Preferred Bank Reports Preliminary Second Quarter Results

LOS ANGELES, July 20, 2011 /PRNewswire/ -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported results for the quarter ended June 30, 2011. Preferred Bank ("the Bank") reported net income of $1.7 million or $0.13 per diluted share for the second quarter of 2011 compared to a net loss of $3.1 million or $1.03 per diluted share for the second quarter of 2010 and compared to net income of $699,000 or $0.05 per diluted share for the first quarter of 2011. All share and per share information has been adjusted to reflect the one-for-five reverse stock split which was effected on June 17, 2011.

• Highlights from the quarter include:
  • Reduction of NPA's of $35.7 million; NPA's are now down to $105.4 million or 8.6% of total assets (excluding loans held for sale)
  • A majority of nonaccrual loans remain current
  • Loans 30-89 days past due reduced to $302,000
  • Results for the quarter include a $1.8 million provision for loan loss and a $0.9 million valuation allowance charge on OREO

Li Yu, Chairman, President and CEO commented, "The second quarter of 2011 was a productive quarter for us. Despite still-elevated credit costs, net income increased to $1.7 million, a 149% improvement over the first quarter of 2011. Credit costs include a $1.8 million provision for loan loss and $0.9 million in valuation charges on OREO. During the quarter, we also benefitted from a loan recovery of $695,000, the majority of which is from the sale of a nonaccrual loan above the carrying value.

"We continue to show improvement in overhead control as well as stabilization in our net interest margin. Core deposits increased and we are very encouraged by our loan origination volume and pipeline.

"Our ongoing efforts in liquidating nonperforming assets continues to show positive results. The remaining loss content in our nonaccrual loans and OREO should be relatively insignificant as recent appraisals on the collateral of these assets have been very stable.

"Although macroeconomic indicators have exhibited some recent weakness, we believe that the Southern California economy is relatively stable as evidenced by our extremely low levels of loans 30-89 days past due and our continued ability to liquidate NPA's at or near current carrying values. Our outlook for the remainder of 2011 is quite positive."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $10.3 million from the $9.1 million recorded in the second quarter of 2010 and a slight decrease from $10.6 million for the first quarter of 2011.  The Bank's taxable equivalent net interest margin was 3.57% for the second quarter of 2011, an increase from the 3.01% achieved in the second quarter of 2010 and a slight decrease from the 3.73% for the first quarter of 2011. The first quarter of 2011 was positively impacted by a $261,000 interest recovery on a nonaccrual loan that fully repaid.

Noninterest Income. For the second quarter of 2011, noninterest income was $628,000 compared with $666,000 for the same quarter last year and compared to $752,000 for the first quarter of 2011. The second quarter of 2011 included a loss on sale of investment securities of $13,000 while the second quarter of 2010 included a gain on sale of securities of $97,000. Service charges on deposits decreased by $24,000 for the second quarter of 2011 compared to the same period in 2010 and was up $13,000 when compared to the first quarter of 2011.

Noninterest Expense. Total noninterest expense was $7.5 million for the second quarter of 2011, compared to $12.8 million for the same period in 2010 and $10.3 million for the first quarter of 2011.  Salaries and benefits expense increased by $301,000 over the second quarter of 2010 and decreased by $424,000 compared to the first quarter of 2011. The increase over the same period in 2010 was due primarily to an increase in business development staffing levels and the decrease from the first quarter of 2011 was due primarily to an increase in capitalized loan origination costs as origination activity increased. Occupancy expense decreased to $778,000 from the $814,000 recorded in the same period in 2010 and increased compared to the $759,000 for the first quarter of 2011. Professional services expense decreased to $517,000 compared to $886,000 for the second quarter of 2010 and up from the $444,000 posted in the first quarter of 2011. The variance compared to 2010 was due primarily to a decrease in legal costs associated with OREO and nonperforming loans as those assets decreased. Credit-related other-than-temporary-impairment charges were $0 for the second quarter of 2011 compared to $0 for the same period last year and $32,000 in the first quarter of 2011. OREO-related expenses totaled $1.6 million for the second quarter of 2011 (consisting of $898,000 in valuation charges, a loss on sale of OREO of $60,000 and $615,000 in OREO operating expenses) and this represented a decrease of $4.1 million compared to the second quarter of 2010 and a decrease of $2.3 million from the $3.9 million in OREO expense posted in the first quarter of 2011. Other expenses were $1.7 million in the second quarter of 2011, a decrease of $1.1 million from the same period in 2010 and a decrease of $235,000 from the first quarter of 2011.  The decrease compared to both periods mainly resulted from a decrease in loan collection costs and a decrease in FDIC premiums.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at June 30, 2011 were $894.8 million, down from $915.4 million as of December 31, 2010.  Comparing balances as of June 30, 2011 to December 31, 2010: Residential real estate loans decreased from $139.5 million to $113.2 million; total land loans increased slightly from $44.7 million to $45.0 million; commercial real estate loans increased from $347.5 million to $397.9 million; for-sale housing construction loans decreased from $90.2 million to $74.8 million; other construction loans increased from $33.2 million to $36.4 million and total commercial loans decreased from $260.4 million to $227.6 million.

Total deposits as of June 30, 2011 were $1.05 billion, a decrease of $31.5 million from the $1.08 billion at December 31, 2010. As of June 30, 2011 compared to December 31, 2010;  noninterest-bearing demand deposits increased by $22.0 million or 9.9%, interest-bearing demand and savings deposits increased by $17.4 million or 11.1% and time deposits decreased by $71.0 million or 10.1%.  Total borrowings were unchanged. Total assets were $1.23 billion, a $26.7 million or 2.1% decrease from the total of $1.26 billion as of December 31, 2010. The Bank's loan-to-deposit ratio as of June 30, 2011 was 85.2% compared to 84.7% as of December 31, 2010.

Asset Quality

As of June 30, 2011 total nonaccrual loans were $64.3 million (excluding loans held for sale) compared to $99.3 million as of December 31, 2010 and total loans 90 days past due and still accruing were $0 compared to $7,000 as of December 31, 2010. Total net charge-offs for the second quarter of 2011 were $4.2 million compared to net charge-offs of $4.1 million for the first quarter of 2011. 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 $1.8 million for the second quarter of 2011 compared to $0 in the first quarter of 2011 and $0 in the second quarter of 2010. The allowance for loan loss at June 30, 2011 was $26.4 million or 3.02% of total loans compared to $32.9 million or 3.60% of total loans at December 31, 2010.

NPA Migration

The table above excludes loans held for sale and includes TDR's that are on nonaccrual status. Performing TDR's totaled $9.8 million as of June 30, 2011. The $20.5 million in loans held for sale are on non accrual status however, $17.9 million of that total is under contract to be sold and scheduled to close in the third quarter of 2011.

Loans Past Due 30-89 Days

Loans 30-89 days past due at June 30, 2011 were $302,000 compared to $5.5 million at December 31, 2010.

Real Estate Owned

Total OREO decreased to $41.1 million compared to $52.7 million as of December 31, 2010. During the second quarter of 2011, the Bank sold two OREO properties with a book value of $3.1 million and recorded a loss on sale of $60,000.

Capitalization

As of June 30, 2011, the Bank's tier 1 leverage ratio was 12.28% and total risk-based capital ratio was 15.53%. This compares to 11.16% and 15.02% as of December 31, 2010, respectively. Pursuant to the Consent Order entered into on March 22, 2010, the Bank is required to maintain the following capital ratios:

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's second quarter 2011 financial results will be held today, July 20, 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 480-629-9645 (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 Executive Vice President 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 July 27, 2011; the pass code is 4458043.

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 2010 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank's website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements.  For additional information about Preferred Bank, please visit the Bank's website at www.preferredbank.com.

SOURCE Preferred Bank

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