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:
| Category | Loan Count | Total Balance (000's) | % of Loan Balance | Average LTV | Average DCR | ||
| Cash Secured | 79 | 34,241 | 0.87% | N/A | N/A | ||
| Commercial | 1,741 | 1,094,872 | 27.72% | N/A | N/A | ||
| International | 62 | 15,006 | 0.38% | N/A | N/A | ||
| Construction - 1-4 Residential | 54 | 170,773 | 4.32% | 48.8% | N/A | ||
| Construction - Commercial | 41 | 223,706 | 5.66% | 53.8% | N/A | ||
| Real Estate - 1-4 Residential | 165 | 248,371 | 6.29% | 55.5% | 1.32 | ||
| Real Estate - Industrial | 99 | 243,130 | 6.16% | 53.9% | 1.71 | ||
| Real Estate - Multifamily | 68 | 282,188 | 7.14% | 58.1% | 1.24 | ||
| Real Estate - Office | 70 | 327,786 | 8.30% | 55.5% | 1.66 | ||
| Real Estate - Retail | 116 | 411,508 | 10.42% | 59.0% | 1.55 | ||
| Real Estate - Special Purpose | 75 | 542,561 | 13.74% | 51.5% | 1.51 | ||
| Real Estate - Vacant Land | 4 | 7,787 | 0.20% | 49.4% | N/A | ||
| SBA | 227 | 74,551 | 1.89% | N/A | N/A | ||
| HELOC | 6 | 1,545 | 0.04% | 42.4% | N/A | ||
| Residential Mortgage | 422 | 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 Type | Prior Qtr Total in Deferral 30-Jun-20 | Curr Qtr Total in Deferral 30-Sept-20 | % of Total Portfolio | Weighted Average LTV | Quarterly Decrease | ||||
| $ | % | ||||||||
| Commercial and Industrial | $ | 39,518 | $ | 5,865 | 0.6% | N/A | $ | 33,653 | 85.2% |
| Office | 28,696 | 16,200 | 4.9% | 55.5% | 12,496 | 43.5% | |||
| Industrial | 29,495 | 13,064 | 5.4% | 53.9% | 16,431 | 55.7% | |||
| Retail | 88,319 | 64,169 | 15.6% | 59.0% | 24,150 | 27.3% | |||
| Multi-Family | 17,593 | 17,200 | 6.1% | 58.1% | 393 | 2.2% | |||
| 1-4 Family (Inv) | 6,624 | 3,915 | 1.6% | 55.6% | 2,709 | 40.9% | |||
| Restaurant | 6,149 | 4,212 | 19.2% | 47.2% | 1,937 | 31.5% | |||
| Special Purpose / Hotel | 172,531 | 47,305 | 13.8% | 54.9% | 125,226 | 72.6% | |||
| Special Purpose / Other | 51,232 | 12,720 | 6.4% | 45.7% | 38,512 | 75.2% | |||
| Construction / AD | - | - | 0.0% | - | 0.0% | ||||
| Residential Mortgage | 26,935 | 14,887 | 5.5% | - | 12,048 | 44.7% | |||
| Grand Total | $ | 467,092 | $ | 199,537 | 5.1% | $ | 267,555 | 57.3% | |
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.
Capitalization
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 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 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 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 | ||||||||||||||
| 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 | ||||||||
| PREFERRED BANK | |||||||||||
| Condensed Consolidated Statements of Financial Condition | |||||||||||
| (unaudited) | |||||||||||
| (in thousands) | |||||||||||
| September 30, | December 31, | September 30, | |||||||||
| 2020 | 2019 | 2019 | |||||||||
| (Unaudited) | (Audited) | (Unaudited) | |||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | 780,291 | $ | 498,645 | $ | 409,189 | |||||
| Fed funds sold | 27,500 | 37,000 | 56,000 | ||||||||
| Cash and cash equivalents | 807,791 | 535,645 | 465,189 | ||||||||
| Securities held to maturity, at amortized cost | 6,727 | 7,310 | 7,545 | ||||||||
| Securities available-for-sale, at fair value | 219,778 | 240,640 | 242,655 | ||||||||
| Loans | 3,949,721 | 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, net | 3,884,048 | 3,687,064 | 3,634,651 | ||||||||
| Loans held for sale, at lower of cost or fair value | - | - | 2,999 | ||||||||
| Customers' liability on acceptances | 7,463 | 7,379 | 7,333 | ||||||||
| Bank furniture and fixtures, net | 11,797 | 12,236 | 12,438 | ||||||||
| Bank-owned life insurance | 9,764 | 9,571 | 9,507 | ||||||||
| Accrued interest receivable | 24,353 | 14,961 | 14,505 | ||||||||
| Investment in affordable housing | 47,917 | 53,142 | 39,780 | ||||||||
| Federal Home Loan Bank stock | 15,000 | 13,101 | 13,101 | ||||||||
| Deferred tax assets | 21,219 | 19,560 | 17,338 | ||||||||
| Income tax receivable | 9,090 | 3,368 | 3,849 | ||||||||
| Operating lease right-of-use assets | 16,384 | 17,103 | 17,362 | ||||||||
| Other assets | 4,243 | 7,401 | 7,232 | ||||||||
| Total assets | $ | 5,085,574 | $ | 4,628,481 | $ | 4,495,484 | |||||
| Liabilities and Shareholders' Equity | |||||||||||
| Deposits: | |||||||||||
| Non-interest bearing demand deposits | $ | 926,166 | $ | 835,790 | $ | 774,869 | |||||
| Interest-bearing deposits: | 1,620,495 | 1,328,863 | 1,435,144 | ||||||||
| Savings | 32,830 | 23,784 | 21,985 | ||||||||
| Time certificates of $250,000 or more | 977,821 | 976,727 | 849,574 | ||||||||
| Other time certificates | 857,113 | 818,130 | 787,392 | ||||||||
| Total deposits | 4,414,425 | 3,983,294 | 3,868,964 | ||||||||
| Acceptances outstanding | 7,463 | 7,379 | 7,333 | ||||||||
| Subordinated debt issuance | 99,304 | 99,211 | 99,180 | ||||||||
| Commitments to fund investment in affordable housing partnership | 16,689 | 24,149 | 12,904 | ||||||||
| Operating lease liabilities | 19,106 | 20,497 | 20,958 | ||||||||
| Accrued interest payable | 2,940 | 3,324 | 6,117 | ||||||||
| Other liabilities | 21,780 | 20,612 | 20,948 | ||||||||
| Total liabilities | 4,581,707 | 4,158,466 | 4,036,404 | ||||||||
| Shareholders' equity | 503,867 | 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 outstanding | 14,933,307 | 14,933,768 | 15,091,657 | ||||||||
| PREFERRED BANK | ||||||||||
| Selected Consolidated Financial Information | ||||||||||
| (unaudited) | ||||||||||
| (in thousands, except for ratios) | ||||||||||
| For the Quarter Ended | ||||||||||
| September 30, | June 30, | Mars 31, | December 31, | September 30, | ||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | ||||||
| Unaudited historical quarterly operations data: | ||||||||||
| Interest income | $ | 52,782 | $ | 52,164 | $ | 55,667 | $ | 55,483 | $ | 57,959 |
| Interest expense | 8,663 | 9,983 | 13,876 | 15,074 | 16,482 | |||||
| Interest income before provision for credit losses | 44,119 | 42,181 | 41,791 | 40,409 | 41,477 | |||||
| Provision for credit losses | 9,000 | 7,500 | 5,300 | 450 | 900 | |||||
| Noninterest income | 1,605 | 1,430 | 1,672 | 1,883 | 1,737 | |||||
| Noninterest expense | 13,663 | 14,334 | 15,184 | 13,770 | 13,898 | |||||
| Income tax expense | 5,936 | 6,468 | 6,825 | 8,456 | 8,383 | |||||
| Net income | $ | 17,125 | $ | 15,309 | $ | 16,154 | $ | 19,616 | $ | 20,033 |
| Earnings per share | ||||||||||
| Basic | $ | 1.15 | $ | 1.03 | $ | 1.08 | $ | 1.31 | $ | 1.32 |
| Diluted | $ | 1.15 | $ | 1.03 | $ | 1.08 | $ | 1.31 | $ | 1.32 |
| Ratios for the period: | ||||||||||
| Return on average assets | 1.34% | 1.26% | 1.40% | 1.74% | 1.81% | |||||
| Return on beginning equity | 13.94% | 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 assets | 1.07% | 1.18% | 1.31% | 1.22% | 1.25% | |||||
| Efficiency ratio | 29.88% | 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 ratio | 9.75% | 9.87% | 10.05% | 10.32% | 10.27% | |||||
| Common equity tier 1 risk-based capital ratio | 10.98% | 10.39% | 10.80% | 10.57% | 10.40% | |||||
| Tier 1 risk-based capital ratio | 10.98% | 10.39% | 10.80% | 10.57% | 10.40% | |||||
| Total risk-based capital ratio | 14.47% | 13.80% | 14.26% | 13.70% | 13.53% | |||||
| Allowances for credit losses to loans and leases at end of period | 1.55% | 1.41% | 1.24% | 0.94% | 0.93% | |||||
| Allowance for credit losses to non-performing loans and leases | 243.56% | 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 | $ | 3,613,400 | 3,534,194 | |
| 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 |
| PREFERRED BANK | ||||||||||||||||||||||
| Selected Consolidated Financial Information | ||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||
| (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: | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 807,791 | $ | 656,183 | $ | 484,869 | $ | 535,645 | $ | 465,189 | ||||||||||||
| Securities held-to-maturity, at amortized cost | 6,727 | 6,922 | 7,077 | 7,310 | 7,545 | |||||||||||||||||
| Securities available-for-sale, at fair value | 219,778 | 270,667 | 235,097 | 240,640 | 242,655 | |||||||||||||||||
| Loans: | ||||||||||||||||||||||
| Real estate – Mortgage: | ||||||||||||||||||||||
| Real estate—Residential | $ | 528,371 | $ | 511,354 | $ | 493,226 | $ | 468,321 | $ | 432,605 | ||||||||||||
| Real estate—Commercial | 1,808,200 | 1,781,660 | 1,730,017 | 1,731,017 | 1,751,735 | |||||||||||||||||
| Total Real Estate – Mortgage | 2,336,571 | 2,293,014 | 2,223,243 | 2,199,338 | 2,184,340 | |||||||||||||||||
| Real estate – Construction: | ||||||||||||||||||||||
| R/E Construction — Residential | 170,773 | 187,083 | 177,364 | 173,951 | 179,651 | |||||||||||||||||
| R/E Construction — Commercial | 223,706 | 217,729 | 223,385 | 218,562 | 216,812 | |||||||||||||||||
| Total real estate construction loans | 394,480 | 404,812 | 400,749 | 392,513 | 396,463 | |||||||||||||||||
| Commercial and industrial | 1,144,051 | 1,192,056 | 1,269,242 | 1,132,629 | 1,090,230 | |||||||||||||||||
| PPP | 74,551 | 73,524 | - | - | - | |||||||||||||||||
| Consumer and others | 68 | 241 | 91 | 442 | 417 | |||||||||||||||||
| Gross loans | 3,949,721 | 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 housing | 47,917 | 49,658 | 51,400 | 53,142 | 39,780 | |||||||||||||||||
| Federal Home Loan Bank stock | 15,000 | 15,000 | 13,101 | 13,101 | 13,101 | |||||||||||||||||
| Other assets | 104,313 | 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 | ||||||||||||
| Liabilities: | ||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||
| Demand | $ | 926,166 | $ | 934,764 | $ | 753,750 | $ | 835,790 | $ | 774,869 | ||||||||||||
| Interest-bearing demand | 1,620,495 | 1,594,682 | 1,503,618 | 1,328,863 | 1,435,144 | |||||||||||||||||
| Savings | 32,830 | 27,737 | 23,035 | 23,784 | 21,985 | |||||||||||||||||
| Time certificates of $250,000 or more | 977,821 | 970,649 | 1,030,282 | 976,727 | 849,574 | |||||||||||||||||
| Other time certificates | 857,113 | 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 issuance | 99,304 | 99,273 | 99,242 | 99,211 | 99,180 | |||||||||||||||||
| Commitments to fund investment in affordable housing partnership | 16,689 | 17,536 | 21,195 | 24,149 | 12,904 | |||||||||||||||||
| Other liabilities | 43,826 | 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 | ||||||||||||
| Equity: | ||||||||||||||||||||||
| Net common stock, no par value | $ | 213,519 | $ | 212,187 | $ | 210,091 | $ | 210,998 | $ | 215,123 | ||||||||||||
| Retained earnings | 284,568 | 271,923 | 261,095 | 255,050 | 239,914 | |||||||||||||||||
| Accumulated other comprehensive income | 5,780 | 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 | ||||||||||||
| PREFERRED BANK | |||||||||||||||||||
| QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| Three months ended September 30, | Three months ended June 30, | Three months ended September 30, | |||||||||||||||||
| 2020 | 2020 | 2019 | |||||||||||||||||
| Interest | Average | Interest | Average | Interest | Average | ||||||||||||||
| Average | Income or | Yield/ | Average | Income or | Yield/ | Average | Income or | Yield/ | |||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||
| ASSETS | (Dollars in thousands) | ||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||
| Loans (1,2) | $ | 3,956,145 | $ | 50,417 | 5.07% | $ | 3,921,694 | $ | 49,813 | 5.11% | $ | 3,534,283 | $ | 52,862 | 5.93% | ||||
| Investment securities (3) | 237,801 | 1,967 | 3.29% | 250,134 | 2,098 | 3.37% | 249,060 | 2,253 | 3.59% | ||||||||||
| Federal funds sold | 23,828 | 30 | 0.50% | 24,324 | 31 | 0.52% | 35,079 | 222 | 2.52% | ||||||||||
| Other earning assets | 757,231 | 474 | 0.25% | 572,385 | 318 | 0.22% | 480,101 | 2,737 | 2.26% | ||||||||||
| Total interest-earning assets | 4,975,005 | 52,888 | 4.23% | 4,768,537 | 52,260 | 4.41% | 4,298,523 | 58,074 | 5.36% | ||||||||||
| 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 banks | 7,355 | 8,274 | 4,935 | ||||||||||||||||
| Bank furniture and fixtures | 11,856 | 11,993 | 12,656 | ||||||||||||||||
| Right of use assets | 16,550 | 16,768 | 17,525 | ||||||||||||||||
| Other assets | 123,321 | 114,213 | 97,177 | ||||||||||||||||
| Total assets | $ | 5,073,650 | $ | 4,868,356 | $ | 4,395,357 | |||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||
| Deposits: | |||||||||||||||||||
| Interest-bearing demand and savings | 1,659,374 | $ | 1,452 | 0.35% | 1,642,393 | $ | 1,479 | 0.36% | $ | 1,400,042 | $ | 4,917 | 1.39% | ||||||
| TCD $250K or more | 987,631 | 2,993 | 1.21% | 945,043 | 3,624 | 1.54% | 845,262 | 5,120 | 2.40% | ||||||||||
| Other time certificates | 854,270 | 2,688 | 1.25% | 812,488 | 3,349 | 1.66% | 805,703 | 4,914 | 2.42% | ||||||||||
| Total interest-bearing deposits | 3,501,275 | 7,133 | 0.81% | 3,399,924 | 8,452 | 1.00% | 3,051,007 | 14,951 | 1.94% | ||||||||||
| Subordinated debt | 99,285 | 1,530 | 6.13% | 99,254 | 1,531 | 6.20% | 99,160 | 1,531 | 6.13% | ||||||||||
| Total interest-bearing liabilities | 3,600,560 | 8,663 | 0.96% | 3,499,178 | 9,983 | 1.15% | 3,150,167 | 16,482 | 2.08% | ||||||||||
| Non-interest bearing liabilities: | |||||||||||||||||||
| Demand deposits | 907,607 | 820,273 | 721,090 | ||||||||||||||||
| Lease Liability | 19,400 | 19,841 | 21,252 | ||||||||||||||||
| Other liabilities | 42,568 | 42,133 | 42,397 | ||||||||||||||||
| Total liabilities | 4,570,135 | 4,381,425 | 3,934,906 | ||||||||||||||||
| Shareholders’ equity | 503,515 | 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 deposits | 3,501,275 | 7,133 | 0.81% | 3,399,924 | 8,452 | 1.00% | 3,051,007 | 14,951 | 1.94% | ||||||||||
| Total Deposits | $ | 4,408,882 | $ | 7,133 | 0.64% | $ | 4,220,197 | $ | 8,452 | 0.81% | $ | 3,772,097 | $ | 14,951 | 1.57% | ||||
| (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 | ||||||||||||||||||
| PREFERRED BANK | |||||||||||||
| YEAR-TO-DATE AVERAGE BALANCES, YIELD AND RATES | |||||||||||||
| (Unaudited) | |||||||||||||
| Nine months ended September 30, | |||||||||||||
| 2020 | 2019 | ||||||||||||
| Interest | Average | Interest | Average | ||||||||||
| Average | Income or | Yield/ | Average | Income or | Yield/ | ||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | ||||||||
| ASSETS | (Dollars in thousands) | ||||||||||||
| Interest-earning assets: | |||||||||||||
| Loans (1,2) | $ | 3,865,350 | $ | 151,794 | 5.25% | $ | 3,389,136 | $ | 156,166 | 6.16% | |||
| Investment securities (3) | 245,181 | 6,193 | 3.37% | 215,818 | 6,442 | 3.99% | |||||||
| Federal funds sold | 26,093 | 185 | 0.95% | 42,720 | 799 | 2.50% | |||||||
| Other earning assets | 628,165 | 2,736 | 0.58% | 436,906 | 8,143 | 7.41% | |||||||
| Total interest-earning assets | 4,764,789 | 160,908 | 4.51% | 4,084,580 | 171,550 | 5.62% | |||||||
| 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 banks | 7,321 | 5,923 | |||||||||||
| Bank furniture and fixtures | 12,039 | 10,201 | |||||||||||
| Right of use assets | 16,774 | 11,852 | |||||||||||
| Other assets | 117,105 | 110,456 | |||||||||||
| Total assets | $ | 4,865,417 | $ | 4,189,515 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||
| Interest-bearing liabilities: | |||||||||||||
| Deposits: | |||||||||||||
| Interest-bearing demand/ savings | 1,593,793 | $ | 6,313 | 0.53% | 1,324,550 | $ | 14,504 | 1.46% | |||||
| TCD $250K or more | 967,413 | 11,469 | 1.58% | 787,522 | 13,992 | 2.38% | |||||||
| Other time certificates | 821,199 | 10,148 | 1.65% | 787,354 | 13,902 | 2.36% | |||||||
| Total interest-bearing deposits | 3,382,405 | 27,930 | 1.10% | 2,899,426 | 42,398 | 1.96% | |||||||
| Subordinated debt | 99,254 | 4,592 | 6.18% | 99,108 | 4,593 | 6.20% | |||||||
| Long-term debt | - | - | 0.00% | 1,052 | 19 | 2.46% | |||||||
| Total interest-bearing liabilities | 3,481,659 | 32,522 | 1.25% | 2,999,586 | 47,010 | 2.10% | |||||||
| Non-interest bearing liabilities: | |||||||||||||
| Demand deposits | 831,545 | 691,266 | |||||||||||
| Lease Liability | 19,850 | 14,546 | |||||||||||
| Other liabilities | 43,690 | 47,452 | |||||||||||
| Total liabilities | 4,376,744 | 3,752,850 | |||||||||||
| Shareholders’ equity | 488,673 | 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 deposits | 3,382,405 | 27,930 | 1.10% | 2,899,426 | 42,398 | 1.96% | |||||||
| Total Deposits | $ | 4,213,950 | $ | 27,930 | 0.89% | $ | 3,590,692 | $ | 42,398 | 1.58% | |||
| (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 | |||||||
| Charge-Offs | |||||||||||
| Commercial & Industrial | 1,661 | 526 | |||||||||
| Mini-perm Real Estate | 1,900 | 101 | |||||||||
| Total Charge-Offs | 3,561 | 627 | |||||||||
| Recoveries | |||||||||||
| 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 | % | |||||||