Preferred Bank Reports Quarterly Earnings

Rhea-AI Summary

Preferred Bank (NASDAQ: PFBC) reported strong financial results for Q2 2022, with net income of $28.1 million or $1.87 per diluted share, marking a 30.7% year-over-year increase. The boost was primarily due to a $13.1 million rise in net interest income, driven by higher interest rates and loan growth. Total loans reached $4.92 billion, up 11.2% year-to-date, while deposits grew $5.41 billion. Despite increasing competition, underwriting standards were tightened, maintaining asset quality. The stock repurchase program is on track, with $12.97 million spent thus far.

Positive

• Net income increased by $6.6 million or 30.7% year-over-year.
• Loan growth of $328.6 million or 28.6% annualized in Q2 2022.
• Total deposits increased by $98.3 million or 7.4% annualized.
• Net interest income rose by $13.1 million or 30.1% year-over-year.

Negative

• Higher provision for credit losses compared to the prior quarter.
• Increased competition may accelerate deposit costs in H2 2022.

LOS ANGELES, July 20, 2022 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2022. Preferred Bank (“the Bank”) reported net income of $28.1 million or $1.87 per diluted share for the second quarter of 2022. This represents an increase of $6.6 million or 30.7% over the same quarter last year and also an increase over the $26.0 million or $1.74 per share posted in the first quarter of 2022. The primary reasons for the increase compared to the prior year was an increase in net interest income of $13.1 million or 30.1% primarily driven by higher interest rates on interest-earning assets, loan growth and in the second quarter of 2021, the Bank recorded debt extinguishment costs of $614,000. The increase over the first quarter of 2022 was also due to an increase in net interest income of $6.4 million or 12.8% partially offset by a higher provision for credit losses and higher non-interest expense.

Second quarter 2022 highlights:

• Linked quarter loan growth (Ex-PPP) of 7.4%
• Return on average assets (“ROA”) of 1.84%
• Return on beginning equity (“ROBE”) of 18.91%
• Pre-provision, pre-tax (“PPPT”) ROBE of 28.22% ¹
• Efficiency ratio of 29.0%
  

Li Yu, Chairman and CEO, commented, “We had a record quarter in terms of; net income, earnings per share, total loans, total deposits, and net interest income for the second quarter of 2022.

Net income for the quarter was $28.1 million or $1.87 per diluted share and $54.1 million or $3.61 per diluted share for the first half of 2022. With our very asset sensitive balance sheet, we have benefited from the recent interest rate hikes.

Loan growth was $328.6 million or 28.6% annualized. For the first half of year, loan growth was $495.1 million or 22.4% annualized. Second quarter loan growth was positively impacted by reduced pay-offs and stronger origination activities.

Deposits grew $98.3 million or 7.4% annualized in the second quarter of 2022. For the first six months of 2022, deposit growth was $182.4 million or 7.0 % annualized. During the latter part of the quarter, we saw an increased level of competition and we believe deposit costs will accelerate in the second half of the year.

With a recession potentially looming ahead, the Bank is very focused on asset quality. Underwriting standards have been tightened and we have begun to dive deep into our loan portfolio. Today, we have not noted any deterioration. In fact, classified assets and loans past due have improved as of June 30, 2022 compared to earlier quarters.

As for interest rate sensitivity, 87% of the Bank’s loans are floating or adjustable rate. Many of them have a floor rate requirement. At June 30, 2022, 74% were fully floating. With the additional rate hike anticipated, all 87% of our total loan portfolio will be fully floating at the end of July. Therefore, our interest income is expected to increase for the remainder of the year. Hopefully the increase in interest income will more than enough cover the anticipated deposit cost increase.

The $32 million stock repurchase is progressing as scheduled. As of June 30, 2022, we have repurchased 192,159 shares of our stock using $12,971,000. We plan to complete the program in the third quarter of 2022.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $56.4 million for the second quarter of 2022. This was an increase from the $43.4 million recorded in the same quarter last year and also an increase over the $50.0 million posted in the first quarter of 2022. Rising interest rates and strong loan growth were the primary drivers of the increase in net interest income over both comparable quarters. The taxable equivalent margin was 3.77% for the second quarter of 2022, as compared to 3.42% in the first quarter of 2022 and versus 3.25% for the same period last year.

Noninterest Income. For the second quarter of 2022, noninterest income was $2.6 million compared with $1.6 million for the same quarter last year and compared to $2.3 million for the first quarter of 2022. The increase compared to last year was due to a $518,000 increase in letter of credit (“LC”) fees, an increase in service charges of $199,000 and a $261,000 loss on sale of loans recorded in the second quarter of last year. The increase compared to the prior quarter was due to an increase in LC fees of $396,000 partially offset by a decrease in other income of $114,000.

Noninterest Expense. Total noninterest expense was $17.1 million for the second quarter of 2022. This is up compared to the $15.0 million recorded in the same quarter last year and an increase over the $16.2 million posted in the first quarter of 2022. Comparing this quarter to the second quarter of last year; personnel expense increased by $1.4 million or 13.6%, OREO expense was $463,000 this quarter compared to $0 last year and professional services increased by $386,000 this quarter. The personnel expense increase was primarily due to new hires and merit increases. Last year, the Bank did not own any OREO so this years’ expenses were all an increase. In comparing to the prior quarter; personnel expense was essentially flat from the first quarter, OREO expense increased by $447,000 and other expense increased by $285,000. For the quarter ended June 30, 2022, the Bank’s efficiency ratio was 29.0%, besting the 30.9% posted last quarter and also down from the same quarter of last year’s 33.2%.

Income Taxes. The Bank recorded a provision for income taxes of $10.9 million for the second quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and slightly below the ETR of 28.5% in both the prior quarter and 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, 2022 were $4.92 billion, an increase of $495 million or 11.2% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.41 billion, an increase of $182 million or 3.5% over the $5.23 billion as of December 31, 2021. Total assets ended the quarter at $6.23 billion, an increase of $187 million or 3.1% over the total of $6.05 billion as of December 31, 2021.

Asset Quality

As of June 30, 2022, nonaccrual loans totaled $10.6 million, down from $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $21.4 million as of June 30, 2022. Total net charge-offs for the second quarter of 2022 were zero as compared to both $1.2 million in the prior quarter and the same quarter of 2021.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2022 was $2.9 million as compared to a reversal of ($250,000) in the prior quarter and compared to the $0 provision for credit losses posted in the second quarter of 2021. A consistently improving economic outlook, among other factors such as credit quality led to a lower allowance requirement. The Bank’s allowance coverage ratio now stands at 1.25% of total loans (excluding PPP loans).

Capitalization

As of June 30, 2022, the Bank’s leverage ratio was 9.92%, the common equity tier 1 capital ratio was 10.61% and the total capital ratio stood at 14.31%. As of December 31, 2021, the Bank’s leverage ratio was 9.54%, the common equity tier 1 ratio was 11.26% and the total risk-based capital ratio was 15.37%.

GAAP – Non-GAAP Reconciliation -Second quarter 2022 PPPT ROBE
Net Income	$	28,069
Add: Provision for credit losses		2,900
Add: Income tax expense		10,916
Pre-provision and pre-tax income	$	41,885
Total equity - 3/31/22	$	595,285
Pre-provision and pre-tax ROBE		28.22	%

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2022 financial results will be held tomorrow, July 21, 2022 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, 2022; the passcode is 7884414.

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 2021 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

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,
	2022				2022				2021
Interest income:
Loans, including fees	$	58,541			$	52,119			$	47,906
Investment securities		3,972				2,886				2,548
Fed funds sold		46				19				19
Total interest income		62,559				55,024				50,473
Interest expense:
Interest-bearing demand		2,448				1,431				1,530
Savings		20				19				18
Time certificates		2,342				2,217				3,419
Subordinated debt		1,325				1,325				2,145
Total interest expense		6,135				4,992				7,112
Net interest income		56,424				50,032				43,361
Provision for (reversal of) credit losses		2,900				(250	)			-
Net interest income after provision for (reversal of)
credit losses		53,524				50,282				43,361
Noninterest income:
Fees & service charges on deposit accounts		723				671				525
Letters of credit fee income		1,329				933				811
BOLI income		100				99				98
Net loss on sale of loans		-				-				(261	)
Other income		449				563				473
Total noninterest income		2,601				2,266				1,646
Noninterest expense:
Salary and employee benefits		11,688				11,640				10,285
Net occupancy expense		1,441				1,422				1,429
Business development and promotion expense		176				101				117
Professional services		1,382				1,243				996
Office supplies and equipment expense		459				489				476
Other real estate owned expense		463				16				-
Other		1,531				1,246				1,661
Total noninterest expense		17,140				16,157				14,964
Income before provision for income taxes		38,985				36,391				30,043
Income tax expense		10,916				10,364				8,563
Net income	$	28,069			$	26,027			$	21,480
Dividend and earnings allocated to participating securities		-				(1	)			(3	)
Net income available to common shareholders	$	28,069			$	26,026			$	21,477
Income per share available to common shareholders
Basic	$	1.90			$	1.76			$	1.44
Diluted	$	1.87			$	1.74			$	1.44
Weighted-average common shares outstanding
Basic		14,792,298				14,765,337				14,954,688
Diluted		15,006,801				14,978,667				14,954,688
Cash dividends per common share	$	0.43			$	0.43			$	0.38

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
	2022				2021				%
Interest income:
Loans, including fees	$	110,660			$	97,765			13.2	%
Investment securities		6,858				4,825			42.1	%
Fed funds sold		65				43			53.2	%
Total interest income		117,583				102,633			14.6	%
Interest expense:
Interest-bearing demand		3,880				2,967			30.8	%
Savings		39				37			6.2	%
Time certificates		4,558				7,246			-37.1	%
Subordinated debt		2,650				3,676			-27.9	%
Total interest expense		11,127				13,926			-20.1	%
Net interest income		106,456				88,707			20.0	%
Provision for credit losses		2,650				1,400			89.3	%
Net interest income after provision for credit losses		103,806				87,307			18.9	%
Noninterest income:
Fees & service charges on deposit accounts		1,395				951			46.7	%
Letters of credit fee income		2,261				1,619			39.7	%
BOLI income		199				194			2.2	%
Net loss on sale of loans		-				(640	)		-100.0	%
Other income		1,012				869			16.5	%
Total noninterest income		4,867				2,993			62.6	%
Noninterest expense:
Salary and employee benefits		23,328				21,408			9.0	%
Net occupancy expense		2,863				2,830			1.2	%
Business development and promotion expense		277				190			45.8	%
Professional services		2,625				1,977			32.8	%
Office supplies and equipment expense		948				914			3.8	%
Other		2,777				3,297			-15.8	%
Total noninterest expense		33,297				30,616			8.8	%
Income before provision for income taxes		75,376				59,684			26.3	%
Income tax expense		21,280				17,010			25.1	%
Net income	$	54,096			$	42,674			26.8	%
Dividend and earnings allocated to participating securities	$	(2	)		$	(5	)		-69.6	%
Net income available to common shareholders	$	54,094			$	42,669			26.8	%
Income per share available to common shareholders
Basic	$	3.66			$	2.85			28.3	%
Diluted	$	3.61			$	2.85			26.4	%
Weighted-average common shares outstanding
Basic		14,778,892				14,952,366			-1.2	%
Diluted		14,990,989				14,952,366			0.3	%
Dividends per share	$	0.86			$	0.76			13.2	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
	June 30,				December 31,
	2022				2021
	(Unaudited)				(Audited)
Assets
Cash and due from banks	$	748,658			$	1,030,610
Fed funds sold		20,000				20,000
Cash and cash equivalents		768,658				1,050,610
Securities held to maturity, at amortized cost		12,784				13,962
Securities available-for-sale, at fair value		400,597				451,911
Loans		4,920,141				4,424,992
Less allowance for credit losses		(61,396	)			(59,969	)
Less amortized deferred loan fees, net		(9,525	)			(6,316	)
Loans, net		4,849,220				4,358,707
Other real estate owned and repossessed assets		21,449				-
Customers' liability on acceptances		11,053				10,188
Bank furniture and fixtures, net		9,764				10,533
Bank-owned life insurance		10,221				10,088
Accrued interest receivable		16,241				14,646
Investment in affordable housing partnerships		54,874				59,018
Federal Home Loan Bank stock, at cost		15,000				15,000
Deferred tax assets		36,703				26,674
Operating lease right-of-use assets		21,024				21,969
Other assets		5,453				2,997
Total assets	$	6,233,041			$	6,046,303
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits	$	1,385,934			$	1,305,692
Interest-bearing deposits:		2,239,501				2,032,819
Savings		39,784				37,839
Time certificates of $250,000 or more		870,376				934,444
Other time certificates		872,357				914,717
Total deposits		5,407,952				5,225,511
Acceptances outstanding		11,053				10,188
Subordinated debt issuance, net		147,877				147,758
Commitments to fund investment in affordable housing partnerships		20,036				22,606
Operating lease liabilities		21,115				22,861
Accrued interest payable		752				715
Other liabilities		32,664				29,946
Total liabilities		5,641,449				5,459,585
Shareholders' equity		591,592				586,718
Total liabilities and shareholders' equity	$	6,233,041			$	6,046,303
Book value per common share	$	40.44			$	39.97
Number of common shares outstanding		14,628,942				14,679,769

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,
	2022			2022			2021			2021			2021
Unaudited historical quarterly operations data:
Interest income	$	62,559		$	55,024		$	54,791		$	53,611		$	50,473
Interest expense		6,135			4,992			5,374			5,858			7,112
Interest income before provision for credit losses		56,424			50,032			49,417			47,753			43,361
(Reversal of) provision for credit losses		2,900			(250	)		(900	)		(1,500	)		-
Noninterest income		2,601			2,266			1,966			2,784			1,646
Noninterest expense		17,140			16,157			14,806			15,370			14,964
Income tax expense		10,916			10,364			11,056			10,522			8,563
Net income	$	28,069		$	26,027		$	26,421		$	26,145		$	21,480
Earnings per share
Basic	$	1.90		$	1.76		$	1.80		$	1.76		$	1.44
Diluted	$	1.87		$	1.74		$	1.80		$	1.76		$	1.44
Ratios for the period:
Return on average assets		1.84	%		1.75	%		1.72	%		1.80	%		1.58	%
Return on beginning equity		18.91	%		17.99	%		18.65	%		18.56	%		15.98	%
Net interest margin (Fully-taxable equivalent)		3.77	%		3.42	%		3.28	%		3.36	%		3.25	%
Noninterest expense to average assets		1.12	%		1.08	%		0.97	%		1.06	%		1.10	%
Efficiency ratio		29.04	%		30.89	%		28.82	%		30.41	%		33.25	%
Net charge-offs to average loans (annualized)		0.00	%		0.11	%		0.03	%		0.10	%		0.12	%
Ratios as of period end:
Tier 1 leverage capital ratio		9.92	%		9.92	%		9.54	%		9.64	%		10.07	%
Common equity tier 1 risk-based capital ratio		10.61	%		11.20	%		11.26	%		11.19	%		11.28	%
Tier 1 risk-based capital ratio		10.61	%		11.20	%		11.26	%		11.19	%		11.28	%
Total risk-based capital ratio		14.31	%		15.12	%		15.37	%		15.47	%		15.61	%
Allowances for credit losses to loans at end of period		1.25	%		1.27	%		1.36	%		1.41	%		1.49	%
Allowance for credit losses to non-performing loans		5.27x			27.15x			4.05x			2.93x			2.91x
Average balances:
Total securities	$	430,203		$	455,899		$	470,811		$	401,641		$	269,000
Total loans		4,777,353			4,367,095			4,218,699			4,156,289			4,130,190
Total earning assets		6,008,024			5,938,519			5,984,055			5,659,678			5,364,598
Total assets		6,133,703			6,044,155			6,079,934			5,760,056			5,467,678
Total time certificate of deposits		1,810,886			1,869,654			1,915,116			1,959,514			1,893,247
Total interest bearing deposits		3,982,888			3,947,616			3,945,275			3,783,704			3,704,771
Total deposits		5,301,370			5,215,810			5,277,507			4,971,607			4,724,104
Total interest bearing liabilities		4,130,729			4,095,399			4,093,002			3,931,375			3,815,964
Total equity		606,260			597,214			576,495			569,624			553,561

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	For the Six Months Ended
	June 30,				June 30,
	2022				2021
Interest income	$	117,583			$	102,633
Interest expense		11,127				13,926
Interest income before provision for credit losses		106,456				88,707
Provision for credit losses		2,650				1,400
Non-interest income		4,867				2,993
Non-interest expense		33,297				30,616
Income tax expense		21,280				17,010
Net income	$	54,096			$	42,674
Earnings per share
Basic	$	3.66			$	2.85
Diluted	$	3.61			$	2.85
Ratios for the period:
Return on average assets		1.79	%			1.61	%
Return on beginning equity		18.59	%			16.38	%
Net interest margin (Fully-taxable equivalent)		3.60	%			3.43	%
Non-interest expense to average assets		1.10	%			1.16	%
Efficiency ratio		29.91	%			33.39	%
Net charge-offs to average loans		0.05	%			0.06	%
Average balances:
Total securities	$	442,981			$	255,675
Total loans		4,573,357				4,087,731
Total earning assets		5,973,364				5,234,170
Total assets		6,089,176				5,334,618
Total time certificate of deposits		1,840,108				1,857,055
Total interest-bearing deposits		3,965,349				3,618,543
Total deposits		5,258,826				4,605,908
Total interest-bearing liabilities		4,113,161				3,723,846
Total equity		601,762				545,964

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	As of
	June 30,				March 31,				December 31,				September 30,				June 30,
	2022				2022				2021				2021				2021
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents	$	768,658			$	985,162			$	1,050,610			$	1,082,634			$	896,474
Securities held-to-maturity, at amortized cost		12,784				13,496				13,962				15,294				15,749
Securities available-for-sale, at fair value		400,597				430,280				451,911				461,356				278,460
Loans:
Real estate – Mortgage:
Real estate—Residential	$	581,412			$	539,614			$	536,286			$	540,725			$	558,147
Real estate—Commercial		2,583,484				2,367,862				2,267,063				2,093,692				2,019,995
Total Real Estate – Mortgage		3,164,896				2,907,476				2,803,349				2,634,417				2,578,142
Real estate – Construction:
R/E Construction — Residential		168,420				141,218				130,842				122,382				120,363
R/E Construction — Commercial		203,217				209,726				202,482				213,833				224,323
Total real estate construction loans		371,637				350,944				333,324				336,215				344,686
Commercial and industrial		1,336,631				1,300,478				1,245,734				1,286,995				1,259,668
PPP		22,186				32,554				42,467				63,897				95,765
Consumer and others		24,791				115				118				6				143
Gross loans		4,920,141				4,591,567				4,424,992				4,321,529				4,278,403
Allowance for credit losses on loans		(61,396	)			(58,496	)			(59,969	)			(61,135	)			(63,635	)
Net deferred loan fees		(9,525	)			(8,573	)			(6,316	)			(5,498	)			(5,329	)
Net loans	$	4,849,220			$	4,524,498			$	4,358,707			$	4,254,896			$	4,209,439
Other real estate owned and repossessed assets	$	21,449			$	15,547			$	-			$	-			$	-
Investment in affordable housing partnerships		54,874				56,946				59,018				53,399				55,452
Federal Home Loan Bank stock, at cost		15,000				15,000				15,000				15,000				15,000
Other assets		110,459				101,427				97,095				97,261				105,334
Total assets	$	6,233,041			$	6,142,356			$	6,046,303			$	5,979,840			$	5,575,908
Liabilities:
Deposits:
Demand	$	1,385,934			$	1,251,613			$	1,305,692			$	1,349,114			$	1,063,472
Interest-bearing demand		2,239,501				2,159,178				2,032,819				1,861,334				1,774,668
Savings		39,784				39,946				37,839				33,417				32,560
Time certificates of $250,000 or more		870,376				924,317				934,444				959,826				930,976
Other time certificates		872,357				934,615				914,717				990,228				994,630
Total deposits	$	5,407,952			$	5,309,669			$	5,225,511			$	5,193,919			$	4,796,306
Acceptances outstanding	$	11,053			$	8,222			$	10,188			$	7,697			$	7,797
Subordinated debt issuance, net		147,877				147,818				147,758				147,699				147,787
Commitments to fund investment in affordable housing partnerships		20,036				22,606				22,606				17,900				19,197
Other liabilities		54,531				58,756				53,522				50,604				45,852
Total liabilities	$	5,641,449			$	5,547,071			$	5,459,585			$	5,417,819			$	5,016,939
Equity:
Net common stock, no par value	$	197,997			$	209,065			$	208,840			$	203,844			$	219,958
Retained earnings		414,393				392,610				372,952				352,843				332,276
Accumulated other comprehensive income		(20,798	)			(6,390	)			4,926				5,334				6,735
Total shareholders' equity	$	591,592			$	595,285			$	586,718			$	562,021			$	558,969
Total liabilities and shareholders' equity	$	6,233,041			$	6,142,356			$	6,046,303			$	5,979,840			$	5,575,908

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,
	2022									2022									2021
				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)	$	4,777,353			58,541		4.92	%		$	4,367,095		$	52,119		4.84	%			4,132,451		$	47,906		4.65	%
Investment securities (3)		430,203			2,370		2.21	%			455,899			2,224		1.98	%			269,000			2,058		3.07	%
Federal funds sold		20,088			46		0.92	%			20,122			19		0.38	%			20,437			19		0.36	%
Other earning assets		780,380			1,708		0.88	%			1,095,403			770		0.29	%			942,710			597		0.25	%
Total interest-earning assets		6,008,024			62,665		4.18	%			5,938,519			55,132		3.77	%			5,364,598			50,580		3.78	%
Deferred loan fees, net		(9,084	)								(6,322	)								(4,924	)
Allowance for credit losses on loans		(58,568	)								(59,951	)								(64,842	)
Non-interest earning assets:
Cash and due from banks		11,363									11,589									10,620
Bank furniture and fixtures		10,028									10,440									11,468
Right of use assets		21,287									21,754									19,735
Other assets		150,653									128,126									131,023
Total assets	$	6,133,703								$	6,044,155								$	5,467,678
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings		2,172,002		$	2,468		0.46	%			2,077,962		$	1,450		0.28	%		$	1,811,524		$	1,548		0.34	%
TCD $250K or more		892,410			1,211		0.54	%			929,170			1,027		0.45	%			926,161			1,688		0.73	%
Other time certificates		918,476			1,131		0.49	%			940,484			1,190		0.51	%			967,086			1,731		0.72	%
Total interest-bearing deposits		3,982,888			4,810		0.48	%			3,947,616			3,667		0.38	%			3,704,771			4,967		0.54	%
Subordinated debt, net		147,841			1,325		3.59	%			147,783			1,325		3.64	%			111,193			2,145		7.74	%
Total interest-bearing liabilities		4,130,729			6,135		0.60	%			4,095,399			4,992		0.49	%			3,815,964			7,112		0.75	%
Non-interest bearing liabilities:
Demand deposits		1,318,482									1,268,194									1,019,333
Lease Liability		21,602									22,463									21,765
Other liabilities		56,630									60,885									57,055
Total liabilities		5,527,443									5,446,941									4,914,117
Shareholders’ equity		606,260									597,214									553,561
Total liabilities and shareholders’ equity	$	6,133,703								$	6,044,155								$	5,467,678
Net interest income				$	56,530								$	50,140								$	43,468
Net interest spread							3.59	%								3.27	%								3.03	%
Net interest margin							3.77	%								3.42	%								3.25	%
Cost of Deposits:
Non-interest bearing demand deposits	$	1,318,482								$	1,268,194								$	1,019,333
Interest-bearing deposits		3,982,888			4,810		0.48	%			3,947,616			3,667		0.38	%			3,704,771			4,967		0.54	%
Total Deposits	$	5,301,370		$	4,810		0.36	%		$	5,215,810		$	3,667		0.29	%		$	4,724,104		$	4,967		0.42	%

______________________________
⁽¹⁾ Includes non-accrual loans and loans held for sale
⁽²⁾ Net loan fee income of $442,000, $765,000 and $669,000 for the quarter ended June 30, 2022, March 31, 2022, and June 30, 2021, 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,
	2022									2021
				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)	$	4,573,357		$	110,660		4.88	%		$	4,088,879		$	97,765		4.82	%
Investment securities (3)		442,981			4,594		2.09	%			255,675			3,942		3.11	%
Federal funds sold		20,105			65		0.65	%			20,953			43		0.41	%
Other earning assets		936,921			2,478		0.53	%			868,663			1,090		0.25	%
Total interest-earning assets		5,973,364			117,797		3.98	%			5,234,170			102,840		3.96	%
Deferred loan fees, net		(7,710	)								(4,636	)
Allowance for credit losses on loans		(59,255	)								(64,150	)
Non-interest earning assets:
Cash and due from banks		11,474									10,273
Bank furniture and fixtures		10,233									11,619
Right of use assets		21,519									18,299
Other assets		139,550									129,042
Total assets	$	6,089,176								$	5,334,618
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand/ savings		2,125,241		$	3,919		0.37	%			1,761,488		$	3,004		0.34	%
TCD $250K or more		910,689			2,238		0.50	%			922,677			3,606		0.79	%
Other time certificates		929,419			2,320		0.50	%			934,378			3,640		0.79	%
Total interest-bearing deposits		3,965,349			8,477		0.43	%			3,618,543			10,250		0.57	%
Subordinated debt, net		147,812			2,650		3.62	%			105,303			3,676		7.04	%
Total interest-bearing liabilities		4,113,161			11,127		0.55	%			3,723,846			13,926		0.75	%
Non-interest bearing liabilities:
Demand deposits		1,293,477									987,365
Lease Liability		22,030									20,534
Other liabilities		58,746									56,909
Total liabilities		5,487,414									4,788,654
Shareholders’ equity		601,762									545,964
Total liabilities and shareholders’ equity	$	6,089,176								$	5,334,618
Net interest income				$	106,670								$	88,914
Net interest spread							3.43	%								3.21	%
Net interest margin							3.60	%								3.43	%
Cost of Deposits:
Non-interest bearing demand deposits	$	1,293,477								$	987,365
Interest-bearing deposits		3,965,349			8,477		0.43	%			3,618,543			10,250		0.57	%
Total Deposits	$	5,258,826		$	8,477		0.33	%		$	4,605,908		$	10,250		0.45	%

______________________________
⁽¹⁾ Includes non-accrual loans and loans held for sale
⁽²⁾ Net loan fee income of $1.7 million and $1.2 million for the six months ended June 30, 2022 and 2021, 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, 2022				December 31, 2021
	(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period	$	59,969			$	63,426
Charge-Offs
Commercial & Industrial		1,222				1,697
Mini-perm Real Estate		1				817
Total Charge-Offs		1,223				2,514
Recoveries
Commercial & Industrial		-				57
Total Recoveries		-				57
Net Charge-Offs		1,223				2,457
Provision for (reversal of) Credit Losses:		2,650				(1,000	)
Balance at End of Period	$	61,396			$	59,969
Average Loans Held for Investment	$	4,573,357			$	4,138,023
Loans Held for Investment at End of Period	$	4,920,141			$	4,424,992
Net Charge-Offs to Average Loans		0.05	%			0.06	%
Allowances for Credit Losses to Loans at End of Period		1.25	%			1.36	%

---

¹ This is a non-GAAP measure and linking to the reconciliation on page 5.

FAQ

What were Preferred Bank's earnings for Q2 2022?

Preferred Bank reported net income of $28.1 million or $1.87 per diluted share for Q2 2022.

How did net interest income perform for Preferred Bank in Q2 2022?

Net interest income was $56.4 million in Q2 2022, up from $43.4 million in the same quarter last year.

What is the outlook for Preferred Bank's loan growth?

Loan growth reached $328.6 million in Q2 2022, with expectations for continued growth supported by a favorable interest rate environment.

What is the status of the stock repurchase program for PFBC?

The $32 million stock repurchase program is progressing as scheduled, with $12.97 million spent as of June 30, 2022.