Preferred Bank Reports Record Quarterly Earnings

Rhea-AI Summary

Preferred Bank (PFBC) reported a strong third quarter for 2022, achieving a net income of $35.2 million or $2.40 per diluted share, marking a 34.6% increase year-over-year and 25.4% compared to the previous quarter. This growth is mainly driven by a 39.9% surge in net interest income, aided by Federal interest rate hikes. For the year-to-date, net income totaled $89.3 million, a 29.7% increase from 2021. The Bank's efficiency ratio improved to 25.2%, despite rising operational costs. However, credit quality remains stable with a provision for credit losses of $2.7 million.

Positive

• Net income increased by 34.6% YoY to $35.2 million.
• Net interest income surged by 39.9% YoY, driven by higher loan yields.
• Efficiency ratio improved to 25.2%, outperforming previous quarters.
• Year-to-date net income rose by 29.7% to $89.3 million.

Negative

• Loan growth showed signs of slowing, with only 2.1% linked quarter growth.
• Operational costs have risen due to inflation and new hires.

LOS ANGELES, Oct. 19, 2022 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended September 30, 2022. Preferred Bank (“the Bank”) reported net income of $35.2 million or $2.40 per diluted share for the third quarter of 2022. This represents an increase of $9.0 million or 34.6% over the same quarter last year and also an impressive $7.1 million or 25.4% increase over the second quarter of 2022. The primary driver of the increase over both comparable periods was net interest income which increased by 39.9% over the same period last year and increased by 18.4% over the second quarter of 2022. Net income for the nine months ended September 30, 2022 was $89.3 million or $6.00 per diluted share compared to $68.8 million or $4.61 per diluted share for the same period last year. This represents an increase in net income of 29.7% and an increase in diluted earnings per share of 30.2%. The extraordinary interest rate hikes undertaken by the Federal Open Market Committee (“FOMC”) to fend off inflation has led to a significant increase in interest income as most of the Bank’s loans are tied to the Prime rate.

Third quarter 2022 highlights:

• Return on average assets (“ROA”) of 2.25%
• Return on beginning equity (“ROBE”) of 23.60%
• Pre-provision, pre-tax (“PPPT”) ROBE of 34.59% ¹
• Efficiency ratio of 25.23%
• Linked quarter loan growth (Ex-PPP) of 2.1%
  

Li Yu, Chairman and CEO, commented, “We have posted another record quarter aided by the Fed’s interest rate hikes onto our very asset-sensitive balance sheet. Third quarter 2022 earnings were $35.2 million or $2.40 per diluted share, which is substantially higher than the prior quarter and Q3 of the prior year.

Loan growth for the quarter (Ex-PPP) was $104.5 million or 8.5% (annualized). Our pace of loan growth has slowed under the current interest rate environment.

Deposits grew very moderately at a 3.5% annualized pace. The increase in our cost of deposits was significantly less than that of loan rates, which resulted in margin expansion. Deposit rates have accelerated since September, and are projected to continue to increase during the fourth quarter.

Our credit quality remained stable during the quarter with classified loans continuing to decline. For the quarter we have made a provision for credit losses of $2.7 million. Combined with a loan loss recovery of $2.4 million, our allowance for loan and credit losses has increased $5.1 million from the previous quarter to 1.33% of total loans (Ex-PPP).

Preferred Bank’s operating costs (non-interest expense) have increased due to growth and inflation. But, because of the interest margin expansion, our efficiency ratio actually improved to 25.2%.

We recognize the macro economy is very likely heading into a recession. There are many uncertainties ahead so our focus now is credit quality and deposit costs. We have done well so far in this uncharted economic territory and we will continue to stay alert.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $66.8 million for the third quarter of 2022. This was a significant increase from the $47.8 million recorded in the same quarter last year and also up sharply over the $56.4 million posted in the second quarter of 2022. The FOMC rate hikes throughout the second and third quarters 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 significantly in terms of a percentage increase but in actual dollars, the increase was well behind that of interest income, leading to significant margin expansion. The taxable equivalent net interest margin rose 60 basis points on a linked quarter basis to 4.37% from the 3.77% last quarter. Comparing to the same quarter last year, the margin was up by 101 basis points over the 3.36% posted this quarter last year.

Noninterest Income. For the third quarter of 2022, noninterest income was $2.2 million compared with $2.6 million for the same quarter last year and compared to $2.8 million for the second quarter of 2022. The decrease compared to both periods is primarily due to lower LC fees. In comparison to the same quarter last year, service charges on deposits are up by $122,000 partially offsetting the decrease in LC fees.

Noninterest Expense. Total noninterest expense was $17.4 million for the third quarter of 2022. This is up compared to the $15.4 million recorded in the same quarter last year and an increase over the $17.1 million posted in the second quarter of 2022. Comparing this quarter to the third quarter of last year; personnel expense increased by $1.4 million or 12.9%, other real estate owned (“REO”) expense was $314,000 this quarter compared to $0 last year and business development and promotion increased by $116,000 this quarter. The personnel expense increase was mainly due to new hires and merit increases. Last year, the Bank did not own any OREO so this years’ expenses all were an increase. In comparing to the prior quarter; personnel expense was up by $638,000 or 5.5% from the second quarter of 2022, professional services was down by $299,000 due mainly to lower legal costs, and OREO expense decreased by $71,000 For the quarter ended September 30, 2022, the Bank’s efficiency ratio was 25.2%, easily beating the 29.0% posted last quarter and also down from the 30.4% recorded this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $13.7 million for the third quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and slightly below the ETR of 28.7% recorded in the same period last year and equal to the 28.0% ETR posted last quarter. 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, 2022 were $5.01 billion, an increase of $586 million or 13.2% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.46 billion, an increase of $230 million or 4.4% over the $5.23 billion as of December 31, 2021. Total assets ended the quarter at $6.29 billion, an increase of $247 million or 4.1% over the total of $6.05 billion as of December 31, 2021.

Asset Quality

As of September 30, 2022, nonaccrual loans totaled $6.2 million, down from the $10.6 million reported as of June 30, 2022 and down from the $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $26.1 million as of September 30, 2022, compared to $21.4 million as of June 30, 2022 and zero as of the end of 2021. Total net recoveries for the third quarter of 2022 were $2.4 million as compared to zero last quarter and compared to charge-offs of $1.0 million in the same quarter of 2021.

Allowance for Credit Losses

The provision for credit losses for the third quarter of 2022 was $2.7 million as compared to $2.9 million recorded last quarter and compared to a reversal of $1.5 million recorded in the third quarter of last year. Although credit quality remains very good, the prospects for a recession in the next 18 months necessitates a provision of $2.7 million this quarter. The Bank’s allowance coverage ratio now stands at 1.33% of total loans (excluding PPP loans).

Capitalization

As of September 30, 2022, the Bank’s leverage ratio was 9.95%, the common equity tier 1 capital ratio was 10.46% and the total capital ratio stood at 14.09%. 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 -Third quarter 2022 PPPT ROBE
Net Income	$	35,189
Add: Provision for credit losses		2,700
Add: Income tax expense		13,688
Pre-provision and pre-tax income	$	51,577
Total equity – 6/30/22	$	591,592
Pre-provision and pre-tax ROBE		34.59	%

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s third quarter 2022 financial results will be held tomorrow, October 20, 2022 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 November 3, 2022; the passcode is 5793025.

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.

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

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,
	2022				2022				2021
Interest income:
Loans, including fees	$	71,192			$	58,541			$	50,866
Investment securities		7,111				3,972				2,725
Fed funds sold		117				46				20
Total interest income		78,420				62,559				53,611
Interest expense:
Interest-bearing demand		6,436				2,448				1,486
Savings		19				20				3
Time certificates		3,850				2,342				3,045
Subordinated debt		1,325				1,325				1,324
Total interest expense		11,630				6,135				5,858
Net interest income		66,790				56,424				47,753
Provision for (reversal of) credit losses		2,700				2,900				(1,500	)
Net interest income after provision for (reversal of)
credit losses		64,090				53,524				49,253
Noninterest income:
Fees & service charges on deposit accounts		703				723				581
Letters of credit fee income		956				1,329				1,576
BOLI income		100				100				98
Net gain on called and sale of investment securities		-				-				41
Other income		428				449				488
Total noninterest income		2,187				2,601				2,784
Noninterest expense:
Salary and employee benefits		12,326				11,688				10,920
Net occupancy expense		1,452				1,441				1,430
Business development and promotion expense		214				176				98
Professional services		1,161				1,460				1,075
Office supplies and equipment expense		456				459				467
Other real estate owned expense		314				385				-
Other		1,477				1,531				1,380
Total noninterest expense		17,400				17,140				15,370
Income before provision for income taxes		48,877				38,985				36,667
Income tax expense		13,688				10,916				10,522
Net income	$	35,189			$	28,069			$	26,145
Dividend and earnings allocated to participating securities		-				-				(3	)
Net income available to common shareholders	$	35,189			$	28,069			$	26,142
Income per share available to common shareholders
Basic	$	2.44			$	1.90			$	1.76
Diluted	$	2.40			$	1.87			$	1.76
Weighted-average common shares outstanding
Basic		14,408,235				14,792,298				14,884,570
Diluted		14,644,452				15,006,801				14,884,570
Cash dividends per common share	$	0.43			$	0.43			$	0.38

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
	2022				2021				%
Interest income:
Loans, including fees	$	181,852			$	148,631			22.4	%
Investment securities		13,969				7,550			85.0	%
Fed funds sold		182				63			190.6	%
Total interest income		196,003				156,244			25.4	%
Interest expense:
Interest-bearing demand		10,315				4,453			131.7	%
Savings		58				40			46.4	%
Time certificates		8,409				10,290			-18.3	%
Subordinated debt		3,975				5,000			-20.5	%
Total interest expense		22,757				19,784			15.0	%
Net interest income		173,246				136,460			27.0	%
Provision for credit losses		5,350				(100	)		-5450.0	%
Net interest income after provision for credit losses		167,896				136,560			22.9	%
Noninterest income:
Fees & service charges on deposit accounts		2,097				1,532			36.9	%
Letters of credit fee income		3,218				3,195			0.7	%
BOLI income		299				292			2.6	%
Net gain on called and sale of investment securities		-				41			-100.0	%
Net loss on sale of loans		-				(640	)		-100.0	%
Other income		1,440				1,357			6.1	%
Total noninterest income		7,054				5,777			22.1	%
Noninterest expense:
Salary and employee benefits		35,654				32,328			10.3	%
Net occupancy expense		4,315				4,260			1.3	%
Business development and promotion expense		491				288			70.5	%
Professional services		3,864				3,052			26.6	%
Office supplies and equipment expense		1,404				1,381			1.7	%
Other real estate owned expense		715				-			100.0	%
Other		4,254				4,677			-9.0	%
Total noninterest expense		50,697				45,986			10.2	%
Income before provision for income taxes		124,253				96,351			29.0	%
Income tax expense		34,968				27,532			27.0	%
Net income	$	89,285			$	68,819			29.7	%
Dividend and earnings allocated to participating securities	$	(2	)		$	(8	)		-78.6	%
Net income available to common shareholders	$	89,283			$	68,811			29.8	%
Income per share available to common shareholders
Basic	$	6.09			$	4.61			32.2	%
Diluted	$	6.00			$	4.61			30.2	%
Weighted-average common shares outstanding
Basic		14,653,982				14,929,519			-1.8	%
Diluted		14,873,933				14,929,519			-0.4	%
Dividends per share	$	1.29			$	1.14			13.2	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
	September 30,				December 31,
	2022				2021
	(Unaudited)				(Audited)
Assets
Cash and due from banks	$	729,484			$	1,030,610
Fed funds sold		20,000				20,000
Cash and cash equivalents		749,484				1,050,610
Securities held to maturity, at amortized cost		12,442				13,962
Securities available-for-sale, at fair value		377,534				451,911
Loans		5,010,546				4,424,992
Less allowance for credit losses		(66,472	)			(59,969	)
Less amortized deferred loan fees, net		(9,695	)			(6,316	)
Loans, net		4,934,379				4,358,707
Other real estate owned and repossessed assets		26,075				-
Customers' liability on acceptances		10,058				10,188
Bank furniture and fixtures, net		9,377				10,533
Bank-owned life insurance		10,289				10,088
Accrued interest receivable		19,008				14,646
Investment in affordable housing partnerships		62,745				59,018
Federal Home Loan Bank stock, at cost		15,000				15,000
Deferred tax assets		41,530				26,674
Operating lease right-of-use assets		21,994				21,969
Other assets		2,928				2,997
Total assets	$	6,292,843			$	6,046,303
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits	$	1,341,199			$	1,305,692
Interest-bearing deposits:		2,263,775				2,032,819
Savings		38,151				37,839
Time certificates of $250,000 or more		971,378				934,444
Other time certificates		841,173				914,717
Total deposits		5,455,676				5,225,511
Acceptances outstanding		10,058				10,188
Subordinated debt issuance, net		147,936				147,758
Commitments to fund investment in affordable housing partnerships		28,611				22,606
Operating lease liabilities		21,692				22,861
Accrued interest payable		2,170				715
Other liabilities		36,147				29,946
Total liabilities		5,702,290				5,459,585
Shareholders' equity		590,553				586,718
Total liabilities and shareholders' equity	$	6,292,843			$	6,046,303
Book value per common share	$	41.13			$	39.97
Number of common shares outstanding		14,356,708				14,679,769

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,
	2022				2022				2022				2021				2021
Unaudited historical quarterly operations data:
Interest income	$	78,420			$	62,559			$	55,024			$	54,791			$	53,611
Interest expense		11,630				6,135				4,992				5,374				5,858
Interest income before provision for credit losses		66,790				56,424				50,032				49,417				47,753
Provision (reversal of) for credit losses		2,700				2,900				(250	)			(900	)			(1,500	)
Noninterest income		2,187				2,601				2,266				1,966				2,784
Noninterest expense		17,400				17,140				16,157				14,806				15,370
Income tax expense		13,688				10,916				10,364				11,056				10,522
Net income	$	35,189			$	28,069			$	26,027			$	26,421			$	26,145
Earnings per share
Basic	$	2.44			$	1.90			$	1.76			$	1.80			$	1.76
Diluted	$	2.40			$	1.87			$	1.74			$	1.80			$	1.76
Ratios for the period:
Return on average assets		2.25	%			1.84	%			1.75	%			1.72	%			1.80	%
Return on beginning equity		23.60	%			18.91	%			17.99	%			18.65	%			18.56	%
Net interest margin (Fully-taxable equivalent)		4.37	%			3.77	%			3.42	%			3.28	%			3.36	%
Noninterest expense to average assets		1.11	%			1.12	%			1.08	%			0.97	%			1.06	%
Efficiency ratio		25.23	%			29.04	%			30.89	%			28.82	%			30.41	%
Net charge-offs (recoveries) to average loans (annualized)		-0.19	%			0.00	%			0.11	%			0.03	%			0.10	%
Ratios as of period end:
Tier 1 leverage capital ratio		9.95	%			9.92	%			9.92	%			9.54	%			9.64	%
Common equity tier 1 risk-based capital ratio		10.46	%			10.61	%			11.20	%			11.26	%			11.19	%
Tier 1 risk-based capital ratio		10.46	%			10.61	%			11.20	%			11.26	%			11.19	%
Total risk-based capital ratio		14.09	%			14.31	%			15.12	%			15.37	%			15.47	%
Allowances for credit losses to loans at end of period		1.33	%			1.25	%			1.27	%			1.36	%			1.41	%
Allowance for credit losses to non-performing loans		10.75	x			5.27	x			27.15	x			4.05	x			2.93	x
Average balances:
Total securities	$	410,649			$	430,203			$	455,899			$	470,811			$	401,641
Total loans		4,908,870				4,777,353				4,367,095				4,218,699				4,156,289
Total earning assets		6,076,616				6,008,024				5,938,519				5,984,055				5,659,678
Total assets		6,215,184				6,133,703				6,044,155				6,079,934				5,760,056
Total time certificate of deposits		1,749,257				1,810,886				1,869,654				1,915,116				1,959,514
Total interest bearing deposits		3,973,105				3,982,888				3,947,616				3,945,275				3,783,704
Total deposits		5,373,252				5,301,370				5,215,810				5,277,507				4,971,607
Total interest bearing liabilities		4,121,005				4,130,729				4,095,399				4,093,002				3,931,375
Total equity		598,188				606,260				597,214				576,495				569,624

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	For the Nine Months Ended
	September 30,				September 30,
	2022				2021
Interest income	$	196,003			$	156,244
Interest expense		22,757				19,784
Interest income before provision for credit losses		173,246				136,460
Provision (reversal of) for credit losses		5,350				(100	)
Non-interest income		7,054				5,777
Non-interest expense		50,697				45,986
Income tax expense		34,968				27,532
Net income	$	89,285			$	68,819
Earnings per share
Basic	$	6.09			$	4.61
Diluted	$	6.00			$	4.61
Ratios for the period:
Return on average assets		1.95	%			1.68	%
Return on beginning equity		20.35	%			17.51	%
Net interest margin (Fully-taxable equivalent)		3.86	%			2.54	%
Non-interest expense to average assets		1.11	%			1.12	%
Efficiency ratio		28.12	%			32.33	%
Net charge-offs (recoveries) to average loans		-0.03	%			0.07	%
Average balances:
Total securities	$	432,085			$	304,865
Total loans		4,686,424				4,110,835
Total earning assets		6,023,091				5,377,565
Total assets		6,131,640				5,477,989
Total time certificate of deposits		1,809,492				1,891,583
Total interest-bearing deposits		3,967,963				3,674,201
Total deposits		5,297,387				4,729,147
Total interest-bearing liabilities		4,115,805				3,793,782
Total equity		600,558				553,937

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
	As of
	September 30,				June 30,				March 31,				December 31,				September 30,
	2022				2022				2022				2021				2021
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents	$	749,484			$	768,658			$	985,162			$	1,050,610			$	1,082,634
Securities held-to-maturity, at amortized cost		12,442				12,784				13,496				13,962				15,294
Securities available-for-sale, at fair value		377,534				400,597				430,280				451,911				461,356
Loans:
Real estate – Mortgage:
Real estate—Residential	$	587,812			$	581,412			$	539,614			$	536,286			$	540,725
Real estate—Commercial		2,693,852				2,583,484				2,367,862				2,267,063				2,093,692
Total Real Estate – Mortgage		3,281,664				3,164,896				2,907,476				2,803,349				2,634,417
Real estate – Construction:
R/E Construction — Residential		179,955				168,420				141,218				130,842				122,382
R/E Construction — Commercial		188,083				203,217				209,726				202,482				213,833
Total real estate construction loans		368,038				371,637				350,944				333,324				336,215
Commercial and industrial		1,330,028				1,336,631				1,281,559				1,245,734				1,274,847
PPP		8,067				22,186				32,554				42,467				63,897
Trade finance		22,634				24,663				18,919				11,309				12,148
Consumer and others		115				128				115				118				6
Gross loans		5,010,546				4,920,141				4,591,567				4,424,992				4,321,529
Allowance for credit losses on loans		(66,472	)			(61,396	)			(58,496	)			(59,969	)			(61,135	)
Net deferred loan fees		(9,695	)			(9,525	)			(8,573	)			(6,316	)			(5,498	)
Net loans	$	4,934,379			$	4,849,220			$	4,524,498			$	4,358,707			$	4,254,896
Other real estate owned and repossessed assets	$	26,075			$	21,449			$	15,547			$	-			$	-
Investment in affordable housing partnerships		62,745				54,874				56,946				59,018				53,399
Federal Home Loan Bank stock, at cost		15,000				15,000				15,000				15,000				15,000
Other assets		115,184				110,459				101,427				97,095				97,261
Total assets	$	6,292,843			$	6,233,041			$	6,142,356			$	6,046,303			$	5,979,840
Liabilities:
Deposits:
Demand	$	1,341,199			$	1,385,934			$	1,251,613			$	1,305,692			$	1,349,114
Interest-bearing demand		2,263,775				2,239,501				2,159,178				2,032,819				1,861,334
Savings		38,151				39,784				39,946				37,839				33,417
Time certificates of $250,000 or more		971,378				870,376				924,317				934,444				959,826
Other time certificates		841,173				872,357				934,615				914,717				990,228
Total deposits	$	5,455,676			$	5,407,952			$	5,309,669			$	5,225,511			$	5,193,919
Acceptances outstanding	$	10,058			$	11,053			$	8,222			$	10,188			$	7,697
Subordinated debt issuance, net		147,936				147,877				147,818				147,758				147,699
Commitments to fund investment in affordable housing partnerships		28,611				20,036				22,606				22,606				17,900
Other liabilities		60,009				54,531				58,756				53,522				50,604
Total liabilities	$	5,702,290			$	5,641,449			$	5,547,071			$	5,459,585			$	5,417,819
Equity:
Net common stock, no par value	$	180,324			$	197,997			$	209,065			$	208,840			$	203,844
Retained earnings		443,409				414,393				392,610				372,952				352,843
Accumulated other comprehensive income		(33,180	)			(20,798	)			(6,390	)			4,926				5,334
Total shareholders' equity	$	590,553			$	591,592			$	595,285			$	586,718			$	562,021
Total liabilities and shareholders' equity	$	6,292,843			$	6,233,041			$	6,142,356			$	6,046,303			$	5,979,840

PREFERRED BANK
Quarter-to-Date Average Balances, Yield and Rates
(Unaudited)
	Three months ended Sept 30,									Three months ended June 30,									Three months ended Sept 30,
	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)	$	4,908,870			71,192		5.75	%		$	4,777,353		$	58,541		4.92	%			4,156,289		$	50,866		4.86	%
Investment securities (3)		410,649			2,995		2.89	%			430,203			2,370		2.21	%			401,641			2,163		2.14	%
Federal funds sold		20,071			117		2.30	%			20,088			46		0.92	%			21,837			20		0.36	%
Other earning assets		737,026			4,221		2.27	%			780,380			1,708		0.88	%			1,079,911			679		0.25	%
Total interest-earning assets		6,076,616			78,525		5.13	%			6,008,024			62,665		4.18	%			5,659,678			53,728		3.77	%
Deferred loan fees, net		(9,333	)								(9,084	)								(5,176	)
Allowance for credit losses on loans		(61,477	)								(58,568	)								(63,608	)
Non-interest earning assets:
Cash and due from banks		10,562									11,363									14,457
Bank furniture and fixtures		9,615									10,028									11,123
Right of use assets		21,404									21,287									21,136
Other assets		167,797									150,653									122,446
Total assets	$	6,215,184								$	6,133,703								$	5,760,056
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings		2,223,848		$	6,455		1.15	%			2,172,002		$	2,468		0.46	%		$	1,824,190		$	1,489		0.32	%
TCD $250K or more		914,373			2,517		1.09	%			892,410			1,211		0.54	%			964,656			1,542		0.63	%
Other time certificates		834,884			1,333		0.63	%			918,476			1,131		0.49	%			994,858			1,503		0.60	%
Total interest-bearing deposits		3,973,105			10,305		1.03	%			3,982,888			4,810		0.48	%			3,783,704			4,534		0.48	%
Subordinated debt, net		147,900			1,325		3.56	%			147,841			1,325		3.59	%			147,671			1,324		3.56	%
Total interest-bearing liabilities		4,121,005			11,630		1.12	%			4,130,729			6,135		0.60	%			3,931,375			5,858		0.59	%
Non-interest bearing liabilities:
Demand deposits		1,400,147									1,318,482									1,187,903
Lease Liability		21,332									21,602									22,747
Other liabilities		74,512									56,630									48,407
Total liabilities		5,616,996									5,527,443									5,190,432
Shareholders’ equity		598,188									606,260									569,624
Total liabilities and shareholders’ equity	$	6,215,184								$	6,133,703								$	5,760,056
Net interest income				$	66,895								$	56,530								$	47,870
Net interest spread							4.01	%								3.59	%								3.18	%
Net interest margin							4.37	%								3.77	%								3.36	%
Cost of Deposits:
Non-interest bearing demand deposits	$	1,400,147								$	1,318,482								$	1,187,903
Interest-bearing deposits		3,973,105			10,305		1.03	%			3,982,888			4,810		0.48	%			3,783,704			4,534		0.48	%
Total Deposits	$	5,373,252		$	10,305		0.76	%		$	5,301,370		$	4,810		0.36	%		$	4,971,607		$	4,534		0.36	%

________________________________________
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $1.2 million, $887,000 and $823,000 for the quarter ended September 30, 2022, June 30, 2022, and September 30, 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)
	Nine months ended September 30,
	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)	$	4,686,424		$	181,852		5.19	%		$	4,111,596		$	148,631		4.83	%
Investment securities (3)		432,085			11,706		3.62	%			304,865			6,104		2.68	%
Federal funds sold		20,093			182		1.21	%			21,251			63		0.39	%
Other earning assets		869,489			2,478		0.38	%			939,853			1,769		0.25	%
Total interest-earning assets		6,008,091			196,218		4.37	%			5,377,565			156,567		3.89	%
Deferred loan fees, net		(8,257	)								(4,818	)
Allowance for credit losses on loans		(60,004	)								(63,967	)
Non-interest earning assets:
Cash and due from banks		11,167									11,683
Bank furniture and fixtures		10,024									11,452
Right of use assets		21,480									19,255
Other assets		149,139									126,819
Total assets	$	6,131,640								$	5,477,989
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand/ savings		2,158,471		$	10,373		0.64	%			1,782,618		$	4,493		0.34	%
TCD $250K or more		911,931			4,755		0.70	%			936,825			5,148		0.73	%
Other time certificates		897,561			3,654		0.54	%			954,758			5,143		0.72	%
Total interest-bearing deposits		3,967,963			18,782		0.63	%			3,674,201			14,784		0.54	%
Subordinated debt, net		147,842			3,975		3.59	%			119,581			5,000		5.59	%
Total interest-bearing liabilities		4,115,805			22,757		0.74	%			3,793,782			19,784		0.70	%
Non-interest bearing liabilities:
Demand deposits		1,329,424									1,054,946
Lease Liability		21,795									21,280
Other liabilities		64,058									54,044
Total liabilities		5,531,082									4,924,052
Shareholders’ equity		600,558									553,937
Total liabilities and shareholders’ equity	$	6,131,640								$	5,477,989
Net interest income				$	173,461								$	136,783
Net interest spread							3.63	%								3.20	%
Net interest margin							3.86	%								3.40	%
Cost of Deposits:
Non-interest bearing demand deposits	$	1,329,424								$	1,054,946
Interest-bearing deposits		3,967,963			18,782		0.63	%			3,674,201			14,784		0.54	%
Total Deposits	$	5,297,387		$	18,782		0.47	%		$	4,729,147		$	14,784		0.42	%

________________________________________
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $2.9 million and $2.0 million for the nine months ended September 30, 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
	Nine Months Ended				Year Ended
	September 30, 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:		5,350				(1,000	)
Balance at End of Period	$	66,472			$	59,969
Average Loans Held for Investment	$	4,686,424			$	4,138,023
Loans Held for Investment at End of Period	$	5,010,546			$	4,424,992
Net Charge-Offs (recoveries) to Average Loans		-0.03	%			0.06	%
Allowances for Credit Losses to Loans at End of Period		1.33	%			1.36	%

---

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

FAQ

What were Preferred Bank's earnings for Q3 2022?

Preferred Bank reported earnings of $35.2 million, or $2.40 per diluted share for Q3 2022.

How did PFBC perform compared to last year?

PFBC's net income increased by 34.6% compared to Q3 2021.

What drove the increase in Preferred Bank's net interest income?

The increase was primarily driven by the Federal interest rate hikes affecting the Bank's loan portfolio.

What is the outlook for Preferred Bank in light of recent economic changes?

The Bank acknowledges potential recession risks and is focusing on credit quality and managing deposit costs.

What was the efficiency ratio for Preferred Bank in Q3 2022?

The efficiency ratio improved to 25.2% in Q3 2022.