Preferred Bank Reports Quarterly Earnings

January 25, 2021 4:12 PM EST

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LOS ANGELES, Jan. 25, 2021 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended December 31, 2020. Preferred Bank (“the Bank”) reported net income of $20.9 million or $1.40 per diluted share for the fourth quarter of 2020. This is up from net income of $19.6 million or $1.31 per diluted share for the fourth quarter of 2019 and easily tops recorded net income of $17.1 million or $1.15 per diluted share for the third quarter of 2020. The primary reason for the increase compared to the prior year is a 14.0% increase in net interest income partially offset by a larger provision for credit losses in the current quarter. On a linked quarter basis, net income increased due to a smaller provision for credit losses in the current quarter ($4.2 million vs $9.0 million) as well as a $1.9 million increase in net interest income.

Li Yu, Chairman and CEO, commented, “I am pleased to report that Preferred Bank posted record quarterly earnings per share of $1.40. On a pre-provision, pre-tax (“PPPT”) basis, 2020 was also a record year for earnings for Preferred Bank. Following are the highlights for the quarter and the year:

  • Net income of $1.40 (Q4) and $4.65 (Year)
  • Return on assets (“ROA”) of 1.63% (Q4) and 1.41% (Year)
  • Return on beginning equity (“ROE”) of 16.49% (Q4) and 14.78% (Year)
  • PPPT return on beginning equity of 26.25% (Q4) and 24.76% (Year)
  • Loan growth of 2.3% (Q4) and 6.4% (Year) excluding PPP
  • Deposit growth of 0.6% (Q4) and 11.5% (Year)
  • Net interest margin of 3.66% (Q4) and 3.62% (Year)
  • Efficiency ratio of 29.9% (Q4) and 31.8% (Year)

“Fourth quarter net interest income and net interest margin were enhanced by interest recorded on a purchased credit deteriorated (“PCD”) loan of $473,000 and by $499,000 in fees received on loans made through the Main Street Lending Program (“MSLP”). Both of these items are nonrecurring. The net interest margin was 3.66% for the quarter and without these two items, the margin would have been 3.58%. During the quarter, reductions in overall interest costs outpaced a modest decline in loan yields. The quarterly results were also negatively impacted by a loss on sales of securities of $663,000.

“Loan growth in the fourth quarter was $85.7 million or 2.2% and although moderate by our standards, it was very encouraging under the current economic conditions as our clients seem to be more optimistic on the future of the nation’s economy. Deposits grew mildly at $28.1 million or 0.6%. Liquidity of the Bank remains strong.

“Preferred Bank’s credit posture improved during the quarter, specifically at December 31, 2020:

  • Loans on deferment declined to $28 million from a peak of $610 million
  • Total nonaccrual loans declined to $20.5 million
  • Loans 30-89 days past due were $4.1 million
  • Total classified loans were $54.7 million

“At December 31, 2020, the Bank’s allowance for credit losses were 1.60% of total loans, excluding PPP loans.

“We remain conscientious of controlling the Bank’s overhead. Our fourth quarter efficiency ratio came in again at 29.9%, same as the prior quarter. For the year, our profitability greatly exceeded our internal forecast. With the vaccine becoming available and with the prospects for more government stimulus to help those so much in need, our outlook for 2021 is very positive.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $46.1 million for the fourth quarter of 2020. This is an increase over the $40.4 million recorded in the fourth quarter of 2019 as well as the $44.1 million recorded in the third quarter of 2020. The increase over both periods is due to growth in average total loans as well as declining deposit costs. The Bank’s taxable equivalent net interest margin was 3.66% for the fourth quarter of 2020, nearly flat compared to the 3.67% achieved in the fourth quarter of 2019 and a 12 basis point increase from the 3.54% posted in the third quarter of 2020. The Bank was the beneficiary during the fourth quarter of a onetime loan fee on a Main Street Lending Program (“MSLP”) as well as interest recorded on a PCD loan. These two items totaled $972,000 and had the effect of increasing the margin by 8 basis points for the quarter. The Bank also continues to benefit from lower deposit costs as the Bank’s total cost of deposits went from 0.64% in the third quarter down to 0.54% in the fourth quarter. Total deposit interest expense is down by more than half, or 55% from the same period last year.

Noninterest Income. For the fourth quarter of 2020, noninterest income was $1,356,000 compared with $1,883,000 for the same quarter last year and compared to $1,605,000 for the third quarter of 2020. The decrease compared to both periods is mainly due to a loss on investment securities in the current quarter of $663,000. Partially offsetting this loss when compared to the prior quarter was an increase in LC fee income of $314,000. Service charges on deposits continue to grow as the comparison to both prior periods was positive.

Noninterest Expense. Total noninterest expense was $14.2 million for the fourth quarter of 2020. This is up compared to the $13.8 million recorded in the same quarter last year and is also up from the $13.7 million posted in the third quarter of 2020. Salaries and benefits expense totaled $9.4 million for the fourth quarter of 2020, a decrease of $306,000 from the fourth quarter of 2019 but an increase of $314,000 from the third quarter of 2020. The variances to each of the comparable periods were fairly small and were centered in various salary categories and capitalized loan salary costs. Business development and promotion was $204,000 for the quarter, an increase over the third quarter of 2020 due to year-end donations. Occupancy expense totaled $1.4 million for the quarter which represented a small decrease from the $1.5 million recorded in third quarter of 2020 and flat compared to the same period last year. Professional services expense was $1.1 million for the fourth quarter of 2020 which was an increase of $110,000 over the $974,000 recorded in the third quarter of 2020 and was up by $250,000 over the same quarter of 2019. In both instances, legal fees were the primary driver of the increase due to the two nonperforming loans. Other expenses were $1.6 million for the fourth quarter of 2020, an increase of $510,000 over the same period last year and flat compared to the third quarter of 2020. The increase over the prior year was due to FDIC insurance premiums of which there were none in the fourth quarter of 2019 compared to $660,000 in the fourth quarter of 2020. For the quarter ended December 31, 2020, the Bank’s efficiency ratio again was 29.9%, matching that of the third quarter of 2020.

Income Taxes. The Bank recorded a provision for income taxes of $8.2 million for the fourth quarter of 2020. This represents an effective tax rate (“ETR”) of 28.1% and a decrease from the ETR of 30.1% for the same quarter last year but up from the 25.7% recorded in the third quarter of 2020. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at December 31, 2020 were $4.04 billion, an increase of $310.5 million or 8.3% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.44 billion, an increase of $459.2 million or 11.5% over the $3.98 billion as of December 31, 2019. Total assets ended the quarter at $5.14 billion, an increase of $512.9 million or 11.1% over the total of $4.63 billion as of December 31, 2019.

Below is a breakdown of the Bank’s loan portfolio by segment as of December 31, 2020:

CategoryLoan CountTotal Balance(000's)% of Loan BalanceAverage LTVAverage DCR
Cash Secured75 26,515 0.66%N/AN/A
Commercial1,720 1,117,444 27.69%N/AN/A
International47 22,071 0.55%N/AN/A
Construction - 1-4 Residential46 148,825 3.69%49.9%N/A
Construction - Commercial42 215,032 5.33%57.3%N/A
Real Estate - 1-4 Residential163 251,436 6.23%57.0%1.72
Real Estate - Industrial110 285,217 7.07%54.0%1.66
Real Estate - Multifamily72 303,841 7.53%58.1%1.25
Real Estate - Office69 319,168 7.91%57.4%1.67
Real Estate - Retail120 422,989 10.48%58.9%1.58
Real Estate - Special Purpose81 579,734 14.37%53.2%1.55
Real Estate - Vacant Land3 7,295 0.18%48.5%N/A
PPP193 70,234 1.74%N/AN/A
HELOC5 1,086 0.03%37.1%N/A
Residential Mortgage403 264,507 6.55%59.5%% (DTI)
Total3,149 4,035,394 100.00%  

Asset Quality As of December 31, 2020, nonaccrual loans totaled $20.5 million, down from the $25.2 million reported as of September 30, 2020 and but an increase over the $2.1 million reported at December 31, 2019. The decrease from the prior quarter was due to a combination of the payoff/resolution of approximately $2.6 million of nonaccrual loans and charge-offs totaling $2.0 million. Total net charge-offs for the fourth quarter of 2020 were $2.0 million compared to $3.5 million in the third quarter of 2020 and to net recoveries of $99,000 in the fourth quarter of 2019.

COVID – 19 Relief Modifications Below is a breakdown of loans that are in some form of payment deferment by segment at December 31, 2020:

Loan TypeTotal in Deferral12/31/20% of TotalPortfolioWeightedAverage LTV
Commercial and Industrial$1,330 0.1%N/A 
    
Office - 0.0%57.4%
Industrial 11,829 4.1%54.0%
Retail 2,538 0.6%58.9%
Multi-Family - 0.0%58.1%
1-4 Family (Inv) 9,135 3.6%57.0%
Restaurant 1,453 6.3%47.4%
Special Purpose / Hotel - 0.0%55.3%
Special Purpose / Other 342 0.2%49.5%
Construction / AD - 0.0% 
Residential Mortgage 1,325 0.5%59.5%
Grand Total$ 27,952 0.7% 

At December 31, 2020, total dollar amount of loans in deferral were equal to 0.7% of the Bank’s loan portfolio. Of the total modifications at present, approximately 63% are for the deferral of principal only and 37% are for principal and interest deferral.

Allowance for Credit LossesDue primarily to the ongoing partial economic shutdown and uncertainty regarding future economic activity, the provision for credit losses remains elevated over more normal economic times. The provision for the fourth quarter was $4.2 million compared to $450,000 for the same period last year and to $9.0 million for the third quarter of 2020. In the first quarter of 2020, the Bank implemented the current expected credit losses (“CECL”) methodology under Accounting Standards Codification ("ASC") 326, in which the allowance for credit losses now reflects expected credit losses over the life of loans and held-to-maturity debt securities, and incorporates macroeconomic forecasts as well as historical loss rates. Between the adoption of CECL in the first quarter, and the heightened provisions for credit losses to-date this year, the Bank’s allowance coverage ratio has increased from 0.94% of total loans as of December 31, 2019 to a coverage ratio totaling 1.60% of total non-PPP loans as of December 31, 2020.

Capitalization As of December 31, 2020, the Bank’s leverage ratio was 10.03%, the common equity tier 1 capital ratio was 11.15% and the total capital ratio was 14.59%. As of December 31, 2019, the Bank’s leverage ratio was 10.32%, the common equity tier 1 ratio was 10.57% and the total risk based capital ratio was 13.70%.

Conference Call and Webcast A conference call with simultaneous webcast to discuss Preferred Bank’s fourth quarter 2020 financial results will be held tomorrow, January 26, 2021 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through February 9, 2021; the passcode is 10151566.

About Preferred BankPreferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch in Flushing, New York. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2019 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.

Financial Tables to Follow

 

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
          
     For the Quarter Ended
     December 31, September 30, December 31,
      2020   2020   2019 
Interest income:      
 Loans, including fees $51,299  $50,417  $51,052 
 Investment securities  2,320   2,335   4,269 
 Fed funds sold  30   30   162 
  Total interest income  53,649   52,782   55,483 
          
Interest expense:      
 Interest-bearing demand  1,499   1,432   3,490 
 Savings  21   20   16 
 Time certificates  4,534   5,681   10,038 
 Subordinated debit  1,532   1,530   1,530 
  Total interest expense  7,586   8,663   15,074 
  Net interest income  46,063   44,119   40,409 
Provision for credit losses  4,200   9,000   450 
  Net interest income after provision for      
   credit losses  41,863   35,119   39,959 
          
Noninterest income:      
 Fees & service charges on deposit accounts  456   428   392 
 Letters of credit fee income  1,004   690   806 
 BOLI income  96   96   93 
 Net gain (loss) on called and sale of investment securities  (663)  15   - 
 Other income  463   376   592 
  Total noninterest income  1,356   1,605   1,883 
          
Noninterest expense:      
 Salary and employee benefits  9,440   9,126   9,746 
 Net occupancy expense  1,378   1,455   1,374 
 Business development and promotion expense  204   95   258 
 Professional services  1,084   974   834 
 Office supplies and equipment expense  454   443   448 
 Net loss on sale of other real estate owned and expense  -   3   3 
 Other   1,617   1,567   1,107 
  Total noninterest expense  14,177   13,663   13,770 
  Income before provision for income taxes  29,042   23,061   28,072 
Income tax expense  8,162   5,936   8,456 
  Net income $20,880  $17,125  $19,616 
          
Dividend and earnings allocated to participating securities  (42)  (53)  (164)
Net income available to common shareholders $20,838  $17,072  $19,452 
          
Income per share available to common shareholders      
  Basic $1.40  $1.15  $1.31 
  Diluted $1.40  $1.15  $1.31 
          
Weighted-average common shares outstanding      
  Basic  14,895,925   14,893,774   14,836,374 
  Diluted  14,895,925   14,893,774   14,836,374 
          
Cash dividends per common share $0.30  $0.30  $0.30 
          

PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
          
     For the Year Ended  
     December 31, December 31, Change
      2020   2019  %
Interest income:      
 Loans, including fees $203,093  $207,218  -2.0%
 Investment securities  10,954   18,542  -40.9%
 Fed funds sold  215   961  -77.6%
  Total interest income  214,262   226,721  -5.5%
          
Interest expense:      
 Interest-bearing demand  7,761   17,956  -56.8%
 Savings  72   55  31.7%
 Time certificates  26,151   37,932  -31.1%
 FHLB borrowings  0   19  -100.0%
 Subordinated debit  6,124   6,123  0.0%
  Total interest expense  40,108   62,084  -35.4%
  Net interest income  174,154   164,637  5.8%
Provision for credit losses  26,000   3,450  653.6%
  Net interest income after provision for      
   credit losses  148,154   161,187  -8.1%
          
Noninterest income:      
 Fees & service charges on deposit accounts  1,627   1,579  3.1%
 Letters of credit fee income  3,284   3,821  -14.1%
 BOLI income  381   370  3.0%
 Net loss on called and sale of investment securities  (761)  -  -100.0%
 Other income  1,532   1,696  -9.7%
  Total noninterest income  6,063   7,466  -18.8%
          
Noninterest expense:      
 Salary and employee benefits  39,563   38,807  1.9%
 Net occupancy expense  5,525   5,121  7.9%
 Business development and promotion expense  564   840  -32.9%
 Professional services  4,078   4,417  -7.7%
 Office supplies and equipment expense  1,845   1,853  -0.4%
 Net loss on sale of other real estate owned and expense  6   1,220  -99.5%
 Other   5,777   4,989  15.8%
  Total noninterest expense  57,358   57,247  0.2%
  Income before provision for income taxes  96,859   111,406  -13.1%
Income tax expense  27,391   33,035  -17.1%
  Net income $69,468  $78,371  -11.4%
          
Dividend and earnings allocated to participating securities  (194)  (666) -70.8%
Net income available to common shareholders $69,274  $77,705  -10.9%
          
Income per share available to common shareholders      
  Basic $4.65  $5.16  -9.8%
  Diluted $4.65  $5.16  -9.8%
          
Weighted-average common shares outstanding      
  Basic  14,885,230   15,060,476  -1.2%
  Diluted  14,885,230   15,060,476  -1.2%
          
Dividends per share $1.20  $1.20  0.0%
          

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
      
   December 31, December 31,
    2020   2019 
   (Unaudited) (Audited)
Assets   
Cash and due from banks$739,465  $498,645 
Fed funds sold 20,000   37,000 
 Cash and cash equivalents 759,465   535,645 
      
Securities held to maturity, at amortized cost 6,568   7,310 
Securities available-for-sale, at fair value 239,682   240,640 
Loans 4,035,394   3,724,922 
 Less allowance for credit losses (63,426)  (34,830)
 Amortized deferred loan fees, net (4,574)  (3,028)
 Loans, net 3,967,394   3,687,064 
      
Customers' liability on acceptances 3,596   7,379 
Bank furniture and fixtures, net 11,825   12,236 
Bank-owned life insurance 9,828   9,571 
Accrued interest receivable 23,692   14,961 
Investment in affordable housing 62,521   53,142 
Federal Home Loan Bank stock 15,000   13,101 
Deferred tax assets 20,730   19,560 
Income tax receivable 1,454   3,368 
Operating lease right-of-use assets 16,106   17,103 
Other assets 3,499   7,401 
 Total assets$5,141,360  $4,628,481 
      
Liabilities and Shareholders' Equity   
Deposits:   
 Non-interest bearing demand deposits$938,911  $835,790 
 Interest-bearing deposits: 1,700,818   1,328,863 
  Savings 34,702   23,784 
  Time certificates of $250,000 or more 912,546   976,727 
  Other time certificates 855,503   818,130 
  Total deposits 4,442,480   3,983,294 
      
Acceptances outstanding 3,596   7,379 
Subordinated debt issuance 99,334   99,211 
Commitments to fund investment in affordable housing partnership 30,715   24,149 
Operating lease liabilities 18,682   20,497 
Accrued interest payable 1,245   3,324 
Other liabilities 22,556   20,612 
 Total liabilities 4,618,608   4,158,466 
      
Shareholders' equity 522,752   470,015 
 Total liabilities and shareholders' equity$5,141,360  $4,628,481 
      
Book value per common share$35.01  $31.47 
Number of common shares outstanding 14,931,861   14,933,768 
        

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
         
    For the Quarter Ended
    December 31,September 30,June 30,March 31,December 31,
     2020  2020  2020  2020  2019 
Unaudited historical quarterly operations data:     
 Interest income$53,649 $52,782 $52,164 $55,667 $55,483 
 Interest expense 7,586  8,663  9,983  13,876  15,074 
  Interest income before provision for credit losses 46,063  44,119  42,181  41,791  40,409 
 Provision for credit losses 4,200  9,000  7,500  5,300  450 
 Noninterest income 1,356  1,605  1,430  1,672  1,883 
 Noninterest expense 14,177  13,663  14,334  15,184  13,770 
 Income tax expense 8,162  5,936  6,468  6,825  8,456 
  Net income$20,880 $17,125 $15,309 $16,154 $19,616 
         
 Earnings per share     
  Basic$1.40 $1.15 $1.03 $1.08 $1.31 
  Diluted$1.40 $1.15 $1.03 $1.08 $1.31 
         
Ratios for the period:     
 Return on average assets 1.63% 1.34% 1.26% 1.40% 1.74%
 Return on beginning equity 16.49% 13.94% 13.00% 13.82% 16.95%
 Pre-provision and pre-tax return on beginning equity 26.25% 26.10% 24.85% 24.20% 24.65%
 Net interest margin (Fully-taxable equivalent) 3.66% 3.54% 3.57% 3.70% 3.67%
 Noninterest expense to average assets 1.10% 1.07% 1.18% 1.31% 1.22%
 Efficiency ratio 29.90% 29.88% 32.87% 34.93% 32.56%
 Net charge-offs (recoveries) to average loans (annualized) 0.20% 0.35% -0.01% 0.00% -0.01%
         
Ratios as of period end:     
 Tier 1 leverage capital ratio 10.03% 9.75% 9.87% 10.05% 10.32%
 Common equity tier 1 risk-based capital ratio 11.15% 11.02% 10.39% 10.80% 10.57%
 Tier 1 risk-based capital ratio 11.15% 11.02% 10.39% 10.80% 10.57%
 Total risk-based capital ratio 14.59% 14.51% 13.80% 14.26% 13.70%
 Allowances for credit losses to loans and leases at end of period 1.57% 1.55% 1.41% 1.24% 0.94%
 Allowance for credit losses to non-performing loans and leases 308.96% 243.56% 211.08% 2263.66% 1631.42%
         
Average balances:     
 Total securities$251,284 $237,801 $250,134 $247,689 $248,904 
 Total loans$3,971,537 $3,956,145 $3,919,674 $3,717,175 $3,613,400 
 Total earning assets$5,018,031 $4,975,005 $4,768,537 $4,548,512 $4,381,206 
 Total assets$5,110,041 $5,073,548 $4,868,356 $4,651,956 $4,482,210 
 Total time certificate of deposits$1,764,528 $1,841,901 $1,757,531 $1,765,816 $1,756,480 
 Total interest bearing deposits$3,508,276 $3,501,275 $3,399,924 $3,244,711 $3,050,318 
 Total deposits$4,426,326 $4,408,882 $4,220,197 $4,010,629 $3,849,825 
 Total interest bearing liabilities$3,607,592 $3,600,560 $3,499,178 $3,343,933 $3,149,511 
 Total equity$518,538 $503,421 $486,931 $475,409 $463,880 
         

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
      
   For the Year Ended
   December 31, December 31,
    2020   2019 
      
 Interest income$214,262  $226,721 
 Interest expense 40,108   62,084 
  Interest income before provision for credit losses 174,154   164,637 
 Provision for credit losses 26,000   3,450 
 Noninterest income 6,063   7,466 
 Noninterest expense 57,358   57,247 
 Income tax expense 27,391   33,035 
  Net income$69,468  $78,371 
      
 Earnings per share   
  Basic$4.65  $5.16 
  Diluted$4.65  $5.16 
      
Ratios for the period:   
 Return on average assets 1.41%  1.82%
 Return on beginning equity 14.78%  18.81%
 Pre-provision and pre-tax return on beginning equity 24.76%  27.57%
 Net interest margin (Fully-taxable equivalent) 3.62%  3.92%
 Noninterest expense to average assets 1.16%  1.33%
 Efficiency ratio 31.83%  33.26%
 Net recoverie to average loans 0.14%  -0.01%
      
Average balances:   
 Total securities$246,715  $232,537 
 Total loans$3,891,530  $3,482,218 
 Total earning assets$4,828,445  $4,213,271 
 Total assets$4,926,881  $4,315,174 
 Total time certificate of deposits$1,782,558  $1,639,829 
 Total interest bearing deposits$3,414,045  $2,975,666 
 Total deposits$4,267,334  $3,701,732 
 Total interest bearing liabilities$3,513,315  $3,075,331 
 Total equity$496,156  $449,520 
      

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
              
     As of
     December 31, September 30,June 30, March 31, December 31,
      2020   2020   2020   2020   2019 
Unaudited quarterly statement of financial position data:         
Assets:         
 Cash and cash equivalents$759,465  $807,791  $656,183  $484,869  $535,645 
 Securities held-to-maturity, at amortized cost 6,568   6,727   6,922   7,077   7,310 
 Securities available-for-sale, at fair value 239,682   219,778   270,667   235,097   240,640 
 Loans:         
  Real estate – Mortgage:         
   Real estate—Residential$523,789  $528,371  $511,354  $493,226  $468,321 
   Real estate—Commercial 1,911,485   1,808,200   1,781,660   1,730,017   1,731,017 
    Total Real Estate – Mortgage 2,435,274   2,336,571   2,293,014   2,223,243   2,199,338 
  Real estate – Construction:         
   R/E Construction — Residential 148,825   170,773   187,083   177,364   173,951 
   R/E Construction — Commercial 215,032   223,706   217,729   223,385   218,562 
    Total real estate construction loans 363,857   394,480   404,812   400,749   392,513 
  Commercial and industrial 1,165,990   1,144,051   1,192,056   1,269,242   1,132,629 
  PPP 70,234   74,551   73,524   -   - 
  Consumer and others 39   68   241   91   442 
   Gross loans 4,035,394   3,949,721   3,963,647   3,893,325   3,724,922 
 Allowance for credit losses on loans (63,426)  (61,262)  (55,762)  (48,130)  (34,830)
 Net deferred loan fees (4,574)  (4,411)  (5,097)  (3,084)  (3,028)
  Net loans, excluding loans held for sale$3,967,394  $3,884,048  $3,902,788  $3,842,111  $3,687,064 
 Loans held for sale$-  $-  $-  $-  $- 
  Net loans$3,967,394  $3,884,048  $3,902,788  $3,842,111  $3,687,064 
              
 Investment in affordable housing 62,521   47,917   49,658   51,400   53,142 
 Federal Home Loan Bank stock 15,000   15,000   15,000   13,101   13,101 
 Other assets 90,730   104,313   103,239   93,979   91,579 
  Total assets$5,141,360  $5,085,574  $5,004,457  $4,727,634  $4,628,481 
              
Liabilities:         
 Deposits:         
  Demand$938,911  $926,166  $934,764  $753,750  $835,790 
  Interest-bearing demand 1,700,818   1,620,495   1,594,682   1,503,618   1,328,863 
  Savings 34,702   32,830   27,737   23,035   23,784 
  Time certificates of $250,000 or more 912,546   977,821   970,649   1,030,282   976,727 
  Other time certificates 855,503   857,113   822,404   775,792   818,130 
   Total deposits$4,442,480  $4,414,425  $4,350,236  $4,086,477  $3,983,294 
              
 Acceptances outstanding$3,596  $7,463  $6,112  $6,507  $7,379 
 Subordinated debt issuance 99,334   99,304   99,273   99,242   99,211 
 Commitments to fund investment in affordable housing partnership 30,715   16,689   17,536   21,195   24,149 
 Other liabilities 42,483   43,826   42,571   40,428   44,433 
  Total liabilities$4,618,608  $4,581,707  $4,515,728  $4,253,849  $4,158,466 
              
Equity:           
 Net common stock, no par value$214,749  $213,519  $212,187  $210,091  $210,998 
 Retained earnings 300,969   284,568   271,923   261,095   255,050 
 Accumulated other comprehensive income 7,034   5,780   4,619   2,599   3,967 
  Total shareholders' equity$522,752  $503,867  $488,729  $473,785  $470,015 
  Total liabilities and shareholders' equity$5,141,360  $5,085,574  $5,004,457  $4,727,634  $4,628,481 
              

   PREFERRED BANK
   QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES
   (Unaudited)
              
   Three months endedDecember 31, Three months endedSeptember 30, Three months endedDecember 31,
    2020  2020  2019
   AverageInterestIncome orAverageYield/ AverageInterestIncome orAverageYield/ AverageInterestIncome orAverageYield/
   BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
ASSETS(Dollars in thousands)
Interest-earning assets:           
 Loans (1,2)$3,974,599  51,2995.13% $3,956,145 $50,4175.07% $3,614,621 $51,0525.60%
 Investment securities (3) 251,284  1,9363.07%  237,801  1,9673.29%  248,904  2,2023.51%
 Federal funds sold 22,939  300.51%  23,828  300.50%  31,647  1622.03%
 Other earning assets 769,209  4870.25%  757,231  4740.25%  486,034  2,1821.78%
  Total interest-earning assets 5,018,031  53,7524.26%  4,975,005  52,8884.23%  4,381,206  55,5985.03%
 Deferred loan fees, net (4,162)    (4,713)    (2,450)  
 Allowance for credit losses on loans (60,875)    (55,822)    (34,306)  
Noninterest earning assets:           
 Cash and due from banks 8,214     7,355     5,615   
 Bank furniture and fixtures 11,892     11,856     12,419   
 Right of use assets 16,272     16,550     17,255   
 Other assets 120,669     123,317     102,471   
  Total assets$5,110,041    $5,073,548    $4,482,210   
              
LIABILITIES AND SHAREHOLDERS' EQUITY           
Interest-bearing liabilities:           
 Deposits:           
  Interest-bearing demand and savings 1,743,748 $1,5200.35%  1,659,374 $1,4520.35% $1,293,838 $3,5061.08%
  TCD $250K or more 923,079  2,2980.99%  987,631  2,9931.21%  978,717  5,5132.23%
  Other time certificates 841,449  2,2361.06%  854,270  2,6881.25%  777,763  4,5252.31%
  Total interest-bearing deposits 3,508,276  6,0540.69%  3,501,275  7,1330.81%  3,050,318  13,5441.76%
Short-term borrowings 3  00.20%  -  -0.00%  3  02.08%
Subordinated debt 99,316  1,5326.14%  99,285  1,5306.13%  99,193  1,5306.12%
  Total interest-bearing liabilities 3,607,595  7,5860.84%  3,600,560  8,6630.96%  3,149,514  15,0741.90%
Non-interest bearing liabilities:           
 Demand deposits 918,050     907,607     799,507   
 Lease Liability 18,936     19,400     20,768   
 Other liabilities 46,922     42,560     48,541   
  Total liabilities 4,591,503     4,570,127     4,018,330   
Shareholders’ equity 518,538     503,421     463,880   
  Total liabilities and shareholders’ equity$5,110,041    $5,073,548    $4,482,210   
Net interest income $46,166   $44,225   $40,524 
Net interest spread  3.42%   3.27%   3.14%
Net interest margin  3.66%   3.54%   3.67%
              
Cost of Deposits:           
 Noninterest bearing demand deposits$918,050    $907,607    $799,507   
 Interest bearing deposits 3,508,276  6,0540.69%  3,501,275  7,1330.81%  3,050,318  13,5441.76%
  Total Deposits$4,426,326 $6,0540.54% $4,408,882 $7,1330.64% $3,849,825 $13,5441.40%
              
(1)Includes non-accrual loans and loans held for sale
(2)Net loan fee income of $1.1 million, $683,000 and $449,000 for the quarter ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively, are included in the yield computations
(3)Yields on securities have been adjusted to a tax-equivalent basis
                          

PREFERRED BANK
YEAR-TO-DATE AVERAGE BALANCES, YIELD AND RATES
(Unaudited)
          
   Year ended December 31,
   20202019
    InterestAverage  InterestAverage
   AverageIncome orYield/ AverageIncome orYield/
   BalanceExpenseRate BalanceExpenseRate
ASSETS(Dollars in thousands)
Interest-earning assets:       
 Loans (1,2)$3,892,811 $203,0935.22% $3,482,555 $207,2185.95%
 Investment securities (3) 246,715  8,1303.30%  232,537  8,6443.72%
 Federal funds sold 25,301  2150.85%  38,003  9612.53%
 Other earning assets 663,618  3,2220.49%  460,176  10,3242.24%
  Total interest-earning assets 4,828,445  214,6604.45%  4,213,271  227,1475.39%
 Deferred loan fees, net (3,788)    (1,910)  
 Allowance for credit losses on loans (51,971)    (32,903)  
Noninterest earning assets:       
 Cash and due from banks 7,545     5,597   
 Bank furniture and fixtures 12,002     11,379   
 Right of use assets 16,648     14,644   
 Other assets 118,000     105,096   
  Total assets$4,926,881    $4,315,174   
          
LIABILITIES AND SHAREHOLDERS' EQUITY       
Interest-bearing liabilities:       
 Deposits:       
  Interest-bearing demand/ savings 1,631,487 $7,8330.48%  1,335,837 $18,0101.35%
  TCD $250K or more 956,269  13,7671.44%  850,266  19,5052.29%
  Other time certificates 826,289  12,3841.50%  789,563  18,4272.33%
  Total interest-bearing deposits 3,414,045  33,9841.00%  2,975,666  55,9421.88%
Short-term borrowings 1  00.15%  1  01.57%
Subordinated debt 99,269  6,1246.17%  99,142  6,1236.18%
Long-term debt -  00.00%  522  193.71%
  Total interest-bearing liabilities 3,513,315  40,1081.14%  3,075,331  62,0842.02%
Non-interest bearing liabilities:       
 Demand deposits 853,289     726,066   
 Lease Liability 19,620     17,804   
 Other liabilities 44,501     46,453   
  Total liabilities 4,430,725     3,865,654   
Shareholders’ equity 496,156     449,520   
  Total liabilities and shareholders’ equity$4,926,881    $4,315,174   
Net interest income $174,552   $165,063 
Net interest spread  3.30%   3.37%
Net interest margin  3.62%   3.92%
          
Cost of Deposits:       
 Noninterest bearing demand deposits$853,289    $726,066   
 Interest bearing deposits 3,414,045  33,9841.00%  2,975,666  55,9421.88%
  Total Deposits$4,267,334 $33,9840.80% $3,701,732 $55,9421.51%
          
(1)Includes non-accrual loans and loans held for sale
(2)Net loan fee income of $3.0 million and $2.1 million for the year ended December 31, 2020 and 2019, respectively, are included in the yield computations
(3)Yields on securities have been adjusted to a tax-equivalent basis
                  

Preferred Bank
Loan and Credit Quality Information
       
Allowance For Credit Losses History
    Year Ended Year ended
    December 31, 2020 December 31, 2019
     
    (Dollars in 000's)
Allowance For Credit Losses    
Balance at Beginning of Period $34,830  $31,065 
 Charge-Offs    
  Commercial & Industrial  3,700   526 
  Mini-perm Real Estate  1,900   101 
  Others  7   - 
     Total Charge-Offs  5,607   627 
       
 Recoveries    
  Commercial & Industrial  -   527 
  Mini-perm Real Estate  -   415 
  Construction - Commercial  194   - 
  Land - Commercial  9   - 
     Total Recoveries  203   942 
       
 Net Charge-Offs (Recoveries)  5,404   (315)
 Provision for Credit Losses:    
  CECL Cumulative Effect Adjustment  8,000   - 
  Current Provision  26,000   3,450 
Balance at End of Period $63,426  $34,830 
Average Loans Held for Investment $3,891,530  $3,482,218 
Loans Held for Investment at End of Period $4,035,394  $3,724,922 
Net Charge-Offs (Recoveries) to Average Loans  0.14%  -0.01%
Allowances for Credit Losses to Loans at End of Period  14.59%  0.94%
       

 

AT THE COMPANY:  Edward J. Czajka  Executive Vice President  Chief Financial Officer  (213) 891-1188AT FINANCIAL PROFILES:Jeffrey HaasGeneral Information(310) 622-8240PFBC@finprofiles.com

 

 

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Source: Preferred Bank


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