Q2 2021 Preferred Bank Earnings Call
[music].
Good afternoon, and welcome to the preferred Bank second quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
Please note this event is being recorded.
I'd now like to turn the conference over to Jeff Horse of financial profiles. Please go ahead.
Thanks, Chad Hello, everyone and thank you for joining us to discuss preferred bank's financial results for the second quarter ended June 30th 2021 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka, Chief Credit Officer.
Nick Pi and Deputy Chief operating Officer, Johnny Sue Management will 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 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 statements 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 uncertainty.
Please refer to the S. E C required documents the bank files with the federal deposit insurance Corporation, or FDIC and 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.
<unk> and 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.
Good morning, ladies and gentlemen.
Preferred bank second quarter, net income was $21.2 million or dollar 44 cents per share.
This quarter, we have some.
And.
Non recurring item first of all is correcting.
A.
Income item, which related mostly to.
Currently 20 events.
And the second 1 is a expensing.
And amortized.
This con.
A terminal on the on the sub debt and loan that was previously existing which record.
And third 1 is a loss on a share of alone.
Without these 3 items on a normalized basis.
And net income will be.
Good day.
All dollar per day line.
Sure.
And our return on equity will be older 17%.
Yes.
On a same basis.
Net interest margin for the quarter was 3 point for 7%.
A 14 basis point drop from the previous quarter.
And at the low interest rate environment, we continually witnessing that new loans being made at less of a rate than the old loans paid off.
And we also have many.
Customer renegotiations.
Our rates for.
For instance.
Seems to be a whole lot of snicker on rates has been renegotiated.
And also.
The large access to liquidity.
And so waiting on.
Net interest margin.
Yeah.
Our loans however, as growth.
11%.
For the quarter.
During the quarter, we have seen.
A vibrant loan pipeline.
But we also see increased.
Hey off.
Activities.
Looking ahead, we believe.
The pipeline will continue to be.
Reasonably.
Satisfactory.
This is especially true when many of our newly hired low offices will be closing loans in the ensuing quarters.
We also.
C a.
Modest interest cost savings.
And the quarters 2 quarters ahead.
Yes.
Our credit and matrix.
And the improved.
Classified assets.
And as Donald.
Criticized assets is down.
The Permian alone.
As of June 30 years is only a $1.5 million.
And for all the interest and principal debt, what we have granted deferment to.
To our borrowers.
Have collected back 67%.
Already.
This quarter, we have a little bit of charge offs, but that was charging off the previously reserved loans.
So when there was a charge off and the corresponding reduction in reserves.
This quarter, we recording zero.
Our loan loss provision.
Provision.
I must report to you and this time, that's a conversation and that's good.
And with 1 of our private shareholder.
Yesterday.
Specifically he is question Lee.
For me and so why.
And not having a.
Our loan loss reserve release.
During the quarter.
And most almost every other bank okay.
I told him first of all of course, the seesaw mathematics, okay.
But I also told him.
From a personal point of view and looking at the glass half.
GAAP full basis.
That kind of please.
That we didn't have any release.
This quarter.
The most recent economic forecast that was reported by Wall Street Journal yesterday.
Well the forecast by and Morgan Stanley as Chief Economist.
Who indicate it.
Economic expansion will continue at a reasonably good rate going into well into.
2022.
We echo.
Hi.
Sentiment.
You see there's not a whole lot we can do about them.
Current low interest rate environment.
And there's not a whole lot we can do above the inflation pressure.
But we feel will be dedicated.
To continue to provide.
Top tier profitability.
To our shareholders.
Thank you very much and ready for your questions.
Okay.
Thank you we will now begin the question and answer session.
And to ask a question you May Press Star then 1 on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press star and then too.
At this time, we will pause momentarily to assemble our roster.
Yeah.
And the first question will be from Matthew Clark with Piper Jaffray. Please go ahead.
Hey, good morning.
Hi.
Yeah. Thanks.
Well the first 1 just on the.
Loan yields and trying to get a sense for.
What kind of rates, you're getting on new business.
I think last quarter.
Mentioned debt new businesses coming on and about 90 basis points below the portfolio yield I think your core loan yield this quarter was about 499, and if we exclude the P. P P and the interest income reversal.
Yes.
What is the weighted average rate on new production this quarter.
And the new production this quarter that it is.
It is.
Really a sort of luck.
Abnormal quarter, new production rate comes in for <unk> zone, 5%, where the payoff rate comes and Bob 60 basis points higher than that.
That is because we have some rate.
For large.
<unk> loans.
Being repriced 50 to 75 basis points lower.
And a change.
<unk> changed the mixture of the bank.
Our own portfolio type and we are doing basically right around about 4 point for point.
For level.
Okay great.
And then just on the growth in commercial real estate this quarter.
That was you know most of your incremental growth can you give us a sense for the underlying property types, that's driving that growth and and your thoughts on your ability to maintain low double digit.
Loan growth and into next year given your pipeline.
Want to volunteer you want to volunteer sure.
Good afternoon, and is willing to and most of that.
No what we've put out is multifamily residential and we have.
No no and mixed use warehouse.
Apart for properties.
A lot of warehousing and owners.
Understood Great and then last 1 maybe for Ed on <unk>.
Expense run rate going forward and and.
You know given the build out of the L. P O and Texas can you give us your thoughts on the run rate going forward, whether or not that you might kind of remain at this level or might we see a little bit of growth.
Well I would venture to say I mean, we did a I think a really good job holding and under $15 million this quarter and.
And as you recall I, probably guide a little higher than that and the previous call and so I'm going to be consistent with that Matthew and say, it's going to definitely go up north from here.
I would say and the low to mid 15 somewhere in that neighborhood simply because we have a number of things that are that are going on but 1 of which is.
Hiring that we've been doing.
We mentioned and the previous call. This has been so far and whether it can and should probably talk about that as well it's been a pretty good year for recruiting this year. So to the extent that happens solar expense will increase but will see better top line growth as well.
Okay. Thank you.
Yeah.
Yeah.
Thank you and the next question will come from Andrew <unk> with Stephens. Please go ahead.
Hey, good morning.
Hey, Joe.
I just wanted to ask how much of the total portfolio today is considered syndicated or snacks.
And then any kind of specific industry concentration within that.
It's about I think it's right around 11% of the book Matthew There our nose bus industry specific concentrations. These are typically.
Credit type.
And.
Facilities for these larger organizations, we do have as we've talked about in the past we have about I believe $6.50 million to $60 million in the entertainment industry, but those are not production credits those are primarily library based.
Perfect. Thank you.
And I did wanted to switch back over to kind of the new hire Fran just briefly are there any specific geographies, you're more focused on hiring or is it really coming in across the board and any kind of incremental color on kind of the type of institution, you're hiring away from us and larger smaller similar sized and any color on the hires.
And for your debt.
Previously that debt.
And I'll talk about it our hiring is basically opportunistic.
So we have whenever the simple regionals and you'll have whenever we will find a qualified personnel that we try to try to try to get them paid and that if you will.
Lucky enough.
We then coming to terms and for them to join Us day.
And it is not specifically we'd had targeting any region at all.
Rather than all of the regions and we will continuously cultivating and.
People coming.
To us, mostly our talents coming from bank about.
And within that range of outsize and.
And maybe a smaller than we all.
And maybe bigger than we are.
Perfect. Thank you and then just last 1 for me and it looks like the end of period PPP loans for essentially flat for the prior quarter, just any kind of updated thoughts or expectations on.
Timeline for forgiveness for the remainder of these loans.
Oh.
And Andrew this is Johnny on the on the PPP loans, we're going through the forgiveness process right now.
And we Havent started on the second 1 yet second batch because that guideline hasn't come out yet, but we still have around $50 million that we're expecting to be forgiven from the first batch.
Okay perfect. Thanks for taking my questions.
Sure.
The next question will be from Steve Moss with B Riley Securities. Please go ahead.
Good morning.
Hi, good morning.
Starting off with maybe just the appetite to deploy excess liquidity here and just kind of curious for.
The release there.
How much what are you thinking in terms of securities purchases, if any and just what you might be expecting there.
Yeah.
In general we just have too much liquidity, we have roughly 22% of total assets invested cash.
And different type of obviously thats, earning.
Graham.
Less than 10 basis points, Okay. So no debt.
If it is too.
<unk>.
And obviously for us choices alone, but we are looking for.
And the security side, and we actually get some and the second late second quarter and started to do it.
But as you know the choices is not bad.
Whole lot of them, if we consider the risks so Ed you want to ethylene and plus more on that yes.
Steve.
It's a tough time and this interest rate environment.
Spreads tightened and so you really don't get paid for for going along at all so what we've been doing is we've been kind of mixing up between cash alternatives very very short monthly adjusters and agencies type stuff.
And we've put quite a bit into that over $100 million into that and then we've been picking off here and theyre munis and corporates as we as we find value here and there but.
And as you know its a long slog.
The mortgage product yields almost 5 times, what the overnight rate.
Rate is.
And that certainly helps but.
These are basis. These arent homeruns as you know so.
Okay, Alright that makes sense and then just on the other side of the balance sheet deposit growth remains strong just kind of curious as to where you guys are pricing Cds These days and.
And just that deposit environment.
Well the.
I can talk about the pricing I think Wellington can probably talk about the market and maybe better where we're trying to stay and keep our pricing as low as possible without impacting growth going forward, but as you know theres a lot of money and the system right now the fed has put a lot of money into the system and so we do want to grow deposits because we will eventually deploy them, but we've got to do it and a.
A real cost effective manner, we've been working very hard to try to bring those costs down.
Yes, Steve This is Wellington and we are very selective on our deposit gathering.
Between our deposit officer, who are focusing on individual deposits.
And our commercial lending officer, and focusing on the business.
DDA deposits, we just tried to be very selective and are continuing to keep volume price.
And are the costs down and all of that but having to say that we always out there looking for opportunities.
Our core deposits.
Steve just leap day.
1 of the things that I hold a slightly different view of that.
And debuting though.
Debt.
All lines and personal that always believe franchise value is and the deposits.
And your group deposits first even though it's short time short term.
Vantage that you'll have to bite the bullet in order to have the.
Muscle day out to 2 here for the long term growth, so institutional and continue to cultivate deposits and now.
And just because it's not profitable right now, but rather for the long term stability and growth and value of all of our franchise.
Right, absolutely and in terms of maybe just tie now low and expectations here Lee spoke that.
Pipeline and production should be satisfactory here.
Think backend loaded this quarter do you think.
The peso and loan growth, maybe we could see a little bit of a step up and the second half of this year.
We have previously coming everybody can we think second half of the year will be a little bit more than the first half of the U K bank.
This business is after may.
Mainly many of its really you know.
Kind of a hard to predict especially in the early part of the quarter much of the weekend.
Materialize and then.
Amid COVID-19 and this along but the early indication is that our momentum is there and I would say it I will hope that the new offices will be.
Added muscle that we needed to bring to.
Higher level.
And the previous quarters of course debt.
And that.
Do you have to probably be.
Careful about the whole thing I have a chief credit officer for IP side.
Whose sole job is because they don't do crazy things.
Yeah.
Yeah.
And.
Alright, well, thank you very much for all that and a nice quarter.
And the next question is from Tim Coffey with Janney. Please go ahead.
And thank you everybody.
And so do I wonder if you can provide.
And if you had an update on how the rate.
Loan growth X zone.
And in the Texas operation.
Well.
This operation in general has been progressed and just along the same.
<unk> line that we.
Previously forecasted okay, and I guess previously reported to them how much day, we're expecting to produce will be.
I don't know we have expressed how much they are expecting book last quarter. They contributed about 10% of volume growth okay. Okay.
Okay and Texas.
It's a 2 sided volume wise speaking is obviously.
Very very satisfactory.
<unk>.
And the process to go through but we have to also started to be liberty truly about the pipe because of yield and these kind of things as we go forward.
Okay.
Yes, sorry.
They don't have to battle, the pay offs new portfolio.
That's fair.
And Ed just kind of circle back on the liquidity question.
Yes.
Philosophically, what how long do you think youre going to be carrying that excess liquidity.
[laughter] Wow, that's a great question. So you know what I've always found first thing and 1 of the thing I've always found Tim is when liquidity is really strong is when rates are lowest.
Liquidity starts to dry up and rates go up and you know that always happens and so it's ebbed and flowed over the last 2 and we've really held excess liquidity for the last 10 years since the financial crisis ended quite honestly and this is built and built and built and we've never came to a situation where we felt yields we're going to finally go down or I guess, we could've done it in February and March.
Last year, we were really brilliant.
But we've never felt comfortable to be in a situation where rates were going to fall pretty meaningfully and we could put some money to work pretty.
Effectively and.
Make use of that money. So we were just going to keep putting money to work as we can slowly chip away, but we're not going to make huge meaningful inroads I mean, our liquidity went up $150 million on average and the linked quarter from quarter to quarter. So when you look at that that's a real deleveraging impact on the margin, but we will.
Continue to chip away at the money as we can but we're not going to do anything really substantial.
Great Okay.
Great color I appreciate it those are my questions. Thank you very much.
And again, if you have a question. Please press Star then 1.
And the next question will be from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Scott and good morning.
Just wanted a question I think most have been answered but regarding the loss on sale loans. This quarter I think 261000 and it was closer to 400000 last quarter, just any color on that and any visibility as to additional.
Sales as we go through the back half of the year.
No I mean actually it's really.
Strategic move for our sites day.
Because we had a couple snick loans being downgraded.
Okay and heading into examination, we do not want the payout.
Okay.
Also debt.
<unk>.
Strategic situation rather than.
Financial related.
We as you know looking about bad history, we don't have we're 70 sales any loans.
Okay, So just something that kind of spill.
Specific to a couple of credits ahead of and again.
Just to sneak loans being downgraded.
Alright, great. Thank you.
And the next question is from David Feaster with Raymond James. Please go ahead.
Good morning, everybody.
And it all.
And I just wanted to get a sense of.
Some of the puts and takes with loan growth just to get a better understanding of some of the underlying strength I mean payoffs and paydowns have been a significant headwind like we've talked about just curious if you could quantify like how payoffs and paydowns have trended and maybe the underlying strength of your originations.
Just some goofy and there would be helpful.
Let me tell you and what the original origination effort is okay and I had the numbers right for the for.
The second quarter, we have originated a total of.
Okay.
After our fracking with 1 of them.
Okay.
$428 million of commitment without assuming about 305, but the payoff is nearly $200 million. Okay. So.
Obviously these number changes from time to time, you'll see we are not a product type of bank.
Relationship type of 1 off type of bank all of our loans all of them.
All of those deposits really 1 off type of thing so sometime it's just certain customers.
So the so the property all they went public they don't need us anymore and all these kind of things happens.
Okay. That's helpful and then so in our recent meetings, we talked a lot about C&I growth.
Being a major focus and we did see some growth and the quarter.
You guys have done a great job expanding C&I just curious any updates on this segment what youre hearing from your C&I clients and just your strategy for continued C&I growth going forward.
Okay C&I growth is probably the hottest day coming in.
You hit the officer, who even work on the Dia and maybe as long as 1 to 2 years before they can get to the C&I and get cut.
And we transfer to us Unlike a real estate transaction and will transact for Batesville cluster relationship, but C&I is purely relationship and price.
And what to do with timing and 1 of the situation is that we are facing right now is.
And I'm trying to decide on the temporary basis.
How should we control our C&I book, you said C&I is not being price.
To a level that is debt is.
How should I say.
It does not fit to our operating model with that much.
Hey.
And you talk about that.
Regular customer type of C&I, it's basically the price much below that real estate loans and and you talk about the <unk>.
Lois.
And the ones and the low twos.
And there the whole situation realized our net interest margin is right and wrong. So.
And these things is just if you too few of them and why if you do a whole lot of normal situational and.
And the financial performance.
And we'll be coming down so we have to from time to try and adjust our <unk>.
And appetite based on based on based on debt based on the relative yields and rates with debt.
At this point and time is that.
I am not projecting to see a whole lot of objective.
Loans, because it's uneconomical at this point in time.
Okay.
And then just any thoughts on the reserve you touched on this in your prepared remarks, but just any I guess, how do you think about provision expense going forward would you kind of its debt.
It sounds like you'd prefer to grow into the reserve.
Any thoughts.
<unk>.
Yes, it is not up to us it is up to the sea so mathematically.
Hey.
But if I have to make a prediction because there's a lot of unknown factors for instant and vibrant and the delta is coming stronger and stronger. So if that's happening very strong that puts preferred bank and a better position and.
Because we have more reserve compared to some of our vehicle, but if it is not also epigone strong then I would say is more than 50% of a chance that we will have some reserve moving forward reserve release going forward, but still you have to go through the consultation.
And all the economic backdrop Q factor.
And the internal downgrade and grading of the loans and these all kind of complicated and statements.
Got it thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Thank you very much although were very noisy quarter okay.
Looking at the normalized basis, and we really have a record earnings quarter.
And.
We'd like to think that.
All of the operating matrix as steel and <unk>.
Tech were skewed to <unk>.
And what can produce or have been producing more than 10% and loan growth and controlling our cost and.
And have reasonable net interest margin compared to our peer group and above all we have.
Property, a very favorably positioned.
Profitability in our <unk> E.
Secondly.
We'd like to continue to do that day.
Yeah.
We just hope that the economy will be growing at the same <unk>.
Same same condition as we're seeing right and I and I would hope.
Sure.
Good day.
Good day.
And then pandemic will be over soon and.
I certainly would hope everybody would stay safe and stay healthy thank.
Thank you very much.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
[music].
[music].
Good afternoon, and welcome to the preferred Bank second quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
Please note this event is being recorded.
I'd now like to turn the conference over to Jeff halls of financial profiles. Please go ahead.
Thanks, Chad and Hello, everyone and thank you for joining us to discuss preferred banks financial results for the second quarter ended June 30th 2021 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka, Chief Credit Officer.
Nick Pi and Deputy Chief operating Officer, Johnny too.
Management will 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 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.
Statements 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 and please refer to the SEC required documents the bank files with the.
Federal deposit insurance Corporation or F. D. I see 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.
Preferred bank second quarter, net income was $21.2 million or dollar 44 cents per share.
This quarter, we have some.
A non recurring item, but first of all is correcting.
And.
Interest income.
And which related mostly to preferred.
Currently 20 events.
And the second 1 is a expensing in and.
And amortized.
This call and on a terminal.
Sub debt loan that was previously existing which record.
And third 1 is the loss on our sales.
Without these 3 items on a normalized basis.
And net income would be.
Oliver.
8 or $1.59 a share.
And our return on equity will be older 17%.
Yes.
On a same basis.
Net interest margin for the quarter was 3 point for 7%.
A 14 basis point drop from the previous quarter.
Yeah.
And at the low interest rate environment, we continually witnessing that new loans being made at less of a rate and the old loans paid off.
And we also have many.
Customer renegotiations.
Rates for.
Instance.
Seems to be a whole lot of a snick loan rates has been renegotiated.
And also.
The large access to liquidity also waiting.
The net interest margin.
Yeah.
How long however as growth.
11%.
For the quarter.
During the quarter, we have seen.
A vibrant loan pipeline.
But we also see increased pay off.
And it is.
Yeah.
Looking ahead, we believe.
The pipeline will continue to be.
Reasonably.
Satisfactory talent.
This is especially true when many of our newly hired low offices will be closing loans in the ensuing quarters.
We also.
C a.
Modest interest cost savings.
And the quarters 2 quarters ahead.
Yeah.
Yes.
Our credit matrix.
And they improved.
Classified assets.
His arms.
Criticized assets.
Huh.
Deferment of loans.
As of June 30 years is only a $1.5 million.
And for all the interest and principal debt, what we have granted deferment to 2.
To our borrowers.
Have collected back for 67%.
Already.
This quarter, we have a little bit of charge offs, but that was charging off the previously reserved loans. So.
And when there was a charge off and the corresponding reduction in reserves right here.
This quarter, we recorded zero.
The loan loss provision.
Provision.
I must report for you at this time, that's a conversation and that's good.
With 1 of our private shareholder.
Yesterday.
Specifically he is question Lee.
For me and so why.
And not having a.
Our loan loss reserve release.
During the quarter.
Most almost every other bank okay.
I told you and Chris have off pause the CSO mathematics, okay.
But I also told him.
For my personal point of view and looking at the glass.
GAAP full basis.
That I'm kind of pleased.
And that we didn't have any release.
This quarter.
Yeah.
The most recent economic forecast that was reported by Wall Street Journal yesterday.
Well the forecast, Brian Morgan Stanley's Chief economist.
<unk> indicated for <unk>.
Economic expansion will continue at least reasonably good rate going into well into.
2022.
We echo.
Hi.
Sentiment.
You see there's not a whole lot we can do about it.
Current low interest rate environment.
And there's not a whole lot we can do above the inflation pressure.
But we feel will be dedicated.
And to continue to provide.
Top tier profitability.
To our shareholders.
Thank you very much and ready for your questions.
Yeah.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then 1 on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Yes.
And the first question will be from Matthew Clark with Piper Jaffray. Please go ahead.
Hey, good morning.
Hi.
Good thanks.
Well the first 1 just on the.
Loan yields and trying to get a sense for.
What kind of rates, you're getting on new business.
I think last quarter, you mentioned that new business is coming on and about 90 basis points below the portfolio yield I think your core loan yield. This quarter was about 499, if we exclude the P. P P and the interest income reversal.
Yes, what is the weighted average rate on new production this quarter.
On the new production this quarter that it is.
It is.
Really a sort of like it.
Abnormal quarter, New production you rate comes in for <unk> zone, 5%, where the payoff rate comes and Bob 60 basis points higher than that that is because we have some rather large.
Snick of loans being repriced 50 to 75 basis points lower so it's kind of a change be changed.
Change the mixture of the bank.
And all our own portfolio type and we are doing basically right around about 4.3 and 4 level.
Okay great.
And then just on the growth in commercial real estate this quarter.
That was you know most of your incremental growth can you give us a sense for the underlying property types, that's driving that growth and and your thoughts on your ability to maintain low double digit.
Loan growth and into next year given your pipeline.
Wonder why don't you want to volunteer sure GAAP do this willington and most of that.
Well, we put out.
Multifamily residential.
We have.
And go and mixed use warehouse.
For properties.
A lot of warehousing.
Understood Great and then last 1 maybe for Ed on the expense run rate going forward and.
You know given the build out of the <unk> and in Texas can you give us your thoughts on the run rate going forward, whether or not that you might kind of remain at this level or might we see a little bit of growth.
Well I would venture to say I mean, we did a I think a really good job holding and under $15 million this quarter and.
And as you recall I, probably guys is little higher than that and the previous call and so I'm going to be consistent with that Matthew and say, it's going to definitely go up north from here.
I would say and the low to mid 15 somewhere in that neighborhood simply because we have a number of things that are that are going on but 1 of which is.
Hiring that we've been doing.
As we mentioned and the previous call. This has been so far and while they can and should probably talk about that as well it's been a pretty good year for recruiting this year. So to the extent that happens solar expense will increase, but we will see better top line growth as well.
Okay. Thank you.
Thank you and the next question will come from Andrew <unk> with Stephens. Please go ahead.
Hey, good morning.
Hi, Joe.
Just wanted to ask how much of the total portfolio today is considered syndicated or snacks.
And then any kind of specific industry concentration within that.
It's about I think it's right around 11% of the book Matthew There are no specific industry specific concentrations. These are typically.
Credit type.
And.
And.
Facilities for these larger organizations, we do have as we've talked about in the past we have about I believe $6.50 million to $60 million in the entertainment industry, but those are not production credits those are primarily library based.
Perfect. Thank you.
And I did wanted to switch back over to kind of the new hire front and just briefly are there any specific geographies, you're more focused on hiring or is it really coming down across the board and any kind of incremental color on kind of the type of institution, you're hiring away from us and larger smaller similar sized and any color on the hires.
And your debt.
We have previously that debt.
And I'll talk about it our hiring is basically opportunistic.
So we have and whenever the several regions have whenever we will find a qualified personnel that we try to try to try to get them paid and then.
Lucky enough.
We then coming to terms and for them to join us today.
And it is not specifically, we'd have pocketing any region at all Bob.
Rather than all the regions and we have we're continuously cultivating and.
People coming.
To us, mostly all talents coming from bank about the.
And within the range of outsize and.
And maybe a smaller than we are and maybe bigger than we are.
Perfect. Thank you and then just last 1 for me and it looks like the end of period PPP loans for essentially flat for the prior quarter, just any kind of updated thoughts or expectations on timeline for forgiveness for the remainder of these loans.
Andrew This is Johnny on the on the PPP loans, we're going through the forgiveness process right now.
And we Havent started on the second 1 yet second batch because that guideline hasn't come out yet, but we still have around $50 million.
And to be forgiven from the first batch.
Okay perfect. Thanks for taking my questions.
Sure.
The next question will be from Steve Moss with B Riley Securities. Please go ahead.
Good morning.
Good morning.
Starting off with maybe just the appetite to deploy excess liquidity here just kind of curious.
From the release there how much what are you thinking in terms of securities purchases, if any and just what you might be expecting that.
And in general we just have too much liquidity, we have roughly 222% of total assets invested cash.
On different type, obviously thats earnings.
Glen.
Less than 10 basis points, Okay. So no debt.
And if it is 2 to 2 <unk>.
Yes.
And obviously for us choices alone, but we are looking for.
And we're looking for security side, and we actually get some and in the second late second quarter and started to do it.
As you know the choices is not bad.
Whole lot of them. If you consider the risks so Ed you want to ethylene and plus more on debt, yes, no. It's Steve as you know, it's a tough time and this interest rate environment.
Spreads tightened and so you really don't get paid for for going along at all so what we've been doing is we've been kind of mixing up between cash alternatives very very short monthly adjusters agencies type stuff.
And we've put quite a bit into that over $100 million into that and then we've been picking off here and there munis and corporates as we as we find value here and there but it's.
It's a long slog, but.
<unk>.
The mortgage product yields almost 5 times, what the overnight rate.
Rate is.
And that certainly helps but.
These are basic these aren't home runs as you know so.
Okay, Alright that makes sense and then just on the other side of the balance sheet deposit growth remains strong and just kind of curious as to where you guys are pricing Cds These days and.
And just the deposit environment.
Well.
I can talk about the pricing I think Wellington can probably talk about the market, maybe better where we're trying to stay keep our pricing as low as possible without impacting growth going forward, but as you know theres a lot of money and the system right now the fed has put a lot of money into the system and so we do want to grow deposits because we will eventually deploy them, but we've got to do it and.
A real cost effective manner, we've been working very hard to try to bring those costs down.
Yes, Steve Bard as Wellington, and we are very selective on our deposit gathering.
Between our deposit officer, who are focusing on individual deposits and our commercial lending officer and focusing our business.
Deposits, we just tried to be very selective and are continuing to keep volume.
Pricing down.
The cost down and all of that but having and say that we always out there looking for opportunities.
To build our core deposits.
Steve This landscape.
1 of the things that I hold a slightly different view.
And then David Duval.
All lines and personal that always believed franchise value is and the deposits.
And if group deposits first even though it's short time short term.
This advantage that you have to bite the bullet.
And that too had the.
Muscle day out to 2 head to the long term growth, so institutional and continue to cultivate deposits.
And just because it's not profitable right now for read there for the long term stability and growth the value of all of our franchise.
Right.
Absolutely and.
And in terms of.
Maybe just high now low expectations here Lee spoke that pipeline.
Pipeline and production should be satisfactory here.
Think backend loaded this quarter do you think you hold the peso and loan growth, maybe we could see a little bit of a step up and the second half of this year.
We have previously been attending everybody clean.
Second half of the year, it will be a little bit more than the first half for the Esa.
<unk> business is after.
Mainly and many of its really you know.
Kind of a hard to predict especially in the early part of the quarter much of the weekend.
Materialize in the net quoted and so on but the early indication is that our momentum is there and I would say it I will hope that the new offices will be.
Added muscle that we needed to bring to.
Higher level.
And the previous quarters of course debt.
Debt.
Do you have to probably be trapped cash.
For about the whole thing I have a chief credit officer for IP <unk> Science Hill.
So job is and don't go crazy.
[laughter].
Alright, well, thank you very much for all that and a nice quarter.
And the next question is from Tim Coffey with Janney. Please go ahead.
Yeah. Thank you for everybody.
And so I wonder if you can provide.
And if you had an update on how the.
Loan growth is going and the Texas operation.
Well.
Texas Operation in General has been progressing and just along those same.
Same line that we.
Previously forecasted, okay, and I guess previously ever reported to them how much day, we're expecting to produce will be.
And I know we have expressed how much they are expecting book last quarter. They contributed about 10% of our loan growth okay. Okay.
Okay, and Texas operations.
Volume Wise speaking is obviously.
Very very satisfactory.
And the deposits that to go through but we have to also started to deliver truly about the pipe because of yield and these kind of things as we go forward.
Okay.
And they don't kind of yes, sorry.
They don't have to battle, the payoffs and new portfolio.
That's fair.
And Ed just kind of circle back on the liquidity question.
Yes.
Philosophically, what how long do you think youre going to be carrying that excess liquidity.
[laughter].
Wow, that's a great question. So what I've always found first thing and 1 of the thing I've always found him as when liquidity is really strong is when rates are lowest liquidity starts to dry up and rates go up and you know that always happens and so it's ebbed and flowed over the last 10 years, we've really held excess liquidity for the last 10 years since the financial crisis and did quite honestly and this is built and built.
And Bill and we've never came to a situation, where we felt yields we're going to finally go down or I guess, we could've done it in February and March of last year, we were really brilliant.
But we've never felt comfortable to be in a situation where rates were going to fall pretty meaningfully and we could put some money to work pretty.
Effectively and.
Make use of that money. So we were just going to keep putting money to work as we can slowly chip away, but we're not going to make huge meaningful inroads. I mean, we are liquidity went up $150 million on average and the linked quarter from quarter to quarter. So when you look at that that's a real deleveraging impact on the margin, but we will.
<unk> to chip away at the money as we can but we're not going to do anything really substantial.
Great. Okay. That's great color I appreciate it those are my questions. Thank you very much.
And again, if you have a question. Please press Star then 1.
The next question will be from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Scott and good morning.
And what are key.
Question I think most have been answered, but regarding the loss on sale of loans. This quarter I think 261000. It was closer to 400000 last quarter, just any color on that and.
The visibility as to additional.
Sales as we go through the back half of the year.
No I mean actually it's really.
Strategical move for all sides day, because we had a couple of snick loans being downgraded.
Net.
And heading into examination, we do not want to carry.
Okay.
Also debt.
Strategic situation rather than for.
Financial related.
We as you know looking about bank history, we don't have we sell the sale and then any low.
Okay.
Okay, So just something that kind of spill.
Specific to a couple of credits ahead of and again.
Just to sneak loans being downgraded.
Alright, great. Thank you.
And the next question is from David Feaster with Raymond James. Please go ahead.
Good morning, everybody.
And it all.
And I just wanted to get a sense of some of the puts and takes with loan growth just to get a better understanding of of some of the underlying churn and I mean payoffs and paydowns have been a significant headwind like we've talked about just curious if you could quantify like how payoffs and paydowns have trended and maybe the underlying strength of your.
<unk>.
And so do you feel there would be helpful.
Let me tell you and what the original average.
Automation effort is okay, and I have the numbers right for the.
For the second quarter, we have originated a total of.
Okay.
Yes, that's right <unk>.
Okay.
$428 million of commitment without assuming about 305, but the payoff is nearly $200 million.
Okay. So.
Obviously these number changes from time to time, you'll see we are not a product type of a bank where we are.
Relationship type of 1 off type of bank all of our loans all that all those deposits really 1 off type of thing so sometime it's just certain customers.
So the so the property all they went public they don't need us anymore and all these kind of things happens.
Okay. That's helpful and then so in our recent meetings, we talked a lot about C&I growth.
Being a major focus and we did see some growth and the quarter you guys have done a great job expanding C&I just curious any updates on this segment what youre hearing from your C&I clients and just your strategy for continued C&I growth going forward.
C&I growth is probably the hardest and coming in.
And the officer, who either work on the Dia and maybe as long and 1 to 2 years before they can get to the C&I.
And were transferred to us Unlike a real estate transaction and while transaction based book cluster relationship for C&I.
That is purely relationship and has a lot to do with was timing and 1.
1 of the situation is that we are facing right and.
I'm trying to decide on a temporary basis.
How should we control our C&I book, you said C&I is not being price.
To a level of debt is that is.
How should I say.
It does not fit to our operating model with that much.
Okay.
And you talk about the.
And our customer type of C&I, it's basically the price much below that real estate loans and then you talk about the <unk>.
And I was not.
And the ones and the low twos and that's us.
And there the whole situation realized our net interest margin is right around 3 so.
So I mean.
I mean these things it's just if it took a few of them. If you do a whole lot and normal situational and.
And the financial performance.
And we'll be coming down so we have to from time to try and adjust our C&I appetite based on based on based on that based on the relative yields and rates okay.
At this point and time is that.
I'm not projecting to see a whole lot of objectivity and lot loans.
Because it is and economical at this point and time.
Okay.
And then just any thoughts on the reserve you touched on this in your prepared remarks, but just any I guess, how do you think about provision expense going forward would you kind of expect.
It sounds like you would prefer to grow into the reserve.
Any thoughts on kind of what the normalized.
Yes, it is not up to us it is up to the sea, so mathematically youre well aware off.
But if I have to make a prediction because there's a lot of our non factors for instance, and vibrant and the delta is coming stronger and stronger. So if that's happening very strong that puts preferred bank and a better position because we have more reserve compared for some of our vehicles.
And if it is Mac OS Epigone strong then I would say there is more than 50% of a chance that we will have some reserve going forward and reserve releases going forward, but still you have to hold to the issue of the all the economic backdrop Q factor.
And the internal downgrading weighting of the loans and these all kind of complicated things.
Got it thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Thank you very much although were very noisy quarter, okay, but looking at the normalized basis, and we really have a record earnings quarter day.
And.
We'd like to think debt.
All the operating matrix as steel and <unk>.
Tech we are skewed to <unk>.
Bank.
Our have been producing more than 10% and loan growth and controlling our cost.
And have reasonable net interest margin compared to our.
Our peer group and above all we have.
Property.
Very favorably positioned.
Profitability and alloy our E.
And secondly.
We'd like to continue to do that day.
And <unk>.
We just hope that day.
And the economy will be growing at the same same same condition as we're seeing right now and I would hope.
And.
Good day.
Pete.
And then pandemic will be over soon and.
And certainly we'll hope everybody would stay safe and stay healthy.
Thank you very much.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.