Q2 2023 RBB Bancorp Earnings Call
Good day, everyone and welcome to the <unk> Bancorp results for the second quarter of 2023.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Katherine way ma'am the floor is yours.
Thank you good day, everyone and thank you for joining us to discuss our D. V Bank cards results for the second quarter of 2023 with me today is Chief Executive Officer, David Morris, President and Chief Banking Officer, Johnny Lee Chief Financial Officer, Alex Ko, Our Chief Credit Officer, Jeffrey Yeh Chief administrative.
Officer, Gary fan and Chief Risk Officer, Vincent Liu.
Johnny and Alex will briefly summarize our results, which can be found in the earnings press release and Investor presentation are available on our Investor Relations website, and then we'll open up the call to your questions. During this conference call statements made by management May include forward looking statements within the meaning of the private Securities Litigation Reform Act.
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 our baby Bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company for.
For a detailed discussion of these risks and uncertainties. Please refer to the documents. The company has filed with the S E C.
If any of these uncertainties materialize or any of these assumptions prove incorrect our BD been cause results could differ materially from its expectations as set forth in these statements.
The company assumes no obligation to update such forward looking statements unless required by law.
Now I'd like to turn the call over to David.
David.
Thank you Catherine Good day, everyone and thank you for joining us today.
First things first I would like to welcome Johnny Lee till the Royall business Bank family as President and Chief Banking Officer, and say how pleased we are to have someone with his experience and reputation joined us in a leadership role.
Johnny's hiring is one of the more visible steps we've taken over the past 15 months to strengthen our management team enhance our board of directors and adopt industry, leading corporate governance policies.
These actions are summarized on page three of our earnings presentation.
Since I was named CEO in February of last year.
We have added a new president Chief Financial Officer, Chief administrative officer, SBA manager commercial lending manager and the East coast hit of branch banking.
These additions to the army be team have deepened our management bench and improved our ability to run a nationwide banking franchise.
In addition to the new employees we have.
<unk> enhanced our board of directors with six new directors with extensive regulatory <unk>.
Executive leadership wealth management risk management and community banking experience of.
Our 10 directors nine, including our chairman are classified as independent directors.
We also adopted new corporate governance policies and standards, which include enhanced director independence standards and an independent Board chair.
Update Board Committee charters, and a new code of ethics.
I want to mentioned these actions because I think they show how serious we are about serving our community increasing shareholder value and preventing a repeat of the events that led to the departure of former employees and directors.
We are hopeful that folks will look at us not as the bank, we were a year ago, but that's the bank we are today.
With all that said I think it's important to address a couple of items.
In the quarter before I hand, it over to Alex.
First we are aware of the increase in nonperforming loans.
While nonperforming loans increased in the second quarter classified special mention.
Loans delinquent between 30, and 90 days decreased from the last quarter.
Specifically special mention loans decreased significantly significantly to $24 million from $89 million in the past quarter.
Second.
We strengthened our liquidity.
And all are well on our way to bring.
The bank's loan to deposit ratio down to our sub 95% target.
These efforts have resulted in a decrease in loans as we have slowed our lending tightening credit and increased our liquidity over the past few quarters.
We continue to lend to our core customers and expect Chinese experience in C&I lending and will create new opportunities to originate loans.
Come with significant deposits.
Now I'll hand, the call over to Charlie who will make a few comments before handing it over to Alex to discuss the financial results Johnny.
Thank you David.
Just say how excited I am to join Royal business Bank, as President and Chief Banking Officer.
I've been here for a little more than a month and have been impressed by the energy and dedication of the whole team.
We have a real opportunity to continue build on his successful track record of paying.
Oh sure shareholder value.
As David mentioned I believe my 33 years of experience in C&I lending or expand opportunities to diversify our loan portfolio, while adding lower cost deposits I look forward to meeting many of you in person to reporting on our progress in the quarters to come.
With that I'll hand, it over to Alex who will discuss the financial results Alex.
Thank you Johnny.
Slide four has a summary of second quarter results, increasing loan yield drove another quarter of record interest income.
But were offset by increases in interest expenses.
As a result.
Net income for the quarter was stable at $10 $9 million or 58 per share.
Non interest income of $2 $5 million increased slightly from the first quarter.
<unk> $271000 excuse me.
An increase in service charges offset a $125000 decline in loan servicing fees.
Noninterest expenses decreased $394000 due to decreases in salaries and legal expenses offset by increases in occupancy data processing and regulatory assessments.
Second quarter net interest margin of 3.37% decreased 43 basis points from the last quarter as deposit cost increases continue to outpace loan yield increases.
Slide five includes summary balance sheet information.
And you can see that the biggest change was net loans held for investment decreased by $146 million.
As we began to see the impact from the slowdown in origination we discussed last quarter.
All long category balances declined with the exception of residential mortgages, which increased slightly.
The net loan to deposit ratio at the end of the second quarter was 99%. So we were pleased with our progress on this important goal.
Our yield on average earning assets.
Increased two six points due to a 1% in the second quarter, which was a 17 basis point increase from the last quarter.
<unk> hundred 35 basis point increase from the second quarter of 2022.
The increase in yield for our last quarter was due to increasing yield on virtually all of our interest earning assets.
Starting on slide six of the earnings presentation, we provide additional detail about our loan portfolio, which totaled $3 $2 billion at the end of the second quarter, we don't annualized yield of six 3%.
Okay.
Commercial real estate laws comprise 45% of our laws are slides seven and eight have some details about our exposure.
Our CRE office portfolio is relatively small at $45 million and has an average weight is LTV of 57%.
Our CRT loans consist of 44% of multifamily loans.
Slide nine here's a snapshot of our $1 $5 $5 billion residential mortgage portfolio, which mostly consist of non QM mortgages and deal in California.
Moving onto slide 11.
Our total deposit balances increased steadily.
The last two quarters.
Average interest bearing deposits increased by $217 million due to increases in time deposits.
Average noninterest bearing deposits declined.
Slower pace than last quarter.
We have had a steady decline in uninsured deposits, which now stands at 29% of total deposits par.
Partially due to converting to SEDAR deposits.
Our average cost of interest bearing deposits for the quarter was $3 four 7% up 72 basis points from the prior quarter.
And a slight decline from the 82 basis point increase we saw in the first quarter.
We continue to expect the pace of increases in deposit costs to slow in future quarters.
Moving onto crowded.
As detailed on slide 12, nonperforming loans increased to $42 $5 million from $26.4 million from the last quarter due to primarily to three loans totaling $17.8 million.
This loss is a CRE office loan and two of them are.
Residential mortgage loans.
Also during the second quarter, 13 loans totaling $3 $5 million or removed from the nonperforming category.
With seven of them totaling $3 $1 million.
Paying off and filed the five of them totaling $100000 being charged at all.
As David mentioned and you can see on slide 14.
We saw a $68 $5 million decline in special mention and classified loans in the second quarter.
The largest part of this improvement was an upgrade or a $55 million multifamily construction alone.
The company recorded a $380000 provision for credit losses, which when combined with a decline in loans outstanding took.
Our allowance for credit losses to 135% of total loans.
As noted on slide 15, noninterest income increased slightly from the last quarter, mainly due to an increase in deposit service fees.
Slide 16 shows detail of operating expenses.
Our efficiency ratio slightly increased mainly due to reduced net interest income.
Offset by a decrease in salary and employee benefit expenses.
Noninterest expenses to average asset ratio improved slightly to <unk>.
46%.
Mainly reflecting the reduction of non interest expense quarter over quarter.
Our capital levels remained strong with all capital ratios, well above regulatory well capitalized ratio, which we believe is prudent given the market rates risks.
With that we are.
Happy to take your questions operator, please open up the call.
Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time, we do ask about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Nick <unk>.
Kelly Motta from K B W. Your line is live.
Hi, good morning, Thanks for the questions.
I think maybe I'll kick it off with your broader comments on building the bench.
Guys have done a tremendous job, adding independent members to the board as well as adding to the bench on the management team just wondering as.
As you will get what you you've done in and brought on.
Do you feel like you have the team in place now to kind of execute.
Stages are you still looking to add executives in some areas.
Hmm.
Kelly This is Dave good morning, I believe that as far as our executive management team. We have everybody on board. We do have some holes and for example, we need to have a C&I lender that we would need to put on and a couple other positions like that within the organization.
Yeah.
Right.
And then and then on the on the loan growth front I believe your release and commentary suggested that you're pulling back in some noncore areas, maybe noncore regions can you expand on kind of where you are more specifically, where you're pulling back as well as where you.
Continue to see good risk adjusted returns.
And also as we look towards the second half of the year, you know loan balances are down and I know you've laid out where you want to get you on your loan to deposit ratio Hum.
How much of that comes from just pulling back on on the loan growth.
As we look towards the back half of the year.
Okay I will.
Our attempt to answer the first and second part.
When we say noncore growth, we're talking about customers, who do not have a core relationship with us meaning they do not have a deposit relationship with US also are their main deposit relationship and most many of these are out of our market.
Maybe in the state of Washington, Oregon, Texas, and so forth.
We're also pairing back in and some of our other areas of noncore business like our auto auto lending we have ceased auto lending.
And.
And we're bringing down the mortgage a little bit also not growing mortgage like we used to.
As far as.
The second part of your question.
Most of our or decrease a decrease is going to come in.
Both areas, but most of the decrease in our loan to deposit ratio.
And and is going to be probably from the loans rolling off and those areas that I talked about earlier.
Okay, while at the same time.
We're going to probably bring on.
You know $40 million a quarter or so in deposits.
So.
That's what's going on.
Got it and then.
Maybe last question for me and then I'll, let others into the queue, but.
On the noninterest bearing deposit they know.
You had some larger sort of accounts and there's been declines over the past several quarters now some of that letting go some of.
Hum.
Customers that aren't coordinate your business, but just as we look ahead Mike.
Where do you see noninterest bearing settling out as a percentage of deposits are at 18% now.
And is that.
Piece of noninterest bearing runoff sterling showing any signs of slowing any any sort of color around them.
The details of flows would be would be helpful. As we look ahead.
Kelly I'm Gonna have Garry answer that question for you.
Hey, Kelly, Yeah, we definitely see the trend of that slowing I think ultimately.
With Johnny coming onboard and with some of the new management team. That's the primary focus of our deposit growth for the remainder of this year. We're like every other bank trying to deal with the market shifts in the way that we're looking at our current customer base, but the investments, we're making in people and systems products and services. That's all in line to help us.
Ro.
Noninterest bearing deposit.
Segment of our of our deposit book, So that's something I don't think Youll see immediate results in the next let's say 30, 45 days, but I wouldn't expect us to see some positive momentum before the end of this calendar year.
Great I appreciate it I'll step back.
Thank you. Your next question is coming from Nathan race from Piper Sandler Your line is live.
Hi, everyone. Good morning.
<unk>.
A question on some of the.
Two dynamics in the quarter cash balances remain fairly high but you are also able to bring down.
Rachel <unk> advances in the quarter. So just curious to hear how we should kind of thinking about those two areas going forward.
Sure Nathan.
Talk to you, yes, you are correct.
You know, we have a strategy to lower our loan to deposit ratio at the bank level. So I think we are on track so with a kind of a monitoring or control the growth on the low side and also continued to increase in the deposit side, We park those money.
And our investment security as well as to just the boosting our liquidity, we parked on the cash and due from banks.
Compared to last.
Ear same quarter Q2, we have about $22 million increase and I think it is prudent to keep the cash and the liquidity being at this level. It might go a little bit down as we kind of a funding mechanism you know as we grow.
In loan side in Q4, maybe we might decrease a little bit, but I feel comfortable with lets say $240 million to $50 million of our cash level I think it is adequate and also investments in kidney into wise Ah It did increase.
From last quarter quite a big increase but rather like a close to $200 million. So that is actually we are doing a barbell strategy to a short term a make sure we have a liquidity.
It matters, but also it helps us are boosting our.
Some interest income as well.
Right got it.
And then maybe changing gears and thinking about the expense run rate.
Last quarter, we were talking to and getting closer to 17.
In the back half of this year I'm just curious.
The decrease in comp that we saw this quarter relative to the still relatively elevated legal pause how should we think about those two areas. In particular, we opened two from the guidance provided last quarter.
Sure Yeah, you know we.
We need to say that you know.
Our expecting to the.
Professional fees, especially a legal feel because I expect it to go down yeah. It did go down but not to the level of the.
Yeah, Chris that we expected actually happened this quarter, but I think going forward. The run rate. We expect that will continue to go down and then you.
In fact, just to give you a magnitude of the legal fees and other professional fee last six months as we incurred about $3 million of our legal fees could you I do not think.
Going forward it will be a reduced and also one thing to note is our obviously there was some insurance coverage they will reimburse search and expenses, which includes search and the legal fees as well, so but I wouldn't expect to continue to report the gross basis of our total.
Our expenses related to legal.
Matters, So you will see it.
Elevated level, but not to the level of a Q2 or Q1, but some.
Expenses going forward, but Oh, we are I would expect to see some sort of a reimbursement from the insurance company for that legal expenses.
I hope that will continue that will help us to lower our efficiency ratio and also.
Noninterest expense over average asset ratio.
And you mentioned the salary and benefit like compensation expenses I think it did have decreased a little bit for this quarter, but I think in a given we have a new key person has joined the bank and also we are strengthening.
Bench. So I think you know the salary and compensation expense might go up little bit so that will kind of offset a little bit too.
The increase of the legal expenses and all.
Other operating expenses, such as like Oh assessment fee I would expect small amount like 100000 or something will decrease.
Going forward, because I do see some one off increase in the second quarter.
So having said that I would expect like $18 million plus or minus might.
Might be the run rate that I can foresee for now, but there was a certain aspect that obviously some legal fees all of those kinds of thing might be some out of our management's control, but I would feel comfortable.
Comfortable in the neighborhood of $80 million run rate.
Interest expense.
We'll be comfortable.
Okay, Great. That's very helpful. And then just any additional details you can provide on the office.
Real estate loan that moved to non accrual in the quarter I appreciate all that.
Details on the deck, but just any additional color in terms of occupancy rates and kind of how you guys are working through that credit in particular.
Yeah, maybe I can attempt to know Jaffray is here with me. So it's definitely a trend definitely chime in we try to have a kind of a little bit more detail. It's all about Oh, Yeah. Your office portfolio Nathan actually we provide a slide more details on the earnings presentation page seven.
Chris you have a LTV theres speciation and also by regional breakdown.
But the actual the office exposure itself, we have a very minimum of $45 million portal. He says the one 5% of our total laws. So that's I believe to start with it so we have a.
A small amount of exposure. However, one law that kind of migrate into non accrual loan this quarter happened to be those office portfolio.
And we did a pro form our impairment analysis, which is about 90% of net.
Loan to value ratio.
And there was not a real reserve or loss content for now based on the appraisal that we have and we believe that is a kind of isolated no one off.
Office portfolio, because I don't see any other in the office type of our portfolio and our even small in our portfolio have a singular nature of our risk content. So I think of that as kind of a isolated but we are watching very closely because all our office space itself is it you know.
The three wise, if a high risk areas. So we are watching carefully.
Just give you a little bit more color more on the overall office portfolio. We have average weighted LTV is very low like a 57%. So one off 90% that NPL is a kind of one off item and we have.
Low LTV again like at 57%.
And also you know 80% or more is all in the areas that we serve and our new young New Jersey areas.
Okay got it.
Very helpful and if I could just one more on capital.
Andrew priorities I imagine you guys want to continue to build excess capital in this type of environment.
But also just curious any updated thoughts on just when maybe share repurchases can resume.
You know the ongoing SEC investigation, I was indicating that it has any impact on you know your timing or ability to resume share repurchases.
We don't know the timing on the share repurchases at this time.
But we want to start repurchasing as soon as we can.
Okay great.
That's all I have I appreciate guys, taking the questions and all the color David Okay.
Okay.
Thank you. Your next question is coming from Andrew <unk> from Stephens. Your line is live.
Hey, good morning.
And.
If I could just follow up on the phone and I understand the portfolio overall is very very.
Very small, it's like very well underwritten here.
The one office loan that went nonperforming it sounds like the LTV is right around 90%, but you you maybe had gotten a recent appraisal on that I was just curious before the updated appraisal what was the the LTV beforehand. So I guess in other words, what what was the kind of value degradation of the property saw.
Yeah, Hi, this is jeffrey.
Before he was appraised before it was we are pleased that the LTV is about 65%.
We did do a peso without new appraisal because of no drop off in operating income that was also.
So that you know that.
The building is 100% occupied and its just the reason of the drop is mainly because of the tenant negotiating for lower load ranks so doesn't that impact it actually impact the value because you're being used in the impairment income approach to evaluate a property and on top of eight days.
There is a short term.
Rental rental agreement so that there's a reason why that we could put it into.
In two N P M P L J.
Just for your information understood. That's very helpful color I appreciate it.
And then maybe on the.
Those are the credit front I mean, it was good to see the special mention improvement this quarter I just want to make sure I heard correctly was it one specific multifamily construction loan for 55 million or a handful of multifamily construction deals for that aggregate them out there that drove the.
The decrease in special mentioned.
Yes.
That is true that is there a big decrease of special mention because of this property.
Just give you a little color of its publicly. This this property is 100% completed and then they are in they are breaking due to project. The project. One is called more more than 90% of these and then the project to you just completed and they are doing a pre lease and also then just for your information.
Because the costs that we are because of their market and they are in the in our market area. So actually they already receive a commitment from the other financial institutions to take them out.
And then also that because and because of op.
Things are very clear right now so they're now that is the reason why we upgraded this long hour from a special mention.
Yeah understood. Okay, I appreciate the color and.
It's great to see that improvement.
David on the <unk> I'm wondering if back to your comments kind of around loan growth and maybe letting some of it but not what you would deem noncore.
Maybe roll off and I know you made some comments on.
Some kind of out of market lending I was hoping you could maybe a ring fence just what.
Within your portfolio I guess, how much in aggregate would you deem out of market and similar question. How much would you view as noncore and what I'm trying to get out here is you gave us an idea of targeting kind of $40 million per quarter in deposit growth I'm, just trying to get a sense on the loan growth moving forward would you expect a similar amount of.
Loan decreases over the next couple of quarters or is that pool that you would deem noncore kind of mostly worked through at this point.
First of all I don't think we will have as much come off the books next quarter as we have today. This last past quarter I'm going to pass this over to Jeffrey who has the concentration report who can tell you.
What we have in different states, but I I don't and how much we project roll off.
Unfortunately, Andrew that that $55 million loan. We just talked about is there's actually a core customer of ours, but we could not compete on rate.
We were able to the rate was.
Significantly lower so we do not play the rate game so.
Unfortunately that customer is.
Taking one of this loan we have other loans with them.
With them to another bank.
Yeah.
This is Jeremy again, so basically out of market or out of area alone that we define as low as David mentioned earlier.
Along that out.
That do not have a complete relationship such as the lending and deposit. So those are the loans that we.
That is part of about the risks.
<unk>.
Gradually upload those long just give you a little bit of color on the out of our out of state lending. Okay. We used to have about $400 million of outside of out of state lending in the beginning of the year right now than.
That is already reduced to about 300 close to $320 million.
That that happen in six months and that tells you that when we decide to go. This route and then we actually.
I'm very serious about that.
Executing it.
Yeah.
And so is that the $320 million remaining kind of the last of what you would deem noncore.
We were most of that will consider noncore.
They do not have.
Total relationship with us, especially the deposit relationship.
Yep.
Okay. Thank you for taking the questions I'll step back in the queue.
Thank you. Your next question is coming from Tim Coffey from Janney. Your line is live.
Great. Thank you good morning, everybody.
David Alex do you have any kind of visibility into when margin might trough.
That something later this year event or early next year.
Well.
Tim we know that Theres a belk.
$1 billion of Cds that come up for renewal in the third and fourth quarter and we also know that there presently priced at around <unk>.
4%.
So we don't see a huge repricing.
Issue there.
And I think we're holding the rate steady.
Since about January or February of this year on our offering rates on Cds. So I really think it's more of the end of the year first of next year.
Before and then if we see any decreases in rates will be can see and hopefully a little bit.
About it takes about a year for our margin to improve if we began to see decreases in rates.
And so forth.
Alex any more color than that sure that's great point, just one point to add.
There's obviously a deposit lagging impact we have seen quite a bit into the market right in the beginning of the year and velocity.
The Q4 Q3, but those war kind of re price already or it will continue to reprice. This quarter and next two quarters. So was that kind of repricing kind of said I think we'll have a much more normalized.
The deposit costs.
We will also have an increase on the asset side no. We as you know we have decreased our earning asset with a good reasons strategic reasons or with the help from Johnny and the chance going back to the market of the.
Variable rate loans and other good earning asset it will definitely help our net interest margin going forward to to increase but I will say next quarter or Q3, we'll have a compression, but again as David kind of alluded is not to the level of what we have seen in this.
We have a 33 basis point compression I don't think it will be at that level. It will be less level, but it will continue and I'm, hoping you know by end of the year, starting next year, something we wouldn't like to see the kind.
Kind of bouncing back our net interest margin.
Okay, and Alex do you have a spot rate for interest bearing deposits for June .
Yes, I do have a.
I have no spot rate for money market is up 2.73% and I have only a breakdown on the CD for less than 200000 is a 383% and our deposit over 250000 is a four 5%.
Okay great.
Okay. Thank you very much for that David switching gears.
Do you have any visibility on when the FCC inquiry might conclude because it's not uncommon that the FCC will launch an investigation and then never close it.
Hmm.
I don't know if I can really answer that question, Tim because I really don't know either.
I can just tell you that it's progressing enough to where we felt very comfortable in announcing publicly and I thing 8-K all of the.
Or what's going on or at least to Wisconsin.
Say on what's going on.
Okay, that's fair.
And then just final question for me on the the three loans added to non performers this quarter.
Any of them out of your primary service area.
There are the three of them two of them are residential mortgage there in our area and then there is also for your information there loan LTV actually is one is by 59. One is by 67 66, which we think is covered there. The other one is the one that I mentioned in my office that is all that.
<unk> is out of date, but that is in.
It's in Springfield, Illinois, Illinois.
Technically out of our market area, but we do have branches in that state right.
Okay.
Alright, well. Thank you very much those are my questions. Thank you.
Thank you.
Thank you. Your next question is coming from Kelly Motta from K B W.
Line of his life.
Hi, Thanks for the follow up kind of on that note of the investigation just wondering if there's any implications at all for the pending gateway deal and if you could remind us.
When when that you'll need them.
It could be renegotiated them like win the contract.
Yeah.
The contract expires September 30th.
And.
That's all I can say about gateway right now.
Thank you.
Thank you. Your next question is coming from Nathan race from Piper Sandler Your line is live.
Yes, I appreciate you guys, taking the follow up as well I just wanted to clarify on the margin expectations. I know there is a handful of.
Moving parts to it.
Alex It sounds like you expect the pace of compression to slow due to the next couple quarters or can you just kind of circle back on how you kind of think about the trajectory during.
During <unk> of this year.
Yeah sure no I wouldnt.
Like to say one more time, yes.
It will compress, but not to the level that we have experienced in Q2 and Q1 Q2, we have a 33 basis point margin compression maybe half of that I don't I don't have a real crystal quantifying it but I would say it will be substantially lower than 33%.
At 33 basis point compression that we have experienced in Q2, so going forward Q3, probably it will be a compressed in Q4, maybe but I am hoping that Q1 of next year, we might see the expansion.
Okay, Great and then just lastly on kind of the reserve outlook.
It sounds like they are well secured and that office of course real estate loans.
Moved to nonaccrual in the quarter and you guys I've got a nice increase in your ACO and.
<unk>.
Should we expect the reserve to continue to grow at this point or just how you guys kind of thinking about future provisioning in light of maybe some continued bolstering its near term and then maybe a return to growth in <unk>.
Yeah, I know I will attempt to.
I'll answer it first by Jeffrey might chime in I will say our.
Allowance coverage ratio as of Q2 is quite Ah I feel comfortable with it let me give you a little bit more color I'll.
$380000 a provision for this quarter, because we have $146 million of a reduction of our portfolio.
If you kind of estimate how much of impact at all to have just the blood supply and 135% of our ACL coverage, that's a $2 $1 million.
After a provision for credit losses, but obviously, we do have a positive $380000.
Provision for credit losses. This quarter reason for that is considering some sort of economic macro uncertainties and also we did see some pop up on the <unk>, our nonperforming loans right that did increase even though other classification has improved so we don't want to be prudent our ACL coverage.
So to answer your question I think in a 3.1, 0.35% allowance coverage ratio relative to our peers I think we feel it's adequate and going forward I don't think we are trying to build the reserve going forward unless it is necessary. So we'll monitor.
The credit very carefully given we have some you know maybe it might be a one off item that we have our ink because there's a non accrual, but we are taking serious and our underwriting criteria. All those kind of thing we actually.
This strengthened so well.
We will monitor the allowance coverage ratio, but I don't anticipate we continue need to continue to build the reserve unless there was a macroeconomic or real credit quality for the deteriorates.
Yes, I think that.
Basically yeah, I would agree with him.
With what Alex said.
Okay. Okay.
Okay, great. Thanks.
Thanks again.
Okay.
Thank you once again, everyone. If you have any questions or comments. Please press Star then one on your phone. Your next question is coming from Ben drilling or from Health Group. Your line is live.
Good morning, Yeah, good morning, everyone.
Hey, Ben.
During the course of this call Theres been a rumored to Los Angeles competitors are likely to announce a merger anytime sometime soon I was curious just on overall deposit pricing and the Los Angeles area have you seen anything material.
Sort of outsized pricing, where people are talking about a word kind of scrambling to retain their clients or is it really not that impactful to overall deposit.
Paul.
I don't see any.
We don't see anything like what you're talking about okay.
Sure.
Gotcha fair enough.
And then I mean, we've had a few different questions about the margin potential, peaking let's call. It around the end of the year or excuse me the margin trough in around the end of the year before rebounding higher.
Just curious if you'd be open to sharing potentially where you think the Netherlands I get that it's it's a bit cloudy out there over the next six months, especially with.
Pricing and mix shift, but just curious if you'd be open to sharing where your margin potentially trough that at least in your model today.
Yeah, I know actually to be honest there is a lot of moving component you know the deposit deposit pricing no again, we will continue to grow.
Even though we will focus on the noninterest bearing deposits, but you know I would grow to depart decide hey will cost us.
And we have a target of 95% bank level net loan to deposit ratio, we have some sort of a deposit matters.
Kind of difficult to give any kind of accurate.
NIM transaction by the end of the year or Q1, because there.
There is so many moving part also not only the deposit side, but also.
Alongside our as David mentioned, our wool.
Compared with the deposit I'm, sorry, the loan pricing, but we're not going to just retain for the sake of the.
Growth for our buy paint by allowing the high lawn right or.
Or if they are asking for so again, sorry, it's not too hard for me to give you a real accurate.
The new margin guidance is at this time.
Yeah no that's.
Figure out where the chart I completely understand I appreciate the color.
That's it for me.
Any others.
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Yes.
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