Preferred Bank Reports Preliminary First Quarter Results

LOS ANGELES, April 17, 2013 (GLOBE NEWSWIRE) -- Preferred Bank (Nasdaq:PFBC), an independent commercial bank focusing on the Chinese-American and diversified California mainstream market, today reported preliminary results for the quarter ended March 31, 2013. Preferred Bank ("the Bank") reported net income of $4.0 million or $0.30 per diluted share for the first quarter of 2013.  This compares to net income of $21.7 million or $1.62 per diluted share for the first quarter of 2012 and compares to net income of $4.9 million or $0.37 per diluted share for the fourth quarter of 2012.  Net income for the first quarter of 2012 was aided by the $19.8 million reversal of the Bank's valuation allowance on its deferred tax asset ("DTA") and earnings for the fourth quarter of 2012 were aided by a small reversal of certain tax items which increased net income by $416,000 for that quarter.  Pre-tax income on a year over year basis increased from $3.0 million in the first quarter of 2012 to $6.7 million in the first quarter of 2013, an increase of 126%.  Pre-tax income on a sequential quarter basis increased by $2.2 million or 48.5%.
  • Highlights from the first quarter of 2013 include:
  • Linked quarter loan growth of $41.1 million or 3.6%  
  • OREO declined by $8.4 million or 29.7% from December 31, 2012  
  • Nonperforming loans excluding loans held for sale declined by $2.4 million or 12.6% from December 31, 2012  
  • Net interest margin expanded from 3.91% to 4.03% linked quarter  
  • Linked quarter deposit growth of $26.5 million or 2.0%

Li Yu, Chairman and CEO commented, "We are very pleased to report that for the first quarter of 2013, the Bank earned $4.0 million or $0.30 per diluted share, a marked improvement from the same quarter last year after stripping out the DTA allowance reversal in that period. Operating results were better than we previously expected." 

"Loan totals continued to grow at a healthy annualized pace of 14.7% for the quarter which was achieved despite substantial payoffs during the quarter. Our total deposits also increased by 7.8% on an annualized basis from year end 2012. We must point out that we voluntarily reduced approximately $60 million of DDA deposits which would have required government securities as collateral, as a result of the termination of the Transaction Account Guarantee ("TAG") program effective on January 1, 2013."

"For the quarter, we were able to maintain our net interest margin in the midst of downward loan pricing pressure. With continued deployment of idle cash and a slight decrease in our cost of funds, our actual margin was 4.03% for the quarter, or 12 basis points higher than the previous quarter."

"Asset quality continues to improve. As of March 31, 2013, OREO totaled $19.9 million or nearly 1/3 less than our total at December 31, 2012. Total nonaccrual loans, excluding loans held for sale amounted to $16.6 million as of March 31, 2013, a $2.4 million or a 12.6% reduction from December 31, 2012."

"We look forward to further improvements in our operations in the ensuing quarters."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $14.7 million from the $13.0 million recorded in the first quarter of 2012 and an increase from $14.2 million for the fourth quarter of 2012. The increase over 2012 is due primarily to the loan growth achieved during the latter part of 2012 and the first quarter of 2013. The Bank's taxable equivalent net interest margin was 4.03% for the first quarter of 2013, a 3 basis point decrease from the 4.06% achieved in the first quarter of 2012 but was a 12 basis point increase from the 3.91% recorded in the fourth quarter of 2012.    

Noninterest Income. For the first quarter of 2013, noninterest income was $858,000 compared with $618,000 for the same quarter last year and compared to $749,000 for the fourth quarter of 2012.  Driving this increase were service charges on deposits and trade finance income, which both increased in the first quarter of 2012 compared to the first quarter of 2012 and compared to the fourth quarter of 2012.

Noninterest Expense.Total noninterest expense was $8.8 million for the first quarter of 2013, compared to $8.9 million for the same period last year and $8.2 million for the fourth quarter of 2012. Salaries and benefits expense increased by $811,000 over the first quarter of 2012 and by $957,000 over the fourth quarter of 2012. The increase over the first quarter of 2012 was due to higher bonus expense as well as higher staffing levels and the increase over the fourth quarter of 2012 was primarily due to an increase in bonus and stock option expense.  Occupancy expense was $768,000 compared to the $752,000 recorded in the same period in 2012 and $753,000 recorded in the fourth quarter of 2012. Professional services expense was $889,000 for the first quarter of 2013 compared to $590,000 for the same quarter of 2012 and the $1.0 million posted in the fourth quarter of 2012.  The increase over the first quarter of 2012 was due primarily to an increase in legal fees and other consulting fees. OREO-related expenses totaled $1.4 million for the first quarter of 2013 (consisting of $1.6 million in valuation charges, operating expenses of $69,000 partially offset by net gains on sale of OREO of $297,000). This represented a decrease from the $2.0 million recorded in the same quarter last year and a decrease from the $1.7 million posted in the fourth quarter of 2012.  Other expenses were $1.1 million in the first quarter of 2013, a decrease of $565,000 from the same period in 2012 but an increase of $140,000 over the fourth quarter of 2012. The variance compared to the same period last year was primarily due to a decrease in FDIC premiums of  $295,000.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at March 31, 2013 were $1.17 billion, up from $1.13 million as of December 31, 2012. Comparing balances as of March 31, 2013 to December 31, 2012 excluding loans held for sale: Residential real estate loans increased from $152.4 million to $156.6 million; total land loans decreased from $27.2 million to $24.7 million; commercial real estate loans increased from $493.1 million to $502.6 million; for-sale housing construction loans decreased from $36.3 million to $31.3 million; other construction loans increased from $38.1 million to $39.4 million and total commercial loans increased from $372.5 million to $402.5 million.

Total deposits as of March 31, 2013 were $1.38 billion, an increase of $26.5 million from the $1.36 billion at December 31, 2012 and a significant increase over the total of $1.18 billion as of March 31, 2012.  In the early part of January, the Bank elected to reduce DDA deposits by approximately $60 million which would have required collateral of government securities to maintain. As of March 31, 2013 compared to December 31, 2012; noninterest-bearing demand deposits decreased by $37.5 million or 8.4%, interest-bearing demand and savings deposits increased by $12.6 million or 3.6% and time deposits increased by $51.3 million or 9.1%.    Total assets were $1.59 billion, a $32.2 million or 2.1% increase from the total of $1.55 billion as of December 31, 2012.

Asset Quality

As of March 31, 2013 total nonaccrual loans (excluding loans held for sale) decreased to $16.6 million compared to $19.0 million as of December 31, 2012.  Total net charge-offs for the first quarter of 2013 were $373,000 compared to net charge-offs of $3.3 million for the fourth quarter of 2012.  Included in the net charge-offs for the first quarter of 2013 were total recoveries of $2.1 million, $2.0 million being from one loan. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank did not record a provision for loan losses for the first quarter of 2013. This compares to a provision of $1.8 million in the first quarter of 2012 and a provision of $2.3 million in the fourth quarter of 2012.  The allowance for loan loss at March 31, 2013 was $20.2 million or 1.75% of total loans compared to $20.6 million or 1.84% of total loans at December 31, 2012.

NPA Migration

Non-Performing Assets Migration  – Q1 2013
    Non Accrual Loans   OREO
Balance,  December 31, 2012 $ 18,995 $ 28,280
Additions 2,240 --
Transfer to OREO -- --
Loans Cured -- --
Sales/Payoffs (2,131) (6,815)
Charge-off (2,496) (1,591)
Balance,  March 31, 2013 $   16,608 $ 19,874

The table above excludes loans held for sale and excludes TDRs that are on accrual status.  Performing TDRs totaled $725,000 as of March 31, 2013.  The $15.7 million in loans held for sale consist of one performing CRE loan for $5.0 million and two nonaccrual loans for $10.7 million. Of the $10.7 million on nonaccrual, $7.1 million is paying as agreed.

Real Estate Owned

Total OREO decreased to $19.9 million compared to $28.3 million as of December 31, 2012.  During the first quarter of 2013, the Bank sold four OREO properties with an aggregate book value of $6.8 million.

Asset Quality Table – March 31, 2013
($ in thousands) 30-89 Days Nonaccrual OREO
  # $ # $ # $
Land-Residential -- $   -- -- $      -- 9 $ 12,419
Land Commercial -- -- -- -- 1 2,251
Construction:            
 Residential -- -- 1 5,601 1 3,051
  Commercial -- -- -- -- -- --
RE-Housing for sale -- -- -- -- -- --
CRE-Commercial -- -- 2 2,379 1 2,153
C&I/Trade Finance 1 121 11 8,628 -- --
 Totals 1 $  121 14 $  16,608 12 $ 19,874

Asset Quality Table – December 31, 2012
($ in thousands) 30-89 Days Nonaccrual OREO
  # $ # $ # $
Land-Residential -- $ -- -- $     -- 11 $ 15,128
Land Commercial -- -- -- -- 3 7,828
Construction:            
 Residential 1 5,400 1 5,544 1 3,051
 Commercial -- -- -- -- -- --
RE-Housing for sale -- -- 1 727 -- --
CRE-Commercial 2 5,382 2 1,265 1 2,273
C&I/Trade Finance 2 376 10 11,459 -- --
 Totals 5 $ 11,158 14 $  18,995 16 $ 28,280

Capitalization

As of March 31, 2013, the Bank's tier 1 leverage ratio was 11.99% and total risk-based capital ratio was 14.89%. This compares to 11.96% and 14.98% as of December 31, 2012, respectively.  Pursuant to the Memorandum of Understanding (MOU) entered into on May 25, 2012, the Bank is required to maintain the following capital ratio:
  Ratio   Preferred Bank at 3/31/13   MOU Requirement
Tier 1 Leverage  Ratio 11.99% 10.0%

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2013 financial results will be held tomorrow, April 18, at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 877-941-9205 (domestic) or 480-629-9771 (international). The passcode for the call is 4614092. There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com. Web participants are encouraged to go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

Preferred Bank's Chairman and CEO Li Yu,  President and COO Wellington Chen,  Chief Financial Officer Edward J. Czajka and Chief Credit Officer 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 website. A replay of the call will also be available at 800-406-7325 (domestic) or 303-590-3030 (international) through April 25, 2013; the passcode is 4614092.

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 Bank conducts its banking business from its main office in Los Angeles, California, and through ten full-service branch banking offices in Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Anaheim, Pico Rivera and San Francisco, 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 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 California by offering a high degree of personal service and responsiveness, experienced multi-lingual staff and substantial lending limits.

The Preferred Bank logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=11817

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 2012 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.

Financial Tables to Follow
 PREFERRED BANK 
 Condensed Consolidated Statements of Operations 
 (unaudited) 
 (in thousands, except for net income per share and shares) 
       
       
  For the Three Months Ended
  March 31, December 31, March 31,
  2013 2012 2012
 Interest income:       
 Loans, including fees   $ 14,939  $ 14,504  $ 13,507
 Investment securities   1,550  1,496  1,684
 Fed funds sold   --  10  --
 Total interest income   16,489  16,010  15,191
       
 Interest expense:       
 Interest-bearing demand   531  489  408
 Savings   21  20  19
 Time certificates   1,277  1,297  1,676
 Senior debt   --  --  94
 Total interest expense   1,829  1,806  2,197
 Net interest income   14,660  14,204  12,994
 Provision for loan losses   --  2,300  1,800
 Net interest income after provision for loan losses   14,660  11,904  11,194
       
 Noninterest income:       
 Fees & service charges on deposit accounts   548  480  434
 Trade finance income   207  87  70
 BOLI income   82  83  82
 Net gain on sale of investment securities   --  21  4
 Other income   21  78  28
 Total noninterest income   858  749  618
       
 Noninterest expense:       
 Salary and employee benefits   4,273  3,316  3,462
 Net occupancy expense   768  753  752
 Business development and promotion expense   96  104  53
 Professional services   889  1,003  590
 Office supplies and equipment expense   307  281  263
 Total other-than-temporary impairment losses   4  --  16
 Other real estate owned related expense   1,364  1,696  2,014
 Other   1,141  1,001  1,706
 Total noninterest expense   8,841  8,154  8,856
 Income before provision for income taxes   6,676  4,499  2,956
 Income tax expense (benefit)   2,646  (416)  (18,783)
 Net income   $ 4,030  $ 4,915  $ 21,739
       
 Income allocated to participating securities   (51)  (63)  (327)
 Net income available to common shareholders   $ 3,979  $ 4,852  $ 21,412
       
       
 Income per share available to common shareholders       
 Basic   $ 0.30  $ 0.37  $ 1.64
 Diluted   $ 0.30  $ 0.37  $ 1.62
       
 Weighted-average common shares outstanding       
 Basic   13,071,223  13,065,227  13,024,068
 Diluted   13,322,083  13,291,592  13,223,098
 
 PREFERRED BANK 
 Condensed Consolidated Statements of Financial Condition 
 (unaudited) 
 (in thousands) 
     
     
  March 31, December 31,
  2013 2012
 Assets     
     
 Cash and due from banks   $ 158,657  $ 151,995
 Cash and cash equivalents   158,657  151,995
     
 Securities held to maturity, at amortized cost   979  979
 Securities available-for-sale, at fair value   204,463  210,742
 Loans and leases   1,157,120  1,119,553
 Less allowance for loan and lease losses   (20,234)  (20,607)
 Less net deferred loan fees   (2,175)  (2,019)
 Net loans and leases   1,134,711  1,096,927
     
 Loans held for sale, at lower of cost or fair value   15,670  12,150
     
 Other real estate owned   19,874  28,280
 Customers' liability on acceptances   2,347  1,961
 Bank furniture and fixtures, net   4,519  4,383
 Bank-owned life insurance   8,109  8,049
 Accrued interest receivable   5,324  5,646
 Federal Home Loan Bank stock   4,282  4,282
 Deferred tax assets   27,038  26,975
 Other asset   1,757  2,487
 Total assets   $ 1,587,730  $ 1,554,856
     
     
 Liabilities and Shareholders' Equity     
     
 Liabilities:     
 Deposits:     
 Demand   $ 409,253  $ 446,734
 Interest-bearing demand  337,523 325,018
 Savings  21,953 21,844
 Time certificates of $250,000 or more  204,212 208,005
 Other time certificates  411,058 355,926
 Total deposits   $ 1,383,999  $ 1,357,527
 Acceptances outstanding   2,347  1,961
 Senior debt issuance   --  --
 Accrued interest payable   956  968
 Other liabilities   8,158  6,562
 Total liabilities   1,395,460  1,367,018
     
 Commitments and contingencies     
 Shareholders' equity:     
 Preferred stock. Authorized 25,000,000 shares; no issued and outstanding shares at March 31, 2013 and December 31, 2012  —  — 
 Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,247,301 and 13,234,608 shares at March 31, 2013 and December 31, 2012, respectively   163,035  162,927
 Treasury stock   (19,115)  (19,115)
 Additional paid-in-capital   24,925  24,544
 Accumulated income   21,511  17,481
 Accumulated other comprehensive income (loss):   --  
 Non-credit portion of loss recognized, net of tax of $98 and $133 at March 31, 2013 and December 31, 2012, respectively  (135)  (184)
Unrealized loss on securities, available-for-sale, net of tax of $1,486 and $1,585 at March 31, 2013 and December 31, 2012  2,049  2,185
 Total shareholders' equity   192,270  187,838
 Total liabilities and shareholders' equity   $ 1,587,730  $ 1,554,856
 
 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,
  2013 2012 2012 2012
 For the period:         
 Return on average assets  1.06% 1.29% 0.79% 6.53%
 Return on average equity  8.57% 10.00% 6.31% 53.66%
 Net interest margin (Fully-taxable equivalent)  4.03% 3.91% 3.88% 4.06%
 Noninterest expense to average assets  2.32% 2.14% 2.55% 2.66%
 Efficiency ratio  56.98% 54.53% 65.29% 65.06%
 Net charge-offs (recoveries) to average loans (annualized)  0.13% 1.20% 0.57% 1.07%
         
         
 Period end:         
 Tier 1 leverage capital ratio  11.99% 11.96% 12.19% 15.81%
 Tier 1 risk-based capital ratio  13.64% 13.73% 14.08% 14.55%
 Total risk-based capital ratio  14.89% 14.98% 15.33% 12.69%
 Allowances for credit losses to loans and leases at end of period **  1.75% 1.84% 2.03% 2.32%
 Allowance for credit losses to non-performing loans and leases  74.13% 78.82% 66.60% 71.37%
         
 Average balances:         
 Total loans and leases*   $ 1,139,317  $ 1,089,719  $ 1,014,022  $ 972,413
 Earning assets   $ 1,487,813  $ 1,456,965  $ 1,379,218  $ 1,294,634
 Total assets   $ 1,545,388  $ 1,518,085  $ 1,443,942  $ 1,339,737
 Total deposits   $ 1,344,977  $ 1,312,027  $ 1,255,464  $ 1,156,164
         
 Period end:         
 Loans and Leases:         
 Real estate - Single and multi-family residential   $ 156,613  $ 152,388  $ 147,586  $ 136,100
 Real estate - Land for housing   23,091  25,560  22,827  23,327
 Real estate - Land for income properties   1,581  1,598  1,608  15,771
 Real estate - Commercial   502,589  493,101  476,961  440,826
 Real estate - For sale housing construction   31,341  36,347  40,245  40,720
 Real estate - Other construction   39,366  38,063  25,547  22,702
 Commercial and industrial   349,615  324,753  301,812  255,733
 Trade finance and other   52,924  47,743  48,622  53,914
 Gross loans   1,157,120  1,119,553  1,065,208  989,093
 Allowance for loan and lease losses   (20,234)  (20,607)  (21,601)  (22,925)
 Net deferred loan fees   (2,175)  (2,019)  (1,695)  (1,234)
 Loans excluding loans held for sale   1,134,711  1,096,927  1,041,912  964,934
 Loans held for sale   15,670  12,150  9,573  3,707
 Total loans, net   $ 1,150,381  $ 1,109,077  $ 1,051,485  $ 968,641
         
 Deposits:         
 Noninterest-bearing demand   $ 409,253  $ 446,734  $ 406,771  $ 327,141
 Interest-bearing demand and savings   359,476  346,862  310,550  267,745
 Total core deposits   768,729  793,596  717,321  594,886
 Time deposits   615,270  563,931  574,589  581,294
 Total deposits   $ 1,383,999  $ 1,357,527  $ 1,291,910  $ 1,176,180
         
         
 * Loans held for sale are included         
 ** Loans held for sale are excluded         
 
Preferred Bank
Loan and Credit Quality Information
     
Allowance For Credit Losses & Loss History
  Three Months Ended Year Ended
  March 31, 2013 December 31, 2012
   (Dollars in 000's)
Allowance For Credit Losses    
Balance at Beginning of Period  $ 20,607  $ 23,718
Charge-Offs    
Commercial & Industrial  2,464  10,525
Mini-perm Real Estate  18  3,903
Construction - Residential  36  -- 
Construction - Commercial  --   2,185
Land - Residential  --   592
Land - Commercial  --   6,276
Others  --   -- 
 Total Charge-Offs  2,518  23,481
     
Recoveries    
Commercial & Industrial  --   63
Mini-perm Real Estate  16  296
Construction - Residential  1,951  2
Construction - Commercial  163  145
Land - Residential  15  57
Land - Commercial  --   7
 Total Recoveries  2,145  570
     
Net Loan Charge-Offs  373  22,911
Provision for Credit Losses  --   19,800
Balance at End of Period  $ 20,234  $ 20,607
Average Loans and Leases*  $ 1,139,317  $ 1,018,366
Loans and Leases at end of Period*  $ 1,157,120  $ 1,119,553
Net Charge-Offs to Average Loans and Leases 0.13% 2.25%
Allowances for credit losses to loans and leases at end of period ** 1.75% 1.84%
     
     
 * Loans held for sale are included     
 ** Loans held for sale are excluded     
CONTACT: AT THE COMPANY:         Edward J. Czajka         Executive Vice President         Chief Financial Officer         (213) 891-1188                  AT FINANCIAL PROFILES:         Kristen McNally         General Information         (310) 663-8007         kmcnally@finprofiles.com

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