Preferred Bank (PFBC) | Investment Case

1. Company Snapshot

1.a. Company Description

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals in the United States.The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts.It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; and commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and SBA loans.

In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, documentary collections, and bills purchase programs.Further, it provides various high-wealth banking services to wealthy individuals residing in the Pacific Rim area; and remote deposit capture, and online and mobile banking services.Additionally, the company offers various banking services to physicians, accountants, attorneys, business managers, and other professionals; and safe deposit boxes, account reconciliation, courier service, and cash management services to the manufacturing, service, and distribution companies.

As of December 31, 2021, it had eleven full-service branch offices in Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana, and San Francisco; and one branch in Flushing, New York.The company was incorporated in 1991 and is headquartered in Los Angeles, California.

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1.b. Last Insights on PFBC

Preferred Bank's recent performance was negatively impacted by a decrease in net income from the prior quarter, primarily due to an increase in the provision for credit losses of $1.8 million and a decrease in net interest income of $1.3 million. The decline in net interest income was caused by a drop in market interest rates. Although the company reported net income of $34.8 million or $2.79 per diluted share for Q4 2025, beating earnings estimates, its net interest margin contracted. Additionally, credit loss provisions increased, reflecting balance sheet lumpiness.

1.c. Company Highlights

Last Price	87.97
Change Percentage	0.49%
Open	85.46
Previous Close	87.54
Market Cap ( Millions)	1089
Volume	22276
Year High	103.05
Year Low	71.9
M A 50	94.84
M A 200	90.43

FCF Yield	11.06%
Dividend Yield	3.47%
ROE	17.44%
Debt / Equity	48.96%
Net Debt / EBIDTA	-217.77%
Price To Book	1.38
Price Earnings Ratio	8.04
Price To FCF	9.04
Price To sales	2.17
EV / EBITDA	3.53

2. Preferred Bank's Q4 2025 Earnings: Strong Profitability Amidst Rate Cuts

Preferred Bank reported a net income of $34.8 million or $2.79 a share for Q4 2025, and $134 million or $10.41 a share for the full year, positioning the bank among the top tier of the banking industry in terms of profitability. The actual EPS of $2.79 slightly beat estimates of $2.78. The net interest margin declined in Q4 due to federal rate cuts, impacting the 70% floating-rate loan portfolio. Despite this, loan growth was strong at $182 million or 12% for the quarter and 7.3% for the year, while deposit growth was $115 million or 7.4% for the quarter and 7.2% for the year.

Publication Date: Jan -25

                                    📋 Highlights
                                    Strong Profitability:
                                                Q4 2025 net income of $34.8M ($2.79/share) and full-year $134M ($10.41/share), placing Preferred Bank among the industry’s top performers.
Net Interest Margin Pressure:
                                                Margins declined in Q4 due to federal rate cuts, affecting 70% of its floating-rate loan portfolio.
Robust Loan Growth:
                                                Q4 loan growth of $182M (12%) and annual growth of 7.3%, with deposit growth at $115M (7.4% Q4) and 7.2% annually.
Classified Loan Risks:
                                                A $121M loan relationship (1.14x debt coverage ratio) was downgraded to nonaccrual, with $97M increase in criticized assets.
2026 Outlook:
                                                Management anticipates mid-to-high single-digit expense growth, $88M expense guidance, and potential share repurchases, citing strong loan demand.

                                

Loan and Deposit Dynamics

The bank's loan growth was driven by its ability to originate new loans, and management expects 2026 to be a growth year, with loan demand getting stronger. The deposit beta for Q4 was around 40% on interest-bearing deposits, and the spot rate on deposits at the end of December was 3.17%. The bank has about $1.3 billion in CD maturities in Q1, with a weighted average rate of 3.96% and are coming on at around 3.70% to 3.80%.

Asset Quality and Credit Loss Provision

Nonperforming assets declined slightly, but criticized assets increased by $97 million due to placing a large loan relationship into classified status. The loan loss provision was $4.3 million, reflecting various factors, including loan growth and specific reserves for some loans. Management explained that they had adjusted their Q factor, increasing it by five basis points for the entire risk segment, and that their reserve coverage is around 42.5%, providing comfort that they are adequately reserved.

Valuation and Outlook

With a P/TBV ratio of 1.32 and a dividend yield of 3.64%, Preferred Bank appears to be reasonably valued. Analysts estimate next year's revenue growth at 7.2%. Management expects mid to high single-digit growth in noninterest expenses and a possible increase in share repurchases if loan growth and deposit situations allow for it. The bank's expense guidance for 2026 is around $88 million, excluding OREO costs. Overall, the bank's strong profitability and reasonable valuation make it an attractive option in the banking sector.

3. NewsRoom

Preferred Bank $PFBC Shares Sold by AlphaQuest LLC

Feb -02

Source: defenseworld.net

Preferred Bank (PFBC) Q4 2025 Earnings Call Transcript

Jan -22

Source: seekingalpha.com

Here's What Key Metrics Tell Us About Preferred Bank (PFBC) Q4 Earnings

Jan -22

Source: zacks.com

Preferred Bank (PFBC) Surpasses Q4 Earnings and Revenue Estimates

Jan -22

Source: zacks.com

Preferred Bank Reports Fourth Quarter Results

Jan -22

Source: globenewswire.com

Preferred Bank Announces 2025 Fourth Quarter Earnings Release and Conference Call

Jan -08

Source: globenewswire.com

Preferred Bank: Quality On The Cheap

Jan -08

Source: seekingalpha.com

Market Today: Records, robots, obesity pill, and AI tie-ups

Jan -06

Source: gurufocus.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (1.00%)

6. Segments

Banking and Related Activities

Expected Growth: 1.0%

Preferred Bank's 1.0 growth in Banking and Related Activities is driven by increasing demand for commercial loans, expansion into new markets, and strategic partnerships. Additionally, the bank's focus on digital transformation, cost control measures, and a strong risk management framework have contributed to its growth.

7. Detailed Products

Commercial Loans

Preferred Bank offers a range of commercial loans to help businesses achieve their goals, including term loans, lines of credit, and construction loans.

Treasury Management

Preferred Bank's treasury management services help businesses manage their cash flow, reduce fraud risk, and optimize their financial operations.

Cash Management

Preferred Bank's cash management services provide businesses with tools to manage their cash flow, including account analysis, sweep accounts, and zero-balance accounting.

International Banking

Preferred Bank's international banking services facilitate global trade and commerce, including import and export financing, letter of credit, and foreign exchange services.

Private Banking

Preferred Bank's private banking services provide personalized financial solutions for high net worth individuals, including investment management, trust services, and wealth planning.

Mortgage Lending

Preferred Bank offers a range of mortgage loan options for homeowners and investors, including residential and commercial mortgages.

Deposit Services

Preferred Bank's deposit services include a range of checking and savings accounts, certificates of deposit, and individual retirement accounts.

8. Preferred Bank's Porter Forces

Forces Ranking

Threat Of Substitutes

Preferred Bank's customers have some alternatives, but they are not very attractive, and the switching costs are relatively high.

Bargaining Power Of Customers

Preferred Bank's customers have limited bargaining power due to the lack of concentration in the market and the high switching costs.

Bargaining Power Of Suppliers

Preferred Bank's suppliers have some bargaining power due to the concentration of suppliers in the market, but the bank has some negotiating power due to its size.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry, such as regulatory requirements and the need for significant capital investment.

Intensity Of Rivalry

The intensity of rivalry is high due to the large number of competitors in the market, and the need for Preferred Bank to differentiate itself through its products and services.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	18.05%
Debt Cost	9.00%
Equity Weight	81.95%
Equity Cost	9.00%
WACC	9.00%
Leverage	22.03%

11. Quality Control: Preferred Bank passed 6 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

United Security Bancshares

A-Score: 7.1/10

Value: 6.5

Growth: 5.9

Quality: 7.8

Yield: 9.0

Momentum: 5.5

Volatility: 8.0

1-Year Total Return ->

Preferred Bank

A-Score: 7.0/10

Value: 7.1

Growth: 8.1

Quality: 7.5

Yield: 6.0

Momentum: 5.0

Volatility: 8.3

1-Year Total Return ->

Westamerica

A-Score: 6.6/10

Value: 6.3

Growth: 6.2

Quality: 8.5

Yield: 7.0

Momentum: 3.0

Volatility: 8.7

1-Year Total Return ->

Mercantile Bank

A-Score: 6.0/10

Value: 5.4

Growth: 7.7

Quality: 4.8

Yield: 7.0

Momentum: 4.0

Volatility: 7.3

1-Year Total Return ->

OpenBank

A-Score: 5.7/10

Value: 6.6

Growth: 6.9

Quality: 5.8

Yield: 7.0

Momentum: 1.5

Volatility: 6.7

1-Year Total Return ->

BankFinancial

A-Score: 5.2/10

Value: 4.6

Growth: 3.6

Quality: 5.2

Yield: 7.0

Momentum: 2.5

Volatility: 8.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-6.65%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

9.00%

Preferred Bank - US7403674044

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on PFBC

1.c. Company Highlights

Better Quality

Higher Growth

Strong Momentum

Earnings Beats

Revenues Beats

Fairly Valued

Stable Momentum

Revenues Miss

Earnings Miss

Average Yield

Average Quality

Medium Volatility

2. Preferred Bank's Q4 2025 Earnings: Strong Profitability Amidst Rate Cuts

Loan and Deposit Dynamics

Asset Quality and Credit Loss Provision

Valuation and Outlook

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (1.00%)

6. Segments

Banking and Related Activities

Expected Growth: 1.0%

7. Detailed Products

Commercial Loans

Treasury Management

Cash Management

International Banking

Private Banking

Mortgage Lending

Deposit Services

8. Preferred Bank's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Preferred Bank passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

87.97$

Current Price

87.97$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA