Bulletin
Investor Alert

press release

July 20, 2021, 4:38 p.m. EDT

Preferred Bank Reports Quarterly Earnings

LOS ANGELES, July 20, Jul 20, 2021 (GLOBE NEWSWIRE via COMTEX) -- LOS ANGELES, July 20, 2021 (GLOBE NEWSWIRE) -- Preferred Bank /zigman2/quotes/210374414/composite PFBC +0.62% , one of the larger independent California banks, today reported results for the quarter ended June 30, 2021. Preferred Bank ("the Bank") reported net income of $21.5 million or $1.44 per diluted share for the second quarter of 2021. This is up slightly from net income of $21.2 million or $1.42 per diluted share for the first quarter of 2021 and easily tops recorded net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. The primary reasons for the increase compared to the prior year is a $7.5 million decrease in the provision for credit losses this quarter, an increase in net interest income of $1.2 million, partially offset by an increase in noninterest expense of $630,000. When compared to the prior quarter, the provision for credit losses decreased by $1.4 million, noninterest income increased by $299,000 and noninterest expense decreased by $689,000. Net interest income however, decreased from the prior quarter due to a loan interest accrual adjustment of $2.29 million.

Second quarter 2021 Highlights:

  • Net income of $21.4 million, or $1.44 per diluted share

  • Linked quarter loan growth (non - PPP) of 2.7%

  • Linked quarter deposit growth of 1.6%

  • Return on average assets ("ROA") of 1.58%

  • Return on beginning equity ("ROE") of 15.98%

Li Yu, Chairman and CEO, commented, "Preferred Bank's second quarter 2021 net income was $21.5 million or $1.44 a share.

"Second quarter net income was negatively impacted by a reversal of interest income of $2.29 million and a charge of $614,000 for unamortized issuance costs on our $100 million of subordinated notes which we called on June 18, 2021. Net interest income and loan revenue continue their positive trend, excluding these items.

"The current low interest rate environment has continued to pressure the Bank's net interest margin ("NIM"). Second quarter NIM was 3.47% normalized, (see non-GAAP reconciliation) compared to 3.61% for the first quarter. Excluding the two previously mentioned charges, the Bank however, has been able to increase net interest income.

"Loan growth for the second quarter was $114 million (excl. PPP) or 2.7% sequentially. We have seen increased loan origination activities but see increased payoff activities as well. Deposit growth was $74 million or 1.6% on a linked quarter basis. Going forward, we look to continue to increase our deployment of excess liquidity.

Expenses remain in control with efficiency ratio at 33.2%. We are now seeing inflationary pressures in personnel and other expense items. While we may not pass on cost increases to customers, we were able to keep our peer-group leading assets per full time employee (FTE) at $19.5 million and revenue per FTE at approximately $702,000.

Recent Federal Reserve Open Market Committee minutes revealed that our economy is "expanding at a record pace". We share this optimism and are prepared to take the opportunities presented to us."

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $43.4 million for the second quarter of 2021. This was down slightly from the $45.3 million recorded in the first quarter of 2021 and was slightly ahead of the $42.2 million recorded in the second quarter of 2020. This quarter's loan interest income was negatively impacted by a $2.29 million adjustment to the accrued interest on our troubled debt restructured loan. This amount was reversed in the second quarter of 2021 and is the reason for the lowered net interest income against expectations. Also negatively impacting net interest income this quarter, the Bank called its $100 million of 6% subordinated notes ("sub debt") as of June 18, 2021. Simultaneously, the Bank issued $150 million of subordinated notes due June 15, 2031 at a coupon rate of 3.375%. In conjunction with the call of the existing $100 million of notes, the Bank incurred a charge of $614,000 to interest expense related to the unamortized issuance costs of the old notes. Although we incurred the charge this quarter for the calling of the sub debt, the far lower coupon of the new notes (3.375% versus 6.0%) will result in over $900,000 of interest savings annually while increasing the size of the borrowing by $50 million. The aforementioned items (loan interest reversal and recognition of unamortized debt issuance costs) drove the Bank's taxable equivalent net interest margin down to 3.25%. Excluding these two items the taxable equivalent margin would have been 3.47%, versus 3.61% for the prior quarter and 3.57% for the same period last year.

Noninterest Income. For the second quarter of 2021, noninterest income was $1,646,000 compared with $1,430,000 for the same quarter last year and compared to $1,347,000 for the first quarter of 2021. The increase compared to last year was due to service charges on deposits which increased by $186,000 over last year. This was partially offset by an increase in the loss on sale of loans which was $261,000 in the second quarter of 2021 versus a loss on sale of investment securities of $113,000 in the second quarter of 2020. On a linked quarter basis, service charges on deposits increased by $98,000 while the loss on sale of loans decreased from a loss of $379,000 last quarter to a loss of $261,000 this quarter.

Noninterest Expense. Total noninterest expense was $15.0 million for the second quarter of 2021. This is up compared to the $14.3 million recorded in the same quarter last year but is a decrease from the $15.7 million posted in the first quarter of 2021. Salaries and benefits expense totaled $10.3 million for the second quarter of 2021, an increase of $190,000 from the second quarter of 2020 but a decline from the $11.1 million posted in the first quarter of 2021. The increase over the prior year was due mainly to annual merit increases and the decrease from the first quarter of 2021 was mainly due to higher payroll taxes posted in the first quarter due to incentive compensation distributions. Occupancy expense totaled $1.4 million for the quarter which relatively flat from the prior quarter's $1.4 million and up over the $1.3 million recorded in the second quarter of last year. The new Houston office and annual lease rate increases are responsible for the year-over-year change. Professional services expense was $996,000 for the second quarter of 2021, flat compared to last quarter's $981,000 and flat compared to the $1.0 million recorded in the second quarter of 2020. Significant I.T initiatives or large legal cases usually drive the variations in this line item and there have been none in the periods compared. Other expenses were $1.7 million for the second quarter of 2021, fairly close to the $1.6 million recorded last quarter and up from the $1.4 over the same period last year. The increase over last year was mainly due to FDIC premiums increasing commensurately with the Bank's asset size. For the quarter ended June 30, 2021, the Bank's efficiency ratio was 33.2%, down slightly from last quarter and a small increase from the 32.9% recorded in the same period last year.

Income Taxes. The Bank recorded a provision for income taxes of $8.6 million for the second quarter of 2021. This represents an effective tax rate ("ETR") of 28.5% and is consistent with the ETR of 28.5% for the prior quarter but a decrease from the ETR of 29.7% in the same period last year. The Bank's ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at June 30, 2021 were $4.28 billion, an increase of $243 million or 6.0% over the total of $4.04 billion as of December 31, 2020. Total deposits increased to $4.80 billion, an increase of $354 million or 8.0% over the $4.44 billion as of December 31, 2020. Total assets ended the quarter at $5.58 billion, an increase of $432.3 million or 8.4% over the total of $5.14 billion as of December 31, 2020.

Asset Quality

As of June 30, 2021, nonaccrual loans totaled $20.2 million, down slightly from the $22.0 million reported as of March 31, 2021. In addition, there are $1.7 million in loans that are 90+ days past due and still accruing. These are two loans that are well-secured and in the process of collection. Total net charge-offs (recoveries) for the second quarter of 2021 were $1.2 million compared to a net recovery of ($57,000) in the prior quarter and compared to a net recovery of ($132,000) in the second quarter of 2020.

At June 30, 2021, the Bank had just one loan for $1.5 million still on COVID-19 deferral status. It's critical to note that as of June 30, 2021, the Bank had recouped 67% of all interest deferred during the deferral period.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2021 was $0 compared to the $1.4 million recorded last quarter and the $7.5 million posted in the same period last year. Between the adoption of the new accounting standard for credit losses (CECL) in the first quarter of last year, and the heightened provisions for credit losses throughout 2020, the Bank's allowance coverage ratio has increased to 1.52% of total non-PPP loans as of June 30, 2021 from a total coverage level of 0.94% as of December 31, 2019 which was the last quarter end prior to the pandemic.

Capitalization

As of June 30, 2021, the Bank's leverage ratio was 10.07%, the common equity tier 1 capital ratio was 11.28% and the total capital ratio climbed to 15.61%. As of December 31, 2020, the Bank's leverage ratio was 10.08%, the common equity tier 1 ratio was 11.21% and the total risk-based capital ratio was 14.64%.

GAAP - Non-GAAP Reconciliation

Net interest margin - GAAP3.25%Add: $2.3MM loan interest income0.17%Add: $614K unamortized $100M sub-debt issuance cost 0.05%Net interest margin - non-GAAP3.47%

Net interest margin - GAAP 3.25 %
Add: $2.3MM loan interest income 0.17 %
Add: $614K unamortized $100M sub-debt issuance cost 0.05 %
Net interest margin - non-GAAP 3.47 %

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's second quarter 2021 financial results will be held tomorrow, July 21, 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, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through August 4, 2021; the passcode is 10158785.

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 2020 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
June 30, March 31, June 30,
2021 2021 2020
Interest income:
Loans, including fees $ 47,906 $ 49,859 $ 49,813
Investment securities 2,548 2,277 2,320
Fed funds sold 19 24 31
Total interest income 50,473 52,160 52,164
Interest expense:
Interest-bearing demand 1,530 1,437 1,462
Savings 18 19 17
Time certificates 3,419 3,827 6,973
Subordinated debit 2,145 1,531 1,531
Total interest expense 7,112 6,814 9,983
Net interest income 43,361 45,346 42,181
Provision for credit losses - 1,400 7,500
Net interest income after provision for
credit losses 43,361 43,946 34,681
Noninterest income:
Fees & service charges on deposit accounts 525 426 339
Letters of credit fee income 811 808 742
BOLI income 98 96 95
Net gain (loss) on called and sale of investment securities - - (113 )
Net gain (loss) on sale of loans (261 ) (379 ) -
Other income 473 396 367
Total noninterest income 1,646 1,347 1,430
Noninterest expense:
Salary and employee benefits 10,285 11,123 10,095
Net occupancy expense 1,429 1,401 1,296
Business development and promotion expense 117 73 114
Professional services 996 981 1,006
Office supplies and equipment expense 476 438 459
Other 1,661 1,636 1,364
Total noninterest expense 14,964 15,652 14,334
Income before provision for income taxes 30,043 29,641 21,777
Income tax expense 8,563 8,447 6,468
Net income $ 21,480 $ 21,194 $ 15,309
Dividend and earnings allocated to participating securities (3 ) (3 ) (49 )
Net income available to common shareholders $ 21,477 $ 21,191 $ 15,260
Income per share available to common shareholders
Basic $ 1.44 $ 1.42 $ 1.03
Diluted $ 1.44 $ 1.42 $ 1.03
Weighted-average common shares outstanding
Basic 14,954,688 14,950,019 14,879,383
Diluted 14,954,688 14,950,019 14,879,383
Cash dividends per common share $ 0.38 $ 0.38 $ 0.30


PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Six Months Ended
June 30, June 30, Change
2021 2020 %
Interest income:
Loans, including fees $ 97,765 $ 101,377 -3.6 %
Investment securities 4,825 6,299 -23.4 %
Fed funds sold 43 156 -72.7 %
Total interest income 102,633 107,832 -4.8 %
Interest expense:
Interest-bearing demand 2,967 4,830 -38.6 %
Savings 37 31 17.8 %
Time certificates 7,246 15,936 -54.5 %
Subordinated debit 3,676 3,062 20.0 %
Total interest expense 13,926 23,859 -41.6 %
Net interest income 88,707 83,973 5.6 %
Provision for credit losses 1,400 12,800 -89.1 %
Net interest income after provision for
credit losses 87,307 71,173 22.7 %
Noninterest income:
Fees & service charges on deposit accounts 951 744 27.8 %
Letters of credit fee income 1,619 1,590 1.8 %
BOLI income 194 189 2.9 %
Net gain (loss) on called and sale of investment securities - (113 ) -100.0 %
Net gain (loss) on sale of loans (640 ) 15 -4363.5 %
Other income 869 677 28.4 %
Total noninterest income 2,993 3,102 -3.5 %
Noninterest expense:
Salary and employee benefits 21,408 20,997 2.0 %
Net occupancy expense 2,830 2,692 5.1 %
Business development and promotion expense 190 265 -28.3 %
Professional services 1,977 2,020 -2.1 %
Office supplies and equipment expense 914 948 -3.6 %
Other 3,297 2,597 27.0 %
Total noninterest expense 30,616 29,519 3.7 %
Income before provision for income taxes 59,684 44,756 33.4 %
Income tax expense 17,010 13,293 28.0 %
Net income $ 42,674 $ 31,463 35.6 %
Dividend and earnings allocated to participating securities $ (3 ) $ (51 ) -95.0 %
Net income available to common shareholders $ 42,671 $ 31,412 35.8 %
Income per share available to common shareholders
Basic $ 2.85 $ 2.11 35.3 %
Diluted $ 2.85 $ 2.11 35.3 %
Weighted-average common shares outstanding
Basic 14,952,366 14,875,049 0.5 %
Diluted 14,952,366 14,875,049 0.5 %
Dividends per share $ 0.76 $ 0.60 26.7 %


PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
June 30, December 31,
2021 2020
(Unaudited) (Audited)
Assets
Cash and due from banks $ 876,474 $ 739,465
Fed funds sold 20,000 20,000
Cash and cash equivalents 896,474 759,465
Securities held to maturity, at amortized cost 15,749 6,568
Securities available-for-sale, at fair value 278,460 239,682
Loans 4,278,403 4,035,394
Less allowance for credit losses (63,635 ) (63,426 )
Less amortized deferred loan fees, net (5,329 ) (4,574 )
Loans, net 4,209,439 3,967,394
Customers' liability on acceptances 7,797 3,596
Bank furniture and fixtures, net 11,208 11,825
Bank-owned life insurance 9,957 9,828
Accrued interest receivable 18,316 23,692
Investment in affordable housing partnerships 55,452 62,521
Federal Home Loan Bank stock, at cost 15,000 15,000
Deferred tax assets 24,583 24,466
Income tax receivable 5,736 -
Operating lease right-of-use assets 21,502 16,106
Other assets 6,235 3,498
Total assets $ 5,575,908 $ 5,143,641
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 1,063,472 $ 938,911
Interest-bearing deposits: 1,774,668 1,700,818
Savings 32,560 34,702
Time certificates of $250,000 or more 930,976 912,546
Other time certificates 994,630 855,503
Total deposits 4,796,306 4,442,480
Acceptances outstanding 7,797 3,596
Subordinated debt issuance, net 147,787 99,334
Commitments to fund investment in affordable housing partnerships 19,197 30,715
Operating lease liabilities 23,287 18,682
Accrued interest payable 914 1,245
Other liabilities 21,651 22,142
Total liabilities 5,016,939 4,618,194
Shareholders' equity 558,969 525,447
Total liabilities and shareholders' equity $ 5,575,908 $ 5,143,641
Book value per common share $ 37.36 $ 31.47
Number of common shares outstanding 14,962,164 14,931,861


PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2021 2021 2020 2020 2020
Unaudited historical quarterly operations data:
Interest income $ 50,473 $ 52,160 $ 53,649 $ 52,782 $ 52,164
Interest expense 7,112 6,814 7,586 8,663 9,983
Interest income before provision for credit losses 43,361 45,346 46,063 44,119 42,181
Provision for credit losses - 1,400 4,200 9,000 7,500
Noninterest income 1,646 1,347 1,356 1,605 1,430
Noninterest expense 14,964 15,652 14,177 13,663 14,334
Income tax expense 8,563 8,447 8,162 5,936 6,468
Net income $ 21,480 $ 21,194 $ 20,880 $ 17,125 $ 15,309
Earnings per share
Basic $ 1.44 $ 1.42 $ 1.40 $ 1.15 $ 1.03
Diluted $ 1.44 $ 1.42 $ 1.40 $ 1.15 $ 1.03
Ratios for the period:
Return on average assets 1.58 % 1.65 % 1.63 % 1.34 % 1.26 %
Return on beginning equity 15.98 % 16.36 % 16.49 % 13.94 % 13.00 %
Net interest margin (Fully-taxable equivalent) 3.25 % 3.61 % 3.66 % 3.54 % 3.57 %
Noninterest expense to average assets 1.10 % 1.22 % 1.10 % 1.07 % 1.18 %
Efficiency ratio 33.25 % 33.52 % 29.90 % 29.88 % 32.87 %
Net charge-offs (recoveries) to average loans (annualized) 0.12 % -0.01 % 0.20 % 0.35 % -0.01 %
Ratios as of period end:
Tier 1 leverage capital ratio 10.07 % 10.26 % 10.08 % 9.75 % 9.87 %
Common equity tier 1 risk-based capital ratio 11.28 % 11.34 % 11.21 % 11.02 % 10.39 %
Tier 1 risk-based capital ratio 11.28 % 11.34 % 11.21 % 11.02 % 10.39 %
Total risk-based capital ratio 15.61 % 14.73 % 14.64 % 14.51 % 13.80 %
Allowances for credit losses to loans at end of period 1.49 % 1.56 % 1.57 % 1.55 % 1.41 %
Allowance for credit losses to non-performing loans 290.58 % 294.74 % 308.96 % 243.56 % 211.08 %
Average balances:
Total securities $ 269,000 $ 242,200 $ 251,284 $ 237,801 $ 250,134
Total loans $ 4,130,190 $ 4,044,800 $ 3,971,537 $ 3,956,145 $ 3,919,674
Total earning assets $ 5,364,598 $ 5,102,291 $ 5,018,031 $ 4,975,005 $ 4,768,537
Total assets $ 5,467,678 $ 5,200,079 $ 5,110,065 $ 5,073,548 $ 4,868,356
Total time certificate of deposits $ 1,893,247 $ 1,820,461 $ 1,764,528 $ 1,841,901 $ 1,757,531
Total interest bearing deposits $ 3,704,771 $ 3,531,358 $ 3,508,276 $ 3,501,275 $ 3,399,924
Total deposits $ 4,724,104 $ 4,486,399 $ 4,426,326 $ 4,408,882 $ 4,220,197
Total interest bearing liabilities $ 3,815,964 $ 3,630,705 $ 3,607,592 $ 3,600,560 $ 3,499,178
Total equity $ 553,561 $ 538,282 $ 518,567 $ 503,421 $ 486,931


PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Six Months Ended
June 30, June 30,
2021 2020
Interest income $ 102,633 $ 107,832
Interest expense 13,926 23,859
Interest income before provision for credit losses 88,707 83,973
Provision for credit losses 1,400 12,800
Noninterest income 2,993 3,102
Noninterest expense 30,616 29,519
Income tax expense 17,010 13,293
Net income $ 42,674 $ 31,463
Earnings per share
Basic $ 2.85 $ 2.11
Diluted $ 2.85 $ 2.11
Ratios for the period:
Return on average assets 1.61 % 1.33 %
Return on beginning equity 16.38 % 13.46 %
Net interest margin (Fully-taxable equivalent) 3.43 % 3.63 %
Noninterest expense to average assets 1.16 % 1.25 %
Efficiency ratio 33.39 % 33.90 %
Net charge-offs (recoveries) to average loans 0.06 % -0.01 %
Average balances:
Total securities $ 255,675 $ 248,912
Total loans $ 4,087,731 $ 3,818,424
Total earning assets $ 5,234,170 $ 4,658,524
Total assets $ 5,334,618 $ 4,760,156
Total time certificate of deposits $ 1,857,055 $ 1,761,674
Total interest bearing deposits $ 3,618,543 $ 3,322,318
Total deposits $ 4,605,908 $ 4,115,413
Total interest bearing liabilities $ 3,723,846 $ 3,421,556
Total equity $ 545,964 $ 481,170


PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
As of
June 30, March 31, December 31, September 30, June 30,
2021 2021 2020 2020 2020
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents $ 896,474 $ 943,126 $ 759,465 $ 807,791 $ 656,183
Securities held-to-maturity, at amortized cost 15,749 6,039 6,568 6,727 6,922
Securities available-for-sale, at fair value 278,460 228,635 239,682 219,778 270,667
Loans:
Real estate - Mortgage:
Real estate--Residential $ 558,147 $ 541,313 $ 523,789 $ 528,371 $ 511,354
Real estate--Commercial 2,019,995 1,925,554 1,911,485 1,808,200 1,781,660
Total Real Estate - Mortgage 2,578,142 2,466,867 2,435,274 2,336,571 2,293,014
Real estate - Construction:
R/E Construction -- Residential 120,363 123,302 148,825 170,773 187,083
R/E Construction -- Commercial 224,323 229,933 215,032 223,706 217,729
Total real estate construction loans 344,686 353,235 363,857 394,480 404,812
Commercial and industrial 1,259,668 1,248,550 1,165,990 1,144,051 1,192,056
PPP 95,765 95,434 70,234 74,551 73,524
Consumer and others 143 155 39 68 241
Gross loans 4,278,403 4,164,241 4,035,394 3,949,721 3,963,647
Allowance for credit losses on loans (63,635 ) (64,883 ) (63,426 ) (61,262 ) (55,762 )
Net deferred loan fees (5,329 ) (4,872 ) (4,574 ) (4,411 ) (5,097 )
Net loans, excluding loans held for sale $ 4,209,439 $ 4,094,486 $ 3,967,394 $ 3,884,048 $ 3,902,788
Loans held for sale $ - $ - $ - $ - $ -
Net loans $ 4,209,439 $ 4,094,486 $ 3,967,394 $ 3,884,048 $ 3,902,788
Investment in affordable housing partnerships 55,452 59,824 62,521 47,917 49,658
Federal Home Loan Bank stock, at cost 15,000 15,000 15,000 15,000 15,000
Other assets 105,334 100,894 93,011 104,313 103,239
Total assets $ 5,575,908 $ 5,448,004 $ 5,143,641 $ 5,085,574 $ 5,004,457
Liabilities:
Deposits:
Demand $ 1,063,472 $ 1,026,260 $ 938,911 $ 926,166 $ 934,764
Interest-bearing demand 1,774,668 1,751,951 1,700,818 1,620,495 1,594,682
Savings 32,560 37,551 34,702 32,830 27,737
Time certificates of $250,000 or more 930,976 927,043 912,546 977,821 970,649
Other time certificates 994,630 979,694 855,503 857,113 822,404
Total deposits $ 4,796,306 $ 4,722,499 $ 4,442,480 $ 4,414,425 $ 4,350,236
Acceptances outstanding $ 7,797 $ 9,670 $ 3,596 $ 7,463 $ 6,112
Subordinated debt issuance, net 147,787 99,365 99,334 99,304 99,273
Commitments to fund investment in affordable housing partnerships
19,197 27,918 30,715 16,689 17,536
Other liabilities 45,852 49,283 42,069 43,826 42,571
Total liabilities $ 5,016,939 $ 4,908,735 $ 4,618,194 $ 4,581,707 $ 4,515,728
Equity:
Net common stock, no par value $ 219,958 $ 218,593 $ 217,444 $ 213,519 $ 212,187
Retained earnings 332,276 316,481 300,969 284,568 271,923
Accumulated other comprehensive income 6,735 4,195 7,034 5,780 4,619
Total shareholders' equity $ 558,969 $ 539,269 $ 525,447 $ 503,867 $ 488,729
Total liabilities and shareholders' equity $ 5,575,908 $ 5,448,004 $ 5,143,641 $ 5,085,574 $ 5,004,457


PREFERRED BANK
Quarter-to-Date Average Balances, Yields and Rates
(Unaudited)
Three months ended June 30, Three months ended March 31, Three months ended June 30,
2021 2020 2020
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)] $ 4,132,451 47,906 4.65 % $ 4,044,823 $ 49,859 5.00 % $ 3,921,694 $ 49,813 5.11 %
Investment securities [(3)] 269,000 2,058 3.07 % 242,200 1,884 3.16 % 250,134 2,098 3.37 %
Federal funds sold 20,437 19 0.36 % 21,474 24 0.45 % 24,324 31 0.52 %
Other earning assets 942,710 597 0.25 % 793,794 493 0.25 % 572,385 318 0.23 %
Total interest-earning assets 5,364,598 50,580 3.78 % 5,102,291 52,260 4.15 % 4,768,537 52,260 4.41 %
Deferred loan fees, net (4,924 ) (4,344 ) (3,182 )
Allowance for credit losses on loans (64,842 ) (63,450 ) (48,247 )
Noninterest earning assets:
Cash and due from banks 10,620 9,923 8,274
Bank furniture and fixtures 11,468 11,772 11,993
Right of use assets 19,735 16,847 16,768
Other assets 131,023 127,040 114,213
Total assets $ 5,467,678 $ 5,200,079 $ 4,868,356
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings 1,811,524 $ 1,548 0.34 % 1,710,897 $ 1,456 0.35 % $ 1,642,393 $ 1,479 0.36 %
TCD $250K or more 926,161 1,688 0.73 % 919,155 1,918 0.85 % 945,043 3,624 1.54 %
Other time certificates 967,086 1,731 0.72 % 901,306 1,909 0.86 % 812,488 3,349 1.66 %
Total interest-bearing deposits 3,704,771 4,967 0.54 % 3,531,358 5,283 0.61 % 3,399,924 8,452 1.00 %
Subordinated debt, net 111,193 2,145 7.74 % 99,347 1,531 6.25 % 99,254 1,531 6.20 %
Total interest-bearing liabilities 3,815,964 7,112 0.75 % 3,630,705 6,814 0.76 % 3,499,178 9,983 1.15 %
Non-interest bearing liabilities:
Demand deposits 1,019,333 955,041 820,273
Lease Liability 21,765 19,289 19,841
Other liabilities 57,055 56,762 42,133
Total liabilities 4,914,117 4,661,797 4,381,425
Shareholders' equity 553,561 538,282 486,931
Total liabilities and shareholders' equity $ 5,467,678 $ 5,200,079 $ 4,868,356
Net interest income $ 43,468 $ 45,446 $ 42,277
Net interest spread 3.03 % 3.39 % 3.26 %
Net interest margin 3.25 % 3.61 % 3.57 %
Cost of Deposits:
Noninterest bearing demand deposits $ 1,019,333 $ 955,041 $ 820,273
Interest bearing deposits 3,704,771 4,967 0.54 % 3,531,358 5,283 0.61 % 3,399,924 8,452 1.00 %
Total Deposits $ 4,724,104 $ 4,967 0.42 % $ 4,486,399 $ 5,283 0.48 % $ 4,220,197 $ 8,452 0.81 %
[(1)] Includes non-accrual loans and loans held for sale
[(2)] Net loan fee income of $699,000, $539,000 and $542,000 for the quarter ended June 30, 2021, March 31, 2021, June 30, 2020, 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, Yields and Rates
(Unaudited)
Six Months ended June 30,
2021 2020
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)] $ 4,088,879 $ 97,765 4.82 % $ 3,819,453 $ 101,377 5.34 %
Investment securities [(3)] 255,675 3,942 3.11 % 248,912 4,225 3.41 %
Federal funds sold 20,953 43 0.41 % 27,238 156 1.15 %
Other earning assets 868,663 1,090 0.25 % 562,921 2,263 0.81 %
Total interest-earning assets 5,234,170 102,840 3.96 % 4,658,524 108,021 4.66 %
Deferred loan fees, net (4,636 ) (3,131 )
Allowance for credit losses on loans (64,150 ) (45,523 )
Noninterest earning assets:
Cash and due from banks 10,273 7,304
Bank furniture and fixtures 11,619 12,131
Right of use assets 18,299 16,887
Other assets 129,042 113,964
Total assets $ 5,334,618 $ 4,760,156
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand/ savings 1,761,488 $ 3,004 0.34 % 1,560,644 $ 4,861 0.63 %
TCD $250K or more 922,677 3,606 0.79 % 957,193 8,476 1.78 %
Other time certificates 934,378 3,640 0.79 % 804,481 7,460 1.86 %
Total interest-bearing deposits 3,618,543 10,250 0.57 % 3,322,318 20,797 1.26 %
Subordinated debt, net 105,303 3,676 7.04 % 99,238 3,062 6.20 %
Total interest-bearing liabilities 3,723,846 13,926 0.75 % 3,421,556 23,859 1.40 %
Non-interest bearing liabilities:
Demand deposits 987,365 793,095
Lease Liability 20,534 20,077
Other liabilities 56,909 44,258
Total liabilities 4,788,654 4,278,986
Shareholders' equity 545,964 481,170
Total liabilities and shareholders' equity $ 5,334,618 $ 4,760,156
Net interest income $ 88,914 $ 84,162
Net interest spread 3.21 % 3.26 %
Net interest margin 3.43 % 3.63 %
Cost of Deposits:
Noninterest bearing demand deposits $ 987,365 $ 793,095
Interest bearing deposits 3,618,543 10,250 0.57 % 3,322,318 20,797 1.26 %
Total Deposits $ 4,605,908 $ 10,250 0.45 % $ 4,115,413 $ 20,797 1.02 %
[(1) ] Includes non-accrual loans and loans held for sale
[(2) ] Net loan fee income of $1.2 million for the six months ended June 30, 2021 and 2020 is 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
Six Months Ended Year ended
June 30, 2021 December 31, 2020
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $ 63,426 $ 34,830
Charge-Offs
Commercial & Industrial 431 3,700
Mini-perm Real Estate 817 1,900
Others - 7
Total Charge-Offs 1,248 5,607
Recoveries
Commercial & Industrial 57 -
Construction - Commercial - 194
Land - Commercial - 9
Total Recoveries 57 203