Safe and Sound

Preferred Bank

Los Angeles, CA
5
Star Rating
Preferred Bank is a Los Angeles, CA-based, FDIC-insured bank founded in 1991. The bank holds equity of $355.0 million on $3.77 billion in assets, according to December 31, 2017, regulatory filings.

With 243 full-time employees in 12 offices in multiple states, the bank has amassed loans and leases worth $2.96 billion, including real estate loans of $2.05 billion. U.S. bank customers currently have $3.26 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Preferred Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three important criteria Bankrate used to score U.S. banks on safety and soundness.

WHAT IS
SAFE AND SOUND?

Find out

THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for depositors when a bank is struggling financially. It follows then that a bank's level of capital is a crucial measurement of a bank's financial fortitude. When it comes to safety and soundness, more capital is preferred.

Preferred Bank finished below the national average of 13.13 on our test to measure the adequacy of a bank's capital, racking up 10 out of a possible 30 points.

A bank's Tier 1 capital ratio is an important measure of this buffer. Preferred Bank's Tier 1 capital ratio was 10.08 percent, above the 6 percent level regulators consider adequate, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to economic challenges.

Overall, Preferred Bank held equity amounting to 9.41 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's capitalization and allocated loan loss reserves could be affected by problem assets, such as past-due loans.

A bank with extensive holdings of these kinds of assets could eventually be required to use capital to cover losses, reducing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in diminished earnings and potentially more risk of a future failure.

Preferred Bank scored above the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.22 percent of Preferred Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." The size of that reserve can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of at-risk loans. Unfortunately, the FDIC did not provide information on Preferred Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is has an effect on its safety and soundness. Earnings may be retained by the bank, expanding its capital buffer, or be used to address problematic loans, potentially making the bank better able to withstand financial shocks. Obviously, banks that are losing money have less ability to do those things.

On Bankrate's earnings test, Preferred Bank scored 22 out of a possible 30, above the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one key measure of a bank's earnings. Preferred Bank's most recent annualized quarterly return on equity was 13.76 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $43.2 million on total equity of $355.0 million. The bank had an annualized return on average assets, or ROA, of 1.22 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.