Preferred Bank CEO Discusses Q4 2010 Results - Earnings Call Transcript

Preferred Bank ( PFBC)

Q4 2010 Earnings Call

January 31 2011 5:00 p.m. ET


Lasse Glassen - IR, Financial Relations Board

Li Yu - Chairman, President & CEO

Ed Czajka - CFO

Louie Couto - EVP


Aaron Deer - Sandler O’Neill & Partners

Joe Morford - RBC Capital Markets

Joe Gladue - B. Riley

Julianna Balicka - KBW

Michael Howard - AllianceBernstein

John Deysher – Pinnacle



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Preferred Bank fourth 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, Monday, January 31, 2011. 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 preliminary results for the fourth quarter ending December 31, 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 will answer 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 a detailed description 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 fourth quarter of 2010, we recorded a $10.4 million dollars of loss. Major items in the fourth quarter are $12 million of credit cards, roughly $1 million in sales of loan losses, $.7 million of sales securities losses, and $1 million plus of reversal of interest income that was previously recorded. During the quarter we've had reasonable progress in the area of troubled assets that will begin liquidation process, and we sold, corrected, and charged of a total of about roughly $40 million in non-performing loans and non-performing assets. However, in the quarter we provided $57 million of new non-accrual on the book, $17 million of which the loans were found to be interest non-current. And at the year end, we decided to put nearly $40 million payment-current loans as non-accrual The press release describes these loans in detail. To the extent any of these loans, if not all of these loans will become good loans at the end. The effect will be deferring current day income, interest reversal at the later date of the conclusion of the loan. We are working diligently to see to bring the conclusion date as early as possible. These are the major items for the quarter, and I'd like to open the question-and-answer period.

Question-and-Answer Session


Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator instructions) And our first question is from the line of Aaron Deer with Sandler O’Neill & Partners

Aaron Deer - Sandler O’Neill & Partners

Hi, good afternoon guys.

Unidentified Executives

Hi there.

Aaron Deer of Sandler O'Neill & Partners

I guess I was disappointed to see the new NPA enclosed, but I do appreciate that you put the color behind those in the release, and I guess that gives me some comfort that the loss content there is little if any, but Louie maybe if you can talk a little bit about what you saw on the portfolio that was existing as of 9:30 and maybe why we didn't see more improvement there. And can you talk about what percentage of loans, and I guess OREO as well, that might be situations where you're not the lead bank and you're waiting on the lead bank to correct the credits.

Louie Couto

No, thank you question, I'll be happy to. During the quarter, we're looking at various underlying credit fundamentals on the loans, payment performances, obviously updated appraisals, We did not see, and if you see it on our delinquencies, we did not see a change in the actual underlying performance of the credit different at year end than it was as of 9:30. From a payment performance, I think there was, again, just a more abundance of caution, a more conservative approach on the reporting or the classification of this credit, not necessarily the underlying credit fundamentals of the loans. I think it was astute of you to point out that when you were reading through them, you didn't necessarily see the loss exposure content, because, again, that is another element I think when you look at the provision we took that it was not a significant change from that standpoint.

As far as getting to the participation, we've worked through, as we've disclosed in the past, a substantial percentage of our NPAs and charge-offs, especially in 09 to a lesser extend in 2010 as a result of participations purchased. Currently, we have about $110.7 million of participations purchased left in the balance sheet. Of that, $69.8 is shared national credit related, 40.9 is non-SNC related. Of that 100.7, we have 21.2, which is on non-accrual at this time, and 7.8 of that is shared national credit related, and 13.4 is non-shared national credit related. In terms of ORE, I don't have the exact numbers in front of me, but it's roughly 25% of our ORE is still where we are not the lead. However, we are working very collaboratively with those lead institutions in order to ensure the most timely as possible and efficient disposition of those properties.

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