Preferred Bank ( PFBC)

Q3 2010 Earnings Call

October 28, 2010 05:00 pm ET


Lasse Glassen - IR, Financial Relations Board

Li Yu - Chairman, President & CEO

Ed Czajka - CFO

Louie Couto - EVP


Joe Gladue - B. Riley

Aaron Deer - Sandler O’Neill & Partners

Joe Morford - RBC Capital Markets

Julianna Balicka - KBW

John Deysher - Pinnacle



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank third 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, October 28, 2010. And at this time, I would now like to turn the conference over to Lasse Glassen with 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 third quarter ended September 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, Executive Vice President.

Management will provide a brief summary of the quarter and then we’ll open the call up to your questions. During the course of this 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 that company files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialized 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 would now like to turn the call over to Mr. Li Yu. Mr. Yu?

Li Yu

Good afternoon. For the third quarter 2010, we reported a gigantic amount of losses. However of which $25.5 million really is not a loss by our own definition. It is related to the conversion of preferred stock into a common stock with the conversion rate is difference between conversion, price and the market value. The difference is treated as dividends to the preferred stock shareholders and therefore created a loss to the common shares.

It did not change the total capital amount that we raised. It did not change the capital ratio, it did not change PCE and it is not operating loss nor it is a cash flow item, having said that the remaining amount is relating to operations. And I state in the press release in the third quarter we have received a Shared National Credit report and in that there are many items that we previously was identified as impaired loan and classified loan was further downgraded to non-accrual and also that required reserve was recommended to be increased and recommended to be written off. And we still do accordingly according to this recommendation of the report.

Although that as I also said many of the loans are currently [still] current and in our humble opinion our visibility in this time that we probably collect all interest and principal at maturity, but having said that we are making this reserve. Now the third quarter has been a very, very disappointing quarter for me personally because I was really thinking about we have a whole lot of loans being resolved or being solved or being correct, okay and that are (inaudible) it has a number of different things as quarter for the negotiation table and resolved only a limited amount of improvement of the PMA even though its roughly 20 some remaining dollars we put to over 14% of the inferior amount.

We were thinking lot bigger amount. However, the 14% improvement also taking into consideration about $17 million that was recommended to be non-accrual for the quarter. But having said that our product ways is continuing and stay on target as we internally measuring it and also that we hope with every dollar of the improvement in non-performing assets will be corresponding improvement in net interest margin, and also the operating cost of the bank.

So with that I am opening up for questions you may have.

Question-and-Answer Session


Thank you, sir and ladies and gentlemen we will begin the question and answer session at this time. (Operator Instructions). Our first question comes from the line of Joe Gladue with B. Riley. Please go ahead.

Joe Gladue - B. Riley

Let me start with I guess non-performers, can you give us what the balance of TDRs were may be you break it out between both accruing and non-accruing?

Ed Czajka

One of the things, we will give you the number rather away but our TDRs are accruing. If it is non-accruing what have been the improvement of non-performing category. Lu Yi you want to answer the question.

Lu Yi

Yes. At this point we have about $29.8 million in TDRs that are accruing are non-accrual loans actually it’s about 50% or actually not 90 days past due of that actual non-accruals either because they either been restructured or because of the customer continues to pay under the original terms.

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