Q4 2021 East West Bancorp Inc Earnings Call
As referenced on this call pertain to adjusted numbers. Please refer to the bank's regulatory filings, including our form 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 on the Investor Relations site.
As a reminder, 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 our earnings call I'll begin to review of our financial results with slide three.
Our presentation.
This morning.
We reported net income of $218 million and earnings per share of $1 52 for the fourth quarter of 2021.
For the full year East West achieved record earnings of $6 10 per share.
Record full year total revenue of $1 8 billion grew by 13% year over year.
And record net income of $873 million grew by 54%.
This was driven by full year total loan growth of 12% excluding PPP.
Full year total deposit growth was 19%.
We returned one 5% on assets.
And 17 two.
2% on tangible equity for the year.
Our outstanding financial performance in 2021 reflected robust interest income and fee income growth.
Industry, leading efficiency.
And substantially improved asset quality.
In the fourth quarter of 2021 nonperforming assets decreased by 40% and criticized loans were down by 18%.
For each consecutive quarter of 2021 criticized loans decreased.
The fourth quarter annualized net charge off ratio also decreased to a low of 10 basis points.
At the same time, we maintained a healthy allowances for loan losses, our reserve coverage of loans was one 3%.
Of December 31, 2021.
We are starting the new year from a position of strength.
<unk> growth prospects for 2022 are excellent.
We believe that our broad based diversified loan growth momentum from 2021 will continue in the new year.
We are encouraged by the favorable credit requirement.
Our balance sheet is well positioned.
To benefit from current market expectations for rising interest rates.
Further investments that we have made over the last several years and cash management and payment related products and services.
<unk> helps to strengthen our core deposit base.
As of December 31, 2021, noninterest bearing demand deposits made up 43% of total deposits a record for east West.
We have a longstanding history of industry leading efficiency.
Our adjusted efficiency ratio was a low 37% in 2021.
In 2022, we will continue to control expenses, while investing in our strategic priorities to expand revenue.
Enhance the customer experience and strengthen risk management.
And during growth and scalability.
Put it all together these factors will drive robust earnings growth and strong profitability in the coming year and beyond.
Slide four presents a summary of our balance sheet.
As of December 31, 2021, total loans reached a record high of $41 7 billion.
Excluding paycheck protection program loans total loans grew $1 5 billion or 15% annualized from September 32021.
And by $4 3 billion or 12% year over year.
Loan growth in 2021 was well balanced across C&I.
Residential mortgage and commercial real estate.
On an average basis fourth quarter total loans, excluding PPP grew by 10% annualized from the third quarter.
Total deposits of $53 4 billion as of December 31, 2021 were essentially unchanged.
From September 32021, and up by <unk>.
$8 5 billion or 19% from a year ago.
Driven by strong growth in noninterest bearing demand deposits.
On an average basis fourth quarter total deposit grew by 6% annualized from the third quarter.
Turning to slide five you can see our strong capital ratios.
Largely stable quarter over quarter.
As of December 31, 2021, and we had a common equity tier one ratio of 12, 8%.
And a total capital ratio of 14, 1%, which provides us with meaningful capacity for future growth.
Our book value per share increased 10, 5% and a tangible equity per share increased 12% year over year.
I am pleased to announce that east West Board of directors.
Proved a 21% increase.
To the quarterly common stock dividend.
<unk> 33 per share to <unk> 40 per share.
Equivalent to an annual dividend of $1 60 per share.
The new dividend will take effect beginning in the first quarter and is payable on February 20 <unk>.
2022 to stockholders of record on February seven 2022.
Now moving on to a discussion of our loan portfolio beginning with slide six.
C&I loans outstanding excluding PPP were a record $13 6 billion.
As of December 31, 2021.
An increase of 18% annualized from September 30.
And up by 13% year over year.
Total C&I commitments with $19 8 billion as.
As of December 31.
Also up 18% annualized sequentially and up <unk>.
14% year over year.
Quarter over quarter.
Our total C&I utilization was unchanged at 69%.
By industry, we saw strong end of period net growth in the fourth quarter from private equity and.
Entertainment.
And general manufacturing on wholesale.
Throughout the year.
Ni growth for us has been diversified across our lending teams geographies.
Specialized verticals.
From 2022, we expect that C&I growth will continue to be well diversified.
In our outlook.
We're assuming that current line utilization levels are unchanged.
An improvement in utilization will provide upside to our current expectations.
We're optimistic about the strengthening economy and demand in our markets but.
But cautious about the impact that the ongoing pandemic may have on near term growth.
Slide seven shows the details of our commercial real estate portfolio, which is well diversified by geography and property type and consists of low loan to value loans.
Total commercial real estate loans was $16 2 billion as of December 31, 2021 up by 16% annualized from September 30.
And up by 9% year over year.
This quarter.
We saw the strongest net growth by property type in multifamily mortgages and retail CRE.
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 2 billion as of December 31, 2021.
We are growing five 9% annualized.
Sure.
And up by 15% year over year.
During the fourth quarter, we originated $1 billion of residential mortgage loan.
Which was up 4% quarter over quarter and down 4% year over year.
Originations for the full year of 2021 were $4 3 billion.
An increase of 29% year over year.
I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement hiring.
Thank you Dominic I'll start with our asset quality metrics on slide 10.
I'm very pleased to report that during the course of 2021, all asset quality metrics substantially improved total criticized loans decreased sequentially by 18% to $833 million as of December 31, 2021, and decreased by 32% year over year.
<unk> loan ratio improved by 117 basis points to 2% of total loans as of December 31, 2021 down from three 2% of loans as of December 31, 2020 quarter over quarter nonperforming assets decreased by 40% to $103 5 million as of December 31.
The change in nonperforming assets in the fourth quarter reflects payoffs and upgrades of C&I loans and the sale of a commercial real estate owned property year over year nonperforming assets were down by 56%.
The nonperforming asset ratio improved to 17 basis points of total assets as of December 31, 2021 <unk>.
<unk> from.
45 basis points of total assets as of December 31, 2020.
Total oil and gas commitments were $912 million and balances outstanding were $601 million as of December 31, 2021, we are comfortable with the portfolio size of under $1 billion in commitment for this sector year over year the risk profile of these borrowers has improved substantially.
On slide 11, we present the components of our allowance for loan losses.
Our allowance totaled $542 million as of December 31, 2021, and 130 <unk> of loans, excluding PPP compared with $560 million or $1 41 as of September 30th the quarter over quarter change in the allowance reflects improvement in real estate metrics for our CRE loan pool.
And about our operating backdrop for the oil and gas exposures.
This was partially offset by higher downside scenario weightings due to uncertainty related to the pandemic and the current omicron variant, we believe that the allowance coverage ratio will continue to moderately decline in the coming year.
Fourth quarter net charge offs were $10 million down from $13 5 million in the third quarter.
The fourth quarter net charge off ratio was 10 basis points of average loans annualized an improvement from 13 basis points.
Annualized for the third quarter for the full year of 2021, the net charge off ratio was 13 basis points compared to 17 basis points for the prior year.
Assuming the economy continues to improve we believe that the net charge offs for the full year 2022.
Modestly improved from full year 2021 levels during the fourth quarter, we recorded a negative $10 million provision for credit losses.
As in the third quarter and in line with our guidance for the full year of 2021, we recorded a negative 35 million provision for credit losses, largely due to an improved macroeconomic forecast, partially offset by allowance is required for the $4 3 billion growth in the loan portfolio.
And now moving to a discussion of our income statement on slide 12. This slide summarizes the key line items of income statement, which I will discuss in more detail on the following slides noninterest income included an interest rate contracts and other derivatives are mark to market adjustment, which $4 4 million in the fourth quarter.
Compared with $2 5 million in the third quarter. These primarily relate to changes in the CBA on this slide the CVA marks are included in the other line of noninterest income.
Amortization of tax credits and other investments decreased this quarter to $32 million compared with $38 million in the third quarter.
Warner over quarter variability in the amortization of tax credits, partially reflects the impact of investments that closed in a given period the effective tax rate for the full year of 2021 was 17% which was the same rate as in 2020.
I will now review the key drivers of our net interest income and net interest margin on slides 13 through 16, starting with the average balance sheet.
Fourth quarter average loans of $40 5 billion grew by $572 million or 6% linked quarter annualized and excluding PPP by 1 billion or 10% annualized during the quarter, we deployed cash and cash equivalents into higher yielding loans and securities average loan securities.
And retail agreements increased by $1 7 billion in interest bearing cash and deposits with banks, yielding 25 basis points decreased by $986 million.
Fourth quarter average deposits of $54 3 billion were up by $820 million or 6% linked quarter annualized led by growth in non interest bearing demand deposits, which increased by $850 million or 15% annualized our average loan to deposit ratio was 75% in the third quarter.
<unk> from the third quarter.
We have previously communicated our comfortable operating with a loan to deposit ratio up to the low 90% range. Although core deposit growth is always a focus for east west a loan to deposit ratio with the starting point of 75% today provides us with flexibility to withstand deposit pricing pressure and a rising inter.
Rate environment shoring up the asset sensitive nature.
<unk> of our loan portfolio.
Turning to slide 14 fourth quarter 2021, net interest income of $406 million was the highest quarterly net interest income in the history of east west growing by 10% linked quarter annualized excluding PPP net interest income grew by 16% annualized in the fourth quarter income related to <unk>.
<unk> loans was $10 million in the fourth quarter, consisting of $8 million of deferred fees and $2 million of interest income as of December 31, we had $6 million of PPP deferred loan fees for many to create into income on a $534 million loan book.
The GAAP net interest margin expanded to 273% in the fourth quarter, an increase of three basis points from the prior quarter, excluding PPP the fourth quarter adjusted NIM of 270 expanded by six basis points sequentially. As you can see from the waterfall chart on this slide.
The adjusted net interest margin expansion in the fourth quarter reflects a favorable earning asset mix shift combined with the lower cost of interest bearing deposits.
Turning to slide 15.
The fourth quarter average loan yield was $3 59, and excluding the impact of PPP. The adjusted loan yield was $3 56 unchanged from the third quarter of our $27 4 billion in variable rate loans as of December 31.
$5 6 billion had fully indexed rates below floors of which $1 9 billion or 25 basis points or less from their floor rate another $1 9 billion or 25% to 75 basis points from their floor rate.
Turning to slide 16, our average cost of deposits for the fourth quarter dropped to 10 basis points, an improvement of two basis points from the third quarter.
<unk> rate on total deposits cost was nine basis points as of December 31, also down by two basis points from September 30th the cost of deposits declined as we continued to reduce higher rate accounts and grow lower cost deposits.
The average cost of Cds in the fourth quarter was 33 basis points, a decrease of two basis points from the third quarter in the fourth quarter, we originated or renewed a $4 9 billion of domestic Cds at a blended rate of 20 basis points and a weighted average duration of four months the repricing of maturing Cds.
So lower rates has reached an equally brands.
Moving onto fee income on slide 17, total noninterest income in the fourth quarter was $71 5 million compared with $73 million in the third quarter customer driven fee income and net gains on sales of loans were $63 million essentially stable from the last three consecutive quarters.
And up 19% year over year quarter over quarter growth in lending fees and deposit account fees were partially offset by lower interest rate contracts and other derivatives income revenue and lower gains on sales of SBA <unk> loans year over year, the growth and foreign exchange income deposit account fees lending.
Fees and wealth management fees, largely reflects new customer acquisitions and increased transaction volumes, particularly for cash management and foreign exchange beyond the rebound from Covid related troughs of 2020.
Beyond quarter to quarter volatility a positive about the trends in our fee income.
Businesses and momentum from ongoing growth in 2022 and beyond.
Moving on to slide 18 fourth quarter noninterest expense was $210 million, excluding amortization of tax credits and other investments and core deposit intangible amortization adjusted noninterest expense was 178 million in the fourth quarter, an increase of $11 million or 7% sequentially. This expense.
This growth was driven by higher bonus and incentive compensation expense in the fourth quarter related to full year business activity and higher charitable contributions for the full year of 2021, the adjusted noninterest expense of $671 million was up 6% year over year.
The fourth quarter adjusted efficiency ratio was 37% compared with 36% in the third quarter and 40% in the year ago quarter. The full year 2021, adjusted efficiency ratio was also 37% and improved by over 200 basis points from 2020.
And with that I will now introduce our full year outlook for 2022 on slide 19.
For the full year 2022, we currently expect year over year loan growth, excluding PPP approximately 12% similar to growth in 2021, excluding PPP.
We expect well diversified loan growth in 2022, driven by strong production from all of our major loan portfolios and led by commercial and industrial loans were assuming that our current C&I utilization rate of 69% stays unchanged and our outlook.
Year over year, adjusted net interest income growth, excluding PPP and the range of 17% to 19%.
This reflects loan growth as well as the impact of anticipated fed funds increases on our asset sensitive balance sheet underpinning. Our interest income assumptions is a forward interest rate curve as of January 26, 2022, which assumes for fed funds rate hikes in 2022.
In March June September and December and our modeling we are factoring in a 30% beta on our deposits.
Adjusted non interest expense growth, excluding tax credit investment amortization of seven 2% to 8% year over year as we benefit from rising rates and our revenue growth, we expect to reinvest a portion of that revenue back into our business investing in people technology to support our strategic.
<unk> initiatives, we expect our revenue and expense outlook to result in positive operating leverage year over year.
In terms of credit items for 2022, we currently expect that the provision for credit losses will be below $50 million, we anticipate a modest improvement in the full year net charge off ratio, which was 13 basis points in 2021, we.
We expect the full year of 2022 effective tax rate will be approximately 17% to 18% in line with the effective tax rate of 17% in 2021.
This includes the impact of tax credit investments there will be quarterly variability in the tax rate due to timing of tax credit investments placed into service with that I'll now turn the call back over to Dominic for closing remarks.
Thank you Irene.
In closing.
2021 was an outstanding year for East West.
I wish to thank our team of over 3000 associates.
Their unwavering dedication and hard work throughout the year.
And enabling us to serve our customers with excellence, while delivering strong financial performance.
I also want to take this opportunity to wish everyone a happy new year.
And a happy early lunar new year.
Which is coming on February one next Tuesday.
I hope the year of the Tiger brings.
<unk> health and prosperity to all of us.
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 you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble a roster.
Yes.
Our first question comes from Ebrahim <unk> with Bank of America. Please go ahead.
Good morning.
Good morning.
And maybe just if you could start with deposits period end balances were relatively flat quarter over quarter.
If you could give us some perspective on what you were assuming in terms of deposit growth in.
And you referenced the low loan to deposit ratio I'm. Just wondering do you expect a meaningful rise in that ratio.
So of this year and how we should be thinking about incremental deposit growth, especially in light of all the investments you've made on the Treasury management side.
Great question.
On a year on what's the customer kind of activity, we did see kind of flattish deposit growth, but also as we noted.
In our call and then the financials you can see that the average deposit growth was still quite good and all.
Ill point out that year to date, thus far deposits have rebounded as I mentioned the customer activity was a driver for the.
Deposit balance right at 12 31 2022.
Realistically, what's going to be the driver for our earnings Abraham is going to be the loan growth and as I mentioned in the prepared remarks, obviously deposit growth is always a priority for east West maybe just slightly less of a priority in 2022 with our modeling were assuming about a 6% deposit growth in <unk>.
<unk> thousand 22.
Well, let me just maybe add on also.
Core deposit growth, specifically noninterest bearing operating accounts.
That's what we've been focusing on.
Over the last several years.
Many of our investments that we made throughout the years incrementally every single year was to the payment.
<unk>.
System.
Also digital banking for both commercial and consumer.
And really going at looking at the.
Commercial clients that we have and then.
Figure out how we can best serve our commercial clients.
<unk> result in tremendous growth in our noninterest bearing demand deposits as we indicated in our call.
It was 43% as <unk>.
December 31 two.
2021.
No.
We will continue to drive those deposit growth.
But the situation at east West is that at <unk>.
Seeing that we have much higher deposit growth and loan growth.
For the last year or two.
And we have a loan to deposit ratio at 78%.
So obviously, we don't have a need to chase deposits, we just wanted to keep growing.
High quality.
Core deposits.
And thus we will.
As part of our fifth changes, we're focusing on but in terms of do we need deposits to support our asset a non growth. The answer is not so obviously because of that reason we are more comfortable to put more focusing on on the lending side.
Understood.
And just as a follow up.
You referenced strategic priorities Dominic in New York earlier.
Just wondering if youre going to elaborate on that like where you are making investments and how we should think about.
That manifesting on revenue growth either on the fee income or the lending side.
We are making investments.
Sort of like in the technology, we continue to focusing on also Treasury management.
Area in terms of how do we further and better improve our.
Payment.
Related products.
Cash management.
And in addition to that as I mentioned, just mentioned earlier digital banking, both consumer and commercial.
We also are putting more emphasis on wealth management and this is an area. We see that there was going to be great opportunity for us in the next five years to 10 years, and we are putting more investment to that now in addition to it.
Adding on.
New.
Bankers, new bankers, both for consumer banking wealth management and also commercial banking.
Various industry verticals that we.
Yeah.
Started.
Some of them over 10 years ago, some of them only the last two or three years.
We can add on additional bankers to grow the business. In addition to that we're also going through a graphically we did mention.
I guess.
While in the middle of the pandemic in 2020.
We started our office in Chicago.
Obviously for four months or so we couldnt do anything because right in the middle of a pandemic, but.
That little office in Chicago have stopped making very decent commercial banking business growth in 2021, So we expect that to grow even further.
So we will continue to look at some of the other geographic fill and that we think that will be.
Sort of like.
Areas that may.
<unk> for east West to explain two so one by one I think adding people adding takeout.
The appropriate type of product capability and further enhancing our technology and overall enterprise risk management all of those other areas.
Incrementally improve in 2022.
Sure.
Got it thank you.
Okay.
Our next question comes from Chris Mcgratty with <unk>.
K B W. Please go ahead.
Okay.
Hey, good morning.
Good morning.
Dominic I wanted to ask about the outlook for C&I.
In your prepared remarks, you said.
Youre assuming stable utilization.
And the guys I guess two part question what do you think it'll take to see that move up.
Then if it did move up a point.
Is there a rule of thumb for how much incremental growth that would that would lead to.
Well, if this incrementally improved I'm pretty sure that that would obviously.
Increase the loan growth in terms of outstanding balances. So yes, I can share like when we look at that as we mentioned you know the utilization hasnt increased substantially quarter over quarter and in fact, very similar to year over year numbers as well.
When we look at kind of the utilization for the clients prior to the pandemic.
<unk> to the current levels with these customers. If we went back to pre pandemic not off.
About $1 2 billion increase.
Okay, that's great.
And then secondarily.
I'm interested in your comments around the fee income opportunities. Thank you touched it on wealth management and higher how should we think about just the evolving rate environment, and how that might affect your capital markets business, which which moves around quarter to quarter.
Yes, I think on the capital markets.
Partially yes. The volume is so low in the fourth quarter, we did have higher kind of fee income related to our broker dealer.
And that's in that other income line items, I think that might be what you're referring to Chris overall for our wealth management. If you look at that I think that was also part of your question.
Year over year, we've grown that nicely and we expect in 2022 will continue to grow that as well.
Yes, it's an area that I would say that it's going to be a modal.
Multi years.
Priority.
That is if I look back like maybe six seven years ago that I wanted to where they put an effort in terms of improving treasury.
Treasury management by cash management, and also foreign exchange and that as of today, we see the numbers have grown substantially higher than it was five years ago. So.
And with the wealth management area is another one of those high potential area that we think that three years or four years from now that we look back at the numbers can be substantially higher than it is today.
Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning.
Good morning.
I guess circling back on the guidance with the tax.
What's the assumption for tax credit.
Amortization costs on that.
Offset.
Let me get put out for you right away I believe we're assuming about 100 and.
$30 million of tax credit amortization for the full year of 2022.
Okay. Thanks, and then looking at credit obviously, you had great improvement as we've gone through the year.
With with the allowance ratio now looking like it's a little bit below the <unk>. So what's the impact of the of the improved energy improved into smaller energy book on that and as we as we look out through the year.
Do you think a natural for us given the economic environment for the allowance to total loans ratio.
Yeah, that's a great question, so as of a year end.
The allowance for the energy book was about 50 million and that certainly is lower year over year and absolutely lower than when we were de <unk>. So overall when we look at the trends for the alarm.
We do expect it to come down from these levels for 130 that were around 132 ex PPP oil and glass that portfolio certain plays a factor of that especially as our portfolio size decreases and as you can see from the metrics that we provided.
The credit quality and the performance has continued to improve but I would also say that as the allowance the absolute dollars and the balance has come down and I think that there'll be less of a factor for us.
The allowance in 2022, and the required ratios more so the rest of the portfolio in particular honestly, probably the CRE portfolio in 2022, and the metrics and the drivers for that will have the largest impact for the allowance.
Our next question comes from Dave Rochester, with Compass point. Please go ahead.
Hey, good morning, guys.
Good morning, Amit.
Good morning on the NII Guide just wanted to understand what you are expecting to be the impact of each 25 basis point rate hike that you've got in here and then what's the level of medium term interest rates that youre assuming in the securities growth are you factoring in as well thanks.
Yes, great questions right now is our modeling and the guidance, we expect the impact would be about $31 million per hike.
In 2022, we're not assuming any real growth in the securities book or some of that really the driver for that will be the liquidity and looking at what happens with the deposit growth, but we're not assuming any major changes in that and I think you mentioned the rate.
Kind of the rate curve actually has flattened a little bit and that is also something that we factored in with the guidance and the NII increase related to rates.
And although we are working for bank. Okay go ahead.
Yes to clarify one comment from Irene.
The $31 million and she said per hike thats over a full year basis.
So if the hikes are coming in at various points in time Youre not you didnt have to factor in the timing of timing awesome.
Yes that makes sense and then so for medium term interest rates it doesn't sound like you're assuming that those move up much from here.
Correct.
Most of the NII that were a factor again really is from the growth of the loan book.
And in fact really even without rate increases, we do expect that that Ah.
The increase in NII would be about 15%.
Perfect and then my second.
Question just on fee income.
Solid growth in 'twenty one.
You've already talked about the enhancements you've made to Treasury management, you've added folks as well what are your thoughts on growth for 'twenty. Two at this point do you think that the pace we saw in 'twenty, one would be appropriate.
Project in 'twenty two.
Total fee income grew over 20% year over year.
As we're kind of modeling for 2022, I don't know if were going to expect that level of growth in particular.
Wood said, we had some items that may not recur in 2022 that happened in 2021.
Some of the Spi investments, we had a lot of kind of equity pick up from there positive CVA adjustments. So we're not modeling that and but we do expect that core customer related fee income will grow nicely year over year, and we're assuming roughly about 15% on that.
Our next question comes from Casey Haire with Jefferies. Please go ahead.
Yes, thanks, good morning.
I just wanted to follow up on.
The asset sensitivity I appreciate the $31 million.
But just wondering what are the deposit beta assumptions.
Our being input for that kind of sensitivity.
Yes.
<unk>, we're assuming 30% total deposit beta.
Our interest bearing and honestly compared to like the last cycle, we're assuming no change but of course with the overall portfolio. The mix that we have higher level of DDA deposits much higher level of operating account, we do expect a lower overall deposit beta of 30% or so.
Sure.
Okay. So that 30% is through the cycle not necessarily for the first couple of bikes.
That's right that's right.
Lee the question there, but our assumption is the first couple of heights, the beta is going to be lower.
Gotcha Okay.
And then just for liquidity deployment.
Obviously, a nice move in the fourth quarter.
On a period end basis, Youre down at $3 9 billion.
Is there more room to grow could you just give US a reminder, as to where.
What's sort of your minimum comfort level is there.
Yeah, I'd say, there is a little bit more with regard our pace of that really is a function of evaluating what our liquidity needs are what's happening with the deposits, but overall there is probably a little bit more room to go on that.
Our next question comes from Brandon King with tourists. Please go ahead.
Hey, good morning.
Good morning.
So yes, I wanted to first touch on loan growth specifically in CRE and I wanted to know what was the assumption for Paydowns. This upcoming year there'll be lower or higher compared to 2021, I know some banks have mentioned how.
Higher interest rate environment could lead to lower payoffs and I was wondering if that had any impact on you guys.
Yes, I think we are hoping so two in fact.
Well first of all there are there were a lot of refi activities for the last.
Year, or two and so and I think that a lot of.
Our clients are very sort of like gone through the refi exercise and the other thing is what ray picking up a little bit.
I'd expect maybe a little bit less of those type of activities going on so hopefully that would help reduce that.
The debt pay down and in fact that was part of our assumption for 2022, we do expect a slightly less pay down debt.
<unk> in 2021.
Okay.
And then on the expense guide.
Was wondering what the composition of the growth in expenses is expected to be particularly for compensation.
So.
Notwithstanding growth in 2021 is that expected.
2022, as well based on our outlook and potential bonus and incentive payouts.
Yes, the increase.
Our expected noninterest expense is largely related to compensation and employee benefits.
Brandon we're a growing organization, we're expecting to grow the loan book.
Dominic mentioned kind of new hires and new teams in Chicago.
Adding throughout.
The front office perspective, and also the back office. So most of the noninterest expense increases.
Dissimilar to the activity that you saw in 2021 honestly, our compensation will be the largest driver for that but with that we expect hopefully very soon afterwards revenue growth as well.
Okay.
Our next question comes from Brock Vandervliet with UBS. Please go ahead.
Hi, good morning.
Good morning, guys I just wanted to.
Good morning, I, just wanted to confirm that number should NII would be up 15% ex ex hikes.
Yes, that's our expectation.
Correct.
Got it I'm kind of surprised that.
Four hikes don't don't add.
Don't add more.
Yeah.
Pablo.
Yeah, I talked about part of it is the shape of the curve part of it is the timing I think it's also as we're evaluating it we talked about the deposit betas and then also the.
Now one of the other factors is we're assuming kind of what the shape of the curve also maybe a little bit compression on the loan side. So we want to be realistic with our guidance with that and the timing of that.
And again this is just 2020.
We do expect further growth afterwards, and don't forget the fourth crack in December has very little impact in the third hike is also late in the year. So.
It sounds four hikes sounds impressive until you.
I worked it out over the course of the year.
We'd be happy to work through the model with you.
Okay.
And as a follow up just in terms of.
General commercial calling efforts.
The client growth that Youre seeing is it is it.
What we would associate with the Chinese ethnic bank or are you of the size now where many of these new relationships.
No tie to that whatsoever.
We are getting both I mean, that's what the that's one of the reasons why <unk> been seeing this consistent sustainable profitable growth at East West Bank and.
And we have the advantage of when we.
Compete like a regional bank.
With banks within the.
Yes U S footprint.
We obviously have many different industry verticals and in some good geographical area.
And we cover those C&I business quite well and cover those CRT business quite well.
And then we also have to cross border banking activities that continue to have sustainable growth.
If we looked at the last four years.
Tariff on U S China.
So trey.
Situation that is happening that didn't stop is worth of growing and we continue to see growth coming from cross border banking business and in our consumer banking side, we are the dominant.
Financial institution in the retail space when it covers the <unk>.
Chinese American custom.
Customers from single family mortgages home equity lines and.
Also.
Consumer deposits et cetera, So and then of course foreign exchange business. So we are going well was continuing to expand in both areas and so far we have full confidence that 2022 and beyond.
You'll see similar trend.
Our next question comes from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Good morning.
As youre thinking about loan growth in 2022, and obviously you gave the guide on that in 2021. The group ended up being very well distributed among the three main loan segment. So just.
Asking if you are.
Expectations include any sort of.
Shifts in where more of our growth comes from in 2022 versus 2021.
Yeah in fact.
What you notice is that.
We have in the past.
Residential mortgage.
Tend to be the bill.
Lee.
Then.
CRE C&I and we started from.
From the third quarter in 2021 and onward C&I, our taking the lead.
And naturally because.
I would expect in 2022 from what we see in the rate environment.
And the activities from the in the past few years.
Refi market for single family mortgages, probably slow down a little bit so we wouldn't expect.
Single family mortgages to have those cycle.
In fact, a few years ago 20, plus percent kind of growth.
So most likely we're expecting C&I to be.
The leap to grow faster than CRE.
And <unk>.
Single family in fact at our outlook we have.
<unk>.
A little bit higher growth in C&I, and then steady 10% growth both from CRE and single family mortgages.
Can you tell us what the.
What your mix of refi and purchase was in single family for 2021.
I don't know if I have that mix for the full year, but our originations definitely.
Pivot towards purchase.
Versus refi.
Our next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning.
Just to follow up on the.
Loan growth question as it relates to <unk>.
I recall.
Pricing competition got a little.
No more challenge there and you guys backed away from the market the curve has steepened or at least the long ends obviously come up.
Guys.
More actively involved in that space and how much of your outlook is based on slower prepay activity.
Yes, I want to clarify we did kind of <unk>.
During the course of 2021 at various points, we discontinued a 30 year mortgage and it wasn't really pricing competition. It was really kind of the pricing caps and we thought that pricing levels were too low.
All of that.
For our guidance and when we look at 2022, we're not really assuming that the.
Pay offs and refi activity really play a huge factor in the CPR really is going to decrease a lot from the levels that it had been experiencing so certainly that can help as well that if that diminishes.
Okay, and then it's still a very robust market.
Product offerings originations as you know really are through the branch network and still pipeline is very strong on the single family and also the HELOC product, which for US a lot of our customers.
Very similar depending on their needs right most of our HELOC or first lien HELOC.
Yeah.
Got it okay, great and then.
Shifting to the trade finance portfolio can you remind us how large that portfolio is on a dollar basis and the trends youre seeing in that business.
<unk>.
Do we have to train.
Don't know if we have the breakout exactly of that portfolio at year and Matt. We will get you that number if you look at slide six you see the composition of our C&I book and a lot of the trade really is kind of that general manufacturing our wholesale portfolio overall now with our commentary on the utilization.
I'd say trades kind of in that category, where we really haven't seen the line utilizations pick up for those customers.
But certainly I think overall it is trending upward.
Sure.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Dominic for any closing remarks.
Well I just want to thank everyone for joining our call and we're looking forward to speaking with you again in April .
Bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.