Preferred Bank Reports Second Quarter Results

LOS ANGELES, July 29 /PRNewswire-FirstCall/ -- 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 June 30, 2010. Preferred Bank reported a net loss of $3.1 million or $0.20 per diluted share for the quarter compared to a net loss of $6.8 million or $0.69 per diluted share for the second quarter of 2009 and compared to net income of $3.1 million or $0.20 per diluted share for the first quarter of 2010.

• Highlights from the quarter include:
  • Robust capital ratios due to $77 million capital raise
  • Nonaccrual loans (excluding loans held for sale) decreased by 46% from December 31, 2009 levels
  • Continued decrease in housing, construction and land development loans
  • Loans 30-89 days past due decreased to $9.3 million
  • Results for the quarter include a $3.8 million charge for OREO valuation for a $17.1 million OREO sale which closed in July

Li Yu, Chairman, President and CEO commented, "I have several positive developments to report.  First and foremost, during the quarter, we issued $77 million of Series A Preferred Stock which is expected to convert to Common Stock in early August.  With this new capital, we have significantly exceeded the capital requirements our regulators set forth for us in our Consent Order.

"In addition to our capital position, our asset quality also improved notably during the quarter.  Total nonaccrual loans (excluding loans held for sale) declined by $35.2 million from the prior quarter for a 32% improvement.  OREO also showed slight 5% reduction and if we include the $17.1 million July OREO sale for which the loss was recorded in June, this reduction would have been 31%.

"The Management-focused all important "past due loans" (loans 30-89 days past due plus loans 90+ days and still accruing) also reduced from $23.3 million at March 31, 2010 to $16.5 million at June 30, 2010.  Of this amount, we have reason to believe that $15.5 million will either be paid off or brought current in the third quarter.

"Concurrently with achieving financial condition improvements, we are working diligently toward the goal of lifting of the Consent Order by our regulators.  Meanwhile, our Bank maintains plenty of capital, good liquidity, low overhead and a decent net interest margin which will gradually expand along with the reduction of non-performing assets."

Operating Results for the Quarter

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses decreased to $9.1 million from the $10.6 million recorded in the second quarter of 2009 and down from the $9.7 million for the first quarter of 2010.  The Company's taxable equivalent net interest margin was 3.01% for the second quarter of 2010, a slight decrease from the 3.08% achieved in the first quarter of 2010 and down from the 3.33% for the second quarter of 2009.

Noninterest Income. For the second quarter of 2010 noninterest income was $666,000 compared with $925,000 for the same quarter last year and $759,000 for the first quarter of 2010. The decrease in noninterest income compared to both periods is due to a decrease in service charges and a decrease in other income for the second quarter of 2010.

Noninterest Expense. Total noninterest expense was $12.8 million for the second quarter of 2010, compared to $10.3 million for the same period in 2009 and $7.3 million for the first quarter of 2010.  Salaries and benefits expense increased by $392,000 from the second quarter of 2009 due to a decrease in capitalized loan origination costs partially offset by a decrease in salaries due to staff reductions. Occupancy expense increased slightly to $814,000 from $772,000 for the same period in 2009. Although still at elevated levels, professional services expense decreased to $886,000 compared to $1.1 million for the second quarter in 2009 due primarily to an decrease in legal costs associated with non-performing loans. Credit-related other-than-temporary-impairment charges were $0 for the second quarter of 2010 compared to $351,000 for the same period last year. OREO related expenses totaled $5.8 million for the second quarter of 2010 (consisting of $4.2 million in valuation charges, $749,000 in loss on sale of OREO and  $840,000 in OREO operating expenses) and this represented an increase of $1.9 million over the $3.9 million in OREO expense posted in the same period last year and this represented a increase from the $1.1 million in OREO expense posted in the first quarter of 2010. Of the $4.2 million in OREO valuation charges, $3.8 million was related to a $17.1 million OREO property sale which closed on July 22, 2010. Other expenses were $2.8 million in the second quarter of 2010, an increase of $802,000 over the same period in 2009 and an increase of $920,000 over the first quarter of 2010.  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 (including loans held for sale) at June 30, 2010 were $967.9 million, down from $1.04 billion as of December 31, 2009.  Comparing balances as of June 30, 2010 to December 31, 2009: Residential real estate loans decreased from $164.9 million to $153.8 million; total land loans decreased from $74.6 million to $58.4 million; commercial real estate loans decreased from $325.7 million to $323.8 million; for-sale housing construction loans decreased from $143.9 million to $105.3 million; other construction loans increased from $58.3 million to $62.1 million and total commercial loans decreased from $227.4 million to $264.5 million.

Total deposits as of June 30, 2010 were $1.11 billion, a decrease of $49.4 million from the $1.16 billion at December 31, 2009. As of June 30, 2010 compared to December 31, 2009;  noninterest-bearing demand deposits increased by $8.8 million or 4.3%, interest-bearing demand and savings deposits increased by $4.3 million or 2.6% and time deposits decreased by $62.5 million or 7.9%. Total borrowings decreased by $8.0 million or 19.5% to $41.0 million compared to $49.0 million as of December 31, 2010. Total assets were $1.32 billion, a $16.6 million or 1.3% increase from the total of $1.31 billion as of December 31, 2009. The Bank's loan-to-deposit ratio as of June 30, 2010 was 87.1% compared to 89.9% as of December 31, 2009.

Asset Quality

As of June 30, 2010 total nonaccrual loans were $74.1 million (excluding $12.7 million held for sale) compared to $109.2 million as of March 31, 2010 and total loans 90 days past due and still accruing were $7.3 million compared to  $0 as of March 31, 2010. Total net charge-offs for the second quarter of 2010 were $4.5 million compared to net charge-offs of $5.7 million for the first 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 second quarter of 2010 compared to $0 in the first quarter of 2010 and $15.5 million in the second quarter of 2009. The allowance for loan loss at June 30, 2010 was $32.5 million or 3.41% of total loans compared to $37.1 million or 3.82% of total loans at March 31, 2010.

NPA Migration

Loans Past Due 30-89 Days

Loans 30-89 days past due at June 30, 2010 were $9.3 million compared to $23.3 million at March 31,2010.

Real Estate Owned

Total OREO decreased to $62.8 million compared to $66.1 million as of March 31, 2010. During the second quarter of 2010, the Bank sold 3 OREO properties with a book value of $7.9 million. In addition, in July the Bank closed on a sale of a $17.1 million OREO for which the bank recorded a loss on sale of $3.8 million during the second quarter of 2010.

Capitalization

As of June 30, 2010, the Bank's tier 1 leverage ratio was 12.05% and total risk-based capital ratio was 15.59%. This compares to 6.64% and 9.30% as of March 31, 2010, respectively. Pursuant to the Consent Order entered into on March 22, 2010, the Bank is required to achieve the following capital ratios by the corresponding due dates listed below:

Due to the successful offering and sale of $77 million in new capital which closed in the second quarter of 2010, management and the Board are confident that the capital ratio requirement contained in the Consent Order will be easily met.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's second quarter 2010 financial results will be held today, July 29, at 5:00 p.m. Eastern / 2:00 p.m. Pacific.  Interested participants and investors may access the conference call by dialing 877-941-9205 (domestic) or 480-629-9835 (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 August 5, 2010; the pass code is 4331169.

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.

SOURCE Preferred Bank