PFBC Preferred Bank

Preferred Bank (NASDAQ: PFBC), 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				-
		Total Recoveries			203				942
	Net Charge-Offs (Recoveries)				5,404				(315	)
	Provision for Credit Losses:
		CECL Cumulative Effect Adjustment			8,000				-
		Current Provision			26,000				3,450
Balance at End of Period				$	63,426			$	34,830
Average Loans Held for Investment				$	3,891,530			$	3,482,218
Loans Held for Investment at End of Period				$	4,035,394			$	3,724,922
Net Charge-Offs (Recoveries) to Average Loans					0.14	%			-0.01	%
Allowances for Credit Losses to Loans at End of Period					14.59	%			0.94	%

 

AT THE COMPANY:  Edward J. Czajka  Executive Vice President  Chief Financial Officer  (213) 891-1188

AT FINANCIAL PROFILES:Jeffrey HaasGeneral Information(310) 622-8240PFBC@finprofiles.com