The following is a summary of the Preferred Bank (PFBC) Q3 2024 Earnings Call Transcript:

Financial Performance:

• Preferred Bank reported a Q3 net income of $33.6 million, or $2.46 per share.

• A significant increase in loan volume, over 10% on an annualized basis, and a reduction of non-performing loans with no charge-offs and an $800,000 interest recovery.

• Slight reduction in the cost of deposits due to lower deposit rates, leading to improved net interest margin.

• Efficient management of assets led to a loan portfolio consisting of 26% fixed rate and 74% floating rate loans, with most floating rates having a floor to safeguard against rate volatility.

Business Progress:

• Preferred Bank successfully reduced non-performing loans and managed problematic loans efficiently, ensuring its loan portfolio remains robust.

• The bank is adjusting its deposits strategy to manage costs more effectively, shifting from higher cost deposits to more favorable term deposit conditions.

• Continual adjustments in fixed and floating rate loan proportions to navigate the changing interest rate environment effectively, providing future revenue stability.

Opportunities:

• Expected rate cuts by the federal government could stimulate further growth in loan demand and potentially enhance interest margins.

• Rebalancing loan terms and banking on a mix of fixed to floating rates to capitalize on the projected moderate rate cuts.

Risks:

• A notable increase in criticized loans primarily due to issues with one significant banking relationship represents a potential risk, though it is deemed temporary by the bank's management.

• Deposit reductions and rate adjustments bear watching to ensure they do not adversely affect the bank's liquidity or cost of capital excessively.

• The need to defend the current loan portfolio against competitive payoffs, suggesting a pressure on asset retention.

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