Earnings Call Transcript - EWBC Q3 2025

Operator, Operator

Good afternoon, and welcome to the East West Bancorp Third Quarter 2025 Earnings Conference Call. 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, Director of Investor Relations

Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's Third Quarter 2025 Financial Results. With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic.

Dominic Ng, Chairman and Chief Executive Officer

Thank you, Adrienne. Good afternoon, and thank you for joining us for our earnings call. I'm proud to report East West's record-breaking financial results for the third quarter. We continue to grow the bank and reported record quarterly revenue, net income and earnings per share. This third quarter was also another record quarter for deposits. Our deposit-led growth funded our entire loan growth, allowing us to further optimize our funding mix and contributing to improved liquidity. This deposit growth drove record levels of net interest income for the quarter. We are continuing to attract core deposits while prudently balancing our loan and investment positions to optimize returns. On the fee revenue side, every one of our fee business, wealth management, foreign exchange, derivatives, all reported quarter-over-quarter and year-over-year growth. Our wealth management business, in particular, continues to expand strongly, reflecting increasing customer penetration and deepening relationships. Asset quality has remained resilient and credit is performing as expected with low absolute levels of net charge-offs and nonperforming assets. We have significant capital levels to support our customers and the flexibility to capitalize on opportunities across market environments. With 10% tangible common equity, we continue to operate from a position of strength. I will now turn the call over to Chris to provide more details on our third quarter financial performance.

Christopher Del Moral-Niles, Chief Financial Officer

Thank you, Dominic. Let me start with more details on our deposits. Looking to Slide 4, East West grew deposits by over $1.5 billion in the third quarter. Notably, noninterest-bearing deposits outpaced time deposit growth on a percentage basis, reflecting our focus on diversifying our deposit mix. The mix shift was driven by our branch-based consumer and business banking customers who added to their granular household and small business accounts. Our commercial deposit customers also grew their balances with notable increases in commercial demand deposit accounts as well. Given the strong deposit inflows, we seized the opportunity during the quarter to reprice our wholesale funding and to strategically reduce our treasury managed deposits, public funds and Federal Home Loan Bank borrowings throughout the quarter. We expect continued deposit growth in Q4. Moving on to loans on Slide 5. East West posted another steady balanced quarter of loan growth with over $800 million of fundings in the third quarter. Commercial real estate balances grew as we continue to support our long-standing clients. Our commercial real estate book remains very granular with an average loan size of just $3 million and loan-to-values of less than 50% in most categories. Demand for residential mortgage also proved resilient during the quarter, and our pipelines remain full leading into Q4. We expect residential and consumer lending to be a consistent contributor to our year ahead. Commercial and industrial loans grew more modestly this quarter as utilization remained broadly stable. Looking to net interest income and margin, our continued low-cost deposit growth strategies drove our record reported net interest income as we reduced end-of-period deposit pricing by 10 basis points quarter-over-quarter. Looking back to the start of the cutting cycle, we have lowered our interest-bearing deposit costs by 77 basis points against the backdrop of 125 basis points of cuts in the Fed's target rate, achieving a down cycle beta of 0.62 even while growing our deposit base over the course of the year. I note that our reported third quarter net interest income included $32 million of discount accretion and interest recoveries from the full payment on some purchase credit impaired and workout loans. However, even excluding this amount, our adjusted net interest income of $645 million was still an all-time quarterly record for East West. Moving on to fees on Slide 7, fee income was $92 million, marking another record quarter for East West. Year-over-year, our fees have grown 13%, while our wealth management fees specifically have grown 36%. As Dominic mentioned, all fee categories grew, reflecting our sustained focus on building out new products, services and capabilities for our customers. Turning to expenses on Slide 8, total operating expenses were $261 million for the quarter. This amount included $27 million of additional compensation expense relating to a one-time change in our equity award recognition for retirement-eligible employees. Even including these charges, East West continued to deliver industry-leading efficiency while investing for our future growth. The reported Q3 efficiency ratio was 35.6%. With that, let me hand the call over to Irene for comments on credit and capital.

Irene Oh, Chief Risk Officer

Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 9, our asset quality metrics continue to broadly outperform the industry. We recorded net charge-offs of 13 basis points in the second quarter or $18 million compared to 11 basis points in the prior quarter or $15 million. We recorded a lower provision for credit losses of $36 million compared with $45 million for the second quarter. Our nonperforming and criticized loan balances continue to be at low, relatively stable levels. Total nonperforming assets were 25 basis points as of September 30, 2025. Total criticized loans were down to 2.14%, largely reflecting declines in commercial real estate and residential mortgage criticized loans. We remain vigilant and proactive in managing our credit risk. Turning to Slide 10, reflecting the ongoing overall uncertainty in the economic outlook, we increased our overall allowance for credit losses this quarter to $791 million or 1.42% of loans from 1.38% as of the prior quarter end. While we continue to monitor changes to the overall economy and geopolitical events, we believe we are adequately reserved for the content of our loan portfolio as of September 30, 2025. Turning to Slide 11, as Dominic mentioned, our strong capital levels allow us to operate from a position of significant strength and support our customers with confidence. All of East West's regulatory capital ratios remain well in excess of regulatory capital requirements for well-capitalized institutions and place us among the best capitalized banks. In the third quarter, East West repurchased approximately 25 million shares of common stock. We currently have $216 million of repurchase authorization that remains available for future buybacks. East West's fourth-quarter 2025 dividend will be payable on November 17, 2025, to shareholders of record on November 3, 2025. I'll now turn it back to Chris to share our outlook. Chris?

Christopher Del Moral-Niles, Chief Financial Officer

Thank you, Irene. We are making a few updates to our full-year outlook, which is presented on Slide 12. We've incorporated the quarter-end forward curve and assume two additional rate cuts will occur over the course of the fourth quarter. Given those rate cuts, but also given our improved deposit mix, we now see both net interest income and revenue trending to better than 10% growth for the full year. In addition, following the comments Irene just gave, given our resilient credit performance, we now expect full-year net charge-offs to be in the range of 10 to 20 basis points, a reduction from our prior guidance. With that, I'll now open the call to questions. Operator?

Operator, Operator

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

Manan Gosalia, Analyst

Chris, at a recent conference, you said that East West is liability sensitive in the very near term. So can you just walk us through how you expect loan yields and deposit costs to perform as we get a couple more rate cuts this year, which I think is embedded in your guide. And then where there might be some give back once the Fed stops cutting rates?

Christopher Del Moral-Niles, Chief Financial Officer

Sure. So we have moved to a cycle where we're now updating our deposit pricing the night of any given Fed action. So we have a nearly automated process for the vast majority of our consumer and commercial accounts where we're immediately passing through those rate cuts on the day of. That acceleration of that rate action movement on a downward basis means that we're repricing our deposits that same day and our loans often reprice with some lag, whether that's the next month's end, the next reset date, the next repricing period, which can sometimes be specified a week later, can be almost 6 or 8 weeks later. And so we're seeing the benefit of the immediate deposit repricing hit us first followed by the negative of the loan repricing sometimes weeks later, and that's resulted in a small and immediate repricing benefit with each Fed cut. That will catch up to us, of course, when the Fed stops cutting, and in addition, when the Fed stops additional further cuts in the forward curve, our certificate of deposit pricing, which benefits from an expectation of declining rates, will also catch up with us. So as we look forward today, we expect a few cuts into Q4. This will probably be a modest positive for us in Q4 and then perhaps a lesser impact item as we move through 2026 until the Fed is done and starts moving in the other direction or flattens out.

Manan Gosalia, Analyst

Got it. So as we think about net interest income, your guide implies an NII of about $650 million, $660 million in Q4. Is that a good jumping-off point for next year? Or given the strong balance sheet growth that you are already seeing?

Christopher Del Moral-Niles, Chief Financial Officer

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

Operator, Operator

The next question is from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala, Analyst

Chris, I’d like to follow up on your comment about balance sheet growth. Specifically, the growth in noninterest-bearing deposits was better than we anticipated this quarter. Can you discuss which sectors are contributing to that growth? What momentum are we seeing there? As we approach the end of Q3, with the Fed likely nearing the end of its cycle, do you think we might see noninterest-bearing deposits increase as a percentage of total deposits going forward?

Christopher Del Moral-Niles, Chief Financial Officer

So as we think about it, the drivers this quarter clearly included a nice lift in household accounts, a nice lift in small business accounts and further positives from our commercial. So we really saw it in all three major categories. And so it was broad-based, but driven by our consumer and retail bank group. And so we continue to believe that will be a source of continued demand deposit account growth as we move into the fourth quarter. We're not yet guiding for 2026, but I'd like to think that, as you alluded to, our stability in demand deposit account growth has found its footing here, and we are tracking at roughly 25% or so of new deposit growth in line with the bank's growth coming in the form of demand deposits, and that feels like a comfortable level at today's interest rate environment. We have said previously, we see the demand deposit account mix as interest rate level dependent. So if we go down 100 basis points from here, I would assume that 25% gets a little better. But at these levels, 25% seems like the right place to think about as we move into 2026.

Ebrahim Poonawala, Analyst

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

Irene Oh, Chief Risk Officer

Sure, EB. So first, when we talk about credit quality, I would say that when we look at credit quality and the loan portfolio today, it's very stable. I think that is something we have been pleasantly surprised at, especially given the absolutely low levels of problem loans coming in that we are seeing and have continued to see, and also the metrics that you see for nonperforming assets, criticized classified loans, delinquencies, et cetera. So that's something we have maintained, I would say, a lot of discipline on, as far as ensuring that we don't have concentrations in one area. That's something that we continue to do on the commercial real estate book and single-family and then also from a commercial and industrial perspective. I think you also asked about the non-depository financial institution book; we do have non-depository financial institution exposure. It's about 13% of our total loan portfolio as of September 30.

Ebrahim Poonawala, Analyst

Any comments? Go ahead.

Irene Oh, Chief Risk Officer

Sure. We do not have any direct exposure to Tricolor, First Brands, Cantor, or any related entities. The non-depository financial institution book primarily consists of customers we have developed over many years within various industry sectors. A significant part of this portfolio includes capital call lending, along with elements in real estate investment and management, financial services, art finance, consumer finance, and equipment finance. Overall, we feel comfortable with this portfolio, as these are long-term clients. We also ensure that our collateral is secured and independently validated. Currently, in the commercial and industrial loans subset, only two loans amounting to $7 million are not rated as pass. As of September 30, there have been virtually no losses or charge-offs, and delinquency stood at $1 million.

Dominic Ng, Chairman and Chief Executive Officer

And I want to add, even historically for the past 15 years, we hardly had any losses in the non-depository financial institution portfolio. So this is something that we feel pretty strongly that so far, so good and that has historically been very good.

Christopher Del Moral-Niles, Chief Financial Officer

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

Operator, Operator

The next question is from Dave Rochester with Cantor.

David Rochester, Analyst

On fees, your trends there have been consistently very strong. Can you just talk about some of your efforts to build out some of those fee-based lines? Specifically, wealth management that you highlighted earlier? And then can you give an update on where you stand on the new foreign exchange platform?

Christopher Del Moral-Niles, Chief Financial Officer

Sure. So we continue to build out the team around our wealth management area because the reality is it continues to provide additional opportunity. And with each new set of hires, we're finding additional growth opportunities, additional client penetration opportunities, and additional, frankly, revenue opportunities. And so we continue to invest in direct hires in that line of business, and we continue to invest in some new product development alongside those new hires to get ourselves to the right place. With regard to our payments business, we continue to roll out and develop enhanced payment solutions, and we're working through integrating that with the foreign exchange platform, Dave, that I think you're referring to that we are continuing to develop the APIs for so that we can be in a better position, we believe, in 2026 to have that capability launched?

David Rochester, Analyst

That's great. Early in '26 or later in the year?

Christopher Del Moral-Niles, Chief Financial Officer

I think the wire payment capability will be immediately ready for a subset of our customers, frankly, here at the end of Q4 and broadening to a broader set throughout 2026. And then the foreign exchange capability will come probably mid- to late in the year.

David Rochester, Analyst

Great. Appreciate that. And then just switching to capital, the tangible common equity ratio is at 10.2% now. I know you mentioned you like that 10% level. And I was just curious if you're going to end up liking 11% at some point? Or if maybe the outlook for growth and buybacks might be accelerating a little bit next year and can keep that sort of stable from here? Any thoughts on that?

Dominic Ng, Chairman and Chief Executive Officer

Yes. We're looking at all different scenarios. One thing for sure is that we always want to be one of the strongest among all peers when it comes to capital ratio because it really helps us to attract customers, attract talent to come join East West Bank. And for us to do well, we need to have strong talents to build relationships with great customers, and having strong capital makes it much easier for us to attract talent and attract clients. So with that, it's just part of the formula for us being successful. And as you look at our return on equity and return on assets, we generate high teens in return on equity and 1.8 plus percent on return on asset. With that kind of return, we have outperformed most of our peers anyway despite the fact that we have substantially higher capital. So obviously, in our perspective, that strength of a high capital ratio helps us to continue to generate this kind of high performance, and we want to stick with that. But that doesn't mean that we are not going to be looking for opportunistic buybacks. We got board-approved allocation for a certain dollar amount to do buybacks at the appropriate time. So we're always looking for opportunities. Even though we have not been in a quiet period, the last several days were a pretty good opportunity. So every now and then, there are always a few weeks out of the year; it's a great time for that. And our advantage is that we always have these kinds of situations that allow us to do the right thing at the right time and not have a gun to our head to do something, right? The other thing would be, obviously, from a dividend standpoint, after the fourth quarter, we're always going to be starting to look into reassessing how much dividend we want to pay. And obviously, there are always opportunities for us to possibly increase dividends, and we are always out there looking for whatever other opportunity for us to grow. And so I think we're in a very, very advantageous position right now with the strong capital, and then we're going to continue to stick with that.

Operator, Operator

The next question is from Timur Braziler with Wells Fargo.

Timur Braziler, Analyst

Chris, going back to your deposit-related commentary on your ability to reprice deposits in light of Fed actions, just what's the size of that base that gets repriced that same day?

Christopher Del Moral-Niles, Chief Financial Officer

It's the vast majority of everything other than the CDs and of course, the noninterest-bearing deposits. So substantially all of the money markets, all of the interest-bearing checking and even the savings accounts that are above 1%. So a lot. It's on the order of magnitude, $24-ish billion or so?

Timur Braziler, Analyst

Okay. Great. And then maybe looking at some of the tariff-related impact. We're hearing from some others that you're starting to see a little bit of relief there in their third-quarter loan growth as clarity increases in some cases. Is East West seeing any of that? Was that any part of the 3Q growth? Or is this really still an opportunity as maybe we get a little bit more clarity on some of the tariffs that may be more impactful to your client base?

Christopher Del Moral-Niles, Chief Financial Officer

Look, I think clarity is going to be good for our customers, for the economy, for everyone. And so reduced tensions and increased transparency and clarity about what will happen is in everyone's best interest here. That having been said, our customers have proved remarkably resilient throughout this period. They have taken steps to prepare themselves well in advance, taken steps here in the interim to do other things and seem to be looking forward to business opportunities and finding the right way to do business in whatever environment presents itself. We like to think that East West is very nimble. Our customers have proven remarkably nimble, and we think they'll find a way to navigate through whatever environment exists. But right now, they're not coming to us with concerns about navigating the current waters.

Timur Braziler, Analyst

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

Irene Oh, Chief Risk Officer

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

Timur Braziler, Analyst

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

Irene Oh, Chief Risk Officer

Great. Okay. So when we look at the linked quarter reduction in multifamily, albeit at a very low base, the reduction was really kind of the ability to kind of upgrade loans, right? So really, the cash flows were there, we were able to upgrade them for multifamily. For commercial real estate, the changes that we've seen as far as the criticized levels there are excluding multifamily as well. Overall, I would say that there are inflows and outflows that happen there, generally speaking. It is something where we find it very manageable at this point. For multifamily in the markets that we are in, which is largely California, we're finding that the markets continue to be holding up when we look at kind of the cash flows and the information that we are receiving from our customers, and their ability to service debt continues to be very resilient.

Operator, Operator

Next question is from Jared Shaw with Barclays.

Jared Shaw, Analyst

Maybe sticking with credit. Irene, could you just talk through the thought process behind the sale of nonperformers? And it looks like, I guess, you must have got some good pricing on that, assuming that the net interest income benefit is mostly interest recoveries. Is there an opportunity to do more nonperforming loan sales?

Christopher Del Moral-Niles, Chief Financial Officer

It wasn't a sale; it was a complete payoff from a group of existing customers, where at least one of the loans had been nonaccrual for several years. So we achieved the full recovery of the principal, the recovery of previous charge-offs, and the recovery of many years of compounded accrued interest. It wasn't a sale; it was a result of working with the customers effectively over time, allowing us to recover everything in full.

Jared Shaw, Analyst

You just have to do that now with everyone else, right? It will be that sounds easy.

Christopher Del Moral-Niles, Chief Financial Officer

Dominic expects that on pretty much everything. So yes, that's the mandate around here.

Jared Shaw, Analyst

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

Christopher Del Moral-Niles, Chief Financial Officer

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

Jared Shaw, Analyst

Yes. But should we consider if there is any pay-for-performance component related to the wealth management growth and other areas? Or is it primarily about salary and bonuses, and we shouldn't link them directly to that growth?

Christopher Del Moral-Niles, Chief Financial Officer

No. When we think about our fee revenue businesses, for sure, our wealth management businesses have a higher efficiency ratio to their business model. And I think as Dominic alluded to on our last call, we'll be happy to see our expenses grow a little bit faster if we're growing our fee businesses faster because those obviously are good, long, sustainable revenue streams that we think the market values at a premium, that we value at a premium internally, and that we'll be happy to pay people for to generate over time. So if our efficiency ratio goes up a little bit because we're developing a steadier, more recurring fee stream, I don't think anyone will be too upset about that.

Irene Oh, Chief Risk Officer

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

Jared Shaw, Analyst

Okay. And finally, do you know the hedge impact for this quarter? I believe it was $6 million last quarter.

Christopher Del Moral-Niles, Chief Financial Officer

It was also a negative $6 million for Q3.

Operator, Operator

The next question is from Chris McGratty with KBW.

Christopher McGratty, Analyst

Chris, maybe start with you, just a follow-up on the revenue growth, operating leverage conversation. Does the operating leverage outlook get any easier with deregulation and the momentum there in terms of what you're spending on, perhaps currently that you might be able to either cut or divert next year?

Christopher Del Moral-Niles, Chief Financial Officer

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

Christopher McGratty, Analyst

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

Christopher Del Moral-Niles, Chief Financial Officer

Look, I think our residential mortgage demand is fairly steady and consistent. The American dream is alive and well. And for the niche that we focus on, it's a very steady and consistent contributor to our business. On the real estate side, it's been interesting. I think you've heard me say on these calls and Dominic say in other forms that it felt like for a while, some of our best customers were sitting on the sidelines. We've seen some of them come back and look at things and some of them even start to do things. So I think real estate is at the edge of additional interest. Lower rates will probably create more opportunities for things to happen in that space. Dominic said a few cuts ago that he thought 100 basis points would probably be enough to bring some market back into alignment. I think we're still 50 basis points away from that. So a few more cuts, maybe into next year and real estate could have some more traction. We'll see how that plays out. And then on the commercial and industrial side, I think Irene alluded to the fact that we've got a lot of private equity capital call line type activity. That portfolio has been relatively quiet; lower rates probably means they come back in more, but it still remains relatively quiet as we sit here today.

Christopher McGratty, Analyst

And then, Chris, just on the full cycle beta. Can you just remind us of the assumptions for deposits?

Christopher Del Moral-Niles, Chief Financial Officer

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

Operator, Operator

The next question is from Ben Gerlinger with Citi.

Benjamin Gerlinger, Analyst

Chris, you’ve shared a lot about how deposits are being quickly withdrawn, especially from time deposits. I’ve noticed you’ve been shortening the terms from six months to four and then to three. It looks like you’re aiming to align everything with the first quarter. Also, considering the Lunar New Year, which is a significant quarter for repricing, I’m curious if you have any information on how much in time deposit dollars is expected to be repriced in the first quarter of next year?

Christopher Del Moral-Niles, Chief Financial Officer

Thank you for your insightful question. We do have a considerable amount structured to enable us to take meaningful action in Q1 for our Lunar New Year special. We have been shortening maturities to manage balances while anticipating a few Fed rate cuts at the end of October and in December, which will facilitate rollovers. Specifically, we have just over $10 billion rolling over in Q4 and more than $8 billion due in Q1, not accounting for any rollovers from Q4. In total, we have over $18 billion rolling over in the next six months, and we expect most of that to benefit from the 50 basis points of rate cuts already priced in. Our current 6-month CD rate is 3.55%.

Benjamin Gerlinger, Analyst

Got it. Yes. Citi's patent pending CD trackers are looking promising. When considering the upcoming year, while you may not provide net interest income guidance, it appears to be poised for another significant year. Are there any potential investments we should keep in mind? Otherwise, I would expect this year's guidance to be fairly comparable to next year's.

Christopher Del Moral-Niles, Chief Financial Officer

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

Operator, Operator

The next question is from David Smith with Truist.

David Smith, Analyst

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

Christopher Del Moral-Niles, Chief Financial Officer

Yes. So I think we've been thinking about our employee retirement eligibility over the last 6 months and hadn't taken any definitive actions until this quarter. So I'll say, in the back of our minds, but we hadn't concretely defined it. We hadn't gone through the appropriate approvals, hadn't updated our Board, et cetera. So that came together in Q4. And the revenue side came together because the clients paid off, and no, we didn't control that. They controlled that, and they paid it off. With regard to our guide, I would say, look, we're guiding to over 10% today because we're clear that's the trajectory we're on. And I don't know that we had a clarity of vision around all the pieces when we last spoke. But clearly, we have that clarity now. And clearly, it's trending not just toward 10%, but obviously well above the 10%.

David Smith, Analyst

Okay. And on expenses that had, I guess, been contemplated in the guide from earlier this year then? Even if you went around the exact timing within the year. Is that the right way to understand that?

Christopher Del Moral-Niles, Chief Financial Officer

That's the right way to think about it, yes.

Operator, Operator

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, Chairman and Chief Executive Officer

Well, thank you all for joining our earnings call this afternoon, and we are looking forward to speaking with you in January next year.

Operator, Operator

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