East-West Bancorp Inc 2026 Q3 Earnings Call

Good afternoon, and thank you everyone for joining us to review East West Bancorp's third 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 a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.

Thank you, Adrienne. Good afternoon, and welcome to all who have joined the call. East West delivered another quarter of strong performance, generating record revenue, record net interest income, record pre-tax, pre-provision income, and record diluted earnings per share. These results reflect the value of our customers' relationships, the resilience of our business model. Deposits reached new record levels with over $1.4 billion of net deposit growth, nice inflows of money market deposits. Deposit growth continued to be a key driver of our performance. Notably, we reduced our average deposit cost in the third quarter by 2 basis points, even as we grew balances to record levels. Deposit costs have been well controlled in the first 2 weeks of the fourth quarter. Loans also hit records this quarter with prudent growth led by residential and multifamily lending. This balance sheet growth contributed to record net interest income.

Net interest income is up 9.5% year-over-year for the 9 months through September, which leads us to raise our full year guidance today. Just as importantly, asset quality remained solid. Charge-offs, non-performing assets, and criticized loans remained well controlled and within our expectations, reflecting the quality of our portfolio and our disciplined approach to risk management. Given our lower than expected year-to-date net charge-offs, we are also updating our net charge-off guidance lower for the year. East West continues to operate from a position of strength. Diversified business model, conservatively managed balance sheet, industry-leading profitability allow us to deliver an over 17% return on average tangible common equity while maintaining a greater than 10% tangible common equity ratio. With that, let me turn the call over to Chris for a more detailed review of our financial results.

Chris? Thank you, Dominic, and good afternoon to everyone on the call.

Turning to slide 4, we have more details on our deposits. We enjoyed a broad-based deposit growth quarter. We are particularly encouraged by the strong money market deposit growth that Dominic just mentioned. Average non-interest-bearing deposits increased 16% year-over-year, and our focus on small business checking accounts also continued to bear fruit. Non-interest-bearing demand deposits continue to represent over 26% of our total deposits at quarter end, providing an important source of stable funding and supporting our ability to effectively manage our deposit costs. Turning to slide 5, some highlights on loans. Loans grew 7% year-over-year, consistent with our 6%-8% full year 2026 guidance. As we previously communicated, residential mortgage came in as this quarter's standout with nearly $400 million of net growth.

We continue to expect residential mortgage to be a key contributor to our growth given our robust current pipeline. Multifamily lending also had a strong quarter reflecting continued broad-based housing demand in our core markets. CRE growth this quarter was led by our longstanding real estate clients getting back into the market, sometimes at discounted levels. C&I balances declined modestly from the second quarter, largely reflecting reductions in non-depository financial institution borrowings in business credit, mortgage credit, and other NDFI categories. Switching to NII and margin on Slide 6, our net interest margin expanded by 6 basis points quarter-over-quarter as positive asset repricing and flat liability costs drove NII to record levels. We note that both average total deposit cost and total cost of funds declined 2 basis points quarter-over-quarter.

Given September's rate hike and our strong third quarter performance, we now expect full year NII growth of 9%-10%. The guidance assumes that short-term rates remain at current levels through the end of the year, so flat rates through December. Moving on to fees on Slide 7. For the first nine months of 2026, fee income has increased 11% year-over-year, supported by strong year-to-date growth in wealth management, deposit-related fees, and foreign exchange income. We continue to expect full-year fee income to grow by more than 10% for all of 2026. Looking at expenses on Slide 8, total operating non-interest expense declined for the quarter. The decline was primarily driven by lower other operating costs and lower comp and employee benefits expense. As a result, East West delivered another quarter of industry-leading efficiency.

The Q3 efficiency ratio improved to 34.4%, while operating non-interest expense as a percentage of average assets declined 8 basis points to 1.21%. Both of these are industry-leading metrics. Year-to-date growth in operating non-interest expense is 8%, in line with our guidance, and we remain comfortable with our overall full-year expense guidance. I will now hand the call over to Irene for comments on credit and capital.

Chris, and good afternoon to all on the call. As you can see on Slide 9, credit performance remained resilient in the third quarter. Net charge-offs declined to 15 basis points, or $22 million in the third quarter, compared to 19 basis points in the second quarter of $27 million. Year to date, annualized net charge-offs were 14 basis points. Given our performance through the first nine months of the year and our current visibility, we have narrowed our prior guidance for net charge-offs and now expect full-year charge-offs to be 15-20 basis points. Quarter-over-quarter, non-performing assets saw a slight uptick of one basis point to 30 basis points as of September 30, 2026. We reported a provision for credit losses of $45 million in the third quarter, compared with $33 million for the second quarter.

Overall, credit performance remained solid, and we continue to manage credit risk with vigilance and discipline. Turning to Slide 10. The allowance for credit losses increased $23 million to $865 million, or 1.45% of total loans as of September 30, reflecting quarter-over-quarter loan growth and portfolio mix shift. Our allowance coverage ratio increased two basis points from the prior quarter, remains at a healthy level relative to the risk of the portfolio. Turning to Slide 11. East West capital position remains a significant source of strength and strategic flexibility. All regulatory ratios remain well in excess of regulatory requirements for well-capitalized institutions and continue to compare favorably to both regional and national banks. At quarter end, our common equity Tier 1 ratio was 15.4%, while the tangible common equity ratio was 10%. These levels support current and future balance sheet growth.

East West ended the quarter with $117 million of repurchase authorization that remains available for future buybacks and declared a fourth quarter 2026 dividend of $0.80 per share. I'll now turn the call back to Chris.

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