Preferred Bank (PFBC) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank's Fourth Quarter 2011 Conference Call. During today's presentation, all parties will be in a listen-only mode. And following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, January 26, 2012.

I would now like to turn the conference over to Kristen McNally, Investor Relations for Preferred Bank. Please go ahead.

Thank you. Good day, everyone and thanks for joining us to discuss Preferred Bank's preliminary results for the fourth quarter and full-year ended December 31, 2011. With us today from management are Mr. Li Yu, Chairman, President and Chief Executive Officer; Wellington Chen, Chief Operating Officer; Ed Czajka, Chief Financial Officer; and Louie Couto, Chief Credit Officer. Management will provide a brief summary of the quarter and then we'll open 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 upon specific assumptions that may or may not prove correct.

Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the documents that the Company 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.

At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead, sir.

Thank you very much. It gives me great pleasure to report to you that after a very difficult 2009 and 2010, we are reporting $3.8 million profit for the fourth quarter and $12.2 million net income for the year of 2011. More importantly, we have four quarters of continuous increase in profitability. Largely, this is the result of continuous moderation in credit cost and most importantly, improvements in our operation.

Now, during the fourth quarter or more precisely later half of 2011, we have made some progresses in our deposits and in our loan portfolios. For the fourth quarter, loan increased about $48 million. Almost entirely that amount is related to C&I loans. These loans yields less, but gives more deposits balances and therefore, does not affect the net interest margin as much. And on the deposit side, we increased about $43.8 million or $44 million with about two-thirds of an increase in the core deposits.

Looking back compared to where we are one year ago, I really want to point out that for the year other loan only increased $37 million, but considering the reduction of nonperforming loans, our total interest-earning loans are now over $900 million. Deposits, although show only a 3.5% increase, a $36 million increase, but it is composed of $117 million increase or 30% increase in core deposits and was offset by the reduction in time deposit, basically the paying off of the broker deposits. And during this year, we improved our net interest margin 96 basis points.

As of December 31, we are fully in compliance with the regulator guideline of 100% -- less than 100% construction and land development loans or less than 300% in total [CIE] loans, which makes us one of the very few banks able to achieve that in the Greater Los Angeles area. All this time, our capital ratio increased 136 basis points. Now, this is all accomplished during the year that we are busy in resolving our nonperforming credits and -- but we have mindful -- pretty mindful about doing our business and improve our balance sheet.

Now looking ahead, even though we realized fourth quarter our resolution of nonperforming assets has been little slowed -- slowed down by the holiday season and by the economy, looking ahead, we are fully confident that we will make further reductions in nonperforming assets until to a probably a relatively insignificant level, probably toward the end of the year. Meanwhile, we know we will continue to make improvement or advancement in our loans, in our deposits, in our efficiencies, and most importantly, in our profitability.

Thank you, and I'm ready for your questions.

(Operator Instructions) Joe Gladue, B. Riley & Company, Inc.

Yes. Hi, good afternoon.

Hi, Joe.

Hi, Joe.

Wanted to ask you a little bit more on the loan growth, very nice loan growth. But what's the pipeline look like going forward?

Well, I would defer that particular question back to Wellington Chen, okay? Wellington, would you answer that?

Sure. We have -- we're off to a good start for January. Our pipeline looks very strong. What we did is that started last year, we have -- as you know, we have our frontline lenders to put them in while working on their asset resolution and at the same time to make sure that we bring in the productive C&I lenders and to build on our future and as well as the core commercial deposit.

So because we are off to a very good start last year already, and this year as our problem asset continue to wind down that will leave more of our frontline producer, who are very capable and reputable producers in the past to add to our production team. So this year looks very favorable and I think that so far in January we're off to a very good start.

Let me interject a little bit okay, Joe, okay?

Sure.

Probably that I'd like to point out that we have vibrant pipeline and, however, my personal prediction at this point in time, the first quarter increase will not be as big as the fourth quarter increase is. For the simple reason we have several rather large loans scheduled to be paid off during the first quarter, okay? So we think we'll make additional increases, but not quite as the magnitude of the fourth quarter.

Okay. Just wondering what was going on, there was a little bit of decrease in the single and multi-family residential. Is that something we should expect to continue or was there just a lot of loans refinanced away?

Yes, but it's a most reasonable estimate. We do have some reduction in the multi-family because that has been the focal point of the big banks. Do you know that financing them at the rate of -- at the one-year LIBOR plus 175 basis points, okay, it puts us on a non-competitive situation. Some of them will be financed away. But we do intend to protect them as much as we can.

Okay. Could you -- I guess, on a different subject, where did the performing TDRs stand at the end of the year?

Okay. Louie, would you answer that, please?

Yes, performing TDRs at the end there were $16 million.

Which is down from last quarter?

Yes, which is down from last quarter as a result of we -- we were able to successfully negotiate some cash payoffs of some performing TDRs.

Okay. And I guess ask for a little bit of comment on the net interest margin. I guess we're able to generate a good bit of loans this quarter, but if loan growth is little slower next quarter, I guess that would suggest that more of that would go -- be going into securities portfolio, more of the deposit generation would end up going into the securities portfolio. Anyway, what are your thoughts on the net interest margin and --?

Well, I guess, obviously, as you saw the margin it was fairly flat compared to the third quarter. I think it was down a little bit just because we had a few extraordinary items in Q3, Joe, looking on a linked quarter. Going forward, I don't see a lot of change in the margin other than the change that's going to result from growth in the loan and deposit books. With $140 million of cash on hand that we have on the balance sheet, certainly we wouldn't mind a little period whereby loan growth outstrips deposit growth.

Obviously, we're not designing it that way, but if it happens that way so be it and obviously that would add to the margin going forward. As I said, we are getting a little bit of incremental pickup as the older legacy CDs mature and renew at the lower rates, and of course to the extent we're going to be generating new loan credits and using cash to do that, obviously, will expand the margin as well. But looking out into 2012, we see a little bit of margin expansion, Joe, but not anything significant at this point.

Okay. And I guess you did touch on another question I was going to ask just. Any big chunks of CDs or other funding that's rolling over in the first or second quarter?

Yes, we have $26 million of senior debt guaranteed by the TLGP program that will be rolling off and that's almost a 3% cost on that. So we're looking forward to that.

Okay. That's all I had right now. Thanks.

Joe Stieven, Stieven Capital.

First of all, good afternoon and congratulations on another really good quarter.

Thank you.

Thanks, Joe.

Most of my questions have been asked. But I do have a couple more. Number one, you had a small amount of reversal of the DTA. Can you give us your total allowance now on your DTA? That's question number one.

The total allowance on the DTA, Joe, I believe it is about $21 million. Its valuation allowance remaining is about $21 million, yes, a little over $21 million.

Okay. And I guess my -- I've seen number of banks recently bringing on their entire allowance back after less profitability and less improvement and asset quality been your resort. I'm scratching my head a little bit. I'm almost -- I mean, Ed, can you just talk about that because that's a different [thing]?

Joe, can I answer that question in the most [easiest] way, okay?

Sure.

Because we are examined by one of the most reputable, most experienced CPAs, KPMG. So the slated recovery may be slightly later than other banks.

Okay. Well, you've done a good job. I think you deserve it, but we will see. That was really my biggest question. So, well, thank you and keep up the good work.

Thank you.

Aaron Deer, Sandler O'Neill & Partners.

Hi guys, it's actually Andrew on for Aaron.

Hi, Andrew. How are you?

Hi, Andrew.

Good. How are you?

Great.

I'm just curious if you can talk a little bit more about your expectations for improvement in credit quality just like what's happened since maybe year-end, have you entered into agreements to dispose of some properties, that sort of thing?

Well, I'll let Louie to answer most of that, okay?

Yes, actually as you know it, before the Super Bowl kind of the last half of the year and before the Super Bowl, it's kind of tough to get people to negotiate and seriously work to get things done. We've had -- at the last half, we had well over half of our ORE under contract and unfortunately, with the crisis in the -- the European debt crisis and some inability to make the decision to close, those fell out. We're still under negotiations and discussions with a significant portion, but at this point, we are not in a position that we're going to be able to give you some comfort as far as any large reductions in the first quarter.

Got you. Thanks. And then, I'm curious if you can just maybe tell us what the level of the performing nonperformers is and any expectation for them to become back to a performing status?

Yes. We still have -- it's well over 25% of our non-accruals that are fully current and in fact, when we say fully current, some of them are actually 30 days to 89 days past due, but I'm talking of just -- fully current is well over 25% and that we have an expectation throughout 2012 that effect continues, we will be able to put those back on accruing status.

That's great. Nice quarter. Thanks so much.

Thank you.

Thank you.

(Operator Instructions) Gary Tenner, D.A. Davidson & Co.

Ed, I missed your comment on the TLGP debt that's rolling off at 3%. What's the timing on that?

Middle of next month, middle of February.

Okay. So it'd be mid-Feb. Okay. And then, I just have one other question. In terms of the lenders, Wellington, that you were talking about, did you actually bring any lenders on during the fourth quarter? Are those folks that you brought on earlier in the year?

During the fourth quarter, we brought in two lender, two C&I lenders.

As you bring them in from an Asian niche bank as well or from a mainstream institution?

From mostly local, the Asian bank whose -- the expertise is C&I, mainly C&I lending.

Okay. All right. Great. Thank you.

(Operator Instructions) There are no further questions in queue. I'd like to turn the call back over for closing remarks.

Well, okay, thank you very much. And the entire management and our Board of Directors are facing 2012, okay, with a lot more confidence and a lot more good feelings about it as compared to ever before, okay. We are pretty sure that the improvement that we have made in our operation will continue in all aspects, okay.

Thank you very much for your attention. Thank you.

Thank you, ladies and gentlemen. That does conclude our conference for today. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325, and enter the access code 4505999. We'd like to thank you for your participation. You may now disconnect.