LOS ANGELES--(BUSINESS WIRE)--
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, 2009. Preferred Bank reported net income of $337,000 or
$0.03 per diluted share for the quarter compared to net income of $3.4
million or $0.34 per diluted share for the first quarter of 2008 and
compared to a net loss of $5.0 million or $0.51 per diluted share for
the fourth quarter of 2008. Results for the quarter were negatively
impacted by a provision for loan losses of $1.35 million, a provision
for a decline in value of OREO of $2.3 million and a charge of $650,000
for credit-related other than temporary impairment ("OTTI") on
investment securities. Results were positively impacted by a pre-tax
gain on sale of $460,000 on the sale of investment securities. As a
result of the Bank's early adoption of the three new Staff Positions
relative to Statement 157 and the fact that these were released just
last week, Management is still in the process of finalizing its analysis
of the impact of these Staff Positions on the valuation of its
investment securities.
Li Yu, Chairman, President & CEO commented, "I am pleased to report that
our bank earned a small but very precious profit in the first quarter of
2009. Our capital ratios, liquidity ratios, net interest margin and
expense control are all in line with our own expectations. We were,
however disappointed with the increase in non-performing loans (NPL),
and non-performing assets (NPA). The difficult credit market and
distressed economy has caused several of our customers to abandon their
development projects or choose to file for protection under bankruptcy
laws.
"We are however, less pessimistic today than a few months ago with the
following non conclusive but hope-providing indications:
-- More impaired loans are coming out of the foreclosure process or
bankruptcy proceeding making them available to be disposed of in an
orderly manner. There also seems to be more buying interest today than a
few months ago.
-- Case/Schiller and local real estate organizations reported that housing
prices in several markets of Los Angeles County are stabilizing.
-- Our construction loan customers are reporting increased escrow openings
although there continues to be a very slow mortgage credit approval
process.
-- Although we only saw a small decrease in loans that were 30-89 days past
due, the pace of migration into this category slowed during the latter
part of the first quarter.
-- There has been no noticeable deterioration in our commercial &
industrial and our non-construction real estate loan portfolios at this
time.
"Realizing these may just be 'head fakes', we will continue to conduct
our business most prudently. During the ensuing quarters we will be
completely dedicated to reducing our NPA's and NPL's."
Operating Results for the Quarter
Net Interest Income and Net Interest Margin. Net interest income
before provision for loan and lease losses decreased to $9.7 million,
compared to $14.8 million for the first quarter of 2008. The 35.0%
decrease was due primarily to the lower interest rate environment as
well as a significant increase in nonaccrual loans in 2009. The
Company's taxable equivalent net interest margin was 2.88% for the first
quarter of 2009, down from the 4.11% achieved in the first quarter of
2008 and down from the 3.31% for the fourth quarter of 2008.
Noninterest Income. For the first quarter of 2009 noninterest
income was $1,278,000 compared with $782,000 for the same quarter last
year and $2,401,000 for the fourth quarter of 2008. The increase in
noninterest income this quarter compared to the first quarter of 2008
was due mainly to a gain on sale of investment securities of $460,000.
The decrease in noninterest income in the first quarter of 2009 compared
to the fourth quarter of 2008 was due to life insurance proceeds of $1.6
million received in the fourth quarter of 2008 in connection with the
untimely passing of a former Preferred Bank executive.
Noninterest Expense. Total noninterest expense was $9.2
million for the first quarter of 2009, compared to $5.0 million for the
same period in 2008 and $11.9 million for the fourth quarter of 2008.
Salaries and benefits decreased by $510,000 from the first quarter of
2008 due primarily to a decrease in bonus expense which is based on
overall profitability. Occupancy expense increased by $268,000 over the
first quarter of 2008 due to the two new branches opened in the fourth
quarter of 2008 located in Anaheim and Pico Rivera, California, normal
lease expense increases as well as a retroactive increase in operating
expense associated with our headquarters office. Professional services
expense increased by $245,000 due primarily to an increase in legal
costs associated with non-performing loans as well as higher audit fees.
OTTI credit-related charges totaled $650,000 during the first quarter of
2009 and were related to two trust preferred collateralized debt
obligations ("CDO's"), one corporate bond and FHLMC preferred stock.
This compares to $0 in the same period of 2008 and $4.5 million in the
fourth quarter of 2008. The Bank has elected to adopt in the first
quarter of 2009 the three new Staff Positions which clarify the
application of Statement 157 for fair value measurements in the current
economic environment and modify the recognition of
other-than-temporary-impairment of debt securities and require companies
to disclose the fair value of financial instruments. OREO related
expenses totaled $2,945,000 for the first quarter of 2009 compared to
$44,000 in the same period last year and $2,040,000 in the fourth
quarter of 2008. OREO expense in the first quarter of 2009 consisted of
$2.3 million in OREO provision and other OREO related charges of
$645,000. Other expenses were $1,338,000 in the first quarter of 2009,
an increase of $628,000 over the same period in 2008 and an increase of
$118,000 over the fourth quarter of 2008. The variances were due mainly
to loan collection expenses.
Balance Sheet Summary
Total gross loans and leases at March 31, 2009 were $1.19 billion, down
slightly from the $1.23 billion as of December 31, 2008. Commercial real
estate loans were down from $592.7 million as of December 31, 2008 to
$580.6 million at March 31, 2009 while construction loans increased
slightly from $290.8 million at December 31, 2008 to $296.5 million and
commercial & industrial and international loans decreased from $347.7
million at December 31, 2008 to $314.1 million at March 31, 2009.
Total deposits as of March 31, 2009 were $1.205 billion, a decrease of
$52.0 million or 4.1% from the $1.257 billion at December 31, 2008. As
of March 31, 2009 compared to December 31, 2008; noninterest-bearing
demand deposits decreased by $0.8 million or 0.4%, interest-bearing
demand and savings deposits decreased by $17.9 million or 9.4% and time
deposits decreased by $33.3 million or 3.8%. Total assets were $1.44
billion, a $48.2 million or 3.3% decrease from the total of $1.48
billion as of December 31, 2008. Total borrowings increased from $58
million as of December 31, 2008 to $84 million as of March 31, 2009 as
the Bank issued $26.0 million in senior unsecured debt utilizing the
U.S. Treasury's Temporary Liquidity Guarantee Program. The proceeds of
this debt issuance have been used to reduce the Bank's more expensive
deposits. The net loan-to-deposit ratio as of March 31, 2009 was 96.5%
compared to 95.8% as of December 31, 2008.
Asset Quality
As of March 31, 2009 total nonaccrual loans were $85.8 million compared
to $66.6 million as of December 31, 2008 and $36.2 million as of March
31, 2008. Total net charge-offs for the first quarter of 2009 were
$268,000 compared to $2.9 million for the fourth quarter of 2008. 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 $1.35 million as compared to $14.6 million in the
fourth quarter of 2008 and $5.1 million for the first quarter of 2008.
The allowance for loan loss at March 31, 2009 was $28.0 million or 2.35%
of total loans compared to $26.9 million or 2.19% of total loans at
December 31, 2008 and compared to $20.0 million and 1.62%, respectively
at March 31, 2008.
Non accrual loans as of March 31, 2009 and December 31, 2008 were
comprised of the following:
Loan Type March 31, 2009 December 31, 2008
# $ # $
Commercial & Industrial 6 $ 7,233,000 4 $ 6,337,000
Commercial Real Estate 5 10,916,000 7 14,289,000
Construction-Commercial 1 3,961,000 1 3,961,000
Construction-For-Sale Housing 6 37,337,000 5 27,251,000
Land-residential 3 17,229,000 3 14,750,000
Land-commercial 3 9,156,000 - -
Total 24 $ 85,832,000 20 $ 66,588,000
Loans Past Due 30-89 Days
Loans 30-89 days past due at March 31,2009 were $49.7 million which was
a slight decrease from the total of $51.4 million as of December 31,
2008. Although the Bank anticipated a significant reduction in this
category of past due loans from the December 31, 2008 levels, a number
of loan extensions and renewals could not be completed in time prior to
March 31, 2009. Since March 31, 2009, approximately $17 million of loans
that were 30-89 days past due as of March 31, 2009 have been renewed or
extended to date. The Bank expects another $15 - $20 million of loans in
this category to be resolved in the next three weeks.
For-Sale Housing Loan Exposure
Below is a summary of the change in our for-sale construction and
residential land loans during the quarter:
(In thousands) 3-31-09 12-31-08 $ Change % Change
Construction:
Attached $ 138,241 $ 149,535 $ (11,294 ) (7.6 %)
Detached 38,257 41,538 (3,281 ) (7.9 %)
Total 176,498 191,073 (14,575 ) (15.5 %)
Land Zoned For
Residential Use 69,102 74,816 (5,714 ) (7.6 %)
Total $ 245,600 $ 265,889 $ (20,289 ) (7.6 %)
Real Estate Owned
Total OREO increased to $43.0 million as of December 31, 2008 compared
to $35.1 million as of December 31, 2008.
The foreclosed properties include:
-- A construction project in Oakland, California for which the Bank is
attempting to rezone part of the project to higher density in an effort
to enhance the property value. The carrying amount of $7.9 is based upon
the appraised "as-is" value as of September 2008.
-- A $12.2 million partially completed condo/apartment project in the
Westside of Los Angeles. We are currently negotiating potential sales
agreements with three different parties. The last appraisal was
concluded on October 23, 2008 and indicated a value of $15.47 million.
-- A $1.8 million residential tract land property in Carson City, Nevada
which represents a 23.08% ownership interest in this property. The Bank
was a participant in the loan.
-- A $5.7 million freeway adjacent commercial zoned land in Beaumont,
California which represents a 50% ownership interest in this property.
Carrying cost is 72% of appraisal value based on an appraisal completed
on December 30, 2008. The Bank was a participant in the loan.
-- A $7.5 million freeway adjacent residential zoned land in Beaumont,
California which represents a 50% ownership interest in this property.
Carrying cost is 63% of appraisal value based on an appraisal completed
on December 30, 2008. The Bank was a participant in the loan.
-- A $2.7 million commercial business located in Corona, California. An
appraisal completed on August 23, 2008 indicates a value of $2.8
million.
-- Seven residential land projects in various areas in California and
Arizona with a carrying cost of $5.2 million. An appraisal completed in
March 2009 indicates a value of $5.35 million.
Capitalization
Preferred Bank continues to be "well capitalized" under all regulatory
requirements, with a Tier 1 risk-based capital ratio of 10.56%, a total
risk-based capital ratio of 11.82% a tangible common equity ("TCE")
ratio of 9.40% at March 31, 2009. The TCE ratio was negatively impacted
by the $7.4 million unrealized loss on securities available-for sale net
of tax as of March 31, 2009. The primary reason for this decline was due
to the decline in fair market value of the Bank's portfolio of $29.9
million in corporate securities of which 97% are investment grade. All
of the investment-grade securities are in corporate names that are sound
financially so we expect for these values to recover and thus increase
the Bank's TCE ratio.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's
first quarter 2009 financial results will be held today, April 17, at
5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and
investors may access the conference call by dialing (800) 218-0713
(domestic) or (303) 262-2130 (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 Credit Officer
Robert Kosof 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 April 24, 2009; the pass code is 11130393.
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
2007 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.
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income (loss) per share and shares)
For the Three Months Ended
March 31, December 31, March 31,
2009 2008 2008
Interest income:
Loans, including fees $ 15,161 $ 17,040 $ 21,972
Investment securities 1,733 1,610 3,304
Fed funds sold 32 39 12
Total interest income 16,926 18,689 25,288
Interest expense:
Interest-bearing demand $ 227 255 438
Savings 217 252 554
Time certificates of $100,000 or more 3,783 3,504 6,784
Other time certificates 2,316 2,878 1,630
Fed funds purchased 0 8 248
FHLB borrowings 578 632 793
Senior debt 101 -
Total interest expense $ 7,222 7,529 10,447
Net interest income 9,704 11,160 14,841
Provision for loan losses 1,350 14,600 5,080
Net interest income (loss) after 8,354 (3,440 ) 9,761
provision for loan losses
Noninterest income:
Fees & service charges on deposit 549 467 457
accounts
Trade finance income 125 111 141
BOLI income 78 92 88
Net gain on sale of investment 460 - -
securities
Other income 66 1,731 96
Total noninterest income 1,278 2,401 782
Noninterest expense:
Salary and employee benefits 2,128 2,060 2,638
Net occupancy expense 860 656 592
Business development and promotion 46 196 96
expense
Professional services 877 921 632
Office supplies and equipment expense 317 361 294
Total other-than-temporary impairment 3,304 4,472 -
losses
Portion of loss recognized in other (2,654 ) - -
comprehensive income
Other real estate owned related 2,945 2,040 44
expense
Other 1,338 1,219 709
Total noninterest expense 9,161 11,924 5,005
Income (loss) before provision for 471 (12,963 ) 5,538
income taxes
Provision (benefit) for income taxes 134 $ (7,956 ) 2,160
Net income (loss) $ 337 (5,007 ) $ 3,378
Net income (loss) per share - basic $ 0.03 $ (0.51 ) $ 0.34
Net income (loss) per share - diluted $ 0.03 $ (0.51 ) $ 0.34
Weighted-average common shares
outstanding
Basic 9,791,507 9,755,207 9,791,507
Diluted 9,794,271 9,763,960 9,794,271
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
March 31, December 31,
2009 2008
Assets
Cash and due from banks $ 20,641 $ 19,386
Fed funds sold 62,000 50,200
Cash and cash equivalents 82,641 69,586
- -
Securities available-for-sale, at fair value 90,963 104,406
Loans and leases 1,191,310 1,231,232
Less allowance for loan and lease losses (28,017 ) (26,935 )
Less net deferred loan fees (22 ) (167 )
Net loans and leases 1,163,271 1,204,130
Other real estate owned 43,032 35,127
Customers' liability on acceptances - 786
Bank furniture and fixtures, net 7,129 7,157
Bank-owned life insurance 7,118 8,454
Accrued interest receivable 6,905 7,807
Federal Home Loan Bank stock 4,996 4,996
Deferred tax assets 27,692 25,903
Other asset 2,951 14,879
Total assets $ 1,436,698 $ 1,483,231
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 195,564 $ 196,408
Interest-bearing demand 121,665 126,251
Savings 49,614 62,883
Time certificates of $100,000 or more 467,453 464,085
Other time certificates 370,989 407,696
Total deposits $ 1,205,285 $ 1,257,323
Acceptances outstanding - 786
Advances from Federal Home Loan Bank 58,000 58,000
Senior debt issuance 25,996 -
Fed funds purchased - -
Accrued interest payable 4,664 5,446
Other liabilities 7,731 24,185
Total liabilities 1,301,676 1,345,740
Commitments and contingencies
Shareholders' equity:
Preferred stock. Authorized 5,000,000 shares; no
share issued and outstanding at March 31, 2009 and -- --
December 31, 2008
Common stock, no par value. Authorized 100,000,000
shares; issued and outstanding 9,854,207 and 72,009 72,009
9,755,207 shares at March 31, 2009, December 31,
2008, respectively
Treasury stock (19,115 ) (19,115 )
Additional paid-in-capital 5,022 4,582
Retained earnings 84,552 84,996
Accumulated other comprehensive loss:
Unrealized loss on securities available-for-sale, (7,446 ) (4,981 )
net of tax
Total stockholders' equity 135,022 137,491
Total liabilities and stockholders' equity $ 1,436,698 $ 1,483,231
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Three Months Ended
March 31, December 31, September 30, March 31,
2009 2008 2008 2008
For the period:
Return on average 0.09 % -1.38 % -0.90 % 0.89 %
assets
Return on average 0.99 % -13.70 % -9.22 % 8.77 %
equity
Net interest margin
(Fully-taxable 2.88 % 3.31 % 3.40 % 4.11 %
equivalent)
Noninterest expense to 2.50 % 3.28 % 1.89 % * 1.31 %
average assets
Efficiency ratio 83.41 % 87.93 % 55.80 % ** 32.04 %
Net charge-offs to
average loans 0.09 % 0.95 % 2.78 % 0.00 %
(annualized)
Period end:
Tier 1 leverage 9.51 % 9.76 % 10.01 % 9.84 %
capital ratio
Tier 1 risk-based 10.56 % 10.39 % 11.17 % 10.53 %
capital ratio
Total risk-based 11.82 % 11.65 % 12.30 % 11.93 %
capital ratio
Nonperforming assets 8.99 % 6.87 % 6.10 % 2.88 %
to total assets
Nonaccrual loans to 7.20 % 5.41 % 5.17 % 2.95 %
total loans
Allowance for loan and
lease losses to total 2.35 % 2.19 % 1.27 % 1.62 %
loans
Allowance for loan and
lease losses to 32.53 % 40.33 % 24.65 % 55.12 %
nonaccrual loans
Average balances:
Total loans and leases $ 1,224,181 $ 1,225,986 $ 1,201,270 $ 1,218,485
Earning assets $ 1,397,648 1,367,862 1,431,265 1,478,608
Total assets $ 1,488,142 1,447,892 1,495,939 1,531,723
Total deposits $ 1,257,410 1,205,901 1,255,020 1,251,993
Period end:
Loans and Leases:
Real estate - $ 580,648 $ 592,697 $ 538,779 $ 543,767
multifamily/commercial
Real estate - 296,515 290,803 333,473 350,426
construction
Commercial and 244,986 273,890 245,223 253,852
industrial
Trade finance 68,814 73,205 78,553 81,592
Other 347 637 549 503
Total gross loans and 1,191,310 1,231,232 1,196,577 1,230,140
leases
Allowance for loan and (28,017 ) (26,935 ) (15,240 ) (19,976 )
lease losses
Net deferred loan fees (22 ) (167 ) (55 ) (1,154 )
Net loans and leases $ 1,163,271 $ 1,204,130 $ 1,181,282 $ 1,209,010
Deposits:
Noninterest-bearing $ 195,564 $ 196,408 $ 197,831 $ 213,301
demand
Interest-bearing 171,279 189,134 191,114 230,403
demand and savings
Total core deposits 366,843 385,542 388,945 443,704
Time deposits 838,442 871,781 836,660 821,256
Total deposits $ 1,205,285 $ 1,257,323 $ 1,225,605 $ 1,264,960
* Excluding OTTI charge on the FHLMC preferred stock
** Excluding OTTI charge on the FHLMC preferred stock and OREO write down
Source: Preferred Bank
Contact: AT THE COMPANY:
Edward J. Czajka
Executive Vice President
Chief Financial Officer
(213) 891-1188
or
AT FINANCIAL RELATIONS BOARD:
Lasse Glassen
General Information
(213) 486-6546
lglassen@financialrelationsboard.com