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spk_0: the day and welcome to the east west bank or third quarter twenty twenty earnings call operative the pencil be and and only mode did you need assistance please ignore conference specialist by prepping the start he followed by zero after today presentation there will be an opportunity to ask questions you ask a question you may prefer dark than one on your touched home phone the withdraw your question please prep carbon to note this event is being recorded i've malik to turn the corner of every to juliana bleaker please go ahead
spk_1: thank you sarah good morning and thank you everyone for joining us to review the financial results of if to us bancorp for the third quarter of twenty twenty with me on a conference call today are dominic ng or chairman and chief executive officer and irene oh or chief financial officer we would like to cost a new that during the course of the call management may make projections and other forward looking statements regarding events or future financial performance of the company within the meaning of the safe harbor provisions of the private securities litigation reform act of ninety ninety five the forward looking statements made differ materially from the actual results due to a number of risks and uncertainties for a more detailed description of risk factors that could affect the companies operating results please refer to are filing for the securities and exchange commission including our annual report on form ten k for the year and a december thirty first two thousand and nineteen in addition some of the numbers reference on this call pertain to adjust the numbers please refer to our third quarter earnings really through the reconciliation of captain on gap financial measures during the course of this call we will be referencing a flight deck that is available as part of the webcast and on the investor relations site as a reminder to they call it being record did i will also be available and replay format on our investor relations website i will now turn to call over to dominic
spk_2: thank you juliana good morning
spk_3: a thank you everyone for joining us while third quarter two thousand and twenty earnings call i would begin with a review of our financial condition and result on flight three of this presentation this morning we recorded were reported third quarter two thousand and twenty net income of one hundred sixty million or a dollar twelve temperature of sixty one percent from second call the net income of ninety nine million both them nice and pusher third call return over average at that was one point two six percent return on average what he was top of vodka and return on average tangible equity was thirteen point nine percent
spk_4: oh profitability rebound from the trump
spk_5: off the second call
spk_3: of provision for credit losses declined deposit groped his quarters very healthy would especially strong role in non interest bearing demand recount which grew twenty eight percent annualized quarter over quarter based on pure it and balances and twenty two percent analyzed data on average balances
spk_6: as of september thirty
spk_3: we reached a record forty one point seven billion in deposits including a record fourteen point nine billion in demand deposit accounts we generate a positive long globe awful in the third quarter reaching a record thirty seven point four billion in long as i of number thirty two thousand and twenty despite a challenging backdrop of slow economic activity due to the call that nineteen condemning the biggest driver for the quarter over quarter increases in net income was a reduction in the probation for credit losses which was ten million in the third quarter compared to one hundred and two million in the second one in the first half of the you we recorded one hundred pm the six million in provision for credit losses compared to not charge out of twenty million substantially building are we level based on and improved macro economic outlook we modestly decrease out loud full i'm often as of them but good overall product continues to be very manageable as demonstrated by know charge of at and your life twenty six the basis for of aboriginal also in the third quarter we earn two hundred and nineteen million of pretax precondition income on total revenue of three hundred seventy formally a preacher population profitability racial what one point seven four percent the steep decline in interest rate does you have impacted out of and however at the damn what reprising about early access to benchmark rape if module complete and we continue to reduce the costs upon as maturing cds replies lower we anticipate that are pre tax preparation income and profitability will stabilize going forward importantly how efficiency remain industry leading and if the key durable to maintaining above average pretax recognition probability and see they showed in the third quarter what forty one point three percent moving to fly for for some really view of how boundary
spk_4: a balance sheet is wrong
spk_3: would have high levels of liquidity and capital and as of september thirty two thousand and twenty we cross over than fifty billion in assets mouth him and into quarters as of people on the this translates to an organic compound annual growth rate of ten percent over the past five years
spk_7: quarter over quarter
spk_3: total loss of thirty seven point four billion increased two hundred and eight million or two percent link quarter and you lived total department of forty one point seven billion increase one billion or ten percent and arrived i'll deposit growth combination of on boarding new client expanding existing relationship and our client maintain a high levels of the couldn't would believe the momentum of gone to the can be sustained posts and condemning it due to our departed globe the quoted a loan to deposit ratio as of september thought he was eighty nine point eight percent compared to ninety one point five percent effort to ensued not turning to my ipod you can see that each was capital ratios of strong and gone and are some of the highest amount legion regional bank particularly for common and to one agree a book value and tangible equity pusher with both up three percent from the park quarter and tangible equity to tangible assets they should be increased to nine point three percent you can see from the chart the or our capital ratios increased quarter over quarter this what board of directors of declare fourth quarter two thousand and twenty dividend for the company's common stock a common stock cash dividend of twenty seven point five cents is payable on nov sixteen twenty twenty the stockholders of record on november second twenty twenty moving onto a discussion about local poll beginning with fly
spk_2: the a long excluding ppp
spk_3: we're eleven point five billion airport september thirty or thirty one percent of total
spk_8: total the and i commitments exclude and ppp work with
spk_3: clinton three billion as of september thirty a quarter over quarter increase of five percent annualized
spk_9: month over month growth of loans outstanding
spk_3: turn positive in september reversing a trend of negative montenegro since march oh overall the an i long south any exclude him pdp decreased by hundred and forty four million between june thirty and september to a decrease of fight with and lived compared to a decrease of twenty nine percent and one in the second quarter
spk_4: moving to fly seven
spk_3: at the september thirty total commercial good at three polio was fourteen point seven billion or thirty nine percent of total long total commercial with a law school one hundred seventy one million or five percent annualized on june thirty the polio is well balanced a club the mother nature property type of be town multifamily off with industrial and hotel or exposure to construction and landlord remain low at one point five percent of total
spk_10: you can see on flight eight
spk_3: that the way to average long to that you about total commercial real estate portfolio is the one percent with an average long size of only two point for me nearly ninety percent of our commercial with stay long have an l p the of sixty five percent law in the chart on the right you can see that a weighted average long to values about lungs buy property type range from forty nine percent to fifty three percent
spk_8: on fly nine and ten
spk_3: we provide additional details regarding our single family residential all
spk_11: and home equity line
spk_4: combined residential mortgage and other consumer of make up twenty five percent of our total lot as of september thirty a single family residential portfolio work seven point eight billion
spk_3: up five hundred twenty six million or them and percent annualized from june thirty in the third call it the originator seven hundred fifty eight million of better than show mortgage one can sit than what the paid from the first half of two thousand and twenty and up by nineteen percent year over year from the third quarter of last year we expect a coma paid of regulation multiple court the average alongside in our residential mortgage for holders only three hundred eighty six thousand and a way to average long too bad you have fifty three percent
spk_4: again
spk_3: ninety percent of our residential mortgage long have an lg long to value of sixty percent or less
spk_4: on to slide ten
spk_3: come on thirty we had one point five billion of having equity line outstanding plot antoine six billion in and dispersed commitments
spk_12: translating into a july station paid off lead to some have changed from now
spk_3: and equity line of that list
spk_8: fifty two million quarter over quarter or fourteen percent as lived
spk_13: and total commitment increased
spk_4: one percent annualized
spk_14: the average size of our home equity commitment is three hundred sixty seven thousand and have weighted average combine our tv is only
spk_4: forty eight percent
spk_3: ninety seven percent of our home equity women have an lgbt loan to value of under sixty percent
spk_15: oh now trying to call over to iraq for a more detailed discussion of our acted quality at the become thank you dominate after a disgusting love uncovered nineteen related to fall on flight eleven as of october twentieth loans time full payment of are all or one point nine percent of total loans i'm not i'm partial payment or all and my were modifications a principal and interest payment to interest only loan down the barrel total of three point four percent overall fifty five percent of commercial loans on the fall are still making partial payment colorado quarter blown time cold nineteen related to for all decrease close to fifty percent between june thirtieth and september thirtieth and decrease a further twenty percent bump today in october the largest improvement was in residential mortgage deferrals which to paste by seventy nine percent since june thirtieth reflecting the resiliency of east west customer base daimler to the second quarter the pearl wait on he and i loans continued to be very low commercial real estate loans on the for all have also decreased down to six point six percent as of october twentieth comprised of three point eight percent on partial payment and two point eight percent on full payment the all largely reflecting the longer covered nineteen impact on cash flows for certain property turning to fly twelve per view of our allowance for loan losses and flight thirteen per view of our other alpha call the metric our last a loan losses was six hundred and eighteen million as of september thirtieth or one point six five percent of loan help or investment monetarily down from two hundred thirty two million or one point seven percent of loans as of june thirtieth since january first post season our allow an increased one hundred and thirty five million and the covered racial increased by twenty six basis points from one thirty nine the current macro economic forecasts has improved projecting less severe economic conditions compared to june thirtieth this in turn decreased expected lipid losses for the loan portfolio the poor posture of and reduction to the allow and with partially offset by increased qualitative reserved for oil and gas and commercial real estate loans
spk_16: the allowed cupboard of our oil and gas poor foil with ten percent as up september thirtieth
spk_15: for nine percent as of june thirtieth
spk_17: that targets for the second quarter or just under twenty five million and then that charge of ratio was twenty six basis points of average alone analyzed charge up in the third quarter were primarily from oil and gatland which accounted for twenty two million or ninety one percent of that charge up while charges from other loan car
spk_15: as remain a lot of reflecting these drivers on assumption we recorded a ten million provision for credit losses during the third quarter of twenty twenty compared to one hundred and two million and the second quarter turning the flight they're keen on that page we detail out the component of criticized asset
spk_18: quicker five loans were three point nine percent of total amount of up september thirtieth totaling one point five billion the largest concentration within criticized flown by the industry or property type remained oil and gas other criticize the and i loans or dipper supplied by industry and the criticize commercial real estate loans
spk_15: or like wife largely diverse abide by problem type special mention loans were a one point nine percent of total of september thirtieth and the amount of seven hundred twenty three million up from one point five percent of total long as the june thirtieth an increase of twenty six percent the quarter of a quarter increase in special to loan with largely due to implode from commercial real estate
spk_18: but other september thirtieth ten point five percent of oil gas loan two point eight percent of all of a few nylon and two point one percent of commercial real estate loans were granted special mention
spk_19: plot loans were two percent of total load of up september thirtieth in the amount of seven hundred fifty eight million compared to one point eight percent as of june thirtieth an increase of eleven percent the quarter of a quarter increase and classified loan was largely driven by downgrade the oil and gas long ball about younger
spk_15: eight of all other see and i love as of september thirtieth twenty three point five percent of oil and gas loan two percent of all other see and i and one point six percent of commercial real estate loans for classified
spk_20: nonperforming out there were fifty two bases point of total alpha as of september thirtieth and the amount of two hundred and sixty million compared to forty one basis point as of june thirtieth an increase of twenty nine percent the quarter over quarter increase and nonperforming acid with primarily due to net implode a previously qualified all and
spk_15: off loan to non across data lastly a cooling loan thirty two eighty nine days past do were eighty five million or twenty three bases point of total load as of september thirtieth a quarter of a quarter improvement of twenty five percent from one hundred and thirteen million or thirty betas point of total long as of june thirtieth as you can pee in our credit quality metric atlanta ball and gas at the quality of when a cloth are other loan portfolio in terms of oil and gas i'd like to know that can you to reduce or exposures to pay down work out and heart of oil and gas loan upstanding are down a person quarter of a quarter and down twelve percent here today including i'm just burst commitment total oil and gas commitment or down eight percent quarterback quarter and down seventeen percent year to date and terms of hedges and place for an mp borrowers fifty two percent of their planned twenty twenty one oil production of head and fifty nine percent of their plan twenty twenty one gas production of hatched and now moving to a discussion of our income statement on page forty the slide summarizes the key line item of the income statement which i will discuss in more detail on the phone flight amortization of tax credit other investment was twelve million in the third quarter compared to twenty five million in the second quarter to quarter of a quarter change reflect time of tax credit development and we expect this number to be approximately twenty million in the fourth quarter be effective tax rate for the third quarter with ninety percent of them twelve percent of the second quarter twenty twenty two of a quarter increase in the tax rate reflect the increase in pre tax income third quarter income before taxes with one hundred and ninety six million seventy five percent increase from one hundred and twelve noon in the second quarter as we increase our estimate for the for your effective
spk_21: tax rate to fifteen percent the nineteen percent effective tax rate for the dog quoted include the true up to the higher for your effective tax rate the effective tax rate of the fourth quarter should be close the for your effective tax rate of fifteen percent
spk_15: on our view the key drivers of our net interest income and editors margin on flights fifteenth routine starting with average brown should grow third quarter average bell third quarter average alone of thirty seven point two billion grew quarter over quarter growth and commercial real estate residential mortgage and ppp loan without that by decrease in for your nylon good quarter average deposit of forty one point two billion thirteen percent live quarter in a large governed by strong growth and demand and checking account authored by a reduction in high cost time deposit average noninterest burn deposit account good twenty two percent men korean life and made up
spk_22: thirty five percent of total deposits in the third quarter of from forty four percent in the second quarter and twenty nine percent and a year ago quarter
spk_15: with a strong the pocket growth in excess of longer the average loan to deposit ratio decrease to ninety percent in the third quarter down from ninety three percent in the second quarter excluding ppp alone or we match funded seventy five percent with the ppp older the average loan to deposit ratio was eighty six percent in the third quarter accordingly average interest bearing half of the parted with being increased by one point five billion in the third quarter a made up ten percent of average earning acted upon a person and the second quarter this growth a lower yielding out that while the had one to the net interest margin this quarter we continued the poor excess liquidity he and to available for sale security but given the low interest rate and the flat curve attractive opportunities are limited if in the current environment we are comfortable and managing the balance sheet with a higher level of quality i recognize that when loan to help accelerate as it is starting to the had one on the net interest margin or largely self care
spk_20: upon flight sixteen you can see that third quarter twenty twenty net interest income of three hundred twenty four million decreased by twenty million or six percent when quarter and and at interest margin of to somebody to compress by thirty two bases point from the prior quarter however exploding be a
spk_15: impact of ppp long and the ppp i love good quarter adjusted net interest income of three hundred eighteen million declined by two percent or five million quarter over quarter exhibiting relative stability third quarter adjusted that interest margin of to seventy seven compressed by dumping basis
spk_23: point from second quarter
spk_21: ppp loan interest and different be income was six point five million in the third quarter down i'm twenty one million in the second quarter to quarter over quarter fluctuation is due to changes we made to our estimate for expected from getting with of ppp loans by bf beer resulting and redo
spk_1: the deferred be
spk_15: accretion for the third quarter to quarter of a quarter change and added to margin breaks down as follows negative fourteen basis points from lower loan you negative six basis points from lower other earning athletes real negative tollbooth points from excess liquidity with higher balances of interest bearing cash and deposit would bang as well as a negative thirteen basis point of impact negative impact from love ppp income partially offset by topic is point from a lower cost of the pop up on one basis point from a lower cost of borrowing had one from them have been departed growth in excess alone girl a lack of attractive redeployment yields for excess liquidity but we see several tell when that should improve in them and a net interest income going forward for the fourth quarter twenty twenty we anticipate that are gap that interesting income will grow by three to five percent and that are gap that entries margin or range from to seventy five to two eighty five including ppp income the drivers for our net interest income and them outlook are as follows birth continued reduction and part of costs from the repricing the maturing cd we have one point four billion in cds and a weighted average interest rate of one forty five maturing in the fourth quarter and another one point three billion and a weighted average interest rate of one twenty six and que one of twenty twenty one second partial repayment of the ppl up ahead of ppp loan forgiveness for our customers a process that we have already begun month to date in october will be paid five hundred twenty four million author weeks up to nice fifteen million of ppp loan deferred be an interesting come in the fourth quarter and the thirdly journal stability for low kneeled down to replacing a variable rate loan have largely run its course
spk_1: now holding the flight seventeen don't quarter angelo neil have three six year contract by for a basis points from last quarter we're putting down or pricing a variable rate loan to benchmark interest rate of well as the reduce the income accreted on ppp long
spk_15: uploading the impact of ppp the third quarter adjust the lonely old of three seventy contract about twenty basis point quarter over quarter and the second quarter the whole of a quarter contraction and the average lonely old exploding the impact of ppp was eighty one basis point that tree five percent of eighth was loan portfolio is variable rate and by now these loaned have largely replaced nearly ninety percent of variable rate loan we have are linked to benchmark interest rate with the duration of bring a month or less and the up a like quadrant we've laid out a new chart showing our average lonely old by portfolio as you can see a single family residential niche product is the lease with sensitive portfolio and continues to carry attractive yield to organically reduce of sensitivity we have been going tax rate loan notably and for go family year over year fixed rate loans excluding p p p increased by thirty percent twenty per flight eighteen against the backdrop of materially lower interest rate declined and earning as yield have been partially offset by decreases in the cost of been or average cost of the pop ups for the third quarter dropped to thirty three base with one down from forty seven basis points in the second quarter an m p
spk_18: movement of fourteen basis points the spot rate of total deposits as of september thirtieth was twenty nine basis points
spk_15: otto porter average cost of in his brain deposits dropped to fifty basis point down from seventy one basis point in the second quarter an improvement of nineteen basis point the thought rate of interest burn deposit as of september thirtieth with forty six basis point and the lower left quadrant we present our third quarter twenty twenty costs a deposit by deposit category compared to the cost of deposits in the third quarter of two thousand and fifteen which was the laughable quarter under a zero interest rate policy before the fed raised rates in december twenty fifth team at that time the average cost deposit with twenty basis point and the average cost of interest from deposits with forty basis point we included the start and the deck as we believe it provides additional context of the repricing lover within our coffee deposit you can clearly see that are cd book has not fully the price down to his toward europe level we expect to continue to reduce our average cost the city
spk_24: return cds over the next six months we parked lower bringing the total cost a deposit down further the rape paid on origination or renewal
spk_15: of domestic cds and the third quarter twenty twenty with forty three bases point and the retention rate of branch cds has been an excellent ninety two percent quoted a date rape paid on our city origination to renewal have a lower than in the third quarter also as of yesterday the spot wrote or or common interest bearing deposit is down to forty two bases point of a total cost a deposit down twenty seven basis point
spk_21: wouldn't want to be come on flight not in total non interest come into third quarter with fifty million compared to fifty nine million in the second quarter the income and that games on sale of loan with forty eight million in the third quarter down by four million eight percent quarter over quarter landing be of nineteen million decrease by three
spk_15: logan modern reflecting valuation changes for warns received at part of lending relationship don't cormier lending be included four million from an increase in the valuation of work in comparison second quarter included eight million from an increase in the valuation of warmth
spk_25: included in landing page or customer driven letter of credit be which increased quarter of a quarter and parallel with increase color drummer activity
spk_15: reflecting an increase in the number of customer pound of them are driven transactions deposit account beef and walkman will be increased quarter over quarter they want to strange be decrease quarter over quarter due to downward revaluation of of denominated boucher died and partially offset by an increase in customer driven transaction moving on to fly twenty fourth quarter non interest expense or the one hundred and eight million a decrease of eleven percent limped quarter
spk_18: amortization of tax credits another embezzlement and poor deposit tangible amortization adjusted not entered the been with one hundred and fifty four million and a third quarter and then create the only one percent quarter over quarter and a decrease of three percent year over year
spk_15: i would often note that excluding the impact of ppp your loan origination caught the boredom and second quarter third quarter compensation expensive one hundred million decrease war percent quarter over quarter bra hundred and four million in the second quarter and the second quarter doesn't know yet of compensation expenses associated with ppp loan originations what's different the quarter over quarter increase and computer software expense of luck amortization of previously capitalized investments spend
spk_26: or third quarter adjusted efficiency ratio with forty one point three percent over the past five quarters or efficiency ratio has ranged from thirty seven four seven percent to forty one point three percent of an organization we remain committed to controlling expensive across the board in order to support our strong paul
spk_3: but ability with that i will now the call back to dominic quoting a mark
spk_27: thank you i agree more infirmary
spk_3: that interest margin is stabilizing
spk_28: oh and broke with popular
spk_4: remain disappointed about efficiency
spk_3: and credit remain manageable river activity for our customers picking up and we're looking forward to helping them rebuilt and expand into the future your i would like to thank all about okay for the dedication
spk_0: during these and president time and wish everyone continue good health i would not open up to call to question operator thank you we will now begin the question and answer session to ask a question you may prefer than one on your touch tone phone if you're using a speakerphone please pick up your him up before crossing the withdraw your question please press dar than to
spk_29: please limit yourself to one question and one fault look at the time we will pause momentarily to assemble our roster
spk_30: as birth question comes from abraham going along with
spk_31: bank of america we go ahead demonic the more you but on one
spk_32: it is a to start with the credit bill
spk_33: don't make the look at the provisioning level i think assuming that the macro doesn't deteriorate from your just walk was and don't feel comfortable on the portfolio oh will one like what what do you expect with the rest of the footage that are still outstanding of the get to at the end of the or what percentage of don't do you expect go
spk_34: going to non accrual were to go back to pay and what have you learned about the portfolio and the last six months to to of give us comfort that you're not going to have negative credit surprises and twenty twenty one
spk_3: well we've been the actually oh looking at our credit portfolio you know sector by sector and in that within the he and i also in commercial would have the you know and the and i with all the different industry vertical each each vertical got review long by along fiore you know would break it down by you know what the hotel office building multifamily and and region by region and now obviously a single family mortgages how do you have any problem and has always been for for many years so would done out of that kind of the do have we as of today to put a good about where we are today with thing i reserve
spk_28: it's definitely adequate you know and in terms of our this writing you know classification and so forth you know and we view that we are very much current in terms of the classification from the a different point of view is as you can see ab
spk_3: from june thirty two september thirty and ottaway even we show that the differ as of two days ago
spk_31: it continued you search oh great progress and we at this point do not see a lot of
spk_35: i'm concerned about surprises
spk_3: but it ended condemned of capitalizing don't make you mentioned the on c d one even intangible equity you have one of the stronger capital levels you are converted coming into the cycle not buying backs dog just stopped was in terms of how you think about capital allocation maybe not the next couple of months but and we look into the first half of next year and the or or a i guess so desire to buy back stock on if it's the raiders now we have
spk_32: board meetings every two two months of two and half months or so so this is always like i would say the a standing a gendered so we update you know that information financial condition and balance sheet also the main needed
spk_3: economic outlook would the board members and them with those information we a deliberate and that we have discussion of whether we should take any any kind of action so i do state right now i would say that
spk_0: the this the you know and with you end that condemning environment we are not going to be looking into buying thought
spk_36: on the other hand you know comes two thousand and twenty one things can change dramatically in terms of economic outlook and then we will do whatever right accordingly in the base on the circumstances at that point my next question comes from can there be at morgan stanley things go ahead i agree back on i guess maybe just looking for a little more detail on the to n p a increase and i said mr my oil and gas i guess you know the concerned that we would ours is does the hill
spk_15: does a continue right me out to see some size will provide is running off
spk_18: they bed been a to worry the doesn't continue and flash do you have to go reserves for
spk_37: it is their portfolio as it did hear it
spk_15: that can that's a great question on i when we look at the increase in a nautical loan and also charge off relay over the course of last year
spk_38: in a beyond that railway you know a lot of that have come from the oil and gas portfolio and we have also increase the reserved you know let's say quarter over quarter nine percent to temper said so when i look at it from the perspective of where the last contact is i do think it's still in our portfolio and oil and gas i would
spk_39: say though when on
spk_40: the loans were previously classified they are identified and one thing that is positive is that we're not seeing on goal and kind of downward can cheer race and class by now
spk_3: yeah i would rate you can image of maybe add on to what irene to share is that would there be a likelihood of and a meme more potential charge of losses from the oil and gas portfolio definitely character probability that difference is that we feel very confident i guess we only have so many long and often get before you and it during going down and they're just how many long in there and we have looked at every one of them and we can can you to classify them into a and the right bucket
spk_2: and the macro economic condition as of today
spk_3: it's actually more positive than a few months ago we all recall you know back in late march and early april the of crude oil prices had denote just drop to a level that is ah unheard of bad it's been pretty much stabilize at that forty dollars you know per barrel and then that the gas price actually have gone up quite nicely
spk_41: so and then keep in mind also that our portfolio has irene share rodeo i'm in substantial percentage of these loans
spk_39: a proper hedged even going into two thousand and twenty one
spk_42: so it's not like you know these are the long said on a daily basis they all got one by one going into trouble i think what we experience in terms of the charge of awesome someone lama to have to peers in that industry
spk_3: and everyone get
spk_36: the like from the i guess you know business so from our perspective is that this is a portfolio that is getting smaller and smaller and we have substantial reserve provide for it and we feel confident that we can manage that and in addition to it you know we have play any of profit and income to offset against these losses and still come up with a decent return of equity and return to that
spk_38: yeah in in the long term plan just keep running it off because i i guess it's it's just hard for us to see how the pelvis
spk_39: they were generates positive risk it just returns given every few years at their own feel like a problem and losses spike
spk_3: about tiger positive researchers to returns over like more a year period we are we are managing me down there and then we thought of managing a down in or last year and and we country dimension downtown but you know our the environment keep changing who knows what what's gonna happen you know bomb mom that the men around to go on united states or even a technet lot of technological advancement that change the dynamic that we have no ability to project
spk_0: i mean as a bank with we basically facilitate you know financing
spk_43: well worth a very narrow focus of risk management if we feel that this is gonna be an industry to know going forward you know that we can manage to risk very effectively there's no reason why we're not into the segment i think is all get back down to we will be always very prudent to watch
spk_44: what's going on in the future and do the right thing accordingly
spk_45: or next question comes from jared show with wells fargo please go ahead
spk_46: i get morning
spk_45: the morning yard yeah looking at at the expense in the efficiently side do you think given the the the broader low rate environment we can get back to a sub forty percent efficiency ratio
spk_47: or or that really depend on you
spk_15: thing so much some broader recruitment array the can do on the extent side to help the killer that
spk_48: yeah journal picked up call question you know i think
spk_49: the largest variable food that would be on the revenue side you know as we talked about earlier and are prepared remarks we do feel strongly fourth quarter and beyond that that revenue that interest margin and i will increase i did we have a long history of proven ability to control expensive than that something that we feel confident in
spk_50: the piper that and florida will be able to continue to do so while still making the appropriate investment that we need to do support are going to have us
spk_45: okay
spk_51: the
spk_8: to than shipping a you will get to the to the theory properly on the grocery you saw
spk_3: this quarter
spk_40: you're just how much about was refine ill against somebody elses loan and what gives you your how are you in comfort putting on new theory product now and is is that translating into your better terms and conditions and pricing oregon maybe maybe your thoughts around
spk_52: were you doing number of years so
spk_40: i'm in terms of would feel you long so we originated you know that most of the and the almost all of them are will customers that we've been doing business for a long time
spk_3: and these so customers have very strong financial of and balance sheet and that we feel comfortable and then obviously these are the properties that are less impacted negatively by the pandemic and that's what we are you know originated these new long some of them are not have we find some of them all just are also ticking share some other thanks and so the pricing is getting better than slightly better than
spk_8: and was i we say six nine months ago know obviously theology pricing extremely competitive last you have no longer a competitive so we will be i would say that originating see how long we decided better pricing go forward
spk_41: or in terms of volume of see are you long i would think that in two thousand and twenty one and how would probably may not have a nice have a robust growth of theology origination like we did in two thousand and nineteen so you would expect that two thousand and twenty one the growth rate will be
spk_53: templar someone because of the out
spk_0: the lack of you know great quality an asset
spk_54: to be financed but we will or computer look and on and on and added to that use was is not a a giant institutions it's not that difficult for us to keep looking and finding gems
spk_55: i'll hide around the bushes and and just make up enough to of show positive growth rate oh next question comes from christmas karate with to w please go ahead great lakes the question
spk_15: i'm going out what everyone's favorite carbon taxes given given the the market expectation that there could be a tax rate increase their sheer
spk_54: and you walk us through the potential sensitivity
spk_49: of attacks at all for the amortization line given that you guys been on a more proactive imagine your era your taxes over the years
spk_55: credit though when we look at the changes that might happen from a corporate tax rate or twenty one percent to twenty seven of that at this point in time although you know the a lot of moving parts we think if that happened the impact of be about four percent on the rest the that what the amateur they should
spk_56: and you know that once we have this call in january to talk about what are we can give you a little bit more details on that one but that if that happens i'll add up to the point in time we have about twenty million a dj that would reverse as well
spk_55: got it and then if images that it's quotas for modeling options
spk_57: good for the for the fourth quarter amortization of of twenty million
spk_0: that will bring it to around seventy five for the year
spk_58: the goal that about that
spk_59: right map for next year the project pack for it and seventy drivers are unable to vision that will talk about that a january
spk_60: got it our next question comes from day protector with come with point please go ahead
spk_15: there you want to go
spk_61: good morning on on quote you talked about the reserve release a bit was just wondering if you could maybe just a all that more detail on your comfort level reducing that reserve on your theory book at this point
spk_18: with are still uncertainty in the economy and yeah how the remaining difference in that book are going to pan out
spk_15: in this corner we saw other banks building that you know reserve in that particular buckets was just wondering what your thoughts were we are for this quarter and then if you could talk about you know how much with stimulus that you have begun to your outlook at this point though be great
spk_60: i'm okay so if we look at kind of the breakdown of our allow and you know the amount of reserve that we have set aside for are real estate loan is just over two hundred million so on and can produce
spk_15: thing real estate
spk_62: and also multifamily so they are ultimately i would say right now the for all what we're seeing and a poor for or customers were very comfortable with that allow and level depending on what happens happens word before past you know will look and see that as far as is a level appropriate
spk_63: for our allowance calculation we rely on moody's and economic forecast their to kind of taylor to our portfolio we do you a more pie scenario
spk_18: approach baseline f one and as three because the as three is a more severe adverse scenario overall i'll share that the reserve the the quantitative reserved that we set aside if higher than the bay life
spk_0: again and how much stimulus is baked into your overall out look at this point where do you guys are for government additional government stimulus
spk_49: yeah so in and i think i'll just break it down with the scenario the baseline data assume one point five
spk_64: a trillion ah
spk_15: i the after we assume done well and i mentioned yell the overall quantitative reserve that we had a higher than the baseline
spk_64: or next question comes from gary center with be a date them with your head
spk_65: morning
spk_64: i want to cautious she's been answered but of curious on your comments on preparing the ppp i you said hundred twenty four million month month to date in terms of the liquid showed how much of that you'd like to exit by urine also and ah we are paid off the four hundred and that people you know you had your will evaluate and see as far as occasionally four hundred twenty three million will evaluate and see if will pay off more i did more than the of five twenty three is expected
spk_15: depending on how much and the timing of that will look and feel as far as the a liquidity that we have our and then also you know the pace of the forgiveness of the ppp loans which has started for us
spk_18: okay and i'm just in terms of overall balance sheet or you talked about kind of your whole be some the liquidity you have
spk_0: proving
spk_66: you have any at and also contribute your eurodeposit you propose pandemic at a good pace i'm just wondering what your thoughts are for
spk_67: your expectations over over a liquidity flows given the amount of
spk_36: you access on the system or no
spk_68: yeah i may i dig up the great question especially in this quarter what we've done especially as you know the part of low have continued i think we've gone a little bit more comfortable reinvesting some of that into security and also with our security book are at our airport security's book we have extended out the duration a little bit so
spk_69: if you look at the month of september not quoted a date and the average yield and a portfolio it is up a little bit closer to percent if you look at duration not six thirty were about to to fix and were at about three eight out of nine thirty
spk_15: or next question comes through and matthew clark with hyper sandler please go ahead
spk_21: very good morning
spk_70: tom
spk_36: maybe first on on special the increase in special mention it again
spk_67: touched on the fact that the commercial real estate migrated a little bit can you post much as some specific examples of what
spk_3: migrated this quarter
spk_36: yeah i'm actually a when we look at kind of the migration into special mention during the over there now are it was you know really pathetic them throughout the poor pile or share
spk_15: regardless of whether a customer is on the pharrell you know we're making sure that the grading is appropriate if necessarily we are down and in cleveland so some of the launch we downgraded were alone that were on the for all but across the board i would say in different kind of after class of offers more like they are only and also retail okay and then just on the deferrals in iraq
spk_0: energy has been
spk_36: fairly muted today can you give us a sense for out
spk_71: why that is and we know what your customers or
spk_38: been at this point where the not that might increase in the future
spk_3: it doesn't look what that at that point in time you know i think we shared about this last quarter as well you know we did initially as an accommodation for our customers help them with a one month recorded skipper pay certainly i think that helped us kind of reach out and how those conversations with our customers on the sea and i front are you know i think the require and kind of conversations that we've had the request or deparle that the conversation we've had with our customers around our cash flow and has generally been relatively positive
spk_72: or next question comes from david to bring the wedbush securities will go ahead
spk_73: i think for a couple questions first one on loan growth you hit on a couple of the categories already about theory expecting lower growth next year version for she's this year and single family residential image what about you not similar trend going forward but and fear know if we
spk_4: we you know exclude ppp what type of ruth are you expecting in that category well for two thousand and twenty one what we do plan to provide guidance
spk_39: at the vic's earnings release i mean it at this point it will be too early for us know right in the midst of do so
spk_3: upcoming presidential election with you know that on mystery about one the vaccine will be available on of sort of thing for the happening right now i just feel that a will be much better for us to have the
spk_34: don't around
spk_8: growth guidance to provide to you
spk_3: january and but the mean how i can sure as of today is that oh in the second quarter april may and june
spk_74: we've been a lot of time focusing on you know ppp
spk_3: skip the payment deferral we took a lot of time number one thing is to focus on keeping our employees and greg health
spk_75: and thank goodness as of today you know would do we do not have one employee true went to a hospital for call ninety it
spk_76: and so all of us i'm very good oh we were going to continue to stay vigilant to keep everyone good health so that would come together customers have enough number one thing that we focusing on
spk_3: and then ppp kepler's very busy
spk_77: and while we doing ppp we also looking into potential deferral and so forth you know some customer just get confused they don't really need a didn't need a deferral the just thought they have to get ready for also a lot of conversation going up them
spk_8: so not until sometime in the third quarter
spk_75: one these kind of issues or subtle you know of one line relationship manager and branch managers start i mean really reaching now and then looking for new business the good news is that as we highlighted in now
spk_78: i've talked earlier that
spk_34: and a lot of part of september we start booty booking some nice the and i loans
spk_3: and now we've got to go and and i and actually many of these loans that will region native a brand new customers
spk_76: ah i think that to a certain degree we're fortunate by being active helping our customers and even
spk_74: non customers
spk_39: for ppp other type of matters
spk_3: that banking related cause some of these there are a good prospects to decided to move their banking relation to them
spk_40: thanks to each watched so we're picking up some new business so that positive
spk_3: the for three weeks of october will also continue to bring in new business how some other banks and that has been very very helpful for us and we hope this trend will continue
spk_71: now given the fact that we are still in the midst of pandemic they're not going to be a lot of commercial business that are audio resolutely you know putting capital investment oak grove on the other than the one that who happened to be in the business that depend demo help them you know for those who are in some of the traditional business the epidemic when i help them i think that utilize stations raid for their line of credit would probably
spk_3: continue to say a little bit lower so we do expect of many of the existing customers going to have a strong push to draw down the line dramatically higher to cause a substantial growth there but we are getting new customers that supplement to grow so all in all i think at this point wifi you that fourth quarter looking more positive from a fee and i thought and by the way it's not just coming from one particular industry or one particular geographic region is pretty much across the board for use west bank
spk_79: have several industry cold or even our entertainment business
spk_53: a growing i back on digital media business or cool coming back strong and so are clean energy you know the project finance you know
spk_8: those type of business are all coming back stronger than before so we hope this trend will continue and and two thousand and twenty one are but for the detail of providing some sort of a forecast for
spk_3: growth on the landings i put it to the fourth quarter two thousand twenty one january two thousand one
spk_80: yep that helpful thanks for that and then shifting gears to fee income you mention about how you know customer transaction activity you know increased in the third quarter curious as to what the outlook is for the fourth quarter of their customer transaction activity you know that momentum continued into the fourth quarter
spk_3: are we should expect yell either stabilization or rebound just curious as to to your thoughts there
spk_40: yeah as you can see the fee income thought you know for custom of related
spk_3: the of related banking transactions type of feeding come have all have picked up so
spk_81: if you look at for example like deposit account the
spk_3: i have a lot to do would reduce new banking relationship that i talked about it and some of the existing customers you know expanding the relationship with this that combination of to without in as generating be even stronger cash management fee income i'll keep in mind though we talked about for the last few years about investing in the internal infrastructure
spk_39: and product enhancement
spk_3: the technology improve all of those cost that we put in are generating you know tangible results are we built a cash management system
spk_0: det kan
spk_82: not only just accommodate but actually offer great services too many of the more sophisticated larger size business who now can just comfortably moved a banking relationship from large banks to east west bank because we have the capability to handle dat cash management neat so that result in more fee income for us and large dip bd a account deposit and we see that trend as very positive that we're able to do all of that
spk_36: but while a lot of us are still working at home under the programming still what we're looking forward to is to continue to keep pushing an arm
spk_3: both walking with existing customer expanding and deepening the banking relationship and also getting new customers from the outside so i looked at from the cash management wealth management
spk_83: an even trade finance you know we have a nine percent pick up in terms of business so on all i looked at is that we just
spk_40: gonna continue to focusing on making sure that we take good care of clients and and hopefully we'll get more new business
spk_3: through this a referral from a good clients and so flawed and i'm one step at a time and then getting more meaningful coffee income coming to the bank in two thousand and twenty one
spk_84: or next question comes from rock bullet vander bleed with you'd be at please go ahead
spk_3: damage you've you've talked a lot the past about the
spk_85: political environment or least up in the past bad it's obviously been pretty fraught between the us and china
spk_3: if we look at potentially a by when
spk_86: how do you think this could potentially change your your business
spk_39: we're always sort of like on an organization that very nimble in terms of
spk_3: ah adjusting
spk_87: comfortably with whatever the political environment that is out there
spk_40: do recall know for years ago you know
spk_3: all the us government policy has been very very much
spk_34: wanna to
spk_3: bring in investments from china and also of investing
spk_88: ah in china and fulfil
spk_39: and now for the last couple of years know due to presidential election election and and a political rhetoric had turn hostile and that have changed the dynamic dramatically
spk_89: and we looked at you know even with the tray war in place for the last few years with the tarot as you have seen so far you know we have such a big trade finance before you import export business and then also with greater china
spk_40: exposure
spk_32: but at the end of the day we hardly have any losses
spk_3: now the business slow down a bit because we're being more cautious you know temporarily and then also of course because of the pandemic you know actually china's shut down for a few months and so odd that had a fat you know to growth aspect but in terms of them the with aspect we manage durga well and have almost no losses go with that in mind i would say that looking forward you know
spk_39: joe biden had made it very clear about his foreign policy
spk_34: our which is
spk_90: to get back instead of american go long
spk_91: and against the world
spk_92: and americans going to work with allies and gonna take leadership back into you know united nation
spk_93: w h o w t o in cetera and us in the get back into the front seat
spk_2: and i am hundred percent sure when us wanted to get back in into refund feet and engagement with the allies
spk_3: and china will be more and delighted to step back to stick a second or third a horse the
spk_94: and to collaborate with united for climate change and all the other activities
spk_34: dad all the nations around the world need to work together
spk_95: so i would expect that if that happened
spk_3: there's no question
spk_4: wow what a sub
spk_39: republican party on democrat
spk_2: at the end the today
spk_3: us will compete with china economically
spk_96: and i think it's the right thing to do to commit to compete
spk_97: there's nothing wrong to compete
spk_39: but on the other hand i think that i have also shown confidence that they can be a lot more
spk_41: business
spk_3: exchange between us and china
spk_98: just reflect back to the last few months
spk_39: now why doesn't get a whole lot of news coverage
spk_3: the jp morgan citibank morgan stanley or increase the stake in the joint venture in china are taking majority ownership
spk_67: black rock
spk_3: you burger berman and a few others and the fund management business and getting new life insurance company getting new night license
spk_99: everyday american express getting new license
spk_4: costco opening more stores starbucks opened more stores in fact you as business never stopped
spk_3: never stopped
spk_92: you know expanding into china and the chinese government also have never stopped bringing them in and giving them even more
spk_3: the business opportunity than had ever been given before and just last week
spk_28: a senior minister in china are talking about addition know intellectual protection right for foreign direct investment in china
spk_39: so on a day to day basis
spk_100: put people like us that constantly watching what's happening between us and china and actually do you look at regulation instead of just mainstream media news we are seeing china and making a quest of effort to continue to open up the market
spk_3: letting foreign investors to take on the majority ownership of ownership and multiple different industries granting license that that never granted before and then changing the law
spk_40: intellectual property protection and also penalizing company geforce transfer of technology in socal on the things that we've been hearing
spk_73: many many times from
spk_101: the us trade representative like tyson do all of those things that we've been hearing the only thing that changes to it now they're not broadcasting on of the world
spk_102: but they are making to changes and these been it was it from us are from europe a directly benefiting from it so induce was procession is that well most of those are irrelevant to us to a certain degree because we're not going there to get some big
spk_103: big in that capital investments and and get a license was some type of new business
spk_3: opposition is that the cross border business still strong
spk_104: a china have emerged from the pandemic
spk_75: back to business as usual
spk_3: many of my colleagues in shanghai and sun jan
spk_105: the go out to movie theaters
spk_3: having dinner with their friends don't even have to wear a mask but i'm happy for them
spk_82: so they are doing business and we absolutely they are doing business also you look at hong kong
spk_106: hong kong to the stock exchange is going to overpass
spk_0: us in terms of i peel listening because companies are all going there lining up unicorn after unicorn lining up in hong kong or in shanghai stock exchange than plunge and stock exchange through these ip oh there can be a lot more into millionaires to billionaires
spk_3: and they all need to make investments they all need to have
spk_26: their personal wealth management and they are buying properties around the world us still
spk_0: one of the
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