East West Bancorp, Inc. (NASDAQ:EWBC) Q1 2022 Earnings Conference Call April 21, 2022 11:30 AM ET
Company Participants
Julianna Balicka – Director of Investor Relations
Dominic Ng – Chairman & Chief Executive Officer
Irene Oh – Chief Financial Officer
Conference Call Participants
Ebrahim Poonawala – Bank of America
Chris McGratty – KBW
Dave Rochester – Compass Point
Jared Shaw – Wells Fargo
Casey Haire – Jefferies
Brandon King – Truist Securities
Vilas Abraham – UBS
Gary Tenner – D.A. Davidson
Matthew Clark – Piper Sandler
Operator
Good day and welcome to the East West Bancorp First Quarter 2022 Financial Results Conference Call. All participants will be in a listen -only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Julianna Balicka, Director of Investor Relations. Please go ahead.
Julianna Balicka
Thank you, Sarah. Good morning and thank you everyone for joining us to review the financial results of East West Bancorp for the first quarter of 2022. 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, 2021.
In addition, some of the numbers referenced on this call pertain to adjusted numbers. Please refer to the bank’s regulatory filings, including our Form 8-K filed today for the reconciliation of GAAP to non-GAAP financial measures. During the course of this call we will be referencing a slide deck that is available as part of the webcast and on the Investor Relations site. As a reminder, today’s call is being recorded and will also be available in replay format on our Investor Relations website.
I will now turn the call over to Dominic.
Dominic Ng
Thank you, Julianna. Good morning and 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 $238 million and earnings per share of $1.66 for the first quarter of 2022, both up by 37% annualized from the fourth quarter of 2021. The first quarter results were an excellent start to the year.
Highlights include, record loans and deposits and acceleration of both loan and revenue growth and expanding net interest income and positive operating leverage. All of these factors drove pre-tax pre-provision income growth of 28% linked quarter annualized and pre-tax provision profitability of 2.1% in the first quarter.
We returned 1.6% on average assets, 16.5% on average equity and 18% on average tangible equity for the quarter. All of our profitability ratios expanded. Our high returns reflect our strong financial performance and the strength of East West business model.
Our loan portfolio is well diversified between the major loan categories of commercial real estate and residential mortgage. Our deposit base spans consumer, small business and corporate commercial accounts.
Looking forward, with robust pipelines, strong asset quality and a balance sheet that is well positioned for a rising interest rate environment, we are confident in our ability to execute and deliver strong growth and earnings for the rest of the year.
Slide four presents a summary of our balance sheet. As of March 31, 2022, total loans reached a record high of $43.5 billion, an increase of 17% annualized from December 31, 2021. Now excluding Paycheck Protection Program loans, total loans of $43.2 billion grew by $2 billion, or 20% annualized.
Accordingly, based on our current pipeline and year-to-date results, we are updating our loan growth outlook for the full year to a range of 13% to 15%, up from 12% previously. All our major loan portfolios grew this quarter, with the strongest growth from commercial loans excluding PPP, followed by commercial real estate.
Total deposits reached a record high of $54.9 billion as of March 31, 2022, up by $1.6 billion or 12% annualized from December 31, 2021. Deposit growth this quarter was primarily driven by non-interest-bearing demand deposits, which grew to a record $24.9 billion and made up 45% of total deposits as of March 31, 2022, up from 43% from December 31.
Turning to slide 5, quarter-over-quarter. Our book value per share declined by 2.5%, largely due to a negative change in the accumulated other comprehensive income. This change reflected the impact of rising interest rates on investment securities valuations and such fluctuations do not have an impact on our earnings or our regulatory capital ratios.
In the exhibit on this slide, you can see our strong capital ratios. As of March 31, 2022, we had a common equity Tier 1 ratio of 12.6%, a total capital ratio of 13.9% and a tangible common equity ratio of 8.5%, which provides us with meaningful capacity for future growth.
East West Board of Directors has declared second quarter 2022 dividends for the company’s common stock. The quarterly common stock dividend of $0.40 is payable on May 16, 2022 to stockholders of record on May 2, 2022.
Moving on to a discussion of our loan portfolio, beginning with slide 6. C&I loans outstanding, excluding PPP, were a record $14.5 billion as of March 31, 2022, an increase of 27% annualized from December 31, 2021. Total C&I commitments were $20.7 billion as of March 31, sequentially up by 19% annualized.
Our C&I loan utilization rate increased to 70% as of March 31, up from 69%. As of December 31, this is a first quarter-over-quarter increase in our utilization rate since the first quarter of 2020 when the pandemic began.
Overall, first quarter C&I growth was well diversified across our lending teams, geographies and specialized verticals. All of our C&I industry segments grew in the first quarter except the oil and gas. Going into the second quarter, we expect loan growth to be equally well diversified.
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 $17 billion as of March 31, 2022, up by 20% and annualized from December 31.
Growth was broad-based and all of our commercial real estate segments by geography and by property type grew in the first quarter. We saw strongest net growth in industrial commercial real estate and multifamily loans.
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 $11.6 billion as of March 31, 2022, growing by 11% annualized from December 31. During the first quarter, we originated $1.1 billion of residential mortgage loans. This origination volume is up 9% quarter-over-quarter and unchanged 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?
Irene Oh
Thank you, Dominic. I’ll start with our asset quality metrics on slide 10. I’m pleased to report that asset quality of the loan portfolio continues to be strong versus this quarter. The total criticized loan ratio decreased by 8 basis points sequentially to 1.92% of loans held for investment. Criticized loans of $833 million were essentially unchanged from December 31. Quarter-over-quarter nonperforming assets decreased by 9% down to $94 million. The nonperforming asset ratio improved by two basis points down to 15 basis points of total assets as of March 31.
On Slide 11, we present the components of our allowance for loan losses. Our allowance totaled $546 million as of March 31 or 1.26% of loans excluding PPP compared with $542 million or 1.32% as of December 31. The quarter-over-quarter increase in the allowance reflects loan growth, whereas the decrease in the coverage ratio reflects an improving forecast and improving asset quality.
Quarter-over-quarter net charge-offs declined and were $8 million, down from $10 million in the fourth quarter. The first quarter net charge-off ratio was eight basis points of average loans annualized, an improvement from 10 basis points annualized for the fourth quarter. During the first quarter we recorded a provision for credit losses of $8 million compared to a reversal of $10 million for the fourth quarter and no provision in the prior year 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 as part of the interest rate contracts and other derivatives line item, our mark-to-market adjustment which were a positive $7.6 million in the first quarter compared with $300,000 in the fourth quarter of 2021.
These primarily relate to favorable changes in the credit valuation adjustment for CVA. On this slide this, the CVA marks are included in the other line items of noninterest income. Amortization of tax credit and other investments in the first quarter was $14 million compared with $32 million in the fourth quarter. Quarter-over-quarter variability in the amortization of tax credits, partially reflects the impact of investments that closed in a given period.
The effective tax rate for the first quarter of 2022 was 20% compared to 21% for the fourth quarter. We currently expect that the 2022 full year effective tax rate will be in the range of 18% to 19%. The quarterly effective tax rates on a go-forward basis will decline as more tax credit investments close and projects go into service. Correspondingly, the tax credit amortization expense will increase over the course of the year. For the second quarter of 2022, we currently expect to book a tax credit amortization expense of approximately $37 million.
I’ll now review the key drivers of our net interest income and net interest margin starting on Slide 13 through 16 and we’ll start with the average balance sheet. First quarter average loans of $42.1 billion, excluding PPP grew by $1.8 billion or 19% annualized. The strong loan growth across all asset categories drove a favorable mix shift in average earning assets quarter-over-quarter.
In the first quarter average loans made up 72% of average earning assets compared with 69% in the prior quarter. First quarter average growth — deposit growth of — first quarter average deposits of $54 billion declined by $291 million or 2% linked quarter annualized, primarily due to a decrease in noninterest-bearing demand deposits partially offset by increases in average interest-bearing checking and savings deposits. Demand deposits made up 43% of our average deposits in the first quarter compared with 44% in the fourth quarter and 38% in the year ago quarter.
Turning to Slide 14. We first quarter 2022 net interest income of $416 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 15% annualized in the first quarter. Income related to PPP loans was $5 million in the quarter.
The GAAP net interest margin of 2.87% expanded by 14 basis points quarter-over-quarter. As you can see from the waterfall chart on the slide, the net interest margin expansion in the first quarter was driven by strong loan loss which resulted in the favorable earning asset mix shift, as well as higher yields on loans and other earning assets.
Turning to Slide 15. The first quarter average loan yield was 3.63% an increase of four basis points quarter-over-quarter. The average loan yield comprised an average coupon yield of 3.48%, plus yield adjustments which contributed 15 basis points to the overall loan yield in the first quarter.
As of March 31st the spot coupon rate on our total loans was 3.55%. The positive impact of rising interest rates on our portfolio will be more evident in the second quarter average loan yields, as 33% of our loans are linked to the prime rate which did not increase until mid-March.
In this slide, we also present the coupon spot rates for each major loan portfolio over the last three quarters and periods. 65% or $28 billion of our loan portfolio is variable rate and most of these loans will be repricing on a monthly basis.
I’ll also note that, of our $28 billion in variable rate loans $3.1 billion had fully indexed rates below floors as of March 31st of which $1.7 million were 50 basis points or less from their floors and another $700 million — billion — $700 million excuse me or 50 to a 100 basis points from their floor rate.
Turning to slide 16, our average cost of deposits for the first quarter was 10 basis points unchanged from the fourth quarter. The spot rate on total deposits was 11 basis points as of March 31st, up by two basis points from December 31st.
We are starting a rising interest rate cycle from a position of strength with record level of demand deposits for East West Bank strong liquidity, loan deposit ratio of under 80%.
Turning to slide 17, total non-interest income in the first quarter was $80 million up from $71.5 million in the fourth quarter. Customer-driven fee income and net gains on sales of loans were, $65 million an increase of 3% linked quarter or 11% annualized.
Quarter-over-quarter customer-driven interest rate contract revenue increased reflecting improved customer demand as interest rates rise, wealth management fees net gains on sales of SBA loans and deposit account fees also increased quarter-over-quarter.
Moving on to slide 18, first quarter non-interest expense was $189 million excluding amortization of tax credits and core deposit intangible amortization, adjusted non-interest expense was $175 million in the first quarter down $3 million or 1.5% sequentially.
During this quarter, our decreases in legal expense and overall operating expenses more than offset increased competition, compensation and employee benefits, which is typically seasonally higher in the first quarter due to higher payroll taxes and related expenses. The first quarter adjusted efficiency ratio was 35%, compared with 37% in the fourth quarter and 39% in the year ago quarter.
And with that, I’ll now review our updated outlook for the full year of 2022 on slide 19. For the full year of 2022, compared to our full year 2021 actual results we currently expect year-over-year loan growth excluding PPP of approximately 13% to 15% reflecting year-to-date performance, current loan pipelines which are very robust.
Our updated outlook is an increase from our previous outlook of 12% loan growth, year-over-year, net interest income growth excluding PPP in the range of 22% to 24%. This is an increase from our previous outlook of net interest income growth of 17% to 19%.
Our updated outlook reflects loan growth as well as the impact of anticipated Fed funds rate increases, on our asset-sensitive balance sheet. Underpinning our interest income assumptions is a forward interest rate curve as of March 31st 2022 with Fed funds expected to reach 2.50%, by year-end.
Adjusted non-interest expense growth excluding, tax credit amortization of 8% year-over-year which narrows our previous outlook of expense growth in the range of 7% to 8%. As our revenue grows from rising interest rates we expect to reinvest a portion back into our business, investing in people and 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 in the range of $50 million to $60 million. This is higher compared with our previous outlook which was for a provision for credit losses under $50 million. We continue to anticipate a modest year-over-year improvement in the full year net charge-off ratio, which was 13 basis points of average loans since 2021.
We now expect that the full year 2022 effective tax rate will be approximately 18% to 19%. This is higher compared with our previous outlook, which was for an effective tax rate of 17% to 18%. Our outlook includes the impact of tax credit investments and also factors in the increased income we now expect. 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 to Dominic for closing remarks.
Dominic Ng
Thank you Irene. When closing we are off to an excellent start for the year and look forward to delivering strong financial results for our shareholders in 2022. Global volatility is, notwithstanding, we are well-positioned to navigate the current environment. Our credit quality is strong. Our balance sheet is asset sensitive. We have strong capital and ample liquidity to support growth, but most importantly, our associates are focused on providing superior banking service to our customers. I wish to thank them for their efforts and excellent results.
I will now open the call to questions. Operator?
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala
Good morning.
Irene Oh
Good morning.
Ebrahim Poonawala
Just first, I mean, it sounds like you’re entirely optimistic on the loan growth outlook. Would love to hear a little more detail around just how borrower demand played out during the course of the quarter? And have you seen incremental supply chain snags impact from customer sentiments since the war began at the end of Feb? And just in terms of when you think about loan growth from here, if you could give us a sense of CRE versus C&I versus residential, how you think that mix playing out?
Dominic Ng
In terms of the loan growth, we are looking at our pipelines. A lot of — if I look at the current pipelines, a lot of the C&I loans that we are working on whether it’s from the private equity or entertainment, technology and health care and other general manufacturing and consumer goods and so forth all of these businesses that we’ve been working on with the clients. So it’s all in the process of trying to make it happen in the second quarter. So we feel pretty good about what’s coming and then how — to what extent that business will or will not be affected by the external environment.
We feel pretty good about a lot of the deals in the pipeline really would not be having much impact. But, for example, this Russia Ukraine war, it’s tragic from a humanitarian perspective but there’s really hardly any bearing to our customers’ business that we are dealing with and that’s one for the C&I.
For the commercial real estate, again, we have clients that are in the midst of maybe closing deals that we are working with. And so those are the deals that we feel pretty certain again in the second quarter will be closing. Same thing for the single family mortgages. What’s in our pipeline is something that we expected to be funded? It takes a certain period of time to get loans funded.
So we feel pretty good about what we expect to be coming out in the second quarter. Obviously the longer the horizon the harder for us to predict you asked us about what would your fourth quarter loan growth would be like. Well, at this point, we don’t have as much visibility as we have for the second quarter. Because second quarter we see the numbers that we’re working on it looks very healthy. But how the — let’s say the third and fourth quarter will develop. I think that external environment will have a lot to do with it and we’ll see how it goes.
Ebrahim Poonawala
Perfect. And just one bigger picture question Dominic if I may. There’s a lot of chatter for a bank that has cross-border presence in China. There’s been a fair amount of discussion on deglobalization the potential further deterioration in US-China relationship. How do you handicap and protect the bank from a risk standpoint? Is the fact that created sentiment around the stock? So would love to hear how you think about managing risk if US-China relationships were to deteriorate further?
Dominic Ng
Well, we don’t necessarily protect the bank from these challenges. We actually excel in these challenges. East West has always done extraordinary well whenever there is something that from a perception standpoint looks bad. And in reality we actually come out way ahead of all our peer banks. But let me just address your concern maybe one by one.
First and foremost, I’ve said it before our Greater China including China and Hong Kong loan portfolio is only 5% of our total loans and 95% of our loans are domestic in the US. And that includes like commercial real estate that’s as local as you can get because this is real estate you cannot move it which is 39% of total loans and residential mortgage is 27% of our total loans. So our loan portfolio in China and Hong Kong also is very well-diversified by industry ranging from general manufacturing consumer goods technology entertainment to digital media et cetera.
And our credit profile of these customers also is excellent with strong balance sheet and high level of liquidity across all of our portfolio — loan portfolio. So I would say that in both China and US, it all comes down diversification and granuality are the most important factor for us to manage risk.
So I feel pretty good about you look at so much of our 95% of our total loan portfolio out of that are based in the US and a majority of them are either residential or commercial real estate, and then many of the domestic C&I loans from entertainment, private equity, healthcare and digital media are all domestic in nature. So the exposure from China is very minimal as to begin with. And even within China that 5% a very, very strong credit quality business and is also well-diversified. So from that perspective we feel very, very comfortable where we are today.
Now — but going back to what I talked about we don’t necessarily looked at we need to protect from the US-China dynamic we actually sell is that when we look at US-China scenario, we actually always find opportunities when people shy away from it. And the fact that you have seen what we have done in the last four years in fact or I would say 5.5 years. Now ever since the beginning of the Trump administration that US declared trade war against China. And yes, there is clearly disruption to the international trade per se, but East West were able to find our niches and we continue to have pristine asset quality that we didn’t take any losses due to this sort of trade tariff that went on for a few years and we continue to find a way to grow the business.
So I looked at it is that when you look at where we are today and then we can reflect back on maybe for the last 30 years I’ve been involved with East West Bank. And in 1991 so we doubled our size during the savings on financial crisis. In 2009, we double our size during the global financial crisis. While today, we weren’t able to just double our size in one year, but since the Trump administration started taking on the rein in US in 2017 to today we doubled our size also. But we doubled we took a little bit longer, but we doubled our size organically.
So all I’m trying to get at is that East West Bank always will find a way to grow our business. And we have history to demonstrate that in 30 years. And that’s facts. That’s not rhetoric.
And the other thing I wanted to point out is that going back to your concern about deglobalization or maybe decoupling between US and China. If you talk to the expert in the business. From a — by the way I’m talking about even political expert. The US trade representative Katherine Tai, Janet Yellen who’s Secretary of Treasury, Remondo who is the Secretary of Commerce and each and every one of them have never once declared that US wanted to decouple. In fact, they all continuously highlight that engagement. But we do need to find a way to more effectively engage with China. Those are the kind of words coming out of these sort of experts in the area. There are other experts obviously that you will see it from the media, they talk about yes US, China we need to decouple and so forth and deglobalization, but those are the folks that are selling books and selling military weapons. So really are not the same like the one who actually need to run the business.
We at East West Bank, we are the expert in terms of managing our book of business. We understand US-China relationship better than most everyone in the country in the risk management business. So we feel very confident about where we are today in terms of the credit quality and the potential risk of the US-China decoupling which quite frankly is extremely unlikely. And in addition to that, we also feel that besides the unlikelihood of decoupling the deglobalization in the world is also extremely unlikely. It took about 40 years or so for the world to work together with China to create the supply chain infrastructure. It’s not that easy to deglobalize it in five, 10 or even 20 years. And it’s something that once people really understand the nuances and exactly what it takes to build this supply chain and they will understand that — it’s never going to be that easy to have this decoupling.
I think that US-China will just have to continue to work through their differences and there are challenges in terms of philosophical differences, values and so forth. They’re going to need to find a way to work it through. What we’ve noticed just recently, China in fact the Peoples Bank of China and the State Administration of Foreign Exchange on April 18 just issued 23 measures to help business impact by the pandemic and six of those measures directly related to easing of cross-border trade and payments. So those are kind of things that China has been working on to try to make sure they can get the economy going also. And every now and then when we see these kind of opportunities comes out, those are opportunities that East West also will be able to take advantage of.
And the key thing for us when we get down to the end is that, we are a bank that have very unique value proposition. We understand that business and we have shown for many years and have proven for many years we know how to navigate through this US-China relationship and continue to be able to have sustainable growth. And we feel very confident that in the next many years we’ll continue to — we’ll be able to outperform our peer banks because of this unique value proposition.
Operator
Our next question comes from Chris McGratty with KBW. Please go ahead.
Chris McGratty
Hey. Great. Thanks for the question. Dominic or Irene, I just wanted to dig into the guide a little bit. Really good outlook. I’m having a little trouble getting to your net interest income. I think my notes suggest it should be a little bit higher, given the growth in the margin set up. So I guess the question is, what are the assumptions embedded for deposit growth deposit betas maybe the missing component is the size of the balance sheet. But it feels like the guide is awfully conservative.
Irene Oh
Well, Chris, I’m glad you said that. We’re very — I want to just start by saying we’re very positive on the outlook and our ability to execute. As Dominic mentioned, the pipeline is very strong, particularly as we’re going into the second quarter. With that said though, I think we’re also realistic of the increased kind of macro uncertainty with the war rising rates as well, although we have no direct exposure to the war in Europe.
So, with that said and when we’re modeling out when we also use multi scenarios as far as looking at we shared during the last call that we started this year when we thought rates were going to increase 100 basis points the deposit beta assumption for the full year of 30%. So, we’re definitely higher from that.
Plus as we’re modeling for the full year given rates are expected to increase a bit more than that. And also related to that I would say that when we’re looking on the asset side, I think we’re trying to be conservative as far as we’re positive about the loan growth. But in this type of rising rate environment, without any credit issues, I think we’re trying to be conservative about kind of any kind of spread pressure that might be there.
With that said, I just want to say we are starting this environment a rising rate environment from a position of strength best ever at East West, record DDAs, 43% of average deposits, 45% at period end. And then a loan deposit under 80%. And we’ve talked about it before we have operated and we’re comfortable operating up until low-90s.
Chris McGratty
Okay, great. Thanks for that.
Dominic Ng
Yes. One thing I want to point out also to add is that we normally — East West Bank normally build momentum more like in the third and fourth quarter. And in the first quarter, normally, I wouldn’t call it a struggle. First quarter normally is like a soap. But this year I think we are in a much substantial better position.
We have a very strong quarter and we feel that our pipeline in the second quarter looks pretty decent. And so once you get two strong quarters in a row, pretty much we feel pretty good that for the rest of the year, it’s hard to not have strong financial performance.
Chris McGratty
Great. I guess my follow-up would be that the beta helps Irene on the increase in betas. What are you assuming for deposit growth. Because we’ve seen some of your peers with commercial books have notable kind of chunkiness. This quarter I was just wondering but you guys had double-digit growth. I’m just trying to get a little bit more color on what you’re assuming for just deposit flows.
Irene Oh
Yes, we are not assuming the same level of deposit growth as we are on the loan side as we just talked about realistically, we don’t think we need it. And also realistically in this kind of environment the kind of deposit growth that we had in 2021, 2020 probably not likely to occur. So, we are expecting a lower level of deposit growth. But still I would also comment that all our team leaders, all our RMs, and our cash management sales team are all very busy bringing in core deposits, which we expect to continue to grow from retail and commercial customers.
Dominic Ng
Yes. Let me just also highlight that we are not deemphasized deposit growth despite the fact that we have this kind of loan-to-deposit ratio, but we are getting all our frontline people to focus on growing core deposit.
Core deposits we want every time any day. But what I’m looking at is that if you look at the deposit growth last year, in fact the last two years, we actually accommodate our clients’ excess liquidity quite a bit. We really did not need that kind of deposit growth for the last two years, but these are good clients. They have tremendous excess liquidity and we are more than happy to accommodate them. But I just don’t see that our clients will continue to have this kind of excess liquidity. So, we do expect that the deposit growth will taper. quite a bit from last year.
Operator
Our next question comes from Dave Rochester with Compass Point. Please go ahead.
Dave Rochester
Hey, good morning guys. Nice quarter.
Dominic Ng
Thank you.
Irene Oh
Thanks Dave.
Dave Rochester
Just wonder if you could just dig into the non-interest-bearing deposit growth for the quarter. That was exceptional. And you guys have noted previously, I guess, Chris noted previously that not many of your competitors were able to put up numbers like that this quarter on that trend. So just wondering is that primarily the treasury management guys efforts that are driving that, or is there anything else that’s driving that growth? And then how are you thinking about that going forward? And then I have a follow-up after that.
Irene Oh
Yes. Dave, there wasn’t anything really unusual as far as the nature of the deposit growth, some of our customers with the activity they have honestly and their businesses balances were up, especially compared to the average for the quarter point-to-point nothing unusual or no industries or anything specific. But as I mentioned the teams are hard at work bringing in core deposits. So that’s something we expect to continue.
Dave Rochester
Okay. So you’re expecting to continue to see that non-interest-bearing growth remain pretty healthy here nearer term?
Irene Oh
We — maybe I’ll clarify. I definitely expect we will be bringing on more core deposits, core deposits, operating accounts and with that growing DDA balances. With that said, there is a certain amount of liquidity that with the rising rate environment made there may be disintermediation into other asset classes, other deposits. And I think we’re realistic about that. But overall growing core deposits customers that’s something we’re very positive about.
Dave Rochester
How are you guys thinking about using the earnings credit rate from here to keep that growth going in non-interest bearing?
Irene Oh
Yes. Certainly that’s a factor for some of our clients, Dave. The way that we look at it we’re very practical at East West, whether you pay out an interest expense or non-interest expense, we view it the same way. So we don’t look at that in a different way. We look at the economics of that.
Dave Rochester
Okay. Thanks guys.
Irene Oh
Thank you.
Operator
Our next question comes from Jared Shaw with Wells Fargo. Please go ahead,
Jared Shaw
Hey, good morning. Thanks. Maybe shifting over to fee income. Some really good strength there in interest rate contracts and derivatives, as well as just sort of overall how should we be thinking about that? Was there anything unusual this quarter that is unlikely to go, and I guess, it would be a good base going forward on that?
Irene Oh
Yes. That’s a great question. Overall, there wasn’t anything unusual. I’ll draw your attention to Slide 17 of our deck where we break out the mark-to-market. Now that’s not unusual, but it fluctuates quarter-over-quarter mark — deposit mark-to-market was higher for CVA adjustment. But aside from that from a core fee income perspective, FX, wealth management, the IRC and the deposit accounts we expect to continue to grow that year-over-year.
Jared Shaw
Okay. Thanks. And then on the securities portfolio, it looks like was that a reclass of securities into health maturity, or are you actually buying a different product class to start building that out? And how should we be thinking about the breakdown of securities and the growth of that going forward?
Irene Oh
Yes. Great question. During the quarter in fact effective February 1, we transferred $3 billion of our AFS securities into HTM on a go-forward basis. And just depending on the duration there may be new securities we purchased into held to maturity. Quarter-to-date for the second quarter, there’s been a little bit but not significant. So that mix, I don’t think it will change dramatically at the pace of what we’ll buy into that depending on rates and depending on kind of our expectation around what’s happening with that in our portfolio. We’ll buy more, but probably at a lower level.
Operator
Our next question comes from Casey Haire with Jefferies. Please go ahead.
Casey Haire
Yes. Thanks. Good morning everyone. Irene, maybe just following up on that question on the securities book. Is there an appetite to maybe run that securities portfolio lower as a percentage of earning assets and potentially fund some of this loan growth going forward from there?
Irene Oh
Yes, absolutely. I think that is something we would evaluate just kind of depending on kind of what the spreads that we’re earning and what makes sense, as far as our overall balance sheet. As you know, we generally look at the securities book really to make sure that we have enough liquidity and we’re not necessarily trying to balloon that out. But certainly, with the rising rate environment, this is something that we’re having more discussions with our ALCO Committee as well as far as what the right mix is.
Casey Haire
Okay. Very good. And just, following up on the loan growth, you guys are off to a very strong start, 20% linked quarter annualized with C&I commitments up 20% which is very positive leading indicator on the potential growth near term. I know, there’s obviously, we allow a lot of visibility into the fourth quarter. But just wondering, why the loan growth guide isn’t a little bit stronger than that mid-teens level? Is it just general conservatism, or do you see something more substantial to slow down the loan growth going forward?
Dominic Ng
Well, I think as we said earlier, we looked at where we are today. We are very pleased that the fourth quarter momentum continued spillover in the first quarter and then looking at second quarter, still got a lot of legs going. I mean — so that’s all good. And then what I like most about it is that, is coming from all different sectors. So, this whole thing that we worked so hard for the last 10 years to get more granular, to more diversified portfolio is working exactly what we planned almost a decade ago. And so multiple engines are all producing. And then, we always look at it and one particular period of time, maybe a few of them would do better than the others. And then everything is kind of even out. But what it just happened that the last two or three quarters in a row that we actually have multiple units all going strong.
Now, that said, as I said earlier, we have inflation today, that is at somewhat of an unprecedented situation for the last decade or two. And then, we also have this war going on between Russia and Ukraine which, while I said that we have no bearing to East West Bank business. The fact is, it is clearly affect the macroeconomic environment. And so when we start looking at all these different things and the pandemic is not over yet. We do need to have to be realistic about — to what extent, how would the interest rate spike by the Fed, would have — would affect for example the residential market. And to that extent, when at some point of time, the rate get high enough that make it not likely for people to do transactions. So we look — we take that into effect.
And I would say that I don’t want to get too overly excited about what just because this momentum is going so strong now, that maybe by the fourth quarter, we’ll be seeing that kind of momentum. Now, I do have — one way to look at it from a positive note is that, when there is maybe less mortgage origination for single-family. There is less pay down too. So net-net, the growth rate may not be that negatively impacted even with the rate hike.
Same thing for commercial real estate. We’re not going to originate as many CRE, I would think in the second half of this year. However, there will be less paydown. So net-net, our loan growth may still be very strong. But that — what we hope the direction is going to be, but without having a lot of clarity about the interest rate spike impact of how exactly this Russia-Ukraine situation would develop. And to what extent affect the overall global supply chain and how pandemic would actually continue to have new variants coming up. All of that, if we start looking at it, I do feel that, we wanted to make sure we’re being prudent to project the second half of the year.
Operator
Our next question comes from Brandon King with Truist Securities. Please go ahead.
Brandon King
Hey. I had a few questions on loan growth. Some of the answers may have been implied in some previous answers. But with C&I utilization increasing in the first quarter, what is implied in the guidance as far as where that utilization level stays in the near-term?
Dominic Ng
We assume the utilization stays around the same. We have not sort of like put any additional growth in the utilization rate to get the assumption of our of our outlook.
Brandon King
Okay. And then –
Irene Oh
We’re excited about the 1% growth Brandon, but it is also just 1%.
Dominic Ng
Yeah. 1%.
Brandon King
Yeah. A lot of other banks are utilization growth. So I just wonder if there’s any potential upside there.
Irene Oh
I think that also the power relight. We’re going to be able to grow without utilization increases and that’s reflective our guidance.
Dominic Ng
Yes.
Brandon King
Got it. Got it. And then for CRE that was strong as well. I wanted to know, how much of the growth in the first quarter how much of that would attribute to slower pay downs?
Irene Oh
There definitely was a decrease in pay downs in the fourth quarter, especially compared to if you look at like the back half of last year. But I would also say we had increased originations. So the combination of both Brandon.
Operator
Our next question comes from Brock Vandervliet with UBS. Please go ahead.
Vilas Abraham
Hey, everyone. It’s Vilas Abraham for Brock. I just wanted to dig into resi mortgage for a minute. I get that, your business model is a bit different than most. But even given that the origination volume seems pretty resilient year just from flat year-over-year when most competitors are down. Is there a share gain happening there? Is there any other color you can offer around that?
Dominic Ng
Well, actually relatively speaking, I mean, if you recall going back to our earnings release for the last few years residential mortgage always the leading category in terms of our loan growth always outgrew CRE or C&I for the last few years. And actually at two quarters in a row, residential mortgage are falling behind compared to the other two relatively speaking, which is obviously by nature if you look at the external environment we expect that residential mortgage growth will continue to be more challenging.
As you look at it, we used to have like 20-plus percent growth a couple of years ago. We’re down to 11% in the first quarter. I would expect that, the second quarter maybe down even a little bit more. And then I would expect that, even by the fourth quarter maybe down to single digit. So the way, I look at it is that, the external environment and make the refinancing very challenging and it may also discourage home buyers to purchase home when rates spiked to over 5%.
Well, it’s already over 5%. It will be like when I get to even 6% or something it’s going to be very discouraging for home buyers by homes. So the likelihood that we do a lot of resi, refi or purchases is low. Now that said, as I just said earlier, pay down will drop substantially, because for the last few years, we just churn a lot of loans like we originated in high volume. We also have pay down in a high volume simply, because many of our existing customers is refinancing the mortgages for a lower rate. And we just do a bunch of work for the same net number.
So, I looked at it in 2022, particularly the latter half of the year, I would say that the origination volumes drop substantially. However, the paydown also will drop substantially. Hopefully, we’ll still have some net growth, but we will pretty much expect that in 2022, the majority of the loan growth will be coming from C&I and CRE and less so from single-family mortgages.
Vilas Abraham
That’s very helpful. And just as my follow-up and maybe a slightly bigger picture question. So this rate hike cycle is barely started and the efficiency ratio at East West is already — looks already below where it was when the last hike cycle was well underway. So, just wanted to see if you could help us understand just what may have changed in the profile here that’s helping you guys achieve such stellar efficiency. And maybe even a sense of how low it could reasonably go over time? Thanks.
Irene Oh
Well, we never managed the bank to the efficiency ratio. I think that’s something that we made clear on these calls. And that certainly isn’t something in any of our metrics or our drivers. But with that said and also related to that, we have continued to make the investments that we think are appropriate for the bank, for our clients, for our strategy. And I think those continued investments, the successful investments are part of the reason our efficiency is low, if you look at it.
The other side of it really is if you look at our balance sheet and the composition, simply we’re well positioned right now for a rising rate environment. Credit is also very benign, although obviously not factoring to the efficiency ratio. But nonetheless, the additional kind of operating costs related to a credit cycle if they’re not here. So, I think it’s the combination of all these factors. But certainly that’s something that will be very important for us as we go forward. We continue to make the investments that we think are appropriate, and then also reap the reward on the revenue side.
Operator
Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner
Thanks. Good morning. My questions have largely been asked and answered. But just regarding the guide on the provision expense, does that increase purely a function of the higher loan growth guide for the full year, or any other factors? Any changes to the CECL model that are driving that number any higher?
Irene Oh
Yeah, great question. It is largely a function of the higher loan growth, Gary. I think also, as you know, we run multi scenarios as far as for our CECL calculation. So just evaluating that with a little bit of the uncertainty for the future. With that said, I think I said in our prepared remarks, credit quality is very benign continues to be and that’s our expectation for the full year.
Gary Tenner
Thank you.
Operator
Our next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark
Hey, good morning. First question just on the trade finance portfolio. Can you just remind us how big that portfolio is at the end of the first quarter? And how that portfolio has performed from a growth perspective with the supply chain disruption freeing up to some degree?
Dominic Ng
Well, in terms of that portfolio, I think that, it’s going fine. I mean, we have not have much — for the last four years we have not had much growth in that portfolio. I mean, naturally so, from a trade finance perspective. I mean, there’s a couple of reasons.
One is that, with the trade tariff, plus the pandemic that affect the supply chain. And also, we have to recognize that the international trade finance business is really something, I would say, is more or less like an older business model, with the advance in technology.
We have less or less of that that require the traditional international trade finance that — from banks. A lot of the payments today done electronically are much easier and faster. So we at East West Bank actually, while we are actively involved with the cross-border banking business, a lot of our cross-border banking business actually are involved with some e-commerce and then to digital media and entertainment business and private equity business.
And then, most of those business, that there are cross-border elements, but not necessarily require us to provide letter of credit support and so forth. Yes. So that’s what we are. But the business is still going solid. And I don’t know Irene do you have any numbers that you wanted to share?
Irene Oh
Yes. Quarter-over-quarter, we are up in trade finance. That’s partially, I think, seasonal with the year, about $500 million.
Julianna Balicka
Balance of the portfolio is about $500 million. We’re not up about $500 million.
Irene Oh
Yes. Clarify, yes, we’re up about 24%, balance worth $500. Thank you, Julianna.
Matthew Clark
Okay. Thank you. And then, just a housekeeping item. I think, you gave us the amortization expense for the upcoming quarter at $37 million. How should we model that for the full year?
Irene Oh
Matt for the second quarter, we gave you the $37 million. And then if you look in our slide deck on the outlook slide, we also provide for you our expectations for the full year amortization expense in the range of $110 million to $125 million.
And it’s a range, because it kind of depends on when projects close and go into service and kind of the mix of the projects. So what I would say is, that picked up second half of the year and at this point probably split it evenly between the two quarters.
Operator
Our next question is a follow-up from Chris McGratty with KBW. Please go ahead.
Chris McGratty
Great. Thanks. Irene, I just wanted to go back a little bit to the efficiency question before. And I’m not sure if it’s a matter of operating leverage spread to revenue. But is there a floor where you would be uncomfortable running the efficiency ratio?
Irene Oh
We don’t have a floor.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Dominic for any closing remarks.
Dominic Ng
Well, thank you all for joining our call and I’m looking forward to speaking to all of you again in July. Thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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