Preferred Bank

Good day, and welcome to the Preferred Bank Third Quarter 2021 Earnings 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.

Thanks, Jason. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the third quarter ended September 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. Liu. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen. I am very pleased to report our third quarter net income of $26 million, or $1.77 a share. Those are new records for our preferred bank. Likewise, the return on average assets of 1.8% and return on equity of 18 percent are also the recent year's highs. This quarter, we have experienced significant deposit increases. Quarterly deposits increased nearly $400 million on the annualized basis, a little bit over 33 percent. Important thing is that the quality of the deposit gross is good. 70% of the deposit gross are in the area named interest bearing demand deposits. Another 20% is in the area of interest bearing demand deposit and money market. Deposits cost improved moderately from the previous quarter. And I do expect that the trend will continue that moderately improved in the fourth quarter. Loan for the quarter increased $77 million or 7.1 percent annualized. This is lower than our previous quarters. And we look into our pipelines. We found that This quarter, we originated $260 million on new loans. However, the $260 million on new loan is in line with previous quarters, slightly better. However, the payoff for the quarter increased to $210 million, which is roughly about compared to average $150 million in the previous quarters. Long-year moderated a little bit, okay, and likely to continue to moderate, I mean, compression, moderately compressed in the coming quarter. The net interest margin come in 3.6 percent, which is lower than previous quarter. but that was the result of oversized deposit growth. This quarter's bright light is in the non-interest income. We have $1.1 million increase for the quarter, largely due to the increased LC fees. Looking ahead, LC fee likely to be satisfactory in the fourth quarter, but probably will be slightly less than the third quarter. Our operating expense, to my personal surprise, coming at 30.4 percent. We started to fear the inflation and wage increase pressure. And I guess the full effect of inflation will gradually show up in the later quarters. Our credit quality is stable. There are no deferred payment loans under the CALS Act at this time. PPP loans have been reduced to $65 million. And the non-performing loans were steady. Altogether, we had only seven non-performing loans, including two of them on the mortgage product. We are highly encouraged by the third quarter operating results. Under the intensive long competition environment, which we now get used to, and also under the slow progress in controlling the Delta virus, and under the inflationary, although it's called transitional, but we don't know how long this transition is going to be here. But I do see all these facts will gradually improve in the coming days. And we here in the Preferred Bank are quite optimistic about our 2022 year. Thank you very much. I'm ready for your questions.