Preferred Bank(PFBC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2025, the net income was $34.8 million, or $2.79 per share, while the full-year net income was $434 million, or $10.41 per share, indicating strong profitability within the banking industry [4] - The net interest margin for Q4 declined due to federal rate cuts, with a margin of 3.66% in December, slightly below the quarterly average [11] - Total loan growth for the quarter was $182 million, or over 12%, while deposit growth was $115 million, or 7.4% [5] Business Line Data and Key Metrics Changes - The bank's loan portfolio is 70% floating-rate, which was impacted by federal rate cuts, reducing loan interest income [4] - Non-performing assets slightly declined, but criticized assets increased by $97 million due to a large nine-loan relationship being classified [6] Market Data and Key Metrics Changes - Economists forecast 2026 to be a year of relative growth and stability, with improved customer outlooks for the year [7] Company Strategy and Development Direction - The company is focusing on commercial real estate and C&I loans for growth, budgeting higher numbers than the previous year [37] - The management is cautious about share repurchases, indicating that funds will likely be reserved for loan growth and deposit situations [39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2026, expecting stronger loan demand and growth barring sudden changes in government policy [7] - The company is monitoring the competitive landscape for deposits, noting strong competition from larger banks [29] Other Important Information - The company sold two large pieces of OREO, resulting in a net gain of $1.8 million, which was reported in non-interest income [5] - The provision for loan losses for the quarter was $4.3 million, reflecting a combination of loan growth and specific reserves for certain loans [86] Q&A Session Summary Question: Margin visibility and deposit costs - The margin for December was 3.66%, with total cost of deposits at 3.17% [11] Question: Deposit beta and future expectations - Deposit beta is expected to remain around five to six basis points a month, influenced by rate cuts and competition [12] Question: Loan growth expectations - Loan growth is expected to step up from the previous year's pace, with a similar growth rate for deposits [13] Question: Non-interest expenses guidance - The forecast for non-interest expenses is around $21.5 to $22 million for the first quarter [14] Question: Update on CD maturities - About $1.3 billion in CDs are maturing in Q1 at a weighted average rate of 3.96% [20] Question: Classified loans and workout strategies - The company is optimistic about resolving classified loans, with a timeline of approximately two quarters for resolution [41] Question: Fee income baseline for 2026 - The Q4 fee income, excluding one-time impacts, is considered a good baseline for 2026 [54] Question: Share repurchases and M&A appetite - The company is cautious about share repurchases and is evaluating M&A opportunities, but pricing structures are not currently satisfactory [62]