Preferred Bank

Good day and welcome to the Preferred Bank fourth quarter 2022 earnings 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. To ask a question, you may press star, then one on a touchtone phone. 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 Jeff Howes of Financial Profiles. Please go ahead.

Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter ended December 31st, 2022. 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 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 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. Thank you, ladies and gentlemen, for attending our earnings conference. I am very pleased to report that we have another record quarter of earnings. Fourth quarter 2022 net income was $39.6 million, or $2.71 a share, which compares very favorably with prior quarter and prior year. Because this increased earning power, our board has announced a 28% increase in dividend in December and to start to be payable in January. Gross interest income has outpaced the growth in deposit cost. Consequently, our net interest margin expanded to 4.75% for the quarter. However, toward the latter part of the quarter, we have seen that the deposit cost increase has accelerated. We believe it's a catching up and this process will continue into first quarter of 2023 at least. Many of our customers are continuing to manage their money by moving their deposits from lower cost to higher cost and then we see the market continues to offer higher deposits nearly every day, deposit costs every day. Going forward to grow deposits at a reasonable cost will be a challenge and will be a thing that we must do. Sequentially, this quarter has a net loan increase of 1.3% and a deposit increase of 1.9%. Deposit, I mean, loan demand has tapered down. or moderated since third quarter of 2022. And we believe it will be carried over well into the first quarter at least. Our customers generally find it just more prudent in their operations and then especially in terms of new transactions or new initiatives committed. Because of our high earning capability, liquidity and capital ratio both improved from the previous quarter, and we believe our current liquidity level and capital level can easily handle our growth foreseeable growth need in the year 2023. Benefited by the net interest income increase, our efficiency ratio coming at 26%, even when we consider included a $1.8 million of OIU items. Going forward in 2023, expenses is expected to increase. General wage inflation is the main thing. The increase include FDIC premium, new premium assessment, two new, at least two new plant branches, some plant addition to SAF, and also a fully operable SBA department that will be fully operative in 2023. Our attention since early 2022, that I'm sure that you can see on my previous earning release report, that since 2022 we've been very focused on credit matters. I'm also pleased to report that both NPA and NPL, NPL has improved from the third quarter. At December 31st, they are at a lower level than September the 30th. In fact, in early January, we have resolved another $5.3 million, or we fully collected another $5.3 million in non-performing loans. Effectively, as of today, our December 31st non-performing loans is only $200,000. And a very good early indicator of credit quality is our 30 to 89 days past due loans. I'm also pleased to report at December 31st, the amount totaled only approximately $1 million. Based upon a report published by Bank of America, our third quarter return on tangible common equity is 23.6 percent, which ranked us the second among all California public traded banks over $2 billion. We believe our fourth quarter performance will land us at approximately the same situation at least. Because of our business spa model and because we are a business bank serving business and private clients, our model does not allow us to necessarily become a very low-cost deposit cost operator. However, if you add non-interest expense to the deposit cost, which will give us the total cost of operation, for years we have been the lowest among our peer group. We believe, or I believe, okay, the high earning power and the low effective total cost will be the best defense facing a recessionary economy. We are optimistic about 2023, but we'll be very careful. Thank you. I'm ready for your questions.