Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended March 31, 2023. Preferred Bank (“the Bank”) reported net income of $38.1 million or $2.61 per diluted share for the first quarter of 2023. This represents an increase of $12.0 million or 46.3% over the same quarter last year but a small decrease of $1.5 million from the fourth quarter of 2022. The primary driver of the increase over the prior year quarter was net interest income which increased by $23.7 million or 47.3% over the same period last year. The decrease in net income on a linked quarter basis was due mainly to a $4.2 million loss on sale of a $5.0 million corporate note issued by Signature Bank of New York (SBNY). Also on a linked quarter basis, net interest income was relatively flat as both interest income and interest expense increased by nearly the same amount while noninterest expense was down slightly this quarter compared to last.

The unprecedented turmoil created by the failures of Silicon Valley Bank (SVB) and SBNY created a difficult operating environment and as a result, the Bank’s total deposits declined slightly from year-end 2022. In that regard, we believe it is important to highlight how the Bank’s balance sheet was managed prior to this crisis:

At Year End 2022:

  • Total cash on hand of $768 million equaled 13.8% of total deposits
  • Tangible common equity was 9.82% - low amount of AOCI adjustment
  • Held-to-Maturity portfolio totaled only $22.5 million, market value of $20.5 million
  • Our loan to deposit ratio was only 91.3%
  • No short term borrowings

Highlights for the Quarter:

  • Net income of $38.1 million or $2.61 per diluted share. Net income was affected by the loss on sale of Signature Bank subordinated debt of $4.16 million.
  • Net interest income $73.7 in the first quarter of 2023, compared to $74.1 for the fourth quarter 2022. Note that the first quarter of 2023 has two fewer days of operation compared to the previous quarter.
  • Return of average assets was 2.41%
  • Return on beginning equity of 24.47%
  • Net interest margin was 4.77%
  • Total loans decreased $17 million from year-end 2022
  • Total deposits decreased $149 million from year-end 2022
  • Efficiency ratio was 26.0%
  • Quarter-end cash on hand was $886 million or 16.4% of total deposits
  • Quarter-end held to maturity security portfolio of $22.2 million with market value of $20.6 million
  • The allowance for credit losses to total loans increased to 1.36%

Li Yu, Chairman and CEO, commented, “I am truly pleased to report first quarter 2023 net income of $38.1 million or $2.61 per diluted share under a highly strained operating environment.

“We in the banking industry have been truly humbled by the historic events of early March when two good-sized banks failed within days of each other.   We have learned a great deal in the weeks following these failures and the following are my observations:

  • The definition for transactional accounts should be revised. True, they are “core deposits” by definition, but we now know that only holds true in good times. Conversely, they are the source of a deposit “run” in more stressful conditions. I now appreciate our TCD (time certificate of deposit) portfolio even more. Aside from knowing the duration of our funding at a known cost, we did not experience even one TCD withdrawal during the second week of March.
  • The golden rule of not borrowing short to lend or invest long, still stands. In doing this however, we are going against the grain, so to speak. I cannot count how many times we have seen the disappointment in the faces of our loan officers when their floating rate loan gets paid off by a low fixed rate long-term loan. The events of early March only confirm my belief that it is well worth the agony in order to have a better positioned balance sheet.
  • We must respect the fact that government policy change is always one of our biggest risks that we face in the industry. Back in 2021, we were all convinced that inflation was ‘transitory’ by public officials. I highly doubt that anyone was preparing at the time for a nearly 500 basis point rate increase in 2022.
  • We managers of publicly traded banks will continue to be confronted by “beat” or “miss” of our quarterly financial results. But it is very clear to me that we must place more weight in longer-term balance sheet management. I hope our shareholders will also do so.

“Going forward, Preferred Bank will continue to maintain its balance sheet flexibility by keeping a relatively short duration balance sheet, maintain high levels of liquidity, control our overhead and operate a simple business model.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $73.7 million for the first quarter of 2023. This was a significant increase from the $50.0 million recorded in the same quarter last year but down slightly from the $74.1 million posted in the fourth quarter of 2022. The FOMC rate hikes throughout 2022 and into 2023 drove loan portfolio yields higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense increased this quarter slightly more than did interest income as deposit rates continued to climb during most of the quarter. Despite the increasing deposit rates, the Bank’s taxable equivalent net interest margin rose 2 basis points on a linked quarter basis to 4.77% from 4.75% last quarter. Comparing to the same quarter last year, the margin was up by an impressive 135 basis points over the 3.42% posted this quarter last year.

Noninterest Income. For the first quarter of 2023, noninterest income was ($1.1 million) compared with $2.3 million for the same quarter last year and compared to $2.8 million for the fourth quarter of 2022. The decrease compared to both quarters was mainly due to the loss on sale of the SBNY corporate note which was sold in the days following its failure. Letter of credit (“LC”) fees were $1.3 million for the quarter, and increase of $392,000 over the same period last year and a small increase of $79,000 over last quarter. Gains on sales of SBA loans were $340,000 compared to $0 in both comparable periods as the Bank’s SBA department is now originating and selling loans. Finally, service charges on deposits were up slightly over both comparable periods.

Noninterest Expense. Total noninterest expense was $18.9 million for the first quarter of 2023 compared to $20.0 million for the fourth quarter of 2022 and compared to the $16.2 million recorded in the same period last year. Comparing this quarter to the first quarter of last year; personnel expense increased by $2.1 million or 17.9% and other expense increased by $721,000 or 57.9%. The personnel expense increase was mainly due to new hires, merit increases and an increase in incentive compensation. The increase in other expense was mainly due to an increase in FDIC premiums of $510,000 over the same period last year. In comparing to the prior quarter; personnel expense was up by $775,000 or 6.0% and other expense was up by $299,000 or 17.9%. Offsetting this, the Bank incurred a $2.1 million in OREO expenses last quarter (valuation allowance and loss on sale). For the quarter ended March 31, 2023, the Bank’s efficiency ratio was 26.1% slightly higher than the 26.0% posted last quarter but easily surpassing the 30.9% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $15.2 million for the first quarter of 2023. This represents an effective tax rate (“ETR”) of 28.5% and slightly higher than the 28.0% ETR for the fourth quarter of 2022 but even with the 28.5% ETR recorded in the first quarter of 2022. 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 March 31, 2023 were $5.06 billion, a decrease of $17.1 million from the total of $5.07 billion as of December 31, 2022. Total deposits decreased to $5.41 billion from the 5.56 billion as of December 31, 2022. Total assets were $6.46 billion, an increase of $36.2 million over the total of $6.43 billion as of December 31, 2022.

Uninsured Deposits

As of March 31, 2023, total uninsured deposits represented approximately 49.5 % of total deposits. Since mid-March, we have been diligently working with our larger deposit clients to enroll them in the IntraFi/ICS program to ensure that all of their deposits are FDIC insured. Since mid-March, we have been working with IntraFi/ICS and another firm in order to parse out our larger deposit accounts through their networks in order to increase the insurance coverage on our depositor base. Along these lines, we also hope to bring back some depositors who left in the aftermath of SVN and SBNY.

Balance Sheet Fair Market Values from December 31, 2022

With so much focus recently on ASC Topic 825, Financial Instruments, formerly known as FASB 107, we felt it would be beneficial for shareholders to view the Bank’s disclosure in its recently filed 2022 Annual Report on Form 10-K.

    December 31, 2022
    Carrying Amount   Estimated Fair Value
         
Assets:        
Cash and cash equivalents   $ 767,526   $ 767,526
Securities held-to-maturity     22,459     20,517
Securities available-for-sale     428,295     428,295
Loans, net of ACL and net deferred loan fees     4,996,382     5,066,775
Accrued interest receivable     23,593     23,593
Federal Home Loan Bank stock     15,000   N/A
         
         
Liabilities:        
Demand deposits and savings:        
Non-interest bearing   $ 1,192,091   $ 1,192,091
Interest-bearing     2,334,739     2,334,739
Time deposits     2,030,167     2,055,438
Subordinated debt issuance     147,995     164,477
Accured interest payable     2,608     2,608
         

Liquidity

As of March 31, 2023, the Bank had $886 million in cash and fed funds on the balance sheet representing 16.4% of total deposits. In addition, the Bank had $304 million in FHLB borrowing availability, $100 million in available funds from the FRB Discount window and $200 million in available for sale securities that were unpledged. All summed, this totals $1.49 billion of total liquidity or 27.6% of total deposits. The Bank still has a considerable number of loans yet to be pledged to the FHLB so the total availability of liquidity will increase over the coming month.

Asset Quality

As of March 31, 2023, nonaccrual loans totaled just $271,000, down from the $5.5 million reported as of December 31, 2022 and down from the $2.2 million reported as of March 31, 2022. In addition, OREO and repossessed assets totaled $18.6 million as of March 31, 2023, down from the $22.0 million as of December 31, 2022 as the Bank was able to sell most of the equipment associated with the other foreclosed assets. In addition to that, the Bank’s total classified assets remained constant at $43.1 million compared to $43.1 million as of December 31, 2022. Total net charge-offs were $43,000 for the first quarter of 2023 as compared to net charge off of $1.2 million in the same quarter last year and compared to $0 in the prior quarter. Management is acutely aware that commercial real estate is falling under some pressure given the change in interest rates over the past year, especially office properties. However in reviewing the portfolio, with delinquencies and nonaccrual loans down and classified assets flat, this weakness has yet to appear. We will be vigilant going forward.

Allowance for Credit Losses

The provision for credit losses for the first quarter of 2023 was $500,000 compared to $2.0 million last quarter and compared to the reversal of $250,000 in the same quarter last year.   The economic indicators and most likely scenarios did not require a total ACL in excess of what was recorded. The Bank’s allowance coverage ratio now stands at 1.36% of total loans.

Capitalization

As of March 31, 2023, the Bank’s leverage ratio was 10.63%, the common equity tier 1 capital ratio was 11.30% and the total capital ratio stood at 14.91%. As of December 31, 2022, the Bank’s leverage ratio was 10.30%, the common equity tier 1 ratio was 10.81% and the total risk-based capital ratio was 14.39%.

GAAP – Non-GAAP Reconciliation -First quarter 2023 PPPT ROBE
Net Income $ 38,074  
Add: Provision for credit losses             500  
Add: Income tax expense             15,176  
Pre-provision and pre-tax income $ 53,750  
   
Total equity – 12/31/22 $ 631,071  
Pre-provision and pre-tax ROBE   34.54 %
   

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s first quarter 2023 financial results will be held tomorrow, April 19, 2023 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. 

Preferred Bank's Chairman and CEO 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 discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at 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 April 26, 2023; the passcode is 5434053.

About Preferred Bank

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2022 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com.

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

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
          March 31,   December 31,   March 31,
            2023       2022     2022  
Interest income:            
  Loans, including fees   $ 95,881     $ 87,159   $ 52,119  
  Investment securities     12,979       11,028     2,886  
  Fed funds sold     224       192     19  
    Total interest income     109,084       98,379     55,024  
                   
Interest expense:            
  Interest-bearing demand     17,038       13,906     1,431  
  Savings     39       32     19  
  Time certificates     16,593       9,004     2,217  
  FHLB borrowings     374       -     -  
  Subordinated debt     1,325       1,325     1,325  
    Total interest expense     35,369       24,267     4,992  
    Net interest income     73,715       74,112     50,032  
Provision for (reversal of) credit losses     500       2,000     (250 )
    Net interest income after provision for (reversal of)            
      credit losses     73,215       72,112     50,282  
                   
Noninterest income:            
  Fees & service charges on deposit accounts     694       631     671  
  Letters of credit fee income     1,324       1,245     933  
  BOLI income     101       102     99  
  Net (loss) gain on called and sale of investment securities     (4,117 )     297     -  
  Net gain on sale of loans     340       -     -  
  Other income     592       533     563  
    Total noninterest income     (1,066 )     2,808     2,266  
                   
Noninterest expense:            
  Salary and employee benefits     13,728       12,953     11,640  
  Net occupancy expense     1,474       1,444     1,422  
  Business development and promotion expense     105       320     101  
  Professional services     1,149       1,028     1,243  
  Office supplies and equipment expense     404       460     489  
  Loss on sale of OREO, valuation allowance and related expense     72       2,103     16  
  Other       1,967       1,668     1,246  
    Total noninterest expense     18,899       19,976     16,157  
    Income before provision for income taxes     53,250       54,944     36,391  
Income tax expense     15,176       15,384     10,364  
    Net income   $ 38,074     $ 39,560   $ 26,027  
                   
Dividend and earnings allocated to participating securities     -       -     (1 )
Net income available to common shareholders   $ 38,074     $ 39,560   $ 26,026  
                   
Income per share available to common shareholders            
    Basic   $ 2.64     $ 2.76   $ 1.76  
    Diluted   $ 2.61     $ 2.71   $ 1.74  
                   
Weighted-average common shares outstanding            
    Basic     14,430,606       14,357,326     14,765,337  
    Diluted     14,602,149       14,617,377     14,978,667  
                   
Cash dividends per common share   $ 0.55     $ 0.55   $ 0.43  
                   

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
             
             
        March 31,   December 31,
          2023       2022  
        (Unaudited)   (Audited)
Assets      
Cash and due from banks $ 865,691     $ 747,526  
Fed funds sold   20,000       20,000  
  Cash and cash equivalents   885,691       767,526  
             
Securities held to maturity, at amortized cost   22,155       22,459  
Securities available-for-sale, at fair value   367,492       428,295  
Loans   5,057,728       5,074,793  
  Less allowance for credit losses   (68,929 )     (68,472 )
  Less amortized deferred loan fees, net   (10,286 )     (9,939 )
  Loans, net   4,978,513       4,996,382  
             
Other real estate owned and repossessed assets   18,628       21,990  
Customers' liability on acceptances   107       1,731  
Bank furniture and fixtures, net   8,784       8,999  
Bank-owned life insurance   10,425       10,357  
Accrued interest receivable   26,532       23,593  
Investment in affordable housing partnerships   59,009       61,173  
Federal Home Loan Bank stock, at cost   15,000       15,000  
Deferred tax assets   43,713       43,218  
Operating lease right-of-use assets   22,188       21,718  
Other assets   3,300       2,917  
  Total assets $ 6,461,537     $ 6,425,358  
             
Liabilities and Shareholders' Equity      
Deposits:      
  Non-interest bearing demand deposits $ 1,050,992     $ 1,192,091  
  Interest-bearing deposits:   1,751,439       2,295,212  
    Savings   33,861       39,527  
    Time certificates of $250,000 or more   1,329,720       1,138,727  
    Other time certificates   1,241,754       891,440  
    Total deposits   5,407,766       5,556,997  
             
Acceptances outstanding   107       1,731  
Advances from Federal Home Loan Bank   150,000       -  
Subordinated debt issuance, net   148,055       147,995  
Commitments to fund investment in affordable housing partnerships   26,709       27,490  
Operating lease liabilities   21,076       20,949  
Accrued interest payable   4,529       2,608  
Other liabilities   46,754       37,162  
  Total liabilities   5,804,996       5,794,932  
             
Shareholders' equity   656,541       630,426  
  Total liabilities and shareholders' equity $ 6,461,537     $ 6,425,358  
             
Book value per common share $ 45.49     $ 43.91  
Number of common shares outstanding   14,432,122       14,358,145  
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
                 
                 
        For the Quarter Ended
                 
        March 31, December 31, September 30, June 30, March 31,
          2023     2022     2022     2022     2022  
Unaudited historical quarterly operations data:          
  Interest income $ 109,084   $ 98,379   $ 78,420   $ 62,559   $ 55,024  
  Interest expense   35,369     24,267     11,630     6,135     4,992  
    Interest income before provision for credit losses   73,715     74,112     66,790     56,424     50,032  
   Provision (reversal of) for credit losses   500     2,000     2,700     2,900     (250 )
  Noninterest income   (1,066 )   2,808     2,187     2,601     2,266  
  Noninterest expense   18,899     19,976     17,400     17,140     16,157  
  Income tax expense   15,176     15,384     13,688     10,916     10,364  
    Net income $ 38,074   $ 39,560   $ 35,189   $ 28,069   $ 26,027  
                 
  Earnings per share          
    Basic $ 2.64   $ 2.76   $ 2.44   $ 1.90   $ 1.76  
    Diluted $ 2.61   $ 2.71   $ 2.40   $ 1.87   $ 1.74  
                 
Ratios for the period:          
  Return on average assets   2.41 %   2.48 %   2.25 %   1.84 %   1.75 %
  Return on beginning equity   24.47 %   26.58 %   23.60 %   18.91 %   17.99 %
  Net interest margin (Fully-taxable equivalent)   4.77 %   4.75 %   4.37 %   3.77 %   3.42 %
  Noninterest expense to average assets   1.20 %   1.25 %   1.11 %   1.12 %   1.08 %
  Efficiency ratio   26.01 %   25.97 %   25.23 %   29.04 %   30.89 %
  Net charge-offs (recoveries) to average loans (annualized)   0.00 %   0.00 %   -0.19 %   0.00 %   0.11 %
                 
Ratios as of period end:          
  Tier 1 leverage capital ratio   10.63 %   10.30 %   9.95 %   9.92 %   9.92 %
  Common equity tier 1 risk-based capital ratio   11.30 %   10.81 %   10.46 %   10.61 %   11.20 %
  Tier 1 risk-based capital ratio   11.30 %   10.81 %   10.46 %   10.61 %   11.20 %
  Total risk-based capital ratio   14.91 %   14.39 %   14.09 %   14.31 %   15.12 %
  Allowances for credit losses to loans at end of period   1.36 %   1.35 %   1.33 %   1.25 %   1.27 %
  Allowance for credit losses to non-performing loans 254.56x 12.49x 10.75x 5.27x 27.15x
                 
Average balances:          
  Total securities $ 442,852   $ 434,830   $ 410,649   $ 430,203   $ 455,899  
  Total loans   5,012,862     4,981,561     4,908,870     4,777,353     4,367,095  
  Total earning assets   6,276,630     6,193,330     6,076,616     6,008,024     5,938,720  
  Total assets   6,400,849     6,328,017     6,215,184     6,133,703     6,044,155  
  Total time certificate of deposits   2,209,370     1,872,239     1,749,257     1,810,886     1,869,654  
  Total interest bearing deposits   4,451,299     4,287,287     3,973,105     3,982,888     3,947,616  
  Total deposits   5,479,945     5,468,562     5,373,252     5,301,370     5,215,810  
  Total interest bearing liabilities   4,630,982     4,435,245     4,121,005     4,130,729     4,095,399  
  Total equity   650,963     613,729     598,188     606,260     597,214  
                 

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
                         
        As of
                         
        March 31,   December 31,   September 30, June 30,   March 31,
          2023       2022       2022       2022       2022  
Unaudited quarterly statement of financial position data:                  
Assets:                  
  Cash and cash equivalents $ 885,691     $ 767,526     $ 749,484     $ 768,658     $ 985,162  
  Securities held-to-maturity, at amortized cost   22,155       22,459       12,442       12,784       13,496  
  Securities available-for-sale, at fair value   367,492       428,295       377,534       400,597       430,280  
  Loans:                  
    Real estate – Mortgage:                  
      Real estate—Residential $ 612,908     $ 609,292     $ 587,812     $ 581,412     $ 539,614  
      Real estate—Commercial   2,813,680       2,730,726       2,693,852       2,583,484       2,367,862  
         Total Real Estate – Mortgage   3,426,588       3,340,018       3,281,664       3,164,896       2,907,476  
    Real estate – Construction:                  
      R/E Construction — Residential   175,286       193,027       179,955       168,420       141,218  
      R/E Construction — Commercial   142,319       204,478       188,083       203,217       209,726  
         Total real estate construction loans   317,605       397,505       368,038       371,637       350,944  
    Commercial and industrial   1,299,325       1,320,830       1,330,028       1,336,631       1,281,559  
    SBA   7,306       11,339       8,067       22,186       32,554  
    Trade finance   6,885       4,521       22,634       24,663       18,919  
    Consumer and others   19       580       115       128       115  
      Gross loans   5,057,728       5,074,793       5,010,546       4,920,141       4,591,567  
  Allowance for credit losses on loans   (68,929 )     (68,472 )     (66,472 )     (61,396 )     (58,496 )
  Net deferred loan fees   (10,286 )     (9,939 )     (9,695 )     (9,525 )     (8,573 )
    Net loans $ 4,978,513     $ 4,996,382     $ 4,934,379     $ 4,849,220     $ 4,524,498  
                         
  Other real estate owned and repossessed assets $ 18,628     $ 21,990     $ 26,075     $ 21,449     $ 15,547  
  Investment in affordable housing partnerships   59,009       61,173       62,745       54,874       56,946  
  Federal Home Loan Bank stock, at cost   15,000       15,000       15,000       15,000       15,000  
  Other assets   115,049       112,533       115,184       110,459       101,427  
    Total assets $ 6,461,537     $ 6,425,358     $ 6,292,843     $ 6,233,041     $ 6,142,356  
                         
Liabilities:                  
  Deposits:                  
    Demand $ 1,050,992     $ 1,192,091     $ 1,341,199     $ 1,385,934     $ 1,251,613  
    Interest-bearing demand   1,751,439       2,295,212       2,263,775       2,239,501       2,159,178  
    Savings   33,861       39,527       38,151       39,784       39,946  
    Time certificates of $250,000 or more   1,329,720       1,138,727       971,378       870,376       924,317  
    Other time certificates   1,241,754       891,440       841,173       872,357       934,615  
        Total deposits $ 5,407,766     $ 5,556,997     $ 5,455,676     $ 5,407,952     $ 5,309,669  
                         
  Acceptances outstanding $ 107     $ 1,731     $ 10,058     $ 11,053     $ 8,222  
  Advance from Federal Home Loan Bank   150,000       -       -       -       -  
  Subordinated debt issuance, net   148,055       147,995       147,936       147,877       147,818  
  Commitments to fund investment in affordable housing partnerships     26,709       27,490       28,611       20,036       22,606  
  Other liabilities   72,359       60,074       60,009       54,531       58,756  
    Total liabilities $ 5,804,996     $ 5,794,287     $ 5,702,290     $ 5,641,449     $ 5,547,071  
                         
Equity:                    
  Net common stock, no par value $ 181,208     $ 184,604     $ 180,324     $ 197,997     $ 209,065  
  Retained earnings   505,207       475,072       443,409       414,393       392,610  
  Accumulated other comprehensive income   (29,874 )     (28,605 )     (33,180 )     (20,798 )     (6,390 )
    Total shareholders' equity $ 656,541     $ 631,071     $ 590,553     $ 591,592     $ 595,285  
    Total liabilities and shareholders' equity $ 6,461,537     $ 6,425,358     $ 6,292,843     $ 6,233,041     $ 6,142,356  
                         

PREFERRED BANK
Quarter-to-Date Average Balances, Yields and Rates
(Unaudited)
                           
                       
      Three months ended March 31,   Three months ended December 31,   Three months ended March 31,
        2023       2022       2022  
        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) $ 5,013,740   $ 95,881 7.76 %   $ 4,981,561   $ 87,159 6.94 %   $ 4,367,095   $ 52,119 4.84 %
  Investment securities (3)   442,852     3,994 3.66 %     434,830     3,993 3.64 %     455,899     2,224 1.98 %
  Federal funds sold   20,222     224 4.50 %     20,000     192 3.81 %     20,122     19 0.38 %
  Other earning assets   799,816     9,087 4.61 %     756,939     7,139 3.74 %     1,095,604     770 0.29 %
    Total interest-earning assets   6,276,630     109,186 7.05 %     6,193,330     98,483 6.31 %     5,938,720     55,132 3.76 %
  Deferred loan fees, net   (9,937 )         (10,003 )         (6,322 )    
  Allowance for credit losses on loans   (68,466 )         (66,515 )         (59,951 )    
Non-interest earning assets:                      
  Cash and due from banks   11,527           11,569           11,589      
  Bank furniture and fixtures   8,977           9,237           10,440      
  Right of use assets   21,867           22,002           21,754      
  Other assets   160,251           168,397           127,925      
    Total assets $ 6,400,849         $ 6,328,017         $ 6,044,155      
                           
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Interest-bearing liabilities:                      
  Deposits:                      
    Interest-bearing demand and savings $ 2,241,929   $ 17,077 3.09 %   $ 2,415,048   $ 13,938 2.29 %   $ 2,077,962   $ 1,450 0.28 %
    TCD $250K or more   1,266,072     10,743 3.44 %     1,017,302     6,014 2.35 %     929,170     1,027 0.45 %
    Other time certificates   943,298     5,850 2.52 %     854,937     2,990 1.39 %     940,484     1,190 0.51 %
    Total interest-bearing deposits   4,451,299     33,670 3.07 %     4,287,287     22,942 2.12 %     3,947,616     3,667 0.38 %
Advance from Fedferal home loan bank   31,667     374 4.78 %     -     - 0.00 %     -     - 0.00 %
Subordinated debt, net   148,016     1,325 3.63 %     147,958     1,325 3.55 %     147,783     1,325 3.64 %
    Total interest-bearing liabilities   4,630,982     35,369 3.10 %     4,435,245     24,267 2.17 %     4,095,399     4,992 0.49 %
Non-interest bearing liabilities:                      
  Demand deposits   1,028,646           1,181,275           1,268,194      
  Lease Liability   20,993           21,542           22,463      
  Other liabilities   69,265           76,226           60,885      
    Total liabilities   5,749,886           5,714,288           5,446,941      
Shareholders’ equity   650,963           613,729           597,214      
    Total liabilities and shareholders’ equity $ 6,400,849         $ 6,328,017         $ 6,044,155      
Net interest income   $ 73,817       $ 74,216       $ 50,140  
Net interest spread     3.96 %       4.14 %       3.27 %
Net interest margin     4.77 %       4.75 %       3.42 %
                           
Cost of Deposits:                      
  Non-interest bearing demand deposits $ 1,028,646         $ 1,181,275         $ 1,268,194      
  Interest-bearing deposits   4,451,299     33,670 3.07 %     4,287,287     22,942 2.12 %     3,947,616     3,667 0.38 %
    Total Deposits $ 5,479,945   $ 33,670 2.49 %   $ 5,468,562   $ 22,942 1.66 %   $ 5,215,810   $ 3,667 0.29 %
                           
(1) Includes non-accrual loans and loans held for sale                    
(2) Net loan fee income of $1.2 million, $972,000 and $765,000 for the quarter ended March 31, 2023, December 31, 2022, and March 31, 2022, 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
          Quarter Ended   Year ended
          March 31, 2023   December 31, 2022
           (Dollars in 000's)
Allowance For Credit Losses        
Balance at Beginning of Period   $ 68,472     $ 59,969  
  Charge-Offs        
    Commercial & Industrial     44       1,222  
    Mini-perm Real Estate     -       1  
       Total Charge-Offs     44       1,223  
               
  Recoveries        
    Commercial & Industrial     1       -  
    Mini-perm Real Estate     -       2,376  
       Total Recoveries     1       2,376  
               
  Net Charge-Offs (recoveries)     43       (1,153 )
  Provision forCredit Losses:     500       7,350  
Balance at End of Period   $ 68,929     $ 68,472  
               
Average Loans Held for Investment   $ 5,012,862     $ 4,760,815  
Loans Held for Investment at End of Period   $ 5,057,728     $ 5,074,793  
Net Charge-Offs (recoveries) to Average Loans     0.00 %     -0.02 %
Allowances for Credit Losses to Loans at End of Period     1.36 %     1.35 %
               

 

 

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