Preferred Bank Reports Quarterly Earnings

Rhea-AI Summary

Preferred Bank (NASDAQ: PFBC) reported a net income of $26.1 million, or $1.76 per diluted share, for Q3 2021, marking a 21.7% increase over the previous quarter. This was significantly higher than the $17.1 million, or $1.15 per share, reported in Q3 2020. Key drivers included a $10.5 million improvement in credit loss provisions compared to last year. The bank observed 8.3% deposit growth and 1.8% loan growth (excluding PPP loans) quarter-over-quarter. Total assets approached $6 billion.

Positive

• Net income increased to $26.1 million, an all-time high.
• Deposits grew by 8.3% quarter-over-quarter, totaling $5.2 billion.
• Return on average assets (ROA) improved to 1.80%.
• Net interest income reached $47.8 million, up from $43.4 million in Q2 2021.

Negative

• Noninterest expense increased to $15.4 million, up from $13.7 million year-over-year.
• Return on beginning equity (ROBE) decreased to 18.56%, down from 20.5% in the previous quarter.
• Net interest margin compressed to 3.36%, down from 3.54% in Q3 2020.

LOS ANGELES, Oct. 20, 2021 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended September 30, 2021. Preferred Bank (“the Bank”) reported net income of $26.1 million or $1.76 per diluted share for the third quarter of 2021. This is an increase of $4.7 million or 21.7% over the prior quarter and up significantly from the $17.1 million or $1.15 per share posted in the same quarter of last year. The primary reason for the increase compared to the prior year was a $9.0 million provision for credit losses recorded in the third quarter of last year as compared to a reversal of $1.5 million in allowance for credit losses (“ACL”) this quarter, a difference of $10.5 million. In comparison to the second quarter of 2021, net interest income increased $4.4 million, the beneficial change in the provision for credit losses was $1.5 million and noninterest income increased by $1.1 million.

Third quarter 2021 highlights:

• Net income of $26.1 million, or $1.76 per diluted share (company all-time high)
• Linked quarter deposit growth of 8.3%
• Linked quarter loan growth (Ex-PPP) of 1.8%
• Return on average assets (“ROA”) of 1.80%
• Return on beginning equity (“ROBE”) of 18.56%
• Pre-provision, pre-tax (“PPPT”) ROBE of 25.0%

Li Yu, Chairman and CEO, commented, “I am pleased to report third quarter 2021 net income of $26.1 million or $1.76 per share. Excluding a release of allowance for credit losses in the amount of $1.5 million, our net interest income and net income set new quarterly records for our Bank.

“This quarter we experienced significant asset growth. Total assets are approaching $6 billion, principally due to the $398 million or 8.3% linked-quarter deposit growth.

“Loan growth for the quarter was $77 million excluding PPP, or 1.8% on a linked quarter basis. We continue to experience moderate margin compression. Together with the strong deposit growth, our net interest margin for the quarter came in at 3.36%.

“Our loan quality was stable. There are no deferred loans granted under the CARES Act as of September 30, 2021. Total PPP balances have been reduced to $64 million as of that date.

“Non-interest income increased $1.1 million from the prior quarter principally due to increased letter of credit (“LC”) fees. Operating expenses continue to be under control for the quarter, as our efficiency ratio clocked in at 30.4%.

“We are highly encouraged by this quarter’s results considering the current low interest rate environment and the slow progress, nationally of controlling the delta variant. We are optimistic that both of these will improve gradually”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $47.8 million for the third quarter of 2021. This was an increase from the $43.4 million recorded in the second quarter of 2021 and was also ahead of the $44.1 million recorded in the third quarter of 2020. The second quarter of 2021 was negatively impacted by a $2.29 million interest reversal on our troubled debt restructured loan as well as a charge of $614,000 to interest expense related to the unamortized issuance costs of the subordinated notes that were called in the second quarter of 2021. These two items drove the Bank’s taxable equivalent net interest margin down to 3.25%, excluding these items, the Bank’s margin would have been 3.47%. The taxable equivalent margin was 3.36% for the third quarter of 2021, as compared to 3.47% (adjusted, see table below) in the second quarter of 2021 and versus 3.54% for the same period last year.

Noninterest Income. For the third quarter of 2021, noninterest income was $2,784,000 compared with $1,605,000 for the same quarter last year and compared to $1,646,000 for the second quarter of 2021. The increase compared to last year was due to LC fee income which increased by $886,000 and service charges on deposits which increased by $153,000 over last year. When compared to the second quarter of 2021, LC fees increased by $765,000 and in the prior quarter the Bank recorded a loss on sale of loans of $261,000 which did not recur this quarter.

Noninterest Expense. Total noninterest expense was $15.4 million for the third quarter of 2021. This is up compared to the $13.7 million recorded in the same quarter last year and also up from the $15.0 million posted in the second quarter of 2021. Salaries and benefits expense totaled $10.9 million for the third quarter of 2021, an increase of $1.8 million from the third quarter of 2020 and an increase of $635,000 over the $10.3 million posted in the second quarter of 2021. The increase over the prior year was due mainly to staff expansion and an increase in the Bank’s incentive compensation expense and the increase over the second quarter of 2021 was mainly due to higher incentive compensation expense. Occupancy expense totaled $1.4 million for the quarter which was flat compared to the prior quarter’s $1.4 million and down slightly from the $1.5 million recorded in the third quarter of last year. Professional services expense was $1.1 million for the third quarter of 2021, a slight increase of $79,000 over the prior quarter and an increase of $101,000 over the same period last year. Other expenses were $1.4 million for the third quarter of 2021, down from the $1.7 million recorded last quarter and also up from the $1.6 million recorded in the same quarter last year. Lower FDIC premiums were the primary reason for the decrease compared to both periods. For the quarter ended September 30, 2021, the Bank’s efficiency ratio was 30.4%, down slightly from last quarter’s 33.2% mark and just slightly over the remarkable 29.9% ratio achieved in the same period last year.

Income Taxes. The Bank recorded a provision for income taxes of $10.5 million for the third quarter of 2021. This represents an effective tax rate (“ETR”) of 28.7% and just slightly over the ETR of 28.5% in the prior quarter but up from the ETR of 25.7% in the same period last year. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at September 30, 2021 were $4.32 billion, an increase of $286 million or 7.1% over the total of $4.04 billion as of December 31, 2020. Total deposits increased to $5.2 billion, an increase of $751 million or 16.9% over the $4.44 billion as of December 31, 2020. Total assets ended the quarter at $5.98 billion, an increase of $836 million or 16.3% over the total of $5.14 billion as of December 31, 2020.

Asset Quality

As of September 30, 2021, nonaccrual loans totaled $20.9 million, up slightly from the $20.2 million reported as of June 30, 2021. Total net charge-offs for the third quarter of 2021 were $1.0 million compared to $1.2 million in the prior quarter and compared to net charge-offs of $3.5 million in the third quarter of 2020.

At September 30, 2021, the Bank had no loans remaining on COVID-19 deferral status. Also important to note that as of September 30, 2021, the Bank had recouped 78% of all interest deferred during the deferral period.

Allowance for Credit Losses

The provision for (release of) credit losses for the third quarter of 2021 was ($1.5 million) compared to $0 recorded last quarter and compared to $9.0 million posted in the third quarter of 2020. A consistently improving economic outlook led to a lower allowance requirement. The Bank’s allowance coverage ratio now stands at 1.44% of total loans (excluding PPP loans).

Capitalization

As of September 30, 2021, the Bank’s leverage ratio was 9.64%, the common equity tier 1 capital ratio was 11.19% and the total capital ratio stood at 15.47%. As of December 31, 2020, the Bank’s leverage ratio was 10.08%, the common equity tier 1 ratio was 11.21% and the total risk-based capital ratio was 14.64%. In accordance with the Bank’s stock repurchase plan, during the third quarter, the Bank repurchased a total of 282,949 common shares at a total cost of $17.47 million.

GAAP – Non-GAAP Reconciliation -Second Quarter 2021 NIM
Net interest margin - GAAP		3.25	%
Add: $2.3MM loan interest income		0.17	%
Add: $614K unamortized $100M sub-debt issuance cost		0.05	%
Net interest margin - non-GAAP		3.47	%
GAAP – Non-GAAP Reconciliation -Third Quarter 2021 PPPT ROBE
Net Income	$	26,145
Add: Reversal of credit losses		(1,500	)
Add: Income tax expense		10,522
Pre-provision and pre-tax income	$	35,167
Total equity - 6/30/21	$	558,969
Pre-provision and pre-tax ROBE		24.96	%

Conference Call and Webcast

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

Preferred Bank's Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through November 4, 2021; the passcode is 10161195.

About Preferred Bank

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

Forward-Looking Statements

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

Financial Tables to Follow

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
					For the Quarter Ended
					September 30,				June 30,				September 30,
						2021				2021				2020
Interest income:
	Loans, including fees				$	50,866			$	47,906			$	50,417
	Investment securities					2,725				2,548				2,335
	Fed funds sold					20				19				30
		Total interest income				53,611				50,473				52,782
Interest expense:
	Interest-bearing demand					1,486				1,530				1,432
	Savings					3				18				20
	Time certificates					3,045				3,419				5,681
	Subordinated debt					1,324				2,145				1,530
		Total interest expense				5,857				7,112				8,663
		Net interest income				47,754				43,361				44,119
(Reversal of) provision for credit losses						(1,500	)			-				9,000
		Net interest income after (reversal of) provision for
			credit losses			49,254				43,361				35,119
Noninterest income:
	Fees & service charges on deposit accounts					581				525				428
	Letters of credit fee income					1,576				811				690
	BOLI income					98				98				96
	Net gain on called and sale of investment securities					41				-				15
	Net loss on sale of loans					-				(261	)			-
	Other income					488				473				376
		Total noninterest income				2,784				1,646				1,605
Noninterest expense:
	Salary and employee benefits					10,920				10,285				9,126
	Net occupancy expense					1,430				1,429				1,455
	Business development and promotion expense					98				117				95
	Professional services					1,075				996				974
	Office supplies and equipment expense					467				476				443
	Other					1,380				1,661				1,570
		Total noninterest expense				15,370				14,964				13,663
		Income before provision for income taxes				36,668				30,043				23,061
Income tax expense						10,522				8,563				5,936
		Net income			$	26,146			$	21,480			$	17,125
Dividend and earnings allocated to participating securities						(3	)			(3	)			(53	)
Net income available to common shareholders					$	26,143			$	21,477			$	17,072
Income per share available to common shareholders
		Basic			$	1.76			$	1.44			$	1.15
		Diluted			$	1.76			$	1.44			$	1.15
Weighted-average common shares outstanding
		Basic				14,884,570				14,954,688				14,893,774
		Diluted				14,884,570				14,954,688				14,893,774
Cash dividends per common share					$	0.38			$	0.38			$	0.30

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
					For the Nine Months Ended
					September 30,				September 30,				Change
						2021				2020			%
Interest income:
	Loans, including fees				$	148,631			$	151,794			-2.1	%
	Investment securities					7,550				8,634			-12.6	%
	Fed funds sold					63				185			-66.2	%
		Total interest income				156,244				160,613			-2.7	%
Interest expense:
	Interest-bearing demand					4,453				6,262			-28.9	%
	Savings					40				51			-22.3	%
	Time certificates					10,291				21,617			-52.4	%
	Subordinated debt					5,000				4,592			8.9	%
		Total interest expense				19,783				32,522			-39.2	%
		Net interest income				136,461				128,091			6.5	%
(Reversal of) provision for credit losses						(100	)			21,800			-100.5	%
		Net interest income after (reversal of) provision for
			credit losses			136,561				106,291			28.5	%
Noninterest income:
	Fees & service charges on deposit accounts					1,532				1,172			30.7	%
	Letters of credit fee income					3,195				2,280			40.1	%
	BOLI income					292				285			2.5	%
	Net (loss) gain on called and sale of investment securities					41				(98	)		-141.9	%
	Net (loss) gain on sale of loans					(640	)			15			-4363.5	%
	Other income					1,357				1,053			28.9	%
		Total noninterest income				5,777				4,707			22.7	%
Noninterest expense:
	Salary and employee benefits					32,328				30,123			7.3	%
	Net occupancy expense					4,260				4,147			2.7	%
	Business development and promotion expense					288				360			-20.0	%
	Professional services					3,052				2,994			1.9	%
	Office supplies and equipment expense					1,381				1,391			-0.7	%
	Other					4,677				4,166			12.3	%
		Total noninterest expense				45,986				43,181			6.5	%
		Income before provision for income taxes				96,352				67,817			42.1	%
Income tax expense						27,532				19,229			43.2	%
		Net income			$	68,820			$	48,588			41.6	%
Dividend and earnings allocated to participating securities					$	(8	)		$	(153	)		-94.6	%
Net income available to common shareholders					$	68,812			$	48,435			42.1	%
Income per share available to common shareholders
		Basic			$	4.61			$	3.25			41.6	%
		Diluted			$	4.61			$	3.25			41.6	%
Weighted-average common shares outstanding
		Basic				14,929,519				14,881,381			0.3	%
		Diluted				14,929,519				14,881,381			0.3	%
Dividends per share					$	1.14			$	0.90			26.7	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
			September 30,				December 31,
				2021				2020
			(Unaudited)				(Audited)
Assets
Cash and due from banks			$	1,060,634			$	739,465
Fed funds sold				22,000				20,000
	Cash and cash equivalents			1,082,634				759,465
Securities held to maturity, at amortized cost				15,294				6,568
Securities available-for-sale, at fair value				461,356				239,682
Loans				4,321,529				4,035,394
	Less allowance for credit losses			(61,135	)			(63,426	)
	Less amortized deferred loan fees, net			(5,498	)			(4,574	)
	Loans, net			4,254,896				3,967,394
Customers' liability on acceptances				7,697				3,596
Bank furniture and fixtures, net				10,955				11,825
Bank-owned life insurance				10,022				9,828
Accrued interest receivable				16,551				23,692
Investment in affordable housing partnerships				53,399				62,521
Federal Home Loan Bank stock, at cost				15,000				15,000
Deferred tax assets				25,128				24,466
Income tax receivable				1,192				-
Operating lease right-of-use assets				20,598				16,106
Other assets				5,118				3,498
	Total assets		$	5,979,840			$	5,143,641
Liabilities and Shareholders' Equity
Deposits:
	Non-interest bearing demand deposits		$	1,349,114			$	938,911
	Interest-bearing deposits:			1,861,334				1,700,818
		Savings		33,417				34,702
		Time certificates of $250,000 or more		959,826				912,546
		Other time certificates		990,228				855,503
		Total deposits		5,193,919				4,442,480
Acceptances outstanding				7,697				3,596
Subordinated debt issuance, net				147,699				99,334
Commitments to fund investment in affordable housing partnerships				17,900				30,715
Operating lease liabilities				21,933				18,682
Accrued interest payable				2,081				1,245
Other liabilities				26,590				22,142
	Total liabilities			5,417,819				4,618,194
Shareholders' equity				562,021				525,447
	Total liabilities and shareholders' equity		$	5,979,840			$	5,143,641
Book value per common share			$	38.29			$	31.47
Number of common shares outstanding				14,679,215				14,931,861

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
			For the Quarter Ended
			September 30,			June 30,			March 31,			December 31,			September 30,
				2021			2021			2021			2020			2020
Unaudited historical quarterly operations data:
	Interest income		$	53,611		$	50,473		$	52,160		$	53,649		$	52,782
	Interest expense			5,857			7,112			6,814			7,586			8,663
		Interest income before provision for credit losses		47,754			43,361			45,346			46,063			44,119
	(Reversal of) provision for credit losses			(1,500	)		-			1,400			4,200			9,000
	Noninterest income			2,784			1,646			1,347			1,356			1,605
	Noninterest expense			15,370			14,964			15,652			14,177			13,663
	Income tax expense			10,522			8,563			8,447			8,162			5,936
		Net income	$	26,146		$	21,480		$	21,194		$	20,880		$	17,125
	Earnings per share
		Basic	$	1.76		$	1.44		$	1.42		$	1.40		$	1.15
		Diluted	$	1.76		$	1.44		$	1.42		$	1.40		$	1.15
Ratios for the period:
	Return on average assets			1.80	%		1.58	%		1.65	%		1.63	%		1.34	%
	Return on beginning equity			18.56	%		15.98	%		16.36	%		16.49	%		13.94	%
	Net interest margin (Fully-taxable equivalent)			3.36	%		3.25	%		3.61	%		3.66	%		3.54	%
	Noninterest expense to average assets			1.06	%		1.10	%		1.22	%		1.10	%		1.07	%
	Efficiency ratio			30.41	%		33.25	%		33.52	%		29.90	%		29.88	%
	Net charge-offs (recoveries) to average loans (annualized)			0.10	%		0.12	%		-0.01	%		0.20	%		0.35	%
Ratios as of period end:
	Tier 1 leverage capital ratio			9.64	%		10.07	%		10.26	%		10.08	%		9.75	%
	Common equity tier 1 risk-based capital ratio			11.19	%		11.28	%		11.34	%		11.21	%		11.02	%
	Tier 1 risk-based capital ratio			11.19	%		11.28	%		11.34	%		11.21	%		11.02	%
	Total risk-based capital ratio			15.47	%		15.61	%		14.73	%		14.64	%		14.51	%
	Allowances for credit losses to loans at end of period			1.41	%		1.49	%		1.56	%		1.57	%		1.55	%
	Allowance for credit losses to non-performing loans			292.84	%		290.58	%		294.74	%		308.96	%		243.56	%
Average balances:
	Total securities		$	401,641		$	269,000		$	242,200		$	251,284		$	237,801
	Total loans			4,156,289			4,130,190			4,044,800			3,971,537			3,956,145
	Total earning assets			5,659,678			5,364,598			5,102,291			5,018,031			4,975,005
	Total assets			5,760,056			5,467,678			5,200,079			5,110,065			5,073,548
	Total time certificate of deposits			1,959,514			1,893,247			1,820,461			1,764,528			1,841,901
	Total interest bearing deposits			3,783,704			3,704,771			3,531,358			3,508,276			3,501,275
	Total deposits			4,971,607			4,724,104			4,486,399			4,426,326			4,408,882
	Total interest bearing liabilities			3,931,375			3,815,964			3,630,705			3,607,592			3,600,560
	Total equity			569,624			553,561			538,282			518,567			503,421

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
			For the Nine Months Ended
			September 30,				September 30,
				2021				2020
	Interest income		$	156,244			$	160,613
	Interest expense			19,783				32,522
		Interest income before provision for credit losses		136,461				128,091
	(Reversal of) provision for credit losses			(100	)			21,800
	Noninterest income			5,777				4,707
	Noninterest expense			45,986				43,181
	Income tax expense			27,532				19,229
		Net income	$	68,820			$	48,588
	Earnings per share
		Basic	$	4.61			$	3.25
		Diluted	$	4.61			$	3.25
Ratios for the period:
	Return on average assets			1.68	%			1.33	%
	Return on beginning equity			17.51	%			13.81	%
	Net interest margin (Fully-taxable equivalent)			3.40	%			3.60	%
	Noninterest expense to average assets			1.12	%			1.19	%
	Efficiency ratio			32.33	%			32.52	%
	Net charge-offs to average loans			0.07	%			0.12	%
Average balances:
	Total securities		$	304,865			$	245,181
	Total loans			4,110,835				3,864,667
	Total earning assets			5,377,565				4,764,789
	Total assets			5,477,989				4,865,382
	Total time certificate of deposits			1,891,583				1,788,612
	Total interest bearing deposits			3,674,201				3,382,405
	Total deposits			4,729,147				4,213,950
	Total interest bearing liabilities			3,793,782				3,481,659
	Total equity			553,937				488,641

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				As of
				September 30,				June 30,				March 31,				December 31,				September 30,
					2021				2021				2021				2020				2020
Unaudited quarterly statement of financial position data:
Assets:
	Cash and cash equivalents			$	1,082,634			$	896,474			$	943,126			$	759,465			$	807,791
	Securities held-to-maturity, at amortized cost				15,294				15,749				6,039				6,568				6,727
	Securities available-for-sale, at fair value				461,356				278,460				228,635				239,682				219,778
	Loans:
		Real estate – Mortgage:
			Real estate—Residential	$	540,725			$	558,147			$	541,313			$	523,789			$	528,371
			Real estate—Commercial		2,093,692				2,019,995				1,925,554				1,911,485				1,808,200
			Total Real Estate – Mortgage		2,634,417				2,578,142				2,466,867				2,435,274				2,336,571
		Real estate – Construction:
			R/E Construction — Residential		122,382				120,363				123,302				148,825				170,773
			R/E Construction — Commercial		213,833				224,323				229,933				215,032				223,706
			Total real estate construction loans		336,215				344,686				353,235				363,857				394,480
		Commercial and industrial			1,286,995				1,259,668				1,248,550				1,165,990				1,144,051
		PPP			63,897				95,765				95,434				70,234				74,551
		Consumer and others			6				143				155				39				68
			Gross loans		4,321,529				4,278,403				4,164,241				4,035,394				3,949,721
	Allowance for credit losses on loans				(61,135	)			(63,635	)			(64,883	)			(63,426	)			(61,262	)
	Net deferred loan fees				(5,498	)			(5,329	)			(4,872	)			(4,574	)			(4,411	)
		Net loans, excluding loans held for sale		$	4,254,896			$	4,209,439			$	4,094,486			$	3,967,394			$	3,884,048
	Loans held for sale			$	-			$	-			$	-			$	-			$	-
		Net loans		$	4,254,896			$	4,209,439			$	4,094,486			$	3,967,394			$	3,884,048
	Investment in affordable housing partnerships				53,399				55,452				59,824				62,521				47,917
	Federal Home Loan Bank stock, at cost				15,000				15,000				15,000				15,000				15,000
	Other assets				97,261				105,334				100,894				93,011				104,313
		Total assets		$	5,979,840			$	5,575,908			$	5,448,004			$	5,143,641			$	5,085,574
Liabilities:
	Deposits:
		Demand		$	1,349,114			$	1,063,472			$	1,026,260			$	938,911			$	926,166
		Interest-bearing demand			1,861,334				1,774,668				1,751,951				1,700,818				1,620,495
		Savings			33,417				32,560				37,551				34,702				32,830
		Time certificates of $250,000 or more			959,826				930,976				927,043				912,546				977,821
		Other time certificates			990,228				994,630				979,694				855,503				857,113
		Total deposits		$	5,193,919			$	4,796,306			$	4,722,499			$	4,442,480			$	4,414,425
	Acceptances outstanding			$	7,697			$	7,797			$	9,670			$	3,596			$	7,463
	Subordinated debt issuance, net				147,699				147,787				99,365				99,334				99,304
	Commitments to fund investment in affordable housing partnerships				17,900				19,197				27,918				30,715				16,689
	Other liabilities				50,604				45,852				49,283				42,069				43,826
		Total liabilities		$	5,417,819			$	5,016,939			$	4,908,735			$	4,618,194			$	4,581,707
Equity:
	Net common stock, no par value			$	203,844			$	219,958			$	218,593			$	217,444			$	213,519
	Retained earnings				352,843				332,276				316,481				300,969				284,568
	Accumulated other comprehensive income				5,334				6,735				4,195				7,034				5,780
		Total shareholders' equity		$	562,021			$	558,969			$	539,269			$	525,447			$	503,867
		Total liabilities and shareholders' equity		$	5,979,840			$	5,575,908			$	5,448,004			$	5,143,641			$	5,085,574

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,
				2021								2021								2020
						Interest		Average						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,156,289			50,866	4.86	%		$	4,132,451		$	47,906	4.65	%		$	3,956,145		$	50,417	5.07	%
	Investment securities (3)			401,641			2,163	2.14	%			269,000			2,058	3.07	%			237,801			1,967	3.29	%
	Federal funds sold			21,837			20	0.36	%			20,437			19	0.36	%			23,828			30	0.50	%
	Other earning assets			1,079,911			679	0.25	%			942,710			597	0.25	%			757,231			474	0.25	%
		Total interest-earning assets		5,659,678			53,728	3.77	%			5,364,598			50,580	3.78	%			4,975,005			52,888	4.23	%
	Deferred loan fees, net			(5,176	)							(4,924	)							(4,713	)
	Allowance for credit losses on loans			(63,608	)							(64,842	)							(55,822	)
Noninterest earning assets:
	Cash and due from banks			14,457								10,620								7,355
	Bank furniture and fixtures			11,123								11,468								11,856
	Right of use assets			21,136								19,735								16,550
	Other assets			122,446								131,023								123,317
		Total assets	$	5,760,056							$	5,467,678							$	5,073,548
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand and savings		1,824,190		$	1,489	0.32	%			1,811,524		$	1,548	0.34	%		$	1,659,374		$	1,452	0.35	%
		TCD $250K or more		964,656			1,542	0.63	%			926,161			1,688	0.73	%			987,631			2,993	1.21	%
		Other time certificates		994,858			1,503	0.60	%			967,086			1,731	0.72	%			854,270			2,688	1.25	%
		Total interest-bearing deposits		3,783,704			4,534	0.48	%			3,704,771			4,967	0.54	%			3,501,275			7,133	0.81	%
Subordinated debt, net				147,671			1,324	3.56	%			111,193			2,145	7.74	%			99,285			1,530	6.13	%
		Total interest-bearing liabilities		3,931,375			5,858	0.59	%			3,815,964			7,112	0.75	%			3,600,560			8,663	0.96	%
Non-interest bearing liabilities:
	Demand deposits			1,187,903								1,019,333								907,607
	Lease Liability			22,747								21,765								19,400
	Other liabilities			48,407								57,055								42,560
		Total liabilities		5,190,432								4,914,117								4,570,127
Shareholders’ equity				569,624								553,561								503,421
		Total liabilities and shareholders’ equity	$	5,760,056							$	5,467,678							$	5,073,548
Net interest income						$	47,870							$	43,468							$	44,225
Net interest spread								3.18	%							3.03	%							3.27	%
Net interest margin								3.36	%							3.25	%							3.54	%
Cost of Deposits:
	Noninterest bearing demand deposits		$	1,187,903							$	1,019,333							$	907,607
	Interest bearing deposits			3,783,704			4,534	0.48	%			3,704,771			4,967	0.54	%			3,501,275			7,133	0.81	%
		Total Deposits	$	4,971,607		$	4,534	0.36	%		$	4,724,104		$	4,967	0.42	%		$	4,408,882		$	7,133	0.64	%
(1)		Includes non-accrual loans and loans held for sale
(2)		Net loan fee income of $823,000, $669,000 and $683,000 for the quarter ended September 30, 2021, June 30, 2021, September 30, 2020, respectively, are included in the yield computations
(3)		Yields on securities have been adjusted to a tax-equivalent basis

PREFERRED BANK
Year-to-Date Average Balances, Yield and Rates
(unaudited)
			Nine Months ended September 30,
				2021								2020
						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,111,596		$	148,631	4.83	%		$	3,865,350		$	151,794	5.25	%
	Investment securities (3)			304,865			6,104	2.68	%			245,181			6,193	3.37	%
	Federal funds sold			21,251			63	0.39	%			26,093			185	0.95	%
	Other earning assets			939,853			1,769	0.25	%			628,165			2,736	0.58	%
		Total interest-earning assets		5,377,565			156,567	3.89	%			4,764,789			160,908	4.51	%
	Deferred loan fees, net			(4,818	)							(3,662	)
	Allowance for credit losses on loans			(63,967	)							(48,981	)
Noninterest earning assets:
	Cash and due from banks			11,683								7,321
	Bank furniture and fixtures			11,452								12,039
	Right of use assets			19,255								16,774
	Other assets			126,819								117,102
		Total assets	$	5,477,989							$	4,865,382
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand/ savings		1,782,618		$	4,492	0.34	%			1,593,793		$	6,313	0.53	%
		TCD $250K or more		936,825			5,148	0.73	%			967,413			11,469	1.58	%
		Other time certificates		954,758			5,143	0.72	%			821,199			10,148	1.65	%
		Total interest-bearing deposits		3,674,201			14,783	0.54	%			3,382,405			27,930	1.10	%
Subordinated debt, net				119,581			5,000	5.59	%			99,254			4,592	6.18	%
		Total interest-bearing liabilities		3,793,782			19,783	0.70	%			3,481,659			32,522	1.25	%
Non-interest bearing liabilities:
	Demand deposits			1,054,946								831,545
	Lease Liability			21,280								19,850
	Other liabilities			54,044								43,687
		Total liabilities		4,924,052								4,376,741
Shareholders’ equity				553,937								488,641
		Total liabilities and shareholders’ equity	$	5,477,989							$	4,865,382
Net interest income						$	136,784							$	128,386
Net interest spread								3.20	%							3.26	%
Net interest margin								3.40	%							3.60	%
Cost of Deposits:
	Noninterest bearing demand deposits		$	1,054,946							$	831,545
	Interest bearing deposits			3,674,201			14,783	0.54	%			3,382,405			27,930	1.10	%
		Total Deposits	$	4,729,147		$	14,783	0.42	%		$	4,213,950		$	27,930	0.89	%
(1)		Includes non-accrual loans and loans held for sale
(2)		Net loan fee income of $2.0 million and $1.9 million for the nine months ended September 30, 2021 and 2020, 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				Nine Months Ended
				September 30, 2021				September 30, 2020
				(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period				$	63,426			$	34,830
	Charge-Offs
		Commercial & Industrial			1,431				1,661
		Mini-perm Real Estate			817				1,900
		Total Charge-Offs			2,248				3,561
	Recoveries
		Commercial & Industrial			57				-
		Construction - Commercial			-				193
		Total Recoveries			57				193
	Net Charge-Offs				2,191				3,368
	(Reversal of) Provision for Credit Losses:
		CECL Cumulative Effect Adjustment			-				8,000
		Current (Reversal) Provision			(100	)			21,800
Balance at End of Period				$	61,135			$	61,262
Average Loans Held for Investment				$	4,110,835			$	3,864,667
Loans Held for Investment at End of Period				$	4,321,529			$	3,949,721
Net Charge-Offs (Recoveries) to Average Loans					0.07	%			0.12	%
Allowances for Credit Losses to Loans at End of Period					1.41	%			1.55	%

 

AT THE COMPANY: Edward J. Czajka Executive Vice President Chief Financial Officer (213) 891-1188

AT FINANCIAL PROFILES: Jeffrey Haas General Information (310) 622-8240 PFBC@finprofiles.com

FAQ

What were Preferred Bank's Q3 2021 earnings results?

Preferred Bank reported a net income of $26.1 million, or $1.76 per diluted share, for Q3 2021.

What is Preferred Bank's current financial outlook?

The bank has reported strong deposit and loan growth, but there's ongoing pressure on net interest margins and rising noninterest expenses.

What were the key financial metrics for PFBC in Q3 2021?

Key metrics include a return on average assets of 1.80%, net interest income of $47.8 million, and total assets nearing $6 billion.