Preferred Bank

Good day, and welcome to the Preferred Bank Third Quarter 2024 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, this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profiles. Please go ahead.

Thanks, Wyatt. Hello, everyone. Thank you for joining us to discuss Preferred Bank's financial results for the third quarter ended September 30th, 2024. 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 environments. 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 that 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. At this time, I'd like to turn the call over to Mr. Liu. Please go ahead.

Thank you, Jeff. Good morning. I'm very pleased to report the Preferred Bank third quarter net income was $33.6 million, or $2.46 a share. The highlight of this quarter is a successful reduction of our non-performing loans, which resulted in no charge-offs but $800,000 of interest recovery. Credit-sized loans, however, has increased quite largely due to one relationship. And currently, we believe this increase in criticized loans is a temporary event. Non-interest expense has increased somewhat unexpectedly, but that was the reason that we have made a valuation charge of $1.7 million on our OREO. This OREO is currently in escrow and scheduled to be closed later this month. Loan demand seemed to have increased and payoff slowed down. Our net increase in loan for the quarter is maybe over 10% on the annualized basis. Deposits, however, has decreased slightly from last quarter in the amount of $11 million. Admittedly, that preferred bank has been started to monitor the deposits portfolio since early September to not competing for the higher cost deposits. As a result, cost of deposit has reduced slightly in the third quarter from the second quarter. Net interest margin improved. due to obviously the deposit cost decrease, due to the net interest recovery, and also because of change in the leverage in our loan-to-deposit relationship. Efficiency ratio of 30.6 percent is a little higher than previous quarters, but if we disregard the non-recurring event of the valuation charge in the OREO, the efficiency ratio would be about 28.5 percent approximately. At September 30th, Preferred Bank's loan portfolio consists of 26 percent of fixed-rate loans and 74 percent of floating rate loans with most of them having a floor. We believe our loan sensitivity is in reasonable balance with the sensitivity of our deposits portfolio. I do like to point out our TCD portfolio has a different nature that it would reduce in a smaller amount in the earlier months, but catch up and reduce, cost reduce in the bigger dollar amount at the later stage of the TCD. We are happy to see that finally we see the federal government's rate cut and we project that probably there will be continuous moderate rate cuts going forward. We'll stay, obviously, very focused on that. Thank you very much. Now I'm ready for your questions.