East West Bancorp, Inc. (NASDAQ:EWBC) Q3 2024 Earnings Call Transcript

East West Bancorp, Inc. (NASDAQ:EWBC) Q3 2024 Earnings Call Transcript October 22, 2024

East West Bancorp, Inc. beats earnings expectations. Reported EPS is $2.14, expectations were $2.05.

Operator: Good afternoon. And welcome to the East West Bancorp Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 2024 financial results. With me are Dominic Ng, Chairman and Chief Executive Officer; Christopher Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.

Dominic Ng: Thank you, Adrienne. Good afternoon. And thank you for joining us for our third quarter earnings call. I’m pleased to report another strong quarter of balanced growth in support of our customers. Third quarter 2024 net income was $299 million or $2.14 per diluted share. We grew average loans by 1% quarter-over-quarter and further diversified our loan portfolio by emphasizing residential and C&I lending. We grew average deposits by 3% quarter-over-quarter through continued growth of granular customer deposits and relationships. Net interest income grew by $20 million or 4% from second quarter, primarily driven by increased income from loans. We also lowered the cost of average interest-bearing deposits in the quarter.

The average cost of time, money market and savings deposits, each declined from the second quarter. Our balance sheet growth was complemented by a consecutive quarter of record fee income. These revenues were driven by notable strength in lending, wealth management and deposit fees, reflecting our consistent execution and ability to broaden and deepen customer relationships. Our disciplined approach to credit management served us well in the third quarter. East West classified loans, non-accrual and non-performing asset ratios improved during the quarter. Nonetheless, we remain vigilant about managing our credit risk and are proactively managing our risk profile. We have delivered substantial returns for shareholders during the quarter. We reported tangible book value per share growth of 7% and generated over 17% return on average tangible common equity.

Chris, I will turn it to you for more detail on our financial performance.

Christopher Del Moral-Niles: Thank you, Dominic. Turning to loans on Slide 4, average and period end loans each grew by 1% quarter-over-quarter. Residential mortgage production was remarkably consistent for the quarter and our pipeline levels remain strong going into Q4. We expect residential mortgage growth to continue at its current pace. With respect to C&I growth, it was driven by notable strength in our entertainment and private equity verticals. We also expect C&I to have similar growth in Q4. In commercial real estate, we saw healthy growth in multifamily during Q3. Across the rest of our commercial real estate business, we continue to work with our longstanding clients and foresee only a modest level of CRE loan growth overall in Q4.

Moving on to deposits on Slide 5, we grew average and end-of-period deposits by 3% to a record $61.7 billion with growth across Consumer, Business Banking and Commercial customers. Our non-interest-bearing deposit mix stood at 24% of total deposits. Slide 6 summarizes our on-balance sheet liquidity. During the third quarter, we took further steps to enhance our liquidity profile while supporting earnings. We added a net $1.2 billion of securities in Q3, primarily short-duration floaters, and grew our average cash and equivalents by nearly $1 billion to $5 billion. The securities portfolio year-end stood at $13.1 billion, including $6 billion-plus of Ginnie Mae floating rate securities. Our average securities yield increased 10 basis points from Q2, reflecting the purchases.

Our cash and securities portfolio rose 24 — rose to 24% of total average assets at the end of the third quarter. Slide 7 covers our net interest income trends. Third quarter dollar net interest income totaled $573 million, a $20 million increase from the second quarter driven primarily by greater income from loans. Our net interest margin was 3.24%, a decline of 3 basis points from the prior quarter, partially reflecting Fed rate cuts. At the end of the third quarter, our total deposit cost stood at 284 basis points, down 10 basis points from the end of the second quarter. Our end-of-period total interest-bearing deposit cost stood at 373 basis points at the end of the third quarter, down 19 basis points from the prior period. Additionally, total deposit costs have continued to decline since quarter end and are now approximately 5 basis points to 10 basis points lower still.

We expect balance sheet growth to support net interest income levels from here. Slide 8 summarizes our non-interest income trends. As Dominic mentioned, we achieved a record fee income level of $81 million this quarter, up 6% quarter-over-quarter. The strength was driven by significant syndications activity and strong traction in commercial cash management solutions, while wealth management was buoyed by focused execution on growth strategies and strong equity markets. I’ll now turn the call over to Irene for comments on credit and capital.

Irene Oh: Thank you, Chris, and good afternoon to all. On Slide 9, credit trends remain stable and the asset quality of our portfolio as a whole remains strong. Provision for credit losses increased $5 million from the second quarter to $42 million. Net charge-offs in the third quarter were $29 million or 22 basis points annualized, compared to 18 basis points annualized in the second quarter. Non-performing assets fell by 1 basis point to 26 basis points of total assets quarter-over-quarter. The special mention loans ratio rose slightly to 0.88%, while total classified loans decreased two basis points to 120. The absolute level of problem loans, criticized loans and non-performing assets remain low and at manageable levels.

Regarding commercial real estate loan maturity, as of September 30, 2024, 3% of total outstanding balances are scheduled to mature in the fourth quarter of 2024 and 11% of outstanding balances are set to mature in the year 2025. For office loans, specifically, 4% of outstanding balances are scheduled to mature in the fourth quarter 2024 and 17% are set to mature in 2025. We remain vigilant and proactive in managing our credit risk. Based on what we know today, we continue to expect fourth quarter and full year net charge-offs to be in the range of 15 basis points to 25 basis points. As seen on Slide 10, our allowance for credit losses ended the third quarter at $696 million or 1.31%, 1 basis point higher than the prior period end. We believe our loan portfolio is appropriately reserved as of September 30, 2024.

Turning to Slide 11, East West regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional bank averages. East West’s common equity tier one capital ratio stands at 14.1%, while the tangible common equity ratio is at 9.7%. We currently have $49 million of repurchase authorizations that remains available for future buybacks. East West’s fourth quarter 2024 dividends will be payable on November 15, 2024, to stockholders of record on November 4, 2024. I will now turn it back to Chris to share a few comments on our outlook for the full year. Chris?

Christopher Del Moral-Niles: Thank you, Irene. Looking to Slide 12, we’ve reiterated our full year outlook. It’s unchanged, assuming the forward curve as of year-end. These are unchanged from our September updates. We continue to expect a full year end-of-period loan growth in the range of 2% to 4% and I would note we’ve grown approximately 2% through the end of the third quarter. We also expect full year net interest income to still decline in the range of 2% to 4%, and year-to-date, our interest net income has declined 3%. With that, I’ll now open the call for additional questions. Operator?

Q&A Session

Operator: [Operator Instructions] Our first question is from Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia: Hi.

Dominic Ng: Hi.

Manan Gosalia: Good afternoon. Good afternoon. I wanted to check in on the deposit growth rate. It looks like you grew deposits at a faster pace than loans yet again. Can you talk about the rationale for that? Are you deliberately working towards a lower loan-to-deposit ratio and building more liquidity, or did it just happen that you were able to grow deposits faster and you expect that that gives you more flexibility for funding loan growth as we get into 2025?

Dominic Ng: Thank you, Manan, for the question. Yes. We think it affords us more flexibility. As you’ll note, we actually lowered the deposit pricing during the quarter and have continued to lower it here into Q4 and have still benefited from net inflows, and so we’ll take this organic net inflow and think about how that can help us optimize our liability profile as we move forward. But it’s been a nice wind in our sails.

Manan Gosalia: Got it. And then, the midpoint of the guide implies NII slightly down from 3Q levels. Is that a function of lower rates and I know you have some swaps maturing in 1Q. So can you just remind us, how you expect NIM and NII to trend over the next few quarters?

Christopher Del Moral-Niles: I would say that we’re inside of the range. I didn’t say we’d be at the midpoint or one side or the other, but I feel pretty good about the Q4 dynamics. And I would say that the swaps won’t really have an impact until Q1 and we do think they will come off throughout the quarter in Q1, end of January into February, and they will have a positive effect. I think we’ve previously quantified that north of $10 million run rate into the numbers.

Manan Gosalia: Great. Thank you.

Operator: The next question is from Dave Rochester with Compass Point. Please go ahead.

Dave Rochester: Hey. Good afternoon, guys.

Dominic Ng: Good afternoon, Dave.

Dave Rochester: Just on capital, it seems like it’s just hard to keep that TCE ratio down and I know you got some help with lower rates this quarter, but I just wanted to get your updated thoughts on buybacks as TCE continues to grow here. It kind of seems like we’re going to hit that 10% level without buybacks unless balance sheet growth really continues at a strong pace here. So any update there would be great.

Christopher Del Moral-Niles: Sure. We were targeting that sort of 9.49%-ish level. Without the AOCI, we were right there. Obviously, we are thankful for the pickup in AOCI that brought that level closer to 9.7%. But we continue to be patient and opportunistic in our approach to capital and we’ll continue to look for opportunities to optimize the balance sheet as we move forward.

Dave Rochester: Okay. Great. And then just on liquidity management, will the cash continue to grow here assuming deposits exceed loan growth or is the plan to start to plow those into or continue to build the securities book here? And any thought to going with some fixed-rate stuff here just to reduce asset sensitivity?

Christopher Del Moral-Niles: So I’ll take those as two different parts. The first part on the deposits, I think, we’re taking a look at our deposit pricing and being very disciplined about that and we’ll continue to do so. That may lead us to run off some of the higher cost deposits as we move through Q4 and that will be perfectly fine. We are not necessarily looking to over-leverage or further leverage the balance sheet and we will obviously be very focused on driving the right optimization. On the second part of your question, fixed versus floating, I think we’ve been thoughtful about that. We’ve benefited from the strong opportunities to put money to work in floating. We’ve put a little bit of money to work in fixed and with the backup in rates that we’ve seen here, particularly over the last month, a few opportunities have presented themselves.

So we’ll be thoughtful about putting on the right mix in that portfolio. We will have $400 million to $600 million of portfolio churn every quarter and so we’re looking at that portfolio and constantly re-optimizing the position.

Dave Rochester: All right. Great. Thanks, guys.

Christopher Del Moral-Niles: Thanks.

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

Jared Shaw: Hey. Good afternoon.

Dominic Ng: Hi, Jared.

Jared Shaw: Thanks. Just sticking with the capital observation or discussion, you’ve referenced in the past that you’re not in the business of warehousing capital, but we’ve seen it grow consecutively over the last two quarters and no buyback this quarter. What other — with the expectation for growth where it is, what else could we expect in terms of capital management out of you if we’re not going to see the buyback here?

Christopher Del Moral-Niles: Yeah. Obviously, our first and highest priority is to be there for our customers and to meet their needs, and we’ve seen relatively slower loan growth than we might have otherwise desired. So that will continue to be our growth priority. Second priority would always be a competitive dividend. I think we will be very thoughtful as we approach year-end and into next year about where that should go, given our outlook. Third is we consider non-organic opportunities from time to time and we’ll continue to have some dry powder to explore those if and when appropriate. And lastly will be the buyback and we’ll continue to be very patient and thoughtful and diligent about how we approach that and make sure that we’re making the right call on the first three before putting money to work in the fourth.

Jared Shaw: Okay. All right. Thanks for that. And then on the deposit side, you’ve had a lot of success growing time and it sounds like the pricing on the new offerings is working in your favor. Is there sort of a maximum percentage of deposits you’d like to see, time deposits or you’re happy to get the money in the door here at these pricing — at these prices?

Christopher Del Moral-Niles: I think we looked at the opportunity to bring the money in earlier in the year during our Lunar Campaign Special as the opportunity, and I would, at the risk of Dominic writing me a further negative note in my peer review, went out a little higher than he was comfortable with at 5.25%. With the idea that we’d be able to roll that down the curve at lower price points through the year, I would note that we’re seeing good retention on those new deposits that we brought in from those customers this year and we’re rolling them over today at 4.28%. And so despite the fact that the Fed has only cut 50 basis points, our CD pricing has essentially dropped prospectively by 100 basis points already and will continue to feed positively. So I think our timing of that was bring them in early, roll down the curve as the Fed moves and that seems to be working in our favor right now.

Jared Shaw: Great. Thanks.

Operator: The next question is from Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala: Good afternoon.

Dominic Ng: Good afternoon, Eb.

Ebrahim Poonawala: So I guess maybe just following up on loan growth, because looking back since 2015, loan growth C&I or consolidated has been about 8% to 10%. Would love to hear your thoughts, maybe Chris, and maybe if Dominic, if you could share your perspective from a client standpoint, once we get out of the elections, does it feel like we return back to that high single-digit loan growth for East West next year, if there is — if the economy continues to kind of progress as it has over the last six months to 12 months?

Dominic Ng: From our…

Ebrahim Poonawala: Yeah.

Dominic Ng: Okay. From the bank’s perspective, we have plenty of capital that we just talked about, Chris just mentioned earlier.

Ebrahim Poonawala: Yeah.

Dominic Ng: So we have all the flexibility to do what the clients sort of demand. Well, we’ll see how the election goes, right? And so right now, I mean, I think, it would be unwise for me to make too much of a project — prediction, because it seems like all the media are calling for a close race and we don’t even know the race will finish in one day or not. So in that standpoint, I think that, what our position is that East West just got to take care of East West business and in a way that we always position ourselves with a fortress-like balance sheet and very strong cushion in terms of our capital, and we have great customers that we work with. And when the opportunity arrives, that call for higher demand of loans from our customers, obviously, we’ll respond, and then naturally, then we’ll have a higher loan growth rate.

But if for some reason that economic condition is still kind of like a little bit muddy and that makes it difficult for customers to plunge in and make capital investment or trying to accelerate growth, we naturally will slow down a bit. So I think what happened this year, I would say is, somewhat unusual to the normal East West Bank loan growth pattern. This year our customers are holding off and you can see it in the utilization rate. We’re normally at about 70% plus and dropped to 67% in this quarter and that’s 300 basis point of difference. So if customers continue to be concerned about whatever uncertainty there’s out there that caused them to not want to draw down the loans and then I think our loan growth would not be strong. But what we noticed is that despite this reduction in loan utilization, East West still find a way to go to grow our C&I loans, because we’re adding new customers, we continue to add new customers.

We’re confident in 2025 to continue to add new customers. But in terms of existing customers, whether they will, do a bit more drawdown or not, I think that, we’ll have to wait to see how the economy goes and then whatever circumstances dictate what they would do.

Christopher Del Moral-Niles: And further on that, Eb, I would just note, we’ve seen commitments continue to grow. In fact, commitments grew 2% this quarter in a period where we only grew end-of-period and average loans 1%. So we moved commitments faster than outstanding, echoing the point that Dominic made about utilization trends. But if we look year-over-year, it’s actually up 9%. And so the reality is our customers have continued to engage with us. They continue to come to us to talk about opportunities. They continue to put credit in place. They just haven’t pulled the trigger on it yet. And so we’re optimistic that if the right conditions present themselves, it could be a good year for us to be ahead.

Ebrahim Poonawala: That’s helpful. And I guess just the other question around investments, when we look at these — I was just looking at the branch account year-over-year, it’s been around 98%, 99%. Remind us in terms of team hiring, any new markets or any of your regions on Slide 14 where you’re adding branches or offices, be it in the United States or there are opportunities in Greater China?

Dominic Ng: So we’re not currently contemplating opening additional branches and additional markets, and we don’t have any current plans to further or deepen our network across China. We do have a rep office in Singapore that we’ve talked about at what point in time it would be appropriate to upgrade that, but that hasn’t — that call hasn’t been made and will be in the future. But we continuously look at our branch network and we’ve done some pruning and we’ll do some replacements, but we’re not entering new markets.

Ebrahim Poonawala: Got it. And if I may follow up, Chris, if I heard you correctly on capital priorities, you did mention non-organic opportunities. I don’t think of East West as a super acquisitive bank. Just talk to us what may make sense. I know elections might have an impact, but either from a bank standpoint, are there non-bank deals that would also make sense for the bank? Thank you.

Christopher Del Moral-Niles: Yeah. Last year, the bank made a fairly significant investment in an asset management company. I think those kind of fee-driven opportunities are always going to be of interest. I think our appetite for depositories is light right now.

Ebrahim Poonawala: That’s helpful. Thank you.

Operator: The next question is from Timur Braziler with Wells Fargo. Please go ahead.

Irene Oh: Hi, Timur.

Timur Braziler: Hi. Good afternoon. Hi. Just looking back on the deposit conversation, can you maybe just provide us some color around what the churn is for time deposits and 4Q? And then, Chris, you had made some comments about your willingness to maybe let some higher cost dollars walk and 4Q if they choose. Maybe quantify that statement as well, please.

Christopher Del Moral-Niles: Yeah. Sure. So, we’ve got about $8 billion of CDs that will roll here in the fourth quarter, another $8 billion that will roll in the first quarter of 2025 and then about another $4 billion behind that in the second quarter of 2025. The rest is spread out in the future period. We are being very active around anything that’s not accretive to what happens if we take the incremental dollar and put it just in Fed funds, given that we’ve got a pretty hefty cash position. It has to be incrementally accretive and so we’re not doing anything that’s high fours, frankly, anymore and we’re continuing to move everything to at or below our CD Special rate, which is $428 million.

Timur Braziler: Great. Thanks. And then maybe just looking at fee income, strong quarter in 3Q, I’m just wondering to the sustainability of those results. Is there anything that was maybe rate-driven where the frenzy last month drove some of those higher revenue users? Is that $84 million or $85 million level? Is that a good run rate here in the near-term?

Christopher Del Moral-Niles: Yeah. Look, I think the core fee business number has benefited from a lot of trends. Rate volatility has helped in some cases on the engagement with our rates teams. The positive markets have facilitated some great but focused sales efforts by our wealth management teams. So those dynamics are real, but obviously if the market conditions change, that could soften. But nonetheless, we’re pleased by the efforts of our sales teams, and we would largely ascribe it to good and focused sales efforts that have driven our results here over the last couple of quarters, which have both been record quarters.

Dominic Ng: I do want to point out that the fee incomes grow with wealth management, private banking. These fees, obviously, maybe rate environment do have something to do with equity market situation. But I would say for the East West Bank situation, it’s relatively less influenced by the rate environment. And obviously, you can see it in the line items on our earnings release, which shows that depository fee income continue to grow from cash management side and foreign exchange. And then — so it’s really hitting in all the areas. And from the loan side, mainly some are syndication fees when we need syndication. So those are really efforts that I would say more that we are very pleased with this kind of incremental growth and we expect that we’ll continue to work on these areas, whether it’s cash management, treasury management services that we provide to sophisticated clients for their operating accounts or their foreign exchange services that we offer, and interest rate hedge, plus continue to be the lead lender to do more syndication.

These are things that all are important for East West Bank in order to help us to continue to have meaningful sort of core banking growth in the future.

Timur Braziler: Got it. And then maybe one last one for Irene. It looks like commercial real estate non-performers declined pretty nicely in 3Q. But then if you look at the allowance bill, the all other CRE line, that actually ticked up quite a bit. I’m just wondering what drove that incremental reserve bill?

Irene Oh: Yeah. Well, first, I just want to clarify, the allowance isn’t just for necessarily non-accrual loans or substandard loans. The drivers for those as far as the allowance makes shift, we do still have a fair amount of qualitative factors, not just the quantitative and we look at it from the perspective of is there enough coverage regionally, are there things that we’re looking at, et cetera? So not necessarily something very specific related to one loan, just from a broad base. But overall for the real estate portfolio in specific, as far as the loan portfolio, is something that we continue to actively monitor. But overall, we’re comfortable as far as the grading, the allowance level and just overall how well known is during the portfolio.

Timur Braziler: Great. Thank you.

Operator: The next question is from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Hey. Good afternoon, everyone.

Dominic Ng: Good afternoon.

Matthew Clark: Can you remind us or update us on what deposit beta you’re assuming for this easing cycle?

Christopher Del Moral-Niles: Sure. We’ve assumed today that we would have a 50% beta, 50% or better beta, which seems to have materialized for us here over the last several weeks.

Matthew Clark: Okay. Through this cycle, not obviously initially, but through the cycle.

Christopher Del Moral-Niles: Yeah.

Matthew Clark: Okay. Great. And then just on your adjusted non-interest expense growth, going to be in that 6% to 8% range this year. Any reason to believe that might slow or should we assume you kind of sustain that level of growth as you march toward becoming $100 billion in assets?

Christopher Del Moral-Niles: I think we continue to look at that. Obviously, we’ll go and have some conversations with the Board here about budgets and outlooks for next year, and it’ll be somewhat growth dependent. But I would continue to expect that we will continue to make the investments we need to be the bank that we want to be, and that will be probably a slightly faster spend rate than longer term historical averages. But again, I would remind folks that…

Matthew Clark: Thank you.

Christopher Del Moral-Niles: … 6% to 8% off a 37% base is a lot less than that kind of growth off a 60% efficiency ratio or something.

Matthew Clark: Yeah. Thank you.

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

Chris McGratty: Oh! Great. Chris, coming back to the NII for a moment, I mean, it feels like NII should be flapped up in the fourth quarter. I guess, what would it take for NII to be down in Q4?

Christopher Del Moral-Niles: Look, it depends on how many rate cuts there are. At this point, I think the yield curve was assuming at quarter end two, we are asset sensitive. That would put downward pressure. We’re assuming we’re going to have asset growth that will positively offset that and get us to something better than down and that’s what we’re shooting for. But the function is…

Chris McGratty: Okay.

Christopher Del Moral-Niles: …the Fed surprised us with 50 basis points. We’re probably not going to get there. With another 50 basis points, that thing will shut on top of it. Yeah. So…

Chris McGratty: So we see November and December 2025 in kind of orderly fashion. That would support, perhaps, NII growth in the fourth quarter is what you’re saying.

Christopher Del Moral-Niles: Yeah. Orderly, two small, modest Fed cuts, as was sort of projected at quarter end and that we’re very responsive, as we were, on managing deposit costs lower and that we see asset growth puts us in the right frame for a good outcome. And if we fall short of that, you’ll see it in January. But I think we feel pretty good about where we’re headed.

Dominic Ng: Oh! We have to work harder.

Chris McGratty: Got it.

Christopher Del Moral-Niles: We have to work harder.

Chris McGratty: Got it. Thanks for that. And then maybe just broadly on $100 billion, you guys have really made a dent on the HQLA. Can you just remind us how you’re thinking about the all-in costs? As you — I know you’ve got several years, but how you’re thinking about just planning in the overall P&L? Thanks.

Dominic Ng: Yeah. You’re right. We have plenty of time. But on the other hand, we do not wait. We’ve been working towards, at one point, and I don’t know when, but at some point, we’re going to be over $100 billion. I mean, what — that’s a fact that we will be over $100 billion. It’s just that when. So our position is that we will continue to just work in a rational way to build up all the appropriate infrastructure that is needed to be at that level. So our senior executives are well aware of the rule and the criteria. And what we have currently that already met the requirement on what we potentially have a gap and what kind of resources that we need to fill in, both human resources and also technology or infrastructure resources, et cetera.

So we are just very — in a very disciplinary manner and working towards the goal of, at some point, we’ll be ready. And the likelihood is that, well, it’s not just the likelihood, we will be ready before we turn into $100 billion. That’s the position.

Chris McGratty: Great. Thanks, Dominic.

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

Dominic Ng: Good afternoon, Ben.

Ben Gerlinger: I was wondering, Chris, I think you gave the CD balances for 4Q, 1Q and beyond. I was curious if you’re willing to give the rates. The only reason I ask is I think you have a little bit of a pig in the pipe on Lunar New Year and if I’m recalling it correctly, it was a 5.25% six-month. So it goes to kind of 1Q, 3Q, 1Q. And so seven 1Q is kind of at the 5%. Like if we do two cuts, I think is it a reasonable expectation to kind of see roughly 100 basis points lower on CD pricing in 1Q, assuming we get another 25 basis points, 25 basis points from the Fed?

Christopher Del Moral-Niles: I think as we look forward, Ben, what we have observed in Q3 is that we got roughly that 100 basis point savings in Q3 versus what we did in Q1. So that’s there. And your question is, will we potentially see something similar as we roll into first quarter? Look, I think we’ll see how the yield curve shapes out. We’re benefiting today from the fact that the forwards have got those next two rate cuts priced in. So if we get to the first quarter and there’s still additional cuts priced in, which the yield curve says there may be, we’ll probably see that kind of savings again.

Ben Gerlinger: Gotcha. Okay. So, it’s kind of at the same time you also see the swap hedging reprieve. So that’s a positive for sure. When you think about just kind of client conversations, a lot of banks have kind of been, for most of the year, they’re positive on growth and then walked it back as a growth didn’t materialize. Are your clients saying anything in terms of like a catalyst point on rates? I know you talked through a couple of silos. Are we looking for just another 50 basis points to start a calendar next year? Are people pointing to anything specifically that kind of might spark inflection higher?

Dominic Ng: Well, I mean, there’s really no, I mean, clients are not in this line of business that we are. So they don’t think about these sort of like a Fed fund rate all the time, but it’s really and also it’s a mixed bag of people from all different industries. So everyone have their own view. It’s just in general, rate, as we looked at a few months ago, and then even today, it’s still relatively high. And so we do expect that when by just conversation with our different customers from different industries that with rate being where it is, it makes it a little bit difficult for them to make substantial investments or maybe acquisition and whatnot. And then also with rate being where it is right now, other than folks that are really good at distress asset that look into commercial real estate opportunities, I would say, by and large, a lot of the traditional real estate investors that are not in the distress category, they may not necessarily feel this is the right time to make acquisition.

And so all in all, I would say that that’s what just overall in the whole banking industry, the lending size has been, the demand of the loans has slowed down a bit, but we’ll see how it goes. As long as there’s indication from the Fed that they will continue to drop rate and not necessarily abruptly in a big way, but if they just do 25-basis point, 25-basis-point, and then continue to make X number of cuts, next year. And I do believe that that sort of message would most likely cause many business to start picking up and have the confidence to move forward.

Ben Gerlinger: Yeah. Thank you.

Operator: The next question is from Samuel Varga with UBS. Please go ahead.

Samuel Varga: Hey. Good afternoon.

Dominic Ng: Good afternoon.

Samuel Varga: Chris, on the 4.28% CD Specials that you mentioned, were those six-month Specials?

Christopher Del Moral-Niles: Yes.

Samuel Varga: Okay. Great. And then just on the beta, if I’m sort of looking at the commentary you gave on the past 9/30 progress you’ve made on deposit costs, I guess I kind of get to like a 40% quarter-to-date beta on total deposits. Given the maturities you laid out for the next three quarters here on CDs, is there one quarter where the step down between the roll and roll-off rates is such that you expect to make sort of a bigger step up in the cycle-to-date betas or should we expect more of a gradual path towards that 50% mark that you laid out?

Christopher Del Moral-Niles: I think it’s more of a gradual path. And again, the 50% beta through the cycle feels very achievable based on what we’ve seen here in the first rate cut. But that’ll be proven out with the next couple. But I think we’re comfortable that that’s a good guidepost for now. And that’ll be fairly gradual and consistent, assuming the Fed, as Dominic just said, is sort of 25 basis points, 25 basis points, 25 basis points kind of cut path.

Samuel Varga: Understood. Thanks for taking the question.

Operator: The next question is from Andrew Terrell with Stephens. Please go ahead.

Dominic Ng: Good afternoon.

Andrew Terrell: Hey. Good afternoon. Hey. Chris, just wanted to clarify a couple of points from the prepared remarks. The 5-basis point to 10-basis-point drop in deposit costs so far in October you mentioned, was that total or interest-bearing deposits?

Christopher Del Moral-Niles: 5-ish basis-point for total, 10-ish basis-point for interest-bearing or closer to…

Andrew Terrell: Okay.

Christopher Del Moral-Niles: … closer to 5-basis-point for total, closer to 10-basis-point for interest-bearing.

Andrew Terrell: Got it. Okay. Easy enough. Okay. And then the $10 million positive impact from the swap rolling off, is that prior to rate cuts? Does it assume or make an assumption around kind of the forward curve or is it just as is kind of today?

Christopher Del Moral-Niles: That was kind of the end of quarter number, right? So we’ve seen the first 50. I think if you’d asked me that in August, I would have slid it number closer to 12. And so it comes down and it’ll come down a little bit. It’ll get chipped away at with each Fed action, but it’ll still largely roll away. We need to watch.

Andrew Terrell: Yeah. Okay. Got it. Just wanted to double-check. Thanks for taking the questions.

Operator: [Operator Instructions] Showing no further questions, this 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. I just want to thank everyone for joining our call today and I’m looking forward to talking to you all in late January.

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