Preferred Bank's Near-Term Capital Focus To Remain On Buybacks, Analyst Sees Tepid Loan Growth

Stephens analyst Andrew Terrell reiterated the Overweight rating on Preferred Bank PFBC, raising the price target to $68 from $64.

PFBC recently reported second-quarter results, where earnings beat estimates. While NIB outflows exceeded anticipations, Terrell remains optimistic that balance compression has moderated. 

The analyst expects loan growth to remain tepid in the near term as the company is being more selective on new credits in addition to a broader slowdown in borrower demand.

Terrell expects the near-term capital focus of the company to remain on the buyback (now incorporating ~$100mm of buyback in estimates), with the company noting it had completed $28 million of the $150 million authorization to date. 

Following the quarter, the analyst raised 2023 and 2024 Op. EPS estimates to $10.57 and $9.74 (from $9.83 and $8.58).

Given both the impact of higher rates on borrower demand and PFBC being selective on new relationships, the company noted expectations for modest loan growth moving forward.

The analyst highlights ample balance sheet flexibility to fund incremental loan growth without relying on wholesale borrowings considering the $1.05 billion cash position (16% of assets). Terrell forecasts loan growth of 2.9% in 2023 and 4.9% in 2024.

Going ahead, the analyst forecasts a modest margin compression over coming quarters and looks for a NIM of 4.51% in 2023 and 4.10% in 2024, with FTE NII of $290.5 million and $275.0 million, respectively. 

Terrell models for a total fee income of $12.5 million in 2023 before $13.1 million in 2024. 

Price Action: PFBC shares are trading higher by 1.11% to $63.05 on the last check Friday.