Earnings Call Transcript - EWBC Q3 2021

Operator, Operator

Good day, and welcome to East West Bancorp's Third Quarter 2021 Financial Results Conference Call. I would now like to turn the conference over to Julianna Balicka, Director of Investor Relations. Please go ahead.

Julianna Balicka, Director of Investor Relations

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 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 and 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 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 continues 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% annualized 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 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 slightly lower utilization rate, which was 69% as of September 30 compared with 70% as of June 30. On an average basis, C&I loans, excluding 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, 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 was $1.7 billion of loans domiciled in our China subsidiary bank and our Hong Kong branch. 98% of this portfolio consists of C&I loans, which are well-diversified by industry. These loans are up from $1.6 billion as of June 30. Slide 7 and 8 show 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 the strongest growth by property type in 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 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 Oh, Chief Financial Officer

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 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.

Dominic Ng, Chairman and CEO

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, 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 in the net interest margin for the third quarter was largely driven by the increase in average cash and interest-bearing deposits with banks due to the strong average deposit growth. The impact of this was a negative 10 basis points 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 noninterest-bearing demand deposits 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. For the full year, we expect NII growth of 10% to 11%, excluding the impact of PPP.

Irene Oh, Chief Financial Officer

Turning to Slide 15. The third quarter average loan yield was 3.61%, and excluding the impact of PPP, the adjusted loan yield was 3.56%, down by 2 basis points from 3.58 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 feel 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 was $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.

Dominic Ng, Chairman and CEO

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 ago. 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, is expected 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 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, is expected to be around 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%, 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

And the first question comes from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala, Analyst

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.

Dominic Ng, Chairman and CEO

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

Ebrahim Poonawala, Analyst

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?

Dominic Ng, Chairman and CEO

In terms of China, we consider our overall East West bridge banking strategy as a way to serve as a financial link between the East and the West. Our value proposition is grounded in our understanding of the regulatory changes in both the U.S. and China. This expertise enables us to assist Chinese businesses in operating more effectively in the United States and vice versa. Over the past year, we have seen significant benefits from developing new business in the U.S. that requires cross-border banking services. This is evident in our growth in commercial and industrial loans, commercial real estate loans, and our treasury management fee income. Our cross-border banking activities have been crucial in the U.S. Regarding China and Hong Kong, our strategy has always focused on leveraging our knowledge and presence to cultivate high-quality cross-border business in the U.S. Meanwhile, we are also growing in China. While the percentage growth of loans in China may exceed that in the U.S., it's important to note that the $1.7 billion represents only 4% of our total loan portfolio. Thus, if there’s a 15% or 20% growth next year in that region, it is not unexpected due to the smaller base. We are comfortable allowing it to grow according to demand, prioritizing high-quality asset growth from core clients who have sustainable and profitable businesses. Given the small base, we have ample room for growth. However, we are not aggressively pursuing growth in the China portfolio simply to balance percentages. Our focus is on identifying good clients for banking partnerships, and we will work with them when opportunities arise. This has been our guiding philosophy, and we have seen significant benefits, especially in the U.S., from our cross-border banking efforts.

Operator, Operator

The next question comes from Ken Zerbe with Morgan Stanley.

Ken Zerbe, Analyst

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

Irene Oh, Chief Financial Officer

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

Ken Zerbe, Analyst

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

Irene Oh, Chief Financial Officer

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, and the customers have increased. Small business. We've been very successful with promotions and 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 being able to utilize that and help our customers. So the long and short of it is, we're very excited about the growth and the customers that we've onboarded. And we think that this is something that could continue. Realistically, I would say, Ken, though, there is a certain amount of excess deposits in the system due to stimulus and monetary policies, 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.

Operator, Operator

The next question comes from Dave Rochester with Compass Point.

Dave Rochester, Analyst

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?

Dominic Ng, Chairman and CEO

We are currently operating with a 75% loan-to-deposit ratio, which provides us with a significant buffer. This loan-to-deposit cushion is contributing to some margin pressure; however, our strong net interest income growth is projected to offset this margin compression. I believe we have ample room to manage this, so it isn't a concern for us at this time. We also anticipate ongoing deposit growth as we continue to attract new clients. Looking at our commercial and industrial pipeline, there will be new clients we can onboard. When these clients come aboard, we offer them loan commitments along with operating accounts and additional liquidity options like money market accounts. It's worth noting that in 2020, particularly in the latter half, we took advantage of the Paycheck Protection Program, which significantly boosted our goodwill and helped us attract many new clients. This goodwill continues to yield referrals, which I expect will contribute to our growth. However, I anticipate that the rate of new client acquisition in 2022 may not match the exceptional levels we saw in the previous year and a half, given the unique circumstances of the PPP situation. That said, satisfied customers often refer many others, and I expect this trend to persist over the coming years. Nevertheless, the pace of growth might not be as robust on the commercial deposit side.

David Rochester, Analyst

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?

Dominic Ng, Chairman and CEO

If you examine the various components, such as foreign exchange and cash and treasury management from deposits, you will see significant growth in these areas. As we noted earlier, small to mid-sized domestic businesses are shifting their banking relationships to East West, which is generating substantial fee income in treasury management. Additionally, we're acquiring numerous new cross-border clients, enhancing our foreign exchange and treasury management income. In addition to this, due to the current situation in China, we are benefitting because more U.S. banks may be hesitant to engage with Chinese subsidiaries in the U.S. We've also made considerable investments over the past few years to improve our technology platform, systems, and product offerings. This has allowed us to cater to larger, more complex commercial clients with their cash management needs. All these factors have contributed to our growth. We believe this trend can continue, but we will need to monitor the pace and volume closely. If we fail to innovate and develop new products, we could see a slowdown. However, we won't just wait for business to come to us. Throughout 2022, we will focus on enhancing our product capabilities, exploring new geographical markets, and identifying new prospects. Alongside that, we'll continue to upgrade our systems to provide better products, aiming to maintain momentum going forward.

Operator, Operator

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

Jared Shaw, Analyst

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 the utilization rate? And I guess if not, what's holding those customers back?

Dominic Ng, Chairman and CEO

I believe the utilization rate will heavily depend on the U.S. economy in 2022. As we mentioned earlier, the C&I utilization rate dipped slightly from 70% to 69%. However, our C&I loan balance grew by 21% on an annualized basis, and our commitment growth was even higher, around 26% to 28%. This indicates that we have attracted more customers and booked additional loans that are yet to be funded. Looking ahead to 2022, I anticipate that customers will increase their utilization, although my expectations from a few months ago did not materialize, and the rate continues to decline. I wish I could predict the economic landscape accurately to instill confidence in our clients to start drawing from their lines of credit. Currently, our well-diversified portfolio across various industries has averaged out to a stable level. We will see how 2022 unfolds. Like interest rates, we have been anticipating some increases for a while, and while they have not occurred yet, I believe they will at some point. Similarly, I expect the utilization rate to eventually start rising.

Jared Shaw, Analyst

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?

Irene Oh, Chief Financial Officer

Our primary focus on returning capital to shareholders is achieved through strong organic growth, and we're committed to utilizing that growth in the best way possible. We still have the authorization in place, and although it has been some time since we've acted on it, we’re not currently considering any actions because of the growth and optimism we’re experiencing. Regarding dividends, we discuss this annually with the Board. We assess the dividend payout ratio and yield to ensure they are appropriate, especially in relation to our capital utilization expectations and compared to other companies in our sector.

Operator, Operator

The next question comes from Brandon King with Truist.

Brandon King, Analyst

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 Q4?

Irene Oh, Chief Financial Officer

Generally, we expect that CRE is tough. I think on the pricing, we see that as far as a lot of competition. 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 Q4 is going to be a little better than Q3. And then also at this point in time, given the visibility that we have, we also think that the payoffs will decline slightly.

Brandon King, Analyst

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.

Irene Oh, Chief Financial Officer

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 purchases versus refinances. That change, that's happened for a period of time. For us, I think in the markets that we're in and where we have strong branch presence, as you know, most of these are referrals that come in through our branch network, the volume of origination is predominantly in areas where we have many branches: Southern California, Northern California, and also New York Metro.

Brandon King, Analyst

Okay. And lastly, with the provision guidance, with another negative provision expected in Q4, 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?

Irene Oh, Chief Financial Officer

Yes, that's a great question. The allowance calculation is mainly influenced by the macroeconomic outlook. As we assess this situation, we believe that the negative provision is significantly tied to the macroeconomic conditions. With improvements in the economy, we anticipated having to book the negative provision. Moving forward, this factor will continue to influence our approach, and your estimates are feasible for the fourth quarter. Looking at 2022, depending on economic forecasts and portfolio performance, I do believe that the number could decrease from its current level.

Operator, Operator

The next question comes from Brock Vandervliet with UBS.

Brock Vandervliet, Analyst

Just following up on the residential question. If I understood the number correctly, it appears that your originations were up about $1 billion from a year ago, which is quite impressive. I'm curious about what is driving this growth, as we are not observing similar year-over-year increases elsewhere, where the changes are much closer to flat.

Dominic Ng, Chairman and CEO

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

Brock Vandervliet, Analyst

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

Dominic Ng, Chairman and CEO

Year-over-year, okay. 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?

Irene Oh, Chief Financial Officer

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

Dominic Ng, Chairman and CEO

Well, because I think you're looking at the combination of both.

Irene Oh, Chief Financial Officer

Yes. Single-family and...

Dominic Ng, Chairman and CEO

We do more than just refinance and HELOC. In fact, we have been performing exceptionally well, not only over the past year but consistently for the last three to four years. It's true that everyone in the mortgage sector has been thriving due to lower rates, which encourages refinancing, and the pandemic has led more people to buy homes. Our customers are similar to the market in that regard. However, they typically make down payments of 40% to 50% or more. Aside from that, the overall market has remained strong, with considerable activity in both purchasing and refinancing.

Brock Vandervliet, Analyst

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?

Irene Oh, Chief Financial Officer

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 would be called and matured, so we redeployed some of that. Also the ongoing analysis of cash and the deposit levels that we had. 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 June 30 of the portfolio, but just keeping in mind of being able to redeploy our excess cash into earning assets. But maintaining the duration that we think is appropriate, given where interest rates are going. Now that's been a focus that we have 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.

Operator, Operator

The next question comes from Chris McGratty with KBW.

Christopher McGratty, Analyst

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.

Dominic Ng, Chairman and CEO

We have experienced a 5% increase in expenses, which I find somewhat challenging. However, it's necessary for us to invest in our systems, enhance our product capabilities, and most importantly, compensate our employees while also attracting new talent and promoting existing staff. This has been our approach consistently and will continue into 2022. Historically, we have seen expense increases of 2% to 3% year-over-year, but we have recently adjusted to a 5% increase as we anticipate inflation and understand the need to spend appropriately. Our spending will also be influenced by the overall economic conditions and our business performance. We aim to manage our expenditures carefully, and if our growth necessitates additional manpower, we won't hesitate to increase expenses to support the business since we believe revenue will naturally follow. It's important not to focus too much on the percentage increase in expenses; we will spend wisely, and every dollar spent will contribute to higher profits, increased revenue, and sustainable growth. This is the guiding philosophy at East West Bank.

Christopher McGratty, Analyst

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

Dominic Ng, Chairman and CEO

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

Operator, Operator

The next question comes from David Chiaverini with Wedbush Securities.

David Chiaverini, Analyst

I 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.

Irene Oh, Chief Financial Officer

Yes, David, I can provide some information on the new loan yields. Generally speaking, they are performing adequately. For single-family loans, the average for September was about 4.20%. For commercial real estate, including multifamily, we were around 3.50% for new loan yields, remaining stable compared to previous figures. For commercial and industrial loans and new originations, they have increased slightly, with portfolio yields at approximately 3.40% for new originations in the third quarter.

Operator, Operator

The next question comes from Clark Wright with D.A. Davidson.

Clark Wright, Analyst

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 outlook for liquidity deployment and your general strategy to make use of the balance sheet?

Irene Oh, Chief Financial Officer

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

Clark Wright, Analyst

I apologize for that. I was wondering if you could share your insights on deposit duration and its effect on your liquidity deployment strategy?

Julianna Balicka, Director of Investor Relations

So Clark, this is Julianna filling in for Irene. We will follow the same approach. When we analyze deposit duration, we consider the expected lifespan of the deposits for our cash deployment strategy. For instance, customers who have been with us for several years have an anticipated lifetime for their demand deposits. On the other hand, customers with demand deposits resulting from events like an IPO or other corporate activities have shorter expected durations. We factor this into our forecasts for the organization's cash balances and our ability to reinvest that into suitable earning assets.

Irene Oh, Chief Financial Officer

Thanks, Julianna, for stepping in. Overall, as we've discussed, we've experienced significant growth in commercial deposits. Operating accounts, whether for small businesses or larger companies, are long-duration assets. In our analysis, we also consider the type of surge deposits. As Julianna mentioned, some of these deposits will be evaluated and we anticipate a shorter lifespan for them. However, compared to where we were a couple of years ago and considering the improvements we've made in our deposit base, I would say that our deposit duration has definitely enhanced.

Operator, Operator

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

Dominic Ng, Chairman and CEO

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

Operator, Operator

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