Preferred Bank (PFBC) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank third quarter 2011 conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions.) This conference is being recorded today, Thursday, October 20, 2011.

At this time I would like to turn the conference over to Han Huie at Financial Relations Board. Please go ahead, ma'am.

Thank you. Good day, everyone, and thanks for joining us to discuss Preferred Bank's preliminary results for the third quarter ended September 30, 2011. With us today from management are Mr. Li Yu, Chairman, President and Chief Executive Officer; Wellington Chen, Chief Operating Officer; Ed Czajka, Chief Financial Officer; and Louie Couto, Chief Credit Officer. Management will provide a brief summary of the quarter and then we'll 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 documents the Company files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materializes 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. Mr. Li Yu, please go ahead.

Thank you. Good afternoon. Our bank earned a net income of $6.6 million for the third quarter of 2011. Included in the $6.6 million is a $4.5 million recovery of previously written down deferred tax assets, or DTA. We now have a positive outlook of our future; therefore, we decided to make this partial recovery and we do expect future recoveries to continue. Without this DTA recovery, net income is $2.1 million, which is an improvement from prior quarter. The improvement is the result of expanding net interest income and mildly reduced credit costs.

The credit trend right now has been good. We are resolving our nonperforming assets at a reasonable pace. The migration into nonperforming loans for the past three quarters has been ranging from mild to in -- or negligible. Early-stage delinquency, or commonly known as 30 to 89 days, is very, very low. We have reason to believe that our future credit costs will be moderating gradually. And the word -- the way we use the word moderating and gradually is because -- rather than that we use the word sharply is that because I believe that the current economy is still in a very unstable stage and we'd rather stay on the conservative side.

Our production effort in the third quarter has been satisfactory. Deposits increased $22 million. More importantly -- or $24 million. More importantly, the transactional deposits increased $46 million for the quarter, which has improved our total interest costs. And we are seeing trends that this improvement in trends will continue.

On the loan side, during the quarter we have originated a total of $96 million in new loans, of which more than half of it is C&I loans, or commercial and industrial loans.

For the quarter we have net effective increase of $43.5 million of our loan portfolio and, with C&I loan in a single quarter, 15% unannualized increase.

Other improvement in the concentration mix is that we now -- we believe we now are one of the few banks that comply -- in compliance with the regulator guideline of 100/300 in commercial real estate loans. Not that it is very important economically, but it does put us in a better position under current regulatory environment.

Going forward we will continue to work hard to result in nonperforming assets. We will continue to improve and expand our net interest income. We will continue to improve the -- our balance sheet quality which, in my personal opinion, is already at a very good position at this time.

And it gives me great pleasure to report all of the above to you. We're ready for your questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions.)

Our first question is from the line of Aaron Deer with Sandler O'Neill & Partners. Please go ahead.

Hi, Li. Nice quarter. This is actually Andrew on for Aaron right now.

Hi, Andrew. How are you?

Good, thank you. So, given that you've been able to recover some of the valuation allowance, I'm curious how much of the valuation allowance remains yet to be recovered -- or could be recovered?

Well, actually, this is kind of a semi-complicated story, but I would like to have Ed give you better insight about that. Ed, would you pick up the question?

Certainly. Hi, Andrew.

Hi.

Right now, after the recovery of the $4.5 million this quarter, the total DTA is in the neighborhood of about $26 million. Of that, approximately between $5 million and $6 million we lose to Section 382 Change in Control Limitations with respect to the capital raise. There will be some other ins and outs with respect to what happens in the fourth quarter with respect to the DTA, and of course it's always changing. But in the future, we're looking at in the neighborhood of about $18 million to $20 million in further recoveries on the valuation allowance.

Great. Thank you. So then, in the coming quarters what would be a good tax rate to assume or can we just continue to use zero until it's all recovered?

Continue to use zero until it's all recovered.

Great. Thank you. I'll step back.

Thank you. (Operator Instructions.) Gentlemen, I'm showing no further questions at this time. I'll turn the conference back over to you for any closing remarks.

Well, thank you. This must be the easiest conference call we have had.

At least the shortest.

Okay. The shortest, the easiest. Must be that we did a pretty good in putting our press release out and the information contained there. At least let us have the pleasure of feeling that way for just today, yes?

Thank you very much and, for any question you may have, please call us, okay? Thank you.

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030, using the access code of 4481297 followed by the pound key.

This does conclude the Preferred Bank third quarter 2011 conference call. Thank you for your participation. You may now disconnect.