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Preferred Bank Reports Quarterly Earnings

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LOS ANGELES, Oct. 19, 2020 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended September 30, 2020. Preferred Bank (“the Bank”) reported net income of $17.1 million or $1.15 per diluted share for the third quarter of 2020. This is down from net income of $20.0 million or $1.32 per diluted share for the third quarter of 2019 but easily surpasses net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. The primary reason for the decrease compared to the prior year is the provision for credit losses, which totaled $9.0 million for the third quarter of 2020, as compared to $900,000 in the third quarter of 2019. Compared to the second quarter of 2020, however, the provision for credit losses increased $1.5 million over the $7.5 million recorded in that period, yet net income increased $1.9 million or $0.12 per diluted share. This was due to an increase in net interest income, an increase in noninterest income coupled with a decrease in noninterest expense.

Li Yu, Chairman and CEO, commented, “We are pleased to report third quarter net income of $17.1 million or $1.15 per share. Our earnings compare favorably with the previous two quarters. In fact, on a pre-tax, pre-provision (PTPP) basis, our third quarter and YTD earnings reached a record high. The primary reasons for the performance was significantly reduced interest cost and effective overhead control. The Bank’s third quarter efficiency ratio clocked in at 29.88%. Our net interest margin, however, compressed slightly from the previous quarter due to a larger balance sheet and much higher level of cash. Under the current interest rate environment, excess cash reduces our profitability.

Deposits continued to grow in the third quarter as we saw a $64.2 million or 1.5% increase from June 30, 2020. However, our loan balances came in $14 million below the previous quarter. The prolonged shut down of our trade area has reduced the opportunities for new loans. The uncertainties further make many new opportunities proportionately less attractive.

Our main focus at present is credit management. We elected to charge-off portions of the two loans which were placed on nonaccrual status last quarter in addition to fully reserving for any amounts which may not be collectible. In addition, due to the ongoing economic disruption caused by the pandemic, our provision for credit losses is again elevated this quarter. The allowance for credit loss to total loans now stands at 1.58% (excluding PPP loans).

A great deal of the credit management effort was also spent on loans modified under the CARES Act. These loans totaled $199.5 million at September 30, 2020 which represented a $267.6 million or 57% reduction from the $467.1 million reported on June 30, 2020. We have also been in contact with substantially all of these borrowers inquiring about their plan of resumption of scheduled payments. We are encouraged to learn that loans under modification at December 31, 2020 could be a very modest amount.

The pandemic has resulted in unprecedented uncertainties for our citizens, our economy and the banking industry. Preferred Bank’s outstanding operating metrics and earnings power will provide an additional resource in meeting the challenges ahead.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $44.1 million for the third quarter of 2020. This is an increase over the $41.5 million recorded in the third quarter of 2019 as well as the $42.2 million recorded in the second quarter of 2020. The increase over both periods is due to growth in average total loans as well as declining deposit costs. The Bank’s taxable equivalent net interest margin was 3.54% for the third quarter of 2020, a 30 basis point decrease from the 3.84% achieved in the third quarter of 2019 and a 3 basis point decrease from the 3.57% posted in the second quarter of 2020. During the third quarter, compared to the second quarter, average interest-earning assets increased by $207 million, of which $184 million was centered in cash, most of which earns interest at 0.10% per annum. This brought average asset yields down to 4.23% in the quarter from 4.41% the previous quarter. Fortunately, the Bank continues to benefit from lower deposit costs as the Bank’s total cost of deposits went from 0.81% in the second quarter down to 0.64% in the third quarter. Total deposit interest expense is down by more than half, or 52% from the same period last year.

Noninterest Income. For the third quarter of 2020, noninterest income was $1,605,000 compared with $1,737,000 for the same quarter last year and compared to $1,430,000 for the second quarter of 2020. The decrease from the third quarter of 2019 was due mainly to letter of credit fee income which decreased by $183,000. In addition, the Bank incurred a loss on sale of investment securities of $113,000 in the second quarter of 2020 compared to a gain of $15,000 in the third quarter of 2020.

Noninterest Expense. Total noninterest expense was $13.7 million for the third quarter of 2020. This is down from the $13.9 million recorded in the same quarter last year and is also down from the $14.3 million posted in the second quarter of 2020. Salaries and benefits expense totaled $9.1 million for the third quarter of 2020, a decrease of $675,000 from the third quarter of 2019 and a decrease of $1.0 million from the second quarter of 2020. The decrease from the prior quarter is mostly to an increase in capitalized loan origination costs related to higher overall loan production in the third quarter versus the second quarter. The decrease from the prior year is due mainly to reduced bonus expense as the Bank’s profitability is lower than in the prior year, which is the main driver of total incentive compensation. Occupancy expense totaled $1.5 million for the quarter and this represented an increase over the $1.3 million recorded in the third quarter of 2019 and the second quarter of 2020. Professional services expense was $1.0 million for the third quarter of 2020 and was down slightly from the $1.1 million recorded in the same quarter of 2019 and flat compared to the $1.0 million posted in the second quarter of 2020. Other expenses were $1.6 million for the third quarter of 2020, an increase of $414,000 over the same period last year and up by $207,000 over the second quarter of 2020. The increase over both periods was mainly due to FDIC insurance premiums of which there were none in the third quarter of 2019 and which were also lower in the second quarter of 2020 compared to the third quarter. For the quarter ended September 30, 2020, the Bank’s efficiency ratio was 29.9%.

Income Taxes. The Bank recorded a provision for income taxes of $5.9 million for the third quarter of 2020. This represents an effective tax rate (“ETR”) of 27.5% and a slight decrease from the ETR of 29.5% for the same quarter last year and also down from the 29.7% recorded in the second quarter of 2020. 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 September 30, 2020 were $3.95 billion, an increase of $224.8 million or 6.0% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.41 billion, an increase of $421.1 million or 10.8% over the $3.98 billion as of December 31, 2019. Total assets ended the quarter at $5.09 billion, an increase of $457.1 million or 9.9% over the total of $4.63 billion as of December 31, 2019.

Below is a breakdown of the Bank’s loan portfolio by segment as of September 30, 2020:

Category

Loan Count

Total Balance
(000's)

% of Loan
Balance

Average LTV

Average
DCR

Cash Secured

79

34,241

0.87%

N/A

N/A

Commercial

1,741

1,094,872

27.72%

N/A

N/A

International

62

15,006

0.38%

N/A

N/A

Construction - 1-4 Residential

54

170,773

4.32%

48.8%

N/A

Construction - Commercial

41

223,706

5.66%

53.8%

N/A

Real Estate - 1-4 Residential

165

248,371

6.29%

55.5%

1.32

Real Estate - Industrial

99

243,130

6.16%

53.9%

1.71

Real Estate - Multifamily

68

282,188

7.14%

58.1%

1.24

Real Estate - Office

70

327,786

8.30%

55.5%

1.66

Real Estate - Retail

116

411,508

10.42%

59.0%

1.55

Real Estate - Special Purpose

75

542,561

13.74%

51.5%

1.51

Real Estate - Vacant Land

4

7,787

0.20%

49.4%

N/A

SBA

227

74,551

1.89%

N/A

N/A

HELOC

6

1,545

0.04%

42.4%

N/A

Residential Mortgage

422

271,695

6.88%

59.7%

% (DTI)

Total

3,229

3,949,721

100.00%


Asset Quality

As of September 30, 2020, nonaccrual loans totaled $25.2 million, down slightly from the $26.4 million reported as of June 30, 2020 and but an increase over the $2.1 million reported at December 31, 2019. Total net charge-offs for the third quarter of 2020 were $3.5 million compared to net recoveries of $133,000 in the second quarter of 2020 and compared to net charge-offs of $430,000 for the third quarter of 2019.

COVID – 19 Relief Modifications

Below is a breakdown of loans at September 30, 2020 that are in some form of payment deferment by segment as compared to June 30, 2020:

Loan Type

Prior Qtr
Total in Deferral
30-Jun-20

Curr Qtr
Total in Deferral
30-Sept-20

% of Total
Portfolio

Weighted
Average LTV

Quarterly Decrease

$

%

Commercial and Industrial

$

39,518

$

5,865

0.6%

N/A

$

33,653

85.2%

Office

28,696

16,200

4.9%

55.5%

12,496

43.5%

Industrial

29,495

13,064

5.4%

53.9%

16,431

55.7%

Retail

88,319

64,169

15.6%

59.0%

24,150

27.3%

Multi-Family

17,593

17,200

6.1%

58.1%

393

2.2%

1-4 Family (Inv)

6,624

3,915

1.6%

55.6%

2,709

40.9%

Restaurant

6,149

4,212

19.2%

47.2%

1,937

31.5%

Special Purpose / Hotel

172,531

47,305

13.8%

54.9%

125,226

72.6%

Special Purpose / Other

51,232

12,720

6.4%

45.7%

38,512

75.2%

Construction / AD

-

-

0.0%

-

0.0%

Residential Mortgage

26,935

14,887

5.5%

-

12,048

44.7%

Grand Total

$

467,092

$

199,537

5.1%

$

267,555

57.3%


At September 30, 2020, total dollar amount of loans in deferral were equal to 5.1% of the Bank’s loan portfolio. Of the total modifications at present, 37% are for the deferral of interest only and 57% are for principal and interest deferral. As previously mentioned, based on communications with nearly all of those in deferral, the outlook for deferrals at year end appears modest.

Allowance for Credit Losses

Due primarily to the ongoing partial economic shutdown and uncertainty regarding future economic activity, the provision for credit losses continues to be elevated at $9.0 million for this quarter. This compares to the $7.5 million provision recorded in the second quarter of 2020 and is well ahead of the $900,000 recorded in the same quarter last year. In the first quarter of 2020, the Bank implemented the CECL methodology under Accounting Standards Codification ("ASC") 326, in which the allowance for credit losses now reflects expected credit losses over the life of loans and held-to-maturity debt securities, and incorporates macroeconomic forecasts as well as historical loss rates. Between the adoption of CECL in the first quarter, and the heightened provisions for credit losses to-date this year, the Bank’s allowance coverage ratio has increased from 0.94% of total loans as of December 31, 2019 to a coverage ratio now totaling 1.58% of total non-PPP loans.

Capitalization

As of September 30, 2020, the Bank’s leverage ratio was 9.75%, the common equity tier 1 capital ratio was 10.98% and the total capital ratio was 14.47%. As of December 31, 2019, the Bank’s leverage ratio was 10.32%, the common equity tier 1 ratio was 10.57% and the total risk based capital ratio was 13.70%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s third quarter 2020 financial results will be held tomorrow, October 20, 2020 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, 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 November 3, 2020; the passcode is 10148872.

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. 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 2019 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.

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


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

September 30,

June 30,

September 30,

2020

2020

2019

Interest income:

Loans, including fees

$

50,417

$

49,813

$

52,862

Investment securities

2,335

2,320

4,875

Fed funds sold

30

31

222

Total interest income

52,782

52,164

57,959

Interest expense:

Interest-bearing demand

1,432

1,462

4,904

Savings

20

17

13

Time certificates

5,681

6,973

10,034

Subordinated debit

1,530

1,531

1,531

Total interest expense

8,663

9,983

16,482

Net interest income

44,119

42,181

41,477

Provision for credit losses

9,000

7,500

900

Net interest income after provision for

credit losses

35,119

34,681

40,577

Noninterest income:

Fees & service charges on deposit accounts

428

339

401

Letters of credit fee income

690

742

874

BOLI income

96

95

94

Net gain (loss) on called and sale of investment securities

15

(113

)

-

Other income

376

367

368

Total noninterest income

1,605

1,430

1,737

Noninterest expense:

Salary and employee benefits

9,126

10,095

9,801

Net occupancy expense

1,455

1,296

1,329

Business development and promotion expense

95

114

109

Professional services

974

1,006

1,149

Office supplies and equipment expense

443

459

483

Net loss (gain) on sale of other real estate owned and expense

3

2

(129)

Other

1,567

1,362

1,156

Total noninterest expense

13,663

14,334

13,898

Income before provision for income taxes

23,061

21,777

28,416

Income tax expense

5,936

6,468

8,383

Net income

$

17,125

$

15,309

$

20,033

Dividend and earnings allocated to participating securities

(53

)

(49

)

(168

)

Net income available to common shareholders

$

17,072

$

15,260

$

19,865

Income per share available to common shareholders

Basic

$

1.15

$

1.03

$

1.32

Diluted

$

1.15

$

1.03

$

1.32

Weighted-average common shares outstanding

Basic

14,893,774

14,879,383

15,091,270

Diluted

14,893,774

14,879,383

15,091,270

Cash dividends per common share

$

0.30

$

0.30

$

0.30



PREFERRED BANK

Condensed Consolidated Statements of Financial Condition

(unaudited)

(in thousands)

September 30,

December 31,

September 30,

2020

2019

2019

(Unaudited)

(Audited)

(Unaudited)

Assets

Cash and due from banks

$

780,291

$

498,645

$

409,189

Fed funds sold

27,500

37,000

56,000

Cash and cash equivalents

807,791

535,645

465,189

Securities held to maturity, at amortized cost

6,727

7,310

7,545

Securities available-for-sale, at fair value

219,778

240,640

242,655

Loans

3,949,721

3,724,922

3,671,450

Less allowance for credit losses

(61,262

)

(34,830

)

(34,281

)

Amortized deferred loan fees, net

(4,411

)

(3,028

)

(2,518

)

Loans, net

3,884,048

3,687,064

3,634,651

Loans held for sale, at lower of cost or fair value

-

-

2,999

Customers' liability on acceptances

7,463

7,379

7,333

Bank furniture and fixtures, net

11,797

12,236

12,438

Bank-owned life insurance

9,764

9,571

9,507

Accrued interest receivable

24,353

14,961

14,505

Investment in affordable housing

47,917

53,142

39,780

Federal Home Loan Bank stock

15,000

13,101

13,101

Deferred tax assets

21,219

19,560

17,338

Income tax receivable

9,090

3,368

3,849

Operating lease right-of-use assets

16,384

17,103

17,362

Other assets

4,243

7,401

7,232

Total assets

$

5,085,574

$

4,628,481

$

4,495,484

Liabilities and Shareholders' Equity

Deposits:

Non-interest bearing demand deposits

$

926,166

$

835,790

$

774,869

Interest-bearing deposits:

1,620,495

1,328,863

1,435,144

Savings

32,830

23,784

21,985

Time certificates of $250,000 or more

977,821

976,727

849,574

Other time certificates

857,113

818,130

787,392

Total deposits

4,414,425

3,983,294

3,868,964

Acceptances outstanding

7,463

7,379

7,333

Subordinated debt issuance

99,304

99,211

99,180

Commitments to fund investment in affordable housing partnership

16,689

24,149

12,904

Operating lease liabilities

19,106

20,497

20,958

Accrued interest payable

2,940

3,324

6,117

Other liabilities

21,780

20,612

20,948

Total liabilities

4,581,707

4,158,466

4,036,404

Shareholders' equity

503,867

470,015

459,080

Total liabilities and shareholders' equity

$

5,085,574

$

4,628,481

$

4,495,484

Book value per common share

$

33.74

$

31.47

$

30.42

Number of common shares outstanding

14,933,307

14,933,768

15,091,657



PREFERRED BANK

Selected Consolidated Financial Information

(unaudited)

(in thousands, except for ratios)

For the Quarter Ended

September 30,

June 30,

Mars 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Unaudited historical quarterly operations data:

Interest income

$

52,782

$

52,164

$

55,667

$

55,483

$

57,959

Interest expense

8,663

9,983

13,876

15,074

16,482

Interest income before provision for credit losses

44,119

42,181

41,791

40,409

41,477

Provision for credit losses

9,000

7,500

5,300

450

900

Noninterest income

1,605

1,430

1,672

1,883

1,737

Noninterest expense

13,663

14,334

15,184

13,770

13,898

Income tax expense

5,936

6,468

6,825

8,456

8,383

Net income

$

17,125

$

15,309

$

16,154

$

19,616

$

20,033

Earnings per share

Basic

$

1.15

$

1.03

$

1.08

$

1.31

$

1.32

Diluted

$

1.15

$

1.03

$

1.08

$

1.31

$

1.32

Ratios for the period:

Return on average assets

1.34%

1.26%

1.40%

1.74%

1.81%

Return on beginning equity

13.94%

13.00%

13.82%

16.95%

17.61%

Net interest margin (Fully-taxable equivalent)

3.54%

3.57%

3.70%

3.67%

3.84%

Noninterest expense to average assets

1.07%

1.18%

1.31%

1.22%

1.25%

Efficiency ratio

29.88%

32.87%

34.93%

32.56%

32.16%

Net charge-offs (recoveries) to average loans (annualized)

0.35%

-0.01%

0.00%

-0.01%

0.05%

Ratios as of period end:

Tier 1 leverage capital ratio

9.75%

9.87%

10.05%

10.32%

10.27%

Common equity tier 1 risk-based capital ratio

10.98%

10.39%

10.80%

10.57%

10.40%

Tier 1 risk-based capital ratio

10.98%

10.39%

10.80%

10.57%

10.40%

Total risk-based capital ratio

14.47%

13.80%

14.26%

13.70%

13.53%

Allowances for credit losses to loans and leases at end of period

1.55%

1.41%

1.24%

0.94%

0.93%

Allowance for credit losses to non-performing loans and leases

243.56%

211.08%

2263.66%

1631.42%

895.30%

Average balances:

Total securities

$

237,801

$

250,134

$

247,689

$

248,904

$

249,060

Total loans

$

3,956,145

$

3,919,674

$

3,717,175

$

3,613,400

3,534,194

Total earning assets

$

4,975,005

$

4,768,537

$

4,548,512

$

4,381,206

$

4,298,523

Total assets

$

5,073,650

$

4,868,356

$

4,651,956

$

4,482,210

$

4,395,357

Total time certificate of deposits

$

1,841,901

$

1,757,531

$

1,765,816

$

1,756,480

$

1,650,965

Total interest bearing deposits

$

3,501,275

$

3,399,924

$

3,244,711

$

3,050,318

$

3,051,007

Total deposits

$

4,408,882

$

4,220,197

$

4,010,629

$

3,849,825

$

3,772,097

Total interest bearing liabilities

$

3,600,560

$

3,499,178

$

3,343,933

$

3,149,511

$

3,150,167

Total equity

$

503,515

$

486,931

$

475,409

$

463,849

$

460,451



PREFERRED BANK

Selected Consolidated Financial Information

(unaudited)

(in thousands, except for ratios)

As of

September 30,

June 30,

Mars 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Unaudited quarterly statement of financial position data:

Assets:

Cash and cash equivalents

$

807,791

$

656,183

$

484,869

$

535,645

$

465,189

Securities held-to-maturity, at amortized cost

6,727

6,922

7,077

7,310

7,545

Securities available-for-sale, at fair value

219,778

270,667

235,097

240,640

242,655

Loans:

Real estate – Mortgage:

Real estate—Residential

$

528,371

$

511,354

$

493,226

$

468,321

$

432,605

Real estate—Commercial

1,808,200

1,781,660

1,730,017

1,731,017

1,751,735

Total Real Estate – Mortgage

2,336,571

2,293,014

2,223,243

2,199,338

2,184,340

Real estate – Construction:

R/E Construction — Residential

170,773

187,083

177,364

173,951

179,651

R/E Construction — Commercial

223,706

217,729

223,385

218,562

216,812

Total real estate construction loans

394,480

404,812

400,749

392,513

396,463

Commercial and industrial

1,144,051

1,192,056

1,269,242

1,132,629

1,090,230

PPP

74,551

73,524

-

-

-

Consumer and others

68

241

91

442

417

Gross loans

3,949,721

3,963,647

3,893,325

3,724,922

3,671,450

Allowance for credit losses on loans

(61,262

)

(55,762

)

(48,130

)

(34,830

)

(34,281

)

Net deferred loan fees

(4,411

)

(5,097

)

(3,084

)

(3,028

)

(2,518

)

Net loans, excluding loans held for sale

$

3,884,048

$

3,902,788

$

3,842,111

$

3,687,064

$

3,634,651

Loans held for sale

$

-

$

-

$

-

$

-

$

2,999

Net loans

$

3,884,048

$

3,902,788

$

3,842,111

$

3,687,064

$

3,637,650

Investment in affordable housing

47,917

49,658

51,400

53,142

39,780

Federal Home Loan Bank stock

15,000

15,000

13,101

13,101

13,101

Other assets

104,313

103,239

93,979

91,579

89,564

Total assets

$

5,085,574

$

5,004,457

$

4,727,634

$

4,628,481

$

4,495,484

Liabilities:

Deposits:

Demand

$

926,166

$

934,764

$

753,750

$

835,790

$

774,869

Interest-bearing demand

1,620,495

1,594,682

1,503,618

1,328,863

1,435,144

Savings

32,830

27,737

23,035

23,784

21,985

Time certificates of $250,000 or more

977,821

970,649

1,030,282

976,727

849,574

Other time certificates

857,113

822,404

775,792

818,130

787,392

Total deposits

$

4,414,425

$

4,350,236

$

4,086,477

$

3,983,294

$

3,868,964

Acceptances outstanding

$

7,463

$

6,112

$

6,507

$

7,379

$

7,333

Subordinated debt issuance

99,304

99,273

99,242

99,211

99,180

Commitments to fund investment in affordable housing partnership

16,689

17,536

21,195

24,149

12,904

Other liabilities

43,826

42,571

40,428

44,433

48,023

Total liabilities

$

4,581,707

$

4,515,728

$

4,253,849

$

4,158,466

$

4,036,404

Equity:

Net common stock, no par value

$

213,519

$

212,187

$

210,091

$

210,998

$

215,123

Retained earnings

284,568

271,923

261,095

255,050

239,914

Accumulated other comprehensive income

5,780

4,619

2,599

3,967

4,043

Total shareholders' equity

$

503,867

$

488,729

$

473,785

$

470,015

$

459,080

Total liabilities and shareholders' equity

$

5,085,574

$

5,004,457

$

4,727,634

$

4,628,481

$

4,495,484



PREFERRED BANK

QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES

(Unaudited)

Three months ended September 30,

Three months ended June 30,

Three months ended September 30,

2020

2020

2019

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)

$

3,956,145

$

50,417

5.07%

$

3,921,694

$

49,813

5.11%

$

3,534,283

$

52,862

5.93%

Investment securities (3)

237,801

1,967

3.29%

250,134

2,098

3.37%

249,060

2,253

3.59%

Federal funds sold

23,828

30

0.50%

24,324

31

0.52%

35,079

222

2.52%

Other earning assets

757,231

474

0.25%

572,385

318

0.22%

480,101

2,737

2.26%

Total interest-earning assets

4,975,005

52,888

4.23%

4,768,537

52,260

4.41%

4,298,523

58,074

5.36%

Deferred loan fees, net

(4,713)

(3,182)

(1,742)

Allowance for credit losses on loans

(55,724)

(48,247)

(33,717)

Noninterest earning assets:

Cash and due from banks

7,355

8,274

4,935

Bank furniture and fixtures

11,856

11,993

12,656

Right of use assets

16,550

16,768

17,525

Other assets

123,321

114,213

97,177

Total assets

$

5,073,650

$

4,868,356

$

4,395,357

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Deposits:

Interest-bearing demand and savings

1,659,374

$

1,452

0.35%

1,642,393

$

1,479

0.36%

$

1,400,042

$

4,917

1.39%

TCD $250K or more

987,631

2,993

1.21%

945,043

3,624

1.54%

845,262

5,120

2.40%

Other time certificates

854,270

2,688

1.25%

812,488

3,349

1.66%

805,703

4,914

2.42%

Total interest-bearing deposits

3,501,275

7,133

0.81%

3,399,924

8,452

1.00%

3,051,007

14,951

1.94%

Subordinated debt

99,285

1,530

6.13%

99,254

1,531

6.20%

99,160

1,531

6.13%

Total interest-bearing liabilities

3,600,560

8,663

0.96%

3,499,178

9,983

1.15%

3,150,167

16,482

2.08%

Non-interest bearing liabilities:

Demand deposits

907,607

820,273

721,090

Lease Liability

19,400

19,841

21,252

Other liabilities

42,568

42,133

42,397

Total liabilities

4,570,135

4,381,425

3,934,906

Shareholders’ equity

503,515

486,931

460,451

Total liabilities and shareholders’ equity

$

5,073,650

$

4,868,356

$

4,395,357

Net interest income

$

44,225

$

42,277

$

41,592

Net interest spread

3.27%

3.26%

3.28%

Net interest margin

3.54%

3.57%

3.84%

Cost of Deposits:

Noninterest bearing demand deposits

$

907,607

$

820,273

$

721,090

Interest bearing deposits

3,501,275

7,133

0.81%

3,399,924

8,452

1.00%

3,051,007

14,951

1.94%

Total Deposits

$

4,408,882

$

7,133

0.64%

$

4,220,197

$

8,452

0.81%

$

3,772,097

$

14,951

1.57%

(1)

Includes non-accrual loans and loans held for sale

(2)

Net loan fee income of $683,000 and $640,000 for the quarter ended September 30, 2020 and 2019, 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, YIELD AND RATES

(Unaudited)

Nine months ended September 30,

2020

2019

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)

$

3,865,350

$

151,794

5.25%

$

3,389,136

$

156,166

6.16%

Investment securities (3)

245,181

6,193

3.37%

215,818

6,442

3.99%

Federal funds sold

26,093

185

0.95%

42,720

799

2.50%

Other earning assets

628,165

2,736

0.58%

436,906

8,143

7.41%

Total interest-earning assets

4,764,789

160,908

4.51%

4,084,580

171,550

5.62%

Deferred loan fees, net

(3,662)

(1,721)

Allowance for credit losses on loans

(48,949)

(31,776)

Noninterest earning assets:

Cash and due from banks

7,321

5,923

Bank furniture and fixtures

12,039

10,201

Right of use assets

16,774

11,852

Other assets

117,105

110,456

Total assets

$

4,865,417

$

4,189,515

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

Deposits:

Interest-bearing demand/ savings

1,593,793

$

6,313

0.53%

1,324,550

$

14,504

1.46%

TCD $250K or more

967,413

11,469

1.58%

787,522

13,992

2.38%

Other time certificates

821,199

10,148

1.65%

787,354

13,902

2.36%

Total interest-bearing deposits

3,382,405

27,930

1.10%

2,899,426

42,398

1.96%

Subordinated debt

99,254

4,592

6.18%

99,108

4,593

6.20%

Long-term debt

-

-

0.00%

1,052

19

2.46%

Total interest-bearing liabilities

3,481,659

32,522

1.25%

2,999,586

47,010

2.10%

Non-interest bearing liabilities:

Demand deposits

831,545

691,266

Lease Liability

19,850

14,546

Other liabilities

43,690

47,452

Total liabilities

4,376,744

3,752,850

Shareholders’ equity

488,673

436,665

Total liabilities and shareholders’ equity

$

4,865,417

$

4,189,515

Net interest income

$

128,386

$

124,540

Net interest spread

3.26%

3.52%

Net interest margin

3.60%

4.08%

Cost of Deposits:

Noninterest bearing demand deposits

$

831,545

$

691,266

Interest bearing deposits

3,382,405

27,930

1.10%

2,899,426

42,398

1.96%

Total Deposits

$

4,213,950

$

27,930

0.89%

$

3,590,692

$

42,398

1.58%

(1)

Includes non-accrual loans and loans held for sale

(2)

Net loan fee income of $1.9 million and $1.6 million for the nine months ended September 30, 2020 and 2019, respectively, are 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

Nine Months Ended

Year ended

September 30, 2020

December 31, 2019

(Dollars in 000's)

Allowance For Credit Losses

Balance at Beginning of Period

$

34,830

$

31,065

Charge-Offs

Commercial & Industrial

1,661

526

Mini-perm Real Estate

1,900

101

Total Charge-Offs

3,561

627

Recoveries

Commercial & Industrial

-

527

Mini-perm Real Estate

-

415

Construction - Commercial

193

-

Total Recoveries

193

942

Net Charge-Offs (Recoveries)

3,368

(315

)

Provision for Credit Losses:

CECL Cumulative Effect Adjustment

8,000

-

Current Provision

21,800

3,450

Balance at End of Period

$

61,262

$

34,830

Average Loans Held for Investment

$

3,864,667

$

3,482,218

Loans Held for Investment at End of Period

$

3,949,721

$

3,724,922

Net Charge-Offs (Recoveries) to Average Loans

0.12

%

-0.01%

Allowances for Credit Losses to Loans at End of Period

1.55

%

0.94

%