Q1 2024 Preferred Bank Earnings Call
[music].
Operator: Good day and welcome to the preferred first quarter 2024 earnings call. All participants will be enlisted on. Should you need assistance, please signal a conference specialist by pressing the star key followed by. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on the touchtone. To withdraw your question, please press star. Please note that this event is being recorded.
Good day and welcome to the preferred bank first quarter 2024 earnings call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone.
Withdraw your question. Please press Star then two.
Please note this event is being recorded.
Jeffrey Haas: I would now like to turn the conference over to Jeff Haas of Financial Profile. Please go ahead. Thank you, Nick. Hello, everyone. Thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31, 2024. With me today for management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, and Chief Credit Officer Nick Pi. Management will provide a brief summary of the results, and then we will open up the call to your questions.
I would now like to turn the conference over to Jeff path a financial profile. Please go ahead.
Jeffrey Haas: I think Nick Hello, everyone. Thank you for joining us to discuss preferred bank financial result for the first quarter ended March 31, 2024 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Takeout, and Chief Credit Officer.
Sure Nick Pi.
Jeffrey Haas: Management will provide a brief summary of the results 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 1995.
Jeffrey Haas: 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 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 and many of which are beyond the control of Preferred Bank.
Jeffrey Haas: These 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 banks 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.
Jeffrey Haas: For a detailed description of these risks and uncertainties, please refer to the FEC-required documents in 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 Bank's results could differ materially from its expectations as set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements.
Jeffrey Haas: Please refer to the SEC required documents the bank files with the federal deposit insurance Corporation or FDIC.
Jeffrey Haas: Any of these uncertainties materialize or any of these assumptions prove incorrect preferred bank's results could differ materially from its expectations as set forth. In these statements preferred bank assumes no obligation to update such forward looking statements.
Jeffrey Haas: This time I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Jeffrey Haas: At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead. Thank you very much. Good morning.
Li Yu: Thank you very much good morning.
Li Yu: I am very pleased to report that preferred banks first quarter net income of $33 $5 million.
Li Yu: I'm very pleased to report Preferred Bank's first quarter net income of $33.5 million, all $2.44 per fully diluted share. This quarter, our loan growth was annualized at 4%, and deposit growth was 6.5% annualized. This quarter, our net interest margin was 4.19%, which is a slight decrease from the previous quarter. Working Ahead. The second quarter, NIM, likely will also be compressed, but we don't think it's going to be very significant. It's going to be a mic. The reason for the compression in the first quarter is the continued increase in the cost of deposit.
Li Yu: All $2.44 per fully diluted share.
Li Yu: This quarter.
Li Yu: Loan growth was annualized at 4% and deposit growth was six 5%.
Li Yu: Advised.
Li Yu: This quarter, our net interest margin is 14, 19%.
Li Yu: And which is a slight decrease from the previous quarter.
Li Yu: Looking ahead.
Li Yu: The second quarter NIM.
Li Yu: Likely we'll also.
Li Yu: Compressed, but we don't think it's going to be very significant it's going to be my congrats.
Li Yu: The reason for the compression in the first quarter is continued increase in cost of deposits.
Li Yu: As of March 31st.
Li Yu: Total.
Li Yu: Criticized loans is $87.6 million.
Li Yu: Which is three points.
Li Yu: $6 million higher than the $83 million at year end I know there is a massive mistake somewhere but.
Li Yu: You have to round off three numbers.
Li Yu: And.
Li Yu: Nonperforming loans as well.
Li Yu: As of March 31, total. Criticized loans were $87.6 million, which is $3.6 million higher than the $83 million at year-end. I know there's a math mistake somewhere, but that's because you have to round off three numbers.
Li Yu: Reduce.
Li Yu: Tom.
Li Yu: It is $8 $7 million.
Li Yu: And two to $18 $2 million.
Li Yu: In the first quarter.
Li Yu: This quarter, we have a charge of $3 $5 million related to loans previously identified was loss content and fully reserved for.
Li Yu: This quarter.
Li Yu: Provision is $4 $4 million.
Li Yu: The reserve or allowance now stands at four point.
Li Yu: The Non-Performing Loan has reduced from $28.7 million at the end to $18.2 million in the first quarter. This quarter, we have a charge of $3.5 million related to loans that were previously identified as lost and fully reserved for. This quarter, our provision is $4.4 million. The reserve or allowance now stands at four points. Attorney.
Li Yu: 1.4, 49%.
Li Yu: On the business side.
Li Yu: We have just opened a new branch.
Li Yu: In.
Li Yu: In Orange County, Irvine area. This is a full service.
Li Yu: Service brands staffed with a team of deposit personnel and the team model approach now.
Li Yu: We're also practically.
Li Yu: As of right now this minute opening up a Sunday the loan production office in the Silicon Valley area.
And we plan to continue to add relationship postal mail.
Li Yu: And the remainder of the years.
Li Yu: Since third quarter last year.
Li Yu: <unk> has been tried to reduce the sensitivity.
Li Yu: And that 1.49%. On the business side, we have just opened a new branch in the Orange County, Irvine area. This is a full service branch staffed with a team of deposit personnel and a team of loan personnel. We also, practically, as of right now, this minute, opened up a Sunnyvale loan production office in the Silicon Valley area. And we plan to continue to add relationship personnel for the remainder of the year.
Li Yu: Our loan portfolio.
And as of today, we believe is a much better balance with our deposit.
Li Yu: Sure.
Li Yu: With the current changes in trend of interest rate movement.
Li Yu: We will obviously monitor the situation and making the necessary adjustments to control.
Li Yu: Interest rates risk even better.
Yes.
Speaker Change: Thank you very much and I'm ready for your questions.
Speaker Change: Okay.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: The first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Li Yu: Since the third quarter last year, we have been trying to reduce the sensitivity of our loan portfolio. And as of today, we believe there is a much better balance with our deposit composition with the current changes in the trend of interest rate movement. We will obviously monitor the situation and make the necessary adjustments to control our industries risk even better.
Matthew Timothy Clark: Hey, good morning, everyone.
Matthew Timothy Clark: Yes.
Matthew Timothy Clark:
Matthew Timothy Clark: Maybe Ed just to start on the NIM.
Matthew Timothy Clark: To get some visibility into Q. If you had the average NIM in the month of March and the spot rate on deposits at the end of March.
Matthew Timothy Clark: Yes.
Ed: I was ready for he Matthew the NIM for March was 411 spot rate on deposits was 404.
Speaker Change: Okay, and therefore for us at the end of the month or the was that the average in March.
Speaker Change: That's the average for the month.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Okay and then.
Speaker Change: I think.
Speaker Change: You all hired some producers in the fourth quarter.
Li Yu: Thank you very much, and I'm ready for your questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.
Speaker Change: And you had some good growth in both loans and deposits wanted to get a sense for.
Speaker Change: Your pipeline of loans and deposits and your growth outlook for the year.
Speaker Change: Well first of all the.
Speaker Change: Don't think we have at too many people in the fourth quarter most of them in the first quarter.
Speaker Change: Yeah.
Speaker Change: When you add the relationship officer, usually takes about when they have to two quarters before they can materialize into material.
Operator: If you are using a speaker phone, please pick up your handset before pressing. If at any time your question has been addressed and you would like to withdraw your Press Star, At this time, we will pause momentarily to assemble our roster. The first question comes from Matthew Clark with Piper Sandler. Please go ahead. Good morning, everyone. Unknown Speaker 0.0.0.0, Maybe Ed, just to start on the NIM, I'm trying to get some visibility in the 2Q if you had the average NIM in the month of March and the spot rate on deposits at the end.
Speaker Change: Portfolio start to materialize.
Speaker Change: And also as you know.
No.
Speaker Change: Our business that.
Speaker Change: For every 10 people you hire you hope everyone works not necessarily okay.
Speaker Change: But we're just.
Speaker Change: Hopefully that women some stars that balanced out the whole situation.
Speaker Change: With the with the pipeline and the one other thing you want to expand the pipeline first okay.
Speaker Change: Thank you Mr. You mapped our pipeline as well.
Speaker Change: Pretty healthy I think that we are.
Speaker Change: Really as Mr. Yu mentioned.
Speaker Change: Really focus on taking care of our existing customer and right now there's quite a bit of opportunity for them.
Speaker Change: That's our priority so in turn yes, that's what we are the pipeline is pretty healthy.
Operator: Yeah, I was ready for you, Matthew, the NIM for March was $4.11, and the spot rate on deposits was $4.04. Okay, and that 404 is at the end of the month, or was that the average in March?
Speaker Change: Okay.
And then.
Speaker Change: The.
Speaker Change: I'm sorry, the other question I had I think was around.
Speaker Change: The CD repricing can you just remind us what you have coming due over the next couple of quarters and the rate differential and when that gap.
Speaker Change: Clothes or.
Speaker Change: Completely.
Speaker Change: So we have.
Speaker Change: Q2.
Speaker Change: T C d's of about just under $1 billion.
Matthew Timothy Clark: That's the average for the month. Okay. Okay, and then I think you all hired some producers in the fourth quarter, and you had some good growth in both loans and deposits. Wanted to get a sense for your pipeline of loans and deposits in your growth outlook for the year. Well, first of all, the pipeline. I don't think we had too many people in the fourth quarter, but also in the first quarter.
Speaker Change: Maturing at an average rate of four nine so we don't see a lot of differential there with respect to what's going to be maturing with respect to what's going to come back on queue.
Speaker Change: Q3 that number dips a little bit.
Speaker Change: To $374 million in terms of maturities.
Speaker Change: So we don't expect a lot of movement on the standpoint on the deposit side from a TCE rates going up dramatically from the portfolio rate that we're at right now.
Speaker Change: Okay.
Speaker Change: And then just on credit can you remind us of the nonperformer that youre able to sell at par what type of credit that was obviously great to see.
Li Yu: Okay. You know, when you add the relationship officers, it usually takes about one and a half to two quarters before they can materialize into material their portfolio starts to materialize. And also, as you probably know, in our business, for every 10 people you hire, you hope everyone works, but not necessarily. But we're just hoping there will be some stars that balance out the whole situation with the pipeline.
Speaker Change: Then just the incremental increase in <unk>.
Speaker Change: Criticized I know it wasn't a big number but just would like some color there.
Speaker Change: Well.
Speaker Change: Obviously, these things coming in and out.
Speaker Change: Some time in different states.
Some of those those criticized.
Speaker Change: <unk> into the nonperforming area and we have obviously it is our job to to identify them in the very early stage to provide.
Speaker Change: The copper reserve on the whole situation, okay. So that the loss content is.
Paul: Comment Paul.
Paul: Might be affecting the future.
Speaker Change: Okay. So it was Europe.
Speaker Change: Question, Nick you've anything to add.
Nick: Really just give you a little bit more color about those two.
Nick: Loan related together with so the note.
Li Yu: And one of the things you want to explain is the pipeline first. Well, thank you, Mr. Yu. Matt, our pipeline is pretty healthy.
Nick: Plus a little bit small premium on that.
Nick: Just like neutral mentioned Mike.
Nick: Migration in and out.
Nick: For credit so I believe though we didn't notice any.
Nick: Any significant trend of credit site.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from Andrew <unk> with Stephens. Please go ahead.
Unknown Executive: I think that we are. We really focus on taking care of our existing customers, and right now, there's quite a bit of opportunity for them. That's all a priority. Yeah, that's what we are.
Andrew: Hey, good morning.
Andrew: Good morning, Andrew.
Andrew: My first question was around just the loan yield expansion that you saw this quarter seven basis points sequentially. It was up pretty nice I was just curious was there any.
Andrew: Any kind of outsized interest recoveries or anything like that more one time in the <unk> loan yields or was this more just a function of.
Loan growth and kind of churn in the portfolio towards higher rates.
Andrew: Yes.
Unknown Executive: The pipeline is pretty healthy. Okay, and then. The other question I had was, oh, yeah, around the CD repricing. Can you just remind us what you have coming due over the next couple of quarters in the rate differential and when that gap might be closer? Closer. So we have Q2 TCDs of about just under a billion dollars. Maturing.
Speaker Change: Good question, Andrew and good pickup there, we actually had a prepayment penalty on a fairly large credit in the month of March a little over $200000 and that helped to drive yields just a little bit.
Speaker Change: Alright, just a little above 200000.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Each quarter, we hope that we have some prepayment penalties.
Speaker Change: Although it will vary.
Speaker Change: [laughter].
Matthew Timothy Clark: They're at an average rate of 4.9, so we don't see a lot of differential there with respect to what's going to be maturing with respect to what's going to come back on. In Q3, that number dips a little bit. [inaudible] So we don't expect a lot of movement on the deposit side from a TCD rates going up dramatically from the portfolio rate that we're at right now. Okay. And then just on credit, can you remind us of the non-performer that you were able to sell at par? What type of credit that was? Obviously, great to see. And then just the incremental increase, and criticize. I know it wasn't a big number, but I would just like some color there.
Speaker Change: Matt This is.
Speaker Change:
Matt: Understood got it yes, we will have from our.
Matt: On the I was looking at I guess, a comment from your earnings release around.
The rate sensitivity position and kind of some adjustments on our loan portfolio to maybe dampen out that sensitivity but.
Matt: Looking back at the annual report and I think you guys are disclosed down 7% to NII with.
Matt: Negative 100 basis points in short term rates has that moderated significantly.
Matt: As of the $3 31.
Matt: Can you just speak a little more to how the balance sheet has tempered in terms of rate sensitivity.
Speaker Change: Well at.
Speaker Change: It has tempered I can't give you the number right now on the down 100 scenario, Andrew but suffice to say what Mr. Yu was alluding to earlier is a number of things doing a few more fixed rate loans than we've done in the past and with respect to loans that are renewing are coming up for renewal.
Li Yu: Well, obviously, these things are coming in and out and have a different time and different. Some of those criticized loans will migrate into the non-performing area, and we have, obviously, it is our job, to identify them in the very early stage, to provide the proper reserve on the whole situation, so that the lost content has been accounted for and will not be affecting the future years. Okay. So with your question, Nick, do you have anything to add? Not really.
Speaker Change: If they're remaining floating rate, we're moving the floors up from where they were previously.
Speaker Change: I'll fix it window situation.
Speaker Change: Or I can give you a rough number right now I cannot tell you exactly.
Speaker Change: Pause, while we haven't kind of chances to do that.
Speaker Change: Hi.
Speaker Change: Previously we would disclose to you all as rate sensitive as loans is about 80 some percent 87%.
Speaker Change: Exactly that's about it now it's down to about the mid 70% today.
Nick Pi: Just to give you a little bit more color about those two. Loans related together, we sold the note at par plus a little bit of a small premium on that. So just like Mr. mentioned, migration in and out for credit. So I believe we didn't notice any significant trend of credit. Great, thank you. Next question. [inaudible] Steffens, please go ahead.
Speaker Change: Maybe slightly lower than the 72.
Speaker Change: So if you compare to that.
Speaker Change: Liability sensitive.
Speaker Change: Sensitive liability reserve.
Speaker Change: That we're in pretty good balance right now.
Speaker Change: Yes, Okay, yes.
Mid seventies.
Speaker Change: That's really helpful. I appreciate it.
Speaker Change: And then.
Speaker Change: Maybe one on the expense base.
Speaker Change: Expectations on kind of <unk> expense.
Speaker Change: Run rate I know, there's a it looks like maybe new LPL opening.
Speaker Change: Just curious on how you see expenses trending in the second quarter.
Speaker Change: So a number of things that Mr.
Operator: Hey, good morning. Owner Normal Owner Microsoft Office Word Microsoft Office Word Microsoft, Inc. It was, Um, my first question was around just the low yield expansion. You saw this quarter seven basis points sequentially, it was up pretty nice. I was just curious, was there any, Unknown Speaker, The Epoch Times, Jeff Frick, Yeah, good question, Andrew, and good pickup there.
Speaker Change: <unk> and willing to alluded to we have.
Speaker Change: The new Irvine office, which is in a prime prime location and the warrant in Orange County, and the Colver Center in Irvine. In addition to that the Silicon Valley L. P O both of those require staff as well as.
Speaker Change: Lease costs, so I think going forward I think the $20 million.
Speaker Change: This quarter is probably a fairly.
Speaker Change: Plus or minus going forward for next quarter.
Speaker Change: Okay very good. Thank you for taking the questions just wondering I appreciate it.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from David Feaster with Raymond James. Please go ahead.
David Pipkin Feaster: Hi, good morning, everybody.
Unknown Attendee: We actually had a prepayment penalty on a fairly large credit in the month of March, a little over $200,000. And that helped to drive yields just a little bit. All right, just a little above $200,000. Yeah, these things happen each quarter. We like, we hope that we have some prepayment penalty each quarter. Although, it was very interesting to me.
David Pipkin Feaster: Perfect.
You touched on on the two NPA is but I was hoping to get your thoughts on credit more broadly you've got a track record of being aggressive managers of credit I'm curious.
David Pipkin Feaster: What are you seeing more broadly in the health of your clients where are you seeing any signs of stress and just any any thoughts on credit more broadly from your perspective, Okay. Let me, let me state that somewhat somewhat way back let's say in 2022, okay.
David Pipkin Feaster: Alibaba earlier.
David Pipkin Feaster: When we start to worry about the rates and credit and so.
Unknown Attendee: Attendee. Thank you. understood, got it. Yeah, we'll hope for more. On the, I was looking at a comment from your earnings release around the rate sensitivity position and kind of some adjustments in the loan portfolio to maybe dampen out that sensitivity, but, Looking back at the annual report, I think you guys are disclosed down 7% to NII with negative 100 basis points in short-term rates. Has that moderated significantly? As of the 331, can you speak a little more to how the balance sheet is tempered in terms of rate sensitivity? Well, it has tempered.
David Pipkin Feaster: Inflation so long.
David Pipkin Feaster: Sure.
David Pipkin Feaster: Hi.
David Pipkin Feaster: <unk> thought.
David Pipkin Feaster: That the was this period almost two years gone by was the charge offs we have.
David Pipkin Feaster: The loss loss, we have set and the level of Npls and the level of criticized assets is as of today.
Speaker Change: Would it be.
Speaker Change: So happy those days.
As you know that the one of the tricky.
Speaker Change: Dealing with the credit has tried to identify early and try to fully reserve that okay. So that's our basic principle, but talking about with our custom is cool soon.
Speaker Change: Most of our customer.
Speaker Change: It started to turn.
Speaker Change: And even more positive.
Speaker Change: And.
Speaker Change: Basically obviously inflation is one factor that is time and then there is the fact that the rate.
Speaker Change: Is stabilized, although everybody would like to see it down little bit but.
Speaker Change: All we all know from disappointment, how sooner or later is going to be in the order. It's a matter of whether it's half a year or one year or whatever it sooner or later will be back on that.
Speaker Change: And from what I read for the all the big banks reporting numbers do credit posture is also better than expected internally expected what okay. So generally speaking I think the marketplace, you'll start to see the light at the end of the tunnel in fact many of.
Unknown Executive: I can't give you the number right now on the down 100 scenario, Andrew. But suffice to say, what Mr. Yu was alluding to earlier is a number of things, such as doing a few more fixed-rate loans than we've done in the past. And with respect to loans that are renewing or coming up for renewal, if they're remaining floating rate, we're moving the floors up from where they were previously. I'll fix that with an example. Now, I can give you a rough number right now. I cannot tell you the exact down 100 percent, and so on. We haven't got a chance to do that yet.
Speaker Change: More opportunistic customers started to thinking about new investments.
Speaker Change: Okay, I wonder does that concern you.
Speaker Change: I mean, any additional color related to that.
Speaker Change: That's great color.
Speaker Change: Does that does that mean does that indicate that maybe you are having a bit of.
Speaker Change: Maybe less cautiousness, and maybe that we should see.
Speaker Change: Growth start to accelerate it sounds like demand is starting to improve you alluded to improving pipelines.
Speaker Change: It seems like you've strategically decelerated growth from the conversations that we've had does it might.
Speaker Change: My reading between the lines that maybe we could see you are a bit less cautious today and we could see growth reaccelerate in the back half of the year.
Speaker Change: I don't want to be really associate growth being less cautious.
Unknown Executive: I know I think previously we would disclose to you, as I mean, very sensitive as loans are about 80 some percent 87%. I can't hold you exactly about it, now we're down to about the mid-mid 70% today or, maybe slightly lower than May 70. So, if you compare to the liability, which is sensitive, you know, sensitive liability we have, okay, you know that we're in a pretty good balance right now. Yeah, okay. Yeah, the mid 70s is definitely a big move. That's really awful.
Thanks Jay.
Speaker Change: To put it right situations is that fair.
Speaker Change: Finally seems to be that we can take on the opportunity that will be presented to us and we have to be ready as you know you add personnel they'll put that.
Speaker Change: Some will come maybe.
Speaker Change: Three to six months later, so that's immediate.
Speaker Change: Combat and the general feeling is that as I said to me I personally believe the big picture is that rates is finally coming down is sooner or later it will stabilize into a new normal situation, which would be reasonably lower than it is today and although every pricing activities at <unk>.
And then youre wrong new rate.
Speaker Change: Every <unk> knew the inflation number of product things will start to sort of like normalized themselves.
Speaker Change: And with our current the strengths of economy.
Speaker Change: <unk> believes that business opportunity has increased.
Speaker Change: And there will be less risk.
Unknown Attendee: I appreciate it. Unknown Speaker And then, Maybe one on the expense base, just expectations on kind of the 2Q expense, run rate. I know there looks like maybe a new LPO opening. Curious on how you see expenses trending in the second quarter? So a number of things that Mr. Yu and Wellington alluded to: we have, you know, the new Irvine office, which is in a prime, prime location in Orange County, at the Culver Center in Irvine. In addition to that, the Silicon Valley LPO, both of those require staff as well as lease costs.
Speaker Change: Doing transaction today as compared to one year ago.
Speaker Change: That makes sense it makes a lot of sense.
Speaker Change: Thank you for that color and then last one from me maybe just following up on the branch expansion LPL.
Speaker Change: Love seeing the continued expansion and investment I'm curious how you how do you think about de Novo expansion priorities at this point what other markets are interesting to you in.
Speaker Change: Just kind of curious how you think.
Speaker Change: About as you continue to expand.
Speaker Change: Where you're focused.
Speaker Change: David.
Speaker Change: Expenditure really you have two different.
David Pipkin Feaster: Directions. One is is that the areas. We think we have a lot of business, we want to be and then the situation is that when we have the personnel.
Unknown Executive: So I think going forward, I think the $20 million you saw this quarter is probably a fairly consistent, you know, plus or minus going forward for next quarter. Okay, very good. Thank you for taking the questions this morning. I appreciate it. Thank you. Again, if you have a question, please press star, then 1. Our next question comes from David Feaster with Raymond James. Please go ahead. Hey, good morning, everybody.
David Pipkin Feaster: Yeah.
David Pipkin Feaster: Preferred bank small institution, so almost we can go anywhere and.
David Pipkin Feaster: We had a reasonable amount of business with a new operation.
David Pipkin Feaster: Therefore your fleet.
David Pipkin Feaster: Finding the bank has the book of business, we tend to Butte.
David Pipkin Feaster: Around the same and.
David Pipkin Feaster: <unk> settled down was the operation there.
David Pipkin Feaster: Being said that Silicon Valley is one of the area that we have wanted to be there.
David Pipkin Feaster: And then we would have never been able to get the right person there in the last 10 years or so on finally situation comps one of those able to locate.
David Pipkin Feaster: Um... We touched on the two MPAs, but I was hoping to get your thoughts on credit more broadly. You've got a track record of being aggressive. Credit. I'm curious.
David Pipkin Feaster: Do you think it would be feeling to our leaves us awhile. So we're starting that particular offering it's a it's the right place for us.
David Pipkin Feaster: Probably the people has the right people.
David Pipkin Feaster: Okay.
Helpful and maybe just if I could squeeze one more you've been real active repurchasing stock.
Li Yu: What are you seeing more broadly in the health of your clients? Are you seeing any signs of stress, and just any thoughts on credit more broadly? Okay, let me let me state that from a long time ago, you know, let's say in 2022, a little bit earlier. When we started to worry about rates and credit and so on, and then inflation and so on. If I had seen a thought that this period almost two years gone by was a charge-offs we have, and the loss losses we have had and the level of MPLs and the level of criticized assets is of today, I wouldn't be, so happy those days, okay.
David Pipkin Feaster: No.
Speaker Change: Curious maybe with.
Speaker Change: Potential for organic growth to accelerate in the move in the stock that we've seen curious your capital priorities and your appetite for additional buybacks.
Speaker Change: We have always been letting our shareholders know that grows in the normal situation is our preference.
Speaker Change: Presents the best long term value, but within the last three four years starting from the pandemic.
Speaker Change: Inflation and so on where the bank is making over 20% return.
Speaker Change: With a cost of.
Speaker Change: I will tell you the costs in <unk> in the 5% range. Okay. It does not assume a.
Speaker Change: Good idea.
Speaker Change: Idle cash, which we're not doing much long nobody's doing much at all of those with idle cash being staying them 18, 5% buyback own stock represents a pretax <unk> 33%.
Li Yu: As you know, one of the tricks in dealing with a credit is to try to identify it early and try to fully reserve that. Okay, so that's our basic principle. But talking about it with our customers, concern Most of our customers, It started to turn. A little bit more positive. And basically, obviously inflation is one factor that is down. And another factor is that the rate is stabilized, although everybody would like to sit down a little bit.
Speaker Change: <unk>.
Speaker Change: Hello.
Speaker Change: Economics tells me that.
Speaker Change: Shareholders were light et cetera over the long term if we do that.
Thanks, a lot of sense alright, thanks, everybody.
Speaker Change: This.
Speaker Change: <unk> our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Li Yu: Thank you very much as I've said that we're very happy with the quarter and hopefully that.
I personally believe that find leasing started to stabilize and going forward I hope it can only be better for the banking industry.
Li Yu: We all know from this point on how sooner or later it's going to be lower. It's a matter of whether it's half a year or one year or whatever; sooner or later, we'll be back on that. And from what I read, for all the big banks reporting numbers, their credit posture is also better than expected, internally expected, or what. So, generally speaking, I think the marketplace is starting to feel, and see the light at the end of the tunnel. In fact, many of our more opportunistic customers are starting to think about new investments. I wonder if that's the only question you have. I mean, any additional things related to that? That's a great color.
Li Yu: Thank you.
Li Yu: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Li Yu: Yes.
Li Yu: [music].
Li Yu: Right.
Li Yu: [music].
David Pipkin Feaster: Does that mean, does that indicate that maybe you're having a bit of, You know, maybe less cautiousness and maybe that we should see growth start to accelerate? It sounds like demand is starting to improve. You alluded to improving pipelines.
Li Yu: Okay.
Li Yu: Yes.
Li Yu: You know, it seems like you've strategically decelerated growth from the conversations that we've had. Does it sound, am I reading between the lines that maybe we could see you're a bit less cautious today, and we could see growth re-accelerate in the back half of the year? I don't want to really associate growth with being less cautious, okay?
Li Yu: I think that, to put it right, the situation is that it finally seems to be that we can take on the opportunity that will be presented to us, and we have to be ready. Things will start to sort of normalize themselves, and with our current strengths in the economy, I personally believe that business opportunities have increased, and there will be less risk of doing a transaction today as compared to one year ago. That makes sense. Makes a lot of sense. Thank you for that color.
David Pipkin Feaster: And then last one for me, maybe just following up on the branch expansion LPO. I love seeing the continued expansion and investment. I'm curious, what do you think about de novo expansion priorities at this point? What other markets are interesting to you? I'm just kind of curious how you think about, as you continue to expand, where are you focused? David, our expansion really has two different directions. One is that areas we think we have a lot of business, okay, or we want to be. And another situation is that when we have the personnel.
Li Yu: [music].
Li Yu: Preferred Bank is a small institution, so we can go anywhere and get a reasonable amount of business with a new operation. And, therefore, if we find the banker has the book of business, we tend to build a team around him and, I mean, settle down with the operation there. Having said that, Silicon Valley is one of the areas that we have wanted to be in, but we have never been able to get the right person there in the last ten years or so.
Li Yu: Finally, the situation comes up, Wellington is able to locate a couple people he thinks would be suitable for our needs and so on, so we are starting that particular operation. That's helpful. And maybe just if I could squeeze one more, you've been real active repurchasing stock, you know, curious, maybe with, you know, potential for gain and growth to accelerate in the move in the stock. Here are your capital priorities and your appetite for additional buybacks. We have always been letting our shareholders know that gross, in the normal situation, is our preference as it represents the best long-term value.
Li Yu: But within the last three, four years, starting from the pandemic, with inflation, and so on, where the bank is making over 20% return. With alternative costs in the 5% range, it does not seem a good idea to have that idle cash, which we're not doing much loans on, nobody's doing much loans, don't say. With idle cash being staying there making 5%, buyback on stock represents a pre-tax 33% return
Li Yu: So economics tells me that our shareholders would like to trade it over the long term if we do that. All right. Thanks, everybody. This concludes our question and answer session. I would like to turn the conference back over to Li Yu for any closing remarks. Thank you very much.
Li Yu: As I said, we're very happy with the quarter and, hopefully, I personally believe that things have finally started to get stabilized and going forward. I hope it can only be better for the banking industry. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: © BF-WATCH TV 2021, [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, ?? ?? ?? ?? ?? ?? Good day and welcome to the Preferred, first quarter 2024 earning All participants will be enlisted only, Should you need assistance, please signal a conference specialist by pressing the star key followed by Z. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on the touchtone, To withdraw your question, please press star 3.
Jeffrey Haas: Please note, this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profile. Please go ahead.
[music].
Jeffrey Haas: Thank you, Nick. Hello, everyone. Thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31st, 2024. With me today for management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, and Chief Credit Officer Nick Pi. Management will provide a brief summary of the results, 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 1995.
Jeffrey Haas: Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Such 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 FEC-required documents the bank files with the Federal Deposit Insurance Corporation, or FDIC.
Li Yu: If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank's 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 Mr. Li Yu. Please go ahead. Thank you very much. Good morning.
Li Yu: I'm very pleased to report Preferred Bank's first quarter net income of $33.5 million, all $2.44 per fully diluted share. This quarter, our loan growth was annualized at 4%, and deposit growth was 6.5% annualized. This quarter, our net interest margin is 4.19%, which is a slight decrease from the previous quarter. Looking ahead, The second quarter, Nim, likely will also be compressed, but we don't think it's going to be very significant. It's going to be a mic. The reason for the compression in the first quarter is a continued increase in the cost of deposit. As of March 31, total criticized loans were $87.6 million, which is $3.6 million higher than the $83 million at year-end.
Li Yu: [music].
Li Yu: I know there's a math mistake somewhere, but that's because you have to round off three numbers, in non-performing loans, which reduced from $28.7 million at the end of the year to $18.2 million in the first quarter. This quarter, we have a charge of $3.5 million related to loans that were previously identified with a loss count and fully reserved for. This quarter, our provision is $4.4 million. The reserve or allowance now stands at four points. Owner Normal Owner Microsoft Office Word Microsoft, Inc. It's a great pleasure to be, on the business side.
Li Yu: We have just opened a new branch in the Orange County, Irvine area. This is a full service branch staffed with a team of deposit personnel and a team of loan personnel. We also practically, as of right now, this minute, opened up a Sunnydale loan production office in the Silicon Valley area. And we plan to continue to add relationship personnel throughout the remainder of the year. Since the third quarter last year, we have been trying to reduce the sensitivity of our loan portfolio.
Li Yu: And as of today, we believe it's a much better balance with our deposit composition, given the current changes in the trend of interest rate movement. We will obviously monitor the situation and make the necessary adjustments to control our industries risk even better. Thank you very much, and I'm ready for your questions. We will now begin the question and answer session. To ask a question, you may press the star, then 1 on your touch-tone phone.
Speaker Change: Good day and welcome to the preferred bank first quarter 2024 earnings call.
Speaker Change: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed, and you would like to withdraw your question, Press Star. At this time, we will pause momentarily to assemble our roster. The first question comes from Matthew Clark with Piper Sandler. Please go ahead. Good morning, everyone. Unknown Speaker, Maybe, Ed, just to start on the NIM, trying to get some visibility into 2Q, if you had the average NIM for the month of March and the spot rate on deposits at the end of March.
Speaker Change: After today's presentation there'll be an opportunity to ask questions.
Speaker Change: To ask a question you May press Star then one on a touchtone phone.
Speaker Change: Withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Jeff path a financial profile. Please go ahead.
Jeffrey Haas: I think Nick Hello, everyone. Thank you for joining US. This got preferred bank financial result for the first quarter ended March 31, 2024 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Checkout, and Chief Credit Officer.
Nick: Nick Pi.
Operator: Yeah, I was ready for you, Matthew. The NIM for March was $4.11, and the spot rate on deposits was $4.04. Okay, and that 404 is at the end of the month, or it was at the average in March... That's the average for both.
Management will provide a brief summary of the results 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 1995.
Nick: 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 banks 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.
Matthew Timothy Clark: Okay. OK, and then I think you all hired some producers in the fourth quarter, and you had some good growth in both loans and deposits. Wanted to get a sense for your pipeline of loans and deposits and your growth outlook for the year. Well, first of all, I don't think we had too many people in the fourth quarter, but also in the first quarter, okay.
Nick: Please refer to the SEC required documents the bank files with the federal deposit insurance Corporation or FDIC.
Nick: Any of these uncertainties materialize or any of these assumptions prove incorrect preferred bank's results could differ materially from its expectations as set forth. In these statements preferred bank assumes no obligation to update such forward looking statements.
Li Yu: You know, when you add the relationship officers, it usually takes about one and a half to two quarters before they can materialize into material their portfolio starts to materialize. And also, as you probably know, in our business, for every 10 people you hire, you hope everyone works, but not necessarily. But we're just, hopefully, there will be some stars that balance out the whole situation with the pipeline. And one of the things you want to explain first is the pipeline. Well, thank you, Mr. Yu. Matt, our pipeline is pretty healthy.
Nick: This time I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Li Yu: Thank you very much good morning.
Li Yu: I am very pleased to report that preferred banks first quarter net income of $33 $5 million.
Li Yu: All $2.44 per fully diluted share.
Li Yu: This quarter.
Li Yu: Our loan growth was annualized at 4% and deposit growth was six 5%.
Li Yu: Annualized.
Li Yu: This quarter.
Li Yu: Net interest margin is 419%.
Li Yu: And which is a slight decrease from the previous quarter.
Okay.
Looking ahead.
Li Yu: The second quarter NIM.
Li Yu: Likely we're also.
Unknown Executive: I think that we are... Really, as Mr. Yu mentioned, really focused on taking care of our existing customers, and right now, there's quite a bit of opportunity for them. That's all priority. Yeah, that's what we are.
Li Yu: Compressed, but we don't think.
Li Yu: Can be very significant it's going to be my compression okay.
Li Yu: The reason for the compression in the first quarter is continued increase in cost of deposits.
Li Yu: As of March 31.
Li Yu: Total.
Li Yu: Criticized loans is $87 $6 million, which is $3.6 million higher.
Unknown Executive: The pipeline is pretty healthy. Okay, and then. The other question I had was, I think, oh yeah, around the CD repricing. Can you just remind us what you have coming due over the next couple of quarters in the rate differential and when that gap might be closer? Closer. So we have Q2 TCDs of about just under a billion dollars. Maturing.
Li Yu: Then the $83 million at year end I know there is a massive mistake somewhere but yes.
Speaker Change: You have to round our three numbers.
Speaker Change: And.
Speaker Change: Nonperforming loans as we.
Speaker Change: Dos prompt.
Speaker Change: $28 $7 million.
Speaker Change: And two to $18 $2 million.
Speaker Change: In the first quarter.
Speaker Change: Okay.
Speaker Change: This quarter, we have a charge of $3 $5 million related to loans. The previously identified was lost content and fully reserved for.
This quarter.
Speaker Change: Provision is $4 $4 million.
Speaker Change: The reserve or allowance now stands at four point.
Matthew Timothy Clark: They're at an average rate of 4.9, so we don't see a lot of differential there with respect to what's going to be maturing with respect to what's going to come back on. In Q3, that number dips a little bit. [inaudible] So we don't expect a lot of movement on the deposit side from a TCD rates going up dramatically from the portfolio rate that we're at right now. Okay. And then just on credit, can you remind us of the non-performer that you were able to sell at PAR? What type of credit was it?
Speaker Change: 144, 9%.
On the business side.
Speaker Change: We have just opened a new branch.
Speaker Change: In.
Speaker Change: In Orange County, Irvine area. This is a full service.
Speaker Change: Service brands staffed with a team of deposit personnel and the team level personnel.
We are also practically.
As of right now this minute opening up a suddenly they're a loan production office in the Silicon Valley area.
Speaker Change: And we plan to continue to add relationship personnel.
Speaker Change: In the remainder of the years.
Since third quarter last year.
Speaker Change: <unk> has been try to reduce the sensitivity.
Speaker Change: Our loan portfolio.
Speaker Change: And as of today, we believe is a much better balance with our deposit composition.
Matthew Timothy Clark: Obviously, great to see. And then just the incremental increase and criticism. I know it wasn't a big number, but just would like some color there.
Speaker Change: With the current changes in trend of interest rate movement.
Speaker Change: We will obviously monitor the situation and making the necessary adjustments to control.
Li Yu: Well, obviously, these things are coming in and out and have a different time and different. Some of those criticized loans will migrate into the non-performing area, and we have, obviously, it is our job to identify them in the very early stage, to provide the proper reserve on the whole situation, so that the lost content has been accounted for and will not be affecting the future years. Okay. So with your question, Nick, do you have anything to add? Not really.
Speaker Change: Our interest rate risk even better.
Speaker Change: <unk>.
Thank you very much and I'm ready for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: You are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: The first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Timothy Clark: Hey, good morning, everyone.
Matthew Timothy Clark: Yes.
Matthew Timothy Clark:
Matthew Timothy Clark: Maybe just to start on the NIM.
Matthew Timothy Clark: To get some visibility into Q. If you had the average NIM in the month of March and the spot rate on deposits at the end of March.
Nick Pi: Just to give you a little bit more color about those two. Loans related together, we sold the note at par plus a little bit of a small premium on that. So just like Mr. mentioned, migration in and out for credit. So I believe we didn't notice any significant trend of credit. Great, thank you. Next question: Manager, and Jeff Walsh.
Matthew Timothy Clark: Yes.
Speaker Change: I was ready for you Matthew the NIM for March was 411 spot rate on deposits was 404.
Matthew Timothy Clark: Okay, and therefore of course at the end of the month or the was that the average in March.
Matthew Timothy Clark: That's the average for the bonds.
Matthew Timothy Clark: Okay.
Matthew Timothy Clark: Got it.
Matthew Timothy Clark: Okay, and then I think you all hired some producers in the fourth quarter.
Matthew Timothy Clark: And you had some good growth in both loans and deposits wanted to get a sense for.
Matthew Timothy Clark: Your pipeline of loans and deposits and your growth outlook for the year.
Operator: Thank you. Thank you. Steffens, please go ahead.
Matthew Timothy Clark: Well first of all the I don't think we have at too many people in the fourth for them also in the first quarter.
Unknown Attendee: Hey, good morning. Owner Normal Owner Microsoft Office Word Microsoft, Inc. Um, my first question was about just the low yield expansion. You saw this quarter seven basis points sequentially; it was up pretty nice. I was just curious, was there any, um, thinking about size interest recovery or anything like that? More once time in the key loan yields? Or was this more just the function of low growth and a kind of churn in the portfolio towards higher rates? Yeah, good question, Andrew, and good pick-up there. We actually had a prepayment penalty on a fairly large credit line in the month of March, a little over $200,000.
Matthew Timothy Clark: Yeah.
Matthew Timothy Clark: When you add the relationship officers, usually it takes about one half to two quarters before they can materialize into a material delta.
Matthew Timothy Clark: Portfolio start to materialize.
Also as you probably know.
Matthew Timothy Clark: A business that for.
Matthew Timothy Clark: For every 10 people you Hi, you hope everyone works not necessarily the case.
Matthew Timothy Clark: But we're just.
Matthew Timothy Clark: Hopefully that will add some stars that balanced out the whole situation.
With the with the pipeline and the one of the thing you want to expand the pipeline first.
Speaker Change: Thank you Ms Sue, Matt our pipeline as well.
Pretty healthy I think.
Speaker Change: We are.
Speaker Change: Really as Mr. Yu mentioned that.
Speaker Change: Really focus on taking care of our existing customer and right now there's quite a bit of opportunity for them.
Speaker Change: That's our priority so in turn yes.
Speaker Change: That's what we are the pipeline is pretty healthy.
Unknown Executive: And that helped to drive yields just a little bit. All right, just a little above 200,000. Yeah, these things happen each quarter. We hope that we have some pre-payment plans each quarter, although it would vary in different communities.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: The.
Speaker Change: I'm sorry, the other question I had I think was around.
The CD repricing can you just remind us what you have coming due over the next couple of quarters and the rate differential and when that gap might be.
Speaker Change: Closer.
Speaker Change: Completely yet so we have.
Unknown Attendee: Thank you. Thank you. Understood. Got it.
Q2.
Speaker Change: Ccd's of about just under $1 billion.
Unknown Attendee: Yeah, we'll hope for more on that. I was looking at a comment from your earnings release around the rate sensitivity position and kind of some adjustments in the loan portfolio to maybe dampen out that sensitivity, but, Looking back at the annual report, I think you guys are disclosed down 7% to NII with negative 100 basis points in short-term rates. Has that moderated significantly? As of the 331, can you speak a little more to how the balance sheet is tempered in terms of rate sensitivity? Well, it has tempered.
Speaker Change: Maturing at an average rate of four nine so we don't see a lot of differential there with respect to what's going to be maturing with respect to what's going to come back on.
Speaker Change: Q3 that number dips a little bit.
Speaker Change: To $374 million in terms of maturities.
Speaker Change: So we don't expect a lot of movement on the standpoint on the deposit side from a TCE rates going up dramatically from the portfolio rate that we're at right now.
Speaker Change: Okay.
Speaker Change: And then just on credit can you remind us of the nonperformer that youre able to sell at par what type of credit that was obviously great to see and then just the incremental increase.
And criticize I know it wasn't a big number but just would like some color there.
Speaker Change: Well.
Speaker Change: He said these savings coming in and out and present time in different stages.
Speaker Change: Some of those those criticized.
Unknown Executive: I can't give you the number right now on the down 100 scenario, Andrew. But suffice to say, what Mr. Yu was alluding to earlier is a number of things, such as doing a few more fixed-rate loans than we've done in the past. And with respect to loans that are renewing or coming up for renewal, if they're remaining floating rate, we're moving the floors up from where they were previously. I'll fix that with an example. Now, I can give you a rough number right now, but I cannot tell you the exact down 100 basis points. We haven't got a chance to do that yet.
<unk> migrated into the nonperforming area and we have obviously it is our job to to identify them in the very early stage to provide the proper reserve on the whole situation. Okay. So that the loss content has been accounted for and will.
Speaker Change: It might be affecting the future years', Okay. So youre.
Speaker Change: Question, Nick you have anything to add no really just give you a little more color about those two.
Speaker Change: Loans related together with the note at par plus a little bit small premium on that so.
Speaker Change: Slight neutral mentioned Mike.
Speaker Change: Migration in and out.
Speaker Change: For credit so I believe though we didn't notice any.
Speaker Change: Any significant trend of credit site.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from Andrew <unk> with Stephens. Please go ahead.
Andrew: Hey, good morning.
Andrew: Good morning, Andrew.
Andrew: My first question was around just the loan yield expansion that you saw this quarter seven basis points sequentially. It was up pretty nice I was just curious was there any.
Unknown Executive: I know I think previously we would have disclosed to you, as I mean, very sensitive as loans are about 80 some percent 87%. I can't go into details about it. Now we're down to about the mid-mid 70% today, maybe slightly lower than Miss Endy. So, if you compare to the liability sensitive, you know, sensitive liability we have, okay, you know that we're in a pretty good balance right now. Yeah, okay. Yeah, the mid 70s is definitely a big move. That's really awful.
Andrew: Any kind of outsized interest recovery or anything like that more one time in there.
Andrew: <unk> loan yields or was this more just a function of.
Andrew: Loan growth and kind of churn in the portfolio towards higher rates.
Andrew: Yes.
Speaker Change: Good question, Andrew and good pickup there, we actually had a prepayment penalty on a fairly large credit in the month of March a little over $200000 and that helped to drive yields just a little bit.
Speaker Change: Alright, just a little above 200000.
Speaker Change: Yes, yes.
Speaker Change: Yes.
Speaker Change: Each quarter, we eggs.
Speaker Change: We hope that we have some prepayments empty.
Although it will vary.
Speaker Change: [laughter].
Unknown Attendee: I appreciate it. Unknown Speaker And then, Maybe one on the expense base, just expectations on kind of the 2Q expense, run rate. I know there looks like maybe a new LPO opening. Curious on how you see expenses trending in the second quarter? So a number of things that Mr. Yu and Wellington alluded to: we have, you know, the new Irvine office, which is in a prime, prime location in Orange County, at the Culver Center in Irvine. In addition to that, the Silicon Valley LPO, both of those require staff as well as lease costs.
Speaker Change: Tied to this.
Speaker Change: Right.
Speaker Change: Understood got it.
Speaker Change: From our.
Speaker Change: On the I was looking at the comment from the earnings release around me.
Speaker Change: The rate sensitivity position and kind of have some adjustments on our loan portfolio to maybe dampen out that sensitivity but.
Speaker Change: Looking back at the annual report and I think you guys are disclosed down 7% to NII with a.
Speaker Change: Negative a 100 basis points in short term rates has that moderated significantly.
Speaker Change: As of the $3 31.
Speaker Change: Can you just speak a little more to how the balance sheet has tempered in terms of rate sensitivity.
Speaker Change: Well at.
Speaker Change: It has tempered I can't give you the number right now on the down 100 scenario, Andrew but suffice to say what Mr. Yu was alluding to earlier is a number of things doing a few more fixed rate loans than we've done in the past and with respect to loans that are renewing are coming up for renewal.
Unknown Executive: So I think going forward, I think the $20 million you saw this quarter is probably a fairly accurate, you know, plus or minus, going forward for next quarter. Okay, very good. Thank you for taking the questions this morning. I appreciate it. Thank you. Again, if you have a question, please press star, then 1. Our next question comes from David Feaster with Raymond James. Please go ahead.
Speaker Change: If they're remaining floating rate were moving the floors up from where they were previously.
Speaker Change: I'll fix it when the situation.
Speaker Change: No I can give you a rough number right now I cannot tell you exactly down 100 basis points, along we haven't kind of channel shifts to do that.
Right.
Speaker Change: I think previously we would disclose to you all as rate sensitive as loans is about 87% 87%.
Speaker Change: Exactly it's about it now it's down to about the mid 70% today.
Speaker Change: <unk>.
Maybe slightly lower than the 75.
Speaker Change: So if you compare to the delight.
Speaker Change: Right.
Liability sensitive.
Speaker Change: Sensitive liability reserve Jay.
Speaker Change: You know that we're in pretty good balance right now.
Speaker Change: Yes, Okay, yes.
David Pipkin Feaster: Hey, good morning, everybody. Um... We touched on the two MPAs, but I was hoping to get your thoughts on credit more broadly. You've got a track record of being aggressive. Credit. I'm curious.
Speaker Change: Mid 70, there was definitely a big move.
Speaker Change: I appreciate it.
Speaker Change: And then.
Maybe one on the expense base.
Speaker Change: Just expectations on kind of <unk> expense.
Run rate I know, there's a it looks like maybe new LPL opening.
Speaker Change: Just curious on how you see expenses trending in the second quarter.
Speaker Change: So a number of things that you.
David Pipkin Feaster: What are you seeing more broadly in the health of your clients? Are you seeing any signs of stress? Any thoughts on credit more broadly? Okay, let me let me state that from way back, you know, let's say in 2022, a little bit earlier. When we started to worry about rates and credit and so on and inflation and so on, if I had seen a thought that the, was this period almost two years gone by with the charge-offs we have?
Speaker Change: And willing to alluded to we have.
Speaker Change: The new Irvine office, which is in a prime prime location and they werent in Orange County in the corporate center in Irvine. In addition to that the Silicon Valley L. P O both of those require staff as well as.
Speaker Change: Lease costs, so I think going forward I think the $20 million you saw this quarter is probably a fairly.
Speaker Change: Plus or minus going forward for next quarter.
Speaker Change: Okay very good. Thank you for taking the questions just wondering I appreciate it.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from David Feaster with Raymond James. Please go ahead.
David Pipkin Feaster: Hi, good morning, everybody.
David Pipkin Feaster: Good morning.
David Pipkin Feaster: You touched on on the two NPA is but I was hoping to get your thoughts on credit more broadly you've got a track record of being aggressive managers of credit I'm curious.
David Pipkin Feaster: and the last loss we have had and the level of MPLs and the level of criticized assets is, as of today, I wouldn't be so happy those days, okay? As you know, one of the tricks in dealing with a credit is to try to identify problems early and try to fully reserve that. Okay, so that's our basic principle.
What are you seeing more broadly in the health of your clients where are you seeing any signs of stress and just any any thoughts on credit more broadly from your perspective.
David Pipkin Feaster: Let me, let me state that somewhat somewhat way back, let's say in 2022, okay.
David Pipkin Feaster: Alibaba earlier.
David Pipkin Feaster: When we started to worry about the rates and credit for so long.
David Pipkin Feaster: Inflation so long.
David Pipkin Feaster: Sure.
David Pipkin Feaster: Hi.
David Pipkin Feaster: <unk> thought.
David Pipkin Feaster: That the was this period almost two years gone by was the charge offs we have.
Li Yu: But talking about our customers' concerns. Most of our customers, It started to turn a little bit more positive. And basically, obviously inflation is one factor that is down. And another factor is the rate, which is stabilized. Although everybody would like to sit down a little bit.
The loss loss, we have had and the level of Npls and the level of criticized assets is as of today.
Would it be.
Speaker Change: So happy those days.
Speaker Change: As you know that the one of the tricky.
Speaker Change: Dealing with the credit has tried to identify early and try to fully reserve that okay. So that's our basic principle, but talking about with our customers consume.
Li Yu: We all know from this point on how sooner or later it's going to be lower. It's a matter of whether it's half a year or one year or whatever; sooner or later, we'll be back on that. And from what I read, for all the big banks reporting numbers, their credit posture is also better than expected, internally expected, or what. So, generally speaking, I think the marketplace is starting to feel, and see the light at the end of the tunnel.
Speaker Change: Most of our customer.
It started to turn.
Speaker Change: And even more positive.
Speaker Change: And.
Speaker Change: Basically obviously inflation is one factor that is time and then there's a factor the rate.
Speaker Change: Is stabilized, although everybody would like to see it down little bit but.
Speaker Change: We all know from disappointment, how sooner or later is going be the order, it's a matter of whether it's half a year or one year or whatever that sooner or later will be back on that.
Speaker Change: And from what I read for the all the big banks reporting numbers do credit posture is also better than expected internally expected what Jay So generally speaking I think the marketplace. It will start to see the light at the end of the tunnel in fact many of our.
Li Yu: In fact, many of our more opportunistic customers have started to think about new investments. I wonder if that answers all the questions you have; I mean, is there any additional thing related to that? That's a great color.
Speaker Change: More opportunities to customers.
Added to thinking about new investments.
Speaker Change: I wonder if that would happen.
Speaker Change: Any additional color related to that.
Speaker Change: Yes.
David Pipkin Feaster: Does that mean, does that indicate that maybe you're having a bit of, You know, maybe less cautiousness and maybe that we should see growth start to accelerate? It sounds like demand is starting to improve. You alluded to improving pipelines.
Speaker Change: Great color.
Speaker Change: Does that does that mean does that indicate that maybe you are having a bit of.
Speaker Change: Maybe less cautiousness, and maybe that we should see.
Speaker Change: Growth start to accelerate it sounds like demand is starting to improve you alluded to improving pipelines.
Li Yu: You know, it seems like you've strategically decelerated growth from the conversations that we've had. Does it sound, in my reading between the lines, that maybe we could see you're a bit less cautious today, and we could see growth re-accelerate in the back half of the year? I don't want to be associated with growth being less cautious, okay? I think that, to put it right, the situation is that it finally seems to be that we can take on the opportunity that will be presented to us, and we have to be ready. Things will start to sort of normalize themselves, and with our current strengths in the economy, I personally believe that business opportunities have increased. And there will be less risk of doing a transaction today as compared to one year ago. That makes sense. Makes a lot of sense. Thank you for that color.
Speaker Change: It seems like you've strategically decelerated growth from the conversations that we've had there.
Speaker Change: Is it my reading between the lines that maybe we could see you are a bit less cautious today and we could see growth reaccelerate in the back half of the year.
Speaker Change: I don't want to be really associate.
Speaker Change: Those being less cautious.
Speaker Change: Thank you.
Speaker Change: To put it right situation is that it was finally seems to be that we can take on the opportunity that will be presented to us and we have to be ready as you know you add personnel they'll production will come maybe.
Speaker Change: Three to six months later so.
Speaker Change: Immediate effect combat and the general feeling is that as I've said to me I personally believe the big picture is that rates is finally coming down is sooner or later it will stabilize into a new normal situation, which would be reasonably lower than it is today and although every price.
Speaker Change: <unk> activities, adjusted and Youre wrong new rate.
Speaker Change: Every price due to inflation number of product things will start to sort of like normalized themselves and with our current strengths of economy I personally believe that business opportunity has increased.
David Pipkin Feaster: And then last one for me, maybe just following up on the branch expansion LPO. I love seeing the continued expansion and investment. I'm curious, what do you think about de novo expansion priorities at this point? What other markets are interesting to you? I'm just kind of curious how you think, you know, about as you continue to expand: what, where, where, you know, where are you focused? David, our expansion really has two different directions.
Speaker Change: And there will be less risk.
Speaker Change: Doing transaction today as compared to one year ago.
Speaker Change: That makes sense it makes a lot of sense.
Thank you for that color and then last one from me maybe just following up on the branch expansion at LPL I Love seeing the continued expansion and investment I'm curious how you how do you think about de Novo expansion priorities at this point what other markets are interesting to you and.
Speaker Change: Just kind of curious how you think.
Speaker Change: About as you continue to expand.
Speaker Change: Where you're focused.
Speaker Change: David.
Speaker Change: Expenditure really you have two different.
Li Yu: And one is that areas we think we have a lot of business, okay, or we want to be. And another situation is that when we have the personnel, and Preferred Bank is a small institution, so we can go anywhere and get a reasonable amount of business with a new operation. And therefore, if we find that the banker has the book of business, we tend to build a team around him and, I mean, settle down with the operation there.
David Pipkin Feaster: Directions. One is is that the areas. We think we have a lot of business. Okay. I would want to be another situation is that when we have the personnel.
David Pipkin Feaster: Yeah.
David Pipkin Feaster: Preferred bank of small institutions. So almost we can go anywhere and.
David Pipkin Feaster: In a reasonable amount of business with a new operation.
David Pipkin Feaster: Therefore your fleet.
Finding the bank has the book of business, we tend to boot.
David Pipkin Feaster: Around the <unk> and <unk>.
David Pipkin Feaster: Settle down was the operation there.
Li Yu: Having said that, Silicon Valley is one of the areas that we have wanted to be in, but we have never been able to get the right person there in the last ten years or so.
David Pipkin Feaster: Having said that and Silicon Valley is one of the area that we have wanted to be there.
David Pipkin Feaster: And then we would have never been able to get the right personnel in the last 10 years. So on finally situation comps one of those able to locate them.
Li Yu: Finally, when the situation comes up, Wellington is able to locate a couple of people he thinks would be suitable for our needs and so on, so we are starting that particular operation. That's helpful. And maybe just if I could squeeze one more, you've been real active repurchasing stock, you know, curious, maybe with, you know, potential for organic growth to accelerate in the move in the stock. Here are your capital priorities and your appetite for additional buybacks.
David Pipkin Feaster: Do you think it would be appealing to our needs as well. So we are starting that particular offering.
David Pipkin Feaster: The right place for us.
David Pipkin Feaster: Probably the people has the right people for now.
David Pipkin Feaster: Okay.
Speaker Change: That's helpful and maybe just if I could squeeze one more you've been real active repurchasing stock.
Speaker Change: Curious maybe with.
Speaker Change: Potential for organic growth to accelerate in the move in the stock that we've seen curious your capital priorities and your appetite for additional buybacks.
Li Yu: We have always been letting our shareholders know that growth in the normal situation is our preference as it represents the best long-term value. But within the last three, four years, starting from the pandemic with inflation, and so on, what a bank is making over 20% return on its investment, with alternative costs in the 5% range, it does not seem a good idea that it had that idle cash, which we're not doing much lending on, nobody's doing much lending, don't say. With idle cash being staying there making 5%, a buyback on stock represents a pre-tax 33% return.
Speaker Change: We have always been letting our shareholders know that grows in the normal situation is our preference.
Represents the best long term value, but within the last three or four years starting from the pandemic.
Speaker Change: Inflation and so on where the bank is making over 20% return.
Our cost of.
Speaker Change: I will tell you the costs in <unk> in the 5% range. Okay. It does not seem.
Speaker Change: Good idea that had their idle cash, which we're not doing much long nobody's doing much at all of those with the idle cash being staying theyre, making 5% buyback own stock represents a pretax adobe suites, 33%.
Li Yu: So, economics tells me that our shareholders would like to trade it over the long term if we do that. All right. Thanks, everybody. This concludes our question and answer session. I would like to turn the conference back over to Li Yu for any closing remarks. Thank you very much. As I said, we're very happy with the quarter and, hopefully, I personally believe that things have finally started to get stabilized and going forward. I hope it can only be better for the banking industry.
Speaker Change: Tom.
Speaker Change: Hello.
Speaker Change: Economic tells me that.
Speaker Change: Shareholders were light et cetera over the long term if we do that.
Speaker Change: Thanks, a lot of sense alright, thanks, everybody.
Speaker Change: This.
Speaker Change: <unk> our question and answer session I would like to turn the conference back over to Li Yu for any closing remarks.
Li Yu: Thank you very much as I said that we're very happy with the quarter and hopefully that.
Li Yu: I personally believe that our final leasing started to.
Stabilize and going forward.
Li Yu: Hope it can only be better for the banking industry.
Li Yu: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Li Yu: Thank you.
Li Yu: The conference.
Speaker Change: Is now concluded. Thank you for attending today's presentation you may now disconnect.