Earnings call transcript Q4 2022

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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

Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter ended December 31, 2022. Nick management Operating and Financial Officer, Czajka; Credit from President Li Officer, today Chief Chief Chief Deputy and Wellington Officer, me are Johnny CEO, Chairman Yu; Edward Operating With Officer, and Hsu. Pi; Chen; Chief

a provide the of open summary we questions. results, to the call brief your then will will Management and up

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

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

or assumes any Bank materially forth these detailed Corporation, a Preferred incorrect, statements. required results SEC of Federal forward-looking update the in For uncertainties, and these statements. as Bank's of FDIC. risks or to prove its If materialize such Deposit description expectations from please with these the refer obligation set to of bank assumptions uncertainties the Insurance no could files differ documents these any Preferred

time, Li like over this ahead. the to turn Yu. call At I'd to Mr. go Please

Li Yu

you much. and Thank Thank gentlemen, ladies for you, conference. very attending our earnings

and announced a --start in increase $XX.Xmillion quarter of $X.XX our another dividend of prior has to a earnings. quarter year. or Because payable we which Fourth favorably record be December very January. net in earning am this have I be XXXX income to XX% power, prior in report was that pleased compares Board to and quarter increased with share, very

in outpaced net interest the Consequently, quarter. to expanded deposit in our Growth X.XX% for the has costs. income margin interest growth

at part first believe latter least. we have the XXXX quarter, continue quarter this catching of has into We up the that accelerated. the process cost will of deposit the increase towards and seen However,

And see Many of deposits deposits their every market we then continues lower money our continuing -- every nearly higher to cost higher cost deposit moving to manage by the customers are day. their costs. day from to offer

Going thing will must at we deposits cost do. challenge the be grow forward, will a and that a be to reasonable

Sequentially, X.X% third net X.X%. and loan Deposit increase loan XXXX, increase moderated it has this a quarter or demand into deposit of at since quarter will I and tapered of the least. -- down we quarter of first carry-over has well be believe mean,

terms terms find earning initiative generally of customers just in of in especially -- prudent then transactions it Our or new in XXXX. ratio year quarter. operations. our liquidity and both from of more the new capabilities, our And and high their foreseeable And Because current level gross can -- we need liquidity improved in easily the handle previous committed. level gross our capital believe capital

Benefited ratio $X.X Even at XX%. when by we the items. a interest income net included of coming OREO increase, million our consider efficiency

--at the fully to that planned least increase planned XXXX, expenses branches, in also thing. premium -- new premium assessment, includes a SBA operative will to operatable is SAF XXXX. be General new FDIC forward, two main is some in inflation wage Going department and The fully addition two increase. expected new bank

a that matters. third lower we've has the from NPL to than that Our but early previous are been I'm at report you sinceXXXX, XX. release attention earnings pleased sure At both December XXXX, report, focused since XX, also and very level September NPAs see my I'm can credit they on quarter. on improved

million report December to of as XX, past days nonperforming indicator very totaled $XXX,XXX. early only fact, fully our is also of is early good another January, due of XX loans XX quality In pleased to we the of million. approximately $X our December a at loans. nonperforming Effectively, resolved amount credit In I'm today, have collected -- another only in $X.X XX, million loans. $X.X

Bank upon $X California which traded by our second will at port Based us from are billion. on among tangible our equity ranked over common public lend of apart published the We banks quarter the America, same third all return believe us least. fourth is performance XX.X% quarter situation

deposit of necessarily bank does But motto us cost because and become expense if you we add however, cost business our will noninterest business operation. allow a us cost of to Because clients, business the the total spa very a model give to costs, that our are and not serving low private -- deposit which operator.

lowest have the years, okay, be best total the and recessionary a We believe, the earning facing power high peer among believe effective group. our will defense cost For economy. been the we or I low

about are but careful. very We optimistic be XXXX, we'll

Thank you. your questions. I'm for ready

Operator

first Sandler. [Operator question. your go comes Instructions] from Our question Clark with Matthew with Piper ahead Please

Matthew Clark

it on you the excludes and start think, that of I rate how rate roughly, might in expense year. run to think Maybe and can forward this noninterest growth you guidance $X.X throughout costs Wanted progress OREO-related speak clarify the year? around some run your million. going assume to 'XX, I the the

Li Yu

is Well, budgeting process. which by answered in this the must Ed

Edward Czajka

Yes. Matthew. Yes.

we if pull million a $XX QX, So we on the just run out were in costs OREO under rate.

an end million is the high because end, expense. in about a looking we're low which QX, noninterest us under certain terms for at least at in inQX, for million $XX.X little of of of always aberration forward, costs just probably at Going bit $XX

will terms have it in there, a similar, ramp in somewhat slow be from noninterest although rate probably the you'll growth expense. of forward Going

Matthew Clark

Got Yes. it.

at of rate on And Okay. deposits margin. Do the shifting then the to end the year? have you the spot interest-bearing

Edward Czajka

of at end were for December of deposits, -- X.XX%. month interest-bearing year, the the the XXX but Total not

Matthew Clark

average the have December? for happen -- since you of you to the in the do have And the Okay. margin you have month December, average

Edward Czajka

Yes. The was December X.XX%. margin for

Matthew Clark

we beta and your the are -- on on here -- points How through And you from cycle, what mid-XXs. assuming quarter. XX things just basis earlier, heard accelerating think another Fed then last cycle, are the costs. to done the relative end where of you. Yu deposit your were might Mr. were out the get Thank comments settle outlook thoughts in on Okay. the your I We overall interest-bearing the about toward

Li Yu

my -- continue we have Well, interest. And that thoughts hopefully as that more small it will follow the closely. Yes. in more the and to is to experience our see that thing we, paying fish to pond, market try same just a manage from is do the competitors the we and big trend part in my

some can mean, whole list year, list and for like institutions a the before certificate in December actually, a the already they're be Now -- you'd you. surprised one I deposit back of okay, I largest offering X%, November rate, at

gathered We have that.

it And And So on is what top, further based do what prepare. fourth we it's are would the accelerating margin, big set, compared my it's this quarter. not deposit in on. I what costs they as experiences, to that to top know. loans, in gross going margin think say to first in with on these okay, idea in how our quarter, have we're first general, obviously, much -- market -- quarter, they Which increases much try the you very you or no starting in forward, in opinion, in able institutions, to has too, leverage the the But the I the they market the just have, my cycle. how margin earn so catch We among And fourth think, to be up. then spread, do the near depending at handsome grows deposits is not rate quarter. not itself a

Operator

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

Andrew Terrell

your noninterest-bearing in flows. I is sense wanted in get noninterest-bearing And could seeing deposits mix start think -- is then what bottom so out? where as see around specifically sense I of just XX%,XX% noninterest-bearing noninterest-bearing to of, a what of just deposit I terms guess, on I'm percentage trying you're I deposits we far to XQ on your look, total. deposits, a if

Li Yu

answer see going is we we know. because save cost pay loans, in they payoff no because The unbearable, continue have reduce forward okay? either we or the estate They to manage many X.X% loan or margin cash consider their or why loans cases, customers interest excess reasons That's their to say one they real of the customers where their of just using don't their X% off control our money. we

that will So this will people And can X%. trend this also recognize is more that continue. over their earn money

migration to and things, at process other idea, What move TCDs no this movement okay? and big other okay? to they've want of to this they try be. would So as as JPMorgan, kind press Now, look I even

one is this sector So situation.

market one Another they've situation and price big the the because never for how tell banks share. competitor set can deposits become their huge main situation, I

or condition to about So with tightness we to and funding just lot the do have the overall fund. follow their

card going wire really this the XXXX. So important very is into

Andrew Terrell

to Yes. provision Understood. about forward? there. XXXX? moving move Maybe reserve and allowance I thinking just through I on you the appreciate could guess, outlook I if moving levels color how are over

Li Yu

our philosophy Well, the building is at year-end. reserve have general up we our been

every take or quarter, needed Take look same. to increased stayed generally stay and be look that whether the take going number is a see a will conservative. and or We to approximately

to have so a we and situation calculation go course, Of process. subject to some through methodology of the to is CECL

generally what speaking, will over I we're now, on the if but know of economy in to as coming we metrics have So don't based we say credit reserved, the be.

they reserved to less understand I same the need basis at than at we type have business we competitors level for stay okay, some level. stay now. maybe as direct the do, be points, we we that that believe So but this our has of of

Andrew Terrell

Yes.

to loan south good profiles the I the of in on changed margin. just given any X% yields, that you've just there to you Maybe and on rates at X% But color Okay. of increase a restructure guess, would of borrowers, rising it, be loans Obviously, loan that Just debt at had foresee sticking coverage I'm color how service as fourth restructure? near result your looking in having incremental for -- helpful. the yields quarter. have or credit. kind call just any any any really

Li Yu

answer then Well, it. on that I'll and add first to I Nick have

Nick Pi

ratio on pressures million two coverage and lease, borrower, And increases the TDR for rapid service believe belonging is is and side. Nick paying. to some relationship only this rate only small TDR, they our we that one they're And our I Fed's with Andrew, have combined $X.X seems speaking. definitely for on do of okay. our have Everything loans

of report, most strong days. that a our around. mortgage only you also only Yu have it's under that due and nonperforming it. loan we from can XX a our have past And we previously, very However, we see financially mentioned one strong sponsorship many -- past Mr. That's XX have behind as $XXX,XXX loan, to loans, don't year it. And

All many, for many and stable credit this supplies, and power a quite to really honorable be reserve there previous rapid are So things our XXXX, of energy moderate requirements fast to weakening us uncertainties for kind still definitely costs, comparing food increase still and of economy is to the that market at quality QT basically, and purchase posture this or the as the the side. our expect management those quarters, such ahead maintain are risk situation in us we a rate the continues of give kind factoring uncertainties and time. inflation

Li Yu

this I've if Again, we on metric over at said it's just pretty are makers today, much reserved. that based time,

the Okay. have been That's economy, consider personal what we would in But the be. effect opinion. trying general, however, my recessionary to

Operator

with comes with question. Gary Tenner D.A. next go question your from Davidson. Please ahead Our

Gary Tenner

questions. Two

end-of-period increasing relatively First, this couple before segment, construction small a basis. had on but an decline the quarters of quarter on commercial of

the wondering the a number-- you to course there end bit there's anything an fund the number if of to about? aberration think And continue of or trend talk Just of kind that if the next could fourth over -- that year? the does period Was might pipeline committed else quarter down? does about

Li Yu

okay. in that, increase have the and has we you to Nick fluctuations slowed of the many the restarted pandemic the time the summertime will because then the is projects, okay? down construction, Many color give some obviously, more but on been us greatest here of past, of has

So Nick.

Nick Pi

construction try to we XX%. portfolio our this Yes, manage under portfolio,

lot those and many existing our is desirable -- down just And to X%, do Most past to of products. which on a those quarter, below the and we X%. dropped our loans bit, the little construction bit more not little the things this color loans I around don't a bit try for to because believe little quarter this and actually dropped loans, construction to especially slow kind give because is in During from a a of is of projects a loans, condo uncertainties there's construction economy. we

slow So we try to down.

projections origination, on have the to our try construction at we increased However, loans all to of base interest our reserve.

So peer our we conservatively very are doing compared construction to groups.

Gary Tenner

There's there stop conjecture Okay, rates, to lot a terms Ed. of a levels long at how what when out thanks. stay then tightening. happens elevated in they the of does And for obviously Fed question

amount the the balance in Just XXXX, some or any in the Fed asset a year-to-date forward updated wondering, benefits you might in terms given how made of manage does on of cut thoughts progress of right? where sheet those you've of to to timeframe lock looking start kind yields to

Edward Czajka

XX% I'm the production to don't know I you had but for floating Well, book the -- not a around, going is of know, lot have speak I discussions we Gary, about of side, rate. as

doing of time, some start the the headway been given And overall fixed So around. lot have lending. rates, would time at interest kind there opportune this fixed into doing making more to of a lending of level rate discussions be more rate this

presents obviously, can you talked economic slowed down. more as a we've speak want has has already, to slowed However, do -- – Mr. that? that But I about challenge, down to activity activity still Yu, the let on

Li Yu

I substantially Well, our I obviously, overall it of floor in a fluctuation floating bit of protects rate And be the a loans. adjust has rate the that we a few fund rate from time to management in rate rate puts along interest in cognitive to the floor. high fact, a will do really us with that the rate all during by fixed the can sort -- cost us we cost floor interest selectively situation the The return, bit But have the this most -- okay, advantages sometimes that have situation, floating situation. decreases. loans, loan think a mean, --

paved built forward, step up, way the every the we like balance we've have sheet. sensitive up So way, is going of just just going

Gary Tenner

because dramatically. sense the the to I will which, general that, your rate interested your variable that, you've view you customer Is the pivot that the quickly a fall degree that rates has to as new quickly. pipeline, out, that's down loans loans Are as got of a think through I customers that follow-up base going mean, more are the pointed kind of Just to that that to working downside? customer slowed in

Li Yu

probably talking presumably indicating by all year, they come are in I'm who to Customers about C&I, interested okay? because as down okay? at Because of them, about or short-term day it's a floating situation. is they rate will that estate, forecast, part more economists And not latter talking this forecast this listen loans rate year to real the next the early

Operator

question Our next Feaster go question. Raymond with from with ahead your comes David Please James.

David Feaster

a call. focused are touch from specifically whether the to to in plans that the plans maybe it, for you're that, line some regional plans early wanted with SBA for where maybe sell of touched department, the build-out production you on be curious your perspective? just I the Maybe going to expansionary time and or retain the on the starting

Li Yu

of we as early want the that, be expect the you latter going then to preferred Okay. with getting skeleton return, our We've will So through XXXX are the granted So way as okay? been this year, And the never SBA before, PLP that? we of plan a far PLP you department position of part retain okay? crew, was lender position. okay? answer be started to something Wellington, like part

Wellington Chen

SBA Mr. loan, you, secondary -- it is Thank fund Yu. we the plan sell target. David, to as to we our just the will

David Feaster

any wait-and-see? of of Okay. Or a Do it production? you in expectations have early is terms kind

Wellington Chen

But lot new and careful The we're down. SBA current we looking and methodically that slowed economy, just with a team about situation. and A market although with a a actually, economy has to of it's people, leader. It's to tends down. the just go have, since at have SBA team very the wait-and-see, especially slow current we recessionary product experienced

David Feaster

So fee but you expect side, got a this on contribution income the year. tailwinds huge wouldn't a

Wellington Chen

sir. Yes,

David Feaster

the expansion branch Okay. touching on And maybe just side. then

demand pipelines a those Texas, there? branches the are you us maybe And if of expansion update give where trending -- Texas an growth on are in is just we and the curious, and Just how could LPOs? are part in

Li Yu

Texas all this to working branch does months. on busy Right a to into branch not is be from two much going in last from change things, these outstanding. that within about year, converted in we're long year Pipeline about okay? a a LPO now, to

In fact, entire we things situation, currently are the in looking very a bank carefully, at okay. is

Another have branch, we signed a lease.

will we've good be in in Southern California really think I very think a it okay? We're committed, We location. signed. the

closely we very that, I working We're on have what already. it but budgeted mean. That's

as to in it. hire not to year, just the a going the grab to that its new So about And up, of there's hired, going just going if forward, we budget, new we're worried come be opportunities remainder them. be we're personnel

David Feaster

That's music to Ed's ears.

we is But slower a high you so of back is your really going guys be on incredibly strong pace. touch very a growth stewards pace other have good of credit have of capital of cycle. been very potential to wanted at in I And thing to the about and ahead profitability, potentially position you capital if levels capital a loan think and step rapid you're accreting a

initiatives. of about a couple talked We growth

any dividend significant here. But Just seen curious just And or not capital cycle again, appetite thing. priorities? priorities curious is carrying levels was about capital of into a your capital bad some return capital credit a We've excess to other whether growth. increase there's

Li Yu

chartered question, buyback, capital which holding capital required capital you okay? the -- a requiring Thank we by is recognizing all regulator. any reporting a was state We without transaction asking approval, -- mean, bank because the that, for company, state Shareholder a I required. are is raising

through from to that's back buy whole stock, time process, go X we months every want if to So the process. we want

submit approval our just we're what shareholder approval is do during we season. proxy to So got the going to this for year, Board

a total then For ready buyback. will of amount to the go state on act wherever pre-approving that. And we to stock

the things generally the the ready the expect then to for is the at once capital have and a little some beginning reason So clear, year, of the it that economy And speaking economy we our is we of opinion bit the return shareholders. of okay? careful that majority be is more turns to if watching in Board, need to strange out,

Operator

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

Tim Coffey

I'm about reinvest remains had I levels. And balance outweigh a does wondering the about to still behavior uncertainty at opportunity question Yes, cash sheet. that in securities. the elevated customer the on liquidity It

Edward Czajka

very question. Well, good that's a

know, you kept inordinately on actually have amount since we As balance sheet Tim, large crisis. cash of the the financial

always attractive some consider a fairly One large we've yield think some rate interest Fed's So to in quarter during did the -- do position. have where thing what invest near market order of cash those fourth I yields. here of in may I additional is we rather cash of extremely And had do the the in decisions. that lock float with excess actually along at cash treasury we be the some in did that than some future to we

Tim Coffey

Okay.

curious started their pull have wondering, your Clearly, competitors. from And to competitors, express are seeing or from the you the back your helpful. customers That's lending in Okay. boxes? about seeing of them market I'm what you're tightened then some credit otherwise terms behavior. are cautiousness

Li Yu

California loans pre-payment -- offering at of bank okay? still point are customers competitors all very fixed low there X%, which time, CRE a in they're without all, and But rate, There's X% of things requires strangely okay, offering low very prudent, of but penalty. okay? the largest one to enough, like were is this they're seven us at it, years looking onto for doing Well, opportunities, they first research

to willing interest the by are forgiving grab they So business income.

can we're and every at accounts but we We to -- looking just that. low, compete. with I to things We should of X.XX% years, see a number looking going fixed lost be of at always say, We still We cannot with. to in that day. to credit them, situation. can't people loan which rate. I that compete we're there's -- you union, lost kind five compete don't So happen this how another guess

Tim Coffey

Okay.

still you're seeing So irrational activity.

my were questions. you Thank All Okay. right. very much. Those

Operator

I Yu to This remarks. to session. concludes would our the over closing conference like question-and-answer turn for any Li

Li Yu

Well, clarified. out we things actually, the to further question-and-answer is want the all pointing

much So Thank for as very time. but are And optimistic thank your you. would said, you careful. we I be we

Operator

The now today's conference attending has for Thank you presentation. concluded.

may You now disconnect.

Preferred Bank (PFBC) 19 Jan 232022 Q4 Earnings call transcript