Earnings Call: Q3 2014

Oct 21, 2014

Good morning, and welcome to the East West Bancorp 2014 third quarter 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 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Irene Oh, Executive Vice President and CFO. Please go ahead. Good morning, and thank you for joining us to review the financial results of East West Bancorp for the third quarter of 2014. Also participating this morning will be Dominic Ng, our Chairman and Chief Executive Officer, and Julia Gouw, our President and Chief Operating Officer. We would like to caution you that during the course of the call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties. For a more detailed description of factors that affect the company's operating results, please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2013. Today's call is also being recorded and will be available in replay format at eastwestbank.com. I'll now turn the call over to Dominic. Thank you, Irene. Good morning, and thank you all for joining us this morning for our earnings call. Yesterday afternoon, we were pleased to report our financial results for the third quarter of 2014. For the third quarter, net income was $88.8 million or $0.62 per diluted share. Compared to the same quarter a year ago, net income increased $15.6 million or 21%, and earnings per diluted share increased $0.09 or 17%. Quarter over quarter, we grew net income by $4.8 million or 6%, and earnings per diluted share by $0.04 or 7%. In line with our strong earnings for the quarter, we achieved strong profitability ratios as well. Return on assets was 1.25%, and return on equity was 12.8% for the quarter. In fact, the quarterly return on assets and return on equity ratios were an improvement from both the prior quarter and the prior year period. Our increased earnings and profitability were largely driven by the strength of our balance sheet and our robust growth in loans and core deposits. Overall, we are pleased with the results for this quarter. Total loans and total deposits are both at the highest levels ever in the history of the bank at $21.2 billion and $23.8 billion, respectively. Total loans receivables increased $4 billion or 23% from a year ago. Our outstanding loan growth is well diversified. We have achieved strong growth throughout the bank and in all loan categories. Our ongoing efforts to improve the quality of our deposits and our deposit mix continue to progress well, as demonstrated by the solid deposit growth we continue to achieve. Total deposits increased $3.5 billion year-over-year to a record of $23.8 billion as of September 30, 2014. Core deposits also reached record highs, totaling $17.7 billion as of September 30, 2014. The third quarter of 2014 marks the sixth consecutive quarter we have achieved net interest income growth despite the low interest rate environment. Over the last few years, we have proven that despite the challenging economic and interest rate environment, we can continue to profitably and prudently grow both our balance sheet and market share. Our success in winning new customers and growing our business and market share is a direct result of our unique position as the bridge between the East and the West. We continue to build talent, expertise, and infrastructure in serving our cross-border customers that are doing business in the U.S. and in Greater China. In Greater China, we are planning for the grand opening of our new branch in Shenzhen in November of this year. Given the vast size and business opportunities in the U.S. and Greater China cross-border market, as we continue to build our capabilities, improve our operational excellence, and to meet and exceed the needs of our customers, I am confident that we can capitalize on new growth opportunities and continue our success. With our acquisition of MetroCorp Bancshares earlier this year in January, and the full integration of people, processes, and systems, we have made good progress in building the team and talent. In fact, we have already made strong progress in deposit growth in Texas. Year-to-date, deposits in Texas have grown $125 million, or 14%. East West has proven its ability to generate healthy balance sheet growth, resulting in increased revenue and net interest income. Combined with high credit quality and strong expense control, we have been able to achieve strong earnings growth and return levels that are better than many peer banks. Our goal at East West is to consistently be a high-performing bank and provide long-term value to our shareholders. As we demonstrate our ability to perform financially quarter after quarter, year after year, we are confident that we are making great progress towards our goal. In summary, based on strong results achieved in the third quarter and year-to-date, at this point, we expect that we will end 2014 as our fifth consecutive year of record earnings for East West. With that, I would now turn the call over to Julia to discuss more detail of our key successes in the third quarter and our expectations for the remainder of 2014. Thank you very much, Dominic, and good morning to everyone. I would like to spend a few minutes to discuss the key drivers for our loan growth and net interest margin for the quarter. Additionally, I will review the guidance provided in the earnings release yesterday for the fourth quarter and the full year of 2014. As Dominic noted, our total loan portfolio reached a new record high of $21.2 billion as of September 30, 2014, an increase of $694.9 million, or 3%, from the end of the last quarter. The growth in our loan portfolio was broad-based. We grew all non-covered loan categories by at least 2% during the quarter. In particular, our C&I loan growth continues to be outstanding. Non-covered C&I loans increased $610.4 million, or 9%, to $7.3 billion during the quarter, due to strong originations and fundings in the sectors of manufacturing, entertainment, trade finance, and agriculture. On the consumer side, single-family loan originations continue to be strong. We originated 667 new single-family loans totaling $316.8 million, and a total of 649 home equity loans totaling $217 million in commitments. The growth of the single-family loan portfolio to $3.5 billion is an increase of $156.1 million, or 5%, from the previous quarter. Additionally, non-covered home equity loans have increased $130.5 million, or 13%, quarter to date, to $1.1 billion as of September 30, 2014. The credit quality of our non-covered consumer residential loans continue to be excellent. As of September 30, 2014, we had $8.3 million in single-family and home equity loans delinquent over 90 days out of a total balance of $4.6 billion, or a 90-day delinquent ratio of 18 basis points. In continuation of growth trends through the first three quarters of the year and for the remainder of 2014, we expect loan growth to be largely centered in the C&I loans. Although we expect the loan growth in the non-covered portfolio to continue to be offset by the reduction in the covered portfolio, we project that we can grow the total loan portfolio by approximately $400 million through the last quarter of 2014. Additionally, we sold approximately $300 million of loans during the quarter, largely comprised of government-guaranteed student loans at a net gain of $7.7 million. As the student loan portfolio is not a core business to East West, we expect to continue to sell off this portfolio in the coming quarters. Next, I would like to spend a few minutes discussing the net interest income and net interest margin for the third quarter of 2014 and our expectation for the rest of 2014. Net interest income, adjusted for the net impact of covered loan activity and amortization of the FDIC indemnification assets, totaled $225.4 million for the third quarter of 2014. This was an increase of $7 million, or 3%, from $218.4 million in the second quarter of 2014, and an increase of $33 million, or 17%, from $192.4 million for the third quarter of 2013. These figures take into consideration of the net impact of the reduction to the FDIC indemnification asset due to covered loan activity and amortization of the FDIC indemnification assets of $31.6 million for the third quarter of 2014, $48.1 million for the second quarter of 2014, and $61.9 million for the third quarter of 2013. The core net interest margin for the third quarter decreased modestly by 5 basis points to 3.41%, compared to 3.46% for the second quarter of 2014. The 5 basis point decrease in the net interest margin was due to the excess liquidity from the deposit growth during the quarter being deployed in short-duration assets and a decrease in the investment securities yield. The yield on the non-covered loans stabilized during the third quarter and remained unchanged from the second quarter of 2014 at 4.21%. Lastly, I would like to provide some additional color on our updated guidance for 2014. As in the past in our earnings release yesterday, we provided guidance for the fourth quarter and full year of 2014. We estimate that the diluted earnings per share for the full year of 2014 will range from $2.37 to $2.39, an increase of $0.27 to $0.29, or 13% to 14% from $2.10 for the full year of 2013, and an increase of approximately 3% from our prior guidance. This EPS guidance for the remainder of 2014 is based upon adjusted net interest margin of approximately 3.4%, total loan growth of approximately $400 million, provision for loan losses for non-covered loans of approximately $8 million, non-interest expense of approximately $140 million, and an effective tax rate of 17.5%. Management currently estimates that fully diluted earnings per share for the fourth quarter of 2014 will range from $0.63 to $0.65, based upon the assumptions previously stated. The increase in the fourth quarter guidance from our previously disclosed guidance is due to greater than estimated loan growth in the third quarter, resulting in a stronger adjusted net interest income, combined with the impact of the tax credit investment purchase in the third quarter of 2014. With that, I would now like to turn the call over to Irene to discuss our third quarter 2014 financial results in more depth. Thank you very much, Julia, and good morning to everyone. I would like to discuss our financial results for the third quarter of 2014 in more detail, specifically on credit quality, the accounting for the covered loans, non-interest income, and non-interest expense. Starting with credit quality, the total non-performing assets, excluding covered assets to total assets ratio continues to be under 1%, as it has been for over four consecutive years, with non-performing assets at $159.1 million or 56 basis points of total assets as of September 30, 2014. For the third quarter of 2014, the company recorded a provision for loan losses for non-covered loans of $7.6 million, compared to $8.9 million for the second quarter of 2014, and $4.5 million for the third quarter of 2013. Net charge-offs on non-covered loans totaled $5.4 million for the third quarter, compared to $7.3 million in the second quarter of this year and $334,000 in the prior year quarter. The company also recorded a provision of $7.7 million for covered loans during the quarter due to charge-offs incurred on covered loans, for which we expect reimbursement of 80% from the FDIC, and accordingly, have recorded a receivable in the third quarter of 2014. East West continues to maintain a strong allowance for non-covered loan losses of $249.3 million or 1.29% of non-covered loans receivable as of September 30, 2014. As of September 30, 2014, East West also has recorded an allowance for covered loans of $3.9 million. Further, net of other FDIC related items, including the FDIC indemnification asset expected to be amortized and the future clawback liability, the future net pre-tax income estimated today to be accreted over the life of the loan is approximately $60 million as of September 30, 2014. During the quarter, we recorded an expense of $6.3 million of additional clawback liability. Under the shared loss agreements with the FDIC, if losses in the covered portfolio do not reach specific thresholds, the bank is required to pay the FDIC a calculated amount. As of September 30, 2014, our total reported liability to the FDIC for this clawback liability for both the UCB and WFIB acquisitions was $96 million. Moving on to non-interest income, East West reported non-interest income for the third quarter of 2014 of $10.3 million, compared to non-interest losses of $14.9 million last quarter and $41.4 million for the third quarter of 2014. Branch fees, letter of credit fees, and foreign exchange income, loan fees, and other operating income totaled $35.6 million in the third quarter of 2014, a $1.3 million increase from the previous quarter and a $7.7 million increase from the prior year period. This $1.3 million increase from the second quarter of 2014 was largely due to increases in fee income from letters of credit, customer foreign exchange, and interest rate swap transactions. Moving on to non-interest expense. Non-interest expense for the third quarter of 2014 totaled $177 million, an increase of $49.1 million or 38% from the previous quarter, and an increase of $76.6 million or 76% from the third quarter of 2013. The increase in non-interest expense in the third quarter of 2014 compared to last quarter was largely due to an increase in amortization expense from new affordable housing partnerships and other tax credit investments entered into during the quarter, and also an increase in legal expenses. During the quarter, we purchased additional tax credit investments comprised primarily of historic and renewable energy tax credits, which resulted in a higher amortization expense during the quarter and a reduction in the effective tax rate to 17.5% for the full year 2014, down from our previously estimated 29%. The impact of the additional tax credits purchased to third quarter earnings was approximately $0.11 per diluted share. The non-interest expense guidance for the fourth quarter of 2014 of $140 million also includes approximately $23 million of estimated amortization expense for affordable housing partnerships and other tax credit investments. The increase in legal expense during the third quarter of 2014 was largely due to a litigation accrual of $28.8 million or $0.12 per diluted share from an unfavorable jury verdict previously disclosed in an 8-K filing. The verdict is not final, and if the final judgment is not favorably decided, the company will appeal. Finally, as stated in the earnings announcement released yesterday, East West Board of Directors has declared fourth quarter dividends on the common stock. The common stock cash dividend of $0.18 is payable on or about November 17, 2014 to shareholders of record on November 3, 2014. I will now turn the call back to Dominic. Thank you, Irene. I would now open the call to questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Dave Rochester of Deutsche Bank. Please go ahead. Hey, good morning, guys. Nice quarter. Good morning. Thank you. Hey, I wanted to ask about the loan growth first. That obviously continues to be very strong for you guys. I know you're sticking with the $400 million in growth guidance, but I was just wondering how the loan pipeline looks heading into Q4, if you'd seen similar levels of activity in the pipeline heading into this quarter as you had heading into Q3. Well, so far, I think we see the pipeline is pretty good. As always, we've always trying to be conservative. We don't want to just go ahead and overestimate, because in the pipeline, until the loan gets booked, we don't have a loan yet. No matter how great the strong pipeline is, we always want to make sure that we don't overshoot. At this point right now, we're pretty comfortable with the $400 million loan growth. Okay, thanks for that. Then switching to your comments on Texas, you mentioned the deposit growth you've seen so far, it sounds pretty significant. Can you just update us on the loan growth opportunities you see there as well, and how much of a contributor you expect that market to be next year? What's your question? Like, the lo- In terms of how much loan growth you think that you can potentially get out of Texas. Oh, from Texas. In terms of Texas, we actually, as of today, we've been building up in terms of recruiting new talents in the commercial banking area. As you recall, Metro Bank mainly focus on commercial real estate. So over 90% of their loan portfolios in commercial real estate and the various other real estate loans. So our first priority is to help the Texas region to step up to originate more C&I loans, to try to get the loan portfolio to, in time, gradually resemble the East West diverse portfolio. In that regard, I think that we are making good progress in terms of hiring some new people. We still have many more that we need to hire. In terms of system conversions, all taken care of. So I think that I would expect in 2015, we should have some nice progress. Even as of today, if I look at 2014 fourth quarter, I've seen some pretty good pipeline in the Texas region. We don't want to just get too excited about pipeline, because until these loans get booked, we don't know exactly what the end result is. At this point right now, I would say that I feel pretty confident that we're going to see some decent improvement in terms of not only just loan growth in Texas, but more importantly is that it's a different mix of loan growth, which is what we're looking for. From a deposit standpoint, we're very fortunate that demand has been continuously going strong. So we have no reason to believe that 2015 we would not have also another good, strong deposit growth year. Okay, great. Just on the expense front, can you just update us on how you're feeling about your status on BSA and any other reg and compliance fronts generally, and if you think you'll be able to manage expense levels while handling any enhancements that you may need? At this time, we don't expect dramatic increase in expenses. However, as we continue to grow, obviously, across the board, not just the front line, but the operations, compliance, the cost will increase. However, we don't expect a big jump on the expenses. Great. Just one last one on the tax rate. Do any of the incremental strategies you employed in the third quarter carry into next year? What do you think for a tax rate in that amortization expense line? Yeah, Dave. Some of the tax credits we purchased will roll over to next year and the following years. However, it won't be the same impact that we have in the current year. Right now, based on our estimate, we're estimating that tax rate for the 2015 year will be about 28%. That gives you an idea as far as what to project. On the amortization expense line? Yeah. It's going to be a little bit confusing because starting next year as well, we're going to change to the new accounting for the LIHTC, which is below the line. But factoring that in, I think conservatively maybe $10 million or so, $9 million to $10 million a quarter is probably what we're looking at. Okay. All right, great. Thanks, guys. The next question comes from Ebrahim Poonawala of Merrill Lynch. Please go ahead. Good morning, guys. Good morning. I'm sorry if I missed this, but Dominic, I was wondering if you could give a little more color around, obviously C&I growth was very strong this quarter, just in terms of where the growth's coming from and just what the competitive landscape looks like, and beyond your sort of quarterly growth outlook, when you look out over the next 2 to 4 quarters, just your thought process around growth and different loan types where you're seeing this growth come from. This quarter, the loan growth come from all different directions. We're very fortunate. This is the kind of ideal growth that I like to see. If you ask me, I think 2015, I wish I can do exactly the same, just like the third quarter. Let me share with you why. Because we have very strong C&I growth. Actually, C&I has the strongest growth, which is what we wanted. We also have decent momentum from commercial real estate. In addition to that, in our single family and home equity line category, we also have some nice decent growth. So it's really growth coming from all different categories. I think that from our perspective, if we look at 2015, the growth will pretty much, I think, based on what the market will bear. Because what we've seen so far in 2014 is that the banking industry getting more and more competitive, pricing getting lower and lower. We actually did not have much expectation about growth in terms of from the commercial real estate area, simply because there are too many players out there doing long-term fixed rate loan without hedging, and pricing's very low. Some of these pricing have gone so far down to the bare bone that we decided that it's not even profitable for us to pursue. That, I think that if the trend continue, assuming that if the economy slow down a little bit and then the interest rate are not going to go up sooner, then I think that we will be expecting that commercial real estate category would not have the type of growth that we will hope that we'll get. But in terms of C&I'm pretty confident that we'll be able to do just fine. The reason is that we have a very unique value proposition. We're the one and only bank sort of in the country to focus on having the expertise and helping companies in U.S. and China working together. Clearly, our industry specialization from high tech, clean tech, biotech, private equity, entertainment, agriculture, aviation, et cetera, have allow us opportunities many of the other banks that would not be able to do because of our track record of special expertise in terms of understanding how to do business between U.S. and China. I think we naturally will always get clients that come to us first instead to the others. Our capability of having the ability to do banking in the Chinese currency also makes us substantially more attractive as the banker for some of these organization who do need to open account in the Chinese currency in China, or maybe open account in Hong Kong and so forth. I think with that, I would expect that East West should have an above average growth compared with our peers who are more in the generic banking business in U.S. So I think with that in mind, I think we still expect 2015 that we will have some decent loan growth. Now, except in this real estate side, we'll have to see how it all play out. But frankly, we still, even on the real estate side, get some help because of our expertise in U.S., China. Because for those folks that are coming out from China to invest in real estate, many of them also have a preference to come to East West first. Clearly, if I look at the single family mortgages growth that we have, many of those customers are first time buyers coming out from a foreign country and investing in single family properties in U.S. with a substantial high down payment. We think that as long as that trend continue, we should be able to do fine. Understood. Thanks for that color. On a separate topic, could you just remind us in terms of capital deployment priorities, should we think of any buybacks over the foreseeable future? Or is it just the idea to fund organic growth and also be opportunistic on M&A? We, first of all, always have a strong philosophy that we want some cushion in our capital, and we have always leave money on the table. We try not to over-leverage. With that in mind, I think that we have a pretty decent capital ratio at this point, and there's no point for us to aggressively do buyback and then sort of deplete the capital level because that would be not prudent according to the East West long-term philosophy. Based on that, in terms of acquisition, from my view, is that there are not a whole lot of great opportunity out there. But if we see one that is great, we're always ready to deploy. We have the people, we have the capacity that can do that. However, there's just not a whole lot of meaningful opportunity out there. I would, at this stage, will say that a meaningful acquisition in 2015 is probably not very likely. Got it. Thank you very much. Thank you. The next question comes from Aaron Deer of Sandler O'Neill & Partners. Please go ahead. Hi. Good morning, everyone. Good morning. Just a follow-up question on the loan sales. It sounds like you are going to continue to sell some of the student loan balances, Jeff. I was wondering if you could provide what those student loan balances were at September 30, and maybe kind of what your expectation is for the pace of those sales. Aaron, if you look at our balance sheet or the detail that we provide on the loan receivable, all the loans that are held for sale, $240 million or so are government-guaranteed student loans. Additionally, in our held for investment portfolio, we probably have about $80 or $90 million or so. As Julia mentioned in the prepared remarks, this is something that we expect to exit over the coming quarters. I would also say that the sale of those would be over the next coming quarters. That is our plan right now. Okay. I saw that you did the resale agreement in the quarter. I am wondering, does that effectively extend the duration but lower the cost of the funding that that offsets, and was there any other changes or are you planning to make any other changes on the funding side that could impact the margin going forward? Yes. Actually, it does not do either of those. It is just a netting, a master netting agreement because it is the same counterparty. So it is really just optics on the balance sheet. It is just an accounting rule to net it, as opposed to grossing it up with the investment and liability. Okay. Are you looking to make any other changes on the funding side? Obviously, you are having very strong deposit growth, so I do not necessarily see the need for it, but just wondering if there is any plans to do other things along those lines. Not at this time. Not at this time. Yeah. Some of the repos will start rolling off next year. You will see some change there. But nothing actively at this point. With the tax credits that you have added, how far off are you from hitting the corporate alternative minimum tax rate? Does that- I do not think we have the answer. We do not see. Okay. All right. Very good. Thanks for taking my question. The next question comes from Joe Morford of RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. With the loss share for UCBH elapsing in November, can you just remind us one impact, if any, that may have on the reported margin, either here in the fourth quarter or in the first quarter of 2015, which will be the first full quarter without it? Joe, with the loss share agreement with the FDIC, it will continue on really for the fourth quarter. Aside from any kind of major change, I think our adjusted margin that the guidance that we gave, and also the way that we are accounting for and reporting it should not be that different from what we had in the third quarter. Starting with the first quarter of next year, I would say there are two changes. One, as the years progress, the amount of accretion left on these covered loans is coming down. Then two, over the course of the last few years, particularly more recently as it has been more clear that the actual loss content is low on the portfolio, we have been writing off the indemnification asset. As you know, we have been offsetting that to show the adjusted margin. Since we have already written off the FDIC indemnification asset, we will not have that offset, which is positive, we should improve the margin, but all in all, there will be less accretion also in the future as well. That is right now the additional kind of pre-tax income that we are estimating related to the covered loans is about $60 million, all in. 60? 6-0? Okay. That is right. Okay. That was helpful. The other question was, I guess you talked earlier about the Texas market. I was just wondering if you could give us an update on how your business is evolving in the New York marketplace from historically where you were more thrift like to now also do more of the commercial banking? Do you have the team of lenders that you want to adequately serve that market? New York actually is going well. In fact, we're hoping that Texas someday will be like New York in terms of the commercial banking capability. For the last five years, obviously the first year, in 2010, we really were just cleaning up the New York region. At the time when United Commercial Bank acquired, was pretty much like a thrift, all consumer retail branches business, and with loans mainly in construction lending. We have changed that, and I think that took us a couple of years to turn around and, because also, by the way, there was a lot of construction problem loans that we had to clean up. That was a distraction to our ability to focus on growth. But I would say for the last two years, where we have recruited some very good talented commercial bankers, and they have developed a pretty good reputation so far in terms of generating good business. I would say New York this year have done a pretty good job in terms of growing both the C&I loan growth and also the commercial deposits. The deposit growth has been very strong, and the loan production has been very healthy. I expect that New York region will continue to expand in 2015 and beyond. Great. Thanks so much, Dominic. Thank you. The next question comes from Lana Chan of BMO Capital Markets. Please go ahead. Thanks. Good morning. Good morning. Good morning. A couple questions. One on the deposit growth in Texas. Is the pricing in that market similar or different to your other markets in California and New York? Well, you have to keep in mind, at Metro Bank, they were primary in the ethnic, the Chinese American or the Asian American retail market. So that tend to be a bit more competitive because there are a lot more CDs than a traditional commercial bank, so the rate was higher. We actually went in and substantially lowered the rate and trying to have it to be in alignment with East West Bank rate. In addition to just dropping the rate, which obviously result in some high-rate CDs leaving East West to go to other competitive Chinese American banks that offer much higher rate. But in addition to substantially lower the rate, we also able to increase the deposit total. What the difference is that, East West, we have built expertise in commercial deposits, more complex in demand deposits, opening accounts for bigger institutions and businesses. We were able to offer more complex product offerings of low-cost commercial deposits. So that's why we have a pretty good growth in the deposits on the commercial side in Texas. I'll put it another way. It's not like, here come East West to Texas, and then we offering this higher rate promotion so that we encourage our existing customers to put more money into their CDs because the rate's even better. As in fact, quite the contrary. We have some existing customers who complained and basically was disappointed that here come East West, and then we instead of giving them more goodies, and then we dropped the rate. Then some of them decided that they rather would go to other banks that offer a higher rate. There are banks out there who saw a golden opportunity to capitalize on East West dropping rate, and then they are offering a higher rate and to sort of attract these customers to go over to the other side. However, we were not concerned about it because our view is that if customers always want higher rate than the market, eventually our margin will always be lower than the market, then we will always perform below the peer average. That is not going to be consistent with the East West Bank's philosophy that we always consistently perform in the top compared with our peers. What we did was, as Julia Gouw mentioned, we offer substantially more product. We are going after much larger customers, commercial customers. By going after larger commercial customers, who are used to getting low rate from the larger banks, then suddenly our rate does not look unattractive. Our core capability in terms of products and so forth are strong. We have this sort of smaller bank relationship mentality that some of the major banks are not able to do. Through that, we are able to bring in new customers that have substantial bigger size deposit to make up for the difference of the outflow of the high-rate CD retail customers. That is really a mix or an inflow/outflow mix that add up to that $125 million of deposit or 14% growth of our total deposit balance in Texas. Okay. Thank you. Also, just curious on the stability of the loan yields this quarter. On the resi mortgage and the home equity, what kind of loan pricing are you getting on those or did you get on those in the third quarter? On average, it has been stable, about 4.5% on that single family and home equity. It really helps in terms of the loan yield. For the portfolio, it is 4.21%. We feel that for the time being, it probably is going to be quite stable, which is really good, because the last few years, we continue to see decrease in the loan yield. We hope that it stabilized at around this level. Okay. Just one last clarification, just so I understand, in terms of the accruable yield or the purchase accounting accretion, the clawback liability expense, that is $6.3 million this quarter. Does that go away next year? No, it does not. The $6.3 million this quarter is actually the expense, Lana. As of the end of September, we have $96 million that we have accrued. Just the way the calculation works, when we run different sensitivity analysis, in future, even though it extends on and the payment is five years from now, when we run different sensitivity analysis, the impact of it and the increase in the clawback continues to diminish. Okay. After this quarter, the next quarter, the fourth quarter. It should be significantly less, you are saying? Yes. Okay. Yeah, because most of the factors that change the calculation are really kind of baked in, like the losses up until now, et cetera. I can go into more detail with that with you offline if you like. But after the fourth quarter, we expect there will be much less impact. Okay. Thanks, Irene. Once again, if you have a question, please press star then one. The next question comes from Julianna Balicka of KBW. Please go ahead. Good morning. Good morning. Good morning, Julianna. Good morning. To kind of continue on the deposit conversation, please. One, in terms of the MMDA growth that you had this quarter, which is very strong, and also good non-interest bearing deposit growth, could you talk about some of the concentrations or the verticals of deposits that you have, and specifically some qualitative color behind the money market growth, how we should be thinking about that? When eventually rates rise, how sensitive to rates those deposits will be and/or to velocity of real estate transactions or other such factors? Well, the money market is the excess liquidity that companies are putting. They keep the operating account in the demand deposits, but if they have excess liquidity, because right now a lot of companies have a lot of excess liquidity. When it comes to interest rates, it will go up. It may not be dollar to dollar with the market interest rates, but money market will go up along with the market rate. At that time, it depends. Some companies, if they reinvest in other things, it may decrease their money market excess liquidity, but some of them may continue to keep the excess liquidity. For us, as I mentioned before, we really have built our capabilities on the commercial deposits, servicing commercial clients, and big institutions in various industries where we do believe that we will continue to be able to grow that deposits. It would be different new customers that we will be acquiring and continue to deepen our capabilities to serve many different specialty deposits that we will be able to get in the future. That makes sense. In terms of the industries in which you have specialization, could you give us some examples of ones where you have concentrations and/or more discernible verticals other than just broadly C&I? Yeah. We build capabilities in fiduciary services deposits, trust accounts, property management, escrow title. There's various municipalities. There are a lot of commercial deposits out there within the different specializations and industries. As we build our capabilities and penetrate deeper, each industry, we're able to get more and more because of our relationship, our service, and our know-how, what the needs are in that industry. Also, there are industry that relevant to the bridge banking in terms of U.S.-China related. They are, for example, from the entertainment business and also from private equity, venture capital in the technology business area. These are the type of business that tend to have pretty significant deposits. A good example would be private equity funds and also these high tech VCs and then also the technology companies. Many of them have pretty decent size of liquidity, which they usually keep in their money market accounts. In addition to that, studios that make television shows and movies, that we get collection accounts for the money coming in from once the movie's released. We continue to be able to enjoy deposit growth because the more business that we build in this arena, the more deposit we get. And Juliana, I will just add, Dominic and Julia both kind of shared the different areas where we have built expertise, but we do not have real concentration in one type of industry more so than another. It is pretty broad based, and we have limits as far as how much we will take from each industry as well. I just wanted to share that with you, that we do not have a concentration issue. Uh-huh. Good point. Thank you very much for all that color. I have one more follow-up then. In terms of your loan to deposit ratio, is there a loan to deposit ratio that you are comfortable operating at? Or how do you think about loan and deposit growth and balance sheet leverage? We are comfortable between 90%-95%, slightly below 100%. I think that would be probably an ideal loan to deposit ratio for us. Okay. Very good. Thank you very much. Thank you. Once again, if you have a question, please press star then one on your touch tone phone. This concludes our question and answer session. I would like to turn the conference back over to Dominic Ng, Chairman and CEO, for any closing remarks. Well, thank you. Again, thank you for joining us today, and I look forward to speaking to you in January. Goodbye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.