Earnings call transcript Q2 2023

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Operator

Good morning. And welcome to the Preferred Bank’s Second Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question. [Operator Instructions]

is event this note, being recorded. Please like Jeff Haas would now to to over conference the of turn I Financial Profiles. Please go ahead.

Jeff Haas

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

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

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

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

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

Li Yu

to income share, Preferred I $XX.X or Bank of quarter the a morning. second that Good report you. $X.XX am was million very okay. pleased Thank net

very, environment. very For $XXX the under our increased challenging deposit a million has quarter,

moderated. During movement to strong of to XXth, have cost from we deposits this June have movement seems thankfully, higher cost quarter, and seen deposits lower of deposits, as the

XX.X% is was deposits liquidity Our at bank’s June XX.X%. coverage uninsured while XXth,

restructure to okay. we by Since under their so, learned schedule deposits we early continue the And been to March, quarter, lot ICS, hard comments working and the a that limit of will during are quite we very to do be to using insurance customer but have have using CEDAR the heartwarming. help FDIC

Loan growth rate high in will $XX okay? And depressed has further demand, quarter further depress the for demand. increase was million. interest The loan environment likely interest the obviously rate to

there were and to written down no provisions okay. stable. We quarter compared the loans ratio X.X%, is our for was At quality credit quarter. the assets than total where during less reserve $X.X to $X quarter, additional X.XX Our we and charge-offs increase assets basis our Classified is points, million, our non-performing is XXth, assets pretty million. also non-performing the total stable made previous OREO during June to

Recently, of we of have which the in in of okay, city. received million exposure our loan $XXX lot we city the San a a total increase have exposure regarding Francisco,

district, connected Francisco business trouble two part financial the bay trouble, usual. while a city commercial a underlying where cities, San as of know, you all least area, at in have you As the little downtown is is is area connected of tale other

exposure $XX as area those million of XXth. in Our trouble total is June

very a quarters. these has Bank been portfolio. income Preferred net resilient asset has loan Therefore, our sensitive interest

have We a operated with model. always simple business

reasonable low. and margin operating our kept always our have We costs

our At flow, back total cash strong to operating we XXX,XXX shares. June begin repurchase was will own our XXth, buy stock With stock.

little okay. a XXX,XXX over yesterday the shares, total repurchase afternoon, As of

for I Thank you very am much. questions. your ready

Operator

[Operator ahead. Instructions] comes Matthew first Go Our Piper question from from Sandler. Clark

Matthew Clark

as in well? us margin, of the the you on June then margin the Maybe give starting questions. the month can just Hey. maybe end and of deposits average Good morning. Thanks rate for June spot the with at the

Li Yu

Ed, you want do to...

Edward Czajka

Sure.

Li Yu

Okay.

Edward Czajka

cost total deposits X.XX, for of below just margin Matthew, X.X. June, The the Yeah. and was was

Matthew Clark

June? end X.XX the is month is or that And June that of the Okay. of

Edward Czajka

the That’s month.

Matthew Clark

Okay.

on cash the lever And the to if seems pull, to cash even you fund Okay. sheet, to the are to growth side the if it’s are through borrow you slow. you still I thinking willing some though that need have balance like take necessary, then down of is likely to mean, given materialize, willing deposit don’t assuming funding doesn’t It equation all the loans? loan you growth, and

Li Yu

Bank XXth. borrow is to Loan flow other our Well, we right, anymore. by Federal $X from probably June bank reserve as do not cash need Home over But billion,

really any to loan should handle don’t be be than that any [ph] at I growth, to all? which more expect So enough life significant

Edward Czajka

Yeah.

our have highest to cash peer of group. assets to the one in ratio and cash We deposit

So I funding with of comfortable incremental -- cash. growth would some loan our think be out we

Matthew Clark

And from going forward then mean, Great. I expenses, write-down, on unlikely Okay. here. the had OREO but just you that’s

are what in the So your run thoughts half? on expense the second rate

Li Yu

You…

Edward Czajka

Yeah.

Li Yu

a take at … that? stab

Edward Czajka

forward blush, going rate probably $XX I at a looking first ex-OREO the at a looking and million -- am I of costs. quarter around Yeah. run

Matthew Clark

Yeah.

Great. Okay. you. Thank

Operator

comes Our from Go with Stephens. next question Andrew ahead. Terrell

Andrew Terrell

morning. Good Hey.

Edward Czajka

Good morning.

Li Yu

Hi.

Wellington Chen

Good morning.

Andrew Terrell

$XX What the any on are the to $XX as How LTV million? many make these? of ask of well that San operating loans Francisco that up against types or amounts two color or a handful on credits it as the and in million? or that stats, properties million Downtown I one $XX of reserve wanted then are Is mentioned.

Li Yu

Okay.

We There these $XXX,XXX. less amount little have comprised property. seven of dollar a they office seven $XX The loans is are one than is properties. loans residential Of mostly million.

seven just loans, have classified these we and the residentials. they reviewed mostly are not With or criticized,

Andrew Terrell

assets, those changes special the second occurred mentions in that classified any then like in quarter? And quarter-on-quarter, looks it Understood. are stable Okay. the pretty on

Li Yu

answer that? Well, want do Nick, you to

Nick Pi

QX around the of is similar million this is that loans, size mention pretty as Special time. $XX at

Andrew Terrell

pretty know leg I $XXX guys then repurchase sounds think, of point on if was the first the And but it. program like authorization Got utilize to active initial I just $XXX coming plan full on that, kind was Okay. the million. buyback you I million buyback? in full front the just said $XX utilize remaining is clarification can even was $XXX third need further curious, of authorization approved there any quarter. shareholder the million you $XXX million kind into the there or It I maybe or of of the the for the release the million, recall, are the am buyback, you the a for incremental

Li Yu

is think $XXX regulatory We we don’t -- for I our any those, because all need further million. approval

Andrew Terrell

Yes.

Li Yu

of to again. More Directors directors is -- so flow our Board offering use it cash determination our

Andrew Terrell

your appreciate on Okay. Understood. quarter. I it. Congrats

Li Yu

Thank you.

Operator

Go next Our question from ahead. comes with D.A. Davidson. Tenner Gary

Gary Tenner

in release, I On it, purchase I press of apologize question, Excuse repurchased in me. buyback saw I the was second missed don’t average price? or if Good morning. the Thanks. that quarter, it the million but what in purchased think $XXX I the the

Edward Czajka

around through through was speed bring yesterday to up so. $XX today $XX repurchased about It about to we currently, just for or everyone XXX,XXX million and have shares

Gary Tenner

And then any you, you can Ed. provide. Thank Okay. just color additional

You deposit made migration the that comment the has slowed.

around some of that XX end that still pushes Your yeah, are, lower? any period you there have think Do or you can that XX% XX% or so, I non-interest-bearing maintain balances. deposits is been movement level that you number level -- think, of confidence

Li Yu

portfolio, was deposits non-interest-bearing What month cost because the other level do I mentioning increases, have of that been about okay? of June, For stable, we reasonably large the has that -- migration TCD okay? a

in bit replace bond total the that the $X.X and the reprice to cost amount only mature little have that the the billion portfolio quarter. or with probably third we will assumed that then one over higher interest a of between And is cost be replacement X% in quarter X.XX% is July

And okay? the likely margin to quite relatively So cost one we third mild. that increase have think, in the increase will mild, rate if I the quarter, effect will third do quarter, net interest be but the in

Gary Tenner

the since that. going number that could in us deposits And for the you give the are of third the you amount quarter fourth you mentioned well? to as mature quarter, for Thank time

Li Yu

Yeah.

that I not have guess. for We yet, prepared

Edward Czajka

quarter, Next Gary.

Gary Tenner

All Thank guys. right, you.

Edward Czajka

Sure.

Operator

Instructions] next Go comes with [Operator ahead. James. David question from Our Feaster Raymond

David Feaster

Hey. Good everybody. morning,

Edward Czajka

morning, Good David.

Li Yu

Hi.

David Feaster

you In I have the think kind also Maybe in credit? conservative. the yields rates where coming been loan just you just about the side. impacting slowdown past, demand, pulse you do higher adjusted the an -- much on across footprint, are am returns truly new for of borrowers how growth you less press have pretty release, in talked the touching curious your you just is of at loan then in? appetite risk your good of slowing are demand seeing versus what’s of where this And and but point

Li Yu

comment Well, you just okay. is. I to something Wellington, whatever you, then Well, add add --

Wellington Chen

right. Hello, Wellington. David. This is All

David Feaster

Wellington Chen

I that, as well as mean, It’s nail appetite, think you the I on both that. the and okay. demand hit

David Feaster

Okay.

look And are segments are mean, opportunities your that standpoint? good where you I still there or markets any still seeing today? from good are so

Li Yu

no, qualify. lot it only to all in you right XX% I now, it with yield, to not at for things. current of of is loans David, just debt that mean, order whole a okay, are almost those qualify if kinds that environment have least either There’s

they applicants try customers, and there want loyal them fulfill naturally, when of do be they a is, needs. to So we us try when their with and to to try will doing we work group very best are to still and come less we have to our things something, very

our necessary as increase doubt crystal loan And regarding of that’s fellow of so concerned. as unclear accurate the in our third a how because next actual I ball okay? not are loan have planning can to fourth many this when or to It’s mean, time far I quarter say we degree quarter, the growth, certain bankers quarter industry.

David Feaster

of you going that And get diversifying going bringing and those Okay. panicked. core to in deposit maybe the the a depositors side. are back know could back, had success just of about and you them tailwind you I I out trying at -- of That or for moving Where quarter growth back makes are sense. after we last guess, that bringing the kind failures guys that have you talked just be forward? to really and some going then some funding guys

Li Yu

been either We -- I shouldn’t say left left mean number competition? you and mean, in that whole are seem we we get lot whole it not lot try quite And lot of or their has a and numbers, replenished actually to I a us, there’s opportunity on, the have customers, number okay? going one, customers imagine you seeing be doesn’t the had reduced been marketplace, of a as to that know with reduced, can two, the us, new okay, us -- because of

Edward Czajka

Yeah.

David Feaster

And the one, And you the SBA are of department that kind wanted on just still point. that. to be early I retain? good with and just where on of we to look, are appetite are just and the planning the timing whether where or any we to A and pretty good, could read curious touch last Yeah. then there build-out sell

Li Yu

Johnny, do to you want answer that?

Johnny Hsu

Yeah.

SBA department, the application part. the on our delegated submitted David, authority. currently we are application -- for currently the On an We

SBA -- department. ramping And we in So to going second anticipate up in sell year are still which -- portfolio that our half the yes, we we our on business still originate where looking forward. of our section and -- this of

David Feaster

That’s All Thanks helpful. everybody. Okay. right.

Operator

from question Go Coffey Our Tim Janney. comes next from ahead.

Tim Coffey

a at charge-off, net quarter. charge-off to Thank morning, the everybody. provision, and you can you. of do level If credit be credit terms in to or consistent, forward? Good going see portfolio have in question remain the reserving the relative seemed on existing actual charge-offs It metrics fairly the same large. trends I not

Li Yu

that, want Well, okay. color that you very, mix. Personally, is personally, that? of very, I on I I regarding the mean, little think, is more on he give caution mean, Nick, to do the side guru

Nick Pi

like Yeah. like a commercial going spending Tim, high interest investment, increases a of consumer I there. us ahead of and back things things lot cost or a of of rate lot lot monitoring or still, acuities policies, maybe a things believe, there’s or on pulling

happens people So know a landing, have year. don’t of of the but soft we this probably going what second we are half during talking lot a really to about until

try we to like maintain risk So this moderate at a posture more time.

to CRE we a or is like something still are Up that. for okay. So now, also expecting crisis that, everybody

CECL we try side, allocate bit a more to limitations. little conservative queue the a the be to on side to cover However,

Tim Coffey

Sure.

see color. how And you then, of going kind the think we should quarter? Okay. of rest I Is June would you appreciate Makes Ed, what margin of the sense. -- forward? reflective to have any expect that do about

Edward Czajka

depend ends doing That’s the Tim. a what their great meeting. to at it some question, going is Fed of up upcoming Obviously, on

there. for see probably, quarter point would the get sustain Otherwise, of it think, relatively kind some and compression, we say, neighborhood flat of $XXX a if or around would further hike, so. in hold for So somewhere month the I million I margin another QX, would I

Tim Coffey

Okay.

Li Yu

much how you leverage can You There’s how predicting very, factor you... very a that. and deposit, much

Edward Czajka

Yeah. other Obviously, of yes. lot Yeah. Yeah. too. A factors

Tim Coffey

the some out Yeah. speak extent volatility, To XQ the you deposits downside quarter see in biggest or during to earlier the was across the you volatility did was quarter? spread of did extent it --

Edward Czajka

of terms or… in Volatility balances deposit pricing or

Tim Coffey

Balances.

Edward Czajka

think growth end the the I that of the a toward deposit of happened side. quarter lot on

Tim Coffey

Okay.

you of Okay. borrowers the sheet, fairly And imagine for those you for concessions time. mentioned To retain then very to repriced your you having a in lot have this of types balance you any a short intense. amount -- asset competition Li, a of sensitive to loans those customers? I -- has offer Are gotten as

Li Yu

have is I sensitive, get challenged, especially. to order -- certainly, we in that customers obviously, it the mean, We, rate rate Yeah. holding

difference fact, that loans kind the know like remember floor so little and and you especially much the floor follow is the that we we our If because been trying have a the about business and floating persistent I’d model with bit business, doing downside in rate of public to protection. for to for is that joke

What our But that competitors, get I okay? choose. I opportunity the choose losing a to hit be is -- we think are by and this assets that, to have loans better. to face, mentioned We just before, doing liability we times role many have to we match and many by times

So that, stick we with just okay?

Tim Coffey

you. Okay. time. are I appreciate my Thank your Those great. Well, questions. all

Edward Czajka

you. Thank

Operator

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

Li Yu

for over we be and This our in and the we inflation So increase with of -- the Well, we picture and quarter be thank seems better cloud big to to that get It quarters rate we is that okay? history the hope you. the in the If one head, fine. most to to in obviously have we place. challenging start our to hope we Thank that going will truly able soon I more light Having are doing happy tunnel, our industry the do we everybody that normal that, be case, at do see far, think end the so happy in the the that’s okay? you. the of more I will okay? we ways, things -- are am

Operator

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

disconnect. You may now

Preferred Bank (PFBC) 20 Jul 232023 Q2 Earnings call transcript