A look at the shareholders of Preferred Bank (NASDAQ:PFBC) can tell us which group is more powerful. Institutions often own shares in more established companies, while it is not uncommon to see insiders owning a good number of smaller companies. I like to see at least a little insider ownership. As Charlie Munger said “Show me the incentive and I’ll show you the result”.

With a market capitalization of $1.0 billion, Preferred Bank is a decent size, so it’s probably on the radar of institutional investors. In the graph below, we can see that the institutions are visible on the share register. We can zoom in on the different ownership groups, to learn more about Preferred Bank.

What does institutional ownership tell us about the preferred bank?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Preferred Bank has institutional investors; and they own a good part of the shares of the company. This suggests some credibility with professional investors. But we cannot rely solely on this fact since institutions sometimes make bad investments, like everyone else. When multiple institutions hold a stock, there is always a risk that they are in a “crowded trade”. When such a transaction goes wrong, multiple parties may compete to quickly sell shares. This risk is higher in a company with no history of growth. You can see Preferred Bank’s historic earnings and revenue below, but keep in mind there’s always more to tell.

Since institutional investors own more than half of the issued shares, the board will likely have to pay attention to their preferences. We note that hedge funds have no significant investment in Preferred Bank. BlackRock, Inc. is currently the company’s largest shareholder with 9.9% of the shares outstanding. With 7.5% and 6.7% of the shares outstanding, respectively, T. Rowe Price Group, Inc. and FMR LLC are the second and third largest shareholders. Additionally, the company’s CEO, Li Yu, directly owns 5.2% of the total shares outstanding.

We dug a little deeper and found that 10 of the major shareholders make up around 50% of the register, implying that along with the large shareholders, there are a few smaller shareholders, thereby balancing everyone’s interests somewhat.

While studying the institutional ownership of a company can add value to your research, it is also recommended that you research analyst recommendations to better understand a stock’s expected performance. There are a reasonable number of analysts covering the stock, so it can be useful to know their overall view on the future.

Privileged Bank Insider Ownership

The definition of company insiders can be subjective and varies from jurisdiction to jurisdiction. Our data reflects individual insiders, capturing at least board members. The management of the company answers to the board of directors and the latter must represent the interests of the shareholders. In particular, sometimes the senior executives themselves sit on the board of directors.

Insider ownership is positive when it signals that executives think like the true owners of the company. However, strong insider ownership can also give immense power to a small group within the company. This can be negative in certain circumstances.

We may report that insiders hold shares of Preferred Bank. This is a big company, so it’s good to see this level of alignment. Insiders hold $79 million worth of stock (at current prices). Most would say this shows the alignment of interests between shareholders and the board. Still, it might be worth checking to see if these insiders have sold.

General public property

The general public, including retail investors, owns 15% of the company’s capital and therefore cannot be easily ignored. Although this group may not necessarily make the decisions, they can certainly have a real influence on the way the business is run.

Next steps:

It is always useful to think about the different groups that own shares in a company. But to better understand Preferred Bank, we need to consider many other factors. Consider the risks, for example. Every business has them, and we’ve spotted 2 warning signs for preferred bank you should know.

At the end of the day the future is the most important. You can access this free analyst forecast report for the company.

NB: The figures in this article are calculated using trailing twelve month data, which refers to the 12 month period ending on the last day of the month in which the financial statements are dated. This may not be consistent with the annual report figures for the full year.

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