Preferred Bank (PFBC) Stock Forecast & Price Target

Preferred Bank has demonstrated resilience in its financial performance, with net interest income (NII) increasing by 0.5% quarter-over-quarter and a net interest margin (NIM) at a solid 4.06%. The bank's efficiency ratio improved significantly to 27.6%, showcasing effective cost management alongside a reported total loan growth of $68.8 million, exceeding initial forecasts. Additionally, improvements in non-performing assets (NPAs) and criticized assets indicate enhanced credit quality, positioning the bank favorably for stable growth in the near term as projected loan and deposit growth remains robust.

The negative outlook on Preferred Bank's stock is primarily driven by a decline in loan loss provisions (LLP) which fell to $2.0 million, resulting in a 10 basis point decrease in the allowance for credit losses (ACL) to 1.27% amidst rising non-performing loans (NCOs) that increased 47 basis points to 0.47%. Additionally, core net interest earnings (NIE) decreased by 8.8% quarter-over-quarter to $20.1 million, falling below guidance estimates, which exacerbates concerns about the bank's profitability as it anticipates a seasonal decline in NIE in the following quarter. Further complicating the outlook are potential pressures on net interest margin (NIM) due to slower-than-expected interest rate increases and the inherent risks associated with the bank's acquisition strategy that could dilute shareholder value.