Preferred Bank Reports Quarterly Earnings

Monday, 19. October 2020 23:17

LOS ANGELES, Oct. 19, 2020 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended September 30, 2020. Preferred Bank (“the Bank”) reported net income of $17.1 million or $1.15 per diluted share for the third quarter of 2020. This is down from net income of $20.0 million or $1.32 per diluted share for the third quarter of 2019 but easily surpasses net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. The primary reason for the decrease compared to the prior year is the provision for credit losses, which totaled $9.0 million for the third quarter of 2020, as compared to $900,000 in the third quarter of 2019. Compared to the second quarter of 2020, however, the provision for credit losses increased $1.5 million over the $7.5 million recorded in that period, yet net income increased $1.9 million or $0.12 per diluted share. This was due to an increase in net interest income, an increase in noninterest income coupled with a decrease in noninterest expense.

Li Yu, Chairman and CEO, commented, “We are pleased to report third quarter net income of $17.1 million or $1.15 per share. Our earnings compare favorably with the previous two quarters. In fact, on a pre-tax, pre-provision (PTPP) basis, our third quarter and YTD earnings reached a record high. The primary reasons for the performance was significantly reduced interest cost and effective overhead control. The Bank’s third quarter efficiency ratio clocked in at 29.88%. Our net interest margin, however, compressed slightly from the previous quarter due to a larger balance sheet and much higher level of cash. Under the current interest rate environment, excess cash reduces our profitability.

Deposits continued to grow in the third quarter as we saw a $64.2 million or 1.5% increase from June 30, 2020. However, our loan balances came in $14 million below the previous quarter. The prolonged shut down of our trade area has reduced the opportunities for new loans. The uncertainties further make many new opportunities proportionately less attractive.

Our main focus at present is credit management. We elected to charge-off portions of the two loans which were placed on nonaccrual status last quarter in addition to fully reserving for any amounts which may not be collectible. In addition, due to the ongoing economic disruption caused by the pandemic, our provision for credit losses is again elevated this quarter. The allowance for credit loss to total loans now stands at 1.58% (excluding PPP loans).

A great deal of the credit management effort was also spent on loans modified under the CARES Act. These loans totaled $199.5 million at September 30, 2020 which represented a $267.6 million or 57% reduction from the $467.1 million reported on June 30, 2020. We have also been in contact with substantially all of these borrowers inquiring about their plan of resumption of scheduled payments. We are encouraged to learn that loans under modification at December 31, 2020 could be a very modest amount.

The pandemic has resulted in unprecedented uncertainties for our citizens, our economy and the banking industry. Preferred Bank’s outstanding operating metrics and earnings power will provide an additional resource in meeting the challenges ahead.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $44.1 million for the third quarter of 2020. This is an increase over the $41.5 million recorded in the third quarter of 2019 as well as the $42.2 million recorded in the second 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 3.54% for the third quarter of 2020, a 30 basis point decrease from the 3.84% achieved in the third quarter of 2019 and a 3 basis point decrease from the 3.57% posted in the second quarter of 2020. During the third quarter, compared to the second quarter, average interest-earning assets increased by $207 million, of which $184 million was centered in cash, most of which earns interest at 0.10% per annum. This brought average asset yields down to 4.23% in the quarter from 4.41% the previous quarter. Fortunately, the Bank continues to benefit from lower deposit costs as the Bank’s total cost of deposits went from 0.81% in the second quarter down to 0.64% in the third quarter. Total deposit interest expense is down by more than half, or 52% from the same period last year.

Noninterest Income. For the third quarter of 2020, noninterest income was $1,605,000 compared with $1,737,000 for the same quarter last year and compared to $1,430,000 for the second quarter of 2020. The decrease from the third quarter of 2019 was due mainly to letter of credit fee income which decreased by $183,000. In addition, the Bank incurred a loss on sale of investment securities of $113,000 in the second quarter of 2020 compared to a gain of $15,000 in the third quarter of 2020.

Noninterest Expense. Total noninterest expense was $13.7 million for the third quarter of 2020. This is down from the $13.9 million recorded in the same quarter last year and is also down from the $14.3 million posted in the second quarter of 2020. Salaries and benefits expense totaled $9.1 million for the third quarter of 2020, a decrease of $675,000 from the third quarter of 2019 and a decrease of $1.0 million from the second quarter of 2020. The decrease from the prior quarter is mostly to an increase in capitalized loan origination costs related to higher overall loan production in the third quarter versus the second quarter. The decrease from the prior year is due mainly to reduced bonus expense as the Bank’s profitability is lower than in the prior year, which is the main driver of total incentive compensation. Occupancy expense totaled $1.5 million for the quarter and this represented an increase over the $1.3 million recorded in the third quarter of 2019 and the second quarter of 2020. Professional services expense was $1.0 million for the third quarter of 2020 and was down slightly from the $1.1 million recorded in the same quarter of 2019 and flat compared to the $1.0 million posted in the second quarter of 2020. Other expenses were $1.6 million for the third quarter of 2020, an increase of $414,000 over the same period last year and up by $207,000 over the second quarter of 2020. The increase over both periods was mainly due to FDIC insurance premiums of which there were none in the third quarter of 2019 and which were also lower in the second quarter of 2020 compared to the third quarter. For the quarter ended September 30, 2020, the Bank’s efficiency ratio was 29.9%.

Income Taxes. The Bank recorded a provision for income taxes of $5.9 million for the third quarter of 2020. This represents an effective tax rate (“ETR”) of 27.5% and a slight decrease from the ETR of 29.5% for the same quarter last year and also down from the 29.7% recorded in the second 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 September 30, 2020 were $3.95 billion, an increase of $224.8 million or 6.0% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.41 billion, an increase of $421.1 million or 10.8% over the $3.98 billion as of December 31, 2019. Total assets ended the quarter at $5.09 billion, an increase of $457.1 million or 9.9% 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 September 30, 2020:

CategoryLoan  Count
Total Balance
% of Loan
Average LTVAverage
Cash Secured79 34,241 0.87%N/AN/A
Commercial1,741 1,094,872 27.72%N/AN/A
International62 15,006 0.38%N/AN/A
Construction - 1-4 Residential54 170,773 4.32%48.8%N/A
Construction - Commercial41 223,706 5.66%53.8%N/A
Real Estate - 1-4 Residential165 248,371 6.29%55.5%1.32
Real Estate - Industrial99 243,130 6.16%53.9%1.71
Real Estate - Multifamily68 282,188 7.14%58.1%1.24
Real Estate - Office70 327,786 8.30%55.5%1.66
Real Estate - Retail116 411,508 10.42%59.0%1.55
Real Estate - Special Purpose75 542,561 13.74%51.5%1.51
Real Estate - Vacant Land4 7,787 0.20%49.4%N/A
SBA227 74,551 1.89%N/AN/A
HELOC6 1,545 0.04%42.4%N/A
Residential Mortgage422 271,695 6.88%59.7%% (DTI)
Total           3,229           3,949,721 100.00%  

Asset Quality

As of September 30, 2020, nonaccrual loans totaled $25.2 million, down slightly from the $26.4 million reported as of June 30, 2020 and but an increase over the $2.1 million reported at December 31, 2019. Total net charge-offs for the third quarter of 2020 were $3.5 million compared to net recoveries of $133,000 in the second quarter of 2020 and compared to net charge-offs of $430,000 for the third quarter of 2019.

COVID – 19 Relief Modifications

Below is a breakdown of loans at September 30, 2020 that are in some form of payment deferment by segment as compared to June 30, 2020:

Loan TypePrior Qtr
Total in Deferral
Curr Qtr
Total in Deferral
% of Total
Average LTV
Quarterly Decrease
Commercial and Industrial$39,518$5,8650.6%N/A$33,65385.2%
1-4 Family (Inv)6,6243,9151.6%55.6%2,70940.9%
Special Purpose / Hotel172,53147,30513.8%54.9%125,22672.6%
Special Purpose / Other51,23212,7206.4%45.7%38,51275.2%
Construction / AD--0.0% -0.0%
Residential Mortgage26,93514,8875.5%-12,04844.7%
Grand Total$467,092$ 199,5375.1% $267,55557.3%

At September 30, 2020, total dollar amount of loans in deferral were equal to 5.1% of the Bank’s loan portfolio. Of the total modifications at present, 37% are for the deferral of interest only and 57% are for principal and interest deferral. As previously mentioned, based on communications with nearly all of those in deferral, the outlook for deferrals at year end appears modest.

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 $9.0 million for this quarter. This compares to the $7.5 million provision recorded in the second quarter of 2020 and is well ahead of the $900,000 recorded in the same 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 1.58% of total non-PPP loans.


As of September 30, 2020, the Bank’s leverage ratio was 9.75%, the common equity tier 1 capital ratio was 10.98% and the total capital ratio was 14.47%. 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 third quarter 2020 financial results will be held tomorrow, October 20, 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, 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, 2020; the passcode is 10148872.

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

Edward J. CzajkaJeffrey Haas
Executive Vice PresidentGeneral Information
Chief Financial Officer(310) 622-8240

Financial Tables to Follow

 Condensed Consolidated Statements of Operations 
 (in thousands, except for net income per share and shares) 
    For the Quarter Ended 
    September 30,  June 30,  September 30, 
    2020  2020  2019 
Interest income:         
Loans, including fees $50,417  $49,813  $52,862 
Investment securities 2,335  2,320  4,875 
Fed funds sold 30  31  222 
 Total interest income 52,782  52,164  57,959 
Interest expense:         
Interest-bearing demand 1,432  1,462  4,904 
Savings 20  17  13 
Time certificates 5,681  6,973  10,034 
Subordinated debit 1,530  1,531  1,531 
 Total interest expense 8,663  9,983  16,482 
 Net interest income 44,119  42,181  41,477 
Provision for credit losses 9,000  7,500  900 
 Net interest  income after provision for         
  credit losses 35,119  34,681  40,577 
Noninterest income:         
Fees & service charges on deposit accounts 428  339  401 
Letters of credit fee income 690  742  874 
BOLI income 96  95  94 
Net gain (loss) on called and sale of investment securities 15  (113) - 
Other income 376  367  368 
 Total noninterest income 1,605  1,430  1,737 
Noninterest expense:         
Salary and employee benefits 9,126  10,095  9,801 
Net occupancy expense 1,455  1,296  1,329 
Business development and promotion expense 95  114  109 
Professional services 974  1,006  1,149 
Office supplies and equipment expense 443  459  483 
Net loss (gain) on sale of other real estate owned and expense 3  2  (129) 
Other 1,567  1,362  1,156 
 Total noninterest expense 13,663  14,334  13,898 
 Income before provision for income taxes 23,061  21,777  28,416 
Income tax expense 5,936  6,468  8,383 
 Net income $17,125  $15,309  $20,033 
Dividend and earnings allocated to participating securities (53) (49) (168)
Net income available to common shareholders $17,072  $15,260  $19,865 
Income per share available to common shareholders         
 Basic $1.15  $1.03  $1.32 
 Diluted $1.15  $1.03  $1.32 
Weighted-average common shares outstanding         
 Basic 14,893,774  14,879,383  15,091,270 
 Diluted 14,893,774  14,879,383  15,091,270 
Cash dividends per common share $0.30  $0.30  $0.30 

 Condensed Consolidated Statements of Financial Condition  
 (in thousands)  
 September 30,  December 31,  September 30, 
 2020  2019  2019 
 (Unaudited)  (Audited)  (Unaudited) 
Cash and due from banks$780,291  $498,645  $409,189 
Fed funds sold27,500  37,000  56,000 
Cash and cash equivalents807,791  535,645  465,189 
Securities held to maturity, at amortized cost6,727  7,310  7,545 
Securities available-for-sale, at fair value219,778  240,640  242,655 
Loans3,949,721  3,724,922  3,671,450 
Less allowance for credit losses(61,262) (34,830) (34,281)
Amortized deferred loan fees, net(4,411) (3,028) (2,518)
Loans, net3,884,048  3,687,064  3,634,651 
Loans held for sale, at lower of cost or fair value-  -  2,999 
Customers' liability on acceptances7,463  7,379  7,333 
Bank furniture and fixtures, net11,797  12,236  12,438 
Bank-owned life insurance9,764  9,571  9,507 
Accrued interest receivable24,353  14,961  14,505 
Investment in affordable housing47,917  53,142  39,780 
Federal Home Loan Bank stock15,000  13,101  13,101 
Deferred tax assets21,219  19,560  17,338 
Income tax receivable9,090  3,368  3,849 
Operating lease right-of-use assets16,384  17,103  17,362 
Other assets4,243  7,401  7,232 
Total assets$5,085,574  $4,628,481  $4,495,484 
 Liabilities and Shareholders' Equity         
Non-interest bearing demand deposits$926,166  $835,790  $774,869 
Interest-bearing deposits:1,620,495  1,328,863  1,435,144 
Savings32,830  23,784  21,985 
Time certificates of $250,000 or more977,821  976,727  849,574 
Other time certificates857,113  818,130  787,392 
Total deposits4,414,425  3,983,294  3,868,964 
Acceptances outstanding7,463  7,379  7,333 
Subordinated debt issuance99,304  99,211  99,180 
Commitments to fund investment in affordable housing partnership16,689  24,149  12,904 
Operating lease liabilities19,106  20,497  20,958 
Accrued interest payable2,940  3,324  6,117 
Other liabilities21,780  20,612  20,948 
Total liabilities4,581,707  4,158,466  4,036,404 
Shareholders' equity503,867  470,015  459,080 
Total liabilities and shareholders' equity$5,085,574  $4,628,481  $4,495,484 
Book value per common share$33.74  $31.47  $30.42 
Number of common shares outstanding14,933,307  14,933,768  15,091,657 

Selected Consolidated Financial Information
(in thousands, except for ratios)
 For the Quarter Ended
 September 30,June 30,Mars 31,December 31,September 30,
Unaudited historical quarterly operations data:      
Interest income$52,782$52,164$55,667$55,483$57,959
Interest expense8,6639,98313,87615,07416,482
Interest income before provision for credit losses44,11942,18141,79140,40941,477
Provision for credit losses9,0007,5005,300450900
Noninterest income1,6051,4301,6721,8831,737
Noninterest expense13,66314,33415,18413,77013,898
Income tax expense5,9366,4686,8258,4568,383
Net income$17,125$15,309$16,154$19,616$20,033
Earnings per share     
Ratios for the period:      
Return on average assets1.34%1.26%1.40%1.74%1.81%
Return on beginning equity13.94%13.00%13.82%16.95%17.61%
Net interest margin (Fully-taxable equivalent)3.54%3.57%3.70%3.67%3.84%
Noninterest expense to average assets1.07%1.18%1.31%1.22%1.25%
Efficiency ratio29.88%32.87%34.93%32.56%32.16%
Net charge-offs (recoveries) to average loans (annualized)0.35%-0.01%0.00%-0.01%0.05%
Ratios as of period end:      
Tier 1 leverage capital ratio9.75%9.87%10.05%10.32%10.27%
Common equity tier 1 risk-based capital ratio10.98%10.39%10.80%10.57%10.40%
Tier 1 risk-based capital ratio10.98%10.39%10.80%10.57%10.40%
Total risk-based capital ratio14.47%13.80%14.26%13.70%13.53%
Allowances for credit losses to loans and leases at end of period1.55%1.41%1.24%0.94%0.93%
Allowance for credit losses to non-performing loans and leases243.56%211.08%2263.66%1631.42%895.30%
Average balances:      
Total securities$237,801$250,134$247,689$248,904$249,060
Total loans$3,956,145$3,919,674$3,717,175$3,613,4003,534,194
Total earning assets$4,975,005$4,768,537$4,548,512$4,381,206$4,298,523
Total assets$5,073,650$4,868,356$4,651,956$4,482,210$4,395,357
Total time certificate of deposits$1,841,901$1,757,531$1,765,816$1,756,480$1,650,965
Total interest bearing deposits$3,501,275$3,399,924$3,244,711$3,050,318$3,051,007
Total deposits$4,408,882$4,220,197$4,010,629$3,849,825$3,772,097
Total interest bearing liabilities$3,600,560$3,499,178$3,343,933$3,149,511$3,150,167
Total equity$503,515$486,931$475,409$463,849$460,451

Selected Consolidated Financial Information
(in thousands, except for ratios)
    As of
    September 30,  June 30,  Mars 31,  December 31,  September 30,
    2020  2020  2020  2019  2019 
Unaudited quarterly statement of financial position data:               
 Cash and cash equivalents$807,791  $656,183  $484,869  $535,645  $465,189 
 Securities held-to-maturity, at amortized cost6,727  6,922  7,077  7,310  7,545 
 Securities available-for-sale, at fair value219,778  270,667  235,097  240,640  242,655 
  Real estate – Mortgage:              
   Real estate—Residential$528,371  $511,354  $493,226  $468,321  $432,605 
   Real estate—Commercial1,808,200  1,781,660  1,730,017  1,731,017  1,751,735 
   Total Real Estate – Mortgage2,336,571  2,293,014  2,223,243  2,199,338  2,184,340 
  Real estate – Construction:              
   R/E Construction — Residential170,773  187,083  177,364  173,951  179,651 
   R/E Construction — Commercial223,706  217,729  223,385  218,562  216,812 
   Total real estate construction loans394,480  404,812  400,749  392,513  396,463 
  Commercial and industrial1,144,051  1,192,056  1,269,242  1,132,629  1,090,230 
  PPP74,551  73,524  -  -  - 
  Consumer and others68  241  91  442  417 
   Gross loans3,949,721  3,963,647  3,893,325  3,724,922  3,671,450 
 Allowance for credit  losses on loans(61,262) (55,762) (48,130) (34,830) (34,281)
 Net deferred loan fees(4,411) (5,097) (3,084) (3,028) (2,518)
  Net loans, excluding loans held for sale$3,884,048  $3,902,788  $3,842,111  $3,687,064  $3,634,651 
 Loans held for sale$-  $-  $-  $-  $2,999 
  Net loans$3,884,048  $3,902,788  $3,842,111  $3,687,064  $3,637,650 
 Investment in affordable housing47,917  49,658  51,400  53,142  39,780 
 Federal Home Loan Bank stock15,000  15,000  13,101  13,101  13,101 
 Other assets104,313  103,239  93,979  91,579  89,564 
  Total assets$5,085,574  $5,004,457  $4,727,634  $4,628,481  $4,495,484 
  Demand$926,166  $934,764  $753,750  $835,790  $774,869 
  Interest-bearing demand1,620,495  1,594,682  1,503,618  1,328,863  1,435,144 
  Savings32,830  27,737  23,035  23,784  21,985 
  Time certificates of $250,000 or more977,821  970,649  1,030,282  976,727  849,574 
  Other time certificates857,113  822,404  775,792  818,130  787,392 
   Total deposits$4,414,425  $4,350,236  $4,086,477  $3,983,294  $3,868,964 
 Acceptances outstanding$7,463  $6,112  $6,507  $7,379  $7,333 
 Subordinated debt issuance99,304  99,273  99,242  99,211  99,180 
 Commitments to fund investment in affordable housing partnership16,689  17,536  21,195  24,149  12,904 
 Other liabilities43,826  42,571  40,428  44,433  48,023 
  Total liabilities$4,581,707  $4,515,728  $4,253,849  $4,158,466  $4,036,404 
 Net common stock, no par value$213,519  $212,187  $210,091  $210,998  $215,123 
 Retained earnings284,568  271,923  261,095  255,050  239,914 
 Accumulated other comprehensive income5,780  4,619  2,599  3,967  4,043 
  Total shareholders' equity$503,867  $488,729  $473,785  $470,015  $459,080 
  Total liabilities and shareholders' equity$5,085,574  $5,004,457  $4,727,634  $4,628,481  $4,495,484 

   Three months ended September 30, Three months ended June 30, Three months ended September 30,
   2020 2020 2019
    InterestAverage  InterestAverage  InterestAverage
   AverageIncome orYield/ AverageIncome orYield/ AverageIncome orYield/
   BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
ASSETS(Dollars in thousands)
Interest-earning assets:           
 Loans (1,2)$  3,956,145$   50,4175.07% $  3,921,694$       49,8135.11% $  3,534,283$    52,8625.93%
 Investment securities (3)237,8011,9673.29% 250,1342,0983.37% 249,0602,2533.59%
 Federal funds sold23,828300.50% 24,324310.52% 35,0792222.52%
 Other earning assets757,2314740.25% 572,3853180.22% 480,1012,7372.26%
  Total interest-earning assets4,975,00552,8884.23% 4,768,53752,2604.41% 4,298,52358,0745.36%
 Deferred loan fees, net(4,713)   (3,182)   (1,742)  
 Allowance for credit losses on loans(55,724)   (48,247)   (33,717)  
Noninterest earning assets:           
 Cash and due from banks7,355   8,274   4,935  
 Bank furniture and fixtures11,856   11,993   12,656  
 Right of use assets16,550   16,768   17,525  
 Other assets123,321   114,213   97,177  
  Total assets$  5,073,650   $  4,868,356   $  4,395,357  
Interest-bearing liabilities:           
  Interest-bearing demand and savings1,659,374$     1,4520.35% 1,642,393$         1,4790.36% $  1,400,042$      4,9171.39%
  TCD $250K or more987,6312,9931.21% 945,0433,6241.54% 845,2625,1202.40%
  Other time certificates854,2702,6881.25% 812,4883,3491.66% 805,7034,9142.42%
  Total interest-bearing deposits3,501,2757,1330.81% 3,399,9248,4521.00% 3,051,00714,9511.94%
Subordinated debt99,2851,5306.13% 99,2541,5316.20% 99,1601,5316.13%
  Total interest-bearing liabilities3,600,5608,6630.96% 3,499,1789,9831.15% 3,150,16716,4822.08%
Non-interest bearing liabilities:           
 Demand deposits907,607   820,273   721,090  
 Lease Liability19,400   19,841   21,252  
 Other liabilities42,568   42,133   42,397  
  Total liabilities4,570,135   4,381,425   3,934,906  
Shareholders’ equity503,515   486,931   460,451  
  Total liabilities and shareholders’ equity$  5,073,650   $  4,868,356   $  4,395,357  
Net interest income $   44,225   $       42,277   $    41,592 
Net interest spread  3.27%   3.26%   3.28%
Net interest margin  3.54%   3.57%   3.84%
Cost of Deposits:           
 Noninterest bearing demand deposits$     907,607   $     820,273   $     721,090  
 Interest bearing deposits3,501,2757,1330.81% 3,399,9248,4521.00% 3,051,00714,9511.94%
  Total Deposits$  4,408,882$     7,1330.64% $  4,220,197$         8,4520.81% $  3,772,097$    14,9511.57%
(1)Includes non-accrual loans and loans held for sale          
(2)Net loan fee income of $683,000 and $640,000 for the quarter ended September 30, 2020 and 2019, respectively, are included in the yield computations
(3)Yields on securities have been adjusted to a tax-equivalent basis         

   Nine months ended September 30,
    InterestAverage  InterestAverage
   AverageIncome orYield/ AverageIncome orYield/
   BalanceExpenseRate BalanceExpenseRate
ASSETS(Dollars in thousands)
Interest-earning assets:       
 Loans (1,2)$   3,865,350$      151,7945.25% $   3,389,136$      156,1666.16%
 Investment securities (3)245,1816,1933.37% 215,8186,4423.99%
 Federal funds sold26,0931850.95% 42,7207992.50%
 Other earning assets628,1652,7360.58% 436,9068,1437.41%
  Total interest-earning assets4,764,789160,9084.51% 4,084,580171,5505.62%
 Deferred loan fees, net(3,662)   (1,721)  
 Allowance for credit losses on loans(48,949)   (31,776)  
Noninterest earning assets:       
 Cash and due from banks7,321   5,923  
 Bank furniture and fixtures12,039   10,201  
 Right of use assets16,774   11,852  
 Other assets117,105   110,456  
  Total assets$   4,865,417   $   4,189,515  
Interest-bearing liabilities:       
  Interest-bearing demand/ savings1,593,793$          6,3130.53% 1,324,550$        14,5041.46%
  TCD $250K or more967,41311,4691.58% 787,52213,9922.38%
  Other time certificates821,19910,1481.65% 787,35413,9022.36%
  Total interest-bearing deposits3,382,40527,9301.10% 2,899,42642,3981.96%
Subordinated debt99,2544,5926.18% 99,1084,5936.20%
Long-term debt--0.00% 1,052192.46%
  Total interest-bearing liabilities3,481,65932,5221.25% 2,999,58647,0102.10%
Non-interest bearing liabilities:       
 Demand deposits831,545   691,266  
 Lease Liability19,850   14,546  
 Other liabilities43,690   47,452  
  Total liabilities4,376,744   3,752,850  
Shareholders’ equity488,673   436,665  
  Total liabilities and shareholders’ equity$   4,865,417   $   4,189,515  
Net interest income $      128,386   $      124,540 
Net interest spread  3.26%   3.52%
Net interest margin  3.60%   4.08%
Cost of Deposits:       
 Noninterest bearing demand deposits$      831,545   $      691,266  
 Interest bearing deposits3,382,40527,9301.10% 2,899,42642,3981.96%
  Total Deposits$   4,213,950$        27,9300.89% $   3,590,692$        42,3981.58%
(1)Includes non-accrual loans and loans held for sale       
(2)Net loan fee income of $1.9 million and $1.6 million for the nine months ended September 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  
     Nine Months Ended  Year ended 
     September 30, 2020  December 31, 2019 
     (Dollars in 000's)  
Allowance For Credit Losses      
Balance at Beginning of Period $                 34,830  $               31,065 
  Commercial & Industrial 1,661  526 
  Mini-perm Real Estate 1,900  101 
  Total Charge-Offs 3,561  627 
  Commercial & Industrial -  527 
  Mini-perm Real Estate -  415 
  Construction - Commercial 193  - 
  Total Recoveries 193  942 
 Net Charge-Offs (Recoveries) 3,368  (315)
 Provision for Credit Losses:      
  CECL Cumulative Effect Adjustment 8,000  - 
  Current Provision 21,800  3,450 
Balance at End of Period $                 61,262  $               34,830 
Average Loans Held for Investment $            3,864,667  $          3,482,218 
Loans Held for Investment at End of Period $            3,949,721  $          3,724,922 
Net Charge-Offs (Recoveries) to Average Loans 0.12% -0.01% 
Allowances for Credit Losses to Loans at End of Period 1.55% 0.94%

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