Preferred Bank

Good afternoon, and welcome to the Preferred Bank 2022 first quarter 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. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Larry Clark of Financial Profiles, Inc. Please go ahead, Larry.

Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter of 2022. With me today for management are Chairman and CEO, Lee Yu, President and Chief Operating Officer, Wellington Chen, Chief Financial Officer, Ed 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 related to preferred banks' 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 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. This time, I'd like to turn the call over to Mr. Lee Yu. Please go ahead.

Thank you. Good morning, ladies and gentlemen. I'm very pleased to report our first quarter net income of $26 million of $1.74 per year. fully diluted shares. This is a 23% increase from the same quarter of previous year. Loan growth was a highlight for this particular quarter. It increased 4% on a linked quarter basis and annualized at 16%. The fourth quarter loan origination momentum has carried over to the first quarter, but with payoff activity moderating a bit, which resulted this performance in the quarter. Looking ahead, we are very encouraged by the applications for new loans that has received so far. Although these applications will be subject to higher standards of underwriting, we do believe that second quarter results could be quite positive. The positive growth for the quarter was moderate at 1.6% lean quarter of 6.4% annualized. This is well within our expectations in light of Fed's activities. The higher loan production versus the lower deposit increases has allowed us to deploy some of our excess cash to better usage, which we think is proper financial statement engineering. Our margin has improved from the freeze quarter by 14 basis points. This is partially because of the higher deposit, a higher loan increase versus a lower deposit increase that changed the leverage. Again, under the current rate rising scenario, our environment, looking ahead, we're quite positive about our margin expansion. Preferred Bank has a very asset-sensitive balance sheet, and I have included some of the components of our assets for your information in the press release. On the liability side, we had a $1.96 billion of deposit portfolio that is a time certificate of deposits. These deposits carry an average life of 7.3 months, which means they will be repricing at a much slower pace than the interest-bearing transactional account. We have made the improvement in our credit posture. Two of the very large, for the larger Legacy Loans on a non-accrued basis has been with the bank for over two years. Finally, after months and months of core battles, we finally was awarded to repossess these assets, and did so just before the quarter end. Now, our loan portfolio is pretty pristine. was only $2.2 million of non-accrual loans as of March 31st, 2022. There was a charge-off in the quarter. The charge-off is related to the charging off of the previously fully established reserve on those legacy loans. There are no income statement effect. It is almost certain that under a current inflammatory environment that our operating expense will increase and continue to increase in the months and quarters to come. But Preferred Bank has always been very focused on controlling our expenses, and we have reason to believe that our increases will be not any higher than the industry norm. The first quarter non-interest expense was a little higher than previously guided to you in the first quarter conference phone call, in the January conference phone call. And I'd like to apologize for the misguidedness. And the actual number for the first quarter were the beginning will be the beginning of new norm. Also like to alert you with our share counts and on the fully diluted outstanding shares. It has increased this quarter along with the price increase of our stock and it will continue to change along with the value of our stock changing. All in all, we at PreferBank are happy with the first quarter, and we hope we can do even better in the quarters to come. Thank you, and I'm ready for your questions.