Preferred Bank Reports Third-Quarter Net Income of $32.9 Million as Interest Reversals Weigh on Net Interest Income
Preferred Bank (NASDAQ: PFBC), headquartered in Los Angeles, California, reported results on October 23 for the quarter ended September 30, 2026. Net income was $32.9 million, or $2.73 per diluted share, a decrease of $3.0 million from the same quarter last year and $592,000 from the previous quarter. The bank is one of the larger independent commercial banks headquartered in California; originally founded as a Chinese-American bank, it now draws most of its customers from the diversified mainstream market, with branches in cities including Alhambra, City of Industry, Irvine and Diamond Bar.
Net interest income before provision for credit losses was $66.7 million, down $4.6 million from a year earlier and $3.3 million from the prior quarter. The net interest margin contracted to 3.49%, from 3.73% in the second quarter and 3.92% a year earlier. The bank said the decline was driven mainly by a $2.1 million interest income reversal after it placed a $56.7 million loan and four others totaling $13.5 million on nonaccrual status, compared with $2.9 million of interest recoveries recorded in the second quarter; a higher coupon on its subordinated debt, which moved to a floating rate of three-month SOFR plus 278 basis points on June 16 and carried a 6.44% coupon in the third quarter, also raised interest expense. Noninterest income rose to $5.0 million from $3.7 million a year earlier, noninterest expense was $22.2 million, the efficiency ratio was 30.9%, return on average assets was 1.69% and return on average equity was 16.18%.
Chairman and CEO Li Yu said third-quarter results were lower than the second quarter mainly because of last quarter's interest recoveries and this quarter's reversals. Deposits increased $77.7 million, or 1.2%, and he said competition for deposits and market conditions will likely continue into 2027. Loans excluding loans held for sale decreased $41.0 million after the $56.7 million loan was placed into held-for-sale status, but the bank is seeing a stronger pipeline that it hopes will produce solid loan growth in the fourth quarter. Resolution of nonaccrual loans is progressing more slowly than hoped, with several resolutions delayed to the fourth quarter or the first quarter of 2027 because the assets are subject to bankruptcy court decisions. He added that the recent Federal Reserve rate increase should benefit the bank's net interest margin because its balance sheet is asset sensitive.
Total assets were $7.82 billion at September 30, 2026, up $214.9 million from December 31, 2025. Gross loans were $6.25 billion, essentially flat from June 30 and up $200.6 million from year-end 2025. Total deposits were $6.55 billion, up $77.7 million from June 30 and $204.4 million from December 31, 2025. Nonaccrual loans and loans 90 days or more past due and still accruing totaled $109.4 million excluding loans held for sale, compared with $98.9 million at June 30, 2026 and $51.3 million at December 31, 2025. The $56.7 million mixed-use property loan placed on nonaccrual during the quarter is under contract to be sold at par, with closing anticipated in late October 2026; the bank said the average loan-to-value ratio for that commercial real estate cohort stands at 60.8% and no significant loss content has been identified. The allowance for credit losses was 1.26% of total loans held for investment. The tangible common equity ratio was 10.13%, the leverage ratio 10.78%, the common equity Tier 1 ratio 11.26% and the total capital ratio 13.93%.
Preferred Bank conducts business from its main office in Los Angeles and thirteen full-service branches in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, two in Irvine, Diamond Bar, Pico Rivera, Tarzana, Cupertino and two in San Francisco), two branches in New York (Manhattan and Flushing, Queens) and a branch in Sugar Land, Texas. Its deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The bank held a conference call on the afternoon of October 23 to discuss the results.
Source: GSM · USA (original Chinese edition)
Photo: 洛杉矶（Los Angeles）市中心航拍，Preferred Bank 总部所在地（资料图）。Joe Mabel 摄，CC BY-SA 3.0，经 Wikimedia Commons 取用 / An aerial view of downtown Los Angeles, where Preferred Bank is headquartered (file photo). Photo by Joe Mabel, CC BY-SA 3.0, via Wikimedia Commons
