LOS ANGELES, Jan. 27 /PRNewswire-FirstCall/ -- Preferred Bank
(NASDAQ: PFBC), an independent commercial bank focusing on the
Chinese-American and diversified Southern California mainstream
market, today reported results for the quarter and year ended
December 31, 2008. Preferred Bank reported a net loss of $468,000
or $0.05 per diluted share for the quarter and a net loss of
$473,000 or $0.05 per diluted share for the year ended December 31,
2008. This compares to net income of $5.8 million or $0.57 per
diluted share for the fourth quarter of 2007 and compared to net
income of $26.5 million or $2.50 per diluted share for the year
ended December 31, 2007. Results for the quarter were negatively
impacted by a charge of $4.5 million for an other than temporary
impairment ("OTTI") charge on investment securities, a provision
for loan losses of $6.9 million and a writedown of OREO of $1.2
million. Also included in this quarter were life insurance proceeds
of $1.6 million received in connection with a former executive as
well as a tax benefit of $2.6 million recorded in connection with
the OTTI charge recorded on FHLMC preferred stock recorded in the
second and third quarters of 2008. Mr. Li Yu, Chairman and
President of Preferred Bank commented, "We finished this most
challenging year with only a small loss for the fourth quarter and
for the year. It was truly a humbling experience but fortunately
with $22.9 million in provision for loan losses, $12.4 million in
OTTI charges on securities and $1.8 million in OREO writedowns, we
ended up with only a loss of $473,000 for the year. The fact that
we could absorb this $37 million in charges during 2008 and only
have a small loss speaks to the underlying earnings power and
franchise value of Preferred Bank. "After the fall of Lehman
Brothers in September, the financial industry experienced a major
'earthquake' with the disappearance of Washington Mutual, Wachovia
and Merrill Lynch. The mortgage market was nearly dead in the
fourth quarter and the housing market continues its decline. As a
result, we have recorded historically high loan loss provisions and
OREO writedowns during 2008. The pace of our problem loan workouts
and asset disposition has also been disrupted. "As of December 31,
2008, non-performing loans and OREO both increased modestly from
September 30, 2008 levels. Considering the overall economy and the
housing sector specifically, we are not discouraged with these
increases. Meanwhile, we have reduced our exposure in the for-sale
housing construction and land loans by $31.9 million or
approximately 11% from September 30, 2008. "The reduction of
problem loans/assets will be a longer process although not
necessarily expensive. Within our problem portfolio, $38 million
are land loans and $13 million are in litigation whereby we hope to
recover more than our book value. Another $10 million are loans
whereby the borrower is involved in bankruptcy proceeding as they
believe the collateral is worth more than the loan amount. All of
these will require a longer time to resolve but will affect the
optics of our loan portfolio during that time. "Our total
construction loans reduced from $333 million at September 30, 2008
to $291 million at December 31, 2008. A common misconception is
that all construction loans are at a high level of risk. We must
emphasize that 34% of the construction loans are for apartment or
pre-leased income properties which we consider to be relatively
safe at present. "With the recent Federal Reserve action of
near-zero percent overnight rates, our net interest margin will
undoubtedly contract in 2009. By applying floor rates on loans and
by controlling deposit costs, we hope the effect will be less
severe than expected. We pledge to continue to maintain our net
interest margin at a level beyond that of our peer group.
"Personally, I am elated with the passing of 2008. 2009 will also
be very challenging but we will be closer to the end of the tunnel
with each passing day." Operating Results for the Quarter Net
Interest Income and Net Interest Margin. Net interest income before
provision for loan and lease losses decreased to $11.2 million,
compared to $17.2 million for the fourth quarter of 2007. The 35.0%
decrease was due primarily to the lower interest rate environment
as well as an increase in nonaccrual loans in 2008. The Company's
taxable equivalent net interest margin was 3.31% for the fourth
quarter of 2008, down from the 4.82% achieved in the fourth quarter
of 2007 and down slightly from the 3.40% for the third quarter of
2008. Noninterest Income. For the fourth quarter of 2008
noninterest income was $2,401,000 compared with $758,000 for the
same quarter last year and $762,000 for the third quarter of 2008.
The increase in noninterest income this quarter compared to the
fourth quarter of 2008 was due mainly to life insurance proceeds of
$1.6 million in connection with a former Preferred Bank executive.
Noninterest Expense. Total noninterest expense was $11.8 million
for the fourth quarter of 2008, compared to $5.1 million for the
same period in 2007 and $12.0 million for the third quarter of
2008. Salaries and benefits decreased by $184,000 from the fourth
quarter of 2007 due primarily to a decrease in bonus expense which
is based on overall profitability. Occupancy expense increased by
$71,000 over the fourth quarter of 2008 due to normal lease expense
increases as well as to the two new branches opened in the fourth
quarter of 2008 located in Anaheim and Pico Rivera, California.
Professional services expense increased by $171,000 due primarily
to an increase in legal costs associated with non-performing loans.
OTTI charges totaled $4.5 million during the fourth quarter of 2008
and were related to one trust preferred CDO, two corporate bonds
and FHLMC preferred stock. This compares to $289,000 in the same
period of 2007 and $6.0 million in the third quarter of 2008. OREO
related expenses totaled $2,040,000 for the fourth quarter of 2008
compared to $205,000 in the same period last year and $778,000 in
the third quarter of 2008. Other expenses were $1,218,000 in the
fourth quarter of 2008, an increase of $579,000 over the same
period in 2007 and a decrease of $123,000 over the third quarter of
2008. The changes were due mainly to loan collection expenses.
Operating Efficiency Ratio. For the quarter, the operating
efficiency ratio was 87.2% as compared to 28.4% for the same
quarter in 2007 and 94.2% recorded in the third quarter of 2008.
The deterioration in the efficiency ratio is primarily attributable
to the $4.5 million charge recorded for OTTI. Excluding the OTTI
charges, the efficiency ratio for the fourth quarter of 2008 was
54.2%. Balance Sheet Summary Total gross loans and leases at
December 31, 2008 were $1.23 billion, flat from the $1.23 billion
as of December 31, 2007. Commercial real estate loans were up from
$518.3 million as of December 31, 2007 to $592.7 million at
December 31, 2008 while construction loans decreased $75.9 million
from December 31, 2007 and commercial & industrial and
international loans were essentially flat at $347 million at
December 31, 2007 and 2008. Total deposits as of December 31, 2008
were $1.257 billion, an increase of $4.2 million or 0.3% from the
$1.253 billion at December 31, 2007. As of December 31, 2008
compared to December 31, 2007; noninterest-bearing demand deposits
decreased by $33.7 million or 14.6%, interest-bearing demand and
savings deposits decreased by $41.5 million or 18.0% and time
deposits increased by $79.4 million or 10.0%. Total assets were
$1.488 billion, a $54.9 million or 3.6% decrease from the total of
$1.543 billion as of December 31, 2007. Total borrowings, both
overnight and term borrowings decreased from $111 million as of
December 31, 2007 to $58 million as of December 31, 2008 as the
Bank worked to restructure the balance sheet to increase liquidity.
The loan-to-deposit ratio as of December 31, 2008 was 97.9%
compared to 98.4% as of December 31, 2007. Asset Quality As of
December 31, 2008 total nonaccrual loans were $66.6 million
compared to $61.8 million as of September 30, 2008 and $20.9
million as of December 31, 2007. Total net charge-offs for the
fourth quarter of 2008 were $2.9 million compared to $8.4 million
for the third quarter of 2008. Based on a detailed analysis of all
impaired and classified loans, as well as an analysis of other
qualitative factors, the Bank recorded a provision for loan losses
of $6.9 million as compared to $3.7 million in the third quarter of
2008 and $2.9 million for the fourth quarter of 2007. The allowance
for loan loss at December 31, 2008 was $19.2 million or 1.56% of
total loans compared to $15.2 million or 1.27% of total loans at
September 30, 2008 and compared to $15.0 million and 1.21%,
respectively at December 31, 2007. Non accrual loans as of December
31, 2008 and September 30, 2008 were comprised of the following:
Loan Type December 31,2008 September 30, 2008 # $ # $ Commercial
& Industrial 4 $6,337,000 4 $6,685,000 Commercial Real Estate 7
14,289,000 5 8,906,000 Construction-Commercial 1 3,961,000 - -
Construction-For-Sale Housing 5 27,251,000 1 38,719,000
Land-residential 3 14,750,000 1 7,520,000 Total 20 $66,588,000 16
$61,830,000 Loans Past Due 30-89 Days Loans 30-89 days past due at
December 31, 2008 were $51.4 million which increased significantly
from the total of $11.9 million as of September 30, 2008. A large
portion of this increase at year end was related to temporary
interest payment disruption and holiday-related delayed loan
extensions. For-Sale Housing Loan Exposure Below is a summary of
the change in our for-sale land and construction loans during the
quarter: (In thousands) 12-31-08 9-30-08 $Change % Change
Construction: Attached $149,535 $172,536 $(23,001) (13.3%) Detached
41,538 42,663 (1,125) (2.6%) Total 191,073 215,199 (24,126) (11.2%)
Land Zoned For Residential Use 74,816 82,602 (7,786) (9.4%) Total
$265,889 $297,801 $(31,912) (10.7%) Real Estate Owned Total OREO
increased to $35.1 million as of December 31, 2008 compared to
$26.5 million as of September 30, 2008 and $8.4 million as of
December 31, 2007. The foreclosed properties include: -- A
construction project in Oakland, California of which the Bank is in
the process to attempt to rezone part of the project to higher
density to enhance the property value. The carrying amount of $7.9
million is based upon the appraised "as-is" value concluded in late
September 2008. -- A $12.2 million partially completed
condo/apartment project in the Westside of Los Angeles. The amount
represents the value of an accepted letter of interest from a
potential buyer. We are currently negotiating a sales agreement and
there are three additional offers that we have received for
approximately the same amount. -- A $1.8 million participation of
tract home land in Carson City, Nevada. -- A $5.7 million
participation of freeway adjacent commercial zoned land in
Beaumont, California. Carrying cost is 64% of appraisal value
concluded on December 30, 2008. -- A $7.5 million participation of
freeway adjacent residential land in Beaumont, California. Carrying
cost is 54% of appraisal value concluded on December 31, 2008.
Information of Interest Regarding the Commercial Real Estate Loan
Portfolio As of December 31, 2008, our commercial real estate loan
portfolio included $55 million of retail income producing
properties with a weighted average LTV at origination of 59%. Also,
as of December 31,2008, there were $78 million of office building
loans in the loan portfolio. Excluding the $28 million of generally
stable medical office buildings, the remaining $50 million of
office building loans have an average LTV at origination of 52%.
Capitalization Preferred Bank continues to be "well capitalized"
under all regulatory requirements, with a Tier 1 leverage ratio of
10.07% and a total risk based capital ratio of 11.94% at December
31, 2008. Conference Call and Webcast A conference call with
simultaneous webcast to discuss Preferred Bank's fourth quarter
2008 financial results will be held today, January 27, at 5:00 p.m.
Eastern / 2:00 p.m. Pacific. Interested participants and investors
may access the conference call by dialing (800) 257-2182 (domestic)
or (303) 205-0033 (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 February 3, 2009; the pass
code is 11125508. 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,
Anaheim and Pico Rivera, 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. For Further Information: AT
THE COMPANY: AT FINANCIAL RELATIONS BOARD: Edward J. Czajka Lasse
Glassen Executive Vice President General Information Chief
Financial Officer (213) 486-6546 (213) 891-1188 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 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 http://www.preferredbank.com/. Financial Tables to Follow
PREFERRED BANK Condensed Consolidated Statements of Operations
(unaudited) (in thousands, except for net (loss)/income per share
and shares) For the Three Months Ended December 31, September 30,
June 30, 2008 2008 2008 Interest income: Loans, including fees
$17,040 $17,184 $18,924 Investment securities 1,610 2,660 3,169 Fed
funds sold 39 41 4 Total interest income 18,689 19,885 22,097
Interest expense: Interest-bearing demand 255 288 383 Savings 252
278 349 Time certificates of $100,000 or more 3,504 4,269 5,489
Other time certificates 2,878 2,318 1,524 Fed funds purchased 8 46
790 FHLB borrowings 632 693 231 Total interest expense 7,529 7,892
8,766 Net interest income 11,160 11,993 13,331 Provision for loan
losses 6,900 3,680 7,200 Net interest income after provision for
loan losses 4,260 8,313 6,131 Noninterest income: Fees &
service charges on deposit accounts 467 370 470 Trade finance
income 111 180 219 BOLI income 92 91 91 Other income 1,731 121 215
Total noninterest income 2,401 762 995 Noninterest expense: Salary
and employee benefits 1,956 1,862 1,997 Net occupancy expense 656
897 678 Business development and promotion expense 196 55 77
Professional services 921 815 655 Office supplies and equipment
expense 361 300 313 Other than temporary impairment 4,472 5,971
1,928 Other real estate owned related expense 2,040 778 154 Other
1,218 1,341 843 Total noninterest expense 11,820 12,019 6,645
(Loss)/Income before provision for income taxes (5,159) (2,944) 481
Provision (benefit) for income taxes (4,691) 457 463 Net
(loss)/income $(468) $(3,401) $18 Net loss per share - basic
$(0.05) $(0.35) $- Net loss per share - basic $(0.05) $(0.35) $-
Weighted-average common shares outstanding Basic 9,755,207
9,755,207 9,755,207 Diluted 9,761,160 9,763,960 9,756,471 PREFERRED
BANK Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except for net (loss)/income per share and shares)
For the Twelve Months Ended December 31, December 31, Change 2008
2007 % Interest income: Loans, including fees $ 75,120 $98,817
-24.0% Investment securities 10,743 11,522 -6.8% Fed funds sold 96
2,268 -95.8% Total interest income 85,959 112,607 -23.7% Interest
expense: Interest-bearing demand 1,364 2,668 -48.9% Savings 1,433
3,494 -59.0% Time certificates of $100,000 or more 20,047 30,879
-35.1% Other time certificates 8,349 5,384 55.1% Fed funds
purchased 533 295 80.7% FHLB borrowings 2,908 1,479 96.6% Total
interest expense 34,634 44,199 -21.6% Net interest income 51,325
68,408 -25.0% Provision for credit losses 22,860 4,900 366.5% Net
interest income after provision for loan losses 28,465 63,508
-55.2% Noninterest income: Fees & service charges on deposit
accounts 1,764 1,696 4.0% Trade finance income 652 752 -13.3% BOLI
income 362 343 5.6% Other income 2,163 299 623.4% Total noninterest
income 4,941 3,090 59.9% Noninterest expense: Salary and employee
benefits 8,453 11,868 -28.8% Net occupancy expense 2,822 2,395
17.8% Business development and promotion expense 424 409 3.7%
Professional services 3,023 2,719 11.2% Office supllies and
equipment expense 1,269 955 32.8% Other than temporary impairment
12,371 621 1892.1% Other real estate owned related expense 3,016
205 1371.3% Other 4,112 2,289 79.6% Total noninterest expense
35,490 21,461 65.4% Income before provision for income taxes
(2,084) 45,137 -104.6% Provision (benefit) for income taxes (1,611)
18,670 -108.6% Net (loss)/income $(473) $26,467 -101.8% Net (loss)
income per share - basic $(0.05) $2.56 -101.9% Net (loss) income
per share - diluted $(0.05) $2.50 -101.9% Weighted-average common
shares outstanding Basic $9,790,858 10,330,232 -5.2% Diluted
$9,810,391 10,580,949 -7.3% PREFERRED BANK Condensed Consolidated
Statements of Financial Condition (unaudited) (in thousands)
December 31, December 31, 2008 2007 Assets Cash and due from banks
$19,386 $22,803 Fed funds sold 50,200 - Cash and cash equivalents
69,586 22,803 Securities available-for-sale, at fair value 104,406
245,268 Loans and leases 1,231,232 1,233,099 Less allowance for
loan and lease losses (19,235) (14,896) Less net deferred loan fees
(167) (682) Net loans and leases 1,211,830 1,217,521 Other real
estate owned 35,127 8,444 Customers' liability on acceptances 786
5,083 Bank furniture and fixtures, net 7,157 4,721 Bank-owned life
insurance 8,454 8,168 Accrued interest receivable 7,807 10,165
Federal Home Loan Bank stock 4,996 4,700 Deferred tax assets 22,468
12,278 Other asset 15,049 3,459 Total assets $ 1,487,666 $1,542,610
Liabilities and Stockholders' Equity Liabilities: Deposits: Demand
196,408 $230,083 Interest-bearing demand 126,251 137,220 Savings
62,883 93,398 Time certificates of $100,000 or more 464,085 639,455
Other time certificates 407,696 152,954 Total deposits $ 1,257,323
$1,253,110 Acceptances outstanding 786 5,083 Advances from Federal
Home Loan Bank 58,000 75,000 Fed funds purchased - 36,000 Accrued
interest payable 5,446 5,493 Other liabilities 24,081 14,972 Total
liabilities 1,345,636 1,389,658 Commitments and contingencies
Stockholders' equity: Preferred stock. Authorized 5,000,000 shares;
no shares issued and outstanding at December 31, 2008, and December
31, 2007 - - Common stock, no par value. Authorized 100,000,000
shares; issued and outstanding 9,755,207 and 9,953,532 shares at
December 31, 2008, December 31, 2007, respectively 72,009 71,863
Treasury stock (19,115) (14,976) Additional paid-in-capital 4,582
2,948 Retained earnings 89,535 94,595 Accumulated other
comprehensive loss: Unrealized loss on securities
available-for-sale, net of tax (4,981) (1,478) Total stockholders'
equity 142,030 152,952 Total liabilities and stockholders' equity $
1,487,666 $1,542,610 PREFERRED BANK Selected Consolidated Financial
Information (unaudited) (in thousands, except for ratios) For the
Three Months Ended December 31, September 30, June 30, December 31,
2008 2008 2008 2007 For the period: Return on average assets -0.13%
-0.90% 0.00% 1.56% Return on average equity -1.28% -9.22% 0.05%
14.59% Net interest margin (Fully-taxable equivalent) 3.31% 3.40%
3.64% 4.82% Noninterest expense to average assets 3.25% 1.89% **
1.22% * 1.36% Efficiency ratio 87.16% 55.80% ** 32.93% * 28.39% Net
charge-offs to average loans (annualized) 0.95% 2.78% 2.35% 0.00%
Period end: Tier 1 leverage capital ratio 10.07% 10.01% 9.81%
10.31% Tier 1 risk-based capital ratio 10.69% 11.17% 10.94% 10.54%
Total risk-based capital ratio 11.94% 12.30% 12.20% 11.57%
Nonperforming assets to total assets 6.84% 6.10% 5.67% 1.90%
Nonaccrual loans to total loans 5.41% 5.17% 4.48% 1.69% Allowance
for loan and lease losses to total loans 1.56% 1.27% 1.65% 1.21%
Allowance for loan and lease losses to nonaccrual loans 28.89%
24.65% 36.83% 71.28% Average balances: Total loans and leases
1,225,986 $1,201,270 $1,235,756 $1,195,870 Earning assets 1,367,862
1,431,265 1,501,873 1,432,486 Total assets 1,447,939 1,495,939
1,549,386 1,481,506 Total deposits 1,205,901 1,255,020 1,265,510
1,205,911 Period end: Loans and Leases: Real estate -
multifamily/commercial $592,697 $538,779 $523,875 $518,304 Real
estate - construction 290,803 333,473 356,630 366,706 Commercial
and industrial 273,890 245,223 242,982 255,912 Trade finance 73,205
78,553 84,535 91,565 Other 637 549 408 612 Total gross loans and
leases 1,231,232 1,196,577 1,208,430 1,233,099 Allowance for loan
and lease losses (19,235) (15,240) (19,960) (14,896) Net deferred
loan fees (167) (55) (123) (682) Net loans and leases $1,211,830
$1,181,282 $1,188,347 $1,217,521 Deposits: Noninterest-bearing
demand $196,408 $197,831 $209,900 $230,083 Interest-bearing demand
and savings 189,134 191,114 226,514 230,618 Total core deposits
385,542 388,945 436,414 460,701 Time deposits 871,781 836,660
847,111 792,409 Total deposits $1,257,323 $1,225,605 $1,283,525
$1,253,110 * Excluding OTTI charge on the FHLMC preferred stock **
Excluding OTTI charge on the FHLMC preferred stock and OREO write
down DATASOURCE: Preferred Bank CONTACT: Edward J. Czajka,
Executive Vice President Chief Financial Officer, or Preferred
Bank, +1-213-891-1188; or Lasse Glassen of FINANCIAL RELATIONS
BOARD, +1-213-486-6546, , for Preferred Bank Web Site:
http://www.preferredbank.com/
Copyright