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 [5][6] - The net interest margin for Q4 declined due to federal rate cuts, with a total cost of deposits reported at 3.17% for December [5][12] - Total loan growth for the quarter was $182 million, or over 12%, and deposit growth was $115 million, or 7.4% [6][8] Business Line Data and Key Metrics Changes - The bank's loan portfolio is 70% floating-rate, which has been impacted by recent federal rate cuts [5] - Non-performing assets slightly declined, but criticized assets increased by $97 million due to a large nine-loan relationship being classified [7] 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 [8] Company Strategy and Development Direction - The company is focusing on commercial real estate and C&I loans for growth opportunities, budgeting higher numbers than the previous year [40] - The management is cautious about share repurchases, indicating that funds will likely be reserved for loan growth and deposit situations [41] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2026, expecting stronger loan demand and a stable market environment compared to previous downturns [8][40] - The company is actively monitoring classified loans and is prepared to take necessary actions if customers do not resolve their issues [36][42] Other Important Information - The company sold two large pieces of OREO, resulting in a net gain of $1.8 million, which was included in non-interest income [7] - The provision for loan losses was $4.3 million for the quarter, reflecting a combination of loan growth and specific reserves [91] Q&A Session Summary Question: Margin visibility and deposit costs - The margin for December was 3.66%, with a total cost of deposits at 3.17% [12] Question: Deposit competition and rates - The deposit beta is around 40%, with expectations of a similar pattern in deposit costs moving forward [13] Question: Loan growth expectations - Loan growth is expected to step up from the previous year's pace, with a similar growth rate for deposits [14][15] Question: Non-interest expenses guidance - The forecast for non-interest expenses is around $21.5 to $22 million for the first quarter [16][18] Question: CD maturities and rates - About $1.3 billion in CDs are maturing in Q1 at a weighted average rate of 3.96% [22] Question: Classified loans and workout strategies - The management is optimistic about resolving classified loans within two quarters, with various options available [42][44] Question: Fee income baseline for 2026 - The Q4 fee income, excluding one-time impacts, is considered a good baseline for 2026 [57] Question: M&A appetite - The company is reviewing potential M&A opportunities but is cautious about pricing structures [65]