PFBC Preferred Bank

Preferred Bank (NASDAQ: PFBC), one of the larger independent California banks, today reported results for the quarter ended June 30, 2023. Preferred Bank (“the Bank”) reported net income of $37.9 million or $2.61 per diluted share for the second quarter of 2023. This represents an increase in net income of $9.9 million or 35.2% over the same quarter last year and nearly flat compared to the first quarter of 2023. The primary driver of the increase over the prior year quarter was net interest income which increased by $16.9 million or 29.9% over the same period last year partially offset by higher noninterest expenses as OREO valuation charges and expenses totaled $2.8 million this quarter.

The challenging operating environment created by the failures of Silicon Valley Bank, Signature Bank (“SBNY”) and First Republic Bank as well as the continued interest rate hikes by the Federal Open Market Committee (“FOMC”) continue to make deposit growth challenging. With that, we were extremely pleased at our deposit growth this quarter of $181 million. Loan totals remained relatively flat as loan growth came in at just $61 million in growth for the quarter.

Highlights for the Quarter:

• Return of average assets was 2.32%
• Return on beginning equity of 23.18%
• Net interest margin was 4.58%
• Total deposits increased $181 million or 13.4% annually for the quarter
• Total loans increased $61 million for the quarter
• Efficiency ratio was 27.3%
• Quarter-end cash on hand was $1.05 billion or 18.8% of total deposits
• Total available liquidity to total deposits was 41.2%
• The allowance for credit losses to total loans increased to 1.40%

Li Yu, Chairman and CEO, commented, “We are delighted to report second quarter 2023 net income of $38 million or $2.61 per diluted share. This quarter we have increased deposits by $181 million or 3.4% under a most challenging environment. During the quarter we have also witnessed strong movement of deposits from DDA/money market to certificates of deposit. This movement seemed to have substantially moderated toward the end of quarter.

“The Bank’s uninsured deposits was 39.9% of total deposits at June 30, 2023. Since March 9, 2023, we have been diligently converting our larger deposits to deposit reciprocation platforms also helping other customer to restructure their deposits. Total available liquidity on June 30, 2023 represented 41.2% of total deposits. We believe that the industry’s ability to earn money will be jeopardized if banks are expected to maintain liquidity equal to all of its uninsured deposits on any given day.

“Loan growth for the second quarter of 2023 was $61 million. Loan demand has definitely been impacted by the current interest rate environment. Further increases in interest rates will likely further depress loan demand. Our credit quality remains stable with all metrics consistent with the previous quarter. During the quarter, we have written down the value of OREO by $1.9 million.

“Recently, the business media has been reporting on the exodus of businesses from the area of downtown San Francisco as several large owner/operators have turned their properties back over to their lenders. Preferred Bank’s total real estate loans in the city of San Francisco were $114 million. More specifically, loans in the troubled downtown area of San Francisco totaled $34 million as of June 30, 2023.

“Thanks to our very rate sensitive loan portfolio, Preferred Bank’s net interest income is quite resilient. Our tested formula of a strong margin and low overheard has produced consistently superior returns to our shareholders. To utilize some of our large cash base and excess capital, we have begun to buyback our stock. Total stock repurchased through June 30, 2023 was 281,000 shares.”

Results of Operations

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $73.3 million for the second quarter of 2023. This was a significant increase from the $56.4 million recorded in the same quarter last year but down slightly from the $73.7 million posted in the first quarter of 2023. The FOMC rate hikes throughout 2022 and into 2023 drove loan portfolio yields higher, as most of the Bank’s loans are tied to the Prime rate. Interest expense increased this quarter slightly more than did interest income as deposit rates continued to climb during most of the quarter. Despite the increasing deposit rates, the Bank’s taxable equivalent net interest margin declined by 19 basis points to 4.58% from 4.77% last quarter. Comparing to the same quarter last year, the margin was up by 81 basis points over the 3.77% posted this quarter last year.

Noninterest Income. For the second quarter of 2023, noninterest income was $3.1 million compared with $2.6 million for the same quarter last year and compared to ($1.1 million) for the first quarter of 2023. The increase compared to the second quarter of 2022 was due to an increase in both service charges on deposits as well as Letter of Credit (“LC”) fee income. The increase over the first quarter of 2023 was due to the $4.1 million loss on the sale of the SBNY corporate note which was sold in the days following the Bank’s failure. In addition, service charges on deposits and LC fees were both up over first quarter levels. Gains on sales of SBA loans were $186,000 compared to $0 in the same quarter of last year and compared to $340,000 in the first quarter of 2023.

Noninterest Expense. Total noninterest expense was $20.9 million for the second quarter of 2023 compared to $18.9 million for the first quarter of 2023 and compared to the $17.1 million recorded in the same period last year. Comparing this quarter to the second quarter of last year, the major variances were; personnel expense increased by $832,000 or 7.1% and OREO expense/valuation allowance increased by $2.5 million. The personnel expense increase was mainly due to merit increases and an increase in incentive compensation. The increase in OREO expense was mainly due to a valuation adjustment of $1.9 million on the Bank’s one OREO property in addition to other OREO expenses. In comparing the second quarter of 2023 to the prior quarter; personnel expense was down by $1.2 million or 8.8%, other professional services increased by $194,000 or 16.9% and OREO expense increased by $2.8 million. The decrease in salaries and benefits expense was due to a decrease in payroll taxes as well as incentive compensation. For the quarter ended June 30, 2023, the Bank’s efficiency ratio was 27.3% slightly higher than the 26.0% posted last quarter but surpassing the 29.0% posted this quarter last year.

Income Taxes. The Bank recorded a provision for income taxes of $15.1 million for the second quarter of 2023. This represents an effective tax rate (“ETR”) of 28.5% and the same as the 28.5% ETR for the first quarter of 2023 but up from the 28.0% ETR recorded in the second quarter of 2022. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans at June 30, 2023 were $5.12 billion, an increase of $43.7 million from the total of $5.07 billion as of December 31, 2022. Total deposits increased to $5.59 billion from the $5.56 billion as of December 31, 2022. Total assets were $6.67 billion, an increase of $243 million over the total of $6.43 billion as of December 31, 2022.

Uninsured Deposits

As of June 30, 2023, total uninsured deposits represented approximately 39.9 % of total deposits. Since mid-March, we have been diligently working with our larger deposit clients to enroll them in various reciprocal deposit programs to ensure that all of their deposits are FDIC insured. These programs have allowed the Bank to bring back some of the depositor balances that left the Bank in the aftermath of the bank failures in March of 2023.

Balance Sheet Fair Market Values from March 31, 2023

With so much focus recently on ASC Topic 825, Financial Instruments, formerly known as FASB 107, we felt it would be beneficial for shareholders to view the Bank’s disclosure in its recently filed Quarterly Report on Form 10-Q for March 31, 2023.

			March 31, 2023
			Fair ValueMeasurementUsing	CarryingAmount		EstimatedFair Value
			(Dollars in thousands)
Assets:
Cash and cash equivalents			Level 1	$	885,691	$	885,691
Securities held-to-maturity			Level 2		22,155		20,563
Securities available-for-sale			Level 2/3		367,492		367,492
Loans receivable, net			Level 3		4,978,513		5,005,857
Customers' liability on acceptances			Level 2		107		107
Accrued interest receivable			Level 2/3		26,532		26,532
Federal Home Loan Bank stock			Level 2		15,000	N/A
Liabilities:
Demand deposits and savings:
Noninterest-bearing			Level 2	$	1,050,992	$	1,050,992
Interest-bearing			Level 2		1,785,300		1,785,300
Time deposits			Level 2		2,571,474		2,554,788
Subordinated debt issuance			Level 2		148,055		171,858
Acceptances Outstanding			Level 2		107		107
Accrued interest payable			Level 2		4,529		4,529

Liquidity

As of June 30, 2023, the Bank had $1.05 billion in cash and fed funds on the balance sheet representing 18.8% of total deposits. In addition, the Bank had $828 million in FHLB borrowing availability, $90 million in available funds from the FRB Discount window and $161 million in available for sale securities that were unpledged. All summed, this totals $2.15 billion of total liquidity or 41.2% of total deposits.

Asset Quality

As of June 30, 2023, nonaccrual loans totaled just $423,000, up slightly from the $271,000 reported as of March 31, 2023 and down markedly from the $10.6 million reported as of June 30, 2022. In addition, OREO and repossessed assets totaled $16.7 million as of June 30, 2023, down from the $18.6 million as of March 31, 2023 as the Bank wrote down the value of its large Santa Barbara area OREO by $1.9 million. In addition to that, the Bank’s total classified assets remained fairly constant at $43.3 million compared to $43.1 million as of both March 31, 2023 and as of December 31, 2022. Total net charge-offs were $0 for the second quarter of 2023 as compared to net charge offs of $43,000 last quarter and compared to $0 in the same quarter last year. Management is acutely aware that commercial real estate is under some pressure given the change in interest rates over the past year, especially office properties. However in reviewing the portfolio, with delinquencies and nonaccrual loans down and classified assets flat, this weakness has yet to appear. We will be vigilant going forward.

Office Building Loans

As a result of the pandemic and working from home, office occupancy has suffered and there has been a corresponding decline in the value of office properties, especially in city centers. As of June 30, 2023, the Bank has the following office loans; (in 000’s)

Medical Office	$	3,430
Mixed Use (Office & Retail)		168,643
Pure Office		176,416
Reposition for Multi-Family		105,522
Total	$	454,011

Substantially all of the office building loans are secured by properties located in more suburban areas. There are only $9.0 million of office building loans in downtown areas.

Allowance for Credit Losses

The provision for credit losses for the second quarter of 2023 was $2.5 million compared to $500,000 last quarter and compared to $2.9 million in the same quarter last year.   Macro economic conditions as well as more stress in the commercial real estate sector lead to the increase in the provision from last quarter. The Bank’s allowance coverage ratio now stands at 1.40% of total loans.

Capitalization

As of June 30, 2023, the Bank’s leverage ratio was 10.61%, the common equity tier 1 capital ratio was 11.51% and the total capital ratio stood at 15.14%. As of December 31, 2022, the Bank’s leverage ratio was 10.30%, the common equity tier 1 ratio was 10.81% and the total risk-based capital ratio was 14.39%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s second quarter 2023 financial results will be held tomorrow, July 20, 2023 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com.

Preferred Bank's Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through August 3, 2023; the passcode is 4793135.

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)), one branch in Flushing, New York and a branch office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

Forward-Looking Statements

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

AT THE COMPANY:	AT FINANCIAL PROFILES:
Edward J. CzajkaExecutive Vice PresidentChief Financial Officer(213) 891-1188	Jeffrey HaasGeneral Information(310) 622-8240PFBC@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
					June 30,			March 31,				June 30,
						2023			2023				2022
Interest income:
	Loans, including fees				$	102,220		$	95,881			$	58,541
	Investment securities					15,919			12,979				3,972
	Fed funds sold					272			224				46
		Total interest income				118,411			109,084				62,559
Interest expense:
	Interest-bearing demand					16,406			17,038				2,448
	Savings					47			39				20
	Time certificates					25,436			16,593				2,342
	FHLB borrowings					1,888			374				-
	Subordinated debt					1,325			1,325				1,325
		Total interest expense				45,102			35,369				6,135
		Net interest income				73,309			73,715				56,424
Provision for credit losses						2,500			500				2,900
		Net interest income after provision for
			credit losses			70,809			73,215				53,524
Noninterest income:
	Fees & service charges on deposit accounts					844			694				723
	Letters of credit fee income					1,576			1,324				1,329
	BOLI income					103			101				100
	Net loss on called and sale of investment securities					-			(4,117	)			-
	Net gain on sale of loans					186			340				-
	Other income					392			592				449
		Total noninterest income				3,101			(1,066	)			2,601
Noninterest expense:
	Salary and employee benefits					12,520			13,728				11,688
	Net occupancy expense					1,476			1,474				1,441
	Business development and promotion expense					200			105				176
	Professional services					1,343			1,149				1,460
	Office supplies and equipment expense					398			404				459
	Loss on sale of OREO, valuation allowance and related expense					2,838			72				385
	Other					2,077			1,968				1,531
		Total noninterest expense				20,852			18,900				17,140
		Income before provision for income taxes				53,058			53,249				38,985
Income tax expense						15,122			15,176				10,916
		Net income			$	37,936		$	38,073			$	28,069
Dividend and earnings allocated to participating securities						-			-				-
Net income available to common shareholders					$	37,936		$	38,073			$	28,069
Income per share available to common shareholders
		Basic			$	2.63		$	2.64			$	1.90
		Diluted			$	2.61		$	2.61			$	1.87
Weighted-average common shares outstanding
		Basic				14,419,959			14,430,606				14,792,298
		Diluted				14,560,693			14,602,149				15,006,801
Cash dividends per common share					$	0.55		$	0.55			$	0.43

PREFERRED BANK
Condensed 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
						2023				2022			%
Interest income:
	Loans, including fees				$	198,101			$	110,660			79.0	%
	Investment securities					28,898				6,858			321.4	%
	Fed funds sold					496				65			659.0	%
		Total interest income				227,495				117,583			93.5	%
Interest expense:
	Interest-bearing demand					33,444				3,880			762.1	%
	Savings					86				39			120.0	%
	Time certificates					42,029				4,559			821.9	%
	FHLB borrowings					2,262				-			100.0	%
	Subordinated debt					2,650				2,650			0.0	%
		Total interest expense				80,471				11,127			623.2	%
		Net interest income				147,024				106,456			38.1	%
Provision for credit losses						3,000				2,650			13.2	%
		Net interest income after provision for credit losses				144,024				103,806			38.7	%
Noninterest income:
	Fees & service charges on deposit accounts					1,538				1,395			10.3	%
	Letters of credit fee income					2,900				2,261			28.3	%
	BOLI income					204				199			2.7	%
	Net loss on called and sale of investment securities					(4,117	)			-			-100.0	%
	Net gain on sale of loans					526				-			100.0	%
	Other income					984				1,012			-2.8	%
		Total noninterest income				2,035				4,867			-58.2	%
Noninterest expense:
	Salary and employee benefits					26,248				23,328			12.5	%
	Net occupancy expense					2,950				2,863			3.0	%
	Business development and promotion expense					305				277			10.1	%
	Professional services					2,492				2,703			-7.8	%
	Office supplies and equipment expense					802				948			-15.4	%
	Loss on sale of OREO, valuation allowance and related expense					2,910				401			625.7	%
	Other					4,045				2,777			45.7	%
		Total noninterest expense				39,752				33,297			19.4	%
		Income before provision for income taxes				106,307				75,376			41.0	%
Income tax expense						30,298				21,280			42.4	%
		Net income			$	76,009			$	54,096			40.5	%
Dividend and earnings allocated to participating securities					$	-			$	(2	)		100.0	%
Net income available to common shareholders					$	76,009			$	54,094			40.5	%
Income per share available to common shareholders
		Basic			$	5.27			$	3.66			44.0	%
		Diluted			$	5.21			$	3.61			44.4	%
Weighted-average common shares outstanding
		Basic				14,425,253				14,778,892			-2.4	%
		Diluted				14,581,458				14,990,989			-2.7	%
Dividends per share					$	1.10			$	0.86			27.9	%

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
				June 30,				December 31,
					2023				2022
				(Unaudited)				(Audited)
Assets
Cash and due from banks				$	1,029,745			$	747,526
Fed funds sold					20,000				20,000
	Cash and cash equivalents				1,049,745				767,526
Securities held to maturity, at amortized cost					21,818				22,459
Securities available-for-sale, at fair value					352,548				428,295
Loans					5,118,511				5,074,793
	Less allowance for credit losses				(71,429	)			(68,472	)
	Less amortized deferred loan fees, net				(10,464	)			(9,939	)
	Loans, net				5,036,618				4,996,382
Loans held for sale, at lower of cost or fair value					176				-
Other real estate owned and repossessed assets					16,728				21,990
Customers' liability on acceptances					448				1,731
Bank furniture and fixtures, net					8,890				8,999
Bank-owned life insurance					10,493				10,357
Accrued interest receivable					28,184				23,593
Investment in affordable housing partnerships					56,844				61,173
Federal Home Loan Bank stock, at cost					15,000				15,000
Deferred tax assets					45,326				43,218
Operating lease right-of-use assets					21,662				21,718
Other assets					3,462				2,917
	Total assets			$	6,667,942			$	6,425,358
Liabilities and Shareholders' Equity
Deposits:
	Non-interest bearing demand deposits			$	870,282			$	1,192,091
	Interest-bearing deposits:				2,005,298				2,295,212
		Savings			32,089				39,527
		Time certificates of $250,000 or more			1,244,128				1,138,727
		Other time certificates			1,437,194				891,440
		Total deposits			5,588,991				5,556,997
Acceptances outstanding					448				1,731
Advances from Federal Home Loan Bank					150,000				-
Subordinated debt issuance, net					148,114				147,995
Commitments to fund investment in affordable housing partnerships					20,930				27,490
Operating lease liabilities					6,998				2,608
Accrued interest payable					20,110				20,949
Other liabilities					63,584				37,162
	Total liabilities				5,999,175				5,794,932
Shareholders' equity					668,767				630,426
	Total liabilities and shareholders' equity			$	6,667,942			$	6,425,358
Book value per common share				$	47.04			$	43.91
Number of common shares outstanding					14,216,862				14,358,145

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,
					2023			2023			2022			2022			2022
Unaudited historical quarterly operations data:
	Interest income			$	118,411		$	109,084		$	98,379		$	78,420		$	62,559
	Interest expense				45,102			35,369			24,267			11,630			6,135
		Interest income before provision for credit losses			73,309			73,715			74,112			66,790			56,424
	Provision for credit losses				2,500			500			2,000			2,700			2,900
	Noninterest income				3,101			(1,066	)		2,808			2,187			2,601
	Noninterest expense				20,852			18,899			19,976			17,400			17,140
	Income tax expense				15,122			15,176			15,384			13,688			10,916
		Net income		$	37,936		$	38,074		$	39,560		$	35,189		$	28,069
	Earnings per share
		Basic		$	2.63		$	2.64		$	2.76		$	2.44		$	1.90
		Diluted		$	2.61		$	2.61		$	2.71		$	2.40		$	1.87
Ratios for the period:
	Return on average assets				2.32	%		2.41	%		2.48	%		2.25	%		1.84	%
	Return on beginning equity				23.18	%		24.49	%		26.58	%		23.60	%		18.91	%
	Net interest margin (Fully-taxable equivalent)				4.58	%		4.77	%		4.75	%		4.37	%		3.77	%
	Noninterest expense to average assets				1.28	%		1.20	%		1.25	%		1.11	%		1.12	%
	Efficiency ratio				27.29	%		26.01	%		25.97	%		25.23	%		29.04	%
	Net charge-offs (recoveries) to average loans (annualized)				-0.00	%		0.00	%		0.00	%		-0.19	%		0.00	%
Ratios as of period end:
	Tier 1 leverage capital ratio				10.61	%		10.63	%		10.30	%		9.95	%		9.92	%
	Common equity tier 1 risk-based capital ratio				11.51	%		11.30	%		10.81	%		10.46	%		10.61	%
	Tier 1 risk-based capital ratio				11.51	%		11.30	%		10.81	%		10.46	%		10.61	%
	Total risk-based capital ratio				15.14	%		14.91	%		14.39	%		14.09	%		14.31	%
	Allowances for credit losses to loans at end of period				1.40	%		1.36	%		1.35	%		1.33	%		1.25	%
	Allowance for credit losses to non-performing loans			13.86x			254.56x			12.49x			10.75x			5.27x
Average balances:
	Total securities			$	397,905		$	442,852		$	434,830		$	410,649		$	430,203
	Total loans				5,044,004			5,012,862			4,981,561			4,908,870			4,777,353
	Total earning assets				6,432,950			6,276,630			6,193,330			6,076,616			6,008,024
	Total assets				6,558,651			6,400,849			6,328,017			6,215,184			6,133,703
	Total time certificate of deposits				2,617,872			2,209,370			1,872,239			1,749,257			1,810,886
	Total interest bearing deposits				4,549,519			4,451,299			4,287,287			3,973,105			3,982,888
	Total deposits				5,481,457			5,479,945			5,468,562			5,373,252			5,301,370
	Total interest bearing liabilities				4,847,596			4,630,982			4,435,245			4,121,005			4,130,729
	Total equity				677,306			650,963			613,729			598,188			606,260

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				For the Six Months Ended
				June 30,				June 30,
					2023				2022
	Interest income			$	227,495			$	117,583
	Interest expense				80,471				11,127
		Interest income before provision for credit losses			147,024				106,456
	Provision for credit losses				3,000				2,650
	Non-interest income				2,035				4,867
	Non-interest expense				39,752				33,297
	Income tax expense				30,298				21,280
		Net income		$	76,009			$	54,096
	Earnings per share
		Basic		$	5.27			$	3.66
		Diluted		$	5.21			$	3.61
Ratios for the period:
	Return on average assets				2.37	%			1.78	%
	Return on beginning equity				24.31	%			18.59	%
	Net interest margin (Fully-taxable equivalent)				4.67	%			3.58	%
	Non-interest expense to average assets				1.24	%			1.09	%
	Efficiency ratio				26.67	%			29.91	%
	Net charge-off (recoveries) to average loans				0.00	%			0.05	%
Average balances:
	Total securities			$	420,254			$	430,203
	Total loans				5,028,520				4,777,353
	Total earning assets				6,355,222				6,007,841
	Total assets				6,480,186				6,133,703
	Total time certificate of deposits				2,414,750				1,810,886
	Total interest-bearing deposits				4,501,301				3,982,888
	Total deposits				5,480,705				5,301,370
	Total interest-bearing liabilities				4,740,508				4,130,729
	Total equity				664,207				606,260

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				As of
				June 30,				March 31,				December 31,				September 30,				June 30,
					2023				2023				2022				2022				2022
Unaudited quarterly statement of financial position data:
Assets:
	Cash and cash equivalents			$	1,049,745			$	885,691			$	767,526			$	749,484			$	768,658
	Securities held-to-maturity, at amortized cost				21,818				22,155				22,459				12,442				12,784
	Securities available-for-sale, at fair value				352,548				367,492				428,295				377,534				400,597
	Loans:
		Real estate – Mortgage:
			Real estate—Residential	$	631,795			$	612,908			$	609,292			$	587,812			$	581,412
			Real estate—Commercial		2,744,075				2,813,680				2,730,726				2,693,852				2,583,484
			Total Real Estate – Mortgage		3,375,870				3,426,588				3,340,018				3,281,664				3,164,896
		Real estate – Construction:
			R/E Construction — Residential		186,239				175,286				193,027				179,955				168,420
			R/E Construction — Commercial		153,418				142,319				204,478				188,083				203,217
			Total real estate construction loans		339,657				317,605				397,505				368,038				371,637
		Commercial and industrial			1,388,865				1,299,325				1,320,830				1,330,028				1,336,631
		SBA			4,426				7,306				11,339				8,067				22,186
		Trade finance			9,348				6,885				4,521				22,634				24,663
		Consumer and others			345				19				580				115				128
			Gross loans		5,118,511				5,057,728				5,074,793				5,010,546				4,920,141
	Allowance for credit losses on loans				(71,429	)			(68,929	)			(68,472	)			(66,472	)			(61,396	)
	Net deferred loan fees				(10,464	)			(10,286	)			(9,939	)			(9,695	)			(9,525	)
		Net loans, excluding loans held for sale		$	5,036,618			$	4,978,513			$	4,996,382			$	4,934,379			$	4,849,220
	Loans held for sale			$	176			$	-			$	-			$	-			$	-
		Net loans		$	5,036,794			$	4,978,513			$	4,996,382			$	4,934,379			$	4,849,220
	Other real estate owned and repossessed assets			$	16,728			$	18,628			$	21,990			$	26,075			$	21,449
	Investment in affordable housing partnerships				56,844				59,009				61,173				62,745				54,874
	Federal Home Loan Bank stock, at cost				15,000				15,000				15,000				15,000				15,000
	Other assets				118,465				115,049				112,533				115,184				110,459
		Total assets		$	6,667,942			$	6,461,537			$	6,425,358			$	6,292,843			$	6,233,041
Liabilities:
	Deposits:
		Demand		$	870,282			$	1,050,992			$	1,192,091			$	1,341,199			$	1,385,934
		Interest-bearing demand			2,005,298				1,751,439				2,295,212				2,263,775				2,239,501
		Savings			32,089				33,861				39,527				38,151				39,784
		Time certificates of $250,000 or more			1,244,128				1,329,720				1,138,727				971,378				870,376
		Other time certificates			1,437,194				1,241,754				891,440				841,173				872,357
		Total deposits		$	5,588,991			$	5,407,766			$	5,556,997			$	5,455,676			$	5,407,952
	Acceptances outstanding			$	448			$	107			$	1,731			$	10,058			$	11,053
	Advance from Federal Home Loan Bank				150,000				150,000				-				-				-
	Subordinated debt issuance, net				148,114				148,055				147,995				147,936				147,877
	Commitments to fund investment in affordable housing partnerships				20,930				26,709				27,490				28,611				20,036
	Other liabilities				90,692				72,359				60,074				60,009				54,531
		Total liabilities		$	5,999,175			$	5,804,996			$	5,794,287			$	5,702,290			$	5,641,449
Equity:
	Net common stock, no par value			$	167,404			$	181,208			$	184,604			$	180,324			$	197,997
	Retained earnings				535,373				505,207				475,072				443,409				414,393
	Accumulated other comprehensive income				(34,010	)			(29,874	)			(28,605	)			(33,180	)			(20,798	)
		Total shareholders' equity		$	668,767			$	656,541			$	631,071			$	590,553			$	591,592
		Total liabilities and shareholders' equity		$	6,667,942			$	6,461,537			$	6,425,358			$	6,292,843			$	6,233,041

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,
				2023								2023								2022
						Interest		Average						Interest		Average						Interest		Average
			Average			Income or		Yield/			Average			Income or		Yield/			Average			Income or		Yield/
			Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
ASSETS			(Dollars in thousands)
Interest-earning assets:
	Loans (1,2)		$	5,044,517		$	102,220	8.13	%		$	5,013,740		$	95,881	7.76	%		$	4,777,353		$	58,541	4.92	%
	Investment securities (3)			397,905			3,709	3.74	%			442,852			3,994	3.66	%			430,203			2,370	2.21	%
	Federal funds sold			20,000			272	5.45	%			20,222			224	4.50	%			20,088			46	0.92	%
	Other earning assets			970,528			12,311	5.09	%			799,816			9,087	4.61	%			780,380			1,708	0.88	%
		Total interest-earning assets		6,432,950			118,512	7.39	%			6,276,630			109,186	7.05	%			6,008,024			62,665	4.18	%
	Deferred loan fees, net			(10,417	)							(9,937	)							(9,084	)
	Allowance for credit losses on loans			(68,956	)							(68,466	)							(58,568	)
Non-interest earning assets:
	Cash and due from banks			12,712								11,527								11,363
	Bank furniture and fixtures			9,005								8,977								10,028
	Right of use assets			21,988								21,867								21,287
	Other assets			161,369								160,251								150,653
		Total assets	$	6,558,651							$	6,400,849							$	6,133,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand and savings	$	1,931,647		$	16,453	3.42	%		$	2,241,929		$	17,077	3.09	%		$	2,172,002		$	2,468	0.46	%
		TCD $250K or more		1,259,305			12,772	4.07	%			1,266,072			10,743	3.44	%			892,410			1,211	0.54	%
		Other time certificates		1,358,567			12,664	3.74	%			943,298			5,850	2.52	%			918,476			1,131	0.49	%
		Total interest-bearing deposits		4,549,519			41,889	3.69	%			4,451,299			33,670	3.07	%			3,982,888			4,810	0.48	%
Short-term borrowings				-			-	0.00	%			-			-	0.00	%			-			-	0.00	%
Advance from Federal home loan bank				150,000			1,888	5.05	%			31,667			374	4.78	%			-			-	0.00	%
Subordinated debt, net				148,077			1,325	3.59	%			148,016			1,325	3.63	%			147,841			1,325	3.59	%
		Total interest-bearing liabilities		4,847,596			45,102	3.73	%			4,630,982			35,369	3.10	%			4,130,729			6,135	0.60	%
Non-interest bearing liabilities:
	Demand deposits			931,938								1,028,646								1,318,482
	Lease Liability			20,708								20,993								21,602
	Other liabilities			81,103								69,265								56,630
		Total liabilities		5,881,345								5,749,886								5,527,443
Shareholders’ equity				677,306								650,963								606,260
		Total liabilities and shareholders’ equity	$	6,558,651							$	6,400,849							$	6,133,703
Net interest income						$	73,410							$	73,817							$	56,530
Net interest spread								3.66	%							3.96	%							3.59	%
Net interest margin								4.58	%							4.77	%							3.77	%
Cost of Deposits:
	Non-interest bearing demand deposits		$	931,938							$	1,028,646							$	1,318,482
	Interest-bearing deposits			4,549,519			41,889	3.69	%			4,451,299			33,670	3.07	%			3,982,888			4,810	0.48	%
		Total Deposits	$	5,481,457		$	41,889	3.07	%		$	5,479,945		$	33,670	2.49	%		$	5,301,370		$	4,810	0.36	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $902,000, $1.2 million and $886,000 for the quarter ended June 30, 2023, March 31, 2023, and June 30, 2022, 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)
			Six months ended June 30,
				2023								2022
						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)		$	5,029,214		$	198,101	7.94	%		$	4,573,357		$	110,660	4.88	%
	Investment securities (3)			420,254			7,703	3.70	%			442,981			4,594	2.09	%
	Federal funds sold			20,110			496	4.97	%			20,105			65	0.65	%
	Other earning assets			885,644			21,398	4.87	%			936,921			2,478	0.25	%
		Total interest-earning assets		6,355,222			227,698	7.23	%			5,973,364			117,797	3.98	%
	Deferred loan fees, net			(10,178	)							(7,710	)
	Allowance for credit losses on loans			(68,713	)							(59,255	)
Non-interest earning assets:
	Cash and due from banks			11,920								11,474
	Bank furniture and fixtures			8,991								10,233
	Right of use assets			21,928								21,519
	Other assets			161,016								139,550
		Total assets	$	6,480,186							$	6,089,176
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand/ savings	$	2,086,551		$	33,530	3.24	%		$	2,125,241		$	3,919	0.37	%
		TCD $250K or more		1,262,670			23,515	3.76	%			910,689			2,238	0.50	%
		Other time certificates		1,152,080			18,514	3.24	%			929,419			2,320	0.50	%
		Total interest-bearing deposits		4,501,301			75,559	3.39	%			3,965,349			8,477	0.43	%
Advance from Federal home loan bank				91,160			2,262	5.00	%			-			-	0.00	%
Subordinated debt, net				148,047			2,650	3.61	%			147,812			2,650	3.62	%
		Total interest-bearing liabilities		4,740,508			80,471	3.42	%			4,113,161			11,127	0.55	%
Non-interest bearing liabilities:
	Demand deposits			979,404								1,293,477
	Lease Liability			20,850								22,030
	Other liabilities			75,217								58,746
		Total liabilities		5,815,979								5,487,414
Shareholders’ equity				664,207								601,762
		Total liabilities and shareholders’ equity	$	6,480,186							$	6,089,176
Net interest income						$	147,227							$	106,670
Net interest spread								3.80	%							3.43	%
Net interest margin								4.67	%							3.60	%
Cost of Deposits:
	Non-interest bearing demand deposits		$	979,404							$	1,293,477
	Interest-bearing deposits			4,501,301			75,559	3.39	%			3,965,349			8,477	0.43	%
		Total Deposits	$	5,480,705		$	75,559	2.78	%		$	5,258,826		$	8,477	0.33	%
(1)	Includes non-accrual loans and loans held for sale
(2)	Net loan fee income of $2.1 million and $1.7 million for the six months ended June 30 2023 and 2022, respectively, are included in the yield computations
(3)	Yields on securities have been adjusted to a tax-equivalent basis

PREFERRED BANK
Loan and Credit Quality Information
Allowance For Credit Losses History
					Six Months Ended				Year ended
					June 30, 2023				December 31, 2022
					(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period					$	68,472			$	59,969
	Charge-Offs
		Commercial & Industrial				44				1,222
		Mini-perm Real Estate				-				1
		Total Charge-Offs				44				1,223
	Recoveries
		Commercial & Industrial				1				-
		Mini-perm Real Estate				-				2,376
		Total Recoveries				1				2,376
	Net Charge-Offs (recoveries)					43				(1,153	)
	Provision for Credit Losses:					3,000				7,350
Balance at End of Period					$	71,429			$	68,472
Average Loans Held for Investment					$	5,028,520			$	4,760,815
Loans Held for Investment at End of Period					$	5,118,511			$	5,074,793
Net Charge-Offs (recoveries) to Average Loans						0.00	%			-0.02	%
Allowances for Credit Losses to Loans at End of Period						1.40	%			1.35	%