A Los Angeles bank targeting Chinese-Americans had a successful public offering this week, providing fresh evidence of investors’ bullishness on this community banking sector.
The $907 million-asset Preferred Bank raised $80.56 million, selling 2.12 million shares Monday at $38 each. The stock rose 10.5% Tuesday to close at $42. It was trading at $41 a share Thursday afternoon.
Analysts say Asian-American banks have been consistently profitable.
“These banks seem to have a very loyal customer base, mainly because they speak their language,” said James Abbott, an analyst at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va.
Asian-Americans tend to work hard and save money, and many new to the country open their own businesses. These things bode well for the banks that win their business.
“Asian-American banks are also some of the most — if not the most — asset-sensitive banks in the country,” Mr. Abbott said. “Their loans are based on prime and reprice daily, while most of their deposits are retail deposits, which are very cheap.”
Asset-sensitive banks are expected to do particularly well as the Federal Reserve Board continues to raise interest rates and the banks’ margins further expand, Mr. Abbott said.
Li Yu, Preferred’s president and chief executive, said in an interview Tuesday that the bank intends to use the proceeds of its initial public offering to open 10 more branches over the next several years in Los Angeles and Orange counties, where it currently has nine branches. Then it plans to expand into northern California, most likely in the San Francisco Bay area.
Preferred will also make more — and bigger — loans with the new funds, Mr. Yu added. It focuses on Chinese-Americans but also lends to mainstream small businesses, including importers of Asian products. International trade is an especially strong business in the Los Angeles region, home to the world’s two largest ports.
“We’ve grown at a pretty good speed for the last 13 years, but with this new capital we now have the ability to grab additional opportunity and respond to it,” said Mr. Yu, who rang the opening bell Tuesday at Nasdaq.
Preferred must compete with larger companies that concentrate on Chinese-Americans and international trade finance, such as the $6 billion-asset East West Bancorp in San Marino, Calif., and the$6.3 billion-asset UCBH Holdings Inc. in San Francisco.
“From a pricing perspective, loans are very competitive,” said Brett Rabatin, an analyst at First Horizon National Corp.’s FTN Midwest Research Securities Corp. in Nashville. “But the thing that makes it work for a bank like Preferred is that this is a really big market, and if you’re a small player it’s not that hard to move market share from some of the larger players — even the mainstream banks.”
Sandler O’Neill & Partners LP was the lead underwriter for Preferred’s offering.
