Preferred Bank Reports Quarterly and Annual Results

Rhea-AI Summary

Preferred Bank (PFBC) reported net income of $35.8 million or $2.60 per diluted share for Q4 2023, a decrease of 9.4% from the same quarter last year. The bank also announced record earnings of $150.04 million for the full year 2023. Despite a decrease in net interest income, the bank's efficiency ratio was strong at 25.0% for the quarter, and total loans increased by $145 million. However, non-performing loans increased from $19.4 million to $28.7 million in Q4 2023.

Insights

Financial Analyst

Preferred Bank's reported decrease in net income and net interest income for the fourth quarter of 2023 is a significant indicator of the bank's financial health and operational performance. The decline in net interest income, primarily due to increased interest expenses on deposits, suggests that the bank's cost of funds is rising. This could be a result of the higher interest rate environment following the Federal Reserve's rate hikes. The bank's strategy to manage this challenge includes repositioning its securities portfolio towards higher-yielding securities, which indicates a proactive approach to asset management.

The increase in non-performing loans, from $19.4 million to $28.7 million, is a concern that investors should monitor, as it could signal potential credit quality issues. However, the bank's confidence in resolving these credits efficiently may reassure stakeholders. The bank's provision for credit losses has remained stable, reflecting its anticipation of loan growth and potential risks. The increase in the allowance for credit losses to 1.49% of total loans is a prudent measure to safeguard against future loan defaults.

Overall, the bank's strong capital ratios, such as the leverage ratio and common equity tier 1 capital ratio, suggest solid capital adequacy and an ability to absorb potential losses. The dividend increase and share buyback program demonstrate the bank's commitment to returning value to shareholders, which could be seen as a positive sign in terms of capital allocation and confidence in the bank's financial stability.

Market Research Analyst

From a market perspective, Preferred Bank's performance reflects broader industry trends influenced by macroeconomic factors such as high inflation and the Federal Reserve's monetary policy. The bank's below-historical loan and deposit growth align with the cautious lending environment and tighter liquidity conditions seen across the sector. The efficiency ratio of 25.0%, which is an indicator of the bank's non-interest expenses as a percentage of its revenue, outperforms the industry norm and suggests effective cost control measures.

The bank's strategic adjustments, such as the restructuring of its securities portfolio and active margin management, are responses to the changing economic landscape. These moves may position the bank favorably if the yield curve shifts towards a more normalized state in 2024. Investors should consider the bank's operational adaptability and strategic initiatives when evaluating its future performance potential in a competitive banking environment.

Economist

The reported financials of Preferred Bank provide insight into the economic conditions affecting the banking sector. The increase in interest expense on deposits is indicative of the lag effect of the Federal Reserve's previous rate hikes, which tend to increase banks' cost of funds before they can adjust asset yields accordingly. This lag effect has compressed the net interest margin (NIM), which is a critical measure of a bank's profitability. A decrease in NIM, as observed in Preferred Bank's report, can pressure earnings and necessitate strategic financial management to maintain profitability.

Furthermore, the bank's anticipation of loan demand recovery and easing deposit costs in the future suggest an expectation of stabilizing economic conditions. The bank's performance and strategies, such as dividend increases and stock buybacks, must be analyzed within the context of economic forecasts, interest rate movements and inflationary pressures. These factors will significantly influence the bank's ability to grow its loan portfolio, manage interest rate risk and maintain healthy capital levels.

LOS ANGELES, Jan. 24, 2024 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended December 31, 2023. Preferred Bank (“the Bank”) reported net income of $35.8 million or $2.60 per diluted share for the fourth quarter of 2023. This represents a decrease in net income of $3.7 million or 9.4% from the same quarter last year and down from the third quarter of 2023 as well. The primary driver of the decrease compared to both periods was net interest income which decreased by $4.7 million or 6.4% from the same period last year and was down by $3.6 million or 4.9% from the prior quarter. In addition to that, the Bank incurred a $929,000 loss this quarter on the sale of approximately $29 million of investment securities. The decline in net interest income was due to interest expense on deposits, which increased compared to both comparable periods. Partially offsetting the decrease in net interest income was non-interest expense, which came in lower than both comparable periods.

Overall, results were very strong and the Bank also provided for $3.5 million in provision for credit losses which has driven the allowance for credit losses to total loans up to 1.49%.

Highlights for the Quarter:

• Return on average assets was 2.15%
• Return on beginning equity of 21.21%
• Net interest margin was 4.24%
• Total loans increased $145 million or 2.83% for the quarter
• Efficiency ratio was 25.0%
• Quarter-end cash and equivalents continues to be strong at $911 million or 16.0% of total deposits

Highlights for the Year:

• Return on average assets was 2.28%
• Return on beginning equity of 23.80%
• Net interest margin was 4.49%
• Total loans increased $199 million or 3.92%
• Efficiency ratio was 25.8%
  

Li Yu, Chairman and CEO, commented, “Our fourth quarter net income was $35.8 or $2.60 per share and closed out the full year 2023 with record earnings of $150.04 million or $10.52 per diluted share. We attribute the record performance to active margin management and continuous effective cost control.

“Credit quality remains generally stable in the fourth quarter. Total criticized loans reduced from $98.6 million (1.92% of total loans) at September 30, 2023 to $83.0 million (1.57% of total loans). However, non-performing loans have increased from $19.4 million on September 30, 2023 to $28.7 million on December 31, 2023. The quarterly increase does not appear systemic. There were no loan charge-offs recorded during the fourth quarter. Provision expense for the quarter was $3.5 million, which has increased the allowance for credit losses to 1.49% of total loans at December 31, 2023.

“Loan and deposit growth for the year was below the historical standards of Preferred Bank but in-line with industry performance. The year 2023 was a year marked by high inflation, the last of the unprecedented Federal Reserve rate hikes and the regional Bank meltdown events of March. Looking forward, we expect that loan demand will gradually recover and that deposit costs will ease.

“During the quarter, the Bank announced an increase in our dividend by 27.3% to $2.80 per annum. In January, we have also announced the buyback of another $50 million of our common stock. With lower loan demand, we have been and will continue to deploy excess cash flow for the benefit of our shareholders. During the fourth quarter, we have also begun to restructure our securities portfolio by selling off some low yielding securities and replacing them with higher yielding securities. The loss on sale of $929,000 will not however, affect our capital ratios.

“Looking ahead, the year 2024 will likely be a less eventful year in banking than 2023. It seems to us that the banking industry will begin to have a “back to normal” process. We are hopeful to return to our historical growth pattern.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $69.4 million for the fourth quarter of 2023. This was a decrease from the $74.1 million recorded in the same quarter last year and down from the $73.0 million posted in the third quarter of 2023. As the FOMC rate hikes appear to be at an end, the lag effect of increasing deposit costs has manifested itself in the form of higher deposit costs as the yield on earning assets has remained relatively flat since the last rate hike. The Bank’s taxable equivalent net interest margin declined by 15 basis points to 4.24%, from 4.39% last quarter. Comparing to the same quarter last year, which was close to the Bank’s peak NIM, the margin was down by 51 basis points from the 4.75% NIM posted in the fourth quarter of 2022.

Noninterest Income. For the fourth quarter of 2023, noninterest income was $2.1 million compared with $2.8 million for the same quarter last year and compared to 3.0 million for the third quarter of 2023. The decrease from both comparable periods was due to a $929,000 loss on sale of approximately $29 million in investment securities in the fourth quarter of 2023. This was done to reposition part of the portfolio into higher-yielding instruments. Service charges on deposits was up by $226,000 over the same period last year but down a bit from the $939,000 recorded in the third quarter of 2023. Letter of Credit (“LC”) fee income was $1.5 million for the quarter compared to $1.4 million in the prior quarter and compared to $1.2 million in the same quarter of last year. The increase is due to increased credit enhancement activity.

Noninterest Expense. Total noninterest expense was $17.9 million for the fourth quarter of 2023 compared to $19.0 million for the third quarter of 2023 and compared to the $20.0 million recorded in the same period last year. Comparing this quarter to the fourth quarter of last year, the major variances were; personnel expense decreased by $895,000 or 6.9%, occupancy expense was up by $92,000 or 6.4% due to the opening of the Bank’s new Irvine branch, other professional services increased by $327,000 due mainly to legal fees and other expense increased by $332,000 due to ICS reciprocal fees and higher FDIC premiums and finally, OREO expense was down by $1.8 million as the Bank recorded a $1.9 million valuation adjustment in the fourth quarter of 2022. In comparing the fourth quarter of 2023 to the prior quarter; personnel expense decreased by $950,000 or 7.3%, OREO expenses increased by $154,000 and other expense was down by $287,000 or 12.6%. For the quarter ended December 31, 2023, the Bank’s efficiency ratio was 25.0%, equaling the 25.0% posted last quarter and better than the 26.0% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $14.3 million for the fourth quarter of 2023. This represents an effective tax rate (“ETR”) of 28.5% and the same for the third quarter of 2023 but up from the 28.0% ETR recorded in the fourth quarter of 2022. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at December 31, 2023 were $5.28 billion, an increase of $198.7 million from the total of $5.07 billion as of December 31, 2022. Total deposits increased to $5.71 billion from the $5.56 billion as of December 31, 2022, an increase of $152.3 million. Total assets were $6.66 billion, an increase of $233.9 million over the total of $6.43 billion as of December 31, 2022.

Asset Quality

As of December 31, 2023, nonaccrual loans increased to $28.7 million, from $19.4 million reported as of September 30, 2023 and up from the $5.5 million reported as of December 31, 2022. Although an increase from September levels, we are confident in the expedient and low cost resolution of these credits. OREO and repossessed assets totaled $16.7 million as of December 31, 2023, no change from September 30, 2023. Classified and criticized assets declined from $115.3 million as of September 30, 2023 to $99.7 million as of December 31, 2023. Total net (recoveries) charge-offs were ($6,000) for the fourth quarter of 2023 as compared to net charge offs of $80,000 last quarter and compared to $0 for the fourth quarter last year. Management is acutely aware that commercial real estate is under some pressure given the change in interest rates over the past year, especially office properties. However in reviewing the portfolio, this weakness has yet to appear. We will be vigilant going forward.

Allowance for Credit Losses

The provision for credit losses for the fourth quarter of 2023 was $3.5 million compared to $3.5 million last quarter and compared to $2.0 million in the same quarter last year. Loan growth was the primary driver of the provision for the quarter. The Bank’s allowance coverage ratio now stands at 1.49% of total loans.

Capitalization

As of December 31, 2023, the Bank’s leverage ratio was 10.85%, the common equity tier 1 capital ratio was 11.57% and the total capital ratio stood at 15.18%. As of December 31, 2022, the Bank’s leverage ratio was 10.30%, the common equity tier 1 ratio was 10.81% and the total risk-based capital ratio was 14.39%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2023 financial results will be held tomorrow, January 25, 2024 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com.

Preferred Bank's Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through February 8, 2024; the passcode is 5055246.

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 twelve full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine (2), Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)), one branch in Flushing, New York and a branch office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2022 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.

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
	December 31,				September 30,				December 31,
		2023				2023				2022
Interest income:
Loans, including fees	$	107,709			$	106,695			$	87,159
Investment securities		16,973				18,556				11,028
Fed funds sold		282				278				192
Total interest income		124,964				125,529				98,379
Interest expense:
Interest-bearing demand		21,716				20,257				13,906
Savings		72				67				32
Time certificates		32,455				29,369				9,004
FHLB borrowings		-				1,557				-
Subordinated debt		1,325				1,325				1,325
Total interest expense		55,568				52,575				24,267
Net interest income		69,396				72,954				74,112
Provision for credit losses		3,500				3,500				2,000
Net interest income after provision for
credit losses		65,896				69,454				72,112
Noninterest income:
Fees & service charges on deposit accounts		857				939				631
Letters of credit fee income		1,486				1,412				1,245
BOLI income		105				103				102
Net (loss) gain on called and sale of investment securities		(929	)			-				297
Net gain on sale of loans		205				21				-
Other income		382				497				533
Total noninterest income		2,106				2,972				2,808
Noninterest expense:
Salary and employee benefits		12,058				13,008				12,953
Net occupancy expense		1,536				1,563				1,444
Business development and promotion expense		239				193				320
Professional services		1,355				1,423				1,028
Office supplies and equipment expense		391				395				460
Loss on sale of OREO, valuation allowance and related expense		294				140				2,103
Other		2,000				2,287				1,668
Total noninterest expense		17,873				19,009				19,976
Income before provision for income taxes		50,129				53,417				54,944
Income tax expense		14,290				15,225				15,384
Net income	$	35,839			$	38,192			$	39,560
Income per share available to common shareholders
Basic	$	2.63			$	2.74			$	2.76
Diluted	$	2.60			$	2.71			$	2.71
Weighted-average common shares outstanding
Basic		13,617,225				13,925,994				14,357,326
Diluted		13,804,315				14,105,915				14,617,377
Cash dividends per common share	$	0.70			$	0.55			$	0.55

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
	For the Year Ended
	December 31,				December 31,				Change
		2023				2022			%
Interest income:
Loans, including fees	$	412,505			$	269,011				53.3	%
Investment securities		64,427				24,997				157.7	%
Fed funds sold		1,056				374				182.3	%
Total interest income		477,988				294,382				62.4	%
Interest expense:
Interest-bearing demand		75,417				24,221				211.4	%
Savings		225				91				147.4	%
Time certificates		103,853				17,412				496.4	%
FHLB borrowings		3,819				-				100.0	%
Subordinated debt		5,300				5,300				-0.0	%
Total interest expense		188,614				47,024				301.1	%
Net interest income		289,374				247,358				17.0	%
Provision for credit losses		10,000				7,350				36.1	%
Net interest income after provision for credit losses		279,374				240,008				16.4	%
Noninterest income:
Fees & service charges on deposit accounts		3,333				2,728				22.2	%
Letters of credit fee income		5,798				4,463				29.9	%
BOLI income		412				401				2.7	%
Net (loss) gain on called and sale of investment securities		(5,046	)			297				-1798.9	%
Net gain on sale of loans		752				-				100.0	%
Other income		1,864				1,973				-5.5	%
Total noninterest income		7,113				9,862				-27.9	%
Noninterest expense:
Salary and employee benefits		51,314				48,607				5.6	%
Net occupancy expense		6,049				5,759				5.0	%
Business development and promotion expense		737				811				-9.1	%
Professional services		5,270				4,892				7.7	%
Office supplies and equipment expense		1,588				1,864				-14.8	%
Loss on sale of OREO, valuation allowance and related expense		3,344				2,818				18.7	%
Other		8,332				5,922				40.7	%
Total noninterest expense		76,634				70,673				8.4	%
Income before provision for income taxes		209,853				179,197				17.1	%
Income tax expense		59,813				50,352				18.8	%
Net income	$	150,040			$	128,845				16.4	%
Dividend and earnings allocated to participating securities	$	-			$	(2	)			100.0	%
Net income available to common shareholders	$	150,040			$	128,843				16.5	%
Income per share available to common shareholders
Basic	$	10.64			$	8.84				20.4	%
Diluted	$	10.52			$	8.70				20.9	%
Weighted-average common shares outstanding
Basic		14,095,745				14,579,132				-3.3	%
Diluted		14,261,644				14,809,416				-3.7	%
Dividends per share	$	2.35			$	1.84				27.7	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
	December 31,				December 31,
		2023				2022
	(Unaudited)				(Audited)
Assets
Cash and due from banks	$	890,852			$	747,526
Fed funds sold		20,000				20,000
Cash and cash equivalents		910,852				767,526
Securities held-to-maturity, at amortized cost		21,171				22,459
Securities available-for-sale, at fair value		313,842				428,295
Loans		5,273,498				5,074,793
Less allowance for credit losses		(78,355	)			(68,472	)
Less amortized deferred loan fees, net		(11,079	)			(9,939	)
Loans, net		5,184,064				4,996,382
Loans held for sale, at lower of cost or fair value		360				-
Other real estate owned and repossessed assets		16,716				21,990
Customers' liability on acceptances		315				1,731
Bank furniture and fixtures, net		9,694				8,999
Bank-owned life insurance		10,632				10,357
Accrued interest receivable		33,892				23,593
Investment in affordable housing partnerships		65,276				61,173
Federal Home Loan Bank stock, at cost		15,000				15,000
Deferred tax assets		44,446				43,218
Income tax receivable		6,936				-
Operating lease right-of-use assets		22,050				21,718
Other assets		4,030				2,917
Total assets	$	6,659,276			$	6,425,358
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand deposits	$	786,995			$	1,192,091
Interest bearing deposits:		2,075,156				2,295,212
Savings		29,167				39,527
Time certificates of $250,000 or more		1,317,862				1,138,727
Other time certificates		1,500,162				891,440
Total deposits		5,709,342				5,556,997
Acceptances outstanding		315				1,731
Subordinated debt issuance, net		148,232				147,995
Commitments to fund investment in affordable housing partnerships		30,824				27,490
Operating lease liabilities		19,766				20,949
Accrued interest payable		16,124				2,608
Other liabilities		39,568				37,162
Total liabilities		5,964,171				5,794,932
Shareholders' equity		695,105				630,426
Total liabilities and shareholders' equity	$	6,659,276			$	6,425,358
Book value per common share	$	50.54			$	43.91
Number of common shares outstanding		13,753,246				14,358,145

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	For the Quarter Ended
	December 31,			September 30,			June 30,			March 31,			December 31,
		2023			2023			2023			2023			2022
Unaudited historical quarterly operations data:
Interest income	$	124,964		$	125,529		$	118,411		$	109,084		$	98,379
Interest expense		55,568			52,575			45,102			35,369			24,267
Interest income before provision for credit losses		69,396			72,954			73,309			73,715			74,112
Provision for credit losses		3,500			3,500			2,500			500			2,000
Noninterest income		2,106			2,972			3,101			(1,066	)		2,808
Noninterest expense		17,873			19,009			20,852			18,899			19,976
Income tax expense		14,290			15,225			15,122			15,176			15,384
Net income	$	35,839		$	38,192		$	37,936		$	38,074		$	39,560
Earnings per share
Basic	$	2.63		$	2.74		$	2.63		$	2.64		$	2.76
Diluted	$	2.60		$	2.71		$	2.61		$	2.61		$	2.71
Ratios for the period:
Return on average assets		2.15	%		2.25	%		2.32	%		2.41	%		2.48	%
Return on beginning equity		21.21	%		22.66	%		23.18	%		24.49	%		26.58	%
Net interest margin (Fully-taxable equivalent)		4.24	%		4.39	%		4.58	%		4.77	%		4.75	%
Noninterest expense to average assets		1.07	%		1.12	%		1.28	%		1.20	%		1.25	%
Efficiency ratio		25.00	%		25.04	%		27.29	%		26.01	%		25.97	%
Net charge-offs (recoveries) to average loans (annualized)		-0.00	%		0.01	%		-0.00	%		0.00	%		0.00	%
Ratios as of period end:
Tier 1 leverage capital ratio		10.85	%		10.46	%		10.61	%		10.63	%		10.30	%
Common equity tier 1 risk-based capital ratio		11.57	%		11.63	%		11.51	%		11.30	%		10.81	%
Tier 1 risk-based capital ratio		11.57	%		11.63	%		11.51	%		11.30	%		10.81	%
Total risk-based capital ratio		15.18	%		15.32	%		15.14	%		14.91	%		14.39	%
Allowances for credit losses to loans at end of period		1.49	%		1.46	%		1.40	%		1.36	%		1.35	%
Allowance for credit losses to non-performing loans	2.73x			3.86x			13.86x			254.56x			12.49x
Average balances:
Total securities	$	349,863		$	368,968		$	397,905		$	442,852		$	434,830
Total loans		5,126,918			5,086,241			5,044,004			5,012,862			4,981,561
Total earning assets		6,499,469			6,597,557			6,432,950			6,276,630			6,193,330
Total assets		6,627,349			6,719,859			6,558,651			6,400,849			6,328,017
Total time certificate of deposits		2,767,385			2,680,854			2,617,872			2,209,370			1,872,239
Total interest bearing deposits		4,906,947			4,800,227			4,549,519			4,451,299			4,287,287
Total deposits		5,689,713			5,654,350			5,481,457			5,479,945			5,468,562
Total interest bearing liabilities		5,055,143			5,069,014			4,847,596			4,630,982			4,435,245
Total equity		683,141			678,020			677,306			650,963			613,729

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	For the Year Ended
	December 31,				December 31,
		2023				2022
Interest income	$	477,988			$	294,382
Interest expense		188,614				47,024
Interest income before provision for credit losses		289,374				247,358
Provision for credit losses		10,000				7,350
Noninterest income		7,113				9,862
Noninterest expense		76,634				70,673
Income tax expense		59,813				50,352
Net income	$	150,040			$	128,845
Earnings per share
Basic	$	10.64			$	8.84
Diluted	$	10.52			$	8.70
Ratios for the period:
Return on average assets		2.28	%			2.08	%
Return on beginning equity		23.80	%			21.96	%
Net interest margin (Fully-taxable equivalent)		4.49	%			4.09	%
Noninterest expense to average assets		1.17	%			1.14	%
Efficiency ratio		25.85	%			27.48	%
Net charge-off (recoveries) to average loans		0.00	%			-0.02	%
Average balances:
Total securities	$	389,584			$	432,777
Total loans		5,067,870				4,760,815
Total earning assets		6,452,661				6,054,932
Total assets		6,577,690				6,181,138
Total time certificate of deposits		2,570,706				1,825,307
Total interest bearing deposits		4,678,893				4,048,450
Total deposits		5,577,155				5,340,533
Total interest bearing liabilities		4,902,616				4,196,321
Total equity		672,461				603,878

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	As of
	December 31,				September 30,				June 30,				March 31,				December 31,
		2023				2023				2023				2023				2022
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents	$	910,852			$	1,021,108			$	1,049,745			$	885,691			$	767,526
Securities held-to-maturity, at amortized cost		21,171				21,474				21,818				22,155				22,459
Securities available-for-sale, at fair value		313,842				335,608				352,548				367,492				428,295
Loans:
Real estate – Mortgage:
Real estate—Residential	$	688,057			$	663,021			$	631,795			$	612,907			$	609,292
Real estate—Commercial		2,760,762				2,688,148				2,744,074				2,813,681				2,730,726
Total Real Estate – Mortgage		3,448,819				3,351,169				3,375,879				3,426,588				3,340,018
Real estate – Construction:
R/E Construction — Residential		246,201				226,482				186,239				175,286				193,027
R/E Construction — Commercial		179,775				164,666				153,418				142,319				204,478
Total real estate construction loans		425,976				391,148				339,657				317,605				397,505
Commercial and industrial		1,393,830				1,377,675				1,388,865				1,299,325				1,320,830
SBA		3,469				2,424				4,427				7,306				11,339
Trade finance		1,041				5,541				9,348				6,885				4,521
Consumer and others		363				285				345				19				580
Gross loans		5,273,498				5,128,242				5,118,511				5,057,728				5,074,793
Allowance for credit losses on loans		(78,355	)			(74,849	)			(71,429	)			(68,929	)			(68,472	)
Net deferred loan fees		(11,079	)			(10,240	)			(10,464	)			(10,286	)			(9,939	)
Net loans, excluding loans held for sale	$	5,184,064			$	5,043,153			$	5,036,618			$	4,978,513			$	4,996,382
Loans held for sale	$	360			$	-			$	176			$	-			$	-
Net loans	$	5,184,424			$	5,043,153			$	5,036,794			$	4,978,513			$	4,996,382
Other real estate owned and repossessed assets	$	16,716			$	16,716			$	16,728			$	18,628			$	21,990
Investment in affordable housing partnerships		65,276				54,679				56,844				59,009				61,173
Federal Home Loan Bank stock, at cost		15,000				15,000				15,000				15,000				15,000
Other assets		131,995				124,793				118,465				115,049				112,533
Total assets	$	6,659,276			$	6,632,530			$	6,667,942			$	6,461,537			$	6,425,358
Liabilities:
Deposits:
Demand	$	786,995			$	838,300			$	870,282			$	1,050,992			$	1,192,091
Interest bearing demand		2,075,156				2,091,384				2,005,298				1,751,439				2,295,212
Savings		29,167				30,427				32,089				33,861				39,527
Time certificates of $250,000 or more		1,317,862				1,283,461				1,244,128				1,329,720				1,138,727
Other time certificates		1,500,162				1,439,699				1,437,194				1,241,754				891,440
Total deposits	$	5,709,342			$	5,683,271			$	5,588,991			$	5,407,766			$	5,556,997
Acceptances outstanding	$	315			$	103			$	448			$	107			$	1,731
Advance from Federal Home Loan Bank		-				-				150,000				150,000				-
Subordinated debt issuance, net		148,232				148,173				148,114				148,055				147,995
Commitments to fund investment in affordable housing partnerships		30,824				20,824				20,930				26,709				27,490
Other liabilities		75,458				109,651				90,692				72,359				60,074
Total liabilities	$	5,964,171			$	5,962,022			$	5,999,175			$	5,804,996			$	5,794,287
Equity:
Net common stock, no par value	$	134,534			$	143,584			$	167,404			$	181,208			$	184,604
Retained earnings		592,325				566,027				535,373				505,207				475,072
Accumulated other comprehensive income		(31,754	)			(39,103	)			(34,010	)			(29,874	)			(28,605	)
Total shareholders' equity	$	695,105			$	670,508			$	668,767			$	656,541			$	631,071
Total liabilities and shareholders' equity	$	6,659,276			$	6,632,530			$	6,667,942			$	6,461,537			$	6,425,358

PREFERRED BANK
Quarter-to-Date Average Balances, Yield and Rates
(unaudited)
	Three months ended December 31,								Three months ended September 30,								Three months ended December 31,
		2023								2023								2022
				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)	$	5,127,935		$	107,709	8.33	%		$	5,086,302		$	106,695	8.32	%		$	4,981,561		$	87,159	6.94	%
Investment securities(3)		349,863			3,335	3.78	%			368,968			3,422	3.68	%			434,830			3,993	3.64	%
Federal funds sold		20,028			282	5.58	%			20,111			278	5.48	%			20,000			192	3.81	%
Other earning assets		1,001,643			13,739	5.44	%			1,122,176			15,235	5.39	%			756,939			7,139	3.74	%
Total interest earning assets		6,499,469			125,065	7.63	%			6,597,557			125,630	7.55	%			6,193,330			98,483	6.31	%
Deferred loan fees, net		(10,421	)							(10,071	)							(10,003	)
Allowance for credit losses on loans		(74,965	)							(71,503	)							(66,515	)
Noninterest earning assets:
Cash and due from banks		12,376								12,101								11,569
Bank furniture and fixtures		9,243								8,814								9,237
Right of use assets		20,338								21,491								22,002
Other assets		171,309								161,470								168,397
Total assets	$	6,627,349							$	6,719,859							$	6,328,017
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Interest bearing demand and savings	$	2,139,562		$	21,788	4.04	%		$	2,119,373		$	20,324	3.80	%		$	2,415,048		$	13,938	2.29	%
TCD $250K or more		1,294,531			15,600	4.78	%			1,251,397			14,085	4.47	%			1,017,302			6,014	2.35	%
Other time certificates		1,472,854			16,855	4.54	%			1,429,457			15,284	4.24	%			854,937			2,990	1.39	%
Total interest bearing deposits		4,906,947			54,243	4.39	%			4,800,227			49,693	4.11	%			4,287,287			22,942	2.12	%
Short-term borrowings		2			0	6.08	%			-			-	0.00	%			-			-	0.00	%
Advance from Federal home loan bank		-			-	0.00	%			120,652			1,557	5.12	%			-			-	0.00	%
Subordinated debt, net		148,194			1,325	3.55	%			148,135			1,325	3.55	%			147,958			1,325	3.55	%
Total interest bearing liabilities		5,055,143			55,568	4.36	%			5,069,014			52,575	4.11	%			4,435,245			24,267	2.17	%
Noninterest bearing liabilities:
Demand deposits		782,766								854,123								1,181,275
Lease Liability		18,179								19,759								21,542
Other liabilities		88,120								98,943								76,212
Total liabilities		5,944,208								6,041,839								5,714,274
Shareholders’ equity		683,141								678,020								613,743
Total liabilities and shareholders’ equity	$	6,627,349							$	6,719,859							$	6,328,017
Net interest income				$	69,497							$	73,055							$	74,216
Net interest spread						3.27	%							3.44	%							4.14	%
Net interest margin						4.24	%							4.39	%							4.75	%
Cost of Deposits:
Noninterest bearing demand deposits	$	782,766							$	854,123							$	1,181,275
Interest bearing deposits		4,906,947			54,243	4.39	%			4,800,227			49,693	4.11	%			4,287,287			22,942	2.12	%
Total Deposits	$	5,689,713		$	54,243	3.78	%		$	5,654,350		$	49,693	3.49	%		$	5,468,562		$	22,942	1.66	%
(1) Includes non-accrual loans and loans held for sale
(2) Net loan fee income of $1.0 million, $1.1 million and $972,000 for the quarter ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively, are included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis

PREFERRED BANK
Year-to-Date Average Balances, Yield and Rates
(unaudited)
	Year ended December 31,
		2023								2022
				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)	$	5,068,486		$	412,505	8.14	%		$	4,760,815		$	269,011	5.65	%
Investment securities(3)		389,584			14,461	3.71	%			432,777			11,584	2.68	%
Federal funds sold		20,090			1,056	5.25	%			20,070			374	1.86	%
Other earning assets		974,501			50,372	5.17	%			841,270			13,837	1.64	%
Total interest earning assets		6,452,661			478,394	7.41	%			6,054,932			294,806	4.87	%
Deferred loan fees, net		(10,212	)							(8,697	)
Allowance for credit losses on loans		(70,992	)							(61,645	)
Noninterest earning assets:
Cash and due from banks		11,978								11,068
Bank furniture and fixtures		9,010								9,826
Right of use assets		21,417								21,612
Other assets		163,828								154,042
Total assets	$	6,577,690							$	6,181,138
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Interest bearing demand/ savings	$	2,108,187		$	75,642	3.59	%		$	2,223,143		$	24,312	1.09	%
TCD $250K or more		1,267,859			53,200	4.20	%			938,491			10,768	1.15	%
Other time certificates		1,302,847			50,653	3.89	%			886,816			6,644	0.75	%
Total interest \bearing deposits		4,678,893			179,495	3.84	%			4,048,450			41,724	1.03	%
Short-term borrowings		1			0	3.06	%			-			-	0.00	%
Advance from Federal home loan bank		75,616			3,819	5.05	%			147,871			5,300	3.58	%
Subordinated debt, net		148,106			5,300	3.58	%			-			-	0.00	%
Total interest bearing liabilities		4,902,616			188,614	3.85	%			4,196,321			47,024	1.12	%
Noninterest bearing liabilities:
Demand deposits		898,262								1,292,083
Lease Liability		19,902								21,731
Other liabilities		84,449								67,125
Total liabilities		5,905,229								5,577,260
Shareholders’ equity		672,461								603,878
Total liabilities and shareholders’ equity	$	6,577,690							$	6,181,138
Net interest income				$	289,780							$	247,782
Net interest spread						3.57	%							3.75	%
Net interest margin						4.49	%							4.09	%
Cost of Deposits:
Noninterest bearing demand deposits	$	898,262							$	1,292,083
Interest bearing deposits		4,678,893			179,495	3.84	%			4,048,450			41,724	1.03	%
Total Deposits	$	5,577,155		$	179,495	3.22	%		$	5,340,533		$	41,724	0.78	%
(1) Includes non-accrual loans and loans held for sale
(2) Net loan fee income of $4.2 million and $3.8 million for the year ended December 31, 2023 and 2022, respectively, are included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis

Preferred Bank
Loan and Credit Quality Information
Allowance For Credit Losses History
	Year ended
	December 31, 2023				December 31, 2022
	(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period	$	68,472			$	59,969
Charge-Offs
Commercial & Industrial		124				1,222
Mini-perm Real Estate		-				1
Total Charge-Offs		124				1,223
Recoveries
Commercial & Industrial		7				-
Mini-perm Real Estate		-				2,376
Total Recoveries		7				2,376
Net Charge-Offs (recoveries)		117				(1,153	)
Provision for Credit Losses:		10,000				7,350
Balance at End of Period	$	78,355			$	68,472
Average Loans Held for Investment	$	5,067,870			$	4,760,815
Loans Held for Investment at End of Period	$	5,273,498			$	5,074,793
Net Charge-Offs (recoveries) to Average Loans		0.00	%			-0.02	%
Allowances for Credit Losses to Loans at End of Period		1.49	%			1.35	%

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 is the net income reported by Preferred Bank for the fourth quarter of 2023?

Preferred Bank reported a net income of $35.8 million for the fourth quarter of 2023.

What was the return on average assets for Preferred Bank in 2023?

The return on average assets for Preferred Bank in 2023 was 2.28%.

What was the total increase in loans for Preferred Bank in Q4 2023?

Total loans for Preferred Bank increased by $145 million in Q4 2023.

What was the provision for credit losses for Preferred Bank in Q4 2023?

The provision for credit losses for Preferred Bank in Q4 2023 was $3.5 million.

What was the efficiency ratio for Preferred Bank in Q4 2023?

The efficiency ratio for Preferred Bank in Q4 2023 was 25.0%.