically said that we saw roughly 150 basis points move down in the Fed, he anticipated a lot of the concerns around CRE would be dialed back. We note that we've seen 100 basis points already. We largely expect 50 basis points or more between now and the end of the year. So to the extent that we dial back sort of the concerns in CRE land, I think that will go a long way towards giving us more comfort with where we are.

And I think we're provisioned obviously at the right level or we wouldn't have signed off on that level. But I think it's a level of overall reserving that is consistent with some of the strongest reserve levels we've had and reflects our positioning for what may come. And so I think we are in a good place, and I think we're well positioned. If there are further challenges to the economy, we have the reserves and the capital to absorb that. And if there are no further challenges, well, then we'll have plenty of upside for our shareholders.

On the capital topic, East West has led peers on virtually all ratios for for several years since you've joined the bank.

Dominic is quite proud of 10% TCE.

Yes. I think since you joined the bank, we've seen the increased use of the buyback on a more regular basis. What are your thoughts on optimal capital ratios for the bank today given the broader environment? And should we expect to see buybacks have a bigger impact in coming quarters as you try to maybe manage to that?

Sure. At the end of last quarter, we had a little over $241 million of remaining authorization. We'll continue to look at that. Obviously, our first and highest use of our capital is to support our customer balance sheet growth. You can see the balance sheet has grown. I think you mentioned the $80 million. That's up from the number we posted at June 30.

So we continue to grow our balance sheet for our customers' benefit. We continue to make loans. I think we'll continue to be thoughtful about the dividend. Dominic has a long-standing 30-odd year track record of improving the dividend on an annual basis. And I'm sure we'll continue to look at that very carefully as we go into the fourth quarter for the first quarter next year.

And buybacks will be one of the tools that we look at to manage. On the one hand, I think we're very comfortable having a 10% TCE when we're delivering top quartile returns. And so as long as that dynamic is happening in concert with each other, we think it's a really good place to be. High levels of capital with high performance, not a bad outcome for banking.

If that dynamic changes, we'll obviously be very thoughtful about that. But for the moment, we will continue to grow NII, grow fee income and grow the bottom line. It feels like we can be a little opportunistic around the share buyback and perhaps have earned the right to be a little more patient on capital deployment.

So no sort of ratio target, whether it's CET1 or TCE that you feel is the optimal level for you. It's just as long as you're able to continue to put up the ROTCE that's the...

Dominic's on record that likes having a 10% TCE, and he's also on record that we're going to deliver top quartile results.

Let me see if there's any questions in the audience. I don't think I see anything. Well, thanks. I mean, if you have any closing comments?

No. Look, I think it's proven to be an interesting year. I think we started the year knowing new administration, there would be changes. We are encouraged by the changes that we see in a variety of regulatory conversations and the landscape overall for banking has improved.

I think we were apprehensive about what might happen on international trade and dynamics. The reality is 9 months into the year, we're seeing those still with some apprehension, but the reality is our core business fundamentals have continued on a very positive trajectory, both on the loan deposit credit and fee side.

And so we continue to be fairly optimistic about our customers' prospects and therefore, the bank's prospects here as we move towards the end of the year. We expect rate cuts to have some impact, but the reality is a December rate cut will be sort of a nonevent to anything that happens this year. And the other 2 cuts to the extent there are 2, will probably be, at this point in time, offset by volume. So we feel pretty good about the guidance that we've given.

And obviously, we just updated the guidance and the general outlook. So we're hopeful that investors, those particularly not involved in the name right now, would be willing to take a good look at significantly growing high deposit outcome-oriented institution that is delivering top quartile returns over time and has the capital to do the right thing as needed in the future. Thank you so much for listening.

Great. Thanks very much.

Thank you.