Preferred Bank (PFBC) Announces Additional Q4 Expense

Preferred Bank (NASDAQ: PFBC), (“the Bank”), an independent commercial bank, today announced that the Bank had uncovered an unreconciled difference in its calculation of its right of use asset (“ROU”) and lease liabilities. As a result of this error, the Bank will record $8.1 million on a pre-tax basis of occupancy expense in the fourth quarter of 2024. On an after-tax basis, this will reduce fourth quarter diluted earnings per share by approximately $0.43.

In January of 2019, the Bank adopted ASC 842, Accounting for Leases. This accounting statement requires entities capitalize leases that are longer than one year. The effect being that lease expense is recognized more evenly over the life of the lease, rather than recording lease expense as incurred. When the Bank adopted ASC 842, a number of the Bank’s leases were analyzed and capitalized based on an incorrect term, resulting in an understatement of occupancy expense for the years 2019 – YTD 2024. The understatement of expense in each year impacted was no more than $1.4 million on a pre-tax basis and the average was $1.35 million per year, pre-tax.

As for the impact of ASC 842 in future years, it is expected that the correct calculation of lease expense will increase occupancy expense by approximately $1.6 million per year on a pre-tax basis.

We have evaluated the impact to income for each of the periods involved as well as the cumulative impact to 2024’s results and have determined the understatement in the prior years as well as the impact to the results for 2024 are not material to the Bank’s results of operations or its balance sheet.

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