On Tuesday, East West Bancorp (NASDAQ:EWBC) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
East West Bancorp reported record total revenue, net interest income, and noninterest income, driven by record levels of loans and deposits.
Noninterest deposits grew by 8% year over year, with a significant 19% increase in noninterest-bearing deposits.
Loan growth was up 7% year over year, with residential mortgage and C&I loans showing strong performance.
The company updated its full-year guidance for loan growth to 6%-8% and net interest income growth to 7%-9%.
Credit quality remains stable with a slight uptick in nonperforming assets and net charge-offs.
East West Bancorp maintains strong capital positions with a common equity tier 1 capital ratio of 15.4% and plans to continue share repurchases.
The company is focused on diversifying revenue streams, particularly through growth in wealth management.
Management expressed confidence in stable net interest margins and continued growth of noninterest-bearing deposits.
Full Transcript
OPERATOR
Good day and welcome to East West Bancorp's second quarter 2026 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. 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 second quarter 2026 financial results. With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Morale 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
Dominic Ng, Chairman and Chief Executive Officer
Good afternoon, and thank you for joining us for our second quarter earnings call. I'm pleased to report that East West Bancorp earned record total revenue, net interest income, and noninterest income in the second quarter. These results were driven by new record levels of loans and deposits. Noninterest deposits grew by 8% year over year with strength across all deposit product categories. Notably, demand deposits accounted for more than two-thirds of this quarter's total increase.
Our continued focus on providing solutions to our customers helped drive a 19% increase in noninterest-bearing deposits year over year. End-of-period loans were up 7% year over year with growth in residential mortgage and C&I, further increasing the diversification of our portfolio. Noninterest income also grew to a new record in the second quarter and is up over 20% year over year. This performance has been driven by consistent execution across all our fee-based businesses.
In particular, we see continued growth opportunities in wealth management and have been proactive in building out this business. Our credit quality remains strong—nonperforming assets, criticized loans, and net charge-off levels all remained broadly stable and continue to reflect our disciplined approach to risk management. Our capital position remains a key advantage for East West Bancorp with a tangible common equity ratio over 10% on which we generate a 17% return.
We believe our financial strength and customer-focused strategy position us to deliver sustainable growth and long-term shareholder value. I will now turn the call over to Chris to provide more details on our second quarter financial performance.
Chris Del Morale Niles, Chief Financial Officer
Thanks, Dominic. Let's start with the deposit slide on page 4. Our end-of-period deposits grew by $1.2 billion across our more than 700,000 customer accounts. Demand deposits were up $875 million during the quarter, which accounted for the lion's share of the growth. Average DDA was up 15% year over year, reflecting the continued success of our small business checking campaigns and positive flows from tariff refunds across hundreds of our accounts.
Our DDA mix grew to 26% of total deposits due to core relationship growth. We continued to shift away from CDs, wholesale, and public funds deposits and further emphasize core DDA. This ongoing shift helped us to support the margin and control our deposit costs during the quarter. Turning to loans on slide 5. As Dominic mentioned, we continue to diversify our loan portfolio by emphasizing growth in residential mortgage and C&I. Residential mortgage was this quarter's standout with over $300 million of net growth.
We remain committed to our conservative underwriting approach as we continue to maintain a 52% average portfolio LTV in our residential book. C&I lending balances were also up over $300 million in the second quarter with notable growth in lending to financial services, equipment finance and lessors, and manufacturers and wholesalers. Our NDFI balances increased by just $24 million reflecting expected paydowns in our private equity loan book and consumer credit portfolios, which we had anticipated and relayed last quarter.
Overall, C&I loans are up 11% year over year, representing over $2 billion of net growth in that period. Given the 7% level of growth we've seen over the first half of the year and the pipeline that we see looking into Q3, we are updating our guidance for the full-year loan growth to now be in the range of 6% to 8% by year end, switching to NII and margin trends on slide 6. Quarterly dollar net interest income grew to a record $685 million, reflecting our balance sheet growth and improving mix shift.
Our net interest margin came in at 3.43%, reflecting one less day in the quarter, in line with our guidance, and up notably 8 basis points year over year. Our positive deposit remixing trends continued during the quarter and allowed us to further reduce our deposit costs, driving a 6 basis point reduction in our period-end deposit cost. Looking back over the past year, we have decreased interest-bearing deposit costs by 4.49 basis points against a backdrop of 75 basis points of cuts in the Fed funds target.
Given our robust NII growth year to date, we now expect full-year NII growth to be in the range of up 7% to 9%, an improvement from a prior guidance range of 6% to 8%. Moving on to fees on slide 7, quarterly fee income grew 19% year over year to $96 million. While total fee income was down $3 million from Q1, this largely reflects the record wealth management results we reported in the first quarter and a slight downtick in some derivative activity.
Nonetheless, loan and deposit-related fees were up 14% year over year, reflecting our ability to grow fees as we grow the balance sheet. We remain focused on driving a healthy level of fee income and further diversifying our revenue streams. We are on track to deliver double-digit year-over-year growth in fee income for 2026. Turning to expenses on slide 8, total operating noninterest expenses were $268 million for the second quarter. Comp and benefits costs were flat quarter over quarter.
However, we expect the level of comp and benefits to actually moderate over the back half of the year. Other expense categories experienced an uptick as we continue to invest in people and platforms to sustain growth. Nonetheless, East West Bancorp delivered another quarter of industry-leading efficiency. The Q2 efficiency ratio was 36.7%, consistent with the prior periods, and our operating noninterest expense to average asset ratio remained flat at 1.29%.
Based on our year-to-date trends, we are narrowing our full-year expense growth guidance range to 8% to 9% versus last year. I will now 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 held broadly stable quarter over quarter. Nonperforming assets saw a slight uptick of 3 basis points to 29 basis points as of June 30, 2026. We recorded net charge-offs of 19 basis points in the second quarter, or $27 million, compared to 9 basis points in the first quarter, or $12 million. We are reaffirming our guidance range of 15 to 25 basis points for the full year.
We recorded a provision for credit losses of $33 million in the second quarter compared with $36 million for the first quarter. Overall, we continue to remain vigilant and proactive in managing our credit risks. Turning to slide 10, the allowance for credit losses increased $6 million to $842 million, or 1.43% of total loans as of June 30, reflecting quarter-over-quarter loan growth and portfolio mix shift. We believe we are adequately reserved for the content of our loan portfolio given the current economic outlook.
Turning to slide 11, all of East West Bancorp's regulatory capital ratios remain well in excess of regulatory requirements for well-capitalized institutions and well above regional and national bank averages. East West Bancorp's common equity tier 1 capital ratio stands at a robust 15.4%, while the tangible common equity ratio now sits at 10.4%. These capital levels continue to place us amongst the best-capitalized banks in the industry. We currently have $117 million of repurchase authorization that remains available for future buybacks.
East West Bancorp also distributed approximately $111 million to shareholders via quarterly dividends. East West Bancorp's third quarter 2026 dividend will be payable on August 17, 2026, to stockholders of record on August 3, 2026. I will now turn the call back to Chris to share our outlook. Chris?
Chris Del Morale Niles, Chief Financial Officer
Thank you, Irene. To recap, we have updated four elements for our guidance today, each of which is reflected on slide 12. Number one, we're assuming flat Fed funds through the end of the year. Number two, we're increasing our 2026 full-year guidance for end-of-period loan growth. Number three, we are increasing our full-year 2026 net interest income guidance. And number four, we're narrowing the range of our full-year expense guidance. With that, I'll now open the call for questions.
Operator, thank you.
OPERATOR
We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. We will now pause momentarily to assemble the roster.
The first question will come from Jared Shaw with Barclays. Please go ahead.
Jared Shaw, Analyst at Barclays
Hey, good afternoon. Thanks. I guess maybe just starting with margin. You know, there's great trends in cost of funds. It looks like you saw a little bit of spread compression maybe on the loan side. How should we think about some of those cost components going forward in this flat rate environment? Is there still an expectation that loan yields grind lower from here?
Chris Del Morale Niles, Chief Financial Officer
Well, Jared, we're focused on, first of all, hitting our net interest income targets, and those continue to come along quite nicely. Absolutely, we consider margin dynamics overall. We expect our margin to hold relatively stable as we look to a relatively stable Fed funds environment. That having been said, yes, we're seeing some marginal compression, or grinding as you put it, on loans. Part of that was mix-driven, and part of that was some one-time accretion benefits that we saw in the first quarter, which [were] partly offset by some negative items that we saw in the second quarter.
That having been said, our general outlook is we're going to hold the margin relatively stable and continue to grind out stronger NII through balance sheet growth over the balance of the year. Obviously, there'll be some deposit competition factors that we're very mindful of and very thoughtful about as we think about how we're going to roll over and reprice, particularly our CDs in Q3. But so far, our customers have hung with us even as we've been pricing below what might be considered top of market by a decent amount, and a reflection of the customer relationships that we have and our ability to manage those at the branch level.
Jared Shaw, Analyst at Barclays
Okay, all right, thanks. I guess on the deposit side—
UNKNOWN, Analyst
You called out the DDA growth, part of that coming from tariff benefits. What's the expectation of those balances staying through, or are customers going to be deploying that windfall? And could you remind us of what the CD roll-off is in the third quarter?
Chris Del Morale Niles, Chief Financial Officer
Sure. Let me take those in backwards order. The CD roll-off in the third quarter will be 13 billion, and we're proactively pricing that today at 360 and 375 — 360 on a six-month and 375 on a 12-month. Although we'll be looking at those levels as we migrate through the quarter. In all likelihood, we'll be a little bit more competitive later in the quarter with respect to tariff deposits. Yes, we did see inflows. We estimate roughly somewhere between 200 and 250 of the period-end balance likely reflected net excess tariff-related inflows.
But what we saw throughout the quarter is money came in and money went out. And so we would tell you that of the 200–250 that was there at quarter end, most of it has already gone back to wherever it needs to go. On the other hand, there are ongoing tariff deposits coming in still under those refund programs, and they'll likely continue into August.
UNKNOWN, Analyst
Thank you.
OPERATOR
The next question will come from Casey Hare with Autonomous Research. Please go ahead.
Dominic Ng, Chairman and Chief Executive Officer
Afternoon, Casey. Casey, you might be on mute. Stacey. Going once. All right, next one, operator.
OPERATOR
The next question will come from Dave Rochester with Cantor. Please go ahead.
Dave Rochester, Analyst at Cantor
Hey, good afternoon, guys. Just maybe one quick one on expenses on the guide. It looks like you would need to see a decrease from that 2Q level in the back half of the year. And Chris, you spoke to moderating comp expense going forward earlier. Is that primarily where you're going to see the decrease to be able to hit that guide? And then what is it that made that comp line elevated this quarter?
Chris Del Morale Niles, Chief Financial Officer
Sure. I think you've probably heard two or three of our peer banks talk about deferred comp expenses this quarter, and so we too have a deferred comp plan and that's part of it. Obviously, we also had some changes to the way we think about vacation pay around here that influenced that number this quarter. But those two things will moderate out, therefore the comp line certainly in Q3 and likely dampen what would otherwise be growth in Q4. And so that gives us comfort that overall expense levels remain relatively stable as we move through the back half of the year.
Dave Rochester, Analyst at Cantor
Great. And then just back on the DDA growth again — that was outstanding. I know some of this is coming from the tariff benefit. Have you guys changed any of your banker incentives or anything else that could support that going forward as you focus to shift towards more DDA?
Dominic Ng, Chairman and Chief Executive Officer
I think it's been more a change of messaging and direction and focus, and that combination has resulted in, I think, a behavioral shift where people have seen the light on the need to essentially go door-to-door and make sure that we are evangelizing the East West value proposition as efficiently and effectively as possible. And that continues to work really well in our core markets. We have — I mean, on the retail banking side we have a focus on getting our retail bankers to go after small business checking accounts.
And that campaign has been going pretty well. In fact, it did really well last year; it continued to do well this year, getting them to focus on commercial banking clients — small business, small business, one small business at a time. Now, that's not to say they are not taking care of retail consumer clients, as that's always their core business. They have continued to bring in retail consumer core customers, but meanwhile they're also out there in the market, on the street, and talking to small business one at a time.
And so far they've generated some pretty decent momentum. I think that clearly contributed to our growth of noninterest-bearing deposits.
Dave Rochester, Analyst at Cantor
Sounds good. Thanks, guys.
OPERATOR
The next question will come from David Smith with Truist Securities. Please go ahead.
David Smith, Analyst at Truist Securities
Good afternoon. Hey, good afternoon. C&I growth was pretty strong. Can you talk about the range of industries driving this? Are there a few standouts, or is it a pretty diverse set of sectors at work? And then if you could compare that breadth to what you were also seeing a quarter ago, please.
Chris Del Morale Niles, Chief Financial Officer
Sure. So I think in the first quarter, by contrast, we saw a very significant uptick in private equity capital call line activity in particular. We called out at the end of the first quarter that we expected to see that volume pay down, and in fact that's exactly what we saw in April and into early May. In the second quarter we saw a pickup in financial services, equipment finance, lessor financing, as well as manufacturers and wholesale distribution borrowings.
All of those sectors contributed to this quarter's growth range, while we continue to obviously have strong growth as well in residential mortgage. And so those two portfolios together accounted for the larger part of the total growth. And we're certainly delighted to see both the breadth and diversification of the C&I book and the continued conservative quality of the residential mortgage book drive our loan growth.
David Smith, Analyst at Truist Securities
Thanks. And then, for the loan growth this year, assume that should continue to be predominantly C&I and residential mortgage into the second half?
Chris Del Morale Niles, Chief Financial Officer
We continue to be focused on attaining a third, a third, a third diversification at some point in the future. And so as we look at our balance sheet mix today, we still find ourselves a little underweight in res mortgage, so we're happy to see that be the standout this quarter and expect that we'll have a good quarter in Q3 as well. We obviously are continuously focused on growing our C&I business, and that's there. We're at 34% C&I to total loans right now.
We intend to defend that level and hopefully improve on it a bit. And together those two will chip away at the allocation to CRE, which at 37 is still a little heavier than our long-term vision, but we're very comfortable with our clients in that space. We're very comfortable with our portfolio. We're very comfortable with the credits. And so there's no intent for us to shrink those portfolios; it's just that we're growing all of our portfolios in a balanced manner.
David Smith, Analyst at Truist Securities
All right, thank you.
OPERATOR
The next question will come from Manon Casalia with Morgan Stanley. Please go ahead.
Manon Casalia, Analyst at Morgan Stanley
Good afternoon.
Dominic Ng, Chairman and Chief Executive Officer
Hey, good afternoon.
Manon Casalia, Analyst at Morgan Stanley
Maybe on the NIB deposits again. So if I understood your comments correctly, just given the tariff-related deposits coming in and going out, is it fair to say that the average deposit number in 2Q is the right number to grow off of as opposed to the end-of-period number?
Chris Del Morale Niles, Chief Financial Officer
That's part of the reason I mentioned the 15% average quarter over quarter in my comments. Yes, good catch.
Manon Casalia, Analyst at Morgan Stanley
Okay, perfect. And then, as we think about the jumping-off deposit rates — right, you mentioned that you might take another look at the 6- to 12-month promo deposits that you're offering. But as we look at some of these deposit rates on slide 6 — the 2.76 on interest-bearing deposit cost spot and then the 2.04 on total deposit costs — is that, I guess, is that 2.76% the right number to jump off of for 3Q and 4Q?
Chris Del Morale Niles, Chief Financial Officer
Yeah. I mean, that is the end-of-period deposit cost, so that's the right launch point. And I think what we're trying to figure out is where do we think that number lines up relative to the competitive landscape as we move forward through the balance of the year? And as we sit here today, I think we recognize there are a number of smaller banks and some larger banks that are offering deposit rates well above where we are. That having been said, we continue to see progress and expect to see more progress on our DDA over the balance of the year, and so we're not sure we need to stretch for the highest yield.
And I think we need to focus on making sure we're servicing our customers on a holistic basis across all of their deposit and lending needs. And that relationship, we think, is worth a few basis points.
Manon Casalia, Analyst at Morgan Stanley
Got it. Thank you.
OPERATOR
The next question will come from David Chiavarini with Jefferies. Please go ahead.
Dominic Ng, Chairman and Chief Executive Officer
Good afternoon, David.
David Chiavarini, Analyst at Jefferies
Hi. Thanks for taking the questions. On net interest income, how you raised the guide to 7 to 9 from 6 to 8 — is the main driver of that the DDA deposit growth? Can you talk through that?
Chris Del Morale Niles, Chief Financial Officer
Well, I think it's both, because we're also raising the loan growth, and so the asset growth profile of the bank I think is coming in a little stronger, in part because overall deposits have come in. And added to that is the fact that some of those deposits have come in in noninterest bearing. And so the combination of the fact that deposit growth and loan growth continue to come in perhaps better than we would have expected earlier in the year is a positive.
Coupled with the fact that we are getting some of those deposits — the majority of those deposits — in a lower-cost framework allows us to lift the guide.
David Chiavarini, Analyst at Jefferies
Great, thanks for that. And then on rate sensitivity, you mentioned about stable NIM with a stable fed funds. How should we think about if we do get a rate hike, the impact on East West?
Chris Del Morale Niles, Chief Financial Officer
We are modestly asset sensitive, and we've said in the past that we think a 25-basis-point rate hike or rate cut probably costs us about $2 million a month with about a 45-day lag.
OPERATOR
Thank you. The next question will come from Timur Braziler with UBS. Please go ahead.
Timur Braziler, Analyst at UBS
Hi, good afternoon. Looking at the CD repricing, I'm assuming you're now starting to get into some of the back end of ’25 production that I think was in the three-fours and now coming in kind of 3.6–3.7. Is that the right way to think about it? Do CD costs start going up here? And I'm just wondering to what extent is the expectation internally that some of the growth in DDA will be a gating factor in maybe containing some of those CD costs going higher?
Chris Del Morale Niles, Chief Financial Officer
I think we've been relatively both successful and pleased by our ability to retain the CD book here through the second quarter. And the majority of our CD book has in fact been around the six-month maturity. And so most of the lower-level, 3.40 special-type dollars already repriced into 3.60 or 3.68, which is where we ran our Lunar New Year CD campaign earlier this year. And so the baseline for those repricings will be what happens in August and September, and that's what we're looking at — given that those were at 3.68, what's the right level to price to retain those as we sit here in July looking out to what's going to come rolling in in August and September? And we haven't quite decided how we'll land on that, but I think we're looking at a variety of maturity structures, in part to spread that out over a longer horizon and in part because to the extent the forwards are telling us rates might move forward, it could help pay for it over the longer term. But we're priced for retention, not necessarily for CD balance expansion.
Timur Braziler, Analyst at UBS
Got it. Helpful, thank you. And then, as a follow-up, would love to hear how you are thinking about that $100 billion threshold, both in terms of LFI-related expense and maybe what that means for capital optionality here.
Chris Del Morale Niles, Chief Financial Officer
Well, we continue to have a significant level of capital optionality. We continue to be focused on driving ourselves to be the best operational bank we can be, making the investments in things like cyber resiliency backup that we think support having a high-quality, high-performing bank. The emphasis regulatory-wise seems to have shifted to one of safety and soundness. And from a safety and soundness perspective, while East West Bank perhaps can't claim to be too big to fail, we aim and strive to be too strong to fail.
And we've consistently made sure we had the capital and liquidity profile to support that. And that's been the emphasis and focus. Dominic, would you care to add to that?
Dominic Ng, Chairman and Chief Executive Officer
Yeah, that sounds good.
Timur Braziler, Analyst at UBS
Great, thank you.
OPERATOR
The next question will come from Ibrahim Poonawalla with Bank of America. Please go ahead.
Ibrahim Poonawalla, Analyst
Hey, good afternoon. Hey Chris. Maybe just on capital, just maybe revisit that one. Given the trajectory you are on, do you see capital levels building? I'm assuming you're okay with it. And in your priorities you list buybacks below M&A. Is it just that you like buybacks even less than you like M&A or should we read anything into that?
Chris Del Morale Niles, Chief Financial Officer
I think that's a pretty standard lineup for us here. And given that we haven't done M&A in now going on 12 years, it's clearly not the first burner. But obviously focusing on organic growth is the primary driver. From a total capital perspective, we feel very comfortable, in fact proud of maintaining a 10+% tangible common equity level from a capital distribution and return profile. We think our current dividend is very competitive, but we'll obviously look to revisit that from time to time.
And I think the market is one where there will be opportunities for disciplined M&A. But in the absence of that, we obviously have been very opportunistic even this year in share repurchases and will remain very opportunistic going forward.
Dominic Ng, Chairman and Chief Executive Officer
Okay, yeah, I'll just add a little bit more. You know, all of us here are professional hired guns at East West Bancorp and we don't like or dislike M&A or buyback or anything. We love our shareholders. So what we do is that we always weigh each opportunity against the other, and we do it on a regular basis. You know, our sort of instant reflex is that whenever there is, let's say, an M&A opportunity, we assess, evaluate, and then we weigh it against: is it better to do this versus just go ahead and then, you know, buy back?
So those are the things that we're constantly evaluating, and we are very neutral and there's nothing particular that we either like or dislike. We're just going to do whatever we think is the best option that enhances long-term shareholder value. But we also keep in mind that long-term shareholder value may not come if we don't do well short term. So that's why you're seeing this record earnings after record earnings and a record whatever. It's because the strong performance quarter after quarter is the best validation that we have the ability to sustain long-term growth and long-term shareholders' return.
So, in that standpoint, we actually don't take these buyback or not buyback lightly. We're just looking at the entire, you know, East West Bancorp situation, and we're also looking at the global landscape in terms of what's happening in this world. And we make our decision about what is the appropriate time to execute whatever is best for our shareholders. That's what we do.
Ibrahim Poonawalla, Analyst
Got it, very clear. And I guess maybe just on the fee side. So good growth over the last several quarters, we have seen fees kind of bounce around in this $90 million range over the last three or four quarters. Just talk to us in terms of the trajectory of that. Like the growth that we've seen year over year, is that repeatable on fees? And maybe if we can spend some time on the wealth management side. You've talked about this in the past—like where are we investing and what should we expect in terms of the growth for that sort of revenue stream and the opportunity there?
Thank you.
Chris Del Morale Niles, Chief Financial Officer
Sure. So thank you, B, for the question. I would note wealth management fees—if you're looking at page nine of the press release tables—are up 71% year over year over the first six months. Clearly that's been a market opportunity for us. We have leaned into that opportunity with new hiring. We have leaned into that opportunity with investments in the platform and the people and the talent to drive that business further forward. And we continue to think that is an area where there'll be additional opportunities for growth.
As we look through the back half of this year and into next year, we're certainly investing in the people and the platform to do so. Commercial and consumer deposit-related fees have also been growing nicely. They're also up more than 15% year over year, six months. And again, we see that as an area where we have been able to offer new solutions to our clients that have resulted in additional uptake, which has been quite positive. FX and loan-related fees also up quite nicely.
Taken together, all fees up 15% year over year gives us comfort that our double-digit growth aspiration is very much attainable for the full year. 2026.
Ibrahim Poonawalla, Analyst
And it sounds like, Chris, if all else equal, macro remains more or less the same, the runway to deliver sort of double-digit growth—the kind of growth that you're seeing in wealth—there's still meaningful runway on both fronts: overall fees as well as the growth on the wealth side?
Chris Del Morale Niles, Chief Financial Officer
We absolutely are not—I'm not calling for a sustained 70% year over year growth, but I am calling for continued. I'm hoping that the investments we're making in the people and the platforms will continue to pay dividends to us and our shareholders in the quarters ahead.
Ibrahim Poonawalla, Analyst
Understood, thank you.
OPERATOR
The next question will come from Chris McGrady with KBW. Please go ahead.
Chris McGrady, Analyst at KBW
Good afternoon, Chris. Good afternoon, everybody. Chris, maybe on the NII guide-up—the second quarter in a row you tightened up the expenses with it. If we are sitting here in six months and the NII growth is perhaps better than even this, does your expense guide move, or is that kind of baked?
Chris Del Morale Niles, Chief Financial Officer
I guess I would look at it slightly differently. I think we're guiding to NII that we think is in line with the current expectations for the flat curve and the growth that we see ahead. I think we're giving you a guide for expenses that recognizes the current trajectory. But to the extent that, for example, in particular fee income lines grew, the marginal efficiency ratio in those lines is slightly higher. And so, as both have said in the past, you know, we see the efficiency ratio as an output, but, you know, it's one that will be tied to additional revenue growth.
So to the extent that we are coming in hotter on expenses, as I sit here today, I would think that would only be driven if we came in better on revenue growth.
Chris McGrady, Analyst at KBW
And then just coming back to the NIBs—it's 26% on an end-of-period mix and 25 on average from $24 exactly. Just want to make sure that the guide assumes what in terms of mix—similar mix? Any tweak either way?
Chris Del Morale Niles, Chief Financial Officer
Yeah, I think we're assuming today, given a flat rate environment, relatively stable mix to our growth trajectory. But that obviously means growing dollar balances as we continue to grow deposits through the end of the year.
Chris McGrady, Analyst at KBW
Okay, great. Thank you.
OPERATOR
The next question will come from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark, Analyst at Piper Sandler
Afternoon. Hey, good afternoon everyone. Wanted to ask about the uptick in C&I criticized. It looks like your C&I reserve was down a little bit, so probably not something you're too concerned about. But anything within that bucket to call out or anything lumpy? And then also just the uptick in CRE nonperformers.
Irene Oh, Chief Risk Officer
Yeah, good question. On the C&I criticized, we did look at—you know, we obviously go through a process where we're getting annual financial statements, quarterly in some situations, and there were some where there were cash flow reductions, which is why we downgraded those to special mention. With that said, in those same reviews, there are many loans that we upgraded from substandard, and that's why, as you noted, overall the allowance for C&I, the drivers of those—ultimately the coverage, the amount that we needed—was a little bit lower quarter over quarter.
And I think your second question was on CRE in general. Overall, when we look at the CRE nonperforming—when we look at CRE nonperforming—you know, there were about four loans that moved into nonperforming. I would say we've always taken a very kind of conservative view as far as reserving and charge-offs, and some of those were resolved in the quarter or subsequent to the quarter. We don't believe there's a lot of loss content as of 6/30 on a go-forward basis from those that flew into nonperforming.
Matthew Clark, Analyst at Piper Sandler
Okay, great. And then the other one for me, just on M&A. Your comment in the deck about disciplined M&A—can you just remind us of the type of bank or organization you'd ideally want? We've talked about wealth in recent months. I assume you'd want it to have a wealth component in an Asian American market to some degree, but any updated thoughts on the criteria there?
Chris Del Morale Niles, Chief Financial Officer
I think, you know, banks generally are sold more so than bought. And so I think, as Dominic pointed out earlier, when things become known to us, we dive in and we take a good look at evaluating if they make sense. We clearly have been investing on the wealth side of our business. We made significant investments back in an outside asset manager in 2023. We've continued to make investments in people and talent and platforms here more recently. And if we could find the right opportunity to invest additional capital behind a wealth platform or a wealth-oriented banking organization, that might be attractive to us, but we just haven't found the right one yet. From an Asian community banking standpoint, I think we're—you know, it's a relatively small universe and we know all the players and all the players know us, and so I think we continue to monitor that market, but there's nothing further to comment on.
Dominic, you said just fine.
Matthew Clark, Analyst at Piper Sandler
Okay, great. Thank you.
OPERATOR
The next question will come from Janet Lee with TD Cowen. Please go ahead.
Janet Lee, Analyst at TD Cowen
Good afternoon. Just making sure that I'm understanding the NIM dynamics. So, outside of any expected move in the Fed, should loan yields decline from the second quarter level through the rest of 2026 from a spread compression or mix shift perspective?
Chris Del Morale Niles, Chief Financial Officer
We're not seeing spread compression the way we saw it last year. And so as I sit here today, it wouldn't be spread-compression driven. We are seeing some mix shift elements. And so to the extent that, for example, there's less NDFI, which in some cases can be yieldier, and more core C&I, we would see a potential shift downward. But again, it depends on exactly where those loans originate from. As we sit here today, we would anticipate the margin remains relatively stable given what we see in the pipeline at this point in time.
Janet Lee, Analyst at TD Cowen
Okay, got it. And that assumes that the interest-bearing deposit cost increases from the 2.81% level?
Chris Del Morale Niles, Chief Financial Officer
I think that assumes our base level that if there's no fed funds hike, that our need to be competitive on deposit pricing might step up a tad, but would be offset, we hope, in part by additional DDA growth as well.
Janet Lee, Analyst at TD Cowen
Right, got it. And just a quick last one. You have no problem growing loans and funding it with deposits. Should we expect the size of your securities portfolios to continue grinding higher, consistent with the pace we've seen in the first half of 2026?
Chris Del Morale Niles, Chief Financial Officer
I think we look at our securities portfolio as a reservoir to fund growth. And so at this point in time it can be added to, to the extent deposits exceed loan growth, or it can be detracted from to fund loan growth to the extent they don't materialize. But given that we've been able to grow deposits even faster than loans, it has been a net contributor year to date.
Janet Lee, Analyst at TD Cowen
Got it. Thank you.
OPERATOR
The next question will come from Bernard von Gazicki with Deutsche Bank. Please go ahead.
Chris Del Morale Niles, Chief Financial Officer
Good afternoon, Bernard.
Bernard von Gazicki, Analyst at Deutsche Bank
Hey, good afternoon. Just maybe on loan growth—you know, it was broad-based during the quarter and there was some nice growth in CRE, especially in multifamily and construction. Wondering if those trends during the quarter are expected to continue and you'll still see good growth in those particular areas in the second half of the year.
Dominic Ng, Chairman and Chief Executive Officer
We appreciate the growth that we have seen across all the portfolios. We'll continue to be there for our clients, particularly the long-standing, well-tenured, well-experienced developers that are active in today's market. And, yeah, to the extent there are things we can do for them, we're very supportive.
Bernard von Gazicki, Analyst at Deutsche Bank
Just as a follow-up, I know the capital deployment priorities were discussed, but just wondering if we could look at the potential Basel III impact versus peers unless it's changed. I think previously you mentioned expecting 160 to 180 basis points uptick in capital versus peers who are probably expecting somewhere about 100 basis points increase. So your relative advantage in capital would continue to increase. Would you be more or less inclined or have no impact on lowering your capital levels to similar move down versus some of the larger banks just on the Basel III impact?
Chris Del Morale Niles, Chief Financial Officer
I think we're focused and very happy to manage the bank around a tangible common equity goal and driving a top quartile returns on tangible capital. And so as we think about Basel, they really don't influence our focus on either TCE or the ROTCE. That having been said, it gives us comfort that our strategy of holding residential, low-risk residential mortgages is a great strategy and one that effectively, you know, others have taken notice of by reducing what they see as their risk profile which, you know, we had noticed a long time ago.
Bernard von Gazicki, Analyst at Deutsche Bank
Great. Thanks for taking my questions.
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
Thank you. Well, to conclude, as always, our results are a reflection of the dedication and discipline of our team and I want to thank them for their continued contributions. We remain focused on creating long term value and we're looking forward to speaking with you again next quarter.
OPERATOR
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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