East West Bancorp - Earnings Call - Q3 2025

Executive Summary

• Record quarter: total revenue $778.0M, diluted EPS $2.65, and net income $368M; deposit-led growth (EOP deposits +$1.6B q/q to $66.6B) funded loans (+$0.8B q/q to $55.8B) and improved NIM to 3.53%.
• S&P Global consensus was materially beaten on EPS (Q3 2025: 2.62 actual vs 2.37 estimate) and modestly on revenue (726.4M actual vs 725.9M estimate), noting S&P’s revenue definition differs from management’s “total revenue” ($778.0M) due to adjustments; management’s reported revenue also included $32M of discount accretion and interest recoveries (S&P Global estimates*).
• Guidance raised: FY 2025 net interest income (NII) and total revenue now “trending above 10%” (vs “above 7%” prior), net charge-offs outlook lowered to 10–20 bps (from 15–25 bps); loans growth 4–6%, OpEx growth 7–9%, effective tax rate ~23% maintained.
• Strategic catalysts: continued fee growth across all categories (record fee income $92M), wealth management expansion, and payments buildout via Worldpay partnership; management highlighted immediate deposit repricing with Fed cuts and tangible common equity at 10.24% supporting opportunistic buybacks/dividend.

What Went Well and What Went Wrong

• What Went Well

  • “We earned record levels of revenue, net income, and earnings per share” alongside record NII and fee income; deposit-led growth funded all loan growth.
  • Wealth management, customer derivatives, lending fees, and FX all grew q/q, driving record fee income of $92M (+14% q/q).
  • Efficiency improved: reported efficiency ratio 35.6% (adjusted 33.8%), and NIM expanded 18 bps to 3.53% (3.36% adjusted), with average cost of interest-bearing deposits down to 3.26%.

• What Went Wrong

  • Nonperforming assets rose to $201M (0.25% of assets) from $172M (0.22%) q/q; net charge-offs ticked up to $18M (0.13% ann.) from $15M (0.11% ann.).
  • Allowance for loan losses increased to $791M (1.42% of loans HFI) as reserves were “bolstered… reflecting changes in our economic outlook,” including higher reserve levels in residential mortgage and CRE.
  • One-time $27M compensation expense from a change in equity award recognition lifted operating noninterest expense to $261M; hedge impact remained a $6M drag q/q.

Transcript

Speaker 1

Good afternoon and welcome to the East West Bancorp third quarter 2025 earnings conference call. All participants will be in 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.

Speaker 0

Thank you, operator. Good afternoon and thank you everyone for joining us to review East West Bancorp's third quarter 2025 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.

Speaker 1

Thank you, Adrienne. Good afternoon, and thank you for joining us for our earnings call. I'm proud to report East West record-breaking financial results for the third quarter. We continued to grow the bank and reported record quarterly revenue, net income, and earnings per share. This third quarter was also another record quarter for deposits. Our deposit-led growth funded our entire loan growth, allowing us to further optimize our funding mix and contributing to improved liquidity. This deposit growth drove record levels of net interest income for the quarter. We are continuing to attract core deposits while prudently balancing our loan and investment positions to optimize returns. On the fee revenue side, every one of our fee business, wealth management, FX derivatives, all reported quarter-over-quarter and year-over-year growth.

Our wealth management business in particular continues to expand strongly reflecting increasing customer penetration and deepening relationships. Asset quality has remained resilient and credit is performing as expected with low absolute levels of net charge-offs and non-performing assets. We have significant capital levels to support our customers and the flexibility to capitalize on opportunities across market environments. With 10% tangible common equity, we continue to operate from a position of strength.

I will now turn the call over to Chris to provide more details on our third quarter financial performance. Thank you, Dominic. Let me start with more details on our deposits, looking to Slide 4. East West grew deposits by over $1.5 billion in the third quarter. Notably, non-interest-bearing deposits outpaced time deposit growth on a percentage basis, reflecting our focus on diversifying our deposit mix. The mix shift was driven by our branch-based consumer and business banking customers who added to their granular household and small business accounts. Our commercial deposit customers also grew their balances with notable increases in commercial DDA as well. Given the strong deposit inflows, we seized the opportunity during the quarter to reprice our wholesale funding and to strategically reduce our Treasury-managed deposits, public funds, and Federal Home Loan Bank borrowings throughout the quarter.

We expect continued deposit growth in Q4. Moving on to loans on slide 5, East West posts another steady balanced quarter of loan growth with over $800 million of fundings in the third quarter. Commercial real estate balances grew as we continue to support our long standing clients. Our commercial real estate book remains very granular with an average loan size of just $3 million and LTVs of less than 50% in most categories.

Demand for residential mortgage also proved resilient during the quarter and our pipelines remain full leading into Q4. We expect residential and consumer lending to be a consistent contributor to our year ahead.

C&I grew more modestly this quarter as utilization remained broadly stable.

Looking to net interest income and margin, our continued low cost deposit growth strategies drove our record reported NII as we reduced end of period deposit pricing by 10 basis points quarter over quarter. Looking back to the start of the cutting cycle, we have lowered our interest bearing deposit cost by 77 basis points against a backdrop of 125 basis points of cuts in the Fed's target rate, achieving a down cycle beta of 0.62 even while growing our deposit base over the course of the year.

I note that our reported third quarter NII included $32 million of discount, accretion, and interest recoveries from the full payment on some purchase credit-impaired and workout loans. However, even excluding this amount, our adjusted NII of $645 million was still an all-time quarterly record for East West. Moving on to fees on slide 7, fee income was $92 million, marking another record quarter for East West. Year-over-year our fees have grown 13% while our wealth management fees specifically have grown 36%. As Dominic mentioned, all fee categories grew, reflecting our sustained focus on building out new products, services, and capabilities for our customers.

Turning to expenses on slide 8, total operating expenses were $261 million for the quarter. This amount included $27 million of additional compensation expense relating to a one-time change in our equity award recognition for retirement-eligible employees.

Even including these charges, East West continued to deliver industry-leading efficiency while investing for our future growth. The reported Q3 efficiency ratio was 35.6%.

With that, let me hand the call over to Irene for comments on credit and capital.

Speaker 0

Thank you, Chris, and good afternoon, too.

Speaker 1

All on the call.

Speaker 0

As you can see on Slide 9, our asset quality metrics continue to broadly outperform the industry. We recorded net charge-offs of 13 basis points in the second quarter, or $18 million, compared to 11 basis points in the prior quarter, over $15 million. We recorded a lower provision for credit losses of $36 million compared with $45 million for the second quarter. Our non-performing and criticized loan balances continue to be at low, relatively stable levels. Total non-performing assets were 25 basis points as of September 30, 2025. Total criticized loans were down to 2.14%, largely reflecting declines in commercial real estate and residential mortgage criticized loans. We remain vigilant and proactive in managing our credit risks.

Turning to Slide 10 reflecting the ongoing overall uncertainty in the economic outlook, we increased our overall allowance for credit losses this quarter to $791 million or 1.42% of loans, 1.38% as of the prior quarter end. While we continue to monitor changes to the overall economy and geopolitical events, we believe we are adequately reserved for the content of our loan portfolio as of September 30, 2025. Turning to Slide 11 as Dominic mentioned, our strong capital levels allow us to operate from a position of significant strength and support our customers with confidence. All of East West's regulatory capital ratios remain well in excess of regulatory capital requirements for well-capitalized institutions and place us among the best capitalized banks. In the third quarter, East West repurchased approximately 25 million shares of common stock. We currently have $216 million of repurchase authorization that remains available for future buybacks.

East West's fourth quarter 2025 dividends will be payable on November 17, 2025 to shareholders of record on November 3, 2025. I'll now turn it back to Chris to share our outlook.

Speaker 1

Chris, thank you, Irene. We are making a few updates to our full-year outlook which was presented on Slide 12. We've incorporated the quarter-end forward curve and assume two additional rate cuts will occur over the course of the fourth quarter.

Given those rate cuts, but also given our improved deposit mix, we now see both net interest income and revenue trending to better than 10% growth for the full year. In addition, following the comments Irene just gave, given our resilient credit performance, we now expect full year net charge-offs to be in the range of 10-20 basis points, a reduction from our prior guidance. With that, I'll now open the call to questions. Operator, we will now begin the question and answer session. 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.

Our first question today comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Good afternoon, Lonnan. Good afternoon, Chris. At a recent conference you said that East West is liability sensitive in the very near term. So can you just walk us through how you expect loan yields and deposit costs to perform as we get a couple more rate cuts this year, which I think is embedded in your guide and then where there might be some give back once the Fed stops cutting rates? Sure. So we have moved to a cycle where we're now updating our deposit pricing the night of any given Fed action. So we are very nearly automated process for the vast majority of our consumer and commercial accounts where we're immediately passing through those rate cuts on the day of that acceleration of that rate action. Movement on the downward basis means that we're repricing our deposits that same day.

Our loans often reprice with some lag, whether that's the next month's end, the next reset date, the next repricing period, which sometimes is specified, can be a week later, can be almost six or eight weeks later. And so we're seeing the benefit of the immediate deposit repricing hit us first, followed by the negative of the loan repricing sometimes weeks later. And that's resulting in a small and immediate repricing benefit with each Fed cut. That will catch up to us of course when the Fed stops cutting and in addition when the Fed, when there's no more additional further Fed cuts in the forward curve. Our CD pricing, which benefits from an expectation of declining rates, will also catch up with us. So as we look forward today, we expect a few cuts into Q4.

This will be probably a modest positive for us in Q4 and then a perhaps lesser impact item as we move through 2026 until the Fed is done and starts moving in the other direction or flattens out.

Got it. So as we think about NII, your guide implies, I guess NII of about $650 million-$660 million in 4Q.

Is that a good jumping off point for next year given the strong balance sheet growth that you are already seeing?

I think balance sheet growth remains to be seen. I think we're highlighting some uncertainty in the outlook and some uncertainty in the economy and it will clearly be a function of how those uncertainties unfold over the course of 2026, so we're not here to provide 2026 guidance, but as I look at Q4, I think there's a lot of reasons why we'll be very thoughtful in making sure we're supporting our core customers and our long-standing customers, but not going out to try and hit the cover off the ball on new loan growth, trying to just deliver for our customers and be consistent in the marketplace.

Great, thank you.

The next question is from Ibrahim Poonawalla with Bank of America. Please go ahead.

Good afternoon, everybody. Hey, Chris, maybe just following up on the balance sheet growth comment. When we look at especially like the non-interest-bearing deposit growth better than expected this quarter, just talk to us in terms of are there certain verticals driving that growth? Like, what's the momentum there? But could we actually now are we at a point with the Fed probably getting close to ending QT just from a system standpoint, could we see NID mix actually grow as a percentage of total deposits moving forward?

So as we think about it, the drivers this quarter clearly included a nice lift in household accounts, a nice lift in small business accounts and further positives from commercial. So we really saw it in all three major categories. And so it was a broad base but driven by our consumer and retail bank group. And so we continue to believe that will be a source of continued DDA growth as we move into the fourth quarter. We're not yet guiding for 2026, but I'd like to think that as you alluded to, our stability in DDA growth has found its footing here and we are tracking at roughly 25% or so of new deposit growth in line with the bank's growth coming in the form of DDA. And that feels like a comfortable level at today's interest rate environment.

We have said previously we see the DDA mix as interest rate level dependent, so if we go down 100 basis points from here, I would assume the 25% gets a little better, but at these levels, 25% seems like the right place to think about as we move into 2026.

Speaker 0

Got it.

Speaker 1

And I guess maybe just as a follow-up for you or maybe Irene, when looking at the credit metrics, just talk to us what you're seeing when we look at relative stability, I guess, on criticized loans as you laid out or non-performing assets. But when you think about this both from a C&I and commercial real estate, where are the soft spots? And then again you break down your C&I disclosure around this focus on the NBFI loans, just your visibility around this portfolio, your comfort on sort of the credit quality of the non-bank lending piece of it. Thanks.

Speaker 0

Sure. A.B., so first, when we talk about credit quality, I would say that when we look at credit quality and the loan portfolio today, it's very stable. I think that that is something we have been pleasantly surprised at, especially given really the absolute low levels of problem loans incoming that we are seeing and have continued to see. And also the metrics that you see for NPA criticized classified loans, delinquency, et cetera, so that's something we have maintained, I would say a lot of discipline on as far as ensuring that we don't have concentrations in one area. That's something that we continue to do. On the CRE book single family and then also from a C&I perspective, I think you also asked about the, I guess, the topic of this earnings cycle NBFI book. You know we do have NBFI exposure.

It's about 13% of our total loan portfolio as of 9/30.

And.

Sure, you know, when we look at the NBFI book that we have and I'll just, you know, maybe to make sure it's very clear we don't have any direct exposure to Tricolor, First Brands, Kantor or any of the developers or related entities behind Kantor as well. Right. When we look at that NBFI block, you know, much of it has been customers that we have kind of grown and industry verticals that we have grown over many years. If we look at the different subsets of that, you know, a big component of that, you see the details on slide 15 where we show the loan portfolio and the composition of C&I. You know, a big component of that is capital call lending.

Also other elements within that that you see also are in the real estate, investment and management sector, financial services, art finance, consumer finance and equipment finance. And I would say for East West, when we look at this generally we're comfortable. These are clients that we have been working with for a long time. We also ensure that from a collateral perspective our collateral is secure. This is something that we independently validate or confirm as well. So overall when I look at this portfolio, Ed, at this point in time I'm comfortable. If you look at the subset of C&I loans, we only have two loans totaling $7 million that are not rated pass. There are virtually no losses or charge-offs and delinquency as of 9/30 was $1 million.

Speaker 1

And I want to add, even historically, for the past 15 years, we hardly had any losses in the.

NBFI portfolio, so this is something that we feel pretty strongly that so far, so good and then has historically been very good.

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

Yep, no, agreed. Thanks for that.

The next question is from Dave Rochester with Cantor. Please go ahead.

And that's a different Cantor. Different Cantor. Just one of them. Yeah, exactly. How you doing, guys? Appreciate the.

Timing? Is everything exactly on fees? Your trends there have been consistently very strong. Can you just talk about some of your efforts to build out some of those fee baselines, specifically wealth management that you highlighted earlier, and then can you give an update on where you stand on the new FX platform? Thanks. Sure, so we continue to build out the team around our wealth management area because the reality is it continues to provide additional opportunity, and with each new set of hires we're finding additional growth opportunities, additional client penetration opportunities, and additional, frankly, revenue opportunities, and so we continue to invest in direct hires in that line of business, and we continue to invest in some new product development alongside those new hires to get ourselves to the right place with regard to our payments business.

We continue to roll out and develop enhanced payment solutions and we're working through integrating that with the FX platform. Dave, that I think you're referring to that we are continuing to develop the APIs for so that we can be in a better position. We believe in 2026 to have that capability launched.

That's great. Early in 2026 or later in the year, I think the wire payment capability will be immediately ready for a subset of our customers. Frankly, here at the end of Q4 and broadening to a broader set throughout 2026, and then the foreign exchange capability will come probably mid to later in the year. Great. Appreciate that. And then, just switching to capital, the TCE ratio is at 10.2%. Now I know you mentioned you like that 10% level, and I was just curious if you're going to end up liking 11% at some point or if maybe the outlook for growth and buybacks might be accelerating a little bit next year and can keep that sort of stable from here. Any thoughts on that? Yes, we're looking at all different scenarios. One thing for sure is that we always wanted to be one of the strongest.

Among all peers when it comes to capital ratio because it really helped us to attract customers.

Speaker 0

Talents.

Speaker 1

To come join East West Bank. And for us to do well, we need to have strong talents to build relationship with great customers. And having strong capital can make it much easier for us to attract talents and attract clients. So with that, it's just part of the formula of us being successful. And as you look at our return on equity and return on asset, we generate, you know, high teens in return on equity and 1.8% plus on return on asset. With that kind of return, we outperform most of our peers anyway, despite the fact that we have substantially higher capital. So obviously in our perspective is that that strength of high capital ratio help us to continue to generate this kind of high performance and we want to stick with that.

But that doesn't mean that we are not going to be looking for opportunistic buyback. We got board-approved allocation, about X dollar amount. Could you buyback at the appropriate time? So we're always looking for opportunities.

Have we not been acquired, period. The last several days was a pretty good opportunity, so every now and then there's always a few weeks out of the year. It's great opportunity and our advantage is that we always have these kind of situation that allow us to do the right thing at the right time and not having a gun on our head to do something right. The other thing would be obviously from a dividend standpoint, after the fourth quarter we're always going to be start looking into.

Reassessing how much dividend we want to pay. And obviously there are always opportunity for us to possibly increase dividend, and we are always out there looking for whatever other opportunity for us to grow. And so I think we're in a very, very advantageous position right now with a strong capital, and then we're going to continue to stick with that.

Sounds good, I'd agree. Thanks. Thank you, Dave.

Speaker 0

Thank you.

Speaker 1

The next question is from Timur Braziler with Wells Fargo. Please go ahead. Hi, good afternoon. Hi Chris. Going back to your deposit-related commentary on ability to reprice deposits the night of Fed actions, just what's the size of that base that gets repriced that same day?

It's the vast majority of.

Everything other than the CDs, and of course, the non-interest-bearing, so.

Substantially all the money markets, all of the interest-bearing checking and even the savings accounts that are above, you know, 1%.

So a lot, it's on the order of magnitude, you know, $24ish billion. So.

Okay, great. And then maybe looking at some of the tariff related impact, we're hearing from some others that you're starting to see a little bit of relief there in their third quarter loan growth as clarity increases in some cases. Is East West seeing any of that? Was that any part of the 3Q growth or is this really still an opportunity as maybe we get a little bit more clarity on some of the tariffs that may be more impactful to your client base? Look, I think clarity is going to be good for our customers, for the economy, for everyone. And so reduced tensions and increased transparency and clarity about what will happen is in everyone's best interest here. That having been said, our customers have proved remarkably resilient throughout this period.

They have taken steps to prepare themselves well in advance, taken steps here in the interim to do other things and seem to be looking forward to business opportunities and finding the right way to do business in whatever environment presents itself. We like to think that East West is very nimble. Our customers have proven remarkably nimble and we think they'll find a way to navigate through whatever environment exists. But right now they're not coming to us with concerns about navigating the current waters.

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

Speaker 0

I didn't hear the last part of your question. Could you just repeat that?

Speaker 1

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

Speaker 0

Oh great. Okay. So when we look at the linked quarter reduction in multifamily, you know, albeit at a very low base, you know, the reduction was really kind of the ability to kind of upgrade loans. Right. So really the cash flows were there. We were able to upgrade them for multifamily, for CRE. You know, the changes that we've seen as far as the criticized level there, excluding multifamily as well. Overall, I would say that.

There are inflows and outflows that happen there. Generally speaking, it is something where we find it very manageable at this point for multifamily in the markets that we are in, which is largely California. We're finding that the markets continue to be holding up. When we look at kind of the cash flows and the information that we are receiving from our customers, their ability to debt service continues to be very resilient.

Speaker 1

Great, thank you.

The next question is from Jared Shaw with Barclays. Please go ahead.

Hey, good afternoon. Hey, maybe sticking with credit. Irene, could you just talk through the thought process behind the sale of nonperformers and it looks like I guess you must have got some good pricing on that. Assuming if the NII benefit is mostly interest recoveries, is there an opportunity to do more NPL sales? It wasn't a sale. It was a full payoff from an existing set of customers where the loans, at least one of them, had been on accrual for years, so it was these full payoff, the recovery of the principal, recovery of our prior charge-offs, and the recovery of years and years of accrued interest that had compounded, so it wasn't a sale. It was just, we worked with the customers long enough and well enough that collectively we were able to recover in full.

Okay, you just have to do that now with everyone else. Right. And that sounds easy. You know, Dominic expects that on pretty much everything. So yes, that's the mandate around here.

Okay. All right, well that's good color. Thanks. And then I guess just looking at expenses with all this growth in fees, especially on the wealth management side, how should we think about correlating growth on the expense side? I guess I was a little surprised to see such good expense control with that fee income growth.

Look, I think if you look over the last several years we've been growing at a steady clip in the upper single digits. We continue to grow in aggregate at that level here even into this year. And so the reality is we continue to grow the bank. We're always looking to obviously grow on an accretive basis. But if we're growing revenue double digits, then I certainly have no problem with expenses growing in the high single digits and creating operating leverage as we continue to grow.

Yeah, but I guess should we? Is there any sort of pay-for-performance component to the wealth management growth and any of the other stuff or is it really just more salary and bonus? And we shouldn't tie them directly to that growth. No. When we think about our fee revenue businesses, for sure, our wealth management businesses, they have a higher efficiency ratio to their business model. And I think, as Dominic alluded to on our last call, we'll be happy to see our expenses grow a little bit faster if we're growing our fee businesses faster, because those obviously are good, long, sustainable revenue streams that we think the market values at a premium, that we value at a premium internally and that we'll be happy to pay people for to generate over time.

So if our efficiency ratio goes up a little bit because we're developing a steadier, more recurring fee stream, I don't think anyone will be too upset about that.

Speaker 0

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

Speaker 1

Okay. All right, thanks then. Just finally for me, do you have the impact, the hedge impact?

This quarter? I think it was $6 million last quarter. It was also negative $6 million for Q3. Thanks.

The next question is from Chris McGratty with KBW. Please go ahead.

Oh, great. Thanks for the question.

Chris, maybe start with you just to follow up on the revenue growth operating leverage conversation. Does the operating leverage outlook get any easier with?

Deregulation and the momentum there in terms of what you're spending on perhaps currently that you might be able to either cut or divert next year?

I think the things that are in flight are largely things that we recognize as appropriate to have a better controlled, better managed, better monitored bank in the long run. We are, of course, developing plans for what might come a few years down the road. But I would say we are generally today doing things that make sense for our business, make sense for our customers and make sense.

For the shareholders. And that continues to be what we focus on.

Okay, great. And then second question would be on this loan demand from clients. I know you touched upon it a little bit before, but what do you think it'll take to get the loan book growing at a quicker rate in 2026?

Look, I think our residential mortgage demand is fairly steady and consistent. The American dream is alive and well, and for the niche that we focus in on, it's a very steady, consistent contributor to our business. On the real estate side, it's been interesting. I think you've heard me say on these calls and Dominic say and other forums that it felt like for a while some of our best customers were sitting on the sidelines. We've seen some of them come back and look at things and some of them even start to do things, so I think real estate is at the edge of additional interest. Lower rates will probably create more opportunities for things to happen in that space. Dominic said a few cuts ago that he thought 100 basis points would probably be enough to bring the market back into alignment.

I think we're still 50 basis points away from that. So a few more cuts maybe into next year and real estate could have some more traction. We'll see how that plays out. And on the C and I side, I think Irene alluded to the fact that we've got a lot of private equity capital call line type activity. That portfolio has been relatively quiet. Lower rates probably means they come back in more, but it still remains relatively quiet as we sit here today. Thanks for that. And then, Chris, just on the full cycle beta, can you just remind us the assumptions for deposits?

Sorry, I think you cut out there, but the question was deposit beta, and I think our observed deposit beta on interest bearing deposits was 0.62 and we continue to expect it'll be better than 0.5 going forward.

All right, perfect. Thank you.

The next question is from Ben Gerlinger with Citi. Please go ahead. Good afternoon. Afternoon, Ben.

Chris, you've laid out a lot of information on kind of moving deposits being almost instantaneously cut outside of the time deposits on time deposits. I've noticed you guys keep cutting the term from basically six months to four to three. It seems like you're kind of trying to time everything into the first quarter, and also at the same time you also have the Lunar New Year every year, so it's a big quarter for repricing in general. I'm just kind of curious. Do you have anything in front of you how much time deposit dollars are supposed to be repriced in 1Q next year?

Yes, very perceptive question and yes, very observant of you. And yes, we do have a fair amount that we have structured so that we have the ability to do something meaningful in Q1 around our Lunar New Year special. And we have been shortening those maturities, as you stated, to both keep the balances today, but in recognition and anticipation that there'd be a few Fed cuts coming here at the end of October and December that would allow us therefore to roll over. And so to specifically address your question, we have about $10 billion, a little over $10 billion that was rolling over in Q4 and a little over $8 billion before any rollover that happened from Q4 to that would otherwise come due in Q1. So that's $18 billion rolling over in the next six months.

And we assume the vast majority of that will benefit from the embedded 50 basis points of rate cuts that's already out there. So our current six month CD rate that's out there today is a 355 rate.

Got it. Yeah. So Citi's patent pending CD tracker is doing pretty good anyway. So when you think about.

I mean, you're not going to give NII guidance next year, but it seems like it's going to be another really big year. Are there any investments down the road that we might think about otherwise? I would imagine this year's guide is probably similar to next year's guide.

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

Fair enough. All right, appreciate it. Thank you.

The next question is from David Smith with Truist. Please go ahead.

Hi there.

Afternoon. I just wanted to confirm on the guidance. Is the NII guide inclusive of the accretion and recovery this quarter and does the expense outlook include the equity plan adjustment? Can you also just help us give some color on when the timing on those became clear to you? Like was the NII item already contemplated with the guidance update last month and have you had the equity comp item already planned when you gave the guidance earlier this year? I know some folks have been surprised. Last quarter the expense guide staying where it was seemed to imply such a step up in the second half of the year. Thank you.

Yeah, so I think we've been thinking about our employee retirement eligibility over the last six months and hadn't taken any definitive actions until this quarter. So it was, I'll say, in the back of our minds, but we hadn't concretely defined it, we hadn't gone through the appropriate approvals, hadn't updated our board, et cetera. So that came together in Q4 and the revenue side came together because the clients paid off, and no, we didn't control that. They controlled that and they paid it off. With regard to our guide, I would say, look, we're guiding to over 10% today because we're clear that that's the trajectory we're on, and I don't know that we had a clarity of vision around all the pieces when we last spoke, but clearly we have that clarity now.

Clearly it's not just trending towards 10% but obviously trending well above 10%.

Okay. And on expenses that had, I guess, been contemplated in the guide from earlier this year, then even if you weren't sure on the exact timing within the year, is that the right way to understand that? That's the right way to think about it. Yeah. Thank you.

Again. If you have a question, please press Star then one. The next question is from Janet Lee with TD Cowen. Please go ahead.

Speaker 0

Hello, just going back on. Hi, just going back on NIM. So am I interpreting your commentary correct to assume that there will be a, you know, a bigger increase in NIM and then the NIM expansion after the first quarter will be moderating or flattish? Is that the right way to think about this NIM trajectory? Comment.

Speaker 1

So if I look at the core run rate of NIM excluding the interest recoveries and focus on page six, that's the adjusted number at around 645. That's a good run rate number. And we're moving obviously to continue to grow the balance sheet modestly and hopefully we'll have some benefit from the repricing dynamics in the short run. That could make that a little bit better. But that's a good run rate starting point. And the question will be is what happens to both the long term rates which impact the back book refinancing and repricing that will drive sort of the long end of our loans and securities investments in 2026 versus the short end FX and how that plays out over the course of 2026.

And if the answer is we get a steepening yield curve that's generally a positive for us, if the answer is for some reason the yield curve flattens because of the dynamics, well that won't be as good for us. So I think those are the things that are at play and the things that we're looking for is looking to better understand as we also move in towards 2026.

Speaker 0

Okay, thank you. And just going back to credit. I know you guys gave a lot of color on credit and tariff, but I still want to just understand this direction of allowance for loan losses because when I look at other banks, reserve ratios tended to be more so stable. Is your reserve increase tied to Resi mortgage and CRE to capture potential effects of business cycle? Is this really just referring to the potential tariff-related uncertainty?

Speaker 1

More than just the tariffs? Yeah, I would look, I think the reality is it's across the board and I'll let Irene jump in here, but it wasn't just in our Resi mortgage book.

We were thoughtful about different positions in different portfolios. Irene.

Speaker 0

Yeah, and look, the resi book.

With the kind of incredible credit quality we've had over 30 years for much of that portfolio. You know, we increased the reserve level from 36 basis points to 41. So you know, ultimately when you look at those levels, I think they're appropriate given the credit quality. But in a situation where the economy is more certain, certainly when we look at consumer credit, even consumer that is well secured by a low loan-to-value real estate mortgage, you know, that's impacted when we do the modeling, so it really less so on the tariffs, more so on kind of the economic uncertainty and what could happen there. Does that make sense, and all the kind of metrics and drivers for that: unemployment, GDP, et cetera.

Got it. Thank you.

Speaker 1

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

Thank you all for joining our earnings call this afternoon and we are looking forward to speaking with you in January.

Speaker 0

Make sure.

Speaker 1

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