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July 17, 2019, 4:01 p.m. EDT

Preferred Bank Reports Quarterly Earnings

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LOS ANGELES, July 17, Jul 17, 2019 (GLOBE NEWSWIRE via COMTEX) -- Preferred Bank /zigman2/quotes/210374414/composite PFBC +1.13% , an independent commercial bank, today reported results for the quarter ended June 30, 2019. Preferred Bank ("the Bank") reported net income of $20.0 million or $1.31 per diluted share for the second quarter of 2019. This compares favorably to net income of $17.4 million or $1.14 per diluted share for the second quarter of 2018 and also favorably to net income of $18.7 million or $1.23 per diluted share for the first quarter of 2019.

Highlights from the second quarter of 2019:







          ? Year-over-Year Earnings Growth       14.8%
          ? Year-over-Year EPS Growth            15.0%
          ? Return on Assets                     1.89%
          ? Return on Beginning Equity           18.54%
          ? Efficiency Ratio                     31.68%
          ? Net Interest Margin                  4.07%
          ? Loan Growth - LQ, Non-annualized     5.31%
        


Li Yu, Chairman and CEO, commented, "This quarter's highlight was our loan production. Sequentially, total loans increased $181 million or 5.3%. Fluctuations in credit line usage and loan pay-off activity accounted for some of the increase, but organic loan originations was one of the best in recent periods.

"Conversely, our total deposits decreased $43 million or 1.2% sequentially. One of the reasons for the decrease was higher drawdowns on bank accounts by our commercial customers, which is echoed by the higher credit line usage discussed above. During the quarter, we pro-actively reduced interest rates on deposits ahead of much of our competition, which also may have also cost us some opportunities.

"We are pleased with the quarterly net income of $20.0 or $1.31 per share. This number compares well with the prior quarter and with the same quarter last year. Our net interest margin came in at 4.07%, which met our expectations. The Bank's efficiency ratio for the quarter was 31.7%, so costs remain well under control and credit quality remains stable. Our ROA and ROE (beginning) for the quarter were 1.89% and 18.54%, respectively.

"As has always been the case, we remain focused on managing the Bank's interest rate risk. As of June 30, 2019, roughly two-thirds of our loan portfolio are floating rate loans (mostly Prime indexed) with a floor. With new production at current market rates and pay-offs of old loans and their associated lower floor rates, the overall floors are being continuously updated. Also important for interest rate risk, third quarter CD maturities will now be renewing at approximately our current average cost.

"We recently announced the approval of a $30 million stock repurchase plan, which will allow us the opportunity to return more capital to our shareholders and manage our capital more effectively."

Income Statement Summary

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $41.8 million for the second quarter of 2019. This is up 11.9% over the $37.4 million recorded in the second quarter of 2018 and up over the $40.9 million recorded in the first quarter of 2019. The increase over the same period last year is due primarily to loan and overall asset growth. In comparing to the first quarter of 2019, strong loan growth mainly fueled the increase in net interest income. The Bank's taxable equivalent net interest margin was 4.07% for the second quarter of 2019, flat compared to the second quarter of 2018 and a 5 basis point decrease from the 4.12% posted in the first quarter of 2019. The decline in the margin was due to total deposit costs which rose by 12 basis points partially offset by an increase in earning asset yields of 4 basis points.

Noninterest Income. For the second quarter of 2019, noninterest income was $1,985,000 compared with $1,756,000 for the same quarter last year and compared to $1,861,000 for the first quarter of 2019. The increase over last year is primarily due to service charges on deposits and LC fee income which were both up fairly sharply, partially offset by a gain on the call of investment securities of $112,000 which occurred in the second quarter of 2018. The increase over the prior quarter is mainly due to service charges on deposits and other income which were both up over last quarter.

Noninterest Expense. Total noninterest expense was $13.9 million for the second quarter of 2019, an increase of around $80,000 over the same period last year but a sharp decrease from $15.7 million recorded in the first quarter of 2019. The primary reason for the linked quarter decrease was the $1.4 million loss on sale of the New York OREO properties in the first quarter of 2019. Salaries and benefits expense totaled $9.5 million for the second quarter of 2019, an increase of $672,000 over the $8.8 million recorded in the second quarter of 2018 and a decrease from the $9.8 million recorded in the first quarter of 2019. The increase over last year is due mainly to normal merit increases and additional relationship officers, while the decrease from the prior quarter is due mainly to payroll taxes, which spike in the first quarter as annual incentive awards are paid out. Occupancy expense totaled $1.3 million for the quarter and was essentially flat from the $1.3 million recorded in the second quarter of 2018 but was up by $122,000 over the prior quarter. In the first quarter of 2019, the Bank recorded a small benefit of $229,000 due to the implementation of the new Lease Accounting Standard, ASC 842. Professional services expense was $1.1 million for the second quarter of 2019 compared to $1.7 million for the same quarter of 2018 and $1.3 million recorded in the first quarter of 2019. The decrease from the prior year is due primarily to lower information technology costs as the Bank converted to a new core I.T. system last year. The decrease from the prior quarter is mainly due to a decrease in legal fees as the Bank's previously-owned OREO properties have all been divested, thus incurring no more fees. Other expenses were $1.4 million for the second quarter of 2019 compared to $1.3 million for both the second quarter of 2018 and the first quarter of 2019.

Balance Sheet Summary

Total gross loans and leases at June 30, 2019 were $3.59 billion, an increase of $252.3 million or 7.6% over the total of $3.33 billion as of December 31, 2018. On a linked-quarter basis, total loans grew by $180.7 million or 5.3%. Total deposits increased by $37.3 million or 1.0% over the $3.64 billion as of December 31, 2018. Total deposits for the second quarter declined by $42.8 million on a linked quarter basis. Total assets reached $4.29 billion as of June 30, 2019, an increase of $78.0 million or 1.9% 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 second quarter of 2019. This represents an effective tax rate ("ETR") of 29.5% and consistent with the ETR of 29.5% for the first quarter of 2019. This is up, however from the 28.0% ETR recorded in the second quarter of 2018. The Bank's ETR may fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Asset Quality

As of June 30, 2019, nonaccrual loans totaled $3.4 million, a decrease from the $3.6 million as of March 31, 2019 and down significantly from the total of $44.8 million as of December 31, 2018 due to the sale of the New York NPA's in the first quarter of 2019. As of June 30, 2019, total classified loans stood at $7.4 million compared to $46.2 million as of December 31, 2018.

Total net recoveries for the second quarter of 2019 were $315,000 compared to $330,000 in the first quarter of 2019 and compared to $2,000 for the second quarter of 2018. The Bank recorded a provision for loan loss of $1.6 million for the second quarter of 2019, compared to $1.2 million in the second quarter of 2018 and compared to $500,000 recorded in the first quarter of 2019. The allowance for loan loss at June 30, 2019 was $33.8 million or 0.94% of total loans compared to $31.1 million or 0.93% of total loans at December 31, 2018.

Capitalization

As of June 30, 2019, the Bank's leverage ratio was 10.50%, the common equity tier 1 capital ratio was 10.53% and the total capital ratio was 13.74%. 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 13.77%.

Conference Call and Webcast

/zigman2/quotes/210374414/composite
US : U.S.: Nasdaq
$ 52.67
+0.59 +1.13%
Volume: 47,295
Oct. 18, 2019 4:00p
P/E Ratio
10.40
Dividend Yield
2.28%
Market Cap
$807.18 million
Rev. per Employee
$777,817
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