Q1 2025 Preferred Bank Earnings Call
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John Williams: [music].
John Williams: No.
Speaker Change: Good day and welcome to the preferred Bank first quarter 2025 earnings Conference call.
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John Williams: After todays presentation, there will be an opportunity to ask questions.
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John Williams: Please note that this event has been recorded.
Jeff: I would now like to turn the conference over to Jeff has a financial profiles. Please go ahead.
Speaker Change: Thank you Jacob Hello, everyone and thank you for joining us to discuss preferred banks financial results for the first quarter ended March 31, 2025 with me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Czajka, Chief Credit Officer Nick.
Speaker Change: Pi and Deputy Chief operating Officer, Johnny to 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, such forward looking statements are based.
Speaker Change: 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.
Speaker Change: Please refer to the SEC required documents the bank files with the federal deposit insurance Corporation or F. D. I see 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.
Speaker Change: Such forward looking statements at this time I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Speaker Change: Thank you.
Li Yu: Good morning.
Speaker Change: Preferred banks first quarter, net income was $30 million or $2.23 a share.
Speaker Change: This quarter's net income was negatively impacted by an outsized reversal of interest income related to the elevated level of nonperforming loans.
Speaker Change: It is also negatively impacted by a charge off of our real estate owned on what Youll, India amount.
Speaker Change: 1.3, mainly.
Speaker Change: Mainly thousands.
Speaker Change: Okay.
Speaker Change: D.
Speaker Change: Nonperforming loans totaled.
Speaker Change: Is $71 million at quarter end.
Speaker Change: Of which 66 million of the $71 million related to.
Speaker Change: Will it lead to one relationship of two credits.
Speaker Change: This.
Speaker Change: As previously previously disclosed to you in March.
Speaker Change: Early March.
Speaker Change: Yeah.
Speaker Change: The two credits on to Loews.
Speaker Change: Hey man collateral values, which are well protected alone no my mom and dad no loss comparing identified at this time.
Speaker Change: Total credit trends seems to be okay.
Speaker Change: The.
Speaker Change: Total.
Speaker Change: Yeah.
Speaker Change: Classified criticized loan portfolio is.
Speaker Change: He has reduced $30 million from previous quarter and are roughly 20% and there are very few migrations into this category during.
Speaker Change: During the quarter.
Speaker Change: The reversal of interest has also impacted our mix net interest margin, which was reported at 375% for this quarter.
Yeah.
Speaker Change: Without this effect.
Speaker Change: We internally eternally estimates.
Speaker Change: <unk>.
Speaker Change: Net interest margin would have been much closer to a 4.06% reported.
Speaker Change: Last quarter.
Speaker Change: This quarter, we had the negative loan growth of $6 million equal to approximately.
Speaker Change: 1%.
Speaker Change: Our total loan portfolio.
Speaker Change: Our deposit increase.
Speaker Change: Two six.
Speaker Change: The linked quarter basis.
Speaker Change: And a deposit cost is reducing as planned.
Speaker Change: Yeah.
Speaker Change: Looking ahead.
Speaker Change: Loan demand does not seem to improve much.
Speaker Change: Mainly because we're currently under the uncertainty of a tariff wall.
Speaker Change: All world.
Speaker Change: Okay.
Speaker Change: This tariff situation was truly very much unpredictable bring many many of the social uncertainties ranging from supply chain changes.
Speaker Change: Cost increases inflation, all empty shelves empty product well off all these things can affect <unk>.
Speaker Change: Each and every one of our customer differently. So we.
Speaker Change: We have already started to monitoring.
Speaker Change: Our loan portfolio was started by a thorough review of all trade finance segment of our business, which equaled to approximately $200 million little over 200 million bottles of our loan portfolio.
Speaker Change: And as time goes on with the next ensuing months says.
Speaker Change: Realizing that many.
Speaker Change: I mean, uncertainties and their implications and side effects. That's happened was tariff war, we will continue.
Speaker Change: I'll review process.
Speaker Change: Please.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Ready for your question now.
Speaker Change: Thank you.
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 telephone keypad.
Speaker Change: If youre 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 majority a question. Please press Star then two.
At this time.
Speaker Change: Pass momentarily to assemble our Russia.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark: Hey, good morning, everyone.
Speaker Change: Hello.
Speaker Change: Just wanted to.
Speaker Change: Start on the margin outlook from here.
Speaker Change: If you had the.
The average margin in March excluding.
Speaker Change: You know any reversals just kind of a normalized margin in March.
Speaker Change: I'm just wondering if it was.
Speaker Change: How much might be below the four O for sex and then.
Spot rate if you had it at the end of the month ideally, but I'll take the average for the month.
Ed: Hey, Matthew this is Ed I don't Unfortunately don't have the March spot rate, but the margin for the quarter.
Speaker Change: Bonds the.
Speaker Change: Non non accrual reversals would've been $3 94.
Speaker Change: So it's holding up much better than you know as Ive previously discussed on these are the margins holding up much better than we had anticipated.
Speaker Change: And that 394 for the quarter, but you have it for March.
Speaker Change: And I can Oh, I can I can get that for you later okay.
Speaker Change: And then just on the Nonperformer room, the nonperforming relationship can you just.
Speaker Change: Let us know which of the two is being sold at par just trying to get a sense for the dollar amount of that 66 or $67 million.
Speaker Change: And then on the other piece, that's not being sold it sounds like you're pretty confident in the collateral value, but can you give us more color as to why and kind of the timing of that resolution process.
Nick: I will have Nick Nick Pi.
Speaker Change: Answer the question Okay.
Nick: Hi, Matthew This is Nick speaking island for the two credits.
Speaker Change: One of them is a pretty right desirable land in that area a lot of our builders did try to offer to purchase an currently.
Speaker Change: The property is under the note salaries under the contract and we expect that to be a closed for shortly.
Speaker Change: And the auto on Hey, you might mention that we have.
Speaker Change: I mean, yeah I.
Speaker Change: I mean, none ruffino deposits, okay, yes, and for that particular deal. We just received nonrefundable deposit. So did you is pretty much sure that won't be closed within a very short period of time.
Speaker Change: And that credit Matthew you wanted to know is that first of all the appraisal values do very good.
Speaker Change: In the Ltvs in the fifties.
Speaker Change: In the meantime, we're selling them note at par.
Speaker Change: Correct. This year. So my feel just give you an additional color that we just received the most updated appraisal report your Apple and the value.
Speaker Change: Come out with a similar as before and the loan to value is around 60.
Speaker Change: 2%.
Speaker Change: So what is the known so afternoon, though so closed.
Speaker Change: Yeah, I've been about most of it will be even more.
Speaker Change: The other one is currently in bankruptcy court the bars Council as long as was our banks console. We all agree to fault motion chewed it became poor for selling this particular popped. It this is a problem but.
Speaker Change: <unk> hundred 88 units with Oh, so is a good value to support the credit. So we believe with through the PK courts process. This is the best way for the bank to get rid of this so we think within a quarter or two because of the BK BK.
Speaker Change: Teekay Corps normally a little bit slow down.
Speaker Change: You know other Avenue itself. So we believe this will be a resolved does too long swab you were stopped.
Speaker Change: It was out for our team.
Speaker Change: Okay and the size of the one.
Speaker Change: In terms of dollars the size of the.
Speaker Change: The one that's in bankruptcy.
Speaker Change: One is under no cell to.
Speaker Change: You'll get close soon is around 28.5 me on it.
Speaker Change: And the other one in the bankruptcy core is 37 minutes.
Speaker Change: Okay.
Speaker Change: And then just shifting gears to the expense run rate Ed.
Speaker Change: I'm, assuming you don't have any more write downs on Oreo from here.
Speaker Change: How should we think about the run rate.
Speaker Change: <unk> and <unk>.
Speaker Change: So as you say, we came in at about $23 4 million and as I've talked about.
Speaker Change: Previously we have a outsized.
Personnel expense line item, which is our employer paid taxes due to the incentive compensation payout in Q1 that happens every Q1. In addition to that as you've pointed out the 1.3 million write down that puts Q1 normalized at about just over $21 million in terms of the run rate going forward I would estimate it to be.
Speaker Change: 21, and a half to $22 million for the next couple of quarters and probably accelerating after that.
Speaker Change: Okay, Great and then just last one for me if I may on the buyback I don't didn't look like there was any.
Speaker Change: Shares repurchased this quarter.
Speaker Change: Probably for obvious reasons, but what's what's your appetite.
Speaker Change: Chris buying back the stock here.
Speaker Change: Okay based on the report immediately.
Speaker Change: The problem in case.
Speaker Change: Yeah. So we bought back altogether 532000 shares during the first.
Speaker Change: 20.
Speaker Change: 24 days of the other months and it is only one day purchasing March all these numbers done.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: So we have.
Speaker Change: A total of $65 million available under our buyback program.
Speaker Change: We have spent about $40 million with $23 million left to purchase.
Speaker Change: Okay did you say you did buy back stock in the first quarter, though.
Speaker Change: No that was just one day 331 was the only day, we're in the market, but we were in the market for the entirety of April.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Andrew Tan with Stevenson.
Speaker Change: Stevenson. Please go ahead.
Andrew Tan: Hey, good afternoon.
Speaker Change: See I I heard some of my comments in the prepared remarks, just you know uncertainty maybe impacting that.
Speaker Change: Net growth expectations are for the loan portfolio, just opened unpack that a little bit more you know where you're seeing demand from a client perspective, where where its a little softer right now and then maybe you know specifically how do you still think you can grow the loan portfolio in this environment or a flat to down.
Speaker Change: More more appropriate.
Speaker Change: Obviously as the Guy operate and I hope we can continue to do that we are poised to continue to do that but as you know as an older person that I have experienced many different things, including the 2008 meltdown with a simple.
Speaker Change: I mean sub to sub debt.
Speaker Change: Home loans, Kim mushroom into into.
Speaker Change: Total financial system now Dr. Okay.
Speaker Change: So this tariff business as is many Ngos and depending on which way that could affect seriously even the property value maybe of all of our borrowers. So we're taking closer look combat likewise, we sense that.
Many many of our current customers, whether it's to do with C&I customers re is because they like to do a little bit wait and see when the wait and see is over we do not know so it likely could be that bye bye bye bye.
Speaker Change: Late in the second quarter. This thing just pick up.
Speaker Change: And we are poised to wherever.
Speaker Change: We have a lot.
Speaker Change: Relationship staff. It was out there. It is busy you can try to bringing bringing loans and we just have to be very careful with it.
Speaker Change: Yes, I understand okay.
Speaker Change: No.
Speaker Change: For the the second M.
Speaker Change: NPL on you guys talked about the one that is in bankruptcy court and I guess I was $37 million note do you have a recent appraisal on that as well and if so you know.
Speaker Change: Our refreshed LTV.
Yeah that appraisal also a pretty.
Speaker Change: Pretty update right is I believe we did one back in November last year still within six months.
Speaker Change: The value you can support a loan to value around 71%.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Read the briefing.
Speaker Change: Oh, the cord information between the lawyers communications cause exporting to Iraq Okay.
Speaker Change: There is a cash offer.
Speaker Change: Sitting out there was was it was these parties at $49 million, which is well sufficient to cover all exposure with a first trustee.
Speaker Change: Okay understood. Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: The next question comes from Gary Tenner with.
Speaker Change: D. A davidson. Please go ahead.
Gary Tenner: Hey, Thanks, everybody good morning.
Speaker Change: Two questions. The first is with the commentary around trade finance that $200 million portfolio.
Speaker Change: It would seem to me that the nearest risk or near term risk as there is more that those trade Vance lines get paid down as loss activity occurs is that a reason why you're looking at it near term.
Speaker Change: You mean, the trade finance segment yeah.
Speaker Change: Yes, yes.
Speaker Change: It's happening in an odd situation deep into each customer is different some of them has currently everything is normal I mean they are.
Speaker Change: Under the under the I mean, there are supply chain is outside of China.
Speaker Change: Some of them there is a little bit heavier in China, but these people are well stocked inventory right now so so far we don't have any activity in tumor abnormal activity yet on that portfolio.
Speaker Change: Yeah.
Speaker Change: And then second question just.
Speaker Change: On the net or the loan interest revenue.
Given that.
Speaker Change: $3 million of interest reversals so.
Speaker Change: Non interest revenue was down $10 million sequentially, you have that $3 million and I just had a couple of million dollars just with a lower day count as the rest of the delta of call it $5 million lower quarter over quarter simply the full quarter impact of the rate cuts in 2024.
Speaker Change: And could you answer that.
Speaker Change: I'm, sorry, Gary I apologize can you repeat the question.
Speaker Change: Yes, sorry, I may have me, Andrew there a bit so that the loan interest revenue was down about $10 million sequentially.
Speaker Change: Yeah, well I'll call it 101 three.
Speaker Change: <unk> 3 million of reversals.
Speaker Change: Couple of million dollars lower on day count as the rest of that Delta just the full quarter impact of rate cuts from Lester.
Speaker Change: Yes, yes exactly.
Speaker Change: And then you get a sense of how that.
Speaker Change: Also.
Speaker Change: Gary.
Speaker Change: No go ahead sorry.
Speaker Change: Also you know as you know as we're renewing loans originating loans, they are coming off of a higher base typically and.
Speaker Change: And then when they come to renewed two they're typically coming down a little bit in terms of yields. So that's that's part of the effect as well.
Speaker Change: Okay got it thank you.
Speaker Change: Okay.
Speaker Change: Thank you again.
Speaker Change: Again, if you have a question. Please press Star then one.
unknown: The next question comes from Tim Coffey.
Speaker Change: Jenny.
Speaker Change: Please go ahead.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Mr. Mr Yu.
Speaker Change: And a follow up on the comments you made about you know haven't been through a couple of cycles before.
Speaker Change: Grabbed this might be the most telegraph cycle, if it turns out to be one that you've probably ever seen.
So I'm wondering how are you positioning the bank right now.
Speaker Change: Well.
Speaker Change: Beyond that it's just started to have just.
Speaker Change: <unk> mess.
Speaker Change: I mean, not the tariff situation I.
Speaker Change: Yes.
Speaker Change: Because the liberation date is April the second.
Speaker Change: Think it's caught everybody off guard.
Speaker Change: And being that most of our customers.
Speaker Change: And then all the community banks customer and also many of the regional banks.
Speaker Change: Smaller customers and poverty if they are in this particular business.
Speaker Change: Importing or exporting of getting product from the foreign countries everybody is operating on a different profit margin.
Speaker Change: Some of them.
Speaker Change: Very few of them will be able to absorb so call.
Speaker Change: The terrorists on the table right now as it's 20% 25%.
Speaker Change: Few people can afford that.
Speaker Change: And whether the importer.
Speaker Change: <unk> absorbed that.
Speaker Change: It is questionable.
Speaker Change: Solve that.
Speaker Change: It'd be inflation.
Speaker Change: So our economy.
Speaker Change: Stay up saw that it will be decreasing demand.
Speaker Change: Okay, and then how many of them are facing the situation in the end.
Speaker Change: Empty shelf when the supply cannot catch up and will all the supply chain can be can be switched to different countries. So what we are doing right now is having.
Speaker Change: Having a loan office going I'll discuss was every each of all trade finance customers and knowing what how they react.
Speaker Change: How do they tried to react on the matter.
Speaker Change: And from that we internally seriously discuss about what is the likelihood that it will be successful in kingdom and use kind of a matter and why we do that we also are learning.
Speaker Change: So each case is different.
Speaker Change: I guess, the best way I can describe.
Speaker Change: <unk> position of the bank is no even more what each customer is doing right now and hopefully if there was some negative situations come along would be affected less.
Speaker Change: Nobody can escape.
Speaker Change: On the big situations.
Speaker Change: I don't know where that is in that.
Speaker Change: A question on that because I don't know how to do it better.
Speaker Change: No I think you did I think you did that was very helpful.
Speaker Change: And then just on the underwriting front.
Speaker Change: I hear you, it's a fluid situation outcome highly uncertain.
Speaker Change: But as it comes to underwriting loans right now.
Speaker Change: Is anything changed.
Speaker Change: Yes, we are.
Speaker Change: Certain segment, our along as we put more attention to it. So it used to be if you know that in the western United States, especially in California.
Speaker Change: Industrial property has been in the lowest vacancy in the most safe.
Speaker Change: Lending products for the past six years.
Speaker Change: Yes.
Speaker Change: Unfortunately, we're already seeing many of the transactions.
Speaker Change: Being slowed down and the buyer and seller.
Speaker Change: Concerning and then not sure about the old tenants.
Speaker Change: If they had the owner user whether they can continue to operate.
Operated profitably.
Speaker Change: In this line of business right now so what.
What I heard from the early indication is that.
Speaker Change: Cash cap rate.
Speaker Change: Started to see pressure might actually happening yet everybody is worried about that.
Speaker Change: <unk> is a lender.
Speaker Change: It has to be.
Speaker Change: Careful about that so.
Speaker Change: Today in the industrial part I used to be the most thoughtful.
Speaker Change: Lending lending segment Ci basis at <unk> now, we have to slow down and be very careful public demand more marginally more cushion and more do you see it now.
Speaker Change: Okay, Alright, that's helpful.
Speaker Change: And then one final question for Ed Ed are there any material time deposit roles coming up.
Speaker Change: And next several quarters.
Speaker Change: Every quarter every quarter right, yeah, right unless you got about 1.16 billion at an average rate of 428.
Speaker Change: And our offering rates are in the mid threes now mid to high threes.
Speaker Change: Okay.
Speaker Change: So that's also why for Eldorado.
Speaker Change: I'm sorry.
Speaker Change: Oh, I'm, sorry for the current quarter.
Speaker Change: That's for Q2.
Speaker Change: Yes, correct.
Speaker Change: And I wanted to I'm going to steal some of your time here, Matt Tim and get back to Matthew Clark I do have the spot rate for March the margin was 384.
Speaker Change: Excluding the reversals and.
Speaker Change: Our loan yields were $7 55 for March.
Sorry, Tim.
Speaker Change: That's all good.
Speaker Change: Those are all my questions I appreciate your thoughts thank you.
Speaker Change: Thank you Jim.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Lee you, Chairman and Chief Executive Officer for any closing remarks.
Speaker Change: We thank you very much for attending the conference I guess, some time you know I think.
Speaker Change: Personally I believe and paranoid about.
Speaker Change: The tariff situation.
Speaker Change: Maybe just because my personal background has been a more recession Dan.
Speaker Change: Most of you probably so.
Yeah.
Speaker Change: There's nothing wrong to be too careful.
Speaker Change: And we'd like to be little bit more careful.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Uh huh.
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Speaker Change: Yeah.
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