East West Bancorp (EWBC) Q3 2026 earnings review
East West profit sets a record, but problem loans rise
East West Bancorp set a profit record as no-interest deposits widened its margin, but problem loans kept rising. By our math net interest income grew 11% from a year ago, excluding last year's one-off interest recoveries. Chairman and chief executive Dominic Ng raised the outlook for that income a third time; by our math it leaves the fourth quarter level with this one.
| Net interest income, excluding last year's one-off interest recoveries | $719M +11% from a year ago by our math; +6% as reported |
|---|---|
| Profit per share | $2.76 +4% from a year ago |
| Deposits that pay no interest | $18.5B +15% from a year ago; 26% of all deposits |
| Full-year net interest income outlook | Raised to 9-10% growth third raise this year; by our math Q4 about level with Q3 |
⚖️ Verdict: 🟢 Bullish
The story got better because the feared rise in deposit costs did not happen. About $13 billion of certificates of deposit matured, management had said, yet the cost of interest-bearing deposits stayed unchanged and the margin widened. The bad news: criticized loans rose for a third straight quarter, and bond losses cut book value per share despite the record profit.
The question now is whether the loans the bank flags as weakening become real losses or fade as normalisation from unusually low levels. If charge-offs stay near 0.15%, the bank is reserving early; if they follow those loans up, profits will carry a bigger provision. The fourth-quarter charge-off rate will tell.
🐂 Bull Case
Deposits That Pay No Interest Keep Growing
Noninterest-bearing deposits are checking balances on which East West pays nothing, so each dollar of them that replaces a certificate of deposit lowers the bank's funding cost. Chairman and chief executive Dominic Ng credits a push for small-business checking accounts, which he says builds "broader, more valuable relationships" with customers.
- Noninterest-bearing deposits: $18.5 billion, up 15% from a year ago
- Share of all deposits: 26%, up from 24% a year ago
- Average cost of all deposits: 2.08%, down from 2.49% a year ago
- Cost of interest-bearing deposits: 2.81%, unchanged from last quarter
This matters because the lending margin rose to 3.49% from 3.43% last quarter on the cheaper funding, and that margin on a larger balance sheet produced the record net interest income. Deposit account fees also grew 15% from a year ago, which supports Ng's claim that these are working accounts rather than idle balances.
What to watch: the share of deposits that pay no interest at year-end. If it holds at 26% or better while total deposits keep growing, the bank's own call for a margin that will "remain broadly stable" in the fourth quarter looks cautious.
The Big CD Rollover Did Not Raise Deposit Costs
Three months ago management said about $13 billion of certificates of deposit would mature during the quarter and would need renewing at current rates. The worry was that rival banks would force East West to pay more, so a margin that had gained from falling deposit costs would start to give some back.
The rollover happened and the cost went down, not up. The average rate on time deposits fell to 3.27% from 3.30% in the second quarter, while the cost of all interest-bearing deposits stayed at 2.81%. So the margin widened by 0.06 percentage points instead of narrowing.
The outlook, not just one quarter, settles it: the lender now expects the margin to "remain broadly stable" in the fourth quarter and raised its full-year range for net interest income to 9-10%. The concern can return if the Federal Reserve cuts rates, because 61% of loans carry variable rates, but the repricing of this CD book is no longer the risk.
What to watch: the average cost of interest-bearing deposits in the fourth quarter, reported in January. A reading above this quarter's 2.81% would mean competition for deposits has started to cost the Pasadena bank after all.
Mortgages and Apartment Loans Drove Loan Growth
Management has said for several quarters that it wants loans split evenly between business lending, commercial property and home mortgages, so that no single type dominates. Commercial property is still the largest at 37% of the book, and business loans, which the bank calls C&I, make up a third.
This quarter the growth came from the consumer and property side. Total loans rose 1.3% from the second quarter to a record $59.7 billion, and the slides describe the mortgage and multifamily growth as "bolstering diversification".
- Residential mortgages and other consumer: +$397 million from last quarter
- Multifamily (apartment buildings): +$278 million
- Other commercial property: +$148 million
- Business loans (C&I): -$76 million, including $199 million less to nonbank lenders
The shift lowers risk because mortgages and apartment loans at this bank carry an average loan-to-value near 50%, so the borrower has a large cushion. But it also costs income, because mortgages yield 5.78% against 6.38% on business loans, so the mix change trades a little margin for safety.
What to watch: year-end loans against the 6-8% full-year outlook. By our math the bank needs to add about $1.1 billion in the fourth quarter to reach the middle of that range, more than it added this quarter. A repeat of this quarter's pace would land near the bottom of the range.
Deposit Fees Grow While Wealth Fees Slip
Fee income is what the bank earns from customers beyond interest: account charges, currency exchange, wealth management and loan servicing. Ng pointed to growth of 11% over the first nine months, "supported by solid third-quarter growth in commercial deposit account fees". The quarter itself was weaker than the nine-month figure suggests, with fee income of $93 million, down 2% from the second quarter's record.
- Deposit account fees: $33 million, up 15% from a year ago
- Foreign exchange income: $18 million, up 23% from a year ago
- Wealth management fees: $16 million, down 20% from last quarter
- Customer derivative income: $2 million, down 73% from a year ago
Wealth fees had nearly doubled over the first half, so their fall matters because it shows the line depends on how active clients are in markets, which the company said was lower this quarter. Deposit fees are steadier because they come from the same small-business accounts that supply the no-interest deposits, so the two stories reinforce each other.
What to watch: wealth management fees in the fourth quarter against this quarter's $16 million. A second decline would make the first-half doubling look like a short period of unusually high client activity rather than a lasting source of revenue.
🐻 Bear Case
Problem Loans Rise as Management Calls Credit Resilient
"Asset quality remained resilient," Ng said, and the slides repeat that "Credit performance remained resilient". Resilient is a fair word for charge-offs, the loans actually written off, which fell to $22 million or 0.15% of loans. It is a less fair word for the loans heading toward trouble, which rose again.
- Criticized loans (flagged as weakening): 2.27% of loans, up from 2.01% at year-end
- Criticized business loans (C&I): 3.48%, up from 2.69% in March
- Nonperforming assets: 0.30% of total assets, up from 0.26% at year-end
- Foreclosed property (OREO): $64 million, up from $25 million in June
- Provision for credit losses: $45 million, up from $33 million last quarter
East West responded by adding $23 million to its loss reserve, which Ng tied to "continued uncertainty in the economic outlook". That is prudent, but it means the provision, the charge against profit for future losses, grew 36% from the second quarter while charge-offs fell. Profit still set a record because the margin gains outran the extra reserve.
What to watch: the fourth-quarter charge-off rate against the narrowed 0.15-0.20% full-year range. By our math that range implies a fourth-quarter rate of at least 0.18%, above this quarter, so the bank's own numbers allow for losses to rise; a rate near 0.15% would mean the reserve build ran ahead of actual losses.
Bond Losses Cut Book Value Despite Record Profit
East West holds about $18 billion of bonds, 98% of them in the lowest regulatory risk categories, which the slides call a "source of liquidity". When market interest rates rise, those bonds lose value, and the loss flows through equity rather than through profit. The bank carried a paper loss on the portfolio before this quarter, and this quarter it more than doubled.
- Unrealised loss on available-for-sale bonds, before tax: $1.13 billion, up from $474 million in June, by our math
- Hit to equity from bonds and hedges, after tax: about $492 million in the quarter
- Stockholders' equity: $9.04 billion, down 2% from June
- Tangible book value per share: $62.55, down $1.51 from June
- Tangible common equity ratio: 10.02%, down from 10.41%
This matters because the same quarter produced $382 million of profit, yet equity fell, so shareholders ended the quarter with less book value than they started with. The loss is unrealised and the CET1 ratio, which does not count it, held at 15.4%. But by our math the after-tax loss now equals more than two quarters of profit.
What to watch: the unrealised loss on the bond portfolio at year-end, in the fourth-quarter release. A further increase would keep cutting book value and would raise the share of equity tied up in paper losses, even while the same rate move helps the lending margin.
Costs Fell Only With Help From One-Off Recoveries
Operating expense growth has run ahead of loan growth for two years, and the plan for this year calls for costs up 8-9% against loans up 6-8%. This quarter the cost line looked better. Operating expense, which excludes the amortisation of tax-credit investments, fell 3% from the second quarter to $259 million.
- Other operating expense: $33 million, down $6 million on recoveries from resolved problem loans
- Foreclosed property line: a $2 million gain on a property sale, against a cost last quarter
- Computer and software: $18 million, up $3 million on a write-off of technology assets
- Efficiency ratio (costs as a share of revenue): 34.4%, from 36.7% last quarter
Two of those moves are one-offs that cut costs and one is a one-off that raised them, so about $5 million of the decline will not repeat. The comparison with a year ago flatters too, because the third quarter of 2025 carried a $27 million one-time charge for employee share awards. Without it, by our math, operating expense rose 11%, faster than loans or revenue.
What to watch: fourth-quarter operating expense. By our math the full-year plan leaves room for about $269 million, almost 4% above this quarter, so a figure near that would confirm the third quarter was the exception rather than the new run-rate.
Risks this quarter didn't answer
Four standing concerns got no decisive new reading in the release or the slides. Two received partial numbers that point the right way, and two got nothing at all, so they stay on the list until the next filing or call gives a figure to test.
- Sensitivity to Federal Reserve cuts: the bank says $4 billion of cash-flow hedges give "incremental protection to a downrate scenario", but the income lost per rate cut is not in these materials.
- Loans to nonbank lenders (NDFI): $8.1 billion, down $199 million from June, with the bank saying more than 99.99% are current; a criticized figure for this group would settle it.
- US-China trade and Middle East tensions: the release lists "armed conflict involving Iran" and tariff policy among its risks, with nothing on how cross-border clients fared.
- The $100 billion asset threshold: total assets reached $86 billion, and no estimate of the added compliance cost at that size appears in the materials.
💲 Other KPIs
Barely moved: 15.41% from 15.44% in June, after four quarters of increases from 14.83%. Common equity tier 1 is the regulator's core measure of a bank's capital against its risk-weighted assets; the well-capitalised floor is 6.5%, so East West holds more than twice the requirement, and risk-weighted assets grew faster than capital this quarter.
Up 0.1% from the second quarter and down 0.3% from a year ago. The lender bought back no stock for a second straight quarter, and $117 million of its authorisation sits unused. The per-share profit gain therefore came from earnings, not from a smaller share count; the quarterly dividend stays at $0.80.
Fell to 83.5% from 84.2% in June, because deposits grew faster than loans in the quarter. The ratio shows how much of the deposit base is lent out; a lower figure means more room to grow loans without wholesale borrowing. It has stayed near 84% for a year.
🔮 Guidance
Raised. The plan now has net interest income growing 9-10% this year, the third raise since the year began, and the new floor of 9% equals the old ceiling. By our math the range leaves $708-733 million for the fourth quarter, with the middle about level with this quarter's $719 million, so the raise mostly locks in what the third quarter delivered.
New. The bank expects the margin to "remain broadly stable" in the fourth quarter, so near this quarter's 3.49%. That is consistent with the raised income range, which by our math implies fourth-quarter net interest income about level with the third.
Unchanged at 6-8%, a range that measures growth since year-end, where loans now stand 5.0% higher. By our math the bank must add $0.6-1.7 billion in the fourth quarter. It added $0.7 billion this quarter, so a repeat lands near the bottom of the range and the top needs a much stronger quarter.
Unchanged at 8-9%. Costs are up 8.0% over nine months, at the low end of the range. By our math the range leaves $264-274 million for the fourth quarter, about 4% above this quarter at the middle, so the plan itself assumes the third-quarter dip does not repeat.
Narrowed to 0.15-0.20%, with the floor unchanged and the ceiling lowered. Charge-offs ran at 0.14% over nine months, below the floor. By our math the fourth quarter therefore needs 0.18-0.38% annualised to land inside the range, so the bank's own numbers allow for losses to rise. Last year it cut the equivalent range three times and finished below it.
Unchanged at 22-23%. The rate was 22.7% this quarter and 22.3% over nine months, both inside the range, and the tax-credit amortisation that lowers it stays on plan.
Narrowed to $90-95 million from $85-95 million. Nine-month amortisation of tax-credit and community investments is $69 million, so by our math the fourth quarter carries $21-26 million against $24 million this quarter. This expense sits outside operating expense and reduces the tax bill, which is why the tax-rate range holds.
Unchanged: the plan assumes the Federal Reserve holds rates where they are. The quarter helped the assumption rather than hurt it, since the margin widened with no rate change. A cut would lower income on the 61% of loans that carry variable rates, which is why the bank points to $4 billion of hedges as protection.
❓ Key Questions
At what rate did the maturing CDs renew?
The average rate on time deposits fell to 3.27% even though management said in July it was renewing at higher rates. The gap tells whether maturing deposits repriced lower or left the bank.
Where did the $64 million of foreclosed property come from?
Foreclosed property rose from $25 million in June and drove the increase in nonperforming assets. Which loans, which property type and which region would show whether the credit drift is concentrated.
What happens to the $117 million buyback authorisation at year-end?
East West bought no shares for two quarters while CET1 sits at 15.4%. The authorisation expires at year-end, and the materials say nothing about renewing or using it.
How much income would one Federal Reserve cut remove?
The slides cite $4 billion of hedges as protection but give no figure for net interest income per quarter-point cut, which is the number that sizes the rate risk on 61% variable-rate loans.
What drove the 20% fall in wealth management fees?
The release cites lower customer activity. Which products slowed, and whether the first-half doubling came from a handful of large clients, would show whether the line can recover.