Q3 2024 East West Bancorp Inc Earnings Call

Thomson Reuters StreetEvents10-23

Participants Adrienne Atkinson; Director of Investor Relations; East West Bancorp Inc Dominic Ng; Chairman of the Board, Chief Executive Officer of the Company and the Bank; East West Bancorp Inc ...

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Dominic Ng; Chairman of the Board, Chief Executive Officer of the Company and the Bank; East West Bancorp Inc. Christopher Del Moral-Niles; Chief Financial Officer, Executive Vice President; East West Bancorp Inc. Irene Oh; Executive Vice President, Chief Risk Officer; East West Bancorp Inc. Thank you, Adrian. Good afternoon and thank you for joining us for our third-quarter earnings call. I'm pleased to report another strong quarter of balance to 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 diversify 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","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"EWBC":"华美"},"translate_title":"2024年第三季度East West Bancorp Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EWBC":1},"content_text":"Participants\nAdrienne Atkinson; Director of Investor Relations; East West Bancorp Inc\nDominic Ng; Chairman of the Board, Chief Executive Officer of the Company and the Bank; East West Bancorp Inc\nChristopher Del Moral-Niles; Chief Financial Officer, Executive Vice President; East West Bancorp Inc\nIrene Oh; Executive Vice President, Chief Risk Officer; East West Bancorp Inc\nUnidentified Company Representative\nManan Gosalia; Analyst; Morgan Stanley\nDavid Rochester; Analyst; Compass Point Research & Trading LLC\nJared Shaw; Analyst; Barclays\nEbrahim Poonawala; Analyst; BofA Global Research\nTimur Braziler; Analyst; Wells Fargo\nMatthew Clark; Analyst; Piper Sandler Companies\nChristopher McGratty; Analyst; Keefe, Bruyette & Woods North America\nBen Gerlinger; Analyst; Citigroup Global Markets Inc.\nSamuel Varga; Analyst; UBS Securities LLC\nAndrew Terrell; Analyst; Stephens\nPresentation\nOperator\n Good afternoon and welcome to the East West Bancorp third quarter 2024 earnings conference call. (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.\nAdrienne Atkinson\n 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 reference 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.\nDominic Ng\n Thank you, Adrian. Good afternoon and thank you for joining us for our third-quarter earnings call. I'm pleased to report another strong quarter of balance to 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 diversify 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 lower the cost of average interest-bearing deposit in the quarter. The average cost of time, money market, and savings deposit 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 serve us well in the third quarter. East West classified loans, nonaccrual, and nonperforming 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.\nChristopher Del Moral-Niles\n 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 [burden]. We also expect C&I to have similar growth in Q4. In commercial real estate, we saw healthy growth in multi-family 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 noninterest-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 at year end stood at $13.1 billion including $6 billion-plus of (inaudible) 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 in the second quarter driven primarily by greater income from loans. Our net interest margin was 3.24%, a decline of three 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 to 10 basis points lower still. We expect balance sheet growth to support net income levels from here. Slide 8 summarizes our noninterest 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.\nIrene Oh\n 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. Nonperforming 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 2 basis points to 120. The absolute level of problem loans, criticized loans, and nonperforming assets remain low and at manageable levels. Regarding commercial real estate loan maturities 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 70% 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 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 common equity Tier 1 capital ratio stands at 14.1% while the tangible common equity ratio is at [9.7%]. We currently have $49 million of repurchase authorization that remains available for future buybacks. East West 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?\nChristopher Del Moral-Niles\n Thank you, Irene. Looking to slide 12, we 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 interest income has declined 3%. With that, I'll now open the call for additional questions. Operator?\nQuestion and Answer Session\nOperator\n (Operator Instructions) Anona Salia, Morgan Stanley.\nManan Gosalia\n 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?\nChristopher Del Moral-Niles\n Yeah, we think it affords us more flexibility. As you'll note, we actually lowered deposit pricing during the quarter and have continued to lower 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 nice wind in our sales.\nManan Gosalia\n 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?\nChristopher Del Moral-Niles\n 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 into the numbers.\nOperator\n Dave Rochester, Compass Point.\nDavid Rochester\n 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 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.\nChristopher Del Moral-Niles\n We were targeting that [9.49%-ish] level. Without the AOCI, we were right there. Obviously, we are thankful for the pickup in AOCI that brought that level close 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.\nDavid Rochester\n 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 go with some fixed rate stuff here just to reduce asset sensitivity.\nChristopher Del Moral-Niles\n So I'll take those, there's 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 that present 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.\nOperator\n Jared Shaw, Barclays.\nJared Shaw\n 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 few quarters, 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 and if we're not going to see the buyback here?\nChristopher Del Moral-Niles\n 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's -- will continue to be our growth priority. Second priority would always be a competitive dividend. And 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 nonorganic opportunities from time to time and we'll continue to have some [dry powder] to explore those if and when appropriate. And lastly, we 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.\nJared Shaw\n 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 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.\nChristopher Del Moral-Niles\n 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 -- further negative note in my review (laughter) 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.\nOperator\n Ebrahim Poonawala, Bank of America.\nEbrahim Poonawala\n So I guess maybe just following up on loan growth, like I was 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 progress as it has over the last 6 to 12 months (multiple speakers)--?\nDominic Ng\n Okay. From the bank's perspective, we have plenty of capital that we just talked about. Chris mentioned earlier. So we have all the flexibility to do what the clients demand. We'll see how the election goes. And so right now, I mean, I think it will 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 arise that call for higher demand of loans from our customers obviously, we will respond. And then naturally, then we will have a higher loan growth rate. But if for some reason that economic condition is still like a little bit muddy and that make it difficult for customers to function and make capital investment or trying to accelerate growth, we naturally -- we slowed down a bit. So I think what happened this year, I would say it's 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 normally at about 70%-plus and drop to 67% in this quarter, and that's 300-basis point of difference. So if customer continue to be concerned about whatever uncertainty there is out there that cause 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 are confident in 2025 we continue to add new customers. But in terms of existing customers, whether they will do a bit more draw down or not, I think that we'll have to wait to see how the economy goes and then whatever circumstances that dictate what they would do.\nChristopher Del Moral-Niles\n And to further on that, if I was just noting, 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 loan was 1% so we move 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've continued 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 ahead.\nEbrahim Poonawala\n That's helpful. And I guess just the other question around investments when we look at -- I was just looking at the branch count 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?\nChristopher Del Moral-Niles\n 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 has 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.\nEbrahim Poonawala\n 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 these as a super inquisitive bank. Just talk to us what may make sense? I mean, 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.\nChristopher Del Moral-Niles\n Last year, the bank made a fairly significant investment in an asset management company. I think those feed-driven opportunities are always going to be of interest. I think our appetite for depositories is light right now.\nOperator\n Timur Braziler, Wells Fargo.\nTimur Braziler\n Just looking back on the deposit conversation, can you maybe just provide us some color around what the churn is for time deposits in 4Q and then Chris, you had made some comments about your willingness to maybe let some higher cost dollars walk in 4Q if they choose, maybe quantify that statement as well, please.\nChristopher Del Moral-Niles\n Yeah, sure. So we've got about $8 billion of CDs that'll roll here in the fourth quarter, another $8 billion that will roll in the first quarter of '25 and about another $4 billion behind that in the second quarter of '25. And the rest is spread out in future periods. 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 the 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 4s] frankly anymore and we're continuing to move everything to at or below our CD special rate which is currently 4.28.\nTimur Braziler\n Great. Thanks. And then maybe just looking at the income strong quarter in 3Q. I'm just wondering to the sustainability of those results. Is there anything that was maybe redriven where the frenzy last month drove some of those higher revenue or is that $84 million, $85 million level? Is that a good run right here in the near term?\nChristopher Del Moral-Niles\n 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.\nDominic Ng\n I do want to point out that the fee income growth, 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 is relatively less influenced by the great 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 also foreign exchange and then -- so it's really hitting in all the areas and from the loan side, mainly some syndication fees when we need syndication. So those are really our efforts that I would say more that we are very pleased with this like a incremental growth and we expect that we'll continue to work on these areas. You know, whether it's cash management, treasury management services that we provide to sophisticated clients for the operating accounts or the 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 core banking growth in the future.\nTimur Braziler\n 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 build, the all other CRE line that actually ticked up quite a bit, I'm just wondering what drove that incremental reserve build?\nIrene Oh\n Yeah. Well, first I would just want to clarify the allowance isn't just for necessarily non-accrual loans or a substandard loans. The drivers for those as far as the allowance (inaudible) 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 but more broad-based. 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 we're monitoring the portfolio.\nOperator\n Matthew Clark, Piper Sandler.\nMatthew Clark\n Can you remind us or update us on what deposit data you're assuming for this easing cycle?\nChristopher Del Moral-Niles\n Sure. We've assumed to date that we would have a 50% or better beta, which seems to have materialized for us here over the last several weeks.\nMatthew Clark\n Okay. Through this cycle, not obviously initially but through the cycle.\nChristopher Del Moral-Niles\n Yeah.\nMatthew Clark\n 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 sustain that level of growth as you march toward becoming $100 billion assets?\nChristopher Del Moral-Niles\n 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 will 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 rate than longer-term historical averages. But again, I would remind folks that 6% to 8% off of 37% base is a lot less than that growth off of 60% efficiency ratio or something.\nOperator\n Chris McGratty, KBW.\nChristopher McGratty\n Chris, coming back to the NII for a moment. I mean, it feels like, NII should be flat up in the fourth quarter. I guess what would it take for NII to be down in Q4?\nChristopher Del Moral-Niles\n Look, it depends on how many rate cuts there are. At this point, I think the yield curve was assuming that [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 if the function is that supplies us with 50 basis points, we're probably not going to get there with another 50 I think on top of it yeah so.\nChristopher McGratty\n So we see November and December '25 like in orderly fashion that would support perhaps NII growth in the fourth quarter is what you're saying.\nChristopher Del Moral-Niles\n Orderly two small modest [fed] cuts as we 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.\nUnidentified Company Representative\n We have to work harder.\nChristopher Del Moral-Niles\n Oh, we have to work harder.\nChristopher McGratty\n 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 cost? As you -- I know you've got several years but how you're thinking about just planning in the overall P&L? Thanks.\nDominic Ng\n Yeah, you're right. We have plenty of time but on the other hand, we do not wait. We've been working towards but at one point and I don't know when, but at some point, we're going to be over $100 billion. I mean, 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 of what we potentially have a GAAP and what resources that we need to fill in both human resources and also technology or infrastructure resources, et cetera. So we are very -- in a very disciplinary manner and working towards the goal of at some point we'll be ready and then the likelihood is that, well, it's not just like -- we will be ready before we turn into $100 billion. That's the position.\nOperator\n Ben Gerlinger, Citi.\nBen Gerlinger\n I was wondering Chris, I know you gave the CD balances for 4Q, 1Q, and beyond. I was curious if you're willing to give me the rates. The only reason I ask is I think you have a (inaudible) Lunar New year. And if I'm recalling it correctly, it was a [five and a quarter, six] months. So it goes to 1Q, 3Q, 1Q (technical difficulty) 1Q is at the 5% like we do two cuts, I think, is it a reasonable expectation to see roughly 100 basis points lower on CD pricing in 1Q assuming we get another 25, 25 from the fed?\nChristopher Del Moral-Niles\n I think as we look forward, then 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 savings again.\nBen Gerlinger\n Got you. Okay. So it's at the same time, you also see the swab in with (technical difficulty) that's a positive for sure. When you think about just client conversations, a lot of banks have been for most of the year, they're positive in 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 to a couple of silos. Are we looking for just another 50 basis points to start a calendar next year? Is there are people point anything specifically that might spark the inflection higher?\nDominic Ng\n 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 this like a set fund rate all the time. But it's really, and also it's a mixed bag of people from all different industries. So everyone has their own view. It's just in general rate -- as we looked at a few months ago and even today still relatively high. And so we do expect that and one by this 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 a substantial investments or maybe acquisition and what not. And then also with being where it is right now, other than folks are really good at distressed 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 distressed 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 side has been -- the demand of the land -- of the loans has slowed down a bit. But we'll see how it goes as long as there is 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 -- 125 basis point and then continue to make x number of cuts even next year. And I do believe that message what most likely cause many business to start picking up and have the confidence to move forward.\nOperator\n Samuel Varga, UBS.\nSamuel Varga\n Chris on the 4.28 CD specials that you mentioned, were those six-month specials?\nChristopher Del Moral-Niles\n Yes.\nSamuel Varga\n Okay, great. And then just on the beta, if I'm looking at the commentary you gave on the past [930] progress you've made on deposit costs, I guess I 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 a bigger step-up in the cycle to the betas or should we expect more of a gradual path towards the 50% mark that you laid out?\nChristopher Del Moral-Niles\n I think it's more of a gradual path. Again, the 50% beta through the cycle feels very achievable based on what we've seen here in the first rate cut, but that will be proven out with the next couple. But I think we're comfortable that's a good guidepost for now and that will be fairly gradual and consistent assuming the fed as Dominic just said is [25, 25, 25] cut.\nOperator\n Andrew Terrell, Stephens.\nAndrew Terrell\n Chris, just wanted to clarify a couple of points from the prepared remarks. The 5 to 10 basis point drop in deposit costs so far in October you mentioned, was that total or interest-bearing deposits?\nChristopher Del Moral-Niles\n 5-ish for total, 10-ish for interest bearing or closer -- closer to 5 for total, closer to 10 for interest bearing.\nAndrew Terrell\n Got it. 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 the forward curve or is it just as is today?\nChristopher Del Moral-Niles\n That was 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 cited number closer to 12. And so it comes down and they'll come down a little bit. It'll get chipped away at with each fed action, but it'll still largely lower (technical difficulty) pretty much.\nAndrew Terrell\n Yeah. Okay. Got it. Just wanted to double check. Thanks for taking the questions.\nOperator\n (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.\nDominic Ng\n Thank you. I just wanted to thank everyone for joining our call today and looking forward to talking to you all in late January.\nOperator\n The conference is now concluded. Thank you for attending today's presentation. 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