Preferred Bank Reports Revisions to Third Quarter Results and Fourth Quarter Guidance

Dec 30, 2009, 07:00 ET from Preferred Bank

LOS ANGELES, Dec. 30 /PRNewswire-FirstCall/ -- Preferred Bank (Nasdaq: PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported that as a result of a recent regulatory examination, that it would restate its Quarterly Report on Form 10-Q for the period ending September 30, 2009. By restating, Preferred Bank ("the Bank") will ensure accuracy between the revised Form 10-Q and the Bank's September 30, 2009 Call Report, which is being re-filed to reflect the examination findings. The Bank is still in the process of finalizing the resulting financial statements for September 30, 2009 as well as the revised capital ratios but the following are the major changes to the results:

  • An additional provision for loan losses of $29.8 million
  • Additional valuation charges on OREO of $7.0 million
  • An additional $5.8 million in disallowed deferred tax asset for regulatory capital
  • Additional $77.1 million in loans in non accrual status
  • Reversal of $2.2 million of accrued interest on additional non-accrual loans
  • Additional loan charge-offs of $21.3 million

Information on Additional Non-accrual Loans

Effective as of September 30, 2009, Preferred Bank is placing an additional eleven loan relationships that total $77.1 million on non-accrual status. In order to provide some context for this increase in non-accruals and to appropriately frame the risk involved in these loans, management presents the following information:

Two loan relationships totaling $13.2 million were loans to facilitate the sale of OREO that did not meet the minimum cash equity threshold per ASC Topic 360 "Sales of Real Estate", (formerly FAS 66) at their respective originations. Subsequent to September 30, 2009, in both cases, the borrowers injected sufficient additional cash equity to meet the required threshold under ASC Topic 360 "Sales of Real Estate". Two other loan relationships totaling $16.7 million were placed on non accrual due to higher than normal loan to value ratios; however, these borrowers have been making loan payments as agreed and both loan relationships were current as of September 30, 2009 and continue to be current.

Another loan totaling $15.2 million was delinquent as of September 30, 2009, but well secured by real estate and is now fully current. Due to the addition of a strong financial investor, who made a significant cash injection into the project, management expects this loan to remain current over its remaining term. In addition, a construction loan totaling $12.5 million was placed on non-accrual because construction had ceased for a period of time during 2009. However, construction has since resumed and based on internal and outside consultant's review of the project and budget, management is reasonably assured of full repayment of principal and interest. Management received updated appraisals/indications of value on four other loans totaling $19.5 million that reflected values that were potentially insufficient to cover the principal balance for each of the respective loans. As a result, management wrote down these four loans to reflect the updated collateral values. For these loans, the bank is in the process of resolving the collateral deficiencies by obtaining additional collateral as part of global workout agreements. Subsequent to September 30, 2009 the bank has entered into workout agreements and obtained $4.5 million of additional aggregate collateral on two of these loans. Management continues to work with the other two relationships to achieve corrective action; however, since the outcome was not certain as of September 30, 2009 all four loans were placed on non-accrual status.

Fourth Quarter 2009 Guidance

With improving operating metrics, stabilizing or improving credit trends and strong allowance coverage ratios, the bank expects, based on current preliminary information, that it is likely to post a profitable fourth quarter of 2009. The provision for loan losses for the fourth quarter will be minimal due to the $5 million recovery received on a previously charged-off loan in November 2009.

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 eleven full-service branch banking offices in Alhambra, Century City, Chino Hills, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Santa Monica, 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 2008 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

    Edward J. Czajka          Lasse Glassen
    Executive Vice President  General Information
    Chief Financial Officer   (213) 486-6546
    (213) 891-1188  

SOURCE Preferred Bank