PFBC - Preferred Bank Reports Quarterly and Annual Earnings

LOS ANGELES, Jan. 19, 2022 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC) , one of the larger independent California banks, today reported results for the quarter and year ended December 31, 2021. Preferred Bank (“the Bank”) reported net income of $26.4 million or $1.80 per diluted share for the fourth quarter of 2021. This is an increase of $5.5 million or 26.5% over the same quarter last year and up from the $26.1 million or $1.76 per share posted in the third quarter of 2021. The primary reasons for the increase compared to the prior year was a $4.2 million provision for credit losses recorded in the fourth quarter of last year as compared to a reversal of $900,000 in allowance for credit losses (“ACL”) this quarter, a difference of $5.1 million. In comparison to the third quarter of 2021, net interest income increased $1.7 million, noninterest income was down $818,000 and noninterest expense decreased $564,000.

Fourth Quarter 2021 highlights:

• Net income of $26.4 million, or $1.80 per diluted share (company all-time high)
• Linked quarter loan growth (Ex-PPP) of 2.9%
• Return on average assets (“ROA”) of 1.72%
• Return on beginning equity (“ROBE”) of 18.65%
• Pre-provision, pre-tax (“PPPT”) ROBE of 25.82% ¹
• Efficiency ratio of 28.82%

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

Full Year 2021 highlights:

• Net income of $95.2 million, or $6.41 per diluted share (company all-time high)
• Loan growth (Ex-PPP) of 10.5%
• Deposit growth of 17.6%
• Return on average assets (“ROA”) of 1.74%
• Return on beginning equity (“ROBE”) of 18.13%
• Efficiency ratio of 31.40%

Li Yu, Chairman and CEO, commented, “I am very pleased to report fourth quarter 2021 earnings of $26.4 million or $1.80 per diluted share and record full year earnings of $95.2 million or $6.41 per diluted share. Pre-provision, pre-tax revenue (“PPPT”) also was a record this year for Preferred Bank.

“In the midst of this COVID-19 pandemic, the Bank recorded strong growth in loans, deposits and total assets. Loan growth for the quarter, excluding PPP, was 2.9% and for the year was 10.5%. Deposit growth was only 0.6% for the quarter but was a robust 17.6% for the year. Of the $783 million in deposit growth in 2021, almost 90% was in DDA and money market accounts.

“The net interest margin for the fourth quarter was 3.28%, down from last quarter’s 3.36% but this was due to loan growth in the fourth quarter mostly taking place in the latter part of the quarter. The larger asset base and our highly asset sensitive balance sheet bode well for NIM expansion for 2022 and 2023.

“During the quarter, we successfully resolved a $9.2 million nonperforming loan which did not require the use of the set aside allowance for credit loss that was anticipated. Also, in early January of 2022, a $23 million loan which was deemed a troubled debt restructuring (“TDR”) paid off in full. With these two loans resolved, the Bank’s credit quality is close to pristine levels.

“Looking to 2022, we see potential concerns. Inflation is running at levels not seen in decades and thus will result in higher operating costs. The Omicron variant is another major concern although ultimately the data regarding the severity of this variant appears to be encouraging. We must remain confident that our Country will deal with these issues effectively. Meanwhile, we will apply our best efforts to meet these new challenges.”

Results of Operations - Quarter

Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $49.4 million for the fourth quarter of 2021. This was an increase from the $47.8 million recorded in the third quarter of 2021 and was well ahead of the $46.1 million recorded in the fourth quarter of 2020. Loan growth was the primary driver of the increase in net interest income as was an increase in investment securities along with a decline in interest expense. The taxable equivalent margin was 3.28% for the fourth quarter of 2021, as compared to 3.36% in the third quarter of 2021 and versus 3.66% for the same period last year.

Noninterest Income. For the fourth quarter of 2021, noninterest income was $1,966,000 compared with $1,356,000 for the same quarter last year and compared to $2,784,000 for the third quarter of 2021. The increase compared to last year was due to a $663,000 loss on sale of securities recorded in the fourth quarter of last year. The decrease from the third quarter of 2021 was mainly due to letter of credit (“LC”) fees which were down by $858,000 from the third quarter of 2021.

Noninterest Expense . Total noninterest expense was $14.8 million for the fourth quarter of 2021. This is up compared to the $14.2 million recorded in the same quarter last year but a decline on a linked-quarter basis of $564,000 from the third quarter of 2021. Salaries and benefits expense totaled $10.3 million for the fourth quarter of 2021, an increase of $838,000 from the fourth quarter of 2020 and a decrease of $642,000 from the $10.9 million recorded in the third quarter of 2021. The increase over the prior year was due mainly to staff expansion and a corresponding increase in the Bank’s payroll tax expense and the decrease from the third quarter of 2021 was primarily due lower incentive compensation expense. Occupancy expense totaled $1.4 million for the quarter which was relatively flat compared to both the prior quarter and when compared to the same quarter last year. Professional services expense was $1.1 million for the fourth quarter of 2021, essentially flat when comparted to both prior periods. Other expenses were $1.3 million for the fourth quarter of 2021, down from the $1.4 million recorded last quarter and also a decline from the $1.6 million posted in the fourth quarter of 2020. Lower FDIC premiums were the primary reason for the decrease compared to both periods. For the quarter ended December 31, 2021, the Bank’s efficiency ratio was a record 28.8%, down from last quarter’s 30.4% mark and slightly below the 29.9% ratio achieved in the same period last year.

Income Taxes. The Bank recorded a provision for income taxes of $11.1 million for the fourth quarter of 2021. This represents an effective tax rate (“ETR”) of 29.5% and slightly above the ETR of 28.7% in the prior quarter and also up from the ETR of 28.1% in the same period last year. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Results of Operations - Year

Net income for 2021 was $95.2 million, or $6.41 per diluted share. This compares to $69.5 million or $4.65 per diluted share for the year 2020. This represents an increase in net income of $25.8 million or 37.1% and an increase in diluted EPS of $1.75 per share or 37.7%. The primary drivers for the large increase year over year is a reversal of provision for credit losses of $1.0 million in 2021 versus a provision for credit losses in 2020 of $26.0 million. In addition, net interest income increased by $11.7 million or 6.7% over 2020 levels. Also, noninterest income increased by $1.7 million or 27.7% over 2020 and offsetting these was an increase in noninterest expense of $3.4 million or 6.0%. The Bank’s net interest margin was 3.46% for 2021 compared to 3.62% in 2020.

Balance Sheet Summary

Total gross loans at December 31, 2021 were $4.42 billion, an increase of $390 million or 9.7% over the total of $4.04 billion as of December 31, 2020. Total deposits increased to $5.23 billion, an increase of $783 million or 17.6% over the $4.44 billion as of December 31, 2020. Total assets ended the quarter at $6.04 billion, an increase of $901 million or 17.5% over the total of $5.14 billion as of December 31, 2020.

Asset Quality

As of December 31, 2021, nonaccrual loans totaled $14.8 million, well off of the $20.9 million reported as of September 30, 2021 and down from the $20.5 million as of December 31, 2020. Total net charge-offs for the fourth quarter of 2021 were $267,000 as compared to $1.0 million in the prior quarter and compared to net charge-offs of $2.0 million in the fourth quarter of 2020.

Allowance for Credit Losses

The (reversal of) provision for credit losses for the fourth quarter of 2021 was ($900,000) as compared to a reversal of ($1.5 million) in the prior quarter and compared to the $4.2 million provision for credit losses posted in the fourth quarter of 2020. A consistently improving economic outlook, among other factors such as credit quality led to a lower allowance requirement. The Bank’s allowance coverage ratio now stands at 1.37% of total loans (excluding PPP loans).

Capitalization

As of December 31, 2021, the Bank’s leverage ratio was 9.49%, the common equity tier 1 capital ratio was 11.21% and the total capital ratio stood at 15.32%. As of December 31, 2020, the Bank’s leverage ratio was 10.08%, the common equity tier 1 ratio was 11.21% and the total risk-based capital ratio was 14.64%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s fourth quarter 2021 financial results will be held tomorrow, January 20, 2022 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing “Preferred Bank.” There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com . Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman and Chief Executive Officer Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, Chief Credit Officer Nick Pi and Deputy Chief Operating Officer Johnny Hsu will be present to discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will remain available in the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 877-344-7529 (domestic) or 412-317-0088 (international) through February 3, 2022; the passcode is 4300401.

About Preferred Bank

Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch in Flushing, New York. In addition, the Bank operates a Loan Production Office in the Houston, Texas suburb of Sugar Land. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank’s future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government’s monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank’s 2020 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank’s website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank’s website at www.preferredbank.com .

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