Why Preferred Bank’s Buyback Plan Spells Opportunity in a Slowing Economy

In a world where growth is slowing and uncertainty reigns, Preferred Bank (PFBC) has just thrown down the gauntlet with a bold $125 million stock buyback plan. This isn’t just about shareholder returns—it’s a masterclass in capital efficiency and confidence. Let’s dissect why this move signals undervaluation and why income-focused investors should take notice now.

The Capital Strength Behind the Buyback

PFBC’s Q1 2025 results are a beacon of financial resilience. With a Tangible Common Equity (TCE) ratio of 10.96%, a CET1 ratio of 11.86%, and a leverage ratio of 11.52%, this bank is sitting on fortress-like capital. These metrics aren’t just regulatory compliant—they’re 30% above the minimum thresholds required to be “well-capitalized.” This strength allows PFBC to prioritize buybacks without compromising liquidity or growth. Even after absorbing a $1.3 million OREO write-down and navigating trade tensions, management is so confident they’ve greenlit this buyback—the largest in the bank’s history.

Dividends and Shareholder Returns: A Double-Barreled Strategy

PFBC isn’t just buying back shares—it’s also boosting dividends. The dividend yield now stands at 3.49%, with a 27.3% dividend growth rate over the past year. The payout ratio of 29.74% is conservative, meaning earnings can easily cover these payouts. Combining buybacks with dividends creates a dual engine of shareholder value, especially when the stock trades at 65% below its fair value estimate. This isn’t just about income—it’s about capital appreciation as the bank repurchases undervalued shares.

How PFBC Stacks Up Against Peers

While competitors like FirstSun (FSUN) and QCR Holdings (QCRH) are battling margin pressures (QCRH’s NIM dipped to 3.41%, while FirstSun’s ROA is a mere 1.2%), PFBC is dominating on efficiency. PFBC’s ROA of 19.1% and ROE of 18.8% in 2024 outpace peers by a factor of two or more. Even Byline Bancorp (BY), with its 15.5% CET1 ratio, can’t match PFBC’s $59.30 tangible book value per share, up 2.5% year-over-year.

Regulatory Hurdles? PFBC’s Got This

Critics might cite regulatory risks—after all, buybacks need approval. But PFBC’s capital ratios are so strong that regulators are unlikely to object. Plus, this isn’t uncharted territory: the prior $150 million buyback program was executed flawlessly, boosting TCE and shareholder value.

Is Now the Time to Buy?

The answer is a resounding YES. PFBC’s stock is a contrarian play in a market obsessed with growth. With $23 million remaining in its prior buyback authorization and now $125 million more on deck, the bank is signaling that shares are cheap. Meanwhile, institutional investors are already moving: insider selling has slowed, and the stock’s 3.6% yield is a magnet for income seekers.

The Bottom Line: PFBC is a Buy

Preferred Bank’s buyback plan isn’t just about returning capital—it’s a confidence vote in its balance sheet. With peer-beating capital ratios, a reliable dividend, and a stock price that’s undervalued by any metric, this is a rare opportunity to lock in income and upside. The economy may be slowing, but PFBC’s strategy is accelerating shareholder value. Act now—this one won’t stay cheap for long.