2019 ANNUAL REPORT San Rafael 278 Berkeley Manhattan 9 Flushing 495 Newark 80 Oakland Jersey City 278 495 Queens San 580 New York New York Francisco 678 278 Brooklyn 280 101 San Francisco Bay 278 JFK 278 San Mateo VENTURA Long Island Sound COUNTY California 5 210 Simi Valley 118 118 LOS ANGELES Northridge COUNTY La Canada Flintridge Burbank 2 134 Pasadena Tarzana Arcadia 210 405 101 Alhambra Covina 10 Century City Los Angeles 10 60 5 Diamond Bar 110 City of Industry Pico Rivera SAN BERNADINO COUNTY 105 El Segundo 91 Fullerton Lakewood 91 Anaheim Torrance 22 ORANGE 710 COUNTY Long Beach Rancho Santa Ana Palos Verdes 405 Irvine 5 BRANCH LOCATIONS www.preferredbank.com u Los Angeles Head Office u City of Industry Regional Office u San Francisco Regional Office 601 South Figueroa Street, 48th Floor 17515 Colima Road 600 California Street, Suite 550 Los Angeles, California 90017 City of Industry, California 91748 San Francisco, California 94108 213.891.1188 626.935.1900 415.230.3288 u San Gabriel Valley Regional Office u Arcadia Branch u San Francisco Richmond Office 325 East Valley Boulevard 1469 South Baldwin Avenue 5160 Geary Boulevard Alhambra, California 91801 Arcadia, California 91007 San Francisco, California 94118 626.282.9700 626.294.9800 415.213.8880 u South Bay Regional Office u Diamond Bar Branch u San Fernando Valley Regional Office 21615 Hawthorne Boulevard, Suite 100 1373 South Diamond Bar Boulevard 18321 Ventura Boulevard Suite 100 Torrance, California 90503 Diamond Bar, California 91765 Tarzana, California 91356 310.921.0100 909.861.7200 818.668.8800 u Century City Regional Office u Pico Rivera Branch u Flushing New York Regional Office 1801 Century Park East, Suite 100 7004 Rosemead Boulevard 41-60 Main Street Los Angeles, California 90067 Pico Rivera, California 90660 Flushing, New York 11355 310.286.2020 562.641.2540 718.886.1788 u Irvine Regional Office 890 Roosevelt Avenue Irvine, California 92620 949.262.9800 April 7, 2020 Dear Shareholders On March 25, 2020, S&P Global Market Intelligence released a research report which is titled “LA- based Preferred Bank takes top spot in 2019 large US community bank ranking.” Among banks with assets from $3 to $10 billion, we are ranked number one overall with honors in the following: • #2 in Pre-Tax Profitability • #1 in Efficiency Ratio • #2 in Texas ratio (credit quality measurement) • #5 in net charge-offs (also a credit quality indicator) Preferred Bank’s honor is based upon the operations and results of 2019. But it was the culmination of many years of effort. Compared to 2017 and 2018, 2019 was a great improvement in almost all areas. It was due to the dedication and consistent performance of the entire staff and support of our loyal customers. This past year did not go without challenges. After years of slow steady central bank rate hikes, the Federal Reserve reversed course by cutting rates three times between July and September. As an asset sensitive Bank we have responded proactively and timely. Net income per share for this year was $5.16, matching exactly the internally budgeted amount. Beginning in February 2020, our nation is facing unprecedented difficulty from the COVID-19 pandemic. Working with less than full staff, we now have the additional tasks of providing relief to our economically affected customers and help facilitate the government’s stimulus program. As a sound, profitable, and efficient Bank, we are as well-equipped as anyone to meet these challenges. Very truly yours, Li Yu Chairman of the Board Chief Executive Officer FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 FORM 10-K (Mark One) ፤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . PREFERRED BANK (Exact name of registrant as specified in its charter) California 33539 95-4340199 (State or other jurisdiction of (FDIC Certificate Number) (I.R.S. Employer Identification No.) incorporation or organization) 601 S. Figueroa Street, 48th Floor, Los Angeles, California 90017 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (213) 891-1188 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common Stock, No Par Value PFBC The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes អ No ፤ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes អ No ፤ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ፤ No អ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes អ No អ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act. Large accelerated filed ፤ Accelerated filer អ Non-accelerated filer អ Smaller reporting company អ Emerging growth company អ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. អ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes អ No ፤ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2019) was $524,804,219. Number of shares of common stock of the Registrant outstanding as of February 28, 2020, was 14,901,653. The following documents are incorporated by reference herein: Part of Form 10-K Into Document Incorporated By Reference Which Incorporated Definitive Proxy Statement for the Annual Meeting of Shareholders which will be filed within 120 days of the fiscal year ended December 31, 2019 ............................. Part III TABLE OF CONTENTS Page PART I .................................................................. 1 ITEM 1. BUSINESS ..................................................... 2 ITEM 1A. RISK FACTORS ................................................. 30 ITEM 1B. UNRESOLVED STAFF COMMENTS ................................. 42 ITEM 2. PROPERTIES ................................................... 42 ITEM 3. LEGAL PROCEEDINGS .......................................... 42 ITEM 4. MINE SAFETY DISCLOSURES ..................................... 42 PART II ................................................................. 43 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ................................................. 43 ITEM 6. SELECTED FINANCIAL DATA ..................................... 46 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...................... 49 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................................................ 78 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............... 78 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ..................... 78 ITEM 9A. CONTROLS AND PROCEDURES ................................... 78 ITEM 9B. OTHER INFORMATION .......................................... 82 PART III ................................................................ 82 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . 82 ITEM 11. EXECUTIVE COMPENSATION ..................................... 82 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ........... 82 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE .................................... 83 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ...................... 83 PART IV ................................................................. 83 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ..................... 83 ITEM 16. FORM 10-K SUMMARY ........................................... 134 SIGNATURES ............................................................ 135 i PART I Forward-Looking Statements Certain matters discussed in this Annual Report on Form 10-K (‘‘Annual Report’’) may constitute forward-looking statements within the meaning of Section 27A of the