Preferred Bank (PFBC)

Q2 2010 Earnings Conference Call

July 29, 2010, 5:00 PM ET


Lasse Glassen - IR, Financial Relations Board

Li Yu - Chairman, President, CEO

Ed Czajka - EVP, CFO

Louie Couto - Executive Vice President, Acting Chief Credit Officer


Joe Morford - RBC Capital Markets

Aaron Deer - Sandler O'Neill & Partners

Joe Gladue - B. Riley

Joe Stieven - Stieven Capital Advisors

John Deysher - Pinnacle

Don Worthington - Howe Barnes Hoefer & Arnett



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank second quarter 2010 conference call. During today's presentation all participants will be in a listen-only mode.

Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, July 29, 2010, and I would now like to turn the conference over to Lasse Glassen of Financial Relations Board. Please go ahead, sir.

Lasse Glassen

Thank you. Good day, everyone, and thanks for joining us to discuss Preferred Bank's results for the second quarter ended June 30, 2010. With us today from management are Mr. Li Yu, Chairman, President and Chief Executive Officer; Ed Czajka, Chief Financial Officer; and Louie Couto, Acting Chief Credit Officer.

Management will provide a brief summary of the quarter and then we'll open the call up to your questions. During the course of the conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank.

For detailed descriptions of these risks and uncertainties, please refer to the documents the company files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations as set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements.

At this time, I'd now like to turn the call over to Mr. Li Yu. Mr. Yu?

Li Yu

Thank you very much. Thank you for attending our press conference, ladies and gentlemen. For the second quarter of 2010 we lost $3.1 million, which makes the whole year year-to-date break even. Aside from that I have several better news to report.

Number one and the foremost, the most important one is our raising of the $77 million new capital. After expenses we're at more than $73 million to our equity. We are now very comfortably exceeded the capital ratio requirement that was set for onto us by our regulators. Over the long term I will tell you that our capital buffer will even grow bigger.

The next is the improvement of our credit qualities. During the second quarter non-performing loans were reduced 32% on the first quarter and also the [ORU] has improved roughly 5% from the first quarter.

Now if we include the $17 million of sales that was scheduled for June 30 closing but actually slipped into July the improvement will be 31%.

Management has always been very focused upon the past due loans as it is early indication of our credit situation. I'm also pleased to report that as of June 30 past due loans has been reduced to $9 million from the $23 million on March 31.

Of the $9 million, $8 million is related to one relationship, which we have reason to believe that it will be taken care of, paid off mostly in this quarter.

Our next most important goal was obviously working diligently toward the goal of lifting up the consent order that placed onto us by our regulators. Meanwhile our bank maintains the capital with good liquidity, reasonable overhead and a decent net interest margin that will gradually expand along with the improvement of non-performing assets.

We are highly encouraged at this time. Thank you very much. I'm ready for your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Joe Morford - RBC Capital Markets.

Joe Morford - RBC Capital Markets

I guess along those lines I’m wondering if you couldn't speak more broadly to classified trends. Directionally, are they improving as well? You've seen just much new inflow of problems, so is this pretty much just working out the known issues?

Li Yu

Well, one of the -- classified are very highly related to the past dues. They have -- it seems to be a high core relationship and one of the indications is that past due has been down, so that probably is a good indication of classifieds also coming down, which is also, in our opinion, it is.

During the second quarter, during our capital raising process, we have very extensive outside loan review. They're looking to 70% of our total credits in dollar amounts and penetrating into a substantial amount of our performing loans and good quality loans. We have implemented all of the reprimanded correction, substantially all of the recommendations they had.

But we should not to prevent from, A, new event that could happen, which we hope is very little and, B, another body coming in, take a different viewpoint [setting rules].

Joe Morford - RBC Capital Markets

Then I was just curious on the OREO sale that was recently completed this month. Was that a bulk sale of multiple properties or it was just a couple? I think in the end what was the ultimate value realized? Excuse me?

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