Preferred Bank Reports Record Quarterly Earnings Again

Rhea-AI Summary

Preferred Bank (NASDAQ: PFBC) reported strong financial results for the fourth quarter of 2022, with a net income of $39.6 million, or $2.71 per diluted share, representing a 49.7% increase year-over-year. The increase was primarily driven by a 50.0% rise in net interest income, totaling $74.1 million. For the full year, net income rose to $128.8 million, a 35.3% increase compared to 2021. Key metrics included a return on average assets (ROA) of 2.48% and a net interest margin of 4.75%. However, challenges in deposit growth and rising costs are anticipated in 2023, with deposit growth slowing significantly. The bank's efficiency ratio stood at 26.0%, indicating strong operational performance.

Positive

• Net income for Q4 2022 increased by 49.7% year-over-year to $39.6 million.
• Annual net income for 2022 reached $128.8 million, a 35.3% increase compared to 2021.
• Net interest income for Q4 2022 was $74.1 million, up 50.0% year-over-year.
• Return on average assets for Q4 was 2.48%, showing strong profitability.
• Net interest margin increased to 4.75%, a 147 basis points improvement from the previous year.

Negative

• Deposit growth is expected to be a challenge throughout 2023 as rates rise.
• Total noninterest expenses rose to $20.0 million in Q4 2022, an increase from $17.4 million in Q3 2022.
• Loan demand has moderated since mid-2022, and this trend is projected to continue.

LOS ANGELES, Jan. 18, 2023 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended December 31, 2022. Preferred Bank (“the Bank”) reported net income of $39.6 million or $2.71 per diluted share for the fourth quarter of 2022. This represents an increase of $13.1 million or 49.7% over the same quarter last year and also an impressive $4.4 million or 12.4% increase over the third quarter of 2022. The primary driver of the increase over both comparable periods was net interest income which increased by 50.0% over the same period last year and increased by 11.0% over the third quarter of 2022. Net income for the year ended December 31, 2022 was $128.8 million or $8.70 per diluted share compared to $95.2 million or $6.41 per diluted share for the year ended December 31, 2021. This represents an increase in net income of $33.6 million or 35.3% and an increase in diluted earnings per share of 35.7%. The extraordinary interest rate hikes undertaken by the Federal Open Market Committee (“FOMC”) to fend off inflation during the course of 2022 has led to a significant increase in interest income as most of the Bank’s loans are tied to the Prime rate.

Fourth quarter 2022 highlights:

• Return on average assets (“ROA”) of 2.48%
• Return on beginning equity (“ROBE”) of 26.58%
• Pre-provision, pre-tax (“PPPT”) ROBE of 38.26% ¹.
• Net interest margin increased to 4.75%
• Efficiency ratio of 25.97%
• Linked quarter deposit growth of 1.9%
• Linked quarter loan growth of 1.3%
  

______________________________
¹ This is a non-GAAP measure and links to the reconciliation on page 4.

Full Year 2022 highlights:

• Return on average assets (“ROA”) of 2.08%
• Return on beginning equity (“ROBE”) of 21.96%
• Efficiency ratio of 27.48%
• Total loan growth of $650 million or 14.7%
• Total deposit growth of $331 million or 6.3%
  

Li Yu, Chairman and CEO, commented, “I am pleased to report another record quarter of earnings. Net income for the fourth quarter of 2022 was $39.6 million or $2.71 per diluted share with return on beginning equity reaching 26.6%.

“Growth in interest income continues to outpace the rise in deposit interest costs. The Bank’s net interest margin was 4.75% for the fourth quarter, up from 4.37% recorded in the previous quarter. The cost of deposits accelerated during the quarter, as deposit rates catch up to market rates. We expect this trend to continue as financial institutions are increasing their deposit rates frequently. Another reason for the increase in overall deposit costs is the shifting of funds from noninterest bearing accounts to interest bearing products as companies and individuals become more savvy with their cash balances.

“Sequentially, total loans increased by $64 million, or 1.3% for the quarter while total deposits grew by $101 million or 1.9%. Loan demand has moderated since mid-2022 and this trend is expected to continue as investors and operators become more cautious in the higher interest rate environment.

“Deposit growth has also slowed significantly. We expect that deposit growth will be a challenge, especially at reasonable costs, throughout 2023.

“The Bank’s liquidity position continues to be very strong as deposit growth outpaced loan growth for the year. Also, capital levels remain high. The Bank’s tangible book value per share increased by 6.1% for 2022, which was rare for any bank this year because higher interest rates lead to higher negative accumulated other comprehensive income (“AOCI”) marks on investment portfolios within bank’s capital. Preferred Bank’s earning power was more than enough to offset this headwind, even after dividends.

“Benefitted by the increase in net interest income, the efficiency ratio continues to be one of the best in the industry, coming in at 26.0% for the quarter. In 2023, total expenses are expected to increase at a rate above the historical pace due to wage inflation as well as the upcoming increase in FDIC premium assessments. Regardless, we expect our efficiency ratio will remain among the best in the Country.

“Our attention is always focused on credit quality, which appears stable. Nonperforming assets and nonperforming loans were $27.5 million and $5.5 million respectively, as compared to $32.3 million and $6.2 million as of September 30, 2022. More importantly, loans 30-89 days past due, a leading indicator of credit quality trends was practically nil as of December 31, 2022. Over the past few quarters, the Bank’s total allowance for credit loss (“ACL”) coverage has increased and now stands at 1.35% of total loans.

Preferred Bank was 2^nd among all California publicly traded banks over $2 billion in assets with a return on tangible common shareholders’ equity (“ROTCE”) of 23.6% for the third quarter of 2022. Our ROTCE actually expanded in the fourth quarter to 25.8%. We are very pleased with our earnings capacity as it is often overlooked as one of the best defenses for a recessionary economy. All of our operating metrics remain stable heading into 2023 as we approach the new year with prudence.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $74.1 million for the fourth quarter of 2022. This was a significant increase from the $49.4 million recorded in the same quarter last year and also up sharply over the $66.8 million posted in the third quarter of 2022. The FOMC rate hikes throughout 2022 drove the Bank’s loan portfolio yield higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense on deposits also rose but the increase in deposit interest costs was well behind that of interest income, leading to continued margin expansion. The taxable equivalent net interest margin rose 38 basis points on a linked quarter basis to 4.75% from 4.37% last quarter. Comparing to the same quarter last year, the margin was up by an astounding 147 basis points over the 3.28% posted this quarter last year.

Noninterest Income. For the fourth quarter of 2022, noninterest income was $2.8 million compared with $2.0 million for the same quarter last year and compared to $2.2 million for the third quarter of 2022. The increase compared to the prior quarter was due to an increase in letter of credit (“LC”) fees of $289,000 and an increase in other income of $105,000 partially offset by gain on the sale of investment securities of $297,000 in the fourth quarter of 2022. In comparison to the same quarter last year, LC fees are up by $526,000 partially offset by the gain on the sales of investment securities of $297,000.

Noninterest Expense. Total noninterest expense was $20.0 million for the fourth quarter of 2022 compared to $17.4 million for the third quarter of 2022 and compared to the $14.8 million recorded in the same period last year. Comparing this quarter to the fourth quarter of last year; personnel expense increased by $2.7 million or 26.0%, other real estate owned (“OREO”) expense was $2.1 million this quarter compared to $0 last year and other expense increased by $1.8 million this quarter. The personnel expense increase was mainly due to new hires, merit increases and an increase in incentive compensation. In comparing to the prior quarter; personnel expense was up by $627,000 or 5.1% from the third quarter of 2022, other expense was up by $191,000 and OREO expense increased by $1.4 million and incurred a loss on sale of OREO of $426,000. During the fourth quarter of 2022, the Bank wrote down the value of its OREO by $1.4 million. For the quarter ended December 31, 2022, the Bank’s efficiency ratio was 26.0%, slightly higher than the 25.2% posted last quarter but easily surpassing the 28.8% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $15.4 million for the fourth quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and equal to the ETR for the third quarter of 2022 but down slightly from the 29.5% ETR posted in the fourth quarter of 2021. 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, 2022 were $5.07 billion, an increase of $650 million or 14.7% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.56 billion, an increase of $331 million or 6.3% over the $5.23 billion as of December 31, 2021. Total assets ended the year at $6.42 billion, an increase of $376 million or 6.2% over the total of $6.05 billion as of December 31, 2021.

Asset Quality

As of December 31, 2022, nonaccrual loans totaled $5.5 million, down from the $6.2 million reported as of September 30, 2022 and down from the $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $22.0 million as of December 31, 2022, compared to $26.1 million as of September 30, 2022 and zero as of the end of 2021. Total net charge-offs were $0 for the fourth quarter of 2022 as compared to net recoveries of $2.4 million last quarter and compared to net charge-offs of $267,000 in the same quarter of 2021.

Allowance for Credit Losses

The provision for credit losses for the fourth quarter of 2022 was $2.0 million as compared to $2.7 million recorded last quarter and compared to a reversal of $900,000 recorded in the fourth quarter of last year.   The Bank’s allowance coverage ratio now stands at 1.35% of total loans (excluding PPP loans).

Capitalization

As of December 31, 2022, the Bank’s leverage ratio was 10.27%, the common equity tier 1 capital ratio was 10.78% and the total capital ratio stood at 14.36%. As of December 31, 2021, the Bank’s leverage ratio was 9.54%, the common equity tier 1 ratio was 11.26% and the total risk-based capital ratio was 15.37%.

GAAP – Non-GAAP Reconciliation -Fourth Quarter 2022 PPPT ROBE
Net Income	$	39,560
Add: Provision for credit losses		2,000
Add: Income tax expense		15,384
Pre-provision and pre-tax income	$	56,944
Total equity – 9/30/22	$	590,553
Pre-provision and pre-tax ROBE		38.26	%

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s fourth quarter 2022 financial results will be held tomorrow, January 19, 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. 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 February 2, 2023; the passcode is 5526852.

About Preferred Bank

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy
shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2021 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,
					2022			2022			2021
Interest income:
	Loans, including fees			$	87,159		$	71,192		$	51,906
	Investment securities				11,028			7,111			2,867
	Fed funds sold				192			117			18
		Total interest income			98,379			78,420			54,791
Interest expense:
	Interest-bearing demand				13,906			6,436			1,511
	Savings				32			19			17
	Time certificates				9,004			3,850			2,521
	Subordinated debt				1,325			1,325			1,325
		Total interest expense			24,267			11,630			5,374
		Net interest income			74,112			66,790			49,417
Provision for (reversal of) credit losses					2,000			2,700			(900	)
		Net interest income after provision for (reversal of)
			credit losses		72,112			64,090			50,317
Noninterest income:
	Fees & service charges on deposit accounts				631			703			581
	Letters of credit fee income				1,245			956			719
	BOLI income				102			100			99
	Net gain on called and sale of investment securities				297			-			-
	Other income				533			428			567
		Total noninterest income			2,808			2,187			1,966
Noninterest expense:
	Salary and employee benefits				12,953			12,326			10,278
	Net occupancy expense				1,444			1,452			1,396
	Business development and promotion expense				320			214			280
	Professional services				1,028			1,161			1,075
	Office supplies and equipment expense				460			456			498
	Loss on sale of OREO, valuation allowance and related expense				2,103			314			-
	Other				1,668			1,477			1,279
		Total noninterest expense			19,976			17,400			14,806
		Income before provision for income taxes			54,944			48,877			37,477
Income tax expense					15,384			13,688			11,056
		Net income		$	39,560		$	35,189		$	26,421
Dividend and earnings allocated to participating securities					-			-			(3	)
Net income available to common shareholders				$	39,560		$	35,189		$	26,418
Income per share available to common shareholders
		Basic		$	2.76		$	2.44		$	1.80
		Diluted		$	2.71		$	2.40		$	1.80
Weighted-average common shares outstanding
		Basic			14,357,326			14,408,235			14,677,515
		Diluted			14,617,377			14,644,452			14,677,515
Cash dividends per common share				$	0.55		$	0.43		$	0.43

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
				2022				2021			%
Interest income:
	Loans, including fees		$	269,011			$	200,537			34.1	%
	Investment securities			24,997				10,417			140.0	%
	Fed funds sold			374				81			361.5	%
		Total interest income		294,382				211,035			39.5	%
Interest expense:
	Interest-bearing demand			24,221				5,964			306.1	%
	Savings			91				57			58.9	%
	Time certificates			17,412				12,811			35.9	%
	Subordinated debt			5,300				6,325			-16.2	%
		Total interest expense		47,024				25,158			86.9	%
		Net interest income		247,358				185,877			33.1	%
Provision for (reversal of) credit losses				7,350				(1,000	)		-835.0	%
		Net interest income after provision for (reversal of) credit losses		240,008				186,877			28.4	%
Noninterest income:
	Fees & service charges on deposit accounts			2,728				2,113			29.1	%
	Letters of credit fee income			4,463				3,914			14.0	%
	BOLI income			401				392			2.3	%
	Net gain on called and sale of investment securities			297				41			623.6	%
	Net loss on sale of loans			-				(640	)		-100.0	%
	Other income			1,973				1,924			2.6	%
		Total noninterest income		9,862				7,743			27.4	%
Noninterest expense:
	Salary and employee benefits			48,607				42,606			14.1	%
	Net occupancy expense			5,759				5,656			1.8	%
	Business development and promotion expense			811				568			42.8	%
	Professional services			4,892				4,127			18.5	%
	Office supplies and equipment expense			1,864				1,879			-0.8	%
	Loss on sale of OREO, valuation allowance and related expense			2,818				-			100.0	%
	Other			5,922				5,956			-0.6	%
		Total noninterest expense		70,673				60,792			16.3	%
		Income before provision for income taxes		179,197				133,828			33.9	%
Income tax expense				50,352				38,588			30.5	%
		Net income	$	128,845			$	95,240			35.3	%
Dividend and earnings allocated to participating securities			$	(2	)		$	(11	)		-77.4	%
Net income available to common shareholders			$	128,843			$	95,229			35.3	%
Income per share available to common shareholders
		Basic	$	8.84			$	6.41			37.9	%
		Diluted	$	8.70			$	6.41			35.7	%
Weighted-average common shares outstanding
		Basic		14,579,132				14,866,000			-1.9	%
		Diluted		14,809,416				14,866,000			-0.4	%
Dividends per share			$	1.84			$	1.57			17.2	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
			December 31,				December 31,
				2022				2021
			(Unaudited)				(Audited)
Assets
Cash and due from banks			$	747,526			$	1,030,610
Fed funds sold				20,000				20,000
	Cash and cash equivalents			767,526				1,050,610
Securities held to maturity, at amortized cost				22,459				13,962
Securities available-for-sale, at fair value				428,295				451,911
Loans				5,074,793				4,424,992
	Less allowance for credit losses			(68,472	)			(59,969	)
	Less amortized deferred loan fees, net			(9,939	)			(6,316	)
	Loans, net			4,996,382				4,358,707
Other real estate owned and repossessed assets				21,990				-
Customers' liability on acceptances				1,731				10,188
Bank furniture and fixtures, net				8,999				10,533
Bank-owned life insurance				10,357				10,088
Accrued interest receivable				23,593				14,646
Investment in affordable housing partnerships				61,173				59,018
Federal Home Loan Bank stock, at cost				15,000				15,000
Deferred tax assets				39,746				26,674
Operating lease right-of-use assets				21,718				21,969
Other assets				2,917				2,997
	Total assets		$	6,421,886			$	6,046,303
Liabilities and Shareholders' Equity
Deposits:
	Non-interest bearing demand deposits		$	1,192,091			$	1,305,692
	Interest-bearing deposits:			2,295,212				2,032,819
		Savings		39,527				37,839
		Time certificates of $250,000 or more		1,138,727				934,444
		Other time certificates		891,440				914,717
		Total deposits		5,556,997				5,225,511
Acceptances outstanding				1,731				10,188
Subordinated debt issuance, net				147,995				147,758
Commitments to fund investment in affordable housing partnerships				27,490				22,606
Operating lease liabilities				20,949				22,861
Accrued interest payable				2,608				715
Other liabilities				36,018				29,946
	Total liabilities			5,793,788				5,459,585
Shareholders' equity				628,098				586,718
	Total liabilities and shareholders' equity		$	6,421,886			$	6,046,303
Book value per common share			$	43.75			$	39.97
Number of common shares outstanding				14,358,145				14,679,769

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,
				2022			2022			2022			2022			2021
Unaudited historical quarterly operations data:
	Interest income		$	98,379		$	78,420		$	62,559		$	55,024		$	54,791
	Interest expense			24,267			11,630			6,135			4,992			5,374
		Interest income before provision for credit losses		74,112			66,790			56,424			50,032			49,417
	Provision (reversal of) for credit losses			2,000			2,700			2,900			(250	)		(900	)
	Noninterest income			2,808			2,187			2,601			2,266			1,966
	Noninterest expense			19,976			17,400			17,140			16,157			14,806
	Income tax expense			15,384			13,688			10,916			10,364			11,056
		Net income	$	39,560		$	35,189		$	28,069		$	26,027		$	26,421
	Earnings per share
		Basic	$	2.76		$	2.44		$	1.90		$	1.76		$	1.80
		Diluted	$	2.71		$	2.40		$	1.87		$	1.74		$	1.80
Ratios for the period:
	Return on average assets			2.48	%		2.25	%		1.84	%		1.75	%		1.72	%
	Return on beginning equity			26.58	%		23.60	%		18.91	%		17.99	%		18.65	%
	Net interest margin (Fully-taxable equivalent)			4.75	%		4.37	%		3.77	%		3.42	%		3.28	%
	Noninterest expense to average assets			1.25	%		1.11	%		1.12	%		1.08	%		0.97	%
	Efficiency ratio			25.97	%		25.23	%		29.04	%		30.89	%		28.82	%
	Net charge-offs (recoveries) to average loans (annualized)			0.00	%		-0.19	%		0.00	%		0.11	%		0.03	%
Ratios as of period end:
	Tier 1 leverage capital ratio			10.27	%		9.95	%		9.92	%		9.92	%		9.54	%
	Common equity tier 1 risk-based capital ratio			10.78	%		10.46	%		10.61	%		11.20	%		11.26	%
	Tier 1 risk-based capital ratio			10.78	%		10.46	%		10.61	%		11.20	%		11.26	%
	Total risk-based capital ratio			14.36	%		14.09	%		14.31	%		15.12	%		15.37	%
	Allowances for credit losses to loans at end of period			1.35	%		1.33	%		1.25	%		1.27	%		1.36	%
	Allowance for credit losses to non-performing loans		12.49x			10.75x			5.27x			27.15x			4.05x
Average balances:
	Total securities		$	434,830		$	410,649		$	430,203		$	455,899		$	470,811
	Total loans			4,981,561			4,908,870			4,777,353			4,367,095			4,218,699
	Total earning assets			6,193,330			6,076,616			6,008,024			5,938,519			5,984,055
	Total assets			6,327,942			6,215,184			6,133,703			6,044,155			6,079,934
	Total time certificate of deposits			1,872,239			1,749,257			1,810,886			1,869,654			1,915,116
	Total interest bearing deposits			4,287,287			3,973,105			3,982,888			3,947,616			3,945,275
	Total deposits			5,468,562			5,373,252			5,301,370			5,215,810			5,277,507
	Total interest bearing liabilities			4,435,245			4,121,005			4,130,729			4,095,399			4,093,002
	Total equity			613,679			598,188			606,260			597,214			576,495

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
			For the Year Ended
			December 31,				December 31,
				2022				2021
	Interest income		$	294,382			$	211,035
	Interest expense			47,024				25,158
		Interest income before provision for credit losses		247,358				185,877
	Provision (reversal of) for credit losses			7,350				(1,000	)
	Non-interest income			9,862				7,743
	Non-interest expense			70,673				60,792
	Income tax expense			50,352				38,588
		Net income	$	128,845			$	95,240
	Earnings per share
		Basic	$	8.84			$	6.41
		Diluted	$	8.70			$	6.41
Ratios for the period:
	Return on average assets			2.08	%			1.68	%
	Return on beginning equity			21.96	%			17.51	%
	Net interest margin (Fully-taxable equivalent)			4.09	%			2.54	%
	Non-interest expense to average assets			1.14	%			1.12	%
	Efficiency ratio			27.48	%			32.33	%
	Net (recoveries) charge-off to average loans			-0.02	%			0.07	%
Average balances:
	Total securities		$	432,777			$	304,865
	Total loans			4,760,815				4,110,835
	Total earning assets			6,054,932				5,377,565
	Total assets			6,181,119				5,477,989
	Total time certificate of deposits			1,825,307				1,891,583
	Total interest-bearing deposits			4,048,450				3,674,201
	Total deposits			5,340,533				4,729,147
	Total interest-bearing liabilities			4,196,321				3,793,782
	Total equity			603,865				553,937

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				As of
				December 31,				September 30,				June 30,				March 31,				December 31,
					2022				2022				2022				2022				2021
Unaudited quarterly statement of financial position data:
Assets:
	Cash and cash equivalents			$	767,526			$	749,484			$	768,658			$	985,162			$	1,050,610
	Securities held-to-maturity, at amortized cost				22,459				12,442				12,784				13,496				13,962
	Securities available-for-sale, at fair value				428,295				377,534				400,597				430,280				451,911
	Loans:
		Real estate – Mortgage:
			Real estate—Residential	$	609,292			$	587,812			$	581,412			$	539,614			$	536,286
			Real estate—Commercial		2,730,726				2,693,852				2,583,484				2,367,862				2,267,063
			Total Real Estate – Mortgage		3,340,018				3,281,664				3,164,896				2,907,476				2,803,349
		Real estate – Construction:
			R/E Construction — Residential		193,027				179,955				168,420				141,218				130,842
			R/E Construction — Commercial		204,478				188,083				203,217				209,726				202,482
			Total real estate construction loans		397,505				368,038				371,637				350,944				333,324
		Commercial and industrial			1,320,830				1,330,028				1,336,631				1,281,559				1,245,734
		SBA			11,339				8,067				22,186				32,554				42,467
		Trade finance			4,521				22,634				24,663				18,919				11,309
		Consumer and others			580				115				128				115				118
			Gross loans		5,074,793				5,010,546				4,920,141				4,591,567				4,424,992
	Allowance for credit losses on loans				(68,472	)			(66,472	)			(61,396	)			(58,496	)			(59,969	)
	Net deferred loan fees				(9,939	)			(9,695	)			(9,525	)			(8,573	)			(6,316	)
		Net loans		$	4,996,382			$	4,934,379			$	4,849,220			$	4,524,498			$	4,358,707
	Other real estate owned and repossessed assets			$	21,990			$	26,075			$	21,449			$	15,547			$	-
	Investment in affordable housing partnerships				61,173				62,745				54,874				56,946				59,018
	Federal Home Loan Bank stock, at cost				15,000				15,000				15,000				15,000				15,000
	Other assets				109,061				115,184				110,459				101,427				97,095
		Total assets		$	6,421,886			$	6,292,843			$	6,233,041			$	6,142,356			$	6,046,303
Liabilities:
	Deposits:
		Demand		$	1,192,091			$	1,341,199			$	1,385,934			$	1,251,613			$	1,305,692
		Interest-bearing demand			2,295,212				2,263,775				2,239,501				2,159,178				2,032,819
		Savings			39,527				38,151				39,784				39,946				37,839
		Time certificates of $250,000 or more			1,138,727				971,378				870,376				924,317				934,444
		Other time certificates			891,440				841,173				872,357				934,615				914,717
		Total deposits		$	5,556,997			$	5,455,676			$	5,407,952			$	5,309,669			$	5,225,511
	Acceptances outstanding			$	1,731			$	10,058			$	11,053			$	8,222			$	10,188
	Subordinated debt issuance, net				147,995				147,936				147,877				147,818				147,758
	Commitments to fund investment in affordable housing partnerships				27,490				28,611				20,036				22,606				22,606
	Other liabilities				59,575				60,009				54,531				58,756				53,522
		Total liabilities		$	5,793,788			$	5,702,290			$	5,641,449			$	5,547,071			$	5,459,585
Equity:
	Net common stock, no par value			$	180,324			$	180,324			$	197,997			$	209,065			$	208,840
	Retained earnings				475,072				443,409				414,393				392,610				372,952
	Accumulated other comprehensive income				(28,605	)			(33,180	)			(20,798	)			(6,390	)			4,926
		Total shareholders' equity		$	626,791			$	590,553			$	591,592			$	595,285			$	586,718
		Total liabilities and shareholders' equity		$	6,420,579			$	6,292,843			$	6,233,041			$	6,142,356			$	6,046,303

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,
				2022								2022								2021
						Interest		Average						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,981,561			87,159	6.94	%		$	4,908,870		$	71,192	5.75	%			4,218,699		$	51,906	4.88	%
	Investment securities (3)			434,830			3,993	3.64	%			410,649			2,995	2.89	%			470,811			2,228	1.88	%
	Federal funds sold			20,000			192	3.81	%			20,071			117	2.30	%			20,380			18	0.36	%
	Other earning assets			756,939			7,139	3.74	%			737,026			4,221	2.27	%			1,274,165			752	0.23	%
		Total interest-earning assets		6,193,330			98,483	6.31	%			6,076,616			78,525	5.13	%			5,984,055			54,904	3.64	%
	Deferred loan fees, net			(10,003	)							(9,333	)							(5,530	)
	Allowance for credit losses on loans			(66,515	)							(61,477	)							(61,123	)
Non-interest earning assets:
	Cash and due from banks			11,569								10,562								11,933
	Bank furniture and fixtures			9,237								9,615								10,810
	Right of use assets			22,002								21,404								21,150
	Other assets			168,322								167,797								118,639
		Total assets	$	6,327,942							$	6,215,184							$	6,079,934
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand and savings		2,415,048		$	13,938	2.29	%			2,223,848		$	6,455	1.15	%		$	2,030,159		$	1,528	0.30	%
		TCD $250K or more		1,017,302			6,014	2.35	%			914,373			2,517	1.09	%			942,201			1,151	0.48	%
		Other time certificates		854,937			2,990	1.39	%			834,884			1,333	0.63	%			972,915			1,370	0.56	%
		Total interest-bearing deposits		4,287,287			22,942	2.12	%			3,973,105			10,305	1.03	%			3,945,275			4,049	0.41	%
Subordinated debt, net				147,958			1,325	3.55	%			147,900			1,325	3.56	%			147,724			1,325	3.56	%
		Total interest-bearing liabilities		4,435,245			24,267	2.17	%			4,121,005			11,630	1.12	%			4,093,002			5,374	0.52	%
Non-interest bearing liabilities:
	Demand deposits			1,181,275								1,400,147								1,332,232
	Lease Liability			21,542								21,332								22,298
	Other liabilities			76,201								74,512								55,907
		Total liabilities		5,714,263								5,616,996								5,503,439
Shareholders’ equity				613,679								598,188								576,495
		Total liabilities and shareholders’ equity	$	6,327,942							$	6,215,184							$	6,079,934
Net interest income						$	74,216							$	66,895							$	49,530
Net interest spread								4.14	%							4.01	%							3.12	%
Net interest margin								4.75	%							4.37	%							3.28	%
Cost of Deposits:
	Non-interest bearing demand deposits		$	1,181,275							$	1,400,147							$	1,332,232
	Interest-bearing deposits			4,287,287			22,942	2.12	%			3,973,105			10,305	1.03	%			3,945,275			4,049	0.41	%
		Total Deposits	$	5,468,562		$	22,942	1.66	%		$	5,373,252		$	10,305	0.76	%		$	5,277,507		$	4,049	0.30	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $972,000, $1.2 million and $1.1 million for the quarter ended December 31, 2022, September 30, 2022, and December 31, 2021, 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,
				2022								2021
						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	4,760,815		$	269,011	5.65	%		$	4,138,592		$	200,537	4.85	%
	Investment securities (3)			432,777			11,584	2.68	%			346,692			8,333	2.40	%
	Federal funds sold			20,070			374	1.86	%			21,032			81	0.38	%
	Other earning assets			841,270			13,837	1.64	%			1,024,118			2,520	0.25	%
		Total interest-earning assets		6,054,932			294,806	4.87	%			5,530,434			211,471	3.82	%
	Deferred loan fees, net			(8,697	)							(4,997	)
	Allowance for credit losses on loans			(61,645	)							(63,250	)
Non-interest earning assets:
	Cash and due from banks			11,068								11,746
	Bank furniture and fixtures			9,826								11,290
	Right of use assets			21,612								19,733
	Other assets			154,023								124,756
		Total assets	$	6,181,119							$	5,629,712
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand/ savings		2,223,143		$	24,312	1.09	%			1,845,013		$	6,021	0.33	%
		TCD $250K or more		938,491			10,768	1.15	%			938,179			6,299	0.67	%
		Other time certificates		886,816			6,644	0.75	%			959,337			6,513	0.68	%
		Total interest-bearing deposits		4,048,450			41,724	1.03	%			3,742,529			18,833	0.50	%
Subordinated debt, net				147,871			5,300	3.58	%			126,674			6,325	4.99	%
		Total interest-bearing liabilities		4,196,321			47,024	1.12	%			3,869,204			25,158	0.65	%
Non-interest bearing liabilities:
	Demand deposits			1,292,083								1,124,836
	Lease Liability			21,731								21,536
	Other liabilities			67,119								54,513
		Total liabilities		5,577,254								5,070,089
Shareholders’ equity				603,865								559,623
		Total liabilities and shareholders’ equity	$	6,181,119							$	5,629,712
Net interest income						$	247,782							$	186,313
Net interest spread								3.75	%							3.17	%
Net interest margin								4.09	%							3.37	%
Cost of Deposits:
	Non-interest bearing demand deposits		$	1,292,083							$	1,124,836
	Interest-bearing deposits			4,048,450			41,724	1.03	%			3,742,529			18,833	0.50	%
		Total Deposits	$	5,340,533		$	41,724	0.78	%		$	4,867,365		$	18,833	0.39	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $3.8 million and $3.1 million for the twelve months ended December 31, 2022 and 2021, 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, 2022				December 31, 2021
			(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period			$	59,969			$	63,426
	Charge-Offs
		Commercial & Industrial		1,222				1,697
		Mini-perm Real Estate		1				817
		Total Charge-Offs		1,223				2,514
	Recoveries
		Commercial & Industrial		-				57
		Mini-perm Real Estate		2,376				-
		Total Recoveries		2,376				57
	Net Charge-Offs (recoveries)			(1,153	)			2,457
	Provision for (reversal of) Credit Losses:			7,350				(1,000	)
Balance at End of Period			$	68,472			$	59,969
Average Loans Held for Investment			$	4,760,815			$	4,138,023
Loans Held for Investment at End of Period			$	5,074,793			$	4,424,992
Net Charge-Offs (recoveries) to Average Loans				-0.02	%			0.06	%
Allowances for Credit Losses to Loans at End of Period				1.35	%			1.36	%

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 Q4 2022 earnings results?

Preferred Bank reported a net income of $39.6 million, or $2.71 per diluted share, for Q4 2022.

What drove the increase in net income for Preferred Bank in 2022?

The increase in net income was primarily driven by a 50.0% rise in net interest income.

What is Preferred Bank's stock symbol?

Preferred Bank is traded under the stock symbol PFBC.

What are the challenges Preferred Bank expects in 2023?

Preferred Bank anticipates challenges in deposit growth and increasing operational costs in 2023.

What is the net interest margin for Preferred Bank in Q4 2022?

The net interest margin for Q4 2022 was 4.75%, up from 4.37% in Q3 2022.