GlobeNewswire Inc | Jul 20, 2021 04:38PM EDT

July 20, 2021

LOS ANGELES, July 20, 2021 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2021. Preferred Bank (the Bank) reported net income of $21.5 million or $1.44 per diluted share for the second quarter of 2021. This is up slightly from net income of $21.2 million or $1.42 per diluted share for the first quarter of 2021 and easily tops recorded net income of $15.3 million or $1.03 per diluted share for the second quarter of 2020. The primary reasons for the increase compared to the prior year is a $7.5 million decrease in the provision for credit losses this quarter, an increase in net interest income of $1.2 million, partially offset by an increase in noninterest expense of $630,000. When compared to the prior quarter, the provision for credit losses decreased by $1.4 million, noninterest income increased by $299,000 and noninterest expense decreased by $689,000. Net interest income however, decreased from the prior quarter due to a loan interest accrual adjustment of $2.29 million.

Second quarter 2021 Highlights:

-- Net income of $21.4 million, or $1.44 per diluted share -- Linked quarter loan growth (non - PPP) of 2.7% -- Linked quarter deposit growth of 1.6% -- Return on average assets (ROA) of 1.58% -- Return on beginning equity (ROE) of 15.98%

Li Yu, Chairman and CEO, commented, Preferred Banks second quarter 2021 net income was $21.5 million or $1.44 a share.

Second quarter net income was negatively impacted by a reversal of interest income of $2.29 million and a charge of $614,000 for unamortized issuance costs on our $100 million of subordinated notes which we called on June 18, 2021. Net interest income and loan revenue continue their positive trend, excluding these items.

The current low interest rate environment has continued to pressure the Banks net interest margin (NIM). Second quarter NIM was 3.47% normalized, (see non-GAAP reconciliation) compared to 3.61% for the first quarter. Excluding the two previously mentioned charges, the Bank however, has been able to increase net interest income.

Loan growth for the second quarter was $114 million (excl. PPP) or 2.7% sequentially. We have seen increased loan origination activities but see increased payoff activities as well. Deposit growth was $74 million or 1.6% on a linked quarter basis. Going forward, we look to continue to increase our deployment of excess liquidity.

Expenses remain in control with efficiency ratio at 33.2%. We are now seeing inflationary pressures in personnel and other expense items. While we may not pass on cost increases to customers, we were able to keep our peer-group leading assets per full time employee (FTE) at $19.5 million and revenue per FTE at approximately $702,000.

Recent Federal Reserve Open Market Committee minutes revealed that our economy is expanding at a record pace. We share this optimism and are prepared to take the opportunities presented to us.

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $43.4 million for the second quarter of 2021. This was down slightly from the $45.3 million recorded in the first quarter of 2021 and was slightly ahead of the $42.2 million recorded in the second quarter of 2020. This quarters loan interest income was negatively impacted by a $2.29 million adjustment to the accrued interest on our troubled debt restructured loan. This amount was reversed in the second quarter of 2021 and is the reason for the lowered net interest income against expectations. Also negatively impacting net interest income this quarter, the Bank called its $100 million of 6% subordinated notes (sub debt) as of June 18, 2021. Simultaneously, the Bank issued $150 million of subordinated notes due June 15, 2031 at a coupon rate of 3.375%. In conjunction with the call of the existing $100 million of notes, the Bank incurred a charge of $614,000 to interest expense related to the unamortized issuance costs of the old notes. Although we incurred the charge this quarter for the calling of the sub debt, the far lower coupon of the new notes (3.375% versus 6.0%) will result in over $900,000 of interest savings annually while increasing the size of the borrowing by $50 million. The aforementioned items (loan interest reversal and recognition of unamortized debt issuance costs) drove the Banks taxable equivalent net interest margin down to 3.25%. Excluding these two items the taxable equivalent margin would have been 3.47%, versus 3.61% for the prior quarter and 3.57% for the same period last year.

Noninterest Income. For the second quarter of 2021, noninterest income was $1,646,000 compared with $1,430,000 for the same quarter last year and compared to $1,347,000 for the first quarter of 2021. The increase compared to last year was due to service charges on deposits which increased by $186,000 over last year. This was partially offset by an increase in the loss on sale of loans which was $261,000 in the second quarter of 2021 versus a loss on sale of investment securities of $113,000 in the second quarter of 2020. On a linked quarter basis, service charges on deposits increased by $98,000 while the loss on sale of loans decreased from a loss of $379,000 last quarter to a loss of $261,000 this quarter.

Noninterest Expense. Total noninterest expense was $15.0 million for the second quarter of 2021. This is up compared to the $14.3 million recorded in the same quarter last year but is a decrease from the $15.7 million posted in the first quarter of 2021. Salaries and benefits expense totaled $10.3 million for the second quarter of 2021, an increase of $190,000 from the second quarter of 2020 but a decline from the $11.1 million posted in the first quarter of 2021. The increase over the prior year was due mainly to annual merit increases and the decrease from the first quarter of 2021 was mainly due to higher payroll taxes posted in the first quarter due to incentive compensation distributions. Occupancy expense totaled $1.4 million for the quarter which relatively flat from the prior quarters $1.4 million and up over the $1.3 million recorded in the second quarter of last year. The new Houston office and annual lease rate increases are responsible for the year-over-year change. Professional services expense was $996,000 for the second quarter of 2021, flat compared to last quarters $981,000 and flat compared to the $1.0 million recorded in the second quarter of 2020. Significant I.T initiatives or large legal cases usually drive the variations in this line item and there have been none in the periods compared. Other expenses were $1.7 million for the second quarter of 2021, fairly close to the $1.6 million recorded last quarter and up from the $1.4 over the same period last year. The increase over last year was mainly due to FDIC premiums increasing commensurately with the Banks asset size. For the quarter ended June 30, 2021, the Banks efficiency ratio was 33.2%, down slightly from last quarter and a small increase from the 32.9% recorded in the same period last year.

Income Taxes. The Bank recorded a provision for income taxes of $8.6 million for the second quarter of 2021. This represents an effective tax rate (ETR) of 28.5% and is consistent with the ETR of 28.5% for the prior quarter but a decrease from the ETR of 29.7% in the same period last year. 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, 2021 were $4.28 billion, an increase of $243 million or 6.0% over the total of $4.04 billion as of December 31, 2020. Total deposits increased to $4.80 billion, an increase of $354 million or 8.0% over the $4.44 billion as of December 31, 2020. Total assets ended the quarter at $5.58 billion, an increase of $432.3 million or 8.4% over the total of $5.14 billion as of December 31, 2020.

Asset Quality

As of June 30, 2021, nonaccrual loans totaled $20.2 million, down slightly from the $22.0 million reported as of March 31, 2021. In addition, there are $1.7 million in loans that are 90+ days past due and still accruing. These are two loans that are well-secured and in the process of collection. Total net charge-offs (recoveries) for the second quarter of 2021 were $1.2 million compared to a net recovery of ($57,000) in the prior quarter and compared to a net recovery of ($132,000) in the second quarter of 2020.

At June 30, 2021, the Bank had just one loan for $1.5 million still on COVID-19 deferral status. Its critical to note that as of June 30, 2021, the Bank had recouped 67% of all interest deferred during the deferral period.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2021 was $0 compared to the $1.4 million recorded last quarter and the $7.5 million posted in the same period last year. Between the adoption of the new accounting standard for credit losses (CECL) in the first quarter of last year, and the heightened provisions for credit losses throughout 2020, the Banks allowance coverage ratio has increased to 1.52% of total non-PPP loans as of June 30, 2021 from a total coverage level of 0.94% as of December 31, 2019 which was the last quarter end prior to the pandemic.

Capitalization

As of June 30, 2021, the Banks leverage ratio was 10.07%, the common equity tier 1 capital ratio was 11.28% and the total capital ratio climbed to 15.61%. As of December 31, 2020, the Banks leverage ratio was 10.08%, the common equity tier 1 ratio was 11.21% and the total risk-based capital ratio was 14.64%.

GAAP Non-GAAP Reconciliation

Net interest margin - GAAP3.25%Add: $2.3MM loan interest income0.17%Add: $614K unamortized $100M sub-debt issuance cost 0.05%Net interest margin - non-GAAP3.47%

Net interest margin - GAAP 3.25 % Add: $2.3MM loan interest income 0.17 % Add: $614K unamortized $100M sub-debt issuance cost 0.05 % Net interest margin - non-GAAP 3.47 %

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Banks second quarter 2021 financial results will be held tomorrow, July 21, 2021 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, 2021; the passcode is 10158785.

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 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 2020 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, 2021 2021 2020 Interest income: Loans, including $ 47,906 $ 49,859 $ 49,813 fees Investment 2,548 2,277 2,320 securities Fed funds sold 19 24 31 Total interest 50,473 52,160 52,164 income Interest expense: Interest-bearing 1,530 1,437 1,462 demand Savings 18 19 17 Time 3,419 3,827 6,973 certificates Subordinated 2,145 1,531 1,531 debit Total interest 7,112 6,814 9,983 expense Net interest 43,361 45,346 42,181 incomeProvision for - 1,400 7,500 credit losses Net interest income after provision for credit 43,361 43,946 34,681 losses Noninterest income: Fees & service charges on 525 426 339 deposit accounts Letters of credit fee 811 808 742 income BOLI income 98 96 95 Net gain (loss) on called and sale of - - (113 ) investment securities Net gain (loss) (261 ) (379 ) - on sale of loans Other income 473 396 367 Total noninterest 1,646 1,347 1,430 income Noninterest expense: Salary and employee 10,285 11,123 10,095 benefits Net occupancy 1,429 1,401 1,296 expense Business development and 117 73 114 promotion expense Professional 996 981 1,006 services Office supplies and equipment 476 438 459 expense Other 1,661 1,636 1,364 Total noninterest 14,964 15,652 14,334 expense Income before provision for 30,043 29,641 21,777 income taxesIncome tax expense 8,563 8,447 6,468 Net income $ 21,480 $ 21,194 $ 15,309 Dividend andearnings allocated (3 ) (3 ) (49 ) to participatingsecuritiesNet incomeavailable to common $ 21,477 $ 21,191 $ 15,260 shareholders Income per shareavailable to common shareholders Basic $ 1.44 $ 1.42 $ 1.03 Diluted $ 1.44 $ 1.42 $ 1.03 Weighted-averagecommon shares outstanding Basic 14,954,688 14,950,019 14,879,383 Diluted 14,954,688 14,950,019 14,879,383 Cash dividends per $ 0.38 $ 0.38 $ 0.30 common share

PREFERRED BANKCondensed Consolidated Statements of Operations(unaudited)(in thousands, except for net income per share and shares) For the Six Months Ended June 30, June 30, Change 2021 2020 %Interest income: Loans, including fees $ 97,765 $ 101,377 -3.6 % Investment securities 4,825 6,299 -23.4 % Fed funds sold 43 156 -72.7 % Total interest 102,633 107,832 -4.8 % income Interest expense: Interest-bearing demand 2,967 4,830 -38.6 % Savings 37 31 17.8 % Time certificates 7,246 15,936 -54.5 % Subordinated debit 3,676 3,062 20.0 % Total interest 13,926 23,859 -41.6 % expense Net interest income 88,707 83,973 5.6 %Provision for credit 1,400 12,800 -89.1 %losses Net interest income after provision for credit losses 87,307 71,173 22.7 % Noninterest income: Fees & service charges 951 744 27.8 % on deposit accounts Letters of credit fee 1,619 1,590 1.8 % income BOLI income 194 189 2.9 % Net gain (loss) on called and sale of - (113 ) -100.0 % investment securities Net gain (loss) on sale (640 ) 15 -4363.5 % of loans Other income 869 677 28.4 % Total noninterest 2,993 3,102 -3.5 % income Noninterest expense: Salary and employee 21,408 20,997 2.0 % benefits Net occupancy expense 2,830 2,692 5.1 % Business development 190 265 -28.3 % and promotion expense Professional services 1,977 2,020 -2.1 % Office supplies and 914 948 -3.6 % equipment expense Other 3,297 2,597 27.0 % Total noninterest 30,616 29,519 3.7 % expense Income before provision for income 59,684 44,756 33.4 % taxesIncome tax expense 17,010 13,293 28.0 % Net income $ 42,674 $ 31,463 35.6 % Dividend and earningsallocated to participating $ (3 ) $ (51 ) -95.0 %securitiesNet income available to $ 42,671 $ 31,412 35.8 %common shareholders Income per share available to common shareholders Basic $ 2.85 $ 2.11 35.3 % Diluted $ 2.85 $ 2.11 35.3 % Weighted-average common shares outstanding Basic 14,952,366 14,875,049 0.5 % Diluted 14,952,366 14,875,049 0.5 % Dividends per share $ 0.76 $ 0.60 26.7 %

PREFERRED BANKCondensed Consolidated Statements of Financial Condition(unaudited)(in thousands) June 30, December 31, 2021 2020 (Unaudited) (Audited) Assets Cash and due from banks $ 876,474 $ 739,465 Fed funds sold 20,000 20,000 Cash and cash equivalents 896,474 759,465 Securities held to maturity, at 15,749 6,568 amortized costSecurities available-for-sale, at fair 278,460 239,682 valueLoans 4,278,403 4,035,394 Less allowance for credit losses (63,635 ) (63,426 ) Less amortized deferred loan fees, (5,329 ) (4,574 ) net Loans, net 4,209,439 3,967,394 Customers' liability on acceptances 7,797 3,596 Bank furniture and fixtures, net 11,208 11,825 Bank-owned life insurance 9,957 9,828 Accrued interest receivable 18,316 23,692 Investment in affordable housing 55,452 62,521 partnershipsFederal Home Loan Bank stock, at cost 15,000 15,000 Deferred tax assets 24,583 24,466 Income tax receivable 5,736 - Operating lease right-of-use assets 21,502 16,106 Other assets 6,235 3,498 Total assets $ 5,575,908 $ 5,143,641 Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 1,063,472 $ 938,911 Interest-bearing deposits: 1,774,668 1,700,818 Savings 32,560 34,702 Time certificates of $250,000 or 930,976 912,546 more Other time certificates 994,630 855,503 Total deposits 4,796,306 4,442,480 Acceptances outstanding 7,797 3,596 Subordinated debt issuance, net 147,787 99,334 Commitments to fund investment in 19,197 30,715 affordable housing partnershipsOperating lease liabilities 23,287 18,682 Accrued interest payable 914 1,245 Other liabilities 21,651 22,142 Total liabilities 5,016,939 4,618,194 Shareholders' equity 558,969 525,447 Total liabilities and shareholders' $ 5,575,908 $ 5,143,641 equity Book value per common share $ 37.36 $ 31.47 Number of common shares outstanding 14,962,164 14,931,861

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, 2021 2021 2020 2020 2020 Unauditedhistorical quarterlyoperations data: Interest $ 50,473 $ 52,160 $ 53,649 $ 52,782 $ 52,164 income Interest 7,112 6,814 7,586 8,663 9,983 expense Interest income before 43,361 45,346 46,063 44,119 42,181 provision for credit losses Provision for - 1,400 4,200 9,000 7,500 credit losses Noninterest 1,646 1,347 1,356 1,605 1,430 income Noninterest 14,964 15,652 14,177 13,663 14,334 expense Income tax 8,563 8,447 8,162 5,936 6,468 expense Net income $ 21,480 $ 21,194 $ 20,880 $ 17,125 $ 15,309 Earnings per share Basic $ 1.44 $ 1.42 $ 1.40 $ 1.15 $ 1.03 Diluted $ 1.44 $ 1.42 $ 1.40 $ 1.15 $ 1.03 Ratios for the period: Return on 1.58 % 1.65 % 1.63 % 1.34 % 1.26 % average assets Return on beginning 15.98 % 16.36 % 16.49 % 13.94 % 13.00 % equity Net interest margin 3.25 % 3.61 % 3.66 % 3.54 % 3.57 % (Fully-taxable equivalent) Noninterest expense to 1.10 % 1.22 % 1.10 % 1.07 % 1.18 % average assets Efficiency 33.25 % 33.52 % 29.90 % 29.88 % 32.87 % ratio Net charge-offs (recoveries) 0.12 % -0.01 % 0.20 % 0.35 % -0.01 % to average loans (annualized) Ratios as of period end: Tier 1 leverage 10.07 % 10.26 % 10.08 % 9.75 % 9.87 % capital ratio Common equity tier 1 11.28 % 11.34 % 11.21 % 11.02 % 10.39 % risk-based capital ratio Tier 1 risk-based 11.28 % 11.34 % 11.21 % 11.02 % 10.39 % capital ratio Total risk-based 15.61 % 14.73 % 14.64 % 14.51 % 13.80 % capital ratio Allowances for credit losses 1.49 % 1.56 % 1.57 % 1.55 % 1.41 % to loans at end of period Allowance for credit losses to 290.58 % 294.74 % 308.96 % 243.56 % 211.08 % non-performing loans Average balances: Total $ 269,000 $ 242,200 $ 251,284 $ 237,801 $ 250,134 securities Total loans $ 4,130,190 $ 4,044,800 $ 3,971,537 $ 3,956,145 $ 3,919,674 Total earning $ 5,364,598 $ 5,102,291 $ 5,018,031 $ 4,975,005 $ 4,768,537 assets Total assets $ 5,467,678 $ 5,200,079 $ 5,110,065 $ 5,073,548 $ 4,868,356 Total time certificate of $ 1,893,247 $ 1,820,461 $ 1,764,528 $ 1,841,901 $ 1,757,531 deposits Total interest bearing $ 3,704,771 $ 3,531,358 $ 3,508,276 $ 3,501,275 $ 3,399,924 deposits Total deposits $ 4,724,104 $ 4,486,399 $ 4,426,326 $ 4,408,882 $ 4,220,197 Total interest bearing $ 3,815,964 $ 3,630,705 $ 3,607,592 $ 3,600,560 $ 3,499,178 liabilities Total equity $ 553,561 $ 538,282 $ 518,567 $ 503,421 $ 486,931

PREFERRED BANK Selected Consolidated Financial Information (unaudited) (in thousands, except for ratios) For the Six Months Ended June 30, June 30, 2021 2020 Interest income $ 102,633 $ 107,832 Interest expense 13,926 23,859 Interest income before provision 88,707 83,973 for credit losses Provision for credit losses 1,400 12,800 Noninterest income 2,993 3,102 Noninterest expense 30,616 29,519 Income tax expense 17,010 13,293 Net income $ 42,674 $ 31,463 Earnings per share Basic $ 2.85 $ 2.11 Diluted $ 2.85 $ 2.11 Ratios for the period: Return on average assets 1.61 % 1.33 % Return on beginning equity 16.38 % 13.46 % Net interest margin (Fully-taxable 3.43 % 3.63 % equivalent) Noninterest expense to average 1.16 % 1.25 % assets Efficiency ratio 33.39 % 33.90 % Net charge-offs (recoveries) to 0.06 % -0.01 % average loans Average balances: Total securities $ 255,675 $ 248,912 Total loans $ 4,087,731 $ 3,818,424 Total earning assets $ 5,234,170 $ 4,658,524 Total assets $ 5,334,618 $ 4,760,156 Total time certificate of deposits $ 1,857,055 $ 1,761,674 Total interest bearing deposits $ 3,618,543 $ 3,322,318 Total deposits $ 4,605,908 $ 4,115,413 Total interest bearing liabilities $ 3,723,846 $ 3,421,556 Total equity $ 545,964 $ 481,170

PREFERRED BANKSelected Consolidated Financial Information(unaudited)(in thousands, except for ratios) As of June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Unaudited quarterlystatement of financial position data:Assets: Cash and cash $ 896,474 $ 943,126 $ 759,465 $ 807,791 $ 656,183 equivalents Securities held-to-maturity, at 15,749 6,039 6,568 6,727 6,922 amortized cost Securities available-for-sale, at 278,460 228,635 239,682 219,778 270,667 fair value Loans: Real estate ? Mortgage: Real $ 558,147 $ 541,313 $ 523,789 $ 528,371 $ 511,354 estate?Residential Real 2,019,995 1,925,554 1,911,485 1,808,200 1,781,660 estate?Commercial Total Real Estate 2,578,142 2,466,867 2,435,274 2,336,571 2,293,014 ? Mortgage Real estate ? Construction: R/E Construction ? 120,363 123,302 148,825 170,773 187,083 Residential R/E Construction ? 224,323 229,933 215,032 223,706 217,729 Commercial Total real estate 344,686 353,235 363,857 394,480 404,812 construction loans Commercial and 1,259,668 1,248,550 1,165,990 1,144,051 1,192,056 industrial PPP 95,765 95,434 70,234 74,551 73,524 Consumer and others 143 155 39 68 241 Gross loans 4,278,403 4,164,241 4,035,394 3,949,721 3,963,647 Allowance for credit (63,635 ) (64,883 ) (63,426 ) (61,262 ) (55,762 ) losses on loans Net deferred loan fees (5,329 ) (4,872 ) (4,574 ) (4,411 ) (5,097 ) Net loans, excluding $ 4,209,439 $ 4,094,486 $ 3,967,394 $ 3,884,048 $ 3,902,788 loans held for sale Loans held for sale $ - $ - $ - $ - $ - Net loans $ 4,209,439 $ 4,094,486 $ 3,967,394 $ 3,884,048 $ 3,902,788 Investment in affordable 55,452 59,824 62,521 47,917 49,658 housing partnerships Federal Home Loan Bank 15,000 15,000 15,000 15,000 15,000 stock, at cost Other assets 105,334 100,894 93,011 104,313 103,239 Total assets $ 5,575,908 $ 5,448,004 $ 5,143,641 $ 5,085,574 $ 5,004,457 Liabilities: Deposits: Demand $ 1,063,472 $ 1,026,260 $ 938,911 $ 926,166 $ 934,764 Interest-bearing 1,774,668 1,751,951 1,700,818 1,620,495 1,594,682 demand Savings 32,560 37,551 34,702 32,830 27,737 Time certificates of 930,976 927,043 912,546 977,821 970,649 $250,000 or more Other time 994,630 979,694 855,503 857,113 822,404 certificates Total deposits $ 4,796,306 $ 4,722,499 $ 4,442,480 $ 4,414,425 $ 4,350,236 Acceptances outstanding $ 7,797 $ 9,670 $ 3,596 $ 7,463 $ 6,112 Subordinated debt 147,787 99,365 99,334 99,304 99,273 issuance, net Commitments to fund investment in affordable 19,197 27,918 30,715 16,689 17,536 housing partnerships Other liabilities 45,852 49,283 42,069 43,826 42,571 Total liabilities $ 5,016,939 $ 4,908,735 $ 4,618,194 $ 4,581,707 $ 4,515,728 Equity: Net common stock, no par $ 219,958 $ 218,593 $ 217,444 $ 213,519 $ 212,187 value Retained earnings 332,276 316,481 300,969 284,568 271,923 Accumulated other 6,735 4,195 7,034 5,780 4,619 comprehensive income Total shareholders' $ 558,969 $ 539,269 $ 525,447 $ 503,867 $ 488,729 equity Total liabilities and shareholders' $ 5,575,908 $ 5,448,004 $ 5,143,641 $ 5,085,574 $ 5,004,457 equity

PREFERRED BANKQuarter-to-Date Average Balances, Yields and Rates(Unaudited) Three months ended June 30, Three months ended March 31, Three months ended June 30, 2021 2020 2020 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) $ 4,132,451 47,906 4.65 % $ 4,044,823 $ 49,859 5.00 % $ 3,921,694 $ 49,813 5.11 % Investment 269,000 2,058 3.07 % 242,200 1,884 3.16 % 250,134 2,098 3.37 % securities ^(3) Federal funds sold 20,437 19 0.36 % 21,474 24 0.45 % 24,324 31 0.52 % Other earning 942,710 597 0.25 % 793,794 493 0.25 % 572,385 318 0.23 % assets Total interest-earning 5,364,598 50,580 3.78 % 5,102,291 52,260 4.15 % 4,768,537 52,260 4.41 % assets Deferred loan (4,924 ) (4,344 ) (3,182 ) fees, net Allowance for credit losses on (64,842 ) (63,450 ) (48,247 ) loansNoninterest earning assets: Cash and due from 10,620 9,923 8,274 banks Bank furniture and 11,468 11,772 11,993 fixtures Right of use 19,735 16,847 16,768 assets Other assets 131,023 127,040 114,213 Total assets $ 5,467,678 $ 5,200,079 $ 4,868,356 LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilities: Deposits: Interest-bearing demand and 1,811,524 $ 1,548 0.34 % 1,710,897 $ 1,456 0.35 % $ 1,642,393 $ 1,479 0.36 % savings TCD $250K or 926,161 1,688 0.73 % 919,155 1,918 0.85 % 945,043 3,624 1.54 % more Other time 967,086 1,731 0.72 % 901,306 1,909 0.86 % 812,488 3,349 1.66 % certificates Total interest-bearing 3,704,771 4,967 0.54 % 3,531,358 5,283 0.61 % 3,399,924 8,452 1.00 % depositsSubordinated debt, net 111,193 2,145 7.74 % 99,347 1,531 6.25 % 99,254 1,531 6.20 % Total interest-bearing 3,815,964 7,112 0.75 % 3,630,705 6,814 0.76 % 3,499,178 9,983 1.15 % liabilitiesNon-interest bearing liabilities: Demand deposits 1,019,333 955,041 820,273 Lease Liability 21,765 19,289 19,841 Other liabilities 57,055 56,762 42,133 Total 4,914,117 4,661,797 4,381,425 liabilitiesShareholders? equity 553,561 538,282 486,931 Total liabilities and $ 5,467,678 $ 5,200,079 $ 4,868,356 shareholders? equityNet interest income $ 43,468 $ 45,446 $ 42,277 Net interest spread 3.03 % 3.39 % 3.26 %Net interest margin 3.25 % 3.61 % 3.57 % Cost of Deposits: Noninterest bearing demand $ 1,019,333 $ 955,041 $ 820,273 deposits Interest bearing 3,704,771 4,967 0.54 % 3,531,358 5,283 0.61 % 3,399,924 8,452 1.00 % deposits Total Deposits $ 4,724,104 $ 4,967 0.42 % $ 4,486,399 $ 5,283 0.48 % $ 4,220,197 $ 8,452 0.81 % ^ Includes non-accrual loans and (1) loans held for sale^ Net loan fee income of $699,000, $539,000 and $542,000 for the quarter ended(2) June 30, 2021, March 31, 2021, June 30, 2020, respectively, are included in the yield computations^ Yields on securities have been adjusted (3) to a tax-equivalent basis

PREFERRED BANKYear-to-Date Average Balances, Yields and Rates(Unaudited) Six Months ended June 30, 2021 2020 Interest Average Interest Average Average Income or Yield/ Average Income or Yield/ Balance Expense Rate Balance Expense RateASSETS (Dollars in thousands)Interest-earning assets: Loans ^(1,2) $ 4,088,879 $ 97,765 4.82 % $ 3,819,453 $ 101,377 5.34 % Investment 255,675 3,942 3.11 % 248,912 4,225 3.41 % securities ^(3) Federal funds sold 20,953 43 0.41 % 27,238 156 1.15 % Other earning 868,663 1,090 0.25 % 562,921 2,263 0.81 % assets Total interest-earning 5,234,170 102,840 3.96 % 4,658,524 108,021 4.66 % assets Deferred loan (4,636 ) (3,131 ) fees, net Allowance for credit losses on (64,150 ) (45,523 ) loansNoninterest earning assets: Cash and due from 10,273 7,304 banks Bank furniture and 11,619 12,131 fixtures Right of use 18,299 16,887 assets Other assets 129,042 113,964 Total assets $ 5,334,618 $ 4,760,156 LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilities: Deposits: Interest-bearing 1,761,488 $ 3,004 0.34 % 1,560,644 $ 4,861 0.63 % demand/ savings TCD $250K or 922,677 3,606 0.79 % 957,193 8,476 1.78 % more Other time 934,378 3,640 0.79 % 804,481 7,460 1.86 % certificates Total interest-bearing 3,618,543 10,250 0.57 % 3,322,318 20,797 1.26 % depositsSubordinated debt, 105,303 3,676 7.04 % 99,238 3,062 6.20 %net Total interest-bearing 3,723,846 13,926 0.75 % 3,421,556 23,859 1.40 % liabilitiesNon-interest bearing liabilities: Demand deposits 987,365 793,095 Lease Liability 20,534 20,077 Other liabilities 56,909 44,258 Total 4,788,654 4,278,986 liabilitiesShareholders? equity 545,964 481,170 Total liabilities and $ 5,334,618 $ 4,760,156 shareholders? equityNet interest income $ 88,914 $ 84,162 Net interest spread 3.21 % 3.26 %Net interest margin 3.43 % 3.63 % Cost of Deposits: Noninterest bearing demand $ 987,365 $ 793,095 deposits Interest bearing 3,618,543 10,250 0.57 % 3,322,318 20,797 1.26 % deposits Total Deposits $ 4,605,908 $ 10,250 0.45 % $ 4,115,413 $ 20,797 1.02 % ^(1)Includesnon-accrual loans and loans held forsale^(2)Net loan fee income of $1.2 million for the six months ended June 30, 2021and 2020 is included in the yield computations^(3)Yields on securities havebeen adjusted to a tax-equivalent basis

Preferred BankLoan and Credit Quality Information Allowance For Credit Losses History Six Months Year ended Ended June 30, 2021 December 31, 2020 (Dollars in 000's)Allowance For Credit Losses Balance at Beginning of Period $ 63,426 $ 34,830 Charge-Offs Commercial & Industrial 431 3,700 Mini-perm Real Estate 817 1,900 Others - 7 Total Charge-Offs 1,248 5,607 Recoveries Commercial & Industrial 57 - Construction - Commercial - 194 Land - Commercial - 9 Total Recoveries 57 203 Net Charge-Offs (Recoveries) 1,191 5,404 Provision for Credit Losses: CECL Cumulative Effect - 8,000 Adjustment Current Provision 1,400 26,000 Balance at End of Period $ 63,635 $ 63,426 Average Loans Held for Investment $ 4,044,823 $ 3,892,811 Loans Held for Investment at End of Period $ 4,278,403 $ 4,035,394 Net Charge-Offs (Recoveries) to Average 0.06 % 0.14 %LoansAllowances for Credit Losses to Loans at 1.49 % 1.57 %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