GlobeNewswire Inc | Jul 21, 2020 04:28PM EDT

July 21, 2020

LOS ANGELES, July 21, 2020 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended June 30, 2020. Preferred Bank (the Bank) reported net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. This is down from net income of $20.0 million or $1.31 per diluted share for the second quarter of 2019 and also down from net income of $16.2 million or $1.08 per diluted share for the first quarter of 2020. The primary reason for the decrease compared to both periods is the provision for credit losses, which totaled $7.5 million for the second quarter of 2020, as compared to $1.6 million in the second quarter of 2019 and compared to $5.3 million in the first quarter of 2020. The higher provision for this quarter is primarily due to the ongoing uncertainty of the impact of the economic shutdown due to the COVID-19 pandemic.

Li Yu, Chairman and CEO, commented, I am pleased to report second quarter net income of $15.3 million or $1.03 per diluted share. Given the economic backdrop, the Bank recorded an outsized provision for credit losses of $7.5 million, or nearly five times the $1.6 million provision recorded in the same period last year. In spite of that, we achieved an ROA of 1.26% and an ROE of 12.65%. This is evidence of Preferred Banks earnings power and I believe positions us well in this economic environment.

Well be receiving approximately $1.94 million of fee income on originations of $74.8 million of Paycheck Protection Program or PPP loans and these fees will be accreted into income over the life of the loans which will either be when forgiveness is granted or, if forgiveness is not granted, over an approximate 2 year period. The origination of PPP loans has increased total loans for the quarter but has had a negative impact on the net interest margin due to the contractual rate of 1%. It has also affected return on assets and our capital ratios, although not as significantly.

This quarter deposits grew at a very strong pace of $263.8 million and loans grew by $70.3 million, inclusive of PPP. The outpacing of deposit growth relative to loan growth has also negatively affected the net interest margin.

The Banks net interest margin contracted 13 basis points from the first quarter to 3.57% for the second quarter. An interest reversal from downgrading of certain loans to nonaccrual status also contributed to the decrease. Between quarters, our loan yield decreased 47 basis points and deposit costs decreased 43 basis points. Going forward, we expect deposit costs to continue to improve through the maturity and repricing of TCDs.

Loan modification activity has moderated considerably toward the end of the quarter. Until recently, we have been granting three months of deferment only. At June 30, 2020, there were $467.1 million in loans under some type of payment deferment. Although many loans are now returning to normal payment schedule, some loans (notably hospitality industry) may require further deferment.

Due to the uncertainty surrounding the economy, we continue to record elevated credit loss provisions. This quarter we set aside $7.5 million compared to $5.3 million last quarter. We will continue to build up our reserves based upon developments taking place regarding the economy, our loan portfolio and the pandemic.

As of June 30, 2020, Preferred Bank became a $5 billion Bank, a milestone for our staff and the Board of Directors. The large deposit increase has enhanced liquidity at the expense of reducing our ROA and capital ratios. Regardless, our operating metrics and profitability profile remain very favorable.

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $42.2 million for the second quarter of 2020. This is slightly above the $41.8 million recorded in the second quarter of 2019 and the $41.8 million recorded in the first quarter of 2020. The increase over both periods is due to loan growth as well as declining deposit costs. The Banks taxable equivalent net interest margin was 3.57% for the second quarter of 2020, a 50 basis point decrease from the 4.07% achieved in the second quarter of 2019 and a 13 basis point decrease from the 3.70% posted in the first quarter of 2020. The decrease to 3.57% this quarter was due to a number of factors which included a $521,000 interest reversal on loans placed into nonaccrual status during the quarter. In addition, the growth in loans was far outpaced by deposit growth which essentially de-levers the balance sheet during the quarter, adding to the margin compression.

Noninterest Income. For the second quarter of 2020, noninterest income was $1,430,000 compared with $1,985,000 for the same quarter last year and compared to $1,672,000 for the first quarter of 2020. The decrease from the second quarter of 2019 was due mainly to letter of credit fee income which decreased by $329,000. The decrease from the first quarter of 2020 was primarily due to a $113,000 loss on sale of securities.

Noninterest Expense. Total noninterest expense was $14.3 million for the second quarter of 2020. This represents an increase of $449,000 from the same quarter last year and a decrease of $850,000 from the first quarter of 2020. Salaries and benefits expense totaled $10.1 million for the second quarter of 2020, an increase of $616,000 over the second quarter of 2019 and a decrease of $807,000 from the first quarter of 2020. The decrease from the prior quarter is mostly to a decrease in payroll taxes and bonus expense. The increase over the prior year is due mainly to reduced loan origination volume in the current period as capitalized loan origination salary expense was lower off of lower volume. Occupancy expense totaled $1.3 million for the quarter and was flat compared to the same period last year and was down $100,000 from the first quarter of 2020. Professional services expense was $1.0 million for the second quarter of 2020 and was relatively flat compared to the $1.1 million recorded in the same quarter of 2019 and the $1.0 million recorded in the first quarter of 2020. Other expenses were $1.4 million for the second quarter of 2020, flat compared to the same period last year but up by $132,000 over the first quarter of 2020. This was due to an increase in FDIC insurance premiums.

Income Taxes. The Bank recorded a provision for income taxes of $6.5 million for the second quarter of 2020. This represents an effective tax rate (ETR) of 29.7% and a slight increase from the ETR of 29.5% for the same quarter last year but flat compared to the 29.7% recorded in the first quarter of 2020. The Banks 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, 2020 were $3.96 billion, an increase of $238.7 million or 6.4% over the total of $3.72 billion as of December 31, 2019. Total deposits increased to $4.35 billion, an increase of $366.9 million or 9.2% over the $3.98 billion as of December 31, 2019. Total assets eclipsed $5 billion to end at $5.004 billion, an increase of $376.0 million or 8.1% over the total of $4.63 billion as of December 31, 2019.

Below is a breakdown of the Banks loan portfolio by segment as of June 30, 2020:

Category Loan Total Balance % of Loan Average Average Count (000's) Balance LTV DCRCash Secured 84 $ 35,474 0.89% N/A N/ACommercial 1,706 1,133,758 28.60% N/A N/AInternational 122 23,065 0.58% N/A N/AConstruction - 1-4 58 187,083 4.72% 48.4% N/AResidentialConstruction - 42 217,730 5.49% 52.4% N/ACommercialReal Estate - 1-4 155 233,420 5.89% 53.3% 1.70ResidentialReal Estate - 100 246,349 6.22% 49.0% 1.98IndustrialReal Estate - 61 235,106 5.93% 55.9% 1.36MultifamilyReal Estate - Office 74 353,895 8.93% 52.3% 1.41Real Estate - Retail 129 433,950 10.95% 56.8% 1.38Real Estate - Special 76 511,330 12.90% 50.6% 1.75PurposeReal Estate - Vacant 4 7,801 0.20% 36.8% N/ALandSBA 210 73,524 1.85% N/A N/AConsumer 6 1,557 0.04% 42.4% N/AResidential Mortgage 403 269,606 6.80% 59.8% % (DTI)Total 3,230 $ 100.00% 3,963,647

Asset QualityAs of June 30, 2020, nonaccrual loans totaled $26.4 million, up from the $2.1 million reported as of March 31, 2020 and also up over the $2.1 million reported at December 31, 2019. Total net recoveries for the second quarter of 2020 were $132,000 compared to $0 in the first quarter of 2020 and compared to $315,000 for the second quarter of 2019.

COVID 19 Relief ModificationsBelow is a breakdown of loans at June 30, 2020 that are in some form of payment deferment by segment:

Interest Principal Full Total $ % of WeightedLoan Type # Loans Deferral Deferral Payment Modified Total Average Modified (000's) (000's) Deferral (000's) Loan Loan to (000's) Type ValueC&I 97 $ 16,546 $ 7,736 $ 15,236 $ 39,518 3.4% - Office 3 $ 17,700 $ 10,996 $ - $ 28,696 8.1% 52.3%Industrial 13 - 9,820 19,675 29,495 12.0% 49.0%Retail 22 32,391 17,259 38,668 88,319 20.4% 56.8%Multi-Family 3 - - 17,593 17,593 7.5% 55.9%1-4R 9 - - 6,624 6,624 2.8% 53.3%Restaurant 3 - - 6,149 6,149 79.6% 46.3%SpecialPurpose / 15 23,707 27,471 121,353 172,531 55.6% 54.5%HotelSpecialPurpose / 10 2,438 17,118 31,677 51,232 25.5% 44.7%OtherConstruction 0 - - - - 0.0% -/ ADTotal CREand 78 $ 76,235 $ 82,665 $ 241,739 $ 400,640 16.5% -Construction/ AD Mortgage 34 - - 26,935 26,935 10.0% 58.6% Grand Total 209 $ 92,782 $ 90,401 $ 283,910 $ 467,093 11.8% -

At June 30, 2020, total dollar amount of loans in deferral were equal to 11.78% of the Banks loan portfolio. Approximately 85% are deferred from 2-4 months and the remaining 15% are 6 month deferrals. Of the total modifications, 20% are for the deferral of interest only and 19% are for principal deferral only. There are approximately $4 million of requested modifications that are currently in process.

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 $7.5 million for this quarter. This compares to the $5.3 million provision recorded in the first quarter of 2020 and is well ahead of the $1.6 million recorded in this 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 Banks allowance coverage ratio has increased from 0.94% of total loans as of December 31, 2019 to a coverage ratio now totaling 1.41% of total loans.

CapitalizationAs of June 30, 2020, the Banks leverage ratio was 9.87%, the common equity tier 1 capital ratio was 10.39% and the total capital ratio was 13.80%. As of December 31, 2019, the Banks 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 WebcastA conference call with simultaneous webcast to discuss Preferred Banks second quarter 2020 financial results will be held tomorrow, July 22, 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, 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 5, 2020; the passcode is 10146151.

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 StatementsThis 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 Banks 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 Banks 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. governments 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 Banks 2019 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Banks 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 Banks website at www.preferredbank.com.

Financial Tables to Follow

PREFERRED BANKCondensed Consolidated Statements of Operations(unaudited)(in thousands, except for net income per share and shares) For the Quarter Ended June 30, March 31, June 30, 2020 2020 2019 Interest income: Loans, including $ 49,813 $ 51,564 $ 52,844 fees Investment 2,320 3,979 4,707 securities Fed funds sold 32 124 271 Total interest 52,165 55,667 57,822 income Interest expense: Interest-bearing 1,462 3,368 4,819 demand Savings 17 14 13 Time 6,973 8,963 9,612 certificates FHLB borrowings - - 7 Subordinated 1,531 1,531 1,530 debit Total interest 9,983 13,876 15,981 expense Net interest 42,182 41,791 41,841 incomeProvision for 7,500 5,300 1,600 credit losses Net interest income after provision for credit losses 34,682 36,491 40,241 Noninterest income: Fees & service charges on 339 405 418 deposit accounts Letters of credit fee 742 848 1,071 income BOLI income 95 94 92 Net gain (loss) on called and sale of (113 ) - - investment securities Other income 367 325 404 Total noninterest 1,430 1,672 1,985 income Noninterest expense: Salary and employee 10,095 10,902 9,479 benefits Net occupancy 1,296 1,396 1,270 expense Business development and 114 151 187 promotion expense Professional 1,006 1,014 1,090 services Office supplies and equipment 459 489 497 expense Net loss (gain) on sale of other real estate 2 1 (45 ) owned and expense Other 1,363 1,231 1,407 Total noninterest 14,335 15,184 13,885 expense Income before provision for 21,777 22,979 28,341 income taxesIncome tax expense 6,468 6,825 8,362 Net income $ 15,309 $ 16,154 $ 19,979 Dividend andearnings allocated (49 ) (51 ) (158 ) to participatingsecuritiesNet incomeavailable to common $ 15,260 $ 16,103 $ 19,821 shareholders Income per shareavailable to common shareholders Basic $ 1.03 $ 1.08 $ 1.31 Diluted $ 1.03 $ 1.08 $ 1.31 Weighted-averagecommon shares outstanding Basic 14,879,383 14,870,715 15,171,399 Diluted 14,879,383 14,870,715 15,171,399 Cash dividends per $ 0.30 $ 0.30 $ 0.30 common share

PREFERRED BANK Condensed Consolidated Statements of Financial Condition (unaudited) (in thousands) June 30, December 31, June 30, 2020 2019 2019 (Unaudited) (Audited) (Unaudited) Assets Cash and due from $ 630,683 $ 498,645 $ 304,121 banksFed funds sold 25,500 37,000 47,000 Cash and cash 656,183 535,645 351,121 equivalents Securities held tomaturity, at 6,922 7,310 7,702 amortized costSecuritiesavailable-for-sale, 270,667 240,640 238,589 at fair valueLoans 3,963,647 3,724,922 3,585,686 Less allowance for credit (55,762 ) (34,830 ) (33,811 ) losses Amortized deferred loan (5,097 ) (3,028 ) (1,401 ) fees, net Loans, net 3,902,788 3,687,064 3,550,474 Customers'liability on 6,112 7,379 8,074 acceptancesBank furniture and 11,833 12,236 12,757 fixtures, netBank-owned life 9,699 9,571 9,443 insuranceAccrued interest 20,554 14,961 15,510 receivableInvestment in 49,658 53,142 41,136 affordable housingFederal Home Loan 15,000 13,101 13,101 Bank stockDeferred tax assets 21,671 19,560 17,804 Income tax 9,525 3,368 3,585 receivableOperating lease 16,656 17,103 17,616 right-of-use assetsOther assets 7,189 7,401 7,513 Total assets $ 5,004,457 $ 4,628,481 $ 4,294,425 Liabilities andShareholders' EquityDeposits: Non-interest bearing demand $ 934,764 $ 835,790 $ 718,611 deposits Interest-bearing 1,594,682 1,328,863 1,279,104 deposits: Savings 27,737 23,784 20,927 Time certificates 970,649 976,727 839,203 of $250,000 or more Other time 822,404 818,130 819,163 certificates Total 4,350,236 3,983,294 3,677,008 deposits Acceptances 6,112 7,379 8,074 outstandingSubordinated debt 99,273 99,211 99,149 issuanceCommitments to fundinvestment in 17,536 24,149 15,186 affordable housingpartnershipOperating lease 19,589 20,497 21,416 liabilitiesAccrued interest 1,815 3,324 5,753 payableOther liabilities 21,167 20,612 16,397 Total 4,515,728 4,158,466 3,842,983 liabilities Shareholders' 488,729 470,015 451,442 equity Total liabilities and $ 5,004,457 $ 4,628,481 $ 4,294,425 shareholders' equity Book value per $ 32.73 $ 31.47 $ 29.50 common shareNumber of common 14,933,648 14,933,768 15,300,577 shares outstanding

PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Quarter Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Unauditedhistorical quarterlyoperations data: Interest $ 52,165 $ 55,667 $ 55,483 $ 57,959 $ 57,822 income Interest 9,983 13,876 15,074 16,482 15,981 expense Interest income before 42,182 41,791 40,409 41,477 41,841 provision for credit losses Provision for 7,500 5,300 450 900 1,600 credit losses Noninterest 1,430 1,672 1,883 1,737 1,985 income Noninterest 14,335 15,184 13,770 13,898 13,885 expense Income tax 6,468 6,825 8,456 8,383 8,362 expense Net income $ 15,309 $ 16,154 $ 19,616 $ 20,033 $ 19,979 Earnings per share Basic $ 1.03 $ 1.08 $ 1.31 $ 1.32 $ 1.31 Diluted $ 1.03 $ 1.08 $ 1.31 $ 1.32 $ 1.31 Ratios for the period: Return on 1.26 % 1.40 % 1.74 % 1.81 % 1.89 % average assets Return on beginning 13.00 % 13.82 % 16.95 % 17.61 % 18.54 % equity Net interest margin 3.57 % 3.70 % 3.67 % 3.84 % 4.07 % (Fully-taxable equivalent) Noninterest expense to 1.18 % 1.31 % 1.22 % 1.25 % 1.31 % average assets Efficiency 32.87 % 34.93 % 32.56 % 32.16 % 31.68 % ratio Net charge-offs (recoveries) -0.01 % 0.00 % -0.01 % 0.05 % -0.04 % to average loans (annualized) Ratios as of period end: Tier 1 leverage 9.87 % 10.05 % 10.32 % 10.27 % 10.50 % capital ratio Common equity tier 1 10.39 % 10.80 % 10.57 % 10.40 % 10.53 % risk-based capital ratio Tier 1 risk-based 10.39 % 10.80 % 10.57 % 10.40 % 10.53 % capital ratio Total risk-based 13.80 % 14.26 % 13.70 % 13.53 % 13.74 % capital ratio Allowances for credit losses to loans and 1.41 % 1.24 % 0.94 % 0.93 % 0.94 % leases at end of period Allowance for credit losses to 211.08 % 2263.66 % 1631.42 % 895.30 % 981.65 % non-performing loans and leases Average balances: Total $ 250,134 $ 247,689 $ 248,904 $ 249,060 $ 241,664 securities Total loans * $ 3,921,694 $ 3,717,212 $ 3,614,621 $ 3,534,283 $ 3,450,583 Total earning $ 4,768,537 $ 4,548,512 $ 4,381,206 $ 4,298,523 $ 4,134,320 assets Total assets $ 4,868,356 $ 4,651,955 $ 4,482,210 $ 4,395,357 $ 4,235,612 Total time certificate of $ 1,757,531 $ 1,765,816 $ 1,756,480 $ 1,650,965 $ 1,627,953 deposits Total interest bearing $ 3,399,924 $ 3,244,711 $ 3,050,318 $ 3,051,007 $ 2,924,526 deposits Total deposits $ 4,220,197 $ 4,010,629 $ 3,849,825 $ 3,772,097 $ 3,625,021 Total interest bearing $ 3,499,178 $ 3,343,933 $ 3,149,511 $ 3,150,167 $ 3,024,452 liabilities Total equity $ 486,931 $ 475,409 $ 463,849 $ 460,451 $ 445,101 *Incudes loans held for sale



PREFERRED BANKSelected Consolidated Financial Information(unaudited)(in thousands, except for ratios) As of June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019Unaudited quarterlystatement of financial position data:Assets: Cash and cash $ 656,183 $ 484,869 $ 535,645 $ 465,189 $ 351,121 equivalents Securities held-to-maturity, at 6,922 7,077 7,310 7,545 7,702 amortized cost Securities available-for-sale, 270,667 235,097 240,640 242,655 238,589 at fair value Loans and Leases: Real estate - Single and 739,689 721,006 686,906 642,824 646,830 multi-family residential Real estate - 7,801 7,818 7,838 7,950 9,330 Land Real estate - 1,545,524 1,494,694 1,504,594 1,533,566 1,419,224 Commercial Real estate - For sale housing 187,082 177,364 173,951 179,651 171,584 construction Real estate - Other 217,730 223,385 218,562 216,812 212,988 construction Commercial and industrial, 1,265,821 1,269,058 1,133,071 1,090,647 1,125,730 trade finance and other Gross loans 3,963,647 3,893,325 3,724,922 3,671,450 3,585,686 Allowance for loan (55,762 ) (48,130 ) (34,830 ) (34,281 ) (33,811 ) and lease losses Net deferred loan (5,097 ) (3,084 ) (3,028 ) (2,518 ) (1,401 ) fees Net loans, excluding loans $ 3,902,788 $ 3,842,111 $ 3,687,064 $ 3,634,651 $ 3,550,474 held for sale Loans held for sale $ - $ - $ - $ 2,999 $ - Net loans and $ 3,902,788 $ 3,842,111 $ 3,687,064 $ 3,637,650 $ 3,550,474 leases Investment in 49,658 51,400 53,142 39,780 41,136 affordable housing Federal Home Loan 15,000 13,101 13,101 13,101 13,101 Bank stock Other assets 103,239 93,979 91,579 89,564 92,302 Total assets $ 5,004,457 $ 4,727,634 $ 4,628,481 $ 4,495,484 $ 4,294,425 Liabilities: Deposits: Demand $ 934,764 $ 753,750 $ 835,790 $ 774,869 $ 718,611 Interest-bearing 1,594,682 1,503,618 1,328,863 1,435,144 1,279,104 demand Savings 27,737 23,035 23,784 21,985 20,927 Time certificates of 970,649 1,030,282 976,727 849,574 839,203 $250,000 or more Other time 822,404 775,792 818,130 787,392 819,163 certificates Total deposits $ 4,350,236 $ 4,086,477 $ 3,983,294 $ 3,868,964 $ 3,677,008 Acceptances $ 6,112 $ 6,507 $ 7,379 $ 7,333 $ 8,074 outstanding Subordinated debt 99,273 99,242 99,211 99,180 99,149 issuance Commitments to fund investment in 17,536 21,195 24,149 12,904 15,186 affordable housing partnership Other liabilities 42,571 40,428 44,433 48,023 43,566 Total $ 4,515,728 $ 4,253,849 $ 4,158,466 $ 4,036,404 $ 3,842,983 liabilities Equity: Net common stock, no $ 212,187 $ 210,091 $ 210,998 $ 215,123 $ 224,314 par value Retained earnings 271,923 261,095 255,050 239,914 224,401 Accumulated other 4,619 2,599 3,967 4,043 2,727 comprehensive income Total shareholders' $ 488,729 $ 473,785 $ 470,015 $ 459,080 $ 451,442 equity Total liabilities and $ 5,004,457 $ 4,727,634 $ 4,628,481 $ 4,495,484 $ 4,294,425 shareholders' equity



PREFERRED BANK QUARTER-TO-DATE AVERAGE BALANCES, YIELD AND RATES (Unaudited) Three months ended June 30, Three months ended March 31, Three months ended June 30, 2020 2020 2019 Interest Average Interest Average Interest Average Average Income Yield/ Average Income Yield/ Average Income Yield/ or or or Balance Expense Rate Balance Expense Rate Balance Expense Rate ASSETS (Dollars in thousands) Interest-earning assets: Loans ^(1,2) $ 3,921,694 $ 49,813 5.11 % $ 3,717,212 $ 51,564 5.58 % $ 3,450,583 $ 52,844 6.14 % Investment 250,134 2,098 3.37 % 247,689 2,127 3.45 % 241,664 2,276 3.78 % securities ^(3) Federal funds sold 24,324 31 0.52 % 30,153 124 1.66 % 40,067 271 2.71 % Other earning 572,385 318 0.22 % 553,458 1,946 1.41 % 402,006 2,543 2.54 % assets Total interest-earning 4,768,537 52,260 4.41 % 4,548,512 55,761 4.93 % 4,134,320 57,934 5.62 % assets Deferred loan (3,182 ) (3,079 ) (1,253 ) fees, net Allowance for credit losses on (48,247 ) (42,800 ) (32,257 ) loansNoninterest earning assets: Cash and due from 8,274 6,334 6,361 banks Bank furniture and 11,993 12,269 11,607 fixtures Right of use 16,768 17,006 17,547 assets Other assets 114,213 113,713 99,287 Total assets $ 4,868,356 $ 4,651,955 $ 4,235,612 LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilities: Deposits: Interest-bearing demand and 1,642,393 $ 1,479 0.36 % 1,478,895 $ 3,382 0.92 % $ 1,296,573 $ 4,832 1.49 % savings TCD $250K or 945,043 3,624 1.54 % 969,343 4,852 2.01 % 834,092 4,914 2.36 % more Other time 812,488 3,349 1.66 % 796,473 4,111 2.08 % 793,861 4,698 2.37 % certificates Total interest-bearing 3,399,924 8,452 1.00 % 3,244,711 12,345 1.53 % 2,924,526 14,444 1.98 % depositsSubordinated debt 99,254 1,531 6.20 % 99,222 1,531 6.21 % 99,118 1,530 6.19 % Long-term debt - - 0.00 % - - 0.00 % 808 7 3.66 % Total interest-bearing 3,499,178 9,983 1.15 % 3,343,933 13,876 1.67 % 3,024,452 15,981 2.12 % liabilitiesNon-interest bearing liabilities: Demand deposits 820,273 765,918 700,495 Lease Liability 19,841 20,314 21,474 Other liabilities 42,133 46,381 44,090 Total 4,381,425 4,176,546 3,790,511 liabilitiesShareholders? equity 486,931 475,409 445,101 Total liabilities and $ 4,868,356 $ 4,651,955 $ 4,235,612 shareholders? equityNet interest income $ 42,277 $ 41,885 $ 41,953 Net interest spread 3.26 % 3.26 % 3.50 % Net interest margin 3.57 % 3.70 % 4.07 % Cost of Deposits: Noninterest bearing demand 820,273 765,918 700,495 deposits Interest bearing 3,399,924 8,452 1.00 % 3,244,711 12,345 1.53 % 2,924,526 14,444 1.98 % deposits Total Deposits 4,220,197 8,452 0.81 % 4,010,629 12,345 1.24 % 3,625,021 14,444 1.60 % ^ Includes non-accrual loans and (1) loans held for sale^ Net loan fee income of $542,000 and $541,000 for the quarter ended June 30, (2) 2020 and 2019, respectively, are included in the yield computations^ Yields on securities have been adjusted (3) to a tax-equivalent basis

PREFERRED BANK YEAR-TO-DATE AVERAGE BALANCES, YIELD AND RATES (Unaudited) Six months ended June 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) $ 3,819,453 $ 101,377 5.34 % $ 3,389,136 $ 103,304 6.15 % Investment 248,912 4,225 3.41 % 215,818 4,190 3.92 % securities ^(3) Federal funds sold 27,238 156 1.15 % 42,720 577 2.72 % Other earning 562,921 2,263 0.81 % 436,906 5,405 2.49 % assets Total interest-earning 4,658,524 108,021 4.66 % 4,084,580 113,476 5.60 % assets Deferred loan (3,131 ) (1,721 ) fees, net Allowance for credit losses on (45,523 ) (31,776 ) loansNoninterest earning assets: Cash and due from 7,304 5,923 banks Bank furniture and 12,131 10,201 fixtures Right of use 16,887 11,852 assets Other assets 113,964 110,456 Total assets $ 4,760,156 $ 4,189,515 LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilities: Deposits: Interest-bearing 1,560,644 $ 4,861 0.63 % 1,324,550 $ 9,587 1.46 % demand/ savings TCD $250K or 957,193 8,476 1.78 % 787,522 8,872 2.27 % more Other time 804,481 7,460 1.86 % 787,354 8,988 2.30 % certificates Total interest-bearing 3,322,318 20,797 1.26 % 2,899,426 27,447 1.91 % depositsSubordinated debt 99,238 3,062 6.20 % 99,108 3,062 6.23 % Long-term debt - - 0.00 % 1,052 19 3.71 % Total interest-bearing 3,421,556 23,859 1.40 % 2,999,586 30,528 2.05 % liabilitiesNon-interest bearing liabilities: Demand deposits 793,095 691,266 Lease Liability 20,077 14,546 Other liabilities 44,258 47,452 Total 4,278,986 3,752,850 liabilitiesShareholders? equity 481,170 436,665 Total liabilities and $ 4,760,156 $ 4,189,515 shareholders? equityNet interest income $ 84,162 $ 82,948 Net interest spread 3.26 % 3.55 % Net interest margin 3.63 % 4.10 % Cost of Deposits: Noninterest bearing demand 793,095 691,266 deposits Interest bearing 3,322,318 20,797 1.26 % 2,899,426 27,447 1.91 % deposits Total Deposits 4,115,413 20,797 1.02 % 3,590,692 27,447 1.54 % Includes^ non-accrual loans (1) and loans held for sale^ Net loan fee income of $1.2 million and $973,000 for the six months ended June (2) 30, 2020 and 2019, respectively, are included in the yield computations^ Yields on securities have been(3) adjusted to a tax-equivalent basis

Preferred Bank Loan and Credit Quality Information Allowance For Credit Losses History Six Months Year ended Ended June 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 & 61 526 Industrial Mini-perm Real Estate - 101 Total Charge-Offs 61 627 Recoveries Commercial & - 527 Industrial Mini-perm Real Estate 193 415 Total Recoveries 193 942 Net Recoveries (132 ) (315 ) Provision for Credit Losses: CECL Cumulative 8,000 - Effect Adjustment Current Provision 12,800 3,450 Balance at End of Period $ 55,762 $ 34,830 Average Loans Held for Investment $ 3,818,424 $ 3,482,218 Loans Held for Investment at End of $ 3,963,647 $ 3,724,922 PeriodNet Recoveries to Average Loans -0.01% -0.01% Allowances for Credit Losses to Loans 1.41% 0.94% at End of Period

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