Preferred Bank (PFBC) Q3 2024 earnings summary

Executive summary

• Net income for Q3 2024 was $33.4 million, or $2.46 per diluted share, down from $38.2 million in Q3 2023, mainly due to higher deposit costs and increased noninterest expense.

• Return on average assets was 1.95% and return on equity was 17.77% for Q3 2024, both down year-over-year.

• Total assets reached $6.87 billion, with loan portfolio up 5.7% to $5.57 billion and deposits up 2.8% to $5.87 billion since year-end.

• Loan demand increased, with net loan growth over 10% annualized, while deposit balances declined slightly by $11 million in the quarter.

• Criticized loans increased temporarily due to one relationship, but most are now current or expected to be soon.

Financial highlights

• Net interest margin for Q3 2024 was 4.10%, up from 3.96% in Q2 2024 but down from 4.39% in Q3 2023.

• Net interest income before provision for credit losses was $68.8 million, down from $73.0 million in Q3 2023.

• Noninterest income for Q3 2024 was $3.5 million, up from $3.0 million in Q3 2023, mainly due to higher letter of credit fees.

• Noninterest expense increased to $22.1 million, primarily due to higher OREO-related expenses and professional services.

• Efficiency ratio was 30.6%, but excluding a $1.7 million OREO valuation charge, it would be about 28.5%.

Outlook and guidance

• Management expects net interest margin in Q4 to be in the high 3% range, north of 3.85%, with margin stability depending on the pace of Fed rate cuts.

• Operating expenses for Q4 projected between 20.5%-21%.

• Management anticipates maintaining a margin north of 3.50% if Fed funds settle between 3-3.5% by mid-to-late 2025.

• The bank is preparing for a lower interest rate environment by shifting some floating rate loans to fixed rates.

• Some criticized loans are expected to return to performing status in Q4, with OREO property in escrow and expected to close soon.