PFBC Preferred Bank

LOS ANGELES, April 24 /PRNewswire-FirstCall/ -- Preferred Bank (NASDAQ:PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported net income for the quarter ended March 31, 2008. Net income totaled $3.4 million, a 48.0% decrease from net income of $6.5 million for the same period in 2007 while diluted earnings per share decreased 44.3% to $0.34 for the quarter compared to $0.61 for the first quarter of 2007. Net income for the quarter was negatively impacted by a provision for loan losses of $5.1 million and a decrease in net interest income of $1.4 million as compared to the first quarter of 2007. Being consistent with our prior practice of a targeted dividend payout ratio, the Board of Directors has decided to reduce the quarterly cash dividend from $0.17 per share to $0.10 per share. The dividend is payable on May 20, 2008 to holders of record on May 6, 2008. Mr. Li Yu, Chairman and President of Preferred Bank commented, "Our first quarter 2008 earnings decreased significantly from the previous year. Principal reasons for the decrease are as follows: -- A large loan loss provision due to the economy and the slumping housing market. -- Margin compression resulting from rapid Fed rate reductions. -- Further margin compression from lost interest related to non performing loans." "For the first quarter of 2008, we made unusually large provisions for loan losses in the amount of $5.1 million. Most of this amount is related to the same loans that were classified as of December 31, 2007, due to some deterioration in value and developments regarding the borrowers. For the first three months of the year, the housing market, in my opinion, further deteriorated due partly to buyer/investor non-confidence and partly due to lack of mortgage availability. We see little pay-down/closing activities from our already completed housing construction portfolio. At present, we have not seen any sign of improvement but we are prepared to meet the challenges." "During the three month period from December to March, Fed Fund rates have decreased 200 basis points. We have previously estimated that for each rate drop of 50 basis points that Preferred Bank's earnings per share will reduce by $0.04 and $0.02 in each of the two ensuing quarters, respectively. Our estimate was based upon an interest rate risk model that makes certain assumptions about market deposit rates. In reality, due to severe competition, deposit rates did not drop as much we had originally anticipated. As of March 31, 2008, we have seen our average loan yields drop over 150 basis points but the average rate paid on deposits have only dropped 71 basis points. We are hopeful that the margin will stabilize soon as the Fed may be near the end of its cycle of credit easing." "At March 31, 2008, Preferred Bank's common equity capital ratio is 9.7%. To preserve and strengthen our capital and to be consistent with our dividend policy, our Board of Directors has declared a quarterly dividend of $0.10 per share which is a reduction from the $0.17 per share declared in the previous quarter. The Board will continue to evaluate the dividend payout on a quarterly basis." Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses decreased to $14.8 million, compared to $16.2 million for the first quarter of 2007. The 8.6% decrease was due primarily to the 300 basis point decrease in the Fed Funds rate and the prime rate since September of 2007 partially offset by an increase in loan outstandings. As Preferred Bank's balance sheet is asset-sensitive, the drop in short-term rates has had a significantly negative impact on the Bank's net interest margin. The Company's net interest margin was 4.11% for the first quarter of 2008, down from the 5.16% achieved in the first quarter of 2007 and down from the 4.82% for the fourth quarter of 2007. Noninterest Income. For the first quarter of 2008 noninterest income was $782,000 compared with $763,000 for the same quarter last year and $756,000 for the fourth quarter of 2007. The increase in noninterest income this quarter compared to last year was due mainly to an increase in service charges to $457,000 from $421,000 in the same period last year. Noninterest Expense. Total noninterest expense was $5,005,000 for the first quarter of 2008, compared to $5,376,000 for the same period in 2007 and $5,090,000 for the fourth quarter of 2007. Salaries and benefits decreased by $962,000 from the first quarter due to a decrease in bonus expense which is based on overall profitability. Professional services increased due to the outsourcing of internal audit and financial reporting. Office supplies & equipment expense increased due to the installation of a new phone system and moving costs associated with the moving of our headquarters office and our Irvine branch. Other expense is up over the same quarter last year due to a change in accrual estimates in the first quarter of 2007. Operating Efficiency Ratio. For the quarter, the operating efficiency ratio was 32.0% as compared to 31.6% for the same quarter in 2007 and 28.4% recorded in the fourth quarter of 2007. The year-over-year deterioration is primarily attributable to the decline in net interest income as compared to the first and fourth quarters of 2007. Balance Sheet Summary Total gross loans and leases at March 31, 2008 were $1.23 billion, a $173.5 million or 16.4% increase over the $1.057 billion at March 31, 2007 and a $2.96 million or 0.2% decrease over the $1.233 billion total as of December 31, 2007. Commercial real estate loans were up from $424 million as of March 31, 2007 to $543.8 million at March 31, 2008 while construction loans increased $40.9 million from March 31, 2007 and commercial & industrial loans increased $12.8 million from March 31, 2007. Total deposits as of March 31, 2008 were $1.265 billion, an increase of $69.3 million or 5.8% over the $1.196 billion at March 31, 2007 and an $11.9 million or 0.9% increase over the $1.253 billion total as of December 31, 2007. Noninterest-bearing demand deposits decreased by $17.2 million or 7.5%, interest-bearing demand and savings deposits increased by $12.1 million or 5.54% and time deposits increased by $74.4 million or 9.96%. Total assets were $1.551 billion, an 11.7% increase over the total of $1.389 billion as of March 31, 2007. Asset Quality As of March 31, 2008 total nonaccrual loans were $36.2 million compared to $230,000 as of March 31, 2007 and $20.9 million as of December 31, 2007. During the first quarter 2008 the Bank placed one commercial real estate loan and one construction loan totaling $16.6 million on nonaccrual status. This is in addition to the $20.9 million in loans that were on nonaccrual status as of December 31, 2007. Total net charge-offs for the first quarter of 2008 were $0. Total non-performing loans to total loans were 2.95% as of March 31, 2008 as compared to 1.69% as of December 31, 2007 and 0.02% as of March 31, 2007. Because of the increase in non-performing loans and further deterioration of a few larger classified credits during the first quarter of 2008, the Bank recorded a provision for loan losses of $5.1 million as compared to $2.9 million in the fourth quarter of 2007 and $600,000 for the first quarter of 2007. The allowance for loan loss at March 31, 2008 was $20.0 million or 1.62% of total loans compared to $10.6 million and 1.0%, respectively at March 31, 2007. Capitalization Preferred Bank continues to be "well capitalized" under all regulatory requirements, with a Tier 1 leverage ratio of 9.84% and a total risk based capital ratio of 11.93% at March 31, 2008. Conference Call and Webcast A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2008 financial results will be held today, April 24, at 5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors may access the conference call by dialing (800) 366-7640 (domestic) or (303) 262-2130 (international). There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's web site at http://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 Credit Officer Robert Kosof and Chief Financial Officer Edward Czajka 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 be available at 800-405-2236 (domestic) or 303-590-3000 (international) through May 1, 2008; the pass code is 11112933. 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 ten full-service branch banking offices in Alhambra, Century City, Chino Hills, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Santa Monica and Valencia, 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 2007 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation. 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 http://www.preferredbank.com/. Financial Tables to Follow PREFERRED BANK Consolidated Statements of Income (Unaudited) (In thousands, except for net income per share and shares) For the Three Months Ended March 31, December 31, March 31, 2008 2007 2007 Interest income: Loans and leases, including fees $21,972 $25,352 $22,993 Investment securities, available for sale 3,304 3,192 2,727 Federal funds sold 12 35 794 Total interest income 25,288 28,579 28,579 Interest expense: Interest-bearing demand 438 590 667 Savings 554 800 742 Time certificates of $100,000 or more 6,784 7,304 7,577 Other time certificates 1,630 1,731 1,080 Federal funds purchased 793 731 31 FHLB borrowings 248 248 183 Total interest expense 10,447 11,404 10,280 Net interest income before provision for credit losses 14,841 17,175 16,234 Provision for credit losses 5,080 2,900 600 Net interest income after provision for credit losses 9,761 14,275 15,634 Noninterest income: Fees and service charges on deposit accounts 457 455 421 Trade finance income 141 144 145 BOLI income 88 87 84 Other income 96 70 113 Total noninterest income 782 756 763 Noninterest expense: Salaries and employee benefits 2,638 2,140 3,600 Net occupancy expense 592 589 591 Business development and promotion expense 96 173 46 Professional services 632 750 519 Office supplies and equipment expense 294 261 188 Other 753 1,177 432 Total noninterest expense 5,005 5,090 5,376 Income before provision for income taxes 5,538 9,941 11,021 Provision for income taxes 2,160 4,112 4,528 Net income $3,378 $5,829 $6,493 Net income per share: Basic $0.34 $0.57 $0.63 Diluted $0.34 $0.57 $0.61 Weighted-average common shares outstanding Basic 9,898,204 10,154,749 10,364,874 Diluted 9,937,828 10,301,706 10,682,401 PREFERRED BANK Consolidated Statements of Financial Condition (Unaudited) (In thousands) March 31, December 31, March 31, 2008 2007 2007 Assets Cash and due from banks $20,272 $22,803 $23,992 Federal funds sold 2,200 - 85,800 Cash and cash equivalents 22,472 22,803 109,792 Securities available-for-sale, at fair value 267,234 245,268 201,919 Loans and leases 1,230,140 1,233,099 1,056,627 Less allowance for loan and lease losses (19,976) (14,896) (10,636) Less unamortized deferred loan fees, net (1,154) (682) (1,643) Net loans and leases 1,209,010 1,217,521 1,044,348 Other real estate owned 8,441 8,444 - Customers' liability on acceptances 131 5,083 306 Bank furniture and fixtures, net 6,793 4,721 1,647 Bank-owned life insurance 8,238 8,168 7,963 Accrued interest receivable 8,734 10,165 8,691 Federal Home Loan Bank ("FHLB") stock 4,761 4,700 3,736 Deferred tax assets 14,596 12,278 9,577 Other assets 515 3,459 629 Total assets $1,550,925 $1,542,610 $1,388,608 Liabilities and Shareholders' Equity Deposits: Demand $213,301 $230,083 $230,525 Interest-bearing demand 149,475 137,220 132,077 Savings 80,928 93,398 86,230 Time certificates of $100,000 or more 685,681 639,455 655,681 Time certificates less than $100,000 135,575 152,954 91,158 Total deposits 1,264,960 1,253,110 1,195,671 Acceptances outstanding 131 5,083 306 Advances from the Federal Home Loan Bank 120,000 111,000 20,000 Accrued interest payable 5,062 5,493 5,027 Other liabilities 11,117 14,972 14,769 Total liabilities 1,401,270 1,389,658 1,235,773 Commitments and contingencies Shareholders' equity: Preferred stock. Authorized 5,000,000 shares; no shares issued and outstanding at March 31, 2008, December 31, 2007 and March 31, 2007. - - - Common stock, no par value. Authorized 100,000,000 shares; issued and outstanding 9,755,507, 10,154,749 and 10,364,874 shares at March 31, 2008, December 31, 2007 and March 31, 2007, respectively. 72,008 71,863 71,110 Treasury stock (19,115) (14,976) - Additional paid-in capital 3,357 2,948 1,902 Retained earnings 96,281 94,595 79,943 Accumulated other comprehensive loss: Unrealized loss on securities available-for-sale, net of tax of $2,087,000, $1,072,000 and $87,000 at March 31, 2008, December 31, 2007 and March 31, 2007, respectively. (2,876) (1,478) (120) Total shareholders' equity 149,655 152,952 152,835 Total liabilities and shareholders' equity $1,550,925 $1,542,610 $1,388,608 PREFERRED BANK Selected Financial Information (Unaudited) (In thousands, except for ratios) March 31, December 31, March 31, 2008 2007 2007 For the period: Return on average assets 0.89% 1.56% 1.99% Return on average equity 8.77% 14.59% 17.55% Net interest margin (fully taxable equivalent) 4.11% 4.82% 5.16% Noninterest expense to average assets 1.31% 1.36% 1.65% Efficiency ratio 32.04% 28.39% 31.63% Net charge-offs to average loans (annualized) 0.00% 0.00% 0.08% Period end: Tier 1 leverage capital ratio 9.84% 10.31% 11.60% Tier 1 risk-based capital ratio 10.53% 10.54% 11.40% Total risk-based capital ratio 11.93% 11.57% 12.19% Nonperforming assets to total assets 2.88% 1.90% 0.02% Nonaccrual loans to total loans 2.95% 1.69% 0.02% Allowance for loan and lease losses to total loans 1.62% 1.21% 1.01% Allowance for loan and lease losses to nonaccrual loans 55.12% 71.28% 4624.35% Average balances: Total loans and leases $1,218,485 $1,195,870 $1,010,148 Earning assets 1,478,608 1,432,486 1,281,814 Total assets 1,531,723 1,481,506 1,320,501 Total deposits 1,251,993 1,205,911 1,127,321 Period end: Loans and leases: Real estate - multifamily/commercial $543,767 $518,304 $423,997 Real estate - construction 350,426 366,706 309,479 Commercial 253,852 255,912 224,547 Trade finance 81,592 91,565 98,109 Other 503 612 495 Total gross loans and leases 1,230,140 1,233,099 1,056,627 Allowance for loan and lease losses (19,976) (14,896) (10,636) Net deferred loan fees (1,154) (682) (1,643) Net loans and leases $1,209,010 $1,217,521 $1,044,348 Deposits: Noninterest-bearing demand $213,301 $230,083 $230,525 Interest-bearing demand and savings 230,403 232,405 218,307 Total core deposits 443,704 462,488 448,832 Time deposits 821,256 790,622 746,839 Total deposits $1,264,960 $1,253,110 $1,195,671 AT THE COMPANY: AT FINANCIAL RELATIONS BOARD: Edward J. Czajka Lasse Glassen Senior Vice President General Information Chief Financial Officer (213) 486-6546 (213) 891-1188 DATASOURCE: Preferred Bank CONTACT: Edward J. Czajka, Senior Vice President, Chief Financial Officer of Preferred Bank, +1-213-891-1188; or General Information, Lasse Glassen of Financial Relations Board, +1-213-486-6546, , for Preferred Bank Web site: http://www.preferredbank.com/

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