East West Bancorp, Inc. (EWBC) Q3 2026 Earnings Call Transcript

Operator: 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: 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, 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.

Dominic Ng: 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 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, 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?

Chris Del Moral-Niles: Thank you, Dominic, and good afternoon to everyone on the call. Turning to slide four, 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 five, 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 six, 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 seven. 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 eight, 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.

Irene Oh: Thank you, Chris, and good afternoon to all on the call. As you can see on Slide nine, 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.

Chris Del Moral-Niles: 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. Operator?

Operator: Thank you. To ask a question, you may press star then one on your telephone keypad. If you are 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 reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Casey Haire at Autonomous Research. Please go ahead.

Chris Del Moral-Niles: Good afternoon, Casey.

Casey Haire: Yeah. Great. Thanks. Good afternoon, everyone. Chris, I 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 cumulative beta in the last up cycle, on an IBD basis, it was Oh, where was it? 72. With the shoe leather strategy working, is there an opportunity to come in below that this go around with the Fed hiking?

Chris Del Moral-Niles: I think what we have said before, I would stand by, which is higher rates overall will beget more customer attention to how much their opportunity costs actually cost them. 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 20%s. We are continuing to work our way up. We are continuing to build on that, but I am not sure I have changed the economics of deposit math. The reality is we continue to make progress. We continue to build the DDA book. If rates go materially higher, we will still see some bleed off. On the other hand, as we have shown already, even with rates ticking down just a little bit, we will probably see continued improvement in DDA over time.

Casey Haire: Got you. Okay, great. 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?

Chris Del Moral-Niles: I look at the broad cross-section of our commercial loans. They're generally SOFR-based, and we're generally somewhere between SOFR 225 and 250. Obviously, C&I and CRE sometimes trade places in that range, but that's the right range to focus on.

Casey Haire: Great. Thank you.

Operator: The next question is from Ryan Kenny at Morgan Stanley. Please go ahead.

Chris Del Moral-Niles: Good afternoon, Ryan.

Ryan Kenny: Hi. Good afternoon. Thanks for taking my questions. You mentioned no hike in the guidance. 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?

Chris Del Moral-Niles: That's correct. 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: Separately, in the deck, it shows that the criticized loans and non-performing assets ticked up a little bit sequentially. Just wondering if you could give any color on what drove that.

Irene Oh: Yeah. If you look at the details, and we show a little bit more on the slides, increases did come in C&I in 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: 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, I think that you would have some extra lift there that could get you a little bit higher on the NIM. 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? Thanks.

Chris Del Moral-Niles: It's a combination of could deposit costs chip into that, which we thankfully haven't seen here through the first couple of weeks of October, as Dominic mentioned. But again, it's early and we could see that. 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. To your broad question and then following up on Ryan's comment, yes, I think if we saw higher rates, we would expect NII to grow.

Dave Rochester: Yep. You would think that the margin could maybe expand a little bit then in 4Q. Is that fair?

Chris Del Moral-Niles: Based on what we are seeing right now, we think the margin holds broadly consistent, but it could expand.

Dave Rochester: Okay. 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 just talk about where you are in that rollout and any early reports on how that is going, that would be great.

Chris Del Moral-Niles: Yeah. So our full program, our Asia payments program, is in effect for all of our Hong Kong-based activity, and we are largely seeing upticks both in number of transactions, individual wires counts, and dollar volumes. So that is 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: All right, great. Thanks for the color. Appreciate it.

Operator: The next question is from Bernard von Gizycki at Deutsche Bank. Please go ahead. I'm sorry if I mispronounced your name.

Chris Del Moral-Niles: Good afternoon, Bernard.

Bernard von Gizycki: All right. Good afternoon. Just for my first question, maybe on the wealth management fees. I know that ticked down $4 million link quarter. 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?

Chris Del Moral-Niles: 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 that 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 Gizycki: 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.

Chris Del Moral-Niles: Sure. I think the reality is we were able to contain deposit costs much more effectively than we anticipated, and the net inflows both of DDA and money markets allowed us not to have to grow our wholesale levels, which meant we didn't have to pay any higher costs for the incremental asset growth that we saw during the quarter, which was a net positive.

Bernard von Gizycki: Okay. Thanks for taking my questions.

Operator: The next question is from David Chiaverini at Jefferies. Please go ahead.

Chris Del Moral-Niles: Good afternoon.

David Chiaverini: 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 is driving this strong growth.

Chris Del Moral-Niles: Sure. I think we referred to this previously as sort of our shoe leather strategy, which is, we have asked each of our branch managers, assistant branch managers, commercial relationship managers to go pound the pavement and walk up and down, whether it is Main Street, Broadway, Valley Boulevard, whatever the most significant thoroughfare for their customers is within their neighborhood, more than once to make sure they have knocked on each door to make sure we have had the opportunity to make our inroads. 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 in that deposit accounts opened last year are actually growing in total balances year-over-year. That has been a wonderful strategy that has 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. Something that we are very proud of and very thankful for the team that has put the effort in to make those calls on all their various customers up and down all the different avenues.

David Chiaverini: Great. Thanks for that. In terms of the CDs that were renewed in August from the Lunar New Year, did those mostly renew into new six-month CDs or did they go out further with term?

Chris Del Moral-Niles: Actually, we offered both a special nine and 12-month term, so we got a mix across all three of those. Thankfully, as you can notice on page 11 in the tables, the net cost of that program, though, is still a net reduction in our total time deposit cost. It came down by 3 basis points quarter-over-quarter. Even despite the fact that we extended into a lower total cost blend than what we started with, which was a welcome benefit. I would also note that we have 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 of there is 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 the Q4, but we have taken that into consideration and broadly expect stable NIM through the quarter.

David Chiaverini: 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.

Chris Del Moral-Niles: Good afternoon, Timur.

Timur Braziler: Hi. Good afternoon. Maybe dovetailing on that last question, just any early thoughts around how aggressive these might be this go around for the Chinese Lunar CD specials, just in light of how strong other deposit growth has been?

Chris Del Moral-Niles: I think we'll give guidance for 2027 in 2027. As we've 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: Okay. Fair enough. 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 link quarter reduction, albeit still at a high level of 10%? Then maybe what, if any, impacts does that have on capital priorities, primarily your appetite for M&A?

Chris Del Moral-Niles: No, I think our capital priorities are outlined. 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 opportunities to share repurchase. 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?

Dominic Ng: No. Like that.

Timur Braziler: Great. Thank you.

Operator: The next question is from Janet Lee at TD Cowen. Please go ahead.

Chris Del Moral-Niles: Good afternoon, Janet.

Janet Lee: Hello. 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 low growth front going forward?

Chris Del Moral-Niles: 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 as Irene mentioned in the credit side, there wasn't a particular concentration. We haven't seen a particular sector or industry that has emerged as a growth driver. It's been a broad-based cross-section of commercial lending activity.

Irene Oh: I'll also add too. Total commitments are up, Janet, but utilization's a little bit down quarter-over-quarter.

Janet Lee: 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: Yeah. 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. But when we look at the details, we're comfortable we'll be able to help our clients work through this.

Janet Lee: Thank you.

Operator: The next question is from Chris McGratty at KBW. Please go ahead.

Chris McGratty: Oh, great. Thank you very much. Hello. A lot of questions about the components of fee income. I think, Chris, 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? Can you accelerate it organically? Is that something inorganically that's an option? Any color would be great. Thanks.

Chris Del Moral-Niles: 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, investment solutions and services, foreign exchange solutions and services to a wider range of our clients. 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. It's got to be early innings given the opportunities we see ahead.

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

Chris Del Moral-Niles: 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. 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. We haven't quite found the right use case yet that boosts revenue. We'll continue to, I think, pilot some initiatives that we think will help us contain costs, and we'll be looking for the right revenue opportunities when they present themselves.

Dominic Ng: Chris, when it comes to AI, we are early followers. If someone has some great idea that actually worked great, we are more than happy to follow. 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 this very high return on equity even when we have very high tangible common equity ratio. Folks like that don't suddenly get very nerdy and then become an AI expert. The reality check is that we will be much better off to pay attention to what all the other folks are doing, either in the banking industry or even in the fintech world, and we're paying attention to it. Whenever someone can actually come with something great, we'll be happy to follow. We wouldn't want it 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 to. 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 are also respectfully making sure that there are risks involved right now, and right now the landscape is somewhat chaotic in that standpoint. We want to be prudent and make sure that if someone want to be heroic, make sure it is not us. 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 Ebrahim Poonawala at Bank of America. Please go ahead.

Chris Del Moral-Niles: Good afternoon, Ebrahim.

Ebrahim Poonawala: Hey, good afternoon. Two questions. First, just around credit, more in terms of forward-looking. We saw it gap up a fair bit during the third quarter. Just remind us, like how you think or how we should think about the risk of incremental pressure, both in terms of as we think about your commercial real estate book or on the C&I side. Does that mean much? Especially if rates go up even further, does that in any meaningful way increase the credit risk as you look through your portfolio?

Chris Del Moral-Niles: Clearly, rates higher for a far longer extended period of time will put more pressure on more customers. We take that as a given. That having been said, Irene, I do not know if you want to comment on sort of where we are. Ebrahim, I would note that at 30 basis points of NPA, it is really not that much of a change from where we were last quarter or frankly, from a year ago. Right. Go ahead.

Irene Oh: Yeah. I think, Ebrahim, Chris's point is correct. Higher, higher for longer does increase credit risk, not only for East West Bank, for every bank. With that said, 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 where rates have gone up or the last several years where there has been concern about one asset class or another. Overall, we have done really well, better than I expected, honestly. I think that is a testament to the underwriting, the credit quality and the collateral that we have against the loans. Relative to others, I expect that we will do fine.

Ebrahim Poonawala: Got it. Just a separate question. Dominic, you mentioned about one of your areas you're champion is cross-border. Just give us the latest on kind of where those cross-border flows are given where U.S.-China relationship stand. Just what are the drivers as you think about what's driving activity, any difference today than 5 to 10 years ago? Maybe just broadly, like how would you assess customer sentiment and resilience to all the macro noise and geopolitics?

Dominic Ng: Well, I think if we compare with, let's say, five, seven years ago. Obviously, if you look back, our cross-border customers obviously have quite a bit of, back then, quite a bit of anxiety, concern about tariffs, because that was something relatively new that U.S. imposed across the board. Many people were just trying to figure out how to adapt to it. Then on top of it, what would be the consumer sentiments and how can you pass through the cost to the consumer? Or is it 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 U.S. pretty much have to deal with that challenge. But as we look at it today, tariff is like just a very day-to-day common thing. Everybody gets so used to it. They may not like it, but they get used to it, and everybody adjust, adapt, and then moved on. I looked at it, as I said, quite frankly, even that if you look at today, that U.S.-China relationship appear to be getting better. The Trump administration is working with China to maybe find some other better way to reduce 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 time and bad times, East West still out there offering our best relationship banking services to our client. 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. With that, you can look at our results for the past 10 years since the first Trump administration. What you see is that year in year out. We continue to outperform all the other banks. Some years, the geopolitical tension was a lot worse. Some years it seems to be better. Our performance has been steady. Even when we have record earnings after record earnings, they're just slightly better than the year before. It's because we manage our business pretty vigorously. We don't ever want to get ourself way off in terms of going into the edges and committing too much risk and then eventually end up paying for it. 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 way to grow organically. Everything is an opportunity cost. Why would I want to go out there, buy another bank and deal with their problems unless I am in a bind that I cannot grow, which is never the case at East West. That is why it is not something that suddenly we went quiet and dormant when it comes to M&A world. It is just that relatively speaking, we just have not had found anything that we feel that the opportunity cost justified it. 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. This universe is big, and it is going to take us decades after decades in order to get sort of feel like oversaturated.

Ebrahim Poonawala: Right. Thank you.

Operator: The next question is from Jared Shaw at Barclays. Please go ahead.

Chris Del Moral-Niles: Hi, Jared.

Jared Shaw: Hi. 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?

Chris Del Moral-Niles: It was a small positive. We had over $1 billion of total deposit refunds flow through the bank. Most of that came in the second quarter, but we had some carry forward into the third quarter. The on-balance sheet portion that we would say is related to sort of same customer, same account is less than $200 million in the quarter end number. There is probably a similar amount that is migrated on to a money market or other savings vehicle. But it is a small number. Most of the refunds came through, were then passed through to either underlying buyer or seller or someone else in the chain, so they went out. But again, a couple hundred million stayed on the books and they are still in DDA. Those have also been here for 30-120 days, so we do not know that there is a reason they are going to leave us, but we would expect some of that will stick for the long haul, and it has been a plus.

Jared Shaw: Okay, thanks. 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?

Chris Del Moral-Niles: Well, the good news is CRE NPLs came down. Go ahead.

Jared Shaw: I saw that.

Irene Oh: Now that we've got our math, our arithmetic here sorted out. We did have some loans that we foreclosed on that were not performing, and we did also have some deed in lieu that we took in the quarter. We're working through it. The volume, the numbers aren't a level where we're super concerned at this point, but certainly our team is working hard as far as selling these properties. Geographically, it's dispersed. Asset type it is as well. We're working through it.

Jared Shaw: No big concentration. It was more granular.

Irene Oh: Yeah. Certainly if you look where we're at, there are asset classes that hit all of our real estate balance-wise. Single family is smaller. Larger ones are CRE. Category-wise, we have OREOs that are in the categories of warehouses, office retail, and also one vacant land. But overall, we're moving through these. Some of them all have LOIs, and we hope to see some resolution very soon.

Jared Shaw: Thanks.

Operator: The next question is from Ben Gerlinger at Citi. Please go ahead.

Chris Del Moral-Niles: Ben.

Ben Gerlinger: Just wanted kind of just higher level. You guys have kind of alluded to previously, like adding something within fee income, whether it be kind of a bigger wealth management offering or trust or something like that. But then Dominic, when you just talked about being there for your clients 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.

Chris Del Moral-Niles: I think broadly speaking, we've focused on a good portion of our attention on the corporate development front, looking for the right bolt-on or add-on on our wealth management. To a large extent, didn't obviously find the right opportunity. We did, during the third quarter, formally launch our Registered Investment Advisory entity. We are in the process of building organically out the team to further those efforts. At this point in time, there's nothing there. However, we'll continue to look for the way to further diversify and grow our fee revenues over time, and that's the focus as we move forward.

Ben Gerlinger: Got it. Then tailoring rules change the $100 billion. I am not necessarily looking for an acquisition type answer, but is there anything on the balance sheet, whether it be HQLA approach to securities or anything on that end that you might tweak the current operations?

Chris Del Moral-Niles: 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 if the rules don't change, we are on a path to be appropriately positioned to successfully grow into them. If the rules do change, then we'll have even more flexibility.

Ben Gerlinger: Got it. Thank you.

Operator: The next question is from David Smith at Truist Securities. Please go ahead.

David Smith: Hi. Good afternoon. As we think about the range of outcomes for NII in the fourth quarter, you are pointing to an expectation of a flat margin, and the loan growth outlook suggests somewhere between $0.5 billion and $1.5 billion of additional loan growth in the fourth quarter. So even 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?

Chris Del Moral-Niles: I like your math.

David Smith: Fair enough.

Operator: The next question comes from Matthew Clark at Piper Sandler.

Matthew Clark: Good afternoon.

Chris Del Moral-Niles: Good afternoon.

Matthew Clark: Just want to touch on deposit costs a little further. If you had the spot rate at the end of September. Also the $15 billion of CDs that are maturing, just the kind of the roll-off and roll-on rates that you expect.

Chris Del Moral-Niles: Sure. On the $15 billion, most of that, again, was priced about six months ago. The end-of-period costs. Let me answer this question. The first one is right now the current month six-month CD Special is at 3.65%. The nine month is at 3.78%, and the 12 month is 3.88%. A portion of the $15 billion, of course, it doesn't all come on at special rates. People that will roll over existing programs at lower rates. You have to think about the blend. But the blended rate that we're offering here in the fourth quarter on the six-month offering is actually very much in line with what we were offering in the second quarter. 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% on average for the full third quarter. 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: Okay. Great. Just back to the capital return. Knowing you guys have a ton of capital and accumulating capital, can you just remind us of your targeted dividend payout ratio as earnings continue to grow?

Chris Del Moral-Niles: We haven't targeted a specific ratio. I think we raised the dividend by a third last year. We're at $0.80. We reiterated and declared $0.80 dividend today for our shareholders in the fourth quarter. 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: 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: Thank you. Well, before we conclude, I would like to thank our employees for their hard work and commitment to serving our customers. We are encouraged by the momentum we are seeing across our core businesses and confident in our ability to execute on the opportunities ahead. Thank you for joining us today, and we appreciate your continued interest in East West, and looking forward to speaking with you again next quarter. Bye.

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