Preferred Bank(PFBC) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2020, Preferred Bank reported a net income of $15.3 million or $1.03 per share, which was impacted by a $7.5 million loan loss provision [8] - Return on assets was 1.26% and return on equity was 12.65% [9] - Total deposits grew by $264 million and loans increased by $70 million, including $74 million in PPP loans [10] - Net interest margin (NIM) for the quarter was 3.53%, a decrease of 17 basis points from the previous quarter [11] Business Line Data and Key Metrics Changes - The bank experienced a net organic origination of loans of $50 million, with $211 million in new loans and $161 million in payoffs [10] - Loan yield decreased by 47 basis points while deposit cost decreased by 43 basis points [12] - Total modified loans amounted to $467 million, with a slowdown in new modification requests towards the end of the quarter [13] Market Data and Key Metrics Changes - The bank's total assets exceeded $5 billion, providing significant liquidity but negatively impacting ROA and capital ratio [16] - The cost of deposits as of June 30 was down to 74 basis points [34] Company Strategy and Development Direction - The management indicated a focus on maintaining a low efficiency ratio and expects deposit costs to continue declining [16] - The bank is cautious about deposit growth, balancing between paying less interest and managing liquidity [60] - Management is considering staff realignment and operational adjustments in response to changes in customer behavior due to the pandemic [66] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for PPP loan forgiveness, which could positively impact future earnings [45][75] - The bank is closely monitoring economic conditions and expects to build reserves based on ongoing evaluations of the loan portfolio [15][58] - Management noted that the current environment has created challenges but remains hopeful for recovery as the pandemic situation improves [81] Other Important Information - The bank's efficiency ratio is less than 33%, indicating strong operational performance [16] - The bank has a significant portion of its loan portfolio secured by real estate, which is expected to mitigate risks associated with non-accrual loans [21][50] Q&A Session Summary Question: Can you provide details on non-accrual loans? - Management indicated that non-accrual loans are primarily secured by real estate, with ongoing efforts to resolve issues related to delayed sales due to COVID-19 [21] Question: What is the book value of the non-accrual loans? - The book values were reported as $16.8 million, $6.32 million, and $1.13 million for the respective loans [26] Question: What are the expectations for loan payoffs in the coming quarters? - Management expects a reduction in both origination levels and payoffs due to the ongoing pandemic [40] Question: How is the bank managing its bond portfolio? - The bank is cautious with bond purchases, focusing on small opportunities rather than significant investments due to the current market environment [49] Question: What is the mix of hotel exposure in the loan portfolio? - The hotel portfolio is approximately 80% metropolitan hotels and 20% boutique hotels by total value [54] Question: What are the assumptions for CECL regarding GDP and unemployment? - The bank forecasts an unemployment rate of 11% to 12% and a GDP contraction of 5% to 6% [58] Question: How much of the PPP loans are under $150,000? - Approximately 60% to 70% of the PPP loans are under $150,000 [72]