Good afternoon, and welcome to the Preferred Bank first quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then 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 touch-tone 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 Haas of Financial Profiles. Please go ahead. Thank you, Betsy. Hello everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31st, 2021. With me today from management are Chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington Chen, Chief Financial Officer, Edward Czajka, Chief Credit Officer, Nick Pi, 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. Li Yu. Please go ahead. Thank you. Good morning. Preferred Bank's first quarter income was a bank record of $21.2 million or $0.42 per share. Compared to prior quarter, quite favorably, because this quarter we have only 90 days as compared to the first quarter of 92 days. In addition, in this quarter, we have a quarterly specific payroll taxes on bonus distribution payroll. This quarter featured strong deposit growth on an annualized basis is 25% +. We are thrilled to have these additional deposits because it gave us more opportunity to grow and to do many things. We have also noticed the excess cash flow has been moderately compressing our capital ratio, return on assets, net interest income, and net interest margin. First quarter loan growth was $104 million, or 10.4% on the annualized basis. We have noticed through our various contact with our customers, and generally they are more optimistic about the future of our economy. They are planning or already taking action to commit to more business expansion transaction or investment transactions. Some of them even went as far as fearing about the potential inflation and then wants to commit their resources to assets at this point in time. To meet this increased demand, we have, one, added a team of four relationship officer and total team of six in Houston, Texas. In California, we have so far added five relationship officer and will continue to look for new talents throughout the year. We're working on areas in New York and other places for new relationship officers. Internally, we are convinced that the next Fed interesting move will be going up rather than coming down. With that, we are actively, and we have been always been preparing ourselves to have our balance sheet become very asset-sensitive. As of March 31st, credit metrics seem stable. The total deferred COVID-19 loans, related loans, was down to $25.8 million, which is quite moderate. Operating expense was slightly higher, but considering the quarter-specific payroll taxes, it is not much different as compared to previous quarters. As you are well aware of, our business model is that we have one-on-one high-touch service relationship with our customers. We're eagerly waiting for the economy to open up so we can reach out to our customer more actively. Thank you very much. I'm ready for your questions. We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. Our first question. No question yet. Our first question comes from Matthew Clark from Piper Sandler. Please go ahead. Hey, good morning, everyone. Morning. Could you just first start on the margin and the contribution from PPP? I don't think it's that material, but I was trying to hone in on the core margin excluding PPP, if you had the contribution in net interest income this quarter. No, but best answered by Ed. Okay? Yeah, I would say, Matthew, due to the fact that PPP totals about $94 million. The rate including fees was about 2% in the most recent months. It's pretty negligible against the $4 billion portfolio. I would say probably maybe a basis point on the margin. Okay. No problem. No worries. That's fine. Okay. On the outlook for the margin, you guys put up some pretty good growth and maybe you can speak to the rate on new originations. I know you have a lot of floors on your existing portfolio, given the growth, is it fair to assume that we should see some incremental pressure on the margin just from the new business? Okay. Matt, margin prediction has become a situation that we watch our time. For instance, just to be statistically mentioning, for the first quarter, we have a payoff rate is 90 basis points higher than the rate of new loan being done. Okay? This has widened up from previous quarter of $0.32. Okay? 32 basis points. Okay? It is a going trend when you have a low interest rate environment for a long extended period of time, people sort of pricing their loans lower on the competitive side. Also that you mentioned that we have nearly a large portion of our loans at a floor. Yes. Many of the floor was made about two, three years ago, was quite high. All the customers coming back and renegotiating on those floors. In many cases, we have to agree to the changes and so on. These two factors going forward is that we'll have additional negative pressure to the margin minimum. Okay. Not net interest income. What the positive force is continuous reducing of the interest cost plus the potential interest cost reduction, we refinance of the sub-debt and also our growth. Okay. If we have strong growth, it will balance out some of the margin compression situation. Okay. Yep, that's great. But I'm not- NII is clearly. Well. Yeah. NII is clearly the focus. Just on the C&I growth this quarter, also very strong. Could you just give us a sense for where that came from, maybe by industry type or business type this quarter? Yeah. You want to mention that? Did I have some statistics you want to mention that? Yeah. Sure You want to discuss this? Hi, Matt, this is Wellington. As Mr. Yu mentioned that our clients are bullish now and they're very upbeat, and they see opportunity. Some existing client relationship is their business expansion and also taking over some new relationship that adds to the base. Our industry. Okay? We have, for example, the produce, packaging, healthcare professional, data center, communication. These are some example. Like the building material, like pipes, fasteners, et cetera. Just to also tell you, the new clients represents most of the growth, but there are about the additional usage or increased usage by existing client in the neighborhood, $40 million. Okay. That's helpful. Thank you. Then just on the non-interest expense side of things, maybe for Ed. In terms of the run rate, it sounds like you guys have hired some additional relationship officers that probably put a little bit of upward pressure on that comp line. I guess, how should we think about the overall run rate and the potential for additional hires for the rest of the year? We don't have the Houston LPO, for instance, personnel. That's not a fully baked quarter in there. That's about half the quarter, you know. In addition to that, the payroll tax expense was fairly high in Q1 as it is every year because we pay our incentive compensation every February of every year. That's a bump of about $500,000-$600,000 on the run rate. I would say going forward, we were $15.65 in this quarter. I'd say going forward, we'll be probably right around $15, would be my guess. Okay. Great. Then maybe just lastly on the loans that were sold, can you just give us some color there in terms of what exactly was the amount that was sold and the property type and situation in general? Okay. We have one SNC loan was downgraded substandard. Okay. We don't want to keep this loan in our portfolio because it's been substandard. Okay. We sold it. Got it. Thank you. Our next question comes from Gary Tenner, from D.A. Davidson. Please go ahead. Thanks. Good morning. Yeah. Was hoping just to get a little bit of color in terms of your comments about working to be more asset sensitive. You talked about floors a little bit, would love to get an update on today, the amount of your portfolio that's floating, how much of the portfolio is subject to floors, and how in the money the floors are. Any commentary on what you're doing to become more asset sensitive, as you noted in the press release, would be appreciated. Eddie, you had it handy, just read it. Hi, Gary. Of the total book, and again, this is as of year-end. I apologize we didn't quite get it updated in time for 3/31 because it requires a lot of data work. Of the total book, 82% floating rate, 18% either fixed rate or tied to CDs and secured by CDs. Of the floating rate, over 99% have floors. Okay. In terms of where we move going upward, Gary, I think that's probably where you're headed in terms of interest rate increases. The first 25 basis points only moves about $50 million of the portfolio. The next $50 million moves another $42 million. The next 25 basis points moves another $12 million. After we get to 75 basis points, we really start to see a majority of the portfolio start to reprice. You can assume that we're roughly 50-75 basis points in terms of upside down on the floors. Yeah. That's great. I appreciate the color. In terms of loan growth for the year, obviously, you talked about the new hires, good quarter ex PPP this quarter. Expectations for growth for the remainder of the year based on kind of pipeline and what you're seeing and hearing from customers right now? Well, here's a situation that I have always been saying that our crystal ball is kind of not that clear. Okay? I like to think that the sentiment among all our staff is that business is increasing, people is more active. To quantify it in terms of percentage is difficult. As you know, though historically, we have always been having a reasonable organic growth. Obviously that we dedicated ourself to continue at least the historical level. Again, there's lots of variables, economy, when it's open, what time it become, maybe pick up speed, and those other things. Okay. I really cannot answer quantify it, but I just say that we feel that the growth will continue in the next few quarters. Okay. Just with regard to the Houston LPO and the hires there, what's the focus in terms of lending there? Is it C&I? Is it commercial real estate? What's the target? Yeah. Outside of California, we are obviously that we started off with CRE, and gradually, as we rooted into the community, that the more then we're gradually getting more C&I. In the California new hires, the two new loan officers or five new loan officers, three or four of them is C&I. Okay. Houston initially will be more commercial real estate focused. That makes sense. Yes. Great. All right. Thank you for taking my questions. Our next question comes from David Feaster from Raymond James. Hey, good afternoon, everybody. Hi. David. I'd just like to get an update on the Houston LPO. That's pretty exciting. Just curious to hear maybe how the contribution was in the quarter, how the pipeline's trending, and just, I guess kind of the early read on that. Well, you want me to answer that? Well, we can both answer that. I think that our pipeline, our initial first pipeline meeting about a couple of weeks ago, they presented over, I would say, 10 real doable deals. Now it's just a matter of getting their back office people in place and start putting the deals together. Just after this meeting, we have weekly pipeline meeting with them. Looks like so far, the officer that we have there, they know the market, they have customer base, and seems like a customer are all portable. Mr. Yu? Okay. David, number-wise speaking, there's no contribution from Houston in the first quarter, okay? As of today, we have not booked any loan yet, but a couple of them ready to be closed. Okay. That's encouraging. The growth's going to clearly be there. Just maybe more broadly, just given some of the recent consolidation and disruption in Texas and across the country, does that create an opportunity for maybe some more of these de novo type expansions? What markets are kind of at the top of your priority list? Well, you know that we are people specific type of expansion. In other word, we always find a banker and a team, then we go to the area where he or his, her expertise, I mean, is in those area, have a relationship in the area. We are not sure which area that will come out for us. We're working on several areas right now, okay. We are not sure which one will be end up the first, okay. I mean, available talents that can be hired. There are about three or four regions we are currently looking at, okay. Other regions will be just maybe by the good grace of God, will fall on our laps. Yeah. Okay. Maybe just following up on your commentary on new loan yields, how are new loan yields trending? You talked about the 90 basis point spread. Was that more of a function of mix or continued pressure on pricing? Has the steepening of the curve at all allowed you guys to maybe have better pricing in your conversations? I have to qualify my answers that I just got the information a couple days ago. I have not dived enough into that. My first reading the situation is that this quarter, that at the mix is one of the issue, okay? It shouldn't be as big as 90 basis points, because last quarter was 32 basis points. With the so-called day in, day out, I mean, all the deals coming in, okay? It should be less than 90 basis point, we cannot really quantify that much yet. The trend is, it probably will continue to compress a bit in terms of yield is concerned, just because one thing, competition. Okay? People are pricing their loans on a 10-year fixed rate below our net interest margin. Okay? Unless there's one or two very specific cases that we will get them for because other reasons, we cannot compete with that. Yeah. Where do you see the most competition? Do you find it from the larger banks or is it the smaller community banks that are being the most competitive? Larger banks. Okay. All right. Thanks, everybody. Our next question comes from Tim Coffey from Janney. Great. Thank you. Morning, everybody. Hello, Tim. Mr. Yu, if I were to ask you about kind of commentary on the deposit growth in the quarter, would it be any different than what Wellington was describing in terms of the loan growth, that you saw more activity by clients as well as introduction of new clients to the bank? Well, deposits inflow, actually, most of them coming from our existing clients. We have not taken any new clients in the quarter that represent a huge deposit basis, okay? It can be more than one or two, okay? It come basically from our existing customers now. It grows. That means generally, we feel our customer base financial condition is getting better. Okay? This is what we observed. Okay. With the tax filing date being pushed back, do you anticipate any kind of outflow in deposits that's well above the seasonal type that you would see in 2Q? Well, it is my selfish hope that the deposits, we will lose $200 million deposit during the tax date, okay? That will improve our net interest income. Okay. Yeah. No, that would definitely help. Likely to be reducing a bit anyway. Okay. Ed, as you look at kind of the time deposits maturing this next quarter, do you have any idea, can you show what the volume might be and what the price differential could be? I do. I can. Great. Tim, it's just under $500 million will be maturing over the second quarter, at an average rate of 95 basis points. Cool. To be replaced somewhere around 50 basis points. We've actually just recently lowered again our offered CD rates. That's the beta for the quarter. Okay, great. Thanks, Ed. Mr. Yu, the Houston LPO, I mean, obviously you've got a really experienced team leader out there. The goal that you set of about loan originations of $150 million by the middle of next year, are you getting a sense that you could do better than that? Or is it too early? Well, so far, this is the goal that our Houston leader has set for us. Obviously, we have the psychology of our staff to be worried about because if you set too high, too push a goal, people will get negative reaction out of that. Obviously, we do everything. Okay, if they can produce $500 million during the first year, we in Los Angeles can be, I don't know, sitting on our hands. Judging from the prior experience we have to starting with a new office, we think that is close to reasonable, and we hope it's going to be better. Okay. All right. Great. Thank you very much for that. Those are all my questions. Our next question comes from Andrew Terrell from Stephens. Hey, guys. Good morning. Hi. Good morning. Credit trends looked pretty positive this quarter, and it was nice to see the negative charge-off number. Can you just remind us kind of what the outlook is for the loan loss reserve moving forward as we go throughout this year? Well, first of all, it's a CECL calculation, okay? I want to say something first and then have Nick, our expert in CECL, I mean, to talk about that. First of all, let me recall your memory, okay. In 2020, we provided loan loss provision of $26 million. We had a charge-off of $5.4 million. The $21 million must have went to two areas. One is the general macroeconomic situation. The second of all is what we called reserve for proactive downgrades, okay? We like to think some of them is quite proactive. Now, after we make those provisions, I mean, these credit did not deteriorate. Somewhere along in the future periods, it will be upgraded, okay? Together with the general improvement in the macro situation. It is conceivable that we may have some releases in this year, late this year, mid this year. We just don't know, because depend on the calculation. I want to tell you personally, I am very happy that we don't have to use up the receive in the first quarter. It's kind of nice to retain the availability. Nick, you want to add anything to that? Tim, just like Mr. Yu mentioned that for this year's projection, I believe it's not as last year. Because the quality of our loan portfolio is quite stable at this time in terms of declining in the volume of deferment request and the volume of downgrade changes and non-performing asset as well as past due 30 days loans are quite limited. For this year, we believe that it's supposed not to be like last year. We try to make, just like Mr. Yu mentioned, we make a reserve to prepare ourselves during the pandemic time. This year or next year, probably we don't need that much of a reserve, and there will be have some reversion. That's our prediction at this time. Okay. That's extremely helpful color. I appreciate it. Just thinking about some of the liquidity on the balance sheet. Obviously, a lot of liquidity, and you guys are not alone. It may be kind of, deposit flows can sway this near term, but can you just remind us over the longer term, where you like to manage the cash balances just as a% of total earning assets? Okay. It's a two-edged sword in a situation. There are times we're fighting for deposits like crazy, okay, because of the loan growth and generally the tighter deposit market. This happened to be the countries are flush with cash. I was reading the other reports, other banks, it all seems to be everybody is flush with cash, okay? As a operator, I can only speaking as a operator and not a financial engineer, okay? As a operator, deposit is just like capable staff. You need to get it when you see it. Even though it's a short term negative, but long term, it's productive. What we just hope to see is we get deposit gradually reducing our cost, and we slowly grow into it, and we'll eat the differences in so-called a negative number I mean, because once we turn away certain deposit, turn away certain relationship, will they come back when we needed them? As a operator, our consideration is slightly different. Yeah. Understood. Thank you guys for taking my questions, and congrats on a good quarter. Thank you. As a reminder, if you have a question, please press star then one to be joined into the queue. Our next question comes from Steve Moss with B. Riley Securities. Hi, good morning, guys. Hi, Steve. Just one question here. Most of my questions are asked and answered. In terms of just the other half of the deposit base here, your interest-bearing savings and checking deposits were basically stable quarter-over-quarter in terms of cost. Just wondering if those were repriced lower here with CDs? The majority of the repricing within that category, Steve, took place in 2020. Excuse me, when rates were coming down quite precipitously. There's not been any repricing in the money market or NOW or savings account categories. Going forward, the repricing is, if anything, is very moderate, because we're already close to the low of our peer group. Got it. Okay. Well, that's my only remaining question. Great quarter. Thank you very much. Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Li Yu, Chairman and CEO, for any closing remarks. Thank you very much. I hope we are really in the last leg of this pandemic. I pray that everyone stay safe, and we get back in, which I hope is a new boom cycle for our economy. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.