LOS ANGELES, Oct 16, 2019 (GLOBE NEWSWIRE via COMTEX) -- Preferred Bank /zigman2/quotes/210374414/composite PFBC -1.36% , 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.
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.