East West Bancorp Inc (EWBC) 2021 Q3 法說會逐字稿

Good day, and welcome to East West Bancorp's Third Quarter 2021 Financial Results Conference Call. (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.

Thank you, Tom. Good morning, and thank you, everyone, for joining us to review the financial results of East West Bancorp for the third quarter of 2021. With me on this conference call today 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 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 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.

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 third quarter 2021 net income of $225 million or $1.57 per share. Strong organic balance sheet growth drove a 21% annualized increase in revenue quarter-over-quarter to $469 million. The increase in revenue, solidified with expense discipline, drove pretax pre-provision income growth of 26% annualized for the third quarter to $302 million. Our pretax pre-provision profitability ratio continues to be industry-leading and was 2% for the third quarter of 2021.

We recorded a negative $10 million provision for credit losses this quarter. Asset quality continue to improve, nonperforming assets decreased quarter-over-quarter and net charge-offs remained low. At the same time, we maintained a healthy allowance for loan losses at 1.38% of loans as of September 30, 2021. In sum, we returned an attractive 1.5% on average assets, 15.7% on average equity and 17.2% on average tangible equity for the third quarter of 2021.

Slide 4 presents a summary of our balance sheet. As of September 30, 2021, our total assets crossed $60 billion and total loans reached a record of $40.5 billion. Excluding Paycheck Protection program loans, total loans grew [$1.034 billion] or 11% analyzed from June 30, 2021. Third quarter production and loan growth were well diversified across all our key loan portfolios of C&I, residential mortgage and commercial real estate.

Year-to-date for the first 9 months of 2021, loans grew 10% annualized, excluding PPP. For the full year of 2021, we are increasing our loan growth outlook to a range of 10% to 11%, up from our prior range of 9% to 10%. Throughout 2021, loan growth has been broad-based across all our portfolios and teams. And at this point, we expect this will continue for 2022. Overall, we anticipate that C&I loan growth will be the strongest based on continued good execution from our front-line and a rebounding economic backdrop.

In the third quarter, deposit growth continued to be very strong. As of September 30, 2021, total deposits reached a record of $53.4 billion, up $774 million or 6% annualized from June 30. Non-interest-bearing deposits grew $1.4 billion or 25% annualized to a record $23.2 billion as of September 30, making up 43% of total deposits at quarter end and up from 36% a year ago.

Turning to Slide 5, you can see our strong capital ratios. As of September 30, 2021, we had a common equity Tier 1 ratio of 12.8%. And total capital ratio of 14.2% would provide us meaning -- with meaningful capacity for future growth. Book value per share and tangible equity per share were both up 3% quarter-over-quarter.

East West Board of Directors has declared fourth quarter 2021 dividends for the company's common stock. The common stock cash dividend of $0.33 is payable on November 15, 2021, to stockholders of record on November 1, 2021.

Moving on to a discussion of our loan portfolio, beginning with Slide 6. C&I loans outstanding, excluding PPP, were $13 billion as of September 30, 2021, an increase of 21% annualized from June 30. Total C&I commitments were $18.9 billion as of September 30, a sequential increase of 26% and annualized. We achieved this strong rate of C&I growth despite a slight lower utilization rate, which was 69% as of September 30 compared with 70% as of June 20. On an average basis, C&I loans, excluding PPP, grew by 16% annualized in the third quarter. We expect to continue to see strong growth in C&I loan balances and commitments in the fourth quarter.

Third quarter loan growth was spread across our lending teams and geographies. By industries, we saw strong net growth this quarter from technology, private equity, consumer goods, general manufacturing and wholesale and entertainment. It was indeed a well-diversified quarter in terms of growth. I would also highlight that the private equity growth this quarter well exemplified our cross-border business. Growth came from clients domiciled in the United States, Hong Kong and in Mainland China. Accounting for 4% of our total loan portfolio were $1.7 billion of loan domicile in our China subsidiary bank and our Hong Kong branch. 98% of this portfolio consists of C&I loans, well diversified, well diversified by industry. These loans are up from $1.6 billion as of June 30.

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 $15.5 billion as of September 30, 2021, up by 4% annualized from June 30. This quarter, we saw strongest growth by property type industrial CRE and multifamily mortgage.

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 billion as of September 30, 2021, growing by 9% annualized from June 30.

During the third quarter, we originated $982 million of residential mortgage loans, which was down from a record setting of second quarter, but up by 28% from origination in the year ago third quarter.

I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement. Irene?

Thanks, Dominic. I'll start with our asset quality metrics on Slide 10.

Overall, our key asset quality metrics continued to improve quarter-over-quarter. Total criticized loans were down sequentially by 2% to $1 billion or 2.5% of total loans as of September 30, 2021. Year-to-date, criticized loans decreased by 17%, and the criticized loan ratio improved by 67 basis points from 3.2% of loans as of December 31, 2020.

Quarter-over-quarter, nonperforming assets were down by 24% to $173 million or 28 basis points of total assets as of September 30. Year-to-date, nonperforming assets decreased by 26%, and the nonperforming asset ratio improved by 17 basis points from 45 basis points of assets. The third quarter improvement in nonperforming assets was largely driven by commercial real estate and oil and gas resolutions.

Our oil and gas loan portfolio has continued to decrease and commitments are now below $1 billion. As discussed previously, our goal was to reduce commitments to this level. This is about the right size for us.

On Slide 11, we present the components of our allowance for loan losses. Our allowance totaled $560 million as of September 30, 2021, 1.41% of loans, excluding PPP compared with $586 million or 1.52% as of June 30. The quarter-over-quarter reduction in the allowance largely reflects an improved macroeconomic forecast.

Net charge-offs were essentially unchanged at $13.5 million in the third quarter compared with $13.3 million in the second quarter. The net charge-off ratio was 13 basis points of average loans annualized for both the third and second quarters.

During the third quarter, we recorded a negative $10 million provision for the credit losses compared with a negative $15 million provision in the second quarter. Currently, we expect to record a negative provision of approximately $10 million for the fourth quarter, similar to this quarter.

And now moving on to 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 noninterest income, included in interest rate contracts and other derivatives are mark-to-market adjustments, which were a positive $2.5 million in the third quarter compared with a $5 million loss in the second quarter. These primarily relate to changes in the credit valuation adjustment. On this slide, the CVA marks are included under the other line of noninterest income.

Amortization of tax credits and other investments increased this quarter to $38 million compared with $27 million in the second quarter, reflecting the impact of investments that closed during the third quarter. For the fourth quarter, we anticipate that the amortization of tax credits and other investments will be approximately $30 million.

The third quarter income tax expense was $48 million and the effective tax rate was 17.5%. The year-to-date effective tax rate for the first 9 months of 2021 was 16%, and we expect that the 2021 full year effective tax rate will be approximately 17%.

I'll now review the key drivers of our net interest income and interest margin on Slides 13 through 16, starting with the average balance sheet. Third quarter average loans of $40 billion, grew by $338 million or 3% linked quarter annualized, and by $1.1 billion or 12% annualized, excluding PPP. $645 million of our PPP loans were forgiven by the SBA during the third quarter.

Third quarter average deposits of $53.5 billion, were up by $3.3 billion or 26% linked quarter annualized, led by growth in noninterest-bearing demand deposits, which increased by $3.5 billion. With the strong deposit growth, our average loan-to-deposit ratio was 75% in the third quarter, down from 79% in the second quarter.

Average earning asset growth in the third quarter reflected the strong deposit growth. On an average basis, interest-bearing cash and deposits with banks grew $2 billion, securities increased by $786 million and repurchase agreements increased by $253 million.

Turning to Slide 14. Third quarter 2021 net interest income of $396 million was the highest quarterly net interest income in the history of East West, growing by 20% linked quarter annualized.

Income related to PPP loans was $15 million in the third quarter, consisting of $12 million of deferred fees and $3 million of interest income. As of September 30, and we have $13.5 million of PPP deferred loan fees remaining to accrete.

Quarter-over-quarter, the GAAP net interest margin contracted to 2.70% in the third quarter, a decrease of 5 basis points from the prior quarter. Excluding PPP, the third quarter adjusted net interest margin of 2.64% contracted by 9 basis points sequentially.

As you can see from the waterfall chart on this slide, the variability of our net interest margin comes from excess liquidity. The quarter-over-quarter decrease and the net interest margin for the third quarter was largely driven by the increase in average cash and interest-bearing deposits with banks due to the strong average deposit growth. The impact of this was a negative 10 basis points to the margin. the margin headwind from incremental lower asset yields was offset by a lower cost of interest-bearing funds and a higher share of DDA -- noninterest bearing DDA in the deposit mix.

Quarter-over-quarter, our robust net interest income growth came from loan growth and incremental purchases of securities and repo agreements. And for the full year, we expect NII growth of 10% to 11%, excluding the impact of PPP.

Turning to Slide 15. The third quarter average loan yield was 361, and excluding the impact of PPP, the adjusted loan yield was 356, down by 2 basis points from 358 in the second quarter of 2021.

Turning to Slide 16. Our average cost of deposits for the third quarter dropped to 12 basis points, an improvement of 2 basis points from the second quarter. The spot rate on total deposits was 11 basis points as of September 30, also down by 2 basis points from June 30.

Our cost of deposits declined as maturing higher-rate CDs repriced to current market rates, and we lowered the rates paid on other accounts. The average cost of CDs in the third quarter was 35 basis points, a drop of 5 basis points from the second quarter. In the third quarter, we originated or renewed $5.3 billion of domestic CDs at a blended rate of 19 basis points and a weighted average duration of 4 months. Over the course of 2021, many of the higher-priced CDs have already repriced down. In the fourth quarter, we have $4.1 billion of domestic CDs maturing at a blended rate of 25 basis points, of which, $900 million originated when deposit rates were higher with a blended rate of 37 basis points.

Moving on to fee income on Slide 17. Total noninterest income in the third quarter was $73 million, an increase from $68 million in the second quarter. Customer-driven fee income and net gains on sales of loans was $63 million, essentially flat compared with the second quarter and up 31% year-over-year.

Quarter-over-quarter growth in deposit account fees and interest rate swap revenue and SBA loan sale gains were offset by decreases in lending fees and in wealth management.

Year-over-year, the growth in fee income reflects new customer acquisition, particularly for GTS and FX beyond rebound from COVID-related troughs. Beyond quarter-to-quarter volatility, we are positive about the year-over-year trends in fee income and momentum for future growth.

Moving on to Slide 18. Third quarter noninterest expense was $205 million. Excluding amortization of tax credits and other investments and core deposit intangible amortization, adjusted noninterest expense were $167 million in the third quarter, an increase of $5 million or 3% sequentially. The largest quarter-over-quarter change was in other operating expenses, which increased largely due to higher loan-related expenses and charitable contributions.

The third quarter adjusted efficiency ratio was 35.6% compared with 36.3% in the second quarter. While achieving industry-leading efficiency, we continue to make investments in people and technology to expand our banking capabilities and product offerings.

With that, I will now review our updated full year outlook for 2021 on Slide 19. We've updated our full year 2021 outlook relative to a quarter to go. For the full year of 2021 compared with our full year 2020 results we expect year-over-year loan growth, excluding PPP, in the range of 10% to 11%, up from the prior range of 9% to 10%.

Year-over-year adjusted net interest income growth, excluding PPP, in the range of 10% to 11%, unchanged from our prior outlook. Our increased loan growth outlook is a good foundation for robust net interest growth -- net interest income growth in 2022, even though it does not materially shift the full year 2021 growth outlook.

Adjusted noninterest expense growth, excluding tax credit amortization of 5%, unchanged from our prior outlook.

Based on our macroeconomic forecast and loan growth outlook, at this point, we expect to book a negative provision for credit losses of $10 million in the fourth quarter, similar to what we recorded in the third quarter. This is a change from our prior outlook of 0 provision expense in the second half of the year.

We currently expect that the full year 2021 effective tax rate will be approximately 17%, excluding (sic) [including] the impact of tax credit investments. We also anticipate that the amortization of tax credits and other investments will be approximately $30 million for the fourth quarter. This is an update from our prior outlook of a 15% full year tax rate.

With that, I'll now turn the call back over to Dominic for closing remarks.

Thank you, Irene. In closing, this was another quarter of outstanding results for East West, and we expect a strong finish to 2021.

I will now open up the call to questions. Operator?

(Operator Instructions) And the first question comes from Ebrahim Poonawala with Bank of America.

I guess, Dominic, you mentioned expectations for strong loan growth into 2022 driven by C&I. Just talk to us, I mean you had pretty strong growth even this year, you revised guidance for the last 3 quarters. As we think about 2022, why loan growth probably is not going to be somewhere in the mid-teens, 15%, 16% range. Just give us a sense of like what could be the risk to that level of growth next year, given the rest of the industry is talking pretty positively about a pickup in loan demand and activity levels.

Well, I mean, at this point, we see that the trajectory is -- for 2022 will be somewhat similar to what we're currently experiencing. It's too early of a stage right now for us to provide guidance for 2022. We always provide our 2022 guidance in our January 4th quarter call.

So -- but so far, if I look at the pipeline in the fourth quarter, things are going pretty good. I mean, particularly in the C&I sector and that we feel that we will be able to continue to have that kind of growth based on what we shared in our guidance to end the year at 10% to 11% annualized growth.

Got it. And just tied to that. You mentioned the loans in the China sub up from $1.6 billion to $1.7 billion. Just remind us in terms of the strategy there, are there things that you're doing a bit differently today versus 2 or 3 years ago that could lead to a lot more growth contribution from the China sub over the next year and going forward?

In terms of China, in fact, I would say the overall East West bridge banking strategy, we pride ourselves to be the financial bridge between the East and the West. And we've always looked at -- our value proposition comes from our knowledge and expertise of knowing the regulatory change in both U.S. and China. And because of that, we can help business -- like Chinese business to do business more effectively in the United States and vice versa.

So we actually are able to -- in fact, for the last 12 months, I would say that we benefit tremendously from continuing to build new business in U.S. that have cross-border banking needs. You see that in our C&I loan growth. You see that in our -- some of our CRE loan growth and absolutely so in FX and treasury management fee income growth. So the cross-border banking business has helped us tremendously in the United States.

Now the China part and Hong Kong, both Hong Kong and Mainland China, our strategy has always been that because we have the knowledge, because we also have the presence that will continue to feed good, high-quality cross-border business in U.S., that is the main part. Now -- but in the meantime, obviously, we're still growing in China. What you've noticed is that the percentage growth of loan in China may be higher than U.S. because the base is small. Keep in mind that we only -- I mean, the $1.7 billion is only 4% of our total loan.

So if next year, they'll grow in a percentage within their own region by, let's say, 15%, 20% or -- that is not something that's surprising at all. It's something that is given simply because that the base is so low. We're not -- we're going to be comfortable to let it grow to whatever the size it should be based on the needs.

But most important thing is that we are looking at high-quality asset growth and clients that is core and have business that is expandable, sustainable and profitable. And because the base is small, so we got plenty of room. So -- but we're not out there trying to aggressively grow the China portfolio just to make sure that evens out the percentage or anything like that. It's all based on what are the good clients that we can actually do banking with. And when we find one, we'll work with them. And that's pretty much our philosophy. And so far, we've been benefiting tremendously, particularly in U.S., off this cross-border banking business.

The next question comes from Ken Zerbe with Morgan Stanley.

I guess 2 questions. So first of all, can you just help us think about how to model out that credit valuation adjustment in interest rate contract line? I mean obviously, it was great this quarter, but just want to understand the sustainability.

Yes. I mean I think the CVA adjustment is really a function of kind of assumptions around kind of the credit component of it, but also largely what's happening with rates that 10-year swap rate in particular. So honestly, I think it's hard to model that point-to-point in particular. But I think if you follow as far as what's happening with the 10-year, that's probably the largest indicator that's helpful, Ken, in trying to understand what that mark is going to be quarter-over-quarter.

Got it. Understood. Okay. And then just a second question. Your noninterest-bearing deposit growth just been outstanding. I think it was up over 17% sequentially this quarter. Can you just talk about what's driving that growth?

Yes. We're delighted with the growth that we have had in deposits. Across the board, if you look at it from our retail branches, consumer accounts, the number of accounts have increased, the customers have increased. Small business. We've been very successful with kind of promotions and then also product packages that we've created that really meet the needs of our small business customers.

I think with that, probably from a dollar perspective, the largest growth has come in U.S. domestic, corporate commercial accounts. And we've been very excited from the perspective of the investments that we've made the last several years for GTS products, capabilities and people, really be able to utilize that and help our customers.

So the long and short of it is, we're very excited about the growth, the customers that we've onboarded. And we think that, that is something that could continue. Realistically, I would say, Ken, though, there is a certain amount of -- with kind of the stimulus, kind of the monetary policies, there is a certain amount of excess deposits in the system, and we're realistic about that as well. But overall, I think the trends are very positive, and we think that we can continue this deposit growth momentum.

The next question comes from Dave Rochester with Compass Point.

Back on the deposit commentary, that all sounded great. I was just curious if you think that momentum can effectively cover loan growth that you guys are expecting next year? Do you think you can fund that loan growth with deposit growth?

Well, we are currently at 75% loan-to-deposit ratio. So we got a lot of cushion there, right? So that's something that I think that is -- the loan-to-deposit cushion that obviously causing some of the margin pressure. But obviously, we have such a strong net interest income growth that our volume will overcome this margin compression.

The way I look at it is that we've got plenty of room. So that would not be a concern for us for now. And we still expect continued deposit growth simply because we'll continue to bring in new clients. I look at the pipeline for C&I. There are going to be new clients that we'll be booking. When they come in, that we provide a loan commitment to them, it comes with operating accounts and then excess liquidity for money market accounts and so forth.

So now I do want to mention that it is indeed -- back in 2020, in the second half of last year that due to PPP, we just did a quite a tremendously great job and generated a lot of goodwill and brought in a lot of new clients. And we were able to benefit from that and book a lot of new customers and still continue to through that goodwill and get new clients referral. So I would expect that maybe in 2022, maybe that new clients acquisition may not necessarily be as strong as the last year, 1.5 years or so, simply because it's somewhat unusual in 2020 for that PPP situation.

But these goodwill, sometimes, one customer has got happy, they tell 5, 10 of different and then we'll continue to pick up business. This will be something that I would expect that maybe it's going to continue on for the next several years. But in terms of the velocity of growth may not necessarily be as strong from these deposit -- sort of commercial deposit side.

Yes. That would makes sense. Good. And maybe just for my follow-up, switching to fees. You mentioned seeing a lot of momentum there for future growth. I was just wondering, you've got a lot of contributing lines here. Where do you expect to see the strongest growth? And I know it's probably difficult, but how are you thinking about the pace of that growth going forward?

I think that for -- if you look at these different line items, like foreign exchange and the cash management, treasury management from the deposit side. These are the areas that we have tremendous growth because, as we just mentioned, about 2 things. One is that the domestic, commercial, small middle-sized business that are moving their banking relationship over to East West that generate a lot of fee income in our treasury management line item. The other one, cross-border business that I mentioned earlier. We take up a lot of new cross-border clients. Again, foreign exchange fees and also treasury management area.

Those are the 2 that I would say that pretty much in addition to I mentioned about PPP and in terms of -- the China situation, actually more U.S. bank may not be as excited about working with Chinese subsidiary company in the United States that we are now benefiting from it.

We also have a situation of internal technology improvement. As we talked about in the last 2 or 3 years, we have continued to invest in upgrading our technology platform, our system and our product offerings. So these product offerings, particularly in the treasury management area, have put us in a position that we have the ability to service much larger commercial clients with more complexity in terms of their cash management needs. So all of that have resulted in us having this kind of growth.

Now we think they will continue. But in terms of the pace, volume and so forth, we will -- I think that we will need to take a look. I mean at this point, my sense is that if we do not continue to innovate and continue to provide -- come up with new products, we would probably slow down. But East West doesn't stop working and then just sit and wait for all the business come in. We'll continue in 2022 to develop new product capability and look into even newer geographic area, and start identifying new prospect. And through that, we'll continue to upgrade our system too, and provide even better products. And through that, hopefully, we'll continue to maintain some sort of momentum going forward.

The next question comes from Jared Shaw with Wells Fargo Securities.

I guess shifting back to the growth outlook and the optimism there. Can you break down the difference between, I guess, your expectation that customers increase their own optimism and that utilization rate starts trending back to normal versus the success you had with acquiring new customers? Are you expecting that '22 sees that normalization of utilization rate? And I guess if not, what's holding those customers back?

Well, I think the utilization rate would have a lot to do with how the U.S. economy is going to be like in 2022. As you -- as we shared with you at our remarks that, in fact, the utilization rate amount of C&I dropped from 70% to 69%, just slightly. But if you look at the loan growth, our C&I loan balance growth was 21% annualized, but then our commitment growth was higher, was it 26% or 28%, something around that range. So we actually brought in more customers that we book more new loans that just haven't been funded yet.

What I looked at in 2022, I would expect that a customer will actually increase the utilization. But -- well, I was expect that even 4, 5 months ago, it didn't happen, it just keeps coming down.

So it's just a matter of time. It's a matter of time. I mean, something that I wish I had the crystal ball to predict what the economy is going to be like to give our clients the confidence to start drawing up the line. But as of today, overall amount a well-diversified portfolio with many different industries, somehow it averaged out to more or less the same. And we'll see what it's going to be like in 2022. Just like interest rate, every year, we wait for a little bit of a hike, it hadn't happened. But eventually, at some point, it will happen. So I would expect that utilization rate also at some point is going to start rising.

Okay. And then just my follow-up. Capital continues to grow. When you look at the dividend payout ratio, it's under 21%. You have the buyback authorization out there. What are your thoughts on capital management more broadly and then the buyback more specifically now that the worst of the COVID fears are behind us?

Yes. We're -- first and foremost, our focus on returning the capital to shareholders is the form of strong organic growth and being able to utilize that in the most optimal way. We do have the authorization outstanding. It's been a while also, honestly, at this point, we'd go back to the board with any actions that we would take. And that's not something that we're evaluating at this point in time, quite frankly, because of the growth that we have and the optimism we have.

On the dividend side, generally speaking, on an annual basis, that's a discussion with the Board. We evaluate and want to make sure that the dividend payout ratio and the yield are appropriate, especially relative to our expectations about the utilization of capital and then also relative to other peers.

The next question comes from Brandon King with Truist.

So CRE growth, you mentioned industrial and multifamily being the sources of that, but it was a little slower than 2Q. What was the level of paydowns in the quarter compared to last quarter? And how do you see that shaking out in 4Q?

Generally, we expect that CRE is tough. I think on the pricing, we see that as far as a lot of competition. And so our focus has been clients where maybe we're not just competing on pricing structure. Overall, as we look at the pipeline and what we expect, Brandon, we do think fourth quarter is going to be a little better than third quarter. And then also at this point in time, given the visibility that we have, we also think that the payoffs will decline slightly.

Okay. And resi mortgage was once again strong this quarter. Could you just remind us what was the purchase and refinance mix and volumes? And are certain regions performing better than others when it comes to residential mortgage? I know a lot of banks are experiencing more of a normalization as far as origination volumes.

Yes, Brandon, I don't have those exact stats, but generally speaking, at this point in time, most of the loans that we're originating are refinanced -- are purchase, excuse me, versus refinanced. That change, that's happened for a period of time. And for us, I think in the markets that we're in and the markets that we have strong branch presence, as you know, most of these are referrals that come in through our branch network are the volume of origination is predominantly in areas where we have lots of branches, California -- Southern California, Northern California and then also New York Metro.

Okay. And lastly, with the provision guidance, with another negative provision expected in 4Q, by just some rough assumptions with a charge-off level of around, I guess, like second quarter. It looks like the loan loss reserve could be around $130 million or a little below $130 million. Is that kind of a trough level based on your outlook now? Or could that go even lower in 2022?

Yes, that's a great question. As you know, the allowance calculation is largely driven on the macroeconomic outlook. Of course, I think as we look at it -- and part of the reason I think we felt that the negative -- part of -- it is driven by the macroeconomic outlook. And as that improves, I think that's why ultimately, we had to book the negative provision.

On a go-forward basis, I'll say that, that continues to drive it I think as a trough perspective, and your numbers are not -- I think that's not a complex math there, about $130 million or so. That is something I think that's within the realm of possibility in the fourth quarter. And then if we look at 2022, depending on the macroeconomic forecast, depending on what we're seeing in the portfolio, I do think that number could come down from that level.

The next question comes from Brock Vandervliet with UBS.

Just following up on the resi question. If I got the number correctly, it sounded like your originations there were up about $1 billion from a year ago. That seems really strong. I'm wondering if that's -- I'm just wondering what's driving that because we're really not seeing that across the board where year-over-year increases are much closer to flat.

Are you talking about year-to-date? Are you talking about just a quarter?

Year-over-year, I thought the number was $28 billion, 20-something...

Year-over-year, okay. And -- sorry, can you repeat the question? So you're saying that the year-to-date origination is about $1 billion above last year that you were wondering why it is so strong?

Yes. Exactly. It just seems very outsized. I was just wondering what's driving that?

We have a very unique product, right? Most of what we're originating is reduced stock, but high down payments, single-family and HELOC product. And I think for our customer base, this is something that's very attractive for them.

It's -- well, because I think you're looking at the combination of both.

Yes. Single-family and...

Not just refi and HELOC, right? And we have done -- I mean, really well actually, not just for the last 12 months. We have consistently done well with residential mortgage, I would say, for the last 3 or 4 years.

Now granted, everyone in the banking industry that in the mortgages business have done well because the rates have come down and which benefits people to think about refinancing and with COVID, more people are purchasing homes. And so to that extent, our customers are no different than the market. The only difference that our customers tend to pay anywhere 40%, 50% or more down payment. But beyond that, I mean, the other characteristics is more or less the same because the overall market has been really strong, and there's a lot of purchase and refi going on.

Got it. Okay. And as a follow-up, it looked like you got comfortable in terms of where rates were deploying pretty aggressively into investment securities in the quarter. Any sense of where cash levels could end the year?

That's a hard question to answer. I can talk about what we did and the deliberate actions we took in the third quarter. Overall, in the third quarter, we knew that we'd have about $300 million of securities that were called and matured, so we redeployed some of that. Also the ongoing analysis of cash and the deposit levels that we had. And then additionally, as we said before in our prepared remarks, we had $650 million of PPP loans that we deployed that cash as well. So we took all this into consideration.

Generally speaking, with the security that we did purchase, we wanted to be mindful with the duration, which was a little bit lower than the existing duration as of 6/30 of the portfolio, but just keeping in mind of being able to kind of redeploy our excess cash into earning assets. But maintaining kind of the duration that we think is appropriate, given kind of where interest rates are going. Now that's been a focus that we've had. In the fourth quarter, depending on the cash activity that we have, the excess liquidity, certainly, this is something that we're evaluating as well. But we're really not extending the duration out further.

The next question comes from Chris McGratty with KBW.

There's been a lot of discussion on quarterly calls this earnings season about inflation and costs. I'm interested, you guys have done a really nice job over the years to keep costs contained and have operating leverage. But I'm wondering the ability to hold that into the year-end and into next year.

Well, we didn't hold back much. We have a 5% growth in expenses, which somewhat painful in my view, but then we need to spend what we need to spend. That is investing into the system, continue to improve our product capability, and most importantly, pay our people, and recruiting both new talents and then promoting talents within. And those are the things that we've been doing year in and year out and will continue to do in 2022.

Frankly, if you recall, we used to have maybe 2% to 3% type of year-to-year expenses increase, and then we ratchet up to 5% and then -- and the guidance. And so those are kind of things that we -- because of in anticipation of inflation out there that we would need to spend what's appropriate. And then also it depends on how the economy goes and then the business go. And then we will continue to spend prudently. If we continue to grow even stronger, that require more manpower, we're not going to shy away from increasing the expenses to support the business because the revenue will always take care of itself.

So I always looked at it is that I wouldn't be too focused on the expense can only go up by certain percentage because we'll spend prudently and wisely. And whatever we spend is going to add into more profit, more revenues and more profitability and then allow us to have more sustainable growth. And that pretty much is the philosophy at East West Bank.

That's great. If I could follow up. So it sounds like that 5% already reflects any wage pressures that might be evident. And anything above it, Dominic, would just -- would be correlated to revenue growth -- stronger revenue growth?

At this point, the 5% is what we projected for the end of the year. In 2022, obviously, will provide additional guidance.

The next question comes from David Chiaverini with Wedbush Securities.

Wanted to ask about loan pricing. You mentioned about the competitiveness for CRE, I was curious about how it looks on the C&I side. And then more broadly, when I look at the average loan yield in the quarter at 3.61%. I was curious how that compares to new loan originations more broadly.

Yes. David, I can kind of give you some information as far as where the new loan yields are. Generally speaking, they're holding up okay. If we look at -- I'll just go through all of them for you. Single-family if we look at where we were, we were on an average of about 4.20% for September. If you look at CRE, including multifamily, we were at about 3.50% as far as new loan yields holding steady, really from where we were before, and C&I and new originations, they're up a little bit, portfolio yields of 3.40% or so for new originations in the third quarter.

(Operator Instructions) The next question comes from Clark Wright with D.A. Davidson.

This is Clark Wright filling in for Gary Tenner. My question pertains to one that was actually asked earlier on the call about liquidity deployment. I would appreciate if I could get your thoughts on deposit duration, and how this is impacting your lookout for liquidity appointment and your general strategy to make use of the balance sheet?

I'm sorry, could you repeat the question? It came in and out.

Oh, it came in -- I'm sorry about that. I would just -- essentially, I was just looking at your thoughts on deposit duration and how it's impacting your liquidity deployment strategy?

So Clark, this is Julianna filling in for Irene. We will repeat the same pattern.

In terms of our modeling of deposit duration, we take a look at the expected life of the deposit in terms of our modeling for cash deployment. So for example, customers with a long history with us, multiple years, we have an expectation of a lifetime of, say, their demand deposit. Customers with demand deposits due to say an IPO or some other corporate actions, those are shorter duration life -- expected life of deposits. So we model that in as well in terms of our forecasting of the cash balances at the organization and then attributing an ability to redeploy that into whatever is the appropriate earning asset.

And okay, I'll just add. Thanks, Julianna, for filling in, that overall, as we talked about before, we've seen great growth in commercial deposits. Operating accounts, whether for a small business or for larger companies, those are long-duration assets. I think with that, as with part of our analysis, we also look at what kind of surge deposits they are. And certainly, as Julianna noted, some of those, we'll evaluate and look at it and expect a shorter life. But overall, relative to where we were before, before these last couple of years, before kind of -- and the changes that we've been able to make in our deposit base over the last few years, I'd say that deposit duration is something that has certainly improved.

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

Well, thank you, all, for joining our call, and we are looking forward to speaking with you in January of next year. Thank you.

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