LOS ANGELES, July 21, 2020 (GLOBE NEWSWIRE) — Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended June 30, 2020. Preferred Bank (“the Bank”) reported net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. This is down from net income of $20.0 million or $1.31 per diluted share for the second quarter of 2019 and also down from net income of $16.2 million or $1.08 per diluted share for the first quarter of 2020. The primary reason for the decrease compared to both periods is the provision for credit losses, which totaled $7.5 million for the second quarter of 2020, as compared to $1.6 million in the second quarter of 2019 and compared to $5.3 million in the first quarter of 2020. The higher provision for this quarter is primarily due to the ongoing uncertainty of the impact of the economic shutdown due to the COVID-19 pandemic.
Li Yu, Chairman and CEO, commented, “I am pleased to report second quarter net income of $15.3 million or $1.03 per diluted share. Given the economic backdrop, the Bank recorded an outsized provision for credit losses of $7.5 million, or nearly five times the $1.6 million provision recorded in the same period last year. In spite of that, we achieved an ROA of 1.26% and an ROE of 12.65%. This is evidence of Preferred Bank’s earnings power and I believe positions us well in this economic environment.
“We’ll be receiving approximately $1.94 million of fee income on originations of $74.8 million of Paycheck Protection Program or “PPP” loans and these fees will be accreted into income over the life of the loans which will either be when forgiveness is granted or, if forgiveness is not granted, over an approximate 2 year period. The origination of PPP loans has increased total loans for the quarter but has had a negative impact on the net interest margin due to the contractual rate of 1%. It has also affected return on assets and our capital ratios, although not as significantly.
“This quarter deposits grew at a very strong pace of $263.8 million and loans grew by $70.3 million, inclusive of PPP. The outpacing of deposit growth relative to loan growth has also negatively affected the net interest margin.
“The Bank’s net interest margin contracted 13 basis points from the first quarter to 3.57% for the second quarter. An interest reversal from downgrading of certain loans to nonaccrual status also contributed to the decrease. Between quarters, our loan yield decreased 47 basis points and deposit costs decreased 43 basis points. Going forward, we expect deposit costs to continue to improve through the maturity and repricing of TCD’s.
“Loan modification activity has moderated considerably toward the end of the quarter. Until recently, we have been granting three months of deferment only. At June 30, 2020, there were $467.1 million in loans under some type of payment deferment. Although many loans are now returning to normal payment schedule, some loans (notably hospitality industry) may require further deferment.
“Due to the uncertainty surrounding the economy, we continue to record elevated credit loss provisions. This quarter we set aside $7.5 million compared to $5.3 million last quarter. We will continue to build up our reserves based upon developments taking place regarding the economy, our loan portfolio and the pandemic.
“As of June 30, 2020, Preferred Bank became a $5 billion Bank, a milestone for our staff and the Board of Directors. The large deposit increase has enhanced liquidity at the expense of reducing our ROA and capital ratios. Regardless, our operating metrics and profitability profile remain very favorable.”
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $42.2 million for the second quarter of 2020. This is slightly above the $41.8 million recorded in the second quarter of 2019 and the $41.8 million recorded in the first quarter of 2020. The increase over both periods is due to loan growth as well as declining deposit costs. The Bank’s taxable equivalent net interest margin was 3.57% for the second quarter of 2020, a 50 basis point decrease from the 4.07% achieved in the second quarter of 2019 and a 13 basis point decrease from the 3.70% posted in the first quarter of 2020. The decrease to 3.57% this quarter was due to a number of factors which included a $521,000 interest reversal on loans placed into nonaccrual status during the quarter. In addition, the growth in loans was far outpaced by deposit growth which essentially de-levers the balance sheet during the quarter, adding to the margin compression.
Noninterest Income. For the second quarter of 2020, noninterest income was $1,430,000 compared with $1,985,000 for the same quarter last year and compared to $1,672,000 for the first quarter of 2020. The decrease from the second quarter of 2019 was due mainly to letter of credit fee income which decreased by $329,000. The decrease from the first quarter of 2020 was primarily due to a $113,000 loss on sale of securities.
Noninterest Expense. Total noninterest expense was $14.3 million for the second quarter of 2020. This represents an increase of $449,000 from the same quarter last year and a decrease of $850,000 from the first quarter of 2020. Salaries and benefits expense totaled $10.1 million for the second quarter of 2020, an increase of $616,000 over the second quarter of 2019 and a decrease of $807,000 from the first quarter of 2020. The decrease from the prior quarter is mostly to a decrease in payroll taxes and bonus expense. The increase over the prior year is due mainly to reduced loan origination volume in the current period as capitalized loan origination salary expense was lower off of lower volume. Occupancy expense totaled $1.3 million for the quarter and was flat compared to the same period last year and was down $100,000 from the first quarter of 2020. Professional services expense was $1.0 million for the second quarter of 2020 and was relatively flat compared to the $1.1 million recorded in the same quarter of 2019 and the $1.0 million recorded in the first quarter of 2020. Other expenses were $1.4 million for the second quarter of 2020, flat compared to the same period last year but up by $132,000 over the first quarter of 2020. This was due to an increase in FDIC insurance premiums.
Income Taxes. The Bank recorded a provision for income taxes of $6.5 million for the second quarter of 2020. This represents an effective tax rate (“ETR”) of 29.7% and a slight increase from the ETR of 29.5% for the same quarter last year but flat compared to the 29.7% recorded in the first 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 June 30, 2020 were $3.96 billion, an increase of $238.7 million or 6.4% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.35 billion, an increase of $366.9 million or 9.2% over the $3.98 billion as of December 31, 2019. Total assets eclipsed $5 billion to end at $5.004 billion, an increase of $376.0 million or 8.1% 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 June 30, 2020:
| Category | Loan Count | Total Balance (000’s) | % of Loan Balance | Average LTV | Average DCR | |
| Cash Secured | 84 | $ | 35,474 | 0.89% | N/A | N/A |
| Commercial | 1,706 | 1,133,758 | 28.60% | N/A | N/A | |
| International | 122 | 23,065 | 0.58% | N/A | N/A | |
| Construction – 1-4 Residential | 58 | 187,083 | 4.72% | 48.4% | N/A | |
| Construction – Commercial | 42 | 217,730 | 5.49% | 52.4% | N/A | |
| Real Estate – 1-4 Residential | 155 | 233,420 | 5.89% | 53.3% | 1.70 | |
| Real Estate – Industrial | 100 | 246,349 | 6.22% | 49.0% | 1.98 | |
| Real Estate – Multifamily | 61 | 235,106 | 5.93% | 55.9% | 1.36 | |
| Real Estate – Office | 74 | 353,895 | 8.93% | 52.3% | 1.41 | |
| Real Estate – Retail | 129 | 433,950 | 10.95% | 56.8% | 1.38 | |
| Real Estate – Special Purpose | 76 | 511,330 | 12.90% | 50.6% | 1.75 | |
| Real Estate – Vacant Land | 4 | 7,801 | 0.20% | 36.8% | N/A | |
| SBA | 210 | 73,524 | 1.85% | N/A | N/A | |
| Consumer | 6 | 1,557 | 0.04% | 42.4% | N/A | |
| Residential Mortgage | 403 | 269,606 | 6.80% | 59.8% | % (DTI) | |
| Total | 3,230 | $ | 3,963,647 | 100.00% | ||
Asset Quality
As of June 30, 2020, nonaccrual loans totaled $26.4 million, up from the $2.1 million reported as of March 31, 2020 and also up over the $2.1 million reported at December 31, 2019. Total net recoveries for the second quarter of 2020 were $132,000 compared to $0 in the first quarter of 2020 and compared to $315,000 for the second quarter of 2019.
COVID – 19 Relief Modifications
Below is a breakdown of loans at June 30, 2020 that are in some form of payment deferment by segment:
| Loan Type | # Loans Modified | Interest Deferral (000’s) | Principal Deferral (000’s) | Full Payment Deferral (000’s) | Total $ Modified (000’s) | % of Total Loan Type | Weighted Average Loan to Value | ||||
| C&I | 97 | $ | 16,546 | $ | 7,736 | $ | 15,236 | $ | 39,518 | 3.4% | – |
| Office | 3 | $ | 17,700 | $ | 10,996 | $ | – | $ | 28,696 | 8.1% | 52.3% |
| Industrial | 13 | – | 9,820 | 19,675 | 29,495 | 12.0% | 49.0% | ||||
| Retail | 22 | 32,391 | 17,259 | 38,668 | 88,319 | 20.4% | 56.8% | ||||
| Multi-Family | 3 | – | – | 17,593 | 17,593 | 7.5% | 55.9% | ||||
| 1-4R | 9 | – | – | 6,624 | 6,624 | 2.8% | 53.3% | ||||
| Restaurant | 3 | – | – | 6,149 | 6,149 | 79.6% | 46.3% | ||||
| Special Purpose / Hotel | 15 | 23,707 | 27,471 | 121,353 | 172,531 | 55.6% | 54.5% | ||||
| Special Purpose / Other | 10 | 2,438 | 17,118 | 31,677 | 51,232 | 25.5% | 44.7% | ||||
| Construction / AD | 0 | – | – | – | – | 0.0% | – | ||||
| Total CRE and Construction / AD | 78 | $ | 76,235 | $ | 82,665 | $ | 241,739 | $ | 400,640 | 16.5% | – |
| Mortgage | 34 | – | – | 26,935 | 26,935 | 10.0% | 58.6% | ||||
| Grand Total | 209 | $ | 92,782 | $ | 90,401 | $ | 283,910 | $ | 467,093 | 11.8% | – |
At June 30, 2020, total dollar amount of loans in deferral were equal to 11.78% of the Bank’s loan portfolio. Approximately 85% are deferred from 2-4 months and the remaining 15% are 6 month deferrals. Of the total modifications, 20% are for the deferral of interest only and 19% are for principal deferral only. There are approximately $4 million of requested modifications that are currently in process.
Allowance for Credit Losses
Due primarily to the ongoing partial economic shutdown and uncertainty regarding future economic activity, the provision for credit losses continues to be elevated at $7.5 million for this quarter. This compares to the $5.3 million provision recorded in the first quarter of 2020 and is well ahead of the $1.6 million recorded in this quarter last year. In the first quarter of 2020, the Bank implemented the 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 now totaling 1.41% of total loans.
Capitalization
As of June 30, 2020, the Bank’s leverage ratio was 9.87%, the common equity tier 1 capital ratio was 10.39% and the total capital ratio was 13.80%. 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 second quarter 2020 financial results will be held tomorrow, July 22, 2020 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 . Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.
Preferred Bank’s Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank’s financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank’s website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through August 5, 2020; the passcode is 10146151.
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. 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 .
Financial Tables to Follow
| PREFERRED BANK | ||||||||||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| (in thousands, except for net income per share and shares) | ||||||||||||||||
| For the Quarter Ended | ||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||
| 2020 | 2020 | 2019 | ||||||||||||||
| Interest income: | ||||||||||||||||
| Loans, including fees | $ | 49,813 | $ | 51,564 | $ | 52,844 | ||||||||||
| Investment securities | 2,320 | 3,979 | 4,707 | |||||||||||||
| Fed funds sold | 32 | 124 | 271 | |||||||||||||
| Total interest income | 52,165 | 55,667 | 57,822 | |||||||||||||
| Interest expense: | ||||||||||||||||
| Interest-bearing demand | 1,462 | 3,368 | 4,819 | |||||||||||||
| Savings | 17 | 14 | 13 | |||||||||||||
| Time certificates | 6,973 | 8,963 | 9,612 | |||||||||||||
| FHLB borrowings | – | – | 7 | |||||||||||||
| Subordinated debit | 1,531 | 1,531 | 1,530 | |||||||||||||
| Total interest expense | 9,983 | 13,876 | 15,981 | |||||||||||||
| Net interest income | 42,182 | 41,791 | 41,841 | |||||||||||||
| Provision for credit losses | 7,500 | 5,300 | 1,600 | |||||||||||||
| Net interest income after provision for | ||||||||||||||||
| credit losses | 34,682 | 36,491 | 40,241 | |||||||||||||
| Noninterest income: | ||||||||||||||||
| Fees & service charges on deposit accounts | 339 | 405 | 418 | |||||||||||||
| Letters of credit fee income | 742 | 848 | 1,071 | |||||||||||||
| BOLI income | 95 | 94 | 92 | |||||||||||||
| Net gain (loss) on called and sale of investment securities | (113 | ) | – | – | ||||||||||||
| Other income | 367 | 325 | 404 | |||||||||||||
| Total noninterest income | 1,430 | 1,672 | 1,985 | |||||||||||||
| Noninterest expense: | ||||||||||||||||
| Salary and employee benefits | 10,095 | 10,902 | 9,479 | |||||||||||||
| Net occupancy expense | 1,296 | 1,396 | 1,270 | |||||||||||||
| Business development and promotion expense | 114 | 151 | 187 | |||||||||||||
| Professional services | 1,006 | 1,014 | 1,090 | |||||||||||||
| Office supplies and equipment expense | 459 | 489 | 497 | |||||||||||||
| Net loss (gain) on sale of other real estate owned and expense | 2 | 1 | (45 | ) | ||||||||||||
| Other | 1,363 | 1,231 | 1,407 | |||||||||||||
| Total noninterest expense | 14,335 | 15,184 | 13,885 | |||||||||||||
| Income before provision for income taxes | 21,777 | 22,979 | 28,341 | |||||||||||||
| Income tax expense | 6,468 | 6,825 | 8,362 | |||||||||||||
| Net income | $ | 15,309 | $ | 16,154 | $ | 19,979 | ||||||||||
| Dividend and earnings allocated to participating securities | (49 | ) | (51 | ) | (158 | ) | ||||||||||
| Net income available to common shareholders | $ | 15,260 | $ | 16,103 | $ | 19,821 | ||||||||||
| Income per share available to common shareholders | ||||||||||||||||
| Basic | $ | 1.03 | $ | 1.08 | $ | 1.31 | ||||||||||
| Diluted | $ | 1.03 | $ | 1.08 | $ | 1.31 | ||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Basic | 14,879,383 | 14,870,715 | 15,171,399 | |||||||||||||
| Diluted | 14,879,383 | 14,870,715 | 15,171,399 | |||||||||||||
| Cash dividends per common share | $ | 0.30 | $ | 0.30 | $ | 0.30 | ||||||||||
| PREFERRED BANK | |||||||||||||||
| Condensed Consolidated Statements of Financial Condition | |||||||||||||||
| (unaudited) | |||||||||||||||
| (in thousands) | |||||||||||||||
| June 30, | December 31, | June 30, | |||||||||||||
| 2020 | 2019 | 2019 | |||||||||||||
| (Unaudited) | (Audited) | (Unaudited) | |||||||||||||
| Assets | |||||||||||||||
| Cash and due from banks | $ | 630,683 | $ | 498,645 | $ | 304,121 | |||||||||
| Fed funds sold | 25,500 | 37,000 | 47,000 | ||||||||||||
| Cash and cash equivalents | 656,183 | 535,645 | 351,121 | ||||||||||||
| Securities held to maturity, at amortized cost | 6,922 | 7,310 | 7,702 | ||||||||||||
| Securities available-for-sale, at fair value | 270,667 | 240,640 | 238,589 | ||||||||||||
| Loans | 3,963,647 | 3,724,922 | 3,585,686 | ||||||||||||
| Less allowance for credit losses | (55,762 | ) | (34,830 | ) | (33,811 | ) | |||||||||
| Amortized deferred loan fees, net | (5,097 | ) | (3,028 | ) | (1,401 | ) | |||||||||
| Loans, net | 3,902,788 | 3,687,064 | 3,550,474 | ||||||||||||
| Customers’ liability on acceptances | 6,112 | 7,379 | 8,074 | ||||||||||||
| Bank furniture and fixtures, net | 11,833 | 12,236 | 12,757 | ||||||||||||
| Bank-owned life insurance | 9,699 | 9,571 | 9,443 | ||||||||||||
| Accrued interest receivable | 20,554 | 14,961 | 15,510 | ||||||||||||
| Investment in affordable housing | 49,658 | 53,142 | 41,136 | ||||||||||||
| Federal Home Loan Bank stock | 15,000 | 13,101 | 13,101 | ||||||||||||
| Deferred tax assets | 21,671 | 19,560 | 17,804 | ||||||||||||
| Income tax receivable | 9,525 | 3,368 | 3,585 | ||||||||||||
| Operating lease right-of-use assets | 16,656 | 17,103 | 17,616 | ||||||||||||
| Other assets | 7,189 | 7,401 | 7,513 | ||||||||||||
| Total assets | $ | 5,004,457 | $ | 4,628,481 | $ | 4,294,425 | |||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||
| Deposits: | |||||||||||||||
| Non-interest bearing demand deposits | $ | 934,764 | $ | 835,790 | $ | 718,611 | |||||||||
| Interest-bearing deposits: | 1,594,682 | 1,328,863 | 1,279,104 | ||||||||||||
| Savings | 27,737 | 23,784 | 20,927 | ||||||||||||
| Time certificates of $250,000 or more | 970,649 | 976,727 | 839,203 | ||||||||||||
| Other time certificates | 822,404 | 818,130 | 819,163 | ||||||||||||
| Total deposits | 4,350,236 | 3,983,294 | 3,677,008 | ||||||||||||
| Acceptances outstanding | 6,112 | 7,379 | 8,074 | ||||||||||||
| Subordinated debt issuance | 99,273 | 99,211 | 99,149 | ||||||||||||
| Commitments to fund investment in affordable housing partnership | 17,536 | 24,149 | 15,186 | ||||||||||||
| Operating lease liabilities | 19,589 | 20,497 | 21,416 | ||||||||||||
| Accrued interest payable | 1,815 | 3,324 | 5,753 | ||||||||||||
| Other liabilities | 21,167 | 20,612 | 16,397 | ||||||||||||
| Total liabilities | 4,515,728 | 4,158,466 | 3,842,983 | ||||||||||||
| Shareholders’ equity | 488,729 | 470,015 | 451,442 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,004,457 | $ | 4,628,481 | $ | 4,294,425 | |||||||||
| Book value per common share | $ | 32.73 | $ | 31.47 | $ | 29.50 | |||||||||
| Number of common shares outstanding | 14,933,648 | 14,933,768 | 15,300,577 | ||||||||||||
| PREFERRED BANK | |||||||||||||||||||
| Selected Consolidated Financial Information | |||||||||||||||||||
| (unaudited) | |||||||||||||||||||
| (in thousands, except for ratios) | |||||||||||||||||||
| For the Quarter Ended | |||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||
| Unaudited historical quarterly operations data: | |||||||||||||||||||
| Interest income | $ | 52,165 | $ | 55,667 | $ | 55,483 | $ | 57,959 | $ | 57,822 | |||||||||
| Interest expense | 9,983 | 13,876 | 15,074 | 16,482 | 15,981 | ||||||||||||||
| Interest income before provision for credit losses | 42,182 | 41,791 | 40,409 | 41,477 | 41,841 | ||||||||||||||
| Provision for credit losses | 7,500 | 5,300 | 450 | 900 | 1,600 | ||||||||||||||
| Noninterest income | 1,430 | 1,672 | 1,883 | 1,737 | 1,985 | ||||||||||||||
| Noninterest expense | 14,335 | 15,184 | 13,770 | 13,898 | 13,885 | ||||||||||||||
| Income tax expense | 6,468 | 6,825 | 8,456 | 8,383 | 8,362 | ||||||||||||||
| Net income | $ | 15,309 | $ | 16,154 | $ | 19,616 | $ | 20,033 | $ | 19,979 | |||||||||
| Earnings per share | |||||||||||||||||||
| Basic | $ | 1.03 | $ | 1.08 | $ | 1.31 | $ | 1.32 | $ | 1.31 | |||||||||
| Diluted | $ | 1.03 | $ | 1.08 | $ | 1.31 | $ | 1.32 | $ | 1.31 | |||||||||
| Ratios for the period: | |||||||||||||||||||
| Return on average assets | 1.26 | % | 1.40 | % | 1.74 | % | 1.81 | % | 1.89 | % | |||||||||
| Return on beginning equity | 13.00 | % | 13.82 | % | 16.95 | % | 17.61 | % | 18.54 | % | |||||||||
| Net interest margin (Fully-taxable equivalent) | 3.57 | % | 3.70 | % | 3.67 | % | 3.84 | % | 4.07 | % | |||||||||
| Noninterest expense to average assets | 1.18 | % | 1.31 | % | 1.22 | % | 1.25 | % | 1.31 | % | |||||||||
| Efficiency ratio | 32.87 | % | 34.93 | % | 32.56 | % | 32.16 | % | 31.68 | % | |||||||||
| Net charge-offs (recoveries) to average loans (annualized) | -0.01 | % | 0.00 | % | -0.01 | % | 0.05 | % | -0.04 | % | |||||||||
| Ratios as of period end: | |||||||||||||||||||
| Tier 1 leverage capital ratio | 9.87 | % | 10.05 | % | 10.32 | % | 10.27 | % | 10.50 | % | |||||||||
| Common equity tier 1 risk-based capital ratio | 10.39 | % | 10.80 | % | 10.57 | % | 10.40 | % | 10.53 | % | |||||||||
| Tier 1 risk-based capital ratio | 10.39 | % | 10.80 | % | 10.57 | % | 10.40 | % | 10.53 | % | |||||||||
| Total risk-based capital ratio | 13.80 | % | 14.26 | % | 13.70 | % | 13.53 | % | 13.74 | % | |||||||||
| Allowances for credit losses to loans and leases at end of period | 1.41 | % | 1.24 | % | 0.94 | % | 0.93 | % | 0.94 | % | |||||||||
| Allowance for credit losses to non-performing loans and leases | 211.08 | % | 2263.66 | % | 1631.42 | % | 895.30 | % | 981.65 | % | |||||||||
| Average balances: | |||||||||||||||||||
| Total securities | $ | 250,134 | $ | 247,689 | $ | 248,904 | $ | 249,060 | $ | 241,664 | |||||||||
| Total loans * | $ | 3,921,694 | $ | 3,717,212 | $ | 3,614,621 | $ | 3,534,283 | $ | 3,450,583 | |||||||||
| Total earning assets | $ | 4,768,537 | $ | 4,548,512 | $ | 4,381,206 | $ | 4,298,523 | $ | 4,134,320 | |||||||||
| Total assets | $ | 4,868,356 | $ | 4,651,955 | $ | 4,482,210 | $ | 4,395,357 | $ | 4,235,612 | |||||||||
| Total time certificate of deposits | $ | 1,757,531 | $ | 1,765,816 | $ | 1,756,480 | $ | 1,650,965 | $ | 1,627,953 | |||||||||
| Total interest bearing deposits | $ | 3,399,924 | $ | 3,244,711 | $ | 3,050,318 | $ | 3,051,007 | $ | 2,924,526 | |||||||||
| Total deposits | $ | 4,220,197 | $ | 4,010,629 | $ | 3,849,825 | $ | 3,772,097 | $ | 3,625,021 | |||||||||
| Total interest bearing liabilities | $ | 3,499,178 | $ | 3,343,933 | $ | 3,149,511 | $ | 3,150,167 | $ | 3,024,452 | |||||||||
| Total equity | $ | 486,931 | $ | 475,409 | $ | 463,849 | $ | 460,451 | $ | 445,101 | |||||||||
| *Incudes loans held for sale | |||||||||||||||||||
| PREFERRED BANK | ||||||||||||||||||||||
| Selected Consolidated Financial Information | ||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||
| (in thousands, except for ratios) | ||||||||||||||||||||||
| As of | ||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | ||||||||||||||||||
| Unaudited quarterly statement of financial position data: | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 656,183 | $ | 484,869 | $ | 535,645 | $ | 465,189 | $ | 351,121 | ||||||||||||
| Securities held-to-maturity, at amortized cost | 6,922 | 7,077 | 7,310 | 7,545 | 7,702 | |||||||||||||||||
| Securities available-for-sale, at fair value | 270,667 | 235,097 | 240,640 | 242,655 | 238,589 | |||||||||||||||||
| Loans and Leases: | ||||||||||||||||||||||
| Real estate – Single and multi-family residential | 739,689 | 721,006 | 686,906 | 642,824 | 646,830 | |||||||||||||||||
| Real estate – Land | 7,801 | 7,818 | 7,838 | 7,950 | 9,330 | |||||||||||||||||
| Real estate – Commercial | 1,545,524 | 1,494,694 | 1,504,594 | 1,533,566 | 1,419,224 | |||||||||||||||||
| Real estate – For sale housing construction | 187,082 | 177,364 | 173,951 | 179,651 | 171,584 | |||||||||||||||||
| Real estate – Other construction | 217,730 | 223,385 | 218,562 | 216,812 | 212,988 | |||||||||||||||||
| Commercial and industrial, trade finance and other | 1,265,821 | 1,269,058 | 1,133,071 | 1,090,647 | 1,125,730 | |||||||||||||||||
| Gross loans | 3,963,647 | 3,893,325 | 3,724,922 | 3,671,450 | 3,585,686 | |||||||||||||||||
| Allowance for loan and lease losses | (55,762 | ) | (48,130 | ) | (34,830 | ) | (34,281 | ) | (33,811 | ) | ||||||||||||
| Net deferred loan fees | (5,097 | ) | (3,084 | ) | (3,028 | ) | (2,518 | ) | (1,401 | ) | ||||||||||||
| Net loans, excluding loans held for sale | $ | 3,902,788 | $ | 3,842,111 | $ | 3,687,064 | $ | 3,634,651 | $ | 3,550,474 | ||||||||||||
| Loans held for sale | $ | – | $ | – | $ | – | $ | 2,999 | $ | – | ||||||||||||
| Net loans and leases | $ | 3,902,788 | $ | 3,842,111 | $ | 3,687,064 | $ | 3,637,650 | $ | 3,550,474 | ||||||||||||
| Investment in affordable housing | 49,658 | 51,400 | 53,142 | 39,780 | 41,136 | |||||||||||||||||
| Federal Home Loan Bank stock | 15,000 | 13,101 | 13,101 | 13,101 | 13,101 | |||||||||||||||||
| Other assets | 103,239 | 93,979 | 91,579 | 89,564 | 92,302 | |||||||||||||||||
| Total assets | $ | 5,004,457 | $ | 4,727,634 | $ | 4,628,481 | $ | 4,495,484 | $ | 4,294,425 | ||||||||||||
| Liabilities: | ||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||
| Demand | $ | 934,764 | $ | 753,750 | $ | 835,790 | $ | 774,869 | $ | 718,611 | ||||||||||||
| Interest-bearing demand | 1,594,682 | 1,503,618 | 1,328,863 | 1,435,144 | 1,279,104 | |||||||||||||||||
| Savings | 27,737 | 23,035 | 23,784 | 21,985 | 20,927 | |||||||||||||||||
| Time certificates of $250,000 or more | 970,649 | 1,030,282 | 976,727 | 849,574 | 839,203 | |||||||||||||||||
| Other time certificates | 822,404 | 775,792 | 818,130 | 787,392 | 819,163 | |||||||||||||||||
| Total deposits | $ | 4,350,236 | $ | 4,086,477 | $ | 3,983,294 | $ | 3,868,964 | $ | 3,677,008 | ||||||||||||
| Acceptances outstanding | $ | 6,112 | $ | 6,507 | $ | 7,379 | $ | 7,333 | $ | 8,074 | ||||||||||||
| Subordinated debt issuance | 99,273 | 99,242 | 99,211 | 99,180 | 99,149 | |||||||||||||||||
| Commitments to fund investment in affordable housing partnership | 17,536 | 21,195 | 24,149 | 12,904 | 15,186 | |||||||||||||||||
| Other liabilities | 42,571 | 40,428 | 44,433 | 48,023 | 43,566 | |||||||||||||||||
| Total liabilities | $ | 4,515,728 | $ | 4,253,849 | $ | 4,158,466 | $ | 4,036,404 | $ | 3,842,983 | ||||||||||||
| Equity: | ||||||||||||||||||||||
| Net common stock, no par value | $ | 212,187 | $ | 210,091 | $ | 210,998 | $ | 215,123 | $ | 224,314 | ||||||||||||
| Retained earnings | 271,923 | 261,095 | 255,050 | 239,914 | 224,401 | |||||||||||||||||
| Accumulated other comprehensive income | 4,619 | 2,599 | 3,967 | 4,043 | 2,727 | |||||||||||||||||
| Total shareholders’ equity | $ | 488,729 | $ | 473,785 | $ | 470,015 | $ | 459,080 | $ | 451,442 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,004,457 | $ | 4,727,634 | $ | 4,628,481 | $ | 4,495,484 | $ | 4,294,425 | ||||||||||||
| PREFERRED BANK | ||||||||||||||||||||||||||
| QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Three months ended June 30, | Three months ended March 31, | Three months ended June 30, | ||||||||||||||||||||||||
| 2020 | 2020 | 2019 | ||||||||||||||||||||||||
| 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) | $ | 3,921,694 | $ | 49,813 | 5.11 | % | $ | 3,717,212 | $ | 51,564 | 5.58 | % | $ | 3,450,583 | $ | 52,844 | 6.14 | % | ||||||||
| Investment securities (3) | 250,134 | 2,098 | 3.37 | % | 247,689 | 2,127 | 3.45 | % | 241,664 | 2,276 | 3.78 | % | ||||||||||||||
| Federal funds sold | 24,324 | 31 | 0.52 | % | 30,153 | 124 | 1.66 | % | 40,067 | 271 | 2.71 | % | ||||||||||||||
| Other earning assets | 572,385 | 318 | 0.22 | % | 553,458 | 1,946 | 1.41 | % | 402,006 | 2,543 | 2.54 | % | ||||||||||||||
| Total interest-earning assets | 4,768,537 | 52,260 | 4.41 | % | 4,548,512 | 55,761 | 4.93 | % | 4,134,320 | 57,934 | 5.62 | % | ||||||||||||||
| Deferred loan fees, net | (3,182 | ) | (3,079 | ) | (1,253 | ) | ||||||||||||||||||||
| Allowance for credit losses on loans | (48,247 | ) | (42,800 | ) | (32,257 | ) | ||||||||||||||||||||
| Noninterest earning assets: | ||||||||||||||||||||||||||
| Cash and due from banks | 8,274 | 6,334 | 6,361 | |||||||||||||||||||||||
| Bank furniture and fixtures | 11,993 | 12,269 | 11,607 | |||||||||||||||||||||||
| Right of use assets | 16,768 | 17,006 | 17,547 | |||||||||||||||||||||||
| Other assets | 114,213 | 113,713 | 99,287 | |||||||||||||||||||||||
| Total assets | $ | 4,868,356 | $ | 4,651,955 | $ | 4,235,612 | ||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||
| Interest-bearing demand and savings | 1,642,393 | $ | 1,479 | 0.36 | % | 1,478,895 | $ | 3,382 | 0.92 | % | $ | 1,296,573 | $ | 4,832 | 1.49 | % | ||||||||||
| TCD $250K or more | 945,043 | 3,624 | 1.54 | % | 969,343 | 4,852 | 2.01 | % | 834,092 | 4,914 | 2.36 | % | ||||||||||||||
| Other time certificates | 812,488 | 3,349 | 1.66 | % | 796,473 | 4,111 | 2.08 | % | 793,861 | 4,698 | 2.37 | % | ||||||||||||||
| Total interest-bearing deposits | 3,399,924 | 8,452 | 1.00 | % | 3,244,711 | 12,345 | 1.53 | % | 2,924,526 | 14,444 | 1.98 | % | ||||||||||||||
| Subordinated debt | 99,254 | 1,531 | 6.20 | % | 99,222 | 1,531 | 6.21 | % | 99,118 | 1,530 | 6.19 | % | ||||||||||||||
| Long-term debt | – | – | 0.00 | % | – | – | 0.00 | % | 808 | 7 | 3.66 | % | ||||||||||||||
| Total interest-bearing liabilities | 3,499,178 | 9,983 | 1.15 | % | 3,343,933 | 13,876 | 1.67 | % | 3,024,452 | 15,981 | 2.12 | % | ||||||||||||||
| Non-interest bearing liabilities: | ||||||||||||||||||||||||||
| Demand deposits | 820,273 | 765,918 | 700,495 | |||||||||||||||||||||||
| Lease Liability | 19,841 | 20,314 | 21,474 | |||||||||||||||||||||||
| Other liabilities | 42,133 | 46,381 | 44,090 | |||||||||||||||||||||||
| Total liabilities | 4,381,425 | 4,176,546 | 3,790,511 | |||||||||||||||||||||||
| Shareholders’ equity | 486,931 | 475,409 | 445,101 | |||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,868,356 | $ | 4,651,955 | $ | 4,235,612 | ||||||||||||||||||||
| Net interest income | $ | 42,277 | $ | 41,885 | $ | 41,953 | ||||||||||||||||||||
| Net interest spread | 3.26 | % | 3.26 | % | 3.50 | % | ||||||||||||||||||||
| Net interest margin | 3.57 | % | 3.70 | % | 4.07 | % | ||||||||||||||||||||
| Cost of Deposits: | ||||||||||||||||||||||||||
| Noninterest bearing demand deposits | 820,273 | 765,918 | 700,495 | |||||||||||||||||||||||
| Interest bearing deposits | 3,399,924 | 8,452 | 1.00 | % | 3,244,711 | 12,345 | 1.53 | % | 2,924,526 | 14,444 | 1.98 | % | ||||||||||||||
| Total Deposits | 4,220,197 | 8,452 | 0.81 | % | 4,010,629 | 12,345 | 1.24 | % | 3,625,021 | 14,444 | 1.60 | % | ||||||||||||||
| (1) | Includes non-accrual loans and loans held for sale | |||||||||||||||||||||||||
| (2) | Net loan fee income of $542,000 and $541,000 for the quarter ended June 30, 2020 and 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) | ||||||||||||||||||
| Six months ended June 30, | ||||||||||||||||||
| 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) | $ | 3,819,453 | $ | 101,377 | 5.34 | % | $ | 3,389,136 | $ | 103,304 | 6.15 | % | ||||||
| Investment securities (3) | 248,912 | 4,225 | 3.41 | % | 215,818 | 4,190 | 3.92 | % | ||||||||||
| Federal funds sold | 27,238 | 156 | 1.15 | % | 42,720 | 577 | 2.72 | % | ||||||||||
| Other earning assets | 562,921 | 2,263 | 0.81 | % | 436,906 | 5,405 | 2.49 | % | ||||||||||
| Total interest-earning assets | 4,658,524 | 108,021 | 4.66 | % | 4,084,580 | 113,476 | 5.60 | % | ||||||||||
| Deferred loan fees, net | (3,131 | ) | (1,721 | ) | ||||||||||||||
| Allowance for credit losses on loans | (45,523 | ) | (31,776 | ) | ||||||||||||||
| Noninterest earning assets: | ||||||||||||||||||
| Cash and due from banks | 7,304 | 5,923 | ||||||||||||||||
| Bank furniture and fixtures | 12,131 | 10,201 | ||||||||||||||||
| Right of use assets | 16,887 | 11,852 | ||||||||||||||||
| Other assets | 113,964 | 110,456 | ||||||||||||||||
| Total assets | $ | 4,760,156 | $ | 4,189,515 | ||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||
| Deposits: | ||||||||||||||||||
| Interest-bearing demand/ savings | 1,560,644 | $ | 4,861 | 0.63 | % | 1,324,550 | $ | 9,587 | 1.46 | % | ||||||||
| TCD $250K or more | 957,193 | 8,476 | 1.78 | % | 787,522 | 8,872 | 2.27 | % | ||||||||||
| Other time certificates | 804,481 | 7,460 | 1.86 | % | 787,354 | 8,988 | 2.30 | % | ||||||||||
| Total interest-bearing deposits | 3,322,318 | 20,797 | 1.26 | % | 2,899,426 | 27,447 | 1.91 | % | ||||||||||
| Subordinated debt | 99,238 | 3,062 | 6.20 | % | 99,108 | 3,062 | 6.23 | % | ||||||||||
| Long-term debt | – | – | 0.00 | % | 1,052 | 19 | 3.71 | % | ||||||||||
| Total interest-bearing liabilities | 3,421,556 | 23,859 | 1.40 | % | 2,999,586 | 30,528 | 2.05 | % | ||||||||||
| Non-interest bearing liabilities: | ||||||||||||||||||
| Demand deposits | 793,095 | 691,266 | ||||||||||||||||
| Lease Liability | 20,077 | 14,546 | ||||||||||||||||
| Other liabilities | 44,258 | 47,452 | ||||||||||||||||
| Total liabilities | 4,278,986 | 3,752,850 | ||||||||||||||||
| Shareholders’ equity | 481,170 | 436,665 | ||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,760,156 | $ | 4,189,515 | ||||||||||||||
| Net interest income | $ | 84,162 | $ | 82,948 | ||||||||||||||
| Net interest spread | 3.26 | % | 3.55 | % | ||||||||||||||
| Net interest margin | 3.63 | % | 4.10 | % | ||||||||||||||
| Cost of Deposits: | ||||||||||||||||||
| Noninterest bearing demand deposits | 793,095 | 691,266 | ||||||||||||||||
| Interest bearing deposits | 3,322,318 | 20,797 | 1.26 | % | 2,899,426 | 27,447 | 1.91 | % | ||||||||||
| Total Deposits | 4,115,413 | 20,797 | 1.02 | % | 3,590,692 | 27,447 | 1.54 | % | ||||||||||
| (1) | Includes non-accrual loans and loans held for sale | |||||||||||||||||
| (2) | Net loan fee income of $1.2 million and $973,000 for the six months ended June 30, 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 | ||||||||||||
| Six Months Ended | Year ended | |||||||||||
| June 30, 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 | 61 | 526 | ||||||||||
| Mini-perm Real Estate | – | 101 | ||||||||||
| Total Charge-Offs | 61 | 627 | ||||||||||
| Recoveries | ||||||||||||
| Commercial & Industrial | – | 527 | ||||||||||
| Mini-perm Real Estate | 193 | 415 | ||||||||||
| Total Recoveries | 193 | 942 | ||||||||||
| Net Recoveries | (132 | ) | (315 | ) | ||||||||
| Provision for Credit Losses: | ||||||||||||
| CECL Cumulative Effect Adjustment | 8,000 | – | ||||||||||
| Current Provision | 12,800 | 3,450 | ||||||||||
| Balance at End of Period | $ | 55,762 | $ | 34,830 | ||||||||
| Average Loans Held for Investment | $ | 3,818,424 | $ | 3,482,218 | ||||||||
| Loans Held for Investment at End of Period | $ | 3,963,647 | $ | 3,724,922 | ||||||||
| Net Recoveries to Average Loans | -0.01% | -0.01% | ||||||||||
| Allowances for Credit Losses to Loans at End of Period | 1.41% | 0.94% | ||||||||||
| 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 |
