LOS ANGELES, July 30 /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 ended June 30, 2009. Preferred Bank reported a net loss of $5.8 million or $0.59 per diluted share for the quarter compared to net income of $18,000 or $0.00 per diluted share for the second quarter of 2008 and compared to a net loss of $1.3 million or $0.13 per diluted share for the first quarter of 2009.
- The quarterly loss was due to:
- Provision for credit losses of $15.5 million
- Special FDIC assessment of $617,000
- OREO valuation charge of $1.2 million
- Other-than-temporary-impairment charge (credit-related) of $351,000
- Tangible common equity ratio improved to 9.60% at June 30, 2009 compared to 9.21% at March 31, 2009
- Total non-performing assets remained relatively flat from March 31, 2009
- Continued decrease of exposure in housing, construction and land development loans as most construction loans are now near completion.
- Net interest margin increased to 3.33% in the second quarter of 2009 compared to 2.88% in the first quarter of 2009
Li Yu, Chairman, President and CEO commented, "In light of the continued soft economy we decided to significantly increase our allowance for loan losses this quarter which resulted in the larger than expected quarterly loss.
"In spite of the loss, our capital ratio actually improved from the previous quarter because of our efforts to decrease total assets and due to a recovery in the fair value of our investment securities which led to an increase in tangible common equity. The reduction in total assets was in line with our goal to continue to reduce the bank's exposure in housing related construction and land development loans. As of June 30, 2009, most of the ongoing housing projects are near finishing stage with limited amount ($19.6 million) of undisbursed commitments.
"Most of the in-fill metropolitan Los Angeles areas saw housing prices firm up during this quarter. In fact, many areas reported price and sales volume increases for properties $500,000 and below. We are closely watching the trend and hoping this will not be seriously affected by the widely speculated next round of foreclosures. However, as exposure in this area continues to decline and as we have been proactive in re-appraising and continually evaluating collateral value, our level of concern for this group of assets is gradually reducing.
"Early weakness of commercial real estate (i.e. retail, office and industrial properties) in the greater Los Angeles area seems a little more evident now. As the health of these assets are more closely related to employment trends, it will be difficult to predict the time of stabilization of commercial real estate. Our exposure to these loans amounted to less than $300 million. The average loan-to-value ratio at origination in this portfolio was right at 58%. We hope our loss exposure for this group of assets will be relatively moderate.
"We have also further increased our efforts to monitor our loan portfolio. For example, after the news of CIT's precarious financial position, we immediately performed a review of our commercial & industrial (C & I) portfolio. We concluded that we have two customers who have borrowing relationships with CIT. These credits total $1.8 million and are adequately protected by real estate collateral.
"We have performed many capital stress tests including the most well known method used by our government for the largest 19 U.S. Banks. All of them indicated we will be capital compliant under various stress conditions including the most adverse scenario. Nevertheless our Board initiated a rights offering for up to $10 million in common stock to provide additional cushion and comfort against future potential credit losses. We are confident the offering will be reasonably successful even under the current environment."
Operating Results for the Quarter
Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses decreased to $10.6 million, compared to $13.3 million for the second quarter of 2008. The 20.8% decrease was due primarily to the lower interest rate environment and lower loan totals as well as a significant increase in nonaccrual loans in 2009. The Company's taxable equivalent net interest margin was 3.33% for the second quarter of 2009, down from the 3.64% achieved in the second quarter of 2008 but up sharply from the 2.88% for the first quarter of 2009.
Noninterest Income. For the second quarter of 2009 noninterest income was $925,000 compared with $995,000 for the same quarter last year and $1,278,000 for the first quarter of 2009. The decrease in noninterest income this quarter compared to the second quarter of 2008 was due mainly to a decrease in trade finance income of $110,000 and a decrease in other income of $43,000 partially offset by an increase in service charges of $94,000. The decrease in noninterest income in the second quarter of 2009 compared to the first quarter of 2009 was due to a gain on sale of investment securities of $460,000 recorded in the first quarter of 2009.
Noninterest Expense. Total noninterest expense was $8.2 million for the second quarter of 2009, compared to $6.6 million for the same period in 2008 and $6.6 million for the first quarter of 2009. Salaries and benefits decreased by $180,000 from the second quarter of 2008 due to staff reductions and to an increase in deferred costs on loans renewed. Occupancy expense increased by $94,000 over the second quarter of 2008 due to the two new branches opened in the fourth quarter of 2008 located in Anaheim and Pico Rivera, California and to normal lease expense increases. Professional services expense increased by $452,000 due primarily to an increase in legal costs associated with non-performing loans and OREO. Credit-related other-than-temporary-impairment charges were $351,000 for the second quarter of 2009 and were related to two trust preferred collateralized debt obligations ("CDO's"). This compares to $1.9 million in the same period of 2008 and $425,000 in the first quarter of 2009. OREO related expenses totaled $1,841,000 for the second quarter of 2009 compared to $154,000 in the same period last year and $613,000 in the first quarter of 2009. OREO expense in the second quarter of 2009 consisted of $1,232,000 in OREO valuation charges and other OREO related charges of $609,000. Other expenses were $2,009,000 in the second quarter of 2009, an increase of $1,166,000 over the same period in 2008 and an increase of $671,000 over the first quarter of 2009. The increase this quarter over both comparable periods is due to increased loan collection costs as well as the one-time FDIC assessment which came to $617,000.
Balance Sheet Summary
Total gross loans and leases at June 30, 2009 were $1.15 billion, down from the $1.23 billion as of December 31, 2008. Mini-perm real estate loans were up from $592.7 million as of December 31, 2008 to $597.8 million at June 30, 2009 while construction loans decreased from $290.8 million at December 31, 2008 to $254.3 million and commercial & industrial and international loans decreased from $347.7 million at December 31, 2008 to $293.9 million at June 30, 2009.
Total deposits as of June 30, 2009 were $1.14 billion, a decrease of $117.5 million from the $1.26 billion at December 31, 2008. As of June 30, 2009 compared to December 31, 2008; noninterest-bearing demand deposits decreased by $1.3 million or 0.6%, interest-bearing demand and savings deposits decreased by $27.5 million or 14.5% and time deposits decreased by $88.7 million or 10.2%. Total assets were $1.37 billion, a $117.2 million or 7.9% decrease from the total of $1.48 billion as of December 31, 2008. Total borrowings increased from $58 million as of December 31, 2008 to $84 million as of June 30, 2009 as the Bank issued $26.0 million in senior unsecured debt utilizing the U.S. Treasury's Temporary Liquidity Guarantee Program during the first quarter of 2009. The proceeds of this debt issuance have been used to reduce the Bank's more expensive deposits. The net loan-to-deposit ratio as of June 30, 2009 was 97.9% compared to 95.8% as of December 31, 2008.
Asset Quality
As of June 30, 2009 total nonaccrual loans were $80.9 million compared to $66.6 million as of December 31, 2008 and $85.8 million as of March 31, 2009. Total net charge-offs for the second quarter of 2009 were $18.3 million compared to $2.6 million for the first quarter of 2009. 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 $15.5 million as compared to $7.2 million in the second quarter of 2008 and $6.5 million for the first quarter of 2009. The allowance for loan loss at June 30, 2009 was $30.6 million or 2.67% of total loans compared to $26.9 million or 2.19% of total loans at December 31, 2008 and compared to $20.0 million and 1.65%, respectively at June 30, 2008.
The table below summarizes loans and leases, average loans and leases, non-performing loans and leases and changes in the allowance for credit losses arising from loan and lease charge-offs and recoveries, and additions to the allowance from provisions charged to operating expense:
Allowance for Credit Losses & Loss Histories
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
2009 2008 2008
(Dollars in thousands)
Allowance for credit losses:
Balance at beginning of period $26,935 $14,896 $14,896
Actual charge-offs:
Commercial 1,031 4,686 3,092
Construction 5,324 8,636 -
Real estate (mini-perm) 12,005 5,206 4,124
Trade finance - - -
Other - - -
Total charge-offs 18,360 18,528 7,216
Less recoveries:
Commercial 37 - -
Real estate (mini-perm) - 7 -
Trade finance - - -
Other - - -
Total recoveries 37 7 -
Net loans charged-off 18,324 18,521 7,216
Provision for credit losses 22,000 30,560 12,280
Balance at end of period $30,611 $26,935 $19,960
Total gross loans and leases at end
of period $1,146,095 $1,231,232 $1,208,430
Average total loans and leases $1,210,689 $1,220,348 $1,227,150
Non-performing loans and leases $80,875 $66,785 $77,981
During the second quarter of 2009, the Bank made further enhancements to its methodology for determining the adequacy of the allowance for loan losses specifically the allowance as required by FAS 5. These enhancements required us to provide higher levels of reserves on loans on classified, non-impaired loans.
Non accrual loans as of June 30, 2009 and March 31, 2009 were comprised of the following:
Loan Type June 30, 2009 March 31, 2009
# $ # $
Commercial & Industrial 8 $6,695,000 6 $7,233,000
Mini-Perm Real Estate 6 10,972,000 5 10,916,000
Construction-Commercial 1 3,961,000 1 3,961,000
Construction-For-Sale
Housing 6 32,418,000 6 37,337,000
Land-residential 3 16,505,000 3 17,229,000
Land-commercial 3 10,324,000 3 9,156,000
- ---------- - ---------
Total 27 $80,875,000 24 $85,832,000
-- ----------- -- -----------
Loans Past Due 30-89 Days
Loans 30-89 days past due at June 30,2009 were $87.2 million which was up from the total of $51.4 million as of December 31, 2008. We can typically expect that approximately 35% - 55% of that total will migrate to nonaccrual status.
For-Sale Housing Loan Exposure
Below is a summary of the change in our for-sale construction and residential land loans during the quarter:
(In thousands) 6-30-09 3-31-09 $Change % Change
------- ------- ------- --------
Construction:
Attached $103,410 $138,241 $(34,831) (25.2%)
Detached 37,786 38,257 (471) (1.2%)
------ ------ ---- -----
Total 141,196 176,498 (35,302) (20.0%)
Land Zoned For
Residential Use 65,658 69,102 (3,444) (5.0%)
------ ------ ------ -----
Total $206,854 $245,600 $(38,746) (15.8%)
======== ======== ======== ======
Real Estate Owned
Total OREO increased to $50.6 million as of June 30, 2009 compared to $35.1 million as of December 31, 2008. The following is a summary of our OREO properties:
Property Location Net Book Value Sale Status
Housing land in Beaumont, CA $7,497
Housing land in Oakland, CA 7,172
Housing land in Twenty-nine Palms, CA 306
Housing land in Carson City, NV 1,730
Commercial land in Beaumont, CA 5,735
Commercial land in Los Angeles, CA 3,840
Condo construction in Westchester, CA 12,173 Under contract to sell
Condo project in San Diego, CA 3,760 Offer accepted, buyer
conducting due
diligence
Condo project in Las Vegas, NV 1,110
7 land parcels in CA and AZ 5,020 $800k of this asset is
under contract to sell
Car wash in Corona, CA 2,304
-----
$50,647
=======
Capitalization
Preferred Bank continues to be "well capitalized" under all regulatory requirements, with a tier 1 leverage ratio of 9.46%, a tier 1 risk-based capital ratio of 10.86%, a total risk-based capital ratio of 12.13% and a tangible common equity ("TCE") ratio of 9.60% at June 30, 2009.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's second quarter 2009 financial results will be held today, July 30, at 5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors may access the conference call by dialing (877) 941-9205 (domestic) or (480) 629-9835 (international). There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's web site at 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) 406-7325 (domestic) or (303) 590-3000 (international) through August 6, 2009; the pass code is 4121538.
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 eleven 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.
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 2008 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.
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 lglassen@frbir.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
--------------------------
June 30, June 30, March 31,
2009 2008 2009
---- ---- ----
Interest income:
Loans, including
fees $15,003 $18,924 $15,161
Investment
securities 1,418 3,169 1,733
Fed funds sold 2 4 32
- - --
Total interest
income 16,423 22,097 16,926
------ ------ ------
Interest expense:
Interest-bearing
demand $208 383 227
Savings 206 349 217
Time certificates
of $100,000 or
more 2,903 5,489 3,379
Other time
certificates 1,778 1,524 2,720
Fed funds
purchased - 790 -
FHLB borrowings 584 231 578
Senior debt 188 - 101
--- - ---
Total interest
expense $5,867 8,766 7,222
------ ----- -----
Net interest
income 10,556 13,331 9,704
Provision for loan
losses 15,450 7,200 6,550
------ ----- -----
Net interest income
(loss) after
provision for
loan losses (4,894) 6,131 3,154
Noninterest income:
Fees & service
charges on deposit
accounts 564 470 549
Trade finance
income 109 219 125
BOLI income 80 91 78
Net gain on sale of
investment
securities - - 460
Other income 172 215 66
--- --- --
Total noninterest
income 925 995 1,278
Noninterest expense:
Salary and employee
benefits 1,817 1,997 2,128
Net occupancy
expense 772 678 839
Business
development and
promotion expense 47 77 46
Professional
services 1,107 655 877
Office supplies and
equipment expense 282 313 317
Total other-than-
temporary
impairment losses 351 1,928 4,774
Portion of loss
recognized in other
comprehensive
income - - (4,349)
Other real estate
owned related
expense 1,841 154 613
Other 2,009 843 1,338
----- --- -----
Total noninterest
expense 8,226 6,645 6,583
Income (loss)
before provision
for income
taxes (12,195) 481 (2,151)
Income tax (benefit)
expense (6,397) $463 (829)
Net (loss)
income $(5,798) 18 (1,322)
------- -- ------
Net (loss) income per
share - basic $(0.59) $- $(0.14)
Net (loss) income per
share - diluted $(0.59) $- $(0.13)
Weighted-average
common shares
outstanding
Basic 9,854,207 9,755,207 9,791,507
Diluted 9,854,207 9,756,471 9,794,271
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net (loss) income per
share and shares)
For the Six Months
Ended
------------------
June 30, June 30, Change
2009 2008 %
---- ---- -
Interest income:
Loans, including
fees $30,164 $40,896 -26.2%
Investment
securities 3,150 6,473 -51.3%
Fed funds sold 34 16 110.5%
-- -- -----
Total interest
income 33,348 47,385 -29.6%
------ ------ -----
Interest expense:
Interest-bearing
demand 436 821 -47.0%
Savings 423 903 -53.2%
Time certificates
of $100,000 or
more 6,417 12,273 -47.7%
Other time
certificates 4,363 3,154 38.3%
Fed funds
purchased 0 1,583 -100.0%
FHLB borrowings 1,161 479 142.4%
Senior debt 289 - 100.0%
--- - -----
Total interest
expense 13,089 19,213 -31.9%
------ ------ -----
Net interest
income 20,259 28,172 -28.1%
Provision for credit
losses 22,000 12,280 79.2%
------ ------ ----
Net interest income
after provision
for loan losses (1,741) 15,892 -111.0%
Noninterest income:
Fees & service
charges on deposit
accounts 1,113 927 20.1%
Trade finance
income 234 360 -35.0%
BOLI income 157 179 -12.1%
Net gain on sale
of investment
securities 460 - 100.0%
Other income 239 311 -23.2%
--- --- -----
Total
noninterest
income 2,203 1,777 24.0%
----- ----- ----
Noninterest
expense:
Salary and
employee
benefits 3,945 4,635 -14.9%
Net occupancy
expense 1,611 1,270 26.9%
Business
development and
promotion
expense 93 173 -46.2%
Professional
services 1,984 1,287 54.1%
Office supplies
and equipment
expense 599 607 -1.3%
Total other-than-
temporary
impairment
losses 4,983 1,928 158.5%
Portion of loss
recognized in
other
comprehensive
income (4,207) - 100.0%
Other real estate
owned related
expense 2,454 198 1137.8%
Other 3,347 1,552 115.7%
----- ----- -----
Total
noninterest
expense 14,809 11,650 27.1%
------ ------ ----
Income before
provision for
income taxes (14,347) 6,019 -338.4%
Income tax (benefit)
expense (7,227) 2,623 -375.5%
------ ----- ------
Net (loss)
income $(7,120) $3,396 -309.7%
------- ------ ------
Net (loss) income
per share - basic $(0.72) $0.35 -307.1%
Net (loss) income
per share -
diluted $(0.72) $0.35 -307.1%
Weighted-average
common shares
outstanding
Basic 9,823,030 9,800,251 0.2%
Diluted 9,823,030 9,824,871 0.0%
PREFERRED BANK
Condensed Consolidated Statements of Financial
Condition
(unaudited)
(in thousands)
June 30, December 31,
2009 2008
---- ----
Assets
Cash and due from
banks $38,115 $19,386
Fed funds sold - 50,200
--- ------
Cash and cash
equivalents 38,115 69,586
- -
Securities
available-for-
sale, at fair
value 98,826 104,406
Loans and leases 1,146,095 1,231,232
Less allowance for
loan and lease
losses (30,611) (26,935)
Less net deferred
loan fees 330 (167)
--- ----
Net loans and
leases 1,115,814 1,204,130
--------- ---------
Other real estate
owned 50,647 35,127
Customers'
liability on
acceptances - 786
Bank furniture and
fixtures, net 6,846 7,157
Bank-owned life
insurance 7,180 8,454
Accrued interest
receivable 7,038 7,807
Federal Home Loan
Bank stock 4,996 4,996
Deferred tax
assets 25,081 25,903
Other asset 11,518 14,879
------ ------
Total assets $1,366,061 $1,483,231
---------- ----------
Liabilities and Shareholders' Equity
Liabilities:
DSOURCE Preferred Bank
