Preferred Bank Reports Quarterly Earnings


LOS ANGELES, July 19, 2023 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2023. Preferred Bank (“the Bank”) reported net income of $37.9 million or $2.61 per diluted share for the second quarter of 2023. This represents an increase in net income of $9.9 million or 35.2% over the same quarter last year and nearly flat compared to the first quarter of 2023. The primary driver of the increase over the prior year quarter was net interest income which increased by $16.9 million or 29.9% over the same period last year partially offset by higher noninterest expenses as OREO valuation charges and expenses totaled $2.8 million this quarter.

The challenging operating environment created by the failures of Silicon Valley Bank, Signature Bank (“SBNY”) and First Republic Bank as well as the continued interest rate hikes by the Federal Open Market Committee (“FOMC”) continue to make deposit growth challenging. With that, we were extremely pleased at our deposit growth this quarter of $181 million. Loan totals remained relatively flat as loan growth came in at just $61 million in growth for the quarter.

Highlights for the Quarter:

  • Return of average assets was 2.32%
  • Return on beginning equity of 23.18%
  • Net interest margin was 4.58%
  • Total deposits increased $181 million or 13.4% annually for the quarter
  • Total loans increased $61 million for the quarter
  • Efficiency ratio was 27.3%
  • Quarter-end cash on hand was $1.05 billion or 18.8% of total deposits
  • Total available liquidity to total deposits was 41.2%
  • The allowance for credit losses to total loans increased to 1.40%

Li Yu, Chairman and CEO, commented, “We are delighted to report second quarter 2023 net income of $38 million or $2.61 per diluted share. This quarter we have increased deposits by $181 million or 3.4% under a most challenging environment. During the quarter we have also witnessed strong movement of deposits from DDA/money market to certificates of deposit. This movement seemed to have substantially moderated toward the end of quarter.

“The Bank’s uninsured deposits was 39.9% of total deposits at June 30, 2023. Since March 9, 2023, we have been diligently converting our larger deposits to deposit reciprocation platforms also helping other customer to restructure their deposits. Total available liquidity on June 30, 2023 represented 41.2% of total deposits. We believe that the industry’s ability to earn money will be jeopardized if banks are expected to maintain liquidity equal to all of its uninsured deposits on any given day.

“Loan growth for the second quarter of 2023 was $61 million. Loan demand has definitely been impacted by the current interest rate environment. Further increases in interest rates will likely further depress loan demand. Our credit quality remains stable with all metrics consistent with the previous quarter. During the quarter, we have written down the value of OREO by $1.9 million.

“Recently, the business media has been reporting on the exodus of businesses from the area of downtown San Francisco as several large owner/operators have turned their properties back over to their lenders. Preferred Bank’s total real estate loans in the city of San Francisco were $114 million. More specifically, loans in the troubled downtown area of San Francisco totaled $34 million as of June 30, 2023.

“Thanks to our very rate sensitive loan portfolio, Preferred Bank’s net interest income is quite resilient. Our tested formula of a strong margin and low overheard has produced consistently superior returns to our shareholders. To utilize some of our large cash base and excess capital, we have begun to buyback our stock. Total stock repurchased through June 30, 2023 was 281,000 shares.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $73.3 million for the second quarter of 2023. This was a significant increase from the $56.4 million recorded in the same quarter last year but down slightly from the $73.7 million posted in the first quarter of 2023. The FOMC rate hikes throughout 2022 and into 2023 drove loan portfolio yields higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense increased this quarter slightly more than did interest income as deposit rates continued to climb during most of the quarter. Despite the increasing deposit rates, the Bank’s taxable equivalent net interest margin declined by 19 basis points to 4.58% from 4.77% last quarter. Comparing to the same quarter last year, the margin was up by 81 basis points over the 3.77% posted this quarter last year.

Noninterest Income. For the second quarter of 2023, noninterest income was $3.1 million compared with $2.6 million for the same quarter last year and compared to ($1.1 million) for the first quarter of 2023. The increase compared to the second quarter of 2022 was due to an increase in both service charges on deposits as well as Letter of Credit (“LC”) fee income. The increase over the first quarter of 2023 was due to the $4.1 million loss on the sale of the SBNY corporate note which was sold in the days following the Bank’s failure. In addition, service charges on deposits and LC fees were both up over first quarter levels. Gains on sales of SBA loans were $186,000 compared to $0 in the same quarter of last year and compared to $340,000 in the first quarter of 2023.

Noninterest Expense. Total noninterest expense was $20.9 million for the second quarter of 2023 compared to $18.9 million for the first quarter of 2023 and compared to the $17.1 million recorded in the same period last year. Comparing this quarter to the second quarter of last year, the major variances were; personnel expense increased by $832,000 or 7.1% and OREO expense/valuation allowance increased by $2.5 million. The personnel expense increase was mainly due to merit increases and an increase in incentive compensation. The increase in OREO expense was mainly due to a valuation adjustment of $1.9 million on the Bank’s one OREO property in addition to other OREO expenses. In comparing the second quarter of 2023 to the prior quarter; personnel expense was down by $1.2 million or 8.8%, other professional services increased by $194,000 or 16.9% and OREO expense increased by $2.8 million. The decrease in salaries and benefits expense was due to a decrease in payroll taxes as well as incentive compensation. For the quarter ended June 30, 2023, the Bank’s efficiency ratio was 27.3% slightly higher than the 26.0% posted last quarter but surpassing the 29.0% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $15.1 million for the second quarter of 2023. This represents an effective tax rate (“ETR”) of 28.5% and the same as the 28.5% ETR for the first quarter of 2023 but up from the 28.0% ETR recorded in the second quarter of 2022. 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, 2023 were $5.12 billion, an increase of $43.7 million from the total of $5.07 billion as of December 31, 2022. Total deposits increased to $5.59 billion from the $5.56 billion as of December 31, 2022. Total assets were $6.67 billion, an increase of $243 million over the total of $6.43 billion as of December 31, 2022.

Uninsured Deposits

As of June 30, 2023, total uninsured deposits represented approximately 39.9 % of total deposits. Since mid-March, we have been diligently working with our larger deposit clients to enroll them in various reciprocal deposit programs to ensure that all of their deposits are FDIC insured. These programs have allowed the Bank to bring back some of the depositor balances that left the Bank in the aftermath of the bank failures in March of 2023.

Balance Sheet Fair Market Values from March 31, 2023

With so much focus recently on ASC Topic 825, Financial Instruments, formerly known as FASB 107, we felt it would be beneficial for shareholders to view the Bank’s disclosure in its recently filed Quarterly Report on Form 10-Q for March 31, 2023.

       
   March 31, 2023 
   Fair Value
Measurement
Using
Carrying
Amount
Estimated
Fair Value
 
    
    
   (Dollars in thousands) 
Assets:    
Cash and cash equivalentsLevel 1$885,691$885,691 
Securities held-to-maturityLevel 2 22,155 20,563 
Securities available-for-saleLevel 2/3 367,492 367,492 
Loans receivable, netLevel 3 4,978,513 5,005,857 
Customers' liability on acceptancesLevel 2 107 107 
Accrued interest receivableLevel 2/3 26,532 26,532 
Federal Home Loan Bank stockLevel 2 15,000N/A 
       
Liabilities:    
Demand deposits and savings:    
Noninterest-bearingLevel 2$1,050,992$1,050,992 
Interest-bearingLevel 2 1,785,300 1,785,300 
Time depositsLevel 2 2,571,474 2,554,788 
Subordinated debt issuanceLevel 2 148,055 171,858 
Acceptances OutstandingLevel 2 107 107 
Accrued interest payableLevel 2 4,529 4,529 
       

Liquidity

As of June 30, 2023, the Bank had $1.05 billion in cash and fed funds on the balance sheet representing 18.8% of total deposits. In addition, the Bank had $828 million in FHLB borrowing availability, $90 million in available funds from the FRB Discount window and $161 million in available for sale securities that were unpledged. All summed, this totals $2.15 billion of total liquidity or 41.2% of total deposits.

Asset Quality

As of June 30, 2023, nonaccrual loans totaled just $423,000, up slightly from the $271,000 reported as of March 31, 2023 and down markedly from the $10.6 million reported as of June 30, 2022. In addition, OREO and repossessed assets totaled $16.7 million as of June 30, 2023, down from the $18.6 million as of March 31, 2023 as the Bank wrote down the value of its large Santa Barbara area OREO by $1.9 million. In addition to that, the Bank’s total classified assets remained fairly constant at $43.3 million compared to $43.1 million as of both March 31, 2023 and as of December 31, 2022. Total net charge-offs were $0 for the second quarter of 2023 as compared to net charge offs of $43,000 last quarter and compared to $0 in the same quarter last year. Management is acutely aware that commercial real estate is under some pressure given the change in interest rates over the past year, especially office properties. However in reviewing the portfolio, with delinquencies and nonaccrual loans down and classified assets flat, this weakness has yet to appear. We will be vigilant going forward.

Office Building Loans

As a result of the pandemic and working from home, office occupancy has suffered and there has been a corresponding decline in the value of office properties, especially in city centers. As of June 30, 2023, the Bank has the following office loans; (in 000’s)

Medical Office$3,430 
Mixed Use (Office & Retail) 168,643 
Pure Office 176,416 
Reposition for Multi-Family 105,522 
Total$454,011 

Substantially all of the office building loans are secured by properties located in more suburban areas. There are only $9.0 million of office building loans in downtown areas.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2023 was $2.5 million compared to $500,000 last quarter and compared to $2.9 million in the same quarter last year.   Macro economic conditions as well as more stress in the commercial real estate sector lead to the increase in the provision from last quarter. The Bank’s allowance coverage ratio now stands at 1.40% of total loans.

Capitalization

As of June 30, 2023, the Bank’s leverage ratio was 10.61%, the common equity tier 1 capital ratio was 11.51% and the total capital ratio stood at 15.14%. As of December 31, 2022, the Bank’s leverage ratio was 10.30%, the common equity tier 1 ratio was 10.81% and the total risk-based capital ratio was 14.39%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2023 financial results will be held tomorrow, July 20, 2023 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.

Preferred Bank's Chairman and CEO 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 discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at 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 3, 2023; the passcode is 4793135.

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)), one branch in Flushing, New York and a branch 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 2022 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
Executive Vice President
Chief Financial Officer
(213) 891-1188
Jeffrey Haas
General Information
(310) 622-8240
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  
     June 30, March 31, June 30,  
      2023  2023   2022  
Interest income:        
 Loans, including fees $102,220 $95,881  $58,541  
 Investment securities  15,919  12,979   3,972  
 Fed funds sold  272  224   46  
  Total interest income  118,411  109,084   62,559  
            
Interest expense:        
 Interest-bearing demand  16,406  17,038   2,448  
 Savings  47  39   20  
 Time certificates  25,436  16,593   2,342  
 FHLB borrowings  1,888  374   -  
 Subordinated debt  1,325  1,325   1,325  
  Total interest expense  45,102  35,369   6,135  
  Net interest income  73,309  73,715   56,424  
Provision for credit losses  2,500  500   2,900  
  Net interest income after provision for        
   credit losses  70,809  73,215   53,524  
            
Noninterest income:        
 Fees & service charges on deposit accounts  844  694   723  
 Letters of credit fee income  1,576  1,324   1,329  
 BOLI income  103  101   100  
 Net loss on called and sale of investment securities  -  (4,117)  -  
 Net gain on sale of loans  186  340   -  
 Other income  392  592   449  
  Total noninterest income  3,101  (1,066)  2,601  
            
Noninterest expense:        
 Salary and employee benefits  12,520  13,728   11,688  
 Net occupancy expense  1,476  1,474   1,441  
 Business development and promotion expense  200  105   176  
 Professional services  1,343  1,149   1,460  
 Office supplies and equipment expense  398  404   459  
 Loss on sale of OREO, valuation allowance and related expense  2,838  72   385  
 Other   2,077  1,968   1,531  
  Total noninterest expense  20,852  18,900   17,140  
  Income before provision for income taxes  53,058  53,249   38,985  
Income tax expense  15,122  15,176   10,916  
  Net income $37,936 $38,073  $28,069  
            
Dividend and earnings allocated to participating securities  -  -   -  
Net income available to common shareholders $37,936 $38,073  $28,069  
            
Income per share available to common shareholders        
  Basic $2.63 $2.64  $1.90  
  Diluted $2.61 $2.61  $1.87  
            
Weighted-average common shares outstanding        
  Basic  14,419,959  14,430,606   14,792,298  
  Diluted  14,560,693  14,602,149   15,006,801  
            
Cash dividends per common share $0.55 $0.55  $0.43  
            


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 
      2023   2022  % 
Interest income:       
 Loans, including fees $198,101  $110,660  79.0%
 Investment securities  28,898   6,858  321.4%
 Fed funds sold  496   65  659.0%
  Total interest income  227,495   117,583  93.5%
          
Interest expense:      
 Interest-bearing demand  33,444   3,880  762.1%
 Savings  86   39  120.0%
 Time certificates  42,029   4,559  821.9%
 FHLB borrowings  2,262   -  100.0%
 Subordinated debt  2,650   2,650  0.0%
  Total interest expense  80,471   11,127  623.2%
  Net interest income  147,024   106,456  38.1%
Provision for credit losses  3,000   2,650  13.2%
  Net interest income after provision for credit losses  144,024   103,806  38.7%
           
Noninterest income:       
 Fees & service charges on deposit accounts  1,538   1,395  10.3%
 Letters of credit fee income  2,900   2,261  28.3%
 BOLI income  204   199  2.7%
 Net loss on called and sale of investment securities  (4,117)  -  -100.0%
 Net gain on sale of loans  526   -  100.0%
 Other income  984   1,012  -2.8%
  Total noninterest income  2,035   4,867  -58.2%
           
Noninterest expense:       
 Salary and employee benefits  26,248   23,328  12.5%
 Net occupancy expense  2,950   2,863  3.0%
 Business development and promotion expense  305   277  10.1%
 Professional services  2,492   2,703  -7.8%
 Office supplies and equipment expense  802   948  -15.4%
 Loss on sale of OREO, valuation allowance and related expense  2,910   401  625.7%
 Other   4,045   2,777  45.7%
  Total noninterest expense  39,752   33,297  19.4%
  Income before provision for income taxes  106,307   75,376  41.0%
Income tax expense  30,298   21,280  42.4%
  Net income $76,009  $54,096  40.5%
          
Dividend and earnings allocated to participating securities $-  $(2) 100.0%
Net income available to common shareholders $76,009  $54,094  40.5%
           
Income per share available to common shareholders       
  Basic $5.27  $3.66  44.0%
  Diluted $5.21  $3.61  44.4%
           
Weighted-average common shares outstanding       
  Basic  14,425,253   14,778,892  -2.4%
  Diluted  14,581,458   14,990,989  -2.7%
           
Dividends per share $1.10  $0.86  27.9%
           


PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
        
        
    June 30, December 31, 
     2023   2022  
    (Unaudited) (Audited) 
Assets    
Cash and due from banks$1,029,745  $747,526  
Fed funds sold 20,000   20,000  
 Cash and cash equivalents 1,049,745   767,526  
        
Securities held to maturity, at amortized cost 21,818   22,459  
Securities available-for-sale, at fair value 352,548   428,295  
Loans 5,118,511   5,074,793  
 Less allowance for credit losses (71,429)  (68,472) 
 Less amortized deferred loan fees, net (10,464)  (9,939) 
 Loans, net 5,036,618   4,996,382  
        
Loans held for sale, at lower of cost or fair value 176   -  
        
Other real estate owned and repossessed assets 16,728   21,990  
Customers' liability on acceptances 448   1,731  
Bank furniture and fixtures, net 8,890   8,999  
Bank-owned life insurance 10,493   10,357  
Accrued interest receivable 28,184   23,593  
Investment in affordable housing partnerships 56,844   61,173  
Federal Home Loan Bank stock, at cost 15,000   15,000  
Deferred tax assets 45,326   43,218  
Operating lease right-of-use assets 21,662   21,718  
Other assets 3,462   2,917  
 Total assets$6,667,942  $6,425,358  
        
Liabilities and Shareholders' Equity    
Deposits:    
 Non-interest bearing demand deposits$870,282  $1,192,091  
 Interest-bearing deposits: 2,005,298   2,295,212  
  Savings 32,089   39,527  
  Time certificates of $250,000 or more 1,244,128   1,138,727  
  Other time certificates 1,437,194   891,440  
  Total deposits 5,588,991   5,556,997  
        
Acceptances outstanding 448   1,731  
Advances from Federal Home Loan Bank 150,000   -  
Subordinated debt issuance, net 148,114   147,995  
Commitments to fund investment in affordable housing partnerships 20,930   27,490  
Operating lease liabilities 6,998   2,608  
Accrued interest payable 20,110   20,949  
Other liabilities 63,584   37,162  
 Total liabilities 5,999,175   5,794,932  
        
Shareholders' equity 668,767   630,426  
 Total liabilities and shareholders' equity$6,667,942  $6,425,358  
        
Book value per common share$47.04  $43.91  
Number of common shares outstanding 14,216,862   14,358,145  


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, 
     2023  2023  2022  2022  2022  
Unaudited historical quarterly operations data:      
 Interest income$118,411 $109,084 $98,379 $78,420 $62,559  
 Interest expense 45,102  35,369  24,267  11,630  6,135  
  Interest income before provision for credit losses 73,309  73,715  74,112  66,790  56,424  
 Provision for credit losses 2,500  500  2,000  2,700  2,900  
 Noninterest income 3,101  (1,066) 2,808  2,187  2,601  
 Noninterest expense 20,852  18,899  19,976  17,400  17,140  
 Income tax expense 15,122  15,176  15,384  13,688  10,916  
  Net income$37,936 $38,074 $39,560 $35,189 $28,069  
          
 Earnings per share      
  Basic$2.63 $2.64 $2.76 $2.44 $1.90  
  Diluted$2.61 $2.61 $2.71 $2.40 $1.87  
          
Ratios for the period:      
 Return on average assets 2.32% 2.41% 2.48% 2.25% 1.84% 
 Return on beginning equity 23.18% 24.49% 26.58% 23.60% 18.91% 
 Net interest margin (Fully-taxable equivalent) 4.58% 4.77% 4.75% 4.37% 3.77% 
 Noninterest expense to average assets 1.28% 1.20% 1.25% 1.11% 1.12% 
 Efficiency ratio 27.29% 26.01% 25.97% 25.23% 29.04% 
 Net charge-offs (recoveries) to average loans (annualized) -0.00% 0.00% 0.00% -0.19% 0.00% 
          
Ratios as of period end:      
 Tier 1 leverage capital ratio 10.61% 10.63% 10.30% 9.95% 9.92% 
 Common equity tier 1 risk-based capital ratio 11.51% 11.30% 10.81% 10.46% 10.61% 
 Tier 1 risk-based capital ratio 11.51% 11.30% 10.81% 10.46% 10.61% 
 Total risk-based capital ratio 15.14% 14.91% 14.39% 14.09% 14.31% 
 Allowances for credit losses to loans at end of period 1.40% 1.36% 1.35% 1.33% 1.25% 
 Allowance for credit losses to non-performing loans13.86x254.56x12.49x10.75x5.27x 
          
Average balances:      
 Total securities$397,905 $442,852 $434,830 $410,649 $430,203  
 Total loans 5,044,004  5,012,862  4,981,561  4,908,870  4,777,353  
 Total earning assets 6,432,950  6,276,630  6,193,330  6,076,616  6,008,024  
 Total assets 6,558,651  6,400,849  6,328,017  6,215,184  6,133,703  
 Total time certificate of deposits 2,617,872  2,209,370  1,872,239  1,749,257  1,810,886  
 Total interest bearing deposits 4,549,519  4,451,299  4,287,287  3,973,105  3,982,888  
 Total deposits 5,481,457  5,479,945  5,468,562  5,373,252  5,301,370  
 Total interest bearing liabilities 4,847,596  4,630,982  4,435,245  4,121,005  4,130,729  
 Total equity 677,306  650,963  613,729  598,188  606,260  
          


PREFERRED BANK 
Selected Consolidated Financial Information 
(unaudited) 
(in thousands, except for ratios) 
        
        
        
    For the Six Months Ended 
    June 30,
 June 30,
 
     2023   2022  
        
 Interest income$227,495  $117,583  
 Interest expense 80,471   11,127  
  Interest income before provision for credit losses 147,024   106,456  
 Provision for credit losses 3,000   2,650  
 Non-interest income 2,035   4,867  
 Non-interest expense 39,752   33,297  
 Income tax expense 30,298   21,280  
  Net income$76,009  $54,096  
        
 Earnings per share    
  Basic$5.27  $3.66  
  Diluted$5.21  $3.61  
        
Ratios for the period:    
 Return on average assets 2.37%  1.78% 
 Return on beginning equity 24.31%  18.59% 
 Net interest margin (Fully-taxable equivalent) 4.67%  3.58% 
 Non-interest expense to average assets 1.24%  1.09% 
 Efficiency ratio 26.67%  29.91% 
 Net charge-off (recoveries) to average loans 0.00%  0.05% 
        
Average balances:    
 Total securities$420,254  $430,203  
 Total loans 5,028,520   4,777,353  
 Total earning assets 6,355,222   6,007,841  
 Total assets 6,480,186   6,133,703  
 Total time certificate of deposits 2,414,750   1,810,886  
 Total interest-bearing deposits 4,501,301   3,982,888  
 Total deposits 5,480,705   5,301,370  
 Total interest-bearing liabilities 4,740,508   4,130,729  
 Total equity 664,207   606,260  
        


PREFERRED BANK 
Selected Consolidated Financial Information 
(unaudited) 
(in thousands, except for ratios) 
               
               
               
    As of 
               
    June 30, March 31, December 31, September 30, June 30,  
     2023   2023   2022   2022   2022   
Unaudited quarterly statement of financial position data:           
Assets:           
 Cash and cash equivalents$1,049,745  $885,691  $767,526  $749,484  $768,658   
 Securities held-to-maturity, at amortized cost 21,818   22,155   22,459   12,442   12,784   
 Securities available-for-sale, at fair value 352,548   367,492   428,295   377,534   400,597   
 Loans:           
  Real estate – Mortgage:           
   Real estate—Residential$631,795  $612,908  $609,292  $587,812  $581,412   
   Real estate—Commercial 2,744,075   2,813,680   2,730,726   2,693,852   2,583,484   
   Total Real Estate – Mortgage 3,375,870   3,426,588   3,340,018   3,281,664   3,164,896   
  Real estate – Construction:           
   R/E Construction — Residential 186,239   175,286   193,027   179,955   168,420   
   R/E Construction — Commercial 153,418   142,319   204,478   188,083   203,217   
   Total real estate construction loans 339,657   317,605   397,505   368,038   371,637   
  Commercial and industrial 1,388,865   1,299,325   1,320,830   1,330,028   1,336,631   
  SBA 4,426   7,306   11,339   8,067   22,186   
  Trade finance 9,348   6,885   4,521   22,634   24,663   
  Consumer and others 345   19   580   115   128   
   Gross loans 5,118,511   5,057,728   5,074,793   5,010,546   4,920,141   
 Allowance for credit losses on loans (71,429)  (68,929)  (68,472)  (66,472)  (61,396)  
 Net deferred loan fees (10,464)  (10,286)  (9,939)  (9,695)  (9,525)  
  Net loans, excluding loans held for sale$5,036,618  $4,978,513  $4,996,382  $4,934,379  $4,849,220   
 Loans held for sale$176  $-  $-  $-  $-   
  Net loans$5,036,794  $4,978,513  $4,996,382  $4,934,379  $4,849,220   
               
 Other real estate owned and repossessed assets$16,728  $18,628  $21,990  $26,075  $21,449   
 Investment in affordable housing partnerships 56,844   59,009   61,173   62,745   54,874   
 Federal Home Loan Bank stock, at cost 15,000   15,000   15,000   15,000   15,000   
 Other assets 118,465   115,049   112,533   115,184   110,459   
  Total assets$6,667,942  $6,461,537  $6,425,358  $6,292,843  $6,233,041   
               
Liabilities:           
 Deposits:           
  Demand$870,282  $1,050,992  $1,192,091  $1,341,199  $1,385,934   
  Interest-bearing demand 2,005,298   1,751,439   2,295,212   2,263,775   2,239,501   
  Savings 32,089   33,861   39,527   38,151   39,784   
  Time certificates of $250,000 or more 1,244,128   1,329,720   1,138,727   971,378   870,376   
  Other time certificates 1,437,194   1,241,754   891,440   841,173   872,357   
  Total deposits$5,588,991  $5,407,766  $5,556,997  $5,455,676  $5,407,952   
               
 Acceptances outstanding$448  $107  $1,731  $10,058  $11,053   
 Advance from Federal Home Loan Bank 150,000   150,000   -   -   -   
 Subordinated debt issuance, net 148,114   148,055   147,995   147,936   147,877   
 Commitments to fund investment in affordable housing partnerships 20,930   26,709   27,490   28,611   20,036   
 Other liabilities 90,692   72,359   60,074   60,009   54,531   
  Total liabilities$5,999,175  $5,804,996  $5,794,287  $5,702,290  $5,641,449   
               
Equity:            
 Net common stock, no par value$167,404  $181,208  $184,604  $180,324  $197,997   
 Retained earnings 535,373   505,207   475,072   443,409   414,393   
 Accumulated other comprehensive income (34,010)  (29,874)  (28,605)  (33,180)  (20,798)  
  Total shareholders' equity$668,767  $656,541  $631,071  $590,553  $591,592   
  Total liabilities and shareholders' equity$6,667,942  $6,461,537  $6,425,358  $6,292,843  $6,233,041   
               


PREFERRED BANK 
Quarter-to-Date Average Balances, Yield And Rates 
(Unaudited) 
               
             
   Three months ended June 30, Three months ended March 31, Three months ended June 30, 
    2023   2023   2022  
    InterestAverage  InterestAverage  InterestAverage 
   AverageIncome orYield/ AverageIncome orYield/ AverageIncome orYield/ 
   BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate 
ASSETS(Dollars in thousands) 
Interest-earning assets:            
 Loans (1,2)$5,044,517 $102,2208.13% $5,013,740 $95,8817.76% $4,777,353 $58,5414.92% 
 Investment securities (3) 397,905  3,7093.74%  442,852  3,9943.66%  430,203  2,3702.21% 
 Federal funds sold 20,000  2725.45%  20,222  2244.50%  20,088  460.92% 
 Other earning assets 970,528  12,3115.09%  799,816  9,0874.61%  780,380  1,7080.88% 
  Total interest-earning assets 6,432,950  118,5127.39%  6,276,630  109,1867.05%  6,008,024  62,6654.18% 
 Deferred loan fees, net (10,417)    (9,937)    (9,084)   
 Allowance for credit losses on loans (68,956)    (68,466)    (58,568)   
Non-interest earning assets:            
 Cash and due from banks 12,712     11,527     11,363    
 Bank furniture and fixtures 9,005     8,977     10,028    
 Right of use assets 21,988     21,867     21,287    
 Other assets 161,369     160,251     150,653    
  Total assets$6,558,651    $6,400,849    $6,133,703    
               
LIABILITIES AND SHAREHOLDERS' EQUITY            
Interest-bearing liabilities:            
 Deposits:            
  Interest-bearing demand and savings$1,931,647 $16,4533.42% $2,241,929 $17,0773.09% $2,172,002 $2,4680.46% 
  TCD $250K or more 1,259,305  12,7724.07%  1,266,072  10,7433.44%  892,410  1,2110.54% 
  Other time certificates 1,358,567  12,6643.74%  943,298  5,8502.52%  918,476  1,1310.49% 
  Total interest-bearing deposits 4,549,519  41,8893.69%  4,451,299  33,6703.07%  3,982,888  4,8100.48% 
Short-term borrowings -  -0.00%  -  -0.00%  -  -0.00% 
Advance from Federal home loan bank 150,000  1,8885.05%  31,667  3744.78%  -  -0.00% 
Subordinated debt, net 148,077  1,3253.59%  148,016  1,3253.63%  147,841  1,3253.59% 
  Total interest-bearing liabilities 4,847,596  45,1023.73%  4,630,982  35,3693.10%  4,130,729  6,1350.60% 
Non-interest bearing liabilities:            
 Demand deposits 931,938     1,028,646     1,318,482    
 Lease Liability 20,708     20,993     21,602    
 Other liabilities 81,103     69,265     56,630    
  Total liabilities 5,881,345     5,749,886     5,527,443    
Shareholders’ equity 677,306     650,963     606,260    
  Total liabilities and shareholders’ equity$6,558,651    $6,400,849    $6,133,703    
Net interest income $73,410   $73,817   $56,530  
Net interest spread  3.66%   3.96%   3.59% 
Net interest margin  4.58%   4.77%   3.77% 
               
Cost of Deposits:            
 Non-interest bearing demand deposits$931,938    $1,028,646    $1,318,482    
 Interest-bearing deposits 4,549,519  41,8893.69%  4,451,299  33,6703.07%  3,982,888  4,8100.48% 
  Total Deposits$5,481,457 $41,8893.07% $5,479,945 $33,6702.49% $5,301,370 $4,8100.36% 
               
(1)Includes non-accrual loans and loans held for sale 
(2)Net loan fee income of $902,000, $1.2 million and $886,000 for the quarter ended June 30, 2023, March 31, 2023, and June 30, 2022, 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) 
           
           
   Six months ended June 30, 
    2023 2022  
    InterestAverage  InterestAverage 
   AverageIncome orYield/ AverageIncome orYield/ 
   BalanceExpenseRate BalanceExpenseRate 
ASSETS(Dollars in thousands) 
Interest-earning assets:        
 Loans (1,2)$5,029,214 $198,1017.94% $4,573,357 $110,6604.88% 
 Investment securities (3) 420,254  7,7033.70%  442,981  4,5942.09% 
 Federal funds sold 20,110  4964.97%  20,105  650.65% 
 Other earning assets 885,644  21,3984.87%  936,921  2,4780.25% 
  Total interest-earning assets 6,355,222  227,6987.23%  5,973,364  117,7973.98% 
 Deferred loan fees, net (10,178)    (7,710)   
 Allowance for credit losses on loans (68,713)    (59,255)   
Non-interest earning assets:        
 Cash and due from banks 11,920     11,474    
 Bank furniture and fixtures 8,991     10,233    
 Right of use assets 21,928     21,519    
 Other assets 161,016     139,550    
  Total assets$6,480,186    $6,089,176    
           
LIABILITIES AND SHAREHOLDERS' EQUITY        
Interest-bearing liabilities:        
 Deposits:        
  Interest-bearing demand/ savings$2,086,551 $33,5303.24% $2,125,241 $3,9190.37% 
  TCD $250K or more 1,262,670  23,5153.76%  910,689  2,2380.50% 
  Other time certificates 1,152,080  18,5143.24%  929,419  2,3200.50% 
  Total interest-bearing deposits 4,501,301  75,5593.39%  3,965,349  8,4770.43% 
Advance from Federal home loan bank 91,160  2,2625.00%  -  -0.00% 
Subordinated debt, net 148,047  2,6503.61%  147,812  2,6503.62% 
  Total interest-bearing liabilities 4,740,508  80,4713.42%  4,113,161  11,1270.55% 
Non-interest bearing liabilities:        
 Demand deposits 979,404     1,293,477    
 Lease Liability 20,850     22,030    
 Other liabilities 75,217     58,746    
  Total liabilities 5,815,979     5,487,414    
Shareholders’ equity 664,207     601,762    
  Total liabilities and shareholders’ equity$6,480,186    $6,089,176    
Net interest income $147,227   $106,670  
Net interest spread  3.80%   3.43% 
Net interest margin  4.67%   3.60% 
           
Cost of Deposits:        
 Non-interest bearing demand deposits$979,404    $1,293,477    
 Interest-bearing deposits 4,501,301  75,5593.39%  3,965,349  8,4770.43% 
  Total Deposits$5,480,705 $75,5592.78% $5,258,826 $8,4770.33% 
           
(1)Includes non-accrual loans and loans held for sale 
(2)Net loan fee income of $2.1 million and $1.7 million for the six months ended June 30 2023 and 2022, 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  
     Six Months Ended Year ended  
     June 30, 2023 December 31, 2022 
     (Dollars in 000's)  
Allowance For Credit Losses      
Balance at Beginning of Period $68,472  $59,969   
 Charge-Offs      
  Commercial & Industrial  44   1,222   
  Mini-perm Real Estate  -   1   
  Total Charge-Offs  44   1,223   
          
 Recoveries      
  Commercial & Industrial  1   -   
  Mini-perm Real Estate  -   2,376   
  Total Recoveries  1   2,376   
          
 Net Charge-Offs (recoveries)  43   (1,153)  
 Provision for Credit Losses:  3,000   7,350   
Balance at End of Period $71,429  $68,472   
          
Average Loans Held for Investment $5,028,520  $4,760,815   
Loans Held for Investment at End of Period $5,118,511  $5,074,793   
Net Charge-Offs (recoveries) to Average Loans  0.00%  -0.02%  
Allowances for Credit Losses to Loans at End of Period  1.40%  1.35%