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Preferred Bank Reports Quarterly Earnings

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Preferred Bank reports Q3 2023 results with net income of $38.2 million, representing an increase of 8.5% compared to the same quarter last year.
Positive
  • Net income increased by $3.0 million or 8.5% compared to the same quarter last year.
  • Total deposits increased by $94.3 million or 6.7% annually for the quarter.
  • Efficiency ratio improved to 25.0% for the quarter.
  • The Bank provided for $3.5 million in provision for credit losses, driving the allowance for credit losses to total loans up to 1.46%.
  • Preferred Bank is the most profitable independent bank in California based on return on equity metrics.
Negative
  • Net interest income, noninterest income, and noninterest expense were slightly down compared to the previous quarter.
  • The margin decreased moderately from 4.58% in Q2 to 4.39% for Q3.
  • Nonaccrual loans increased from $423,000 to $19.4 million.
  • Total criticized and classified assets remained fairly constant at $115.3 million.

LOS ANGELES, Oct. 17, 2023 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended September 30, 2023. Preferred Bank (“the Bank”) reported net income of $38.2 million or $2.71 per diluted share for the third quarter of 2023. This represents an increase in net income of $3.0 million or 8.5% over the same quarter last year and up slightly compared to the second quarter of 2023. The primary driver of the increase over the prior year quarter was net interest income which increased by $6.2 million or 9.2% over the same period last year partially offset by higher noninterest expense. When compared to the prior quarter, net interest income was down slightly, as was noninterest income and noninterest expense.

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 1.46%.

Highlights for the Quarter:

  • Return on average assets was 2.25%
  • Return on beginning equity of 22.66%
  • Net interest margin was 4.39%
  • Total deposits increased $94.3 million or 6.7% annually for the quarter
  • Efficiency ratio was 25.0%
  • Quarter-end cash and equivalents continues to be strong at $1.02 billion or 18.0% of total deposits

Li Yu, Chairman and CEO, commented, “We are pleased to report another quarter of record profit. Earnings per diluted share for the third quarter was $2.71.

“For the quarter, loans practically stayed even and deposits grew modestly, which is the reflection of the cautiousness of both the Bank and its clients under the current environment. The margin decreased moderately from 4.58% in Q2 to 4.39% for Q3, largely because interest cost increases have slowed down.

“Credit quality remained relatively stable in the quarter. As of September 30, 2023, loans 30-89 days past due were negligible and total criticized loans increased slightly from the previous quarter. For the quarter, we have made a provision for credit losses in the amount of $3.5 million. Allowance for credit losses at September 30, 2023 now increased to 1.46% of total loans. We have been diligently identifying any credit loss exposures and fully reserving any potential exposure so that loan resolutions will not negatively affect the future operating income.

“Our operating expenses remain under control and were within our expectations. The Bank’s efficiency ratio for the quarter was 25.0% Since the second quarter of this year, we have been continuously buying back our own stock due to our strong tangible capital position and the market price of the stock.   Through September 30, 2023, total shares repurchased were 730,044. Even with the buyback, our tangible capital equity ratio was a strong 10.1%.

“Based upon public information, Preferred Bank is the most profitable independent Bank in California measured by return on equity metrics and we hope this trend will continue. However, the market price of our stock does not reflect our ability to consistently deliver top-of-peer earnings over many years. We will not be discouraged by the market reception and pledge to continue our devotion to operate the Bank efficiently and prudently.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $73.0 million for the third quarter of 2023. This was a significant increase from the $66.8 million recorded in the same quarter last year but down just slightly from the $73.3 million posted in the second quarter of 2023. The FOMC rate hikes throughout 2022 and into 2023 drove loan portfolio yields higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense increased this quarter slightly more than did interest income as deposit rates continued to climb during most of the quarter. Due mainly to increasing deposit rates, the Bank’s taxable equivalent net interest margin declined by 19 basis points to 4.39% from 4.58% last quarter. Comparing to the same quarter last year, the margin was up by 2 basis points over the 4.37% posted this quarter last year.

Noninterest Income. For the third quarter of 2023, noninterest income was $3.0 million compared with $2.2 million for the same quarter last year and compared to 3.1 million for the second quarter of 2023. The increase compared to the second quarter of 2022 was due to an increase in both service charges on deposits as well as Letter of Credit (“LC”) fee income. The decrease from the second quarter of 2023 was due to lower gain on SBA loan sales as well as lower LC fee income.

Noninterest Expense. Total noninterest expense was $19.0 million for the third quarter of 2023 compared to $20.9 million for the second quarter of 2023 and compared to the $17.4 million recorded in the same period last year. Comparing this quarter to the third quarter of last year, the major variances were; personnel expense increased by $682,000 or 5.5%, other professional services increased by $262,000 due mainly to legal fees and consulting fees and other expense increased by $810,000 due mainly to higher FDIC premiums as well as a one time $150,000 penalty for payroll tax which we believe will be at least partially recovered. In comparing the third quarter of 2023 to the prior quarter; personnel expense increased by $488,000 or 3.9% and there was no OREO valuation adjustment in the current quarter which means that OREO costs decreased by $2.7 million. For the quarter ended September 30, 2023, the Bank’s efficiency ratio was 25.0%, besting the 27.3% posted last quarter and slightly better than the 25.2% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $15.2 million for the third quarter of 2023. This represents an effective tax rate (“ETR”) of 28.5% and the same as the 28.5% ETR for the second quarter of 2023 but up from the 28.0% ETR recorded in the third 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 September 30, 2023 were $5.13 billion, an increase of $53.4 million from the total of $5.07 billion as of December 31, 2022. Total deposits increased to $5.68 billion from the $5.56 billion as of December 31, 2022, an increase of $126.3 million. Total assets were $6.63 billion, an increase of $207.2 million over the total of $6.43 billion as of December 31, 2022.

Uninsured Deposits

As of September 30, 2023, total uninsured deposits represented approximately 41.8 % of total deposits. Since mid-March, we have been diligently working with our larger deposit clients to enroll them in various reciprocal deposit programs to ensure that all of their deposits are FDIC insured. It should be noted that included in the uninsured deposits figure is $187 million of deposits that are collateralized so these would not otherwise necessitate FDIC insurance. Finally, there are also a number of accounts totalling $166 million that are enrolled in one of our reciprocal deposit programs but have yet to participate in the program; these are also included in uninsured deposits.

Balance Sheet Fair Market Values from June 30, 2023

With so much focus recently on ASC Topic 825, Financial Instruments, formerly known as FASB 107, we felt it would be beneficial for shareholders to view the Bank’s disclosure in its recently filed Quarterly Report on Form 10-Q for June 30, 2023. As can be clearly seen, the rise in interest rates has not hurt the fair market value of our loan portfolio, unlike mst other banks.

      
   June 30, 2023
   Fair Value Measurement UsingCarrying AmountEstimated Fair Value
   
   
   (Dollars in thousands)
Assets:   
Cash and cash equivalentsLevel 1$1,049,745$1,049,745
Securities held-to-maturityLevel 2 21,818 19,865
Securities available-for-saleLevel 2/3 352,548 352,548
Loans receivable, netLevel 3 5,036,618 5,102,339
Customers' liability on acceptancesLevel 2 448 448
Accrued interest receivableLevel 2/3 28,184 28,184
Federal Home Loan Bank stockLevel 2 15,000N/A
      
Liabilities:   
Demand deposits and savings:   
Noninterest-bearingLevel 2$870,282$870,282
Interest-bearingLevel 2 2,037,387 2,037,387
Time depositsLevel 2 2,681,322 2,665,195
Subordinated debt issuanceLevel 2 148,114 169,134
Acceptances OutstandingLevel 2 448 448
Accrued interest payableLevel 2 6,998 6,998
      

Liquidity

As of September 30, 2023, the Bank had $1.02 billion in cash and fed funds on the balance sheet representing 18.0% of total deposits. In addition, the Bank had $1.11 billion in FHLB borrowing availability, $85.42 million in available funds from the FRB Discount window and $156.2 million in available for sale securities that were unpledged. All summed, this totals $2.39 billion of total liquidity or 42.1% of total deposits.

Asset Quality

As of September 30, 2023, nonaccrual loans increased to $19.4 million, from $423,000 reported as of June 30, 2023 and up from the $6.2 million reported as of September 30, 2022. Although a marked increase, we are confident in the expedient and low cost resolution of these loans. In addition, OREO and repossessed assets totaled $16.7 million as of September 30, 2023. In addition to that, the Bank’s total criticized and classified assets assets remained fairly constant at $115.3 million compared to $105.1 million as of June 30, 2023. Total net charge-offs were $80,000 for the third quarter of 2023 as compared to net charge offs of $0 last quarter and compared to net recoveries of ($2.4 million) in the same quarter last year. Management is acutely aware that commercial real estate is under some pressure given the change in interest rates over the past year, especially office properties. However in reviewing the portfolio, this weakness has yet to appear. We will be vigilant going forward.

Office Building Loans

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

Medical Office$   14,184 
Mixed Use (Office & Retail)               170,590 
Pure Office 177,322 
Reposition for Multi-Family                   105,731 
Total$   467,827 

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

Allowance for Credit Losses

The provision for credit losses for the third quarter of 2023 was $3.5 million compared to $2.5 million last quarter and compared to $2.7 million in the same quarter last year.   Macro economic conditions as well as more stress in the commercial real estate sector lead to the increase in the provision from last quarter. The Bank’s allowance coverage ratio now stands at 1.46% of total loans.

Capitalization

As of September 30, 2023, the Bank’s leverage ratio was 10.46%, the common equity tier 1 capital ratio was 11.63% and the total capital ratio stood at 15.32%. 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, October 18, 2023 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com.

Preferred Bank's Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through November 1, 2023; the passcode is 6410410.

About Preferred Bank

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

Forward-Looking Statements

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


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,  
     2023 2023 2022  
Interest income:        
 Loans, including fees $106,695 $102,220 $71,192  
 Investment securities  18,556  15,919  7,111  
 Fed funds sold  278  272  117  
  Total interest income  125,529  118,411  78,420  
            
Interest expense:        
 Interest-bearing demand  20,257  16,406  6,436  
 Savings  67  47  19  
 Time certificates  29,369  25,436  3,850  
 FHLB borrowings  1,557  1,888  -  
 Subordinated debt  1,325  1,325  1,325  
  Total interest expense  52,575  45,102  11,630  
  Net interest income  72,954  73,309  66,790  
Provision for credit losses  3,500  2,500  2,700  
  Net interest income after provision for        
   credit losses  69,454  70,809  64,090  
            
Noninterest income:        
 Fees & service charges on deposit accounts  939  844  703  
 Letters of credit fee income  1,412  1,576  956  
 BOLI income  103  103  100  
 Net gain on sale of loans  21  186  -  
 Other income  497  392  428  
  Total noninterest income  2,972  3,101  2,187  
            
Noninterest expense:        
 Salary and employee benefits  13,008  12,520  12,326  
 Net occupancy expense  1,563  1,476  1,452  
 Business development and promotion expense  193  200  214  
 Professional services  1,423  1,343  1,161  
 Office supplies and equipment expense  395  398  456  
 Loss on sale of OREO, valuation allowance and related expense  140  2,838  314  
 Other   2,287  2,077  1,477  
  Total noninterest expense  19,009  20,852  17,400  
  Income before provision for income taxes  53,417  53,058  48,877  
Income tax expense  15,225  15,122  13,688  
  Net income $38,192 $37,936 $35,189  
            
Income per share available to common shareholders        
  Basic $2.74 $2.63 $2.44  
  Diluted $2.71 $2.61 $2.40  
            
Weighted-average common shares outstanding        
  Basic  13,925,994  14,419,959  14,792,298  
  Diluted  14,105,915  14,560,693  15,006,801  
            
Cash dividends per common share $0.55 $0.55 $0.43  
            



PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
          
          
     For the Nine Months Ended  
     September 30, September 30, Change
      2023   2022  %
Interest income:      
 Loans, including fees $304,796  $181,852  67.6%
 Investment securities  47,454   13,969  239.7%
 Fed funds sold  774   182  325.5%
  Total interest income  353,024   196,003  80.1%
          
Interest expense:      
 Interest-bearing demand  53,701   10,315  420.6%
 Savings  153   58  163.9%
 Time certificates  71,399   8,409  749.1%
 FHLB borrowings  3,819   -  100.0%
 Subordinated debt  3,975   3,975  0.0%
  Total interest expense  133,046   22,757  484.6%
  Net interest income  219,978   173,246  27.0%
Provision for credit losses  6,500   5,350  21.5%
  Net interest income after provision for credit losses  213,478   167,896  27.1%
          
Noninterest income:      
 Fees & service charges on deposit accounts  2,477   2,097  18.1%
 Letters of credit fee income  4,312   3,218  34.0%
 BOLI income  307   299  2.7%
 Net loss on called and sale of investment securities  (4,117)  -  -100.0%
 Net gain on sale of loans  547   -  100.0%
 Other income  1,481   1,440  2.9%
  Total noninterest income  5,007   7,054  -29.0%
          
Noninterest expense:      
 Salary and employee benefits  39,256   35,654  10.1%
 Net occupancy expense  4,513   4,315  4.6%
 Business development and promotion expense  498   491  1.4%
 Professional services  3,915   3,864  1.3%
 Office supplies and equipment expense  1,197   1,404  -14.7%
 Loss on sale of OREO, valuation allowance and related expense  3,050   715  326.6%
 Other   6,332   4,254  48.9%
  Total noninterest expense  58,761   50,697  15.9%
  Income before provision for income taxes  159,724   124,253  28.5%
Income tax expense  45,523   34,968  30.2%
  Net income $114,201  $89,285  27.9%
          
Dividend and earnings allocated to participating securities $-  $(2) 100.0%
Net income available to common shareholders $114,201  $89,283  27.9%
          
Income per share available to common shareholders      
  Basic $8.01  $6.09  31.5%
  Diluted $7.92  $6.00  31.9%
          
Weighted-average common shares outstanding      
  Basic  14,257,005   14,653,982  -2.7%
  Diluted  14,418,939   14,873,933  -3.1%
          
Dividends per share $1.65  $1.29  27.9%
          



PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
        
        
    September 30, December 31, 
     2023   2022  
    (Unaudited) (Audited) 
Assets    
Cash and due from banks$998,508  $747,526  
Fed funds sold 22,600   20,000  
 Cash and cash equivalents 1,021,108   767,526  
        
Securities held-to-maturity, at amortized cost 21,474   22,459  
Securities available-for-sale, at fair value 335,608   428,295  
Loans 5,128,242   5,074,793  
 Less allowance for credit losses (74,849)  (68,472) 
 Less amortized deferred loan fees, net (10,240)  (9,939) 
 Loans, net 5,043,153   4,996,382  
        
Other real estate owned and repossessed assets 16,716   21,990  
Customers' liability on acceptances 103   1,731  
Bank furniture and fixtures, net 8,748   8,999  
Bank-owned life insurance 10,563   10,357  
Accrued interest receivable 33,627   23,593  
Investment in affordable housing partnerships 54,679   61,173  
Federal Home Loan Bank stock, at cost 15,000   15,000  
Deferred tax assets 47,311   43,218  
Operating lease right-of-use assets 20,440   21,718  
Other assets 4,000   2,917  
 Total assets$6,632,530  $6,425,358  
        
Liabilities and Shareholders' Equity    
Deposits:    
 Noninterest bearing demand deposits$838,300  $1,192,091  
 Interest bearing deposits: 2,091,384   2,295,212  
  Savings 30,427   39,527  
  Time certificates of $250,000 or more 1,283,461   1,138,727  
  Other time certificates 1,439,699   891,440  
  Total deposits 5,683,271   5,556,997  
        
Acceptances outstanding 103   1,731  
Subordinated debt issuance, net 148,173   147,995  
Commitments to fund investment in affordable housing partnerships 20,824   27,490  
Operating lease liabilities 18,438   20,949  
Accrued interest payable 12,506   2,608  
Other liabilities 78,707   37,162  
 Total liabilities 5,962,022   5,794,932  
        
Shareholders' equity 670,508   630,426  
 Total liabilities and shareholders' equity$6,632,530  $6,425,358  
        
Book value per common share$48.75  $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
         
    September 30,June 30,March 31,December 31,September 30,
     2023  2023  2023  2022  2022 
Unaudited historical quarterly operations data:     
 Interest income$125,529 $118,411 $109,084 $98,379 $78,420 
 Interest expense 52,575  45,102  35,369  24,267  11,630 
  Interest income before provision for credit losses 72,954  73,309  73,715  74,112  66,790 
 Provision for credit losses 3,500  2,500  500  2,000  2,700 
 Noninterest income 2,972  3,101  (1,066) 2,808  2,187 
 Noninterest expense 19,009  20,852  18,899  19,976  17,400 
 Income tax expense 15,225  15,122  15,176  15,384  13,688 
  Net income$38,192 $37,936 $38,074 $39,560 $35,189 
         
 Earnings per share     
  Basic$2.74 $2.63 $2.64 $2.76 $2.44 
  Diluted$2.71 $2.61 $2.61 $2.71 $2.40 
         
Ratios for the period:     
 Return on average assets 2.25% 2.32% 2.41% 2.48% 2.25%
 Return on beginning equity 22.66% 23.18% 24.49% 26.58% 23.60%
 Net interest margin (Fully-taxable equivalent) 4.39% 4.58% 4.77% 4.75% 4.37%
 Noninterest expense to average assets 1.12% 1.28% 1.20% 1.25% 1.11%
 Efficiency ratio 25.04% 27.29% 26.01% 25.97% 25.23%
 Net charge-offs (recoveries) to average loans (annualized) 0.01% -0.00% 0.00% 0.00% -0.19%
         
Ratios as of period end:     
 Tier 1 leverage capital ratio 10.46% 10.61% 10.63% 10.30% 9.95%
 Common equity tier 1 risk-based capital ratio 11.63% 11.51% 11.30% 10.81% 10.46%
 Tier 1 risk-based capital ratio 11.63% 11.51% 11.30% 10.81% 10.46%
 Total risk-based capital ratio 15.32% 15.14% 14.91% 14.39% 14.09%
 Allowances for credit losses to loans at end of period 1.46% 1.40% 1.36% 1.35% 1.33%
 Allowance for credit losses to non-performing loans3.86x13.86x254.56x12.49x10.75x
         
Average balances:     
 Total securities$368,968 $397,905 $442,852 $434,830 $410,649 
 Total loans 5,086,241  5,044,004  5,012,862  4,981,561  4,908,870 
 Total earning assets 6,597,557  6,432,950  6,276,630  6,193,330  6,076,616 
 Total assets 6,719,859  6,558,651  6,400,849  6,328,017  6,215,184 
 Total time certificate of deposits 2,680,854  2,617,872  2,209,370  1,872,239  1,749,257 
 Total interest bearing deposits 4,800,227  4,549,519  4,451,299  4,287,287  3,973,105 
 Total deposits 5,654,350  5,481,457  5,479,945  5,468,562  5,373,252 
 Total interest bearing liabilities 5,069,014  4,847,596  4,630,982  4,435,245  4,121,005 
 Total equity 678,020  677,306  650,963  613,729  598,188 
         



PREFERRED BANK 
Selected Consolidated Financial Information 
(unaudited) 
(in thousands, except for ratios) 
        
        
        
    For the Nine Months Ended 
    September 30,
 September 30,
 
     2023   2022  
        
 Interest income$353,024  $196,003  
 Interest expense 133,046   22,757  
  Interest income before provision for credit losses 219,978   173,246  
 Provision for credit losses 6,500   5,350  
 Noninterest income 5,007   7,054  
 Noninterest expense 58,761   50,697  
 Income tax expense 45,523   34,968  
  Net income$114,201  $89,285  
        
 Earnings per share    
  Basic$8.01  $6.09  
  Diluted$7.92  $6.00  
        
Ratios for the period:    
 Return on average assets 2.33%  1.95% 
 Return on beginning equity 24.22%  20.35% 
 Net interest margin (Fully-taxable equivalent) 4.58%  3.86% 
 Noninterest expense to average assets 1.20%  1.11% 
 Efficiency ratio 26.12%  28.12% 
 Net charge-off (recoveries) to average loans 0.00%  -0.03% 
        
Average balances:    
 Total securities$402,971  $432,085  
 Total loans 5,047,971   4,686,424  
 Total earning assets 6,436,889   6,008,091  
 Total assets 6,560,955   6,131,640  
 Total time certificate of deposits 2,504,426   1,809,492  
 Total interest bearing deposits 4,602,039   3,967,963  
 Total deposits 5,539,223   5,297,387  
 Total interest bearing liabilities 4,851,214   4,115,805  
 Total equity 668,862   600,558  
        



PREFERRED BANK 
Selected Consolidated Financial Information 
(unaudited) 
(in thousands, except for ratios) 
              
              
              
    As of 
              
    September 30, June 30, March 31, December 31, September 30, 
     2023   2023   2023   2022   2022  
Unaudited quarterly statement of financial position data:          
Assets:          
 Cash and cash equivalents$1,021,108  $1,049,745$885,691  $767,526  $749,484  
 Securities held-to-maturity, at amortized cost 21,474   21,818   22,155   22,459   12,442  
 Securities available-for-sale, at fair value 335,608   352,548   367,492   428,295   377,534  
 Loans:          
  Real estate – Mortgage:          
   Real estate—Residential$663,021  $631,795  $612,907  $609,292  $587,812  
   Real estate—Commercial 2,688,148   2,744,074   2,813,681   2,730,726   2,693,852  
      Total Real Estate – Mortgage 3,351,169   3,375,879   3,426,588   3,340,018   3,281,664  
  Real estate – Construction:          
   R/E Construction — Residential 226,482   186,239   175,286   193,027   179,955  
   R/E Construction — Commercial 164,666   153,418   142,319   204,478   188,083  
      Total real estate construction loans 391,148   339,657   317,605   397,505   368,038  
  Commercial and industrial 1,377,675   1,388,865   1,299,325   1,320,830   1,330,028  
  SBA 2,424   4,427   7,306   11,339   8,067  
  Trade finance 5,541   9,348   6,885   4,521   22,634  
  Consumer and others 285   345   19   580   115  
   Gross loans 5,128,242   5,118,511   5,057,728   5,074,793   5,010,546  
 Allowance for credit losses on loans (74,849)  (71,429)  (68,929)  (68,472)  (66,472) 
 Net deferred loan fees (10,240)  (10,464)  (10,286)  (9,939)  (9,695) 
  Net loans, excluding loans held for sale$5,043,153  $5,036,618$4,978,513  $4,996,382  $4,934,379  
 Loans held for sale$-  $176  $-  $-  $-  
  Net loans$5,043,153  $5,036,794$4,978,513  $4,996,382  $4,934,379  
              
 Other real estate owned and repossessed assets$16,716  $16,728  $18,628  $21,990  $26,075  
 Investment in affordable housing partnerships 54,679   56,844   59,009   61,173   62,745  
 Federal Home Loan Bank stock, at cost 15,000   15,000   15,000   15,000   15,000  
 Other assets 124,793   118,465   115,049   112,533   115,184  
  Total assets$6,632,530  $6,667,942$6,461,537  $6,425,358  $6,292,843  
              
Liabilities:          
 Deposits:          
  Demand$838,300  $870,282  $1,050,992  $1,192,091  $1,341,199  
  Interest bearing demand 2,091,384   2,005,298   1,751,439   2,295,212   2,263,775  
  Savings 30,427   32,089   33,861   39,527   38,151  
  Time certificates of $250,000 or more 1,283,461   1,244,128   1,329,720   1,138,727   971,378  
  Other time certificates 1,439,699   1,437,194   1,241,754   891,440   841,173  
      Total deposits$5,683,271  $5,588,991$5,407,766  $5,556,997  $5,455,676  
              
 Acceptances outstanding$103  $448  $107  $1,731  $10,058  
 Advance from Federal Home Loan Bank -   150,000   150,000   -   -  
 Subordinated debt issuance, net 148,173   148,114   148,055   147,995   147,936  
 Commitments to fund investment in affordable housing partnerships 20,824   20,930   26,709   27,490   28,611  
 Other liabilities 109,651   90,692   72,359   60,074   60,009  
  Total liabilities$5,962,022  $5,999,175$5,804,996  $5,794,287  $5,702,290  
              
Equity:          
 Net common stock, no par value$143,584  $167,404  $181,208  $184,604  $180,324  
 Retained earnings 566,027   535,373   505,207   475,072   443,409  
 Accumulated other comprehensive income (39,103)  (34,010)  (29,874)  (28,605)  (33,180) 
  Total shareholders' equity$670,508  $668,767  $656,541  $631,071  $590,553  
  Total liabilities and shareholders' equity$6,632,530  $6,667,942$6,461,537  $6,425,358  $6,292,843  
              



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,
    2023   2023   2022 
    InterestAverage  InterestAverage  InterestAverage
   AverageIncome orYield/ AverageIncome orYield/ AverageIncome orYield/
   BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
ASSETS(Dollars in thousands)
Interest earning assets:           
 Loans (1,2)$5,086,302 $106,6958.32% $5,044,517 $102,2208.13% $4,908,870 $71,1925.75%
 Investment securities (3) 368,968  3,4223.68%  397,905  3,7093.74%  410,649  2,9952.89%
 Federal funds sold 20,111  2785.48%  20,000  2725.45%  20,071  1172.30%
 Other earning assets 1,122,176  15,2355.39%  970,528  12,3115.09%  737,026  4,2212.27%
  Total interest earning assets 6,597,557  125,6307.55%  6,432,950  118,5127.39%  6,076,616  78,5255.13%
 Deferred loan fees, net (10,071)    (10,417)    (9,333)  
 Allowance for credit losses on loans (71,503)    (68,956)    (61,477)  
Noninterest earning assets:           
 Cash and due from banks 12,101     12,712     10,562   
 Bank furniture and fixtures 8,814     9,005     9,615   
 Right of use assets 21,491     21,988     21,404   
 Other assets 161,470     161,369     167,797   
  Total assets$6,719,859    $6,558,651    $6,215,184   
              
LIABILITIES AND SHAREHOLDERS' EQUITY           
Interest bearing liabilities:           
 Deposits:           
  Interest bearing demand and savings$2,119,373 $20,3243.80% $1,931,647 $16,4533.42% $2,223,848 $6,4551.15%
  TCD $250K or more 1,251,397  14,0854.47%  1,259,305  12,7724.07%  914,373  2,5171.09%
  Other time certificates 1,429,457  15,2844.24%  1,358,567  12,6643.74%  834,884  1,3330.63%
  Total interest bearing deposits 4,800,227  49,6934.11%  4,549,519  41,8893.69%  3,973,105  10,3051.03%
Advance from Fedferal home loan bank 120,652  1,5575.12%  150,000  1,8885.05%  -  -0.00%
Subordinated debt, net 148,135  1,3253.55%  148,077  1,3253.59%  147,900  1,3253.55%
  Total interest bearing liabilities 5,069,014  52,5754.11%  4,847,596  45,1023.73%  4,121,005  11,6301.12%
Noninterest bearing liabilities:           
 Demand deposits 854,123     931,938     1,400,147   
 Lease Liability 19,759     20,708     21,332   
 Other liabilities 98,943     81,103     74,512   
  Total liabilities 6,041,839     5,881,345     5,616,996   
Shareholders’ equity 678,020     677,306     598,188   
  Total liabilities and shareholders’ equity$6,719,859    $6,558,651    $6,215,184   
Net interest income $73,055   $73,410   $66,895 
Net interest spread  3.44%   3.66%   4.01%
Net interest margin  4.39%   4.58%   4.37%
              
Cost of Deposits:           
 Noninterest bearing demand deposits$854,123    $931,938    $1,400,147   
 Interest bearing deposits 4,800,227  49,6934.11%  4,549,519  41,8893.69%  3,973,105  10,3051.03%
  Total Deposits$5,654,350 $49,6933.49% $5,481,457 $41,8893.07% $5,373,252 $10,3050.76%
              
(1)Includes non-accrual loans and loans held for sale          
(2)Net loan fee income of 1.1 million, $$912,000 and $1.2 million for the quarter ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively, are included in the yield computations
(3)Yields on securities have been adjusted to a tax-equivalent basis         



PREFERRED BANK 
Year-to-Date Average Balances, Yield and Rates 
(Unaudited) 
           
           
   Nine months ended September 30, 
   20232022 
    InterestAverage  InterestAverage 
   AverageIncome orYield/ AverageIncome orYield/ 
   BalanceExpenseRate BalanceExpenseRate 
ASSETS(Dollars in thousands) 
Interest earning assets:        
 Loans (1,2)$5,048,452 $304,7968.07% $4,686,424 $181,8525.19% 
 Investment securities (3) 402,971  11,1253.69%  432,085  7,5902.35% 
 Federal funds sold 20,111  7745.14%  20,093  1821.21% 
 Other earning assets 965,355  36,6335.07%  869,489  6,6980.25% 
  Total interest earning assets 6,436,889  353,3287.34%  6,008,091  196,3234.37% 
 Deferred loan fees, net (10,142)    (8,257)   
 Allowance for credit losses on loans (69,653)    (60,004)   
Noninterest earning assets:        
 Cash and due from banks 11,912     11,167    
 Bank furniture and fixtures 8,931     10,024    
 Right of use assets 21,780     21,480    
 Other assets 161,238     149,139    
  Total assets$6,560,955    $6,131,640    
           
LIABILITIES AND SHAREHOLDERS' EQUITY        
Interest bearing liabilities:        
 Deposits:        
  Interest bearing demand/ savings$2,097,613 $53,8543.43% $2,158,471 $10,3730.64% 
  TCD $250K or more 1,258,870  37,6003.99%  911,931  4,7550.70% 
  Other time certificates 1,245,556  33,7983.63%  897,561  3,6540.54% 
  Total interest bearing deposits 4,602,039  125,2523.64%  3,967,963  18,7820.63% 
Advance from Fedferal home loan bank 101,099  3,8195.05%  -  -0.00% 
Subordinated debt, net 148,076  3,9753.59%  147,842  3,9753.59% 
  Total interest bearing liabilities 4,851,214  133,0463.67%  4,115,805  22,7570.74% 
Noninterest bearing liabilities:        
 Demand deposits 937,184     1,329,424    
 Lease Liability 20,482     21,795    
 Other liabilities 83,213     64,058    
  Total liabilities 5,892,093     5,531,082    
Shareholders’ equity 668,862     600,558    
  Total liabilities and shareholders’ equity$6,560,955    $6,131,640    
Net interest income $220,282   $173,566  
Net interest spread  3.67%   3.63% 
Net interest margin  4.58%   3.86% 
           
Cost of Deposits:        
 Noninterest bearing demand deposits$937,184    $1,329,424    
 Interest bearing deposits 4,602,039  125,2523.64%  3,967,963  18,7820.63% 
  Total Deposits$5,539,223 $125,2523.02% $5,297,387 $18,7820.47% 
           
(1)Includes non-accrual loans and loans held for sale        
(2)Net loan fee income of $3.2 million and $2.9 million for the six months ended September 30 2023 and 2022, respectively, are included in the yield computations 
(3)Yields on securities have been adjusted to a tax-equivalent basis       



Preferred Bank 
Loan and Credit Quality Information 
         
Allowance For Credit Losses History 
     Nine Months Ended Year ended 
     September 30, 2023 December 31, 2022 
      (Dollars in 000's) 
Allowance For Credit Losses     
Balance at Beginning of Period $68,472  $59,969  
 Charge-Offs     
  Commercial & Industrial  124   1,222  
  Mini-perm Real Estate  -   1  
     Total Charge-Offs  124   1,223  
         
 Recoveries     
  Commercial & Industrial  1   -  
  Mini-perm Real Estate  -   2,376  
     Total Recoveries  1   2,376  
         
 Net Charge-Offs (recoveries)  123   (1,153) 
 Provision for Credit Losses:  6,500   7,350  
Balance at End of Period $74,849  $68,472  
         
Average Loans Held for Investment $5,047,971  $4,760,815  
Loans Held for Investment at End of Period $5,128,242  $5,074,793  
Net Charge-Offs (recoveries) to Average Loans  0.00%  -0.02% 
Allowances for Credit Losses to Loans at End of Period  1.46%  1.35% 
         

  

   
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 was Preferred Bank's net income for Q3 2023?

Preferred Bank reported net income of $38.2 million for the third quarter of 2023.

How much did total deposits increase for the quarter?

Total deposits increased by $94.3 million or 6.7% annually for the quarter.

What is the allowance for credit losses as a percentage of total loans?

The allowance for credit losses at September 30, 2023, increased to 1.46% of total loans.

Is Preferred Bank the most profitable independent bank in California?

Based on return on equity metrics, Preferred Bank is the most profitable independent bank in California.

What was the efficiency ratio for the quarter?

The Bank's efficiency ratio for the quarter was 25.0%.

Preferred Bank

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Banks - Regional
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United States of America
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