Preferred Bank(US:PFBC)2020-10-21 00:19Financial Data and Key Metrics Changes - Preferred Bank reported a net income of $17.1 million or $1.15 per share for Q3 2020, showing improvement compared to the previous two quarters [7] - The net interest margin for the quarter was 3.54%, a slight decrease of 3 basis points from the previous quarter, but improved to 3.61% when excluding PPP loans [9] - Return on equity was reported at 13.7%, reflecting the bank's efforts to restructure and reposition its loan portfolio [12] Business Line Data and Key Metrics Changes - Total deposits grew by 1.5% or $64 million, while loans declined by $14 million due to reduced deal flow in key markets [10] - The bank's loan-loss provision for the quarter was $9 million, with total reserves to loans standing at 1.58% [10] Market Data and Key Metrics Changes - The bank experienced a 53% reduction in loans receiving modifications under the CARES Act, indicating a positive trend in borrower repayment plans [11] - Nonperforming loans were reported at less than 50 basis points as of June 30, with proactive measures taken to charge-off and reserve for potential losses [10] Company Strategy and Development Direction - The management emphasized a shift from being an asset-sensitive bank to a liability-sensitive bank, focusing on reducing deposit costs and controlling overhead [8] - The bank is cautious about new loan opportunities, particularly in sectors like hotels and retail, due to current market uncertainties and pricing challenges [29][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the bank's ability to maintain profitability despite uncertainties, with a focus on credit management [12][48] - The bank's strategy includes preparing for potential economic challenges while aiming for growth through careful loan management [19][49] Other Important Information - The bank's total capital ratio increased by nearly 80 basis points from the end of the previous year, indicating strong internal capital generation [19] - The bank has submitted applications for PPP loan forgiveness, with expectations of recognizing fees throughout Q4 [73] Q&A Session Summary Question: Impact of capitalized origination costs on operating expenses - Management noted that loan originations were flat quarter-over-quarter, with PPP loan fees contributing to capitalized credit costs [17] Question: Outlook on commercial paydowns and loan balances - Management indicated that commercial paydowns have reduced balances, but net production showed some activity [18] Question: Capital priorities and potential buyback plans - Management stated that current focus is on uncertainties ahead, with no immediate plans for stock buybacks [19] Question: Tax rate expectations for future quarters - The tax rate decreased in Q3 due to a true-up of 2019 tax returns, with expectations for a similar rate in Q4 [20] Question: Details on charge-offs during the quarter - Management provided insights on charge-offs related to larger loans and the ongoing collection process [22][23] Question: Loan demand and borrower hesitance - Management acknowledged that while there is capital on the sidelines, borrowers are cautious about new investments [46] Question: Trends in loan deferrals and future projections - Management confirmed that deferrals have decreased significantly, with expectations of minimal amounts by year-end [40] Question: Update on classified and criticized loans - Classified loans were reported at $59 million, with criticized loans totaling approximately $139 million [70] Question: Applications for PPP forgiveness and fee recognition - Management confirmed that applications for PPP forgiveness have been submitted, with fees being amortized over the life of the loans [74][75]