Preferred Bank
Q4 2010 Earnings Call Transcript

Published: 1 Feb 2011

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank fourth quarter 2010 conference call. During today’s presentation all participants will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, January 31, 2011. And at this time, I would now like to turn the conference over to Lasse Glassen with Financial Relations Board. Please go ahead, sir.

[Lasse Glassen:]

Thank you. Good day, everyone. And thanks for joining us to discuss Preferred Bank's preliminary results for the fourth quarter ending December 31, 2010. With us today from management are Mr. Li Yu, Chairman, President, and Chief Executive Officer, Ed Czajka, Chief Financial Officer, and Louie Couto, Executive Vice President. Management will provide a brief summary of the quarter and then we will answer your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to Preferred Bank’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the documents that company files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialized or any of these assumptions prove incorrect, Preferred Bank’s results could differ materially from its expectations as set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I would now like to turn the call over to Mr. Li Yu. Mr. Yu?

[Li Yu:]

Good afternoon. For the fourth quarter of 2010, we recorded a $10.4 million dollars of loss. Major items in the fourth quarter are $12 million of credit cards, roughly $1 million in sales of loan losses, $.7 million of sales securities losses, and $1 million plus of reversal of interest income that was previously recorded. During the quarter we've had reasonable progress in the area of troubled assets that will begin liquidation process, and we sold, corrected, and charged of a total of about roughly $40 million in non-performing loans and non-performing assets. However, in the quarter we provided $57 million of new non-accrual on the book, $17 million of which the loans were found to be interest non-current. And at the year end, we decided to put nearly $40 million payment-current loans as non-accrual The press release describes these loans in detail. To the extent any of these loans, if not all of these loans will become good loans at the end. The effect will be deferring current day income, interest reversal at the later date of the conclusion of the loan. We are working diligently to see to bring the conclusion date as early as possible. These are the major items for the quarter, and I'd like to open the question-and-answer period.

[Operator:]

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator instructions) And our first question is from the line of Aaron Deer with Sandler O’Neill & Partners

[Aaron Deer:]

Hi, good afternoon guys.

[Unidentified Executives:]

Hi there.

[Aaron Deer of Sandler O'Neill & Partners:]

I guess I was disappointed to see the new NPA enclosed, but I do appreciate that you put the color behind those in the release, and I guess that gives me some comfort that the loss content there is little if any, but Louie maybe if you can talk a little bit about what you saw on the portfolio that was existing as of 9

[Louie Couto:]

No, thank you question, I'll be happy to. During the quarter, we're looking at various underlying credit fundamentals on the loans, payment performances, obviously updated appraisals, We did not see, and if you see it on our delinquencies, we did not see a change in the actual underlying performance of the credit different at year end than it was as of 9

[Aaron Deer of Sandler O'Neill & Partners:]

Okay, and then on the OREO, it looked like the ongoing, if you will, operating expense related to that was pretty high in the quarter, I think it was $2 million. Is that, and should I be reading that as an ongoing thing or is there something outside of that beyond just changes in valuation?

[Louie Couto:]

Yeah, we underwent some internal reviews to make sure that we had been caught up in the various areas of ORE, the largest of which being taxes, and we caught up on some taxes that we needed to pay on certain properties that we had both taken back during the quarter, and some that we had taken back throughout the year that in our internal review to make sure we're completely caught up on that. I would review that in PayGo. So that's not an ongoing quarterly type. It is a cleanup of some issues that we handled internally.

[Li Yu:]

If the number is... (inaudible)

[Louie Couto:]

Yeah, we actually paid 1.5 in property taxes during that quarter. And we changed our internal responsibility of who is reviewing ORE taxes and the accounting and internal record keeping of that, given what we discovered during the quarter.

[Li Yu:]

But don't read that into as a full year, ongoing expense of the $2 million.

[Aaron Deer of Sandler O'Neill & Partners:]

Right. I'll step back. Thank you.

[Operator:]

Thank you, our next question is from the line of Joe Morford with RBC Capital Markets.

[Joe Morford:]

Thanks, good afternoon.

[Li Yu:]

Hi.

[Joe Morford:]

First question is that the title of the release said Preliminary Fourth Quarter Results. Is that just awaiting a final exam report or is there something else I missed here?

[Li Yu:]

Well, as a matter of fact, we generally don't make any comments, our corporate policy prevents us from making any comments regarding the examination and so on and so forth. But included in our press release, there is at least one item that we are not 100% sure, which is a loan E as we describe it. As the good auditors KPMG start to consider going through the books, going through the audit process, they may come up with more or less things, adjustments, and so on. So in every year as of the end of the quarter when we report, we always say “preliminary.” You'll probably find our last year the same way.

[Joe Morford:]

Oh, okay.

[Li Yu:]

Ed, do you have anything to add to that?

[Ed Czajka:]

No, just that there are still some technical determinations being made with respect to one of the non-accrual loans, which we disclosed. I think it's the last one on the list that Mr. Yu referred to.

[Joe Morford:]

Okay, that helps, thanks. Then just in general with these new loans coming on as Aaron said, it seems little if any lost content, and given that you just had an exam, is there any change in tone of the regulators or change of approach in terms of what they're really considering or wanting as put on non-accrual status, whether it's because of a certain LTV or something? It just seems like in the past these would not have been loans that you would have classified. So I'm wondering if there is some kind of change in tone or message coming from the regulators here.

[Louie Couto:]

This is Louie speaking. Again, we're, our corporate policy is, and again, federal law, prohibits us from disclosing examination findings, and we are not saying that is a result of any kind of exam finding that we put those loans on non-accrual. I think the important point is that certainly 2009 and 2010 had a lot of uncertainty and questionability about performance. I think as time carries on, the economy improves, that that questionability becomes removed, and we will look forward to and certainly hope that as that happens, those loans will be placed back on accrual and that today's reversals will be income in the future.

[Joe Morford:]

Okay, that's helpful. And then lastly, there was, again, another line in the release talking about 2000 level, improving the pace of problem asset resolution. Related to that, you did do a bulk sale of some problem loans in the quarter. Is that something you're going to be looking to do more of in 2011? And just maybe based on this experience or other pools that you may have looked at selling, what kind of values are you seeing or that bid has spread that between what you think they're worth and what the buys are?

[Li Yu:]

I would like to have Louie answer that. Before that, I will state that in the past, we are not looking for bulk sale because we try to maximize preserving the capital in the institution. We've had reasonable success in terms of (inaudible) just with a small discount from a value. But having said that, I would like Louie to answer that in more detail.

[Louie Couto:]

Yeah, I think it would be tough to tell from the press release, but actually that $25.5 million was three separate sales transactions. We did not do bulk. Again, we have various bulks approaching us on occasion, and as far as they see some of the intrinsic values and certain loans and properties, and we find that it's much better for execution to find a retail buyer versus a bulk. So we have not done bulk and we're not really retaining that going forward given the fact that we were able to do 25.5 million on individual discrete sales during the quarter, so we're comfortable. And given the execution of those, we're comfortable with the amount and with the price point of those.

[Joe Morford:]

Okay, make sense. Thanks so much.

[Operator:]

And our next question comes from the line of Joe Gladue of B. Riley. Please go ahead.

[Joe Gladue:]

Good afternoon.

[Unidentified Executives:]

Good afternoon.

[Joe Gladue:]

A couple of questions about the net interest margin. I guess a little more contraction than I had expected. First off, you did do some deployment of some of the cash on the balance sheet. I was just wondering when in the quarter that occurred. Was that late in the quarter?

[Ed Czajka:]

No, actually Joe, it's kind of been ongoing, and it really started in kind of the early to mid part of the third quarter, and it's really just a continuation of that. At our peak we had over $200 million in cash in the balance sheet earning about 25 basis points with that. So looking at our liquidity situation, obviously in light of the capital raise we did in June took away a lot of the uncertainty, and it removed some of the liquidity risk from the bank, so we decided to start deploying of that. So that happened in the third quarter and continued on into the fourth quarter, so I think that in terms of the net interest margin excluding the non-accrual reversals as well as the ongoing non-accrual interest, the margins would have expanded pretty rapidly. On the liability side, we continue to have maturities of broker deposits and other higher-cost CDs, those are still rolling over at lower costs. So we're seeing good things on both sides of the ledger, if you will. Obviously the non-accrual interest continues to get in the way. Let me answer what is probably going to be your next question, Joe During the quarter, the net interest margin, excluding the reversals of non-accrual interest, would have been 3.24. If we also take away the effect of the ongoing non-accruals, the ones that were there for the entire quarter, the margin would have been 3.84 for the quarter.

[Joe Gladue:]

I guess on the deposit side, you had a good quarter in the third quarter, particularly in regards to non-interest-bearing deposits but it looks like a little bit of a reversal this quarter. Any idea what's behind that?

[Li Yu:]

From the production people's reporting side of it, it seem to be that at the quarter end, more people are going down on their cash and trying to pay down their expenses to save income tax, and most of the reduction is related to our business customers reducing their deposits with the bank probably just to adjust their balance sheet or to do their proper tax planning. In many of the past years, they had the same nature of the fourth quarter seems to be a little bit lower.

[Joe Gladue:]

Okay, turning to the loan side, pardon me if you've touched on this before, what was the new loan originations in the quarter?

[Louie Couto:]

This is Louie Couto. We haven't touched on that yet during this call. We actually originated $30 million of new loans during the quarter, $23 million were CNI related and $7 million were CRE related. Of that, $3 million was owner-occupied in theory. The average floors on our CNI credits are running between five and a quarter to five and three quarters and on the CRE it's five and three quarters to six and a quarter to six and a half.

[Joe Gladue:]

Okay. Can you give us any color on what the outlook or the pipeline is as we stand now for the coming quarter?

[Li Yu:]

The pipeline is not robust, but it is, under the circumstances considered adequate. But the thing is that sometimes we find a lot of slippage in booking these loans. In fact, it was in my original thinking that we should have $20 million more booked by the year's end, but it looks like it's going to fall in somewhere in the first quarter. I would say probably we'll do at least that much if not double in the first quarter.

[Joe Gladue:]

You had some good reductions in both the land and construction categories. Was most of that due to the sales during the quarter?

[Li Yu:]

Yes, correct.

[Joe Gladue:]

Lastly, I'll just ask

[Louie Couto:]

It's 20.29.

[Li Yu:]

19.9 I think, okay?

[Louie Couto:]

Yeah, 19.9.

[Li Yu:]

To be exact.

[Joe Gladue:]

Alright, thanks. That's all I had.

[Operator:]

Thank you. Our next question comes from the line of Julianna Balicka of KBW. Please go ahead.

[Julianna Balicka:]

Good afternoon.

[Unidentified Executives:]

Good afternoon. Hi Julianna. Hi.

[Julianna Balicka:]

Happy New Year.

[Unidentified Executives:]

Happy New Year.

[Julianna Balicka:]

I have...

[Li Yu:]

What should you be saying to me?

[Julianna Balicka:]

(inaudible)

[Li Yu:]

Thank you.

[Julianna Balicka:]

Thank you. I have a couple of followup questions and a good number of them have already been asked. Of the loan portfolio, if we take away the non-accrual reversal impact, within your loan portfolio, what is the average rate on your CNI loans versus CRI versus construction? I think beyond the asset quality build-up and I just kind of imagine your portfolio being remixed more towards CRI and CNI without construction, what will be the impact of the lack of those yields? (inaudible) yield is?

[Ed Czajka:]

I don't have the detail on the rates by type in front of me. But I can tell you X the non-accrual impact the average yield on the portfolio for the quarter was 5.73. In terms of the mix, construction versus CNI and CRE, I don't necessarily have a sense for that that I can give you a real accurate answer, especially on the call.

[Julianna Balicka:]

Okay, that's fine. And in looking at your call report, I noticed that your NPAs, there was a number of them popping up in multi-family or investor-owned CRE and residential as opposed to the and of course construction loans have been going down, so I was wondering if you could comment maybe about the mix shift in your NPAs?

[Ed Czajka:]

We kind of detailed some of those in the press release as far as the loan AB situation. What has actually happened is that we have performing loans that are – again, these aren't loans that are past due under 9(b), these are loans that are current, fully current. As a result of underlying elements other than delinquency, we chose to put those or report those as non-accrual, and generally those have actually been CRE-type credit and that's why they're current from borrower cashed paid, you generally wouldn't see a loan where we would be indicating they are current from an interest reserve if they were construction. And so you see the change in mix certainly from last year to this year, where our NPAs that at this point, are more borrower current cash paid credit where as has happened to everyone else with the economy and the general overall economic trends, borrowers are more challenged to be able to have the debt coverage ratios and the collateral coverage ratios that would otherwise be customary.

[Julianna Balicka:]

Okay, so it's a maybe just more of a bigger trend as opposed to just one-off situations in any one particular loan.

[Ed Czajka:]

No, I would say it's probably the other way. I'd say it's just those loans that were described that actually came up. I don't see an overall trend shift or an expectation of more of that type.

[Julianna Balicka:]

Okay, that's very helpful. And then in terms of your cash and securities deployment, of course, as your balance sheet continues to shrink, is there a point at which you're going to have the optimal securities portfolio? And is there a point at which within securities portfolio, you're going to start shift among higher-yielding instruments or anything like that?

[Ed Czajka:]

That's a good question, Julianna, and I think in terms of deploying the cash we had on the balance sheet over the last six months, I think we're getting pretty close to coming to an end to that process. We obviously want to see what the pipeline does in terms of loan demand, Mr. Yu commented on that. We think that's going to start picking up a little bit. And obviously, as anyone on this call could relate to, we'd certainly rather put the money to work in a loan portfolio versus the investment portfolio. So I think we're coming very very close to the end of that deployment again.

[Julianna Balicka:]

Okay, very good. And final question on the can loans you mentioned you originated $23 million? Of that $23 million, how much of that is from your existing borrowers just increasing their credits and how much is that in new borrowers?

[Li Yu:]

What Louie was quoting you, those are the new loans booked (inaudible).

[Julianna Balicka:]

Right, but are they your pre-existing borrowers took on a second loan or anything like that, or is this a brand new customer of the bank?

[Louie Couto:]

It's actually a combination of both, it's about 50-50. We have seen some ability to attract some new customers and we have seen some of our existing customers on a discrete basis borrowing and tapping their lines and increasing new loans for a little bit of expansion.

[Julianna Balicka:]

Very good. Then last question if I may and then I'm going to step back, please. What is your currently largest performing loan relationship that is not on any non-accrual or any type of status?

[Louie Couto:]

It is 30, no, excuse me, it is $28 million.

[Julianna Balicka:]

And what kind of loan is that?

[Louie Couto:]

It's not a loan, it's a relationship.

[Julianna Balicka:]

A relationship, okay. But kind of loans are in there?

[Louie Couto:]

It's a mixture of CNI and owner-occupied CRE, a very long-term relationship, very well secured both in real estate and CNI as far as ability to cash flow and has very large substantial DDA deposits within the institution as well.

[Julianna Balicka:]

Great. Thank you very much.

[Operator:]

Our next question come from Michael Howard with AllianceBernstein. Please go ahead.

[Michael Howard:]

Hi, good evening. Thanks for taking my call. Just a couple of related questions. The first is, we can see here the trend in non-accruals obviously. Can you provide, at least directionally, a sense of the trend in classified assets, both quarter over quarter and maybe year over year? And then, secondly, does the increase in non-accruals this quarter, does it really represent a mix shift within classified assets, or again, is there actually an increase in classified assets?

[Louie Couto:]

Thanks for the call. This is Louie speaking. We've seen an increase in classified assets in terms if you're referring to internal gradings. We have seen a slight increase in that, but it's actually been a shift because we've had, year over year, it's decreased year over year but it's shifted away from construction into some other categories within the bank, but overall it's actually decreased. The non-accruals generally, and the change in that, were already existing classified substandard credit.

[Michael Howard:]

Okay, so the $57 million of non-accrual inflows, those were already classified.

[Louie Couto:]

Largely, I believe there was perhaps one or two of them that were not, but generally all of them were already classified.

[Michael Howard:]

Okay, that's very helpful, thanks.

[Operator:]

Thank you. Our next question comes from the line of John Deysher with Pinnacle. Please go ahead.

[John Deysher:]

Good afternoon.

[Unidentified Executives:]

Hi John.

[John Deysher:]

I was just curious in response to a prior question, you said the performing trouble debt restructurings were about $20 million? What were the total trouble debt restructurings at the end of the quarter?

[Louie Couto:]

Yeah, it's 57.7 million, of which 34.7 are on non-accrual and 19.9 are on accrual.

[John Deysher:]

I'm sorry, and 19.9 are on?

[Louie Couto:]

Accrual.

[John Deysher:]

Okay. So the portion that's not including in non-performing assets would be that 19.9?

[Louie Couto:]

That's correct.

[John Deysher:]

Okay, and what was the total number a year ago, and as of the end of September?

[Louie Couto:]

In September it was fairly the same, it was pretty much the same number as of September. I don't have the year-ago number right in front of me.

[Li Yu:]

September's not (inaudible)

[Louie Couto:]

Okay, as of last year, we had 34.9 million of TDRs, and pretty much all of them were non-accrual at that point. And as of September, we had 52.9 million and 21.1 million were on non-accrual as of September.

[John Deysher:]

Okay, great.

[Li Yu:]

In other words, the [ph] DDD accrued portion has been TDR has reduced from $32 million to $19.9 million.

[Louie Couto:]

That's correct.

[John Deysher:]

Right. Okay. Very good. Thank you.

[Operator:]

(Operator instructions). And our next question is a followup from the line of Aaron Deer with Sandler O’Neill & Partners

[Aaron Deer:]

Just a quick followup on the tax rate. It looks like there was a small tax benefit. I just wanted to check to see if that was a I'm guessing an adjustment to the DTA, and then can you confirm that it's worth thinking about things going forward that we should expect there to be a zero tax rate until you've shown several quarters of profitability which then we'd might expect to see that DTA written back up.

[Ed Czajka:]

In answer to your first question, Aaron, when we placed the valuation allowance on the DTA at the end of 2009, a portion of that valuation allowance was related to our negative mark to market fund, investment securities held for sale, over the course of 2010 as we have sold certain investment securities, provided that we specifically identity the mark on each of those investment securities over the period of time, we get to realize or I should say, reverse out the part of the valuation allowance on the DTA. So that's what you saw on the PNL for Q4. Going forward, your assumption is correct, we need to show some consistent profitability and essentially NPA is down to the level where there is not really a forecasted impediment to earnings going forward, at which such time we will get to reverse part of the valuation allowance out subject to the Section 382 change of control rules and then you're correct, we will obviously have somewhat of a normal tax rate going forward after that

[Operator:]

Thank you. Our next question is a followup from Julianna Balicka from KBW.

[Julianna Balicka:]

Hello, thank you for letting me come back to the queue. In your press release, you mentioned the consent order that was entered in March 2010. Could you update now that we're coming close in that one in New Year, can you update us on the next steps in order to get that order lifted?

[Li Yu:]

Well, we wouldn't know at this point in time.

[Julianna Balicka:]

Okay.

[Li Yu:]

We have no clue what's going to happen.

[Louie Couto:]

Yeah, there's no further trigger point if that's what you're asking. The capital and everything that had a trigger point, and the policies and procedures that we reported in the past, we amended those policies, we've done what they've asked us to do, so there's nothing that we could do any further besides wait for their determination.

[Julianna Balicka:]

Exactly. So you guys have met all of your requirements. So basically a year after, they just do a final re-examination and basically hopefully lift, right?

[Louie Couto:]

From your mouth, Julia.

[Li Yu:]

We hope what you said is true. Thank you for the well wish.

[Julianna Balicka:]

A very good wish for the new year. And a quick accounting followup. I was looking in your call report for the OREO write-down (inaudible)in the memos. It looks like it was really high this quarter. I was wondering what was the difference between call report and GAAP reporting and why the call reporting data looks different from the GAAP?

[Ed Czajka:]

I'll have to look at that, Julianna, and get back to you.

[Julianna Balicka:]

I appreciate that. Thank you very much.

[Operator:]

Thank you, our next question is from the line of Christopher Kliner with Taylor Asset Management.

[Christopher Kliner:]

Hi, good afternoon.

[Unidentified Executives:]

Hello. Hi. Hello.

[Christopher Kliner:]

Industrial and Commercial Bank of China has agreed to buy 80% of the Bank of East Asia's US subsidiary, and I'm wondering if you guys see this as the start of a trend of Chinese institutions buying into US banks, and have you had any discussions with any Chinese financial institutions?

[Li Yu:]

I guess that in thinking about my heritage, I'm the logical person to answer that question. And truly that is one topic that that has been discussed between myself and many investment bankers and many of my colleagues and many of the people from the Far East. From what I understand, there has always been a strong interest from China to come into this country. It's the unfortunate thing that there are not official MOUs being established between Fed Reserve and the Chinese banking authority. So it is reported that many, many of the second-line banks, you know the public banks in second-line cities and so on, with pretty large assets base are all interested in coming from their company to overseas and the United States is certainly one of them. And some of us, my colleagues in the Chinese banking side weren't expecting that activity to start within five years, if not three years.

[Christopher Kliner:]

Okay. Thank you.

[Operator:]

Thank you. Our next question is a followup from the line of John Deysher with Pinnacle

[John Deysher:]

Just a followup on the securities portfolio. Are we through most of the losses in that portfolio? I know, Ed, in the past you've given some color in terms of valuations and where we stood with those. Is the loss that you took in the fourth quarter a kind of combination of that, or what would your expectations be going forward for the securities portfolio?

[Ed Czajka:]

Well, it tough to prognosticate. First off, John, I want to say, and for the benefit of the rest of the listeners, hopefully you're still on the line. We did sell one of the trust-preferred CDOs during the quarter, and that was actually one of the reasons we received and we booked – you saw the tax benefit that I believe Aaron had alluded to earlier. But going forward, it's really difficult to tell. You know, we do, as I've indicated before, a very detailed, thorough analysis of all of the underlying issuers, which are almost all commercial banks, some insurance companies, on a quarterly basis. We're not seeing types of deterioration we saw even six, nine months ago, in terms of underlying banks either deferring their trust payments or defaulting altogether. So the trajectory is not as bad as it was. The thing that really remains to be seen, is a number of the banks that are underlying issuers in these pools have recapitalized their institutions. And so on that front, what we'd like to see, and what we're still waiting for on some of them, is for them to begin to reinstate their trust-preferred interest payments again. I think some of them cannot right now simply because of regulatory restrictions, but we would anticipate some to in the future, which would obviously help the valuation of these pools. With that being said, it's really hard to say going forward, John, what the expectation is. I guess it's probably better now than it has been at any time over the last year and a half.

[John Deysher:]

Okay, but of the securities available for sale at fair value, $183 million, what percentage of that is trust-preferred?

[Ed Czajka:]

Only 2.4 million book value are these trust-preferred CDOs, so a very very small piece.

[John Deysher:]

Okay, so it's really dwindling.

[Ed Czajka:]

Mm hm.

[John Deysher:]

Right, thank you.

[Ed Czajka:]

I also want to say, in response to Julianna's question earlier regarding the valuation allowance and the OREO. The valuation allowance item in the call report is on year-to-date basis, whereas our disclosure in the press release was valuation allowance was just for the quarter, so I think that may answer that question.

[Operator:]

Thank you, ladies and gentlemen. (Operator Instructions) Mr Yu, I'm showing no further questions at this time, sir. Please continue.

[Li Yu:]

Obviously the number one mission of the management is to reduce our non-performing assets, our troubled assets. And I see in certain areas a possible bright light on those things. First of all, you know that the TDR, which is performing TDR has reduced from $34 million on September 30 to $19.9 million on December 31. And I do expect most of that $19.9 million, if they continue to perform as agreed, most of them will be commodity of TDR, become normal loans within the next six months' period of time. And we have identified a number of our non-performing loans, and we're working on that in an effort to reduce it in the first and second quarter, including that the newly-placed $39.9 or $40 million cash current non-performing loans, we're working on methodology hopefully that can bring to early (inaudible) accrued status. And currently we have a number of OREO assets in play. And normally, not everything in play will be closed, but we are hoping a reasonable number of transactions will be closed in the first and second quarters. So it is our most important mission, operation-wise speaking, that we think we're structurally profitable. We just have to keep on operating on a prudent basis. With that, and being an Asian, being a Chinese, I wish everyone a happy new year, and a prosperous new year for all of us.

[Operator:]

Thank you sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1 800 406 7325 or 303 590 3030 using the access code of 4405559 followed by the pound key. This does conclude the Preferred Bank fourth quarter 2010 conference call. Thank you for your participation. You may now disconnect.