Operator 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, Li Yu; President and Chief Operating Officer, Wellington Chen; Chief Financial Officer, Edward Czajka; and Chief Credit Officer, Nick Pi. Management will provide a brief summary of the results a ...

I mean if that issue doesn't get resolved, everybody will have to worry about the large DDA they are getting from our customers in changing the nature of liquidity and coverage. So I don't know that issues still out there. We don't have an answer to you. But as the pure dollar amount of DDA, we're just like everybody else seeing that small migration into the higher cost area but we hope the pace has slowed down. In fact, I hope pace will end in this quarter, but time is to tell that. Yes. We -- obviously, I ...

Jeff Haas - Financial Profiles, IR Li Yu - Chairman and CEO Wellington Chen - President and COO Edward Czajka - Chief Financial Officer Nick Pi - Chief Credit Officer Johnny Hsu - Deputy Chief Operating Officer 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 Bankâs results could di ...

[Operator Instructions]. And our first question here will come from Matthew Clark with Piper Sandler. Matthew Clark First one for me, just on the available liquidity, the cash and the borrowings that are available of $1.5 billion relative to the uninsured amount of deposits, I think roughly half of your deposits are about just under $2.7 billion. I guess what's the plan? Or what's kind of the targeted coverage you're looking to get to? Do you -- are you looking at -- it sounds like you're looking to pledge ...

Company Participants Conference Call Participants Matthew Clark - Piper Sandler Andrew Terrell - Stephens Gary Tenner - D.A. Davidson David Feaster - Raymond James Tim Coffey - Janney Operator Good day, and welcome to the Preferred Bank Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] 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. Jeffrey Haas Management will provide a brief summary of the resul ...

Financial Data and Key Metrics Changes - The company reported a record net income of $35.2 million or $2.40 per fully diluted share for Q3 2022, with a return on equity exceeding 23% [9] - Loan growth moderated to 8.5% for the quarter, with year-to-date growth at 14.1% excluding PPP loans [10] - Deposit growth was recorded at 3.5%, with an increase in deposit costs anticipated to accelerate starting from September [10][11] - The net interest margin expanded by 60 basis points due to a greater increase in loan yields compared to deposit costs [11] Business Line Data and Key Metrics Changes - Credit quality remained stable, with classified assets moderately reduced and no charge-offs reported for the quarter [12] - The loan loss reserve increased to 1.33% of total loans, reflecting a $2.4 million recovery and $2.7 million in new provisions [12] Market Data and Key Metrics Changes - The company acknowledged the macroeconomic environment heading into a recession, prioritizing credit quality and management of deposits and deposit costs [13] Company Strategy and Development Direction - The management emphasized a cautious approach to loan growth, particularly in the real estate sector, due to reduced transaction volumes and higher standards for new loans [26] - The company plans to maintain a conservative capital strategy, focusing on preserving capital during potential recessionary periods [74] Management Comments on Operating Environment and Future Outlook - Management expressed uncertainty regarding future net interest margin (NIM) expansion, indicating that the pace of deposit cost increases is influenced by market competition [19] - The company is closely monitoring loan portfolios, particularly commercial real estate loans, but has not identified severe issues at this time [44] Other Important Information - Non-interest expenses increased due to inflationary pressures, with expectations for continued expense growth in the future [51] - The weighted average rate on new loans in September was reported at 5.99% [54] Q&A Session Summary Question: Outlook on NIM given recent rate hikes - Management indicated uncertainty but noted that NIM is expected to continue expanding, albeit not at the same level as Q3 [19] Question: Deposit growth trends and mix shifts - Management aims to maintain current deposit levels and is facing increased competition for deposits [33] Question: Concerns regarding loan growth in a slowing economy - Management expressed cautious optimism for loan growth, particularly in commercial and industrial loans, but acknowledged the uncertainty in the market [26] Question: Non-interest expenses and future run rates - Management confirmed that non-interest expenses are expected to remain elevated due to ongoing inflationary pressures [51] Question: Capital management and share repurchase plans - Management emphasized the importance of maintaining capital during uncertain economic times and indicated a cautious approach to future share repurchases [74][81]

Financial Data and Key Metrics Changes - Net income for Q2 2022 was $28 million or $1.87 per share, with a total of $54 million or $3.61 per share for the first half of the year [11] - Loan growth was $329 million or 28.6% annualized for the quarter, and 22.4% annualized for the first half of the year [11] - Deposit growth was $98 million or 7.3% for the quarter [13] Business Line Data and Key Metrics Changes - The loan portfolio consists of 13% fixed rate loans and 87% floating rate loans, with 76% of the total loan portfolio fully floating as of June 30 [16][17] - A provision of $2.9 million was made mainly related to large loan production [16] Market Data and Key Metrics Changes - Competition for deposits has intensified, primarily led by major banks, leading to an expectation of increased deposit costs [13][33] - The average margin in June was about 20 basis points higher than the average for Q2 [21] Company Strategy and Development Direction - The company is focusing on credit quality amid a looming recession and has begun a deep dive into its portfolio [14] - Plans for capital allocation include potential increases in dividends, additional share buybacks, and investments in securities when prices are more attractive [44] Management Comments on Operating Environment and Future Outlook - Management noted that while loan growth may revert to 2021 levels, they aim for low double-digit annualized growth [63] - The company is cautious about committing capital due to economic uncertainties and is monitoring the situation closely [44] Other Important Information - The share repurchase program of $32 million is progressing, with $24 million completed as of the call [18] - Non-performing assets increased mainly due to the payoff of senior loans on a property [15] Q&A Session Summary Question: What is the average margin in June and expectations for Q3? - The June margin was higher than the average for Q2, and margin expansion is expected in Q3, though not to the same extent as in Q2 [21][22] Question: What are the expectations for non-interest expenses in the second half of the year? - The run rate for Q2 was higher than expected, with Q3 expected to be similar, influenced by ongoing salary pressures and inflation [26][27] Question: What is the appetite for broker deposits? - There is currently no appetite for brokered deposits, and the company has allowed brokered money to mature without replacement [64] Question: How is the company approaching reserve levels given economic uncertainties? - The company is applying a cautious posture in reviewing both quantitative and qualitative factors for reserves, maintaining a higher reserve than peer groups [55]

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