Q4 2020 Preferred Bank Earnings Call
[music].
Good day and welcome to the preferred bank fourth quarter, 'twenty and 'twenty earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Jeff Hough of financial profiles. Please go ahead.
Thank you Andrew.
Hello, everyone and thank you for joining us to discuss preferred bank's financial results for the fourth quarter ended December 31, 2000, and 'twenty with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka, and Deputy Chief operating officer, Johnny to manage.
And we'll provide a brief summary of the results and then we will open up the call to your questions. During the course of this conference call statements made by management and May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, such forward looking statements are based upon specific assumptions that may or may not prove correct forward looking statement.
And are also subject to known and unknown risks uncertainties and other factors relating to preferred banks operations and business environment, all of which are difficult to predict and many of which are beyond the control of preferred bank for a detailed description of these risks and uncertainties. Please refer to the SEC required documents at the bank files with the federal deposit insurance.
Corporation or FDIC, if any of these uncertainties materialize or any of these assumptions prove incorrect preferred bank's results could differ materially from its expectations as set forth and these statements preferred bank assumes no obligation to update such forward looking statements at this time I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Thank you very much.
Good morning, ladies and gentlemen.
I'm very pleased to report.
Fourth quarter of 2020.
Preferred bank net income was $28 million or $1.40 a share.
This is a new record.
Yeah.
And on the P. P. P P a pretax pre provision basis.
2020.
Is also a record year.
Preferred bank.
Yes.
This quarter's net income.
Net interest income.
And net interest margin.
And all.
And hence are benefited by two relatively non recurring items first of all is free.
Is the recovery of.
Interest of $473000.
The next one is fees and now terminated main street lending program of 400.
<unk> $9000.
Net.
Interest margin to remain for the quarter at 3.66% up 12 basis points better than in previous quarter.
Without these.
Non recurring items.
Have been three.
Five 8% four basis points bedroom.
And again.
This quarter.
The reduction of.
Interest costs and deposit costs.
Our pace.
<unk>.
Moderation.
Our loan yield.
Looking ahead.
We shall have COVID-19.
Interest cost saving in the first quarter.
Roughly $330 million of cash.
Time statistic of deposits will be re pricing for roughly 50 cents.
And 50 basis points savings.
Right.
For the quarter net.
Income was.
Negative affected by it.
And loss on sale of Securities of 660 <unk>.
Dollars.
For the quarter loan growth is $86 million.
And all 2.2% sequentially.
This is very encouraging.
After a long drought and during the midst of pandemic okay.
We have seen customers.
Seem to be much more positive.
Mesh and nations economy.
For the fourth.
Quarter loan book.
He has really picked up.
Deposits, however grew only mildly.
At 28 million.
And as the liquidity of the bank.
We remain very good.
Perhaps.
And most confident and things to us.
And is.
The improvement in our credit.
This posture.
After nearly a years of uncertainty related to the.
And Dermic.
We find these things things.
Getting better.
Specific to <unk>.
Preferred loans now reduced to $28 million.
Compared to the peak time of $610 million Okay.
Most of these deferments posh.
Partial deferments, we'll wait and deferring the principal only and continue to collect interest.
Total non accrual loans and a reduced.
$225 million.
30 to 89 days past due loans, which is usually a early signal.
From a credit situation.
Stands at $4 $1 million.
And.
It would know 90 days past due loans.
And total cash.
And that's defined loans.
And is now $55 million, which includes a $23 million tier.
D R which is performing.
[laughter].
At December 31st.
Total reserve is one six per cent.
Sure.
And we will always be careful.
Regarding operating expenses.
Efficiency ratio again.
Qingming.
<unk> nine <unk>.
<unk> nine per Sim.
For the quarter.
What is the availability of vaccine although.
It is quite a chaotic situation and Los Angeles.
But with its availability and.
Whereas the likelihood.
A stimulus package from Washington.
We believe things will be much better.
And we believe <unk>.
2021 will be a good year.
For preferred bank.
Thank you.
And I'm ready for your questions.
Okay.
At this time rate.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
And if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Nick <unk> of Piper Sandler. Please go ahead.
Good day, gentlemen, hope you all are well.
Yes, we are.
Good good so first a nice rebound and loan growth this quarter, specifically and Cree balances.
It was the production and broad based across your geographies I'm, just trying to get a sense that the activity was specific to one of your markets now given differences and pandemic related impact across the country.
Yeah.
And for us its cost.
I mean, it's all across all of the quality and wondering if you want to first get some color on that yes.
Dirk just willing to production and it's pretty evenly distributed.
And our geographical footprint no of course, southern California and Norcal.
As far as the East Coast, and New York area.
It's very well balanced.
Great.
And then secondly on the margin and I appreciate you calling out the one time items and.
The maturity schedule.
Even so you posted a core NIM expansion do you feel like you still have some room for declining liability cost out run erosion and asset yields for the next couple of quarters or is that going to be challenging to maintain.
Yes, it will be liability costs would be low vehicle will be generally and the very positive trend first of all is and your first quarter.
I mean, we have $330 million of PCB mature day, which.
Which will be repriced, and probably 50 basis points net okay, and the second quarter, we may have a little bit and revisit residual effect of the first quarter, but I mean.
Provided market interest rate doesn't change due to competition okay.
And very highly likelihood that we'll be refinancing our sub debt.
At the end of second quarter, and which will result, and today's market condition are reasonably good savings. So we are positive.
And our interest cost outlook.
That's great color.
And and impressive work on driving the modification down this quarter.
No hotel loans under Pearl was especially positive to see when it comes to asset quality and the current portfolio, what it's particularly top of mind for you. What are you guys worried about.
Well, obviously, we would be worried about it continuous lockdown.
Lockdown to extending to a long time, you know mostly that people are seeking seeking.
Seeking a.
The firm and as many of the people have been digging out of their savings, especially will fall got one group of people those call and lots, okay pentair pop per the lease too.
Tea leaves to EBIT.
And that loss share job are leased to the business and Thats closed and so on and they have been handled and quite a period of time of day and.
Non particular case that were benefited by our origination and the low.
Hey.
LTV level, if you look at the table and that we're presenting the basically and the cities.
And a second law since 95, and 100 per semi with 99 per similar loan requires a sponsorship of personal guarantee and.
And we're very careful about the global cash flow, albeit quite small and people. So we had <unk> per.
Heading and having some good reduction in cost of all the categories.
The people at austere EMEA and Asia.
No.
<unk> from people, who has about a one year of <unk>.
Basic and <unk> business.
Okay. So finally that media from maybe playing along the way it and finance and Bell.
Okay and.
And lastly from me a big step up and fee income from letters of credit do you expect that line to stay elevated at this level in coming quarters or revert back to where it was earlier last year.
We think it's going to be relatively stable, but Ed and then one on free Youtube Kim provided that right Nick.
I believe that looking at our pipeline about I think you will be relatively stable.
Thank you for taking my questions.
The next question comes from Tim Coffey of Janney. Please go ahead.
Thank you good morning, everybody.
Mr. Yu, we look at kind of a loan growth. This quarter is that a reflection of people getting off the sidelines and getting back to business or was this a bit of ahead of expectations.
Well some of the people I would say to the all time and some of it was getting off the sidelines day.
And basically have unit pandemic is very very good.
And it got to do business with new people, but we acquired and we have seen new requests coming in and that we obviously skewed and the mode of being highly alert mode.
But they are and some new requests coming in that represent new activities to us.
Okay.
This quarters loan growth tell us about the potential for loan growth next year as you know.
Thanks, Hi, California and start to reopen.
It is probably and I wish I had that crystal ball it as always.
Okay.
Forecast and loan growth, especially quarter by quarter and not anything yet, but based on the post quarter activity we have.
A total of the outstanding loans about $300 million new loans.
And the fourth quarter alone and these represents.
$375 million off.
And note amount, which you mean, the commitment amount and so we hope to see.
And we hope the effect will carry over.
For the first quarter, Okay, but again ishares factors above.
And when the when the lockdown will be lifted a partially lithia because for us our people need to really have very close contact with our customers. So there's some variables with it and with.
Generally feeling positive about moving forward.
And the customers, we serve and the loans do you like to originate and what's the competition level like right now.
Our jokingly led to net.
And that.
And to answer the first I have some I have some personal observations.
Hi, Tim just Willington and I think competition is still pretty.
Pretty stiff out there you know we have.
Lot of.
Competitor.
Out there offering.
Very low low interest rate, we just don't know how they can sustain that going forward, but again, we all work force.
We tried to maintain.
Disciplined estimates so you mentioned earlier will be selective and.
Really no.
And just continue I mean, it's always been the nature of our business throughout our history. So we just have to continue to work faster and more efficient.
Tim Timken Li Okay.
We now face and whole lot of competition from banks $50 million to $150 million and resume our territories.
And that seems to be the our customer and that basically.
High net worth individuals being sought after and so they can also other business.
And the business to call them.
Since that we're finding people that giving a refinance our loan.
Low, 3% and 10 year fixed rate.
Okay and that is it below our net interest margin.
While we are obviously monitoring the capability of doing that and.
And the loans, we decided not to match.
Okay.
Very helpful and then.
And our customer.
I was curious about.
And then looking at expenses.
If the economy starts hurry up and is there going to be the potential for.
Upward pressure on expenses from additional travel and travel and marketing.
Hey, Tim This is Ed.
Looking forward in terms of noninterest expense to the extent profitability improves and 2021 over 2020, you will see the salary and benefits expense increase over the year because our bonus accrual is directly tied to the profitability of the bank. So that will go up more specifically.
To your point about reopening and travel costs and so forth, they're really not terribly significant for us as a as an entire company simply because our workforce relative to our asset size is still relatively small so when you look at the line items.
Specifically, where we have actually benefited this year, it's and business development and promotion as well as office supplies and equipment and Youll see those line items actually went down year over year, So thats really where the benefit comes in but outside of that there is not.
Tremendous amount of benefit for us in terms of the Lockdown and then going forward.
In terms of increasing noninterest expense with and opening up we will have some increased expenses, but it won't be material.
Tim I would like to.
And your carrier shopping day.
Net.
The management team here is in the gross.
Posh at GM and now because we feel.
Pretty good about 2021, so likelihood it will step up our efforts.
And looking for new new new.
New locations or new new branches, and new different things, okay, so likely somewhere along the year.
Personnel expenses will be will be increasing.
And.
Production personnel and obviously those usually these tier if we're successful to a larger and larger.
Larger long term benefit.
Yes.
Alright, well. Thank you very much that's helpful.
The next question comes from David Feaster of Raymond James. Please go ahead.
Hi, good morning, everybody.
Hi.
I just wanted to follow up on your last comment about new offices and just curious are there any new markets that you might be interested in organic expansion into and just kind of how are you thinking about that in terms of channel.
Net organic expansion side.
Yes.
<unk>.
First of all I am always UN thing is that okay.
Organic market comps with the way that we can lend a team of producers.
We usually do whenever we found the April banker.
And then we round them up with the team of supporting cash net.
The business that goes along with every branch that we have opened even in the neighborhood of Los Angeles.
Area and even consider about the California area, we have so many.
New spots, which are not represented by us which represent vibrant business centers.
Our hard work really is the locating all.
People so.
So whenever we see.
This opportunity.
And there will be new organic new trees being wrong.
And.
Okay.
Okay.
And then.
In terms of asset quality. When you guys have continued to improve your defensive posture has proven itself.
We've actually seen reserve ratio continue to grow I guess, just in light of the improved economic outlook and improved credit quality, how do you think about the opportunity to potentially release reserves and.
And maybe at what point would you think you'd be comfortable doing so and then what's kind of like that more normalized reserve ratio is it closer to 125, which we saw and the first quarter 'twenty as that kind of where we should be looking at.
Well I'm looking at the trend okay. So if asset quality remained.
I mean, not turning into the worst day.
And see first of all is the reduction of provision.
And perhaps very very minimal provision.
And then somewhere along the year I can see that we may be able to release.
Some of the reserve, okay, but it depends on how the situation plays out and also that has to some extent with a growth rate we would have okay.
And it.
It also affected the situation, but generally speaking is that based on what we ought to day at this point of time.
I can't see the whole year's provision expense will be.
Very little comparatively speaking income.
Okay.
That makes sense.
And then just I'm just curious historically you guys have been pretty asset sensitive and I am just curious how that stands today just in light of the liquidity and any impact from floors, and maybe how youre asset sensitive assets and recruiting and sales and.
And then just how you are thinking about managing your <unk>.
Sensitivity going forward.
And you and I share. This question how is that fixture okay. Your stock price.
Okay.
And well.
Yes.
The interest rate situation is very interesting right now simply because we have such a divergence between the long and the short end and the.
And the curve seems to be continuing to steepen, but relative to our own balance sheet, you kind of hit the nail and ahead, we have a lot of cash which is very asset sensitive obviously on an overnight basis and then the the.
And the adjustable rate loans, roughly 80% of the book is floating rate and so with approximately 70% floors on those and.
And a number of those large.
Preponderance of those being below their floors it will take.
Maybe one or two to three and this is very similar to the scenario. We had a few years back when we were talking about the same thing waiting for rates to rise and we had loans below their floors waiting for them to come up above their floors and then we really saw the acceleration.
The yields on the on the asset side once that took place.
But in terms of assets sensitivity right now from a quantitative standpoint, it's still we're still definitely quite asset sensitive.
Okay.
And obviously at this point and time for 80% of all.
And.
And then.
And where loans was flow.
Laws.
And floating rate loans.
Many of them I was flawed and so so we're operating currently a little bit under flow.
Okay.
And upon the floor is higher than men and then the coupon rate okay. So.
Moving forward.
If rates is going to change to the upward and I don't know when well do that case and may be per Hector 125 to 50 basis points, we will not see some of our loans rise to the new rate.
And the defensive side on the offsetting side.
We have a large one $6 billion of PCB portfolio will be gradually pricing.
Okay.
Our loan to interest rate repricing and longer interest rate increase for the two of them usually.
Offset somewhat to each other and the exact is the payment and the timing of whole statements and we have always been in our history and tried to maintain these aspect very carefully.
Okay. That's helpful. Thanks, everybody.
The next question comes from Steve Moss of B Riley. Please go ahead.
Good morning.
Hi, Doug.
And off with.
Following up on on yields here and just kind of curious what were.
Origination yields for the quarter.
Terms of pricing these days.
Okay.
Quarter, we're originating the loans in.
And the pricing I have to hand, the rate with me right now.
With the average rate and a 4.8.
85% cash.
So okay.
As you in the same quarter payoffs payoffs, a little bit higher about 30 basis points higher.
And then one of the main reasons, where you had more moderate.
Yield compression.
Okay. That's helpful. And then on this on the CD side kind of curious as to where you're offering rates. There. These days.
Hi, Steve This is Ed.
One year CD, our offering rate is right around 50 basis points.
And that kind of holds true down through the six month and three months probably as well.
It's become.
A market that doesn't care terribly a lot about terms in terms of one year two year six months right now Steve you didn't notice that the first quarter. We had lost some qcd's, okay and that is because we decided not to match those and maturing and Qcd's. The bank is to lift.
And my opinion and disappoint, a time and so much cash sitting earning 10 basis points from fat. Okay. So those are really more strategic move.
Right.
Okay. That's helpful and then.
In terms of capital here building this quarter. It seems like it's going to continue to build in 2021.
Just kind of curious as to what your thoughts are.
And the potential for capital deployment.
Okay.
And <unk>.
As we continue and just kind of a level of earnings.
Hopefully there may be even be state improvement sometime in 2021.
Obviously, we'll be thinking about increase of dividend that's almost.
Yes.
Thing that we have dedicated that we will recommend to the board.
And next thing is obviously as we're always weighing is.
I'll give you and loan growth okay.
And if we have.
And the organic loans the rooms, let's say, we're lucky enough to return to two years ago getting up in the teens. Okay. And then then the redeployment of capital basically will be largely Q.
Through using at the loan growth and the area.
And we cannot and origin and loan growth that we will be looking at situations and back to buyback by.
But August is studying right now studying what if we have a buyback immediately.
In fact were due to us and our current.
Capital level, you'll see up.
Primarily a capital level is slightly over 10% and.
So that is one area that we are studying and to see how comfortable we are doing things.
Okay, Great. That's very helpful. Thank you very much.
Okay and.
This concludes our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Yes.
Well.
Thank you very much that for you for your attention.
And as I said earlier, we had a good quarter.
And.
We hope it continues into next year and.
And and hopefully that all of us will be getting and others.
<unk> soon and we're back to a normal life get out freed and back day.
Which is probably more important than the performance low bank.
Thanks, Matt.
With that.
And let's wish for the best flow 2021.
Thank you okay.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Larry are you still there Jeff.
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Good day and welcome to the preferred Bank fourth quarter 2020 earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero on your telephone keypad after.
After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now.
Now I'd like to turn the conference over to Jeff Haas of financial profiles. Please go ahead.
Thank you Andrew.
Hello, everyone and thank you for joining us to discuss preferred bank financial results for the fourth quarter ended December 31, 2020 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka, and Deputy Chief Operating Officer, Johnny Sue manager.
And we'll provide a brief summary of the results and then we will open up the call to your questions. During the course of this conference call statements made by management and May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, such forward looking statements are based upon specific assumptions that may or may not prove correct forward looking.
And are also subject to known and unknown risks uncertainties and other factors relating to preferred banks operations and business environment, all of which are difficult to predict and many of which are beyond the control of preferred bank for a detailed description of these risks and uncertainties. Please refer to the SEC required documents at the bank files with the federal deposit insurance.
Corporation or FDIC, if any of these uncertainties materialize or any of these assumptions prove incorrect preferred bank's results could differ materially from its expectations as set forth and these statements preferred bank assumes no obligation to update such forward looking statements at this time I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Thank you very much the non.
And ladies and gentlemen.
I am very pleased to report.
Fourth quarter of 2020.
Preferred bank net income was $20 $8 million.
And $1 40 a share.
<unk> is a new record.
Bank.
And on the P. P. P P a pretax pre provision basis.
2020 is also a record year.
Preferred bank.
Yes.
This quarter's net income.
Net interest income.
And net interest margin.
All.
Enhanced are benefited by two relatively and nonrecurring items first of all is the <unk>.
As the recovery of.
Interest of $473000.
The next one is fees and now terminated main street lending program of 400.
$89000.
Net.
Interest margin came in for the quarter at 3.66% up 12 basis points better than previous quarter.
Without these.
Non recurring items.
Have been three.
Five 8% four basis points better.
And again.
This quarter.
The reduction of.
Interest cost of deposit costs.
Our pace.
<unk>.
Moderation.
Our loan yield.
Looking ahead.
We shall have common.
Continued interest cost savings in the first quarter as roughly $330 million of <unk>.
<unk> certificate of deposits will be repricing for roughly 50 sands.
And 50 basis points savings.
Right.
For the quarter net.
Income was.
Negative affected by it.
And loss on sale of Securities of 660.
Dollars.
For the quarter loan growth is $86 million.
Two 2% sequentially.
This is very encouraging.
After a long drought and during the midst of pandemic.
We have seen customers.
Seem to be much more positive.
Nash and nations economy.
Fourth.
Quarter loan booking.
Because really picked up.
Deposits, however grew only mildly.
At $28 million.
And as the liquidity of the bank.
We remain very good.
Perhaps.
And most confident and things to us.
And is.
The improvement in AR.
Credit posture.
After nearly a years of uncertainty.
Related to the.
And Dermic.
We find these things things.
Getting better.
Specific.
Preferred loans now reduced to $28 million.
Compared to the peak time of $610 million Okay.
Most of these deferments posh.
Partial deferments and we'll wait.
Deferring the principal only and continue to collect interest.
Total non accrual loans and a reduced.
$225 million.
30 to 89 days past due loans, which is usually a early signal.
From a credit situation.
Stands at $12 $1 million.
At AAN.
It would know 90 days past due loans.
And total cash.
And that's defined loans.
And is now $55 million, which includes a $23 million tier.
<unk>, which is performing.
At December 31.
Total reserve is one six per cent.
We were.
And we will always be careful.
Regarding operating expenses.
Efficiency ratio again.
Qingming.
<unk> nine <unk>.
9%.
For the quarter.
What is the availability of vaccine although.
It is quite a chaotic situation and Los Angeles.
But with its availability and.
Whereas the likelihood.
A stimulus package from Washington.
We believe things will be much better.
And we believe <unk>.
2021 will be a good year.
For preferred bank.
Thank you.
And I'm ready for your questions.
Okay.
At this time rate of it.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Nick <unk> of Piper Sandler. Please go ahead.
Good day, gentlemen, hope you all are well.
And we are.
Good good so first a nice rebound and loan growth this quarter, specifically and Cree balances.
What was the production and broad based across your geographies and I'm just trying to get a sense that the activity was specific to one of your markets.
Differences and pandemic related impact across the country.
Yeah.
For us its cost.
And.
And it's all across all of the quality and why don't you want to first get some color on that yes, hi, Nick This willington and production, it's pretty evenly distributed.
And our geographical footprints node for southern California, and Norcal.
As far as the East Coast, and New York area.
It's very well balanced.
Great.
And then secondly on the margin and I appreciate you calling out the one time items and.
The maturity schedule, even so you posted core NIM expansion do you feel like you still have some room for declining liability cost out run erosion and asset yields for the next couple of quarters or is that going to be challenging to maintain.
Yes, there will be liabilities costs would be let me go will be generally and the very positive trend personal is and your first quarter.
I mean, we have $330 million of PCB mature K.
Which will be repriced and pumping 50.
<unk> 50 basis points, and Netscape and the second quarter, we may have a little bit and revisit residual effect of the first quarter, but I mean.
And provided a market interest rate doesn't change you to competition okay.
And very highly likelihood that we'll be refinancing our sub debt.
At the end of second quarter, and which will result.
Today's market condition are reasonably good savings. So we are positive.
Our interest cost outlook.
That's great color.
And and impressive work on driving the modifications down this quarter and.
No hotel loans under Pearl was especially positive to see when it comes to asset quality and the current portfolio, what it's particularly top of mind for you. What are you guys worried about.
Well, obviously, we would be worried about it continuous okay lockdown to extending to a long time, you know mostly that people are seeking seeking.
Seeking a deferral.
And the firm and as many of the people had been digging out of their savings, especially when we've got one group of people those call and loss, okay and that property leased to <unk>.
<unk> leased to either too.
The loss share job are leased to the business and Thats closed and so on and they have been handling.
Right, a pre what time of day and.
And that particular case that were benefited by our origination and the low.
Hey.
LTV level, if you look at the table, we are presenting the basically and the <unk>.
And the second law since 95, and 100 per semi was <unk> 99 per segment alone require a sponsorship of personal guarantee and.
And we're very careful about the global cash flow, albeit question on pizza. So we had been heading and having some good reduction in cost of all the categories.
And the people that are still EMEA and Asia.
And <unk>.
And the pool.
<unk> has about a one year base.
Basic and <unk> business.
Okay. So some finally that media is from Charles but they've been paying along the way it and finance.
Okay and.
And then lastly from me a big step up and fee income from letters of credit do you expect that line to stay elevated at this level in coming quarters or revert back to where it was earlier last year.
We think it's going to be relatively stable, but Ed and then one of them to Youtube and provided color on that rate.
Nick.
I believe that looking at our pipeline about I think you will be relatively stable.
Thank you for taking my questions.
The next question comes from Tim Coffey of Janney. Please go ahead.
Good morning, everybody.
Hi.
Mr. Yu, we look at kind of the loan growth. This quarter is that a reflection of people get it off the sidelines and getting back to business or was this a bit of ahead of expectations.
Well some of the people I will say that.
All time and some of it was getting off the sidelines.
And basically during the pandemic is very very difficult to do business with new people, but we acquired and we have seen new requests coming in and that we're obviously still and the mode of being highly alert mode, but they are and some new requests coming in that represent new activities to us.
Okay.
This quarters loan growth tell us about the potential for loan growth next year as you know.
And it takes like California and start to reopen.
Well it is probably and I wish I had that crystal ball it as always.
Okay.
We forecast loan growth, especially quarter by quarter and not anything else, but based on the post quarter activity we have.
Book, a total the outstanding loans about $300 million new loans.
And the fourth quarter alone and these represents.
$375 million off.
Note amount, which you mean, the commitment amount and so we hope day.
We hope the effect will carry over.
For the first quarter, Okay, but again ishares factors above.
When the when the lockdown will be lifted a partially mitigate because for us our people need to really have very close contact with our customers. So there's some variables with it and.
But we're generally feeling positive about moving forward.
Okay.
And the customers you serve and the loans.
Right.
Originate and what's the competition level like right now.
Our jokingly led.
And that.
And to answer of course, I have some I have some personal observations.
Hi, Tien Tsin, Willington and I think competition is still pretty.
Pretty stiff out there we have.
Lot of.
Competitor.
Out there offering.
Very low low interest rate, we just don't know how they can sustain that going forward.
Again, we all work force.
And we tried to maintain.
Disciplined estimates are you mentioned earlier be selective and.
Really.
And just continue I mean, it's always been the nature of our business throughout our history. So we just have to continue to work faster and more efficient.
Tim Tim as Li Okay.
We now face and whole lot of competition from banks $50 million to $150 million that was in our territories.
And that seems to be the our customer and that basically.
High network individuals are being sought after and so they can also other.
And the business to call them.
Since that.
Were finding people that giving out refinanced our loan.
And at low, 3% and 10 year fixed rate is three.
Okay and that is it below NAV.
Net interest margin.
While we are obviously mining the capability of doing that and.
Mainly loans, we decided not to match.
Okay.
Very helpful and then.
With our customer.
I was curious about.
And then looking at expenses.
And the economy starts hurry up and is there going to be the potential for.
Upward pressure on expenses from additional travelers traveling and marketing.
Hey, Tim This is Ed.
Looking forward in terms of noninterest expense to the extent profitability improves and 2021 over 2020, you will see the salary and benefits expense increase over the year because our bonus accrual is directly tied to the profitability of the bank. So that will go up more specifically.
To your point about reopening and travel costs and so forth. They are really not terribly significant for us as a as an entire company simply because our workforce relative to our asset size is still relatively small so when you look at the line items, specifically, where we have actually benefited this year, it's and business development of <unk>.
<unk> as well as office supplies and equipment and Youll see those lined out and it's actually went down year over year, So thats really where the benefit comes in but outside of that there's not.
Tremendous amount of benefit for us in terms of the Lockdown and then going forward.
In terms of increasing noninterest expense with and opening up we will have some increased expenses, but it won't be material.
Kim and I'd like to.
Carriers from.
And <unk>.
The management team here is in the gross.
Jim and because we feel pretty.
Pretty good about 2021, so likelihood it will step up our effort.
And looking for new new new locations or new new branches and new different things, so likely somewhere along the year per.
Personnel expenses will be will be increasing.
Production personnel and obviously those usually these tier if we're successful to a larger larger.
Larger long term benefit.
Yes of.
Of course.
Alright, well. Thank you very much that's helpful.
Yeah.
The next question comes from David Feaster of Raymond James. Please go ahead.
Hi, good morning, everybody.
Hi, David.
Just wanted to follow up on your last comment about new offices and just curious are there any new markets that you might be interested in organic expansion into and just kind of how you are thinking about that in terms of channel.
That organic expansion side.
Yes.
First of all I am always doing thing is that okay.
Again and market comes with the way that we can lend a team of producers.
We usually do whenever we found the April banker.
And then we round and monthly the team of supporting cash net.
I'll start and business that goes along with every branch.
We have open even in the neighborhood of Los Angeles.
Area and even consider about the California area, we have so many.
New spots, which are not represented by us which represent vibrant business centers.
Our hard work really is the locating all.
People.
So whenever we see.
This opportunity.
And there will be new organic new trees being wrong.
Okay.
Okay.
And then.
In terms of asset quality. When you guys have continued to improve your defensive posture has proven itself.
We've actually seen reserve ratio continue to grow I guess, just in light of the improved economic outlook and improved credit quality, how do you think about the opportunity to potentially release reserves and.
Maybe at what point would you think you'd be comfortable doing so and then what's kind of like that more normalized reserve ratio is it closer to 125, which we saw and the first quarter 'twenty as that kind of where we should be looking at.
Well I'm looking at the trend okay. So if the assets quality remain.
And I mean, not turning to the worse case I can see and first of all is a reduction and optimization.
And perhaps.
Very minimal provision.
And then somewhere along the year I can see that we may be able to release.
Some of the reserve, okay, but it depends on how the situation plays out and also that has to some extent with a growth rate we were hacked okay.
And it.
It also affected the situation, but that generally speaking is that based on what we ought to day at this point of time.
I can't see the whole year's provision expense will be.
Very little comparatively speaking income.
Okay.
That makes sense.
And then just I'm just curious historically you guys have been pretty asset sensitive and I am just curious how that stands today just in light of the liquidity and and the impact from floors, and and maybe how youre asset sensitive assets and recruiting and sales.
And then just how you are thinking about managing.
Your sensitivity going forward.
And you and I share. This question How's that fixture okay your stock price.
Okay.
Well.
The interest rate situation is very interesting right now simply because we have such a divergence between the long and the short end and the curve seems to be continuing to steepen, but relative to our own balance sheet, you've kind of hit the nail and ahead, we have a lot of cash which is very asset sensitive obviously on an overnight basis and then the.
The adjustable rate loans, roughly 80% of the book is floating rate and so with approximately 70% floors on those.
And a number of those.
<unk>.
The preponderance of those being below their floors it will take.
Maybe one or two to three and this is very similar to the scenario. We had a few years back when we were talking about the same thing waiting for rates to rise and we had loans below their floors waiting for them to come up above their floors and then we really saw the acceleration.
The yields on the on the asset side once that took place.
But in terms of assets sensitivity right now from a quantitative standpoint, it's still we're still definitely quite asset sensitive.
Okay.
And obviously, a disappointment time for 80% of.
And then where loans was flow flaws.
Claus.
Floating rate loans cash.
Many of them I was flawed and so so we are operating currently limit under flow.
Okay.
The floor is higher than men and then the coupon rate okay. So.
Moving forward.
Rates is going to change to the upward and I don't know when well do that case and may be perhaps a 225 to 50 basis points, we will not see some of our loans rise to the new rate.
Bob.
And the defensive side on the offsetting side, we have a large one $6 billion of PCB portfolio will be gradually price.
Okay.
Along the interest rate repricing and lumber interest rate increase for the two of them usually.
Offset somewhat to each other and be exact is paramount and the timing of whole statements and we have always been the amount of history tried to maintain these aspect very carefully.
Okay. That's helpful. Thanks, everybody.
The next question comes from Steve Moss of B Riley. Please go ahead.
Good morning.
Hi, just start off with.
Following up on on yields here and just kind of curious what were origination yields for the quarter in terms of pricing these days.
Okay for the quarter were originating the loans, okay and.
The pricing I Havent handy right with me right now with the average rate and a 4.88.
85% cash.
So okay.
And as you and the same quarter, yet payoffs and pay offs deliver high about 30 basis points higher.
And one of the main reasons, where you had more moderate.
Yield compression and all.
Okay. That's helpful and then on the on the CD side kind of curious as to where you're offering rates. There. These days.
Hi, Steve This is Ed.
One year CD, our offering rate is right around 50 basis points.
And that kind of holds true down through the six months and three months probably as well.
It's become.
A market that doesn't care terribly a lot about terms in terms of.
One year two year six months right now Steve you didn't notice that the first quarter. We had lost some qcd's, okay and that is because we decided not to match sales and maturity and <unk>. The bank is to liquidate and my opinion at this point of time and.
So much cash sitting earning 10 basis points from fifth okay. So those are really more strategic move.
Right.
Okay. That's helpful and then.
In terms of capital here building this quarter. It seems like it's going to continue to build in 2021.
And just kind of curious as to what your thoughts are.
And the potential for capital deployment.
Okay.
First of all as we continue from this kind of a level of earnings.
Hopefully there may be even be slight improvement.
And sometime in 2021.
And we obviously will be thinking about increase of dividend that's almost.
A thing that we have dedicated that we will recommend to the board.
The next thing is obviously as we're always weighing is.
I'll give you and loan growth okay.
Yes, we have.
Organic loans or loans, let's say, we're lucky enough to return to two years ago getting teens. Okay. And then then the redeployment of capital basically will be largely true.
Through using that the loan growth and the <unk>.
Area if.
If we cannot and.
Are we getting and loan growth that we will be looking at situations and back to buyback.
But all of this is studying right now studying what if we have a buyback immediately.
In fact with due to us and our current.
Capital level Youll see.
Primary capital level is slightly over 10% and.
And so that is one area that we are studying and to see how comfortable we are doing things.
Okay, Great. That's very helpful. Thank you very much.
Okay and.
This concludes our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Yes.
Well.
Thank you very much that.
So you are changing that.
And as I said earlier, we had a good quarter.
And.
We hope that continues into next year and.
And and hopefully that all of us will be getting and others.
And <unk> soon and we're back to our normal lives get out freedom back day.
Which is probably more important than the performance of our bank.
And you think.
So with that.
Let's wish for the best for 2021.
Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.