• Net Income (Annual): $131 million or $9.64 per share.
• Net Income (Q4): $30.3 million or $2.25 per share.
• Return on Assets: 19.1%.
• Return on Investment of Equity: 18.8%.
• Loan Growth (Annual): 7%.
• Deposit Growth (Annual): 3.6%.
• Non-Performing Loans: Reduced from $20 million to $10 million, a 50% improvement.
• Dividend Increase: From $0.70 to $0.75, payable in January.
• Share Repurchase: 464,000 shares for $34 million.
• Leverage Capital Ratio: Improved from 10.85% to 11.3%.
• Tangible Book Value: Increased from $50.54 to $57.86.

• Warning! GuruFocus has detected 8 Warning Signs with HLI.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Preferred Bank (NASDAQ:PFBC) reported a net income of $131 million for the year, with a return on assets of 19.1% and return on equity of 18.8%, outperforming industry averages.
• The bank achieved a 50% reduction in non-performing loans, decreasing from $20 million to $10 million, and a 33% reduction in criticized loans.
• Preferred Bank (NASDAQ:PFBC) increased its dividend from $0.70 to $0.75, reflecting confidence in its financial stability.
• The bank repurchased 464,000 shares of its common stock for $34 million, indicating a strong capital position and commitment to shareholder value.
• The leverage capital ratio improved from 10.85% to 11.3%, and the tangible book value per share increased from $50.54 to $57.86, showcasing financial strength and growth.

Negative Points

• The bank's net income for the fourth quarter was negatively impacted by a $8.1 million correction to rental expenses, equating to a $0.42 after-tax adjustment.
• Loan growth was moderate at 7% and deposit growth at 3.6%, reflecting a slow growth year for the banking industry.
• The Los Angeles wildfire posed a risk to the bank's commercial real estate loan portfolio, although initial assessments showed minimal impact.
• The bank faces competitive pressure in deposit rates, particularly within the local Asian community, affecting its flexibility in pricing.
• Non-interest expenses are expected to rise in the first quarter due to increased payroll taxes, legal fees, and charitable contributions related to wildfire relief efforts.

Q & A Highlights

Q: Can you provide insights on the margin outlook for the first quarter, considering the mix of floating rate loans? A: Li Yu, Chairman and CEO, stated that the margin is expected to remain relatively stable in the first quarter, with no major effects anticipated. Edward Czajka, CFO, added that the spot margin for December was 3.98%, with a quarterly NIM of 4.06%, and they do not foresee significant further compression.

Q: What is the status of time deposits repricing in the first quarter, and what are the new offered rates? A: Edward Czajka, CFO, mentioned that about $1.6 billion in time deposits are coming due in Q1 at a weighted average rate of 4.75%. The offered rates are currently below that, ranging from the low 3s to the mid 4s, depending on the term and competition.

Q: What are your plans for capital repatriation in 2025, particularly regarding share buybacks? A: Li Yu, Chairman and CEO, explained that buybacks will depend on factors such as loan growth prospects, stock pricing, and capital ratios. If the stock remains undervalued, they may consider buybacks.

Q: Can you provide details on the expected non-interest expenses for the first quarter? A: Edward Czajka, CFO, indicated that non-interest expenses are expected to be around $23 million for Q1, including elevated payroll taxes and professional services costs. They also plan to make a charitable contribution to local wildfire relief funds.

Q: What is the outlook for criticized loans and charge-offs in the first quarter? A: Nick Pi, Chief Credit Officer, stated that charge-offs were due to delays in resolving impaired loans, but they expect criticized loans to decrease in Q1 as some loans are paid off or refinanced, and additional collateral is provided for others.

Q: How is the competitive landscape affecting loan growth and payoff activity? A: Li Yu, Chairman and CEO, noted that payoff activity was elevated in the fourth quarter due to sales transactions. The origination remained consistent, but the market is cautious, with many investors waiting for more favorable conditions.

Q: Are there any changes in liquidity strategy, particularly regarding the securities portfolio? A: Edward Czajka, CFO, mentioned that they have been purchasing 10-year treasuries, totaling about $60 million, to take advantage of current market conditions. However, this is a cautious approach, and they will reassess as needed.

Q: What is the current strategy for managing the allowance ratio? A: Nick Pi, Chief Credit Officer, explained that the allowance ratio is expected to gradually reduce, aligning with peer banks. The bank maintains a philosophy of fully reserving for loan losses, which has kept their ratio slightly higher than peers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.