Safe and Sound

Preferred Bank

Houston, TX
5
Star Rating
Preferred Bank is an FDIC-insured bank founded in 1985 and currently headquartered in Houston, TX. The bank has equity of $40.0 million on assets of $291.1 million, according to December 31, 2017, regulatory filings.

Thanks to the efforts of 41 full-time employees in 5 offices in TX, the bank has amassed loans and leases worth $155.8 million, including real estate loans of $144.0 million. U.S. bank customers currently have $249.2 million 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 a look at how the bank did on the three major criteria Bankrate used to grade U.S. banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a useful measurement of an institution's financial strength. It acts as a bulwark against losses and as protection for accountholders during periods of financial instability for the bank. When looking at safety and soundness, more capital is better.

Preferred Bank scored 18 out of a possible 30 points on our test to measure the adequacy of a bank's capital, exceeding the national average of 13.13.

A bank's Tier 1 capital ratio is a widely used measure of this buffer. Preferred Bank's Tier 1 capital ratio was 26.02 percent, above the 6 percent level considered adequate by regulators, and higher than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to stand up to financial downturns.

Overall, Preferred Bank held equity amounting to 13.75 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of troubled assets, such as past-due loans, on the bank's loan loss reserves and overall capitalization.

Having extensive holdings of these types of assets may eventually require a bank to use capital to absorb losses, decreasing its cushion of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, decreasing earnings and elevating the chances of a failure in the future.

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

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.98 percent of Preferred Bank's loans were noncurrent -- in other words, 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 known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the size of that reserve to the total amount of problem loans can be a handy indicator when evaluating a bank's ability to manage troubled assets. 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 affects its safety and soundness. A bank can retain its earnings, expanding its capital buffer, or use them to deal with problematic loans, likely making the bank more resilient in times of trouble. Conversely, losses reduce a bank's ability to do those things.

Preferred Bank did below-average on Bankrate's earnings test, achieving a score of 12 out of a possible 30.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Preferred Bank's most recent annualized quarterly return on equity was 5.31 percent, below the national average of 8.10 percent.

The bank recorded net income of $2.1 million on total equity of $40.0 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.77 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below 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.