Preferred Bank Reports Third Quarter Results
LOS ANGELES, Oct. 21, 2024 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ:PFBC), one of the larger independent California banks, today reported results for the quarter ended September 30, 2024. Preferred Bank ("the Bank") reported net income of $33.4 million or $2.46 per diluted share for the third quarter of 2024. This represents a slight decrease in net income of $209,000 from the prior quarter and down by $4.8 million from the same quarter last year. The decrease in net income from the prior year was due to a decrease in net interest income of $4.1 million due to higher deposit costs as well as an increase in noninterest expense of $3.1 million. These were partially offset by lower provision for credit losses and an increase in noninterest income. The decrease from the prior quarter was due to an increase in noninterest expense of $2.4 million, an increase in the provision for credit losses of $700,000 partially offset by an increase in net interest income of $2.7 million. Preferred Bank continues to deliver top-of-peer group profitability metrics and long term shareholder returns.
Highlights for the Quarter:
Return on average assets was 1.95%
Return on beginning equity of 18.37%
Net interest margin (NIM) expanded to 4.10%
Total loans increased by $143 million or 2.6% for the quarter
Efficiency ratio was 30.6%
Li Yu, Chairman and CEO, commented, "I am pleased to report our third quarter 2024 net income was $33.4 million or $2.46 a share. Highlights of the quarter include the successful reduction of $21.2 million in non-performing loans, with no charge-offs. Interest recovery related to this was $800,000. Criticized loans, however, have increased but we believe it may be temporary in nature. Separately, the OREO property is currently in escrow, scheduled to close later this month. The valuation allowance we recorded of $1.7 million is included in the quarter's non-interest expense.
Loan demand was strong this quarter. We had a net increase of $143 million, or 2.6% on a linked quarter basis. The September's rate cut seems to have spurred borrower interest in general. Deposits for the quarter had a very small decrease, as we have been careful in monitoring our deposit costs.
At September 30, 2024, Preferred Bank's loan portfolio was 26% fixed rate loans and 74% floating rate loans with floor rates for most of them. We believe it is well-balanced with the sensitivity of our deposits. However, the time certificates of deposits do have a cost adjustment pattern of slower reduction in the beginning but increasing gradually."
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $68.8 million for the third quarter of 2024. This was a decrease from the $73.0 million recorded in the same quarter last year and an increase over the $66.1 million posted in the second quarter of 2024. A higher cost of deposits was to blame for the decrease in net interest income versus the prior year and a curing of a nonaccrual loan in the third quarter of 2024 was the reason for the increase in net interest income over the second quarter of 2024. A loan that was placed into nonaccrual status in the second quarter of 2024 was paid down significantly and the interest was brought current in the third quarter of 2024. This interest recovery of $800,000 helped to increase the Bank's net interest margin to 4.10% for the quarter from 3.96% in the prior quarter. This compares to a margin of 4.39% one year ago. Also very importantly, the Bank's total interest expense decreased for the first time since the first quarter of 2022. This was the result of the Bank's efforts to replace higher cost brokered MMDA accounts with traditional brokered CD's which carry a lower coupon. This is why, during this quarter, there is a fairly sizeable decrease in money market accounts and a corresponding increase in certificates of deposit.
Noninterest Income. For the third quarter of 2024, noninterest income was $3.5 million compared with $3.0 million for the same quarter last year and compared to $3.4 million for the second quarter of 2024. The increase over the prior quarter was primarily due to letter of credit (LC) fees which increased by $210,000 and other income partially offset by a decrease in gains on sales of SBA loans of $263,000. In comparing to the same quarter last year; LC fee income was up by $547,000 partially offset by a decrease in service charges of $192,000.
Noninterest Expense. Total noninterest expense was $22.1 million for the third quarter of 2024 compared to $19.7 million for the second quarter of 2024 and compared to the $19.0 million recorded in the same period last year. The primary reason for the increase from the prior year and over the prior quarter was the $1.7 million valuation allowance recorded this quarter on the Bank's other real estate owned (OREO) property. In comparing to the prior quarter; personnel expense increased by $581,000 and occupancy expense increased by $167,000. This was partially offset by a decrease in promotion expense of $162,000. In comparing to same quarter last year; personnel expense was up by $517,000, occupancy expense was up by $320,000 and professional services was up by $393,000. The increase in professional services expense was due to increased legal costs which were associated with a number of nonperforming loans. For the quarter ended September 30, 2024, the Bank's efficiency ratio was 30.6%, higher than the 28.3% posted last quarter and higher than the 25.04% posted this quarter last year.
Income Taxes. The Bank recorded a provision for income taxes of $13.6 million for the third quarter of 2024. This represents an effective tax rate ("ETR") of 29.0% which is identical to the ETR for last quarter and up from the 28.5% ETR recorded in the same period last year. The Bank's ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.
Balance Sheet Summary
Total gross loans at September 30, 2024 were $5.57 billion, an increase of $298.1 million from the total of $5.27 billion as of December 31, 2023. Total deposits decreased during the quarter by $11 million but still increased year-to-date to $5.87 billion, up $158.4 million from the $5.71 billion as of December 31, 2023. Total assets were $6.87 billion, an increase of $213.3 million over the total of $6.66 billion as of December 31, 2023.
Asset Quality
Non-accrual loans as of September 30, 2024, was $19.4 million, a decrease of $21.2 million from $40.6 million on June 30, 2024. There were no charge-offs related to the reduction. Interest recoveries were $800,000 for this quarter
The increase in total criticized loans of $161.2 for the quarter was largely due to the downgrade of a relationship with seven real estate related loans. These seven loans totaling $182.1 were secured by retail or multifamily properties that have late payment irregularities. At September 30, 2024, four of the seven loans totaling $86.5 million have been brought current and are expected to be out of criticized status in the fourth quarter. The three loans that have not been brought to current have a combined weighted average LTV of 64% and DCR of 0.98. All these loans have adequate guarantor support. Combined amount outstanding for these three loans is $95.6 million.
Allowance for Credit Losses
The provision for credit losses for the third quarter of 2024 was $3.2 million compared to $2.5 million last quarter and compared to $3.5 million in the same quarter last year. The Bank's allowance coverage ratio increased to 1.36% of loans as compared to 1.34% in the prior quarter.
Capitalization
As of September 30, 2024, the Bank's leverage ratio was 11.28%, the common equity tier 1 capital ratio was 11.66% and the total capital ratio stood at 15.06%. As of December 31, 2023, the Bank's leverage ratio was 10.85%, the common equity tier 1 ratio was 11.57% and the total capital ratio was 15.18%.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's third quarter 2024 financial results will be held this afternoon, October 21, 2024 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing "Preferred Bank." There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com.
Preferred Bank's Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through November 4, 2024; the passcode is 7955778.
About Preferred Bank
Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through twelve full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine (2), Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)), one branch in Flushing, New York and a branch office in the Houston, Texas suburb of Sugar Land. In addition, the Bank also operates a loan production office in Sunnyvale, California. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank's future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government's monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank's 2023 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank's website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank's website at www.preferredbank.com.
AT THE COMPANY:Edward J. CzajkaExecutive Vice PresidentChief Financial Officer(213) 891-1188
AT FINANCIAL PROFILES:Jeffrey HaasGeneral Information(310)
Financial Tables to Follow
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Quarter Ended
September 30,
June 30,
September 30,
2024
2024
2023
Interest income:
Loans, including fees
$
114,112
$
109,451
$
106,695
Investment securities
15,032
17,552
18,556
Fed funds sold
280
291
278
Total interest income
129,424
127,294
125,529
Interest expense:
Interest-bearing demand
23,211
24,205
20,257
Savings
84
79
67
Time certificates
35,956
35,578
29,369
FHLB borrowings
-
-
1,557
Subordinated debt
1,325
1,325
1,325
Total interest expense
60,576
61,187
52,575
Net interest income
68,848
66,107
72,954
Provision for credit losses
3,200
2,500
3,500
Net interest income after provision for
credit losses
65,648
63,607
69,454
Noninterest income:
Fees & service charges on deposit accounts
747
819
939
Letters of credit fee income
1,959
1,749
1,412
BOLI income
108
105
103
Net gain on sale of loans
91
353
21
Other income
554
378
497
Total noninterest income
3,459
3,404
2,972
Noninterest expense:
Salary and employee benefits
13,525
12,944
13,008
Net occupancy expense
1,883
1,716
1,563
Business development and promotion expense
241
403
193
Professional services
1,816
1,832
1,423
Office supplies and equipment expense
435
477
395
Loss on sale of OREO, valuation allowance and related expense
1,915
29
140
Other
2,274
2,296
2,287
Total noninterest expense
22,089
19,697
19,009
Income before provision for income taxes
47,018
47,314
53,417
Income tax expense
13,635
13,722
15,225
Net income
$
33,383
$
33,592
$
38,192
Income per share available to common shareholders
Basic
$
2.50
$
2.51
$
2.74
Diluted
$
2.46
$
2.48
$
2.71
Weighted-average common shares outstanding
Basic
13,327,848
13,362,522
13,925,994
Diluted
13,544,273
13,548,400
14,105,915
Cash dividends per common share
$
0.70
$
0.70
$
0.55
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Nine Months Ended
September 30,
September 30,
Change
2024
2023
%
Interest income:
Loans, including fees
$
333,543
$
304,796
9.4
Investment securities
48,841
47,454
2.9
Fed funds sold
854
774
10.4
Total interest income
383,238
353,024
8.6
Interest expense:
Interest-bearing demand
69,706
53,701
29.8
Savings
238
153
55.6
Time certificates
105,864
71,399
48.3
FHLB borrowings
-
3,819
-100.0
%
Subordinated debt
3,975
3,975
0.0
Total interest expense
179,783
133,046
35.1
Net interest income
203,455
219,978
-7.5
%
Provision for credit losses
10,100
6,500
55.4
Net interest income after provision for credit losses
193,355
213,478
-9.4
%
Noninterest income:
Fees & service charges on deposit accounts
2,411
2,477
-2.7
%
Letters of credit fee income
5,211
4,312
20.8
%
BOLI income
318
307
3.3
%
Net loss on called and sale of investment securities
-
(4,117
)
-100.0
%
Net gain on sale of loans
547
547
-0.1
%
Other income
1,441
1,481
-2.7
%
Total noninterest income
9,928
5,007
98.3
%
Noninterest expense:
Salary and employee benefits
40,369
39,256
2.8
%
Net occupancy expense
5,310
4,513
17.7
%
Business development and promotion expense
910
498
82.7
%
Professional services
5,105
3,915
30.4
%
Office supplies and equipment expense
1,385
1,197
15.7
%
Loss on sale of OREO, valuation allowance and related expense
2,079
3,050
-31.8
%
Other
6,656
6,332
5.1
%
Total noninterest expense
61,814
58,761
5.2
%
Income before provision for income taxes
141,469
159,724
-11.4
%
Income tax expense
41,028
45,523
-9.9
%
Net income
$
100,441
$
114,201
-12.0
%
Income per share available to common shareholders
Basic
$
7.50
$
8.01
-6.4
%
Diluted
$
7.39
$
7.92
-6.7
%
Weighted-average common shares outstanding
Basic
13,399,487
14,257,005
-6.0
%
Diluted
13,587,820
14,418,939
-5.8
%
Dividends per share
$
2.10
$
1.65
27.3
%
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
September 30,
December 31,
2024
2023
(Unaudited)
(Audited)
Assets
Cash and due from banks
$
782,394
$
890,852
Fed funds sold
22,600
20,000
Cash and cash equivalents
804,994
910,852
Securities held-to-maturity, at amortized cost
20,311
21,171
Securities available-for-sale, at fair value
337,363
313,842
Loans held for sale, at lower of cost or fair value
225
360
Loans
5,571,579
5,273,498
Less allowance for credit losses
(76,051
)
(78,355
)
Less amortized deferred loan fees, net
(10,414
)
(11,079
)
Loans, net
5,485,114
5,184,064
Other real estate owned and repossessed assets
15,082
16,716
Customers' liability on acceptances
-
315
Bank furniture and fixtures, net
9,195
9,694
Bank-owned life insurance
10,364
10,632
Accrued interest receivable
35,562
33,892
Investment in affordable housing partnerships
58,009
65,276
Federal Home Loan Bank stock, at cost
15,000
15,000
Deferred tax assets
46,209
48,991
Income tax receivable
1,013
2,391
Operating lease right-of-use assets
30,489
22,050
Other assets
3,414
4,030
Total assets
$
6,872,344
$
6,659,276
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand deposits
$
682,859
$
786,995
Interest bearing deposits:
1,994,288
2,075,156
Savings
29,793
29,167
Time certificates of $250,000 or more
1,478,500
1,317,862
Other time certificates
1,682,324
1,500,162
Total deposits
5,867,764
5,709,342
Acceptances outstanding
-
315
Subordinated debt issuance, net
148,410
148,232
Commitments to fund investment in affordable housing partnerships
23,617
30,824
Operating lease liabilities
26,730
19,766
Accrued interest payable
16,001
16,124
Other liabilities
39,705
39,568
Total liabilities
6,122,227
5,964,171
Shareholders' equity
750,117
