Q1 2021 Preferred Bank Earnings Call
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Good afternoon, and welcome to the preferred bank first quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star than zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on a touch-tone phone with dry your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Haas of financial profiles, please go ahead ma'am. Thank you Betsy. Hello everyone, and thank you for joining us to discuss Preferred Bank Financial results for the first quarter ended March 31st, 2021 with me today from management our chairman and CEO EU president and Chief Operating Officer Wellington, Chen Chief Financial Officer Edward. Czajka Chief credit officer and Deputy Chief Operating Officer Johnny Hsu
management will provide a brief summary of the
And then we will open up the call to your questions during the course of this conference call statements made by management may include forward-looking statements within the meaning of the private Securities litigation Reform Act of 95 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 and many of which are beyond the control of Preferred Bank for a detailed description of these risks and uncertainties. Please refer to the bank ACC required documents the bank files with the Federal Deposit Insurance Corporation or FDIC if any of these uncertainties materialize or any of these assumptions prove incorrect preferred Banks results could differ materially from from 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 off
Please go ahead. Thank you. Good morning.
Preferred Bank first quarter income was a bank record of twenty one point two million dollars or dollar forty cents per share 42 cents per share month compared to Prior quarter quite favorably because this quarter we have only 90 days as compared to the fourth quarter of 92 days off.
In addition in this quarter. We have a quarterly specific payroll taxes on bonus distribution.
This quarter featured strong deposit growth on an annualized basis is 25% Plus.
We are thrilled to have these additional deposits because it gave us more opportunity to grow into the mini phase. But we've also noticed the excess cash flow has been
Moderately compressing our Capital ratio return on assets net interest income and net interest module first quarter loan growth was $104 or 10.4% on annualized basis Thursday. We have noticed throughout various contact with our customers in generally. They are more optimistic about the future of our economy. And now they're planning are already taking action to commit to more business expansion transaction or investment transactions.
Some of them even went as far as feeling about the potential inflation and then wants to commit off their resources to assets at this point of time.
To meet this increased demand. We have one added a team of four relationship officers and put em in Houston, Texas in California. We have so far added five relationship officer and will continue to look for new Talent throughout here. We're working on area in New York and other places for you relationship officers.
Internally, we have convinced that that the next set interesting we will be going up rather than coming down. Okay. So with that we are actively and we have been always been preparing ourselves to have a balance sheet become very assets sensitive people.
As of March 31st.
Quit the Matrix seems stable.
The total deferred COVID-19 loans related loans was down to 25.8 million, which is quite moderate.
Operating expenses slightly higher but considering the the quarter specific payroll taxes. It is not much different as compared with previous quarters.
And as you well off our business model is that we have one-on-one high-touch service relationship with our customers home and we eagerly waiting for the economy to open up so we can reach out to a customer more actively.
Thank you very much. I'm ready for y'all questions.
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 a speaker phone, please pick up your handset before pressing the keys. If at anytime York wage 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.
Some questions that our first question comes from Matthew Clark from Piper. Jaffray, please go ahead.
a good morning everyone
Hi.
We just first start on the margin in the contribution from PPP. I don't know. I don't think it's that material, but I was trying to hone in on the corner and excluding PPP if you have the the contribution in interest income this quarter.
Nope, best answer by okay. Yeah, I would say Matthew due to the fact that PPP told us about $95 million the rate among these was about 2% um in the most recent months, so it's uh pretty negligible, uh against the four billion dollar portfolio. So I would say probably maybe a basis point on the margin. Okay, that's fine. Okay, and then on the on the outlook for the margin you guys put up some pretty good growth and wage.
Maybe you can speak to the radon new originations. And I know you have a lot of floors on your existing portfolio, but given the growth, you know, would you is it fair to assume that we should cease from mental pressure on the margin just from the new business.
Okay, Matt margin prediction is become a situation that we watch on time. For instance just to be statistically wage mentioning for the first quarter. We have a payoff rate is 90 basis points higher than the rate of new lung being done. This has widened up from previous quarter of 32/7. Okay, 32 basis points and it is a going the trend when you have a low interest rate environment for a long extended period time people sort of interval. I mean placing their lungs lower on the competition aside and also that you mentioned that we have bought nearly as large portion of our loans at a has a flaw. Yes, and many of the floor Was Made It by two or three years ago was quite high and all the customers.
Coming back and renegotiating on those walls. And in many cases we have to we have to agree to the changes of so these two facts I'll go ahead and forward is that will have additional negative pressure to the margin Neiman. Okay, not necessary might interest income, but that's what the positive force is continuously reducing of the interest Cost Plus the potentials interest cost reduction. We refinance of the subject and also operates so, okay. So if we have strong growth, it will balance out some of the module compression situation.
Yep, that's great.
Well, yeah, and I I screwed the focus and then just on the cni growth this quarter also, very strong. Could you just give us a sense for where that came from? Maybe by industry type or business type this quarter?
You want to mention that I have some statistic you want to mention Wellington office and they see opportunity some existing client relationship is your business expansion and also taking over some new relationship that has to the base wage. Oh industry. Okay, we have for example the approaches packaging Healthcare professional data center communication with these are some the example, you know, also like the uh, building materials like five-passenger Etc.
Chris to also tell you the new clients represents most of the growth, but they are thought additional usage. Are you using Chrome existing in the neighborhood forty million dollars? Okay. That's helpful. Thank you.
And then just on the non-interest expense side of things maybe Fred in terms of the run-rate. It sounds like you guys have hired some additional relationship officers that probably put a little bit of upward pressure on that comp line. I guess. How should we think about the overall run rate and you know the potential for additional hires for the rest of the year wage. So yeah, we don't have we don't have the Houston lpo for instance Personnel. That's not a fully baked quarter in there. That's about half the quarter. So, you know, in addition to that the payroll tax is spelled just barely fine you want to sit is every year because we pay our incentive compensation every February of every year. So that's a bump of about five to six hundred thousand on the Run rate. Um, so I would say going forward, you know, we were fifteen 6.65 in this quarter I'd say going forward will be right around probably right around fifteen would be my guess.
Okay, great. And then maybe just lastly on the the loans that were sold. Can you just give us some color there in terms of what exactly was the amount that was sold and the property type and the situation in general but we have one sneaked loan was downgraded substandard. Okay, and we don't want to keep this this loan in our portfolio because it's been substandard. Okay. So we we saw that
Got it. Thank you.
Our next question comes from Gary tenner from d a Davidson, please go ahead. Thanks. Good morning, just to get a little bit of color in terms of your comments about working to be more sensitive. I mean talked about floors a little bit. But but love to get an update on, you know today, you know the amount of your portfolio that's floating how much of the portfolio took two floors and and how in the money the floors are but any any commentary on what you're doing to become more sensitive as you've noted in the press release would be appreciated you had to Handy just so am I Garry, um of the total book and again, this is as of year-end. I apologize. We didn't quite get it updated in time for 3:31 cuz it requires a lot of a lot of data work but uh off total book 82% floating-rate 18% either fixed rate or tied to CDs and secured by CDs of the floating-rate over ninety. Yep.
10% floors
Okay, in terms of where we moved going upward Gary and I think that's probably where you're headed. In terms of interest rate increases wage twenty five basis points only moves about fifty million of the portfolio. The next fifty million moves another $42 million the next twenty five basis points moves another 12 a.m. And then after we get 275 basis points, we really start to see a majority of the portfolio start to reprice. So you're you can assume that roughly, you know, we're roughly fifty to seventy-five or basis points in in terms of upside down on the floors.
Yeah, that's great. I appreciate the caller and then in terms of long ago through the year, obviously, you know, you talked about the new hires good quarter this quarter, you know expectations for for growth for the remainder of the Year based on kind of Pipeline and what you're seeing here from customers right now.
Well, he's he's a situation that that you know, I have always been saying that a crystal ball is kind of a kind of a method. So I like to think that the the sentiment among all our staff is that business is increasing people is more active but to quantify these percentages is difficult. And as you know that historically we have always been having a reasonable reasonable organic growth and and obviously that would dedicated ourselves to continue the at least the historical level. But again, it's lots of variables economy when it's open. How you know, what time is Bath maybe pick the pick pick up speed and those are the things. Okay. So I I really cannot answer quantify it but I just say that we feel that the growth will continue in the next few quarters.
Okay.
And just with with regards to the Houston and The Hires there. What's the the focus in terms of lending their is it seen eyes that commercial real estate? What what's the what's the Target off? Okay outside of a California. We are obviously that we started off with with CIA and gradually as we routed into the community wage at the mall than they they we we gradually getting more see an eye in the California new hires a true new law offices are a five-year office for three or four of them is cni off.
Okay, so you can use the initially will be more commercial real estate Focus that make sense. Yes. Yes. All right. Thank you for taking my questions.
Our next question comes from David feaster from Raymond James.
Hey, good afternoon, everybody. All right, David. I just like to get an update on the Houston. That's pretty exciting. Just curious to hear how the contribution was in the quarter how the pipelines trending and just I guess kind of the early read on that.
Well, you want to say you want me to answer that. Well, we can both answer that. I think that's a pipeline, you know, our initial first pipeline meeting about a couple weeks ago, you know, they had a they presented over I would say, you know, ten real doable deals. So now it just a matter of getting their back office people in place and start putting the deals together and just after this meeting we have enough we have weekly pipeline meeting with them and so looks like so far the officer that we have here. They know the market they have customer base and sings like a customer out portable me. See you. Okay, David number wage speaking. There's no contribution from Houston in the first quarter. Okay. And as of today we have now booked any longer yet, but a couple of them ready to be closed.
Okay. Okay, that's encouraging the the growth clearly be there. But just maybe more broadly just given some of the recent consolidation and disruption in Texas and across the country club that create an opportunity for maybe some more of these de novo type expansions and and What markets are kind of at the top of your priority list? Well, if you you know that that wage we we have people specific type of expansion in other words. We always find a banker and a team then we go to the area where he or she has hers expertise. I mean is in those areas have a relationship in the area. So we are not sure which area that come out first. We're working on some areas right now. So we're not sure which one will be end up the first here. I mean available talents that can be can be higher but there are about three or dead.
Regions are currently located. Okay, and other regions will be just
Just just you know, maybe by the good grace of God will fall in our laps, you know? Yeah, okay, and then maybe just following up on your commentary on new loan yields. How are new loan yields trending, you know, you talked about the 90 basis points spread was that more of a function of mix or you know continued pressure on pricing and I just sleeping of the curve at all allowed you guys to maybe have better pricing in in your conversations. I have to qualify my innocence that I just got the information a couple of days ago and I have not died enough into that. But my first reading the situation is that this quarter that the mix is one of the issue. Okay, and it should not be as big is 90 basis points because the last quarter was 32 basis points and Wiz so-called day in day out. I mean that all the deals coming in. Okay so dead.
It should be less than 90 based on we have we cannot really quantify that much yet. But but the trend is
probably will continue to compress the end of the year this concern just because we'll sing competition.
Okay, any people are pricing their loans on the 10 year fixed rate below are net interest module. Okay. So unless there's one or two very specific cases that we were we would get them for because other reasons there is we cannot compete with that. Yeah, where do you see the most competition do you offer from the the larger Banks or is it a smaller Community Banks that are being the most competitive larger Banks? Okay. All right. Thanks everybody.
Our next question comes from Tim coffee from Janney.
Great. Thank you more than everybody to see if I were to ask you about kind of commentary on the deposit growth of the quarter. Would it be any different than what Wellington was describing off the loan growth that you saw more activity by clients as well as introduction of new clients through the bank. Well the process Even Flow actually most of them coming from our existing Thursday. We have not taking any new clients in the quarter that represent a huge deposit bases in a might can be more than one or two. Okay, but it can basically do existing customers man. So it grows that means you know, generally we feel a customer base Financial condition is is getting better wage. So so this is this is what we observe observed.
Okay with the with the tax filing date being pushed back. Do you anticipate any kind of outflow in deposits? That's well above the seasonal type that in 2 Q. Well, I hope you know it is my my selfish Health that the deposits were we would do is couple hundred million dollar deposit during the tax state. Okay, because that were improve a very interesting, okay.
Yeah, no. No, that would definitely.
Like to be reducing likely to be reducing a a bit an expense.
Okay, and then Ed as you look at kind of the time deposits maturing this next quarter, do you have any idea? What can you show the volume might be and what the price differential could be wrong? I do I can't. Hey Tim. It's just under $500 million will be maturing over the second quarter at an average rate of 95 basis points just to be replaced, you know, somewhere around fifty basis points. We've actually have just recently lowered again are are offered CD rates. So that's the that's the beta for the quarter. Okay. Great. Thanks. And then Mister you the Houston lpo. I mean, obviously you've got a really experienced team leader out there and the goal that you set of about a month or two reservations of 150 million by the middle of next year. Are you getting the sense that you could do better than that or is it too early?
Well so far, this is the this is the goal that Houston has set for us. So obviously that you know, we have wage we have the psychology of our staff to be worried about because you know, if you set to hard to push a girl people who get, you know, netic negative reaction out of that, but obviously we're doing everything okay if they can produce five hundred million dollars during the first year we in Los Angeles can be can be sitting with a hands on the on the sitting on our hands. So but judging from the prior experience, we have to starting with the new office. We think that is close to reasonable and wage. Hope it's going to be better.
Okay. All right. Thank you very much for that. Those are all my questions.
Our next question comes from Andrew Terrell from Stevens.
Hey, thanks. Good morning. Hi, good morning. You still trying to trans looked pretty positive this quarter and it was it was nice to see the the name charge off number. Can you just remind us kind of what the Outlook is for the the loan loss Reserve moving forward as we go throughout this year.
Well, let me just see if first of all it's it's a Cecil calculation. Okay, so I want to say something first and then connect our expert and see I see so I mean to talk about that. And first of all, let me recall your memory in 2020. We provided loan-loss provision of fact, we had a charge off of five point four million dollars. So the 21 million dollar must have one to two areas one is a general macroeconomic situation. The second of all is when we called reserve for proactive downgrades. Okay, and we like to think some of them is quite correct. Okay. Now who is after we made those Provisions? I mean these credit did not be cleared the curator. So somewhere along in the future periods. It would be dead.
Upgrade it. Okay together with a general Improvement in
In my situation, so it is conceivable that we may have some releases in next year in in the 2,000 in the office in Industry latest year. I would just don't know because depend on the calculation but but I want to tell you personally I am very happy that we don't have to use up to receive in the first quarter it it's kind of nice to retain the availability.
So Nick you want to anything to ask Tim?
Just like miss you mentioned that for this year's production. I believe it's it's not as it's not it's a last year and cuz I bought a policy of our loan portfolios quite stable at this time in terms of declining in uh in the volume of Department request and down volume of language changes changes and non-performing asset as well as
Has to 30 days loans quite limited. So for this year, we believe that supposed not to be like last year. We try to make a cake like mr. You mentioned would make a reserve to uh, you know, put to prepare ourselves during the pandemic time. So, you know this year or next year probably we don't need that much of a reserve and the wall be have some
Gregory Burgess, that's our
at this time
Okay, that's that's extremely awful color. I appreciate it. Just thinking about some of the liquid on the balance sheet, obviously a lot of liquidity and you guys are not alone and it may be kind of deposit flows can sway this near-term. But can you just remind us over the longer-term where you like to manage the the cash balances just as a percentage of total earning assets off. It's it's a two-edged sword in a situation. They are time with fighting for deposits like crazy and because of the loan growth and generally generally the title office and this happened to be the countries of flush was cash and I was reading the other reports other, other Banks. It's all seems to be everybody is a flush with cash. But you know at the operator I can only speaking of the operator and not a financial engineer. Okay as the operator deposit is just like like capable.
Staff you need to get it when you see it. And even though it's a short-term negative but long-term. It's what we just hope to see is we get deposit gradually reducing our costs and we slowly grow into it and we'll eat the differences and so forth and Nash number and not I mean because once we turn away so I can deposit runaway sexual relationship where they come back. We we needed them. So it as operator of consideration in a slightly different.
Yeah.
I just thank you guys for taking my questions and congrats on a good quarter. Thank you.
As a reminder. If you have a question, please press * then 1 to be joined into the queue. Our next question comes from Steve.
Good morning, guys. Just one just one question here. Most of my questions answered in terms of just the other half of the deposit base here on just burying uh, the savings and checking deposits basically stable Court of record in terms of cost. Just wondering if those were repriced lower here with CDs the majority of the repricing within that category Steve took place within 20 20, when excuse me, when rates are coming down quite precipitously, so there's not been any repricing in the money market or now or savings account categories going forward to re pricing is if anything is ready very moderate.
Because we already we already gotten close to the low of of vehicle.
Got it. Okay. Well, that's that's my only remaining question great quarter. Thank you very much.
Thank you. Thank you.
This concludes our question-and-answer sessions. I would like to turn the conference back over to mister chairman and CEO for any closing remarks.
Thank you very much. And I'll you know, I hope we really even the last leg of this pandemic. So I pray that everyone stay safe and we get back in which I hope is a new boom cycle for our economy. Thank you. Thank you very much.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.