Q3 2024 Preferred Bank Earnings Call
Speaker Change: I have a lot to do, but I'm not sure if I can do it. I have a lot to do, but I'm not sure if I can do it. I have a lot to do, but I'm not sure if I can do it.
Speaker Change: one
Speaker Change: I don't know what to do, but I don't know what I'm gonna do
Unknown Executive: Good day and welcome to the preferred bank in third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff, has a financial profile. Please go ahead. Thanks. Why, hello everyone. Thank you for joining us to discuss preferred bank financial results for the third quarter ended September 30 of 2024. With me today from management are Chairman and CEO Lee, President and Chief Operating Officer Well, and Chief Financial Officer Edward Chica, and Chief Credit Officer Nick Ty. Management will provide a brief summary of the results and then we will open up the calls to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to preferred banks operations and business environment, all of which are difficult to predict and many of which are beyond the control of preferred bank. For a detailed description of these risks and uncertainties, please refer to the SEC required documents the bank files with the Federal Deposit Insurance Corporation or FDIC. Any of these uncertainties materialize or any of these assumptions prove incorrect, preferred banks results could differ materially from its expectations as set forth in these statements. Preferred bank assumes no obligations to update such forward-looking statements.
Speaker Change: Good day, and welcome to the preferred bank third quarter 2024 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal 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, then one, on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Haas, a financial profiles. Please go ahead.
Jeff Haas: Hello everyone, thank you for joining us to discuss preferred bank financial results for the third quarter ended September 30, 2024. With me today from Management, our chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington Shenz, Chief Financial Officer, Edward Chaka and Chief Credit Officer Nick Pines.
Jeff Haas: Manage and we'll provide a brief summary of the results and then we will open up the call to your question.
Jeff Haas: 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 be correct.
Jeff Haas: For looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to preferred banks' operations and business environment.
Jeff Haas: 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 FEC required documents in the bank files with the federal deposit insurance corporation or FDIC.
Jeff Haas: Many of these uncertainties materialize or any of these assumptions prove incorrect, preferred banks results could differ materially from its expectations as set forth in these statements. The verb bank assumes no obligation to update such what we're looking statement.
Jeff: At this time, I'd like to turn the call over to Mr. Lee Yu.
Speaker Change: At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Li Yu: Thank you, Jeff. Good morning.
Li Yu: Thank you, Jeff.
Li Yu: I'm very pleased to report the Preferred Bank third quarter net income was $33.6 million, or $2.46 a share. The highlight of this quarter is a successful reduction of our non-performing loans, which resulted in no charge of about $800,000 of an interest recovery. Criticized loans, however, have increased quite largely due to one relationship. And currently we believe this increase in criticized loans is a temporary event. Not an interest expense has increased somewhat unexpectedly. But that was the reason that we have made a valuation charge of $1.7 million or OIO. This OIO is currently at school and scheduled to be closed later this month.
Li Yu: Good morning.
Li Yu: I'm very pleased to report the preferred bank third quarter net income was 33.6 million dollars or 2.2.46 cents a share.
Li Yu: The highlight of this quarter is a successful reduction of our...
Li Yu: The Performing Launch
Li Yu: which resulted in no charge-offs, but a $800,000 of an interest recovery.
Li Yu: Quiddercise loans, however, has increased.
Speaker Change: Why largely?
Speaker Change: You two, one relationship.
Speaker Change: and County we believe this.
Speaker Change: Increased in criticized lungs as a temporary.
Speaker Change: Evert.
Li Yu: Loan demands seem to have increased, and pay off slowdown. Our net increase in loan for the quarter is maybe over 10% on that annualized basis. Deposit, however, has decreased slightly from last quarter in the amount of $11 million. Admittedly, that the Preferred Bank has been subject to monetary deposits portfolio since early September to not competing for the higher cost deposits. As a result, the cost of deposit has reduced slightly in the third quarter from the second quarter. Net interest margin improved due to obviously that deposit cost decreased due to the net interest recovery and also because of change in the leverage in our loan to deposit relationship.
Speaker Change: Long demands soon to have increase and pay off slow down. A net increase in long for the quarter is a little over 10% on that annualized basis.
Speaker Change: The process, however, has decreased slightly from last quarter in a month of 11 million dollars.
Speaker Change: Admittedly, that the football bank has been solid to do.
Speaker Change: Monitor the deposits portfolio.
Speaker Change: Since early September, to not competing for the higher cost deposits.
Speaker Change: As a result, cost to deposit has reduced slightly in a third quarter from the second quarter.
Speaker Change: That Inch is Margin improved.
Speaker Change: Haas
Speaker Change: You too, obviously, that deposit cost decrease.
Speaker Change: Gu to the net increase.
Speaker Change: I mean recovery and also because of change in the leverage in our long-to-deposit relationship.
Li Yu: Efficiency ratio of 30.6% is a little higher than previous quarters. But if we disregard the non-recurring event of the valuation charge on the OIO, the efficiency ratio would be about 28.5% approximately. At September 30, the Preferred Bank's loan portfolio consists of 26% of fixed rail loans and 74% of floating rail loans, with most of them having a floor. We believe that our own sensitivity is in reasonable balance with the sensitivity of our deposit portfolio. But do like to point out, our PCG portfolio has a different nature that it were reduced in a smaller amount in the earlier months, but ketchup and reduced cost reduced in the bigger dollar amount at the later stage of the TCD.
Speaker Change: Officials say ratio of 30.6% is a little higher than previous quarters.
Speaker Change: But if we just regard the human recurring event of the valuation, charts and the oil, the oil.
Speaker Change: It's September 30th.
Speaker Change: To further banks the long portfolio consists of 26% of fixed rail-longs and 74% of floating rail-longs with most of them having a floor here.
Speaker Change: We believe the long sensitivity is in reasonable balance with the sensitivity of our deposits for 40 years.
Speaker Change: But do like to point out.
Speaker Change: PCP portfolio has a
Speaker Change: Differn nature that it will reduce in a smaller amount in the early months that catch up and reduce cost reduce in the big-a-douder amount at the later end.
Speaker Change: Stage of the TCD Company.
Li Yu: We are happy to see that finally we see the federal government's rate cut. And we project that, probably there will be continuous, continuous, moderate rate cuts going forward. We'll be stay obviously very focused on that.
Speaker Change: We are happy to see that finally we see the federal government's wake up and we project that probably there will be a continuous, continuous moderate wake-up going forward, will be stay obviously.
Li Yu: Thank you very much.
Unknown Executive: Now I'm ready for your questions. We will now begin the question to answer session. To ask a question, may press star, then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
Speaker Change: I'm very focused on that
Speaker Change: Thank you very much, now I'm ready for your questions.
Speaker Change: We will now begin the question and answer session. To ask a question, may press star, then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys.
Unknown Executive: At this time, we will pause the question.
Matthew Clark: The first question comes from Matthew Clark with Piper Sandler. Please go ahead. Thank you, everyone. Thanks for the questions.
Speaker Change: The first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark: I wanted to start on the margin and get a sense for what the average was in the month of September, you know, with or without the recovery, and then the spot rate on deposits at the end of September. If you had it, it's not the month of September.
Speaker Change: Naga morning to everyone. Thanks for the questions. I'm going to start on the margin and
Speaker Change: Get a sense for what the average was in the month of September, you know, wither without the recovery, and then the spot rate on deposits at the end of September, if you had it, it's not the month of September.
Li Yu: I'm Matthew. The margin for the month of September, excluding the recovery, was 403, 4.03, cost of deposits spot at the end of September, 396.
Speaker Change: I'm Matthew, the margin for the month of September excluding the recovery was 403, 4.03, cost of deposits, slot at the end of September, 3.96.
Matthew Clark: Great. Okay. And then, on the floating rate loans of 74%, I think of the total mix as floating.
Speaker Change: Great, okay, and then um
Speaker Change: On the floating rate loans, a 74% I think of the total mix is floating, I think you mentioned in the release that most of them have floors, but can you give us some more details and specifically how much of that?
Li Yu: I think you mentioned in the release that most of them have floors, but can you give us some more details on specifically how much of that, how much of that those floating are variable rate loans have, add floors and where those levels are. Right. So of the 76, 74, excuse me, that are floating, 99% have floors. However, they're at various stages, Matthew, as you and I have discussed previously, but we have approximately 22%, 23% of those floors are within 75 to 100 basis points of their actual rate, and the remainder of those are over 100 basis points from their current stated rate.
Speaker Change: I'm not sure that those floating earth were able to rate low in depth.
Speaker Change: and the Red of the Levels are.
Speaker Change: So of the 76th or 74, excuse me, that are floating 99%.
Speaker Change: Laws, however they're at various stages, Matthew, as you and I have discussed previously, but we have approximately 22% 23% of those floors are within 75 to 100 basis points.
Speaker Change: of their actual rate and the remainder of those are over a hundred basis points from their current stated rate.
Matthew Clark: Thank you.
Li Yu: And then what's your outlook on your loan and deposit beta, this cycle, this easy cycle? You know, assuming we get the rate cuts that the forward curve is suggesting, where do you think we match what you did on the way out? Or do you feel like it might be a little less than that on, you know, either side of the balance sheet? I would say a lot of it, Matthew, depends on the pace. If we get a steady 25, 25 bleed out every couple of months, that is really for us an ideal scenario because it will allow us to better match the repricings of the liabilities with the repricing of the assets.
Speaker Change: Okay
Speaker Change: Thank you. And then what's your outlook on...
Speaker Change: You're alone in deposit beta, this cycle, this, this easy cycle, you know, assuming we get the ray cuts that the, the full recurve is suggesting, where do you, do you think we match what you did on the way up or do you feel like, you know,
Speaker Change: It might be a little less than that on, you know, lighters out of the balance sheet.
Speaker Change: I would say a lot of it Matthew depends on the pace.
Speaker Change: If we get a steady 25, 25 bleed out every couple of months, that is really for us an ideal scenario because it will allow us to better match the repriced liabilities with the repricing of the assets. So if we get a steady downward trend in that regard, I would expect the margin to hold up better than it would under a 50 and 50 scenario.
Li Yu: So if we get a steady downward trend in that regard, I would expect the margin to hold up better than it would under a 50 and 50 scenario.
Matthew Clark: Okay, great. And then did you buy back any stock this quarter, and what's your appetite going forward? We did. We bought back, I think 100 and some thousand shares. I apologize. I don't actually don't have that number.
Speaker Change: Okay, great. And then did you buy back any stock this quarter and what's your appetite going forward?
Speaker Change: We did, we brought back, I think, a hundred and some thousand shares, I apologize. I don't actually don't have that number. We actually have not been in the market for a while because I price it's a hundred, a hundred, a hundred, a hundred, a thousand. A hundred and a thousand. Yeah, but we haven't been in the market for the last few weeks because the price is exceeded what we're wanting to pay right now.
Li Yu: We actually have not been in the market for a while because the price is $110,000, yeah. We haven't been in the market for the last few weeks because the price has exceeded what we're wanting to pay right now.
Andrew Terrell: Our next question comes from Andrew Terrell with Stevens. Please go ahead. Hey, good morning. Just a follow-up on the floating rate loans, the 74% total. Can you just remind us this split between prime versus so for any other indices on the other side too? Of the 74%, probably 90% of those are prime based, with the remainder being so far or treasury based. Maybe nigh as high as 90, but a close gap. Maybe in the 80s, no. Maybe.
Speaker Change: For next question, come from Andrew Torelle with Stevens. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Hi
Speaker Change: Just a follow-up on the floating rate loans, the 74% of total, can you just remind us that this split between prime versus so-for or any other indices in there that those are tied to?
Speaker Change: Of the 74% probably 90% of those are prime-based with the remainder being sulfur or treasury-based.
Speaker Change: We will be now as high as 90% of the close care will be in the 80s now.
Li Yu: Okay, we haven't really calculated that yet; you have.
Speaker Change: Maybe because we haven't really calculated that yet, you know. Yeah, okay, but it's very interesting that the device is already a prime.
Li Yu: Okay, but fair to think that the vast majority are prime. Right.
Li Yu: I wanted to ask on the, when I look at the end of period composition of deposits, the interest bearing demand deposits came down pretty hard this quarter. I think of about 330 million or so. It looks like there might have been some mixed change in two time deposits, but with open, you could maybe just elaborate a little bit on some of the fluctuations we saw within the interest-bearing demand deposits. Yes, we are switching some of the higher price for the interest-bearing demand or money market, and then try to time it up and replace with TCDs at the rate that we feel is more favorable.
Speaker Change: Right.
Speaker Change: I want to ask them the, when I look at the, the, in a period composition of deposits, the interest bearing demand deposits came down pretty hard this quarter, I think, off about 330 million or so and it looks like they might have been.
Speaker Change: Some makes change into time deposits, but with something you could maybe just elaborate a little bit on some of the fluctuations we saw within the intersparing demand deposits.
Speaker Change: Yes, we are switching some of the higher price for the interest, parent, deposit demand of money market and then try to time it up and replace with PCBs at the factory that we feel is more favorable.
Li Yu: Now, we have started to do that in early September for even the rate cuts now. Yeah, Andrew, a number of some of the money market deposits that we had were considered to be broker deposits, and those were paying a higher cost than brokered CDs were. So we basically flipped from a brokered money market to brokered CD at the same time, not increasing our total broker. Got it.
Speaker Change: Now we have started to do that in early September, for even the Raycrets.
Speaker Change: Yeah, Andrew, a number of some of the money markets deposit that we had were considered to be broker deposits.
Speaker Change: and those were paying a higher cost than brokered CDs were, so we basically flipped from a brokered money market to brokered CDs at the same time not increasing our total broker.
Andrew Terrell: Okay, that makes sense. I appreciate it.
Andrew Torelle: Got it. Okay, that makes sense. I appreciate it.
Li Yu: Can you remind us just for the fourth quarter we've got the launching point for where the this battery wasn't a positive. Can you remind us the amount of time deposits that are coming up for a new in the fourth quarter and then appreciate that it probably fluctuates some depending what the Fed does here in November and December. But you know where you're kind of trying to renew new CDs at today from a yield you recall standpoint. Yes, so we have almost 1.2 billion of CDs maturing in the fourth quarter at an average rate of 507.
Speaker Change: Can you remind us just for the fourth quarter we've got going to launching point for where the spory wasn't a positive, can you remind us the amount of...
Speaker Change: Time deposits that are coming up for a new, in the fourth quarter and then appreciate it, it probably fluctuates some, depending what the Fed does, here in November and December, but you know, where you're kind of trying to renew CDs at today from a year or cost standpoint.
Speaker Change: So we have almost 1.2 billion of CDs maturing in the fourth quarter at an average rate of 507.
Li Yu: And today we are paying anywhere from 3.45 up to 4.5 in that range. So we would expect to see some pretty good savings because that's a big chunk; that's 36% of our CDs maturing in that quarter.
Speaker Change: and today we are paying anywhere from 345 up to low point.
Speaker Change: We're going to have a couple of seconds in that range, so we would expect to see some pretty good savings because that's a big chunk that's 36% of our CDs material in that.
Li Yu: And now there's a CD pattern is that everybody is paying higher rates for 3 months to CDs and then sort of like a moderate down all the way to 1 year level. And I guess everybody is an out and an average immediate peer group is watching and making very frequent moves from time to time. So we just have to react to that. Yep, totally understood.
Speaker Change: and nowadays the CD pattern is that everybody is playing higher rates for three months.
Speaker Change: T-C-D-E-S.
Speaker Change: and then sort of like a model it down all the way to when you're level and I guess everybody is an out and now we are immediate
Speaker Change: Peer Group is watching and making very frequent moves from time to time so we just have to react to that.
Andrew Terrell: I appreciate it. And then maybe I just I'll take a stab at it. I know it's probably a complex number to arrive at. But just any any sense on given some of the timing dynamics from the floating rate loans versus the CD repricing it'll occur in the fourth quarter. Any sense on kind of where the margin shakes out in the short term? The fourth quarter.
Speaker Change: Yeah, totally understood, I appreciate it.
Speaker Change: and then maybe I'll take a stab at it. I know it's probably a complex number to arrive at, but just any sense on giving some of the timing dynamics from the floating-ray loans versus.
Speaker Change: the CV repricing it'll occur in the fourth quarter. Any sense on kind of where the margin shakes out in the short term?
Li Yu: That's a really good question. And like you said, Andrew, it really depends on the timing. But, you know, given where we're at right now, I guess I would expect to see the high high threes, you know, north of 385 for the fourth quarter. Yeah. Got it.
Speaker Change: The fourth quarter. That's a really good question and like you said, Andrew, it really depends on the timing, but given where we're at right now, I guess I would expect to see the high threes.
Speaker Change: You know north of 385 for the fourth quarter?
Li Yu: Okay. So maybe some normalization and the deposits repriced stabilization from there. Right. Okay.
Andrew Torelle: Yes. Yep.
Andrew Torelle: Okay, so maybe some normalization and the deposits reprise stabilization from there.
Andrew Terrell: Thank you for taking the questions. I'll I'll back on the queue.
Andrew Torelle: Right?
Speaker Change: OK, thank you for taking the questions all up back in the queue. Thank you.
Gary Center: Our next question comes from Gary Center with DA Davidson.
Gary Center: Please go ahead. Thanks. Good morning. I thought I'd kind of shift over to the other side of the balance sheet. You know, you've had improving long growth each of the last two quarters. And I think the press release noted some increased activity as the Fed cut rates in September. So can you talk about kind of pipelines and activity levels from a lending perspective as we're looking into the fourth quarter? Okay. Well, I'm thinking what I answered the first and see any. Yeah. I think I'm sure you mentioned the press in the earnings release. The loan demand has been no surgeon since the Fed dropped array.
Speaker Change: Our next question comes from Gary Tenner with DA Davidson, please go ahead.
Gary Tenner: Thanks for morning. I thought I'd kind of shift over to the other side of the balance sheet. You've had improving longer with each of the last two quarters, and I think the press released noted some increased activity as the Fed cut rates in September. So could you talk about kind of pipelines and activity levels from a lending perspective as we're looking into the fourth quarter?
Speaker Change: Okay, well, I'm thinking what I answered the first in CAB. Yeah, I have the answer you mentioned in the earnings release. The long demand has been no surgeon since the...
Li Yu: And we believe and the long activity is this year. I think the biggest issue for us, not just the demand, is the payout. Competition payout from competition or customer selling assets and what have you. So we are basically not just entertaining. that you long demand at the same time to defend or exist in good long relationships.
Speaker Change: Ben Trofter Ray, and we believe in the Zong Activity is there. I think the biggest issue for us, not just the demand, is the pale.
Speaker Change: Comfortation, Payout, Comfortation, or Cupsomir.
Speaker Change: in selling assets and what have you. So we are busy and not just entertaining the youth, don't demand for it. As the same type, you defend our existing good, long relationships.
Li Yu: Anything to add, Johnny? No, I think once it's the right arm, with the rate, anticipated rate decreases are, we need to defend our portfolio. Gary, that marketplace, obviously, toward the real estate side has changed greatly because the rate changed. And all rates, I mean, including the fixed rates, I mean, loans being offered, is now is more lower basis than before. And certainly, that is expected to improve the transactions on the marketplace. To what extent, what time to cut in, really, the economy itself has to tell us a little later. We'll see a waiting for, you know, what the channel needs to pay off.
Speaker Change: Anything to add, Johnny? I think what to say the right part, which...
Speaker Change: What do you all rate, anticipated rate decreases, or we need to defend our arms.
Speaker Change: I will call you.
Speaker Change: Gary, that marketplace obviously toward a real estate site has changed greatly because of the rage.
Gary Tenner: And all our rates have been including the effects rates, I mean, loans being offered is now a more lower basis than before and certainly that it expected to include the transactions on the marketplace.
Speaker Change: To what extent what time did I get in?
Speaker Change: We did
Speaker Change: The economy itself has to tell us the bill later now.
Speaker Change: We're still waiting for you know what the channel is to play off.
Gary Center: Gary, I appreciate that.
Li Yu: And then, you know, with the commentary about tightening up, I guess, on the rate paid on deposits in the quarter, you know, kind of flat deposits versus the loan growth and that loan deposit ratio, moving out to 95% or so. You talk about how you're thinking about kind of managing, you know, that side of things from the ability to fund loan growth on a go-forward basis, but maintaining discipline and pricing on the deposit side. Well, I guess the deposit fee that we all have is seems to be eased up quite a bit. That building up deposits is something that becomes more of a normal event.
Speaker Change: I appreciate that. And then, you know, with the commentary about tightening up, I guess, on the rate paid on deposits in the quarter, you know, kind of flat deposits versus the long growth and that long deposit ratio moving up to 95% or so. Can you talk about how you're thinking about kind of managing, you know, that side of things from the ability to fund long growth, on a go for a basis, but maintaining discipline and pricing on the deposit side.
Speaker Change: Well, I guess that...
Speaker Change: The Department of Field that we all have is things to be
Speaker Change: Seems to be eased up quite a bit, okay?
Speaker Change: That building up the deposits is something that become more of an owner event. So it's still support the loan growth. We obviously compete whenever we see the market price open, but, you know, so the event has always been, you know.
Edward Czajka: So, to support the loan growth, we obviously compete whenever we see the marketplace open. But, you know, So Prefer Bank has always been, you know, competitive in getting deposits. So we think we'll get them necessarily number two to fund the growth. And I think on the, on the expense side, this quarter came a little bit higher just because of the Oreo charge in the quarter, than what you'd, I think, guided to on the July call. You have a sense of, kind of, where the fourth quarter operating expense line might shake out. Yeah, not much change.
Speaker Change: And I think on the expense side this quarter came a little bit higher just because of the Oreo, charge in the quarter, and then what you would.
Speaker Change: I think I did too on the July Call of Geosessensive, kind of where the fourth quarter operating on online might check out.
Edward Czajka: Gary, I would, I would look at us to go between 20 and a half to 21 for Q4. Might, might be slightly below that, but I would doubt it.
Speaker Change: Yeah, not much change, Gary, I would look at us to go between 20 and a half to 21 for Q4. Might be slightly below that, but I would doubt it.
Gary Tenner: Thank you.
David Feaster: Next question comes from David Feaster with Raymond James. Please go ahead. Hey, good morning, everybody. You know, maybe we just touch on the credit side a little bit. I was hoping you can give a little bit of color on the increase in credit size and appreciate the commentary about some of those already being resolved. Just kind of curious what you're seeing there. And then just broadly, what you're seeing on the credit front within the CRU world and anything you're watching more closely.
Speaker Change: For next question comes from David Feaser with Raymond James, please go ahead.
David Feaser: Hey, good morning everybody.
David Feaser: You know, maybe we just touched on on the credit side a little bit. I was hoping you could give a little bit of color on the increase in credit size and appreciate the commentary about some of those already being resolved. Just kind of serious what you're seeing there and then just broadly what you're seeing on the credit front within the CREAT world and anything you're watching more closely.
Nick Pi: Nick, add on to it correctly. Let me first follow up what we have written on. Actually, it wasn't for the one relationship where the good reduction in the order was also called the criticize long and the number of performing loans. That one relationship is found out to have a little bit of pain and laziness or irregularities. So we proactively tried to downgrade it. And after downgraded that, four of the seven loans has been brought current. And the other three of them, we were told, we'll be current pending on their success for the completion of their capital calls.
Speaker Change: Nick add on to a correct me, okay, let me first, I decide, follow up what we have written on. Actually, that actually...
Speaker Change: It wasn't for the one relationship with a good reduction in order with our so-called criticised long and the number of moving loans. That one relationship is found out to have a little payment.
Speaker Change: Lazyness or irregularities. So we collectively try to tongue-grade it. And after tongue-grade it, that for the seven lungs has been brought current.
Speaker Change: and the other three of them, we were told, we'll be carrying, depending on their successful, the completion of their capital courts, okay.
Nick Pi: Okay. So some of the loans, it is a relation, Chris has several different loans. I'll have different partners, partners. They have different investments. So they were one through capital calls on most of them. So the other three we were told we should complete a capital call in in the disments. They hope that so we have this customer for many years, even before the pandemic days. And throughout that period of time and throughout the high interest re time, they have always been paying, so they're running to finally a little slowness recently. And all these loans are guaranteed by several very substantial people.
Speaker Change: So, some of the loans, it is a relation process, several different loans are had different partners, they have different investments size, so they were one through capital cause of most of them, so the other three we were told that we should complete the capital call in
Speaker Change: In the dissonance, they hope that. So, we have this customer for many years.
Speaker Change: Even before the pandemic days and throughout the period time and throughout the high industry time they have always been paying so they are running to finally a little so much recently and all these loans are guaranteed by several very
Nick Pi: So, and we have a low LTV in the mid-60s. And then a reasonably high under the current system stands reasonably high DCR. And DCR will be better than 1.1 after the next two rate cuts. Right. So, and the property itself is pretty good. It's retail property; I mean, neighbor's shopping center basically. And and the multi families. All of them still come in that good cap rate nowadays. And in fact, retail shopping center cap rate has been improved. So, these are the things we get. So we kind of fear. This thing will be, will be, will get the result very soon.
Speaker Change: Substantial People. So...
Speaker Change: and we have a load, LTP.
Speaker Change: and Miss Sixties, and then a reasonably high under the current circumstances. reasonably high DCR and DCR will be better than 1.1 after the next two racots. So.
Speaker Change: And the property itself is pretty good. It's retail property. I mean, maybe a shopping said that basically and the multi-family's, all of them still commend a good cap rate nowadays. And in fact, retail shopping standards, cap rate has beaten them smoothly.
Speaker Change: So, these are the things we get so we kind of feel the same will be, we will get the result very soon.
Nick Pi: If you want to add to that. Just for your information, David, for these two retail centers, actually, the boats are around 95% occupancy. So, the property itself is pretty good. And they're just like Mr. Rumi mentioned that if we could, this one-off situation, the rest of our critics should be around, which is much less than the last quarter, I believe. So, you know, since the pandemic, we have been really watch our credit very closely. And presently, I believe that the credit quality is still all considered a very stable and resilient at this time.
Speaker Change: If you want to add to that, just for you our information, for this two retail centers, actually the above are around 95% occupancy.
Speaker Change: So the property is so pretty good.
Speaker Change: And they just like me through a mention that if we could do this one-off situation, the rest of our critics have gone should be around 52%, which is much less than the last quarter, I believe. So, you know, since pandemic we have been really...
Speaker Change: Watch out, Cretia, very closely, and I believe that Cretia quality is still well considered and very stable and we're still in it this time.
David Feaster: That's helpful. That's really good color.
David Feaster: And then maybe going back to the growth front. I mean, again, it's great to see the growth. It's encouraging to see what you guys have been able to do, especially the acceleration. You know, but I hear that there's still a lot of competition on the West Coast. I'm curious if you could touch on the competitive landscape. You know, you guys have been really disciplined on your loan pricing. I'm curious where a loan pricing is in your market. Are you starting to hear some prepays and payoffs just given the competitive landscape? Kind of how that plays into your thoughts on growth next year.
Speaker Change: That's all, that's a really good color and then maybe go on back to the to the growth front I mean again it's great to see the growth it's
Speaker Change: Encouraging to see what you guys have been able to do, especially the acceleration.
Speaker Change: I hear that there's still a lot of competition on the West Coast. I'm curious if you could touch on the competitive landscape. You guys have been really disciplined on your loan pricing. I'm curious where a loan pricing is and your market, are you starting to hear some pre-pays and payoffs just given the competitive landscape?
Li Yu: Would you expect to kind of re-accelerate, or could that be a headwind and kind of keep us here around that, you know, low-double digitized single digit type of... Case. The general feeding is that we feel was reducing rates, okay, the new loans opportunity were increased. Likewise, it's the pace of the payoff, because that's easiest for the competition just to try to pirate loans from other institutions. And we see people who are starting to price their loans about as much as 1% before all the fixery loans, okay. So, we are facing this every day.
Speaker Change: I kind of how that plays into your thoughts on growth next year. Would you expect to kind of re-excelerate or could that be a headwind and kind of keep us here around that low-level digitized single digit type of pace?
Speaker Change: The general seeding is that.
Speaker Change: We fear it was reducing rates, okay?
Speaker Change: the
Speaker Change: The new loans opportunity will increase. Li Kuai is the pace of the payoff, because that's easiest for the competition just to try to try and loans from the other institutions.
Speaker Change: and we hear people are starting to cry still, longs about as much as 1% before I'm a fix-ray lungs. So, we are facing this every day. We have faced this fall. My life was to span to 32 years plus almost every year matters like that happened.
Li Yu: We have faced this for my life was with disbanded 32 years plus almost every year matters like that happened. It is up to us as a team is, you know, adjust ourselves from time to time on the marketplace. On the production side, okay, Wellington and Johnny has added a number of new producers. In fact, you would notice that in the last few earnings phone calls, we mentioned about new teams and new locations being added up. So, actually, we have a more of a body concept, especially in the loan production side. So, we're expecting that we will be fully competitive in turning more stones in the marketplace, okay.
Speaker Change: It is up to us as a team is, you know, I just ourselves, from time to time, on the market phase.
Speaker Change: on the production site, okay. One entrain of Johnny Haas added a number of new producers. In fact,
Speaker Change: You would know this in the last.
Speaker Change: A few earnings phone calls we mention about new teams and new locations being added up. So, actually, we have a more of a body count, especially in the long production side. So we're expecting that we'll be fully competitive in turning more stones in the marketplace. So it's a matter of finding more loans to combat to the possibly increasing pace of loan
Li Yu: So, it's a matter of finding more loans to combat the possibly increasing pace of loan payoffs.
David Feaster: That's a good point.
Li Yu: You know, if I recall, you know, one of the places that you've been focused on is Silicon Valley. Curious if you could give us an update there and then, you know, what other opportunities, what markets are you interested in and where you haven't success hiring? Silicon Valley is just started; usually, that it takes about six months for any loan to be bought. There are a few loans already being bought in Silicon Valley, okay. We feel that the grossest Silicon Valley will be more of a sort of like steady gross in the first two years. And properly, if we're lucky enough, it will take off after two years, okay.
Speaker Change: That's a good point, you know, and I, if I recall, you know, one of the places that you've been focused on Silicon Valley, um, curious if you give us an update there and then, you know, what other opportunities, what markets are you interested in, um, and where you have in success hiring.
Speaker Change: Sinon Kuzad is just started, and usually that it takes about six months for the any loan to be put, but there are a few loans already being bought in silicon valley, okay? We, we feel that the gross silicon valley will be more or sort of like steady.
Speaker Change: Gross in the first two years and properly if we're lucky enough, you would take off after two years, okay.
Li Yu: And there are many other places we mentioned that we enlarged our Manhattan operation to be a full branch, okay. And we hope that we're operating now in Manhattan, in the center of the town, in one of the final locations that we think. So we're expecting activity there to be equally as vibrant as the last few years and hopefully even improving. We're constantly looking for new location, but is predicated on the people. If we can find the bankers that has a track record, we will build an operation around the person. And finding people, as you know, David, is probably one of the most challenging things that facing community bankers.
Speaker Change: and there are many other places we mentioned that we enlarged our mental operation to be a full branch.
Speaker Change: and then we hope that we're operating now in the center of the time in one of the final locations we think. So we're expecting activities there to be equally as vibrant as last few years and hopefully even improving.
Speaker Change: We can't really look in for...
Speaker Change: New Location, but is predicated on the people.
Speaker Change: If we can find...
Speaker Change: the bankers that has a track record.
Speaker Change: Wu, a beautiful operation around the person.
Speaker Change: and finding people as you know David is probably one of the most challenging things that are facing community bankers.
David Feaster: Yes. Absolutely.
David Feaster: Thank you.
David Feaster: And then, if I could squeeze one more in, I was hoping, appreciate all the color on the margin. Kind of assuming in the forward curve, though. I mean, how do you think about the trajectory next year? I mean, just give it. You got pretty huge repricing opportunities like you talked about.
Speaker Change: Absolutely.
Speaker Change: Absolutely, thank you. And if I could squeeze one more in and I was I was hoping appreciate all the color on the margin kind of assuming in the forward curve though. I mean how do you think about trajectory next year?
Speaker Change: I mean, just give it, you got pretty huge repricing opportunities like you talked about. Just kind of curious, like when do you think we trough? Is it kind of a mid-2025 and do you think, in I-I growth, that you guys are going to be able to drive in I-I growth in 2025 even with cuts?
Li Yu: Just kind of curious, like when do you think we trust, is it kind of a mid 2025? And do you think NII growth that you guys are going to be able to drive NII growth in 2025 even with cuts? Well, that's a crystal ball question, David. But I'll take a stab at it. You know, as I said earlier, the pace of rate changes is really critical. If we get 25 basis points a quarter, 25 basis points every two months, whatever the case may be, that's kind of a good situation for us. And in that, it allows us to move liability prices somewhat commensurate with asset yields.
Speaker Change: Well, that's a crystal ball question David, but I'll take a stab at it.
Speaker Change: You know, as I said earlier, the pace of rate changes is really critical. If we get 25 basis points of quarter, 25 basis points every two months, whatever the case may be, that's kind of a good situation for us, and in that it allows us to move.
Li Yu: And so, to the extent we can do that, the margin will remain more intact than it otherwise would have if we had accelerated rate cuts. That being said, what I've always thought is that, you know, I looked back to the last quarter before the rate cuts, the rate increase has started. And that was the fourth quarter of 21. And we posted a 328 margin. That was with zero interest rates.
Speaker Change: Light Ability Prices, somewhat commensurate with asset yields, and so to the extent we can do that, the margin will remain more intact than it otherwise would have if we had accelerated rate cuts.
Speaker Change: That being said, what I've always thought is that, you know, I look back to the last quarter before the rate cuts, the rate increases started and that was the fourth quarter of 21 and we posted a 328 margin.
Li Yu: If we land to a level where we're around three to three and a half Fed funds, I don't see why we cannot maintain a margin north of 350, perhaps 350 to 375 when it kind of all shakes out. If it all, if it, if this sort of ends in mid 25 or late 25.
Speaker Change: That was with zero interest rates. If we land to a level where we're around three to three and a half Fed funds, I don't see why we cannot maintain.
Speaker Change: A margin north of 350, perhaps 350 to 375, when it kind of all shakes out. If it's this sort of ends in mid 25 or late 25, don't promise too much. I'm not promising, I'm just seven.
Li Yu: Don't promise too much. I'm not promising. I'm just doing. I can't find a market. I can only compete with the market. No, that's great. That's great.
Speaker Change: I can't find a mark, I can't even compete with a mark. No, that's great. It's super helpful to all those things through it and manage expectations. So I appreciate the color.
Unknown Executive: It's super helpful to all of us to think through it and manage expectations. So I appreciate the color. Again, if you have a question, please press star, then one.
Unknown Executive: At this time, we'll pause momentarily for the occasion.
Speaker Change: Again, if you have a question, please press star then one at this time we'll pause momentarily for the occasion.
Li Yu: Okay, this concludes our question-and-answer session.
Li Yu: I would like to turn the conference back over to Lee, you, Chairman and CEO, for any closing remarks. Thank you to you to manage the constant change. The interest rate environment is certainly that, that, all of the things that, that our job of my, my, you know, competitive job also, but over here in the preferred event that we have done fusing the few remember just at the beginning of 2023. Our fixed rate loans at the low teen level, probably 11 12%, and since then, we have been working on selectively, turning our loans to fixed rate and hopefully on the declining rate interest environment, that will give us better protection going into the future.
Speaker Change: Okay, this concludes our question and answer session. I would like to turn the conference back over to Li Yu, Chairman and CEO for any closing remarks.
Li Yu: Thank you to you.
Speaker Change: To manage the constant kimchi interest rate environment is certainly that all of the things that
Li Yu: is that our job, my company, the job also, but over here in the preferred event that we have done few things, if you remember just at the beginning of 2023.
Li Yu: Our fixed-ray loans at the low-teen level are probably 11-12%. And since then, we have been working on selectively turning out.
Li Yu: Long to fix rate and hopefully on the declining rate interest environment that will give us better protection going into the future and in fact we feel so okay.
Li Yu: In fact, we feel so. Okay, so we stay on top and be alert.
Unknown Executive: Thank you. Thank you so much.
Li Yu: We'll stay on top and be alert, thank you.
Unknown Executive: This concludes our conference is now concluded. Thank you for today attending today's presentation.
Speaker Change: Thank you so much.
Speaker Change: This concludes our conference, is now concluded, thank you for today attending today's presentation. You may now disconnect.
Unknown Executive: You may now disconnect.