Preferred Bank (PFBC) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Preferred Bank's Q1 2013 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). I would now like to turn the conference over to Kristen McNally, public relations for Preferred Bank. Please go ahead, ma'am.

Thank you. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31, 2013. With me today from management are Chairman and CEO, Li Yu; President and COO, Wellington Chen; Chief Financial Officer, Edward Czajka; and Chief Credit Officer, Louie Couto. 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 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 operating 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 SEC required documents that the Bank files with the Federal Deposit Insurance Corporation, or FDIC.

If any of these uncertainties materialize or if 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.

Good morning or good afternoon. Thank you for joining our earnings conference phone call.

We are very pleased to report to you our best quarter in the last three years. For the quarter, we earned a net income of $4 million or $0.30 per share, all from operations and all recurring.

During the quarter our loans continued to grow at the pace of a little bit less than 15% annualized. Our deposits also grow at the pace of 8% annualized, although we might note that we have given up $60 million of DDA voluntarily due to that it would require security collaterals.

During the quarter, we produced or we originated $150 million in new loans with roughly $100 million outstanding at the quarter end, but the payoffs are also very high. We have choose not to match some of our customers' received offers, which will require us to do low fixed-rate loans at long durations.

The pipeline at this time looks very good, although payoff -- scheduled payoff also looks high, but net-net we forecast that the second quarter to have continuous growth in our loans portfolio.

We had in this quarter maintained or even improved our net interest margin a little bit. The improvement largely comes from the better leveraging, a slight decrease in interest costs and the acceleration of the realization of deferred loan fee income due to the early payoffs.

But, we are realistic and we are prepared that in the next several quarters, our net interest margin may reduce due to -- we're still in the midst of an assets repricing wave, but we will try very hard to keep the reduction or to keep the decrease very mild.

Asset quality continued to improve. For the quarter we had a very meaningful reduction in OREOs and NPAs. Again, looking forward, we see nominal or in the very unlikely case that may even a very small increase in total NPAs in the second quarter. However, we do see a whole lot of resolution is scheduled in quarter number three, and we do believe by the year end total NPA will be reaching a very insignificant level.

OREO cost is likely to moderate much further. As of today, most of our OREOs are carried at 80% or less of the appraisal value. With the continuous improvement of California housing prices, real estate prices, we are very optimistic that the OREO cost will moderate.

For the quarter, we did not make any provisions for loan losses because we have a $2.1 million loan loss recoveries, which is adding to our already very adequate loan-loss reserve. If it wasn't for this recovery, we might decide to recall the small provisions, but, as is, we're very pleased to have this recovery.

Looking forward, I would like to reiterate our entire team's optimism about our future. We think we can continue to grow our Bank, continue to improve our operation and continue to improve our profitability.

Thank you. Now we're ready for your questions.

(Operator Instructions). Aaron Deer, Sandler O'Neill and Partners.

Good afternoon, guys. First, Li, did I hear you correctly? Did you say you that had an anticipated increase to the NPAs during the second quarter?

Well, we say in the very unlikely case. In our resolution, there may be a gap in certain things. Chances of that happening are not big. We think generally, probably will be a nominal decrease in our NPAs the next quarter.

Okay, so there wasn't anything you had identified, it's just in the normal (multiple speakers)

There are some weaknesses always in some of the loans. I like not to be too optimistic -- 1000% optimistic.

Right, okay. That's fair. And then I was wondering, with the loss of the deposits that resulted at the TAG program, was that from a single customer, that $16 million? Or how many customers was that spread across?

It's from a whole bunch of customers. There are some governmental deposits, some bankruptcy deposits. Ed, do you want to add color to that?

Yes. Well, it's a number of programs, Aaron, that required collateralization up and above and beyond the $250,000 per account level. So we chose to get rid of some of those very, very large ones, which we didn't feel was prudent for us to continue to collateralized such large DDA accounts.

Okay. And then thinking about the margin, you mentioned that you've got a high level of scheduled payoffs coming.

Yes.

What kind of rates are on those relative to where you are putting on new production?

I can only generally tell you that these payoffs will be at a higher rate. Loans that paid off carry the higher interest rate than on new loan productions, in general.

Okay. How do you view your current level of excess liquidity that might be deployed to help offset some of those?

We might be. Obviously, that's one of the -- if we just want the mathematics of net interest margin to be good, we would do that, but our job is also grow our deposits. So the priority is grow deposit regardless of the calculation of net interest margin, but more concentrated on the improvement in net interest income.

Okay. And then just one more with respect to the margin outlook, can you identify what the impact of the margin was of the pre-pays in the first quarter? The prepayment penalties, just to clarify (multiple speakers).

We generally do not have much prepayment penalty.

I think he's referring to -- are you referring to deferred loan fees (multiple speakers)?

Approximately 91 deferred loan fees.

Okay. That was what you were referring to earlier?

Yes.

That's what he was referring to, right.

Okay. Fair enough. I think I'll step back and see if there's other questions.

Don Worthington, Raymond James.

A couple of things -- in terms of just the tax line, I know you had some adjustments for the fourth quarter. Would you expect anything there for the first quarter, in terms of once you get the final number?

Yes, no, Don. We don't expect any change at this point. The difficulty with the year end was that we were coming out of a year with, as you can recall, had a lot of noise to it. We had pretty much a full DTA evaluation reversal in Q1 and then we had a slow bleed-off of a little bit of remaining valuation allowance over the next three quarters. And then we had a lot of issues with respect to getting the DTA back on. So it required a number of adjustments and we had also changed our tax accountants that same year as well, so that added a little bit to it.

But, no, we don't expect anything in the foreseeable future or this quarter at all. Everything is -- we're basically fully taxable now and it's fairly smooth.

Okay, great. And then in terms of the non-interest expense line, anything in the first quarter that you would consider nonrecurring? I'm trying to get towards a run rate for non-interest expense going forward.

Well, we will generally project that OREO cost, okay, charges will reduce. To what extent we'd reduce that, at this point in time it's unclear. But since we have carried our assets on the very conservative value basis, we're likely to think it will be reduced in (multiple speakers) pace, you know.

Okay. And then was there a bonus accrual or anything in the first quarter that resulted in the increase from the fourth quarter in terms of total noninterest expense?

Yes. We had a number of things on the salary line item, Don. Bonus expense -- the bonus accrual was one of them. Obviously, as you recall, our bonus plan is tied to profitability after we reach certain ROE benchmarks, so as that increases, the bonus expense will increase.

As it compares to the same quarter last year, Don, staffing levels are certainly higher than they were last year. We have a new branch this year we did not have last year, in addition to a number of business development people.

Okay, okay. And then it looks like there was some good progress in disposing of REO, particularly in the land category. Is that reflective of just better prices on land in Southern California?

Yes, definitely, but I'll have Louie give you more color on that.

Yes, actually, thanks for picking up on that. The four different parcels we actually closed in the first quarter were all land. Additionally, we have another three pieces of ORE currently in escrow which Mr. Yu alluded to, but those are primarily scheduled to be closing in the third quarter. We have another one under contract we're anticipating getting into escrow soon, but, again, that will probably be a third-quarter the event.

But we have noticed an uptick in traffic as far as qualified buyers and in an ability and a willingness to close on escrows.

Okay. Great. Thank you.

Gary Tenner, D.A. Davidson.

Good morning. You guys have continued to do a great job in terms of loan production. I think you mentioned $150 million this quarter. In the past you had talked about getting some customers back that had left the Bank during some more difficult times. Can you talk about how much of your loan production this quarter maybe was customers coming back to the Bank versus brand-new customers and just some other drivers of some of that production?

Well, I would have Wellington answer the question, okay, and we may add something to it a little bit later.

I think for the first quarter, the ratios is about 65/35 -- 65 new customer to the Bank and 35, the previous customer that came back. Is that what you're looking for, Gary?

Yes, yes, that helps. And then with the loan growth being as strong as it is, any detail you could provide in terms of where there is any particular pockets of growth? Or how do you (technical difficulty) guys have been successfully driving the loan growth at a faster pace than peers?

Well, one of them is that we opened our San Francisco branch in February, so we are up there. We have a couple relationship managers up there and another one due to arrive at the end of this month. That helps. The people we hired up there has been the local community for over 20, 25 years so they are very well known. And as far as down here, we continue to drive the C&I business.

And on the real estate side, as Mr. Yu mentioned, that it's very competitive, but I think we are building on the relationship on our network basis. So it's a pretty good combination of C&I and CRE, pretty much a 50-50.

Okay. And just related to that San Francisco branch, what kind of loan production or bookings did they post during the first quarter?

They have done some -- pretty much, I think they have some import/export business, real estate, owner user, apartments.

And in terms of dollars? Can you tell us what kind of production you got from that location?

About $27 million.

$27 million?

Yes.

Okay. All right, thank you.

(Operator Instructions). [Joe Stephens], [Stephens] Capital.

Good afternoon, guys. First of all, good quarter. A couple of my questions were already answered, but let me at least answer one. On the regulatory side, can you give us any types of updates with just -- because, obviously, you still mention and you've got your -- you talked about the MOU on page 5, I think. So, just any updates. Thanks, guys.

We are under examination right now, so the examining results has not been finalized. But, based on the progress we have had, I can only say that this examination is tougher than 2009.

Okay, okay. Well, good, and your performance has been great. Thank you, guys.

John Deysher, Pinnacle.

Hi, everyone. On the last question about the MOU, is it still the intention to perhaps reinstate the dividend, assuming you pass the exam and have the MOU removed? Is that still on the table?

John, I will relate this to you, that from the consensus opinion of our Board, the minute that we are allowed to do so, the minute we will reinstate the dividend.

Okay. I think on the last call you indicated the dividend might be reinstated at a 25% to 35% payout rate. Is that still (multiple speakers).

That's the historical number before the prices of what we have been doing, okay? And before we do so, certainly we like to be a responsible then going over our entire capital plan. And we've come up with a number to see what the payout ratio is in doing that, and also while doing that, have to measure our other requirements of capital. But it certainly sounds within the range.

Okay. But, presumably, you're doing all of that planning now so that once the MOU is lifted, you can act pretty quickly.

Things like that is -- speaking for me, personally -- I do need a dividend for myself, too, so it would be my personal interest.

To go ahead with the dividend? (laughter)

Yes.

Okay. Thank you.

(Operator Instructions). And I should know further questions in the queue at this time.

Okay. Well, thank you very much for your interest and we'll talk to each other hopefully three months from now. Thank you.

Ladies and gentlemen, that concludes the Preferred Bank Q1 2013 earnings conference call. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325, with the access number of 4614092. AT&T would like to thank you for your participation and you may now disconnect.