LOS ANGELES, Jan 22, 2020 (GLOBE NEWSWIRE via COMTEX) -- Preferred Bank /zigman2/quotes/210374414/composite PFBC -1.91% , an independent commercial bank, today reported results for the quarter and year ended December 31, 2019. Preferred Bank ("the Bank") reported net income of $19.6 million or $1.31 per diluted share for the fourth quarter of 2019. This is down slightly from last quarter's net income of $20.0 million or $1.32 per diluted share but compares quite favorably to net income of $18.7 million or $1.22 per diluted share posted in the fourth quarter of 2018. The decrease from the prior quarter is due to net interest income which decreased mainly due to the Federal Open Market Committee ("FOMC") rate cuts in September and late October of 2019, which impacted the Bank's loan yields.
For the year ended December 31, 2019, Preferred Bank posted net income of $78.4 million or $5.16 per diluted share. This compares strongly to the $71.0 million or the $4.64 per diluted share recorded for 2018 and represents an increase in earnings per share of 11.3%. As of December 31, 2019, the Bank's total assets stood at $4.6 billion.
Highlights from the fourth quarter of 2019: -- Linked-quarter Deposit Growth 2.96% -- Linked-quarter Loan Growth 1.46% -- Return on Assets 1.74% -- Return on Beginning Equity 16.95% -- Efficiency Ratio 32.56% Highlights from Year: -- Annual Deposit Growth 9.44% -- Annual Loan Growth 11.75% -- Return on Assets 1.82% -- Return on Beginning Equity 18.81% -- Efficiency Ratio 33.26%
Li Yu, Chairman and CEO, commented, "Net income for the fourth quarter of 2019 was $19.6 million or $1.31 per diluted share. Net income for all of 2019 was $78.4 million or $5.16 per diluted share. Our quarterly and annual earnings exceeded our internal goals when considering the three rate cuts imposed by the FOMC during the third and fourth quarters.
Fourth quarter loan growth of $53 million, or 1.45% on a linked quarter basis likely reflects sluggish loan activities during the holiday season. For the year 2019, our total loan growth was $392 million or 11.75% increase from the end of 2018.
Fourth quarter deposit growth was $114 million or 3.0%. For the year, total deposit growth was $344 million or 9.4% over year end 2018 totals.
Negatively affected by the FOMC rate cuts in late September and October, our net interest margin for the quarter declined to 3.67%. For the year, the margin came in at 3.92%, a 16 basis point reduction from the 4.08% posted in 2018. Assuming no more rate cuts, we expect the margin to stabilize and gradually expand in early 2020.
Our cost control remains effective, the Bank's efficiency ratio came in at 32.6% for the fourth quarter and 33.3% for the year, which is among the top in the industry."
Income Statement Summary
Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $40.4 million for the fourth quarter of 2019. This is down from the $41.5 million recorded in the third quarter of 2019 and down from the $41.4 million posted in the fourth quarter of 2018. This is due to the three rate cuts imposed by the FOMC in early August, September and late October of 2019. As Preferred Bank's balance sheet is asset-sensitive, this had the impact of lowering loan yields faster than deposit costs could be lowered. The Bank's taxable equivalent net interest margin was 3.67%, down from the 3.84% recorded in the third quarter of 2019 and down from the 4.13% posted in the fourth quarter of 2018. 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 costs declined in the third quarter and fourth quarter of 2019 and that trend continues.
Noninterest Income. For the fourth quarter of 2019, noninterest income was $1,883,000 compared with $4,405,000 for the same quarter last year and compared to $1,737,000 for the third quarter of 2019. The decline from last year is primarily due to last year's gain on sale of OREO of $2.04 million and a legal recovery of $610,000 recorded in that period. The increase from the prior quarter is mainly due to other income which was up by $224,000 over the prior quarter due to various credit-related fees.
Noninterest Expense. Total noninterest expense was $13.8 million for the fourth quarter of 2019, flat when compared to the same period last year and down slightly from the $13.9 million posted in the third quarter of 2019. In comparing this quarter to last year, salary expense was up by $1.1 million but that was offset by a decline in professional services of $651,000, a decline in OREO expenses of $178,000 and a decline in other expense of $289,000. Salary expense increased due to a higher bonus accrual as well as a higher head count over last year. The decrease in professional services was due to lower legal fees and I.T. costs and the decrease in other expense was due to no FDIC premium expense recorded for the quarter when normally that cost would have been approximately $450,000. (As mentioned in the press release in the prior quarter, the FDIC's Deposit Insurance Fund ratio exceeded its target of 1.35% of insured deposits and so refunds were issued). The decrease in total noninterest expense from the prior quarter was primarily due to professional services which were down by $315.000.
Balance Sheet Summary
Total gross loans and leases (including loans held for sale) at December 31, 2019 were $3.72 billion, an increase of $391.2 million or 11.7% over the total of $3.33 billion as of December 31, 2018. On a linked-quarter basis, total loans grew by $53.5 million or 1.5%. Total deposits increased by $343.6 million or 9.4% over the $3.64 billion as of December 31, 2018. Total deposits for the third quarter increased by $114.3 million or 3.0% on a linked quarter basis. Total assets reached $4.63 billion as of December 31, 2019, an increase of $411.7 million or 9.8% over the total of $4.22 billion as of December 31, 2018.
The Bank recorded a provision for income taxes of $8.5 million for the fourth quarter of 2019. This represents an effective tax rate ("ETR") of 30.1% and slightly higher than the 29.5% ETR recorded in the third quarter of 2019. 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.
As of December 31, 2019, nonaccrual loans totaled $2.1 million, a decrease from the $3.8 million as of September 30, 2019 and down significantly from the total of $44.8 million as of December 31, 2018 due to the sale of two large non-performing assets in New York in the second quarter of 2019.