Preferred Bank

Good day and welcome to the Preferred Bank fourth quarter 2023 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 your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Jeff Haas with Financial Profiles. Please go ahead.

Thank you, Rocco. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter ended December 31, 2023. With me today from management are Chairman and CEO Lee Yu President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Chayka, and Chief Credit Officer Nick Pye. 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 banks result to 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. Good morning, ladies and gentlemen. Thank you for coming to our earnings conference phone call. I'm pleased to report that the bank's first quarter net income was $35.8 million, or $2.60 a share. We close out the year with a record earning of $150 million, or $10.52 a share. We attribute this to our active margin management and our continuous cost control. During the first quarter, credit quality remained stable. We have a reduction in total criticized loan. However, we have an increase of non-performing loan. The increase in non-performing loan is a one real estate relationship, whereby it was previously classified and now are in the foreclosure process, which means we'll be closer to the ultimate resolution. The loan to value ratio of this real estate relationship is 70%. The collateral is industrial property fully occupied with cash flow insufficient to support the loan. We are currently projecting there will be no losses on this particular MPL. During the first quarter, there were no loan charge-offs, and then provision for the first quarter was $3.5 million, which leads to a reserve on the loan losses total of For the year 2023, our loan and deposit increases of the new productions is below our historical level. However, it was in line with industry averages. Looking forward with the projected rate decreases. We believe loan demand will recover gradually and hopefully toward the end of the year it will be closer to our historical level of demand. Likewise, we are projecting that the deposit cost will continue to moderate. During the quarter, the bank has, well, let me put it the other way. Our bank has generated a significant amount of free cash flow for the year 2023. We have used $50 million of that cash flow to buy back roughly 800,000 shares of our own capital stock. And the rest we've used to enhance our capital position. And, okay. We have also announced the increase to the dividends by 27% beginning 2024. In January, we also announced a new buyback program of another $50 million of capital stock. So we are very mindful of looking for opportunity to return capital to our shareholders. And going forward in the year 2024, we'll be carefully balancing ourselves between growth, capital enhancement, and shareholder return. Also, during the first quarter, we have also begun to restructure our security portfolio. We sold $29 million securities for $929 million. thousand dollars loss, which does not affect the capital position as they are already marked, okay? And we will buy back the same securities, I mean, similar securities for better use. We here at Preferred Bank believe the banking industry is in the process, beginning the process of back to normal, okay? And with that, we certainly hope that we will return to our historical level of growth. Thank you very much. I'm ready for your questions.