Q4 2019 Earnings Call
Thanks, Gary.
Hello everyone, and thank you for joining us to discuss preferred bank's Financial results for the fourth quarter ended December 31st, 2019 with me today for management or chairman and CEO lie, you know, the president and Chief Operating Officer Wellington Chen and Chief Financial Officer Edward. Sheikha management will provide a brief summary of the results and then we'll open up the call to your questions during the course of my life insurance call statements made by management may include forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct forward-looking statements are also subject to known and unknown risks uncertainties and other factors relating to Preferred bank's operations and business environment all of which are difficult to predict a number of which are beyond the control of Preferred Bank for a detailed description of these risks and uncertainties. Please refer to the SEC required documents the bank files with the Federal Deposit Insurance Corporation or FDIC wage.
if any of these uncertainties materialize
For any of these assumptions prove incorrect preferred Banks results could differ materially from its expectations as set forth in these statements Preferred Bank assumes no obligation to update such forward-looking statements at this time. I'd like to turn the call over to mister Lee you please go ahead.
Good morning.
For the quarter ended December 31st, 2019.
All Began cuz earning an income of $2.31 a share this is a slight decrease of a penny from the previous quarter, but I thought we would have been able to report the same amount but effective tax rate has increased to 35% 40 years.
We have earned net income of 78.4 million dollars all $5.60 which Compares reasonably wage was the previous Eve?
What's called a long girls was $53.
Little less than 6% annualized a number of the loan was pushed to generally because the holiday season just find a closing on time is difficult.
What our year-long grows is 392 million dollars or a little less than 12%
The first quarter deposit Scrolls. I mean it was quite a deposit for us was 114 million dollars or on the annualized basis of money for the year.
Total deposit has grown 344 million dollars or 9.44%
As we all well Oscar has been three three Cuts right in between July and and October all these rate Cuts their financial life are fully reflected cumulatively in the fourth quarter past our interest. Margin. Therefore declined to 3.67%
40 year 3.92% 16 basis points reduction from previous year
Interest rate Outlook seems to be stable and if that's the case.
Maybe interest margin will stabilize in early 2014 and gradually improve their laughter.
Happy also do reports cost control is in fact, basically operate pretty much the same at the same cause the previous quarter of previous year and efficiency issue is 32.6%
for the fourth quarter and 33.3% for the year and we believe such effort.
Can be continued in the ensuing year. Thank you so much for your for your joining the conference phone call. I answer your question.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using speakerphone, please pick up your handset before pressing the keys. If at anytime your question has been addressed and you would like to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
Our first question is from Steve Moss with B Riley FBR, please go ahead. Good morning. I just want to start on home group there. I heard Mister you said it was pushed out to January . Just wondering, you know could give some Quantum quantify how much growth you're looking for in the first quarter life. Probably probably I don't know how much first quarter is it would production will be what is slipping to the first quarter. The the every quarter end is some slippage does next quarter, but off the extra ordinary in my estimation part in the Forty to fifty million dollar range. Okay, that's helpful. And then just in terms of the overall loan pipeline. I came by your, it's still it sounds like it's pretty strong but paid on our challenge able to produce whole lot along during the year. We we have a great origination effort during the year off.
But the past year moving experience.
Very very heavy payoff activities. Okay, so we actually originated little bit over 1 billion dollars off loans outstanding, but the payoff is almost seven hundred million dollars. So from that point at all we have not
See the short up the activities but the coming year with a stable interest rate environment. If it is continued that way we hope to talk to be able to repeat the same effort if not improving on that but it's hard to tell you know, okay, that's helpful and then on expenses just with em, you know, I I hear you on the cost controls, but this court seemed exceptionally low and maybe a little bit kind of one-time in nature of professional fees and a few things coming in. Just wondering what you're thinking for the first quarter of 2020 or if we're at a pretty good run right here with the this quarter's number and you have some feeling about that. So as you know, you know, we got some benefit from the FDIC insurance premium in Q4. I think I think that about 450,000 so really you add that back and you get back close to really what the run-rate should be on a go-forward. Yep.
is in terms of
Professional Services is number of things in their Steve obviously legal fees and then consultant and as well as uh, it costs are in there as well. And as we have been on the off the back end of our major core conversion from the middle of 2018. We've been continuing to work and we've been engaging people to to continue to work on our system. So we're starting to see that come to a Slowdown now in terms of the overall investment and effort on the heels of that conversion. So part of that is that reason and then legal fees are down this year as well because we did not have other credit issues that we had in the previous year, right? Okay, that makes sense. And then my last question head-on see what what should we expect for the impact and
In the day one and so forth.
Well at this point, you know, it's it's tentative but we have a range and that range would put our our a triple L to Total loans, probably about 15 to 20 basis points higher than where it is right now. So but obviously that is subject to change as you know, that's that's kind of a a year-end. Look we don't Implement Cecil obviously until the 31. So that's that's subject to change it though. That's kind of where we think it's going to fall in that neighborhood. All right. Thank you very much.
the next question
Is from Aaron dear with Piper Sandler, please. Go ahead.
Hey, good morning. Everyone. It just is there any remaining FDIC credit to be realized this year was that fully exhausted wage quarter? I think we we have a little bit left Aaron not not a material amount. Okay.
And then it's I think Mister you and and Eddie both kind of commented that the that the margin is less stabilized here early in the year and then maybe see some expansion as we move through the year give us some specifics in terms of what's you know, what gives you that confidence what's drone not in terms of you know, what volume of CDs are going to be pricing and what the average radar is on those that you know relative to what you guys are are are paying today. And then what is lingering in terms of on the loan side that you know could still see some repricing yet.
we
First of all, we have about between a hundred two hundred fifty million dollars of tcd to be reprice every every every every month and the general difference. Is that correct me if I'm wrong. It's roughly, you know, seventy cents, you know getting take a lot it was it was a 87 basis-point. Yeah. Well may maybe a roughly seventy cents, you know based on what we would figure out while coupon rate or payment right now. Okay. So this as we go on as you can see that would be home continuing effect of reducing or interest costs and as natural for any and every all Bank, it seems to be the long get payoff is always carrying a slightly higher. It was slightly higher interest rate than the new Longs being made. It's very hard to to estimate of a predetermined. We don't even know which one is going to be dead.
paying off in most cases
Okay in the first quarter, so hopefully the net effect all these kind of situation will be leading to a stabilized if not improving interest rate in the year off.
So could we see that Dynamic? We see that inflection happen, you know here right away here in the first quarter. Is it more likely a second quarter event before we see the the inflection really start to suck D continuing PCD cost decreases is continuing from day one, but we don't know the things we don't know is what loan gets paid off. What coupon really carry is compelled the new loan would be made, you know as
Okay. Okay. Thank you. I'll step back.
The next question is from Gary tenor with d a Davidson, please go ahead good morning guys want to just to clarify the question, Excuse me on on on nine interest expense had you mentioned that kind of adding back the FDIC expensive get you to a run-rate but everything about the first quarter, there's still the seasonal increase in Personnel expensed. Is that is that correct? That is correct will have the elevated payroll taxes related to the annual bonus. Yes, you are, right. I am very correct. Yeah, okay and then the commentary just a moment ago on the TV pricing kind of the 70 basis point every pricing Gap Outlook is that continued is that I'm pressing Gap what you'd expect for the majority of the year, or is that more through the first call a couple of quarters before the kind of lessons in the back of the air?
Well, I I I will give you a generality and ask for my colleagues to also add the they're feeling about it. You see that one of the things that we subject to is.
Okay, we cannot be unilaterally say decide what we want to pay. But as of today we're paying this particular CD rate and depending on the how the competition react skate And if competition is doing the same thing as we do we can see this kind of saving continuing for the year until interest rate become changing on the 12 months. Is is as already priced in general. Okay. So this is that but on the on the other situation for instance, okay couple is your bank still paying 1.7% or 75% on money market. So we have to spend down effort try to retain them even even at our current rate, you know, so so competition really is the
Main issue but a coupon right now is reflecting a continuous cost reduction anything to add.
No, I think that that says at all I think over time Gary obviously as you would imagine that 70 basis point differential gets smaller and smaller as we get closer to CDs that were originated in a lower rate environment. So I think the first first two quarters, I think you'll see the most benefit and then it'll start to wane in Q3.
Okay, that's that's perfect. And then finally if you have available if you give us a cost of total deposits on average for the fourth quarter and the reporter.
Total deposit average average cost. Yes, Q3 total deposit cost 157 Q4 Thursday 9 to 1:40.
Thank you. Again. If you have a question, please press five. Thanks. Martin. Gentleman had a question for you and perhaps are you too much for you? The trends in your demand deposits have been exceptionally strong, especially the best to call sure. What do you seeing in that's allowing you to grow those deposits.
Oh boy.
Actually, maybe you know, if you really want to think about it. I think we've been lucky and maybe in some cases that we see at the end some customer always bringing some some cash to the balance sheet. What is by collection from the receivable or whatever already to pay the expenses bonus is all those other thing in the early part of the year off in general that the bank has take take take take take a priority is gross demand deposits even ranking ahead of growing the loans. We took it hard for us to bring our size in being weird one last type of band. It's very hard for us to to to to to to tell you right now what we think it would be. Okay. I don't know. Why don't you have a you have a crystal ball? You mean you you want to add on that? I don't have a crystal ball. However, I think that it's also add onto your birth.
so you mention is our continued pursuit of focusing on the uh,
Deposited in terms of the loan the loans that we originated and commanding the operating the account and expanding our business as well. And that should note that also drives up the VA.
Okay, and then it's got to do you have any idea of how much of the growth this last quarter is seasonal in that it could come out in the first quarter.
Actually, not much we look at our first quarter deposit right now. As of today. We have actually have increased from last quarter quarter are okay and not much change in the demand deposit side. So that has been stable but
I don't know I guess by April 30th attacks by April Thirty things all change, you know understood and then at what's a good tax rate to use?
Or 20/20 I would use just over 30% 30 point, you know sub 5, okay. All right. Thank you very much for the color everybody.
This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.
Thank you that we thank you for your interest in us and and obviously consider it 2019 to be a reasonable wage us and we certainly we continue our effort. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Thursday
Thursday