Preferred Bank Reports Quarterly Earnings

Rhea-AI Summary

Preferred Bank (NASDAQ: PFBC) reported a net income of $15.3 million ($1.03 per diluted share) for Q2 2020, down from $20.0 million ($1.31) in Q2 2019. The decline is largely attributed to a provision for credit losses of $7.5 million, significantly higher than $1.6 million a year ago, due to economic uncertainty amid the COVID-19 pandemic. Total loans rose by $238.7 million (6.4%) to $3.96 billion, while deposits increased by $366.9 million (9.2%) to $4.35 billion. The net interest margin contracted to 3.57%, reflecting rising credit loss reserves and disproportionate deposit growth.

Positive

• Achieved an ROA of 1.26% and ROE of 12.65%.
• Net interest income slightly increased to $42.2 million, up from $41.8 million YoY.
• Strong deposit growth of $263.8 million in the quarter.

Negative

• Net income decreased to $15.3 million, down from $20.0 million YoY.
• Provision for credit losses increased significantly to $7.5 million.
• Net interest margin contracted by 50 basis points YoY to 3.57%.

LOS ANGELES, July 21, 2020 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended June 30, 2020. Preferred Bank (“the Bank”) reported net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. This is down from net income of $20.0 million or $1.31 per diluted share for the second quarter of 2019 and also down from net income of $16.2 million or $1.08 per diluted share for the first quarter of 2020. The primary reason for the decrease compared to both periods is the provision for credit losses, which totaled $7.5 million for the second quarter of 2020, as compared to $1.6 million in the second quarter of 2019 and compared to $5.3 million in the first quarter of 2020. The higher provision for this quarter is primarily due to the ongoing uncertainty of the impact of the economic shutdown due to the COVID-19 pandemic.

Li Yu, Chairman and CEO, commented, “I am pleased to report second quarter net income of $15.3 million or $1.03 per diluted share.  Given the economic backdrop, the Bank recorded an outsized provision for credit losses of $7.5 million, or nearly five times the $1.6 million provision recorded in the same period last year. In spite of that, we achieved an ROA of 1.26% and an ROE of 12.65%. This is evidence of Preferred Bank’s earnings power and I believe positions us well in this economic environment.

“We’ll be receiving approximately $1.94 million of fee income on originations of $74.8 million of Paycheck Protection Program or “PPP” loans and these fees will be accreted into income over the life of the loans which will either be when forgiveness is granted or, if forgiveness is not granted, over an approximate 2 year period.  The origination of PPP loans has increased total loans for the quarter but has had a negative impact on the net interest margin due to the contractual rate of 1%.  It has also affected return on assets and our capital ratios, although not as significantly.

“This quarter deposits grew at a very strong pace of $263.8 million and loans grew by $70.3 million, inclusive of PPP.  The outpacing of deposit growth relative to loan growth has also negatively affected the net interest margin.

“The Bank’s net interest margin contracted 13 basis points from the first quarter to 3.57% for the second quarter.  An interest reversal from downgrading of certain loans to nonaccrual status also contributed to the decrease.  Between quarters, our loan yield decreased 47 basis points and deposit costs decreased 43 basis points.  Going forward, we expect deposit costs to continue to improve through the maturity and repricing of TCD’s.

“Loan modification activity has moderated considerably toward the end of the quarter.  Until recently, we have been granting three months of deferment only.  At June 30, 2020, there were $467.1 million in loans under some type of payment deferment. Although many loans are now returning to normal payment schedule, some loans (notably hospitality industry) may require further deferment.

“Due to the uncertainty surrounding the economy, we continue to record elevated credit loss provisions. This quarter we set aside $7.5 million compared to $5.3 million last quarter.  We will continue to build up our reserves based upon developments taking place regarding the economy, our loan portfolio and the pandemic.

“As of June 30, 2020, Preferred Bank became a $5 billion Bank, a milestone for our staff and the Board of Directors.  The large deposit increase has enhanced liquidity at the expense of reducing our ROA and capital ratios.  Regardless, our operating metrics and profitability profile remain very favorable.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $42.2 million for the second quarter of 2020. This is slightly above the $41.8 million recorded in the second quarter of 2019 and the $41.8 million recorded in the first quarter of 2020. The increase over both periods is due to loan growth as well as declining deposit costs. The Bank’s taxable equivalent net interest margin was 3.57% for the second quarter of 2020, a 50 basis point decrease from the 4.07% achieved in the second quarter of 2019 and a 13 basis point decrease from the 3.70% posted in the first quarter of 2020. The decrease to 3.57% this quarter was due to a number of factors which included a $521,000 interest reversal on loans placed into nonaccrual status during the quarter. In addition, the growth in loans was far outpaced by deposit growth which essentially de-levers the balance sheet during the quarter, adding to the margin compression.

Noninterest Income. For the second quarter of 2020, noninterest income was $1,430,000 compared with $1,985,000 for the same quarter last year and compared to $1,672,000 for the first quarter of 2020. The decrease from the second quarter of 2019 was due mainly to letter of credit fee income which decreased by $329,000. The decrease from the first quarter of 2020 was primarily due to a $113,000 loss on sale of securities.

Noninterest Expense. Total noninterest expense was $14.3 million for the second quarter of 2020. This represents an increase of $449,000 from the same quarter last year and a decrease of $850,000 from the first quarter of 2020. Salaries and benefits expense totaled $10.1 million for the second quarter of 2020, an increase of $616,000 over the second quarter of 2019 and a decrease of $807,000 from the first quarter of 2020. The decrease from the prior quarter is mostly to a decrease in payroll taxes and bonus expense. The increase over the prior year is due mainly to reduced loan origination volume in the current period as capitalized loan origination salary expense was lower off of lower volume. Occupancy expense totaled $1.3 million for the quarter and was flat compared to the same period last year and was down $100,000 from the first quarter of 2020. Professional services expense was $1.0 million for the second quarter of 2020 and was relatively flat compared to the $1.1 million recorded in the same quarter of 2019 and the $1.0 million recorded in the first quarter of 2020.  Other expenses were $1.4 million for the second quarter of 2020, flat compared to the same period last year but up by $132,000 over the first quarter of 2020. This was due to an increase in FDIC insurance premiums.

Income Taxes. The Bank recorded a provision for income taxes of $6.5 million for the second quarter of 2020. This represents an effective tax rate (“ETR”) of 29.7% and a slight increase from the ETR of 29.5% for the same quarter last year but flat compared to the 29.7% recorded in the first quarter of 2020. 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, 2020 were $3.96 billion, an increase of $238.7 million or 6.4% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.35 billion, an increase of $366.9 million or 9.2% over the $3.98 billion as of December 31, 2019. Total assets eclipsed $5 billion to end at $5.004 billion, an increase of $376.0 million or 8.1% over the total of $4.63 billion as of December 31, 2019.

Below is a breakdown of the Bank’s loan portfolio by segment as of June 30, 2020:

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Category	Loan  Count	Total Balance (000's)	% of Loan Balance	Average LTV	Average DCR
Cash Secured	84	$	35,474	0.89%	N/A	N/A
Commercial	1,706		1,133,758	28.60%	N/A	N/A
International	122		23,065	0.58%	N/A	N/A
Construction - 1-4 Residential	58		187,083	4.72%	48.4%	N/A
Construction - Commercial	42		217,730	5.49%	52.4%	N/A
Real Estate - 1-4 Residential	155		233,420	5.89%	53.3%	1.70
Real Estate - Industrial	100		246,349	6.22%	49.0%	1.98
Real Estate - Multifamily	61		235,106	5.93%	55.9%	1.36
Real Estate - Office	74		353,895	8.93%	52.3%	1.41
Real Estate - Retail	129		433,950	10.95%	56.8%	1.38
Real Estate - Special Purpose	76		511,330	12.90%	50.6%	1.75
Real Estate - Vacant Land	4		7,801	0.20%	36.8%	N/A
SBA	210		73,524	1.85%	N/A	N/A
Consumer	6		1,557	0.04%	42.4%	N/A
Residential Mortgage	403		269,606	6.80%	59.8%	% (DTI)
Total	3,230	$	3,963,647	100.00%

Asset Quality
As of June 30, 2020, nonaccrual loans totaled $26.4 million, up from the $2.1 million reported as of March 31, 2020 and also up over the $2.1 million reported at December 31, 2019. Total net recoveries for the second quarter of 2020 were $132,000 compared to $0 in the first quarter of 2020 and compared to $315,000 for the second quarter of 2019.

COVID – 19 Relief Modifications
Below is a breakdown of loans at June 30, 2020 that are in some form of payment deferment by segment:

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Loan Type	# Loans Modified	Interest Deferral (000's)	Principal Deferral (000's)	Full Payment Deferral (000's)	Total $ Modified (000's)	% of Total Loan Type	Weighted Average Loan to Value
18%; width:18%; min-width:18%;">C&I	8%; width:8%; min-width:8%;">97	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">16,546	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">7,736	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">15,236	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">39,518	15%; width:15%; min-width:15%;">3.4%	15%; width:15%; min-width:15%;">-
Office	3	$	17,700	$	10,996	$	-	$	28,696	8.1%	52.3%
Industrial	13		-		9,820		19,675		29,495	12.0%	49.0%
Retail	22		32,391		17,259		38,668		88,319	20.4%	56.8%
Multi-Family	3		-		-		17,593		17,593	7.5%	55.9%
1-4R	9		-		-		6,624		6,624	2.8%	53.3%
Restaurant	3		-		-		6,149		6,149	79.6%	46.3%
Special Purpose / Hotel	15		23,707		27,471		121,353		172,531	55.6%	54.5%
Special Purpose / Other	10		2,438		17,118		31,677		51,232	25.5%	44.7%
Construction / AD	0		-		-		-		-	0.0%	-
Total CRE and Construction / AD	78	$	76,235	$	82,665	$	241,739	$	400,640	16.5%	-
Mortgage	34		-		-		26,935		26,935	10.0%	58.6%
Grand Total	209	$	92,782	$	90,401	$	283,910	$	467,093	11.8%	-

At June 30, 2020, total dollar amount of loans in deferral were equal to 11.78% of the Bank’s loan portfolio. Approximately 85% are deferred from 2-4 months and the remaining 15% are 6 month deferrals. Of the total modifications, 20% are for the deferral of interest only and 19% are for principal deferral only. There are approximately $4 million of requested modifications that are currently in process.

Allowance for Credit Losses

Due primarily to the ongoing partial economic shutdown and uncertainty regarding future economic activity, the provision for credit losses continues to be elevated at $7.5 million for this quarter. This compares to the $5.3 million provision recorded in the first quarter of 2020 and is well ahead of the $1.6 million recorded in this quarter last year. In the first quarter of 2020, the Bank implemented the CECL methodology under Accounting Standards Codification ("ASC") 326, in which the allowance for credit losses now reflects expected credit losses over the life of loans and held-to-maturity debt securities, and incorporates macroeconomic forecasts as well as historical loss rates. Between the adoption of CECL in the first quarter, and the heightened provisions for credit losses to-date this year, the Bank’s allowance coverage ratio has increased from 0.94% of total loans as of December 31, 2019 to a coverage ratio now totaling 1.41% of total loans.

Capitalization
As of June 30, 2020, the Bank’s leverage ratio was 9.87%, the common equity tier 1 capital ratio was 10.39% and the total capital ratio was 13.80%. As of December 31, 2019, the Bank’s leverage ratio was 10.32%, the common equity tier 1 ratio was 10.57% and the total risk based capital ratio was 13.70%.

Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2020 financial results will be held tomorrow, July 22, 2020 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 5, 2020; the passcode is 10146151.

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. 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 2019 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

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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,
						2020				2020				2019
Interest income:
	Loans, including fees		$	49,813			$	51,564			$	52,844
	Investment securities			2,320				3,979				4,707
	Fed funds sold			32				124				271
		Total interest income			52,165				55,667				57,822
Interest expense:
	Interest-bearing demand			1,462				3,368				4,819
	Savings			17				14				13
	Time certificates			6,973				8,963				9,612
	FHLB borrowings			-				-				7
	Subordinated debit			1,531				1,531				1,530
		Total interest expense			9,983				13,876				15,981
		Net interest income			42,182				41,791				41,841
Provision for credit losses			7,500				5,300				1,600
		Net interest income after provision for
		credit losses			34,682				36,491				40,241
Noninterest income:
	Fees & service charges on deposit accounts			339				405				418
	Letters of credit fee income			742				848				1,071
	BOLI income			95				94				92
	Net gain (loss) on called and sale of investment securities			(113	)			-				-
	Other income			367				325				404
		Total noninterest income			1,430				1,672				1,985
Noninterest expense:
	Salary and employee benefits			10,095				10,902				9,479
	Net occupancy expense			1,296				1,396				1,270
	Business development and promotion expense			114				151				187
	Professional services			1,006				1,014				1,090
	Office supplies and equipment expense			459				489				497
	Net loss (gain) on sale of other real estate owned and expense			2				1				(45	)
	Other				1,363				1,231				1,407
		Total noninterest expense			14,335				15,184				13,885
		Income before provision for income taxes			21,777				22,979				28,341
Income tax expense			6,468				6,825				8,362
		Net income		$	15,309			$	16,154			$	19,979
Dividend and earnings allocated to participating securities			(49	)			(51	)			(158	)
Net income available to common shareholders		$	15,260			$	16,103			$	19,821
Income per share available to common shareholders
		Basic		$	1.03			$	1.08			$	1.31
		Diluted		$	1.03			$	1.08			$	1.31
Weighted-average common shares outstanding
		Basic			14,879,383				14,870,715				15,171,399
		Diluted			14,879,383				14,870,715				15,171,399
Cash dividends per common share		$	0.30			$	0.30			$	0.30

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PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
				June 30,		December 31,		June 30,
					2020				2019				2019
				(Unaudited)		(Audited)		(Unaudited)
Assets
Cash and due from banks	$	630,683			$	498,645			$	304,121
Fed funds sold		25,500				37,000				47,000
	Cash and cash equivalents		656,183				535,645				351,121
Securities held to maturity, at amortized cost		6,922				7,310				7,702
Securities available-for-sale, at fair value		270,667				240,640				238,589
Loans		3,963,647				3,724,922				3,585,686
	Less allowance for credit losses		(55,762	)			(34,830	)			(33,811	)
	Amortized deferred loan fees, net		(5,097	)			(3,028	)			(1,401	)
	Loans, net		3,902,788				3,687,064				3,550,474
Customers' liability on acceptances		6,112				7,379				8,074
Bank furniture and fixtures, net		11,833				12,236				12,757
Bank-owned life insurance		9,699				9,571				9,443
Accrued interest receivable		20,554				14,961				15,510
Investment in affordable housing		49,658				53,142				41,136
Federal Home Loan Bank stock		15,000				13,101				13,101
Deferred tax assets		21,671				19,560				17,804
Income tax receivable		9,525				3,368				3,585
Operating lease right-of-use assets		16,656				17,103				17,616
Other assets		7,189				7,401				7,513
	Total assets	$	5,004,457			$	4,628,481			$	4,294,425
Liabilities and Shareholders' Equity
Deposits:
	Non-interest bearing demand deposits	$	934,764			$	835,790			$	718,611
	Interest-bearing deposits:		1,594,682				1,328,863				1,279,104
		Savings		27,737				23,784				20,927
		Time certificates of $250,000 or more		970,649				976,727				839,203
		Other time certificates		822,404				818,130				819,163
		Total deposits		4,350,236				3,983,294				3,677,008
Acceptances outstanding		6,112				7,379				8,074
Subordinated debt issuance		99,273				99,211				99,149
Commitments to fund investment in affordable housing partnership		17,536				24,149				15,186
Operating lease liabilities		19,589				20,497				21,416
Accrued interest payable		1,815				3,324				5,753
Other liabilities		21,167				20,612				16,397
	Total liabilities		4,515,728				4,158,466				3,842,983
Shareholders' equity		488,729				470,015				451,442
	Total liabilities and shareholders' equity	$	5,004,457			$	4,628,481			$	4,294,425
Book value per common share	$	32.73			$	31.47			$	29.50
Number of common shares outstanding		14,933,648				14,933,768				15,300,577

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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,
				2020	2020	2019	2019	2019
Unaudited historical quarterly operations data:
	Interest income	$	52,165		$	55,667		$	55,483		$	57,959		$	57,822
	Interest expense		9,983			13,876			15,074			16,482			15,981
		Interest income before provision for credit losses		42,182			41,791			40,409			41,477			41,841
	Provision for credit losses		7,500			5,300			450			900			1,600
	Noninterest income		1,430			1,672			1,883			1,737			1,985
	Noninterest expense		14,335			15,184			13,770			13,898			13,885
	Income tax expense		6,468			6,825			8,456			8,383			8,362
		Net income	$	15,309		$	16,154		$	19,616		$	20,033		$	19,979
	Earnings per share
		Basic	$	1.03		$	1.08		$	1.31		$	1.32		$	1.31
		Diluted	$	1.03		$	1.08		$	1.31		$	1.32		$	1.31
Ratios for the period:
	Return on average assets		1.26	%		1.40	%		1.74	%		1.81	%		1.89	%
	Return on beginning equity		13.00	%		13.82	%		16.95	%		17.61	%		18.54	%
	Net interest margin (Fully-taxable equivalent)		3.57	%		3.70	%		3.67	%		3.84	%		4.07	%
	Noninterest expense to average assets		1.18	%		1.31	%		1.22	%		1.25	%		1.31	%
	Efficiency ratio		32.87	%		34.93	%		32.56	%		32.16	%		31.68	%
	Net charge-offs (recoveries) to average loans (annualized)		-0.01	%		0.00	%		-0.01	%		0.05	%		-0.04	%
Ratios as of period end:
	Tier 1 leverage capital ratio		9.87	%		10.05	%		10.32	%		10.27	%		10.50	%
	Common equity tier 1 risk-based capital ratio		10.39	%		10.80	%		10.57	%		10.40	%		10.53	%
	Tier 1 risk-based capital ratio		10.39	%		10.80	%		10.57	%		10.40	%		10.53	%
	Total risk-based capital ratio		13.80	%		14.26	%		13.70	%		13.53	%		13.74	%
	Allowances for credit losses to loans and leases at end of period		1.41	%		1.24	%		0.94	%		0.93	%		0.94	%
	Allowance for credit losses to non-performing loans and leases		211.08	%		2263.66	%		1631.42	%		895.30	%		981.65	%
Average balances:
	Total securities	$	250,134		$	247,689		$	248,904		$	249,060		$	241,664
	Total loans *	$	3,921,694		$	3,717,212		$	3,614,621		$	3,534,283		$	3,450,583
	Total earning assets	$	4,768,537		$	4,548,512		$	4,381,206		$	4,298,523		$	4,134,320
	Total assets	$	4,868,356		$	4,651,955		$	4,482,210		$	4,395,357		$	4,235,612
	Total time certificate of deposits	$	1,757,531		$	1,765,816		$	1,756,480		$	1,650,965		$	1,627,953
	Total interest bearing deposits	$	3,399,924		$	3,244,711		$	3,050,318		$	3,051,007		$	2,924,526
	Total deposits	$	4,220,197		$	4,010,629		$	3,849,825		$	3,772,097		$	3,625,021
	Total interest bearing liabilities	$	3,499,178		$	3,343,933		$	3,149,511		$	3,150,167		$	3,024,452
	Total equity	$	486,931		$	475,409		$	463,849		$	460,451		$	445,101
*Incudes loans held for sale

 

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PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				As of
				June 30,		March 31,		December 31,		September 30,		June 30,
				2020		2020		2019		2019		2019
Unaudited quarterly statement of financial position data:
Assets:
	Cash and cash equivalents	$	656,183			$	484,869			$	535,645			$	465,189			$	351,121
	Securities held-to-maturity, at amortized cost		6,922				7,077				7,310				7,545				7,702
	Securities available-for-sale, at fair value		270,667				235,097				240,640				242,655				238,589
	Loans and Leases:
		Real estate - Single and multi-family residential		739,689				721,006				686,906				642,824				646,830
		Real estate - Land		7,801				7,818				7,838				7,950				9,330
		Real estate - Commercial		1,545,524				1,494,694				1,504,594				1,533,566				1,419,224
		Real estate - For sale housing construction		187,082				177,364				173,951				179,651				171,584
		Real estate - Other construction		217,730				223,385				218,562				216,812				212,988
		Commercial and industrial, trade finance and other		1,265,821				1,269,058				1,133,071				1,090,647				1,125,730
			Gross loans		3,963,647				3,893,325				3,724,922				3,671,450				3,585,686
	Allowance for loan and lease losses		(55,762	)			(48,130	)			(34,830	)			(34,281	)			(33,811	)
	Net deferred loan fees		(5,097	)			(3,084	)			(3,028	)			(2,518	)			(1,401	)
		Net loans, excluding loans held for sale	$	3,902,788			$	3,842,111			$	3,687,064			$	3,634,651			$	3,550,474
	Loans held for sale	$	-			$	-			$	-			$	2,999			$	-
		Net loans and leases	$	3,902,788			$	3,842,111			$	3,687,064			$	3,637,650			$	3,550,474
	Investment in affordable housing		49,658				51,400				53,142				39,780				41,136
	Federal Home Loan Bank stock		15,000				13,101				13,101				13,101				13,101
	Other assets		103,239				93,979				91,579				89,564				92,302
		Total assets	$	5,004,457			$	4,727,634			$	4,628,481			$	4,495,484			$	4,294,425
Liabilities:
	Deposits:
		Demand	$	934,764			$	753,750			$	835,790			$	774,869			$	718,611
		Interest-bearing demand		1,594,682				1,503,618				1,328,863				1,435,144				1,279,104
		Savings		27,737				23,035				23,784				21,985				20,927
		Time certificates of $250,000 or more		970,649				1,030,282				976,727				849,574				839,203
		Other time certificates		822,404				775,792				818,130				787,392				819,163
		Total deposits	$	4,350,236			$	4,086,477			$	3,983,294			$	3,868,964			$	3,677,008
	Acceptances outstanding	$	6,112			$	6,507			$	7,379			$	7,333			$	8,074
	Subordinated debt issuance		99,273				99,242				99,211				99,180				99,149
	Commitments to fund investment in affordable housing partnership		17,536				21,195				24,149				12,904				15,186
	Other liabilities		42,571				40,428				44,433				48,023				43,566
		Total liabilities	$	4,515,728			$	4,253,849			$	4,158,466			$	4,036,404			$	3,842,983
Equity:
	Net common stock, no par value	$	212,187			$	210,091			$	210,998			$	215,123			$	224,314
	Retained earnings		271,923				261,095				255,050				239,914				224,401
	Accumulated other comprehensive income		4,619				2,599				3,967				4,043				2,727
		Total shareholders' equity	$	488,729			$	473,785			$	470,015			$	459,080			$	451,442
		Total liabilities and shareholders' equity	$	5,004,457			$	4,727,634			$	4,628,481			$	4,495,484			$	4,294,425

 

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			PREFERRED BANK
			QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES
			(Unaudited)
			Three months ended June 30,		Three months ended March 31,		Three months ended June 30,
			2020		2020		2019
				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)	$	3,921,694		$	49,813	5.11	%		$	3,717,212		$	51,564	5.58	%		$	3,450,583		$	52,844	6.14	%
	Investment securities (3)		250,134			2,098	3.37	%			247,689			2,127	3.45	%			241,664			2,276	3.78	%
	Federal funds sold		24,324			31	0.52	%			30,153			124	1.66	%			40,067			271	2.71	%
	Other earning assets		572,385			318	0.22	%			553,458			1,946	1.41	%			402,006			2,543	2.54	%
		Total interest-earning assets		4,768,537			52,260	4.41	%			4,548,512			55,761	4.93	%			4,134,320			57,934	5.62	%
	Deferred loan fees, net		(3,182	)					(3,079	)					(1,253	)
	Allowance for credit losses on loans		(48,247	)					(42,800	)					(32,257	)
Noninterest earning assets:
	Cash and due from banks		8,274						6,334						6,361
	Bank furniture and fixtures		11,993						12,269						11,607
	Right of use assets		16,768						17,006						17,547
	Other assets		114,213						113,713						99,287
		Total assets	$	4,868,356					$	4,651,955					$	4,235,612
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand and savings		1,642,393		$	1,479	0.36	%			1,478,895		$	3,382	0.92	%		$	1,296,573		$	4,832	1.49	%
		TCD $250K or more		945,043			3,624	1.54	%			969,343			4,852	2.01	%			834,092			4,914	2.36	%
		Other time certificates		812,488			3,349	1.66	%			796,473			4,111	2.08	%			793,861			4,698	2.37	%
		Total interest-bearing deposits		3,399,924			8,452	1.00	%			3,244,711			12,345	1.53	%			2,924,526			14,444	1.98	%
Subordinated debt		99,254			1,531	6.20	%			99,222			1,531	6.21	%			99,118			1,530	6.19	%
Long-term debt		-			-	0.00	%			-			-	0.00	%			808			7	3.66	%
		Total interest-bearing liabilities		3,499,178			9,983	1.15	%			3,343,933			13,876	1.67	%			3,024,452			15,981	2.12	%
Non-interest bearing liabilities:
	Demand deposits		820,273						765,918						700,495
	Lease Liability		19,841						20,314						21,474
	Other liabilities		42,133						46,381						44,090
		Total liabilities		4,381,425						4,176,546						3,790,511
Shareholders’ equity		486,931						475,409						445,101
		Total liabilities and shareholders’ equity	$	4,868,356					$	4,651,955					$	4,235,612
Net interest income		$	42,277				$	41,885				$	41,953
Net interest spread			3.26	%				3.26	%				3.50	%
Net interest margin			3.57	%				3.70	%				4.07	%
Cost of Deposits:
	Noninterest bearing demand deposits		820,273						765,918						700,495
	Interest bearing deposits		3,399,924			8,452	1.00	%			3,244,711			12,345	1.53	%			2,924,526			14,444	1.98	%
		Total Deposits		4,220,197			8,452	0.81	%			4,010,629			12,345	1.24	%			3,625,021			14,444	1.60	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $542,000 and $541,000 for the quarter ended June 30, 2020 and 2019, respectively, are included in the yield computations
(3)	Yields on securities have been adjusted to a tax-equivalent basis

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PREFERRED BANK
YEAR-TO-DATE AVERAGE BALANCES, YIELD AND RATES
(Unaudited)
			Six months ended June 30,
			2020		2019
				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)	$	3,819,453		$	101,377	5.34	%		$	3,389,136		$	103,304	6.15	%
	Investment securities (3)		248,912			4,225	3.41	%			215,818			4,190	3.92	%
	Federal funds sold		27,238			156	1.15	%			42,720			577	2.72	%
	Other earning assets		562,921			2,263	0.81	%			436,906			5,405	2.49	%
		Total interest-earning assets		4,658,524			108,021	4.66	%			4,084,580			113,476	5.60	%
	Deferred loan fees, net		(3,131	)					(1,721	)
	Allowance for credit losses on loans		(45,523	)					(31,776	)
Noninterest earning assets:
	Cash and due from banks		7,304						5,923
	Bank furniture and fixtures		12,131						10,201
	Right of use assets		16,887						11,852
	Other assets		113,964						110,456
		Total assets	$	4,760,156					$	4,189,515
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand/ savings		1,560,644		$	4,861	0.63	%			1,324,550		$	9,587	1.46	%
		TCD $250K or more		957,193			8,476	1.78	%			787,522			8,872	2.27	%
		Other time certificates		804,481			7,460	1.86	%			787,354			8,988	2.30	%
		Total interest-bearing deposits		3,322,318			20,797	1.26	%			2,899,426			27,447	1.91	%
Subordinated debt		99,238			3,062	6.20	%			99,108			3,062	6.23	%
Long-term debt		-			-	0.00	%			1,052			19	3.71	%
		Total interest-bearing liabilities		3,421,556			23,859	1.40	%			2,999,586			30,528	2.05	%
Non-interest bearing liabilities:
	Demand deposits		793,095						691,266
	Lease Liability		20,077						14,546
	Other liabilities		44,258						47,452
		Total liabilities		4,278,986						3,752,850
Shareholders’ equity		481,170						436,665
		Total liabilities and shareholders’ equity	$	4,760,156					$	4,189,515
Net interest income		$	84,162				$	82,948
Net interest spread			3.26	%				3.55	%
Net interest margin			3.63	%				4.10	%
Cost of Deposits:
	Noninterest bearing demand deposits		793,095						691,266
	Interest bearing deposits		3,322,318			20,797	1.26	%			2,899,426			27,447	1.91	%
		Total Deposits		4,115,413			20,797	1.02	%			3,590,692			27,447	1.54	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $1.2 million and $973,000 for the six months ended June 30, 2020 and 2019, respectively, are included in the yield computations
(3)	Yields on securities have been adjusted to a tax-equivalent basis

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Preferred Bank
Loan and Credit Quality Information
Allowance For Credit Losses History
					Six Months Ended		Year ended
					June 30, 2020		December 31, 2019
					(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period		$	34,830			$	31,065
	Charge-Offs
		Commercial & Industrial			61				526
		Mini-perm Real Estate			-				101
		Total Charge-Offs			61				627
	Recoveries
		Commercial & Industrial			-				527
		Mini-perm Real Estate			193				415
		Total Recoveries			193				942
	Net Recoveries			(132	)			(315	)
	Provision for Credit Losses:
		CECL Cumulative Effect Adjustment			8,000				-
		Current Provision			12,800				3,450
Balance at End of Period		$	55,762			$	34,830
Average Loans Held for Investment		$	3,818,424			$	3,482,218
Loans Held for Investment at End of Period		$	3,963,647			$	3,724,922
Net Recoveries to Average Loans			-0.01%				-0.01%
Allowances for Credit Losses to Loans at End of Period			1.41%				0.94%

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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 Preferred Bank's earnings for Q2 2020?

Preferred Bank reported a net income of $15.3 million, or $1.03 per diluted share.

How did the COVID-19 pandemic affect Preferred Bank's financial results?

The pandemic led to an increased provision for credit losses of $7.5 million, impacting net income and net interest margin.

What was the net interest margin for Preferred Bank in Q2 2020?

The net interest margin contracted to 3.57% for Q2 2020.

How much did deposits increase at Preferred Bank in Q2 2020?

Deposits grew by $366.9 million, or 9.2%, to $4.35 billion.

What is the stock symbol for Preferred Bank?

The stock symbol for Preferred Bank is PFBC.