Good day, and welcome to the East West Bancorp's Fourth Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Julianna Balicka, Director of Investor Relations. Please go ahead.
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. 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, 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 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 will begin the review of our financial results with slide three 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 our healthy allowances for loan losses. Our reserve coverage of loans was 1.3% as of December 31, 2021. We're starting the new year from a position of strength. 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 are 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, enduring 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 deposits 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 deposits 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 our 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 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 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, entertainment, and general manufacturing on 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 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 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 were $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 multi-family 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, growing by 9% annualized from September 30 and up by 15% year-over-year. During the fourth quarter, we originated $1 billion of residential mortgage loans, 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. Irene?
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. 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 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 of 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, or 1.32% of loans excluding PPP, compared with $560 million or 1.41% as of September 30.
The quarter-over-quarter change in the allowance reflects improvements in 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 years. 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 of 2022 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. 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.
In non-interest income included in interest rate contracts and other derivatives are mark-to-market adjustments 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 CVA. On this slide, these CVA 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 in the amortization of tax credits partially reflects the impact of investments that close 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 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 resale agreements increased by $1.7 billion, and 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 fourth quarter, unchanged from the third quarter.
We've previously communicated that we're 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 a 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 of 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 this 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 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 31st, $5.6 billion had fully indexed rates below floors, of which $1.9 billion were 25 basis points or less from their floor rate. Another $1.9 billion were 25-75 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 2 basis points from the third quarter. The spot rate on total deposits cost was 9 basis points as of December 31st, also down by 2 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 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 4 months. The repricing of maturing CDs to 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 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 contract and other derivative income revenue and lower gains on sales of SBA 7(a) 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 for 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. 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, of 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. Year-over-year adjusted net interest income growth, excluding PPP, in the range of 17%-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% beta on our deposits. Adjusted non-interest expense growth, excluding tax credit investment amortization of 7%-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 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 expect the full year 2022 effective tax rate will be approximately 17%-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 3,000 associates for their unwavering dedication and hard work throughout the year, 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 1, 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?
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 you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Good morning.
Good morning.
Maybe if you could start with deposits. Period end balances were relatively flat quarter over quarter. If you could give us some perspective around what you're assuming in terms of deposit growth. I know, Irene, you referenced the low loan-to-deposit ratio. I'm just wondering, do you expect a meaningful rise in that ratio through the course of this year? 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. A t year-end with the customer activity, we did see flattish deposit growth. Also as we noted, in our call and in the financials, you can see that the average deposit growth was still quite good. 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 December 31. For 2022, realistically, what's gonna be the driver for our earnings, Ebrahim, is gonna be the loan growth. 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.
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 payments and systems and also digital banking for both commercial and consumer. Really looking at the commercial clients that we have and then figure out how we can best serve our commercial clients. Which has resulted in tremendous growth in our non-interest-bearing demand deposit. As we indicated in the call, it was 43% as of December 31, 2021. We will continue to drive those deposit growth.
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%. Obviously, we don't have a need to chase deposits. We just want to keep growing high- quality core deposits. T hat's the part that we'll continue to keep focusing on. In terms of do we need deposit to support our asset and loan growth, the answer is not. Obviously, because of that reason, we are more comfortable to put more focusing on the lending side.
Understood. Just as a follow-up, you referenced strategic priorities, Dominic, in your remarks 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.
We are making investments like in the technology. We continue to focus on also treasury management area in terms of how do we further and better improve our payment- related products, cash management. In addition to that, as I just mentioned earlier, digital banking, both consumer and commercial. We also are putting more emphasis on wealth management. This is an area we see that there is gonna be great opportunity for us in the next 5 - 10 years, and we are putting more investment to that. Now, in addition to it we are adding on new bankers both for consumer banking, wealth management, and also commercial banking.
T here's various industry verticals that we've started some of them over 10 years ago, some of them only the last 2 or 3 years. We can add on additional bankers to grow the business. In addition to that, we are also going geographically. We did mention right in the middle of the pandemic in 2020, we started our office in Chicago. O bviously, for 4 months or so, we couldn't do anything because, right in the middle of pandemic. T hat little office in Chicago have started making very decent commercial banking business growth in 2021. We expect that to grow even further.
We will continue to look at some of the other geographic footprint that we think that will be sort of like areas that make sense for East West to expand to. One by one, I think adding people, adding tech, the 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.
Got it. Thank you.
My next question comes from Chris McGratty with KBW. Please go ahead.
Hey, good morning.
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 a two-part question. What do you think it'll take to see that move up? If it did move up a point, is there a rule of thumb for how much incremental growth that would lead to?
Well, if there's incrementally improved, I'm pretty sure that would obviously, increase the loan growth in terms of outstanding balances.
Chris, I can share when we look at that. As we mentioned, the utilizations hasn't increased substantially, quarter-over-quarter, and in fact, very similar to year-over-year numbers as well. W hen we look at 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.
Okay, that's great. Secondarily, I'm interested in your comments around the fee income opportunities. I think you touched on wealth management and 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?
O n the capital markets, partially, you know, the volume is so low. In the fourth quarter, we did have higher fee income related to our broker-dealer. But, you know, and that's in that other income line item. So I think that might be what you're referring to, Chris. Overall, for wealth management, if you look at that, I think that was also part of your question. Y ear-over-year, we've grown that nicely, and we expect in 2022 we'll continue to grow that as well.
I t's an area that I would say that it's gonna be a multi-year priority. If I look back, you know, like maybe six, seven years ago that I wanted to really put an effort in terms of improving treasury management, like cash management and also foreign exchange. As of today, we see the numbers have grown substantially higher than it was five years ago. With the wealth management areas, another one of those high-potential areas that we think that three or four years from now that we look back, the number is gonna 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.
Good morning.
Yes, I guess circling back on the guidance with the tax rate, what's the assumption for tax credit amortization costs on that offset?
Let me get that for you right away. I believe we're assuming about $130 million of tax credit amortization for the full year of 2022.
Okay, thanks. L ooking at credit, obviously, it's 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 1 CECL. What's the impact of the improvement in the smaller energy book on that? A s we look out through the year, what do you think a natural floor is given the economic environment for the allowance to total loans ratio?
T hat's a great question. So as of 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 Day 1 CECL. Overall, when we look at the trends for the allowance, we do expect it to come down from these levels, the $130 that we're at, $132 excluding PPP. Oil and gas, that portfolio certainly plays a factor of that, especially as the portfolio size decreases. As you can see from the metrics that we've provided the credit quality and the performance has continued to improve.
I would also say that as the allowance, the absolute dollars and the balances come down, 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 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.
Good morning. On the NII guide, just wanted to understand what you're expecting to be the impact of each 25 basis point rate hike that you've got in here. 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.
G reat 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 book. Now, 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. Y ou mentioned the rate. T he 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.
Got it. Because I'm really looking for.
I f I could clarify one comment from Irene. The $31 million that she said per hike, that's over a full- year basis. If the hikes are coming in at various points in time, you just have to factor the timing also.
T hat makes sense. For medium-term interest rates, it doesn't sound like you're assuming that those move up much from here.
Correct.
Gotcha.
Most of the NII growth that we're factoring in really is from the growth of the loan book. In fact, you know, really even without rate increases, we do expect that the increase in NII would be about 15%.
Perfect. As my second question, just on fee income, you guys had 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 growth for 2022 at this point? Do you think that the pace we saw in 2021 would be appropriate to project in 2022?
Total fee income grew over 20% year-over-year. You know, as we're kind of modeling for 2022, I don't know if we're going to expect that level of growth. In particular, you know, I would say that 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 pickup from there, positive CVA adjustments. We're not modeling that in, Dave, but we do expect that, you know, 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.
T hanks. Good morning. Just wanted to follow up on the asset sensitivity. Appreciate the $31 million per hike. Just wonder what are the deposit beta assumptions that you know are being input for that kind of sensitivity?
With the modeling, we're assuming 30% total deposit beta. For interest- bearing honestly, compared to like the last cycle, we're assuming no change. 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.
Okay. That 30% is through the cycle, not necessarily for the first couple of hikes.
That's right. You know, leading question there, but our assumption is the first couple of hikes, the beta is going to be lower.
Gotcha. Okay. Just the liquidity deployment. O bviously, 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? Can you just give us a reminder as to where what your minimum comfort level is there?
Yeah, I'd say there is a little bit more room to go. You know, our pace of that really is a function of evaluating what our liquidity needs are, what's happening with the deposits. Overall, there's probably a little bit more room to go on that.
Our next question comes from Brandon King with Truist. Please go ahead.
Hey, good morning.
Good morning.
I wanted to first touch on loan growth, specifically in CRE. I wanted to know what was the assumption for pay downs this upcoming year, if they'll be lower or higher compared to 2021. I know some banks have mentioned how in a higher interest rate environment could lead to lower payoffs, and I was wondering if that had any impact on your guidance?
W e are hoping so too. In fact, well, first of all, there were a lot of refi activities for the last year or two. I think that a lot of our clients are very sort of like gone through their refi exercise. The other thing is, with rate picking up a little bit, I expect maybe a little bit less of those type of activities going on. Hopefully, that would help reduce the pay down. In fact, as part of our assumption for 2022, we do expect slightly less pay down than we experienced in 2021.
Okay. On the expense guidance, I was wondering what the composition of the growth in expenses is expected to be, particularly for compensation. I know you showed 9% growth in 2021. Is that expected in 2022 as well based off of the current outlook and potential bonus and incentive payouts?
The increase in the expected non-interest expense is largely related to compensation and employee benefits. Brandon, you know, we're a growing organization. We're expecting to grow the loan book. Dominic mentioned new hires and new teams in Chicago we're adding throughout from the front office perspective and also the back office. So most of the non-interest expense increases, you know, the same, not that dissimilar to the activity that you saw in 2021, honestly, where compensation will be the largest driver for that. But with that, we expect, you know, hopefully very soon afterwards, revenue growth as well.
Our next question comes from Brock Vandervliet with UBS. Please go ahead.
Hi, good morning.
Good morning, Brock.
Good morning, Irene. I just wanted to confirm that number. You said NII would be up 15% excluding hikes?
T hat's our expectation. Correct.
Got it. I'm kind of surprised that four hikes don't add more.
P art of it is the shape of the curve, part of it is the timing. I think it's also as we're evaluating it, you know, we talked about the deposit betas and then also the, you know, one of the other factors is we're assuming kind of with the shape of the curve also maybe a little bit compression on the loan side. So we wanna be realistic with our guidance with that and the timing of that. Again t his is just 2022, right? We do expect, you know, further growth afterwards.
Don't forget the fourth hike in December has very little impact, and the third hike is also late in the year. It sounds four hikes sounds impressive until you work it out over the course of the year. We'd be happy to work through the model with you.
As a follow-up, just in terms of general commercial calling efforts, the client growth that you're seeing, is it, 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 tie to that whatsoever?
We are getting both. T hat's one of the reasons why you've been seeing, you know, this consistent, sustainable, profitable growth at East West Bank. We have the advantage of when we compete like a regional bank with banks within the U.S. footprint, we obviously have many different industry verticals and in some good geographical area, and that we cover those C&I business quite well and cover those CRE business quite well. We also have the cross-border banking activities that continue to have sustainable growth. You know, if we looked at the last four years with this tariff and U.S., China sort of trade tension situation that is happening, that didn't stop East West from growing. We continue to see growth coming from cross-border banking business.
In our consumer banking side, we are the dominant financial institution in the retail space when it comes to the Chinese American customers from single-family mortgages, home equity lines, and also consumer deposits, etc. So, and then, of course, you know, foreign exchange, you know, business. So we are going well with continuing to expand in both areas. So far we have full confidence that 2022 and beyond will see similar trend.
Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Thanks. Good morning. Just as you're thinking about loan growth in 2022, and obviously you gave the guide on that. I n 2021, the growth ended up being very well distributed among the three main loan segments. Just asking if your expectations include any sort of shift in where more loan growth comes from in 2022 versus 2021.
In fact, what you notice is that we have in the past, you know, residential mortgage tend to be the lead, you know, and then CRE, C&I. We started from the third quarter in 2021 and onward, C&I are taking the lead. Naturally, because I would expect in 2022 from what we see in the rate environment and the activities in the past few years, refi market for single- family mortgages probably slow down a little bit. We wouldn't expect single- family mortgages to have those like, in fact a few years ago, 20%+ growth. Most likely we're expecting C&I to be t he lead to grow faster than CRE and single- family. In fact, in our outlook, we are projecting, you know, 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 your mix of refi and purchase was in single- family for 2021? Please.
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.
Hi, good morning.
Good morning.
Just to follow up on the loan growth question as it relates to SFR. I recall pricing competition got a little, you know, more challenged there, and you guys backed away from the market. The curve is, you know, steep, at least the long end's obviously come up. Are you guys, you know, more actively involved in that space? How much of your outlook is based on slower prepay activity?
I wanna clarify. We did during the course of 2021, at various points, we discontinued the 30-year mortgage. It wasn't really pricing competition, it was really kind of the pricing caps, and we thought that the 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 CPR really is going to decrease a lot from the levels that we've had and been experiencing. Certainly, that can help as well, Matt, if that diminishes.
It's still a very robust market. You know, our product offerings, originations, as you know, really are through our branch network. Still, you know, pipeline's very strong on the single- family. Also the HELOC product, which for us, a lot of our customers, you know, it's very similar depending on their needs, right? Most of our HELOCs are first lien HELOCs.
Got it. Okay, great. 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?
Do we have the trade finance? 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 six you see the composition of our C&I book, and a lot of the trade really is that general manufacturing wholesale portfolio. Overall, you know, with our commentary on the utilization, I'd say trade's kind of in that category where we really haven't seen the line utilizations pick up for those customers. Certainly, overall, it is trending upward.
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 wanna thank everyone for joining our call, and we're looking forward to speaking with you again in April. Bye-bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.