East West Bancorp, Inc. (EWBC) Earnings

Management highlights

### Overall Financial Performance - The firm achieved record total revenue, record net interest income, and record non-interest income in Q2 2026, driven by record new levels of loans and deposits. - Management maintains a disciplined risk management approach, with strong credit quality and a strong capital position that is a key competitive advantage, generating 17% return on tangible common equity. ### Balance Sheet Strategy - Management is intentionally shifting the deposit mix away from certificates of deposit (CDs), wholesale, and public funds deposits to prioritize core DDA growth, which reduces overall deposit costs and supports net interest margin. - The firm is actively diversifying its loan portfolio by prioritizing growth in residential mortgage and C&I lending, to reduce the current overweight to CRE relative to management's long-term target mix. There is no plan to shrink the CRE portfolio; the firm will grow other portfolios to reach the target balanced mix. - The small business checking account growth campaign, launched in prior years, continues to deliver strong DDA growth across core markets, supported by a shift in banker focus and messaging to prioritize core deposit growth. ### Growth Initiatives - The firm sees significant ongoing growth opportunities in wealth management, and is proactively investing in talent, people, and platforms to expand this fee-based business line to further diversify revenue streams. - The firm continues to prioritize organic growth as its primary capital allocation priority, and evaluates potential strategic opportunities (including M&A and share repurchases) based on what delivers maximum long-term shareholder value.

Guidance

- Full year 2026 end-of-period loan growth guidance is revised upward to 6% to 8%, from prior estimates, driven by stronger than expected first half growth and healthy Q3 loan pipelines. - Full year 2026 net interest income growth guidance is revised upward to 7% to 9%, from the prior guidance range of 6% to 8%, driven by stronger than expected loan and deposit growth, and favorable lower-cost deposit mix shifts. - Full year 2026 operating expense growth guidance range is narrowed to 8% to 9% from the prior range, based on year-to-date spending trends. - Management assumes the federal funds rate will remain flat through the end of 2026. - Full year 2026 net charge-off guidance is maintained at 15 to 25 basis points. - The firm expects to deliver double-digit year-over-year fee income growth for full year 2026, and remains on track to hit this target.

Segment performance

East West Bancorp does not break out formal product segment financials with separate revenue contribution percentages, but reports core business line performance as follows: - Deposits: End-of-period total deposits grew $1.2 billion quarter-over-quarter, with 8% year-over-year enterprise deposit growth. Demand deposits (DDA) grew $875 million this quarter, accounting for over two-thirds of total deposit growth, and now make up 26% of total deposits. Average DDA grew 15% year-over-year. Non-interest-bearing deposits grew 19% year-over-year. - Loans: End-of-period total loans grew 7% year-over-year. Residential mortgage had over $300 million net growth this quarter, with a 52% average portfolio loan-to-value ratio. Commercial and Industrial (C&I) lending also had over $300 million net growth this quarter, and is up 11% year-over-year for $2 billion in total net annual growth. Non-deposit loan products (NDFI) grew only $24 million, as expected due to planned paydowns in private equity and consumer credit portfolios. As of Q2, C&I makes up 34% of total loans, and Commercial Real Estate (CRE) makes up 37% of total loans. - Net Interest Income (NII): Quarterly net interest income hit a record $685 million, up 8 basis points year-over-year, with a net interest margin of 3.43%. End-of-period deposit costs fell 6 basis points quarter-over-quarter, and interest-bearing deposit costs have fallen 49 basis points over the past 12 months. - Non-interest (Fee) Income: Quarterly fee income grew 19% year-over-year to $96 million, down $3 million quarter-over-quarter due to a pullback from Q1's record wealth management results and lower derivative activity. Loan and deposit-related fees grew 14% year-over-year; wealth management fees grew 71% year-over-year for the first half of 2026. Total fees grew 15% year-over-year for the first half of 2026. - Operating Expenses: Total operating non-interest expenses were $268 million for Q2 2026. The Q2 efficiency ratio was 36.7%, consistent with prior periods, and the operating non-interest expense to average asset ratio held flat at 1.29%. - Credit and Capital: Non-performing assets hit 29 basis points as of June 30, up 3 basis points quarter-over-quarter. Net charge-offs were 19 basis points ($27 million) for Q2. The allowance for credit losses increased $6 million to $842 million, equal to 1.43% of total loans. Common equity Tier 1 capital ratio is 15.4%, and tangible common equity ratio is 10.4%. $117 million in share repurchase authorization remains available.

Risks & headwinds

- Management faces ongoing deposit competition from other banks that offer higher deposit rates than East West's current pricing, requiring careful management of CD repricing and retention when $13 billion in CDs roll off in Q3 2026. - There is marginal downward pressure on loan yields from mix shifts, as higher-yield non-core loan portfolios shrink relative to lower-yield core C&I and residential mortgage portfolios. - A small number of C&I loans were downgraded to criticized status due to cash flow declines, though this was offset by upgrades to other loans, and the firm does not see material additional loss content from these downgrades. - Four small CRE loans moved into non-performing status in Q2, though most have already been resolved and management does not expect significant losses from these assets. - Upcoming Basel III regulatory capital changes will require an estimated 160-180 basis point increase in required capital for East West, a larger increase than the ~100 basis point increase expected for peer banks.

Analyst Q&A

• Q: In the current flat Fed funds environment, what is the outlook for net interest margin and loan yield trends, and will loan yields continue to grind lower?

  A: Management expects net interest margin to hold relatively stable in a flat rate environment. Some marginal downward pressure on loan yields this quarter came from one-time factors and intentional mix shifts rather than broad spread compression. Management expects to deliver net interest income growth through continued balance sheet growth rather than margin expansion, and is mindful of deposit competition while relying on strong customer relationships to retain deposits without matching top-of-market pricing.

• Q: What is driving the narrowing of the 2026 expense growth guidance, and why will compensation costs moderate in the second half of the year?

  A: Elevated compensation costs in Q2 came from one-time items: deferred compensation plan adjustments and a change in how the firm accounts for vacation pay. These one-time impacts will moderate in the second half of the year, leading to stable overall expense levels that fit the narrowed guidance range. DDA growth has been driven by a shift in banker focus and messaging rather than changes to incentive structures, and this focus on small business checking has delivered sustained growth across core markets.

• Q: What is driving the upward revision to the 2026 net interest income guidance, and how would a Fed rate hike impact the firm's results?

  A: The upward guidance revision is driven by two factors: stronger than expected loan growth, which was enabled by better than projected deposit inflows, and most new deposit growth coming from lower-cost non-interest bearing DDA, which reduces overall funding costs. East West is modestly asset sensitive: a 25 basis point rate hike or cut would change monthly net interest income by approximately $2 million, with a 45-day lag before the impact is felt.

• Q: What are the firm's capital allocation priorities between dividends, buybacks, and M&A, and what is the outlook for M&A targets?

  A: Organic growth is the firm's top priority, followed by a competitive ongoing dividend. Management evaluates all capital deployment options (M&A and buybacks) neutrally, choosing whichever option delivers the most long-term shareholder value. Wealth management is the most attractive target for potential strategic acquisition, as the firm is already investing heavily in growing this business organically, but no attractive suitable opportunities have emerged yet. The firm is comfortable with its current 10%+ tangible common equity level, and will remain opportunistic with share repurchases when M&A opportunities are not available.