Preferred Bank Reports Second Quarter Results
LOS ANGELES, July 21, 2025 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ:PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2025. Preferred Bank ("the Bank") reported net income of $32.8 million or $2.52 per diluted share for the second quarter of 2025. This represents an increase in net income of $2.8 million from the prior quarter and a small decrease of $745,000 from the same quarter last year. The increase compared to the prior quarter was mainly due to an increase in net interest income as there was a $2.8 million reversal of interest income which occurred in the first quarter of 2025. The decrease from the same quarter last year was due mainly to an increase in noninterest expense, which was up by $2.8 million, which was due to a $1.3 million write down of the Bank's Santa Barbara OREO property.
Highlights for the Quarter:
Return on average assets was 1.85%
Return on average equity was 17.55%
Total loans increased by $105.2 million or 1.9%, linked quarter
The efficiency ratio was 31.79%
Li Yu, Chairman and CEO, commented, "We are pleased to report our results for the second quarter of 2025. We recorded net income of $32.8 million or $2.52 per fully diluted share. This quarter we had an increase in our loan portfolio of 1.8% (linked quarter), however, deposits only increased slightly. The Bank's net interest margin improved to 3.85%. Last quarter we reported a net interest margin of 3.75% which was negatively impacted by an outsized interest reversal.
Our credit quality is trending positively, non-accrual loans decreased from $78.9 million as of March 31, 2025 to $51.2 million at June 30, 2025. Total criticized loans also decreased by a similar amount. Likewise, 30, 89 days past due loans are trending positively, too.
The uncertainty caused by the tariffs is beginning to clear up, and together with a new budget we now have a better picture of our operating environment. We look forward to be able to plan for the Bank's future."
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $66.9 million for the second quarter of 2025. This represents a $4.2 million increase over the $62.7 million recorded in the prior quarter and a $767,000 increase over the same quarter last year. The increase compared to the prior quarter was due to a $2.8 million reversal of interest income in the prior quarter due to the recognition of two non-accrual loans. The increase over the same period last year was due primarily to loan growth and growth in the investment portfolio, partially offset by growth in deposits. Interest expense decreased by $7.6 million from the second quarter of 2024 due to lower deposit rates but increased over the prior quarter due to deposit growth and FHLB borrowings expense. During the second quarter of 2025, the Bank borrowed $200 million in term borrowings from the FHLB and invested the funds in U.S. Treasuries to lock in an interest spread. Because the spread on the borrowings and the U.S. Treasuries was less than the Bank's net interest margin, it has the effect of compressing the margin but does increase net interest income. The Bank's net interest margin came in at 3.85% for the quarter, this is up from the 3.75% posted last quarter but down from the 3.96% margin achieved in the second quarter of the prior year.
Noninterest Income. For the second quarter of 2025, noninterest income was $3.8 million compared with $3.4 million for the same quarter last year and compared to $4.0 million for the first quarter of 2025. The increase over the same quarter last year was due to letter of credit (LC) fee income which was up by $584,000. In comparison to the prior quarter, other income was down by $142,000 and gains on SBA loan sales were down by $103,000.
Noninterest Expense. Total noninterest expense was $22.5 million for the second quarter of 2025 compared to $23.4 million for the first quarter of 2025 and compared to the $19.7 million recorded in the same period last year. The primary reason for the decrease from the prior quarter was mainly due to personnel expense which decreased by $592,000. The decrease was due to payroll taxes which spike in the first quarter due to the payout of incentive compensation. In comparing to the same quarter last year, personnel expense was up by $1.3 million, occupancy expense was up by $555,000 and OREO expense was up by $1.5 million due to a valuation charge of $1.3 million related to the OREO property in Santa Barbara. Salary expenses increased over the same quarter last year due mainly to an increase in personnel and merit increases as well as a decrease in loan origination cost deferrals.
Income Taxes. The Bank recorded a provision for income taxes of $13.7 million for the second quarter of 2025. This represents an effective tax rate ("ETR") of 29.5% which is up from the 29.0% ETR for the same quarter last year and the same as the 29.5% ETR recorded in the prior quarter. 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 June 30, 2025 were $5.74 billion, an increase of $99.0 million from the total of $5.64 billion as of December 31, 2024. Total deposits were $6.08 billion, an increase of $161.5 million from the $5.92 billion as of December 31, 2024. Total assets were $7.28 billion, an increase of $355.3 million over the total of $6.92 billion as of December 31, 2024.
Asset Quality
Non-accrual loans and loans 90 days or more past due and still accruing totaled $52.3 million as of June 30, 2025. This represents a decrease from the prior quarter of $26.6 million as the Bank sold one of the two larger non-accrual loans during the quarter, at par. The other significant non-accrual loan of $37.1 million is in bankruptcy and as previously mentioned, the Bank does not expect any loss content on the resolution of this loan. Total net charge-offs (recoveries) for the quarter were $44,000 compared to net recoveries of ($97,000) in the prior quarter. In addition to that, the Bank wrote down the value of its OREO property in Santa Barbara by $1.3 million, reflecting the proposed net proceeds of the most recent sales contract that the Bank was involved in, which sale did not materialize. Total criticized loans decreased to $104.5 million from $129.2 million reported in the prior quarter.
Allowance for Credit Losses
The provision for credit losses for the second quarter of 2025 was $1.6 million compared to $700,000 last quarter and compared to $2.5 million in the same quarter last year. The Bank's allowance coverage ratio increased to 1.29% of loans as compared to 1.28% in the prior quarter.
Capitalization
As of June 30, 2025, the Bank's tangible capital ratio was 10.26%, the leverage ratio was 10.73%, the common equity tier 1 capital ratio was 11.18% and the total capital ratio stood at 14.43%. As of December 31, 2024, the Bank's tangible capital ratio was 11.02%, the Bank's leverage ratio was 11.33%, the common equity tier 1 ratio was 11.80% and the total capital ratio was 15.11%.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's second quarter 2025 financial results will be held this afternoon July 21, 2025 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 888-243-4451 (domestic) or 412-542-4135 (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 July 28, 2025; the passcode is 9171084.
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)), two branches in New York (Manhattan and Flushing, Queens) and a branch office in the Houston, Texas suburb of Sugar Land. In addition, the Bank also operates a loan production office in Sunnyvale, California. 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 2024 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.
AT THE COMPANY:
AT FINANCIAL PROFILES:
Edward J. CzajkaExecutive Vice PresidentChief Financial Officer(213) 891-1188
Jeffrey HaasGeneral Information(310)
Financial Tables to Follow
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Quarter Ended
June 30,
March 31,
June 30,
2025
2025
2024
Interest income:
Loans, including fees
$
105,884
$
101,491
$
109,451
Investment securities
14,326
12,810
17,552
Fed funds sold
233
228
291
Total interest income
120,443
114,529
127,294
Interest expense:
Interest-bearing demand
16,171
16,590
24,205
Savings
71
69
79
Time certificates
34,932
33,887
35,578
FHLB borrowings
1,070
-
-
Subordinated debt
1,325
1,325
1,325
Total interest expense
53,569
51,871
61,187
Net interest income
66,874
62,658
66,107
Provision for credit losses
1,600
700
2,500
Net interest income after provision for credit losses
65,274
61,958
63,607
Noninterest income:
Fees & service charges on deposit accounts
635
716
819
Letters of credit fee income
2,333
2,244
1,749
BOLI income
104
103
105
Net gain on sale of other real estate owned
12
-
-
Net gain on sale of loans
172
275
353
Other income
518
660
378
Total noninterest income
3,774
3,998
3,404
Noninterest expense:
Salary and employee benefits
14,247
14,839
12,944
Net occupancy expense
2,271
2,294
1,716
Business development and promotion expense
240
462
403
Professional services
1,507
1,651
1,832
Office supplies and equipment expense
419
386
477
OREO valuation allowance and related expense
1,491
1,531
29
Other
2,282
2,206
2,296
Total noninterest expense
22,457
23,369
19,697
Income before provision for income taxes
46,591
42,587
47,314
Income tax expense
13,744
12,563
13,722
Net income
$
32,847
$
30,024
$
33,592
Income per share available to common shareholders
Basic
$
2.56
$
2.27
$
2.51
Diluted
$
2.52
$
2.23
$
2.48
Weighted-average common shares outstanding
Basic
12,833,453
13,226,582
13,362,522
Diluted
13,038,937
13,453,176
13,548,400
Cash dividends per common share
$
0.75
$
0.75
$
0.70
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Six Months Ended
June 30,
June 30,
Change
2025
2024
%
Interest income:
Loans, including fees
$
207,375
219,431
-5.5
%
Investment securities
27,136
33,809
-19.7
%
Fed funds sold
461
574
-19.7
%
Total interest income
234,972
253,814
-7.4
%
Interest expense:
Interest-bearing demand
32,761
46,495
-29.5
%
Savings
140
154
-8.8
%
Time certificates
68,819
69,908
-1.6
%
FHLB borrowings
1,070
-
100.0
%
Subordinated debt
2,650
2,650
0.0
%
Total interest expense
105,440
119,207
-11.5
%
Net interest income
129,532
134,607
-3.8
%
Provision for credit losses
2,300
6,900
-66.7
%
Net interest income after provision for credit losses
127,232
127,707
-0.4
%
Noninterest income:
Fees & service charges on deposit accounts
1,351
1,664
-18.8
%
Letters of credit fee income
4,578
3,252
40.8
%
BOLI income
207
210
-1.7
%
Net gain on sale of other real estate owned
12
-
100.0
%
Net gain on sale of loans
447
456
-1.9
%
Other income
1,177
887
32.8
%
Total noninterest income
7,772
6,469
20.1
%
Noninterest expense:
Salary and employee benefits
29,086
26,844
8.4
%
Net occupancy expense
4,565
3,427
33.2
%
Business development and promotion expense
702
669
4.9
%
Professional services
3,158
3,289
-4.0
%
Office supplies and equipment expense
805
950
-15.3
%
OREO valuation allowance and related expense
3,022
164
1742.7
%
Other
4,488
4,382
2.4
%
Total noninterest expense
45,826
39,725
15.4
%
Income before provision for income taxes
89,178
94,451
-5.6
%
Income tax expense
26,307
27,393
-4.0
%
Net income
$
62,871
$
67,058
-6.2
%
Income per share available to common shareholders
Basic
$
4.84
$
4.99
-3.0
%
Diluted
$
4.77
$
4.93
-3.3
%
Weighted-average common shares outstanding
Basic
12,989,636
13,435,700
-3.3
%
Diluted
13,193,850
13,608,783
-3.0
%
Dividends per share
$
1.50
$
1.40
7.1
%
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
June 30,
December 31,
2025
2024
(Unaudited)
(Audited)
Assets
Cash and due from banks
$
776,257
$
765,515
Fed funds sold
20,000
20,000
Cash and cash equivalents
796,257
785,515
Securities held-to-maturity, at amortized cost
19,456
20,021
Securities available-for-sale, at fair value
577,040
348,706
Loans held for sale, at lower of cost or fair value
-
2,214
Loans
5,739,610
5,640,615
Less allowance for credit losses
(73,830
)
(71,477
)
Less amortized deferred loan fees, net
(11,940
)
(9,234
)
Loans, net
5,653,840
5,559,904
Other real estate owned and repossessed assets
13,755
14,991
Customers' liability on acceptances
-
-
Bank furniture and fixtures, net
8,021
8,462
Bank-owned life insurance
10,571
10,433
Accrued interest receivable
31,757
33,561
Investment in affordable housing partnerships
74,783
58,346
Federal Home Loan Bank stock, at cost
15,000
15,000
Deferred tax assets
46,012
47,402
Income tax receivable
9,744
2,195
Operating lease right-of-use assets
19,346
13,182
Other assets
3,178
3,497
Total assets
$
7,278,760
$
6,923,429
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand deposits
$
675,102
$
704,859
Interest bearing deposits:
2,004,135
2,026,965
Savings
34,333
30,150
Time certificates of $250,000 or more
1,681,026
1,477,931
Other time certificates
1,683,737
1,676,943
Total deposits
6,078,333
5,916,848
Advances from Federal Home Loan Bank
200,000
-
Subordinated debt issuance, net
148,588
148,469
Commitments to fund investment in affordable housing partnerships
30,645
21,623
Operating lease liabilities
23,096
16,990
Accrued interest payable
15,549
16,517
Other liabilities
34,889
39,830
Total liabilities
6,531,100
6,160,277
Shareholders' equity
747,660
763,152
Total liabilities and shareholders' equity
$
7,278,760
$
6,923,429
Book value per common share
$
60.19
$
57.86
Number of common shares outstanding
12,420,731
13,188,776
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Quarter Ended
June 30,
March 31,
December 31,
September 30,
June 30,
2025
2025
2024
2024
2024
