Preferred Bank

and welcome to the Preferred Bank third quarter 2020 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profiles.

Please go ahead. Thank you, Jason. Hello everyone, and thank you for joining us to discuss preferred banks financial results for the third quarter ended September 30 2020. With me today from management our Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Chayka, and Deputy Chief Operating Officer Johnny Hsu. Management will provide a brief summary of the results, and then we will open up the call to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to preferred banks' operations and business environment, all of which are difficult to predict and many of which are beyond the control of preferred banks. For a detailed description of these risks and uncertainties, please refer to the SEC required documents that the bank files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize 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'd like to turn the call over to Mr. Liu. Please go ahead.

Thank you very much, ladies and gentlemen. Thank you for joining our earnings conference phone call. I am very pleased to report Preferred Bank third quarter net income was $17.1 million, or $1.15 per share. These numbers compare favorably with the prior two quarters. In fact, on the pre-provision pre-tax basis, third quarter net income and a nine-month net income was a record high for our bank. The quarter's improvement is largely the significant reduction in deposit costs and continued overhead control. people have always considered Preferred Bank is an asset sensitive bank. But if you recall, about two quarters ago, I have already reported to you in our press release that we have became a liability sensitive bank. I'm just very pleased that we have something to show you in this quarter. Deposit costs will continue to decline in the fourth quarter, but not at the same magnitude and the same pace as the third quarter. For the quarter, our net interest margin was 3.54 percent, a three basis points reduction from previous quarter, mainly due to a larger balance sheet and much increased excess cash on hand. However, on the XPPP basis, our net interest margin actually improved to 3.61% from 3.59%. Quarter-quarter deposits continue to grow 1.5% or $64 million. However, our loan has declined $14 million. I guess the prolonged shutdown or lockdown in our main trade area, which is Los Angeles, New York, and San Francisco, and finally affected the deal flow pipeline. And new opportunities of loans also seems to be less attractive under the current environment. Much of our attention and focus is on credit matters. As of June 30th, we have some non-performing loans, total a little less than 50 basis points. We have decided to charge off a portion of them. And we have also decided to reserve whatever exposure we can see the full amount on the very conservative basis. Meanwhile, for the quarter, because of, for the quarter, our loan loss provision was a larger number of $9 million. So, as a result, our credit bill continues. Total reserve to loans It now stands at 1.58 percent. On the deferment side, total loan that received modification under the CALS Act was $610 million. Balance at June 30th was $467 million, and balance at September 30th was $199 million. In the third quarter, we had a 53% reduction. We've also reached out to practically all of our borrowers inquiring about their plans. And we're very encouraged to learn a great majority of them indicated that they are planning to resume their scheduled payment very soon. Therefore, deferment balance at December 31st could be a very modest amount. For the third quarter, our return on equity was 13.7 percent. We at Preferred Bank is elated about this, not because the number represents after the significant loan loss provision, not because it represents the culmination of all the one year's work to restructure and reposition our loan portfolio and our balance sheet, but rather We believe bigger earnings will give us bigger muscles to fight the uncertainties ahead. Thank you so much, and I'm ready for your questions.