Preferred Bank Reports Preliminary First Quarter Results

LOS ANGELES, April 21, 2011 /PRNewswire/ -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported results for the quarter ended March 31, 2011. Preferred Bank ("the Bank") reported net income of $699,000 or $0.01 per diluted share for the first quarter of 2010 compared to net income of $3.1 million or $0.20 per diluted share for the first quarter of 2010 and compared to a net loss of $11.3 million or $0.17 per diluted share for the fourth quarter of 2010. Pre-tax income for the first quarter of 2011 was $1.0 million. Tax expense of $325,000 was recorded in the first quarter of 2011 and was related to an alternative minimum tax due from 2008 due to the 2010 loss carry-back.

• Highlights from the quarter include:
  • Completed sales of $10.1 million of OREO and another $2.4 million closing in April 2011
  • A net decrease in NPAs of $10.8 million from December 31, 2010
  • Continued decrease in housing, construction and land development loans
  • Loans 30-89 days past due remains low at $5.0 million
  • Results for the quarter include a $2.7 million charge for OREO valuation and $602,000 in loss on sale of OREO
  • Net interest margin expanded to 3.73%

Li Yu, Chairman, President and CEO commented, "I am pleased to report net income of $699,000 for the first quarter of 2011, as we continue to dispose of OREO, maintain more than ample liquidity, and solid capital ratios.

"The quarterly net income was the result of an improving and satisfactory net interest margin, a declining level of non-interest expenses, and after the recognition of total credit costs of $3.3 million in aggregate OREO disposition charges and valuation charges for the remaining parcels.  This profit was most encouraging especially as we are still burdened with a significant level of NPAs.

"During the quarter, we made good progress in the sales of OREO, as we sold a total of $10.1 million in OREO, with another $2.4 million sale transaction scheduled to close in April 2011, leaving us with $39.7 million in remaining OREO at the end of March as compared to approximately $53 million as of year end for a 25% reduction.  Certain other properties are currently under contract with closings scheduled in the next few quarters.  Another encouraging sign related to the stabilization of our asset quality is the fact that there were no additions to OREO during the quarter.

"NPL levels remained substantially unchanged from the prior quarter in terms of overall volume and borrower payment performance.  Our NPLs continue to be comprised of two components; those of which are current relative as to payments and those which are delinquent.

• Roughly $49.5 million of our reported NPLs are current at to their payments.  The ultimate resolution of the loans in this category will be either (i) returning the loan to accrual status or (ii) the pay-off of the loan.  As all of these loans are paying according to the contract, it is difficult for us to estimate the timing of such resolution.
• Approximately $52 million of our NPLs are currently behind in scheduled contractual payments.  We are hoping for substantial reduction of these loans during the remainder of this year based on our plans for each of these credits.  Most of these loans require liquidation of collateral for repayment.  We currently estimate that the most significant resolution results will occur during the third and fourth quarters of 2011.

"For the loans included in the first group as discussed above, roughly $2 million of interest has been collected to date (in 2010 and 2011) and used to reduce the loan's carrying value.  Part or all of this interest will be a source of future additional income upon the pay-off (or liquidation) of these loans.

"This quarter's net operating results was also negatively impacted by a $325,000 income tax charge.  The amount was primarily the alternative minimum tax for the year 2008 after the application of the 2010 loss carry-back.  

"We are encouraged with the progress made in stabilizing operations, in better controlling credit costs, and the transformation of our loan portfolio to a more stable product mix with more granularity.  Our priority remains to reduce our NPAs while concurrently acquiring new profitable banking relationships.   With profitability returning, hopefully, we can increase our focus on prudent growth of the Bank going forward."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $10.6 million from the $9.7 million recorded in the first quarter of 2010 and increased from $8.6 million for the fourth quarter of 2010.  The Company's taxable equivalent net interest margin was 3.73% for the first quarter of 2011, an increase from the 3.07% achieved in the first quarter of 2010 and a significant increase from the 2.73% for the fourth quarter of 2010.

Noninterest Income. For the first quarter of 2011 noninterest income was $752,000 compared with $759,000 for the same quarter last year and compared to a net loss of ($97,000) for the fourth quarter of 2010. The first quarter of 2011 included gains on sales of investment securities of $97,000 and the first quarter of 2010 included a loss on sale of securities of $68,000. Fourth quarter 2010 noninterest income (loss) was primarily due to a loss on sales of securities of $726,000. Service charges on deposits decreased by $66,000 for the first quarter of 2011 compared to the same period in 2010 and was down $22,000 when compared to the fourth quarter of 2010.

Noninterest Expense. Total noninterest expense was $10.3 million for the first quarter of 2011, compared to $7.3 million for the same period in 2010 and $13.3 million for the fourth quarter of 2010.  Salaries and benefits expense increased by $750,000 over the first quarter of 2010 and increased $301,000 over the fourth quarter of 2010. The increase over the same period in 2010 was due to an decrease in our internal cost to originate a loan, driving down capitalized loan origination costs The increase over the fourth quarter of 2010 is due to an increase in business development staffing. Occupancy expense decreased to $759,000 from the $850,000 recorded in the same period in 2010 and compared to $809,000 for the fourth quarter of 2010. Professional services expense decreased to $444,000 compared to $939,000 for the first quarter of 2010 and down from the $786,000 posted in the fourth quarter of 2010. This was due primarily to a release of $250,000 of previously accrued expenses which were not incurred. Credit-related other-than-temporary-impairment charges were $32,000 for the first quarter of 2011 compared to $0 for the same period last year and $188,000 in the fourth quarter of 2010. OREO related expenses totaled $3.9 million for the first quarter of 2011 (consisting of $2.7 million in valuation charges, a loss on sale of OREO of $602,000 and $551,000 in OREO operating expenses) and this represented an increase of $2.7 million compared to the first quarter of 2010 and a decrease from the $4.6 million in OREO expense posted in the fourth quarter of 2010. Other expenses were $2.0 million in the first quarter of 2011, an increase of $83,000 from the same period in 2010 and a decrease of $2.0 million from the fourth quarter of 2010.  The decrease compared to the fourth quarter of 2010 mainly resulted from a decrease in loss on sales of loans.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at March 31, 2011 were $886.2 million, down from $915.4 million as of December 31, 2010.  Comparing balances as of March 31, 2011 to December 31, 2010: Residential real estate loans decreased from $139.5 million to $128.6 million; total land loans increased slightly from $44.7 million to $45.2 million; commercial real estate loans increased from $347.5 million to $357.7 million; for-sale housing construction loans were unchanged at $90.2 million; other construction loans increased from $33.2 million to $34.9 million and total commercial loans decreased from $260.4 million to $229.6 million.

Total deposits as of March 31, 2011 were $1.01 billion, a decrease of $66.4 million from the $1.08 billion at December 31, 2010. As of March 31, 2011 compared to December 31, 2010;  noninterest-bearing demand deposits decreased by $7.5 million or 3.4%, interest-bearing demand and savings deposits increased by $15.4 million or 9.8% and time deposits decreased by $74.2 million or 10.6%. The decrease in time deposits was due in large part to the maturity of $23.0 million in brokered CD's.  Total borrowings were unchanged. Total assets were $1.19 billion, a $61.4 million or 4.9% decrease from the total of $1.26 billion as of December 31, 2010. The Bank's loan-to-deposit ratio as of March 31, 2011 was 87.3% compared to 84.7% as of December 31, 2010.

Asset Quality

As of March 31, 2011 total nonaccrual loans were $101.5 million compared to $99.3 million as of December 31, 2010 and total loans 90 days past due and still accruing were $0 compared to $7,000 as of December 31, 2010. Total net charge-offs for the first quarter of 2011 were $4.1 million compared to net charge-offs of $7.5 million for the fourth quarter of 2010. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank did not record a provision for loan losses for the first quarter of 2011 compared to $7.25 million in the fourth quarter of 2010 and $0 in the first quarter of 2010. The allowance for loan loss at March 31, 2011 was $28.8 million or 3.26% of total loans compared to $32.9 million or 3.60% of total loans at December 31, 2010.

NPA Migration

The table above includes TDR's that are on nonaccrual status. Performing TDR's totaled $14.8 million as of March 31, 2011.

Loans Past Due 30-89 Days

Loans 30-89 days past due at March 31, 2011 were $5.0 million compared to $5.5 million at December 31, 2010.

Real Estate Owned

Total OREO decreased to $39.7 million compared to $52.7 million as of December 31, 2010. During the first quarter of 2011, the Bank sold four OREO properties with a book value of $10.1 million.

Capitalization

As of March 31, 2011, the Bank's tier 1 leverage ratio was 12.11% and total risk-based capital ratio was 15.52%. This compares to 11.16% and 15.02% as of December 31, 2010, respectively. Pursuant to the Consent Order entered into on March 22, 2010, the Bank is required to maintain the following capital ratios:

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2011 financial results will be held today, April 21, at 5:00 p.m. Eastern / 2:00 p.m. Pacific.  Interested participants and investors may access the conference call by dialing 877-941-8609 (domestic) or 480-629-9818 (international).  There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's web site at www.preferredbank.com.  Web participants are encouraged to go to the web site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman, President and CEO Li Yu, Chief Financial Officer Edward Czajka, and Executive Vice President Louie Couto 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 web site.  A replay of the call will also be available at 800-406-7325 (domestic) or 303-590-3030 (international) through April 28, 2011; the pass code is 4434739.

About Preferred Bank

Preferred Bank is one of the largest independent commercial banks in California focusing on the Chinese-American market. 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 Company conducts its banking business from its main office in Los Angeles, California, and through nine full-service branch banking offices in Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Anaheim and Pico Rivera, California. 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.  Preferred Bank continues to benefit from the significant migration to Southern California of ethnic Chinese from China and other areas of East Asia.  While its business is not solely dependent on the Chinese-American market, it represents an important element of the bank's operating strategy, especially for its branch network and deposit products and services. Preferred Bank believes it is well positioned to compete effectively with the smaller Chinese-American community banks, the larger commercial banks and other major banks operating in Southern California by offering a high degree of personal service and responsiveness, experienced multi-lingual staff and substantial lending limits.

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 2010 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.

SOURCE Preferred Bank