East West Bancorp (NASDAQ:EWBC) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
East West Bancorp reported record revenue, net interest income, pretax, pre-provision income, and diluted earnings per share for Q3 2026, driven by strong customer relationships and a resilient business model.
Deposits grew by over $1.4 billion, with money market deposits showing significant inflows, while the average deposit cost reduced by two basis points.
The company raised its full-year net interest income guidance to 9-10% growth, reflecting strong asset repricing and controlled liability costs.
Loan growth was led by residential and multifamily lending, with a 7% year-over-year increase, aligning with their full-year guidance.
Credit quality remained solid, with a decline in net charge-offs and stable nonperforming assets, leading to a reduction in full-year net charge-off guidance.
Capital ratios remain strong, supporting future growth, with a common equity tier 1 ratio of 15.4% and a tangible common equity ratio of 10%.
The company declared a fourth-quarter dividend of $0.80 per share and has $117 million available for share repurchases.
Management highlighted the continued success of their ‘shoe leather’ strategy for deposit growth and an optimistic outlook for cross-border banking despite geopolitical tensions.
Full Transcript
OPERATOR
Good afternoon and welcome to East West Bancorp’s third quarter 2026 earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded.
I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead.
Adrienne Atkinson (Senior Vice President – Director of Investor Relations and Corporate Development)
Thank you, operator. 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, Christopher Del Moral-Niles, Chief Financial Officer, and Irene Oh, Chief Risk Officer. This call is being recorded and will be available for replay on our investor relations website. The slide deck referenced during this call is available on our investor relations site.
Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.
Dominic Ng (Chairman and Chief Executive Officer)
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 pretax, pre-provision income, and record diluted earnings per share. These results reflect the value of our customer relationships and the resilience of our business model. Deposits reached new record levels with over $1.4 billion of net deposit growth, with 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 two basis points even as we grew balances to record levels. Deposit costs have been well controlled in the first two 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 nine months through September, which leads us to raise our full-year guidance today. Just as importantly, asset quality remained solid. Charge-offs, nonperforming 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.
Our diversified business model, conservatively managed balance sheet, and industry-leading profitability allow us to deliver an over 17% return on average tangible common equity while maintaining a greater than 10% tangible common equity ratio. With that, let me turn the call over to Chris for a more detailed review of our financial results.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Thank you, Dominic, and good afternoon to everyone on the call. Turning to slide 4, we have more details on our deposits. We enjoyed broad-based deposit growth this quarter. We were particularly encouraged by the strong money market deposit growth that Dominic just mentioned. Average noninterest-bearing deposits increased 16% year over year, and our focus on small business checking accounts also continued to bear fruit. Noninterest-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% to 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 nondepository financial borrowings in business credit, mortgage credit, and other NDFI categories. Switching to NII and margin on slide 6, our net interest margin expanded by 6 basis points quarter over quarter as positive asset repricing and flat liability costs drove NII to record levels. We note that both average total deposit cost and total cost of funds declined 2 basis points quarter over quarter. Given September’s rate hike and our strong third quarter performance, we now expect full-year NII growth of 9% to 10%. The guidance assumes that short-term rates remain at current levels through the end of the year, so flat rates through December.
Moving on to fees on slide 7, for the first 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 noninterest expense declined for the quarter. The decline was primarily driven by 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 noninterest 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 noninterest expense is 8%, in line with our guidance, and we remain comfortable with our overall full-year expense guidance. I’ll now hand the call over to Irene for comments on credit and capital.
Irene Oh (Chief Risk Officer)
Thank you, Chris, and good afternoon to all on the call. As you can see on slide 9, credit performance remained resilient in the third quarter. Net charge-offs declined to 15 basis points, or $22 million, in the third quarter compared to 19 basis points in the second quarter, or $27 million. Year to date, annualized net charge-offs were 14 basis points. Given our performance through the first nine months of the year and our current visibility, we have narrowed our prior guidance for net charge-offs and now expect full-year charge-offs to be 15 to 20 basis points.
Quarter over quarter, nonperforming assets saw a slight uptick of 1 basis point to 30 basis points as of September 30, 2026. We recorded a provision for credit losses of $45 million in the third quarter compared with $33 million for the second quarter. Overall, credit performance remained solid. We continue to manage credit risk with vigilance and discipline. Turning to slide 10, the allowance for credit losses increased $23 million to $865 million, or 1.45% of total loans as of September 30, reflecting quarter-over-quarter loan growth and portfolio mix shift. Our allowance coverage ratio increased 2 basis points from the prior quarter and remains at a healthy level relative to the risk of the portfolio.
Turning to slide 11, East West’s 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.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Thank you, Irene. So to recap, we’ve updated three elements of our guidance today, each of which is reflected on slide 12. Number one, we’re increasing our NII outlook assuming flat rates. 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 are reflected again on slide 12. With that, we’ll now open the call to questions. Operator.
OPERATOR
Thank you. To ask a question, you may press star then one on your telephone keypad. If you’re using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue at this time. I’ll pause momentarily to assemble our roster. The first question comes from Casey Hare at Autonomous Research.
Please go ahead.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Good afternoon, Casey.
Casey Hare (Analyst)
Yeah, great, thanks. Good afternoon, everyone. Chris, wanted to touch on the deposit beta and the shoe-leather strategy, which has obviously got pretty good momentum here. When I look at you guys, your cum beta on the last up cycle on an IBD basis, it was—where was it? 60, 72. So with the shoe-leather strategy working, is there an opportunity to come in below that this go-around with the Fed hiking?
Christopher Del Moral-Niles (Executive Vice President & CFO)
I think what we’ve said before, I would stand by, which is higher rates overall will get more customer attention to how much their opportunity cost actually costs them. So will I tell you that I expect to do better? The reality is we were at once upon a time at 40%. We came down into the low 20s. We’re continuing to work our way up, we’re continuing to build on that, but I’m not sure I’ve changed the economics of deposit math. And so the reality is we continue to make progress, we continue to build the DDA book, but if rates go materially higher, we’ll still see some bleed-off.
On the other hand, as we’ve shown already, even with rates ticking down just a little bit, we’ll probably see continued improvement in DDA over time.
Casey Hare (Analyst)
Got you. Okay, great. And then I guess just switching to the loan side of things, can you just give us a flavor of where new-money loan yields are across your products versus the third quarter rate?
Christopher Del Moral-Niles (Executive Vice President & CFO)
I look at the broad cross section of our commercial loans. They’re generally SOFR-based, and we’re generally somewhere between SOFR plus 200, 225, and 250. Obviously C&I and CRE sometimes trade places in that range, but that’s the right range to focus on.
Casey Hare (Analyst)
Great, thank you.
OPERATOR
The next question is from Ryan Kenny at Morgan Stanley. Please go ahead.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Good afternoon, Ryan.
Ryan Kenny (Analyst)
Hi, good afternoon. Thanks for taking my questions. So you mentioned no hike in the guidance, and so if we were to get a hike at some point this year, would that potentially push you more towards the high end of the range?
Christopher Del Moral-Niles (Executive Vice President & CFO)
That’s correct. And I think what we’ve quantified before is that we believe a 25 basis point hike is worth $2.5 million per month with a bit of a lag. We’ve usually put that lag at about 45 days. But to the extent that the forwards are pricing in a hike, it may come through a little sooner, which we certainly observed in the September hike.
Ryan Kenny (Analyst)
And then separately, in the deck it shows that the criticized loans and nonperforming assets picked up a little bit sequentially. And so just wondering if you could give any color on what drove that.
Irene Oh (Chief Risk Officer)
Yeah, if you look at the details, and we show a little bit more on the slides, the increases did come in C&I and those categories. Not one area or asset class we’re most concerned about. But both special mention and substandard ticked up a little.
OPERATOR
The next question is from Dave Rochester at Cantor. Please go ahead.
Dave Rochester (Analyst)
Hey, good afternoon, guys. Wanted to start on your outlook for the 4Q NIM to be broadly stable versus 3Q just given the September hike. I know things may have started a little bit for you earlier, the benefit of the third quarter, but if the same thing happens with a potential December hike, think that you would have some extra lift there that could get you a little bit higher on the NIM. So I’m wondering what are some of the offsets that you’re thinking about?
Is it just deposit costs start to move or is there something else going on?
Christopher Del Moral-Niles (Executive Vice President & CFO)
That’s a combination of could deposit costs chip into that, which we thankfully haven’t seen here through the first couple of weeks of October, as Dominic mentioned. But again it’s early and we could see that. And certainly if there’s a recurring pattern of additional hikes, we would expect to see some of that catch up into our numbers. But we’re still fundamentally asset sensitive, Dave. So to your broad question and following up on Ryan’s comment, yes, I think if we saw higher rates we would expect NII to grow.
Dave Rochester (Analyst)
Yep. I would think that the margin could maybe expand a little bit then in 4Q, is that fair?
Christopher Del Moral-Niles (Executive Vice President & CFO)
Based on what we’re seeing right now, we think the margin holds broadly consistent, but it could expand.
Dave Rochester (Analyst)
Okay. And my follow-up question on the FX line was wondering if the fee growth were related to the rollout of the new platform to the Mainland China customers this quarter. And if you could just talk about where you are in that rollout and any early reports on how that’s going, that’d be great.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Yeah. So our full program, our Asia payments program, is in effect for all of our Hong Kong-based activity, and we are largely seeing upticks both in number of transactions, individual wire counts, and dollar volumes. So that’s working for us. Those wire fees are largely reflected in the commercial deposit-related fees. Foreign exchange activity really has just been driven by other customer transactions and other customer activity, some hedging activity, and some notable spot transaction activity that we saw throughout the quarter.
With regard to our Mainland China program, that is now live, but transaction volumes are still modest. But we expect that to kick in as we roll through the fourth quarter and into the first quarter of next year.
Dave Rochester (Analyst)
All right, great. Thanks. Appreciate it.
OPERATOR
The next question is from Bernard von Giescki at Deutsche Bank. Please go ahead. I’m sorry if I mispronounced your name.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Good afternoon, Bernard.
Bernard von Giescki (Analyst)
All right, good afternoon. Just on my first question, maybe on the wealth management fees, I know that ticked down 4 million linked quarter, and I know that was on lower activity, but just any other color you can provide in that line item and expectations, maybe how the quarter just started.
Christopher Del Moral-Niles (Executive Vice President & CFO)
We’ve had really strong results earlier in the year in our structured product sales, predominantly structured notes, and those had provided some nice lifts particularly in the first quarter. Stepped down a bit in the second quarter and unfortunately stepped down a little bit more in the third quarter. That having been said, many other aspects of the business continue to sort of move in the right direction, and we’ve continued to hire folks that we expect will help us build those volumes as we look into the fourth quarter and 2027.
Bernard von Giescki (Analyst)
And then just a follow-up on the current quarter NIM: expectations were coming in, I think, flat as well, and it increased 6 basis points. Just kind of curious what drove the better performance than previously expected. Just want to understand the puts and takes in the quarter.
Christopher Del Moral-Niles (Executive Vice President & CFO)
I think the reality is we were able to contain deposit costs much more effectively than we anticipated. And the net inflows both of DDA and money markets allowed us not to have to grow our wholesale levels, which meant we didn’t have to pay any higher costs for the incremental asset growth that we saw during the quarter, which was a net positive.
Bernard von Giescki (Analyst)
Okay, thanks for taking my questions.
OPERATOR
The next question is from David Schiverini at Jefferies. Please go ahead.
David Schiverini (Analyst)
Good afternoon. Hi. Thanks for taking the questions. On the non-interest-bearing deposit mix clearly holding in very strongly here in the third quarter, should we expect the DDA growth momentum to continue, and remind us what’s driving this strong growth?
Christopher Del Moral-Niles (Executive Vice President & CFO)
Sure. And so I think we referred to this previously as sort of our shoe leather strategy, which is we’ve asked each of our branch managers, assistant branch managers, commercial relationship managers to go pound the pavement and walk up and down, whether it’s Main Street, Broadway, Valley Boulevard, whatever the most significant thoroughfare for their customers is within their neighborhood, more than once to make sure they’ve knocked on each door, to make sure we’ve had the opportunity to make our inroads.
And that outreach and calling and visiting our customers at their offices, at their shop, at their restaurant has just resulted in a flow of activity that thankfully has helped us maintain and grow these balances over the last year and a half and continues to bear additional fruit. And the deposit accounts opened last year are actually growing in total balances year over year. And so that has been a wonderful strategy that’s worked really well and continues to help us grow our DDA balances at this point in time.
Certainly more than 1 out of $4 of net deposits on average has come to us in incremental DDA and continues to be the primary source of net growth across the bank as we look at the last year and a half or so. And something that we’re very proud of and very thankful for the team that put the effort in to make those calls on all the various customers up and down all the different avenues.
David Schiverini (Analyst)
Great, thanks for that. And in terms of the CDs that were renewed in August from the Lunar New Year, did those mostly renew into new 6-month CDs or did they go out further with term?
Christopher Del Moral-Niles (Executive Vice President & CFO)
Actually we offered both a special 9- and 12-month term, and so we got a mix across all three of those. Thankfully, as you can notice on page 11 in the tables, the net cost of that program—that was still a net reduction—and our total time deposit costs came down by three basis points quarter over quarter. And so even despite the fact that we extended, we extended into a lower total cost blend than what we started with, which was a welcome benefit.
I would also note that we’ve got 15 billion rolling off during the fourth quarter of CDs, but our second quarter specials were not particularly aggressively priced. So we have both a positive opportunity because the repricing benchmark will be low and a risk in that there’s some volume there. So back to Rochester’s question—what are some of the puts and takes—the CD repricing will be an important part of what happens for us in Q4, but we’ve taken that into consideration and broadly expect stable NIMs through the quarter.
David Schiverini (Analyst)
Very helpful, thank you.
OPERATOR
The next question is from Timur Braziler at Wells Fargo, and I probably messed that one up too. Sorry about that.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Good afternoon, Timur.
Timur Braziler (Analyst)
Good afternoon. Maybe dovetailing on that last question, just any early thoughts around how aggressive the swaps might be this go-around for the Chinese Lunar CD specials, just in light of how strong other loan growth or other deposit growth has been?
Christopher Del Moral-Niles (Executive Vice President & CFO)
I think we’ll give guidance for 2027 in 2027, but as we said here today, we’re very comforted by the recent trends we’ve seen in CD repricing, and our current CD specials we think are at appropriate levels to retain the balances that we have today.
Timur Braziler (Analyst)
Okay, fair enough. And then maybe one on capital: you guys have maybe been a little bit more focused on TCE. Just any evolution of thoughts on excess capital here, given the linked-quarter reduction, albeit still at a high level of 10%. And then maybe what, if any, impacts does that have on capital priorities primarily, or appetite for revenue?
Christopher Del Moral-Niles (Executive Vice President & CFO)
I think our capital priorities are outlined and Irene kind of commented on them, but organic growth continues to be priority one for the bank. At 10% tangible common equity, which is a level Dominic has previously commented on, is a level that we’re very comfortable with. We think that we have the flexibility to meet all of the organic growth opportunities present to us from our current customers, pay a competitive dividend, and still have the flexibility to be thoughtful about perhaps disciplined inorganic opportunities and opportunistic share repurchase.
And I think that’s the right framework from which we sort of look at the landscape—from a position of strength, with the capital to do the things that we need to for our customers, and the flexibility to do the things that we might want to do should they be the right things to do and consider for the price and the value and the timing and the opportunity when they come forward. Dominic, anything you would add to that?
Timur Braziler (Analyst)
Great, thank you.
OPERATOR
The next question is from Janet Lee at TD Cowen. Please go ahead.
Christopher Del Moral-Niles (Executive Vice President & CFO)
Good afternoon, Janet.
Janet Lee (Analyst)
Could you give us some puts and takes around the C&I growth? I understand that the decline was really driven by the lower NDFI. How about on the core C&I side and the outlook there on the loan growth front going forward?
Christopher Del Moral-Niles (Executive Vice President & CFO)
Yeah. So clearly I think if you look back to the NDFI slide, you’ll see that the reduction in consumer credit and mortgage credit added up to over 300 million. So obviously that means the core side had a positive well over 200 million. There was a pretty diverse mix of businesses and opportunities that made up the positives on the core bilateral C&I. We continue to expect more core bilateral C&I business to land in the fourth quarter, and we continue to be pursuing that through all avenues. But Irene sort of mentioned on the credit side there wasn’t a particular concentration. We haven’t seen a particular sector or industry that has emerged as a growth driver. It’s been a broad-based cross-section of commercial lending activity.
Irene Oh (Chief Risk Officer)
I’ll also add, too, total commitments are up, Janet, but utilizations are a little bit down over quarter.
Janet Lee (Analyst)
Got it. Thanks for the color. And the NPLs were down quarter over quarter in dollar terms, but the criticized ratio on the C&I front went up a bit, and so was the allowance for loan losses for the C&I segment. Could you explain what drove the criticized levels in the quarter?
Irene Oh (Chief Risk Officer)
Yeah, and I think someone else asked this earlier. Both the special mention and the substandard loans for C&I increased a little bit. If you look at the details, it wasn’t necessarily just one sector or area. In specific I would say maybe this quarter a little bit we had less upgrades to offset some of the downgrades. When we look at the details, we’re comfortable we’ll be able to help our clients work through this.
OPERATOR
Thank you. The next question is from Chris McGratty at KBW. Please go ahead.
Chris McGratty (Analyst)
Oh great. Thank you very much. Hello. A lot of questions about the components of fee income. I think in your prepared remarks you talked about double-digit growth for the year. I guess stepping back, this has been a focus of the bank for several years. I guess where in the build-out of the fee income capabilities are you—maybe an inning—and then can you accelerate it organically? Is that something inorganically that’s an option? Any color would be great.
Dominic Ng (Chairman and Chief Executive Officer)
I think we’re still very much in the early innings. While we appreciate the fact that the commercial bank has been building out, I think we’re still building the capability to provide a broad section of services, payment services,
Christopher Del Moral-Niles (Executive Vice President & CFO)
Investment solutions and services, foreign exchange solutions and services to a wider range of our clients. And so while we recognize we’ve made great progress and we’re very pleased by the double-digit growth, we also know we’re just scratching the surface of what’s possible and we’ve got to be early on earnings given the opportunities we see ahead. Sure. I think the reality is our computer and software-related expenses are up 21% year over year, which would be perhaps a high number and a shocking number. But I would note that, again, our total expenses are exactly in line with our guidance and so it was part of the plan to continue to grow those. Where we’ve seen pilot initiatives in our AI development efforts internally, they’ve been focused on efficiency and speed of evaluation of things.
So more on cost-saving-oriented activities, and we haven’t quite found the right use case yet that boosts revenue. But we’ll continue to, I think, pilot some initiatives that we think will help us contain cost, and we’ll be looking for the right revenue opportunities when they present themselves.
Dominic Ng (Chairman and Chief Executive Officer)
Chris, we are kind of, when it comes to AI, we are early followers. So if someone has some great idea that actually worked great, we are more than happy to follow. But then we wouldn’t think that East West Bank, which is great on relationship banking, great in cross-border banking—those are where we differentiate ourselves from all our other peer banks—and that’s why we have these very high return on equity even when we have a very high tangible common equity ratio.
But folks like that don’t suddenly get very nerdy and then become an AI expert. So the reality check is that we will be much better off to pay attention to what all the other folks are doing, either in the banking industry or even in the fintech world, and we are paying attention to it. Whenever someone can actually come with something, would be happy to follow. We wouldn’t want us to be that pioneer to spend a lot of tokens just for the sake of saying that we’re the first to come up with this and first to come up with that.
That’s not an area that we feel that we can easily claim to be champion. We claim championship in relationship banking and cross-border banking. That’s what we wanted to continue to spend more of our effort on. I do feel that we have tremendous respect for what AI can do to help the bank. We think there will be plenty of opportunities. We also, respectfully, [are] making sure that there are risks involved right now, and right now the landscape is somewhat chaotic in that standpoint, so we want to be prudent and make sure that if someone wants to be heroic, make sure they are not us. And then our position is that when we see that the battlefield is clear, that there is something great, we’ll go ahead and snatch it.
OPERATOR
The next question is from Ibrahim Poonawalla at Bank of America. Please go ahead.
Ibrahim Poonawalla (Analyst)
Hey, good afternoon. Two questions. First, just around credit more in terms of forward-looking—we saw it step up a fair bit during the third quarter. Just remind us how you think or how we should think about the risk of incremental pressure, both in terms of everything about your commercial real estate book or on the C&I side—does that mean much? And certainly if rates go up even further, does that in any meaningful way increase the credit risk as we look…
Christopher Del Moral-Niles (Executive Vice President & CFO)
…through your portfolio. Clearly, rates higher for a far longer, extended period of time will put more pressure on more customers, so we take that as a given. That having been said, Irene, I don’t know if you want to comment on sort of where we are. I would note that at 30 basis points of NPA, it’s really not that much of a change from where we were last quarter or, frankly, from a year ago.
Irene Oh (Chief Risk Officer)
I think, to Chris’s point, higher-for-longer does increase credit risk not only for East West Bank, for every bank. With that said, if you look at our loan book, we have been disciplined in our underwriting—low loan-to-values. These are things that help in this period of time when rates have gone up or the last several years where there’s been concern about one asset class or another. Overall we’ve done really well, better than I expected, honestly, and I think that’s a testament to the underwriting, the credit quality, and the collateral that we have against the loan.
So relative to others, I expect that we’ll do fine.
Ibrahim Poonawalla (Analyst)
Got it. And I guess just a separate question, Dominic—you mentioned about one of your areas your champion is cross-border. Just give us the latest on kind of where those cross-border flows are. Given the U.S.-China relationship’s stand, just what are the drivers as you think about what’s driving activity? Any difference today than five to ten years ago, and maybe just broadly how would you discuss the sentiment and resilience to all the macro noise and geopolitics?
Dominic Ng (Chairman and Chief Executive Officer)
Well, I think if we compare with, let’s say, five, seven years ago, you know, obviously if you look back, we—our cross-border customers obviously had quite a bit of, back then, quite a bit of anxiety, concern about tariffs because that was something relatively new that the U.S. imposed across the board and many people were just trying to figure out how to adapt to it. And then on top of it, you know, what would be the consumer sentiments and how can you pass through the cost to the consumer, or is that you have to just go halfway in between?
There are many sort of issues that each and every one of these companies—by the way, it’s not just a cross-border issue. In fact, all business in the U.S. pretty much have to deal with that challenge. But as we look at it today, tariff is like, you know, it’s a very day-to-day common thing. Everybody gets so used to it—you know, they may not like it, but they get used to it, and everybody adjusts, adapts, and then moves on. And so I look at it as that, quite frankly, even if you look at today, that U.S.-China relationship appeared to be getting better. The Trump administration working with China to maybe find some other better way to reduce Taiwan tariff and whatnot.
But frankly many of the business don’t really pay that much attention to it anymore, in a way, because people just get used to it. For East West Bank, our position is that in good times and bad times, East West [is] still out there offering our best banking services to our clients, and we stay on top of what’s been happening in the geopolitical issue and we do the best we can to provide best support for our clients. So with that, and then you can look at our result for the past, you know, ten years since the first Trump administration, what you see is that year in, year out, we continue to outperform all the other banks.
You know, the geopolitical tension was a lot worse some years; it seems to be better [in others]. Our performance has been steady, and even when we have record earnings after record earnings, they’re just slightly better than the year before. And so because we manage our business pretty rigorously, we don’t ever want to get ourselves way off in terms of going into the edges and committing too much risk and then eventually end up paying for it. So our position is that: run a prudent, relatively conservative balance sheet, make sure we have ample capital, and we continue to focus on organic growth while always—with our eyes open—for any kind of potential opportunistic and strategically viable M&A opportunity.
The reality is that because we spend so much time focusing on the organic business growth and making sure we have better products, we have better capability and whatnot, relatively speaking, it makes the M&A opportunity less likely because we continue to be able to find ways to grow organically. Everything is an opportunity cost. Why would I want to go out there, buy another bank, and deal with their problems unless I’m in a bind that I cannot grow, which is never the case at East West.
So that’s why it is not something that suddenly went quiet and dormant when it comes to M&A work. It’s just that, relatively speaking, we just haven’t found anything that we feel that the opportunity cost justified. And so in short, I would say that from a cross-border banking business right now, we continue to build better capability and we continue to see more opportunities. You know, this universe is big and it’s going to take us decades after decades in order to get, sort of like, feel like oversaturated.
Ibrahim Poonawalla (Analyst)
Good, thank you.
OPERATOR
The next question is from Jared Shaw at Barclays. Please go ahead.
Jared Shaw (Analyst)
Hey, thanks. Good afternoon. A lot of questions asked, I guess. Was there any measurable impact on tariff refunds on deposit growth or DDA growth in the quarter?
Christopher Del Moral-Niles (Executive Vice President & CFO)
It was a small positive. We had, you know, we’ve had over a billion dollars of total deposit refunds flow through the bank. Most of that came in the second quarter, but we had some carry-forward in the third quarter. The on-balance-sheet portion that we would say is related to sort of same customer, same account is less than $200 million in the quarter-end number, and there’s probably a similar amount that’s migrated onto a money market or other savings vehicle.
But it’s a small number. Most of the refunds came through, were then passed through to either an underlying buyer, seller, or someone else in the chain, and so they went out. But, you know, again, a couple hundred million stayed on the books and they’re still in DDA. Those have also been here for, you know, 30 to 120 days, and so we don’t know that there’s a reason they’re going to leave us. But we would expect some of that will stick for the long haul, and it’s been a plus.
Jared Shaw (Analyst)
Okay, thanks. Then I guess just on the credit side, there was an increase in OREO. Any color on what was driving that and what your expectations are for disposition timing and potentially any additional loss on that?
Christopher Del Moral-Niles (Executive Vice President & CFO)
Well, the good news is CRE NPLs came down. Go ahead, Irene. I saw that.
Irene Oh (Chief Risk Officer)
So now that we’ve got our math—our arithmetic here—sorted out, we did have some loans that we foreclosed on that were nonperforming, and we did also have some deeds in lieu that we took in the quarter. You know, we’re working through it. The volume, the numbers, aren’t at a level where we’re super concerned at this point, but certainly our team is working hard as far as selling these properties. Geographically it’s dispersed. Asset type, it is as well.
You know, we’re working through that, so no big concentration. It was more granular. Yeah. I mean certainly, if you look where we’re at, there are asset classes that hit all of our real estate balances wide—single-family is smaller. Larger ones are CRE category-wise. We have REOs that are in the categories of greenhouses, office, retail, and also some one that they can land, but overall, you know, we’re moving through these. Some of them have LOIs and we hope to see some resolution very soon.
OPERATOR
The next question is from Ben Gerlinger at Citi. Please go ahead.
Ben Gerlinger (Analyst at Citi)
Just wanted kind of, just higher level, you guys have kind of alluded to previously like adding something within fee income, whether you—kind of a bigger wealth management offering or trust or something like that. And Dominic, when you just talked about being there for your clients on across pretty much every spectrum, is there other areas where East West might be potentially naked in the offering, where there’s nothing to really add, or are you just really bolstering current offerings?
Right now I’m just thinking inorganic potentials down the road.
Christopher Del Moral-Niles (Executive Vice President & CFO)
I think, broadly speaking, we focused a good portion of our attention on the corporate development front, looking for the right bolt-on or add-on on our wealth management and, to a large extent, didn’t find the right opportunity. So we did, during the third quarter, formally launch our registered investment advisory entity, and we are in the process of building out the team organically to further those efforts. At this point in time there’s nothing there; however, we’ll continue to look for ways to further diversify and grow our fee revenues over time, and that’s the focus as we move forward.
As we sit here today, I think we have built an HQLA-oriented investment portfolio that would be appropriate and suitable should we be subject to those rules as they get finalized. We expect somewhere here in the next three to six months. But, you know, if the rules don’t change, we are on a path to be appropriately positioned to successfully grow into them. And if the rules do change, then we’ll have even more flexibility.
OPERATOR
The next question is from David Smith at Truist Securities. Please go ahead.
David Smith (Analyst)
Good afternoon. Just as we think about the range of outcomes for NII in the fourth quarter, you’re pointing to an expectation of a flat margin, and the loan growth outlook suggests somewhere between half a billion and one and a half billion of additional loan growth in the fourth quarter. So even at the midpoint of your full-year guidance, we have NII about flat in the fourth quarter versus the third quarter. So I guess with a flat margin and balance sheet growth, why wouldn’t you be towards the upper end of your NII range?
Christopher Del Moral-Niles (Executive Vice President & CFO)
I like your math.
David Smith (Analyst)
Fair enough.
OPERATOR
The next question comes from Matthew Clark at Piper Sandler.
Matthew Clark (Analyst)
Hey, good afternoon. Just want to touch on deposit costs a little further. If you had the spot rate at the end of September and then also the $15 billion of CDs that are maturing — just the kind of roll-off and roll-on rates that you expect.
Christopher Del Moral-Niles (Executive Vice President & CFO)
So on the $15 billion, most of that again was priced about six months ago. The end-of-period costs — that’s the two questions — so the first one is: right now, the current-month 6-month CD special is at 3.65%, the 9-month is at 3.78%, and the 12-month is 3.88%. Now, a portion of the $15 billion, of course, doesn’t all come on at special rates, so people will roll over existing programs. So you have to think about the blend. But the blended rate that we’re offering here in the fourth quarter on the 6‑month offering is actually very much in line with what we were offering in the second quarter.
So as we sit here today, it’s relatively flat, assuming there’s a similar reinvestment profile of the underlying CDs, which would be a good outcome. With regard to the second part of your question, our total interest-bearing deposit cost at quarter end was 2.83%. That compares to an average of 2.81% for the full third quarter, and we haven’t really seen that move as we sit here. If anything, it’s probably stayed flat to gotten a little bit better as we move into the fourth quarter.
Matthew Clark (Analyst)
Okay, great. And then just back to the capital return, knowing you guys have a ton of capital and are accumulating capital, can you just remind us of your targeted dividend payout ratio as earnings continue to grow?
Christopher Del Moral-Niles (Executive Vice President & CFO)
We haven’t targeted a specific ratio. I think we raised the dividend by a third last year. We’re at $0.80. We reiterated and declared an $0.80 dividend today for our shareholders in the fourth quarter, and we’re committed to look at that and revisit that at least annually, and so we will do so in the ordinary course.
Matthew Clark (Analyst)
Fair enough. Thanks.
OPERATOR
At this time we show no further questions, and that concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.
Dominic Ng (Chairman and Chief Executive Officer)
Thank you. Before we conclude, I would like to thank our employees for their hard work and commitment to serving our customers. We are encouraged by the momentum we’re seeing across our core businesses and confident in our ability to execute on the opportunities ahead. Thank you for joining us today, and we appreciate your continued interest in East West Bancorp. We’re looking forward to speaking with you again next quarter. Bye.
OPERATOR
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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