Preferred Bank (PFBC) 2014 Q4 法說會逐字稿

Good day and welcome to the Preferred Bank fourth-quarter 2014 earnings conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Kristen Papke, investor relations for Preferred Bank. Please go ahead.

Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter and full year ended December 31, 2014.

With me today from management are Chairman and CEO Li Yu; President and CEO Wellington Chen; and Chief Financial Officer Edward Czajka. 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 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 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.

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

Thank you. Good morning, ladies and gentlemen. The year 2014 by all standard is a very good year for Preferred Bank. For the year, we've grown deposits for almost 21% -- loan almost 21% and deposits a little bit over 16%. We are very satisfied with these numbers.

Net income of the year is $1.78 per share fully diluted shares. This is much better than the beginning of the year market consensus opinion and our internal operating budget.

During the year, we have improved our asset quality and resolved the BSA compliance issue, which led to the termination of a memorandum of understanding with our regulators, which then led to the resumption of a dividend payment.

While growing the Bank, we're always mindful about overhead control. The year's overhead comes in at little less than efficiency ratio comes in a little bit less than 41%, which compares very favorably with our peer group.

Board and staff of Preferred Bank is most proud of the fact that for the year 2014, total shareholder return for Preferred Bank is among the best of this nation, which we take great pleasure of.

In the fourth quarter, the year-long improving trend have been continuing. Loan increased 5.3% or $80 million on the linked-quarter basis. Deposit increased 3.2% or $55 billion on the linked-quarter basis.

Net interest margin was steady and efficiency ratio was consistent of return on total assets is average assets was 1.37%. Perhaps most importantly that we have always been very mindful of diligently managing our balance sheet to keep it very asset sensitive. Today, 89% of our loan portfolio is floating-rate loans.

The Federal Reserve Bank rate increases, although elusive, it seems like every day gone by, it is one day closer. And we're ready to take full advantage of the event if it happens.

I'd like to thank all of you for your continuing interest in Preferred Bank and your support of Preferred Bank. I'm ready for your questions. Thank you.

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

It looks like you had another terrific quarter in terms of both growth and profitability. I just had one question on the loan growth in the quarter. If you could talk a little bit about the specific areas where that came from. I saw that it was largely C&I and I think some multifamily was -- contributed as well.

Just maybe talk about what happened in those two portfolios as well as commercial real estate. And to the extent there were any outsized credits in there or if you were doing any participations or loan purchases, if those contributed to growth in the quarter?

Okay. First of all, as I was reporting in the last quarter that since we're getting close to the all-important regulator guideline -- although they call it a guideline, we call it Bible. And we are getting close to that limitation. We are very mindful about our CIE growth, so we have been conscientiously diversified ourselves into other area and we're also looking at new products and planning on new products for the future.

But having said that, we mentioned that there is some purchases of C&I loans from participation basis. Ed, do you have the numbers?

Yes, it was about -- for the quarter, it was right around $20 million of the total loan growth.

Okay. Any particular industries or sectors where you're seeing particular opportunities, either through organic growth or with some of these participations that you're taking part of?

Well, we are looking at multiple situational things. Things such as we are always looking at SBA. We never decided to do anything about that. In the past, with -- well, we have been trying not to do it.

We are always looking at the mortgage product and we're looking at the specific loans that fits the need of new immigrants, these kinds of things that we'll be conscious of doing that. But having said that, there's a whole lot of different industries with the C&I group. And if we can, we would like to expand our footprints there.

And to answer your other question, Aaron, there were no real outsized credits, as you termed, during the quarter.

Okay, all right, that's great. And maybe just one last question on the credit side, on a little uptick in the non-accruals this quarter. I expect that was just something that from legacy portfolio stuff that is still kind of working its way through?

It wasn't legacy portfolio. It was a performing loan of residential properties, okay. The fact is that the loan was performing and has sufficient cash flow to pay the loans, but the borrower and the HOA Homeowners Association gets into a fight. The HOA sued them and they won on the court.

So we got hung up in between, because the matter in the bankruptcy court right now. So far, the trustee have all our money and decided not to pay us, hold it in there. And going into the loan, the loan was a pass-through loan-to-value ratio was approximately 60%. And so, it's a matter of being a banker, you just have to -- you have to bear the results of other people's fight.

Sure. Okay, well, it sounds like there's no real loss content embedded here anyway.

We don't think so at this time.

Okay. Very good, I'll step back. Thank you for taking my questions.

Donald Worthington, Raymond James.

In terms of the margin, were there any interest recoveries that impacted the NIM this quarter?

It was a very minor interest recovery, but the majority of the situation is really in the leverage side, okay. Let me quote you that a couple numbers, okay? For the -- if you notice that for the -- I'm trying to find the proper pages on which I make my notes, okay.

For the fourth quarter, this loan increased $91 million and deposits increased $35 million average loans -- average deposits, which those are the basis of measuring the net interest margin. However, if you look at the previous quarter, the number is kind of different.

It's a reverse [side of diverse] deposit increase of $156 million and loan is only about half of that increase average loan outstanding. That speaks for majority reason of the major shift between the quarters.

Of course, there are some other matters, such as some loan gets paid off. If it's paid off before the maturity date, we've got to take in the deferred fees, so on. But these are getting pretty minute to calculate them, but we think it contributes some.

And obviously, there's some very minor amount, penny or two situation, in the deposit cost, total interest cost factor in a reduction.

Okay. Yes, okay. Thank you. And then in terms of loan growth, just looking for some thoughts in terms of how much you think you can grow loans in 2015? I assume as the base gets higher, percentage wise, it's probably going to come down from the 20%?

First of all, 20% has exceeded my budget by quite a big margin and actually, much beyond my personal prediction for the loans. I wouldn't dare to predict that for 2015, but would gladly take into results if that happens.

But having said that, as an institution, we're also gearing up for the additional growth. We are opening up a new branch in Tarzana area, which well, should be in full operation beginning early February. All the staff is already on board; they're just waiting to -- but the President promises to be ready. And we are hiring additional relationship officers. And probably the last months of the year, just to be ready for the increase challenges into additional loan production we have going to the future.

Wellington, do you have any other additional thoughts about different things?

Well, as you mentioned on this -- we get bigger, we just have to continue to look at our production team to make it more effective. For the high performer, they will continue. For the average and lower performer, our challenge is to bring them up. And in addition, as Mr. Yu mentioned, to bring in new relationship managers to help us.

Okay. All right, thank you. Great quarter.

Tim Coffey, FIG Partners.

Mr. Yu, given that credit quality seems to be on a steady-state right now, do you anticipate provision expenses in the near term to match loan growth?

Well, we are taking -- the provision expenses right now is taking a very, very -- how should I -- scientific method of calculating it. And [Tolalee and Loan], our CPA firm, has just two or three different calculation within the next two -- last two years. All those things are improving the methodology.

But as we going forward, we will be basically based on these new guidelines, new things involved for measuring on our total reserve situation. But if on a steady credit quality basis and if on a situation, loan growth is not totally too high, that we anticipate that in the beginning one or two quarters, the provision will be staying approximately the same as last two quarters.

Okay. Any adjustments to capital management going forward? Particularly regard to the cash dividend?

I will obviously be promoting that idea, being on one of the largest private shareholders that will be presenting new idea to the Board. As a matter of fact, as our earning improve, we will increase our dividend payment. Because traditionally, we've been paying 25% to 30% of our earnings out as dividend payment.

Okay. And then, Ed, do you have any kind of sense of where the tax rate might be going forward?

Ed?

I think the tax rate, Tim, will be probably fairly consistent with what we saw in 2014. There might be a slight uptick a little bit as we continue to grow and earn more. The component of tax exempt earnings as a percentage of overall earnings continues to decline.

So we will be looking at possibly another low income housing tax credit fund investment in 2015 to try to keep the tax rate down a little bit. But probably not a lot of change from 2014, Tim.

Which is approximately 40%, right?

Just a little over 40%.

Little over 40%, yes.

Okay. And then just one more question, following up on the comments you made to Don. With the opening of the branch in Tarzana, are you anticipating any meaningful uptick in expenses?

Well, there will be rent increases. There will be some operating cost increases, but of a relatively minor amount. Most of the overhead -- I mean personnel costs of, let's say, three quarter of the -- two-thirds of overhead -- personnel costs is already in the fourth quarter. So additional personnel costs will be [moderately] limited.

So we will have some additional increases. And we are also planning for some additional hiring during the year from other existing branches.

But it won't be noticeable, Tim, in the overall run rate.

Okay. All right, great. Well, thanks. Those are all my questions then. Yes, good quarter.

(Operator Instructions) Seeing that there are no other questions, I would like to turn the conference back over to Mr. Yu for any closing remarks.

Thank you. Our job today seems pretty easy, but thank you so much again. Let me thank all of you for your continuing interest in us and we hope we can in a future quarter report equally as good quarter as the fourth quarter of this year. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.