PFBC - Earnings call 3 2023

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Operator

Good afternoon, everyone, and welcome to the Preferred Bank Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Jeff Haas of Financial Profiles. Please go ahead.

Jeffrey Haas

Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the third quarter ended September 30, 2023. 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

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

Li Yu

pleased another quarter report to of morning, very Good I'm you. income. gentlemen. Thank and ladies record

of net and the the increased net million For decreased. income second and Bank income income $X.XX expenses $XX net interest a our Preferred a earned Compared quarter, third or share. to quarter, both

Loan our more our these seems little be -- as to be bit remain -- and this with demand For customers the quarter, very have days standards low a of to growth. elevated. continues underwriting much cautious loan we

$XX the was for On increase million quarter. side, the the deposit

borrower confirmed is the between later category, category, XX%. which than be large we're payment the yesterday. And bank took secured was Bank be property $X.X the over with $XX.X in less property have also that in October off this beneficiaries received large escrow. is criticized scheduled include -- another loan I'm million classified is complex and We've a for it should of estate. in the assets, category. should increase basically trend another This closing loans the but happy classification And -- increase think stable. have seen criticized quarter, to bigger of a increase in a We we nonperforming is had small slowdown. X loan quality loans. the deposit from And by is gentleman Unfortunately, costs this generally and we very forward for the a good many, to the continue. Credit nonperforming passed $XX.X complex total in that lower number years. will the loan migration many we we notified the looking a fourth We just the have remained The X borrower was our and in to is a loan-to-value paid of of the away same Preferred have estate that And the of which nonaccrual delay million and one large And resolution caused is has full recently notify is part -- ratio loan. report loans, large borrowed that the loan Loan by should of have today. million off. There's to loan pay loan. we lending discussion

things update all later obviously these happens. when you So we will

top-level -- Therefore, one there's we provision Coast no among charge-off $X.X the charge-off. believe group. $XX,XXX. of made the of quarter, our Last allowance quarter, the has The peer For for that our we increased that's to quarter one We total allowance have is X.XX%. of number West believe a million. the

we quarter. buying have the costs stock. ratio of XXXX, back was our Efficiency of Since second control. been operating remain for actively XX% under quarter Our own the

As large The are with shares. amount report program. I with with remaining beneficial of earnings $XX been estimates. of activity under ratio capital is several dividends a and repurchased XX.X%. The going future also the consideration total see to to plan or with XXX,XXX like highly current And of Preferred has And Bank's million. we Quarter the approximately buyback estimates a beating tangible the last -- our that. we today, years, EPS the bank in buyback outstanding for consensus quarter, very has actually total has pleased been up. after the continue shares we accretive been reporting of to increased the the to quarter-by-quarter

hedge much. very efficiently We a ourselves to will operate bank I'm your ready questions. for you to continue and prudently. Thank

Operator

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

Matthew Clark

your the deposits, do September or X.XX%. prior on then rate have pretty line you're for Just September? the end interest-bearing in with margin, much quarter, like the the of on the fourth at spot total NIM either expectations and in guidance you of And starting looks any average

Edward Czajka

Matthew. to always Yes. see, you. good Thank That's

In for line month terms of September X.XX% in deposits And the for September. of cost X.XX%, the quarter. so total of rate, kind was the margin was then of -- X.XX% the spot entire me, the with excuse

the any QX so the between terms X.XX% probably on into QX of to happening and actions X.XX% and 'XX of project I would last for over going QX you I year. Fed. the of of what's in for notwithstanding quarter somewhere In X.XX% the and margin can neighborhood forward, QX that estimate and by X% extrapolate think been next or going somewhere

Matthew Clark

run fourth some assume Okay. gears this kind Good expenses. costs And Got for quarter? seasonal we OREO-related it. no of minor see What's the costs to then shifting just very expectations additional XQ. increase in should And to rate then quarter. or

Edward Czajka

increase for of somewhere $XX.X QX to question, million. you'll the $XX.X next My in root yes, to be your second answer see seasonal million In would expectations in the of year. QX

Matthew Clark

Great.

like and And criticized. isolated of nonperformers that portfolio? good within that's to But hear sounds to itself It issues criticized could the us that $XX-or-so them -- resolving of are might SNC of status it you on SNC just that just one is credit, And as portfolio? what million book. themselves overall remind can then Okay. relates the of some within And resolving exposure? this your be those

Li Yu

you do Nick, to want answer that?

Nick Pi

Yes.

loans, the to has have only September, and are are small stable at It's issues downgraded. submitted Other this semiannual around bank that time. been million any SNC -- in there's SNC there around but one they without exposure the loan. credit second review is of For $X in loans than the rest over

Edward Czajka

relative The total I loans believe, about, is total XX%. SNC to

Nick Pi

correct. It's XX%,

Matthew Clark

concerned Maybe in associated I the I portfolio that. office it's to would assume these pure Okay. with there's pretty not, some just then of which commercial the more color And the additional about? that But maybe popular or one reserve questions is portfolio. maybe seems on only real around estate, that the the district, just thanks nominal. you for -- be days release on think office you're And more the it's business that of central portion can

Li Yu

in well office has we little office small think are a Well, we shifted, basically, obviously, occupied. have assets property, a have with And that. we very they I is in right? have, business classified small amount being don't any the properties, very

Nick Pi

time. No, not this at

Li Yu

that. stay [indiscernible] more not. have answer than That's the I you. about We answer cannot good, can I best any

Nick Pi

our bit more a also give products. on color you Matthew, And little office

meantime. pretty side conducted these that have good those ratios recently in are this up We the are stress -- on come the office test, all unbelievably

immediate not expect issues So this we our office do time. about at any project

those And loans of some a of weak we DCR below, a think little the are handful credits bit with ratio.

do individual behind a it. guarantors very However, strong have we

these are cannot I cover, global this no flow, So cash time. whatsoever at issues

Operator

Our next Tim from Janney. comes question Coffey from

Timothy Coffey

loans. nonaccrual question Just the a on

were account for it anticipate you less that this what be? nonaccrual week, $XX be million. than getting I'm assuming number that to If would you payoffs Because would

Li Yu

$X.X The $XX million. million plus

Edward Czajka

$XX million...

Nick Pi

$X.X million... Minus

Edward Czajka

be... would it Yes,

Li Yu

Yes. Right. Yes.

Edward Czajka

under little under A million, $XX a little million. $XX

Timothy Coffey

And months, the growth the kind think if right of -- then headwinds biggest Great. seeing you're about of we now? where Okay. that XX are we next over loan some

Li Yu

Well, that else, picture all seems I -- everybody the they like okay? is commit they not what want be think and don't mean interest on rate to actions the mean, -- into they're I to borrowers guess, get. headwind, stable I -- some is still affluent Because the when biggest I headwinds see to interest just we our clear. But just based

Timothy Coffey

Okay.

stable. said there to I'm you're wondering, tighten was remaining is starting any your your places that underwriting? underwriting You

Li Yu

it When location. a elevated the these I on tightened used very guess what -- picky I the We're LTVs, bit. can categories But little is that's more it are is have we staying the down picky We lower before. because on word is now. mean, other much I actually And you more two I we're elevated mean requirement. mathematics guarantor. the

Timothy Coffey

starting budge real to your footprint, are you at on to all? cap cap in Also estate see our move rates Okay. rates commercial starting

Nick Pi

but CRE time. of cap rate the of the Based that a not has most bit out yet current gone Yes. appraisals, situation, because this at the little recent on has up market control

pretty bank still ratio maintains So good our loan-to-value we maintain around XX% around. valuations -- our because for normally,

So well. with performing I should high our still rate, a bit even our cushion credit be believe cap little there and is

Operator

Terrell question next Andrew comes from Our Stephens. from

Andrew Terrell

nonaccruals start appreciate I gave commentary quarter. If I could the maybe this you the there. on all

I think you gave smaller loan, the sub-XX%. second the LTV for

for referenced, that you $XX.X LTV have do For loan the specific million the credit? you that

Nick Pi

That That most under credit Yes. is is appraisal. around recent the XX%.

Edward Czajka

that's And nonaccrual Andrew, not a clarify, to loan. classified, a just

Nick Pi

That's a classified.

Edward Czajka

part not That's the of Yes. nonaccrual.

So.

Andrew Terrell

right. All

Okay.

to deposit if it. Got over then Okay. move And maybe I can growth.

then pricing the It's see. commentary new deposit you're deposit I maybe You the about loan there? good the some on growth? there What growth front, guys time are seeing growth where being had around deposits talk challenges And at But for today? quarter. the right good hear of pipeline priced and this the some specifically you could now. incremental more to

Li Yu

been on, much this And customers. meeting rate don't to cost, our deposit fluidity immediate people deposit see much I the stable. quarter. $XX accounts transfer I and in rates far, mean, limited so that in think it's with, bank is up that we offering basically has of their the opening interbank, the previous offering quarter what -- increase. matter opening -- I their of us. to change a new guess marketplace million there's in we're much dealing even and And see offices, so new for deposit Therefore, new the compared is the account Well,

we the So deposit next rate big We foresee the Fed do see quarter. not fourth in changes nothing. quarter meaning -- not if do does the --

Andrew Terrell

deposits CD of And are new that being what's level kind today? the at priced Okay.

Li Yu

at highest in that's the priced case. have the different there's X.XX%, rate CD amount. But after we We have. categories lowest That's

So that, from to okay? ranging it's X%

Operator

Raymond question from from Spector next Our comes Eric James.

Eric Spector

you is Feaster. the some David schedule. if This front. CD on color maturity line just curious provide the could just Eric on the I'm for Probably on

Edward Czajka

-- are CD they of speaking, maturities most a year. Generally the

the a rotating basically portfolio. have we So constantly entire schedule maturity of

think quarter, I fourth about $XXX to have million maturing quarter. the for we million, fourth believe, I For the $XXX

Eric Spector

similarly quarter quarter? of kind then out And by Okay. that's laddered

Edward Czajka

Yes.

Eric Spector

the primarily Okay. And on from like mortgage looks and resi resi then curious growth just was front, demand it construction.

at there? Just curious the resi And point? growth for your growth driving this appetite what's

Li Yu

the On demand side?

Edward Czajka

Yes.

Eric Spector

demand side. on the Yes,

Li Yu

Well, highly with daily our that customers on meaning a basis, us. on the dependent dealing commercial are customers customers, who we're business

March so on guess, So uninsured we on. you that the actually, everybody attention so so last see had much deposits I with in after scale putting meltdowns, in is

We don't are they that And business be think business. a deposit in way. we're uninsured. up And with dealing operate business I and pieces cannot and so cutting bank, want into their on, ICS to two is they basically

actually everybody they couple deposits, they but may activity if and to that mean issue then they to customers, the down. worry getting have break I for they about will of banks, turn large if is to doesn't not ICS that the large regional being be their nature sign banks, -- there need a our ICS, several don't of and when but up DDA have coverage. customers very too. conversion But use the They into the to have to resolved, we very it. fact are want want changing -- from all it, liquidity the get So the community they

into that has down. the So of everybody But the pace that just DDA, slowed issues but have seeing amount as out like there. to answer higher I we're hope the small cost don't still we dollar area an else you. pure know migration We don't

fact, time will to is tell In almost I quarter, pace end in that. hope this but

Eric Spector

demand Okay. I side. touch loan just wanted on resi mortgage this and Like by quarter was construction. to driven on growth the resi more

the drove there? what curious Just growth

Li Yu

downs our and real schedule And biggest and loan obviously, -- the commercial estate pay which have paid I number loans also mean, is we it market, on -- on and a We biggest that category. maturity depends down. our of construction full so of being Yes.

of treated never we So main on things these our as the are cause the the have new generation. changes the quarter-to-quarter that mortgage is,

In goal mortgage that have to fact, keep we to not we had -- than know is that, internal XX%. you product less disclosed our but may our previously

Eric Spector

LPO. just wanted looking of the I helpful. you department appreciate color in get SBA be at expansion expansion the color. an just update Okay. kind opportunities? And there to would Houston And Are any the on additional

Li Yu

loan in demand to more buying Can this the loan I less in new give us a point back we'd concentrate changing in profitability the our new not since from bring locations managing is efforts return point macro But at not a liquidity, and in endeavor Opening in basis. new at long-term managing this To a like profitable investors. than another level, will loan lot growth. our an is time, me, our is But there, to stock. immediate managing our time. our doing

Operator

from question Davidson. next Our Gary D.A. from Tenner comes

Gary Tenner

but kind to answered, management. sheet wanted been balance have just terms questions my of in of of ask Bunch

to allow this continued down the quarter. debt the You've off, to AFS FHLB run paid portfolio

you which anticipation the in longer as the that any on balance locking ample, in potentially the to of yield securities any of is of of term. some the terms So liquidity putting think portfolio work in for sheet, in thoughts

Li Yu

to -- -- into ago, something about we talk to continuously were do seems were is I'm X continue this it. we months be that's we We that. some to about wrong, that. a each do did And something because paper. of we and lot other we every treasury looking talking glad didn't time is It

Edward Czajka

time. at come will They

Li Yu

the a for major that's of just some small guess Yes, us, was standoff It's us. not time I income diversification. ], it [

So of we for, a so more that lot care it believe of bit wouldn't write-down cautious to we little our portfolio. like the allow a adjustment,

Edward Czajka

one behind years. last having And had of the position Gary, the profitability main large of the the a drivers cash that XX really such overall is over bank we've

last put We go that money dollar after at and that have not income had of risk. to

find to done that and a very capital ourselves we now respect liquidity our good right in so And with with position tangible levels well. as we haven't because our

Gary Tenner

are this certainly, Yes. thinking mean, I share? on of numbers total in on missed then have current environment but purchased and I a it's thoughts I of that. the some buyback. down a to profitability. what couple price road in just appreciate shares portfolio the And the quarters. But the advantage But huge the been not was the have last much per about I small average profitability, so the

Edward Czajka

the a through share. buyback share $XX a per over is price average just The total hair

Operator

any floor And like session. ladies gentlemen, and over time, this to we'll concluding be Yu at today's question-and-answer I'd remarks. to for back turn Mr. closing the

Li Yu

limited. into do said we Well, much got my than I'm the thank to that But everything stable previous to the some very be you seems see resolved When And of -- very legacy. more just very, take quarter also side, from happy you time. that I'm These legacy -- is things new in quarter. loans to this the migration the see getting category gradually. is the

that, be way. hope to that with I this you. Thank continue So we can

Operator

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

disconnect may You now lines. your

Preferred Bank (PFBC) 18 Oct 232023 Q3 Earnings call transcript