Chairman's Message

April 4, 2022

Dear Shareholders,

I am pleased to report that 2021 proved to be a banner year for Preferred Bank. Even with a challenging backdrop, we achieved record numbers in terms of net income, earnings per share, and total assets. In addition, we managed to keep costs reined in and maintained a healthy net interest margin in the face of ultra-low interest rates.

We are now just over two years into our new, shared reality. As the pandemic appears to be settling into an endemic phase, the U.S. is now faced with a new set of economic circumstances. At the outset of the pandemic, the demand for certain goods decreased significantly. The producers of automobiles, appliances, electronics, and many tech-heavy goods severely curtailed production during 2020 and continued well into 2021. Now, as demand for these items snaps back, the difficulties in ramping up production and using the existing supply chains is proving to be a challenge. This is causing inflation to see levels not seen in over 40 years. In addition, the invasion of Ukraine has exacerbated energy prices, sending oil and, consequently, gas prices to all-time highs.

We feel quite confident that the Federal Reserve Open Market Committee (“FOMC”) will continue its path of raising interest rates in order to stave off higher inflation. While we are not in the business of handicapping the FOMC and its decisions, numerous interest rate hikes are forecast in 2022 and beyond. For Preferred Bank, this means a net interest margin that is sure to expand over the next year as we have positioned ourselves to take advantage of rising short-term interest rates.

Due to the outsized provisions for credit losses the Bank recorded throughout 2020 when the pandemic started, the Bank’s allowance for credit losses to total loans is at a healthy 1.36%. This is well above the 0.94% ratio present before the start of the pandemic.

I am very proud of the performance of our Bank and of our employees during this challenging year. I am very hopeful, seeing the recovery in businesses that struggled during the prior year, many of whom we helped. We look forward to a healthy, strong, and prosperous 2022. I would like to thank our faithful clients, employees, and shareholders for your continued support.

Very truly yours,

Li Yu

Chairman of the Board
Chief Executive Officer