PFBC - Preferred Bank Reports Quarterly Results

LOS ANGELES, April 23, 2024 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC) , one of the larger independent California banks, today reported results for the quarter ended March 31, 2024. Preferred Bank (“the Bank”) reported net income of $33.5 million or $2.44 per diluted share for the first quarter of 2024. This represents a decrease in net income of $2.4 million or 6.6% from the prior quarter and down by $4.6 million from the same quarter last year. Despite the decrease in net income, Preferred Bank continues to deliver top-of-class profitability metrics and long term shareholder returns.

Highlights for the Quarter:

• Return on average assets was 2.00%
• Return on beginning equity of 19.36%
• Net interest margin was 4.19%
• Total deposits increased by $92 million or 1.62% for the quarter
• Total loans increased $52 million or 1.0% for the quarter
• Efficiency ratio was 28.0%

Li Yu, Chairman and CEO, commented, “We are pleased to report first quarter 2024 net income of $33.5 million or $2.44 per diluted share. For the quarter, loans grew $52 million and total deposits increased $92 million from December 31, 2023, which equates to annual growth rates of 4.0% and 6.5%, respectively. The Bank’s net interest margin for the quarter was 4.19% which was better than expected. This compares to a margin of 4.24% for the previous quarter and the slight decrease was primarily the result of higher deposit costs.

“At March 31, 2024 criticized loans were $86.6 million, an increase of $3.7 million from the $83.0 million as of December 31, 2023. Non-accrual loans decreased from $28.7 million at December 31, 2023 to $18.3 million at March 31, 2024. Charge-offs for the quarter were $3.4 million which were on two loans that had been previously identified as having loss content and fully reserved for. The Bank recorded a first quarter provision of $4.4 million. Allowance for loan loss reserve now stands at 1.49% of total loans.

“During the first quarter, we repurchased 256,986 shares of our common stock for a total consideration of $18.2 million.

“Our Bank opened a new Orange County, California Branch in January. This branch provides complete banking services, staffed with a deposit group and a lending group. As of today, we have signed a lease and are in the process of opening up a loan production office in Silicon Valley, California. We also plan to increase relationship staff in several current operating locations in the ensuing months.

“In view of the current moderately declining interest rate environment, we have made some adjustment to our loan portfolio by reducing the level of rate sensitivity to better balance with our deposit composition. We believe such adjustments will bring long term benefits to our Bank.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $68.5 million for the first quarter of 2024. This was a decrease from the $73.7 million recorded in the same quarter last year and down slightly from the $69.4 million posted in the fourth quarter of 2023. The Bank’s taxable equivalent net interest margin declined by 5 basis points to 4.19%, from 4.24% last quarter. Although the NIM compressed this quarter, it held up much better than anticipated. Comparing to the same quarter last year, which was the Bank’s peak NIM in this cycle, the margin was down by 58 basis points from the 4.77% NIM posted in the first quarter of 2023.

Noninterest Income. For the first quarter of 2024, noninterest income (loss) was $3.1 million compared with ($1.1) million for the same quarter last year and compared to $2.1 million for the fourth quarter of 2023. The increase over the prior quarter was primarily due to a $929,000 loss on sale of approximately $29 million in investment securities in the fourth quarter of 2023. This was done to reposition a part of the portfolio into higher-yielding instruments. In comparing to the same quarter last year; service charges on deposits and LC fee income were both up over last year and gains in loan sales were down. In addition, the Bank incurred a $4.1 million loss last year on the sale of the Bank’s Signature Bank bond with no such loss this year.

Noninterest Expense . Total noninterest expense was $20.0 million for the first quarter of 2024 compared to $17.9 million for the fourth quarter of 2023 and compared to the $18.9 million recorded in the same period last year. Comparing this quarter to the first quarter of last year, the major variances were: professional services was up by $308,000 due to increased legal fees, occupancy expense was up by $237,000 due to our new location and personnel expense increased by $172,000. In comparing the first quarter of 2024 to the prior quarter; personnel expense increased by $1.8 million, occupancy expense was up by $175,000 and OREO expense declined by $159,000. For the quarter ended March 31, 2024, the Bank’s efficiency ratio was 28.0%, off from the 25.0% posted last quarter and off from the 26.0% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $13.7 million for the first quarter of 2024. This represents an effective tax rate (“ETR”) of 29.0%, up from the ETR of 28.5% recorded in both comparable periods. 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 March 31, 2024 were $5.33 billion, an increase of $52.4 million from the total of $5.27 billion as of December 31, 2023. Total deposits increased to $5.80 billion from the $5.71 billion as of December 31, 2023, an increase of $92.4 million. Total assets were $6.76 billion, an increase of $96.9 million over the total of $6.66 billion as of December 31, 2023.

Asset Quality

As of March 31, 2024, nonaccrual loans declined to $18.3 million, down from the $28.7 million as of December 31, 2023. The decrease was primarily due to the sale of notes of a certain borrower relationship for which the Bank received principal at par. OREO and repossessed assets totaled $16.7 million as of March 31, 2024, no change from December 31, 2023. Criticized loans increased slightly from $83.0 million as of December 31, 2023 to $86.6 million as of March 31, 2024. Total net charge-offs (recoveries) were $3.4 million for the first quarter of 2024 as compared to net recoveries of ($6,000) last quarter and compared to $43,000 for the first quarter last year. Management is acutely aware that commercial real estate is under some pressure given the rise in interest rates over the past year and the work from home dynamic that has impacted office property values. However in reviewing the portfolio, this weakness has yet to appear. We will be vigilant going forward.

Allowance for Credit Losses

The provision for credit losses for the first quarter of 2024 was $4.4 million compared to $3.5 million last quarter and compared to $500,000 in the same quarter last year. The aforementioned charge-offs recorded during the quarter as well as loan growth were the primary drivers of the provision for the quarter. The Bank’s allowance coverage ratio remains unchanged at 1.49% of total loans.

Capitalization

As of March 31, 2024, the Bank’s leverage ratio was 10.80%, the common equity tier 1 capital ratio was 11.50% and the total capital ratio stood at 15.08%. 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 first quarter 2024 financial results will be held tomorrow, April 23, 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 May 7, 2024; the passcode is 9065569.

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. 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 .

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