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 90+
Days Past
Due & Still
Accruing
-----------
Nonaccrual Loans OREO
---------------- ----
Balance December 31, 2009 $7,570 $137,301 $59,190
Additions - 23,669 10,700
Transfer to OREO - (10,700) N/A
Loans Cured (7,250) (35,539) N/A
Sales/Payoffs (320) (420) (2,563)
Charge-off - (5,095) (1,182)
--- ------ ------
Balance, March 31, 2010 $- $109,216 $66,145
--- -------- -------
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 $2.6 million.
NPA Summary Table
90+ Still
($ in thousands) 30-89 Days Accruing
# $ # $
--- --- --- ---
Land-Residential 2 $3,329 - $-
Land Commercial 1 4,950 - -
Construction:
Residential - - - -
Commercial 1 2,667 - -
R/E-Housing
for Sale - - - -
CRE-Commercial 1 7,250 - -
C&I/Trade
Finance 5 5,127 - -
--- ----- --- ---
Totals 10 $23,323 - $-
--- ------- --- ---
($ in thousands) Nonaccrual OREO
# $ # $
--- --- --- ---
Land-Residential 3 $10,374 12 $24,332
Land Commercial 3 10,100 4 11,258
Construction:
Residential 7 39730 2 8,058
Commercial 2 13,897 1 1,611
R/E-Housing
for Sale 1 1,095 - -
CRE-Commercial 7 25,866 1 20,886
C&I/Trade
Finance 6 8,154 - -
--- ----- --- ---
Totals 29 $109,216 20 $66,145
--- -------- --- -------
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:
Requirement
Preferred Bank as of Requirement as
Ratio at 3/31/10 7/15/10 of 9/15/10
----- -------------- ------- --------------
Tier 1 Leverage Ratio 6.64% 8.5% 10.0%
--------------------- ---- --- ----
Tangible Common Equity
Ratio 6.57% 8.5% 10.0%
---------------------- ---- --- ----
Total Risk-Based
Capital Ratio 9.30% 10.0% 12.0%
---------------- ---- ---- ----
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.
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 This email address is being protected from spambots. You need JavaScript enabled to view it.
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 Three Months Ended
--------------------------
December
March 31, 31, March 31,
2010 2009 2009
---- ---- ----
Interest income:
Loans, including fees $12,437 $12,118 $15,161
Investment securities 1,457 1,296 1,733
Fed funds sold 1 3 32
--- --- ---
Total interest income 13,895 13,417 16,926
------ ------ ------
Interest expense:
Interest-bearing demand $167 195 227
Savings 58 115 217
Time certificates of $100,000
or more 1,490 1,696 3,379
Other time certificates 2,060 2,236 2,720
Fed funds purchased - - 0
FHLB borrowings 238 336 578
Senior debt 188 189 101
--- --- ---
Total interest expense $4,201 4,767 7,222
------ ----- -----
Net interest income 9,694 8,650 9,704
Provision for loan losses - 1,000 6,550
--- ----- -----
Net interest (loss) income
after provision for
loan losses 9,694 7,650 3,154
Noninterest income:
Fees & service charges on
deposit accounts 491 545 549
Trade finance income 109 78 125
BOLI income 81 81 78
Net gain (loss) on sale of
investment securities (68) 85 460
Other income 146 129 66
--- --- ---
Total noninterest income 759 918 1,278
Noninterest expense:
Salary and employee benefits 2,184 1,868 2,128
Net occupancy expense 850 902 839
Business development and
promotion expense 35 10 46
Professional services 939 1,049 877
Office supplies and equipment
expense 305 343 317
Total other-than-temporary
impairment losses - 2,092 4,774
Portion of loss recognized in
other comprehensive income - - (4,349)
Other real estate owned
related expense 1,140 2,519 613
Other 1,891 2,241 1,338
----- ----- -----
Total noninterest expense 7,344 11,024 6,583
Loss (income) before
provision for income taxes 3,109 (2,456) (2,151)
Income tax (benefit) expense - 25,943 (829)
--- ------ ----
Net (loss) income 3,109 (28,399) (1,322)
----- ------- ------
Net (loss) income per share -
basic $0.20 $(1.80) $(0.14)
Net (loss) income per share -
diluted $0.20 $(1.80) $(0.14)
Weighted-average common
shares outstanding
Basic 15,885,115 15,668,126 9,791,507
Diluted 15,885,115 15,668,126 9,791,507
December
March 31, 31,
2010 2009
---- ----
Assets
Cash and due from banks $222,011 $14,071
Fed funds sold - 54,000
--- ------
Cash and cash equivalents 222,011 68,071
- -
Securities available-for-sale, at fair value 90,738 114,464
Loans and leases 970,287 1,043,299
Less allowance for loan and lease losses (37,069) (42,810)
Less net deferred loan fees 846 585
--- ---
Net loans and leases 934,064 1,001,074
------- ---------
Loans held for sale, at lower of cost or
market 10,333 -
Other real estate owned 66,145 59,190
Customers' liability on acceptances - -
Bank furniture and fixtures, net 5,994 6,325
Bank-owned life insurance 7,366 7,304
Accrued interest receivable 5,458 5,582
Federal Home Loan Bank stock 4,996 4,996
Deferred tax assets 3,662 3,604
Other asset 30,326 36,171
------ ------
Total assets $1,381,093 $1,306,781
---------- ----------
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $233,136 $204,545
Interest-bearing demand 128,426 119,168
Savings 46,369 44,033
Time certificates of $100,000 or more 347,877 328,597
Other time certificates 475,153 464,069
------- -------
Total deposits $1,230,961 $1,160,412
Acceptances outstanding - -
Advances from Federal Home Loan Bank 23,000 23,000
Senior debt issuance 25,996 25,996
Fed funds purchased - -
Accrued interest payable 2,169 2,949
Other liabilities 8,248 9,050
----- -----
Total liabilities 1,290,374 1,221,407
--------- ---------
Commitments and contingencies Shareholders'
equity:
Preferred stock. Authorized 25,000,000 shares;
no share issued - -
and outstanding
Common stock, no par value. Authorized
100,000,000 shares; issued 89,038 89,038
and outstanding 16,012,126 and 15,767,126
shares at March 31,
2010, December 31, 2009, respectively
Treasury stock (19,115) (19,115)
Additional paid-in-capital 6,642 6,291
Retained earnings
16,376 13,267
Accumulated other comprehensive loss:
Non-credit portion of loss recognized, net of
tax of $0 and $555 at March 31, 2010 and
at December 31, 2009, respectively (1,249) (764)
Unrealized loss on securities available-for-
sale, net of tax of $0 and $2,426 at March
31, 2010 and December 31, 2009 ,
respectively. (973) (3,343)
---- ------
Total shareholders' equity 90,719 85,374
------ ------
Total liabilities and shareholders' equity $1,381,093 $1,306,781
---------- ----------
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Three Months Ended
December
March 31, 30,
2010 2009
---- ----
For the period:
Return on average assets 0.91% -7.80%
Return on average equity 13.06% -97.05%
Net interest margin (Fully-
taxable equivalent) 3.07% 2.58%
Noninterest expense to average
assets 2.14% 3.03%
Efficiency ratio 70.26% 115.22%
Net charge-offs (recoveries) to
average 2.27% 0.81%
loans (annualized)
Period end:
Tier 1 leverage capital ratio 6.64% 6.16%
Tier 1 risk-based capital ratio 8.03% 7.24%
Total risk-based capital ratio 9.31% 8.52%
Allowances for credit losses to
loans and leases 3.82% 4.10%
at end of period **
Allowance for credit losses to
non-performing
loans and leases 33.94% 29.55%
Average balances:
Total loans and leases* $1,024,499 $1,089,757
Earning assets $1,309,572 $1,365,957
Total assets $1,392,663 $1,443,983
Total deposits $1,232,639 $1,257,229
Period end:
Loans and Leases:*
Real estate - Single and multi-
family residential $163,188 $164,906
Real estate - Land for housing 33,897 36,515
Real estate -Land for income
properties 33,536 38,254
Real estate - Commercial 321,330 325,734
Real estate -For sale housing
construction 118,339 147,869
Real estate -Other construction 60,743 58,282
Commercial and industrial 202,698 228,960
Trade finance and other 46,889 48,625
------ ------
Total gross loans and leases 980,620 1,049,145
Allowance for loan and lease
losses (37,069) (42,810)
Net deferred loan fees 846 585
--- ---
Net loans and leases $944,397 $1,006,920
-------- ----------
Deposits:
Noninterest-bearing demand $233,136 $204,545
Interest-bearing demand and
savings 174,795 163,201
------- -------
Total core
deposits 407,931 367,746
Time deposits 823,030 792,666
------- -------
Total deposits $1,230,961 $1,160,412
----------
For the Three Months Ended
September
30, March 31,
2009 2009
---- ----
For the period:
Return on average assets -10.17% -0.36%
Return on average equity -97.97% -3.86%
Net interest margin (Fully-
taxable equivalent) 2.35% 2.88%
Noninterest expense to average
assets 6.80% 1.79%
Efficiency ratio 228.75% 59.95%
Net charge-offs (recoveries) to
average 11.31% 0.86%
loans (annualized)
Period end:
Tier 1 leverage capital ratio 3.29% 9.51%
Tier 1 risk-based capital ratio 3.53% 10.61%
Total risk-based capital ratio 4.81% 11.87%
Allowances for credit losses to
loans and leases 4.12% 2.59%
at end of period **
Allowance for credit losses to
non-performing
loans and leases 25.89% 35.98%
Average balances:
Total loans and leases* $1,139,149 $1,224,181
Earning assets $1,245,234 $1,397,653
Total assets $1,403,177 $1,488,143
Total deposits $1,177,855 $1,257,410
Period end:
Loans and Leases:*
Real estate - Single and multi-
family residential $169,045 $181,895
Real estate - Land for housing 49,469 69,102
Real estate -Land for income
properties 38,050 47,435
Real estate - Commercial 344,031 282,216
Real estate -For sale housing
construction 135,835 176,498
Real estate -Other construction 69,011 120,017
Commercial and industrial 234,626 244,986
Trade finance and other 40,006 69,161
------ ------
Total gross loans and leases 1,080,073 1,191,310
Allowance for loan and lease
losses (44,041) (30,885)
Net deferred loan fees 700 (22)
--- ---
Net loans and leases $1,036,732 $1,160,403
---------- ----------
Deposits:
Noninterest-bearing demand $207,957 $195,564
Interest-bearing demand and
savings 171,762 171,279
------- -------
Total core
deposits 379,719 366,843
Time deposits 816,153 838,442
------- -------
Total deposits $1,195,872 $1,205,285
----------
* 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
Three Months
Ended Year Ended
December 31,
March 31, 2010 2009
-------------- -------------
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $42,810 $26,935
Charge-Offs
Commercial & Industrial 504 10,962
Mini-perm Real Estate - 10,138
Construction -
Residential 4,221 20,767
Construction -
Commercial - 3,526
Land - Residential - 13,908
Land - Commercial 1,052 410
Total Charge-Offs 5,777 59,711
Recoveries
Commercial & Industrial 5 3,924
Mini-perm Real Estate 16 15
Construction -
Residential 15 397
Construction -
Commercial - -
Land - Residential - -
Land - Commercial - -
Total Recoveries 36 4,336
Net Loan Charge-Offs 5,741 55,375
Provision for Credit
Losses - 71,250
Balance at End of Period $37,069 $42,810
Average Loans and Leases* $1,024,499 $1,162,221
Loans and Leases at end of
Period* $980,620 $1,043,299
Net Charge-Offs to Average Loans
and Leases 2.27% 4.76%
Allowances for credit losses to
loans and leases 3.82% 4.10%
at end of period **
* Loans held for sale are included
** Loans held for sale are excluded