MIL-OSI: Preferred Bank Reports Quarterly Earnings

4

Source: GlobeNewswire (MIL-OSI)

LOS ANGELES, July 20, 2021 (GLOBE NEWSWIRE) — Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2021. Preferred Bank (“the Bank”) reported net income of $21.5 million or $1.44 per diluted share for the second quarter of 2021. This is up slightly from net income of $21.2 million or $1.42 per diluted share for the first quarter of 2021 and easily tops recorded net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. The primary reasons for the increase compared to the prior year is a $7.5 million decrease in the provision for credit losses this quarter, an increase in net interest income of $1.2 million, partially offset by an increase in noninterest expense of $630,000. When compared to the prior quarter, the provision for credit losses decreased by $1.4 million, noninterest income increased by $299,000 and noninterest expense decreased by $689,000. Net interest income however, decreased from the prior quarter due to a loan interest accrual adjustment of $2.29 million.

Second quarter 2021 Highlights:

  • Net income of $21.4 million, or $1.44 per diluted share
  • Linked quarter loan growth (non – PPP) of 2.7%
  • Linked quarter deposit growth of 1.6%
  • Return on average assets (“ROA”) of 1.58%
  • Return on beginning equity (“ROE”) of 15.98%

Li Yu, Chairman and CEO, commented, “Preferred Bank’s second quarter 2021 net income was $21.5 million or $1.44 a share.

“Second quarter net income was negatively impacted by a reversal of interest income of $2.29 million and a charge of $614,000 for unamortized issuance costs on our $100 million of subordinated notes which we called on June 18, 2021. Net interest income and loan revenue continue their positive trend, excluding these items.

“The current low interest rate environment has continued to pressure the Bank’s net interest margin (“NIM”). Second quarter NIM was 3.47% normalized, (see non-GAAP reconciliation) compared to 3.61% for the first quarter. Excluding the two previously mentioned charges, the Bank however, has been able to increase net interest income.

“Loan growth for the second quarter was $114 million (excl. PPP) or 2.7% sequentially. We have seen increased loan origination activities but see increased payoff activities as well. Deposit growth was $74 million or 1.6% on a linked quarter basis. Going forward, we look to continue to increase our deployment of excess liquidity.

Expenses remain in control with efficiency ratio at 33.2%. We are now seeing inflationary pressures in personnel and other expense items. While we may not pass on cost increases to customers, we were able to keep our peer-group leading assets per full time employee (FTE) at $19.5 million and revenue per FTE at approximately $702,000.

Recent Federal Reserve Open Market Committee minutes revealed that our economy is “expanding at a record pace”. We share this optimism and are prepared to take the opportunities presented to us.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $43.4 million for the second quarter of 2021. This was down slightly from the $45.3 million recorded in the first quarter of 2021 and was slightly ahead of the $42.2 million recorded in the second quarter of 2020. This quarter’s loan interest income was negatively impacted by a $2.29 million adjustment to the accrued interest on our troubled debt restructured loan. This amount was reversed in the second quarter of 2021 and is the reason for the lowered net interest income against expectations. Also negatively impacting net interest income this quarter, the Bank called its $100 million of 6% subordinated notes (“sub debt”) as of June 18, 2021. Simultaneously, the Bank issued $150 million of subordinated notes due June 15, 2031 at a coupon rate of 3.375%. In conjunction with the call of the existing $100 million of notes, the Bank incurred a charge of $614,000 to interest expense related to the unamortized issuance costs of the old notes. Although we incurred the charge this quarter for the calling of the sub debt, the far lower coupon of the new notes (3.375% versus 6.0%) will result in over $900,000 of interest savings annually while increasing the size of the borrowing by $50 million. The aforementioned items (loan interest reversal and recognition of unamortized debt issuance costs) drove the Bank’s taxable equivalent net interest margin down to 3.25%. Excluding these two items the taxable equivalent margin would have been 3.47%, versus 3.61% for the prior quarter and 3.57% for the same period last year.

Noninterest Income. For the second quarter of 2021, noninterest income was $1,646,000 compared with $1,430,000 for the same quarter last year and compared to $1,347,000 for the first quarter of 2021. The increase compared to last year was due to service charges on deposits which increased by $186,000 over last year. This was partially offset by an increase in the loss on sale of loans which was $261,000 in the second quarter of 2021 versus a loss on sale of investment securities of $113,000 in the second quarter of 2020. On a linked quarter basis, service charges on deposits increased by $98,000 while the loss on sale of loans decreased from a loss of $379,000 last quarter to a loss of $261,000 this quarter.

Noninterest Expense. Total noninterest expense was $15.0 million for the second quarter of 2021. This is up compared to the $14.3 million recorded in the same quarter last year but is a decrease from the $15.7 million posted in the first quarter of 2021. Salaries and benefits expense totaled $10.3 million for the second quarter of 2021, an increase of $190,000 from the second quarter of 2020 but a decline from the $11.1 million posted in the first quarter of 2021. The increase over the prior year was due mainly to annual merit increases and the decrease from the first quarter of 2021 was mainly due to higher payroll taxes posted in the first quarter due to incentive compensation distributions. Occupancy expense totaled $1.4 million for the quarter which relatively flat from the prior quarter’s $1.4 million and up over the $1.3 million recorded in the second quarter of last year. The new Houston office and annual lease rate increases are responsible for the year-over-year change. Professional services expense was $996,000 for the second quarter of 2021, flat compared to last quarter’s $981,000 and flat compared to the $1.0 million recorded in the second quarter of 2020. Significant I.T initiatives or large legal cases usually drive the variations in this line item and there have been none in the periods compared. Other expenses were $1.7 million for the second quarter of 2021, fairly close to the $1.6 million recorded last quarter and up from the $1.4 over the same period last year. The increase over last year was mainly due to FDIC premiums increasing commensurately with the Bank’s asset size. For the quarter ended June 30, 2021, the Bank’s efficiency ratio was 33.2%, down slightly from last quarter and a small increase from the 32.9% recorded in the same period last year.

Income Taxes. The Bank recorded a provision for income taxes of $8.6 million for the second quarter of 2021. This represents an effective tax rate (“ETR”) of 28.5% and is consistent with the ETR of 28.5% for the prior quarter but a decrease from the ETR of 29.7% in the same period last year. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at June 30, 2021 were $4.28 billion, an increase of $243 million or 6.0% over the total of $4.04 billion as of December 31, 2020. Total deposits increased to $4.80 billion, an increase of $354 million or 8.0% over the $4.44 billion as of December 31, 2020. Total assets ended the quarter at $5.58 billion, an increase of $432.3 million or 8.4% over the total of $5.14 billion as of December 31, 2020.

Asset Quality

As of June 30, 2021, nonaccrual loans totaled $20.2 million, down slightly from the $22.0 million reported as of March 31, 2021. In addition, there are $1.7 million in loans that are 90+ days past due and still accruing. These are two loans that are well-secured and in the process of collection. Total net charge-offs (recoveries) for the second quarter of 2021 were $1.2 million compared to a net recovery of ($57,000) in the prior quarter and compared to a net recovery of ($132,000) in the second quarter of 2020.

At June 30, 2021, the Bank had just one loan for $1.5 million still on COVID-19 deferral status. It’s critical to note that as of June 30, 2021, the Bank had recouped 67% of all interest deferred during the deferral period.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2021 was $0 compared to the $1.4 million recorded last quarter and the $7.5 million posted in the same period last year. Between the adoption of the new accounting standard for credit losses (CECL) in the first quarter of last year, and the heightened provisions for credit losses throughout 2020, the Bank’s allowance coverage ratio has increased to 1.52% of total non-PPP loans as of June 30, 2021 from a total coverage level of 0.94% as of December 31, 2019 which was the last quarter end prior to the pandemic.

Capitalization

As of June 30, 2021, the Bank’s leverage ratio was 10.07%, the common equity tier 1 capital ratio was 11.28% and the total capital ratio climbed to 15.61%. As of December 31, 2020, the Bank’s leverage ratio was 10.08%, the common equity tier 1 ratio was 11.21% and the total risk-based capital ratio was 14.64%.

GAAP – Non-GAAP Reconciliation

Net interest margin – GAAP3.25%Add: $2.3MM loan interest income0.17%Add: $614K unamortized $100M sub-debt issuance cost 0.05%Net interest margin – non-GAAP3.47%

Net interest margin – GAAP 3.25 %  
Add: $2.3MM loan interest income 0.17 %  
Add: $614K unamortized $100M sub-debt issuance cost 0.05 %  
Net interest margin – non-GAAP 3.47 %  

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2021 financial results will be held tomorrow, July 21, 2021 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank’s website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank’s Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank’s financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank’s website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through August 4, 2021; the passcode is 10158785.

About Preferred Bank

Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch in Flushing, New York. In addition, the Bank operates a Loan Production Office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank’s results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2020 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.

Financial Tables to Follow

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
                     
                     
          For the Quarter Ended  
          June 30,   March 31,   June 30,  
            2021       2021       2020    
Interest income:              
  Loans, including fees   $ 47,906     $ 49,859     $ 49,813    
  Investment securities     2,548       2,277       2,320    
  Fed funds sold     19       24       31    
    Total interest income     50,473       52,160       52,164    
                     
Interest expense:              
  Interest-bearing demand     1,530       1,437       1,462    
  Savings     18       19       17    
  Time certificates     3,419       3,827       6,973    
  Subordinated debit     2,145       1,531       1,531    
    Total interest expense     7,112       6,814       9,983    
    Net interest income     43,361       45,346       42,181    
Provision for credit losses           1,400       7,500    
    Net interest income after provision for              
      credit losses     43,361       43,946       34,681    
                     
Noninterest income:              
  Fees & service charges on deposit accounts     525       426       339    
  Letters of credit fee income     811       808       742    
  BOLI income     98       96       95    
  Net gain (loss) on called and sale of investment securities                 (113 )  
  Net gain (loss) on sale of loans     (261 )     (379 )        
  Other income     473       396       367    
    Total noninterest income     1,646       1,347       1,430    
                     
Noninterest expense:              
  Salary and employee benefits     10,285       11,123       10,095    
  Net occupancy expense     1,429       1,401       1,296    
  Business development and promotion expense     117       73       114    
  Professional services     996       981       1,006    
  Office supplies and equipment expense     476       438       459    
  Other       1,661       1,636       1,364    
    Total noninterest expense     14,964       15,652       14,334    
    Income before provision for income taxes     30,043       29,641       21,777    
Income tax expense     8,563       8,447       6,468    
    Net income   $ 21,480     $ 21,194     $ 15,309    
                     
Dividend and earnings allocated to participating securities     (3 )     (3 )     (49 )  
Net income available to common shareholders   $ 21,477     $ 21,191     $ 15,260    
                     
Income per share available to common shareholders              
    Basic   $ 1.44     $ 1.42     $ 1.03    
    Diluted   $ 1.44     $ 1.42     $ 1.03    
                     
Weighted-average common shares outstanding              
    Basic     14,954,688       14,950,019       14,879,383    
    Diluted     14,954,688       14,950,019       14,879,383    
                     
Cash dividends per common share   $ 0.38     $ 0.38     $ 0.30    
                     
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
                   
                   
          For the Six Months Ended    
          June 30,   June 30,   Change
            2021       2020     %
Interest income:            
  Loans, including fees   $ 97,765     $ 101,377     -3.6 %
  Investment securities     4,825       6,299     -23.4 %
  Fed funds sold     43       156     -72.7 %
    Total interest income     102,633       107,832     -4.8 %
                   
Interest expense:            
  Interest-bearing demand     2,967       4,830     -38.6 %
  Savings     37       31     17.8 %
  Time certificates     7,246       15,936     -54.5 %
  Subordinated debit     3,676       3,062     20.0 %
    Total interest expense     13,926       23,859     -41.6 %
    Net interest income     88,707       83,973     5.6 %
Provision for credit losses     1,400       12,800     -89.1 %
    Net interest income after provision for            
      credit losses     87,307       71,173     22.7 %
                   
Noninterest income:            
  Fees & service charges on deposit accounts     951       744     27.8 %
  Letters of credit fee income     1,619       1,590     1.8 %
  BOLI income     194       189     2.9 %
  Net gain (loss) on called and sale of investment securities           (113 )   -100.0 %
  Net gain (loss) on sale of loans     (640 )     15     -4363.5 %
  Other income     869       677     28.4 %
    Total noninterest income     2,993       3,102     -3.5 %
                   
Noninterest expense:            
  Salary and employee benefits     21,408       20,997     2.0 %
  Net occupancy expense     2,830       2,692     5.1 %
  Business development and promotion expense     190       265     -28.3 %
  Professional services     1,977       2,020     -2.1 %
  Office supplies and equipment expense     914       948     -3.6 %
  Other       3,297       2,597     27.0 %
    Total noninterest expense     30,616       29,519     3.7 %
    Income before provision for income taxes     59,684       44,756     33.4 %
Income tax expense     17,010       13,293     28.0 %
    Net income   $ 42,674     $ 31,463     35.6 %
                   
Dividend and earnings allocated to participating securities   $ (3 )   $ (51 )   -95.0 %
Net income available to common shareholders   $ 42,671     $ 31,412     35.8 %
                   
Income per share available to common shareholders            
    Basic   $ 2.85     $ 2.11     35.3 %
    Diluted   $ 2.85     $ 2.11     35.3 %
                   
Weighted-average common shares outstanding            
    Basic     14,952,366       14,875,049     0.5 %
    Diluted     14,952,366       14,875,049     0.5 %
                   
Dividends per share   $ 0.76     $ 0.60     26.7 %
                   
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
               
               
        June 30,   December 31,  
          2021       2020    
        (Unaudited)   (Audited)  
Assets        
Cash and due from banks $ 876,474     $ 739,465    
Fed funds sold   20,000       20,000    
  Cash and cash equivalents   896,474       759,465    
               
Securities held to maturity, at amortized cost   15,749       6,568    
Securities available-for-sale, at fair value   278,460       239,682    
Loans   4,278,403       4,035,394    
  Less allowance for credit losses   (63,635 )     (63,426 )  
  Less amortized deferred loan fees, net   (5,329 )     (4,574 )  
  Loans, net   4,209,439       3,967,394    
               
Customers’ liability on acceptances   7,797       3,596    
Bank furniture and fixtures, net   11,208       11,825    
Bank-owned life insurance   9,957       9,828    
Accrued interest receivable   18,316       23,692    
Investment in affordable housing partnerships   55,452       62,521    
Federal Home Loan Bank stock, at cost   15,000       15,000    
Deferred tax assets   24,583       24,466    
Income tax receivable   5,736          
Operating lease right-of-use assets   21,502       16,106    
Other assets   6,235       3,498    
  Total assets $ 5,575,908     $ 5,143,641    
               
Liabilities and Shareholders’ Equity        
Deposits:        
  Non-interest bearing demand deposits $ 1,063,472     $ 938,911    
  Interest-bearing deposits:   1,774,668       1,700,818    
    Savings   32,560       34,702    
    Time certificates of $250,000 or more   930,976       912,546    
    Other time certificates   994,630       855,503    
    Total deposits   4,796,306       4,442,480    
               
Acceptances outstanding   7,797       3,596    
Subordinated debt issuance, net   147,787       99,334    
Commitments to fund investment in affordable housing partnerships   19,197       30,715    
Operating lease liabilities   23,287       18,682    
Accrued interest payable   914       1,245    
Other liabilities   21,651       22,142    
  Total liabilities   5,016,939       4,618,194    
               
Shareholders’ equity   558,969       525,447    
  Total liabilities and shareholders’ equity $ 5,575,908     $ 5,143,641    
               
Book value per common share $ 37.36     $ 31.47    
Number of common shares outstanding   14,962,164       14,931,861    
PREFERRED BANK  
Selected Consolidated Financial Information  
(unaudited)  
(in thousands, except for ratios)  
                   
                   
                   
        For the Quarter Ended  
                   
        June 30, March 31, December 31, September 30, June 30,  
          2021     2021     2020     2020     2020    
Unaudited historical quarterly operations data:            
  Interest income $ 50,473   $ 52,160   $ 53,649   $ 52,782   $ 52,164    
  Interest expense   7,112     6,814     7,586     8,663     9,983    
    Interest income before provision for credit losses   43,361     45,346     46,063     44,119     42,181    
  Provision for credit losses       1,400     4,200     9,000     7,500    
  Noninterest income   1,646     1,347     1,356     1,605     1,430    
  Noninterest expense   14,964     15,652     14,177     13,663     14,334    
  Income tax expense   8,563     8,447     8,162     5,936     6,468    
    Net income $ 21,480   $ 21,194   $ 20,880   $ 17,125   $ 15,309    
                   
  Earnings per share            
    Basic $ 1.44   $ 1.42   $ 1.40   $ 1.15   $ 1.03    
    Diluted $ 1.44   $ 1.42   $ 1.40   $ 1.15   $ 1.03    
                   
Ratios for the period:            
  Return on average assets   1.58 %   1.65 %   1.63 %   1.34 %   1.26 %  
  Return on beginning equity   15.98 %   16.36 %   16.49 %   13.94 %   13.00 %  
  Net interest margin (Fully-taxable equivalent)   3.25 %   3.61 %   3.66 %   3.54 %   3.57 %  
  Noninterest expense to average assets   1.10 %   1.22 %   1.10 %   1.07 %   1.18 %  
  Efficiency ratio   33.25 %   33.52 %   29.90 %   29.88 %   32.87 %  
  Net charge-offs (recoveries) to average loans (annualized)   0.12 %   -0.01 %   0.20 %   0.35 %   -0.01 %  
                   
Ratios as of period end:            
  Tier 1 leverage capital ratio   10.07 %   10.26 %   10.08 %   9.75 %   9.87 %  
  Common equity tier 1 risk-based capital ratio   11.28 %   11.34 %   11.21 %   11.02 %   10.39 %  
  Tier 1 risk-based capital ratio   11.28 %   11.34 %   11.21 %   11.02 %   10.39 %  
  Total risk-based capital ratio   15.61 %   14.73 %   14.64 %   14.51 %   13.80 %  
  Allowances for credit losses to loans at end of period   1.49 %   1.56 %   1.57 %   1.55 %   1.41 %  
  Allowance for credit losses to non-performing loans   290.58 %   294.74 %   308.96 %   243.56 %   211.08 %  
                   
Average balances:            
  Total securities $ 269,000   $ 242,200   $ 251,284   $ 237,801   $ 250,134    
  Total loans $ 4,130,190   $ 4,044,800   $ 3,971,537   $ 3,956,145   $ 3,919,674    
  Total earning assets $ 5,364,598   $ 5,102,291   $ 5,018,031   $ 4,975,005   $ 4,768,537    
  Total assets $ 5,467,678   $ 5,200,079   $ 5,110,065   $ 5,073,548   $ 4,868,356    
  Total time certificate of deposits $ 1,893,247   $ 1,820,461   $ 1,764,528   $ 1,841,901   $ 1,757,531    
  Total interest bearing deposits $ 3,704,771   $ 3,531,358   $ 3,508,276   $ 3,501,275   $ 3,399,924    
  Total deposits $ 4,724,104   $ 4,486,399   $ 4,426,326   $ 4,408,882   $ 4,220,197    
  Total interest bearing liabilities $ 3,815,964   $ 3,630,705   $ 3,607,592   $ 3,600,560   $ 3,499,178    
  Total equity $ 553,561   $ 538,282   $ 518,567   $ 503,421   $ 486,931    
                   
PREFERRED BANK  
Selected Consolidated Financial Information  
(unaudited)  
(in thousands, except for ratios)  
               
               
               
        For the Six Months Ended  
        June 30,   June 30,  
          2021       2020    
               
  Interest income $ 102,633     $ 107,832    
  Interest expense   13,926       23,859    
    Interest income before provision for credit losses   88,707       83,973    
  Provision for credit losses   1,400       12,800    
  Noninterest income   2,993       3,102    
  Noninterest expense   30,616       29,519    
  Income tax expense   17,010       13,293    
    Net income $ 42,674     $ 31,463    
               
  Earnings per share        
    Basic $ 2.85     $ 2.11    
    Diluted $ 2.85     $ 2.11    
               
Ratios for the period:        
  Return on average assets   1.61 %     1.33 %  
  Return on beginning equity   16.38 %     13.46 %  
  Net interest margin (Fully-taxable equivalent)   3.43 %     3.63 %  
  Noninterest expense to average assets   1.16 %     1.25 %  
  Efficiency ratio   33.39 %     33.90 %  
  Net charge-offs (recoveries) to average loans   0.06 %     -0.01 %  
               
Average balances:        
  Total securities $ 255,675     $ 248,912    
  Total loans $ 4,087,731     $ 3,818,424    
  Total earning assets $ 5,234,170     $ 4,658,524    
  Total assets $ 5,334,618     $ 4,760,156    
  Total time certificate of deposits $ 1,857,055     $ 1,761,674    
  Total interest bearing deposits $ 3,618,543     $ 3,322,318    
  Total deposits $ 4,605,908     $ 4,115,413    
  Total interest bearing liabilities $ 3,723,846     $ 3,421,556    
  Total equity $ 545,964     $ 481,170    
               
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
                         
        As of
                         
        June 30,   March 31,   December 31,   September 30,   June 30,
          2021       2021       2020       2020       2020  
Unaudited quarterly statement of financial position data:                  
Assets:                  
  Cash and cash equivalents $ 896,474     $ 943,126     $ 759,465     $ 807,791     $ 656,183  
  Securities held-to-maturity, at amortized cost   15,749       6,039       6,568       6,727       6,922  
  Securities available-for-sale, at fair value   278,460       228,635       239,682       219,778       270,667  
  Loans:                  
    Real estate – Mortgage:                  
      Real estate—Residential $ 558,147     $ 541,313     $ 523,789     $ 528,371     $ 511,354  
      Real estate—Commercial   2,019,995       1,925,554       1,911,485       1,808,200       1,781,660  
      Total Real Estate – Mortgage   2,578,142       2,466,867       2,435,274       2,336,571       2,293,014  
    Real estate – Construction:                  
      R/E Construction — Residential   120,363       123,302       148,825       170,773       187,083  
      R/E Construction — Commercial   224,323       229,933       215,032       223,706       217,729  
      Total real estate construction loans   344,686       353,235       363,857       394,480       404,812  
    Commercial and industrial   1,259,668       1,248,550       1,165,990       1,144,051       1,192,056  
    PPP   95,765       95,434       70,234       74,551       73,524  
    Consumer and others   143       155       39       68       241  
      Gross loans   4,278,403       4,164,241       4,035,394       3,949,721       3,963,647  
  Allowance for credit losses on loans   (63,635 )     (64,883 )     (63,426 )     (61,262 )     (55,762 )
  Net deferred loan fees   (5,329 )     (4,872 )     (4,574 )     (4,411 )     (5,097 )
    Net loans, excluding loans held for sale $ 4,209,439     $ 4,094,486     $ 3,967,394     $ 3,884,048     $ 3,902,788  
  Loans held for sale $     $     $     $     $  
    Net loans $ 4,209,439     $ 4,094,486     $ 3,967,394     $ 3,884,048     $ 3,902,788  
                         
  Investment in affordable housing partnerships   55,452       59,824       62,521       47,917       49,658  
  Federal Home Loan Bank stock, at cost   15,000       15,000       15,000       15,000       15,000  
  Other assets   105,334       100,894       93,011       104,313       103,239  
    Total assets $ 5,575,908     $ 5,448,004     $ 5,143,641     $ 5,085,574     $ 5,004,457  
                         
Liabilities:                  
  Deposits:                  
    Demand $ 1,063,472     $ 1,026,260     $ 938,911     $ 926,166     $ 934,764  
    Interest-bearing demand   1,774,668       1,751,951       1,700,818       1,620,495       1,594,682  
    Savings   32,560       37,551       34,702       32,830       27,737  
    Time certificates of $250,000 or more   930,976       927,043       912,546       977,821       970,649  
    Other time certificates   994,630       979,694       855,503       857,113       822,404  
    Total deposits $ 4,796,306     $ 4,722,499     $ 4,442,480     $ 4,414,425     $ 4,350,236  
                         
  Acceptances outstanding $ 7,797     $ 9,670     $ 3,596     $ 7,463     $ 6,112  
  Subordinated debt issuance, net   147,787       99,365       99,334       99,304       99,273  
  Commitments to fund investment in affordable housing partnerships   19,197       27,918       30,715       16,689       17,536  
  Other liabilities   45,852       49,283       42,069       43,826       42,571  
    Total liabilities $ 5,016,939     $ 4,908,735     $ 4,618,194     $ 4,581,707     $ 4,515,728  
                         
Equity:                    
  Net common stock, no par value $ 219,958     $ 218,593     $ 217,444     $ 213,519     $ 212,187  
  Retained earnings   332,276       316,481       300,969       284,568       271,923  
  Accumulated other comprehensive income   6,735       4,195       7,034       5,780       4,619  
    Total shareholders’ equity $ 558,969     $ 539,269     $ 525,447     $ 503,867     $ 488,729  
    Total liabilities and shareholders’ equity $ 5,575,908     $ 5,448,004     $ 5,143,641     $ 5,085,574     $ 5,004,457  
                         
PREFERRED BANK
Quarter-to-Date Average Balances, Yields and Rates
(Unaudited)
                           
                       
      Three months ended June 30,   Three months ended March 31,   Three months ended June 30,
        2021       2020       2020  
        Interest Average     Interest Average     Interest Average
      Average Income or Yield/   Average Income or Yield/   Average Income or Yield/
      Balance Expense Rate   Balance Expense Rate   Balance Expense Rate
   
ASSETS (Dollars in thousands)
Interest-earning assets:                      
  Loans (1,2) $ 4,132,451     47,906 4.65 %   $ 4,044,823   $ 49,859 5.00 %   $ 3,921,694   $ 49,813 5.11 %
  Investment securities (3)   269,000     2,058 3.07 %     242,200     1,884 3.16 %     250,134     2,098 3.37 %
  Federal funds sold   20,437     19 0.36 %     21,474     24 0.45 %     24,324     31 0.52 %
  Other earning assets   942,710     597 0.25 %     793,794     493 0.25 %     572,385     318 0.23 %
    Total interest-earning assets   5,364,598     50,580 3.78 %     5,102,291     52,260 4.15 %     4,768,537     52,260 4.41 %
  Deferred loan fees, net   (4,924 )         (4,344 )         (3,182 )    
  Allowance for credit losses on loans   (64,842 )         (63,450 )         (48,247 )    
Noninterest earning assets:                      
  Cash and due from banks   10,620           9,923           8,274      
  Bank furniture and fixtures   11,468           11,772           11,993      
  Right of use assets   19,735           16,847           16,768      
  Other assets   131,023           127,040           114,213      
    Total assets $ 5,467,678         $ 5,200,079         $ 4,868,356      
                           
LIABILITIES AND SHAREHOLDERS’ EQUITY                      
Interest-bearing liabilities:                      
  Deposits:                      
    Interest-bearing demand and savings   1,811,524   $ 1,548 0.34 %     1,710,897   $ 1,456 0.35 %   $ 1,642,393   $ 1,479 0.36 %
    TCD $250K or more   926,161     1,688 0.73 %     919,155     1,918 0.85 %     945,043     3,624 1.54 %
    Other time certificates   967,086     1,731 0.72 %     901,306     1,909 0.86 %     812,488     3,349 1.66 %
    Total interest-bearing deposits   3,704,771     4,967 0.54 %     3,531,358     5,283 0.61 %     3,399,924     8,452 1.00 %
Subordinated debt, net   111,193     2,145 7.74 %     99,347     1,531 6.25 %     99,254     1,531 6.20 %
    Total interest-bearing liabilities   3,815,964     7,112 0.75 %     3,630,705     6,814 0.76 %     3,499,178     9,983 1.15 %
Non-interest bearing liabilities:                      
  Demand deposits   1,019,333           955,041           820,273      
  Lease Liability   21,765           19,289           19,841      
  Other liabilities   57,055           56,762           42,133      
    Total liabilities   4,914,117           4,661,797           4,381,425      
Shareholders’ equity   553,561           538,282           486,931      
    Total liabilities and shareholders’ equity $ 5,467,678         $ 5,200,079         $ 4,868,356      
Net interest income   $ 43,468       $ 45,446       $ 42,277  
Net interest spread     3.03 %       3.39 %       3.26 %
Net interest margin     3.25 %       3.61 %       3.57 %
                           
Cost of Deposits:                      
  Noninterest bearing demand deposits $ 1,019,333         $ 955,041         $ 820,273      
  Interest bearing deposits   3,704,771     4,967 0.54 %     3,531,358     5,283 0.61 %     3,399,924     8,452 1.00 %
    Total Deposits $ 4,724,104   $ 4,967 0.42 %   $ 4,486,399   $ 5,283 0.48 %   $ 4,220,197   $ 8,452 0.81 %
                           
                       
(1) Includes non-accrual loans and loans held for sale                    
(2) Net loan fee income of $699,000, $539,000 and $542,000 for the quarter ended June 30, 2021, March 31, 2021, June 30, 2020, respectively, are included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis                  
PREFERRED BANK
Year-to-Date Average Balances, Yields and Rates
(Unaudited)
                   
                   
      Six Months ended June 30,
        2021   2020  
        Interest Average     Interest Average
      Average Income or Yield/   Average Income or Yield/
      Balance Expense Rate   Balance Expense Rate
ASSETS (Dollars in thousands)
Interest-earning assets:              
  Loans (1,2) $ 4,088,879   $ 97,765 4.82 %   $ 3,819,453   $ 101,377 5.34 %
  Investment securities (3)   255,675     3,942 3.11 %     248,912     4,225 3.41 %
  Federal funds sold   20,953     43 0.41 %     27,238     156 1.15 %
  Other earning assets   868,663     1,090 0.25 %     562,921     2,263 0.81 %
    Total interest-earning assets   5,234,170     102,840 3.96 %     4,658,524     108,021 4.66 %
  Deferred loan fees, net   (4,636 )         (3,131 )    
  Allowance for credit losses on loans   (64,150 )         (45,523 )    
Noninterest earning assets:              
  Cash and due from banks   10,273           7,304      
  Bank furniture and fixtures   11,619           12,131      
  Right of use assets   18,299           16,887      
  Other assets   129,042           113,964      
    Total assets $ 5,334,618         $ 4,760,156      
                   
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Interest-bearing liabilities:              
  Deposits:              
    Interest-bearing demand/ savings   1,761,488   $ 3,004 0.34 %     1,560,644   $ 4,861 0.63 %
    TCD $250K or more   922,677     3,606 0.79 %     957,193     8,476 1.78 %
    Other time certificates   934,378     3,640 0.79 %     804,481     7,460 1.86 %
    Total interest-bearing deposits   3,618,543     10,250 0.57 %     3,322,318     20,797 1.26 %
Subordinated debt, net   105,303     3,676 7.04 %     99,238     3,062 6.20 %
    Total interest-bearing liabilities   3,723,846     13,926 0.75 %     3,421,556     23,859 1.40 %
Non-interest bearing liabilities:              
  Demand deposits   987,365           793,095      
  Lease Liability   20,534           20,077      
  Other liabilities   56,909           44,258      
    Total liabilities   4,788,654           4,278,986      
Shareholders’ equity   545,964           481,170      
    Total liabilities and shareholders’ equity $ 5,334,618         $ 4,760,156      
Net interest income   $ 88,914       $ 84,162  
Net interest spread     3.21 %       3.26 %
Net interest margin     3.43 %       3.63 %
                   
Cost of Deposits:              
  Noninterest bearing demand deposits $ 987,365         $ 793,095      
  Interest bearing deposits   3,618,543     10,250 0.57 %     3,322,318     20,797 1.26 %
    Total Deposits $ 4,605,908   $ 10,250 0.45 %   $ 4,115,413   $ 20,797 1.02 %
                   
(1) Includes non-accrual loans and loans held for sale              
(2) Net loan fee income of $1.2 million for the six months ended June 30, 2021 and 2020 is included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis            
Preferred Bank
Loan and Credit Quality Information
               
Allowance For Credit Losses History
          Six Months Ended   Year ended
          June 30, 2021   December 31, 2020
                       
           
           (Dollars in 000’s)
Allowance For Credit Losses        
Balance at Beginning of Period   $ 63,426     $ 34,830  
  Charge-Offs        
    Commercial & Industrial     431       3,700  
    Mini-perm Real Estate     817       1,900  
    Others           7  
       Total Charge-Offs     1,248       5,607  
               
  Recoveries        
    Commercial & Industrial     57        
    Construction – Commercial           194  
    Land – Commercial           9  
       Total Recoveries     57       203  
               
  Net Charge-Offs (Recoveries)     1,191       5,404  
  Provision for Credit Losses:        
    CECL Cumulative Effect Adjustment           8,000  
    Current Provision     1,400       26,000  
Balance at End of Period   $ 63,635     $ 63,426  
Average Loans Held for Investment   $ 4,044,823     $ 3,892,811  
Loans Held for Investment at End of Period   $ 4,278,403     $ 4,035,394  
Net Charge-Offs (Recoveries) to Average Loans     0.06 %     0.14 %
Allowances for Credit Losses to Loans at End of Period     1.49 %     1.57 %
               
AT THE COMPANY: AT FINANCIAL PROFILES:
Edward J. Czajka  Jeffrey Haas
Executive Vice President General Information
Chief Financial Officer   (310) 622-8240
(213) 891-1188   PFBC@finprofiles.com 

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