March 21, 2018
2017 was another year of growth in profitability, total loans, total deposits and total assets. In addition, we also added fairly significantly to our back office staff in order to prepare us for further growth. Total shareholder return, including dividends was 13.6% for 2017, this coming off of a record year in which total shareholder return was 60.6% in 2016. Our three- and five-year total shareholder return is one of the best in the U.S.
With the late-2017 passing of the Tax Cut and Jobs Act in late 2017, we were required to write down part of our deferred tax asset (“DTA”) in the fourth quarter of the year. This had the effect of reducing net income by $6.7 million for the quarter. While this is obviously a negative charge, we are very pleased with the passage of the Bill as it will significantly lower our effective tax rate in 2018 and beyond.
For 2017, Preferred Bank:
- Recorded net income of $43.4 million which is 19.3% higher than 2016, even after the DTA charges of $6.7 million in Q4 2017
- Increased loans by $398 million or 15.6% from 2016.
- Increased deposits by $499 million or 18.1% from 2016.
- Improved the efficiency ratio to 36.6%.
- Posted a best in class ROA of 1.43% and an ROE of 15.93%
(Excluding deferred tax asset writedown).
With the lowered tax rate, the prospects for further earnings growth are significantly enhanced. We have already shared some of the tax savings with our employees who saw higher-than-normal pay increases for 2018. Our employees also benefit from the Bank’s Bonus Plan which is highly correlated to the profitability of the Bank.
During the fourth quarter of 2017, we raised approximately $33.5 million in new capital through the at-the-market or ATM method. This helped to increase our tier 1 leverage ratio from 8.54% at September 30, 2017 to 9.52% as of December 31, 2017. Going forward, through the enhanced earnings power via the tax cut and anticipated interest rate increases, our capital should be sufficient for planned future growth.
Very Truly Yours,
Chairman and CEO