Preferred Bank Reports Preliminary Third Quarter Results

LOS ANGELES, Oct. 20, 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 September 30, 2011. Preferred Bank ("the Bank") reported net income of $6.6 million or $0.50 per diluted share for the third quarter of 2011 compared to a net loss of $31.0 million or $3.89 per diluted share for the third quarter of 2010 and compared to net income of $1.7 million or $0.13 per diluted share for the second quarter of 2011. (Results for the third quarter of 2010 include the accretion of the beneficial conversion feature attributable to the conversion of preferred shares to common shares. This reduced net income for that period by $25.6 million or $3.20 per share)  All share and per share information has been adjusted to reflect the one-for-five reverse stock split which was effected on June 17, 2011. Included in net income for the third quarter is a $4.5 million partial reversal of the Bank's valuation allowance on its deferred tax asset.

• Highlights from the third quarter of 2011 include:
  • Reduction in nonperforming assets (NPA's) of $19.3 million
  • Total NPA's now down to $86.1 million or 6.8% of total assets
  • Loans 30-89 days past due remained very low at $337,000
  • Results for the quarter include a $1.5 million provision for loan loss, $641,000 in valuation allowance charges on OREO, loss on sales of notes of $656,000 and loss on sale of OREO of $428,000

Li Yu, Chairman, President and CEO commented, "We now have a very positive outlook on our future, consequently, we elected to reverse $4.5 million of the valuation allowance on the deferred tax asset (DTA) that was previously written down.  Net income for the third quarter is $6.6 million or $0.50 per diluted share.

"Credit costs for the third quarter, although still notable, are moderating.  Credit costs for this quarter include a $656,000 loss on sale of loans, $428,000 in loss on sale of OREO, OREO valuation charges of $641,000 and a provision for loan losses of $1.5 million.  With our continuous effort in the resolution of non-performing loans, we expect future provisions to continue moderating gradually.

"Although the recent market turmoil brought on by the U.S. debt downgrade and its after effects have caused significant delay in several sales of troubled assets, we nevertheless reduced total non-performing assets by $19.3 million during the quarter in addition to $16.5 million in nonaccrual loans that were held for sale as of June 30, 2011.

"With the current prolonged low interest rate environment, we have noticed some customers are switching their demand deposit accounts from non-interest bearing to interest bearing.  For the quarter, our total transactional accounts increased $46 million with a net increase of $24 million in total deposits.

"Total loans increased $10 million.  Considering that we reduced non-performing loans by $33.5 million,  performing loans actually increased $43.5 million for the quarter with an improved concentration mix.

"We are very pleased to report all of these positive events."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $11.2 million from the $9.9 million recorded in the third quarter of 2010 and an increase from $10.3 million for the second quarter of 2011.  Loan interest income for the third quarter of 2011 was bolstered by $457,000 in interest recoveries on the payoff of two loans where accrued interest had previously been reversed.  The Bank's taxable equivalent net interest margin increased to 3.74% for the third quarter of 2011, a 65 basis point increase over the 3.09% achieved in the third quarter of 2010 and a 17 basis point increase over the 3.57% recorded in the second quarter of 2011. Excluding the interest recoveries this quarter, the net interest margin would have been 3.59%.

Noninterest Income. For the third quarter of 2011, noninterest income was $772,000 compared with $1.5 million for the same quarter last year and compared to $628,000 for the second quarter of 2011. The third quarter of 2010 included a gain on sale of investment securities of $756,000. Service charges on deposits decreased by $26,000 for the third quarter of 2011 compared to the same period in 2010 and was flat when compared to the second quarter of 2011.

Noninterest Expense. Total noninterest expense was $8.4 million for the third quarter of 2011, compared to $7.6 million for the same period last year and $7.5 million for the second quarter of 2011.  Salaries and benefits expense increased by $226,000 over the third quarter of 2010 and increased by $281,000 compared to the second quarter of 2011. The increases are primarily due to an increase in staffing levels as the Bank bolsters its business development teams. Occupancy expense decreased to $784,000 from the $799,000 recorded in the same period in 2010 and was flat when compared to the $778,000 posted in the second quarter of 2011. Professional services expense decreased to $645,000 compared to $894,000 for the third quarter of 2010 and up from the $517,000 posted in the second quarter of 2011. The variance compared to last year was due primarily to a decrease in legal costs associated with OREO and nonperforming loans as those assets have continued to decrease. Credit-related other-than-temporary-impairment charges were $0 for the third quarter of 2011 compared to $224,000 for the same period last year and $0 in the second quarter of 2011. OREO-related expenses totaled $1.6 million for the third quarter of 2011 (consisting of $641,000 in valuation charges, a loss on sale of OREO of $428,000 and $560,000 in OREO operating expenses) and this represented an increase of $631,000 compared to the same quarter last and relatively flat compared to the $1.6 million recorded in the second quarter of 2011. Other expenses were $2.2 million in the third quarter of 2011, an increase of $463,000 from the same period in 2010 and an increase of $502,000 from the second quarter of 2011.  The increase compared to both periods mainly resulted from a loss on sale of nonperforming notes of $656,000.

Income Taxes

During the quarter, the Bank reversed $4.5 million of its valuation allowance on its deferred tax asset. This reversal is the result of an analysis performed on the Bank's current year earnings, future earnings prospects and addresses the question as to whether the Bank will be able to realize its deferred tax asset in the future. This process requires a 'more likely than not' scenario analysis to determine whether the Bank can utilize its deferred tax asset. The Bank will perform this analysis on a quarterly basis and expects further reversals in future quarters.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at September 30, 2011 were $904.9 million, down slightly from $915.4 million as of December 31, 2010.  Comparing balances as of September 30, 2011 to December 31, 2010: Residential real estate loans decreased from $139.5 million to $124.6 million; total land loans increased slightly from $44.7 million to $45.6 million; commercial real estate loans increased from $347.5 million to $389.8 million; for-sale housing construction loans decreased from $90.2 million to $48.2 million; other construction loans increased from $33.2 million to $35.5 million and total commercial loans decreased from $260.4 million to $257.2 million.

Total deposits as of September 30, 2011 were $1.07 billion, a decrease of $7.1 million from the $1.08 billion at December 31, 2010. As of September 30, 2011 compared to December 31, 2010;  noninterest-bearing demand deposits increased by $10.0 million or 4.5%, interest-bearing demand and savings deposits increased by $78.4 million or 50.0% and time deposits decreased by $95.5 million or 13.6%.  Total borrowings were unchanged. Total assets were $1.261 billion, a $5.6 million or 0.4% increase from the total of $1.256 billion as of December 31, 2010. The Bank's loan-to-deposit ratio as of September 30, 2011 was 84.2% compared to 84.7% as of December 31, 2010.

Asset Quality

As of September 30, 2011 total nonaccrual loans decreased to $47.3 million (excluding loans held for sale) 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 third quarter of 2011 were $3.9 million compared to net charge-offs of $4.2 million for the second quarter of 2011. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank recorded a provision for loan losses of $1.5 million for the third quarter of 2011 compared to $1.8 million in the second quarter of 2011 and $9.3 million in the same period last year. The allowance for loan loss at September 30, 2011 was $24.1 million or 2.67% of total loans compared to $32.9 million or 3.60% of total loans at December 31, 2010.

The table above excludes loans held for sale and includes TDR's that are on nonaccrual status. Performing TDR's totaled $26.8 million as of September 30, 2011. The $4.0 million in loans held for sale consist of two non accrual loans and one of the loans, for $1.4 million, is under contract to be sold and close in the fourth quarter of 2011.

Loans Past Due 30-89 Days

Loans 30-89 days past due at September 30, 2011 were $337,000 compared to $5.5 million at December 31, 2010.

Real Estate Owned

Total OREO decreased to $38.9 million compared to $52.7 million as of December 31, 2010. During the third quarter of 2011, the Bank sold one OREO property with a book value of $2.3 million and recorded a loss on sale of $428,000.

Capitalization

As of September 30, 2011, the Bank's tier 1 leverage ratio was 12.53% and total risk-based capital ratio was 15.96%. 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 third quarter 2011 financial results will be held today, October 20, at 5:00 p.m. Eastern / 2:00 p.m. Pacific.  Interested participants and investors may access the conference call by dialing 877-941-0843 (domestic) or 480-629-9770 (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 Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka and 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 October 27, 2011; the pass code is 4481297.

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

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