Release Date: October 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Preferred Bank (PFBC, Financial) reported a net income of $33.6 million or $2.46 per share for the third quarter.
- The bank successfully reduced nonperforming loans, resulting in no charge-offs and an $800,000 interest recovery.
- Loan demand increased with a net loan growth of over 10% on an annualized basis.
- Net interest margin improved due to a decrease in deposit costs and changes in loan-to-deposit leverage.
- The bank's loan portfolio is well-balanced with 26% fixed-rate loans and 74% floating-rate loans, most of which have floors.
Negative Points
- Criticized loans increased significantly due to one relationship, although management believes this is temporary.
- Noninterest expenses rose unexpectedly due to a $1.7 million valuation charge on OREO.
- Deposits decreased by $11 million as the bank decided not to compete for higher-cost deposits.
- The efficiency ratio increased to 30.6%, higher than previous quarters, due to nonrecurring valuation charges.
- The bank faces competitive pressure in loan pricing, with some competitors offering rates up to 1% lower on fixed-rate loans.
Q & A Highlights
Q: Can you provide details on the margin for September and the spot rate on deposits at the end of the month?
A: The margin for September, excluding recovery, was 4.03%, and the cost of deposit spot at the end of September was 3.96%. - Edward Czajka, CFO
Q: What is the composition of your floating rate loans, and how many have floors?
A: Of the 74% floating rate loans, 99% have floors. Approximately 22-23% of these floors are within 75 to 100 basis points of their actual rate, with the remainder over 100 basis points from their current rate. - Edward Czajka, CFO
Q: Did you repurchase any stock this quarter, and what is your future appetite for buybacks?
A: We repurchased 110,000 shares this quarter. We have not been active in the market recently due to high prices. - Edward Czajka, CFO
Q: Can you elaborate on the fluctuations in interest-bearing demand deposits this quarter?
A: We switched some higher-priced interest-bearing demand deposits to time deposits at more favorable rates. This included moving from brokered money market deposits to brokered CDs without increasing total brokerage. - Yu Li, CEO and Edward Czajka, CFO
Q: What is your outlook on loan and deposit beta in this easing cycle?
A: The outlook depends on the pace of rate cuts. A steady decrease would allow better matching of liability and asset repricing, potentially maintaining a stable margin. - Edward Czajka, CFO
Q: Could you discuss the increase in criticized loans and the overall credit quality?
A: The increase was due to one relationship with payment irregularities. Most loans in this relationship are being brought current, and the properties involved have strong occupancy and low loan-to-value ratios. Overall credit quality remains stable. - Yu Li, CEO and Nick Pi, Chief Credit Officer
Q: How do you view the competitive landscape for loan pricing and growth prospects?
A: With anticipated rate cuts, new loan opportunities should increase, though competition remains strong. We are expanding our team and locations to remain competitive and expect steady growth, particularly in new markets like Silicon Valley. - Yu Li, CEO
Q: What are your expectations for the net interest margin (NIM) in the coming quarters?
A: The NIM is expected to remain in the high 3% range, depending on the pace of rate changes. We aim to maintain a margin north of 3.50% if rates stabilize around 3% to 3.5% fed funds. - Edward Czajka, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
