Q3 2023 Preferred Bank Earnings Call
[music].
Speaker 1: phone off.
No.
Speaker 2: Good afternoon everyone and welcome to the preferred bank third quarter 2023 earnings conference call. All participants will be in a listen only mode. Should you need assistance placing a conference specialist by pressing the star key followed by zero.
Good afternoon, everyone and welcome to the preferred Bank third quarter 2023 earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event
Today's presentation, there will be an opportunity to ask questions to ask a question you May press star and one using a touch tone telephone.
To withdraw your question you May press Star two.
Please also note today's event is being recorded.
Speaker 2: At this time, I'd like to turn the floor over to Jeff Haas of Financial Profiles. Please go ahead.
At this time I'd like to turn the floor over to Jeff off of financial profiles. Please go ahead.
Thank you Jamie.
Speaker 3: Hello, everyone, and thank you for joining us to discuss preferred bank financial results for the third quarter ended September 30th, 2023. With me today from management, our chairman and CEO , Lee Yu, President and Chief Operating Officer, Wellington Chen, Chief Financial Officer, Edward Chica, Chief Credit Officer, Nick Pye, and Deputy Chief Operating Officer, Johnny.
Hello, everyone and thank you for joining us to discuss preferred banks financial results for the third quarter ended September 30th 2023 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka Chief.
Chief Credit Officer, Nick Pi, and Deputy Chief Operating Officer, Johnny shoot management will provide a brief summary of the results and then we will open up the call to your questions.
Speaker 3: Management will provide a brief summary of the results and then we will open up to call to your question.
Speaker 3: 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.
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.
Speaker 3: 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 banks. For a detailed description of these risks and uncertainties, please refer to the SEC required documents to bank files with the Federal Deposit Insurance Corporation, or SBI.
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. Please refer to the S. E T required documents the bank by.
With the federal deposit insurance Corporation or FDIC.
Speaker 3: 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 in 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.
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. In 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.
Speaker 4: Thank you. Thank you. Good morning, ladies and gentlemen.
Thank you. Thank you and good morning, ladies and gentlemen.
I'm very pleased to report another quarter of record income for.
Speaker 4: I'm very pleased to report another quarter of record income. For the third quarter, Preferred Bank earned a net income of $38 million, or $2.71 a share.
For the third quarter of preferred bank.
Net income was $38 million.
Oh $2.71 a share.
Speaker 4: Compared to the second quarter, net income
Compared to the second quarter.
Net income.
And net net income net interest income both increased and expenses decreased.
Speaker 4: And net interesting compost increase and our expenses decrease.
Yeah.
For the quarter was this we have very a little bit of loan growth.
Speaker 4: For the quarter, we have a little bit of long growth. Long demand.
Loan demand continue to be.
Hello.
Speaker 4: as our customers seems to be much more cautious these days. And our underwriting standard remain elevated.
As our customers seems to be much more cautious these days.
And.
Underwriting standards remain elevated.
On the deposit side increase.
Speaker 4: was $94 million for the quarter. We have seen deposit costs.
Was $94 million for the quarter.
We have seen.
Deposit costs.
Slow down.
And.
Looking forward to the fourth quarter, we'll see we think that trend will continue.
Speaker 4: Looking forward to the first quarter, we think the trend will continue.
Credit quality remained generally stable.
Speaker 4: Credit quality remains generally stable.
We had a small increase in total.
Speaker 4: We have a small increase in total
Criticized assets.
Speaker 4: but we have a bigger increase in the non-performing loans. The non-performing loan increase is basically the migration of two loans from a lower classification to the non-accrual category.
But we have a bigger increase in the nonperforming loans.
The nonperforming loan increase is that basically the migration of two loans from a low classification of it to the non core category.
Rule number one is a 16.1 million dollar loan.
Speaker 4: Loan number one is a $16.1 million loan.
Speaker 4: that was borrowed by one of a very good borrower for many, many years. Unfortunately,
That was old buyer borrowed by one of our.
Very good ballroom for many many years.
Unfortunately.
The gentleman passed away recently.
Speaker 4: and the large and complex estate has caused the delay of resolution of this loan.
And a large and complex as state has caused the delay of a resolution.
This alone.
And we were notified with just notified that the.
Property is in escrow.
Speaker 4: property in is in escrow uh...
Yes.
The borrowers should have should be closing it in later part of October .
Speaker 4: The borrower should be closing it in later part of October and pay Prefer Bank off.
Pay preferred bank all.
There's another $2.2 million alone is in the same category.
Speaker 4: There's another $2.2 million alone is in the same category. It's the discussion between the, I mean, between the beneficiaries for a large and complex estate.
It's the discussion between the I mean.
Be tuned.
Beneficiaries.
A large and complex estate.
This loan was secured by a property loan to value ratio is less than 20%.
Speaker 4: This loan was secured by a property loan to valuation is less than 20%. And I'm happy to report we have received full payment yesterday.
And I'm happy to report we have received full payment yesterday.
And we are also scheduled to have another large loans, which is classified which is which is included in the criticized category largely.
Speaker 4: And we also scheduled to have another large loans, which is classified, which is, which is including the quidicized category. Okay. Large loan of 23.5 million dollars.
Large drove a $23.5 million.
Speaker 4: should be paid off today. We've confirmed that was the lending bank that took over this loan.
It should be paid off today with confirm that was the lending bank that took over the fuel okay.
Speaker 4: So we will obviously update you later. They win all these things happen.
So we will obviously update you later.
When all these things happens.
For the quarter, we have made a provision of $3.5 million.
Speaker 4: So, the quarter we have made a provision of $3.5 million.
The charge offs for the quarter is $80000 last quarter, there was no charge offs.
Speaker 4: The charge-off for the quarter is $80,000. Last quarter, there's no charge-off, okay. Therefore...
Therefore, oh.
Speaker 4: Allowance total has increased to 1.46%.
Allowance total has increased to 1.46%.
Speaker 4: We believe that we believe that's one of the top level allow us number among our West Coast Peer Groups.
I'll leave that one is that we believe that's one of the top level allow us number of mom.
West Coast peer group.
Our operating costs remain under control.
Speaker 4: Our operating costs remain under control. Efficiency ratio was 25% for the quarter. Since
The efficiency ratio was 25% for the quarter.
Since the second quarter.
2023, where we had been actively buying back of our own stock.
Speaker 4: of 2023, we have been actively buying back of our own stock.
Speaker 4: As of today, a total of 720,000 shares has been repurchased with a total consideration of approximately $42 million.
As of today, a total of 720000 shares has been purchased with a total consideration of approximately.
$42 million.
The buyback.
Speaker 4: is highly beneficial or accretive to the EPS.
Is highly beneficial.
Accretive to the EPS.
All remaining outstanding shares.
Speaker 4: for remaining outstanding shares. And we plan to continue the activity.
And we plan to continue.
<unk>.
Under the current program.
Speaker 4: I also like to report, with the large amount of buyback and with the dividend.
I'd also like to report with the large amount of buyback and with the dividends.
Speaker 4: Prefer banks, tangible capital ratio, actually increased to 10.1%. First, all right.
Preferred bank's tangible capital ratio.
Actually increase to pinpoint 1%.
Okay.
The bank has been.
Speaker 4: In the last several years, has been reporting earnings quoted by quoted beating consensus estimates.
In the last several years has been reporting earnings quarter by quarter, beating consensus estimates.
Speaker 4: Quarter after quarter, we'll see the future estimates going up. And we are
Quarter after quarter, we see the future estimates going up.
And we are very pleased with that.
We will continue to hedge ourselves to operate the bank.
Speaker 4: We will continue to pledge ourselves to operate the bank efficiently and prudently.
Recently.
And prudently.
Thank you very much.
I'm ready for your questions.
Speaker 2: Ladies and gentlemen, at this time we'll begin the question and answer session. If you would like to ask a question, please press star and then one using a touch on telephone. If you are using a speaker phone, we do ask you please pick up your hands that prior to pressing the keys to ensure the best sound quality. So if you draw your questions, you may press star into. Once again, that is star and then one to join the question.
Ladies and gentlemen at this time well begin the question and answer session. If you would like to ask a question. Please press star and then one using a touchtone telephone if you are using a speaker phone. We do ask you. Please pickup your handset prior depressing the keys to ensure the best sound quality.
To withdraw your question you May Press Star then two.
Once again that is star and then one to join the question queue.
We will pause momentarily to assemble the roster.
Yeah.
Our first question today comes from Matthew Clark from Piper Sandler. Please go ahead with your question.
Speaker 2: Our first question today comes from Matthew Clark from Piper Sandler. Please go ahead with your question.
Speaker 5: Thanks. Good morning everyone. Just starting on the margin, do you have the spot rate on deposits either total or interest-bearing at the end of September and then...
Thanks.
Good morning, everyone.
Just starting.
Starting on the margin.
Do you have this the spot rate on deposits either total or interest bearing at the end of September and then.
The average NIM in September and any expectations for the fourth quarter. It looks like you were pretty.
Speaker 5: The average NIM in September and any expectations for the fourth quarter looks like you're pretty much in line with your prior expectations.
Pretty much in line with your prior guidance of 440.
Yes, that's always good to see Matthew Thank you.
Speaker 6: Yes, that's always good to see Matthew. Thank you. In terms of the spot rate, the margin for September was 434. So kind of in line with the entire quarter. And then the total cost of deposits was 342, excuse me, 362 for the month of September .
In terms of the spot rate.
Margin for September was 434, so kind of in line with the entire quarter.
And then the total cost of deposits was <unk>.
342, excuse me $3 62 for the month of September .
Yes.
Speaker 6: In terms of the margin going forward, I think you can probably extrapolate what's been happening over the last quarter or so and project that going on into Q4 and Q1 of next year. I would estimate somewhere in the neighborhood of $4.15 to $4.25 for Q4 and somewhere between $3.90 and $4 for Q1 of 2024, notwithstanding any actions by the Fed.
In terms of the margin going forward I think you can probably extrapolate what's been happening over the last quarter.
Quarter, So and project that going on into Q4, and Q1 of next year I would estimate somewhere in the neighborhood of 415% to 425 for Q4 and somewhere between $3 90, and four or Q1 of 'twenty four.
Notwithstanding any actions by the fed.
Okay.
Got it thank you.
Speaker 5: and then just shifting gears to expenses.
And then just shifting gears to expenses.
Could you see no additional Oreo related costs are very minor costs this quarter.
Speaker 5: Good to see no additional OREO related costs or very minor costs this quarter. What's kind of the run rate expectations for the fourth quarter? And then, you know, should we assume some seasonal increase in 1Q?
Well, that's what's kind of a run rate expectations for the fourth quarter and then you know.
Should we assume some seasonal increase in <unk>.
Yeah.
Speaker 6: In answer to your second question, yes, you'll see the seasonal increase in Q1 of next year. My expectations for Q4 would be somewhere in the neighborhood of 19.5 to 19.8.
In answer to your second question, Yes, you will see the seasonal increase in Q1 of next year my expectations for Q4 would be somewhere in the neighborhood of 19 and a half to 19.8.
Speaker 5: Great, okay.
Great Okay.
Speaker 5: And then just on credit, good to hear some of those.
And then just on credit.
Good.
Good to hear some of those oh isolated issues are resolving themselves as it relates to non performers and criticize.
Speaker 5: isolated issues of resolving themselves as it relates to non-performers and criticized. But can you remind us
But can you remind us.
Speaker 5: of your SNCC exposure and what might be criticized within that portfolio. It sounds like one of the loans that's resolving itself, the 23 or so million, is within that SNCC book.
Love your snick exposure and what might be criticized within that portfolio. It sounds like one of the loans that is resolving itself. The 'twenty threes or so million dollars is within that Snick book.
And just the overall status of that portfolio.
Speaker 7: If you want to answer that, yeah, for sneak loans, they have submitted to the bank for their.
What do you want to answer that yeah for snake laws. They have submitted to the bank, but there are.
Speaker 7: Second semi-any review in around September . And there's only once more long.
Second semi annual review in around September .
And there is only one small alone.
Speaker 7: This around over two million exposure has been downgraded. Other than that, it's the rest of the snake lungs are stable without any credition.
So wrong over to me and our exposure has been downgrade it other than that as the rest of the snick loans are our stable without any credit issues. Additionally, the total SNCC relative to total loans is about I believe 11%, 11% correct.
Speaker 6: The total SNCC relative to total loans is about, I believe, 11%. It's 11%, correct.
Speaker 5: Okay, and then just on office, commercial real estate, thanks for the additional.
Okay, and then just on office commercial real estate, thanks for the additional.
Speaker 5: color in the release on that, but can you, I think, you know, one of the more popular questions these days seems to be around the reserve associated with that portfolio. And I would assume there's only some portion of that portfolio that you're more concerned about. Maybe it's the pure office.
Color in the release on that but can you I think you know what one of the more popular questions. These days seems to be around the reserve associated with that portfolio and I would assume there's only some portion of that portfolio that you're more concerned about maybe it's the pure office.
Speaker 5: Or maybe not, maybe it's just the central business district, which is pretty nominal.
Or maybe not maybe it's Justin.
The the central business district, which is pretty nominal.
Speaker 7: Well, we have obviously the businesses with a little amount we have in that, and basically they're very small properties, very, you know, small offices being well occupied. I don't think we have any classified assets in office property, right? No, not at this time. We have not.
Well, we have obviously the cause.
Sure.
It was a little amount we have in that and basically they are very small properties with very small office.
Well occupied I don't think we have any classified assets.
Poverty right no not at this time, we have not.
That's about the best I can answer you can also comment on the state good I cannot say any more than that.
Speaker 7: That's about the best I can answer you. If I don't stay good, I cannot answer any more than that. It also gives you a little bit more color, Matthew, on our office products. We have recently conducted this stress test. Unbelievably, the office side, all those ratios are pretty good.
And also give you a little more color biofuel, all our office products.
We have originally conducted this stress test unbelievably office site discharge all of those ratios are pretty good.
Speaker 7: So we do not expect any immediate issues about our office products.
So we do not expect any immediate issues about our office property at this time and some of the long side below with a handful of those credits with a little bit weak PCR ratio. However, we do have a very strong individual guarantors behind it so global cash flow cannot cover did you.
Speaker 7: and some of the loans are below within a handful of those credits. With a little bit weak PCR ratio, however, we do have very strong individual guarantors behind it. So global cash flow can cover these. There are no issues whatsoever at this time.
So no issues whatsoever at this time.
Okay I'll step back thanks.
Our next question comes from Tim Coffey from Janney. Please go ahead with your question.
Speaker 2: Our next question comes from Tim Coffee from Janney. Please go ahead with your question.
Speaker 8: Great. Thanks. Just a question on the non-accrual loans. If you were to account for payoffs that you anticipate getting this week, what would that non-accrual number be? Because I'm assuming it would be less than $19,000.
Alright, Thanks, just a question on the non accrual loans.
If you were to account for payoffs that you anticipate getting this week, what would that non accrual number be.
I'm, assuming it would be less than 19.
The 19, plus 2.2 17 minus minus two points.
Speaker 6: The 19 plus 2.2 minus minus 2.2 Yeah, yeah, right. Yeah. Yeah, a little under 17, little under 17.
Right Yeah.
Okay.
17 little under 17.
Speaker 8: Okay, great. And then if we kind of, we think about low and growth over the next 12 months, but where are some of the biggest headwinds?
Okay great.
Great and then if we kind of we think about loan growth over the next 12 months, but what are some of the biggest headwinds.
That you're seeing right now.
Speaker 4: Well, I think it's interesting to see the biggest headwinds. Headwind, okay? Because based on what we see, our borrowers seems to be, they're all stable and affluent, okay? But...
Well I think the interest is still the biggest headwinds.
Headwind okay.
Because we know based on what we see our borrowers seems to be they're all stable and epsilon okay.
I mean, they just just you know.
Speaker 4: I mean, they just, just, you know, I just like everybody else, I mean, they just don't want to commit to some actions that when the interest rate picture is not clear.
I guess like everybody else I mean, because they just don't want to become.
Committing to some actions that Doug that data when the interest rate picture is not clear.
Mhm, Okay, you said your underwriting what's remaining.
Speaker 8: You said your underwriting was remaining stable. Is there any places that you're starting to tighten your underwriting?
Stable I'm wondering is there any places that you're starting to tighten your underwriting.
Speaker 4: We have tightened it before. What I use the word is actually elevated, you know, because we are more picky on the location. We're very much picky on the guarantor. And I guess the other mathematics is LTDs. I mean, you can lower it down a little bit, I mean, requirement, but that's, what we're staying elevated is these two categories.
We are counting that before when I use the word is actually elevated.
Because we are more picky on the location, we're very more much picky on the guarantor.
And I guess the other the mathematics is ltvs, you can lower down a little bit I mean requirement.
But that's what we're seeing elevated.
Two category.
Okay.
Speaker 8: Also, on cap rates and your footprint, are you starting to see commercial real estate cap rates starting to move or budge at all?
Also and cap rates in your footprint are you starting to see commercial real estate cap rates starting to move our budge at all.
Ah, yes, but it sounds like most of the reason I presume is the cap rate has gone up a little bit because the car on the CRE market situation, but has not yet out of control at this time, so validation still maintain.
Speaker 7: Yes, based on the most recent appraisals, the cap rate has gone up a little bit because of the current CRE market situation, but has not yet been out of control at this time. So valuation still maintains pretty good for our bank because normally we maintain our loan-to-value ratio around...
Pretty good for our bank because normally we manpower along two viral ratio around.
Speaker 7: 55% around. So even with a little bit high cap rate, I believe our coaching is still there. And our credit should be performing well. OK.
Chip to a 5% around so even with a live a high cap rate I believe our Cushing students are and all credits should should be performing well.
Okay great.
Great. Those are my questions. Thank you very much thank.
Thank you.
Our next question comes from Andrew <unk> from Stephens. Please go ahead with your question.
Speaker 2: Our next question comes from Andrew Terrell from Stevens. Please go ahead with your question.
Hey, good afternoon.
Hi, Andrew.
If I could start maybe on the non accruals this quarter I appreciate all the all the commentary you gave there.
Speaker 9: If I could start maybe on the non-accruals this quarter, I appreciate all the commentary you gave there. I think you gave the LTV for the second smaller loan, sub-20%. For the $16.1 million loan that you referenced, do you have the LTV for that specific credit?
I think you gave the LTV for the second smaller alone it's about 20% for the $16 1 million loan that you referenced do you have the L. T V.
But that specific credit.
Yes that crowding out based on the most the reason our appraisal.
Speaker 7: Yes, that credit office is the most reasonable appraisal.
That is around under 50%.
Speaker 6: That is around under 50%. In Andrew, just to clarify, that's a classified, not a non-accrual loan. That's classified. Yeah, that's not part of the non-accrual. So. So I see. OK.
And Jay just to clarify that's a classified not a non accrual loan that's classified yeah, that's not part of the non accrual so.
Oh I see okay, Okay got it.
Yeah.
Speaker 9: And then if I can move over maybe to deposit growth, you guys have some good deposit growth this quarter is good to see. I hear some of the commentary around the loan growth and the challenges there right now, but could you maybe talk about the pipeline for incremental deposit growth, what you're seeing there? And then more specifically on the pricing front, where new time deposits are being priced at today.
And then if I can move over maybe to deposit growth.
You guys had some good deposit growth this quarter, it's good to see I hear some of the commentary around the loan growth and the challenges there right now, but could you maybe talk about the pipeline for incremental deposit growth, what you're seeing there and then.
More specifically on the on the pricing front, where new time deposits are being priced at today.
Well, so far what we see is for us and even in the immediate marketplace. We're dealing with deposit rate offering has been stable and I don't see I don't think they're much there's much change basically their deposit rate that's offering.
Speaker 4: So far, what we see is for us, and even in the immediate marketplace we're dealing with, deposit rate offering has been stable.
Speaker 4: And I don't think there's much pain change basically. There are deposit rates offering to their customers. Therefore, the fluidity or the interbank, I mean, deposit transfer and so on, is much more limited in this quarter compared to previous quarter. I guess it's the matter of opening up new accounts in our offices meeting new people in opening new accounts because the 94 meeting.
To their customer and therefore, the fluid fluidity the interbank.
Deposit transferred and so on is much more limited in this quarter compared to previous quarters.
I guess, it's the matter of opening up new accounts in the offices meeting new people and opened a new account because the 94, meaning.
Speaker 10: increase. Okay.
The increase okay. So we do not see if the fed does nothing we wouldn't we do not foresee does big deposit rate changes and next quarter.
Speaker 4: do not see if the Fed does nothing. We do not foresee this big deposit rate changes in the next quarter.
I mean in close quarters.
Speaker 9: Okay, and and what's the the kind of level that nude new CD deposits are being priced at today?
Okay, and what's the kind of level that new new CD deposits are being priced out today.
Speaker 10: We are priced at the 5.03, it became at your CD amount. That's the highest rate we have. But there's different categories that's lost. So it's ranging from four to that.
We are priced at a 5.0, sorry, okay accuracy do you mom, that's the highest rate resets, but there's different categories.
Okay. So it's ranging from four to that project.
Speaker 9: Okay. I appreciate the color. Thanks for taking the questions.
Okay.
I appreciate the color thanks for taking the questions.
You're welcome.
Speaker 2: Our next question comes from Eric Spector from Raymond James. Please go ahead with your question.
Our next question comes from Eric Specter from Raymond James. Please go ahead with your question.
Speaker 11: Hey, this is Eric on the line for Dave Feaster. Thanks for taking the question. We're on the CD front. I'm just curious if you could provide some color just on the maturity schedule.
Hey, this is Eric on the line for David Feaster, Thanks for taking the question.
Understood.
T D front I'm just curious if you could provide some color just on the maturity schedule.
Speaker 6: Generally speaking, most of the CD maturities are a year, so we have basically a constantly rotating maturity schedule of the entire portfolio.
Well just generally speaking they most of the CD maturities are a year. So we have basically a constantly rotating maturity schedule of the entire portfolio.
Speaker 6: For the fourth quarter, I think we have
For the fourth quarter I think we have.
About four to 500 million I believe maturing for the fourth quarter.
Speaker 11: About $400 to $500 million, I believe, maturing for the fourth quarter.
Okay.
Later, it out kind of.
Kimberly, yes headquarter okay yeah.
Okay. Thank you and then just curious on the demand front. It looks like growth was primarily from rising mortgage construction just curious your appetite for <unk>.
Speaker 11: Okay, thank you. And then just curious on the demand front, it looks like growth is primarily from Resi Mortgage and Resi Construction. Just curious your appetite for Resi growth at this point and what's driving the growth.
At this point.
The growth there.
Speaker 4: On the demand side? Yep. Yep, on the demand side.
<unk> yeah.
On the demand side.
Sure.
Well.
Speaker 4: We're highly dependent on our customers that on a daily basis, many of the commercial customers, business customers, so I'm dealing with.
We are highly dependent on the customers that I'm at.
80 basis, many of the commercial customers business customers. So all dealing with us. So you see after less scare that we had in March was the meltdowns, okay. So essentially everybody's putting so much attention.
Speaker 10: So you see, after last scale that we had in March with the meltdowns, everybody's putting so much attention in uninsured deposits and so on.
Uninsured deposits along.
We.
Business back.
And we're dealing with business.
Speaker 10: And business, their deposit is basically uninsured.
And business deposits basically uninsured.
Okay, and then I wanna be cutting up into pieces to Ics. So I'm just thinking about all three that way. So we have a couple of very several very large customers their deposits they sign up all the time.
Speaker 4: And they don't want to be cutting up into pieces into ICS and so on. They cannot operate that way, okay? So we have a couple of very, several very large customers. Their deposits, they sign up all the conversion to ICS, but they're not being break down. They don't want to actually use it, but they want to have the activity to, to, to, to, to turn into ICS one day if they need it. But the fact is that.
Operator: Gary Tenner, Matthew Clark, Timothy Coffey, Edward Czajka, David Good afternoon, everyone, and welcome to the Preferred Bank 3rd quarter, 2023 Earnings Conference Call. All participants will be in a listen-only mode, should you need assistance, please single a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions, to ask a question you may press star and one using a touch-down telephone, to withdraw your questions, you may press star and two, please also note today's event is being recorded.
Conversion to Ics, but may not be right. They don't want to actually use it but they want to have to activity to two two to two <unk> turning to Ics it wouldn't they do need it but the fact is that.
Four.
Speaker 10: For the community banks, there may be regional banks too. I mean, if that issue doesn't get resolved, everybody will have to worry about the large DDA they're getting from our customers. Next.
The Florida community Bank, there, maybe regional banks too I mean, if that issue doesn't get resolved everybody will have.
To worry about the large.
D D D J D.
Or is it.
Changing the nature of liquidity coverage.
Speaker 4: So I don't know, the issue is still out there. We don't have the answer to you. But as the pure dollar amount of the DDA, we're just like everybody else, seeing that small migration into the higher cost area. But we hope the pace will slow down. In fact, I hope the pace almost.
So I don't know that issue is still out there.
We don't have answer to you, but as the pure dollar amount, but other BD a win we are just like everybody else seeing that a small migration into the higher cost area, but we hope the pace has slowed down and in fact I hope your pace almost.
Jeff Haas: At this time, I'd like to turn the floor over to Jeff Haas of Financial Profiles. Please go ahead. Thank you, Jamie.
Jeff Haas: Hello, everyone, and thank you for joining us to discuss Preferred Bank financial results for the 3rd quarter ended September 30th, 2023. With me today from Management, our 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 Xu. Management will provide a brief summary of the results, and then we will open up to call to your questions.
Speaker 4: We're ending this quarter, but time is to tell.
And in this quarter about right now hi, Mr. Carroll.
Speaker 11: I just wanted to touch on more on the loan demand side, like growth this quarter was driven by Resi Mortgage and Resi Construction, just curious what drove the growth there.
Hey, guys just wanted to touch on more on the loan demand side.
This quarter was driven by ready mortgaging resi construction just curious.
What drove the growth there.
Speaker 10: Yeah, we obviously, I mean, our commercial real estate market, which is our biggest loan and biggest category. And, you know, it depends on the maturity schedule of pay down and so on. And also that we have a number of old construction loans being paid down.
Yeah.
Obviously, I mean outcome commercial real estate market, which is our biggest long.
Jeff Haas: During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Security's 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 subjects to known and unknown risks, uncertainties and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict, and many of which are beyond the control of Preferred Bank.
Our biggest category and you know it it depends on the on the maturity schedule, our pay downs and so on and also that we have a number of construction loans being paid down.
So do.
Speaker 10: These are the things that the changes from quarter to quarter, we have never treated the mortgage as a main cause of our...
These are the things that the changes from quarter to quarter isn't we have never treated the mortgage is a main cause about.
Speaker 10: new generation. In fact we had you know you may not know that but we have previously disclosed that our internal goal is to keep our mortgage product to less than 10 percent.
New generation in fact, we've had you know.
You may not know that we have previously disclosed that our internal goal is to keep our mortgage product to less than 10%.
Jeff Haas: For a detailed description of these risks and uncertainties, please refer to the SEC required documents to 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 in these statements. Preferred Bank assumes no obligations to update such forward-looking statements.
Okay. I appreciate that color and then just wanted to get a update on the SBA Department and expansion.
Speaker 11: I appreciate the color and just wanted to get an update on the SBA department and expansion in the Houston LPO. Are you looking at additional expansion opportunities? Just kind of any color there would be helpful.
L P O.
Are you looking at additional expansion opportunities and just kind of any color there would be helpful.
Uh huh.
Jeff Haas: At this time, I'd like to turn the call over to Mr. Liu. Please go ahead. Thank you.
Speaker 10: Can I bring in another level in changing it from a more macro basis?
So not bringing on another level, okay and changing.
More macro basis.
Li Yu: Good morning, ladies and gentlemen. I'm very pleased to report another quarter of record income. For the third quarter, Preferred Bank earned an income of $38 million or $2.71 cents a share compared to the second quarter, net income and net interest income both increased and our expenses decreased, for the quarter with this, we have very a little bit of long growth.
Speaker 10: To me, at this point in time, doing a new loan is a lot less profitable.
To me at this point in time.
We'll know a lot less profitable.
And buying back the stock.
But you're alone will give us a long term growth, but since the loan demand is not there.
Speaker 10: But due loan will give us long-term growth. But since the loan demand is not there.
Speaker 4: We'd like to concentrate our effort in managing our liquidity, managing our profitability.
Wed like to concentrating our effort in managing our liquidity managing our profitability and managing our return to our investors.
Speaker 10: and managing our return to our investors.
Opening new locations is not our immediate endeavor at this point in time.
Speaker 10: Opening new locations is not an immediate endeavor at this point in time.
Understood well, thank you for taking the questions and congrats on a good quarter.
Li Yu: Long demand continue to be low as our customers seem to be much more cautious these days and our underwriting standard remain elevated. On the deposit side increased was $94 million for the quarter. We have seen deposit costs slow down and looking forward the first quarter we think we think the trend will continue.
Speaker 11: Understood. Well, thank you for taking the questions and congrats on a good quarter.
Our next question comes from Gary Tenner from D. A Davidson. Please go ahead with your question.
Speaker 2: Our next question comes from Gary Tenor from D.A. Davidson. Please go ahead with your question.
Thanks, Good morning.
Speaker 3: Thanks, good morning. A bunch of my questions have been answered, but just wanted to ask in terms of kind of balance sheet management, you know, you've continued to allow the AFS portfolio to run off, paid down, that FHLB bet this quarter. So as you think of the liquidity on the balance sheet, which is ample, any thoughts in terms of, you know, putting any of that to work in the series portfolio, you know, in anticipation of locking in some, some yield potentially for the longer term.
A bunch of my questions have been answered, but just wanted to ask in terms of kind of balance sheet management.
You know you've continued to allowed a S S portfolio to run off a paid.
Pay down debt.
This quarter. So as you think of the liquidity on the balance sheet, which is which is ample any thoughts in terms of.
Putting any of that to work in a serious portfolio.
You know in anticipation of locking in some some you'll potentially for.
Li Yu: Credit quality remains generally stable. We have a small increase in total criticized assets, but we have a bigger increase in the non-performing loans. The non-performing loan increase is basically the migration of two loans from a lower classification to the non-corcategory. Loan number one is a $16.1 million loan that was owed by a borrowed by one of a very good borrower for many, many years. Unfortunately the gentleman passed away recently and the large and complex estate has caused the delay of a resolution of this loan and we will notify, we just notify that the property is in escrow and the borrowers should be closing it in later part of October and paper for bank off.
For the longer term.
With.
Speaker 4: We can, this is something that has completely still looking into it. And then we continue to talk to each other about that. Seems to be every time we just something will wrong. It's because three months ago, we're talking about lots of some treasury paper. I'm glad we didn't do that. So yes, you bet??RAL, it's been a while.
This has something to add as consumers are looking into it and we continue to talk to each other about that.
Seems to be every time, we do something was wrong.
Three months ago, we're talking about lots of some treasury paper I'm glad we didn't do.
[laughter] soon there will come a time, yes.
Speaker 10: There will come a time. Sometimes it's just, I guess, for us, that's not the major income of ours, it's more diversification. So we like to be a little bit more careful, a little bit more cautious, so that it wouldn't allow a lot.
I'm kind of just stand out I guess.
For us that's not the main major income allows us more diversification, so we'd like to be liberal with telcel edit them almost a little bit more.
They've been more cautious.
So that it wouldn't allow it.
Speaker 6: a lot of adjustment right down of a portfolio. And you know, Gary, the profitability of the overall bank is really one of the main drivers behind having such a large cast position that we've had over the last 10 years. We have not had to go after that last dollar of income and put that money at risk. And so we find ourselves in a...
Adjusting for the write down of our portfolio.
Yeah.
Jerry the profitability of the overall bank is really one of the main drivers behind having such a large cash position that we've had over the last 10 years. We have not had to go after that last dollar of income and put that money at risk and so we find ourselves in a in a very good position right now with our.
Speaker 6: very good position right now with our liquidity because we haven't done that and with respect to our tangible capital levels as well.
Liquidity, because we haven't done that and with respect to our tangible capital levels as well.
Li Yu: There's another 2.2 million dollars of loan is in the same category. It's the discussion between the beneficiaries for a large and complex estate. This loan was secured by a property loan to value ratio is less than 20% and I'm happy to report we have received full payment yesterday. We also scheduled to have another large loans which classified which is including the criticized category. A large loan of 23.5 million dollars should be paid off today with confirmed that was an ending bank that took over this loan.
Yeah, I mean, certainly it's been a huge advantage to have a small portfolio in this environment.
Speaker 3: Yeah, I mean, certainly it's been a huge advantage to have a small portfolio in this environment. And not thinking so much about current profitability, but down the road profitability, but I appreciate the thoughts on that. And then just, I missed some of the numbers are on the buyback, I have the total shares purchased the last couple of quarters, but what was the average price per share?
And not thinking so much about current profitability, but you know down down the road profitability, but I appreciate the thoughts on that and then just I missed some of the numbers are on the buyback I have the total shares purchased but last couple of quarters, but what was the average.
Price per share.
Speaker 6: The average price per share through the total buyback is just a hair over $58 a share.
The average price per share through the total buyback as a just a hair over $58 a share.
Alright, thanks very much.
And ladies and gentlemen at this time, we will be concluding today's question and answer session I'd like to turn the floor back over to Mr. Yu for any closing remarks, well. Thank you very much that are you know.
Speaker 2: And ladies and gentlemen, at this time, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Mr. Yu for any closing remarks.
Speaker 4: Well, thank you very much that, you know, we, everything, you know, that in this quarter seems to be more stable than the previous quarter, okay? And I'm, you know, from my side, I'm just scared to see some of the legacy.
Everything that are in this quarter seems to be more stable than the previous quarter.
Li Yu: So we will obviously update you later when all these things happen. For the quarter we have made a provision of 3.5 million dollars. The charge of for the quarter is $80,000. Less quarter there's no charge of Okay. Therefore, our allowance total has increased to 1.46%. We believe that's one of the, we believe that's one of the top level allowance number among our West Coast peer group.
And I'm from my side I'm, just gas you'll see somebody.
Legacy.
Speaker 4: I mean, when you're setting the legacy, loans is getting resolved gradually, you know. These things do take time, but I'm also happy to see the new migration into the category is very, very limited.
And maybe when you said the legacy loans is getting resolved gradually you know these things do take time, but I'm also happy to see the new migration into that category is very very limited.
Speaker 10: So with that, I just hope that we can continue to be this way. Thank you.
So with that I, just hope that Oh, we can continue to be this way.
Thank you.
Speaker 2: And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your line.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for joining you may now disconnect your lines.
Li Yu: Our operating costs remain under control. Efficiency ratio is 25% for the quarter.
Li Yu: Since the second quarter of 2023, we have been actively buying back of our own stock. As of today, a total of 720,000 shares has been re-purchased with a total consideration of approximately $42 million. The buyback is highly beneficial or acquitted to the EPS for remaining outstanding shares. And we plan to continue the activity under the current program.
Li Yu: I also like to report with the large amount of buyback and with the dividends. Preferred banks, tangible capital ratio actually increased to 10.1%. The bank has been in the last several years, has been reporting earnings quarter by quarter, beating consensus estimates. Quarter after quarter, we'll see the future estimates going up.
Li Yu: Okay. And we are very pleased with that.
Li Yu: We will continue to pledge ourselves to operate the bank efficiently and prudently. Thank you very much.
Li Yu: I'm ready for your questions.
Operator: Ladies and gentlemen, at this time we'll begin the question and answer session. If you would like to ask a question, please press star and then one using a touch-down telephone. If you are using a speaker phone, we do ask you please pick up your hand set prior to pressing the keys to ensure the best sound quality. So if you draw your questions, you may press star into. Once again, that is star and then one to join the question queue. We'll pause momentarily through some of the roster.
Matthew Clark: Our first question today comes from Matthew Clark from Piper Sandler. Please go ahead with your question. Thanks. Good morning everyone.
Li Yu: Just starting on the margin, do you have the spot rate on deposits either total or interest bearing at the end of September and then the average nimens of timber and any expectations to the fourth quarter? Looks like you're pretty Pretty much in line with your prior guidance at 440. Yes, that's always good to see, Matthew. Thank you. In terms of the spot rate, the margin for September was 434, so kind of in line with the entire quarter.
Li Yu: And then the total cost of deposits was 342, excuse me, 362 for the month of September. In terms of the margin going forward, I think you can probably extrapolate what's been happening over the last quarter, so and project that going on into Q4 and Q1 of next year. I would estimate somewhere in the neighborhood of 415 to 425 for Q4 and somewhere between 390 and 4 for Q1 of 24. Notwithstanding any actions by the Fed. Okay, got it. Thank you.
Matthew Clark: And then just shifting gears to expenses. Good to see no additional Oreo related costs or very minor costs this quarter. What's what's kind of run rate expectations for the fourth quarter and then, you know, should we assume some seasonal increase in one queue?
Li Yu: In answer to your second question. Yes, you'll see the seasonal increase in Q1 of next year. My expectations for Q4 would be somewhere in the neighborhood of 19 and a half to 19.8. Great. Okay.
Matthew Clark: And then just on credit. Good to hear some of those isolated issues of resolving themselves as it relates to non performers and criticized.
Li Yu: But can you remind us of your snake exposure and what might be criticized within that portfolio? It sounds like one of the loans that's resolving itself the 23s per cell million is within that snake book. And just the overall status of that portfolio. What do you want to answer that? Yeah, for snake loans, they have submitted to the bank, but they're second semi any review in around September. And there's only one small loan is around over two million exposure has been downgraded. Other than that is the rest of the snake loans are stable without any credit issues. The total snake relative to total loans is about I believe 11% is 11% correct.
Li Yu: Okay, and then just on office commercial real estate. Thanks for the additional color in the release on that, but can you I think, you know, one of the more popular questions these days seems to be around the reserve associated with that portfolio. And I would assume there's only some portion of that portfolio that you're more concerned about. Maybe it's the pure office. Or maybe not maybe it's just the essential business district, which is pretty nominal.
Li Yu: Well, we have obviously the business district with a little amount we have in that, and basically there are very small properties, a very small office being well occupied. I don't think we have any classified assets in office property, right? No, no, at this time. We have not.
Li Yu: That's about the best I can answer you. And also, stay good, I can I answer any more than that enough. And also give you a little bit more color of Matthew on our office products. We have recently conducted this stress test. Unbelievably, the office side that these are all those ratios are pretty good come out. So we do not expect any immediate issues about our office product this time. And some of the loans I believe within a handful of those credit was a little bit weak PCR ratio. However, we do have a very strong individual ground towards behind it. So global cash flow can cover that these are no issues whatsoever at this time.
Matthew Clark: Okay, off the back. Thanks.
Tim Coffey: Our next question comes from Tim Coffey from Janie.
Tim Coffey: Please go ahead with your question. Great. Thanks.
Tim Coffey: It's a question on the non accrual loans. If you were to account for payoffs that you anticipated getting this week, what would that non accrual number be? Because I'm assuming it would be less than 19. The 19 plus 2.2 minus minus 2. Yeah, it would be right. Yeah. Yeah, a little under 17. A little under 17. Okay. Great.
Li Yu: And then if we kind of we think about loan growth over the next 12 months, but what are some of the biggest headwinds that you're seeing right now? Well, I think it's interesting to see the biggest headwinds headwind. Okay. Because you know, based on what we see our borrowers seems to be there all, you know, stable and affluent. Okay.
Li Yu: But I mean, they just just, you know, I just like everybody else, I mean, because they just don't want to commit them to some actions that that that when the interest rate picture is not clear. You said you're underwriting was remaining, you know, stable. Is there any places that you're starting to tighten your underwriting? We had tightened it before. But what I used the word is actually elevated, you know, because we are more picky on the location.
Li Yu: We're very much picky on the air and tall. Okay. And I guess the other than mathematics is LTVs. You can lower down a little bit. I mean, requirement. But that's what we're seeing elevated is these two categories. Okay.
Li Yu: Also on cap rates in your footprint. Are you starting to see, you know, commercial say cap rates starting to move or budge at all? Yes, based on the most recent appraisals, the cap rate has gone up a little bit because it's currently not a salary market situation, but has not yet that out of control at this time.
Li Yu: So valuations still maintain pretty good for our bank. Because normally we maintain our low to value ratio around. 55% around. So even with a high cap, I believe our kitchens still there and our credit should be performing well.
Tim Coffey: Okay, those are my questions. Thank you very much.
Andrew Terrell: Thank you. Our next question comes from Andrew Terrell from Stevens. Please go ahead with your question.
Andrew Terrell: Hey, good afternoon. Hi Andrew.
Li Yu: If I could start maybe on the not a cruel this quarter, I appreciate all the commentary you gave there. I think you gave the LTV for the second smaller loan sub 20% for the 16.1 million loan that you referenced. Do you have the LTV for that specific credit? Yes, that credit office of the most recent appraisal that is around under 50%. In Andrew, just to clarify, that's a classified not a not a cruel loan. That's classified. Yeah, that's not part of the not a cruel. I see. Okay. Got it.
Li Yu: And then if I can move over maybe to deposit growth, you guys had some good deposit growth this quarter is good to see. I hear some of the commentary around the loan growth and the challenges there right now. But could you maybe talk about the pipeline for incremental deposit growth? What you're seeing there and then more specifically on the pricing front where new time deposits are being priced at today? Well, so far what we see is for us and even in the immediate marketplace, we're dealing with deposit rate offering has been stable.
Li Yu: And I don't see I don't think that much there's much can change basically their deposit rate that's offering to their customer. Therefore, the fluidity or the interbank, I mean deposit transfer and so on is much more limited in this quarter compared to previous quarter.
Andrew Terrell: I guess it's the matter of opening up new accounts in our offices meeting new people in an opening new account that caused the 94 million dollar increase. So we do not see if the fact does nothing we would do not foresee the big deposit rate changes in the next quarter. Okay. And what's the kind of level that new new CD deposits are being priced at today? We are priced at the 5.03 okay at the CD amount that's the highest rate we have, but there's different categories that's lost. So it's ranging from four to that. Okay. I appreciate the color. Thanks for taking the questions. You're welcome.
Eric Specter: Our next question comes from Eric Specter from Raymond James.
Eric Specter: Please go ahead with your question. Hey, this is Eric on the line for Data Feaster. Thanks for taking the question.
Li Yu: We're on the CD front. I'm just curious if you could provide some color just on the maturity schedule. Generally speaking, most of the CD maturities are a year. So we have basically a constantly rotating maturity schedule of the entire portfolio. So for the fourth quarter, I think we have about 400 to 500 million, I believe, maturing for the fourth quarter. Okay, and then that's that's laddered out kind of similarly. Yes, by quarter. Okay. Yeah. Okay. Thank you.
Li Yu: And then just curious on the demand front. It looks like growth is primarily from resident mortgage and resident construction. Just curious or appetite for resident growth at this point. And what's what's driving the growth there? On demand side? Yeah. Yeah, on the demand side. Well, we're highly dependent on customers that on the daily basis. Many of the commercial customers business customers. So I'm dealing with us. So you see, after last year, although we have a march with the meltdowns.
Li Yu: I guess so. As a choice. Everybody's putting so much attention in insured deposit so on. We are a business band. And we're dealing with business and business. There are deposits basically. Uninsured. And they don't want to be cutting up into pieces. I see it's so on. They can operate our way. So we have couple of very several very large customers. They have the deposit. They sign up all the conversion to ICS, but they're not being right down.
Li Yu: They don't want to have to use it, but they want to have the activity to to to to to turning to ICS when they've been needed. But the fact is that for the for the community banks, there may be regional banks too. I mean, if that issue doesn't get resolved, everybody will have to worry about the large. DDA, they're getting from our customers and changing their nature of liquidity coverage. So I don't know that issue is still out there.
Li Yu: We don't have answer to you. But as the pure dollar amount of a DDA win, we're just like everybody else seeing that small migration into the higher cost area. But we hope the pace is slow down. In fact, I hope the pace is almost. We're ending this quarter about, you know, time is to tell them. Okay.
Li Yu: I just wanted to touch on more of the loan demand side. The growth this quarter was driven by Rezzy Mortgage and Rezzy Conservatory. You're just curious what drove the growth there? Yeah, we obviously, I mean, I'll commission on a real estate market, which is our biggest loan and biggest category. And, you know, it depends on the maturity schedule or pay downs and so on. And also that we have a number of all construction loans being paid down.
Li Yu: So these are the things that the changes on quarter to quarter is we have never treated the mortgage as the main cause of our new generation. In fact, we have, you know, you may not know that, but we have previously disclosed that our eternal goal is to keep our mortgage product to less than 10%.
Li Yu: I appreciate the color and I just wanted to get an update on the SBA Department and expansion in the LPL. Are you looking at additional expansion opportunities? Can any color there be helpful?
Li Yu: Can I bring in another level in changing in the form of more macro basis? To me, at this point of time, doing a new loan, a lot less profitable than buying back the stock. But new loan will give us long-term growth, but since the loan demand is not there, we like to concentrate on our effort in managing our liquidity, managing our profitability, and managing our return to our investors.
Li Yu: Opening new locations is not immediate endeavor at this point of time. Understood.
Gary Tenner: Well, thank you for taking the questions and you're out on a good quarter. Our next question comes from Gary Tenner from DA Davidson. Please go ahead with your question.
Gary Tenner: Thanks for morning.
Gary Tenner: A bunch of my questions have been answered, but just wanted to ask in terms of kind of balance sheet management, you've continued to allow the AFS portfolio to run off, paid down, the FHLB debt this quarter.
Li Yu: So as you think of the liquidity on the balance sheet, which is ample, any thoughts in terms of putting any of that to work in this series portfolio, in anticipation of locking in some you'll potentially for the longer term. This is something that is continuously looking into it, and that we continue to talk to each other about that, you know, seems to be every time we do something wrong, because three months ago, we're talking about lots and just some treasury paper, I'm glad we didn't think that.
Li Yu: So, they will come at times. Yeah, sometimes it's just, I guess, for us, that's not the main major income of ours, it's a small investigation. So we'd like to be living more careful, living more cautious, so that it wouldn't allow a lot of adjustment right down of our portfolio. And, you know, Gary, the profitability of the overall bank is really one of the main drivers behind having such a large cast position that we've had over the last 10 years.
Li Yu: We have not had to go after that last dollar of income and put that money at risk. And so we find ourselves in a very good position right now with our liquidity, because we haven't done that, and with respect to our tangible capital levels as well.
Li Yu: Yeah, that means certainly it's been a huge advantage to have a small portfolio in this environment, and not thinking so much about current profitability, but down the road profitability, but I appreciate the thoughts on that.
Gary Tenner: And then just, I miss some of the numbers around the buyback. I have the total shares purchased the last couple of quarters, but what was the average price per share? The average price for sharing through the total buyback is just a hair over $58 a share. Great, thanks very much.
Li Yu: And ladies and gentlemen, at this time we'll be concluding today's question and answer session. I'd like to turn the floor back over to Mr. Yu for any closing remarks. Well, thank you very much that everything in this quarter seems to be more stable than the previous quarter. And from my side, I'm just scared to see some of the legacy when you're setting the legacy loans is getting resolved gradually. You know, these things do take time, but I'm also happy to see the new migration into the category is very, very limited. So with that, I hope that we can continue to be this way.
Operator: Thank you. Ladies and gentlemen, with that, we'll conclude today's conference. Thank you for joining.
Operator: You may now disconnect your line.