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Preferred Bank Reports Quarterly Earnings

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LOS ANGELES, Oct. 16, 2019 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ:PFBC), an independent commercial bank, today reported results for the quarter ended September 30, 2019. Preferred Bank ("the Bank") reported net income of $20.0 million or $1.32 per diluted share for the third quarter of 2019. This is slightly better than last quarter's $1.31 per diluted share but compares quite favorably to net income of $18.3 million or $1.20 per diluted share posted in the third quarter of 2018.

Highlights from the third quarter of 2019:

  • Linked-quarter Deposit Growth
5.22%
  • Linked-quarter Loan Growth
2.48%
  • Return on Assets
1.81%
  • Return on Beginning Equity
17.61%
  • Efficiency Ratio
32.16%

Li Yu, Chairman and CEO, commented, "We are pleased to report third quarter net income of $20.0 million or $1.32 per share.  A slight increase from second quarter in the face of two Fed interest rate reductions, which took place in the third quarter.

We had vibrant loan origination activity in the quarter, but actual growth was a net loan increase of $89 million or 2.48%, sequentially. This was partially due to client activity in the late second quarter, which we reported on in our second quarter earnings release.  Heavy drawdowns of commercial and industrial credit lines by many of our customers at the end of the second quarter were largely repaid in early July.

Deposit activity in the third quarter was very strong, as we grew deposits by $192 million or 5.22% sequentially (20.88% annualized).  Core deposit growth accounted for all of the growth during the quarter.

For the nine months ended September 30, 2019, our total loans increased $341 million or 13.6% on an annualized basis and total deposits increased by $229 million or 8.4% annualized.

Net interest margin for the quarter was 3.84%, 23 basis points less than the previous quarter due to the two rate cuts during the quarter.  We have been and will continue to focus on managing our interest costs.

Credit quality remained stable. Non-performing loans now stand at $6.8 million. Expenses continues to be under control with our efficiency ratio at 32.16%. As of September 30, 2019, we have bought back nearly 209,000 shares of common stock.  Total outstanding shares are now 15,091,657."

Income Statement Summary

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $41.5 million for the third quarter of 2019. This is up 5.7% over the $39.2 million recorded in the third quarter of 2018 but slightly down from the second quarter of 2019 total of $41.8 million. The increase over the same period last year is due primarily to loan and overall asset growth.  In comparing to the second quarter of 2019, the decision by the Federal Open Market Committee ("FOMC") electing to cut the fed funds rate twice during the quarter led to a reduction in the Bank's loan yields. The Bank's taxable equivalent net interest margin was 3.84%, down from both the 4.07% recorded for the second quarter of 2019 and the 4.04% posted for the same period last year. The decline in the margin was due to the decline in loan yields mentioned above as well as higher deposit costs than in 2018, although total deposit yield declined in the third quarter of 2019 from the second quarter.

Noninterest Income. For the third quarter of 2019, noninterest income was $1,737,000 compared with $1,676,000 for the same quarter last year and compared to $1,985,000 for the second quarter of 2019. The small increase over last year is primarily due to service charges on deposits and other income.  The decrease from the prior quarter is mainly due to a decrease in letters of credit fees this quarter.

Noninterest Expense. Total noninterest expense was $13.9 million for the third quarter of 2019, an increase of $314,000 over the same period last year and flat compared to the $13.9 million posted for the second quarter of 2019. The increase over last year is mainly due to salary and benefits expense as it increased by $1.1 million or 13.1%. Partially offsetting this increase were declines in professional services expense, OREO expense and other expense. When comparing to last quarter, salary expense was up slightly but other expense was lower primarily due to a decrease in FDIC premium expense. On September 30 of last year, the Deposit Insurance Fund Reserve Ratio reached 1.36% of all insured deposits, exceeding its target of 1.35%. Therefore, the FDIC is granting credits for prior premium assessments to smaller institutions. This had the effect of reducing FDIC premiums this quarter by $400,000 when compared to the second quarter of 2019 and by $360,000 when compared to the same period last year.  

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at September 30, 2019 were $3.67 billion, an increase of $341.1 million or 10.2% over the total of $3.33 billion as of December 31, 2018. On a linked-quarter basis, total loans grew by $88.8 million or 2.5%. Total deposits increased by $229.3 million or 6.3% over the $3.64 billion as of December 31, 2018. Total deposits for the third quarter increased by $192.0 million or 5.2% on a linked quarter basis. Total assets reached $4.50 billion as of September 30, 2019, an increase of $279.0 million or 6.6% over the total of $4.22 billion as of December 31, 2018.

Income Taxes

The Bank recorded a provision for income taxes of $8.4 million for the third quarter of 2019. This represents an effective tax rate ("ETR") of 29.5% and consistent with the ETR of 29.5% for the second quarter of 2019. This is up slightly from the 28.0% ETR recorded in the third quarter of 2018. The Bank's ETR may fluctuate slightly from quarter to quarter within a limited range due to the timing of taxable events throughout the year.

Asset Quality
As of September 30, 2019, nonaccrual loans totaled $3.8 million, a slight increase from the $3.4 million as of June 30, 2019 and down significantly from the total of $44.8 million as of December 31, 2018 due to the sale of two large NPA's in New York in the second quarter of 2019. In addition, the Bank had two loans totaling $3.0 million which were 90 days past due and still accruing interest. Both loans are well secured and were in the process of being renewed as of September 30, 2019. Both loans have since been renewed and are no longer 90 days past due. As of September 30, 2019, total classified loans stood at $8.2 million compared to $46.2 million as of December 31, 2018.

Total net charge-offs were $430,000 for the third quarter of 2019 compared to net recoveries of $315,000 for the second quarter of 2019 and compared to net recoveries of $314,000 for the third quarter of 2018.  The Bank recorded a provision for loan loss of $900,000 for the third quarter of 2019, compared to $1.88 million in the third quarter of 2018 and compared to $1.6 million recorded in the second quarter of 2019. The allowance for loan loss at September 30, 2019 was $34.3 million or 0.93% of total loans compared to $31.1million or 0.93% of total loans at December 31, 2018.

Capitalization
As of September 30, 2019, the Bank's tier 1 leverage ratio was 10.27%, the common equity tier 1 capital ratio was 10.40% and the total capital ratio was 13.53%. As of December 31, 2018, the Bank's leverage ratio was 10.16%, the common equity tier 1 ratio was 10.43% and the total risk-based capital ratio was 13.72%.

Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's third quarter 2019 financial results will be held later today 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 Chief Executive Officer Li Yu, President and Chief Operating Officer 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 October 30, 2019; the passcode is 10135958.

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 eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch 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 2018 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can also 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.

 
 
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,
          2019       2019       2018  
Interest income:          
  Loans, including fees $ 52,862     $ 52,844     $ 46,130  
  Investment securities   4,875       4,707       3,734  
  Fed funds sold   222       271       528  
    Total interest income   57,959       57,822       50,392  
                 
Interest expense:          
  Interest-bearing demand   4,904       4,819       3,911  
  Savings   13       13       15  
  Time certificates   10,034       9,612       5,684  
  FHLB borrowings   -       7       14  
  Subordinated debit   1,531       1,530       1,531  
    Total interest expense   16,482       15,981       11,155  
    Net interest income   41,477       41,841       39,237  
Provision for loan losses   900       1,600
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