East West Bancorp Inc

NASDAQ:EWBC

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and welcome to the East West Bancorp’s Fourth Quarter 2021 Financial Results Conference Call. All participants will be in a listen -only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Julianna Balicka, Director of Investor Relations. Please go ahead.

[Julianna Balicka, Head, IR]

Thank you, Sarah. Good morning, and thank you everyone for joining us to review the financial results of East West Bancorp for the fourth quarter and full-year of 2021. With me on this conference call today are Dominic Ng, our Chairman and Chief Executive Officer; and Irene Oh, our Chief Financial Officer.

We would 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 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, 2020.

In addition, some of the numbers 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 and 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.

[Dominic Ng, Chairman, President & CEO]

Thank you, Julianna. Good morning. Thank you, everyone, for joining us for our earnings call. I will begin the review of our financial results with slide 3 of 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, and full year total deposit growth of 19%. We returned 1.5% on assets and 17.2% 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, non-performing 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 10 basis points. At the same time, we maintained a healthy allowances for loan losses, our reserve coverage of loans was 1.3% as of December 31, 2021.

We're starting the new year We're starting the New Year from a position of strength. The loan growth prospects for 2022 are excellent. We believe that our broad based, diversified, loan growth momentum from 2021 will continue in the New Year and we're encouraged by the favorable credit environment.

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 in cash management and payment related products and services have helped to strengthen our core deposit base. As of December 31, 2021, non-interest-bearing demand deposits made up 43% of total deposits, a record for East West.

We have a long standing 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 years and beyond.

Slide 4 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 30, 2021.

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 deposit of $53.4 billion as of December 31, 2021 were essentially unchanged from September 30, 2021, and up by $8.5 billion, or 19% from a year ago, driven by strong growth in non-interest-bearing demand deposits. On an average basis, fourth quarter total deposit grew by 6% annualized from the third quarter.

Turning to slide 5, you can see our strong capital ratios largely stable quarter-over-quarter. As of December 31, 2021, we had a common equity Tier 1 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'm pleased to announce that East West board of directors approved a 21% increase to the quarterly common stock dividend from $0.33 per share to $0.40 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 22, 2022 to stockholders of record on February 7, 2022.

Now moving on to a discussion of our loan portfolio, beginning with Slide 6. C&I loans outstanding, excluding PPP were 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 were $19.8 billion as of December 31, also up 18% annualized sequentially and up 15% 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 from wholesale. Throughout the year, C&I growth for us has been diversified across our lending teams, geographies and specialized verticals.

From 2022, we expect that C&I growth will continue to be well diversified in our outlook. We are assuming that trend line utilization levels are unchanged. An improvement in utilization will provide upside to our current expectations. We're optimistic about a strengthening economy and demand in our markets, but cautious about the impact that the ongoing pandemic may have on near-term growth.

Slide 7 and 8 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 long-term 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 9, 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 were in fact 9% annualized 23 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 about asset quality and income statement. Irene?

[Irene Oh, EVP & CFO]

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, our 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. The criticized loan ratio improved by 117 basis points to 2% of total loans as of December 31, 2021, down from 3.2% of loans as of December 31, 2020.

Quarter-over-quarter, non-performing 3.2% of loans as of December 31, 2020. Quarter-over-quarter, non-performing assets decreased by 40% to $103.5 million as of December 31. The change in non-performing assets in the fourth quarter reflects payoffs and upgrades the C&I loans and the sale of a commercial real estate owned property.

Year-over-year, non-performing assets were down by 56%. The non-performing asset ratio improved to 17 basis points of total assets as of December 31, 2021, down 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 commitments 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, a $132 million of loans excluding PPP compared with $560 million or $141 million as of September 30. The quarter-over-quarter change in the allowance reflects improvements and real estate metrics for our CRE loan pools and a better 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 for 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 2020 to will modestly improve from full year 2021 levels. During the fourth quarter we recorded a negative $10 million provision for credit losses same 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 allowances 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 the income statement, which I'll discuss in more detail on the following slides. The non-interest income included an interest rate, contracts and other derivatives of mark-to-market adjustment, which were $0.4 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 CBA marks are included in the other line of non-interest income.

Amortization of tax credits and other investments decreased this quarter to $32 million, compared with $38 million in the third quarter. Quarter-over-quarter variability and 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'll 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 a 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 loans, securities and retail agreements increased by $1.7 billion and interest bearing cash and deposits with banks yielding 25 basis points decrease by $986 million.

Fourth quarter average deposits of $54.3 billion were up by $820 million, or 6% linked quarter annualized led by growth and 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, unchanged from the third quarter.

We previously communicated that we're comfortable operating with a loan-to-deposit ratio up to the low 90s percent 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 in a rising interest rate environment shoring up the asset sensitive nature 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 PPP 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 remaining to accrete into income on a $534 million loan book. The GAAP net interest margin expanded to 2.73% in the fourth quarter, an increase of 3 basis points from the prior quarter. Excluding PPP, the fourth quarter adjusted NIM of 2.70% expanded by 6 basis points sequentially. As you can see from the waterfall chart on the slide, the adjusted net interest margin expansion in the fourth quarter reflects the 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 $359 million and excluding the impact of PPP, the adjusted loan yield was 3.56%, unchanged from the third quarter. Of our $27.4 billion and 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 basis points to 75 basis points from the floor rate.

Turning to slide 16, our average cost of deposits for the fourth quarter dropped to 10 basis points, an improvement of 2 basis points from the third quarter. The spot rate on total deposits costs was 9 basis points as of December 31. Also down by 2 basis points from September 30. 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 2 basis points from the third quarter. In the fourth quarter, we originated or renewed $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 saw lower rates has reached an equilibrium.

Moving on to fee income on slide 17, total non-interest income in the fourth quarter was $71.5 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 contract and other derivative income revenue and lower gains on sales of SBA 7A loans. Year-over-year, the growth in 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 we’re 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 non-interest expense was $210 million. Excluding amortization of tax credits and other investments and core deposit intangible amortization, adjusted non-interest expense was $178 million in the fourth quarter, an increase of $11 million or 7% sequentially. This expense 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 non-interest 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'll 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 for 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. We are assuming that our current C&I utilization rate of 69% stays unchanged in our outlook.

The year-over-year adjusted net interest income growth, excluding PPP is in 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 four Fed funds rate hikes in 2022 in March, June, September and December. In our modeling, we are factoring in a 30% data on our deposits.

Adjusted non-interest expense growth, excluding tax credit investment amortization of 7% to 8% year-over-year. As we benefit from rising rates in our revenue growth, we expect to reinvest a portion of that revenue back into our business, investing in people, technology to support our strategic initiatives. We expect our revenue and expense outlook to result in positive operating leverage year-over-year.

In terms of product 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 expect the full year 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.

[Dominic Ng, Chairman, President & CEO]

Thank you, Irene. In closing, 2021 was an outstanding year for East West. I wish to thank our team of over 3,000 associates for 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 30 Lunar New Year, which is coming on February 1st next Tuesday. I hope the Year of the Tiger brings health and prosperity to all of us. I will now open up the call to questions. Operator?

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

[Ebrahim Poonawala, Bank of America]

Good morning. And maybe so just if you could start with deposits, so the period end balances were relatively flat quarter-over-quarter. Could – if you could give us some perspective around what you are assuming in terms of deposit growth? I know I mean you referenced the low loan to deposit ratio. I'm just wondering, do you expect a meaningful rise in debt ratio through the course of this year? And how we should be thinking about incremental deposit growth, especially in light of all the investments you made on treasury management side?

[Irene Oh, EVP & CFO]

Great question. A year on with the customer kind of activity, we did see kind of flattish deposit growth, but also as we noted in our call and in the financials, you can see that the average deposit growth was still quite good. And I'll 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. For 2022, realistically what's going to be the driver for earnings? Ebrahim, it’s 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, we're assuming about a 6% deposit growth in 2022.

[Dominic Ng, Chairman, President & CEO]

Well, let me just maybe add on also core deposit growth, specifically non-interest-bearing operating accounts, that's what we've been focusing on for the last several years. Many of our investments that we made throughout the years, incrementally every single year was to the payment and system and also digital banking for both of commercial and consumer and – and really going at – looking at the commercial clients that we have. And then figure out how we can best serve our commercial clients, which have resulted in tremendous growth in our non-interest-bearing demand deposit.

As we indicated in the call, that is, it was 43% as of December 31, 2021. So we will continue to drive those deposit growth. But the situation at East West is that, as you have seen, that we have much higher deposit growth than 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 want it to keep growing high quality core deposits, and that's we would, that's, that’s part that we’ll continue to be focusing on. But in terms of do we need a deposit to support our asset and loan growth? The answer is not so obviously because of that reason, we are more comfortable to put more focusing on, on the lending side.

[Ebrahim Poonawala, Bank of America]

Understood. And just as a follow up, you referenced strategic priorities, Dominic and yourself earlier. Just wondering if you can elaborate on that, like where you're making investments and how we should think about that manifesting on revenue growth, either on the fee income or the lending side?

[Dominic Ng, Chairman, President & CEO]

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 products and in addition to that, as I 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 to 10 years and we are putting more investment to that.

Now, in addition to it, we are adding on new bankers, new bankers, both for consumer banking, wealth management and also commercial banking. This various industry verticals that we 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 are also going geographically. We did mention, I guess, in the middle of the pandemic in 2020, we started our office in Chicago. Obviously for four months or so, we couldn't do anything because right in the middle of a pandemic. But that little office in Chicago have started 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 field and that we think that will be sort of like areas that make sense for East West to expand into. So one by one, I think adding people, adding to appropriate type of product capability and further enhancing our technology and overall enterprise risk management, all of those are the areas that we will incrementally improve in 2022 and beyond.

[Operator]

Our next question comes from Chris McGratty with KBW. Please go ahead.

[Chris McGratty, KBW]

Hey. Good morning. Dominic, I want to ask about the outlook for C&I, I think in your prepared remarks, you said you're assuming stable utilization in the guide. I guess two-part question. What do you think it will take to see that move up? And then if it did move up a point is there a rule of thumb for how much incremental growth that would lead to?

[Dominic Ng, Chairman, President & CEO]

Well, if this incrementally improved, I'm pretty sure that that would obviously, you know, increase the loan growth in terms of outstanding balances so.

[Irene Oh, EVP & CFO]

Yeah, of course I can share. Like when we look at that, as we mentioned, the utilizations have been 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 compared to the current levels with these customers, if we went back to pre-pandemic levels, it's about $1.2 billion increase.

[Chris McGratty, KBW]

Okay. That's great. And then secondarily, I'm interested in your comments around the fee income opportunities. And you touched it on wealth management, the higher. How should we think about just the evolving rate environment and how that might affect your capital markets business which moves around quarter to quarter?

[Irene Oh, EVP & CFO]

Yeah. I think on the capital markets, partially the volume is so low. In the fourth quarter, we did have higher kind of a fee income related to our broker dealer. But that's in the other income line item. So I think that might be what you're referring to, Chris. Overall for wealth management 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.

[Dominic Ng, Chairman, President & CEO]

Yeah it’s an area that I would say that is going to be a multi years priorities, that is if I look back, you know, like maybe six, seven years ago that I wanted to, what do you put in effort in terms of improving Treasury management like cash management and also foreign exchange and then as of today, we see the numbers have grown substantially higher than it was five years ago and so and the wealth management area is another one of those high potential area that we think that three or four years from now that we look back at, the number is going to be substantially higher than we headed today.

[Operator]

Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.

[Jared Shaw, Wells Fargo Securities]

Hi, good morning. I guess just circling back on the guidance with the tax rate, what's the assumption for tax credit amortization costs on that offset?

[Irene Oh, EVP & CFO]

Let me get that for you right away, I believe, or assuming about $130 million of tax credit amortization and or for the full year of 2022.

[Jared Shaw, Wells Fargo Securities]

Okay, thanks. And then, looking at credit obviously it had great improvement as we've gone through the year with the allowance ratio now looking like it's a little bit below the day one CECL. What's the impact of the improved energy, the improvement in the smaller energy book on that and as we look out through the year, what do you think a natural for is, given the – the economic environment for the allowance to sort of loans ratio?

[Dominic Ng, Chairman, President & CEO]

Yeah. That's a great question. So as of our year end, the allowance for the energy book was about $50 million and that certainly is lower year-over-year and definitely lower than where we were at day one CECL. Overall, when we look at the trends for the [indiscernible], we do expect it to come down from these levels to $130 million that we’re on – around $132 million ex-PPP. Oil and glass that portfolio certainly plays a factor of that, especially as a 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’ll be less of a factor for 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 driver for that will have the largest impact for the allowance.

[Operator]

Our next question comes from Dave Rochester with Compass Point. Please go ahead.

[Dave Rochester, Compass Point]

Hey, good morning, guys. On the NII guide, I just want to understand what you're 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 you're assuming and the securities growth that you're factoring in as well? Thanks.

[Dominic Ng, Chairman, President & CEO]

Yeah. Great questions. Right now with our modeling and the guidance, we expect the impact would be about $31 million per hike in 2022. We're not assuming real growth in the securities books. Some of that will be 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, the kind of the V-curve actually has flattened a little bit, and that is also something that we've factored in with the guidance and NII increase related to rates.

[Irene Oh, EVP & CFO]

Yeah. Let me clarify one comment from Irene, the $31 million as she said for hike, that's over a full year basis. So if the hikes were coming in at various points in time, you're not, you’d just have to factor the time of timing also.

[Dave Rochester, Compass Point]

Yeah, that makes sense, and it's so for a medium term interest rates, it doesn't sound like you're assuming that those move out much from here?

[Dominic Ng, Chairman, President & CEO]

Correct.

[Dave Rochester, Compass Point]

Got you.

[Irene Oh, EVP & CFO]

Most of the NII growth that we’re factoring in really is from the growth of the loan book. And in fact, really even without rate increases, we do expect that that the increase in NII would be about 15%.

[Dave Rochester, Compass Point]

Perfect. And then as my second question just on fee income, just had the solid growth in 2021. You've already talked about the enhancements you made to treasury management. You've added folks as well. What are your thoughts on, on growth for 2022 at this point? Do you think that the pace we saw on 2021 would be appropriate to project in 2022?

[Irene Oh, EVP & CFO]

Yeah. The total fee income grew over 20% year-over-year. As we’re kind of modeling for 2022, I don't know if we’re going to expect that level of growth in particular, I would say we had some items that may not recur in 2022 that happened in 2021. Some of the SBIC investments we had, a lot of kind of equity picked up from their positive CDA 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.

[Operator]

Our next question comes from G. O’Hara with Jefferies. Please go ahead.

[G. O’Hara, Jefferies.]

Yeah. Thanks, good morning. Just want to follow-up on the asset sensitivity, appreciate the $31 million per hike, but just what are the deposit beta assumptions that are being input for that kind of sensitivity?

[Irene Oh, EVP & CFO]

Yeah. With the modeling, we're assuming 30% total deposit data for interest bearing, 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 accounts, we do expect a lower overall deposit beta of 30% or so.

[G. O’Hara, Jefferies.]

Okay. So that 30% is through the cycle, not necessarily for the first couple of hikes.

[Irene Oh, EVP & CFO]

That's right, that's right. And, the leading question there, but our assumption is the first couple of hikes the beta is going to be lower.

[G. O’Hara, Jefferies.]

Got you. Okay. And then just the liquidity deployment, obviously a nice move in the fourth quarter on a period end basis, you're down at $3.9 billion. Is there more room to go? Could you just give us a reminder as to where what sort of your minimum comfort level is there?

[Irene Oh, EVP & CFO]

Yeah. I’d say there is a little bit more room to grow. Our pace of that really is a function of evaluating what our liquidity needs are, what's happening with the deposits. But overall, there's probably a little bit more room to grow on that.

[Operator]

Our next question comes from Brandon King with Truist. Please go ahead.

[Brandon King, Truist]

Hey, good morning. So, yeah, 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 in higher interest rate environment could lead to lower pay offs, and I was wondering if that had any impact on your guidance.

[Dominic Ng, Chairman, President & CEO]

Yeah, I think we are hoping so, too. In fact, with the – 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 expect maybe a little bit less of those type of activities going on. So hopefully that would help reduce the pay down, and in fact, it’s part of our assumption for 2022 we do expect a slightly less pay down than we experience in 2021.

[Brandon King, Truist]

Okay. And then on the expense guide, I was wondering what the composition of the growth in expenses is expected to be, particularly for compensation. I know so 9% growth in 2021. Is that expected in 2022 as well, based off of the current outlook and potential bonus and incentive payouts?

[Irene Oh, EVP & CFO]

Yeah. The increase in the expected non-interest 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's riding throughout from the front office perspective and also the back office and most of the non-interest expense increases, let’s say, it's not that dissimilar to the activity that you saw in 2021 honestly or compensation will be the largest driver for that. But what that we expect hopefully very soon afterwards, revenue growth as well.

[Operator]

Our next question comes from Brock Vandervliet with UBS. Please go ahead.

[Brock Vandervliet, UBS]

Hi, good morning. I just wanted to – good morning, Irene. I just wanted to confirm that number, say, the NII would be up 15% ex-hikes.

[Irene Oh, EVP & CFO]

Yeah. That's our expectation. Correct.

[Brock Vandervliet, UBS]

Got it. And I'm kind of surprised that four hikes don't – don't add – don't add more.

[Irene Oh, EVP & CFO]

No. We – I think probably. Yeah. I – part of it is the shape of the [indiscernible]. 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 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 2022, right. We do expect further growth afterwards. And don't forget, the fourth hike in December has very little impact and the third hike is also late in the year. So it sounds four-hike sounds impressive until you work it out over the course of the year.

We'd be happy to work through the model with you.

[Brock Vandervliet, UBS]

Okay. And – and there's a follow-up just in terms of general commercial calling efforts. The – the client growth that you're seeing commercial calling efforts, the client growth that you're seeing is that, you know, what we would associate with a Chinese ethnic bank or are you of the size now where many of these new relationships have no ties to that whatsoever?

[Dominic Ng, Chairman, President & CEO]

We are getting both. I mean, that's what that's one of the reasons why you've been seeing this consistent, sustainable, profitable growth at East West Bank and we have the advantage of, when we compete like a regional bank, with banks within the US footprint, we obviously have many different industry verticals and in some good geographical area. And that would cover those C&I business quite well and cover those CRD business quite well. And then we also have the cross-border banking activities that continue to have sustainable growth.

If we looked at the last four years with this tariff and US-China sort of trade situation that is happening, that didn't stop East West from 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 Chinese American customers from single family mortgages, home equity lines and also consumer deposit, et cetera.

So and then of course, you know, foreign exchange business. So we are going well with continuing to expand in both areas. And so far, we have full confidence that 2022 and beyond we'll see similar trend.

[Operator]

Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

[Gary Tenner, D.A. Davidson]

Thanks, good morning. Just as you're thinking about loan growth in 2022, and obviously you gave the guide on that. In 2021, the growth ended up being very well distributed among the three main loan segments. So just asking if your, expectations include any sort of shift in where more loan growth comes from in 2022 versus 2021.

[Dominic Ng, Chairman, President & CEO]

Yeah. In fact, what you notice is that we have in the past, residential mortgage tend to be the lead, and then CRE, C&I and we started from the third quarter in 2021 and onward C&I are 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 slowed down a little bit.

So we wouldn't expect single-family mortgages to have those like in fact, a few years ago, 20 plus percent kind of growth. So most likely, we expect to see C&I to be the lead to grow faster than CRE and single-family. In fact, as our outlook, we are predicting a little bit higher growth in C&I. And then steady 10% growth, both from CRE and single-family mortgages.

[Gary Tenner, D.A. Davidson]

Can you tell us what the – what your mix of refi and purchase was in single-family for 2021?

[Irene Oh, EVP & CFO]

I don't know if I have that mix for the full year, but our originations definitely pivot towards a purchase versus refi.

[Operator]

Our next question comes from Matthew Clark with Piper Sandler. Please go ahead.

[Matthew Clark, Piper Sandler]

Hi, good morning. Just a follow-up on the loan growth question as it relates to SFR, I recall pricing competition got a little, more challenged there and you guys backed away from the market. The curve is steep. At least the long ends obviously come up. Are you guys, more actively involved in that space and how much of your outlook is based on slower prepay activity?

[Irene Oh, EVP & CFO]

Yeah, I want to clarify. We did kind of during the course of 2021 at various points, we discontinued the 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 for that. For our guidance and when we look at 2022, we're not really assuming that the payoff and refi activity really play a huge factor and the refi really is going to decrease a lot from the levels that we had and been experiencing so certainly that can help us well that if that diminishes.

[Matthew Clark, Piper Sandler]

Okay. And then…

[Irene Oh, EVP & CFO]

It’s still very robust market. Our product offerings, originations as you know really are through all 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, it's very similar depending on their needs, right, most of our HELOC’s are first line HELOC’s.

[Matthew Clark, Piper Sandler]

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 you’re seeing in that business of late?

[Dominic Ng, Chairman, President & CEO]

Do we have to [indiscernible] on this?

[Irene Oh, EVP & CFO]

No, I don't know if we have the breakout exactly of that portfolio at year end. Matt, we will get you that number. If you look at slide 6, you see the composition of our C&I book and a lot of the trade really is kind of the general manufacturing a 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.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Dominic for any closing remarks.

[Dominic Ng, Chairman, President & CEO]

Well, I just want to thank everyone for joining our call, and we are looking forward to speaking with you again in April. Bye-bye.

[Operator]

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