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Preferred Bank Reports Record Quarterly Earnings Again
Source: Nasdaq GlobeNewswire / 18 Jan 2023 16:01:39 America/New_York
LOS ANGELES, Jan. 18, 2023 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended December 31, 2022. Preferred Bank (“the Bank”) reported net income of $39.6 million or $2.71 per diluted share for the fourth quarter of 2022. This represents an increase of $13.1 million or 49.7% over the same quarter last year and also an impressive $4.4 million or 12.4% increase over the third quarter of 2022. The primary driver of the increase over both comparable periods was net interest income which increased by 50.0% over the same period last year and increased by 11.0% over the third quarter of 2022. Net income for the year ended December 31, 2022 was $128.8 million or $8.70 per diluted share compared to $95.2 million or $6.41 per diluted share for the year ended December 31, 2021. This represents an increase in net income of $33.6 million or 35.3% and an increase in diluted earnings per share of 35.7%. The extraordinary interest rate hikes undertaken by the Federal Open Market Committee (“FOMC”) to fend off inflation during the course of 2022 has led to a significant increase in interest income as most of the Bank’s loans are tied to the Prime rate.
Fourth quarter 2022 highlights:
- Return on average assets (“ROA”) of 2.48%
- Return on beginning equity (“ROBE”) of 26.58%
- Pre-provision, pre-tax (“PPPT”) ROBE of 38.26% 1.
- Net interest margin increased to 4.75%
- Efficiency ratio of 25.97%
- Linked quarter deposit growth of 1.9%
- Linked quarter loan growth of 1.3%
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1 This is a non-GAAP measure and links to the reconciliation on page 4.Full Year 2022 highlights:
- Return on average assets (“ROA”) of 2.08%
- Return on beginning equity (“ROBE”) of 21.96%
- Efficiency ratio of 27.48%
- Total loan growth of $650 million or 14.7%
- Total deposit growth of $331 million or 6.3%
Li Yu, Chairman and CEO, commented, “I am pleased to report another record quarter of earnings. Net income for the fourth quarter of 2022 was $39.6 million or $2.71 per diluted share with return on beginning equity reaching 26.6%.
“Growth in interest income continues to outpace the rise in deposit interest costs. The Bank’s net interest margin was 4.75% for the fourth quarter, up from 4.37% recorded in the previous quarter. The cost of deposits accelerated during the quarter, as deposit rates catch up to market rates. We expect this trend to continue as financial institutions are increasing their deposit rates frequently. Another reason for the increase in overall deposit costs is the shifting of funds from noninterest bearing accounts to interest bearing products as companies and individuals become more savvy with their cash balances.
“Sequentially, total loans increased by $64 million, or 1.3% for the quarter while total deposits grew by $101 million or 1.9%. Loan demand has moderated since mid-2022 and this trend is expected to continue as investors and operators become more cautious in the higher interest rate environment.
“Deposit growth has also slowed significantly. We expect that deposit growth will be a challenge, especially at reasonable costs, throughout 2023.
“The Bank’s liquidity position continues to be very strong as deposit growth outpaced loan growth for the year. Also, capital levels remain high. The Bank’s tangible book value per share increased by 6.1% for 2022, which was rare for any bank this year because higher interest rates lead to higher negative accumulated other comprehensive income (“AOCI”) marks on investment portfolios within bank’s capital. Preferred Bank’s earning power was more than enough to offset this headwind, even after dividends.
“Benefitted by the increase in net interest income, the efficiency ratio continues to be one of the best in the industry, coming in at 26.0% for the quarter. In 2023, total expenses are expected to increase at a rate above the historical pace due to wage inflation as well as the upcoming increase in FDIC premium assessments. Regardless, we expect our efficiency ratio will remain among the best in the Country.
“Our attention is always focused on credit quality, which appears stable. Nonperforming assets and nonperforming loans were $27.5 million and $5.5 million respectively, as compared to $32.3 million and $6.2 million as of September 30, 2022. More importantly, loans 30-89 days past due, a leading indicator of credit quality trends was practically nil as of December 31, 2022. Over the past few quarters, the Bank’s total allowance for credit loss (“ACL”) coverage has increased and now stands at 1.35% of total loans.
Preferred Bank was 2nd among all California publicly traded banks over $2 billion in assets with a return on tangible common shareholders’ equity (“ROTCE”) of 23.6% for the third quarter of 2022. Our ROTCE actually expanded in the fourth quarter to 25.8%. We are very pleased with our earnings capacity as it is often overlooked as one of the best defenses for a recessionary economy. All of our operating metrics remain stable heading into 2023 as we approach the new year with prudence.”
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $74.1 million for the fourth quarter of 2022. This was a significant increase from the $49.4 million recorded in the same quarter last year and also up sharply over the $66.8 million posted in the third quarter of 2022. The FOMC rate hikes throughout 2022 drove the Bank’s loan portfolio yield higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense on deposits also rose but the increase in deposit interest costs was well behind that of interest income, leading to continued margin expansion. The taxable equivalent net interest margin rose 38 basis points on a linked quarter basis to 4.75% from 4.37% last quarter. Comparing to the same quarter last year, the margin was up by an astounding 147 basis points over the 3.28% posted this quarter last year.
Noninterest Income. For the fourth quarter of 2022, noninterest income was $2.8 million compared with $2.0 million for the same quarter last year and compared to $2.2 million for the third quarter of 2022. The increase compared to the prior quarter was due to an increase in letter of credit (“LC”) fees of $289,000 and an increase in other income of $105,000 partially offset by gain on the sale of investment securities of $297,000 in the fourth quarter of 2022. In comparison to the same quarter last year, LC fees are up by $526,000 partially offset by the gain on the sales of investment securities of $297,000.
Noninterest Expense. Total noninterest expense was $20.0 million for the fourth quarter of 2022 compared to $17.4 million for the third quarter of 2022 and compared to the $14.8 million recorded in the same period last year. Comparing this quarter to the fourth quarter of last year; personnel expense increased by $2.7 million or 26.0%, other real estate owned (“OREO”) expense was $2.1 million this quarter compared to $0 last year and other expense increased by $1.8 million this quarter. The personnel expense increase was mainly due to new hires, merit increases and an increase in incentive compensation. In comparing to the prior quarter; personnel expense was up by $627,000 or 5.1% from the third quarter of 2022, other expense was up by $191,000 and OREO expense increased by $1.4 million and incurred a loss on sale of OREO of $426,000. During the fourth quarter of 2022, the Bank wrote down the value of its OREO by $1.4 million. For the quarter ended December 31, 2022, the Bank’s efficiency ratio was 26.0%, slightly higher than the 25.2% posted last quarter but easily surpassing the 28.8% posted this quarter last year.
Income Taxes. The Bank recorded a provision for income taxes of $15.4 million for the fourth quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and equal to the ETR for the third quarter of 2022 but down slightly from the 29.5% ETR posted in the fourth quarter of 2021. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.
Balance Sheet Summary
Total gross loans at December 31, 2022 were $5.07 billion, an increase of $650 million or 14.7% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.56 billion, an increase of $331 million or 6.3% over the $5.23 billion as of December 31, 2021. Total assets ended the year at $6.42 billion, an increase of $376 million or 6.2% over the total of $6.05 billion as of December 31, 2021.
Asset Quality
As of December 31, 2022, nonaccrual loans totaled $5.5 million, down from the $6.2 million reported as of September 30, 2022 and down from the $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $22.0 million as of December 31, 2022, compared to $26.1 million as of September 30, 2022 and zero as of the end of 2021. Total net charge-offs were $0 for the fourth quarter of 2022 as compared to net recoveries of $2.4 million last quarter and compared to net charge-offs of $267,000 in the same quarter of 2021.
Allowance for Credit Losses
The provision for credit losses for the fourth quarter of 2022 was $2.0 million as compared to $2.7 million recorded last quarter and compared to a reversal of $900,000 recorded in the fourth quarter of last year. The Bank’s allowance coverage ratio now stands at 1.35% of total loans (excluding PPP loans).
Capitalization
As of December 31, 2022, the Bank’s leverage ratio was 10.27%, the common equity tier 1 capital ratio was 10.78% and the total capital ratio stood at 14.36%. As of December 31, 2021, the Bank’s leverage ratio was 9.54%, the common equity tier 1 ratio was 11.26% and the total risk-based capital ratio was 15.37%.
GAAP – Non-GAAP Reconciliation -Fourth Quarter 2022 PPPT ROBE Net Income $ 39,560 Add: Provision for credit losses 2,000 Add: Income tax expense 15,384 Pre-provision and pre-tax income $ 56,944 Total equity – 9/30/22 $ 590,553 Pre-provision and pre-tax ROBE 38.26 % Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank’s fourth quarter 2022 financial results will be held tomorrow, January 19, 2023 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.
Preferred Bank's Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through February 2, 2023; the passcode is 5526852.
About Preferred Bank
Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch in Flushing, New York. In addition, the Bank operates a Loan Production Office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy
shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2021 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.Financial Tables to Follow
PREFERRED BANK Condensed Consolidated Statements of Operations (unaudited) (in thousands, except for net income per share and shares) For the Quarter Ended December 31, September 30, December 31, 2022 2022 2021 Interest income: Loans, including fees $ 87,159 $ 71,192 $ 51,906 Investment securities 11,028 7,111 2,867 Fed funds sold 192 117 18 Total interest income 98,379 78,420 54,791 Interest expense: Interest-bearing demand 13,906 6,436 1,511 Savings 32 19 17 Time certificates 9,004 3,850 2,521 Subordinated debt 1,325 1,325 1,325 Total interest expense 24,267 11,630 5,374 Net interest income 74,112 66,790 49,417 Provision for (reversal of) credit losses 2,000 2,700 (900 ) Net interest income after provision for (reversal of) credit losses 72,112 64,090 50,317 Noninterest income: Fees & service charges on deposit accounts 631 703 581 Letters of credit fee income 1,245 956 719 BOLI income 102 100 99 Net gain on called and sale of investment securities 297 - - Other income 533 428 567 Total noninterest income 2,808 2,187 1,966 Noninterest expense: Salary and employee benefits 12,953 12,326 10,278 Net occupancy expense 1,444 1,452 1,396 Business development and promotion expense 320 214 280 Professional services 1,028 1,161 1,075 Office supplies and equipment expense 460 456 498 Loss on sale of OREO, valuation allowance and related expense 2,103 314 - Other 1,668 1,477 1,279 Total noninterest expense 19,976 17,400 14,806 Income before provision for income taxes 54,944 48,877 37,477 Income tax expense 15,384 13,688 11,056 Net income $ 39,560 $ 35,189 $ 26,421 Dividend and earnings allocated to participating securities - - (3 ) Net income available to common shareholders $ 39,560 $ 35,189 $ 26,418 Income per share available to common shareholders Basic $ 2.76 $ 2.44 $ 1.80 Diluted $ 2.71 $ 2.40 $ 1.80 Weighted-average common shares outstanding Basic 14,357,326 14,408,235 14,677,515 Diluted 14,617,377 14,644,452 14,677,515 Cash dividends per common share $ 0.55 $ 0.43 $ 0.43 PREFERRED BANK Condensed Consolidated Statements of Operations (unaudited) (in thousands, except for net income per share and shares) For the Year Ended December 31, December 31, Change 2022 2021 % Interest income: Loans, including fees $ 269,011 $ 200,537 34.1 % Investment securities 24,997 10,417 140.0 % Fed funds sold 374 81 361.5 % Total interest income 294,382 211,035 39.5 % Interest expense: Interest-bearing demand 24,221 5,964 306.1 % Savings 91 57 58.9 % Time certificates 17,412 12,811 35.9 % Subordinated debt 5,300 6,325 -16.2 % Total interest expense 47,024 25,158 86.9 % Net interest income 247,358 185,877 33.1 % Provision for (reversal of) credit losses 7,350 (1,000 ) -835.0 % Net interest income after provision for (reversal of) credit losses 240,008 186,877 28.4 % Noninterest income: Fees & service charges on deposit accounts 2,728 2,113 29.1 % Letters of credit fee income 4,463 3,914 14.0 % BOLI income 401 392 2.3 % Net gain on called and sale of investment securities 297 41 623.6 % Net loss on sale of loans - (640 ) -100.0 % Other income 1,973 1,924 2.6 % Total noninterest income 9,862 7,743 27.4 % Noninterest expense: Salary and employee benefits 48,607 42,606 14.1 % Net occupancy expense 5,759 5,656 1.8 % Business development and promotion expense 811 568 42.8 % Professional services 4,892 4,127 18.5 % Office supplies and equipment expense 1,864 1,879 -0.8 % Loss on sale of OREO, valuation allowance and related expense 2,818 - 100.0 % Other 5,922 5,956 -0.6 % Total noninterest expense 70,673 60,792 16.3 % Income before provision for income taxes 179,197 133,828 33.9 % Income tax expense 50,352 38,588 30.5 % Net income $ 128,845 $ 95,240 35.3 % Dividend and earnings allocated to participating securities $ (2 ) $ (11 ) -77.4 % Net income available to common shareholders $ 128,843 $ 95,229 35.3 % Income per share available to common shareholders Basic $ 8.84 $ 6.41 37.9 % Diluted $ 8.70 $ 6.41 35.7 % Weighted-average common shares outstanding Basic 14,579,132 14,866,000 -1.9 % Diluted 14,809,416 14,866,000 -0.4 % Dividends per share $ 1.84 $ 1.57 17.2 % PREFERRED BANK Condensed Consolidated Statements of Financial Condition (unaudited) (in thousands) December 31, December 31, 2022 2021 (Unaudited) (Audited) Assets Cash and due from banks $ 747,526 $ 1,030,610 Fed funds sold 20,000 20,000 Cash and cash equivalents 767,526 1,050,610 Securities held to maturity, at amortized cost 22,459 13,962 Securities available-for-sale, at fair value 428,295 451,911 Loans 5,074,793 4,424,992 Less allowance for credit losses (68,472 ) (59,969 ) Less amortized deferred loan fees, net (9,939 ) (6,316 ) Loans, net 4,996,382 4,358,707 Other real estate owned and repossessed assets 21,990 - Customers' liability on acceptances 1,731 10,188 Bank furniture and fixtures, net 8,999 10,533 Bank-owned life insurance 10,357 10,088 Accrued interest receivable 23,593 14,646 Investment in affordable housing partnerships 61,173 59,018 Federal Home Loan Bank stock, at cost 15,000 15,000 Deferred tax assets 39,746 26,674 Operating lease right-of-use assets 21,718 21,969 Other assets 2,917 2,997 Total assets $ 6,421,886 $ 6,046,303 Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 1,192,091 $ 1,305,692 Interest-bearing deposits: 2,295,212 2,032,819 Savings 39,527 37,839 Time certificates of $250,000 or more 1,138,727 934,444 Other time certificates 891,440 914,717 Total deposits 5,556,997 5,225,511 Acceptances outstanding 1,731 10,188 Subordinated debt issuance, net 147,995 147,758 Commitments to fund investment in affordable housing partnerships 27,490 22,606 Operating lease liabilities 20,949 22,861 Accrued interest payable 2,608 715 Other liabilities 36,018 29,946 Total liabilities 5,793,788 5,459,585 Shareholders' equity 628,098 586,718 Total liabilities and shareholders' equity $ 6,421,886 $ 6,046,303 Book value per common share $ 43.75 $ 39.97 Number of common shares outstanding 14,358,145 14,679,769 PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Quarter Ended December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Unaudited historical quarterly operations data: Interest income $ 98,379 $ 78,420 $ 62,559 $ 55,024 $ 54,791 Interest expense 24,267 11,630 6,135 4,992 5,374 Interest income before provision for credit losses 74,112 66,790 56,424 50,032 49,417 Provision (reversal of) for credit losses 2,000 2,700 2,900 (250 ) (900 ) Noninterest income 2,808 2,187 2,601 2,266 1,966 Noninterest expense 19,976 17,400 17,140 16,157 14,806 Income tax expense 15,384 13,688 10,916 10,364 11,056 Net income $ 39,560 $ 35,189 $ 28,069 $ 26,027 $ 26,421 Earnings per share Basic $ 2.76 $ 2.44 $ 1.90 $ 1.76 $ 1.80 Diluted $ 2.71 $ 2.40 $ 1.87 $ 1.74 $ 1.80 Ratios for the period: Return on average assets 2.48 % 2.25 % 1.84 % 1.75 % 1.72 % Return on beginning equity 26.58 % 23.60 % 18.91 % 17.99 % 18.65 % Net interest margin (Fully-taxable equivalent) 4.75 % 4.37 % 3.77 % 3.42 % 3.28 % Noninterest expense to average assets 1.25 % 1.11 % 1.12 % 1.08 % 0.97 % Efficiency ratio 25.97 % 25.23 % 29.04 % 30.89 % 28.82 % Net charge-offs (recoveries) to average loans (annualized) 0.00 % -0.19 % 0.00 % 0.11 % 0.03 % Ratios as of period end: Tier 1 leverage capital ratio 10.27 % 9.95 % 9.92 % 9.92 % 9.54 % Common equity tier 1 risk-based capital ratio 10.78 % 10.46 % 10.61 % 11.20 % 11.26 % Tier 1 risk-based capital ratio 10.78 % 10.46 % 10.61 % 11.20 % 11.26 % Total risk-based capital ratio 14.36 % 14.09 % 14.31 % 15.12 % 15.37 % Allowances for credit losses to loans at end of period 1.35 % 1.33 % 1.25 % 1.27 % 1.36 % Allowance for credit losses to non-performing loans 12.49x 10.75x 5.27x 27.15x 4.05x Average balances: Total securities $ 434,830 $ 410,649 $ 430,203 $ 455,899 $ 470,811 Total loans 4,981,561 4,908,870 4,777,353 4,367,095 4,218,699 Total earning assets 6,193,330 6,076,616 6,008,024 5,938,519 5,984,055 Total assets 6,327,942 6,215,184 6,133,703 6,044,155 6,079,934 Total time certificate of deposits 1,872,239 1,749,257 1,810,886 1,869,654 1,915,116 Total interest bearing deposits 4,287,287 3,973,105 3,982,888 3,947,616 3,945,275 Total deposits 5,468,562 5,373,252 5,301,370 5,215,810 5,277,507 Total interest bearing liabilities 4,435,245 4,121,005 4,130,729 4,095,399 4,093,002 Total equity 613,679 598,188 606,260 597,214 576,495
PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Year Ended December 31, December 31, 2022 2021 Interest income $ 294,382 $ 211,035 Interest expense 47,024 25,158 Interest income before provision for credit losses 247,358 185,877 Provision (reversal of) for credit losses 7,350 (1,000 ) Non-interest income 9,862 7,743 Non-interest expense 70,673 60,792 Income tax expense 50,352 38,588 Net income $ 128,845 $ 95,240 Earnings per share Basic $ 8.84 $ 6.41 Diluted $ 8.70 $ 6.41 Ratios for the period: Return on average assets 2.08 % 1.68 % Return on beginning equity 21.96 % 17.51 % Net interest margin (Fully-taxable equivalent) 4.09 % 2.54 % Non-interest expense to average assets 1.14 % 1.12 % Efficiency ratio 27.48 % 32.33 % Net (recoveries) charge-off to average loans -0.02 % 0.07 % Average balances: Total securities $ 432,777 $ 304,865 Total loans 4,760,815 4,110,835 Total earning assets 6,054,932 5,377,565 Total assets 6,181,119 5,477,989 Total time certificate of deposits 1,825,307 1,891,583 Total interest-bearing deposits 4,048,450 3,674,201 Total deposits 5,340,533 4,729,147 Total interest-bearing liabilities 4,196,321 3,793,782 Total equity 603,865 553,937
PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) As of December 31, September 30, June 30, March 31, December 31, 2022 2022 2022 2022 2021 Unaudited quarterly statement of financial position data: Assets: Cash and cash equivalents $ 767,526 $ 749,484 $ 768,658 $ 985,162 $ 1,050,610 Securities held-to-maturity, at amortized cost 22,459 12,442 12,784 13,496 13,962 Securities available-for-sale, at fair value 428,295 377,534 400,597 430,280 451,911 Loans: Real estate – Mortgage: Real estate—Residential $ 609,292 $ 587,812 $ 581,412 $ 539,614 $ 536,286 Real estate—Commercial 2,730,726 2,693,852 2,583,484 2,367,862 2,267,063 Total Real Estate – Mortgage 3,340,018 3,281,664 3,164,896 2,907,476 2,803,349 Real estate – Construction: R/E Construction — Residential 193,027 179,955 168,420 141,218 130,842 R/E Construction — Commercial 204,478 188,083 203,217 209,726 202,482 Total real estate construction loans 397,505 368,038 371,637 350,944 333,324 Commercial and industrial 1,320,830 1,330,028 1,336,631 1,281,559 1,245,734 SBA 11,339 8,067 22,186 32,554 42,467 Trade finance 4,521 22,634 24,663 18,919 11,309 Consumer and others 580 115 128 115 118 Gross loans 5,074,793 5,010,546 4,920,141 4,591,567 4,424,992 Allowance for credit losses on loans (68,472 ) (66,472 ) (61,396 ) (58,496 ) (59,969 ) Net deferred loan fees (9,939 ) (9,695 ) (9,525 ) (8,573 ) (6,316 ) Net loans $ 4,996,382 $ 4,934,379 $ 4,849,220 $ 4,524,498 $ 4,358,707 Other real estate owned and repossessed assets $ 21,990 $ 26,075 $ 21,449 $ 15,547 $ - Investment in affordable housing partnerships 61,173 62,745 54,874 56,946 59,018 Federal Home Loan Bank stock, at cost 15,000 15,000 15,000 15,000 15,000 Other assets 109,061 115,184 110,459 101,427 97,095 Total assets $ 6,421,886 $ 6,292,843 $ 6,233,041 $ 6,142,356 $ 6,046,303 Liabilities: Deposits: Demand $ 1,192,091 $ 1,341,199 $ 1,385,934 $ 1,251,613 $ 1,305,692 Interest-bearing demand 2,295,212 2,263,775 2,239,501 2,159,178 2,032,819 Savings 39,527 38,151 39,784 39,946 37,839 Time certificates of $250,000 or more 1,138,727 971,378 870,376 924,317 934,444 Other time certificates 891,440 841,173 872,357 934,615 914,717 Total deposits $ 5,556,997 $ 5,455,676 $ 5,407,952 $ 5,309,669 $ 5,225,511 Acceptances outstanding $ 1,731 $ 10,058 $ 11,053 $ 8,222 $ 10,188 Subordinated debt issuance, net 147,995 147,936 147,877 147,818 147,758 Commitments to fund investment in affordable housing partnerships 27,490 28,611 20,036 22,606 22,606 Other liabilities 59,575 60,009 54,531 58,756 53,522 Total liabilities $ 5,793,788 $ 5,702,290 $ 5,641,449 $ 5,547,071 $ 5,459,585 Equity: Net common stock, no par value $ 180,324 $ 180,324 $ 197,997 $ 209,065 $ 208,840 Retained earnings 475,072 443,409 414,393 392,610 372,952 Accumulated other comprehensive income (28,605 ) (33,180 ) (20,798 ) (6,390 ) 4,926 Total shareholders' equity $ 626,791 $ 590,553 $ 591,592 $ 595,285 $ 586,718 Total liabilities and shareholders' equity $ 6,420,579 $ 6,292,843 $ 6,233,041 $ 6,142,356 $ 6,046,303
PREFERRED BANK Quarter-To-Date Average Balances, Yield and Rates (Unaudited) Three months ended December 31, Three months ended September 30, Three months ended December 31, 2022 2022 2021 Interest Average Interest Average Interest Average Average Income or Yield/ Average Income or Yield/ Average Income or Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ASSETS (Dollars in thousands) Interest-earning assets: Loans (1,2) $ 4,981,561 87,159 6.94 % $ 4,908,870 $ 71,192 5.75 % 4,218,699 $ 51,906 4.88 % Investment securities (3) 434,830 3,993 3.64 % 410,649 2,995 2.89 % 470,811 2,228 1.88 % Federal funds sold 20,000 192 3.81 % 20,071 117 2.30 % 20,380 18 0.36 % Other earning assets 756,939 7,139 3.74 % 737,026 4,221 2.27 % 1,274,165 752 0.23 % Total interest-earning assets 6,193,330 98,483 6.31 % 6,076,616 78,525 5.13 % 5,984,055 54,904 3.64 % Deferred loan fees, net (10,003 ) (9,333 ) (5,530 ) Allowance for credit losses on loans (66,515 ) (61,477 ) (61,123 ) Non-interest earning assets: Cash and due from banks 11,569 10,562 11,933 Bank furniture and fixtures 9,237 9,615 10,810 Right of use assets 22,002 21,404 21,150 Other assets 168,322 167,797 118,639 Total assets $ 6,327,942 $ 6,215,184 $ 6,079,934 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand and savings 2,415,048 $ 13,938 2.29 % 2,223,848 $ 6,455 1.15 % $ 2,030,159 $ 1,528 0.30 % TCD $250K or more 1,017,302 6,014 2.35 % 914,373 2,517 1.09 % 942,201 1,151 0.48 % Other time certificates 854,937 2,990 1.39 % 834,884 1,333 0.63 % 972,915 1,370 0.56 % Total interest-bearing deposits 4,287,287 22,942 2.12 % 3,973,105 10,305 1.03 % 3,945,275 4,049 0.41 % Subordinated debt, net 147,958 1,325 3.55 % 147,900 1,325 3.56 % 147,724 1,325 3.56 % Total interest-bearing liabilities 4,435,245 24,267 2.17 % 4,121,005 11,630 1.12 % 4,093,002 5,374 0.52 % Non-interest bearing liabilities: Demand deposits 1,181,275 1,400,147 1,332,232 Lease Liability 21,542 21,332 22,298 Other liabilities 76,201 74,512 55,907 Total liabilities 5,714,263 5,616,996 5,503,439 Shareholders’ equity 613,679 598,188 576,495 Total liabilities and shareholders’ equity $ 6,327,942 $ 6,215,184 $ 6,079,934 Net interest income $ 74,216 $ 66,895 $ 49,530 Net interest spread 4.14 % 4.01 % 3.12 % Net interest margin 4.75 % 4.37 % 3.28 % Cost of Deposits: Non-interest bearing demand deposits $ 1,181,275 $ 1,400,147 $ 1,332,232 Interest-bearing deposits 4,287,287 22,942 2.12 % 3,973,105 10,305 1.03 % 3,945,275 4,049 0.41 % Total Deposits $ 5,468,562 $ 22,942 1.66 % $ 5,373,252 $ 10,305 0.76 % $ 5,277,507 $ 4,049 0.30 % (1) Includes non-accrual loans and loans held for sale (2) Net loan fee income of $972,000, $1.2 million and $1.1 million for the quarter ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively, are included in the yield computations (3) Yields on securities have been adjusted to a tax-equivalent basis
PREFERRED BANK Year-To-Date Average Balances, Yield and Rates (Unaudited) Year ended December 31, 2022 2021 Interest Average Interest Average Average Income or Yield/ Average Income or Yield/ Balance Expense Rate Balance Expense Rate ASSETS (Dollars in thousands) Interest-earning assets: Loans (1,2) $ 4,760,815 $ 269,011 5.65 % $ 4,138,592 $ 200,537 4.85 % Investment securities (3) 432,777 11,584 2.68 % 346,692 8,333 2.40 % Federal funds sold 20,070 374 1.86 % 21,032 81 0.38 % Other earning assets 841,270 13,837 1.64 % 1,024,118 2,520 0.25 % Total interest-earning assets 6,054,932 294,806 4.87 % 5,530,434 211,471 3.82 % Deferred loan fees, net (8,697 ) (4,997 ) Allowance for credit losses on loans (61,645 ) (63,250 ) Non-interest earning assets: Cash and due from banks 11,068 11,746 Bank furniture and fixtures 9,826 11,290 Right of use assets 21,612 19,733 Other assets 154,023 124,756 Total assets $ 6,181,119 $ 5,629,712 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand/ savings 2,223,143 $ 24,312 1.09 % 1,845,013 $ 6,021 0.33 % TCD $250K or more 938,491 10,768 1.15 % 938,179 6,299 0.67 % Other time certificates 886,816 6,644 0.75 % 959,337 6,513 0.68 % Total interest-bearing deposits 4,048,450 41,724 1.03 % 3,742,529 18,833 0.50 % Subordinated debt, net 147,871 5,300 3.58 % 126,674 6,325 4.99 % Total interest-bearing liabilities 4,196,321 47,024 1.12 % 3,869,204 25,158 0.65 % Non-interest bearing liabilities: Demand deposits 1,292,083 1,124,836 Lease Liability 21,731 21,536 Other liabilities 67,119 54,513 Total liabilities 5,577,254 5,070,089 Shareholders’ equity 603,865 559,623 Total liabilities and shareholders’ equity $ 6,181,119 $ 5,629,712 Net interest income $ 247,782 $ 186,313 Net interest spread 3.75 % 3.17 % Net interest margin 4.09 % 3.37 % Cost of Deposits: Non-interest bearing demand deposits $ 1,292,083 $ 1,124,836 Interest-bearing deposits 4,048,450 41,724 1.03 % 3,742,529 18,833 0.50 % Total Deposits $ 5,340,533 $ 41,724 0.78 % $ 4,867,365 $ 18,833 0.39 % (1) Includes non-accrual loans and loans held for sale (2) Net loan fee income of $3.8 million and $3.1 million for the twelve months ended December 31, 2022 and 2021, respectively, are included in the yield computations (3) Yields on securities have been adjusted to a tax-equivalent basis
PREFERRED BANK Loan and Credit Quality Information Allowance For Credit Losses History Year Ended December 31, 2022 December 31, 2021 (Dollars in 000's) Allowance For Credit Losses Balance at Beginning of Period $ 59,969 $ 63,426 Charge-Offs Commercial & Industrial 1,222 1,697 Mini-perm Real Estate 1 817 Total Charge-Offs 1,223 2,514 Recoveries Commercial & Industrial - 57 Mini-perm Real Estate 2,376 - Total Recoveries 2,376 57 Net Charge-Offs (recoveries) (1,153 ) 2,457 Provision for (reversal of) Credit Losses: 7,350 (1,000 ) Balance at End of Period $ 68,472 $ 59,969 Average Loans Held for Investment $ 4,760,815 $ 4,138,023 Loans Held for Investment at End of Period $ 5,074,793 $ 4,424,992 Net Charge-Offs (recoveries) to Average Loans -0.02 % 0.06 % Allowances for Credit Losses to Loans at End of Period 1.35 % 1.36 % AT THE COMPANY: AT FINANCIAL PROFILES: Edward J. Czajka Jeffrey Haas Executive Vice President General Information Chief Financial Officer (310) 622-8240 (213) 891-1188 PFBC@finprofiles.com 
