- Earnings call transcript Q3 2022

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Operator

Good afternoon and welcome to the Preferred Bank Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I would like to turn the floor over to Jeffrey Haas of Financial Profiles. ahead. go Please

Jeffrey Haas

management Hello to Jamie. third thank for Operating today you ended Yu; CEO, Thank and President Preferred everyone, Bank's us Chief from me With discuss XX, the Chairman financial joining and September Li you, XXXX. and are open results quarter Officer, then summary Officer, the Credit Management Johnny up Nick Wellington will Officer, we of and questions. Pi; provide Chief Chief Czajka; Financial brief the Hsu. and results Deputy will Chen; a your to Edward Officer, Chief call for Operating

course may During forward-looking Litigation Such by the may correct. or Reform forward-looking this meaning the may within that XXXX. of statements of not made prove are conference call, statements Securities Act management based statements of upon Private the assumptions include specific

to predict control beyond are business operations Bank's known unknown to risks, factors which many and to are Bank. and statements of other also the are and uncertainties, relating of and Forward-looking Preferred difficult Preferred of environment, all subject which

For the of refer required Preferred to ahead. files materialize of expectations any to Please the Bank's to uncertainties bank and Yu. prove Bank documents assumptions Corporation like the a in the with uncertainties, please these assumes these this description call Deposit could update At FDIC. Li as If no SEC Insurance or over or Mr. any detailed incorrect, these go such materially results turn Federal from risks these differ of I’d its time, obligation forth to set statements. Preferred forward-looking statements.

Li Yu

have pleased very another morning, we very that much. Good to I'm you gentlemen. Thank and record quarter. report ladies

per was share. $XX.X diluted Third quarter fully income or million $X.XX net

the in of the loan reflected – increases earnings June Also, federal the is increases, our asset XX the on sheet. sensitive federal was September. quarter contributed and aided fully by This sensitive very also quarter's large reserves, balance rate to deposit of

continue loan because the the for X.X%. has costs increases condition. Loan since on continuing cost current we and X.X% deposit down unexpected Deposit and than much with Deposit growth not be quarter XX.X% increase, is the moderated net over in growth increased, to quarter. fourth ex-PPP. return equity basis to It but XX%. was to our quarter, loan less to from margin. economic a date growth has is This will costs September Year deposit interest accelerate we had expansion yield point accelerate starting increase XX in will our was

stable. quality Our credit remained

reduced. classified is Our moderately assets

Together of the but loans. This quarter, because no new increased recovery. the $X.X a size. X.XX% inflationary banks condition loss has has in of growth and million reserve also have we provisions, million cost bank's charge-offs, operating asset our $X.X with the to The loan total we of have increased

the ratio and a in macroeconomies into a However, the increase since efficiency deposit little actually Preferred our we a to over had present decrease management At revenue, XX%. our quality and is bit credit top recognized We heading time, recession. priority the at of costs. large deposits to Bank

to continue I'm well so we your very the and We will – alert be quarters. be much. you Thank have questions. done far for in simply future ready

Operator

Instructions] Davidson. D.A. with from ahead from your [Operator today first go question. Gary question Our Please comes Tenner

Gary Tenner

Thanks. Good morning.

we said quarter expected I was it that third expansion press Li, since a commentary than basis cost mid-July, tightening in the second of point September think you now some than regarding So, hike, NIM quarter think September? you, hikes full hikes, in potentially deposit rate that the expected in outlook as at XXX think release fourth can acceleration about position but Ed I last net had kind will less you or and the Obviously, quarter the be you the quarter of given more point thought quarter.

Li Yu

but idea, no have things we is, answer we to about. I tell have what the you final know The Okay.

That revenue September fourth The rate banks two-thirds all at now the in will First rates paid that guess the have bearing the increase. fully will the are maturing, all we expansion. repricing. TCD demand is December but In increase like higher the like is be people the is quite XX the the withdrawal basis million money the early has this interest quarter, anybody's said, we mercy small especially the fourth magnitude, will XX point. deposit I – point of will for market now. then in priced or $XXX they be guess There's marketplace. time. pace will and TCD many X.X% by the basis really if about later, of a And [indiscernible] is priced at And in is be set And the deposit, sooner there you be We point, the we guys, the will November, which And be will over quarter. be really on. quarter okay. The deposits if paying quarter. for of bit. our will fourth open And increase, you for the the major accelerated so all, it mean, know bar a is cost or in a TCD competitors. deposit, at rate, over pay over deposit I place in

like the third is, do I NIM not okay. to same But can keeping be I that expand, but we will to alert the best continuing of and say that to see managing, probably quarter. the level So, will

other side to the value reprice – the we okay. will we condition And value in has to changed, we had, because the a we of is reflect getting appraisal On situation. that first conduct we be [indiscernible] see market better to – appraisal the the would one negative also quarter, more will have probably in

Gary Tenner

saying talking [ph] In [OREO] broadens] we that terms were are specific, we're talking [portfolio one [ph]? you to of or that about specific

Li Yu

The contract be in others all seems to close. to waiting

Gary Tenner

may you that suggesting have the what's to [Multiple size And you're reprice one Speakers]? of the

Li Yu

[$XX [ph]. million]

Edward Czajka

$XX million.

Li Yu

yeah. million, $XX

Gary Tenner

[ph]. million] [$XX

historically there. is that standards, driven Thank quite the spread much Okay. growth of And then a in a which is bit very low been and quarter, even loan story. than And we've stronger most third you. Preferred’s I by the appreciate revenue seen. Preferred’s color

given a fourth particularly do and broad part early estate XXXX? expectations of looks the out economy, growth to relates like real slowing in least think where as we you activity, that as frankly So, quarter at it loan to go of

Li Yu

it in many came marketplace, [ph]. to is, a us at what do much it’s loan The transaction is kind tax of develop. portfolio side, a not the real higher to of the But does be with is on we subject tell economy has estate enough And is transaction pipeline Well, the ball, October. least – it of crystal again, know the okay. to and us the the is a understandably completely as much [there] or flow to different will cash new reduced, standard, what

quarter's which depend [future industrial we the So, fourth a quarter going [ph]. their high hope and third the will also bit, fourth for pick no reach drawdown, we of actual in a very, loan If growth] They amount C&I we’re usage little to will [indiscernible] quarter, control. like up loans. we're commercial on sort the in But will the consider lucky. will then I not are very

Sorry about can answer the way that. [indiscernible]. That's only I the

Gary Tenner

the provide. able appreciate you. color to Thank you're I Understood.

Operator

question. question with comes from Andrew Stephens. Our next Please Terrell from go your ahead

Andrew Terrell

good or afternoon guess I morning. good Hey,

Edward Czajka

morning. Good

Andrew Terrell

of, migration deposit you some this on it So, kind to in growth. It I just the bearing you start deposit like mix bearing some deposit moving Can should we accounts, interest think from from quarter. to next talk you growth a change forward deposit similar about looks the of guess was mix of to shifts wanted saw overall then you the good accelerate or trends composition you see think few know I quarters? do commensurate we just deposit And with expect here? do over see think to how acceleration? I Do the non-interest level cost like

Li Yu

would explanation this do lose manage some we deposits. our we that is our we at grow do. have stay that in first primary and of bit, level. want some we would And Remember, I’ll to of That's I all, most you goal. okay. that to to a answer little juncture any try above than ask if to question don't deposit, Wellington Well, asked, the we Well, current

very is, is want it So, And don't money. wealthy businesses. point behavioral choices basically situation secondly, customers' has know their the have if from business heightening of keep view, What They under with with all can from, the money matter owner to savvy of I changed. my consumer, and coming customer Fed's situation, kinds their [indiscernible]. are individuals we with Bank's the what wherever many Preferred and are current deposit because they happen. the

web any into put of competition that, market much not from they type is know facing management, do whether to question [indiscernible]. the but So, the side. a more We different we're want

on literally stay on top to our it a read, daily on deposit daily basis do is stay with job a of basis, base. – our which So, you

One of want to to you that? add

Wellington Chen

that's to any I Mr. couldn't add strange the point. very more, Yu,

Andrew Terrell

That's at cost great. end spot of or deposits Ed, you bearing the I Mr. the either it quarter? Maybe appreciate have the for do Yu. total interest of

Edward Czajka

rate quarter. deposits of was cost run basis in XX the points September. at Total end of the Yes. DDA That the including would be

Andrew Terrell

at? of mentioned CD time new, Okay. you some I from where of deposits, the for are are And the, then where larger kind know kind you banks you rates year – of market rates pricing one

Edward Czajka

X around Right X.X. to

Andrew Terrell

Okay.

Edward Czajka

client the on Depending side, etcetera. relationship

Wellington Chen

We just it. raise

raising. continue to have We

Li Yu

rates a weekly basis. is our changing the how on market changed That's almost now. We fast

Andrew Terrell

any nice at, me. shift about ask geography the based for I'm the And your balance quarter-on-quarter, kind in in kind you're Yes, of obviously of rates? lot more certainly of ratios just sheet. your magnitude looked one quick but becoming on more given a areas just where you a of clients? service estate to updated specifically loan of looking curious, loans wanted portfolio, thinking rate just to little step the real up whether I concerned are see, prime prime up of kind environment. commercial debt Maybe at just there yields the, have upward segments for

Li Yu

to want Nick, you first? the answer

Nick Pi

[TCR will there [ph]. on be definitely pressure side] some Yes, the

has officers the the all and time. However, at some closely, but with one-by-one watch C&I recognize we loans didn’t notice bit severe this we to a at trouble quarter, time. a we this are any with during issue last gone loans, little Definitely, the need certain all of that loan there any team through our management loans [indiscernible] CRE on side don't the

Li Yu

situation, is another know at of personal Andrew, XX% least of Well, the right, guaranteed. over our great the loans, you majority loans

personal whereas capability So, fairly we our cash was that have we a then their [indiscernible]. behind underwriting, and instilled flow, do [indiscernible] considered when and

[protection added bank] [ph]. our that's So for one

Andrew Terrell

quarter Okay, perfect. Well, on and congrats my taking a thanks questions. for good

Li Yu

Thank you.

Operator

Adam Please question. Sandler. Our comes from Butler go Piper next from question your with ahead

Adam Butler

covering is everybody. Clark. Adam Matthew Hey, for This good morning,

Edward Czajka

Hello, Adam.

Adam Butler

Is that non-interest to quarter, Getting good mainly expenses. started to with run of it pressures. rate a that this forward? increased I inflationary going due kind assume saw

Edward Czajka

hit a Yes. That's [ph] going charge quarter. forward, And [XX.X] of we this XXX,XXX. with real estate

but closer we'll regular continue on rate, I make XXs regular [ph], likely We're the because more you going to So, increases, some personnel, XXs, a have increases. to case looking rate, on to that. have have high we'll forward, going additions still And forward, on run expense lease run etcetera. say could to mid-to-high would a [XX.X] cost

Adam Butler

rate Okay, average new weighted great. Thanks. And in do you loans September? guys the have on

Edward Czajka

average in Weighted new rate, loans September.

Li Yu

[guided] quarter. [ph] Yes. for we Well, Speakers] [Multiple the

loan the when new new is, [indiscernible]. we that quarter, For X.XX%. is we're see loan getting

Adam Butler

That's all you. my Thank great. questions. Okay,

Li Yu

Thanks. Okay.

Operator

Coffey from from go question. with And comes ahead Please question your our Tim next Janney.

Tim Coffey

Thanks. Good morning, gentlemen.

Li Yu

Hi, Tim.

Tim Coffey

specialty, from kind been different of back banks certain country questions commercial of construction given did core and have loans that, of my that answered, right right to starting I we're is have but hearing real estate of competitors reaching you from parts from you, one now? now. are that a what your the geographic Most your kind certain seeing Are consider, like we pull products loan for

Li Yu

that everybody you certain more is being us be I a do see okay. certainly research there's office is cautious, long in helpful at you generally basically seems that and be settlement would And helpful. area very is seeing Are what more [indiscernible]. Well, it? like including product, that universally to see –

loan the So, again, you see and of [ph], to have sponsorship [loans also the they'll the and cash flow. one off] LTV

Okay.

I reluctance more competitors lot doing So, a ourselves including loan. see our speaking, and in a generally new but for

Edward Czajka

is everyone very That's much, cautious. tricky. the pretty Yes. I mean, is market very

probably So, word, strong think, cautious is I pullback a is…

Tim Coffey

right you're Okay, now. about Yes, aren't geographies ones necessarily talking that in and okay. I'm

be So, they're markets different it could that seeing.

very That All question. right. you much. Well, thank was Okay. my

Li Yu

Thank you.

Operator

with ahead Our question Specter next Instructions] comes your go Raymond Eric from from [Operator Please question. James.

Eric Specter

Hey, guys.

adding in follow-up that NIM. you I'm kind putting you forward? going rate and Just think wanted thoughts your on guys rate rate curious, of light of managing sensitivity to doing lending? on Is that? here about sensitivity your managing on the do prefer doing loans, more swaps, floors accelerated in how How fixed betas would more just just

Li Yu

our have previously have loans, many [indiscernible]. of We disclosed we which at

outlined loan refer the quarter's that; the [ph] can [floor] You there we whole mean to on please at release. have It's situation. I last press the how much

this economy So, it the of floating right rate situation. of is a lot guess lot loan in continue do come product act] [Fed the will the But practice our with definitely now. a fixing I be A cannot future. will do predicted majority to of and flow, in to it is the timing It sometime had kind [ph]. the

So, our timing of in plan, it – definitely natural. we it's the were but is

Edward Czajka

try an really your managing in It's fortunately on floors, have cost to type environment It's roughly of cost count the this just add versus floors just on then at sheet, three at same have just a terms very of growth And swaps, tricky into deposit was really a last assets them. managing upward more talked entered not do, of than is in you It's science the at the we the any the to and but balance cushion. with I going point. quarters into a deposit act. based deposit this the of agreements which loans, swap the to rate in we terms about Well, have side, time. costs thing balancing prime them it. And like already art little the

Eric Specter

you still color. kind just a this your going in think potential portion a deposit curious forward? large you deployed cash you and of the for have ratio? of targeted cash portion you you then earmarked Thank about of but assets then quarter, do how this if cash your deploying Okay. And have liquidity a flows? to And Is

Li Yu

investment key. and I'm read is your me – cash from your customer just side, the I which telling

be this unsettled Okay, careful. need to environment all

following I'm firm's advice. your guess I So,

Edward Czajka

there some I don't portfolio. I point think be yet for opportunity think at will we're there investment the increasing though.

Eric Specter

it. Got Okay.

Li Yu

that. You should [indiscernible]

Okay.

Eric Specter

then your kind of of thoughts on And curious just capital.

that You a How about completed during thinking How are or repurchase are the going quarter. hoarding your cautious of ahead about forward? think capital more like taking And recessionary that? you share you period? outlook do you

Li Yu

[indiscernible] a think recessionary says serious in a capital, especially want you all, of And us, first I Well, majority keep like it's of only to [recession] period, your when people our okay. [ph], not be regulators, to Directors, obviously our our think and our the have I [be including situation Board to When [ph]. and shareholders before of to we eases us everybody, capital. want hold on that]

Eric Specter

last Okay, got question. it. And then one

kind your curious is your about Houston and of near-term there appetite Just de the LPO additional the backdrop? developing how for given opportunities and pipeline novo

Li Yu

want talk Wellington, about you do it? to

Wellington Chen

Houston, Sure. continue contribute. to Eric, they

over I there. a full have think team we

service of full So, course, LPO our branch. plan, to graduating from

So that ongoing. still plan is

bit novo an we like we again, unless the the a available. So, other de team geographic strictly because on It's local is to mentioned it's feel opportunistic us. what opportunities, of been anywhere for going was situation. novo, a have it's Yu talent. good De as based human question? as not go we before, We're whatever, – And location, at Mr. the look

Eric Specter

back. quarter I'll Okay. again you. Got thank it. on Well, great Congrats and a step

Li Yu

Thank you much, so Eric.

Operator

And Andrew question our Please with your from from a next go Terrell is follow-up Stephens. follow-up. ahead

Andrew Terrell

and I'm be that obviously standpoint, thanks interest any now to kind a of The terms same incredibly kind level Hey, this just vein capital, is Kind that how higher of kind profitability some of have income – money but kind of with terms maybe question. maybe Are more in of efficiency higher franchise. taking some hear rates you're using the targeted thinking in for in earmarked earning able of ratio lot to the been you're there of, you higher follow-up as profitable. accelerate of reinvestment franchise about, XX%, of the areas love of the investment like, may of thoughts any curious or there?

Li Yu

You the first. answer want to

Edward Czajka

is into a coffers. environment, obviously king more Well, this the I about, going talked Yu into think as capital we are and you lot Mr. putting

to soon. I'm that that. one first revisit do probably at we’d board. to fairly think of the sure would dividend They would want I the things be level

The once of in other to some extent reinstitute to the buying what thing economy have time terms we is did perhaps and year this clarity to keep stock we then the perhaps where going, it some in might capital can we of be is back. terms

Andrew Terrell

Okay. targeted And is you're there a, of kind or looking capital level to? ratio

Edward Czajka

the what we capital Well, more. within have. us somehow to not bit nine to to we it the months, to term reserve next hold use is – just a six can, to is some on of situations, short the – I if – we we'd just And like if methodology mean, to the if we allows want

when clear, as doing treating obviously progressive. not point issue. time, we be So, the we this we number the economy At things go lending to along, be as Again, that's safety one hard. will probably that's more our is is in want

Andrew Terrell

understood. Yes,

Okay. I follow-up. appreciate the

Operator

And like we've the this back any to today's remarks. for the to reached question-and-answer of team end over session. I'd gentlemen, turn management time, ladies and at floor closing the

Li Yu

lucky so you about the asked thank much. planning. Well, to very questions to We're capital us

I as sales [process] able very lucky have attention to be putting will in have going mean, our conservative be can quarter, to [ph] certainly and be forward. this more we in we we the So, will managing our to afford full we're

Okay. Thank you.

Operator

for conference ladies gentlemen, presentation. and with we'll today's thank do call. And you We that, conclude joining today's

disconnect now your may lines. You

Preferred Bank (PFBC) 20 Oct 222022 Q3 Earnings call transcript