Preferred Bank Reports Quarterly Earnings

Rhea-AI Summary

Preferred Bank (NASDAQ: PFBC) reported a net income of $21.5 million or $1.44 per diluted share for Q2 2021, representing a slight increase from $21.2 million or $1.42 per diluted share in Q1 2021 and significantly up from $15.3 million or $1.03 per diluted share in Q2 2020. Key factors include a $7.5 million decrease in provisions for credit losses. However, net interest income decreased to $43.4 million due to a $2.29 million loan interest reversal. The bank experienced a loan growth of 2.7% and deposit growth of 1.6% compared to the prior quarter.

Positive

• Net income increased to $21.5 million, up from $21.2 million in Q1 2021 and $15.3 million in Q2 2020.
• Loan growth of $114 million (2.7%) sequentially, indicating strong origination activity.
• Deposit growth of $74 million (1.6%) linked quarter.
• Efficiency ratio improved to 33.2%.
• Interest expense savings of over $900,000 annually from lower coupon subordinated notes.

Negative

• Net interest income decreased to $43.4 million from $45.3 million in Q1 2021 due to a $2.29 million loan interest accrual adjustment.
• Noninterest expense increased by $630,000 compared to Q1 2021.

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

Second quarter 2021 Highlights:

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

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

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

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

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

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

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

Results of Operations

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

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

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

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

Balance Sheet Summary

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

Asset Quality

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

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

Allowance for Credit Losses

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

Capitalization

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

GAAP – Non-GAAP Reconciliation

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

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

Conference Call and Webcast

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

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

About Preferred Bank

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

Forward-Looking Statements

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

Financial Tables to Follow

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
					For the Quarter Ended
					June 30,				March 31,				June 30,
						2021				2021				2020
Interest income:
	Loans, including fees				$	47,906			$	49,859			$	49,813
	Investment securities					2,548				2,277				2,320
	Fed funds sold					19				24				31
		Total interest income				50,473				52,160				52,164
Interest expense:
	Interest-bearing demand					1,530				1,437				1,462
	Savings					18				19				17
	Time certificates					3,419				3,827				6,973
	Subordinated debit					2,145				1,531				1,531
		Total interest expense				7,112				6,814				9,983
		Net interest income				43,361				45,346				42,181
Provision for credit losses						-				1,400				7,500
		Net interest income after provision for
			credit losses			43,361				43,946				34,681
Noninterest income:
	Fees & service charges on deposit accounts					525				426				339
	Letters of credit fee income					811				808				742
	BOLI income					98				96				95
	Net gain (loss) on called and sale of investment securities					-				-				(113	)
	Net gain (loss) on sale of loans					(261	)			(379	)			-
	Other income					473				396				367
		Total noninterest income				1,646				1,347				1,430
Noninterest expense:
	Salary and employee benefits					10,285				11,123				10,095
	Net occupancy expense					1,429				1,401				1,296
	Business development and promotion expense					117				73				114
	Professional services					996				981				1,006
	Office supplies and equipment expense					476				438				459
	Other					1,661				1,636				1,364
		Total noninterest expense				14,964				15,652				14,334
		Income before provision for income taxes				30,043				29,641				21,777
Income tax expense						8,563				8,447				6,468
		Net income			$	21,480			$	21,194			$	15,309
Dividend and earnings allocated to participating securities						(3	)			(3	)			(49	)
Net income available to common shareholders					$	21,477			$	21,191			$	15,260
Income per share available to common shareholders
		Basic			$	1.44			$	1.42			$	1.03
		Diluted			$	1.44			$	1.42			$	1.03
Weighted-average common shares outstanding
		Basic				14,954,688				14,950,019				14,879,383
		Diluted				14,954,688				14,950,019				14,879,383
Cash dividends per common share					$	0.38			$	0.38			$	0.30

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
					For the Six Months Ended
					June 30,				June 30,				Change
						2021				2020			%
Interest income:
	Loans, including fees				$	97,765			$	101,377			-3.6	%
	Investment securities					4,825				6,299			-23.4	%
	Fed funds sold					43				156			-72.7	%
		Total interest income				102,633				107,832			-4.8	%
Interest expense:
	Interest-bearing demand					2,967				4,830			-38.6	%
	Savings					37				31			17.8	%
	Time certificates					7,246				15,936			-54.5	%
	Subordinated debit					3,676				3,062			20.0	%
		Total interest expense				13,926				23,859			-41.6	%
		Net interest income				88,707				83,973			5.6	%
Provision for credit losses						1,400				12,800			-89.1	%
		Net interest income after provision for
			credit losses			87,307				71,173			22.7	%
Noninterest income:
	Fees & service charges on deposit accounts					951				744			27.8	%
	Letters of credit fee income					1,619				1,590			1.8	%
	BOLI income					194				189			2.9	%
	Net gain (loss) on called and sale of investment securities					-				(113	)		-100.0	%
	Net gain (loss) on sale of loans					(640	)			15			-4363.5	%
	Other income					869				677			28.4	%
		Total noninterest income				2,993				3,102			-3.5	%
Noninterest expense:
	Salary and employee benefits					21,408				20,997			2.0	%
	Net occupancy expense					2,830				2,692			5.1	%
	Business development and promotion expense					190				265			-28.3	%
	Professional services					1,977				2,020			-2.1	%
	Office supplies and equipment expense					914				948			-3.6	%
	Other					3,297				2,597			27.0	%
		Total noninterest expense				30,616				29,519			3.7	%
		Income before provision for income taxes				59,684				44,756			33.4	%
Income tax expense						17,010				13,293			28.0	%
		Net income			$	42,674			$	31,463			35.6	%
Dividend and earnings allocated to participating securities					$	(3	)		$	(51	)		-95.0	%
Net income available to common shareholders					$	42,671			$	31,412			35.8	%
Income per share available to common shareholders
		Basic			$	2.85			$	2.11			35.3	%
		Diluted			$	2.85			$	2.11			35.3	%
Weighted-average common shares outstanding
		Basic				14,952,366				14,875,049			0.5	%
		Diluted				14,952,366				14,875,049			0.5	%
Dividends per share					$	0.76			$	0.60			26.7	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
				June 30,				December 31,
					2021				2020
				(Unaudited)				(Audited)
Assets
Cash and due from banks				$	876,474			$	739,465
Fed funds sold					20,000				20,000
	Cash and cash equivalents				896,474				759,465
Securities held to maturity, at amortized cost					15,749				6,568
Securities available-for-sale, at fair value					278,460				239,682
Loans					4,278,403				4,035,394
	Less allowance for credit losses				(63,635	)			(63,426	)
	Less amortized deferred loan fees, net				(5,329	)			(4,574	)
	Loans, net				4,209,439				3,967,394
Customers' liability on acceptances					7,797				3,596
Bank furniture and fixtures, net					11,208				11,825
Bank-owned life insurance					9,957				9,828
Accrued interest receivable					18,316				23,692
Investment in affordable housing partnerships					55,452				62,521
Federal Home Loan Bank stock, at cost					15,000				15,000
Deferred tax assets					24,583				24,466
Income tax receivable					5,736				-
Operating lease right-of-use assets					21,502				16,106
Other assets					6,235				3,498
	Total assets			$	5,575,908			$	5,143,641
Liabilities and Shareholders' Equity
Deposits:
	Non-interest bearing demand deposits			$	1,063,472			$	938,911
	Interest-bearing deposits:				1,774,668				1,700,818
		Savings			32,560				34,702
		Time certificates of $250,000 or more			930,976				912,546
		Other time certificates			994,630				855,503
		Total deposits			4,796,306				4,442,480
Acceptances outstanding					7,797				3,596
Subordinated debt issuance, net					147,787				99,334
Commitments to fund investment in affordable housing partnerships					19,197				30,715
Operating lease liabilities					23,287				18,682
Accrued interest payable					914				1,245
Other liabilities					21,651				22,142
	Total liabilities				5,016,939				4,618,194
Shareholders' equity					558,969				525,447
	Total liabilities and shareholders' equity			$	5,575,908			$	5,143,641
Book value per common share				$	37.36			$	31.47
Number of common shares outstanding					14,962,164				14,931,861

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				For the Quarter Ended
				June 30,			March 31,			December 31,			September 30,			June 30,
					2021			2021			2020			2020			2020
Unaudited historical quarterly operations data:
	Interest income			$	50,473		$	52,160		$	53,649		$	52,782		$	52,164
	Interest expense				7,112			6,814			7,586			8,663			9,983
		Interest income before provision for credit losses			43,361			45,346			46,063			44,119			42,181
	Provision for credit losses				-			1,400			4,200			9,000			7,500
	Noninterest income				1,646			1,347			1,356			1,605			1,430
	Noninterest expense				14,964			15,652			14,177			13,663			14,334
	Income tax expense				8,563			8,447			8,162			5,936			6,468
		Net income		$	21,480		$	21,194		$	20,880		$	17,125		$	15,309
	Earnings per share
		Basic		$	1.44		$	1.42		$	1.40		$	1.15		$	1.03
		Diluted		$	1.44		$	1.42		$	1.40		$	1.15		$	1.03
Ratios for the period:
	Return on average assets				1.58	%		1.65	%		1.63	%		1.34	%		1.26	%
	Return on beginning equity				15.98	%		16.36	%		16.49	%		13.94	%		13.00	%
	Net interest margin (Fully-taxable equivalent)				3.25	%		3.61	%		3.66	%		3.54	%		3.57	%
	Noninterest expense to average assets				1.10	%		1.22	%		1.10	%		1.07	%		1.18	%
	Efficiency ratio				33.25	%		33.52	%		29.90	%		29.88	%		32.87	%
	Net charge-offs (recoveries) to average loans (annualized)				0.12	%		-0.01	%		0.20	%		0.35	%		-0.01	%
Ratios as of period end:
	Tier 1 leverage capital ratio				10.07	%		10.26	%		10.08	%		9.75	%		9.87	%
	Common equity tier 1 risk-based capital ratio				11.28	%		11.34	%		11.21	%		11.02	%		10.39	%
	Tier 1 risk-based capital ratio				11.28	%		11.34	%		11.21	%		11.02	%		10.39	%
	Total risk-based capital ratio				15.61	%		14.73	%		14.64	%		14.51	%		13.80	%
	Allowances for credit losses to loans at end of period				1.49	%		1.56	%		1.57	%		1.55	%		1.41	%
	Allowance for credit losses to non-performing loans				290.58	%		294.74	%		308.96	%		243.56	%		211.08	%
Average balances:
	Total securities			$	269,000		$	242,200		$	251,284		$	237,801		$	250,134
	Total loans			$	4,130,190		$	4,044,800		$	3,971,537		$	3,956,145		$	3,919,674
	Total earning assets			$	5,364,598		$	5,102,291		$	5,018,031		$	4,975,005		$	4,768,537
	Total assets			$	5,467,678		$	5,200,079		$	5,110,065		$	5,073,548		$	4,868,356
	Total time certificate of deposits			$	1,893,247		$	1,820,461		$	1,764,528		$	1,841,901		$	1,757,531
	Total interest bearing deposits			$	3,704,771		$	3,531,358		$	3,508,276		$	3,501,275		$	3,399,924
	Total deposits			$	4,724,104		$	4,486,399		$	4,426,326		$	4,408,882		$	4,220,197
	Total interest bearing liabilities			$	3,815,964		$	3,630,705		$	3,607,592		$	3,600,560		$	3,499,178
	Total equity			$	553,561		$	538,282		$	518,567		$	503,421		$	486,931

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				For the Six Months Ended
				June 30,				June 30,
					2021				2020
	Interest income			$	102,633			$	107,832
	Interest expense				13,926				23,859
		Interest income before provision for credit losses			88,707				83,973
	Provision for credit losses				1,400				12,800
	Noninterest income				2,993				3,102
	Noninterest expense				30,616				29,519
	Income tax expense				17,010				13,293
		Net income		$	42,674			$	31,463
	Earnings per share
		Basic		$	2.85			$	2.11
		Diluted		$	2.85			$	2.11
Ratios for the period:
	Return on average assets				1.61	%			1.33	%
	Return on beginning equity				16.38	%			13.46	%
	Net interest margin (Fully-taxable equivalent)				3.43	%			3.63	%
	Noninterest expense to average assets				1.16	%			1.25	%
	Efficiency ratio				33.39	%			33.90	%
	Net charge-offs (recoveries) to average loans				0.06	%			-0.01	%
Average balances:
	Total securities			$	255,675			$	248,912
	Total loans			$	4,087,731			$	3,818,424
	Total earning assets			$	5,234,170			$	4,658,524
	Total assets			$	5,334,618			$	4,760,156
	Total time certificate of deposits			$	1,857,055			$	1,761,674
	Total interest bearing deposits			$	3,618,543			$	3,322,318
	Total deposits			$	4,605,908			$	4,115,413
	Total interest bearing liabilities			$	3,723,846			$	3,421,556
	Total equity			$	545,964			$	481,170

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				As of
				June 30,				March 31,				December 31,				September 30,				June 30,
					2021				2021				2020				2020				2020
Unaudited quarterly statement of financial position data:
Assets:
	Cash and cash equivalents			$	896,474			$	943,126			$	759,465			$	807,791			$	656,183
	Securities held-to-maturity, at amortized cost				15,749				6,039				6,568				6,727				6,922
	Securities available-for-sale, at fair value				278,460				228,635				239,682				219,778				270,667
	Loans:
		Real estate – Mortgage:
			Real estate—Residential	$	558,147			$	541,313			$	523,789			$	528,371			$	511,354
			Real estate—Commercial		2,019,995				1,925,554				1,911,485				1,808,200				1,781,660
			Total Real Estate – Mortgage		2,578,142				2,466,867				2,435,274				2,336,571				2,293,014
		Real estate – Construction:
			R/E Construction — Residential		120,363				123,302				148,825				170,773				187,083
			R/E Construction — Commercial		224,323				229,933				215,032				223,706				217,729
			Total real estate construction loans		344,686				353,235				363,857				394,480				404,812
		Commercial and industrial			1,259,668				1,248,550				1,165,990				1,144,051				1,192,056
		PPP			95,765				95,434				70,234				74,551				73,524
		Consumer and others			143				155				39				68				241
			Gross loans		4,278,403				4,164,241				4,035,394				3,949,721				3,963,647
	Allowance for credit losses on loans				(63,635	)			(64,883	)			(63,426	)			(61,262	)			(55,762	)
	Net deferred loan fees				(5,329	)			(4,872	)			(4,574	)			(4,411	)			(5,097	)
		Net loans, excluding loans held for sale		$	4,209,439			$	4,094,486			$	3,967,394			$	3,884,048			$	3,902,788
	Loans held for sale			$	-			$	-			$	-			$	-			$	-
		Net loans		$	4,209,439			$	4,094,486			$	3,967,394			$	3,884,048			$	3,902,788
	Investment in affordable housing partnerships				55,452				59,824				62,521				47,917				49,658
	Federal Home Loan Bank stock, at cost				15,000				15,000				15,000				15,000				15,000
	Other assets				105,334				100,894				93,011				104,313				103,239
		Total assets		$	5,575,908			$	5,448,004			$	5,143,641			$	5,085,574			$	5,004,457
Liabilities:
	Deposits:
		Demand		$	1,063,472			$	1,026,260			$	938,911			$	926,166			$	934,764
		Interest-bearing demand			1,774,668				1,751,951				1,700,818				1,620,495				1,594,682
		Savings			32,560				37,551				34,702				32,830				27,737
		Time certificates of $250,000 or more			930,976				927,043				912,546				977,821				970,649
		Other time certificates			994,630				979,694				855,503				857,113				822,404
		Total deposits		$	4,796,306			$	4,722,499			$	4,442,480			$	4,414,425			$	4,350,236
	Acceptances outstanding			$	7,797			$	9,670			$	3,596			$	7,463			$	6,112
	Subordinated debt issuance, net				147,787				99,365				99,334				99,304				99,273
	Commitments to fund investment in affordable housing partnerships				19,197				27,918				30,715				16,689				17,536
	Other liabilities				45,852				49,283				42,069				43,826				42,571
		Total liabilities		$	5,016,939			$	4,908,735			$	4,618,194			$	4,581,707			$	4,515,728
Equity:
	Net common stock, no par value			$	219,958			$	218,593			$	217,444			$	213,519			$	212,187
	Retained earnings				332,276				316,481				300,969				284,568				271,923
	Accumulated other comprehensive income				6,735				4,195				7,034				5,780				4,619
		Total shareholders' equity		$	558,969			$	539,269			$	525,447			$	503,867			$	488,729
		Total liabilities and shareholders' equity		$	5,575,908			$	5,448,004			$	5,143,641			$	5,085,574			$	5,004,457

PREFERRED BANK
Quarter-to-Date Average Balances, Yields and Rates
(Unaudited)
			Three months ended June 30,								Three months ended March 31,								Three months ended June 30,
				2021								2020								2020
						Interest		Average						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,132,451			47,906	4.65	%		$	4,044,823		$	49,859	5.00	%		$	3,921,694		$	49,813	5.11	%
	Investment securities (3)			269,000			2,058	3.07	%			242,200			1,884	3.16	%			250,134			2,098	3.37	%
	Federal funds sold			20,437			19	0.36	%			21,474			24	0.45	%			24,324			31	0.52	%
	Other earning assets			942,710			597	0.25	%			793,794			493	0.25	%			572,385			318	0.23	%
		Total interest-earning assets		5,364,598			50,580	3.78	%			5,102,291			52,260	4.15	%			4,768,537			52,260	4.41	%
	Deferred loan fees, net			(4,924	)							(4,344	)							(3,182	)
	Allowance for credit losses on loans			(64,842	)							(63,450	)							(48,247	)
Noninterest earning assets:
	Cash and due from banks			10,620								9,923								8,274
	Bank furniture and fixtures			11,468								11,772								11,993
	Right of use assets			19,735								16,847								16,768
	Other assets			131,023								127,040								114,213
		Total assets	$	5,467,678							$	5,200,079							$	4,868,356
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand and savings		1,811,524		$	1,548	0.34	%			1,710,897		$	1,456	0.35	%		$	1,642,393		$	1,479	0.36	%
		TCD $250K or more		926,161			1,688	0.73	%			919,155			1,918	0.85	%			945,043			3,624	1.54	%
		Other time certificates		967,086			1,731	0.72	%			901,306			1,909	0.86	%			812,488			3,349	1.66	%
		Total interest-bearing deposits		3,704,771			4,967	0.54	%			3,531,358			5,283	0.61	%			3,399,924			8,452	1.00	%
Subordinated debt, net				111,193			2,145	7.74	%			99,347			1,531	6.25	%			99,254			1,531	6.20	%
		Total interest-bearing liabilities		3,815,964			7,112	0.75	%			3,630,705			6,814	0.76	%			3,499,178			9,983	1.15	%
Non-interest bearing liabilities:
	Demand deposits			1,019,333								955,041								820,273
	Lease Liability			21,765								19,289								19,841
	Other liabilities			57,055								56,762								42,133
		Total liabilities		4,914,117								4,661,797								4,381,425
Shareholders’ equity				553,561								538,282								486,931
		Total liabilities and shareholders’ equity	$	5,467,678							$	5,200,079							$	4,868,356
Net interest income						$	43,468							$	45,446							$	42,277
Net interest spread								3.03	%							3.39	%							3.26	%
Net interest margin								3.25	%							3.61	%							3.57	%
Cost of Deposits:
	Noninterest bearing demand deposits		$	1,019,333							$	955,041							$	820,273
	Interest bearing deposits			3,704,771			4,967	0.54	%			3,531,358			5,283	0.61	%			3,399,924			8,452	1.00	%
		Total Deposits	$	4,724,104		$	4,967	0.42	%		$	4,486,399		$	5,283	0.48	%		$	4,220,197		$	8,452	0.81	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $699,000, $539,000 and $542,000 for the quarter ended June 30, 2021, March 31, 2021, June 30, 2020, respectively, are included in the yield computations
(3)	Yields on securities have been adjusted to a tax-equivalent basis

PREFERRED BANK
Year-to-Date Average Balances, Yields and Rates
(Unaudited)
			Six Months ended June 30,
				2021								2020
						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,088,879		$	97,765	4.82	%		$	3,819,453		$	101,377	5.34	%
	Investment securities (3)			255,675			3,942	3.11	%			248,912			4,225	3.41	%
	Federal funds sold			20,953			43	0.41	%			27,238			156	1.15	%
	Other earning assets			868,663			1,090	0.25	%			562,921			2,263	0.81	%
		Total interest-earning assets		5,234,170			102,840	3.96	%			4,658,524			108,021	4.66	%
	Deferred loan fees, net			(4,636	)							(3,131	)
	Allowance for credit losses on loans			(64,150	)							(45,523	)
Noninterest earning assets:
	Cash and due from banks			10,273								7,304
	Bank furniture and fixtures			11,619								12,131
	Right of use assets			18,299								16,887
	Other assets			129,042								113,964
		Total assets	$	5,334,618							$	4,760,156
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand/ savings		1,761,488		$	3,004	0.34	%			1,560,644		$	4,861	0.63	%
		TCD $250K or more		922,677			3,606	0.79	%			957,193			8,476	1.78	%
		Other time certificates		934,378			3,640	0.79	%			804,481			7,460	1.86	%
		Total interest-bearing deposits		3,618,543			10,250	0.57	%			3,322,318			20,797	1.26	%
Subordinated debt, net				105,303			3,676	7.04	%			99,238			3,062	6.20	%
		Total interest-bearing liabilities		3,723,846			13,926	0.75	%			3,421,556			23,859	1.40	%
Non-interest bearing liabilities:
	Demand deposits			987,365								793,095
	Lease Liability			20,534								20,077
	Other liabilities			56,909								44,258
		Total liabilities		4,788,654								4,278,986
Shareholders’ equity				545,964								481,170
		Total liabilities and shareholders’ equity	$	5,334,618							$	4,760,156
Net interest income						$	88,914							$	84,162
Net interest spread								3.21	%							3.26	%
Net interest margin								3.43	%							3.63	%
Cost of Deposits:
	Noninterest bearing demand deposits		$	987,365							$	793,095
	Interest bearing deposits			3,618,543			10,250	0.57	%			3,322,318			20,797	1.26	%
		Total Deposits	$	4,605,908		$	10,250	0.45	%		$	4,115,413		$	20,797	1.02	%
(1) Includes non-accrual loans and loans held for sale
(2) Net loan fee income of $1.2 million for the six months ended June 30, 2021 and 2020 is included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis

Preferred Bank
Loan and Credit Quality Information
Allowance For Credit Losses History
					Six Months Ended				Year ended
					June 30, 2021				December 31, 2020
					(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period					$	63,426			$	34,830
	Charge-Offs
		Commercial & Industrial				431				3,700
		Mini-perm Real Estate				817				1,900
		Others				-				7
		Total Charge-Offs				1,248				5,607
	Recoveries
		Commercial & Industrial				57				-
		Construction - Commercial				-				194
		Land - Commercial				-				9
		Total Recoveries				57				203
	Net Charge-Offs (Recoveries)					1,191				5,404
	Provision for Credit Losses:
		CECL Cumulative Effect Adjustment				-				8,000
		Current Provision				1,400				26,000
Balance at End of Period					$	63,635			$	63,426
Average Loans Held for Investment					$	4,044,823			$	3,892,811
Loans Held for Investment at End of Period					$	4,278,403			$	4,035,394
Net Charge-Offs (Recoveries) to Average Loans						0.06	%			0.14	%
Allowances for Credit Losses to Loans at End of Period						1.49	%			1.57	%

AT THE COMPANY:	AT FINANCIAL PROFILES:
Edward J. Czajka	Jeffrey Haas
Executive Vice President	General Information
Chief Financial Officer	(310) 622-8240
(213) 891-1188	PFBC@finprofiles.com

FAQ

What were the Q2 2021 earnings results for PFBC?

Preferred Bank reported a net income of $21.5 million for Q2 2021, translating to $1.44 per diluted share.

How did Preferred Bank's loan growth perform in Q2 2021?

Preferred Bank achieved a loan growth of 2.7%, amounting to $114 million in Q2 2021.

What was the net interest margin for PFBC in Q2 2021?

The net interest margin for Preferred Bank in Q2 2021 was 3.25%, down from 3.61% in Q1 2021.

What was the deposit growth for PFBC in the second quarter of 2021?

Deposit growth for Preferred Bank in Q2 2021 was 1.6%, totaling $74 million.