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Jan. 25, 2021, 4:13 p.m. EST

Preferred Bank Reports Quarterly Earnings

LOS ANGELES, Jan 25, 2021 (GLOBE NEWSWIRE via COMTEX) -- LOS ANGELES, Jan. 25, 2021 (GLOBE NEWSWIRE) -- Preferred Bank /zigman2/quotes/210374414/composite PFBC -0.17% , an independent commercial bank, today reported results for the quarter ended December 31, 2020. Preferred Bank ("the Bank") reported net income of $20.9 million or $1.40 per diluted share for the fourth quarter of 2020. This is up from net income of $19.6 million or $1.31 per diluted share for the fourth quarter of 2019 and easily tops recorded net income of $17.1 million or $1.15 per diluted share for the third quarter of 2020. The primary reason for the increase compared to the prior year is a 14.0% increase in net interest income partially offset by a larger provision for credit losses in the current quarter. On a linked quarter basis, net income increased due to a smaller provision for credit losses in the current quarter ($4.2 million vs $9.0 million) as well as a $1.9 million increase in net interest income.

Li Yu, Chairman and CEO, commented, "I am pleased to report that Preferred Bank posted record quarterly earnings per share of $1.40. On a pre-provision, pre-tax ("PPPT") basis, 2020 was also a record year for earnings for Preferred Bank. Following are the highlights for the quarter and the year:

  • Net income of $1.40 (Q4) and $4.65 (Year)

  • Return on assets ("ROA") of 1.63% (Q4) and 1.41% (Year)

  • Return on beginning equity ("ROE") of 16.49% (Q4) and 14.78% (Year)

  • PPPT return on beginning equity of 26.25% (Q4) and 24.76% (Year)

  • Loan growth of 2.3% (Q4) and 6.4% (Year) excluding PPP

  • Deposit growth of 0.6% (Q4) and 11.5% (Year)

  • Net interest margin of 3.66% (Q4) and 3.62% (Year)

  • Efficiency ratio of 29.9% (Q4) and 31.8% (Year)

"Fourth quarter net interest income and net interest margin were enhanced by interest recorded on a purchased credit deteriorated ("PCD") loan of $473,000 and by $499,000 in fees received on loans made through the Main Street Lending Program ("MSLP"). Both of these items are nonrecurring. The net interest margin was 3.66% for the quarter and without these two items, the margin would have been 3.58%. During the quarter, reductions in overall interest costs outpaced a modest decline in loan yields. The quarterly results were also negatively impacted by a loss on sales of securities of $663,000.

"Loan growth in the fourth quarter was $85.7 million or 2.2% and although moderate by our standards, it was very encouraging under the current economic conditions as our clients seem to be more optimistic on the future of the nation's economy. Deposits grew mildly at $28.1 million or 0.6%. Liquidity of the Bank remains strong.

"Preferred Bank's credit posture improved during the quarter, specifically at December 31, 2020:

  • Loans on deferment declined to $28 million from a peak of $610 million

  • Total nonaccrual loans declined to $20.5 million

  • Loans 30-89 days past due were $4.1 million

  • Total classified loans were $54.7 million

"At December 31, 2020, the Bank's allowance for credit losses were 1.60% of total loans, excluding PPP loans.

"We remain conscientious of controlling the Bank's overhead. Our fourth quarter efficiency ratio came in again at 29.9%, same as the prior quarter. For the year, our profitability greatly exceeded our internal forecast. With the vaccine becoming available and with the prospects for more government stimulus to help those so much in need, our outlook for 2021 is very positive."

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $46.1 million for the fourth quarter of 2020. This is an increase over the $40.4 million recorded in the fourth quarter of 2019 as well as the $44.1 million recorded in the third quarter of 2020. The increase over both periods is due to growth in average total loans as well as declining deposit costs. The Bank's taxable equivalent net interest margin was 3.66% for the fourth quarter of 2020, nearly flat compared to the 3.67% achieved in the fourth quarter of 2019 and a 12 basis point increase from the 3.54% posted in the third quarter of 2020. The Bank was the beneficiary during the fourth quarter of a onetime loan fee on a Main Street Lending Program ("MSLP") as well as interest recorded on a PCD loan. These two items totaled $972,000 and had the effect of increasing the margin by 8 basis points for the quarter. The Bank also continues to benefit from lower deposit costs as the Bank's total cost of deposits went from 0.64% in the third quarter down to 0.54% in the fourth quarter. Total deposit interest expense is down by more than half, or 55% from the same period last year.

Noninterest Income. For the fourth quarter of 2020, noninterest income was $1,356,000 compared with $1,883,000 for the same quarter last year and compared to $1,605,000 for the third quarter of 2020. The decrease compared to both periods is mainly due to a loss on investment securities in the current quarter of $663,000. Partially offsetting this loss when compared to the prior quarter was an increase in LC fee income of $314,000. Service charges on deposits continue to grow as the comparison to both prior periods was positive.

Noninterest Expense. Total noninterest expense was $14.2 million for the fourth quarter of 2020. This is up compared to the $13.8 million recorded in the same quarter last year and is also up from the $13.7 million posted in the third quarter of 2020. Salaries and benefits expense totaled $9.4 million for the fourth quarter of 2020, a decrease of $306,000 from the fourth quarter of 2019 but an increase of $314,000 from the third quarter of 2020. The variances to each of the comparable periods were fairly small and were centered in various salary categories and capitalized loan salary costs. Business development and promotion was $204,000 for the quarter, an increase over the third quarter of 2020 due to year-end donations. Occupancy expense totaled $1.4 million for the quarter which represented a small decrease from the $1.5 million recorded in third quarter of 2020 and flat compared to the same period last year. Professional services expense was $1.1 million for the fourth quarter of 2020 which was an increase of $110,000 over the $974,000 recorded in the third quarter of 2020 and was up by $250,000 over the same quarter of 2019. In both instances, legal fees were the primary driver of the increase due to the two nonperforming loans. Other expenses were $1.6 million for the fourth quarter of 2020, an increase of $510,000 over the same period last year and flat compared to the third quarter of 2020. The increase over the prior year was due to FDIC insurance premiums of which there were none in the fourth quarter of 2019 compared to $660,000 in the fourth quarter of 2020. For the quarter ended December 31, 2020, the Bank's efficiency ratio again was 29.9%, matching that of the third quarter of 2020.

Income Taxes. The Bank recorded a provision for income taxes of $8.2 million for the fourth quarter of 2020. This represents an effective tax rate ("ETR") of 28.1% and a decrease from the ETR of 30.1% for the same quarter last year but up from the 25.7% recorded in the third 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 December 31, 2020 were $4.04 billion, an increase of $310.5 million or 8.3% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.44 billion, an increase of $459.2 million or 11.5% over the $3.98 billion as of December 31, 2019. Total assets ended the quarter at $5.14 billion, an increase of $512.9 million or 11.1% 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 December 31, 2020:

Category Loan Count Total Balance(000's) % of Loan Balance Average LTV Average DCR
Cash Secured 75 26,515 0.66% N/A N/A
Commercial 1,720 1,117,444 27.69% N/A N/A
International 47 22,071 0.55% N/A N/A
Construction - 1-4 Residential 46 148,825 3.69% 49.9% N/A
Construction - Commercial 42 215,032 5.33% 57.3% N/A
Real Estate - 1-4 Residential 163 251,436 6.23% 57.0% 1.72
Real Estate - Industrial 110 285,217 7.07% 54.0% 1.66
Real Estate - Multifamily 72 303,841 7.53% 58.1% 1.25
Real Estate - Office 69 319,168 7.91% 57.4% 1.67
Real Estate - Retail 120 422,989 10.48% 58.9% 1.58
Real Estate - Special Purpose 81 579,734 14.37% 53.2% 1.55
Real Estate - Vacant Land 3 7,295 0.18% 48.5% N/A
PPP 193 70,234 1.74% N/A N/A
HELOC 5 1,086 0.03% 37.1% N/A
Residential Mortgage 403 264,507 6.55% 59.5% % (DTI)
Total 3,149 4,035,394 100.00%

Asset Quality
As of December 31, 2020, nonaccrual loans totaled $20.5 million, down from the $25.2 million reported as of September 30, 2020 and but an increase over the $2.1 million reported at December 31, 2019. The decrease from the prior quarter was due to a combination of the payoff/resolution of approximately $2.6 million of nonaccrual loans and charge-offs totaling $2.0 million. Total net charge-offs for the fourth quarter of 2020 were $2.0 million compared to $3.5 million in the third quarter of 2020 and to net recoveries of $99,000 in the fourth quarter of 2019.

COVID - 19 Relief Modifications
Below is a breakdown of loans that are in some form of payment deferment by segment at December 31, 2020:

Loan Type Total in Deferral12/31/20 % of TotalPortfolio WeightedAverage LTV
Commercial and Industrial $ 1,330 0.1 % N/A
Office - 0.0 % 57.4 %
Industrial 11,829 4.1 % 54.0 %
Retail 2,538 0.6 % 58.9 %
Multi-Family - 0.0 % 58.1 %
1-4 Family (Inv) 9,135 3.6 % 57.0 %
Restaurant 1,453 6.3 % 47.4 %
Special Purpose / Hotel - 0.0 % 55.3 %
Special Purpose / Other 342 0.2 % 49.5 %
Construction / AD - 0.0 %
Residential Mortgage 1,325 0.5 % 59.5 %
Grand Total $ 27,952 0.7 %

At December 31, 2020, total dollar amount of loans in deferral were equal to 0.7% of the Bank's loan portfolio. Of the total modifications at present, approximately 63% are for the deferral of principal only and 37% are for principal and interest deferral.

Allowance for Credit LossesDue primarily to the ongoing partial economic shutdown and uncertainty regarding future economic activity, the provision for credit losses remains elevated over more normal economic times. The provision for the fourth quarter was $4.2 million compared to $450,000 for the same period last year and to $9.0 million for the third quarter of 2020. In the first quarter of 2020, the Bank implemented the current expected credit losses ("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 totaling 1.60% of total non-PPP loans as of December 31, 2020.

Capitalization
As of December 31, 2020, the Bank's leverage ratio was 10.03%, the common equity tier 1 capital ratio was 11.15% and the total capital ratio was 14.59%. 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 fourth quarter 2020 financial results will be held tomorrow, January 26, 2021 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, 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 9, 2021; the passcode is 10151566.

About Preferred BankPreferred 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





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,
2020 2020 2019
Interest income:
Loans, including fees $ 51,299 $ 50,417 $ 51,052
Investment securities 2,320 2,335 4,269
Fed funds sold 30 30 162
Total interest income 53,649 52,782 55,483
Interest expense:
Interest-bearing demand 1,499 1,432 3,490
Savings 21 20 16
Time certificates 4,534 5,681 10,038
Subordinated debit 1,532 1,530 1,530
Total interest expense 7,586 8,663 15,074
Net interest income 46,063 44,119 40,409
Provision for credit losses 4,200 9,000 450
Net interest income after provision for
credit losses 41,863 35,119 39,959
Noninterest income:
Fees & service charges on deposit accounts 456 428 392
Letters of credit fee income 1,004 690 806
BOLI income 96 96 93
Net gain (loss) on called and sale of investment securities (663 ) 15 -
Other income 463 376 592
Total noninterest income 1,356 1,605 1,883
Noninterest expense:
Salary and employee benefits 9,440 9,126 9,746
Net occupancy expense 1,378 1,455 1,374
Business development and promotion expense 204 95 258
Professional services 1,084 974 834
Office supplies and equipment expense 454 443 448
Net loss on sale of other real estate owned and expense - 3 3
Other 1,617 1,567 1,107
Total noninterest expense 14,177 13,663 13,770
Income before provision for income taxes 29,042 23,061 28,072
Income tax expense 8,162 5,936 8,456
Net income $ 20,880 $ 17,125 $ 19,616
Dividend and earnings allocated to participating securities (42 ) (53 ) (164 )
Net income available to common shareholders $ 20,838 $ 17,072 $ 19,452
Income per share available to common shareholders
Basic $ 1.40 $ 1.15 $ 1.31
Diluted $ 1.40 $ 1.15 $ 1.31
Weighted-average common shares outstanding
Basic 14,895,925 14,893,774 14,836,374
Diluted 14,895,925 14,893,774 14,836,374
Cash dividends per common share $ 0.30 $ 0.30 $ 0.30



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
2020 2019 %
Interest income:
Loans, including fees $ 203,093 $ 207,218 -2.0 %
Investment securities 10,954 18,542 -40.9 %
Fed funds sold 215 961 -77.6 %
Total interest income 214,262 226,721 -5.5 %
Interest expense:
Interest-bearing demand 7,761 17,956 -56.8 %
Savings 72 55 31.7 %
Time certificates 26,151 37,932 -31.1 %
FHLB borrowings 0 19 -100.0 %
Subordinated debit 6,124 6,123 0.0 %
Total interest expense 40,108 62,084 -35.4 %
Net interest income 174,154 164,637 5.8 %
Provision for credit losses 26,000 3,450 653.6 %
Net interest income after provision for
credit losses 148,154 161,187 -8.1 %
Noninterest income:
Fees & service charges on deposit accounts 1,627 1,579 3.1 %
Letters of credit fee income 3,284 3,821 -14.1 %
BOLI income 381 370 3.0 %
Net loss on called and sale of investment securities (761 ) - -100.0 %
Other income 1,532 1,696 -9.7 %
Total noninterest income 6,063 7,466 -18.8 %
Noninterest expense:
Salary and employee benefits 39,563 38,807 1.9 %
Net occupancy expense 5,525 5,121 7.9 %
Business development and promotion expense 564 840 -32.9 %
Professional services 4,078 4,417 -7.7 %
Office supplies and equipment expense 1,845 1,853 -0.4 %
Net loss on sale of other real estate owned and expense 6 1,220 -99.5 %
Other 5,777 4,989 15.8 %
Total noninterest expense 57,358 57,247 0.2 %
Income before provision for income taxes 96,859 111,406 -13.1 %
Income tax expense 27,391 33,035 -17.1 %
Net income $ 69,468 $ 78,371 -11.4 %
Dividend and earnings allocated to participating securities (194 ) (666 ) -70.8 %
Net income available to common shareholders $ 69,274 $ 77,705 -10.9 %
Income per share available to common shareholders
Basic $ 4.65 $ 5.16 -9.8 %
Diluted $ 4.65 $ 5.16 -9.8 %
Weighted-average common shares outstanding
Basic 14,885,230 15,060,476 -1.2 %
Diluted 14,885,230 15,060,476 -1.2 %
Dividends per share $ 1.20 $ 1.20 0.0 %



PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
December 31, December 31,
2020 2019
(Unaudited) (Audited)
Assets
Cash and due from banks $ 739,465 $ 498,645
Fed funds sold 20,000 37,000
Cash and cash equivalents 759,465 535,645
Securities held to maturity, at amortized cost 6,568 7,310
Securities available-for-sale, at fair value 239,682 240,640
Loans 4,035,394 3,724,922
Less allowance for credit losses (63,426 ) (34,830 )
Amortized deferred loan fees, net (4,574 ) (3,028 )
Loans, net 3,967,394 3,687,064
Customers' liability on acceptances 3,596 7,379
Bank furniture and fixtures, net 11,825 12,236
Bank-owned life insurance 9,828 9,571
Accrued interest receivable 23,692 14,961
Investment in affordable housing 62,521 53,142
Federal Home Loan Bank stock 15,000 13,101
Deferred tax assets 20,730 19,560
Income tax receivable 1,454 3,368
Operating lease right-of-use assets 16,106 17,103
Other assets 3,499 7,401
Total assets $ 5,141,360 $ 4,628,481
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 938,911 $ 835,790
Interest-bearing deposits: 1,700,818 1,328,863
Savings 34,702 23,784
Time certificates of $250,000 or more 912,546 976,727
Other time certificates 855,503 818,130
Total deposits 4,442,480 3,983,294
Acceptances outstanding 3,596 7,379
Subordinated debt issuance 99,334 99,211
Commitments to fund investment in affordable housing partnership 30,715 24,149
Operating lease liabilities 18,682 20,497
Accrued interest payable 1,245 3,324
Other liabilities 22,556 20,612
Total liabilities 4,618,608 4,158,466
Shareholders' equity 522,752 470,015
Total liabilities and shareholders' equity $ 5,141,360 $ 4,628,481
Book value per common share $ 35.01 $ 31.47
Number of common shares outstanding 14,931,861 14,933,768



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,
2020 2020 2020 2020 2019
Unaudited historical quarterly operations data:
Interest income $ 53,649 $ 52,782 $ 52,164 $ 55,667 $ 55,483
Interest expense 7,586 8,663 9,983 13,876 15,074
Interest income before provision for credit losses 46,063 44,119 42,181 41,791 40,409
Provision for credit losses 4,200 9,000 7,500 5,300 450
Noninterest income 1,356 1,605 1,430 1,672 1,883
Noninterest expense 14,177 13,663 14,334 15,184 13,770
Income tax expense 8,162 5,936 6,468 6,825 8,456
Net income $ 20,880 $ 17,125 $ 15,309 $ 16,154 $ 19,616
Earnings per share
Basic $ 1.40 $ 1.15 $ 1.03 $ 1.08 $ 1.31
Diluted $ 1.40 $ 1.15 $ 1.03 $ 1.08 $ 1.31
Ratios for the period:
Return on average assets 1.63 % 1.34 % 1.26 % 1.40 % 1.74 %
Return on beginning equity 16.49 % 13.94 % 13.00 % 13.82 % 16.95 %
Pre-provision and pre-tax return on beginning equity 26.25 % 26.10 % 24.85 % 24.20 % 24.65 %
Net interest margin (Fully-taxable equivalent) 3.66 % 3.54 % 3.57 % 3.70 % 3.67 %
Noninterest expense to average assets 1.10 % 1.07 % 1.18 % 1.31 % 1.22 %
Efficiency ratio 29.90 % 29.88 % 32.87 % 34.93 % 32.56 %
Net charge-offs (recoveries) to average loans (annualized) 0.20 % 0.35 % -0.01 % 0.00 % -0.01 %
Ratios as of period end:
Tier 1 leverage capital ratio 10.03 % 9.75 % 9.87 % 10.05 % 10.32 %
Common equity tier 1 risk-based capital ratio 11.15 % 11.02 % 10.39 % 10.80 % 10.57 %
Tier 1 risk-based capital ratio 11.15 % 11.02 % 10.39 % 10.80 % 10.57 %
Total risk-based capital ratio 14.59 % 14.51 % 13.80 % 14.26 % 13.70 %
Allowances for credit losses to loans and leases at end of period 1.57 % 1.55 % 1.41 % 1.24 % 0.94 %
Allowance for credit losses to non-performing loans and leases 308.96 % 243.56 % 211.08 % 2263.66 % 1631.42 %
Average balances:
Total securities $ 251,284 $ 237,801 $ 250,134 $ 247,689 $ 248,904
Total loans $ 3,971,537 $ 3,956,145 $ 3,919,674 $ 3,717,175 $ 3,613,400
Total earning assets $ 5,018,031 $ 4,975,005 $ 4,768,537 $ 4,548,512 $ 4,381,206
Total assets $ 5,110,041 $ 5,073,548 $ 4,868,356 $ 4,651,956 $ 4,482,210
Total time certificate of deposits $ 1,764,528 $ 1,841,901 $ 1,757,531 $ 1,765,816 $ 1,756,480
Total interest bearing deposits $ 3,508,276 $ 3,501,275 $ 3,399,924 $ 3,244,711 $ 3,050,318
Total deposits $ 4,426,326 $ 4,408,882 $ 4,220,197 $ 4,010,629 $ 3,849,825
Total interest bearing liabilities $ 3,607,592 $ 3,600,560 $ 3,499,178 $ 3,343,933 $ 3,149,511
Total equity $ 518,538 $ 503,421 $ 486,931 $ 475,409 $ 463,880



PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Year Ended
December 31,
December 31,
2020 2019
Interest income $ 214,262 $ 226,721
Interest expense 40,108 62,084
Interest income before provision for credit losses 174,154 164,637
Provision for credit losses 26,000 3,450
Noninterest income 6,063 7,466
Noninterest expense 57,358 57,247
Income tax expense 27,391 33,035
Net income $ 69,468 $ 78,371
Earnings per share
Basic $ 4.65 $ 5.16
Diluted $ 4.65 $ 5.16
Ratios for the period:
Return on average assets 1.41 % 1.82 %
Return on beginning equity 14.78 % 18.81 %
Pre-provision and pre-tax return on beginning equity 24.76 % 27.57 %
Net interest margin (Fully-taxable equivalent) 3.62 % 3.92 %
Noninterest expense to average assets 1.16 % 1.33 %
Efficiency ratio 31.83 % 33.26 %
Net recoverie to average loans 0.14 % -0.01 %
Average balances:
Total securities $ 246,715 $ 232,537
Total loans $ 3,891,530 $ 3,482,218
Total earning assets $ 4,828,445 $ 4,213,271
Total assets $ 4,926,881 $ 4,315,174
Total time certificate of deposits $ 1,782,558 $ 1,639,829
Total interest bearing deposits $ 3,414,045 $ 2,975,666
Total deposits $ 4,267,334 $ 3,701,732
Total interest bearing liabilities $ 3,513,315 $ 3,075,331
Total equity $ 496,156 $ 449,520



PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
As of
December 31, September 30, June 30, March 31, December 31,
2020 2020 2020 2020 2019
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents $ 759,465 $ 807,791 $ 656,183 $ 484,869 $ 535,645
Securities held-to-maturity, at amortized cost 6,568 6,727 6,922 7,077 7,310
Securities available-for-sale, at fair value 239,682 219,778 270,667 235,097 240,640
Loans:
Real estate - Mortgage:
Real estate--Residential $ 523,789 $ 528,371 $ 511,354 $ 493,226 $ 468,321
Real estate--Commercial 1,911,485 1,808,200 1,781,660 1,730,017 1,731,017
Total Real Estate - Mortgage 2,435,274 2,336,571 2,293,014 2,223,243 2,199,338
Real estate - Construction:
R/E Construction -- Residential 148,825 170,773 187,083 177,364 173,951
R/E Construction -- Commercial 215,032 223,706 217,729 223,385 218,562
Total real estate construction loans 363,857 394,480 404,812 400,749 392,513
Commercial and industrial 1,165,990 1,144,051 1,192,056 1,269,242 1,132,629
PPP 70,234 74,551 73,524 - -
Consumer and others 39 68 241 91 442
Gross loans 4,035,394 3,949,721 3,963,647 3,893,325 3,724,922
Allowance for credit losses on loans (63,426 ) (61,262 ) (55,762 ) (48,130 ) (34,830 )
Net deferred loan fees (4,574 ) (4,411 ) (5,097 ) (3,084 ) (3,028 )
Net loans, excluding loans held for sale $ 3,967,394 $ 3,884,048 $ 3,902,788 $ 3,842,111 $ 3,687,064
Loans held for sale $ - $ - $ - $ - $ -
Net loans $ 3,967,394 $ 3,884,048 $ 3,902,788 $ 3,842,111 $ 3,687,064
Investment in affordable housing 62,521 47,917 49,658 51,400 53,142
Federal Home Loan Bank stock 15,000 15,000 15,000 13,101 13,101
Other assets 90,730 104,313 103,239 93,979 91,579
Total assets $ 5,141,360 $ 5,085,574 $ 5,004,457 $ 4,727,634 $ 4,628,481
Liabilities:
Deposits:
Demand $ 938,911 $ 926,166 $ 934,764 $ 753,750 $ 835,790
Interest-bearing demand 1,700,818 1,620,495 1,594,682 1,503,618 1,328,863
Savings 34,702 32,830 27,737 23,035 23,784
Time certificates of $250,000 or more 912,546 977,821 970,649 1,030,282 976,727
Other time certificates 855,503 857,113 822,404 775,792 818,130
Total deposits $ 4,442,480 $ 4,414,425 $ 4,350,236 $ 4,086,477 $ 3,983,294
Acceptances outstanding $ 3,596 $ 7,463 $ 6,112 $ 6,507 $ 7,379
Subordinated debt issuance 99,334 99,304 99,273 99,242 99,211
Commitments to fund investment in affordable housing partnership 30,715 16,689 17,536 21,195 24,149
Other liabilities 42,483 43,826 42,571 40,428 44,433
Total liabilities $ 4,618,608 $ 4,581,707 $ 4,515,728 $ 4,253,849 $ 4,158,466
Equity:
Net common stock, no par value $ 214,749 $ 213,519 $ 212,187 $ 210,091 $ 210,998
Retained earnings 300,969 284,568 271,923 261,095 255,050
Accumulated other comprehensive income 7,034 5,780 4,619 2,599 3,967
Total shareholders' equity $ 522,752 $ 503,867 $ 488,729 $ 473,785 $ 470,015
Total liabilities and shareholders' equity $ 5,141,360 $ 5,085,574 $ 5,004,457 $ 4,727,634 $ 4,628,481



PREFERRED BANK
QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES
(Unaudited)
Three months endedDecember 31, Three months endedSeptember 30, Three months endedDecember 31,
2020 2020 2019
Average InterestIncome or AverageYield/ Average InterestIncome or AverageYield/ Average InterestIncome or AverageYield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
ASSETS (Dollars in thousands)
Interest-earning assets:
Loans [(1,2)] $ 3,974,599 51,299 5.13 % $ 3,956,145 $ 50,417 5.07 % $ 3,614,621 $ 51,052 5.60 %
Investment securities [(3)] 251,284 1,936 3.07 % 237,801 1,967 3.29 % 248,904 2,202 3.51 %
Federal funds sold 22,939 30 0.51 % 23,828 30 0.50 % 31,647 162 2.03 %
Other earning assets 769,209 487 0.25 % 757,231 474 0.25 % 486,034 2,182 1.78 %
Total interest-earning assets 5,018,031 53,752 4.26 % 4,975,005 52,888 4.23 % 4,381,206 55,598 5.03 %
Deferred loan fees, net (4,162 ) (4,713 ) (2,450 )
Allowance for credit losses on loans (60,875 ) (55,822 ) (34,306 )
Noninterest earning assets:
Cash and due from banks 8,214 7,355 5,615
Bank furniture and fixtures 11,892 11,856 12,419
Right of use assets 16,272 16,550 17,255
Other assets 120,669 123,317 102,471
Total assets $ 5,110,041 $ 5,073,548 $ 4,482,210
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings 1,743,748 $ 1,520 0.35 % 1,659,374 $ 1,452 0.35 % $ 1,293,838 $ 3,506 1.08 %
TCD $250K or more 923,079 2,298 0.99 % 987,631 2,993 1.21 % 978,717 5,513 2.23 %
Other time certificates 841,449 2,236 1.06 % 854,270 2,688 1.25 % 777,763 4,525 2.31 %
Total interest-bearing deposits 3,508,276 6,054 0.69 % 3,501,275 7,133 0.81 % 3,050,318 13,544 1.76 %
Short-term borrowings 3 0 0.20 % - - 0.00 % 3 0 2.08 %
Subordinated debt 99,316 1,532 6.14 % 99,285 1,530 6.13 % 99,193 1,530 6.12 %
Total interest-bearing liabilities 3,607,595 7,586 0.84 % 3,600,560 8,663 0.96 % 3,149,514 15,074 1.90 %
Non-interest bearing liabilities:
Demand deposits 918,050 907,607 799,507
Lease Liability 18,936 19,400 20,768
Other liabilities 46,922 42,560 48,541
Total liabilities 4,591,503 4,570,127 4,018,330
Shareholders' equity 518,538 503,421 463,880
Total liabilities and shareholders' equity $ 5,110,041 $ 5,073,548 $ 4,482,210
Net interest income $ 46,166 $ 44,225 $ 40,524
Net interest spread 3.42 % 3.27 % 3.14 %
Net interest margin 3.66 % 3.54 % 3.67 %
Cost of Deposits:
Noninterest bearing demand deposits $ 918,050 $ 907,607 $ 799,507
Interest bearing deposits 3,508,276 6,054 0.69 % 3,501,275 7,133 0.81 % 3,050,318 13,544 1.76 %
Total Deposits $ 4,426,326 $ 6,054 0.54 % $ 4,408,882 $ 7,133 0.64 % $ 3,849,825 $ 13,544 1.40 %
[(1)]
Includes non-accrual loans and loans held for sale
[(2)]
Net loan fee income of $1.1 million, $683,000 and $449,000 for the quarter ended December 31, 2020, September 30, 2020 and December 31, 2019, 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,
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)] $ 3,892,811 $ 203,093 5.22 % $ 3,482,555 $ 207,218 5.95 %
Investment securities [(3)] 246,715 8,130 3.30 % 232,537 8,644 3.72 %
Federal funds sold 25,301 215 0.85 % 38,003 961 2.53 %
Other earning assets 663,618 3,222 0.49 % 460,176 10,324 2.24 %
Total interest-earning assets 4,828,445 214,660 4.45 % 4,213,271 227,147 5.39 %
Deferred loan fees, net (3,788 ) (1,910 )
Allowance for credit losses on loans (51,971 ) (32,903 )
Noninterest earning assets:
Cash and due from banks 7,545 5,597
Bank furniture and fixtures 12,002 11,379
Right of use assets 16,648 14,644
Other assets 118,000 105,096
Total assets $ 4,926,881 $ 4,315,174
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand/ savings 1,631,487 $ 7,833 0.48 % 1,335,837 $ 18,010 1.35 %
TCD $250K or more 956,269 13,767 1.44 % 850,266 19,505 2.29 %
Other time certificates 826,289 12,384 1.50 % 789,563 18,427 2.33 %
Total interest-bearing deposits 3,414,045 33,984 1.00 % 2,975,666 55,942 1.88 %
Short-term borrowings 1 0 0.15 % 1 0 1.57 %
Subordinated debt 99,269 6,124 6.17 % 99,142 6,123 6.18 %
Long-term debt - 0 0.00 % 522 19 3.71 %
Total interest-bearing liabilities 3,513,315 40,108 1.14 % 3,075,331 62,084 2.02 %
Non-interest bearing liabilities:
Demand deposits 853,289 726,066
Lease Liability 19,620 17,804
Other liabilities 44,501 46,453
Total liabilities 4,430,725 3,865,654
Shareholders' equity 496,156 449,520
Total liabilities and shareholders' equity $ 4,926,881 $ 4,315,174
Net interest income $ 174,552 $ 165,063
Net interest spread 3.30 % 3.37 %
Net interest margin 3.62 % 3.92 %
Cost of Deposits:
Noninterest bearing demand deposits $ 853,289 $ 726,066
Interest bearing deposits 3,414,045 33,984 1.00 % 2,975,666 55,942 1.88 %
Total Deposits $ 4,267,334 $ 33,984 0.80 % $ 3,701,732 $ 55,942 1.51 %
[(1)]
Includes non-accrual loans and loans held for sale
[(2)]
Net loan fee income of $3.0 million and $2.1 million for the year ended December 31, 2020 and 2019, 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 Year ended
December 31, 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 3,700 526
Mini-perm Real Estate 1,900 101
Others 7 -
Total Charge-Offs 5,607 627
Recoveries
Commercial & Industrial - 527
Mini-perm Real Estate - 415
Construction - Commercial 194 -
Land - Commercial 9