Q3 2021 East West Bancorp Inc Earnings Call
Good day, and welcome to East West Bancorp's third quarter, 2021 financial results conference.
This call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then 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 that.
This event is being recorded I would now like to turn the conference over to Julianna <unk> director of Investor Relations. Please go ahead.
Thank you Tom Good morning, and thank you everyone for joining us to review the financial results of East West Bancorp for the third quarter of 2021 with me on this conference call today.
They are Dominic <unk>, Chairman and Chief Executive Officer, and Irene Oh, our Chief Financial Officer.
We'd like to caution you that during the course of the call management may make projections or other forward looking statements regarding events or future financial performance of the company within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act.
Of 1995. These forward looking statements may differ materially from the actual results due to a number of risks and uncertainties for a more detailed description of risk factors that could affect the company's operating results. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31 20.
In addition, some of the numbers referenced on this call pertain to adjusted numbers. Please refer to the bank's regulatory filings, including.
8-K filed today for the reconciliation of GAAP to non-GAAP financial measures.
During the course of this call we will be referencing a slide deck that is available as part of the webcast and on the Investor Relations site as a reminder.
'twenty today's call is being recorded and will also be available in replay format on our Investor Relations website, I will now turn the call over to Dominic.
Thank you Julianna good morning.
Thank you everyone for joining us for earnings call.
I will begin the review of our financial results with slide three our presentation.
This morning, we reported.
Third quarter, 2021, net income of $225 million or $1 57 per share.
Strong organic balance sheet growth drove a 21% annualized increase in revenue quarter over quarter.
264.
$69 million.
The increase in revenue solidified with expense discipline drove pretax pre provision income growth of 26% annualized for the third quarter to $302 million.
Our pretax pre provision profitability ratio continues to be industry.
<unk> leading.
And was 2% for the third quarter of 2021.
We recorded a negative $10 million.
<unk> for credit losses this quarter.
Asset quality continued to.
Improve.
Nonperforming assets.
Decrease quarter over quarter.
And net charge offs remain low.
At the same time, we maintained a healthy allowance for loan losses at the bottom.
Two 8% of loans as of September 32021.
In sum we.
We will return an attractive one 5% on average assets.
15, 7% on average equity and 17, 2% on average tangible equity for the third quarter of 2021.
Slide four presents a summary of our balance sheet.
As of September 32021.
Our total assets crossed.
$60 billion.
And total loans reached a record of 45 billion.
Excluding paycheck protection program loans total loans growth.
Billion or 11% annualized from June 32021.
Third quarter production and loan growth.
We're well diversified across all our key loan portfolios of Vietnam.
So the actual mortgage and commercial real estate.
Year to date for the first nine months of 2021 loans grew 10% annualized excluding PPP.
For the full year of 2021.
We are increasing our loan growth outlook.
To a range of 10% to 11% up from our prior range of 9% to 10%.
Throughout 2021 loan growth has been broad based across all our portfolios and teams.
And at this point.
Point, we expect this will continue for 2022.
Overall, we anticipate a C&I loan growth will be the strongest.
Based on continued good execution from our frontline.
And a rebounding economic backdrop.
In the third quarter deposit growth.
Continue to be very strong.
As of September 32021.
Total deposits reached a record of $53 4 billion up $774 million or 6% annualized from June 30.
Noninterest bearing deposit grew $1 4 billion or 25% annualized.
Utilized to a record $23 2 billion as of September 30.
Making up 43% of total deposits at quarter end.
And up from 36% a year ago.
Turning to slide five you can see our strong capital ratios.
As of September.
September 32021, we had a common equity tier one ratio of 12, 8%.
Total capital ratio of 14, 2%, which provides us a meeting with meaningful capacity for future growth.
Sure.
Book value per share and tangible equity per share were both up three.
Quarter over quarter.
East West Board of directors.
Has declared.
Fourth quarter 2021 dividends for the company's common stock.
The common stock cash dividend of 33 is payable on November 15, 2021 to stockholders of record.
Percent of November one 2021.
Moving onto a discussion of our loan portfolio beginning with slide six.
C&I loans outstanding excluding PPP.
Were $13 billion as of September 32021, an increase of 21%.
Our revised from June 30.
Total C&I commitments were $18 9 billion as of September 30, a sequential increase of 26% annualized.
We achieved this strong rate of C&I growth, despite a slight lower utilization rate.
Which was 69% as of September 30, compared with 70% as of June 30.
On an average basis C&I loans, excluding pvp grew by 16% annualized in the third quarter.
We expect to continue to see strong growth in C&I loan balances and commitments.
In the fourth quarter.
Third quarter loan growth was spread across our lending teams and geographies.
By industries with strong strong net growth this quarter from technology private equity consumer goods.
General manufacturing and wholesale.
And entertainment.
Payment.
It was indeed, a well diversified quarter.
In terms of growth.
I would also highlight that the private equity growth this quarter, well exemplified our cross border business.
Growth came from clients.
<unk> in the United States, Hong Kong and.
In mainland China.
Our core accounting for 4% of our total loan portfolio.
One 7 billion.
Of loan domiciled in our China subsidiary Bank, and our Hong Kong branch.
98% of this portfolio consists of.
Islands well.
Well diversified well diversified by industry.
These loans are up from $1 6 billion as of June 30.
Slide seven shows the details of our commercial real estate portfolio, which is well diversified by geography and property type and.
<unk> of low loan to value loans.
Total commercial real estate loans were $15 5 billion as of September 32021 up by 4% annualized from June 30.
This quarter, we saw strongest growth by property type industrial CRE and multifamily mortgage.
In slide nine we provide details regarding our residential mortgage portfolio, which consists of single family mortgages.
And home equity lines of credit.
Residential mortgage loans were $11 billion as of September 32021, growing by 9% annualized from June 30.
And considering the third quarter, we originated $982 million of residential mortgage loans.
Which was down from a record setting second quarter.
But up by 28% from origination in the year ago third quarter.
I will now turn the call over to Irene for a more detailed discussion of our.
And income statements.
Thanks, Dominic I'll start with our asset quality metrics on slide 10 overall, our key asset quality metrics continued to improve quarter over quarter total criticized loans were down sequentially by 2% to $1 billion or two 5% of total loans as of September 30th.
May 'twenty, one year to date criticized loans decreased by 17% and the criticized loan ratio improve by 67 basis points from three 2% of loans as of December 31, 2020.
Quarter over quarter, nonperforming assets were down 24% to $173 million or 28 basis.
Asset of total assets as of September 30th year to date nonperforming assets decreased by 26% and the nonperforming asset ratio improved by 17 basis points from 45 basis points of assets. The third quarter improvement in nonperforming assets was largely driven by commercial real estate and oil.
Oil and gas resolutions are oil and gas loan portfolio has continued to decrease and commitments are now below $1 billion.
As discussed previously our goal was to reduce commitments to this level. This is about the right size for us.
On slide 11, we present the components of our allowance for loan losses, our allowance totaled.
560 million as of September 32021, 141% of loans, excluding P. P pape compared with 586 million a 152 as of June 30th.
Quarter over quarter reduction in the allowance largely reflects an improved macroeconomic forecast net charge offs.
<unk> were essentially unchanged at $13 5 million in the third quarter compared with $13 3 million in the second quarter. The net charge off ratio was 13 basis points of average loans annualized for both the third and second quarters. During the third quarter, we recorded a negative 10 million provision for credit losses, compared with a negative.
10 million provision in the second quarter.
Currently we expect to record a negative provision of approximately $10 million for the fourth quarter similar to this quarter.
And now moving on to discussion of our income statement on slide 12. This slide summarizes the key line items of the income statement, which I'll discuss in more detail on.
On the following slides and noninterest income included in interest rate contracts and other derivatives are mark to Mark get adjustments, which were a positive $2 5 million in the third quarter.
Paired with a 5 million loss in the second quarter. These primarily relate to changes in the credit valuation adjustment on this slide.
The CBA marks are included under the other line of noninterest income.
Amortization of tax credits and other investments increased this quarter to 38 million compared with $27 million in the second quarter, reflecting the impact of investments that closed during the third quarter for the fourth quarter, we anticipate that.
Slide amortization of tax credits and other investments will be approximately $30 million.
The third quarter income tax expense was $48 million and the effective tax rate was 17, 5% the year to date effective tax rate for the first nine months of 2021 was 16% and we expect that the 20.
The Avalon full year effective tax rate will be approximately 17% I will now review the key drivers of our net interest income and net interest margin on slides 13 through 16, starting with average balance sheet third quarter average loans of $40 billion grew by $338 million or 3% linked quarter annualized and.
20, <unk> 1 billion or 12% annualized excluding PPP $645 million of our PPP loans were forgiven by the SBA during the third quarter.
Third quarter average deposits of $53 5 billion were up by $3 3 billion or 26% linked quarter annualized.
Led by growth in noninterest bearing demand deposits, which increased by $3 5 billion with the strong deposit growth our average loan to deposit ratio was 75% in the third quarter down from.
79% in the second quarter average, earning asset growth in third quarter reflected the strong deposit growth.
On an average basis interest bearing cash and deposits with banks grew 2 billion securities increased by 786 million and repurchase agreements increased by 253 million.
Turning to slide 14 third quarter 2021, net interest income of $396 million was the highest quarterly net.
Net interest income in the history of east West growing by 20% linked quarter annualized income related to PPP loans was $15 million in the third quarter, consisting of $12 million of deferred fees and 3 million of interest income as of September 30th we have $13 5 million of PPP deferred loan fees remaining to accrete.
Quarter over quarter, the GAAP net interest margin contracted to 70 in the third quarter, a decrease of five basis points from the prior quarter, excluding PPP the third quarter adjusted net interest margin of $2 64 contracted by nine basis points sequentially. As you can see from the waterfall chart.
Slide the variability of our net interest margin comes from excess liquidity the quarter over quarter decrease in the net interest margin for the third quarter was largely driven by the increase in average cash and interest bearing deposits with banks due to the strong average deposit growth. The impact of this was a negative 10 basis points.
On this front at the margin headwind from incremental lower asset yields was offset by a lower cost of interest bearing funds and a higher share of D. D. A.
Non interest bank excuse me DDA in the deposit mix.
Over quarter, a robust net interest income growth came from loan growth and incremental purchases of securities and repo.
At the moment and for the full year, we expect NII growth of 10% to 11% excluding the impact of PPP.
Turning to slide 15, the third quarter average loan yield was 361 and excluding the impact of PPP. The adjusted loan yield was $3 56 down by two basis points.
Poker 358 in the second quarter of 2021, turning to slide 16, our average cost of deposits for the third quarter dropped to 12 basis points, an improvement of two basis points from the second quarter. The spot rate on total deposits was 11 basis points as of September 30th also down by two basis points from June 30th.
From a cost of deposits declined as maturing higher rate Cds repriced to current market rates and we lowered the rates paid on other accounts. The average cost of Cds in the third quarter was 35 basis points, a drop of five basis points from the second quarter and the third quarter, we originated or renewed $5 3 billion of domestic Cds at a blended.
At 19 basis points and a weighted average duration of four months over the course of 2021, many of the higher price Cds have already repriced down in the fourth quarter, we have $4 1 billion of domestic Cds maturing at a blended rate of 25 basis points of which 900 million of originated when deposit rates were higher but the blended.
<unk> of 37 basis points.
Moving onto fee income on slide 17, total noninterest income in the third quarter was $73 million, an increase from 68 million in the second quarter customer driven fee income and net gains on sales of loans was.
63 million essentially flat comparable.
Blended with the second quarter and up 31% year over year quarter over.
Quarter over quarter growth in deposit account fees and interest rate swap revenue and SBA loan sale gains were offset by decreases in lending fees and in wealth management year over year the growth in fee income reflects new customer acquisition.
Paired with particularly for G. T S N effects beyond rebound from Covid related trials.
And quarter to quarter volatility, we are positive about the year over year trends in fee income and momentum for future growth.
Moving onto slide 18 third quarter noninterest expense was $205 million excluding.
<unk> amortization of tax credits and other investments and core deposit intangible amortization adjusted noninterest expense was $167 million in the third quarter, an increase of 5 million or 3% sequentially the largest quarter over quarter change wasn't other operating expenses, which increased largely due to higher loan.
Looking at expenses and charitable contributions the third quarter adjusted efficiency ratio was 35, 6% compared with 36, 3% in the second quarter, while achieving industry, leading efficiency, we continue to make investments in people and technology to expand our banking capabilities and product offerings.
With that I'll now review, our updated full year outlook for 2021 on slide 19.
We've updated our full year 2021 outlook relative to a quarter ago for the full year of 2021 compared with our full year 2020 results, we expect year over year loan growth excluding PPP.
And the range of 10% to 11% up from the prior range of nine to 10 year over year adjusted net interest income growth, excluding PPP and the range of 10% to 11% unchanged from our prior outlook. Our increased loan growth outlook is a good foundation for robust net interest grow net interest income growth in 2022.
Even though it does not materially shift the full year 2021 growth outlook adjusted noninterest expense growth, excluding tax credit amortization of 5% unchanged from our prior outlook based on our macroeconomic forecasts and loan growth outlook. At this point, we expect to book a negative provision.
<unk> for credit losses of $10 million in the fourth quarter similar to what we recorded in the third quarter. This is a change from our prior outlook of zero provision expense in the second half of the year. We currently expect that the full year 2021 effective tax rate will be approximately 17%, excluding the impact of tax credit.
Investments, we also anticipate that the amortization of tax credits and other investments will be approximately $30 million for the fourth quarter. This is an update from our prior outlook of a 15% full year tax rate with that I'll now turn the call back over to Dominic for closing remarks. Thank.
Thank you Audrey.
Clothing.
This was another quarter of outstanding results for East West.
And we expect a strong finish to 2021.
I will now open up the call to questions operator.
Thank you we will now begin the question and answer session to ask a question Press Star then.
One on a touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys, if you'd like to withdraw. Your question. Please press Star then two we ask that analysts please limit themselves to two questions. At this time, we will pause momentarily to assemble our roster.
And your first question.
Ebrahim in Pune Waller with Bank of America. Please go ahead.
Good morning.
Good morning.
I don't think you mentioned you are.
Expectations for strong loan growth.
Into 2022, driven by C&I.
Just talk to US means you had pretty strong growth even this.
Here the revised guidance of for the last three quarters as we think about 92.
Why why loan growth, probably is not going to be somewhere in the mid teens 15 16 range.
Give us a sense of like what could be the risk to that level of growth next year, given the rest of Linda.
Comes from CS talking pretty positively about a pick up in loan demand and activity levels.
Well I mean at this point, we see that.
The trajectory is.
For 2020 to who will be somewhat similar.
Two.
What we're currently experiencing.
It's too early of a stage right now for us to provide guidance for 2022.
We provide our 2022 guidance.
Our January 4th quarter call.
So, but so far if I look at the pipeline in the fourth quarter things are going pretty good I mean, particularly.
C&I.
A sector that we feel that we will be able to continue to have that kind of growth based on what we share in our guidance to end the year at 10% to 11%.
Annualized school.
Got it and.
Just.
And the two that are you you mentioned the loans in the China shop up from one six to $1 7 billion just remind us in terms of the strategy. There are there things that youre doing a bit differently today versus two or three years ago that could lead to a lot more growth contribution from the China sub over the next year or so and going forward.
In terms of China, our in fact, I would say that overall east West Bridge banking strategy, we pride ourselves to be the financial bridge between the east and the west.
And we've always looked at.
<unk>.
Our value proposition comes from our knowledge and expertise of knowing.
<unk>.
The regulatory change and.
In both U S and China.
And because of that we can help business.
Like Chinese business to do.
Business to do business more effectively in the United States and vice versa.
So we.
You are able to in fact for the last 12 months I would say that we benefit tremendously from continuing to build new business in U S.
That have cross border banking needs.
You see that.
In our C&I.
Loan growth you see that in our.
Actually most of our CRE loan growth and absolutely, so and ethics and Treasury management.
Sure.
Fee income growth.
No.
Cross border banking business help us tremendously in the United States now.
Now the China, apart and Hong.
Kong, both Hong Kong and mainland China, our strategy has always been that because we have that knowledge.
<unk>. We also have the presence that will continue to feed.
Good high quality.
Cross border business in U S that is the main part now but in the meantime.
Obviously, we're still growing in China, what you've noticed is that the percentage growth.
Of loan.
In China may be higher than U S. Because the base is small keep in mind that we only have made a $1 7 billion, it's only <unk>.
4% of our total loan so.
So if next year.
They will grow.
On a percentage within their own region by let's say, 15% 20%.
That.
It's not something that's surprising at all is something that give it simply because that the base is so low.
We're not we're going to be.
Comfortable to let it grow to whatever the size it should be paid.
Based on their needs, but most important thing is that we are looking at.
High quality.
Asset growth and clients that is cool.
And to have business that is expandable.
<unk> sustainable and profitable.
And because the base is small so we got plenty of room, so, but we're not out there trying to aggressively grow the China portfolio just to make sure that even now the percentage or anything like that is all based on what our.
The good clients that we can actually do banking world and when we find one.
We will work with them and that's pretty much to our philosophy and so far we've been benefit benefiting tremendously, particularly in the U S of this cross border banking business.
Understood.
Thank you.
Thank you.
Yeah.
The next question comes from Ken Zerbe with Morgan Stanley. Please go ahead.
Alright, great. Thanks.
I guess two questions. So first of all can you just help us think about how how to model out that credit valley.
Thanks of adjustment in interest rate contract line I mean, obviously it was great this quarter, but just wanted to understand the sustainability.
Yeah, I mean I think the.
The CVA adjustment is really a function of.
Kind of assumptions around kind of the credit component of it but also largely what's happening.
Uhm wed rates the 10 year swap rate in particular, so honestly I think it's hard to model that point to point in particular, but I think if you follow as far as what's happening with the tenure you know that's probably the largest indicator that's how falcon and.
And trying to understand what that Mark is gonna be.
Quarter over quarter.
Got it understood. Okay, and then just a second question your noninterest bearing deposit growth just been outstanding I think it was up over 17% sequentially this quarter.
Can you just talk about what's driving that growth.
Yeah, you know, we're delighted with the growth that we have had in deposits across the board. If you look at it from a retail branches our consumer accounts the number of accounts or increase the customers of increase small business. We've been very successful with kind of promotions and then also.
Product packages that we've created that really meet the needs of our small business customers I think with that probably from a dollar perspective, the largest growth has come in U S. Domestic corporate commercial accounts and we've been very excited it from.
Perspective, you know the investments that we've made the last several years for GTS products capabilities and people, you'll really be able to utilize that and help our customers. So the long and short of it is you know we're very excited about the growth the customers that we've on boarded and we think that that is something that can continue realistically I.
The preterm, though now there is a certain amount of with kind of the stimulus the kind of the monetary policies. There is a certain amount of excess deposits in the system and we're realistic about that as well, but overall I think the trends are very positive and we think that we can continue this deposit growth momentum.
I would say.
Alright, thank you.
Yeah.
Okay.
The next question comes from Dave Rochester, with Compass point. Please go ahead.
Hey, good morning, guys.
Good morning.
Back on the deposit commentary that all sounded great.
I was just curious if you think that momentum can effectively cover loan growth that you guys are expecting next year do you think you can fund that loan growth with deposit growth.
Well, we are currently at 75% loan to deposit ratio. So we got a lot of cushion right. So.
And it's something that I think that is the loan to deposit a cushion that you know obviously.
Causing some of the margin pressure you know about obviously, we have such a strong net interest income you know well that you know our volume you know way overcome these margin depression.
Our compression.
The way I looked at it is that we got plenty of room, so that would not be a concern for us for now and we still expect continued deposit growth simply because we will continue to bring in new clients I look at the pipeline while C&I.
We're going to be new clients that we'd be booking when they when they come in.
And.
That we provide you know a high.
A long commitment to them it comes with operating accounts and their access to liquidity for money market accounts. So so now I do want to mention that.
It is indeed back in 2020 in this.
Uh huh.
Of last year that due to PPP. We did we just did at quite a tremendous a great job.
And generally a lot of goodwill and brought in a lot of new clients and we were able to benefit from that and took a lot of new customer.
<unk> and still continue to through that goodwill and get new clients referral. So I would expect that maybe in 2022.
Maybe that.
New new new clients acquisition may not necessarily be as strong as the last year year, and a half or so simply because.
<unk> is somewhat unusual in 2020, all that PPP situation, but these goodwill sometimes out one customers got happy hotel.
510 of their friends and then we'll continue to pick up business. This will be something that I would expect that maybe is going to continue on for the next several years, but.
In terms of the velocity of growth may not necessarily be as strong from this deposit.
Commercial deposit side.
Now that makes sense.
And maybe just for my follow up switching.
Switching to fees, you mentioned seeing a lot of momentum there for future.
Was just wondering and you've got a lot of contributing lines here, where do you expect to see the strongest growth.
And I know, it's probably difficult, but how are you thinking about the pace of that growth going forward.
I think that for you if you looked at these different line items you know life.
Foreign exchange and.
The cash management and Treasury management.
From the deposit side. These are the areas that we have tremendous growth because as we just mentioned about two things one is that the domestic <unk>.
Commercial small medium sized business that.
Moving their banking relationship over to east West.
Generally a lot of fee income in our.
Treasury management.
Line item.
The other one cross border business that I mentioned earlier, we pick up a lot of new.
Cross border client.
Lines.
Again foreign exchange fees and also Treasury management area.
Those are the two that I would say that.
Net.
Pretty much in addition to I mentioned about PPP and in terms of.
The China situation actually more U S Bank may.
Not be as.
Excited about working with.
China Chinese subsidiary company in United States that we end up benefiting from it.
Also have a situation of internal technology improvement.
As we talked about the last two or three years, we have.
Continue to invest in upgrading our technology platform, our system and our product offerings. So these product offerings, particularly in the Treasury management area.
Have put us in a position that we have the ability to service much.
<unk> lawyer come.
Commercial clients with more complexity in terms of their cash management needs. So all of that have resulted in us having these kind of growth now.
We think they will continue but in terms of the pace volume and so.
Fourth.
We will I think that we would need to take a look I mean at this point I might my sense is that.
If we do not continue to innovate and continue to provide come up with new products will probably slowdown, but east west doesn't stop.
Okay.
And then Jud.
Just sit and wait for other business come in will continue in 2022 to develop new product capability and looking to even new geographic areas and start identifying new prospect and through that we will continue to upgrade our system to and.
<unk>.
Even better products and through that hopefully we will continue to maintain some sort of momentum going forward.
Great.
Over there thanks.
Okay.
The next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning, Thank you.
I guess shifting back to the growth outlook and the optimism there can you breakdown.
The difference between I guess your expectation that customers increase their own optimism and the utilization rate starts trending back to normal versus the success, you've had with acquiring new customers.
<unk>.
Are you expecting the 22.
CSI is normalization of of utilization rate and I guess, if not what is holding holding those customers back.
Well I think that utilization rate.
It would have.
A lot to do with how the U S economy is.
It's going to be like in 2022.
As we shared with you at our remarks that.
In fact the.
Utilization rate.
Our CNI dropped from $72 69, just slightly.
But.
If you look at the non <unk>.
Our C&I.
Loan balance growth was 21% annualized but then our commitment growth was higher it was at 26 or 28% something around that range. So we actually brought in more customers that we booked more new loans.
I'd just add.
Haven't been funded yet.
What I looked at in 2022.
I would expect that.
Customer will actually increase that utilization.
But well I would expect that even four or five months ago. It didn't happen it just keeps coming down so.
So it was just a matter of time as a matter of time, I mean, something that I wish I had the crystal ball to predict what the economy is going to be like to give.
Clients the confidence to see.
Start.
Drawing up the mine, but as of today.
Overall amount.
Well diversified portfolio.
<unk>.
Many different industries somehow it average out to more or less the same.
And we'll see what it's going to be like in 2022, and just like interest rate every year, we waived.
For a little bit of a hike and hadn't happened, but eventually at some point it will happen.
I would expect that generalization Ray also at some point.
Sop pricing.
Okay. Thanks, and then just my follow up.
Capital continues to grow when you look at the dividend payout ratio, it's under 21%.
You have the you have the buyback authorization out there what are your thoughts on.
<unk> <unk>.
Capital management more broadly and then the the buyback more specifically now that the worst of the Covid viewers are are behind us.
Yeah, you know we are first and foremost our focus on the <unk>.
Turning to capital to shareholders in the form of strong organic growth.
With them being able to utilize that in the most optimal way would you have the authorization outstanding it's been a while so honestly at this point, we'd go back to the board with any options that we would take and that's not something that we're evaluating at this point in time quite frankly because of the growth that we have and the optimism we have on the dividend side generally speaking.
On an annual basis, you know that's been a discussion with the board, we evaluate and we want to make sure that the dividend payout ratio and the yield are appropriate, especially relative to our expectations about the utilization of capital and then also relative to other peers.
Uh huh.
Okay. Thank you.
Youre welcome.
Yeah.
The next question comes from Brandon King with Truest. Please go ahead.
Hey, good morning.
Good morning.
So CRE growth.
<unk> mentioned industrial and multifamily being the sources of that.
Be good it was a little slower than to Q, what was the level of pay downs in the quarter compared to last quarter and how do you see that shaking out in <unk>.
That's it.
Okay.
Generally we expect that Oh, Crs top I think on the pricing.
When we see that as far as a lot of competition and so our focus has been clients, where maybe we're not just competing on price and structure overall as we look at the pipeline and you know what we expect Brandon We do think fourth quarter is gonna be a little better than third quarter and then also at this point in time, given the visibility that we have.
We also think that the pay offs will decline slightly.
Okay.
And really mortgage was once again strong this quarter could you just remind us what was the purchase and refinance mix and volumes and is a sudden regions performing better than others.
<unk> becomes the regulatory mortgage I know a lot of banks you're experiencing.
More of a normalization as far as origination volumes.
Yeah, Brendan I don't have those exact stats, but generally speaking at this point in time most of the loans that we're originating or refinance it or purchase excuse me versus refinance a batch track that.
I was wondering if that's happened for a period of time and for US you know I think in the markets that we're in and the markets that we have strong brand presence as you know most of these are referrals that come in through our branch network you know or are the volume of origination is predominantly in areas, where we have lots of branches, you know, California Southern California.
Another California, and then also New York Metro.
Okay.
And lastly, with the provisioning guidance with another negative provision expected in for Q <unk>.
Just some rough assumptions with charge offs level around.
I guess like second quarter.
It looks like the loan loss reserve could be around.
130, or a little below 130 is that kind of a trough level.
Based on your outlook now or could they.
Or even lower in 2022.
Yeah, you know that's a great question as you know the allowance.
Population is largely driven on the macroeconomic outlook of course, you know I think as we look at it and part of the reason I think where we felt that the negative part of it is driven by the macroeconomic outlook and as that improves I think that's why ultimately we had to book the negative provision on a go forward basis.
Okay that that continues to drive it are I think as a trough perspective, you know and your numbers are not you know I think that's not complex math, there about 130 or so that is something I think that's within the realm of possibility in the fourth quarter and then if we look at 2022 depending on the macroeconomic.
I'll say forecast depending on what we're seeing in the portfolio and you think that number could come down from that level.
The next question comes from Brock Vandervliet with UBS. Please go ahead.
Yeah.
Good morning, Thanks for the question.
Economic just following up on the resi question.
If I got the number correctly it sounded like your originations there were up about $1 billion.
From a year ago that seamless.
Really strong I'm wondering if that's I'm just wondering what's what's driving that.
Because we're really not seeing that across the.
Hum.
The board were up year over year increases are much closer to flat.
Are you talking about year to date are you talking about just a quarter.
Yeah.
Year over year I thought the number was 28.
Oh, okay.
Oh, sorry, sorry can you repeat that question, so you're saying that that will have a year to date origination is about million above last year that you are wondering why it was so strong.
<unk>.
It just seems very a very outsized I was just wondering what was driving that.
And we have you know.
A very unique product right most of what we're originating and reduced stock, but high down payment single family and HELOC a.
Product and I think for our customer.
If this is something that's very attractive for them.
Well because I think you were looking at the combination of both yes single family chose refi and HELOC.
Alright.
And we have done.
Moody well actually not just for the last 12 months.
We have consistently done well with residential mortgage I wish.
I would say for the last three or four years now granted you know.
Everyone in the banking industry that in the mortgages business has done well because the rates have come down and which benefit people to.
Or baked refinancing and with Covid more people purchasing homes.
And so to that extent our customers are no different than the market. The only difference our customers tend to pay anywhere 40, 50% or more downpayment.
But beyond that I mean, the other characteristics.
Think about more or less the same because the overall market has been really strong and theres a lot of purchase and refi going on.
Got it okay and is.
As a follow up it looked like you got comfortable in terms of where rates were deploying pretty aggressively into it.
<unk> securities in the quarter.
Any sense of where.
Cash levels good.
Could end the year.
Yeah.
Yeah, I know that's a hard question to answer you know al can talk about what we did and the deliberate actions we took in the third.
Third quarter overall in the third quarter, we knew that we'd have about 300 million of securities that were called or matured. So we redeployed. Some of that also the ongoing analysis of cash in the deposit levels that we had and then additionally, and as we said before in our prepared remarks, we had 650 million of PPP.
And we've deployed that cash as well. So we took all of this into consideration generally speaking with the security that we did purchased now we wanted to be mindful of what the duration, which was a little bit lower than the existing duration as of 630 of the portfolio, but just keeping in mind, our being able to kind of.
<unk> way and our excess cash into earning assets.
But maintaining kind of the duration that we think is appropriate given kind of where interest rates are going now that's been a focus that we've had in the fourth quarter, depending on the cash activity that we have the excess liquidity certainly this is something that we're evaluating as well, but what's really not.
Depending on the duration out further.
The next question comes from Chris Mcgratty with K B W. Please go ahead.
Hey, good morning.
Good morning, Good morning, there's been a lot of discussion on quarterly calls.
This earning season about inflation in costs.
I'm interested you guys have done a really nice job over the years to keep costs contained and have operating leverage but I'm wondering the ability to hold that into the year end and into next year. Thanks.
Well, we didn't hold back much.
A 5% growth in expenses, which are somewhat painful in my view, but then we need to spend what we need to spend that is at <unk>.
Investing into the system.
Continue to improve our product capability and most importantly pay.
Payout people.
Recruiting you know both new talents and then promoting.
Talents with it and those are the things that we've been doing here and in Euro and we will continue to do in 2022.
Frankly, if you recall, we used to have maybe 2% to 3%.
Uh huh.
Year to year expenses increase in them.
Ratchet up two 5%.
And then in the guidance and so those are the kinds of things that we because of an.
The patient Inflations out there that we would need to spend more appropriate.
And then also depends on how.
And the economy goes and then the business.
And then we will continue to spend prudently.
If we continue to grow even stronger that require more manpower, we're not going to shy away from.
Increasing the expenses.
To support the business because.
So revenue will always take care of ourselves. So I always looked at it is that I wouldn't be too.
Focus on.
The expense can only go up by a certain percentage because.
We'll spend prudently and wisely.
We spend.
It's going to add into more profit.
Small revenues and more profitability and then allow us to have more sustainable growth and that pretty much is the philosophy at east West Bank.
That's great if I could follow it so it sounds like that 5% already reflects.
Any wage pressures that might be evident and anything above it Dominic.
But just would be correlated to to Robert revenue growth stronger revenue growth.
At this point you know the 5% is what we projected for the end of the year in 2022, obviously, we'll provide additional guidance.
<unk> next question comes from David Cerveny with Wedbush Securities. Please go ahead.
Hi, Thanks, I wanted to ask about loan pricing you mentioned about the competitiveness.
CRE I was curious about how it looks on the C&I side, and then more broadly when I look at the average loan yield in.
In the quarter at 3.61% I was curious how that compares to new loan originations more broadly.
Okay.
David I can kind of give you some information as far as where the new loan yields are generally.
Speaking now are there are holding up okay. If we look at I'll just go through all of them for your single family.
If we look at where we were we were at.
On an average of about 424 September if you look at CRE, including multifamily we.
What about a $3 50 as far as new loan yields holding study really from where we were before and CNI and new originations now they're up a little bet portfolio yields of 340, or so and for new originations in the third quarter.
Great. Thanks very much.
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The next question comes from Clark right with D. A Davidson. Please go ahead.
Good morning. This is clarke right filling in for Gary Tenner. My question pertains to when those actually asked earlier on the call about liquidity deployment I Love I would appreciate it if I could get your thoughts.
Thoughts on deposit duration and how this is impacting your lookout.
For liquidity appointment and your general strategy to make use of your balance sheet.
I'm sorry could you repeat the question that came in and loud.
Oh it came in I'm, sorry about that just essentially I.
Just looking at your thoughts on depository duration, and how it's impacting your liquidity deployment strategy.
So of course this is julianna filling in for Irene, we will Oh I'm going to keep the same.
In terms of our modeling of deposit duration, we take a look.
Look at the expected life of the deposit in terms of our modeling for cash deployment. So for example, our customers with a long history with US multiple years, we have an expectation of a lifetime of say their demand deposit customers with.
Customers with demand deposit due to corporate you know, saying.
So or some other corporate action those are shorter duration life expected life of deposits. So we model that in as well in terms of our forecasting of the cash balances at the organization and then attributing a ability to redeploy that into whatever is the appropriate earning asset.
Yes.
And okay I'll just add.
Thanks, Giuliana for filling in.
That overall, you know as we talked about before we've seen great growth in commercial deposits operating accounts, whether for small businesses or for larger companies. You know those are long duration assets I think went that as what part of our analysis. We also look at you know what kind of surge deposits.
And certainly as Giuliana noted some of those will evaluate and look at it and expect a shorter life, but overall relative to where we were before before these last couple of years before kind of the changes that we've been able to make in our deposit base over the last few years I would say that deposit duration is something.
What's there that has certainly improved.
Thank you for that.
Okay.
This concludes our question and answer session I would now like to turn the conference back over to Dominic for closing remarks.
Well. Thank you all for joining our call and we are looking forward to speaking with you in January of next year.
Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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