Preferred Bank Reports Preliminary First Quarter Results

LOS ANGELES, May 3 /PRNewswire-FirstCall/ -- Preferred Bank (Nasdaq: PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported preliminary results for the quarter ended March 31, 2010. Preferred Bank reported net income of $3.1 million or $0.20 per diluted share for the quarter compared to a net loss of $1.3 million or $0.14 per diluted share for the first quarter of 2009 and compared to a net loss of $28.4 million or $1.80 per diluted share for the fourth quarter of 2009.

• Highlights from the quarter include:
  • Net income of $3.1 million or $0.20 per diluted share
  • NPA's to total assets decreased from 15.6% to 12.7%
  • Build up of balance sheet liquidity of $222 million in cash
• Continued decrease of exposure in housing, construction and land development loans as most construction loans are now at or very near completion.
• Loans 30-89 days past due remain low at $23.3 million.

Li Yu, Chairman, President and CEO commented, "We are pleased to report first quarter 2010 net income of $3.1 million or $0.20 per diluted share.  After a very stormy 2009, this is really a ray of sunshine.

"During the quarter we have reduced total non-performing assets 14% while nonaccrual loans decreased 20%.  We have dedicated substantially all of our more experienced loan officers to the resolution of troubled assets as this continues to be the top priority of the Bank.  With the recent increase in pace of resolution activities, we hope to report continuous improved results in future quarters.

"Our Bank's concentration in home construction loans and related land loans has been the major source of losses in the past.  Today, our concentration is in these two loan types has been greatly reduced and will continue to decline. With the market price of residential real estate firming or improving, pressure on further loan loss provisions is abating.

"Our commercial real estate loans which amount to $321.3 million is performing in line with our expectations.  We have provided loan loss reserves or have charged-off all loans that are classified based upon updated valuation reports.  In many cases, reserves are provided on loans that are currently performing but have underlying collateral value erosion which may be temporary.

"On March 22, 2010 we entered into a Consent Order with the FDIC and DFI.  We are confident that we will be able to comply with all the requirements of the Order including raising additional capital to meet the heightened capital ratio requirements."

Operating Results for the Quarter

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses remained flat at $9.7 million compared to the same amount for the first quarter of 2009 and an increase of $1.0 million over the $8.7 million posted in the fourth quarter of 2009.  The Company's taxable equivalent net interest margin was 3.07% for the first quarter of 2010, an increase over the 2.58% achieved in the fourth quarter of 2009 and up from the 2.88% for the first quarter of 2009.

Noninterest Income. For the first quarter of 2010 noninterest income was $759,000 compared with $1,278,000 for the same quarter last year and $918,000 for the fourth quarter of 2009. The decrease in noninterest income this quarter compared to the first quarter of 2009 was due to a gain on sale of investment securities of $460,000 in the first quarter of 2009. The difference in non-interest income for the first quarter of 2010 to the fourth quarter of 2009 was due to primarily to gain on sales of securities of $85,000 in the fourth quarter of 2009.

Noninterest Expense. Total noninterest expense was $7.3 million for the first quarter of 2010, compared to $6.6 million for the same period in 2009 and $11.0 million for the fourth quarter of 2009.  Salaries and benefits expense increased by $56,000 from the first quarter of 2009 due primarily to a decrease in capitalized loan origination costs partially offset by a decrease in salaries due to staff reductions. Occupancy expense was relatively flat at $850,000 for the first quarter of 2010 compared to $839,000 for the first quarter of 2009. Professional services expense increased to $939,000 compared to $877,000 for the first quarter in 2009 due primarily to an increase in legal costs associated with non-performing loans. Credit-related other-than-temporary-impairment charges were $0 for the first quarter of 2010 compared to $425,000 for the same period last year. OREO related expenses totaled $1.1 million for the first quarter of 2010 (consisting of $1.2 million in valuation charges, $207,000 in loss on sale of OREO, $252,000 in OREO operating expenses partially offset by a $500,000 settlement received from a former borrower to release a personal guarantee) and this represented an increase of $527,000 over the $613,000 in OREO expense posted in the same period last year and this represented a decrease from the $2.5 million in OREO expense posted in the fourth quarter of 2009. Other expenses were $1.9 million in the first quarter of 2010, an increase of $553,000 over the same period in 2009 and a decrease of $350,000 from the fourth quarter of 2009.  The increase mainly resulted from higher FDIC premium expense as well as an increase in the cost of the Bank's corporate insurance.

Balance Sheet Summary

Total gross loans and leases at March 31, 2010 were $970.3 million, down from $1.04 billion as of December 31, 2009.  Comparing balances as of March 31, 2010 to December 31, 2009: Residential real estate loans decreased from $164.9 million to $163.2 million; total land loans decreased from $74.6 million to $67.4 million; commercial real estate loans decreased from $325.7 million to $321.3 million; for-sale housing construction loans decreased from $143.9 million to $118.3 million; other construction loans increased from $58.3 million to $60.7 million and total commercial loans decreased from $275.8 million to $249.6 million.

Total deposits as of March 31, 2010 were $1.23 billion, an increase of $70.6 million from the $1.16 billion at December 31, 2009. As of March 31, 2010 compared to December 31, 2009;  noninterest-bearing demand deposits increased by $28.6 million or 14.0%, interest-bearing demand and savings deposits increased by $11.6 million or 7.1% and time deposits increased by $30.4 million or 3.8%. Total assets were $1.38 billion, a $74.3 million or 5.7% increase from the total of $1.31 billion as of December 31, 2009. Total borrowings were unchanged at $49.0 million. The Bank's loan-to-deposit ratio as of March 31, 2010 was 79.7% compared to 89.9% as of December 31, 2009.

Asset Quality

As of March 31, 2010 total nonaccrual loans were $109.2 million compared to $137.3 million as of December 31, 2009, total loans 90 days past due and still accruing were $0 compared to  $7.6 million as of December 31, 2009. Total net charge-offs for the first quarter of 2010 were $5.7 million compared to net charge-offs of $2.2 million for the fourth quarter of 2009. 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 2010 compared to $1.0 million in the fourth quarter of 2009 and $6.6 million in the first quarter of 2009. The allowance for loan loss at March 31, 2010 was $37.1 million or 3.82% of total loans compared to $42.8 million or 4.10% of total loans at December 31, 2009.

NPA Migration

Non-Performing Assets Migration  – Q1 2010

Loans Past Due 30-89 Days

Loans 30-89 days past due at March 31, 2010 were $23.3 million compared to $13.4 million at December 31,2009

Real Estate Owned

Total OREO increased to $66.1 million compared to $59.2  million as of December 31, 2009. During the first quarter of 2010, the Bank sold 3 OREO properties with a book value of $2.6 million.

Capitalization

As of March 31, 2010, the Bank's tier 1 leverage ratio was 6.64% and total risk-based capital ratio was 9.30%. This compares to 6.16% and 8.52% as of December 31, 2009, respectively. Pursuant to the Consent Order entered into on March 22, 2010, the Bank has to achieve the following capital ratios under the corresponding due dates listed below:

The Bank is currently in the process of determining its capital needs and expects to raise a sufficient amount of capital in order to comply with the Consent Order. Management is confident of the bank's ability to meet these capital ratio requirements.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2010 financial results will be held today, May 3, at 5:00 p.m. Eastern / 2:00 p.m. Pacific.  Interested participants and investors may access the conference call by dialing 888-549-7750 (domestic) or 480-629-9866 (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 Acting Chief Credit Officer 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 May 10, 2010; the pass code is 4288261.

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 2009 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.

Financial Tables to Follow

SOURCE Preferred Bank

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