Preferred Bank Reports Third Quarter Results

Oct 28, 2010, 16:01 ET from Preferred Bank

LOS ANGELES, Oct. 28 /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 September 30, 2010. Preferred Bank reported a net loss of $5.5 million for the third quarter of 2010  compared to a net loss of $36.0 million or $3.32 per diluted share for the third quarter of 2009 and compared to a net loss of $3.0 million or $0.05 per diluted share for the second quarter of 2010. The net loss available to common shareholders for the quarter was $0.78 per common share, and was increased by $0.64 per share due to the recognition of the intrinsic value of the beneficial conversion feature of Series A Convertible Preferred stock issued by the Company. The intrinsic value is the difference between the conversion price of $1.50 per share for the 73,846 preferred shares and the $2.02 per share market value of the company's common stock as of May 26, 2010, the commitment date.  This difference is treated as a discount on the Series A Preferred Stock under U.S. Generally Accepted Accounting Principles, and reduces the reported income available to common shareholders.  This is a one-time item and does not affect total capital, regulatory or common capital ratios of Preferred Bank nor does it represent a loss or outflow from operations.

  • Highlights from the quarter include:
    • Approval and conversion of Series A preferred shares to common shares
    • A decrease in NPA's of $22.6 million from June 30, 2010
    • Continued decrease in housing, construction and land development loans
    • Loans 30-89 days past due further decreased to $5.0 million
    • Results for the quarter include a $710,000 charge for OREO valuation and a provision for loan losses of $9.3 million

Li Yu, Chairman, President and CEO commented, "During the third quarter, we received a Shared National Credit "SNC" report from one of the regulatory agencies which directed us to change the loan grade of certain participation loans, provide additional reserves, and to charge-off a portion of several previously classified loans. The report also identified these loans, totaling $17.7 million to be classified as non-accrual as well.

"Most of these loans are current and have been since inception; nevertheless, we adjusted our reporting as recommended. The SNC examination was performed in May 2010 using data from the March 31, 2010 reporting date including valuation data from that same time frame. More recent collateral value reports typically indicate improved valuations.

"In spite of the additional non-accrual classifications required on these SNC loans, total NPA's continued to decrease this quarter. Also, the level of loans 30-89 days past due has clearly stabilized and now is below our peer group average. Despite many disappointments, our troubled asset resolution activities remain effective and are progressing.

"Along with the gradual reduction of non-performing assets, we are hopeful of continuing improvement in our net interest margin, lower levels of legal expenses, loan collection expenses and OREO operating costs. Earnings will improve as credit costs subside."

Operating Results for the Quarter

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $9.9 million from the $7.2 million recorded in the third quarter of 2009 and increased from $9.1 million for the second quarter of 2010.  The Company's taxable equivalent net interest margin was 3.09% for the third quarter of 2010, an increase from the 2.35% achieved in the third quarter of 2009 and a slight increase from the 3.01% for the second quarter of 2010.

Noninterest Income. For the third quarter of 2010 noninterest income was $1.5 million compared with $3.4 for the same quarter last year and $666,000 for the second quarter of 2010. The third quarter of 2010 included gains on sales of investment securities of $756,000 and the third quarter of 2009 included gains on securities sales of $2.6 million. Service charges on deposits decreased by $66,000 for the third quarter of 2010 compared to the same period in 2009 and was flat when compared to the second quarter of 2010.

Noninterest Expense. Total noninterest expense was $7.6 million for the third quarter of 2010, compared to $24.0 million for the same period in 2009 and $12.8 million for the second quarter of 2010.  Salaries and benefits expense increased by $749,000 from the third quarter of 2009 due to a decrease in capitalized loan origination costs as loan activities decreased. Occupancy expense decreased to $799,000 from $903,000 for the same period in 2009 and compared to $814,000 for the second quarter of 2010. Although still at elevated levels, professional services expense decreased to $894,000 compared to $1.0 million for the third quarter of 2009  and relatively flat with the $886,000 posted in the second quarter of 2010. This was due primarily to a decrease in legal costs associated with non-performing loans and OREO. Credit-related other-than-temporary-impairment charges were $224,000 for the third quarter of 2010 compared to $587,000 for the same period last year and $0 in the second quarter of 2010. OREO related expenses totaled $998,000 for the third quarter of 2010 (consisting of $710,000 in valuation charges and $288,000 in OREO operating expenses) and this represented a decrease of $15.0 million from the $16.0 million in OREO expense posted in the same period last year and a decrease from the $5.8 million in OREO expense posted in the second quarter of 2010. Other expenses were $1.8 million in the third quarter of 2010, a decrease of $1.5 million from the same period in 2009 and a decrease of $1.0 million from the second quarter of 2010.  The decreases mainly resulted from a decrease in FDIC premium expense as well as a decrease in loan collection expense.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at September 30, 2010 were $950.1 million, down from $1.04 billion as of December 31, 2009.  Comparing balances as of September 30, 2010 to December 31, 2009: Residential real estate loans decreased from $164.9 million to $139.8 million; total land loans decreased from $74.6 million to $57.8 million; commercial real estate loans increased from $325.7 million to $340.9 million; for-sale housing construction loans decreased from $147.9 million to $102.3 million; other construction loans decreased from $58.3 million to $56.5 million and total commercial loans decreased from $277.6 million to $252.8 million.

Total deposits as of September 30, 2010 were $1.13 billion, a decrease of $27.8 million from the $1.16 billion at December 31, 2009. As of September 30, 2010 compared to December 31, 2009;  noninterest-bearing demand deposits increased by $26.1 million or 12.8%, interest-bearing demand and savings deposits decreased by $1.3 million or 0.8% and time deposits decreased by $52.6 million or 6.6%. Total borrowings decreased by $13.0 million or 26.5% to $36.0 million compared to $49.0 million as of December 31, 2009. Total assets were $1.34 billion, a $28.6 million or 2.2% increase from the total of $1.31 billion as of December 31, 2009. The Bank's loan-to-deposit ratio as of September 30, 2010 was 83.9% compared to 89.9% as of December 31, 2009.

Asset Quality

As of September 30, 2010 total nonaccrual loans were $73.0 million compared to $74.1 million as of June 30, 2010 and total loans 90 days past due and still accruing were $0 million compared to $7.3 million as of June 30, 2010. Total net charge-offs for the third quarter of 2010 were $8.7 million compared to net charge-offs of $4.5 million for the second 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 recorded a provision for loan losses of $9.3 million for the third quarter of 2010 compared to $0 in the second quarter of 2010 and $48.3 million in the third quarter of 2009. The allowance for loan loss at September 30, 2010 was $33.1 million or 3.55% of total loans compared to $32.5 million or 3.41% of total loans at June 30, 2010.

NPA Migration

Non-Performing Assets Migration  – Q3 2010



Non Accrual Loans

OREO

Balance,  June 30, 2010

$         74,065

$          62,789

Additions

19,224

N/A

Transfer to OREO

(3,965)

3,965

Loans Cured

(8,048)

N/A

Sales/Payoffs/Trf to HFS

(4,180)

(17,568)

Charge-off

(4,104)

(710)

Balance,  September 30, 2010

$          72,991

$         48,476




Loans Past Due 30-89 Days

Loans 30-89 days past due at September 30, 2010 were $5.0 million compared to $9.3 million at June 30, 2010.

Real Estate Owned

Total OREO decreased to $48.5 million compared to $62.8 million as of June 30, 2010. During the third quarter of 2010, the Bank sold two OREO properties with a book value of $17.6 million.

Asset Quality Table


($ in thousands)

30-89 Days

Nonaccrual

OREO


#

$

#

$

#

$

Land-Residential

-

$             -

2

$        9,036

13

$      23,929

Land Commercial

-

-

1

2,300

4

11,055

Construction:







      Residential

-

-

5

28,788

2

8,058

      Commercial

-

-

1

1,960

1

1,610

RE-Housing for sale

-

-

2

2,703

2

3,824

CRE-Commercial

2

4,196

3

4,673

-

-

C&I/Trade Finance

5

773

8

23,531

-

-

     Totals

7

$    4,969

22

$    72,991

22

$    48,476




Capitalization

As of September 30, 2010, the Bank's tier 1 leverage ratio was 11.36% and total risk-based capital ratio was 15.53%. This compares to 12.05% and 15.56% as of June 30, 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:

Ratio

Preferred Bank at 9/30/10

Requirement as of 9/15/10

Tier 1 Leverage Ratio

11.36%

10.0%

Tangible Common Equity Ratio

11.89%

10.0%

Total Risk-Based Capital Ratio

15.53%

12.0%



Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's third quarter 2010 financial results will be held today, October 28, at 5:00 p.m. Eastern / 2:00 p.m. Pacific.  Interested participants and investors may access the conference call by dialing 877-941-6012 (domestic) or 480-248-5085 (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 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 November 4, 2010; the pass code is 4376121.

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.

For Further Information:


AT THE COMPANY:

AT FINANCIAL RELATIONS BOARD:

Edward J. Czajka

Lasse Glassen

Executive Vice President

General Information

Chief Financial Officer

(213) 486-6546

(213) 891-1188

lglassen@mww.com



Financial Tables to Follow

PREFERRED BANK

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except for net (loss) income per share and shares)


























For the Nine Months Ended








September 30,


September 30,


Change






2010


2009


%

Interest income:








Loans, including fees


$           36,174


$          40,937


-11.6%


Investment securities


4,162


4,488


-7.3%


Fed funds sold  


1


34


-98.3%



Total interest income


40,337


45,459


-11.3%











Interest expense:








Interest-bearing demand


503


647


-22.3%


Savings


167


572


-70.8%


Time certificates of $100,000 or more


4,414


8,825


-50.0%


Other time certificates


5,370


5,844


-8.1%


FHLB borrowings


616


1,678


-63.3%


Senior debt


562


479


17.3%



Total interest expense


11,632


18,045


-35.5%



Net interest income


28,705


27,414


4.7%

Provision for credit losses


9,300


70,250


-86.8%



Net interest income (loss) after provision for









       loan losses


19,405


(42,836)


-145.3%











Noninterest income:








Fees & service charges on deposit accounts


1,418


1,644


-13.7%


Trade finance income


299


306


-2.2%


BOLI  income


245


237


3.4%


Net gain on sale of investment securities


665


3,057


-78.2%


Other income


276


314


-12.2%



Total noninterest income


2,903


5,558


-47.8%











Noninterest expense:








Salary and employee benefits


6,958


5,761


20.8%


Net occupancy expense


2,463


2,514


-2.0%


Business development and promotion expense


205


191


7.2%


Professional services


2,719


3,014


-9.8%


Office supplies and equipment expense


843


903


-6.7%


Total other-than-temporary impairment losses


612


4,863


-87.4%


Portion of loss recognized in other comprehensive income


(388)


(3,500)


-88.9%


Other real estate owned related expense


7,889


20,552


-61.6%


Other  


6,481


6,631


-2.3%



Total noninterest expense


27,781


40,929


-32.1%



Loss before provision for income taxes


(5,474)


(78,207)


-93.0%

Income tax (benefit) expense


0


(34,071)


-100.0%



Net loss


$            (5,474)


$        (44,136)


-87.6%











Accretion of beneficial conversion feature


$          (25,600)


$                    -


100.0%

Net loss available to common shareholders


$          (31,074)


$        (44,136)


-29.6%











Loss per share available to common shareholders









Basic


$              (1.31)


$            (4.36)


-70.0%



Diluted


$              (1.31)


$            (4.36)


-70.0%











Weighted-average common shares outstanding  









Basic


23,784,901


10,119,617


135.0%



Diluted


23,784,901


10,119,617


135.0%



PREFERRED BANK

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except for net (loss) income per share and shares)


























For the Three Months Ended






September 30,


September 30,


June 30,






2010


2009


2010

Interest income:








Loans, including fees


$             11,949


$          10,773


$           11,788


Investment securities


1,575


1,338


1,130


Fed funds sold  


-


-


-



Total interest income


13,524


12,111


12,918











Interest expense:








Interest-bearing demand


153


211


183


Savings


53


149


57


Time certificates of $100,000 or more


1,480


2,408


1,444


Other time certificates


1,566


1,481


1,745


FHLB borrowings


138


517


240


Senior debt


185


190


188



Total interest expense


3,575


4,956


3,857



Net interest income


9,949


7,155


9,061

Provision for loan losses


9,300


48,250


-



Net interest income (loss) after provision for










loan losses


649


(41,095)


9,061











Noninterest income:








Fees & service charges on deposit accounts


465


531


462


Trade finance income


73


72


117


BOLI  income


82


80


82


Net gain on sale of investment securities


756


2,597


(22)


Other income


103


75


27



Total noninterest income


1,479


3,355


666











Noninterest expense:








Salary and employee benefits


2,565


1,816


2,209


Net occupancy expense


799


903


814


Business development and promotion expense


98


98


72


Professional services


894


1,030


886


Office supplies and equipment expense


269


304


268


Total other-than-temporary impairment losses


224


587


-


Portion of loss recognized in other comprehensive income

-


-


-


Other real estate owned related expense


998


16,020


5,751


Other  


1,779


3,284


2,811



Total noninterest expense


7,626


24,042


12,811



Loss before provision for income taxes


(5,498)


(61,782)


(3,084)

Income tax (benefit) expense


-


(25,798)


0



Net loss


$              (5,498)


$         (35,984)


$           (3,084)











Accretion of beneficial conversion feature


$            (25,458)


$                    -


$                    -

Net loss available to common shareholders


$            (30,956)


$         (35,984)


$           (3,084)











Loss per share available to common shareholders









Basic


$                (0.78)


$             (3.32)


$             (0.21)



Diluted


$                (0.78)


(3.32)


$             (0.21)











Weighted-average common shares outstanding  









Basic


39,751,458


10,836,554


15,885,115



Diluted


39,751,458


10,836,554


15,885,115



PREFERRED BANK

Condensed Consolidated Statements of Financial Condition

(unaudited)

(in thousands)












September 30,


December 31,





2010


2009

Assets












Cash and due from banks

$              194,759


$           14,071

Fed funds sold  

-


54,000


Cash and cash equivalents

194,759


68,071







-

Securities available-for-sale, at fair value

144,580


114,464

Loans and leases

934,462


1,043,299

Less allowance for loan and lease losses

(33,149)


(42,810)

Less net deferred loan fees

281


585


Net loans and leases

901,594


1,001,074








Loans held for sale, at lower of cost or fair value

15,663


-








Other real estate owned

48,476


59,190

Customers' liability on acceptances

861


-

Bank furniture and fixtures, net

5,595


6,325

Bank-owned life insurance  

7,492


7,304

Accrued interest receivable

4,932


5,582

Federal Home Loan Bank stock  

4,625


4,996

Deferred tax assets  

3,604


3,604

Income tax receivable

1,391


30,148

Other asset

1,759


6,023


Total assets

$           1,335,331


$      1,306,781















Liabilities and Shareholders' Equity











Liabilities:





Deposits:






Demand

$              230,636


$         204,545


Interest-bearing demand

124,314


119,168


Savings

37,601


44,033


Time certificates of $100,000 or more

369,421


328,597


Other time certificates

370,659


464,069


    Total deposits

$           1,132,631


$      1,160,412


Acceptances outstanding

861


-


Advances from Federal Home Loan Bank

10,000


23,000


Senior debt issuance

25,996


25,996


Accrued interest payable  

1,543


2,949


Other liabilities

5,497


9,050



Total liabilities

1,176,528


1,221,407








Commitments and contingencies




Shareholders' equity:





Preferred stock. Authorized 25,000,000 shares; no issued and outstanding shares at September 30, 2010 and December 31, 2009

-



Common stock, no par value. Authorized 100,000,000 shares; issued and outstanding  65,408,527 and 15,767,126 shares at September 30, 2010  and December 31, 2009, respectively  

162,884


89,038


Treasury stock

(19,115)


(19,115)


Additional paid-in-capital

21,990


6,291


Retained earnings (accumulated deficit)

(7,431)


13,267


Accumulated other comprehensive loss:

-





Non-credit portion of loss recognized $555 at September 30, 2010  and December 31, 2009, respectively

(1,152)


(764)



Unrealized loss on securities available-for-sale, net of tax of $2,426 at September 30, 2010 and December 31, 2009 , respectively.

1,627


(3,343)



Total shareholders' equity

158,803


85,374


Total liabilities and shareholders' equity

$           1,335,331


$      1,306,781



PREFERRED BANK

Selected Consolidated Financial Information

(unaudited)

(in thousands, except for ratios)
















For the Three Months  Ended





September 30,


June 30,


December 30,


September 30,





2010


2010


2009


2009

For the period:









Return on average assets

-1.57%


-0.91%


-7.80%


-10.17%


Return on average equity

-10.38%


-9.82%


-97.05%


-97.97%


Net interest margin (Fully-taxable equivalent)

3.09%


3.01%


2.58%


2.35%


Noninterest expense to average assets

2.18%


3.80%


3.03%


6.80%


Efficiency ratio

66.72%


131.71%


115.22%


228.75%


Net charge-offs (recoveries) to average loans (annualized)

3.53%


1.86%


0.81%


11.31%























Period end:









Tier 1 leverage capital ratio

11.36%


12.05%


6.16%


5.82%


Tier 1 risk-based capital ratio

14.26%


14.29%


7.24%


6.06%


Total risk-based capital ratio

15.53%


15.56%


8.52%


7.34%


Allowances for credit losses to loans and leases at end of period **

3.55%


3.41%


4.10%


4.12%


Allowance for credit losses to non-performing loans and leases

37.39%


34.62%


29.55%


25.89%











Average balances:









Total loans and leases*

$           975,673


$        977,888


$   1,089,757


$     1,140,940


Earning assets

$        1,299,551


$     1,235,490


$   1,365,957


$     1,247,025


Total assets

$        1,389,016


$     1,352,199


$   1,443,983


$     1,403,518


Total deposits

$        1,137,146


$     1,166,363


$   1,257,229


$     1,177,636












Period end:








Loans and Leases:*









Real estate - Single and multi-family residential

$           139,774


$        153,792


$      164,906


$        169,045


Real estate - Land for housing

32,319


32,837


36,515


49,469


Real estate - Land for income properties

25,477


25,535


38,254


38,050


Real estate - Commercial

340,933


323,822


325,734


344,031


Real estate - For sale housing construction

102,264


105,251


147,869


135,835


Real estate - Other construction

56,544


62,127


58,282


69,011


Commercial and industrial

206,405


216,482


228,960


234,626


Trade finance and other

46,409


48,005


48,625


40,006



Total gross loans and leases

950,125


967,851


1,049,145


1,080,073


Allowance for loan and lease losses

(33,149)


(32,540)


(42,810)


(44,041)


Net deferred loan fees

281


554


585


700



Net loans and leases

$           917,257


$        935,865


$   1,006,920


$     1,036,732












Deposits:










Noninterest-bearing demand

$           230,636


$        213,328


$      204,545


$        207,957


Interest-bearing demand and savings

161,915


167,511


163,201


171,762



Total core deposits

392,551


380,839


367,746


379,719


Time deposits

740,080


730,200


792,666


816,153



Total deposits

$        1,132,631


$     1,111,039


$   1,160,412


$     1,195,872












* Loans held for sale are included

** Loans held for sale are excluded



Preferred Bank

Loan and Credit Quality Information









Allowance For Credit Losses & Loss History










Nine Months Ended


Year Ended






September 30, 2010


December 31, 2009








(Dollars in 000's)

Allowance For Credit Losses





Balance at Beginning of Period


$                 42,810


$               26,935


Charge-Offs







Commercial & Industrial


3,745


10,962



Mini-perm Real Estate


5,130


10,138



Construction - Residential


4,719


20,767



Construction - Commercial


4,379


3,526



Land - Residential


179


13,908



Land - Commercial


1,052


410



Others


17


-



  Total Charge-Offs


19,221


59,711










Recoveries







Commercial & Industrial


29


3,924



Mini-perm Real Estate


26


15



Construction - Residential


189


397



Construction - Commercial


16


-



Land - Residential


-


-



Land - Commercial


-


-



  Total Recoveries


260


4,336










Net Loan Charge-Offs


18,961


55,375


Provision for Credit Losses


9,300


71,250

Balance at End of Period


$                 33,149


$               42,810

Average Loans and Leases*


$               991,896


$          1,162,221

Loans and Leases at end of Period*


$               950,125


$          1,043,299

Net Charge-Offs to Average Loans and Leases


2.56%


4.76%

Allowances for credit losses to loans and leases at end of period **


3.55%


4.10%









* Loans held for sale are included

** Loans held for sale are excluded



SOURCE Preferred Bank



RELATED LINKS

http://www.preferredbank.com