LOS ANGELES, Jan. 24 /PRNewswire-FirstCall/ -- Preferred Bank
(Nasdaq: PFBC), an independent commercial bank focusing on the Chinese-
American and diversified Southern California market, today reported record net
income for the quarter ended December 31, 2006. Net income totaled $6.6
million, a 34% increase over net income of $4.9 million for the same period in
2005 while diluted earnings per share increased 32% to $0.94 for the quarter
compared to $0.71 for the fourth quarter of 2005. Net income for the quarter
was positively impacted by an adjustment to the Company's tax provision of
$150,000 or $0.021 per diluted share resulting from a recently completed
analysis of the Bank's Enterprise Zone tax credits from 2005.
Mr. Li Yu, Chairman and President of Preferred Bank commented, "2006 is
our second year of operations since the Bank's IPO. I am pleased to note that
we reported record growth in earnings, loans and deposits in each of the past
eight quarters. Especially pleasing are our fourth quarter results under a
challenging interest rate and competitive environment."
"Our fourth quarter loan growth was a very pleasant surprise. During the
course of 2006 our quarterly loan averages were healthy and consistent and our
loan yields remain steady. Historically the Bank has always had a larger
fourth quarter growth in deposits but this year was a record for us.
According to a recent Federal Reserve Bank report, total nationwide banking
system transaction deposits decreased, yet we have managed to grow transaction
deposits by 8.2% for the year. Our deposit costs were in line with our
expectations."
"For the first time, our quarterly return on assets (ROA) reached over
2.0% and our efficiency ratio came in at 30.0%. We realize that these are only
statistics but my staff and I are very pleased with these numbers."
Operating Results for the Quarter
Net Interest Income and Net Interest Margin. Net interest income before
provision for loan and lease losses increased to $16.1 million, compared to
$12.6 million for the fourth quarter of 2005. The 27.9% increase was due to
the growth in the loan portfolio as well as previous increases in the Prime
lending rate. The Company's net interest margin decreased slightly to 5.17%
from 5.23% for the third quarter of 2006 but remained well ahead of the 4.81%
for the fourth quarter 2005. The decrease in the fourth quarter net interest
margin was due to an increase in the Bank's cost of deposits.
Noninterest Income. For the fourth quarter of 2006 noninterest income was
$736,000 compared with $918,000 for the same quarter last year. The lower
noninterest income this quarter was due mainly to a decrease in service
charges on deposits of $94,000 which was because of an increase in earnings
allowance on demand deposits that are on account analysis. In addition, other
income decreased $88,000 in the fourth quarter of 2006 compared to the same
period in 2005.
Noninterest Expense. Salaries and benefits increased by $499,000 to
$3,105,000 for the fourth quarter of 2006 compared to $2,606,000 in the fourth
quarter of 2005. The increase was primarily due to staffing increases in the
business development area. In addition, the fourth quarter of 2006 also
includes approximately $195,000 of stock option expenses recorded in
accordance with SFAS 123R, for which there was no corresponding expense in the
fourth quarter of 2005. Professional services expense increased to $468,000
for the quarter compared to $431,000 recorded in the same period of 2005 due
primarily to the Company's preparation to implement Section 404 of the
Sarbanes-Oxley Act of 2004 as well as complying with the provisions of the
Federal Deposit Insurance Corporation Improvement Act or, FDICIA.
Operating Efficiency Ratio. For the quarter, the operating efficiency
ratio was 30.0% as compared to 35.2% for the same quarter in 2005. The year-
over-year improvement is primarily attributable to the Company's ability to
grow net interest income at a faster pace than noninterest expense.
Earnings per Diluted Share. Due to continued exercising of employees'
stock option and increase in market price of the Company's stock, the average
outstanding diluted shares increased to 7,086,982 from 7,071,423 shares from
the third quarter of 2006. On a sequential quarter basis, net income
increased 9.1% compared to the third quarter of 2006 while the earnings per
diluted share increased 9.3% compared to the same period.
Operating Results for the Full Year 2006
Net income totaled $23.4 million or $3.32 diluted earnings per share for
the year ended December 31, 2006 compared to net income of $16.8 million or
$2.48 per diluted share for the same period last year. This represents an
increase in net income of 38.8% and an increase in diluted earnings per share
of 33.9%.
The increase is primarily due to net interest income which increased by
$14.9 million in 2006 over 2005 levels. Noninterest income decreased from
$3,868,000 in 2005 to $3,028,000 in 2006. This was primarily due to service
charges on deposits which decreased by $637,000 due primarily to a higher
earnings credit rate given to customers on account analysis. In addition, the
Bank realized $195,000 in rental income from other real estate owned in 2005.
Noninterest expense increased $2.4 million to $20.0 million in 2006 from
$17.6 million in 2005. This was primarily due to an increase in salary &
benefits expense of $2.0 million. The increase was primarily due to staffing
increases in the business development area. In addition, 2006 also includes
approximately $752,000 of stock option expenses recorded in accordance with
SFAS 123R, for which there was no corresponding expense in 2005.
Balance Sheet Summary
Total gross loans and leases at December 31, 2006 was $997 million, a
29.4% increase over the $771 million at December 31, 2005. Commercial real
estate loans increased $66.0 million or 17.7%, construction loans increased
$99.4 million or 57.9% and commercial loans increased $52.0 million or 34.8%.
Total deposits as of December 31, 2006 were $1.16 billion, an increase of
19.1% over the $975 million at December 31, 2005. Noninterest-bearing demand
deposits increased by $13.0 million or 6.2%, interest-bearing demand deposits
increased by $21.0 million or 10.4% and time deposits increased by $151.7
million or 27.1%. Total assets were $1.35 billion, an 18.6% increase over the
total of $1.13 billion as of December 31, 2005.
Asset Quality
As of December 31, 2006, total nonaccrual loans were $1.12 million
compared to $0 as of September 30, 2006 and December 31, 2005. Total net
charge-offs were $73,000 or an annualized 0.03% of average loans for the
fourth quarter 2006 and $663,000, or 0.08% of total average loans for the year
ended December 31, 2006. The allowance for loan loss at December 31, 2006 was
$10.2 million or 1.03% of total loans compared to $8.9 million and 1.16%,
respectively at December 31, 2005.
Capitalization
Preferred Bank continues to be "well capitalized" under all regulatory
requirements, with a Tier 1 leverage ratio of 11.50% and a total risk based
capital ratio of 12.33% at December 31, 2006.
Additional Information
The Bank also announced that while it will file with the FDIC a statement
of management's assessment of the effectiveness of its internal control
structure and procedures for financial reporting under Section 36 of the
Federal Deposit Insurance Act as well as an attestation by the Bank's external
auditors of management's assessment for the year ended December 31, 2006,
which report will be available for public inspection at the FDIC, it was
unlikely that it would include with its Annual Report for 2006 on Form 10-K,
expected to be filed with the FDIC in March, management's assessment regarding
internal control over financial reporting or the related attestation report of
the Banks external auditors as required by Section 404 of the Sarbanes Oxley
Act of 2002. The standards for management's assessment and the external
auditor's attestation under Section 36 of the Federal Deposit Insurance Act
differ from those under Section 404 of the Sarbanes Oxley Act. The Bank
deferred the work required for purposes of a Section 404 assessment based upon
its understanding that as a non-accelerated filer as of year end 2005 it had
another year before it was required to comply with this provision. Counsel
has just advised us that based upon clarifying statements issued by the SEC in
December 2006, however, the Bank's understanding must be modified. The Bank
intends to file the 404 assessments as of year end 2006 by amendment to the
Form 10-K as soon as possible.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's
fourth quarter 2006 financial results will be held today, January 24 at 5:00
p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors may
access the conference call by dialing (866) 250-2351 (domestic) or
(303) 262-2211 (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 and CEO Li Yu, Chief Credit Officer Walt
Duchanin and Chief Financial Officer Edward Czajka 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 be available
at 800-405-2236 (domestic) or 303-590-3000 (international) through February 3,
2007; the pass code is 11082352.
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 ten full-service branch banking offices in Alhambra,
Century City, Chino Hills, City of Industry, Torrance, Arcadia, Irvine,
Diamond Bar, Santa Monica and Valencia, 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 2005 Annual Report on Form 10-K filed with the Federal Deposit
Insurance Corporation. 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
Senior Vice President General Information
Chief Financial Officer (310) 854-8313
(213) 891-1188 lglassen@financialrelationsboard.com
Financial Tables to Follow
PREFERRED BANK
Condensed Statements of Income
(unaudited)
(in thousands, except for net income per share and shares)
For the Three Months Ended
December 31, September 30,
2006 2005 2006
Interest income:
Loans, including fees $22,505 $15,104 $20,215
Investment securities 2,412 1,663 2,244
Fed funds sold and securities
purchased under resale
agreements 960 1,040 1,195
Total interest income 25,877 17,807 23,654
Interest expense:
Interest on deposits 9,574 5,051 8,177
FHLB borrowings 187 187 253
Fed funds purchased and
securities sold under
repurchase agreements 42 3 2
Total interest expense 9,803 5,241 8,432
Net interest income 16,074 12,566 15,222
Provision for credit losses 700 450 350
Net interest income after
provision for credit losses 15,374 12,116 14,872
Noninterest income:
Fees & service charges on
deposit accounts 432 526 382
Trade finance income 160 167 177
Other income 144 225 165
736 918 724
Noninterest expense:
Salary and employee benefits 3,105 2,606 3,146
Net occupancy expense 554 583 573
Professional services 468 431 493
Other expense 918 1,122 915
5,045 4,742 5,127
Income before provision
for income taxes 11,065 8,292 10,469
Provision for income taxes 4,431 3,358 4,390
Net income $6,634 $4,934 $6,079
Net income per share - basic $0.97 $0.74 $0.89
Net income per share - diluted $0.94 $0.71 $0.86
Shares used to compute per share
net income:
Basic 6,848,633 6,681,245 6,834,895
Diluted 7,086,982 6,953,753 7,071,423
PREFERRED BANK
Condensed Statements of Income
(unaudited)
(in thousands, except for net income per share and shares)
For The Year Ended
December 31,
2006 2005 % Change
Interest income:
Loans, including fees $77,186 $50,443 53.0
Investment securities 8,699 6,375 36.5
Fed funds sold 4,377 3,264 34.1
Total interest income 90,262 60,082 50.2
Interest expense:
Interest on deposits 30,558 15,574 96.2
FHLB borrowings 808 477 69.4
Fed funds purchased 58 11 n.m.
Total interest expense 31,424 16,062 95.6
Net interest income 58,838 44,020 33.7
Provision for credit losses 1,960 2,110 (7.1)
Net interest income after
provision for credit losses 56,878 41,910 35.7
Noninterest income:
Fees & service charges on
deposit accounts 1,660 2,297 (27.7)
Trade finance income 777 707 9.9
Net other real estate owned income -- 195 (100.0)
Other income 591 669 (11.7)
3,028 3,868 (21.7)
Noninterest expense:
Salary and employee benefits 12,216 10,252 19.2
Net occupancy expense 2,303 2,163 6.5
Professional services 1,948 1,534 27.0
Other expense 3,549 3,622 (2.0)
20,016 17,571 13.9
Income before provision
for income taxes 39,890 28,207 41.4
Provision for income taxes 16,539 11,382 45.3
Net income $23,351 $16,825 38.8
Net income per share - basic $3.44 $2.58 33.3
Net income per share - diluted $3.32 $2.48 33.9
Shares used to compute per share
net income:
Basic 6,796,343 6,521,763 4.2
Diluted 7,037,521 6,797,305 3.5
PREFERRED BANK
Condensed Statements of Financial Condition
(unaudited)
(in thousands)
December 31, December 31,
2006 2005
Assets
Cash and due from banks $26,878 $25,123
Fed funds sold 103,700 158,300
Cash and cash equivalents 130,578 183,423
Investment securities available-for-sale,
at fair value 198,689 162,935
Loans and leases 997,317 771,143
Less allowance for credit losses (10,236) (8,939)
Less net deferred loan fees (1,759) (1,537)
Net loans and leases 985,322 760,667
Customers' liability on acceptances 268 628
Bank premises and equipment, net 1,711 1,835
Bank-owned life insurance (BOLI) 7,896 7,637
Accrued interest receivable and other assets 24,377 19,595
Total assets $1,348,841 $1,136,720
Liabilities and Stockholders' Equity
Liabilities:
Deposits $1,161,344 $975,467
Acceptances outstanding 268 628
Federal Home Loan Bank (FHLB)
borrowings and fed funds purchased 20,000 21,500
Accrued expenses and other liabilities 21,297 15,279
Total liabilities 1,202,909 1,012,874
Stockholders' equity:
Common stock, no par value 69,626 67,411
Additional paid-in-capital 1,534 272
Retained earnings 75,219 57,305
Accumulated other comprehensive loss:
Unrealized loss on securities
available-for-sale, net of tax (447) (1,142)
Total stockholders' equity 145,932 123,846
Total liabilities and stockholders'
equity $1,348,841 $1,136,720
PREFERRED BANK
Selected Financial Information
(unaudited)
(in thousands, except for ratios)
For the Year Ended
December 31, December 31,
2006 2005
Return on average assets 1.98% 1.67%
Return on average equity 17.38% 15.26%
Net interest margin
(non-taxable equivalent) 5.15% 4.54%
Noninterest expense to
average assets 1.51% 1.75%
Efficiency ratio 32.35% 36.69%
Net charge-offs to average loans 0.08% -0.02%
For the Three Months Ended
December 31, December 31, September 30,
2006 2005 2006
For the period:
Return on average assets 2.07% 1.82% 2.02%
Return on average equity 18.39% 16.04% 17.60%
Net interest margin
(non-taxable equivalent) 5.17% 4.81% 5.23%
Noninterest expense to
average assets 1.57% 1.75% 1.71%
Efficiency ratio 30.01% 35.17% 32.15%
Net charge-offs to average
loans (annualized) 0.03% 0.00% 0.03%
Period end:
Tier 1 leverage capital ratio 11.50% 11.63% 11.82%
Tier 1 risk-based capital ratio 11.52% 12.59% 11.71%
Total risk-based capital ratio 12.33% 13.51% 12.52%
Nonperforming assets to
total assets 0.08% 0.00% 0.07%
Nonaccrual loans to total loans 0.11% 0.00% 0.00%
Allowance for loan and lease
losses to total loans 1.03% 1.16% 1.05%
Allowance for loan and lease
losses to nonaccrual loans 913.93% n.m. n.m.
Average Balances:
Total loans and leases $969,877 $764,552 $879,805
Earning assets 1,233,616 1,035,412 1,154,529
Total assets 1,272,501 1,072,917 1,139,355
Total deposits 1,082,129 915,131 1,009,981
PREFERRED BANK
Selected Financial Information
(unaudited)
(in thousands, except for ratios)
December 31, December 31, September 30,
2006 2005 2006
Period End Balances:
Loans and Leases:
Real estate -
multifamily/commercial $438,280 $372,251 $401,423
Real estate - construction 271,021 171,646 236,981
Commercial 201,385 149,428 187,207
Trade finance 86,067 76,700 92,534
Other 564 1,119 826
Total gross loans and leases 997,317 771,144 918,971
Allowance for loan and
lease losses (10,236) (8,939) (9,609)
Net deferred loan fees (1,759) (1,537) (1,993)
Net loans and leases $985,322 $760,668 $907,369
Deposits:
Noninterest-bearing demand $224,982 $211,942 $221,193
Interest-bearing demand
and savings 224,105 202,986 201,102
Total core deposits 449,087 414,928 422,295
Time deposits 712,257 560,539 635,325
Total deposits $1,161,344 $975,467 $1,057,620
SOURCE Preferred Bank
Contact: Edward J. Czajka, Senior Vice President, Chief Financial Officer of Preferred Bank, +1-213-891-1188; or General Information, Lasse Glassen of Financial Relations Board, +1-310-854-8313, lglassen@financialrelationsboard.com, for Preferred Bank