Market Overview

Preferred Bank Reports Record Quarterly Earnings

Share:

LOS ANGELES, April 19, 2018 (GLOBE NEWSWIRE) --

Preferred Bank (NASDAQ:PFBC), an independent commercial bank, today reported results for the quarter ended March 31, 2018. Preferred Bank ("the Bank") reported net income of $16.6 million or $1.09 per diluted share for the first quarter of 2018. This compares to net income of $10.3 million or $0.71 per diluted share for the first quarter of 2017 and compares to net income of $7.7 million or $0.52 per diluted share for the fourth quarter of 2017. Net income for the fourth quarter of 2017 was negatively impacted by a charge recorded to the Bank's deferred tax asset ("DTA") of $6.7 million as a result of the passage of the Tax Cuts and Jobs Act.

Highlights from the first quarter of 2018:

 
  • Return on Assets
  1.85%  
 
  • Return on Beginning Equity
  18.97%  
 
  • Linked quarter loan growth
  5.26%  
 
  • Efficiency ratio
  36.4%  
 
  • Net interest margin
  4.14%  

Li Yu, Chairman and CEO commented, "Our first quarter 2018 net income of $16.6 million or $1.09 per diluted share is a record for the Bank.  The quarter compares very well with prior quarters in every aspect of the Bank's operations.  A reduced tax rate, an increased net interest margin and an increase in total loans are the primary reasons for this quarter's strong performance.

"Loan growth was $154.6 million or 5.3% in the first quarter.  Included in this growth was a $36 million home mortgage portfolio that we purchased as we continue to diversify our loan portfolio.

"Deposits did not grow during the quarter.  During the first two months of the quarter, we were not increasing our deposit rates as market rates were rising. This was primarily due to the large amount of liquidity on our balance sheet as of year end ($555 million).  The change of loan / deposit mix, therefore, produced margin expansion that was greater than expected.  For the quarter, our net interest margin ("NIM") was 4.14%, a 28 basis point improvement from the previous quarter.

"As there is now more competition among banks and as fintech begins to compete with banks, we plan to accelerate the buildup of our loan / deposit professionals as well as improvements in our technology.  We are currently in the middle of converting our core processing system to one with much greater capabilities.

"We have recently decided to terminate the process of raising new capital by using the ‘At The Market or ATM' method.  With the new tax rate and improving margin, our operating results should generate sufficient profitability to sustain our capital levels that will be required by our planned growth."

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $36.1 million for the first quarter of 2018. This compares favorably to the $28.4 million recorded in the first quarter of 2017 and to the $34.6 million recorded in the fourth quarter of 2017. The increase over last year is due primarily to growth in interest income on loans partially offset by an increase in interest expense on deposits. The Bank's taxable equivalent net interest margin was 4.14% for the first quarter of 2018, a 47 basis point increase over the 3.67% achieved in the first quarter of 2017 and a 28 basis point increase over the fourth quarter of 2017. This was primarily due to an increase in overall loan yields as the Bank fully benefitted from the December 2017 Prime rate increase and partially benefitted from the March 2018 rate hike. In addition to this, the Bank's deposits did not grow during the first quarter (and were down during most of the quarter) due mainly to the significantly higher market deposit rates being paid in the market and the Bank's large stockpile of cash on hand. Deposit growth was not a priority in this environment so the Bank used existing cash to fund loan growth and this shift in mix of assets greatly aided the net interest margin.

Noninterest Income. For the first quarter of 2018, noninterest income was $1,562,000 compared with $2,090,000 for the same quarter last year and compared to $1,215,000 for the fourth quarter of 2017. The decrease from the first quarter of 2017 is primarily due to OREO Income of $345,000 recorded in the first quarter of 2017. Service charges on deposits were up slightly over the fourth quarter of 2017 but below the $353,000 recorded in the first quarter of 2017. Letter of credit income totaled $991,000 for the first quarter of 2018, up from both the $795,000 recorded in the first quarter of 2017 and over the $627,000 posted in the fourth quarter of 2017.

Noninterest Expense. Total noninterest expense was $13.7 million for the first quarter of 2018, an increase of $1,953,000 over the fourth quarter of 2017 and an increase of $551,000 from the $13.2 million recorded in the first quarter of 2017. Salaries and benefits expense totaled $8.6 million for the first quarter of 2018, an increase of $1,646,000 over the $7.0 million recorded for the fourth quarter of 2017 and an increase of $1,118,000 over the $7.5 million recorded in the first quarter of 2017. The increase over both periods is due to staffing increases and higher merit increases due to the Tax Cuts and Jobs Act. Occupancy expense totaled $1.3 million for the quarter, an increase of $156,000 over the $1.2 million recorded in the same period in 2017 and an increase of $49,000 over the fourth quarter of 2017. The increase over the same period last year is due to the new San Francisco branch office which opened in January of 2018 as well as the leasing of additional space in the Bank's administrative offices in El Monte, California. Professional services expense was $1.4 million for the first quarter of 2018 compared to $1.2 million for both the same quarter of 2017 and the fourth quarter of 2017. The increase over both periods is for the partial cost ($507,000) for de-conversion files from the Bank's current core processor as the Bank prepares to convert its core processing systems in July of 2018 to a new core processor. The Bank expects to incur further costs for de-conversion files in both the second and third quarters of 2018. Other expenses were $1.7 million for the first quarter of 2018 compared to $1.6 million for the fourth quarter of 2017 and $2.6 million for the first quarter of 2017. The decrease from the first quarter of 2017 was mainly due to the $1.5 million legal settlement reserve the Bank recorded in that period last year. Also included in the $1.7 million in other expense is a $300,000 provision for off balance sheet reserve for unfunded loans. Other expense in the first quarter of 2017 also included a provision for off balance sheet reserve of $120,000.

Income Taxes

The Bank recorded a provision for income taxes of $5.9 million for the first quarter of 2018. This represents an effective tax rate ("ETR") of 26.1% and is down significantly from the ETR of 35.2% for the first quarter of 2017. The ETR for the fourth quarter was 65.7% and included $6.7 million in DTA charges related to the Tax Cuts and Jobs Act.The decrease in the ETR from the first quarter of 2017 to the current quarter was mainly due to the lowered Federal Corporate tax rate from 35% to 21% as mandated by the Tax Cuts and Jobs Act.

Balance Sheet Summary

Total gross loans and leases at March 31, 2018 were $3.10 billion, an increase of $154.6 million or 5.3% over the total of $2.94 billion as of December 31, 2017. Total deposits dipped by $1 million from the $3.26 billion as of December 31, 2017. Total assets reached $3.78 billion as of March 31, 2018, an increase of $12.1 million or 0.32% over the total of $3.77 billion as of December 31, 2017.

Asset Quality

Loans
As of March 31, 2018 nonaccrual loans totaled $3.3 million, a decrease of $3.2 million over the $6.5 million total as of December 31, 2017. Total net charge-offs for the first quarter of 2018 were $2.9 million compared to net charge-offs of $334,000 in the fourth quarter of 2017 and compared to net charge-offs of $121,000 for the first quarter of 2017. The charge off this quarter represented 50% of the book value of the Bank's C&I nonaccrual loan as the grading was reduced from substandard to doubtful during the quarter. This charge-off amount was already reserved for against this loan in prior quarters. This credit has been paying as agreed for many years but missed scheduled principal reductions due to the bankruptcy of this client's customer. Interest payments are continuing and the likelihood of a loan recovery may occur when the borrower resumes principal payments. The Bank recorded a provision for loan loss of $1.5 million for the first quarter of 2018, compared to the same amount in both comparable quarters. The allowance for loan loss at March 31, 2018 was $28.6 million or 0.92% of total loans compared to $29.9 million or 1.02% of total loans at December 31, 2017. The percentage reduction is partially due to the $36 million mortgage pool purchase which was purchased at fair market value, thus requiring no allowance.

OREO

As of March 31, 2018 and December 31, 2017, the Bank held one OREO property, a $4.1 million multi-family property located outside of California.

Capitalization
As of March 31, 2018, the Bank's leverage ratio was 10.07%, the common equity tier 1 capital ratio was 10.03% and the total capital ratio was 13.58%. As of December 31, 2017, the Bank's leverage ratio was 9.52%, the common equity tier 1 ratio was 10.07% and the total risk based capital ratio was 13.83%.

Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2018 financial results will be held tomorrow, April 20, 2018 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. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman and CEO Li Yu,  President and COO Wellington Chen, Chief Financial Officer Edward J. Czajka, and Chief Credit Officer Nick Pi will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in 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 May 4 2018; the passcode is 10119003.

About Preferred Bank 
Preferred Bank is one of the larger independent commercial banks 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 Company conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in the California cities of Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2), and one office in Flushing, New York. 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 2016 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.

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 
          March 31,   December 31,   March 31,
            2018       2017       2017  
 Interest income:             
   Loans, including fees    $   40,293     $   38,456     $   31,919  
   Investment securities        2,950         3,198         2,482  
   Fed funds sold        409         347         231  
     Total interest income        43,652         42,001         34,632  
                   
 Interest expense:             
   Interest-bearing demand        2,422         2,229         1,465  
   Savings        16         17         21  
   Time certificates        3,520         3,641         3,108  
   FHLB borrowings        19      
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com