Preferred Bank Reports Quarterly Earnings

LOS ANGELES, July 20, 2022 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2022. Preferred Bank (“the Bank”) reported net income of $28.1 million or $1.87 per diluted share for the second quarter of 2022. This represents an increase of $6.6 million or 30.7% over the same quarter last year and also an increase over the $26.0 million or $1.74 per share posted in the first quarter of 2022. The primary reasons for the increase compared to the prior year was an increase in net interest income of $13.1 million or 30.1% primarily driven by higher interest rates on interest-earning assets, loan growth and in the second quarter of 2021, the Bank recorded debt extinguishment costs of $614,000. The increase over the first quarter of 2022 was also due to an increase in net interest income of $6.4 million or 12.8% partially offset by a higher provision for credit losses and higher non-interest expense.

Second quarter 2022 highlights:

• Linked quarter loan growth (Ex-PPP) of 7.4%
• Return on average assets (“ROA”) of 1.84%
• Return on beginning equity (“ROBE”) of 18.91%
• Pre-provision, pre-tax (“PPPT”) ROBE of 28.22% 1
• Efficiency ratio of 29.0%
  

Li Yu, Chairman and CEO, commented, “We had a record quarter in terms of; net income, earnings per share, total loans, total deposits, and net interest income for the second quarter of 2022.

Net income for the quarter was $28.1 million or $1.87 per diluted share and $54.1 million or $3.61 per diluted share for the first half of 2022. With our very asset sensitive balance sheet, we have benefited from the recent interest rate hikes.

Loan growth was $328.6 million or 28.6% annualized. For the first half of year, loan growth was $495.1 million or 22.4% annualized. Second quarter loan growth was positively impacted by reduced pay-offs and stronger origination activities.

Deposits grew $98.3 million or 7.4% annualized in the second quarter of 2022. For the first six months of 2022, deposit growth was $182.4 million or 7.0 % annualized. During the latter part of the quarter, we saw an increased level of competition and we believe deposit costs will accelerate in the second half of the year.

With a recession potentially looming ahead, the Bank is very focused on asset quality. Underwriting standards have been tightened and we have begun to dive deep into our loan portfolio. Today, we have not noted any deterioration. In fact, classified assets and loans past due have improved as of June 30, 2022 compared to earlier quarters.

As for interest rate sensitivity, 87% of the Bank’s loans are floating or adjustable rate. Many of them have a floor rate requirement. At June 30, 2022, 74% were fully floating. With the additional rate hike anticipated, all 87% of our total loan portfolio will be fully floating at the end of July. Therefore, our interest income is expected to increase for the remainder of the year. Hopefully the increase in interest income will more than enough cover the anticipated deposit cost increase.

The $32 million stock repurchase is progressing as scheduled. As of June 30, 2022, we have repurchased 192,159 shares of our stock using $12,971,000. We plan to complete the program in the third quarter of 2022.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $56.4 million for the second quarter of 2022. This was an increase from the $43.4 million recorded in the same quarter last year and also an increase over the $50.0 million posted in the first quarter of 2022. Rising interest rates and strong loan growth were the primary drivers of the increase in net interest income over both comparable quarters. The taxable equivalent margin was 3.77% for the second quarter of 2022, as compared to 3.42% in the first quarter of 2022 and versus 3.25% for the same period last year.

Noninterest Income. For the second quarter of 2022, noninterest income was $2.6 million compared with $1.6 million for the same quarter last year and compared to $2.3 million for the first quarter of 2022. The increase compared to last year was due to a $518,000 increase in letter of credit (“LC”) fees, an increase in service charges of $199,000 and a $261,000 loss on sale of loans recorded in the second quarter of last year. The increase compared to the prior quarter was due to an increase in LC fees of $396,000 partially offset by a decrease in other income of $114,000.

Noninterest Expense. Total noninterest expense was $17.1 million for the second quarter of 2022. This is up compared to the $15.0 million recorded in the same quarter last year and an increase over the $16.2 million posted in the first quarter of 2022. Comparing this quarter to the second quarter of last year; personnel expense increased by $1.4 million or 13.6%, OREO expense was $463,000 this quarter compared to $0 last year and professional services increased by $386,000 this quarter. The personnel expense increase was primarily due to new hires and merit increases. Last year, the Bank did not own any OREO so this years’ expenses were all an increase. In comparing to the prior quarter; personnel expense was essentially flat from the first quarter, OREO expense increased by $447,000 and other expense increased by $285,000. For the quarter ended June 30, 2022, the Bank’s efficiency ratio was 29.0%, besting the 30.9% posted last quarter and also down from the same quarter of last year’s 33.2%.

Income Taxes. The Bank recorded a provision for income taxes of $10.9 million for the second quarter of 2022. This represents an effective tax rate (“ETR”) of 28.0% and slightly below the ETR of 28.5% in both the prior quarter and the same period last year. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at June 30, 2022 were $4.92 billion, an increase of $495 million or 11.2% over the total of $4.42 billion as of December 31, 2021. Total deposits increased to $5.41 billion, an increase of $182 million or 3.5% over the $5.23 billion as of December 31, 2021. Total assets ended the quarter at $6.23 billion, an increase of $187 million or 3.1% over the total of $6.05 billion as of December 31, 2021.

Asset Quality

As of June 30, 2022, nonaccrual loans totaled $10.6 million, down from $14.8 million as of the end of 2021. In addition, OREO and repossessed assets totaled $21.4 million as of June 30, 2022. Total net charge-offs for the second quarter of 2022 were zero as compared to both $1.2 million in the prior quarter and the same quarter of 2021.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2022 was $2.9 million as compared to a reversal of ($250,000) in the prior quarter and compared to the $0 provision for credit losses posted in the second quarter of 2021. A consistently improving economic outlook, among other factors such as credit quality led to a lower allowance requirement. The Bank’s allowance coverage ratio now stands at 1.25% of total loans (excluding PPP loans).

Capitalization

As of June 30, 2022, the Bank’s leverage ratio was 9.92%, the common equity tier 1 capital ratio was 10.61% and the total capital ratio stood at 14.31%. As of December 31, 2021, the Bank’s leverage ratio was 9.54%, the common equity tier 1 ratio was 11.26% and the total risk-based capital ratio was 15.37%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2022 financial results will be held tomorrow, July 21, 2022 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, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through August 4, 2022; the passcode is 7884414.

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 2021 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.

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(1) Includes non-accrual loans and loans held for sale
(2) Net loan fee income of $442,000, $765,000 and $669,000 for the quarter ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively, are included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis

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(1) Includes non-accrual loans and loans held for sale
(2) Net loan fee income of $1.7 million and $1.2 million for the six months ended June 30, 2022 and 2021, respectively, are included in the yield computations
(3) Yields on securities have been adjusted to a tax-equivalent basis

1 This is a non-GAAP measure and linking to the reconciliation on page 5.