Preferred Bank (PFBC) reported a strong second quarter with net income of $33.6 million, or $2.48 per share, driven by growth in loans and deposits. Despite an increase in non-performing loans and some write-offs, the bank remains positive about its risk protection measures and future profits.
Looking ahead, Preferred Bank predicts limited loan demand in the third quarter, but expects a pick-up in the fourth quarter with potential rate cuts.
Most important lessons
- Preferred Bank reported second-quarter net income of $33.6 million, or $2.48 per share.
- The bank experienced annual growth in lending of 8% and an annual increase of 5% in deposits.
- It recorded a $9 million charge and a $22 million increase in non-performing loans.
- Preferred Bank is seeking reauthorization for a $77.5 million share buyback program.
- The bank’s TCE ratio improved by 53 basis points.
- Loan demand is expected to be weak in the third quarter, but may improve in the fourth quarter thanks to possible interest rate cuts.
- Preferred Bank reduced its variable-rate loans while increasing its fixed-rate loans, with 21% of variable-rate loans having floors and 98% of variable-rate loans secured with floors.
Company Outlook
- Loan demand may be limited in the third quarter, but may increase in the fourth quarter due to expected interest rate cuts.
- Growth in core deposits was primarily driven by existing customers, with future growth expected from new customers.
Bearish highlights
- The bank reported $9 million in defaults, primarily for a C&I loan and previously resolved home loans.
- An increase in non-performing loans of $22 million was noted, although the bank believes that these loans are well protected.
Highlights
- Preferred Bank has maintained uniform operating costs and income.
- The bank actively manages its balance sheet to reduce the sensitivity of assets.
Violations
- The bank is cautious about share buybacks due to current exchange rates.
Questions and answers
- There was discussion of deductions in connection with settled home loans, with some optimism about potential recovery through litigation.
- The bank said 21% of loan reductions were less than 100 basis points, and that percentage increased as loans were renewed.
- CD expirations should provide some relief in the coming quarters as interest rates have begun to decline.
In conclusion, Preferred Bank’s second quarter showed strength in key areas such as lending and deposit growth, while facing challenges related to delinquency and non-performing loans. The bank is optimistic about risk management and the potential for improved loan demand later this year. The focus remains on organic growth, dividends, share buybacks and strategic opportunities, with a cautious approach to share buybacks.
InvestingPro Insights
Preferred Bank (PFBC) has shown remarkable performance according to the latest data from InvestingPro. With a market cap of $1.21 billion and an adjusted P/E ratio of 8.37 for the trailing 12 months to Q1 2024, the bank is trading at a low P/E ratio relative to near-term earnings growth. This indicates that the stock may be undervalued given its earnings potential.
In addition, the bank has demonstrated its commitment to shareholder returns, not only by increasing its dividend for three consecutive years, but also by maintaining dividend payments for 11 consecutive years. The dividend yield is currently at 3.07%, which is very attractive.
InvestingPro’s tips that may be particularly relevant to investors include the company’s aggressive management buyout strategy and high shareholder returns. These actions reflect a management team that has confidence in the bank’s future and is committed to delivering value to its shareholders.
For investors who want more insight, other InvestingPro tips are available, including an analysis of the bank’s profitability and trends in share development. For example, Preferred Bank has performed strongly over the past week, month and three months with returns of 9.12%, 24.74% and 20.5% respectively. This indicates robust short-term results that may be of interest to momentum investors.
To access this information and more, investors can use the promo code PRONEWS24 to get up to 10% off a Pro annual subscription and a Pro+ annual or semi-annual subscription. A total of 15 additional InvestingPro Tips are available for Preferred Bank, providing comprehensive analysis for those considering investing in the company.
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