Preferred Bank

Good afternoon and welcome to the Preferred Bank second quarter 2021 earnings conference call. All participants will be in a 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 Hawes of Financial Profiles. Please go ahead.

Thanks, Chad. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the second quarter ended June 30th, 2021. With me today from management are Chairman and CEO Lee Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Chayka, Chief Credit Officer Nick Pye, 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 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. Lee Yu. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen. Preferred Bank second quarter net income was $21.2 million, or $1.44 a share. This quarter we have some non-recurring items. First of all is correcting an interest income item which related mostly to 2020 events. And the second one is an amortized discount on a term loan, on the subject loan that was previously existing, which we called. And third one is a loss on a sale of a loan. Without these three items on a normalized basis, our net income would be $1.58 or $1.59 a share. And our return on equity will be over 17%. On the same basis, net interest margin for the quarter was 3.47%. A 14 basis points drop from the previous quarter. Under the low interest rate environment, we continue witnessing that new loans being made at less of a rate than the old loans paid off. And we also have many customer renegotiations on rates. For instance, seems to be a whole lot of SNCC loan rates has been renegotiated them. Also, the large access to liquidity also weighing on the net interest margin. Our loan, however, has grown 11% for the quarter. During the quarter, we are seeing a vibrant loan pipeline, but we also see increased payoff activities. Looking ahead, we believe the pipeline will continue to be reasonably satisfactory. This is especially true when many of our newly hired loan officers will be closing loans in the ensuing quarters. We also see a modest interest cost savings in the quarters, two quarters ahead. Our credit matrix has improved. Classified assets is down. Criticized assets is down. Deferment of loan as of June 30th is only $1.5 million. And for all the interest and principal that we have granted deferment to our borrowers, we have collected back 67% already. This quarter we have a little bit of charge-offs. but that was charging of the previously reserved loans. So when there's a charge-off, there's a corresponding reduction in reserves. This quarter, we're recording zero loan loss provision. I must report to you at this time that a conversation I've had with one of our private shareholders yesterday, Specifically, he is questioning me as to why we are not having a long-lost reserve release during the quarter, like most, almost every other banks. I told him, first of all, of course, the CISO's mathematics. But I also told him, from a personal point of view, and looking at the glass half full basis that I'm kind of pleased that we didn't have any release this quarter. The most recent economic forecast that was reported by Wall Street Journal yesterday was a forecast by Morgan Stanley's chief economist who indicated the economic expansion will continue at a reasonably good rate going well into 2022. We echo her sentiment. You see, there's not a whole lot we can do about the current low-interest rate environment. And there's not a whole lot we can do about the inflation pressure, but we here will be dedicated to continue to provide top tier profitability to our shareholders. Thank you very much. I'm ready for your questions.