East West Bancorp, Inc. (EWBC) Q2 2022 Earnings Report, Transcript and Summary

Good day, and welcome to the East West Bancorp Second Quarter 2022 Earnings Call. All participants will be in a listen -only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Julianna Balicka. Please go ahead.

Thank you, Sarah. Good morning, and thank you, everyone, for joining us to review the financial results of East West Bancorp for the second quarter of 2022. With me on this conference call today are Dominic Ng, our Chairman and Chief Executive Officer; and Irene Oh, our Chief Financial 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 risk factors that could 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, 2021. In addition, some of the numbers referenced on this call pertain to adjusted numbers. Please refer to the bank's regulatory filings, including our Form 8-K filed today for the reconciliation of GAAP to non-GAAP financial measures. During the course of the call, we will be referencing a slide deck that is available as part of the webcast and on the Investor Relations site. As a reminder, today's call is being recorded and will also be available in replay format on our Investor Relations website. I will now turn the call over to Dominic.

Thank you, Julianna. Good morning, and thank you everyone, for joining us for our earnings call. I will begin the review of our financial results on Slide 3 of our presentation. This morning, we reported net income of $258 million and earnings per share of $1.81 for the second quarter of 2022. Our earnings per share grew 38% annualized for the first quarter of 2022. Total revenue of $551 million grew 45% linked quarter, annualized, including record net interest income of $473 million. Our strong revenue growth, combined with controlled expense management, drove second quarter 2022 adjusted pre-tax, pre-provision income growth of 62% linked quarter annualized. Our bottom line returns are industry-leading. We returned 1.7% on average assets, 18% on average equity and 20% on average tangible equity. All our profitability ratios expanded. The second quarter results demonstrate the strength of East West business model, which is geared for outperformance. Our balance sheet is well positioned for rising interest rate and revenue growth this quarter reflected not only loan growth but also net interest margin expansion of 36 basis points quarter-over-quarter. Our loan portfolio is well diversified and second quarter growth was broad-based across our major loan portfolios of commercial real estate, commercial and industrial and residential mortgage. Our deposit base spans consumer, small business, and corporate commercial accounts. Quarter-over-quarter, average non-interest-bearing demand deposits increased 8% and linked quarter annualized and totaled 44% of average deposits for the second quarter. We have a resilient balance sheet with strong capital and high liquidity. The diversification of our loans and deposits is important, not just because it helps support growth across different economic cycles because it supports prudent risk management and our conservative credit culture. Economic environment is changing, but we are well positioned to navigate it through good confidence and importantly, help our customers navigate well too. Slide 4 presents a summary of our balance sheet. As of June 30, 2022, total loans reached a record high of $46.5 billion. Second quarter average loans were $44.6 billion and grew 24% linked quarter annualized. Based on our year-to-date results, we are updating our loan growth outlook for the full year to a range of 16% to 18%, up from 13% to 15% previously. All else equal, our outlook does imply a slower rate of loan growth in the second half of the year compared with the pace of the first half. Our current pipelines are healthy, our borrowers' financial position and liquidity are strong, and we are very optimistic about the future of East West Bank. However, in an environment of rising interest rates, real estate transaction volume may slow, impacting commercial and residential mortgage growth. Also, the high pace of C&I loan growth in the first half of 2022 may moderate due to inflationary, supply chain and other macroeconomic pressures. Given the current economic uncertainty, we wanted to be conservative in our expectations and prudent in our growth. Total deposits were $54.3 billion as of June 30, 2022, and second quarter average deposits were $54.1 billion. Average total deposits grew 1% linked quarter annualized in the second quarter. Turning to Slide 5. Earlier in the quarter, we repurchased $100 million of common stock or 1.4 million shares. As you can see in the exhibit on this slide, our capital ratios are healthy and strong. As of June 30, 2022, we had a common equity Tier 1 ratio of 12%, a total capital ratio of 13.2% and a tangible common equity ratio of 8.3% in which provides us with meaningful capacity for future growth. East West Board of Directors has declared third quarter 2022 dividend for the Company's common stock. The quarterly common to dividend of $0.40 is payable on August 15, 2022, to stockholders of record on August 1, 2022. Moving onto a discussion of our loan portfolio beginning with Slide 6. C&I loans outstanding were $15.4 billion as of June 30, 2022, and an increase of 15% annualized from March 31, 2022. Total C&I commitments were $22 billion as of June 30, sequentially of 20% annualized. Our C&I loan utilization rate was stable quarter-over-quarter at 70%. Overall, similar to recent quarters, second quarter C&I growth was well diversified across our lending teams, geographies and specialized verticals including robust growth in our private equity and entertainment portfolios in terms of loans outstanding and commitments. Slides 7 and 8 show the details of our commercial real estate focus, which is well diversified by geography and property type and consist of loan-to-value loans. Total commercial real estate loans were $18.5 billion as of June 30, 2022, up by 37% annualized from March 31. Both were broad-based and well diversified geographically, geographically, and our property type segments grew in the second quarter, with strongest net growth in multifamily and industrial commercial real estate loan. In Slide 9, we provide details regarding our residential mortgage portfolio, which consists of single-family mortgages and home equity lines of credit. I would highlight that 84% of our home equity line of credit commitments are in a first lien position residential mortgage loans totaled $12.5 billion as of June 30, 2022, growing by 33% analyzed from March 31. I will now turn the call over to Irene for a more detailed discussion of our asset quality and income statement. Irene?

Thank you, Dominic. I'll start with our asset quality metrics and components of our allowance for loan losses on Slides 10 and 11. The asset quality of our portfolio continues to be strong. Quarter-over-quarter, non-performing assets decreased by 5%, down to $90 million and the non-performing assets ratio improved by 1 basis point down to 14 basis points of total assets as of June 30. Other REO and foreclosed assets were down to zero as of June 30. Total criticized loans increased modestly to 2.2% of loans from 1.9% as of March 31, largely from CRE and C&I loans. Early-stage delinquency loans decreased quarter-over-quarter to $39 million. During the second quarter, we booked net recoveries of $7 million or 6 basis points of average loans annualized compared to net charge-offs of 8 basis points of average loans annualized for the first quarter. The second quarter recoveries were primarily in C&I loans. Our allowance totaled $563 million as of June 30 or 1.21% of loans compared to 1.25% as of March 31. The quarter-over-quarter change in the allowance largely reflects the mix of the loan portfolio as of June 30 as well as second quarter loan growth. During the second quarter, we recorded a provision for credit losses of $13.5 million compared to $8 million for the first quarter. And now moving to a discussion of our income statement on Page 12. This slide summarizes the key line items of the income statement, which I'll discuss in more details on the following slide. Of note, amortization of tax credit and other investments in the second quarter was $15 million compared with $14 million in the first quarter. This is lower than what we had previously anticipated because of timing. We expect the amortization of tax credit and other investment expense to be approximately $40 million in the third quarter and $25 million in the fourth quarter now. Second quarter 2022 income tax expense was $83 million compared with income tax expense of $6 million for the first quarter of 2020. Year-to-date, the effective tax rate for the first six months of 2022 was 22%. We currently expect that the full year effective tax rate will be approximately 21%, including the impact of tax credit investments expected in the second half of the year. Now, we view the key drivers of our net interest income and net interest margin on Slides 13 through 16, starting with the average balance sheet. Second quarter average loans of $44.6 billion grew by $2.5 billion or 24% annualized. The strong growth across all loan categories drove a favorable mix shift in average earning assets quarter-over-quarter. In the second quarter, average loans made up 76% of average earning assets compared with 72% in the prior quarter. Second quarter average deposits of $54.1 billion grew by $104.5 million or 1% linked quarter annualized. Growth in average non-interest-bearing demand deposits, CDs, savings and interest-bearing checking accounts was partially offset by a decrease in average money market accounts. This quarter, we observed customers utilizing their excess funds for acquisitions and investments. Importantly, we saw quarter-over-quarter growth in average demand deposits, which made up 44% of our average deposits in the second quarter compared with 43% in the first quarter and 39% in the year ago quarter. Turning to Slide 14. Second quarter 2022 net interest income of $473 million was the highest quarterly net interest income in the history of East West growing by 55% linked quarter annualized. The net interest margin of 3.23% expanded by 36 basis points quarter-over-quarter. As you can see from the waterfall chart on this slide, the net interest margin expansion in the second quarter reflects the impact of higher loan and earning asset yields, which increased the NIM by 31 basis points, plus the favorable earning asset mix shift which expanded the NIM by 12 basis points. This was partially offset by 7 basis points of compression from higher cost of interest-bearing funds. Turning to Slide 15. The average -- the second quarter average loan yield was 395, an increase of 32 basis points quarter-over-quarter. The average loan yield comprised an average coupon yield of 383 plus yield adjustments, which contributed 12 basis points to the overall loan yield in the second quarter. As of June 30, the spot coupon rate on our loans was 419. In this slide, we also present the coupon spot yields for each major loan portfolio for the last three quarter end periods. You can see the positive impact of rising interest rates on each loan portfolio as loans re-price. In total, 63% of our loan portfolio is variable rate, including 32% linked to the prime rate and 26% linked to LIBOR or SOFR rates. Note of these loans re-price at least monthly. Turning to Slide 16. Our average cost of deposits for the second quarter was 17 basis points, up 7 basis points from the first quarter. Our spot rate on total deposits was 32 basis points as of June 30 and a year-to-date increase of 21 basis points. This translates to a 15% cumulative beta relative to the 150 basis point increase in the target Fed funds rate over the same period. In comparison, the cumulative beta on our loans has been 50% as our loan coupon spot rates increased by 75 basis points year-to-date. We started the rising interest rate cycle from a position of strength with historically high levels of demand deposits for East West Bank, strong liquidity and an average loan-to-deposit ratio of 82% in the second quarter. These balance sheet characteristics bolster the asset sensitivity, benefits of our variable rate loan portfolio, supporting strong revenue growth through the cycle. Moving on to fee income on Slide 17. Total non-interest income in the second quarter was $78 million, down from $80 million in the first quarter. Customer-driven fee income and net gains on sales of loans were $65 million essentially unchanged from the first quarter and up 3% year-over-year. Moving on to Slide 19. Second quarter non-interest expense was $197 million, excluding amortization of tax credits and other investments and core deposit intangible amortization, adjusted non-interest expense was $181 million in the second quarter, up $6 million or 4% sequentially from a seasonally lower first quarter. The second quarter adjusted efficiency ratio was 33% compared with 35% in the first quarter. This reflects strong revenue growth and our ongoing disciplined expense management. And with that, I'll now review our updated outlook for the full year of 2022 on Slide 19. For the full year 2022 compared to our full year 2021 results, we currently expect year-over-year loan growth, excluding PPP, of approximately 16% to 18%, reflecting year-to-date performance. Our updated outlook is an increase from our previous outlook of 13% to 15% loan growth. Year-over-year, net interest income growth, excluding PPP, in the range of 30% to 35%, this is an increase from our previous outlook of net interest income growth ranging from 22% to 24%. Our updated outlook reflects loan growth as well as the impact of anticipated Fed funds rate increases on our asset-sensitive balance sheet, underpinning our interest income assumptions is the forward interest rate curve as of June 30, with Fed funds expected to reach 350 by year-end. Adjusted non-interest expense growth, excluding tax credit investment amortization of approximately 9% to 10% year-over-year, an increase from our previous outlook for expense growth of approximately 8%. For 2022, we currently expect that provision for credit losses will be in the range of $60 million to $70 million for the full year. This is up from our previous outlook for provision for credit losses in the range of $50 million to $60 million. Finally, we now expect that the full year 2022 effective tax rate will be 21%. This is compared with our previous outlook, which is for an effective tax rate of 18% to 19%. The change in our outlook reflects higher pretax income and a lower amount of tax credit investment as compared with our previous forecast. There will be quarterly variability in the tax rate due to timing of tax credit investments placed into service. We currently expect that the third quarter tax credit investment amortization expense will be approximately $40 million. With that, I'll now turn the call back to Dominic for closing remarks.

Thank you, Irene. In closing, we have had a great first half of the year and look forward to delivering strong financial results to our shareholders in the second half of 2022. We're well positioned to navigate the current environment. Our balance sheet is asset sensitive. We have ample liquidity and strong capital. Our credit quality is likewise strong. Our associates are focused on providing superior banking services to our customers, and I wish to thank them for their efforts and excellent results. I will now open up the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America Merrill Lynch. Please go ahead.

I guess first question just around loan growth outlook. Dominic, you mentioned about maybe your guidance obviously assumes some slowdown in the back half. Is that just out of being -- wanting to be conservative given all the things you laid out or over the last two to four weeks, have you actually seen customer appetite to borrow and activity begin to slow down?

I think mainly from our perspective is that, no one really knows what the economy is going to be like, let's say, 6 to 12 months from now, while there's a lot of prediction here and there. Our position is that with interest rate rising, naturally, there are not going to be as many refinancing on single-family mortgages, CRE, et cetera. And even on the C&I side, we expect that -- we don't know what the Christmas is going to be like this year. Would consumers still going to be active in terms of purchasing skills for families and friends or would they not? No one knows at this stage. And so -- but from the East West Bank perspective is that while our customers are doing really well, we think that at this stage, it's only prudent for us to expect that there will be a slowdown because it appears to me that logically, when rates are rising higher, these refinancing activities will slow down. And then from the C&I side, maybe an acquisition of major investment would also may not be happening, maybe deferring to future. So, we just look at it as from an overall perspective is that while our customers are doing just fine, we wanted to guide our projection lower to make sure that just in case that economy do go into a direction that in a negative way.

Got it. And I guess one question for you, Irene. Give us your assumption on the deposit beta as we think about relative to your NII guidance? And just to put a fine point on your NII outlook, assuming 35% year-over-year growth implies exit fourth quarter NII closer to $575 million to $600 million. Just want to make sure we're thinking about that correctly.

Yes. I think Ebrahim, your number is pretty close to where I think we'll end up. On the deposit betas, I think for East West and really, the entire industry, we've been able to lag the deposit costs. So realistically, I think we're very proud of what we've done year-to-date. I want to give a shout out to all of our team members. Frontline, this variable rate pricing is very challenging. But realistically, we do expect that deposit beta to increase for the rest of the year. With that said, with the strong amount of operating accounts that we have, the strong amount of the DDA that we have, the percent of our total deposits overall, at this point, I'm very comfortable that our kind of lifetime or cycle through deposit beta will be much better than what we had in the last cycle.

Next question comes from Brandon King with Truist. Please go ahead.

I wanted to first you know loan growth. I thought it was pretty slow growth in China in the past quarter. I was wondering what you're seeing on the ground there and what are your expectations into the second half of the year and if that's also, assuming slow growth there?

Brendan, I have some difficulty hearing your question. Is that -- what is it?

The loan growth second half of the year.

About China. Oh, sure, sure. Yes, our branch -- well, our China operation and also Hong Kong operation has done extraordinarily well in the first half of the year because we saw the headline news from the media about lockdown in Shanghai and then all these quarantine requirements in Hong Kong. And so our associates in that region went through some very, very tremendous difficulty personally, like either most of them being locked up at home while working and a few of them actually locked up in the office for over two months. And the fact is they came through throughout this time, they not only were able to get the business going and take good care of our clients. In fact, they even grew loans and deposits. So they were doing really well. But overall, obviously, China is only 5% of our balance sheet. So in that respect, obviously, it's not going to have a material impact to our overall financial performance, but I'm very, very pleased with what they have done and they continue to grow very, very diverse C&I business and that covers from general manufacturing, consumer goods, entertainment, private equity, technology, clean energy, and digital media, health care, et cetera. So they really have done a good job at continue to diversify their focus and have very high-quality customers that they brought in. And in addition to that, our customers are doing very well. As you can see, for the last several years now since the U.S. started putting tariffs in place. Our loan portfolio in China, the asset quality is pristine. We did not have any kind of like credit issues, and they continue to perform well. This is because we really believe that our bridge banking strategy, our understanding of China and our expertise in cross-border business make a big difference. Within the place that with East West, we have the expertise in cross-border business between U.S. and China that allow us to be able to offer unique value proposition and services that are really important and relevant to the business, whether the U.S. business, they're doing business in China or Chinese business, doing business in the U.S., we do offer a unique banking service for them, that 99-plus percent of the banks in the United States don't offer. So in that respect, we have substantially less competition, and we're able to choose exactly the high-quality customers that we want to do banking with. So we're very, very pleased with how everything is going right now. So as of today, obviously, our associates in Hong Kong and China are all back to the office and doing business as normal. So we expect them to continue to be able to do good work for the second half of the year.

Okay. And then more of a big picture question as far as the business plan [indiscernible] as the adjusted efficiency ratio reached 30% and potentially below, I mean what is the kind of now or what you kind of picture in the efficiency ratio. I know you've seen a lot of positive operating messages. And is there a decision for you to accelerate some investments, particularly next year because where the efficiency ratio was there?

Yes. I think on the efficiency ratio, Brandon, we don't have a ratio that we're trying to end to normally. This is the time where Dominic goes through the calculation of the numerator and denominator. Obviously, for East West, we remain disciplined on spending, right? With that said, we have continued to make the investments we think necessary to support our business. Our cash management products, you see that with the outstanding growth we have cross-border as is Dominic talked about, also, particularly on the consumer side, on the digital side as well. Also, in this kind of environment, we're asset-sensitive bank. So with the revenue increasing, obviously, that efficiency ratio is adjusted related to that. But just to recap, we don't just try to guide to our efficiency ratio, but we make investments we need to support the business.

Yes. Efficiency ratio is a report card kind of like number, return of equity, return on assets, efficiency ratio, these are report card numbers. So we looked at it and said, well, proud to be in that position. However, we really are much more focused in measuring like input such as deposit growth, loan growth, interest margin expansion, asset quality, and also making sure the expenses growing according to what the balance sheet call for. That's what we're trying to work on.

I'll just add that maybe the report card numbers of ROA and ROE matter more for us.

[Operator Instructions] Our next question comes from Chris McGratty with KBW. Please go ahead.

Dominic, positive, just surprised to see the buyback in the quarter. How do we think about prospective use of the rest of the buyback, given the markets, the stock valuation, but also uncertainty in the macro?

Okay. On the buyback, well, I said it before that the bank is always shareholders friendly, but we are relatively, I think, more prudent and conservative than other banks. And -- but we are opportunistic. When we do see that in the right time and the right place, we do strike. And so that's what we did in the second quarter. Here's what I looked at based on the economic landscape today and looking forward and seeing that we'll continue to increase interest rate with many economists not predicting good economy going forward. We just feel like that now is the time that we probably one or two pause and wait. And that's kind of like very consistent East West Bank philosophy that when we do feel that it's the right time to do something that we have plenty of capital, plenty of earnings and et cetera, well, obviously, when the opportunity arises, we will step in and do the right thing for shareholders. And -- but in the meantime, we feel that preserving capital is a better way to go. Now reflecting back several years ago, obviously, most banks were actively doing buyback and East West was one of the isolated few that is not. But if you look at what we've done, in the last four to five years, we have actually almost doubled our balance sheet organically, not acquisition organically. So obviously, we knew we have the engine that can grow, and we did not want to spend the capital into buyback when we knew that we have plenty of growth opportunity. And it didn't hurt when we have plenty of capital right in the beginning of COVID. And so our position is that we'll always be very considerate of shareholders' return. However, we always wanted to look at it from a long-term basis. And so that's how we come to this conclusion about buyback and not buy back.

That's great perspective. If I could ask one more. A common thread throughout the quarter for all the banks has just been deposits and levels. And I think it's concern in the market is that with the Fed executing Q2, there's going to be a little bit of a narrow pocket on deposits. I'm sure you've looked over your portfolio and kind of separated what may be at risk. But could you share with us any observations about what pieces of the book might be at more risk and how much you think could actually flow out if the Fed does what it says it's going to do? Thank you.

I think, the key part at East West Bank deposit franchise is our retail banking deposit. We, unlike many regional banks, we actually have a very, very strong retail banking deposit franchise, very stable, plenty of customers out there, bank with East West bank for many years, and they are the one that normally we do not expect a lot of volatility. Obviously, when rate do rise in a substantial way, we do need to make sure we take care of them and pay them higher rate. But I don't expect that, there will be a lot of movement of volatility from the retail banking side. In fact, I do expect that, we have opportunity to grow even more. One good example is that, we started a business checking deposit products about a year ago, less than a year ago, actually, just the last six months, and we brought in about close to $500 million of DDA deposits. We will continue to be able to find opportunity to grow DDA balances in these very small business customers. And I looked at it as that, in addition to that, we continue to see activities of overseas investors that still putting money in United States. And most of them do look at East West of their first choice. So, from that standpoint, we feel pretty good. Obviously, we have commercial accounts that some of them have more volatility due to the operating needs and so forth. So, those are the ones that we keep a close eye on it. But we also feel that, because of our deposit rate today, we got plenty of room to work with our customers, if we do need to pay a little bit higher rate to retain more deposit, is something that we obviously have much more flexibility than maybe other banks.

Our next question comes from Jared Shaw with Wells Fargo. Please go ahead.

Hi. Good morning. Thanks. Maybe just following up a little bit on the deposit side. When you look at the, your guidance for NII, what's the expectation for overall deposit growth and I guess maybe sort of loan to deposit ratio in this environment? And it sounds like, I guess, Dominic, you think that, in that scenario you can still see DDA balance growth from some of these new initiatives. Is that the right way to look at it?

We do expect that deposits will grow for the entire year. I think quarter-over-quarter, especially on an average basis, point-to-point, you will see variability, for example, this quarter as well. Historically, we've had clients, one client in particular related to tax, property tax payments made in the second quarter, the balances are down. And then we saw that this quarter as well. With that said, I would also just comment on just the granularity and the deposits that we have, as Dominic mentioned, not only do we have kind of a broad base on the retail side, small business on the retail side. Overall, on the commercial side as well, the deposits are very granular in nature. So that's something that we think will continue to help us as we go through the cycle.

But with that backdrop is at, it's assuming, I guess we should we could assume that you'd be comfortable getting that loan-to-deposit ratio back north of 90% if the loan growth is there?

Yes, if the loan growth is there. We've commented on this before. High 80s, low 90s is something we're very comfortable with, again, particularly with the granularity of the deposits that we have.

We don't have a problem of growing loan balances due to like a pressure from deposit because at this 80-plus percent loan-to-deposit ratio we have plenty of room. So, we just -- the reason that we do not have a very high expectation of high loan growth for the second half despite the fact that we have good pipelines and good momentum. It's because the economic outlook overall does not look very good. But if it turned out that we continue to find high-quality loans that we can book, and we will simply because we've got plenty of deposits to support it.

Great. And then just as a follow-up as my second question. Looking at the expense guide and the increase there, is that primarily just performance based on better revenue drives, better performance incentive comp? Or are there some new initiatives in there for the franchise?

We always make incremental investment. I mean, every single year. I mean, East West philosophy is never really do a major, major big project and loaded in one year, and that caused volatility of our earnings. So we'll continue to invest. And of course, there are certain inflationary factors in here simply because wagers and other type of miscellaneous expenses all have gone up because we saw the 9.1% consumer price index number that came out recently. So, our position is that we feel that while we're managing our expenses, very prudently, we expect that it will go up slightly. So that's why we're guiding it up from 8% increase to 9% to 10% increase.

Our next question comes from Clark Wright with D.A. Davidson. Please go ahead.

This is Clark Wright on for Gary Tenner this morning. My question pertains to loan growth in the guide. And so, I guess just assuming lower pace of growth in the second half, I mean, it wouldn't be surprising given the first half growth, but could you maybe the pipeline building into the third quarter? And whether or not your projections assume a drop off in the fourth quarter or if the drop-off is balanced between the third and fourth?

Well, we -- at this point, again, the projection is more or less -- how do I put it? We are just being prudent because just because we have pipelines. Sometimes pipeline does not result in funding. Our projection right now is that, yes, there may be a lot of deals in the making, but I expect that there will be some prudent investors, which are our great customers who we looked at it, maybe two months from now, three months from now, and if the rates continue to go up like what the Fed expected to do may come to a conclusion that maybe I shouldn't move forward. And I just kind of looking at it on the downside scenario, there may be a lot of deals that people are thinking about doing and then I'm not doing it. And this is the kind of things that we are we're anticipating. I mean, a very simple answer would be like in the residential mortgage area. We would expect that people that may expect to refi their mortgage decided not too because the rate is so high. It doesn't make sense or if you expect to buy home, buy a second home or a third home decided not to, again, because rates high, prices haven't come down yet enough to make it a good deal. These are what I call the transitional time. Transitional time in a way that when the price still stay pretty very much up there, but then the interest rates suddenly make the economic less attractive. So that would discourage people making investments. In real estate or maybe you make investment in certain type of business they're involved with. So, this is the kind of logic that we are going through in our mind that despite the fact that our relationship managers out there and our branch managers out there having -- bringing in more new clients and more opportunities to do more deals, we just looked at it as a naturally. People would just take a break when they are not sure, having some certainty about what the horizon would be, which is very different that once you get into a recession, or maybe once you get to the tail end of the recession, people are jumping in left and right, taking advantage of the distressed prices and so forth. So in this standpoint, what we see right now is that we are just assuming that maybe in the third and fourth quarter, we're transitioning slowly into that kind of uncertainty path; however, if, for some reason, things changed and for the positive, obviously, we will expect a strong loan growth.

This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks.

Well, thank you all for joining the call, and we are looking forward to talking with you again in October. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.