Release Date: July 26, 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 $2.48 per share, for the second quarter of 2024.
- The bank achieved an annualized 8% loan growth and an annualized 5% deposit growth.
- The bank's TCE ratio improved by 53 basis points, attributed to its earning capability and strategic repurchases.
- Preferred Bank (PFBC) has been consistent with operating non-interest expense and non-interest income.
- The bank has reduced its floating rate loans from 11% to approximately 25%, improving its balance sheet sensitivity.
Negative Points
- Preferred Bank (PFBC) had $9 million in charge-offs related to previously fully reserved loans.
- There was an increase in non-performing loans by $22 million.
- The bank's cost of deposits remains high at 4.08%, which has been consistent for a few months.
- Loan demand is expected to be limited in the near term due to anticipated rate cuts.
- The bank's renewal rates for CDs maturing in Q3 and Q4 are around 5%, indicating potential pressure on interest margins.
Q & A Highlights
Preferred Bank (PFBC) Q2 2024 Earnings Call Highlights
Q: What was the margin for June and the total cost of deposits?
A: The margin for June was 3.89%, and the total cost of deposits was 4.08%. This has been consistent for a few months now. (Edward Czajka, CFO)
Q: Can you provide more details on reducing asset sensitivity?
A: Over the past 12 to 18 months, we have reduced our floating rate loans and increased fixed rate loans from 11% to approximately 25%. This has balanced our asset sensitivity. (Unidentified Company Representative)
Q: What are the expectations for non-interest expenses in the second half of the year?
A: Non-interest expenses are expected to be between $20 million and $20.5 million. The decrease in Q2 was primarily due to payroll taxes on bonus incentive compensation. (Edward Czajka, CFO)
Q: Can you provide details on the $18 million hotel loan with a 51% LTV?
A: The valuation is over a year old, and the value has improved. The loan is caught in a partnership dispute, and we expect to redeem the property at foreclosure. (Edward Czajka, CFO)
Q: What are your thoughts on loan growth for the rest of the year?
A: Loan growth may be limited in Q3 due to reduced demand, but we expect increased loan production by the end of Q4 as rate cuts are anticipated. (Yu Li, CEO)
Q: Can you provide data on loan floors after rate cuts?
A: 98% of floating rate loans have floors. 21% are within 100 basis points of cuts, and 79% are outside of 100 basis points. This number grows each month as loans are renewed. (Edward Czajka, CFO)
Q: What are the upcoming CD maturities and renewal rates?
A: Q3 has $1.2 billion maturing, and Q4 has $1 billion maturing, both at average rates around 5%. We expect some relief as rates have started to come down. (Edward Czajka, CFO)
Q: What are the trends in core deposit growth?
A: Non-interest-bearing deposits have leveled off, and growth is attributed to core deposits. We expect future growth to come from new clients due to tactical efforts like new offices and officers. (Edward Czajka, CFO)
Q: What drove the $9 million net charge-offs, and what is the resolution process?
A: $7.5 million of the $9 million charge-offs were related to one C&I loan. We expect some recovery from legal proceedings and arbitration. (Yu Li, CEO; Nick Pi, Chief Credit Officer)
Q: What are your capital priorities going forward?
A: Our primary focus is on organic growth, followed by dividends, buybacks, and strategic opportunities. We will be cautious with repurchases given current trading prices. (Edward Czajka, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
