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Preferred Bank Reports Record Quarterly Earnings
Source: Nasdaq GlobeNewswire / 19 Oct 2022 16:01:01 America/New_York
LOS ANGELES, Oct. 19, 2022 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended September 30, 2022. Preferred Bank (“the Bank”) reported net income of $35.2 million or $2.40 per diluted share for the third quarter of 2022. This represents an increase of $9.0 million or 34.6% over the same quarter last year and also an impressive $7.1 million or 25.4% increase over the second quarter of 2022. The primary driver of the increase over both comparable periods was net interest income which increased by 39.9% over the same period last year and increased by 18.4% over the second quarter of 2022. Net income for the nine months ended September 30, 2022 was $89.3 million or $6.00 per diluted share compared to $68.8 million or $4.61 per diluted share for the same period last year. This represents an increase in net income of 29.7% and an increase in diluted earnings per share of 30.2%. The extraordinary interest rate hikes undertaken by the Federal Open Market Committee (“FOMC”) to fend off inflation has led to a significant increase in interest income as most of the Bank’s loans are tied to the Prime rate.
Third quarter 2022 highlights:
- Return on average assets (“ROA”) of 2.25%
- Return on beginning equity (“ROBE”) of 23.60%
- Pre-provision, pre-tax (“PPPT”) ROBE of 34.59% 1
- Efficiency ratio of 25.23%
- Linked quarter loan growth (Ex-PPP) of 2.1%
Li Yu, Chairman and CEO, commented, “We have posted another record quarter aided by the Fed’s interest rate hikes onto our very asset-sensitive balance sheet. Third quarter 2022 earnings were $35.2 million or $2.40 per diluted share, which is substantially higher than the prior quarter and Q3 of the prior year.
Loan growth for the quarter (Ex-PPP) was $104.5 million or 8.5% (annualized). Our pace of loan growth has slowed under the current interest rate environment.
Deposits grew very moderately at a 3.5% annualized pace. The increase in our cost of deposits was significantly less than that of loan rates, which resulted in margin expansion. Deposit rates have accelerated since September, and are projected to continue to increase during the fourth quarter.
Our credit quality remained stable during the quarter with classified loans continuing to decline. For the quarter we have made a provision for credit losses of $2.7 million. Combined with a loan loss recovery of $2.4 million, our allowance for loan and credit losses has increased $5.1 million from the previous quarter to 1.33% of total loans (Ex-PPP).
Preferred Bank’s operating costs (non-interest expense) have increased due to growth and inflation. But, because of the interest margin expansion, our efficiency ratio actually improved to 25.2%.
We recognize the macro economy is very likely heading into a recession. There are many uncertainties ahead so our focus now is credit quality and deposit costs. We have done well so far in this uncharted economic territory and we will continue to stay alert.”
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $66.8 million for the third quarter of 2022. This was a significant increase from the $47.8 million recorded in the same quarter last year and also up sharply over the $56.4 million posted in the second quarter of 2022. The FOMC rate hikes throughout the second and third quarters drove the Bank’s loan portfolio yield higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense on deposits also rose significantly in terms of a percentage increase but in actual dollars, the increase was well behind that of interest income, leading to significant margin expansion. The taxable equivalent net interest margin rose 60 basis points on a linked quarter basis to 4.37% from the 3.77% last quarter. Comparing to the same quarter last year, the margin was up by 101 basis points over the 3.36% posted this quarter last year.
Noninterest Income. For the third quarter of 2022, noninterest income was $2.2 million compared with $2.6 million for the same quarter last year and compared to $2.8 million for the second quarter of 2022. The decrease compared to both periods is primarily due to lower LC fees. In comparison to the same quarter last year, service charges on deposits are up by $122,000 partially offsetting the decrease in LC fees.
Noninterest Expense. Total noninterest expense was $17.4 million for the third quarter of 2022. This is up compared to the $15.4 million recorded in the same quarter last year and an increase over the $17.1 million posted in the second quarter of 2022. Comparing this quarter to the third quarter of last year; personnel expense increased by $1.4 million or 12.9%, other real estate owned (“REO”) expense was $314,000 this quarter compared to $0 last year and business development and promotion increased by $116,000 this quarter. The personnel expense increase was mainly due to new hires and merit increases. Last year, the Bank did not own any OREO so this years’ expenses all were an increase. In comparing to the prior quarter; personnel expense was up by $638,000 or 5.5% from the second quarter of 2022, professional services was down by $299,000 due mainly to lower legal costs, and OREO expense decreased by $71,000 For the quarter ended September 30, 2022, the Bank’s efficiency ratio was 25.2%, easily beating the 29.0% posted last quarter and also down from the 30.4% recorded this quarter last year.
Income Taxes. The Bank recorded a provision for income taxes of $13.7 million for the third quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and slightly below the ETR of 28.7% recorded in the same period last year and equal to the 28.0% ETR posted last quarter. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.
Balance Sheet Summary
Total gross loans at September 30, 2022 were $5.01 billion, an increase of $586 million or 13.2% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.46 billion, an increase of $230 million or 4.4% over the $5.23 billion as of December 31, 2021. Total assets ended the quarter at $6.29 billion, an increase of $247 million or 4.1% over the total of $6.05 billion as of December 31, 2021.
Asset Quality
As of September 30, 2022, nonaccrual loans totaled $6.2 million, down from the $10.6 million reported as of June 30, 2022 and down from the $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $26.1 million as of September 30, 2022, compared to $21.4 million as of June 30, 2022 and zero as of the end of 2021. Total net recoveries for the third quarter of 2022 were $2.4 million as compared to zero last quarter and compared to charge-offs of $1.0 million in the same quarter of 2021.
Allowance for Credit Losses
The provision for credit losses for the third quarter of 2022 was $2.7 million as compared to $2.9 million recorded last quarter and compared to a reversal of $1.5 million recorded in the third quarter of last year. Although credit quality remains very good, the prospects for a recession in the next 18 months necessitates a provision of $2.7 million this quarter. The Bank’s allowance coverage ratio now stands at 1.33% of total loans (excluding PPP loans).
Capitalization
As of September 30, 2022, the Bank’s leverage ratio was 9.95%, the common equity tier 1 capital ratio was 10.46% and the total capital ratio stood at 14.09%. As of December 31, 2021, the Bank’s leverage ratio was 9.54%, the common equity tier 1 ratio was 11.26% and the total risk-based capital ratio was 15.37%.
GAAP – Non-GAAP Reconciliation -Third quarter 2022 PPPT ROBE Net Income $ 35,189 Add: Provision for credit losses 2,700 Add: Income tax expense 13,688 Pre-provision and pre-tax income $ 51,577 Total equity – 6/30/22 $ 591,592 Pre-provision and pre-tax ROBE 34.59 % Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank’s third quarter 2022 financial results will be held tomorrow, October 20, 2022 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.
Preferred Bank's Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through November 3, 2022; the passcode is 5793025.
About Preferred Bank
Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch in Flushing, New York. In addition, the Bank operates a Loan Production Office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2021 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.
AT THE COMPANY: AT FINANCIAL PROFILES: Edward J. Czajka Jeffrey Haas Executive Vice President General Information Chief Financial Officer (310) 622-8240 (213) 891-1188 PFBC@finprofiles.com PREFERRED BANK Condensed Consolidated Statements of Operations (unaudited) (in thousands, except for net income per share and shares) For the Quarter Ended September 30, June 30, September 30, 2022 2022 2021 Interest income: Loans, including fees $ 71,192 $ 58,541 $ 50,866 Investment securities 7,111 3,972 2,725 Fed funds sold 117 46 20 Total interest income 78,420 62,559 53,611 Interest expense: Interest-bearing demand 6,436 2,448 1,486 Savings 19 20 3 Time certificates 3,850 2,342 3,045 Subordinated debt 1,325 1,325 1,324 Total interest expense 11,630 6,135 5,858 Net interest income 66,790 56,424 47,753 Provision for (reversal of) credit losses 2,700 2,900 (1,500 ) Net interest income after provision for (reversal of) credit losses 64,090 53,524 49,253 Noninterest income: Fees & service charges on deposit accounts 703 723 581 Letters of credit fee income 956 1,329 1,576 BOLI income 100 100 98 Net gain on called and sale of investment securities - - 41 Other income 428 449 488 Total noninterest income 2,187 2,601 2,784 Noninterest expense: Salary and employee benefits 12,326 11,688 10,920 Net occupancy expense 1,452 1,441 1,430 Business development and promotion expense 214 176 98 Professional services 1,161 1,460 1,075 Office supplies and equipment expense 456 459 467 Other real estate owned expense 314 385 - Other 1,477 1,531 1,380 Total noninterest expense 17,400 17,140 15,370 Income before provision for income taxes 48,877 38,985 36,667 Income tax expense 13,688 10,916 10,522 Net income $ 35,189 $ 28,069 $ 26,145 Dividend and earnings allocated to participating securities - - (3 ) Net income available to common shareholders $ 35,189 $ 28,069 $ 26,142 Income per share available to common shareholders Basic $ 2.44 $ 1.90 $ 1.76 Diluted $ 2.40 $ 1.87 $ 1.76 Weighted-average common shares outstanding Basic 14,408,235 14,792,298 14,884,570 Diluted 14,644,452 15,006,801 14,884,570 Cash dividends per common share $ 0.43 $ 0.43 $ 0.38 PREFERRED BANK Condensed Consolidated Statements of Operations (unaudited) (in thousands, except for net income per share and shares) For the Nine Months Ended September 30, September 30, Change 2022 2021 % Interest income: Loans, including fees $ 181,852 $ 148,631 22.4 % Investment securities 13,969 7,550 85.0 % Fed funds sold 182 63 190.6 % Total interest income 196,003 156,244 25.4 % Interest expense: Interest-bearing demand 10,315 4,453 131.7 % Savings 58 40 46.4 % Time certificates 8,409 10,290 -18.3 % Subordinated debt 3,975 5,000 -20.5 % Total interest expense 22,757 19,784 15.0 % Net interest income 173,246 136,460 27.0 % Provision for credit losses 5,350 (100 ) -5450.0 % Net interest income after provision for credit losses 167,896 136,560 22.9 % Noninterest income: Fees & service charges on deposit accounts 2,097 1,532 36.9 % Letters of credit fee income 3,218 3,195 0.7 % BOLI income 299 292 2.6 % Net gain on called and sale of investment securities - 41 -100.0 % Net loss on sale of loans - (640 ) -100.0 % Other income 1,440 1,357 6.1 % Total noninterest income 7,054 5,777 22.1 % Noninterest expense: Salary and employee benefits 35,654 32,328 10.3 % Net occupancy expense 4,315 4,260 1.3 % Business development and promotion expense 491 288 70.5 % Professional services 3,864 3,052 26.6 % Office supplies and equipment expense 1,404 1,381 1.7 % Other real estate owned expense 715 - 100.0 % Other 4,254 4,677 -9.0 % Total noninterest expense 50,697 45,986 10.2 % Income before provision for income taxes 124,253 96,351 29.0 % Income tax expense 34,968 27,532 27.0 % Net income $ 89,285 $ 68,819 29.7 % Dividend and earnings allocated to participating securities $ (2 ) $ (8 ) -78.6 % Net income available to common shareholders $ 89,283 $ 68,811 29.8 % Income per share available to common shareholders Basic $ 6.09 $ 4.61 32.2 % Diluted $ 6.00 $ 4.61 30.2 % Weighted-average common shares outstanding Basic 14,653,982 14,929,519 -1.8 % Diluted 14,873,933 14,929,519 -0.4 % Dividends per share $ 1.29 $ 1.14 13.2 % PREFERRED BANK Condensed Consolidated Statements of Financial Condition (unaudited) (in thousands) September 30, December 31, 2022 2021 (Unaudited) (Audited) Assets Cash and due from banks $ 729,484 $ 1,030,610 Fed funds sold 20,000 20,000 Cash and cash equivalents 749,484 1,050,610 Securities held to maturity, at amortized cost 12,442 13,962 Securities available-for-sale, at fair value 377,534 451,911 Loans 5,010,546 4,424,992 Less allowance for credit losses (66,472 ) (59,969 ) Less amortized deferred loan fees, net (9,695 ) (6,316 ) Loans, net 4,934,379 4,358,707 Other real estate owned and repossessed assets 26,075 - Customers' liability on acceptances 10,058 10,188 Bank furniture and fixtures, net 9,377 10,533 Bank-owned life insurance 10,289 10,088 Accrued interest receivable 19,008 14,646 Investment in affordable housing partnerships 62,745 59,018 Federal Home Loan Bank stock, at cost 15,000 15,000 Deferred tax assets 41,530 26,674 Operating lease right-of-use assets 21,994 21,969 Other assets 2,928 2,997 Total assets $ 6,292,843 $ 6,046,303 Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 1,341,199 $ 1,305,692 Interest-bearing deposits: 2,263,775 2,032,819 Savings 38,151 37,839 Time certificates of $250,000 or more 971,378 934,444 Other time certificates 841,173 914,717 Total deposits 5,455,676 5,225,511 Acceptances outstanding 10,058 10,188 Subordinated debt issuance, net 147,936 147,758 Commitments to fund investment in affordable housing partnerships 28,611 22,606 Operating lease liabilities 21,692 22,861 Accrued interest payable 2,170 715 Other liabilities 36,147 29,946 Total liabilities 5,702,290 5,459,585 Shareholders' equity 590,553 586,718 Total liabilities and shareholders' equity $ 6,292,843 $ 6,046,303 Book value per common share $ 41.13 $ 39.97 Number of common shares outstanding 14,356,708 14,679,769 PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Quarter Ended September 30, June 30, March 31, December 31, September 30, 2022 2022 2022 2021 2021 Unaudited historical quarterly operations data: Interest income $ 78,420 $ 62,559 $ 55,024 $ 54,791 $ 53,611 Interest expense 11,630 6,135 4,992 5,374 5,858 Interest income before provision for credit losses 66,790 56,424 50,032 49,417 47,753 Provision (reversal of) for credit losses 2,700 2,900 (250 ) (900 ) (1,500 ) Noninterest income 2,187 2,601 2,266 1,966 2,784 Noninterest expense 17,400 17,140 16,157 14,806 15,370 Income tax expense 13,688 10,916 10,364 11,056 10,522 Net income $ 35,189 $ 28,069 $ 26,027 $ 26,421 $ 26,145 Earnings per share Basic $ 2.44 $ 1.90 $ 1.76 $ 1.80 $ 1.76 Diluted $ 2.40 $ 1.87 $ 1.74 $ 1.80 $ 1.76 Ratios for the period: Return on average assets 2.25 % 1.84 % 1.75 % 1.72 % 1.80 % Return on beginning equity 23.60 % 18.91 % 17.99 % 18.65 % 18.56 % Net interest margin (Fully-taxable equivalent) 4.37 % 3.77 % 3.42 % 3.28 % 3.36 % Noninterest expense to average assets 1.11 % 1.12 % 1.08 % 0.97 % 1.06 % Efficiency ratio 25.23 % 29.04 % 30.89 % 28.82 % 30.41 % Net charge-offs (recoveries) to average loans (annualized) -0.19 % 0.00 % 0.11 % 0.03 % 0.10 % Ratios as of period end: Tier 1 leverage capital ratio 9.95 % 9.92 % 9.92 % 9.54 % 9.64 % Common equity tier 1 risk-based capital ratio 10.46 % 10.61 % 11.20 % 11.26 % 11.19 % Tier 1 risk-based capital ratio 10.46 % 10.61 % 11.20 % 11.26 % 11.19 % Total risk-based capital ratio 14.09 % 14.31 % 15.12 % 15.37 % 15.47 % Allowances for credit losses to loans at end of period 1.33 % 1.25 % 1.27 % 1.36 % 1.41 % Allowance for credit losses to non-performing loans 10.75 x 5.27 x 27.15 x 4.05 x 2.93 x Average balances: Total securities $ 410,649 $ 430,203 $ 455,899 $ 470,811 $ 401,641 Total loans 4,908,870 4,777,353 4,367,095 4,218,699 4,156,289 Total earning assets 6,076,616 6,008,024 5,938,519 5,984,055 5,659,678 Total assets 6,215,184 6,133,703 6,044,155 6,079,934 5,760,056 Total time certificate of deposits 1,749,257 1,810,886 1,869,654 1,915,116 1,959,514 Total interest bearing deposits 3,973,105 3,982,888 3,947,616 3,945,275 3,783,704 Total deposits 5,373,252 5,301,370 5,215,810 5,277,507 4,971,607 Total interest bearing liabilities 4,121,005 4,130,729 4,095,399 4,093,002 3,931,375 Total equity 598,188 606,260 597,214 576,495 569,624 PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Nine Months Ended September 30, September 30, 2022 2021 Interest income $ 196,003 $ 156,244 Interest expense 22,757 19,784 Interest income before provision for credit losses 173,246 136,460 Provision (reversal of) for credit losses 5,350 (100 ) Non-interest income 7,054 5,777 Non-interest expense 50,697 45,986 Income tax expense 34,968 27,532 Net income $ 89,285 $ 68,819 Earnings per share Basic $ 6.09 $ 4.61 Diluted $ 6.00 $ 4.61 Ratios for the period: Return on average assets 1.95 % 1.68 % Return on beginning equity 20.35 % 17.51 % Net interest margin (Fully-taxable equivalent) 3.86 % 2.54 % Non-interest expense to average assets 1.11 % 1.12 % Efficiency ratio 28.12 % 32.33 % Net charge-offs (recoveries) to average loans -0.03 % 0.07 % Average balances: Total securities $ 432,085 $ 304,865 Total loans 4,686,424 4,110,835 Total earning assets 6,023,091 5,377,565 Total assets 6,131,640 5,477,989 Total time certificate of deposits 1,809,492 1,891,583 Total interest-bearing deposits 3,967,963 3,674,201 Total deposits 5,297,387 4,729,147 Total interest-bearing liabilities 4,115,805 3,793,782 Total equity 600,558 553,937 PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) As of September 30, June 30, March 31, December 31, September 30, 2022 2022 2022 2021 2021 Unaudited quarterly statement of financial position data: Assets: Cash and cash equivalents $ 749,484 $ 768,658 $ 985,162 $ 1,050,610 $ 1,082,634 Securities held-to-maturity, at amortized cost 12,442 12,784 13,496 13,962 15,294 Securities available-for-sale, at fair value 377,534 400,597 430,280 451,911 461,356 Loans: Real estate – Mortgage: Real estate—Residential $ 587,812 $ 581,412 $ 539,614 $ 536,286 $ 540,725 Real estate—Commercial 2,693,852 2,583,484 2,367,862 2,267,063 2,093,692 Total Real Estate – Mortgage 3,281,664 3,164,896 2,907,476 2,803,349 2,634,417 Real estate – Construction: R/E Construction — Residential 179,955 168,420 141,218 130,842 122,382 R/E Construction — Commercial 188,083 203,217 209,726 202,482 213,833 Total real estate construction loans 368,038 371,637 350,944 333,324 336,215 Commercial and industrial 1,330,028 1,336,631 1,281,559 1,245,734 1,274,847 PPP 8,067 22,186 32,554 42,467 63,897 Trade finance 22,634 24,663 18,919 11,309 12,148 Consumer and others 115 128 115 118 6 Gross loans 5,010,546 4,920,141 4,591,567 4,424,992 4,321,529 Allowance for credit losses on loans (66,472 ) (61,396 ) (58,496 ) (59,969 ) (61,135 ) Net deferred loan fees (9,695 ) (9,525 ) (8,573 ) (6,316 ) (5,498 ) Net loans $ 4,934,379 $ 4,849,220 $ 4,524,498 $ 4,358,707 $ 4,254,896 Other real estate owned and repossessed assets $ 26,075 $ 21,449 $ 15,547 $ - $ - Investment in affordable housing partnerships 62,745 54,874 56,946 59,018 53,399 Federal Home Loan Bank stock, at cost 15,000 15,000 15,000 15,000 15,000 Other assets 115,184 110,459 101,427 97,095 97,261 Total assets $ 6,292,843 $ 6,233,041 $ 6,142,356 $ 6,046,303 $ 5,979,840 Liabilities: Deposits: Demand $ 1,341,199 $ 1,385,934 $ 1,251,613 $ 1,305,692 $ 1,349,114 Interest-bearing demand 2,263,775 2,239,501 2,159,178 2,032,819 1,861,334 Savings 38,151 39,784 39,946 37,839 33,417 Time certificates of $250,000 or more 971,378 870,376 924,317 934,444 959,826 Other time certificates 841,173 872,357 934,615 914,717 990,228 Total deposits $ 5,455,676 $ 5,407,952 $ 5,309,669 $ 5,225,511 $ 5,193,919 Acceptances outstanding $ 10,058 $ 11,053 $ 8,222 $ 10,188 $ 7,697 Subordinated debt issuance, net 147,936 147,877 147,818 147,758 147,699 Commitments to fund investment in affordable housing partnerships 28,611 20,036 22,606 22,606 17,900 Other liabilities 60,009 54,531 58,756 53,522 50,604 Total liabilities $ 5,702,290 $ 5,641,449 $ 5,547,071 $ 5,459,585 $ 5,417,819 Equity: Net common stock, no par value $ 180,324 $ 197,997 $ 209,065 $ 208,840 $ 203,844 Retained earnings 443,409 414,393 392,610 372,952 352,843 Accumulated other comprehensive income (33,180 ) (20,798 ) (6,390 ) 4,926 5,334 Total shareholders' equity $ 590,553 $ 591,592 $ 595,285 $ 586,718 $ 562,021 Total liabilities and shareholders' equity $ 6,292,843 $ 6,233,041 $ 6,142,356 $ 6,046,303 $ 5,979,840 PREFERRED BANK Quarter-to-Date Average Balances, Yield and Rates (Unaudited) Three months ended Sept 30, Three months ended June 30, Three months ended Sept 30, 2022 2022 2021 Interest Average Interest Average Interest Average Average Income or Yield/ Average Income or Yield/ Average Income or Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ASSETS (Dollars in thousands) Interest-earning assets: Loans (1,2) $ 4,908,870 71,192 5.75 % $ 4,777,353 $ 58,541 4.92 % 4,156,289 $ 50,866 4.86 % Investment securities (3) 410,649 2,995 2.89 % 430,203 2,370 2.21 % 401,641 2,163 2.14 % Federal funds sold 20,071 117 2.30 % 20,088 46 0.92 % 21,837 20 0.36 % Other earning assets 737,026 4,221 2.27 % 780,380 1,708 0.88 % 1,079,911 679 0.25 % Total interest-earning assets 6,076,616 78,525 5.13 % 6,008,024 62,665 4.18 % 5,659,678 53,728 3.77 % Deferred loan fees, net (9,333 ) (9,084 ) (5,176 ) Allowance for credit losses on loans (61,477 ) (58,568 ) (63,608 ) Non-interest earning assets: Cash and due from banks 10,562 11,363 14,457 Bank furniture and fixtures 9,615 10,028 11,123 Right of use assets 21,404 21,287 21,136 Other assets 167,797 150,653 122,446 Total assets $ 6,215,184 $ 6,133,703 $ 5,760,056 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand and savings 2,223,848 $ 6,455 1.15 % 2,172,002 $ 2,468 0.46 % $ 1,824,190 $ 1,489 0.32 % TCD $250K or more 914,373 2,517 1.09 % 892,410 1,211 0.54 % 964,656 1,542 0.63 % Other time certificates 834,884 1,333 0.63 % 918,476 1,131 0.49 % 994,858 1,503 0.60 % Total interest-bearing deposits 3,973,105 10,305 1.03 % 3,982,888 4,810 0.48 % 3,783,704 4,534 0.48 % Subordinated debt, net 147,900 1,325 3.56 % 147,841 1,325 3.59 % 147,671 1,324 3.56 % Total interest-bearing liabilities 4,121,005 11,630 1.12 % 4,130,729 6,135 0.60 % 3,931,375 5,858 0.59 % Non-interest bearing liabilities: Demand deposits 1,400,147 1,318,482 1,187,903 Lease Liability 21,332 21,602 22,747 Other liabilities 74,512 56,630 48,407 Total liabilities 5,616,996 5,527,443 5,190,432 Shareholders’ equity 598,188 606,260 569,624 Total liabilities and shareholders’ equity $ 6,215,184 $ 6,133,703 $ 5,760,056 Net interest income $ 66,895 $ 56,530 $ 47,870 Net interest spread 4.01 % 3.59 % 3.18 % Net interest margin 4.37 % 3.77 % 3.36 % Cost of Deposits: Non-interest bearing demand deposits $ 1,400,147 $ 1,318,482 $ 1,187,903 Interest-bearing deposits 3,973,105 10,305 1.03 % 3,982,888 4,810 0.48 % 3,783,704 4,534 0.48 % Total Deposits $ 5,373,252 $ 10,305 0.76 % $ 5,301,370 $ 4,810 0.36 % $ 4,971,607 $ 4,534 0.36 % ________________________________________ (1) Includes non-accrual loans and loans held for sale (2) Net loan fee income of $1.2 million, $887,000 and $823,000 for the quarter ended September 30, 2022, June 30, 2022, and September 30, 2021, respectively, are included in the yield computations (3) Yields on securities have been adjusted to a tax-equivalent basis PREFERRED BANK Year-to-Date Average Balances, Yield and Rates (Unaudited) Nine months ended September 30, 2022 2021 Interest Average Interest Average Average Income or Yield/ Average Income or Yield/ Balance Expense Rate Balance Expense Rate ASSETS (Dollars in thousands) Interest-earning assets: Loans (1,2) $ 4,686,424 $ 181,852 5.19 % $ 4,111,596 $ 148,631 4.83 % Investment securities (3) 432,085 11,706 3.62 % 304,865 6,104 2.68 % Federal funds sold 20,093 182 1.21 % 21,251 63 0.39 % Other earning assets 869,489 2,478 0.38 % 939,853 1,769 0.25 % Total interest-earning assets 6,008,091 196,218 4.37 % 5,377,565 156,567 3.89 % Deferred loan fees, net (8,257 ) (4,818 ) Allowance for credit losses on loans (60,004 ) (63,967 ) Non-interest earning assets: Cash and due from banks 11,167 11,683 Bank furniture and fixtures 10,024 11,452 Right of use assets 21,480 19,255 Other assets 149,139 126,819 Total assets $ 6,131,640 $ 5,477,989 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand/ savings 2,158,471 $ 10,373 0.64 % 1,782,618 $ 4,493 0.34 % TCD $250K or more 911,931 4,755 0.70 % 936,825 5,148 0.73 % Other time certificates 897,561 3,654 0.54 % 954,758 5,143 0.72 % Total interest-bearing deposits 3,967,963 18,782 0.63 % 3,674,201 14,784 0.54 % Subordinated debt, net 147,842 3,975 3.59 % 119,581 5,000 5.59 % Total interest-bearing liabilities 4,115,805 22,757 0.74 % 3,793,782 19,784 0.70 % Non-interest bearing liabilities: Demand deposits 1,329,424 1,054,946 Lease Liability 21,795 21,280 Other liabilities 64,058 54,044 Total liabilities 5,531,082 4,924,052 Shareholders’ equity 600,558 553,937 Total liabilities and shareholders’ equity $ 6,131,640 $ 5,477,989 Net interest income $ 173,461 $ 136,783 Net interest spread 3.63 % 3.20 % Net interest margin 3.86 % 3.40 % Cost of Deposits: Non-interest bearing demand deposits $ 1,329,424 $ 1,054,946 Interest-bearing deposits 3,967,963 18,782 0.63 % 3,674,201 14,784 0.54 % Total Deposits $ 5,297,387 $ 18,782 0.47 % $ 4,729,147 $ 14,784 0.42 % ________________________________________ (1) Includes non-accrual loans and loans held for sale (2) Net loan fee income of $2.9 million and $2.0 million for the nine months ended September 30, 2022 and 2021, respectively, are included in the yield computations (3) Yields on securities have been adjusted to a tax-equivalent basis Preferred Bank Loan and Credit Quality Information Allowance For Credit Losses History Nine Months Ended Year Ended September 30, 2022 December 31, 2021 (Dollars in 000's) Allowance For Credit Losses Balance at Beginning of Period $ 59,969 $ 63,426 Charge-Offs Commercial & Industrial 1,222 1,697 Mini-perm Real Estate 1 817 Total Charge-Offs 1,223 2,514 Recoveries Commercial & Industrial - 57 Mini-perm Real Estate 2,376 - Total Recoveries 2,376 57 Net Charge-Offs (recoveries) (1,153 ) 2,457 Provision for (reversal of) Credit Losses: 5,350 (1,000 ) Balance at End of Period $ 66,472 $ 59,969 Average Loans Held for Investment $ 4,686,424 $ 4,138,023 Loans Held for Investment at End of Period $ 5,010,546 $ 4,424,992 Net Charge-Offs (recoveries) to Average Loans -0.03 % 0.06 % Allowances for Credit Losses to Loans at End of Period 1.33 % 1.36 %
1 This is a non-GAAP measure and links to the reconciliation on page 4.
