Preferred Bank

Good afternoon, everyone, and welcome to the Preferred Bank third quarter 2023 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. To ask a question, you may press star and one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Jeff Haas of Financial Profiles. Please go ahead.

Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the third quarter ended September 30, 2023. 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. Li Yu. Please go ahead.

Thank you. Thank you. Good morning, ladies and gentlemen. I'm very pleased to report another quarter of record income. For the third quarter, Preferred Bank earned a net income of $38 million or $2.71 a share. Compared to the second quarter, net income and net interest income both increased and our expenses decreased. For the quarter, we have a little bit of loan growth. Loan demand continues to be low, as our customers seem to be much more cautious these days, and our underwriting standard remains elevated. On the deposit side, the increase was $94 million for the quarter. We have seen deposit costs slow down, and Looking forward to the fourth quarter, we think the trend will continue. Credit quality remains generally stable. We have a small increase in total criticized assets, but we have a bigger increase in the non-performing loans. The non-performing loan increase is basically the migration of two loans from a lower classification to the non-accrued category. Loan number one is a $16.1 million loan that was borrowed by one of our very good borrowers for many, many years. Unfortunately, the gentleman passed away recently. and the large and complex estate has caused the delay of resolution of this loan. And we're notified, we're just notified that the property is in escrow, okay, and the borrower should be closing it in later part of October and pay Preferred Bank off. There's another $2.2 million of loan is in the same category. It's the discussion between the beneficiaries for a large and complex estate. This loan was secured by a property. Loan to value ratio is less than 20%, and I'm happy to report We have received full payment yesterday. And we're also scheduled to have another large loan, which is classified, which is included in the criticized category. A large loan of $23.5 million should be paid off today. We've confirmed that was the lending bank that took over this loan. We will obviously update you later when all these things happen. For the quarter, we have made a provision of $3.5 million. The charge off for the quarter is $80,000. Last quarter, there's no charge off. Therefore, our allowance total has increased to 1.46%. We believe that's one of the top level allowance number among our West Coast peer group. Our operating costs remain under control. Efficiency ratio was 25% for the quarter. Since the second quarter of 2023, we have been actively buying back of our own stock. As of today, a total of 720,000 shares has been repurchased with a total consideration of approximately $42 million. The buyback is highly beneficial or accretive to the EPS for remaining outstanding shares. And we plan to continue the activity under the current program. I'd also like to report, where's the large amount of buyback and where's the dividends? Preferred banks' tangible capital ratio actually increased to 10.1%. The bank has been, in the last several years, has been reporting earnings quarter by quarter, beating consensus estimates. Quarter after quarter, we'll see the future estimates going up. And we are very pleased with that. We will continue to pledge ourselves to operate the bank efficiently and prudently. Thank you very much. I'm ready for your questions.